<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration File No.: 333-62911
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 9, 1998)
$543,601,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
AS DEPOSITOR
FINOVA REALTY CAPITAL INC.
AS MORTGAGE LOAN ORIGINATOR
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1999-FNV1
--------------------------
Morgan Stanley Capital I Inc. is offering certain classes of its Series
1999-FNV1 Commercial Mortgage Pass-Through Certificates, which represent
beneficial ownership interests in a trust. The trust's assets will primarily be
194 mortgage loans secured by first liens on commercial and multifamily
properties. The Series 1999-FNV1 Certificates are not obligations of Morgan
Stanley Capital I Inc. or any of its affiliates, and neither the certificates
nor the underlying mortgage loans are insured or guaranteed by any governmental
agency.
--------------------------
Morgan Stanley Capital I Inc. will not list the offered certificates on any
national securities exchange or on any automated quotation system of any
registered securities association such as NASDAQ.
--------------------------
INVESTING IN THE OFFERED CERTIFICATES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE S-27 OF THIS PROSPECTUS SUPPLEMENT AND PAGE 15 OF THE
PROSPECTUS.
--------------------------
Certain characteristics of the offered certificates include:
<TABLE>
<CAPTION>
APPROXIMATE
INITIAL INITIAL RATE RATINGS RATED FINAL
CERTIFICATE PASS-THROUGH DESCRIPTION (FITCH/S&P) DISTRIBUTION
CLASS PRINCIPAL (1) RATE (2) (3) (4) DATE (4)
----- ------------- -------- --- --- --------
<S> <C> <C> <C> <C> <C>
Class A-1.. $101,000,000 6.12% Fixed AAA/AAA March 2031
Class A-2.. $339,885,000 6.53% Fixed AAA/AAA March 2031
Class B.... $33,185,000 6.66% Fixed AA/AA March 2031
Class C.... $26,864,000 6.80% Fixed A/A March 2031
Class D.... $12,642,000 7.03% Fixed A-/A- March 2031
Class E.... $30,025,000 7.46% NWAC BBB/BBB March 2031
</TABLE>
(Footnotes to table on page S-3)
----------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined that this
prospectus supplement or the accompanying prospectus are truthful or complete.
Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated and Deutsche Bank Securities Inc. will
purchase the offered certificates from Morgan Stanley Capital I Inc. and will
offer them to the public at negotiated prices determined at the time of sale.
Morgan Stanley & Co. Incorporated and Deutsche Bank Securities Inc. expect to
deliver the offered certificates to purchasers on or about April 21, 1999.
Morgan Stanley Capital I Inc. expects to receive from this offering
approximately 101.3% of the initial principal amount of the offered
certificates, plus accrued interest from the Cut-Off Date before deducting
expenses payable by Morgan Stanley Capital I Inc.
-----------------------
MORGAN STANLEY DEAN WITTER
DEUTSCHE BANK SECURITIES
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS APRIL 7, 1999
<PAGE>
MORGAN STANLEY CAPITAL I INC.
Commercial Mortgage Pass-Through Certificates, Series 1999-FNV1
Geographic Overview of Mortgage Pool
MASSACHUSETTS GEORGIA HAWAII MISSOURI
$35,432,902 $32,025,038 $7,424,384 $4,177,616
5.6% of total 5.1% of total 1.2% of total 0.7% of total
CONNECTICUT FLORIDA ARIZONA MINNESOTA
$2,146,065 $33,494,423 $22,489,672 $5,083,815
0.3% of total 5.3% of total 3.6% of total 0.8% of total
NEW JERSEY ALABAMA UTAH ILLINOIS
$12,498,683 $9,236,634 $2,427,054 $1,408,141
2.0% of total 1.5% of total 0.4% of total 0.2% of total
MARYLAND TENNESSEE SOUTHERN CALIFORNIA INDIANA
$14,447,656 $9,680,343 $149,006,981 $2,576,956
2.3% of total 1.5% of total 23.6% of total 0.4% of total
DISTRICT OF COLUMBIA LOUISIANA NORTHERN CALIFORNIA MICHIGAN
$32,657,038 $3,311,752 $59,313,931 $2,936,954
5.2% of total 0.5% of total 9.4% of total 0.5% of total
VIRGINIA OKLAHOMA NEVADA OHIO
$7,626,304 $7,545,149 $7,588,185 $5,026,389
1.2% of total 1.2% of total 1.2% of total 0.8% of total
NORTH CAROLINA TEXAS OREGON PENNSYLVANIA
$10,435,436 $49,916,610 $5,209,366 $37,489,691
1.7% of total 7.9% of total 0.8% of total 5.9% of total
SOUTH CAROLINA COLORADO WASHINGTON NEW YORK
$9,358,380 $12,706,598 $11,947,613 $5,330,118
1.5% of total 2.0% of total 1.9% of total 0.8% of total
KENTUCKY NEW MEXICO WYOMING NEW HAMPSHIRE
$2,891,156 $3,777,589 $4,030,909 $9,438,944
0.5% of total 0.5% of total 0.6% of total 1.5% of total
[ ] is more than or equal to 10.05% of Cut-Off Date Balance
[ ] 5.0%-10.0% of Cut-Off Date Balance
[ ] 1.0%-5.0% of Cut-Off Date Balance
[ ] is less than or equal to 1.0% of Cut-Off Date Balance
<PAGE>
- ------------------
(1) Approximate; subject to a variance of plus or minus 5%.
(2) The pass-through rates for the Class A-1, Class A-2, Class B, Class C, and
Class D Certificates for each distribution date will be equal to the fixed
rates per annum set forth in the table; provided, in each case, that such
pass-through rate will not exceed the NWAC Rate (as defined herein) for such
distribution date. The initial pass-through rate for the Class E
Certificates set forth in the table is the approximate initial pass-through
rate for that class. The initial pass-through rate for the Class E
Certificates is variable and subsequent to the initial distribution date,
will be determined as described in "Description of the
Certificates--Pass-Through Rates" in this Prospectus Supplement.
(3) "Fixed" and "NWAC" are descriptions of the type of pass-through rates borne
by the related classes.
(4) See "Ratings" herein. The Rated Final Distribution Date for each class of
rated certificates is the distribution date in March 2031.
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the offered certificates is contained in two separate
documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may not apply to
the offered certificates; and (b) this prospectus supplement, which describes
the specific terms of the offered certificates. IF THE TERMS OF THE OFFERED
CERTIFICATES VARY BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone to
provide you with information that is different from that contained in this
prospectus supplement and the prospectus. The information in this prospectus
supplement is accurate only as of the date of this prospectus supplement.
This prospectus supplement and the accompanying prospectus include cross
references to sections in these materials where you can find further related
discussions. The tables of contents in this prospectus supplement and the
prospectus identify the pages where these sections are located.
Certain capitalized terms are defined and used in this prospectus
supplement and the prospectus to assist you in understanding the terms of the
offered certificates and this offering. The capitalized terms used in this
prospectus supplement are defined on the pages indicated under the caption
"Index of Terms for Prospectus Supplement" in this prospectus supplement. The
capitalized terms used in the prospectus are defined on the pages indicated
under the caption "Index of Principal Definitions" beginning on page 107 in the
prospectus.
-----------------------------
In this prospectus supplement, the terms "Depositor," "we," "us" and
"our" refer to Morgan Stanley Capital I Inc.
-----------------------------
Until the date that is ninety days from the date of this prospectus
supplement, all dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus
supplement and the accompanying prospectus. This is in addition to the dealers'
obligation to deliver a prospectus supplement and the accompanying prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
S-3
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY OF TERMS.............................................................S-9
RISK FACTORS................................................................S-27
DESCRIPTION OF THE CERTIFICATES.............................................S-52
General...................................................................S-52
Registration; Denominations...............................................S-52
Book-Entry Registration...................................................S-52
Certificate Balances and Notional Amounts.................................S-53
Pass-Through Rates........................................................S-54
Distributions.............................................................S-55
Appraisal Reductions......................................................S-60
Subordination; Allocation of Losses and Certain Expenses..................S-61
Prepayment Interest Shortfalls............................................S-62
Optional Termination......................................................S-62
Advances..................................................................S-63
Reports to Certificateholders; Available Information......................S-65
Book-Entry Certificates...................................................S-68
Example of Distributions..................................................S-69
Voting Rights.............................................................S-70
The Trustee...............................................................S-70
MATURITY CONSIDERATIONS.....................................................S-70
YIELD CONSIDERATIONS........................................................S-76
General...................................................................S-76
Rate and Timing of Principal Payments.....................................S-76
Losses and Shortfalls.....................................................S-77
Certain Relevant Factors..................................................S-77
Delay in Payment of Distributions.........................................S-77
DESCRIPTION OF THE MORTGAGE POOL............................................S-77
General...................................................................S-77
Certain Terms and Characteristics of the Mortgage Loans...................S-80
Assessments of Property Value and Condition...............................S-84
Additional Mortgage Loan Information......................................S-85
Standard Hazard Insurance.................................................S-86
The Seller................................................................S-87
Assignment of the Mortgage Loans..........................................S-88
Representations and Warranties............................................S-89
Repurchases and Other Remedies............................................S-91
Changes in Mortgage Pool Characteristics..................................S-92
SERVICING OF THE MORTGAGE LOANS.............................................S-92
General...................................................................S-92
The Master Servicer.......................................................S-94
The Special Servicer......................................................S-94
Sub-Servicers.............................................................S-95
Servicing and Other Compensation and Payment of Expenses..................S-95
The Operating Adviser.....................................................S-96
Mortgage Loan Modifications...............................................S-97
Sale of Defaulted Mortgage Loans and REO Properties.......................S-98
REO Properties............................................................S-98
Inspections; Collection of Operating Information..........................S-99
S-4
<PAGE>
Events of Default.........................................................S-99
Rights Upon Event of Default.............................................S-101
CERTAIN FEDERAL INCOME TAX CONSEQUENCES....................................S-101
General..................................................................S-101
Original Issue Discount and Premium......................................S-102
Additional Considerations................................................S-104
ERISA CONSIDERATIONS.......................................................S-104
Plan Asset Regulation....................................................S-105
Individual Exemption.....................................................S-105
Other Exemptions.........................................................S-107
Insurance Company Purchasers.............................................S-107
LEGAL INVESTMENT...........................................................S-107
USE OF PROCEEDS............................................................S-108
PLAN OF DISTRIBUTION.......................................................S-108
LEGAL MATTERS..............................................................S-109
RATINGS....................................................................S-109
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT...................................S-111
APPENDIX I - MORTGAGE POOL INFORMATION...................................I-1
APPENDIX II - CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS..............II-1
APPENDIX III - LARGEST LOAN SUMMARIES....................................III-1
APPENDIX IV - FORM OF TRUSTEE REPORTS....................................IV-1
TERM SHEET...................................................................T-1
S-5
<PAGE>
EXECUTIVE SUMMARY
This Executive Summary highlights selected information regarding the offered
certificates. It does not contain all of the information you need to consider in
making your investment decision. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING
OF THE OFFERED CERTIFICATES AND THE UNDERLYING MORTGAGE LOANS, READ THIS ENTIRE
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS CAREFULLY.
CERTIFICATE STRUCTURE
<TABLE>
<CAPTION>
Approximate
Approximate Percent of
Credit Support Total
Certificates
--------------- -------------- ---------------
INITIAL
CERTIFICATE EXPECTED
PRINCIPAL RATINGS
CLASS AMOUNT (FITCH/S&P)
-------------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
CLASS X(2) CLASS A-1 $101,000,000 AAA/AAA 15.98%
$632,094,383
(Approximate
Notional Amount)
--------------- -------------- ---------------
--------------- -------------- ---------------
30.25%(1) AAA/AAAr CLASS A-2 $339,885,000 AAA/AAA 53.77%
--------------- -------------- ---------------
--------------- -------------- ---------------
25.00% CLASS B $33,185,000 AA/AA 5.25%
--------------- -------------- ---------------
--------------- -------------- ---------------
20.75% CLASS C $26,864,000 A/A 4.25%
--------------- -------------- ---------------
--------------- -------------- ---------------
18.75% CLASS D $12,642,000 A-/A- 2.00%
--------------- -------------- ---------------
14.00% CLASS E $30,025,000 BBB/BBB 4.75%
--------------- -------------- ---------------
11.75% CLASS F(2) $14,222,000 BBB-/NR 2.25%
--------------- -------------- ---------------
8.50% CLASS G(2) $20,543,000 BB+/BB+ 3.25%
--------------- -------------- ---------------
--------------- -------------- ---------------
7.25% CLASS H(2) $7,901,000 BB/BB 1.25%
--------------- -------------- ---------------
--------------- -------------- ---------------
5.75% CLASS J(2) $9,481,000 BB-/NR 1.50%
--------------- -------------- ---------------
--------------- -------------- ---------------
4.50% CLASS K(2) $7,902,000 B+/B+ 1.25%
--------------- -------------- ---------------
--------------- -------------- ---------------
3.50% CLASS L(2) $6,321,000 B/B 1.00%
--------------- -------------- ---------------
--------------- -------------- ---------------
2.50% CLASS M(2) $6,321,000 B-/NR 1.00%
--------------- -------------- ---------------
--------------- -------------- ---------------
1.00% CLASS N(2) $9,481,000 CCC/NR 1.50%
--------------- -------------- ---------------
--------------- -------------- ---------------
0.00% CLASS O(2) $6,321,383 NR/NR 1.00%
-------------------- --------------- -------------- ---------------
</TABLE>
(1) Represents the approximate credit support for the Class A-1 and Class
A-2 Certificates in the aggregate.
(2) Not offered hereby.
The Class R-I, R-II and R-III Certificates are not represented in this
table and are not offered hereby.
S-6
<PAGE>
<TABLE>
<CAPTION>
CERTIFICATE SUMMARY
- -------------------------------------------------------------------------------------------------
APPROXIMATE
INITIAL INITIAL
CERTIFICATE APPROXI- PASS-THROUGH WEIGHTED
APPROXIMATE PRINCIPAL OR MATE RATE AND RATE EXPECTED AVERAGE
CREDIT NOTIONAL % OF DESCRIPTION RATINGS LIFE PRINCIPAL
SUPPORT CLASS AMOUNT (1) TOTAL (2)(3) FITCH/S&P (4) (YRS.)(5) WINDOW (5)
- -------------------------------------------------------------------------------------------------
Offered Certificates
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 $101,000,000 15.98% 6.12% (Fixed) AAA/AAA 5.49 1-109
------------------------------------------------------------------------------------
30.25%(6) A-2 $339,885,000 53.77% 6.53% (Fixed) AAA/AAA 9.46 109-117
- -------------------------------------------------------------------------------------------------
25.00% B $33,185,000 5.25% 6.66% (Fixed) AA/AA 9.73 117-117
- -------------------------------------------------------------------------------------------------
20.75% C $26,864,000 4.25% 6.80% (Fixed) A/A 9.73 117-117
- -------------------------------------------------------------------------------------------------
18.75% D $12,642,000 2.00% 7.03% (Fixed) A-/A- 9.73 117-117
- -------------------------------------------------------------------------------------------------
14.00% E $30,025,000 4.75% 7.46% (NWAC) BBB/BBB 9.73 117-117
- -------------------------------------------------------------------------------------------------
Non-Offered Certificates
- -------------------------------------------------------------------------------------------------
N/A X(7) N/A 0.98% AAA/AAAr 9.14 N/A
$632,094,383 (Variable
(Notional) Rate IO)
- -------------------------------------------------------------------------------------------------
11.75% F $14,222,000 2.25% 7.46% (NWAC) BBB-/NR 9.73 117-117
- -------------------------------------------------------------------------------------------------
8.50% G $20,543,000 3.25% 6.12% (Fixed) BB+/BB+ 9.78 117-118
- -------------------------------------------------------------------------------------------------
7.25% H $7,901,000 1.25% 6.12% (Fixed) BB/BB 9.82 118-119
- -------------------------------------------------------------------------------------------------
5.75% J $9,481,000 1.50% 6.12% (Fixed) BB-/NR 9.92 119-120
- -------------------------------------------------------------------------------------------------
4.50% K $7,902,000 1.25% 6.12% (Fixed) B+/B+ 10.86 120-133
- -------------------------------------------------------------------------------------------------
3.50% L $6,321,000 1.00% 6.12% (Fixed) B/B 12.92 133-168
- -------------------------------------------------------------------------------------------------
2.50% M $6,321,000 1.00% 6.12% (Fixed) B-/NR 13.98 168-168
- -------------------------------------------------------------------------------------------------
1.00% N $9,481,000 1.50% 6.12% (Fixed) CCC/NR 14.02 168-173
- -------------------------------------------------------------------------------------------------
0.00 O(8) $6,321,383 1.00% 6.12% (Fixed) NR/NR 17.59 173-231
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Approximate; subject to a variance of plus or minus 5%.
(2) "Fixed" and "NWAC" are descriptions of the types of pass-through rates borne
by the related classes. "IO" designates that Class X is entitled only to
distributions of interest; it will not receive distributions of principal.
(3) The pass-through rates for the Class A-1, Class A-2, Class B, Class C, Class
D, Class G, Class H, Class J, Class K, Class L, Class M, Class N and Class O
Certificates for each distribution date will be equal to the fixed rates per
annum set forth in the table; provided, in each case, that such pass-through
rate will not exceed the NWAC Rate (as defined herein) for such distribution
date. The initial pass-through rates for the Class E and the Class F
Certificates set forth in the table are the approximate initial pass-through
rates. The pass-through rates for the Interest Only Certificates and the
Class E and Class F Certificates are variable and, subsequent to the initial
distribution date, will be determined as described in "Description of the
Certificates--Pass-Through Rates" herein.
(4) See "Ratings" herein. "NR" means not rated.
(5) The principal window is expressed in months following the closing date and
reflects the period during which distributions of principal would be
received. The Weighted Average Life and principal window figures set forth
above are based on the following assumptions, among others: (i) no losses on
the underlying mortgage loans; (ii) no extensions of maturity dates of
mortgage loans that do not have anticipated repayment dates; and (iii)
prepayment in full on the "anticipated repayment date" of each mortgage loan
having such a date. See the assumptions set forth under "Maturity
Considerations" in this prospectus supplement.
(6) Represents the approximate credit support for the Class A-1 and Class A-2
Certificates in the aggregate.
(7) The Class X Certificates will not have a Principal Amount. Interest will
accrue on the notional amount thereof, at a rate equal to the NWAC Rate
minus the weighted average of the Pass-Through Rates of the classes of
certificates that have Principal Amounts.
(8) The Class O Certificates are an investment unit consisting of a REMIC
regular interest and beneficial ownership of Excess Interest in respect of
mortgage loans having a hyper-amortization feature.
The Class R-I, R-II and R-III Certificates are not represented in this table and
are not offered hereby.
S-7
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
S-8
<PAGE>
SUMMARY OF TERMS
This summary highlights selected information from this prospectus supplement. It
does not contain all of the information you need to consider in making your
investment decision. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING OF THE
OFFERED CERTIFICATES, READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS
CAREFULLY.
<TABLE>
<CAPTION>
RELEVANT PARTIES AND DATES
<S> <C>
DEPOSITOR..................... Morgan Stanley Capital I Inc.
MASTER SERVICER............... AMRESCO Services, L.P. See "Servicing of the Mortgage Loans"
and "Description of the Certificates--Advances" in this
prospectus supplement.
SPECIAL SERVICER.............. Banc One Mortgage Capital Markets, LLC. See "Servicing of
the Mortgage Loans--The Operating Adviser" and "--General" in
this prospectus supplement.
TRUSTEE....................... Norwest Bank Minnesota, National Association. See "Description
of the Certificates--The Trustee" and "--Advances" in this
prospectus supplement.
OPERATING ADVISER............. The holders of certificates representing more than 50% of
the aggregate certificate balance of the most subordinate class
of certificates (with principal amounts) outstanding at any time
of determination (or, if the aggregate balance of such class of
certificates is less than 25% of the initial aggregate
certificate balance of such class, of the next most subordinate
class of certificates (with Principal Amounts)) may appoint a
representative for the purposes described in this prospectus
supplement. See "Servicing of the Mortgage Loans--The Operating
Adviser" and "--General" in this prospectus supplement.
MORTGAGE LOAN SELLER.......... 146 of the mortgage loans, which represent 80.2% of the initial
outstanding pool balance (the "Owner Trust Loans"), were
originated by FINOVA and sold to FINOVA Commercial Mortgage Loan
Owner Trust 1998-1, a business trust organized under the laws of
the State of Delaware (the "Owner Trust"). The Owner Trust
intends to sell the Owner Trust Loans to the Depositor on the
Closing Date pursuant to a mortgage loan purchase agreement
between the Owner Trust and the Depositor.
48 of the mortgage loans, which represent 19.8% of the initial
outstanding pool balance, were originated by FINOVA (with the
exception of 5 of the mortgage loans, which represent 5.8% of
the initial outstanding pool balance, which were underwritten by
FINOVA and purchased from a financial institution prior to the
date hereof). These mortgage loans are currently owned by
FINOVA, and FINOVA intends to sell them to the Depositor on the
Closing Date pursuant to a mortgage loan purchase agreement
between FINOVA and the Depositor.
The representations and warranties to be provided by the Owner
Trust to the Depositor in respect of the Owner Trust Loans will
be identical to the representations and warranties to be
provided by FINOVA to the Depositor in respect of the remaining
mortgage loans in its respective mortgage loan purchase
agreement. Furthermore, FINOVA will guarantee the Owner's
Trust's obligations in respect of a breach thereof. Therefore,
even though the Depositor is acquiring the Owner Trust Loans
directly from the Owner Trust, FINOVA will be referred to as the
Seller of all of the mortgage loans
S-9
<PAGE>
solely for purposes of this Prospectus Supplement. See
"Description of the Mortgage Pool--The Seller" in this
prospectus supplement.
UNDERWRITERS.................. Morgan Stanley & Co. Incorporated and Deutsche Bank Securities
Inc. See "Plan of Distribution" in this prospectus supplement.
CUT-OFF DATE.................. With respect to one hundred forty six (146) mortgage loans
(representing 82.3% of the initial outstanding pool balance)
which have due dates that occur on the first day of each month,
April 1, 1999. With respect to forty-eight (48) mortage loans
(representing 17.7% of the initial outstanding pool balance)
which have due dates that occur on the eleventh day of each
month, April 11, 1999.
CLOSING DATE.................. On or about April 21, 1999.
DISTRIBUTION DATE............. The 15th day of each month, or, if such 15th day is not a
business day, the business day immediately following such 15th
day, commencing in May 1999; provided that the Distribution Date
will be no earlier than the fourth business day following the
11th day of such month.
RECORD DATE................... With respect to each distribution date, the close of
business on the last business day of the preceding month.
OFFERED SECURITIES
GENERAL....................... The following six classes of Commercial Mortgage Pass-Through
Certificates are being offered by this prospectus supplement
(collectively, the "Offered Certificates") as part of Series
1999-FNV1:
o Class A-1
o Class A-2
o Class B
o Class C
o Class D
o Class E
Series 1999-FNV1 will consist of a total of 19 classes, the
following thirteen of which are not being offered through this
prospectus supplement and the accompanying prospectus: Class X,
Class F, Class G, Class H, Class J, Class K, Class L, Class M,
Class N, Class O and Class R-I, Class R-II and Class R-III
(collectively, the "Private Certificates").
The Offered Certificates and the Private Certificates will
represent beneficial ownership interests in a trust created by
Morgan Stanley Capital I Inc. The trust's assets will primarily
be 194 mortgage loans secured by first liens on commercial and
multifamily properties. Each of the multiple mortgaged
properties securing a single mortgage loan is treated as a
separate mortgage loan for the presentation of mortgage pool
information in this prospectus supplement.
S-10
<PAGE>
CERTIFICATE PRINCIPAL AMOUNT.. Your certificates will have the approximate aggregate initial
principal amount set forth below, subject to a variance of plus
or minus 5%:
--------------------------------------------------------
Class A-1 $101,000,000 Principal Amount
--------------------------------------------------------
Class A-2 $339,885,000 Principal Amount
--------------------------------------------------------
Class B $33,185,000 Principal Amount
--------------------------------------------------------
Class C $26,864,000 Principal Amount
--------------------------------------------------------
Class D $12,642,000 Principal Amount
--------------------------------------------------------
Class E $30,025,000 Principal Amount
--------------------------------------------------------
PASS-THROUGH RATES
A. OFFERED CERTIFICATES... Your certificates will accrue interest at an annual rate
called a "Pass-Through Rate" which is set forth below:
--------------------------------------
Class A-1 6.12%, but not
in excess of
NWAC Rate
--------------------------------------
Class A-2 6.53%, but not
in excess of
NWAC Rate
--------------------------------------
Class B 6.66%, but not
in excess of
NWAC Rate
--------------------------------------
Class C 6.80%, but not
in excess of
NWAC Rate
--------------------------------------
Class D 7.03%, but not
in excess of
NWAC Rate
--------------------------------------
Class E NWAC Rate minus
0.03%
--------------------------------------
Interest on the Offered Certificates will be calculated based on
a 360-day year consisting of twelve 30-day months, or a 30/360
basis.
S-11
<PAGE>
The "NWAC Rate" for a particular distribution date is a weighted
average of the mortgage loan interest rates in effect as of the
first day of the preceding month, minus the weighted average
annual administrative cost of 0.12875% (which includes the
servicing fee rate and the Trustee fee rate), and adjusted as
set forth herein. The weighting of this average is based upon
the respective principal balances of those mortgage loans.
B. CLASS X CERTIFICATES... The Pass-Through Rate on the Class X Certificates will be
equal to the NWAC Rate minus the weighted average of the
Pass-Through Rates of the classes of certificates that have
principal amounts. The weighting will be based upon the
respective principal amount of those classes.
The notional amount of the Class X Certificates will generally
be equal to 100% of the aggregate principal balance of the
mortgage loans outstanding from time to time. The Class X
Certificates will receive interest only; they will not be
entitled to distributions of principal.
For purposes of calculating the Class X Pass-Through Rates, the
mortgage loan interest rates will not reflect any default
interest rate or any rate increase occurring after an
anticipated repayment date. The mortgage loan interest rates
will also be determined without regard to any loan term
modifications agreed to by the Special Servicer or resulting
from the borrower's bankruptcy or insolvency. In addition, if a
mortgage loan does not accrue interest on a 30/360 basis, its
interest rate for any month that is not a 30-day month will be
recalculated so that the amount of interest that would accrue at
that rate in such month, calculated on a 30/360 basis, will
equal the amount of interest that actually accrues on that loan
in that month.
DISTRIBUTIONS
A. AMOUNT AND ORDER
OF DISTRIBUTIONS...... On each distribution date, funds available for distribution
from the mortgage loans, net of specified trust expenses, will
be distributed in the following amounts and order of priority:
Step 1/Class A and Class X: To interest on Classes A-1 and A-2
and Class X, pro rata, in accordance with their interest
entitlements.
Step 2/Class A: To the extent of funds available for principal,
to principal on Classes A-1 and A-2, in that order, until
reduced to zero. If each class of certificates other than Class
A has been reduced to zero, funds available for principal will
be distributed to Classes A-1 and A-2, pro rata, rather than
sequentially.
Step 3/Class A: To reimburse Classes A-1 and A-2, pro rata, for
any previously unreimbursed losses on the mortgage loans
allocable to principal that were previously borne by those
classes.
S-12
<PAGE>
Step 4/Class B: To Class B in this order: (a) to interest on
Class B in the amount of its interest entitlement; (b) to the
extent of funds available for principal, to principal on Class B
until reduced to zero; and (c) to reimburse Class B for any
previously unreimbursed losses on the mortgage loans allocable
to principal that were previously borne by that class, together
with interest.
Step 5/Class C: To Class C in a manner analogous to the Class B
allocations of Step 4.
Step 6/Class D: To Class D in a manner analogous to the Class B
allocations of Step 4.
Step 7/Class E: To Class E in a manner analogous to the Class B
allocations of Step 4.
Step 8/Subordinate Private Certificates: In a manner analogous
to the Class B allocations of Step 4 and in the amounts and
order of priority described in "Description of the
Certificates--Distributions" in this prospectus supplement.
B. INTEREST AND PRINCIPAL
ENTITLEMENTS......... A description of each class's interest entitlement can be
found in "Description of the Certificates--Distributions" in
this prospectus supplement. As described in such section, there
are circumstances relating to the timing of prepayments in which
your interest entitlement for a distribution date could be less
than one full month's interest at the Pass-Through Rate on your
certificate's principal amount or notional amount.
The amount of principal required to be distributed to the
classes entitled to principal on a particular distribution date
also can be found in "Description of the
Certificates--Distributions" in this prospectus supplement.
C. PREPAYMENT
PREMIUMS............. The manner in which any prepayment premiums and yield
maintenance premiums received during a particular collection
period will be allocated to the Class X Certificates, on the one
hand, and the classes of certificates entitled to principal, on
the other hand, is described in "Description of the
Certificates--Distributions" in this prospectus supplement.
SUBORDINATION
A. GENERAL................ The chart below describes the manner in which the rights of
various classes will be senior to the rights of other classes.
Entitlement to receive principal and interest on any
distribution date is depicted in descending order. The manner in
which mortgage loan losses are allocated is depicted in
ascending order.
S-13
<PAGE>
-------------------------
Class A-1, Class A-2,
Class X
-------------------------
-------------------------
Class B
-------------------------
-------------------------
Class C
-------------------------
-------------------------
Class D
-------------------------
-------------------------
Class E
-------------------------
-------------------------
Class F
-------------------------
-------------------------
Class G
-------------------------
-------------------------
Class H
-------------------------
-------------------------
Class J
-------------------------
-------------------------
Class K
-------------------------
-------------------------
Class L
-------------------------
-------------------------
Class M
-------------------------
-------------------------
Class N
-------------------------
-------------------------
Class O
-------------------------
NO OTHER FORM OF CREDIT ENHANCEMENT WILL BE AVAILABLE FOR THE
BENEFIT OF THE HOLDERS OF THE OFFERED CERTIFICATES.
See "Description of the Certificates" in this prospectus
supplement.
S-14
<PAGE>
B. SHORTFALLS IN AVAILABLE
FUNDS................ The following types of shortfalls in available funds will
be allocated in the same manner as mortgage loan losses: (i)
shortfalls resulting from additional compensation (other than
the servicing fee) which the Master Servicer or Special Servicer
is entitled to receive; (ii) shortfalls resulting from interest
on Advances made by the Master Servicer or the Trustee (to the
extent not covered by default interest paid by the borrower);
(iii) shortfalls resulting from extraordinary expenses of the
trust; and (iv) shortfalls resulting from a reduction of a
mortgage loan's interest rate by a bankruptcy court or from
other unanticipated or default-related expenses of the trust.
Shortfalls in mortgage loan interest as a result of the timing
of prepayments (net of the Master Servicer's servicing fee
payable on the related distribution date) will be allocated to
each class of certificates, pro rata, based upon their
respective interest entitlements.
See "Description of the Certificates-Distributions" in this
prospectus supplement.
THE MORTGAGE POOL
CHARACTERISTICS OF THE
MORTGAGE POOL
A. GENERAL............................... For a more complete description of the mortgage
loans, see the following sections in this
prospectus supplement:
o Description of the mortgage pool;
o Appendix I (characteristics of the mortgage
loans);
o Appendix II (characteristics of each mortgage
loan on a property-by-property basis); and
o Appendix III (descriptions of the ten largest
mortgage loans, or groups of mortgage loans).
All numerical information provided in this
prospectus supplement with respect to the mortgage
loans is approximate. All weighted average
information regarding the mortgage loans reflects
weighting of the mortgage loans by the unpaid
principal balance of the mortgage loans as of the
Cut-off Date. Information on each of the multiple
mortgaged properties securing a single mortgage loan
is presented separately based upon an allocated loan
amount, and each are treated as a mortgage loan for
the presentation of mortgage pool information in
this prospectus supplement.
S-15
<PAGE>
B. PRINCIPAL BALANCES................. The trust's primary assets will be 194 mortgage
loans with an initial principal balance of
$632,094,383, subject to a permitted variance of
plus or minus 5%. As of the Cut-off Date, the
outstanding principal balances of the mortgage loans
in the mortgage pool ranged from $178,572 to
$21,808,261 and the mortgage loans had an average
balance of $3,258,218. See "Description of the
Mortgage Pool--Certain Terms and Characteristics of
the Mortgage Loans" in this prospectus supplement.
C. NON-RECOURSE........................ Substantially all of the mortgage loans are
non-recourse obligations. No mortgage loan will be
insured or guaranteed by any governmental entity or
private insurer, or by any other person.
D. FEE SIMPLE/LEASEHOLD................ Each mortgage loan is secured by a first mortgage
lien on a fee simple estate in an income-producing
property (except in 5 cases, which represent 5.2% of
the initial outstanding pool balance, secured by a
mortgage lien on a leasehold estate, and in 4 cases,
which represent 4.5% of the initial outstanding pool
balance, secured by a mortgage lien on both a
leasehold interest in a portion of the related
mortgaged property and a fee simple interest in the
remainder of the related mortgaged property).
E. PROPERTY PURPOSE.................... Set forth below are the number of mortgage loans,
and the approximate percentage of the initial pool
balance represented by such mortgage loans, that are
secured by mortgaged properties operated for each
indicated purpose:
S-16
<PAGE>
-------------------------------------------------
Percentage
of Number of
Initial Pool Mortgage
Property Type Balance Loans
-------------------------------------------------
Retail 19.5% 33
-------------------------------------------------
Office 17.8% 20
-------------------------------------------------
Multifamily 15.3% 23
-------------------------------------------------
Manufactured Housing 15.0% 49
-------------------------------------------------
Hospitality 13.3% 25
-------------------------------------------------
Mixed Use 7.6% 14
-------------------------------------------------
Self-Storage 5.2% 15
-------------------------------------------------
Industrial 4.2% 6
-------------------------------------------------
Senior Housing 2.1% 9
-------------------------------------------------
F. PROPERTY LOCATION................... The number of mortgage loans, and the approximate
percentage of the initial pool balance represented
by such mortgage loans, that are secured by
mortgaged properties located in the five states with
the highest concentrations of mortgaged properties
are:
-------------------------------------------------
Percentage of Number of
Initial Pool Mortgage
State Balance Loans
-------------------------------------------------
California 33.0% 49
-------------------------------------------------
Southern 23.6% 31
California
-------------------------------------------------
Northern 9.4% 18
California
-------------------------------------------------
Texas 7.9% 14
-------------------------------------------------
Pennsylvania 5.9% 23
-------------------------------------------------
Massachusetts 5.6% 6
-------------------------------------------------
Florida 5.3% 5
-------------------------------------------------
S-17
<PAGE>
The remaining mortgaged properties are located
throughout 29 other states and the District of
Columbia. No other state or district has a
concentration of mortgaged properties that
represents security for more than 5.2% of the
initial outstanding pool balance. See Appendix I
hereto.
G. OTHER MORTGAGE LOAN FEATURES........ As of the Cut-off Date, the mortgage loans had
the following approximate characteristics:
o No scheduled payment of principal and
interest on any mortgage loan was thirty
days or more past due, and no mortgage loan
has been thirty days or more delinquent in
the past year.
o Four (4) separate groups of mortgage loans,
are, within such group, cross-collateralized
with each other, the largest group of which
represents 4.8% of the initial outstanding
pool balance. See Appendix II for further
information with respect to such groups.
Included within this group are two groups of
single obligation, multiproperty loans,
described below.
o Nine (9) additional groups of mortgage loans
are, in each case, evidenced by a single
obligation of a particular borrower or
co-borrower group secured by one or more
mortgages encumbering multiple real
properties, the largest group of which
represents 4.7% of the initial outstanding
pool balance. For purposes of the
presentation of mortgage pool information
herein, each of the multiple mortgaged
properties securing a single mortgage loan
is treated as a separate mortgage loan for
presentation of mortgage pool information in
this prospectus supplement. Two of such
groups are included within one of the
cross-collateralized groups described above.
o Nineteen (19) groups of mortgage loans
including those cross-collateralized or
single obligation multi-property mortgage
loan groups described above, were made to
the same borrower or to borrowers that are
affiliated with one another through partial
or complete direct or indirect common
ownership, the three largest of these groups
representing 6.7%, 4.9% and 4.8%,
respectively, of the initial outstanding
pool balance.
o Eight (8) mortgage loans, representing 4.5%
of the initial outstanding pool balance, are
secured by a mortgaged property that is 100%
leased to a single tenant.
S-18
<PAGE>
o All mortgage loans bear interest at fixed
rates, although thirty-one (31) of the
mortgage loans include hyper-amortization
provisions as described in this prospectus
supplement.
o No mortgage loan permits negative
amortization or the deferral of accrued
interest, with the exception of certain
mortgage loans with hyper-amortization
provisions, as described in this prospectus
supplement.
H. BALLOON LOANS....................... One hundred ninety one (191) of the mortgage
loans, representing 98.6% of the initial outstanding
pool balance, provide for one of the following:
o Monthly payments based on amortization
schedules significantly longer than their
respective terms to maturity (160 of such
mortgage loans, representing 89.4% of the
initial outstanding pool balance); or
o Increases in the mortgage rate and/or
principal amortization at a date prior to
stated maturity that create an incentive for
the related borrower to prepay the loan (31
of such mortgage loans, representing 9.2% of
the initial outstanding pool balance) (the
"Anticipated Repayment Date Loans");
substantial principal payments on such
mortgage loans are anticipated to be made on
the date (which is prior to stated maturity)
upon which these increases occur (the
"Anticipated Repayment Date" or "ARD")
unless such loans are prepaid at an earlier
date.
The remaining 3 mortgage loans, representing 1.4% of
the initial outstanding pool balance, have an
expected balloon balance equal to less than 10% of
the original principal balance of each loan.
I. PREPAYMENT PROVISIONS; DEFEASANCE
LOANS............................. As of the Cut-off Date, all of the mortgage
loans restricted voluntary principal prepayments as
follows:
S-19
<PAGE>
o One hundred eighty one (181) mortgage loans,
representing 92.5% of the initial
outstanding pool balance, prohibit voluntary
principal prepayments for a period ending on
a date determined by the related mortgage
note (the "Lock-out Period") but permit the
related borrower (after an initial period of
at least two years following the date of
issuance of the Certificates) to defease the
loan by pledging direct, non-callable United
States Treasury obligations and obtaining
the release of the mortgaged property from
the lien of the mortgage.
o Nine (9) mortgage loans, representing 3.3%
of the initial outstanding pool balance,
prohibit voluntary principal prepayments
during a Lock-out Period and thereafter
provide for prepayment premiums calculated
on the basis of the greater of a yield
maintenance formula and 1% of the amount
prepaid.
o Three (3) mortgage loans, representing 0.8%
of the initial outstanding pool balance,
prohibit voluntary principal prepayments
during a Lock-out Period and thereafter
provide for percentage prepayment premiums
until a specified date prior to maturity.
o One mortgage loan, representing 3.5% of the
initial outstanding pool balance, prohibits
voluntary principal prepayments during a
Lock-out Period but permits the related
borrower to either (i) defease the loan
(after an initial period of at least two
years following the date of issuance of the
Certificates) by pledging direct,
non-callable United States Treasury
obligations and obtaining the release of the
mortgaged property from the lien of the
mortgage or (ii) following such Lock-out
Period, pay a prepayment premium equal to
the greater of a yield maintenance formula
and 1% of the amount prepaid.
Notwithstanding the foregoing, the mortgage loans
generally provide for a period of 3 to 9 months
prior to maturity or the anticipated repayment date
during which the related borrower may prepay the
mortgage loan without premium or defeasance
requirements.
S-20
<PAGE>
J. MORTGAGE LOAN RANGES AND
WEIGHTED AVERAGES................. As of the Cut-off Date, the mortgage loans will
have the following additional characteristics:
i. MORTGAGE RATES Mortgage rates ranging from 6.610% per annum
to 9.000% per annum, and a weighted average
mortgage rate of 7.622% per annum;
ii. REMAINING TERMS Remaining terms to scheduled maturity
ranging from 75 months to 231 months,
and a weighted average remaining term to
scheduled maturity of 119 months;
iii. REMAINING Remaining amortization terms ranging from
AMORTIZATION TERMS 170 months to 359 months, and a weighted
average remaining amortization term of 327
months;
iv. LOAN-TO-VALUE RATIOS Loan-to-value ratios ranging from 37.6% to
85.1% and a weighted average loan-to-value ratio
(calculated as described in this prospectus
supplement under "Description of the Mortgage
Pool--Additional Mortgage Loan Information") of
70.8%; and
v. DEBT SERVICE Debt service coverage ratios ranging from 1.11x
COVERAGE RATIOS to 2.52x and a weighted average debt service
coverage ratio (calculated as described in this
prospectus supplement under "Description of the
Mortgage Pool --Additional Mortgage Loan
Information") of 1.40x.
See "Description of the Mortgage
Pool--Representations and Warranties" and
"--Repurchases and Other Remedies" in this
prospectus supplement.
The mortgage loans are more particularly described
herein under "Description of the Mortgage Pool," in
the tables in Appendix I and in "Certain
Characteristics of the Mortgage Loans" in Appendix
II. In addition, a brief summary of the material
terms of the ten largest mortgage loans, including
groups of cross-collateralized and cross-defaulted
mortgage loans, in the mortgage pool is set forth in
Appendix III.
ADVANCES OF PRINCIPAL AND INTEREST
A. GENERAL............................. The Master Servicer is required to advance (each,
a "P&I Advance") delinquent monthly mortgage loan
payments, if it determines that the advance will be
recoverable. P&I Advances will generally equal the
delinquent portion of the monthly mortgage loan
payment. The Master Servicer will not be required to
advance --- interest in excess of a loan's regular
interest rate (not including any default rate or any
rate increase after an anticipated repayment date).
The Master Servicer also is not required to advance
prepayment or yield maintenance premiums, excess
interest, default interest or balloon payments.
S-21
<PAGE>
If a borrower fails to pay amounts due on the
maturity date of the related mortgage loan, the
Servicer will be required on and after such date and
until final liquidation thereof, to advance only an
amount equal to the interest and principal portion
of the constant mortgage loan payment due
immediately prior to the maturity date or
anticipated repayment date to the extent not
received.
If the Master Servicer fails to make a required P&I
Advance, the Trustee will be required to make the
P&I Advance. Such obligation to make an Advance will
also be subject to a determination of
recoverability.
P&I Advances are intended to maintain a regular flow
of scheduled interest and principal payments to the
certificateholders and are not intended to guarantee
or insure against losses. Advances which cannot be
reimbursed out of collections on, or in respect of,
the related mortgage loans will be reimbursed
directly from any other collections on the mortgage
loans as provided in this prospectus supplement and
this will cause losses to be borne by
certificateholders in the priority specified in this
prospectus supplement. The Servicer and the Trustee,
as the case may be, will be entitled to interest on
any advances made, such interest accruing at the
rate and payable under the circumstances described
herein. Interest accrued on outstanding advances may
result in reductions in amounts otherwise payable on
the certificates.
See "Description of the Certificates -- Advances" in
this prospectus supplement.
B. APPRAISAL REDUCTION
EVENT ADVANCES.................... Certain adverse events affecting a mortgage loan
will require the Special Servicer to obtain a new
appraisal on the related mortgaged property. Based
on the appraised value in such appraisal, it may be
necessary to calculate the amount of an "Appraisal
Reduction." The amount required to be advanced in
respect of a mortgage loan that has been subject to
an Appraisal Reduction will be reduced so that the
Master Servicer will not be required to advance
principal and interest in respect of the Appraisal
Reduction (as described in this prospectus
supplement). Due to the payment priorities described
above, this will reduce the funds available to pay
interest on the most subordinate class or classes of
certificates then outstanding.
See "Description of the Certificates -- Appraisal
Reductions" in this prospectus supplement.
S-22
<PAGE>
ADDITIONAL ASPECTS OF CERTIFICATES
RATINGS..................................... The Offered Certificates will not be issued unless
each of the offered classes receives the following
ratings from Fitch IBCA, Inc. and Standard & Poor's
Ratings Services:
-----------------------------------------------
Ratings
Class (Fitch/S&P)
-----------------------------------------------
Class A-1 and A-2 AAA/AAA
-----------------------------------------------
Class B AA/AA
-----------------------------------------------
Class C A/A
-----------------------------------------------
Class D A-/A-
-----------------------------------------------
Class E BBB/BBB
-----------------------------------------------
A rating agency may lower or withdraw a security
rating at any time.
See "Ratings" in this prospectus supplement and the
prospectus for a discussion of the basis upon which
ratings are given, the limitations of and
restrictions on the ratings, and the conclusions
that should not be drawn from a rating.
OPTIONAL TERMINATION........................ On any distribution date on which the aggregate
principal balance of the mortgage loans remaining in
the trust is less than 1% of the aggregate unpaid
balance of the mortgage loans as of the Cut-off
Date, the Depositor, the Master Servicer, the
Special Servicer, the majority holders of the
Controlling Class and any holder of a majority
interest in the Class R-I Certificates will have the
option to purchase all of the remaining mortgage
loans (and all property acquired through exercise of
remedies in respect of any mortgage loan), at the
price specified in this prospectus supplement.
Exercise of this option will terminate the trust and
retire the then-outstanding certificates.
See "Description of the Certificates--Optional
Termination" in this prospectus supplement.
DENOMINATIONS............................... The Class A-1 and Class A-2 Certificates will be
offered in minimum denominations of $25,000. The
Class B Certificates will be offered in minimum
denominations of $50,000. The remaining Offered
Certificates will be offered in minimum
denominations of $100,000. Investments in excess of
the minimum denominations may be made in multiples
of $1.
S-23
<PAGE>
REGISTRATION, CLEARANCE AND SETTLEMENT...... Your certificates will be registered in the name of
Cede & Co., as nominee of The Depository Trust
Company ("DTC"), and will not be registered in your
name. You will not receive a definitive certificate
representing your interest, except in very limited
circumstances described in this prospectus
supplement. As a result, you will not be a
certificateholder of record, and you will receive
distributions on your certificates and reports
relating to distributions only through DTC,
Cedelbank ("Cedel") or The Euroclear System
("Euroclear") or through participants in DTC, Cedel
or Euroclear.
You may hold your Offered Certificates through: (i)
DTC in the United States; or (ii) Cedel or Euroclear
in Europe. Transfers within DTC, Cedel or Euroclear
will be made in accordance with the usual rules and
operating procedures of those systems. Cross-market
transfers between persons holding directly through
DTC, Cedel or Euroclear will be effected in DTC
through the relevant depositories 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 Certificates--Book-Entry
Registration" and "--Definitive Certificates" in
this prospectus supplement and "Description of the
Certificates-General" in the prospectus.
We expect that the Offered Certificates will be
delivered in book-entry form through the facilities
of DTC, Cedel or Euroclear on or about April 21,
1999.
TAX STATUS.................................. An election will be made to treat the Trust as three
separate REMICs--a Lower-Tier REMIC, a Middle-Tier
REMIC, and an Upper-Tier REMIC--for federal income
tax purposes. In the opinion of counsel, the Trust
will qualify for this treatment.
Pertinent federal income tax consequences of an
investment in the Offered Certificates include:
o Each class of Offered Certificates will
constitute "regular interests" in the
Upper-Tier REMIC.
o The regular interests will be treated as
newly originated debt instruments for
federal income tax purposes.
o Beneficial owners will be required to report
income thereon in accordance with the
accrual method of accounting.
S-24
<PAGE>
o One or more classes of Offered Certificates
may be issued with original issue discount.
See "Certain Federal Income Tax Consequences" in
this prospectus supplement and "Certain Federal
Income Tax Consequences--REMICs--Taxation of Owners
of REMIC Regular Certificates" in the prospectus.
ERISA CONSIDERATIONS........................ Subject to the satisfaction of important conditions
described under "ERISA Considerations" in this
prospectus supplement and in the accompanying
prospectus, the Class A and Class X Certificates may
be purchased by persons investing assets of employee
benefit plans or individual retirement accounts.
THE CLASS B, CLASS C, CLASS D AND CLASS E
CERTIFICATES MAY NOT BE PURCHASED BY, OR TRANSFERRED
TO, AN EMPLOYEE BENEFIT PLAN OR INDIVIDUAL
RETIREMENT ACCOUNT OR ANY PERSON INVESTING THE
ASSETS OF AN EMPLOYEE BENEFIT PLAN OR INDIVIDUAL
RETIREMENT ACCOUNT, UNLESS SUCH TRANSACTION IS
COVERED BY A PROHIBITED TRANSACTION CLASS EXEMPTION
ISSUED BY THE U.S. DEPARTMENT OF LABOR.
LEGAL INVESTMENTS........................... The Offered Certificates will not constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984,
as amended ("SMMEA").
No representation is made regarding the proper
characterization of the Offered Certificates for
purposes of any applicable legal investment
restrictions, regulatory capital requirements or
other similar purposes. Regulated entities should
consult with their own advisors regarding these
matters.
See "Legal Investment" in this prospectus supplement
and in the accompanying prospectus.
</TABLE>
S-25
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S-26
<PAGE>
RISK FACTORS
You should carefully consider the risks before making an investment
decision. In particular, the timing and amount of distributions on your
certificates will depend on payments received on and other recoveries with
respect to the mortgage loans. Therefore, you should carefully consider the risk
factors relating to the mortgage loans and the mortgaged properties.
The risks and uncertainties described below are not the only ones
relating to your certificates. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial or unlikely to occur may also
impair your investment.
If any of the following risks actually occur, your investment could be
materially and adversely affected.
This prospectus supplement also contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including the risks described below and elsewhere in this prospectus
supplement.
MORTGAGE LOANS ARE Payments under the mortgage loans are not
NONRECOURSE AND ARE NOT insured or guaranteed by any person or entity.
INSURED OR GUARANTEED
Substantially all of the mortgage loans are
nonrecourse loans. Although there are certain
exceptions to the non-recourse provisions, if
a default occurs, the lender's remedies
generally are limited to foreclosing against
the specific properties and other assets that
have been pledged to secure the loan. Payment
of amounts due under the mortgage loan prior
to maturity is consequently dependent
primarily on the sufficiency of the net
operating income of the mortgaged property.
Payment of the mortgage loan at maturity is
primarily dependent upon the borrower's
ability to sell or refinance the property for
an amount sufficient to repay the loan.
All of the mortgage loans, were originated
within 13 months prior to April 1, 1999.
Consequently, the mortgage loans do not have a
long standing payment history.
COMMERCIAL LENDING IS The mortgage loans are secured by various
DEPENDENT UPON NET types of income-producing commercial
OPERATING INCOME properties. Commercial lending is generally
thought to expose a lender to greater risk
than one-to-four family residential lending
because it typically involves larger loans to
a single borrower.
The repayment of a commercial loan is
typically dependent upon the ability of the
applicable property to produce cash flow. Even
the liquidation value of a commercial property
is determined, in substantial part, by the
amount of the property's cash flow (or its
potential to generate cash flow). However, net
operating income and cash flow can be volatile
and may be insufficient to cover debt service
on the loan at any given time.
The net operating income, cash flow and
property value of the mortgaged properties may
be adversely affected by a large number of
factors. Some of these factors relate to the
property itself, such as:
o the age, design and construction quality of
the property;
S-27
<PAGE>
o perceptions regarding the safety, convenience
and attractiveness of the property;
o the proximity and attractiveness of competing
properties;
o the adequacy of the property's management and
maintenance;
o increases in operating expenses at the
property and in relation to competing
properties;
o an increase in the capital expenditures
needed to maintain the property or make
improvements;
o the dependence upon a single tenant, or a
concentration of tenants in a particular
business or industry;
o a decline in the financial condition of a
major tenant;
o an increase in vacancy rates; and
o a decline in rental rates as leases are
renewed or entered into with new tenants.
Others factors are more general in nature, such as:
o national, regional or local economic
conditions (including plant closings,
industry slowdowns and unemployment rates);
o local real estate conditions (such as an
oversupply of competing properties, space or
multifamily housing);
o demographic factors;
o decreases in consumer confidence;
o changes in consumer tastes and preferences;
and
o retroactive changes in building codes.
The volatility of net operating income will be
influenced by many of the foregoing factors,
as well as by:
o the length of tenant leases;
o the creditworthiness of tenants;
o tenant defaults;
o in the case of rental properties, the rate at
which new rentals occur; and
o the property's "operating leverage" (i.e.,
the percentage of total property expenses in
relation to revenue, the ratio of fixed
operating
S-28
<PAGE>
expenses to those that vary with revenues,
and the level of capital expenditures
required to maintain the property and to
retain or replace tenants).
A decline in the real estate market or in the
financial condition of a major tenant will
tend to have a more immediate effect on the
net operating income of properties with
short-term revenue sources and may lead to
higher rates of delinquency or defaults under
mortgage loans.
SOME MORTGAGED PROPERTIES Some of the mortgaged properties may not be
MAY NOT BE READILY readily convertible to alternative uses if
CONVERTIBLE TO those properties were to become unprofitable
ALTERNATIVE USES for any reason. Converting commercial
properties to alternate uses generally
requires substantial capital expenditures.
In addition, zoning or other restrictions
also may prevent alternative uses. The
liquidation value of any such mortgaged
property consequently may be substantially
less than would be the case if the property
were readily adaptable to other uses.
PROPERTY VALUE MAY BE Various factors may adversely affect the
ADVERSELY AFFECTED EVEN value of the mortgaged properties without
WHEN CURRENT OPERATING affecting the properties' current net
INCOME IS NOT operating income. These factors include,
among others:
o changes in governmental regulations, fiscal
policy, zoning or tax laws;
o potential environmental legislation or
liabilities or other legal liabilities;
o the availability of refinancing; and
o changes in interest rate levels.
TENANT CONCENTRATION A deterioration in the financial condition of
ENTAILS RISK a tenant can be particularly significant if a
mortgaged property is leased to a single
tenant, or a small number of tenants.
Mortgaged properties leased to a single
tenant, or a small number of tenants, also
are more susceptible to interruptions of cash
flow if a tenant fails to renew its lease.
This is so because: (i) the financial effect
of the absence of rental income may be
severe; (ii) more time may be required to
re-lease the space; and (iii) substantial
capital costs may be incurred to make the
space appropriate for replacement tenants.
Eight (8) mortgage loans (representing 4.5%
of the initial outstanding pool balance) are
secured by mortgaged properties leased to
single tenants, some of which are borrower
related.
Retail, office and industrial properties also
may be adversely affected if there is a
concentration of particular tenants among the
mortgaged properties or of tenants in a
particular business or industry.
MORTGAGED PROPERTIES TENANTS If a mortgaged property has multiple tenants,
LEASED TO MULTIPLE re-leasing expenditures may be more frequent
ALSO HAVE RISKS than in the case of mortgaged properties with
TENANTS fewer tenants, thereby reducing the cash flow
available for debt service payments. Multi-
tenanted mortgaged properties also may
experience higher continuing vacancy rates
and greater volatility in rental income and
expenses.
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RISKS RELATING TO LOAN The effect of mortgage pool loan losses will
CONCENTRATION be more severe: (i) if the pool is comprised
of a small number of loans, each with a
relatively large principal amount; or (ii) if
the losses relate to loans that account for a
disproportionately large percentage of the
pool's aggregate principal balance. The 10
largest loans, including groups of
cross-collateralized and cross-defaulted
mortgage loans, equal 28.5% of the mortgage
pool. Losses on any of these loans may have a
particularly adverse effect on the Offered
Certificates.
Each of the other mortgage loans represents
less than 1.5% of the initial outstanding
pool balance. The largest group of
cross-collateralized and cross-defaulted
mortgage loans represents less than 4.8% of
the initial outstanding pool balance.
A concentration of mortgaged property types
or of mortgage loans with the same borrower
or related borrowers also can pose increased
risks. The following property types represent
the indicated percentage of the aggregate
principal balance of the mortgage pool as of
the Cut-off Date:
o retail properties represent 19.5%;
o office properties represent 17.8%;
o multifamily properties represent 15.3%;
o manufactured housing properties represent
15.0%;
o hospitality properties represent 13.3%
(including extended stay properties which
represent 7.2%);
o mixed use properties represent 7.6%;
o self storage properties represent 5.2%;
o industrial properties represent 4.2%; and
o senior housing properties represent 2.1%.
With respect to concentration of borrowers,
nineteen groups of mortgage loans (including
cross-collateralized or single note multiple
property loans) are made to the same borrower
or borrowers related through common ownership
and where, in general, the related mortgaged
properties are commonly managed. The three
largest of these groups represent 6.7%, 4.9%,
and 4.8% respectively of the mortgage pool.
GEOGRAPHIC CONCENTRATION Concentrations of mortgaged properties in
ENTAILS RISKS geographic areas may increase the risk that
adverse economic or other developments or a
natural disaster affecting a particular
region of the country could increase the
frequency and severity of losses on mortgage
loans secured by the properties. In recent
periods, several regions of the United States
have experienced significant real estate
downturns. Regional economic declines or
conditions in regional real estate markets
could adversely affect the income from, and
market value of, the mortgaged properties.
Other regional factors -- e.g., earthquakes,
floods or hurricanes or changes in
governmental rules or fiscal policies -- also
may
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adversely affect the mortgaged properties.
For example, mortgaged properties located in
California may be more susceptible to certain
hazards (such as earthquakes) than properties
in other parts of the country.
The mortgaged properties are located in 34
states and the District of Columbia.
Approximately 9.4% of the mortgaged
properties (based on the initial outstanding
pool balance) are located in Northern
California, and approximately 23.6% of the
mortgaged properties (based on the initial
outstanding pool balance) are located in
Southern California. There are five other
states and the District of Columbia in which
5% or more of the mortgaged properties (based
on the initial outstanding pool balance) are
located. See "Description of the Mortgage
Pool" in this prospectus supplement.
RETAIL PROPERTIES HAVE Retail properties secure 33 of the underlying
SPECIAL RISKS mortgage loans (representing 19.5% of the
initial outstanding pool balance). The
quality and success of a retail property's
tenants significantly affect the property's
value. For example, if the sales of retail
tenants were to decline, rents tied to a
percentage of gross sales may decline and
those tenants may be unable to pay their rent
or other occupancy costs.
The presence or absence of an "anchor tenant"
in a shopping center also can be important,
because anchors play a key role in generating
customer traffic and making a center
desirable for other tenants. The economic
performance of an anchored retail property
will consequently be adversely affected by:
o an anchor tenant's failure to renew its
lease;
o termination of an anchor tenant's lease;
o the bankruptcy or economic decline of an
anchor tenant or self-owned anchor; or
o the cessation of the business of an anchor
tenant (notwithstanding its continued payment
of rent).
If anchor stores in a mortgaged property were
to close, the related borrower may be unable
to replace those anchors in a timely manner
or without suffering adverse economic
consequences. Furthermore, certain of the
anchor stores at the retail properties may
have co-tenancy clauses in their leases or
operating agreements which permit those
anchors to cease operating if certain other
stores are not operated at those locations.
The breach of various other covenants in
anchor store leases or operating agreements
also may permit those stores to cease
operating. Certain non-anchor tenants at
retail properties also may be permitted to
terminate their leases if certain other
stores are not operated or if those tenants
fail to meet certain business objectives.
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Retail properties also face competition from
sources outside a given real estate market.
For example, all of the following compete with
more traditional retail properties for
consumer dollars: factory outlet centers;
discount shopping centers and clubs; catalogue
retailers; home shopping networks; Internet
web sites; and telemarketing. Continued growth
of these alternative retail outlets (which
often have lower operating costs) could
adversely affect the rents collectible at the
retail properties included in the mortgage
pool, as well as the income from, and market
value of, the mortgaged properties.
Moreover, additional competing retail
properties may be built in the areas where
the retail properties are located.
OFFICE PROPERTIES HAVE Office properties secure 20 of the underlying
SPECIAL RISKS mortgage loans (representing 17.8% of the
initial outstanding pool balance).
A large number of factors may adversely affect
the value of office properties, including:
o the quality of an office building's tenants;
o the diversity of an office building's tenants
(or reliance on a single or dominant tenant);
o the physical attributes of the building in
relation to competing buildings (e.g., age,
condition, design, location, access to
transportation and ability to offer certain
amenities, such as sophisticated building
systems);
o the desirability of the area as a business
location; and
o the strength and nature of the local economy
(including labor costs and quality, tax
environment and quality of life for
employees).
Moreover, the cost of refitting office space
for a new tenant is often higher than the cost
of refitting other types of property.
MULTIFAMILY PROPERTIES Multifamily properties secure 23 of the
HAVE SPECIAL RISKS underlying mortgage loans (representing 15.3%
of the initial outstanding pool balance).
A large number of factors may adversely
affect the value and successful operation of
a multifamily property, including:
o the physical attributes of the apartment
building (e.g., its age, appearance and
construction quality);
o the location of the property (e.g., a change
in the neighborhood over time);
o the ability of management to provide adequate
maintenance and insurance;
o the types of services the property provides;
o the property's reputation;
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o the level of mortgage interest rates
(which may encourage tenants to
purchase rather than rent housing);
o the presence of competing properties;
o adverse local or national economic
conditions;
o state and local regulations; and
o reductions in government
assistance/rent subsidy programs.
MANUFACTURED HOUSING Manufactured Housing Communities secure 49 of
COMMUNITIES HAVE SPECIAL the underlying mortgage loans (representing
RISKS 15.0% of the initial outstanding pool
balance). Loans secured by liens on
properties of these types pose risks not
associated with loans secured by liens on
other types of income-producing real estate,
including:
o the number of competing manufactured
housing communities and other
residential developments (such as
apartment buildings and single family
homes) in the local market;
o the age, appearance and reputation of
the community;
o the ability of management to provide
adequate maintenance and insurance;
and
o the types of services and amenities it
provides.
The Manufactured Housing Communities are
"special purpose" properties that could not be
readily converted to general residential,
retail or office use.
Some properties within the Manufactured
Housing Communities may lease sites to
non-permanent recreational vehicles, which
occupancy is often very seasonal in nature.
HOSPITALITY PROPERTIES Hospitality properties secure 25 of the
HAVE SPECIAL RISKS underlying mortgage loans (representing 13.3%
of the initial outstanding pool balance).
Various factors may adversely affect the
economic performance of a hotel, including:
o adverse economic and social
conditions, either local, regional or
national (which may limit the amount
that can be charged for a room and
reduce occupancy levels);
o the construction of competing hotels
or resorts;
o continuing expenditures for
modernizing, refurbishing, and
maintaining existing facilities prior
to the expiration of their anticipated
useful lives;
o a deterioration in the financial
strength or managerial capabilities of
the owner and operator of a hotel; and
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o changes in travel patterns caused by
changes in access, energy prices,
strikes, relocation of highways, the
construction of additional highways or
other factors.
Because hotel rooms generally are rented for
short periods of time, the financial
performance of hotels tends to be affected by
adverse economic conditions and competition
more quickly than other types of commercial
properties.
Moreover, the hotel and lodging industry is
generally seasonal in nature. This seasonality
can be expected to cause periodic fluctuations
in a hospitality property's revenues,
occupancy levels, room rates and operating
expenses.
RISKS RELATING TO Certain of the hospitality properties are
AFFILIATION WITH A franchises of national hotel chains or
FRANCHISE OR HOTEL managed by a hotel management company. The
MANAGEMENT COMPANY performance of a hotel property affiliated
with a franchise or hotel management company
depends in part on:
o the continued existence and financial
strength of the franchisor or hotel
management company;
o the public perception of the franchise
or hotel chain service mark; and
o the duration and terms of the
franchise licensing or agreements.
Any provision in a franchise agreement or
management agreement providing for termination
because of a bankruptcy of a franchisor or
manager generally will not be enforceable.
The transferability of franchise license
agreements may be restricted. In the event of
a foreclosure, the lender or its agent may not
have the right to use the franchise license
without the franchisor's consent. Conversely,
in the case of certain mortgage loans, the
lender may be unable to remove a franchisor or
a hotel management company that it desires to
replace following a foreclosure and may be
liable for outstanding sums owing to such
franchisor or management company.
Further, in the event of a foreclosure, the
Trustee or a purchaser of such mortgaged
property probably would not be entitled to the
rights under any liquor license for the
mortgaged property. Such party would be
required to apply in its own right for such a
license, and we cannot assure you that a new
license could be obtained.
The largest concentration of hospitality
properties which are managed by the same hotel
management company or affiliated companies
consists of two mortgage loans (representing
4.9% of the initial outstanding pool balance)
secured by twelve mortgaged properties which
are managed by Suburban Lodges, Inc., a
publicly traded company, or affiliates
thereof.
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<PAGE>
HOTEL AFFILIATION The economic decline of a particular hotel
CONCENTRATION ENTAILS chain generally may have an adverse effect on
RISKS all hotels operated by that chain. In this
regard, the largest concentration of any
hotel chain in the mortgage loan pool
consists of twelve mortgage loans
(representing 4.9% of the initial outstanding
pool balance) secured by mortgaged properties
that are operated as a Suburban Lodge hotel.
EXTENDED STAY PROPERTIES Some of the hospitality properties are
HAVE SPECIAL RISKS extended stay properties. Such extended stay
properties secure 15 of the underlying
mortgage loans (representing 7.2% of the
initial outstanding pool balance). Extended
stay facilities generally rent rooms for
significant periods of time at lower rates
than those charged to overnight and
short-term guests, and the client base for
such facilities may be more limited than for
hospitality properties which rent rooms for
short periods of time. In addition, the
financial performance of such facilities
tends to be affected by adverse economic
conditions and other factors which adversely
affect the economic performance of hotels
generally.
SELF-STORAGE FACILITIES Self-storage facilities secure 15 of the
HAVE SPECIAL RISKS underlying mortgage loans (representing 5.2%
of the initial outstanding pool balance).
Various factors may adversely affect the
value and successful operation of a
self-storage facility:
o competition because both acquisition
and development costs and break-even
occupancy are relatively low;
o conversion of a self-storage facility
to an alternative use generally
requires substantial capital
expenditures;
o security concerns; and
o user privacy and ease of access to
individual storage space may increase
environmental risks (although lease
agreements generally prohibit users
from storing hazardous substances in
the units).
The environmental assessments discussed herein
did not include an inspection of the contents
of the self-storage units of the self-storage
properties. Accordingly, there is no assurance
that all of the units included in the
self-storage properties are free from
hazardous substances or will remain so in the
future.
INDUSTRIAL PROPERTIES Industrial properties secure 6 of the
HAVE SPECIAL RISKS underlying mortgage loans (representing 4.2%
of the initial outstanding pool balance).
Various factors may adversely affect the
economic performance of an industrial
property including:
o reduced demand for industrial space
because of a decline in a particular
industry segment;
o a property becoming functionally
obsolete;
o the unavailability of labor sources;
o changes in access, energy prices,
strikes, relocation of highways, the
construction of additional highways or
other factors;
o a change in the proximity of supply
sources; and
o environmental hazards.
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SENIOR HOUSING Congregate care, senior care and assisted
PROPERTIES HAVE SPECIAL living facilities secure 9 of the underlying
RISKS mortgage loans (representing 2.1% of the
initial outstanding pool balance).
Providers of long-term nursing care and other
medical services are highly regulated and are
subject to licensing requirements, facility
inspections, rate setting and reimbursement
policies. They are also subject to laws
relating to the adequacy of medical care,
distribution of pharmaceuticals, equipment,
personnel operating policies and maintenance
of and additions to facilities and services.
These factors can increase the cost of
operations, limit growth and in extreme cases,
require or result in suspension or cessation
of operations.
In the event that the trustee or another party
forecloses on a senior care facility, it would
not generally be entitled to reimbursements by
Social Security, Medicare and Medicaid for
services rendered prior to such foreclosure,
if any. In addition, such party may have to
apply in its own right for its necessary
licenses and regulatory approvals. There can
be no assurance that a new license could be
obtained or that new approvals would be
granted. This uncertainty may adversely affect
the liquidation value of the facility.
Other factors that may adversely effect the
value and successful operation of a senior
housing facility include:
o increasing governmental regulation and
supervision (as to those facilities
not already subject to it);
o a decline in the financial health,
skills or reputation of the operator;
o increased operational expenses; and
o competing facilities owned by
non-profit organizations or government
agencies supported by endowments,
charitable contributions, tax revenues
and other sources.
CERTAIN ADDITIONAL RISKS The income from, and market value of, the
RELATING TO TENANTS mortgaged properties leased to various
tenants would be adversely affected if:
o space in the mortgaged properties
could not be leased or re-leased;
o tenants were unable to meet their
lease obligations;
o a significant tenant were to become a
debtor in a bankruptcy case; or
o rental payments could not be collected
for any other reason.
Repayment of the mortgage loans secured by
retail and office properties will be affected
by the expiration of 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 and leasing commissions,
could be substantial and could reduce cash
flow from the mortgaged properties. Moreover,
if a tenant defaults in its obligations to a
borrower, the borrower may incur
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<PAGE>
substantial costs and experience significant
delays associated with enforcing its rights
and protecting its investment, including
costs incurred in renovating and reletting
the property.
TENANT BANKRUPTCY The bankruptcy or insolvency of a major
ENTAILS RISKS tenant, or a number of smaller tenants, in
retail, industrial and office properties may
adversely affect the income produced by a
mortgaged property. Under the Bankruptcy
Code, a tenant has the option of assuming or
rejecting any unexpired lease. If the tenant
rejects the lease, the landlord's claim for
breach of the lease would be a general
unsecured claim against the tenant (absent
collateral securing the claim). The claim
would be limited to the unpaid rent under the
lease for the periods prior to the bankruptcy
petition (or earlier surrender of the leased
premises), plus the rent under the lease for
the greater of one year, or 15% (not to
exceed three years), of the remaining term of
such lease.
RISKS RELATING TO Five (5) of the mortgage loans (representing
GOVERNMENT ASSISTED 2.9% of the initial outstanding pool balance)
PROPERTIES are known to have tenants eligible for rental
subsidy payments under certain federal
housing assistance payment programs,
including Section 8 of United States Housing
Act of 1937, as amended ("Section 8") or are
secured by multifamily properties subject to
rental restrictions. Under the Section 8
program, a mortgaged property must satisfy
certain requirements to qualify for inclusion
in the program. These requirements relate to,
among other things, income limitations on
tenants in the mortgaged property. The
borrower under these mortgage loans may be
adversely affected if it or the mortgaged
property fails to qualify for inclusion in
the program, if subsidies thereunder are
reduced, or if the programs are otherwise
terminated.
One (1) of the mortgage loans (representing
0.5% of the initial outstanding pool balance)
is secured by a property known to be subject
to the rent limitations of Section 42 of the
Internal Revenue Code of 1986, as amended
("Section 42"). The rent limitations imposed
on mortgaged properties subject to Section 42
may adversely affect the ability of the
applicable borrowers to increase rents to
maintain such properties in proper condition
during periods of rapid inflation or declining
market value of such properties. In addition,
the income restrictions on tenants imposed by
Section 42 may reduce the number of eligible
tenants in such properties and result in a
reduction in occupancy rates applicable
thereto.
ENVIRONMENTAL LAWS Various environmental laws may make a current
ENTAIL RISKS or previous owner or operator of real
property liable for the costs of removal or
remediation of hazardous or toxic substances
on, under, adjacent to, or in such property.
Those laws often impose liability whether or
not the owner or operator knew of, or was
responsible for, the presence of the
hazardous or toxic substances. For example,
certain laws impose liability for release of
asbestos-containing materials ("ACMs") into
the air or require the removal or containment
of ACMs. In some states, contamination of a
property may give rise to a lien on the
property to assure payment of the costs of
cleanup. In some states, this lien has
priority over the lien of a pre-existing
mortgage. Additionally, third parties may
seek recovery from owners or operators of
real properties for personal injury
associated with ACMs or other exposure to
hazardous substances related to the
properties.
The owner's liability for any required
remediation generally is not limited by law
and could accordingly exceed the value of the
property and/or the aggregate assets of the
owner. The presence of hazardous or toxic
substances
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<PAGE>
also may adversely affect the owner's ability
to refinance the property or to sell the
property to a third party. The presence of,
or strong potential for contamination by,
hazardous substances consequently can have a
materially adverse effect on the value of the
property and a borrower's ability to repay
its mortgage loan.
In addition, under certain circumstances, a
lender (such as the trust) could be liable for
the costs of responding to an environmental
hazard. See "Legal Matters" in the prospectus.
ENVIRONMENTAL RISKS All of the mortgaged properties securing the
RELATING TO SPECIFIC mortgage loans have been subject to
MORTGAGED PROPERTIES environmental site assessments in connection
with the origination or acquisition of the
loans. In certain cases, the assessment
disclosed the existence of or potential for
adverse environmental conditions, such as the
existence of, among other things, ACMs,
underground storage tanks and soil
contamination. We cannot assure you, however,
that the environmental assessments revealed
all existing or potential environmental risks
or that all adverse environmental conditions
have been completely remediated. Furthermore,
environmental assessments on properties
securing 55 of the mortgage loans
(representing 22.8% of the initial
outstanding pool balance) are, as of the
Cut-off Date, more than a year old, but in no
event more than 18 months old. In certain
cases, Phase II site assessments also have
been performed.
ACMs have been detected through sampling by
environmental consultants at several
mortgaged properties and suspected at others.
ACMs found or suspected at these mortgaged
properties are not expected to present a
significant risk as long as the property
continues to be properly managed.
Nonetheless, the value of a mortgaged
property as collateral for the mortgage loan
could be adversely affected.
The environmental assessments have not
revealed any environmental liability that the
Depositor believes would have a material
adverse effect on the borrowers' businesses,
assets or results of operations taken as a
whole. Nevertheless, there may be material
environmental liabilities of which the
Depositor is unaware. Moreover, we cannot
assure you that: (i) future laws, ordinances
or regulations will not impose any material
environmental liability; or (ii) the current
environmental condition of the mortgaged
properties will not be adversely affected by
borrowers, tenants or by the condition of
land or operations in the vicinity of the
mortgaged properties (such as underground
storage tanks).
Before the Special Servicer acquires title to
a property on behalf of the trust or assumes
operation of the property, it must obtain an
environmental assessment of the property.
This requirement will decrease the likelihood
that the trust will become liable under any
environmental law. However, this requirement
may effectively preclude foreclosure until a
satisfactory environmental assessment is
obtained (or until any required remedial
action is thereafter taken). There is
accordingly some risk that the mortgaged
property will decline in value while this
assessment is being obtained. Moreover, we
cannot assure you that this requirement will
effectively insulate the trust from potential
liability under environmental laws.
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<PAGE>
BORROWER MAY BE UNABLE TO One hundred ninety one (191) of the mortgage
REPAY REMAINING loans, representing 98.6% of the initial
PRINCIPAL BALANCE ON outstanding pool balance, are expected to
MATURITY DATE have substantial remaining principal balances
(equal to greater than 10% of the original
principal balance of each respective mortgage
loan) as of their respective anticipated
repayment dates or stated maturity dates. We
cannot assure you that each borrower will
have the ability to repay the remaining
principal balances on the pertinent date.
Mortgage loans with substantial remaining
principal balances at their stated maturity
(i.e., "balloon loans") involve greater risk
than fully amortizing loans.
A borrower's ability to repay a loan on its
anticipated repayment date or stated maturity
date typically will depend upon its ability
either to refinance the loan or to sell the
mortgaged property at a price sufficient to
permit repayment. A borrower's ability to
achieve either of these goals will be
affected by a number of factors, including:
o the availability of, and competition
for, credit for commercial real estate
projects;
o the prevailing interest rates;
o the fair market value of the related
properties;
o the borrower's equity in the related
properties;
o the borrower's financial condition;
o the operating history and occupancy
level and rents of the property;
o the tax laws; and
o prevailing general and regional
economic conditions.
The availability of funds in the credit
markets fluctuates over time.
See "Mortgage Pool Characteristics--Certain
Characteristics of the Mortgage Loans" in
this prospectus supplement.
AUTHORITY TO EFFECT Eight (8) of the mortgage loans (representing
OTHER BORROWINGS ENTAILS 9.9% of the initial outstanding pool balance)
RISKS permit the borrower to utilize the mortgaged
property as collateral for subordinated
loans. See "Description of the Mortgage
Pool--Certain Terms and Characteristics of
the Mortgage Loans--Subordinate Financing" in
this prospectus supplement. Generally, prior
to any subordinate loan being allowed,
certain conditions must be satisfied.
Substantially all of the mortgage loans also
permit the related borrower to incur
indebtedness beyond the mortgage loan in the
ordinary course of business, subject to
certain conditions.
When a mortgage loan borrower (or its
constituent members) also has one or more
other outstanding loans (even if subordinated
or mezzanine loans that are not secured by a
lien on the mortgaged property), the trust is
subjected to additional risk. The borrower may
have difficulty servicing and repaying
multiple loans. The existence of another loan
generally also will make it more difficult for
the borrower to obtain refinancing of the
mortgage loan and may
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thereby jeopardize repayment of the mortgage
loan. Moreover, the need to service
additional debt may reduce the cash flow
available to the borrower to operate and
maintain the mortgaged property. See
"Description of the Mortgage Pool--Certain
Terms and Characteristics to the Mortgage
Loans--Subordinate Financing" in this
prospectus supplement.
Additionally, if the borrower (or its
constituent members) defaults on the mortgage
loan and/or any other loan, actions taken by
other lenders could impair the security
available to the trust. If a junior lender
files an involuntary petition for bankruptcy
against the borrower (or the borrower files a
voluntary petition to stay enforcement by a
junior lender), the trust's ability to
foreclose on the property would be
automatically stayed, and principal and
interest payments might not be made during the
course of the bankruptcy case. The bankruptcy
of another lender also may operate to stay
foreclosure by the trust.
Further, if another loan secured by the
mortgaged property is in default, the other
lender may foreclose on the mortgaged
property, absent an agreement to the contrary,
thereby causing a delay in payments and/or an
involuntary repayment of the mortgage loan
prior to maturity. The trust may also be
subject to the costs and administrative
burdens of involvement in bankruptcy or
foreclosure proceedings or related litigation.
BANKRUPTCY PROCEEDINGS Under the Bankruptcy Code, the filing of a
ENTAILS CERTAIN RISKS petition in bankruptcy by or against a
borrower will stay the sale of the real
property owned by that borrower, as well as
the commencement or continuation of a
foreclosure action. In addition, if a court
determines that the value of the mortgaged
property is less than the principal balance
of the mortgage loan it secures, the court
may prevent a lender from foreclosing on the
mortgaged property (subject to certain
protections available to the lender). As part
of a restructuring plan, a court also may
reduce the amount of secured indebtedness to
the then-value of the mortgaged property.
Such an action would make the lender a
general unsecured creditor for the difference
between the then-value and the amount of its
outstanding mortgage indebtedness. A
bankruptcy court also may: (i) grant a
borrower a reasonable time to cure a payment
default on a mortgage loan; (ii) reduce
monthly payments due under a mortgage loan;
(iii) change the rate of interest due on a
mortgage loan; or (iv) otherwise alter the
mortgage loan's repayment schedule.
Moreover, the filing of a petition in
bankruptcy by, or on behalf of, a junior
lienholder may stay the senior lienholder from
taking action to foreclose on the mortgaged
property and extinguish the junior lien.
Additionally, the borrower's trustee or the
borrower, as debtor-in-possession, has certain
special powers to avoid, subordinate or
disallow debts. In certain circumstances, the
claims of the trustee may be subordinated to
financing obtained by a debtor-in-possession
subsequent to its bankruptcy.
Under the Bankruptcy Code, the lender will be
stayed from enforcing a borrower's assignment
of rents and leases. The Bankruptcy Code also
may interfere with the Trustee's ability to
enforce any lockbox requirements. The legal
proceedings necessary to resolve these issues
can be time consuming and may significantly
delay the lender's receipt of rents. Rents
also may escape an assignment to the extent
they are used by the borrower to maintain the
mortgaged property or for other court
authorized expenses.
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As a result of the foregoing, the Trustee's
recovery with respect to borrowers in
bankruptcy proceedings may be significantly
delayed, and the aggregate amount ultimately
collected may be substantially less than the
amount owed.
BORROWERS THAT ARE NOT The mortgage loan documents typically contain
SPECIAL-PURPOSE ENTITIES borrower covenants that for so long as the
MAY BE MORE LIKELY TO related mortgage loan is outstanding, the
FILE BANKRUPTCY borrower will, among other things, generally
(i) not own any material asset other than the
real property and incidental personal
property covered by the mortgage, (ii) not
incur any indebtedness other than the
mortgage loan and trade payables related to
the operation of the mortgaged property and
(iii) distinguish its business activities
from those of its affiliates.
Generally the borrowers (and any
special-purpose entity having an interest in
any such borrowers) do not have an
independent director whose consent would be
required to file a voluntary bankruptcy
petition on behalf of such borrower. One of
the purposes of an independent director (or
of a special-purpose entity having an
interest in the borrower) is to avoid a
bankruptcy petition filing which is intended
solely to benefit an affiliate and is not
justified by the borrower's own economic
circumstances.
LACK OF SKILLFUL The successful operation of a real estate
PROPERTY MANAGEMENT project depends upon the property manager's
ENTAILS RISKS performance and viability. The property
manager is generally responsible for:
o responding to changes in the local
market;
o planning and implementing the rental
structure;
o operating the property and providing
building services;
o managing operating expenses; and
o assuring that maintenance and capital
improvements are carried out in a
timely fashion.
Properties deriving revenues primarily from
short-term sources are generally more
management intensive than properties leased to
creditworthy tenants under long-term leases.
A good property manager, by controlling costs,
providing appropriate service to tenants and
seeing to the maintenance of improvements,
can, in some cases, improve cash flow, reduce
vacancy, leasing and repair costs and preserve
building value. On the other hand, management
errors can, in some cases, impair short-term
cash flow and the long term viability of an
income producing property.
We make no representation or warranty as to
the skills of any present or future managers.
Additionally, we cannot assure you that the
property managers will be in a financial
condition to fulfill their management
responsibilities throughout the terms of their
respective management agreements.
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RISKS OF INSPECTIONS Licensed engineers or consultants inspected
RELATING TO PROPERTY the mortgaged properties in connection with
the origination of the mortgage loans to
assess items such as structure, exterior
walls, roofing, interior construction,
mechanical and electrical systems and general
condition of the site, buildings and other
improvements. However, we can not assure you
that all conditions requiring repair or
replacement were identified.
ABSENCE OR INADEQUACY OF The mortgaged properties may suffer casualty
INSURANCE COVERAGE losses due to risks which were not covered by
ENTAILS RISKS insurance or for which insurance coverage is
inadequate. In addition, certain of the
mortgaged properties are located in
California and Texas and in coastal areas of
Florida, states that have historically been
at greater risk regarding acts of nature
(such as hurricanes, floods and earthquakes)
than other states. We can not assure you that
borrowers will be able to maintain adequate
insurance. Moreover, if reconstruction or any
major repairs are required, changes in laws
may materially affect the borrower's ability
to effect such reconstruction or major
repairs or may materially increase the cost
thereof.
As a result of any of the foregoing, the
amount available to make distributions on the
Offered Certificates could be reduced.
APPRAISALS AND MARKET An appraisal or other market analysis was
STUDIES HAVE CERTAIN conducted in respect of the mortgaged
LIMITATIONS properties in connection with the origination
or acquisition of the related mortgage loan.
The resulting estimates of value are the
basis of the Cut-off Date LTV Ratios referred
to herein. Those estimates represent the
analysis and opinion of the person performing
the appraisal or market analysis and are not
guarantees of present or future values.
Moreover, the values of the mortgaged
properties may have fluctuated significantly
since the appraisal or market study was
performed. In addition, 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 mortgaged properties available to
the Depositor as of the Cut-off Date is
presented in Appendix I and Appendix II
hereto for illustrative purposes only. See
"Description of the Mortgage
Pool--Assessments of Property Value and
Condition--Appraisals" in this prospectus
supplement.
DIFFERENT TIMING OF As principal payments or prepayments are made
MORTGAGE LOAN on a mortgage loan that is part of a pool of
AMORTIZATION POSES loans, the pool may be subject to more risk
CERTAIN RISKS with respect to the decreased diversity of
mortgaged properties, types of mortgaged
properties, geographic location and number of
borrowers and affiliated borrowers. Classes
that have a later sequential designation or a
lower payment priority are more likely to be
exposed to this concentration risk than are
classes with an earlier sequential
designation or higher priority. This is so
because principal on the Offered Certificates
is generally payable in sequential order, and
no class entitled to distribution of
principal generally receives principal until
the principal amount of the preceding class
or classes entitled to receive principal have
been reduced to zero.
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SUBORDINATION OF As described in this prospectus supplement,
SUBORDINATE OFFERED unless your certificates are Class A-1, Class
CERTIFICATES A-2 or Class X Certificates, your rights to
receive distributions of amounts collected or
advanced on or in respect of the mortgage
loans will be subordinated to those of the
holders of the offered certificates with an
earlier alphabetical designation. See
"Description of the Certificates--
Distributions" and "--Subordination;
Allocation of Losses and Certain Expenses" in
this prospectus supplement and "Risk
Factors--Subordination of the Subordinate
Certificates; Effect of Losses on the Assets"
in the prospectus.
TAX CONSIDERATIONS If the trust acquires a mortgaged property
RELATING TO FORECLOSURE pursuant to a foreclosure or deed in lieu of
foreclosure, the Special Servicer will
generally retain an independent contractor to
operate the property. In general, any net
income from such operation (other than
qualifying "rents from real property" as
defined in Section 856(d) of the Code) will
subject the Lower-Tier REMIC to federal tax
on such income at the highest marginal
corporate tax rate (currently 35%) and
possibly state or local tax. In such event,
the net proceeds available for distribution
to certificateholders will be reduced. The
Special Servicer may permit the Lower-Tier
REMIC to earn "net income from foreclosure
property" that is subject to tax if it
determines that the net after-tax benefit to
certificateholders is greater than under
another method of operating or leasing the
mortgaged property.
RISKS RELATING TO All of the mortgages permit the lender to
ENFORCEABILITY accelerate the debt upon default by the
borrower. The courts of all states will
enforce acceleration clauses in the event of
a material payment default. State equity
courts, however, may refuse to permit
foreclosure or acceleration if a default is
deemed immaterial or the exercise of those
remedies would be unjust or unconscionable.
If a mortgaged property has tenants, the
borrower typically assigns its income as
landlord to the lender as further security,
while retaining a license to collect rents as
long as there is no default. If the borrower
defaults, the license terminates and the
lender is entitled to collect rents. In
certain jurisdictions, such assignments may
not be perfected as security interests until
the lender takes actual possession of the
property's cash flow. In some jurisdictions,
the lender may not be entitled to collect
rents until the lender takes possession of
the property and secures the appointment of a
receiver. In addition, as previously
discussed, if bankruptcy or similar
proceedings are commenced by or for the
borrower, the lender's ability to collect the
rents may be adversely affected.
STATE LAW LIMITATIONS The ability to realize upon the mortgage
ENTAIL CERTAIN RISKS loans may be limited by the application of
state laws. Some states (including
California) have laws prohibiting more than
one "judicial action" to enforce a mortgage
obligation. Some courts have construed the
term "judicial action" broadly. In the case
of a pool loan or cross-collateralized loans
secured by mortgaged properties located in
multiple states, the Special Servicer may be
required to foreclose first on mortgaged
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. Foreclosure actions
may also, in certain circumstances, subject
the trust to liability as a
"lender-in-possession" or result in the
equitable subordination of the claims of the
trustee to the claims of other creditors of
the borrower. Most of the mortgage loans in
the D.A.M. mobile home park portfolio, which
is described in Appendix III, are secured by
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properties located in Pennsylvania and all of
such loans are cross-collateralized. The
Pennsylvania Deficiency Judgment Act
restricts the ability of a lender to obtain a
deficiency judgment against a borrower and,
as a result, may impair a lender's ability to
realize the benefits of
cross-collateralization. The Special Servicer
may take these state laws into consideration
in deciding which remedy to choose following
a default by a borrower.
LEASEHOLD INTERESTS Five (5) of the mortgage loans (representing
ENTAIL CERTAIN RISKS 5.2% of the initial outstanding pool balance)
are secured solely by mortgages on borrowers'
leasehold interests under ground leases. In
addition, 4 mortgage loans (representing 4.5%
of the initial outstanding pool balance), are
secured by a mortgage on both the borrower's
leasehold interest in a portion of the
related mortgaged property and a fee simple
interest in the remainder of the related
mortgaged property. See "Description of the
Mortgage Pool--Certain Terms and
Characteristics of the Mortgage Loans--Ground
Leases".
Leasehold mortgage loans are subject to
certain risks not associated with mortgage
loans secured by a lien on the fee estate of
the borrower. The most significant of these
risks is that if the borrower's leasehold
were to be terminated upon a lease default,
the lender would lose its security.
Generally, each related ground lease requires
the lessor to give the lender notice of
borrower defaults under the ground lease and
an opportunity to cure them, permits the
leasehold estate to be assigned to the lender
or the purchaser at a foreclosure sale, in
some cases only upon the consent of the
lessor, and contains certain other protective
provisions typically included in a
"mortgageable" ground lease.
Upon the bankruptcy of a lessor or a lessee
under a ground lease, the debtor entity has
the right to assume or reject the lease. If a
debtor lessor rejects the lease, the lessee
has the right to remain in possession of its
leased premises for the rent otherwise
payable under the lease for the term of the
lease (including renewals). If a debtor
lessee/borrower rejects any or all of its
leases, the leasehold lender could succeed to
the lessee/borrower's position under the
lease only if the lessor specifically grants
the lender such right. If both the lessor and
the lessee/borrowers are involved in
bankruptcy proceedings, the Trustee may be
unable to enforce the bankrupt
lessee/borrower's right to refuse to treat a
ground lease rejected by a bankrupt lessor as
terminated. In such circumstances, a lease
could be terminated notwithstanding lender
protection provisions contained therein or in
the mortgage.
Most of the ground leases securing the
mortgaged properties provide that the ground
rent payable thereunder increases during the
term of the lease. These increases may
adversely affect the cash flow and net income
of the borrower from the mortgaged property.
The ground lease relating to the AFCO Hanger
One Air Cargo Complex Loan does not contain
provisions prohibiting the ground lessor and
tenant from amending, modifying or accepting
a voluntary termination or surrender of the
ground lease, without the lender's consent,
and the ground lessor, which is a municipal
authority related to the City of Los Angeles,
has not provided that comfort in an estoppel
letter or similar document. The loan
documents prohibit the borrower from
amending, modifying, terminating or
surrendering the ground lease without the
lender's consent, and an affiliate of the
Borrower has guaranteed the full loan amount
in the event that the borrower and the ground
lessor surrender, cancel, modify or amend the
lease without the prior written consent of
the lender.
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The parking structures which serve the
mortgaged property securing The Lakes
Mortgage Loan are ground leased to the
Borrower. The rents due under that ground
lease are equal to the debt service payments
due on certain floating rate tax exempt bonds
floated by the City of West Covina
Redevelopment Agency to finance construction
of the parking structures.
RISKS RELATING TO The Mortgage Pool includes four groups of
ENFORCEABILITY OF cross-collateralized mortgage loans,
CROSS-COLLATERALIZATION representing 7.0% of the initial outstanding
pool balance. See Appendix II hereto.
Cross-collateralization arrangements
involving more than one borrower could be
challenged as fraudulent conveyances by
creditors of the related borrower in an
action brought outside a bankruptcy case or,
in addition, if such borrower were to become
a debtor in a bankruptcy case, by the
borrower's representative. A lien granted by
a borrower entity could be avoided if a court
were to determine that: (i) such borrower was
insolvent when it granted 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) such borrower did not
receive fair consideration or reasonably
equivalent value when it allowed its
mortgaged property or properties to be
encumbered by a lien securing the entire
indebtedness. Among other things, a legal
challenge to the granting of the liens may
focus on the benefits realized by such
borrower from the respective mortgage loan
proceeds, as well as the overall
cross-collateralization. If a court were to
conclude that the granting of the liens was
an avoidable fraudulent conveyance, that
court could subordinate all or part of the
pertinent mortgage loan to existing or future
indebtedness of that borrower. The court also
could recover payments made under that
mortgage loan or take other actions
detrimental to the holders of the
certificates, including, under certain
circumstances, invalidating the loan or the
mortgages securing such
cross-collateralization.
POTENTIAL ABSENCE OF In some jurisdictions, if tenant leases are
LEASE SUBORDINATION AND subordinate to the liens created by the
ATTORNMENT PROVISIONS mortgage and do not contain attornment
ENTAILS RISKS provisions (i.e. provisions requiring the
tenant to recognize a successor owner
following foreclosure as landlord under the
lease), the leases may terminate upon the
transfer of the property to a foreclosing
lender or purchaser at foreclosure. Not all
leases were reviewed to ascertain the
existence of attornment or subordination
provisions. Accordingly, if a mortgaged
property is located in such a jurisdiction
and is leased to one or more desirable
tenants under leases that are subordinate to
the mortgage and do not contain attornment
provisions, such mortgaged property could
experience a further decline in value if such
tenants' leases were terminated. This is
particularly likely if such tenants were
paying above-market rents or could not be
replaced.
<PAGE>
If a lease is not subordinate to a mortgage,
the trust will not possess the right to
dispossess the tenant upon foreclosure of the
mortgaged property (unless it has otherwise
agreed with the tenant). If the lease
contains provisions inconsistent with the
mortgage (e.g. provisions relating to
application of insurance proceeds or
condemnation awards) or which could affect
the enforcement of the lender's rights (e.g.
a right of first refusal to purchase the
property), the provisions of the lease will
take precedence over the provisions of the
mortgage. Moreover, the absence of
subordination may subject the foreclosing
lender or purchaser at foreclosure to claims
or offset rights that the tenants might have
had against the borrower. Certain of the
leases at the mortgaged properties included
in the trust may not be subordinate to the
related Mortgage.
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RISKS RELATING TO There may be pending or threatened legal
LITIGATION proceedings against the borrowers and
managers of the mortgaged properties and
their respective affiliates arising out of
the ordinary business of the borrowers,
managers and affiliates. We cannot assure you
that any such litigation would not have a
material adverse effect on distributions on
the Offered Certificates.
RISKS RELATING TO Under the Americans with Disabilities Act of
COMPLIANCE WITH 1990 ("ADA"), all public accommodations are
AMERICANS WITH required to meet certain federal requirements
DISABILITIES ACT related to access and use by disabled
persons. Borrowers may incur costs 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.
RISKS RELATING TO Conflicts Between Various Classes of
CONFLICTS OF INTEREST Certificateholders. The Special Servicer is
given considerable latitude in determining
whether and in what manner to liquidate or
modify defaulted mortgage loans. The
Operating Adviser will be empowered to
replace the Special Servicer. At any given
time, the Operating Adviser will be
controlled generally by a majority of the
holders of the most subordinated (or, under
certain circumstances, the next most
subordinated) class of certificates (that is,
the Controlling Class) outstanding from time
to time, and such holders may have interests
in conflict with those of the holders of the
other certificates. For instance, the holders
of certificates of the Controlling Class
might desire to mitigate the potential for
loss to that Class from a troubled mortgage
loan by deferring enforcement in the hope of
maximizing future proceeds. However, the
interests of the trust may be better served
by prompt action, since delay followed by a
market downturn could result in less proceeds
to the trust than would have been realized if
earlier action had been taken.
The Special Servicer or an affiliate may
acquire certain of the most subordinated
certificates (including those of the initial
Controlling Class). Under such circumstances,
the Special Servicer itself may have interests
that conflict with the interests of the other
holders of the certificates.
Conflicts Between Trust or Trustee and FINOVA
Realty Capital Inc. Conflicts of interest may
arise between the trust and FINOVA Realty
Capital Inc. or its affiliates that engage in
the acquisition, development, operation,
financing and disposition of real estate.
Those conflicts may arise because FINOVA
Realty Capital Inc. and its affiliates intend
to continue to actively acquire, develop,
operate, finance and dispose of real
estate-related assets in the ordinary course
of their business. During the course of their
business activities, FINOVA Realty Capital
Inc. or such affiliates may acquire or sell
properties, or finance mortgage loans secured
by properties, which may include the mortgaged
properties or properties which are in the same
markets as the mortgaged properties. In such
case, the interests of FINOVA Realty Capital
Inc. or such affiliates may differ from, and
compete with, the interests of the trust, and
decisions made with respect to those assets
may adversely affect the amount and timing of
distributions with respect to the
certificates. In addition, FINOVA Realty
Capital Inc. and its affiliates may, in the
ordinary course of business, engage in a
banking relationship with the Trustee and its
affiliates.
Conflicts Between Managers and the Mortgage
Loan Borrowers. Substantially all of the
property managers for the mortgaged properties
(or their affiliates)
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manage additional properties, including
properties that may compete with the
mortgaged properties. Affiliates of the
managers, and certain of the managers
themselves, also may own other properties,
including competing properties. The managers
of the mortgaged properties may accordingly
experience conflicts of interest in the
management of such mortgaged properties.
Conflicts Between FINOVA Realty Capital Inc.
and Classes of Certificateholders. FINOVA
Realty Capital Inc. or its affiliates may
acquire certain of the Offered Certificates.
Under such circumstances, they may become the
Controlling Class, and as such have interests
that may conflict with their interests as a
Seller of the Mortgage Loans.
RISKS RELATING TO The yield to maturity on your certificates
PREPAYMENTS AND will depend, in significant part, upon the
REPURCHASES rate and timing of principal payments on the
mortgage loans. For this purpose, principal
payments include both voluntary prepayments,
if permitted, and involuntary prepayments,
such as prepayments resulting from casualty
or condemnation of mortgaged properties,
defaults and liquidations by borrowers, or
repurchases upon a Seller's breaches of
representations and warranties. Because the
Notional Amount of the Class X Certificates
is based upon the Principal Amounts of the
certificates with principal amounts, the
yield to maturity on the Class X Certificates
will be extremely sensitive to the rate and
timing of prepayments of principal.
The investment performance of your
certificates may vary materially and
adversely from your expectations if the
actual rate of prepayment is higher or lower
than you anticipate.
Voluntary prepayments under certain of the
mortgage loans require payment of a yield
maintenance premium unless the loan is within
a specified number of days of the anticipated
repayment date or stated maturity date, as
the case may be. See "Description of the
Mortgage Pool--Certain Terms and
Characteristics of the Mortgage
Loans--Prepayment Restrictions."
Nevertheless, we cannot assure you that the
related borrowers will refrain from prepaying
their mortgage loans due to the existence of
a prepayment premium. We also cannot assure
you that involuntary prepayments will not
occur. The rate at which voluntary
prepayments occur on the mortgage loans will
be affected by a variety of factors,
including:
o the terms of the mortgage loans;
o the length of any prepayment lockout
period;
o the level of prevailing interest
rates;
o the availability of mortgage credit;
o the applicable yield maintenance
charges or prepayment premiums;
o the Master Servicer's or Special
Servicer's ability to enforce those
charges or premiums;
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<PAGE>
o the occurrence of casualties or
natural disasters; and
o economic, demographic, tax, legal or
other factors.
Generally, no yield maintenance charge or
prepayment premium will be required for
prepayments in connection with a casualty or
condemnation, or, in some cases, as a result
of the application of cash collateral
retained by the Lender, or, with respect to
many mortgage loans, as a result of changes
in tax or debt credit laws, unless, in the
case of most of the mortgage loans, an event
of default has occurred and is continuing. In
addition, if a Seller repurchases any
mortgage from the trust due to breaches of
representations or warranties, the repurchase
price paid will be passed through to the
holders of the certificates with the same
effect as if the mortgage loan had been
prepaid in part or in full, except that no
prepayment premium or yield maintenance
charge would be payable. Such a repurchase
may therefore adversely affect the yield to
maturity on your certificates.
RISKS RELATING TO Provisions requiring yield maintenance
ENFORCEABILITY OF charges, prepayment premiums and lockout
PREPAYMENT PREMIUMS periods may not be enforceable in some states
and under federal bankruptcy law. Those
provisions for charges and premiums also may
constitute interest for usury purposes.
Accordingly, we cannot assure you that the
obligation to pay a yield maintenance charge
or prepayment premium or to prohibit
prepayments will be enforceable. We also
cannot assure you that the foreclosure
proceeds will be sufficient to pay an
enforceable yield maintenance charge or
prepayment premium. Additionally, although
the collateral substitution provisions
related to defeasance do not have the same
effect on the certificateholders as
prepayment, we cannot assure you that a court
would not interpret those provisions as
requiring a yield maintenance charge or
prepayment premium. In certain jurisdictions
those collateral substitution provisions
might therefore be deemed unenforceable under
applicable law, or usurious.
YIELD CONSIDERATIONS The yield on any certificate will depend on
(i) the price at which such certificate is
purchased by an investor and (ii) the rate,
timing and amount of distributions on such
certificate. The rate, timing and amount of
distributions on any certificate will, in
turn, depend on, among other things:
o the interest rate for such
certificate;
o the rate and timing of principal
payments (including principal
prepayments) and other principal
collections on or in respect of the
mortgage loans and the extent to which
such amounts are to be applied or
otherwise result in a reduction of the
balance or Notional Amount of such
certificate;
o the rate, timing and severity of
losses on or in respect of the
mortgage loans or unanticipated
expenses of the trust;
o the timing and severity of any
interest shortfalls resulting from
prepayments;
o the extent to which the rights to
receive distributions on such
certificates are subordinated to the
rights of holders of more senior
certificates;
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<PAGE>
o the timing and severity of any
Appraisal Reductions; and
o the extent to which prepayment
premiums are collected and, in turn,
distributed on such certificates.
RISKS RELATING TO The rate and timing of delinquencies or
BORROWER DEFAULT defaults on the mortgage loans will affect:
o the aggregate amount of distributions
on the Offered Certificates;
o the yield to maturity of the Offered
Certificates;
o the rate of principal payments; and
o the weighted average life of the
Offered Certificates.
The rights of holders of each class of
subordinate certificates to receive certain
payments of principal and interest otherwise
payable on their certificates will be
subordinated to such rights of the holders of
the more senior certificates having an
earlier alphabetical class designation. See
"Description of the Certificates--
Distributions" in this prospectus supplement.
Losses on the mortgage loans will be allocated
to the Class O, Class N, Class M, Class L,
Class K, Class J, Class H, Class G, Class F,
Class E, Class D, Class C and Class B
Certificates, in that order, reducing amounts
otherwise payable to each class. Any remaining
losses would then be allocated to the Class A
Certificates.
If losses on the mortgage loans exceed the
aggregate principal amount of the classes of
certificates subordinated to a particular
class, such class will suffer a loss equal to
the full amount of such excess (up to the
outstanding principal amount of such class).
If you calculate your anticipated yield based
on assumed rates of default and losses that
are lower than the default rate and losses
actually experienced and such losses are
allocable to your certificates, your actual
yield to maturity will be lower than the
assumed yield. Under certain extreme
scenarios, such yield could be negative. In
general, the earlier a loss borne by your
certificates occurs, the greater the effect
on your yield to maturity.
Even if losses on the mortgage loans are not
borne by your certificates, those losses may
affect the weighted average life and yield to
maturity of your certificates. This may be so
because those losses cause your certificates
to have a higher percentage ownership
interest in the trust (and therefore related
distributions of principal payments on the
mortgage loans) than would otherwise have
been the case. The effect on the weighted
average life and yield to maturity of your
certificates will depend upon the
characteristics of the remaining mortgage
loans.
Additionally, delinquencies and defaults on
the mortgage loans may significantly delay
the receipt of distributions by you on your
certificates, unless P&I Advances are made to
cover delinquent payments or the
subordination of another class of
certificates fully offsets the effects of any
such delinquency or default.
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<PAGE>
Also, if the related borrower does not repay
a mortgage loan with a hyper-amortization
feature by its anticipated repayment date,
the effect will be to increase the weighted
average life of your certificates and may
reduce your yield to maturity.
RISKS RELATING TO To the extent described in this prospectus
CERTAIN PAYMENTS supplement, the Master Servicer, the Special
Servicer or the Trustee, as applicable, will
be entitled to receive interest on
unreimbursed Advances. This interest will
generally accrue from the date on which the
related Advance is made or the related
expense is incurred through the date of
reimbursement. In addition, under certain
circumstances, including delinquencies in the
payment of principal and interest, a mortgage
loan will be specially serviced, and the
Special Servicer is entitled to compensation
for special servicing activities. The right
to receive interest on Advances or special
servicing compensation is senior to the
rights of certificateholders to receive
distributions.
RISKS OF LIMITED Your certificates will not be listed on any
LIQUIDITY AND MARKET securities exchange, and there is currently
VALUE no secondary market for the Offered
Certificates. While Morgan Stanley & Co.
Incorporated and Deutsche Bank Securities
Inc. each currently intends to make a
secondary market in the Offered Certificates,
it is not obligated to do so. Accordingly,
you may not have an active or liquid
secondary market for your certificates. Lack
of liquidity could result in a substantial
decrease in the market value of your
certificates. The market value of your
certificates also may be affected by many
other factors, including the then-prevailing
interest rates. Furthermore, you should be
aware that the market for securities of the
same type as the certificates has recently
been volatile and offered very limited
liquidity. Finally, FINOVA Realty Capital
Inc. or its affiliates may acquire certain
classes of Offered Certificates in which case
the market for those classes of Offered
Certificates may not be as liquid as if third
parties had acquired such certificates.
RISK OF PASS-THROUGH The interest rate of the Class X Certificates
RATE VARIABILITY is based on the NWAC Rate of the mortgage
CONSIDERATIONS loans. In general, mortgage loans with
relatively high mortgage interest rates are
more likely to prepay than mortgage loans with
relatively low mortgage interest rates.
Varying rates of principal payments on
mortgage loans having mortgage interest rates
above the weighted average of such rates of
the mortgage loans will have the effect of
reducing the interest rate of such
certificates.
RISK OF LIMITED ASSETS The Offered Certificates will represent
interests solely in the assets of the trust
and will not represent an interest in or an
obligation of any other entity or person.
Distributions on any of the certificates will
depend solely on the amount and timing of
payments on the mortgage loans.
RISKS ASSOCIATED WITH We are aware of the issues associated with
YEAR 2000 COMPLIANCE the programming code in existing computer
systems as the millennium (year 2000)
approaches. The "year 2000 problem" is
pervasive and complex; virtually every
computer operation will be affected in some
way by the rollover of the two digit year
value to 00. The issue is whether computer
systems will properly recognize
date-sensitive information when the year
changes to 2000. Systems that do not properly
recognize such information could generate
erroneous data or otherwise fail.
We have been advised by each of the Master
Servicer and the Special Servicer that they
are committed either to (i) implement
modifications to their
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respective existing material systems to the
extent required to cause them to be year 2000
compliant or (ii) acquire computer systems
that are year 2000 compliant in each case
prior to August 31, 1999. Furthermore, we
have been advised by the Trustee that it is
currently modifying its computer systems and
applications and expects that it will be year
2000 capable prior to December 31. However,
we have not made any independent
investigation of the computer systems of the
Master Servicer, the Special Servicer or the
Trustee. In the event that computer problems
arise out of a failure of such efforts to be
completed on time, or in the event that the
computer systems of the Master Servicer, the
Special Servicer or the Trustee are not fully
year 2000 compliant, the resulting
disruptions in the collection or distribution
of receipts on the mortgage loans could
materially adversely affect your investment.
OTHER RISKS See "Risk Factors" in the prospectus for a
description of certain other risks and
special considerations that may be applicable
to your certificates.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 1999-FNV1 Commercial Mortgage Pass-Through Certificates (the
"Certificates") will be issued on or about April 21, 1999 (the "Closing Date")
pursuant to a Pooling and Servicing Agreement to be dated as of April 1, 1999
(the "Pooling and Servicing Agreement"), among the Depositor, the Master
Servicer, the Special Servicer and the Trustee. Registered holders of the
Certificates are herein referred to as "Certificateholders". The Certificates
will represent in the aggregate the entire beneficial ownership interest in a
trust fund (the "Trust Fund") consisting primarily of: (i) the Mortgage Loans
and all payments under and proceeds of the Mortgage Loans received after the
Cut-off Date (exclusive of principal prepayments received prior to the Cut-off
Date and scheduled payments of principal and interest due on or before the
Cut-off Date); (ii) any Mortgaged Property acquired on behalf of the
Certificateholders in respect of a defaulted Mortgage Loan through foreclosure,
deed in lieu of foreclosure or otherwise (any such Mortgaged Property, upon
acquisition, an "REO Property"); and (iii) certain rights of the Depositor
under, or assigned to the Depositor pursuant to, the Mortgage Loan Purchase
Agreement relating to Mortgage Loan document delivery requirements and the
representations and warranties of the Seller regarding its Mortgage Loans.
The Certificates will consist of 19 classes (each, a "Class") thereof,
to be designated as: (i) the Class A-1 Certificates and the Class A-2
Certificates (collectively, the "Class A Certificates"); (ii) the Class X
Certificates (the "Interest Only Certificates" or the "Class X Certificates"
and, collectively with the Class A Certificates, the "Senior Certificates");
(iii) the Class B Certificates, the Class C Certificates, the Class D
Certificates, the Class E Certificates, the Class F Certificates, the Class G
Certificates, the Class H Certificates, the Class J Certificates, the Class K
Certificates, the Class L Certificates, the Class M Certificates, the Class N
Certificates and the Class O Certificates (collectively, the "Subordinate
Certificates" and, collectively with the Senior Certificates, the "REMIC Regular
Certificates"); and (iv) the Class R-I Certificates, the Class R-II Certificates
and the Class R-III Certificates (collectively, the "REMIC Residual
Certificates").
Only the Class A, Class B, Class C, Class D and Class E Certificates
(the "Offered Certificates") are offered hereby. The Class X, Class F, Class G,
Class H, Class J, Class K, Class L, Class M, Class N and Class O Certificates
and the REMIC Residual Certificates (collectively, the "Private Certificates")
have not been registered under the Securities Act of 1933, as amended, and are
not offered hereby. The Private Certificates other than the Class X Certificates
are referred to collectively as the "Subordinate Private Certificates."
REGISTRATION; DENOMINATIONS
The Offered Certificates will initially be issued in book-entry format
(the "Book-Entry Certificates"). The Class A-1 and Class A-2 Certificates will
be offered in minimum denominations of $25,000. The Class B Certificates will be
offered in minimum denominations of $50,000. The remaining Certificates will be
issued in denominations of $100,000 and in any whole dollar denomination in
excess thereof.
BOOK-ENTRY REGISTRATION
Each Class of Offered Certificates will initially be represented by one
or more global Certificates registered in the name of the nominee of The
Depository Trust Company ("DTC"). The Depositor has been informed by DTC that
DTC's nominee initially will be Cede & Co. No person acquiring an interest in
such an Offered Certificate (any such person, a "Certificate Owner") will be
entitled to receive a fully registered physical certificate (a "Definitive
Certificate") representing such interest, except as set forth in the Prospectus
under "Description of the Certificates--Book-Entry Registration and Definitive
Certificates". Unless and until Definitive Certificates are issued in respect of
any Class of Offered Certificates, all references to actions by holders of such
Offered Certificates will refer to actions taken by DTC upon instructions
received from the related Certificate Owners through DTC's participating
organizations ("Participants"), and all references herein to payments, notices,
reports and statements to holders of such Offered Certificates will refer to
payments, notices, reports and statements to DTC or Cede & Co., as the
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registered holder of the Offered Certificates, for distribution to the related
Certificate Owners through DTC's Participants in accordance with DTC procedures.
Until Definitive Certificates are issued in respect of any Class of
Offered Certificates, interests in such Certificates will be transferred on the
book-entry records of DTC (and its Participants). See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates" in the
Prospectus.
Certificateholders must elect to hold their Offered Certificates through
any of DTC (in the United States) or Cedel or 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 Citibank, N.A.
("Citibank") or The Chase Manhattan Bank ("Chase"), the relevant depositories of
Cedel and Euroclear, respectively.
Because of time-zone differences, credits of securities received in
Cedel or Euroclear as a result of a transaction with a DTC participant will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel participant on such business day. Cash received in Cedel or
Euroclear as a result of sales of securities by or through a Cedel participant
or 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.
CERTIFICATE BALANCES AND NOTIONAL AMOUNTS
Upon initial issuance, the Class A-1, Class A-2, Class B, Class C, Class
D, Class E, Class F, Class G, Class H, Class J, Class K, Class L, Class M, Class
N and Class O Certificates (collectively, the "Principal Balance Certificates")
will have the following aggregate Certificate Balances (in each case, subject to
a variance of plus or minus 5%):
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
INITIAL AGGREGATE PERCENT OF INITIAL PERCENT OF
CLASS CERTIFICATE BALANCE POOL BALANCE CREDIT SUPPORT
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A-1 $101,000,000 15.98% 30.25%
Class A-2 $339,885,000 53.77% 30.25%
Class B $33,185,000 5.25% 25.00%
Class C $26,864,000 4.25% 20.75%
Class D $12,642,000 2.00% 18.75%
Class E $30,025,000 4.75% 14.00%
Class F $14,222,000 2.25% 11.75%
Class G $20,543,000 3.25% 8.50%
Class H $7,901,000 1.25% 7.25%
Class J $9,481,000 1.50% 5.75%
Class K $7,902,000 1.25% 4.50%
Class L $6,321,000 1.00% 3.50%
Class M $6,321,000 1.00% 2.50%
Class N $9,481,000 1.50% 1.00%
Class O $6,321,383 1.00% 0.00%
</TABLE>
The "Certificate Balance" of any Principal Balance Certificate
outstanding at any time will equal the then-maximum amount that the holder
thereof will be entitled to receive in respect of principal out of future cash
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flow on the Mortgage Loans and other assets included in the Trust Fund. The
initial Certificate Balance of any Principal Balance Certificate will be set
forth on the face thereof. On each Distribution Date, the Certificate Balance of
each Principal Balance Certificate will be reduced by any distributions of
principal actually made on such Certificate on such Distribution Date, and will
be further reduced by any Realized Losses and Expense Losses allocated to such
Certificate on such Distribution Date. See "--Distributions" and
"--Subordination; Allocation of Losses and Certain Expenses" below.
The Interest Only Certificates will not have Certificate Balances. Each
such Certificate will represent the right to receive distributions of interest
accrued as described herein on a notional principal amount (a "Notional
Amount"). The aggregate Notional Amount of the Interest Only Certificates will
equal 100% of the aggregate Stated Principal Balance of the REMIC II Regular
Interests, which will be the same as the aggregate Stated Principal Balance of
the Mortgage Loans. The Interest Only Certificates will have an initial
aggregate Notional Amount of $632,094,383 (subject to a variance of plus or
minus 5%).
The REMIC Residual Certificates will not have Certificate Balances or
Notional Amounts.
The "Stated Principal Balance" of each Mortgage Loan will generally
equal the unpaid principal balance thereof as of the Cut-off Date (or, in the
case of a Qualifying Substitute Mortgage Loan (as defined herein), as of the
date of substitution), after application of all payments due on or before such
date (whether or not received), reduced (to not less than zero) on each
subsequent Distribution Date by (i) any payments or other collections (or
advances in lieu thereof) of principal of such Mortgage Loan that have been or,
if they had not been applied to cover Additional Trust Fund Expenses, would have
been distributed on the Certificates on such date, and (ii) the principal
portion of any Realized Loss incurred in respect of or allocable to such
Mortgage Loan during the related Collection Period. Notwithstanding the
foregoing, but subject to the discussion under "--Distribution--Treatment of REO
Properties" below, if any Mortgage Loan is paid in full, liquidated or otherwise
removed from the Trust Fund, then, commencing as of the first Distribution Date
following the Collection Period during which such event occurred, the Stated
Principal Balance of such Mortgage Loan will be zero.
