<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration File No.: 333-44299-01
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 17, 1998)
$835,556,000 (APPROXIMATE)
HELLER FINANCIAL COMMERCIAL MORTGAGE ASSET CORP.
as Depositor
PRUDENTIAL MORTGAGE CAPITAL FUNDING, LLC
and
HELLER FINANCIAL CAPITAL FUNDING, INC.
as Mortgage Loan Sellers
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1999 PH-1
--------------
Heller Financial Commercial Mortgage Asset Corp. is offering certain
classes of its Series 1999 PH-1 Mortgage Pass-Through Certificates, which
represent beneficial ownership interests in a trust. The trust's assets will
primarily be 190 mortgage loans secured by first liens on commercial and
multifamily properties. The Series 1999 PH-1 Certificates are not obligations
of Heller Financial Commercial Mortgage Asset Corp. or any of its affiliates,
and neither the certificates nor the underlying mortgage loans are insured or
guaranteed by any governmental agency.
--------------
Heller Financial Commercial Mortgage Asset Corp. 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 20 of this prospectus supplement and page 14 of the
prospectus.
--------------
Certain characteristics of the offered certificates include:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APPROXIMATE INITIAL INITIAL RATE EXPECTED RATINGS RATED FINAL
CLASS CLASS BALANCE (1) PASS-THROUGH RATE (2) DESCRIPTION (3) (FITCH/MOODY'S) (4) DISTRIBUTION DATE (4)
<S> <C> <C> <C> <C> <C>
Class A-1 ......... $204,000,000 6.500% Fixed AAA/Aaa May 15, 2031
Class A-2 ......... $535,631,000 6.847% Fixed AAA/Aaa May 15, 2031
Class B ........... $ 22,719,000 6.982% NWAC AAA/Aa1 May 15, 2031
Class C ........... $ 20,195,000 7.082% NWAC AA/Aa2 May 15, 2031
Class D ........... $ 53,011,000 7.246% NWAC A/A2 May 15, 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.
Prudential Securities Incorporated and Morgan Stanley & Co. Incorporated
will purchase the offered certificates from Heller Financial Commercial
Mortgage Asset Corp. and will offer them to the public at negotiated prices
determined at the time of sale. Prudential Securities Incorporated and Morgan
Stanley & Co. Incorporated expect to deliver the offered certificates to
purchasers on or about May 27, 1999. Heller Financial Commercial Mortgage Asset
Corp. expects to receive from this offering approximately 101% of the initial
principal amount of the offered certificates, plus accrued interest from May 1,
1999, before deducting expenses payable by Heller Financial Commercial Mortgage
Asset Corp.
--------------
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MAY 21, 1999
<PAGE>
HELLER FINANCIAL COMMERCIAL MORTGAGE ASSET CORP.
Commercial Mortgage Pass-Through Certificates, Series 1999 PH-1
Geographic Overview of Mortgage Pool
IDAHO
2 properties
$5,764,325
0.57% of total
NEBRASKA
1 property
$1,595,602
0.16% of total
MISSOURI
4 properties
$9,185,853
0.91% of total
ILLINOIS
10 properties
$93,215,925
9.23% of total
WISCONSIN
7 properties
$10,140,964
1.00% of total
MICHIGAN
10 properties
$39,575,727
3.92% of total
INDIANA
1 property
$5,300,000
0.52% of total
OHIO
6 properties
$46,911,330
4.65% of total
PENNSYLVANIA
8 properties
$33,399,798
3.31% of total
NEW YORK
10 properties
$31,060,973
3.08% of total
NEW HAMPSHIRE
1 property
$1,909,947
0.19% of total
MAINE
1 property
$2,494,008
0.25% of total
MASSACHUSETTS
7 properties
$25,219,580
2.50% of total
<PAGE>
RHODE ISLAND
3 properties
$2,034,262
0.20% of total
NEW JERSEY
8 properties
$106,585,389
10.56% of total
DELAWARE
1 property
$3,491,564
0.35% of total
MARYLAND
1 property
$2,196,853
0.22% of total
NORTH CAROLINA
4 properties
$15,790,145
1.56% of total
VIRGINIA
6 properties
$38,034,153
3.77% of total
SOUTH CAROLINA
1 property
$39,750,211
3.94% of total
GEORGIA
2 properties
$6,279,621
0.62% of total
TENNESSEE
7 properties
$34,955,146
3.46% of total
FLORIDA
24 properties
$77,410,158
7.67% of total
KENTUCKY
2 properties
$2,727,371
0.27% of total
ALABAMA
2 properties
$2,738,327
0.27% of total
<PAGE>
OKLAHOMA
2 properties
$11,243,195
1.11% of total
TEXAS
14 properties
$125,370,229
12.42% of total
KANSAS
3 properties
$8,898,737
0.88% of total
COLORADO
9 properties
$21,626,838
2.14% of total
NEW MEXICO
2 properties
$20,183,678
2.00% of total
ARIZONA
3 properties
$11,164,064
1.11% of total
HAWAII
1 property
$14,307,402
1.42% of total
CALIFORNIA
22 properties
$99,365,779
9.84% of total
NEVADA
4 properties
$30,526,095
3.02% of total
OREGON
4 properties
$10,804,373
1.07% of total
WASHINGTON
7 properties
$18,478,682
1.83% of total
[ ]
(is less than or equal to) 1.00%
of Initial Pool Balance
[ ]
1.01 - 5.00%
of Initial Pool Balance
[ ]
5.01 - 10.00%
of Initial Pool Balance
[ ]
(greater than) 10.00%
of Initial Pool Balance
<PAGE>
- --------
(1) Approximate; subject to a variance of plus or minus 5%.
(2) The pass-through rates for the Class A-1 and Class A-2 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 B, Class C and Class D
Certificates set forth in the table are approximate initial Pass-Through
Rates. The pass through rates for the Class B, Class C and Class D
Certificates are 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 May 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" in the prospectus.
---------------------
If and when included in this prospectus supplement and the accompanying
prospectus, the words "expects," "intends," "anticipates," "estimates" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to a variety of risks and uncertainties that could cause
actual results to differ materially from those projected. Such risks and
uncertainties include, among others, general economic and business conditions,
competition, changes in foreign political, social and economic conditions,
regulatory initiatives and compliance with governmental regulations, customer
preferences and various other events, conditions and circumstances, many of
which are beyond the depositor's control. These forward-looking statements
speak only as of the date of this prospectus supplement. The depositor
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statement contained herein to
reflect any change in the depositor's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based.
In this prospectus supplement, the terms "Depositor," "we," "us" and "our"
refer to Heller Financial Commercial Mortgage Asset Corp.
UNTIL AUGUST 21, 1999, 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
<TABLE>
<S> <C>
EXECUTIVE SUMMARY ............................... S-5
SUMMARY OF TERMS ................................ S-7
OFFERED SECURITIES .............................. S-8
THE MORTGAGE POOL ............................... S-12
ADDITIONAL ASPECTS OF
CERTIFICATES ................................... S-17
RISK FACTORS .................................... S-20
DESCRIPTION OF THE CERTIFICATES ................. S-43
General ........................................ S-43
Registration; Denominations .................... S-43
Book-Entry Registration ........................ S-43
Certificate Balances and Notional Amounts ...... S-44
Pass-Through Rates ............................. S-45
Distributions .................................. S-46
Appraisal Reductions ........................... S-50
Subordination; Allocation of Losses and
Certain Expenses .............................. S-51
Prepayment Interest Shortfalls ................. S-52
Optional Termination ........................... S-53
Advances ....................................... S-53
Reports to Certificateholders; Available
Information ................................... S-55
Book-Entry Certificates ........................ S-57
Example of Distributions ....................... S-58
Voting Rights .................................. S-58
The Trustee and the Fiscal Agent ............... S-59
The Trustee ................................... S-59
The Fiscal Agent .............................. S-59
MATURITY CONSIDERATIONS ......................... S-59
YIELD CONSIDERATIONS ............................ S-64
General ........................................ S-64
Rate and Timing of Principal Payments .......... S-64
Losses and Shortfalls .......................... S-65
Certain Relevant Factors ....................... S-65
Delay in Payment of Distributions .............. S-65
DESCRIPTION OF THE MORTGAGE
POOL ........................................... S-65
General ........................................ S-65
Certain Terms and Characteristics of the
Mortgage Loans ................................ S-67
Assessments of Property Value and Condition S-71
Additional Mortgage Loan Information ........... S-72
Standard Hazard Insurance ...................... S-74
The Sellers .................................... S-75
Heller Financial Capital Funding, Inc. ........ S-75
Prudential Mortgage Capital Funding, LLC S-75
Underwriting Guidelines and Process ........... S-75
Acquisition of Certificates ................... S-77
Assignment of the Mortgage Loans ................ S-77
Representations and Warranties .................. S-78
Repurchases and Other Remedies .................. S-80
Changes in Mortgage Pool Characteristics ........ S-80
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SERVICING OF THE MORTGAGE LOANS ................. S-81
General ......................................... S-81
The Master Servicer ............................. S-82
The Special Servicer ............................ S-83
Sub-Servicers ................................... S-83
Servicing and Other Compensation and
Payment of Expenses ............................. S-84
The Operating Adviser ........................... S-85
Mortgage Loan Modifications ..................... S-85
Sale of Defaulted Mortgage Loans and REO
Properties ...................................... S-86
REO Properties .................................. S-86
Inspections; Collection of Operating
Information ..................................... S-87
Events of Default ............................... S-88
Rights Upon Event of Default .................... S-89
Sale of Master Servicing Rights ................. S-89
CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS ................................. S-90
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES ................................... S-93
General ......................................... S-93
Original Issue Discount and Premium ............. S-94
Additional Considerations ....................... S-96
ERISA CONSIDERATIONS ............................ S-97
Plan Asset Regulation ........................... S-97
Individual Exemption ............................ S-97
Other Exemptions ................................ S-99
Insurance Company Purchasers .................... S-99
LEGAL INVESTMENT ................................ S-99
USE OF PROCEEDS ................................. S-100
PLAN OF DISTRIBUTION ............................ S-100
LEGAL MATTERS ................................... S-101
RATINGS ......................................... S-101
INDEX OF TERMS FOR PROSPECTUS
SUPPLEMENT ..................................... 102
Annex A--Mortgage Loan Characteristics .......... A-1
Annex B--Additional Step Loan and
Interest-Only Loan Characteristics ............. B-1
Annex C--Affiliated Borrowers ................... C-1
Annex D--Form of Statement to
Certificateholders ............................. D-1
Annex E--Structural and Collateral Term Sheet
and Top Ten Loan Descriptions .................. E-1
</TABLE>
S-4
<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>
INITIAL
CERTIFICATE EXPECTED APPROXIMATE
PRINCIPAL RATINGS PERCENT OF
APPROXIMATE CLASS AMOUNT (FITCH/MOODY'S) TOTAL
CREDIT SUPPORT ------------- --------------- ----------------- CERTIFICATES
<S> <C> <C> <C> <C> <C>
CLASS X(2) CLASS A-1 $ 204,000,000 AAA/Aaa 20.20%
$1,009,736,304 ------------- ------------- -----------
(Approximate
Notional Amount)
26.75%(1) AAA/AAA CLASS A-2 $ 535,631,000 AAA/Aaa 53.05%
------------- ------------- -----------
24.50% CLASS B $ 22,719,000 AAA/Aa1 2.25%
------------- ------------- -----------
22.50% CLASS C $ 20,195,000 AA/Aa2 2.00%
------------- ------------- -----------
17.25% CLASS D $ 53,011,000 A/A2 5.25%
------------- ------------- -----------
16.00% CLASS E(2) $ 12,622,000 A-/A3 1.25%
------------- ------------- -----------
12.25% CLASS F(2) $ 37,865,000 BBB/Baa2 3.75%
------------- ------------- -----------
10.50% CLASS G(2) $ 17,670,000 BBB-/Baa3 1.75%
------------- ------------- -----------
7.00% CLASS H(2) $ 35,341,000 BB+/NR 3.50%
------------- ------------- -----------
5.00% CLASS J(2) $ 20,195,000 BB/NR 2.00%
------------- ------------- -----------
4.25% CLASS K(2) $ 7,573,000 BB-/NR 0.75%
------------- ------------- -----------
2.75% CLASS L(2) $ 15,146,000 B/B2 1.50%
------------- ------------- -----------
2.00% CLASS M(2) $ 7,573,000 B-/BB 0.75%
------------- ------------- -----------
0.00% CLASS N(2) $ 20,195,304 NR/NR 2.00%
------------- ------------- -----------
</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-5
<PAGE>
CERTIFICATE SUMMARY
<TABLE>
<CAPTION>
APPROXIMATE
INITIAL CERTIFICATE
APPROXIMATE PRINCIPAL OR
CREDIT NOTIONAL APPROXIMATE
SUPPORT CLASS AMOUNT (1) % OF TOTAL
<S> <C> <C> <C>
Offered Certificates
A-1 $ 204,000,000 20.20%
26.75%(6) A-2 $ 535,631,000 53.05%
24.50% B $ 22,719,000 2.25%
22.50% C $ 20,195,000 2.00%
17.25% D $ 53,011,000 5.25%
Non-Offered Certificates
N/A X(7) $1,009,736,304 N/A
(Notional)
16.00% E $ 12,622,000 1.25%
12.25% F $ 37,865,000 3.75%
10.50% G $ 17,670,000 1.75%
7.00% H $ 35,341,000 3.50%
5.00% J $ 20,195,000 2.00%
4.25% K $ 7,573,000 0.75%
2.75% L $ 15,146,000 1.50%
2.00% M $ 7,573,000 0.75%
0.00% N(8) $ 20,195,304 2.00%
<CAPTION>
INITIAL EXPECTED WEIGHTED
APPROXIMATE PASS-THROUGH RATINGS AVERAGE
CREDIT RATE AND RATE FITCH/MOODY'S LIFE PRINCIPAL
SUPPORT DESCRIPTION (2) (3) (4) (YRS.)(5) WINDOW (5)
<S> <C> <C> <C> <C>
Offered Certificates
6.500%(Fixed) AAA/Aaa 5.497 6/1999-2/2008
26.75%(6) 6.847%(Fixed) AAA/Aaa 9.388 2/2008-2/2009
24.50% 6.982%(NWAC) AAA/Aa1 9.717 2/2009-2/2009
22.50% 7.082%(NWAC) AA/Aa2 9.748 2/2009-3/2009
17.25% 7.246%(NWAC) A/A2 9.800 3/2009-3/2009
Non-Offered Certificates
N/A 0.474% AAA/Aaa 9.017 N/A
(Variable
Rate IO)
16.00% 7.272%(NWAC) A-/A3 9.800 3/2009-3/2009
12.25% 7.272%(NWAC) BBB/Baa2 9.913 3/2009-5/2009
10.50% 7.272%(NWAC) BBB-/Baa3 9.967 5/2009-5/2009
7.00% 6.500%(Fixed) BB+/NR 10.124 5/2009-7/2010
5.00% 6.500%(Fixed) BB/NR 12.559 7/2010-3/2013
4.25% 6.500%(Fixed) BB-/NR 13.936 3/2013-8/2013
2.75% 6.500%(Fixed) B/B2 14.398 8/2013-12/2013
2.00% 6.500%(Fixed) B-/BB 14.550 12/2013-12/2013
0.00% 6.500%(Fixed) NR/NR 14.695 12/2013- 4/2014
</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 H, Class J,
Class K, Class L, Class M and Class N 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 Interest Only Certificates and the Class B,
Class C, Class D, Class E, Class F and Class G 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 B,
Class C, Class D, Class E, Class F and Class G 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 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 N 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-6
<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.
RELEVANT PARTIES AND DATES
DEPOSITOR.............. Heller Financial Commercial Mortgage Asset Corp.
MASTER SERVICER........ First Union National Bank, a national banking
association. See "Servicing of the Mortgage Loans" and
"Description of the Certificates--Advances" in this
prospectus supplement.
SPECIAL SERVICER....... Lennar Partners, Inc. See "Servicing of the Mortgage
Loans--The Operating Adviser" and "--General" in this
prospectus supplement.
TRUSTEE................ LaSalle Bank National Association. See "Description
of the Certificates--The Trustee and the Fiscal Agent"
and "--Advances" in this prospectus supplement.
FISCAL AGENT........... ABN AMRO Bank N.V., a Netherlands banking
corporation and indirect corporate parent of the
Trustee. See "Description of the Certificates--The
Trustee and the Fiscal Agent" 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 SELLERS... Heller Financial Capital Funding, Inc., as to 104
mortgage loans, representing 40.6% of the aggregate
principal balance of the mortgage pool; and Prudential
Mortgage Capital Funding, LLC, as to 86 mortgage
loans, representing 59.4% of the aggregate principal
balance of the mortgage pool. See "Description of the
Mortgage Pool--The Sellers" in this prospectus
supplement.
UNDERWRITERS........... Prudential Securities Incorporated and Morgan
Stanley & Co. Incorporated. See "Plan of Distribution"
in this prospectus supplement.
CUT-OFF DATE........... May 1, 1999.
CLOSING DATE........... On or about May 27, 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 June, 1999.
RECORD DATE............ With respect to each distribution date, the close of
business on the last business day of the preceding
month.
S-7
<PAGE>
OFFERED SECURITIES
GENERAL................ The following 5 classes of Commercial Mortgage
Pass-Through Certificates are being offered by this
prospectus supplement (collectively, the "Offered
Certificates") as part of Series 1999 PH-1:
o Class A-1
o Class A-2
o Class B
o Class C
o Class D
Series 1999 PH-1 will consist of a total of 18
classes, the following 13 of which are not being
offered through this prospectus supplement and the
accompanying prospectus: Class X, Class E, Class F,
Class G, Class H, Class J, Class K, Class L, Class M,
Class N 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 Heller Financial Commercial Mortgage
Asset Corp. The trust's assets will primarily be 190
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
presentation of mortgage pool information in this
prospectus supplement.
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%:
<TABLE>
<S> <C> <C>
Class A-1 ......... $204,000,000 Principal Amount
Class A-2 ......... $535,631,000 Principal Amount
Class B ........... $ 22,719,000 Principal Amount
Class C ........... $ 20,195,000 Principal Amount
Class D ........... $ 53,011,000 Principal Amount
</TABLE>
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:
<TABLE>
<S> <C>
Class A-1 ......... 6.500%, but not in excess of NWAC Rate
Class A-2 ......... 6.847%, but not in excess of NWAC Rate
Class B ........... NWAC Rate less 0.29%
Class C ........... NWAC Rate less 0.19%
Class D ........... NWAC Rate less 0.026%
</TABLE>
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.
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, which as of the Closing Date is
equal to 0.068% (which includes the servicing fee
rate and the trustee fee rate), as adjusted as set
forth herein. The weighting of this average is based
upon the respective principal balances of those
mortgage loans.
S-8
<PAGE>
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, together with
interest.
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/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....... description of each class's interest entitlement
can be found in "Description of the
Certificates--Distributions" in this prospectus
supplement. As described in
S-9
<PAGE>
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 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.
S-10
<PAGE>
SUBORDINATION
A. GENERAL............ The chart below illustrates the manner in which
certain 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 of priority beginning
with Class A-1, Class A-2 and Class X. The manner in
which mortgage loan losses are allocated is depicted
in ascending order of priority beginning with Class N.
<TABLE>
<S> <C>
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
</TABLE>
S-11
<PAGE>
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.
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
Special Servicer is entitled to receive; (ii)
shortfalls resulting from interest on Advances made by
the Master Servicer, the Trustee or the Fiscal Agent
(to the extent not covered by default interest and
late payment charges 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 Annex A (mortgage loan characteristics);
o Annex B (additional step loan and interest-only
loan characteristics);
o Annex C (affiliated borrowers); and
o Annex E (structural and collateral term sheet and
top ten loan descriptions).
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 appraised value, and
each are treated as a mortgage loan for the
presentation of mortgage pool information in this
prospectus supplement.
B. PRINCIPAL
BALANCES............... The trust's primary assets will be 190 mortgage loans
with an initial principal balance of $1,009,736,304,
subject to a permitted variance of plus or minus 5%.
As of May 1, 1999, the outstanding principal balances
of the mortgage loans in the mortgage pool ranged from
$532,852 to $64,916,634 and the mortgage loans had an
average balance of $5,314,402. 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.
S-12
<PAGE>
D. FEE
SIMPLE/LEASEHOLD....... One-hundred eighty-three (183) mortgage loans, which
represent 93.9% of the initial outstanding pool
balance are secured by a first mortgage lien on a fee
simple estate in an income-producing property. Seven
(7) mortgage loans, which represent 6.1% of the
initial outstanding pool balance, are secured by a
mortgage lien on a leasehold interest in an
income-producing 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:
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER OF
INITIAL POOL MORTGAGED
PROPERTY TYPE BALANCE PROPERTIES
- -------------------------------- --------------- -----------
<S> <C> <C>
Retail (all types) ........... 30.5% 51
Multifamily .................. 25.2% 56
Office ....................... 24.0% 30
Self-Storage ................. 5.4% 23
Manufactured Housing ......... 3.9% 16
Senior Housing ............... 3.8% 5
Industrial ................... 3.4% 12
Hospitality .................. 2.9% 6
Golf Course .................. 1.0% 1
</TABLE>
See Annex A and Annex E for further details with
respect to property types.
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:
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER OF
INITIAL POOL MORTGAGED
STATE BALANCE PROPERTIES
- -------------------------------- --------------- -----------
<S> <C> <C>
Texas ........................ 12.4% 14
New Jersey ................... 10.6% 8
California ................... 9.8% 22
Southern California ......... 7.5% 15
Northern California ......... 2.3% 7
Illinois ..................... 9.2% 10
Florida ...................... 7.7% 24
</TABLE>
The remaining mortgaged properties are located
throughout 31 other states. No other state has a
concentration of mortgaged properties that represents
security for more than 4.7% of the initial
outstanding pool balance. See Annex A and Annex E
hereto.
G. OTHER MORTGAGE LOAN
FEATURES........... of May 1, 1999, 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 Fourteen (14) mortgage loans, consisting of five
(5) groups are, cross-collateralized with each
other, the largest group of which represents 1.0%
of
S-13
<PAGE>
the initial outstanding pool balance. See Annex A
for further information with respect to such
groups.
o Six (6) 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 2.3% of the initial outstanding
pool balance. For purposes of the presentation of
mortgage pool information herein, an aggregate
amount of indebtedness that is evidenced by a
single obligation for a particular borrower or
co-borrower group and secured by multiple
mortgaged properties has been treated as multiple
cross-collateralized and cross-defaulted mortgage
loans, each secured by one of the related
mortgaged properties and each having a principal
balance in an amount equal to an allocated
portion of the aggregate indebtedness evidenced
by such obligation. None of such groups are
included within the cross-collateralized groups
described above.
o Sixty-one (61) individual mortgage loans
constituting 24 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 4.7%, 1.9% and 1.3%,
respectively, of the initial outstanding pool
balance.
o Sixteen (16) mortgage loans, representing 11.1%
of the initial outstanding pool balance, are
secured by a mortgaged property that is leased to
a single tenant.
o All mortgage loans bear interest at fixed rates,
although sixty-five (65) of the mortgage loans,
representing 51.1% of the initial outstanding
pool balance, 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 eighty-eight (188) of the mortgage
loans, representing 96.8% 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 (123 of such mortgage loans,
representing 45.7% 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 (the "Anticipated Repayment
Date Loans") (65 of such mortgage loans,
representing 51.1% of the initial outstanding
pool balance); substantial principal payments on
such mortgage loans are anticipated to be made on
or about 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.
I. PREPAYMENT
PROVISIONS................. As of May 1, 1999, all of the mortgage loans
restricted voluntary principal prepayments as
follows:
S-14
<PAGE>
o One hundred fifty-one (151) mortgage loans,
representing 81.0% 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 Thirty-five (35) mortgage loans, representing
15.8% 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
1.0% of the amount prepaid.
o One (1) mortgage loan, representing 0.5% of the
initial outstanding pool balance, prohibits
voluntary principal prepayments during a Lock-out
Period. After the Lock-out Period expires, the
mortgage loan provides for four successive
periods during which the principal prepayment
must be accompanied by a prepayment premium
calculated as follows: for the first period, on
the basis of the greater of a yield maintenance
formula and 1.0% of the amount prepaid; for the
second period, on the basis of the lesser of a
yield maintenance formula and 3.0% of the amount
prepaid; for the third period, on the basis of
the lesser of a yield maintenance formula and
2.0% of the amount prepaid; and for the fourth
period, on the basis of the lesser of a yield
maintenance formula and 1.0% of the amount
prepaid.
o Three (3) mortgage loans, representing 2.7% of
the initial outstanding pool balance, provide for
prepayment premiums equal to the greater of yield
maintenance and 1.0% of the amount prepaid.
Notwithstanding the foregoing, the mortgage loans
generally provide for a period of 3 to 12 months
prior to maturity or the anticipated repayment date
during which the related borrower may prepay the
mortgage loan without premium or defeasance
requirements.
J. MORTGAGE LOAN RANGES AND
WEIGHTED AVERAGES... As of May 1, 1999, the mortgage loans will have the
following additional characteristics:
i. MORTGAGE
RATES ........... Mortgage rates ranging from 5.980% per annum to
9.700% per annum, and a weighted average mortgage
rate of 7.173% per annum;
ii. REMAINING
TERMS ........... Remaining terms to scheduled maturity ranging from 57
months to 179 months, and a weighted average
remaining term to scheduled maturity of 119.6 months;
iii. REMAINING
AMORTIZATION TERMS Remaining amortization terms ranging from 171 months
to 360 months, and a weighted average remaining
amortization term of 323.98 months;
iv. LOAN-TO-VALUE
RATIOS .......... Loan-to-value ratios ranging from 23.27% to 91.23%
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
70.86%; and
S-15
<PAGE>
v. DEBT SERVICE
COVERAGE RATIOS.. Debt service coverage ratios ranging from 1.13x to
4.40x 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
1.39x.
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," and
in Annex A and Annex B to this prospectus supplement.
In addition, a brief summary of the material terms of
the ten largest mortgage loans, including groups of
cross-collateralized and cross-defaulted loans, in
the mortgage pool is set forth in Annex E.
ADVANCES OF PRINCIPAL AND INTEREST
A. GENERAL............ The Master Servicer is required to advance (each, a
"P&I Advance") delinquent monthly mortgage loan
payments, unless it determines that the advance will
not 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 (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, late charges or balloon
payments. If an advance is made, the Master Servicer
will defer rather than advance its servicing fee, but
will advance the Trustee's fee.
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. If the Trustee fails to make a required P&I
Advance, the Fiscal Agent, ABN AMRO Bank N.V., the
indirect corporate parent of the Trustee, will be
required to make such P&I Advance. In each case, the
obligation to make an Advance will also be subject to
a determination of non-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 Master Servicer, the
Trustee and the Fiscal Agent, 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.
S-16
<PAGE>
B. APPRAISAL REDUCTION EVENT
ADVANCES........... Certain adverse events affecting a mortgage loan
will require the Special Servicer to obtain a new
appraisal or internal valuation on the related
mortgaged property. Based on the value determined by
such appraisal or internal valuation, 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.
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 Moody's Investors
Service, Inc.:
<TABLE>
<CAPTION>
RATINGS
CLASS (FITCH/MOODY'S)
- ----------------------------- ----------------
<S> <C>
Class A-1 and A-2 ......... AAA/Aaa
Class B ................... AAA/Aa1
Class C ................... AA/Aa2
Class D ................... A/A2
</TABLE>
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 Special Servicer, the Master
Servicer, the majority holders of the Controlling
Class and any holder of a majority interest in the
Class R-I Certificates will each 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.
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
S-17
<PAGE>
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 May 27, 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.
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 "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 AND CLASS D 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.
S-18
<PAGE>
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.
S-19
<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.
<TABLE>
<S> <C>
MORTGAGE LOANS ARE NONRECOURSE AND Payments under the mortgage loans are not insured or guaranteed by any person
ARE NOT INSURED OR GUARANTEED or entity.
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.
Consequently, payment of amounts due under the mortgage loan prior to
maturity is dependent primarily on the sufficiency of the net operating income of
the mortgaged property. The 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 29 months prior to the Cut-off
Date. Consequently, the mortgage loans do not have a long standing payment
history.
COMMERCIAL LENDING IS DEPENDENT The mortgage loans are secured by various types of income-producing commercial
UPON NET 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;
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;
</TABLE>
S-20
<PAGE>
<TABLE>
<S> <C>
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 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 the related mortgage loans.
SOME MORTGAGED PROPERTIES MAY NOT Some of the mortgaged properties may not be readily convertible to alternative
BE READILY CONVERTIBLE TO ALTERNATIVE uses if those properties were to become unprofitable for any reason. Converting
USES 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.
</TABLE>
S-21
<PAGE>
<TABLE>
<S> <C>
PROPERTY VALUE MAY BE ADVERSELY Various factors may adversely affect the value of the mortgaged properties
AFFECTED EVEN WHEN CURRENT OPERATING without affecting the properties' current net operating income. These factors
INCOME IS NOT 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 ENTAILS RISK A deterioration in the financial condition of 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.
Sixteen (16) mortgage loans, representing 11.1% of the initial outstanding pool
balance are secured by mortgaged properties leased to single tenants.
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 and such tenants or industries
encounter financial distress.
MORTGAGED PROPERTIES LEASED TO If a mortgaged property has multiple tenants, re-leasing expenditures may be
MULTIPLE TENANTS ALSO HAVE RISKS more frequent than in the case of mortgaged properties with 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.
RISKS RELATING TO LOAN CONCENTRATION The effect of mortgage pool loan losses will 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 ten largest loans,
including groups of cross-collateralized and cross-defaulted loans, equal 29.4% 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 1.6% of the initial
outstanding pool balance. The largest group of cross-collateralized and
cross-defaulted mortgage loans represents no more than 1.0% 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 30.5%;
o multifamily properties represent 25.2%;
o office properties represent 24.0%;
o self storage properties represent 5.4%;
</TABLE>
S-22
<PAGE>
<TABLE>
<S> <C>
o manufactured housing properties represent 3.9%;
o senior housing properties represent 3.8%;
o industrial properties represent 3.4%;
o hospitality properties represent 2.9%; and
o a golf course property represents 1.0%.
With respect to concentration of borrowers, 61 individual mortgage loans
constituting 24 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
4.7%, 1.9%, and 1.3% respectively of the mortgage pool.
See Annex A and Annex E for further details with respect to property types.
GEOGRAPHIC CONCENTRATION ENTAILS RISKS Concentrations of mortgaged properties in 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 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 36 states. Approximately 12.4% of the
mortgaged properties (based on the initial outstanding pool balance) are located
in Texas. There are 4 other states 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 SPECIAL RISK 51 of the mortgaged properties securing the mortgage loans are retail properties
(representing 30.5% 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).
</TABLE>
S-23
<PAGE>
<TABLE>
<S> <C>
If anchor stores in a mortgaged property were to close, the related borrower may
be unable to replace those anchor stores 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.
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 SPECIAL RISKS 30 of the mortgaged properties securing the mortgage loans are office properties
(representing 24.0% 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; local income, sales and property taxes; and the 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 HAVE SPECIAL 56 of the mortgaged properties securing the mortgage loans are multifamily
RISKS properties (representing 25.2% 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;
</TABLE>
S-24
<PAGE>
<TABLE>
<S> <C>
o the property's reputation;
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 COMMUNITIES 16 of the mortgaged properties securing the mortgage loans are manufactured
HAVE SPECIAL RISKS housing communities (representing 3.9% 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 HAVE SPECIAL 6 of the mortgaged properties securing the mortgage loans are hospitality
RISKS properties (representing 2.9% 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
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.
</TABLE>
S-25
<PAGE>
<TABLE>
<S> <C>
RISKS RELATING TO AFFILIATION WITH A Certain of the hospitality properties are franchises of national hotel chains or
FRANCHISE OR HOTEL MANAGEMENT managed by a hotel management company. The performance of a hotel property
COMPANY 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 2 mortgage
loans (representing 1.9% of the initial outstanding pool balance) secured by
mortgaged properties which are managed by Days Inn, or affiliates thereof.
The economic decline of a particular hotel chain generally may have an adverse
effect on all hotels operated by that chain. In this regard, the largest concentration
of any hotel chain in the mortgage loan pool consists of 2 mortgage loans
(representing 1.9% of the initial outstanding pool balance) secured by mortgaged
properties that are operated as Days Inn.
SELF-STORAGE FACILITIES HAVE SPECIAL 23 of the mortgaged properties securing the mortgage loans are self-storage
RISKS facilities (representing 5.4% 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,
</TABLE>
S-26
<PAGE>
<TABLE>
<S> <C>
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 HAVE SPECIAL RISKS 12 of the mortgaged properties securing the mortgage loans are industrial
properties (representing 3.4% 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.
SENIOR HOUSING PROPERTIES HAVE SPECIAL 5 of the mortgaged properties securing the mortgage loans are congregate care,
RISKS senior care and assisted living facilities (representing 3.8% 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.
GOLF COURSE PROPERTIES HAVE SPECIAL 1 of the mortgaged properties securing the mortgage loans is secured by a golf
RISKS course (representing 1.0% of the initial outstanding pool balance). Various
factors affect the viability of a golf course, including:
o adverse economic conditions, either local, regional or national, may limit
</TABLE>
S-27
<PAGE>
<TABLE>
<S> <C>
the number of persons using such golf course, resulting in decreased revenues;
o the construction of competing golf courses;
o the financial strength and capabilities of the owner and operator of a golf
course; and
o the availability of water, as the ability to irrigate the golf course could be
adversely impacted due to drought or other water shortage, which could
adversely affect the operation of such property.
Golf course use tends to be affected more quickly by adverse economic
conditions and competition than do other commercial properties.
CERTAIN ADDITIONAL RISKS RELATING TO The income from, and market value of, the mortgaged properties leased to
TENANTS 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 substantial costs
and experience significant delays associated with enforcing its rights and
protecting its investment, including costs incurred in renovating and reletting the
property.
Five (5) of the mortgage loans (representing 9.4% of the initial outstanding pool
balance) are secured by properties in which more than 30% of the rentable area
is leased to state government agencies. Certain leases with federal and state
government agencies may permit the government tenant to terminate the lease,
or the tenant may be permitted to not confirm or extend the lease, if sufficient
funds to pay the rental due under the lease have not been appropriated as part
of the government budget by the applicable legislative body. As budgets for
individual state agencies and the related appropriations are often determined
independently, this appropriations risk may be mitigated if more than one state
agency is in occupancy at the Mortgaged Property. In three of the five Mortgage
Loans noted above, two or more state agencies are in occupancy.
TENANT BANKRUPTCY ENTAILS RISKS The bankruptcy or insolvency of a major 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
</TABLE>
S-28
<PAGE>
<TABLE>
<S> <C>
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 GOVERNMENT ASSISTED Four (4) of the mortgage loans (representing 0.9% of the initial outstanding pool
PROPERTIES balance) 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 0.1% 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 ENTAIL RISKS Various environmental laws may make a current or previous owner or operator
of real property liable for the costs of removal or remediation of hazardous or
toxic substances on, under, 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 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 RELATING TO All of the mortgaged properties securing the mortgage loans have been subject
SPECIFIC MORTGAGED PROPERTIES to 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
</TABLE>
S-29
<PAGE>
<TABLE>
<S> <C>
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 31 of the mortgage loans (representing 14.4%
of the initial outstanding pool balance) are, as of the Cut-off Date, more than a
year old, but in no event more than 32 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.
BORROWER MAY BE UNABLE TO REPAY One hundred eighty-eight (188) of the mortgage loans, representing 96.8% of the
REMAINING PRINCIPAL BALANCE ON initial outstanding pool balance, are expected to have substantial remaining
MATURITY DATE principal balances (equal to greater than 10.0% 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;
</TABLE>
S-30
<PAGE>
<TABLE>
<S> <C>
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 OTHER BORROWINGS None of the mortgage loans allow the borrower to grant a subordinate mortgage
ENTAILS RISKS in the future. See "Description of the Mortgage Pool--Certain Terms and
Characteristics of the Mortgage Loans--Subordinate Financing" in this
prospectus supplement. Generally, mortgage loans require that prior to any
subordinate loan being allowed, certain conditions must be satisfied. Substantially
all of the mortgage loans 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 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 ENTAILS CERTAIN Under the Bankruptcy Code, the filing of a petition in bankruptcy by or against
RISKS 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
</TABLE>
S-31
<PAGE>
<TABLE>
<S> <C>
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.
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 borrower covenants that for so
SPECIAL-PURPOSE ENTITIES MAY BE MORE long as the related mortgage loan is outstanding, the borrower will, among other
LIKELY TO FILE BANKRUPTCY 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 PROPERTY MANAGEMENT The successful operation of a real estate project depends upon the property
ENTAILS RISKS manager's 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 leasing units in the property (for multifamily and multi-tenant commercial
properties);
o operating the property and providing building services;
</TABLE>
S-32
<PAGE>
<TABLE>
<S> <C>
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.
RISKS OF INSPECTIONS RELATING TO Licensed engineers or consultants inspected the mortgaged properties in
PROPERTIES 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 INSURANCE The mortgaged properties may suffer casualty losses due to risks which were not
COVERAGE ENTAILS RISKS covered by 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
beyond the limits of existing insurance policies.
As a result of any of the foregoing, the amount available to make distributions
on the Offered Certificates could be reduced.
APPRAISALS AND MARKET STUDIES HAVE An appraisal or other market analysis was conducted in respect of the mortgaged
CERTAIN 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
</TABLE>
S-33
<PAGE>
<TABLE>
<S> <C>
presented in Annex A 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 MORTGAGE LOAN As principal payments or prepayments are made on a mortgage loan that is part
AMORTIZATION POSES CERTAIN RISKS of a pool of loans, the pool may be subject to more risk 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.
SUBORDINATION OF SUBORDINATE OFFERED As described in this prospectus supplement, unless your certificates are Class
CERTIFICATES A-1, Class 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 RELATING TO If the trust acquires a mortgaged property pursuant to a foreclosure or deed in
FORECLOSURE 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 ENFORCEABILITY All of the mortgages permit the lender to accelerate the debt upon default by the
borrower. Generally, the courts of all states will enforce acceleration clauses in
the event of a material payment default. State 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.
</TABLE>
S-34
<PAGE>
<TABLE>
<S> <C>
STATE LAW LIMITATIONS ENTAIL CERTAIN The ability to realize upon the mortgage loans may be limited by the application
RISKS 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. The
Special Servicer may take these state laws into consideration in deciding which
remedy to choose following a default by a borrower. See "Certain Legal Aspects
of the Mortgage Loans" in this prospectus supplement.
LEASEHOLD INTERESTS ENTAIL CERTAIN RISKS Seven (7) of the mortgage loans (representing 6.1% of the initial outstanding
pool balance) are secured solely by mortgages on borrowers' leasehold interests
under ground leases. 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
interest 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.
RISKS RELATING TO ENFORCEABILITY OF The Mortgage Pool includes fourteen (14) mortgage loans consisting of five (5)
CROSS-COLLATERALIZATION groups of cross-collateralized mortgage loans, representing 2.3% of the initial
outstanding pool balance. See Annex A 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
</TABLE>
S-35
<PAGE>
<TABLE>
<S> <C>
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
certificateholders, including, under certain circumstances, invalidating the loan
or the mortgages securing such cross-collateralization.
POTENTIAL ABSENCE OF LEASE In some jurisdictions, if tenant leases are subordinate to the liens created by the
SUBORDINATION AND ATTORNMENT mortgage and do not contain attornment provisions (provisions requiring the
PROVISIONS ENTAILS RISKS 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.
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 (for example, provisions relating to application of insurance
proceeds or condemnation awards) or which could affect the enforcement of the
lender's rights (for example, 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.
RISKS RELATING TO LITIGATION There may be pending or threatened legal 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 COMPLIANCE WITH Under the Americans with Disabilities Act of 1990 ("ADA"), all public
AMERICANS WITH DISABILITIES ACT accommodations are required to meet certain federal requirements 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.
</TABLE>
S-36
<PAGE>
<TABLE>
<S> <C>
RISKS RELATING TO CONFLICTS OF INTEREST Conflicts Between Various Classes of 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, if the certificate principal balance thereof is less than 25% of its
original certificate balance, 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 each of Heller Financial Capital
Funding, Inc. and Prudential Mortgage Capital Funding, LLC. Conflicts of
interest may arise between the trust and each of Heller Financial Capital
Funding, Inc. and Prudential Mortgage Capital Funding, LLC or their affiliates
that engage in the acquisition, development, operation, financing and disposition
of real estate.
Those conflicts may arise because each of Heller Financial Capital Funding, Inc.
and Prudential Mortgage Capital Funding, LLC 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, each of Heller Financial Capital Funding, Inc. and
Prudential Mortgage Capital Funding, LLC 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 each of Heller Financial
Capital Funding, Inc. and Prudential Mortgage Capital Funding, LLC 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.
Conflicts Between Managers and the Mortgage Loan Borrowers. Substantially
all of the property managers for the mortgaged properties (or their affiliates)
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 Sellers of Mortgage Loans and Classes of Certificateholders.
Affiliates of Heller Financial Capital Funding, Inc. and Prudential Mortgage
Capital Funding, LLC 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.
</TABLE>
S-37
<PAGE>
<TABLE>
<S> <C>
RISKS RELATING TO PREPAYMENTS AND The yield to maturity on your certificates will depend, in significant part, upon
REPURCHASES the 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 charge or a prepayment 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 yield maintenance
charge or 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;
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 ENFORCEABILITY OF Provisions requiring yield maintenance charges, prepayment premiums and
PREPAYMENT PREMIUMS AND YIELD lockout periods may not be enforceable in some states and under federal
MAINTENANCE CHARGES bankruptcy law. Those provisions for charges and premiums also may constitute
</TABLE>
S-38
<PAGE>
<TABLE>
<S> <C>
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;
o the timing and severity of any Appraisal Reductions; and
o the extent to which yield maintenance charges or prepayment premiums
are collected and, in turn, distributed on such certificates.
RISKS RELATING TO BORROWER DEFAULT The rate and timing of delinquencies or 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 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
</TABLE>
S-39
<PAGE>
<TABLE>
<S> <C>
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.
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.
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, which increase may
reduce your yield to maturity.
RISKS RELATING TO CERTAIN PAYMENTS To the extent described in this prospectus supplement, the Master Servicer, the
Special Servicer, the Trustee or Fiscal Agent, 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 LIQUIDITY AND MARKET Your certificates will not be listed on any securities exchange, and there is
VALUE currently no secondary market for the Offered Certificates. While Prudential
Securities Incorporated and Morgan Stanley & Co. Incorporated 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 in the past been volatile and
offered very limited liquidity. Finally, Heller Financial Capital Funding, Inc. and
Prudential Mortgage Capital Funding, LLC or its affiliates may acquire certain
classes of Certificates in which case the market for those classes of Certificates
may not be as liquid as if third parties had acquired such certificates.
RISK OF PASS-THROUGH RATE VARIABILITY The interest rate of the Class X, Class C and Class D Certificates is based on the
CONSIDERATIONS NWAC Rate of the mortgage 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.
</TABLE>
S-40
<PAGE>
<TABLE>
<S> <C>
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 YEAR 2000 We are aware of the issues associated with the programming code in existing
COMPLIANCE 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 respective
existing material computer systems used to perform their obligations under the
Pooling and Servicing Agreement 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 will use reasonable commercial efforts to cure (by
August, 1999) any deficiencies with regard to the manipulation or calculation of
dates beyond December 31, 1999 in the internally maintained computer software
systems used by the Trustee in the conduct of its trust business which would
materially and adversely affect its ability to perform its obligations under the
Pooling and Servicing Agreement. 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.
SYNTHETIC LEASES HAVE SPECIAL RISKS One Senior Housing Mortgage Loan (representing 1.2% of the initial outstanding
pool balance) is secured by an interest in a ground lease and a mortgaged
property which is subject to a synthetic lease. Synthetic leases, also called
"off-balance sheet loans," are generally used by public companies or other
entities that want to acquire and finance real estate assets "off-balance sheet,"
while, at the same time, retaining the benefits of ownership for income tax and
capital appreciation purposes. Because achieving the desired accounting and
income tax treatment involves specialized structuring, synthetic lease transactions
are subject to certain factors which may adversely affect the results of the
financing or its performance, including the following:
o The borrower is a special purpose entity organized solely for the purpose
of holding title to the mortgaged property and leasing the mortgaged
property to the actual user, which may also be a single purpose entity. The
borrower has only a small equity interest in the mortgaged property and
holds marketable securities as collateral for the lessee's obligation to
purchase the mortgaged property if a lease default occurs or the lessee is
obligated to purchase or cause the remarketing of the real estate. Therefore,
the mortgagor/lessor has no material economic interest in the real estate
apart from its interest in the ground lease.
o The lessee/user of the real estate is generally a single purpose entity,
although its obligations under the lease are guaranteed by its parent
corporation.
</TABLE>
S-41
<PAGE>
<TABLE>
<S> <C>
o The lease term is for five years and, if not renewed, the lessee has the
option to purchase or remarket the real estate. The failure to achieve the
desired tax and off-balance sheet accounting treatment may affect the
incentive of the lessee to renew the lease.
o The structuring of synthetic lease transactions to achieve characterization
as an operating lease for financial accounting purposes and as a financing
transaction for income tax purposes, creates risks of recharacterization in
enforcement litigation among the parties, such as the lender, lessor and
lessee. The Depositor makes no representation as to how any such
recharacterization might adversely affect foreclosure or other enforcement
remedies.
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.
</TABLE>
S-42
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 1999 PH-1 Commercial Mortgage Pass-Through Certificates (the
"Certificates") will be issued on or about May 27, 1999 (the "Closing Date")
pursuant to a Pooling and Servicing Agreement to be dated as of the Cut-off
Date (the "Pooling and Servicing Agreement"), among the Depositor, the Master
Servicer, the Special Servicer, the Trustee and the Fiscal Agent. 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 on
or 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 Agreements relating to Mortgage Loan document delivery
requirements and the representations and warranties of the Sellers regarding
their respective Mortgage Loans.
The Certificates will consist of 18 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 and the Class N 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 and Class D Certificates (the "Offered
Certificates") are offered hereby. The Class X, Class E, Class F, Class G,
Class H, Class J, Class K, Class L, Class M and Class N 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--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
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.
S-43
<PAGE>
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 and
Class N 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%):
<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 ......... $204,000,000 20.20% 26.75%(1)
Class A-2 ......... $535,631,000 53.05% 26.75%(1)
Class B ........... $ 22,719,000 2.25% 24.50%
Class C ........... $ 20,195,000 2.00% 22.50%
Class D ........... $ 53,011,000 5.25% 17.25%
Class E ........... $ 12,622,000 1.25% 16.00%
Class F ........... $ 37,865,000 3.75% 12.25%
Class G ........... $ 17,670,000 1.75% 10.50%
Class H ........... $ 35,341,000 3.50% 7.00%
Class J ........... $ 20,195,000 2.00% 5.00%
Class K ........... $ 7,573,000 0.75% 4.25%
Class L ........... $ 15,146,000 1.50% 2.75%
Class M ........... $ 7,573,000 0.75% 2.00%
Class N ........... $ 20,195,304 2.00% 0.00%
</TABLE>
- --------
(1) Represents the approximate credit support for the Class A-1 and Class A-2
Certificates in the aggregate.
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 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 $1,009,736,304 (subject to a variance of plus or
minus 5%).
S-44
<PAGE>
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 H,
Class J, Class K, Class L, Class M and Class N Certificates will, at all times,
be equal to 6.500%, 6.847%, 6.500%, 6.500%, 6.500%, 6.500%, 6.500% and 6.500%
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 the Class B, Class C and Class D
Certificates will, at all times, be equal to the NWAC Rate less 0.29%, 0.19%
and 0.026%, respectively.
The Pass-Through Rates applicable to the Class E, Class F and Class G
Certificates will, at all times, be equal to the NWAC Rate.
The Pass-Through Rate applicable to the Interest Only Certificates for the
initial Distribution Date will equal approximately 0.474% 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
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 eighth
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).
S-45
<PAGE>
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 June, 1999. 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 Prospectus) as of the close of
business on the related Determination Date, exclusive of any portion thereof
that represents one or more of the following:
(i) Monthly Payments collected but due on a Due Date subsequent to the
related Collection Period;
(ii) Prepayment Premiums and Yield Maintenance Charges (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, the Trustee or the Fiscal Agent 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 N 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.
S-46
<PAGE>
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;
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 N 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,
S-47
<PAGE>
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.
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.
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.
S-48
<PAGE>
Yield Maintenance Charges and Prepayment Premiums.
Yield Maintenance Charges collected during any Collection Period will be
allocated as between the Class X Certificates and all other eligible Classes
based on the Base Interest Fraction. The product of the Base Interest Fraction
and the aggregate amount of such Yield Maintenance Charges will be allocated
for distribution to Classes entitled to receive principal distributions on the
related Distribution Date. The product of (a) the amount of principal
distributed to each Class (other than the Class X Certificates) as a percentage
of the principal distributed to all Classes multiplied by (b) the Base Interest
Fraction and multiplied by (c) the amount of Yield Maintenance Charges
collected, will be distributed to each such Class. The remainder of such Yield
Maintenance Charges will be distributed to the Class X Certificates.
Twenty-five percent of the Prepayment Premiums collected during any
Collection Period will be allocated for distribution to Classes entitled to
receive principal distributions on the related Distribution Date on a pro rata
basis, based on the amount of principal distributed to each such Class as a
percentage of the amount of principal distributed to all classes. The remainder
of such Prepayment Premiums will be allocated to the Class X Certificates.
The "Base Interest Fraction" with respect to any principal prepayment on
any Mortgage Loan and with respect to any Class of Certificates is a fraction
(a) whose numerator is the amount, if any, by which (1) the Pass-Through Rate
on such Class of Certificates exceeds (2) the Yield Rate used in calculating
the Yield Maintenance Charge with respect to such principal prepayment and (b)
whose denominator is the amount, if any, by which the (1) the Mortgage Rate on
such Mortgage Loan exceeds (2) the Yield Rate used in calculating the Yield
Maintenance Charge with respect to such principal prepayment; provided,
however, that under no circumstances shall the Base Interest Fraction be
greater than one. If such Yield Rate is greater than or equal to the lesser of
(a) the Mortgage Rate on such Mortgage Loan and (b) the related Pass-Through
Rate, then the Base Interest Fraction shall equal zero.
Notwithstanding the foregoing, no Prepayment Premiums or Yield Maintenance
Charges will be distributed to holders of the Class H, Class J, Class K, Class
L, Class M, Class N or Residual Certificates. Instead, after the Certificate
Balances of the Class A-1, Class A-2, Class B, Class C, Class D, Class E, Class
F and Class G Certificates have been reduced to zero, all Prepayment Premiums
and Yield Maintenance Charges will be distributed to holders of the Class X
Certificates. For a description of Prepayment Premiums and Yield Maintenance
Charges, see "Description of the Mortgage Pool--Certain Terms and Provisions of
the Mortgage Loans--Prepayment Provisions." See also "Certain Legal Aspects of
the Mortgage Loans--Enforceability of Certain Provisions--Prepayment
Provisions" in the Prospectus.
Yield Maintenance Charges and Prepayment Premiums will be distributed on
any Distribution Date only to the extent they are received in respect of the
Mortgage Loans in the related Collection Period. 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.
In the case of the Prudential Loans, the "Yield Maintenance Charge" will
generally be the greater of (1) a specified Prepayment Premium or (2) the
present value, as of the date of such prepayment, of the remaining scheduled
payments of principal and interest on the portion of the Mortgage Loan being
prepaid (including any Balloon Payment or principal balance due on the
Anticipated Repayment Date for an ARD Loan) determined by discounting such
payments at the Yield Rate, less the amount prepaid. The "Yield Rate" generally
is a per annum rate calculated by the linear interpolation of the yields of
U.S. Treasury constant maturities with maturity dates (one longer, one shorter)
most nearly approximating the maturity date (or, with respect to ARD Loans, the
Anticipated Repayment Date) of the Mortgage Loan being prepaid, 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 prepayment, or the monthly equivalent of such
rate. If Federal Reserve Statistical Release H.15--Selected Interest Rates is
no longer published, the Master Servicer shall select a comparable publication
to determine the relevant Yield Rate.
In the case of the Heller Loans, the "Yield Maintenance Charge" will
generally be the greater of (i) a specified prepayment premium or (ii) an
amount, never less than zero, equal to the present value of a series of Monthly
Amounts, assumed to be paid at the end of each month remaining from the date of
prepayment through a specified date, discounted at the U.S. Securities Rate.
"Monthly Amount" shall mean the (A) the related Mortgage Rate, minus (B) the
yield ("U.S. Securities Rate"), as of the date of such prepayment, as published
by the Federal Reserve System in its "Statistical Release H.15(519), Selected
Interest Rates" under the caption "U.S. Government Securities/Treasury Constant
Maturities", for a U.S. Government Security with a term equal to that remaining
on the related Mortgage Note on the date of such prepayment (which term may be
obtained by interpolating between the yields published for specific whole
years), divided by twelve (12) and the quotient thereof then multiplied by (C)
the amount prepaid on the date of such prepayment.
S-49
<PAGE>
"Prepayment Premiums" are fees or premiums generally equal to a fixed
percentage of the then outstanding principal balance of such Mortgage Loan
payable in connection with any principal prepayment made during a specified
period of time generally after any Lockout Period and not during any Yield
Maintenance Period.
Interest Reserve Account.
The Master Servicer will establish and maintain 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 (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, the Trustee and the Fiscal Agent will each be required, to the extent
such proceeds are less than the monthly payments due under 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, the Trustee or the Fiscal Agent, 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, the Trustee or the
Fiscal Agent, 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
S-50
<PAGE>
(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, or an internal valuation is not performed by the Special Servicer,
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, the
Trustee's or the Fiscal Agent'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. In
addition, the Certificate Balance of each of the Principal Balance Certificates
will be notionally reduced (solely for purposes of determining the Voting
Rights of the related Classes) on any Distribution Date to the extent of any
Appraisal Reduction allocated to such Class on such Distribution Date.
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 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
S-51
<PAGE>
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, (ii)
interest in respect of Advances not paid out of default interest or late
payment charges, (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 to the extent not otherwise paid for
by another party pursuant to the Pooling and Servicing Agreement, (iv) certain
unanticipated, non-Mortgage Loan specific expenses of the Trust Fund, including
certain indemnities and reimbursements to the Trustee (and certain indemnities
and reimbursements to the Fiscal Agent comparable to those for 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 "Federal Income
Tax Consequences--REMICS--Prohibited Transactions and Other Taxes" in the
Prospectus, and (v) 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 (other
than Specially Serviced Mortgage Loans) during any Collection Period will first
be applied to offset Prepayment Interest Shortfalls incurred in respect of the
Mortgage Loans (other than Specially Serviced 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.
Prepayment Interest Excesses collected on the Specially Serviced Mortgage Loans
during any Collection Period will first be applied to offset Prepayment
Interest Shortfalls incurred in respect of the Specially Serviced 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 (other than Specially Serviced
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
S-52
<PAGE>
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 Special Servicer, the Master 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 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 Master Servicing Fee and 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, Default Interest or late charges. 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. If the Master Servicer fails to make a
required P&I Advance, the Trustee will be obligated to make such P&I Advance;
and, if the Trustee fails to make a required P&I Advance, the Fiscal Agent will
be obligated to make such P&I Advance. See "The Trustee and the Fiscal Agent"
below.
The Master Servicer, the Trustee and the Fiscal Agent 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, the Trustee or the
Fiscal Agent will be obligated to make a P&I Advance that would,
S-53
<PAGE>
if made, constitute a Nonrecoverable Advance (as defined below). The Master
Servicer, the Trustee and the Fiscal Agent 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.
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. 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 and, if the Trustee fails to make any Servicing Advance required under
the Pooling and Servicing Agreement, the Fiscal Agent will be obligated to make
such Servicing Advance on behalf of the Trustee.
The Master Servicer, the Special Servicer, the Trustee and the Fiscal
Agent will each be obligated to make Servicing Advances unless such Servicing
Advances are not, 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 or Fiscal Agent) 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, the Trustee and the Fiscal Agent with
respect to the obligation of the Trustee or the Fiscal Agent to make any
Advance. The Trustee and the Fiscal Agent 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, the Trustee and the Fiscal
Agent 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 LIBOR plus 1.25%.
Such interest on any Advance will be payable to the Master Servicer, the
Special Servicer, the Trustee or the Fiscal Agent, as the case may be, first
out of default interest and late payment charges actually collected by the
Master Servicer or the Special 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 and
late payment charges actually collected in respect of any defaulted Mortgage
Loan, interest accrued on outstanding Advances made in respect thereof will
result in a reduction in amounts payable on the Certificates.
S-54
<PAGE>
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 and Yield Maintenance Charges;
(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, (D) as to which foreclosure
proceedings have been commenced or (E) are subject to a bankruptcy
proceeding;
(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;
(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 Annex D 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
Annex D.
S-55
<PAGE>
2. For those who have obtained an account number on the Trustee's ASAP
(Automatic Statements Accessed by Phone) System, the foregoing report or a
summary report of bond factors may be obtained from the Trustee via automated
facsimile by placing a telephone call to (714) 282-5518 and following the voice
prompts to request "Statement Number 415." Account numbers on the Trustee's
ASAP System may be obtained by calling the same telephone number and following
the voice prompts for obtaining account numbers. Separately, bond factor
information may be obtained from the Trustee by calling (800) 246-5761. In
addition, if the Depositor so directs the Trustee and on terms acceptable to
the Trustee, the Trustee will make available through its electronic bulletin
board system certain information related to the Mortgage Loans (as presented in
the standard CSSA format) as provided for in the Pooling and Servicing
Agreement. The bulletin board is located at (714) 282-3990. A directory has
been set up on the bulletin board in which an electronic file is stored
containing monthly servicer data. All files are password protected. Passwords
to each file will be released by the Trustee in accordance with the terms of
the Pooling and Servicing Agreement. Those who have an account on the bulletin
board may retrieve the loan level data file for each transaction in the
directory. An account number may be obtained by typing "NEW" upon logging into
the bulletin board. The Trustee also intends to make certain information
relating to the Certificates and the Mortgage Loans available on the Internet
at www.lnbabs.com. Such Internet access may require the use of a password which
can be obtained from the Trustee. The Master Servicer will also make available
on the Internet at its Website at www.firstunion.com certain information
relating to the Mortgage Loans. Such information may include the Delinquent
Loan Status Report, the Historical Loan Modification Report, the Historical
Loss Estimate Report, the REO Status Report, the Watch List, the Comparative
Financial Status Report, the CSSA loan setup file, the CSSA loan periodic
update, the CSSA property file, and, as a convenience for interested parties
(and not in furtherance of the distribution thereof under the securities laws)
the Prospectus and this Prospectus Supplement. For assistance with the Master
Servicer's internet website, investors may call (800) 326-1334.