PASS-THROUGH RATES
The rate per annum at which any Class of Certificates accrues interest
from time to time is herein referred to as its "Pass-Through Rate."
The Pass-Through Rates applicable to the Class A-1, Class A-2, Class B,
Class C, Class D, Class G, Class H, Class J, Class K, Class L, Class M, Class N
and Class O Certificates will, at all times, be equal to 6.12%, 6.53%, 6.66%,
6.80%, 7.03%, 6.12%, 6.12%, 6.12%, 6.12%, 6.12%, 6.12%, 6.12% and 6.12% per
annum, respectively; provided, however, that each such Pass-Through Rate will
not exceed the NWAC Rate for such Distribution Date.
The Pass-Through Rates applicable to Class E and Class F Certificates
will, at all times, be equal to the NWAC Rate minus 0.03% and 0.03%,
respectively.
The Pass-Through Rate applicable to the Interest Only Certificates for
the initial Distribution Date will equal approximately 0.98% per annum. The
Pass-Through Rate applicable to the Interest Only Certificates for each
subsequent Distribution Date will, in general, equal the excess, if any, of (i)
the NWAC Rate, over (ii) the weighted average of the Pass-Though Rates
applicable to the respective Classes of Principal Balance Certificates for such
Distribution Date, the relevant weighting to be on the basis of the respective
aggregate Certificate Balances of such Classes of Certificates immediately prior
to such Distribution Date.
The "NWAC Rate" for any Distribution Date is the weighted average of the
Net Mortgage Rates in effect for the Mortgage Loans as of their Due Dates in the
month preceding the month in which such Distribution Date occurs weighted on the
basis of their respective Stated Principal Balances on such Due Date.
The "Net Mortgage Rate" with respect to any Mortgage Loan will, in
general, be a per annum rate equal to the related Mortgage Rate in effect from
time to time, minus the applicable Administrative Cost Rate. However, for
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purposes of calculating the Class X Pass-Through Rates, the Net Mortgage Rate
for any Mortgage Loan will be determined without regard to any post-Closing Date
modification, waiver or amendment of the terms of such Mortgage Loan. In
addition, because the Certificates accrue interest on the basis of a 360-day
year consisting of twelve 30-day months, when calculating the Pass-Through Rate
for each Class of Certificates for each Distribution Date, the Net Mortgage Rate
of any Mortgage Loan that accrues interest other than on the basis of a 360-day
year consisting of twelve 30-day months (a "Non-30/360 Loan") will be
appropriately adjusted to reflect such difference. In addition, with respect to
each Interest Reserve Loan (as defined herein), (i) the Mortgage Rate in effect
during (a) December of each year that does not immediately precede a leap year
and (b) January of each year, will be determined net of the applicable Withheld
Amounts and (ii) the Mortgage Rate in effect during February of each year will
be determined after taking into account the addition of the applicable Withheld
Amounts.
The "Collection Period" related to each Distribution Date will begin on
the day after the Determination Date in the month preceding the month of such
Distribution Date (or, in the case of the first Distribution Date, the day after
the Cut-off Date) and will end on the Determination Date in the month in which
the Distribution Date occurs.
The "Determination Date" related to each Distribution Date is the
eleventh day of the month in which such Distribution Date occurs (or if such
date is not a business day, then the next following business day).
DISTRIBUTIONS
General.
Distributions on or with respect to the Certificates will be made by the
Trustee, to the extent of available funds, and in accordance with the manner and
priority set forth herein, on the 15th day of each month, or if any such 15th
day is not a business day, on the next succeeding business day (each, a
"Distribution Date"), commencing in May, 1999, provided that the Distribution
Date will be no earlier than the fourth Business Day following the 11th day of
such month. Except as otherwise described below, all such distributions will be
made to the persons in whose names the Certificates are registered at the close
of business on the related Record Date and, as to each such person, will be made
by wire transfer in immediately available funds to the account specified by the
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder will have provided the Trustee with wiring
instructions on or before the related Record Date, or otherwise by check mailed
to such Certificateholder. The final distribution on any Certificate (determined
without regard to any possible future reimbursement of any Realized Losses or
Expense Losses previously allocated to such Certificate) will be made in a like
manner, but only upon presentation and surrender of such Certificate at the
location that will be specified in a notice of the pendency of such final
distribution. Any distribution that is to be made with respect to a Certificate
in reimbursement of a Realized Loss or Expense Loss previously allocated
thereto, which reimbursement is to occur after the date on which such
Certificate is surrendered as contemplated by the preceding sentence (the
likelihood of any such distribution being remote), will be made by check mailed
to the Certificateholder that surrendered such Certificate. All distributions
made on or with respect to a Class of Certificates will be allocated pro rata
among such Certificates based on their respective Percentage Interests in such
Class.
The "Record Date" with respect to each Class of Offered Certificates for
each Distribution Date will be the last business day of the calendar month
immediately preceding the month in which such Distribution Date occurs. The
"Percentage Interest" evidenced by any Offered Certificate in the Class to which
it belongs will be a fraction, expressed as a percentage, the numerator of which
is equal to the initial Certificate Balance or Notional Amount, as the case may
be, of such Certificate as set forth on the face thereof, and the denominator of
which is equal to the initial aggregate Certificate Balance or Notional Amount,
as the case may be, of such Class.
The Available Distribution Amount.
With respect to any Distribution Date, distributions of interest on and
principal of the Certificates will be made from the Available Distribution
Amount for such Distribution Date. The "Available Distribution Amount" for any
Distribution Date will, in general, equal (a) all amounts on deposit in the
Certificate Account (as described in the
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Prospectus) as of the close of business on the related Determination Date,
exclusive of any portion thereof that represents one or more of the following:
(i) Monthly Payments collected but due on a Due Date subsequent
to the related Collection Period;
(ii) Prepayment Premiums (which are separately distributable on
the Certificates as hereinafter described);
(iii) amounts that are payable or reimbursable to any person
other than the Certificateholders (including amounts payable to the
Master Servicer, the Special Servicer or the Trustee as compensation or
in reimbursement of outstanding Advances and amounts payable in respect
of Additional Trust Fund Expenses);
(iv) with respect to any Distribution Date occurring in each
February, and in any January occurring in a year that is not a leap
year, the Withheld Amounts to be deposited in the Interest Reserve
Account and held for future distribution; and
(v) amounts deposited in the Certificate Account in error;
plus (b) to the extent not already included in clause (a), any P&I
Advances and Compensating Interest Payments made with respect to such
Distribution Date.
As used herein, "Certificate Account" includes, on a collective basis,
each collection account established and maintained by the Master Servicer for
the retention of payments and other collections of principal and interest in
respect of the Mortgage Loans (other than Excess Interest in respect of
Anticipated Repayment Date Loans, which will be deposited to the Excess Interest
Distribution Account and paid to the Class O Certificates) and each distribution
account established and maintained by the Trustee for the retention of funds
pending distribution on the Certificates. See "Description of the
Agreements--Certificate Account and Other Collection Accounts" in the
Prospectus.
Application of the Available Distribution Amount.
On each Distribution Date, the Trustee will apply the Available
Distribution Amount for such date for the following purposes and in the
following order of priority:
(1) to pay interest to the holders of the respective Classes of
Senior Certificates, up to an amount equal to, and pro rata as among
such Classes in accordance with, all Distributable Certificate Interest
in respect of each such Class of Certificates for such Distribution
Date;
(2) to pay principal from the Principal Distribution Amount for
such Distribution Date, first to the holders of the Class A-1
Certificates and second to the holders of the Class A-2 Certificates, in
each case, up to an amount equal to the lesser of (i) the
then-outstanding aggregate Certificate Balance of such Class of
Certificates and (ii) the remaining portion of such Principal
Distribution Amount;
(3) to reimburse the holders of the respective Classes of Class A
Certificates, up to an amount equal to, and pro rata as among such
Classes in accordance with, (a) the respective amounts of Realized
Losses and Expense Losses, if any, previously allocated to such Classes
of Certificates and for which no reimbursement has previously been paid,
plus (b) all unpaid interest on such amounts (compounded monthly) at the
respective Pass-Through Rates of such Classes; and
(4) to make payments on the Subordinate Certificates and the
REMIC Residual Certificates as contemplated below;
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provided that, on each Distribution Date after the aggregate Certificate Balance
of the Subordinate Certificates has been reduced to zero, and in any event on
the final Distribution Date in connection with a termination of the Trust Fund
(see "--Optional Termination" below), the payments of principal to be made as
contemplated by clause (2) above with respect to the Class A Certificates, will
be so made to the holders of the respective Classes of such Certificates, up to
an amount equal to, and pro rata as among such Classes in accordance with the
respective then-outstanding aggregate Certificate Balances of such Classes of
Certificates.
On each Distribution Date, following the above-described distributions
on the Senior Certificates, the Trustee will apply the remaining portion, if
any, of the Available Distribution Amount for such date to make payments on the
respective Classes of Subordinate Certificates in alphabetical order of Class
designation. On each Distribution Date, the holders of each Class of Subordinate
Certificates will be entitled, to the extent of the Available Distribution
Amount remaining after all required distributions to be made therefrom on the
Senior Certificates (as described under this "--Distribution--Application of the
Available Distribution Amount" section) and each other Class of Subordinate
Certificates, if any, with an earlier alphabetical Class designation: first, to
distributions of interest, up to an amount equal to all Distributable
Certificate Interest in respect of such Class of Certificates for such
Distribution Date; second, if the aggregate Certificate Balance of the Class A
Certificates and each other Class of Subordinate Certificates, if any, with an
earlier alphabetical Class designation has been reduced to zero, to
distributions of principal, up to an amount equal to the lesser of (a) the
then-outstanding aggregate Certificate Balance of such Class of Certificates and
(b) the aggregate of the remaining Principal Distribution Amounts for such
Distribution Date (or, on the final Distribution Date in connection with the
termination of the Trust Fund, up to an amount equal to the then-outstanding
aggregate Certificate Balance of such Class of Certificates); and, third, to
distributions for purposes of reimbursement, up to an amount equal to (a) all
Realized Losses and Expense Losses, if any, previously allocated to such Class
of Certificates and for which no reimbursement has previously been paid, plus
(b) all unpaid interest on such amounts (compounded monthly) at the Pass-Through
Rate for such Class of Certificates.
On each Distribution Date, following the above-described distributions
on the REMIC Regular Certificates, the Trustee will pay the remaining portion,
if any, of the Available Distribution Amounts for such date to the holders of
the Class R-I Certificates, and shall pay any amount of Excess Interest on
deposit in the Excess Interest Distribution Account for the related Collection
Period to the holders of the Class O Certificates.
The "Excess Interest" in respect of each Anticipated Repayment Date Loan
that does not repay on its Anticipated Repayment Date is the excess, if any, of
interest accrued at the rate of interest applicable to such loan after the
Anticipated Repayment Date (the "Revised Rate") over interest accrued at the
rate of interest applicable to such loan before the Anticipated Repayment Date,
together with interest thereon at the Revised Rate from the date accrued to the
date such interest is payable (generally, after payment in full of the
outstanding principal balance of such loan).
Distributable Certificate Interest.
The "Distributable Certificate Interest" in respect of each Class of
REMIC Regular Certificates for each Distribution Date will be equal to the
Accrued Certificate Interest in respect of such Class of Certificates for such
Distribution Date, reduced (to not less than zero) by such Class of
Certificates' allocable share (calculated as described below) of any Net
Aggregate Prepayment Interest Shortfall for such Distribution Date, and
increased by any Class Interest Shortfall in respect of such Class of
Certificates for such Distribution Date. See "--Prepayment Interest Shortfalls"
below.
The "Accrued Certificate Interest" in respect of each Class of REMIC
Regular Certificates for each Distribution Date will equal the amount of
interest for the applicable Interest Accrual Period accrued at the applicable
Pass-Through Rate on the aggregate Certificate Balance or Notional Amount, as
the case may be, of such Class of Certificates outstanding immediately prior to
such Distribution Date. Accrued Certificate Interest will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.
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The "Class Interest Shortfall" with respect to any Class of REMIC
Regular Certificates for any Distribution Date, will equal: (a) in the case of
the initial Distribution Date, zero; and (b) in the case of any subsequent
Distribution Date, the sum of (i) the excess, if any, of (A) all Distributable
Certificate Interest in respect of such Class of Certificates for the
immediately preceding Distribution Date, over (B) all distributions of interest
made with respect to such Class of Certificates on the immediately preceding
Distribution Date, plus (ii) to the extent permitted by applicable law, other
than in the case of the Interest Only Certificates, one month's interest on any
such excess at the Pass-Through Rate applicable to such Class of Certificates.
The "Interest Accrual Period" for each Class of REMIC Regular
Certificates and each Distribution Date will be the calendar month immediately
preceding the month in which such Distribution Date occurs.
Principal Distribution Amount.
The "Principal Distribution Amount" for any Distribution Date will, in
general, equal the aggregate of the following:
(a) the principal portions of all Monthly Payments (other than
Balloon Payments) and any Assumed Monthly Payments due or deemed due, as
the case may be, in respect of the Mortgage Loans for their respective
Due Dates occurring during the related Collection Period; and
(b) all payments (including voluntary principal prepayments and
Balloon Payments) and other collections received on the Mortgage Loans
during the related Collection Period that were identified and applied by
the Master Servicer as recoveries of principal thereof, in each case net
of any portion of such amounts that represents a payment or other
recovery of the principal portion of any Monthly Payment (other than a
Balloon Payment) due, or the principal portion of any Assumed Monthly
Payment deemed due, in respect of the related Mortgage Loan on a Due
Date during or prior to the related Collection Period and not previously
paid or recovered.
If on any Distribution Date the aggregate amount of distributions of
principal made on the Principal Balance Certificates is less than such Principal
Distribution Amount, then the amount of such shortfall will be included in the
Principal Distribution Amount (if available) for the next succeeding
Distribution Date.
The "Monthly Payment" for any Mortgage Loan will, in general, be the
scheduled payment of principal and/or interest due thereon from time to time
(taking into account any waiver, modification or amendment of the terms of such
Mortgage Loan, whether agreed to by the Master Servicer or Special Servicer or
in connection with a bankruptcy or similar proceeding involving the related
borrower).
An "Assumed Monthly Payment" is an amount deemed due in respect of: (i)
any Balloon Loan that is delinquent in respect of its Balloon Payment beyond the
end of the Collection Period in which its stated maturity date occurs; or (ii)
any Mortgage Loan as to which the related Mortgaged Property has become an REO
Property. The Assumed Monthly Payment for any such Balloon Loan deemed due on
its stated maturity date and on each successive Due Date that it remains or is
deemed to remain outstanding shall equal the Monthly Payment that would have
been due thereon on such date if the related Balloon Payment had not come due,
but rather such Mortgage Loan had continued to amortize in accordance with such
loan's amortization schedule, if any, in effect immediately prior to maturity
and had continued to accrue interest in accordance with its terms in effect
immediately prior to maturity. The Assumed Monthly Payment for any such Mortgage
Loan as to which the related Mortgaged Property has become an REO Property,
deemed due on each Due Date for so long as such REO Property remains part of the
Trust Fund, will equal the Monthly Payment (or, in the case of a Balloon Loan
described in the prior sentence, the Assumed Monthly Payment) due on the last
Due Date prior to the acquisition of such REO Property.
Distributions of Prepayment Premiums.
Any Prepayment Premium collected with respect to a Mortgage Loan during
any particular Collection Period will be distributed on the following
Distribution Date as follows: The holders of the respective Classes of
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Principal Balance Certificates (other than the Class G, Class H, Class J, Class
K, Class L, Class M, Class N and Class O Certificates) then entitled to
distributions of principal from the Principal Distribution Amount for such
Distribution Date, will be entitled to an aggregate amount (allocable among
such Classes, if more than one, as described below) equal to the lesser of (a)
such Prepayment Premium, and (b) such Prepayment Premium multiplied by a
fraction, the numerator of which is equal to the excess, if any, of the
Pass-Through Rate applicable to the most senior of such Classes of Certificates
then outstanding (or, in the case of two Classes of Class A Certificates, the
one with the earlier payment priority), over the relevant Discount Rate (as
defined herein), and the denominator of which is equal to the excess, if any,
of the Mortgage Rate for the prepaid Mortgage Loan, over the relevant Discount
Rate. If there is more than one Class of Principal Balance Certificates
entitled to distributions of principal from the Principal Distribution Amount
for such Distribution Date, the aggregate amount described in the preceding
sentence shall be allocated among such Classes on a pro rata basis in
accordance with the relative amounts of such distributions of principal. Any
portion of such Prepayment Premium that is not so distributed to the holders of
such Principal Balance Certificates will be distributed to the holders of the
Interest Only Certificates.
For purposes of the foregoing, the "Discount Rate" is the rate which,
when compounded monthly, is equivalent to the Treasury Rate when compounded
semi-annually. The "Treasury Rate" is the yield calculated by the linear
interpolation of the yields, as reported in Federal Reserve Statistical Release
H.15--Selected Interest Rates under the heading "U.S. government
securities/Treasury constant maturities" for the week ending prior to the date
of the relevant principal prepayment, of U.S. Treasury constant maturities with
a maturity date (one longer and one shorter) most nearly approximating the
maturity date (or Anticipated Repayment Date, if applicable) of the Mortgage
Loan prepaid. If Release H.15 is no longer published, the Trustee will select a
comparable publication to determine the Treasury Rate.
Any Prepayment Premiums distributed to the holders of a Class of
Certificates may not be sufficient to fully compensate such Certificateholders
for any loss in yield attributable to the related Principal Prepayments.
Interest Reserve Account.
The Master Servicer will establish and maintain with the Trustee an
"Interest Reserve Account" in the name of the Master Servicer for the benefit of
the holders of the Certificates. With respect to each Distribution Date
occurring in February and each Distribution Date occurring in any January which
occurs in a year that is not a leap year, there shall be deposited, in respect
of each Mortgage Loan that accrues interest on the basis of a 360-day year and
the actual number of days at a rate less than 7.70% (an "Interest Reserve
Loan"), an amount equal to one day's interest at the related Mortgage Rate (net
of any servicing fee payable therefrom) on the respective Stated Principal
Balance as of the immediately preceding Due Date, to the extent a Monthly
Payment or P&I Advance is made in respect thereof (all amounts so deposited in
any consecutive January (if applicable) and February, "Withheld Amounts"). With
respect to each Distribution Date occurring in March, an amount is required to
be withdrawn from the Interest Reserve Account in respect of each Interest
Reserve Loan equal to the related Withheld Amounts from the preceding January
(if applicable) and February, if any, and deposited into the Certificate
Account.
Treatment of REO Properties.
Notwithstanding that any Mortgaged Property may be acquired as part of
the Trust Fund through foreclosure, deed in lieu of foreclosure or otherwise,
the related Mortgage Loan will be treated, for purposes of, among other things,
determining distributions on the Certificates, allocations of Realized Losses
and Expense Losses to the Certificates, and the amount of Master Servicing Fees,
Special Servicing Fees and Trustee Fees payable under the Pooling and Servicing
Agreement, as having remained outstanding until such REO Property is liquidated.
Among other things, such Mortgage Loan will be taken into account when
determining Pass-Through Rates and the Principal Distribution Amount. In
connection therewith, operating revenues and other proceeds derived from such
REO Property (after application thereof to pay certain costs and taxes,
including certain reimbursements payable to the Master Servicer, the Special
Servicer and/or the Trustee, incurred in connection with the operation and
disposition of such REO Property) will be "applied" by the Master Servicer as
principal, interest and other amounts "due" on such Mortgage Loan, and, subject
to the applicable limitations described under "--Advances" below, the Master
Servicer and the Trustee will each be required, to the extent such proceeds are
less than the monthly payments due under
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such Mortgage Loan, to make P&I Advances in respect of such Mortgage Loan, in
all cases as if such Mortgage Loan had remained outstanding.
APPRAISAL REDUCTIONS
Not later than the earliest of (i) the date 120 days after the
occurrence of any delinquency in payment with respect to a Mortgage Loan if such
delinquency remains uncured, (ii) the date 60 days after receipt of notice that
a bankruptcy petition has been filed in respect of the borrower or a receiver is
appointed in respect of the related Mortgaged Property, provided such petition
or appointment is still in effect, (iii) the effective date of any modification
to the maturity date, Mortgage Rate, principal balance, amortization term or
payment frequency (each, a "Money Term") of a Mortgage Loan, other than the
extension of the date that a Balloon Payment is due for a period of less than
six months from the initial maturity date, and (iv) the date 30 days following
the date a Mortgaged Property becomes an REO Property (each of (i), (ii), (iii)
and (iv), an "Appraisal Event" and the affected Mortgage Loan, a "Required
Appraisal Loan"), the Special Servicer is required to have obtained an MAI
appraisal of the related Mortgaged Property or REO Property, as the case may be
(or, at its discretion, if the Stated Principal Balance of the particular
Required Appraisal Loan is less than or equal to $1,000,000, to perform an
internal valuation of such property) unless such an appraisal or valuation had
been obtained within the prior twelve months. As a result of such appraisal or
internal valuation, an "Appraisal Reduction" may be created.
The Appraisal Reduction for any Required Appraisal Loan will be an
amount, calculated as of the first Determination Date that is at least fifteen
days after the date on which an appraisal report or internal valuation is
completed, equal to the excess, if any, of (a) the sum of (i) the Stated
Principal Balance of such Required Appraisal Loan, (ii) to the extent not
previously advanced by the Master Servicer or the Trustee, all unpaid interest
on the Required Appraisal Loan, (iii) all related unreimbursed Advances and
interest on such Advances at the Advance Rate (as defined herein) and (iv) to
the extent not previously advanced by the Master Servicer or the Trustee, all
currently due and unpaid real estate taxes and assessments, insurance premiums
and, if applicable, ground rents in respect of the related Mortgaged Property or
REO Property, as the case may be (in each case, net of any amounts escrowed for
such item), over (b) 90% of the value (net of any prior mortgage liens) of the
related Mortgaged Property or REO Property as determined by such appraisal or
internal valuation. Notwithstanding the foregoing, if an internal valuation of
the Mortgaged Property is performed, the Appraisal Reduction will equal the
greater of (A) the amount calculated above and (B) 25% of the Stated Principal
Balance of the Mortgage Loan. Furthermore, if an appraisal is not obtained from
an MAI appraiser by the earliest of the dates described in clauses (i)-(iv) in
the preceding paragraph, then until such an appraisal is obtained the Appraisal
Reduction will equal 25% of the Stated Principal Balance of the Mortgage Loan.
An Appraisal Reduction will be reduced to zero as of the date the related
Mortgage Loan is brought current under the then-current terms of the Mortgage
Loan for at least three consecutive months or is paid in full, liquidated,
repurchased, replaced or otherwise disposed of. An appraisal for any Required
Appraisal Loan that has not been brought current for at least three consecutive
months (or paid in full, liquidated, repurchased or otherwise disposed of) will
be updated annually, with corresponding adjustments to the amount of the related
Appraisal Reduction.
The existence of an Appraisal Reduction reduces the Master Servicer's or
the Trustee's, as the case may be, advancing obligation in respect of delinquent
principal and interest on the related Mortgage Loan, which may result in a
reduction in distributions in respect of the then-most subordinate Class of
Certificates. See "--Advances--P&I Advances" below.
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SUBORDINATION; ALLOCATION OF LOSSES AND CERTAIN EXPENSES
As and to the extent described herein, the rights of holders of
Subordinate Certificates to receive distributions of amounts collected or
advanced on the Mortgage Loans will, in the case of each Class thereof, be
subordinated to the rights of holders of the Senior Certificates and, further,
to the rights of holders of each other Class of Subordinate Certificates, if
any, with an earlier alphabetical Class designation. This subordination is
intended to enhance the likelihood of timely receipt by holders of the
respective Classes of Senior Certificates of the full amount of Distributable
Certificate Interest payable in respect of their Certificates on each
Distribution Date, and the ultimate receipt by holders of the respective Classes
of Class A Certificates of principal equal to, in each such case, the entire
aggregate Certificate Balance of such Class of Certificates. Similarly, but to
decreasing degrees, this subordination is also intended to enhance the
likelihood of timely receipt by holders of the other Classes of Offered
Certificates of the full amount of Distributable Certificate Interest payable in
respect of their Certificates on each Distribution Date, and the ultimate
receipt by holders of such other Classes of Offered Certificates of principal
equal to, in each such case, the entire aggregate Certificate Balance of such
Class of Certificates. The subordination of each Class of Subordinate
Certificates will be accomplished by, among other things, the application of the
Available Distribution Amount on each Distribution Date in the order of priority
described under "--Distributions--Application of the Available Distribution
Amount" above. No other form of credit support will be available for the benefit
of holders of Certificates.
If, following the distributions to be made in respect of the
Certificates on any Distribution Date, the aggregate Stated Principal Balance of
the Mortgage Pool that will be outstanding immediately following such
Distribution Date is less than the then-aggregate Certificate Balance of the
Principal Balance Certificates, the respective aggregate Certificate Balances of
the Class O, Class N, Class M, Class L, Class K, Class J, Class H, Class G,
Class F, Class E, Class D, Class C and Class B Certificates will be reduced,
sequentially in that order, in the case of each such Class until such deficit
(or the related aggregate Certificate Balance) is reduced to zero (whichever
occurs first). If any portion of such deficit remains at such time as the
aggregate Certificate Balance of all such Classes of Certificates is reduced to
zero, then the respective aggregate Certificate Balances of the Class A-1 and
Class A-2 Certificates will be reduced, pro rata in accordance with the relative
sizes of the remaining aggregate Certificate Balances of such Classes of
Certificates, until such deficit (or the aggregate Certificate Balance of each
such Class of Certificates) is reduced to zero. In general, any such deficit
will be the result of Realized Losses incurred in respect of the Mortgage Loans
and/or Expense Losses. Accordingly, the foregoing reductions in the aggregate
Certificate Balances of the respective Classes of Principal Balance Certificates
will constitute an allocation of any such Realized Losses and Expense Losses.
Any such allocation of Realized Losses and/or Expense Losses to a particular
Class of Principal Balance Certificates will be allocated among the Certificates
of such Class in proportion to their respective Percentage Interests in such
Class.
"Realized Losses" are losses on or in respect of the Mortgage Loans
arising from the inability of the Master Servicer or Special Servicer, as
applicable, to collect all amounts due and owing under any such Mortgage Loan,
including by reason of the fraud or bankruptcy of a borrower or a casualty of
any nature at a Mortgaged Property, to the extent not covered by insurance. The
Realized Loss in respect of a liquidated Mortgage Loan (or related REO Property)
is an amount generally equal to the excess, if any, of (a) the outstanding
principal balance of such Mortgage Loan as of the date of liquidation, together
with (i) all accrued and unpaid interest thereon at the related Mortgage Rate to
but not including the Due Date in the Collection Period in which the liquidation
occurred and (ii) all related unreimbursed Servicing Advances (including
interest on any outstanding Advances at the Advance Rate) and outstanding
liquidation expenses, over (b) the aggregate amount of Liquidation Proceeds (as
defined in the Prospectus), if any, recovered in connection with such
liquidation. If any portion of the debt due under a Mortgage Loan is forgiven,
whether in connection with a modification, waiver or amendment granted or agreed
to by the Special Servicer or in connection with the bankruptcy or similar
proceeding involving the related borrower, the amount so forgiven also will be
treated as a Realized Loss.
"Expense Losses" are losses incurred by the Trust Fund by reason of
Additional Trust Fund Expenses being paid out of the Trust Fund that were not of
the type typically subject to a Servicing Advance or were of such type but were
the subject of a determination that such Servicing Advance, if made, would be
nonrecoverable. "Additional Trust Fund Expenses" include, among other things,
(i) Special Servicing Fees, Workout Fees and Liquidation Fees,
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(ii) interest in respect of Advances not paid out of default interest, (iii)
the cost of various opinions of counsel required or permitted to be obtained in
connection with the servicing of the Mortgage Loans and the administration of
the Trust Fund, (iv) certain unanticipated, non-Mortgage Loan specific expenses
of the Trust Fund, including certain indemnities and reimbursements to the
Trustee as described under "Description of the Agreements--The Trustee" in the
Prospectus, certain indemnities and reimbursements to the Master Servicer and
the Depositor (and certain indemnities and reimbursements to the Special
Servicer comparable to those for the Master Servicer) as described under
"Description of the Agreements--Certain Matters Regarding a Master Servicer and
the Depositor" in the Prospectus and certain federal, state and local taxes,
and certain tax-related expenses, payable out of the Trust Fund as described
under "Servicing of the Mortgage Loans--REO Properties" herein and "Certain
Federal Income Tax Consequences--Prohibited Transactions and Other Taxes" in
the Prospectus, (v) any amounts expended on behalf of the Trust Fund to
remediate an adverse environmental condition at any Mortgaged Property securing
a defaulted Mortgage Loan (see "Description of the Agreements--Realization Upon
Defaulted Whole Loans" in the Prospectus), and (vi) any other expense of the
Trust Fund not specifically included in the calculation of Realized Loss for
which there is no corresponding collection from a borrower.
PREPAYMENT INTEREST SHORTFALLS
If a borrower prepays a Mortgage Loan, in whole or in part, prior to the
Determination Date in any calendar month, the amount of interest (net of related
Master Servicing Fees and Trustee Fees) accrued on such prepayment, in general,
from the beginning of such calendar month to, but not including, the date of
prepayment (or any later date through which interest accrues) will, to the
extent actually collected, constitute a "Prepayment Interest Excess".
Conversely, if a borrower prepays a Mortgage Loan, in whole or in part, after
the Determination Date in any calendar month and does not pay interest on such
prepayment through, in general, the end of such calendar month, then the
shortfall in a full month's interest (net of related Master Servicing Fees and
Trustee Fees) on such prepayment will constitute a "Prepayment Interest
Shortfall". Prepayment Interest Excesses collected on the Mortgage Loans during
any Collection Period will first be applied to offset Prepayment Interest
Shortfalls incurred in respect of the Mortgage Loans during such Collection
Period and, to the extent not needed for such purposes, will be retained by the
Master Servicer as additional servicing compensation. The Master Servicer will
be obligated to cover, out of its own funds, without right of reimbursement, to
the extent of that portion of its Master Servicing Fees for the related
Collection Period calculated in respect of all the Mortgage Loans at a rate of
0.02% per annum, any Prepayment Interest Shortfalls in respect of the Mortgage
Loans that are not so offset by Prepayment Interest Excesses. Any payment so
made by the Master Servicer to cover such shortfalls will constitute a
"Compensating Interest Payment". The aggregate of all Prepayment Interest
Shortfalls incurred in respect of the Mortgage Loans during any Collection
Period that are neither offset by Prepayment Interest Excesses collected on the
Mortgage Loans during such Collection Period nor covered by a Compensating
Interest Payment made by the Master Servicer, shall constitute the "Net
Aggregate Prepayment Interest Shortfall" for the related Distribution Date.
Any Net Aggregate Prepayment Interest Shortfall for a Distribution Date
will be allocated among the respective Classes of REMIC Regular Certificates, on
a pro rata basis, in the ratio that the Accrued Certificate Interest with
respect to any such Class of Certificates for such Distribution Date, bears to
the total of the Accrued Certificate Interest with respect to all Classes of
REMIC Regular Certificates for such Distribution Date. The Distributable
Certificate Interest in respect of any Class of REMIC Regular Certificates will
be reduced to the extent any Net Aggregate Prepayment Interest Shortfalls are
allocated to such Class of Certificates. See "Servicing of the Mortgage
Loans--Servicing and Other Compensation and Payment of Expense" herein.
OPTIONAL TERMINATION
The Depositor, the Master Servicer, the Special Servicer, majority
holders of the Controlling Class and any holder of a majority interest in the
Class R-I Certificate, will each have the option to purchase, in whole but not
in part, the Mortgage Loans and any other property remaining in the Trust Fund
on any Distribution Date as of which the aggregate Certificate Balance of all
Classes of Principal Balance Certificates then outstanding is less than or equal
to 1% of the Initial Pool Balance. Such purchase will be at a price (the
"Termination Price") generally equal to 100% of the aggregate unpaid principal
balance of the Mortgage Loans (other than any Mortgage Loans as to which the
Special Servicer has determined that all payments or recoveries with respect
thereto have been made and
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other than any Mortgage Loans as to which the related Mortgaged Property has
become an REO Property), plus accrued and unpaid interest on each such Mortgage
Loan at the related Mortgage Rate to the Due Date for such Mortgage Loan in the
Collection Period with respect to which such purchase occurs, plus related
unreimbursed Servicing Advances, plus interest on any related Advances at the
Advance Rate, plus the fair market value of any other property (including REO
Property) remaining in the Trust Fund. The Termination Price, net of any
portion thereof payable to persons other than the Certificateholders, will
constitute part of the Available Distribution Amount for the final Distribution
Date.
ADVANCES
P&I Advances.
With respect to each Distribution Date, the Master Servicer will be
obligated to make advances (each, a "P&I Advance") out of its own funds or,
subject to the replacement thereof as provided in the Pooling and Servicing
Agreement, funds held in the Certificate Account that are not required to be
part of the Available Distribution Amount for such Distribution Date, in an
amount generally equal to the aggregate of all Monthly Payments (other than
Balloon Payments) and any Assumed Monthly Payments, in each case net of any
related Workout Fee, that were due or deemed due, as the case may be, in respect
of the Mortgage Loans during the related Collection Period and that were not
paid by or on behalf of the related borrowers or otherwise collected as of the
close of business on the last day of the related Collection Period or other
specified date prior to such Distribution Date. The Master Servicer will not be
required to make a P&I Advance if it, in accordance with the Pooling and
Servicing Agreement, determines that the funds therefor plus interest thereon at
the Advance Rate would not be recoverable from subsequent payments or other
collections (including Insurance Proceeds (as defined in the Prospectus),
condemnation proceeds and Liquidation Proceeds) in respect of the related
Mortgage Loan (such payments and other collections, "Related Proceeds") as
described in the Prospectus. The Master Servicer will also not be required to
advance prepayment or yield maintenance premiums, Excess Interest or Default
Interest. The Master Servicer's obligations to make P&I Advances (unless the
Master Servicer shall determine that any such Advance would be nonrecoverable)
in respect of any Mortgage Loan will continue through liquidation of such
Mortgage Loan or disposition of any REO Property acquired in respect thereof.
Notwithstanding the foregoing, if an Appraisal Reduction exists with respect to
any Mortgage Loan, then, with respect to the Distribution Date immediately
following the date of such determination and with respect to each subsequent
Distribution Date for so long as such Appraisal Reduction exists, in the event
of subsequent delinquencies on such Mortgage Loan, the amount of the P&I Advance
in respect of such Mortgage Loan will be reduced to equal to the product of (i)
the amount of such P&I Advance that would otherwise be required to be made for
such Distribution Date without regard to this sentence, multiplied by (ii) a
fraction (expressed as a percentage), the numerator of which is equal to the
Stated Principal Balance of such Mortgage Loan, net of the amount of such
Appraisal Reduction, and the denominator of which is equal to the Stated
Principal Balance of such Mortgage Loan. See "Appraisal Reductions" above. For
so long as the most subordinate Class of Certificates then outstanding is not
rated by S&P, the Master Servicer will make only one P&I Advance in respect of
each Mortgage Loan for the benefit of such Class unless the related defaulted
Monthly Payment is cured prior to the following Due Date on any Mortgage Loan.
The amount to be advanced by the Master Servicer or Trustee 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 and the reduction described in
the preceding sentence. If the Master Servicer fails to make a required P&I
Advance, the Trustee will be obligated to make such P&I Advance. See "--The
Trustee" below.
The Master Servicer and the Trustee will each be entitled to recover any
P&I Advance made by it from Related Proceeds collected in respect of the
Mortgage Loan as to which such P&I Advance was made. Notwithstanding the
foregoing, none of the Master Servicer or the Trustee will be obligated to make
a P&I Advance that would, if made, constitute a Nonrecoverable Advance (as
defined below). The Master Servicer and the Trustee will each be entitled to
recover any P&I Advance previously made by it that is, at any time, determined
to be a Nonrecoverable Advance, out of general funds on deposit in the
Certificate Account. See "Description of the Certificates--Advances in Respect
of Delinquencies" and "Description of the Agreements--Certificate Account and
Other Collection Accounts" in the Prospectus.
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Servicing Advances.
In general, customary, reasonable and necessary "out-of-pocket" costs
and expenses required to be incurred by the Master Servicer or the Special
Servicer, as applicable, in connection with the servicing of a Mortgage Loan, a
default, delinquency or other unanticipated event, or in connection with the
administration of any REO Property, will constitute "Servicing Advances"
(Servicing Advances and P&I Advances, collectively, "Advances") and, in all
cases will be reimbursable, as and to the extent described in the Pooling and
Servicing Agreement. Notwithstanding the foregoing, the Master Servicer and the
Special Servicer will each be permitted to pay, or to direct the payment of,
certain servicing expenses directly out of the Certificate Account and at times
without regard to the relationship between the expense and the funds from which
it is being paid. Furthermore, if the Special Servicer is required under the
Pooling and Servicing Agreement to make any Servicing Advance but does not
desire to do so, and if the Special Servicer and the Master Servicer are not the
same person, then the Special Servicer may, in its sole discretion, with limited
exception, request that the Master Servicer make such Advance, such request to
be made in writing and in a timely manner that does not adversely affect the
interests of any Certificateholder. The Master Servicer will be obligated to
make any such Servicing Advance that it is requested by the Special Servicer to
so make (unless the Master Servicer shall determine that any such Advance would
be nonrecoverable) within ten (10) days of the Master Servicer's receipt of such
request.
If the Master Servicer or the Special Servicer is required under the
Pooling and Servicing Agreement to make a Servicing Advance, but does not do so
within 15 days after such Servicing Advance is required to be made, then the
Trustee will, if it has actual knowledge of such failure, be required to give
the defaulting party notice of such failure and, if such failure continues for
three more business days, the Trustee will be obligated to make such Servicing
Advance.
The Master Servicer, the Special Servicer and the Trustee will each be
obligated to make Servicing Advances only to the extent that such Servicing
Advances are, in the reasonable and good faith judgment of such party,
ultimately recoverable from Related Proceeds.
Nonrecoverable Advances.
The determination by the Master Servicer, the Special Servicer (or, if
applicable, the Trustee) that any P&I Advance or Servicing Advance previously
made or proposed to be made would not be recoverable from Related Proceeds, is
to be made in the reasonable and good faith discretion of such party and is to
be accompanied by an officer's certificate delivered to the Trustee and the
Depositor and setting forth the reasons for such determination, together with
copies of appraisals, if any, or other information relevant thereto which
supports such determination. The Master Servicer's or Special Servicer's
determination of nonrecoverability will be conclusive and binding upon the
Certificateholders and the Trustee with respect to the obligation of the Trustee
to make any Advance. The Trustee shall be entitled to rely conclusively on any
determination by the Master Servicer or Special Servicer of nonrecoverability
with respect to such Advance and shall have no obligation to make a separate
determination of recoverability. The Master Servicer shall be entitled to rely
conclusively on any determination by the Special Servicer of non-recoverability
with respect to such Advance, and shall have no obligation to make a separate
determination of recoverability.
Interest on Advances.
The Master Servicer, the Special Servicer and the Trustee will each be
entitled, with respect to any Advance made thereby, to receive interest accrued
on the amount of such Advance for so long as it is outstanding at a rate per
annum (the "Advance Rate") equal to the "prime rate" as published in the "Money
Rates" section of The Wall Street Journal, as such "prime rate" may change from
time to time. Such interest on any Advance will be payable to the Master
Servicer, the Special Servicer or the Trustee, as the case may be, first out of
default interest actually collected by the Master Servicer or the Special
Servicer (and not retainable by any Sub-Servicer) in respect of the related
Mortgage Loan or, if such amounts are insufficient, out of any amounts then on
deposit in the Certificate Account. To the extent not offset by default interest
actually collected in respect of any defaulted Mortgage Loan, interest
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accrued on outstanding Advances made in respect thereof will result in a
reduction in amounts payable on the Certificates.
REPORTS TO CERTIFICATEHOLDERS; AVAILABLE INFORMATION
Trustee Reports.
1. Based on information provided in monthly reports prepared by the
Master Servicer and the Special Servicer and delivered by the Master Servicer to
the Trustee, the Trustee will prepare and provide or make available on each
Distribution Date to each Certificateholder a statement generally setting forth,
to the extent applicable:
(a) the following information:
(i) the amount, if any, of the distributions to the
holders of each Class of Principal Balance Certificates on such
Distribution Date applied to (A) reduce the aggregate Certificate
Balance thereof and (B) reimburse previously allocated Realized
Losses and Expense Losses (with interest);
(ii) the amount of the distributions to holders of each
Class of REMIC Regular Certificates on such Distribution Date
allocable to (A) interest and (B) Prepayment Premiums;
(iii) the number and aggregate Stated Principal Balance of
outstanding Mortgage Loans in the Mortgage Pool;
(iv) the number and aggregate Stated Principal Balance of
Mortgage Loans in the Mortgage Pool (A) delinquent 30-59 days,
(B) delinquent 60-89 days, (C) delinquent 90 or more days or (D)
as to which foreclosure proceedings have been commenced;
(v) with respect to any REO Property acquired during the
related Collection Period, the Stated Principal Balance of the
related Mortgage Loan as of the date of acquisition of the REO
Property;
(vi) (A) the most recent appraised value of any REO
Property as of the related Determination Date, (B) as to any REO
Property sold during the related Collection Period, the date of
the related determination by the Special Servicer that it has
recovered all Related Proceeds that it expects to be finally
recoverable and the amount of the proceeds of such sale deposited
into the Certificate Account, and (C) the aggregate amount of
other revenues collected by the Special Servicer with respect to
each REO Property during the related Collection Period and
credited to the Certificate Account, in each case identifying
such REO Property by the loan number of the related Mortgage
Loan;
(vii) the aggregate Certificate Balance or Notional Amount
and Certificate Factor of each Class of REMIC Regular
Certificates before and after giving effect to the distributions,
and any allocations of Realized Losses and Expense Losses, made
on such Distribution Date;
(viii) the aggregate amount of principal prepayments made
during the related Collection Period;
(ix) the Pass-Through Rate applicable to each Class of
Certificates for such Distribution Date;
(x) the aggregate amount of servicing fees retained by or
paid to the Master Servicer and the Special Servicer;
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(xi) the Net Aggregate Prepayment Interest Shortfall
Amount, if any, for such Distribution Date and the amount of
Realized Losses or Expense Losses, if any, incurred with respect
to the Mortgage Loans during the related Collection Period;
(xii) the aggregate amount of Servicing Advances and P&I
Advances, stated separately, outstanding as of the end of the
prior calendar month that have been made by the Master Servicer,
the Special Servicer and the Trustee;
(xiii) the amount of any Appraisal Reductions effected
during the related Collection Period on a loan-by-loan basis and
the total Appraisal Reductions as of such Distribution Date; and
(xiv) such other information and in such form as shall be
specified in the Pooling and Servicing Agreement.
In the case of information furnished pursuant to
subclauses (i) and (ii) above, the amounts shall be expressed as
a dollar amount per $1,000 of original actual or notional
principal amount of the Certificates for all Certificates of each
applicable Class.
(b) A report containing information regarding the Mortgage Loans
as of the end of the related Collection Period, which report will
contain substantially the categories of information regarding the
Mortgage Loans set forth in Appendix IV to the extent the categories of
information are contained within the standard CSSA data file layout, and
will be presented in a tabular format substantially similar to the
respective format utilized in Appendix IV.
2. The Trustee will make available each month, to any interested party,
the foregoing report via its website, initially located at
"www.ctslink.com/cmbs" (the "Trustee's Website"), electronic bulletin board and
its fax-on-demand service. The Trustee's electronic bulletin board may be
accessed by calling (301) 815-6620, and its fax-on-demand service may be
accessed by calling (301) 815-6610. For assistance with the above-mentioned
services, Certificateholders may call (301) 815-6600. In addition, the Trustee
will also make Mortgage Loan information as presented in the CSSA loan setup
file format, the CSSA loan periodic update file format and the Special Servicer
Reports (as defined herein) available each month to any Certificateholder, any
Certificate Owner, the Rating Agencies or any other interest party via the
Trustee's Website. In addition, pursuant to the Pooling and Servicing Agreement,
the Trustee will make available as a convenience for interested parties (and not
in furtherance of the distribution of the Prospectus or the Prospectus
Supplement under the securities laws), the Pooling and Servicing Agreement, the
Prospectus and the Prospectus Supplement via the Trustee's Website. The Trustee
will make no representations or warranties as to the accuracy or completeness of
such documents and will assume no responsibility therefor. In addition, the
Trustee may disclaim responsibility for any information of which it is not the
original source.
In connection with providing access to the Trustee's Website or
electronic bulletin board, the Trustee may require registration and the
acceptance of a disclaimer. The Trustee shall not be liable for the
dissemination of information in accordance with the Pooling and Servicing
Agreement. The Master Servicer will also make certain information relating to
the Mortgage Loans available on its website at WWW.AMRESCO.COM.
3. Unless otherwise reported pursuant to 1(b) above, on an annual basis,
the Master Servicer is required to deliver to the Trustee, who will deliver,
upon written request (which may be in the form of a standing request), such
report to the Underwriters, the Certificateholders, the Depositor and anyone
else the Depositor or the Underwriters reasonably designate, a report setting
forth the debt service coverage ratio (and the calculation thereof) with respect
to each Mortgage Loan for which the Master Servicer obtains operating
statements, and such other information, including occupancy, to the extent
available, and substantially in the form set forth in the Pooling and Servicing
Agreement. In addition, upon written request from the Underwriters, the
Certificateholders or the Depositor, the Master Servicer will make available, in
accordance with the terms of the Pooling and Servicing Agreement, the most
recent annual operating statements and rent rolls for each Mortgaged Property
(to the extent available to the Master Servicer).
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<PAGE>
Special Servicer Reports.
No later than one business day following each Determination Date, the
Special Servicer will prepare and provide or make available to the Master
Servicer reports or data files containing information required by the Master
Servicer to prepare the following reports with respect to Specially Serviced
Mortgage Loans substantially in the form set forth in the Pooling and Servicing
Agreement. Such reports will be provided or made available by the Trustee, no
later than the Distribution Date, to the Certificateholders, each prospective
purchaser of a Certificate (upon request), each Certificate Owner (if known),
the Underwriters, the Rating Agencies and the Depositor; provided however that
such information may be provided as part of another CSSA report in lieu of these
separate reports.
These reports include:
(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 or net cash
flow and DSCR for the Mortgage Loans as of the date of the latest
financial information available immediately preceding the preparation of
such report for each of the following three periods; (i) the most
current available year-to-date or the most recent twelve months; (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
Determination Date immediately preceding the preparation of such report,
were delinquent 30-59 days, delinquent 60-89 days, delinquent 90 days or
more, current but not 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 Determination 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 Determination 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 and historically, 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 Determination 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 Special Servicer as of such date of
determination (including any prepared internally by the Special
Servicer).
(f) A "Watch List" as of the close of business on the Due Date
immediately preceding the preparation of such report setting forth,
among other things, any Mortgage Loan that is in jeopardy of becoming a
Specially Serviced Mortgage Loan.
Other Information.
The Pooling and Servicing Agreement requires that the Trustee make
available, at its offices primarily responsible for administering the Trust Fund
or at such other office as it may reasonably designate, during normal business
hours, upon reasonable advance notice for review by any Certificateholder or
prospective purchaser of a
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<PAGE>
Certificate, 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 reports or statements delivered by the Trustee to
holders of the relevant Class of Certificates since the Closing Date,
(iii) all accountants' reports delivered to the Trustee since
the Closing Date,
(iv) the most recent property inspection report prepared by or
on behalf of the Master Servicer or the Special Servicer in respect of
each Mortgaged Property and delivered to the Trustee,
(v) the most recent Mortgaged Property annual operating
statements and rent rolls, if any, collected by or on behalf of the
Master Servicer or the Special Servicer and delivered to the Trustee,
(vi) any and all modifications, waivers and amendments of the
terms of a Mortgage Loan entered into by the Master Servicer and/or the
Special Servicer and delivered to the Trustee, and
(vii) any and all officers' certificates and other evidence
delivered to the Trustee to support the Master Servicer's determination
that any Advance was not or, if made, would not be, recoverable from
Related Proceeds.
Copies of any and all of the foregoing items and any Special
Servicer Reports delivered to the Trustee will be available from the
Trustee upon written request; provided that the Trustee will be
permitted to require payment of a sum sufficient to cover the reasonable
costs and expenses of providing such copies; and provided further that
certain limitations will be imposed on the recipients with respect to
the use and further dissemination of the information to the extent
described in the Pooling and Servicing Agreement.
BOOK-ENTRY CERTIFICATES
Until such time, if any, as Definitive Certificates are issued in
respect of the Offered Certificates, the foregoing information and access will
be available to the related Certificate Owners only to the extent it is
forwarded by, or otherwise available through, DTC and its Participants. The
manner in which notices and other communications are conveyed by DTC to its
Participants, and by such Participants to the Certificate Owners, will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. The Master Servicer, the
Special Servicer, the Trustee and the Depositor are required to recognize as
Certificateholders only those persons in whose names the Certificates are
registered on the books and records of the Trustee; however, any Certificate
Owner that has delivered to the Trustee a written certification, in form and
substance satisfactory to the Trustee, regarding such Certificate Owner's
beneficial ownership of Offered Certificates will be recognized as a
Certificateholder for purposes of obtaining the foregoing information and
access.
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<PAGE>
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of distributions on the
Certificates for the first month of the Trust Fund's existence, assuming the
Certificates are issued during April 1999:
<TABLE>
<CAPTION>
<S> <C> <C>
The close of business on
April 1(1) ............ (A) Cut-off Date.
April 30............... (B) Record Date for all Classes of
Certificates.
April 2(2) - May 11.... (C) The Collection Period. The Master
Servicer receives Monthly Payments due
after the Cut-off Date and on or prior to
May 11, the last day of the Collection
Period for scheduled payments due and
received, and any principal prepayments
made, after the Cut-off Date and on or
prior to May 11, the last day of the
Collection Period for unscheduled payments.
May 11................. (D) Determination Date.
May 14................. (E) Master Servicer Remittance Date.
May 17................. (F) Distribution Date.
</TABLE>
(1) April 11 with respect to Mortgage Loans which have due dates that occur
on the eleventh day of each month.
(2) April 12 with respect to Mortgage Loans which have due dates that occur
on the eleventh day of each month.
Succeeding monthly periods follow the pattern of (B) through (F) (except
as described below).
(A) The outstanding principal balance of the Mortgage Loans will be the
aggregate principal balance of the Mortgage Loans at the close of business on
the Cut-off Date (after deducting principal payments due on or before such
date). Those principal payments due on or before such date, and the accompanying
interest payments, are not part of the Trust Fund.
(B) Distributions on the next Distribution Date will be made to those
persons that are Certificateholders of record on this date. Each subsequent
Record Date will be the last business day of the month preceding the related
Distribution Date.
(C) Any Monthly Payments due and collected and Principal Prepayments
collected, after the Cut-off Date and on or prior to the dates set forth above
will be deposited in the Certificate Account. Each subsequent Collection Period
will begin on the day after the Determination Date in the month preceding the
month of the related Distribution Date and will end on the Determination Date in
the month in which the related Distribution Date occurs.
(D) As of the close of business on the Determination Date, the Master
Servicer will have determined the amounts of principal and interest due and
payable on the Mortgage Loans with respect to the related Collection Period. The
Determination Date related to each Distribution Date is the eleventh day of the
month in which such Distribution Date occurs (or if such date is not a business
day, then the next preceding business day).
(E) The Master Servicer will remit to the Trustee on the business day
preceding the related Distribution Date all amounts held by the Master Servicer
that are payable to Certificateholders on such Distribution Date.
(F) The Trustee will make distributions to Certificateholders on the
15th day of each month or, if any such 15th day is not a business day, the next
succeeding business day, provided that the Distribution Date will be no earlier
than the fourth Business Day following the eleventh day of such month.
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<PAGE>
VOTING RIGHTS
At all times during the term of the Pooling and Servicing Agreement, 97%
of the voting rights for the Certificates (the "Voting Rights") are to be
allocated among the holders of the respective Classes of Principal Balance
Certificates in proportion to the aggregate Certificate Balances of such
Classes, 2% of the Voting Rights are to be allocated among the holders of the
Class of Interest Only Certificates, and the remaining Voting Rights are to be
allocated among the holders of the respective Classes of REMIC Residual
Certificates in three equal shares. Voting Rights allocated to a Class of
Certificateholders will be allocated among Certificateholders of such Class in
proportion to the Percentage Interests in such Class evidenced by their
respective Certificates.
THE TRUSTEE
Norwest Bank Minnesota, National Association ("Norwest Bank") will act
as trustee (the "Trustee"). Norwest Bank, a direct, wholly-owned subsidiary of
Wells Fargo & Company, is a national banking association originally chartered in
1872 and is engaged in a wide range of activities typical of a national bank.
Norwest Bank's principal office is located at Norwest Center, Sixth and
Marquette, Minneapolis, Minnesota 55479-0113. Certificate transfer services are
conducted at Norwest Bank's offices in Minneapolis. Norwest Bank otherwise
conducts its trustee and securities administration services, including
administration of the Trust, at its offices in Columbia, Maryland. Such office
is located at 11000 Broken Land Parkway, Columbia, Maryland 21044-3562. In
addition, Norwest Bank maintains a trust office in New York City located at 3
New York Plaza, New York, New York 10004. Certificateholders and other interest
parties should direct inquiries to Norwest Bank's New York City office. The
telephone number is (212) 515-5240. The Trustee is at all times required to be,
and will be required to resign if it fails to be, (i) an institution insured by
the FDIC, (ii) a corporation, national bank or national banking association,
organized and doing business under the laws of the United States of America or
any state thereof, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by federal or state authority and (iii) an
institution whose long-term senior unsecured debt is rated not less than "AA" by
Fitch and "AA" by S&P (or such lower ratings as the Rating Agencies would permit
without an adverse effect on any of the then-current ratings of the
Certificates). See "Servicing of the Mortgage Loans--Duties of the Trustee",
"Servicing of the Mortgage Loans--Certain Matters Regarding the Trustee" and
"Servicing of the Mortgage Loans--Resignation and Removal of the Trustee" in the
Prospectus.
The principal compensation to be paid to the Trustee in respect of its
activities as the trustee under the Pooling and Servicing Agreement will be the
Trustee Fee. The "Trustee Fee" will be payable monthly on a loan-by-loan basis
from amounts received in respect of interest on each Mortgage Loan (including
Specially Serviced Mortgage Loans and Mortgage Loans as to which the related
Mortgaged Property has become an REO Property) and will be computed on the basis
of the same principal amount and for the same period respecting which any
related interest payment on the related Mortgage Loan is computed.
MATURITY CONSIDERATIONS
The weighted average life of a Principal Balance Certificate refers to
the average amount of time that will elapse from the date of its issuance until
each dollar allocable to principal of such Certificate is distributed to the
investor. For purposes of this Prospectus Supplement, the weighted average life
of a Principal Balance Certificate is determined by (i) multiplying the amount
of each principal distribution thereon by the number of years from the Closing
Date to the related Distribution Date, (ii) summing the results and (iii)
dividing the sum by the aggregate amount of the reductions in the Certificate
Balance of such Certificate. Accordingly, the weighted average life of any such
Certificate will be influenced by, among other things, the rate at which
principal of the Mortgage Loans is paid or otherwise collected or advanced and
the extent to which such payments, collections and/or advances of principal are
in turn applied in reduction of the Certificate Balance of such Certificate.
Prepayments on mortgage loans may be measured by a prepayment standard
or model ("Prepayment Assumptions"). The model used in this Prospectus
Supplement is the CPR prepayment model (as described under "Yield
Considerations--Prepayments--Maturity and Weighted Average Life" in the
Prospectus).
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<PAGE>
As used in each of the following tables, the column headed "0%" assumes
that none of the Mortgage Loans is prepaid before maturity, or in the case of an
Anticipated Repayment Date Loan, the Anticipated Repayment Date. The columns
headed "3%", "5%", "7%", "10%" and "15%" assume that no prepayments are made on
any Mortgage Loan during such Mortgage Loan's Lockout Period, if any, or during
such Mortgage Loan's yield maintenance period (unless the prepayment penalty for
such Mortgage Loan is calculated as the lesser of yield maintenance or a fixed
percentage), if any, and are otherwise made on each of the Mortgage Loans at the
indicated CPRs. Such tables and assumptions are intended to illustrate the
sensitivity of weighted average life of the Certificates to various prepayment
rates and are not intended to predict or to provide information that will enable
investors to predict the actual weighted average life of the Certificates. There
is no assurance, however, that prepayments of the Mortgage Loans (whether or not
in a Lockout Period or a yield maintenance period) will conform to any
particular CPR, and no representation is made that the Mortgage Loans will
prepay in accordance with the assumptions at any of the CPRs shown or at any
other particular prepayment rate, that all the Mortgage Loans will prepay in
accordance with the assumptions at the same rate or that Mortgage Loans that are
in a Lockout Period or a yield maintenance period will not prepay as a result of
involuntary liquidations upon default or otherwise. A "yield maintenance period"
is any period during which a Mortgage Loan provides that voluntary prepayments
be accompanied by a Yield Maintenance Premium.
The following tables indicate the percentage of the initial aggregate
Certificate Balance of each Class of Offered Certificates that would be
outstanding after each of the dates shown at various CPRs and the corresponding
weighted average life of each such Class of Certificates. The tables have been
prepared on the basis of the following assumptions (collectively, the "Maturity
Assumptions"):
(i) the Initial Pool Balance is approximately $632,094,383,
(ii) the initial aggregate Certificate Balance or Notional
Amount, as the case may be, for each Class of Offered Certificates is as
set forth on the cover page hereof, and the Pass-Through Rate for each
Class of Offered Certificates is as set forth or otherwise described
herein,
(iii) the scheduled Monthly Payment for each Mortgage Loan is as
set forth in Appendix II,
(iv) all Monthly Payments are due and timely received on the
first day of each month,
(v) there are no delinquencies or losses in respect of the
Mortgage Loans, there are no extensions of maturity in respect of the
Mortgage Loans, there are no Appraisal Reductions with respect to the
Mortgage Loans and there are no casualties or condemnations affecting
the Mortgaged Properties,
(vi) (A) prepayments are made on each of the Mortgage Loans at
the indicated CPRs (except that prepayments are assumed not to be
received as to any Mortgage Loan during such Mortgage Loan's Lockout
Period ("LOP"), if any, or yield maintenance period ("YMP"), if any,
unless the prepayment penalty for such Mortgage Loan is calculated as
the lesser of yield maintenance or a fixed percentage) and (B) Mortgage
Loans that provide for an increase in the respective Mortgage Rate
and/or principal amortization on a specified date prior to stated
maturity are prepaid in full on their respective Anticipated Repayment
Dates,
(vii) Mortgage Loans with holdback provisions are assumed to meet
their Release Conditions and the Escrowed Holdback Amounts are assumed
released to the respective borrowers,
(viii) (A) Mortgage Loans that are silent as to the methodology
of interest accrual on such loans are assumed to accrue on the basis of
a 360-day year consisting of twelve 30-day months (a "30/360 basis") and
(B) Mortgage Loans that accrue interest on the basis of the actual
number of days elapsed each month in a 360-day year pay principal based
on monthly payments that are calculated on an actual/360 basis,
(ix) no party entitled thereto exercises its right of optional
termination described herein under "Description of the
Certificates--Optional Termination",
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<PAGE>
(x) no Mortgage Loan is required to be repurchased or replaced
by a Seller or other party,
(xi) no Prepayment Interest Shortfalls are incurred,
(xii) there are no Additional Trust Fund Expenses,
(xiii) distributions on the Certificates are made on the 15th
day of each month, commencing in May 1999,
(xiv) the Certificates are issued on the Closing Date,
(xv) the prepayment provisions for each Mortgage Loan are
assumed to begin on the first payment date of such Mortgage Loan and
any resulting Prepayment Premiums are allocated as described under
"Description of the Certificates--Distributions--Distributions of
Prepayment Premiums", and
(xvi) the open prepayment period, if any, is assumed to begin on
the first day of the respective month prior to the maturity date.
To the extent that the Mortgage Loans have characteristics that
differ from those assumed in preparing the tables set forth below, the Offered
Certificates may mature earlier or later than indicated by the tables. The
"Final Scheduled Distribution Date" for each Class of Offered Certificates is
the Distribution Date on which the related aggregate Certificate Balance or
Notional Amount, as the case may be, would be reduced to zero based upon the
Maturity Assumptions and a 0% CPR. It is highly unlikely that the Mortgage Loans
will prepay in accordance with the Maturity Assumptions at any constant rate
until maturity or that all the Mortgage Loans will prepay in accordance with the
Maturity Assumptions at the same rate. In addition, variations in the actual
prepayment experience and the balance of the Mortgage Loans that prepay may
increase or decrease the percentages of initial aggregate Certificate Balances
(and weighted average lives) shown in the following tables. Such variations may
occur even if the average prepayment experience of the Mortgage Loans were to
reflect the Maturity Assumptions and any of the specified CPR percentages.
Investors are urged to conduct their own analyses of the rates at which
the Mortgage Loans may be expected to prepay.
Based on the Maturity Assumptions, the following tables indicate the
resulting weighted average lives of the Offered Certificates and set forth the
percentage of the initial Certificate Balance of each Class of such Certificates
that would be outstanding after each of the dates shown under the applicable
assumptions at the indicated CPRs.
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<PAGE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS A-1 CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
---------------------------------------------
Date 0% 3% 5% 7% 10% 15%
---- -- -- -- -- --- ---
<S> <C> <C> <C> <C> <C> <C>
Closing Date............... 100% 100% 100% 100% 100% 100%
April 2000................. 93 93 93 93 93 93
April 2001................. 86 86 86 86 86 86
April 2002................. 78 78 78 78 78 77
April 2003................. 69 69 69 69 69 68
April 2004................. 60 60 60 60 59 59
April 2005................. 50 50 50 49 49 48
April 2006................. 33 33 33 33 32 32
April 2007................. 22 21 21 21 21 20
April 2008................. 1 0 0 0 0 0
April 2009................. 0 0 0 0 0 0
Weighted Average
Life (years)............... 5.49 5.47 5.45 5.44 5.42 5.39
</TABLE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE
OF THE CLASS A-2 CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
---------------------------------------------
Date 0% 3% 5% 7% 10% 15%
---- -- -- -- -- --- ---
<S> <C> <C> <C> <C> <C> <C>
Closing Date............... 100% 100% 100% 100% 100% 100%
April 2000................. 100 100 100 100 100 100
April 2001................. 100 100 100 100 100 100
April 2002................. 100 100 100 100 100 100
April 2003................. 100 100 100 100 100 100
April 2004................. 100 100 100 100 100 100
April 2005................. 100 100 100 100 100 100
April 2006................. 100 100 100 100 100 100
April 2007................. 100 100 100 100 100 100
April 2008................. 100 100 100 100 100 99
April 2009................. 0 0 0 0 0 0
Weighted Average
Life (years)............... 9.46 9.46 9.46 9.45 9.45 9.45
</TABLE>
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<PAGE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS B CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
---------------------------------------------
Date 0% 3% 5% 7% 10% 15%
---- -- -- -- -- --- ---
<S> <C> <C> <C> <C> <C> <C>
Closing Date............... 100% 100% 100% 100% 100% 100%
April 2000................. 100 100 100 100 100 100
April 2001................. 100 100 100 100 100 100
April 2002................. 100 100 100 100 100 100
April 2003................. 100 100 100 100 100 100
April 2004................. 100 100 100 100 100 100
April 2005................. 100 100 100 100 100 100
April 2006................. 100 100 100 100 100 100
April 2007................. 100 100 100 100 100 100
April 2008................. 100 100 100 100 100 100
April 2009................. 0 0 0 0 0 0
Weighted Average
Life (years)............... 9.73 9.73 9.73 9.73 9.73 9.73
</TABLE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS C CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
---------------------------------------------
Date 0% 3% 5% 7% 10% 15%
---- -- -- -- -- --- ---
<S> <C> <C> <C> <C> <C> <C>
Closing Date............... 100% 100% 100% 100% 100% 100%
April 2000................. 100 100 100 100 100 100
April 2001................. 100 100 100 100 100 100
April 2002................. 100 100 100 100 100 100
April 2003................. 100 100 100 100 100 100
April 2004................. 100 100 100 100 100 100
April 2005................. 100 100 100 100 100 100
April 2006................. 100 100 100 100 100 100
April 2007................. 100 100 100 100 100 100
April 2008................. 100 100 100 100 100 100
April 2009................. 0 0 0 0 0 0
Weighted Average
Life (years)............... 9.73 9.73 9.73 9.73 9.73 9.73
</TABLE>
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<PAGE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS D CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
---------------------------------------------
Date 0% 3% 5% 7% 10% 15%
---- -- -- -- -- --- ---
<S> <C> <C> <C> <C> <C> <C>
Closing Date............... 100% 100% 100% 100% 100% 100%
April 2000................. 100 100 100 100 100 100
April 2001................. 100 100 100 100 100 100
April 2002................. 100 100 100 100 100 100
April 2003................. 100 100 100 100 100 100
April 2004................. 100 100 100 100 100 100
April 2005................. 100 100 100 100 100 100
April 2006................. 100 100 100 100 100 100
April 2007................. 100 100 100 100 100 100
April 2008................. 100 100 100 100 100 100
April 2009................. 0 0 0 0 0 0
Weighted Average
Life (years)............... 9.73 9.73 9.73 9.73 9.73 9.73
</TABLE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS E CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
---------------------------------------------
Date 0% 3% 5% 7% 10% 15%
---- -- -- -- -- --- ---
<S> <C> <C> <C> <C> <C> <C>
Closing Date............... 100% 100% 100% 100% 100% 100%
April 2000................. 100 100 100 100 100 100
April 2001................. 100 100 100 100 100 100
April 2002................. 100 100 100 100 100 100
April 2003................. 100 100 100 100 100 100
April 2004................. 100 100 100 100 100 100
April 2005................. 100 100 100 100 100 100
April 2006................. 100 100 100 100 100 100
April 2007................. 100 100 100 100 100 100
April 2008................. 100 100 100 100 100 100
April 2009................. 0 0 0 0 0 0
Weighted Average
Life (years)............... 9.73 9.73 9.73 9.73 9.73 9.73
</TABLE>
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<PAGE>
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on: (i) the
Pass-Through Rate in effect from time to time for such Certificate; (ii) the
price paid for such Certificate and, if the price was other than par, the rate
and timing of payments of principal on such Certificate; and (iii) the aggregate
amount of distributions on such Certificate.
RATE AND TIMING OF PRINCIPAL PAYMENTS
The yield to holders of the Interest Only Certificates and any other
Offered Certificates that are purchased at a discount or premium will be
affected by the rate and timing of principal payments on the Mortgage Loans
(including principal prepayments on the Mortgage Loans resulting from both
voluntary prepayments by the mortgagors and involuntary liquidations). The rate
and timing of principal payments on the Mortgage Loans will in turn be affected
by the amortization schedules thereof, the dates on which Balloon Payments are
due and the rate and timing of principal prepayments and other unscheduled
collections thereon (including for this purpose, collections made in connection
with liquidations of Mortgage Loans due to defaults, casualties or condemnations
affecting the Mortgaged Properties, or repurchases of Mortgage Loans out of the
Trust Fund). Prepayments and, assuming the respective stated maturity dates
therefor have not occurred, liquidations and repurchases of the Mortgage Loans,
will result in distributions on the Principal Balance Certificates of amounts
that otherwise would have been distributed (and reductions in the Notional
Amounts of the Interest Only Certificates that would otherwise have occurred)
over the remaining terms of the Mortgage Loans. Defaults on the Mortgage Loans,
particularly at or near their stated maturity dates, may result in significant
delays in payments of principal on the Mortgage Loans (and, accordingly, on the
Principal Balance Certificates) while work-outs are negotiated or foreclosures
are completed. See "Servicing of the Mortgage Loans--Modifications, Waivers,
Amendments and Consents" and "Servicing of the Mortgage Loans--Sale of Defaulted
Mortgage Loans" herein and "Description Of The Agreements--Realization Upon
Defaulted Whole Loans" and "Certain Legal Aspects Of The Mortgage Loans And
Leases--Foreclosure" in the Prospectus. Because the rate of principal payments
on the Mortgage Loans will depend on future events and a variety of factors (as
described below), no assurance can be given as to such rate or the rate of
principal prepayments in particular. The Depositor is not aware of any relevant
publicly available or authoritative statistics with respect to the historical
prepayment experience of a large group of mortgage loans comparable to the
Mortgage Loans.
The extent to which the yield to maturity of an Offered Certificate may
vary from the anticipated yield will depend upon the degree to which such
Certificate is purchased at a discount or premium and when, and to what degree,
payments of principal on the Mortgage Loans are in turn distributed on or
otherwise result in the reduction of the Certificate Balance or Notional Amount,
as the case may be, of such Certificate. An investor should consider, in the
case of any Principal Balance Certificate purchased at a discount, the risk that
a slower than anticipated rate of principal payments on such Certificate could
result in an actual yield to such investor that is lower than the anticipated
yield and, in the case of any Principal Balance Certificate purchased at a
premium, the risk that a faster than anticipated rate of principal payments on
such Certificate could result in an actual yield to such investor that is lower
than the anticipated yield. In general, the earlier a payment of principal is
made on a Principal Balance Certificate purchased at a discount or premium, the
greater will be the effect on an investor's yield to maturity. As a result, the
effect on an investor's yield of principal payments on such investor's Principal
Balance Certificates occurring at a rate higher (or lower) than the rate
anticipated by the investor during any particular period would not be fully
offset by a subsequent like reduction (or increase) in the rate of principal
payments. The yield to maturity of each Class of Interest Only Certificates will
be highly sensitive to the rate and timing of principal payments (including by
reason of prepayments, repurchases, extensions, defaults and liquidations) on or
in respect of the Mortgage Loans. Investors in the Interest Only Certificates
should fully consider the associated risks, including the risk that an extremely
rapid rate of amortization and prepayment of the Notional Amounts of their
Certificates could result in the failure of such investors to recoup their
initial investments.
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
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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 applicable thereto. 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.
LOSSES AND SHORTFALLS
The yield to holders of the Offered Certificates will also depend on the
extent to which such holders are required to bear the effects of any losses or
shortfalls on the Mortgage Loans. Losses and other shortfalls on the Mortgage
Loans (other than Net Aggregate Prepayment Interest Shortfalls) will generally
be borne: first, by the holders of the respective Classes of Subordinate
Certificates, in reverse alphabetical order of Class designation, to the extent
of amounts otherwise distributable in respect of their Certificates; and then,
by the holders of the Senior Certificates. Net Aggregate Prepayment Interest
Shortfalls will be borne by the holders of the respective Classes of REMIC
Regular Certificates on a pro rata basis as described herein.
CERTAIN RELEVANT FACTORS
The rate and timing of principal payments and defaults and the severity
of losses on the Mortgage Loans may be affected by a number of factors,
including, without limitation, prevailing interest rates, the terms of the
Mortgage Loans (for example, Prepayment Premiums, Lockout Periods and
amortization terms that require Balloon Payments), the demographics and relative
economic vitality of the areas in which the Mortgaged Properties are located and
the general supply and demand for comparable residential and/or commercial space
in such areas, the quality of management of the Mortgaged Properties, the
servicing of the Mortgage Loans, possible changes in tax laws and other
opportunities for investment. See "Risk Factors and Other Special
Considerations" and "Description of the Mortgage Pool" herein and "Risk Factors"
and "Yield Considerations" in the Prospectus.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. If a Mortgage Loan is not in a Lockout Period, the Prepayment Premium, if
any, in respect of such Mortgage Loan may not be sufficient economic
disincentive to prevent the related borrower from voluntarily prepaying the loan
as part of a refinancing thereof. See "Description of the Mortgage Pool--Certain
Terms and Characteristics of the Mortgage Loans" herein.
DELAY IN PAYMENT OF DISTRIBUTIONS
Because monthly distributions will not be made to Certificateholders
until a date that is scheduled to be at least 15 days following the end of the
related Interest Accrual Period, the effective yield to the holders of the
Offered Certificates will be lower than the yield that would otherwise be
produced by the applicable Pass-Through Rates and purchase prices.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The mortgage pool (the "Mortgage Pool") will consist of 194 mortgage
loans (each, a "Mortgage Loan") with an Initial Pool Balance of $632,094,383
equal to the aggregate Cut-off Date Balance (the "Initial Pool Balance") of the
Mortgage Loans, subject to a permitted variance of plus or minus 5%. Each of the
multiple mortgaged properties securing a single mortgage loan is treated as a
separate mortgage loan for the presentation of mortgage pool information in this
Prospectus Supplement. The "Cut-off Date Balance" with respect to any Mortgage
Loan is the unpaid principal balance thereof as of the Cut-off Date.
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All numerical information provided herein with respect to the Mortgage
Loans is provided on an approximate basis.
A brief summary of the material terms of the ten largest Mortgage Loans
in the Mortgage Pool is set forth on Appendix III attached hereto.
Principal Balances
The Mortgage Loans have an Initial Pool Balance of $632,094,383 (subject
to a variance of plus or minus 5%). The Cut-off Date Balances of the Mortgage
Loans range from $178,572 to $21,808,261, and the Mortgage Loans have an average
Cut-off Date Balance of $3,258,218.
Balloon Loans
One hundred ninety one (191) of the Mortgage Loans, representing 98.6%
of the Initial Pool Balance, are Balloon Loans or are Anticipated Repayment Date
Loans that provide for increases in the mortgage rate and/or principal
amortization at a date prior to the stated maturity date.
Fee/Leasehold
Each Mortgage Loan is evidenced by a promissory note (a "Mortgage Note")
and secured by a mortgage, deed of trust or other similar security instrument (a
"Mortgage") that creates a first mortgage lien on a fee simple estate in an
income producing real property (except in 5 cases, representing 5.2% of the
Initial Pool Balance, a leasehold estate and in 4 cases, representing 4.5% of
the Initial Pool Balance, a leasehold interest in a portion of the property and
a fee interest in the remainder of the property) (a "Mortgaged Property").
Property Type
o Thirty three (33) of the Mortgaged Properties, which represent
security for 19.5% of the Initial Pool Balance, are retail properties;
o Twenty (20) of the Mortgaged Properties, which represent security for
17.8% of the Initial Pool Balance, are office properties;
o Twenty three (23) of the Mortgaged Properties, which represent
security for 15.3% of the Initial Pool Balance, are multifamily apartment
properties;
o Forty nine (49) of the Mortgaged Properties, which represent security
for 15.0% of the Initial Pool Balance, are manufactured housing communities;
o Twenty five (25) of the Mortgaged Properties, which represent
security for 13.3% of the Initial Pool Balance, are hospitality properties
(which includes 15 extended stay properties, which represent security for 7.2%
of the Initial Pool Balance);
o Fourteen (14) of the Mortgaged Properties, which represent security
for 7.6% of the Initial Pool Balance, are mixed use properties;
o Fifteen (15) of the Mortgaged Properties, which represent security
for 5.2% of the Initial Pool Balance, are self-storage facilities;
o Six (6) of the Mortgaged Properties, which represent security for
4.2% of the Initial Pool Balance, are industrial/warehouse properties,
including multi-tenant industrial properties; and
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o Nine (9) of the Mortgaged Properties, which represent security for
2.1% of the Initial Pool Balance, are senior housing properties.
Geographic Location
The Mortgaged Properties are located throughout 34 states and the
District of Columbia with the largest concentration in the State of California
(49 Mortgaged Properties, which represent security for 33.0% of the Initial Pool
Balance). Of the Mortgaged Properties located in the State of California, 18
Mortgaged Properties, which represent 9.4% of the Initial Pool Balance, are
located in Northern California, and 31 Mortgaged Properties, which represent
23.6% of the Initial Pool Balance, are located in Southern California. No other
state has a concentration of Mortgaged Properties that represents security for
more than 7.9% of the Initial Pool Balance. See Appendix II for a more detailed
description of the Mortgage Loans.
Delinquency
As of the Cut-off Date, none of the Mortgage Loans was 30 days or more
delinquent, or had been 30 days or more delinquent during the 12 calendar months
preceding the Cut-off Date.
Seller
One hundred forty-six (146) of the Mortgage Loans, which represent 80.2%
of the Initial Pool Balance (the "Owner Trust Loans"), were originated by FINOVA
Realty Capital Inc. ("FINOVA"), and sold to FINOVA Commercial Mortgage Loan
Owner Trust 1998-1, a business trust organized under the laws of the State of
Delaware (the "Owner Trust"). The Owner Trust intends to sell the Owner Trust
Loans to the Depositor on the Closing Date pursuant to a mortgage loan purchase
agreement between the Owner Trust and the Depositor.
Forty-eight (48) of the Mortgage Loans, which represent 19.8% of the
Initial Pool Balance, were originated by FINOVA (with the exception of 5 of the
Mortgage Loans, which represent 5.8% of the Initial Pool Balance, which were
underwritten by FINOVA and purchased from a financial institution prior to the
date hereof). These Mortgage Loans are currently owned by FINOVA and FINOVA
intends to sell them to the Depositor on the Closing Date pursuant to a mortgage
loan purchase agreement between FINOVA and the Depositor.
The representations and warranties to be provided by the Owner Trust to
the Depositor in respect of the Owner Trust Loans will be identical to the
representations and warranties to be provided by FINOVA to the Depositor in
respect of the remaining Mortgage Loans in its respective mortgage loan purchase
agreement. Furthermore, FINOVA will guarantee the Owner's Trust's obligations in
respect of a breach thereof. Therefore, even though the Depositor is acquiring
the Owner Trust Loans directly from the Owner Trust, FINOVA will be referred to
as the Seller of all of the mortgage loans solely for purposes of this
Prospectus Supplement.
On or prior to the Closing Date, the Depositor will acquire the Mortgage
Loans pursuant to a mortgage loan purchase agreement (the "Mortgage Loan
Purchase Agreement") from each of the Owner Trust and FINOVA. The Depositor will
thereupon assign its interests in the Mortgage Loans, without recourse, to the
Trustee for the benefit of the Certificateholders. See "--The Seller" and
"--Assignment of Mortgage Loans; Repurchases" below.
Origination Dates
The Mortgage Loans were originated between March 1, 1998 and February
28, 1999.
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CERTAIN TERMS AND CHARACTERISTICS OF THE MORTGAGE LOANS
Mortgage Rates; Calculations of Interest
All of the Mortgage Loans bear interest at annualized rates ("Mortgage
Rates") that will remain fixed for the remaining terms of the Mortgage Loans.
Other than the Anticipated Repayment Date Loans, no Mortgage Loan permits
negative amortization or the deferral of accrued interest.
All Mortgage Loans are Non-30/360 Loans (the "Interest Accrual Method").
As of the Cut-off Date, the Mortgage Rates of the Mortgage Loans range
from 6.610% to 9.000% per annum, and the weighted average Mortgage Rate of the
Mortgage Loans is 7.622% per annum.
Due Dates
One hundred forty-six (146) of the Mortgage Loans (representing 82.3% of
the Initial Pool Balance) have "Due Dates" (that is, the dates upon which the
related Monthly Payments are due) that occur on the first day of each month.
Forty-eight (48) of the Mortgage Loans (representing 17.7% of the Initial Pool
Balance) have Due Dates that occur on the eleventh day of each month.
Amortization
One hundred sixty (160) of the Mortgage Loans, representing 89.4% the
Initial Pool Balance, provide for Monthly Payments of principal and interest
based on amortization schedules significantly longer than their terms to
maturity. Thirty-one (31) additional Mortgage Loans, representing 9.2% of the
Initial Pool Balance, are Anticipated Repayment Date Loans. As a result, such
Mortgage Loans (the "Balloon Loans") will have substantial payments (each such
payment, a "Balloon Payment") payable on their respective maturity dates or
anticipated to be paid on their Anticipated Repayment Dates, as the case may be,
unless prepaid prior thereto. See "Risk Factors and Other Special
Considerations--The Mortgage Loans--Balloon Payments" herein. The remaining
three Mortgage Loans, representing 1.4% of the Initial Pool Balance, have an
expected balloon balance equal to less than 10% of the original principal
balance of each loan.
Defeasance; Prepayment Restrictions
One hundred-eighty one (181) Mortgage Loans, representing 92.5% of the
Initial Pool Balance, prohibit voluntary principal prepayments during a period
ending on a date determined by the related Mortgage Note (the "Lock-out Period")
but permit the related Borrower (after an initial period of at least two years
following the date of issuance of the Certificates) to defease the loan by
pledging direct, non-callable United States Treasury obligations and obtaining
the release of the Mortgaged Property from the lien of the Mortgage.
Nine (9) Mortgage Loans, representing 3.3% of the Initial Pool Balance,
prohibit voluntary principal prepayments during a Lock-out Period and thereafter
provide for prepayment premiums calculated on the basis of the greater of a
yield maintenance formula and 1% of the amount prepaid.
One (1) Mortgage Loan, representing 3.5% of the Initial Pool Balance,
prohibits voluntary principal prepayments during a Lock-out Period but permits
the related Borrower to either (i) defease the loan (after an initial period of
at least two years following the date of issuance of the Certificates) by
pledging direct, non-callable United States Treasury obligations and obtaining
the release of the mortgaged property from the lien of the mortgage or (ii)
following such Lock-out Period, pay a prepayment premium equal to the greater of
a yield maintenance formula and 1% of the amount prepaid.
Three (3) Mortgage Loans, representing 0.8% of the Initial Pool Balance,
prohibit voluntary principal prepayments during a Lock-out Period and thereafter
provide for percentage prepayment premiums until a cited date prior to maturity.
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Notwithstanding the foregoing, the Mortgage Loans generally provide for
a period of 3 to 9 months prior to maturity or Anticipated Repayment Date in
which the related Borrower may prepay the Mortgage Loan without premium or
defeasance requirements.
Yield Maintenance Premiums and Percentage Premiums, if and to the extent
collected, will be distributed to the holders of the Certificates as described
herein under "Description of the Certificates--Distributions--Distributions of
Prepayment Premiums" herein. The Master Servicer may not waive the imposition of
a Prepayment Premium or reduce the amount thereof. The Special Servicer may
waive the imposition of a Prepayment Premium, or reduce the amount thereof, with
respect to a Specially Serviced Mortgage Loan if such waiver or reduction is
consistent with the Servicing Standard. Neither the Depositor nor any Seller can
provide any assurance as to the enforceability of any Mortgage Loan provisions
barring prepayment or requiring the payment of a Prepayment Premium or of the
collectibility of any Prepayment Premium.
Non-recourse Obligations
Substantially all of the Mortgage Loans are non-recourse obligations of
the related borrowers and, upon any such borrower's default in the payment of
any amount due under the related Mortgage Loan, the holder thereof may look only
to the related Mortgaged Property for satisfaction of the borrower's
obligations. In those cases where the loan documents permit recourse to the
borrower or a guarantor, the Depositor has not evaluated the financial condition
of any such person, and prospective investors should thus consider all of the
Mortgage Loans to be non-recourse. None of the Mortgage Loans is insured or
guaranteed by the United States, any government entity or instrumentality or any
other person.
"Due-on-Sale" and "Due-on-Encumbrance" Provisions
The Mortgages contain "Due-on-sale" and "Due-on-encumbrance" clauses
that, in general, permit the holder of the Mortgage to accelerate the maturity
of the related Mortgage Loan if the borrower sells or otherwise transfers or
encumbers the related Mortgaged Property or that prohibit the borrower from
doing so without the consent of the holder of the Mortgage. Generally, the
Mortgage Loans permit a transfer of the related Mortgaged Property, subject to
the satisfaction of certain conditions, including, in some cases, approval of
the proposed transferee by the lender. In addition, certain Mortgage Loans
permit the borrower to transfer the related Mortgaged Property to an affiliate
or subsidiary of the borrower, or an entity of which the borrower is the
controlling beneficial owner, upon the satisfaction of certain limited
conditions as determined by the Master Servicer or Special Servicer, as
applicable.
Borrower Concentrations
Nineteen groups of Mortgage Loans (including cross-collateralized or
single note, multiple mortgage property loans) are made to the same borrower or
have related borrowers ("Related Borrower Loan Groups") that are affiliated with
one another through partial or complete direct or indirect common ownership. The
three largest of these groups represent 6.7%, 4.9%, and 4.8%, respectively, of
the Initial Pool Balance.
Cross-Collateralized Mortgage Loans
The Mortgage Pool includes four groups of Cross-Collateralized Mortgage
Loans, representing 7.0% of the Initial Pool Balance. See Appendix II hereto. In
all cases the Debt Service Coverage Ratios were determined on the basis of the
aggregate Underwritable Cash Flow of all the related Mortgaged Properties, the
Cut-off Date Balance per unit or square foot was determined based on the
aggregate number of square feet or units, and the Cut-off Date LTVs and the
Balloon LTVs was determined on the basis of the aggregate of the appraised
values of the related Mortgaged Properties.
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Multiple Mortgaged Properties
In nine cases, representing 14.1% of the Initial Pool Balance (not
including the 4 cross-collateralized and cross-defaulted Mortgage Loan groups
referred to above in "--Cross-Collateralized Mortgage Loans"), a single Mortgage
Note is secured by a Mortgage or Mortgages on two or more Mortgaged Properties.
Accordingly, the total number of Mortgaged Properties secured by such
multi-property loans is 37. In all cases the Debt Service Coverage Ratios were
determined on the basis of the aggregate Underwritable Cash Flow of all the
related Mortgaged Properties, the Cut-off Date Balance per unit or square foot
was determined based on the aggregate number of square feet or units, and the
Cut-off Date LTV's and the Balloon LTV's was determined on the basis of the
aggregate of the appraised values of the related Mortgaged Properties.
Single-Tenant Mortgage Loans
In the case of eight (8) Mortgage Loans, representing 4.5% of the
Initial Pool Balance, the related Mortgaged Property is 100% leased to a single
tenant (each such Mortgage Loan, a "Single-Tenant Mortgage Loan"). The Mortgaged
Property securing each such Mortgage Loan is generally subject to a single space
lease, which generally has a primary lease term that expires on or after the
scheduled maturity date or Anticipated Repayment Date of the related Mortgage
Loan but may have a shorter primary lease term. The amount of the monthly rental
payments payable by the tenant under the lease is equal to or greater than the
scheduled payment of all principal, interest and other amounts (other than any
Balloon Payment) due each month on the related Mortgage Loan.
The underwriting of the Single-Tenant Mortgage Loans is based primarily
upon the monthly rental payments due from the tenant under the lease of the
related Mortgaged Property, and where the primary lease term expires before the
scheduled maturity date or Anticipated Repayment Date, if applicable, of the
related Mortgage Loan, the underwriting considered the incentives for the
primary tenant to re-lease the premises and the anticipated rental value of the
premises at the end of the primary lease term. In addition, the loan
underwriting for certain of the Single-Tenant Mortgage Loans takes into account
the creditworthiness of the tenants under the applicable leases. Accordingly,
such Single-Tenant Mortgage Loans may have higher loan-to-value ratios and lower
debt-service-coverage ratios than other types of Mortgage Loans.
Each lease generally provides that the related tenant must pay all real
property taxes and assessments levied or assessed against the related Mortgaged
Property and all charges for utility services, insurance and other operating
expenses incurred in connection with the operation of the related Mortgaged
Property. Generally, the tenants under such leases are required, at their
expense, to maintain the related Mortgaged Properties in good order and repair.
Release Provisions
Several Mortgage Loans secured by multiple properties described under
"--Borrower Concentrations," "--Cross-Collateralized Mortgage Loans" and
"--Multiple Mortgaged Properties", respectively, above, permit the release of
individual real properties from the lien of the related Mortgage(s), subject to
the satisfaction of certain specified
conditions. See Appendix II hereto.
Ground Leases
Five (5) of the Mortgage Loans, representing 5.2% of the Initial Pool
Balance, are secured solely by a Mortgage on the borrower's leasehold interest
in the related Mortgaged Property. Four (4) of the Mortgage Loans, representing
4.5% of the Initial Pool Balance, are secured by a leasehold interest in a
portion of the Mortgaged Property and a fee interest in the remainder of the
related Mortgaged Property. Each of the ground leases (including renewed
options) expires at least ten years after the stated maturity of the related
Mortgage Loan. In each such case, the related ground lessor has agreed to give
the holder of the Mortgage Loan notice of, and has granted such holder the right
to cure, any default by the borrower/lessee. See "Risk Factors and Other Special
Considerations--The Mortgage Loans--Leasehold Considerations" herein.
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Subordinate Financing
With respect to 4 Mortgage Loans, representing approximately 5.3% of the
Initial Pool Balance, in general, the related Mortgage Loan documents allow the
borrower to grant a subordinate mortgage in the future, subject in each case to
certain loan to value and debt service coverage ratios. Generally, prior to any
such subordinate mortgage being allowed, certain conditions specified in the
related Mortgage Loan documents must be satisfied. The existence of secured
subordinate indebtedness may increase the difficulty of refinancing the related
Mortgage Loan at maturity. Also, if the holder of the secured subordinated debt
becomes a debtor in a bankruptcy proceeding, foreclosure of the Mortgage Loan
could be delayed. See "Risk Factors and Other Special Considerations--The
Mortgage Loans--Risks of Subordinate Financing" herein and "Certain Legal
Aspects of Mortgage Loans and The Leases--Subordinate Financing" in the
Prospectus.
There is secured subordinate financing currently existing with respect
to 4 of the Mortgaged Properties. The related Mortgage Loans represent
approximately 4.6% of the Initial Pool Balance. See Appendix II hereto.
Performance Holdbacks
Four of the Mortgage Loans, representing 3.6% of the Initial Pool
Balance, provide for material performance holdbacks under which monies disbursed
by the originating lender are escrowed for certain specified periods, and
released only upon the satisfaction of certain conditions by the borrower. If
the borrowers do not satisfy conditions for release of the monies by the outside
funding date, such monies shall be applied to partially repay the related
Mortgage Loan (in some cases, without the payment of any prepayment premium). A
summary of those Mortgage Loans and conditions for release of performance
holdbacks are set forth below:
LOANS CONTAINING PERFORMANCE HOLDBACK PROVISIONS
<TABLE>
<CAPTION>
AMOUNT OUTSIDE
APPENDIX II CUT-OFF OF DATE
MORTGAGE PROPERTY DATE ESCROWED OUTSIDE PREPAYMENT
LOAN NUMBER NAME BALANCE HOLDBACK DATE RELEASE CONDITIONS PROVISION
- ----------- -------- -------- -------- ------- ------------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
27 Jemal-Laurel $3,841,795 $750,000 6/1/2000 1) Borrower submits Yield
Lakes Corp. documentation for Maintenance
expenses incurred
for tenant
improvements for new
tenants; under
approved leases; and
2) the DSCR equals or
exceeds 1.30x.
60 Waikiki $5,189,725 $800,000 6/30/1999 1) the DSCR equals or No
Market exceeds 1.25x, and Prepayment
Place Penalty
2) current tenant of
Unit 104 renews
its lease, or new
tenants have
signed leases for
and occupied Unit
102 and either
Unit 103 or Unit
104.
</TABLE>
Additional holdbacks are in place for the following Mortgage Loans:
Mortgage Loan No. 26, Jemal-801 North Capitol, has a cash holdback of $596,640,
released upon Borrower providing to lender the required estoppel from the City
of Washington, D.C. to confirm occupancy and payment obligations. Mortgage Loan
No. 27, Jemal-Laurel Lakes Corp. Center, has an additional cash holdback of
$93,600, released upon Borrower providing to lender the required estoppel from
D.P.C. Technology to confirm occupancy and payment obligations. Mortgage Loan
No. 155, Fairborn Apartments has a cash holdback of $400,000 to be released on
or before December 31, 1999 provided
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the Borrower sells, closes and conveys the property to a purchaser satisfactory
to lender in lender's sole discretion at a purchase price of not less than
$2,800,000 in cash with a minimum of 20% cash equity. In the event the
conditions are not met by December 31, 1999, the amount of holdback shall be
used to partially defease the Fairborn Apartments Mortgage Loan.
In addition, certain of the Mortgage Loans provide for minor holdbacks
for items such as deferred maintenance, minor environmental items and capital
improvements. See Appendix II for additional information.
ASSESSMENTS OF PROPERTY VALUE AND CONDITION
Appraisals
In connection with the origination or acquisition of most of the
Mortgage Loans, the related Mortgaged Property was appraised by an independent
appraiser who belonged to the Appraisal Institute. The purpose of each appraisal
was to provide an opinion as to the fair market value of the related Mortgaged
Property as of the date thereof. There can be no assurance that such opinion
represents a reasonable approximation of the amount that could actually be
realized from a sale of the Mortgaged Property. None of the Depositor, any
Seller, the Underwriters, the Trustee, the Master Servicer or the Special
Servicer or any of their respective affiliates has prepared or conducted its own
separate appraisal or reappraisal of any Mortgaged Property. See "Risk Factors
and Other Special Considerations--The Mortgage Loans--Limitations of Appraisal"
herein. Not all of the above-described appraisals, and none of the market value
estimates, conformed to the appraisal guidelines set forth in Title XI of the
Federal Financial Institutions Reform, Recovery and Enforcement Act of 1989.
Environmental Assessments
An environmental site assessment (or an update to a previously performed
environmental site assessment) was performed with respect to Mortgaged
Properties securing 139 Mortgage Loans, representing 77.2% of the Initial Pool
Balance, within one-year of the Cut-off Date in connection with the origination
of the related Mortgage Loan, and all of the Mortgaged Properties were assessed
within 18 months of the Cut-off Date. In all cases, the initial environmental
site assessment was a "Phase I" environmental assessment. In certain cases, the
assessment disclosed the existence of or potential for adverse environmental
conditions, such as the existence of, among other things, asbestos-containing
materials, underground storage tanks and soil contamination and in certain of
such cases, a "Phase II" assessment was performed. In certain cases, the related
borrowers were required to establish operations and maintenance plans, monitor
the Mortgaged Property or nearby properties, abate or remediate the condition
and/or provide additional security. See "Risk Factors and Other Special
Considerations--The Mortgage Loans--Environmental Considerations" herein.
Property Condition Assessments
Most of the Mortgaged Properties were inspected, in connection with the
origination or acquisition of the related Mortgage Loan, by an employee of
FINOVA or by a third party professional engaged by FINOVA. Furthermore, with the
exception of one Mortgage Loan, representing 0.5% of the Initial Pool Balance, a
licensed engineer or consultant inspected the related Mortgaged Property, in
connection with the origination or acquisition of the related Mortgage Loan, to
assess the structure, exterior walls, roofing, interior structure and mechanical
and electrical systems. In general, where material deficiencies were observed,
the related borrower was required to establish reserves for replacement or
repair or to remediate the deficiency.
Seismic Review Process
In general, the underwriting guidelines applicable to the origination of
the Mortgage Loans required that prospective borrowers seeking loans secured by
properties located in California obtain a seismic engineering report of the
building and, based thereon and on certain statistical information, an estimate
of probable maximum loss ("PML"), that is, an estimate of the loss that the
property would sustain in a "worst case" earthquake scenario. Generally, any
proposed loan as to which the property was estimated to have a PML in excess of
20% of the
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estimated replacement cost of the improvements would either be subject to a
lower loan-to-value limit at origination, be conditioned on seismic upgrading
of the Mortgaged Property, be conditioned on receipt of satisfactory earthquake
insurance or be declined.
Zoning and Building Code Compliance.
FINOVA took steps to establish that the use and operation of the
Mortgaged Properties that represent security for its Mortgage Loans were, at
their respective dates of origination, in compliance in all material respects
with applicable zoning, land-use and similar laws and ordinances, but no
assurance can be made that such steps revealed all possible violations. Evidence
of such compliance may have been in the form of legal opinions, certifications
from government officials, title insurance endorsements and/or representations
by the related borrower contained in the related Mortgage Loan documents.
Certain violations may exist at any particular Mortgaged Property, but FINOVA
does not consider any such violations known to it to be material.
ADDITIONAL MORTGAGE LOAN INFORMATION
Each of the tables set forth in Appendix I sets forth certain
characteristics of the Mortgage Pool presented, where applicable, as of the
Cut-off Date. For a detailed presentation of certain of the characteristics of
the Mortgage Loans and the Mortgaged Properties, on an individual basis, see
Appendix II hereto. Certain additional information regarding the Mortgage Loans
is contained herein under "Risk Factors and Other Special Considerations--The
Mortgage Loans", elsewhere in this "Description of Mortgage Pool" section and
under "Certain Legal Aspects Of Mortgage Loans And The Leases" in the
Prospectus.
For purposes of this Prospectus Supplement, including for the tables in
Appendix I and the information set forth in Appendix II:
(1) The "Debt Service Coverage Ratio" or "DSCR" for any Mortgage Loan
(or group of Cross-Collateralized Mortgage Loans) is the ratio of
"Underwritable Cash Flow" estimated to be produced by the related
Mortgaged Property or Properties to the annualized amount of debt
service payable under that Mortgage Loan (or those Mortgage
Loans). "Underwritable Cash Flow" in each case is an estimate of
annual cash flow available for debt service based generally on
the most recently available property statements. In general, it
is the estimated revenue derived from the use and operation of a
Mortgaged Property (consisting primarily of rental income) less
the sum of (a) estimated operating expenses (such as utilities,
administrative expenses, repairs and maintenance, management and
franchise fees and advertising), (b) fixed expenses (such as
insurance, real estate taxes and, if applicable, ground lease
payments) and (c) reserves for capital expenditures, including
tenant improvement costs and leasing commissions, where
appropriate. Underwritable Cash Flow generally does not reflect
interest expenses and non-cash items such as depreciation and
amortization. In general, debt service coverage ratios are used
by income property lenders to measure the ratio of (a) cash
currently generated by a property that is available for debt
service to (b) required debt service payments. However, debt
service coverage ratios only measure the current, or recent,
ability of a property to service mortgage debt. If a property
does not possess a stable operating expectancy (for instance, if
it is subject to material leases that are scheduled to expire
during the loan term and that provide for above-market rents
and/or that may be difficult to replace), a debt service coverage
ratio may not be a reliable indicator of a property's ability to
service the mortgage debt over the entire remaining loan term.
In determining Underwritable Cash Flow for a Mortgaged Property,
FINOVA generally relied on rent rolls and other generally
unaudited financial information provided by the respective
borrowers. From that information, FINOVA generally calculated
stabilized estimates of cash flow that took into consideration
historical financial statements, material changes in the
operating position of a Mortgaged Property of which FINOVA was
aware (e.g., newly signed leases, expirations of "free rent"
periods and market rent and market vacancy data), and estimated
capital expenditures, including leasing commission and tenant
improvement reserves, where appropriate.
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In certain cases, FINOVA's estimate of Underwritable Cash Flows
reflected differences from the information contained in the
operating statements obtained from the respective borrowers
(resulting in either an increase or decrease in the estimate of
Underwritable Cash Flow derived therefrom) based upon FINOVA's
own analysis of such operating statements and the assumptions
applied by the respective borrowers in preparing such statements
and information. In certain instances, for example, property
management fees and other expenses may have been included in the
calculation of Underwritable Cash Flow even though such expense
may not have been reflected in actual historic operating
statements. In certain cases, only partial year operating income
information was available. In most of those cases, the
information was annualized, with certain adjustments for items
deemed not appropriate to be annualized, before using it as a
basis for the determination of Underwritable Cash Flow. No
assurance can be given with respect to the accuracy of the
information provided by any borrowers, or the adequacy of the
procedures used by FINOVA in determining the presented operating
information.
The Debt Service Coverage Ratios are presented herein for
illustrative purposes only and, as discussed above, are limited
in their usefulness in assessing the current, or predicting the
future, ability of a Mortgaged Property to generate sufficient
cash flow to repay the related Mortgage Loan. Accordingly, no
assurance can be given, and no representation is made, that the
Debt Service Coverage Ratios accurately reflect that ability.
(2) References to "Loan-to-Value Ratio" or "Cut-off Date LTV" or
"Cut-off Date LTV Ratio" are references to the ratio, expressed
as a percentage, of the Cut-off Date Balance of a Mortgage Loan
(or the aggregate Cut-off Date Balance of a group of
Cross-Collateralized Mortgage Loans) to the value of the related
Mortgaged Property or Properties as determined by the appraisal
or market valuation of such Mortgaged Property or Properties
conducted in connection with the origination of the Mortgage
Loan. References to "Balloon LTV" or "Balloon LTV Ratio" are
references to the ratio, expressed as a percentage of the
principal balance of a Balloon Loan (or the aggregate principal
balance of a group of cross-collateralized Balloon Loans)
anticipated to be outstanding at the date on which the related
Balloon Payment(s) are scheduled to be due (the "Scheduled
Balloon Balance") (calculated based on the Maturity Assumptions
and a 0% CPR) to the value of the related Mortgaged Property or
Properties as determined by the most recent appraisal or market
valuation of such Mortgaged Property or Properties available to
the Depositor. No representation is made that any such value
would approximate either the value that would be determined in a
current appraisal of the related Mortgaged Property or the amount
that would be realized upon a sale.
(3) References to "Year Built" and "Year Renovated" are references to
the year or years in which a Mortgaged Property was constructed
and the year or years in which such Mortgaged Property was
substantially renovated, respectively.
(4) References to "weighted averages" are references to averages
weighted on the basis of the Cut-off Date Balances of the related
Mortgage Loans.
The sum in any column of any of the tables in Appendix I may not equal
the indicated total due to rounding.
STANDARD HAZARD INSURANCE
The Pooling and Servicing Agreement will provide that the Master
Servicer or the Special Servicer, as applicable, shall use reasonable efforts to
cause each mortgagor to maintain in respect of the related Mortgaged Property
all insurance coverage (other than earthquake insurance) as is required under
the related Mortgage; provided that if any Mortgage permits the holder thereof
to dictate to the mortgagor the insurance coverage to be maintained on such
Mortgaged Property, the Master Servicer or the Special Servicer, as applicable,
shall impose such insurance requirements as are consistent with the Servicing
Standard. If at any time a Mortgaged Property is located in an area identified
in the Federal Register by the Federal Emergency Management Agency as having
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special flood hazards or it becomes located in such area by virtue of remapping
conducted by such agency (and flood insurance has been made available), then
upon the Master Servicer or the Special Servicer becoming aware of such fact
(using efforts in accordance with the Servicing Standard), the Master Servicer
or the Special Servicer, as applicable, shall if and to the extent that the
Mortgage Loan requires the related mortgagor or permits the related mortgagee to
require such mortgagor to do so, use efforts consistent with the Servicing
Standard to cause such mortgagor to maintain a flood insurance policy meeting
the requirements of the current guidelines of the Federal Insurance
Administration in an amount representing coverage of not less than the least of
(i) the unpaid principal balance of the related Mortgage Loan, (ii) the full
insurable value of such Mortgaged Property, (iii) the maximum amount of
insurance coverage available under the National Flood Insurance Act of 1968, the
Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act
of 1994, as amended, and (iv) 100% of the replacement cost of the improvements
on such Mortgaged Property. Any losses incurred with respect to Mortgage Loans
due to uninsured risks (including earthquakes, mudflows and floods) or
insufficient hazard insurance proceeds may adversely affect payments to
Certificateholders. If a borrower fails to maintain the foregoing insurance, the
Master Servicer (or, with respect to REO Properties, the Special Servicer) will
be required to obtain such insurance (to the extent available at commercially
reasonable rates) and the cost thereof will be a Servicing Advance.
If the Master Servicer or the Special Servicer, as applicable, causes
any Mortgaged Property or REO Property to be covered by a master force placed
insurance policy, which provides protection equivalent to the individual
policies otherwise required, the Master Servicer or Special Servicer will
conclusively be deemed to have satisfied its respective obligations to cause
hazard insurance to be maintained on such Mortgaged Properties or REO
Properties. Such policy may contain a deductible clause, in which case the
Master Servicer or the Special Servicer, as applicable, will in the event that
(i) there shall not have been maintained on the related Mortgaged Property or
REO Property a policy otherwise complying with the provisions set forth above,
and (ii) a loss occurs that would have been covered by such a policy had it been
maintained, be required to pay the amount not otherwise payable under such
policy because such deductible exceeds the deductible of an individual policy
otherwise complying with the provisions set forth above.
Each Mortgage generally also requires the related borrower to maintain
comprehensive general liability insurance against claims for personal and bodily
injury, death or property damage occurring on, in or about the related Mortgaged
Property in an amount customarily required by commercial mortgage lenders.
Each Mortgage other than those relating to Manufactured Housing
Communities generally further requires the related borrower to maintain business
interruption or rent loss insurance in an amount not less than 100% of the
projected rental income from the related Mortgaged Property for not less than
six months.
In general, the Mortgaged Properties are not insured for earthquake
risk.
THE SELLER
FINOVA Realty Capital Inc.
The FINOVA Group Inc. (NYSE: FNV) is a diversified financial services
holding company. Through its principal subsidiary, FINOVA Capital Corporation,
FINOVA Group Inc. operates in 19 specific industry or market niches to provide
a broad range of financing and capital market products to midsize businesses.
FINOVA Capital Corporation has been in operation for over 45 years. As of
December 31, 1998, The FINOVA Group Inc. reported an asset base of
approximately $11 billion.
FINOVA Realty Capital Inc. ("FINOVA") is a wholly-owned indirect
subsidiary of FINOVA Capital Corporation and is the entity through which FINOVA
Group Inc. conducts the great majority of its commercial real estate finance
activities. FINOVA was formerly known as Belgravia Capital Corporation prior to
its acquisition by FINOVA Group Inc. in October 1997. FINOVA is headquartered in
Irvine, CA with a staff in excess of 90 employees, where it maintains its
centralized underwriting, loan processing, credit and capital markets
operations. FINOVA maintains an additional 29 offices nationwide which are
staffed with approximately 80 employees that are dedicated solely to sourcing
commercial real estate loans.
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In 1998, FINOVA originated a total of approximately $3.1 billion of
commercial mortgage loans. These loans were either funded on balance sheet,
funded by securitization partners or brokered to third party institutions. Since
1994, FINOVA's originations have included approximately $2.5 billion of
commercial mortgage loans that have been securitized by its partners in more
than 20 different offerings of commercial mortgage-backed securities.
Certain of the Mortgage Loans (the "Owner Trust Loans"), were originated
by FINOVA and sold to FINOVA Commercial Mortgage Loan Owner Trust 1998-1, a
business trust organized under the laws of the State of Delaware (the "Owner
Trust"), and will be owned by the Owner Trust immediately prior to the issuance
of the Certificates. Even though the Depositor acquired the Owner Trust Loans
directly from the Owner Trust, FINOVA will be referred to as the Seller of all
of the Mortgage Loans solely for the purposes of this Prospectus Supplement. See
"Description of the Mortgage Pool--General--Sellers."
Acquisition of Certificates
FINOVA or its affiliates may acquire a significant portion of certain
Classes of the Certificates.
ASSIGNMENT OF THE MORTGAGE LOANS
On or prior to the Closing Date, the Seller will assign its Mortgage
Loans, without recourse, to the Depositor, and the Depositor will assign all the
Mortgage Loans, without recourse, to the Trustee for the benefit of the
Certificateholders. In connection with the foregoing, the Seller is required in
accordance with the Mortgage Loan Purchase Agreement to deliver the following
documents, among others, with respect to each Mortgage Loan so assigned by it
(such documents, collectively as to any Mortgage Loan, a "Mortgage File") to the
Trustee:
(a) the original Mortgage Note, endorsed (without recourse) to
the order of Trustee;
(b) the original or a certified copy of the related recorded
Mortgage(s), together with originals or certified copies of intervening
assignments of such document(s) conveying the Mortgage to the last
assignee of record prior to the Trustee, in each case with evidence of
recording thereon (unless such document(s) have not been returned by the
applicable recorder's office);
(c) the original or a copy of any related recorded assignment(s)
of rents and leases (if any such item is a document separate from the
Mortgage), together with originals or copies of intervening assignments
of such document(s) conveying the assignment(s) of rents and leases to
the last assignee of record prior to the Trustee, in each case with
evidence of recording thereon (unless such document(s) have not been
returned by the applicable recorder's office);
(d) an assignment of each related Mortgage in favor of the
Trustee, in recordable form;
(e) an assignment of any related assignment(s) of rents and
leases (if any such item is a document separate from the Mortgage) in
favor of the Trustee, in recordable form, which may be combined with the
assignment of the related Mortgage;
(f) an original or copy of the related lender's title insurance
policy (or, if a title insurance policy has not yet been issued, a
commitment for title insurance or pro forma policy);
(g) when applicable, the related ground lease or a certified
copy thereof; and
(h) when relevant, the loan agreement and the lockbox agreement.
The Trustee will be required to review certain documents
delivered by the Seller with respect to its Mortgage Loans within 90 days
following the Closing Date, and the Trustee will hold the related documents in
trust.
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Within 45 days following the Closing Date, pursuant to the Pooling and
Servicing Agreement, the assignments with respect to each Mortgage Loan
described in clauses (d) and (e) of the preceding paragraph are to be submitted
for recording in the real property records of the appropriate jurisdictions.
REPRESENTATIONS AND WARRANTIES
In the Mortgage Loan Purchase Agreement, the Seller has represented and
warranted with respect to each of the Mortgage Loans, as of the Closing Date, or
as of such other date specifically provided in the representation and warranty,
among other things, generally (subject to certain exceptions) to the effect
that:
(1) the information set forth in the schedule of the mortgage
loans attached to the Mortgage Loan Purchase Agreement (which contains
certain of the information set forth in Appendix II) is true and correct
in all material respects;
(2) the Seller owns the Mortgage Loan free and clear of any and
all pledges, liens and/or other encumbrances;
(3) no scheduled payment of principal and interest under the
Mortgage Loan was 30 days or more past due as of the Cut-off Date, and
the Mortgage Loan has not been 30 days or more delinquent in the
twelve-month period immediately preceding the Cut-off Date;
(4) the related Mortgage constitutes a valid and, subject to
certain creditors' rights exceptions, enforceable first priority
mortgage lien (subject to certain permitted encumbrances) upon the
related Mortgaged Property;
(5) the assignment of the related Mortgage in favor of the
Trustee constitutes a legal, valid and binding assignment;
(6) the related assignment of leases establishes and creates a
valid and, subject to certain creditors' rights exceptions, enforceable
first priority lien (subject to certain permitted encumbrances) in the
related borrower's interest in all leases of the Mortgaged Property;
(7) the Mortgage has not been satisfied, canceled, rescinded or
subordinated in whole or in material part, and the related Mortgaged
Property has not been released from the lien of such Mortgage, in whole
or in material part, except for any partial reconveyance of portions of
the real property that do not materially adversely affect the value of
the property;
(8) none of the terms of any Mortgage Note, Mortgage or
Assignment of Leases has been impaired, waived, altered or modified in
any respect, except by written instruments, all of which are included in
the related Mortgage File;
(9) except as set forth in a property inspection report prepared
in connection with the origination of the Mortgage Loan, the related
Mortgaged Property is, to the Seller's knowledge, free and clear of any
damage that would materially and adversely affect its value as security
for the Mortgage Loan;
(10) the Seller has received no notice of the commencement of any
proceeding for the condemnation of all or any material portion of any
Mortgaged Property;
(11) the related Mortgaged Property is covered by an American
Land Title Association (or an equivalent form of) lender's title
insurance policy or a marked-up title insurance commitment (on which the
required premium has been paid) in the original principal amount of the
related Mortgage Loan after all advances of principal; the policy
insures that the related Mortgage is a valid, first priority lien on
such Mortgaged Property, subject only to certain permitted encumbrances;
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(12) the proceeds of the Mortgage Loan have been fully disbursed
and there is no obligation for future advances with respect thereto;
(13) an environmental site assessment was performed with respect
to the Mortgaged Property in connection with the origination of the
related Mortgage Loan, a report of each such assessment has been
delivered to the Depositor, and such Seller has no knowledge of any
material and adverse environmental condition or circumstance affecting
such Mortgaged Property that was not disclosed in such report;
(14) each Mortgage Note, Mortgage and other agreement that
evidences or secures the Mortgage Loan and that was executed by or on
behalf of the related borrower is, subject to certain creditors' rights
exceptions and other exceptions of general application, the legal, valid
and binding obligation of the maker thereof, enforceable in accordance
with its terms, and there is no valid defense, counterclaim or right of
offset or rescission available to the related borrower with respect to
such Mortgage Note, Mortgage or other agreement;
(15) the related Mortgaged Property is, and is required pursuant
to the related Mortgage to be, insured by casualty and liability
insurance policies of a type specified in the related Mortgage Loan
Purchase Agreement;
(16) there are no delinquent or unpaid taxes, assessments or
other outstanding charges affecting the related Mortgaged Property that
are or may become a lien of priority equal to or higher than the lien of
the related Mortgage; for purposes of this representation and warranty,
real property taxes and assessments shall not be considered unpaid until
the date on which interest and/or penalties would be first payable
thereon;
(17) the related borrower is not, to the Seller's knowledge, a
debtor in any state or federal bankruptcy or insolvency proceeding;
(18) the related Mortgaged Property consists of a fee simple
estate in real estate or, if the related Mortgage encumbers the interest
of a borrower as a lessee under a ground lease of the Mortgaged Property
(a) such ground lease or a memorandum thereof has been or will be duly
recorded and (or the related estoppel letter or lender protection
agreement between the Seller and related lessor) permits the interest of
the lessee thereunder to be encumbered by the related Mortgage; (b) the
lessee's interest in such ground lease is not subject to any liens or
encumbrances superior to, or of equal priority with, the related
Mortgage, other than certain permitted encumbrances (c) the borrower's
interest in such ground lease is assignable to the Depositor and its
successors and assigns upon notice to, but without the consent of, the
lessor thereunder (or if it is required it will have been obtained prior
to the Closing Date); (d) such ground lease is in full force and effect
and the Seller has received no notice that an event of default has
occurred thereunder; (e) such ground lease, or an estoppel letter
related thereto, requires the lessor under such ground lease to give
notice of any default by the lessee to the holder of the Mortgage and
further provides that no notice of termination given under such ground
lease is effective against such holder unless a copy has been delivered
to such holder and the lessor has offered to enter into a new lease with
such holder on the terms that do not materially vary from the economic
terms of the ground lease; (f) the holder of the Mortgage is permitted a
reasonable opportunity (including, where necessary, sufficient time to
gain possession of the interest of the lessee under such ground lease)
to cure any default under such ground lease, which is curable after the
receipt of notice of any such default, before the lessor thereunder may
terminate such ground lease; and (g) such ground lease has an original
term (including any extension options set forth therein) which extends
not less than ten years beyond the scheduled maturity date of the
related Mortgage Loan;
(19) each Mortgage Loan complied with all applicable usury laws
in effect at its date of origination;
(20) the Mortgage Loan is not cross-collateralized or
cross-defaulted with any loan other than one or more other Mortgage
Loans;
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(21) no Mortgage requires the holder thereof to release all or
any material portion of the related Mortgaged Property from the lien
thereof except upon payment in full of the Mortgage Loan or defeasance
(in the case of the Defeasance Loans), or in certain cases, upon (a) the
satisfaction of certain legal and underwriting requirements and (b)
except where the portion of the Mortgaged Property permitted to be
released was not considered by the Seller to be material in underwriting
the Mortgage Loan, the payment of a release price and prepayment
consideration in connection therewith; and
(22) to the Seller's knowledge, there exists no material default,
breach, violation or event of acceleration (and no event which, with the
passage of time or the giving of notice, or both, would constitute any
of the foregoing) under the related Mortgage Note or Mortgage in any
such case to the extent the same materially and adversely affects the
value of the Mortgage Loan and the related Mortgaged Property (other
than any default, breach, violation or event of acceleration that
specifically pertains to any matter otherwise covered by any other
representation and warranty made by the Seller).
REPURCHASES AND OTHER REMEDIES
If any Mortgage Loan document required to be delivered to the Trustee by
the Seller as described under "--Assignment of the Mortgage Loans" above is not
delivered as and when required, contains information that does not conform to
the corresponding information in the Mortgage Loan Schedule attached to the
related Mortgage Loan Purchase Agreement, is not properly executed or is
defective on its face (any such omission, nonconformity or other defect, a
"Document Defect"), or if there is a breach of any of the representations and
warranties required to be made by the Seller regarding the characteristics of
its Mortgage Loans and/or the related Mortgaged Properties as described under
"--Representations and Warranties" above, and in either case such Document
Defect or breach materially and adversely affects the interests of the holders
of the Certificates (a "Material Document Defect" and a "Material Breach",
respectively), then the Seller will be obligated to cure such Material Document
Defect or Material Breach within the applicable Permitted Cure Period. If any
such Material Document Defect or Material Breach cannot be corrected or cured
within the applicable Permitted Cure Period, the Seller will be obligated, not
later than the last day of such Permitted Cure Period, to (i) repurchase the
affected Mortgage Loan from the Trust Fund at a price (the "Purchase Price") at
least equal to the unpaid principal balance of such Mortgage Loan, together with
accrued but unpaid interest thereon to but not including the Due Date in the
Collection Period of the repurchase, any related unreimbursed Servicing
Advances, together with interest on all related Advances, and generally, all
expenses reasonably incurred in respect of the Material Document Defect or the
Material Breach giving rise to such repurchase, or (ii) if within the
three-month period commencing on the Closing Date (or within the two-year period
commencing on the Closing Date if the related Mortgage Loan is a "defective
obligation" within the meaning of Section 860G(a)(4)(B)(ii) of the Code and
Treasury Regulation Section 1.860G-2(f)), at its option, (A) replace such
Mortgage Loan with a mortgage loan having certain payment terms comparable to
the Mortgage Loan to be replaced and that is acceptable to each Rating Agency (a
"Qualifying Substitute Mortgage Loan") (and in the case of a "defective
obligation", satisfying the requirements of a "qualified replacement mortgage"
within the meaning of Section 860G(a)(4)(B) of the Code) and (B) pay an amount
(a "Substitution Shortfall Amount") generally equal to the excess of the
applicable Purchase Price for the Mortgage Loan to be replaced (calculated as if
it were to be repurchased instead of replaced), over the unpaid principal
balance of the applicable Qualifying Substitute Mortgage Loan as of the date of
substitution, after application of all payments due on or before such date,
whether or not received.
For purposes of the foregoing, the "Permitted Cure Period" applicable to
any Material Document Defect or Material Breach in respect of any Mortgage Loan
will generally be the 90-day period immediately following the earlier of the
discovery by the Seller or receipt by the related Seller of notice of such
Material Document Defect or Material Breach, as the case may be. However, if
such Material Document Defect or Material Breach, as the case may be, cannot be
corrected or cured within such 90-day period, but it is susceptible of cure
within 180 days of the earlier of discovery by the Seller and receipt by the
Seller of notice of such Material Document Defect or Material Breach, as the
case may be, and the Seller is diligently attempting to effect such correction
or cure, then the applicable Permitted Cure Period will, with the consent of the
Trustee (which consent may not be unreasonably withheld), be extended for an
additional 90 days.
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The foregoing obligations of the Seller to cure a Material Document
Defect or a Material Breach in respect of any of its Mortgage Loans or
repurchase or replace the defective Mortgage Loan, will constitute the sole
remedies of the Trustee and the Certificateholders with respect to such Material
Document Defect or Material Breach; and none of the Depositor, or any other
person or entity will be obligated to repurchase or replace the affected
Mortgage Loan if the related Seller defaults on its obligation to do so.
CHANGES IN MORTGAGE POOL CHARACTERISTICS
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the time the Offered Certificates are issued, as adjusted for the
scheduled principal payments due on or before the Cut-off Date. Prior to the
issuance of the Offered Certificates, a Mortgage Loan may be removed from the
Mortgage Pool if the Depositor deems such removal necessary or appropriate or if
it is prepaid. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Offered Certificates, unless
including such Mortgage Loans would materially alter the characteristics of the
Mortgage Pool as described herein. The information set forth herein is
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Offered Certificates are issued, although the range
of Mortgage Rates and maturities and certain other characteristics of the
Mortgage Loans in the Mortgage Pool may vary.
SERVICING OF THE MORTGAGE LOANS
GENERAL
The Master Servicer and the Special Servicer, either directly or through
sub-servicers, will each be required to service and administer the Mortgage
Loans on behalf of the Trust and in the best interests of and for the benefit of
the Certificateholders (as determined by the Master Servicer or Special
Servicer, as applicable, in its good faith and reasonable judgment), in
accordance with applicable law, the terms of the Pooling and Servicing Agreement
and the terms of the respective Mortgage Loans and, to the extent consistent
with the foregoing, as follows: (i) with the same skill, care and diligence as
is normal and usual in its general mortgage servicing and REO property
management activities on behalf of third parties (giving due consideration to
customary industry standards) or on behalf of itself, whichever is higher, with
respect to mortgage loans that are comparable to the Mortgage Loans; (ii) with a
view to the timely collection of all scheduled payments of principal and
interest under the Mortgage Loans or, if a Mortgage Loan comes into and
continues in default and if, in the good faith and reasonable judgment of the
Special Servicer, no satisfactory arrangements can be made for the collection of
the delinquent payments, the maximization of the recovery on such Mortgage Loan
to the Certificateholders (as a collective whole) on a net present value basis
(the relevant discounting of anticipated collections that will be distributable
to Certificateholders to be performed at the related Net Mortgage Rate); and
(iii) without regard to (A) any relationship that the Master Servicer or the
Special Servicer, as the case may be, or any affiliate thereof may have with the
related borrower; (B) the ownership of any Certificate by the Master Servicer or
the Special Servicer, as the case may be, or any affiliate thereof; (C) the
Master Servicer's obligation to make Advances; (D) the Special Servicer's
obligation to make (or to direct the Master Servicer to make) Servicing
Advances; (E) the right of the Master Servicer or the Special Servicer, as the
case may be, to receive reimbursement of costs, or the sufficiency of any
compensation payable to it under the Pooling and Servicing Agreement or with
respect to any particular transaction, or (F) the ownership, management or
servicing of any other mortgage loans.
In general, the Master Servicer will be responsible for the servicing
and administration of all the Mortgage Loans as to which no Servicing Transfer
Event has occurred and all Corrected Mortgage Loans, and the Special Servicer
will be obligated to service and administer each Mortgage Loan (other than a
Corrected Mortgage Loan) as to which a Servicing Transfer Event has occurred
(each, a "Specially Serviced Mortgage Loan") and each Mortgaged Property
acquired in respect of a defaulted Mortgage Loan on behalf of the
Certificateholders through foreclosure,
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deed-in-lieu of foreclosure or otherwise. A "Servicing Transfer Event"
with respect to any Mortgage Loan consists of any of the following events:
(i) the related borrower has failed to make when due a Balloon
Payment, which failure has continued unremedied for 30 days;
(ii) the related borrower has failed to make when due any Monthly
Payment (other than a Balloon Payment) or any other payment required
under the related Mortgage Note or the related Mortgage(s), which
failure has continued unremedied for 60 days;
(iii) the Master Servicer has determined, in accordance with the
Servicing Standard, that a default in the making of a Monthly Payment or
any other payment required under the related Mortgage Note or the
related Mortgage(s) is likely to occur within 30 days and is likely to
remain unremedied for at least 60 days or, in the case of a Balloon
Payment, for at least 30 days;
(iv) there shall have occurred a default under the related loan
documents, other than as described in clause (i) or (ii) above, that (in
the Master Servicer's judgment in accordance with the Servicing
Standard) materially impairs the value of the related Mortgaged Property
as security for the Mortgage Loan or otherwise materially and adversely
affects the interests of Certificateholders, which default has continued
unremedied for the applicable grace period under the terms of the
Mortgage Loan (or, if no grace period is specified, 60 days);
(v) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises in an involuntary case
under any present or future federal or state bankruptcy, insolvency or
similar law or the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the related
borrower and such decree or order shall have remained in force
undischarged or unstayed for a period of 60 days;
(vi) the related borrower shall have consented to the appointment
of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings of or relating to such borrower or of or relating to all or
substantially all of its property;
(vii) the related borrower shall have admitted in writing its
inability to pay its debts generally as they become due, filed a
petition to take advantage of any applicable insolvency or
reorganization statute, made an assignment for the benefit of its
creditors, or voluntarily suspended payment of its obligations; and
(viii) the Master Servicer shall have received notice of the
commencement of foreclosure or similar proceedings with respect to the
related Mortgaged Property.
The Master Servicer will continue to collect certain information and
prepare and remit all reports to the Trustee as provided in the Pooling and
Servicing Agreement with respect to any Specially Serviced Mortgage Loans and
REO Properties, and to render incidental services with respect to any Specially
Serviced Mortgage Loans and REO Properties as are specifically provided for in
the Pooling and Servicing Agreement. Neither the Master Servicer nor the Special
Servicer shall have any responsibility for the performance by the other of its
duties under the Pooling and Servicing Agreement.
A Mortgage Loan will cease to be a Specially Serviced Mortgage Loan (and
will become a "Corrected Mortgage Loan" as to which the Master Servicer will
re-assume servicing responsibilities) at such time as such of the following as
are applicable occur with respect to the circumstances identified above that
caused the Mortgage Loan to be characterized as a Specially Serviced Mortgage
Loan (and provided that no other Servicing Transfer Event then exists):
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(w) with respect to the circumstances described in clauses (i)
and (ii) of the preceding paragraph, the related borrower
has made three consecutive full and timely Monthly
Payments under the terms of such Mortgage Loan (as such
terms may be changed or modified in connection with a
bankruptcy or similar proceeding involving the related
borrower or by reason of a modification, waiver or
amendment granted or agreed to by the Special Servicer);
(x) with respect to the circumstances described in clauses
(iii), (v), (vi) and (vii) of the preceding paragraph,
such circumstances cease to exist in the good faith and
reasonable judgment of the Special Servicer;
(y) with respect to the circumstances described in clause (iv)
of the preceding paragraph, such default is cured; and
(z) with respect to the circumstances described in clause
(viii) of the preceding paragraph, such proceedings are
terminated.
The Special Servicer will prepare a report (an "Asset Status Report")
for each Mortgage Loan which becomes a Specially Serviced Mortgage Loan not
later than 30 days after the Servicing Transfer Event for such Mortgage Loan.
Each Asset Status Report will be delivered in accordance with the Pooling and
Servicing Agreement. The Operating Adviser has certain rights to approve certain
actions contemplated by the Asset Status Report, provided that any actions
recommended by the Special Servicer in the Asset Status Report (or any
revisions) shall be consistent with the Servicing Standard and the Special
Servicer may not take any action inconsistent with an Asset Status Report unless
such action would be required in order to act in accordance with the Servicing
Standard.
The Master Servicer and Special Servicer will each be required to
service and administer the respective groups of Cross-Collateralized Mortgage
Loans as a single Mortgage Loan as and when it deems necessary and appropriate,
consistent with the Servicing Standard. If any Cross-Collateralized Mortgage
Loan becomes a Specially Serviced Mortgage Loan, then each other Mortgage Loan
with which it is cross-collateralized shall also become a Specially Serviced
Mortgage Loan. Similarly, no Cross-Collateralized Mortgage Loan may subsequently
become a Corrected Mortgage Loan, unless and until all Servicing Transfer Events
in respect of each other Mortgage Loan in the group are remediated or otherwise
addressed as contemplated above.
THE MASTER SERVICER
AMRESCO Services, L.P., a Delaware limited partnership, will serve as
master servicer (the "Master Servicer") and in such capacity will be responsible
for servicing the Mortgage Loans (other than Specially Serviced Mortgage Loans
and REO Properties). The Master Servicer is a wholly-owned subsidiary of
AMRESCO, INC. ("AMRESCO"), a diversified financial services company which is
publicly traded on NASDAQ. The Master Servicer's principal offices are located
at 235 Peachtree Street, NE, Suite 900, Atlanta, Georgia 30303.
As of December 31, 1998, AMRESCO serviced approximately 18,830
commercial and multifamily loans, totaling approximately $41.8 billion in
aggregate outstanding principal amount. Within this servicing portfolio are
loans that have been securitized in a total of 88 transactions with an aggregate
principal balance of approximately $34.2 billion. The portfolio is significantly
diversified both geographically and by product type.
The information set forth herein concerning the Master Servicer has been
provided by it, and neither the Depositor nor the Underwriters make any
representation or warranty as to the accuracy or completeness of such
information.
THE SPECIAL SERVICER
Banc One Mortgage Capital Markets, LLC ("Banc One"), a Delaware limited
liability company, will be the Special Servicer (the "Special Servicer") and in
such capacity will be responsible for servicing any Specially
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Serviced Mortgage Loans and REO Properties. The Special Servicer's offices are
located at 1717 Main Street, Dallas, Texas 75201.
As of December 31, 1998, Banc One and its affiliates were responsible
for servicing approximately 7,058 commercial and multifamily loans with an
aggregate principal balance of approximately $22,287,101,048, the collateral for
which is located in 49 states, Mexico, Puerto Rico, Virgin Islands and the
District of Columbia. With respect to such loans, approximately 6,180 loans with
an aggregate principal balance of approximately $17,946,030,189 pertain to
commercial and multifamily mortgage-backed securities.
The information set forth herein concerning the Special Servicer has
been provided by it, and neither the Depositor nor the Underwriters make any
representation or warranty as to the accuracy or completeness of such
information.
SUB-SERVICERS
The Master Servicer and Special Servicer may each delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"), subject to certain terms set
forth in the Pooling and Servicing Agreement; provided that the Master Servicer
or Special Servicer, as the case may be, will remain obligated under the Pooling
and Servicing Agreement for such delegated duties. Each sub-servicing agreement
between the Master Servicer or Special Servicer, as the case may be, and a
Sub-Servicer (each, a "Sub-Servicing Agreement") must provide that, if for any
reason the Master Servicer or Special Servicer, as the case may be, is no longer
acting in such capacity, the Trustee or any successor to such Master Servicer or
Special Servicer may, and in certain circumstances will be required to, assume
such party's rights and obligations under such Sub-Servicing Agreement or, in
some circumstances, may terminate such Sub-Servicer. The Master Servicer and
Special Servicer will each be required to monitor the performance of
Sub-Servicers retained by it.
The Master Servicer and Special Servicer will each be solely liable for
all fees owed by it to any Sub-Servicer retained thereby, irrespective of
whether its compensation pursuant to the Pooling and Servicing Agreement is
sufficient to pay such fees. Each Sub-Servicer retained thereby will be
reimbursed by the Master Servicer or Special Servicer, as the case may be, for
certain expenditures which it makes, only to the extent the Master Servicer or
Special Servicer would be reimbursed under the Pooling and Servicing Agreement.
See "--Servicing and Other Compensation and Payment of Expenses" herein.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer in respect
of its master servicing activities will be the Master Servicing Fee. The "Master
Servicing Fee" will be payable monthly on a loan-by-loan basis from amounts
received in respect of interest on each Mortgage Loan (including Specially
Serviced Mortgage Loans and Mortgage Loans as to which the related Mortgaged
Property has become an REO Property) and will be computed based on the Stated
Principal Balance as of the preceding Due Date of the related Mortgage Loan. The
administrative costs on each Mortgage Loan will equal the sum of the related
Master Servicing Fee and the Trustee Fee (collectively, expressed as a per annum
rate, the "Administrative Cost Rate"). The Administrative Cost Rate for each
Mortgage Loan will be equal to 0.12875% per annum. As additional servicing
compensation, the Master Servicer will be entitled to retain 50% of all
assumption fees and modification fees and 100% of any available similar or
ancillary fees, in each case to the extent actually paid by a borrower with
respect to a Mortgage Loan that is not a Specially Serviced Mortgage Loan. The
Master Servicer will also be entitled to: (a) Prepayment Interest Excesses
collected on the Mortgage Loans and not otherwise applied to cover Prepayment
Interest Shortfalls; and (b) any default interest and late payment charges
actually collected on the Mortgage Loans (other than Specially Serviced Mortgage
Loans and certain sub-serviced Mortgage Loans), but only to the extent that such
default interest is not allocable to cover interest payable to the Master
Servicer, the Special Servicer or the Trustee with respect to any Advances made
in respect of the related Mortgage Loan. In addition, the Master Servicer will
be authorized to invest or direct the investment of funds held in any and all
accounts maintained by it or the Trustee that constitute part of the Certificate
Account or Interest Reserve Account, in certain government securities and other
investment grade obligations specified in the Pooling and Servicing Agreement
("Permitted Investments"), and the Master
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Servicer will be entitled to retain any interest or other income earned on such
funds, but will be required to cover any investment losses on such funds from
its own funds without any right to reimbursement. Furthermore, the Master
Servicer will also be entitled to any interest earned on escrow accounts and
reserve accounts maintained in respect of the Mortgage Loans (to the extent not
otherwise payable to the borrowers).
The principal compensation to be paid to the Special Servicer in respect
of its special servicing activities will be the Special Servicing Fee, the
Workout Fee and the Liquidation Fee. The "Special Servicing Fee" will accrue
with respect to each Specially Serviced Mortgage Loan and each Mortgage Loan as
to which the related Mortgaged Property has become an REO Property, at a rate
equal to 0.25% per annum (the "Special Servicing Fee Rate"), based on the Stated
Principal Balance as of the preceding Due Date of the related Mortgage Loan, and
will be payable monthly from general collections on the Mortgage Loans and any
REO Properties held by the Master Servicer from time to time. A "Workout Fee"
will in general be payable with respect to each Corrected Mortgage Loan. As to
each Corrected Mortgage Loan, the Workout Fee will be payable out of, and will
be calculated by application of a "Workout Fee Rate" of 1% to, each collection
of interest and principal (including scheduled payments, prepayments, Balloon
Payments and payments at maturity) received on such Mortgage Loan for so long as
it remains a Corrected Mortgage Loan. The Workout Fee with respect to any
Corrected Mortgage Loan will cease to be payable if such loan again becomes a
Specially Serviced Mortgage Loan or if the related Mortgaged Property becomes an
REO Property; provided that a new Workout Fee will become payable if and when
such Mortgage Loan again becomes a Corrected Mortgage Loan. If the Special
Servicer is terminated (other than for cause) or resigns with respect to any or
all of its servicing duties, it shall retain the right to receive any and all
Workout Fees payable with respect to Mortgage Loans that became Corrected
Mortgage Loans during the period that it had responsibility for servicing
Specially Serviced Mortgage Loans and that were still Corrected Mortgage Loans
at the time of such termination or resignation (and the successor Special
Servicer shall not be entitled to any portion of such Workout Fees), in each
case until the Workout Fee for any such loan ceases to be payable in accordance
with the preceding sentence. A "Liquidation Fee" will be payable in an amount
equal to the product of (x) 1.00%, and (y) the related Liquidation Proceeds.
Notwithstanding anything to the contrary described above, no Liquidation Fee
will be payable based on, or out of, Liquidation Proceeds received in connection
with the repurchase or replacement of any Mortgage Loan by a Seller for a breach
of representation or warranty or for defective or deficient Mortgage Loan
documentation or in connection with the purchase of all of the Mortgage Loans
and REO Properties by any person entitled to effect an optional termination of
the Trust Fund. If, however, Liquidation Proceeds are received with respect to
any Corrected Mortgage Loan and the Special Servicer is properly entitled to a
Workout Fee, such Workout Fee will be payable based on and out of the portion of
such Liquidation Proceeds that constitute principal and/or interest. The Special
Servicer will be entitled to additional servicing compensation in the form of
100% of all assumption fees and modification fees received on or with respect to
Specially Serviced Mortgage Loans and 50% of all assumption fees and
modification fees received on or with respect to Mortgage Loans that are not
Specially Serviced Mortgage Loans. The Special Servicer will also be entitled to
any default interest and late payment charges actually collected on the
Specially Serviced Mortgage Loans, but only to the extent that such default
interest is not allocable to cover interest payable to the Master Servicer, the
Special Servicer or the Trustee with respect to any Advances made in respect of
the related Mortgage Loan.
The Master Servicer and the Special Servicer will, in general, each be
required to pay all ordinary expenses incurred by it in connection with its
servicing activities under the Pooling and Servicing Agreement and will not be
entitled to reimbursement therefor except as expressly provided in the Pooling
and Servicing Agreement.
THE OPERATING ADVISER
The Pooling and Servicing Agreement will permit the holder (or holders)
of Certificates representing more than 50% of the aggregate Certificate Balance
of the most subordinate Class of Principal Balance Certificates at any time of
determination (or, if the aggregate Certificate Balance of such Class of
Certificates is less than 25% of the original aggregate Certificate Balance
thereof, of the next most subordinate Class of Principal Balance Certificates)
(in any event, the "Controlling Class") to appoint any person or entity to act
as the representative of the Controlling Class to the extent described below
(such person or entity, in such capacity, the "Operating Adviser").
If the Special Servicer is not the Operating Adviser, the Special
Servicer will notify the Operating Adviser prior to the Special Servicer's
taking any of the following actions: (i) any foreclosure or comparable
conversion
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(which may include acquisition of an REO Property) of any Mortgaged Property;
(ii) any modification of a Money Term of a Mortgage Loan other than a
modification consisting of the extension of the original maturity of the
Mortgage Loan for two years or less; (iii) any proposed sale of a Defaulted
Mortgage Loan or REO Property (other than upon termination of the Trust Fund
pursuant to the Pooling and Servicing Agreement); (iv) any determination to
bring an REO Property into compliance with applicable environmental laws; and
(v) any acceptance of substitute or additional collateral for a Mortgage Loan.
See "Servicing of the Mortgage Loans-- General" herein.
The Operating Adviser may replace the Special Servicer, provided that
such replacement will be subject to, among other things, receipt from the Rating
Agencies of written confirmation that such replacement will not result in a
qualification, downgrade or withdrawal of any of the then-current ratings
assigned to any Class of Certificates.
MORTGAGE LOAN MODIFICATIONS
Subject to any restrictions applicable to REMICs, and to certain
limitations imposed by the Pooling and Servicing Agreement, the Master Servicer
and the Special Servicer may amend any term, other than a Money Term, of a
Mortgage Loan that is not a Specially Serviced Mortgage Loan. Subject to any
restrictions applicable to REMICs, the Special Servicer will be permitted to
enter into a modification, waiver or amendment of the terms of any Specially
Serviced Mortgage Loan, including any modification, waiver or amendment to:
(i) reduce the amounts owing under any Specially Serviced
Mortgage Loan by forgiving principal, accrued interest and/or any
Prepayment Premium,
(ii) reduce the amount of the Monthly Payment on any Specially
Serviced Mortgage Loan, including by way of a reduction in the related
Mortgage Rate,
(iii) forebear in the enforcement of any right granted under any
Mortgage Note or Mortgage relating to a Specially Serviced Mortgage
Loan,
(iv) extend the maturity date of any Specially Serviced Mortgage
Loan, and/or
(v) accept a principal prepayment during any Lockout Period;
provided in each case that (x) the related borrower is in default
with respect to the Specially Serviced Mortgage Loan or, in the reasonable
judgment of the Special Servicer, such default is reasonably foreseeable and (y)
in the reasonable judgment of the Special Servicer, such modification, waiver or
amendment would increase the recovery to Certificateholders on a net present
value basis documented to the Trustee.
In no event, however, will the Special Servicer be permitted to:
(i) extend the maturity date of a Specially Serviced Mortgage
Loan beyond a date that is two years prior to the Rated Final
Distribution Date,
(ii) extend the maturity date of a Specially Serviced Mortgage
Loan at an interest rate below the then-prevailing interest rate for
comparable loans, as determined by the Special Servicer (such limitation
of extensions made at a below market rate shall not limit the ability of
the Special Servicer to extend the maturity date of any Specially
Serviced Mortgage Loan at an interest rate at or in excess of the
prevailing rate for comparable loans at the time of such modification),
(iii) if the Specially Serviced Mortgage Loan is secured by a
ground lease, extend the maturity date of such Specially Serviced
Mortgage Loan beyond a date that is ten (10) years prior to the
expiration of the term of such ground lease,
(iv) reduce the Mortgage Rate to a rate below the then-prevailing
interest rate for comparable loans, as determined by the Special
Servicer, or
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(v) defer interest due on any Specially Serviced Mortgage Loan in
excess of 10% of the Stated Principal Balance of such Specially Serviced
Mortgage Loan or defer the collection of interest on any Specially
Serviced Mortgage Loan without accruing interest on such deferred
interest at a rate at least equal to the Mortgage Rate of such Specially
Serviced Mortgage Loan.
Notwithstanding the foregoing, if a Mortgage Loan is a Balloon Loan that
has failed to make the Balloon Payment at its scheduled maturity, and such
Balloon Loan is not a Specially Serviced Mortgage Loan (other than by reason of
failure to make the Balloon Payment) and has not been delinquent in the
preceding 12 months (other than with respect to the Balloon Payment), then in
addition to the other alternatives specified above, the Special Servicer may
make up to three one-year extensions at the existing Mortgage Rate for such
Mortgage Loan; provided that in no event shall any such extension extend beyond
the date that is two years prior to the Rated Final Distribution Date or ten
years prior to the expiration of the related ground lease.
Modifications of a Mortgage Loan that forgive principal or interest will
result in Realized Losses on such Mortgage Loan and such realized losses will be
allocated among the various Classes of Certificates in the manner described
under "Description of the Certificates --Distributions--Subordination;
Allocation of Losses and Certain Expenses."
The modification of a Mortgage Loan may tend to reduce prepayments by
avoiding liquidations and therefore may extend the weighted average life of the
Certificates beyond that which might otherwise be the case. See "Yield
Considerations" and "Maturity Considerations."
SALE OF DEFAULTED MORTGAGE LOANS AND REO PROPERTIES
The Special Servicer may offer to sell for cash to any person, for an
amount equal to the Purchase Price, any REO Property or any Mortgage Loan that
is in Default or as to which the Special Servicer has made a determination that
Default is imminent (any such Mortgage Loan, a "Defaulted Mortgage Loan"). For
this purpose, "Default" means a default in payment that continues for at least
60 days. The Special Servicer is required (i) to give the Operating Adviser and
the Trustee not less than five days' prior written notice of its intention to
sell any such Defaulted Mortgage Loan or REO Property, (ii) to offer such
Defaulted Mortgage Loan or REO Property for sale in a fair auction or other
manner as is consistent with the Servicing Standard, and (iii) to accept the
highest cash bid received in such auction or other procedures from any person
other than an interested person (as described in the Pooling and Servicing
Agreement) for any Defaulted Mortgage Loan or REO Property in an amount, except
as otherwise provided in the Pooling and Servicing Agreement in the case of REO
Property, at least equal to the Purchase Price.
In the absence of any bid in the amount of the Purchase Price, the
Special Servicer may accept the highest cash bid, if the Special Servicer
determines, consistent with the Servicing Standard, that such sale at such price
is in the best interest of Certificateholders; provided that the Special
Servicer's ability to accept such bid made by certain interested persons is
limited, as described in the Pooling and Servicing Agreement.
REO PROPERTIES
If title to any Mortgaged Property is acquired by the Special Servicer
on behalf of the Certificateholders, the Special Servicer, on behalf of such
holders, will be required to attempt to sell the Mortgaged Property for cash by
the close of the third taxable year of the REMIC following the taxable year in
which the Mortgaged Property was acquired (such date, the "REO Sale Deadline"),
unless (i) the Internal Revenue Service grants an extension of time to sell such
property (an "REO Extension") or (ii) the Special Servicer obtains an opinion of
independent counsel generally to the effect that the holding of the property
beyond the REO Sale Deadline will not result in the imposition of a tax on the
Trust Fund, or cause any of REMIC I, REMIC II or REMIC III to fail to qualify as
a REMIC under the Code. Subject to the foregoing, the Special Servicer will
generally be required to attempt to sell any Mortgaged Property so acquired in
such a manner as will be reasonably likely to realize a fair price for such
property. The Special Servicer may retain an independent contractor to operate
and manage any REO Property;
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however, the retention of an independent contractor will not relieve the
Special Servicer of its obligations with respect to such REO Property.
In general, the Special Servicer will be obligated to, or may contract
with a third party to, operate and manage any Mortgaged Property acquired as REO
Property in a manner that would, to the extent commercially feasible, maximize
the Trust Fund's net after-tax proceeds from such property. After the Special
Servicer reviews the operation of such property and consults with the Trustee to
determine the Trust Fund's federal income tax reporting position with respect to
income it is anticipated that the Trust Fund would derive from such property,
the Special Servicer could determine that it would not be commercially feasible
to manage and operate such property in a manner that would avoid the imposition
of a tax on "net income from foreclosure property" within the meaning of the
REMIC Provisions or a tax on "prohibited transactions" under Section 860F of the
Code (either such tax referred to herein as an "REO Tax"). To the extent that
income the Trust Fund receives from an REO Property is subject to a tax on (i)
"net income from foreclosure property", such income would be subject to federal
tax at the highest marginal corporate tax rate (currently 35%) and (ii)
"prohibited transactions", such income would be subject to federal tax at a 100%
rate. The determination as to whether income from an REO Property would be
subject to an REO Tax will depend on the specific facts and circumstances
relating to the management and operation of each REO Property. Generally, income
from an REO Property that is directly operated by the Special Servicer would be
apportioned and classified as "service" or "non-service" income. The "service"
portion of such income could be subject to federal tax either at the highest
marginal corporate tax rate or at the 100% rate on "prohibited transactions,"
and the "non-service" portion of such income could be subject to federal tax at
the highest marginal corporate tax rate or, although it appears unlikely, at the
100% rate applicable to "prohibited transactions". Any REO Tax imposed on the
Trust Fund's income from an REO Property would reduce the amount available for
distribution to Certificateholders. Certificateholders are advised to consult
their own tax advisors regarding the possible imposition of REO Taxes in
connection with the operation of commercial REO Properties by REMICs.
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
The Master Servicer is required to, or may contract with a third party
to, perform physical inspections of each Mortgaged Property at least once every
two years (or, if the related Mortgage Loan has a then-current balance greater
than $2,000,000, at least once every year), provided that the Master Servicer
will have no obligation to inspect a Mortgaged Property inspected by the Special
Servicer during such period. In addition, the Special Servicer, subject to
limitations set forth in the related loan documents and the Pooling and
Servicing Agreement, is required to perform a physical inspection of each
Mortgaged Property as soon as practicable after servicing of the related
Mortgage Loan is transferred thereto, and annually thereafter for so long as it
remains a Specially Serviced Mortgage Loan or if such Mortgaged Property becomes
REO Property, the cost of which will be a Servicing Advance. The Special
Servicer and the Master Servicer will each be required to prepare or to contract
with a third party to prepare a written report of each such inspection performed
thereby describing the condition of the Mortgaged Property.
With respect to each Mortgage Loan that requires the borrower to deliver
annual operating statements with respect to the related Mortgaged Property, the
Master Servicer or the Special Servicer, depending on which is obligated to
service such Mortgage Loan, is also required to make reasonable efforts to
collect and review such statements. However, there can be no assurance that any
operating statements required to be delivered will in fact be delivered, nor is
the Master Servicer or the Special Servicer likely to have any practical means
of compelling such delivery in the case of an otherwise performing Mortgage
Loan.
EVENTS OF DEFAULT
Events of default of the Master Servicer and Special Servicer (each, an
"Event of Default") under the Pooling and Servicing Agreement consist, among
other things, of:
(i) any failure by the Master Servicer to make a required deposit
to the Collection Account which continues unremedied for one Business
Day following the date on which such deposit was first required to be
made, or any failure by the Master Servicer to deposit into, or to remit
to the Trustee for
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deposit into, the Distribution Account any amount required to be so
deposited or remitted, which failure is not remedied by the specified
time on the relevant Master Servicer Remittance Date; or
(ii) any failure by the Special Servicer to deposit into, or to
remit to the Master Servicer for deposit into, the Collection Account or
REO Account any amount required to be so deposited or remitted which
failure continues unremedied for one Business Day following the date on
which such deposit or remittance was first required to be made; or
(iii) any failure by the Master Servicer or the Special Servicer
to timely make any Servicing Advance required to be made by it which
continues unremedied for a period ending on the earlier of (A) 15 days
following the date such Servicing Advance was first required to be made,
and (B) either, if applicable, (1) in the case of a Servicing Advance
relating to the payment of insurance premiums, the day on which such
insurance coverage terminates if such premiums are not paid or (2) in
the case of a Servicing Advance relating to the payment of real estate
taxes, the date of the commencement of a foreclosure action with respect
to the failure to make such payment; or
(iv) any failure on the part of the Master Servicer or the
Special Servicer duly to observe or perform in any material respect any
other of the covenants or agreements on the part of the Master Servicer
or the Special Servicer contained in the Pooling and Servicing Agreement
which continues unremedied for a period of 30 days after the date on
which written notice of such failure, requiring the same to be remedied,
shall have been given to the Master Servicer or the Special Servicer, as
the case may be, by the Trustee or the Depositor, or to the Master
Servicer or the Special Servicer, as the case may be, the Depositor and
the Trustee by the Holders of Certificates entitled to not less than 25%
of the Voting Rights; or
(v) any breach on the part of the Master Servicer or the Special
Servicer of any representation or warranty contained in this Agreement
which materially and adversely affects the interests of any Class of
Certificateholders and which continues unremedied for a period of 30
days after the date on which notice of such breach, requiring the same
to be remedied, shall have been given to the Master Servicer or the
Special Servicer, as the case may be, by the Trustee or the Depositor,
or to the Master Servicer or the Special Servicer, as the case may be,
the Depositor and the Trustee by the Holders of Certificates entitled to
not less than 25% of the Voting Rights; or
(vi) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises in an involuntary case
under any present or future federal or state bankruptcy, insolvency or
similar law for the appointment of a conservator, receiver, liquidator,
trustee or similar official in any bankruptcy, insolvency, readjustment
of debt, marshaling of assets and liabilities or similar proceedings, or
for the winding-up or liquidation of its affairs, shall have been
entered against the Master Servicer or the Special Servicer and such
decree or order shall have remained in force undischarged or unstayed
for a period of 60 days; or
(vii) the Master Servicer or the Special Servicer shall consent
to the appointment of a conservator, receiver, liquidator, trustee or
similar official in any bankruptcy, insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings of or
relating to it or of or relating to all or substantially all of its
property; or
(viii) the Master Servicer or the Special Servicer shall admit in
writing its inability to pay its debts generally as they become due,
file a petition to take advantage of any applicable bankruptcy,
insolvency or reorganization statute, make an assignment for the benefit
of its creditors, voluntarily suspend payment of its obligations, or
take any corporate action in furtherance of the foregoing; or
(ix) the Trustee shall have received written notice from Fitch
that the continuation of the Master Servicer or the Special Servicer in
such capacity would result in the downgrade, qualification (which shall
not include a "negative" credit watch) or withdrawal of any rating then
assigned by such Rating Agency to any Class of Certificates.
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RIGHTS UPON EVENT OF DEFAULT
If any Event of Default with respect to the Master Servicer or the
Special Servicer (in either case, the "Defaulting Party") occurs, then the
Depositor or the Trustee may terminate, and at the written direction of the
Holders of Certificates entitled to at least 25% of the Voting Rights, the
Trustee shall terminate, by notice in writing to the Defaulting Party, all of
the rights and obligations of the Defaulting Party under the Pooling and
Servicing Agreement and in and to the Trust Fund. Notwithstanding the foregoing,
upon any termination of the Master 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.
On and after the time the Master Servicer or the Special Servicer
receives a notice of termination, the Trustee shall be the successor in all
respects to the Master Servicer or the Special Servicer, as the case may be, in
such capacity under the Pooling and Servicing Agreement and shall be entitled to
the compensation arrangements to which the Defaulting Party would have been
entitled. If the Trustee is unwilling or unable to so act or if the Holders of
Certificates entitled to at least 51% of the Voting Rights so request in writing
to the Trustee or if it is not appropriately rated as an approved master
servicer or special servicer, as the case may be, by each Rating Agency, the
Trustee must promptly appoint, or petition a court of competent jurisdiction for
the appointment of, a mortgage loan servicing institution that has a net worth
of not less than $15,000,000 and is otherwise acceptable to each Rating Agency
(as evidenced by Rating Agency Confirmation), as the successor to the Master
Servicer or the Special Servicer, as the case may be, hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Master Servicer or the Special Servicer. Pending appointment of a successor
to the Master Servicer or the Special Servicer hereunder, the Trustee shall act
in such capacity as hereinabove provided and shall be entitled to such
compensation as would otherwise have been payable to the Master Servicer or the
Special Servicer, as the case may be.
In addition, the Master Servicer or the Special Servicer, as the case
may be, shall be required to immediately resign if the Master Servicer or the
Special Servicer, as the case may be, is no longer "approved" by S&P to act in
such capacity, and the Master Servicer or Special Servicer, as applicable, shall
not have again become "approved" within ninety (90) days thereafter. If the
Master Servicer or the Special Servicer, as applicable, fails to resign, then
the Trustee shall terminate such party hereunder in the manner and with the
effect as if an uncured Event of Default then existed with respect to such
party.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion, when read in conjunction with the discussion
of "Certain Federal Income Tax Consequences" in the Prospectus, describes the
material federal income tax considerations for investors in the Offered
Certificates. However, these two discussions do not purport to deal with all
federal tax consequences applicable to all categories of investors some of which
may be subject to special rules, and do not address state and local tax
considerations. Prospective purchasers should consult their own tax advisers in
determining the federal, state, local and any other tax consequences to them of
the purchase, ownership and disposition of the Offered Certificates.
GENERAL
For United States federal income tax purposes, the Trust Fund will be a
"tiered REMIC structure" described in the Prospectus. See "Certain Federal
Income Tax Consequences--REMICs--Tiered REMIC Structures" in the Prospectus.
Three separate "real estate mortgage investment conduit" ("REMIC") elections
will be made with respect to the Trust Fund, other than that portion of the
Trust Fund consisting of the rights to Excess Interest and the Excess Interest
Distribution Account. The assets of "REMIC I" or the "Lower-Tier REMIC" will
consist of the mortgage loans and any properties acquired on behalf of the
Certificateholders. The assets of "REMIC II" or the "Middle-Tier REMIC" will
consist of the separate uncertificated REMIC I regular interests, and the assets
of "REMIC III" or the "Upper-Tier REMIC" will consist of the separate
uncertificated REMIC II regular interests. Upon the issuance of the Offered
Certificates, Latham & Watkins, counsel to the Depositor, will deliver its
opinion
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generally to the effect that, assuming (i) the making of proper elections, (ii)
ongoing compliance with all provisions of the Pooling and Servicing Agreement
and (iii) continuing compliance with applicable provisions of the Code, as it
may be amended from time to time, and applicable Treasury Regulations adopted
thereunder, for federal income tax purposes, each of REMIC I, REMIC II and
REMIC III will qualify as a REMIC under the Internal Revenue Code of 1986, as
amended (the "Code"). For federal income tax purposes, the Class R-I, R-II and
R-III Certificates will represent three separate classes of REMIC residual
interests evidencing the sole class of "residual interests" in each of REMIC I,
REMIC II and REMIC III, respectively; and the REMIC Regular Certificates will
evidence the "regular interests" in, and will be treated as debt instruments
of, REMIC III. See "Certain Federal Income Tax Consequences--REMICs" in the
Prospectus. The Offered Certificates will be REMIC Regular Certificates issued
by REMIC III. See "Certain Federal Income Tax Consequences--REMICs--Taxation of
Owners of Regular Certificates" in the Prospectus for a discussion of the
principal federal income tax consequences of the purchase, ownership and
disposition of the Offered Certificates. The Class X Certificates will be an
investment unit comprised of 15 separate "regular interests" issued by REMIC
III, each of which represents a right to receive a "specified portion" of
interest payable on the uncertificated REMIC II regular interests. The portion
of the Trust Fund consisting of the right to Excess Interest and the Excess
Interest Distribution Account will be treated as a grantor trust for federal
income tax purposes, and the Class O Certificates will represent both a REMIC
regular interest and beneficial ownership of the assets of the grantor trust.
References in the Prospectus to the Master REMIC should be read as references
to REMIC III. Each of REMIC I and REMIC II will be a Subsidiary REMIC as such
term is used in the Prospectus.
The Offered Certificates will be "real estate assets" within the meaning
of Section 856(c)(4)(A) and 856(c)(5)(B) of the Code in the same proportion that
the assets of the Trust Fund underlying such Certificates would be so treated.
However, if 95% or more of the REMICs' assets (treating REMIC I, REMIC II and
REMIC III as if they were a single REMIC) are real estate assets during a
calendar quarter, then the Offered Certificates will be considered "real estate
assets" in their entirety for that quarter. In addition, interest (including
original issue discount, if any) on the Offered Certificates will be interest
described in Section 856(c)(3)(B) of the Code to the extent that such
Certificates are treated as "real estate assets" under Section 856(c)(4)(A) of
the Code. Moreover, the Offered Certificates will be "qualified mortgages" under
Section 860G(a)(3) of the Code if transferred to another REMIC on its start-up
day in exchange for regular or residual interests therein. Offered Certificates
also will qualify for treatment as "permitted assets," within the meaning of
Section 860L(c)(1)(G) of the Code, of a financial asset securitization
investment trust (a "FASIT") generally in the same proportion as the assets of
the Trust Fund would be so treated, and those Offered Certificates held by
certain financial institutions will constitute "evidence of indebtedness" within
the meaning of Section 582(c)(1) of the Code.
The Offered Certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code generally only to the extent that the Mortgage Loans
secured by mortgages on multifamily properties and senior housing properties are
a percentage of the principal balance of the Mortgage Pool. The percentage of
such Mortgage Loans included in the initial principal balance of the Mortgage
Pool (which is subject to change due to changes in principal balances and
prepayments) is initially approximately 17.4%. The Small Business Job Protection
Act of 1996, as part of the repeal of the bad debt reserve method for thrift
institutions, repealed the application of Section 593(d) to any taxable year
beginning after December 31, 1995. See "Description of the Mortgage Pool" herein
and "Certain Federal Income Tax Consequences--REMICs" in the Prospectus.
ORIGINAL ISSUE DISCOUNT AND PREMIUM
The Classes of Offered Certificates may be treated for Federal income
tax reporting purposes as having been issued with "original issue discount"
("OID"). Certain Classes of Offered Certificates may be treated as issued with
OID not exceeding a de minimis amount, and certain other Classes of Offered
Certificates are expected to be issued with premium, depending on the price at
which such Classes of Certificates are sold. Whether the Offered Certificates
are treated as issued with OID depends, in part, on whether the Offered
Certificates are considered to bear interest at a single fixed rate, an
objective rate or a qualified floating rate. Moreover, Classes of Offered
Certificates other than the Senior Certificates may be treated as issued with
OID due to the possibility that defaults or delinquencies on the Mortgage Loans
may result in reduced distributions on such Certificate, in order to effect
their subordination to the Senior Certificates. Although unclear under present
law, the Depositor intends to treat stated interest on the Offered Certificates,
including stated interest on Offered Certificates that bear interest based on a
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weighted average of net interest rates on qualified mortgages, as qualified
stated interest. See "Certain Federal Income Tax Consequences--REMICs--Taxation
of Owners of REMIC Regular Certificates--Variable Rate REMIC Regular
Certificates" in the Prospectus. The weighted average rate used to compute the
initial pass-through rate will be deemed to be the index in effect through the
life of the REMIC Regular Certificates. It is possible, however, that the IRS
may treat some or all of the interest on such Certificates under the rules
relating to obligations that provide for contingent payments. These rules, by
their terms, do not apply to debt instruments, such as the Offered Certificates,
which are subject to prepayment based on prepayments on underlying mortgages.
Application of these rules to the Offered Certificates may affect the timing of
income accruals on REMIC Regular Certificates. The prepayment assumption that
will be used in determining the rate of accrual of original issue discount and
amortizable premium, if any, for federal income tax purposes will be a 0% CPR
(as described in the Prospectus) applied to each Mortgage Loan during any period
that voluntary principal prepayments may be made thereon without a Yield
Maintenance Premium being required. In addition, for purposes of calculating
OID, the Anticipated Repayment Date Loans are assumed to prepay in full on the
Anticipated Repayment Date. For a description of CPR, see "Yield Considerations"
and "Maturity Considerations" in this Prospectus Supplement. However, the
Depositor makes no representation that the Mortgage Loans or any Class of
Certificates will only prepay during any such period or that they will prepay at
any particular rate before or during any such period.
The IRS has issued OID Regulations under Sections 1271 to 1275 of the
Code generally addressing the treatment of debt instruments issued with original
issue discount. See "Certain Federal Income Tax Consequences--REMICs--Taxation
of Owners of REMIC Regular Certificates--Original Issue Discount and Premium" in
the Prospectus. Purchasers of the Offered Certificates should be aware that the
OID Regulations and Section 1272(a)(6) of the Code do not adequately address
certain issues relevant to prepayable securities such as the Offered
Certificates. Moreover, the OID Regulations include an anti-abuse rule allowing
the Internal Revenue Service to apply or depart from the OID Regulations where
necessary or appropriate to ensure a reasonable tax result in light of
applicable statutory provisions. No assurance can be given that the Internal
Revenue Service will not take a different position as to matters respecting
accrual of original issue discount in respect of Offered Certificates than that
taken by the Depositor. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount and Premium" in the Prospectus. Prospective purchasers of the
Offered Certificates are advised to consult their tax advisors concerning the
tax treatment of such Certificates, and the appropriate method of reporting
interest and original issue discount with respect to Offered Certificates.
If the method for computing OID described in the Prospectus results in a
negative amount for any period with respect to a holder of a Certificate, the
amount of original issue discount allocable to such period would be zero and
such Certificateholder will be permitted to offset such negative amount only
against future original issue discount (if any) attributable to such
Certificate. Although the matter is not free from doubt, a holder may be
permitted to deduct a loss to the extent that his or her respective remaining
basis in such Certificate exceeds the maximum amount of future payments to which
such Certificateholder is entitled, assuming no further prepayments of the
Mortgage Loans. Any such loss might be treated as a capital loss.
Certain Classes of Offered Certificates may be treated for Federal
income tax purposes as having been issued at a premium. Whether any holder of
any such Class of Certificates will be treated as holding a Certificate with
amortizable bond premium will depend on such Certificateholder's purchase price
and the distributions remaining to be made on such Certificate at the time of
its acquisition by such Certificateholder. On December 31, 1997, the IRS
published in the Federal Register final regulations on the amortization of bond
premium. Those regulations (a) do not apply to regular interests in a REMIC
(such as the Offered Certificates), and (b) state that they are intended to
create no inference concerning the amortization of premium on such interests.
Holders of each such Class of Certificates should consult their tax advisors
regarding the possibility of making an election to amortize such premium. See
"Certain Federal Income Tax Consequences--REMICs--Taxation of Owners of REMIC
Regular Certificates--Premium" in the Prospectus.
To the extent that any Offered Certificate is purchased in this offering
or in the secondary market at not more than a de minimis discount, as defined in
the Prospectus, a holder who receives a payment that is included in the stated
redemption price at maturity (generally, the principal amount) of such
Certificate will recognize gain equal to the excess, if any, of the amount of
the payment over an allocable portion of the holder's adjusted basis in the
Offered Certificate. Such allocable portion of the holder's adjusted basis will
be based upon the proportion that such
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payment of stated redemption price bears to the total remaining stated
redemption price at maturity, immediately before such payment is made, of such
Certificate. See "Certain Federal Income Tax Consequences--REMICs--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount and Premium" and
"--Sale, Exchange or Redemption" in the Prospectus.
The current administration's budget proposal for the fiscal year 2000,
released February 1, 1999, proposes legislation that would amend the market
discount provisions of the Code described in the Prospectus (see "Certain
Federal Income Tax Consequences--REMICs--Taxation of Owners of Regular
Certificates--Market Discount" in the Prospectus) to require holders of debt
instruments, such as REMIC Regular Certificates, that use an accrual method of
accounting to include market discount in income as it accrues. For purposes of
determining and accruing market discount, the proposed legislation would provide
that a Certificateholder's yield can not exceed 5 percentage points over the
greater of (1) the original yield-to-maturity of the Certificate, or (2) the
applicable Federal rate in effect at the time the Certificateholder acquired the
Certificate. It is unclear how this proposal would apply to instruments, such as
the REMIC Regular Certificates, which have uncertain yields to maturity
attributable to possible prepayments on an underlying pool of prepayable
securities. This proposal is intended to be effective for debt instruments
acquired on or after the date the proposed legislation is enacted.
The OID Regulations in some circumstances permit the holder of a debt
instrument to recognize OID under a method that differs from that of the issuer.
Accordingly, it is possible that holders of Offered Certificates issued with OID
may be able to select a method for recognizing original issue discount that
differs from that used by the Trustee in preparing reports to Certificateholders
and the IRS. Prospective purchasers of Offered Certificates issued with OID are
advised to consult their tax advisors concerning the treatment of such
Certificates.
Prepayment Premiums actually collected on the Mortgage Loans will be
distributed to the holders of each Class of Certificates entitled thereto as
described herein. It is not entirely clear under the Code when the amount of a
Prepayment Premium should be taxed to the holder of a Class of Certificates
entitled to a Prepayment Premium. For federal income tax information reporting
purposes, Prepayment Premiums will be treated as income to the holders of a
Class of Certificates entitled to Prepayment Premiums only after the Master
Servicer's actual receipt of a Prepayment Premium to which such Class of
Certificates is entitled under the terms of the Pooling and Servicing Agreement,
rather than including projected Prepayment Premiums in the determination of a
Certificateholder's projected constant yield to maturity. It appears that
Prepayment Premiums are treated as ordinary income rather than capital gain.
However, the timing and characterization of such income is not entirely clear
and Certificateholders should consult their tax advisors concerning the
treatment of Prepayment Premiums.
ADDITIONAL CONSIDERATIONS
The Special Servicer is authorized under certain circumstances in which
doing so is consistent with maximizing the Trust Fund's net after-tax proceeds
from an REO Property, to incur taxes on the Trust Fund in connection with the
operation of such REO Property. Any such taxes imposed on the Trust Fund would
reduce the amount distributable to Certificateholders. See "Servicing of the
Mortgage Loans--REO Properties" herein.
Federal income tax information reporting duties with respect to the
Offered Certificates and REMIC I, REMIC II and REMIC III will be the obligation
of the Trustee, and not of the Master Servicer. See "Certain Federal Income Tax
Consequences--REMICs--Information Reporting and Backup Withholding" in the
Prospectus.
For further information regarding the tax consequences of investing in
the Offered Certificates, see "Certain Federal Income Tax Consequences--REMICs"
and "State Tax Considerations" in the Prospectus.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts, annuities, Keogh plans,
and collective investment funds, separate accounts and general accounts in which
such plans, accounts or arrangements are invested, that is subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Code (each, a "Plan") and any entity whose
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assets include assets of such a Plan 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 permitted either
under ERISA or Section 4975 of the Code or whether there exists any statutory
or administrative exemption applicable thereto.
Certain employee benefit plans, such as governmental plans and church
plans (if no election has been made under Section 410(d) of the Code), are not
subject to the restrictions of ERISA, and assets of such plans may be invested
in the Offered Certificates without regard to the ERISA considerations described
below, subject to other applicable federal and state law. However, any such
governmental or church plan which is qualified under section 401(a) of the Code
and exempt from taxation under Section 501(a) of the Code is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
PLAN ASSET REGULATION
The United States Department of Labor (the "DOL") has issued a final
regulation (the "Final Regulation") determining when assets of an entity in
which a Plan makes an equity investment will be treated as assets of the
investing Plan. If the Certificates are treated as debt with no substantial
equity features under applicable local law, the assets of the Trust Fund would
not be treated as assets of the Plans that become Certificateholders. In the
absence of treatment of the Certificates as debt, and unless the Final
Regulation provides an exemption from this "plan asset" treatment, an undivided
portion of the assets of the Trust Fund will be treated, for purposes of
applying the fiduciary standards and prohibited transactions rules of ERISA and
Section 4975 of the Code, as an asset of each Plan that acquires and holds the
Offered Certificates.
The Final Regulation provides an exemption from "plan asset" treatment
for securities issued by an entity if, immediately after the most recent
acquisition of any equity interest in the entity, less than 25% of the value of
each Class of equity interests in the entity, excluding interests held by any
person who has discretionary authority or control with respect to the assets of
the entity (or any affiliate of such a person), are held by "benefit plan
investors" (e.g., Plans, governmental, foreign and other plans not subject to
ERISA and entities holding assets deemed to be "plan assets"). Because the
availability of this exemption to the Trust Fund depends upon the identity of
the holders of the Offered Certificates at any time, there can be no assurance
that any Class of the Offered Certificates will qualify for this exemption.
INDIVIDUAL EXEMPTION
The U.S. Department of Labor has issued to Morgan Stanley an individual
prohibited transaction exemption, Prohibited Transaction Exemption No. 90-24
(the "Exemption"), which generally exempts from the application of the
prohibited transaction provisions of Section 406 of ERISA, and the excise taxes
imposed on such prohibited transactions pursuant to Sections 4975(a) and (b) of
the Code and Section 502(i) of ERISA, certain transactions, among others,
relating to the servicing and operation of mortgage loans, such as the Mortgage
Loans, and the purchase, sale and holding of mortgage pass-through certificates,
such as the Senior Certificates, underwritten by an "underwriter," provided that
certain conditions set forth in the Exemption are satisfied. For purposes of
this discussion, the term "underwriter" shall include (a) Morgan Stanley & Co.
Incorporated, (b) any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with Morgan
Stanley & Co. Incorporated, and (c) any member of the underwriting syndicate or
selling group of which a person described in (a) or (b) is a manager or
co-manager with respect to the Senior Certificates, including Deutsche Bank
Securities Inc.
The Exemption sets forth six general conditions that must be satisfied
for a transaction involving the purchase, sale and holding of Senior
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of such Certificates by a Plan must be on terms that are at least as
favorable to the Plan as they would be in an arm's-length transaction with an
unrelated party. Second, the rights and interests evidenced by the Senior
Certificates must not be subordinated to the rights and interests evidenced by
the other certificates of the same trust. Third, the Senior Certificates at the
time of acquisition by the Plan must be rated in one of the three highest
generic rating categories by S&P, Duff & Phelps Credit Rating Co. ("DCR"),
Moody's Investors Service Inc. ("Moody's") or Fitch. Fourth,
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the Trustee cannot be an affiliate of any other member of the "Restricted
Group", which consists of the Underwriters, the Depositor, the Master Servicer,
the Special Servicer, the Trustee, any sub-servicer, and any mortgagor with
respect to a Mortgage Loan constituting more than 5% of the aggregate
unamortized principal balance of the Mortgage Loans as of the date of initial
issuance of the Senior Certificates. Fifth, the sum of all payments made to and
retained by the Underwriters must represent not more than reasonable
compensation for underwriting the Senior Certificates; the sum of all payments
made to and retained by the Depositor pursuant to the assignment of the
Mortgage Loans to the Trust Fund must represent not more than the fair market
value of such obligations; and the sum of all payments made to and retained by
the Master Servicer, the Special Servicer or any sub-servicer must represent
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. Sixth, the investing Plan must be an
accredited investor as defined in Rule 501(a)(1) of Regulation D under the
Securities Act.
Because the Senior Certificates are not subordinate to any other Class
of Certificates, the second general condition set forth above is satisfied with
respect to such Certificates. It is a condition of the issuance of the Senior
Certificates that they be rated not lower than "AAA" and "AA" by each of Fitch
and S&P, respectively; thus, the third general condition set forth above is
satisfied with respect to the Senior Certificates as of the Closing Date. In
addition, the fourth general condition set forth above is also satisfied as of
the Closing Date. A fiduciary of a Plan contemplating purchasing a Senior
Certificate in the secondary market also must make its own determination that,
at the time of such purchase, the Senior Certificates continue to satisfy the
third and fourth general conditions set forth above. A fiduciary of a Plan
contemplating the purchase of a Senior Certificate also must make its own
determination that the first, fifth and sixth general conditions set forth above
will be satisfied with respect to such Senior Certificate as of the date of such
purchase.
The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest categories of
Fitch, DCR, Moody's or S&P for at least one year prior to the Plan's acquisition
of Senior Certificates; and (iii) certificates in such other investment pools
must have been purchased by investors other than Plans for at least one year
prior to any Plan's acquisition of Senior Certificates.
Moreover, the Exemption provides relief from certain self-dealing/
conflict of interest prohibited transactions that may occur when any person who
has discretionary authority or renders investment advice with respect to the
investment of plan assets causes a Plan to acquire Senior Certificates, provided
that, among other requirements: (i) such person (or its affiliate) is an obligor
with respect to five percent or less of the fair market value of the obligations
or receivables contained in the trust; (ii) the Plan is not a plan with respect
to which any member of the Restricted Group is the "plan sponsor" (as defined in
Section 3(16)(B) of ERISA); (iii) in the case of an acquisition in connection
with the initial issuance of Senior Certificates, at least fifty percent of such
class is acquired by persons independent of the Restricted Group and at least
fifty percent of the aggregate interest in the trust fund is acquired by persons
independent of the Restricted Group; (iv) the Plan's investment in Senior
Certificates does not exceed twenty-five percent of all of the certificates of
that class outstanding at the time of the acquisition; and (v) immediately after
the acquisition, no more than twenty-five percent of the assets of the Plan with
respect to which such person has discretionary authority or renders investment
advice are invested in certificates representing an interest in one or more
trusts containing assets sold or serviced by the same entity.
Finally, if certain specific conditions of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the Mortgage Loan.
The Depositor expects that the specific conditions of the Exemption required for
this purpose will be satisfied with respect to the Senior Certificates.
A purchaser of a Senior Certificate should be aware, however, that even
if the conditions specified in one or more parts of the Exemption are satisfied,
the scope of relief provided by the Exemption may not cover all acts that may be
considered prohibited transactions.
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Before purchasing a Senior Certificate, a fiduciary of a Plan should
itself confirm that the specific and general conditions of the Exemption and the
other requirements set forth in the Exemption would be satisfied. In addition to
making its own determination as to the availability of the exemptive relief
provided in the Exemption, the Plan fiduciary should consider the availability
of any other prohibited transaction exemptions.
OTHER EXEMPTIONS
The characteristics of each Class of the Subordinate Certificates do not
meet the requirements of the Exemption. Accordingly, Certificates of those
Classes may not be acquired by, on behalf of or with assets of a Plan, unless
such transaction is covered by a Prohibited Transaction Class Exemption ("PTCE")
issued by the U.S. Department of Labor, such as: PTCE 95-60, regarding
investments by insurance company general accounts; PTCE 90-1, regarding
investments by insurance company pooled separate accounts; PTCE 91-38, regarding
investments by bank collective investment funds; PTCE 84-14, regarding
transactions effected by "qualified professional asset managers;" and PTCE
96-23, regarding transactions effected by "in-house asset managers." There can
be no assurance that any of these exemptions will apply with respect to any
particular Plan's investment in Offered Certificates or, even if an exemption
were deemed to apply, that any exemption would apply to all prohibited
transactions that may occur in connection with such investment. Before
purchasing Subordinate Certificates based on the availability of any such
exemption, a Plan fiduciary should itself confirm that all applicable conditions
and other requirements set forth in such exemption have been satisfied. Any such
Plan or person to whom a transfer of any such Certificate or interest therein is
made shall be deemed to have represented to the Depositor, the Master Servicer,
the Special Servicer, the Trustee and any sub-servicer that the purchase and
holding of such Certificate is so exempt on the basis of the availability of a
PTCE.
INSURANCE COMPANY PURCHASERS
Purchasers that are insurance companies should consult their legal
advisors with respect to the applicability of PTCE 95-60, regarding transactions
by insurance company general accounts. In addition to any exemption that may be
available under PTCE 95-60 for the purchase and holding of Certificates by an
insurance company general account, the Small Business Job Protection Act of 1996
added a new Section 401(c) to ERISA, which provides certain exemptive relief
from the provisions of Part 4 of Title I of ERISA and Section 4975 of the Code,
including the prohibited transaction restrictions imposed by ERISA and the
related excise taxes imposed by the Code, for transactions involving an
insurance company general account. The DOL issued proposed regulations under
Section 401(c) on December 22, 1997, but the required final regulations have not
been issued as of the date hereof. Section 401(c) of ERISA required the DOL to
issue final regulations ("401(c) Regulations") no later than December 31, 1997
to provide guidance for the purpose of determining, in cases where insurance
policies or annuity contracts supported by an insurer's general account are
issued to or for the benefit of a Plan on or before December 31, 1998, which
general account assets constitute plan assets. Section 401(c) of ERISA generally
provides that, until the date that is 18 months after the 401(c) Regulations
become final, no person shall be subject to liability under Part 4 of Title I of
ERISA and Section 4975 of the Code on the basis of a claim that the assets of an
insurance company general account constitute plan assets of any plan, unless (i)
as otherwise provided by the Secretary of Labor in the 401(c) Regulations to
prevent avoidance of the regulations or (ii) an action is brought by the
Secretary of Labor for certain breaches of fiduciary duty which would also
constitute a violation of federal or state criminal law. Any assets of an
insurance company general account that support insurance policies or annuity
contracts issued to a Plan after December 31, 1998 or issued to Plans on or
before December 31, 1998 for which the insurance company does not comply with
the 401(c) Regulations may be treated as plan assets. In addition, because
Section 401(c) does not relate to insurance company separate accounts, separate
account assets are still treated as plan assets of any Plan invested in such
separate account. Insurance companies contemplating the investment of general
account assets in the Certificates should consult their legal counsel with
respect to the applicability of Section 401(c) of ERISA, including the general
account's ability to continue to hold the Certificates after the date which is
18 months after the date the 401(c) Regulations become final.
LEGAL INVESTMENT
The Offered Certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA"). The appropriate characterization of a Class of Offered
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Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase Offered Certificates, may
be subject to significant interpretive uncertainties. All 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 will constitute legal investments for them.
The Depositor makes no representations as to the proper characterization
of the Offered Certificates for legal investment or financial institution
regulatory purposes, or as to the ability of particular investors to purchase
the Offered Certificates under applicable legal investment restrictions. The
uncertainties referred to above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteristics
of the Offered Certificates) may adversely affect the liquidity of the Offered
Certificates. See "Legal Investment" in the Prospectus.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans.
PLAN OF DISTRIBUTION
The Depositor has entered into an underwriting agreement (the
"Underwriting Agreement") with Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), an affiliate of the Depositor, and Deutsche Bank Securities Inc.
("Deutsche Bank", and together with Morgan Stanley the "Underwriters").
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Underwriters have severally agreed to purchase the respective
aggregate principal or notional amount of each Class of the Offered
Certificates, in each case as set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER CLASS A-1 CLASS A-2 CLASS B
- ----------- --------- --------- -------
<S> <C> <C> <C>
Morgan Stanley & Co.
Incorporated $76,000,000 $254,885,000 $33,185,000
Deutsche Bank Securities
Inc. $25,000,000 $85,000,000 -0-
------------ ------------ -----------
Total $101,000,000 $339,885,000 $33,185,000
============ ============ ===========
UNDERWRITER CLASS C CLASS D CLASS E
- ----------- ------- ------- -------
Morgan Stanley & Co.
Incorporated $26,864,000 $12,642,000 $30,025,000
Deutsche Bank Securities
Inc. -0- -0- -0-
------------ ------------ -----------
Total $26,864,000 $12,642,000 $30,025,000
============ ============ ===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, and that the
Underwriters will be obligated to purchase all of the Offered Certificates if
any are purchased.
The Underwriters have advised the Depositor that they propose to offer
the Offered Certificates from time to time for sale in one or more negotiated
transactions or otherwise at prices to be determined at the time of sale. The
Underwriters may effect such transactions by selling such Classes of Offered
Certificates to or through dealers and such dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Underwriters and any purchasers of such Classes of Offered Certificates for whom
it may act as agent.
S-108
<PAGE>
The Offered Certificates are offered by the Underwriters when, as and if
issued by the Depositor, delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the Offered Certificates will be made in book-entry form through the
facilities of DTC against payment therefor on or about April 21, 1999, which is
the tenth business day following the date of pricing of the Certificates. Under
Rule 15c6-1 recently adopted by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, trades in the secondary market
generally are required to settle in three business days, unless the parties to
any trade expressly agree otherwise. Accordingly, purchasers who wish to trade
Offered Certificates in the secondary market prior to such delivery should
specify a longer settlement cycle, or should refrain from specifying a shorter
settlement cycle, to the extent that failing to do so would result in a
settlement date that is earlier than the date of delivery of such Offered
Certificates.
The Underwriters and any dealers that participate with the Underwriters
in the distribution of the Offered Certificates may be deemed to be
underwriters, and any discounts or commissions received by them and any profit
on the resale of such Classes of Offered Certificates by them may be deemed to
be underwriting discounts or commissions, under the Securities Act of 1933, as
amended.
FINOVA and its affiliates may acquire certain of the Offered
Certificates.
The Depositor has agreed to indemnify the Underwriters against civil
liabilities, including liabilities under the Securities Act of 1933, as amended
or contribute to payments the Underwriters may be required to make in respect
thereof.
The Underwriters intend to make a secondary market in the Offered
Certificates, but they are not obligated to do so.
LEGAL MATTERS
The legality of the Offered Certificates and the material federal income
tax consequences of investing in the Offered Certificates will be passed upon
for the Depositor by Latham & Watkins, New York, New York. Certain legal matters
with respect to the Offered Certificates will be passed upon for the
Underwriters by Latham & Watkins, New York, New York.
RATINGS
It is a condition of the issuance of the Offered Certificates that they
receive the following credit ratings from Fitch IBCA, Inc. ("Fitch") and
Standard & Poor's Ratings Services ("S&P", and together with Fitch, the "Rating
Agencies"):
<TABLE>
<CAPTION>
CLASS FITCH S&P
----- ----- ---
<S> <C> <C>
Class A-1............................................... AAA AAA
Class A-2............................................... AAA AAA
Class B................................................. AA AA
Class C................................................. A A
Class D................................................. A- A-
Class E................................................. BBB BBB
</TABLE>
The ratings of the Offered Certificates address the likelihood of the
timely receipt by holders thereof of all payments of interest to which they are
entitled and the ultimate receipt by holders thereof of all payments of
principal to which they are entitled, if any, by the Distribution Date in March
2031 (the "Rated Final Distribution Date"). The ratings on the Offered
Certificates should be evaluated independently from similar ratings on other
types of securities. A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time by the
assigning rating agency.
S-109
<PAGE>
The ratings of the Certificates do not represent any assessment of (i)
the likelihood or frequency of principal prepayments, voluntary or involuntary,
on the Mortgage Loans, (ii) the degree to which such prepayments might differ
from those originally anticipated or (iii) whether and to what extent Prepayment
Premiums, Excess Interest or default interest will be received. 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 Interest Only
Certificates might not fully recover their investment in the event of rapid
prepayments of the Mortgage Loans (including both voluntary and involuntary
prepayments). In general, the ratings thus address credit risk and not
prepayment risk. As described herein, the amounts payable with respect to the
Interest Only Certificates consist only of interest. If all of the Mortgage
Loans were to prepay in the initial month, with the result that the
Certificateholders receive only a single month's interest and thus suffer a
nearly complete loss of their investment, all amounts "due" to such
Certificateholders would nevertheless have been paid, and such result will be
consistent with the "AAA/AAAr" ratings received on the Interest Only
Certificates. The respective aggregate Notional Amounts upon which interest in
respect of the Interest Only Certificates are calculated is reduced by the
allocation of Realized Losses, Expense Losses and prepayments of principal,
whether voluntary or involuntary. The ratings do not address the timing or
magnitude of reductions of such aggregate Notional Amounts, but only the
obligation to pay interest timely on such aggregate Notional Amounts as so
reduced from time to time. Accordingly, the rating of the Interest Only
Certificates should be evaluated independently from similar ratings on other
types of securities.
There can be no assurance as to whether any rating agency not requested
to rate the Offered Certificates will nonetheless issue a rating to any Class
thereof and, if so, what such rating would be. A rating assigned to any Class of
Offered Certificates by a rating agency that has not been requested by the
Depositor to do so may be lower than the ratings assigned thereto at the request
of the Depositor.
S-110
<PAGE>
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT
30/360 basis....................................................S-71
Accrued Certificate Interest....................................S-57
ACMs............................................................S-37
Additional Trust Fund Expenses..................................S-61
Administrative Cost Rate........................................S-95
Advance Rate....................................................S-64
Advances........................................................S-64
Anticipated Repayment Date Loans................................S-19
Appraisal Event.................................................S-60
Appraisal Reduction.............................................S-60
Asset Status Report.............................................S-94
Assumed Monthly Payment.........................................S-58
Available Distribution Amount...................................S-55
Balloon Loans...................................................S-80
Balloon LTV.....................................................S-86
Balloon LTV Ratio...............................................S-86
Balloon Payment.................................................S-80
Book-Entry Certificates.........................................S-52
Cedel...........................................................S-24
Certificate Account.............................................S-56
Certificate Balance.............................................S-53
Certificate Owner...............................................S-52
Certificateholders..............................................S-52
Certificates....................................................S-52
Chase...........................................................S-53
Citibank........................................................S-53
Class...........................................................S-52
Class A Certificates............................................S-52
Class Interest Shortfall........................................S-58
Class X Certificates............................................S-52
Closing Date....................................................S-52
Collection Period...............................................S-53
Compensating Interest Payment...................................S-62
Controlling Class...............................................S-96
Corrected Mortgage Loan.........................................S-93
Cut-off Date Balance............................................S-77
Cut-off Date LTV................................................S-86
Cut-off Date LTV Ratio..........................................S-86
Debt Service Coverage Ratio.....................................S-85
Default.........................................................S-98
Defaulted Mortgage Loan.........................................S-98
Definitive Certificate..........................................S-52
Depositor........................................................S-3
Determination Date..............................................S-55
Discount Rate...................................................S-59
Distributable Certificate Interest..............................S-57
Distribution Date...............................................S-55
Document Defect.................................................S-91
DOL............................................................S-103
DSCR............................................................S-85
DTC.......................................................S-24, S-52
Due Dates.......................................................S-80
ERISA..........................................................S-104
Euroclear.......................................................S-24
Excess Interest.................................................S-57
Exemption......................................................S-105
Expense Losses..................................................S-61
FASIT..........................................................S-102
S-111
<PAGE>
Final Regulation...............................................S-105
Final Scheduled Distribution Date...............................S-72
FINOVA..........................................................S-79
Fitch..........................................................S-109
Initial Pool Balance............................................S-77
Interest Accrual Method.........................................S-80
Interest Accrual Period.........................................S-58
Interest Only Certificates......................................S-52
Interest Reserve Account........................................S-59
Interest Reserve Loan...........................................S-59
Liquidation Fee.................................................S-96
Loan-to-Value Ratio.............................................S-86
Lock-out Period.................................................S-20
LOP.............................................................S-71
Lower-Tier REMIC...............................................S-101
Master Servicing Fee............................................S-95
Material Breach.................................................S-91
Material Document Defect........................................S-91
Maturity Assumptions............................................S-71
Middle-Tier REMIC..............................................S-101
Money Term......................................................S-60
Monthly Payment.................................................S-58
Morgan Stanley.................................................S-108
Mortgage........................................................S-78
Mortgage File...................................................S-88
Mortgage Loan...................................................S-77
Mortgage Loan Purchase Agreement................................S-79
Mortgage Note...................................................S-78
Mortgage Pool...................................................S-77
Mortgaged Property..............................................S-78
Net Aggregate Prepayment Interest Shortfall.....................S-62
Net income from foreclosure property............................S-99
Net Mortgage Rate...............................................S-54
Non-30/360 Loan.................................................S-55
Notional Amount.................................................S-54
NWAC Rate.................................................S-12, S-54
Offered Certificates............................................S-52
OID............................................................S-102
Operating Adviser...............................................S-96
P&I Advance.....................................................S-63
Participants....................................................S-52
Pass-Through Rate...............................................S-54
Percentage Interest.............................................S-55
Permitted Cure Period...........................................S-91
Permitted Investments...........................................S-95
Phase I.........................................................S-84
Plan...........................................................S-104
Pooling and Servicing Agreement.................................S-52
Prepayment Assumptions..........................................S-70
Prepayment Interest Excess......................................S-62
Prepayment Interest Shortfall...................................S-62
Principal Balance Certificates..................................S-53
Principal Distribution Amount...................................S-58
Private Certificates............................................S-52
PTCE...........................................................S-107
Purchase Price..................................................S-91
Qualifying Substitute Mortgage Loan.............................S-91
Rated Final Distribution Date..................................S-109
Rating Agencies................................................S-109
Realized Losses.................................................S-61
Record Date.....................................................S-55
S-112
<PAGE>
Related Borrower Loan Groups....................................S-81
Related Proceeds................................................S-63
Remaining Amortization Terms....................................S-21
REMIC..........................................................S-101
REMIC I........................................................S-101
REMIC II.......................................................S-101
REMIC III......................................................S-101
REMIC Regular Certificates......................................S-52
REMIC Residual Certificates.....................................S-52
REO Extension...................................................S-98
REO Property....................................................S-52
REO Sale Deadline...............................................S-98
REO Tax.........................................................S-99
Required Appraisal Loan.........................................S-60
Restricted Group...............................................S-106
Revised Rate....................................................S-57
S&P............................................................S-109
Scheduled Balloon Balance.......................................S-86
Section 8.......................................................S-37
Senior Certificates.............................................S-52
Servicing Advance...............................................S-64
Servicing Standard..............................................S-92
Servicing Transfer Event........................................S-93
Single-Tenant Mortgage Loan.....................................S-82
SMMEA....................................................S-25, S-107
Special Servicing Fee...........................................S-96
Special Servicing Fee Rate......................................S-96
Specially Serviced Mortgage Loan................................S-92
Stated Principal Balance........................................S-54
Subordinate Certificates........................................S-52
Subordinate Private Certificates................................S-52
Sub-Servicer....................................................S-95
Sub-Servicing Agreement.........................................S-95
Substitution Shortfall Amount...................................S-91
Termination Price...............................................S-62
Treasury Rate...................................................S-59
Trust Fund......................................................S-52
Trustee's Website...............................................S-66
Trustee Fee.....................................................S-70
Underwritable Cash Flow.........................................S-85
Underwriters...................................................S-108
Underwriting Agreement.........................................S-108
Upper-Tier REMIC...............................................S-101
Voting Rights...................................................S-70
Withheld Amounts................................................S-59
Workout Fee.....................................................S-96
Workout Fee Rate................................................S-96
Year Built......................................................S-86
Year Renovated..................................................S-86
YMP.............................................................S-71
S-113
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
CUT-OFF DATE BALANCES
- -----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
CUT-OFF DATE BALANCE ($) LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 to 1,000,000 26 $ 18,281,125 2.89% 7.661% 115 1.49x 70.4% 60.8%
1,000,001 to 2,000,000 45 69,230,683 10.95 7.552 115 1.52 68.5 57.5
2,000,001 to 3,000,000 53 131,825,576 20.86 7.636 116 1.43 67.7 56.9
3,000,001 to 4,000,000 26 90,705,819 14.35 7.479 118 1.50 69.2 58.6
4,000,001 to 5,000,000 13 56,462,549 8.93 7.578 125 1.42 68.1 53.3
5,000,001 to 6,000,000 7 37,744,980 5.97 7.818 109 1.29 72.4 64.8
6,000,001 to 7,000,000 10 65,122,951 10.30 7.690 116 1.35 74.1 64.1
7,000,001 to 8,000,000 3 22,309,329 3.53 6.980 122 1.25 74.8 65.0
8,000,001 to 9,000,000 1 8,366,193 1.32 7.530 111 1.36 72.1 51.5
9,000,001 to 10,000,000 3 28,119,603 4.45 7.807 115 1.30 68.9 60.7
10,000,001 to 15,000,000 5 63,257,596 10.01 7.981 117 1.29 76.3 67.8
15,000,001 to 20,000,000 1 18,859,720 2.98 7.750 117 1.22 75.4 67.7
20,000,001 to 25,000,000 1 21,808,261 3.45 7.210 168 1.30 76.5 60.2
===================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
===================================================================================================================================
</TABLE>
Min: $178,572
Max: $21,808,261
Average: $3,258,218
I-1
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
STATES
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
STATE LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California 49 $208,320,912 32.96% 7.567% 117 1.35x 72.0% 61.2%
Texas 14 49,916,610 7.90 7.567 124 1.42 71.5 58.0
Pennsylvania 23 37,489,691 5.93 7.183 111 1.60 72.1 62.4
Massachusetts 6 35,432,902 5.61 7.516 115 1.35 72.2 63.8
Florida 5 33,494,423 5.30 7.174 148 1.39 72.2 58.2
District of Columbia 4 32,657,038 5.17 7.746 117 1.29 80.0 71.6
Georgia 12 32,025,038 5.07 8.287 116 1.48 63.2 53.6
Arizona 9 22,489,672 3.56 7.431 115 1.36 69.0 58.8
Maryland 5 14,447,565 2.29 7.808 117 1.39 69.9 61.7
Colorado 4 12,706,598 2.01 7.252 115 1.54 69.8 58.6
New Jersey 3 12,498,683 1.98 7.531 111 1.33 72.8 64.7
Washington 6 11,947,613 1.89 7.518 114 1.48 67.4 59.8
North Carolina 3 10,435,436 1.65 8.120 116 1.55 59.2 49.6
Tennessee 1 9,680,343 1.53 8.000 117 1.30 69.1 62.5
New Hampshire 4 9,438,944 1.49 7.330 113 1.36 66.6 53.8
South Carolina 7 9,358,380 1.48 8.063 116 1.30 72.0 60.3
Alabama 8 9,236,634 1.46 8.500 115 1.41 67.4 57.2
Virginia 3 7,626,304 1.21 8.156 117 1.46 60.4 50.6
Nevada 3 7,588,185 1.20 7.759 170 1.38 70.5 46.3
Oklahoma 3 7,545,149 1.19 7.950 115 1.39 74.9 62.8
Hawaii 2 7,424,384 1.17 8.163 117 1.25 67.5 55.1
</TABLE>
I-2
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
STATES
(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
STATE LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New York 4 $ 5,330,118 0.84% 7.750% 111 1.68x 72.7% 64.0%
Oregon 2 5,209,366 0.82 6.984 112 1.21 62.2 51.4
Minnesota 1 5,083,815 0.80 8.000 115 1.19 79.4 71.8
Ohio 2 5,026,389 0.80 8.241 117 1.37 64.8 54.4
Missouri 1 4,177,616 0.66 7.500 120 1.53 65.3 53.0
Wyoming 1 4,030,909 0.64 7.530 111 1.77 67.2 55.7
New Mexico 1 3,777,589 0.60 7.150 115 2.41 58.1 47.4
Louisiana 1 3,311,752 0.52 8.000 116 1.28 77.0 69.6
Michigan 1 2,936,954 0.46 8.665 111 1.11 85.1 78.4
Kentucky 1 2,891,156 0.46 8.250 117 1.48 57.6 48.4
Indiana 2 2,576,956 0.41 6.680 113 1.54 61.8 49.8
Utah 1 2,427,054 0.38 7.100 113 1.29 69.3 61.5
Connecticut 1 2,146,065 0.34 8.500 117 1.28 70.4 64.3
Illinois 1 1,408,141 0.22 7.020 110 1.79 56.3 46.0
====================================================================================================================================
TOTAL OR WEIGHTED
AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
I-3
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
PROPERTY TYPES
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
PROPERTY TYPE LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail
Unanchored 20 $53,069,865 8.40% 7.555% 114 1.44x 70.8% 62.2%
Anchored 8 44,782,029 7.08 7.476 115 1.33 74.7 65.1
Outlet Center 1 9,680,343 1.53 8.000 117 1.30 69.1 62.5
Shadow Anchored 2 8,496,795 1.34 7.478 116 1.30 74.5 66.5
Single Tenant 1 4,945,753 0.78 7.830 231 1.30 64.7 3.3
Single Tenant-Anchored 1 2,385,409 0.38 7.010 112 1.40 74.5 65.9
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 33 $123,360,194 19.52% 7.557% 119 1.37x 72.2% 61.3%
Office
Suburban 16 $91,640,230 14.50% 7.668% 116 1.33x 73.0% 65.2%
Urban 2 15,099,759 2.39 7.572 116 1.34 76.4 67.1
Garden 2 5,738,806 0.91 7.619 115 1.28 73.7 66.2
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 20 $112,478,796 17.79% 7.653% 116 1.33x 73.5% 65.5%
Multifamily
Garden 19 $81,904,699 12.96% 7.229% 129 1.31x 74.9% 63.3%
High-Rise 1 7,637,757 1.21 7.100 133 1.19 70.9 60.3
Low-Rise 2 4,305,437 0.68 7.120 112 1.32 68.9 57.9
Senior Housing 1 2,936,954 0.46 8.665 111 1.11 85.1 78.4
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 23 $96,784,847 15.31% 7.257% 128 1.30x 74.7% 63.2%
Manufactured Housing Comm. 49 $94,853,371 15.01% 7.339% 112 1.48x 71.3% 60.6%
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 49 $94,853,371 15.01% 7.339% 112 1.48x 71.3% 60.6%
</TABLE>
I-4
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
PROPERTY TYPES
(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
PROPERTY TYPE LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hospitality
Extended Stay 15 $45,393,051 7.18% 8.339% 117 1.51x 59.6% 50.2%
Full Service 3 23,717,389 3.75 8.140 126 1.40 67.0 51.7
Limited Service 7 14,767,428 2.34 8.075 115 1.51 70.0 58.4
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 25 $83,877,868 13.27% 8.236% 119 1.48x 63.5% 52.1%
Mixed Use
Office/Retail 3 $14,009,849 2.22% 7.806% 100 1.35x 71.9% 66.0%
Multifamily/Retail 3 9,258,639 1.46 7.192 110 1.58 69.0 58.2
Office/Warehouse/Retail 2 7,168,095 1.13 7.709 118 1.42 69.3 59.1
Retail/Office/Time Share 1 5,189,725 0.82 8.125 117 1.25 67.5 55.1
Office/Warehouse 1 3,841,795 0.61 7.750 117 1.27 79.9 71.5
Industrial/Office 1 3,588,053 0.57 7.800 115 1.25 73.2 65.9
Office/Industrial/Retail 1 2,234,659 0.35 8.250 117 1.25 67.5 55.1
Manufactured Housing 1 1,619,304 0.26 7.820 229 1.40 67.5 3.5
Community/Retail
Manufactured Housing 1 1,394,370 0.22 8.000 116 1.67 69.0 57.7
Community/Multifamily
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 14 $48,304,489 7.64% 7.730% 114 1.39x 70.8% 59.9%
Self Storage 15 $32,722,333 5.18% 7.512% 128 1.58x 63.5% 50.2%
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 15 $32,722,333 5.18% 7.512% 128 1.58x 63.5% 50.2%
</TABLE>
I-5
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
PROPERTY TYPES
(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
PROPERTY TYPE LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial
Light Industrial 2 $11,286,594 1.79% 8.073% 117 1.28x 73.7% 66.7%
Bulk Warehouse 2 10,512,257 1.66 7.728 112 1.34 71.8 54.1
Warehouse 2 4,646,092 0.74 7.605 115 1.37 63.8 51.1
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 6 $26,444,943 4.18% 7.854% 115 1.32x 71.2% 58.9%
Senior Housing
Assisted Living 8 $9,236,634 1.46% 8.500% 115 1.41x 67.4% 57.2%
Independent & 1 4,030,909 0.64 7.530 111 1.77 67.2 55.7
Assisted Living
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 9 $13,267,543 2.10% 8.205% 114 1.52x 67.3% 56.7%
====================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
I-6
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
MORTGAGE RATES
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
MORTGAGE RATE (%) LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6.501 to 7.000 22 $61,796,551 9.78% 6.856% 113 1.48x 70.4% 59.7%