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,
at the cost of the requesting party and 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).
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 or otherwise provide 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
specially serviced, or in foreclosure but not REO Property.
S-56
<PAGE>
(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 Determination 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 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 reports set forth
above under "Special Servicer Reports" that are 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
S-57
<PAGE>
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.
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 May 1999:
The close of business on
<TABLE>
<S> <C> <C>
May 1 ................... (A) Cut-off Date.
May 31 .................. (B) Record Date for all Classes of Certificates.
May 2 -- June 8 ......... (C) The Collection Period. The Master Servicer
receives Monthly Payments due after the
Cut-off Date and on or prior to June 8, 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 June 8, the last day of the
Collection Period for unscheduled payments.
June 8 .................. (D) Determination Date.
June 14 ................. (E) Master Servicer Remittance Date.
June 15 ................. (F) Distribution Date.
</TABLE>
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
May 1, 1999 (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 eighth 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.
VOTING RIGHTS
At all times during the term of the Pooling and Servicing Agreement, 99%
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, and 1% of the Voting Rights are to be allocated among the
S-58
<PAGE>
holders of the Class of Interest Only Certificates. No Voting Rights are to be
allocated to the holders of the respective Classes of REMIC Residual
Certificates. 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.
Appraisal Reductions will be allocated in reduction of the respective
Certificate Balances as described under "Description of the
Certificates--Appraisal Reductions" herein for the purpose of calculating
Voting Rights.
THE TRUSTEE AND THE FISCAL AGENT
The Trustee
LaSalle Bank National Association ("LaSalle") will act as Trustee (the
"Trustee"). LaSalle is a subsidiary of LaSalle National Corporation which is a
subsidiary of the Fiscal Agent. 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 (or that of its Fiscal
Agent, if applicable) is rated not less than "AA" by Fitch and "Aa2" by Moody's
(or such lower ratings as the Rating Agencies would permit without an adverse
effect on any of the then-current ratings of the Certificates). The corporate
trust office of the Trustee responsible for administration of the Trust Fund
(the "Corporate Trust Office") is located at 135 South LaSalle Street, Suite
1625, Chicago, Illinois 60674, Attention: Asset-Backed Securities Trust
Services Group -- Heller Financial Commercial Mortgage Asset Corp., Mortgage
Pass-Through Certificates, Series 1999 PH-1. As of December 31, 1998, the
Trustee had assets of approximately $22 billion. 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.
The Fiscal Agent
ABN AMRO Bank N.V., a Netherlands banking corporation and the indirect
corporate parent of the Trustee, will act as Fiscal Agent (the "Fiscal Agent")
for the Trust Fund and will be obligated to make any Advance required to be
made, and not made, by the Master Servicer and the Trustee under the Pooling
and Servicing Agreement, provided that the Fiscal Agent will not be obligated
to make any Advance that it deems to be a Nonrecoverable Advance. The Fiscal
Agent will be entitled (but not obligated) to rely conclusively on any
determination by the Master Servicer, the Special Servicer (solely in the case
of Servicing Advances) or the Trustee that an Advance, if made, would be a
Nonrecoverable Advance. The Fiscal Agent will be entitled to reimbursement for
each Advance made by it in the same manner and to the same extent as, but prior
to, the Master Servicer and the Trustee. See "--Advances" above. The Fiscal
Agent will be entitled to various rights, protections and indemnities similar
to those afforded the Trustee. The Trustee will be responsible for payment of
the compensation of the Fiscal Agent. As of December 31, 1998, the Fiscal Agent
had consolidated assets of approximately $505 billion. In the event that
LaSalle shall, for any reason, cease to act as Trustee under the Pooling and
Servicing Agreement, ABN AMRO Bank N.V. likewise shall no longer serve in the
capacity of Fiscal Agent thereunder.
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.
S-59
<PAGE>
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).
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 "10%", "15%" and 25% 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, 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 either (a) a Yield Maintenance Premium or (b) the greater of a
yield maintenance formula or a percentage of the amount prepaid.
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 $1,009,736,304,
(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 Annex A,
(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, 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) no party entitled thereto exercises its right of optional
termination described herein under "Description of the
Certificates--Optional Termination",
(ix) no Mortgage Loan is required to be repurchased or replaced by a
Seller or other party,
(x) no Prepayment Interest Shortfalls are incurred,
(xi) there are no Additional Trust Fund Expenses,
(xii) distributions on the Certificates are made on the 15th day of each
month, commencing in June 1999,
(xiii) the Certificates are issued on the Closing Date,
(xiv) the prepayment provisions for each Mortgage Loan are assumed to
begin on the first payment date of such Mortgage Loan, and
S-60
<PAGE>
(xv) 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.
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS A-1 CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
-----------------------------------------
DATE 0% 10% 15% 25%
- ------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Closing Date ................ 100 100 100 100
May 2000 .................... 94 94 94 94
May 2001 .................... 87 87 87 87
May 2002 .................... 80 80 80 80
May 2003 .................... 72 72 72 72
May 2004 .................... 62 62 62 62
May 2005 .................... 52 52 52 52
May 2006 .................... 31 31 30 30
May 2007 .................... 20 19 19 18
May 2008 .................... 0 0 0 0
Weighted Average
Life (years) ................ 5.5 5.5 5.5 5.5
</TABLE>
S-61
<PAGE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE
OF THE CLASS A-2 CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
-----------------------------------------
DATE 0% 10% 15% 25%
- ------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Closing Date ................ 100 100 100 100
May 2000 .................... 100 100 100 100
May 2001 .................... 100 100 100 100
May 2002 .................... 100 100 100 100
May 2003 .................... 100 100 100 100
May 2004 .................... 100 100 100 100
May 2005 .................... 100 100 100 100
May 2006 .................... 100 100 100 100
May 2007 .................... 100 100 100 100
May 2008 .................... 95 95 94 94
May 2009 .................... 0 0 0 0
Weighted Average
Life (years) ................ 9.4 9.4 9.4 9.4
</TABLE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS B CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
-----------------------------------------
DATE 0% 10% 15% 25%
- ------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Closing Date ................ 100 100 100 100
May 2000 .................... 100 100 100 100
May 2001 .................... 100 100 100 100
May 2002 .................... 100 100 100 100
May 2003 .................... 100 100 100 100
May 2004 .................... 100 100 100 100
May 2005 .................... 100 100 100 100
May 2006 .................... 100 100 100 100
May 2007 .................... 100 100 100 100
May 2008 .................... 100 100 100 100
May 2009 .................... 0 0 0 0
Weighted Average
Life (years) ................ 9.7 9.7 9.7 9.7
</TABLE>
S-62
<PAGE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS C CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
-----------------------------------------
DATE 0% 10% 15% 25%
- ------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Closing Date ................ 100 100 100 100
May 2000 .................... 100 100 100 100
May 2001 .................... 100 100 100 100
May 2002 .................... 100 100 100 100
May 2003 .................... 100 100 100 100
May 2004 .................... 100 100 100 100
May 2005 .................... 100 100 100 100
May 2006 .................... 100 100 100 100
May 2007 .................... 100 100 100 100
May 2008 .................... 100 100 100 100
May 2009 .................... 0 0 0 0
Weighted Average
Life (years) ................ 9.7 9.7 9.7 9.7
</TABLE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS D CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
-----------------------------------------
DATE 0% 10% 15% 25%
- ------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Closing Date ................ 100 100 100 100
May 2000 .................... 100 100 100 100
May 2001 .................... 100 100 100 100
May 2002 .................... 100 100 100 100
May 2003 .................... 100 100 100 100
May 2004 .................... 100 100 100 100
May 2005 .................... 100 100 100 100
May 2006 .................... 100 100 100 100
May 2007 .................... 100 100 100 100
May 2008 .................... 100 100 100 100
May 2009 .................... 0 0 0 0
Weighted Average
Life (years) ................ 9.8 9.8 9.8 9.8
</TABLE>
S-63
<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 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
S-64
<PAGE>
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, Yield Maintenance Charges, 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 Yield Maintenance
Charge or 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 190 mortgage loans
(each, a "Mortgage Loan") with an Initial Pool Balance of $1,009,736,304 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 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.
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 Annex E attached hereto.
Principal Balances
The Mortgage Loans have an Initial Pool Balance of $1,009,736,304 (subject
to a variance of plus or minus 5%). The Cut-off Date Balances of the Mortgage
Loans range from $532,852 to $64,916,634, and the Mortgage Loans have an
average Cut-off Date Balance of $5,314,402.
S-65
<PAGE>
Balloon Loans
One hundred eighty-eight (188) of the Mortgage Loans, representing 96.8%
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
One hundred eighty-three (183) Mortgage Loans, which represent 93.9% of
the Initial Pool Balance are 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 property. Seven (7) Mortgage Loans, which represent 6.1% of
the Initial Pool Balance, are secured by a leasehold interest in an
income-producing property (a "Mortgaged Property").
Property Type
Fifty-one (51) of the Mortgaged Properties, which represent security for
30.5% of the Initial Pool Balance, are retail properties;
Fifty-six (56) of the Mortgaged Properties, which represent security for
25.2% of the Initial Pool Balance, are multifamily apartment properties;
Thirty (30) of the Mortgaged Properties, which represent security for
24.0% of the Initial Pool Balance, are office properties;
Twenty-three (23) of the Mortgaged Properties, which represent security
for 5.4% of the Initial Pool Balance, are self-storage facilities;
Sixteen (16) of the Mortgaged Properties, which represent security for
3.9% of the Initial Pool Balance, are manufactured housing communities;
Five (5) of the Mortgaged Properties, which represent security for 3.8% of
the Initial Pool Balance, are senior housing properties;
Twelve (12) of the Mortgaged Properties, which represent security for 3.4%
of the Initial Pool Balance, are industrial/warehouse properties, including
multi-tenant industrial properties;
Six (6) of the Mortgaged Properties, which represent security for 2.9% of
the Initial Pool Balance, are hospitality properties; and
One (1) of the Mortgaged Properties, which represents security for 1.0% of
the Initial Pool Balance, is a golf course property.
Geographic Location
The Mortgaged Properties are located throughout 36 states with the largest
concentration in the State of Texas (14 Mortgaged Properties, which represent
security for 12.4% of the Initial Pool Balance). No other state has a
concentration of Mortgaged Properties that represents security for more than
10.6% of the Initial Pool Balance. See Annex A and Annex B 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.
Sellers
One hundred four (104) of the Mortgage Loans (the "Heller Loans"), which
represent 40.6% of the Initial Pool Balance will, immediately prior to the
issuance of the Certificates, be held by Heller. The Heller Loans were all
originated by Heller Financial, Inc. or an affiliate.
S-66
<PAGE>
Eighty-six (86) of the Mortgage Loans (the "Prudential Loans"), which
represent 59.4% of the Initial Pool Balance, will, immediately prior to the
issuance of the Certificates, be held by Prudential Mortgage Capital Funding,
LLC. Heller and Prudential Mortgage Capital Funding, LLC will each be referred
to herein as a "Seller" and will collectively be referred to herein as the
"Sellers."
On or prior to the Closing Date, the Depositor will acquire the Mortgage
Loans from the Sellers, in each case pursuant to a mortgage loan purchase
agreement to be entered into between the Depositor and the particular Seller
(each, a "Mortgage Loan Purchase Agreement"). The Depositor will thereupon
assign its interests in the Mortgage Loans, without recourse, to the Trustee
for the benefit of the Certificateholders. See "--The Sellers" and
"--Assignment of Mortgage Loans; Repurchases" below.
Origination Dates
The Mortgage Loans were originated between November 20, 1996 and April 6,
1999.
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.
43 of the Mortgage Loans accrue interest on the basis of a 360-day year
consisting of twelve 30-day months, and 147 Mortgage Loans are Actual/360
Mortgage Loans (the "Interest Accrual Method").
As of the Cut-off Date, the Mortgage Rates of the Mortgage Loans range
from 5.980% to 9.700% per annum, and the weighted average Mortgage Rate of the
Mortgage Loans is 7.173% per annum.
Due Dates
All of the Mortgage Loans have "Due Dates" (that is, the dates upon which
the related Monthly Payments are due) that occur on the first day of each
month.
Amortization
One hundred eighty-eight (188) of the Mortgage Loans, representing 96.8%
of the Initial Pool Balance, provide for one of the following:
Monthly payments based on amortization schedules significantly longer than
their respective terms to maturity (123 of such Mortgage Loans, representing
45.7% of the Initial Pool Balance); or
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 (65 of such Mortgage Loans, representing 51.1% of the Initial
Pool Balance) (the "Anticipated Repayment Date Loans"); substantial principal
payments on such Mortgage Loans are anticipated to be made on or about the date
(which is prior to stated maturity) upon which these increases occur (the
"Anticipated Repayment Date" or "ARD") unless such Mortgage Loans are prepaid
at an earlier date.
Two (2) of the Mortgage Loans, representing 3.2% of the Initial Pool
Balance, are fully-amortizing Mortgage Loans.
Defeasance; Prepayment Restrictions
One hundred fifty-one (151) Mortgage Loans, representing 81.0% 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.
Thirty-five (35) Mortgage Loans, representing 15.8% 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 1.0% of the amount prepaid.
S-67
<PAGE>
One (1) Mortgage Loan, representing 0.5% of the Initial Pool Balance,
prohibits voluntary principal prepayments during a Lock-out Period. After the
Lock-out Period expires, the Mortgage Loan provides for four successive periods
during which the principal prepayment must be accompanied by a prepayment
premium calculated as follows: for the first period, on the basis of the
greater of a yield maintenance formula and 1.0% of the amount prepaid; for the
second period, on the basis of the lesser of a yield maintenance formula and
3.0% of the amount prepaid; for the third period, on the basis of the lesser of
a yield maintenance formula and 2.0% of the amount prepaid; and for the fourth
period, on the basis of the lesser of a yield maintenance formula and 1.0% of
the amount prepaid.
Three (3) Mortgage Loans, representing 2.7% of the Initial Pool Balance,
provide for prepayment premiums equal to the greater of yield maintenance and
1.0% of the amount prepaid.
Notwithstanding the foregoing, the Mortgage Loans generally provide for a
period of 3 to 12 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--Yield Maintenance
Charges and 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. Although there are certain exceptions to the
non-recourse provisions, if a default occurs in the payment of any amount due
under the related Mortgage Loan, the holder thereof generally 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 selling or
encumbering the Mortgaged Property 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 for estate planning purposes, or 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
Sixty-one (61) individual Mortgage Loans constituting 24 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 4.7%, 1.9%, and 1.3%, respectively, of the
Initial Pool Balance.
Cross-Collateralized Mortgage Loans
The Mortgage Pool includes 14 Mortgage Loans consisting of 5 groups of
Cross-Collateralized Mortgage Loans, representing 2.3% of the Initial Pool
Balance. See Annex A hereto. In all cases the Debt Service Coverage Ratios were
S-68
<PAGE>
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.
Multiple Mortgaged Properties
In six (6) cases, representing 4.5% of the Initial Pool Balance (not
including the 14 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 16. 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 sixteen (16) Mortgage Loans, representing 11.1% 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 related to a property securing a Single-Tenant Mortgage Loan
and some anchor tenant leases generally provide 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 Annex A hereto.
Ground Leases
Seven (7) of the Mortgage Loans, representing 6.1% of the Initial Pool
Balance, are secured solely by a Mortgage on the borrower's leasehold interest
in 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 that is curable. See "Risk
Factors and Other Special Considerations--The Mortgage Loans--Leasehold
Considerations" herein.
S-69
<PAGE>
Subordinate Financing
None of the Mortgage Loans allow the borrower to grant a subordinate
mortgage in the future. 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 a subordinate mortgage financing currently existing that is
secured by one of the Mortgaged Properties. The related Mortgage Loan
represents approximately 0.1% of the Initial Pool Balance. See Annex A hereto.
Performance Holdbacks
Three (3) of the Mortgage Loans, representing 1.2% 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 may 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>
ANNEX A
MORTGAGE CUT-OFF AMOUNT OF OUTSIDE DATE
LOAN PROPERTY DATE ESCROWED OUTSIDE PREPAYMENT
NUMBER NAME BALANCE HOLDBACK DATE RELEASE CONDITIONS PROVISION
- ---------- ----------------- ------------- ----------- --------- ------------------------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
97319 Heritage $5,300,000 $855,000 5/31/99 Minimum 1.25x DSCR based on Yield Maintenance
Heights MHC new cash flow verification by
Lender, and a constant which
shall not be less than the constant
used at initial funding. The new
cash flow verification will have a
look back period of three months
or 95% occupancy. Maximum 80%
LTV.
98698 Town Trails $2,636,424 $200,000 7/31/99 Minimum 1.25x DSCR based on Yield Maintenance
Office Park new cash flow verification by
Lender, and a constant which shall
not be less than the constant used
at initial funding. The new cash
flow verification will have a look
back period of three months or
90% occupancy. Maximum 80%
LTV.
98432 Centennial $4,577,352 $350,000 7/16/99 Minimum 1.35x DSCR based on a Yield Maintenance
Shopping Center new cash flow verification by
Lender, and a constant which shall
not be less than the constant used
at initial funding. The new cash
flow verification will have a look
back period of three months or
85% occupancy. Maximum 80%
LTV.
</TABLE>
Expansion Reserves
One (1) of the Mortgage Loans, representing 0.8% of the Initial Pool
Balance, provides for capital improvement reserves under which funds in the
aggregate amount of $2,269,916 (the "Expansion Reserves") have been escrowed
and shall be held as additional security for the Mortgage Loan, to be released
to reimburse the costs of completing certain improvements to the related
Mortgaged Property, including an expansion by a movie theater tenant of that
tenant's leased premises, and an associated parking lot expansion by the
borrower.
In addition, some of the other Mortgage Loans provide for certain
holdbacks or reserves for items such as deferred maintenance, environmental
remediation and capital improvements. See Annex A for additional information.
S-70
<PAGE>
ASSESSMENTS OF PROPERTY VALUE AND CONDITION
Appraisals
Generally, in connection with the origination 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. The above-described appraisals were certified by the
appraiser to conform 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 159 Mortgage Loans, representing 85.6% 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 32 months of the Cut-off Date. In most 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
Generally, the Mortgaged Properties were inspected, in connection with the
origination or acquisition of the related Mortgage Loan, by an employee of the
related Seller or by a third party professional engaged by the related Seller.
Furthermore, in each case 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 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
Each Seller 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, survey
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 the related Seller has informed the Depositor that it
does not consider any such violations known to it to be material.
S-71
<PAGE>
ADDITIONAL MORTGAGE LOAN INFORMATION
Each of the tables set forth in Annex A 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 Annex A and Annex B
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 and
the information set forth in Annex A:
Other Information. Annex A sets forth certain information with respect to
the Mortgage Loans and the Mortgaged Properties. Such information was primarily
derived from financial statements supplied by the borrowers which, in most
cases, are unaudited and were not prepared in accordance with generally
accepted accounting principles. "Net Operating Income" and "Cash Flow" do not
represent the net operating income and cash flow reflected on the borrowers'
financial statements. The differences between "Net Operating Income" and "Cash
Flow" determined by the Mortgage Loan Sellers and net operating income and cash
flow reflected on the borrowers' financial statements represent the adjustments
made by the related Mortgage Loan Seller as described below, to increase the
level of consistency between the financial statements provided by the
borrowers. However, such adjustments were subjective in nature and were not
made in a uniform manner nor in accordance with generally accepted accounting
principles. "Underwritten NOI" and "Underwritten Cash Flow" are pro forma
numbers prepared by the related Mortgage Loan Seller to reflect their
assessment of the market based performance of the related Mortgaged Property.
None of the Depositor or either of the Underwriters has made any attempt to
verify the accuracy of the financial statements supplied by the borrowers or
the accuracy or appropriateness of the adjustments discussed below to determine
"Net Operating Income," "Cash Flow," "Underwritten NOI," and "Underwritten Cash
Flow."
"Net Operating Income," "Cash Flow," "Underwritten NOI" and "Underwritten
Cash Flow" are not substitutes for, or improvements upon, net income as
determined in accordance with generally accepted accounting principles as a
measure of the results of a Mortgaged Property's operations or for cash flows
from operating activities determined in accordance with generally accepted
accounting principles as a measure of liquidity. No representation is made as
to the future net income or net cash flow of the Mortgaged Properties, nor are
"Net Operating Income," "Cash Flow," "Underwritten NOI" and "Underwritten Cash
Flow" as set forth herein intended to represent such future net income or net
cash flow.
The Mortgage Loan Sellers have had appraisals of the Mortgaged Properties
certified to have been conducted in compliance with the Code of Professional
Ethics and Standards of Professional Conduct of the Appraisal Institute and the
Uniform Standards of Professional Appraisal Practice as adopted by the
Appraisal Standards Board of the Appraisal Foundation and accepted and
incorporated into FIRREA. No other person has prepared or obtained a separate
appraisal or reappraisal. Another appraiser might arrive at a different opinion
of value. Any Appraised Value might differ from the value that would be
determined in a current appraisal or the amount that would be realized upon a
sale or liquidation of the Mortgaged Property. Accordingly, you should not rely
on the Loan-to-Value Ratios set forth herein as necessarily indicative of the
true Loan-to-Value Ratios.
Debt service coverage ratios are used by lenders of loans secured by
income producing property to measure the ratio of (1) cash currently generated
by a property annually that is available for debt service (that is, cash that
remains after payment of operating expenses) to (2) required annual debt
service payments. Debt service coverage ratios, however, only measure the
current, or recent, ability of a property to service mortgage debt. If a
property is not expected to have a stable operating cash flow (because, for
instance, it is subject to leases that expire during the loan term and provide
for above-market rents, or that are 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 addition, a
debt service coverage ratio may not adequately reflect the significant amounts
of cash that a property owner may be required to expend to pay for capital
improvements, tenant improvements and leasing commissions when expiring leases
are replaced. Accordingly, we can give no assurance and make no representation
that the Debt Service Coverage Ratios accurately reflect the future ability of
a Mortgaged Property to generate sufficient cash flow to repay the related
Mortgage Loan.
For purposes of the following tables, Annex A, Annex B and Annex E:
(1) "Effective Gross Income" or "EGI" means revenue derived from the use
and operation of the Mortgaged Property (primarily rental income together with
other income, such as parking fees, percentage rents, expense reimbursements,
etc.) less vacancies and/or collection losses and rent concessions.
S-72
<PAGE>
(2) "Net Operating Income" or "NOI" means revenue derived from the use and
operation of the Mortgaged Property (primarily rental income) less operating
expenses (such as utilities, general administrative expenses, management fees,
advertising, repairs and maintenance) and less fixed expenses (such as
insurance and real estate taxes). NOI generally does not reflect capital
expenditures, replacement reserves, interest expense, income taxes and non-cash
items such as depreciation or amortization. The Mortgage Loan Sellers have
informed the Depositor that they have adjusted items of revenue and expense
shown on the borrower's financial statements in order to reflect the historical
operating results for a Mortgaged Property on a normalized basis (e.g.,
adjusting for the payment of two years of real estate taxes in a single year).
Revenue was generally adjusted to eliminate security deposits and to eliminate
non-recurring items and items not related to the operation of the Mortgaged
Property. Expense was generally adjusted to eliminate distributions to owners,
items of expense not related to the operation of the Mortgaged Property,
non-recurring items, such as capital expenditures, and refunds of security
deposits. The Mortgage Loan Sellers have informed the Depositor that they have
made the adjustments based upon their review of borrower financial statements,
their own experience in originating loans and, in some cases, conversations
with borrowers. The adjustments were subjective in nature and were not uniform
for each Mortgaged Property. "1996 NOI" and "1997 NOI" reflect calendar year
operations for 1996 and 1997, respectively. "1998 NOI," on the other hand,
generally reflects operations for one of two periods: (a) the trailing 12
months ending no earlier than October 1998 including at least 10 months of
calendar 1998, or (b) calendar year 1998.
(3) "Cash Flow" means the NOI for the related Mortgaged Property decreased
by tenant improvements, leasing commissions, capital expenditures and other
non-recurring expenditures, as appropriate.
(4) "Underwritten NOI" means the NOI for the related Mortgaged Property on
an annual basis as determined by the related Mortgage Loan Seller in accordance
with its underwriting guidelines for similar properties. Although there are
differences in the underwriting guidelines of the Mortgage Loan Sellers, the
nature and types of adjustments made by each of them were generally the same.
Revenue generally is calculated as follows. Rental revenue is calculated using
the lower of actual or market rental rates, with a vacancy rate equal to the
higher of the Mortgaged Property's historical rate, the market rate or an
assumed vacancy rate. Other revenues, such as parking fees, percentage rents,
vending income, etc. are included only if sustainable. Revenues, such as
application fees and lease termination fees, are not included. Operating and
fixed expenses generally are adjusted to reflect the higher of the Mortgaged
Property's average expenses or a mid-range industry norm for expenses on
similar properties in similar locations plus the greater of actual management
fees or an assumed market rate management fee.
(5) "Underwritten Net Cash Flow" or "Adjusted NOI" for the related
Mortgage Loan Seller means the Underwritten NOI for such Mortgage Loan
decreased by an amount that the related Mortgage Loan Seller has determined to
be an appropriate allowance, based upon its underwriting guidelines, for
average annual tenant improvements, leasing commissions and replacement
reserves.
(6) "Appraised Value" means the appraised value of such property as
determined by an appraisal made in connection with the origination of the
related Mortgage Loan.
(7) "Annual Debt Service" means, for any Mortgage Loan, the current annual
debt service (including interest allocable to the payment of the related
Servicing Fee, Trustee Fee and principal) payable with respect to such Mortgage
Loan during the 12-month period commencing on the Cut-off Date (assuming no
prepayments occur).
(8) "Debt Service Coverage Ratio," "Underwritten DSCR" or "DSCR" means,
(a) the Underwritten Net Cash Flow for the related Mortgaged Property divided
by (b) the Annual Debt Service for such Mortgage Loan.
(9) "Loan-to-Value Ratio," "Appraised LTV" or "LTV" means the principal
balance of such Mortgage Loan as of the Cut-off Date divided by the Appraised
Value of the related Mortgaged Property.
(10) "Balloon/ARD LTV" means the Balloon Amount or ARD Amount for such
Mortgage Loan as of the Cut-off Date divided by the Appraised Value of the
related Mortgaged Property.
(11) "ARD Amount or ARD Balance" for any ARD Loan is equal to the
Scheduled Principal Balance as of the related Anticipated Repayment Date.
(12) "Balloon Amount" or "Balloon Balance" means the principal amount, if
any, due at maturity, taking into account scheduled amortization, assuming no
prepayments or defaults.
(13) "Occupancy Rate " or "Physical Occupancy %" means the percentage of
net rentable area, rooms, units, beds, pads or sites of a Mortgaged Property
that are leased or occupied. Occupancy rates are calculated based upon the most
recent rent
S-73
<PAGE>
information received by the related Mortgage Loan Seller. The "Physical
Occupancy %" and "Occupancy As of Date" for each Mortgage Loan are based upon
rent information received by the related Mortgage Loan Seller from the related
borrower or mortgage loan originator (if other than the related Mortgage Loan
Seller).
(14) "Remaining Term to Maturity" means the number of Due Dates remaining
from the Cut-off Date until the maturity of a mortgage loan (or, for ARD Loans,
through the related Anticipated Repayment Dates).
(15) "Remaining Amortization Term" for any Mortgage Loan is calculated as
the original amortization term of the related Mortgaged Loan (based upon such
Mortgage Loan's original balance, interest rate and monthly payment, in the
case of the ARD Loans, assuming prepayment in full on the related Anticipated
Repayment Date) less the number of Due Dates through and including the Cut-off
Date.
(16) The "Year Built" is based on information contained in deed records,
appraisals, engineering surveys, architectural papers, title insurance, and/or
other insurance policies.
(17) The "Year Renovated" is based upon information contained in the
appraisal, engineering survey or other documents provided by the borrower under
the related Mortgaged Property.
(18) All calculations of any applicable Lockout Period, Defeasance Lockout
Period, Yield Maintenance Period, Prepayment Premium or Yield Maintenance
Charge for a Mortgage Loan are based upon such Mortgage Loan's first scheduled
interest and principal payment date.
(19) For each Mortgage Loan secured by more than one Multifamily Property
or by more than one Congregate Care Property, the "Number of Units," "Net
Rentable SF/Units," "Appraised Value," "Physical Occupancy %," "Underwritten
NOI" and "Underwritten Cash Flow" is the sum of the respective values for each
Mortgaged Property securing such Mortgaged Loan.
(20) "Weighted Average Maturity" means the weighted average of the
Remaining Terms to Maturity of the Mortgage Loans.
(21) Due to rounding, percentages may not add to 100% and amounts may not
add to the indicated total.
(22) Underwritten NOI DSCR" or "U/W NOI DSCR" means, (a) underwritten NOI
for the related Mortgaged Property divided by (b) Annual Debt Service for such
Mortgage Loan.
(23) "Monthly Debt Service" means, for any Mortgage Loan Annual Debt
Service divided by 12.
STANDARD HAZARD INSURANCE
The Pooling and Servicing Agreement will provide that the Master Servicer
shall use reasonable efforts to cause each mortgagor to maintain in respect of
the related Mortgaged Property (but not REO 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 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 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 becoming aware of such fact (using
efforts in accordance with the Servicing Standard), the Master Servicer, 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.
S-74
<PAGE>
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 Special Servicer shall cause to be maintained for each REO Property no
less insurance coverage than was previously required of the borrower under the
related Mortgage. In addition, the Special Servicer shall be entitled to cause
to be maintained earthquake insurance for any REO Property if obtaining such
insurance is in accordance with its Servicing Standard and such insurance can
be obtained for such REO Property at commercially reasonable rates.
THE SELLERS
Heller Financial Capital Funding, Inc.
Heller Financial Capital Funding, Inc. ("HFCF") is a wholly-owned
subsidiary of Heller Financial, Inc. ("Heller Financial") organized in June
1997 to acquire and sell loans secured by mortgages on commercial and
multifamily real estate. As of the Closing Date, Heller will have a net worth
of approximately $10 million. Its principal office is located at 500 West
Monroe, Chicago, Illinois 60661, and its telephone number is (312) 441-6700.
Each of Heller's Mortgage Loans was originated and underwritten by Heller
Financial or one of its affiliates through its Heller Express Program. Heller
Financial has been a commercial real estate portfolio lender since 1980. Since
1993, over $3 billion of the commercial mortgage loans that Heller Financial
has originated have been securitized.
Prudential Mortgage Capital Funding, LLC
Prudential Mortgage Capital Funding, LLC ("PMCF") is a limited liability
company organized under the laws of the State of Delaware in 1997. PMCF is a
wholly owned, limited purpose, subsidiary of Prudential Mortgage Capital
Company, LLC ("PMCC") (also a Delaware limited liability company organized in
1997). PMCC is a real estate financial services company which originates
commercial and multifamily real estate loans throughout the United States. PMCF
was organized for the purpose of acquiring loans originated by PMCC and holding
them pending securitization or other disposition. PMCC has offices in Atlanta,
Chicago, San Francisco and Newark. The principal offices of PMCC are located at
4 Gateway Center, 9th Floor, 100 Mullberry Street, Newark, New Jersey 07120.
Underwriting Guidelines and Process
PMCC and Heller Financial, as mortgage loan originators, have developed a
set of underwriting guidelines and procedures. Although the underwriting
guidelines and procedures developed by PMCC and Heller Financial are not
identical, the following description of certain aspects of the underwriting of
the Mortgage Loans, applies to each Mortgage Loan Seller and the related
originators, except where otherwise noted. In some instances, one or more
provisions of the guidelines were waived or modified where it was determined
not to adversely affect the value of the related Mortgage Loan in any material
respect.
Underwriting Process. In general, the underwriting process begins with the
receipt of a loan submission from a prospective borrower or independent
mortgage banker or broker working on behalf of a prospective borrower. Upon
S-75
<PAGE>
receiving a loan submission, the mortgage loan originator typically will
perform a preliminary cash flow analysis and a general evaluation of the loan
submission. If the mortgage loan originator decides to offer the prospective
borrower financing based on the preliminary analysis, the mortgage loan
originator provides the prospective borrower with a loan application or a
conditional loan commitment and the prospective borrower must deposit an
application fee or a good faith deposit toward expenses with the mortgage loan
originator. Upon receipt of the signed loan application, the mortgage loan
originator generally performs a more detailed cash flow analysis and orders the
required third party reports, as described in more detail below. After the loan
evaluation is completed and the prospective loan is approved, the mortgage loan
originator may issue a final commitment letter to the prospective borrower. The
mortgage loan originators' commitments are eventually subject to certain
requirements such as insurance, appraisal values, satisfactory borrower credit
history reports, satisfactory third-party reports and escrow requirements for
repairs identified by the related physical site assessments. PMCC requires the
prospective borrower to deposit a non-refundable commitment fee. At closing,
the borrower must provide satisfactory title insurance, evidence of
satisfaction of zoning requirements, evidence of satisfactory property
insurance and satisfactory legal opinions of borrower's counsel, and must
satisfy certain other closing requirements typically required by institutional
lenders.
Property Analysis. The mortgage loan originator is required to perform a
site inspection to evaluate the location and quality of each Mortgaged
Property. Such inspection includes an evaluation of functionality, design,
attractiveness, visibility and accessibility, as well as its convenience to
major thoroughfares, transportation centers, employment sources, retail areas
and educational or recreational facilities. The mortgage loan originator also
is required to assess the submarket in which the property is located to
evaluate competitive or comparable properties as well as market trends. In
addition, the mortgage originator evaluates the property's age, physical
condition, operating history, lease and tenant mix and management.
Cash Flow Analysis. The mortgage loan originator is required to review
operating statements provided by the borrower and to make adjustments in order
to determine the debt service coverage ratio. See "Description of the Mortgage
Pool-Certain Terms and Characteristics of the Mortgage Loans" herein. PMCC
reviews tax, insurance and utility source documents and verifies credit and
financial references. Heller Financial will generally perform certain
procedures on the most current (generally the last twelve months) operating
statements and financial records provided by the borrower to verify the actual
cash receipts and disbursements for the Mortgaged Property.
Appraisal and Loan-to-Value Ratio. Each Mortgaged Property was appraised
in connection with the origination of the related Mortgage Loan. Each such
appraisal was conducted by an independent appraiser who belonged to the
Appraisal Institute and who was directed to prepare the appraisal in compliance
with the Code of Professional Ethics and Standards of Professional Conduct of
the Appraisal Institute and the Uniform Standards of Professional Appraisal
Practice as adopted by the Appraisal Standards Board of the Appraisal
Foundation and accepted and incorporated into the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, as amended ("FIRREA"). The
mortgage loan originator is required to determine the loan-to-value ratio of
each Mortgage Loan at the date of origination based on the appraised value set
forth in the appraisal.
Evaluation of Borrower. The mortgage loan originator is required to
evaluate the borrower and certain of the borrower's principals ("Sponsors")
with respect to credit history and prior experience as an owner and operator of
commercial real estate properties. The evaluation(s) generally include
obtaining and reviewing a credit report or other reliable indication of the
borrower's and the Sponsors' financial capacity; obtaining and verifying credit
references or business and trade references; and obtaining and reviewing
certifications provided by the borrower and the Sponsors concerning real estate
experience, and current actual and contingent liabilities and prior or current
litigation experience. Finally, although the Mortgage Loans generally are
non-recourse in nature, in the case of certain Mortgage Loans, the borrower and
certain Sponsors may be required to assume legal responsibility for liabilities
relating to, among other things, fraud, misrepresentation, misappropriation of
funds, breach of environmental or hazardous waste requirements or unauthorized
transfer of title to the property. The mortgage loan originator is required to
evaluate the financial capacity of the borrower and such Sponsors to meet any
obligations that may arise with respect to such liabilities.
Environmental Site Assessments. The mortgage loan originator is required
at origination to obtain or update an environmental site assessment or similar
study ("ESA") for each Mortgaged Property prepared by a qualified environmental
firm approved by the mortgage loan originator. The mortgage loan originator is
required to review the ESA. Based on such reviews, the Mortgage Loan Sellers
have informed the Depositor that with the exceptions described herein under
"Description of the Mortgage Pool-Certain Terms and Characteristics of the
Mortgage Pool--Assessments of Property Value and Condition--Environmental
Assessments," the ESAs, studies or updates identified no material adverse
environmental
S-76
<PAGE>
conditions or circumstances anticipated to require any material expenditure
with respect to any Mortgaged Property which have not been cured or for which
escrows have not been taken. Such information was based upon the ESAs, studies
or updates and has not been independently verified by the Mortgage Loan
Sellers, the Depositor, the Underwriters or any of their respective affiliates.
Physical Assessment Report. The mortgage loan originator is required at
origination to obtain a physical assessment report ("PAR") for each Mortgaged
Property prepared by a qualified structural engineering firm approved by the
mortgage loan originator. The mortgage loan originator is required to review
the PAR to verify that the mortgaged property is reported to be in satisfactory
physical condition, and to determine the anticipated costs of necessary repair,
replacement and major maintenance or capital expenditure needs over the term of
the Mortgage Loan. In cases in which the PAR identifies material repairs or
replacements needed immediately, the mortgage loan originator is generally
obligated to require the borrower to carry out such repairs or replacements
prior to the origination of the Mortgage Loan, or to place sufficient funds in
escrow at the time of origination of the Mortgage Loan to complete such repairs
or replacements within a period not to exceed twelve months.
Title Insurance Policy. The borrower is required to provide, and the
mortgage loan originator is required to review, a title insurance policy for
each Mortgaged Property. The title insurance policy must meet the following
requirements: (a) approval by the mortgage loan originator of the title insurer
or reinsurer (unless the insurer or the reinsurer is on a list of insurers or
reinsurers previously approved by the mortgage loan originator); (b) the policy
must be written by a title insurer licensed to do business in the jurisdiction
where the Mortgaged Property is located; (c) the policy must be in an amount
equal to the original principal balance of the Mortgage Loan; (d) the
protection and benefits afforded by the policy must run to the mortgagee and
its successors and assigns; (e) the policy should be written on a standard
policy form of the American Land Title Association or an equivalent policy
promulgated in the jurisdiction where the Mortgaged Property is located; and
(f) the legal description of the Mortgaged Property in the title policy must
conform to that shown on the survey of the Mortgaged Property.
Property Insurance. The borrower is required to provide, and the mortgage
loan originator is required to review, certificates of required insurance with
respect to the Mortgaged Property. Such insurance generally may include: (1)
commercial general liability insurance for bodily injury or death and property
damage; (2) an "All Risk of Physical Loss" policy or standard extended coverage
policy; (3) if applicable, boiler and machinery coverage; (4) if the Mortgaged
Property is located in a flood hazard area, flood insurance to the extent
available; and (5) such other coverage (including in each case other than where
a Major Tenant is self-insured or has independently procured similar insurance,
rental loss insurance and business interruption insurance) as the mortgage loan
originator may require based on the specific characteristics of the Mortgaged
Property.
Acquisition of Certificates
Each Seller or its affiliates may acquire a portion of certain Classes of
the Certificates.
ASSIGNMENT OF THE MORTGAGE LOANS
On or prior to the Closing Date, each 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, each Seller is required
in accordance with the related 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 (with copies to the Master Servicer):
(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);
S-77
<PAGE>
(d) an assignment of each related Mortgage from the last assignee of
record and 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 each
Seller with respect to its Mortgage Loans within 90 days following the Closing
Date, and the Trustee will hold the related documents in trust.
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 each Mortgage Loan Purchase Agreement, the related 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 related Mortgage Loan Purchase Agreement (which contains
certain of the information set forth in Annex A) is true and correct in all
material respects;
(2) such 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;
S-78
<PAGE>
(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 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;
(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 such 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).
S-79
<PAGE>
REPURCHASES AND OTHER REMEDIES
If any Mortgage Loan document required to be delivered to the Trustee by a
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 a 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 related 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 related 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 related 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 related Seller and receipt
by the related Seller of notice of such Material Document Defect or Material
Breach, as the case may be, and the related 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.
The foregoing obligations of each 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, the
other Seller 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.
S-80
<PAGE>
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, prudence,
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, the Depositor,
either Mortgage Loan Seller or other servicer of the Mortgage Loan; (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, or any affiliate thereof,
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; (F) the ownership, management or servicing of any other
mortgage loans; or (G) any obligation of the Master Servicer or the Special
Servicer, as the case may be (as a seller or an affiliate of a seller of
Mortgage Loans), to pay any indemnity with respect to, or to repurchase, a
Mortgage Loan (the "Servicing Standard").
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, 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,
provided that if such borrower has obtained a written commitment for
refinancing on the date such payment was due, the failure to make such
Balloon Payment shall not cause the related Mortgage Loan to become a
Specially Serviced Mortgage Loan until such 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
S-81
<PAGE>
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):
(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 60 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
First Union National Bank, in its capacity as Master Servicer under the
Pooling and Servicing Agreement (in such capacity, the "Master Servicer") will
be responsible for servicing the Mortgage Loans (other than Specially Serviced
Mortgage Loans and REO Properties). Although the Master Servicer will be
authorized to employ agents, including
S-82
<PAGE>
sub-servicers, to directly service the Mortgage Loans for which it will be
responsible, the Master Servicer will remain liable for its servicing
obligations under the Pooling and Servicing Agreement. The Master Servicer is a
wholly owned subsidiary of First Union Corporation. The Master Servicer's
principal servicing offices are located at NC 1075, 8739 Research Drive--URP4,
Charlotte, North Carolina 28262-1075.
As of March 31, 1999, the Master Servicer and its affiliates were
responsible for servicing approximately 4,202 commercial and multifamily loans,
totaling approximately $22.6 billion in aggregate outstanding principal
amounts, including loans securitized in mortgage-backed securitization
transactions. The Master Servicer is currently ranked "Strong" by Standard &
Poor's Ratings Services as a commercial loan master servicer, and CMS3 by Fitch
as a commercial loan master servicer.
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 Master Servicer (except for the information in the first two
paragraphs under this heading) will make no representations as to the validity
or sufficiency of the Pooling and Servicing Agreement, the Certificates, the
Mortgage Loans, this Prospectus Supplement or related documents.
THE SPECIAL SERVICER
Lennar Partners, Inc., a Florida corporation, a subsidiary of LNR Property
Corporation ("LNR"), is the initial Special Servicer and in such capacity is
responsible for servicing the Specially Serviced Mortgage Loans. The principal
executive offices of the Special Servicer are located at 760 N.W. 107th Avenue,
Miami, Florida 33172, and its telephone number is (305) 485-2000. The Special
Servicer has regional offices located in Florida, Georgia, Oregon and
California. As of February 28, 1999, the Special Servicer and its affiliates
were managing a portfolio with an original face value of over $41 billion, most
of which are commercial real estate assets. Included in this managed portfolio
are $35 billion of commercial real estate assets representing 51 securitization
transactions for which the Special Servicer is the master servicer or special
servicer. The Special Servicer and its affiliates own and are in the business
of acquiring assets similar in type to the assets of the Trust Fund.
Accordingly, the assets of the Special Servicer and its affiliates may,
depending upon the particular circumstances, including the nature and location
of such assets, compete with the Mortgaged Properties for tenants, purchasers,
financing and so forth.
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 Special Servicer shall not
enter into sub-servicing contracts unless the Rating Agencies have confirmed in
writing that entering into such contract will not result in a qualification,
downgrade, or withdrawal of the then-current ratings on the Certificates, or
the sub-servicing contract relates to a loan or loans that, together with any
loans then currently being sub-serviced in accordance with this section,
represent less than 25% of the outstanding principal balance of all Specially
Serviced Mortgage Loans as of the time such contract.
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.
S-83
<PAGE>
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 second 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 an amount between 0.0524% per annum and 0.1524%
per annum as indicated on Annex A. As additional servicing compensation, the
Master Servicer will be entitled to retain 50% of all assumption fees to the
extent actually paid by a borrower with respect to a Mortgage Loan that is not
a Specially Serviced Mortgage Loan, and 100% of any modification fee if it
performs the modification under the limited circumstances set forth below. 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), but only to the extent that such default interest and late
payment charges are not allocable to cover interest payable to the Master
Servicer, the Special Servicer, the Trustee or the Fiscal Agent 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
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 second 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%,
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 100% of
all modification fees received on or with respect to Mortgage Loans that are
not Specially Serviced Mortgage Loans, in each case to the extent actually paid
by a borrower, provided that the Master Servicer shall retain 100% of any
modification fee if it performs the modification under the limited
circumstances referred to below. The
S-84
<PAGE>
Special Servicer will also be entitled to any default interest and late payment
charges actually collected on the Specially Serviced Mortgage Loans and accrued
during the period during which the Mortgage Loan is a Specially Serviced
Mortgage Loan, but only to the extent that such default interest and late
payment charges are not allocable to cover interest payable to the Master
Servicer, the Special Servicer, the Trustee or the Fiscal Agent with respect to
any Advances made in respect of the related Mortgage Loan. Notwithstanding the
foregoing, any default interest or late charges actually collected on the
Specially Serviced Mortgage Loans shall be paid to the Special Servicer only to
the extent that it exceeds the amount of Advance Interest that the Trust Fund
has previously been paid in connection with such Mortgage Loans. The Special
Servicer shall also be entitled to investment income on amounts held in the REO
Account to the extent provided in the Pooling and Servicing Agreement.
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 (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 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.
S-85
<PAGE>
In no event, however, will the Special Servicer be permitted to:
(i) extend the maturity date of a Specially Serviced Mortgage Loan beyond
the earlier of (A) the date that is five years from the date of such
modification, and (B) the date that is two years prior to the Rated Final
Distribution Date,
(ii) 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,
(iii) reduce the Mortgage Rate to a rate below the then-prevailing
interest rate for comparable loans, as determined by the Special Servicer,
for a period exceeding 36 months from the date of such modification,
provided that the Special Servicer shall thereafter be permitted to so
reduce the Mortgage Rate for successive 12-month periods if the Operating
Adviser consents thereto, or
(iv) 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" herein.
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" herein.
The Master Servicer is authorized to approve certain modifications and
consents on Mortgage Loans that are not Specially Serviced Mortgage Loans as
specified in the Pooling and Servicing Agreement. The Master Servicer will be
entitled to 100% of all assumption fees and modification fees to the extent
actually paid by a borrower related to such modifications and consents.
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
S-86
<PAGE>
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; 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.
The Special Servicer will segregate and hold all revenues received by it
with respect to any REO Property separate and apart from its own funds and
general assets and shall establish and maintain with respect to any REO
Property a segregated custodial account (each, an "REO Account"). The Special
Servicer will deposit or cause to be deposited in the REO Account within one
business day after receipt all income received with respect to an REO Property,
and shall withdraw therefrom funds necessary for the proper operation,
management and maintenance of such REO Property. The Special Servicer will
withdraw from each REO Account and remit to the Master Servicer for deposit
into the Certificate Account income received with respect to an REO Property
(net of expenses) on a monthly basis, except that in determining the amount of
such income received with respect to an REO Property, the Special Servicer may
retain in each REO Account reasonable reserves for repairs, replacements,
anticipated operating expenses and necessary capital improvements and other
related expenses.
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 required to be 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
S-87
<PAGE>
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 established pursuant to the Pooling and Servicing
Agreement 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 deposit
into, the distribution account established pursuant to the Pooling and
Servicing Agreement any amount required to be so deposited or remitted,
which failure is not remedied by 11:00 a.m. on the related Distribution
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 established
pursuant to the Pooling and Servicing Agreement 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, provided,
however, that with respect to any such failure which is not curable within
such 30-day period, the Master Servicer or the Special Serivcer, as the case
may be, will be entitled to an additional cure period of 30 days to effect
such cure so long as the Master Servicer or the Special Servicer, as the
case may be, has commenced to cure such failure within the initial 30-day
period and has provided the Trustee with an officer's certificate certifying
that it has diligently pursued, and is continuing to pursue, a full cure; or
(v) any breach on the part of the Master Servicer or the Special Servicer
of any representation or warranty contained in the Pooling and Servicing
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, provided, however, that with respect to any breach
which is not curable within such 30-day period, the Master Servicer or the
Special Servicer, as the case may be, will be entitled to an additional cure
period of 30 days to effect such cure so long as the Master Servicer or the
Special Servicer, as the case may be, has commenced to cure such breach
within the initial 30-day period and has provided the Trustee with an
officer's certificate certifying that it has diligently pursued, and is
continuing to pursue, a full cure; 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
S-88
<PAGE>
(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, in and of itself, would result or has resulted in the downgrade,
qualification (which shall include a "RatingAlert--negative") or withdrawal
of any rating then assigned by such Rating Agency to any Class of
Certificates; or
(x) Moody's places the ratings of any Class of Certificates on a "watch"
status in contemplation of a ratings downgrade or withdrawal (or Moody's has
downgraded or withdrawn any Class of Certificates), citing servicing
concerns with respect to the Master Servicer or the Special Servicer, as
applicable, as the sole or a contributory factor in such rating action; or
(xi) the Master Servicer or the Special Servicer, as applicable, is no
longer on the approved list of commercial mortgage loan master servicers or
special servicers maintained by Standard & Poor's Ratings Services, and the
Master Servicer or the Special Servicer, as applicable, shall not have again
become listed on the approved list within 45 days thereafter.
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 or the Special Servicer under the Pooling
and Servicing Agreement, the Master Servicer or Special Servicer, as
applicable, 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 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.
SALE OF MASTER SERVICING RIGHTS
If the Master Servicer is terminated as a result of the Events of Default
described in clauses (ix), (x) and (xi) under "--Events of Default" above, then
subject to certain conditions, the Trustee will solicit bids for the Master
Servicer's servicing rights under the Pooling and Servicing Agreement and will
deliver the net proceeds of any resulting sale to the Master Servicer. Any such
attempted sale is to occur during the 45-day period following such termination,
during which 45-day period the Trustee will act as successor Master Servicer.
See "--Events of Default" and "--Rights upon Event of Default" above in this
Prospectus Supplement.
S-89
<PAGE>
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans in Texas, New Jersey and California (approximately 12.4%, 10.6%
and 9.8% of the Initial Pool Balance, respectively). The summaries do not
purport to be complete and are qualified in their entirety by reference to the
applicable federal and state laws governing the Mortgage Loans.
Texas
The following discussion contains a summary of certain statutory
procedures and requirements, that must be followed by a lender in connection
with exercising its rights and remedies to foreclose through a non-judicial
power of sale set forth in a deed of trust with respect to property securing an
obligation.
This summary is not intended to be a comprehensive analysis of Texas
foreclosure procedures and requirements, and is therefore qualified in its
entirety by reference to applicable provisions of the Texas Property Code
governing foreclosures in Texas, including, without limitations, Sections
51.002, 51.003, 51.004 and 51.005 of the Texas Property Code as amended.
In general, in the event a default occurs under a loan secured by a Texas
deed of trust ("Deed of Trust"), the lender may elect to foreclose either (i)
judicially; or (ii) non-judicially through the power of sale set forth in the
Deed of Trust. Most lenders prefer to pursue a non-judicial foreclosure sale
against the property securing the loan, rather than a judicial foreclosure
sale, because of the reduced cost and expeditious timing in the conduct of a
non-judicial foreclosure. In order to conduct a non-judicial foreclosure under
the power of sale contained in a Deed of Trust, the lender, as beneficiary and
through the trustee or substitute trustee appointed under the Deed of Trust, is
required to comply with the terms of the Deed of Trust and applicable Texas law
governing non-judicial foreclosure sales. Specifically, the lender may request
the trustee, or any successor or substitute trustee duly appointed by the
lender, to enforce the trust upon its request and sell the property to the
highest bidder for cash at a public auction at the county courthouse of any
county in which the property is situated. The non-judicial foreclosure sale
must be conducted on the first Tuesday of any month between the hours of 10:00
a.m. and 4:00 p.m., after giving notice of the time, place and terms of sale
and identifying the property to be sold. The notice of sale must be given at
least twenty one (21) days before the date of the sale by (i) posting at the
courthouse door of each county in which the property is located a written
notice designating the county in which the property will be sold; (ii) filing
in the office of the county clerk of each county in which the property is
located a copy of the notice described above; and (iii) serving written notice
of the sale by certified mail on each debtor who, according to the records of
the holder of the debt, is obligated to pay the debt. The affidavit of a person
who has knowledge of these facts to the effect that service was completed is
prima facie evidence of the fact of service. After such sale, the trustee may
make a conveyance with a general warranty of title to any purchaser or
purchasers and such warranties shall be binding upon the borrower and its
heirs, assigns, executors, administrators and legal representatives.
If provided for in the Deed of Trust, the trustee has the right to sell
the property in whole or in part and in such parcels and order as the trustee
may determine, and the right of sale will not be exhausted by one or more
sales, but successive sales may be had until all of the property has been
legally sold. The proceeds from any non-judicial foreclosure sale conducted by
the trustee are required to be applied in accordance with the terms set forth
in the Deed of Trust. The lender may become the purchaser at any non-judicial
foreclosure sale if it is the highest bidder, and shall have the right to
credit the amount of its bid upon the amount of indebtedness owing in lieu of
cash payment. In the event of a foreclosure under a power of sale set forth in
the Deed of Trust, the borrower and all other persons who remain in possession
of any part of the property shall be deemed tenants at will of the purchaser at
such foreclosure sale, and shall be liable for reasonable rental for the use of
the property. In general, if any tenants refuse to surrender possession of the
property upon demand, the purchaser shall be entitled to institute and maintain
a statutory action for forcible entry and detainer and procure a writ of
possession thereunder. In addition, foreclosure may result in the automatic
termination of subordinate leases in the absence of a specific agreement to the
contrary between the foreclosing lender and the tenant, such as a
non-disturbance agreement. In Texas, real property taxes will have priority
over the lien of any previously recorded Deed of Trust and, under certain
circumstances, a mechanic's and materialman's lien may also take priority over
the lien of a previously recorded deed of trust.
Subject to any non-recourse provisions set forth in the Deed of Trust, any
action for a deficiency after the foreclosure sale must be brought within two
(2) years after the foreclosure sale. The person against whom a deficiency is
sought, may request a determination of the fair market value of the property at
the time of foreclosure sale. Competent evidence may be introduced by the
lender and borrower as to the fair market value at the time of the foreclosure
sale and, if the court determines that the fair market value is greater than
the bid at the foreclosure sale, such excess shall be offset against the
S-90
<PAGE>
debt. If a judicial foreclosure sale is conducted, a person obligated on the
debt may seek a determination of the fair market value not later than ninety
(90) days after the date of the foreclosure sale, unless a guarantor did not
receive actual notice of the sale, in which event the suit must be brought by
the guarantor no later than ninety (90) days after the date on which the
guarantor received actual notice of the foreclosure sale.
New Jersey
New Jersey is considered a "lien theory" jurisdiction; that is to say,
upon the execution, delivery and recording of the mortgage, and although the
instrument contains language of transfer and conveyance, no particular estate
is vested in the mortgagee/lender; rather, the mortgage instrument only vests
in the mortgagee/lender a right of entry in the event of a breach of a
condition. Until the occurrence of any such event, the mortgagor/owner
continues to be the legal owner of the land.
A mortgage must be signed by the mortgagor and the signature of the
mortgagor must be properly acknowledged before a certifying officer. The
certifying officer/notary on the acknowledgment must be satisfied that the
person executing the mortgage instrument is the one mentioned in the
instrument. A mortgage containing a defective certificate of acknowledgment or
proof is not entitled to recording or registration in New Jersey and, if the
clerk or register mistakenly records the instrument, such recordation is not
effective under the New Jersey recording statutes to effectuate lien priority
absent the passage of a "curative"/validating statute.
In New Jersey the priority of rights as among competing mortgagees is
determined by their respective times of recording in the applicable county
registry. Thus, the rights of a holder of an unrecorded mortgage are
subordinate and junior to the rights of the holder of a subsequent mortgagee
who takes the mortgage for value, without notice of the prior unrecorded
mortgage, and who records first.
Real property taxes, if unpaid when due, become a lien on the property for
the satisfaction of which the real property subject to the lien may be sold.
New Jersey tax law establishes municipal tax liens as first liens on property,
paramount to all prior or subsequent liens, mortgages and encumbrances thereon
regardless of their times of recording.
Priority between competing security interest lienholders and mortgagees in
fixtures (generally not incorporated into the structure) is governed by the
provisions of the New Jersey Uniform Commercial Code.
Unless the terms of the mortgage contain contrary provisions, the interest
of a mortgagee in respect of the mortgage is fully transferable and assignable
in New Jersey, and the assignment instrument is recordable. By recording such
an assignment instrument, the assignee of the rights of the assigning mortgagee
are first and prior to the rights of any subsequent assignees who claim
priority as a subsequent holder of the original mortgagee's rights by
assignment.
As discussed above, prior to a mortgagor's default (i.e., prior to the
mortgagor's failure to pay or perform the terms of the mortgage), the mortgagor
is entitled to possession and to the rents, issues and profits from the
mortgaged property. The occurrence of a default gives the mortgagee the right
to possession of the mortgaged property, unless there is a contrary provision
in the mortgage. This right to possession can be enforced by a civil action in
foreclosure for possession, ejectment or other methods.
If the mortgage or a separate instrument contains a present, absolute, and
unconditional assignment of rents, the mortgagee's rights to the rents under
leases that pre-date the mortgage (or as to leases that are by their terms
subordinate and subject to the mortgage) arise upon the execution and delivery
of the mortgage (typically allowing the mortgagor a license to have the rents
until a default whereupon the license is deemed rescinded). The assignment of
rents must not simply be a pledge/collateral assignment of rents as additional
security for the mortgagor's performance of the mortgage, it must be stated as
a present and absolute assignment of the rents to the mortgagee, evidencing the
intention on the part of the mortgagor to transfer the rights to the rents to
the mortgagee at the time of the execution and the delivery of the rental
assignment instrument. While the absence of language of a present, absolute
assignment of rents is not fatal to effect an assignment of rents, an
assignment of rents that purports to become effective only upon the occurrence
of a subsequent default may run afoul of a bankruptcy action by the mortgagor.
Courts in New Jersey have held that a present, absolute assignment vests
title to the rents in the mortgagee at the time of execution of the assignment
instrument, and may insulate the rents from the reach of any creditors in the
event of a later bankruptcy of the mortgagor. One New Jersey court has observed
that the better practice in New Jersey is to memorialize the present assignment
of rents apart from the mortgage in a separate instrument that is separately
recorded along with the mortgage, because a mortgage is essentially a security
instrument and not a present conveyance.