7.001 to 7.500 78 233,499,811 36.94 7.246 118 1.44 70.5 60.4
7.501 to 8.000 55 228,139,400 36.09 7.838 121 1.32 73.3 61.9
8.001 to 8.500 33 78,614,797 12.44 8.298 120 1.39 65.0 54.7
8.501 to 9.000 6 30,043,824 4.75 8.723 116 1.47 70.2 60.0
====================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
Min: 6.610%
Max: 9.000%
Weighted Average: 7.622%
I-7
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
ORIGINAL TERMS TO STATED MATURITY
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
ORIGINAL TERM TO STATED MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
MATURITY (MOS) LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
61 to 120 182 $571,037,096 90.34% 7.651% 114 1.40x 70.8% 61.3%
121 to 180 8 48,472,528 7.67 7.222 144 1.33 72.4 59.3
181 to 240 4 12,584,760 1.99 7.882 230 1.45 65.9 11.4
====================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
Min: 84
Max: 240
Weighted Average: 125
I-8
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
REMAINING TERMS TO STATED MATURITY
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
REMAINING TERM TO STATED MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
MATURITY (MOS) LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
61 to 120 187 $589,068,429 93.19% 7.639% 114 1.40x 70.7% 61.2%
121 to 180 3 30,441,194 4.82 7.193 159 1.27 75.1 60.2
181 to 240 4 12,584,760 1.99 7.882 230 1.45 65.9 11.4
====================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
Min: 75
Max: 231
Weighted Average: 119
I-9
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
ORIGINAL AMORTIZATION TERMS
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
ORIGINAL AMORTIZATION MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
TERM (MOS) LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALLOON LOAN 191 $623,170,002 98.59% 7.617% 117 1.40x 70.9% 61.0%
180 1 2,518,583 0.40 7.100 109 1.43 42.0 20.9
204 1 2,234,659 0.35 8.250 117 1.25 67.5 55.1
240 5 20,423,836 3.23 7.564 113 1.39 69.1 49.2
264 1 2,371,283 0.38 9.000 117 1.47 69.7 55.6
298 1 6,069,363 0.96 8.580 115 1.75 64.6 54.8
300 80 207,493,474 32.83 7.729 116 1.50 66.1 54.4
360 102 382,058,805 60.44 7.535 118 1.33 73.9 65.6
FULLY-AMORTIZING LOAN 3 $8,924,382 1.41% 8.005% 230 1.40x 63.5% 3.4%
240 3 8,924,382 1.41 8.005 230 1.40 63.5 3.4
====================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
Min: 180
Max: 360
Weighted Average: 333
I-10
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
REMAINING AMORTIZATION TERMS
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
NUMBER OF PERCENT BY AVERAGE WEIGHTED WEIGHTED
MORTGAGE AGGREGATE AGGREGATE WEIGHTED REMAINING TERM WEIGHTED AVERAGE AVERAGE
REMAINING AMORTIZATION LOANS CUT-OFF DATE CUT-OFF DATE AVERAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
TERMS (MOS) BALANCE ($) BALANCE (%) RATE (%) MORTGAGE (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
121 to 180 1 $ 2,518,583 0.40% 7.100% 109 1.43x 42.0% 20.9%
181 to 240 9 31,582,876 5.00 7.737 146 1.38 67.4 36.7
241 to 300 82 215,934,119 34.16 7.767 116 1.51 66.1 54.4
301 to 360 102 382,058,805 60.44 7.535 118 1.33 73.9 65.6
====================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
Min: 170
Max: 359
Weighted Average: 327
I-11
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
DEBT SERVICE COVERAGE RATIOS
- -----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
DEBT SERVICE COVERAGE MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
RATIO (X) LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1.01 to 1.15 6 $ 8,558,132 1.35% 8.228% 114 1.12x 81.0% 70.2%
1.16 to 1.25 24 114,613,313 18.13 7.604 118 1.22 74.0 64.4
1.26 to 1.35 51 225,928,677 35.74 7.593 122 1.29 73.3 63.0
1.36 to 1.50 51 148,999,948 23.57 7.908 116 1.42 68.0 56.9
1.51 to 1.75 52 112,878,404 17.86 7.332 119 1.64 68.1 56.1
1.76 to 2.00 4 8,266,946 1.31 7.336 112 1.84 67.6 55.7
2.01 and above 6 12,848,965 2.03 7.325 114 2.28 49.3 39.7
===================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
===================================================================================================================================
</TABLE>
Min: 1.11x
Max: 2.52x
Weighted Average: 1.40x
I-12
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
CUT-OFF DATE LOAN-TO-VALUE RATIOS
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
CUT-OFF DATE NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
LOAN-TO-VALUE MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
(%) RATIO LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30.1 to 40.0 1 $ 1,237,136 0.20% 7.150% 111 2.52x 37.6% 30.8%
40.1 to 50.0 5 10,352,823 1.64 7.354 113 2.00 45.7 33.4
50.1 to 60.0 21 54,671,808 8.65 7.868 120 1.58 57.7 46.2
60.1 to 70.0 58 171,203,388 27.09 7.761 118 1.42 66.4 54.9
70.1 to 80.0 107 384,853,506 60.89 7.525 119 1.34 75.1 64.9
80.1 to 90.0 2 9,775,723 1.55 8.011 116 1.30 81.9 74.1
====================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
Min: 37.6%
Max: 85.1%
Weighted Average: 70.8%
I-13
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
BALLOON LOAN-TO-VALUE RATIOS
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
BALLOON LOAN-TO-VALUE MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
RATIO (%) LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.1 to 10.0 3 $ 8,924,382 1.41% 8.005% 230 1.40x 63.5% 3.4%
20.1 to 30.0 1 2,518,583 0.40 7.100 109 1.43 42.0 20.9
30.1 to 40.0 6 12,731,754 2.01 7.450 147 2.03 53.2 34.9
40.1 to 50.0 23 54,936,203 8.69 7.793 115 1.56 58.2 48.0
50.1 to 60.0 54 150,058,376 23.74 7.668 114 1.45 67.2 55.2
60.1 to 70.0 97 334,905,666 52.98 7.537 118 1.35 73.7 64.7
70.1 to 80.0 10 68,019,421 10.76 7.808 116 1.26 80.1 72.0
====================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
Min: 3.3%
Max: 78.4%
Weighted Average: 60.1%
I-14
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
PREPAYMENT PROTECTION ANALYSIS
PERCENTAGE OF COLLATERAL BY PREPAYMENT RESTRICTION
- -----------------------------------------------------------------------------------------------------------------------------------
PREPAYMENT RESTRICTIONS APR 99 APR 00 APR 01 APR 02 APR 03 APR 04 APR 05 APR 06 APR 07 APR 08 APR 09
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Locked Out/Defeasance 100.00% 96.54% 96.29% 95.55% 95.54% 92.92% 91.86% 92.88% 92.87% 79.15% 43.50%
Yield Maintenance 0.00% 3.46% 3.46% 3.86% 3.87% 6.27% 6.47% 6.54% 6.55% 4.04% 56.50%
Penalty Points:
5.00% and greater 0.00% 0.00% 0.25% 0.34% 0.34% 0.23% 0.00% 0.00% 0.00% 0.00% 0.00%
4.00% to 4.99% 0.00% 0.00% 0.00% 0.25% 0.00% 0.34% 0.57% 0.00% 0.00% 0.00% 0.00%
3.00% to 3.99% 0.00% 0.00% 0.00% 0.00% 0.25% 0.00% 0.00% 0.57% 0.00% 0.00% 0.00%
2.00% to 2.99% 0.00% 0.00% 0.00% 0.00% 0.00% 0.25% 0.00% 0.00% 0.57% 0.00% 0.00%
1.00% to 1.99% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.24% 0.00%
Open 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1.11% 0.00% 0.00% 16.56% 0.00%
===================================================================================================================================
TOTALS 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
===================================================================================================================================
Pool Balance Outstanding (in
millions) $632.09 $625.35 $617.93 $609.91 $601.26 $592.05 $581.97 $564.75 $553.11 $532.40 $35.38
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
% Initial Pool Balance 100.00% 98.93% 97.76% 96.49% 95.12% 93.66% 92.07% 89.35% 87.50% 84.23% 5.60%
</TABLE>
I-15
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
LOAN INFORMATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Cut-Off
Loan Cut-Off Date Bal./ Mortgage Note Maturity Date
No. Property Name (1) Date Balance Unit or SF (2) Rate Date or ARD(3)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 D.A.M. Maple Manor Mobile Home Park (A) (6) $3,794,663 $11,971 7.180% 4/29/98 5/11/08
2 D.A.M. Valley View - Danboro (A) (6) $3,199,422 $13,850 7.180% 4/29/98 5/11/08
3 D.A.M. Brookside Village MHP (A) (6) (I) $1,785,724 $10,443 7.180% 4/29/98 5/11/08
4 D.A.M. Pleasant View MHP (A) (6) (I) $1,041,672 $9,645 7.180% 4/29/98 5/11/08
5 D.A.M. Huguenot Estate East MHP (A) (6) $2,003,979 $12,072 7.180% 4/29/98 5/11/08
6 D.A.M. Valley View- Honey Brook (A) (6) (II) $1,488,103 $12,401 7.180% 4/29/98 5/11/08
7 D.A.M. Green Acres-Honey Brook (A) (6) (II) $431,550 $17,981 7.180% 4/29/98 5/11/08
8 D.A.M. Moosic Heights MHP (A) (6) $1,909,732 $12,482 7.180% 4/29/98 5/11/08
9 D.A.M. Frieden Manor Mobile Home Park (A) (6) $1,860,129 $9,688 7.180% 4/29/98 5/11/08
10 D.A.M. Suburban Estates MHP (A) (6) $1,711,318 $8,430 7.180% 4/29/98 5/11/08
11 D.A.M. Sunny Acres MHP (A) (6) $1,562,508 $8,492 7.180% 4/29/98 5/11/08
12 D.A.M. Sunneyside MHP (A) (6) $1,488,103 $20,110 7.180% 4/29/98 5/11/08
13 D.A.M. Valley View - Ephrata (A) (6) $1,066,474 $9,967 7.180% 4/29/98 5/11/08
14 D.A.M. Carsons Mobile Home Park (A) (6) $967,267 $7,328 7.180% 4/29/98 5/11/08
15 D.A.M. Pine Haven Mobile Home Park (A) (6) $967,267 $7,273 7.180% 4/29/98 5/11/08
16 D.A.M. Crestview Mobile Home Park (A) (6) $793,655 $8,017 7.180% 4/29/98 5/11/08
17 D.A.M. Collingwood MHP (A) (6) $689,488 $6,760 7.180% 4/29/98 5/11/08
18 D.A.M. Beaver Run Mobile Home Park (A) (6) $629,964 $6,300 7.180% 4/29/98 5/11/08
19 D.A.M. Chelsea MHP (A) (6) $625,003 $7,267 7.180% 4/29/98 5/11/08
20 D.A.M. Oakwood Lakes MHP (A) (6) $620,043 $7,849 7.180% 4/29/98 5/11/08
21 D.A.M. Gregory Courts MHP (A) (6) $570,439 $15,012 7.180% 4/29/98 5/11/08
22 D.A.M. Mountaintop Mobile Home Park (A) (6) $396,827 $10,175 7.180% 4/29/98 5/11/08
23 D.A.M. Monroe Valley MHP (A) (6) $277,779 $6,313 7.180% 4/29/98 5/11/08
24 D.A.M. Green Acres - Chambersburg (A) (6) $178,572 $7,441 7.180% 4/29/98 5/11/08
25 Jemal-The Car Barn (III) (6) $12,947,348 $151 7.750% 12/17/98 1/1/09
26 Jemal-801 North Capitol (III) (7) (6) $11,525,385 $140 7.750% 12/17/98 1/1/09
27 Jemal-Laurel Lakes Corp. Center (III) (7) (6) $3,841,795 $55 7.750% 12/17/98 1/1/09
28 Jemal-Kalorama GuestHouse (III) (6) $1,345,537 $28,032 7.750% 12/17/98 1/1/09
29 Quail Oaks Apartments (5) (8) $21,808,261 $53,981 7.210% 3/27/98 4/1/13
30 Crown Colony Office $18,859,720 $151 7.750% 12/28/98 1/1/09
31 Suburban-3-Pressley (IV) (6) $3,364,708 $25,490 8.250% 12/29/98 1/1/09
32 Suburban-3-Virginia Beach (IV) (6) $3,289,937 $23,840 8.250% 12/29/98 1/1/09
33 Suburban-3-Fairfield (IV) (6) $2,791,461 $21,309 8.250% 12/29/98 1/1/09
34 Suburban-3-Jonesboro (IV) (6) $2,666,843 $19,325 8.250% 12/29/98 1/1/09
35 Suburban-3-Norcross (IV) (6) $2,193,291 $17,135 8.250% 12/29/98 1/1/09
36 Suburban-3-Fulton Industrial (IV) (6) $1,226,249 $11,354 8.250% 12/29/98 1/1/09
37 Suburban-2-UNC Charlotte (V) (6) $3,589,022 $26,007 8.250% 12/29/98 1/1/09
38 Suburban-2-Lilburn (V) (6) $3,090,547 $23,413 8.250% 12/29/98 1/1/09
39 Suburban-2-Preston Hwy. (V) (6) $2,891,156 $19,274 8.250% 12/29/98 1/1/09
40 Suburban-2-Chesapeake (V) (6) $2,542,224 $19,259 8.250% 12/29/98 1/1/09
41 Suburban-2-Taylors (V) (6) $2,342,834 $18,594 8.250% 12/29/98 1/1/09
42 Suburban-2-Mableton (V) (6) $996,950 $12,620 8.250% 12/29/98 1/1/09
43 Midtown Shopping Center $13,970,521 $87 7.810% 12/29/98 12/1/08
44 The Lakes (8) $12,674,263 $74 8.000% 12/23/98 1/1/09
45 Ramada Plaza Hotel $12,140,079 $66,704 8.625% 12/10/98 1/1/09
46 Governors Crossing Outlet Ctr. $9,680,343 $72 8.000% 12/24/98 1/1/09
47 Magnolia Manors 2-Andalusia (VI) $1,842,350 $57,573 8.500% 10/30/98 11/1/08
48 Magnolia Manors 4-Jasper (VI) $1,769,940 $55,311 8.500% 10/30/98 11/1/08
49 Magnolia Manors 7-Valley (VI) $1,691,061 $52,846 8.500% 10/30/98 11/1/08
50 Magnolia Manors 5-Smiths (VI) $862,451 $53,903 8.500% 10/30/98 11/1/08
51 Magnolia Manors 1-Jackson (VI) $796,759 $49,797 8.500% 10/30/98 11/1/08
52 Magnolia Manors 8-Brewton (VI) $780,834 $48,802 8.500% 10/30/98 11/1/08
53 Magnolia Manors 3-Monroeville (VI) $762,918 $47,682 8.500% 10/30/98 11/1/08
54 Magnolia Manors 6-Alexander City (VI) $730,321 $45,645 8.500% 10/30/98 11/1/08
55 Televideo $9,221,275 $132 8.000% 12/21/98 1/1/09
56 Radisson Woodlands Plaza Hotel $9,217,985 $50,372 7.410% 7/24/98 8/1/08
57 AFCO Hanger One Air Cargo Complex $8,366,193 $32 7.530% 6/30/98 7/11/08
58 Marina View Towers $7,637,757 $90,926 7.100% 5/5/98 5/11/10
59 Village Park Apartments (8) $7,463,741 $17,856 6.770% 9/23/98 10/1/08
60 Waikiki MarketPlace (B) (7) $5,189,725 $163 8.125% 12/28/98 1/1/09
61 Goldcoast Business Center (B) (7) $2,234,659 $21 8.250% 12/28/98 1/1/09
62 Summer Creek Apartments (5) $7,207,831 $46,204 7.070% 7/30/98 2/11/09
63 Food 4 Less & Arco AM/PM Stores $6,972,650 $122 7.050% 10/20/98 11/1/08
64 Pathmark (Glenolden) $6,959,880 $66 7.320% 10/2/98 11/1/08
65 1630 Connecticut Avenue $6,838,769 $177 7.730% 1/13/99 2/1/09
66 Santa Paula West (8) (9) $6,834,499 $35,049 7.450% 12/23/98 1/1/09
67 Del Prado Mobile Home Park $6,643,878 $39,313 8.000% 10/27/98 11/1/08
68 Piano Craft Guild Apartments $6,395,222 $36,754 7.320% 3/26/98 4/1/08
69 Canyon Terrace Apts. $6,186,109 $47,585 7.500% 12/26/98 1/1/09
70 Woodhill Square $6,175,336 $53 8.150% 12/9/98 1/1/09
71 Guest House Inn (5) $6,069,363 $21,990 8.580% 12/29/98 11/11/08
72 7979 Old Georgetown Road $6,047,245 $116 7.960% 2/25/99 3/1/09
73 Cherry Hill Plaza $5,682,562 $48 7.460% 4/8/98 5/1/08
74 Heritage-Rolling Meadows (VII) $2,308,165 $7,932 8.000% 10/28/98 11/1/08
75 Heritage-Windsor City (VII) $1,711,225 $6,314 8.000% 10/28/98 11/1/08
76 Heritage-Victorian Lakes (VII) $925,255 $6,128 8.000% 10/28/98 11/1/08
77 Heritage-Hermitage Farms (VII) $437,755 $4,378 8.000% 10/28/98 11/1/08
78 Heritage-Ramblewood (VII) $238,777 $2,809 8.000% 10/28/98 11/1/08
79 Maywood Village Square $5,586,970 $116 8.280% 11/19/98 12/1/08
80 Upland Country Village $5,563,587 $117 7.950% 12/23/98 1/1/09
81 El Paseo Collection (8) $5,367,277 $193 7.450% 6/30/98 7/1/05
82 Harding Woods MHP $5,271,044 $16,524 7.470% 6/29/98 8/11/08
83 Highland Crossing $5,083,815 $115 8.000% 10/12/98 11/1/08
84 Best Buy $4,945,753 $103 7.830% 6/29/98 7/11/18
85 Carriage Trade Center (VIII) (6) $3,353,233 $47 6.610% 10/5/98 11/1/08
86 Washington Square (VIII) (6) $1,564,842 $59 6.610% 10/5/98 11/1/08
87 Efficiency II- Lorene Lodge $4,856,760 $17,470 8.950% 12/22/98 1/1/09
88 Spring Creek Mobile Home Park $4,684,709 $12,168 7.850% 12/18/98 1/1/09
89 The Meadows Apts. $4,564,750 $43,892 7.500% 12/26/98 1/1/09
90 Northpointe Village Center (C) (6) $3,022,835 $69 7.330% 7/24/98 8/1/08
91 Grant Road Shops (C) (6) $1,472,277 $123 7.190% 8/13/98 9/1/08
92 El Paseo Power Center $4,391,083 $68 8.000% 12/21/98 1/1/09
93 Parkwood Apartments $4,372,994 $15,618 7.750% 12/29/98 1/1/09
94 Heritage Village Apts. (8) $4,215,227 $23,950 6.940% 7/22/98 8/11/08
95 P.M. Place Stores (5) $4,177,616 $17 7.500% 9/24/98 4/1/09
96 JP Plaza $4,105,712 $95 6.920% 9/24/98 10/1/08
97 Bellam Self Storage $4,081,338 $97 7.040% 9/16/98 10/1/08
98 Sugarland Ridge $4,030,909 $60,163 7.530% 6/29/98 7/1/08
99 North College Mobile Plaza $4,021,172 $12,566 7.000% 9/4/98 10/1/08
100 Storage Express $4,014,526 $64 7.330% 6/2/98 6/11/08
101 Victory Plaza $3,981,711 $96 7.020% 9/1/98 10/1/08
102 Greenhaven Executive Park $3,977,750 $75 6.900% 8/28/98 9/1/08
103 Shoneys Inn - Lake Park (IX) $2,038,517 $16,988 8.000% 10/9/98 11/1/08
104 Shoneys Inn - Valdosta (IX) $1,904,265 $19,836 8.000% 10/9/98 11/1/08
105 Colorado Springs Corporate Centre $3,868,412 $85 7.500% 1/21/99 2/1/09
106 Bechtel Nevada Corporation $3,777,589 $76 7.150% 10/9/98 11/1/08
107 Country Squire MHP $3,683,943 $21,051 7.250% 9/18/98 10/1/08
108 Northwest Mini Storage $3,660,378 $27 7.580% 6/1/98 5/11/18
109 Fairmont Apartments $3,643,140 $13,296 7.300% 6/12/98 7/1/08
110 Springwood Business Center $3,588,053 $47 7.800% 10/12/98 11/1/08
111 1420 Walnut Street $3,574,375 $29 7.000% 9/30/98 10/1/08
112 610-620 Santa Cruz Ave. $3,521,341 $182 7.230% 8/18/98 9/1/08
113 Suburban Lodge of Pineville $3,481,706 $25,414 7.860% 10/30/98 11/1/08
114 Redwood Marketplace $3,469,652 $56 6.800% 4/23/98 5/1/08
115 Elmwood Office Park $3,311,752 $46 8.000% 11/18/98 12/1/08
116 Orchard Center $3,282,561 $91 7.610% 7/20/98 8/11/08
117 Mission MHP $3,159,719 $11,048 7.170% 4/27/98 4/1/08
118 Zonolite Road Properties $3,141,081 $54 8.500% 10/29/98 11/1/08
119 Braley Bldg. $3,036,495 $67 7.030% 8/19/98 9/1/08
120 Lynnwood East Business Park $2,990,479 $51 8.000% 10/28/98 11/1/08
121 Woodmeadow Apts. $2,981,300 $13,802 6.900% 7/28/98 8/11/08
122 Wellington Woods Senior Apts. $2,936,954 $32,633 8.665% 6/11/98 7/1/08
123 Pecan Park $2,892,456 $13,973 7.800% 11/19/98 12/1/08
124 East West Shopping Center $2,890,790 $102 8.000% 12/1/98 1/1/09
125 Roble Terrace Apartments $2,872,554 $45,596 7.010% 7/31/98 8/1/08
126 Super 8 Motel/Alpenglo Inn and Conference Center $2,831,251 $47,188 7.450% 9/15/98 10/1/08
127 Safe Storage $2,810,030 $52 7.050% 9/24/98 10/1/08
128 Steeple Chase Apartments $2,788,457 $12,448 7.860% 12/25/98 12/1/08
129 Edgemar $2,714,800 $83 7.250% 10/1/98 11/1/08
130 Londonderry Commons $2,694,799 $53 8.250% 12/22/98 1/1/09
131 Mini Warehouse Company $2,691,426 $17 8.000% 12/22/98 1/1/09
132 Walbrook Junction Shopping $2,691,426 $57 8.000% 12/30/98 1/1/09
133 Sandstone Office Building $2,689,630 $182 7.130% 10/5/98 11/1/08
134 Rose Bay Travel Park $2,673,054 $7,572 7.320% 6/26/98 7/11/08
135 Riverview Mobile Villa $2,659,694 $12,371 6.770% 8/21/98 9/1/08
136 Plaza de Las Brisas $2,633,467 $76 7.330% 6/24/98 7/1/08
137 Sierra Suites $2,607,192 $26,072 7.600% 9/10/98 10/1/08
138 901 Tower $2,589,733 $101 7.000% 10/15/98 11/1/08
139 The Cones Apartments $2,585,251 $26,380 7.310% 7/13/98 8/1/08
140 Royal Oaks (D) $1,784,047 $7,108 6.680% 8/19/98 9/1/08
141 Country Acres (D) $792,910 $8,174 6.680% 8/19/98 9/1/08
142 4890 Alameda Street (10) $2,550,348 $21 7.280% 8/20/98 9/1/08
143 Sherwood Forest Mobile Home $2,518,583 $9,916 7.100% 5/21/98 5/11/08
144 Red Rock Self Storage $2,482,052 $33 7.590% 4/29/98 11/1/08
145 Wilshire Borgata $2,467,236 $252 7.720% 7/30/98 8/11/08
146 American Heritage Office $2,427,054 $83 7.100% 8/31/98 9/1/08
147 California Federal Building $2,390,653 $101 7.065% 10/7/98 11/1/08
148 Simi Valley Regional Center $2,387,139 $59 7.070% 8/28/98 9/11/08
149 Buy for Less Grocery Store $2,385,409 $42 7.010% 8/3/98 8/11/08
150 Holiday Inn Durant $2,371,283 $28,918 9.000% 12/30/98 1/1/09
151 Best Western Matagorda $2,359,325 $19,661 8.500% 4/28/98 5/1/18
152 Kings Inn Apartments $2,338,888 $25,988 6.870% 9/10/98 10/1/08
153 The Giroux Building $2,329,964 $140 6.910% 8/31/98 9/1/08
154 Nursery Shopping Center $2,280,853 $61 7.730% 7/31/98 8/1/08
155 Fairborn Apartments $2,234,927 $12,627 8.230% 12/28/98 2/1/09
156 Sunwood Village Apartments (8) $2,189,364 $18,554 6.770% 9/23/98 10/1/08
157 Kingstowne Mobile Home Park $2,181,558 $16,280 7.010% 8/14/98 9/1/08
158 Central Self Storage $2,178,105 $27 7.980% 5/8/98 6/1/08
159 75 Old Broadway $2,146,065 $22 8.500% 12/2/98 1/1/09
160 Plantation Acres (5) $2,108,479 $10,542 7.070% 8/7/98 3/1/09
161 Interpoint Business Park $2,095,744 $24 8.000% 12/1/98 1/1/09
162 Mohawk Drive Corporation $2,065,319 $19 8.400% 11/2/98 12/1/08
163 205 Commerce Center $2,055,356 $55 7.340% 6/29/98 8/11/08
164 Canterbury Commons Apartments (8) $2,044,004 $26,205 6.740% 9/16/98 10/1/08
165 Valley Village Mobile Home Park $1,985,764 $12,979 7.000% 9/4/98 10/1/08
166 All American - Palmdale $1,865,541 $28 7.510% 8/12/98 9/1/08
167 Dumfries Self Storage $1,794,144 $37 7.850% 12/1/98 1/1/09
168 Hyundai Plaza $1,745,652 $73 8.000% 11/30/98 12/1/08
169 Tregoney East Apartments $1,732,693 $16,193 7.370% 6/30/98 7/11/08
170 157 Pleasant Street $1,676,965 $36,456 6.840% 8/31/98 9/11/08
171 Days Inn NY $1,669,384 $24,550 9.000% 11/19/98 12/1/08
172 Westfield MHP $1,619,304 $6,503 7.820% 4/13/98 5/1/18
173 14150 Vine $1,611,889 $67 8.250% 12/4/98 1/1/09
174 Donner Creek MHP $1,586,837 $16,704 7.120% 8/28/98 9/1/05
175 Sawmill Village Shopping $1,545,078 $74 8.000% 12/29/98 1/1/09
176 T & T Plaza $1,539,522 $96 7.500% 10/16/98 11/1/08
177 1004 Taft $1,507,091 $69 8.250% 12/4/98 1/1/09
178 Bensen Estates $1,491,765 $35,518 6.960% 8/10/98 9/1/08
179 Rancho Mini Storage $1,445,755 $41 8.500% 12/7/98 1/1/09
180 Metro Square $1,443,693 $52 7.240% 9/16/98 10/1/08
181 Machado Towers $1,432,883 $37,707 7.340% 7/28/98 8/11/08
182 Berkeley Self Storage, LTD. $1,410,493 $39 7.210% 6/15/98 7/1/08
183 Jasper Mobile Home Park $1,408,141 $5,314 7.020% 6/11/98 6/11/08
184 Spring Valley MHP & Apts. $1,394,370 $7,497 8.000% 11/4/98 12/1/08
185 Ponderosa MHP $1,287,888 $21,465 7.740% 1/8/99 2/1/09
186 Chesapeake Self Storage $1,237,136 $19 7.150% 6/15/98 7/1/08
187 Thornydale Self Storage $1,214,100 $24 7.360% 7/2/98 8/11/08
188 St. Charles Court $1,186,452 $33,899 7.000% 9/30/98 10/1/08
189 Tollhouse Crossings $1,093,480 $91 7.540% 6/16/98 7/1/08
190 Blue Topaz Apartments $1,079,109 $44,963 7.010% 8/19/98 9/11/08
191 Southend Self Storage $995,177 $14 7.540% 8/19/98 9/1/13
192 Creekside Mobile Home Park $994,140 $33,138 7.170% 7/6/98 8/11/08
193 Casa Monte Vista Apartments $976,890 $21,709 8.000% 10/26/98 11/1/08
194 Moreno Valley Mini Self Storage $842,133 $20 7.730% 6/15/98 7/1/08
TOTAL/WEIGHTED AVERAGE $632,094,383 7.622%
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Term to Rem. Term Original Remaining
Maturity to Maturity Amort. Amort. Related Borrower
ARD Loan or ARD or ARD Term Term Security Loan Groups
Maturity Date (mos) (mos) (mos)(4) (5) (mos) Type (by Loan No.)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5/11/28 120 109 360 349 Fee 2-24
5/11/28 120 109 360 349 Fee 1, 3-24
5/11/28 120 109 360 349 Fee 1-5, 7-24
5/11/28 120 109 360 349 Fee 1-11, 13-24
5/11/28 120 109 360 349 Fee 1, 2, 4-24
5/11/28 120 109 360 349 Fee 1-9, 11-24
5/11/28 120 109 360 349 Fee 1-20, 22-24
5/11/28 120 109 360 349 Fee 1-3, 5-24
5/11/28 120 109 360 349 Fee 1-4, 6-24
5/11/28 120 109 360 349 Fee 1-6, 8-24
5/11/28 120 109 360 349 Fee 1-7, 9-24
5/11/28 120 109 360 349 Fee 1-8, 10-24
5/11/28 120 109 360 349 Fee 1-10, 12-24
5/11/28 120 109 360 349 Fee 1-12, 14-24
5/11/28 120 109 360 349 Fee 1-13, 15-24
5/11/28 120 109 360 349 Fee 1-14, 16-24
5/11/28 120 109 360 349 Fee 1-15, 17-24
5/11/28 120 109 360 349 Fee 1-16, 18-24
5/11/28 120 109 360 349 Fee 1-17, 19-24
5/11/28 120 109 360 349 Fee 1-18, 20-24
5/11/28 120 109 360 349 Fee 1-19, 21-24
5/11/28 120 109 360 349 Fee 1-21, 23, 24
5/11/28 120 109 360 349 Fee 1-22, 24
5/11/28 120 109 360 349 Fee 1-23
120 117 360 357 Fee 26-28, 65, 72
120 117 360 357 Fee 25, 27, 28, 65, 72
120 117 360 357 Fee 25, 26, 28, 65, 72
120 117 300 297 Fee 25-27, 65, 72
180 168 360 348 Fee
120 117 360 357 Fee
120 117 300 297 Fee 32-42
120 117 300 297 Fee 31, 33-42
120 117 300 297 Fee 31, 32, 34-42
120 117 300 297 Fee 31-33, 35-42
120 117 300 297 Fee 31-34, 36-42
120 117 300 297 Fee 31-35, 37-42
120 117 300 297 Fee 31-36, 38-42
120 117 300 297 Fee 31-37, 39-42
120 117 300 297 Fee 31-38, 40-42
120 117 300 297 Fee 31-39, 41, 42
120 117 300 297 Fee 31-40, 42
120 117 300 297 Fee 31-41
119 116 360 357 Leasehold
120 117 360 357 Fee/Leasehold
120 117 300 297 Fee
120 117 360 357 Fee
120 115 300 295 Fee 48-54
120 115 300 295 Fee 47, 49-54
120 115 300 295 Fee 47, 48, 50-54
120 115 300 295 Fee 47-49, 51-54
120 115 300 295 Fee 47-50, 52-54
120 115 300 295 Fee 47-51, 53, 54
120 115 300 295 Fee 47-52, 54
120 115 300 295 Fee 47-53
120 117 360 357 Fee
120 112 300 292 Fee 137
120 111 240 231 Leasehold
144 133 360 349 Fee
120 114 360 354 Fee 156, 164
120 117 360 357 Leasehold 61
120 117 204 201 Leasehold 60
126 118 360 352 Fee
120 115 360 355 Fee
120 115 300 295 Fee
120 118 360 358 Fee 25-28, 72
120 117 360 357 Fee
120 115 240 235 Fee/Leasehold
120 108 360 348 Fee
120 117 360 357 Fee 89
120 117 360 357 Fee
11/11/23 118 115 298 295 Fee
120 119 360 359 Fee 25-28, 65
120 109 360 349 Fee
120 115 300 295 Fee 75-78
120 115 300 295 Fee 74, 76-78
120 115 300 295 Fee 74, 75, 77, 78
120 115 300 295 Fee 74, 75, 76, 78
120 115 300 295 Fee 74-77
120 116 360 356 Fee
120 117 360 357 Fee
7/1/28 84 75 360 351 Fee/Leasehold
120 112 360 352 Fee
120 115 360 355 Fee
240 231 240 231 Fee
120 115 300 295 Fee 86
120 115 300 295 Fee 85
120 117 300 297 Fee
120 117 300 297 Fee
120 117 360 357 Fee 69
120 112 360 352 Fee 91
120 113 360 353 Fee 90
120 117 360 357 Fee
120 117 300 297 Fee 121
8/11/23 120 112 300 292 Fee 163
126 120 300 294 Fee
120 114 360 354 Fee
120 114 360 354 Fee
7/1/23 120 111 300 291 Fee
120 114 300 294 Fee 140, 141, 172
120 110 300 290 Fee
120 114 360 354 Fee
120 113 360 353 Fee
120 115 300 295 Fee 104
120 115 300 295 Fee 103
120 118 360 358 Fee
120 115 300 295 Fee
120 114 360 354 Fee
5/11/23 239 229 300 290 Fee
120 111 300 291 Fee
120 115 360 355 Fee
120 114 300 294 Fee 188
120 113 300 293 Fee
120 115 300 295 Fee
120 109 360 349 Fee/Leasehold
120 116 360 356 Fee
120 112 360 352 Leasehold
119 108 300 289 Fee
120 115 360 355 Fee
120 113 360 353 Fee
120 115 360 355 Fee
120 112 360 352 Fee 93
120 111 360 351 Fee
120 116 360 356 Fee
120 117 300 297 Fee
120 112 300 292 Fee
120 114 300 294 Fee
120 114 300 294 Fee
120 116 300 296 Fee
120 115 360 355 Fee
120 117 360 357 Fee
120 117 300 297 Fee
120 117 300 297 Fee
120 115 360 355 Fee
120 111 300 291 Fee
120 113 360 353 Fee
120 111 360 351 Fee
120 114 300 294 Fee 56
120 115 360 355 Fee
120 112 360 352 Fee
120 113 300 293 Fee 99, 141, 172
120 113 300 293 Fee 99, 140, 172
120 113 240 233 Fee
5/11/13 119 109 180 170 Fee
126 115 360 349 Fee
120 112 360 352 Fee
120 113 360 353 Fee
120 115 360 355 Fee
120 113 360 353 Fee
120 112 360 352 Fee
120 117 264 261 Fee
240 229 240 229 Fee
120 114 360 354 Fee
120 113 300 293 Fee
120 112 300 292 Fee
120 118 300 298 Fee
120 114 360 354 Fee 59, 164
120 113 300 293 Fee 184
120 110 300 290 Fee
120 117 360 357 Fee
126 119 300 293 Fee
120 117 360 357 Fee
120 116 360 356 Fee
7/11/23 121 112 300 291 Fee 94
120 114 360 354 Fee 59, 156
120 114 300 294 Fee
120 113 300 293 Fee
120 117 300 297 Fee
120 116 360 356 Fee
120 111 300 291 Fee
120 113 240 233 Fee
120 116 300 296 Fee
240 229 240 229 Fee 99, 140, 141
120 117 360 357 Fee 177
84 77 300 293 Fee
120 117 300 297 Fee
120 115 360 355 Fee
120 117 360 357 Fee 173
120 113 360 353 Fee
120 117 300 297 Fee
120 114 360 354 Fee
120 112 360 352 Fee
120 111 300 291 Fee
120 110 300 290 Fee
120 116 300 296 Fee 157
120 118 360 358 Fee
120 111 300 291 Fee
120 112 300 292 Fee
120 114 240 234 Fee 111
120 111 360 351 Fee
120 113 360 353 Fee
180 173 360 353 Fee
120 112 360 352 Fee
120 115 360 355 Fee
120 111 300 291 Fee
125 119 333 327
<CAPTION>
- -------------------------
Scheduled
Balance at
Maturity Balloon
or ARD LTV (2)
- -------------------------
<S> <C>
$3,378,746 64.8%
$2,848,747 64.8%
$1,589,997 64.8%
$927,498 64.8%
$1,784,332 64.8%
$1,324,999 64.8%
$384,250 64.8%
$1,700,414 64.8%
$1,656,248 64.8%
$1,523,748 64.8%
$1,391,248 64.8%
$1,324,999 64.8%
$949,583 64.8%
$861,249 64.8%
$861,249 64.8%
$706,665 64.8%
$613,916 64.8%
$560,916 64.8%
$556,499 64.8%
$552,082 64.8%
$507,916 64.8%
$353,333 64.8%
$247,333 64.8%
$159,000 64.8%
$11,626,290 71.5%
$10,349,415 71.5%
$3,449,805 71.5%
$1,114,791 71.5%
$17,146,916 60.2%
$16,935,407 67.7%
$2,828,105 49.5%
$2,765,259 49.5%
$2,346,281 49.5%
$2,241,539 49.5%
$1,843,500 49.5%
$1,030,692 49.5%
$3,016,647 48.4%
$2,597,669 48.4%
$2,430,067 48.4%
$2,136,783 48.4%
$1,969,196 48.4%
$837,956 48.4%
$12,580,490 71.9%
$11,450,391 61.9%
$10,311,024 61.9%
$8,745,574 62.5%
$1,562,212 57.2%
$1,500,811 57.2%
$1,433,925 57.2%
$731,311 57.2%
$675,608 57.2%
$662,103 57.2%
$646,912 57.2%
$619,273 57.2%
$8,330,835 68.8%
$7,603,053 50.7%
$5,968,255 51.5%
$6,495,498 60.3%
$6,550,234 69.9%
$4,702,575 55.1%
$1,363,767 55.1%
$6,316,837 64.8%
$6,159,643 63.8%
$5,705,618 60.7%
$6,133,815 72.2%
$6,091,335 71.2%
$4,780,859 53.4%
$5,717,930 66.5%
$5,520,429 67.3%
$5,598,978 67.9%
$5,155,579 54.8%
$5,452,643 62.7%
$5,094,416 64.7%
$1,930,124 65.9%
$1,430,934 65.9%
$773,684 65.9%
$366,052 65.9%
$199,731 65.9%
$5,084,119 66.0%
$5,020,308 66.5%
$5,046,040 63.1%
$4,716,536 66.4%
$4,598,377 71.8%
$253,555 3.3%
$2,689,576 59.8%
$1,255,136 59.8%
$4,161,519 52.0%
$3,892,689 55.6%
$4,073,543 69.0%
$2,695,501 69.0%
$1,307,247 69.0%
$3,967,065 67.2%
$3,623,071 61.9%
$3,428,605 50.4%
$3,392,289 53.0%
$3,617,534 65.8%
$3,607,342 66.8%
$3,340,222 55.7%
$3,268,767 56.4%
$3,311,126 43.2%
$3,517,457 65.1%
$3,505,610 66.1%
$1,704,619 56.6%
$1,592,356 56.6%
$3,449,699 62.7%
$3,081,002 47.4%
$3,273,704 65.2%
$1,578,918 31.0%
$2,998,855 65.2%
$3,229,946 65.9%
$2,905,572 52.8%
$2,885,610 57.7%
$2,899,802 50.9%
$3,059,901 52.5%
$2,993,889 69.6%
$2,947,271 64.8%
$2,604,773 56.9%
$2,874,162 61.9%
$2,685,122 61.7%
$2,704,927 67.6%
$2,629,575 65.7%
$2,703,217 78.4%
$2,602,262 62.0%
$2,412,511 55.5%
$2,341,425 57.1%
$2,332,736 53.6%
$2,287,720 55.5%
$2,320,213 66.3%
$2,410,670 49.2%
$2,449,036 72.0%
$2,246,131 39.7%
$2,246,131 59.1%
$2,380,962 66.1%
$2,201,611 56.3%
$2,336,003 56.2%
$2,350,061 66.2%
$2,157,588 59.9%
$2,284,784 65.3%
$2,304,153 62.3%
$1,437,761 49.8%
$639,005 49.8%
$1,796,074 41.8%
$1,255,779 20.9%
$2,211,862 58.2%
$2,221,094 67.3%
$2,151,072 61.5%
$2,112,729 66.0%
$2,113,080 62.6%
$2,109,969 65.9%
$1,888,870 55.6%
$143,806 3.6%
$2,058,078 70.0%
$1,891,028 49.8%
$1,898,681 59.3%
$1,875,517 60.5%
$1,921,402 64.0%
$1,775,959 59.6%
$1,829,740 48.5%
$1,961,638 64.3%
$1,687,942 59.2%
$1,893,371 62.5%
$1,884,640 57.1%
$1,689,329 39.3%
$1,792,397 64.0%
$1,614,207 62.1%
$1,541,383 65.6%
$1,490,817 55.8%
$1,578,104 61.9%
$1,429,179 51.0%
$1,163,355 33.2%
$1,433,653 62.3%
$83,300 3.5%
$1,464,886 57.7%
$1,415,451 58.2%
$1,289,446 58.6%
$1,375,705 68.8%
$1,369,645 57.1%
$1,316,757 65.5%
$1,223,710 64.4%
$1,282,600 67.5%
$1,278,037 59.4%
$1,157,991 35.4%
$1,150,931 46.0%
$1,164,908 57.7%
$1,155,415 64.2%
$1,013,873 30.8%
$999,937 47.6%
$826,216 48.6%
$980,829 64.3%
$953,745 59.6%
$790,631 60.8%
$882,938 55.9%
$883,610 67.5%
$701,824 56.6%
$534,887,792 60.1%
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PROPERTY INFORMATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Loan
No. Property Name (1) Address (11) City
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 D.A.M. Maple Manor Mobile Home Park (A) (6) Oak Street Taylor
2 D.A.M. Valley View - Danboro (A) (6) Route 611 Danboro
3 D.A.M. Brookside Village MHP (A) (6) (I) Road #2 Berwick
4 D.A.M. Pleasant View MHP (A) (6) (I) 6020 Fort Jenkins Park Bloomsburg
5 D.A.M. Huguenot Estate East MHP (A) (6) Taylor Rd. Port Jervis
6 D.A.M. Valley View- Honey Brook (A) (6) (II) Route 322 Honey Brook
7 D.A.M. Green Acres-Honey Brook (A) (6) (II) Erica Circle Honey Brook
8 D.A.M. Moosic Heights MHP (A) (6) 1st Street Avoca
9 D.A.M. Frieden Manor Mobile Home Park (A) (6) Route 443 Schuykill Haven
10 D.A.M. Suburban Estates MHP (A) (6) SR 3099 Greensburg
11 D.A.M. Sunny Acres MHP (A) (6) Road #2 Somerset
12 D.A.M. Sunneyside MHP (A) (6) 2901 Ridge Park Road Norristown
13 D.A.M. Valley View - Ephrata (A) (6) 75 Snyders Lane Ephrata
14 D.A.M. Carsons Mobile Home Park (A) (6) 649 North Franklin Street Chambersburg
15 D.A.M. Pine Haven Mobile Home Park (A) (6) Oswego Road Blossvale
16 D.A.M. Crestview Mobile Home Park (A) (6) 100 Wolcott Hollow Road Athens
17 D.A.M. Collingwood MHP (A) (6) 358 Chambers Road Catlin
18 D.A.M. Beaver Run Mobile Home Park (A) (6) Beaver Neck Village Road Linkwood
19 D.A.M. Chelsea MHP (A) (6) 924 North Elmira Street Sayre
20 D.A.M. Oakwood Lakes MHP (A) (6) Mile Road Tunkhannock
21 D.A.M. Gregory Courts MHP (A) (6) Road #3 Honey Brook
22 D.A.M. Mountaintop Mobile Home Park (A) (6) 2018 Division Highway Narvon
23 D.A.M. Monroe Valley MHP (A) (6) Road #1 Jonestown
24 D.A.M. Green Acres - Chambersburg (A) (6) Route 528 Chambersburg
25 Jemal-The Car Barn (III) (6) 3600 M Street Washington
26 Jemal-801 North Capitol (III) (7) (6) 801 North Capitol Street, NE Washington
27 Jemal-Laurel Lakes Corp. Center (III) (7) (6) 8003-8043 Laurel Lakes Court Laurel
28 Jemal-Kalorama GuestHouse (III) (6) 1852, 1854, 1859, 1831 Mintwood Place Washington
29 Quail Oaks Apartments (5) (8) 4747 West Waters Avenue Tampa
30 Crown Colony Office 400 Crown Colony Drive Quincy
31 Suburban-3-Pressley (IV) (6) 540 Pressley Road Charlotte
32 Suburban-3-Virginia Beach (IV) (6) 416 Independence Blvd. Virginia Beach
33 Suburban-3-Fairfield (IV) (6) 6785 Fairfield Business Drive Cincinnati
34 Suburban-3-Jonesboro (IV) (6) 7021 Tara Boulevard Jonesboro
35 Suburban-3-Norcross (IV) (6) 6067 Buford Highway Norcross
36 Suburban-3-Fulton Industrial (IV) (6) 660 Interchange Drive, SW Atlanta
37 Suburban-2-UNC Charlotte (V) (6) 110 Rocky River Road Charlotte
38 Suburban-2-Lilburn (V) (6) 4142 Stone Mountain Highway Lilburn
39 Suburban-2-Preston Hwy. (V) (6) 7121 Preston Highway Louisville
40 Suburban-2-Chesapeake (V) (6) 2150 Old Greenbrier Road Chesapeake
41 Suburban-2-Taylors (V) (6) 2504 Wade Hampton Blvd. Greenville
42 Suburban-2-Mableton (V) (6) 600 Lions Club Drive Mableton
43 Midtown Shopping Center 4725 West Venice Blvd. Los Angeles
44 The Lakes (8) 1000/1050 Lakes Drive West Covina
45 Ramada Plaza Hotel 2151 Hospitality Circle South San Diego
46 Governors Crossing Outlet Ctr. 206 Collier Drive Sevierville
47 Magnolia Manors 2-Andalusia (VI) 660 Moore Road Andalusia
48 Magnolia Manors 4-Jasper (VI) 811 20th Ave. East & 2004 Viking Drive Jasper
49 Magnolia Manors 7-Valley (VI) 7200 Fairfax Bypass Valley
50 Magnolia Manors 5-Smiths (VI) 3020 Lee Road, #430 Smiths
51 Magnolia Manors 1-Jackson (VI) 517 Commerce St. Jackson
52 Magnolia Manors 8-Brewton (VI) 205 Pineview Street Brewton
53 Magnolia Manors 3-Monroeville (VI) 600 Highway 21 Bypass Monroeville
54 Magnolia Manors 6-Alexander City (VI) 2712 Washington Street Alexander City
55 Televideo 2345 Harris Way San Jose
56 Radisson Woodlands Plaza Hotel 1175 Route 66 Flagstaff
57 AFCO Hanger One Air Cargo Complex 5701,5791,5793-5795 West Imperial Highway Los Angeles
58 Marina View Towers 1100 Pacific Marina Alameda
59 Village Park Apartments (8) 8701 Hammerly Boulevard Houston
60 Waikiki MarketPlace (B) (7) 2310 Kuhio Ave. Honolulu
61 Goldcoast Business Center (B) (7) 74-5484, 74-5543, 74-5483 Kaiwi St., 74-5583 Pawai St. Kailua-Kona
62 Summer Creek Apartments (5) 640 W. Lincoln Avenue Escondido
63 Food 4 Less & Arco AM/PM Stores 1001 & 1299 Artesia Blvd. Gardena
64 Pathmark (Glenolden) 140 N. MacDade Blvd. Glenolden
65 1630 Connecticut Avenue 1630 Connecticut Avenue NW Washington
66 Santa Paula West (8) (9) 15433 Telegraph Road Santa Paula
67 Del Prado Mobile Home Park 12861 West Street Garden Grove
68 Piano Craft Guild Apartments 791 Tremont Street Boston
69 Canyon Terrace Apts. 26880 N. Seco Rd Saugus
70 Woodhill Square 1100 Dallas Dr. Denton
71 Guest House Inn (5) 2250 Pelican Drive Norcross
72 7979 Old Georgetown Road 7979 Old Georgetown Bethesda
73 Cherry Hill Plaza 1415 Route 70 East Cherry Hill
74 Heritage-Rolling Meadows (VII) 3941 Charleston Hwy#169 West Columbia
75 Heritage-Windsor City (VII) 211-A Sussex Drive Sumter
76 Heritage-Victorian Lakes (VII) 4801 Sunset Blvd. Lexington
77 Heritage-Hermitage Farms (VII) 175 Precipice Road Camden
78 Heritage-Ramblewood (VII) 12002 Highway 64 West Barnwell
79 Maywood Village Square 4401,4457 & 4487 Slauson Avenue Maywood
80 Upland Country Village 710-870 E. Foothill Blvd. Upland
81 El Paseo Collection (8) 73-061 to 73-081 El Paseo Drive Palm Desert
82 Harding Woods MHP 187 Harding Highway Pittsgrove
83 Highland Crossing 2078-2082 & 2110-2120 Ford Pkwy St. Paul
84 Best Buy 2300 N. Rose Ave. Oxnard
85 Carriage Trade Center (VIII) (6) 1426-1496 Broadway Center Placerville
86 Washington Square (VIII) (6) 699 Washington Boulevard Roseville
87 Efficiency II- Lorene Lodge 500 Lorene Drive Marietta
88 Spring Creek Mobile Home Park 23 Holly Lane Plano
89 The Meadows Apts. 3839 Amanda St West Covina
90 Northpointe Village Center (C) (6) 6741-6781 N. Thornydale Road Marana
91 Grant Road Shops (C) (6) 4861 East Grant Road Tucson
92 El Paseo Power Center 2451 Rockwood Avenue Calexico
93 Parkwood Apartments 400 N. Irby Lane Irving
94 Heritage Village Apts. (8) 2555 Willakenzie Road Eugene
95 P.M. Place Stores (5) 802 North 41st Street Bethany
96 JP Plaza 315 Centre Street Jamaica Plain
97 Bellam Self Storage 24 Bellam Blvd. San Rafael
98 Sugarland Ridge 1551 Sugarland Dr. Sheridan
99 North College Mobile Plaza 1601 North College Avenue Fort Collins
100 Storage Express 7400 West Oakland Park Blvd. Lauderhill
101 Victory Plaza 1555-85 Sepulveda Boulevard Los Angeles
102 Greenhaven Executive Park 7311 Greenhaven Drive Sacramento
103 Shoneys Inn - Lake Park (IX) 1075 Lakes Blvd. Lake Park
104 Shoneys Inn - Valdosta (IX) 1828 W. Hill Ave. Valdosta
105 Colorado Springs Corporate Centre 6760 Corporate Drive Colorado Springs
106 Bechtel Nevada Corporation 182 East Gate Road Los Alamos
107 Country Squire MHP 5720 Oak Hill Drive Sacramento
108 Northwest Mini Storage 5275 W. 4th Street Reno
109 Fairmont Apartments 2601 Nonesuch Road Abilene
110 Springwood Business Center 13581 Pond Springs Road Austin
111 1420 Walnut Street 1420-24 Walnut Street Philadelphia
112 610-620 Santa Cruz Ave. 610-620 Santa Cruz Avenue Menlo Park
113 Suburban Lodge of Pineville Feldfarm Lane Pineville
114 Redwood Marketplace 700 - 800 Gravenstein Hwy Sebastopol,
115 Elmwood Office Park 201 Evans Road Harahan
116 Orchard Center 333-363 East Tenth Street Gilroy
117 Mission MHP 12400 Rojas El Paso
118 Zonolite Road Properties 1123 Zonolite Road Atlanta
119 Braley Bldg. 35 S. Raymond Avenue Pasadena
120 Lynnwood East Business Park 2027 196th Street S.W. Lynnwood
121 Woodmeadow Apts. 11321 Woodmeadow Drive Dallas
122 Wellington Woods Senior Apts. 4550 Breton Ct. Kentwood
123 Pecan Park 5701 Johnny Morris Road Austin
124 East West Shopping Center 3300-3332 W. 8th St., 800-830 S. Irolo St.,
817 S. Normandie Los Angeles
125 Roble Terrace Apartments 66 Fairmont Ave. Oakland
126 Super 8 Motel/Alpenglo Inn and
Conference Center 78655 US Hwy 40 Winter Park
127 Safe Storage 2615 E. 12th Oakland
128 Steeple Chase Apartments 125 S.W. 74th Street Oklahoma City
129 Edgemar 2415-2449 Main Street Santa Monica
130 Londonderry Commons 44 Nashua Road Londonderry
131 Mini Warehouse Company 2229 W. Divison Street Arlington
132 Walbrook Junction Shopping 3411-45 Clifton Avenue Baltimore
133 Sandstone Office Building 1543 7th Street Santa Monica
134 Rose Bay Travel Park 5200 South Nova Road Port Orange
135 Riverview Mobile Villa 8600 US Hwy 1 Micco
136 Plaza de Las Brisas 9819-9889 Foothill Blvd. Rancho Cucamonga
137 Sierra Suites 391 E Fry Blvd. Sierra Vista
138 901 Tower 901 Tower Way Bakersfield
139 The Cones Apartments 135 SW 116th St., 11623, 11603, 11635 1st Ave. S. Seattle
140 Royal Oaks (D) 48015 Country Road 67 Chesterfield
141 Country Acres (D) 9500 N. Wheeling Ave Muncie
142 4890 Alameda Street (10) 4890 Alameda Street Vernon
143 Sherwood Forest Mobile Home Linden Street Exeter
144 Red Rock Self Storage 3250 North Buffalo Las Vegas
145 Wilshire Borgata 12222 Wilshire Blvd. Los Angeles
146 American Heritage Office 523 W. Heritage Dr., 1513 N. Hillfield Rd. Layton
147 California Federal Building 10680 West Pico Boulevard Los Angeles
148 Simi Valley Regional Center 2955-2975 Cochran Street Simi Valley
149 Buy for Less Grocery Store 3701 N. MacArthur Blvd. Warr Acres
150 Holiday Inn Durant 2121 West Main Durant
151 Best Western Matagorda 407 7th Street Bay City
152 Kings Inn Apartments 4201 49th Street North St. Petersburg
153 The Giroux Building 1833 Massachusetts Avenue Lexington
154 Nursery Shopping Center 4041 B. Blackstone Avenue Fresno
155 Fairborn Apartments 300 June Drive Fairborn
156 Sunwood Village Apartments (8) 11715 South Glen Drive Houston
157 Kingstowne Mobile Home Park South Route 28 Epsom
158 Central Self Storage 6100 State Farm Drive Rohnert Park
159 75 Old Broadway 75 Old Broadway East North Haven
160 Plantation Acres (5) 3962 Deans Bridge Road Augusta
161 Interpoint Business Park 11220 Rojas Dr. El Paso
162 Mohawk Drive Corporation 25 Mohawk Drive Leominster
163 205 Commerce Center 11052 - 11600 SE Mill Plain Boulevard Vancouver
164 Canterbury Commons Apartments (8) 166 State Road 27 Raymond
165 Valley Village Mobile Home Park 731 Grand Avenue Platteville
166 All American - Palmdale 38910 30th Street East Palmdale
167 Dumfries Self Storage 113 Possum Point Road Dumfries
168 Hyundai Plaza 1727-1805 South 316th Street Federal Way
169 Tregoney East Apartments 2566 Whitesmill Road Decatur
170 157 Pleasant Street 157 Pleasant Street Malden
171 Days Inn NY 167 Nott Terrace Schenectady
172 Westfield MHP 520 Gulf Bank Road Houston
173 14150 Vine 14150 Vine Place Cerritos
174 Donner Creek MHP 19020/19050 West River Street Truckee
175 Sawmill Village Shopping 404 and 406 Route 70 East Cherry Hill
176 T & T Plaza NW Corner of Tatum Blvd & Thunderbird Rd Phoenix
177 1004 Taft 1004 Taft Ave. Orange
178 Bensen Estates 16818 108th Ave. SE Renton
179 Rancho Mini Storage 1661 N. Rancho Drive Las Vegas
180 Metro Square 2855 West Cactus Road Phoenix
181 Machado Towers 11730 Washington Blvd Culver City
182 Berkeley Self Storage, LTD. 2235 San Pablo Avenue Berkeley
183 Jasper Mobile Home Park 2397 North Illinois Street Decatur
184 Spring Valley MHP & Apts. 1001 Spring Valley Drive Hanahan
185 Ponderosa MHP 21850 Belleview Sonora
186 Chesapeake Self Storage 3000 Eastern Blvd. Baltimore
187 Thornydale Self Storage 6955 North Thornydale Street Marana
188 St. Charles Court 300 Arch Street Philadelphia
189 Tollhouse Crossings SWC Herndon Ave. & Tollhouse Road Clovis
190 Blue Topaz Apartments 14355 32nd Avenue NE Seattle
191 Southend Self Storage 3500 Sweetwater Avenue Lake Havasu City
192 Creekside Mobile Home Park 2519 NE 205th Avenue Fairview
193 Casa Monte Vista Apartments 120 West Dobbins Road Phoenix
194 Moreno Valley Mini Self Storage 12411 Strip Drive Moreno Valley
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Loan Zip Sub-Property Units Year Year
No. State Code Property Type Type or NSF Built Renovated
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 PA 18517 Manufactured Housing Community Manufactured Housing Community 317 1970 NAP
2 PA 18916 Manufactured Housing Community Manufactured Housing Community 231 1956 NAP
3 PA 18603 Manufactured Housing Community Manufactured Housing Community 171 1980 NAP
4 PA 17812 Manufactured Housing Community Manufactured Housing Community 108 1968 NAP
5 NY 12771 Manufactured Housing Community Manufactured Housing Community 166 1978 NAP
6 PA 19344 Manufactured Housing Community Manufactured Housing Community 120 1966 NAP
7 PA 19344 Manufactured Housing Community Manufactured Housing Community 24 1985 NAP
8 PA 18641 Manufactured Housing Community Manufactured Housing Community 153 1971 NAP
9 PA 17972 Manufactured Housing Community Manufactured Housing Community 192 1960 NAP
10 PA 19310 Manufactured Housing Community Manufactured Housing Community 203 1973 NAP
11 PA 15501 Manufactured Housing Community Manufactured Housing Community 184 1965 NAP
12 PA 19403 Manufactured Housing Community Manufactured Housing Community 74 1967 NAP
13 PA 17522 Manufactured Housing Community Manufactured Housing Community 107 1968 NAP
14 PA 17201 Manufactured Housing Community Manufactured Housing Community 132 1962 NAP
15 NY 13308 Manufactured Housing Community Manufactured Housing Community 133 1959 NAP
16 PA 18840 Manufactured Housing Community Manufactured Housing Community 99 1964 NAP
17 NY 14845 Manufactured Housing Community Manufactured Housing Community 102 1970 NAP
18 MD 21835 Manufactured Housing Community Manufactured Housing Community 100 1973 1997
19 PA 18840 Manufactured Housing Community Manufactured Housing Community 86 1968 NAP
20 PA 18657 Manufactured Housing Community Manufactured Housing Community 79 1972 NAP
21 PA 19344 Manufactured Housing Community Manufactured Housing Community 38 1966 NAP
22 PA 17555 Manufactured Housing Community Manufactured Housing Community 39 1973 NAP
23 PA 17038 Manufactured Housing Community Manufactured Housing Community 44 1970 NAP
24 PA 17201 Manufactured Housing Community Manufactured Housing Community 24 1978 NAP
25 DC 20007 Office Suburban 85,838 1895 1998
26 DC 20002 Office Urban 82,334 1968 1997/98
27 MD 20707 Mixed Use Office/Warehouse 70,162 1987 NAP
28 DC 20008/20009 Hospitality Limited Service 48 1895 NAP
29 FL 33614 Multifamily Garden 404 1985 NAP
30 MA 02169 Office Suburban 125,000 1988 NAP
31 NC 28217 Hospitality Extended Stay 132 1997 NAP
32 VA 23452 Hospitality Extended Stay 138 1997 NAP
33 OH 45014 Hospitality Extended Stay 131 1997 NAP
34 GA 30236 Hospitality Extended Stay 138 1996 NAP
35 GA 30071 Hospitality Extended Stay 128 1989 NAP
36 GA 30336 Hospitality Extended Stay 108 1988 NAP
37 NC 28213 Hospitality Extended Stay 138 1997 NAP
38 GA 30047 Hospitality Extended Stay 132 1995 NAP
39 KY 40219 Hospitality Extended Stay 150 1996 NAP
40 VA 23320 Hospitality Extended Stay 132 1997 NAP
41 SC 29615 Hospitality Extended Stay 126 1996 NAP
42 GA 30126 Hospitality Extended Stay 79 1987 1994
43 CA 90019 Retail Anchored 159,933 1965 1995
44 CA 91790 Office Suburban 170,574 1989/90 NAP
45 CA 92108 Hospitality Full Service 182 1969 1997
46 TN 37862 Retail Outlet Center 135,033 1998 NAP
47 AL 36420 Senior Housing Assisted Living 32 1996 NAP
48 AL 35501 Senior Housing Assisted Living 32 1998 NAP
49 AL 36854 Senior Housing Assisted Living 32 1996 NAP
50 AL 36877 Senior Housing Assisted Living 16 1996 NAP
51 AL 36545 Senior Housing Assisted Living 16 1997 NAP
52 AL 36426 Senior Housing Assisted Living 16 1996 NAP
53 AL 36460 Senior Housing Assisted Living 16 1996 NAP
54 AL 35010 Senior Housing Assisted Living 16 1996 NAP
55 CA 95131 Industrial Light Industrial 69,630 1982 1994
56 AZ 86001 Hospitality Full Service 183 1990/93 NAP
57 CA 90045 Industrial Bulk Warehouse 264,420 1929/90 1991
58 CA 94501 Multifamily High-Rise 84 1965 NAP
59 TX 77080 Multifamily Garden 418 1976 1995
60 HI 96815 Mixed Use Retail/ Office/ Time Share 31,810 1959 NAP
61 HI 96740 Mixed Use Office/Industrial/Retail 105,198 1974/75/77 NAP
62 CA 92026 Multifamily Garden 156 1986 NAP
63 CA 90248 Retail Anchored 57,200 1996/97 NAP
64 PA 19036 Retail Anchored 105,000 1983 NAP
65 DC 20009 Office Suburban 38,595 1980 NAP
66 CA 93060 Manufactured Housing Community Manufactured Housing Community 195 1969 NAP
67 CA 92640 Manufactured Housing Community Manufactured Housing Community 169 1969 NAP
68 MA 02118 Mixed Use Multifamily/Retail 174 1853 1972-74
69 CA 91350 Multifamily Garden 130 1984 NAP
70 TX 76206 Mixed Use Office/Retail 117,200 1985 NAP
71 GA 30071 Hospitality Extended Stay 276 1995 NAP
72 MD 20814 Office Suburban 52,063 1966 1995-99
73 NJ 08034 Office Suburban 117,179 1970 NAP
74 SC 29172 Manufactured Housing Community Manufactured Housing Community 291 1971 NAP
75 SC 29150 Manufactured Housing Community Manufactured Housing Community 271 1971 NAP
76 SC 29072 Manufactured Housing Community Manufactured Housing Community 151 1970 NAP
77 SC 29020 Manufactured Housing Community Manufactured Housing Community 100 1971 NAP
78 SC 29812 Manufactured Housing Community Manufactured Housing Community 85 1973/87 NAP
79 CA 90270 Retail Unanchored 48,324 1992 NAP
80 CA 91786 Retail Unanchored 47,479 1983 NAP
81 CA 92260 Mixed Use Office/Retail 27,877 1973 1994
82 NJ 08318 Manufactured Housing Community Manufactured Housing Community 319 1975 1989
83 MN 55116 Retail Anchored 44,115 1994 NAP
84 CA 93030 Retail Single Tenant 48,168 1995 NAP
85 CA 95667 Retail Anchored 70,886 1968-73 NAP
86 CA 95678 Retail Unanchored 26,684 1988 NAP
87 GA 30060 Hospitality Extended Stay 278 1982 1989
88 TX 75074 Manufactured Housing Community Manufactured Housing Community 385 1965-71 NAP
89 CA 91792 Multifamily Garden 104 1984 NAP
90 AZ 85741 Retail Unanchored 43,770 1984/1985 NAP
91 AZ 85712 Retail Unanchored 12,018 1995 NAP
92 CA 92231 Retail Shadow Anchored 64,300 1994 NAP
93 TX 75061 Multifamily Garden 280 1972 NAP
94 OR 97401 Multifamily Garden 176 1971 1997/98
95 MO 64424 Mixed Use Office/Warehouse/Retail 251,329 1971/74 1977/98
96 MA 02130 Retail Shadow Anchored 43,087 1952/91 NAP
97 CA 94901 Self Storage Self Storage 41,875 1963 1982
98 WY 82801 Senior Housing Independent & Assisted Living 67 1994 1997
99 CO 80524 Manufactured Housing Community Manufactured Housing Community 320 1962/71/80 NAP
100 FL 33319 Self Storage Self Storage 62,714 1996/97/98 NAP
101 CA 90049 Retail Unanchored 41,596 1988 NAP
102 CA 95831 Office Suburban 52,985 1983 NAP
103 GA 31636 Hospitality Limited Service 120 1985 NAP
104 GA 31601 Hospitality Limited Service 96 1986 NAP
105 CO 80919 Office Suburban 45,278 1984 NAP
106 NM 87544 Office Suburban 50,000 1987 NAP
107 CA 95841 Manufactured Housing Community Manufactured Housing Community 175 1964 NAP
108 NV 89523 Self Storage Self Storage 137,686 1985 1988/92
109 TX 79606 Multifamily Garden 274 1978 NAP
110 TX 78729 Mixed Use Industrial/Office 76,000 1985 NAP
111 PA 19103 Office Urban 122,933 1927 1996
112 CA 94025 Retail Unanchored 19,309 1965 1991
113 NC 28134 Hospitality Extended Stay 137 1997 NAP
114 CA 95472 Retail Anchored 62,122 1985 NAP
115 LA 70123 Office Garden 71,746 1981 1993
116 CA 95020 Retail Unanchored 36,044 1985 NAP
117 TX 79927 Manufactured Housing Community Manufactured Housing Community 286 1987 NAP
118 GA 30306 Office Suburban 58,243 1953 1996-98
119 CA 91105 Office Suburban 45,451 1906 1994
120 WA 98038 Mixed Use Office/Warehouse/Retail 59,145 1986 NAP
121 TX 75228 Multifamily Garden 216 1971 1996
122 MI 49508 Multifamily Senior Housing 90 1994 NAP
123 TX 78724 Manufactured Housing Community Manufactured Housing Community 207 1987 NAP
124 CA 90005 Retail Unanchored 28,205 1941/68 NAP
125 CA 94610 Multifamily Low-Rise 63 1968 NAP
126 CO 80482 Hospitality Limited Service 60 1995 NAP
127 CA 94601 Self Storage Self Storage 54,245 1974 NAP
128 OK 73139 Multifamily Garden 224 1970 1994/95
129 CA 90405 Retail Unanchored 32,635 1908/28/87 1987
130 NH 03058 Retail Unanchored 51,212 1985 NAP
131 TX 76012 Self Storage Self Storage 162,049 1960 NAP
132 MD 21216 Retail Anchored 47,033 1974 NAP
133 CA 90401 Office Suburban 14,750 1988 NAP
134 FL 32127 Manufactured Housing Community Manufactured Housing Community 353 1973 NAP
135 FL 32976 Manufactured Housing Community Manufactured Housing Community 215 1965 N/A
136 CA 91730 Retail Unanchored 34,697 1990 NAP
137 AZ 85635 Hospitality Limited Service 100 1985 NAP
138 CA 92201 Office Suburban 25,567 1983 NAP
139 WA 98146 Multifamily Garden 98 1964/84 NAP
140 IN 46017 Manufactured Housing Community Manufactured Housing Community 251 1955/85/95 NAP
141 IN 47304 Manufactured Housing Community Manufactured Housing Community 97 1970 NAP
142 CA 90058 Industrial Warehouse 119,052 1941 NAP
143 NH 03833 Manufactured Housing Community Manufactured Housing Community 254 1972 1994
144 NV 89129 Self Storage Self Storage 74,445 1996 NAP
145 CA 90025 Mixed Use Office/Retail 9,786 1997 NAP
146 UT 84041 Office Garden 29,207 1987/95 1995
147 CA 90064 Office Suburban 23,665 1964 NAP
148 CA 93065 Retail Unanchored 40,548 1989 NAP
149 OK 73122 Retail Single Tenant-Anchored 57,000 1987 NAP
150 OK 74701 Hospitality Limited Service 82 1968 NAP
151 TX 77404 Hospitality Full Service 120 1981 1992-96
152 FL 33709 Multifamily Garden 90 1983 NAP
153 MA 02173 Retail Unanchored 16,620 1972 NAP
154 CA 93704 Retail Anchored 37,440 1979 NAP
155 OH 45324 Multifamily Garden 177 1944 NAP
156 TX 77099 Multifamily Garden 118 1982 NAP
157 NH 03234 Manufactured Housing Community Manufactured Housing Community 134 1968/69 NAP
158 CA 94928 Self Storage Self Storage 80,421 1997 NAP
159 CT 06473 Industrial Bulk Warehouse 98,482 1960 1998
160 GA 30815 Manufactured Housing Community Manufactured Housing Community 200 1973 1996
161 TX 79935 Industrial Warehouse 86,400 1981 NAP
162 MA 01453 Industrial Light Industrial 107,811 1967/68 NAP
163 WA 98684 Retail Unanchored 37,214 1988 NAP
164 NH 03077 Multifamily Garden 78 1975/85 1995
165 CO 80651 Manufactured Housing Community Manufactured Housing Community 153 1966 NAP
166 CA 93550 Self Storage Self Storage 66,615 1985 NAP
167 VA 22026 Self Storage Self Storage 47,950 1989/90 NAP
168 WA 98003 Retail Unanchored 23,869 1994 NAP
169 GA 30034 Multifamily Garden 107 1971 NAP
170 MA 02148 Mixed Use Multifamily/Retail 46/9,100 1910 1981
171 NY 12308 Hospitality Limited Service 68 1973 1996/98
172 TX 77037 Mixed Use Manufactured Housing
Community/Retail 249/9,100 1982 NAP
173 CA 90703 Office Suburban 24,188 1983 NAP
174 CA 96160 Manufactured Housing Community Manufactured Housing Community 95 1965 NAP
175 NJ 08034 Retail Unanchored 20,964 1968 NAP
176 AZ 85032 Retail Unanchored 16,015 1983 NAP
177 CA 92665 Office Suburban 21,696 1986/87 NAP
178 WA 98055 Multifamily Garden 42 1988 NAP
179 NV 89106 Self Storage Self Storage 35,022 1988 NAP
180 AZ 85029 Retail Unanchored 27,556 1979 1990
181 CA 90230 Multifamily Low-Rise 38 1964 NAP
182 CA 94702 Self Storage Self Storage 36,196 1986 NAP
183 IL 62526 Manufactured Housing Community Manufactured Housing Community 265 1961 1964
184 SC 29406 Mixed Use Manufactured Housing Community
/Multifamily 186 1972 NAP
185 CA 95370 Manufactured Housing Community Manufactured Housing Community 60 1974 NAP
186 MD 21220 Self Storage Self Storage 64,925 1990 NAP
187 AZ 85741 Self Storage Self Storage 49,885 1996 NAP
188 PA 19106 Mixed Use Multifamily/Retail 35/4,600 1898 1996
189 CA 93611 Retail Unanchored 12,020 1996 NAP
190 WA 98125 Multifamily Garden 24 1968 NAP
191 AZ 86406 Self Storage Self Storage 68,786 1995 1997
192 OR 97024 Manufactured Housing Community Manufactured Housing Community 30 1997 NAP
193 AZ 85041 Multifamily Garden 45 1985 NAP
194 CA 92553 Self Storage Self Storage 41,475 1984 NAP
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PROPERTY OPERATING INFORMATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Loan Underwritable Monthly Appraised Value as
No. Property Name (1) Cash Flow (12) Payment DSCR(2) Value of Date
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 D.A.M. Maple Manor Mobile Home Park (A) (6) $502,755 $25,912 1.67 $5,100,000 2/10/98
2 D.A.M. Valley View - Danboro (A) (6) $466,641 $21,847 1.67 $4,300,000 1/22/98
3 D.A.M. Brookside Village MHP (A) (6) (I) $219,367 $12,194 1.67 $2,400,000 2/11/98
4 D.A.M. Pleasant View MHP (A) (6) (I) $149,568 $7,113 1.67 $1,400,000 2/11/98
5 D.A.M. Huguenot Estate East MHP (A) (6) $289,086 $13,684 1.67 $2,900,000 2/13/98
6 D.A.M. Valley View- Honey Brook (A) (6) (II) $258,053 $10,162 1.67 $2,000,000 1/22/98
7 D.A.M. Green Acres-Honey Brook (A) (6) (II) $0 $2,947 1.67 $580,000 1/22/98
8 D.A.M. Moosic Heights MHP (A) (6) $243,760 $13,041 1.67 $2,700,000 2/10/98
9 D.A.M. Frieden Manor Mobile Home Park (A) (6) $264,841 $12,702 1.67 $2,500,000 2/11/98
10 D.A.M. Suburban Estates MHP (A) (6) $256,302 $11,686 1.67 $2,300,000 1/20/98
11 D.A.M. Sunny Acres MHP (A) (6) $214,428 $10,670 1.67 $2,100,000 1/20/98
12 D.A.M. Sunneyside MHP (A) (6) $212,723 $10,162 1.67 $2,000,000 1/22/98
13 D.A.M. Valley View - Ephrata (A) (6) $154,629 $7,282 1.67 $1,600,000 1/21/98
14 D.A.M. Carsons Mobile Home Park (A) (6) $147,052 $6,605 1.67 $1,300,000 1/21/98
15 D.A.M. Pine Haven Mobile Home Park (A) (6) $109,393 $6,605 1.67 $1,300,000 1/7/98
16 D.A.M. Crestview Mobile Home Park (A) (6) $107,249 $5,419 1.67 $1,200,000 2/10/98
17 D.A.M. Collingwood MHP (A) (6) $97,739 $4,708 1.67 $1,000,000 2/10/98
18 D.A.M. Beaver Run Mobile Home Park (A) (6) $92,081 $4,302 1.67 $850,000 1/28/98
19 D.A.M. Chelsea MHP (A) (6) $66,629 $4,268 1.67 $900,000 2/10/98
20 D.A.M. Oakwood Lakes MHP (A) (6) $90,342 $4,234 1.67 $835,000 2/10/98
21 D.A.M. Gregory Courts MHP (A) (6) $72,882 $3,895 1.67 $770,000 1/22/98
22 D.A.M. Mountaintop Mobile Home Park (A) (6) $62,319 $2,710 1.67 $600,000 1/21/98
23 D.A.M. Monroe Valley MHP (A) (6) $18,815 $1,897 1.67 $460,000 2/11/98
24 D.A.M. Green Acres - Chambersburg (A) (6) $20,021 $1,219 1.67 $240,000 1/22/98
25 Jemal-The Car Barn (III) (6) $1,428,164 $92,954 1.27 $17,300,000 10/12/98
26 Jemal-801 North Capitol (III) (7) (6) $1,268,485 $82,746 1.27 $13,600,000 10/12/98
27 Jemal-Laurel Lakes Corp. Center (III) (7) (6) $350,592 $27,582 1.27 $4,400,000 10/14/98
28 Jemal-Kalorama GuestHouse (III) (6) $122,944 $10,197 1.27 $1,800,000 10/16/98
29 Quail Oaks Apartments (5) (8) $2,340,120 $149,482 1.30 $28,500,000 7/17/98
30 Crown Colony Office $1,985,422 $135,402 1.22 $25,000,000 10/8/98
31 Suburban-3-Pressley (IV) (6) $472,520 $26,610 1.43 $4,900,000 10/23/98
32 Suburban-3-Virginia Beach (IV) (6) $416,373 $26,019 1.43 $4,825,000 11/19/98
33 Suburban-3-Fairfield (IV) (6) $368,285 $22,077 1.43 $5,375,000 11/6/98
34 Suburban-3-Jonesboro (IV) (6) $368,338 $21,091 1.43 $4,600,000 11/27/98
35 Suburban-3-Norcross (IV) (6) $318,976 $17,346 1.43 $3,700,000 11/24/98
36 Suburban-3-Fulton Industrial (IV) (6) $165,031 $9,698 1.43 $2,975,000 10/22/98
37 Suburban-2-UNC Charlotte (V) (6) $501,355 $28,384 1.48 $5,500,000 10/23/98
38 Suburban-2-Lilburn (V) (6) $426,130 $24,442 1.48 $4,825,000 10/22/98
39 Suburban-2-Preston Hwy. (V) (6) $411,713 $22,865 1.48 $5,400,000 11/2/98
40 Suburban-2-Chesapeake (V) (6) $358,124 $20,106 1.48 $5,200,000 11/19/98
41 Suburban-2-Taylors (V) (6) $333,028 $18,529 1.48 $3,750,000 11/11/98
42 Suburban-2-Mableton (V) (6) $138,754 $7,885 1.48 $2,150,000 10/22/98
43 Midtown Shopping Center $1,498,157 $100,879 1.24 $17,500,000 10/23/98
44 The Lakes (8) $1,434,213 $93,188 1.28 $18,500,000 10/5/98
45 Ramada Plaza Hotel $1,679,842 $99,064 1.41 $16,650,000 9/24/98
46 Governors Crossing Outlet Ctr. $1,107,082 $71,175 1.30 $14,000,000 11/15/98
47 Magnolia Manors 2-Andalusia (VI) $259,601 $14,905 1.41 $2,650,000 10/22/98
48 Magnolia Manors 4-Jasper (VI) $254,535 $14,319 1.41 $2,600,000 10/20/98
49 Magnolia Manors 7-Valley (VI) $227,570 $13,681 1.41 $2,500,000 10/21/98
50 Magnolia Manors 5-Smiths (VI) $115,712 $6,977 1.41 $1,200,000 10/21/98
51 Magnolia Manors 1-Jackson (VI) $101,491 $6,446 1.41 $1,250,000 10/22/98
52 Magnolia Manors 8-Brewton (VI) $100,338 $6,317 1.41 $1,100,000 10/22/98
53 Magnolia Manors 3-Monroeville (VI) $99,094 $6,172 1.41 $1,200,000 10/22/98
54 Magnolia Manors 6-Alexander City (VI) $102,340 $5,908 1.41 $1,200,000 10/20/98
55 Televideo $1,034,208 $67,800 1.27 $12,100,000 9/30/98
56 Radisson Woodlands Plaza Hotel $1,093,356 $68,183 1.34 $15,000,000 5/24/98
57 AFCO Hanger One Air Cargo Complex $1,118,058 $68,631 1.36 $11,600,000 6/11/98
58 Marina View Towers $738,174 $51,746 1.19 $10,770,000 2/23/98
59 Village Park Apartments (8) $778,420 $48,745 1.33 $9,370,000 9/9/98
60 Waikiki MarketPlace (B) (7) $490,171 $38,610 1.25 $8,000,000 12/4/98
61 Goldcoast Business Center (B) (7) $306,901 $20,547 1.25 $3,000,000 12/5/98
62 Summer Creek Apartments (5) $719,182 $48,614 1.23 $9,750,000 12/17/98
63 Food 4 Less & Arco AM/PM Stores $718,322 $46,806 1.28 $9,650,000 7/13/98
64 Pathmark (Glenolden) $838,007 $50,913 1.37 $9,400,000 6/1/98
65 1630 Connecticut Avenue $811,150 $48,980 1.38 $8,500,000 12/7/98
66 Santa Paula West (8) (9) $690,294 $47,662 1.21 $8,550,000 9/16/98
67 Del Prado Mobile Home Park $823,159 $56,041 1.22 $8,950,000 8/26/98
68 Piano Craft Guild Apartments $787,518 $44,307 1.48 $8,600,000 2/20/98
69 Canyon Terrace Apts. $629,846 $43,351 1.21 $8,200,000 12/15/98
70 Woodhill Square $770,093 $46,050 1.39 $8,250,000 11/1/98
71 Guest House Inn (5) $1,038,888 $49,440 1.75 $9,400,000 11/20/98
72 7979 Old Georgetown Road $666,894 $44,225 1.26 $8,700,000 1/26/99
73 Cherry Hill Plaza $608,887 $39,873 1.27 $7,875,000 10/30/97
74 Heritage-Rolling Meadows (VII) $247,911 $17,906 1.13 $2,900,000 7/31/98
75 Heritage-Windsor City (VII) $212,348 $13,275 1.13 $2,150,000 7/31/98
76 Heritage-Victorian Lakes (VII) $66,942 $7,178 1.13 $1,170,000 7/31/98
77 Heritage-Hermitage Farms (VII) $46,139 $3,396 1.13 $550,000 7/31/98
78 Heritage-Ramblewood (VII) $16,011 $1,852 1.13 $360,000 7/31/98
79 Maywood Village Square $688,369 $42,189 1.36 $7,700,000 8/28/98
80 Upland Country Village $605,975 $40,713 1.24 $7,550,000 10/10/98
81 El Paseo Collection (8) $596,602 $37,573 1.32 $8,000,000 1/29/98
82 Harding Woods MHP $622,783 $36,950 1.40 $7,100,000 3/20/98
83 Highland Crossing $535,675 $37,422 1.19 $6,400,000 8/18/98
84 Best Buy $648,496 $41,474 1.30 $7,650,000 6/1/98
85 Carriage Trade Center (VIII) (6) $441,986 $23,021 1.59 $4,500,000 7/15/98
86 Washington Square (VIII) (6) $202,990 $10,743 1.59 $2,100,000 7/15/98
87 Efficiency II- Lorene Lodge $681,717 $40,702 1.40 $8,000,000 10/9/98
88 Spring Creek Mobile Home Park $559,429 $35,810 1.30 $7,000,000 9/28/98
89 The Meadows Apts. $517,620 $31,989 1.35 $5,900,000 12/15/98
90 Northpointe Village Center (C) (6) $355,285 $20,903 1.36 $3,950,000 6/12/98
91 Grant Road Shops (C) (6) $149,600 $10,036 1.36 $1,850,000 6/12/98
92 El Paseo Power Center $494,308 $32,286 1.28 $5,900,000 11/23/98
93 Parkwood Apartments $615,980 $33,140 1.55 $5,850,000 8/12/98
94 Heritage Village Apts. (8) $428,069 $29,918 1.19 $6,800,000 5/29/98
95 P.M. Place Stores (5) $571,302 $31,058 1.53 $6,400,000 1/8/99
96 JP Plaza $433,195 $27,222 1.33 $5,500,000 8/1/98
97 Bellam Self Storage $438,815 $27,388 1.34 $5,400,000 8/20/98
98 Sugarland Ridge $639,733 $30,156 1.77 $6,000,000 5/19/98
99 North College Mobile Plaza $568,901 $28,625 1.66 $5,800,000 7/1/98
100 Storage Express $543,360 $29,556 1.53 $7,660,000 2/2/98
101 Victory Plaza $459,403 $26,666 1.44 $5,400,000 7/9/98
102 Greenhaven Executive Park $411,392 $26,344 1.30 $5,300,000 7/24/98
103 Shoneys Inn - Lake Park (IX) $308,569 $15,814 1.50 $2,730,000 6/2/98
104 Shoneys Inn - Valdosta (IX) $240,934 $14,773 1.50 $3,100,000 6/2/98
105 Colorado Springs Corporate Centre $411,851 $27,095 1.27 $5,500,000 1/7/99
106 Bechtel Nevada Corporation $786,193 $27,222 2.41 $6,500,000 8/31/98
107 Country Squire MHP $384,202 $25,241 1.27 $5,020,000 5/29/98
108 Northwest Mini Storage $516,274 $27,536 1.56 $5,100,000 2/26/98
109 Fairmont Apartments $403,107 $26,718 1.26 $4,600,000 3/23/98
110 Springwood Business Center $390,242 $25,915 1.25 $4,900,000 9/10/98
111 1420 Walnut Street $476,352 $25,444 1.56 $5,500,000 5/5/98
112 610-620 Santa Cruz Ave. $499,132 $25,614 1.62 $5,000,000 5/7/98
113 Suburban Lodge of Pineville $558,223 $26,690 1.74 $5,700,000 8/11/98
114 Redwood Marketplace $477,193 $22,817 1.74 $5,830,000 3/6/98
115 Elmwood Office Park $373,803 $24,361 1.28 $4,300,000 10/1/98
116 Orchard Center $357,094 $23,323 1.28 $4,550,000 6/10/98
117 Mission MHP $463,757 $22,965 1.68 $4,580,000 1/22/98
118 Zonolite Road Properties $379,222 $24,221 1.30 $4,640,000 10/1/98
119 Braley Bldg. $399,163 $20,373 1.63 $4,350,000 7/16/98
120 Lynnwood East Business Park $333,144 $22,013 1.26 $4,000,000 10/1/98
121 Woodmeadow Apts. $383,973 $19,758 1.62 $4,000,000 6/20/98
122 Wellington Woods Senior Apts. $307,850 $23,029 1.11 $3,450,000 4/8/98
123 Pecan Park $301,250 $20,876 1.20 $4,200,000 10/12/98
124 East West Shopping Center $384,540 $22,383 1.43 $4,350,000 4/27/98
125 Roble Terrace Apartments $305,922 $20,515 1.24 $4,100,000 6/2/98
126 Super 8 Motel/Alpenglo Inn and Conference Center $360,083 $20,969 1.43 $4,350,000 9/2/98
127 Safe Storage $391,177 $20,092 1.62 $4,120,000 6/23/98
128 Steeple Chase Apartments $337,096 $21,352 1.32 $3,500,000 10/28/98
129 Edgemar $386,296 $18,589 1.73 $4,900,000 6/1/98
130 Londonderry Commons $318,201 $20,284 1.31 $3,400,000 9/10/98
131 Mini Warehouse Company $518,898 $20,839 2.08 $5,660,000 7/21/98
132 Walbrook Junction Shopping $317,495 $20,839 1.27 $3,800,000 4/6/98
133 Sandstone Office Building $283,077 $18,200 1.30 $3,600,000 9/4/98
134 Rose Bay Travel Park $392,973 $19,638 1.67 $3,910,000 5/13/98
135 Riverview Mobile Villa $360,328 $17,386 1.73 $4,155,000 5/6/98
136 Plaza de Las Brisas $324,277 $18,222 1.48 $3,550,000 3/27/98
137 Sierra Suites $392,037 $19,562 1.67 $3,600,000 8/12/98
138 901 Tower $272,845 $17,298 1.31 $3,500,000 3/23/98
139 The Cones Apartments $279,454 $17,843 1.31 $3,700,000 5/10/98
140 Royal Oaks (D) $242,716 $12,357 1.54 $2,900,000 6/17/98
141 Country Acres (D) $87,456 $5,492 1.54 $1,270,000 6/17/98
142 4890 Alameda Street (10) $358,845 $20,470 1.46 $4,300,000 7/10/98
143 Sherwood Forest Mobile Home $403,995 $23,515 1.43 $6,000,000 2/26/98
144 Red Rock Self Storage $249,624 $17,635 1.18 $3,800,000 1/19/98
145 Wilshire Borgata $281,294 $17,716 1.32 $3,300,000 5/15/98
146 American Heritage Office $253,202 $16,392 1.29 $3,500,000 2/3/98
147 California Federal Building $234,911 $16,072 1.22 $3,200,000 6/4/98
148 Simi Valley Regional Center $290,424 $16,080 1.51 $3,375,000 1/23/98
149 Buy for Less Grocery Store $269,422 $15,983 1.40 $3,200,000 6/9/98
150 Holiday Inn Durant $365,354 $20,734 1.47 $3,400,000 12/15/98
151 Best Western Matagorda $403,627 $20,828 1.61 $4,050,000 1/27/98
152 Kings Inn Apartments $241,427 $15,430 1.30 $2,940,000 6/29/98
153 The Giroux Building $306,693 $16,475 1.55 $3,800,000 7/29/98
154 Nursery Shopping Center $274,648 $17,342 1.32 $3,200,000 1/16/98
155 Fairborn Apartments $273,109 $17,631 1.29 $3,100,000 11/12/98
156 Sunwood Village Apartments (8) $213,609 $14,298 1.24 $3,000,000 9/9/98
157 Kingstowne Mobile Home Park $265,203 $15,563 1.42 $2,980,000 6/14/98
158 Central Self Storage $320,867 $16,951 1.58 $3,770,000 2/23/98
159 75 Old Broadway $253,948 $16,532 1.28 $3,050,000 9/29/98
160 Plantation Acres (5) $225,582 $15,128 1.24 $2,850,000 12/15/98
161 Interpoint Business Park $233,389 $15,409 1.26 $3,030,000 5/7/98
162 Mohawk Drive Corporation $245,102 $15,770 1.30 $3,300,000 7/13/98
163 205 Commerce Center $421,483 $15,126 2.32 $4,300,000 5/15/98
164 Canterbury Commons Apartments (8) $204,876 $13,309 1.28 $2,800,000 8/20/98
165 Valley Village Mobile Home Park $339,830 $14,136 2.00 $2,600,000 7/1/98
166 All American - Palmdale $224,973 $13,905 1.35 $2,350,000 6/25/98
167 Dumfries Self Storage $242,171 $13,714 1.47 $2,670,000 7/28/98
168 Hyundai Plaza $208,938 $12,841 1.36 $2,550,000 9/4/98
169 Tregoney East Apartments $220,136 $12,785 1.43 $2,800,000 4/15/98
170 157 Pleasant Street $326,270 $13,017 2.09 $3,500,000 6/5/98
171 Days Inn NY $285,453 $14,057 1.69 $2,300,000 10/7/98
172 Westfield MHP $228,785 $13,617 1.40 $2,400,000 2/10/98
173 14150 Vine $186,234 $12,133 1.28 $2,540,000 9/22/98
174 Donner Creek MHP $186,500 $11,431 1.36 $2,430,000 1/31/98
175 Sawmill Village Shopping $185,580 $11,963 1.29 $2,200,000 8/4/98
176 T & T Plaza $161,270 $10,803 1.24 $2,000,000 6/26/98
177 1004 Taft $169,086 $11,344 1.24 $2,400,000 9/22/98
178 Bensen Estates $159,980 $9,939 1.34 $2,010,000 6/9/98
179 Rancho Mini Storage $176,113 $11,676 1.26 $1,900,000 8/18/98
180 Metro Square $143,195 $9,882 1.21 $1,900,000 4/16/98
181 Machado Towers $174,709 $9,918 1.47 $2,150,000 5/19/98
182 Berkeley Self Storage, LTD. $278,611 $10,263 2.26 $3,270,000 11/24/97
183 Jasper Mobile Home Park $217,309 $10,090 1.79 $2,500,000 4/13/98
184 Spring Valley MHP & Apts. $216,435 $10,805 1.67 $2,020,000 5/15/98
185 Ponderosa MHP $140,688 $9,233 1.27 $1,800,000 12/23/98
186 Chesapeake Self Storage $270,655 $8,955 2.52 $3,290,000 2/24/98
187 Thornydale Self Storage $149,297 $8,941 1.39 $2,100,000 2/2/98
188 St. Charles Court $156,913 $9,304 1.41 $1,700,000 5/5/98
189 Tollhouse Crossings $126,993 $7,722 1.37 $1,525,000 1/5/98
190 Blue Topaz Apartments $116,364 $7,226 1.34 $1,600,000 6/4/98
191 Southend Self Storage $105,685 $7,020 1.25 $1,300,000 4/14/98
192 Creekside Mobile Home Park $104,814 $6,768 1.29 $1,580,000 3/18/98
193 Casa Monte Vista Apartments $105,872 $7,191 1.23 $1,310,000 6/18/98
194 Moreno Valley Mini Self Storage $142,547 $6,409 1.85 $1,240,000 2/12/98
WEIGHTED AVERAGE 1.40X
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Percent Tenant Information (14)
Loan Cut-off Leased Percent Leased --------------------------------------
No. Date LTV (2) (13) As of Date (13) Largest Tenant % NSF
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 72.7% 92.4% 12/11/98
2 72.7% 98.3% 12/11/98
3 72.7% 89.0% 1/20/99
4 72.7% 92.0% 12/11/98
5 72.7% 97.0% 12/11/98
6 72.7% 92.5% 12/11/98
7 72.7% 100.0% 12/11/98
8 72.7% 89.0% 12/11/98
9 72.7% 93.8% 12/11/98
10 72.7% 99.0% 12/11/98
11 72.7% 96.2% 12/11/98
12 72.7% 97.4% 12/11/98
13 72.7% 98.1% 12/11/98
14 72.7% 94.7% 12/11/98
15 72.7% 79.0% 12/11/98
16 72.7% 81.0% 12/11/98
17 72.7% 99.0% 12/11/98
18 72.7% 97.0% 12/11/98
19 72.7% 91.9% 12/11/98
20 72.7% 98.7% 12/11/98
21 72.7% 92.0% 12/11/98
22 72.7% 97.4% 12/11/98
23 72.7% 100.0% 12/11/98
24 72.7% 95.8% 12/11/98
25 79.9% 86.6% 10/1/98 Georgetown University 76.0%
26 79.9% 100.0% 10/1/98 DC Government 88.7%
27 79.9% 74.9% 11/30/98 DPC 37.1%
28 79.9% 68.3% 10/31/98
29 76.5% 92.0% 2/1/99
30 75.4% 85.5% 10/31/98 Prescott Publishing 71.4%
31 58.9% 92.6% 11/30/98
32 58.9% 78.4% 11/30/98
33 58.9% 89.6% 11/30/98
34 58.9% 91.4% 11/30/98
35 58.9% 88.1% 11/30/98
36 58.9% 89.9% 11/30/98
37 57.6% 90.2% 11/30/98
38 57.6% 89.6% 11/30/98
39 57.6% 90.4% 11/30/98
40 57.6% 87.3% 11/30/98
41 57.6% 86.5% 11/30/98
42 57.6% 98.5% 11/30/98
43 79.8% 97.6% 10/1/98 Orchard Supply 37.6%
44 68.5% 91.9% 12/15/98 Wells Fargo Bank 15.6%
45 72.9% 81.3% 10/31/98
46 69.1% 78.7% 12/31/98 Vanity Fair Outlet 19.1%
47 67.4% 90.6% 10/23/98
48 67.4% 96.9% 10/23/98
49 67.4% 100.0% 10/23/98
50 67.4% 100.0% 10/23/98
51 67.4% 100.0% 10/23/98
52 67.4% 100.0% 10/23/98
53 67.4% 100.0% 10/23/98
54 67.4% 100.0% 10/23/98
55 76.2% 100.0% 12/23/98 Televideo Inc. 100.0%
56 61.5% 58.2% 10/31/98
57 72.1% 100.0% 5/31/98 DHL Airways, Inc. 39.4%
58 70.9% 96.4% 9/30/98
59 79.7% 98.0% 9/1/98
60 67.5% 95.1% 10/31/98 Kuhio Banyan Hospitality 55.4%
61 67.5% 80.9% 12/22/98
62 73.9% 100.0% 12/1/98
63 72.3% 100.0% 2/1/99 Food 4 Less 94.4%
64 74.0% 100.0% 10/1/98 Pathmark 57.1%
65 80.5% 100.0% 1/11/99 Human Rights Watch 30.2%
66 79.9% 98.5% 11/21/98
67 74.2% 100.0% 11/1/98
68 74.4% 97.7% 12/1/98 Bridge Fund, Inc. 27.3%
69 75.4% 98.3% 11/25/98
70 74.9% 100.0% 12/15/98 General Services Administration 35.3%
71 64.6% 94.9% 11/12/98
72 69.5% 100.0% 2/9/99 AON Consulting 17.5%
73 72.2% 97.4% 11/17/98
74 78.8% 82.5% 7/27/98
75 78.8% 90.4% 7/27/98
76 78.8% 88.1% 7/27/98
77 78.8% 87.0% 8/26/98
78 78.8% 97.7% 7/27/98
79 72.6% 97.4% 11/16/98 Kragen Auto Parts 18.9%
80 73.7% 100.0% 2/1/99 LA Fitness 26.6%
81 67.1% 89.5% 11/30/98 Daily Grill 18.4%
82 74.2% 96.2% 1/1/99
83 79.4% 88.2% 11/30/98 Barnes & Noble 36.3%
84 64.7% 100.0% 5/22/96 Best Buy 100.0%
85 74.5% 94.6% 9/24/98 Grocery Outlet 28.2%
86 74.5% 96.6% 9/30/98 Holland Pro Fitness for Ladies 28.1%
87 60.7% 89.4% 10/31/98
88 66.9% 98.7% 10/1/98
89 77.4% 97.1% 11/25/98
90 77.5% 93.8% 2/2/99 Silverado Steak 15.4%
91 77.5% 100.0% 1/3/99 Paper Warehouse 74.5%
92 74.4% 87.6% 12/16/98 Peter Piper Pizza 12.4%
93 74.8% 96.8% 11/30/98
94 62.0% 95.0% 9/23/98
95 65.3% 100.0% 1/25/99 PM Place Stores 34.2%
96 74.6% 100.0% 11/30/98 ABCD - Head Start 29.0%
97 75.6% 99.8% 8/31/98
98 67.2% 95.5% 10/31/98
99 69.3% 97.2% 7/31/98
100 52.4% 88.4% 12/31/98
101 73.7% 77.3% 12/1/98 LA County Library 10.3%
102 75.1% 94.8% 1/13/99 Search Group 15.5%
103 67.6% 81.0% 6/30/98
104 67.6% 79.0% 6/30/98
105 70.3% 100.0% 12/1/98 TriWest 16.2%
106 58.1% 100.0% 9/1/98 Bechtel 100.0%
107 73.4% 100.0% 12/15/98
108 71.8% 96.7% 11/29/98
109 79.2% 94.2% 11/30/98
110 73.2% 98.0% 9/30/98 Matrix 17.8%
111 65.0% 93.3% 7/8/98
112 70.4% 100.0% 11/30/98 Alain Pinel 29.4%
113 61.1% 93.8% 9/30/98
114 59.5% 100.0% 1/5/99 Lucky Stores 53.7%
115 77.0% 99.0% 10/31/98 General Electric 19.5%
116 72.1% 91.7% 11/1/98 McWhorter's 27.7%
117 69.0% 99.0% 10/31/98
118 67.7% 99.8% 9/30/98 ISPP 10.5%
119 69.8% 100.0% 1/14/99 Baumgarter/Martinez Antiques 27.3%
120 74.8% 100.0% 11/30/98 B.F. Goodrich 33.7%
121 74.5% 94.0% 11/30/98
122 85.1% 89.0% 12/1/98
123 68.9% 100.0% 10/31/98
124 66.5% 100.0% 10/31/98 Normandie Amusement 35.5%
125 70.1% 100.0% 12/1/98
126 65.1% 58.7% 9/30/98
127 68.2% 96.3% 12/8/98
128 79.7% 96.4% 10/31/98
129 55.4% 100.0% 12/9/98 Mad River 23.9%
130 79.3% 93.4% 12/1/98 World's Gym 27.5%
131 47.6% 91.0% 11/30/98
132 70.8% 89.8% 12/28/98 Stop-Shop and Save 37.8%
133 74.7% 100.0% 2/1/99 Avenue Edit 66.5%
134 68.4% 66.0% 9/30/98
135 64.0% 94.4% 7/31/98
136 74.2% 100.0% 1/31/99 Roger Dunn Golf Shop 17.4%
137 72.4% 68.0% 9/30/98
138 74.0% 95.9% 12/31/98 Union Bank 30.5%
139 69.9% 94.6% 11/24/98
140 61.8% 84.9% 10/31/98
141 61.8% 99.0% 10/31/98
142 59.3% 100.0% 8/20/98 Harkham Industries 100.0%
143 42.0% 97.8% 9/30/98
144 65.3% 87.4% 11/30/98
145 74.8% 100.0% 11/30/98 American Vacations 23.0%
146 69.3% 100.0% 12/31/98 Department of Recovery Services 32.0%
147 74.7% 100.0% 12/31/98 California Federal Bank 41.3%
148 70.7% 100.0% 1/14/99 Golds Gym 29.6%
149 74.5% 100.0% 12/14/98 Buy for Less 100.0%
150 69.7% 56.6% 11/30/98
151 58.3% 46.7% 12/31/98
152 79.6% 98.9% 12/31/98
153 61.3% 100.0% 12/31/98 Yangtze Restaurant 24.3%
154 71.3% 96.8% 9/30/98 Gold's Gym 48.1%
155 72.1% 95.5% 12/23/98
156 73.0% 94.9% 9/2/98
157 73.2% 99.3% 11/23/98
158 57.8% 83.7% 11/30/98
159 70.4% 100.0% 8/31/98 Marc Glassman, Inc. 100.0%
160 74.0% 95.0% 12/16/98
161 69.2% 100.0% 10/31/98 General Parts, Inc. 10.4%
162 62.6% 94.6% 11/30/98 Quebecor Printing 39.1%
163 47.8% 100.0% 9/8/98 Mongolian Grill BBQ 14.3%
164 73.0% 92.0% 9/2/98
165 76.4% 100.0% 7/31/98
166 79.4% 95.9% 9/30/98
167 67.2% 81.7% 9/30/98
168 68.5% 100.0% 11/30/98 Pal-Do World 38.7%
169 61.9% 77.6% 10/31/98
170 47.9% 91.3% 11/30/98 H&R Block Tax Services 35.2%
171 72.6% 56.7% 12/31/98
172 67.5% 95.2% 12/8/98 Gulf Bank Grocery 23.2%
173 63.5% 100.0% 8/5/98 WGI Solutions 100.0%
174 65.3% 97.9% 12/31/98
175 70.2% 100.0% 10/31/98 Denny's 22.4%
176 77.0% 100.0% 10/16/98 Peter Piper Pizza 67.3%
177 62.8% 100.0% 9/22/98 Settlement Services (SMS) 100.0%
178 74.2% 100.0% 11/30/98
179 76.1% 82.0% 12/30/98
180 76.0% 93.5% 9/14/98 Shangra-La Restaurant 11.8%
181 66.6% 97.4% 11/30/98
182 43.1% 93.0% 11/20/98
183 56.3% 97.4% 11/19/98
184 69.0% 89.8% 9/25/98
185 71.5% 98.3% 12/1/98
186 37.6% 85.8% 10/31/98
187 57.8% 97.0% 12/1/98
188 69.8% 88.6% 8/31/98 Urban Partners 21.7%
189 71.7% 100.0% 5/20/98 Country Home Video 22.9%
190 67.4% 100.0% 11/30/98
191 76.6% 93.0% 11/30/98
192 62.9% 93.3% 12/31/98
193 74.6% 95.6% 12/10/98
194 67.9% 96.9% 12/4/98
70.8%
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PREPAYMENT AND SERVICING INFORMATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Loan Interest Accrual Lockout
No. Property Name (1) Method Seasoning (15) Period
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 D.A.M. Maple Manor Mobile Home Park (A) (6) Actual/360 11 35
2 D.A.M. Valley View - Danboro (A) (6) Actual/360 11 35
3 D.A.M. Brookside Village MHP (A) (6) (I) Actual/360 11 35
4 D.A.M. Pleasant View MHP (A) (6) (I) Actual/360 11 35
5 D.A.M. Huguenot Estate East MHP (A) (6) Actual/360 11 35
6 D.A.M. Valley View- Honey Brook (A) (6) (II) Actual/360 11 35
7 D.A.M. Green Acres-Honey Brook (A) (6) (II) Actual/360 11 35
8 D.A.M. Moosic Heights MHP (A) (6) Actual/360 11 35
9 D.A.M. Frieden Manor Mobile Home Park (A) (6) Actual/360 11 35
10 D.A.M. Suburban Estates MHP (A) (6) Actual/360 11 35
11 D.A.M. Sunny Acres MHP (A) (6) Actual/360 11 35
12 D.A.M. Sunneyside MHP (A) (6) Actual/360 11 35
13 D.A.M. Valley View - Ephrata (A) (6) Actual/360 11 35
14 D.A.M. Carsons Mobile Home Park (A) (6) Actual/360 11 35
15 D.A.M. Pine Haven Mobile Home Park (A) (6) Actual/360 11 35
16 D.A.M. Crestview Mobile Home Park (A) (6) Actual/360 11 35
17 D.A.M. Collingwood MHP (A) (6) Actual/360 11 35
18 D.A.M. Beaver Run Mobile Home Park (A) (6) Actual/360 11 35
19 D.A.M. Chelsea MHP (A) (6) Actual/360 11 35
20 D.A.M. Oakwood Lakes MHP (A) (6) Actual/360 11 35
21 D.A.M. Gregory Courts MHP (A) (6) Actual/360 11 35
22 D.A.M. Mountaintop Mobile Home Park (A) (6) Actual/360 11 35
23 D.A.M. Monroe Valley MHP (A) (6) Actual/360 11 35
24 D.A.M. Green Acres - Chambersburg (A) (6) Actual/360 11 35
25 Jemal-The Car Barn (III) (6) Actual/360 3 27
26 Jemal-801 North Capitol (III) (7) (6) Actual/360 3 27
27 Jemal-Laurel Lakes Corp. Center (III) (7) (6) Actual/360 3 27
28 Jemal-Kalorama GuestHouse (III) (6) Actual/360 3 27
29 Quail Oaks Apartments (5) (8) Actual/360 12 24
30 Crown Colony Office Actual/360 3 27
31 Suburban-3-Pressley (IV) (6) Actual/360 3 27
32 Suburban-3-Virginia Beach (IV) (6) Actual/360 3 27
33 Suburban-3-Fairfield (IV) (6) Actual/360 3 27
34 Suburban-3-Jonesboro (IV) (6) Actual/360 3 27
35 Suburban-3-Norcross (IV) (6) Actual/360 3 27
36 Suburban-3-Fulton Industrial (IV) (6) Actual/360 3 27
37 Suburban-2-UNC Charlotte (V) (6) Actual/360 3 27
38 Suburban-2-Lilburn (V) (6) Actual/360 3 27
39 Suburban-2-Preston Hwy. (V) (6) Actual/360 3 27
40 Suburban-2-Chesapeake (V) (6) Actual/360 3 27
41 Suburban-2-Taylors (V) (6) Actual/360 3 27
42 Suburban-2-Mableton (V) (6) Actual/360 3 27
43 Midtown Shopping Center Actual/360 3 27
44 The Lakes (8) Actual/360 3 27
45 Ramada Plaza Hotel Actual/360 3 27
46 Governors Crossing Outlet Ctr. Actual/360 3 27
47 Magnolia Manors 2-Andalusia (VI) Actual/360 5 29
48 Magnolia Manors 4-Jasper (VI) Actual/360 5 29
49 Magnolia Manors 7-Valley (VI) Actual/360 5 29
50 Magnolia Manors 5-Smiths (VI) Actual/360 5 29
51 Magnolia Manors 1-Jackson (VI) Actual/360 5 29
52 Magnolia Manors 8-Brewton (VI) Actual/360 5 29
53 Magnolia Manors 3-Monroeville (VI) Actual/360 5 29
54 Magnolia Manors 6-Alexander City (VI) Actual/360 5 29
55 Televideo Actual/360 3 27
56 Radisson Woodlands Plaza Hotel Actual/360 8 32
57 AFCO Hanger One Air Cargo Complex Actual/360 9 33
58 Marina View Towers Actual/360 11 35
59 Village Park Apartments (8) Actual/360 6 30
60 Waikiki MarketPlace (B) (7) Actual/360 3 27
61 Goldcoast Business Center (B) (7) Actual/360 3 27
62 Summer Creek Apartments (5) Actual/360 8 32
63 Food 4 Less & Arco AM/PM Stores Actual/360 5 29
64 Pathmark (Glenolden) Actual/360 5 29
65 1630 Connecticut Avenue Actual/360 2 26
66 Santa Paula West (8) (9) Actual/360 3 27
67 Del Prado Mobile Home Park Actual/360 5 29
68 Piano Craft Guild Apartments Actual/360 12 36
69 Canyon Terrace Apts. Actual/360 3 27
70 Woodhill Square Actual/360 3 27
71 Guest House Inn (5) Actual/360 3 27
72 7979 Old Georgetown Road Actual/360 1 25
73 Cherry Hill Plaza Actual/360 11 35
74 Heritage-Rolling Meadows (VII) Actual/360 5 29
75 Heritage-Windsor City (VII) Actual/360 5 29
76 Heritage-Victorian Lakes (VII) Actual/360 5 29
77 Heritage-Hermitage Farms (VII) Actual/360 5 29
78 Heritage-Ramblewood (VII) Actual/360 5 29
79 Maywood Village Square Actual/360 4 28
80 Upland Country Village Actual/360 3 27
81 El Paseo Collection (8) Actual/360 9 33
82 Harding Woods MHP Actual/360 8 32
83 Highland Crossing Actual/360 5 29
84 Best Buy Actual/360 9 33
85 Carriage Trade Center (VIII) (6) Actual/360 5 29
86 Washington Square (VIII) (6) Actual/360 5 29
87 Efficiency II- Lorene Lodge Actual/360 3 27
88 Spring Creek Mobile Home Park Actual/360 3 27
89 The Meadows Apts. Actual/360 3 27
90 Northpointe Village Center (C) (6) Actual/360 8 32
91 Grant Road Shops (C) (6) Actual/360 7 31
92 El Paseo Power Center Actual/360 3 27
93 Parkwood Apartments Actual/360 3 27
94 Heritage Village Apts. (8) Actual/360 8 32
95 P.M. Place Stores (5) Actual/360 6 30
96 JP Plaza Actual/360 6 30
97 Bellam Self Storage Actual/360 6 30
98 Sugarland Ridge Actual/360 9 33
99 North College Mobile Plaza Actual/360 6 30
100 Storage Express Actual/360 10 60
101 Victory Plaza Actual/360 6 30
102 Greenhaven Executive Park Actual/360 7 31
103 Shoneys Inn - Lake Park (IX) Actual/360 5 29
104 Shoneys Inn - Valdosta (IX) Actual/360 5 29
105 Colorado Springs Corporate Centre Actual/360 2 26
106 Bechtel Nevada Corporation Actual/360 5 29
107 Country Squire MHP Actual/360 6 30
108 Northwest Mini Storage Actual/360 10 120
109 Fairmont Apartments Actual/360 9 33
110 Springwood Business Center Actual/360 5 29
111 1420 Walnut Street Actual/360 6 30
112 610-620 Santa Cruz Ave. Actual/360 7 31
113 Suburban Lodge of Pineville Actual/360 5 29
114 Redwood Marketplace Actual/360 11 60
115 Elmwood Office Park Actual/360 4 28
116 Orchard Center Actual/360 8 32
117 Mission MHP Actual/360 11 60
118 Zonolite Road Properties Actual/360 5 29
119 Braley Bldg. Actual/360 7 31
120 Lynnwood East Business Park Actual/360 5 29
121 Woodmeadow Apts. Actual/360 8 32
122 Wellington Woods Senior Apts. Actual/360 9 36
123 Pecan Park Actual/360 4 28
124 East West Shopping Center Actual/360 3 27
125 Roble Terrace Apartments Actual/360 8 32
126 Super 8 Motel/Alpenglo Inn and Conference Center Actual/360 6 30
127 Safe Storage Actual/360 6 30
128 Steeple Chase Apartments Actual/360 4 28
129 Edgemar Actual/360 5 29
130 Londonderry Commons Actual/360 3 27
131 Mini Warehouse Company Actual/360 3 48
132 Walbrook Junction Shopping Actual/360 3 60
133 Sandstone Office Building Actual/360 5 29
134 Rose Bay Travel Park Actual/360 9 33
135 Riverview Mobile Villa Actual/360 7 31
136 Plaza de Las Brisas Actual/360 9 60
137 Sierra Suites Actual/360 6 30
138 901 Tower Actual/360 5 29
139 The Cones Apartments Actual/360 8 32
140 Royal Oaks (D) Actual/360 7 31
141 Country Acres (D) Actual/360 7 31
142 4890 Alameda Street (10) Actual/360 7 31
143 Sherwood Forest Mobile Home Actual/360 10 34
144 Red Rock Self Storage Actual/360 11 42
145 Wilshire Borgata Actual/360 8 32
146 American Heritage Office Actual/360 7 31
147 California Federal Building Actual/360 5 29
148 Simi Valley Regional Center Actual/360 7 31
149 Buy for Less Grocery Store Actual/360 8 32
150 Holiday Inn Durant Actual/360 3 27
151 Best Western Matagorda Actual/360 11 60
152 Kings Inn Apartments Actual/360 6 30
153 The Giroux Building Actual/360 7 31
154 Nursery Shopping Center Actual/360 8 32
155 Fairborn Apartments Actual/360 2 26
156 Sunwood Village Apartments (8) Actual/360 6 30
157 Kingstowne Mobile Home Park Actual/360 7 31
158 Central Self Storage Actual/360 10 36
159 75 Old Broadway Actual/360 3 27
160 Plantation Acres (5) Actual/360 7 31
161 Interpoint Business Park Actual/360 3 27
162 Mohawk Drive Corporation Actual/360 4 28
163 205 Commerce Center Actual/360 9 33
164 Canterbury Commons Apartments (8) Actual/360 6 30
165 Valley Village Mobile Home Park Actual/360 6 30
166 All American - Palmdale Actual/360 7 31
167 Dumfries Self Storage Actual/360 3 27
168 Hyundai Plaza Actual/360 4 28
169 Tregoney East Apartments Actual/360 9 33
170 157 Pleasant Street Actual/360 7 31
171 Days Inn NY Actual/360 4 28
172 Westfield MHP Actual/360 11 120
173 14150 Vine Actual/360 3 27
174 Donner Creek MHP Actual/360 7 24
175 Sawmill Village Shopping Actual/360 3 48
176 T & T Plaza Actual/360 5 29
177 1004 Taft Actual/360 3 27
178 Bensen Estates Actual/360 7 31
179 Rancho Mini Storage Actual/360 3 27
180 Metro Square Actual/360 6 30
181 Machado Towers Actual/360 8 60
182 Berkeley Self Storage, LTD. Actual/360 9 33
183 Jasper Mobile Home Park Actual/360 10 34
184 Spring Valley MHP & Apts. Actual/360 4 28
185 Ponderosa MHP Actual/360 2 48
186 Chesapeake Self Storage Actual/360 9 72
187 Thornydale Self Storage Actual/360 8 32
188 St. Charles Court Actual/360 6 30
189 Tollhouse Crossings Actual/360 9 60
190 Blue Topaz Apartments Actual/360 7 31
191 Southend Self Storage Actual/360 7 31
192 Creekside Mobile Home Park Actual/360 8 32
193 Casa Monte Vista Apartments Actual/360 5 29
194 Moreno Valley Mini Self Storage Actual/360 9 60
WEIGHTED AVERAGE 6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
PREPAYMENT CODE (16)
ADMIN.
Loan Cost Rate
No. DEF YM1 5.0% 4.0% 3.0% 2.0% 1.0% Open (bps) (17)
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 82 3 12.875
2 82 3 12.875
3 82 3 12.875
4 82 3 12.875
5 82 3 12.875
6 82 3 12.875
7 82 3 12.875
8 82 3 12.875
9 82 3 12.875
10 82 3 12.875
11 82 3 12.875
12 82 3 12.875
13 82 3 12.875
14 82 3 12.875
15 82 3 12.875
16 82 3 12.875
17 82 3 12.875
18 82 3 12.875
19 82 3 12.875
20 82 3 12.875
21 82 3 12.875
22 82 3 12.875
23 82 3 12.875
24 82 3 12.875
25 90 3 12.875
26 90 3 12.875
27 90 3 12.875
28 90 3 12.875
29 153 3 12.875
30 90 3 12.875
31 90 3 12.875
32 90 3 12.875
33 90 3 12.875
34 90 3 12.875
35 90 3 12.875
36 90 3 12.875
37 90 3 12.875
38 90 3 12.875
39 90 3 12.875
40 90 3 12.875
41 90 3 12.875
42 90 3 12.875
43 89 3 12.875
44 90 3 12.875
45 90 3 12.875
46 90 3 12.875
47 88 3 12.875
48 88 3 12.875
49 88 3 12.875
50 88 3 12.875
51 88 3 12.875
52 88 3 12.875
53 88 3 12.875
54 88 3 12.875
55 90 3 12.875
56 85 3 12.875
57 84 3 12.875
58 103 6 12.875
59 81 9 12.875
60 90 3 12.875
61 90 3 12.875
62 91 3 12.875
63 88 3 12.875
64 88 3 12.875
65 91 3 12.875
66 90 3 12.875
67 85 6 12.875
68 78 6 12.875
69 90 3 12.875
70 90 3 12.875
71 85 6 12.875
72 92 3 12.875
73 82 3 12.875
74 88 3 12.875
75 88 3 12.875
76 88 3 12.875
77 88 3 12.875
78 88 3 12.875
79 89 3 12.875
80 90 3 12.875
81 48 3 12.875
82 85 3 12.875
83 87 4 12.875
84 204 3 12.875
85 88 3 12.875
86 88 3 12.875
87 90 3 12.875
88 87 6 12.875
89 90 3 12.875
90 85 3 12.875
91 86 3 12.875
92 90 3 12.875
93 90 3 12.875
94 85 3 12.875
95 93 3 12.875
96 87 3 12.875
97 87 3 12.875
98 84 3 12.875
99 87 3 12.875
100 57 3 12.875
101 84 6 12.875
102 86 3 12.875
103 88 3 12.875
104 88 3 12.875
105 91 3 12.875
106 88 3 12.875
107 87 3 12.875
108 116 3 12.875
109 84 3 12.875
110 88 3 12.875
111 87 3 12.875
112 86 3 12.875
113 88 3 12.875
114 57 3 12.875
115 89 3 12.875
116 85 3 12.875
117 56 3 12.875
118 88 3 12.875
119 86 3 12.875
120 88 3 12.875
121 85 3 12.875
122 81 3 12.875
123 86 6 12.875
124 90 3 12.875
125 85 3 12.875
126 87 3 12.875
127 87 3 12.875
128 89 3 12.875
129 88 3 12.875
130 90 3 12.875
131 69 3 12.875
132 57 3 12.875
133 88 3 12.875
134 84 3 12.875
135 86 3 12.875
136 57 3 12.875
137 87 3 12.875
138 88 3 12.875
139 82 6 12.875
140 86 3 12.875
141 86 3 12.875
142 86 3 12.875
143 82 3 12.875
144 81 3 12.875
145 85 3 12.875
146 86 3 12.875
147 88 3 12.875
148 86 3 12.875
149 85 3 12.875
150 90 3 12.875
151 177 3 12.875
152 87 3 12.875
153 83 6 12.875
154 85 3 12.875
155 88 6 12.875
156 81 9 12.875
157 83 6 12.875
158 24 24 12 12 9 3 12.875
159 90 3 12.875
160 92 3 12.875
161 90 3 12.875
162 89 3 12.875
163 85 3 12.875
164 81 9 12.875
165 87 3 12.875
166 86 3 12.875
167 90 3 12.875
168 89 3 12.875
169 84 3 12.875
170 86 3 12.875
171 89 3 12.875
172 117 3 12.875
173 90 3 12.875
174 12 12 12 12 6 6 12.875
175 69 3 12.875
176 88 3 12.875
177 90 3 12.875
178 83 6 12.875
179 90 3 12.875
180 87 3 12.875
181 12 12 12 12 9 3 12.875
182 84 3 12.875
183 80 6 12.875
184 86 6 12.875
185 69 3 12.875
186 45 3 12.875
187 85 3 12.875
188 87 3 12.875
189 57 3 12.875
190 86 3 12.875
191 146 3 12.875
192 85 3 12.875
193 88 3 12.875
194 57 3 12.875
12.875
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
ESCROW INFORMATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Initial
Capital Capital
Insurance Tax Expenditure Expenditure
Loan Escrow Escrow Escrow Escrow
No. Property Name Required Required Required (18) Requirement(19)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 D.A.M. Maple Manor Mobile Home Park (A) (6) No Yes Yes $25,313
2 D.A.M. Valley View - Danboro (A) (6) No Yes Yes $0
3 D.A.M. Brookside Village MHP (A) (6) (I) No Yes Yes $11,000
4 D.A.M. Pleasant View MHP (A) (6) (I) No Yes Yes $3,750
5 D.A.M. Huguenot Estate East MHP (A) (6) No Yes Yes $1,250
6 D.A.M. Valley View- Honey Brook (A) (6) (II) No Yes Yes $2,250
7 D.A.M. Green Acres-Honey Brook (A) (6) (II) No Yes Yes $0
8 D.A.M. Moosic Heights MHP (A) (6) No Yes Yes $625
9 D.A.M. Frieden Manor Mobile Home Park (A) (6) No Yes Yes $0
10 D.A.M. Suburban Estates MHP (A) (6) No Yes Yes $0
11 D.A.M. Sunny Acres MHP (A) (6) No Yes Yes $0
12 D.A.M. Sunneyside MHP (A) (6) No Yes Yes $1,250
13 D.A.M. Valley View - Ephrata (A) (6) No Yes Yes $0
14 D.A.M. Carsons Mobile Home Park (A) (6) No Yes Yes $0
15 D.A.M. Pine Haven Mobile Home Park (A) (6) No Yes Yes $10,000
16 D.A.M. Crestview Mobile Home Park (A) (6) No Yes Yes $0
17 D.A.M. Collingwood MHP (A) (6) No Yes Yes $3,375
18 D.A.M. Beaver Run Mobile Home Park (A) (6) No Yes Yes $0
19 D.A.M. Chelsea MHP (A) (6) No Yes Yes $0
20 D.A.M. Oakwood Lakes MHP (A) (6) No Yes Yes $1,875
21 D.A.M. Gregory Courts MHP (A) (6) No Yes Yes $5,000
22 D.A.M. Mountaintop Mobile Home Park (A) (6) No Yes Yes $0
23 D.A.M. Monroe Valley MHP (A) (6) No Yes Yes $0
24 D.A.M. Green Acres - Chambersburg (A) (6) No Yes Yes $0
25 Jemal-The Car Barn (III) (6) Yes Yes Yes $0
26 Jemal-801 North Capitol (III) (7) (6) Yes Yes Yes $0
27 Jemal-Laurel Lakes Corp. Center (III) (7) (6) Yes Yes Yes $0
28 Jemal-Kalorama GuestHouse (III) (6) Yes Yes Yes $0
29 Quail Oaks Apartments (5) (8) Yes Yes Yes $0
30 Crown Colony Office Yes Yes Yes $0
31 Suburban-3-Pressley (IV) (6) Yes Yes Yes $0
32 Suburban-3-Virginia Beach (IV) (6) Yes Yes Yes $0
33 Suburban-3-Fairfield (IV) (6) Yes Yes Yes $0
34 Suburban-3-Jonesboro (IV) (6) Yes Yes Yes $0
35 Suburban-3-Norcross (IV) (6) Yes Yes Yes $0
36 Suburban-3-Fulton Industrial (IV) (6) Yes Yes Yes $0
37 Suburban-2-UNC Charlotte (V) (6) Yes Yes Yes $0
38 Suburban-2-Lilburn (V) (6) Yes Yes Yes $0
39 Suburban-2-Preston Hwy. (V) (6) Yes Yes Yes $0
40 Suburban-2-Chesapeake (V) (6) Yes Yes Yes $0
41 Suburban-2-Taylors (V) (6) Yes Yes Yes $0
42 Suburban-2-Mableton (V) (6) Yes Yes Yes $0
43 Midtown Shopping Center Yes Yes Yes $0
44 The Lakes (8) Yes Yes Yes $2,688
45 Ramada Plaza Hotel No Yes Yes $204,108
46 Governors Crossing Outlet Ctr. Yes Yes Yes $0
47 Magnolia Manors 2-Andalusia (VI) Yes Yes Yes $0
48 Magnolia Manors 4-Jasper (VI) Yes Yes Yes $0
49 Magnolia Manors 7-Valley (VI) Yes Yes Yes $0
50 Magnolia Manors 5-Smiths (VI) Yes Yes Yes $0
51 Magnolia Manors 1-Jackson (VI) Yes Yes Yes $0
52 Magnolia Manors 8-Brewton (VI) Yes Yes Yes $0
53 Magnolia Manors 3-Monroeville (VI) Yes Yes Yes $0
54 Magnolia Manors 6-Alexander City (VI) Yes Yes Yes $0
55 Televideo No No Yes $0
56 Radisson Woodlands Plaza Hotel Yes Yes Yes $0
57 AFCO Hanger One Air Cargo Complex Yes Yes Yes $62,750
58 Marina View Towers Yes Yes Yes $15,063
59 Village Park Apartments (8) Yes Yes Yes $98,750
60 Waikiki MarketPlace (B) (7) Yes Yes Yes $68,750
61 Goldcoast Business Center (B) (7) Yes Yes Yes $1,313
62 Summer Creek Apartments (5) Yes Yes Yes $30,500
63 Food 4 Less & Arco AM/PM Stores Yes Yes Yes $0
64 Pathmark (Glenolden) No No Yes $0
65 1630 Connecticut Avenue Yes Yes Yes $574,031
66 Santa Paula West (8) (9) No Yes Yes $43,750
67 Del Prado Mobile Home Park No Yes No $0
68 Piano Craft Guild Apartments Yes Yes Yes $12,125
69 Canyon Terrace Apts. Yes Yes Yes $71,450
70 Woodhill Square Yes Yes Yes $8,681
71 Guest House Inn (5) Yes Yes No $84,000
72 7979 Old Georgetown Road Yes Yes Yes $102,500
73 Cherry Hill Plaza Yes Yes Yes $202,131
74 Heritage-Rolling Meadows (VII) Yes Yes Yes $3,500
75 Heritage-Windsor City (VII) Yes Yes Yes $12,500
76 Heritage-Victorian Lakes (VII) Yes Yes Yes $49,875
77 Heritage-Hermitage Farms (VII) Yes Yes Yes $46,250
78 Heritage-Ramblewood (VII) Yes Yes Yes $0
79 Maywood Village Square Yes Yes Yes $3,500
80 Upland Country Village Yes Yes Yes $3,250
81 El Paseo Collection (8) Yes Yes Yes $0
82 Harding Woods MHP Yes Yes Yes $1,329
83 Highland Crossing Yes Yes Yes $0
84 Best Buy No No No $21,675
85 Carriage Trade Center (VIII) (6) Yes Yes Yes $0
86 Washington Square (VIII) (6) Yes Yes Yes $0
87 Efficiency II- Lorene Lodge Yes Yes Yes $6,047
88 Spring Creek Mobile Home Park Yes Yes Yes $0
89 The Meadows Apts. Yes Yes Yes $111,304
90 Northpointe Village Center (C) (6) Yes Yes Yes $0
91 Grant Road Shops (C) (6) Yes Yes Yes $0
92 El Paseo Power Center Yes Yes Yes $31,250
93 Parkwood Apartments Yes Yes Yes $14,038
94 Heritage Village Apts. (8) Yes Yes Yes $47,604
95 P.M. Place Stores (5) Yes Yes Yes $40,500
96 JP Plaza Yes Yes Yes $1,250
97 Bellam Self Storage Yes Yes No $0
98 Sugarland Ridge Yes Yes Yes $3,750
99 North College Mobile Plaza Yes Yes No $0
100 Storage Express Yes Yes Yes $0
101 Victory Plaza Yes Yes Yes $250
102 Greenhaven Executive Park No Yes Yes $0
103 Shoneys Inn - Lake Park (IX) Yes Yes Yes $500
104 Shoneys Inn - Valdosta (IX) Yes Yes Yes $0
105 Colorado Springs Corporate Centre Yes Yes Yes $14,069
106 Bechtel Nevada Corporation Yes Yes Yes $833
107 Country Squire MHP Yes Yes Yes $0
108 Northwest Mini Storage Yes Yes Yes $1,721
109 Fairmont Apartments Yes Yes Yes $217,318
110 Springwood Business Center Yes Yes Yes $14,563
111 1420 Walnut Street Yes Yes Yes $19,375
112 610-620 Santa Cruz Ave. Yes Yes Yes $322
113 Suburban Lodge of Pineville Yes Yes Yes $0
114 Redwood Marketplace Yes Yes Yes $32,800
115 Elmwood Office Park Yes Yes Yes $18,125
116 Orchard Center Yes Yes Yes $14,250
117 Mission MHP Yes Yes No $0
118 Zonolite Road Properties Yes Yes Yes $1,719
119 Braley Bldg. Yes Yes Yes $0
120 Lynnwood East Business Park Yes Yes Yes $1,063
121 Woodmeadow Apts. Yes Yes Yes $6,250
122 Wellington Woods Senior Apts. Yes Yes Yes $0
123 Pecan Park Yes Yes Yes $0
124 East West Shopping Center Yes Yes Yes $0
125 Roble Terrace Apartments Yes Yes Yes $0
126 Super 8 Motel/Alpenglo Inn and Conference Center Yes Yes Yes $0
127 Safe Storage Yes Yes Yes $0
128 Steeple Chase Apartments Yes Yes Yes $170,250
129 Edgemar Yes Yes Yes $0
130 Londonderry Commons Yes Yes Yes $1,781
131 Mini Warehouse Company Yes Yes No $5,000
132 Walbrook Junction Shopping Yes Yes Yes $21,875
133 Sandstone Office Building Yes Yes Yes $0
134 Rose Bay Travel Park Yes Yes Yes $2,500
135 Riverview Mobile Villa Yes Yes No $1,250
136 Plaza de Las Brisas Yes Yes Yes $0
137 Sierra Suites Yes Yes Yes $164,000
138 901 Tower Yes Yes Yes $1,500
139 The Cones Apartments Yes Yes Yes $160,000
140 Royal Oaks (D) Yes Yes No $0
141 Country Acres (D) Yes Yes Yes $3,750
142 4890 Alameda Street (10) Yes Yes Yes $16,250
143 Sherwood Forest Mobile Home Yes Yes No $938
144 Red Rock Self Storage Yes Yes No $0
145 Wilshire Borgata No No Yes $122
146 American Heritage Office Yes Yes Yes $1,250
147 California Federal Building Yes Yes Yes $45,625
148 Simi Valley Regional Center Yes Yes Yes $5,094
149 Buy for Less Grocery Store No No Yes $3,750
150 Holiday Inn Durant Yes Yes Yes $15,688
151 Best Western Matagorda Yes Yes Yes $33,204
152 Kings Inn Apartments Yes Yes Yes $46,875
153 The Giroux Building Yes Yes Yes $0
154 Nursery Shopping Center Yes Yes Yes $20,405
155 Fairborn Apartments Yes Yes Yes $39,250
156 Sunwood Village Apartments (8) Yes Yes Yes $0
157 Kingstowne Mobile Home Park Yes Yes Yes $6,071
158 Central Self Storage Yes Yes No $0
159 75 Old Broadway No Yes Yes $0
160 Plantation Acres (5) Yes Yes No $0
161 Interpoint Business Park Yes Yes Yes $3,844
162 Mohawk Drive Corporation Yes Yes Yes $31,250
163 205 Commerce Center Yes Yes Yes $52,504
164 Canterbury Commons Apartments (8) Yes Yes No $0
165 Valley Village Mobile Home Park Yes Yes No $1,875
166 All American - Palmdale Yes Yes Yes $6,000
167 Dumfries Self Storage Yes Yes No $40,906
168 Hyundai Plaza Yes Yes Yes $298
169 Tregoney East Apartments Yes Yes Yes $129,240
170 157 Pleasant Street Yes Yes Yes $2,813
171 Days Inn NY Yes Yes Yes $26,063
172 Westfield MHP Yes Yes No $0
173 14150 Vine Yes Yes Yes $1,063
174 Donner Creek MHP Yes Yes Yes $59,500
175 Sawmill Village Shopping Yes Yes Yes $0
176 T & T Plaza Yes Yes Yes $0
177 1004 Taft Yes Yes Yes $34,219
178 Bensen Estates Yes Yes Yes $0
179 Rancho Mini Storage Yes Yes Yes $0
180 Metro Square Yes Yes Yes $5,594
181 Machado Towers Yes Yes Yes $0
182 Berkeley Self Storage, LTD. Yes Yes Yes $0
183 Jasper Mobile Home Park Yes Yes No $0
184 Spring Valley MHP & Apts. Yes Yes Yes $0
185 Ponderosa MHP Yes Yes No $30,063
186 Chesapeake Self Storage Yes Yes No $0
187 Thornydale Self Storage Yes Yes Yes $40,000
188 St. Charles Court Yes Yes Yes $2,500
189 Tollhouse Crossings Yes Yes Yes $0
190 Blue Topaz Apartments Yes Yes Yes $57,400
191 Southend Self Storage Yes Yes Yes $0
192 Creekside Mobile Home Park Yes Yes Yes $0
193 Casa Monte Vista Apartments Yes Yes Yes $9,563
194 Moreno Valley Mini Self Storage No Yes No $0
TOTAL/WEIGHTED AVERAGE 86.0% 95.9% 90.9% $3,690,182
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Current Monthly
Capital Capital Initial Current
Expenditure Expenditure TI/LC TI/LC
Loan Escrow Escrow Escrow Escrow
No. Balance(20) Requirement(21) Requirement(22) Balance(23)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 $39,306 $1,321 $0 $0
2 $7,173 $967 $0 $0
3 $26,688 $713 $0 $0
4 $0 $458 $0 $0
5 $7,696 $763 $0 $0
6 $6,845 $600 $0 $0
7 $0 $0 $0 $0
8 $4,690 $933 $0 $0
9 $8,000 $800 $0 $0
10 $8,557 $846 $0 $0
11 $25,321 $742 $0 $0
12 $4,410 $308 $0 $0
13 $4,511 $446 $0 $0
14 $6,063 $599 $0 $0
15 $15,934 $554 $0 $0
16 $4,173 $412 $0 $0
17 $4,486 $443 $0 $0
18 $4,215 $417 $0 $0
19 $3,625 $358 $0 $0
20 $1,680 $340 $0 $0
21 $6,766 $158 $0 $0
22 $1,644 $162 $0 $0
23 $1,855 $183 $0 $0
24 $1,321 $131 $0 $0
25 $0 $1,431 $0 $0
26 $15,339 $1,361 $596,640 $713,622
27 $0 $1,200 $160,510 $0
28 $0 $3,678 $0 $0
29 $0 $5,050 $0 $0
30 $0 $2,083 $0 $0
31 $0 $3,431 $0 $0
32 $0 $3,418 $0 $0
33 $36,880 $3,108 $0 $0
34 $0 $3,180 $0 $0
35 $0 $2,950 $0 $0
36 $0 $2,353 $0 $0
37 $0 $3,680 $0 $0
38 $0 $3,214 $0 $0
39 $0 $3,316 $0 $0
40 $36,305 $3,078 $0 $0
41 $0 $3,006 $0 $0
42 $0 $1,858 $0 $0
43 $4,000 $2,000 $0 $3,062
44 $8,374 $2,862 $150,000 $192,739
45 $205,035 $17,009 $0 $0
46 $3,376 $1,688 $0 $12,077
47 $0 $800 $0 $0
48 $0 $800 $0 $0
49 $0 $800 $0 $0
50 $0 $400 $0 $0
51 $17,600 $400 $0 $0
52 $0 $400 $0 $0
53 $0 $400 $0 $0
54 $0 $400 $0 $0
55 $2,611 $870 $300,000 $309,413
56 $60,833 $18,837 $0 $0
57 $77,096 $1,580 $0 $14,919
58 $32,385 $1,750 $0 $0
59 $7,838 $0 $0
60 $69,549 $400 $0 $5,325
61 $3,067 $877 $55,000 $63,135
62 $54,035 $3,250 $0 $0
63 $2,860 $715 $0 $0
64 $6,020 $1,505 $0 $11,983
65 $575,123 $1,092 $0 $5,638
66 $45,375 $812 $0 $0
67 $0 $0 $0 $0
68 $29,888 $3,941 $0 $0
69 $76,867 $2,708 $0 $0
70 $13,877 $2,598 $290,264 $304,905
71 $86,765 $0 $0 $0
72 $0 $2,044 $50,000 $50,000
73 $59,840 $1,796 $300,000 $17,966
74 $0 $1,213 $0 $0
75 $129,803 $1,379 $0 $0
76 $0 $791 $0 $0
77 $0 $418 $0 $0
78 $0 $354 $0 $0
79 $5,312 $604 $100,000 $106,243
80 $4,436 $593 $20,000 $24,748
81 $3,982 $498 $0 $16,000
82 $10,633 $1,329 $0 $0
83 $2,206 $551 $0 $107,645
84 $22,202 $0 $0 $0
85 $6,060 $1,181 $0 $22,762
86 $0 $334 $3,544 $0
87 $24,392 $6,047 $0 $0
88 $3,208 $1,604 $0 $0
89 $115,637 $2,167 $0 $0
90 $3,830 $547 $0 $2,407
91 $901 $150 $0 $4,327
92 $33,022 $886 $0 $5,707
93 $25,704 $5,833 $0 $0
94 $57,877 $3,667 $0 $0
95 $65,283 $2,494 $0 $21,706
96 $4,482 $539 $100,000 $100,000
97 $0 $0 $0 $0
98 $18,825 $1,675 $0 $0
99 $0 $0 $0 $0
100 $3,528 $392 $0 $0
101 $7,695 $1,242 $2,256 $13,529
102 $16,742 $1,395 $83,258 $112,774
103 $16,722 $3,643 $0 $0
104 $0 $3,238 $0 $0
105 $0 $754 $0 $0
106 $18,333 $833 $8,333 $18,333
107 $5,689 $763 $0 $0
108 $17,211 $1,721 $0 $0
109 $151,655 $5,708 $0 $0
110 $18,363 $950 $180,000 $201,798
111 $21,377 $2,049 $13,801 $141,270
112 $2,253 $322 $965 $6,805
113 $23,183 $4,637 $0 $0
114 $33,912 $1,368 $0 $0
115 $3,600 $1,200 $130,000 $78,603
116 $18,784 $498 $0 $16,024
117 $0 $0 $0 $0
118 $5,915 $1,049 $0 $22,294
119 $6,187 $1,031 $0 $22,229
120 $2,956 $739 $30,000 $40,371
121 $37,750 $4,500 $0 $0
122 $0 $1,875 $0 $0
123 $2,588 $862 $0 $0
124 $705 $353 $0 $3,996
125 $9,184 $1,312 $0 $0
126 $16,100 $3,220 $0 $0
127 $4,069 $678 $0 $0
128 $139,719 $4,667 $0 $0
129 $2,048 $408 $0 $0
130 $2,058 $1,029 $125,000 $125,000
131 $5,000 $0 $0 $0
132 $23,051 $588 $49,000 $53,217
133 $1,183 $296 $25,000 $0
134 $14,267 $1,471 $0 $0
135 $1,250 $0 $0 $0
136 $3,472 $434 $750 $6,750
137 $74,421 $5,477 $0 $0
138 $3,670 $434 $2,153 $10,831
139 $149,891 $2,205 $0 $0
140 $0 $0 $0 $0
141 $14,474 $1,778 $0 $0
142 $23,194 $992 $3,472 $24,306
143 $0 $0 $0 $0
144 $0 $0 $0 $0
145 $979 $122 $25,000 $31,565
146 $2,000 $333 $15,000 $36,120
147 $47,922 $574 $0 $7,869
148 $8,135 $507 $0 $12,165
149 $4,988 $712 $0 $8,370
150 $22,852 $3,582 $0 $0
151 $37,374 $6,954 $0 $0
152 $46,875 $1,875 $0 $0
153 $1,911 $319 $0 $5,568
154 $26,739 $905 $1,552 $1,552
155 $0 $4,967 $0 $0
156 $0 $2,213 $0 $0
157 $3,817 $636 $0 $0
158 $0 $0 $0 $0
159 $1,970 $985 $30,000 $35,072
160 $0 $0 $0 $0
161 $5,284 $720 $65,000 $68,600
162 $12,029 $1,939 $30,000 $19,464
163 $57,528 $558 $0 $0
164 $0 $0 $0 $0
165 $0 $0 $0 $0
166 $9,500 $500 $0 $0
167 $40,906 $0 $0 $0
168 $1,193 $298 $31,691 $36,763
169 $85,629 $2,229 $0 $0
170 $9,690 $1,146 $0 $0
171 $27,168 $3,046 $0 $0
172 $0 $0 $0 $0
173 $2,133 $535 $50,000 $54,280
174 $61,875 $396 $0 $0
175 $542 $271 $0 $2,044
176 $1,636 $327 $20,000 $20,000
177 $35,059 $420 $50,000 $53,864
178 $5,277 $875 $0 $0
179 $1,313 $438 $0 $0
180 $10,417 $804 $345 $2,067
181 $1,982 $792 $0 $0
182 $4,072 $452 $0 $0
183 $0 $0 $0 $0
184 $3,825 $1,275 $0 $0
185 $0 $0 $0 $0
186 $0 $0 $0 $0
187 $45,013 $627 $0 $0
188 $7,235 $789 $0 $0
189 $1,697 $210 $4,000 $3,031
190 $58,363 $500 $0 $0
191 $6,019 $860 $0 $0
192 $875 $125 $0 $0
193 $13,313 $938 $0 $0
194 $0 $0 $0 $0
$3,873,185 $291,341 $3,102,534 $3,412,850/81.1%
</TABLE>
<PAGE>
FOOTNOTES TO APPENDIX II
1. Sets of Property Names with identical alphabetical coding identify the loans
that are cross-collateralized and cross-defaulted, while Property Names with
identical Roman Numeral coding are the multiple properties of a single
Mortgage Loan. Mortgage Loans 1-24 comprise a set of crossed-collateralized
and cross-defaulted loans which contains two Mortgage Loans (represented by
Loan Nos. 3&4 and 6&7), each of which are secured by two properties.
2. Certain ratios including Cut-Off Date Balance/Unit or SF, DSCR, LTV and
Balloon LTV are calculated on a combined basis for Mortgage Loans that are
secured by multiple properties or are cross-collateralized and
cross-defaulted. The indicated Cut-Off Date Balance/Unit or SF for mixed use
properties is based on the predominant property usage. For the purposes of
the statistical information set forth in this Prospectus Supplement, as to
such multiple property loans, a portion of the aggregate Cut-Off Date
Balance has been allocated to each property, generally, based on relative
appraised value or Underwritable Cash Flow. For purposes of information
contained within the Prospectus Supplement, Balloon Loans are defined as
having a balance at maturity equal to at least 10% of the original principal
balance of the related Mortgage Loan.
With respect to Mortgage Loan No. 122, Wellington Woods Senior Apts.,
disclosed LTV (85.1%) and DSCR (1.11x) do not consider an in-place $200,000
letter of credit, which may be released when a DSCR of at least 1.20x, or a
LTV of 80%, or lower, is achieved.
3. "ARD" indicates the Anticipated Repayment Date of the Anticipated Repayment
Date Loans, as defined in the Prospectus Supplement. See "Description of the
Mortgage Pool".
4. The Original Amortization Term shown is the basis for determining the fixed
monthly principal and interest payment as set forth in the related note. Due
to the Non-30/360 interest accrual method of all Mortgage Loans, the actual
amortization to a zero balance on the Mortgage Loans will be longer.
5. Mortgage Loan Nos. 29, 62, 71, 95, and 160 were restated to account for
earnouts provided to the borrower which resulted in the following:
The Monthly Payment for Loan No. 29, Quail Oaks Apartments, is based on a
360 month amortization term beginning on May 1, 1998. The Maturity Date
reflects the corresponding date in the restated mortgage note. As such, the
Original Term to Maturity and Original Amortization Term are presented as of
the first regularly scheduled debt service payment date of the restated
mortgage note, May 1, 1998.
The Monthly Payment for Mortgage Loan No. 62, Summer Creek Apartments, is
based on a 355 month amortization term beginning on February 11, 1999. The
Original Term to Maturity and the Original Amortization Term are presented
as of the date of the first regularly scheduled debt service payment on
September 11, 1998.
<PAGE>
FOOTNOTES TO APPENDIX II
The Monthly Payment for Mortgage Loan No. 71, Guest House Inn, is based on
The Monthly Payment for Mortgage Loan No. 71, Guest House Inn, is based on a
298 month amortization term beginning on February 11, 1999. The First
Payment Date and the Anticipated Repayment Date reflects the corresponding
dates in the restated mortgage note. As such, the Original Term to Maturity
and the Original Amortization Term are presented as of the first regularly
scheduled debt service payment date of the restated mortgage note, February
11, 1999.
The Monthly Payment for Mortgage Loan No. 95, P.M. Place Stores, is based on
a 297 month amortization term beginning on March 1, 1999. The Original Term
to Maturity and the Original Amortization Term are presented as of the date
of the first regularly scheduled debt service payment on November 1, 1998.
The Monthly Payment for Mortgage Loan No. 160, Plantation Acres, is based on
a 296 month amortization term beginning on February 1, 1999. The Original
Term to Maturity and the Original Amortization Term are presented as of the
date of the first regularly scheduled debt service payment on October 1,
1998.
6. With respect to Mortgage Loan Nos. 1 - 24, the D.A.M. loans, the loan
documents permit defeasance of one or more of the cross-collateralized loans
and thereby cause the release of the related mortgaged property or
properties (in the case of multiple property loans) subject to the following
conditions:
(1) the expiration of the applicable Mortgage Loan's Lockout Period, (2) the
maintenance of a combined DSCR for the remaining loans in the
cross-collateralized pool of at least 1.50x, and (3) the maintenance of a
combined LTV for the remaining loans in the cross-collateralized pool of no
greater than 75%.
With respect to Mortgage Loan Nos. 25-28, the Jemal loans, the loan
documents permit partial loan defeasance and thereby cause the release of a
related mortgaged property subject to the following conditions:
(1) the expiration of the applicable Mortgage Loan's Lockout Period, (2) the
maintenance of a combined DSCR for the remaining loans of at least 1.30x,
(3) the maintenance of a combined LTV for the remaining loans of no greater
than 75%, and (4) defeasance of an amount equal to 120% of the loan amount
allocated to the released property.
With respect to Mortgage Loan Nos. 31-36, the Suburban-3 Loans, and Mortgage
Loan Nos. 37-42, the Suburban-2 Loans, the loan documents permit partial
defeasance of individual properties subject to the following conditions:
(1) the expiration of the applicable Mortgage Loan's Lockout Period, (2) the
maintenance of a combined DSCR for the remaining loans of 1.40x, (3) the
maintenance of a combined LTV for the remaining loans of no greater 75%, and
(4) defeasance of an amount equal to 125% of the loan amount allocated to
the released property.
2
<PAGE>
FOOTNOTES TO APPENDIX II
With respect to Mortgage Loan No. 85 Carriage Trade Center and Mortgage Loan
No. 86 Washington Square, the loan documents permit partial defeasance of
the Mortgaged Properties subject to the following conditions:
(1) the expiration of the applicable Mortgage Loan's Lockout Period, (2) the
maintenance of a minimum DSCR of 1.30x, (3) the maintenance of a LTV of no
greater than 75%, and (4) defeasance of an amount equal to 120% of the loan
amount allocated to the released property.
With respect of Mortgage Loan Nos. 90 and 91, Northpointe Village Center and
Grant Road Shops, the loan documents permit defeasance of one of the
cross-collateralized loans subject to the following conditions:
(1) the expiration of the applicable Mortgage Loan's Lockout Period (2) the
maintenance of a minimum 1.30x DSCR by the remaining loan (3) the
maintenance of a LTV of no greater than 80%, and (4) defeasance of an amount
equal to 125% of the outstanding indebtedness under the applicable Mortgage
Loan (such excess will be applied to the outstanding balance under the
remaining Mortgage Loan).
7. Each of the following Mortgage Loans is structured with a performance
holdback subject to achievement of certain release conditions. The amount of
the holdback was escrowed for each Mortgage Loan at closing. Details on each
holdback are provided below. For further information, see "Description of
the Mortgage Pool - Performance Holdbacks" in the Prospectus Supplement.
<TABLE>
<CAPTION>
Outside Date
Escrowed Outside Prepayment
Holdback Date for Penalty
Loan No. Property Name Release Conditions Amount Release Provisions
- -------- ------------- ------------------ ------ ------- ----------
<S> <C> <C> <C> <C> <C>
27 Jemal-Laurel Lakes Corp. 1) Borrower submits documentation for expenses $750,000 6/1/2000 Yield
incurred for tenant improvements for new tenants; maintenance
under approved leases; and
2) the DSCR equals or exceeds 1.30x.
60 Waikiki Market Place 1) the DSCR equals or exceeds 1.25x, and 2) current $800,000 6/30/1999 No prepayment
tenant of unit 104 renews its lease, or new penalty
tenants have signed leases for and occupied Unit
102 and either Unit 103 or Unit 104.
</TABLE>
Disclosed DSCRs relating to the above loans are based on assumed loan
amounts and related principal and interest payments, net of the cash
holdback as described above.
<PAGE>
FOOTNOTES TO APPENDIX II
Additional holdbacks are in place for the following:
Mortgage Loan No. 26, Jemal-801 North Capitol, has a cash holdback of
$596,640, released upon borrower providing the City of Washington D.C.
estoppel to confirm occupancy and payment obligations.
Mortgage Loan No. 27, Jemal-Laurel Lakes Corp. Center, has a cash holdback
of $93,600, released upon borrower providing the D.P.C. Technology estoppel
to confirm occupancy and payment obligations.
Mortgage Loan No. 155, Fairborn Apartments has a cash holdback of $400,000
to be released on or before December 31, 1999 provided the borrower sells,
closes and conveys the property to a purchaser satisfactory to lender in
lender's sole discretion at a purchase price of not less than $2,800,000 in
cash with a minimum of 20% cash equity investment. In the event that the
conditions are not met by December 31, 1999, the amount of the holdback
shall be used to partially defease the Mortgage Loan.
8. The properties securing the following Mortgage Loans are known to
currently secure additional subordinate financing, or the Mortgage Loan
permits additional, secured subordinate financing in the future:
Mortgage Loan No. 29, Quail Oaks Apartments, permits subordinate debt up to
$2,000,000 to be secured by the property, provided the aggregate LTV of the
Mortgage Loan and the subordinate debt does not exceed 85% and the combined
DSCR is at least 1.15x.
The property securing Mortgage Loan No. 44, The Lakes, is known to also
secure existing subordinate debt in the amount of $5,393,759 (as of December
31, 1998). See Appendix III "Largest Loan Summaries".
Mortgage Loan No. 59, Village Park Apartments, permits subordinate debt to
be secured by the related property no earlier than two years after the Note
Date, provided the aggregate LTV of the Mortgage Loan and the subordinate
debt does not exceed 80% and the combined DSCR is at least 1.15x.
The property securing Mortgage Loan No. 66, Santa Paula West, is known to
secure additional subordinate debt in the amount of $350,000.
The property securing Mortgage Loan No. 81, El Paseo Collection, is known to
secure two additional deeds of trust, each of which is subordinate to the
subject deed of trust. The subordinate deeds of trust are in place to secure
performance under a co-tenancy agreement between two mortgagors as tenants
in common. Upon any default under the co-tenancy agreement, the
non-defaulting mortgagor may foreclose on the defaulting mortgagor's
interest in the subject property.
<PAGE>
FOOTNOTES TO APPENDIX II
The property securing Mortgage Loan No. 94, Heritage Village Apartments, is
known to also secure existing subordinate debt in the amount of $2,555,039.
Mortgage Loan No. 156, Sunwood Village Apartments, permits subordinate debt
to be secured by the related property no earlier than two years after the
Note Date, provided the aggregate LTV of the Mortgage Loan and subordinate
debt does not exceed 80% and the combined DSCR is at least 1.15x.
Mortgage Loan No. 164, Canterbury Commons Apartments, permits subordinate
debt to be secured by the related property no earlier than two years after
the Note Date, provided the aggregate LTV of the Mortgage Loan and the
subordinate debt does not exceed 80% and the combined DSCR is at least
1.15x.
9. With respect to Loan No. 66, Santa Paula West, a fee of $68,500 must be paid
by the borrower by a certain date, or there will be an interest rate
step-up. The borrower is also required to provide single purpose entity
covenants to the lender by a certain date, or there will be an additional
interest rate step-up. Any such fee and/or increase in scheduled monthly
payments due to the above mentioned interest rate step(s), will not be part
of the trust. The disclosed monthly payment and resulting DSCR of 1.21x is
based on the current 7.450% interest rate. Should the interest rate increase
to the maximum of 7.900% (assuming both interest rate steps described
above), the current Underwritable Cash Flow would provide a DSCR of
approximately 1.16x.
10. On 3/9/99, the Interest Rate on Mortgage Loan No. 142, 4890 Alameda Street,
was set at 7.280%. The loan's Monthly Payment is based on a 234 month
amortization term beginning on April 1, 1999. The Original Term to Maturity
and the Original Amortization Term are presented as of the date of first
regularly scheduled debt service payment on October 1, 1998.
11. The complete address for Loan No. 28 Jemal-Kalorama Guesthouse is 1852,
1854, 1859, 1831 Mintwood Place, N.W. 2612 Cathedral Ave., N.W. and 2850
27th. St., N.W.
12. The "Underwritable Cash Flow" for Loan No. 7 D.A.M. Green Acres - Honey
Brook and Loan No. 6 D.A.M. Valley View-Honey Brook have been combined and
are indicated in the "Underwritable Cash Flow" line item for Loan No. 6.
13. In general, "Percent Leased" was determined based on a borrower-provided
rent roll. In certain cases, "Percent Leased" was determined based on
executed leases, financial statement or occupancy report. "Percent Leased as
of Date" indicates the stated date or determination date of such
information. For hospitality properties, the data shown represents the
average daily occupancy rate, generally for the preceding twelve month
period.
14. Largest Tenant refers to the tenant that represents the greatest percentage,
equal to or in excess of 10%, of the total square footage at the subject
property.
<PAGE>
FOOTNOTES TO APPENDIX II
15. Seasoning represents the approximate number of months elapsed from the date
of the first regularly scheduled debt service payment date of the Mortgage
Loan to the Cut-Off Date.
16. The prepayment term includes the number of loan payments from the first Due
Date (after the initial partial month interest only payment date, if any) to
the stated maturity or ARD. DEF represents defeasance. "YM1" represents the
greater of yield maintenance and 1%. The stated percentages (5.0%, 4.0%,
3.0%, 2.0%, 1.0%) represent percentage prepayment premiums. "Open"
represents a period during which principal prepayments are permitted without
payment of a prepayment premium. For each Mortgage Loan, the number set
forth under a category of prepayment provisions represents the number of
months in the Original Term to maturity or ARD for which such provision
applies.
17. The "Administrative Cost Rate" indicated for each Mortgage Loan will be
calculated based on the same interest accrual method applicable to each
Mortgage Loan.
18. For "Capital Expenditure Escrow Required" identified as "Yes," collections
may occur at one-time or are ongoing. In certain instances, the amount of
the escrow may be capped or collected only for certain periods of such
Mortgage Loan or may not be replenished after a release of funds.
19. Indicates the amount or, in certain cases, a letter of credit amount,
deposited at loan closing.
20. Indicates the balance or, in certain cases, a letter of credit balance, as
of March 10, 1999. For disclosure purposes, certain single note, multiple
property loans aggregate Current Capital Expenditure Escrow Balances for all
properties to one property within the multiple property group.
21. Indicates the monthly amount designated for Capital Expenditure Escrows in
the loan documents for such Mortgage Loan (SEE footnote 18 above). In
certain cases, the related deposits will end upon certain events, or upon
certain dates or are capped at certain amounts.
22. Indicates the amount or, in certain cases, a letter of credit amount,
deposited at loan closing.
23. Indicates the balance of or, in certain cases, a letter of credit balance,
as of March 10, 1999. The weighted-average percentage of Mortgaged Loans
disclosed as having a TI/LC cash or letter of credit balances in place
considers only Mortgage Loans on commercial type properties, excluding
multifamily, hospitality, senior housing, self storage, and manufactured
housing community property-related Mortgage Loans. Also excluded from the
calculation is one mixed use property-related Mortgage Loan which property
types are multifamily and manufactured housing community. For disclosure
purposes, certain single note, multiple property loans aggregate Current
TI/LC Balances for all properties to one property within the multiple
property group. All of the Mortgage Loans within such groups are deemed to
have TI/LC balances when calculating the percentage of commercial loans with
TI/LC balances, as of March 10, 1999.
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
APPENDIX III
LARGEST LOAN SUMMARIES
<TABLE>
LOAN NOS. 1- 24 - D.A.M MANUFACTURED HOUSING COMMUNITY PORTFOLIO LOANS AND PROPERTIES
- --------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property Type (each): Manufactured Housing Mortgage Rate
Community (each Mortgage Loan): 7.180%
Loan Type (each): Principal and DSCR at Cash Flow
Interest; Fixed; (in aggregate): 1.67x
Hyperamortizing;
Defeasance; Balloon
Origination Date Cut-off Date LTV
(each Mortgage Loan): 4/29/1998 (in aggregate): 72.7%
Anticipated Repayment Date Balance at ARD LTV
(ARD) (each Mortgage Loan): 05/11/2008 (in aggregate): 64.8%
Maturity Date Percent Leased as of Date
(each Mortgage Loan): 05/11/2028 (each Mortgage Loan): 12/11/1998
- --------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------
CUT-OFF DATE CUT-OFF DATE YEAR BUILT/
PROPERTY NAME: BALANCE: BALANCE/PAD: LOCATION: RENOVATED:
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beaver Run $629,964 $6,300 Linkwood, MD 1973/1997
Brookside $1,785,724 $10,443 Berwick, PA 1980/NAP
Carsons $967,267 $7,328 Chambersburg, PA 1962/NAP
Chelsea $625,003 $7,267 Sayre, PA 1968/NAP
Collingwood $689,488 $6,760 Catlin, NY 1970/NAP
Crestview $793,655 $8,017 Athens, PA 1964/NAP
Frieden Manor $1,860,129 $9,688 Schuykill Haven, PA 1960/NAP
Green Acres - Chambersburg $178,572 $7,441 Chambersburg, PA 1978/NAP
Gregory Courts $570,439 $15,012 Honey Brook, PA 1966/NAP
Huguenot East $2,003,479 $12,072 Port Jervis, NY 1978/NAP
Maple Manor $3,794,663 $11,971 Taylor, PA 1970/NAP
Monroe Valley $277,779 $6,313 Jonestown, PA 1970/NAP
Moosic Heights $1,909,732 $12,482 Avoca, PA 1971/NAP
Mountaintop $396,827 $10,175 Narvon, PA 1973/NAP
Oakwood Lakes $620,043 $7,849 Tunkhannock, PA 1972/NAP
Pine Haven $967,267 $7,273 Blossvale, NY 1959/NAP
Pleasant View $1,041,672 $9,645 Bloomsburg, PA 1968/NAP
Suburban Estates $1,711,318 $8,430 Greensburg, PA 1973/NAP
Sunneyside $1,488,103 $20,110 Norristown, PA 1967/NAP
Sunny Acres $1,562,508 $8,492 Somerset, PA 1965/NAP
Valley View - Danboro $3,199,422 $13,850 Danboro, PA 1956/NAP
Valley View - Ephrata $1,066,474 $9,967 Ephrata, PA 1968/NAP
Valley View- Honey Brook $1,488,103 $12,401 Honey Brook, PA 1966/NAP
Green Acres-Honey Brook $431,550 $17,981 Honey Brook, PA 1985/NAP
- -------------------------- ---------------- ----------------- ----------------------- ------------
</TABLE>
III-1
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
APPRAISED
PROPERTY NAME: ANNUAL DEBT SERVICE: PADS: BALANCE AT ARD: VALUE:
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beaver Run $51,621 100 $560,916 $850,000
Brookside $146,326 171 $1,589,997 $2,400,000
Carsons $79,260 132 $861,249 $1,300,000
Chelsea $51,214 86 $556,499 $900,000
Collingwood $56,498 102 $613,916 $1,000,000
Crestview $65,034 99 $706,665 $1,200,000
Frieden Manor $152,423 192 $1,656,248 $2,500,000
Green Acres - Chambersburg $14,633 24 $159,000 $240,000
Gregory Courts $46,743 38 $507,916 $770,000
Huguenot East $164,210 166 $1,784,332 $2,900,000
Maple Manor $310,943 317 $3,378,746 $5,100,000
Monroe Valley $22,762 44 $247,333 $460,000
Moosic Heights $156,487 153 $1,700,414 $2,700,000
Mountaintop $32,517 39 $353,333 $600,000
Oakwood Lakes $50,808 79 $552,082 $835,000
Pine Haven $79,260 133 $861,249 $1,300,000
Pleasant View $85,357 108 $927,498 $1,400,000
Suburban Estates $140,229 203 $1,523,748 $2,300,000
Sunneyside $121,938 74 $1,324,999 $2,000,000
Sunny Acres $128,035 184 $1,391,248 $2,100,000
Valley View - Danboro $262,167 231 $2,848,747 $4,300,000
Valley View - Ephrata $87,389 107 $949,583 $1,600,000
Valley View- Honey Brook $121,938 120 $1,324,999 $2,000,000
Green Acres-Honey Brook $35,362 24 $384,250 $580,000
- --------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------
UNDERWRITABLE
PROPERTY NAME: CASH FLOW: PERCENT LEASED:
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Beaver Run $92,081 97.0%
Brookside $219,367 89.0%
Carsons $147,052 94.7%
Chelsea $66,629 91.9%
Collingwood $97,739 99.0%
Crestview $107,249 81.0%
Frieden Manor $264,841 93.8%
Green Acres - Chambersburg $20,021 95.8%
Gregory Courts $72,882 92.0%
Huguenot East $289,086 97.0%
Maple Manor $502,755 92.4%
Monroe Valley $18,815 100.0%
Moosic Heights $243,760 89.0%
Mountaintop 62,319 97.4%
Oakwood Lakes $90,342 98.7%
Pine Haven $109,393 79.0%
Pleasant View $149,568 92.0%
Suburban Estates $256,302 99.0%
Sunneyside $212,723 97.4%
Sunny Acres $214,428 96.2%
Valley View - Danboro $466,641 98.3%
Valley View - Ephrata $154,629 98.1%
Valley View- Honey Brook $258,053 92.5%
Green Acres-Honey Brook $0.00 100.0%
- --------------------------------------------------------------------------------------------------
</TABLE>
Certain information for the above cross-collateralized loans, such as DSCR,
Cut-off Date Balance/Pad, Cut-off Date LTV, and Balance at ARD LTV is presented
on an aggregate-portfolio basis.
III-2
<PAGE>
THE LOANS
The D.A.M Portfolio Loans are comprised of twenty two individual loans
all cross-collateralized with each other and more particularly described under
the heading "The Properties." All of the D.A.M Portfolio Loans were originated
by FINOVA on April 29, 1998.
The D.A.M Beaver Run Loan ("Beaver Run Loan") is secured by a first
mortgage on a 100 pad manufactured housing community situated on 79.4 acres of
land located in Linkwood, Maryland (the "Beaver Run Property").
The D.A.M Brookside Loan ("Brookside Loan") and the D.A.M Pleasant View
Loan ("Pleasant View Loan") are secured by a first mortgage on a 171 pad
manufactured housing community situated on 38.6 acres of land located in
Berwick, Pennsylvania (the "Brookside Property") and a 108 pad manufactured
housing community situated on 27.3 acres of land located in Bloomsburg,
Pennsylvania (the "Pleasant View Property").
The D.A.M Carsons Loan ("Carsons Loan") is secured by a first mortgage
on a 132 pad manufactured housing community situated on 17.3 acres of land
located in Chambersburg, Pennsylvania (the "Carsons Property").
The D.A.M Chelsea Loan ("Chelsea Loan") is secured by a first mortgage
on a 86 pad manufactured housing Community situated on 12.4 acres of land
located in Sayre, Pennsylvania (the "Chelsea Property").
The D.A.M Collingwood Loan ("Collingwood Loan") is secured by a first
mortgage on a 102 pad manufactured housing community situated on 19.7 acres of
land located in Catlin, New York (the "Collingwood Property").
The D.A.M Crestview Loan ("Crestview Loan") is secured by a first
mortgage on a 99 pad manufactured housing community situated on 17.8 acres of
land located in Athens, Pennsylvania (the "Crestview Property").
The D.A.M Frieden Manor Loan ("Frieden Manor Loan") is secured by a
first mortgage on a 192 pad manufactured housing community situated on 64.6
acres of land located in Schuykill Haven, Pennsylvania (the "Frieden Manor
Property").
The D.A.M Green Acres - Chambersburg Loan ("Green Acres - Chambersburg
Loan") is secured by a first mortgage on a 24 pad manufactured housing community
situated on 6.3 acres of land located in Chambersburg, Pennsylvania (the "Green
Acres - Chambersburg Property").
The D.A.M Gregory Courts Loan ("Gregory Courts Loan") is secured by a
first mortgage on a 38 pad manufactured housing community situated on 8.5 acres
of land located in Honeybrook, Pennsylvania (the "Gregory Courts Property").
The D.A.M Huguenot East Loan ("Huguenot East Loan") is secured by a
first mortgage on a 166 pad manufactured housing community situated on 74.9
acres of land located in Port Jervis, New York (the "Huguenot East Property").
The D.A.M Maple Manor Loan ("Maple Manor Loan") is secured by a first
mortgage on a 317 pad manufactured housing community situated on 68.7 acres of
land located in Taylor, Pennsylvania (the "Maple Manor Property").
The D.A.M Monroe Valley Loan ("Monroe Valley Loan") is secured by a
first mortgage on a 44 pad manufactured housing community situated on 11.4 acres
of land located in Jonestown, Pennsylvania (the "Monroe Valley Property").
The D.A.M Moosic Heights Loan ("Moosic Heights Loan") is secured by a
first mortgage on a 153 pad manufactured housing community situated on 34.3
acres of land located in Avoca, Pennsylvania (the "Moosic Heights Property").
III-3
<PAGE>
The D.A.M Mountaintop Loan ("Mountaintop Loan") is secured by a first
mortgage on a 39 pad manufactured housing community situated on 13.2 acres of
land located in Narvon, Pennsylvania (the "Mountaintop Property").
The D.A.M Oakwood Lakes Loan ("Oakwood Lakes Loan") is secured by a
first mortgage on a 79 pad manufactured housing community situated on 39.9 acres
of land located in Tunkhannock, Pennsylvania (the "Oakwood Lakes Property").
The D.A.M Pine Haven Loan ("Pine Haven Loan") is secured by a first
mortgage on a 133 pad manufactured housing community situated on 56.8 acres of
land located in Blossvale, New York (the "Pine Haven Property").
The D.A.M Suburban Estates Loan (" Suburban Estates Loan") is secured by
a first mortgage on a 203 pad manufactured housing community situated on 35.3
acres of land located in Greensburg, Pennsylvania (the "Suburban Estates
Property").
The D.A.M Sunneyside Loan ("Sunneyside Loan") is secured by a first
mortgage on a 74 pad manufactured housing community situated on 8.7 acres of
land located in Norristown, Pennsylvania (the "Sunneyside Property").
The D.A.M Sunny Acres Loan ("Sunny Acres Loan") is secured by a first
mortgage on a 184 pad manufactured housing community situated on 57.4 acres of
land located in Somerset, Pennsylvania (the "Sunny Acres Property").
The D.A.M Valley View - Danboro Loan ("Valley View - Danboro Loan") is
secured by a first mortgage on a 231 pad manufactured housing community situated
on 30.1 acres of land located in Danboro, Pennsylvania (the "Valley View -
Danboro Property").
The D.A.M Valley View - Ephrata Loan ("Valley View - Ephrata Loan") is
secured by a first mortgage on a 107 pad manufactured housing community situated
on 26.3 acres of land located in Ephrata, Pennsylvania (the "Valley View -
Ephrata Property").
The D.A.M Valley View - Honey Brook Loan ("Valley View - Honey Brook
Loan") and the D.A.M Valley View - Green Acres Loan ("Valley View - Green Acres
Loan") are secured by a first mortgage on a 120 pad manufactured housing
community situated on 15.4 acres of land located in Honey Brook, Pennsylvania
(the "Valley View - Honey Brook Property") and a 24 pad manufactured housing
community situated on 9.7 acres of land located in Honey Brook, Pennsylvania
(the "Valley View - Green Acres Property").
THE BORROWERS
The borrower for the Beaver Run Loan is Beaver Run Associates, a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Brookside Loan and the Pleasant View Loan is
Brookside Manor Associates, a Pennsylvania limited partnership and special
purpose entity.
The borrower for the Carsons Loan is Carson MHP Associates, a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Chelsea Loan is Chelsea Associates, a Pennsylvania
limited partnership and special purpose entity.
The borrower for the Collingwood Loan is Collingwood Associates, L.P., a
New York limited partnership and special purpose entity.
III-4
<PAGE>
The borrower for the Crestview Loan is Lockhaven Associates, a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Frieden Manor Loan is Frieden Associates, a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Green Acres - Chambersburg Loan is Green Acres,
L.P., a Pennsylvania limited partnership and special purpose entity.
The borrower for the Gregory Courts Loan is Gregory Courts, L.P., a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Huguenot East Loan is Huguenot East Associates,
L.P., a New York limited partnership and special purpose entity.
The borrower for the Maple Manor Loan is Maple Manor Associates, a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Monroe Valley Loan is Monroe Valley Ltd., a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Moosic Heights Loan is Moosic Associates, L.P., a
Delaware limited partnership and special purpose entity.
The borrower for the Mountaintop Loan is Mountaintop Limited
Partnership, a Pennsylvania limited partnership and special purpose entity.
The borrower for the Oakwood Lakes Loan is Oakwood Lake Associates, a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Pine Haven Loan is Pine Haven Associates, L.P., a
New York limited partnership and special purpose entity.
The borrower for the Suburban Estates Loan is Suburban Estates
Associates, L.P., a Pennsylvania limited partnership and special purpose entity.
The borrower for the Sunneyside Loan is Sunneyside Trailer Park, L.P., a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Sunny Acres Loan is Sunny Acres Associates, L.P., a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Valley View - Danboro Loan is Valley View MHP -
Danboro, L.P., a Pennsylvania limited partnership and special purpose entity.
The borrower for the Valley View - Ephrata Loan is Valley View MHP -
Ephrata, L.P., a Pennsylvania limited partnership and special purpose entity.
The borrower for the Valley View - Honey Brook Loan and the Green Acres
- - Honey Brook Loan is Valley View MHP - Honey Brook, L.P., a Pennsylvania
limited partnership and special purpose entity.
SECURITY. All of the D.A.M Portfolio Loans are cross-collateralized and
cross-defaulted with each other and are secured by Mortgages, Deeds of Trust,
Assignments of Rents and Leases, UCC Financing Statements and certain additional
security documents. The Beaver Run Loan is also secured by a Supplementary Deed
of Trust and
III-5
<PAGE>
Security Agreement. The mortgages are first liens on the fee interest in the
respective properties. All of the D.A.M Portfolio Loans are non-recourse,
subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rates are fixed at 7.180%. The aggregate
monthly principal and interests payments made under the D.A.M Portfolio Loans is
$205,262.74, allocated per loan as follows:
The Beaver Run Loan requires monthly payments of principal and interest
of $4,301.71 until its ARD on May 11, 2008.
The Brookside and Pleasant View Loan requires monthly payments of
principal and interest of $19,306.83 until its ARD on May 11, 2008.
The Carsons Loan requires monthly payments of principal and interest of
$6,604.99 until its ARD on May 11, 2008.
The Chelsea Loan requires monthly payments of principal and interest of
$4,267.84 until its ARD on May 11, 2008.
The Collingwood Loan requires monthly payments of principal and interest
of $4,708.17 until its ARD on May 11, 2008.
The Crestview Loan requires monthly payments of principal and interest
of $5,419.48 until its ARD on May 11, 2008.
The Frieden Manor Loan requires monthly payments of principal and
interest of $12,701.90 until its ARD on May 11, 2008.
The Green Acres - Chambersburg Loan requires monthly payments of
principal and interest of $1,219.38 until its ARD on May 11, 2008.
The Gregory Courts Loan requires monthly payments of principal and
interest of $3,895.25 until its ARD on May 11, 2008.
The Huguenot East Loan requires monthly payments of principal and
interest of $13,684.18 until its ARD on May 11, 2008.
The Maple Manor Loan requires monthly payments of principal and interest
of $25,911.88 until its ARD on May 11, 2008.
The Monroe Valley Loan requires monthly payments of principal and
interest of $1,896.82 until its ARD on May 11, 2008.
The Moosic Heights Loan requires monthly payments of principal and
interest of $13,040.62 until its ARD on May 11, 2008.
The Mountaintop Loan requires monthly payments of principal and interest
of $2,709.74 until its ARD on May 11, 2008.
The Oakwood Lakes Loan requires monthly payments of principal and
interest of $4,233.97 until its ARD on May 11, 2008.
The Pine Haven Loan requires monthly payments of principal and interest
of $6,604.99 until its ARD on May 11, 2008.
III-6
<PAGE>
The Suburban Estates Loan requires monthly payments of principal and
interest of $11,685.75 until its ARD on May 11, 2008.
The Sunneyside Loan requires monthly payments of principal and interest
of $10,161.52 until its ARD on May 11, 2008.
The Sunny Acres Loan requires monthly payments of principal and interest
of $10,669.60 until its ARD on May 11, 2008.
The Valley View - Danboro Loan requires monthly payments of principal
and interest of $21,847.27 until its ARD on May 11, 2008.
The Valley View - Ephrata Loan requires monthly payments of principal
and interest of $7,282.42 until its ARD on May 11, 2008.
The Valley View - Honey Brook and Green Acres - Honey Brook Loan
requires monthly payments of principal and interest of $13,108.36 until its ARD
on May 11, 2008.
PREPAYMENT. The D.A.M Portfolio Loans may not be prepaid by the
borrowers in whole or in part prior to the date which is the earlier to the
occur of (i) the second anniversary of the startup day of the REMIC holding the
D.A.M Portfolio Loans and (ii) May 11, 2002 (the "D.A.M Portfolio Lock-out
Period"). Upon the expiration of the D.A.M Portfolio Lock-out Period, individual
D.A.M Portfolio Loans may be defeased and released from the cross collateral
arrangement so long as the debt service coverage ratio and the loan to value
percentage of the remaining properties are at least 1.50:1.00 and seventy-five
percent (75.0%), respectively. The borrowers may prepay the D.A.M Portfolio
Loans during the three (3) months prior to May 11, 2008 and thereafter following
the Anticipated Repayment Date until the maturity date without payment of any
prepayment premium.
If there is an event of default and the lender accelerates the D.A.M
Portfolio Loans, the note for each loan requires the borrower therein to pay a
prepayment premium equal to the greater of (i) the amount which when added to
the principal amount of the Note would be sufficient to purchase the Defeasance
Collateral sufficient to pay the respective D.A.M Portfolio Loan and (ii) 1% of
the prepaid principal amount. There is a 5% late fee on overdue installments,
and each D.A.M Portfolio Loans accrues interest at the mortgage rate plus 5% per
annum while such D.A.M Portfolio Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The D.A.M Portfolio Loans
become immediately due and payable upon the transfer of the properties or any
ownership interest in the borrowers. After April 29, 1998, borrowers have a one
time right of assumption subject to (a) the reasonable consent of the holder of
the mortgage is granted, (b) payment of an assumption fee of one percent (1%),
(c) approval by a rating agency of the proposed transferee and (d) the
transferee observes the special purpose entity requirements.
ESCROW/RESERVES. The D.A.M Portfolio Loans each have a tax escrow which
requires deposits in amounts sufficient to pay taxes when due. Although
permitted to be collected under the mortgages, an insurance escrow is not
currently being collected. The aggregate monthly escrow payment for capital
expenditures made under the D.A.M Portfolio Loans is $12,654, allocated per loan
as follows:
The Beaver Run Loan has a capital expenditure reserve for the payment of
certain capital expenditures which is funded monthly in the amount of $416.67.
The Brookside Loan and the Pleasant View Loan have an aggregate capital
expenditure reserve for the payment of certain capital expenditures which is
funded monthly in the amount of $1,170.83.
The Carsons Loan has a capital expenditure reserve for the payment of
certain capital expenditures which is funded monthly in the amount of $599.31.
III-7
<PAGE>
The Chelsea Loan has a capital expenditure reserve for the payment of
certain capital expenditures which is funded monthly in the amount of $358.33.
The Collingwood Loan has a capital expenditure reserve for the payment
of certain capital expenditures which is funded monthly in the amount of
$442.75.
The Crestview Loan has a capital expenditure reserve for the payment of
certain capital expenditures which is funded monthly in the amount of $412.50.
The Frieden Manor Loan has a capital expenditure reserve for the payment
of certain capital expenditures which is funded monthly in the amount of
$800.00.
The Green Acres - Chambersburg Loan has a capital expenditure reserve
for the payment of certain capital expenditures which is funded monthly in the
amount of $130.72.
The Gregory Courts Loan has a capital expenditure reserve for the
payment of certain capital expenditures which is funded monthly in the amount of
$158.33.
The Huguenot East Loan has a capital expenditure reserve for the payment
of certain capital expenditures which is funded monthly in the amount of
$763.19.
The Maple Manor Loan has a capital expenditure reserve for the payment
of certain capital expenditures which is funded monthly in the amount of
$1,320.83.
The Monroe Valley Loan has a capital expenditure reserve for the payment
of certain capital expenditures which is funded monthly in the amount of
$183.33.
The Moosic Heights Loan has a capital expenditure reserve for the
payment of certain capital expenditures which is funded monthly in the amount of
$933.00.
The Mountaintop Loan has a capital expenditure reserve for the payment
of certain capital expenditures which is funded monthly in the amount of
$162.50.
The Oakwood Lakes Loan has a capital expenditure reserve for the payment
of certain capital expenditures which is funded monthly in the amount of
$339.58.
The Pine Haven Loan has a capital expenditure reserve for the payment of
certain capital expenditures which is funded monthly in the amount of $554.17.
The Suburban Estates Loan has a capital expenditure reserve for the
payment of certain capital expenditures which is funded monthly in the amount of
$845.83.
The Sunneyside Loan has a capital expenditure reserve for the payment of
certain capital expenditures which is funded monthly in the amount of $308.33.
The Sunny Acres Loan has a capital expenditure reserve for the payment
of certain capital expenditures which is funded monthly in the amount of
$742.00.
The Valley View - Danboro Loan has a capital expenditure reserve for the
payment of certain capital expenditures which is funded monthly in the amount of
$966.70.
The Valley View - Ephrata has Loan a capital expenditure reserve for the
payment of certain capital expenditures which is funded monthly in the amount of
$445.83.
III-8
<PAGE>
The Valley View - Honey Brook Loan and the Valley View - Green Acres
Loan have an aggregate capital expenditure reserve for the payment of certain
capital expenditures which is funded monthly in the amount of $600.00.
SUBORDINATE/OTHER DEBT. The loan documents prohibit the borrowers from
incurring any subordinate indebtedness or encumbrances.
THE PROPERTIES
The Beaver Run Property is a 100 pad manufactured housing community
situated on 79.4 acres of land located in Linkwood, Maryland.
The Brookside Property is a 171 pad manufactured housing community
situated on 38.6 acres of land located in Berwick, Pennsylvania.
The Carsons Property is a 132 pad manufactured housing community
situated on 17.3 acres of land located in Chambersburg, Pennsylvania.
The Chelsea Property is a 86 pad manufactured housing community situated
on 12.4 acres of land located in Sayre, Pennsylvania.
The Collingwood Property is a 102 pad manufactured housing community
situated on 19.7 acres of land located in Catlin, New York.
The Crestview Property is a 99 pad manufactured housing community
situated on 17.8 acres of land located in Athens, Pennsylvania.
The Frieden Manor Property is a 192 pad manufactured housing community
situated on 64.6 acres of land located in Schuykill Haven, Pennsylvania.
The Green Acres - Chambersburg Property is a 24 pad manufactured housing
community situated on 6.3 acres of land located in Chambersburg, Pennsylvania.
The Gregory Courts Property is a 38 pad manufactured housing community
situated on 8.5 acres of land located in Honeybrook, Pennsylvania.
The Huguenot East Property is a 166 pad manufactured housing community
situated on 74.9 acres of land located in Port Jervis, New York.
The Maple Manor Property" is a 317 pad manufactured housing community
situated on 68.7 acres of land located in Taylor, Pennsylvania (the ").
The Monroe Valley Property is a 44 pad manufactured housing community
situated on 11.4 acres of land located in Jonestown, Pennsylvania.
The Moosic Heights Property is a 153 pad manufactured housing community
situated on 34.3 acres of land located in Avoca, Pennsylvania.
The Mountaintop Property is a 39 pad manufactured housing community
situated on 13.2 acres of land located in Narvon, Pennsylvania.
The Oakwood Lakes Property is a 79 pad manufactured housing community
situated on 39.9 acres of land located in Tunkhannock, Pennsylvania.
III-9
<PAGE>
The Pine Haven Property a 133 pad manufactured housing community
situated on 56.8 acres of land located in Blossvale, New York.
The Pleasant View Property is a 108 pad manufactured housing community
situated on 27.3 acres of land located in Bloomsburg, Pennsylvania.
The Suburban Estates Property is a 203 pad manufactured housing
community situated on 35.3 acres of land located in Greensburg, Pennsylvania.
The Sunneyside Property is a 74 pad manufactured housing community
situated on 8.7 acres of land located in Norristown, Pennsylvania.
The Sunny Acres Property is a 184 pad manufactured housing community
situated on 57.4 acres of land located in Somerset, Pennsylvania.
The Valley View - Danboro Property is a 231 pad manufactured housing
community situated on 30.1 acres of land located in Danboro, Pennsylvania.
The Valley View - Ephrata Property is a 107 pad manufactured housing
community situated on 26.3 acres of land located in Ephrata, Pennsylvania.
The Valley View - Honey Brook Property is a 120 pad manufactured housing
community situated on 15.4 acres of land located in Honey Brook, Pennsylvania.
The Valley View - Green Acres Property is a 24 pad manufactured housing
community situated on 9.7 acres of land located in Honey Brook, Pennsylvania.
MANAGEMENT
The D.A.M Properties are managed by D.A.M Management Corp. D.A.M
Management Corp. and its affiliates own and manage thirty-eight (38) mobile home
parks throughout Pennsylvania, New York and Maryland. The company was founded by
David W. Wachs and Arthur Sidewater who purchased their first mobile home park
in 1969. The key principals at D.A.M Management Corp. are Rachel A. Wachs, David
and Judith Wachs and Stephen and June Wolfson who own collectively ninety-five
(95%) of the borrowers.
III-10
<PAGE>
LOAN NOS. 25-28 - JEMAL PORTFOLIO LOANS AND PROPERTIES
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
CUT-OFF DATE BALANCE: PROPERTY TYPE:
The Car Barn $12,947,348 The Car Barn Office
801 North Capitol $11,525,385 801 North Capitol Office
Laurel Lakes Corp. Laurel Lakes Corp.
Center $3,841,795 Center Mixed Use
Kalorama GuestHouse $1,345,537 Kalorama Guest House Hospitality
LOAN TYPE Principal and LOCATION:
(EACH MORTGAGE LOAN): Interest; Fixed; The Car Barn Washington, DC
Defeasance; 801 North Capitol Washington, DC
Balloon Laurel Lakes Corp.
Center Laurel, MD
ORIGINATION DATE Kalorama Guest House Washington, DC
(EACH MORTGAGE LOAN): 12/17/1998
YEAR BUILT/RENOVATED:
MATURITY DATE The Car Barn 1895/1998
(EACH MORTGAGE LOAN): 1/1/2009 801 North Capitol 1968/97/98
Laurel Lakes Corp.
Center 1987/NAP
MORTGAGE RATE Kalorama Guest House 1895/NAP
(EACH MORTGAGE LOAN): 7.750%
CUT-OFF DATE BALANCE/
ANNUAL DEBT SERVICE SF OR UNIT:
The Car Barn $1,115,454 The Car Barn $151
801 North Capitol $992,947 801 North Capitol $140
Laurel Lakes Corp. Laurel Lakes Corp.
Center $330,982 Center $55
Kalorama Guest House $122,363 Kalorama Guest House $28,032
DSCR (COMBINED): 1.27x APPRAISED VALUE:
The Car Barn $17,300,000
UNDERWRITTEN CASH FLOW: 801 North Capitol $13,600,000
The Car Barn $1,428,164 Laurel Lakes Corp. Center $4,400,000
801 North Capitol $1,268,485 Kalorama Guest House $1,800,000
Laurel Lakes Corp.
Center $350,592
Kalorama Guest House $122,944 CUT-OFF DATE LTV:
The Car Barn 79.9%
BALLOON AMOUNT: 801 North Capitol 79.9%
The Car Barn $11,626,290 Laurel Lakes Corp. Center 79.9%
801 North Capitol $10,349,415 Kalorama Guest House 79.9%
Laurel Lakes Corp.
Center $3,449,805
Kalorama Guest House $1,114,791 PERCENT LEASED:
The Car Barn 86.6%
PERCENT LEASED AS OF DATE: 801 North Capitol 100.0%
The Car Barn 10/1/1998 Laurel Lakes Corp. Center 74.9%
801 North Capitol 10/1/1998 Kalorama Guest House 68.3%
Laurel Lakes Corp.
Center 11/30/1998
Kalorama Guest House 10/31/1998
- -------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Jemal Portfolio Loan (the "Jemal Portfolio Loan") represents one
promissory note with an original principal balance of $29,725,000 secured by two
deeds of trust on two office properties, one mixed-use property
(office/warehouse) and one hotel property located in Washington, D.C. and
Maryland (individually, a "Jemal Property", and collectively, the "Jemal
Properties"), and more particularly described below under the heading "The
Properties." The Jemal Portfolio Loan was originated by FINOVA Realty Capital
Inc. on December 17, 1998.
III-11
<PAGE>
THE BORROWER. The borrowers are Jemal's/Cayre Car Barn, L.L.C., a
District of Columbia limited liability company, Jemal's/Cayre North Capitol
L.L.C., a District of Columbia limited liability company, Jemal's/Cayre Kalorama
L.L.C., a District of Columbia limited liability company and Jemal's/Cayre
Laurel Lakes L.L.C., a Maryland limited liability company (collectively, the
"Jemal Borrower"). The Jemal Borrower is controlled by two principals, Douglas
Jemal and Joseph Cayre, and each executed the Non-Recourse Guaranty in
connection with the Jemal Portfolio Loan. Each Jemal Borrower is a special
purpose entity, and the loan documents and the organizational documents limit
the Jemal Borrower to the acquisition, operation and disposition of the Jemal
Properties.
SECURITY. The Jemal Portfolio Loan is secured by two Deeds of Trust, two
Assignments of Rents and Leases, four UCC Financing Statements and certain
additional security documents. The mortgages which secure the Jemal Portfolio
Loan are first liens on the fee interests in each of the Jemal Properties. The
Jemal Portfolio Loan is non-recourse, subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.750%. The Jemal Portfolio
Loan requires monthly payments of principal and interest of $213,478.91 with its
Maturity Date on January 1, 2009, at which time all unpaid principal and accrued
interest is due. The Jemal Portfolio Loan accrues interest computed on the basis
of the actual days elapsed per month in a 360-day year.
PREPAYMENT. By the terms, the Jemal Portfolio Loan may not be prepaid in
whole or in part during the loan term, except the Jemal Portfolio Loan may be
defeased on or after the earlier of (a) January 1, 2003, or (b) the second
anniversary of the start-up date of the REMIC holding the Jemal Portfolio Loan
("Defeasance Date"). In addition, the Jemal Borrower may partially defease any
one or more of the Jemal Properties on or after the Defeasance Date, but only
upon payment/defeasance of an amount equal to 120% of the loan amount allocated
to the applicable Jemal Property and provided further that the remaining Jemal
Properties maintain on an aggregate basis a 1.30x DSCR and at least a 75% LTV.
The Jemal Portfolio Loan may be paid without a prepayment fee or premium during
the last 3 months of the loan term.
If there is an event of default and the lender accelerates the Jemal
Portfolio Loan, the Note requires the Jemal Portfolio Borrower to pay a
prepayment premium equal to the greater of (i) the amount which when added to
the principal amount of the Note would be sufficient to purchase the Defeasance
Collateral sufficient to pay the Jemal Portfolio Loan and (ii) 1% of the prepaid
principal amount. There is a 5% late fee on overdue installments, and the Jemal
Portfolio Loan accrues interest at the Mortgage Rate plus 5% per annum while the
Jemal Portfolio Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Jemal Portfolio Loan
becomes immediately due and payable upon any transfer of the Jemal Properties
ownership interest in the Jemal Portfolio Borrower, except in connection with
the rights of transfer described below. After January 1, 2000, the Jemal
Portfolio Borrower has the right to one transfer of the Jemal Properties subject
to the related mortgage, provided that (a) consent of the holder of the Jemal
Portfolio Loan is obtained, (b) such holder receives payment of a 1.0%
assumption fee, (c) the proposed transferee is approved by the applicable rating
agency, and (d) the proposed transferee assumes the Jemal Portfolio Loan and
observes the single purpose entity requirements. Transfers by operation of law
and transfers of minority ownership interests not resulting in a change in
voting control are permitted.
ESCROW/RESERVES. There is a tax and property insurance escrow which
requires monthly deposits in the amount sufficient to pay estimated taxes and
property insurance when due. There is also an escrow required for capital
expenditures which is required to be funded monthly in the total amount of
$7,669.71 and an escrow required for tenant improvements and leasing costs which
is required to be funded monthly in the total amount of $25,035.75. Such amounts
will be disbursed to pay such costs and provide additional security for the
Jemal Portfolio Loan. Lender holds $750,000 in escrow pursuant to the Cash
Collateral and Security Agreement (Jemal Cayre Loan A--$750,000 Laurel Lakes
Reserve) as additional collateral for the Jemal Portfolio Loan which is
available for release in payment of tenant improvements and leasing commissions
for the Laurel Lakes Property, subject to customary disbursement conditions, or
for release to the Jemal Borrower, subject to customary disbursement conditions,
including the Laurel Lakes Property's achievement of a 1.30 DSCR. Lender holds
$596,640 in escrow pursuant to a
III-12
<PAGE>
Cash Collateral and Security Agreement (Jemal Cayre Loan A--$1,190,240 Total
Deposit) as additional collateral for the Jemal Portfolio Loan which is
available for release to the Jemal Borrower when the City of Washington, D.C.
is in occupancy and paying rent at its premises on the second and third floors
of the 801 North Capitol Property. The City of Washington, D.C. is in occupancy
and paying rent currently, but Lender is awaiting receipt of an estoppel from
the City of Washington, D.C. confirming its occupancy and commencement of its
payment obligations. Lender holds $93,600 in escrow pursuant to the Cash
Collateral and Security Agreement (Jemal/Cayre Loan A--$1,190,240 Total
Deposit) as additional collateral for the Jemal Portfolio Loan which is
available for release to the Jemal Borrower when a tenant (D.P.C. Technology)
is in occupancy and paying rent in its premises at the Laurel Lakes Property.
D.P.C. Technology is currently in occupancy and paying rent, but Lender is
awaiting receipt of an estoppel certificate from this tenant confirming its
occupancy and commencement of its payment obligations, which is expected to
arrive shortly.
SUBORDINATE/OTHER DEBT. The loan documents prohibit the Jemal Portfolio
Borrower from incurring any subordinate indebtedness or encumbrances.
THE PROPERTIES
THE CAR BARN PROPERTY
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
Location: Washington, D.C. Square Footage: 85,838
Property Type: Office Percent Leased: 86.6%
Year Built: 1895 Percent Leased as of Date: 10/1/98
Year Renovated: 1998
- -------------------------------------------------------------------------------------------------
</TABLE>
The Car Barn Property consists of a rectangular four story brick office
building. The Car Barn Property was 86.6% leased as of October 1, 1998. It is
76.0% leased to Georgetown University for 10 years.
The Car Barn Property was constructed in 1895.
801 NORTH CAPITOL PROPERTY
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
Location: Washington, DC Square Footage: 82,334
Property Type: Office Percent Leased: 100.0%
Year Built: 1968 Percent Leased as of Date: 10/1/98
Year Renovated: 1997/1998
- -------------------------------------------------------------------------------------------------
</TABLE>
The 801 North Capitol Property consists of a nine-story office building
containing 82,334 square feet of leasable area. The building is 100.0% leased to
two tenants.
The building was original constructed in 1968 and 1997.
LAUREL LAKES CORP. CENTER PROPERTY
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
Location: Laurel, MD Square Footage: 70,162
Property Type: Mixed Use Percent Leased: 74.9%
Year Built: 1987 Percent Leased as of Date: 11/30/98
- -------------------------------------------------------------------------------------------------
</TABLE>
The Laurel Lakes Property consists of one steel frame, two story office
building, located in Laurel, Maryland. As of November 30, 1998, the Laurel Lakes
Property was 74.9% leased.
The Laurel Lakes Property was constructed in 1987. The building is of
steel frame construction with brick over concrete block exterior.
III-13
<PAGE>
KALORAMA GUESTHOUSE PROPERTY
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
Location: Washington, DC Size: 48 Rooms
Property Type: Limited Service Hotel Percent Leased: 68.3% (12 Month
Trailing Basis)
Year Built: 1895 Percent Occupied as of Date: 10/31/98
Year Renovated: NAP
- -------------------------------------------------------------------------------------------------
</TABLE>
The Kalorama GuestHouse Property consists of a 48 room bed and
breakfast. The Kalorama GuestHouse Property contains six buildings located
within a two mile radius of each other. The structure is wood frame and the
property was developed between 1895 and 1912.
MANAGEMENT
The Kalorama GuestHouse Property is managed by Chester Management. The
Car Barn Property, 801 North Capitol Property and Laurel Lakes Corp. Center
Property are all self-managed.
III-14
<PAGE>
LOAN NO. 29 - QUAIL OAKS APARTMENTS LOAN AND PROPERTY
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
Cut-off Date Balance: $21,808,261 Property Type: Multifamily
Loan Type: Principal and Location: Tampa, FL
Interest; Fixed; Year Built/Renovated: 1985/NAP
YM/Defeasance; Units: 404
Balloon Cut-off Date Balance per unit: $53,981
Origination Date: 12/24/1997 Appraised Value: $28,500,000
Maturity Date: 4/1/2013 Current LTV: 76.5%
Mortgage Rate: 7.210% Balance Maturity LTV: 60.2%
Annual Debt Service: $1,793,788 Percent Leased: 92.0%
DSCR: 1.30x Percent Leased as of Date: 2/1/1999
Underwritable Cash Flow: $2,340,120
Balance at Maturity: $17,146,916
- -------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN. The Quail Oaks Apartments Loan (the "Quail Oaks Loan") is
secured by a first mortgage on a 404 unit multifamily property located in Tampa,
Florida (the "Quail Oaks Property"). The Quail Oaks Loan was originated by
another financial institution on December 24, 1997 and subsequently acquired by
FINOVA Realty Capital Inc. The Quail Oaks Loan was structured with an earnout
provision which was funded on March 27, 1998.
THE BORROWER. The borrower is Roller Hockey of Southeast Florida, Ltd.,
EPNG Building II, Ltd., EPNG Land II, Ltd., Nort LP II, Ltd., as tenants in
common, each a Florida limited partnership (the "Quail Oaks Borrower"). The loan
documents and its organizational documents limit the Quail Oaks Borrower to the
acquisition, operation and disposition of the Quail Property.
SECURITY. The Quail Oaks Loan is secured by a Mortgage and Security
Agreement (the "Mortgage") and certain additional security documents. The
Mortgage is a first lien on a fee interest in the Quail Oaks Property. The Quail
Oaks Loan is non-recourse, subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.210%. The Quail Oaks Loan
requires monthly payments of principal and interest of $149,482.37 until its
maturity on April 1, 2013, at which time all unpaid principal and accrued but
unpaid interest is due. The Quail Oaks Loan accrues interest computed on the
basis of the actual number of days elapsed each month in a 360-day year.
PREPAYMENT. By its terms, the Quail Oaks Loan may not be prepaid in
whole or in part during the loan term, except the Quail Oaks Loan may at the
Quail Oaks Borrower's option be (a) defeased on or after the earlier of (i) June
1, 2001 or (ii) the second anniversary of the start-up date of the REMIC holding
the Quail Oaks Loan, or (b) prepaid anytime after May 1, 2000 with a payment
equal to the greater of 1% of the outstanding balance of the Quail Oaks Loan and
a Yield Maintenance Premium calculated by reference to U.S. Treasury
obligations. The Quail Oaks Loan may be paid without a prepayment fee or premium
during the last 3 months of the loan term.
If there is an event of default and the lender accelerates the Quail
Oaks Loan, the Note requires the Quail Oaks Borrower to pay a prepayment fee
equal to three percent (3%) of the principal balance of the Note plus the
greater of (i) one percent (1%) of the principal amount being prepaid and (ii)
the positive excess of (a) the present value of all future installments of
principal and interest due under the Note including the principal due at
maturity, discounted at an interest rate per annum equal to the Treasury
Constant Maturity Yield Index (the average yield for "This Week" as reported by
the Federal Reserve Board in Federal Reserve Statistical Release H.15(519)
published during the second full week preceding the date on which such premium
is payable for instruments having a maturity coterminous with the remaining term
of the Note) over (b) the outstanding principal balance of the Note immediately
before such prepayment. There is a 5% late fee on overdue installments, and the
Quail Oaks Loan accrues interest at the Mortgage Rate plus 4% per annum while
the Quail Oaks Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Quail Oaks Loan
becomes immediately due and payable upon the transfer of the Quail Oaks Property
or any ownership interest in the Quail Oaks Borrower, except in connection with
the rights of transfer described below. The Quail Borrower has the right, at any
time, to an
III-15
<PAGE>
unlimited number of transfers of the Quail Oaks Property subject to a 0.5%
assumption fee on the first transfer and a 1% assumption fee on transfers made
thereafter. The lender retains the right to approve or disapprove the proposed
buyer, considering various factors such as the buyer's financial strength,
business standing and track record. Approval is given or withheld, however,
based on what lender determines to be commercially reasonable in lender's sole
discretion. Transfers by operation of law and transfers of minority ownership
interests not resulting in a change in voting control are permitted.
ESCROW/RESERVES. There is a tax and property insurance escrow which
requires monthly deposits in the amount sufficient to pay estimated taxes and
property insurance when due. There is also an annual escrow required for capital
expenditures which is required to be funded monthly in the amount of $5,050.
SUBORDINATE/OTHER DEBT. The loan documents provide that the lender may
consent to a purchase money financing by the Quail Borrower in an amount not to
exceed $2,000,000 secured by a pledge of up to 99% of ownership interests of the
buyer or by a mortgage. The loan must be subordinate to the Mortgage and not
exceed an 85% loan to value ratio and a debt service coverage ratio of 1:15:1.
THE PROPERTY. The Quail Oaks Property consists of 46 2-story buildings
located in Tampa, FL. The Quail Oaks Property was 92% occupied as of February 1,
1999 with 370 tenants based on a rent roll provided by the Quail Oaks Borrower.
The Quail Oaks Property was completed in 1985 and is constructed with
wood frame and vinyl siding with brick accents.
The 404 units comprising the Quail Oaks Property average 700 square feet
for one bedroom units, 950 square feet for two bedroom, one bath units, 1000
square feet for two bedroom, two bath units, 1,300 square feet for three
bedroom, two bath with loft units and 1,500 square feet for three bedroom, two
bath units and consist of the following unit mix: sixty one bedroom units, one
hundred eighty two bedroom units and one hundred sixty-four three bedroom units.
Facilities include two swimming pools, one heated spa, two tennis courts, two
racquetball courts, one laundry room, one exercise room and two clubhouses.
MANAGEMENT. The Quail Oaks Property is managed by HWW Management, an
affiliate of the Quail Oaks Borrower.
III-16
<PAGE>
LOAN NO. 30 - CROWN COLONY OFFICE LOAN AND PROPERTY
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
Cut-off Date Balance: $18,859,720 Property Type: Office
Loan Type: Principal and Location: Quincy, MA
Interest; Fixed;
Balloon
Origination Date: 12/28/1998 Year Built/Renovated: 1988/NAP
Maturity Date: 1/1/2009 Square Footage: 125,000
Mortgage Rate: 7.750% Cut-off Date Balance/SF: $151
Annual Debt Service: $1,624,823 Appraised Value: $25,000,000
DSCR: 1.22x Current LTV: 75.4%
Underwritable Cash Flow: $1,985,422 Balance Maturity LTV: 67.7%
Balance at Maturity: $16,935,407 Percent Leased: 85.5%
Percent Leased as of
Date: 10/31/1998
- -------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Crown Colony Office Loan (the "Crown Colony Office Loan") is secured
by a first mortgage on a six story 125,000 square foot office building located
in Quincy, Massachusetts (the "Crown Colony Office Property"). The Crown Colony
Office Loan was originated by FINOVA Realty Capital Inc. on December 28, 1998.
THE BORROWER. The borrower is Colony South Associates Limited
Partnership, a Massachusetts limited partnership (the "Crown Colony Office
Borrower"). The loan documents and their organizational documents limit the
Crown Colony Office Borrower and its general partner to the acquisition,
operation and disposition of the Crown Colony Office Property.
SECURITY. The Crown Colony Office Loan is secured by a Mortgage and
Security Agreement (the "Mortgage") and certain additional security documents.
The Mortgage is a first lien on a fee interest in the Crown Colony Office
Property. The Crown Colony Office Loan is non-recourse, subject to certain
limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.750%. The Crown Colony
Office Loan requires monthly payments of principal and interest of $135,401.91
until its maturity on January 1, 2009, at which time all unpaid principal and
accrued but unpaid interest is due. The Crown Colony Office Loan accrues
interest computed on the basis of the actual number of days elapsed each month
in a 360-day year.
PREPAYMENT. By its terms, the Crown Colony Office Loan may not be
prepaid in whole or in part during the loan term, except the Crown Colony Office
Loan may be defeased on or after the earlier of (a) January 1, 2002 or (b) the
second anniversary of the start-up date of the REMIC holding the Crown Colony
Office Loan. The Crown Colony Office Loan may be paid without a prepayment fee
or premium during the last 3 months of the loan term.
If there is an event of default and the lender accelerates the Crown
Colony Office Loan, the Note requires the Crown Colony Office Borrower to pay a
prepayment premium equal to the greater of (i) the amount which when added to
the principal amount of the Note would be sufficient to purchase the Defeasance
Collateral sufficient to pay the Crown Colony Office Loan (if defeasance is
permitted) and (ii) 1% of the prepaid principal amount. There is a 5% late fee
on overdue installments, and the Crown Colony Office Loan accrues interest at
the Mortgage Rate plus 5% per annum while the Crown Colony Office Loan is in
default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Crown Colony Office
Loan becomes immediately due and payable upon the transfer of the Crown Colony
Office Property or any ownership interest in the Crown Colony Office Borrower,
except in connection with the rights of transfer described below. After January
1, 2000, the Crown Colony Office Borrower has the right to two transfers of the
Crown Colony Office Property subject to the related mortgage, provided that (a)
consent of the holder of the Crown Colony Office Loan is obtained, (b) such
holder receives payment of a 1% assumption fee, (c) the proposed transferee is
approved by the applicable rating agency, and (d) the proposed transferee
assumes the Crown Colony Office Loan and observes the single purpose
III-17
<PAGE>
entity requirements. Transfers by operation of law and transfers of minority
ownership interests not resulting in a change in voting control are permitted.
ESCROW/RESERVES. There is a tax and insurance escrow which requires
monthly deposits in the amount sufficient to pay estimated taxes and insurance
when due. There is also an escrow required for capital expenditures which is
required to the funded monthly in the amount of $2,083 and an escrow required
for tenant improvements and leasing costs which is required to be funded monthly
in the amount of $13,271 plus an additional $20,000 per month until the initial
TI & LC Cap of $2,000,000 is reached. Such amounts will be disbursed to pay such
costs and provide additional security for the Crown Colony Office Loan, except
no disbursements will be made for the initial leasing of the 18,178 square feet
of vacant space at the Crown Colony Office Property.
SUBORDINATE/OTHER DEBT. The loan documents prohibit the Crown Colony
Office Borrower from incurring any subordinate indebtedness or encumbrances.
THE PROPERTY
The Crown Colony Office Property is a six story 125,000 square foot
office building located in Quincy, Massachusetts, approximately seven miles from
Boston. The Crown Colony Office Property was completed in 1988 and is
constructed with steel, aggregate panels, granite and glass.
The Crown Colony Office Property was 85.50% leased as of October 31,
1998 with three tenants based on a rent roll provided by the Crown Colony Office
Borrower. The Crown Colony Office Property was 100% occupied in 1995, 1996 and
1997. Approximately 89.6% of the leased space is rented by national and regional
tenants including The George W. Prescott Publishing Company and General Mills.
Contractual lease expirations during the loan term for all tenants are as
follows: 17,614 square feet (14.1%) in 2002 and 89,208 square feet (71.4%) in
2003. The average in-place rent for the Crown Colony Office Property is $30.17
per square foot.
MANAGEMENT
The Crown Colony Office Property is managed by Vazza Associates, an
affiliate of the Crown Colony Office Borrower. Vazza Associates has developed
approximately 3,300,000 square feet of first class office and mixed-use
developments, suburban office parks and shopping centers.
III-18
<PAGE>
LOAN NOS. 31-36 - SUBURBAN LODGE PORTFOLIO III LOAN AND PROPERTIES
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
Cut-off Date Balance: $15,532,489 Property Type: Hospitality
Loan Type: Principal and Property Sub-Type Extended Stay
Interest; Fixed; Location: See Below
Defeasance; Balloon
Origination Date: 12/29/1998 Year Built/Renovated: See Below
Maturity Date: 01/01/2009 Units: 775 Total in Six
Hotels;
See Below for
Individual Properties
Mortgage Rate: 8.250% Square Footage: See Below
Annual Debt Service: $1,474,084 Cut-off Date Balance per room: $20,042
DSCR: 1.43x Appraised Value: $26,375,000.00
Underwritable Cash Flow: $2,109,523 Current LTV: 58.9%
Balance at Maturity: $13,055,376 Balance Maturity LTV: 49.5%
Percent Occupied: 88.33% (12 Month
Trailing Basis)
Percent Occupied as of
Date: 11/30/1998
- -------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Suburban Lodge Portfolio III Loan (the "Suburban III Loan")
represents one promissory note for $15,580,000 secured by a first mortgage on
six extended stay hotels located in the city of Cincinnati, state of Ohio, city
of Atlanta, state of Georgia, city of Norcross, state of Georgia, city of
Charlotte, state of North Carolina, city of Jonesboro, state of Georgia, and
city of Virginia Beach, state of Virginia (individually a "Suburban III
Property", and collectively the "Suburban III Properties"). The Suburban III
Loan was originated by FINOVA Realty Capital Inc. on December 29, 1998.
THE BORROWER. The borrower is SLAM Properties III, L.L.C., a Georgia
limited liability company (the "Suburban III Borrower"). The loan documents and
its organizational documents limit the Suburban III Borrower to the acquisition,
operation and disposition of the Suburban III Properties.
SECURITY. The Suburban III Loan is secured by six mortgages, deeds of
trust and/or deeds to secure debt and security agreements (the "Deeds of Trust")
and certain additional security documents. Each of the six Deeds of Trust is a
first lien on a fee interest in one of the six Suburban III Properties. The
Suburban III Loan is non-recourse, subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 8.250%. The Suburban III
Loan requires monthly payments of principal and interest of $122,840.40 until
its maturity on January 1, 2009, at which time all unpaid principal and accrued
but unpaid interest is due. The Suburban III Loan accrues interest computed on
the basis of the actual number of days elapsed each month in a 360-day year.
PREPAYMENT. By its terms, the Suburban III Loan may not be prepaid in
whole or in part during the loan term, except the Suburban III Loan may be
defeased on or after the earlier of (a) February 1, 2003, or (b) the second
anniversary of the start-up date of the REMIC holding the Suburban III Loan
("Defeasance Date"). In addition, the Suburban III Borrower may partially
defease any one or more of the Suburban III Properties on or after the
Defeasance Date, but only upon payment/defeasance of an amount equal to 125% of
the loan amount allocated to the applicable Suburban III Property and provided
further that the remaining Suburban III Properties maintain on an aggregate
basis at least a 1.40x DSCR and not more than a 75% LTV. The Suburban III Loan
may be paid without a prepayment fee or premium during the last 3 months of the
loan term.
If there is an event of default and the lender accelerates the Suburban
III Loan, the Note requires the Suburban III Borrower to pay a prepayment
premium equal to the greater of (i) the amount which when added to the principal
amount of the Note would be sufficient to purchase the Defeasance Collateral
sufficient to fully defease the Suburban III Loan (if defeasance is permitted)
and (ii) 1% of the prepaid principal amount. There is a 4% late fee on
III-19
<PAGE>
overdue installments, and the Suburban III Loan accrues interest at the
Mortgage Rate plus 5% per annum while the Suburban III Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Suburban III Loan
becomes immediately due and payable upon the transfer of the Suburban III
Properties or any ownership interest in the Suburban III Borrower, except in
connection with the rights of transfer described below. After January 1, 2000 or
sixty days after securitization, the Suburban III Borrower has the right to two
(2) transfers of the Suburban III Properties subject to the related mortgage,
provided that (a) consent of the holder of the Suburban III Loan is obtained,
(b) such holder receives payment of a 0.50% assumption fee, (c) the proposed
transferee is approved by the applicable rating agency, and (d) the proposed
transferee assumes the Suburban III Loan and observes the single purpose entity
requirements. Transfers by operation of law and transfers of minority ownership
interests not resulting in a change in voting control are permitted. In
addition, there is a right to transfer all of the ownership interests in the
Suburban III Borrower to a real estate investment trust which is wholly owned by
Suburban Holdings, L.P., and enter into operating leases for the Suburban III
Properties, provided that (i) the operating leases are subject to and
subordinate to the lien of the Deeds of Trust, (ii) the Suburban III Borrower
provides opinions of counsel and any other documentation required by a rating
agency in connection with such transfer, and (iii) under no circumstances will
the transfer of the ownership interests in the Suburban III Borrower to a real
estate investment trust result in a negative change in the loan to value ratio
or debt service coverage ratio of the Suburban III Loan, each as determined by
the lender, or result in a downgrading of the securities by a rating agency.
ESCROW/RESERVES. There is a tax and property insurance escrow which
requires monthly deposits in the amount sufficient to pay estimated taxes and
property insurance when due. There is also a reserve for capital expenditures
and FF&E ("Replacement Reserve"). The deposits to the Replacement Reserve are
initially set and are adjusted annually such that the monthly deposit to the
Replacement Reserve is equal to the Gross Revenue derived from the Suburban III
Properties for the preceding twelve (12) months (as reflected in the Suburban
III Borrower's annual operating statements as approved and accepted by Lender)
multiplied by four percent (4%) and divided by twelve (12). The adjustment to
the monthly deposits to the Replacement Reserve are effective for the payment
due January 1 of each year, provided, however, that in no event will such
adjustment result in a decrease or increase from the amount of the monthly
deposit made into the Replacement Reserve for the preceding twelve (12) months
unless Lender deems it necessary in its reasonable discretion. Notwithstanding
the above, the Suburban III Borrower is not required to make a monthly deposit
into the Replacement Reserve in any month in which the balance in the
Replacement Reserve exceeds the Gross Revenue derived from the Suburban III
Properties for the preceding thirty-six (36) months (as reflected in the
Suburban III Borrower's annual operating statements as approved and accepted by
Lender) multiplied by four percent (4%). For the first loan year, the monthly
deposit into the Replacement Reserve is $18,440.00. Such amounts are disbursed
to pay Capital and FF&E costs and provide additional security for the Suburban
III Loan.
SUBORDINATE/OTHER DEBT. The loan documents prohibit the Suburban III
Borrower from incurring any subordinate indebtedness or encumbrances.
THE PROPERTIES
The Suburban III Properties consist of six (6) extended stay hotels
located in the city of Cincinnati, state of Ohio, city of Atlanta, state of
Georgia, city of Norcross, state of Georgia, city of Charlotte, state of North
Carolina, city of Jonesboro, state of Georgia, and city of Virginia Beach, state
of Virginia. The combined average daily occupancy of the Suburban III Properties
as of November 30, 1998 on a 12 month trailing basis was 88.33%.
III-20
<PAGE>
The Suburban III Properties are more fully described as follows:
6785 FAIRFIELD BUSINESS DRIVE, CINCINNATI, OHIO 45014
- ----------------------------------------------------------------------------
Location: Cincinnati, Ohio
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1997/NAP
Square Footage: 131 Rooms / 261 SF Average Room
Percent Occupied: 89.6% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- ----------------------------------------------------------------------------
660 INTERCHANGE DRIVE SW, ATLANTA, GEORGIA 30336
- ----------------------------------------------------------------------------
Location: Atlanta, Georgia
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1988/NAP
Square Footage: 108 rooms / 205 SF All Rooms
Percent Occupied: 89.9% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- ----------------------------------------------------------------------------
6067 BUFORD HIGHWAY, NORCROSS, GEORGIA 30071
- ----------------------------------------------------------------------------
Location: Norcross, Georgia
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1989/NAP
Square Footage: 128 Rooms / 230 SF Average Room
Percent Occupied: 88.1% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- ----------------------------------------------------------------------------
540 PRESSLEY ROAD, CHARLOTTE, NORTH CAROLINA 28217
- ----------------------------------------------------------------------------
Location: Charlotte, North Carolina
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1997/NAP
Square Footage: 132 Rooms / 239 SF Average Room
Percent Occupied: 92.6% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- ----------------------------------------------------------------------------
7021 TARA BOULEVARD, JONESBORO, GEORGIA 30236
- ----------------------------------------------------------------------------
Location: Jonesboro, Georgia
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1996/NAP
Square Footage: 138 Rooms / 246 SF Average Room
Percent Occupied: 91.4% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- ----------------------------------------------------------------------------
III-21
<PAGE>
416 INDEPENDENCE BLVD., VIRGINIA BEACH, VIRGINIA 23452
- ----------------------------------------------------------------------------
Location: Virginia Beach, Virginia
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1997/NAP
Square Footage: 138 Rooms / 255 SF Average Room
Percent Occupied: 78.4% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- ----------------------------------------------------------------------------
MANAGEMENT
The Suburban III Properties are managed by Suburban Management, Inc., a
publicly traded company, and an affiliate of the Suburban III Borrower.
III-22
<PAGE>
LOAN NOS. 37-42 - SUBURBAN LODGE PORTFOLIO II LOAN AND PROPERTIES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $15,452,733 Property Type: Hospitality
Loan Type: Principal and Property Sub-Type: Extended Stay
Interest; Fixed; Location: See Below
Defeasance; Balloon Year Built/Renovated: See Below
Origination Date: 12/29/1998 Units: 757 Total in Six
Maturity Date: 01/01/2009 Hotels; See Below
for Individual
Properties
Square Footage: See Below
Mortgage Rate: 8.250% Cut-off Date Balance per
Annual Debt Service: $1,466,517 room: $20,413
Appraised Value: $26,825,000.00
DSCR: 1.48x Current LTV: 57.6%
Underwritable Cash Flow: $2,169,104 Balance Maturity LTV: 48.4%
Balance at Maturity: $12,988,319 Percent Occupancy 90.42% (12 Month
Trailing Basis)
Percent Occupancy as of
Date: 11/30/1998
- ----------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Suburban Lodge Portfolio II Loan (the "Suburban II Loan") represents
one promissory note with an original principal balance of $15,500,000 secured by
a first mortgage on six extended stay hotels located in the city of Chesapeake,
state of Virginia, city of Lilburn, state of Georgia, city of Mableton, state of
Georgia, city of Louisville, state of Kentucky, city of Greenville, state of
South Carolina and city of Charlotte, state of North Carolina (individually a
"Suburban II Property", and collectively the "Suburban II Properties"). The
Suburban III Loan was originated by FINOVA Realty Capital Inc. on December 29,
1998.
THE BORROWER. The borrower is SLAM Properties II, L.L.C., a Georgia
limited liability company (the "Suburban II Borrower"). The loan documents and
its organizational documents limit the Suburban II Borrower to the acquisition,
operation and disposition of the Suburban II Properties.
SECURITY. The Suburban II Loan is secured by six mortgages, deeds of
trust and/or deeds to secure debt and security agreements (the "Deeds of Trust")
and certain additional security documents. Each of the six Deeds of Trust is a
first lien on a fee interest in one of the six Suburban II Properties. The
Suburban II Loan is non-recourse, subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 8.250%. The Suburban II
Loan requires monthly payments of principal and interest of $122,209.75 until
its maturity on January 1, 2009, at which time all unpaid principal and accrued
but unpaid interest is due. The Suburban II Loan accrues interest computed on
the basis of the actual number of days elapsed each month in a 360-day year.
PREPAYMENT. By its terms, the Suburban II Loan may not be prepaid in
whole or in part during the loan term, except the Suburban II Loan may be
defeased on or after the earlier of (a) February 1, 2003, or (b) the second
anniversary of the start-up date of the REMIC holding the Suburban II Loan
("Defeasance Date"). In addition, the Suburban II Borrower may partially defease
any one or more of the Suburban II Properties on or after the Defeasance Date,
but only upon payment/defeasance of an amount equal to 125% of the loan amount
allocated to the applicable Suburban II Property and provided further that the
remaining Suburban II Properties maintain on an aggregate basis at least a 1.40x
DSCR and not more than a 75% LTV. The Suburban II Loan may be paid without a
prepayment fee or premium during the last 3 months of the loan term.
If there is an event of default and the lender accelerates the Suburban
II Loan, the Note requires the Suburban II Borrower to pay a prepayment premium
equal to the greater of (i) the amount which when added to the principal amount
of the Note would be sufficient to purchase the Defeasance Collateral sufficient
to fully defease the Suburban II Loan (if defeasance is permitted) and (ii) 1%
of the prepaid principal amount. There is a 4% late fee on
III-23
<PAGE>
overdue installments, and the Suburban II Loan accrues interest at the Mortgage
Rate plus 5% per annum while the Suburban II Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Suburban II Loan
becomes immediately due and payable upon the transfer of the Suburban II
Properties or any ownership interest in the Suburban II Borrower, except in
connection with the rights of transfer described below. After January 1, 2000 or
sixty days after securitization, the Suburban II Borrower has the right to two
(2) transfers of the Suburban II Properties subject to the related mortgage,
provided that (a) consent of the holder of the Suburban II Loan is obtained, (b)
such holder receives payment of a 0.50% assumption fee, (c) the proposed
transferee is approved by the applicable rating agency, and (d) the proposed
transferee assumes the Suburban II Loan and observes the single purpose entity
requirements. Transfers by operation of law and transfers of minority ownership
interests not resulting in a change in voting control are permitted. In
addition, there is a right to transfer all of the ownership interests in the
Suburban II Borrower to a real estate investment trust which is wholly owned by
Suburban Holdings, L.P., and enter into operating leases for the Suburban II
Properties, provided that (i) the operating leases are subject to and
subordinate to the lien of the Deeds of Trust, (ii) the Suburban II Borrower
provides opinions of counsel and any other documentation required by a rating
agency in connection with such transfer, and (iii) under no circumstances will
the transfer of the ownership interests in the Suburban II Borrower to a real
estate investment trust result in a negative change in the loan to value ratio
or debt service coverage ratio of the Suburban II Loan, each as determined by
the lender, or result in a downgrading of the securities by a rating agency.
ESCROW/RESERVES. There is a tax and property insurance escrow which
requires monthly deposits in the amount sufficient to pay estimated taxes and
property insurance when due. There is also a reserve for capital expenditures
and FF&E ("Replacement Reserve"). The deposits to the Replacement Reserve are
initially set and are adjusted annually such that the monthly deposit to the
Replacement Reserve is equal to the Gross Revenue derived from the Suburban II
Properties for the preceding twelve (12) months (as reflected in the Suburban II
Borrower's annual operating statements as approved and accepted by Lender)
multiplied by four percent (4%) and divided by twelve (12). The adjustment to
the monthly deposits to the Replacement Reserve are effective for the payment
due January 1 of each year, provided, however, that in no event will such
adjustment result in a decrease or increase from the amount of the monthly
deposit made into the Replacement Reserve for the preceding twelve (12) months
unless Lender deems it necessary in its reasonable discretion. Notwithstanding
the above, the Suburban II Borrower is not required to make a monthly deposit
into the Replacement Reserve in any month in which the balance in the
Replacement Reserve exceeds the Gross Revenue derived from the Suburban II
Properties for the preceding thirty-six (36) months (as reflected in the
Suburban II Borrower's annual operating statements as approved and accepted by
Lender) multiplied by four percent (4%). For the first loan year, the monthly
deposit into the Replacement Reserve is $18,152.00. Such amounts are be
disbursed to pay Capital and FF&E costs and provide additional security for the
Suburban II Loan.
SUBORDINATE/OTHER DEBT. The loan documents prohibit the Suburban II
Borrower from incurring any subordinate indebtedness or encumbrances.
THE PROPERTIES
The Suburban II Properties consist of six (6) extended stay hotels
located in the city of Chesapeake, state of Virginia, city of Lilburn, state of
Georgia, city of Mableton, state of Georgia, city of Louisville, state of
Kentucky, city of Greenville, state of South Carolina and city of Charlotte,
state of North Carolina. The combined average daily occupancy of the Suburban II
Properties as of November 30, 1998 on a 12 month trailing basis was 90.42%.
III-24
<PAGE>
The Suburban II Properties are more fully described as follows:
2150 OLD GREENBRIER ROAD, CHESAPEAKE, VIRGINIA 23320
- ----------------------------------------------------------------------------
Location: Chesapeake, Virginia
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1997/NAP
Square Footage: 132 Rooms / 249 SF Average Room
Percent Occupied: 87.3% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- ----------------------------------------------------------------------------
4142 STONE MOUNTAIN HIGHWAY, LILBURN, GEORGIA 30047
- ----------------------------------------------------------------------------
Location: Lilburn, Georgia
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1995/NAP
Square Footage: 132 rooms / 248 SF Average Room
Percent Occupied: 89.6% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- ----------------------------------------------------------------------------
600 LIONS CLUB DRIVE, MABLETON, GEORGIA 30126
- ----------------------------------------------------------------------------
Location: Mableton, Georgia
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1987/1994
Square Footage: 79 Rooms / 350 SF Average Room
Percent Occupied: 98.5% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- ----------------------------------------------------------------------------
7121 PRESTON HIGHWAY, LOUISVILLE, KENTUCKY 40219
- ----------------------------------------------------------------------------
Location: Louisville, Kentucky
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1996/NAP
Square Footage: 150 Rooms/242 SF Average Room
Percent Occupied: 90.4% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- ----------------------------------------------------------------------------
2504 WADE HAMPTON BLVD., GREENVILLE, SOUTH CAROLINA 29615
- ----------------------------------------------------------------------------
Location: Greenville, South Carolina
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1996/NAP
Square Footage: 126 Rooms / 246 SF Average Room
Percent Occupied: 86.5% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- ----------------------------------------------------------------------------
110 ROCKY RIVER ROAD WEST, CHARLOTTE, NORTH CAROLINA 28213
- ----------------------------------------------------------------------------
Location: Charlotte, North Carolina
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1997/NAP
Square Footage: 138 Rooms / 252 SF Average Room
Percent Occupied: 90.2% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- ----------------------------------------------------------------------------
III-25
<PAGE>
MANAGEMENT
The Suburban II Properties are managed by Suburban Management, Inc., a
publicly traded company and an affiliate of the Suburban II Borrower.
III-26
<PAGE>
LOAN NO. 43 - MIDTOWN SHOPPING CENTER LOAN AND PROPERTY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $13,970,521 Property Type: Retail
Sub-Property Type Anchored
Loan Type: Principal and Interest; Location: Los Angeles,
Fixed; Defeasance; CA
Balloon
Origination Date: 12/29/1998 Year Built/Renovated: 1965/1995
Maturity Date: 12/01/08 Square Footage: 159,933 SF
Mortgage Rate: 7.810% Cut-off Date Balance/SF: $87
Annual Debt Service: $1,210,546 Appraised Value: $17,500,000
DSCR at Cash Flow: 1.24x Cut-off Date LTV: 79.8%
Underwritten Cash Flow: $1,498,157 Balance at Maturity LTV: 71.9%
Balloon Amount: $12,580,491 Percent Leased: 97.6%
Percent Leased as of 10/1/98
Date:
- ------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN. The Midtown Shopping Center Loan (the "Midtown Loan") is
secured by a first mortgage on borrower's interest as lessee under a ground
lease for a 159,933 square foot shopping center situated on 10.92 acres located
in Los Angeles, California (the "Midtown Property"). The Midtown Loan was
originated by FINOVA Realty Capital Inc. on December 29, 1998.
THE BORROWER. The Borrower is Midtown Shopping Center Associates, LLC,
a California limited liability company and special purpose entity.
SECURITY. The Midtown Loan is secured by a Leasehold Deed of Trust,
Assignment of Rents and Leases, UCC Financing Statements and certain additional
security documents. The mortgage is a first lien on borrower's leasehold
interest in the Midtown Property. The Midtown Loan is non-recourse, subject to
certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.810%. The Midtown Loan
requires monthly payments of principal and interest in the amount of $100,878.80
until its maturity on December 1, 2008. The Midtown Loan accrues interest
computed on the basis of the actual number of days elapsed each month in a 360
day year.
PREPAYMENT. The Midtown Loan may not be prepaid by the borrower prior to
the date which is the earlier to the occur of (i) the second anniversary of the
startup day of the REMIC holding the Midtown Loan and (ii) January 1, 2003 (the
"Midtown Loan Lock-out Period"). Upon the expiration of the Midtown Loan
Lock-out Period, the Midtown Loan may be defeased. The borrower may prepay the
Midtown Loan during the three (3) months prior to the maturity date without
payment of any prepayment premium.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Midtown Loan becomes
immediately due and payable upon the transfer of the Midtown Property or any
ownership interest in the borrower. After December 29, 1999, the borrower has a
one time right of assumption subject to (a) the reasonable consent of the holder
of the mortgage is granted, (b) payment of an assumption fee of one percent
(1%), (c) approval by a rating agency of the proposed transferee and (d) the
transferee observing the special purpose entity covenants.
ESCROW/RESERVES. The Midtown Loan has a tax and insurance escrow which
requires deposits in amounts sufficient to pay taxes and insurance when due.
There is also a capital expenditure reserve for the payment of certain capital
expenditures which is funded monthly in the amount of $1,999.91. There is also a
tenant improvement and leasing reserve for the payment of certain releasing
costs which is funded monthly in the amount of $1,533.00.
THE PROPERTY
The Midtown Property is a 159,933 square foot shopping center situated
on 10.92 acres and is comprised of seven one story and two story buildings
located in Los Angeles, California. The Borrower holds a ground lease interest
in the Midtown Property. The ground lease and ground lessor consents and
estoppels executed in connection
III-27
<PAGE>
with the Midtown Loan contains customary mortgagee ground lease protections
with the following exceptions: (1) The Midtown ground lease may be transferred
to the mortgagee (whether by foreclosure or assignment in lieu of foreclosure)
without the ground lessor's consent, but the consent of the ground lessor,
which is not to be unreasonably withheld, is required for all subsequent
assignments of the ground lease, including the assignment made by the lender
post foreclosure; (2) the Midtown ground lease does not require the mortgagee's
consent for every amendment thereto, although the mortgagee's consent is
required for modifications to many material provisions, including provisions
relating to the amount of rent, the term of the ground lease, the permitted
uses of the demised premises and the disposition of insurance proceeds and
condemnation awards; and (3) although the Midtown ground lease gives the lender
the right to a new ground lease if the ground lease is rejected in the
borrower's bankruptcy and the right to receive notices of defaults under the
ground lease and a reasonable opportunity to cure the same, it does not require
that the lender receive a notice of any termination of the ground lease and be
given an opportunity to enter into a new lease with the ground lessor.
Anchor tenants include Ralph's (52,967 SF), Sav-On Drugstore (17,000 SF)
and Orchard Supply Hardware (60,200 SF). One 10,051 square foot free standing
building is divided into seven suites which are fully occupied by shop space
users. One 8,888 square foot building is being marketed as a "food court" and
has four of its seven suites occupied. Two parcels within the Midtown Property
are subject to long term ground leases that are improved with branch bank
buildings occupied by Bank of America and Broadway Federal Savings and Loan.
These buildings are 6,050 square feet and 4,782 square feet, respectively.
The Midtown Property was built in 1965 and renovated in 1995.
MANAGEMENT. J.R. Young Company manages the Midtown Property. J.R. Young
Company is an affiliate of borrower.
III-28
<PAGE>
LOAN NO. 44 - THE LAKES LOAN AND PROPERTY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $12,674,263 Property Type: Office
Loan Type: Principal and Location: West Covina, CA
Interest; Year Built/Renovated: 1989-90/NAP
Defeasance; Balloon Square Footage: 170,574
Origination Date: 12/23/1998 Cut-off Date Balance
Maturity Date: 1/1/2009 per SF: $74
Mortgage Rate: 8.000% Appraised Value: $18,500,000
Current LTV: 68.5%
Annual Debt Service: $1,118,257 Balance Maturity LTV: 62.0%
DSCR: 1.28x Percent Leased: 91.88%
Underwritable Cash Flow: $1,434,213 Percent Leased as of
Balance at Maturity: $11,450,391 Date: 12/15/1998
- ------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Lakes Loan ("The Lakes Loan") is secured by a first mortgage on two
four story office buildings totaling 170,574 square feet located in West Covina,
California ("The Lakes Property"). The Lakes Loan was originated by FINOVA
Realty Capital Inc. on December 23, 1998.
THE BORROWER. The borrower is West Covina Lakes Associates LLC, a
California limited liability company ("The Lakes Borrower"). The loan documents
and their organizational documents limit The Lakes Borrower and its managing
member to the acquisition, operation and disposition of The Lakes Property. The
Lakes Borrower has an independent member.
SECURITY. The Lakes Loan is secured by a Fee and Leasehold Deed of
Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing
(the "Deed of Trust") and certain additional security documents. The Deed of
Trust is a first lien on a fee and leasehold interest in The Lakes Property. The
Lakes Borrower has a fee ownership interest in the two office buildings at The
Lakes Property and a sub-leasehold interest, easement interest and option to
purchase the two parking structures that serve The Lakes Property. The Lakes
Loan is non-recourse, subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 8.00%. The Lakes Loan
requires monthly payments of principal and interest of $93,188.10 until its
maturity on January 1, 2009, at which time all unpaid principal and accrued but
unpaid interest is due. The Lakes Loan accrues interest computed on the basis of
the actual number of days elapsed each month in a 360-day year.
PREPAYMENT. By its terms, The Lakes Loan may not be prepaid in whole or
in part during the loan term, except The Lakes Loan may be defeased on or after
the earlier of (a) January 1, 2003 or (b) the second anniversary of the start-up
date of the REMIC holding the Lakes Loan. The Lakes Loan may be paid without a
prepayment fee or premium during the last 3 months of the loan term.
If there is an event of default and the lender accelerates The Lakes
Loan, the Note requires The Lakes Borrower to pay a prepayment premium equal to
the greater of (i) the amount which when added to the principal amount of the
Note would be sufficient to purchase the Defeasance Collateral sufficient to
defease The Lakes Loan (if defeasance is permitted) and (ii) 1% of the prepaid
principal amount. There is a 5% late fee on overdue installments, and The Lakes
Loan accrues interest at the Mortgage Rate plus 5% per annum while The Lakes
Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Lakes Loan becomes
immediately due and payable upon the transfer of The Lakes Property or any
ownership interest in The Lakes Borrower, except in connection with the rights
of transfer described below. After January 1, 2000, The Lakes Borrower has the
right to one transfer of The Lakes Property subject to the related mortgage,
provided that (a) consent of the holder of The Lakes Loan is obtained, (b) such
holder receives payment of a 1% assumption fee, (c) the proposed transferee is
approved by the
III-29
<PAGE>
applicable rating agency, and (d) the proposed transferee assumes The Lakes
Loan and observes the single purpose entity requirements. Transfers by
operation of law and transfers of minority ownership interests not resulting in
a change in voting control are permitted.
ESCROW/RESERVES. There is a tax and insurance escrow which requires
monthly deposits in the amount sufficient to pay estimated taxes and insurance
when due. There is also an escrow required for capital expenditures which is
required to the funded monthly in the amount of $2,862.33 and an escrow required
for tenant improvements and leasing costs which is required to be funded monthly
in the amount of $21,369.50 until such times and to the extent that this escrow
account equals $769,302. Such amounts will be disbursed to pay tenant
improvement and leasing commission costs and provide additional security for The
Lakes Loan.
THE PROPERTY
The Lakes Property consists of two four story office buildings totaling
170,574 square feet and two multi-level parking structures located in West
Covina, California, which is east of downtown Los Angeles. The Lakes Property
was completed by The Lakes Borrower in 1989 and 1990 and is constructed of steel
and concrete with pre-cast concrete panels and glass. According to the
appraiser, The Lakes Property is considered to be the highest quality office
project in the East San Gabriel Valley area.
The Lakes Property was developed with the assistance of the
Redevelopment Agency of the City of West Covina ("Agency"). The Agency ground
leased the parking structures to the City of West Covina ("City"), and the City
sub-ground leased 25% of its interest in the parking structures to The Lakes
Borrower ("Parking Ground Lease"). The Parking Ground Lease grants to The Lakes
Borrower the right to exclusive use of 25% of the parking structures. The
Parking Ground Lease contains standard mortgagee protections, and ground lease
estoppel certificates were obtained from the Agency and the City. Payments under
the Parking Ground Lease are equal to the payments due under the Bonds (defined
below) floated by the Agency to finance construction of the parking structures.
The Lakes Borrower has deposited $150,000 with the City as additional security
for the sublease payments under the Parking Ground Lease.
The parking structures are also subject to a reciprocal easement
agreement and a related implementation agreement ("REA"). The REA grants The
Lakes Borrower an easement right to use the 75% of the parking structures it
does not lease under the Parking Ground Lease. Lender's title insurance policy
insures the Lender's lien on The Lakes Borrower's easement interests. Estoppels
certificates were obtained from the City and the Agency with respect to the REA.
The City and The Lakes Borrower entered into an Operating Agreement
pursuant to which The Lakes Borrower operates the 75% of the parking structures
not subject to the Parking Ground Lease. The Operating Agreement has extensive
mortgagee protections. Lender has a lien on The Lakes Borrower's interest in the
Operating Agreement. An estoppel certificate was obtained from the City in
connection with the Operating Agreement.
The Lakes Borrower has an option to purchase the parking structures. The
option is exercisable after the Bonds have been fully discharged (August 1,
2018) for a price approximately equal to 75% of the then fair market value of
the parking structures. The Lakes Borrower has pledged the purchase option in
the Deed of Trust, and the Lender has obtained title insurance with respect to
its first lien on the purchase option.
The Lakes Property was 91.88% leased with average rents of $20.55 per
square foot as of December 15, 1998, with 39 tenants based on a rent roll
provided by The Lakes Borrower. The largest tenant of The Lakes Property is
Wells Fargo Bank, which occupies 26,692 square feet. Contractual lease
expirations during the loan term for all tenants are as follows: 3,585 square
feet (2.10%) in 1999, 25,098 square feet (14.71%) in 2000, 65,826 square feet
(39.59%) in 2001, 44,205 square feet (25.92%) in 2002, 3,918 square feet (2.30%)
in 2003, 10,778 square feet (6.32%) in 2004, 964 square feet (0.57%) in 2005 and
2,342 square feet (1.37%) in 2006.
III-30
<PAGE>
SUBORDINATE/OTHER DEBT/OTHER RELATED MATTERS. The loan documents
prohibit The Lakes Borrower from incurring any subordinate indebtedness or
encumbrances, except for the following subordinate indebtedness and obligations:
1. Bonds. The Agency financed its acquisition and construction of
the parking structures by issuing tax-exempt bonds in the
original amount of $7,750,000 ("Bonds"). The Bonds mature on
August 1, 2018, and have a principal balance of $7,125,000 as of
December 23, 1998. An estoppel certificate was obtained from the
bond trustee in connection with the status of the Bonds. The
Agency's bond payment obligations are credit enhanced by a
letter of credit in favor of the bond trustee, which letter of
credit is maintained by The Lakes Borrower. The City, in turn,
entered into a reimbursement agreement with the credit
enhancer/letter of credit issuer. The Lakes Borrower and W&B
Builders, Inc., respectively, have indemnified and guaranteed
the City with respect to its obligations under the reimbursement
agreement. The Lakes Borrower has not granted to the City any
security interest in its fee or leasehold interests in The Lakes
Property to secure its obligations under such indemnification
agreement. With respect to such indemnification agreement,
Lender obtained a standard conduit lender's subordination and
standstill agreement from the City. An estoppel certificate was
obtained from the City in connection with the guarantee and
indemnification agreements.
2. Disposition and Development Agreement. The Lakes Borrower
acquired The Lakes Property from the Agency and developed it in
accordance with a Disposition and Development Agreement ("DDA")
and four implementation agreements. The Agency has issued a
Certificate of Completion which terminated many of The Lake
Borrower's obligations under the DDA. In addition, the payment
of certain property tax assistance by the Agency to The Lakes
Borrower under the DDA ended in 1997. An estoppel was obtained
from the Agency with respect to the DDA.
3. Deferred Purchase Price. The Agency deferred $1,155,000 of the
purchase price paid by The Lakes Borrower for The Lakes Property
("Deferred Purchase Price"). The obligation to pay the Deferred
Purchase Price is evidenced by a promissory note and secured by
a deed of trust on The Lakes Property. The promissory note
accrues interest at 9%. There is no current payment obligation
under the note. The Deferred Purchase Price is paid out of the
net sale or refinancing proceeds of The Lakes Property. No
payments were due to the Agency upon Lender's $12,700,000 to The
Lakes Borrower. Lender obtained a standard conduit lender's
subordination and standstill agreement with respect to the
Deferred Purchase Price. In limited circumstances Lender must
get the Agency's consent to modifications of the senior loan
documents. Under the loan documents, The Lakes Borrower's
transfers and assumptions are subject to consent of the Agency,
and the Agency's standstill agreement is subject to obtaining
such consent. An estoppel certificate was obtained in connection
with the Deferred Purchase Price.
4. Agency Equity Interest Lien. The Agency has the right to a
return of 10% on the annual net operating income from The Lakes
Property after payment of (a) The Lakes Borrower's debt service
on the financing for The Lakes Property, and (b) The Lakes
Borrower's preferred return ("Equity Interest Lien"). The
obligation to pay this return is secured by a lien on The Lakes
Property. The Equity Interest Lien terminates after repayment of
the Deferred Purchase Price. The Agency subordinated the Equity
Interest Lien to the Deed of Trust, but did not provide a
standstill agreement. Payments under the Equity Interest Lien
are made quarterly. No payments have been made under the Equity
Interest Lien to date. An escrow will be established by Lender
if there is a current payment requirement on the Equity Interest
lien. An estoppel certificate was obtained from the Agency with
respect to the Equity Interest Lien.
5. Agency Assistance Lien. The Agency has provided assistance to
The Lakes Borrower on an annual basis in the form of a
reimbursement of lease payments under the Parking Sublease
(i.e., ultimate payment on the Bonds), up to $240,000 for seven
years ("Agency Assistance Lien"). The
III-31
<PAGE>
Agency Assistance Lien is secured by a lien on The Lakes
Property. The balance of the Agency Assistance Lien was
$1,427,539 as of December 23, 1998. The Agency Assistance Lien
is repaid out of net proceeds (in excess of The Lakes Borrower's
development costs) of a sale or refinancing, and only after the
Deferred Purchase Price has been in full. Lender obtained a
standard conduit lender's subordination and standstill agreement
from the Agency with respect to the Agency Assistance Lien.
Under the loan documents, The Lakes Borrower's transfers and
assumptions are subject to consent of the Agency, and the
Agency's standstill agreement is subject to obtaining such
consent. An estoppel was obtained from the Agency in connection
with the Agency Assistance Lien.
6. Right of First Refusal. The Agency has a right of first refusal
with respect to any sale of The Lakes Property. The right of
first refusal terminates when the Agency's three liens have been
paid. The Agency subordinated this right to Lender's lien and
waived its right of first refusal in connection with any
foreclosure by or transfer to Lender.
7. Partner Loans. The Lakes Borrower has received unsecured
"partner" loans in the total original principal amount of
$2,982,016 from Ocean Industries, Inc. and Watt Land, Inc. These
loans had an outstanding balance of $1,790,659 as of December
23, 1998 and have no stated maturity date. Payment obligations
under these loans arise only if The Lakes Property generates
cash flow in excess of debt service, expenses and reserves.
Lender has obtained a standard conduit lender's subordination
and standstill agreement and an estoppel with respect to these
partner loans.
MANAGEMENT
The Lakes Property is managed by Watt Family Properties, Inc. dba Watt
Management Company, an affiliate of The Lakes Borrower. Watt Management Company
has more than 30 years experience managing office, industrial and retail
properties. The Watt companies have been involved in the development of over
$6,000,000,000 in real estate and have a Southern California portfolio of in
excess of 5,800,000 square feet.
III-32
<PAGE>
LOAN NO. 45 - RAMADA PLAZA HOTEL LOAN AND PROPERTY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $12,140,079 Property Type: Hotel
Loan Type: Principal and Location: San Diego, CA
Interest; Fixed;
Defeasance; Balloon
Origination Date: 12/10/1998 Year Built/Renovated: 1969/1997
Maturity Date: 1/1/2009 Rooms: 182
Mortgage Rate: 8.625% Cut-off Date Balance per room: $66,704
Annual Debt Service: $1,188,769 Appraised Value: $16,650,000
DSCR: 1.41x Current LTV: 72.9%
Underwritable Cash Flow: $1,679,842 Balance Maturity LTV: 61.9%
Balance at Maturity: $10,311,024 Percent Occupancy: 81.31%
Percent Occupancy as of
Date: 10/31/1998
- ------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Ramada Plaza Hotel Loan (the "Ramada Plaza Hotel Loan") is secured
by a first mortgage on a 182 room full service hotel located in San Diego,
California (the "Ramada Plaza Hotel Property"). The Ramada Plaza Hotel Loan was
originated by FINOVA Realty Capital Inc. on December 10, 1998.
THE BORROWER. The borrower is HIHC, LLC, a California limited liability
company (the "Ramada Plaza Hotel Borrower"). The loan documents and its
organizational documents limit the Ramada Plaza Hotel Borrower to the
acquisition, operation and disposition of the Ramada Plaza Hotel Property.
SECURITY. The Ramada Plaza Hotel Loan is secured by a Deed of Trust,
Assignment of Leases and Rents, Security Agreement and Fixture Filing (the "Deed
of Trust") and certain additional security documents. The Deed of Trust is a
first lien on a fee interest in the Ramada Plaza Hotel Property. The Ramada
Plaza Hotel Loan is non-recourse, subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 8.625%. The Ramada Plaza
Hotel Loan requires monthly payments of principal and interest of $99,064.09
until its maturity on January 1, 2009, at which time all unpaid principal and
accrued but unpaid interest is due. The Ramada Plaza Hotel Loan accrues interest
computed on the basis of the actual number of days elapsed each month in a
360-day year.
PREPAYMENT. By its terms, the Ramada Plaza Hotel Loan may not be prepaid
in whole or in part during the loan term, except the Ramada Plaza Hotel Loan may
be defeased on or after the earlier of (a) December 10, 2002 or (b) the second
anniversary of the start-up date of the REMIC. The Ramada Plaza Hotel Loan may
be paid without a prepayment fee or premium during the last 3 months of the loan
term.
If there is an event of default and the lender accelerates the Ramada
Plaza Hotel Loan, the Note requires the Ramada Plaza Hotel Borrower to pay a
prepayment premium equal to the greater of (i) the amount which when added to
the principal amount of the Note would be sufficient to purchase the Defeasance
Collateral sufficient to pay the Ramada Plaza Hotel Loan (if defeasance is
permitted) and (ii) 1% of the prepaid principal amount. There is a 5% late fee
on overdue installments, and the Ramada Plaza Hotel Loan accrues interest at the
Mortgage Rate plus 5% per annum while the Ramada Plaza Hotel Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Ramada Plaza Hotel
Loan becomes immediately due and payable upon the transfer of the Ramada Plaza
Hotel Property or any ownership interest in the Ramada Plaza Hotel Borrower,
except in connection with the rights of transfer described below. After the
earlier of December 10, 1999 or two months after securitization, the Ramada
Plaza Hotel Borrower has the right to two transfers of the Ramada Plaza Hotel
Property subject to the related mortgage, provided that (a) consent of the
holder of the Ramada Plaza Hotel Loan is obtained, (b) such holder receives
payment of a 1% assumption fee (except in connection with a transfer to a Patel
Family Member), (c) the proposed transferee is approved by the applicable rating
agency, and
III-33
<PAGE>
(d) the proposed transferee assumes the Ramada Plaza Hotel Loan and observes
the single purpose entity requirements. Transfers by operation of law and
transfers of minority ownership interests not resulting in a change in voting
control are permitted.
ESCROW/RESERVES. There is a tax escrow which requires monthly deposits
in an amount sufficient to pay estimated taxes when due. There is also an escrow
required for capital expenditures, including fixtures, furnishings and
equipment, which had an initial deposit of $204,108 and which is required to the
funded monthly in the amount of $17,009 until such time and to the extent that
this escrow account equals $204,108. Such amounts will be disbursed to pay such
costs and provide additional security for the Ramada Plaza Hotel Loan. There is
no insurance escrow as long as the Ramada Plaza Hotel Property is covered under
a blanket insurance policy.
SUBORDINATE/OTHER DEBT. The loan documents prohibit the Ramada Plaza
Hotel Borrower from incurring any subordinate indebtedness or encumbrances.
THE PROPERTY
The Ramada Plaza Hotel Property is a 182 room full service hotel located
in San Diego, California. The Ramada Plaza Hotel Property is located near all of
San Diego's major attractions, including Sea World, San Diego Zoo, Balboa Park,
Historic Old Town, Qualcomm Stadium and the beaches.
The Ramada Plaza Hotel Property achieved occupancy rates for the
calendar years 1996 and 1997 and the first ten months of 1998 of approximately
79.54%, 82.17% and 81.31%, respectively and average daily rates for the same
periods of approximately $57.30, $66.23 and $79.80, respectively.
The Ramada Plaza Hotel Property consists of three four-story buildings.
The Ramada Plaza Hotel Property was originally constructed in 1969 and renovated
in 1997 and is constructed with wood frame with stucco and/or plaster finish.
The Ramada Plaza Hotel Property facilities include mini refrigerators,
coffeemakers, hair dryers, irons/ironing boards, voice mail, data port
telephones, televisions, in-room movies, weekday newspapers, electronic security
systems, room service, fax/copier/business service, valet service, guest
laundry, car rental, concierge service, fitness center, outdoor heated pool and
spa, and video game room. The Ramada Plaza Hotel Property also includes the
Tickled Trout Restaurant and Lounge and 2,311 square feet of meeting space.
The Ramada Plaza Hotel Property has won several awards over the past
several years for profitability and customer satisfaction.
MANAGEMENT
The Ramada Plaza Hotel Property is managed by Tarsadia Hotels, an
affiliate of the Ramada Plaza Hotel Borrower. Tarsadia Hotels was established in
1976 and now owns a portfolio of more than 3,000 hotel rooms with over 1,200 new
rooms in the planning process, and have franchise relationships with Cendant,
Hilton, Hyatt, Marriott, Promus, Radisson and Sheraton. The general manager of
the Ramada Plaza Hotel Property is Mark Efron, who has over 18 years of
corporate and hospitality management experience, including as general manager of
the Beverly Plaza Hotel, and is a recipient of "The Wall Street Journal Award",
as well as other various awards for hotels he has managed.
III-34
<PAGE>
LOAN NO. 46 - GOVERNOR'S CROSSING OUTLET CENTER LOAN AND PROPERTY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $9,680,343 Property Type: Retail
Loan Type: Principal and Sub-Property Type: Outlet Center
Interest; Location: Sevierville, TN
Defeasance; Fixed;
Balloon
Origination Date: 12/24/1998 Year Built/Renovated: 1998/NAP
Maturity Date: 1/1/2009 Square Footage: 135,033
Mortgage Rate: 8.000% Cut-off Date Balance per SF: $72
Annual Debt Service: $854,102 Appraised Value: $14,000,000
DSCR: 1.30x Current LTV: 69.2%
Underwritable Cash Flow: $1,107,082 Balance Maturity LTV: 62.5%
Balance at Maturity: $8,745,574 Percent Leased: 78.73%
Percent Leased as of
Date: 12/31/1998
- ------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Governor's Crossing Outlet Center Loan (the "Governor's Crossing
Loan") is secured by a first mortgage on a 135,033 square foot retail outlet
center located in Sevierville, Tennessee (the "Governor's Crossing Property").
The Governor's Crossing Loan was originated by FINOVA Realty Capital Inc. on
December 24, 1998.
THE BORROWER. The borrower is Governor's Crossing Outlet Mall, L.L.C., a
Tennessee limited liability company (the "Governor's Crossing Borrower"). The
loan documents and its organizational documents limit the Governor's Crossing
Borrower to the acquisition, operation and disposition of the Governor's
Crossing Property.
SECURITY. The Governor's Crossing Loan is secured by a Deed of Trust and
Security Agreement (the "Deed of Trust") and certain additional security
documents. The Deed of Trust is a first lien on a fee interest in the Governor's
Crossing Property. The Governor's Crossing Loan is non-recourse, subject to
certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 8.000%. The Governor's
Crossing Loan requires monthly payments of principal and interest of $71,175.16
until its maturity on January 1, 2009, at which time all unpaid principal and
accrued but unpaid interest is due. The Governor's Crossing Loan accrues
interest computed on the basis of the actual number of days elapsed each month
in a 360-day year.
PREPAYMENT. By its terms, the Governor's Crossing Loan may not be
prepaid in whole or in part during the loan term, except the Governor's Crossing
Loan may be defeased on or after the earlier of January 1, 2003 or two years
after securitization. The Governor's Crossing Loan may be paid without a
prepayment fee or premium during the last 3 months of the loan term.
If there is an event of default and the lender accelerates the
Governor's Crossing Loan, the Note requires the Governor's Crossing Borrower to
pay a prepayment premium equal to the greater of (i) the amount which when added
to the principal amount of the Note would be sufficient to purchase the
Defeasance Collateral sufficient to pay the Governor's Crossing Loan (if
defeasance were permitted) and (ii) 1% of the prepaid principal amount. There is
a 5% late fee on overdue installments, and the Governor's Crossing Loan accrues
interest at the Mortgage Rate plus 5% per annum while the Governor's Crossing
Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Governor's Crossing
Loan becomes immediately due and payable upon the transfer of the Governor's
Crossing Property or any ownership interest in the Governor's Crossing Borrower,
except in connection with the rights of transfer described below. After December
24, 1999, the Governor's Crossing Borrower has the right to one transfer of the
Governor's Crossing Property subject to the related mortgage and the payment of
a 1% assumption fee upon approval of the lender. Transfers by operation of law
and transfers of minority ownership interests not resulting in a change in
voting control are permitted.
ESCROW/RESERVES. There is a tax and property insurance escrow which
requires monthly deposits in the amount sufficient to pay estimated taxes and
property insurance when due. There is also an escrow required for
III-35
<PAGE>
capital expenditures which is required to the funded monthly in the amount of
$1,687.92 and an escrow required for tenant improvements and leasing costs
which is required to be funded monthly in the amount of $6,038.67 until such
time and to the extent that this escrow account equals $500,000. Such amounts
will be disbursed to pay such costs and provide additional security for the
Governor's Crossing Loan.
SUBORDINATE/OTHER DEBT. The loan documents prohibit the Governor's
Crossing Borrower from incurring any subordinate indebtedness or encumbrances.
THE PROPERTY
The Governor's Crossing Property consists of 135,033 rentable square
feet situated on an approximate 18.781 acre site located in Sevierville,
Tennessee. The Governor's Crossing Property was 78.73% leased as of 12/31/1998
with 22 tenants based on a rent roll provided by the Governor's Crossing
Borrower.
The Governor's Crossing Property was completed in 1998 and is
constructed with concrete block and steel post columns.
Approximately 78.7% of the space has been leased and includes the
following tenants: Vanity Fair Outlet (25,764 sq. ft.), Books A Million (17,523
sq. ft.), Golf Depot (12,083 sq. ft.) and Shoe Carnival (7,562 sq. ft.).
Contractual Lease expirations for all tenants are as follows: 59.0% of net
rentable square feet in 2003, 1.1% of net rentable square feet in 2004 and
18.6% of net rentable square feet in 2008. Per the 12/31/98 rent roll provided
by the Governor's Crossing Borrower, the average annual base rent of tenants at
the Governor's Crossing Property is $12.92 per square foot.
MANAGEMENT
The Governor's Crossing Property is managed by Insignia Commercial
Group.
III-36
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
DISTRIBUTION DATE STATEMENT
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
STATEMENT SECTIONS PAGE(S)
- ------------------ -------
Certificate Distribution Detail 2
Certificate Factor Detail 3
Reconciliation Detail 4
Other Required Information 5
Ratings Detail 6
Current Mortgage Loan and Property Stratification Tables 7 - 9
Mortgage Loan Detail 10
Principal Prepayment Detail 11
Historical Detail 12
Delinquency Loan Detail 13
Specially Serviced Loan Detail 14 - 15
Modified Loan Detail 16
Liquidated Loan Detail 17
- -------------------------------------------------------------------------------
UNDERWRITER
- ------------------------------------------
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Contact: General Information Number
Phone Number: (212) 761-4700
- ------------------------------------------
MASTER SERVICER
- ------------------------------------------
AMRESCO Services, L.P.
235 Peachtree Street, N.E.
Suite 900
Atlanta, Georgia 30303
Contact: Charlotte Kollin
Phone Number: (404) 654-2434
- ------------------------------------------
SPECIAL SERVICER
- ------------------------------------------
Banc One Mortgage Capital Markets, LLC
1717 Main Street, 14th Floor
Dallas, TX 75201
Contact: Paul G. Smyth
Phone Number: (214) 290-2505
- ------------------------------------------
This report has been compiled from information provided to Norwest by various
third parties, which may include the Servicer, Master Servicer, Special Servicer
and others. Norwest has not independently confirmed the accuracy of information
received from these third parties and assumes no duty to do so. Norwest
expressly disclaims any responsibility for the accuracy or completeness of
information furnished by third parties.
Copyright 1997, Norwest Bank Minnesota, N.A.
IV-1
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
CERTIFICATE DISTRIBUTION DETAIL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Pass-Through Original Beginning Principal Interest Prepayment
Class CUSIP Rate Balance Balance Distribution Distribution Penalties
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 0.000000% 0.00 0.00 0.00 0.00 0.00
A-2 0.000000% 0.00 0.00 0.00 0.00 0.00
B 0.000000% 0.00 0.00 0.00 0.00 0.00
C 0.000000% 0.00 0.00 0.00 0.00 0.00
D 0.000000% 0.00 0.00 0.00 0.00 0.00
E 0.000000% 0.00 0.00 0.00 0.00 0.00
F 0.000000% 0.00 0.00 0.00 0.00 0.00
G 0.000000% 0.00 0.00 0.00 0.00 0.00
H 0.000000% 0.00 0.00 0.00 0.00 0.00
J 0.000000% 0.00 0.00 0.00 0.00 0.00
K 0.000000% 0.00 0.00 0.00 0.00 0.00
L 0.000000% 0.00 0.00 0.00 0.00 0.00
M 0.000000% 0.00 0.00 0.00 0.00 0.00
N 0.000000% 0.00 0.00 0.00 0.00 0.00
O 0.000000% 0.00 0.00 0.00 0.00 0.00
R-I 0.000000% 0.00 0.00 0.00 0.00 0.00
R-II 0.000000% 0.00 0.00 0.00 0.00 0.00
R-III 0.000000% 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------
Totals 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------
Realized Loss/ Current
Additional Trust Total Ending Subordination
Class Fund Expenses Distribution Balance Level (1)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A-1 0.00 0.00 0.00 0.00%
A-2 0.00 0.00 0.00 0.00%
B 0.00 0.00 0.00 0.00%
C 0.00 0.00 0.00 0.00%
D 0.00 0.00 0.00 0.00%
E 0.00 0.00 0.00 0.00%
F 0.00 0.00 0.00 0.00%
G 0.00 0.00 0.00 0.00%
H 0.00 0.00 0.00 0.00%
J 0.00 0.00 0.00 0.00%
K 0.00 0.00 0.00 0.00%
L 0.00 0.00 0.00 0.00%
M 0.00 0.00 0.00 0.00%
N 0.00 0.00 0.00 0.00%
O 0.00 0.00 0.00 0.00%
R-I 0.00 0.00 0.00 0.00%
R-II 0.00 0.00 0.00 0.00%
R-III 0.00 0.00 0.00 0.00%
- -----------------------------------------------------------------------------------
Totals 0.00 0.00 0.00
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Original Beginning Ending
Pass-Through Notional Notional Interest Prepayment Total Notional
Class CUSIP Rate Amount Amount Distribution Penalties Distribution Amount
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
X 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated by taking (A) the sum of the ending certificate balance of all
classes less (B) the sum of (i) the ending certificate balance of the designated
class and (ii) the ending certificate balance of all classes which are not
subordinate to the designated class and dividing the result by (A).
IV-2
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
CERTIFICATE FACTOR DETAIL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Realized Loss/
Beginning Principal Interest Prepayment Additional Trust Ending
Class CUSIP Balance Distribution Distribution Penalties Fund Expenses Balance
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
A-2 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
B 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
C 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
D 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
E 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
F 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
G 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
H 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
J 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
K 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
L 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
M 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
N 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
O 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
R-I 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
R-II 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
R-III 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Beginning Ending
Notional Interest Prepayment Notional
Class CUSIP Amount Distribution Penalties Amount
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
X 0.00000000 0.00000000 0.00000000 0.00000000
- ------------------------------------------------------------------------------------------
</TABLE>
IV-3
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
RECONCILIATION DETAIL
ADVANCE SUMMARY
P & I Advances Outstanding 0.00
Servicing Advances Outstanding 0.00
Reimbursement for Interest on Advances 0.00
paid from general collections
SERVICING FEE BREAKDOWNS
Current Period Accrued Servicing Fees 0.00
Less Delinquent Servicing Fees 0.00
Less Reductions to Servicing Fees 0.00
Plus Servicing Fees for Delinquent Payments Received 0.00
Plus Adjustments for Prior Servicing Calculation 0.00
Total Servicing Fees Collected 0.00
CERTIFICATE INTEREST RECONCILIATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Accrued Net Aggregate Realized Previously Unpaid Distributable Distributable Remaining
Certificate Prepayment Losses/ Interest (including) Certificate Certif. Interest Interest Unpaid
Class Interest Interest Shortfall Expense Losses interest thereon) Interest Adjustment Distribution Interest
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A-1 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
A-2 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
X 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
B 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
C 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
D 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
E 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
F 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
G 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
H 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
J 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
K 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
L 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
M 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
N 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
O 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Totals 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
IV-4
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
OTHER REQUIRED INFORMATION
- -------------------------------------------------------------------------------
Available Distribution Amount 0.00
Principal Distribution Amount 0.00
(a) Principal portion of Scheduled Payments 0.00
and any Assumed Scheduled Payments
(b) Principal Prepayments 0.00
(c) Principal Portion of Balloon Payments 0.00
(d) Liquidation, Condemnation, Purchase, 0.00
and Insurance Proceeds and REO Income
Received on a Mortgage Loan
Aggregate Number of Outstanding Mortgage Loans 0
Aggregate Unpaid Principal Balance of the Mortgage Loans 0.00
Aggregate Scheduled Principal Balance of the Mortgage Loans 0.00
Total Servicing and Special Servicing Fee paid 0.00
Servicing Fee Paid 0.00
Special Servicing Fee Paid 0.00
Trustee Fee Paid 0.00
Expense Losses (Additional Trust Fund Expenses) 0.00
(i) Special Servicing and Liquidation Fees 0.00
(ii) Advance Interest 0.00
(iii) Indemnification Expenses 0.00
(iv) Taxes Imposed on the Trust 0.00
(v) Amount of any Advance not Recovered 0.00
upon a Final Recovery Determination
Appraisal Reduction Amount
- ------------------------------------------------------
Appraisal Date Appraisal
Loan Reduction Reduction
Number Amount Effected
- ------------------------------------------------------
- ------------------------------------------------------
Total
- ------------------------------------------------------
IV-5
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
RATINGS DETAIL
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Original Ratings Current Ratings (1)
----------------------------------- -----------------------------------
Class CUSIP DCR Fitch Moody's S&P DCR Fitch Moody's S&P
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A-1
A-2
X
B
C
D
E
F
G
H
J
K
L
M
N
O
- -----------------------------------------------------------------------------------------------------
</TABLE>
NR - Designates that the class was not rated by the above agency at the time
of original issuance.