S-91
<PAGE>
The mere present, absolute and unconditional assignment of rents may not
result in a tenant's promptly delivering its periodic rental payments to the
mortgagee unless the tenant and the mortgagee are party to a subordination and
attornment agreement. The tenant is in privity with the mortgagor under the
lease, and although the tenant may have been furnished with notice of the
landlord's/mortgagor's assignment of rents at the time of the closing of the
mortgage transaction, the tenant, absent an agreement to the contrary,
generally continues to pay its landlord in accordance with the tenant's payment
obligation in the lease. New Jersey allows the mortgagee to seek the
appointment of a rent receiver in the foreclosure action in order to hold the
tenant to the terms of the lease and to protect the payment of the rents. The
appointment of a rent receiver is within the discretion of the court in all
cases. Indeed, if the mortgagor persuades the court that the mortgage security
is more than adequate to secure the mortgagee, it is unlikely that the court
will allow a rent receivership. While the mortgage may contain a covenant to
the effect that the mortgagee has the immediate right to a rent receiver
without any judicial action upon the occurrence of an event of default, New
Jersey courts may not fully enforce these agreements.
A mortgagor, in defending against a foreclosing mortgagee, will generally
assert as many defenses as possible, including without limitation, duress,
fraud, illegality, mistake, statute of limitations, lack of consideration,
usury, fraudulent conveyance, and the like. There are presently no New Jersey
limitations on the interposition of defenses. Additionally, a mortgagor has the
right to file for protection under the federal bankruptcy statutes. Such a
filing has the immediate effect of "staying" any existing or future actions by
a mortgagee to enforce the provisions of its mortgage and collateral documents,
unless the "automatic stay" is lifted by the bankruptcy court. There may be
other equitable remedies available to a defaulting mortgagor to enable the
mortgagor to work-out the troubled debt that may result in the mortgagee
realizing less than the full principal amount of the debt which the mortgage
secures.
Following a judgment of foreclosure and sale of the property at a
sheriff's auction, and provided that the mortgage loan is not "non-recourse",
the foreclosing mortgagee may pursue a deficiency judgment, i.e., the
difference between the mortgage debt and the lesser amount realized at the
sheriff's sale of the mortgaged property. Certain mortgage loans are
"non-recourse." The holder's/mortgagee's rights in the event of the occurrence
of a default thereunder are strictly limited to foreclosing the mortgage
against the mortgaged property and any other assets that have been pledged to
secure the mortgage loan; and no recourse may be had by the mortgagee to seek
personal or other liability against the mortgagor or to otherwise reach and
realize on other assets of the mortgagor not specifically pledged to the
mortgagee.
Many mortgage loans allow the mortgagee to pursue late payment fees
(typically set as a stated percentage of the amount of the monthly debt service
amount that was paid late) and interest rates after a default that exceed the
nominal interest rate set forth in the mortgage and obligation that the
mortgage secures (typically referred to as a "default interest rate"). The
Superior Court in New Jersey recently held that the imposition of any such late
payment fees and default interest rates are unenforceable penalties and could
only be enforced in the event that the payments bore a reasonable relationship
to the costs and expenses incurred by the lender in following up with the
debtor whose payment was late. This decision is presently being appealed by the
lender involved in that litigation, but there can be no assurance that the
appeal will be successful.
In New Jersey, private property is permitted to be taken for public use
and for "just compensation" by condemnation under the State's eminent domain
statute. If all or a portion of the mortgaged property is condemned, a
mortgagee is typically entitled to so much of the award that is needed to
satisfy the mortgage unless the terms of the mortgage require otherwise.
Entitlements to condemnation (and casualty/fire loss) proceeds are usually
agreed to by the parties to the mortgage.
California
California and various other states have imposed statutory prohibitions or
limitations that limit the remedies of a mortgagee under a mortgage or a
beneficiary under a deed of trust. Generally all of the Mortgage Loans are
nonrecourse loans as to which, in the event of default by a borrower, recourse
may be had only against the specific property pledged to secure the Mortgage
Loan and not against the borrower's other assets. Even if recourse is available
pursuant to the terms of the Mortgage Loan, certain states have adopted
statutes which impose prohibitions against or limitations on such recourse. The
limitations described below and similar or other restrictions in other
jurisdictions where Mortgaged Properties are located may restrict the ability
of the Master Servicer or the Special Servicer, as applicable, to realize on
the Mortgage Loans and may adversely affect the amount and timing of receipts
on the Mortgage Loans.
California statutes limit the right of the beneficiary to obtain a
deficiency judgment against the trustor (i.e., obligor) following a
non-judicial foreclosure sale under a deed of trust. A deficiency judgment is a
personal judgment against an obligor in most cases equal to the difference
between the amount due to the beneficiary and the fair market value of
collateral. No deficiency judgment is permitted under California law following
a nonjudicial sale under the power of sale in
S-92
<PAGE>
a deed of trust. Other California statutes require the beneficiary to exhaust
the security afforded under the deed of trust by foreclosure in an attempt to
satisfy the full debt before bringing a personal action (if otherwise
permitted) against the obligor for recovery of the debt, except in certain
cases liability may be asserted for the amount by which the value of the real
property was impaired as a result of environmental problems. California case
law has held that acts such as an offset of an unpledged account or the
application of rents from secured property prior to foreclosure, under some
circumstances, constitute violations of such statutes. Violations of such
statutes may result in the loss of some or all of the security under the loan,
as well as the right to obtain any judgment on the loan. Finally, other
statutory provisions in California limit any deficiency judgment (if otherwise
permitted) against the former trustor following a judicial sale to the excess
of the outstanding debt over the greater of (i) the fair market value of the
property at the time of the public sale or (ii) the amount of the winning bid
in foreclosure, and give the borrower a one-year period within which to redeem
the property. California statutes also provide priority to certain tax liens
over the lien of previously recorded deeds of trust. Additionally, in the
absence of sufficient waivers, the above limitations may apply to restrict
proceedings against a guarantor of the loan.
In some states, foreclosure may result in automatic termination of
subordinate leases in the absence of either (i) an agreement to the contrary
between the foreclosing lender and the tenant or (ii) circumstances in which it
would be equitable to permit such termination. In addition, in all states, real
property taxes have priority over the lien of previously recorded mortgages or
deeds of trust and in some states and under certain circumstances, mechanics'
liens and materialmen's liens may also take priority over the lien of
previously recorded mortgages or deeds of trust.
Foreclosure under either a mortgage or a deed of trust or the sale by the
referee or other designated official or by trustee is often a public sale.
However, because of the difficulty a potential buyer at the sale might have in
determining the exact status of title to the property subject to the lien of
the mortgage or deed of trust and the redemption rights that may exist, and
because the physical condition and financial performance of the property may
have deteriorated during foreclosure proceedings and/or for a variety of other
reasons, a third party may be unwilling to purchase the property at foreclosure
sale. Some states require that the lender disclose to potential bidders at a
trustee's sale all known facts materially affecting the value of the property.
Such disclosure may have an adverse effect on the trustee's or mortgagee's
ability to sell the property or upon the sale price.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion, when read in conjunction with the discussion of
"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 "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 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 "Federal Income Tax Consequences--REMICs"
in the Prospectus. The Offered Certificates will be REMIC Regular Certificates
issued by REMIC III. See "Federal Income Tax
S-93
<PAGE>
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 14 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 N 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 29.1%. 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 "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 weighted average of net interest rates on qualified
mortgages, as qualified stated interest. See "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
S-94
<PAGE>
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 "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 "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 OID allocable to such period would be zero and such Certificateholder
will be permitted to offset such negative amount only against future OID (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 "Federal Income
Tax Consequences--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount and Premium " and "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 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 "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 "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.
S-95
<PAGE>
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.
Yield Maintenance Charges and 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 Yield Maintenance Charge or 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,
Yield Maintenance Charges and Prepayment Premiums will be treated as income to
the holders of a Class of Certificates entitled to such Yield Maintenance
Charges or Prepayment Premiums only after the Master Servicer's actual receipt
of a Yield Maintenance Charge or Prepayment Premium to which such Class of
Certificates is entitled under the terms of the Pooling and Servicing
Agreement, rather than including projected Yield Maintenance Charges or
Prepayment Premiums in the determination of a Certificateholder's projected
constant yield to maturity. It appears that Yield Maintenance Charges and
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 Yield Maintenance Charges and Prepayment Premiums.
Gain or loss on the sale, exchange redemption or retirement of an Offered
Certificate may be capital gain or loss, subject to certain restrictions and
provided the Offered Certificate is held as a capital asset. See "Federal
Income Tax Consequences --REMICs--Sale, Exchange or Redemption" in the
Prospectus. Any such capital gain or loss will be a long-term capital gain or
loss if the Offered Certificate was held for more than one year. The Taxpayer
Relief Act of 1998 eliminated the eighteen month holding period previously
required for capital assets held by individuals to qualify for the most
favorable rate of tax applicable to long-term capital gains of individuals.
Long-term capital gains of individuals are subject to reduced maximum tax
rates, while capital gains recognized by individuals on capital assets held for
twelve months or less are generally taxed at ordinary income rates. The use of
capital losses is limited.
The Treasury Department has recently issued final regulations relating to
withholding, information reporting and backup withholding, which, among other
things, will modify the certification procedures and forms described in the
Prospectus which apply (i) to Non-U.S. Holders for obtaining an exemption from
or reduction in United States withholding tax on interest, OID and gain from
the sale, exchange or redemption of a REMIC Regular Certificate, and (ii) to
all Holders (other than certain exempt recipients including, among others,
corporations and financial institutions) in respect of information reporting
and backup withholding applicable to reportable payments. See "Federal Income
Tax Consequences--REMICs--Taxation of Owners of REMIC Regular
Certificates--Non-U.S. Persons" and "--Information Reporting and Backup
Withholding". These final regulations generally will be effective for payments
made after December 31, 2000, subject to certain transition rules for the
calander years 1999 and 2000. Non-U.S. Holders are urged to consult their tax
advisors with respect to the requirements of these regulations.
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 "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 "Federal Income Tax Consequences--REMICs" and "State
Tax Considerations" in the Prospectus.
S-96
<PAGE>
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 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 Prudential an individual
prohibited transaction exemption, Prohibited Transaction Exemption No. 90-32,
as amended by Prohibited Transaction Exemption 97-34 (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) Prudential Securities
Incorporated, (b) any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
Prudential Securities 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 Morgan
Stanley & Co. Incorporated.
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 Standard &
Poor's Ratings Services, A Division of The McGraw Hill Companies (S&P), Duff &
Phelps Credit Rating Co. ("DCR"), Moody's or Fitch.
S-97
<PAGE>
Fourth, 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 Moody's, 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.
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.
S-98
<PAGE>
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 using the assets of a Plan to purchase 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 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.
S-99
<PAGE>
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 Prudential Securities Incorporated and Morgan
Stanley & Co. Incorporated (together, 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>
Prudential Securities Incorporated $174,000,000 $455,631,000 $22,719,000
Morgan Stanley & Co. Incorporated 30,000,000 80,000,000 0
Total .................................. $204,000,000 $535,631,000 $22,719,000
============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
UNDERWRITER CLASS C CLASS D
- ----------------------------------------------------- -------------- --------------
<S> <C> <C>
Prudential Securities Incorporated .......... $20,195,000 $53,011,000
Morgan Stanley & Co. Incorporated ........... 0 0
Total .................................... $20,195,000 $53,011,000
=========== ===========
</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.
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 May 27,
1999, which is the fourth 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.
The Mortgage Loan Sellers and their affiliates may acquire certain of the
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.
S-100
<PAGE>
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 Thacher, Proffitt & Wood, 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
Moody's Investors Service Inc. ("Moody's", and together with Fitch, the "Rating
Agencies"):
<TABLE>
<CAPTION>
CLASS FITCH MOODY'S
- ---------------------------- ------- --------
<S> <C> <C>
Class A-1 ................ AAA Aaa
Class A-2 ................ AAA Aaa
Class B .................. AAA Aa1
Class C .................. AA Aa2
Class D .................. A A2
</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 May
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.
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 Yield
Maintenance Charges, 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/AAA" 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-101
<PAGE>
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT
DEFINITIONS PAGE
401(c) Regulations...................................................... S-99
ACMs.................................................................... S-29
ADA..................................................................... S-36
Administrative Cost Rate................................................ S-84
Annual Debt Service..................................................... S-73
Anticipated Repayment Date........................................ S-14, S-67
Anticipated Repayment Date Loans.................................. S-14, S-67
Appraised LTV........................................................... S-73
Appraised Value......................................................... S-73
ARD............................................................... S-14, S-67
ARD Amount or ARD Balance............................................... S-73
Asset Status Report..................................................... S-82
Balloon Amount.......................................................... S-73
Balloon Balance......................................................... S-73
Balloon/ARD LTV......................................................... S-73
Cash Flow............................................................... S-72
Cedel................................................................... S-18
Code.................................................................... S-93
Controlling Class....................................................... S-85
Corrected Mortgage Loan................................................. S-82
Cut-off Date Balance.................................................... S-65
DCR..................................................................... S-97
Debt Service Coverage Ratio............................................. S-73
Default................................................................. S-86
Defaulted Mortgage Loan................................................. S-86
Defaulting Party........................................................ S-89
Depositor................................................................ S-3
Document Defect......................................................... S-80
DOL..................................................................... S-97
DSCR.................................................................... S-73
DTC..................................................................... S-17
Due Dates............................................................... S-67
ERISA................................................................... S-97
ESA..................................................................... S-76
Euroclear............................................................... S-18
Event of Default........................................................ S-88
Exemption............................................................... S-97
Expansion Reserves...................................................... S-70
FASIT................................................................... S-94
Final Regulation........................................................ S-97
FIRREA.................................................................. S-76
Fitch.................................................................. S-101
Heller Financial........................................................ S-75
Heller Loans............................................................ S-66
HFCF.................................................................... S-75
Initial Pool Balance.................................................... S-65
Interest Accrual Method................................................. S-67
Liquidation Fee......................................................... S-84
LNR..................................................................... S-83
Loan-to-Value Ratio..................................................... S-73
Lock-out Period......................................................... S-67
Lower-Tier REMIC........................................................ S-93
S-102
<PAGE>
LTV..................................................................... S-73
Master Servicer......................................................... S-82
Master Servicing Fee.................................................... S-84
Material Breach......................................................... S-80
Material Document Defect................................................ S-80
Middle-Tier REMIC....................................................... S-93
Moody's................................................................ S-101
Mortgage................................................................ S-66
Mortgage File........................................................... S-77
Mortgage Loan........................................................... S-65
Mortgage Loan Purchase Agreement........................................ S-67
Mortgage Note........................................................... S-66
Mortgage Pool........................................................... S-65
Mortgage Rates.......................................................... S-67
Mortgaged Property...................................................... S-66
net income from foreclosure property.................................... S-87
Net Operating Income.................................................... S-72
Net Rentable SF/Units................................................... S-74
NOI..................................................................... S-73
Number of Units......................................................... S-74
Occupancy Rate.......................................................... S-73
Offered Certificates..................................................... S-8
OID..................................................................... S-94
Operating Adviser....................................................... S-85
PAR..................................................................... S-77
Permitted Cure Period................................................... S-80
Permitted Investments................................................... S-84
Phase I................................................................. S-71
Phase II................................................................ S-71
Physical Occupancy %.................................................... S-74
P&I Advance............................................................. S-16
Plan.................................................................... S-97
PML..................................................................... S-71
Private Certificates..................................................... S-8
Prudential Loans........................................................ S-67
PTCE.................................................................... S-99
Purchase Price.......................................................... S-80
Qualifying Substitute Mortgage Loan..................................... S-80
Rated Final Distribution Date.......................................... S-101
Rating Agencies........................................................ S-101
Related Borrower Loan Groups............................................ S-68
Remaining Amortization Term............................................. S-74
Remaining Term to Maturity.............................................. S-74
REMIC................................................................... S-93
REMIC I................................................................. S-93
REMIC II................................................................ S-93
REMIC III............................................................... S-93
REO Account............................................................. S-87
REO Extension........................................................... S-87
REO Sale Deadline....................................................... S-87
REO Tax................................................................. S-87
Restricted Group........................................................ S-98
Section 42.............................................................. S-29
Section 8............................................................... S-29
Seller.................................................................. S-67
S-103
<PAGE>
Sellers................................................................. S-67
Servicing Standard...................................................... S-81
Servicing Transfer Event................................................ S-81
Single-Tenant Mortgage Loan............................................. S-69
SMMEA............................................................. S-19, S-99
Special Servicing Fee................................................... S-84
Special Servicing Fee Rate.............................................. S-84
Specially Serviced Mortgage Loan........................................ S-81
Strong.................................................................. S-83
Sub-Servicer............................................................ S-83
Sub-Servicing Agreement................................................. S-83
Substitution Shortfall Amount........................................... S-80
Underwriters........................................................... S-100
Underwriting Agreement................................................. S-100
Underwritten Cash Flow.................................................. S-72
Underwritten DSCR....................................................... S-73
Underwritten Net Cash Flow.............................................. S-73
Underwritten NOI........................................................ S-72
Upper-Tier REMIC........................................................ S-93
Workout Fee............................................................. S-84
Workout Fee Rate........................................................ S-84
Year Built.............................................................. S-74
Year Renovated.......................................................... S-74
S-104
<PAGE>
ANNEX A
EXPLANATORY NOTES
Shaded Mortgage Loans signify either single notes secured by multiple
Mortgages, or cross-collateralized/cross-defaulted notes and Mortgages.
Crossed loans (i.e., cross-collateralized or cross-defaulted Mortgage Loans)
include a summation of certain loan parameters (e.g. Cut-off Date Balance) on
the top line of the loan group as designated in bold type and, therefore, some
loan totals are duplicated and must be adjusted to attain portfolio totals.
"HFCF", and "PMCC", denote Heller Financial Capital Funding Inc. and, as
applicable, Prudential Mortgage Capital Company, respectively, as originators
of the Mortgage Loans.
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 Mortgaged Properties or are cross-collateralized and cross-defaulted.
"ARD" indicates the Anticipated Repayment Date.
The Amortization Term shown is the basis for determining the fixed monthly
principal and interest payment as set forth in the related Note. For those
Mortgage Loans utilizing an actual/360 interest calculation methodology, the
actual amortization to a zero balance may require more monthly payments than
indicated.
"Largest Tenant Name" refers to the tenant that represents the greatest
percentage of the total square footage at the related Mortgaged Property.
"YM" represents yield maintenance. "YM1" represents the greater of yield
maintenance or one percent of the outstanding principal balance at such time.
Columns listed as "3%", "2%", and "1%" denote loans with a Prepayment Premium
equal to the lesser of yield maintenance or the applicable percentage listed in
the column headings. "Open" represents a period during which principal
prepayments are permitted without payment of a Prepayment Premium. For each
Mortgage Loan, the sum of the numbers set forth under the Prepayment
Description category represents the number of months in the original term to
maturity.
"LO" denotes that a Mortgage Loan is locked out for a period during which
prepayment is not permitted.
"DEF" denotes defeasance and indicates that a loan may be defeased only during
the indicated period.
"Seasoning" represents the approximate number of months elapsed from the date
of the first regularly scheduled payment to the Cut-off Date.
Missing NOI data points occur because the data was not available or because
they apply to a time period that is not comparable to other Mortgage Loans in
the Mortgage Loan Pool.
Due on Sale provides a confirmation that exercise is at the related lender's
option with a fee payable for such option.
Fixed Loan Type identifies that interest will accrue on the balance of the
related Mortgage Loan at the indicated fixed coupon during the term of the
loan.
"NAP" denotes data is not applicable.
Current LTV Ratio is calculated using the original appraised value and the
Cut-off Date Balance.
1998 NOI--Generally, 1996 and 1997 NOI indicates a January through December
calendar year, 1998 NOI may be calculated on any one of the three following
methods: (a) at least 8 months during 1998, annualized, (b) the trailing 12
months ending no earlier than October 1998 including at least 10 months of
calendar 1998, or (c) calendar year 1998.
"Future Subordinate Financing" indicates whether the related borrower may enter
into further financing secured by the Mortgaged Property.
A-1
<PAGE>
RANGE OF CUT-OFF DATE PRINCIPAL BALANCES
<TABLE>
<CAPTION>
WEIGHTED SCHEDULED
WEIGHTED AVERAGE WEIGHTED PRINCIPAL
NUMBER OF PERCENT OF AVERAGE REMAINING AVERAGE WEIGHTED BALANCE AS OF
RANGE OF CUT-OFF DATE MORTGAGED CUT-OFF DATE INTEREST TERM CUT-OFF DATE AVERAGE THE CUT-OFF
PRINCIPAL BALANCES LOANS POOL BALANCE RATE (MONTHS) LTV DSCR DATE
- --------------------------------- ----------- -------------- ------------ ----------- -------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
500,000 - 999,999 ............... 13 0.97% 7.6037% 101.54 70.72% 1.50x $ 9,782,570
1,000,000 - 1,999,999 ........... 42 6.20 7.2580 120.90 67.28 1.44 62,629,334
2,000,000 - 2,999,999 ........... 42 10.21 7.3202 110.19 71.22 1.38 103,045,441
3,000,000 - 3,999,999 ........... 18 6.29 7.1387 113.47 73.82 1.37 63,536,048
4,000,000 - 4,999,999 ........... 19 8.26 7.0325 116.62 72.40 1.40 83,425,562
5,000,000 - 5,999,999 ........... 16 8.70 7.0529 111.66 73.66 1.35 87,842,428
6,000,000 - 6,999,999 ........... 5 3.21 7.0024 108.66 71.88 1.39 32,420,393
7,000,000 - 7,999,999 ........... 4 3.00 7.6456 112.69 72.80 1.29 30,259,936
8,000,000 - 8,999,999 ........... 2 1.65 7.5276 174.87 75.23 1.56 16,662,976
9,000,000 - 9,999,999 ........... 4 3.71 7.0047 110.75 75.02 1.42 37,451,086
10,000,000 - 11,999,999 ......... 8 8.60 7.0569 116.14 73.95 1.38 86,797,294
12,000,000 - 13,999,999 ......... 3 3.82 7.3939 115.71 72.78 1.40 38,550,553
14,000,000 - 16,999,999 ......... 7 10.84 7.5797 114.15 71.78 1.38 109,467,922
17,000,000 - 64,916,634 ......... 7 24.55 6.9639 133.40 66.29 1.41 247,864,760
-- ------ ------ ------ ----- ---- --------------
Total .......................... 190 100.00% 7.1728% 119.60 70.86% 1.39x $1,009,736,304
=== ====== ====== ====== ===== ==== ==============
</TABLE>
PROPERTY TYPE DISTRIBUTION BY CUT-OFF DATE PRINCIPAL BALANCE
<TABLE>
<CAPTION>
WEIGHTED SCHEDULED
WEIGHTED AVERAGE WEIGHTED PRINCIPAL
NUMBER OF PERCENT OF AVERAGE REMAINING AVERAGE WEIGHTED BALANCE AS OF
MORTGAGED CUT-OFF DATE INTEREST TERM CUT-OFF DATE AVERAGE THE CUT-OFF
GENERAL PROPERTY TYPES PROPERTIES POOL BALANCE RATE (MONTHS) LTV DSCR DATE
- -------------------------------- ------------ -------------- ------------ ----------- -------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Multifamily .................... 56 25.17% 6.8458% 114.04 74.27% 1.37x $ 254,129,902
Office ......................... 29 23.58 7.1914 121.97 71.64 1.36 238,136,440
Retail-Anchored ................ 19 17.75 7.3425 116.98 65.33 1.40 179,272,364
Retail-Unanchored .............. 24 9.43 7.1435 139.21 70.57 1.39 95,205,865
Self-Storage ................... 23 5.36 7.2803 112.10 66.07 1.54 54,104,211
Manufactured Housing ........... 16 3.92 7.6823 105.62 78.78 1.33 39,548,458
Industrial ..................... 9 2.99 7.0779 114.29 72.94 1.35 30,142,216
Senior Housing ................. 4 2.86 7.0983 130.11 75.17 1.62 28,900,067
Hotel .......................... 6 2.86 8.3474 121.81 62.53 1.42 28,878,151
Retail-Single Tenant ........... 5 1.31 7.2093 112.74 76.10 1.29 13,273,489
Golf Course .................... 1 1.02 7.7100 166.00 54.38 1.58 10,332,008
Retail-Power Center ............ 1 0.97 6.8800 111.00 72.86 1.39 9,836,065
Congregate Care ................ 1 0.92 6.9000 107.00 73.97 1.69 9,246,047
Retail/Office .................. 1 0.66 6.3700 116.00 74.59 1.39 6,683,076
Industrial/Office .............. 3 0.43 6.4749 115.00 62.25 1.41 4,380,076
Office/Multifamily ............. 1 0.42 7.3400 134.00 74.04 1.29 4,220,130
Retail-Shadow Anchored ......... 1 0.34 8.1100 119.00 77.48 1.25 3,447,736
-- ------ ------ ------ ----- ---- --------------
Total ......................... 200 100.00% 7.1728% 119.60 70.86% 1.39x $1,009,736,304
=== ====== ====== ====== ===== ==== ==============
</TABLE>
A-2
<PAGE>
MATURITY YEARS
<TABLE>
<CAPTION>
WEIGHTED SCHEDULED
WEIGHTED AVERAGE WEIGHTED PRINCIPAL
NUMBER OF PERCENT OF AVERAGE REMAINING AVERAGE WEIGHTED BALANCE AS OF
MORTGAGED CUT-OFF DATE INTEREST TERM CUT-OFF DATE AVERAGE THE CUT-OFF
MATURITY YEARS LOANS POOL BALANCE RATE (MONTHS) LTV DSCR DATE
- ---------------- ----------- -------------- ------------ ----------- -------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
2008 ........... 114 49.51% 7.0141% 112.23 73.73% 1.39x $ 499,883,870
2009 ........... 51 34.70 7.3823 117.69 66.84 1.40 350,378,642
2013 ........... 6 9.44 6.9681 172.17 67.53 1.42 95,335,209
2006 ........... 4 2.09 7.3119 82.09 75.89 1.37 21,137,059
2014 ........... 5 1.45 7.7346 178.15 72.56 1.32 14,599,486
2007 ........... 2 1.30 7.8700 101.38 76.21 1.26 13,094,743
2005 ........... 4 0.72 7.3494 78.12 77.51 1.39 7,315,683
2010 ........... 1 0.42 7.3400 134.00 74.04 1.29 4,220,130
2004 ........... 3 0.37 8.0000 57.00 78.59 1.22 3,771,482
--- ------ ------ ------ ----- ---- --------------
Total ......... 190 100.00% 7.1728% 119.60 70.86% 1.39x $1,009,736,304
=== ====== ====== ====== ===== ==== ==============
</TABLE>
ORIGINATION YEARS
<TABLE>
<CAPTION>
WEIGHTED SCHEDULED
WEIGHTED AVERAGE WEIGHTED PRINCIPAL
NUMBER OF PERCENT OF AVERAGE REMAINING AVERAGE WEIGHTED BALANCE AS OF
MORTGAGED CUT-OFF DATE INTEREST TERM CUT-OFF DATE AVERAGE THE CUT-OFF
LOAN ORIGINATION YEARS LOANS POOL BALANCE RATE (MONTHS) LTV DSCR DATE
- ------------------------ ----------- -------------- ------------ ----------- -------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 ................... 144 73.14% 6.9919% 120.21 72.16% 1.40x $ 738,477,005
1999 ................... 34 20.52 7.6652 119.36 65.70 1.37 207,186,771
1997 ................... 11 6.10 7.5843 114.26 73.37 1.34 61,631,038
1996 ................... 1 0.24 9.7000 91.00 54.62 1.42 2,441,491
--- ------ ------ ------ ----- ---- --------------
Total ................. 190 100.00% 7.1728% 119.60 70.86% 1.39x $1,009,736,304
=== ====== ====== ====== ===== ==== ==============
</TABLE>
COLLATERAL CONTRIBUTORS
<TABLE>
<CAPTION>
WEIGHTED SCHEDULED
WEIGHTED AVERAGE WEIGHTED PRINCIPAL
NUMBER OF PERCENT OF AVERAGE REMAINING AVERAGE WEIGHTED BALANCE AS OF
MORTGAGED CUT-OFF DATE INTEREST TERM CUT-OFF DATE AVERAGE THE CUT-OFF
COLLATERAL CONTRIBUTORS LOANS POOL BALANCE RATE (MONTHS) LTV DSCR DATE
- ------------------------- ----------- -------------- ------------ ----------- -------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
PMCC .................... 86 59.42% 7.1230% 123.21 69.01% 1.39x $ 600,004,804
HFCF .................... 104 40.58 7.2457 114.31 73.57 1.40 409,731,500
--- ------ ------ ------ ----- ---- --------------
Total .................. 190 100.00% 7.1728% 119.60 70.86% 1.39x $1,009,736,304
=== ====== ====== ====== ===== ==== ==============
</TABLE>
A-3
<PAGE>
GEOGRAPHIC DISTRIBUTION BY CUT-OFF DATE PRINCIPAL BALANCE
<TABLE>
<CAPTION>
WEIGHTED SCHEDULED
WEIGHTED AVERAGE WEIGHTED PRINCIPAL
NUMBER OF PERCENT OF AVERAGE REMAINING AVERAGE WEIGHTED BALANCE AS OF
MORTGAGED CUT-OFF DATE INTEREST TERM CUT-OFF DATE AVERAGE THE CUT-OFF
GEOGRAPHIC PROPERTY STATES PROPERTIES POOL BALANCE RATE (MONTHS) LTV DSCR DATE
- ---------------------------- ------------ -------------- ------------ ----------- -------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Texas ...................... 14 12.42% 7.3928% 119.48 61.71% 1.41x $ 125,370,229
New Jersey ................. 8 10.56 6.8665 137.13 71.85 1.33 106,585,389
California ................. 22 9.84 7.2548 112.76 70.45 1.43 99,365,779
Illinois ................... 10 9.23 7.1422 115.09 72.41 1.42 93,215,925
Florida .................... 24 7.67 6.9476 109.01 74.55 1.36 77,410,158
Ohio ....................... 6 4.65 7.5644 119.30 74.54 1.34 46,911,330
South Carolina ............. 1 3.94 7.0000 175.00 66.25 1.47 39,750,211
Michigan ................... 10 3.92 7.1507 123.02 71.29 1.50 39,575,727
Virginia ................... 6 3.77 7.7608 117.74 67.23 1.39 38,034,153
Tennessee .................. 7 3.46 6.6792 114.62 76.00 1.31 34,955,146
Pennsylvania ............... 8 3.31 7.2594 110.07 71.31 1.40 33,399,798
New York ................... 10 3.08 7.6146 106.76 73.29 1.40 31,060,973
Nevada ..................... 4 3.02 7.1120 119.45 78.36 1.31 30,526,095
Massachusetts .............. 7 2.50 7.1680 115.02 69.47 1.45 25,219,580
Colorado ................... 9 2.14 7.1214 111.18 72.30 1.46 21,626,838
New Mexico ................. 2 2.00 7.4480 115.58 72.62 1.47 20,183,678
Washington ................. 7 1.83 6.8324 112.35 72.41 1.35 18,478,682
North Carolina ............. 4 1.56 7.5166 116.62 63.26 1.38 15,790,145
Hawaii ..................... 1 1.42 6.9000 112.00 79.49 1.47 14,307,402
Oklahoma ................... 2 1.11 6.9188 111.00 72.55 1.38 11,243,195
Arizona .................... 3 1.11 7.1128 110.77 77.43 1.37 11,164,064
Oregon ..................... 4 1.07 6.9555 114.63 65.28 1.40 10,804,373
Wisconsin .................. 7 1.00 7.3651 113.11 81.70 1.27 10,140,964
Missouri ................... 4 0.91 7.0097 121.83 66.24 1.41 9,185,853
Kansas ..................... 3 0.88 6.3972 116.00 75.86 1.42 8,898,737
Georgia .................... 2 0.62 6.6161 112.51 77.66 1.33 6,279,621
Idaho ...................... 2 0.57 6.8623 112.81 63.52 1.49 5,764,325
Indiana .................... 1 0.52 8.1200 99.00 79.10 1.22 5,300,000
Delaware ................... 1 0.35 7.1700 118.00 72.74 1.29 3,491,564
Alabama .................... 2 0.27 7.1500 111.00 73.22 1.36 2,738,327
Kentucky ................... 2 0.27 7.0565 113.95 58.33 1.45 2,727,371
Maine ...................... 1 0.25 7.2500 111.00 79.17 1.13 2,494,008
Maryland ................... 1 0.22 7.7000 118.00 73.23 1.26 2,196,853
Rhode Island ............... 3 0.20 6.5400 115.00 79.46 1.36 2,034,262
New Hampshire .............. 1 0.19 6.8800 109.00 76.40 1.35 1,909,947
Nebraska ................... 1 0.16 7.5400 117.00 73.87 1.30 1,595,602
-- ------ ------ ------ ----- ---- --------------
Total ..................... 200 100.00% 7.1728% 119.60 70.86% 1.39x $1,009,736,304
=== ====== ====== ====== ===== ==== ==============
</TABLE>
A-4
<PAGE>
BALLOON/ARD LTV RANGE (BALLOON/ARD LOANS ONLY)
<TABLE>
<CAPTION>
WEIGHTED SCHEDULED
WEIGHTED AVERAGE WEIGHTED PRINCIPAL
NUMBER OF PERCENT OF AVERAGE REMAINING AVERAGE WEIGHTED BALANCE AS OF
RANGE OF BALLOON MORTGAGED CUT-OFF DATE INTEREST TERM CUT-OFF DATE AVERAGE THE CUT-OFF
LOAN-TO-VALUES LOANS POOL BALANCE RATE (MONTHS) LTV DSCR DATE
- ----------------------- ----------- -------------- ------------ ----------- -------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Zero .................. 2 3.22% 6.5974% 171.00 71.25% 1.20x $ 32,493,071
15.01 - 35.00 ......... 5 0.59 7.9066 132.85 40.71 2.06 5,931,432
35.01 - 40.00 ......... 6 1.92 7.3739 142.27 51.32 1.67 19,336,638
40.01 - 45.00 ......... 5 4.70 7.0089 170.15 65.34 1.49 47,500,490
45.01 - 50.00 ......... 13 11.34 7.4676 121.76 58.00 1.50 114,465,431
50.01 - 55.00 ......... 18 7.16 7.2341 116.91 64.55 1.43 72,248,355
55.01 - 60.00 ......... 31 18.10 7.2156 118.14 70.84 1.38 182,809,430
60.01 - 65.00 ......... 47 25.49 7.0993 114.24 73.64 1.37 257,428,371
65.01 - 70.00 ......... 43 21.70 7.0635 112.55 77.76 1.35 219,112,970
70.01 - 75.00 ......... 15 5.25 7.3736 94.62 79.20 1.33 53,045,424
75.01 - 80.00 ......... 4 0.40 8.0000 90.63 82.83 1.27 4,087,457
80.01 - 85.00 ......... 1 0.13 8.0000 114.00 91.23 1.18 1,277,233
-- ------ ------ ------ ----- ---- --------------
Total ................ 190 100.00% 7.1728% 119.60 70.86% 1.39x $1,009,736,304
=== ====== ====== ====== ===== ==== ==============
</TABLE>
DEBT SERVICE COVERAGE RATIO
<TABLE>
<CAPTION>
WEIGHTED SCHEDULED
WEIGHTED AVERAGE WEIGHTED PRINCIPAL
NUMBER OF PERCENT OF AVERAGE REMAINING AVERAGE WEIGHTED BALANCE AS OF
MORTGAGED CUT-OFF DATE INTEREST TERM CUT-OFF DATE AVERAGE THE CUT-OFF
DSCR(X) LOANS POOL BALANCE RATE (MONTHS) LTV DSCR DATE
- --------------------- ----------- -------------- ------------ ----------- -------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
1.01 - 1.15 ......... 4 0.49% 7.4633% 96.06 78.95% 1.14x $ 4,947,408
1.16 - 1.20 ......... 6 4.02 6.7373 157.38 73.94 1.18 40,617,283
1.21 - 1.25 ......... 19 6.98 7.5620 112.36 76.13 1.24 70,433,995
1.26 - 1.30 ......... 38 16.44 7.4297 116.81 74.40 1.28 166,045,800
1.31 - 1.35 ......... 26 12.83 7.0121 112.64 74.53 1.33 129,512,794
1.36 - 1.40 ......... 29 17.72 7.2793 115.05 71.67 1.38 178,960,454
1.41 - 1.45 ......... 26 16.50 6.9093 114.01 71.66 1.43 166,567,296
1.46 - 1.50 ......... 11 14.27 7.2098 132.37 62.41 1.48 144,119,786
1.51 - 1.55 ......... 9 2.86 6.8158 112.89 67.88 1.53 28,867,026
1.56 - 1.60 ......... 5 3.17 7.2597 130.55 66.43 1.57 31,979,628
1.61 - 1.65 ......... 3 0.52 6.8628 120.05 58.88 1.63 5,232,141
1.66 - 1.70 ......... 3 1.46 6.9000 110.28 67.04 1.69 14,764,832
1.71 - 1.75 ......... 2 0.62 6.7693 112.48 61.59 1.71 6,218,051
1.81 - 1.85 ......... 2 1.11 7.2782 158.71 72.22 1.81 11,187,663
1.86 - 1.90 ......... 2 0.41 6.6835 114.91 50.31 1.86 4,102,573
1.91 - 2.00 ......... 1 0.18 6.9600 113.00 49.06 1.96 1,839,849
2.01 - 2.15 ......... 1 0.12 8.3500 116.00 35.51 2.15 1,225,063
2.16 - 2.50 ......... 2 0.26 7.6679 113.31 41.87 2.34 2,581,812
2.51 - 4.40 ......... 1 0.05 8.3500 116.00 23.27 4.40 532,852
-- ------ ------ ------ ----- ---- --------------
Total .............. 190 100.00% 7.1728% 119.60 70.86% 1.39x $1,009,736,304
=== ====== ====== ====== ===== ==== ==============
</TABLE>
A-5
<PAGE>
RANGE OF MORTGAGE RATES
<TABLE>
<CAPTION>
WEIGHTED SCHEDULED
WEIGHTED AVERAGE WEIGHTED PRINCIPAL
NUMBER OF PERCENT OF AVERAGE REMAINING AVERAGE WEIGHTED BALANCE AS OF
MORTGAGED CUT-OFF DATE INTEREST TERM CUT-OFF DATE AVERAGE THE CUT-OFF
MORTGAGE RATES LOANS POOL BALANCE RATE (MONTHS) LTV DSCR DATE
- ------------------------- ----------- -------------- ------------ ----------- -------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
5.9800 - 6.0000 ......... 1 0.11% 5.9800% 115.00 75.49% 1.27x $ 1,094,635
6.0001 - 6.2500 ......... 2 2.24 6.0895 114.76 76.92 1.34 22,630,542
6.2501 - 6.5000 ......... 16 9.24 6.4090 110.99 73.75 1.43 93,282,637
6.5001 - 6.7500 ......... 23 15.63 6.6529 126.38 71.32 1.39 157,848,567
6.7501 - 7.0000 ......... 28 14.93 6.9307 128.15 71.18 1.44 150,800,817
7.0001 - 7.2500 ......... 38 17.16 7.1290 114.93 73.82 1.41 173,251,720
7.2501 - 7.5000 ......... 22 16.13 7.4202 119.02 64.84 1.37 162,903,621
7.5001 - 7.7500 ......... 21 8.23 7.6634 119.14 69.41 1.40 83,108,467
7.7501 - 8.0000 ......... 23 9.64 7.8583 116.61 73.78 1.31 97,379,637
8.0001 - 8.2500 ......... 8 3.90 8.0510 116.23 73.96 1.28 39,428,829
8.2501 - 8.5000 ......... 5 2.02 8.4617 119.19 56.58 1.58 20,418,341
8.5001 - 8.7500 ......... 1 0.27 8.6400 120.00 66.27 1.45 2,717,000
8.7501 - 9.0000 ......... 1 0.24 8.9300 120.00 69.43 1.46 2,430,000
9.5001 - 9.7500 ......... 1 0.24 9.7000 91.00 54.62 1.42 2,441,491
-- ------ ------ ------ ----- ---- --------------
Total .................. 190 100.00% 7.1728% 119.60 70.86% 1.39x $1,009,736,304
=== ====== ====== ====== ===== ==== ==============
</TABLE>
RANGE OF CURRENT LOAN-TO-VALUE
<TABLE>
<CAPTION>
WEIGHTED SCHEDULED
WEIGHTED AVERAGE WEIGHTED PRINCIPAL
NUMBER OF PERCENT OF AVERAGE REMAINING AVERAGE WEIGHTED BALANCE AS OF
MORTGAGED CUT-OFF DATE INTEREST TERM CUT-OFF DATE AVERAGE THE CUT-OFF
LOAN-TO-VALUE RATIO LOANS POOL BALANCE RATE (MONTHS) LTV DSCR DATE
- ----------------------- ----------- -------------- ------------ ----------- -------------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
15.01 - 35.00 ......... 1 0.05% 8.3500% 116.00 23.27% 4.40x $ 532,852
35.01 - 40.00 ......... 3 0.37 8.0961 115.65 37.74 2.01 3,711,287
40.01 - 45.00 ......... 4 0.56 7.1501 128.63 43.47 1.75 5,662,423
45.01 - 50.00 ......... 2 0.44 6.7721 114.76 46.74 1.90 4,455,535
50.01 - 55.00 ......... 4 7.86 7.5836 124.65 52.35 1.50 79,377,426
55.01 - 60.00 ......... 6 1.41 7.2930 116.40 57.59 1.45 14,275,313
60.01 - 65.00 ......... 15 6.28 7.2451 115.26 62.23 1.49 63,410,606
65.01 - 70.00 ......... 20 11.94 7.1741 135.20 67.47 1.42 120,592,097
70.01 - 75.00 ......... 63 40.06 7.1210 119.38 72.54 1.36 404,493,255
75.01 - 80.00 ......... 69 30.66 7.0974 113.57 78.26 1.35 309,537,034
80.01 - 85.00 ......... 1 0.17 8.0000 114.00 83.99 1.38 1,679,712
85.01 - 95.00 ......... 2 0.20 8.0000 114.00 89.72 1.17 2,008,765
-- ------ ------ ------ ----- ---- --------------
Total ................ 190 100.00% 7.1728% 119.60 70.86% 1.39x $1,009,736,304
=== ====== ====== ====== ===== ==== ==============
</TABLE>
A-6
<PAGE>
DISTRIBUTION OF PAYMENT TYPES
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF PERCENT OF AVERAGE
MORTGAGED CUT-OFF DATE INTEREST
PAYMENT TYPES LOANS POOL BALANCE RATE
- ------------------------------------- ----------- -------------- ------------
<S> <C> <C> <C>
Amort. Balloon ...................... 185 91.38% 7.2136%
Int. Only, Then Amort Ball. ......... 2 1.03 7.3942
Fully Amortizing .................... 2 3.22 6.5974
Graduated P&I Balloon ............... 1 4.37 6.6900
--- ------ ------
Total .............................. 190 100.00% 7.1728%
=== ====== ======
<CAPTION>
WEIGHTED SCHEDULED
AVERAGE WEIGHTED PRINCIPAL
REMAINING AVERAGE WEIGHTED BALANCE AS OF
TERM CUT-OFF DATE AVERAGE THE CUT-OFF
PAYMENT TYPES (MONTHS) LTV DSCR DATE
- ------------------------------------- ----------- -------------- ---------- -----------------
<S> <C> <C> <C> <C>
Amort. Balloon ...................... 117.91 70.77% 1.40x $ 922,727,786
Int. Only, Then Amort Ball. ......... 107.34 78.20 1.25 10,400,000
Fully Amortizing .................... 171.00 71.25 1.20 32,493,071
Graduated P&I Balloon ............... 120.00 70.81 1.43 44,115,446
------ ----- ---- --------------
Total .............................. 119.60 70.86% 1.39x $1,009,736,304
====== ===== ==== ==============
</TABLE>
A-7
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CONTROL LOAN
NUMBER NUMBER ORIGINATOR PROPERTY NAME PROPERTY ADDRESS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 6103423 PMCC South Plains Mall 6002 Slide Road
2 6103070 PMCC Somerset Grove II 290 Davidson Avenue
3 6103230 PMCC Barefoot Landing 4898 U.S. Highway 17 North
4 6103062 PMCC Station Plaza Office Complex 10, 22, & 44 South Clinton Avenue
5 6103250 PMCC Remington Place Apartments One West Remington Lane
- -----------------------------------------------------------------------------------------------------------------------------------
6 6103381 PMCC SPRINGFIELD - PRESCOTT & IDOT VARIOUS
6.10 6103381A PMCC Prescott E. Bloom Building 201 South Grand Avenue, East
6.20 6103381B PMCC Illinois Department of Transportation Annex (IDOT) 3215 Executive Park Drive
7 6103198 PMCC The Reserve at Westland Apartments 8700 Hopemont Way
8 7608321 PMCC The Pavilion 261 Old York Road
- -----------------------------------------------------------------------------------------------------------------------------------
9 6103362 PMCC Days Inn Hotel - Crystal City 2000 Jefferson Davis Highway
10 6103429 PMCC LeVeque Tower Office Building 50 West Broad Street
11 97411 HFCF 450-460 Park Avenue South 450-460 Park Avenue South
12 6103302 PMCC Mustang Village Apartments One Mustang Drive
13 98028 HFCF South Valley Ranch 701 Aspen Peak Loop
- -----------------------------------------------------------------------------------------------------------------------------------
14 98322 HFCF Hawaii Kai Shopping Center 377 Keahole Street
15 6103368 PMCC Village Square Shopping Center 27079-27299 Chagrin Blvd.
16 6103379 PMCC Springfield - Bressmer-Mendenhall 620-628 E. Adams Street
17 98674 HFCF Ponce de Leon 640 Alta Vista Street
18 98604 HFCF Rancho Serene Apartments 9405 S. Eastern Avenue
- -----------------------------------------------------------------------------------------------------------------------------------
19 6103380 PMCC Springfield - Concordia Campus 1301 Concordia Court
20 6103329 PMCC Kohl's Department Store 2148 Centerville Road
21 6103041 PMCC Bristlecone Apartments 2600 Preston Road
22 97376 HFCF Colonial Oaks MHP 10425 Middle Avenue
23 97637 HFCF Prestonwood Country Club 15909 Preston Road, 6600 Columbine Way
- -----------------------------------------------------------------------------------------------------------------------------------
24 98298 HFCF Stoney Creek Apartments 56965 Stoney Creek Drive
25 6103342 PMCC Coconut Palms Apartments 4618 Middlebrook Road
26 C-PARNES HFCF VARIOUS VARIOUS
26.10 98004 HFCF Park Hill Apartments 2833 E. Pikes Peak Ave
26.20 98106 HFCF Skyway Village Apartments 860-868 Oxford Lane
26.30 98108 HFCF Castle West Apartments 3770 East Unitah Street
- -----------------------------------------------------------------------------------------------------------------------------------
27 98346 HFCF Mingo Market Place 1023 East 71st Street
28 6103136 PMCC 850 Clark Drive 850 Clark Drive
29 98110 HFCF Newport Beach Plaza 1455 Superior Ave
30 98364 HFCF NAPLES PORTFOLIO VARIOUS
32.10 98364A HFCF Sadez Building 3375 Tamiami Trail N.
32.20 98364B HFCF Tanglewood Marketplace 4910 Tamiami Trail N.
32.30 98364C HFCF Heritage Court 4960-5020 Tamiami Trail N.
- -----------------------------------------------------------------------------------------------------------------------------------
34 98158 HFCF Brighton Independence Village 833 East Grand River
35 6103439 PMCC Urban Farms Shopping Center 808-851 Franklin Lakes Road
36 6103421 PMCC Roswell Mall 4501 North Main Street
37 6102441 PMCC Roan Centre Shopping Center 1805 North Roan Street
- -----------------------------------------------------------------------------------------------------------------------------------
97408 HFCF Hunter's Cove Apartments 5300 DeSoto Lane
39 97605 HFCF Stratford Oaks 2562 10th Street
40 6103337 PMCC Southgate Mall 1409 West Ehringhause Street
41 6103288 PMCC Canned Foods, Inc. Building 2000 Fifth Street
42 6103367 PMCC Holden Commons Shopping Center 160 Reservoir Street (Route 31)
- -----------------------------------------------------------------------------------------------------------------------------------
43 6103138 PMCC Bristol Farms Center 600-700 Fair Oaks Avenue
44 98620 HFCF Strongbox Self Storage 1516 N. Orlean 1516 North Orleans
45 98572 HFCF Pine Brook Apartments 5000 Belle Terrace
46 98400 HFCF Westward Ho/ Northstar 3810 and 3740 N. Romero Road
47 98030 HFCF MarketPlace Shopping Center 6651 Watauga Road
- -----------------------------------------------------------------------------------------------------------------------------------
48 97406 HFCF Savannah Place Apartments 8800 Broadway
49 98526 HFCF Mission Brewery Plaza 1775-95 Hancock & 2120 -50 Washington
50 6103162 PMCC MITCH COX PORTFOLIO VARIOUS
50.10 6103162A PMCC BKJ Park Eastern Star Road
50.20 6103162B PMCC Mountcastle Centre 214 East Mountcastle Drive
50.30 6103162C PMCC University Plaza 1735 West State of Franklin Road
50.40 6103162D PMCC 500 Princeton Road 500 Princeton Road
- -----------------------------------------------------------------------------------------------------------------------------------
51 97698 HFCF Howell Self Storage 2464 Route 9 South
52 98420 HFCF Silver Shadow 3620 Woodchase
53 6103187 PMCC The Calvert Apartments and TheShops at Calvert 3110 Mt. Vernon Avenue
54 97319 HFCF Heritage Heights MHP 8100 North U.S. 31
55 6103298 PMCC Palmetto Palms Business Park Northwest 167th Street
- -----------------------------------------------------------------------------------------------------------------------------------
56 98588 HFCF Saf Keep - Hayward 1650 W. Winton Avenue
57 6102987 PMCC 4600 Westport Drive 4600 Westport Drive
58 97548 HFCF Yale Wilshire Medical Building 2901 Wilshire Blvd.
59 98498 HFCF Maple Park Office Center 6010 to 6024 West Maple Road
60 6103349 PMCC The Palms Apartments 1365 W. Donegan Avenue
- -----------------------------------------------------------------------------------------------------------------------------------
61 98548 HFCF Heritage Hills Apartments 1300 South Puget Drive
62 98564 HFCF Aliso Viejo Professional Center 15 Mareblu
63 98492 HFCF Howell Mill Ridge 743 Holmes Street
64 6103107 PMCC Overland Park Shopping Center 7189 Overland Road
65 98542 HFCF Highgate House 155 East Kellogg Road
- -----------------------------------------------------------------------------------------------------------------------------------
66 98432 HFCF Centennial Shopping Center 5050 South Federal Boulevard
67 98650 HFCF Village Square Shopping Center 219 U.S. Highway #1
68 C-RAND HFCF VARIOUS VARIOUS
68.10 98640 HFCF Park Ridge MHC 1300 Michigan Avenue
68.20 98710 HFCF Lakeland MHC 855 East Lake Street
68.30 98712 HFCF Falls View MHC 601 North Main
68.40 98714 HFCF Birch Terrace MHC North 4791 State Route 25
- -----------------------------------------------------------------------------------------------------------------------------------
69 98524 HFCF Holiday Inn Express - Chula Vista 4450 Otay Valley Road
70 6103268 PMCC Treehouse Apartments 8951 Reeder Road
71 98472 HFCF PRIMA INDUSTRIAL PARK 4600-4754 SW 74th Ave & 4601-4749
SW 75th A
72 6103209 PMCC Dutch Village Apartments 1921-F Eastway Drive
73 6103275 PMCC Hanover Commons Shopping Center 1246 Washington Street
- -----------------------------------------------------------------------------------------------------------------------------------
74 6102952 PMCC Regions Bank Building 315 Union Street
75 98532 HFCF Willow Lake Office Center 600-650 Executive Drive
76 98392 HFCF Beacon Hill Apartments Beacon Hill
77 6103056 PMCC Portland Storage Facility 215 S.E. Morrison Street
- -----------------------------------------------------------------------------------------------------------------------------------
78 C-VICTREE PMCC VARIOUS VARIOUS
78.10 6103282 PMCC Victoria Gardens Apartments 1394 Dunlawton Avenue
78.20 6103283 PMCC Treeview Villas Apartments 819-953 Catherine Avenue
79 97609 HFCF Inkster Town Center 27425 Michigan Avenue
80 97588 HFCF Cordova Crossing - Sports Authority Airport Blvd. near College Pkwy.
- -----------------------------------------------------------------------------------------------------------------------------------
82 98590 HFCF Mandarin Central Shopping Center 11018 Old St. Augustine Road
83 98600 HFCF 19119 Reyes Avenue 19119 Reyes Avenue
84 98616 HFCF Strongbox Self Storage - Irving Park 1650 West Irving Park Road
85 6103375 PMCC Arbor Court Apartments 802 Seminar Drive
- -----------------------------------------------------------------------------------------------------------------------------------
86 C-COHENMOR HFCF VARIOUS VARIOUS
86.10 98630 HFCF Mint MHC 5502 State Route 36
86.20 98632 HFCF Roxbury MHC County Route 11
86.30 98654 HFCF Rivers Edge MHC 322 Routes 5 & 20
87 6103064 PMCC Broadmoor Apartments 505 Ellis Boulevard
- -----------------------------------------------------------------------------------------------------------------------------------
88 98608 HFCF Saline Shopping Center 501-565 East Michigan Avenue
89 98462 HFCF Courtyards Apartments 3802 N. 27th Steet
90 6103286 PMCC Hilliard Square Shopping Center 4568-4740 Cemetery Road
91 6103356 PMCC Tally Ho Shopping Center 4350 Naamans Road
92 98626 HFCF Hayes Valley Care 601 Laguna Street
- -----------------------------------------------------------------------------------------------------------------------------------
93 6103433 PMCC Rancho Vista Plaza 3011, 3053, 3115 Rancho Vista Boulevar
94 98648 HFCF Millparke Tech Center 2310-2330 Millparke Drive
95 98228 HFCF Boston Store Furniture Gallery 18615 West Bluemound Road
96 6102957 PMCC Amity Commons 687-721 Broadway
97 6103347 PMCC Baker Square Shopping Center 1230-1470 North Baker Street
- -----------------------------------------------------------------------------------------------------------------------------------
98 98554 HFCF Moorestown Office 110 Marter Avenue
99 6103364 PMCC Cast Iron Building 718 Arch Street
100 98440 HFCF 188 Route 10 West 188 Route 10 West
101 97589 HFCF Cordova Crossing - Linens N Things Airport Blvd.
102 98418 HFCF One Harvard Street One Harvard Street
- -----------------------------------------------------------------------------------------------------------------------------------
103 6103137 PMCC Crown Valley Center 30012 Crown Valley Parkway
104 98488 HFCF Dangel Portfolio-Prime 1375-1393 Beacon Street
105 97343 HFCF Northland Park 17481 US Hwy #11
106 97440 HFCF Securlock at Bedford 2413 State Highway 121
107 98506 HFCF CAHABA RIVER SSF VARIOUS
107.10 98506A HFCF Attic Plus Storage 4748 Cahaba River Road
107.20 98506B HFCF Attic Away Storage 3941 Cypress Dr & 3120 Pipe Line Road
108 6103360 PMCC Days Inn - Manassas 10653 Balls Ford Road
109 98686 HFCF Adanson Business Center 5125 and 5135 Adanson Street
110 98698 HFCF Town Trails Office Park 17000 Preston Rd.
- -----------------------------------------------------------------------------------------------------------------------------------
111 6103301 PMCC Las Brisas Apartments 5515 River Avenue
112 6103365 PMCC Juniper East Apartments 1329-1339 Lombard Street
113 6103428 PMCC Colorado Crossroads 1415 East Colorado Street
114 98372 HFCF Center Street Plaza 120 Center Street
115 98740 HFCF 26250 Northwestern Highway 26250 Northwestern Highway
- -----------------------------------------------------------------------------------------------------------------------------------
116 97441 HFCF Securlock at Hurst 904 Grapevine Highway
117 6103233 PMCC 10500 Barkley Office Building 10500 Barkley Street
118 96252 HFCF Diamond Mine Mini-Storage 175 Guthrie Lane
119 6103434 PMCC Super 8 Motel - Asheville 1329 Tunnel Road
120 97368 HFCF Royal Palms MHP 5140 Carolina Beach Rd
- -----------------------------------------------------------------------------------------------------------------------------------
121 6103259 PMCC Freeport Bay Apartments 8250 Mukilteo Speedway
122 6103335 PMCC Chestnut Heights Apartments 107 Chestnut Street
123 6102971 PMCC Terrace East Apartments 2139 E. Chestnut Avenue
124 97515 HFCF Money Saver - Gresham 19215 NE Halsey Street
125 98482 HFCF Dangel Portfolio-Pal 471-481 Harvard Street
- -----------------------------------------------------------------------------------------------------------------------------------
126 98652 HFCF Lake Charleston Center 7000 - 7034 Charleston Shores Blvd
127.00 98512 HFCF WESTERN AVENUE PORTFOLIO VARIOUS
127.10 98512A HFCF 2005 Western Avenue 2005 Western Avenue
127.20 98512B HFCF 1971-73 Western Avenue 1971, 1973 Western Avenue
128 98398 HFCF Windham Apartments 420 Blanchard Street
- -----------------------------------------------------------------------------------------------------------------------------------
129 6103394 PMCC Churchill Business Center 13210 & 13220 Wisteria Drive
130 6103308 PMCC The Mount Apartments 1017 Middle Street
131 6103430 PMCC Cherry Heights Apartments 1008 South Cherry Street
132 97489 HFCF Hacienda Self Storage 3722 Old Santa Rita Road
133 6103063 PMCC 320 North Main Street 320 North Main Street
- -----------------------------------------------------------------------------------------------------------------------------------
134 98618 HFCF 445 West Erie 445 West Erie
135 6103267 PMCC Bristol Ridge Apartments 2130 SW Fillmore
136 98516 HFCF Pier 1/Athlete's Foot 4410-4330 N. Freeway Road
137 6103242 PMCC CHARTER REALTY PORTFOLIO VARIOUS
137.10 6103242A PMCC Rumford House Apartments 400 Pleasant Street
137.20 6103242B PMCC Beverage Hill Apartments 550 Beverage Hill Ave. & 385 Woodhaven
Road
137.30 6103242C PMCC Tudor Arms Apartments 1683-1691 Broad Street
- -----------------------------------------------------------------------------------------------------------------------------------
138 98504 HFCF Canyon Self Storage 930 Noble Way
139 6103235 PMCC Teligent Building 250 Rio Drive
140 98530 HFCF Valley Crossing Apartments 3102-3120 Maple Valley Drive
141 6103422 PMCC 2 John E. Walsh Boulevard 2 John E. Walsh Boulevard
142 6103352 PMCC M & M II Apartments 874 Del Rey Drive & 891 Del Sol Drive
- -----------------------------------------------------------------------------------------------------------------------------------
143 98048 HFCF Cypress Court Apartments 335 Cypress Street
144 98240 HFCF Hibiscus Plaza 17730 South Dixie Highway
145 6102993 PMCC Millbrae Plaza Shopping Center 1055-1095 El Camino Real and 1050-1080
Broadway
146 6103307 PMCC Miami Lakes Corporate Plaza 6175 NW 153rd Street
147 6103363 PMCC Casa de Alicia Apartments 1307 Darlene Way
- -----------------------------------------------------------------------------------------------------------------------------------
148 6103378 PMCC Penn Square Apartments 3010 Market Street Road
149 98312 HFCF All Safe Mini Storage 110 Kern Street
150 6103248 PMCC Holiday Inn - Heath 733 Hebron Road
151 98468 HFCF Greenfield Estates MHC 5215 Groveport Road
152 6103234 PMCC Sprint Building 360 Lake Destiny Drive
- -----------------------------------------------------------------------------------------------------------------------------------
153 6103336 PMCC Eagle Run Square II Shopping Center 3661-77 North 129th Street
154 6103236 PMCC Laurel Oaks Apartments 650 North Boundary Avenue
155 6103178 PMCC Lake Francis Shopping Center Route 2, Francis Lake Boulevard
156 97576 HFCF Woodland Village Self Storage 1501 W. Forest Meadows Drive
157 6103168 PMCC 128th Street Retail Building 617 128th Street SW
- -----------------------------------------------------------------------------------------------------------------------------------
158 98496 HFCF Ambassador Apartments 3700 South 154th Street
159 98350 HFCF Seabreeze Apartments 14821 & 14839 Military Road South
160 98622 HFCF Palatine Lock Up 2025 N. Hicks Road
162 6102990 PMCC Chesterfield Place Apartments 14550 Rialto Drive
- -----------------------------------------------------------------------------------------------------------------------------------
163 6103477 PMCC Joshua Center 6416 - 6480 Sante Fe Avenue
164 6103086 PMCC Hickory Ridge Apartments 100 Hickory Ridge Court
165 6103069 PMCC Santa Fe Pointe Shopping Center 1425 South Santa Fe Avenue
166 98508 HFCF Atlantic Self Storage-VA 3500 Commission Court
167 6103252 PMCC Ramada Inn 4767 Scottsville Road
- -----------------------------------------------------------------------------------------------------------------------------------
168 C-RAND2 HFCF VARIOUS VARIOUS
168.10 98638 HFCF Plover Pointe 4104 Hoover Road
168.20 98708 HFCF Kountry Squire MHC 2155 County Road X
169 6103357 PMCC The Awnings Apartments 50 North Front Street (and Parking Lot
@ 113-125 Church St.)