X - Designates that the above rating agency did not rate any classes in this
transaction at the time of original issuance.
N/A - Data not available this period.
1) For any class not rated at the time of original issuance by any particular
rating agency, no request has been made subsequent to issuance to obtain rating
information, if any, from such rating agency. The current ratings were obtained
directly from the applicable rating agency within 30 days of the payment date
listed above. The ratings may have changed since they were obtained. Because the
ratings may have changed, you may want to obtain current ratings directly from
the rating agencies.
Duff & Phelps Credit Rating Co.
55 East Monroe Street
Chicago, Illinois 60603
(312) 368-3100
Fitch IBCA, Inc.
One State Street Plaza
New York, New York 10004
(212) 908-0500
Moody's Investors Service
99 Church Street
New York, New York 10007
(212) 553-0300
Standard & Poor's Rating Services
26 Broadway
New York, New York 10004
(212) 208-8000
IV-6
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
SCHEDULED BALANCE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
% of
Scheduled # of Scheduled Agg. Weighted
Balance Loans Balance Bal. WAM (2) WAC Avg DSCR (1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
Totals
- ------------------------------------------------------------------------------------
STATE (3)
- -------------------------------------------------------------------------------------
% of
# of Scheduled Agg. Weighted
State Props. Balance Bal. WAM (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Totals
- -----------------------------------------------------------------------------
</TABLE>
See footnotes on last page of this section.
IV-7
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
DEBT SERVICE COVERAGE RATIO
- -------------------------------------------------------------------------------
% of
Debt Service # of Scheduled Agg. WAM Weighted
Coverage Ratio Loans Balance Bal. (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------
NOTE RATE
- -------------------------------------------------------------------------------
% of
Note # of Scheduled Agg. WAM Weighted
Rate Loans Balance Bal. (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------
PROPERTY TYPE (3)
- -------------------------------------------------------------------------------
% of
Property # of Scheduled Agg. WAM Weighted
Type Props. Balance Bal. (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------
SEASONING
- -------------------------------------------------------------------------------
% of
# of Scheduled Agg. WAM Weighted
Seasoning Loans Balance Bal. (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------
See footnotes on last page of this section.
IV-8
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
ANTICIPATED REMAINING TERM (ARD AND BALLOON LOANS)
- -------------------------------------------------------------------------------
% of
Anticipated Remaining # of Scheduled Agg. WAM Weighted
Term (2) Loans Balance Bal. (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------
REMAINING AMORTIZATION TERM (ARD AND BALLOON LOANS)
- -------------------------------------------------------------------------------
% of
Remaining Amortization # of Scheduled Agg. WAM Weighted
Term Loans Balance Bal. (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------
REMAINING STATED TERM (FULLY AMORTIZING LOANS)
- -------------------------------------------------------------------------------
% of
Remaining Stated # of Scheduled Agg. WAM Weighted
Term Loans Balance Bal. (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------
AGE OF MOST RECENT NOI
- -------------------------------------------------------------------------------
% of
Age of Most # of Scheduled Agg. WAM Weighted
Recent NOI Loans Balance Bal. (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------
(1) Debt Service Coverage Ratios are updated periodically as new NOI figures
become available from borrowers on an asset level. In all cases the most current
DSCR provided by the Servicer is used. To the extent that no DSCR is provided by
the Servicer, information from the offering document is used. The Trustee makes
no representations as to the accuracy of the data provided by the borrower for
this calculation.
(2) Anticipated Remaining Term and WAM are each calculated based upon the term
from the current month to the earlier of the Anticipated Repayment Date, if
applicable, and the maturity date.
(3) Data in this table was calculated by allocating pro-rata the current loan
information to the properties based upon the Cut-off Date Balance of the related
mortgage loan as disclosed in the offering document.
Note: (i) "Scheduled Balance" has the meaning assigned thereto in the CSSA
Standard Information Package.
IV-9
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
MORTGAGE LOAN DETAIL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Anticipated Neg.
Loan Property Interest Principal Gross Repayment Maturity Amort
Number ODCR Type (1) City State Payment Payment Coupon Date Date (Y/N)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
TOTALS
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------
Beginning Ending Paid Appraisal Appraisal Res. Mod.
Loan Scheduled Scheduled Thru Reduction Reduction Strat. Code
Number Balance Balance Date Date Amount (2) (3)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
TOTALS
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Property Type Code
MF - Multi-Family OF - Office
RT - Retail MU - Mixed Use
HC - Health Care LO - Lodging
IN - Industrial SS - Self Storage
WH - Warehouse OT - Other
MH - Mobile Home Park
(2) Resolution Strategy Code
1 - Modification 7 - REO
2 - Foreclosure 8 - Resolved
3 - Bankruptcy 9 - Pending Return
4 - Extension To Master Servicer
5 - Note Sale 10 - Deed In Lieu of
6 - DPO Foreclosure
(3) Modification Code
1 - Maturity Date Extension
2 - Amortization Change
3 - Principal Write-Off
4 - Combination
IV-10
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
PRINCIPAL PREPAYMENT DETAIL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Principal Prepayment Amount Prepayment Penalties
Offering Document ---------------------------------- ----------------------------------------------
Loan Number Cross-Reference Payoff Amount Curtailment Amount Prepayment Premium Yield Maintenance Premium
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
IV-11
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
HISTORICAL DETAIL
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Delinquencies
- ---------------------------------------------------------------------------------------------------------------------------
Distribution 30-59 Days 60-89 Days 90 Days or More Foreclosure REO Modifications
Date # Balance # Balance # Balance # Balance # Balance # Balance
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------
Prepayments Rates and Maturities
- ---------------------------------- -----------------------------------
Curtailments Payoff Next Weighted Avg.
# Amount # Amount Coupon Remit WAM
- --------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------
</TABLE>
Note: Foreclosure and REO Totals are excluded from delinquencies aging
categories.
IV-12
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
DELINQUENCY LOAN DETAIL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Offering # of Current Outstanding Status of Resolution
Loan Document Months Paid Through P&I P&I Mortgage Strategy
Number Cross-Reference Delinq. Date Advances Advances** Loan (1) Code (2)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
TOTALS
- -------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------
Current Outstanding
Loan Servicing Foreclosure Servicing Servicing REO
Number Transfer Data Date Advances Advances Bankruptcy Date Date
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
TOTALS
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Status of Mortgage Loan
A - Payment Not Received 2 - Two Months Delinquent
But Still in Grace Period 3 - Three or More Months Delinquent
B - Late Payment But Less 4 - Assumed Scheduled Payment
Than 1 Month Delinquent (Performing Matured Balloon)
0 - Current 7 - Foreclosure
1 - One Month Delinquent 9 - REO
(2) Resolution Strategy Code
1 - Modification 7 - REO
2 - Foreclosure 8 - Resolved
3 - Bankruptcy 9 - Pending Return
4 - Extension to Master Servicer
5 - Note Sale 10 - Deed in Leiu of
6 - DPO Foreclosure
** Outstanding P & I Advances include the current period advance
IV-13
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
SPECIALLY SERVICED LOAN DETAIL - PART 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Offering Servicing Resolution
Distribution Loan Document Transfer Strategy Scheduled Property Interest Actual
Date Number Cross-Reference Date Code (1) Balance Type(2) State Rate Balance
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------
Net Remaining
Distribution Operating NOI Note Maturity Amortization
Date Income Date DSCR Date Date Term
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------
</TABLE>
(1) Resolution Strategy Code
1 - Modification 7 - REO
2 - Foreclosure 8 - Resolved
3 - Bankruptcy 9 - Pending Return
4 - Extension to Master Servicer
5 - Note Sale 10 - Deed In Lieu Of
6 - DPO Foreclosure
(2) Property Type Code
MF - Multi-Family OF - Office
RT - Retail MU - Mixed Use
HC - Health Care LO - Lodging
IN - Industrial SS - Self Storage
WH - Warehouse OT - Other
MH - Mobile Home Park
IV-14
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
SPECIALLY SERVICED LOAN DETAIL - PART 2
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Offering Resolution Site
Distribution Loan Document Strategy Inspection Phase 1 Date Appraisal Appraisal Other REO
Date Number Cross-Reference Code (1) Date Date Value Property Revenue Comment
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) Resolution Strategy Code
1 - Modification 7 - REO
2 - Foreclosure 8 - Resolved
3 - Bankruptcy 9 - Pending Return
4 - Extension to Master Servicer
5 - Note Sale 10 - Deed in Leiu of
6 - DPO Foreclosure
IV-15
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
MODIFIED LOAN DETAIL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Offering
Loan Document Pre-Modification
Number Cross-Reference Balance Modification Date Modification Description
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
IV-16
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
LIQUIDATED LOAN DETAIL
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Final Recovery Offering Gross Proceeds Aggregate
Loan Determination Document Appraisal Appraisal Actual Gross as a % of Liquidation
Number Date Cross-Reference Date Value Balance Proceeds Actual Balance Expenses*
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Current Total
- ---------------------------------------------------------------------------------------------------------------------
Cumulative Total
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------
Net Net Proceeds Repurchased
Loan Liquidation as a % of Realized by Seller
Number Proceeds Actual Balance Loss (Y/N)
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------
Current Total
- -------------------------------------------------------------------------
Cumulative Total
- -------------------------------------------------------------------------
</TABLE>
* Aggregate liquidation expenses also include outstanding P&I advances and
unpaid fees (servicing, trustee, etc.)
IV-17
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
- -------------------------------------------------------------------------------
[LOGO]
MORGAN STANLEY DEAN WITTER
APRIL 7, 1999
MORGAN STANLEY
Real Estate Debt Capital Markets
Mortgage Capital Markets
- -------------------------------------------------------------------------------
CMBS NEW ISSUE
TERM SHEET
---------------------------
Pricing Date: April 7, 1999
---------------------------
$543,601,000
(APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
AS DEPOSITOR
FINOVA REALTY CAPITAL INC.
AS MORTGAGE LOAN ORIGINATOR
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
---------------------------
MORGAN STANLEY DEAN WITTER
DEUTSCHE BANK SECURITIES
THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS SUPPLEMENT AND PROSPECTUS AND PROSPECTIVE INVESTORS WHO CONSIDER
PURCHASING ANY SUCH SECURITIES SHOULD MAKE THEIR INVESTMENT DECISION BASED ONLY
UPON THE INFORMATION PROVIDED THEREIN. CAPITALIZED TERMS USED BUT NOT DEFINED
HEREIN HAVE THE MEANINGS GIVEN TO SUCH TERMS IN THE PROSPECTUS SUPPLEMENT.
<PAGE>
$543,601,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
CERTAIN TRANSACTION FEATURES
>> FINOVA Realty Capital Inc. is a real estate-lending affiliate of the
publicly traded FINOVA Group Inc. (NYSE:FNV). Since 1994, FINOVA's
originations have included approximately $2.5 billion of commercial
mortgage loans that have been securitized by its partners in more than 20
different CMBS offerings. In 1998, FINOVA originated approximately $3.1
billion of commercial mortgage loans.
>> Origination Period: 76.8% of the initial pool balance was originated on or
after July 1, 1998.
>> Collateral: 194 Mortgage Loans with a Cut-Off Date Balance of $632,094,383
and an average loan balance of $3,258,218.
>> Property Type Distribution: Retail (19.5%), Office (17.8%), Multifamily
(15.3%), Manufactured Housing Community (15.0%), Hospitality (13.3%), Mixed
Use (7.6%), Self Storage (5.2%), Industrial (4.2%), Senior Housing (2.1%).
>> Loan Size: The ten largest loans (including cross-collateralized loans)
represent 28.5% of the Mortgage Pool. The largest loan totals $30,059,681
or 4.8% of the Mortgage Pool and is secured by a cross-collateralized pool
of 24 manufactured housing communities. The average loan balance is
$3,258,218.
>> Call Protection: 100% of the Mortgage Loans provide for an initial lockout
period followed by either defeasance (92.5%), yield maintenance (3.3%), an
option allowing the borrower to choose either defeasance or yield
maintenance (3.5%) or percentage prepayment premiums (0.8%).
>> Reserves: 95.9% of the Mortgage Loans require reserves for taxes; 86.0%
require reserves for insurance and 90.9% for capital expenditures. In
addition, 81.2% of retail, office, industrial and mixed use commercial
loans in the mortgage pool have, as of March 10, 1999, a tenant improvement
and leasing commission reserve balance.
>> Available Information: Updated loan information is expected to be part of
the monthly remittance report in addition to detailed payment and
delinquency information. Updated property operating and occupancy
information, to the extent delivered by borrowers, will be available to
Certificateholders. Cash flows are expected to be modeled by TREPP and will
be available on BLOOMBERG.
<PAGE>
$543,601,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
<TABLE>
<CAPTION>
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
INITIAL AGGREGATE
CERTIFICATE EXPECTED FINAL
BALANCE OR SUBORDINATION RATING AVERAGE PRINCIPAL DISTRIBUTION PASS-THROUGH
CLASS NOTIONAL AMOUNT(1) LEVELS (FITCH/S&P) Life(2) WINDOW(2)(3) DATE(2) Rate(4)
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 $101,000,000 30.25%(5) AAA/AAA 5.49 1-109 5/15/08 6.12%
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
A-2 $339,885,000 30.25%(5) AAA/AAA 9.46 109-117 1/15/09 6.53%
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
X(6) $632,094,383(7) - AAA/AAA 9.14 - 7/15/18 Variable Rate(8)
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
B $33,185,000 25.00% AA/AA 9.73 117-117 1/15/09 6.66%
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
C $26,864,000 20.75% A/A 9.73 117-117 1/15/09 6.80%
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
D $12,642,000 18.75% A-/A- 9.73 117-117 1/15/09 7.03%
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
E $30,025,000 14.00% BBB/BBB 9.73 117-117 1/15/09 Variable Rate(9)
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
F(6) $14,222,000 11.75% BBB-/NR 9.73 117-117 1/15/09 Variable Rate(9)
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
G(6) $20,543,000 8.50% BB+/BB+ 9.78 117-118 2/15/09 6.12%
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
H(6) $7,901,000 7.25% BB/BB 9.82 118-119 3/15/09 6.12%
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
J(6) $9,481,000 5.75% BB-/NR 9.92 119-120 4/15/09 6.12%
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
K(6) $7,902,000 4.50% B+/B+ 10.86 120-133 5/15/10 6.12%
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
L(6) $6,321,000 3.50% B/B 12.92 133-168 4/15/13 6.12%
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
M(6) $6,321,000 2.50% B-/NR 13.98 168-168 4/15/13 6.12%
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
N(6) $9,481,000 1.00% CCC/NR 14.02 168-173 9/15/13 6.12%
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
O(6) $6,321,383 0.00% NR/NR 17.59 173-231 7/15/18 6.12%
- ------------- ------------------- ---------------- -------------- ------------- -------------- ----------------- ------------------
</TABLE>
Notes: (1) In the case of each such Class, subject to a permitted variance
of plus or minus 5%.
(2) Based on Maturity Assumptions described in the Prospectus Supplement.
(3) Principal Window is the period (expressed in terms of months
and commencing with the month of the first Distribution Date)
during which distributions of principal are expected to be
made to the holders of each designated Class in accordance
with the Maturity Assumptions.
(4) Other than the Class X Certificates and the Class E and F
Certificates, each Class of Certificates will accrue interest
generally at a fixed rate of interest as described in the
Prospectus Supplement provided that the Pass-Through Rate, in
each case, will not exceed the NWAC Rate for each distribution
date. The Class X, E and F Certificates will accrue interest
at a variable rate as described below.
(5) Represents the approximate credit support for the Class A-1 and
Class A-2 Certificates in the aggregate.
(6) To be offered privately pursuant to Rule 144A.
(7) Class X Notional Amount is equal to the sum of all Principal
Balance Certificates outstanding from time to time.
(8) The Pass-Through Rate on the Class X Certificates on each
Distribution Date will equal, in general, the NWAC Rate minus the
weighted average of the Pass-Through Rates of the classes of
certificates that have principal amounts.
(9) The Pass-Through Rate on the Class E and F Certificates on each
Distribution Date will equal the NWAC Rate minus 0.03%.
T-1
<PAGE>
$543,601,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
I. ISSUE CHARACTERISTICS
Issue Type: Public: Class A-1, A-2, B, C, D and E (the
"Offered Certificates")
Private (Rule 144A): Class F, G, H, J, K, L, M,
N, O and X
Securities Offered: Six classes of monthly pay, multi-class
sequential pay commercial mortgage REMIC
Pass-Through Certificates, including five
fixed-rate principal and interest classes (A-1,
A-2, B, C and D), and one weighted average coupon
principal and interest class (Class E).
Collateral: The collateral consists of a $632,094,383 pool of
fixed-rate commercial and multifamily Mortgage
Loans
Mortgage Loan Originator: FINOVA Realty Capital, Inc.
Mortgage Loan Sellers: FINOVA Realty Capital, Inc. and FINOVA Commercial
Mortgage Loan Owner Trust 1998-1
Lead Manager: Morgan Stanley & Co. Incorporated
Co-Manager: Deutsche Bank Securities Inc.
Master Servicer: AMRESCO Services, L.P.
Special Servicer: Banc One Mortgage Capital Markets, LLC
Trustee: Norwest Bank Minnesota, National Association
Expected Pricing Date: April 7, 1999.
Expected Closing Date: On or about April 21, 1999
Distribution Dates: The 15th of each month but no earlier than the
fourth Business Day following the 11th of each
month, commencing May 1999
Determination Date: The 11th of each month or, if such day is not a
Business Day, the next following Business Day,
commencing May 1999
Cut-Off Date: With respect to one hundred forty-six (146)
mortgage loans (representing 82.3% of the initial
pool balance) which have due dates that occur on
the first day of each month, April, 1, 1999. With
respect to forty-eight (48) mortgage loans
(representing 17.7% of the initial pool balance)
which have due dates that occur on the eleventh
day of each month, April 11, 1999.
Minimum Denominations: $25,000 for Class A-1 and A-2 Certificates;
$50,000 for Class B Certificates. $100,000 for
all other Certificates (other than the Class R
Certificates)
Settlement Terms: DTC, Euroclear and Cedel, same day funds, with
accrued interest
Legal/Regulatory Status: Class A-1 and A-2 Certificates are expected to be
eligible for exemptive relief under ERISA. No
Class of Certificates is SMMEA eligible.
Risk Factors: THE CERTIFICATES INVOLVE A DEGREE OF RISK AND MAY
NOT BE SUITABLE FOR ALL INVESTORS. SEE THE "RISK
FACTORS" SECTION OF THE PROSPECTUS SUPPLEMENT AND
THE "RISK FACTORS" SECTION OF THE PROSPECTUS.
T-2
<PAGE>
$543,601,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
II. STRUCTURE CHARACTERISTICS
The Offered Certificates are fixed-rate, monthly pay, multi-class, sequential
pay REMIC Pass-Through Certificates. The Class E and F Certificates are
weighted average coupon REMIC Pass-Through Certificates. The Class X
Certificates are variable rate interest only REMIC Pass-Through Certificates.
All Classes of Certificates derive their cash flows from the entire pool of
Mortgage Loans.
CLASS X(1)(2)
_____/\______
/ \
--------------------------------------- ---------------
CLASS A-1 | AAA/AAA | |///////////////| $101.0MM
| 6.12% | |///////////////|
--------------------------------------- ---------------
----------------------------------------- -------------
CLASS A-2 | AAA/AAA | |/////////////| $339.9MM
| 6.53% | |/////////////|
----------------------------------------- -------------
------------------------------------------- -----------
CLASS B | AA/AA | |///////////| $33.2MM
| 6.66% | |///////////|
------------------------------------------- -----------
--------------------------------------------- ---------
CLASS C | A/A | |/////////| $26.9MM
| 6.80% | |/////////|
--------------------------------------------- ---------
----------------------------------------------- -------
CLASS D | A-/A- | |///////| $12.6MM
| 7.03% | |///////|
----------------------------------------------- -------
------------------------------------------------- -----
CLASS E | BBB/BBB(3) | |/////| $30.0MM
| NWAC -0.03% | |/////|
------------------------------------------------- -----
------------------------------------------------- -----
CLASS F(2) | BBB-/NR(3) | |/////| $14.2MM
| NWAC -0.03% | |/////|
------------------------------------------------- -----
--------------------------------------- ---------------
CLASS G(2) | BB+/BB+ | |///////////////| $20.5MM
| 6.12% | |///////////////|
--------------------------------------- ---------------
--------------------------------------- ---------------
CLASS H(2) | BB/BB | |///////////////| $7.9MM
| 6.12% | |///////////////|
--------------------------------------- ---------------
--------------------------------------- ---------------
CLASS J(2) | BB-/NR | |///////////////| $9.5MM
| 6.12% | |///////////////|
--------------------------------------- ---------------
--------------------------------------- ---------------
CLASS K(2) | B+/B+ | |///////////////| $7.9MM
| 6.12% | |///////////////|
--------------------------------------- ---------------
--------------------------------------- ---------------
CLASS L(2) | B/B | |///////////////| $6.3MM
| 6.12% | |///////////////|
--------------------------------------- ---------------
--------------------------------------- ---------------
CLASS M(2) | B-/NR | |///////////////| $6.3MM
| 6.12% | |///////////////|
--------------------------------------- ---------------
--------------------------------------- ---------------
CLASS N(2) | CCC/NR | |///////////////| $9.5MM
| 6.12% | |///////////////|
--------------------------------------- ---------------
--------------------------------------- ---------------
CLASS O(2) | NR/NR | |///////////////| $6.3MM
| 6.12% | |///////////////|
--------------------------------------- ---------------
NR = Not Rated
Notes: (1) See Notes (7) and (8) on Page T-1.
(2) See Note (6) on Page T-1.
(3) See Note (9) on Page T-1.
T-3
<PAGE>
$543,601,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
-----------------------------------------------
///////////////// Class X ////////////////////
----------------------------------------------
--------------------- ----------------
///////////////// A-1 ------
--------------------- ////// Interest
--------------------- ------
/ / A-1 ------
--------------------- Principal
----------------------- ------
/////////////////// A-2 ----------------
-----------------------
/ / A-2
-----------------------
///////////////////// B
-----------------------
/ B
-----------------------
/ \ --- ///////////////////// C
/ \ | | -----------------------
/ \ | | / C
/ \ | | -----------------------
/ \ | | ///////////////////// D
--- --- | C | -----------------------
| | | A | / D
| | | S | -----------------------
| | | H | ///////////////////// E
| A | | | -----------------------
| P | | F | / E
| P | | L | -----------------------
| L | | O | ///////////////////// F
| I | | W | -----------------------
| E | | | / F
| D | | | -----------------------
| | | | ///////////////////// G
| L | | | -----------------------
| O | --- --- / G
| S | \ / -----------------------
| S | \ / ///////////////////// H
| E | \ / -----------------------
| S | \ / / H
| | \ / -----------------------
--- ///////////////////// J
-----------------------
/ J
---------------------------
///////////////////////// K
---------------------------
/ / K
--------------------------------
////////////////////////////// L
--------------------------------
/ / L
--------------------------------
////////////////////////////// M
--------------------------------
/ M
----------------------------------
//////////////////////////////// N
----------------------------------
/ / N
------------------------------------------
//////////////////////////////////////// O
------------------------------------------
/ / O
----------------------------------------------
| | | | | | | | | | |
----------------------------------------------
0 50 100 150 200 250
Notes: (1) The class A-1, A-2 and X certificates will be paid interest on a
pro rata basis.
(2) The above analysis is based on the Maturity Assumptions and a 0%
CPR as described in the Prospectus Supplement.
T-4
<PAGE>
$543,601,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
Interest Distributions: Each Class of Certificates (other than the Class
R Certificates) will be entitled on each
Distribution Date to interest accrued at its
Pass-Through Rate on the outstanding Certificate
Balance or Notional Amount of such Class, as
applicable.
Pass-Through Rates:(1) Class A-1: 6.12%
Class A-2: 6.53%
Class B: 6.66%
Class C: 6.80%
Class D: 7.03%
Class E: NWAC - 0.03%
Class F: NWAC - 0.03%
Class G: 6.12%
Class H: 6.12%
Class J: 6.12%
Class K: 6.12%
Class L: 6.12%
Class M: 6.12%
Class N: 6.12%
Class O: 6.12%
Class X: See Note (8) on page T-1
Note: (1) See Note (4) on Page T-1.
The Pass-Through Rate for each class of Principal
Balance Certificates for any Distribution Date
will not exceed the Weighted Average Net Mortgage
Rate ("NWAC") for such Distribution Date.
Principal Distributions: Principal will be distributed on each
Distribution Date to the most senior Class (i.e.,
the Class with the earliest
alphabetical/numerical Class designation) of the
Principal Balance Certificates outstanding, until
its Certificate Balance is reduced to zero
(sequential order). If, due to losses, the
Certificate Balances of the Class B through Class
O Certificates are reduced to zero or Appraisal
Reductions exceed the aggregate Certificate
Balance of the Subordinate Certificates, payments
of principal to the Class A-1 and A-2
Certificates will be made on a pro rata basis.
Prepayment Premium
Allocation: The holders of each Class of Principal
Certificates (other than an excluded class as
defined below) then entitled to distributions of
principal on such distribution date will be
entitled to an aggregate amount (allocable on a
pro rata basis if there is more than one Class of
Principal Balance Certificates entitled to a
distribution of principal) equal to the lesser of
(a) such Prepayment Premium and (b) such
Prepayment Premium multiplied by a fraction, the
numerator of which is equal to the excess, if
any, of the Pass-Through Rate applicable to the
most senior of such Classes of Principal Balance
Certificates then outstanding (or, in the case of
two Classes of Class A Certificates, the one with
the earlier payment priority), over the relevant
Discount Rate (as defined in the Prospectus
Supplement), and the denominator of which is
equal to the excess, if any, of the Mortgage Rate
of the Mortgage Loan that prepaid, over the
relevant Discount Rate. The portion, if any, of
the Prepayment Premium remaining after such
payments to the holders of the Principal Balance
Certificates will be distributed to the holders
of the Class X Certificates. For the purposes of
the foregoing, the classes G, H, J, K, L, M, N
and O are the excluded classes.
T-4
<PAGE>
$543,601,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
Credit Enhancement: Each Class of Certificates (other than Classes
A-1, A-2 and X) will be subordinate to all other
Classes with an earlier alphabetical Class
designation.
Advancing: The Master Servicer and the Trustee (in that
order) will each be obligated to make P&I
Advances and Servicing Advances, including
delinquent property taxes and insurance, but only
to the extent that such Advances are deemed
recoverable.
Realized Losses and
Expense Losses: Realized Losses and Expense Losses, if any, will
be allocated to the Class O, Class N, Class M,
Class L, Class K, Class J, Class H, Class G,
Class F, Class E, Class D, Class C and Class B
Certificates, in that order, and then to Classes
A-1 and A-2 and, with respect to losses allocated
to interest, Class X Certificates, pro rata, in
each case reducing amounts payable thereto. Any
interest shortfall of any Class of Certificates
will result in unpaid interest for such Class
which, together with interest thereon compounded
monthly at one-twelfth the applicable
Pass-Through Rate for such Class, will be payable
in subsequent periods, subject to available
funds.
Prepayment Interest
Shortfalls: For any Distribution Date, any Net Aggregate
Prepayment Interest Shortfall not offset by the
Servicing Fee (as set forth in the Prospectus
Supplement), will generally be allocated pro rata
to each Class of Certificates in proportion to
its entitlement to interest.
Appraisal Reductions: An appraisal reduction generally will be created
in the amount, if any, by which the Principal
Balance of a Specially Serviced Mortgage Loan
(plus other amounts overdue in connection with
such loan) exceeds 90% of the appraised value of
the related Mortgaged Property. The Appraisal
Reduction Amount will reduce proportionately the
amount of P&I Advances for such loan, which
reduction will result, in general, in a reduction
of amounts distributable to the most subordinate
Class of Principal Balance Certificate
outstanding.
An Appraisal Reduction will be reduced to zero as
of the date the related Mortgage Loan has been
brought current for at least three consecutive
months, paid in full, liquidated, repurchased or
otherwise disposed of.
Operating Adviser: The Operating Adviser, which may be appointed by
the Controlling Class, will have the right to
advise the Special Servicer with respect to
certain actions regarding Specially Serviced
Mortgage Loans. Examples include the right to
make certain modifications, foreclose, sell,
bring an REO Property into environmental
compliance or accept substitute or additional
collateral.
Controlling Class: The Controlling Class will generally be the most
subordinate Class of Certificates outstanding at
any time or, if the Certificate Balance of such
Class is less than 25% of the initial Certificate
Balance of such Class, the next most subordinate
Class of Principal Balance Certificates.
Special Servicer: In general, the Special Servicer has the right to
modify the terms of a Specially Serviced Mortgage
Loan if it determines that such modification
would increase the net present value of the
proceeds to the Trust, provided that the Special
Servicer generally may not extend the maturity
date of a Mortgage Loan beyond two years prior to
the Rated Final Distribution Date, grant more
than three one-year extensions of the maturity
date of a Mortgage Loan which has a below market
rate, reduce the Mortgage Rate to a rate below
the market rate or defer interest due in excess
of 10% of the Scheduled Principal Balance of such
Mortgage Loan.
T-5
<PAGE>
$543,601,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
Optional Termination: The Depositor, then the Master Servicer, then the
Special Servicer, then the majority holders of
the Controlling Class and then the holder of a
majority of the R-I Certificates will have the
option to purchase, in whole but not in part, the
remaining assets of the Trust on or after the
Distribution Date on which the aggregate
Certificate Balance of all Classes of
Certificates then outstanding is less than or
equal to 1% of the Initial Pool Balance. Such
purchase price will generally be at a price equal
to the unpaid aggregate Scheduled Principal
Balance of the Mortgage Loans, plus accrued and
unpaid interest and unreimbursed Advances.
Reports to
Certificateholders: The Trustee will prepare and deliver monthly
Certificateholder Reports. The Special Servicer
will prepare and deliver to the Trustee a monthly
Special Servicer Report summarizing the status of
each Specially Serviced Mortgage Loan. The Master
Servicer and the Special Servicer will prepare
and deliver to the Trustee an annual report
setting forth, among other things, the debt
service coverage ratios for each Mortgage Loan,
as available. Each of the reports will be
available to the Certificateholders. A report
containing information regarding the Mortgage
Loans will be available electronically.
The foregoing terms and structural characteristics of the Certificates are in
all respects subject to the more detailed description thereof in the Pooling
and Servicing Agreement.
T-7
<PAGE>
$543,601,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
III. MORTGAGE LOAN FINOVA Realty Capital Inc.
ORIGINATOR
The FINOVA Group Inc. (the "Company") (NYSE:FNV) is
a diversified financial services holding company.
Through its principal subsidiary, FINOVA Capital
Corporation, the Company operates in 19 specific
industry or market niches to provide a broad range
of financing and capital market products to midsize
businesses. The Company has been in operation for
over 45 years. As of December 31, 1998, The FINOVA
Group Inc. reported an asset base of approximately
$11 billion.
FINOVA Realty Capital Inc. ("FINOVA") is a
wholly-owned indirect subsidiary of FINOVA Capital
Corporation and is the entity through which the
Company conducts the great majority of its
commercial real estate finance activities. FINOVA
was formerly known as Belgravia Capital Corporation,
prior to its acquisition by the Company in October
1997. FINOVA is headquartered in Irvine, CA with a
staff in excess of 90 employees, where it maintains
its centralized underwriting, loan processing,
credit and capital markets operations. FINOVA
maintains an additional 29 offices nationwide which
are staffed with approximately 80 employees that are
dedicated solely to sourcing commercial real estate
loans. Since 1994, FINOVA's originations have
included approximately $2.5 billion of commercial
mortgage loans that have been securitized by its
partners in more than 20 different CMBS offerings.
In 1998, FINOVA originated approximately $3.1
billion of commercial mortgage loans.
<PAGE>
$543,601,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
IV. COLLATERAL DESCRIPTION
Summary: The Mortgage Pool consists of a $632,094,383 pool of
194 fixed-rate, first lien mortgage loans secured by
first liens on commercial and multifamily properties
located throughout 34 states and the District of
Columbia. As of the Cut-Off Date, the Mortgage Loans
have a weighted average mortgage rate of 7.622% and
a weighted average remaining term to maturity of 119
months. See the Appendices to the Prospectus
Supplement for more detailed collateral information.
GEOGRAPHIC DISTRIBUTION
WA MO AL HI
1.9% 0.7% 1.5% 1.2%
OR OK GA CT
0.8% 1.2% 5.1% 0.3%
CA TX NY NJ
33.0% 7.9% 0.8% 2.0%
NV LA PA MD
1.2% 0.5% 5.9% 2.3%
UT IL VA District of
0.4% 0.2% 1.2% Columbia
5.2%
AZ MI NC
3.6% 0.5% 1.7%
WY IN SC
0.6% 0.4% 1.5%
CO OH FL
2.0% 0.8% 5.3%
NM KY NH
0.6% 0.5% 1.5%
MN TN MA
0.8% 1.5% 5.6%
T-9
<PAGE>
$543,601,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
CUT-OFF DATE BALANCES ($)
- ----------------------------------------------
NO.CUT-OFF DATE %
OF PRINCIPAL OF
LOANS BALANCE POOL
- ----------------------------------------------
(LESS THAN) = 1MM 26 18,281,125 2.89
1MM - 2MM 45 69,230,683 10.95
2MM - 3MM 53 131,825,576 20.86
3MM - 4MM 26 90,705,819 14.35
4MM - 5MM 13 56,462,549 8.93
5MM - 6MM 7 37,744,980 5.97
6MM - 7MM 10 65,122,951 10.30
7MM - 8MM 3 22,309,329 3.53
8MM - 9MM 1 8,366,193 1.32
9MM - 10MM 3 28,119,603 4.45
10MM - 15MM 5 63,257,596 10.01
15MM - 20MM 1 18,859,720 2.98
20MM - 25MM 1 21,808,261 3.45
- ----------------------------------------------
TOTAL: 194 632,094,383 100.00
- ----------------------------------------------
Min: 178,572
Max: 21,808,261
Average: 3,258,218
- ----------------------------------------------
STATES
- ---------------------------------------------
NO. CUT-OFF DATE %
OF PRINCIPAL OF
LOANS BALANCE POOL
- ---------------------------------------------
California 49 208,320,912 32.96
Texas 14 49,916,610 7.90
Pennsylvania 23 37,489,691 5.93
Massachusetts 6 35,432,902 5.61
Florida 5 33,494,423 5.30
District of
Columbia 4 32,657,038 5.17
Georgia 12 32,025,038 5.07
Arizona 9 22,489,672 3.56
Maryland 5 14,447,565 2.29
Colorado 4 12,706,598 2.01
Other 63 153,113,935 24.2
- ---------------------------------------------
TOTAL: 194 632,094,383 100.00
- ---------------------------------------------
PROPERTY TYPE
- ---------------------------------------------
NO. CUT-OFF DATE %
OF PRINCIPAL OF
LOANS BALANCE POOL
- ---------------------------------------------
Retail 33 123,360,194 19.52
Office 20 112,478,796 17.79
Multifamily 23 96,784,847 15.31
Manufactured
Housing
Community 49 94,853,371 15.01
Hospitality 25 83,877,868 13.27
Mixed Use 14 48,304,489 7.64
Self Storage 15 32,722,333 5.18
Industrial 6 26,444,943 4.18
Senior Housing 9 13,267,543 2.10
- ---------------------------------------------
TOTAL: 194 632,094,383 100.00
- ---------------------------------------------
MORTGAGE RATES (%)
- --------------------------------------------
NO. CUT-OFF DATE %
OF PRINCIPAL OF
LOANS BALANCE POOL
- --------------------------------------------
6.501 - 7.000 22 61,796,551 9.78
7.001 - 7.500 78 233,499,811 36.94
7.501 - 8.000 55 228,139,400 36.09
8.001 - 8.500 33 78,614,797 12.44
8.501 - 9.000 6 30,043,824 4.75
- --------------------------------------------
TOTAL: 194 632,094,383 100.00
- --------------------------------------------
Min: 6.610
Max: 9.000
WAC: 7.622
- --------------------------------------------
ORIGINAL TERMS TO STATED MATURITY (MOS)
- --------------------------------------------
NO. CUT-OFF DATE %
OF PRINCIPAL OF
LOANS BALANCE POOL
- --------------------------------------------
61 - 120 182 571,037,096 90.34
121 - 180 8 48,472,528 7.67
181 - 240 4 12,584,760 1.99
- --------------------------------------------
TOTAL: 194 632,094,383 100.00
- --------------------------------------------
Min: 84
Max: 240
Wtd Avg: 125
- --------------------------------------------
REMAINING TERMS TO STATED MATURITY (MOS)
- ---------------------------------------------
NO. CUT-OFF DATE %
OF PRINCIPAL OF
LOANS BALANCE POOL
- ---------------------------------------------
61 - 120 187 589,068,429 93.19
121 - 180 3 30,441,194 4.82
181 - 240 4 12,584,760 1.99
- ---------------------------------------------
TOTAL: 194 632,094,383 100.00
- ---------------------------------------------
Min: 75
Max: 231
Wtd Avg: 119
- ---------------------------------------------
BALLOON LOANS
- --------------------------------------------
NO. CUT-OFF DATE %
OF PRINCIPAL OF
LOANS BALANCE POOL
- --------------------------------------------
Yes 191 623,170,002 98.59
No 3 8,924,382 1.41
- --------------------------------------------
TOTAL: 194 632,094,383 100.00
- --------------------------------------------
DEBT SERVICE COVERAGE RATIOS (X)
- ------------------------------------------
NO. CUT-OFF DATE %
OF PRINCIPAL OF
LOANS BALANCE POOL
- ------------------------------------------
1.01 - 1.15 6 8,558,132 1.35
1.16 - 1.25 24 114,613,313 18.13
1.26 - 1.35 51 225,928,677 35.74
1.36 - 1.50 51 148,999,948 23.57
1.51 - 1.75 52 112,878,404 17.86
1.76 - 2.00 4 8,266,946 1.31
2.00 >= 6 12,848,965 2.03
- ------------------------------------------
TOTAL: 194 632,094,383 100.00
- ------------------------------------------
Min: 1.11
Max: 2.52
Wtd Avg: 1.40
- ------------------------------------------
CUT-OFF DATE LOAN-TO-VALUE RATIOS (%)
- ------------------------------------------
NO. CUT-OFF DATE %
OF PRINCIPAL OF
LOANS BALANCE POOL
- ------------------------------------------
30.1 - 40.0 1 1,237,136 0.20
40.1 - 50.0 5 10,352,823 1.64
50.1 - 60.0 21 54,671,808 8.65
60.1 - 70.0 58 171,203,388 27.09
70.1 - 80.0 107 384,853,506 60.89
80.1 - 90.0 2 9,775,723 1.55
- ------------------------------------------
TOTAL: 194 632,094,383 100.00
- ------------------------------------------
Min 37.6
Max: 85.1
Wtd Avg: 70.8
- ------------------------------------------
BALLOON LOAN-TO-VALUE RATIOS (%)
- -------------------------------------------
NO. CUT-OFF DATE %
OF PRINCIPAL OF
LOANS BALANCE POOL
- -------------------------------------------
0.1 - 10.0 3 8,924,382 1.41
20.1 - 30.0 1 2,518,583 0.40
30.1 - 40.0 6 12,731,754 2.01
40.1 - 50.0 23 54,936,203 8.69
50.1 - 60.0 54 150,058,376 23.74
60.1 - 70.0 97 334,905,666 52.98
70.1 - 80.0 10 68,019,421 10.76
- -------------------------------------------
TOTAL: 194 632,094,383 100.0
- -------------------------------------------
Min: 3.3
Max: 78.4
Wtd Avg: 60.1
- -------------------------------------------
T-10
<PAGE>
$543,601,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
PERCENTAGE OF MORTGAGE POOL BALANCE BY PREPAYMENT RESTRICTION (%)(1)
<TABLE>
<CAPTION>
- ---------------------------------- ------------------- ------------------- ------------------- ------------------ -----------------
PREPAYMENT RESTRICTIONS APRIL 1999 APRIL 2000 APRIL 2001 APRIL 2002 APRIL 2003
- ---------------------------------- ------------------- ------------------- ------------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
Locked Out/Defeasance 100.00% 96.54% 96.29% 95.55% 95.54%
Yield Maintenance Total 0.00 3.46 3.46 3.86 3.87
Penalty Points:
5.00% and greater 0.00 0.00 0.25 0.34 0.34
4.00% to 4.99% 0.00 0.00 0.00 0.25 0.00
3.00% to 3.99% 0.00 0.00 0.00 0.00 0.25
2.00% to 2.99% 0.00 0.00 0.00 0.00 0.00
1.00% to 1.99% 0.00 0.00 0.00 0.00 0.00
Open 0.00 0.00 0.00 0.00 0.00
- ---------------------------------- ------------------- ------------------- ------------------- ------------------ -----------------
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00%
- ---------------------------------- ------------------- ------------------- ------------------- ------------------ -----------------
Pool Balance Outstanding
(in millions) $632.09 $625.35 $617.93 $609.91 $601.26
------- ------- ------- ------- -------
% of Initial Pool Balance 100.00% 98.93% 97.76% 96.49% 95.12%
- ---------------------------------- ------------------- ------------------- ------------------- ------------------ -----------------
</TABLE>
PERCENTAGE OF MORTGAGE POOL BALANCE BY PREPAYMENT RESTRICTION (%) - CONTINUED(1)
<TABLE>
<CAPTION>
- ---------------------------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
PREPAYMENT RESTRICTIONS APRIL 2004 APRIL 2005 APRIL 2006 APRIL 2007 APRIL 2008 APRIL 2009
- ---------------------------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Locked Out/Defeasance 92.92% 91.86% 92.88% 92.87% 79.15% 43.50%
Yield Maintenance Total 6.27 6.47 6.54 6.55 4.04 56.50
Penalty Points:
5.00% and greater 0.23 0.00 0.00 0.00 0.00 0.00
4.00% to 4.99% 0.34 0.57 0.00 0.00 0.00 0.00
3.00% to 3.99% 0.00 0.00 0.57 0.00 0.00 0.00
2.00% to 2.99% 0.25 0.00 0.00 0.57 0.00 0.00
1.00% to 1.99% 0.00 0.00 0.00 0.00 0.24 0.00
Open 0.00 1.11 0.00 0.00 16.56 0.00
- ---------------------------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
- ---------------------------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
Pool Balance Outstanding
(in millions) $592.05 $581.97 $564.75 $553.11 $532.40 $35.38
------- ------- ------- ------- ------- ------
% of Initial Pool Balance 93.66% 92.07% 89.35% 87.50% 84.23% 5.60%
- ---------------------------------- ---------------- --------------- ---------------- --------------- ---------------- -------------
</TABLE>
Note: (1) The above analysis is based on Maturity Assumptions and a 0% CPR as
discussed in the Prospectus Supplement.
T-11
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
MORGAN STANLEY CAPITAL I INC.
DEPOSITOR
The Certificates offered hereby and by Supplements to this Prospectus
(the "Offered Certificates") will be offered from time to time in one or more
series. Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any series, the
"Trust Fund") consisting of one or more segregated pools of various types of
multifamily or commercial mortgage loans (the "Mortgage Loans"), mortgage
participations, mortgage pass-through certificates, mortgage-backed securities
evidencing interests therein or secured thereby (the "MBS"), certain direct
obligations of the United States, agencies thereof or agencies created thereby
(the "Government Securities") or a combination of Mortgage Loans, MBS and/or
Government Securities (with respect to any series, collectively, "Assets"). If
so specified in the related Prospectus Supplement, some or all of the Mortgage
Loans will include assignments of the leases of the related Mortgaged
Properties (as defined herein) and/or assignments of the rental payments due
from the lessees under such leases (each type of assignment, a "Lease
Assignment"). A significant or the sole source of payments on certain
Commercial Loans (as defined herein) and, therefore, of distributions on
certain series of Certificates, will be such rent payments. The Mortgage Loans
and MBS are collectively referred to herein as the "Mortgage Assets." If so
specified in the related Prospectus Supplement, the Trust Fund for a series of
Certificates may include letters of credit, insurance policies, guarantees,
reserve funds or other types of credit support, or any combination thereof
(with respect to any series, collectively, "Credit Support"), and currency or
interest rate exchange agreements and other financial assets, or any
combination thereof (with respect to any series, collectively, "Cash Flow
Agreements"). See "Description of the Trust Funds," "Description of the
Certificates" and "Description of Credit Support."
Each series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon based on
fixed, variable or 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
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; (vi)
provide for distributions of principal sequentially, based on specified payment
schedules or other methodologies; and/or (vii) provide for distributions based
on a combination of two or more components thereof with one or more of the
characteristics described in this paragraph, to the extent of available funds,
in each case as described in the related Prospectus Supplement. Any such
classes may include classes of Offered Certificates. See "Description of the
Certificates."
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters, as more fully
described under "Plan of Distribution" herein and in the related Prospectus
Supplement.
------------------------------
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 OR THE RELATED PROSPECTUS SUPPLEMENT.ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, CERTAIN RISKS SET FORTH
UNDER THE CAPTION "RISK FACTORS" HEREIN AND IN THE RELATED PROSPECTUS
SUPPLEMENT.
Prior to issuance there will have been no market for the Certificates
of any series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will
continue. This Prospectus may not be used to consummate sales of the Offered
Certificates of any series unless accompanied by the Prospectus Supplement for
such series.
---------------------------------
MORGAN STANLEY & CO.
INCORPORATED
October 9, 1998
<PAGE>
Principal and interest with respect to Certificates will be
distributable monthly, quarterly, semi-annually or at such other intervals and
on the dates specified in the related Prospectus Supplement. Distributions on
the Certificates of any series will be made only from the assets of the related
Trust Fund.
The Certificates of each series will not represent an obligation of or
interest in the Depositor, Morgan Stanley & Co. Incorporated, any Master
Servicer, any Sub-Servicer, any Special Servicer or any of their respective
affiliates, except to the limited extent described herein and in the related
Prospectus Supplement. Neither the Certificates nor any assets in the related
Trust Fund will be guaranteed or insured by any governmental agency or
instrumentality or by any other person, unless otherwise provided in the
related Prospectus Supplement. The assets in each Trust Fund will be held in
trust for the benefit of the holders of the related series of Certificates
pursuant to a Pooling and Servicing Agreement or a Trust Agreement, as more
fully described herein.
The yield on each class of Certificates of a series will be affected
by, among other things, the rate of payment of principal (including
prepayments, repurchase and defaults) on the Mortgage Assets in the related
Trust Fund and the timing of receipt of such payments as described under the
caption "Yield Considerations" herein and in the related Prospectus Supplement.
A Trust Fund may be subject to early termination under the circumstances
described herein and in the related Prospectus Supplement.
Prospective investors should review the information appearing under the
caption "Risk Factors" herein and such information as may be set forth under
the caption "Risk Factors" in the related Prospectus Supplement before
purchasing any Offered Certificate.
If so provided in the related Prospectus Supplement, one or more
elections may be made to treat the related Trust Fund or a designated portion
thereof as a "real estate mortgage investment conduit" for federal income tax
purposes. See also "Certain Federal Income Tax Consequences" herein.
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 Sub-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
2
<PAGE>
information set forth in the Registration Statement pursuant to the rules and
regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at its Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
Regional Offices located as follows: Chicago Regional Office, Citicorp Center,
500 West Madison Street, Chicago, Illinois 60661; and New York Regional Office,
Seven World Trade Center, New York, New York 10048.
To the extent described in the related Prospectus Supplement, some or
all of the Mortgage Loans may be secured by an assignment of the lessors'
(i.e., the related mortgagors') rights in one or more leases (each, a "Lease")
of the related Mortgaged Property. Unless otherwise specified in the related
Prospectus Supplement, no series of Certificates will represent interests in or
obligations of any lessee (each, a "Lessee") under a Lease. If indicated,
however, in the Prospectus Supplement for a given series, a significant or the
sole source of payments on the Mortgage Loans in such series, and, therefore,
of distributions on such Certificates, will be rental payments due from the
Lessees under the Leases. Under such circumstances, prospective investors in
the related series of Certificates may wish to consider publicly available
information, if any, concerning the Lessees. Reference should be made to the
related Prospectus Supplement for information concerning the Lessees and
whether any such Lessees are subject to the periodic reporting requirements of
the Securities Exchange Act of 1934, as amended.
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, or
unless otherwise provided in the related Prospectus Supplement, such reports
will be sent on behalf of the related Trust Fund to Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC") and registered holder of the
Offered Certificates, pursuant to the applicable Agreement. Such reports may be
available to 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 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.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports
filed or caused to be filed by the Depositor with respect to a Trust Fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of an offering of Offered Certificates evidencing interests
therein. The Depositor will provide or cause to be provided without charge to
each person to whom this Prospectus is delivered in connection with the
offering of one or more classes of Offered Certificates, a copy of any or all
documents or reports incorporated herein by reference, in each case to the
extent such documents or reports relate to one or more of such classes of such
Offered Certificates, other than the exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such documents).
Requests to the Depositor should be directed in writing to Morgan Stanley
Capital I Inc., c/o Morgan Stanley & Co. Incorporated, 1585 Broadway, 37th
Floor, New York, New York 10036, Attention: John E. Westerfield, or by
telephone at (212) 761-4700. The Depositor has determined that its financial
statements are not material to the offering of any Offered Certificates.
3
<PAGE>
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT......................................................2
AVAILABLE INFORMATION......................................................2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..........................3
SUMMARY OF PROSPECTUS......................................................5
RISK FACTORS..............................................................15
DESCRIPTION OF THE TRUST FUNDS............................................22
USE OF PROCEEDS...........................................................28
YIELD CONSIDERATIONS......................................................28
THE DEPOSITOR.............................................................32
DESCRIPTION OF THE CERTIFICATES...........................................32
DESCRIPTION OF THE AGREEMENTS.............................................40
DESCRIPTION OF CREDIT SUPPORT.............................................57
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES................59
CERTAIN FEDERAL INCOME TAX CONSEQUENCES...................................75
STATE TAX CONSIDERATIONS.................................................101
CERTAIN ERISA CONSIDERATIONS.............................................101
LEGAL INVESTMENT.........................................................103
PLAN OF DISTRIBUTION.....................................................105
LEGAL MATTERS............................................................106
FINANCIAL INFORMATION....................................................106
RATING ..................................................................106
INDEX OF PRINCIPAL DEFINITIONS...........................................107
4
<PAGE>
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in
its entirety by reference to the more detailed information appearing elsewhere
in this Prospectus and by reference to the information with respect to each
series of Certificates contained in the Prospectus Supplement to be prepared
and delivered in connection with the offering of such series. An Index of
Principal Definitions is included at the end of this Prospectus.
<TABLE>
<CAPTION>
<S> <C>
TITLE OF CERTIFICATES.......................Mortgage Pass-Through Certificates, issuable in
series (the "Certificates").
DEPOSITOR...................................Morgan Stanley Capital I Inc., a wholly-owned
subsidiary of Morgan Stanley Group Inc. See "The
Depositor."
MASTER SERVICER.............................The master servicer (the "Master Servicer"), if any,
for each series of Certificates, which may be an
affiliate of the Depositor, will be named in the
related Prospectus Supplement. See "Description of
the Agreements--Collection and Other Servicing
Procedures."
SPECIAL SERVICER............................The special servicer (the "Special Servicer"), if
any, for each series of Certificates, which may be
an affiliate of the Depositor, will be named, or the
circumstances in accordance with which a Special
Servicer will be appointed will be described, in the
related Prospectus Supplement. See "Description of
the Agreements--Special Servicers."
TRUSTEE.....................................The trustee (the "Trustee") for each series of
Certificates will be named in the related Prospectus
Supplement. See "Description of the Agreements--The
Trustee."
THE TRUST ASSETS............................Each series of Certificates will represent in the
aggregate the entire beneficial ownership interest
in a Trust Fund consisting primarily of:
(a) MORTGAGE ASSETS.........................The Mortgage Assets with respect to each series of
Certificates will consist of a pool of multifamily
and/or commercial mortgage loans (collectively, the
"Mortgage Loans") and mortgage participations,
mortgage pass-through certificates or other
mortgage-backed securities evidencing interests in
or secured by Mortgage Loans (collectively, the
"MBS") or a combination of Mortgage Loans and MBS.
The Mortgage Loans will not be guaranteed or insured
by the Depositor or any of its affiliates or, unless
otherwise provided in the
5
<PAGE>
Prospectus Supplement, by any governmental agency or
instrumentality or other person. As more
specifically described herein, the Mortgage Loans
will be secured by first or junior liens on, or
security interests in, properties consisting of (i)
residential properties consisting of five or more
rental or cooperatively-owned dwelling units (the
"Multifamily Properties") or (ii) office buildings,
shopping centers, 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,
congregate care facilities, mixed use or other types
of commercial properties (the "Commercial
Properties"). The term "Mortgaged Properties" shall
refer to Multifamily Properties or Commercial
Properties, or both.
To the extent described in the related Prospectus
Supplement, some or all of the Mortgage Loans may
also be secured by an assignment of one or more
leases (each, a "Lease") of one or more lessees
(each, a "Lessee") of all or a portion of the
related Mortgaged Properties. Unless otherwise
specified in the related Prospectus Supplement, a
significant or the sole source of payments on
certain Commercial Loans (as defined herein) will be
the rental payments due under the related Leases. In
certain circumstances, with respect to Commercial
Properties, the material terms and conditions of the
related Leases may be set forth in the related
Prospectus Supplement. See "Description of the Trust
Funds--Mortgage Loans--Leases" and "Risk
Factors--Limited Assets" herein.
The Mortgaged Properties may be located in any one
of the fifty states, the District of Columbia or the
Commonwealth of Puerto Rico. The Prospectus
Supplement will indicate additional jurisdictions,
if any, in which the Mortgaged Properties may be
located. Unless otherwise provided 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 Certificates. The related
Prospectus Supplement will indicate if any such
persons are affiliates of the Depositor.
Each Mortgage Loan may provide for no accrual of
interest or for accrual of interest thereon at an
interest rate (a "Mortgage
6
<PAGE>
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, in each case as described in the related
Prospectus Supplement. Adjustable Mortgage Rates on
the Mortgage Loans in a Trust Fund may be based on
one or more indices. Each Mortgage Loan may provide
for scheduled payments to maturity, payments that
adjust from time to time to accommodate changes in
the Mortgage Rate or to reflect the occurrence of
certain events, and may provide for negative
amortization or accelerated amortization, in each
case as described in the related Prospectus
Supplement. Each Mortgage Loan may be fully
amortizing or require a balloon payment due on its
stated maturity date, in each case as described in
the related Prospectus Supplement. Each Mortgage
Loan may contain prohibitions on prepayment or
require payment of a premium or a yield maintenance
penalty in connection with a prepayment, in each
case as described in the related Prospectus
Supplement. The Mortgage Loans may provide for
payments of principal, interest or both, on due
dates that occur monthly, quarterly, semi-annually
or at such other interval as is specified in the
related Prospectus Supplement. See "Description of
the Trust Funds--Assets."
(b) GOVERNMENT SECURITIES...................If so provided in the related Prospectus Supplement,
the Trust Fund may include, in addition to Mortgage
Assets, certain direct obligations of the United
States, agencies thereof or agencies created thereby
which provide for payment of interest and/or
principal (collectively, "Government Securities").
(c) COLLECTION ACCOUNTS.....................Each Trust Fund will include one or more accounts
established and maintained on behalf of the
Certificateholders into which the person or persons
designated in the related Prospectus Supplement
will, to the extent described herein and in such
Prospectus Supplement, deposit all payments and
collections received or advanced with respect to the
Mortgage Assets and other assets in the Trust Fund.
Such an account may be maintained as an interest
bearing or a non-interest bearing account, and funds
held therein may be held as cash or invested in
certain short-term, investment grade obligations, in
each case as described in the related Prospectus
Supplement. See "Description of the
Agreements--Certificate Account and Other Collection
Accounts."
7
<PAGE>
(d) CREDIT SUPPORT..........................If so provided in the related Prospectus Supplement,
partial or full protection against certain defaults
and losses on the Mortgage Assets in the related
Trust Fund may be provided to one or more classes of
Certificates of the related series in the form of
subordination of one or more other classes of
Certificates of such series, which other classes may
include one or more classes of Offered Certificates,
or by one or more other types of credit support,
such as a letter of credit, insurance policy,
guarantee, reserve fund or another type of credit
support, or a combination thereof (any such coverage
with respect to the Certificates of any series,
"Credit Support"). The amount and types of coverage,
the identification of the entity providing the
coverage (if applicable) and related information
with respect to each type of Credit Support, if any,
will be described in the Prospectus Supplement for a
series of Certificates. The Prospectus Supplement
for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will
describe any similar forms of credit support that
are provided by or with respect to, or are included
as part of the trust fund evidenced by or providing
security for, such MBS. See "Risk Factors--Credit
Support Limitations" and "Description of Credit
Support."
(e) 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 Assets or on one or more classes of
Certificates. (Currency exchange agreements might be
included in the Trust Fund if some or all of the
Mortgage Assets (such as Mortgage Loans secured by
Mortgaged Properties located outside the United
States) were denominated in a non-United States
currency.) 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. The
Prospectus Supplement for any series of
8
<PAGE>
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 by or providing security for such
MBS. See "Description of the Trust Funds--Cash Flow
Agreements." Description of Certificates.
DISTRIBUTIONS ON CERTIFICATES...............Each series of Certificates evidencing an interest
in a Trust Fund that includes Mortgage Loans as part
of its assets will be issued pursuant to a pooling
and servicing agreement, and each series of
Certificates evidencing an interest in a Trust Fund
that does not include Mortgage Loans will be issued
pursuant to a trust agreement. Pooling and servicing
agreements and trust agreements are referred to
herein as the "Agreements." Each series of
Certificates will include one or more classes. Each
series of Certificates (including any class or
classes of Certificates of such series not offered
hereby) will represent in the aggregate the entire
beneficial ownership interest in the Trust Fund.
Each class of Certificates (other than certain
Stripped Interest Certificates, as defined below)
will have a stated principal amount (a "Certificate
Balance") and (other than certain Stripped Principal
Certificates, as defined below), will accrue
interest thereon based on a fixed, variable or
adjustable interest rate (a "Pass-Through Rate").
The related Prospectus Supplement will specify the
Certificate Balance, if any, and the Pass-Through
Rate for each class of Certificates 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 of Certificates that may (i) provide
for the accrual of interest thereon based on fixed,
variable or adjustable rates; (ii) be senior
(collectively, "Senior Certificates") or subordinate
(collectively, "Subordinate Certificates") to one or
more other classes of Certificates in respect of
certain distributions on the Certificates; (iii) be
entitled to principal distributions, with
disproportionately low, nominal or no interest
distributions (collectively, "Stripped Principal
Certificates"); (iv) be entitled to interest
distributions, with disproportionately low, nominal
or no principal distributions (collectively,
"Stripped Interest Certificates"); (v) provide for
distributions of accrued interest thereon commencing
only following the occurrence of certain events,
such as the retirement of one or more other classes
of Certificates of such series (collectively,
"Accrual Certificates"); (vi) provide for
distributions of principal sequentially, based on
specified payment schedules or other
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methodologies; and/or (vii) provide for
distributions based on a combination of two or more
components thereof with one or more of the
characteristics described in this paragraph,
including a Stripped Principal Certificate component
and a Stripped Interest Certificate component, to
the extent of available funds, in each case as
described in the related Prospectus Supplement. Any
such classes may include classes of Offered
Certificates. With respect to Certificates with two
or more components, references herein to Certificate
Balance, notional amount and Pass-Through Rate refer
to the principal balance, if any, notional amount,
if any, and the Pass-Through Rate, if any, for any
such component.
The Certificates will not be guaranteed or insured
by the Depositor or any of its affiliates, by any
governmental agency or instrumentality or by any
other person, unless otherwise provided in the
related Prospectus Supplement. See "Risk
Factors--Limited Assets" and "Description of the
Certificates."
(a) INTEREST................................Interest on each class of Offered Certificates
(other than Stripped Principal Certificates and
certain classes of Stripped Interest Certificates)
of each series will accrue at the applicable
Pass-Through Rate on the outstanding Certificate
Balance thereof and will be distributed to
Certificateholders as provided in the related
Prospectus Supplement (each of the specified dates
on which distributions are to be made, a
"Distribution Date"). Distributions with respect to
interest on Stripped Interest Certificates may be
made on each Distribution Date on the basis of a
notional amount as described in the related
Prospectus Supplement. Distributions of interest
with respect to one or more classes of Certificates
may be reduced to the extent of certain
delinquencies, losses, prepayment interest
shortfalls, and other contingencies described herein
and in the related Prospectus Supplement. See "Risk
Factors--Average Life of Certificates; Prepayments;
Yields," "Yield Considerations" and "Description of
the Certificates--Distributions of Interest on the
Certificates."
(b) PRINCIPAL...............................The Certificates of each series initially will have
an aggregate Certificate Balance no greater than the
outstanding principal balance of the Assets as of,
unless the related Prospectus Supplement provides
otherwise, the close of business on the first day of
the month of formation of the related Trust Fund
(the "Cut-off Date"), after application of scheduled
payments due on or before such date, whether or not
received. The Certificate Balance of a Certificate
outstanding from time to time represents the maximum
amount that the holder thereof is
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then entitled to receive in respect of principal
from future cash flow on the assets in the related
Trust Fund. Unless otherwise provided in the related
Prospectus Supplement, distributions of principal
will be made on each Distribution Date to the class
or classes of Certificates entitled thereto until
the Certificate Balances of such Certificates have
been reduced to zero. Unless otherwise specified in
the related Prospectus Supplement, distributions of
principal of any class of Certificates will be made
on a pro rata basis among all of the Certificates of
such class or by random selection, as described in
the related Prospectus Supplement or otherwise
established by the related Trustee. Stripped
Interest Certificates with no Certificate Balance
will not receive distributions in respect of
principal. See "Description of the
Certificates--Distributions of Principal of the
Certificates."
ADVANCES....................................Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer will be obligated as
part of its servicing responsibilities to make
certain advances that in its good faith judgment it
deems recoverable with respect to delinquent
scheduled payments on the Whole Loans in such Trust
Fund. Neither the Depositor nor any of its
affiliates will have any responsibility to make such
advances. Advances made by a Master Servicer are
reimbursable generally from subsequent recoveries in
respect of such Whole Loans and otherwise to the
extent described herein and in the related
Prospectus Supplement. If and to the extent provided
in the Prospectus Supplement for any series, 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.................................If so specified in the related Prospectus
Supplement, a series of Certificates may be subject
to optional early termination through the repurchase
of the Assets in the related Trust Fund by the party
specified therein, under the circumstances and in
the manner set forth therein. If so provided in the
related Prospectus Supplement, upon the reduction of
the Certificate Balance of a specified class or
classes of Certificates by a specified percentage or
amount or on and after a date specified in such
Prospectus Supplement, the party specified therein
will solicit bids for the purchase of all of the
Assets of the Trust Fund, or of a sufficient portion
of such Assets to retire such
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<PAGE>
class or classes, or purchase such Assets at a price
set forth in the related Prospectus Supplement. In
addition, if so provided in the related Prospectus
Supplement, certain classes of Certificates may be
purchased subject to similar conditions. See
"Description of the Certificates--Termination."
REGISTRATION OF 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 described herein. See "Risk
Factors--Book-Entry Registration" and "Description
of the Certificates--Book-Entry Registration and
Definitive Certificates."
TAX STATUS OF THE CERTIFICATES..............The Certificates of each series will constitute
either (i) "regular interests" ("REMIC Regular
Certificates") and "residual interests" ("REMIC
Residual Certificates") in a Trust Fund treated as a
REMIC under Sections 860A through 860G of the Code,
or (ii) interests ("Grantor Trust Certificates") in
a Trust Fund treated as a grantor trust under
applicable provisions of the Code.
(a) REMIC...................................REMIC Regular Certificates generally will be treated
as debt obligations of the applicable REMIC for
federal income tax purposes. Certain REMIC Regular
Certificates may be issued with original issue
discount for federal income tax purposes. See
"Certain Federal Income Tax Consequences" in the
Prospectus Supplement.
A portion (or, in certain cases, all) of the income
from REMIC Residual Certificates (i) may not be
offset by any losses from other activities of the
holder of such REMIC Residual Certificates, (ii) may
be treated as unrelated business taxable income for
holders of REMIC Residual Certificates that are
subject to tax on unrelated business taxable income
(as defined in Section 511 of the Code), and (iii)
may be subject to foreign withholding rules. See
"Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC
Residual Certificates".
The Offered Certificates will be treated as (i)
assets described in section 7701(a)(19)(C) of the
Internal Revenue Code of 1986, as amended (the
"Code") and (ii) "real estate assets"
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<PAGE>
within the meaning of section 856(c)(4)(A) of the
Code, in each case to the extent described herein
and in the Prospectus. See "Certain Federal Income
Tax Consequences" herein and in the Prospectus.
(b) GRANTOR TRUST...........................If no election is made to treat the Trust Fund
relating to a Series of Certificates as a real
estate mortgage investment conduit ("REMIC"), the
Trust Fund will be classified as a grantor trust and
not as an association taxable as a corporation for
federal income tax purposes, and therefore holders
of Certificates will be treated as the owners of
undivided pro rata interests in the Mortgage Pool or
pool of securities and any other assets held by the
Trust Fund.
Investors are advised to consult their tax advisors
and to review "Certain Federal Income Tax
Consequences" herein and in the related Prospectus
Supplement.
ERISA CONSIDERATIONS........................A fiduciary of an employee benefit plan or other
retirement plan or arrangement, including an
individual retirement account or annuity or a Keogh
plan, and any collective investment fund or
insurance company general or separate account in
which such plans, accounts, annuities or
arrangements are invested, that is subject to Title
I of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the
Code should carefully review with its legal advisors
whether the purchase or holding of Offered
Certificates could give rise to a transaction that
is prohibited or is not otherwise permissible either
under ERISA or Section 4975 of the Code. See
"Certain ERISA Considerations" herein and in the
related Prospectus Supplement. To the extent
specified in the related Prospectus Supplement,
certain classes of Certificates may not be
transferred unless the Trustee and the Depositor are
furnished with a letter of representations or an
opinion of counsel to the effect that such transfer
will not result in a violation of the prohibited
transaction provisions of ERISA and the Code, will
not cause the assets of the Trust to be deemed "plan
assets" for purposes of ERISA and the Code and will
not subject the Trustee, the Depositor or the Master
Servicer to additional obligations. See "Certain
ERISA Considerations" herein and in the related
Prospectus Supplement.
LEGAL INVESTMENT............................The related Prospectus Supplement will specify
whether any class or classes of the Offered
Certificates will constitute
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<PAGE>
"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.
</TABLE>
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<PAGE>
RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "Risk Factors" in the related Prospectus
Supplement.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates
of any series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such series
remain outstanding. Any such secondary market may provide less liquidity to
investors than any comparable market for securities evidencing interests in
single family mortgage loans. The market value of Certificates will fluctuate
with changes in prevailing rates of interest. Consequently, sale of
Certificates by a holder in any secondary market that may develop may be at a
discount from 100% of their original principal balance or from their purchase
price. Furthermore, secondary market purchasers may look only hereto, to the
related Prospectus Supplement and to the reports to Certificateholders
delivered pursuant to the related Agreement as described herein under the
heading "Description of the Certificates--Reports to Certificateholders",
"--Book-Entry Registration and Definitive Certificates" and "Description of the
Agreements--Evidence as to Compliance" for information concerning the
Certificates. Except to the extent described herein and in the related
Prospectus Supplement, Certificateholders will have no redemption rights and
the Certificates are subject to early retirement only under certain specified
circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination". Morgan Stanley & Co.
Incorporated currently expects to make a secondary market in the Offered
Certificates, but has no obligation to do so.
LIMITED ASSETS
The Certificates will not represent an interest in or obligation of the
Depositor, the Master Servicer, or any of their affiliates. The only
obligations with respect to the Certificates or the Assets will be the
obligations (if any) of the Warrantying Party (as defined herein) pursuant to
certain limited representations and warranties made with respect to the
Mortgage Loans, the Master Servicer's, any Special Servicer's and any
Sub-Servicer's servicing obligations under the related Pooling and Servicing
Agreement (including the limited obligation to make certain advances in the
event of delinquencies on the Mortgage Loans, but only to the extent deemed
recoverable). Since certain representations and warranties with respect to the
Mortgage Assets may have been made and/or assigned in connection with transfers
of such Mortgage Assets prior to the Closing Date, the rights of the Trustee
and the Certificateholders with respect to such representations or warranties
will be limited to their rights as an assignee thereof. Unless otherwise
specified in the related Prospectus Supplement, none of the Depositor, the
Master Servicer or any affiliate thereof will have any obligation with respect
to representations or warranties made by any other entity. Unless otherwise
specified in the related Prospectus Supplement, neither the Certificates nor
the underlying Mortgage Assets will be guaranteed or insured by any
governmental agency or instrumentality, or by the Depositor, the Master
Servicer, any Special Servicer, any Sub-Servicer or any of their affiliates.
Proceeds of the assets included in the related Trust Fund for each series of
Certificates (including the Assets and any form of credit enhancement) will be
the sole source of payments on the Certificates, and there will be no recourse
to the Depositor or any other entity in the event that such proceeds are
insufficient or otherwise unavailable to make all payments provided for under
the Certificates.
Unless otherwise specified in the related Prospectus Supplement, a
series of Certificates will not have any claim against or security interest in
the Trust Funds for any other series. If the related Trust Fund is insufficient
to make payments on such Certificates, no other assets will be available for
payment of the deficiency. Additionally, certain amounts remaining in certain
funds or accounts, including the Certificate Account and any accounts
maintained as Credit Support, may be withdrawn under certain conditions, as
described in the related Prospectus Supplement. In the event of such
withdrawal, such amounts will not be available for future payment of principal
of or interest on the Certificates. If so provided in the Prospectus Supplement
for a series of Certificates consisting of one
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<PAGE>
or more classes of Subordinate Certificates, on any Distribution Date in
respect of which losses or shortfalls in collections on the Assets have been
incurred, the amount of such losses or shortfalls will be borne first by one or
more classes of the Subordinate Certificates, and, thereafter, by the remaining
classes of Certificates in the priority and manner and subject to the
limitations specified in such Prospectus Supplement.
AVERAGE LIFE OF CERTIFICATES; PREPAYMENTS; YIELDS
Prepayments (including those caused by defaults) on the Mortgage Assets
in any Trust Fund generally will result in a faster rate of principal payments
on one or more classes of the related Certificates than if payments on such
Mortgage Assets were made as scheduled. Thus, the prepayment experience on the
Mortgage Assets may affect the average life of each class of related
Certificates. The rate of principal payments on pools of mortgage loans varies
between pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax, legal and other factors. There can be no
assurance as to the rate of prepayment on the Mortgage Assets in any Trust Fund
or that the rate of payments will conform to any model described herein or in
any Prospectus Supplement. If prevailing interest rates fall significantly
below the applicable mortgage interest rates, principal prepayments are likely
to be higher than if prevailing rates remain at or above the rates borne by the
Mortgage Loans underlying or comprising the Mortgage Assets in any Trust Fund.
As a result, the actual maturity of any class of Certificates could occur
significantly earlier than expected. A series of Certificates may include one
or more classes of Certificates with priorities of payment and, as a result,
yields on other classes of Certificates, including classes of Offered
Certificates, of such series may be more sensitive to prepayments on Mortgage
Assets. A series of Certificates may include one or more classes offered at a
significant premium or discount. Yields on such classes of Certificates will be
sensitive, and in some cases extremely sensitive, to prepayments on Mortgage
Assets and, where the amount of interest payable with respect to a class is
disproportionately high, as compared to the amount of principal, as with
certain classes of Stripped Interest Certificates, a holder might, in some
prepayment scenarios, fail to recoup its original investment. A series of
Certificates may include one or more classes of Certificates, including classes
of Offered Certificates, that provide for distribution of principal thereof
from amounts attributable to interest accrued but not currently distributable
on one or more classes of Accrual Certificates and, as a result, yields on such
Certificates will be sensitive to (a) the provisions of such Accrual
Certificates relating to the timing of distributions of interest thereon and
(b) if such Accrual Certificates accrue interest at a variable or 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
(including those caused by defaults) on the related Mortgage Assets will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of the
series of Certificates. Such rating will not address the possibility that
prepayment at higher or lower rates than anticipated by an investor may cause
such investor to experience a lower than anticipated yield or that an investor
purchasing a Certificate at a significant premium might fail to recoup its
initial investment under certain prepayment scenarios. Each Prospectus
Supplement will identify any payment to which holders of Offered Certificates
of the related series are entitled that is not covered by the applicable
rating.
The amount, type and nature of credit support, if any, established with
respect to a series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating classes of such series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage
loans in a larger group. Such analysis is often the basis upon which each
Rating Agency determines the amount of credit support required with respect to
each such class. There can be no assurance that the historical data supporting
any such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of mortgage loans accurately
predicts the delinquency, foreclosure or loss experience of any particular pool
of Mortgage Assets. No assurance can be given that values of any Mortgaged
Properties have remained or will remain at their levels on the respective dates
of origination of the related Mortgage Loans. Moreover, there is no assurance
that appreciation of
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<PAGE>
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 the Credit Support, if any,
described in the related Prospectus Supplement, such losses will be borne, at
least in part, by the holders of one or more classes of the Certificates of the
related series. See "Description of Credit Support" and "Rating."
RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGED PROPERTIES
Mortgage loans made with respect to multifamily or commercial property
may entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single family
property. See "Description of the Trust Funds--Assets." The ability of a
mortgagor to repay a loan secured by an income-producing property typically is
dependent primarily upon the successful operation of such property rather than
any independent income or assets of the mortgagor; thus, the value of an
income-producing property is directly related to the net operating income
derived from such property. In contrast, the ability of a mortgagor to repay a
single family loan typically is dependent primarily upon the mortgagor's
household income, rather than the capacity of the property to produce income;
thus, other than in geographical areas where employment is dependent upon a
particular employer or an industry, the mortgagor's income tends not to reflect
directly the value of such property. A decline in the net operating income of
an income-producing property will likely affect both the performance of the
related loan as well as the liquidation value of such property, whereas a
decline in the income of a mortgagor on a single family property will likely
affect the performance of the related loan but may not affect the liquidation
value of such property. Moreover, a decline in the value of a Mortgaged
Property will increase the risk of loss particularly with respect to any
related junior Mortgage Loan. See "--Junior Mortgage Loans."
The performance of a mortgage loan secured by an income-producing
property leased by the mortgagor to tenants as well as the liquidation value of
such property may be dependent upon the business operated by such tenants in
connection with such property, the creditworthiness of such tenants or both;
the risks associated with such loans may be offset by the number of tenants or,
if applicable, a diversity of types of business operated by such tenants.
It is anticipated that a substantial portion of the Mortgage Loans
included in any Trust Fund will be nonrecourse loans or loans for which
recourse may be restricted or unenforceable, as to which, in the event of
mortgagor default, recourse may be had only against the specific property and
such other assets, if any, as have been pledged to secure the related Mortgage
Loan. With respect to those Mortgage Loans that provide for recourse against
the mortgagor and its assets generally, there can be no assurance that such
recourse will ensure a recovery in respect of a defaulted Mortgage Loan greater
than the liquidation value of the related Mortgaged Property.
Further, the concentration of default, foreclosure and loss risks in
individual mortgagors or Mortgage Loans in a particular Trust Fund or the
related Mortgaged Properties will generally be greater than for pools of single
family loans both because the Mortgage Assets in a Trust Fund will generally
consist of a smaller number of loans than would a single family pool of
comparable aggregate unpaid principal balance and because of the higher
principal balance of individual Mortgage Loans. Mortgage Assets in a Trust Fund
may consist of only a limited number of Mortgage Loans and/or relate to Leases
to only a single Lessee or a limited number of Lessees.
If applicable, certain legal aspects of the Mortgage Loans for a series
of Certificates may be described in the related Prospectus Supplement. See also
"Certain Legal Aspects of the Mortgage Loans and the Leases" herein.
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<PAGE>
RISKS ASSOCIATED WITH COMMERCIAL LOANS AND LEASES
If so described in the related Prospectus Supplement, each mortgagor
under a Commercial Loan may be an entity created by the owner or purchaser of
the related Commercial Property solely to own or purchase such property, in
part to isolate the property from the debts and liabilities of such owner or
purchaser. Unless otherwise specified, each such Commercial Loan will represent
a nonrecourse obligation of the related mortgagor secured by the lien of the
related Mortgage and the related Lease Assignments. Whether or not such loans
are recourse or nonrecourse obligations, it is not expected that the mortgagors
will have any significant assets other than the Commercial Properties and the
related Leases, which will be pledged to the Trustee under the related
Agreement. Therefore, the payment of amounts due on any such Commercial Loans,
and, consequently, the payment of principal of and interest on the related
Certificates, will depend primarily or solely on rental payments by the Lessees.
Such rental payments will, in turn, depend on continued occupancy by, and/or the
creditworthiness of, such Lessees, which in either case may be adversely
affected by a general economic downturn or an adverse change in their financial
condition. Moreover, to the extent a Commercial Property was designed for the
needs of a specific type of tenant (e.g., a nursing home, hospital, hotel or
motel), the value of such property in the event of a default by the Lessee or
the early termination of such Lease may be adversely affected because of
difficulty in re-leasing the property to a suitable substitute lessee or, if
re-leasing to such a substitute is not possible, because of the cost of altering
the property for another more marketable use. As a result, without the benefit
of the Lessee's continued support of the Commercial Property, and absent
significant amortization of the Commercial Loan, if such loan is foreclosed on
and the Commercial Property liquidated following a lease default, the net
proceeds might be insufficient to cover the outstanding principal and interest
owing on such loan, thereby increasing the risk that holders of the Certificates
will suffer some loss.
BALLOON PAYMENTS
Certain of the Mortgage Loans (the "Balloon Mortgage Loans") as of the
Cut-off Date may not be fully amortizing over their terms to maturity and,
thus, will require substantial principal payments (i.e., balloon payments) at
their stated maturity. Mortgage Loans with balloon payments involve a greater
degree of risk because the ability of a mortgagor to make a balloon payment
typically will depend upon its ability either to timely refinance the loan or
to timely sell the related Mortgaged Property. The ability of a mortgagor to
accomplish either of these goals will be affected by a number of factors,
including the level of available mortgage interest rates at the time of sale or
refinancing, the mortgagor's equity in the related Mortgaged Property, the
financial condition and operating history of the mortgagor and the related
Mortgaged Property, tax laws, rent control laws (with respect to certain
Multifamily Properties and mobile home parks), reimbursement rates (with
respect to certain hospitals, nursing homes and convalescent homes),
renewability of operating licenses, prevailing general economic conditions and
the availability of credit for commercial or multifamily real properties, as
the case may be, generally.
JUNIOR MORTGAGE LOANS
To the extent specified in the related Prospectus Supplement, certain
of the Mortgage Loans may be secured primarily by junior mortgages. In the case
of liquidation, Mortgage Loans secured by junior mortgages are entitled to
satisfaction from proceeds that remain from the sale of the related Mortgaged
Property after the mortgage loans senior to such Mortgage Loans have been
satisfied. If there are not sufficient funds to satisfy such junior Mortgage
Loans and senior mortgage loans, such Mortgage Loan would suffer a loss and,
accordingly, one or more classes of Certificates would bear such loss.
Therefore, any risks of deficiencies associated with first Mortgage Loans will
be greater with respect to junior Mortgage Loans. See "--Risks Associated with
Mortgage Loans and Mortgaged Properties."
OBLIGOR DEFAULT
If so specified in the related Prospectus Supplement, in order to
maximize recoveries on defaulted Whole Loans, a Master Servicer, a Sub-Servicer
or a Special Servicer will be permitted (within prescribed parameters) to
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<PAGE>
extend and modify Whole Loans that are in default or as to which a payment
default is imminent, including in particular with respect to balloon payments.
In addition, a Master Servicer, a Sub-Servicer or a Special Servicer may
receive a workout fee based on receipts from or proceeds of such Whole Loans.
While any such entity generally will be required to determine that any such
extension or modification is reasonably likely to produce a greater recovery on
a present value basis than liquidation, there can be no assurance that such
flexibility with respect to extensions or modifications or payment of a workout
fee will increase the present value of receipts from or proceeds of Whole Loans
that are in default or as to which a payment default is imminent. Additionally,
if so specified in the related Prospectus Supplement, certain of the Mortgage
Loans included in the Mortgage Pool for a Series may have been subject to
workouts or similar arrangements following periods of delinquency and default.
MORTGAGOR TYPE
Mortgage Loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of single family mortgage loans. The mortgagor's sophistication and form
of organization may increase the likelihood of protracted litigation or
bankruptcy in default situations.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a series of Certificates will describe
any Credit Support in the related Trust Fund, which may include letters of
credit, insurance policies, guarantees, reserve funds or other types of credit
support, or combinations thereof. Use of Credit Support will be subject to the
conditions and limitations described herein and in the related Prospectus
Supplement. Moreover, such Credit Support may not cover all potential losses or
risks; for example, Credit Support may or may not cover fraud or negligence by
a mortgage loan originator or other parties.
A series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce the
risk to holders of Senior Certificates of delinquent distributions or ultimate
losses, the amount of subordination will be limited and may decline under
certain circumstances. In addition, if principal payments on one or more
classes of Certificates of a series are made in a specified order of priority,
any limits with respect to the aggregate amount of claims under any related
Credit Support may be exhausted before the principal of the lower priority
classes of Certificates of such series has been repaid. As a result, the impact
of significant losses and shortfalls on the Assets may fall primarily upon
those classes of Certificates having a lower priority of payment. Moreover, if
a form of Credit Support covers more than one series of Certificates (each, a
"Covered Trust"), holders of Certificates evidencing an interest in a Covered
Trust will be subject to the risk that such Credit Support will be exhausted by
the claims of other Covered Trusts.
The amount of any applicable Credit Support supporting one or more
classes of Offered Certificates, including the subordination of one or more
classes of Certificates, will be determined on the basis of criteria
established by each Rating Agency rating such classes of Certificates based on
an assumed level of defaults, delinquencies, other losses or other factors.
There can, however, be no assurance that the loss experience on the related
Mortgage Assets will not exceed such assumed levels. See "--Limited Nature of
Ratings," "Description of the Certificates" and "Description of Credit
Support."
Regardless of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will be subject to
periodic reduction in accordance with a schedule or formula. The Master
Servicer will generally be permitted to reduce, terminate or substitute all or
a portion of the credit enhancement for any series of Certificates, if the
applicable Rating Agency indicates that the then-current rating thereof will
not be adversely affected. The rating of any series of Certificates by any
applicable Rating Agency may be lowered following the initial issuance thereof
as a result of the downgrading of the obligations of any applicable credit
support provider, or as a result of losses on the related Mortgage Assets
substantially in excess of the levels contemplated by such Rating Agency at the
time of its initial rating analysis. None of the Depositor, the Master
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Servicer or any of their affiliates will have any obligation to replace or
supplement any credit enhancement, or to take any other action to maintain any
rating of any series of Certificates.
SUBORDINATION OF THE SUBORDINATE CERTIFICATES; EFFECT OF LOSSES ON THE ASSETS
The rights of Subordinate Certificateholders to receive distributions
to which they would otherwise be entitled with respect to the Assets will be
subordinate to the rights of the Master Servicer (to the extent that the Master
Servicer is paid its servicing fee, including any unpaid servicing fees with
respect to one or more prior Due Periods, and is reimbursed for certain
unreimbursed advances and unreimbursed liquidation expenses) and the Senior
Certificateholders to the extent described herein. As a result of the foregoing,
investors must be prepared to bear the risk that they may be subject to delays
in payment and may not recover their initial investments in the Subordinate
Certificates. See "Description of the Certificates--General" and "--Allocation
of Losses and Shortfalls."
The yields on the Subordinate Certificates may be extremely sensitive
to the loss experience of the Assets and the timing of any such losses. If the
actual rate and amount of losses experienced by the Assets exceed the rate and
amount of such losses assumed by an investor, the yields to maturity on the
Subordinate Certificates may be lower than anticipated.
ENFORCEABILITY
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the mortgagor sells, transfers
or conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages may also include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or non-monetary default of
the mortgagor. Such clauses are generally enforceable subject to certain
exceptions. The courts of all states will enforce clauses providing for
acceleration in the event of a material payment default. The equity courts of
any state, however, may refuse the foreclosure of a mortgage or deed of trust
when an acceleration of the indebtedness would be inequitable or unjust or the
circumstances would render the acceleration unconscionable.
If so specified in the related Prospectus Supplement, the Mortgage
Loans will be secured by an assignment of leases and rents pursuant to which
the mortgagor typically assigns its right, title and interest as landlord under
the leases on the related Mortgaged Property and the income derived therefrom
to the lender as further security for the related Mortgage Loan, while
retaining a license to collect rents for so long as there is no default. In the
event the mortgagor defaults, the license terminates and the lender is entitled
to collect rents. Such assignments are typically not perfected as security
interests prior to actual possession of the cash flows. Some state laws may
require that the lender take possession of the Mortgaged Property and obtain a
judicial appointment of a receiver before becoming entitled to collect the
rents. In addition, if bankruptcy or similar proceedings are commenced by or in
respect of the mortgagor, the lender's ability to collect the rents may be
adversely affected. See "Certain Legal Aspects of the Mortgage Loans and the
Leases--Leases and Rents."
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination of
a property may give rise to a lien on the property to assure the costs of
cleanup. In several states, such a lien has priority over the lien of an
existing mortgage against such property. Moreoever, the presence of hazardous
or toxic substances, or the failure to remediate such property, may adversely
affect the owner or operator's ability to borrow using such property as
collateral. In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA") and other federal law, a lender may be liable, as an "owner" or
"operator," for costs of addressing releases or threatened releases of
hazardous substances that require remedy at a property, if agents or employees
of the lender have become sufficiently involved in the operations of the
mortgagor, regardless of whether or not the environmental damage or threat was
caused by a prior owner. A lender also risks such liability on foreclosure of
the
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mortgage under certain circumstances. Unless otherwise specified in the related
Prospectus Supplement, each Pooling and Servicing Agreement will provide that
none of the Master Servicer, the Sub-Servicer or the Special Servicer, acting
on behalf of the Trust Fund, may acquire title to a Mortgaged Property securing
a Mortgage Loan or take over its operation unless 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 there are no circumstances
present at the Mortgaged Property relating to the use, management or disposal
of any hazardous substances, hazardous materials, wastes, or petroleum based
materials for which investigation, testing, monitoring, containment, clean-up
or remediation could be required under any federal, state or local law or
regulation; or (ii) if the Mortgaged Property is not so in compliance or such
circumstances are so present, then it would be in the best economic interest of
the Trust Fund to acquire title to the Mortgaged Property and further to take
such actions as would be necessary and appropriate to effect such compliance
and/or respond to such circumstances. See "Certain Legal Aspects of the Mortgage
Loans and the Leases--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.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS REGARDING REMIC RESIDUAL CERTIFICATES
Except as provided in the Prospectus Supplement, REMIC Residual
Certificates, if offered hereunder, are anticipated to have "phantom income"
associated with them. That is, taxable income is anticipated to be allocated to
the REMIC Residual Certificates in the early years of the existence of the
related REMIC, even if the REMIC Residual Certificates receive no distributions
from the related REMIC, with a corresponding amount of losses allocated to the
REMIC Residual Certificates in later years. Accordingly, the present value of
the tax detriments associated with the REMIC Residual Certificates may
significantly exceed the present value of the tax benefits related thereto, and
the REMIC Residual Certificates may have a negative "value." Moreover, the
REMIC Residual Certificates will in effect be allocated an amount of gross
income equal to the non-interest expenses of the REMIC, but such expenses will
be deductible by holders of the REMIC Residual Certificates that are
individuals only as itemized deductions (and be subject to all the limitations
applicable to itemized deductions). Accordingly, investment in the REMIC
Residual Certificates will generally not be suitable for individuals or for
certain pass-through entities, such as partnerships or S corporations, that
have individuals as partners or shareholders. In addition, REMIC Residual
Certificates are subject to certain restrictions on transfer. Finally,
prospective purchasers of a REMIC Residual Certificate should be aware that
recently issued final regulations provide restrictions on the ability to
mark-to-market certain "negative value" REMIC residual interests. See "Certain
Federal Income Tax Consequences--REMICs."
CONTROL
Under certain circumstances, the consent or approval of the holders of
a specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of a series or a similar means of allocating decision-making under
the related Agreement ("Voting Rights") will be required to direct, and will be
sufficient to bind all Certificateholders of such series to, certain actions,
including directing the Special Servicer or the Master Servicer with respect to
actions to be taken with respect to certain Mortgage Loans and REO Properties
and amending the related Agreement in certain circumstances. See "Description
of the Agreements--Events of Default," "--Rights Upon Event of Default,"
"--Amendment" and "--List of Certificateholders."
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BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be registered
in the names of the 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."
DESCRIPTION OF THE TRUST FUNDS
ASSETS
The primary assets of each Trust Fund (the "Assets") will include (i)
multifamily and/or commercial mortgage loans (the "Mortgage Loans"), (ii)
mortgage participations, pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by one or more Mortgage Loans or
other similar participations, certificates or securities ("MBS"), (iii) direct
obligations of the United States, agencies thereof or agencies created thereby
which are not subject to redemption prior to maturity at the option of the
issuer and are (a) interest-bearing securities, (b) non-interest-bearing
securities, (c) originally interest-bearing securities from which coupons
representing the right to payment of interest have been removed, or (d)
interest-bearing securities from which the right to payment of principal has
been removed (the "Government Securities"), or (iv) a combination of Mortgage
Loans, MBS and Government Securities. 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." Any
mortgage participations, pass-through certificates or other asset-backed
certificates in which an MBS evidences an interest or which secure an MBS are
sometimes referred to herein also as MBS or as "Underlying MBS." Mortgage Loans
and MBS are sometimes referred to herein as "Mortgage Assets." The Mortgage
Assets will not be guaranteed or insured by Morgan Stanley Capital I Inc. (the
"Depositor") or any of its affiliates or, unless otherwise provided in the
Prospectus Supplement, by any governmental agency or instrumentality or by any
other person. Each Asset will be selected by the Depositor for inclusion in a
Trust Fund from among those purchased, either directly or indirectly, from a
prior holder thereof (an "Asset Seller"), which may be an affiliate of the
Depositor and, with respect to Mortgage Assets, which prior holder may or may
not be the originator of such Mortgage Loan or the issuer of such MBS.
Unless otherwise specified in the related Prospectus Supplement, the
Certificates will be entitled to payment only from the assets of the related
Trust Fund and will not be entitled to payments in respect of the assets of any
other trust fund established by the Depositor. If specified in the related
Prospectus Supplement, the assets of a Trust Fund will consist of certificates
representing beneficial ownership interests in another trust fund that contains
the Assets.
MORTGAGE LOANS
GENERAL
The Mortgage Loans will be secured by liens on, or security interests
in, Mortgaged Properties consisting of (i) residential properties consisting of
five or more rental or cooperatively-owned dwelling units in high-rise,
mid-rise or garden apartment buildings ("Multifamily Properties" and the
related loans, "Multifamily Loans") or (ii) office buildings, shopping centers,
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,
congregate care facilities, mixed use or other types of commercial properties
("Commercial Properties" and the related loans, "Commercial Loans") located,
unless otherwise specified in the related Prospectus
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Supplement, in any one of the fifty states, the District of Columbia or the
Commonwealth of Puerto Rico. To the extent specified in the related Prospectus
Supplement, the Mortgage Loans will be secured by first or junior mortgages or
deeds of trust or other similar security instruments creating a first or junior
lien on Mortgaged Property. Multifamily Property may include mixed commercial
and residential structures and may include apartment buildings owned by private
cooperative housing corporations ("Cooperatives"). The Mortgaged Properties may
include leasehold interests in properties, the title to which is held by third
party lessors. Unless otherwise specified in the Prospectus Supplement, the
term of any such leasehold will exceed the term of the related mortgage note by
at least five years. Each Mortgage Loan will have been originated by a person
(the "Originator") other than the Depositor. The related Prospectus Supplement
will indicate if any Originator is an affiliate of the Depositor. The Mortgage
Loans will be evidenced by promissory notes (the "Mortgage Notes") secured by
mortgages or deeds of trust (the "Mortgages") creating a lien on the Mortgaged
Properties. Mortgage Loans will generally also be secured by an assignment of
leases and rents and/or operating or other cash flow guarantees relating to the
Mortgage Loan.
LEASES
To the extent specified in the related Prospectus Supplement, the
Commercial Properties may be leased to Lessees that respectively occupy all or
a portion of such properties. Pursuant to a Lease Assignment, the related
mortgagor may assign its rights, title and interest as lessor under each Lease
and the income derived therefrom to the related mortgagee, while retaining a
license to collect the rents for so long as there is no default. If the
mortgagor defaults, the license terminates and the mortgagee or its agent is
entitled to collect the rents from the related Lessee or Lessees for
application to the monetary obligations of the mortgagor. State law may limit
or restrict the enforcement of the Lease Assignments by a mortgagee until it
takes possession of the related Mortgaged Property and/or a receiver is
appointed. See "Certain Legal Aspects of the Mortgage Loans and the
Leases--Leases and Rents." Alternatively, to the extent specified in the
related Prospectus Supplement, the mortgagor and the mortgagee may agree that
payments under Leases are to be made directly to the Master Servicer.
To the extent described in the related Prospectus Supplement, the
Leases may require the Lessees to pay rent that is sufficient in the aggregate
to cover all scheduled payments of principal and interest on the related
Mortgage Loans and, in certain cases, their pro rata share of the operating
expenses, insurance premiums and real estate taxes associated with the
Mortgaged Properties. Certain of the Leases may require the mortgagor to bear
costs associated with structural repairs and/or the maintenance of the exterior
or other portions of the Mortgaged Property or provide for certain limits on
the aggregate amount of operating expenses, insurance premiums, taxes and other
expenses that the Lessees are required to pay. If so specified in the related
Prospectus Supplement, under certain circumstances the Lessees may be permitted
to set off their rental obligations against the obligations of the mortgagors
under the Leases. In those cases where payments under the Leases (net of any
operating expenses payable by the mortgagors) are insufficient to pay all of
the scheduled principal and interest on the related Mortgage Loans, the
mortgagors must rely on other income or sources (including security deposits)
generated by the related Mortgaged Property to make payments on the related
Mortgage Loan. To the extent specified in the related Prospectus Supplement,
some Commercial Properties may be leased entirely to one Lessee. In such cases,
absent the availability of other funds, the mortgagor must rely entirely on
rent paid by such Lessee in order for the mortgagor to pay all of the scheduled
principal and interest on the related Commercial Loan. To the extent specified
in the related Prospectus Supplement, certain of the Leases may expire prior to
the stated maturity of the related Mortgage Loan. In such cases, upon
expiration of the Leases the mortgagors will have to look to alternative
sources of income, including rent payment by any new Lessees or proceeds from
the sale or refinancing of the Mortgaged Property, to cover the payments of
principal and interest due on such Mortgage Loans unless the Lease is renewed.
As specified in the related Prospectus Supplement, certain of the Leases may
provide that upon the occurrence of a casualty affecting a Mortgaged Property,
the Lessee will have the right to terminate its Lease, unless the mortgagor, as
lessor, is able to cause the Mortgaged Property to be restored within a
specified period of time. Certain Leases may provide that it is the lessor's
responsibility, while other Leases provide that it is the Lessee's
responsibility, to restore the Mortgaged Property after a casualty to its
original condition. Certain Leases may provide a right of termination to the
related Lessee if a taking of a material or specified percentage of the leased
space in the Mortgaged Property occurs, or if the ingress or egress to the
leased space has been materially impaired.
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DEFAULT AND LOSS CONSIDERATIONS WITH RESPECT TO THE MORTGAGE LOANS
Mortgage loans secured by commercial and multifamily properties are
markedly different from owner-occupied single family mortgage loans. The
repayment of loans secured by commercial or multifamily properties is typically
dependent upon the successful operation of such property rather than upon the
liquidation value of the real estate. Unless otherwise specified in the
Prospectus Supplement, the Mortgage Loans will be non-recourse loans, which
means that, absent special facts, the mortgagee may look only to the Net
Operating Income from the property for repayment of the mortgage debt, and not
to any other of the mortgagor's assets, in the event of the mortgagor's
default. Lenders typically look to the Debt Service Coverage Ratio of a loan
secured by income-producing property as an important measure of the risk of
default on such a loan. The "Debt Service Coverage Ratio" of a Mortgage Loan at
any given time is the ratio of the Net Operating Income for a twelve-month
period to the annualized scheduled payments on the Mortgage Loan. "Net
Operating Income" means, for any given period, unless otherwise specified in
the related Prospectus Supplement, the total operating revenues derived from a
Mortgaged Property during such period, minus the total operating expenses
incurred in respect of such Mortgaged Property during such period other than
(i) non-cash items such as depreciation and amortization, (ii) capital
expenditures and (iii) debt service on loans secured by the Mortgaged Property.
The Net Operating Income of a Mortgaged Property will fluctuate over time and
may be sufficient or insufficient to cover debt service on the related Mortgage
Loan at any given time.
As the primary component of Net Operating Income, rental income (as
well as maintenance payments from tenant-stockholders of a Cooperative) is
subject to the vagaries of the applicable real estate market and/or business
climate. Properties typically leased, occupied or used on a short-term basis,
such as health care-related facilities, hotels and motels, and mini-warehouse
and self-storage facilities, tend to be affected more rapidly by changes in
market or business conditions than do properties leased, occupied or used for
longer periods, such as (typically) 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 some or all of
these expenses; however, because leases are subject to default risks as well
when a tenant's income is insufficient to cover its rent and operating
expenses, the existence of such "net of expense" provisions will only temper,
not eliminate, the impact of expense increases on the performance of the
related Mortgage Loan. See "--Leases" above.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
such risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the latter
include mortgage loans secured by health care-related facilities 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 in particular may be subject to legal
limitations and regulations but, because of such regulations, may also be less
sensitive to fluctuations in market rents generally.
The Debt Service Coverage Ratio should not be relied upon as the sole
measure of the risk of default of any loan, however, since other factors may
outweigh a high Debt Service Coverage Ratio. With respect to a Balloon
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Mortgage Loan, for example, the risk of default as a result of the
unavailability of a source of funds to finance the related balloon payment at
maturity on terms comparable to or better than those of such Balloon Mortgage
Loans could be significant even though the related Debt Service Coverage Ratio
is high.
The liquidation value of any Mortgaged Property may be adversely
affected by risks generally incident to interests in real property, including
declines in rental or occupancy rates. Lenders generally use the Loan-to-Value
Ratio of a mortgage loan as a measure of risk of loss if a property must be
liquidated upon a default by the mortgagor.
Appraised values of income-producing properties may be based on the
market comparison method (recent resale value of comparable properties at the
date of the appraisal), the cost replacement method (the cost of replacing the
property at such date), the income capitalization method (a projection of value
based upon the property's projected net cash flow), or upon a selection from or
interpolation of the values derived from such methods. Each of these appraisal
methods presents analytical challenges. It is often difficult to find truly
comparable properties that have recently been sold; the replacement cost of a
property may have little to do with its current market value; and income
capitalization is inherently based on inexact projections of income and expense
and the selection of an appropriate capitalization rate. Where more than one of
these appraisal methods are used and create significantly different results, or
where a high Loan-to-Value Ratio accompanies a high Debt Service Coverage Ratio
(or vice versa), the analysis of default and loss risks is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish the Multifamily and Commercial
Loans from single family mortgage loans and provide insight to the risks
associated with income-producing real estate, there is no assurance that such
factors will in fact have been considered by the Originators of the Multifamily
and Commercial Loans, or that, for any of such Mortgage Loans, they are
complete or relevant. See "Risk Factors--Risks Associated with Mortgage Loans
and Mortgaged Properties," "--Balloon Payments," "--Junior Mortgage Loans,"
"--Obligor Default" and "--Mortgagor Type."
LOAN-TO-VALUE RATIO
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the
ratio (expressed as a percentage) of the then outstanding principal balance of
the Mortgage Loan to the Value of the related Mortgaged Property. The "Value"
of a Mortgaged Property, other than with respect to Refinance Loans, is
generally the lesser of (a) the appraised value determined in an appraisal
obtained by the originator at origination of such loan and (b) the sales price
for such property. "Refinance Loans" are loans made to refinance existing
loans. Unless otherwise set forth in the related Prospectus Supplement, the
Value of the Mortgaged Property securing a Refinance Loan is the appraised
value thereof determined in an appraisal obtained at the time of origination of
the Refinance Loan. The Value of a Mortgaged Property as of the date of initial
issuance of the related series of Certificates may be less than the value at
origination and will fluctuate from time to time based upon changes in economic
conditions and the real estate market.
MORTGAGE LOAN INFORMATION IN PROSPECTUS SUPPLEMENTS
Each Prospectus Supplement will contain information, as of the date of
such Prospectus Supplement and to the extent then applicable and specifically
known to the Depositor, with respect to the Mortgage Loans, including (i) the
aggregate outstanding principal balance and the largest, smallest and average
outstanding principal balance of the Mortgage Loans as of the applicable
Cut-off Date, (ii) the type of property securing the Mortgage Loans (e.g.,
Multifamily Property or Commercial Property and the type of property in each
such category), (iii) the weighted average (by principal balance) of the
original and remaining terms to maturity of the Mortgage Loans, (iv) the
earliest and latest origination date and maturity date of the Mortgage Loans,
(v) the weighted average (by principal balance) of the Loan-to-Value Ratios at
origination of the Mortgage Loans, (vi) the Mortgage Rates or range of Mortgage
Rates and the weighted average Mortgage Rate borne by the Mortgage Loans, (vii)
the state or states in which most of the Mortgaged Properties are located,
(viii) information with respect to the prepayment provisions, if
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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 index, the frequency of the adjustment dates, the highest, lowest
and weighted average note margin and pass-through margin, and the maximum
Mortgage Rate or monthly payment variation at the time of any adjustment
thereof and over the life of the ARM Loan and the frequency of such monthly
payment adjustments, (xi) the Debt Service Coverage Ratio either at origination
or as of a more recent date (or both) and (xii) information regarding the
payment characteristics of the Mortgage Loans, including without limitation
balloon payment and other amortization provisions. The related Prospectus
Supplement will also contain certain information available to the Depositor
with respect to the provisions of leases and the nature of tenants of the
Mortgaged Properties and other information referred to in a general manner
under "--Mortgage Loans--Default and Loss Considerations with Respect to the
Mortgage Loans" above. If specific information respecting the Mortgage Loans is
not known to the Depositor at the time Certificates are initially offered, more
general information of the nature described above will be provided in the
Prospectus Supplement, and specific information will be set forth in a report
which will be available to purchasers of the related Certificates at or before
the initial issuance thereof and will be filed as part of a Current Report on
Form 8-K with the Securities and Exchange Commission within fifteen days after
such initial issuance.
PAYMENT PROVISIONS OF THE MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans will (i) have individual principal balances at origination
of not less than $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. Each Mortgage Loan may
provide for no accrual of interest or for accrual of interest thereon at an
interest rate (a "Mortgage Rate") that is fixed over its term or that adjusts
from time to time, or that may be converted from an adjustable to a fixed
Mortgage Rate, or from a fixed to an adjustable Mortgage Rate, from time to
time pursuant to an election or as otherwise specified on the related Mortgage
Note, in each case as described in the related Prospectus Supplement. Each
Mortgage Loan may provide for scheduled payments to maturity or payments that
adjust from time to time to accommodate changes in the Mortgage Rate or to
reflect the occurrence of certain events, and may provide for negative
amortization or accelerated amortization, in each case as described in the
related Prospectus Supplement. Each Mortgage Loan may be fully amortizing or
require a balloon payment due on its stated maturity date, in each case as
described in the related Prospectus Supplement. Each Mortgage Loan may contain
prohibitions on prepayment (a "Lock-out Period" and the date of expiration
thereof, a "Lock-out Date") or require payment of a premium or a yield
maintenance penalty (a "Prepayment Premium") in connection with a prepayment,
in each case as described in the related Prospectus Supplement. In the event
that holders of any class or classes of Offered Certificates will be entitled
to all or a portion of any Prepayment Premiums collected in respect of Mortgage
Loans, the related Prospectus Supplement will specify the method or methods by
which any such amounts will be allocated. A Mortgage Loan may also contain
provisions entitling the mortgagee to a share of profits realized from the
operation or disposition of the Mortgaged Property ("Equity Participations"),
as described in the related Prospectus Supplement. In the event that holders of
any class or classes of Offered Certificates will be entitled to all or a
portion of an Equity Participation, the related Prospectus Supplement will
specify the terms and provisions of the Equity Participation and the method or
methods by which distributions in respect thereof will be allocated among such
Certificates.
MBS
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, a trust agreement, an indenture
or similar agreement (an "MBS Agreement"). A seller (the "MBS Issuer") and/or
servicer (the "MBS Servicer") of the underlying Mortgage Loans (or Underlying
MBS) 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 or MBS evidenced by
the MBS.
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Distributions of any principal or interest, as applicable, 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. Any principal or 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 or other forms
of credit support similar to that described for the Certificates under
"Description of Credit Support" may be provided with respect to the MBS. The
type, characteristics and amount of such credit support, if any, will be a
function of certain characteristics of the Mortgage Loans or Underlying MBS
evidenced by or securing 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.
The Prospectus Supplement for a series of Certificates evidencing
interests in Mortgage Assets that include MBS will specify, to the extent
available, (i) the aggregate approximate initial and outstanding principal
amount or notional amount, as applicable, 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) whether such MBS is entitled only to interest
payments, only to principal payments or to both, (iv) the pass-through or bond
rate of the MBS or formula for determining such rates, if any, (v) the
applicable payment provisions for the MBS, including, but not limited to, any
priorities, payment schedules and subordination features, (vi) the MBS Issuer,
MBS Servicer and MBS Trustee, as applicable, (vii) certain characteristics of
the credit support, if any, such as subordination, reserve funds, insurance
policies, letters of credit or guarantees relating to the related Underlying
Mortgage Loans, the Underlying MBS or directly to such MBS, (viii) the terms on
which the related Underlying Mortgage Loans or Underlying MBS for such MBS or
the MBS may, or are required to, be purchased prior to their maturity, (ix) the
terms on which Mortgage Loans or Underlying MBS may be substituted for those
originally underlying the MBS, (x) the servicing fees payable under the MBS
Agreement, (xi) the type of information in respect of the Underlying Mortgage
Loans described under "--Mortgage Loans--Mortgage Loan Information in
Prospectus Supplements" above, and the type of information in respect of the
Underlying MBS described in this paragraph, (xii) the characteristics of any
cash flow agreements that are included as part of the trust fund evidenced or
secured by the MBS and (xiii) whether the MBS is in certificated form,
book-entry form or held through a depository such as The Depository Trust
Company or the Participants Trust Company.
GOVERNMENT SECURITIES
The Prospectus Supplement for a series of Certificates evidencing
interests in Assets of a Trust Fund that include Government Securities will
specify, to the extent available, (i) the aggregate approximate initial and
outstanding principal amounts or notional amounts, as applicable, and types of
the Government Securities to be included in the Trust Fund, (ii) the original
and remaining terms to stated maturity of the Government Securities, (iii)
whether such Government Securities are entitled only to interest payments, only
to principal payments or to both, (iv) the interest rates of the Government
Securities or the formula to determine such rates, if any, (v) the applicable
payment provisions for the Government Securities and (vi) to what extent, if
any, the obligation evidenced thereby is backed by the full faith and credit of
the United States.
ACCOUNTS
Each Trust Fund will include one or more accounts established and
maintained on behalf of the Certificateholders into which the person or persons
designated in the related Prospectus Supplement will, to the extent described
herein and in such Prospectus Supplement deposit all payments and collections
received or advanced with respect to the Assets and other assets in the Trust
Fund. Such an account may be maintained as an interest bearing or a
non-interest bearing account, and funds held therein may be held as cash or
invested in certain short-term, investment grade obligations, in each case as
described in the related Prospectus Supplement. See "Description of the
Agreement--Certificate Account and Other Collection Accounts."
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CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the 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, guarantee, reserve fund or
another type of credit support, or a combination thereof (any such coverage
with respect to the Certificates of any series, "Credit Support"). The amount
and types of coverage, the identification of the entity providing the coverage
(if applicable) and related information with respect to each type of Credit
Support, if any, will be described in the Prospectus Supplement for a series of
Certificates. See "Risk Factors--Credit Support Limitations" and "Description
of Credit Support."
CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to reduce the
effects of interest rate or currency exchange rate fluctuations on the Assets
or on one or more classes of Certificates. (Currency exchange agreements might
be included in the Trust Fund if some or all of the Mortgage Assets (such as
Mortgage Loans secured by Mortgaged Properties located outside the United
States) were denominated in a non-United States currency.) 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 Assets and to pay for certain
expenses incurred in connection with such purchase of Assets and sale of
Certificates. The Depositor expects to sell the Certificates from time to time,
but the timing and amount of offerings of Certificates will depend on a number
of factors, including the volume of Assets acquired by the Depositor,
prevailing interest rates, availability of funds and general market conditions.
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by
the Certificateholder, the Pass-Through Rate of the Certificate, the receipt
and timing of receipt of distributions on the Certificate and the weighted
average life of the Assets in the related Trust Fund (which may be affected by
prepayments, defaults, liquidations or repurchases). See "Risk Factors."
PASS-THROUGH RATE
Certificates of any class within a series may have fixed, variable or
adjustable Pass-Through Rates, which may or may not be based upon the interest
rates borne by the 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
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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.
The effective yield to maturity to each holder of Certificates entitled
to payments of interest will be below that otherwise produced by the applicable
Pass-Through Rate and purchase price of such Certificate because, while
interest may accrue on each Asset during a certain period, the distribution of
such interest will be made on a day which may be several days, weeks or months
following the period of accrual.
TIMING OF PAYMENT OF INTEREST
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a class of Accrual Certificates) on a Distribution Date
will include interest accrued during the Interest Accrual Period for such
Distribution Date. As indicated above under "--Pass-Through Rate," if the
Interest Accrual Period ends on a date other than a Distribution Date for the
related series, the yield realized by the holders of such Certificates may be
lower than the yield that would result if the Interest Accrual Period ended on
such Distribution Date. In addition, if so specified in the related Prospectus
Supplement, interest accrued for an Interest Accrual Period for one or more
classes of Certificates may be calculated on the assumption that distributions
of principal (and additions to the Certificate Balance of Accrual Certificates)
and allocations of losses on the Assets may be made on the first day of the
Interest Accrual Period for a Distribution Date and not on such Distribution
Date. Such method would produce a lower effective yield than if interest were
calculated on the basis of the actual principal amount outstanding during an
Interest Accrual Period. The Interest Accrual Period for any class of Offered
Certificates will be described in the related Prospectus Supplement.
PAYMENTS OF PRINCIPAL; PREPAYMENTS
The yield to maturity on the Certificates will be affected by the rate
of principal payments on the Assets (including principal prepayments on
Mortgage Loans resulting from both voluntary prepayments by the mortgagors and
involuntary liquidations). Such payments may be directly dependent upon the
payments on Leases underlying such Mortgage Loans. The rate at which principal
prepayments occur on the Mortgage Loans will be affected by a variety of
factors, including, without limitation, the terms of the Mortgage Loans, the
level of prevailing interest rates, the availability of mortgage credit and
economic, demographic, geographic, tax, legal and other factors. In general,
however, if prevailing interest rates fall significantly below the Mortgage
Rates on the Mortgage Loans comprising or underlying the 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
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 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 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 Assets, the
actual yield to maturity will be lower than that so calculated. Conversely, if
the purchaser of a Certificate offered at a premium calculates its anticipated
yield to maturity based on an assumed rate of distributions of principal that
is slower than that actually experienced on the Assets, the actual yield to
maturity will be lower than that so calculated. In either case, if so provided
in the Prospectus Supplement for a series of Certificates, the effect on yield
on one or more
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classes of the Certificates of such series of prepayments of the Assets in the
related Trust Fund may be mitigated or exacerbated by any provisions for
sequential or selective distribution of principal to such classes.
When a full prepayment is made on a Mortgage Loan, the mortgagor is
charged interest on the principal amount of the Mortgage Loan so prepaid for
the number of days in the month actually elapsed up to the date of the
prepayment. Unless otherwise specified in the related Prospectus Supplement,
the effect of prepayments in full will be to reduce the amount of interest paid
in the following month to holders of Certificates entitled to payments of
interest because interest on the principal amount of any Mortgage Loan so
prepaid will be paid only to the date of prepayment rather than for a full
month. Unless otherwise specified in the related Prospectus Supplement, a
partial prepayment of principal is applied so as to reduce the outstanding
principal balance of the related Mortgage Loan as of the Due Date in the month
in which such partial prepayment is received. As a result, unless otherwise
specified in the related Prospectus Supplement, the effect of a partial
prepayment on a Mortgage Loan will be to reduce the amount of interest passed
through to holders of Certificates in the month following the receipt of such
partial prepayment by an amount equal to one month's interest at the applicable
Pass-Through Rate on the prepaid amount.
The timing of changes in the rate of principal payments on the Mortgage
Assets may significantly affect an investor's actual yield to maturity, even if
the average rate of distributions of principal is consistent with an investor's
expectation. In general, the earlier a principal payment is received on the
Mortgage Assets and distributed on a Certificate, the greater the effect on
such investor's yield to maturity. The effect on an investor's yield of
principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during a given period may not be offset by a
subsequent like decrease (or increase) in the rate of principal payments.
PREPAYMENTS--MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Assets
included in or comprising a Trust Fund and the rate at which payments are made
from any Credit Support or Cash Flow Agreement for the related series of
Certificates may affect the ultimate maturity and the weighted average life of
each class of such series. Prepayments on the Mortgage Loans comprising or
underlying the Mortgage Assets in a particular Trust Fund will generally
accelerate the rate at which principal is paid on some or all of the classes of
the Certificates of the related series.
If so provided in the Prospectus Supplement for a series of
Certificates, one or more classes of Certificates may have a final scheduled
Distribution Date, which is the date on or prior to which the Certificate
Balance thereof is scheduled to be reduced to zero, calculated on the basis of
the assumptions applicable to such series set forth therein.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of a
class of Certificates of a series will be influenced by the rate at which
principal on the Mortgage Loans comprising or underlying the Mortgage Assets is
paid to such class, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes prepayments, in
whole or in part, and liquidations due to default).
In addition, the weighted average life of the Certificates may be
affected by the varying maturities of the Mortgage Loans comprising or
underlying the MBS. If any Mortgage Loans comprising or underlying the 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 Assets will, to some extent, be a function of the mix of Mortgage Rates and
maturities of the Mortgage Loans comprising or underlying such Assets. See
"Description of the Trust Funds."
Prepayments on loans are also commonly measured relative to a
prepayment standard or model, such as the Constant Prepayment Rate ("CPR")
prepayment model. CPR represents a constant assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of loans for
the life of such loans.