170 98762 HFCF Mini U Storage - Littleton, CO 7322 South Carr Street
- -----------------------------------------------------------------------------------------------------------------------------------
171 98584 HFCF Honeoye Valley MHC 268 West Lake Road
172 6103300 PMCC Lancaster Park Apartments 1415-1459 Lancaster Drive NE
173 98760 HFCF Mini U Storage - Livonia, MI 13450 Merriman Road
174 98758 HFCF Mini U Storage - Warren, MI 24040 Groesbeck Highway
175 6103431 PMCC Heritage Apartments 2897 Greenland Drive
- -----------------------------------------------------------------------------------------------------------------------------------
176 98522 HFCF Foxhill Townhomes 1502-1534 Devon Lane
177 6103241 PMCC Watership Down Apartments 920 East New York Avenue
178 98546 HFCF Northtown Plaza 106 North University Avenue
179 98552 HFCF Apple Storage 2540 S. Apple Street
180 98514 HFCF Big 5 Sporting Goods 5112 56th Street
- -----------------------------------------------------------------------------------------------------------------------------------
181 6103181 PMCC Niagara Distributors, Inc. 3701 N. 29th Avenue
182 98716 HFCF Country Grove Shopping Center 1330 - 1336 S. Military Trail
183 98722 HFCF North Mopac Mini Storage 2707 O'Neal Lane
184 98586 HFCF 1319 Dielman Rd. 1319 Dielman Road
185 6103374 PMCC Pine View Apartments 339-349 South 13th Street
- -----------------------------------------------------------------------------------------------------------------------------------
186 98756 HFCF North Washington Self Storage 10350 North Washington Street
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PROPERTY ZIP
PROPERTY CITY PROPERTY STATE CODE PROPERTY TYPE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lubbock Texas 79414 Retail-Anchored
Franklin Township New Jersey 08875 Office
North Myrtle Beach South Carolina 29582 Retail-Unanchored
Trenton New Jersey 08609 Office
Schaumburg Illinois 60195 Multifamily
- ------------------------------------------------------------------------------------------------------
SPRINGFIELD ILLINOIS VARIOUS OFFICE
Springfield Illinois 62704 Office
Springfield Illinois 62703 Office
Knoxville Tennessee 37923 Multifamily
Jenkintown Pennsylvania 19046 Office
- ------------------------------------------------------------------------------------------------------
Arlington Virginia 22202 Hotel
Columbus Ohio 43215 Office
New York New York 10016 Office
San Luis Obispo California 93405 Multifamily
Henderson Nevada 89015 Multifamily
- ------------------------------------------------------------------------------------------------------
Honolulu Hawaii 96825 Retail-Anchored
Woodmere Ohio 44122 Retail-Anchored
Springfield Illinois 62701 Office
Santa Fe New Mexico 87501 Senior Housing
Las Vegas Nevada 89123 Multifamily
- ------------------------------------------------------------------------------------------------------
Springfield Illinois 62701 Office
Herndon Virginia 20171 Retail-Anchored
Plano Texas 75093 Multifamily
Elyria Ohio 44035 Manufactured Housing
Dallas and Plano Texas 75248 Golf Course
- ------------------------------------------------------------------------------------------------------
Shelby Township Michigan 48316 Multifamily
Orlando Florida 32811 Multifamily
COLORADO SPRINGS COLORADO VARIOUS MULTIFAMILY
Colorado Springs Colorado 80909 Multifamily
Colorado Springs Colorado 80906 Multifamily
Colorado Springs Colorado 80909 Multifamily
- ------------------------------------------------------------------------------------------------------
Tulsa Oklahoma 74133 Retail-Power Center
Mount Olive New Jersey 07828 Industrial
Newport Beach California 92663 Congregate Care
NAPLES FLORIDA 34103 VARIOUS
Naples Florida 34103 Retail-Unanchored
Naples Florida 34103 Retail-Unanchored
Naples Florida 34103 Office
- ------------------------------------------------------------------------------------------------------
Brighton Michigan 48116 Senior Housing
Franklin Lakes New Jersey 07417 Retail-Anchored
Roswell New Mexico 88201 Retail-Anchored
Johnson City Tennessee 37601 Retail-Anchored
- ------------------------------------------------------------------------------------------------------
Houston Texas 77091 Multifamily
Sarasota Florida 34237 Multifamily
Elizabeth City North Carolina 27909 Retail-Anchored
Berkeley California 94710 Retail/Office
Holden Massachusetts 01520 Retail-Anchored
- ------------------------------------------------------------------------------------------------------
South Pasadena California 91030 Retail-Anchored
Chicago Illinois 60610 Self-Storage
Bakersfield California 93309 Multifamily
Tucson Arizona 85713 Manufactured Housing
Watauga Texas 76148 Retail-Anchored
- ------------------------------------------------------------------------------------------------------
Houston Texas 77061 Multifamily
San Diego California 92110 Office
VARIOUS TENNESSEE VARIOUS VARIOUS
Kingsport Tennessee 37663 Industrial
Johnson City Tennessee 37601 Retail-Unanchored
Johnson City Tennessee 37604 Retail-Anchored
Johnson City Tennessee 37601 Industrial/Office
- ------------------------------------------------------------------------------------------------------
Howell New Jersey 07331 Self-Storage
Houston Texas 77042 Multifamily
Alexandria Virginia 22305 Multifamily
Columbus Indiana 47201 Manufactured Housing
Opa-Locka Florida 33056 Industrial
- ------------------------------------------------------------------------------------------------------
Hayward California 94545 Self-Storage
Mechanicsburg Pennsylvania 17055 Office
Santa Monica California 90403 Office
West Bloomfield Michigan 48322 Office
Kissimmee Florida 34741 Multifamily
- ------------------------------------------------------------------------------------------------------
Renton Washington 98055 Multifamily
Aliso Viejo California 92656 Office
Atlanta Georgia 30318 Multifamily
Boise Idaho 83709 Retail-Anchored
Bellingham Washington 98226 Senior Housing
- ------------------------------------------------------------------------------------------------------
Englewood Colorado 80010 Retail-Anchored
Tequesta Florida 33458 Retail-Unanchored
VARIOUS VARIOUS VARIOUS MANUFACTURED HOUSING
Iron Mountain Michigan 49801 Manufactured Housing
Lake Mills Wisconsin 53551 Manufactured Housing
Fall River Wisconsin 53932 Manufactured Housing
Menomonie Wisconsin 54751 Manufactured Housing
- ------------------------------------------------------------------------------------------------------
Chula Vista California 91911 Hotel
Overland Park Kansas 66214 Multifamily
Miami Florida 33155 Industrial
Charlotte North Carolina 28205 Multifamily
Hanover Massachusetts 02339 Retail-Anchored
- ------------------------------------------------------------------------------------------------------
Nashville Tennessee 37201 Office/Multifamily
Willowbrook Illinois 60521 Office
Boston Massachusetts 02114 Multifamily
Portland Oregon 97214 Self-Storage
- ------------------------------------------------------------------------------------------------------
VARIOUS FLORIDA VARIOUS MULTIFAMILY
Port Orange Florida 32127 Multifamily
Holly Hill Florida 32117 Multifamily
Inkster Michigan 48141 Retail-Unanchored
Pensacola Florida 32504 Retail-Single Tenant
- ------------------------------------------------------------------------------------------------------
Jacksonville Florida 32257 Retail-Unanchored
Rancho Dominguiez California 90221 Industrial
Chicago Illinois 60613 Self-Storage
Houston Texas 77060 Multifamily
- ------------------------------------------------------------------------------------------------------
VARIOUS NEW YORK VARIOUS MANUFACTURED HOUSING
Mount Morris New York 14510 Manufactured Housing
Central Square New York 13036 Manufactured Housing
Waterloo New York 13165 Manufactured Housing
Jefferson City Missouri 65101 Multifamily
- ------------------------------------------------------------------------------------------------------
Saline Michigan 48176 Retail-Anchored
Phoenix Arizona 85018 Multifamily
Hilliard Ohio 43206 Retail-Unanchored
Wilmington Delaware 19803 Retail-Unanchored
San Francisco California 94102 Senior Housing
- ------------------------------------------------------------------------------------------------------
Palmdale California 93551 Retail-Shadow Anchored
Maryland Heights Missouri 63043 Office
Brookfield Wisconsin 53045 Retail-Single Tenant
North Amityville New York 11701 Retail-Unanchored
McMinnville Oregon 97128 Retail-Anchored
- ------------------------------------------------------------------------------------------------------
Moorestown New Jersey 08057 Office
Philadelphia Pennsylvania 19106 Office
East Hanover New Jersey 07936 Office
Pensecola Florida 32504 Retail-Single Tenant
Brookline Massachusetts 02146 Office
- ------------------------------------------------------------------------------------------------------
Laguna Niguel California 98288 Retail-Unanchored
Brookline Massachusetts 02141 Retail-Unanchored
Watertown, Jefferson County New York 13601 Manufactured Housing
Bedford Texas 76021 Self-Storage
BIRMINGHAM ALABAMA 35243 SELF-STORAGE
Birmingham Alabama 35243 Self-Storage
Birmingham Alabama 35243 Self-Storage
Manassas Virginia 22110 Hotel
Orlando Florida 32804 Office
Dallas Texas 75248 Office
- ------------------------------------------------------------------------------------------------------
Newport Beach California 92663 Multifamily
Philadelphia Pennsylvania 19147 Multifamily
Glendale California 91207 Retail-Unanchored
Auburn Maine 04210 Retail-Unanchored
Southfield Michigan 48076 Office
- ------------------------------------------------------------------------------------------------------
Hurst Texas 76054 Self-Storage
Overland Park Kansas 66212 Office
Brentwood California 94513 Self-Storage
Asheville North Carolina 28805 Hotel
Wilmington North Carolina 28412 Manufactured Housing
- ------------------------------------------------------------------------------------------------------
Mukilteo Washington 98275 Multifamily
Lower Paxton Township Pennsylvania 17109 Multifamily
Vineland New Jersey 08360 Multifamily
Gresham Oregon 97030 Self-Storage
Brookline Massachusetts 02146 Retail-Anchored
- ------------------------------------------------------------------------------------------------------
Boynton Beach Florida 33437 Retail-Unanchored
GUILDERLAND NEW YORK 12203 OFFICE/RETAIL
Guilderland New York 12203 Retail-Unanchored
Guilderland New York 12203 Office
Seattle Washington 98121 Multifamily
- ------------------------------------------------------------------------------------------------------
Germantown Maryland 20874 Industrial
Fall River Massachusetts 02721 Multifamily
Glendale Colorado 80246 Multifamily
Pleasanton California 94588 Self-Storage
Ann Arbor Michigan 48104 Office
- ------------------------------------------------------------------------------------------------------
Chicago Illinois 60610 Office
Topeka Kansas 66601 Multifamily
Pueblo Colorado 81008 Retail-Single Tenant
VARIOUS RHODE ISLAND VARIOUS MULTIFAMILY
East Providence Rhode Island 02916 Multifamily
Pawtucket Rhode Island 02861 Multifamily
Cranston Rhode Island 02905 Multifamily
- ------------------------------------------------------------------------------------------------------
Santa Maria California 93454 Self-Storage
Eatonville Florida 32810 Industrial/Office
Madison Wisconsin 53719 Multifamily
Peekskill New York 10566 Industrial
Boulder City Nevada 89005 Multifamily
- ------------------------------------------------------------------------------------------------------
Manchester New Hampshire 03103 Multifamily
Miami Florida 33157 Retail-Unanchored
Millbrae California 94030 Retail-Unanchored
Miami Lakes Florida 33014 Office
Boulder City Nevada 89005 Multifamily
- ------------------------------------------------------------------------------------------------------
Penbrook Pennsylvania 17103 Multifamily
Salinas California 93905 Self-Storage
Heath Ohio 43056 Hotel
Obetz Ohio 43125 Manufactured Housing
Eatonville Florida 32810 Industrial/Office
- ------------------------------------------------------------------------------------------------------
Omaha Nebraska 68154 Retail-Unanchored
Deland Florida 32720 Multifamily
Lake Park Georgia 31636 Retail-Anchored
Flagstaff Arizona 86001 Self-Storage
Everett Washington 98204 Retail-Unanchored
- ------------------------------------------------------------------------------------------------------
Seatac Washington 98027 Multifamily
Seatac Washington 98168 Multifamily
Palatine Illinois 60074 Self-Storage
Chesterfield Missouri 63017 Multifamily
- ------------------------------------------------------------------------------------------------------
Huntington Park California 90255 Retail-Unanchored
Hopkinsville Kentucky 42240 Multifamily
Edmond Oklahoma 73003 Retail-Unanchored
Lake Ridge Virginia 22192 Self-Storage
Bowling Green Kentucky 42104 Hotel
- ------------------------------------------------------------------------------------------------------
VARIOUS WISCONSIN VARIOUS MANUFACTURED HOUSING
Plover Wisconsin 54467 Manufactured Housing
Mosinee Wisconsin 54455 Manufactured Housing
Philadelphia Pennsylvania 19106 Multifamily
Littleton Colorado 80123 Self-Storage
- ------------------------------------------------------------------------------------------------------
Canadice New York 14471 Manufactured Housing
Salem Oregon 97301 Multifamily
Livonia Michigan 48150 Self-Storage
Warren Michigan 48089 Self-Storage
Loveland Colorado 80538 Multifamily
- ------------------------------------------------------------------------------------------------------
Harrisonburg Virginia 22801 Multifamily
Deland Florida 32724 Multifamily
Lubbock Texas 79415 Retail-Unanchored
Boise Idaho 83707 Self-Storage
Lubbock Texas 79414 Retail-Single Tenant
- ------------------------------------------------------------------------------------------------------
Hollywood Florida 33020 Industrial
West Palm Beach Florida 33415 Retail-Unanchored
Austin Texas 78759 Self-Storage
Olivette Missouri 63132 Industrial
Philadelphia Pennsylvania 19107 Multifamily
- ------------------------------------------------------------------------------------------------------
Thornton Colorado 80229 Self-Storage
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
ORIGINAL PRINCIPAL CUT-OFF DATE LOAN
BORROWER NAME BALANCE BALANCE TYPE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Macerich Lubbock Limited Partnership $ 65,000,000 $ 64,916,634 Fixed
290 Davidson Avenue, LLC 44,500,000 44,115,446 Fixed
Barefoot Properties Limited Partnership 40,000,000 39,750,211 Fixed
Drei Holdings, L.L.C. and Trois Holdings, L.L.C. 32,000,000 31,036,634 Fixed
Remington Place, L.P. 27,800,000 27,670,755 Fixed
- ----------------------------------------------------------------------------------------------------------------------
GOVERNMENT PROPERTY FUND, LLC 23,200,000 23,098,052 FIXED
Government Property Fund, LLC 17,310,217 17,234,151 Fixed
Government Property Fund, LLC 5,889,783 5,863,902 Fixed
The Reserve at Westland, LLC 17,360,000 17,277,028 Fixed
1996 Pavilion Assoc., L.P. 17,000,000 16,680,926 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Crystal Inn Company 16,285,000 16,285,000 Fixed
LeVeque Tower LLC 16,160,000 16,160,000 Fixed
460 Park Avenue South Associates LLC 15,879,534 15,809,888 Fixed
Jefferson at Mustang Village, L.P. 15,350,000 15,303,634 Fixed
SVR Apartments, LLC. 15,000,000 14,921,072 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Hawaii Kai Piemonte Limited Partnership 14,400,000 14,307,402 Fixed
Village/Chagrin Partners, L.L.C. 13,300,000 13,266,302 Fixed
Government Property Fund II, LLC 13,150,000 13,092,215 Fixed
The PDL Business Trust 12,250,000 12,192,036 Fixed
Rancho Serene, LLC. 12,000,000 11,923,496 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Government Property Fund III, LLC 11,650,000 11,598,807 Fixed
Rocks Dulles, LC 11,200,000 11,160,402 Fixed
Bristlecone Texas, Ltd. 11,000,000 10,928,019 Fixed
Oaks Holding Company 10,613,666 10,571,704 Fixed
Preston Golf Club Corp. 10,500,000 10,332,008 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Stoney Creek Villas, LLC 10,300,000 10,240,320 Fixed
Coconut Palm Cooperative Homes, Inc. 10,080,000 10,042,538 Fixed
VARIOUS 10,000,000 9,895,250 FIXED
Coolidge Park Hill Equities, LLC 1,600,000 1,583,240 Fixed
Coolidge Skyway Equities, LLC 4,500,000 4,452,862 Fixed
Coolidge Castle West Equities, LLC 3,900,000 3,859,147 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Mingo Market Place, L.C. 9,900,000 9,836,065 Fixed
SKC Real Estate, LLC 9,375,000 9,293,197 Fixed
Norlyn Builders - Newport Beach L.P. 9,350,000 9,246,047 Fixed
DENNIS J. LYNCH, TRUSTEE UNDER THAT CERTAIN LAND TRUST #5161 9,150,000 9,075,777 FIXED
Dennis J. Lynch, Trustee under that certain Land Trust #5161 1,667,262 1,653,738 Fixed
Dennis J. Lynch, Trustee under that certain Land Trust #5161 4,371,578 4,336,117 Fixed
Dennis J. Lynch, Trustee under that certain Land Trust #5161 3,111,160 3,085,922 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Bedco Associates L.P. 8,675,000 8,593,505 Fixed
Franklin Farms Associates, LLC 8,075,000 8,069,471 Fixed
Zuber Properties RM, Inc. 8,000,000 7,991,643 Fixed
Roan Centre, Ltd. 7,900,000 7,794,743 Fixed
- ----------------------------------------------------------------------------------------------------------------------
FPC/Hunter's Cove Apartments 7,413,342 7,379,272 Fixed
RRG Associates, Ltd. 7,121,870 7,094,279 Fixed
Southgate Properties of North Carolina, LLC 6,700,000 6,686,214 Fixed
RI-1, LLC 6,720,000 6,683,076 Fixed
Holden Commons, LLC 6,480,000 6,470,970 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Cal Empire L.P. 6,500,000 6,465,460 Fixed
1516 N Orleans, LLC 6,150,000 6,114,673 Fixed
ARB Pine Brook, LLC 6,000,000 5,968,778 Fixed
Northstar MHC LLC 6,000,000 5,954,980 Fixed
R & G Associates 6,000,000 5,924,473 Fixed
- ----------------------------------------------------------------------------------------------------------------------
SPA Apartments, Ltd. 5,815,006 5,789,393 Fixed
Mission Brewery Plaza, Limited Partnership 5,750,000 5,724,614 Fixed
COX INVESTMENTS, LLC 5,700,000 5,663,245 FIXED
Cox Investments, LLC 1,627,582 1,617,087 Fixed
Cox Investments, LLC 1,260,510 1,252,382 Fixed
Cox Investments, LLC 2,077,764 2,064,366 Fixed
Cox Investments, LLC 734,143 729,409 Fixed
- ----------------------------------------------------------------------------------------------------------------------
H. Long Enterprises, Inc. 5,640,553 5,618,136 Fixed
Silver Shadow Apartments, LLC 5,500,000 5,464,633 Fixed
Calvert Associates 5,400,000 5,353,514 Fixed
Heritage Heights L.L.C. 5,300,000 5,300,000 Fixed
Ashton-Palmetto Palms, Ltd. 5,300,000 5,284,758 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Parrish Estate Company, L.P. 5,250,000 5,219,843 Fixed
Anchor Investors 5,250,000 5,210,736 Fixed
Yale-Wilshire, LTD 5,175,000 5,146,541 Fixed
Maple Park Office Center, LLC 5,150,000 5,118,785 Fixed
Buena Vista Real Estate Limited Partnership 5,100,000 5,100,000 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Heritage Hills Associates L.L.C. 4,750,000 4,722,179 Fixed
Mareblu LLC 4,725,000 4,703,657 Fixed
Randall-Williams Investments, L.L.C. 4,720,000 4,688,458 Fixed
Overland Park, LLC 4,700,000 4,672,650 Fixed
Highgate House Bellingham, LLC 4,680,000 4,647,843 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Centennial S.C. L.L.C. 4,600,000 4,577,352 Fixed
H & J Tequesta Associates, L.L.C. 4,560,000 4,540,348 Fixed
STRATEGIC DEVELOPMENT GROUP, L.L.C. 4,550,000 4,532,411 FIXED
Strategic Development Group, L.L.C. 847,210 843,935 Fixed
Strategic Development Group, L.L.C. 1,282,190 1,277,233 Fixed
Strategic Development Group, L.L.C. 734,370 731,531 Fixed
Strategic Development Group, L.L.C. 1,686,230 1,679,712 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Otay Hospitality, Inc 4,500,000 4,467,817 Fixed
VLM Partnership 4,350,000 4,325,988 Fixed
PalBird Associates 4,326,500 4,296,905 Fixed
Associated Apartment Investors/Dutch Village LP 4,300,000 4,270,749 Fixed
Northern Rose-Hanover, LP 4,250,000 4,227,743 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Union Street Plaza, LLC and Printers & Union, LLC 4,250,000 4,220,130 Fixed
Willowbrook Office Limited Partnership 4,200,000 4,178,145 Fixed
Christopher Bunker 4,200,000 4,166,414 Fixed
East Bank Storage, LLC 4,200,000 4,163,407 Fixed
- ----------------------------------------------------------------------------------------------------------------------
VARIOUS 4,175,000 4,151,668 FIXED
Victoria Gardens Apartments, LLC 3,425,000 3,405,860 Fixed
Treeview Villas, LLC 750,000 745,809 Fixed
Inkster Town Center, L.L.C. 4,100,000 4,080,418 Fixed
Cordova Crossing Associates, L.L.C. 4,050,000 4,022,498 Fixed
- ----------------------------------------------------------------------------------------------------------------------
MPI/Mandarin Central, Inc. 3,950,000 3,934,731 Fixed
19119 Reyes Avenue Property Co. L.L.C. 3,850,000 3,830,453 Fixed
1650 W Irving, LLC 3,850,000 3,827,885 Fixed
THP-Arbor Court, L.P. 3,807,000 3,798,494 Fixed
- ----------------------------------------------------------------------------------------------------------------------
VARIOUS 3,780,000 3,771,482 FIXED
Mt. Morris LLC 800,000 798,197 Fixed
Pittsford Capital Mobile Home Parks III, L.P. 2,100,000 2,095,268 Fixed
Waterloo, L.L.C. 880,000 878,017 Fixed
Broadmoor Apartments of Jefferson City Limited Partnership 3,750,000 3,726,836 Fixed
- ----------------------------------------------------------------------------------------------------------------------
K & K Developers Limited Partnership 3,700,000 3,671,056 Fixed
Courtyard Joint Venture 3,680,000 3,654,429 Fixed
Hilliard Square Shopping Center, LLC 3,550,000 3,540,131 Fixed
Delancey Concord Associates, L.P. 3,500,000 3,491,564 Fixed
HVCH, L.P. 3,500,000 3,466,684 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Rancho Vista Development Company 3,450,000 3,447,736 Fixed
Millparke Tech Center, Inc. 3,375,000 3,357,826 Fixed
Continental 65 Fund Limited Partnership 3,200,000 3,180,892 Fixed
Amity Commons Partners, L.L.C. 3,200,000 3,176,392 Fixed
G.A.C. Investments, LLC 3,100,000 3,084,655 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Moorestown Office Center LLC 3,100,000 3,081,280 Fixed
Delancey Arch Associates, L.P. 3,000,000 2,995,230 Fixed
Plaza 188 , L.L.C. 3,000,000 2,983,754 Fixed
PM Cordova Crossing Associates, L.L.C. 3,000,000 2,982,781 Fixed
One Harvard Street Realty Trust 2,950,000 2,931,634 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Laguna Crown, Ltd. 2,950,000 2,923,651 Fixed
B-Prime Realty LLC 2,930,194 2,910,193 Fixed
Northland Park Inc. 2,830,226 2,818,308 Fixed
Securlock at Hurst Self Storage 2,802,531 2,776,049 Fixed
ATTIC PLUS STORAGE I LLP 2,780,000 2,738,327 FIXED
Attic Plus Storage I LLP 1,806,257 1,779,180 Fixed
Attic Plus Storage I LLP 973,743 959,147 Fixed
Manassas Inn Company 2,717,000 2,717,000 Fixed
Adanson Limited Partnership 2,700,000 2,688,364 Fixed
Merit Town Trails, L.P. 2,650,000 2,636,424 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Dacor Estates, LP 2,625,000 2,615,686 Fixed
Juniper East Associates 2,600,000 2,594,158 Fixed
The Aghaian Trust 2,540,000 2,537,125 Fixed
Center Realty Limited Partnership 2,520,000 2,494,008 Fixed
Northwestern Land Management, LLC 2,500,000 2,491,615 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Securlock at Hurst Ltd. 2,468,558 2,453,327 Fixed
Barkley 3A Investors, L.P. 2,466,000 2,452,388 Fixed
DM Development Inc. 2,453,994 2,441,491 Fixed
Blue Ridge Hotel Associates, LLC 2,430,000 2,430,000 Fixed
Royal Palms MHP, L.L.C. 2,417,408 2,403,182 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Wakefield Mukilteo, LLC 2,400,000 2,391,250 Fixed
East Park Associates, GP 2,400,000 2,388,324 Fixed
Terrace East Partners, LP 2,400,000 2,387,470 Fixed
Money Saver - Gresham Associates 2,376,888 2,360,399 Fixed
PAL Realty, LLC 2,345,968 2,329,667 Fixed
- ----------------------------------------------------------------------------------------------------------------------
L&G Development Co., Inc. 2,300,000 2,288,864 Fixed
ROBERTS WESTERN LLC 2,300,000 2,285,368 FIXED
Roberts Western LLC 645,890 641,782 Fixed
Roberts Western LLC 1,654,110 1,643,587 Fixed
Windham Apartments Partnership 2,222,000 2,209,511 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Wisteria Industrial Park, LP 2,200,000 2,196,853 Fixed
Middle Street Realty Trust 2,200,000 2,182,958 Fixed
South Cherry LLC 2,185,000 2,182,060 Fixed
Old Santa Rita Associates 2,188,920 2,175,237 Fixed
320 North Main Limited Partnership 2,175,000 2,160,668 Fixed
- ----------------------------------------------------------------------------------------------------------------------
445 W Erie, LLC 2,160,000 2,148,508 Fixed
Topeka Apartments Company, L.C. 2,128,000 2,120,361 Fixed
Portal Drive Associates, a Texas LLC 2,065,000 2,053,066 Fixed
CHARTER REALTY, LLC 2,048,000 2,034,262 FIXED
Charter Realty, LLC 640,000 635,707 Fixed
Charter Realty, LLC 696,000 691,331 Fixed
Charter Realty, LLC 712,000 707,224 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Lakeshore Investors II, L.L.C.I 2,040,000 2,029,098 Fixed
Telgt, Inc. 2,025,000 2,011,553 Fixed
Valley Crossing LLC 2,000,000 1,980,639 Fixed
CHP Partners, L.P. 1,980,000 1,980,000 Fixed
M & M II 1,945,000 1,937,822 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Brawest Cypress L.L.C. 1,925,000 1,909,947 Fixed
Hibiscus Center, Inc., a FL S Corp. 1,900,000 1,889,869 Fixed
Wright Family Trust, II 1,850,000 1,839,849 Fixed
Ashton-Miami Lakes, Ltd. 1,810,000 1,804,795 Fixed
Casa De Alicia 1,750,000 1,743,705 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Pennsylvania Properties Management Company 1,700,000 1,694,325 Fixed
All Safe Mini Storage L.P. 1,700,000 1,689,301 Fixed
U and N, Inc. 2,000,000 1,687,293 Fixed
Greenfield Estates, LLC 1,700,000 1,685,899 Fixed
Sprint, Inc. 1,650,000 1,639,114 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Eaglel Run Square II, L.L.C. et al 1,600,000 1,595,602 Fixed
Central Florida Income Appreciation Fund, Ltd. 1,600,000 1,592,745 Fixed
C.F.G., Ltd. 1,600,000 1,591,163 Fixed
Woodland Village Self Storage, LLC 1,571,948 1,554,655 Fixed
C.A. Cooperstein LLC et al 1,525,000 1,512,633 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Ambassador Garden Apartments LLC 1,520,000 1,504,994 Fixed
Seabreeze Apartments L.L.C. 1,500,000 1,490,271 Fixed
Lock Up Palatine Limited Patnership 1,500,000 1,486,887 Fixed
Mary R. Wolff Real Estate Management Company 1,500,000 1,456,437 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Joshua Partners 1,440,000 1,440,000 Fixed
Hopkinsville Associates, Ltd. 1,450,000 1,436,329 Fixed
Tapp Investments, LLC 1,500,000 1,407,129 Fixed
Commission Court LLC 1,400,000 1,386,629 Fixed
American Hotel Partners #1 Limited Partnership 1,300,000 1,291,042 Fixed
- ----------------------------------------------------------------------------------------------------------------------
PLOVER POINTE ASSOCIATES, LLC 1,295,000 1,290,957 FIXED
Plover Pointe Associates, LLC 656,324 654,275 Fixed
Plover Pointe Associates, LLC 638,676 636,682 Fixed
Delancey Front Associates, L.P. 1,240,000 1,237,371 Fixed
DSI Growth&Income Fund II & Mini U Stor. Jefferson 1,230,000 1,225,063 Fixed
- ----------------------------------------------------------------------------------------------------------------------
Essex Honeoye Valley, LP 1,230,000 1,219,534 Fixed
K M Kerr Properties, LLC 1,200,000 1,195,913 Fixed
DSI Growth & Income Fund III and Mini U Storage Me 1,200,000 1,195,183 Fixed
DSI Growth & Income Fund III and Mini U Storage Gr 1,185,000 1,180,243 Fixed
Billie Dean Pierce and Sandra P. Pierce 1,162,000 1,161,195 Fixed
- ----------------------------------------------------------------------------------------------------------------------
THH, I, L.L.C. 1,136,000 1,131,609 Fixed
Hal B. Washburn, Jr. and ZelleL. Washburn 1,100,000 1,094,635 Fixed
Clinic Properties, L.L.C., a Texas LLC 1,100,000 1,093,401 Fixed
Apple Storage L.P. 1,100,000 1,091,675 Fixed
Lubbock Pinnacle Properties, Ltd. 1,040,000 1,034,252 Fixed
- ----------------------------------------------------------------------------------------------------------------------
PRL, Incorporated and Niagara Distributors, Inc. 1,010,000 998,208 Fixed
MPI/Country Grove, Inc. 880,000 875,729 Fixed
The Klimkowski Texas Two Step LP 850,000 843,852 Fixed
LaClair Investments I, LLC 650,000 644,754 Fixed
Delancey Pine Associates, L.P. 600,000 598,728 Fixed
- ----------------------------------------------------------------------------------------------------------------------
DSI Special Situations Fund 535,000 532,852 Fixed
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
GROSS NET NOTE 1ST INT. & INTEREST DUE GRACE PAYMENT
MORTGAGE MORTGAGE DATE PRIN. PAYMENT ACCRUAL DATE PERIOD FREQUENCY
RATE RATE DATE METHOD (DAYS)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
7.4900% 7.4376% 02/17/99 04/01/99 Actual / 360 1 5 12
6.6900% 6.6376% 08/07/98 10/01/98 30 / 360 1 0 12
7.0000% 6.9476% 10/30/98 01/01/99 30 / 360 1 0 12
6.5780% 6.5256% 07/10/98 09/01/98 30 / 360 1 10 12
6.4100% 6.3576% 11/30/98 01/01/99 30 / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
7.7900% 7.7376% 12/30/98 02/01/99 ACTUAL / 360 1 5 12
7.7900% 7.7376% 12/30/98 02/01/99 Actual / 360 1 5 12
7.7900% 7.7376% 12/30/98 02/01/99 Actual / 360 1 5 12
6.0800% 6.0046% 11/10/98 01/01/99 Actual / 360 1 10 12
7.1800% 7.1041% 01/15/98 03/01/98 30 / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
8.4900% 8.4130% 04/05/99 06/01/99 30 / 360 1 10 12
8.0200% 7.9428% 04/06/99 06/01/99 Actual / 360 1 10 12
7.7500% 7.6976% 10/21/97 12/01/97 Actual / 360 1 10 12
7.4600% 7.3815% 12/11/98 02/01/99 Actual / 360 1 10 12
7.1500% 7.0976% 09/03/98 11/01/98 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
6.9000% 6.8476% 08/26/98 10/01/98 Actual / 360 1 5 12
7.3100% 7.2576% 02/01/99 03/01/99 Actual / 360 1 10 12
7.7900% 7.7376% 12/30/98 02/01/99 Actual / 360 1 5 12
7.0600% 7.0076% 10/14/98 12/01/98 Actual / 360 1 5 12
6.9400% 6.8876% 08/14/98 10/01/98 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
7.2400% 7.1876% 12/30/98 02/01/99 Actual / 360 1 5 12
7.3300% 7.2419% 01/20/99 03/01/99 30 / 360 1 10 12
6.4100% 6.3576% 09/09/98 11/01/98 30 / 360 1 10 12
7.6900% 7.6376% 10/20/97 12/01/97 Actual / 360 1 10 12
7.7100% 7.6576% 03/14/98 04/01/98 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
6.7100% 6.6576% 08/28/98 11/01/98 Actual / 360 1 5 12
6.4000% 6.3079% 12/15/98 02/01/99 30 / 360 1 10 12
6.8400% 6.7876% 05/08/98 06/01/98 ACTUAL / 360 1 5 12
6.8400% 6.7876% 05/08/98 06/01/98 Actual / 360 1 5 12
6.8400% 6.7876% 05/08/98 06/01/98 Actual / 360 1 5 12
6.8400% 6.7876% 05/08/98 06/01/98 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
6.8800% 6.8276% 07/09/98 10/01/98 Actual / 360 1 5 12
7.0500% 6.9549% 09/14/98 11/01/98 30 / 360 1 10 12
6.9000% 6.8476% 04/15/98 05/01/98 Actual / 360 1 5 12
7.2000% 7.1476% 08/26/98 11/01/98 ACTUAL / 360 1 5 12
7.2000% 7.1476% 08/26/98 11/01/98 Actual / 360 1 5 12
7.2000% 7.1476% 08/26/98 11/01/98 Actual / 360 1 5 12
7.2000% 7.1476% 08/26/98 11/01/98 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
7.1780% 7.1256% 08/12/98 10/01/98 Actual / 360 1 5 12
7.9000% 7.8476% 03/26/99 05/01/99 Actual / 360 1 10 12
8.0400% 7.9376% 03/03/99 05/01/99 Actual / 360 1 10 12
7.7000% 7.6476% 12/17/98 01/01/99 30 / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
7.8200% 7.7676% 10/17/97 12/01/97 Actual / 360 1 5 12
6.9600% 6.9076% 12/30/97 02/01/98 Actual / 360 1 10 12
7.5500% 7.4379% 02/26/99 04/01/99 Actual / 360 1 10 12
6.3700% 6.2581% 12/08/98 02/01/99 Actual / 360 1 10 12
7.8300% 7.7776% 02/17/99 04/01/99 30 / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
6.5000% 6.3861% 10/16/98 12/01/98 Actual / 360 1 10 12
6.7500% 6.6976% 09/25/98 11/01/98 Actual / 360 1 5 12
7.2000% 7.1476% 09/11/98 11/01/98 Actual / 360 1 5 12
7.0600% 7.0076% 06/15/98 08/01/98 Actual / 360 1 5 12
7.0100% 6.9576% 02/20/98 03/01/98 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
7.7700% 7.7176% 10/17/97 12/01/97 Actual / 360 1 5 12
7.9200% 7.8676% 09/10/98 11/01/98 Actual / 360 1 5 12
6.6100% 6.4874% 11/04/98 01/01/99 ACTUAL / 360 1 10 12
6.6100% 6.4874% 11/04/98 01/01/99 Actual / 360 1 10 12
6.6100% 6.4874% 11/04/98 01/01/99 Actual / 360 1 10 12
6.6100% 6.4874% 11/04/98 01/01/99 Actual / 360 1 10 12
6.6100% 6.4874% 11/04/98 01/01/99 Actual / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
7.5000% 7.4476% 01/28/98 03/01/98 Actual / 360 1 10 12
6.9000% 6.8476% 07/31/98 10/01/98 Actual / 360 1 5 12
6.1200% 5.9935% 10/16/98 12/01/98 30 / 360 1 10 12
8.1200% 8.0676% 02/27/98 06/01/99 Actual / 360 1 5 12
6.5700% 6.5176% 01/25/99 03/01/99 Actual / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
6.7500% 6.6976% 09/18/98 11/01/98 Actual / 360 1 5 12
7.0500% 6.9214% 07/30/98 09/01/98 30 / 360 1 10 12
6.9500% 6.8976% 07/09/98 11/01/98 Actual / 360 1 5 12
6.5000% 6.4476% 09/10/98 11/01/98 Actual / 360 1 5 12
6.6400% 6.5092% 12/18/98 02/01/01 Actual / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
6.6600% 6.6076% 09/09/98 11/01/98 Actual / 360 1 5 12
7.2800% 7.2276% 10/16/98 12/01/98 Actual / 360 1 5 12
6.7200% 6.6676% 08/07/98 10/01/98 Actual / 360 1 5 12
6.6900% 6.6376% 09/24/98 11/01/98 Actual / 360 1 10 12
7.0500% 6.9976% 07/29/98 09/01/98 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
6.8700% 6.8176% 10/16/98 12/01/98 Actual / 360 1 5 12
7.5000% 7.4476% 10/01/98 12/01/98 Actual / 360 1 5 12
8.0000% 7.9476% 10/29/98 12/01/98 ACTUAL / 360 1 5 12
8.0000% 7.9476% 10/29/98 12/01/98 Actual / 360 1 5 12
8.0000% 7.9476% 10/29/98 12/01/98 Actual / 360 1 5 12
8.0000% 7.9476% 10/29/98 12/01/98 Actual / 360 1 5 12
8.0000% 7.9476% 10/29/98 12/01/98 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
7.9200% 7.8676% 09/10/98 11/01/98 Actual / 360 1 5 12
6.3400% 6.1956% 12/30/98 02/01/99 30 / 360 1 10 12
7.0700% 7.0176% 07/28/98 09/01/98 Actual / 360 1 5 12
6.4500% 6.3046% 10/30/98 12/01/98 Actual / 360 1 10 12
6.6800% 6.5335% 12/03/98 02/01/99 Actual / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
7.3400% 7.1935% 07/01/98 08/01/98 Actual / 360 1 10 12
7.2000% 7.1476% 09/15/98 11/01/98 Actual / 360 1 5 12
7.2830% 7.2306% 08/28/98 11/01/98 Actual / 360 1 5 12
6.7800% 6.6324% 09/03/98 11/01/98 Actual / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
6.2600% 6.1076% 12/14/98 02/01/99 ACTUAL / 360 1 10 12
6.2600% 6.1076% 12/14/98 02/01/99 Actual / 360 1 10 12
6.2600% 6.1076% 12/14/98 02/01/99 Actual / 360 1 10 12
7.5800% 7.5276% 09/01/98 11/01/98 Actual / 360 1 5 12
7.4500% 7.3976% 10/02/98 12/01/98 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
8.0000% 7.9476% 10/13/98 12/01/98 Actual / 360 1 5 12
7.3100% 7.2576% 09/08/98 11/01/98 Actual / 360 1 5 12
6.7500% 6.6976% 09/25/98 11/01/98 Actual / 360 1 5 12
8.0500% 7.9976% 01/07/99 03/01/99 Actual / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
8.0000% 7.9476% 01/07/99 03/01/99 ACTUAL / 360 1 5 12
8.0000% 7.9476% 01/07/99 03/01/99 Actual / 360 1 5 12
8.0000% 7.9476% 01/07/99 03/01/99 Actual / 360 1 5 12
8.0000% 7.9476% 01/07/99 03/01/99 Actual / 360 1 5 12
6.7100% 6.5576% 09/17/98 11/01/98 30 / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
7.4100% 7.3576% 09/04/98 11/01/98 Actual / 360 1 5 12
7.0000% 6.9476% 07/30/98 09/01/98 Actual / 360 1 5 12
6.4000% 6.2476% 01/05/99 03/01/99 30 / 360 1 10 12
7.1700% 7.0176% 02/26/99 04/01/99 30 / 360 1 10 12
7.1000% 7.0476% 08/14/98 10/01/98 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
8.1100% 8.0076% 03/09/99 05/01/99 Actual / 360 1 10 12
7.3000% 7.2476% 09/17/98 11/01/98 Actual / 360 1 5 12
6.5700% 6.5176% 09/04/98 11/01/98 Actual / 360 1 5 12
7.1200% 6.9676% 07/10/98 09/01/98 30 / 360 1 10 12
7.0400% 6.9376% 12/31/98 02/01/99 Actual / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
7.1900% 7.1376% 08/31/98 10/01/98 Actual / 360 1 5 12
7.1700% 7.0176% 02/26/99 04/01/99 30 / 360 1 10 12
7.0200% 6.9676% 09/10/98 11/01/98 Actual / 360 1 5 12
7.3100% 7.2576% 11/20/98 01/01/99 Actual / 360 1 5 12
7.0500% 6.9976% 08/13/98 10/01/98 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
6.9000% 6.7476% 09/18/98 11/01/98 30 / 360 1 10 12
6.6200% 6.5676% 08/28/98 10/01/98 Actual / 360 1 5 12
7.5500% 7.4976% 10/03/97 11/01/97 Actual / 360 1 10 12
7.0870% 7.0346% 10/24/97 12/01/97 Actual / 360 1 5 12
7.1500% 7.0976% 08/17/98 10/01/98 ACTUAL / 360 1 5 12
7.1500% 7.0976% 08/17/98 10/01/98 Actual / 360 1 5 12
7.1500% 7.0976% 08/17/98 10/01/98 Actual / 360 1 5 12
8.6400% 8.5376% 04/05/99 06/01/99 30 / 360 1 10 12
7.5000% 7.4476% 10/20/98 12/01/98 Actual / 360 1 5 12
7.2700% 7.2176% 09/24/98 11/01/98 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
6.6400% 6.5376% 12/16/98 02/01/99 Actual / 360 1 10 12
7.6100% 7.5076% 02/04/99 04/01/99 30 / 360 1 10 12
7.9700% 7.8676% 02/26/99 04/01/99 Actual / 360 1 10 12
7.2500% 7.1976% 07/24/98 09/01/98 Actual / 360 1 5 12
7.7500% 7.6976% 11/02/98 01/01/99 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
7.2730% 7.2206% 10/20/97 12/01/97 30 / 360 1 5 12
6.3400% 6.1876% 12/09/98 02/01/99 Actual / 360 1 10 12
9.7000% 9.6476% 11/20/96 01/01/97 30 / 360 1 5 12
8.9300% 8.8776% 04/06/99 06/01/99 Actual / 360 1 15 12
7.8900% 7.8376% 10/31/97 12/01/97 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
6.5000% 6.3876% 12/07/98 02/01/99 Actual / 360 1 10 12
7.1500% 7.0476% 12/28/98 02/01/99 30 / 360 1 10 12
7.5700% 7.4176% 09/25/98 11/01/98 30 / 360 1 10 12
7.2080% 7.1556% 12/05/97 01/01/98 30 / 360 1 5 12
7.0000% 6.9476% 07/28/98 09/01/98 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
7.5200% 7.4676% 09/03/98 11/01/98 Actual / 360 1 5 12
6.9500% 6.8976% 08/14/98 10/01/98 ACTUAL / 360 1 5 12
6.9500% 6.8976% 08/14/98 10/01/98 Actual / 360 1 5 12
6.9500% 6.8976% 08/14/98 10/01/98 Actual / 360 1 5 12
6.8500% 6.7976% 08/25/98 11/01/98 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
7.7000% 7.6476% 02/16/99 04/01/99 30 / 360 1 10 12
7.0000% 6.8976% 12/28/98 02/01/99 Actual / 360 1 10 12
7.3000% 7.1976% 02/26/99 04/01/99 Actual / 360 1 10 12
7.7100% 7.6576% 10/20/97 01/01/98 Actual / 360 1 5 12
7.0800% 6.9276% 08/31/98 10/01/98 30 / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
7.1000% 7.0476% 09/25/98 11/01/98 Actual / 360 1 5 12
6.5800% 6.4276% 12/02/98 02/01/99 30 / 360 1 10 12
7.3900% 7.3376% 08/07/98 10/01/98 Actual / 360 1 5 12
6.5400% 6.3876% 11/20/98 01/01/99 30 / 360 1 10 12
6.5400% 6.3876% 11/20/98 01/01/99 30 / 360 1 10 12
6.5400% 6.3876% 11/20/98 01/01/99 30 / 360 1 10 12
6.5400% 6.3876% 11/20/98 01/01/99 30 / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
7.0800% 7.0276% 09/02/98 11/01/98 Actual / 360 1 5 12
6.4300% 6.2776% 11/13/98 01/01/99 Actual / 360 1 10 12
7.0000% 6.9476% 08/24/98 10/01/98 Actual / 360 1 5 12
7.8800% 7.7776% 04/05/99 06/01/99 Actual / 360 1 10 12
7.4300% 7.3276% 01/15/99 03/01/99 Actual / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
6.8800% 6.8276% 06/09/98 08/01/98 Actual / 360 1 5 12
7.0900% 7.0376% 09/18/98 11/01/98 Actual / 360 1 5 12
6.9600% 6.8076% 09/10/98 11/01/98 Actual / 360 1 10 12
6.5700% 6.5176% 01/25/99 03/01/99 Actual / 360 1 10 12
7.6100% 7.5076% 01/27/99 03/01/99 Actual / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
7.6900% 7.5876% 01/29/99 03/01/99 30 / 360 1 10 12
7.0000% 6.9476% 07/30/98 10/01/98 Actual / 360 1 5 12
7.3500% 7.1976% 12/31/98 02/01/99 30 / 360 1 10 12
7.0700% 7.0176% 09/09/98 11/01/98 Actual / 360 1 5 12
6.4700% 6.3176% 11/24/98 01/01/99 Actual / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
7.5400% 7.4376% 01/15/99 03/01/99 30 / 360 1 10 12
6.5400% 6.3876% 11/19/98 01/01/99 30 / 360 1 10 12
6.3100% 6.1576% 10/13/98 12/01/98 Actual / 360 1 10 12
7.5800% 7.5276% 01/27/98 03/01/98 Actual / 360 1 5 12
6.5100% 6.4576% 10/13/98 12/01/98 30 / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
7.5000% 7.4476% 07/29/98 09/01/98 Actual / 360 1 5 12
6.8600% 6.8076% 08/26/98 10/01/98 Actual / 360 1 5 12
6.7600% 6.7076% 09/23/98 11/01/98 Actual / 360 1 5 12
7.0100% 6.8576% 07/24/98 09/01/98 30 / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
8.0500% 7.9476% 04/06/99 06/01/99 Actual / 360 1 10 12
6.5500% 6.3976% 09/22/98 11/01/98 30 / 360 1 10 12
7.1900% 7.0376% 07/30/98 09/01/98 30 / 360 1 10 12
7.0800% 7.0276% 08/05/98 10/01/98 Actual / 360 1 5 12
7.6200% 7.4676% 11/24/98 01/01/99 Actual / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
8.0700% 8.0176% 11/06/98 01/01/99 ACTUAL / 360 1 5 12
8.0700% 8.0176% 11/06/98 01/01/99 Actual / 360 1 5 12
8.0700% 8.0176% 11/06/98 01/01/99 Actual / 360 1 5 12
7.9700% 7.8676% 02/26/99 04/01/99 30 / 360 1 10 12
8.3500% 8.2976% 12/17/98 02/01/99 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
6.9200% 6.8676% 08/31/98 11/01/98 Actual / 360 1 5 12
6.8500% 6.7976% 12/16/98 02/01/99 30 / 360 1 10 12
8.3500% 8.2976% 12/17/98 02/01/99 Actual / 360 1 5 12
8.3500% 8.2976% 12/17/98 02/01/99 Actual / 360 1 5 12
7.8400% 7.7376% 03/24/99 05/01/99 Actual / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
8.0000% 7.9476% 10/01/98 12/01/98 Actual / 360 1 5 12
5.9800% 5.8276% 11/17/98 01/01/99 Actual / 360 1 10 12
7.2200% 7.1676% 08/13/98 10/01/98 Actual / 360 1 5 12
7.6000% 7.5476% 09/01/98 11/01/98 Actual / 360 1 5 12
7.5900% 7.5376% 08/06/98 10/01/98 Actual / 360 1 5 12
- -----------------------------------------------------------------------------------------------------------------
6.8700% 6.7176% 10/15/98 12/01/98 Actual / 360 1 10 12
7.5100% 7.4576% 09/11/98 11/01/98 Actual / 360 1 5 12
7.0700% 7.0176% 10/09/98 12/01/98 Actual / 360 1 5 12
7.2300% 7.1776% 09/23/98 11/01/98 Actual / 360 1 5 12
7.9700% 7.8676% 02/26/99 04/01/99 30 / 360 1 10 12
- -----------------------------------------------------------------------------------------------------------------
8.3500% 8.2976% 12/17/98 02/01/99 Actual / 360 1 5 12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
CROSS
MONTHLY COLLATERALIZED /
PAYMENT CROSS DEFAULTED SEASONING LO DEF YM YM1 3% 2% 1% OPEN
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
454,044.42 2 35 82 0 0 0 0 0 3
295,226.58 8 35 90 0 0 0 0 0 3
282,711.68 5 47 127 0 0 0 0 0 6
280,128.33 9 33 141 0 0 0 0 0 6
174,072.71 5 29 85 0 0 0 0 0 6
- --------------------------------------------------------------------------------------------------------
175,845.97 4 35 82 0 0 0 0 0 3
131,203.96 4 35 82 0 0 0 0 0 3
44,642.01 4 35 82 0 0 0 0 0 3
104,976.53 5 29 85 0 0 0 0 0 6
122,111.54 15 25 0 0 89 0 0 0 6
- --------------------------------------------------------------------------------------------------------
131,021.51 0 48 69 0 0 0 0 0 3
118,801.74 0 48 66 0 0 0 0 0 6
114,770.25 18 59 0 0 70 0 0 0 3
106,909.30 4 36 78 0 0 0 0 0 6
101,311.01 7 35 81 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
94,838.42 8 35 82 0 0 0 0 0 3
91,271.34 3 48 66 0 0 0 0 0 6
99,671.32 4 0 0 0 117 0 0 0 3
81,993.78 6 35 82 0 0 0 0 0 3
79,353.34 8 35 81 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
95,792.15 4 0 0 0 117 0 0 0 3
81,532.52 3 87 27 0 0 0 0 0 6
68,877.69 7 47 67 0 0 0 0 0 6
77,117.08 18 59 0 0 73 0 0 0 0
79,772.52 14 120 0 0 48 0 0 0 12
- --------------------------------------------------------------------------------------------------------
66,531.97 7 35 81 0 0 0 0 0 3
63,051.00 4 48 30 0 0 0 0 0 6
66,094.29 98106, 98108, & 98004 12 36 81 0 0 0 0 0 3
10,575.09 98106, 98108 12 36 81 0 0 0 0 0 3
29,742.43 98004,98108 12 36 81 0 0 0 0 0 3
25,776.77 98004,98106 12 36 81 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
65,069.03 8 35 81 0 0 0 0 0 3
66,559.88 7 37 0 0 77 0 0 0 6
62,179.62 13 37 80 0 0 0 0 0 3
65,842.37 7 35 81 0 0 0 0 0 3
11,997.43 7 35 81 0 0 0 0 0 3
31,457.38 7 35 81 0 0 0 0 0 3
22,387.55 7 35 81 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
62,301.65 8 35 141 0 0 0 0 0 3
58,689.54 1 72 102 0 0 0 0 0 6
61,957.43 1 47 66 0 0 0 0 0 6
59,730.92 5 48 57 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
53,936.04 18 59 0 0 70 0 0 0 3
48,144.65 16 59 0 0 70 0 0 0 3
49,730.52 2 50 67 0 0 0 0 0 3
44,829.56 4 60 57 0 0 0 0 0 3
46,782.26 2 47 0 0 31 0 0 0 6
- --------------------------------------------------------------------------------------------------------
41,084.42 6 29 85 0 0 0 0 0 6
39,888.78 7 35 82 0 0 0 0 0 3
40,727.29 7 35 81 0 0 0 0 0 3
40,160.22 10 35 81 0 0 0 0 0 3
40,351.70 15 60 0 0 57 0 0 0 3
- --------------------------------------------------------------------------------------------------------
42,107.93 18 59 0 0 70 0 0 0 3
41,871.23 7 35 81 0 0 0 0 0 3
38,879.51 5 29 88 0 0 0 0 0 3
11,101.68 5 29 88 0 0 0 0 0 3
8,597.90 5 29 88 0 0 0 0 0 3
14,172.36 5 29 88 0 0 0 0 0 3
5,007.57 5 29 88 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
42,281.86 15 59 0 0 70 0 0 0 3
36,223.01 8 35 81 0 0 0 0 0 3
35,189.46 6 30 84 0 0 0 0 0 6
39,333.80 14 59 0 0 24 12 12 3 3
33,743.97 3 51 63 0 0 0 0 0 6
- --------------------------------------------------------------------------------------------------------
34,051.40 7 35 81 0 0 0 0 0 3
35,104.85 9 49 0 0 64 0 0 0 6
34,255.80 7 35 81 0 0 0 0 0 3
32,551.50 7 35 81 0 0 0 0 0 3
33,459.71 4 48 69 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
30,524.78 7 35 81 0 0 0 0 0 3
32,329.03 6 35 81 0 0 0 0 0 3
30,519.76 8 35 82 0 0 0 0 0 3
30,296.90 7 31 86 0 0 0 0 0 3
31,293.47 9 35 82 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
30,203.36 6 35 81 0 0 0 0 0 3
31,884.18 6 35 81 0 0 0 0 0 3
33,386.30 98640,98710,98712,&98714 6 35 82 0 0 0 0 0 3
6,216.53 98710,98712,98714 6 35 82 0 0 0 0 0 3
9,408.26 98640,98712,98714 6 35 82 0 0 0 0 0 3
5,388.55 98640,98710,98714 6 35 82 0 0 0 0 0 3
12,372.96 98640,98710,98712 6 35 82 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
34,493.59 7 35 81 0 0 0 0 0 3
28,938.10 4 48 66 0 0 0 0 0 6
28,988.00 9 35 82 0 0 0 0 0 3
28,051.76 6 48 69 0 0 0 0 0 3
29,176.15 4 48 69 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
29,252.38 10 49 0 0 89 0 0 0 6
28,509.10 7 35 81 0 0 0 0 0 3
30,447.24 7 35 141 0 0 0 0 0 3
29,097.90 7 48 66 0 0 0 0 0 6
- --------------------------------------------------------------------------------------------------------
27,567.01 6103283, 6103282 4 48 69 0 0 0 0 0 3
22,614.85 6103283 4 48 69 0 0 0 0 0 3
4,952.16 6103282 4 48 69 0 0 0 0 0 3
28,892.73 7 35 81 0 0 0 0 0 3
29,797.55 6 35 81 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
28,983.70 6 35 81 0 0 0 0 0 3
26,420.65 7 35 81 0 0 0 0 0 3
24,971.03 7 35 82 0 0 0 0 0 3
28,067.23 3 48 66 0 0 0 0 0 6
- --------------------------------------------------------------------------------------------------------
27,736.31 98630,98654&98632 3 35 22 0 0 0 0 0 3
5,870.12 98632,98654 3 35 22 0 0 0 0 0 3
15,409.06 98630,98654 3 35 22 0 0 0 0 0 3
6,457.13 98630,98632 3 35 22 0 0 0 0 0 3
24,222.80 7 49 0 0 65 0 0 0 6
- --------------------------------------------------------------------------------------------------------
27,126.44 7 35 81 0 0 0 0 0 3
24,483.13 9 35 82 0 0 0 0 0 3
22,205.46 3 60 54 0 0 0 0 0 6
25,118.13 2 48 0 0 69 0 0 0 3
24,960.99 8 35 81 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
25,579.93 1 48 66 0 0 0 0 0 6
23,138.02 7 35 81 0 0 0 0 0 3
20,373.71 7 35 81 0 0 0 0 0 3
21,548.19 9 25 0 0 89 0 0 0 6
21,989.32 4 49 0 0 65 0 0 0 6
- --------------------------------------------------------------------------------------------------------
21,021.45 8 35 82 0 0 0 0 0 3
20,302.76 2 48 0 0 69 0 0 0 3
19,999.39 7 35 81 0 0 0 0 0 3
21,800.31 5 35 82 0 0 0 0 0 3
19,725.58 8 35 81 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
20,662.18 7 31 83 0 0 0 0 0 6
18,752.67 8 35 82 0 0 0 0 0 3
20,101.79 19 60 0 0 69 0 0 0 3
20,426.29 18 59 0 0 69 0 0 0 4
21,804.32 8 35 81 0 0 0 0 0 3
14,166.98 8 35 81 0 0 0 0 0 3
7,637.34 8 35 81 0 0 0 0 0 3
23,820.06 0 48 69 0 0 0 0 0 3
18,878.79 6 35 82 0 0 0 0 0 3
18,113.63 7 35 82 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
16,834.21 4 48 66 0 0 0 0 0 6
19,400.19 2 48 69 0 0 0 0 0 3
18,584.53 2 26 88 0 0 0 0 0 6
18,214.73 9 35 82 0 0 0 0 0 3
17,910.31 5 35 46 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
18,177.00 18 59 0 0 69 0 0 0 4
16,404.91 4 48 66 0 0 0 0 0 6
22,247.87 29 0 0 0 117 0 0 0 3
21,754.06 0 48 69 0 0 0 0 0 3
18,753.65 18 59 0 0 70 0 0 0 3
- --------------------------------------------------------------------------------------------------------
15,169.63 4 48 66 0 0 0 0 0 6
17,193.04 4 48 69 0 0 0 0 0 3
16,896.34 7 23 0 0 58 0 0 0 3
17,373.45 17 72 0 0 56 0 0 0 4
15,607.78 9 35 82 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
16,113.44 7 35 81 0 0 0 0 0 3
15,224.80 8 35 81 0 0 0 0 0 3
4,275.46 8 35 81 0 0 0 0 0 3
10,949.34 8 35 81 0 0 0 0 0 3
14,559.86 7 35 81 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
15,685.12 2 62 55 0 0 0 0 0 3
17,056.58 4 48 69 0 0 0 0 0 3
14,979.72 2 36 42 0 0 0 0 0 6
16,860.34 17 71 0 0 58 0 0 0 3
14,587.38 8 61 0 0 53 0 0 0 6
- --------------------------------------------------------------------------------------------------------
14,515.89 7 35 82 0 0 0 0 0 3
13,562.56 4 28 86 0 0 0 0 0 6
14,283.56 8 35 81 0 0 0 0 0 3
13,879.48 5 48 69 0 0 0 0 0 3
4,337.34 5 48 69 0 0 0 0 0 3
4,716.85 5 48 69 0 0 0 0 0 3
4,825.29 5 48 69 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
13,681.95 7 35 81 0 0 0 0 0 3
13,584.50 5 48 69 0 0 0 0 0 3
14,135.58 8 35 82 0 0 0 0 0 3
15,124.90 0 48 69 0 0 0 0 0 3
14,284.94 3 48 126 0 0 0 0 0 6
- --------------------------------------------------------------------------------------------------------
12,652.31 10 60 0 0 56 0 0 0 3
12,755.80 7 35 82 0 0 0 0 0 3
12,258.44 7 49 0 0 65 0 0 0 6
11,523.88 3 51 63 0 0 0 0 0 6
13,057.82 3 48 126 0 0 0 0 0 6
- --------------------------------------------------------------------------------------------------------
12,773.70 3 48 69 0 0 0 0 0 3
11,310.14 8 35 81 0 0 0 0 0 3
13,539.59 4 60 114 0 0 0 0 0 6
12,091.27 7 35 81 0 0 0 0 0 3
11,110.01 5 48 69 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
11,510.09 3 48 66 0 0 0 0 0 6
10,155.21 5 48 30 0 0 0 0 0 6
9,914.00 6 30 87 0 0 0 0 0 3
11,898.82 15 71 0 0 58 0 0 0 3
10,306.44 6 47 67 0 0 0 0 0 6
- --------------------------------------------------------------------------------------------------------
11,232.67 9 35 82 0 0 0 0 0 3
9,838.90 8 35 82 0 0 0 0 0 3
10,373.15 7 35 82 0 0 0 0 0 3
13,490.81 9 61 0 0 113 0 0 0 6
- --------------------------------------------------------------------------------------------------------
11,161.89 0 48 69 0 0 0 0 0 3
9,835.85 7 49 0 0 67 0 0 0 4
10,784.19 9 49 0 0 65 0 0 0 6
9,966.47 8 35 81 0 0 0 0 0 3
10,079.76 5 48 69 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
9,565.52 98708 & 98638 5 35 82 0 0 0 0 0 3
4,847.94 98708 5 35 82 0 0 0 0 0 3
4,717.58 98638 5 35 82 0 0 0 0 0 3
9,545.89 2 48 0 0 69 0 0 0 3
9,780.27 4 35 82 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
8,630.71 7 34 82 0 0 0 0 0 3
7,863.11 4 49 0 0 65 0 0 0 6
9,541.73 4 35 82 0 0 0 0 0 3
9,422.46 4 35 82 0 0 0 0 0 3
8,397.09 1 72 102 0 0 0 0 0 6
- --------------------------------------------------------------------------------------------------------
8,335.57 6 35 81 0 0 0 0 0 3
6,580.92 5 48 69 0 0 0 0 0 3
7,481.57 8 35 81 0 0 0 0 0 3
8,200.59 7 35 81 0 0 0 0 0 3
7,336.03 8 35 81 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
7,751.90 6 49 0 0 66 0 0 0 6
6,159.11 7 35 81 0 0 0 0 0 3
6,045.63 6 35 45 0 0 0 0 0 3
4,689.87 7 35 82 0 0 0 0 0 3
4,618.98 2 48 69 0 0 0 0 0 3
- --------------------------------------------------------------------------------------------------------
4,254.02 4 35 82 0 0 0 0 0 3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
REMAINING BALLOON,
YIELD ORIGINAL ORIGINAL REMAINING TERM TO FULLY
MAINTENANCE AMORTIZATION TERM TO MATURITY AMORTIZATION MATURITY AMORTIZING
DESCRIPTION TERM MATURITY OR ARD DATE OR ARD PERIOD OR ARD OR ARD
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
360 120 03/01/09 358 118 HyperAm
Treasury Flat 330 128 05/01/09 322 120 HyperAm
300 180 12/01/13 295 175 HyperAm
180 180 08/01/13 171 171 Fully Amortizing
360 120 12/01/08 355 115 HyperAm
- -------------------------------------------------------------------------------------------------------------------------------
300 120 01/01/09 296 116 HYPERAM
300 120 01/01/09 296 116 HyperAm
300 120 01/01/09 296 116 HyperAm
360 120 12/01/08 355 115 HyperAm
Treasury Flat 300 120 02/01/08 285 105 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
300 120 05/01/09 300 120 HyperAm
360 120 05/01/09 360 120 HyperAm
Treasury Flat 360 132 11/01/08 342 114 Balloon
360 120 01/01/09 356 116 HyperAm
Treasury Flat 360 119 09/01/08 353 112 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 360 120 09/01/08 352 112 HyperAm
360 120 02/01/09 357 117 HyperAm
Treasury Flat 300 120 01/01/09 296 116 HyperAm
Treasury Flat 360 120 11/01/08 354 114 Balloon
Treasury Flat 360 119 08/01/08 352 111 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 220 120 01/01/09 218 116 HyperAm
300 120 02/01/09 297 117 Balloon
360 120 10/01/08 353 113 HyperAm
Treasury Flat 360 132 11/01/08 342 114 Balloon
Treasury Flat 300 180 03/01/13 286 166 HyperAm
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 360 119 09/01/08 353 112 Balloon
360 84 01/01/06 356 80 HyperAm
TREASURY FLAT 360 120 05/01/08 348 108 BALLOON
Treasury Flat 360 120 05/01/08 348 108 Balloon
Treasury Flat 360 120 05/01/08 348 108 Balloon
Treasury Flat 360 120 05/01/08 348 108 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 360 119 08/01/08 352 111 HyperAm
Treasury Flat 300 120 10/01/08 293 113 Balloon
Treasury Flat 360 120 04/01/08 347 107 Balloon
TREASURY FLAT 300 119 09/01/08 293 112 BALLOON
Treasury Flat 300 119 09/01/08 293 112 Balloon
Treasury Flat 300 119 09/01/08 293 112 Balloon
Treasury Flat 300 119 09/01/08 293 112 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 300 179 08/01/13 292 171 Balloon
360 180 04/01/14 359 179 HyperAm
300 119 03/01/09 299 118 HyperAm
Treasury Flat 295 108 12/01/07 290 103 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 360 132 11/01/08 342 114 Balloon
Treasury Flat 360 132 01/02/09 344 116 Balloon
300 120 03/01/09 298 118 HyperAm
300 120 01/01/09 296 116 Balloon
Treasury Flat 360 84 03/01/06 358 82 HyperAm
- -------------------------------------------------------------------------------------------------------------------------------
360 120 11/01/08 354 114 HyperAm
Treasury Flat 360 120 10/01/08 353 113 Balloon
Treasury Flat 360 119 09/01/08 353 112 Balloon
Treasury Flat 360 119 06/01/08 350 109 Balloon
Treasury Flat 360 120 02/01/08 345 105 HyperAm
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 360 132 11/01/08 342 114 Balloon
Treasury Flat 360 119 09/01/08 353 112 Balloon
300 120 12/01/08 295 115 BALLOON
300 120 12/01/08 295 115 Balloon
300 120 12/01/08 295 115 Balloon
300 120 12/01/08 295 115 Balloon
300 120 12/01/08 295 115 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 300 132 02/01/09 285 117 Balloon
Treasury Flat 360 119 08/01/08 352 111 Balloon
Treasury Flat 300 120 11/01/08 294 114 HyperAm
Treasury Flat 360 113 08/01/07 360 99 Balloon
360 120 02/01/09 357 117 HyperAm
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 360 119 09/01/08 353 112 Balloon
Treasury Flat 360 119 07/01/08 351 110 HyperAm
Treasury Flat 360 119 09/01/08 353 112 Balloon
Treasury Flat 360 119 09/01/08 353 112 Balloon
336 120 01/01/09 336 116 HyperAm
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 360 119 09/01/08 353 112 Balloon
Treasury Flat 360 119 10/01/08 354 113 Balloon
Treasury Flat 360 120 09/01/08 352 112 Balloon
360 120 10/01/08 353 113 HyperAm
Treasury Flat 360 120 08/01/08 351 111 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 360 119 10/01/08 354 113 Balloon
Treasury Flat 360 119 10/01/08 354 113 Balloon
TREASURY FLAT 360 120 11/01/08 354 114 BALLOON
Treasury Flat 360 120 11/01/08 354 114 Balloon
Treasury Flat 360 120 11/01/08 354 114 Balloon
Treasury Flat 360 120 11/01/08 354 114 Balloon
Treasury Flat 360 120 11/01/08 354 114 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 300 119 09/01/08 293 112 HyperAm
300 120 01/01/09 296 116 Balloon
Treasury Flat 360 120 08/01/08 351 111 Balloon
324 120 11/01/08 318 114 HyperAm
300 120 01/01/09 296 116 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 360 144 07/01/10 350 134 HyperAm
Treasury Flat 360 119 09/01/08 353 112 Balloon
Treasury Flat 300 179 09/01/13 293 172 Balloon
300 120 10/01/08 293 113 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
300 120 01/01/09 296 116 BALLOON
300 120 01/01/09 296 116 Balloon
300 120 01/01/09 296 116 Balloon
Treasury Flat 360 119 09/01/08 353 112 Balloon
Treasury Flat 300 119 10/01/08 294 113 HyperAm
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 360 119 10/01/08 354 113 Balloon
Treasury Flat 360 119 09/01/08 353 112 Balloon
Treasury Flat 360 120 10/01/08 353 113 Balloon
360 120 02/01/09 357 117 HyperAm
- -------------------------------------------------------------------------------------------------------------------------------
TREASURY FLAT 360 60 02/01/04 357 57 BALLOON
Treasury Flat 360 60 02/01/04 357 57 Balloon
Treasury Flat 360 60 02/01/04 357 57 Balloon
Treasury Flat 360 60 02/01/04 357 57 Balloon
Treasury Flat 360 120 10/01/08 353 113 HyperAm
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 300 119 09/01/08 293 112 Balloon
Treasury Flat 360 120 08/01/08 351 111 Balloon
360 120 02/01/09 357 117 HyperAm
Treasury Flat 300 120 03/01/09 298 118 HyperAm
Treasury Flat 300 119 08/01/08 292 111 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
360 120 04/01/09 359 119 HyperAm
Treasury Flat 360 119 09/01/08 353 112 Balloon
Treasury Flat 360 119 09/01/08 353 112 Balloon
Treasury Flat 360 120 08/01/08 351 111 HyperAm
Treasury Flat 300 120 01/01/09 296 116 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 360 120 09/01/08 352 112 Balloon
Treasury Flat 360 120 03/01/09 358 118 HyperAm
Treasury Flat 360 119 09/01/08 353 112 Balloon
Treasury Flat 300 120 12/01/08 295 115 HyperAm
Treasury Flat 360 119 08/01/08 352 111 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
300 120 10/01/08 293 113 Balloon
Treasury Flat 360 120 09/01/08 352 112 Balloon
Treasury Flat 360 132 10/01/08 341 113 Balloon
Treasury Flat 300 132 11/01/08 282 114 Balloon
TREASURY FLAT 240 119 08/01/08 232 111 BALLOON
Treasury Flat 240 119 08/01/08 232 111 Balloon
Treasury Flat 240 119 08/01/08 232 111 Balloon
240 120 05/01/09 240 120 HyperAm
Treasury Flat 360 120 11/01/08 354 114 Balloon
Treasury Flat 360 120 10/01/08 353 113 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
360 120 01/01/09 356 116 HyperAm
300 120 03/01/09 298 118 Balloon
360 120 03/01/09 358 118 HyperAm
Treasury Flat 300 120 08/01/08 291 111 Balloon
Treasury Flat 360 84 12/01/05 355 79 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 300 132 11/01/08 282 114 Balloon
300 120 01/01/09 296 116 HyperAm
Treasury Flat 300 120 11/30/06 271 91 Balloon
240 120 05/01/09 240 120 HyperAm
Treasury Flat 300 132 11/01/08 282 114 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
360 120 01/01/09 356 116 HyperAm
300 120 01/01/09 296 116 Balloon
Treasury Flat 360 84 10/01/05 353 77 HyperAm
Treasury Flat 300 132 12/01/08 283 115 Balloon
Treasury Flat 360 120 08/01/08 351 111 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 360 119 09/01/08 353 112 Balloon
TREASURY FLAT 360 119 08/01/08 352 111 BALLOON
Treasury Flat 360 119 08/01/08 352 111 Balloon
Treasury Flat 360 119 08/01/08 352 111 Balloon
Treasury Flat 360 119 09/01/08 353 112 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
360 120 03/01/09 358 118 HyperAm
240 120 01/01/09 236 116 Balloon
360 84 03/01/06 358 82 HyperAm
Treasury Flat 300 132 12/01/08 283 115 Balloon
Treasury Flat 360 120 09/01/08 352 112 HyperAm
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 360 120 10/01/08 353 113 Balloon
360 120 01/01/09 356 116 HyperAm
Treasury Flat 360 119 08/01/08 352 111 Balloon
300 120 12/01/08 295 115 HYPERAM
300 120 12/01/08 295 115 HyperAm
300 120 12/01/08 295 115 HyperAm
300 120 12/01/08 295 115 HyperAm
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 360 119 09/01/08 353 112 Balloon
300 120 12/01/08 295 115 HyperAm
Treasury Flat 300 120 09/01/08 292 112 Balloon
300 120 05/01/09 300 120 Balloon
300 180 02/01/14 297 177 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 360 119 06/01/08 350 109 Balloon
Treasury Flat 360 120 10/01/08 353 113 Balloon
Treasury Flat 360 120 10/01/08 353 113 Balloon
360 120 02/01/09 357 117 HyperAm
300 180 02/01/14 297 177 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
300 120 02/01/09 297 117 Balloon
Treasury Flat 360 119 08/01/08 352 111 Balloon
240 180 01/01/14 236 176 HyperAm
Treasury Flat 300 119 09/01/08 293 112 Balloon
300 120 12/01/08 295 115 HyperAm
- -------------------------------------------------------------------------------------------------------------------------------
330 120 02/01/09 327 117 HyperAm
360 84 12/01/05 355 79 HyperAm
360 120 11/01/08 354 114 HyperAm
Treasury Flat 300 132 02/01/09 285 117 Balloon
300 120 11/01/08 294 114 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 300 120 08/01/08 291 111 Balloon
Treasury Flat 360 120 09/01/08 352 112 Balloon
Treasury Flat 300 120 10/01/08 293 113 Balloon
Treasury Flat 180 180 08/01/13 171 171 Fully Amortizing
- -------------------------------------------------------------------------------------------------------------------------------
300 120 05/01/09 300 120 Balloon
Treasury Flat 300 120 10/01/08 293 113 Balloon
Treasury Flat 300 120 08/01/08 291 111 Balloon
Treasury Flat 300 119 08/01/08 292 111 Balloon
270 120 12/01/08 265 115 HyperAm
- -------------------------------------------------------------------------------------------------------------------------------
TREASURY FLAT 360 120 12/01/08 355 115 BALLOON
Treasury Flat 360 120 12/01/08 355 115 Balloon
Treasury Flat 360 120 12/01/08 355 115 Balloon
Treasury Flat 300 120 03/01/09 298 118 HyperAm
Treasury Flat 300 120 01/01/09 296 116 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 300 119 09/01/08 293 112 Balloon
Treasury Flat 360 120 01/01/09 356 116 HyperAm
Treasury Flat 300 120 01/01/09 296 116 Balloon
Treasury Flat 300 120 01/01/09 296 116 Balloon
360 180 04/01/14 359 179 HyperAm
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 360 119 10/01/08 354 113 Balloon
360 120 12/01/08 355 115 HyperAm
Treasury Flat 360 119 08/01/08 352 111 Balloon
Treasury Flat 300 119 09/01/08 293 112 Balloon
Treasury Flat 360 119 08/01/08 352 111 Balloon
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 240 121 12/01/08 234 115 Balloon
Treasury Flat 360 119 09/01/08 353 112 Balloon
Treasury Flat 300 83 10/01/05 294 77 Balloon
Treasury Flat 300 120 10/01/08 293 113 Balloon
Treasury Flat 300 120 03/01/09 298 118 HyperAm
- -------------------------------------------------------------------------------------------------------------------------------
Treasury Flat 300 120 01/01/09 296 116 Balloon
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
CURRENT OR
FUTURE APPRAISAL
BALLOON/ARD BALLOON/ARD DUE ON DUE ON SUBORDINATE APPRAISAL VALUE
BALANCE LTV RATIO SALE ENCUMBRANCE FINANCING VALUE "AS OF" DATE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 57,556,900 46.0% Yes Yes No $ 125,000,000 01/26/99
34,489,034 55.4% Yes Yes No 62,300,000 07/07/98
24,488,786 40.6% Yes Yes No 60,000,000 08/11/98
- 0.0% Yes Yes No 42,700,000 04/30/98
23,562,522 62.0% Yes Yes No 37,900,000 09/19/98
- -----------------------------------------------------------------------------------------------------------------------
19,052,952 58.8% YES YES NO 32,300,000 12/31/98
14,215,979 58.8% Yes Yes No 24,100,000 12/31/98
4,836,972 58.8% Yes Yes No 8,200,000 12/31/98
14,788,568 68.0% Yes Yes No 21,700,000 03/11/99
13,476,251 55.9% Yes Yes No 24,100,000 01/01/99
- -----------------------------------------------------------------------------------------------------------------------
13,349,689 50.2% Yes Yes No 26,500,000 10/29/98
14,488,818 64.3% Yes Yes No 22,500,000 02/01/99
13,954,412 63.2% Yes Yes No 22,075,000 07/01/98
13,566,303 63.6% Yes Yes No 21,290,000 10/22/98
13,178,368 69.4% Yes Yes No 19,000,000 08/18/98
- -----------------------------------------------------------------------------------------------------------------------
12,545,657 69.7% Yes Yes No 18,000,000 05/15/98
11,708,448 67.6% Yes Yes No 17,300,000 11/25/98
10,799,409 56.1% Yes Yes No 19,200,000 12/31/98
10,717,119 64.6% Yes Yes No 16,600,000 07/29/98
10,482,481 69.6% Yes Yes No 15,060,000 07/17/98
- -----------------------------------------------------------------------------------------------------------------------
7,484,493 46.5% Yes Yes No 16,100,000 12/31/98
8,914,637 61.5% Yes Yes No 14,500,000 07/14/98
9,323,300 67.7% Yes Yes No 13,780,000 02/15/99
9,185,696 68.0% Yes Yes No 13,500,000 11/11/98
6,680,542 35.2% Yes Yes No 19,000,000 12/10/97
- -----------------------------------------------------------------------------------------------------------------------
8,945,555 61.7% Yes Yes No 14,500,000 06/15/98
9,113,115 72.2% Yes Yes No 12,600,000 10/06/98
8,590,589 67.6% YES YES NO 12,700,000 03/18/98
1,374,494 68.7% Yes Yes No 2,000,000 03/18/98
3,865,765 67.8% Yes Yes No 5,700,000 03/18/98
3,350,330 67.0% Yes Yes No 5,000,000 03/18/98
- -----------------------------------------------------------------------------------------------------------------------
8,634,482 64.0% Yes Yes No 13,500,000 05/14/98
7,405,259 59.2% Yes Yes No 12,500,000 07/14/98
8,044,823 64.4% Yes Yes No 12,500,000 03/17/98
7,407,219 64.6% YES YES NO 11,470,000 06/04/98
1,349,702 64.6% Yes Yes No 2,090,000 06/04/98
3,538,933 64.6% Yes Yes No 5,480,000 06/04/98
2,518,583 64.6% Yes Yes No 3,900,000 06/04/98
- -----------------------------------------------------------------------------------------------------------------------
5,593,288 49.1% Yes Yes No 11,400,000 03/20/98
6,446,189 59.8% Yes Yes No 10,750,000 02/09/99
6,640,954 59.1% Yes Yes No 11,200,000 01/26/99
6,401,646 61.0% Yes Yes No 10,500,000 11/09/98
- -----------------------------------------------------------------------------------------------------------------------
6,523,041 65.2% Yes Yes No 10,000,000 09/04/97
6,050,459 61.3% Yes Yes No 9,875,000 12/29/98
5,470,834 46.2% Yes Yes No 11,800,000 10/29/98
5,283,912 59.0% Yes Yes No 8,960,000 10/09/98
5,986,392 72.9% Yes Yes No 8,200,000 11/11/98
- -----------------------------------------------------------------------------------------------------------------------
5,601,864 63.6% Yes Yes No 8,800,000 07/30/98
5,338,183 66.7% Yes Yes No 8,000,000 07/31/98
5,278,070 68.6% Yes Yes No 7,700,000 07/21/98
5,260,094 70.1% Yes Yes No 7,500,000 04/22/98
5,177,032 69.0% Yes Yes No 7,500,000 01/22/98
- -----------------------------------------------------------------------------------------------------------------------
5,113,169 65.6% Yes Yes No 7,800,000 10/23/98
5,148,064 65.2% Yes Yes No 7,900,000 07/24/98
4,518,042 54.9% YES YES NO 8,230,000 02/09/99
1,290,085 54.9% Yes Yes No 2,350,000 02/09/99
999,130 54.9% Yes Yes No 1,820,000 02/09/99
1,646,917 54.9% Yes Yes No 3,000,000 02/09/99
581,911 54.9% Yes Yes No 1,060,000 02/09/99
- -----------------------------------------------------------------------------------------------------------------------
4,486,359 57.4% Yes Yes No 7,820,000 12/22/98
4,799,450 64.0% Yes Yes No 7,500,000 06/08/98
4,152,227 52.7% Yes Yes No 7,850,000 08/19/98
4,891,456 73.0% Yes Yes No 6,700,000 05/22/97
4,575,769 64.3% Yes Yes No 7,100,000 10/17/98
- -----------------------------------------------------------------------------------------------------------------------
4,564,505 54.3% Yes Yes No 8,400,000 07/08/98
4,527,497 64.6% Yes Yes No 7,000,000 05/04/98
4,523,108 58.7% Yes Yes Yes 7,700,000 06/29/98
4,447,409 68.4% Yes Yes No 6,500,000 06/17/98
4,494,908 68.0% Yes Yes No 6,600,000 10/17/98
- -----------------------------------------------------------------------------------------------------------------------
4,119,842 64.9% Yes Yes No 6,350,000 07/09/98
4,164,274 63.8% Yes Yes No 6,525,000 07/09/98
4,092,444 69.4% Yes Yes No 5,900,000 07/13/98
4,072,969 54.9% Yes Yes No 7,400,000 06/05/98
4,094,033 70.0% Yes Yes No 5,850,000 06/30/98
- -----------------------------------------------------------------------------------------------------------------------
4,011,570 63.4% Yes Yes No 6,330,000 05/01/98
4,040,906 70.5% Yes Yes No 5,730,000 08/20/98
4,074,403 76.6% YES YES NO 5,340,000 VARIOUS
758,654 69.0% Yes Yes No 1,100,000 07/02/98
1,148,167 82.0% Yes Yes No 1,400,000 07/01/98
657,608 78.3% Yes Yes No 840,000 07/01/98
1,509,974 75.5% Yes Yes No 2,000,000 07/02/98
- -----------------------------------------------------------------------------------------------------------------------
3,720,337 59.1% Yes Yes No 6,300,000 07/24/98
3,366,930 60.1% Yes Yes No 5,600,000 10/09/98
3,786,768 61.6% Yes Yes No 6,150,000 01/15/99
3,531,458 51.2% Yes Yes No 6,880,000 08/29/98
3,375,076 48.2% Yes Yes No 7,000,000 10/01/98
- -----------------------------------------------------------------------------------------------------------------------
3,591,948 62.9% Yes Yes No 5,700,000 10/01/98
3,694,650 69.7% Yes Yes No 5,300,000 06/08/98
2,724,225 43.9% Yes Yes No 6,200,000 05/26/98
3,347,149 51.5% Yes Yes No 6,500,000 08/14/98
- -----------------------------------------------------------------------------------------------------------------------
3,271,058 49.4% YES YES NO 6,650,000 VARIOUS
2,683,444 50.6% Yes Yes No 5,300,000 10/08/98
587,615 43.5% Yes Yes No 1,350,000 10/14/98
3,640,989 68.7% Yes Yes No 5,300,000 07/03/98
3,302,493 61.2% Yes Yes No 5,400,000 12/01/97
- -----------------------------------------------------------------------------------------------------------------------
3,542,488 71.6% Yes Yes No 4,950,000 08/04/98
3,396,190 69.3% Yes Yes No 4,900,000 07/11/98
3,341,788 66.8% Yes Yes No 5,000,000 07/31/98
3,412,283 69.6% Yes Yes No 4,900,000 10/09/98
- -----------------------------------------------------------------------------------------------------------------------
3,622,187 75.5% YES YES NO 4,800,000 VARIOUS
766,600 76.7% Yes Yes No 1,000,000 03/10/98
2,012,326 74.5% Yes Yes No 2,700,000 03/09/98
843,261 76.7% Yes Yes No 1,100,000 03/09/98
3,201,991 63.9% Yes Yes No 5,000,000 02/22/99
- -----------------------------------------------------------------------------------------------------------------------
3,014,082 51.1% Yes Yes No 5,900,000 07/14/98
3,215,030 69.9% Yes Yes No 4,600,000 06/23/98
3,008,127 66.7% Yes Yes No 4,500,000 09/15/98
2,773,764 57.6% Yes Yes No 4,800,000 11/02/98
2,823,901 61.1% Yes Yes No 4,625,000 07/11/98
- -----------------------------------------------------------------------------------------------------------------------
3,098,618 69.5% Yes Yes No 4,450,000 02/08/99
2,976,431 59.5% Yes Yes No 5,000,000 08/21/98
2,768,723 69.2% Yes Yes No 4,000,000 07/21/98
2,758,878 62.6% Yes Yes No 4,400,000 02/24/99
2,489,588 53.3% Yes Yes No 4,675,000 10/30/98
- -----------------------------------------------------------------------------------------------------------------------
2,721,306 59.2% Yes Yes No 4,600,000 07/15/98
2,589,404 64.6% Yes Yes No 4,000,000 10/15/98
2,626,869 53.6% Yes Yes No 4,900,000 07/01/98
2,430,049 60.8% Yes Yes No 4,000,000 12/01/97
2,584,304 68.0% Yes Yes No 3,800,000 05/28/98
- -----------------------------------------------------------------------------------------------------------------------
2,320,473 49.1% Yes Yes No 4,725,000 07/14/98
2,533,717 55.3% Yes Yes No 4,580,000 06/01/98
2,476,335 66.9% Yes Yes No 3,700,000 12/21/98
2,167,087 60.2% Yes Yes No 3,600,000 07/09/98
1,922,526 51.4% YES YES NO 3,740,000 07/13/98
1,249,128 51.4% Yes Yes No 2,430,000 07/13/98
673,398 51.4% Yes Yes No 1,310,000 07/13/98
1,919,641 46.6% Yes Yes No 4,100,000 10/30/98
2,388,717 66.4% Yes Yes No 3,600,000 08/19/98
2,331,791 63.0% Yes Yes No 3,700,000 08/26/98
- -----------------------------------------------------------------------------------------------------------------------
2,270,928 39.1% Yes Yes No 5,800,000 10/28/98
2,084,901 49.6% Yes Yes No 4,200,000 11/06/98
2,275,707 65.8% Yes Yes No 3,450,000 11/16/98
2,037,294 64.7% Yes Yes No 3,150,000 05/28/98
2,332,419 72.9% Yes Yes No 3,200,000 10/20/98
- -----------------------------------------------------------------------------------------------------------------------
1,918,644 58.1% Yes Yes No 3,300,000 11/20/98
1,937,121 55.2% Yes Yes No 3,500,000 09/16/98
2,110,819 47.2% Yes Yes No 4,470,000 07/12/98
1,778,392 50.6% Yes Yes No 3,500,000 02/01/99
1,947,679 62.8% Yes Yes No 3,100,000 12/30/98
- -----------------------------------------------------------------------------------------------------------------------
2,068,325 60.8% Yes Yes No 3,400,000 09/04/98
1,900,970 63.4% Yes Yes No 3,000,000 10/16/98
2,209,200 73.5% Yes Yes No 3,000,000 05/07/98
1,839,483 49.9% Yes Yes No 3,690,000 11/03/97
2,049,554 64.1% Yes Yes No 3,200,000 06/01/98
- -----------------------------------------------------------------------------------------------------------------------
2,039,508 70.8% Yes Yes No 2,880,000 05/01/98
2,009,666 68.8% YES YES NO 2,920,000 07/01/98
564,358 68.8% Yes Yes No 820,000 07/01/98
1,445,308 68.8% Yes Yes No 2,100,000 07/01/98
1,937,004 53.8% Yes Yes No 3,600,000 06/17/98
- -----------------------------------------------------------------------------------------------------------------------
1,921,168 63.9% Yes Yes No 3,000,000 09/11/98
1,505,262 39.6% Yes Yes No 3,800,000 10/14/98
2,025,221 67.8% Yes Yes No 2,980,000 01/20/99
1,725,431 47.3% Yes Yes No 3,650,000 10/23/97
1,873,450 59.0% Yes Yes No 3,170,000 02/15/99
- -----------------------------------------------------------------------------------------------------------------------
1,892,327 70.1% Yes Yes No 2,700,000 07/23/98
1,811,272 68.0% Yes Yes No 2,660,000 09/22/98
1,824,647 68.2% Yes Yes No 2,675,000 07/06/98
1,594,488 62.1% YES YES NO 2,560,000 VARIOUS
498,277 62.1% Yes Yes No 800,000 09/15/98
541,877 62.1% Yes Yes No 870,000 09/15/98
554,334 62.1% Yes Yes No 890,000 09/25/98
- -----------------------------------------------------------------------------------------------------------------------
1,789,043 70.2% Yes Yes No 2,550,000 06/18/98
1,595,853 58.9% Yes Yes No 2,700,000 09/02/98
1,604,327 62.7% Yes Yes No 2,560,000 07/03/98
1,631,709 57.3% Yes Yes No 2,850,000 02/02/99
1,263,579 50.3% Yes Yes No 2,510,000 11/05/98
- -----------------------------------------------------------------------------------------------------------------------
1,679,704 67.2% Yes Yes No 2,500,000 02/05/98
1,664,113 64.0% Yes Yes No 2,600,000 04/23/98
1,614,813 43.1% Yes Yes No 3,750,000 05/18/98
1,562,669 60.0% Yes Yes No 2,600,000 10/30/98
1,147,482 47.8% Yes Yes No 2,400,000 11/05/98
- -----------------------------------------------------------------------------------------------------------------------
1,366,050 62.1% Yes Yes No 2,200,000 10/16/98
1,487,337 57.7% Yes Yes No 2,580,000 05/11/98
687,190 21.5% Yes Yes No 3,200,000 09/14/98
1,370,808 59.6% Yes Yes No 2,300,000 06/16/98
1,302,002 35.1% Yes Yes No 3,700,000 09/02/98
- -----------------------------------------------------------------------------------------------------------------------
1,343,293 62.1% Yes Yes No 2,160,000 10/23/98
1,449,876 70.6% Yes Yes No 2,050,000 09/04/98
1,371,627 62.2% Yes Yes No 2,200,000 08/10/98
1,224,113 51.3% Yes Yes No 2,386,000 09/14/98
1,186,267 50.5% Yes Yes No 2,350,000 08/17/98
- -----------------------------------------------------------------------------------------------------------------------
1,238,083 64.3% Yes Yes No 1,925,000 06/24/98
1,305,453 58.0% Yes Yes No 2,250,000 02/04/98
1,194,658 47.8% Yes Yes No 2,500,000 08/12/98
- 0.0% Yes Yes No 3,600,000 02/25/99
- -----------------------------------------------------------------------------------------------------------------------
1,192,502 59.6% Yes Yes No 2,000,000 03/12/99
1,129,239 59.4% Yes Yes No 1,900,000 06/19/98
1,128,223 56.4% Yes Yes No 2,000,000 02/20/99
1,128,877 36.4% Yes Yes No 3,100,000 06/29/98
996,668 30.1% Yes Yes No 3,300,000 07/31/98
- -----------------------------------------------------------------------------------------------------------------------
1,161,975 70.4% YES YES NO 1,650,000 07/02/98
588,905 69.3% Yes Yes No 850,000 07/02/98
573,070 71.6% Yes Yes No 800,000 07/02/98
1,003,581 59.6% Yes Yes No 1,680,000 10/30/98
1,026,261 29.8% Yes Yes No 3,450,000 11/10/98
- -----------------------------------------------------------------------------------------------------------------------
987,284 58.1% Yes Yes No 1,700,000 07/21/98
1,028,081 60.4% Yes Yes No 1,700,000 10/21/98
1,001,229 32.3% Yes Yes No 3,100,000 11/10/98
988,714 37.3% Yes Yes No 2,650,000 11/11/98
925,255 60.5% Yes Yes No 1,525,000 02/01/99
- -----------------------------------------------------------------------------------------------------------------------
1,018,801 71.8% Yes Yes No 1,420,000 09/18/98
934,341 64.3% Yes Yes No 1,450,000 09/22/98
967,832 65.6% Yes Yes No 1,475,000 06/30/98
901,088 53.8% Yes Yes No 1,675,000 07/15/98
923,481 66.9% Yes Yes No 1,380,000 06/30/98
- -----------------------------------------------------------------------------------------------------------------------
684,159 40.2% Yes Yes Yes 1,700,000 02/11/99
780,142 69.0% Yes Yes No 1,130,000 08/20/98
748,257 62.4% Yes Yes No 1,200,000 08/27/98
525,260 58.4% Yes Yes No 900,000 07/30/98
485,604 58.0% Yes Yes No 835,000 10/30/98
- -----------------------------------------------------------------------------------------------------------------------
446,382 19.5% Yes Yes No 2,290,000 11/11/98
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT NET LARGEST
LTV YEAR OWNERSHIP RENTABLE TENANT LARGEST
RATIO YEAR BUILT RENOVATED INTEREST SF / UNITS NAME TENANT SF
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
51.9% 1972-1986 1998 Fee Simple 1,001,082 J.C. Penney 218,518
70.8% 1988 Fee Simple 444,760 AT&T 444,760
66.3% 1988 and 1991 Fee Simple 244,244 Greg Norman's 12,016
72.7% 1986 and 1989 Fee Simple 320,477 State of New Jersey 279,176
73.0% 1986 1993-1997 Fee Simple 528 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
71.5% VARIOUS FEE SIMPLE 248,470 VARIOUS VARIOUS
71.5% 1988 Fee Simple 180,300 Department of Public Aid 180,300
71.5% 1991 Fee Simple 68,170 Illinois Department of Trans. 47,719
79.6% 1997 Fee Simple 308 NAP
69.2% 1966 1996/97 Leasehold 336,176 Med-Tech T/A Arc Group 12,862
- ------------------------------------------------------------------------------------------------------------------------------------
61.5% 1964 1993-1994 Fee Simple 247 NAP
71.8% 1924-1927 1986-1990 Fee Simple 347,867 Ohio Dept. of Human Services 69,816
71.6% 1910-1912 1983 Fee Simple 172,275 Dewitt Media, Inc. 27,626
71.9% 1966, 1984 and 1985 1999 Fee Simple 431 NAP
78.5% 1998 Fee Simple 292 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
79.5% 1982 Leasehold 103,536 Safeway Grocery 40,762
76.7% 1960 1992 Fee Simple 111,370 Gale's Supermarket 30,000
68.2% 1909/1917 1949 & 1983/1988 Fee Simple 157,620 Department of Commerce 108,013
73.5% 1986 Leasehold 145 NAP
79.2% 1997 Fee Simple 216 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
72.0% 1890 thru 1986 Fee Simple 224,694 Department of Corrections 224,694
77.0% 1973 and 1994 1998 Fee Simple 112,650 Kohl's Department Store, Inc. 108,650
79.3% 1991 Fee Simple 268 NAP
78.3% 1970, 1971, 1980, 1995, 1999 Fee Simple 485 NAP
54.4% 1968 1985 Fee Simple 11,249,644 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
70.6% 1994 1997 Fee Simple 240 NAP
79.7% 1973 and 1974 1991 Fee Simple 296 NAP
77.9% VARIOUS VARIOUS 334 NAP
79.2% 1964 Fee Simple 56 NAP
78.1% 1970 Leasehold 148 NAP
77.2% 1970 Fee Simple 130 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
72.9% 1993 Fee Simple 186,851 Oshman Sporting Goods 50,000
74.4% 1988 Fee Simple 177,005 SKC America, Inc. 177,005
74.0% 1989 Fee Simple 132 NAP
79.1% VARIOUS FEE SIMPLE 103,984 VARIOUS VARIOUS
79.1% 1985-1989 Fee Simple 14,165 Patio Plus 8,720
79.1% 1985-1989 Fee Simple 48,875 Nearly New 7,941
79.1% 1986 Fee Simple 40,944 Newsbank 20,228
- ------------------------------------------------------------------------------------------------------------------------------------
75.4% 1990 & 1992 1992 Fee Simple 149 NAP
75.1% 1963/1983 Fee Simple 90,396 Market Basket Grocery 19,503
71.4% 1984 1994 Fee Simple 308,304 Wal-Mart 121,100
74.2% 1985 and 1999 Fee Simple 122,301 Carmike Cinemas 44,477
- ------------------------------------------------------------------------------------------------------------------------------------
73.8% 1982 Fee Simple 436 NAP
71.8% 1991 Fee Simple 165 NAP
56.7% 1968 1997 Fee Simple 221,638 Belk's 67,000
74.6% 1953 1993 Fee Simple 40,000 CFI (Ground Floor) 20,000
78.9% 1988 & 1994 Fee Simple 95,577 Big Y Grocery 44,358
- ------------------------------------------------------------------------------------------------------------------------------------
73.5% 1954 and 1985 1996 Fee Simple 38,903 Bristol Farms 28,671
76.4% 1891 & 1925 1985 Fee Simple 58,441 NAP
77.5% 1972 1997 & 1998 Fee Simple 240 NAP
79.4% 1956-1997, 1962-1964 Fee Simple 325 NAP
79.0% 1985 1994 Fee Simple 77,452 Winn Dixie 45,500
- ------------------------------------------------------------------------------------------------------------------------------------
74.2% 1977 1997 Fee Simple 306 NAP
72.5% 1913 1990 Fee Simple 78,008 Microsoft Corporation 6,446
68.8% VARIOUS FEE SIMPLE 135,849 VARIOUS VARIOUS
68.8% 1987 Fee Simple 49,435 Respi-I-care, Inc. 10,000
68.8% 1984 Fee Simple 23,794 J. C. Bradford & Co. 4,720
68.8% 1987 Fee Simple 45,620 White's 24,900
68.8% 1977, 1988 & 1992 Fee Simple 17,000 American Water Heaters 17,000
- ------------------------------------------------------------------------------------------------------------------------------------
71.8% 1985-1998 Fee Simple 91,035 NAP
72.9% 1977 1990 Fee Simple 288 NAP
68.2% 1962 Leasehold 183 Video 95/Nail Salon 4,107
79.1% 1971 Various since 1978 Fee Simple 473 NAP
74.4% 1985 and 1992 Fee Simple 139,618 Bedrooms Plus 20,000
- ------------------------------------------------------------------------------------------------------------------------------------
62.1% 1983 Fee Simple 108,460 NAP
74.4% 1996 Fee Simple 66,723 Electronic Data Systems Corp. 57,057
66.8% 1964 Leasehold 43,195 Kern & Associates 6,907
78.8% 1987 Fee Simple 57,036 Sinai Hospital (Women's) 8,750
77.3% 1973-74 1998 Fee Simple 176 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
74.4% 1983 1996 & 1997 Fee Simple 100 NAP
72.1% 1989 Fee Simple 33,534 Bristol Park Medical 11,528
79.5% 1949 1997 Fee Simple 130 NAP
63.1% 1974-1980 Fee Simple 145,423 Smith's Food & Drug Centers 40,224
79.5% 1996-1997 Fee Simple 62 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
72.3% 1961 1993 Fee Simple 120,660 King Scoopers 50,242
79.2% 1957 1960&1980 Fee Simple 71,002 Michaels Tequesta 7,000
85.2% VARIOUS VARIOUS FEE SIMPLE 427 NAP
76.7% 1970 Fee Simple 94 NAP
91.2% 1970 Fee Simple 84 NAP
87.1% 1960 Fee Simple 59 NAP
84.0% 1960 1982 Fee Simple 190 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
70.9% 1988 Fee Simple 121 NAP
77.3% 1968 Fee Simple 149 NAP
69.9% 1988 & 1992 Fee Simple 125,931 Culligan Water Conditioning 5,864
62.1% 1968 Fee Simple 150 NAP
60.4% 1987 Fee Simple 63,878 Michael's Crafts 29,440
- ------------------------------------------------------------------------------------------------------------------------------------
74.0% 1925 1995 thru 1998 Fee Simple 78,671 King and Ballow, Attorneys 37,607
78.8% 1980 Fee Simple 50,719 Pet Life Foods Inc. 7,002
67.2% 1900-1919 Fee Simple 57 NAP
64.1% 1911 1987 Fee Simple 131,234 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
62.6% VARIOUS FEE SIMPLE 202 NAP
64.3% 1986-1987 & 1994 Fee Simple 148 NAP
55.3% 1980 Fee Simple 54 NAP
77.0% 1995 & 1998 Fee Simple 54,755 RiteAid 10,880
74.5% 1998 Fee Simple 42,973 Sports Authority 42,973
- ------------------------------------------------------------------------------------------------------------------------------------
79.5% 1985 Fee Simple 63,346 Wing-It 5,370
78.2% 1971 1988 Fee Simple 116,100 Crain Industries 116,100
76.6% 1933 Fee Simple 56,295 NAP
77.5% 1980 1999 Fee Simple 232 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
78.6% VARIOUS VARIOUS FEE SIMPLE 279 NAP
79.8% 1972 Fee Simple 49 NAP
77.6% 1975 & 1991 Fee Simple 165 NAP
79.8% 1985 1997 Fee Simple 65 NAP
74.5% 1978-1979 1997-present Fee Simple 240 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
62.2% 1982 Fee Simple 83,836 Market Development Corp 37,335
79.4% 1985 Fee Simple 138 NAP
78.7% 1985 & 1989 Fee Simple 52,800 Rosemary's Hallmark 4,400
72.7% 1985 Fee Simple 38,200 I. Goldberg 17,500
75.0% 1907 1997 Fee Simple 47 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
77.5% 1991 Fee Simple 31,846 R. Gregg Anderson 2,600
67.2% 1982 Fee Simple 58,038 Unity Motion 18,353
79.5% 1996 Leasehold 55,000 Boston Store Furniture 55,000
72.2% 1958 1989 Fee Simple 40,110 C-Town Food 13,000
66.0% 1981 Fee Simple 46,762 Tanner's Thriftway 25,000
- ------------------------------------------------------------------------------------------------------------------------------------
67.0% 1986 Fee Simple 51,061 Cooper Ped. 3,251
74.9% 1881 - 1895 1986 & 1987 Fee Simple 103,892 WHYY, Inc. 10,085
60.9% 1982 Fee Simple 58,359 Ansaldo 8,246
74.6% 1998 Fee Simple 33,805 Linen's 'N Things 33,805
77.2% 1906 1989 Fee Simple 26,326 Executive Perspective 7,408
- ------------------------------------------------------------------------------------------------------------------------------------
61.9% 1988 Fee Simple 16,415 7th Heaven Market 3,540
63.5% 1920 1987 Fee Simple 13,245 Hunneman 4,942
76.2% 1974 Various 1994-1998 Fee Simple 240 NAP
77.1% 1996 Fee Simple 57,950 NAP
73.2% VARIOUS VARIOUS FEE SIMPLE 71,360 VARIOUS
73.2% 1995 & 1996 Fee Simple 43,075 NAP
73.2% 1983 1989 Fee Simple 28,285 NAP
66.3% 1986 Fee Simple 120 NAP
74.7% 1985-1986 Fee Simple 48,384 E&B Marine 9,504
71.3% 1980 Fee Simple 46,199 Inova Health 10,025
- ------------------------------------------------------------------------------------------------------------------------------------
45.1% 1972 Fee Simple 54 NAP
61.8% 1895 1964 Fee Simple 61 NAP
73.5% 1991 Fee Simple 20,434 US Armed Forces 2,665
79.2% 1900,1952,1953,1958,1967 1958 & 1983 Fee Simple 56,679 Western Auto Supply 7,125
77.9% 1970 1998 Fee Simple 32,645 Automotive Credit Corp 12,235
- ------------------------------------------------------------------------------------------------------------------------------------
74.3% 1996 Fee Simple 56,175 NAP
70.1% 1975 Fee Simple 44,570 Claremont Technology Group 10,638
54.6% 1995 Fee Simple 87,740 NAP
69.4% 1974 1995 & 1996 Fee Simple 124 NAP
77.5% 1977 Fee Simple 191 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
70.3% 1997 Fee Simple 24 NAP
79.6% 1965 1990 Fee Simple 92 NAP
79.6% 1992 Fee Simple 73 NAP
64.0% 1996 Fee Simple 73,049 NAP
72.8% 1964 1994 Fee Simple 10,716 Endless Video 4,896
- ------------------------------------------------------------------------------------------------------------------------------------
79.5% 1998 Fee Simple 21,500 Mama Mia Italian Resta 2,400
78.3% VARIOUS FEE SIMPLE 25,546 VARIOUS VARIOUS
78.3% 1987 Fee Simple 7,328 Sir Speedy Printing 2,679
78.3% 1989 Fee Simple 18,218 First Stop Medical 4,061
61.4% 1925 Fee Simple 59 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
73.2% 1987/1988 Fee Simple 39,917 Kenwood Auto Body 9,917
57.5% 1900 and 1959 1987 - 1990 Fee Simple 98 NAP
73.2% 1974 Fee Simple 78 NAP
59.6% 1996 Fee Simple 43,322 NAP
68.2% 1974 Fee Simple 29,783 McKinley Associates, Inc. 16,601
- ------------------------------------------------------------------------------------------------------------------------------------
79.6% 1923 1984 Fee Simple 52,571 Black Dog 5,336
79.7% 1996-1997 Fee Simple 69 NAP
76.8% 1997 Fee Simple 19,682 Athlete's Foot 11,700
79.5% VARIOUS VARIOUS FEE SIMPLE 87 NAP
79.5% 1968 Fee Simple 24 NAP
79.5% 1967 Fee Simple 30 NAP
79.5% 1930s 1970 Fee Simple 33 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
79.6% 1983, 1984 & 1987 see year built Fee Simple 61,540 NAP
74.5% 1997 Fee Simple 20,000 Teligent, Inc. 20,000
77.4% 1997 Fee Simple 36 NAP
69.5% 1990 Fee Simple 37,600 Elite Health and Fitness 11,700
77.2% 1981 Fee Simple 56 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
76.4% 1885, 1890 & 1900 1985 Fee Simple 71 NAP
72.7% 1954 1993 Fee Simple 33,425 Fisherman's Inc 10,000
49.1% 1988 Fee Simple 14,993 Cathay Bank 3,441
69.4% 1986 Fee Simple 26,275 TCI Cablevision of Florida 3,778
72.7% 1979 Fee Simple 50 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
77.0% 1963 & 1990 Fee Simple 70 NAP
65.5% 1996 Fee Simple 40,165 NAP
52.7% 1961 and 1970 1997 Fee Simple 107 NAP
73.3% 1972 Fee Simple 126 NAP
44.3% 1998 Fee Simple 26,245 SprintCom, Inc. 26,245
- ------------------------------------------------------------------------------------------------------------------------------------
73.9% 1997 Fee Simple 15,005 Eagle Men's Apparel 3,438
77.7% 1984 1996-1997 Fee Simple 56 NAP
72.3% 1972 1991 Fee Simple 63,312 Winn-Dixie 42,442
65.2% 1997 Fee Simple 68,436 NAP
64.4% 1997 Fee Simple 11,857 Video Update 4,700
- ------------------------------------------------------------------------------------------------------------------------------------
78.2% 1969 Fee Simple 56 NAP
66.2% 1965 Fee Simple 77 NAP
59.5% 1988 & 1989 Fee Simple 57,700 NAP
40.5% 1968 Fee Simple 100 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
72.0% 1988 Fee Simple 17,097 Bless Camacho 5,292
75.6% 1979 Fee Simple 72 NAP
70.4% 1997 Fee Simple 17,309 Video Update, Inc. 6,045
44.7% 1985 Fee Simple 50,275 NAP
39.1% 1973 1996-1998 Fee Simple 122 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
78.3% 1960 FEE SIMPLE 115 NAP
77.0% 1960 Fee Simple 63 NAP
79.6% 1960 Fee Simple 52 NAP
73.7% 1890 1986 & 1996 Fee Simple 31 NAP
35.5% 1996 Fee Simple 56,360 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
71.7% 1955 1987 Fee Simple 85 NAP
70.4% 1990 Fee Simple 46 NAP
38.6% 1997 Fee Simple 47,125 NAP
44.5% 1997 Fee Simple 43,260 NAP
76.1% 1974 Fee Simple 36 NAP
- ------------------------------------------------------------------------------------------------------------------------------------
79.7% 1998 Fee Simple 15 NAP
75.5% 1985 Fee Simple 40 NAP
74.1% 1997 Fee Simple 22,500 Family Dollar 8,000
65.2% 1997 Fee Simple 41,460 NAP
75.0% 1988 Fee Simple 10,024 Big 5 Sporting Goods 10,024
- ------------------------------------------------------------------------------------------------------------------------------------
58.7% 1969 Fee Simple 42,581 Niagara Distributors, Inc. 42,581
77.5% 1986 Fee Simple 16,642 Home Choice 4,940
70.3% 1983 Fee Simple 31,600 NAP
71.6% 1993 Fee Simple 13,365 U.S. Government 13,365
71.7% 1890 1994 Fee Simple 18 Dirty Frank's Bar 1,300
- ------------------------------------------------------------------------------------------------------------------------------------
23.3% 1985 Fee Simple 48,230 NAP
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ANNUAL
LARGEST PHYSICAL UNDERWRITTEN
TENANT SF AS OCCUPANCY OCCUPANCY ORIGINAL UNDERWRITTEN UNDERWRITTEN REPLACEMENT
A % OF TOTAL % AS OF DATE LTV RATIO NOI NET CASH FLOW RESERVES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
21.8% 98.0% 01/31/99 52.0% $ 9,113,782 $ 8,109,326 $ 255,805.00
100.0% 100.0% 01/01/99 71.4% 5,448,340 5,059,754 66,714.00
4.9% 97.2% 12/31/98 66.7% 5,281,686 4,986,096 48,426.00
87.1% 99.7% 05/03/99 74.9% 4,137,532 3,959,880 74,517.00
96.6% 02/01/99 73.4% 3,163,466 3,031,466 132,000.00
- ----------------------------------------------------------------------------------------------------------------------------------
Various 100.0% 12/30/98 71.8% 3,194,715 2,883,888 62,118.00
100.0% 100.0% 12/30/98 71.8% 2,373,181 2,146,412 45,075.00
70.0% 100.0% 12/30/98 71.8% 821,534 737,476 17,043.00
87.7% 03/04/99 80.0% 1,723,115 1,661,514 61,601.00
3.8% 87.7% 01/31/99 70.5% 2,469,887 2,053,994 67,235.00
- ----------------------------------------------------------------------------------------------------------------------------------
71.6% 12/31/98 61.5% 2,474,701 2,201,211 273,490.00
20.1% 88.6% 03/01/99 71.8% 2,361,110 1,853,306 86,967.00
16.0% 94.3% 01/01/99 71.9% 2,274,167 1,949,062 43,069.00
98.8% 01/19/99 72.1% 1,842,752 1,670,352 172,400.00
90.8% 09/20/98 79.0% 1,701,229 1,628,229 73,000.00
- ----------------------------------------------------------------------------------------------------------------------------------
30.6% 97.7% 09/30/98 80.0% 1,770,822 1,670,711 18,636.00
26.9% 100.0% 01/07/99 76.9% 1,449,848 1,392,532 -
68.5% 100.0% 12/30/98 68.5% 1,851,864 1,629,832 61,551.00
92.4% 08/01/98 73.8% 1,586,983 1,546,093 40,890.00
95.0% 09/21/98 79.7% 1,251,268 1,208,068 43,200.00
- ----------------------------------------------------------------------------------------------------------------------------------
100.0% 100.0% 12/30/98 72.4% 1,921,615 1,623,540 116,841.00
96.5% 100.0% 12/29/98 77.2% 1,209,125 1,195,117 10,865.00
92.9% 01/26/99 79.8% 1,197,960 1,128,100 69,860.00
90.3% 09/30/98 78.6% 1,300,995 1,276,745 24,250.00
0.0% 55.3% 1,701,269 1,513,336 187,933.00
- ----------------------------------------------------------------------------------------------------------------------------------
93.8% 04/30/98 71.0% 1,153,139 1,093,139 60,000.00
98.3% 01/03/99 80.0% 1,162,199 1,088,199 74,000.00
94.3% Various 78.7% 1,208,431 1,120,306 88,125.00
98.2% 09/24/98 80.0% 191,540 172,915 18,625.00
96.0% 09/24/98 79.0% 568,447 531,447 37,000.00
90.8% 12/23/98 78.0% 448,444 415,944 32,500.00
- ----------------------------------------------------------------------------------------------------------------------------------
26.8% 84.0% 04/23/98 73.3% 1,161,298 1,087,391 28,028.00
100.0% 100.0% 01/22/99 75.0% 1,114,033 1,078,632 35,401.00
85.6% 03/29/99 74.8% 1,292,684 1,259,684 33,000.00
Various 95.0% 10/01/98 79.8% 1,077,406 978,128 15,625.00
61.6% 100.0% 10/01/98 79.8% 188,895 175,371 2,152.00
16.2% 95.5% 10/01/98 79.8% 504,430 457,767 7,331.00
49.4% 92.7% 10/01/98 79.8% 384,081 344,990 6,142.00
- ----------------------------------------------------------------------------------------------------------------------------------
97.3% 09/30/98 76.1% 1,401,355 1,356,655 44,700.00
21.6% 96.3% 02/22/99 75.1% 1,008,404 918,556 18,983.00
39.3% 90.7% 02/24/99 71.4% 1,221,578 981,685 61,661.00
36.4% 100.0% 12/16/98 75.2% 1,020,366 923,844 29,964.00
- ----------------------------------------------------------------------------------------------------------------------------------
95.5% 09/25/98 74.1% 893,686 784,686 109,000.00
90.9% 11/01/98 72.1% 821,590 780,340 41,250.00
30.2% 89.2% 02/01/99 56.8% 903,354 786,078 54,953.00
50.0% 100.0% 01/12/99 75.0% 754,878 748,878 6,000.00
46.4% 100.0% 02/03/99 79.0% 762,739 717,436 9,540.00
- ----------------------------------------------------------------------------------------------------------------------------------
73.7% 100.0% 12/31/98 73.9% 709,695 687,675 4,668.00
97.5% 09/30/98 76.9% 768,175 752,155 16,020.00
94.2% 08/01/98 77.9% 723,736 663,736 60,000.00
97.5% 09/30/98 80.0% 649,586 633,336 16,250.00
58.8% 96.3% 06/30/98 80.0% 661,127 610,950 11,618.00
- ----------------------------------------------------------------------------------------------------------------------------------
95.0% 09/25/98 74.6% 716,986 640,486 76,500.00
8.3% 99.1% 02/10/99 72.8% 784,058 667,846 15,602.00
Various 96.3% 01/11/99 69.3% 793,592 630,276 33,963.00
20.2% 89.9% 01/11/99 69.3% 236,644 171,035 12,359.00
19.8% 100.0% 01/11/99 69.3% 174,203 144,840 5,949.00
54.6% 100.0% 01/11/99 69.3% 272,495 232,201 11,405.00
100.0% 100.0% 01/11/99 69.3% 110,250 82,200 4,250.00
- ----------------------------------------------------------------------------------------------------------------------------------
87.6% 09/30/98 72.1% 669,730 656,075 13,655.00
94.4% 04/30/98 73.3% 634,482 562,482 72,000.00
2.5% 99.4% 01/01/99 68.8% 671,734 593,995 59,746.00
97.9% 09/30/98 79.1% 598,329 574,679 23,650.00
14.3% 98.0% 01/14/99 74.7% 643,084 550,347 27,924.00
- ----------------------------------------------------------------------------------------------------------------------------------
96.9% 12/01/98 62.5% 717,028 700,759 16,269.00
85.5% 92.8% 12/31/98 75.0% 675,434 568,911 6,672.00
16.0% 96.6% 09/01/98 67.2% 734,228 610,818 10,799.00
15.3% 92.9% 10/01/98 79.2% 643,047 549,555 11,407.00
94.3% 01/04/99 77.3% 557,104 518,560 38,544.00
- ----------------------------------------------------------------------------------------------------------------------------------
94.0% 09/24/98 74.8% 510,328 485,328 25,000.00
34.4% 98.5% 06/30/98 72.4% 561,496 510,253 6,706.00
91.5% 07/06/98 80.0% 521,275 488,775 32,500.00
27.7% 100.0% 01/01/99 63.5% 617,058 551,349 22,112.00
98.4% 05/26/98 80.0% 563,255 544,655 18,600.00
- ----------------------------------------------------------------------------------------------------------------------------------
41.6% 80.8% 09/21/98 72.7% 557,248 466,753 18,099.00
9.9% 98.4% 09/16/98 79.6% 544,237 477,496 22,720.00
93.9% Various 85.5% 540,958 517,657 23,301.00
91.5% 10/01/98 77.0% 110,812 105,736 5,076.00
98.8% 12/02/98 91.6% 137,054 132,854 4,200.00
81.4% 12/02/98 87.4% 79,055 74,630 4,425.00
96.8% 12/02/98 84.3% 214,037 204,437 9,600.00
- ----------------------------------------------------------------------------------------------------------------------------------
67.2% 09/30/98 71.4% 666,300 580,673 85,627.00
98.0% 01/04/99 77.7% 542,516 505,266 37,250.00
4.7% 97.8% 12/10/98 70.4% 577,154 505,284 18,890.00
93.3% 02/28/99 62.5% 551,361 487,611 63,750.00
46.1% 100.0% 01/14/99 60.7% 665,533 593,740 19,163.00
- ----------------------------------------------------------------------------------------------------------------------------------
47.8% 97.9% 02/26/99 74.6% 459,517 453,712 5,805.00
13.8% 95.0% 09/01/98 79.3% 524,771 461,800 17,244.00
100.0% 09/30/98 67.7% 517,976 503,726 14,250.00
79.5% 02/01/99 64.6% 554,013 541,065 12,948.00
- ----------------------------------------------------------------------------------------------------------------------------------
95.0% 01/31/99 63.0% 559,734 506,232 53,502.00
93.9% 01/31/99 64.6% 452,496 416,976 35,520.00
98.2% 01/31/99 55.6% 107,238 89,256 17,982.00
19.9% 94.5% 08/01/98 77.4% 467,334 434,434 8,213.00
100.0% 100.0% 12/31/98 75.0% 485,200 459,417 6,446.00
- ----------------------------------------------------------------------------------------------------------------------------------
8.5% 100.0% 07/10/98 79.8% 488,198 439,042 12,669.00
100.0% 100.0% 10/27/98 78.6% 432,077 393,502 19,737.00
94.8% 09/30/98 77.0% 468,117 454,917 13,200.00
100.0% 02/09/99 77.7% 468,533 419,813 48,720.00
- ----------------------------------------------------------------------------------------------------------------------------------
90.7% Various 78.8% 419,616 405,716 13,900.00
100.0% 09/30/98 80.0% 91,874 89,424 2,450.00
84.9% 09/10/98 77.8% 235,345 227,145 8,200.00
95.4% 09/30/98 80.0% 92,397 89,147 3,250.00
90.8% 12/31/98 75.0% 479,010 419,010 60,000.00
- ----------------------------------------------------------------------------------------------------------------------------------
44.5% 100.0% 09/30/98 62.7% 515,008 451,293 12,575.00
87.0% 09/25/98 80.0% 445,566 411,066 34,500.00
8.3% 100.0% 02/18/99 78.9% 441,660 396,603 7,920.00
45.8% 100.0% 02/12/99 72.9% 445,977 387,785 15,280.00
83.0% 07/01/98 75.7% 479,112 465,012 14,100.00
- ----------------------------------------------------------------------------------------------------------------------------------
8.2% 100.0% 02/15/99 77.5% 416,809 383,728 9,872.00
31.6% 100.0% 09/30/98 67.5% 428,632 359,020 14,510.00
100.0% 100.0% 09/30/98 80.0% 346,482 324,482 8,250.00
32.4% 100.0% 02/01/99 72.7% 421,214 397,555 11,632.00
53.5% 96.8% 02/01/99 66.3% 361,866 329,844 10,755.00
- ----------------------------------------------------------------------------------------------------------------------------------
6.4% 92.7% 12/31/98 67.4% 433,539 351,034 12,255.00
9.7% 86.6% 02/12/99 75.0% 485,355 334,252 25,973.00
14.1% 100.0% 12/31/98 61.2% 431,470 345,194 11,672.00
100.0% 100.0% 12/31/98 75.0% 357,072 337,974 4,950.00
28.1% 98.4% 09/30/98 77.6% 346,934 316,444 5,266.00
- ----------------------------------------------------------------------------------------------------------------------------------
21.6% 100.0% 12/15/98 62.4% 342,608 314,857 5,581.00
37.3% 100.0% 09/30/98 64.0% 361,830 345,531 3,311.00