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Neither CPR nor any other prepayment model or assumption purports to be
a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the Mortgage
Loans underlying or comprising the Mortgage Assets. Moreover, CPR was developed
based upon historical prepayment experience for single family loans. Thus, it
is likely that prepayment of any Mortgage Loans comprising or underlying the
Mortgage Assets for any series will not conform to any particular level of CPR.
The Depositor is not aware of any meaningful publicly available
prepayment statistics for multifamily or commercial mortgage loans.
The Prospectus Supplement with respect to each series of Certificates
will contain tables, if applicable, setting forth the projected weighted
average life of each class of Offered Certificates of such series and the
percentage of the initial Certificate Balance of each such class that would be
outstanding on specified Distribution Dates based on the assumptions stated in
such Prospectus Supplement, including assumptions that prepayments on the
Mortgage Loans comprising or underlying the related Assets are made at rates
corresponding to various percentages of CPR or at such other rates specified in
such Prospectus Supplement. Such tables and assumptions are intended to
illustrate the sensitivity of weighted average life of the Certificates to
various prepayment rates and will not be intended to predict or to provide
information that will enable investors to predict the actual weighted average
life of the Certificates. It is unlikely that prepayment of any Mortgage Loans
comprising or underlying the Mortgage Assets for any series will conform to any
particular level of CPR or any other rate specified in the related Prospectus
Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
TYPE OF MORTGAGE ASSET
A number of Mortgage Loans may have balloon payments due at maturity,
and because the ability of a mortgagor to make a balloon payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a number of Mortgage Loans having
balloon payments may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the mortgagor or adverse conditions in the market where the
property is located. In order to minimize losses on defaulted Mortgage Loans,
the servicer may, to the extent and under the circumstances set forth in the
related Prospectus Supplement, be permitted to modify Mortgage Loans that are
in default or as to which a payment default is imminent. Any defaulted balloon
payment or modification that extends the maturity of a Mortgage Loan will tend
to extend the weighted average life of the Certificates, thereby lengthening
the period of time elapsed from the date of issuance of a Certificate until it
is retired.
FORECLOSURES AND PAYMENT PLANS
The number of foreclosures and the principal amount of the Mortgage
Loans comprising or underlying the Mortgage Assets that are foreclosed in
relation to the number and principal amount of Mortgage Loans that are repaid
in accordance with their terms will affect the weighted average life of the
Mortgage Loans comprising or underlying the Mortgage Assets and that of the
related series of Certificates. Servicing decisions made with respect to the
Mortgage Loans, including the use of payment plans prior to a demand for
acceleration and the restructuring of Mortgage Loans in bankruptcy proceedings,
may also have an effect upon the payment patterns of particular Mortgage Loans
and thus the weighted average life of the Certificates.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE CLAUSES
Acceleration of mortgage payments as a result of certain transfers of
or the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of the
Mortgage Loans comprising or underlying the Assets may include "due-on-sale"
clauses or "due-on-encumbrance" clauses that allow
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the holder of the Mortgage Loans to demand payment in full of the remaining
principal balance of the Mortgage Loans upon sale or certain other transfers of
or the creation of encumbrances upon the related Mortgaged Property. With
respect to any Whole Loans, unless otherwise provided in the related Prospectus
Supplement, the Master Servicer, on behalf of the Trust Fund, will be required
to exercise (or waive its right to exercise) any such right that the Trustee
may have as mortgagee to accelerate payment of the Whole Loan in a manner
consistent with the Servicing Standard. See "Certain Legal Aspects of the
Mortgage Loans and the Leases--Due-on-Sale and Due-on-Encumbrance" and
"Description of the Agreements--Due-on-Sale and Due-on-Encumbrance Provisions."
THE DEPOSITOR
Morgan Stanley Capital I Inc., the Depositor, is a direct wholly-owned
subsidiary of Morgan Stanley Group Inc. and was incorporated in the State of
Delaware on January 28, 1985. The principal executive offices of the Depositor
are located at 1585 Broadway, 37th Floor, New York, New York 10036. Its
telephone number is (212) 761-4700.
The Depositor does not have, nor is it expected in the future to have,
any significant assets.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of each series (including any class of Certificates
not offered hereby) will represent the entire beneficial ownership interest in
the Trust Fund created pursuant to the related Agreement. Each series of
Certificates will consist of one or more classes of Certificates that may (i)
provide for the accrual of interest thereon based on fixed, variable or
adjustable rates; (ii) be senior (collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate Certificates") to one or more other
classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions (collectively,
"Stripped Principal Certificates"); (iv) be entitled to interest distributions,
with disproportionately low, nominal or no principal distributions
(collectively, "Stripped Interest Certificates"); (v) provide for distributions
of accrued interest thereon commencing only following the occurrence of certain
events, such as the retirement of one or more other classes of Certificates of
such series (collectively, "Accrual Certificates"); (vi) provide for payments
of principal sequentially, based on specified payment schedules, from only a
portion of the Assets in such Trust Fund or based on specified calculations, to
the extent of available funds, in each case as described in the related
Prospectus Supplement; and/or (vii) provide for distributions based on a
combination of two or more components thereof with one or more of the
characteristics described in this paragraph including a Stripped Principal
Certificate component and a Stripped Interest Certificate component. Any such
classes may include classes of Offered Certificates.
Each class of Offered Certificates of a series will be issued in
minimum denominations corresponding to the Certificate Balances or, in case of
Stripped Interest Certificates, notional amounts or percentage interests
specified in the related Prospectus Supplement. The transfer of any Offered
Certificates may be registered and such Certificates may be exchanged without
the payment of any service charge payable in connection with such registration
of transfer or exchange, but the Depositor or the Trustee or any agent thereof
may require payment of a sum sufficient to cover any tax or other governmental
charge. One or more classes of Certificates of a series may be issued in
definitive form ("Definitive Certificates") or in book-entry form ("Book-Entry
Certificates"), as provided in the related Prospectus Supplement. See "Risk
Factors--Book-Entry Registration" and "Description of the
Certificates--Book-Entry Registration and Definitive Certificates." Definitive
Certificates will be exchangeable for other Certificates of the same class and
series of a like aggregate Certificate Balance, notional amount or percentage
interest but of different authorized denominations. See "Risk Factors--Limited
Liquidity" and "Limited Assets."
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DISTRIBUTIONS
Distributions on the Certificates of each series will be made by or on
behalf of the Trustee on each Distribution Date as specified in the related
Prospectus Supplement from the Available Distribution Amount for such series
and such Distribution Date. Except as otherwise specified in the related
Prospectus Supplement, distributions (other than the final distribution) will
be made to the persons in whose names the Certificates are registered at the
close of business on the last business day of the month preceding the month in
which the Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date
specified in the related Prospectus Supplement (the "Determination Date"). All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such
class or by random selection, as described in the related Prospectus Supplement
or otherwise established by the related Trustee. Payments will be made either
by wire transfer in immediately available funds to the account of a
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has so notified the Trustee or other person
required to make such payments no later than the date specified in the related
Prospectus Supplement (and, if so provided in the related Prospectus
Supplement, holds Certificates in the requisite amount specified therein), or
by check mailed to the address of the person entitled thereto as it appears on
the Certificate Register; provided, however, that the final distribution in
retirement of the Certificates (whether Definitive Certificates or Book-Entry
Certificates) will be made only upon presentation and surrender of the
Certificates at the location specified in the notice to Certificateholders of
such final distribution.
AVAILABLE DISTRIBUTION AMOUNT
All distributions on the Certificates of each series on each
Distribution Date will be made from the Available Distribution Amount described
below, in accordance with the terms described in the related Prospectus
Supplement. Unless provided otherwise in the related Prospectus Supplement, the
"Available Distribution Amount" for each Distribution Date equals the sum of
the following amounts:
(i) the total amount of all cash on deposit in the related
Certificate 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 Due Period (unless the related
Prospectus Supplement provides otherwise, a "Due Period" with respect to any
Distribution Date will commence on the second day of the month in which the
immediately preceding Distribution Date occurs, or the day after the Cut-off
Date in the case of the first Due Period, and will end on the first day of the
month of the related Distribution Date),
(b) unless the related Prospectus Supplement provides otherwise,
all prepayments, together with related payments of the interest thereon and
related Prepayment Premiums, Liquidation Proceeds, Insurance Proceeds and other
unscheduled recoveries received subsequent to the related Due Period, and
(c) all amounts in the Certificate Account that are due or
reimbursable to the Depositor, the Trustee, an Asset Seller, a Sub-Servicer, a
Special Servicer, the Master Servicer or any other entity as specified in the
related Prospectus Supplement 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 Certificate Account, including
any net amounts paid under any Cash Flow Agreements;
(iii) all advances made by a Master Servicer or any other entity as
specified in the related Prospectus Supplement with respect to such
Distribution Date;
(iv) if and to the extent the related Prospectus Supplement so
provides, amounts paid by a Master Servicer or any other entity as specified in
the related Prospectus Supplement with respect to interest shortfalls resulting
from prepayments during the related Prepayment Period; and
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(v) unless the related Prospectus Supplement provides otherwise, to
the extent not on deposit in the related Certificate 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 will be a fixed, variable or adjustable rate at which interest will
accrue on such class or a component thereof (the "Pass-Through Rate"). The
related Prospectus Supplement will specify the Pass-Through Rate for each class
or component or, in the case of a variable or adjustable Pass-Through Rate, the
method for determining the Pass-Through Rate. Unless otherwise specified in the
related Prospectus Supplement, interest on the Certificates will be calculated
on the basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of the Certificates of any class
will be made on each Distribution Date (other than any class of Accrual
Certificates, which will be entitled to distributions of accrued interest
commencing only on the Distribution Date, or under the circumstances, specified
in the related Prospectus Supplement, and any class of Stripped Principal
Certificates that are not entitled to any distributions of interest) based on
the Accrued Certificate Interest for such class and such Distribution Date,
subject to the sufficiency of the portion of the Available Distribution Amount
allocable to such class on such Distribution Date. Prior to the time interest
is distributable on any class of Accrual Certificates, the amount of Accrued
Certificate Interest otherwise distributable on such class will be added to the
Certificate Balance thereof on each Distribution Date. With respect to each
class of Certificates and each Distribution Date (other than certain classes of
Stripped Interest Certificates), "Accrued Certificate Interest" will be equal
to interest accrued for a specified period on the outstanding Certificate
Balance thereof immediately prior to the Distribution Date, at the applicable
Pass-Through Rate, reduced as described below. Unless otherwise provided in the
Prospectus Supplement, Accrued Certificate Interest on Stripped Interest
Certificates will be equal to interest accrued for a specified period on the
outstanding notional amount thereof immediately prior to each Distribution
Date, at the applicable Pass-Through Rate, reduced as described below. The
method of determining the notional amount for any class of Stripped Interest
Certificates will be described in the related Prospectus Supplement. Reference
to notional amount is solely for convenience in certain calculations and does
not represent the right to receive any distributions of principal. Unless
otherwise provided in the related Prospectus Supplement, the Accrued
Certificate Interest on a series of Certificates will be reduced in the event
of prepayment interest shortfalls, which are shortfalls in collections of
interest for a full accrual period resulting from prepayments prior to the due
date in such accrual period on the Mortgage Loans comprising or underlying the
Mortgage Assets in the Trust Fund for such series. The particular manner in
which such shortfalls are to be allocated among some or all of the classes of
Certificates of that series will be specified in the related Prospectus
Supplement. The related Prospectus Supplement will also describe the extent to
which the amount of Accrued Certificate Interest that is otherwise
distributable on (or, in the case of Accrual Certificates, that may otherwise
be added to the Certificate Balance of) a class of Offered Certificates may be
reduced as a result of any other contingencies, including delinquencies, losses
and deferred interest on or in respect of the Mortgage Loans comprising or
underlying the Mortgage Assets in the related Trust Fund. Unless otherwise
provided in the related Prospectus Supplement, any reduction in the amount of
Accrued Certificate Interest otherwise distributable on a class of Certificates
by reason of the allocation to such class of a portion of any deferred interest
on the Mortgage Loans comprising or underlying the Mortgage Assets in the
related Trust Fund will result in a corresponding increase in the Certificate
Balance of such class. See "Risk Factors--Average Life of Certificates;
Prepayments; Yields" and "Yield Considerations."
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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 Assets and other
assets included in the related Trust Fund. The outstanding Certificate Balance
of a Certificate will be reduced to the extent of distributions of principal
thereon from time to time and, if and to the extent so provided in the related
Prospectus Supplement, by the amount of losses incurred in respect of the
related 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
related Accrued Certificate Interest. Unless otherwise provided in the related
Prospectus Supplement, the initial aggregate Certificate Balance of all classes
of Certificates of a series will not be greater than the outstanding aggregate
principal balance of the related Assets as of the applicable Cut-off Date. The
initial aggregate Certificate Balance of a series and each class thereof will
be specified in the related Prospectus Supplement. Unless otherwise provided in
the related Prospectus Supplement, distributions of principal will be made on
each Distribution Date to the class or classes of Certificates entitled thereto
in accordance with the provisions described in such Prospectus Supplement until
the Certificate Balance of such class has been reduced to zero. Stripped
Interest Certificates with no Certificate Balance are not entitled to any
distributions of principal.
COMPONENTS
To the extent specified in the related Prospectus Supplement,
distribution on a class of Certificates may be based on a combination of two or
more different components as described under "--General" above. To such extent,
the descriptions set forth under "--Distributions of Interests on the
Certificates" and "--Distributions of Principal of the Certificates" above also
relate to components of such a class of Certificates. In such case, reference
in such sections to Certificate Balance and Pass-Through Rate refer to the
principal balance, if any, of any such component and the Pass-Through Rate, if
any, on any such component, respectively.
DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUMS OR IN RESPECT OF EQUITY
PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment
Premiums or payments in respect of Equity Participations that are collected on
the Mortgage Assets in the related Trust Fund will be distributed on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the Prospectus Supplement for a series of
Certificates consisting of one or more classes of Subordinate Certificates, on
any Distribution Date in respect of which losses or shortfalls in collections
on the Mortgage Assets have been incurred, the amount of such losses or
shortfalls will be borne first by a class of Subordinate Certificates in the
priority and manner and subject to the limitations specified in such Prospectus
Supplement. See "Description of Credit Support" for a description of the types
of protection that may be included in a Trust Fund against losses and
shortfalls on Mortgage Assets comprising such Trust Fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any series of Certificates evidencing an interest in a
Trust Fund, unless otherwise provided in the related Prospectus Supplement, the
Master Servicer or another entity described therein will be required as part of
its servicing responsibilities to advance on or before each Distribution Date
its own funds or funds held in the Certificate Account that are not included in
the Available Distribution Amount for such Distribution Date, in an amount
equal to the aggregate of payments of principal (other than any balloon
payments) and interest (net of related servicing fees and Retained Interest)
that were due on the Whole Loans in such Trust Fund during the related Due
Period and were delinquent on the related Determination Date, subject to the
Master Servicer's (or another entity's) good faith determination that such
advances will be reimbursable from Related Proceeds (as defined below). In the
case of a series of Certificates that includes one or more classes of
Subordinate Certificates and if so provided in the related Prospectus
Supplement, the Master Servicer's (or another entity's) advance obligation may
be limited only to the portion of such delinquencies necessary to make the
required distributions on one or more classes of Senior Certificates and/or may
be subject to the Master Servicer's (or another entity's)
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good faith determination that such advances will be reimbursable not only from
Related Proceeds but also from collections on other Assets otherwise
distributable on one or more classes of such Subordinate Certificates. See
"Description of Credit Support."
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Certificates
entitled thereto, rather than to guarantee or insure against losses. Unless
otherwise provided in the related Prospectus Supplement, advances of the Master
Servicer's (or another entity's) funds will be reimbursable only out of related
recoveries on the Mortgage Loans (including amounts received under any form of
Credit Support) respecting which such advances were made (as to any Mortgage
Loan, "Related Proceeds") and, if so provided in the Prospectus Supplement, out
of any amounts otherwise distributable on one or more classes of Subordinate
Certificates of such series; provided, however, that any such advance will be
reimbursable from any amounts in the Certificate Account prior to any
distributions being made on the Certificates to the extent that the Master
Servicer (or such other entity) shall determine in good faith that such advance
(a "Nonrecoverable Advance") is not ultimately recoverable from Related
Proceeds or, if applicable, from collections on other Assets otherwise
distributable on such Subordinate Certificates. If advances have been made by
the Master Servicer from excess funds in the Certificate Account, the Master
Servicer is required to replace such funds in the Certificate Account on any
future Distribution Date to the extent that funds in the Certificate Account on
such Distribution Date are less than payments required to be made to
Certificateholders on such date. If so specified in the related Prospectus
Supplement, the obligations of the Master Servicer (or another entity) to make
advances may be secured by a cash advance reserve fund, a surety bond, a letter
of credit or another form of limited guaranty. If applicable, information
regarding the characteristics of, and the identity of any obligor on, any such
surety bond, will be set forth in the related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement,
the Master Servicer (or another entity) will be entitled to receive interest at
the rate specified therein on its outstanding advances and will be entitled to
pay itself such interest periodically from general collections on the Assets
prior to any payment to Certificateholders or as otherwise provided in the
related Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any corresponding
advancing obligation of any person in connection with such MBS.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise provided in the Prospectus Supplement, with each
distribution to holders of any class of Certificates of a series, the Master
Servicer or the Trustee, as provided in the related Prospectus Supplement, will
forward or cause to be forwarded to each such holder, to the Depositor and to
such other parties as may be specified in the related Agreement, a statement
setting forth, in each case to the extent applicable and available:
(i) the amount of such distribution to holders of Certificates of such
class applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of Certificates of such
class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to (a) Prepayment Premiums
and (b) payments on account of Equity Participations;
(iv) the amount of related servicing compensation received by a Master
Servicer (and, if payable directly out of the related Trust Fund, by
any Special Servicer and any Sub-Servicer) and such other customary
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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 Assets at the close of business
on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans in respect of
which (a) one scheduled payment is delinquent, (b) two scheduled
payments are delinquent, (c) three or more scheduled payments are
delinquent and (d) foreclosure proceedings have been commenced;
(viii) with respect to each Whole Loan that is delinquent two or more months,
(a) the loan number thereof, (b) the unpaid balance thereof, (c)
whether the delinquency is in respect of any balloon payment, (d) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof, (e) if applicable, the aggregate amount of
any interest accrued and payable on related servicing expenses and
related advances assuming such Mortgage Loan is subsequently liquidated
through foreclosure, (f) whether a notice of acceleration has been sent
to the mortgagor and, if so, the date of such notice, (g) whether
foreclosure proceedings have been commenced and, if so, the date so
commenced and (h) if such Mortgage Loan is more than three months
delinquent and foreclosure has not been commenced, the reason therefor;
(ix) with respect to any Whole Loan liquidated during the related Due Period
(other than by payment in full), (a) the loan number thereof, (b) the
manner in which it was liquidated and (c) the aggregate amount of
liquidation proceeds received;
(x) with respect to any Whole Loan liquidated during the related Due
Period, (a) the portion of such liquidation proceeds payable or
reimbursable to the Master Servicer (or any other entity) in respect of
such Mortgage Loan and (b) the amount of any loss to
Certificateholders;
(xi) with respect to each REO Property relating to a Whole Loan and included
in the Trust Fund as of the end of the related Due Period, (a) the loan
number of the related Mortgage Loan and (b) the date of acquisition;
(xii) with respect to each REO Property relating to a Whole Loan and included
in the Trust Fund as of the end of the related Due Period, (a) the book
value, (b) the principal balance of the related Mortgage Loan
immediately following such Distribution Date (calculated as if such
Mortgage Loan were still outstanding taking into account certain
limited modifications to the terms thereof specified in the Agreement),
(c) the aggregate amount of unreimbursed servicing expenses and
unreimbursed advances in respect thereof and (d) if applicable, the
aggregate amount of interest accrued and payable on related servicing
expenses and related advances;
(xiii) with respect to any such REO Property sold during the related Due
Period (a) the loan number of the related Mortgage Loan, (b) the
aggregate amount of sale proceeds, (c) the portion of such sales
proceeds payable or reimbursable to 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;
(xiv) the aggregate Certificate Balance or notional amount, as the case may
be, of each class of Certificates (including any class of Certificates
not offered hereby) at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance due to
the allocation of any loss and increase in the Certificate Balance of a
class of Accrual Certificates in the event that Accrued Certificate
Interest has been added to such balance;
(xv) the aggregate amount of principal prepayments made during the related
Due Period;
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(xvi) the amount deposited in the reserve fund, if any, on such Distribution
Date;
(xvii) the amount remaining in the reserve fund, if any, as of the close of
business on such Distribution Date;
(xviii) the aggregate unpaid Accrued Certificate Interest, if any, on each
class of Certificates at the close of business on such Distribution
Date;
(xix) in the case of Certificates with a variable Pass-Through Rate, the
Pass-Through Rate applicable to such Distribution Date, and, if
available, the immediately succeeding Distribution Date, as calculated
in accordance with the method specified in the related Prospectus
Supplement;
(xx) 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 such
Distribution Date and the immediately succeeding Distribution Date as
calculated in accordance with the method specified in the related
Prospectus Supplement;
(xxi) 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
(xxii) the aggregate amount of payments by the mortgagors of (a) default
interest, (b) late charges and (c) assumption and modification fees
collected during the related Due Period.
In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of Certificates or for such other specified portion thereof. In
addition, in the case of information furnished pursuant to subclauses (i),
(ii), (xiv), (xviii) and (xix) above, such amounts shall also be provided with
respect to each component, if any, of a class of Certificates. The Master
Servicer or the Trustee, as specified in the related Prospectus Supplement,
will forward or cause to be forwarded to each holder, to the Depositor and to
such other parties as may be specified in the Agreement, a copy of any
statements or reports received by the Master Servicer or the Trustee, as
applicable, with respect to any MBS. The Prospectus Supplement for each series
of Offered Certificates will describe any additional information to be included
in reports to the holders of such Certificates.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the calendar
year was a holder of a Certificate a statement containing the information set
forth in subclauses (i)-(iv) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a Certificateholder.
Such obligation of the Master Servicer or the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information shall be
provided by the Master Servicer or the Trustee pursuant to any requirements of
the Code as are from time to time in force. 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 Certificate 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 Asset subject thereto or the disposition of all
property acquired upon foreclosure of any Whole Loan subject thereto and (ii)
the purchase of all of the assets of the Trust Fund by the party entitled to
effect such termination, under the circumstances and in the manner set forth in
the related Prospectus Supplement. In no event, however, will the trust created
by the Agreement continue beyond the date specified in the related Prospectus
Supplement. Written notice of termination of the Agreement will be given to
each Certificateholder, and the final distribution will be made only upon
presentation and surrender of the Certificates at the location to be specified
in the notice of termination.
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If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the
repurchase of the assets in the related Trust Fund by the party specified
therein, under the circumstances and in the manner set forth therein. If so
provided in the related Prospectus Supplement, upon the reduction of the
Certificate Balance of a specified class or classes of Certificates by a
specified percentage or amount, the party specified therein will solicit bids
for the purchase of all assets of the Trust Fund, or of a sufficient portion of
such assets to retire such class or classes or purchase such class or classes
at a price set forth in the related Prospectus Supplement, in each case, under
the circumstances and in the manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the related Prospectus Supplement, one or more
classes of the Offered Certificates of any series will be issued as Book-Entry
Certificates, and each such class will be represented by one or more single
Certificates registered in the name of a nominee for the depository, The
Depository Trust Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and facilitate the
clearance and settlement of securities transactions between Participants
through electronic book-entry changes in their accounts, thereby eliminating
the need for physical movement of certificates. Participants include Morgan
Stanley & Co. Incorporated, securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system also is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). Unless otherwise provided in the related
Prospectus Supplement, investors that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership
of, or other interests in, Book-Entry Certificates may do so only through
Participants and Indirect Participants. In addition, such investors
("Certificate Owners") will receive all distributions on the Book-Entry
Certificates through DTC and its Participants. Under a book-entry format,
Certificate Owners will receive payments after the related Distribution Date
because, while payments are required to be forwarded to Cede & Co., as nominee
for DTC ("Cede"), on each such date, DTC will forward such payments to its
Participants which thereafter will be required to forward them to Indirect
Participants or Certificate Owners. Unless otherwise provided in the related
Prospectus Supplement, the only "Certificateholder" (as such term is used in
the Agreement) will be Cede, as nominee of DTC, and the Certificate Owners will
not be recognized by the Trustee as Certificateholders under the Agreement.
Certificate Owners will be permitted to exercise the rights of
Certificateholders under the related Agreement only indirectly through the
Participants who in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Book-Entry
Certificates and is required to receive and transmit distributions of principal
of and interest on the Book-Entry Certificates. Participants and Indirect
Participants with which Certificate Owners have accounts with respect to the
Book-Entry Certificates similarly are required to make book-entry transfers and
receive and transmit such payments on behalf of their respective Certificate
Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge its interest in the Book-Entry Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions
in respect of its interest in the Book-Entry Certificates, may be limited due
to the lack of a physical certificate evidencing such interest.
DTC has advised the Depositor that it will take any action permitted to
be taken by a Certificateholder under an Agreement only at the direction of one
or more Participants to whose account with DTC interests in the Book-Entry
Certificates are credited.
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Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Certificate Owners or their nominees
("Definitive Certificates"), rather than to DTC or its nominee only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to properly discharge its responsibilities as depository with respect to the
Certificates and the Depositor is unable to locate a qualified successor or
(ii) the Depositor, at its option, elects to terminate the book-entry system
through DTC.
Upon the occurrence of either of the events described in the
immediately preceding paragraph, DTC is required to notify all Participants of
the availability through DTC of Definitive Certificates for the Certificate
Owners. Upon surrender by DTC of the certificate or certificates representing
the Book-Entry Certificates, together with instructions for reregistration, the
Trustee will issue (or cause to be issued) to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled,
and thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
DESCRIPTION OF THE AGREEMENTS
The Certificates of each series evidencing interests in a Trust Fund
including Whole Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer, 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
not including Whole Loans 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. In lieu of appointing a Master Servicer, a
servicer may be appointed pursuant to the Pooling and Servicing Agreement for
any Trust Fund. Such servicer will service all or a significant number of Whole
Loans directly without a Sub-Servicer. Unless otherwise specified in the
related Prospectus Supplement, the obligations of any such servicer shall be
commensurate with those of the Master Servicer described herein. References in
this prospectus to Master Servicer and its rights and obligations, unless
otherwise specified in the related Prospectus Supplement, shall be deemed to
also be references to any servicer servicing Whole Loans directly. A manager or
administrator may be appointed pursuant to the Trust Agreement for any Trust
Fund to administer such Trust Fund. The provisions of each Agreement will vary
depending upon the nature of the Certificates to be issued thereunder and the
nature of the related Trust Fund. A form of a Pooling and Servicing Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Any Trust Agreement will generally conform to the form of
Pooling and Servicing Agreement filed herewith, but will not contain provisions
with respect to the servicing and maintenance of Whole Loans. The following
summaries describe certain provisions that may appear in each Agreement. The
Prospectus Supplement for a series of Certificates will describe any provision
of the 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
description of such provisions in the related Prospectus Supplement. As used
herein with respect to any series, the term "Certificate" refers to all of the
Certificates of that series, whether or not offered hereby and by the related
Prospectus Supplement, unless the context otherwise requires. The Depositor will
provide a copy of the 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 Morgan Stanley Capital I Inc., c/o Morgan Stanley & Co.
Incorporated, 1585 Broadway, 37th Floor, New York, New York 10036, Attention:
John E. Westerfield.
ASSIGNMENT OF ASSETS; REPURCHASES
At the time of issuance of any series of Certificates, the Depositor
will assign (or cause to be assigned) to the designated Trustee the Assets to
be included in the related Trust Fund, together with all principal and interest
to be received on or with respect to such 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 Assets and the
other assets comprising the Trust Fund for such
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series. Each Mortgage Asset will be identified in a schedule appearing as an
exhibit to the related Agreement. Unless otherwise provided in the related
Prospectus Supplement, such schedule will include detailed information (i) in
respect of each Whole Loan included in the related Trust Fund, including
without limitation, the address of the related Mortgaged Property and type of
such property, the Mortgage Rate and, if applicable, the applicable index,
margin, adjustment date and any rate cap information, the original and
remaining term to maturity, the original and outstanding principal balance and
balloon payment, if any, the Value, Loan-to-Value Ratio and the Debt Service
Coverage Ratio as of the date indicated and payment and prepayment provisions,
if applicable, and (ii) in respect of each 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 rate,
the issue date and original and remaining term to maturity, if applicable, the
original and outstanding principal amount and payment provisions, if
applicable.
With respect to each Whole Loan, the Depositor will deliver or cause to
be delivered to the Trustee (or to the custodian hereinafter referred to)
certain loan documents, which unless otherwise specified in the related
Prospectus Supplement will include the original Mortgage Note endorsed, without
recourse, in blank or to the order of the Trustee, the original Mortgage (or a
certified copy thereof) with evidence of recording indicated thereon and an
assignment of the Mortgage to the Trustee in recordable form. Notwithstanding
the foregoing, a Trust Fund may include Mortgage Loans where the original
Mortgage Note is not delivered to the Trustee if the Depositor delivers to the
Trustee or the custodian a copy or a duplicate original of the Mortgage Note,
together with an affidavit certifying that the original thereof has been lost
or destroyed. With respect to such Mortgage Loans, the Trustee (or its nominee)
may not be able to enforce the Mortgage Note against the related borrower.
Unless otherwise specified in the related Prospectus Supplement, the Asset
Seller will be required to agree to repurchase, or substitute for, each such
Mortgage Loan that is subsequently in default if the enforcement thereof or of
the related Mortgage is materially adversely affected by the absence of the
original Mortgage Note. Unless otherwise provided in the related Prospectus
Supplement, the related Agreement will require the Depositor or another party
specified therein to promptly cause each such assignment of Mortgage 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 related Whole Loan against the claim of any
subsequent transferee or any successor to or creditor of the Depositor, the
Master Servicer, the relevant Asset Seller or any other prior holder of the
Whole Loan.
The Trustee (or a custodian) will review such Whole Loan documents
within a specified period of days after receipt thereof, and the Trustee (or a
custodian) will hold such documents in trust for the benefit of the
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, if any such document is found to be missing or defective in any
material respect, the Trustee (or such custodian) shall immediately notify the
Master Servicer and the Depositor, and the Master Servicer shall immediately
notify the relevant Asset Seller. If the Asset Seller cannot cure the omission
or defect within a specified number of days after receipt of such notice, then
unless otherwise specified in the related Prospectus Supplement, the 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 substitute for such Mortgage Loan. There can be no assurance that an
Asset Seller will fulfill this repurchase or substitution obligation, and
neither the Master Servicer nor the Depositor will be obligated to repurchase
or substitute for such Mortgage Loan if the Asset Seller defaults on its
obligation. Unless otherwise specified in the related Prospectus Supplement,
this repurchase or substitution obligation constitutes the sole remedy
available to the Certificateholders or the Trustee for omission of, or a
material defect in, a constituent document. To the extent specified in the
related Prospectus Supplement, in lieu of curing any omission or defect in the
Asset or repurchasing or substituting for such Asset, the Asset Seller may
agree to cover any losses suffered by the Trust Fund as a result of such breach
or defect.
If so provided in the related Prospectus Supplement, the Depositor
will, as to some or all of the Mortgage Loans, assign or cause to be assigned
to the Trustee the related Lease Assignments. In certain cases, the Trustee, or
Master Servicer, as applicable, may collect all moneys under the related Leases
and distribute amounts, if any, required under the Lease for the payment of
maintenance, insurance and taxes, to the extent specified in the related Lease
agreement. The Trustee, or if so specified in the Prospectus Supplement, the
Master Servicer, as agent for the Trustee, may hold the Lease in trust for the
benefit of the Certificateholders.
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With respect to each Government Security or MBS in certificated form,
the Depositor will deliver or cause to be delivered to the Trustee (or the
custodian) the original certificate or other definitive evidence of such
Government Security or MBS, as applicable, together with bond power or other
instruments, certifications or documents required to transfer fully such
Government Security or MBS, as applicable, to the Trustee for the benefit of
the Certificateholders. With respect to each Government Security or MBS in
uncertificated or book-entry form or held through a "clearing corporation"
within the meaning of the UCC, the Depositor and the Trustee will cause such
Government Security or MBS to be registered directly or on the books of such
clearing corporation or of a financial intermediary in the name of the Trustee
for the benefit of the Certificateholders. Unless otherwise provided in the
related Prospectus Supplement, the related Agreement will require that either
the Depositor or the Trustee promptly cause any MBS and Government Securities
in certificated form not registered in the name of the Trustee to be
re-registered, with the applicable persons, in the name of the Trustee.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the related Prospectus Supplement the
Depositor will, with respect to each Whole Loan, make or assign certain
representations and warranties, as of a specified date (the person making such
representations and warranties, the "Warrantying 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 Assets appearing as an exhibit
to the related Agreement; (ii) the existence of title insurance insuring the
lien priority of the Whole Loan; (iii) the authority of the Warrantying Party
to sell the Whole Loan; (iv) the payment status of the Whole Loan and the
status of payments of taxes, assessments and other charges affecting the
related Mortgaged Property; (v) the existence of customary provisions in the
related Mortgage Note and Mortgage to permit realization against the Mortgaged
Property of the benefit of the security of the Mortgage; and (vi) the existence
of hazard and extended perils insurance coverage on the Mortgaged Property.
Any Warrantying Party, if other than the Depositor, shall be an Asset
Seller or an affiliate thereof or such other person acceptable to the Depositor
and shall be identified in the related Prospectus Supplement.
Representations and warranties made in respect of a Whole Loan may have
been made as of a date prior to the applicable Cut-off Date. A substantial
period of time may have elapsed between such date and the date of initial
issuance of the related series of Certificates evidencing an interest in such
Whole Loan. Unless otherwise specified in the related Prospectus Supplement, in
the event of a breach of any such representation or warranty, the Warrantying
Party will be obligated to reimburse the Trust Fund for losses caused by any
such breach or either cure such breach or repurchase or replace the affected
Whole Loan as described below. Since the representations and warranties may not
address events that may occur following the date as of which they were made,
the Warrantying Party will have a reimbursement, cure, repurchase or
substitution obligation in connection with a breach of such a representation
and warranty only if the relevant event that causes such breach occurs prior to
such date. Such party would have no such obligations if the relevant event that
causes such breach occurs after such date.
Unless otherwise provided in the related Prospectus Supplement, each
Agreement will provide that the Master Servicer and/or Trustee will be required
to notify promptly the relevant Warrantying Party of any breach of any
representation or warranty made by it in respect of a Whole Loan that
materially and adversely affects the value of such Whole Loan or the interests
therein of the Certificateholders. If such Warrantying Party cannot cure such
breach within a specified period following the date on which such party was
notified of such breach, then such Warrantying Party will be obligated to
repurchase such Whole Loan from the Trustee within a specified period from the
date on which the Warrantying Party was notified of such breach, at the
Purchase Price therefor. As to any Whole Loan, unless otherwise specified in
the related Prospectus Supplement, the "Purchase Price" is equal to the sum of
the unpaid principal balance thereof, plus unpaid accrued interest thereon at
the Mortgage Rate from the date as to which interest was last paid to the due
date in the Due Period in which the relevant purchase is to occur, plus certain
servicing expenses that are reimbursable to the Master Servicer. If so provided
in the Prospectus Supplement for a series, a Warrantying Party, rather than
repurchase a Whole Loan as to which a breach has occurred, will have the
option, within a specified period after initial issuance of such series of
Certificates, to cause the removal of such
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Whole Loan from the Trust Fund and substitute in its place one or more other
Whole Loans, in accordance with the standards described in the related
Prospectus Supplement. If so provided in the Prospectus Supplement for a
series, a Warrantying Party, rather than repurchase or substitute a Whole Loan
as to which a breach has occurred, will have the option to reimburse the Trust
Fund or the Certificateholders for any losses caused by such breach. Unless
otherwise specified in the related Prospectus Supplement, this reimbursement,
repurchase or substitution obligation will constitute the sole remedy available
to holders of Certificates or the Trustee for a breach of representation by a
Warrantying Party.
Neither the Depositor (except to the extent that it is the Warrantying
Party) nor the Master Servicer will be obligated to purchase or substitute for
a Whole Loan if a Warrantying Party defaults on its obligation to do so, and no
assurance can be given that Warrantying Parties will carry out such obligations
with respect to Whole Loans.
Unless otherwise provided in the related Prospectus Supplement the
Warrantying Party will, with respect to a Trust Fund that includes Government
Securities or MBS, make or assign certain representations or warranties, as of
a specified date, with respect to such Government Securities or MBS, covering
(i) the accuracy of the information set forth therefor on the schedule of
Assets appearing as an exhibit to the related Agreement and (ii) the authority
of the Warrantying Party to sell such Assets. The related Prospectus Supplement
will describe the remedies for a 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. A breach of any such representation
of the Master Servicer which materially and adversely affects the interests of
the Certificateholders and which continues unremedied for thirty days after the
giving of written notice of such breach to 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
(unless otherwise specified in the related Prospectus Supplement), will
constitute an Event of Default under such Pooling and Servicing Agreement. See
"Events of Default" and "Rights Upon Event of Default."
CERTIFICATE ACCOUNT AND OTHER COLLECTION ACCOUNTS
GENERAL
The Master Servicer and/or the Trustee will, as to each Trust Fund,
establish and maintain or cause to be established and maintained one or more
separate accounts for the collection of payments on the related Assets
(collectively, the "Certificate Account"), which must be either (i) an account
or accounts the deposits in which are insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the Federal Deposit Insurance Corporation
("FDIC") (to the limits established by the FDIC) and the uninsured deposits in
which are otherwise secured such that the Certificateholders have a claim with
respect to the funds in the Certificate Account or a perfected first priority
security interest against any collateral securing such funds that is superior
to the claims of any other depositors or general creditors of the institution
with which the Certificate Account is maintained or (ii) otherwise maintained
with a bank or trust company, and in a manner, satisfactory to the Rating
Agency or Agencies rating any class of Certificates of such series. The
collateral eligible to secure amounts in the Certificate Account is limited to
United States government securities and other investment grade obligations
specified in the Agreement ("Permitted Investments"). A Certificate Account may
be maintained as an interest bearing or a non-interest bearing account and the
funds held therein may be invested pending each succeeding Distribution Date in
certain short-term Permitted Investments. Unless otherwise provided in the
related Prospectus Supplement, any interest or other income earned on funds in
the Certificate Account will be paid to a Master Servicer or its designee as
additional servicing compensation. The Certificate Account may be maintained
with an institution that is an affiliate of the Master Servicer, if applicable,
provided that such institution meets the standards imposed by the Rating Agency
or Agencies. If permitted by the Rating Agency or Agencies and so specified in
the related Prospectus Supplement, a Certificate Account may contain funds
relating to more than one series of mortgage pass-through certificates and may
contain
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other funds respecting payments on mortgage loans belonging to the Master
Servicer or serviced or master serviced by it on behalf of others.
DEPOSITS
A Master Servicer or the Trustee will deposit or cause to be deposited
in the Certificate Account for one or more Trust Funds on a daily basis, unless
otherwise provided in the related Agreement, 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, on the Assets;
(ii) all payments on account of interest on the Assets, including
any default interest collected, in each case net of any
portion thereof retained by a Master Servicer, a Sub-Servicer
or a Special Servicer as its servicing compensation and net
of any Retained Interest;
(iii) all proceeds of the hazard, business interruption and general
liability insurance policies to be maintained in respect of
each Mortgaged Property securing a Whole Loan in the Trust
Fund (to the extent such proceeds are not applied to the
restoration of the property or released to the mortgagor in
accordance with the normal servicing procedures of a Master
Servicer or the related Sub-Servicer, subject to the terms
and conditions of the related Mortgage and Mortgage Note) and
all proceeds of rental interruption policies, if any,
insuring against losses arising from the failure of Lessees
under a Lease to make timely rental payments because of
certain casualty events (collectively, "Insurance Proceeds")
and all other amounts received and retained in connection
with the liquidation of defaulted Mortgage Loans in the Trust
Fund, by foreclosure or otherwise ("Liquidation Proceeds"),
together with the net proceeds on a monthly basis with
respect to any Mortgaged Properties acquired for the benefit
of Certificateholders by foreclosure or by deed in lieu of
foreclosure or otherwise;
(iv) any 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 representing Prepayment Premiums;
(vii) any amounts paid under any Cash Flow Agreement, as described
under "Description of the Trust Funds--Cash Flow Agreements";
(viii) all proceeds of any Asset or, with respect to a Whole Loan,
property acquired in respect thereof purchased by the
Depositor, any Asset Seller or any other specified person as
described under "Assignment of Assets; Repurchases" and
"Representations and Warranties; Repurchases," all proceeds
of any defaulted Mortgage Loan purchased as described under
"Realization Upon Defaulted Whole Loans," and all proceeds of
any Asset purchased as described under "Description of the
Certificates Termination" (also, "Liquidation Proceeds");
(ix) any amounts paid by a Master Servicer to cover certain
interest shortfalls arising out of the prepayment of Whole
Loans in the Trust Fund as described under "Description of
the Agreements Retained Interest; Servicing Compensation and
Payment of Expenses";
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(x) to the extent that any such item does not constitute
additional servicing compensation to a Master Servicer, any
payments on account of modification or assumption fees, late
payment charges, Prepayment Premiums or Equity Participations
on the Mortgage Assets; (xi) all payments required to be
deposited in the Certificate Account with respect to any
deductible clause in any blanket insurance policy described
under "Hazard Insurance Policies";
(xi) 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 Certificate Account; and
(xii) any other amounts required to be deposited in the Certificate
Account as provided in the related Agreement and described in
the related Prospectus Supplement.
WITHDRAWALS
A Master Servicer or the Trustee may, from time to time, unless
otherwise provided in the related Agreement and described in the related
Prospectus Supplement, make withdrawals from the Certificate Account for each
Trust Fund for any of the following purposes:
(i) to make distributions to the Certificateholders on each
Distribution Date;
(ii) to reimburse a Master Servicer for unreimbursed amounts advanced
as described under "Description of the Certificates Advances in Respect of
Delinquencies," such reimbursement to be made out of amounts received which
were identified and applied by the Master Servicer as late collections of
interest (net of related servicing fees and Retained Interest) on and principal
of the particular Whole Loans with respect to which the advances were made or
out of amounts drawn under any form of Credit Support with respect to such
Whole Loans;
(iii) to reimburse a Master Servicer for unpaid servicing fees earned
and certain unreimbursed servicing expenses incurred with respect to Whole
Loans and properties acquired in respect thereof, such reimbursement to be made
out of amounts that represent Liquidation Proceeds and Insurance Proceeds
collected on the particular Whole Loans and properties, and net income
collected on the particular properties, with respect to which such fees were
earned or such expenses were incurred or out of amounts drawn under any form of
Credit Support with respect to such Whole Loans and properties;
(iv) to reimburse a Master Servicer for any advances described in
clause (ii) above and any servicing expenses described in clause (iii) above
which, in the Master Servicer's good faith judgment, will not be recoverable
from the amounts described in clauses (ii) and (iii), respectively, such
reimbursement to be made from amounts collected on other Assets or, if and to
the extent so provided by the related Agreement and described in the related
Prospectus Supplement, just from that portion of amounts collected on other
Assets that is otherwise distributable on one or more classes of Subordinate
Certificates, if any, remain outstanding, and otherwise any outstanding class
of Certificates, of the related series;
(v) if and to the extent described in the related Prospectus
Supplement, to pay a Master Servicer interest accrued on the advances described
in clause (ii) above and the servicing expenses described in clause (iii) above
while such remain outstanding and unreimbursed;
(vi) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments with respect to, and for containment, clean-up
or remediation of hazardous wastes, substances and materials on, Mortgaged
Properties securing defaulted Whole Loans as described under "Realization Upon
Defaulted Whole Loans";
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(vii) to reimburse a Master Servicer, the Depositor, or any of their
respective directors, officers, employees and agents, as the case may be, for
certain expenses, costs and liabilities incurred thereby, as and to the extent
described under "Certain Matters Regarding a Master Servicer and the
Depositor";
(viii) if and to the extent described in the related Prospectus
Supplement, to pay (or to transfer to a separate account for purposes of
escrowing for the payment of) the Trustee's fees;
(ix) to reimburse the Trustee or any of its directors, officers,
employees and agents, as the case may be, for certain expenses, costs and
liabilities incurred thereby, as and to the extent described under "Certain
Matters Regarding the Trustee";
(x) unless otherwise provided in the related Prospectus Supplement, to
pay a Master Servicer, as additional servicing compensation, interest and
investment income earned in respect of amounts held in the Certificate Account;
(xi) to pay the person entitled thereto any amounts deposited in the
Certificate Account that were identified and applied by the Master Servicer as
recoveries of Retained Interest;
(xii) to pay for costs reasonably incurred in connection with the
proper operation, management and maintenance of any Mortgaged Property acquired
for the benefit of Certificateholders by foreclosure or by deed in lieu of
foreclosure or otherwise, such payments to be made out of income received on
such property;
(xiii) if one or more elections have been made to treat the Trust Fund
or designated portions thereof as a REMIC, to pay any federal, state or local
taxes imposed on the Trust Fund or its assets or transactions, as and to the
extent described under "Certain Federal Income Tax
Consequences--REMICS--Prohibited Transactions Tax and Other Taxes";
(xiv) to pay for the cost of an independent appraiser or other expert
in real estate matters retained to determine a fair sale price for a defaulted
Whole Loan or a property acquired in respect thereof in connection with the
liquidation of such Whole Loan or property;
(xv) to pay for the cost of various opinions of counsel obtained
pursuant to the related Agreement for the benefit of Certificateholders;
(xvi) to pay for the costs of recording the related Agreement if such
recordation materially and beneficially affects the interests of
Certificateholders, provided that such payment shall not constitute a waiver
with respect to the obligation of the Warrantying Party to remedy any breach of
representation or warranty under the Agreement;
(xvii) to pay the person entitled thereto any amounts deposited in the
Certificate Account in error, including amounts received on any Asset after its
removal from the Trust Fund whether by reason of purchase or substitution as
contemplated by "Assignment of Assets; Repurchase" and "Representations and
Warranties; Repurchases" or otherwise;
(xviii) to make any other withdrawals permitted by the related
Agreement and described in the related Prospectus Supplement; and
(xix) to clear and terminate the Certificate Account at the
termination of the Trust Fund.
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OTHER COLLECTION ACCOUNTS
Notwithstanding the foregoing, if so specified in the related
Prospectus Supplement, the Agreement for any series of Certificates may provide
for the establishment and maintenance of a separate collection account into
which the Master Servicer or any related Sub-Servicer or Special Servicer will
deposit on a daily basis the amounts described under "--Deposits" above for one
or more series of Certificates. Any amounts on deposit in any such collection
account will be withdrawn therefrom and deposited into the appropriate
Certificate Account by a time specified in the related Prospectus Supplement.
To the extent specified in the related Prospectus Supplement, any amounts which
could be withdrawn from the Certificate Account as described under
"--Withdrawals" above, may also be withdrawn from any such collection account.
The Prospectus Supplement will set forth any restrictions with respect to any
such collection account, including investment restrictions and any restrictions
with respect to financial institutions with which any such collection account
may be maintained.
COLLECTION AND OTHER SERVICING PROCEDURES
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 (i)
the terms of the related Agreement and any related hazard, business
interruption, rental interruption or general liability insurance policy or
instrument of Credit Support included in the related Trust Fund described
herein or under "Description of Credit Support," (ii) applicable law and (iii)
the general servicing standard specified in the related Prospectus Supplement
or, if no such standard is so specified, its normal servicing practices (in
either case, the "Servicing Standard"). In connection therewith, the Master
Servicer will be permitted in its discretion to waive any late payment charge
or penalty interest in respect of a late Whole Loan payment.
Each Master Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining (or causing
the mortgagor or Lessee on each Mortgage or Lease to maintain) hazard, business
interruption and general liability insurance policies (and, if applicable,
rental interruption policies) as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder; maintaining escrow or
impoundment accounts of mortgagors for payment of taxes, insurance and other
items required to be paid by any mortgagor pursuant to the Whole Loan;
processing assumptions or substitutions in those cases where the Master
Servicer has determined not to enforce any applicable due-on-sale clause;
attempting to cure delinquencies; supervising foreclosures; inspecting and
managing Mortgaged Properties under certain circumstances; and maintaining
accounting records relating to the Whole Loans. Unless otherwise specified in
the related Prospectus Supplement, 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."
The Master Servicer may agree to modify, waive or amend any term of any
Whole Loan in a manner consistent with the Servicing Standard so long as the
modification, waiver or amendment will not (i) affect the amount or timing of
any scheduled payments of principal or interest on the 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, unless otherwise
provided in the related Prospectus Supplement, (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 is reasonably
likely to produce a greater recovery with respect to the Whole Loan on a
present value basis than would liquidation. The Master Servicer is required to
notify the Trustee in the event of any modification, waiver or amendment of any
Whole Loan.
SUB-SERVICERS
A Master Servicer may delegate its servicing obligations in respect of
the Whole Loans to third-party servicers (each, a "Sub-Servicer"), but such
Master Servicer will remain obligated under the related Agreement.
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Each sub-servicing agreement between a Master Servicer and a Sub-Servicer (a
"Sub-Servicing Agreement") must be consistent with the terms of the related
Agreement and must provide that, if for any reason the Master Servicer for the
related series of Certificates is no longer acting in such capacity, the
Trustee or any successor Master Servicer may assume the Master Servicer's
rights and obligations under such Sub-Servicing Agreement.
Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer will be solely liable for all fees owed by it to any
Sub-Servicer, irrespective of whether the Master 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 for certain
expenditures which it makes, generally to the same extent the Master Servicer
would be reimbursed under an Agreement. See "Retained Interest, Servicing
Compensation and Payment of Expenses."
SPECIAL SERVICERS
To the extent so specified in the related Prospectus Supplement, a
special servicer (the "Special Servicer") may be appointed. The related
Prospectus Supplement will describe the rights, obligations and compensation of
a Special Servicer. The Master Servicer will only be responsible for the duties
and obligations of a Special Servicer to the extent set forth in the Prospectus
Supplement.
REALIZATION UPON DEFAULTED WHOLE LOANS
A mortgagor's failure to make required payments may reflect inadequate
income or the diversion of that income from the service of payments due under
the Mortgage Loan, and may call into question such mortgagor's ability to make
timely payment of taxes and to pay for necessary maintenance of the related
Mortgaged Property. Unless otherwise provided in the related Prospectus
Supplement, 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 are consistent with the Servicing
Standard. 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 Whole Loan and the laws of
the jurisdiction in which the Mortgaged Property is located. Under federal
bankruptcy law, the Master Servicer in certain cases 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 the Mortgage--Loans
and the Leases."
Any Agreement relating to a Trust Fund that includes Whole Loans may
grant to the Master Servicer and/or the holder or holders of certain classes of
Certificates a right of first refusal to purchase from the Trust Fund at a
predetermined purchase price any such Whole Loan as to which a specified number
of scheduled payments thereunder are delinquent. Any such right granted to the
holder of an Offered Certificate will be described in the related Prospectus
Supplement. The related Prospectus Supplement will also describe any such right
granted to any person if the predetermined purchase price is less than the
Purchase Price described under "Representations and Warranties; Repurchases."
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer may offer to sell any defaulted Whole Loan described in the
preceding paragraph and not otherwise purchased by any person having a right of
first refusal with respect thereto, if and when the Master Servicer determines,
consistent with the Servicing Standard, that such a sale would produce a
greater recovery on a present value basis than would liquidation through
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foreclosure or similar proceeding. The related Agreement will provide that any
such offering be made in a commercially reasonable manner for a specified
period and that the Master Servicer accept the highest cash bid received from
any person (including itself, an affiliate of the Master Servicer or any
Certificateholder) that constitutes a fair price for such defaulted Whole Loan.
In the absence of any bid determined in accordance with the related Agreement
to be fair, the Master Servicer shall proceed with respect to such defaulted
Mortgage Loan as described below. Any bid in an amount at least equal to the
Purchase Price described under "Representations and Warranties; Repurchases"
will in all cases be deemed fair.
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 and a default on such
Whole Loan has occurred or, in the Master Servicer's judgment, is imminent.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer may not acquire title to any related Mortgaged Property or take any
other action that would cause the Trustee, for the benefit of
Certificateholders, or any other specified person to be considered to hold
title to, to be a "mortgagee-in-possession" of, or to be an "owner" or an
"operator" of such Mortgaged Property within the meaning of certain federal
environmental laws, unless the Master Servicer has previously determined, based
on a report prepared by a person who regularly conducts environmental audits
(which report will be an expense of the Trust Fund), that either:
(i) the Mortgaged Property is in compliance with applicable environmental
laws, and there are no circumstances present at the Mortgaged Property relating
to the use, management or disposal of any hazardous substances, hazardous
materials, wastes, or petroleum-based materials for which investigation,
testing, monitoring, containment, clean-up or remediation could be required
under any federal, state or local law or regulation; or
(ii) if the Mortgaged Property is not so in compliance or such
circumstances are so present, then it would be in the best economic interest of
the Trust Fund to acquire title to the Mortgaged Property and further to take
such actions as would be necessary and appropriate to effect such compliance
and/or respond to such circumstances (the cost of which actions will be an
expense of the Trust Fund).
Unless otherwise provided in the related Prospectus Supplement, if
title to any Mortgaged Property is acquired by a Trust Fund as to which a REMIC
election has been made, the Master Servicer, 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 of such Mortgaged Property by
the Trust Fund, unless (i) the Internal Revenue Service grants an extension of
time to sell such property or (ii) the Trustee receives an opinion of
independent counsel to the effect that the holding of the property by the Trust
Fund subsequent to such period will not result in the imposition of a tax on
the Trust Fund or cause the Trust Fund to fail to qualify as a REMIC under the
Code at any time that any Certificate is outstanding. Subject to the foregoing,
the Master Servicer will be required to (i) solicit bids for any Mortgaged
Property so acquired in such a manner as will be reasonably likely to realize a
fair price for such property and (ii) accept the first (and, if multiple bids
are contemporaneously received, the highest) cash bid received from any person
that constitutes a fair price.
If the Trust Fund acquires title to any Mortgaged Property, the 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. Unless
otherwise specified in the related Prospectus Supplement, any such property
acquired by the Trust Fund will be managed in a manner consistent with the
management and operation of similar property by a prudent lending institution.
The limitations imposed by the related Agreement and the REMIC
provisions of the Code (if a REMIC election has been made with respect to the
related Trust Fund) on the operations and ownership of any Mortgaged Property
acquired on behalf of the Trust Fund may result in the recovery of an amount
less than the amount that would otherwise be recovered. See "Certain Legal
Aspects of the Mortgage Loans and the Leases--Foreclosure."
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If recovery on a defaulted 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 Certificate
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
Certificate 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
Unless otherwise specified in the related Prospectus Supplement, each
Agreement for a Trust Fund that includes Whole Loans will require the Master
Servicer to cause the mortgagor on each Whole Loan to maintain a hazard
insurance policy providing for such coverage as is required under the related
Mortgage or, if any Mortgage permits the holder thereof to dictate to the
mortgagor the insurance coverage to be maintained on the related Mortgaged
Property, then such coverage as is consistent with the Servicing Standard.
Unless otherwise specified in the related Prospectus Supplement, such coverage
will be in general 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 7necessary 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 under any hazard insurance policy and under any other
insurance policy referred to below, or upon the extent to which information in
this regard is furnished by mortgagors. All amounts collected by the 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 Certificate 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
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will be required to deposit in the Certificate Account all sums that would have
been deposited therein but for such clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements of the property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies relating to the Whole Loans will be underwritten
by different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do not cover any physical damage resulting from
war, revolution, governmental actions, floods and other water-related causes,
earth movement (including earthquakes, landslides and mudflows), wet or dry
rot, vermin, domestic animals and certain other kinds of uninsured risks.
The hazard insurance policies covering the Mortgaged Properties
securing the Whole Loans will typically contain a co-insurance clause that in
effect requires the insured at all times to carry insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of the
improvements on the property in order to recover the full amount of any partial
loss. If the insured's coverage falls below this specified percentage, such
clause generally provides that the insurer's liability in the event of partial
loss does not exceed the lesser of (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.
Each Agreement for a Trust Fund that includes Whole Loans will require
the Master Servicer to cause the mortgagor on each Whole Loan, or, in certain
cases, the related Lessee, to maintain all such other insurance coverage with
respect to the related Mortgaged Property as is consistent with the terms of
the related Mortgage and the Servicing Standard, which insurance may typically
include flood insurance (if the related Mortgaged Property was located at the
time of origination in a federally designated flood area).
In addition, to the extent required by the related Mortgage, the Master
Servicer may require the mortgagor or related Lessee to maintain other forms of
insurance including, but not limited to, loss of rent endorsements, business
interruption insurance and comprehensive public liability insurance, and the
related Agreement may require the Master Servicer, Sub-Servicer or Special
Servicer to maintain public liability insurance with respect to any REO
Properties. Any cost incurred by the Master Servicer in maintaining any such
insurance policy will be added to the amount owing under the Mortgage Loan
where the terms of the Mortgage Loan so permit; provided, however, that the
addition of such cost will not be taken into account for purposes of
calculating the distribution to be made to Certificateholders. Such costs may
be recovered by the Master Servicer, Sub-Servicer or Special Servicer, as the
case may be, from the Collection Account, with interest thereon, as provided by
the Agreement.
Under the terms of the Whole Loans, mortgagors will generally 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.
RENTAL INTERRUPTION INSURANCE POLICY
If so specified in the related Prospectus Supplement, the Master
Servicer or the mortgagors will maintain rental interruption insurance policies
in full force and effect with respect to some or all of the Leases. Although
the terms of such policies vary to some degree, a rental interruption insurance
policy typically provides that, to the extent that a Lessee fails to make
timely rental payments under the related Lease due to a casualty event, such
losses will be reimbursed to the insured. If so specified in the related
Prospectus Supplement, the Master Servicer will be required to pay from its
servicing compensation the premiums on the rental interruption policy on a
timely basis. If so specified in the Prospectus Supplement, if such rental
interruption policy is canceled or terminated for any reason
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(other than the exhaustion of total policy coverage), the Master Servicer will
exercise its best reasonable efforts to obtain from another insurer a
replacement policy comparable to the rental interruption policy with a total
coverage that is equal to the then existing coverage of the terminated rental
interruption policy; provided that if the cost of any such replacement policy
is greater than the cost of the terminated rental interruption policy, the
amount of coverage under the replacement policy will, unless otherwise
specified in the related Prospectus Supplement, be reduced to a level such that
the applicable premium does not exceed, by a percentage that may be set forth
in the related Prospectus Supplement, the cost of the rental interruption
policy that was replaced. Any amounts collected by the Master Servicer under
the rental interruption policy in the nature of insurance proceeds will be
deposited in the Certificate Account.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will require that the Master Servicer and any Special Servicer obtain
and maintain in effect a fidelity bond or similar form of insurance coverage
(which may provide blanket coverage) or any combination thereof insuring
against loss occasioned by fraud, theft or other intentional misconduct of the
officers, employees and agents of the Master Servicer or the Special Servicer,
as applicable. The related Agreement will allow the Master Servicer and any
Special Servicer to self-insure against loss occasioned by the errors and
omissions of the officers, employees and agents of the Master Servicer or the
Special Servicer so long as certain criteria set forth in the Agreement are
met.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Whole Loans may contain clauses requiring the consent of
the mortgagee to any sale or other transfer of the related Mortgaged Property,
or due-on-sale clauses entitling the mortgagee to accelerate payment of the
Whole Loan upon any sale or other transfer of the related Mortgaged Property.
Certain of the Whole Loans may contain clauses requiring the consent of the
mortgagee to the creation of any other lien or encumbrance on the Mortgaged
Property or due-on-encumbrance clauses entitling the mortgagee to accelerate
payment of the Whole Loan upon the creation of any other lien or encumbrance
upon the Mortgaged Property. Unless otherwise provided in the related
Prospectus Supplement, the Master Servicer, on behalf of the Trust Fund, will
exercise any right the Trustee may have as mortgagee to accelerate payment of
any such Whole Loan or to withhold its consent to any transfer or further
encumbrance in a manner consistent with the Servicing Standard. Unless
otherwise specified in the related Prospectus Supplement, 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 the Mortgage Loans and the
Leases--Due-on-Sale and Due-on-Encumbrance."
RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Prospectus Supplement for a series of Certificates will specify
whether there will be any Retained Interest in the Assets, and, if so, the
initial owner thereof. If so, the Retained Interest will be established on a
loan-by-loan basis and will be specified on an exhibit to the related
Agreement. A "Retained Interest" in an Asset represents a specified portion of
the interest payable thereon. The Retained Interest will be deducted from
mortgagor payments as received and will not be part of the related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer's and a Sub-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 Asset. Since any
Retained Interest and a Master Servicer's primary compensation are percentages
of the principal balance of each Asset, such amounts will decrease in
accordance with the amortization of the Assets. The Prospectus Supplement with
respect to a series of Certificates evidencing interests in a Trust Fund that
includes Whole Loans may provide that, as additional compensation, 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 Certificate Account or any account established by a Sub-Servicer
pursuant to the Agreement.
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The Master Servicer may, to the extent provided in the related
Prospectus Supplement, pay from its servicing compensation certain expenses
incurred in connection with its servicing and managing of the Assets,
including, without limitation, payment of the fees and disbursements of the
Trustee and independent accountants, payment of expenses incurred in connection
with distributions and reports to Certificateholders, and payment of any other
expenses described in the related Prospectus Supplement. Certain other
expenses, including certain expenses relating to defaults and liquidations on
the Whole Loans and, to the extent so provided in the related Prospectus
Supplement, interest thereon at the rate specified therein, and the fees of any
Special Servicer, may be borne by the Trust Fund.
EVIDENCE AS TO COMPLIANCE
Each Agreement relating to 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 the
Federal Home Loan Mortgage Corporation ("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 paragraph 4 of
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 Attestation 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 calendar
year or other specified twelve-month period.
Unless otherwise provided in the related Prospectus Supplement, copies
of such annual accountants' statement and such statements of officers will be
obtainable by Certificateholders 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 AND THE DEPOSITOR
The Master Servicer, if any, or a servicer for substantially all the
Whole Loans under each Agreement will be named in the related Prospectus
Supplement. The entity serving as Master Servicer (or as such servicer) may be
an affiliate of the Depositor and may have other normal business relationships
with the Depositor or the Depositor's affiliates. Reference herein to the
Master Servicer shall be deemed to be to the servicer of substantially all of
the Whole Loans, if applicable.
Unless otherwise specified in the related Prospectus Supplement, the
related Agreement will provide that the Master Servicer may resign from its
obligations and duties thereunder only upon a determination that its duties
under the Agreement are no longer permissible under applicable law or are in
material conflict by reason of
applicable law with any other activities carried on by it, the other activities
of the Master Servicer so causing such a conflict being of a type and nature
carried on by the Master Servicer at the date of the Agreement. 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.
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Unless otherwise specified in the related Prospectus Supplement, 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 breach of a representation, warranty or covenant made in such
Agreement, or against any liability specifically imposed thereby, or against
any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of obligations or
duties thereunder or by reason of reckless disregard of obligations and duties
thereunder. Unless otherwise specified in the related Prospectus Supplement,
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; provided, however,
that such indemnification will not extend to any loss, liability or expense (i)
specifically imposed by such Agreement or otherwise incidental to the
performance of obligations and duties thereunder, including, in the case of a
Master Servicer, the prosecution of an enforcement action in respect of any
specific Whole Loan or Whole Loans (except as any such loss, liability or
expense shall be otherwise reimbursable pursuant to such Agreement); (ii)
incurred in connection with any breach of a representation, warranty or
covenant made in such Agreement; (iii) incurred by reason of misfeasance, bad
faith or gross negligence in the performance of obligations or duties
thereunder, or by reason of reckless disregard of such obligations or duties;
(iv) incurred in connection with any violation of any state or federal
securities law; or (v) imposed by any taxing authority if such loss, liability
or expense is not specifically reimbursable pursuant to the terms of the
related Agreement. 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 Certificate
Account.
Any person into which the Master Servicer or the Depositor may be
merged or consolidated, or any person resulting from any merger or
consolidation to which the Master Servicer or the Depositor is a party, or any
person succeeding to the business of the Master Servicer or the Depositor, will
be the successor of the Master Servicer or the Depositor, as the case may be,
under the related Agreement.
EVENTS OF DEFAULT
Unless otherwise provided in the related Prospectus Supplement for a
Trust Fund that includes Whole Loans, Events of Default under the related
Agreement will include (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; (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 after written notice of such failure has been given
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; (iii) any breach of a
representation or warranty made by the Master Servicer under the Agreement
which materially and adversely affects the interests of Certificateholders and
which continues unremedied for thirty days after written notice of such breach
has been given to 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 (iv)
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.
Material variations to the foregoing Events of Default (other than to shorten
cure periods or eliminate notice requirements) will be specified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the Trustee shall, not later than the later of 60 days after the
occurrence of any event which
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constitutes or, with notice or lapse of time or both, would constitute an Event
of Default and five days after certain officers of the Trustee become aware of
the occurrence of such an event, transmit by mail to the Depositor and all
Certificateholders of the applicable series notice of such occurrence, unless
such default shall have been cured or waived.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under an Agreement remains unremedied,
the Depositor or the Trustee may, and at the direction of holders of
Certificates evidencing not less than 51% of the Voting Rights, the Trustee
shall, terminate all of the rights and obligations of the Master Servicer under
the Agreement and in and to the Mortgage Loans (other than as a
Certificateholder or as the owner of any Retained Interest), whereupon the
Trustee will succeed to all of the responsibilities, duties and liabilities of
the Master Servicer under the Agreement (except that if the Trustee is
prohibited by law from obligating itself to make advances regarding delinquent
mortgage loans, or if the related Prospectus Supplement so specifies, then the
Trustee will not be obligated to make such advances) and will be entitled to
similar compensation arrangements. Unless otherwise specified in the related
Prospectus Supplement, in the event that the Trustee is unwilling or unable so
to act, it may or, at the written request of the holders of Certificates
entitled to at least 51% of the Voting Rights, it shall appoint, or petition a
court of competent jurisdiction for the appointment of, a loan servicing
institution acceptable to the Rating Agency with a net worth at the time of
such appointment of at least $15,000,000 to act as successor to the Master
Servicer under the Agreement. Pending such appointment, the Trustee is
obligated to act in such capacity. The Trustee and any such successor may agree
upon the servicing compensation to be paid, which in no event may be greater
than the compensation payable to the Master Servicer under the Agreement.
Unless otherwise described in the related Prospectus Supplement, the
holders of Certificates representing at least 66 2/3% of the Voting Rights
allocated to the respective classes of Certificates affected by any Event of
Default will be entitled to waive such Event of Default; provided, however,
that an Event of Default involving a failure to distribute a required payment
to Certificateholders described in clause (i) under "Events of Default" may be
waived only by all of the Certificateholders. Upon any such waiver of an Event
of Default, such Event of Default shall cease to exist and shall be deemed to
have been remedied for every purpose under the Agreement.
No Certificateholder will have the right under any Agreement to
institute any proceeding with respect thereto unless such holder previously has
given to the Trustee written notice of default and unless the holders of
Certificates evidencing not less than 25% of the Voting Rights have made
written request upon the Trustee to institute such proceeding in its own name
as Trustee thereunder and have offered to the Trustee reasonable indemnity, and
the Trustee for sixty days has neglected or refused to institute any such
proceeding. The Trustee, however, is under no obligation to exercise any of the
trusts or powers vested in it by any Agreement or to make any investigation of
matters arising thereunder or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or direction of any of
the holders of Certificates covered by such Agreement, unless such
Certificateholders have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred therein or
thereby.
AMENDMENT
Each Agreement may be amended by the parties thereto without the
consent of any of the holders of Certificates covered by the Agreement, (i) to
cure any ambiguity, (ii) to correct, modify or supplement any provision therein
which may be inconsistent with any other provision therein, (iii) to make any
other provisions with respect to matters or questions arising under the
Agreement which are not inconsistent with the provisions thereof, or (iv) to
comply with any requirements imposed by the Code; provided that such amendment
(other than an amendment for the purpose specified in clause (iv) above) will
not (as evidenced by an opinion of counsel to such effect) adversely affect in
any material respect the interests of any holder of Certificates covered by the
Agreement. Unless otherwise specified in the related
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Prospectus Supplement, each Agreement may also be amended by the Depositor, the
Master Servicer, if any, and the Trustee, with the consent of the holders of
Certificates affected thereby evidencing not less than 51% of the Voting
Rights, for any purpose; provided, however, that unless otherwise specified in
the related Prospectus Supplement, no such amendment may (i) reduce in any
manner the amount of or delay the timing of, payments received or advanced on
Mortgage Loans which are required to be distributed on any Certificate without
the consent of the holder of such Certificate, (ii) adversely affect in any
material respect the interests of the holders of any class of Certificates in a
manner other than as described in (i), without the consent of the holders of
all Certificates of such class or (iii) modify the provisions of such Agreement
described in this paragraph without the consent of the holders of all
Certificates covered by such Agreement then outstanding. However, with respect
to any series of Certificates as to which a REMIC election is to be made, the
Trustee will not consent to any amendment of the Agreement unless it shall
first have received an opinion of counsel to the effect that such amendment
will not result in the imposition of a tax on the related Trust Fund or cause
the related Trust Fund to fail to qualify as a REMIC at any time that the
related Certificates are outstanding.
THE TRUSTEE
The Trustee under each Agreement will be named in the related
Prospectus Supplement. The commercial bank, national banking association,
banking corporation or trust company serving as Trustee may have a banking
relationship with the Depositor and its affiliates and with any Master Servicer
and its affiliates.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or
sufficiency of any Agreement, the Certificates or any Asset 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 Assets, 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.
CERTAIN MATTERS REGARDING THE TRUSTEE
Unless otherwise specified in the related Prospectus Supplement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
entitled to indemnification out of the Certificate Account for any loss,
liability or expense (including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in settlement)
incurred in connection with the Trustee's (i) enforcing its rights and remedies
and protecting the interests, and enforcing the rights and remedies, of the
Certificateholders during the continuance of an Event of Default, (ii)
defending or prosecuting any legal action in respect of the related Agreement
or series of Certificates, (iii) being the mortgagee of record with respect to
the Mortgage Loans in a Trust Fund and the owner of record with respect to any
Mortgaged Property acquired in respect thereof for the benefit of
Certificateholders, or (iv) acting or refraining from acting in good faith at
the direction of the holders of the related series of Certificates entitled to
not less than 25% (or such higher percentage as is specified in the related
Agreement with respect to any particular matter) of the Voting Rights for such
series; provided, however, that such indemnification will not extend to any
loss, liability or expense that constitutes a specific liability of the Trustee
pursuant to the related Agreement, or to any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or negligence on the part
of the Trustee in the performance of its obligations and duties thereunder, or
by reason of its reckless disregard of such obligations or duties, or as may
arise from a breach of any representation, warranty or covenant of the Trustee
made therein.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may at any time resign from its obligations and duties
under an Agreement by giving written notice thereof to the Depositor, the
Master Servicer, if any, and all Certificateholders. Upon receiving such notice
of resignation, the Depositor is required promptly to appoint a successor
trustee acceptable to the Master Servicer, if any. If no successor trustee
shall have been so appointed and have accepted appointment within 30 days after
the
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giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible to continue as
such under the related Agreement, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Depositor
may remove the Trustee and appoint a successor trustee acceptable to the Master
Servicer, if any. Holders of the Certificates of any series entitled to at
least 51% of the Voting Rights for such series may at any time remove the
Trustee without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a
successor trustee shall not become effective until acceptance of appointment by
the successor trustee.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any series of Certificates, Credit Support may be provided with
respect to one or more classes thereof or the related Assets. Credit Support
may be in the form of the subordination of one or more classes of Certificates,
letters of credit, insurance policies, guarantees, the establishment of one or
more reserve funds or another method of Credit Support described in the related
Prospectus Supplement, or any combination of the foregoing. If so provided in
the related Prospectus Supplement, any form of Credit Support may be structured
so as to be drawn upon by more than one series to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a
series of Certificates, the Credit Support will not provide protection against
all risks of loss and will not guarantee repayment of the entire Certificate
Balance of the Certificates and interest thereon. If losses or shortfalls occur
that exceed the amount covered by Credit Support or that are not covered by
Credit Support, Certificateholders will bear their allocable share of
deficiencies. Moreover, if a form of Credit Support covers more than one series
of Certificates (each, a "Covered Trust"), holders of Certificates evidencing
interests in any of such Covered Trusts will be subject to the risk that such
Credit Support will be exhausted by the claims of other Covered Trusts prior to
such Covered Trust receiving any of its intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or the related 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 "Risk
Factors--Credit Support Limitations."
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more
classes of Certificates of a series may be Subordinate Certificates. To the
extent specified in the related Prospectus Supplement, the rights of the
holders of Subordinate Certificates to receive distributions of principal and
interest from the Certificate Account on any Distribution Date will be
subordinated to such rights of the holders of Senior Certificates. If so
provided in the
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related Prospectus Supplement, the subordination of a class may apply only in
the event of (or may be limited to) certain types of losses or shortfalls. The
related Prospectus Supplement will set forth information concerning the amount
of subordination of a class or classes of Subordinate Certificates in a series,
the circumstances in which such subordination will be applicable and the manner,
if any, in which the amount of subordination will be effected.
CROSS-SUPPORT PROVISIONS
If the Assets for a series are divided into separate groups, each
supporting a separate class or classes of Certificates of a series, credit
support may be provided by cross-support provisions requiring that
distributions be made on Senior Certificates evidencing interests in one group
of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO THE WHOLE LOANS
If so provided in the Prospectus Supplement for a series of
Certificates, the Whole Loans in the related Trust Fund will be covered for
various default risks by insurance policies or guarantees. A copy of any such
material instrument for a series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of issuance
of the Certificates of the related series.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by one or more letters of credit,
issued by a bank or financial institution specified in such Prospectus
Supplement (the "L/C Bank"). Under a letter of credit, the L/C Bank will be
obligated to honor draws thereunder in an aggregate fixed dollar amount, net of
unreimbursed payments thereunder, generally equal to a percentage specified in
the related Prospectus Supplement of the aggregate principal balance of the
Mortgage Assets on the related Cut-off Date or of the initial aggregate
Certificate Balance of one or more classes of Certificates. If so specified in
the related Prospectus Supplement, the letter of credit may permit draws in the
event of only certain types of losses and shortfalls. The amount available
under the letter of credit will, in all cases, be reduced to the extent of the
unreimbursed payments thereunder and may otherwise be reduced as described in
the related Prospectus Supplement. The obligations of the L/C Bank under the
letter of credit for each series of Certificates will expire at the earlier of
the date specified in the related Prospectus Supplement or the termination of
the Trust Fund. A copy of any such letter of credit for a series will be filed
with the Commission as an exhibit to a Current Report on Form 8-K to be filed
within 15 days of issuance of the Certificates of the related series.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by insurance policies and/or surety
bonds provided by one or more insurance companies or sureties. Such instruments
may cover, with respect to one or more classes of Certificates of the related
series, timely distributions of interest and/or full distributions of principal
on the basis of a schedule of principal distributions set forth in or
determined in the manner specified in the related Prospectus Supplement. A copy
of any such instrument for a series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed with the Commission within
15 days of issuance of the Certificates of the related series.
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RESERVE FUNDS
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by one or more reserve funds in which
cash, a letter of credit, Permitted Investments, a demand note or a combination
thereof will be deposited, in the amounts so specified in such Prospectus
Supplement. The reserve funds for a series may also be funded over time by
depositing therein a specified amount of the distributions received on the
related Assets as specified in the related Prospectus Supplement.
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. A
reserve fund may be provided to increase the likelihood of timely distributions
of principal of and interest on the Certificates. If so specified in the
related Prospectus Supplement, reserve funds may be established to provide
limited protection against only certain types of losses and shortfalls.
Following each Distribution Date amounts in a reserve fund in excess of any
amount required to be maintained therein may be released from the reserve fund
under the conditions and to the extent specified in the related Prospectus
Supplement and will not be available for further application to the
Certificates.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investments, except as otherwise specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
any reinvestment income or other gain from such investments will be credited to
the related Reserve Fund for such series, and any loss resulting from such
investments will be charged to such Reserve Fund. However, such income may be
payable to any related Master Servicer or another service provider as
additional compensation. The Reserve Fund, if any, for a series will not be a
part of the Trust Fund unless otherwise specified in the related Prospectus
Supplement.
Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such
Reserve Fund, the balance required to be maintained in the Reserve Fund, the
manner in which such required balance will decrease over time, the manner of
funding such Reserve Fund, the purposes for which funds in the Reserve Fund may
be applied to make distributions to Certificateholders and use of investment
earnings from the Reserve Fund, if any.
CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the Prospectus Supplement for a series of
Certificates, the MBS in the related Trust Fund and/or the Mortgage Loans
underlying such MBS may be covered by one or more of the types of Credit
Support described herein. The related Prospectus Supplement will specify as to
each such form of Credit Support the information indicated above with respect
thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties
that are general in nature. Because such legal aspects are governed by
applicable state law (which laws may differ substantially), the summaries do
not purport to be complete nor to reflect the laws of any particular state, nor
to encompass the laws of all states in which the security for the Mortgage
Loans is situated. The summaries are qualified in their entirety by reference
to the applicable federal and state laws governing the Mortgage Loans. See
"Description of the Trust Funds--Assets."
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond and
secured by instruments granting a security interest in real property which may
be mortgages, deeds of trust, security deeds or deeds to secure debt, depending
upon the prevailing practice and law in the state in which the Mortgaged
Property is located. Mortgages,
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deeds of trust and deeds to secure debt are herein collectively referred to as
"mortgages." Any of the foregoing types of mortgages will create a lien upon,
or grant a title interest in, the subject property, the priority of which will
depend on the terms of the particular security instrument, as well as separate,
recorded, contractual arrangements with others holding interests in the
mortgaged property, the knowledge of the parties to such instrument as well as
the order of recordation of the instrument in the appropriate public recording
office. However, recording does not generally establish priority over
governmental claims for real estate taxes and assessments and other charges
imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties--a mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of a
mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "mortgagor" includes
the trustor under a deed of trust and a grantor under a security deed or a deed
to secure debt. Under a deed of trust, the mortgagor grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale as
security for the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties. By executing a deed to secure debt, the grantor
conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid,
generally with a power of sale as security for the indebtedness evidenced by
the related mortgage note. In case the mortgagor under a mortgage is a land
trust, there would be an additional party because legal title to the property
is held by a land trustee under a land trust agreement for the benefit of the
mortgagor. At origination of a mortgage loan involving a land trust, the
mortgagor executes a separate undertaking to make payments on the mortgage
note. The mortgagee's authority under a mortgage, the trustee's authority under
a deed of trust and the grantee's authority under a deed to secure debt are
governed by the express provisions of the mortgage, the law of the state in
which the real property is located, certain federal laws (including, without
limitation, the Soldiers' and Sailors' Civil Relief Act of 1940) and, in some
cases, in deed of trust transactions, the directions of the beneficiary.
INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed
or deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property such
as a tenant's interest in a lease of land or improvements, or both, and the
leasehold estate created by such lease. An instrument covering an interest in
real property other than the fee estate requires special provisions in the
instrument creating such interest or in the mortgage, deed of trust, security
deed or deed to secure debt, to protect the mortgagee against termination of
such interest before the mortgage, deed of trust, security deed or deed to
secure debt is paid. Unless otherwise specified in the Prospectus Supplement,
the Depositor or the Asset Seller will make certain representations and
warranties in the Agreement with respect to the Mortgage Loans which are
secured by an interest in a leasehold estate. Such representation and
warranties will be set forth in the Prospectus Supplement if applicable.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the mortgagor assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while the mortgagor retains a revocable license to
collect the rents for so long as there is no default. Under such assignments,
the mortgagor typically assigns its right, title and interest as lessor under
each lease and the income derived therefrom to the mortgagee, while retaining a
license to collect the rents for so long as there is no default under the
mortgage loan documentation. The manner of perfecting the mortgagee's interest
in rents may depend on whether the mortgagor's assignment was absolute or one
granted as security for the loan. Failure to properly perfect the mortgagee's
interest in rents may result in the loss of substantial pool of funds, which
could otherwise serve as a source of repayment for such loan. If the mortgagor
defaults, the license terminates and
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the lender is entitled to collect the rents. Local law may require that the
lender take possession of the property and/or obtain a court-appointed receiver
before becoming entitled to collect the rents. In most states, hotel and motel
room revenues are considered accounts receivable under the UCC; generally these
revenues are either assigned by the mortgagor, which remains entitled to
collect such revenues absent a default, or pledged by the mortgagor, as
security for the loan. In general, the lender must file financing statements in
order to perfect its security interest in the revenues 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 revenues
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 revenues after a default.
Even after a foreclosure, the potential rent payments from the property
may be less than the periodic payments that had been due under the mortgage.
For instance, the net income that would otherwise be generated from the
property may be less than the amount that would have been needed to service the
mortgage debt if the leases on the property are at below-market rents, or as
the result of excessive maintenance, repair or other obligations which a lender
succeeds to as landlord.
Lenders that actually take possession of the property, however, may
incur potentially substantial risks attendant to being a mortgagee in
possession. Such risks include liability for environmental clean-up costs and
other risks inherent in property ownership. See "Environmental Legislation"
below.
PERSONALTY
Certain types of Mortgaged Properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value from
personal property which does not constitute "fixtures" under applicable state
real property law and, hence, would not be subject to the lien of a mortgage.
Such property is generally pledged or assigned as security to the lender under
the UCC. In order to perfect its security interest therein, the lender
generally must file UCC financing statements and, to maintain perfection of
such security interest, file continuation statements generally every five
years.
FORECLOSURE
GENERAL
Foreclosure is a legal procedure that allows the mortgagee to recover
its mortgage debt by enforcing its rights and available legal remedies under
the mortgage. If the mortgagor defaults in payment or performance of its
obligations under the note or mortgage, the mortgagee has the right to
institute foreclosure proceedings to sell the mortgaged property at public
auction to satisfy the indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage
vary from state to state. Two primary methods of foreclosing a mortgage are
judicial foreclosure and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage instrument. There are several other foreclosure
procedures available in some states that are either infrequently used or
available only in certain limited circumstances, such as strict foreclosure.
JUDICIAL FORECLOSURE
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having a subordinate interest
of record in the real property and all parties in possession of the property,
under leases or otherwise, whose interests are subordinate to the mortgage.
Delays in completion of the foreclosure may occasionally result from
difficulties in locating defendants. When the lender's right to foreclose is
contested, the legal proceedings can be time-consuming. Upon successful
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other officer to conduct a
public sale of the mortgaged property, the proceeds
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of which are used to satisfy the judgment. Such sales are made in accordance
with procedures that vary from state to state.
EQUITABLE LIMITATIONS ON ENFORCEABILITY OF CERTAIN PROVISIONS
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may
require the lender to undertake affirmative and expensive actions to determine
the cause of the mortgagor's default and the likelihood that the mortgagor will
be able to reinstate the loan. In some cases, courts have substituted their
judgment for the lender's and have required that lenders reinstate loans or
recast payment schedules in order to accommodate mortgagors who are suffering
from a temporary financial disability. In other cases, courts have limited the
right of the lender to foreclose if the default under the mortgage is not
monetary, e.g., the mortgagor failed to maintain the mortgaged property
adequately or the mortgagor executed a junior mortgage on the mortgaged
property. The exercise by the court of its equity powers will depend on the
individual circumstances of each case presented to it. Finally, some courts
have been faced with the issue of whether federal or state constitutional
provisions reflecting due process concerns for adequate notice require that a
mortgagor receive notice in addition to statutorily-prescribed minimum notice.
For the most part, these cases have upheld the reasonableness of the notice
provisions or have found that a public sale under a mortgage providing for a
power of sale does not involve sufficient state action to afford constitutional
protections to the mortgagor.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes require several years to complete. Moreover, as discussed below, a
non-collusive, regularly conducted foreclosure sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court determines
that the sale was for less than fair consideration and such sale occurred while
the mortgagor was insolvent (or the mortgagor was rendered insolvent as a
result of such sale) and within one year (or within the state statute of
limitations if the trustee in bankruptcy elects to proceed under state
fraudulent conveyance law) of the filing of bankruptcy.
NON-JUDICIAL FORECLOSURE/POWER OF SALE
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale pursuant to the power of sale granted in the deed
of trust. A power of sale is typically granted in a deed of trust. It may also
be contained in any other type of mortgage instrument. A power of sale allows a
non-judicial public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such
sale, the trustee under a deed of trust must record a notice of default and
notice of sale and send a copy to the mortgagor and to any other party who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, in some states the trustee must provide notice to any other party
having an interest of record in the real property, including junior
lienholders. A notice of sale must be posted in a public place and, in most
states, published for a specified period of time in one or more newspapers. The
mortgagor or junior lienholder may then have the right, during a reinstatement
period required in some states, to cure the default by paying the entire actual
amount in arrears (without acceleration) plus the expenses incurred in
enforcing the obligation. In other states, the mortgagor or the junior
lienholder is not provided a period to reinstate the loan, but has only the
right to pay off the entire debt to prevent the foreclosure sale. Generally,
the procedure for public sale, the parties entitled to notice, the method of
giving notice and the applicable time periods are governed by state law and
vary among the states. Foreclosure of a deed to secure debt is also generally
accomplished by a non-judicial sale similar to that required by a deed of
trust, except that the lender or its agent, rather than a trustee, is typically
empowered to perform the sale in accordance with the terms of the deed to
secure debt and applicable law.
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PUBLIC SALE
A third party may be unwilling to purchase a mortgaged property at a
public sale because of the difficulty in determining the value of such property
at the time of sale, due to, among other things, redemption rights which may
exist and the possibility of physical deterioration of the property during the
foreclosure proceedings. For these reasons, it is common for the lender to
purchase the mortgaged property for an amount equal to or less than the
underlying debt and accrued and unpaid interest plus the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs and
expenses which may be recovered by a lender. Thereafter, subject to the
mortgagor's right in some states to remain in possession during a redemption
period, if applicable, the lender will become the owner of the property and
have both the benefits and burdens of ownership of the mortgaged property. For
example, the lender will have the obligation to pay debt service on any senior
mortgages, to pay taxes, obtain casualty insurance and to make such repairs at
its own expense as are necessary to render the property suitable for sale.
Frequently, the lender employs a third party management company to manage and
operate the property. The costs of operating and maintaining a commercial or
multifamily residential property may be significant and may be greater than the
income derived from that property. The costs of management and operation of
those mortgaged properties which are hotels, motels, restaurants, nursing or
convalescent homes or hospitals may be particularly significant because of the
expertise, knowledge and, with respect to nursing or convalescent homes or
hospitals, regulatory compliance, required to run such operations and the
effect which foreclosure and a change in ownership may have on the public's and
the industry's (including franchisors') perception of the quality of such
operations. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale
of the property may not equal the lender's investment in the property.
Moreover, a lender commonly incurs substantial legal fees and court costs in
acquiring a mortgaged property through contested foreclosure and/or bankruptcy
proceedings. Furthermore, a few states require that any environmental
contamination at certain types of properties be cleaned up before a property
may be resold. In addition, a lender may be responsible under federal or state
law for the cost of cleaning up a mortgaged property that is environmentally
contaminated. See "Environmental Legislation." Generally state law controls the
amount of foreclosure expenses and costs, including attorneys' fees, that may
be recovered by a lender.
A junior mortgagee may not foreclose on the property securing the
junior mortgage unless it forecloses subject to senior mortgages and any other
prior liens, in which case it may be obliged to make payments on the senior
mortgages to avoid their foreclosure. In addition, in the event that the
foreclosure of a junior mortgage triggers the enforcement of a "due-on-sale"
clause contained in a senior mortgage, the junior mortgagee may be required to
pay the full amount of the senior mortgage to avoid its foreclosure.
Accordingly, with respect to those Mortgage Loans, if any, that 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
applied first to the costs, fees and expenses of sale and then in satisfaction
of the indebtedness secured by the mortgage under which the sale was conducted.
Any proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in order
of their priority, whether or not the mortgagor is in default. Any additional
proceeds are generally payable to the mortgagor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgage or a subsequent ancillary proceeding or may require the
institution of separate legal proceedings by such holders.
REO PROPERTIES
If title to any Mortgaged Property is acquired by the Trustee on behalf
of the Certificateholders, the Master Servicer or any related Sub-servicer or
the Special Servicer, on behalf of such holders, will be required to sell the
Mortgaged Property prior to the close of the third calendar year following the
year of acquisition of such Mortgaged Property by the Trust Fund, unless (i)
the Internal Revenue Service grants an extension of time to sell such property
(an "REO Extension") or (ii) it obtains an opinion of counsel generally to the
effect that the holding of the property beyond the close of the third calendar
year after its acquisition will not result in the imposition of a tax on the
Trust Fund or cause any REMIC created pursuant to the Pooling and Servicing
Agreement to fail to qualify as a REMIC under the Code. Subject to the
foregoing, the Master Servicer or any related Sub-servicer or the Special
Servicer will generally be required to solicit bids for any Mortgaged Property
so acquired in such a manner as will be reasonably likely to realize a fair
price for such property. The Master Servicer or any related Sub-servicer or the
Special
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Servicer may retain an independent contractor to operate and manage any REO
Property; however, the retention of an independent contractor will not relieve
the Master Servicer or any related Sub-servicer or the Special Servicer of its
obligations with respect to such REO Property.
In general, the Master Servicer or any related Sub-servicer or the
Special Servicer or an independent contractor employed by the Master Servicer
or any related Sub-servicer or the Special Servicer at the expense of the Trust
Fund will be obligated to operate and manage any Mortgaged Property acquired as
REO Property in a manner that would, to the extent commercially feasible,
maximize the Trust Fund's net after-tax proceeds from such property. After the
Master Servicer or any related Sub-servicer or the Special Servicer reviews the
operation of such property and consults with the Trustee to determine the Trust
Fund's federal income tax reporting position with respect to the income it is
anticipated that the Trust Fund would derive from such property, the Master
Servicer or any related Sub-servicer or the Special Servicer could determine
(particularly in the case of an REO Property that is a hospitality or
residential health care facility) that it would not be commercially feasible to
manage and operate such property in a manner that would avoid the imposition of
a tax on "net income from foreclosure property," within the meaning of Section
857(b)(4)(B) of the Code (an "REO Tax") at the highest marginal corporate tax
rate (currently 35%). The determination as to whether income from an REO
Property would be subject to an REO Tax will depend on the specific facts and
circumstances relating to the management and operation of each REO Property.
Any REO Tax imposed on the Trust Fund's income from an REO Property would
reduce the amount available for distribution to Certificateholders.
Certificateholders are advised to consult their tax advisors regarding the
possible imposition of REO Taxes in connection with the operation of commercial
REO Properties by REMICs. See "Certain Federal Income Tax Consequences" herein
and "Certain Federal Income Tax Consequences-REMICs" in the Prospectus.
RIGHTS OF REDEMPTION
The purposes of a foreclosure action are to enable the mortgagee to
realize upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the mortgage being foreclosed,
from exercise of their "equity of redemption." The doctrine of equity of
redemption provides that, until the property covered by a mortgage has been
sold in accordance with a properly conducted foreclosure and foreclosure sale,
those having an interest which is subordinate to that of the foreclosing
mortgagee have an equity of redemption and may redeem the property by paying
the entire debt with interest. In addition, in some states, when a foreclosure
action has been commenced, the redeeming party must pay certain costs of such
action. Those having an equity of redemption must generally be made parties and
joined in the foreclosure proceeding in order for their equity of redemption to
be cut off and terminated.
The equity of redemption is a common-law (non-statutory) right which
exists prior to completion of the foreclosure, is not waivable by the
mortgagor, must be exercised prior to foreclosure sale and should be
distinguished from the post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage,
the mortgagor and foreclosed junior lienors are given a statutory period in
which to redeem the property from the foreclosure sale. In some states,
statutory redemption may occur only upon payment of the foreclosure sale price.
In other states, redemption may be authorized if the former mortgagor pays only
a portion of the sums due. The effect of a statutory right of redemption is to
diminish the ability of the lender to sell the foreclosed property. The
exercise of a right of redemption would defeat the title of any purchaser from
a foreclosure sale or sale under a deed of trust. Consequently, the practical
effect of the redemption right is to force the lender to maintain the property
and pay the expenses of ownership until the redemption period has expired. In
some states, a post-sale statutory right of redemption may exist following a
judicial foreclosure, but not following a trustee's sale under a deed of trust.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held beyond the close of the third calendar
year following the year of acquisition. Unless otherwise provided in the
related Prospectus Supplement, with respect to a series of Certificates for
which an election is made to qualify the Trust Fund or a part thereof as a
REMIC, the Agreement will permit foreclosed property to be held beyond the
close of the third calendar year following the year of acquisition if the
Internal Revenue Service grants an extension of
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time within which to sell such property or independent counsel renders an
opinion to the effect that holding such property for such additional period is
permissible under the REMIC Provisions.
ANTI-DEFICIENCY LEGISLATION
Some or all of the Mortgage Loans may be nonrecourse loans, as to which
recourse may be had only against the specific property securing the related
Mortgage Loan and a personal money judgment may not be obtained against the
mortgagor. Even if a mortgage loan by its terms provides for recourse to the
mortgagor, some states impose prohibitions or limitations on such recourse. For
example, statutes in some states limit the right of the lender to obtain a
deficiency judgment against the mortgagor following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former mortgagor equal to the difference between the net amount realized upon
the public sale of the real property and the amount due to the lender. Some
states require the lender to exhaust the security afforded under a mortgage by
foreclosure in an attempt to satisfy the full debt before bringing a personal
action against the mortgagor. In certain other states, the lender has the
option of bringing a personal action against the mortgagor on the debt without
first exhausting such security; however, in some of these states, the lender,
following judgment on such personal action, may be deemed to have elected a
remedy and may be precluded from exercising remedies with respect to the
security. In some cases, a lender will be precluded from exercising any
additional rights under the note or mortgage if it has taken any prior
enforcement action. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the mortgagor. Finally, other statutory provisions limit any
deficiency judgment against the former mortgagor following a judicial sale to
the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally to
prevent a lender from obtaining a large deficiency judgment against the former
mortgagor as a result of low or no bids at the judicial sale.
LEASEHOLD RISKS
Mortgage Loans may be secured by a mortgage on a ground lease.
Leasehold mortgages are subject to certain risks not associated with mortgage
loans secured by the fee estate of the mortgagor. The most significant of these
risks is that the ground lease creating the leasehold estate could terminate,
leaving the leasehold mortgagee without its security. The ground lease may
terminate if, among other reasons, the ground lessee breaches or defaults in
its obligations under the ground lease or there is a bankruptcy of the ground
lessee or the ground lessor. This risk may be minimized if the ground lease
contains certain provisions protective of the mortgagee, but the ground leases
that secure Mortgage Loans may not contain some of these protective provisions,
and mortgages may not contain the other protections discussed in the next
paragraph. Protective ground lease provisions include the right of the
leasehold mortgagee to receive notices from the ground lessor of any defaults
by the mortgagor; the right to cure such defaults, with adequate cure periods;
if a default is not susceptible of cure by the leasehold mortgagee, the right
to acquire the leasehold estate through foreclosure or otherwise; the ability
of the ground lease to be assigned to and by the leasehold mortgagee or
purchaser at a foreclosure sale and for the concomitant release of the ground
lessee's liabilities thereunder; and the right of the leasehold mortgagee to
enter into a new ground lease with the ground lessor on the same terms and
conditions as the old ground lease in the event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may
require that the ground lease or leasehold mortgage prohibit the ground lessee
from treating the ground lease as terminated in the event of the ground
lessor's bankruptcy and rejection of the ground lease by the trustee for the
debtor-ground lessor. As further protection, a leasehold mortgage may provide
for the assignment of the debtor-ground lessee's right to reject a lease
pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as amended (Title
11 of the United States Code) (the "Bankruptcy Code"), although the
enforceability of such clause has not been established. Without the protections
described above, a leasehold mortgagee may lose the collateral securing its
leasehold mortgage. In addition, terms and conditions of a leasehold mortgage
are subject to the terms and conditions of the ground lease. Although certain
rights given to a ground lessee can be limited by the terms of a leasehold
mortgage, the rights of a ground lessee or a leasehold mortgagee with respect
to, among other things, insurance, casualty and condemnation will be governed
by the provisions of the ground lease.
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BANKRUPTCY LAWS
The Bankruptcy Code and related state laws may interfere with or affect
the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) are
automatically stayed upon the filing of the bankruptcy petition, and, usually,
no interest or principal payments are made during the course of the bankruptcy
case. The delay and the consequences thereof caused by such automatic stay can
be significant. Also, under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a junior lienor may stay the senior lender from
taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage secured
by property of the debtor may be modified under certain circumstances. In many
jurisdictions, the outstanding amount of the loan secured by the real property
may be reduced to the then-current value of the property (with a corresponding
partial reduction of the amount of lender's security interest) pursuant to a
confirmed plan or lien avoidance proceeding, thus leaving the lender a general
unsecured creditor for the difference between such value and the outstanding
balance of the loan. Other modifications may include the reduction in the
amount of each scheduled payment, which reduction may result from a reduction
in the rate of interest and/or the alteration of the repayment schedule (with
or without affecting the unpaid principal balance of the loan), and/or an
extension (or reduction) of the final maturity date. Some courts with federal
bankruptcy jurisdiction have approved plans, based on the particular facts of
the reorganization case, that effected the curing of a mortgage loan default by
paying arrearages over a number of years. Also, under federal bankruptcy law, a
bankruptcy court may permit a debtor through its rehabilitative plan to
de-accelerate a secured loan and to reinstate the loan even though the lender
accelerated the mortgage loan and final judgment of foreclosure had been
entered in state court (provided no sale of the property had yet occurred)
prior to the filing of the debtor's petition. This may be done even if the full
amount due under the original loan is never repaid.
Federal bankruptcy law provides generally that rights and obligation
under an unexpired lease of the debtor/lessee may not be terminated or modified
at any time after the commencement of a case under the Bankruptcy Code solely
on the basis of a provision in the lease to such effect or because of certain
other similar events. This prohibition on so-called "ipso facto clauses" could
limit the ability of the Trustee for a series of Certificates to exercise
certain contractual remedies with respect to the Leases. In addition, Section
362 of the Bankruptcy Code operates as an automatic stay of, among other
things, any act to obtain possession of property from a debtor's estate, which
may delay a Trustee's exercise of such remedies for a related series of
Certificates in the event that a related Lessee or a related mortgagor becomes
the subject of a proceeding under the Bankruptcy Code. For example, a mortgagee
would be stayed from enforcing a Lease Assignment by a mortgagor related to a
Mortgaged Property if the related mortgagor was in a bankruptcy proceeding. The
legal proceedings necessary to resolve the issues could be time-consuming and
might result in significant delays in the receipt of the assigned rents.
Similarly, the filing of a petition in bankruptcy by or on behalf of a Lessee
of a Mortgaged Property would result in a stay against the commencement or
continuation of any state court proceeding for past due rent, for accelerated
rent, for damages or for a summary eviction order with respect to a default
under the Lease that occurred prior to the filing of the Lessee's petition.
Rents and other proceeds of a Mortgage Loan may also escape an assignment
thereof if the assignment is not fully perfected under state law prior to
commencement of the bankruptcy proceeding. See "--Leases and Rents" above.
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court, (a) assume the
lease and retain it or assign it to a third party or (b) reject the lease. If
the lease is assumed, the trustee in bankruptcy on behalf of the lessee, or the
lessee as debtor-in-possession, or the assignee, if applicable, must cure any
defaults under the lease, compensate the lessor for its losses and provide the
lessor with "adequate assurance" of future performance. Such remedies may be
insufficient, however, as the lessor may be forced to continue under the lease
with a lessee that is a poor credit risk or an unfamiliar tenant if the lease
was assigned, and any assurances provided to the lessor may, in fact, be
inadequate. If the lease is rejected, such rejection generally constitutes a
breach of the executory contract or unexpired lease immediately before the date
of filing the petition. As a consequence, the other party or parties to such
lease, such as the mortgagor, as lessor under a Lease,
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would have only an unsecured claim against the debtor for damages resulting
from such breach, which could adversely affect the security for the related
Mortgage Loan. In addition, pursuant to Section 502(b)(6) of the Bankruptcy
Code, a lessor's damages for lease rejection in respect of future rent
installments are limited to the rent reserved by the lease, without
acceleration, for the greater of one year or 15%, not to exceed three years, of
the remaining term of the lease.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as
debtor-in-possession, rejects an unexpired lease of real property, the lessee
may treat such lease as terminated by such rejection or, in the alternative,
the lessee may remain in possession of the leasehold for the balance of such
term and for any renewal or extension of such term that is enforceable by the
lessee under applicable nonbankruptcy law. The Bankruptcy Code provides that if
a lessee elects to remain in possession after such a rejection of a lease, the
lessee may offset against rents reserved under the lease for the balance of the
term after the date of rejection of the lease, and any such renewal or
extension thereof, any damages occurring after such date caused by the
nonperformance of any obligation of the lessor under the lease after such date.
To the extent provided in the related Prospectus Supplement, the Lessee will
agree under certain Leases to pay all amounts owing thereunder to the Master
Servicer without offset. To the extent that such a contractual obligation
remains enforceable against the Lessee, the Lessee would not be able to avail
itself of the rights of offset generally afforded to lessees of real property
under the Bankruptcy Code.
In a bankruptcy or similar proceeding of a mortgagor, action may be
taken seeking the recovery, as a preferential transfer or on other grounds, of
any payments made by the mortgagor, or made directly by the related Lessee,
under the related Mortgage Loan to the Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may
have the power to grant liens senior to the lien of a mortgage, and analogous
state statutes and general principles of equity may also provide a mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise accept.
Moreover, the laws of certain states also give priority to certain tax liens
over the lien of a mortgage or deed of trust. Under the Bankruptcy Code, if the
court finds that actions of the mortgagee have been unreasonable, the lien of
the related mortgage may be subordinated to the claims of unsecured creditors.
To the extent described in the related Prospectus Supplement, certain
of the Mortgagors may be partnerships. The laws governing limited partnerships
in certain states provide that the commencement of a case under the Bankruptcy
Code with respect to a general partner will cause a person to cease to be a
general partner of the limited partnership, unless otherwise provided in
writing in the limited partnership agreement. This provision may be construed
as an "ipso facto" clause and, in the event of the general partner's
bankruptcy, may not be enforceable. To the extent described in the related
Prospectus Supplement, certain limited partnership agreements of the Mortgagors
may provide that the commencement of a case under the Bankruptcy Code with
respect to the related general partner constitutes an event of withdrawal
(assuming the enforceability of the clause is not challenged in bankruptcy
proceedings or, if challenged, is upheld) that might trigger the dissolution of
the limited partnership, the winding up of its affairs and the distribution of
its assets, unless (i) at the time there was at least one other general partner
and the written provisions of the limited partnership permit the business of
the limited partnership to be carried on by the remaining general partner and
that general partner does so or (ii) the written provisions of the limited
partnership agreement permit the limited partner to agree within a specified
time frame (often 60 days) after such withdrawal to continue the business of
the limited partnership and to the appointment of one or more general partners
and the limited partners do so. In addition, the laws governing general
partnerships in certain states provide that the commencement of a case under
the Bankruptcy Code or state bankruptcy laws with respect to a general partner
of such partnerships triggers the dissolution of such partnership, the winding
up of its affairs and the distribution of its assets. Such state laws, however,
may not be enforceable or effective in a bankruptcy case. The dissolution of a
Mortgagor, the winding up of its affairs and the distribution of its assets
could result in an
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acceleration of its payment obligation under a related Mortgage Loan, which may
reduce the yield on the related series of Certificates in the same manner as a
principal prepayment.
In addition, the bankruptcy of the general partner of a Mortgagor that
is a partnership may provide the opportunity for a trustee in bankruptcy for
such general partner, such general partner as a debtor-in-possession, or a
creditor of such general partner to obtain an order from a court consolidating
the assets and liabilities of the general partner with those of the Mortgagor
pursuant to the doctrines of substantive consolidation or piercing the
corporate veil. In such a case, the respective Mortgaged Property, for example,
would become property of the estate of such bankrupt general partner. Not only
would the Mortgaged Property be available to satisfy the claims of creditors of
such general partner, but an automatic stay would apply to any attempt by the
Trustee to exercise remedies with respect to such Mortgaged Property. However,
such an occurrence should not affect the Trustee's status as a secured creditor
with respect to the Mortgagor or its security interest in the Mortgaged
Property.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES OR BENEFICIARIES
To the extent specified in the related Prospectus Supplement, some of
the Mortgage Loans for a series will be secured by junior mortgages or deeds of
trust which are subordinated to senior mortgages or deeds of trust held by
other lenders or institutional investors. The rights of the Trust Fund (and
therefore the related 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 proceeds and to cause the Mortgaged
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 or Special Servicer, as applicable, asserts its
subordinate interest in a Mortgaged 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, or may cure such default and bring the senior loan current, in either
event 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 unless otherwise required by law.
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 mortgagee 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 the 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. 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
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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 subordinated 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 on behalf of the mortgagor or 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 a 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 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 the lease or to refuse to grant a tenant a non-disturbance
agreement. If, as a result, the lease is not executed, the value of the
mortgaged property may be diminished.
ENVIRONMENTAL LEGISLATION
Real property pledged as security to a lender may be subject to
unforeseen environmental liabilities. Of particular concern may be those
Mortgaged Properties which are, or have been, the site of manufacturing,
industrial or disposal activity. Such environmental liabilities may give rise
to (i) a diminution in value of property securing any Mortgage Loan, (ii)
limitation on the ability to foreclose against such property or (iii) in
certain circumstances, as more fully described below, liability for clean-up
costs or other remedial actions, which liability could exceed the value of the
principal balance of the related Mortgage Loan or of such Mortgaged Property.
Under the laws of many states, contamination on a property may give
rise to a lien on the property for cleanup costs. In several states, such a
lien has priority over all existing liens (a "superlien") including those of
existing mortgages; in these states, the lien of a mortgage contemplated by
this transaction may lose its priority to such a superlien.
The presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the market value of the
property, as well as the owner's ability to sell or use the real estate or to
borrow using the real estate as collateral. In addition, certain environmental
laws and common law principles govern the responsibility for the removal,
encapsulation or disturbance of asbestos containing materials ("ACMs") when
these ACMs are in poor condition or when a property with ACMs is undergoing
repair, renovation or demolition. Such laws could also be used to impose
liability upon owners and operators of real properties for release of ACMs into
the air that cause personal injury or other damage. In addition to cleanup and
natural resource damages actions brought by federal, state, and local agencies
and private parties, the presence of hazardous substances on a property may
lead to claims of personal injury, property damage, or other claims by private
plaintiffs.
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Under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), and under other federal law
and the law of certain states, a secured party which takes a deed-in-lieu of
foreclosure, purchases a mortgaged property at a foreclosure sale, or operates
a Mortgaged Property may become liable in some circumstances either to the
government or to private parties for cleanup costs, even if the lender does not
cause or contribute to the contamination. Liability under some federal or state
statutes may not be limited to the original or unamortized principal balance of
a loan or to the value of the property securing a loan. CERCLA imposes strict,
as well as joint and several, liability on several classes of potentially
responsible parties, including current owners and operators of the property,
regardless of whether they caused or contributed to the contamination. Many
states have laws similar to CERCLA.
Lenders may be held liable under CERCLA as owners or operators.
Excluded from CERCLA's definition of "owner or operator," however, is a person
"who without participating in the management of the facility, holds indicia of
ownership primarily to protect his security interest." This exemption for
holders of a security interest such as a secured lender applies only in
circumstances where the lender acts to protect its security interest in the
contaminated facility or property. Thus, if a lender's activities encroach on
the actual management of such facility or property, the lender faces potential
liability as an "owner or operator" under CERCLA. Similarly, when a lender
forecloses and takes title to a contaminated facility or property (whether it
holds the facility or property as an investment or leases it to a third party),
the lender may incur potential CERCLA liability.
Whether actions taken by a lender would constitute such an encroachment
on the actual management of a facility or property, so as to render the secured
creditor exemption unavailable to the lender has been a matter of judicial
interpretation of the statutory language, and court decisions have historically
been inconsistent.
This scope of the secured creditor exemption has been clarified by the
enactment of the Asset Conservation, Lender Liability and Deposit Insurance
Protection Act of 1996 (the "Asset Conservation Act"), which was signed into
law by President Clinton on September 30, 1996, and which lists permissible
actions that may be undertaken by a lender holding security in a contaminated
facility without exceeding the bounds of the secured creditor exemption,
subject to certain conditions and limitations. The Asset Conservation Act
provides that in order to be deemed to have participated in the management of a
secured property, a lender must actually participate in the operational affairs
of the property or the borrower. The Asset Conservation Act also provides that
a lender will continue to have the benefit of the secured creditor exemption
even if it forecloses on a mortgaged property, purchases it at a foreclosure
sale or accepts a deed-in-lieu of foreclosure provided that the lender seeks to
sell the mortgaged property at the earliest practicable commercially reasonable
time on commercially reasonable terms. The protections afforded lenders under
the Asset Conversion Act are subject to terms and conditions that have not been
clarified by the courts.
The secured creditor exemption does not protect a lender from liability
under CERCLA in cases where the lender arranges for disposal of hazardous
substances or for transportation of hazardous substances. In addition, the
secured creditor exemption does not govern liability for cleanup costs under
federal laws other than CERCLA or under state law. CERCLA's jurisdiction
extends to the investigation and remediation of releases of "hazardous
substances." The definition of "hazardous substances" under CERCLA specifically
excludes petroleum products. Therefore, a federal statute of particular
significance is Subtitle I of the Resource Conservation and Recovery Act
("RCRA"), which governs the operation and management of underground petroleum
storage tanks. Under the Asset Conservation Act, the holders of security
interests in underground storage tanks or properties containing such tanks are
accorded protections similar to the protections accorded to lenders under
CERCLA. It should be noted, however, that liability for cleanup of petroleum
contamination may be governed by state law, which may not provide for any
specific protection for secured creditors.
In a few states, transfer of some types of properties is conditioned
upon clean up of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed-in-lieu of
foreclosure or otherwise, may be required to cleanup the contamination before
selling or otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law
causes of action (for example, actions based on nuisance or on toxic tort
resulting in death, personal injury or damage to property) related to hazardous
environmental conditions on a property. While it may be more difficult to hold
a lender liable in such cases,
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unanticipated or uninsurable liabilities of the borrower may jeopardize the
borrower's ability to meet its loan obligations.
If a lender is or becomes liable, it may bring an action for
contribution against the owner or operator who created the environmental
hazard, but that person or entity may be bankrupt or otherwise judgment proof.
It is possible that cleanup costs could become a liability of the Trust Fund
and occasion a loss to Certificateholders in certain circumstances described
above if such remedial costs were incurred.
Unless otherwise provided in the related Prospectus Supplement, the
Warrantying 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 ("FNMA") Multifamily
Guide has been received and reviewed. In addition, unless otherwise provided in
the related Prospectus Supplement, the related Agreement will provide that the
Master Servicer, acting on behalf of the Trustee, may 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: (i) such Mortgaged Property is in
compliance with applicable environmental laws, and there are no circumstances
present at the Mortgaged Property relating to the use, management or disposal
of any hazardous substances, hazardous materials, wastes, or petroleum based
materials for which investigation, testing, monitoring, containment, clean-up
or remediation could be required under any federal, state or local law or
regulation; or (ii) if such Mortgaged Property is not so in compliance or such
circumstances are so present, then it would be in the best economic interest of
the Trust Fund to acquire title to the Mortgaged Property and further to take
such actions as would be necessary and appropriate to effect such compliance
and/or respond to such circumstances. This requirement effectively precludes
enforcement of the security for the related Mortgage Note until a satisfactory
environmental inquiry is undertaken or any required remedial action is provided
for, reducing the likelihood that a given Trust Fund will become liable for any
condition or circumstance that may give rise to any environmental claim (an
"Environmental Hazard Condition") affecting a Mortgaged Property, but making it
more difficult to realize on the security for the Mortgage Loan. However, there
can be no assurance that any environmental assessment obtained by the Master
Servicer or a Special Servicer, as the case may be, will detect all possible
Environmental Hazard Conditions or that the other requirements of the
Agreement, even if fully observed by the Master Servicer or Special Servicer,
as the case may be, will in fact insulate a given Trust Fund from liability for
Environmental Hazard Conditions. See "Description of the
Agreements--Realization Upon Defaulted Whole Loans."
Unless otherwise specified in the related Prospectus Supplement, the
Depositor generally will not have determined whether environmental assessments
have been conducted with respect to the Mortgaged Properties relating to the
Mortgage Loans included in the Mortgage Pool for a Series, and it is likely
that any environmental assessments which would have been conducted with respect
to any of the Mortgaged Properties would have been conducted at the time of the
origination of the related Mortgage Loans and not thereafter. If specified in
the related Prospectus Supplement, a Warrantying Party will represent and
warrant that, as of the date of initial issuance of the Certificates of a
Series or as of another specified date, no related Mortgaged Property is
affected by a Disqualifying Condition (as defined below). In the event that,
following a default in payment on a Mortgage Loan that continues for 60 days,
(i) the environmental inquiry conducted by the Master Servicer or Special
Servicer, as the case may be, prior to any foreclosure indicates the presence
of a Disqualifying Condition that arose prior to the date of initial issuance
of the Certificates of a Series and (ii) the Master Servicer or the Special
Servicer certify that it has acted in compliance with the Servicing Standard
and has not, by any action, created, caused or contributed to a Disqualifying
Condition the Warrantying Party, at its option, will reimburse the Trust Fund,
cure such Disqualifying Condition or repurchase or substitute the affected
Whole Loan, as described under "Description of the Agreements--Representations
and Warranties; Repurchases." No such person will however, be responsible for
any Disqualifying Condition which may arise on a Mortgaged Property after the
date of initial issuance of the Certificates of the related Series, whether due
to actions of the Mortgagor, the Master Servicer, the Special Servicer or any
other person. It may not always be possible to determine whether a
Disqualifying Condition arose prior or subsequent to the date of the initial
issuance of the Certificates of a Series.
A "Disqualifying Condition" is defined generally as a condition,
existing as a result of, or arising from, the presence of Hazardous Materials
(as defined below) on a Mortgaged Property, such that the Mortgage Loan secured
by the affected Mortgaged Property would be ineligible, solely by reason of
such condition, for purchase by FNMA under the relevant provisions of FNMA's
Multifamily Seller/Servicer Guide in effect as of the date of initial issuance
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of the Certificates of such series, including a condition that would constitute
a material violation of applicable federal state or local law in effect as of
their date of initial issuance of the Certificates of such series.
"Hazardous Materials" are generally defined under several federal and
state statutes, and include dangerous toxic or hazardous pollutants, chemicals,
wastes or substances, including, without limitation, those so identified
pursuant to CERCLA and RCRA, and specifically including, asbestos and asbestos
containing materials, polychlorinated biphenyls, radon gas, petroleum and
petroleum products, urea formaldehyde and any substances classified as being
"in inventory," "usable work in process" or similar classification which would,
if classified as unusable, be included in the foregoing definition.