94.0% 09/11/98 76.5% 371,179 359,179 12,000.00
84.4% 10/01/98 77.9% 293,493 284,804 8,689.00
95.8% 07/09/98 74.3% 367,840 357,136
95.0% 07/09/98 74.3%
97.0% 07/09/98 74.3%
75.0% 10/30/98 66.3% 479,642 415,192 64,450.00
19.6% 88.5% 12/31/98 75.0% 364,977 326,560 9,677.00
21.7% 100.0% 08/01/98 71.6% 346,890 314,550 9,240.00
- ----------------------------------------------------------------------------------------------------------------------------------
98.2% 12/31/98 45.3% 388,828 375,328 13,500.00
98.4% 01/22/99 61.9% 439,881 424,131 15,750.00
13.0% 100.0% 02/01/99 73.6% 299,376 278,860 3,678.00
12.6% 89.1% 01/01/99 80.0% 286,614 247,569 12,689.00
37.5% 95.8% 12/31/98 78.1% 349,944 281,783 8,161.00
- ----------------------------------------------------------------------------------------------------------------------------------
83.5% 12/31/98 74.8% 267,397 258,971 8,426.00
23.9% 99.2% 01/01/99 70.5% 361,678 271,444 12,034.00
77.7% 09/30/98 54.9% 391,229 378,068 13,161.00
63.0% 12/31/98 69.4% 441,747 380,863 60,884.00
96.3% 09/23/98 78.0% 304,145 294,595 9,550.00
- ----------------------------------------------------------------------------------------------------------------------------------
100.0% 08/27/98 70.6% 256,222 251,422 4,800.00
96.7% 12/15/98 80.0% 300,808 264,008 36,800.00
95.0% 09/21/98 80.0% 302,351 287,751 14,600.00
87.0% 10/31/98 64.4% 296,885 285,928 10,957.00
45.7% 100.0% 09/30/98 73.3% 274,484 263,775 2,679.00
- ----------------------------------------------------------------------------------------------------------------------------------
11.2% 88.1% 08/12/98 79.9% 265,850 247,852 3,225.00
Various 100.0% 12/31/98 78.8% 276,788 254,534 7,153.00
36.6% 100.0% 12/31/98 78.8% 58,970 52,565 2,052.00
22.3% 100.0% 12/31/98 78.8% 217,818 201,969 5,101.00
93.2% 05/31/98 61.7% 233,077 218,327 14,750.00
- ----------------------------------------------------------------------------------------------------------------------------------
24.8% 94.7% 02/01/99 73.3% 272,715 237,090 7,983.00
100.0% 01/31/99 57.9% 357,264 335,214 22,050.00
97.4% 02/03/99 73.3% 245,944 224,884 21,060.00
86.1% 09/30/98 60.0% 262,127 255,629 6,498.00
55.7% 95.8% 01/07/99 68.6% 302,757 280,412 4,467.00
- ----------------------------------------------------------------------------------------------------------------------------------
10.2% 100.0% 04/06/99 80.0% 277,459 226,679 10,514.00
97.1% 01/22/99 80.0% 234,280 222,550 11,730.00
59.5% 100.0% 08/01/98 77.2% 231,165 219,575 2,952.00
96.6% 01/15/99 80.0% 256,606 226,156 30,450.00
95.8% 01/15/99 80.0% 83,059 74,659 8,400.00
93.3% 01/15/99 80.0% 87,930 77,430 10,500.00
100.0% 01/15/99 80.0% 85,617 74,067 11,550.00
- ----------------------------------------------------------------------------------------------------------------------------------
87.0% 12/31/98 80.0% 246,451 237,520 8,931.00
100.0% 100.0% 12/31/98 75.0% 235,225 232,225 3,000.00
97.0% 12/31/98 78.1% 205,045 196,045 9,000.00
31.1% 100.0% 02/02/99 69.5% 269,317 229,604 7,520.00
98.2% 01/06/99 77.5% 227,205 211,973 15,232.00
- ----------------------------------------------------------------------------------------------------------------------------------
96.0% 12/31/98 77.0% 222,373 204,623 17,750.00
29.9% 100.0% 09/01/98 73.1% 227,049 197,340 6,685.00
23.0% 100.0% 01/01/99 49.3% 313,062 289,049 5,218.00
14.4% 100.0% 01/14/99 69.6% 220,969 183,816 -
94.0% 01/21/99 72.9% 237,060 223,160 13,900.00
- ----------------------------------------------------------------------------------------------------------------------------------
94.3% 01/15/99 77.3% 223,740 195,740 28,000.00
96.0% 06/01/98 65.9% 211,807 205,782 6,025.00
65.0% 09/14/98 62.5% 355,679 273,755 40,962.00
100.0% 10/01/98 73.9% 221,613 215,313 6,300.00
100.0% 100.0% 12/31/98 44.6% 208,164 190,508 3,937.00
- ----------------------------------------------------------------------------------------------------------------------------------
22.9% 100.0% 01/13/99 74.1% 189,627 179,789 1,501.00
96.4% 01/31/99 78.1% 211,300 197,300 14,000.00
67.0% 92.1% 01/31/99 72.7% 202,282 156,583 18,994.00
89.0% 12/31/98 65.9% 226,278 215,986 10,292.00
39.6% 100.0% 12/31/98 64.9% 181,164 166,428 1,779.00
- ----------------------------------------------------------------------------------------------------------------------------------
98.2% 05/28/98 79.0% 181,645 167,645 14,000.00
98.7% 09/30/98 66.7% 181,985 162,735 19,250.00
93.5% 09/30/98 60.0% 250,263 231,799 18,464.00
98.0% 01/01/99 41.7% 295,958 261,938 34,020.00
- ----------------------------------------------------------------------------------------------------------------------------------
31.0% 100.0% 04/02/99 72.0% 193,547 174,776 5,676.00
87.5% 03/05/99 76.3% 167,888 149,888 18,000.00
34.9% 88.8% 01/12/99 75.0% 187,352 170,996 2,423.00
91.0% 09/30/98 45.2% 299,115 291,601 7,514.00
59.5% 12/31/97 39.4% 259,485 200,924 58,561.00
- ----------------------------------------------------------------------------------------------------------------------------------
96.5% Various 78.5% 155,906 150,156 5,750.00
96.8% 09/01/98 77.2% 83,359 80,209 3,150.00
96.2% 12/02/98 79.8% 72,547 69,947 2,600.00
100.0% 02/24/99 73.8% 152,041 144,570 7,471.00
89.2% 11/01/98 35.7% 261,204 252,750 8,454.00
- ----------------------------------------------------------------------------------------------------------------------------------
95.3% 09/29/98 72.4% 141,720 137,470 4,250.00
100.0% 12/31/98 70.6% 134,703 121,869 12,834.00
93.0% 10/26/98 38.7% 262,861 255,792 7,069.00
90.2% 11/01/98 44.7% 183,292 176,803 6,489.00
100.0% 02/01/99 76.2% 137,632 126,832 10,800.00
- ----------------------------------------------------------------------------------------------------------------------------------
97.0% 12/31/98 80.0% 147,336 142,836 4,500.00
100.0% 01/01/99 75.9% 114,008 100,527 13,481.00
35.6% 100.0% 02/01/99 74.6% 119,428 108,071 3,375.00
95.8% 09/30/98 65.7% 139,241 132,991 6,250.00
100.0% 100.0% 08/01/98 75.4% 116,109 110,194 1,504.00
- ----------------------------------------------------------------------------------------------------------------------------------
100.0% 100.0% 01/11/99 59.4% 172,139 159,365 12,774.00
29.7% 96.2% 08/31/98 77.9% 109,306 95,773 4,327.00
96.0% 07/01/98 70.8% 88,443 83,703 4,740.00
100.0% 100.0% 08/01/98 72.2% 88,982 79,976 2,406.00
13.0% 100.0% 01/31/99 71.9% 78,490 69,328 9,162.00
- ----------------------------------------------------------------------------------------------------------------------------------
89.2% 11/01/98 23.4% 231,972 224,737 7,235.00
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
ANNUAL
UNDERWRITTEN
REPLACEMENT U/W U/W NET REPAIR &
RESERVES NOI CASH FLOW ORIGINAL LOAN CUT-OFF DATE PAID TO REMEDIATION
PER UNIT/SF DSCR DSCR PER UNIT/SF LOAN PER UNIT/SF DATE RESERVE HOLDBACK
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.26 1.67 1.49 $ 64.93 $ 64.85 05/01/99 81,688
0.15 1.54 1.43 100.05 99.19 05/01/99
0.20 1.56 1.47 163.77 162.75 05/01/99 5,750
0.23 1.23 1.18 99.85 96.85 05/01/99
250.00 1.51 1.45 52,651.52 52,406.73 05/01/99
- -------------------------------------------------------------------------------------------------------------------------------
0.25 1.51 1.37 93.37 92.96 05/01/99 31,750
0.25 1.51 1.37 96.01 95.59 05/01/99
0.25 1.51 1.37 86.40 86.02 05/01/99
200.00 1.37 1.32 56,363.64 56,094.25 05/01/99 875
0.20 1.69 1.40 50.57 49.62 05/01/99
- -------------------------------------------------------------------------------------------------------------------------------
1,107.25 1.57 1.40 65,931.17 65,931.17 05/01/99 750
0.25 1.66 1.30 46.45 46.45 05/01/99
0.25 1.65 1.42 92.18 91.77 05/01/99 37,500
400.00 1.44 1.30 35,614.85 35,507.27 05/01/99 800,000
250.00 1.40 1.34 51,369.86 51,099.56 05/01/99 -
- -------------------------------------------------------------------------------------------------------------------------------
0.18 1.56 1.47 139.08 138.19 05/01/99 11,375
- 1.32 1.27 119.42 119.12 05/01/99 10,250
0.39 1.55 1.36 83.43 83.06 05/01/99 348,125
282.00 1.61 1.57 84,482.76 84,083.01 05/01/99 -
200.00 1.31 1.27 55,555.56 55,201.37 05/01/99 -
- -------------------------------------------------------------------------------------------------------------------------------
0.52 1.67 1.41 51.85 51.62 05/01/99 575,500
0.10 1.24 1.22 99.42 99.07 05/01/99
260.67 1.45 1.36 41,044.78 40,776.19 05/01/99 3,022
50.00 1.41 1.38 21,883.85 21,797.33 05/01/99 5,000
0.02 1.78 1.58 0.93 0.92 05/01/99 200,000
- -------------------------------------------------------------------------------------------------------------------------------
250.00 1.44 1.37 42,916.67 42,668.00 05/01/99 3,831
250.00 1.54 1.44 34,054.05 33,927.49 05/01/99 4,375
263.21 1.52 1.41 29,940.12 29,626.50 05/01/99 5,625
332.59 1.51 1.36 28,571.43 28,272.14 05/01/99 2,500
250.00 1.59 1.49 30,405.41 30,086.91 05/01/99 3,125
250.00 1.45 1.34 30,000.00 29,685.75 05/01/99 -
- -------------------------------------------------------------------------------------------------------------------------------
0.15 1.49 1.39 52.98 52.64 05/01/99 -
0.20 1.39 1.35 52.96 52.50 05/01/99 10,290
250.00 1.73 1.69 70,833.33 70,045.81 05/01/99 1,250
0.15 1.36 1.24 87.99 87.28 05/01/99 -
0.15 1.36 1.24 117.70 116.75 05/01/99
0.15 1.36 1.24 89.44 88.72 05/01/99
0.15 1.36 1.24 75.99 75.37 05/01/99
- -------------------------------------------------------------------------------------------------------------------------------
300.00 1.87 1.81 58,221.48 57,674.53 05/01/99 -
0.21 1.43 1.30 89.33 89.27 05/01/99 21,250
0.20 1.64 1.32 25.95 25.92 05/01/99 125,694
0.25 1.42 1.29 64.59 63.73 05/01/99 30,000
- -------------------------------------------------------------------------------------------------------------------------------
250.00 1.38 1.21 17,003.08 16,924.93 05/01/99 -
250.00 1.42 1.35 43,162.85 42,995.63 05/01/99 75,269
0.25 1.51 1.32 30.23 30.17 05/01/99
0.15 1.40 1.39 168.00 167.08 05/01/99
0.10 1.36 1.28 67.80 67.70 05/01/99 23,812
- -------------------------------------------------------------------------------------------------------------------------------
0.12 1.44 1.39 167.08 166.19 05/01/99 110,000
0.27 1.60 1.57 105.23 104.63 05/01/99 -
250.00 1.48 1.36 25,000.00 24,869.91 05/01/99 8,250
50.00 1.35 1.31 18,461.54 18,323.01 05/01/99 -
0.15 1.37 1.26 77.47 76.49 05/01/99 -
- -------------------------------------------------------------------------------------------------------------------------------
250.00 1.42 1.27 19,003.29 18,919.58 05/01/99 -
0.20 1.56 1.33 73.71 73.38 05/01/99 -
0.25 1.70 1.35 41.96 41.69 05/01/99 58,375
0.25 1.70 1.35 32.92 32.71 05/01/99
0.25 1.70 1.35 52.98 52.63 05/01/99
0.25 1.70 1.35 45.55 45.25 05/01/99
0.25 1.70 1.35 43.18 42.91 05/01/99
- -------------------------------------------------------------------------------------------------------------------------------
0.15 1.32 1.29 61.96 61.71 05/01/99 3,125
250.00 1.46 1.29 19,097.22 18,974.42 05/01/99 3,125
326.48 1.59 1.41 29,508.20 29,254.18 05/01/99 256,250
50.00 1.27 1.22 11,205.07 11,205.07 05/01/99 -
0.20 1.59 1.36 37.96 37.85 05/01/99 27,675
- -------------------------------------------------------------------------------------------------------------------------------
0.15 1.75 1.71 48.40 48.13 05/01/99 40,500
0.10 1.60 1.35 78.68 78.10 05/01/99
0.25 1.79 1.49 119.81 119.15 05/01/99 -
0.20 1.65 1.41 90.29 89.75 05/01/99 -
219.00 1.39 1.29 28,977.27 28,977.27 05/01/99
- -------------------------------------------------------------------------------------------------------------------------------
250.00 1.39 1.32 47,500.00 47,221.79 05/01/99 -
0.20 1.45 1.32 140.90 140.27 05/01/99 -
250.00 1.42 1.33 36,307.69 36,065.06 05/01/99 -
0.15 1.70 1.52 32.32 32.13 05/01/99 158,312
300.00 1.50 1.45 75,483.87 74,965.21 05/01/99 -
- -------------------------------------------------------------------------------------------------------------------------------
0.15 1.54 1.29 38.12 37.94 05/01/99 20,000
0.32 1.42 1.25 64.22 63.95 05/01/99 -
54.98 1.35 1.29 10,655.74 10,614.55 05/01/99 -
54.00 1.49 1.42 9,012.87 8,978.03 05/01/99 -
50.00 1.21 1.18 15,264.17 15,205.16 05/01/99 -
75.00 1.22 1.15 12,446.95 12,398.83 05/01/99 -
50.53 1.44 1.38 8,874.89 8,840.59 05/01/99 -
- -------------------------------------------------------------------------------------------------------------------------------
707.66 1.61 1.40 37,190.08 36,924.11 05/01/99 -
250.00 1.56 1.46 29,194.63 29,033.48 05/01/99 59,100
0.15 1.66 1.45 34.36 34.12 05/01/99 -
425.00 1.64 1.45 28,666.67 28,471.66 05/01/99
0.30 1.90 1.70 66.53 66.18 05/01/99 19,220
- -------------------------------------------------------------------------------------------------------------------------------
0.07 1.31 1.29 54.02 53.64 05/01/99 15,000
0.34 1.53 1.35 82.81 82.38 05/01/99 -
250.00 1.42 1.38 73,684.21 73,094.98 05/01/99 -
0.10 1.59 1.55 32.00 31.73 05/01/99 25,000
- -------------------------------------------------------------------------------------------------------------------------------
256.71 1.69 1.53 20,668.32 20,552.81 05/01/99 22,455
240.00 1.67 1.54 23,141.89 23,012.56 05/01/99 11,955
333.00 1.80 1.50 13,888.89 13,811.27 05/01/99 10,500
0.15 1.35 1.25 74.88 74.52 05/01/99 -
0.15 1.36 1.28 94.25 93.61 05/01/99 -
- -------------------------------------------------------------------------------------------------------------------------------
0.20 1.40 1.26 62.36 62.11 05/01/99 -
0.17 1.36 1.24 33.16 32.99 05/01/99 -
0.23 1.56 1.52 68.39 68.00 05/01/99 -
210.00 1.39 1.25 16,409.48 16,372.82 05/01/99 196,250
- -------------------------------------------------------------------------------------------------------------------------------
49.83 1.26 1.22 13,548.39 13,517.86 05/01/99 -
50.00 1.30 1.27 16,326.53 16,289.74 05/01/99 -
49.70 1.27 1.23 12,727.27 12,698.59 05/01/99 -
50.00 1.19 1.15 13,538.46 13,507.95 05/01/99 -
250.00 1.65 1.44 15,625.00 15,528.48 05/01/99 10,020
- -------------------------------------------------------------------------------------------------------------------------------
0.15 1.58 1.39 44.13 43.79 05/01/99 -
250.00 1.52 1.40 26,666.67 26,481.37 05/01/99 -
0.15 1.66 1.49 67.23 67.05 05/01/99 1,200
0.40 1.48 1.29 91.62 91.40 05/01/99 3,600
300.00 1.60 1.55 74,468.09 73,759.23 05/01/99 -
- -------------------------------------------------------------------------------------------------------------------------------
0.31 1.36 1.25 108.33 108.26 05/01/99 2,250
0.25 1.54 1.29 58.15 57.86 05/01/99 -
0.15 1.42 1.33 58.18 57.83 05/01/99 -
0.29 1.63 1.54 79.78 79.19 05/01/99
0.23 1.37 1.25 66.29 65.96 05/01/99
- -------------------------------------------------------------------------------------------------------------------------------
0.24 1.72 1.39 60.71 60.35 05/01/99 -
0.25 1.99 1.37 28.88 28.83 05/01/99 27,915
0.20 1.80 1.44 51.41 51.13 05/01/99 -
0.15 1.36 1.29 88.74 88.23 05/01/99 3,125
0.20 1.47 1.34 112.06 111.36 05/01/99 -
- -------------------------------------------------------------------------------------------------------------------------------
0.34 1.38 1.27 179.71 178.11 05/01/99 39,700
0.25 1.61 1.54 221.23 219.72 05/01/99 -
50.00 1.54 1.49 11,792.61 11,742.95 05/01/99 -
0.15 1.20 1.16 48.36 47.90 05/01/99 -
0.15 1.41 1.36 38.96 38.37 05/01/99 37,076
1.41 1.36 41.93 41.30 05/01/99
1.41 1.36 34.43 33.91 05/01/99
537.08 1.68 1.45 22,641.67 22,641.67 05/01/99 12,338
0.20 1.61 1.44 55.80 55.56 05/01/99 -
0.20 1.60 1.45 57.36 57.07 05/01/99 207,300
- -------------------------------------------------------------------------------------------------------------------------------
250.00 1.92 1.86 48,611.11 48,438.63 05/01/99 23,126
258.20 1.89 1.82 42,622.95 42,527.18 05/01/99 15,000
0.18 1.34 1.25 124.30 124.16 05/01/99 1,800
0.22 1.31 1.13 44.46 44.00 05/01/99 -
0.25 1.63 1.31 76.58 76.32 05/01/99 40,000
- -------------------------------------------------------------------------------------------------------------------------------
0.15 1.23 1.19 43.94 43.67 05/01/99 -
0.27 1.84 1.38 55.33 55.02 05/01/99 57,625
0.15 1.47 1.42 27.97 27.83 05/01/99 -
491.00 1.69 1.46 19,596.77 19,596.77 05/01/99 76,813
50.00 1.35 1.31 12,656.59 12,582.10 05/01/99 6,250
- -------------------------------------------------------------------------------------------------------------------------------
200.00 1.41 1.38 100,000.00 99,635.44 05/01/99 2,100
400.00 1.46 1.28 26,086.96 25,960.04 05/01/99 1,500
200.00 1.49 1.42 32,876.71 32,705.08 05/01/99 3,225
0.15 1.42 1.37 32.54 32.31 05/01/99 -
0.25 1.47 1.41 218.92 217.40 05/01/99 -
- -------------------------------------------------------------------------------------------------------------------------------
0.15 1.37 1.28 106.98 106.46 05/01/99 -
0.28 1.52 1.39 90.03 89.46 05/01/99 -
0.28 1.52 1.39 88.14 87.58 05/01/99
0.28 1.52 1.39 90.80 90.22 05/01/99
250.00 1.33 1.25 37,661.02 37,449.33 05/01/99 7,500
- -------------------------------------------------------------------------------------------------------------------------------
0.20 1.45 1.26 55.11 55.04 05/01/99
225.00 1.75 1.64 22,448.98 22,275.09 05/01/99 600
270.00 1.37 1.25 28,012.82 27,975.13 05/01/99 45,313
0.15 1.30 1.26 50.53 50.21 05/01/99 -
0.15 1.73 1.60 73.03 72.55 05/01/99 11,625
- -------------------------------------------------------------------------------------------------------------------------------
0.20 1.59 1.30 41.09 40.87 05/01/99 -
170.00 1.44 1.37 30,840.58 30,729.87 05/01/99
0.15 1.35 1.28 104.92 104.31 05/01/99 -
350.00 1.54 1.36 23,540.23 23,382.32 05/01/99 17,550
350.00 1.54 1.36 26,666.67 26,487.78 05/01/99
350.00 1.54 1.36 23,200.00 23,044.37 05/01/99
350.00 1.54 1.36 21,575.76 21,431.02 05/01/99
- -------------------------------------------------------------------------------------------------------------------------------
0.15 1.50 1.45 33.15 32.97 05/01/99 13,844
0.15 1.44 1.42 101.25 100.58 05/01/99
250.00 1.21 1.16 55,555.56 55,017.76 05/01/99 -
0.20 1.48 1.27 52.66 52.66 05/01/99
272.00 1.33 1.24 34,732.14 34,603.97 05/01/99 225
- -------------------------------------------------------------------------------------------------------------------------------
250.00 1.46 1.35 27,112.68 26,900.66 05/01/99 -
0.20 1.48 1.29 56.84 56.54 05/01/99 3,750
0.35 2.13 1.96 123.39 122.71 05/01/99 300
- 1.60 1.33 68.89 68.69 05/01/99 31,250
278.00 1.51 1.42 35,000.00 34,874.11 05/01/99 900
- -------------------------------------------------------------------------------------------------------------------------------
400.00 1.46 1.28 24,285.71 24,204.65 05/01/99 975
0.15 1.56 1.52 42.33 42.06 05/01/99 -
382.82 1.86 1.43 18,691.59 15,769.09 05/01/99 36,792
50.00 1.53 1.48 13,492.06 13,380.15 05/01/99 -
0.15 1.56 1.43 62.87 62.45 05/01/99
- -------------------------------------------------------------------------------------------------------------------------------
0.10 1.37 1.30 106.63 106.34 05/01/99 750
250.00 1.73 1.62 28,571.43 28,441.88 05/01/99 1,725
0.30 1.70 1.32 25.27 25.13 05/01/99
0.15 1.58 1.51 22.97 22.72 05/01/99 -
0.15 1.46 1.35 128.62 127.57 05/01/99 1,350
- -------------------------------------------------------------------------------------------------------------------------------
250.00 1.35 1.24 27,142.86 26,874.90 05/01/99 -
250.00 1.54 1.38 19,480.52 19,354.17 05/01/99 61,438
0.32 2.01 1.86 26.00 25.77 05/01/99 10,250
340.20 1.83 1.62 15,000.00 14,564.37 05/01/99
- -------------------------------------------------------------------------------------------------------------------------------
0.33 1.44 1.30 84.23 84.23 05/01/99 450
250.00 1.42 1.27 20,138.89 19,949.01 05/01/99 44,175
0.14 1.45 1.32 86.66 81.29 05/01/99 1,156
0.15 2.50 2.44 27.85 27.58 05/01/99 -
480.01 2.15 1.66 10,655.74 10,582.31 05/01/99 5,250
- -------------------------------------------------------------------------------------------------------------------------------
50.00 1.36 1.31 11,260.87 11,225.71 05/01/99 -
50.00 1.43 1.38 10,417.84 10,385.31 05/01/99 -
50.00 1.28 1.24 12,282.23 12,243.88 05/01/99 -
241.00 1.33 1.26 40,000.00 39,915.19 05/01/99 1,125
0.15 2.23 2.15 21.82 21.74 05/01/99 -
- -------------------------------------------------------------------------------------------------------------------------------
50.00 1.37 1.33 14,470.59 14,347.46 05/01/99 -
279.00 1.43 1.29 26,086.96 25,998.10 05/01/99 142,131
0.15 2.30 2.23 25.46 25.36 05/01/99 -
0.15 1.62 1.56 27.39 27.28 05/01/99 -
300.00 1.37 1.26 32,277.78 32,255.41 05/01/99 40,625
- -------------------------------------------------------------------------------------------------------------------------------
300.00 1.47 1.43 75,733.33 75,440.57 05/01/99 -
337.02 1.44 1.27 27,500.00 27,365.87 05/01/99 3,600
0.15 1.33 1.20 48.89 48.60 05/01/99 -
0.15 1.41 1.35 26.53 26.33 05/01/99 -
0.15 1.32 1.25 103.75 103.18 05/01/99 -
- -------------------------------------------------------------------------------------------------------------------------------
0.30 1.85 1.71 23.72 23.44 05/01/99 30,698
0.26 1.48 1.30 52.88 52.62 05/01/99 -
0.15 1.22 1.15 26.90 26.70 05/01/99 -
0.18 1.58 1.42 48.63 48.24 05/01/99 -
509.00 1.42 1.25 33,333.33 33,262.66 05/01/99 3,300
- -------------------------------------------------------------------------------------------------------------------------------
0.15 4.54 4.40 11.09 11.05 05/01/99 -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
ECONOMIC
TI / LC RESERVE TOTAL MONTHLY
RESERVE P & I RESERVE ENVIRONMENTAL (& OTHER) RESERVE REPLACEMENT
HOLDBACK HOLDBACK RESERVE HOLDBACK HOLDBACK HOLDBACK RESERVES
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
454,044 2,109,891 2,645,623 21,306
- 1,606,688 1,606,688 3,835
282,712 - 288,462 4,036
1,000,000 - - 1,000,000 6,210
174,073 5,500 179,573 11,000
- ---------------------------------------------------------------------------------------------------------------------
1,000,000 - - 1,031,750 3,988
104,977 - 105,852 3,670
122,112 - 122,112 1,393
- ---------------------------------------------------------------------------------------------------------------------
131,022 - 131,772 22,934
1,000,000 118,802 - 618,802 7,305
- - - 2,000,000 2,037,500 2,000
106,909 901,501 1,808,410 14,367
- - - 1,800,000 1,800,000 6,083
- ---------------------------------------------------------------------------------------------------------------------
- - - - 11,375 1,294
91,271 1,563 123,230 224,751 -
750,000 - 43,020 1,141,145 5,129
- - - - - 3,523
- - - - - 2,700
- ---------------------------------------------------------------------------------------------------------------------
750,000 - 1,500 38,113 1,363,613 15,916
81,533 750 30,188 112,470 1,811
- 5,800 8,822 5,800
- - - 1,031,085 1,036,085 -
- - - - 200,000 2
- ---------------------------------------------------------------------------------------------------------------------
- - - 375,000 378,831 4,000
63,051 - 67,426 6,165
- - 17,000 - 22,625 8,350
- - - - 2,500 1,400
- - 17,000 - 20,125 3,700
- - - - - 3,250
- ---------------------------------------------------------------------------------------------------------------------
- 100,000 - - 100,000 3,114
66,560 - 76,850 1,328
- - - - 1,250 2,750
- - - - - 2,459
- ---------------------------------------------------------------------------------------------------------------------
- - - - - 3,104
- - 21,250 3,000
- 61,957 - 187,651 5,139
- 39,276 2,541,586 2,610,862 2,500
- ---------------------------------------------------------------------------------------------------------------------
- - - 571,890 571,890 9,083
- - - 2,000,000 2,075,269 3,400
147,713 49,731 743 37,500 234,944 3,664
44,830 500 45,330 500
46,782 - 70,594 795
- ---------------------------------------------------------------------------------------------------------------------
41,084 390 151,474 390
- - - - - 780
- - - 580,000 588,250 5,020
- - - - - 1,313
- - - - - 968
- ---------------------------------------------------------------------------------------------------------------------
- - - 610,000 610,000 6,375
- - - - - 1,300
- 38,880 1,750 5,000 104,005 1,700
- ---------------------------------------------------------------------------------------------------------------------
- - - 1,300,000 1,303,125 -
- - - - 3,125 6,000
35,189 99,541 390,980 3,813
- - - 855,000 855,000 -
- 33,744 - 61,419 2,485
- ---------------------------------------------------------------------------------------------------------------------
- - - - 40,500 -
350,000 35,105 556 385,661 556
- - - - - 900
50,000 - - - 50,000 951
0 10,000 10,000 3,212
- ---------------------------------------------------------------------------------------------------------------------
- - - - - 2,084
- - - - - 560
- - - - - 2,700
84,819 30,297 39,388 312,816 1,843
- - - - - 1,600
- ---------------------------------------------------------------------------------------------------------------------
- - 250,000 350,000 620,000 1,508
100,000 - - - 100,000 1,894
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- ---------------------------------------------------------------------------------------------------------------------
- - - - - 5,131
28,938 1,000 - 89,038 3,104
- - - 465,862 465,862 1,575
28,052 625 259,750 288,427 5,275
75,000 29,176 - 123,396 1,597
- ---------------------------------------------------------------------------------------------------------------------
29,252 2,250 - 44,252 484
50,000 - - - 50,000 1,436
- - - - - 950
29,098 11,500 65,598 -
- ---------------------------------------------------------------------------------------------------------------------
- 27,567 743 - 50,765 4,459
22,615 743 - 35,313 2,960
4,952 - 15,452 1,499
- - - - - 686
- - - - - 720
- ---------------------------------------------------------------------------------------------------------------------
- - - - - 1,246
- - - - - -
- - - - - -
28,067 83,365 307,682 4,060
- ---------------------------------------------------------------------------------------------------------------------
- - - 175,000 175,000 -
- - - - - -
- - - 175,000 175,000 -
- - - - - -
24,223 51,000 85,243 5,000
- ---------------------------------------------------------------------------------------------------------------------
- - - - - 1,748
- - - - - 2,875
22,205 - 23,405 660
- 25,118 - 28,718 1,404
- - - - - 1,175
- ---------------------------------------------------------------------------------------------------------------------
25,580 26,016 53,846 828
- - - - - 1,210
- 30,000 - - 30,000 -
21,548 - 21,548 836
2,400 21,989 896 25,285 896
- ---------------------------------------------------------------------------------------------------------------------
- - - - - 1,022
- 20,303 - 48,218 1,908
- - - - - 974
- - - - 3,125 450
- - - - - 441
- ---------------------------------------------------------------------------------------------------------------------
- 20,662 8,845 69,207 465
- - - - - 276
- - - 60,169 60,169 -
- - - 1,373,555 1,373,555 -
- - 1,018 - 38,094 -
23,820 - 36,158 5,102
- - - 160,000 160,000 810
50,000 - - 200,000 457,300 770
- ---------------------------------------------------------------------------------------------------------------------
16,834 - 39,960 -
19,400 1,875 - 36,275 1,150
50,000 18,585 298 70,683 298
- - - - - 1,142
25,000 - - - 65,000 359
- ---------------------------------------------------------------------------------------------------------------------
- - - 842,786 842,786 -
60,000 16,405 125,985 260,015 985
- - - 300,000 300,000 -
21,754 26,000 124,567 5,074
- - - 421,435 427,685 -
- ---------------------------------------------------------------------------------------------------------------------
15,170 400 17,670 400
17,193 - 18,693 2,300
16,896 60,870 80,991 1,217
- - - 700,000 700,000 -
- - - - - 223
- ---------------------------------------------------------------------------------------------------------------------
80,000 - 10,000 - 90,000 360
- - - - - 596
- - - - 7,500 1,352
- ---------------------------------------------------------------------------------------------------------------------
25,000 15,685 750 - 41,435 665
17,057 1,493 - 19,150 1,797
14,980 - 60,293 1,755
- - - 472,772 472,772 -
14,587 - 26,212 372
- ---------------------------------------------------------------------------------------------------------------------
- - - - - 880
13,563 - 13,563 998
- - - - - -
13,879 2,250 - 33,679 2,538
- ---------------------------------------------------------------------------------------------------------------------
- - - - 13,844 -
13,585 9,383 22,968 250
- - - - - 750
100,000 15,125 51,000 166,125 564
14,285 48,094 62,604 1,269
- ---------------------------------------------------------------------------------------------------------------------
- - - 245,000 245,000 1,479
- - - - 3,750 573
657 12,258 438 13,653 438
- 11,524 23,591 66,365 83
13,058 1,158 15,116 1,158
- ---------------------------------------------------------------------------------------------------------------------
12,774 2,543 - 16,292 2,333
- - - - - 502
15,929 900 303,180 356,801 6,827
- - - - - -
11,110 3,202 14,312 328
- ---------------------------------------------------------------------------------------------------------------------
- 11,510 - 12,260 125
10,155 742 - 12,622 1,167
93,072 9,914 70,000 172,986 1,055
- - - 530,000 530,000 -
460 10,306 148 12,264 148
- ---------------------------------------------------------------------------------------------------------------------
- - - - - 1,330
- - - - 61,438 1,925
- - - - 10,250 1,538
13,491 - 13,491
- ---------------------------------------------------------------------------------------------------------------------
- 11,162 474 12,086 474
9,836 48,500 102,511 1,500
10,784 75,202 87,142 202
- - - - - -
10,080 - 15,330 4,880
- ---------------------------------------------------------------------------------------------------------------------
- - - - - -
- - - - - -
- - - - - -
9,546 750 - 11,421 723
- - - - - -
- ---------------------------------------------------------------------------------------------------------------------
- - - - - -
7,863 16,029 166,023 1,069
- - - - - -
- - - - - -
8,397 4,368 - 53,390 900
- ---------------------------------------------------------------------------------------------------------------------
- - - - - 375
6,581 - 10,181 1,353
- - - - - 281
- - - - - -
- - - - - -
- ---------------------------------------------------------------------------------------------------------------------
7,752 625 - 39,074 887
- - - - - 360
- - - - - -
- - - - - 210
- 4,619 750 - 8,669 579
- ---------------------------------------------------------------------------------------------------------------------
- - - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------
MONTHLY MONTHLY
MONTHLY TAX INSURANCE TI/LC
ESCROW ESCROW PAYMENT
- ---------------------------------------------
<S> <C> <C>
211,879
280
25,252 59,706
76,480 2,765 -
92,296 2,332
- ---------------------------------------------
22,589 1,867 -
8,082 1,956
27,736 2,833
- ---------------------------------------------
15,492 3,815
31,253 6,462 -
61,500 - -
9,305 -
14,500 - -
- ---------------------------------------------
16,974 - -
10,692 1,756
14,053 3,123 -
3,020 - -
9,712 - -
- ---------------------------------------------
13,747 1,821 -
12,044 426
23,405 1,586
5,070 - -
18,500 - -
- ---------------------------------------------
16,725 - -
12,175 772
6,390 - -
930 - -
2,837 - -
2,623 - -
- ---------------------------------------------
9,977 - -
22,137 -
5,899 - -
10,500 - 8,333
- ---------------------------------------------
7,000 - -
10,588
6,089 2,765 14,853
9,555 923 2,750
- ---------------------------------------------
18,635 - -
8,400 - -
8,311 1,008 -
8,625 417
9,054
- ---------------------------------------------
6,441 606
6,712 - -
7,477 - -
2,243 - -
4,720 - -
- ---------------------------------------------
11,856 - -
3,550 - -
7,232 684 5,000
- ---------------------------------------------
2,800 - -
12,571 - -
7,400 2,429
2,000 - -
8,093 719 2,500
- ---------------------------------------------
4,159 - -
3,787 451 -
5,781 - -
10,100 - 3,000
6,067 1,525
- ---------------------------------------------
3,905 - -
6,147 - -
1,600 - -
8,093 1,872 -
2,950 - -
- ---------------------------------------------
9,028 - 6,033
8,895 - -
4,828 - -
1,550 - -
764 - -
280 - -
2,234 - -
- ---------------------------------------------
3,080 - -
4,245 2,335
9,286 - -
4,032 1,044
6,374 615 -
- ---------------------------------------------
3,801 1,182
3,565 - 1,250
4,411 - -
1,623 733
- ---------------------------------------------
0 3,712 -
7,233 2,785
1,759 927
10,650 - -
0 - -
- ---------------------------------------------
4,884 - -
0 - -
6,560 - -
9,272 8,018
- ---------------------------------------------
14,847 241 -
1,555 42 -
7,672 141 -
5,620 58 -
3,213 2,837
- ---------------------------------------------
9,802 - -
3,668 - -
6,591 426
2,277 771 8,750
653 - -
- ---------------------------------------------
3,369 456
5,761 - 3,600
14,167 - -
8,820 1,046
2,686 384 2,400
- ---------------------------------------------
8,537 - -
6,545 919 10,300
6,271 - 1,500
0 - -
7,900 - 1,333
- ---------------------------------------------
2,342 155 625
5,500 - -
7,725 - -
4,200 - -
1,352 - -
5,022 2,271
3,348 - -
4,921 - -
- ---------------------------------------------
1,662 556
1,636 880
1,914 217 -
6,319 - 2,083
3,707 - 5,200
- ---------------------------------------------
2,725 - -
2,306 426 6,750
4,058 - -
1,970 754
750 - -
- ---------------------------------------------
2,438 394
2,962 1,159
5,181 1,157
3,625 - -
1,629 - -
- ---------------------------------------------
530 - -
6,313 - -
2,170 - -
- ---------------------------------------------
3,669 251 2,750
2,175 980
1,024 793
3,350 - -
5,042 409
- ---------------------------------------------
11,133 - 4,430
3,254 344
0 - 294
6,042 1,542
- ---------------------------------------------
1,450 - -
-
4,650 - -
4,792 814 2,700
1,388 201
- ---------------------------------------------
5,242 - -
4,487 - 1,920
3,029 421 657
3,066 784 4,500
1,219 203
- ---------------------------------------------
4,157 524
1,113 - -
1,919 1,838
2,052 - -
-
- ---------------------------------------------
1,406 203 360
2,509 1,667
1,727 624 -
1,465 - -
1,205 372 460
- ---------------------------------------------
2,016 - -
2,600 - -
8,304 - -
2,917 858
- ---------------------------------------------
1,490 303 650
1,038 815
733 339 -
3,071 - -
1,538 2,425
- ---------------------------------------------
859 - -
435 - -
424 - -
1,820 429
5,371 231 -
- ---------------------------------------------
3,509 - -
2,223 437
1,595 346 -
3,464 325 -
1,002 296
- ---------------------------------------------
356 - -
2,356 560
1,688 - 665
1,983 - -
0 - -
- ---------------------------------------------
1,880 2,163
1,827 - -
1,781 237 -
760 151 550
927 182 333
- ---------------------------------------------
3,728 145 -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANNEX B
ADDITIONAL STEP LOAN AND INTEREST-ONLY LOAN CHARACTERISTICS
INTEREST ONLY LOANS
- --------------------------------------------------------------------------------------------------------------------------------
CONTROL # LOAN # PROPERTY NAME ORIGINAL INTEREST ONLY PERIOD REMAINING INTEREST ONLY PERIOD
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
60 6103349 The Palms Apartments 24 20
54 97319 Heritage Heights MHP 14 0
STEP LOANS
- -------------------------------------------------------------------------------------------------------------
CONTROL # LOAN # PROPERTY NAME PERIOD MONTHLY PAYMENT STEP PAYMENT DATE
- -------------------------------------------------------------------------------------------------------------
2 6103070 Somerset Grove II 1 $295,226.58 10/1/98
56 $309,039.76 5/1/03
</TABLE>
B-1
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
ANNEX C
<TABLE>
<CAPTION>
AFFILIATED BORROWERS (1)
- -----------------------------------------------------------------------------------------------------------------------------------
RELATIONSHIP
PERCENT OF CUT- OF
LOAN NUMBERS OFF DATE BALANCE BORROWER CROSS-COLLATERALIZED AND CROSS-DEFAULTED
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6103379, 6103380, 6103381 4.73% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
6103360, 6103362 1.88% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
97406, 97408 1.30% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
6103063, 6103342 1.21% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
98616, 98618, 98620 1.20% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
97319, 98400 1.11% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
98524, 98526 1.01% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
98004, 98106, 98108 0.98% Affiliated Entities Cross-collateralized and Cross-defaulted
- -----------------------------------------------------------------------------------------------------------------------------------
6103356, 6103357, 6103364, 6103374 0.82% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
6103298, 6103307 0.70% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
97588, 97589 0.69% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
98638, 98640, 98708, 98710, 98712, 98714 0.58% Affiliated Entities Cross-collateralized and Cross-defaulted
- -----------------------------------------------------------------------------------------------------------------------------------
98564, 98722 0.55% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
97343, 97368 0.52% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
97440, 97441 0.52% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
98482, 98488 0.52% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
98590, 98716 0.48% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
6103282, 6103283 0.41% Affiliated Entities Cross-collateralized and Cross-defaulted
- -----------------------------------------------------------------------------------------------------------------------------------
98514, 98516, 98546 0.41% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
98756, 98758, 98760, 98762 0.41% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
6103335, 6103378 0.40% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
98630, 98632, 98654 0.37% Affiliated Entities Cross-collateralized and Cross-defaulted
- -----------------------------------------------------------------------------------------------------------------------------------
6103234, 6103235 0.36% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
6103352, 6103363 0.36% Affiliated Entities No
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Affiliated Borrower means that a principal of or person that has control
of a borrower (through ownership of a controlling interest in its general
partner or managing member or otherwise) also has control of another
borrower (in any such manner).
C-1
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
ANNEX D
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO HELLER FINANCE COMMERCIAL MORTGAGE ASSET CORP. Statement Date: 06/15/99
LaSalle Bank N.A. FIRST UNION NATIONAL BANK AS MASTER SERVICER Payment Date: 06/15/99
LENNAR PARTNERS AS SPECIAL SERVICER Prior Payment: NA
MORTGAGE PASS-THROUGH CERTIFICATES Record Date: 05/28/99
SERIES 1999 PH-1
Administrator:
Brian Ames (800) 246-5761 ABN AMRO ACCT: 99-9999-99-9
135 S. LaSalle Street Suite 1625 WAC:
Chicago, IL 60603 WAMM:
</TABLE>
Number of Pages
---------------
Table of Contents
REMIC Certificate Report
Asset Backed Facts Sheets
Delinquency Loan Detail
Mortgage Loan Characteristics
Loan Level Listing
TOTAL PAGES INCLUDED IN THIS PACKAGE
Specially Serviced Loan Detail Appendix A
Modified Loan Detail Appendix B
Realized Loss Detail Appendix C
INFORMATION IS AVAILABLE FOR THIS ISSUE FROM THE FOLLOWING SOURCES
LaSalle Web Site www.lnbabs.com
Servicer Website www.firstunion.com
LaSalle Bulletin Board (714) 282-3990
LaSalle ASAP Fax System (312) 904-2200
ASAP #:
Monthly Data File Name:
02/24/97 - 13:09 (A99-A999) (C) 1999 LaSalle Bank N.A.
D-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO HELLER FINANCE COMMERCIAL MORTGAGE ASSET CORP. Statement Date: 06/15/99
LaSalle Bank N.A. FIRST UNION NATIONAL BANK AS MASTER SERVICER Payment Date: 06/15/99
LENNAR PARTNERS AS SPECIAL SERVICER Prior Payment: NA
MORTGAGE PASS-THROUGH CERTIFICATES Record Date: 05/28/99
SERIES 1999 PH-1
Administrator:
Brian Ames (800) 246-5761 ABN AMRO ACCT: 99-9999-99-9
135 S. LaSalle Street Suite 1625 WAC:
Chicago, IL 60603 WAMM:
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL OPENING PRINCIPAL PRINCIPAL NEGATIVE CLOSING
CLASS FACE VALUE (1) BALANCE PAYMENT ADJ. OR LOSS AMORTIZATION BALANCE
CUSIP Per $1,000 Per $1,000 Per $1,000 Per $1,000 Per $1,000 Per $1,000
- ----- -------------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
INTEREST INTEREST PASS-THROUGH
CLASS PAYMENT ADJUSTMENT RATE (2)
CUSIP Per $1,000 Per $1,000 Next Rate (3)
- ----- ---------- ---------- --------------
<S> <C> <C> <C>
0.00 0.00
TOTAL P&I PAYMENT 0.00
</TABLE>
Notes: (1) N denotes notional balance not included in total
(2) Interest Paid minus Interest Adjustment minus Deferred Interest
equals Accrual
(3) Estimated
02/24/97 - 13:09 (A99-A999) (C) 1999 LaSalle Bank N.A.
D-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO HELLER FINANCE COMMERCIAL MORTGAGE ASSET CORP. Statement Date: 06/15/99
LaSalle Bank N.A. FIRST UNION NATIONAL BANK AS MASTER SERVICER Payment Date: 06/15/99
LENNAR PARTNERS AS SPECIAL SERVICER Prior Payment: NA
MORTGAGE PASS-THROUGH CERTIFICATES Record Date: 05/28/99
SERIES 1999 PH-1
Administrator:
Brian Ames (800) 246-5761 ABN AMRO ACCT: 99-9999-99-9
135 S. LaSalle Street Suite 1625
Chicago, IL 60603
</TABLE>
<TABLE>
<CAPTION>
Delinq 1 Month Delinq 2 Months Deling 3+ Months Foreclosure/Bankruptcy REO
Distribution -------------- --------------- ---------------- ---------------------- --------------
Date # Balance # Balance # Balance # Balance # Balance
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
06/15/99 0 0 0 0 0 0 0 0 0 0
0.00% 0.000% 0.00% 0.000% 0.00% 0.000% 0.00% 0.000% 0.00% 0.000%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Modifications Prepayments Curr Weighted Avg.
Distribution ------------- ----------- ------------------
Date # Balance # Balance Coupon Remit
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
03/15/99 0 0 0 0
0.00% 0.000% 0.00% 0.000%
</TABLE>
Note: Foreclosure and REO Totals are Included in the Appropriate Delinquency
Aging Category
02/24/97 - 13:09 (A99-A999) (C) 1999 LaSalle Bank N.A.
D-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO HELLER FINANCE COMMERCIAL MORTGAGE ASSET CORP. Statement Date: 06/15/99
LaSalle Bank N.A. FIRST UNION NATIONAL BANK AS MASTER SERVICER Payment Date: 06/15/99
LENNAR PARTNERS AS SPECIAL SERVICER Prior Payment: NA
MORTGAGE PASS-THROUGH CERTIFICATES Record Date: 05/28/99
SERIES 1999 PH-1
Administrator:
Brian Ames (800) 246-5761 ABN AMRO ACCT: 99-9999-99-9
135 S. LaSalle Street Suite 1625
Chicago, IL 60603
</TABLE>
DELIQUENT LOAN DETAIL
<TABLE>
<CAPTION>
Paid Outstanding Out. Property Special
Disclosure Doc Thru Current P&I P&I Protection Advance Servicer Foreclosure
Control # Date Advance Advances** Advances Description (1) Transfer Date Date
- -------------- ---- ----------- ----------- ------------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Disclosure Doc Bankruptcy REO
Control # Date Date
- -------------- ---------- ----
<S> <C> <C>
</TABLE>
A. P&I Advance - Loan in Grace Period
B. P&I Advance - Late Payment but (less than) one month delinq
1. P&I Advance - Loan delinquent 1 month
2. P&I Advance - Loan delinquent 2 months
3. P&I Advance - Loan delinquent 3 months or More
4. Matured Balloon/Assumed Scheduled Payment
** Outstanding P & I Advances include the current period P & I Advance
02/24/97 - 13:09 (A99-A999) (C) 1999 LaSalle Bank N.A.
D-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO HELLER FINANCE COMMERCIAL MORTGAGE ASSET CORP. Statement Date: 06/15/99
LaSalle Bank N.A. FIRST UNION NATIONAL BANK AS MASTER SERVICER Payment Date: 06/15/99
LENNAR PARTNERS AS SPECIAL SERVICER Prior Payment: NA
MORTGAGE PASS-THROUGH CERTIFICATES Record Date: 05/28/99
SERIES 1999 PH-1
Administrator:
Brian Ames (800) 246-5761 ABN AMRO ACCT: 99-9999-99-9
135 S. LaSalle Street Suite 1625 POOL TOTAL
Chicago, IL 60603
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF PRINCIPAL BALANCES
- ---------------------------------------------------------------------
(2) Current Scheduled Number (2) Scheduled Based on
Balances of Loans Balance Balance
- ---------------------------- -------- ------------ --------
<S> <C> <C> <C>
$0 to $500,000
$500,000 to $1,000,000
$1,000,000 to $1,500,000
$1,500,000 to $2,000,000
$2,000,000 to $2,500,000
$2,500,000 to $3,000,000
$3,000,000 to $3,500,000
$3,500,000 to $4,000,000
$4,000,000 to $5,000,000
$5,000,000 to $6,000,000
$6,000,000 to $7,000,000
$7,000,000 to $8,000,000
$8,000,000 to $9,000,000
$9,000,000 to $10,000,000
$10,000,000 to $11,000,000
$11,000,000 to $12,000,000
$12,000,000 to $13,000,000
$13,000,000 to $14,000,000
$14,000,000 to $15,000,000
$15,000,000 & Above
- -------------------------------------------------------------------
Total 0 0 0.00%
</TABLE>
Average Scheduled Balance is 0
Maximum Scheduled Balance is 0
Minimum Scheduled Balance is 0
<TABLE>
<CAPTION>
DISTRIBUTION OF PROPERTY TYPES
-------------------------------------------------------
Number (2) Scheduled Based on
Property Types of Loans Balance Balance
-------------- -------- ------------- --------
<S> <C> <C> <C>
-----------------------------------------------------
Total 0 0 0.00%
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF MORTGAGE INTEREST RATES
----------------------------------------------------------
Current Mortgage Number (2) Scheduled Based on
Interest Rate of Loans Balance Balance
---------------- -------- ------------- --------
<S> <C> <C> <C>
7.000% or less
7.000% to 7.125%
7.125% to 7.375%
7.375% to 7.625%
7.625% to 7.875%
7.875% to 8.125%
8.125% to 8.375%
8.375% to 8.625%
8.625% to 8.875%
8.875% to 9.125%
9.125% to 9.375%
9.375% to 9.625%
9.625% to 9.875%
9.875% to 10.125%
10.125% & Above
------------------------------------------------------
Total 0 0 0.00%
</TABLE>
W/Avg Mortgage Interest Rate is 0.0000%
Minimum Mortgage Interest Rate is 0.0000%
Maximum Mortgage Interest Rate is 0.0000%
GEOGRAPHIC DISTRIBUTION
----------------------------------------------------------------
Number (2) Scheduled Based on
Geographic Location of Loans Balance Balance
------------------- -------- ------------- --------
---------------------------------------------------------------
Total 0 0 0.00%
02/24/97 - 13:09 (A99-A999) (C) 1999 LaSalle Bank N.A.
D-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO HELLER FINANCE COMMERCIAL MORTGAGE ASSET CORP. Statement Date: 06/15/99
LaSalle National Bank N.A. FIRST UNION NATIONAL BANK AS MASTER SERVICER Payment Date: 06/15/99
LENNAR PARTNERS AS SPECIAL SERVICER Prior Payment: NA
MORTGAGE PASS-THROUGH CERTIFICATES Record Date: 05/28/99
SERIES 1999 PH-1
Administrator:
Brian Ames (800) 246-5761 ABN AMRO ACCT: 99-9999-99-9
135 S. LaSalle Street Suite 1625 Pool Total
Chicago, IL 60603
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF REMAINING TERM
LOAN SEASONING FULLY AMORTIZING
- ------------------------------------------------------- ---------------------------------------------------------
NUMBER (2) SCHEDULED BASED ON FULLY AMORTIZING NUMBER (2) SCHEDULED BASED ON
NUMBER OF YEARS OF LOANS BALANCE BALANCE MORTGAGE LOANS OF LOANS BALANCE BALANCE
- ----------------- ---------- --------------- ---------- ------------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
60 months or less
61 to 120 months
121 to 180 months
181 to 240 months
241 to 360 months
- ------------------------------------------------------- ---------------------------------------------------------
Total 0 0 0.00%
- ------------------------------------------------------- ---------------------------------------------------------
Weighted Average Months to Maturity is 0
Weighted Average Seasoning is 0.0
<CAPTION>
DISTRIBUTION OF DSCR
- --------------------------------------------------------
DEBT SERVICE NUMBER (2) SCHEDULED BASED ON
COVERAGE RATIO(1) OF LOANS BALANCE BALANCE
- ------------------- ---------- --------------- ---------
<C> <C> <C> <C>
0.500 or less
0.500 to 0.625
0.625 to 0.750
0.750 to 0.875
0.875 to 1.000
1.000 to 1.125
1.125 to 1.250
1.250 to 1.375
1.375 to 1.500
1.500 to 1.625
1.625 to 1.750
1.750 to 1.875
1.875 to 2.000
2.000 to 2.125
2.125 & above
Unknown
- -------------------------------------------------------
Total 0 0 0.00%
- -------------------------------------------------------
Weighted Average Debt Service Coverage Ratio is 0.000
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF REMAINING TERM
DISTRIBUTION OF AMORTIZATION TYPE BALLOON LOANS
- ---------------------------------------------------- ---------------------------------------------------------
AMORTIZATION NUMBER (2) SCHEDULED BASED ON BALLOON NUMBER (2) SCHEDULED BASED ON
TYPE OF LOANS BALANCE BALANCE MORTGAGE LOANS OF LOANS BALANCE BALANCE
- -------------- ---------- --------------- ---------- ------------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
12 months or less
13 to 24 months
25 to 36 months
37 to 48 months
49 to 60 months
Total 0 0 0.00% 61 to 120 months
121 to 180 months
181 to 240 months
---------------------------------------------------------
Total 0 0 0.00%
---------------------------------------------------------
Weighted Average Months to Maturity is 0
</TABLE>
<TABLE>
<CAPTION>
NOI AGING
- ------------------------------------------------------
NUMBER (2) SCHEDULED BASED ON
NOI DATE OF LOANS BALANCE BALANCE
- ----------------- ---------- --------------- ---------
<S> <C> <C> <C>
1 year or less
1 to 2 years
2 Years or More
Unknown
- ------------------------------------------------------
Total 0 0 0.00%
- ------------------------------------------------------
</TABLE>
(1) Debt Service Coverage Ratios are calculated as described in the prospectus,
values are updated periodically as new NOI figures became available from
borrowers on an asset level. Neither the Trustee, Servicer, Special
Servicer or Underwriter makes any representation as to the accuracy of the
data provided by the borrower for this calculation.
02/24/97 - 13:09 (A99-A999) (C) 1999 LaSalle Bank N.A.
D-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO HELLER FINANCE COMMERCIAL MORTGAGE ASSET CORP. Statement Date: 06/15/99
LaSalle Bank N.A. FIRST UNION NATIONAL BANK AS MASTER SERVICER Payment Date: 06/15/99
LENNAR PARTNERS AS SPECIAL SERVICER Prior Payment: NA
MORTGAGE PASS-THROUGH CERTIFICATES Record Date: 05/28/99
SERIES 1999 PH-1
Administrator:
Brian Ames (800) 246-5761 ABN AMRO ACCT: 99-9999-99-9
135 S. LaSalle Street Suite 1625
Chicago, IL 60603
</TABLE>
LOAN LEVEL DETAIL
<TABLE>
<CAPTION>
Appraisal Property Operating Ending Loan
Disclosure Reduction Type Maturity Statement Principal Note Scheduled Prepayment Status
Control # Amounts Code Date DSCR NOI Date Balance Rate P&I Prepayment Date Code (1)
- --------- ------- ---- ---- ---- --- ---- ------- ---- --- ---------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
- ---------------
* NOI and DSCR, if available and reportable under the terms of the trust
agreement, are based on information obtained from the related borrower, and
no other party to the agreement shall be held liable for the accuracy or
methodology used to determine such figures.
(1) Legend:
A. P&I Adv - in Grace Period
B. P&I Adv - < one month delinq
1. P&I Adv - delinquent 1 month
2. P&I ADV - delinquent 2 months
3. P&I ADV - delinquent 3+ months
4. Mat. Balloon/Assumed P&I
5. Prepaid in Full
6. Specially Serviced
7. Foreclosure
8. Bankruptcy
9. REO
10. DPO
11. Modification
02/24/97 - 13:09 (A99-A999) (C) 1999 LaSalle Bank N.A.
D-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO HELLER FINANCE COMMERCIAL MORTGAGE ASSET CORP. Statement Date: 06/15/99
LaSalle Bank N.A. FIRST UNION NATIONAL BANK AS MASTER SERVICER Payment Date: 06/15/99
LENNAR PARTNERS AS SPECIAL SERVICER Prior Payment: NA
MORTGAGE PASS-THROUGH CERTIFICATES Record Date: 05/28/99
SERIES 1999 PH-1
Administrator:
Brian Ames (800) 246-5761 ABN AMRO ACCT: 99-9999-99-9
135 S. LaSalle Street Suite 1625
Chicago, IL 60603
</TABLE>
SPECIALLY SERVICED LOAN DETAIL
<TABLE>
<CAPTION>
Beginning Specially
Disclosure Scheduled Interest Maturity Property Serviced
Control # Balance Rate Date Type Status Code (1) Comments
- --------- ------- ------- ---- ------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
- -----------
(1) Legend:
1) Request for waiver of Prepayment Penalty
2) Payment default
3) Request for Loan Modification or Workout
4) Loan with Borrower Bankruptcy
5) Loan in Process of Foreclosure
6) Loan now REO Property
7) Loans Paid Off
8) Loans Returned to Master Servicer
APPENDIX A
02/24/97 - 13:09 (A99-A999) (C) 1999 LaSalle Bank N.A.
D-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO HELLER FINANCE COMMERCIAL MORTGAGE ASSET CORP. Statement Date: 06/15/99
LaSalle Bank N.A. FIRST UNION NATIONAL BANK AS MASTER SERVICER Payment Date: 06/15/99
LENNAR PARTNERS AS SPECIAL SERVICER Prior Payment: NA
MORTGAGE PASS-THROUGH CERTIFICATES Record Date: 05/28/99
SERIES 1999 PH-1
Administrator:
Brian Ames (800) 246-5761 ABN AMRO ACCT: 99-9999-99-9
135 S. LaSalle Street Suite 1625
Chicago, IL 60603
</TABLE>
MODIFIED LOAN DETAIL
Disclosure Modification Modification
Control # Date Description
- ------------- ------------------- ---------------------
APPENDIX B
02/24/97 - 13:09 (A99-A999) (C) 1999 LaSalle Bank N.A.
D-9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ABN AMRO HELLER FINANCE COMMERCIAL MORTGAGE ASSET CORP. Statement Date: 06/15/99
LaSalle Bank N.A. FIRST UNION NATIONAL BANK AS MASTER SERVICER Payment Date: 06/15/99
LENNAR PARTNERS AS SPECIAL SERVICER Prior Payment: NA
MORTGAGE PASS-THROUGH CERTIFICATES Record Date: 05/28/99
SERIES 1999 PH-1
Administrator:
Brian Ames (800) 246-5761 ABN AMRO ACCT: 99-9999-99-9
135 S. LaSalle Street Suite 1625
Chicago, IL 60603
</TABLE>
REALIZED LOSS DETAIL
<TABLE>
<CAPTION>
Beginning Gross Proceeds Aggregate Net Net Proceeds
Dist. Disclosure Appraisal Appraisal Scheduled Gross as a % of Liquidation Liquidation as a % of Realized
Date Control # Date Value Balance Poceeds Sched Principal Expenses* Proceeds Sched. Balance Loss
- ----- -------- --------- --------- ---------- ------- --------------- --------- ---------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current Total 0.00 0.00 0.00 0.00 0.00
Cumulative 0.00 0.00 0.00 0.00 0.00
</TABLE>
APPENDIX C
* Aggregate liquidation expenses also include outstanding P&I advances and
unpaid servicing fees, unpaid trustee fees, etc..
02/24/97 - 13:09 (A99-A999) (C) 1999 LaSalle Bank N.A.
D-10
<PAGE>
ANNEX E
E-1
- -------------------------------------------------------------------------------
STRUCTURAL AND COLLATERAL TERM SHEET
HELLER FINANCIAL COMMERCIAL MORTGAGE ASSET CORP. (DEPOSITOR)
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1999 PH-1
$835,556,000 (APPROXIMATE)
- -------------------------------------------------------------------------------
The information included herein is provided solely by Prudential Securities
Incorporated ("PSI") and Morgan Stanley & Co. Incorporated (collectively as
"Underwriters") for the Heller Financial Commercial Mortgage Asset Corp. Series
1999 PH-1 transaction. The analysis in this report is based on information
provided by Prudential Mortgage Capital Funding, LLC ("PMCF") and Heller
Financial Capital Funding, Inc. ("HFCF"), (collectively known as the "Sellers").
The Underwriters make no representations as to the accuracy of such information.
All opinions and conclusions in this report are subject to change. All analyses
are based on certain assumptions noted herein and different assumptions could
yield substantially different results. You are cautioned that there is no
universally accepted method for analyzing financial instruments or commercial
mortgage loans. You should review the assumptions; there may be differences
between these assumptions and your actual business practices. Further, the
Underwriters do not guarantee any results and there is no guarantee as to the
liquidity of the instruments involved in this analysis. The decision to adopt
any strategy remains your responsibility. The Underwriters (or any of their
affiliates) or their officers, directors, analysts or employees may have
positions in securities, or derivative instruments thereon referred to herein,
and may, as principal or agent, buy or sell such securities, or derivative
instruments. In addition, the Underwriters may make a market in the securities
referred to herein, but are not obligated to do so. Finally, the Underwriters
have not addressed the legal, accounting and tax implications of the analysis
with respect to you and the Underwriters strongly urge you to seek advice from
your counsel, accountant and tax advisor.
Neither the information nor the opinions expressed shall be construed to be, or
constitute, an offer to sell or buy or a solicitation of an offer to sell or buy
any securities, or derivative instruments mentioned herein.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
ANNEX E
E-2
- -------------------------------------------------------------------------------
STRUCTURAL AND COLLATERAL TERM SHEET
HELLER FINANCIAL COMMERCIAL MORTGAGE ASSET CORP. (DEPOSITOR)
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1999 PH-1
$835,556,000 (APPROXIMATE)
- -------------------------------------------------------------------------------
APPROXIMATE SECURITIES STRUCTURE:
Approx. Expected Weighted
Expected Face/Notional Credit Average
Rating Amount Support Life Payment
Class (Fitch/Moody's)($000) (% of UPB) (years) (a) Window(a)
- ------------------------------------------------------------------------
PUBLICLY OFFERED
A-1 AAA/Aaa $204,000 26.75% 5.497 6/99 - 2/08
A-2 AAA/Aaa 535,631 26.75 9.388 2/08 - 2-09
B AAA/Aa1 22,719 24.50 9.717 2/09 - 2/09
C AA/Aa2 20,195 22.50 9.748 2/09 - 3/09
D A/A2 53,011 17.25 9.800 3/09 - 3/09
PRIVATELY OFFERED
X (IO) AAA/Aaa 1,009,736 N/A 9.017 6/99 - 4/14
E A-/A3 12,622 16.00 9.800 3/09 - 3/09
F BBB/Baa2 37,865 12.25 9.913 3/09 - 5/09
G BBB-/Baa3 17,670 10.50 9.967 5/09 - 5/09
H BB+/NR 35,341 7.00 10.124 5/09 - 7/10
J BB/NR 20,195 5.00 12.559 7/10 - 3/13
K BB-/NR 7,573 4.25 13.936 3/13 - 8/13
L B/B2 15,146 2.75 14.398 8/13 -
12/13
M B-/B3 7,573 2.00 14.550 12/13 -
12/13
N NR/NR 20,195 --- 14.695 12/13 -
4/14
- ------------------------------------------------------------------------
Total 1,009,736
(a) Calculated at 0% CPR and no balloon or ARD extensions
COLLATERAL FACTS:
Cut-off Date Balance: $1,009,736,304
Number of Mortgage Loans: 190
Number of Properties: 200
Average Cut-off Date Balance: $5,314,402
Weighted Average Gross Coupon: 7.173%
Weighted Average Net Coupon: 7.105%
Weighted Average Remaining Amortization Term (months): 323.98
Weighted Average Cut-off Date DSCR: 1.39x
Weighted Average Cut-off Date LTV: 70.86%
Weighted Average Balloon/ARD LTV Ratio: 57.24%
Weighted Average Remaining Term to Balloon/Maturity
(months): 119.60
SIGNIFICANT PROPERTY TYPE CONCENTRATIONS:
Wtd. Wtd.
Cut-off Date # of % of Avg. Avg.
Property Type Balance Properties Pool DSCR Coupon
- --------------------------------------------------------------------------
Multifamily $254,129,902 56 25.17% 1.37x 6.85%
Manufac. Housing 39,548,458 16 3.92 1.33 7.68
Senior Housing 28,900,067 4 2.86 1.62 7.10
---------- - ---- ---- ----
Total 322,578,427 76 31.95 1.39 6.97
Housing Related
Office 238,136,440 29 23.58 1.36 7.19
Retail-Anchored 179,272,364 19 17.75 1.40 7.34
Retail-Unanchored 95,205,865 24 9.43 1.39 7.14
Self-Storage 54,104,211 23 5.36 1.54 7.28
Industrial 30,142,216 9 2.99 1.35 7.08
Hotel 28,878,151 6 2.86 1.42 8.35
Retail-Single Ten. 13,273,489 5 1.31 1.29 7.21
Other 48,145,139 9 4.77 1.47 7.08
- --------------------------------------------------------------------------
Total $1,009,736,304 200 100.00% 1.39 7.18%
<PAGE>
COLLATERAL CONTRIBUTORS:
Collateral Cut-off # of Wtd.
Contributors Date Mortgage % of Avg. Wtd. Avg.
Balance Loans Pool DSCR Coupon
- ------------------------------------------------------------------------
PMCF $600,004,804 86 59.42% 1.39 7.12%
HFCF $409,731,500 104 40.58% 1.40 7.25%
- ------------------------------------------------------------------------
Total $1,009,736,304 190 100.00% 1.39 7.18%
IMPORTANT CHARACTERISTICS:
Lead Manager & Prudential Securities Incorporated ("PSI")
Placement Agent:
Co-Manager: Morgan Stanley & Co. Incorporated ("MSDW")
Mortgage Loan Prudential Mortgage Capital Funding, LLC
Sellers: ("PMCF")
Heller Financial Capital Funding, Inc.
("HFCF")
Master Servicer: First Union National Bank ("FUNB")
Special Servicer: Lennar Partners, Inc. ("Lennar")
Trustee: LaSalle Bank National Association
("LaSalle")
Pricing Date: May 21, 1999
Settlement Date: May 27, 1999
Cut-off Date: May 1, 1999
Determination Date: The 8th of each month, or if the 8th is
not a Business Day, the next Business Day.
First Determination
Date: June 8, 1999
Distribution Date: The 15th of each month, or if the 15th day
is not a Business Day, the Business Day
immediately following the 15th day.
First Distribution June 15, 1999
Date:
ERISA Eligible: A-1, A-2 & X (IO)
SMMEA: Not eligible
Structure: Sequential. See "Structural Overview"
herein for further details.
Interest Accrual Calendar month preceding distribution
Period:
Day Count: 30/360
Tax Treatment: REMIC
Rated Final May 15, 2031
Distribution Date:
Clean-up Call: 1%
Minimum The Class A-1 & Class A-2 Certificates
Denominations: will be issued in minimum denominations of
$25,000 initial Certificate Balance. The Class B
Certificates will be issued in minimum denominations of
$50,000 initial Certificate Balance. The remaining
Offered Certificates will be issued in minimum
denominations of $100,000 initial Certificate Balance or
Notional Amount.
Pricing Assumption: The loans will be assumed to pay as
scheduled to its respective maturity or
Anticipated Repayment Date.
SIGNIFICANT STATE CONCENTRATIONS:
Cut-off Date # of Wtd. Avg.
State Balance Properties % of Pool DSCR
- ---------------------------------------------------------------------
Texas $125,370,229 14 12.42% 1.41x
New Jersey 106,585,389 8 10.56 1.33
California 99,365,779 22 9.84 1.43
Illinois 93,215,925 10 9.23 1.42
Florida 77,410,158 24 7.67 1.36
Ohio 46,911,330 6 4.65 1.34
South Carolina 39,750,211 1 3.94 1.47
Michigan 39,575,727 10 3.92 1.50
Virginia 38,034,153 6 3.77 1.39
Tennessee 34,955,146 7 3.46 1.31
Other 308,562,258 92 30.56 1.39
- ---------------------------------------------------------------------
Total $1,009,736,304 200 100.00% 1.39x
<PAGE>
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-3
- -------------------------------------------------------------------------------
TRANSACTION HIGHLIGHTS
- -------------------------------------------------------------------------------
o Diversification:
- 190 loans secured by 200 properties
- Top 5 loans equal 20.6% of pool; Top 10 equal 29.4%
- 36 states in total, including Texas 12.42%, New Jersey 10.56%,
California 9.84%, Illinois 9.23%, Florida 7.67%; no other
state > 5.00%
- Balloon/ARD distribution equals 49.5% in 2008, and no other
year more than 34.7%
o Underwriting:
- South Plains Mall (Control # 1), Station Plaza (Control # 4)
and Somerset Grove (Control # 2) are all shadow-rated
investment grade by Moody's and/or Fitch. These loans have an
aggregate cut-off date balance of $140,068,714 (13.87% of the
total pool cut-off date balance).
- 1.39x Weighted Average Cut-off Date DSCR
- 70.86% Weighted Average Cut-off Date LTV
- 57.24% Weighted Average Balloon/ARD LTV
- 323.98 Month Weighted Average Remaining Amortization Term
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
GENERAL POOL CHARACTERISTICS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of Loans: 190 Weighted Average Cut-off Date LTV: 70.86%
Number of Properties: 200 Cut-off Date LTV Range: 23.3 - 91.2%
Aggregate Cut-off Date Principal Balance: $1,009,736,304 Weighted Average Original LTV: 71.34%
Aggregate Original Principal Balance: $1,016,498,106 Original LTV Range: 23.4 - 91.6%
Weighted Average Gross Coupon: 7.173% Weighted Average Balloon/ARD LTV: 57.24%
Gross Coupon Range: 5.980 - 9.700% Balloon/ARD LTV Range: 0.0 - 82.0%
Weighted Average Net Coupon: 7.105% Weighted Average Age (First Pay through Last 6.71 mths
Pay):
Net Coupon Range: 5.8276 - Age Range: 0 - 29 mths
9.6476%
Average Cut-off Date Principal Balance: $5,314,402 Weighted Avg. Remaining Amortization Term: 323.98 mths
Average Original Principal Balance: $5,349,990 Remaining Amortization Term Range: 171 - 360 mths
Maximum Cut-off Date Principal Balance: $64,916,634 Weighted Average Original Amortization Term: 330.58 mths
Minimum Cut-off Date Principal Balance: $532,852 Original Amortization Term Range: 180 - 360 mths
Maximum Original Principal Balance: $65,000,000 Weighted Avg. Rem. Term to Balloon/Maturity: 119.60 mths
Minimum Original Principal Balance: $535,000 Remaining Term Range: 57 - 179 mths
Weighted Average Cut-off Date DSCR: 1.39x Weighted Average Original Term to 126.31 mths
Balloon/Maturity:
Cut-off Date DSCR Range: 1.13 - 4.40x Original Term Range: 60 - 180 mths
</TABLE>
- -------------------------------------------------------------------------------
STRUCTURAL OVERVIEW
- -------------------------------------------------------------------------------
o The Mortgage Pool will be comprised of 190 mortgage loans with an
approximate Cut-off Date principal balance of $1,009,736,304.
- The regularly scheduled monthly principal payments from the
loans will be paid on a straight sequential basis (i.e., A-1,
A-2, etc.).
- All other principal collections from the loans will be
distributed on a straight sequential basis.
- If all Classes other than Classes A-1 and A-2 have been
reduced to zero, principal will be allocated to Class A-1 and
A-2 on a pro-rata basis.
o Each of the Classes (other than Classes A-1, A-2 and X) will be subordinate
to earlier alphabetically lettered classes. Realized Losses and Appraisal
Reductions will be allocated in reverse alphabetical order to such Classes
with certificate balances, and then pro-rata to Classes A-1 and A-2.
o All Classes will pay interest on a 30/360 basis.
o Shortfalls resulting from servicer modifications or special servicer
compensation will be allocated in reverse alphabetical order to Classes
with certificate balances.
o The Master Servicer will be First Union National Bank. First Union is
rated CMS3 by Fitch IBCA.
o The Special Servicer will be Lennar Partners, Inc. Lennar is rated CSS1 by
Fitch IBCA.
o The Special Servicer will be responsible for servicing loans that, in
general, are in default or are in imminent default, and for administering
REO properties. The Special Servicer may modify such loans if, among other
things, such modifications in the sole good faith of the Special Servicer,
increase the recovery to Certificateholders on an estimated net present
value basis. The Special Servicer, as agent for the trust and all
Certificateholders is responsible for all collections, modifications and
extensions for defaulted loans or REO properties.
<PAGE>
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-4
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CALL PROTECTION TABLE
- -----------------------------------------------------------------------------------------------------------------------------------
05/99 05/00 05/01 05/02 05/03 05/04 05/05 05/06 05/07 05/08
--------------------------------------------------------------------------------------------------
Lockout / Defeasance 97.3% 95.7% 95.2% 94.3% 83.2% 82.0% 82.0% 82.5% 82.7% 81.0%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Greater of Yield Maintenance or Percentage Premium of:
1.00% to 1.99% 2.7 4.3 4.8 5.7 16.8 18.0 17.4 16.9 16.7 13.2
0.00% to 0.99% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Lesser of Yield Maintenance or Percentage Premium of:
1.00% to 2.99% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.6 0.0
2.00% to 2.99% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.6 0.0 0.0
3.00% to 3.99% 0.0 0.0 0.0 0.0 0.0 0.0 0.6 0.0 0.0 0.0
Total Yield Maintenance 2.7 4.3 4.8 5.7 16.8 18.0 18.0 17.5 17.3 13.2
Total of Yield Maintenance
and Lockout / Defeasance 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 94.3
Open (no Call Protection) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5.7
--- --- --- --- --- --- --- --- --- ---
Total All Categories 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Current Pool Balance ($MM) 1,009.7 997.0 983.1 968.1 952.1 931.2 912.6 868.8 845.7 771.1
Pool Factor 100.0 98.7 97.4 95.9 94.3 92.2 90.4 86.0 83.8 77.0
- -------------------------------------------------------------------------------------------------------------------
05/09 05/10 05/11 05/12 05/13 05/14
-----------------------------------------------------------------------------
Lockout / Defeasance 84.2% 83.8% 87.9 87.7% 98.1% 0.0%
Greater of Yield Maintenance or Percentage Premium of:
1.00% to 1.99% 15.8 11.3 12.1 0.3 0.0 0.0
0.00% to 0.99% 0.0 0.0 0.0 0.0 0.0 0.0
Lesser of Yield Maintenance or Percentage Premium of:
1.00% to 2.99% 0.0 0.0 0.0 0.0 0.0 0.0
2.00% to 2.99% 0.0 0.0 0.0 0.0 0.0 0.0
3.00% to 3.99% 0.0 0.0 0.0 0.0 0.0 0.0
Total Yield Maintenance 15.8 11.3 12.1 0.3 0.0 0.0
Total of Yield Maintenance
and Lockout / Defeasance 100.0 95.1 100.0 88.0 98.1 0.0
Open (no Call Protection) 0.0 4.9 0.0 12.0 1.9 0.0
--- --- --- ---- --- ---
Total All Categories 100.0 100.0 100.0 100.0 100.0 0.0
Current Pool Balance ($MM) 78.2 73.1 64.0 58.2 45.4 0.0
Pool Factor 7.7 7.2 6.3 5.8 4.5 0.0
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-5
- -------------------------------------------------------------------------------
ALLOCATION OF PREPAYMENT PREMIUMS AND YIELD MAINTENANCE CHARGES
- -------------------------------------------------------------------------------
All collected Prepayment Premiums and Yield Maintenance Charges associated with
principal prepayments will be allocated between the Offered Certificates and the
Class X Certificates as follows:
Yield Maintenance Charges:
o The Yield Maintenance Charges will be allocated between such Classes of
Certificates based on the product of (a) the principal distributed to each
such Class as a percentage of the principal distributed to all Classes and
(b) the Base Interest Fraction, with the remainder being distributed to the
Class X Certificates.
Base (Pass-Through Rate - Discount Rate - Yield Maintenance Spread)
Interest = --------------------------------------------------------------
Fraction (Mortgage Rate - Discount Rate - Yield Maintenance Spread)
o In general, this formula provides for an increase in the allocation of
yield maintenance charges to the Offered Certificates then entitled to
principal distribution relative to the Class X Certificates as interest
rates decrease, and a decrease in the allocation to such Classes as
interest rates rise.
Fixed Percentage Prepayment Premiums:
o 75% of all Fixed Percentage Prepayment Premiums will be allocated to the
Class X Certificates. The remaining 25% of the Fixed Percentage Prepayment
Premiums will be allocated to the Offered Certificates then entitled to
principal distributions.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PROPERTY TYPE DISTRIBUTION BY CUT-OFF DATE PRINCIPAL BALANCE
- ----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED SCHEDULED
AVERAGE WEIGHTED PRINCIPAL
NUMBER OF PERCENT OF WEIGHTED REMAINING AVERAGE WEIGHTED BALANCE
MORTGAGED CUT-OFF DATE AVERAGE TERM CUT-OFF DATE AVERAGE AS OF THE
PROPERTY TYPES PROPERTIES POOL BALANCE INTEREST RATE* (MONTHS) LTV DSCR CUT-OFF DATE
- -------------- ---------- ------------ -------------- -------- --- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
MULTIFAMILY 56 25.17 % 6.8458 % 114.04 74.27 % 1.37 x $254,129,902
MANUFACTURED HOUSING 16 3.92 7.6823 105.62 78.78 1.33 39,548,458
SENIOR HOUSING 4 2.86 7.0983 130.11 75.17 1.62 28,900,067
- ---- ------ ------ ----- ---- ----------
TOTAL HOUSING RELATED 76 31.95 6.9709 114.45 74.90 1.39 322,578,427
OFFICE 29 23.58 7.1914 121.97 71.64 1.36 238,136,440
RETAIL-ANCHORED 19 17.75 7.3425 116.98 65.33 1.40 179,272,364
RETAIL-UNANCHORED 24 9.43 7.1435 139.21 70.57 1.39 95,205,865
SELF-STORAGE 23 5.36 7.2803 112.10 66.07 1.54 54,104,211
INDUSTRIAL 9 2.99 7.0779 114.29 72.94 1.35 30,142,216
HOTEL 6 2.86 8.3474 121.81 62.53 1.42 28,878,151
RETAIL-SINGLE TENANT 5 1.31 7.2093 112.74 76.10 1.29 13,273,489
GOLF COURSE 1 1.02 7.7100 166.00 54.38 1.58 10,332,008
RETAIL-POWER CENTER 1 0.97 6.8800 111.00 72.86 1.39 9,836,065
CONGREGATE CARE 1 0.92 6.9000 107.00 73.97 1.69 9,246,047
RETAIL/OFFICE 1 0.66 6.3700 116.00 74.59 1.39 6,683,076
INDUSTRIAL/OFFICE 3 0.43 6.4749 115.00 62.25 1.41 4,380,076
OFFICE/MULTIFAMILY 1 0.42 7.3400 134.00 74.04 1.29 4,220,130
RETAIL-SHADOW ANCHORED 1 0.34 8.1100 119.00 77.48 1.25 3,447,736
- ---- ------ ------ ----- ---- ---------
TOTAL 200 100.00 % 7.1728 % 119.60 70.86 % 1.39 x $1,009,736,304
==================================================================================================================================
</TABLE>
* The Weighted Average Interest Rate on each stratification table listed herein
indicates the Gross Mortgage Rate.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-6
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
GEOGRAPHIC DISTRIBUTION BY CUT-OFF DATE PRINCIPAL BALANCE
- -----------------------------------------------------------------------------------------------------------------------------
WEIGHTED SCHEDULED
WEIGHTED AVERAGE WEIGHTED PRINCIPAL
NUMBER OF PERCENT OF AVERAGE REMAINING AVERAGE WEIGHTED BALANCE AS OF
MORTGAGED CUT-OFF DATE INTEREST TERM CUT-OFF DATE AVERAGE THE CUT-OFF
STATES PROPERTIES POOL BALANCE RATE (MONTHS) LTV DSCR DATE
- ------ ---------- ------------ ---- -------- --- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
TEXAS 14 12.42 % 7.3928 % 119.48 61.71 % 1.41 x $125,370,229
NEW JERSEY 8 10.56 6.8665 137.13 71.85 1.33 106,585,389
CALIFORNIA 22 9.84 7.2548 112.76 70.45 1.43 99,365,779
ILLINOIS 10 9.23 7.1422 115.09 72.41 1.42 93,215,925
FLORIDA 24 7.67 6.9476 109.01 74.55 1.36 77,410,158
OHIO 6 4.65 7.5644 119.30 74.54 1.34 46,911,330
SOUTH CAROLINA 1 3.94 7.0000 175.00 66.25 1.47 39,750,211
MICHIGAN 10 3.92 7.1507 123.02 71.29 1.50 39,575,727
VIRGINIA 6 3.77 7.7608 117.74 67.23 1.39 38,034,153
TENNESSEE 7 3.46 6.6792 114.62 76.00 1.31 34,955,146
PENNSYLVANIA 8 3.31 7.2594 110.07 71.31 1.40 33,399,798
NEW YORK 10 3.08 7.6146 106.76 73.29 1.40 31,060,973
NEVADA 4 3.02 7.1120 119.45 78.36 1.31 30,526,095
MASSACHUSETTS 7 2.50 7.1680 115.02 69.47 1.45 25,219,580
COLORADO 9 2.14 7.1214 111.18 72.30 1.46 21,626,838
NEW MEXICO 2 2.00 7.4480 115.58 72.62 1.47 20,183,678
WASHINGTON 7 1.83 6.8324 112.35 72.41 1.35 18,478,682
NORTH CAROLINA 4 1.56 7.5166 116.62 63.26 1.38 15,790,145
HAWAII 1 1.42 6.9000 112.00 79.49 1.47 14,307,402
OKLAHOMA 2 1.11 6.9188 111.00 72.55 1.38 11,243,195
ARIZONA 3 1.11 7.1128 110.77 77.43 1.37 11,164,064
OREGON 4 1.07 6.9555 114.63 65.28 1.40 10,804,373
WISCONSIN 7 1.00 7.3651 113.11 81.70 1.27 10,140,964
MISSOURI 4 0.91 7.0097 121.83 66.24 1.41 9,185,853
KANSAS 3 0.88 6.3972 116.00 75.86 1.42 8,898,737
GEORGIA 2 0.62 6.6161 112.51 77.66 1.33 6,279,621
IDAHO 2 0.57 6.8623 112.81 63.52 1.49 5,764,325
INDIANA 1 0.52 8.1200 99.00 79.10 1.22 5,300,000
DELAWARE 1 0.35 7.1700 118.00 72.74 1.29 3,491,564
ALABAMA 2 0.27 7.1500 111.00 73.22 1.36 2,738,327
KENTUCKY 2 0.27 7.0565 113.95 58.33 1.45 2,727,371
MAINE 1 0.25 7.2500 111.00 79.17 1.13 2,494,008
MARYLAND 1 0.22 7.7000 118.00 73.23 1.26 2,196,853
RHODE ISLAND 3 0.20 6.5400 115.00 79.46 1.36 2,034,262
NEW HAMPSHIRE 1 0.19 6.8800 109.00 76.40 1.35 1,909,947
NEBRASKA 1 0.16 7.5400 117.00 73.87 1.30 1,595,602
- ---- ------ ------ ----- ---- ---------
TOTAL 200 100.00 % 7.1728 % 119.60 70.86 % 1.39 x $1,009,736,304
=============================================================================================================================
</TABLE>
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-7
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
LTV RANGE BY CUT-OFF DATE PRINCIPAL BALANCE
- --------------------------------------------------------------------------------------------------------------------------------
WEIGHTED SCHEDULED
WEIGHTED AVERAGE WEIGHTED PRINCIPAL
NUMBER OF PERCENT OF AVERAGE REMAINING AVERAGE WEIGHTED BALANCE AS OF
MORTGAGE CUT-OFF DATE INTEREST TERM CUT-OFF DATE AVERAGE THE CUT-OFF
LOAN-TO-VALUE RATIO LOANS POOL BALANCE RATE (MONTHS) LTV DSCR DATE
- ------------------- ----- ------------ ---- -------- --- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
15.01 - 35.00 1 0.05 % 8.3500 % 116.00 23.27 % 4.40 x $532,852
35.01 - 40.00 3 0.37 8.0961 115.65 37.74 2.01 3,711,287
40.01 - 45.00 4 0.56 7.1501 128.63 43.47 1.75 5,662,423
45.01 - 50.00 2 0.44 6.7721 114.76 46.74 1.90 4,455,535
50.01 - 55.00 4 7.86 7.5836 124.65 52.35 1.50 79,377,426
55.01 - 60.00 6 1.41 7.2930 116.40 57.59 1.45 14,275,313
60.01 - 65.00 15 6.28 7.2451 115.26 62.23 1.49 63,410,606
65.01 - 70.00 20 11.94 7.1741 135.20 67.47 1.42 120,592,097
70.01 - 75.00 63 40.06 7.1210 119.38 72.54 1.36 404,493,255
75.01 - 80.00 69 30.66 7.0974 113.57 78.26 1.35 309,537,034
80.01 - 85.00 1 0.17 8.0000 114.00 83.99 1.38 1,679,712
85.01 - 95.00 2 0.20 8.0000 114.00 89.72 1.17 2,008,765
- ---- ------ ------ ----- ---- ---------
TOTAL 190 100.00 % 7.1728 % 119.60 70.86 % 1.39 x $1,009,736,304
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
LTV RANGE AT MATURITY DATE OR BALLOON DATE / ARD
- -----------------------------------------------------------------------------------------------------------------------------
WEIGHTED SCHEDULED
WEIGHTED AVERAGE WEIGHTED PRINCIPAL
NUMBER OF PERCENT OF AVERAGE REMAINING AVERAGE WEIGHTED BALANCE AS OF
RANGE OF BALLOON MORTGAGE CUT-OFF DATE INTEREST TERM CUT-OFF DATE AVERAGE THE CUT-OFF
LOAN-TO-VALUE LOANS POOL BALANCE RATE (MONTHS) LTV DSCR DATE
- ------------- ----- ------------ ---- -------- --- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
ZERO 2 3.22 % 6.5974 % 171.00 71.25 % 1.20 x $32,493,071
15.01 - 35.00 5 0.59 7.9066 132.85 40.71 2.06 5,931,432
35.01 - 40.00 6 1.92 7.3739 142.27 51.32 1.67 19,336,638
40.01 - 45.00 5 4.70 7.0089 170.15 65.34 1.49 47,500,490
45.01 - 50.00 13 11.34 7.4676 121.76 58.00 1.50 114,465,431
50.01 - 55.00 18 7.16 7.2341 116.91 64.55 1.43 72,248,355
55.01 - 60.00 31 18.10 7.2156 118.14 70.84 1.38 182,809,430
60.01 - 65.00 47 25.49 7.0993 114.24 73.64 1.37 257,428,371
65.01 - 70.00 43 21.70 7.0635 112.55 77.76 1.35 219,112,970
70.01 - 75.00 15 5.25 7.3736 94.62 79.20 1.33 53,045,424
75.01 - 80.00 4 0.40 8.0000 90.63 82.83 1.27 4,087,457
80.01 - 85.00 1 0.13 8.0000 114.00 91.23 1.18 1,277,233
- ---- ------ ------ ----- ---- ---------
TOTAL 190 100.00 % 7.1728 % 119.60 70.86 % 1.39 x $1,009,736,304
==============================================================================================================================
</TABLE>
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-8
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PAYMENT TYPES
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED SCHEDULED
WEIGHTED AVERAGE WEIGHTED PRINCIPAL
NUMBER OF PERCENT OF AVERAGE REMAINING AVERAGE WEIGHTED BALANCE AS OF
MORTGAGE CUT-OFF DATE INTEREST TERM CUT-OFF DATE AVERAGE THE CUT-OFF
PAYMENT TYPES LOANS POOL BALANCE RATE (MONTHS) LTV DSCR DATE
- ------------- ----- ------------ ---- -------- --- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
AMORT. BALLOON 185 91.38 % 7.2136 % 117.91 70.77 % 1.40 x $922,727,786
INT. ONLY,THEN AMORT BALL. 2 1.03 7.3942 107.34 78.20 1.25 10,400,000
FULLY AMORTIZING 2 3.22 6.5974 171.00 71.25 1.20 32,493,071
GRADUATED P&I BALLOON 1 4.37 6.6900 120.00 70.81 1.43 44,115,446
- ---- ------ ------ ----- ---- ----------
TOTAL 190 100.00 % 7.1728 % 119.60 70.86 % 1.39 x $1,009,736,304
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
DEBT SERVICE COVERAGE RATIO
- ---------------------------------------------------------------------------------------------------------------------------
WEIGHTED SCHEDULED
WEIGHTED AVERAGE WEIGHTED PRINCIPAL
NUMBER OF PERCENT OF AVERAGE REMAINING AVERAGE WEIGHTED BALANCE AS OF
MORTGAGE CUT-OFF DATE INTEREST TERM CUT-OFF DATE AVERAGE THE CUT-OFF
DSCR(X) LOANS POOL BALANCE RATE (MONTHS) LTV DSCR DATE
- ------- ----- ------------ ---- -------- --- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
1.01 - 1.15 4 0.49 % 7.4633 % 96.06 78.95 % 1.14 x $4,947,408
1.16 - 1.20 6 4.02 6.7373 157.38 73.94 1.18 40,617,283
1.21 - 1.25 19 6.98 7.5620 112.36 76.13 1.24 70,433,995
1.26 - 1.30 38 16.44 7.4297 116.81 74.40 1.28 166,045,800
1.31 - 1.35 26 12.83 7.0121 112.64 74.53 1.33 129,512,794
1.36 - 1.40 29 17.72 7.2793 115.05 71.67 1.38 178,960,454
1.41 - 1.45 26 16.50 6.9093 114.01 71.66 1.43 166,567,296
1.46 - 1.50 11 14.27 7.2098 132.37 62.41 1.48 144,119,786
1.51 - 1.55 9 2.86 6.8158 112.89 67.88 1.53 28,867,026
1.56 - 1.60 5 3.17 7.2597 130.55 66.43 1.57 31,979,628
1.61 - 1.65 3 0.52 6.8628 120.05 58.88 1.63 5,232,141
1.66 - 1.70 3 1.46 6.9000 110.28 67.04 1.69 14,764,832
1.71 - 1.75 2 0.62 6.7693 112.48 61.59 1.71 6,218,051
1.81 - 1.85 2 1.11 7.2782 158.71 72.22 1.81 11,187,663
1.86 - 1.90 2 0.41 6.6835 114.91 50.31 1.86 4,102,573
1.91 - 2.00 1 0.18 6.9600 113.00 49.06 1.96 1,839,849
2.01 - 2.15 1 0.12 8.3500 116.00 35.51 2.15 1,225,063
2.16 - 2.50 2 0.26 7.6679 113.31 41.87 2.34 2,581,812
2.51 - 4.40 1 0.05 8.3500 116.00 23.27 4.40 532,852
- ---- ------ ------ ----- ---- -------
TOTAL 190 100.00 % 7.1728 % 119.60 70.86 % 1.39 x $1,009,736,304
============================================================================================================================
</TABLE>
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-9
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
MORTGAGE INTEREST RATES
- -------------------------------------------------------------------------------------------------------------------------------
WEIGHTED SCHEDULED
WEIGHTED AVERAGE WEIGHTED PRINCIPAL
NUMBER OF PERCENT OF AVERAGE REMAINING AVERAGE WEIGHTED BALANCE AS OF
RANGE OF MORTGAGE CUT-OFF DATE INTEREST TERM CUT-OFF DATE AVERAGE THE CUT-OFF
MORTGAGE RATES (%) * LOANS POOL BALANCE RATE (MONTHS) LTV DSCR DATE
- -------------------- ----- ------------ ---- -------- --- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
5.9800 - 6.0000 1 0.11 % 5.9800 % 115.00 75.49 % 1.27 x $1,094,635
6.0001 - 6.2500 2 2.24 6.0895 114.76 76.92 1.34 22,630,542
6.2501 - 6.5000 16 9.24 6.4090 110.99 73.75 1.43 93,282,637
6.5001 - 6.7500 23 15.63 6.6529 126.38 71.32 1.39 157,848,567
6.7501 - 7.0000 28 14.93 6.9307 128.15 71.18 1.44 150,800,817
7.0001 - 7.2500 38 17.16 7.1290 114.93 73.82 1.41 173,251,720
7.2501 - 7.5000 22 16.13 7.4202 119.02 64.84 1.37 162,903,621
7.5001 - 7.7500 21 8.23 7.6634 119.14 69.41 1.40 83,108,467
7.7501 - 8.0000 23 9.64 7.8583 116.61 73.78 1.31 97,379,637
8.0001 - 8.2500 8 3.90 8.0510 116.23 73.96 1.28 39,428,829
8.2501 - 8.5000 5 2.02 8.4617 119.19 56.58 1.58 20,418,341
8.5001 - 8.7500 1 0.27 8.6400 120.00 66.27 1.45 2,717,000
8.7501 - 9.0000 1 0.24 8.9300 120.00 69.43 1.46 2,430,000
9.5001 - 9.7500 1 0.24 9.7000 91.00 54.62 1.42 2,441,491
- ---- ------ ----- ----- ---- ---------
TOTAL 190 100.00 % 7.1728 % 119.60 70.86 % 1.39 x $1,009,736,304
================================================================================================================================
</TABLE>
* Indicates Gross Mortgage Rate
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-10
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SUMMARIES OF THE TEN LARGEST MORTGAGE LOANS
- -------------------------------------------------------------------------------------------------------------------------------
CONTROL #1: SOUTH PLAINS MALL LOAN #: 6103423
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Cut-off Date Balance: $64,916,634 Property Type: Anchored Retail
- -------------------------------------------------------------------------------------------------------------------------------
Loan Type: Principal and Interest; Hyperam Location: Lubbock, TX
- -------------------------------------------------------------------------------------------------------------------------------
Origination Date: 02/17/1999 Year Built/Renovated: 1972, 76, 85, 86/1998
- -------------------------------------------------------------------------------------------------------------------------------
Maturity Date: 03/01/2029 Net Rentable Square Feet: 1,001,082
- -------------------------------------------------------------------------------------------------------------------------------
Anticipated Repay Date: 03/01/2009 Cut-off Date Balance/sf: $64.85
- -------------------------------------------------------------------------------------------------------------------------------
Mortgage Rate: 7.49000% Appraised Value: $125,000,000
- -------------------------------------------------------------------------------------------------------------------------------
Annual Debt Service: $5,448,533 Current LTV: 51.93%
- -------------------------------------------------------------------------------------------------------------------------------
Underwritten DSCR: 1.49x Balance at ARD LTV: 45.95%
- -------------------------------------------------------------------------------------------------------------------------------
Underwritten Cash Flow: $8,109,326 Percent Leased: 98.00%
- -------------------------------------------------------------------------------------------------------------------------------
Balance at ARD: $57,556,900 Leasing Status Date: 01/31/1999
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The South Plains Mall Loan (the "South Plains Mall Loan") is secured by a first
mortgage on a 1,001,082 square foot regional mall located in Lubbock, Texas (the
"South Plains Mall Property"). The South Plains Mall Loan was originated by
Prudential Mortgage Capital Company, LLC on February 17, 1999 to refinance a
loan from The Prudential Insurance Company of America.
BORROWER:
The Borrower is Macerich Lubbock Limited Partnership, a single purpose,
bankruptcy remote California limited partnership (the "South Plains
Mall Borrower"). The South Plains Mall Borrower is sponsored by The
Macerich Partnership, L.P. (the" "Sponsor"), the operating entity of
The Macerich Company, a public REIT ("Macerich").
SECURITY:
The South Plains Mall Loan is evidenced by a promissory note (the
"Note") secured by a Mortgage and Security Agreement (the "Mortgage"),
an Assignment of Leases and Rents, UCC Financing Statements, and
certain additional security documents. The Mortgage is a first lien on
a fee interest in the South Plains Mall Property.
RECOURSE:
The South Plains Mall Loan is non-recourse, subject to certain
exceptions set forth in the Note which generally include, among other
things, liabilities relating to fraud, material misrepresentation,
misapplication of rents, and unauthorized transfers or encumbrances of
the South Plains Mall Property (the "Recourse Carveouts"). The
obligations of the South Plains Mall Borrower under the Recourse
Carveouts are guaranteed by the Sponsor, pursuant to the terms of an
Indemnity and Guaranty Agreement. In addition, under the terms of a
Hazardous Substances Indemnity Agreement, the South Plains Mall
Borrower and the Sponsor assume liability for, guarantee payment to
Lender of, and indemnify Lender from specified costs and liabilities
arising out of the environmental condition of the Property.
PAYMENT TERMS:
The Mortgage Rate is fixed at 7.490% per annum until the anticipated
repayment date of March 1, 2009 (the "ARD"). The South Plains Mall Loan
requires monthly payments of principal and interest of $454,044.42
through the ARD. From and after the ARD, if the South Plains Mall Loan
is not paid in full, the interest rate shall increase as set forth in
the Note and the Pooling and Servicing Agreement and excess cash flow
from the South Plains Mall Property, after funding of specified
reserves, and payment of debt service and certain operating expenses
and capital expenditures, will be applied to the outstanding principal
balance of the Note. The South Plains Mall Loan accrues interest
computed based on the actual number of days elapsed each month in a
360-day year.
CASH MANAGEMENT/LOCKBOX:
The South Plains Mall Borrower has agreed that all Rents and Profits
(as such term is defined in the Mortgage) will be deposited into an
account (the "Clearing Account") with a bank approved by Lender (the
"Clearing Bank") in which the Lender has been granted a first priority
security interest, and has informed all tenants of the Property that
upon notice, all Rents and Profits should be paid directly to the
Clearing Bank. The South Plains Mall Borrower has agreed to cause all
Rents and Profits to be deposited into the Clearing Account, and then
forwarded to an account controlled by Lender with LaSalle National Bank
(the "Deposit Account") commencing on the occurrence of any of the
following events: (i) an Event of Default (as such term is defined in
the Mortgage), (ii) the failure of the South Plains Mall Borrower to
repay the South Plains Mall Loan on or before the date three months
prior to the ARD, (iii) the Debt Service Coverage Ratio for the
immediately prior twelve-month period (the "Trailing DSCR") is less
than 1.35x, or (iv) if, prior to December 25, 2005 any two of the
following tenants (J.C. Penney, Dillard's Home, Dillard's, Beall's)
(each, a "Rolling Anchor") fail to deliver to South Plains Mall
Borrower written notice of their exercise of the extension options
included in their leases (each of (i) through (iv) above, a "Sweep
Event"). Funds in the Deposit Account shall be applied in accordance
with the terms of the Note. Such cash management shall generally
continue until the South Plains Mall Loan is paid in full, provided
that for the Sweep Event specified in paragraph (iii) above, cash
management shall continue only until such time as Trailing DSCR has
exceeded 1.35x for at least 24 consecutive months, and for the Sweep
Event specified in paragraph (iv) above, until such time as acceptable
replacement tenants have executed acceptable leases, taken possession
of the leased premises and delivered acceptable estoppel certificates
to Lender.
PREPAYMENT/DEFEASANCE:
Except in connection with certain casualty or condemnation events, the
South Plains Mall Borrower is prohibited from prepaying the South
Plains Mall Loan at any time before the date three (3) months prior to
the ARD. The Loan may be prepaid at par at any time thereafter. The
South Plains Mall Borrower may defease the South Plains Mall Loan, in
whole but not in part, at any time after the later to occur of two
years after the REMIC "start-up
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-11
date" or February 17, 2002, by providing the Lender with non-callable
U.S. Treasury obligations sufficient to pay its remaining obligations,
provided that, the South Plains Mall Borrower may, upon satisfaction of
certain conditions, including the Lender's receipt of confirmation in
writing from the specified rating agencies that such transfer will not
result in a qualification, downgrade or withdrawal of any rating then
in effect for any related securities ("Rating Agency Confirmation"),
partially defease the South Plains Mall Loan in connection with a
future transfer of a portion of the South Plains Mall Property to an
anchor tenant.
TRANSFER OF SOUTH PLAINS MALL PROPERTY OR INTEREST IN SOUTH PLAINS MALL
BORROWER:
The Lender shall have the option to declare the South Plains Mall Loan
immediately due and payable upon the transfer of the South Plains Mall
Property or any ownership interest in the South Plains Mall Borrower,
except in connection with the rights of transfer described below. The
South Plains Mall Borrower has the right, once during the term of the
Loan, to transfer the South Plains Mall Property upon the satisfaction
of certain conditions, including Rating Agency Confirmation.
ESCROWS/RESERVES:
Taxes, Insurance and Capital Expenditures
There is a tax escrow which requires monthly deposits in an amount
estimated to be sufficient to pay real estate taxes when due. From and
after an Event of Default, the South Plains Mall Borrower must make
monthly deposits in an amount estimated to be sufficient to pay
insurance premiums when due. There is also an escrow required for
future capital expenditures which is required to be funded monthly in
the amount of $21,306.00.
Tenant Improvements and Leasing Commissions
The South Plains Mall Borrower has agreed to establish a reserve for
tenant improvements and leasing commissions which requires the
following deposits:
(a) If any Rolling Anchor fails to exercise the lease
extension option contained in its lease prior to
December 25, 2005, then during calendar year 2006 the
South Plains Mall Borrower shall make monthly
deposits equal to 1/12 of the amount specified below
for such Rolling Anchor:
J.C. Penney - $895,000
Dillard's Home - $594,631
Dillard's - $1,078,361
Beall's - $87,500
(b) In addition to (a), commencing on January 1, 2005 and
continuing through December 1, 2005, monthly payments
of $127,712.52, provided, however, that if Macerich
or entities controlled by Macerich, control the South
Plains Mall Borrower at that time and own or manage
more than 15,000,000 square feet of space (the
"Minimum Ownership Condition"), then no such payments
are required unless and until at any time during
calendar year 2005, Macerich fails to satisfy the
Minimum Ownership Condition, after which Macerich is
required to make such deposits as are necessary to
accumulate in such reserve the sum of $1,532,550.00
prior to the end of calendar year 2005.
J.C. Penney Reserve
The South Plains Mall Borrower has deposited with Lender the amount of
$809,891 (the "J.C. Penney Reserve") intended to address a claim made
by J.C. Penney in its tenant estoppel certificate for reimbursement of
such amount as a result of certain construction work performed by it
prior to the South Plains Mall Borrower's acquisition of the Property.
The J.C. Penney Reserve will be retained until such time that J.C.
Penney delivers an estoppel indicating that it does not have any claim
against the South Plains Mall Borrower.
SUBORDINATE/OTHER DEBT:
Subordinate indebtedness or encumbrances are prohibited without prior
consent of Lender.
THE PROPERTY
The South Plains Mall Property is a regional mall located in Lubbock, Texas
containing 1,144,782 square feet of gross leasable area, of which 1,001,082
square feet represents the South Plains Mall Property. According to a rent roll
provided by the South Plains Mall Borrower (the "Rent Roll"), the South Plains
Mall Property is 98.00% leased, as of January 31, 1999, and is anchored by six
department stores, including J.C. Penney (A3 Moody's/ A S&P/ A- Fitch),
Dillard's and Dillard's Home (Baa1 Moody's/ BBB S&P/ NR Fitch), Mervyn's,
Beall's, and Sears (A2 Moody's/ A- S&P/ A Fitch). Sears owns its store and the
underlying land, and such property is not part of the collateral securing the
Loan.
The South Plains Mall Property is a two-story, two-building complex that was
constructed in three stages, from 1972 through 1986. The J.C. Penney store was
remodeled in 1998.
According to the Rent Roll, J.C. Penney occupies 218,518 square feet through
July 2007, with four five-year renewal options. Dillard's (Main) occupies
162,755 square feet through January 2007, with five five-year renewal options.
Dillard's Home occupies 94,814 square feet through January 2007, with five
five-year renewal options. Mervyn's, which operates under a ground lease which
commenced in 1985 and expires in July 2011, occupies 82,000 square feet through
July 2011, with three ten-year renewal options. Beall's occupies 40,000 square
feet through January 2007, with three ten-year renewal options. The Rent Roll
indicates that the South Plains Mall Property contains over 350,000 square feet
of mall shop space, including a number of national and regional chains, such as
Comp USA, Old Navy, Olive Garden (occupying the one outparcel), and The Gap.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-12
OPERATING HISTORY
- -------------------------------------------------------------------------------
1998 (Trailing 12 Months Underwritten
11/30/98)*
- -------------------------------------------------------------------------------
Effective Gross Income $16,372,628 $15,592,974
- -------------------------------------------------------------------------------
Net Operating Income $9,853,250 $9,113,782
- -------------------------------------------------------------------------------
Cash Flow $9,853,250 $8,109,326
- -------------------------------------------------------------------------------
*The 1998 South Plains Mall Property Operating History represents unaudited
figures for the trailing 12 months ending November 30, 1998, as provided by the
South Plains Mall Borrower. The South Plains Mall Property was acquired by the
South Plains Mall Borrower on June 19, 1998.
THE MANAGEMENT
The South Plains Mall Property is managed by Macerich Property Management
Company, a wholly owned subsidiary of Macerich. Macerich and its affiliates own
and manage 48 regional shopping centers and five community centers totaling
approximately 40.5 million square feet. They also provide third-party management
services, managing four regional shopping centers containing approximately 3.6
million square feet. Macerich has been in the business of owning and operating
retail real estate for 27 years.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-13
<TABLE>
<CAPTION>
CONTROL #2: SOMERSET GROVE II LOAN #: 6103070
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Cut-off Date Balance: $44,115,446 Property Type: Office
- -------------------------------------------------------------------------------------------------------------------------------
Loan Type: Graduated P&I; Hyperam Location: Franklin Township, NJ
- -------------------------------------------------------------------------------------------------------------------------------
Origination Date: 08/07/1998 Year Built/Renovated: 1988
- -------------------------------------------------------------------------------------------------------------------------------
Maturity Date: 09/01/2024 Net Rentable Square Feet: 444,760
- -------------------------------------------------------------------------------------------------------------------------------
Anticipated Repay Date: 05/01/2009 Cut-off Date Balance/sf: $99.19
- -------------------------------------------------------------------------------------------------------------------------------
Mortgage Rate: 6.69000% Appraised Value: $62,300,000
- -------------------------------------------------------------------------------------------------------------------------------
Annual Debt Service: $3,542,719 Current LTV: 70.81%
- -------------------------------------------------------------------------------------------------------------------------------
Underwritten DSCR: 1.43x Balance at ARD LTV: 55.36%
- -------------------------------------------------------------------------------------------------------------------------------
Underwritten Cash Flow: $5,059,754 Percent Leased: 100.00%
- -------------------------------------------------------------------------------------------------------------------------------
Balance at ARD: $34,489,034 Leasing Status Date: 01/01/1999
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Somerset Grove II Loan (the "Somerset Grove II Loan") is secured by a first
mortgage on a 444,760 square foot office building located in Franklin Township,
New Jersey (the "Somerset Grove II Property"). The Somerset Grove II Property is
100% leased to AT&T Corp. (A1 Moody's/ AA- S&P/ AA- Fitch) ("AT&T"). The
Somerset Grove II Loan was originated by Prudential Mortgage Capital Company,
LLC on August 7, 1998 to refinance a loan from The Prudential Insurance Company
of America.
BORROWER:
The Borrower is 290 Davidson Avenue, LLC, a single purpose, bankruptcy
remote New Jersey limited liability company (the "Somerset Grove II
Borrower").
SECURITY:
The Somerset Grove II Loan is evidenced by a promissory note (the
"Note") secured by a Mortgage and Security Agreement (the "Mortgage"),
an Assignment of Leases and Rents, UCC Financing Statements, and
certain additional security documents. The Mortgage is a first lien on
a fee interest in the Somerset Grove II Property.
RECOURSE:
The Somerset Grove II Loan is non-recourse, subject to certain
exceptions set forth in the Note which generally include, among other
things, liabilities relating to fraud, material misrepresentation,
misapplication of rents, and unauthorized transfers or encumbrances of
the Somerset Grove II Property (the "Recourse Carveouts"). The
obligations of the Somerset Grove II Borrower under the Recourse
Carveouts are guaranteed by Bennett Rechler (the "Sponsor") pursuant to
the terms of an Indemnity and Guaranty Agreement. In addition, under
the terms of a Hazardous Substances Indemnity Agreement, the Somerset
Grove II Borrower and the Sponsor assume liability for, guarantee
payment to Lender of, and indemnify Lender from specified costs and
liabilities arising out of the environmental condition of the Property.
PAYMENT TERMS:
The Mortgage Rate is fixed at 6.690% per annum until the anticipated
repayment date of May 1, 2009 (the "ARD"). The Somerset Grove II Loan
requires monthly payments of principal and interest of $295,226.58
through April 1, 2003 and $309,039.76 from May 1, 2003 through the ARD.
From and after the ARD, if the Somerset Grove II Loan is not paid in
full, the interest rate shall increase as set forth in the Note and the
Pooling and Servicing Agreement and the Pooling and Servicing Agreement
and excess cash flow from the Somerset Grove II Property, after funding
of specified reserves and payment of debt service and certain operating
expenses and capital expenditures, will be applied to the outstanding
principal balance of the Loan. The Somerset Grove II Loan accrues
interest computed on the basis of twelve 30-day months in a 360-day
year.
CASH MANAGEMENT/LOCKBOX:
The Somerset Grove II Borrower has agreed that all Rents and Profits
(as such term is defined in the Mortgage) will be deposited into an
account (the "Deposit Account") controlled by Lender established with
the Chase Manhattan Bank (the "Deposit Bank"). AT&T pays all rent due
under its lease directly to the Deposit Bank. Funds in the Deposit
Account are disbursed in accordance with the terms of the Note.
PREPAYMENT/DEFEASANCE:
Except in connection with certain casualty or condemnation events, the
Somerset Grove II Borrower is prohibited from prepaying the Loan at any
time before the date three (3) months prior to the ARD. The Loan may be
prepaid at par at any time thereafter. The Somerset Grove II Borrower
may defease the Loan, in whole but not in part, at any time during the
period commencing on the later to occur of two (2) years after the
REMIC "start-up" date or August 7, 2001 and ending on the date three
(3) months prior to the ARD, by providing Lender with non-callable U.S.
Treasury obligations sufficient to pay its remaining obligations.
TRANSFER OF SOMERSET GROVE II PROPERTY OR INTEREST IN SOMERSET GROVE II
BORROWER:
The Lender shall have the option to declare the Somerset Grove II Loan
immediately due and payable upon the transfer of the Somerset Grove II
Property or any ownership interest in the Somerset Grove II Borrower,
except in connection with the rights of transfer described below. The
Somerset Grove II Borrower has the right, once during the term of the
Loan, to transfer the entire Somerset Grove II Property upon the
satisfaction of certain conditions, including Lender's receipt of
Rating Agency Confirmation and the specified assumption fee.