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 related Mortgaged Property. Certain of these clauses
may provide that, upon an attempted breach thereof by the mortgagor of an
otherwise non-recourse loan, the mortgagor becomes personally liable for the
mortgage debt. The enforceability of due-on-sale clauses has been the subject
of legislation or litigation in many states and, in some cases, the
enforceability of these clauses was limited or denied. However, with respect to
certain loans the Garn-St Germain Depository Institutions Act of 1982 preempts
state constitutional, statutory and case law that prohibits the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms subject to certain limited exceptions. Unless otherwise
provided in the related Prospectus Supplement, a Master Servicer, on behalf of
the Trust Fund, will determine whether to exercise any right the Trustee may
have as mortgagee to accelerate payment of any such Mortgage Loan or to
withhold its consent to any transfer or further encumbrance in a manner
consistent with the Servicing Standard.
In addition, under federal bankruptcy laws, due-on-sale clauses may not
be enforceable in bankruptcy proceedings and may, under certain circumstances,
be eliminated in any modified mortgage resulting from such bankruptcy
proceeding.
SUBORDINATE FINANCING
Where a mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and
the senior loan does not, a mortgagor may be more likely to repay sums due on
the junior loan than those on the senior loan. Second, acts of the senior
lender that prejudice the junior lender or impair the junior lender's security
may create a superior equity in favor of the junior lender. For example, if the
mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions
taken by junior lenders can impair the security available to the senior lender
and can interfere with or delay the taking of action by the senior lender.
Moreover, the bankruptcy of a junior lender may operate to stay foreclosure or
similar proceedings by the senior lender.
DEFAULT INTEREST, PREPAYMENT CHARGES AND PREPAYMENTS
Forms of notes and mortgages used by lenders may contain provisions
obligating the mortgagor to pay a late charge or additional interest if
payments are not timely made, and in some circumstances may provide for
prepayment fees or yield maintenance penalties if the obligation is paid prior
to maturity or prohibit such prepayment for a specified period. In certain
states, there are or may be specific limitations upon the late charges which a
lender may collect from a mortgagor for delinquent payments. Certain states
also limit the amounts that a lender may collect from a mortgagor as an
additional charge if the loan is prepaid. The enforceability, under the laws of
a number of states of provisions providing for prepayment fees or penalties
upon, or prohibition of, an involuntary prepayment is unclear, and no assurance
can be given that, at the time a Prepayment Premium is required to be made on a
Mortgage Loan in connection with an involuntary prepayment, the obligation to
make such payment, or the provisions of any
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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.
ACCELERATION ON DEFAULT
Unless otherwise specified in the related prospectus Supplement, some
of the Mortgage Loans included in the Mortgage Pool for a Series will include a
"debt-acceleration" clause, which permits the lender to accelerate the full
debt upon a monetary or nonmonetary default of the Mortgagor. The courts of all
states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
equity courts of the state, however, may refuse to foreclose a mortgage or deed
of trust when an acceleration of the indebtedness would be inequitable or
unjust or the circumstances would render the acceleration unconscionable.
Furthermore, in some states, the mortgagor may avoid foreclosure and reinstate
an accelerated loan by paying only the defaulted amounts and the costs and
attorneys' fees incurred by the lender in collecting such defaulted payments.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 ("Title V"), provides that state
usury limitations shall not apply to certain types of residential (including
multifamily but not other commercial) first mortgage loans originated by
certain lenders after March 31, 1980. A similar federal statute was in effect
with respect to mortgage loans made during the first three months of 1980. The
statute authorized any state to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision that expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits and/or to limit
discount points or other charges.
The Depositor has been advised by counsel that a court interpreting
Title V would hold that residential first mortgage loans that are originated on
or after January 1, 1980 are subject to federal preemption. Therefore, in a
state that has not taken the requisite action to reject application of Title V
or to adopt a provision limiting discount points or other charges prior to
origination of such mortgage loans, any such limitation under such state's
usury law would not apply to such mortgage loans.
In any state in which application of Title V has been expressly
rejected or a provision limiting discount points or other charges is adopted,
no Mortgage Loan originated after the date of such state action will be
eligible for inclusion in a Trust Fund unless (i) such Mortgage Loan provides
for such interest rate, discount points and charges as are permitted in such
state or (ii) such Mortgage Loan provides that the terms thereof shall be
construed in accordance with the laws of another state under which such
interest rate, discount points and charges would not be usurious and the
mortgagor's counsel has rendered an opinion that such choice of law provision
would be given effect.
Statutes differ in their provisions as to the consequences of a
usurious loan. One group of statutes requires the lender to forfeit the
interest due above the applicable limit or impose a specified penalty. Under
this statutory scheme, the mortgagor may cancel the recorded mortgage or deed
of trust upon paying its debt with lawful interest, and the lender may
foreclose, but only for the debt plus lawful interest. A second group of
statutes is more severe. A violation of this type of usury law results in the
invalidation of the transaction, thereby permitting the mortgagor to cancel the
recorded mortgage or deed of trust without any payment or prohibiting the
lender from foreclosing.
CERTAIN LAWS AND REGULATIONS; TYPES OF MORTGAGED PROPERTIES
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgage Property which could, together with the
possibility of limited alternative uses
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for a particular Mortgaged Property (e.g., a nursing or convalescent home or
hospital), result in a failure to realize the full principal amount of the
related Mortgage Loan. Mortgages on Mortgaged Properties which are owned by the
Mortgagor under a condominium form of ownership are subject to the declaration,
by-laws and other rules and regulations of the condominium association.
Mortgaged Properties which are hotels or motels may present additional risk in
that hotels and motels are typically operated pursuant to franchise, management
and operating agreements which may be terminable by the operator, and the
transferability of the hotel's operating, liquor and other licenses to the
entity acquiring the hotel either through purchases or foreclosure is subject
to the vagaries of local law requirements. In addition, Mortgaged Properties
which are multifamily residential properties may be subject to rent control
laws, which could impact the future cash flows of such properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and
rules promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the Mortgagor in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the Mortgagor as owner of landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
Mortgagor of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the Mortgagor is subject.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "Relief Act"), a mortgagor who enters military service after
the origination of such mortgagor's Mortgage Loan (including a mortgagor who
was in reserve status and is called to active duty after origination of the
Mortgage Loan), may not be charged interest (including fees and charges) above
an annual rate of 6% during the period of such mortgagor's active duty status,
unless a court orders otherwise upon application of the lender. The Relief Act
applies to mortgagors who are members of the Army, Navy, Air Force, Marines,
National Guard, Reserves, Coast Guard and officers of the U.S. Public Health
Service assigned to duty with the military. Because the Relief Act applies to
mortgagors who enter military service (including reservists who are called to
active duty) after origination of the related Mortgage Loan, no information can
be provided as to the number of loans that may be affected by the Relief Act.
Application of the Relief Act would adversely affect, for an indeterminate
period of time, the ability of any servicer to collect full amounts of interest
on certain of the Mortgage Loans. Any shortfalls in interest collections
resulting from the application of the Relief Act would result in a reduction of
the amounts distributable to the holders of the related series of Certificates,
and would not be covered by advances or, unless otherwise specified in the
related Prospectus Supplement, any form of Credit Support provided in
connection with such Certificates. In addition, the Relief Act imposes
limitations that would impair the ability of the servicer to foreclose on an
affected Mortgage Loan during the mortgagor's period of active duty status,
and, under certain circumstances, during an additional three month period
thereafter. Thus, in the event that such a Mortgage Loan goes into default,
there may be delays and losses occasioned thereby.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government
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if the property was used in, or purchased with the proceeds of, such crimes.
Under procedures contained in the Comprehensive Crime Control Act of 1984 (the
"Crime Control Act"), the government may seize the property even before
conviction. The government must publish notice of the forfeiture proceeding and
may give notice to all parties "known to have an alleged interest in the
property," including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered Certificates
is based on the advice of Brown & Wood LLP or Cadwalader, Wickersham & Taft or
Latham & Watkins or such other counsel as may be specified in the related
Prospectus Supplement, counsel to the Depositor. This summary is based on laws,
regulations, including the REMIC regulations promulgated by the Treasury
Department (the "REMIC Regulations"), rulings and decisions now in effect or
(with respect to regulations) proposed, all of which are subject to change
either prospectively or retroactively. This summary does not address the
federal income tax consequences of an investment in Certificates applicable to
all categories of investors, some of which (for example, banks and insurance
companies) may be subject to special rules. Prospective investors should
consult their tax advisors regarding the federal, state, local and any other
tax consequences to them of the purchase, ownership and disposition of
Certificates.
GENERAL
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund relating to a
particular Series of Certificates as a REMIC under the Code. The Prospectus
Supplement for each Series of Certificates will specify whether a REMIC
election will be made.
GRANTOR TRUST FUNDS
If a REMIC election is not made, Brown & Wood LLP or Cadwalader,
Wickersham & Taft or Latham & Watkins or such other counsel as may be specified
in the related Prospectus Supplement will deliver its opinion that the Trust
Fund will not be classified as an association taxable as a corporation and that
each such Trust Fund will be classified as a grantor trust under subpart E,
Part I of subchapter J of Chapter 1 of Subtitle A of the Code. In this case,
owners of Certificates will be treated for federal income tax purposes as
owners of a portion of the Trust Fund's assets as described below.
A. SINGLE CLASS OF GRANTOR TRUST CERTIFICATES
Characterization. The Trust Fund may be created with one class of
Grantor Trust Certificates. In this case, each Grantor Trust Certificateholder
will be treated as the owner of a pro rata undivided interest in the interest
and principal portions of the Trust Fund represented by the Grantor Trust
Certificates and will be considered the equitable owner of a pro rata undivided
interest in each of the Mortgage Assets in the Pool. Any amounts received by a
Grantor Trust Certificateholder in lieu of amounts due with respect to any
Mortgage Asset because of a default or delinquency in payment will be treated
for federal income tax purposes as having the same character as the payments
they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire
income from the Mortgage Loans in the Trust Fund represented by Grantor Trust
Certificates, including interest, original issue discount ("OID"), if any,
prepayment fees, assumption fees, any gain recognized upon an assumption and
late payment charges received by the Master Servicer. Under Code Sections 162
or 212 each Grantor Trust Certificateholder will be entitled to deduct its pro
rata share of servicing fees, prepayment fees, assumption fees, any loss
recognized upon an assumption and late
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payment charges retained by the Master Servicer, provided that such amounts are
reasonable compensation for services rendered to the Trust Fund. Grantor Trust
Certificateholders that are individuals, estates or trusts will be entitled to
deduct their share of expenses as itemized deductions only to the extent such
expenses plus all other Code Section 212 expenses exceed two percent of its
adjusted gross income. In addition, the amount of itemized deductions otherwise
allowable for the taxable year for an individual whose adjusted gross income
exceeds the applicable amount under Code Section 68(b) (which amount will be
adjusted for inflation) will be reduced by the lesser of (i) 3% of the excess
of adjusted gross income over the applicable amount and (ii) 80% of the amount
of itemized deductions otherwise allowable for such taxable year. In general, a
Grantor Trust Certificateholder using the cash method of accounting must take
into account its pro rata share of income as and deductions as and when
collected by or paid to the Master Servicer or, with respect to original issue
discount or certain other income items for which the Certificateholder has made
an election, as such amounts are accrued by the Trust Fund on a constant
interest basis, and will be entitled to claim its pro rata share of deductions
(subject to the foregoing limitations) when such amounts are paid or such
Certificateholder would otherwise be entitled to claim such deductions had it
held the Mortgage Assets directly. A Grantor Trust Certificateholder using an
accrual method of accounting must take into account its pro rata share of
income as payment becomes due or is made to the Master Servicer, whichever is
earlier and may deduct its pro rata share of expense items (subject to the
foregoing limitations) when such amounts are paid or such Certificateholder
otherwise would be entitled to claim such deductions had it held the Mortgage
Assets directly. If the servicing fees paid to the Master Servicer are deemed
to exceed reasonable servicing compensation, the amount of such excess could be
considered as an ownership interest retained by the Master Servicer (or any
person to whom the Master Servicer assigned for value all or a portion of the
servicing fees) in a portion of the interest payments on the Mortgage Assets.
The Mortgage Assets would then be subject to the "coupon stripping" rules of
the Code discussed below.
Unless otherwise specified in the related Prospectus Supplement or
otherwise provided below, as to each Series of Certificates, counsel to the
Depositor will have advised the Depositor that:
(i) a Grantor Trust Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) representing
principal and interest payments on Mortgage Assets will be considered to
represent "loans . . . secured by an interest in real property which is . . .
residential property" within the meaning of Code Section 7701(a)(19)(C)(v), to
the extent that the Mortgage Assets represented by that Grantor Trust
Certificate are of a type described in such Code section;
(ii) a Grantor Trust Certificate owned by a real estate investment
trust representing an interest in Mortgage Assets will be considered to
represent "real estate assets" within the meaning of Code Section 856(c)(4)(A),
and interest income on the Mortgage Assets will be considered "interest on
obligations secured by mortgages on real property" within the meaning of Code
Section 856(c)(3)(B), to the extent that the Mortgage Assets represented by
that Grantor Trust Certificate are of a type described in such Code section;
(iii) a Grantor Trust Certificate owned by a REMIC will represent
"obligation[s] . . . which [are] principally secured by an interest in real
property" within the meaning of Code Section 860G(a)(3); and
(iv) a Grantor Trust Certificate owned by a financial asset
securitization investment trust will represent "permitted assets" with the
meaning of Code Section 860L(c).
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application
of Code Section 593(d) to any taxable year beginning after December 31, 1995.
Stripped Bonds and Coupons. Certain Trust Funds may consist of
Government Securities that constitute "stripped bonds" or "stripped coupons" as
those terms are defined in section 1286 of the Code, and, as a result, such
assets would be subject to the stripped bond provisions of the Code. Under
these rules, such Government Securities
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are treated as having original issue discount based on the purchase price and
the stated redemption price at maturity of each Security. As such, Grantor
Trust Certificateholders would be required to include in income their pro rata
share of the original issue discount on each Government Security recognized in
any given year on an economic accrual basis even if the Grantor Trust
Certificateholder is a cash method taxpayer. Accordingly, the sum of the income
includible to the Grantor Trust Certificateholder in any taxable year may
exceed amounts actually received during such year.
Premium. The price paid for a Grantor Trust Certificate by a holder
will be allocated to such holder's undivided interest in each Mortgage Asset
based on each Mortgage Asset's relative fair market value, so that such
holder's undivided interest in each Mortgage Asset will have its own tax basis.
A Grantor Trust Certificateholder that acquires an interest in Mortgage Assets
at a premium may elect to amortize such premium under a constant interest
method, provided that the underlying mortgage loans with respect to such
Mortgage Assets were originated after September 27, 1985. Premium allocable to
mortgage loans originated on or before September 27, 1985 should be allocated
among the principal payments on such mortgage loans and allowed as an ordinary
deduction as principal payments are made. Amortizable bond premium will be
treated as an offset to interest income on such Grantor Trust Certificate. The
basis for such Grantor Trust Certificate will be reduced to the extent that
amortizable premium is applied to offset interest payments. It is not clear
whether a reasonable prepayment assumption should be used in computing
amortization of premium allowable under Code Section 171. A Certificateholder
that makes this election for a Mortgage Asset or any other debt instrument that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Certificateholder acquires during the year of the election or
thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Grantor Trust Certificate representing
an interest in a Mortgage Asset or Mortgage Loan acquired at a premium should
recognize a loss if a Mortgage Loan (or an underlying mortgage loan with
respect to a Mortgage Asset) prepays in full, equal to the difference between
the portion of the prepaid principal amount of such Mortgage Loan
(or underlying mortgage loan) that is allocable to the Certificate and the
portion of the adjusted basis of the Certificate that is allocable to such
Mortgage Loan (or underlying mortgage loan). If a reasonable prepayment
assumption is used to amortize such premium, it appears that such a loss would
be available, if at all, only if prepayments have occurred at a rate faster
than the reasonable assumed prepayment rate. It is not clear whether any other
adjustments would be required to reflect differences between an assumed
prepayment rate and the actual rate of prepayments.
On December 30, 1997, the Internal Revenue Service (the "IRS") issued
final regulations (the "Amortizable Bond Premium Regulations") dealing with
amortizable bond premium. These regulations, which generally are effective for
bonds issued or acquired on or after March 2, 1998 (or, for holders making an
election for the taxable year that includes March 2, 1998 or any subsequent
taxable year, shall apply to bonds held on or after the first day of the
taxable year of the election). The Amortizable Bond Premium Regulations
specifically do not apply to prepayable debt instruments or any pool of debt
instruments the yield on which may be affected by prepayments, such as the
Trust Fund, which are subject to Section 1272(a)(6) of the Code. Absent further
guidance from the IRS and unless otherwise specified in the related Prospectus
Supplement, the Trustee will account for amortizable bond premium in the manner
described above. Prospective purchasers should consult their tax advisors
regarding amortizable bond premium and the Amortizable Bond Premium
Regulations.
Original Issue Discount. The IRS has stated in published rulings that,
in circumstances similar to those described herein, the special rules of the
Code relating to original issue discount ("OID") (currently Code Sections 1271
through 1273 and 1275) and Treasury regulations issued on January 27, 1994,
under such Sections (the "OID Regulations"), will be applicable to a Grantor
Trust Certificateholder's interest in those Mortgage Assets meeting the
conditions necessary for these sections to apply. Rules regarding periodic
inclusion of OID income are applicable to mortgages of corporations originated
after May 27, 1969, mortgages of noncorporate mortgagors (other than
individuals) originated after July 1, 1982, and mortgages of individuals
originated after March 2, 1984. Such OID could arise by the financing of points
or other charges by the originator of the mortgages in an amount greater than a
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statutory de minimis exception to the extent that the points are not currently
deductible under applicable Code provisions or are not for services provided by
the lender. OID generally must be reported as ordinary gross income as it
accrues under a constant interest method. See "--Multiple Classes of Grantor
Trust Certificates--Accrual of Original Issue Discount" below.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Mortgage Assets may be subject to the market discount
rules of Code Sections 1276 through 1278 to the extent an undivided interest in
a Mortgage Asset is considered to have been purchased at a "market discount."
Generally, the amount of market discount is equal to the excess of the portion
of the principal amount of such Mortgage Asset allocable to such holder's
undivided interest over such holder's tax basis in such interest. Market
discount with respect to a Grantor Trust Certificate will be considered to be
zero if the amount allocable to the Grantor Trust Certificate is less than
0.25% of the Grantor Trust Certificate's stated redemption price at maturity
multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986 shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described
in the relevant legislative history will apply. Under those rules, the holder
of a market discount bond may elect to accrue market discount either on the
basis of a constant interest rate or according to one of the following methods.
If a Grantor Trust Certificate is issued with OID, the amount of market
discount that accrues during any accrual period would be equal to the product
of (i) the total remaining market discount and (ii) a fraction, the numerator
of which is the OID accruing during the period and the denominator of which is
the total remaining OID at the beginning of the accrual period. For Grantor
Trust Certificates issued without OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the amount of
stated interest paid during the accrual period and the denominator of which is
the total amount of stated interest remaining to be paid at the beginning of
the accrual period. For purposes of calculating market discount under any of
the above methods in the case of instruments (such as the Grantor Trust
Certificates) that provide for payments that may be accelerated by reason of
prepayments of other obligations securing such instruments, the same prepayment
assumption applicable to calculating the accrual of OID will apply. Because the
regulations described above have not been issued, it is impossible to predict
what effect those regulations might have on the tax treatment of a Grantor
Trust Certificate purchased at a discount or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry such Grantor Trust Certificate purchased with market discount. For
these purposes, the de minimis rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method for Certificates acquired on or after April 4,
1994. If such an election were to be made with respect to a Grantor Trust
Certificate with market discount, the Certificateholder would be deemed to have
made an election to include in income currently market discount with respect to
all other debt instruments having market discount that such Certificateholder
acquires during the year of the election or thereafter. Similarly, a
Certificateholder that makes this election for a Certificate that is acquired
at a premium will be deemed to have
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made an election to amortize bond premium with respect to all debt instruments
having amortizable bond premium that such Certificateholder owns or acquires.
See "--Premium" herein. The election to accrue interest, discount and premium
on a constant yield method with respect to a Certificate is irrevocable without
consent of the IRS.
Anti-Abuse Rule. The IRS can apply or depart from the rules contained
in the OID Regulations as necessary or appropriate to achieve a reasonable
result where a principal purpose in structuring a Mortgage Asset, Mortgage Loan
or Grantor Trust Certificate or applying the otherwise applicable rules is to
achieve a result that is unreasonable in light of the purposes of the
applicable statutes (which generally are intended to achieve the clear
reflection of income for both issuers and holders of debt instruments).
B. MULTIPLE CLASSES OF GRANTOR TRUST CERTIFICATES
1. Stripped Bonds and Stripped Coupons
Pursuant to Code Section 1286, the separation of ownership of the right
to receive some or all of the interest payments on an obligation from ownership
of the right to receive some or all of the principal payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of Code Sections 1271
through 1288, Code Section 1286 treats a stripped bond or a stripped coupon as
an obligation issued on the date that such stripped interest is created. If a
Trust Fund is created with two classes of Grantor Trust Certificates, one class
of Grantor Trust Certificates may represent the right to principal and
interest, or principal only, on all or a portion of the Mortgage Assets (the
"Stripped Bond Certificates"), while the second class of Grantor Trust
Certificates may represent the right to some or all of the interest on such
portion (the "Stripped Coupon Certificates").
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points (i.e., 1% interest on the Mortgage
Asset principal balance) or the Certificates are initially sold with a de
minimis discount (assuming no prepayment assumption is required), any non-de
minimis discount arising from a subsequent transfer of the Certificates should
be treated as market discount. The IRS appears to require that reasonable
servicing fees be calculated on a Mortgage Asset by Mortgage Asset basis, which
could result in some Mortgage Assets being treated as having more than 100
basis points of interest stripped off. See "--Non-REMIC Certificates" and
"Multiple Classes of Grantor Trust Certificates--Stripped Bonds and Stripped
Coupons" herein.
Although not entirely clear, a Stripped Bond Certificate generally
should be treated as an interest in Mortgage Assets issued on the day such
Certificate is purchased for purposes of calculating any OID. Generally, if the
discount on a Mortgage Asset is larger than a de minimis amount (as calculated
for purposes of the OID rules) a purchaser of such a Certificate will be
required to accrue the discount under the OID rules of the Code. See
"--Non-REMIC Certificates" and "--Single Class of Grantor Trust
Certificates--Original Issue Discount" herein. However, a purchaser of a
Stripped Bond Certificate will be required to account for any discount on the
Mortgage Assets as market discount rather than OID if either (i) the amount of
OID with respect to the Mortgage Assets is treated as zero under the OID de
minimis rule when the Certificate was stripped or (ii) no more than 100 basis
points (including any amount of servicing fees in excess of reasonable
servicing fees) is stripped off of the Trust Fund's Mortgage Assets. Pursuant
to Revenue Procedure 91-49, issued on August 8, 1991, purchasers of Stripped
Bond Certificates using an inconsistent method of accounting must change their
method of accounting and request the consent of the IRS to the change in their
accounting method on a statement attached to their first timely tax return
filed after August 8, 1991.
The precise tax treatment of Stripped Coupon Certificates is
substantially uncertain. The Code could be read literally to require that OID
computations be made for each payment from each Mortgage Asset. Unless
otherwise specified in the related prospectus supplement, all payments from a
Mortgage Asset underlying a Stripped
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Coupon Certificate will be treated as a single installment obligation subject
to the OID rules of the Code, in which case, all payments from such Mortgage
Asset would be included in the Mortgage Asset's stated redemption price at
maturity for purposes of calculating income on such Certificate under the OID
rules of the Code.
It is unclear under what circumstances, if any, the prepayment of
Mortgage Assets will give rise to a loss to the holder of a Stripped Bond
Certificate purchased at a premium or a Stripped Coupon Certificate. If such
Certificate is treated as a single instrument (rather than an interest in
discrete mortgage loans) and the effect of prepayments is taken into account in
computing yield with respect to such Grantor Trust Certificate, it appears that
no loss will be available as a result of any particular prepayment unless
prepayments occur at a rate sufficiently faster than the assumed prepayment
rate so that the Certificateholder will not recover its investment. However, if
such Certificate is treated as an interest in discrete Mortgage Assets, or if
no prepayment assumption is used, then when a Mortgage Asset is prepaid, the
holder of such Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of such Certificate that is allocable to
such Mortgage Asset.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates
are urged to consult with their own tax advisors regarding the proper treatment
of these Certificates for federal income tax purposes.
Treatment of Certain Owners. Several Code sections provide beneficial
treatment to certain taxpayers that invest in Mortgage Assets of the type that
make up the Trust Fund. With respect to these Code sections, no specific legal
authority exists regarding whether the character of the Grantor Trust
Certificates, for federal income tax purposes, will be the same as that of the
underlying Mortgage Assets. While Code Section 1286 treats a stripped
obligation as a separate obligation for purposes of the Code provisions
addressing OID, it is not clear whether such characterization would apply with
regard to these other Code sections. Although the issue is not free from doubt,
each class of Grantor Trust Certificates, unless otherwise specified in the
related Prospectus Supplement, should be considered to represent "real estate
assets" within the meaning of Code Section 856(c)(4)(A) and "loans . . .
secured by, an interest in real property which is . . . residential real
property" within the meaning of Code Section 7701(a)(19)(C)(v), and interest
income attributable to Grantor Trust Certificates should be considered to
represent "interest on obligations secured by mortgages on real property"
within the meaning of Code Section 856(c)(3)(B), provided that in each case the
underlying Mortgage Assets and interest on such Mortgage Assets qualify for
such treatment. Prospective purchasers to which such characterization of an
investment in Certificates is material should consult their own tax advisors
regarding the characterization of the Grantor Trust Certificates and the income
therefrom. Grantor Trust Certificates will be "obligation[s] . . . which [are]
principally secured by an interest in real property" within the meaning of Code
Section 860G(a)(3)(A) and "permitted assets" within the meaning of Code Section
860L(c).
2. Grantor Trust Certificates Representing Interests in Loans Other
Than ARM Loans
The original issue discount rules of Code Sections 1271 through 1275
will be applicable to a Certificateholder's interest in those Mortgage Assets
as to which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount in income are
applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate mortgagors (other than individuals) originated after
July 1, 1982, and mortgages of individuals originated after March 2, 1984.
Under the OID Regulations, such original issue discount could arise by the
charging of points by the originator of the mortgage in an amount greater than
the statutory de minimis exception, including a payment of points that is
currently deductible by the borrower under applicable Code provisions, or under
certain circumstances, by the presence of "teaser" rates on the Mortgage
Assets. OID on each Grantor Trust Certificate must be included in the owner's
ordinary income for federal income tax purposes as it accrues, in accordance
with a constant interest method that takes into account the compounding of
interest, in advance of receipt of the cash attributable to such income. The
amount of OID required to be included in an owner's income in any taxable year
with respect to a Grantor Trust Certificate representing an interest in
Mortgage Assets other than Mortgage Assets with interest rates that adjust
periodically ("ARM Loans") likely will be computed as described below under
"--Accrual of Original Issue Discount." The following discussion is based in
part on the OID Regulations and in part on the provisions of the Tax Reform Act
of 1986 (the "1986 Act"). The OID Regulations generally are effective for debt
instruments issued on or after April 4, 1994, but may be relied upon as
authority with respect to debt instruments, such as the Grantor Trust
Certificates, issued after December 21, 1992. Alternatively, proposed Treasury
regulations issued December 21, 1992 may be treated as
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authority for debt instruments issued after December 21, 1992 and prior to
April 4, 1994, and proposed Treasury regulations issued in 1986 and 1991 may be
treated as authority for instruments issued before December 21, 1992. In
applying these dates, the issue date of the Mortgage Assets should be used, or,
in the case of Stripped Bond Certificates or Stripped Coupon Certificates, the
date such Certificates are acquired. The holder of a Certificate should be
aware, however, that neither the proposed OID Regulations nor the OID
Regulations adequately address certain issues relevant to prepayable
securities.
Under the Code, the Mortgage Assets underlying the Grantor Trust
Certificate will be treated as having been issued on the date they were
originated with an amount of OID equal to the excess of such Mortgage Asset's
stated redemption price at maturity over its issue price. The issue price of a
Mortgage Asset is generally the amount lent to the mortgagee, which may be
adjusted to take into account certain loan origination fees. The stated
redemption price at maturity of a Mortgage Asset is the sum of all payments to
be made on such Mortgage Asset other than payments that are treated as
qualified stated interest payments. The accrual of this OID, as described below
under "--Accrual of Original Issue Discount," will, unless otherwise specified
in the related Prospectus Supplement, utilize the original yield to maturity of
the Grantor Trust Certificate calculated based on a reasonable assumed
prepayment rate for the mortgage loans underlying the Grantor Trust
Certificates (the "Prepayment Assumption") on the issue date of such Grantor
Trust Certificate, and will take into account events that occur during the
calculation period. The Prepayment Assumption will be determined in the manner
prescribed by regulations that have not yet been issued. In the absence of such
regulations, the Prepayment Assumption used will be the prepayment assumption
that is used in determining the offering price of such Certificate. No
representation is made that any Certificate will prepay at the Prepayment
Assumption or at any other rate. The prepayment assumption contained in the
Code literally only applies to debt instruments collateralized by other debt
instruments that are subject to prepayment rather than direct ownership
interests in such debt instruments, such as the Certificates represent.
However, no other legal authority provides guidance with regard to the proper
method for accruing OID on obligations that are subject to prepayment, and,
until further guidance is issued, the Master Servicer intends to calculate and
report OID under the method described below.
Accrual of Original Issue Discount. Generally, the owner of a Grantor
Trust Certificate must include in gross income the sum of the "daily portions,"
as defined below, of the OID on such Grantor Trust Certificate for each day on
which it owns such Certificate, including the date of purchase but excluding
the date of disposition. In the case of an original owner, the daily portions
of OID with respect to each component generally will be determined as set forth
under the OID Regulations. A calculation will be made by the Master Servicer or
such other entity specified in the related Prospectus Supplement of the portion
of OID that accrues during each successive monthly accrual period (or shorter
period from the date of original issue) that ends on the day in the calendar
year corresponding to each of the Distribution Dates on the Grantor Trust
Certificates (or the day prior to each such date). This will be done, in the
case of each full month accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the respective component under the Prepayment
Assumption) of all remaining payments to be received under the Prepayment
Assumption on the respective component and (b) any payments included in the
stated redemption price at maturity received during such accrual period, and
(ii) subtracting from that total the "adjusted issue price" of the respective
component at the beginning of such accrual period. The adjusted issue price of
a Grantor Trust Certificate at the beginning of the first accrual period is its
issue price; the adjusted issue price of a Grantor Trust Certificate at the
beginning of a subsequent accrual period is the adjusted issue price at the
beginning of the immediately preceding accrual period plus the amount of OID
allocable to that accrual period reduced by the amount of any payment other
than a payment of qualified stated interest made at the end of or during that
accrual period. The OID accruing during such accrual period will then be
divided by the number of days in the period to determine the daily portion of
OID for each day in the period. With respect to an initial accrual period
shorter than a full monthly accrual period, the daily portions of OID must be
determined according to an appropriate allocation under any reasonable method.
Original issue discount generally must be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest as it accrues rather than when received. However,
the amount of original issue discount includible in the income of a holder of
an obligation is reduced when the obligation is acquired after its initial
issuance at a price greater than the sum of the original issue price and the
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previously accrued original issue discount, less prior payments of principal.
Accordingly, if such Mortgage Assets acquired by a Certificateholder are
purchased at a price equal to the then unpaid principal amount of such Mortgage
Asset, no original issue discount attributable to the difference between the
issue price and the original principal amount of such Mortgage Asset (i.e.
points) will be includible by such holder. Other original issue discount on the
Mortgage Assets (e.g., that arising from a "teaser" rate) would still need to
be accrued.
3. Grantor Trust Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such
as the Grantor Trust Certificates, which represent interests in ARM Loans.
Additionally, the IRS has not issued guidance under the Code's coupon stripping
rules with respect to such instruments. In the absence of any authority, the
Master Servicer will report OID on Grantor Trust Certificates attributable to
ARM Loans ("Stripped ARM Obligations") to holders in a manner it believes is
consistent with the rules described above under the heading "--Grantor Trust
Certificates Representing Interests in Loans Other Than ARM Loans" and with the
OID Regulations. In general, application of these rules may require inclusion
of income on a Stripped ARM Obligation in advance of the receipt of cash
attributable to such income. Further, the addition of interest deferred by
reason of negative amortization ("Deferred Interest") to the principal balance
of an ARM Loan may require the inclusion of such amount in the income of the
Grantor Trust Certificateholder when such amount accrues. Furthermore, the
addition of Deferred Interest to the Grantor Trust Certificate's principal
balance will result in additional income (including possibly OID income) to the
Grantor Trust Certificateholder over the remaining life of such Grantor Trust
Certificates.
Because the treatment of Stripped ARM Obligations is uncertain,
investors are urged to consult their tax advisors regarding how income will be
includible with respect to such Certificates.
C. SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE
Sale or exchange of a Grantor Trust Certificate prior to its maturity
will result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the Grantor Trust Certificate. Such
adjusted basis generally will equal the seller's purchase price for the Grantor
Trust Certificate, increased by the OID included in the seller's gross income
with respect to the Grantor Trust Certificate, and reduced by principal
payments on the Grantor Trust Certificate previously received by the seller.
Such gain or loss will be capital gain or loss to an owner for which a Grantor
Trust Certificate is a "capital asset" within the meaning of Code Section 1221,
and will generally be long-term capital gain if the Grantor Trust Certificate
has been owned for more than one year. Long-term capital gains of individuals
are subject to reduced maximum tax rates while capital gains recognized by
individuals on capital assets held less than twelve months are generally subject
to ordinary income tax rates. The use of capital losses is limited.
It is possible that capital gain realized by holders of one or more
classes of Grantor Trust Certificates could be considered gain realized upon
the disposition of property that was part of a "conversion transaction." A sale
of a Grantor Trust Certificate will be part of a conversion transaction if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and (i) the holder entered the contract
to sell the Grantor Trust Certificate substantially contemporaneously with
acquiring the Grantor Trust Certificate, (ii) the Grantor Trust Certificate is
part of a straddle, (iii) the Grantor Trust Certificate is marketed or sold as
producing capital gain, or (iv) other transactions to be specified in Treasury
regulations that have not yet been issued. If the sale or other disposition of
a Grantor Trust Certificate is part of a conversion transaction, all or any
portion of the gain realized upon the sale or other disposition would be
treated as ordinary income instead of capital gain.
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Code Section 582(c)(1), so that gain or loss recognized from the
sale of a Grantor Trust Certificate by a bank or a thrift institution to which
such section applies will be treated as ordinary income or loss.
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D. NON-U.S. PERSONS
Generally, to the extent that a Grantor Trust Certificate evidences
ownership in underlying Mortgage Assets that were issued on or before July 18,
1984, interest or OID paid by the person required to withhold tax under Code
Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as defined
below) or (ii) a Grantor Trust Certificateholder holding on behalf of an owner
that is not a U.S. Person will be subject to federal income tax, collected by
withholding, at a rate of 30% or such lower rate as may be provided for
interest by an applicable tax treaty, unless such income is effectively
connected with a U.S. trade or business of such owner or beneficial owner.
Accrued OID recognized by the owner on the sale or exchange of such a Grantor
Trust Certificate also will be subject to federal income tax at the same rate.
Generally, such payments would not be subject to withholding to the extent that
a Grantor Trust Certificate evidences ownership in Mortgage Assets issued after
July 18, 1984, by natural persons if such Grantor Trust Certificateholder
complies with certain identification requirements (including delivery of a
statement, signed by the Grantor Trust Certificateholder under penalties of
perjury, certifying that such Grantor Trust Certificateholder is not a U.S.
Person and providing the name and address of such Grantor Trust
Certificateholder). To the extent payments to Grantor Trust Certificateholders
that are not U.S. Persons are payments of "contingent interest" on the
underlying Mortgage Assets, or such Grantor Trust Certificateholder is
ineligible for the exemption described in the preceding sentence, the 30%
withholding tax will apply unless such withholding taxes are reduced or
eliminated by an applicable tax treaty and such holder meets the eligibility
and certification requirements necessary to obtain the benefits of such treaty.
Additional restrictions apply to Mortgage Assets where the mortgagor is not a
natural person in order to qualify for the exemption from withholding. If
capital gain derived from the sale, retirement or other disposition of a
Grantor Trust Certificate is effectively connected with a U.S. trade or
business of a Grantor Trust Certificateholder that is not a U.S. Person, such
Certificateholder will be taxed on the net gain under the graduated U.S.
federal income tax rates applicable to U.S. Persons (and, with respect to
Grantor Trust Certificates held by or on behalf of corporations, also may be
subject to branch profits tax). In addition, if the Trust Fund acquires a
United States real property interest through foreclosure, deed in lieu of
foreclosure or otherwise on a Mortgage Asset secured by such an interest (which
for this purpose includes real property located in the United States and the
Virgin Islands), a Grantor Trust Certificateholder that is not a U.S. Person
will potentially be subject to federal income tax on any gain attributable to
such real property interest that is allocable to such holder. Non-U.S. Persons
should consult their tax advisors regarding the application to them of the
foregoing rules.
As used herein, a "U.S. Person" means a citizen or resident of the
United States, a corporation or a partnership organized in or under the laws of
the United States or any political subdivision thereof (other than a
partnership that is not treated as a U.S. Person under any applicable Treasury
regulations), an estate the income of which from sources outside the United
States is includible in gross income for federal income tax purposes regardless
of its connection with the conduct of a trade or business within the United
States or a trust if a court within the United States is able to exercise
primary supervision of the administration of the trust and one or more U.S.
Persons have the authority to control all substantial decisions of the trust.
In addition, certain trusts treated as U.S. Persons before August 20, 1996 may
elect to continue to be so treated to the extent provided in regulations.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The Master Servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each person who was a
Certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
Certificates as nominees on behalf of beneficial owners. If a holder,
beneficial owner, financial intermediary or other recipient of a payment on
behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines that such
person has not reported all interest and dividend income required to be shown
on its federal income tax return, 31% backup withholding may be required with
respect to any payments to registered owners who are not "exempt recipients."
In addition, upon the sale of a Grantor Trust Certificate to (or through) a
broker, the broker must withhold 31% of the entire purchase price, unless
either (i) the broker determines that the seller is a corporation or other
exempt recipient, or (ii) the seller provides, in the required manner, certain
identifying information and, in the case of a non-U.S. Person, certifies that
such seller is a Non-U.S. Person, and certain other
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conditions are met. Such as sale must also be reported by the broker to the
IRS, unless either (a) the broker determines that the seller is an exempt
recipient or (b) the seller certifies its non-U.S. Person status (and certain
other conditions are met). Certification of the registered owner's non-U.S.
Person status normally would be made on IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence. Any amounts deducted and withheld from a distribution to
a recipient would be allowed as a credit against such recipient's federal
income tax liability.
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1999, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
REMICS
The Trust Fund relating to a Series of Certificates may elect to be
treated as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Although a REMIC is not generally subject to federal income
tax (see, however "--Taxation of Owners of REMIC Residual Certificates" and
"--Prohibited Transactions" below), if a Trust Fund with respect to which a
REMIC election is made fails to comply with one or more of the ongoing
requirements of the Code for REMIC status during any taxable year, including
the implementation of restrictions on the purchase and transfer of the residual
interests in a REMIC as described below under "Taxation of Owners of REMIC
Residual Certificates," the Code provides that a Trust Fund will not be treated
as a REMIC for such year and thereafter. In that event, such entity may be
taxable as a separate corporation, and the related Certificates (the "REMIC
Certificates") may not be accorded the status or given the tax treatment
described below. While the Code authorizes the Treasury Department to issue
regulations providing relief in the event of an inadvertent termination of the
status of a trust fund as a REMIC, no such regulations have been issued. Any
such relief, moreover, may be accompanied by sanctions, such as the imposition
of a corporate tax on all or a portion of the REMIC's income for the period in
which the requirements for such status are not satisfied. With respect to each
Trust Fund that elects REMIC status, Brown & Wood LLP or Cadwalader, Wickersham
& Taft or Latham & Watkins or such other counsel as may be specified in the
related Prospectus Supplement will deliver its opinion generally to the effect
that, under then existing law and assuming compliance with all provisions of
the related Pooling and Servicing Agreement, such Trust Fund will qualify as a
REMIC, and the related Certificates will be considered to be regular interests
("REMIC Regular Certificates") or a sole class of residual interests ("REMIC
Residual Certificates") in the REMIC. The related Prospectus Supplement for
each Series of Certificates will indicate whether the Trust Fund will make a
REMIC election and whether a class of Certificates will be treated as a regular
or residual interest in the REMIC.
A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in such an obligation and any "regular interest"
in another REMIC) that is principally secured by an interest in real property
and that is transferred to the REMIC within a prescribed time period in
exchange for regular or residual interests in the REMIC.
In general, with respect to each Series of Certificates for which a
REMIC election is made, (i) Certificates held by a thrift institution taxed as
a "domestic building and loan association" will constitute assets described in
Code Section 7701(a)(19)(C); (ii) Certificates held by a real estate investment
trust will constitute "real estate assets" within the meaning of Code Section
856(c)(4)(A); and (iii) interest on Certificates held by a real estate
investment trust will be considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section 856(c)(3)(B). If
less than 95% of the REMIC's assets are assets qualifying under any of the
foregoing Code sections, the Certificates will be qualifying assets only to the
extent that the REMIC's assets are qualifying assets.
Tiered REMIC Structures. For certain Series of Certificates, two or
more separate elections may be made to treat designated portions of the related
Trust Fund as REMICs (respectively, the "Subsidiary REMIC" and the "Master
REMIC") for federal income tax purposes. Upon the issuance of any such Series
of Certificates, Brown &
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Wood LLP or Cadwalader, Wickersham & Taft or Latham & Watkins or such other
counsel as may be specified in the related Prospectus Supplement, counsel to
the Depositor, will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the related Agreement, the Master REMIC as
well as any Subsidiary REMIC will each qualify as a REMIC, and the REMIC
Certificates issued by the Master REMIC and the Subsidiary REMIC or REMICs,
respectively, will be considered to evidence ownership of regular interests
("REMIC Regular Certificates") or residual interests ("REMIC Residual
Certificates") in the related REMIC within the meaning of the REMIC provisions.
Other than the residual interest in a Subsidiary REMIC, only REMIC
Certificates issued by the Master REMIC will be offered hereunder. The
Subsidiary REMIC or REMICs and the Master REMIC will be treated as one REMIC
solely for purposes of determining whether the REMIC Certificates will be (i)
"real estate assets" within the meaning of Section 856(c)(4)(A) of the Code;
(ii) "loans secured by an interest in real property" under Section
7701(a)(19)(C) of the Code; and (iii) whether the income on such Certificates
is interest described in Section 856(c)(3)(B) of the Code.
A. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt
instruments issued by the REMIC and not as ownership interests in the REMIC or
its assets. Moreover, holders of REMIC Regular Certificates that otherwise
report income under a cash method of accounting will be required to report
income with respect to REMIC Regular Certificates under an accrual method.
Original Issue Discount and Premium. The REMIC Regular Certificates may
be issued with OID. Generally, such OID, if any, will equal the difference
between the "stated redemption price at maturity" of a REMIC Regular
Certificate and its "issue price." Holders of any class of Certificates issued
with OID will be required to include such OID in gross income for federal
income tax purposes as it accrues, in accordance with a constant interest
method based on the compounding of interest as it accrues rather than in
accordance with receipt of the interest payments. The following discussion is
based in part on the OID Regulations and in part on the provisions of the Tax
Reform Act of 1986 (the "1986 Act"). Holders of REMIC Regular Certificates (the
"REMIC Regular Certificateholders") should be aware, however, that the OID
Regulations do not adequately address certain issues relevant to prepayable
securities, such as the REMIC Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273
and 1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated reinvestment
rate, if any, relating to the REMIC Regular Certificates and prescribe a method
for adjusting the amount and rate of accrual of such discount where the actual
prepayment rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The legislative
history of the 1986 Act (the "Legislative History") provides, however, that
Congress intended the regulations to require that the Prepayment Assumption be
the prepayment assumption that is used in determining the initial offering
price of such REMIC Regular Certificates. The Prospectus Supplement for each
Series of REMIC Regular Certificates will specify the Prepayment Assumption to
be used for the purpose of determining the amount and rate of accrual of OID.
No representation is made that the REMIC Regular Certificates will prepay at
the Prepayment Assumption or at any other rate.
In general, each REMIC Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
"stated redemption price at maturity" over its "issue price." The issue price
of a REMIC Regular Certificate is the first price at which a substantial amount
of REMIC Regular Certificates of that class are first sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of REMIC Regular Certificates is sold
for cash on or prior to the date of their initial issuance (the "Closing
Date"), the issue price for such class will be treated as the fair market value
of such class on the Closing Date. The issue price of a REMIC Regular
Certificate also includes the amount paid by an initial Certificateholder for
accrued interest that relates to a period prior to the issue date of the REMIC
Regular Certificate. The stated redemption price at maturity of a REMIC Regular
Certificate includes the original principal amount of the REMIC Regular
Certificate, but generally will not include distributions of interest if such
distributions constitute "qualified stated interest." Qualified stated interest
generally means interest payable at a single fixed rate or qualified
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variable rate (as described below) provided that such interest payments are
unconditionally payable at intervals of one year or less during the entire term
of the REMIC Regular Certificate. Interest is payable at a single fixed rate
only if the rate appropriately takes into account the length of the interval
between payments. Distributions of interest on REMIC Regular Certificates with
respect to which Deferred Interest will accrue will not constitute qualified
stated interest payments, and the stated redemption price at maturity of such
REMIC Regular Certificates includes all distributions of interest as well as
principal thereon.
Where the interval between the issue date and the first Distribution
Date on a REMIC Regular Certificate is longer than the interval between
subsequent Distribution Dates, the greater of any original issue discount
(disregarding the rate in the first period) and any interest foregone during
the first period is treated as the amount by which the stated redemption price
at maturity of the Certificate exceeds its issue price for purposes of the de
minimis rule described below. The OID Regulations suggest that all interest on
a long first period REMIC Regular Certificate that is issued with non-de
minimis OID, as determined under the foregoing rule, will be treated as OID.
Where the interval between the issue date and the first Distribution Date on a
REMIC Regular Certificate is shorter than the interval between subsequent
Distribution Dates, interest due on the first Distribution Date in excess of
the amount that accrued during the first period would be added to the
Certificates, stated redemption price at maturity. REMIC Regular
Certificateholders should consult their own tax advisors to determine the issue
price and stated redemption price at maturity of a REMIC Regular Certificate.
Under the de minimis rule, OID on a REMIC Regular Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average maturity of the REMIC Regular Certificate. For this purpose, the
weighted average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial years) from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included in
the stated redemption price at maturity of the REMIC Regular Certificate and
the denominator of which is the stated redemption price at maturity of the
REMIC Regular Certificate. Although currently unclear, it appears that the
schedule of such distributions should be determined in accordance with the
Prepayment Assumption. The Prepayment Assumption with respect to a Series of
REMIC Regular Certificates will be set forth in the related Prospectus
Supplement. Holders generally must report de minimis OID pro rata as principal
payments are received, and such income will be capital gain if the REMIC
Regular Certificate is held as a capital asset. However, accrual method holders
may elect to accrue all de minimis OID as well as market discount under a
constant interest method.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain REMIC Regular Certificates to be issued at prices significantly
exceeding their principal amounts or based on notional principal balances (the
"Super-Premium Certificates"). The income tax treatment of such REMIC Regular
Certificates is not entirely certain. For information reporting purposes, the
Trust Fund intends to take the position that the stated redemption price at
maturity of such REMIC Regular Certificates is the sum of all payments to be
made on such REMIC Regular Certificates determined under the Prepayment
Assumption, with the result that such REMIC Regular Certificates would be
issued with OID. The calculation of income in this manner could result in
negative original issue discount (which delays future accruals of OID rather
than being immediately deductible) when prepayments on the Mortgage Assets
exceed those estimated under the Prepayment Assumption. The IRS might contend,
however, that certain contingent payment rules contained in final regulations
issued on June 11, 1996, with respect to original issue discount, should apply
to such Certificates. Although such rules are not applicable to instruments
governed by Code Section 1272(a)(6), they represent the only guidance regarding
the current views of the IRS with respect to contingent payment instruments.
These proposed regulations, if applicable, generally would require holders of
Regular Interest Certificates to take the payments considered contingent
interest payments into income on a yield to maturity basis in accordance with a
schedule of projected payments provided by the Depositor and to make annual
adjustments to income to account for the difference between actual payments
received and projected payment amounts accrued. In the alternative, the IRS
could assert that the stated redemption price at maturity of such REMIC Regular
Certificates should be limited to their principal amount (subject to the
discussion below under "--Accrued Interest Certificates"), so that such REMIC
Regular Certificates would be considered for federal income tax purposes to be
issued at a premium. If such a position were to prevail, the rules described
below under "--Taxation of Owners of REMIC Regular Certificates--Premium" would
apply. It is unclear when a loss may
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be claimed for any unrecovered basis for a Super-Premium Certificate. It is
possible that a holder of a Super-Premium Certificate may only claim a loss
when its remaining basis exceeds the maximum amount of future payments,
assuming no further prepayments or when the final payment is received with
respect to such Super-Premium Certificate.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than REMIC Regular Certificate based on a notional amount)
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular Certificate
generally should not be treated as a Super-Premium Certificate and the rules
described below under "--REMIC Regular Certificates--Premium" should apply.
However, it is possible that holders of REMIC Regular Certificates issued at a
premium, even if the premium is less than 25% of such Certificate's actual
principal balance, will be required to amortize the premium under an original
issue discount method or contingent interest method even though no election
under Code Section 171 is made to amortize such premium.
Generally, a REMIC Regular Certificateholder must include in gross
income the "daily portions," as determined below, of the OID that accrues on a
REMIC Regular Certificate for each day a Certificateholder holds the REMIC
Regular Certificate, including the purchase date but excluding the disposition
date. In the case of an original holder of a REMIC Regular Certificate, a
calculation will be made of the portion of the OID that accrues during each
successive period ("an accrual period") that ends on the day in the calendar
year corresponding to a Distribution Date (or if Distribution Dates are on the
first day or first business day of the immediately preceding month, interest
may be treated as payable on the last day of the immediately preceding month)
and begins on the day after the end of the immediately preceding accrual period
(or on the issue date in the case of the first accrual period). This will be
done, in the case of each full accrual period, by (i) adding (a) the present
value at the end of the accrual period (determined by using as a discount
factor the original yield to maturity of the REMIC Regular Certificates as
calculated under the Prepayment Assumption) of all remaining payments to be
received on the REMIC Regular Certificates under the Prepayment Assumption and
(b) any payments included in the stated redemption price at maturity received
during such accrual period, and (ii) subtracting from that total the adjusted
issue price of the REMIC Regular Certificates at the beginning of such accrual
period. The adjusted issue price of a REMIC Regular Certificate at the
beginning of the first accrual period is its issue price; the adjusted issue
price of a REMIC Regular Certificate at the beginning of a subsequent accrual
period is the adjusted issue price at the beginning of the immediately
preceding accrual period plus the amount of OID allocable to that accrual
period and reduced by the amount of any payment other than a payment of
qualified stated interest made at the end of or during that accrual period. The
OID accrued during an accrual period will then be divided by the number of days
in the period to determine the daily portion of OID for each day in the accrual
period. The calculation of OID under the method described above will cause the
accrual of OID to either increase or decrease (but never below zero) in a given
accrual period to reflect the fact that prepayments are occurring faster or
slower than under the Prepayment Assumption. With respect to an initial accrual
period shorter than a full accrual period, the daily portions of OID may be
determined according to an appropriate allocation under any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate issued with OID
who purchases the REMIC Regular Certificate at a cost less than the remaining
stated redemption price at maturity will also be required to include in gross
income the sum of the daily portions of OID on that REMIC Regular Certificate.
In computing the daily portions of OID for such a purchaser (as well as an
initial purchaser that purchases at a price higher than the adjusted issue
price but less than the stated redemption price at maturity), however, the
daily portion is reduced by the amount that would be the daily portion for such
day (computed in accordance with the rules set forth above) multiplied by a
fraction, the numerator of which is the amount, if any, by which the price paid
by such holder for that REMIC Regular Certificate exceeds the following amount:
(a) the sum of the issue price plus the aggregate amount of OID that would have
been includible in the gross income of an original REMIC Regular
Certificateholder (who purchased the REMIC Regular Certificate at its issue
price), less (b) any prior payments included in the stated redemption price at
maturity, and the denominator of which is the sum of the daily portions for
that REMIC Regular Certificate for all days beginning on the date after the
purchase date and ending on the maturity date computed under the Prepayment
Assumption. A holder who pays an acquisition premium instead may elect to
accrue OID by treating the purchase as a purchase at original issue.
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Variable Rate REMIC Regular Certificates. REMIC Regular Certificates
may provide for interest based on a variable rate. Interest based on a variable
rate will constitute qualified stated interest and not contingent interest if,
generally, (i) such interest is unconditionally payable at least annually, (ii)
the issue price of the debt instrument does not exceed the total noncontingent
principal payments and (iii) interest is based on a "qualified floating rate,"
an "objective rate," a combination of a single fixed rate and one or more
"qualified floating rates," one "qualified inverse floating rate," or a
combination of "qualified floating rates "--that do not operate in a manner
that significantly accelerates or defers interest payments on such REMIC
Regular Certificates.
The amount of OID with respect to a REMIC Regular Certificate bearing a
variable rate of interest will accrue in the manner described above under
"--Original Issue Discount and Premium" by assuming generally that the index
used for the variable rate will remain fixed throughout the term of the
Certificate. Appropriate adjustments are made for the actual variable rate.
Although unclear at present, the Depositor intends to treat interest on
a REMIC Regular Certificate that is a weighted average of the net interest
rates on Mortgage Loans as qualified stated interest. In such case, the
weighted average rate used to compute the initial pass-through rate on the
REMIC Regular Certificates will be deemed to be the index in effect through the
life of the REMIC Regular Certificates. It is possible, however, that the IRS
may treat some or all of the interest on REMIC Regular Certificates with a
weighted average rate as taxable under the rules relating to obligations
providing for contingent payments. Such treatment may effect the timing of
income accruals on such REMIC Regular Certificates.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market discount or original issue discount) and premium in income as
interest, based on a constant yield method. If such an election were to be made
with respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Certificateholder acquires during the year of the
election or thereafter. Similarly, a Certificateholder that makes this election
for a Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. See
"--REMIC Regular Certificates--Premium" herein. The election to accrue
interest, discount and premium on a constant yield method with respect to a
Certificate is irrevocable without the consent of the IRS.
Market Discount. A purchaser of a REMIC Regular Certificate may also be
subject to the market discount provisions of Code Sections 1276 through 1278.
Under these provisions and the OID Regulations, "market discount" equals the
excess, if any, of (i) the REMIC Regular Certificate's stated principal amount
or, in the case of a REMIC Regular Certificate with OID, the adjusted issue
price (determined for this purpose as if the purchaser had purchased such REMIC
Regular Certificate from an original holder) over (ii) the price for such REMIC
Regular Certificate paid by the purchaser. A Certificateholder that purchases a
REMIC Regular Certificate at a market discount will recognize income upon
receipt of each distribution representing amounts included in such
certificate's stated redemption price at maturity. In particular, under Section
1276 of the Code such a holder generally will be required to allocate each such
distribution first to accrued market discount not previously included in
income, and to recognize ordinary income to that extent. A Certificateholder
may elect to include market discount in income currently as it accrues rather
than including it on a deferred basis in accordance with the foregoing. If
made, such election will apply to all market discount bonds acquired by such
Certificateholder on or after the first day of the first taxable year to which
such election applies.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular Certificate
is less than 0.25% of such REMIC Regular Certificate's stated redemption price
at maturity multiplied by such REMIC Regular Certificate's weighted average
maturity remaining after the date of purchase. If market discount on a REMIC
Regular Certificate is considered to be zero under this rule, the actual amount
of market discount must be allocated to the remaining principal payments on the
REMIC Regular Certificate, and gain equal to such allocated amount will be
recognized when the corresponding principal payment is made. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore,
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investors should consult their own tax advisors regarding the application of
these rules and the advisability of making any of the elections allowed under
Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986, shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, rules described in
the Legislative History will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest method rate or according to one of the following methods. For
REMIC Regular Certificates issued with OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the OID accruing
during the period and the denominator of which is the total remaining OID at
the beginning of the period. For REMIC Regular Certificates issued without OID,
the amount of market discount that accrues during a period is equal to the
product of (a) the total remaining market discount and (b) a fraction, the
numerator of which is the amount of stated interest paid during the accrual
period and the denominator of which is the total amount of stated interest
remaining to be paid at the beginning of the period. For purposes of
calculating market discount under any of the above methods in the case of
instruments (such as the REMIC Regular Certificates) that provide for payments
that may be accelerated by reason of prepayments of other obligations securing
such instruments, the same Prepayment Assumption applicable to calculating the
accrual of OID will apply.
A holder who acquired a REMIC Regular Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry such Certificate purchased with market discount. For these purposes,
the de minimis rule referred to above applies. Any such deferred interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later than the year in
which such market discount is includible in income. If such holder elects to
include market discount in income currently as it accrues on all market
discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Premium. A purchaser of a REMIC Regular Certificate that purchases the
REMIC Regular Certificate at a cost (not including accrued qualified stated
interest) greater than its remaining stated redemption price at maturity will
be considered to have purchased the REMIC Regular Certificate at a premium and
may elect to amortize such premium under a constant yield method. A
Certificateholder that makes this election for a Certificate that is acquired
at a premium will be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium that such
Certificateholder acquires during the year of the election or thereafter. It is
not clear whether the Prepayment Assumption would be taken into account in
determining the life of the REMIC Regular Certificate for this purpose.
However, the Legislative History states that the same rules that apply to
accrual of market discount (which rules require use of a Prepayment Assumption
in accruing market discount with respect to REMIC Regular Certificates without
regard to whether such Certificates have OID) will also apply in amortizing
bond premium under Code Section 171. The Code provides that amortizable bond
premium will be allocated among the interest payments on such REMIC Regular
Certificates and will be applied as an offset against such interest payment. On
June 27, 1996, the IRS published in the Federal Register proposed regulations
on the amortization of bond premium. The foregoing discussion is based in part
on such proposed regulations. On December 30, 1997, the IRS issued the
Amortizable Bond Premium Regulations, which generally are effective for bonds
acquired on or after March 2, 1998 or, for holders making an election to
amortize bond premium as described above for the taxable year that includes
March 2, 1998 or any subsequent taxable year, will apply to bonds held on or
after the first day of the taxable year in which the election is made. Neither
the proposed regulations nor the final regulations, by their express terms,
apply to prepayable securities described in Section 1272(a)(6) of the Code,
such as the REMIC
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Regular Certificates. Certificateholders should consult their tax advisors
regarding the possibility of making an election to amortize any such bond
premium.
Deferred Interest. Certain classes of REMIC Regular Certificates may
provide for the accrual of Deferred Interest with respect to one or more ARM
Loans. Any Deferred Interest that accrues with respect to a class of REMIC
Regular Certificates will constitute income to the holders of such Certificates
prior to the time distributions of cash with respect to such Deferred Interest
are made. It is unclear, under the OID Regulations, whether any of the interest
on such Certificates will constitute qualified stated interest or whether all
or a portion of the interest payable on such Certificates must be included in
the stated redemption price at maturity of the Certificates and accounted for
as OID (which could accelerate such inclusion). Interest on REMIC Regular
Certificates must in any event be accounted for under an accrual method by the
holders of such Certificates and, therefore, applying the latter analysis may
result only in a slight difference in the timing of the inclusion in income of
interest on such REMIC Regular Certificates.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption,
or retirement and the seller's adjusted basis in the REMIC Regular Certificate.
Such adjusted basis generally will equal the cost of the REMIC Regular
Certificate to the seller, increased by any OID and market discount included in
the seller's gross income with respect to the REMIC Regular Certificate, and
reduced (but not below zero) by payments included in the stated redemption
price at maturity previously received by the seller and by any amortized
premium. Similarly, a holder who receives a payment that is part of the stated
redemption price at maturity of a REMIC Regular Certificate will recognize gain
equal to the excess, if any, of the amount of the payment over an allocable
portion of the holder's adjusted basis in the REMIC Regular Certificate. A
REMIC Regular Certificateholder who receives a final payment that is less than
the holder's adjusted basis in the REMIC Regular Certificate will generally
recognize a loss. Except as provided in the following paragraph and as provided
under "--Market Discount" above, any such gain or loss will be capital gain or
loss, provided that the REMIC Regular Certificate is held as a "capital asset"
(generally, property held for investment) within the meaning of Code Section
1221.
Such capital gain or loss will generally be long-term capital gain or
loss if the REMIC Regular Certificate was held for more than one year.
Long-term capital gains of individuals are subject to reduced maximum tax rates
while capital gains recognized by individual on capital assets held less than
twelve months are generally subject to ordinary income tax rates. The use of
capital losses is limited.
Gain from the sale or other disposition of a REMIC Regular Certificate
that might otherwise be capital gain will be treated as ordinary income to the
extent that such gain does not exceed the excess, if any, of (i) the amount
that would have been includible in such holder's income with respect to the
REMIC Regular Certificate had income accrued thereon at a rate equal to 110% of
the AFR as defined in Code Section 1274(d) determined as of the date of
purchase of such REMIC Regular Certificate, over (ii) the amount actually
includible in such holder's income. Gain from the sale or other disposition of
a REMIC Regular Certificate that might otherwise be capita gain will be treated
as ordinary income if the REMIC 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 REMIC 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 disposition of property that was held
as part of such transaction, or if the REMIC Regular Certificate is held as
part of a straddle. Potential investors should consult their tax advisors with
respect to tax consequences of ownership and disposition of an investment in
REMIC Regular Certificates in their particular circumstances.
It is possible that capital gain realized by holders of one or more
classes of REMIC Regular Certificates could be considered gain realized upon
the disposition of property that was part of a "conversion transaction." A sale
of a REMIC Regular Certificate will be part of a "conversion transaction" if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and (i) the holder entered the contract
to sell the
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REMIC Regular Certificate substantially contemporaneously with acquiring the
REMIC Regular Certificate, (ii) the REMIC Regular Certificate is part of a
straddle, (iii) the REMIC Regular Certificate is marketed or sold as producing
capital gains, or (iv) other transactions to be specified in Treasury
regulations that have not yet been issued. If the sale or other disposition of
a REMIC Regular Certificate is part of a conversion transaction, all or a
portion of the gain realized upon the sale or other disposition of the REMIC
Regular Certificate would be treated as ordinary income instead of capital
gain.
The Certificates will be "evidences of indebtedness" within the meaning
of Code Section 582(c)(1), so that gain or loss recognized from the sale of a
REMIC Regular Certificate by a bank or a thrift institution to which such
section applies will be ordinary income or loss.
The REMIC Regular Certificate information reports will include a
statement of the adjusted issue price of the REMIC Regular Certificate at the
beginning of each accrual period. In addition, the reports will include
information necessary to compute the accrual of any market discount that may
arise upon secondary trading of REMIC Regular Certificates. Because exact
computation of the accrual of market discount on a constant yield method would
require information relating to the holder's purchase price which the REMIC may
not have, it appears that the information reports will only provide information
pertaining to the appropriate proportionate method of accruing market discount.
Accrued Interest Certificates. Certain of the REMIC Regular
Certificates ("Payment Lag Certificates") may provide for payments of interest
based on a period that corresponds to the interval between Distribution Dates
but that ends prior to each such Distribution Date. The period between the
Closing Date for Payment Lag Certificates and their first Distribution Date may
or may not exceed such interval. Purchasers of Payment Lag Certificates for
which the period between the Closing Date and the first Distribution Date does
not exceed such interval could pay upon purchase of the REMIC Regular
Certificates accrued interest in excess of the accrued interest that would be
paid if the interest paid on the Distribution Date were interest accrued from
Distribution Date to Distribution Date. If a portion of the initial purchase
price of a REMIC Regular Certificate is allocable to interest that has accrued
prior to the issue date ("pre-issuance accrued interest") and the REMIC Regular
Certificate provides for a payment of stated interest on the first payment date
(and the first payment date is within one year of the issue date) that equals
or exceeds the amount of the pre-issuance accrued interest, then the REMIC
Regular Certificate's issue price may be computed by subtracting from the issue
price the amount of pre-issuance accrued interest, rather than as an amount
payable on the REMIC Regular Certificate. However, it is unclear under this
method how the OID Regulations treat interest on Payment Lag Certificates.
Therefore, in the case of a Payment Lag Certificate, the Trust Fund intends to
include accrued interest in the issue price and report interest payments made
on the first Distribution Date as interest to the extent such payments
represent interest for the number of days that the Certificateholder has held
such Payment Lag Certificate during the first accrual period.
Investors should consult their own tax advisors concerning the
treatment for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury
regulations, if the REMIC is considered to be a "single-class REMIC," a portion
of the REMIC's servicing, administrative and other non-interest expenses will
be allocated as a separate item to those REMIC Regular Certificateholders that
are "pass-through interest holders." Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of
these rules on an investment in the REMIC Regular Certificates. See
"Pass-Through of Non-Interest Expenses of the REMIC" under "Taxation of Owners
of REMIC Residual Certificates" below.
Effects of Defaults, Delinquencies and Losses. Certain Series of
Certificates may contain one or more classes of Subordinated Certificates, and
in the event there are defaults or delinquencies on the Mortgage Assets,
amounts that would otherwise be distributed on the Subordinated Certificates
may instead be distributed on the Senior Certificates. Subordinated
Certificateholders nevertheless will be required to report income with respect
to such Certificates under an accrual method without giving effect to delays
and reductions in distributions on such Subordinated Certificates attributable
to defaults and delinquencies on the Mortgage Assets, except to the extent that
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it can be established that such amounts are uncollectible. As a result, the
amount of income reported by a Subordinated Certificateholder in any period
could significantly exceed the amount of cash distributed to such holder in
that period. The holder will eventually be allowed a loss (or will be allowed
to report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Subordinated Certificate is reduced as a result of
defaults and delinquencies on the Mortgage Assets.
Although not entirely clear, it appears that holders of REMIC Regular
Certificates that are corporations should in general be allowed to deduct as an
ordinary loss any loss sustained during the taxable year on account of any such
Certificates becoming wholly or partially worthless, and that, in general,
holders of Certificates that are not corporations should be allowed to deduct
as a short-term capital loss any loss sustained during the taxable year on
account of any such Certificates becoming wholly worthless. Potential investors
and holders of the Certificates are urged to consult their own tax advisors
regarding the appropriate timing, amount and character of any loss sustained
with respect to such Certificates, including any loss resulting from the
failure to recover previously accrued interest or discount income. Special loss
rules are applicable to banks and thrift institutions, including rules
regarding reserves for bad debts. Such taxpayers are advised to consult their
tax advisors regarding the treatment of losses on Certificates.
Non-U.S. Persons. Generally, payments of interest (including any
payment with respect to accrued OID) on the REMIC Regular Certificates to a
REMIC Regular Certificateholder who is not a U.S. Person and is not engaged in
a trade or business within the United States will not be subject to federal
withholding tax if (i) such REMIC Regular Certificateholder does not actually
or constructively own 10 percent or more of the combined voting power of all
classes of equity in the issuer; (ii) such REMIC Regular Certificateholder is
not a controlled foreign corporation (within the meaning of Code Section 957)
related to the issuer; and (iii) such REMIC Regular Certificateholder complies
with certain identification requirements (including delivery of a statement,
signed by the REMIC Regular Certificateholder under penalties of perjury,
certifying that such REMIC Regular Certificateholder is a foreign person and
providing the name and address of such REMIC Regular Certificateholder). If a
REMIC Regular Certificateholder is not exempt from withholding, distributions
of interest to such holder, including distributions in respect of accrued OID,
may be subject to a 30% withholding tax, subject to reduction under any
applicable tax treaty. If the interest on a REMIC Regular Certificate is
effectively connected with the conduct by the Non-U.S. REMIC Regular
Certificateholder of a trade or business within the United States, then the
Non-U.S. REMIC Regular Certificateholder will be subject to U.S. income tax at
regular graduated rates. Such a Non-U.S. REMIC Regular Certificateholder also
may be subject to the branch profits tax.
Further, a REMIC Regular Certificate will not be included in the estate
of a non-resident alien individual that does not actually or constructively own
10% or more of the combined voting power of all classes of equity in the Issuer
and will not be subject to United States estate taxes. However,
Certificateholders who are non-resident alien individuals should consult their
tax advisors concerning this question.
REMIC Regular Certificateholders who are not U.S. Persons and persons
related to such holders should not acquire any REMIC Residual Certificates, and
holders of REMIC Residual Certificates (the "REMIC Residual Certificateholder")
and persons related to REMIC Residual Certificateholders should not acquire any
REMIC Regular Certificates without consulting their tax advisors as to the
possible adverse tax consequences of doing so. In addition, the IRS may assert
that non-U.S Persons that own directly or indirectly, a greater than 10%
interest in any Mortgagor, and foreign corporations that are "controlled
foreign corporations" as to the United States of which such a Mortgagor is a
"United States shareholder" within the meaning of Section 951(b) of the Code,
are subject to United States withholding tax on interest distributed to them to
the extent of interest concurrently paid by the related Mortgagor.
For these purposes, a "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 the income of which from sources without the United States
is includible in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business or a
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trust as to which (i) a court in the United States is able to exercise primary
supervision over its administration and (ii) one or more U.S. Persons have the
right to control all substantial decisions of the trust.
Information Reporting and Backup Withholding. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a REMIC Regular Certificateholder at any
time during such year, such information as may be deemed necessary or desirable
to assist REMIC Regular Certificateholders in preparing their federal income
tax returns, or to enable holders to make such information available to
beneficial owners or financial intermediaries that hold such REMIC Regular
Certificates on behalf of beneficial owners. If a holder, beneficial owner,
financial intermediary or other recipient of a payment on behalf of a
beneficial owner fails to supply a certified taxpayer identification number or
if the Secretary of the Treasury determines that such person has not reported
all interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments
with respect to any payments to registered owners who are not "exempt
recipients." In addition, upon the sale of a REMIC Regular Certificate to (or
through) a broker, the broker must withhold 31% of the entire purchase price,
unless either (i) the broker determines that the seller is a corporation or
other exempt recipient, or (ii) the seller provides, in the required manner,
certain identifying information and, in the case of a non-U.S. Person,
certifies that such seller is a Non-U.S. Person, and certain other conditions
are met. Such as sale must also be reported by the broker to the IRS, unless
either (a) the broker determines that the seller is an exempt recipient or (b)
the seller certifies its non-U.S. Person status (and certain other conditions
are met). Certification of the registered owner's non-U.S. Person status
normally would be made on IRS Form W-8 under penalties of perjury, although in
certain cases it may be possible to submit other documentary evidence. Any
amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against such recipient's federal income tax liability.
On October 6, 1997, the Treasury Department issued the New Regulations,
which make certain modifications to the withholding, backup withholding and
information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
B. TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
Allocation of the Income of the REMIC to the REMIC Residual
Certificates. The REMIC will not be subject to federal income tax except with
respect to income from prohibited transactions and certain other transactions.
See "--Prohibited Transactions and Other Taxes" below. Instead, each original
holder of a REMIC Residual Certificate will report on its federal income tax
return, as ordinary income, its share of the taxable income of the REMIC for
each day during the taxable year on which such holder owns any REMIC Residual
Certificates. The taxable income of the REMIC for each day will be determined
by allocating the taxable income of the REMIC for each calendar quarter ratably
to each day in the quarter. Such a holder's share of the taxable income of the
REMIC for each day will be based on the portion of the outstanding REMIC
Residual Certificates that such holder owns on that day. The taxable income of
the REMIC will be determined under an accrual method and will be taxable to the
holders of REMIC Residual Certificates without regard to the timing or amounts
of cash distributions by the REMIC. Ordinary income derived from REMIC Residual
Certificates will be "portfolio income" for purposes of the taxation of
taxpayers subject to the limitations on the deductibility of "passive losses."
As residual interests, the REMIC Residual Certificates will be subject to tax
rules, described below, that differ from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the Certificates or as debt instruments issued by the
REMIC.
A REMIC Residual Certificateholder may be required to include taxable
income from the REMIC Residual Certificate in excess of the cash distributed.
For example, a structure where principal distributions are made serially on
regular interests (that is, a fast-pay, slow-pay structure) may generate such a
mismatching of income and cash distributions (that is, "phantom income"). This
mismatching may be caused by the use of certain required tax accounting methods
by the REMIC, variations in the prepayment rate of the underlying Mortgage
Assets and certain other factors. Depending upon the structure of a particular
transaction, the aforementioned factors may significantly
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reduce the after-tax yield of a REMIC Residual Certificate to a REMIC Residual
Certificateholder or cause the REMIC Residual Certificate to have negative
"value." Investors should consult their own tax advisors concerning the federal
income tax treatment of a REMIC Residual Certificate and the impact of such tax
treatment on the after-tax yield of a REMIC Residual Certificate.
A subsequent REMIC Residual Certificateholder also will report on its
federal income tax return amounts representing a daily share of the taxable
income of the REMIC for each day that such REMIC Residual Certificateholder
owns such REMIC Residual Certificate. Those daily amounts generally would equal
the amounts that would have been reported for the same days by an original
REMIC Residual Certificateholder, as described above. The Legislative History
indicates that certain adjustments may be appropriate to reduce (or increase)
the income of a subsequent holder of a REMIC Residual Certificate that
purchased such REMIC Residual Certificate at a price greater than (or less
than) the adjusted basis such REMIC Residual Certificate would have in the
hands of an original REMIC Residual Certificateholder. See "--Sale or Exchange
of REMIC Residual Certificates" below. It is not clear, however, whether such
adjustments will in fact be permitted or required and, if so, how they would be
made. The REMIC Regulations do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of (i) the income from the
Mortgage Assets and the REMIC's other assets and (ii) the deductions allowed to
the REMIC for interest and OID on the REMIC Regular Certificates and, except as
described above under "--Taxation of Owners of REMIC Regular
Certificates--Non-Interest Expenses of the REMIC," other expenses. REMIC
taxable income is generally determined in the same manner as the taxable income
of an individual using the accrual method of accounting, except that (i) the
limitations on deductibility of investment interest expense and expenses for
the production of income do not apply, (ii) all bad loans will be deductible as
business bad debts, and (iii) the limitation on the deductibility of interest
and expenses related to tax-exempt income will apply. The REMIC's gross income
includes interest, original issue discount income, and market discount income,
if any, on the Mortgage Loans, reduced by amortization of any premium on the
Mortgage Loans, plus income on reinvestment of cash flows and reserve assets,
plus any cancellation of indebtedness income upon allocation of realized losses
to the REMIC Regular Certificates. Note that the timing of cancellation of
indebtedness income recognized by REMIC Residual Certificateholders resulting
from defaults and delinquencies on Mortgage Assets may differ from the time of
the actual loss on the Mortgage Asset. The REMIC's deductions include interest
and original issue discount expense on the REMIC Regular Certificates,
servicing fees on the Mortgage Loans, other administrative expenses of the
REMIC and realized losses on the Mortgage Loans. The requirement that REMIC
Residual Certificateholders report their pro rata share of taxable income or
net loss of the REMIC will continue until there are no Certificates of any
class of the related Series outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the REMIC Regular Certificates and the REMIC Residual Certificates (or, if a
class of Certificates is not sold initially, its fair market value). Such
aggregate basis will be allocated among the Mortgage Assets and other assets of
the REMIC in proportion to their respective fair market value. A Mortgage Asset
will be deemed to have been acquired with discount or premium to the extent
that the REMIC's basis therein is less than or greater than its principal
balance, respectively. Any such discount (whether market discount or OID) will
be includible in the income of the REMIC as it accrues, in advance of receipt
of the cash attributable to such income, under a method similar to the method
described above for accruing OID on the REMIC Regular Certificates. The REMIC
may elect under Code Section 171 to amortize any premium on the Mortgage
Assets. Premium on any Mortgage Asset to which such election applies would be
amortized under a constant yield method. It is not clear whether the yield of a
Mortgage Asset would be calculated for this purpose based on scheduled payments
or taking account of the Prepayment Assumption. Additionally, such an election
would not apply to the yield with respect to any underlying mortgage loan
originated on or before September 27, 1985. Instead, premium with respect to
such a mortgage loan would be allocated among the principal payments thereon
and would be deductible by the REMIC as those payments become due.
The REMIC will be allowed a deduction for interest and OID on the REMIC
Regular Certificates. The amount and method of accrual of OID will be
calculated for this purpose in the same manner as described above with
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respect to REMIC Regular Certificates except that the 0.25% per annum de
minimis rule and adjustments for subsequent holders described therein will not
apply.
A REMIC Residual Certificateholder will not be permitted to amortize
the cost of the REMIC Residual Certificate as an offset to its share of the
REMIC's taxable income. However, REMIC taxable income will not include cash
received by the REMIC that represents a recovery of the REMIC's basis in its
assets, and, as described above, the issue price of the REMIC Residual
Certificates will be added to the issue price of the REMIC Regular Certificates
in determining the REMIC's initial basis in its assets. See "--Sale or Exchange
of REMIC Residual Certificates" below. For a discussion of possible adjustments
to income of a subsequent holder of a REMIC Residual Certificate to reflect any
difference between the actual cost of such REMIC Residual Certificate to such
holder and the adjusted basis such REMIC Residual Certificate would have in the
hands of an original REMIC Residual Certificateholder, see "--Allocation of the
Income of the REMIC to the REMIC Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any
calendar quarter in which its deductions exceed its gross income. Such net loss
would be allocated among the REMIC Residual Certificateholders in the same
manner as the REMIC's taxable income. The net loss allocable to any REMIC
Residual Certificate will not be deductible by the holder to the extent that
such net loss exceeds such holder's adjusted basis in such REMIC Residual
Certificate. Any net loss that is not currently deductible by reason of this
limitation may only be used by such REMIC Residual Certificateholder to offset
its share of the REMIC's taxable income in future periods (but not otherwise).
The ability of REMIC Residual Certificateholders that are individuals or
closely held corporations to deduct net losses may be subject to additional
limitations under the Code.
Mark to Market Rules. Prospective purchasers of a REMIC Residual
Certificate should be aware that the IRS has finalized regulations (the
"Mark-to-Market Regulations") which provide that a REMIC Residual Certificate
acquired after January 3, 1995 cannot be marked to market. The Mark-to-Market
Regulations replaced the temporary regulations which allowed a Residual
Certificate to be marked to market provided that it was not a "negative value"
residual interest and did not have the same economic effect as a "negative
value" residual interest.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule,
all of the fees and expenses of a REMIC will be taken into account by holders
of the REMIC Residual Certificates. In the case of a single class REMIC,
however, the expenses and a matching amount of additional income will be
allocated, under temporary Treasury regulations, among the REMIC Regular
Certificateholders and the REMIC Residual Certificateholders on a daily basis
in proportion to the relative amounts of income accruing to each
Certificateholder on that day. In general terms, a single class REMIC is one
that either (i) would qualify, under existing Treasury regulations, as a
grantor trust if it were not a REMIC (treating all interests as ownership
interests, even if they would be classified as debt for federal income tax
purposes) or (ii) is similar to such a trust and is structured with the
principal purpose of avoiding the single class REMIC rules. Unless otherwise
stated in the applicable Prospectus Supplement, the expenses of the REMIC will
be allocated to holders of the related REMIC Residual Certificates in their
entirety and not to holders of the related REMIC Regular Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest in
a REMIC Regular Certificate or a REMIC Residual Certificate directly or through
a pass-through interest holder that is required to pass miscellaneous itemized
deductions through to its owners or beneficiaries (e.g. a partnership, an S
corporation or a grantor trust), such expenses will be deductible under Code
Section 67 only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such individual's adjusted
gross income. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a certain amount (the "Applicable Amount") will be reduced by the
lesser of (i) 3% of the excess of the individual's adjusted gross income over
the Applicable Amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income recognized by REMIC Residual Certificateholders who are subject to the
limitations of either Code Section 67 or Code Section 68 may be substantial.
Further, holders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holders' alternative minimum taxable income. The REMIC is required to report to
each
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pass-through interest holder and to the IRS such holder's allocable share, if
any, of the REMIC's non-interest expenses. The term "pass-through interest
holder" generally refers to individuals, entities taxed as individuals and
certain pass-through entities, but does not include real estate investment
trusts. Accordingly, investment in REMIC Residual Certificates will in general
not be suitable for individuals or for certain pass-through entities, such as
partnerships and S corporations, that have individuals as partners or
shareholders.
Excess Inclusions. A portion of the income on a REMIC Residual
Certificate (referred to in the Code as an "excess inclusion") for any calendar
quarter will be subject to federal income tax in all events. Thus, for example,
an excess inclusion (i) may not, except as described below, be offset by any
unrelated losses, deductions or loss carryovers of a REMIC Residual
Certificateholder; (ii) will be treated as "unrelated business taxable income"
within the meaning of Code Section 512 if the REMIC Residual Certificateholder
is a pension fund or any other organization that is subject to tax only on its
unrelated business taxable income (see "--Tax-Exempt Investors" below); and
(iii) is not eligible for any reduction in the rate of withholding tax in the
case of a REMIC Residual Certificateholder that is a foreign investor. See
"--Non-U.S. Persons" below.
Except as discussed in the following paragraph, with respect to any
REMIC Residual Certificateholder, the excess inclusions for any calendar
quarter is the excess, if any, of (i) the income of such REMIC Residual
Certificateholder for that calendar quarter from its REMIC Residual Certificate
over (ii) the sum of the "daily accruals" (as defined below) for all days
during the calendar quarter on which the REMIC Residual Certificateholder holds
such REMIC Residual Certificate. For this purpose, the daily accruals with
respect to a REMIC Residual Certificate are determined by allocating to each
day in the calendar quarter its ratable portion of the product of the "adjusted
issue price" (as defined below) of the REMIC Residual Certificate at the
beginning of the calendar quarter and 120 percent of the "Federal long-term
rate" in effect at the time the REMIC Residual Certificate is issued. For this
purpose, the "adjusted issue price" of a REMIC Residual Certificate at the
beginning of any calendar quarter equals the issue price of the REMIC Residual
Certificate, increased by the amount of daily accruals for all prior quarters,
and decreased (but not below zero) by the aggregate amount of payments made on
the REMIC Residual Certificate before the beginning of such quarter. The
"federal long-term rate" is an average of current yields on Treasury securities
with a remaining term of greater than nine years, computed and published
monthly by the IRS.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Regulated investment companies, common trust funds and certain
cooperatives are subject to similar rules.
The Small Business Job Protection Act of 1996 has eliminated the
special rule permitting Section 593 institutions ("thrift institutions") to use
net operating losses and other allowable deductions to offset their excess
inclusion income from REMIC residual certificates that have "significant value"
within the meaning of the REMIC Regulations, effective for taxable years
beginning after December 31, 1995, except with respect to residual certificates
continuously held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum taxable
income for such residual holder is determined without regard to the special
rule that taxable income cannot be less than excess inclusions. Second, the
amount of any alternative minimum tax net operating loss deductions must be
computed without regard to any excess inclusions. Third, a residual holder's
alternative minimum taxable income for a tax year cannot be less than excess
inclusions for the year. The effect of this last statutory amendment is to
prevent the use of nonrefundable tax credits to reduce a taxpayer's income tax
below its tentative minimum tax computed only on excess inclusions. These rules
are effective for tax years beginning after December 31, 1986, unless a
residual holder elects to have such rules apply only to tax years beginning
after August 20, 1996.
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Payments. Any distribution made on a REMIC Residual Certificate to a
REMIC Residual Certificateholder will be treated as a non-taxable return of
capital to the extent it does not exceed the REMIC Residual Certificateholder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
exceeds such adjusted basis, it will be treated as gain from the sale of the
REMIC Residual Certificate.
Sale or Exchange of REMIC Residual Certificates. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or
exchange and its adjusted basis in the REMIC Residual Certificate (except that
the recognition of loss may be limited under the "wash sale" rules described
below). A holder's adjusted basis in a REMIC Residual Certificate generally
equals the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder, increased by the taxable income of the REMIC that was
included in the income of such REMIC Residual Certificateholder with respect to
such REMIC Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to such REMIC Residual
Certificateholder with respect to such REMIC Residual Certificate and by the
distributions received thereon by such REMIC Residual Certificateholder. In
general, any such gain or loss will be capital gain or loss provided the REMIC
Residual Certificate is held as a capital asset. Such capital gain or loss will
generally be long-term capital gain or loss if the REMIC Regular Certificate
was held for more than one year. Long-term capital gains of individuals are
subject to reduced maximum tax rates while capital gains recognized by
individuals on capital assets held less than twelve months are generally
subject to ordinary income tax rates. The use of capital losses is limited.
However, REMIC Residual Certificates will be "evidences of indebtedness" within
the meaning of Code Section 582(c)(1), so that gain or loss recognized from
sale of a REMIC Residual Certificate by a bank or thrift institution to which
such section applies would be ordinary income or loss. In addition, a transfer
of a REMIC Residual Certificate that is a "noneconomic residual interest" may
be subject to different rules. See "--Tax Related Restrictions on Transfers of
REMIC Residual Certificates--Noneconomic REMIC Residual Certificates" below.
Except as provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other REMIC Residual Certificate, any residual
interest in another REMIC or similar interest in a "taxable mortgage pool" (as
defined in Code Section 7701(i)) during the period beginning six months before,
and ending six months after, the date of such sale, such sale will be subject
to the "wash sale" rules of Code Section 1091. In that event, any loss realized
by the REMIC Residual Certificateholder on the sale will not be deductible,
but, instead, will increase such REMIC Residual Certificateholder's adjusted
basis in the newly acquired asset.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income
derived from "prohibited transactions" (the "Prohibited Transactions Tax"). In
general, subject to certain specified exceptions, a prohibited transaction
means the disposition of a Mortgage Asset, the receipt of income from a source
other than a Mortgage Asset or certain other permitted investments, the receipt
of compensation for services, or gain from the disposition of an asset
purchased with the payments on the Mortgage Assets for temporary investment
pending distribution on the Certificates. It is not anticipated that the Trust
Fund for any Series of Certificates will engage in any prohibited transactions
in which it would recognize a material amount of net income.
In addition, certain contributions to a Trust Fund as to which an
election has been made to treat such Trust Fund as a REMIC made after the day
on which such Trust Fund issues all of its interests could result in the
imposition of a tax on the Trust Fund equal to 100% of the value of the
contributed property (the "Contributions Tax"). No Trust Fund for any Series of
Certificates will accept contributions that would subject it to such tax.
In addition, a Trust Fund as to which an election has been made to
treat such Trust Fund as a REMIC may also be subject to federal income tax at
the highest corporate rate on "net income from foreclosure property,"
determined by reference to the rules applicable to real estate investment
trusts. "Net income from foreclosure property" generally means income from
foreclosure property other than qualifying income for a real estate investment
trust.
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Where any Prohibited Transactions Tax, Contributions Tax, tax on net
income from foreclosure property or state or local income or franchise tax that
may be imposed on a REMIC relating to any Series of Certificates arises out of
or results from (i) a breach of the related Servicer's, Trustee's or
Depositor's obligations, as the case may be, under the related Agreement for
such Series, such tax will be borne by such Servicer, Trustee or Depositor, as
the case may be, out of its own funds or (ii) the Depositor's obligation to
repurchase a Mortgage Loan, such tax will be borne by the Depositor. In the
event that such Servicer, Trustee or Depositor, as the case may be, fails to
pay or is not required to pay any such tax as provided above, such tax will be
payable out of the Trust Fund for such Series and will result in a reduction in
amounts available to be distributed to the Certificateholders of such Series.
LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC's final tax return a date on which such adoption is deemed to occur,
and sells all of its assets (other than cash) within a 90-day period beginning
on such date, the REMIC will not be subject to any Prohibited Transaction Tax,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash (other than the amounts retained to meet claims) to
holders of Regular and REMIC Residual Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis in
the REMIC Residual Certificate exceeds the amount of cash distributed to such
REMIC Residual Certificateholder in final liquidation of its interest, then it
would appear that the REMIC Residual Certificateholder would be entitled to a
loss equal to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code,
the REMIC generally will be treated as a partnership and the REMIC Residual
Certificateholders will be treated as the partners. Certain information will be
furnished quarterly to each REMIC Residual Certificateholder who held a REMIC
Residual Certificate on any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the
REMIC Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting
an administrative proceeding at the REMIC level. The REMIC does not intend to
register as a tax shelter pursuant to Code Section 6111 because it is not
anticipated that the REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
TAX-EXEMPT INVESTORS
Any REMIC Residual Certificateholder that is a pension fund or other
entity that is subject to federal income taxation only on its "unrelated
business taxable income" within the meaning of Code Section 512 will be subject
to such tax on that portion of the distributions received on a REMIC Residual
Certificate that is considered an excess inclusion. See "--Taxation of Owners
of REMIC Residual Certificates--Excess Inclusions" above.
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RESIDUAL CERTIFICATE PAYMENTS--NON-U.S. PERSONS
Amounts paid to REMIC Residual Certificateholders who are not U.S.
Persons (see "--Taxation of Owners of REMIC Regular Certificates--Non-U.S.
Persons" above) are treated as interest for purposes of the 30% (or lower
treaty rate) United States withholding tax. Amounts distributed to holders of
REMIC Residual Certificates should qualify as "portfolio interest," subject to
the conditions described in "--Taxation of Owners of REMIC Regular
Certificates" above, but only to the extent that the underlying mortgage loans
were originated after July 18, 1984. Furthermore, the rate of withholding on
any income on a REMIC Residual Certificate that is excess inclusion income will
not be subject to reduction under any applicable tax treaties. See "--Taxation
of Owners of REMIC Residual Certificates--Excess Inclusions" above. If the
portfolio interest exemption is unavailable, such amount will be subject to
United States withholding tax when paid or otherwise distributed (or when the
REMIC Residual Certificate is disposed of) under rules similar to those for
withholding upon disposition of debt instruments that have OID. The Code,
however, grants the Treasury Department authority to issue regulations
requiring that those amounts be taken into account earlier than otherwise
provided where necessary to prevent avoidance of tax (for example, where the
REMIC Residual Certificates do not have significant value). See "--Taxation of
Owners of REMIC Residual Certificates--Excess Inclusions" above. If the amounts
paid to REMIC Residual Certificateholders that are not U.S. Persons are
effectively connected with their conduct of a trade or business within the
United States, the 30% (or lower treaty rate) withholding will not apply.
Instead, the amounts paid to such non-U.S. Person will be subject to U.S.
federal income taxation at regular graduated rates. For special restrictions on
the transfer of REMIC Residual Certificates, see "--Tax-Related Restrictions on
Transfers of REMIC Residual Certificates" below.
REMIC Regular Certificateholders and persons related to such holders
should not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their tax
advisors as to the possible adverse tax consequences of such acquisition.
TAX-RELATED RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by "disqualified organizations" (as defined below).
Further, a tax is imposed on the transfer of a residual interest in a REMIC to
a "disqualified organization." The amount of the tax equals the product of (A)
an amount (as determined under the REMIC Regulations) equal to the present
value of the total anticipated "excess inclusions" with respect to such
interest for periods after the transfer and (ii) the highest marginal federal
income tax rate applicable to corporations. The tax is imposed on the
transferor unless the transfer is through an agent (including a broker or other
middleman) for a disqualified organization, in which event the tax is imposed
on the agent. The person otherwise liable for the tax shall be relieved of
liability for the tax if the transferee furnished to such person an affidavit
that the transferee is not a disqualified organization and, at the time of the
transfer, such person does not have actual knowledge that the affidavit is
false. A "disqualified organization" means (A) the United States, any State,
possession or political subdivision thereof, any foreign government, any
international organization or any agency or instrumentality of any of the
foregoing (provided that such term does not include an instrumentality if all
its activities are subject to tax and, except for FHLMC, a majority of its
board of directors is not selected by any such governmental agency), (B) any
organization (other than certain farmers' cooperatives) generally exempt from
federal income taxes unless such organization is subject to the tax on
"unrelated business taxable income" and (C) a rural electric or telephone
cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding
a residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity, provided that all partners of an "electing large
partnership" as defined in Section 775 of the Code, are deemed to be
disqualified organizations. The amount of the tax is equal to the product of
(A) the amount of excess inclusions for the taxable year allocable to the
interest held by the disqualified organization and (B) the highest marginal
federal income tax rate applicable to corporations. The pass-through entity
otherwise liable for the tax, for any period during which the disqualified
organization is the record holder of an interest in such entity, will be
relieved of liability for the tax if such record holder furnishes to such
entity an affidavit that such record holder is not a disqualified organization
and, for such period, the pass-through entity does not have actual knowledge
that the affidavit is false. For this purpose, a "pass-through entity" means
(i) a regulated investment company, real estate investment trust or common
trust fund, (ii) a partnership, trust or estate and (iii) certain cooperatives.
Except as may
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be provided in Treasury regulations not yet issued, any person holding an
interest in a pass-through entity as a nominee for another will, with respect
to such interest, be treated as a pass-through entity. Electing large
partnerships (generally, non-service partnerships with 100 or more members
electing to be subject to simplified IRS reporting provisions under Code
sections 771 through 777) will be taxable on excess inclusion income as if all
partners were disqualified organizations.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a REMIC Residual Certificate may be
purchased, transferred or sold, directly or indirectly, without the express
written consent of the Master Servicer. The Master Servicer will grant such
consent to a proposed transfer only if it receives the following: (i) an
affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the REMIC Residual Certificate
as a nominee or agent for a disqualified organization and (ii) a covenant by
the proposed transferee to the effect that the proposed transferee agrees to be
bound by and to abide by the transfer restrictions applicable to the REMIC
Residual Certificate.
Noneconomic REMIC Residual Certificates. The REMIC Regulations
disregard, for federal income tax purposes, any transfer of a Noneconomic REMIC
Residual Certificate to a "U.S. Person," as defined above, unless no
significant purpose of the transfer is to enable the transferor to impede the
assessment or collection of tax. A Noneconomic REMIC Residual Certificate is
any REMIC Residual Certificate (including a REMIC Residual Certificate with a
positive value at issuance) unless, at the time of transfer, taking into
account the Prepayment Assumption and any required or permitted clean up calls
or required liquidation provided for in the REMIC's organizational documents,
(i) the present value of the expected future distributions on the REMIC
Residual Certificate at least equals the product of the present value of the
anticipated excess inclusions and the highest corporate income tax rate in
effect for the year in which the transfer occurs and (ii) the transferor
reasonably expects that the transferee will receive distributions from the
REMIC at or after the time at which taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. A significant
purpose to impede the assessment or collection of tax exists if the transferor,
at the time of the transfer, either knew or should have known that the
transferee would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. A transferor is presumed not to have such
knowledge if (i) the transferor conducted a reasonable investigation of the
transferee and (ii) the transferee acknowledges to the transferor that the
residual interest may generate tax liabilities in excess of the cash flow and
the transferee represents that it intends to pay such taxes associated with the
residual interest as they become due. If a transfer of a Noneconomic REMIC
Residual Certificate is disregarded, the transferor would continue to be
treated as the owner of the REMIC Residual Certificate and would continue to be
subject to tax on its allocable portion of the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
REMIC Residual Certificate that has a "tax avoidance potential" to a "foreign
person" will be disregarded for federal income tax purposes. This rule appears
to apply to a transferee who is not a U.S. Person unless such transferee's
income in respect of the REMIC Residual Certificate is effectively connected
with the conduct of a United Sates trade or business. A REMIC Residual
Certificate is deemed to have a tax avoidance potential unless, at the time of
transfer, the transferor reasonably expect that the REMIC will distribute to
the transferee amounts that will equal at least 30 percent of each excess
inclusion, and that such amounts will be distributed at or after the time the
excess inclusion accrues and not later than the end of the calendar year
following the year of accrual. If the non-U.S. Person transfers the REMIC
Residual Certificate to a U.S. Person, the transfer will be disregarded, and
the foreign transferor will continue to be treated as the owner, if the
transfer has the effect of allowing the transferor to avoid tax on accrued
excess inclusions. The provisions in the REMIC Regulations regarding transfers
of REMIC Residual Certificates that have tax avoidance potential to foreign
persons are effective for all transfers after June 30, 1992. The Pooling and
Servicing Agreement will provide that no record or beneficial ownership
interest in a REMIC Residual Certificate may be transferred, directly or
indirectly, to a non-U.S. Person unless such person provides the Trustee with a
duly completed IRS Form 4224 and the Trustee consents to such transfer in
writing.
Any attempted transfer or pledge in violation of the transfer
restrictions shall be absolutely null and void and shall vest no rights in any
purported transferee. Investors in REMIC Residual Certificates are advised to
consult their own tax advisors with respect to transfers of the REMIC Residual
Certificates and, in addition, pass-through
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entities are advised to consult their own tax advisors with respect to any tax
which may be imposed on a pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Certain Federal Income Tax Consequences," potential investors should consider
the state income tax consequences of the acquisition, ownership, and
disposition of the Offered Certificates. State income tax law may differ
substantially from the corresponding federal law, and this discussion does not
purport to describe any aspect of the income tax laws of any state. Therefore,
potential investors should consult their own tax advisors with respect to the
various tax consequences of investments in the Offered Certificates.
CERTAIN ERISA CONSIDERATIONS
GENERAL
Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), imposes certain restrictions on employee benefit plans
subject thereto ("ERISA Plans") and on persons who are parties in interest or
disqualified persons ("parties in interest") with respect to such ERISA Plans.
Certain employee benefit plans, such as governmental plans and church plans (if
no election has been made under Section 410(d) of the Code), are not subject to
the restrictions of ERISA, and assets of such plans may be invested in the
Certificates without regard to the ERISA considerations described below,
subject to other applicable federal, state or local law. However, any such
governmental or church plan which is qualified under Section 401(a) of the Code
and exempt from taxation under Section 501(a) of the Code is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that an ERISA Plan's investments be made in
accordance with the documents governing the ERISA Plan.
PROHIBITED TRANSACTIONS
GENERAL
Section 406 of ERISA prohibits parties in interest with respect to an
ERISA Plan from engaging in certain transactions involving such Plan and its
assets unless a statutory or administrative exemption applies to the
transaction. In some cases, a civil penalty may be assessed on non-exempt
prohibited transactions pursuant to Section 502(i) of ERISA. Section 4975 of
the Code imposes certain excise taxes on similar transactions between employee
benefit plans and certain other retirement plans and arrangements, subject
thereto including individual retirement accounts or annuities and Keogh plans,
subject thereto and disqualified persons with respect to such plans and
arrangements (together with ERISA Plans, "Plans").
The United States Department of Labor ("Labor") has issued a final
regulation (29 C.F.R. Section 2510.3-101) containing rules for determining what
constitutes the assets of a Plan. This regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships,
trusts and certain other entities in which a Plan makes an "equity investment"
will be deemed for purposes of ERISA and Section 4975 of the Code to be assets
of the Plan unless certain exceptions apply.
Under the terms of the regulation, the Trust may be deemed to hold plan
assets by reason of a Plan's investment in a Certificate; such plan assets
would include an undivided interest in the Mortgage Loans and any other assets
held by the Trust. In such an event, the Depositor, the Master Servicer, any
Sub-Servicer, the Trustee, any insurer of the Mortgage Assets and other
persons, in providing services with respect to the assets of the Trust,
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may become fiduciaries subject to the fiduciary responsibility provisions of
Title I of ERISA, or may otherwise become parties in interest or disqualified
persons, with respect to such Plan. In addition, transactions involving such
assets could constitute or result in prohibited transactions under Section 406
of ERISA or Section 4975 of the Code unless such transactions are subject to a
statutory or administrative exemption.
The regulations contain a de minimis safe-harbor rule that exempts the
assets of an entity from plan assets status as long as the aggregate equity
investment in such entity by plans is not significant. For this purpose, equity
participation in the entity will be significant if immediately after any
acquisition of any equity interest in the entity, "benefit plan investors" in
the aggregate, own at least 25% of the value of any class of equity interest
(excluding equity interests held by persons who have discretionary authority or
control with respect to the assets of the entity (or held by affiliates of such
persons)). "Benefit plan investors" are defined as Plans as well as employee
benefit plans not subject to Title I of ERISA (e.g., governmental plans and
foreign plans) and entities whose underlying assets include plan assets by
reason of plan investment in such entities. The 25% limitation must be met with
respect to each class of equity interests, regardless of the portion of total
equity value represented by such class, on an ongoing basis.
AVAILABILITY OF UNDERWRITER'S EXEMPTION FOR CERTIFICATES
Labor has granted to Morgan Stanley & Co. Incorporated Prohibited
Transaction Exemption 90-24, Exemption Application No. D-8019, 55 Fed. Reg.
20548 (1990) (the "Exemption") which exempts from the application of the
prohibited transaction rules transactions relating to: (1) the acquisition,
sale and holding by Plans of certain certificates representing an undivided
interest in certain asset-backed pass-through trusts, with respect to which
Morgan Stanley & Co. Incorporated or any of its affiliates is the sole
underwriter or the manager or co-manager of the underwriting syndicate; and (2)
the servicing, operation and management of such asset-backed pass-through
trusts, provided that the general conditions and certain other conditions set
forth in the Exemption are satisfied.
General Conditions of the Exemption. Section II of the Exemption sets
forth the following general conditions which must be satisfied before a
transaction involving the acquisition, sale and holding of the Certificates or
a transaction in connection with the servicing, operation and management of the
Trust may be eligible for exemptive relief thereunder:
(1) The acquisition of the Certificates by a Plan is on terms
(including the price for such Certificates) that are at least as favorable to
the investing Plan as they would be in an arm's-length transaction with an
unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by other
certificates of the Trust with respect to the right to receive payment in the
event of default or delinquencies in the underlying assets of the Trust;
(3) The Certificates acquired by the Plan have received a rating at the
time of such acquisition that is in one of the three highest generic rating
categories from any of Duff & Phelps Credit Rating Co., Fitch Investors
Service, L.P., Moody's Investors Service, Inc. and Standard & Poor's Ratings
Services;
(4) The Trustee is not an affiliate of the Depositor, any Underwriter,
the Master Servicer, any insurer of the Mortgage Assets, any borrower whose
obligations under one or more Mortgage Loans constitute more than 5% of the
aggregate unamortized principal balance of the assets in the Trust, or any of
their respective affiliates (the "Restricted Group");
(5) The sum of all payments made to and retained by the Underwriter in
connection with the distribution of the Certificates represents not more than
reasonable compensation for underwriting such Certificates; the sum of all
payments made to and retained by the Asset Seller pursuant to the sale of the
Mortgage Loans to the Trust represents not more than the fair market value of
such Mortgage Loans; the sum of all payments made to and retained by the
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Master Servicer represent not more than reasonable compensation for the Master
Servicer's services under the Pooling Agreement and reimbursement of the Master
Servicer's reasonable expenses in connection therewith; and
(6) The Plan investing in the Certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933 as amended.
Before purchasing a Certificate in reliance on the Exemption, a
fiduciary of a Plan should itself confirm (a) that the Certificates constitute
"certificates" for purposes of the Exemption and (b) that the general
conditions and other requirements set forth in the Exemption would be
satisfied.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any Certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Among other things, before purchasing any
Certificates, a fiduciary of a Plan should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions. In
this regard, purchasers that are insurance companies should determine the
extent to which Prohibited Transaction Class Exemption 95-60 (for certain
transactions involving insurance company general accounts) may be available.
The Prospectus Supplement with respect to a series of Certificates may contain
additional information regarding the application of the Exemption, Prohibited
Transaction Class Exemption 83-1 (for certain transactions involving mortgage
pool investment trusts), or any other exemption, with respect to the
Certificates offered thereby.
LEGAL INVESTMENT
The Prospectus Supplement for each series of Offered Certificates will
identify those classes of Offered Certificates, if any, which constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"). Generally, only those classes of
Offered 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
representing interests in a Trust Fund consisting of Mortgage Loans or MBS,
provided that such Mortgage Loans (or the Mortgage Loans underlying the MBS)
are secured by first liens on Mortgaged Property and were originated by certain
types of originators as specified in SMMEA, will be "mortgage related
securities" for purposes of SMMEA (the "SMMEA Certificates"). As "mortgage
related securities," the SMMEA Certificates will constitute legal investments
for persons, trusts, corporations, partnerships, associations, business trusts
and business entities (including, but not limited to, depository insitutions,
insurance companies, trustees and pension funds) 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 established by SMMEA for such enactments,
limiting to varying extents the ability of certain entities (in particular,
insurance companies) to invest in mortgage related securities, in most cases by
requiring the affected investors to rely solely upon existing state law, and
not SMMEA. Pursuant to Section 347 of the Riegle Community Development and
Regulatory Improvement Act of 1994, which amended the definition of "mortgage
related security" (effective December 31, 1996) to include, in relevant part,
Offered Certificates satisfying the rating, first lien and qualified originator
requirements for "mortgage related securities," but representing 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 Offered Certificates. Accordingly, investors affected by such legislation,
when and if enacted, will be authorized to invest in SMMEA Certificates only to
the extent provided in such legislation.
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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(1) to include certain "commercial mortgage-related securities" and
"residential mortgage-related securities." As so defined, "commercial
mortgage-related security" and "residential mortgage-related security" mean, in
relevant part, "mortgage-related security" within the meaning of SMMEA,
provided that, in the case of a "commercial mortgage-related security," it
"represents ownership of a promissory note or certificate of interest or
participation that is directly secured by a first lien on one or more parcels
of real estate upon which one or more commercial structures are located and
that is fully secured by interests in a pool of loans to numerous obligors." In
the absence of any rule or administrative interpretation by the OCC defining
the term "numerous obligors," no representation is made as to whether any class
of Offered Certificates will qualify as "commercial mortgage-related
securities," and thus as "Type IV securities," for investment by national
banks. The National Credit Union Administration ("NCUA") has adopted rules,
codified at 12 C.F.R. Section 703, which permit federal credit unions to invest
in "mortgage related securities" under certain limited circumstances, other
than stripped mortgage related securities, residual interests in mortgage
related securities, and commercial mortgage related securities, unless the
credit union has obtained written approval 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 Offered
Certificates should review the "Supervisory Policy Statement on Investment
Securities and End-User Derivatives Activities" (the "1998 Policy Statement")
of the Federal Financial Institutions Examination Council (the "FFIEC"), 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
Supervision effective May 26, 1998, and by the NCUA, effective October 1, 1998.
The 1998 Policy Statement sets forth general guidelines which depository
institutions must follow in managing risks (including market, credit,
liquidity, operational (transaction), and legal risks) applicable to all
securities (including mortgage pass-through securities and mortgage-derivative
products) used for investment purposes. Until October 1, 1998, federal credit
unions will still be subject to the FFIEC's now-superseded "Supervisory Policy
Statement on Securities Activities" dated January 28, 1992, as adopted by the
NCUA with certain modifications, which prohibited depository institutions from
investing in certain "high-risk mortgage securities," 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 Offered
Certificates, as certain series or classes may be deemed to be 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 Offered Certificates
issued in book-entry form, provisions which may restrict or prohibit
investments in securities which are issued in book-entry form.
If specified in the related Prospectus Supplement, other classes of
Offered Certificates offered pursuant to this Prospectus will not constitute
"mortgage related securities" under SMMEA. The appropriate characterization of
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such Offered Certificates under various legal investment restrictions, and thus
the ability of investors subject to these restrictions to purchase such Offered
Certificates, may be subject to significant interpretive uncertainties.
Except as to the status of certain classes of Offered Certificates
identified in the Prospectus Supplement for a series as "mortgage related
securities" under SMMEA, no representations are 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 any Offered Certificates under
applicable legal investment restrictions. The uncertainties described above
(and any unfavorable future determinations concerning legal investment or
financial institution regulatory characteristics of the Offered Certificates)
may adversely affect the liquidity of the Offered Certificates.
Accordingly, all investors whose investment activities are subject to
legal investment laws and regulations, regulatory capital requirements or
review by regulatory authorities should consult with their own legal advisors
in determining whether and to what extent the Offered Certificates of any class
constitute legal investments or are subject to investment, capital or other
restrictions, and, if applicable, whether SMMEA has been overridden in any
jurisdiction relevant to such investor.
PLAN OF DISTRIBUTION
The Offered Certificates offered hereby and by the Supplements to this
Prospectus will be offered in series. The distribution of the Certificates may
be effected from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If so
specified in the related Prospectus Supplement, the Offered Certificates will
be distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by Morgan Stanley & Co. Incorporated
("Morgan Stanley") acting as underwriter with other underwriters, if any, named
therein. In such event, the Prospectus Supplement may also specify that the
underwriters will not be obligated to pay for any Offered Certificates agreed
to be purchased by purchasers pursuant to purchase agreements acceptable to the
Depositor. In connection with the sale of Offered Certificates, underwriters
may receive compensation from the Depositor or from purchasers of Offered
Certificates in the form of discounts, concessions or commissions. The
Prospectus Supplement will describe any such compensation paid by the
Depositor.
Alternatively, the Prospectus Supplement may specify that Offered
Certificates will be distributed by Morgan Stanley acting as agent or in some
cases as principal with respect to Offered Certificates that it has previously
purchased or agreed to purchase. If Morgan Stanley acts as agent in the sale of
Offered Certificates, Morgan Stanley will receive a selling commission with
respect to such Offered Certificates, depending on market conditions, expressed
as a percentage of the aggregate Certificate Balance or notional amount of such
Offered Certificates as of the Cut-off Date. The exact percentage for each
series of Certificates will be disclosed in the related Prospectus Supplement.
To the extent that Morgan Stanley elects to purchase Offered Certificates as
principal, Morgan Stanley may realize losses or profits based upon the
difference between its purchase price and the sales price. The Prospectus
Supplement with respect to any series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the Depositor and purchasers of Offered
Certificates of such series.
The Depositor will indemnify Morgan Stanley and any underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933, or will contribute to payments Morgan Stanley and any underwriters
may be required to make in respect thereof.
In the ordinary course of business, Morgan Stanley 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.
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Offered Certificates will be sold primarily to institutional investors.
Purchasers of Offered Certificates, including dealers, may, depending on the
facts and circumstances of such purchases, be deemed to be "underwriters"
within the meaning of the Securities Act of 1933 in connection with reoffers
and sales by them of Offered Certificates. Certificateholders should consult
with their legal advisors in this regard prior to any such reoffer or sale.
As to each series of Certificates, only those classes rated in an
investment grade rating category by any Rating Agency will be offered hereby.
Any non-investment-grade class may be initially retained by the Depositor, and
may be sold by the Depositor at any time in private transactions.
LEGAL MATTERS
Certain legal matters in connection with the Certificates, including
certain federal income tax consequences, will be passed upon for the Depositor
by Cadwalader, Wickersham & Taft or Latham & Watkins, New York, New York or
Brown & Wood LLP, New York, New York or such other counsel as may be specified
in the related Prospectus Supplement.
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 rating categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. As a result, certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped interest certificates in extreme cases might fail to recoup their
initial investments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
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INDEX OF PRINCIPAL DEFINITIONS
Page(s) on which
term is defined
Term in the Prospectus
- ---- -----------------
Accrual Certificates.................................................9
ADA.................................................................74
Applicable Amount...................................................95
ARM Loans.......................................................26, 80
Asset Conservation Act..............................................70
Asset Seller........................................................22
Assets...............................................................1
Balloon Mortgage Loans..............................................18
Bankruptcy Code.....................................................65
Book-Entry Certificates.............................................32
Cash Flow Agreement..................................................8
Cash Flow Agreements.................................................1
Cede.............................................................3, 39
CERCLA..........................................................20, 70
Certificate Account.................................................43
Certificate Balance..................................................9
Certificate Owners..................................................39
Certificateholders...................................................3
Closing Date........................................................85
Commercial Loans....................................................22
Commercial Properties................................................6
Commission...........................................................2
Contributions Tax...................................................97
Cooperatives........................................................23
Covered Trust.......................................................57
CPR.................................................................30
Credit Support................................................1, 8, 28
Crime Control Act...................................................75
Deferred Interest...................................................82
Definitive Certificates.........................................32, 40
Depositor...........................................................22
Determination Date..................................................33
DTC..............................................................3, 39
Due Period..........................................................33
Environmental Hazard Condition......................................71
Equity Participations...............................................26
ERISA..............................................................101
Exchange Act.........................................................3
Exemption..........................................................102
FDIC................................................................43
FHLMC...............................................................53
FNMA................................................................71
Government Securities.........................................1, 7, 22
Indirect Participants...............................................39
Insurance Proceeds..................................................44
IRS.................................................................77
L/C Bank............................................................58
Labor..............................................................101
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Page(s) on which
term is defined
Term in the Prospectus
- ---- -----------------
Lease................................................................3
Lease Assignment.....................................................1
Legislative History.................................................85
Lessee...............................................................3
Liquidation Proceeds................................................44
Lock-out Date.......................................................26
Lock-out Period.....................................................26
Mark-to-Market Regulations..........................................95
Master REMIC........................................................84
MBS...........................................................1, 5, 22
MBS Agreement.......................................................26
MBS Issuer..........................................................26
MBS Servicer........................................................26
MBS Trustee.........................................................26
Morgan Stanley.....................................................105
Mortgage Loans................................................1, 5, 22
Mortgage Notes......................................................23
Mortgage Rate....................................................7, 26
Mortgages...........................................................23
Multifamily Loans...................................................22
Multifamily Properties...........................................6, 22
NCUA...............................................................104
Nonrecoverable Advance..............................................36
OID.............................................................75, 77
OID Regulations.....................................................77
Originator..........................................................23
Participants........................................................39
Pass-Through Rate................................................9, 34
Payment Lag Certificates............................................91
Permitted Investments...............................................43
Plans..............................................................101
Prepayment Assumption...............................................81
Prepayment Premium..................................................26
Prohibited Transactions Tax.........................................97
RCRA................................................................70
Record Date.........................................................33
Related Proceeds....................................................36
Relief Act..........................................................74
REMIC Certificates..................................................84
REMIC Regular Certificateholders....................................85
REMIC Regular Certificates......................................12, 84
REMIC Regulations...................................................75
REMIC Residual Certificateholder....................................92
REMIC Residual Certificates.....................................84, 94
REO Extension.......................................................63
REO Tax.............................................................64
Restricted Group...................................................102
RICO................................................................74
Senior Certificates..............................................9, 32
Servicing Standard..................................................47
SMMEA..............................................................103
SMMEA Certificates.................................................103
Special Servicer.................................................5, 48
Stripped ARM Obligations............................................82
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Page(s) on which
term is defined
Term in the Prospectus
- ---- -----------------
Stripped Bond Certificates..........................................79
Stripped Coupon Certificates........................................79
Stripped Interest Certificates...................................9, 32
Stripped Principal Certificates..................................9, 32
Subordinate Certificates.........................................9, 32
Sub-Servicer........................................................47
Sub-Servicing Agreement.............................................48
Subsidiary REMIC....................................................84
Super-Premium Certificates..........................................86
Title V.............................................................73
Trust Assets.........................................................2
Trust Fund...........................................................1
UCC.................................................................39
Voting Rights.......................................................21
Warrantying Party...................................................42
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