ESCROWS/RESERVES:
Taxes, Insurance and Capital Expenditures
By the terms of its lease, AT&T is required to pay all real estate
taxes assessed against the Somerset Grove II Property directly to the
tax authority. There is an insurance escrow which requires monthly
deposits in an amount estimated to be sufficient to pay insurance
premiums when due. There is also an escrow required for future capital
expenditures which is required to be funded monthly in the amount of
$3,834.67.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-14
Tenant Improvements and Leasing Commissions
The Somerset Grove II Borrower was required to establish and maintain a
reserve for the payment of future leasing commissions and tenant
improvements in connection with the renewal of the AT&T lease ("Renewal
Reserve"). Commencing on May 1, 2004 and monthly thereafter through and
including November 1, 2007, Borrower has agreed to deposit an amount
equal to $33,500 in the Renewal Reserve. On or before December 1, 2007,
Borrower is also to provide Lender with an irrevocable letter of credit
in the amount of $2,660,000 (the "Leasing Letter of Credit"). If
Borrower does not timely provide the Leasing Letter of Credit, Borrower
must deposit monthly with Lender all cash flow generated by the
Somerset Grove II Property remaining after payment of debt service,
required reserves, and operating expenses approved by Lender until the
Reserve Termination (as defined below). Such payments into the Renewal
Reserve shall continue until the earliest to occur of (a) AT&T's
irrevocable exercise of its ten-year lease renewal option, (b)
repayment in full of the Somerset Grove II Loan, (c) the ARD, or (d)
such earlier date as agreed to by Lender in its sole discretion (the
"Reserve Termination"). In the event AT&T does not exercise its renewal
option by May 1, 2008, then on the ARD, Lender may draw down and apply
the funds in the Renewal Reserve and the Leasing Letter of Credit to
the repayment of the Somerset Grove II Loan.
AT&T Completion Reserve
The Somerset Grove II Borrower was required to establish a completion
reserve (the "Completion Reserve") at closing in the amount of
$1,600,000, to fund completion of certain improvements as required by
the AT&T lease and certain repairs suggested in EMG's Property
Condition Report dated July 8, 1998. The repairs and certain of the
improvements have been completed, and the current balance remaining in
the Completion Reserve, as of May 10, 1999, is $252,530.
SUBORDINATE/OTHER DEBT:
Subordinate indebtedness or encumbrances are prohibited without the
prior written consent of Lender.
PURCHASE OPTION:
AT&T has an option to purchase the Somerset Grove II Property for $63
million on or about April 30, 2009. AT&T's lease contains an option to
renew for a ten year period (the "Renewal Option"). If AT&T exercises
its Renewal Option, it shall have a second option to purchase the
Somerset Grove II Property for $58 million in the 20th year of AT&T's
lease term.
THE PROPERTY
The Somerset Grove II Property is a 444,760 square foot office building located
in Franklin Township, New Jersey. The Somerset Grove II Property was completed
in 1988 and includes a five-story office building plus an additional one-story
office building/fitness center.
<TABLE>
<CAPTION>
OPERATING HISTORY*
- ------------------------------------------------------------------------------------------------------------------------------
1996 1997 1998 Underwritten
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Effective Gross Income $6,355,052 $6,442,730 $6,643,048 $6,892,804
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Net Operating Income $5,184,512 $5,300,707 $5,437,328 $5,448,340
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flow $5,184,512 $5,300,707 $5,437,328 $5,059,754
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The 1996, 1997, and 1998 Somerset Grove II Property Operating History
represents unaudited figures provided by the Somerset Grove II Borrower.
THE MANAGEMENT
The Somerset Grove II Property is managed by the Sponsor.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-15
<TABLE>
<CAPTION>
CONTROL #3: BAREFOOT LANDING LOAN #: 6103230
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Cut-off Date Balance: $39,750,211 Property Type: Unanchored Retail
- ------------------------------------------------------------------------------------------------------------------------------
Loan Type: Principal and Interest; Hyperam Location: N. Myrtle Beach, SC
- ------------------------------------------------------------------------------------------------------------------------------
Origination Date: 11/02/1998 Year Built/Renovated: 1988 and 1991
- ------------------------------------------------------------------------------------------------------------------------------
Maturity Date: 12/01/2023 Net Rentable Square Feet: 244,244
- ------------------------------------------------------------------------------------------------------------------------------
Anticipated Repay Date: 12/1/2013 Cut-off Date Balance/sf: $162.75
- ------------------------------------------------------------------------------------------------------------------------------
Mortgage Rate: 7.00000% Appraised Value: $60,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Annual Debt Service: $3,392,540 Current LTV: 66.25%
- ------------------------------------------------------------------------------------------------------------------------------
Underwritten DSCR: 1.47x Balance at ARD LTV: 40.58%
- ------------------------------------------------------------------------------------------------------------------------------
Underwritten Cash Flow: $4,986,096 Percent Leased: 97.16%
- ------------------------------------------------------------------------------------------------------------------------------
Balance at ARD: $24,488,786 Leasing Status Date: 12/31/1998
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Barefoot Landing Loan (the "Barefoot Landing Loan") is secured by a first
mortgage on a 244,244 square foot retail center located in North Myrtle Beach,
South Carolina (the "Barefoot Landing Property"). The Barefoot Landing Loan was
originated by Prudential Mortgage Capital Company, LLC on November 2, 1998.
BORROWER:
The Borrower is Barefoot Properties Limited Partnership, a single
purpose, bankruptcy remote South Carolina limited partnership (the
"Barefoot Landing Borrower").
SECURITY:
The Barefoot Landing Loan is evidenced by a promissory note (the
"Note") secured by a Mortgage and Security Agreement (the "Mortgage"),
an Assignment of Leases and Rents, UCC Financing Statements, and
certain additional security documents. The Mortgage is a first lien on
a fee interest in the Barefoot Landing Property.
RECOURSE:
The Barefoot Landing Loan is non-recourse, subject to certain
exceptions set forth in the Note which generally include, among other
things, liabilities relating to fraud, material misrepresentation,
misapplication of rents, and unauthorized transfers or encumbrances of
the Barefoot Landing Property (the "Recourse Carveouts"). The
obligations of the Barefoot Landing Borrower under the Recourse
Carveouts are guaranteed by Samuel W. Puglia (the "Sponsor") pursuant
to the terms of an Indemnity and Guaranty Agreement. In addition, under
the terms of a Hazardous Substances Indemnity Agreement, the Barefoot
Landing Borrower and the Sponsor assume liability for, guarantee
payment to Lender of, and indemnify Lender from specified costs and
liabilities arising out of the environmental condition of the Property.
PAYMENT TERMS:
The Mortgage Rate is fixed at 7.000% per annum until the anticipated
repayment date of December 1, 2013 (the "ARD"). The Barefoot Landing
Loan requires monthly payments of principal and interest of $282,711.68
through the ARD. From and after the ARD, if the Barefoot Landing Loan
is not paid in full, the interest rate shall increase as set forth in
the Note and the Pooling and Servicing Agreement and excess cash flow
from the Property, after funding of specified reserves, and payment of
debt service and certain operating expenses and capital expenditures,
will be applied to the outstanding principal balance of the Note. The
Barefoot Landing Loan accrues interest computed on the basis of twelve
30-day months in a 360-day year.
CASH MANAGEMENT/LOCKBOX:
The Barefoot Landing Borrower has agreed that from and after the
earlier to occur of (i) the date six months prior to the ARD, or (ii)
an Event of Default (as such term is defined in the Mortgage) until
repayment of the Barefoot Landing Loan, and during any period in which
the Debt Service Coverage Ratio for the immediately prior twelve-month
period (the "Trailing DSCR") is less than 1.20x, all Rents and Profits
(as such term is defined in the Mortgage) will be deposited into an
account (the "Clearing Account") controlled by Lender with a bank
approved by Lender (the "Clearing Bank"). In such event, the Barefoot
Landing Borrower has agreed to deposit all Rents and Profits with the
Clearing Bank. At Lender's request, all such funds shall be transferred
by the Clearing Bank to an account (the "Deposit Account") under the
sole dominion and control of Lender established with a bank determined
by Lender, to be applied in accordance with the terms of the Note.
PREPAYMENT/DEFEASANCE:
Except in connection with certain casualty or condemnation events, the
Barefoot Landing Borrower is prohibited from prepaying the Barefoot
Landing Loan at any time before the date six (6) months prior to the
ARD. The Loan may be prepaid at par at any time thereafter. The
Barefoot Landing Borrower may defease the Loan, in whole but not in
part, at any time during the period commencing on the later to occur of
the date two years after the REMIC "start-up" date or November 2, 2002
and ending on the date six (6) months prior to the ARD, by providing
Lender with non-callable U.S. Treasury obligations sufficient to pay
its remaining obligations under the Loan.
TRANSFER OF BAREFOOT LANDING PROPERTY OR INTEREST IN BAREFOOT LANDING
BORROWER:
The Lender shall have the option to declare the Barefoot Landing Loan
immediately due and payable upon the transfer of the Barefoot Landing
Property or any ownership interest in the Barefoot Landing Borrower,
except in connection with the rights of transfer described below. The
Barefoot Landing Borrower has the right, once during the term of the
Loan, to transfer the entire Barefoot Landing Property upon the
satisfaction of certain conditions, including Lender's receipt of
Rating Agency Confirmation and the specified assumption fee.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-16
ESCROWS/RESERVES:
Taxes, Insurance and Capital Expenditures
There is a tax and insurance escrow which requires monthly deposits in
an amount estimated to be sufficient to pay real estate taxes and
insurance premiums when due. There is also an escrow required for
future capital expenditures which is required to be funded monthly in
the amount of $4,036.00.
Business Tax Escrow
The Barefoot Landing Borrower was required to deposit upon the Barefoot
Landing Loan closing $2,672.01, with subsequent monthly payments of
$890.67 required thereafter, for the payment of an annual Business Tax.
SUBORDINATE/OTHER DEBT:
Subordinate indebtedness or encumbrances are prohibited without the
prior written consent of Lender.
THE PROPERTY
The Barefoot Landing Property is a 244,244 square foot retail center located in
North Myrtle Beach, South Carolina. According to a rent roll provided by the
Barefoot Landing Borrower, the Barefoot Landing Property is 97.16% leased, as of
December 31, 1998, to approximately 103 tenants. The Barefoot Landing Phase I
was completed in 1988 and Barefoot Landing Phase II was completed in 1991. The
Barefoot Landing Property has been voted the "Most Popular Tourist Attraction in
South Carolina" by the South Carolina Department of Parks, Recreations, and
Tourism in 1995, 1996, and 1997. The property is currently occupied by a variety
of retail and restaurant tenants. Major tenants include Greg Norman's
Restaurant, Dick's Last Resort, Fuddrucker's, London Fog, and Bass Shoes.
<TABLE>
<CAPTION>
OPERATING HISTORY*
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1997 1998 Underwritten
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Effective Gross Income $8,608,526 $8,506,165 $8,942,744 $9,140,045
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Net Operating Income $5,367,991 $4,609,845 $5,392,386 $5,281,686
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Cash Flow $4,874,215 $4,565,928 $5,348,447 $4,986,096
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*The 1996, 1997, and 1998 Barefoot Landing Property Operating History represents
unaudited figures provided by the Barefoot Landing Borrower.
THE MANAGEMENT
The Barefoot Landing Property is managed by Barefoot Property Management L.L.C.,
an entity affiliated with the Sponsor. The Sponsor has been involved in the
management of the subject property since its construction in 1988.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-17
<TABLE>
<CAPTION>
CONTROL #4: STATION PLAZA OFFICE COMPLEX LOAN #: 6103062
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Cut-off Date Balance: $31,036,634 Property Type: Office
- -------------------------------------------------------------------------------------------------------------------------------
Loan Type: Principal and Interest; Fully Amortizing Location: Trenton, NJ
- -------------------------------------------------------------------------------------------------------------------------------
Origination Date: 07/10/1998 Year Built/Renovated: 1986 and 1989
- -------------------------------------------------------------------------------------------------------------------------------
Maturity Date: 08/01/2013 Net Rentable Square Feet: 320,477
- -------------------------------------------------------------------------------------------------------------------------------
Anticipated Repay Date: N/A Cut-off Date Balance/sf: $96.85
- -------------------------------------------------------------------------------------------------------------------------------
Mortgage Rate: 6.57800% Appraised Value: $42,700,000
- -------------------------------------------------------------------------------------------------------------------------------
Annual Debt Service: $3,361,540 Current LTV: 72.69%
- -------------------------------------------------------------------------------------------------------------------------------
Underwritten DSCR: 1.18x Balance at Maturity LTV: 0.00%
- -------------------------------------------------------------------------------------------------------------------------------
Underwritten Cash Flow: $3,959,880 Percent Leased: 99.70%
- -------------------------------------------------------------------------------------------------------------------------------
Balance at Maturity: $0.00 Leasing Status Date: 05/03/1999
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Station Plaza Office Complex Loan (the "Station Plaza Office Complex Loan")
is secured by a first mortgage on a 320,477 square foot office building complex
located in Trenton, New Jersey (the "Station Plaza Office Complex Property").
The Station Plaza Office Complex Loan was originated by Prudential Mortgage
Capital Company, LLC on July 10, 1998.
BORROWER:
The Borrower is comprised of Drei Holdings, LLC and Trois Holdings,
LLC, both single purpose, bankruptcy remote New Jersey limited
liability companies (the "Station Plaza Office Complex Borrower").
SECURITY:
The Station Plaza Office Complex Loan is evidenced by a promissory note
(the "Note") secured by a Mortgage and Security Agreement (the
"Mortgage"), an Assignment of Leases and Rents, UCC Financing
Statements, and certain additional security documents. The Mortgage is
a first lien on a fee interest in the Station Plaza Office Complex
Property.
RECOURSE:
The Station Plaza Office Complex Loan is non-recourse, subject to
certain exceptions set forth in the Note which generally include, among
other things, liabilities relating to fraud, material
misrepresentation, misapplication of rents, and unauthorized transfers
or encumbrances of the Station Plaza Office Complex Property (the
"Recourse Carveouts"). The obligations of the Station Plaza Office
Complex Borrower under the Recourse Carveouts are guaranteed by Sydney
Sussman (the "Sponsor") pursuant to the terms of an Indemnity and
Guaranty Agreement. In addition, under the terms of a Hazardous
Substances Indemnity Agreement, the Station Plaza Office Complex
Borrower and the Sponsor assume liability for, guarantee payment to
Lender of, and indemnify Lender from specified costs and liabilities
arising out of the environmental condition of the Property.
PAYMENT TERMS:
The Mortgage Rate is fixed at 6.578% per annum until the maturity date
of August 13, 2013 (the "Maturity Date"). The Station Plaza Office
Complex Loan requires monthly payments of principal and interest of
$280,128.33 which are expected to fully amortize the Loan as of the
Maturity Date. The Station Plaza Office Complex Loan accrues interest
computed on the basis of twelve 30-day months in a 360-day year.
CASH MANAGEMENT/LOCKBOX:
The Station Plaza Office Complex Borrower has agreed that all Rents and
Profits (as such term is defined in the Mortgage) will be deposited
into an account controlled by Lender (the "Deposit Account") with a
bank approved by Lender (the "Deposit Bank"). All tenants of the
Station Plaza Office Complex Property pay all rents due under their
leases directly to the Deposit Bank. Funds in the Deposit Account are
applied in accordance with the terms of the Note.
PREPAYMENT/DEFEASANCE:
Except in connection with certain casualty or condemnation events, the
Station Plaza Office Complex Borrower is prohibited from prepaying the
Station Plaza Office Complex Loan at any time before the date six (6)
months prior to the Maturity Date. The Loan may be prepaid at par at
any time thereafter. The Station Plaza Office Complex Borrower may
defease the Station Plaza Office Complex Loan, in whole but not in
part, at any time after the earlier to occur of two years after the
REMIC "start-up date" or July 10, 2001, by providing the Lender with
non-callable U.S. Treasury obligations sufficient to pay its remaining
obligations.
TRANSFER OF PROPERTY OR INTEREST IN STATION PLAZA OFFICE COMPLEX
BORROWER:
Lender shall have the option to declare the Station Plaza Office
Complex Loan immediately due and payable upon the transfer of the
Station Plaza Office Complex Property or any ownership interest in the
Station Plaza Office Complex Borrower, except in connection with the
rights of transfer described below. The Station Plaza Office Complex
Borrower has the right, once during the term of the Loan, to transfer
the entire Station Plaza Office Complex Property upon the satisfaction
of certain conditions, including Lender's receipt of Rating Agency
Confirmation and the specified assumption fee. Non-managing member
and/or limited partnership interests in the Station Plaza Office
Complex Borrower or in any general partner or managing member of the
Station Plaza Office Complex Borrower are freely transferable without
the Lender's consent, provided that management control of each entity
comprising the Station Plaza Office Complex Borrower remains with the
Sponsor and ownership is controlled by the Sponsor and/or his immediate
family members. Involuntary transfers caused by the death of any
individual, and gifts of an individual's ownership interests for estate
planning purposes to the spouse or lineal descendants of such
individual (or a trust for the benefit of such individual, spouse or
lineal descendants) shall be permitted so long as the Station Plaza
Office Complex Borrower is reconstituted, if required, following such
death or gift and so long as management of the Station Plaza Office
Complex Property remains unchanged or is otherwise acceptable to
Lender.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-18
ESCROWS/RESERVES:
Taxes, Insurance and Capital Expenditures
There is a tax and insurance escrow which requires monthly deposits in
an amount estimated to be sufficient to pay real estate taxes and
insurance premiums when due. There is also an escrow required for
future capital expenditures which is required to be funded monthly in
the amount of $6,209.75.
Tenant Improvements and Leasing Commissions
The Station Plaza Office Complex Borrower was required to escrow
$1,000,000 into a Tenant Improvement/Leasing Reserve. This reserve is
in place to satisfy obligations of the Station Plaza Office Complex
Borrower as landlord under its lease with the State of New Jersey (the
"Tenant") to fund additional tenant improvements to be drawn
periodically during the lease term at the Tenant's option.
SUBORDINATE/OTHER DEBT:
Subordinated indebtedness or other encumbrances are prohibited.
THE PROPERTY
The Station Plaza Office Complex Property is a 320,477 square foot office
complex located in Trenton, New Jersey. According to a rent roll provided by the
Station Plaza Office Complex Borrower, the Station Plaza Office Complex Property
is 99.7% leased, as of May 3, 1999, to nine tenants which are primarily various
state and federal government agencies. The Station Plaza Office Complex Property
consists of three buildings. Station Plaza III is a 148,540 square foot
ten-story building completed in 1989. Station Plaza IV and V are two four-story
buildings that were completed in 1986 consisting of 171,937 square feet. The
Station Plaza Office Complex Property is 87% leased to the State of New Jersey
(Aa1 Moody's/ AA+ S&P/ AA+ Fitch) through October 31, 2017.
Parking for the Station Plaza Office Complex Property is provided through
easement rights to 1,280 parking spaces located in an adjacent 1,576-car,
seven-level parking facility which is owned and managed by an entity controlled
by the Sponsor but is not part of the collateral for the loan.
<TABLE>
<CAPTION>
OPERATING HISTORY*
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1997 1998 Underwritten
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Effective Gross Income $6,765,058 $6,788,367 $6,641,523 $6,589,543
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Net Operating Income $4,327,218 $4,491,977 $4,180,443 $4,137,532
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Cash Flow $4,327,218 $4,491,977 $4,180,443 $3,959,880
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*The 1996, 1997, and 1998 Station Plaza Office Complex Property Operating
History represents unaudited figures provided by the Station Plaza Office
Complex Borrower.
THE MANAGEMENT
The Station Plaza Office Complex Property is managed by Nexus Properties, Inc.,
an entity affiliated with the Sponsor.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-19
<TABLE>
<CAPTION>
CONTROL #5: REMINGTON PLACE APARTMENTS LOAN #: 6103250
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Cut-off Date Balance: $27,670,755 Property Type: Multifamily
- -------------------------------------------------------------------------------------------------------------------------------
Loan Type: Principal and Interest; Hyperam Location: Schaumburg, IL
- -------------------------------------------------------------------------------------------------------------------------------
Origination Date: 11/30/1998 Year Built/Renovated: 1986/1997
- -------------------------------------------------------------------------------------------------------------------------------
Maturity Date: 12/01/2028 Number of Units: 528
- -------------------------------------------------------------------------------------------------------------------------------
Anticipated Repay Date: 12/01/2008 Cut-off Date Balance/Unit: $52,407
- -------------------------------------------------------------------------------------------------------------------------------
Mortgage Rate: 6.41000% Appraised Value: $37,900,000
- -------------------------------------------------------------------------------------------------------------------------------
Annual Debt Service: $2,088,873 Current LTV: 73.01%
- -------------------------------------------------------------------------------------------------------------------------------
Underwritten DSCR: 1.45x Balance at ARD LTV: 62.04%
- -------------------------------------------------------------------------------------------------------------------------------
Underwritten Cash Flow: $3,031,466 Percent Leased: 96.59%
- -------------------------------------------------------------------------------------------------------------------------------
Balance at ARD: $23,562,522 Leasing Status Date: 02/01/1999
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Remington Place Apartments Loan (the "Remington Place Apartments Loan") is
secured by a first mortgage on a 528 unit garden style apartment complex located
in Schaumburg, Illinois (the "Remington Place Apartments Property"). The
Remington Place Apartments Loan was originated by Prudential Mortgage Capital
Company, LLC on November 30, 1998.
BORROWER:
The Remington Place Apartments Borrower is Remington Place, L.P., a
single asset, bankruptcy remote New Jersey limited partnership (the
"Remington Place Apartments Borrower").
SECURITY:
The Remington Place Apartments Loan is evidenced by a promissory note
(the "Note") secured by a Mortgage and Security Agreement (the
"Mortgage"), an Assignment of Leases and Rents, UCC Financing
Statements, and certain additional security documents. The Mortgage is
a first lien on a fee interest in the Remington Place Apartments
Property.
RECOURSE:
The Remington Place Apartments Loan is non-recourse, subject to certain
exceptions set forth in the Note which generally include, among other
things, liabilities relating to fraud, material misrepresentation,
misapplication of rents, and unauthorized transfers or encumbrances of
Remington Place Apartments Property (the "Recourse Carveouts"). The
obligations of the Remington Place Apartments Borrower under the
Recourse Carveouts are guaranteed by David M. Brown (the "Sponsor")
pursuant to the terms of an Indemnity and Guaranty Agreement. The
Sponsor is the sole owner of the Penobscot Corporation. In addition,
under the terms of a Hazardous Substances Indemnity Agreement, the
Remington Place Apartments Borrower and the Sponsor assume liability
for, guarantee payment to Lender of, and indemnify Lender from
specified costs and liabilities arising out of the environmental
condition of the Property.
PAYMENT TERMS:
The Mortgage Rate is fixed at 6.410% per annum until the anticipated
repayment date of December 1, 2008 (the "ARD"). The Remington Place
Apartments Loan requires monthly payments of principal and interest of
$174,072.71 through the ARD. From and after the ARD, if the Remington
Place Apartments Loan is not paid in full, the interest rate shall
increase as set forth in the Note and the Pooling and Servicing
Agreement and excess cash flow from the Property, after funding of
specified reserves, and payment of debt service and certain operating
expenses and capital expenditures, will be applied to the outstanding
principal balance of the Note. The Remington Place Apartments Loan
accrues interest computed on the basis of twelve 30-day months in a
360-day year.
CASH MANAGEMENT/LOCKBOX:
The Remington Place Apartments Borrower has agreed that from and after
the earlier to occur of (i) an Event of Default (as such term is
defined in the Mortgage), or (ii) the date that is two (2) months prior
to the ARD, and continuing until the Note is repaid in full, all Rents
and Profits (as such term is defined in the Mortgage) will be deposited
into an account (the "Clearing Account") controlled by Lender with a
bank approved by Lender (the "Clearing Bank"). At Lender's request, all
such funds shall be transferred by the Clearing Bank to an account (the
"Deposit Account") under the sole dominion and control of Lender
established with a bank determined by Lender, to be applied by Lender
in accordance with the terms of the Note.
PREPAYMENT:
Except in connection with certain casualty or condemnation events, the
Remington Place Apartments Borrower is prohibited from prepaying the
Remington Place Apartments Loan at any time before the date six (6)
months prior to the ARD. The Loan may be prepaid at par at any time
thereafter. The Remington Place Apartments Borrower may defease the
Loan, in whole but not in part, at any time after the earlier to occur
of four years from the first payment date or 25 months after the REMIC
"start-up" date, and ending on the ARD, by providing Lender with
non-callable U.S. Treasury obligations sufficient to pay its remaining
obligations under the Loan.
TRANSFER OF REMINGTON PLACE APARTMENTS PROPERTY OR INTEREST IN
REMINGTON PLACE APARTMENTS BORROWER: The Lender shall have the option
to declare the Remington Place Apartments Loan immediately due and
payable upon the transfer of the Remington Place Apartments Property or
any ownership interest in the Remington Place Apartments Borrower,
except in connection with the rights of transfer described below. The
Remington Place Apartments Borrower has the right, one or more times
during the term of the Loan, to transfer the entire Remington Place
Apartments Property upon the satisfaction of certain conditions,
including Lender's receipt of Rating Agency Confirmation and the
specified assumption fee. In addition, certain transfers of interests
in Borrower and its constituent entities, including certain transfers
by devise or descent or for estate planning purposes are permitted
without Lender's consent upon the satisfaction of certain conditions
set forth in the Mortgage.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-20
ESCROWS/RESERVES:
Taxes, Insurance and Capital Expenditures
There is a tax and insurance escrow which requires monthly deposits in
an amount estimated to be sufficient to pay real estate taxes and
insurance premiums when due. There is also an escrow required for
future capital expenditures which is required to be funded monthly in
the amount of $11,000.00.
SUBORDINATE/OTHER DEBT:
Subordinate indebtedness or encumbrances are prohibited without prior
written consent of Lender.
THE PROPERTY
The Remington Place Apartments Property is a 528 unit garden style apartment
complex located in Schaumburg, Illinois, approximately 30 miles northwest of
Chicago. The complex consists of 20 three-story and three two-story apartment
buildings and two office/clubhouse buildings. The apartment buildings were
constructed in 1986, with an additional $2.6 million invested in completed
renovations during the five year period ending in 1997. The complex has a gross
rentable area of 468,712 square feet and is comprised of 288
one-bedroom/one-bathroom units and 240 two-bedroom/two-bathroom units. The
amenities on the premises include an outdoor pool, two tennis courts, a
playground, a volleyball court, and a basketball court. Each individual unit is
equipped with full size washers and dryers, and approximately 75% of the units
have fireplaces. According to a rent roll provided by the Remington Place
Apartments Borrower, the Remington Place Apartments Property is 96.59% leased,
as of February 1, 1999.
<TABLE>
<CAPTION>
OPERATING HISTORY*
- ---------------------------------------------------------------------------------------------------------------------------------
1996 1997 1998 Underwritten
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Effective Gross Income $5,138,489 $5,145,207 $5,447,326 $5,534,658
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Net Operating Income $2,956,701 $2,877,355 $3,152,166 $3,163,466
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Cash Flow $2,956,701 $2,877,355 $3,152,166 $3,031,466
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*The 1996, 1997, 1998 Remington Place Apartments Property Operating History
represents unaudited figures provided by the Remington Place Apartments
Borrower.
THE MANAGEMENT
The Remington Place Apartments Property is managed by Remington Real Estate
Corporation, an entity affiliated with the Sponsor.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-21
CONTROL #6: SPRINGFIELD-PRESCOTT & IDOT LOAN #: 6103381
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Cut-off Date Balance: $23,098,052 Property Type: Office
- ------------------------------------------------------------------------------------------------------------------------------
Loan Type: Principal and Interest; Hyperam Location: Springfield, IL
- ------------------------------------------------------------------------------------------------------------------------------
Origination Date: 12/30/98 Year Built/Renovated: 1988, 1991
- ------------------------------------------------------------------------------------------------------------------------------
Maturity Date: 01/01/2024 Net Rentable Square Feet: 248,470
- ------------------------------------------------------------------------------------------------------------------------------
Anticipated Repay Date: 01/01/2009 Cut-off Date Balance/sf: $92.96
- ------------------------------------------------------------------------------------------------------------------------------
Mortgage Rate: 7.79000% Appraised Value: $32,300,000
- ------------------------------------------------------------------------------------------------------------------------------
Annual Debt Service: $2,110,152 Current LTV: 71.51%
- ------------------------------------------------------------------------------------------------------------------------------
Underwritten DSCR: 1.37x Balance at Maturity LTV: 58.84%
- ------------------------------------------------------------------------------------------------------------------------------
Underwritten Cash Flow: $2,883,888 Percent Leased: 100.00%
- ------------------------------------------------------------------------------------------------------------------------------
Balance at ARD: $19,052,952 Leasing Status Date: 12/30/1998
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE PROPERTY
PROPERTY 1: THE PRESCOTT E. BLOOM BUILDING LOAN #: 6103381A
<TABLE>
<CAPTION>
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------
Location: Springfield, IL Net Rentable Square Feet: 180,300
-------------------------------------------------------------------------------------------
Construction: Steel Percent Leased: 100.00%
-------------------------------------------------------------------------------------------
Year Built/Renovated: 1988 Appraised Value: $24,100,000
-------------------------------------------------------------------------------------------
</TABLE>
PROPERTY 2: ILLINOIS DEPARTMENT OF TRANSPORTATION ANNEX (IDOT) LOAN #: 6103381B
<TABLE>
<CAPTION>
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------
Location: Springfield, IL Net Rentable Square Feet: 68,170
-------------------------------------------------------------------------------------------
Construction: Steel Percent Leased: 100.00%
-------------------------------------------------------------------------------------------
Year Built/Renovated: 1991 Appraised Value: $8,200,000
-------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Springfield-Prescott & IDOT Loan (the "Springfield-Prescott & IDOT Loan") is
secured by a first mortgage on two office properties located in Springfield,
Illinois (the "Springfield-Prescott & IDOT Property"). The Springfield-Prescott
& IDOT Loan was originated by Prudential Mortgage Capital Company, LLC on
December 30, 1998.
BORROWER:
The Springfield-Prescott & IDOT Borrower is Government Property Fund,
LLC, a single purpose, bankruptcy remote California limited liability
company (the "Springfield-Prescott & IDOT Borrower").
SECURITY:
The Springfield-Prescott & IDOT Loan is evidenced by a promissory note
(the "Note") secured by a Mortgage and Security Agreement (the
"Mortgage"), an Assignment of Leases and Rents, UCC Financing
Statements, and certain additional security documents. The Mortgage is
a first lien on a fee interest in the Springfield-Prescott & IDOT
Property.
RECOURSE:
The Springfield-Prescott & IDOT Loan is non-recourse, subject to
certain exceptions set forth in the Note which generally include, among
other things, liabilities relating to fraud, material
misrepresentation, misapplication of rents, and unauthorized transfers
or encumbrances of the Springfield-Prescott & IDOT Property (the
"Recourse Carveouts"). The obligations of the Springfield-Prescott &
IDOT Borrower under the Recourse Carveouts are guaranteed by Mark L.
Friedman (the "Sponsor") pursuant to the terms of an Indemnity and
Guaranty Agreement. In addition, under the terms of a Hazardous
Substances Indemnity Agreement, the Springfield-Prescott & IDOT
Borrower and the Sponsor assume liability for, guarantee payment to
Lender of, and indemnify Lender from specified costs and liabilities
arising out of the environmental condition of the Property.
PAYMENT TERMS:
The Mortgage Rate is fixed at 7.790% per annum until the anticipated
repayment date of January 1, 2009 (the "ARD"). The Springfield-Prescott
& IDOT Loan requires monthly payments of principal and interest of
$175,845.97 through the ARD. From and after the ARD, if the
Springfield-Prescott & IDOT Loan is not paid in full, the interest rate
shall increase as set forth in the Note and the Pooling and Servicing
Agreement and excess cash flow from the Property, after funding of
specified reserves, and payment of debt service and certain operating
expenses and capital expenditures, will be applied to the outstanding
principal balance of the Note. The Springfield-Prescott & IDOT Loan
accrues interest computed based on the actual number of days elapsed
each month in a 360-day year.
CASH MANAGEMENT/LOCKBOX:
The Springfield-Prescott & IDOT Borrower has agreed that all Rents and
Profits (as such term is defined in the Mortgage) will be deposited
into an account with LaSalle National Bank (the "Deposit Bank") under
the sole dominion and control of Lender (the "Deposit Account"). All
tenants of the Springfield-Prescott & IDOT Property have been notified
to make payments of Rent and Profits directly to the Deposit Bank.
Funds in the Deposit Account shall be applied in accordance with the
terms of the Note.
PREPAYMENT/DEFEASANCE:
Except in connection with certain casualty or condemnation events, the
Springfield-Prescott & IDOT Borrower is prohibited from prepaying the
Springfield-Prescott & IDOT Loan at any time before the date three (3)
months prior to the ARD. The Loan may be prepaid at par at any time
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-22
thereafter. The Springfield-Prescott & IDOT Borrower may defease the
Loan, in whole but not in part, at any time during the period
commencing on December 30, 2001 and ending on the date three (3) months
prior to the ARD, by providing Lender with non-callable U.S. Treasury
obligations sufficient to pay its remaining obligations.
TRANSFER OF SPRINGFIELD-PRESCOTT & IDOT PROPERTY OR INTEREST IN
SPRINGFIELD-PRESCOTT & IDOT BORROWER: The Lender shall have the option
to declare the Springfield-Prescott & IDOT Loan immediately due and
payable upon the transfer of the Springfield-Prescott & IDOT Property
or any ownership interest in the Springfield-Prescott & IDOT Borrower,
except in connection with the rights of transfer described below. The
Springfield-Prescott & IDOT Borrower has the right, once during the
term of the Loan, to transfer the entire Springfield-Prescott & IDOT
Property upon the satisfaction of certain conditions, including
Lender's receipt of Rating Agency Confirmation and the specified
assumption fee. Transfers of certain ownership interests in the
Springfield-Prescott & IDOT Borrower and entities holding an interest
therein are permitted upon the satisfaction of certain conditions,
including minimum levels of beneficial ownership, and continued
management control, upon Lender's approval, which may include the
requirement for Rating Agency Confirmation.
ESCROWS/RESERVES:
Taxes, Insurance and Capital Expenditures
There is a tax and insurance escrow which requires monthly deposits in
an amount estimated to be sufficient to pay real estate taxes and
insurance premiums when due. There is also an escrow required for
future capital expenditures which is required to be funded monthly in
the amount of $3,987.50.
Tenant Improvements and Leasing Commissions
The Springfield-Prescott & IDOT Borrower was required to escrow
$1,000,000 into a Tenant Improvement/Leasing Reserve for the payment of
future leasing commissions and tenant improvements, which is
replenished at the monthly rate of $18,497 when the balance falls below
$1,000,000. In lieu of the Tenant Improvement/Leasing Reserve, the
Springfield-Prescott & IDOT Borrower has the option to post an
irrevocable "evergreen" letter of credit from the Bank of America NT &
SA or other financial institution acceptable to Lender in the amount of
$1,000,000.
Management Termination Fee
If the existing management agreement(s) for the Springfield-Prescott &
IDOT Property are terminated, the Manager is entitled to receive a
termination fee(s). Upon the occurrence of certain events which Lender
has determined might lead to the replacement of the Manager, the
Springfield-Prescott & IDOT Borrower has agreed to establish a reserve
in anticipation of the need to pay such termination fee(s).
SUBORDINATE/OTHER DEBT:
Subordinate indebtedness or encumbrances are prohibited without prior
consent of Lender.
THE PROPERTY
The Springfield-Prescott & IDOT Property consists of two office buildings
located in Springfield, Illinois, approximately 190 miles southwest of Chicago
and 100 miles northeast of St. Louis. According to a rent roll provided by the
Springfield-Prescott & IDOT Borrower (the "Rent Roll"), the Springfield-Prescott
& IDOT Property is 100% leased, as of December 30, 1998, to the State of
Illinois (Aa2 Moody's/ AA S&P/ AA Fitch), and are occupied by Illinois'
Department of Public Aid, Department of Transportation and the Department of
Natural Resources. The two buildings include the Prescott E. Bloom Building (the
"Prescott Building") and the Illinois Department of Transportation Annex (the
"IDOT Annex"). The Prescott Building contains 180,300 square feet of net
rentable space leased through June 30, 2002, and is currently occupied by the
Department of Public Aid. The IDOT Annex contains 68,170 square feet of net
rentable space leased through December 31, 2000, and is occupied by two tenants.
The Department of Natural Resources occupies 20,451 square feet and the Illinois
Department of Transportation occupies 47,719 square feet.
OPERATING HISTORY*
- -----------------------------------------------------------
Underwritten
- -----------------------------------------------------------
Gross Potential Rent $4,266,215
- -----------------------------------------------------------
- -----------------------------------------------------------
Net Operating Income $3,194,715
- -----------------------------------------------------------
- -----------------------------------------------------------
Cash Flow $2,883,888
- -----------------------------------------------------------
*The Springfield-Prescott & IDOT Property was acquired by the
Springfield-Prescott & IDOT Borrower in January, 1999.
THE MANAGEMENT
The Springfield-Prescott & IDOT Properties are managed by Pacific Management,
Inc. (the "Manager"), pursuant to two (2) separate unsubordinated management
agreements. The Manager is an affiliate of NFM, Inc., which is the largest
manager of government-leased properties in Springfield, with over 1.7 million
square feet under management. NFM, Inc. has developed or redeveloped a
significant amount of Springfield office property, including the
Springfield-Prescott & IDOT Property.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-23
CONTROL #7: THE RESERVE AT WESTLAND APARTMENTS LOAN #: 6103198
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $17,277,028 Property Type: Multifamily
- ------------------------------------------------------------------------------------------------------------------------------
Loan Type: Principal and Interest; Hyperam Location: Knoxville, TN
- ------------------------------------------------------------------------------------------------------------------------------
Origination Date: 11/10/1998 Year Built/Renovated: 1997
- ------------------------------------------------------------------------------------------------------------------------------
Maturity Date: 12/01/2028 Number of Units: 308
- ------------------------------------------------------------------------------------------------------------------------------
Anticipated Repay Date: 12/01/2008 Cut-off Date Balance/Unit: $56,094
- ------------------------------------------------------------------------------------------------------------------------------
Mortgage Rate: 6.08000% Appraised Value: $21,700,000
- ------------------------------------------------------------------------------------------------------------------------------
Annual Debt Service: $1,259,718 Current LTV: 79.62%
- ------------------------------------------------------------------------------------------------------------------------------
Underwritten DSCR: 1.32x Balance at ARD LTV: 68.01%
- ------------------------------------------------------------------------------------------------------------------------------
Underwritten Cash Flow: $1,661,514 Percent Leased: 87.66%
- ------------------------------------------------------------------------------------------------------------------------------
Balance at ARD: $14,788,568 Leasing Status Date: 03/04/1999
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Reserve at Westland Apartments Loan (the "The Reserve at Westland Apartments
Loan") is secured by a first mortgage on a 342,120 square foot garden style
apartment complex located in Knoxville, Tennessee (the "The Reserve at Westland
Apartments Property"). The Reserve at Westland Apartments Loan was originated by
Prudential Mortgage Capital Company, LLC on November 10, 1998.
RESERVE AT WESTLAND APARTMENTS BORROWER:
The Reserve at Westland Apartments Borrower is The Reserve at Westland,
LLC, a single purpose, bankruptcy remote Tennessee limited liability
company (the "The Reserve at Westland Apartments Borrower").
SECURITY:
The Reserve at Westland Apartments Loan is evidenced by a promissory
note (the "Note") secured by a Deed of Trust and Security Agreement
(the "Mortgage"), an Assignment of Leases and Rents, UCC Financing
Statements, and certain additional security documents. The Mortgage is
a first lien on a fee interest in The Reserve at Westland Apartments
Property.
RECOURSE:
The Reserve at Westland Apartments Loan is non-recourse, subject to
certain exceptions set forth in the Note which generally include, among
other things, liabilities relating to fraud, material
misrepresentation, misapplication of rents, and unauthorized transfers
or encumbrances of The Reserve at Westland Property (the "Recourse
Carveouts"). The obligations of The Reserve at Westland Apartments
Borrower under the Recourse Carveouts are guaranteed by Robert L. Foote
(the "Sponsor") pursuant to the terms of an Indemnity and Guaranty
Agreement. In addition, under the terms of a Hazardous Substances
Indemnity Agreement, The Reserve at Westland Apartments Borrower and
the Sponsor assume liability for, guarantee payment to Lender of, and
indemnify Lender from specified costs and liabilities arising out of
the environmental condition of the Property.
PAYMENT TERMS:
The Mortgage Rate is fixed at 6.080% per annum until the anticipated
repayment date of December 1, 2008 (the "ARD"). The Reserve at Westland
Apartments Loan requires monthly payments of principal and interest of
$104,976.53 through the ARD. From and after the ARD, if The Reserve at
Westland Apartments Loan is not paid in full, the interest rate shall
increase as set forth in the Note and the Pooling and Servicing
Agreement and excess cash flow from the Property, after funding of
specified reserves, and payment of debt service and certain operating
expenses and capital expenditures, will be applied to the outstanding
principal balance of the Note. The Reserve at Westland Apartments Loan
accrues interest computed based on the actual number of days elapsed
over a 360-day year.
CASH MANAGEMENT/LOCKBOX:
The Reserve at Westland Apartments Borrower has agreed that from and
after the earlier to occur of (i) an Event of Default (as such term is
defined in the Mortgage), or (ii) the date that is six (6) months prior
to the ARD, and continuing until the Note is repaid in full, all Rents
and Profits (as such term is defined in the Mortgage) will be deposited
into an account (the "Clearing Account") controlled by Lender with a
bank approved by Lender (the "Clearing Bank"). At Lender's request, all
such funds shall be transferred by the Clearing Bank to an account (the
"Deposit Account") under the sole dominion and control of Lender
established with a bank determined by Lender, to be applied in
accordance with the terms of the Note.
PREPAYMENT/DEFEASANCE:
Except in connection with certain casualty or condemnation events, The
Reserve at Westland Apartments Borrower is prohibited from prepaying
The Reserve at Westland Apartments Loan at any time before the date
three (3) months prior to the ARD. The Loan may be prepaid at par at
any time thereafter. The Reserve at Westland Apartments Borrower may
defease the Loan, in whole but not in part, at any time during the
period commencing on the later to occur of the date 25 months after
REMIC "start up date" or June 1, 2001 and ending on the date three (3)
months prior to the ARD, by providing Lender with non-callable U.S.
Treasury obligations sufficient to pay its remaining obligations.
TRANSFER OF RESERVE AT WESTLAND APARTMENTS PROPERTY OR INTEREST IN
RESERVE AT WESTLAND APARTMENTS BORROWER:
The Lender shall have the option to declare the Reserve at Westland
Apartments Loan immediately due and payable upon the transfer of The
Reserve at Westland Apartments Property or any ownership interest in
The Reserve at Westland Apartments Borrower, except in connection with
the rights of transfer described below. The Reserve at Westland
Apartments Borrower has the right, once during the term of the Loan, to
transfer the entire The Reserve at Westland Apartments Property upon
the satisfaction of certain conditions, including Lender's receipt of
Rating Agency Confirmation and the specified assumption fee. The
assumption fee will not be required so long as Robert L. Foote as an
individual or as a majority shareholder in Concorde Group, Inc. and/or
Alliance Development Group has a controlling interest in the proposed
buyer. In addition, certain transfers of interests in Borrower and its
constituent entities, including certain transfers by devise or descent
or for estate planning purposes are permitted without Lender's consent
upon the satisfaction of certain conditions set forth in the Mortgage.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-24
ESCROWS/RESERVES:
Taxes, Insurance and Capital Expenditures
There is a tax and insurance escrow which requires monthly deposits in
an amount estimated to be sufficient to pay real estate taxes and
insurance premiums when due. There is also an escrow required for
future capital expenditures which is required to be funded monthly in
the amount of $3,670.00.
SUBORDINATE/OTHER DEBT:
Subordinate indebtedness or encumbrances are prohibited without prior
written consent of Lender.
THE PROPERTY
The Reserve at Westland Apartments Property is a 308 unit garden style apartment
complex located in Knoxville, Tennessee. The property is improved with 15 two
and three-story buildings containing a net rentable area of 342,188 square. The
unit mix includes 60 one-bedroom/one-bathroom units, 94 two-bedroom/two-bathroom
units, 138 two-bedroom/two-bathroom units, and 16 three-bedroom/two-bathroom
units. In addition to the apartment buildings, the complex includes an
office/clubhouse with a fitness center, swimming pool, and putting green.
Construction of The Reserve at Westland Apartments Property was completed in
November 1997. According to a rent roll provided by The Reserve at Westland
Apartments Borrower, The Reserve at Westland Apartments Property is 87.66%
occupied, as of March 4, 1999.
OPERATING HISTORY
- -------------------------------------------------------------------------------
1998 (Trailing 12 Months Underwritten
8/31/98)*
- -------------------------------------------------------------------------------
Effective Gross Income $1,697,184 $2,497,587
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net Operating Income $1,038,902 $1,723,115
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Cash Flow $1,038,902 $1,661,514
- -------------------------------------------------------------------------------
*The 1998 Reserve at Westland Apartments Property Operating History represents
unaudited figures for the trailing 12 months ending August 31, 1998, as provided
by The Reserve at Westland Borrower. Construction of The Reserve at Westland
Apartments Property was completed in November 1997, so the Operating History
presented does not reflect current occupancy .
THE MANAGEMENT
The Reserve at Westland Apartments Property is managed by RCA Realty Services,
Ltd., doing business as LEDIC Management Group, Inc. ("LEDIC"). LEDIC was listed
among the top 20 largest managers of apartments in the United States by the
National Multi Housing Council in 1998, with over 30 million square feet of
apartment and condominium property under management.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-25
<TABLE>
<CAPTION>
CONTROL #8: THE PAVILION LOAN #: 7608321
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Cut-off Date Balance: $16,680,926 Property Type: Office
- --------------------------------------------------------------------------------------------------------------------------------
Loan Type: Principal and Interest Location: Jenkintown, PA
- --------------------------------------------------------------------------------------------------------------------------------
Origination Date: 01/15/1998 Year Built/Renovated: 1966/1996, 1997
- --------------------------------------------------------------------------------------------------------------------------------
Maturity Date: 02/01/2008 Net Rentable Square Feet: 336,176
- --------------------------------------------------------------------------------------------------------------------------------
Anticipated Repay Date: N/A Cut-off Date Balance/sf: $49.62
- --------------------------------------------------------------------------------------------------------------------------------
Mortgage Rate: 7.18000% Appraised Value: $24,100,000
- --------------------------------------------------------------------------------------------------------------------------------
Annual Debt Service: $1,465,338 Current LTV: 69.22%
- --------------------------------------------------------------------------------------------------------------------------------
Underwritten DSCR: 1.40x Balance at Maturity LTV: 55.92%
- --------------------------------------------------------------------------------------------------------------------------------
Underwritten Cash Flow: $2,053,994 Percent Leased: 87.70%
- --------------------------------------------------------------------------------------------------------------------------------
Balance at Maturity: $13,476,251 Leasing Status Date: 01/31/1999
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Pavilion Loan (the "Pavilion Loan") is secured by a first mortgage on a
336,176 square foot office/retail building and attached multi-level parking
structure located in Jenkintown, Pennsylvania (the "Pavilion Property"). The
Pavilion Loan was originated by Prudential Mortgage Capital Company, LLC on
January 15, 1998.
BORROWER:
The Pavilion Borrower is 1996 Pavilion Assoc., L.P., a single purpose,
bankruptcy remote Pennsylvania limited partnership (the "Pavilion
Borrower").
SECURITY:
The Pavilion Loan is evidenced by a promissory note (the "Note")
secured by a Leasehold Mortgage and Security Agreement (the
"Mortgage"), an Assignment of Leases and Rents, UCC Financing
Statements, and certain additional security documents. The Mortgage is
a first lien on a leasehold interest in The Pavilion Property.
RECOURSE:
The Pavilion Loan is non-recourse, subject to certain exceptions set
forth in the Note which generally include, among other things,
liabilities relating to fraud, material misrepresentation,
misapplication of rents, and unauthorized transfers or encumbrances of
the Pavilion Property (the "Recourse Carveouts"). The obligations of
the Pavilion Borrower under the Recourse Carveouts are guaranteed by
Arnold Galman (the "Sponsor") pursuant to the terms of an Indemnity and
Guaranty Agreement. In addition, under the terms of a Hazardous
Substances Indemnity Agreement, the Pavilion Borrower and the Sponsor
assume liability for, guarantee payment to Lender of, and indemnify
Lender from specified costs and liabilities arising out of the
environmental condition of the Property.
PAYMENT TERMS:
The Mortgage Rate is fixed at 7.180% per annum. The Pavilion Loan
requires monthly payments of principal and interest of $122,111.54
until the Maturity Date on February 1, 2008, at which time all unpaid
principal and accrued but unpaid interest is due. The Pavilion Loan
accrues interest computed on the basis of twelve 30-day months in a
360-day year.
PREPAYMENT:
Except in connection with certain casualty or condemnation events, the
Pavilion Borrower is prohibited from prepaying the Loan, until March 1,
2000, after which prepayment is permitted in whole, but not in part,
provided that said prepayment is accompanied by a payment to Lender of
a prepayment premium equal to the greater of one percent (1%) of the
then outstanding principal balance or a yield maintenance premium
calculated by reference to U.S. Treasury obligations. The Pavilion Loan
may be prepaid at par on or after the date that is six (6) months prior
to the maturity date.
TRANSFER OF PAVILION PROPERTY OR INTEREST IN PAVILION BORROWER:
The Lender has the option to declare the Pavilion Loan immediately due
and payable upon the transfer of The Pavilion Property or any ownership
interest in The Pavilion Borrower, except in connection with the rights
of transfer described below. The Pavilion Borrower has the right, once
during the term of the Loan, to transfer the entire Pavilion Property
upon the satisfaction of certain conditions, including Lender's receipt
of Rating Agency Confirmation and the specified assumption fee. In
addition, certain transfers of interests in Borrower and its
constituent entities, including certain transfers by devise or descent
or for estate planning purposes are permitted without Lender's consent
upon the satisfaction of certain conditions set forth in the Mortgage.
ESCROWS/RESERVES:
Taxes, Insurance and Capital Expenditures
There is a tax and insurance escrow which requires monthly deposits in
an amount estimated to be sufficient to pay real estate taxes and
insurance premiums when due. There is also an escrow required for
future capital expenditures which is required to be funded monthly in
the amount of $1,393.00.
SUBORDINATE/OTHER DEBT:
Subordinate indebtedness or encumbrances are prohibited without prior
consent of Lender.
GROUND LEASE:
The Pavilion Borrower's interest in the Pavilion Property is a
leasehold. The Pavilion Borrower leases the land from John Barnes
Trustees, Inc. under a ground lease which expires on July 20, 2033,
subject to one ten-year extension option. The current annual ground
rent is $41,720 for the five year period ending June 30, 2003. The
annual ground rent shall be increased every five years to reflect
inflation, but in no case shall any such increase exceed $6,720.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-26
THE PROPERTY
The Pavilion Property consists of a 336,176 square foot office/retail building
and one multi-level parking structure located in Jenkintown, Pennsylvania,
approximately ten miles north of Philadelphia. The building is situated on an
unsubordinated ground lease with approximately 34 years remaining to maturity.
The building consists of 230,848 square feet of office space on floors two
through nine and 89,121 square feet of retail space on the ground floor and one
below ground level. The property also contains storage space consisting of 45
units totaling 16,207 square feet.
The Pavilion Property's office space is currently occupied by 157 tenants, with
the largest tenant accounting for approximately 3.8% of the overall space. The
retail space is currently occupied by 31 tenants, with four tenants occupying
between 2% and 3% of the overall space. The storage space is currently occupied
by 35 of the Pavilion Property's current tenants. According to a rent roll
provided by the Pavilion Borrower, the Pavilion Property is 87.7% occupied, as
of January 31, 1999.
<TABLE>
<CAPTION>
OPERATING HISTORY*
- --------------------------------------------------------------------------------------------------
1997 1998 Underwritten
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Effective Gross Income $3,677,951 $5,058,687 $5,313,774
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Net Operating Income $1,243,781 $2,318,717 $2,469,887
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Cash Flow $1,115,218 $2,167,051 $2,053,994
- --------------------------------------------------------------------------------------------------
</TABLE>
*The 1997 and 1998 Pavilion Property Operating History represent unaudited
figures provided by the Pavilion Borrower. The Pavilion Borrower acquired the
Pavilion Property on February 20, 1996.
THE MANAGEMENT
The Pavilion Property is managed by The Galman Group, an entity affiliated with
the Sponsor. The Galman Group has owned and operated retail, office, and/or
multifamily properties since 1982.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-27
CONTROL #9: DAYS INN HOTEL-CRYSTAL CITY LOAN #: 6103362
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Cut-off Date Balance: $16,285,000 Property Type: Hotel
- -------------------------------------------------------------------------------------------------------------------------------
Loan Type: Principal and Interest; Hyperam Location: Arlington, VA
- -------------------------------------------------------------------------------------------------------------------------------
Origination Date: 04/05/1999 Year Built/Renovated: 1964/1994
- -------------------------------------------------------------------------------------------------------------------------------
Maturity Date: 05/01/2024 Number of Rooms: 247
- -------------------------------------------------------------------------------------------------------------------------------
Anticipated Repay Date: 05/01/2009 Cut-off Date Balance/Room: $65,931
- -------------------------------------------------------------------------------------------------------------------------------
Mortgage Rate: 8.49000% Appraised Value: $26,500,000
- -------------------------------------------------------------------------------------------------------------------------------
Annual Debt Service: $1,572,258 Current LTV: 61.45%
- -------------------------------------------------------------------------------------------------------------------------------
Underwritten DSCR: 1.40x Balance at Maturity LTV: 50.24%
- -------------------------------------------------------------------------------------------------------------------------------
Underwritten Cash Flow: $2,201,211 Annual Percent Occupancy: 71.63%
- -------------------------------------------------------------------------------------------------------------------------------
Balance at Maturity: $13,349,689 Occupancy Year End: 12/31/1998
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Days Inn-Crystal City Loan (the "Days Inn-Crystal City Loan") is secured by
a first mortgage on a full service Days Inn hotel located in Arlington,
Virginia. (the "Days Inn-Crystal City Property"). The Days Inn-Crystal City Loan
was originated by Prudential Mortgage Capital Company, LLC on April 5, 1999.
BORROWER:
The Days Inn-Crystal City Borrower is Crystal Inn Company, a single
purpose, bankruptcy remote Florida corporation (the "Days Inn-Crystal
City Borrower"). The Days Inn-Crystal City Borrower is sponsored by
American Hotel Holdings Company (the "Sponsor"), the parent company of
InterAmerican Hotels Corporation, the sole shareholder of the Days
Inn-Crystal City Borrower.
SECURITY:
The Days Inn-Crystal City Loan is evidenced by a promissory note (the
"Note") secured by a Deed of Trust and Security Agreement (the
"Mortgage"), an Assignment of Leases and Rents, UCC Financing
Statements, and certain additional security documents. The Mortgage is
a first lien on a fee interest in the Days Inn-Crystal City Property.
RECOURSE:
The Days Inn-Crystal City Loan is non-recourse, subject to certain
exceptions set forth in the Note which generally include, among other
things, liabilities relating to fraud, material misrepresentation,
misapplication of rents, and unauthorized transfers or encumbrances of
the Days Inn-Crystal City Property (the "Recourse Carveouts"). The
obligations of the Days Inn-Crystal City Borrower under the Recourse
Carveouts are guaranteed by the Sponsor pursuant to the terms of an
Indemnity and Guaranty Agreement. The Sponsor is required to maintain a
minimum net worth of $5,000,000 determined in accordance with generally
accepted accounting principles. In addition, under the terms of a
Hazardous Substances Indemnity Agreement, the Days Inn-Crystal City
Borrower and the Sponsor assume liability for, guarantee payment to
Lender of, and indemnify Lender from specified costs and liabilities
arising out of the environmental condition of the Property.
PAYMENT TERMS:
The Mortgage Rate is fixed at 8.490% per annum until the anticipated
repayment date of May 1, 2009 (the "ARD"). The Days Inn-Crystal City
Loan requires monthly payments of principal and interest of $131,021.51
through the ARD. From and after the ARD, if the Days Inn-Crystal City
Loan is not paid in full, the interest rate shall increase as set forth
in the Note and the Pooling and Servicing Agreement and excess cash
flow from the Property, after funding of specified reserves, and
payment of debt service and certain operating expenses and capital
expenditures, will be applied to the outstanding principal balance of
the Note. The Days Inn-Crystal City Loan accrues interest computed on
the basis of twelve 30-day months in a 360-day year.
CASH MANAGEMENT/LOCKBOX:
The Days Inn-Crystal City Borrower has agreed that from and after the
earlier to occur of (i) the ARD, or (ii) an Event of Default (as such
term is defined in the Mortgage) until repayment of the Days
Inn-Crystal City Loan, all Rents and Profits (as such term is defined
in the Mortgage) will be deposited into an account (the "Clearing
Account") controlled by Lender with a bank approved by Lender (the
"Clearing Bank"). In such event, the Days Inn-Crystal City Borrower has
agreed to deposit all Rents and Profits with the Clearing Bank. At
Lender's request, all such funds shall be transferred with the Clearing
Bank to an account (the "Deposit Account") under the sole dominion and
control of Lender established with a bank determined by Lender, to be
applied in accordance with the terms of the Note.
PREPAYMENT/DEFEASANCE:
Except in connection with certain casualty or condemnation events, the
Days Inn-Crystal City Borrower is prohibited from prepaying the Days
Inn-Crystal City Loan at any time before the date three (3) months
prior to the ARD. The Loan may be prepaid at par at any time
thereafter. The Days Inn-Crystal City Borrower may defease the Loan, in
whole but not in part, at any time during the period commencing on the
later to occur of date 25 months after REMIC "start up date" or June 1,
2003 and ending on the ARD, by providing Lender with non-callable U.S.
Treasury obligations sufficient to pay its remaining obligations under
the Loan.
TRANSFER OF DAYS INN-CRYSTAL CITY PROPERTY OR INTEREST IN DAYS
INN-CRYSTAL CITY BORROWER:
The Lender shall have the option to declare the Days Inn-Crystal City
Loan immediately due and payable upon the transfer of the Days
Inn-Crystal City Property or any ownership interest in the Days
Inn-Crystal City Borrower, except in connection with the rights of
transfer described below. The Days Inn-Crystal City Borrower has the
right, one or more times during the term of the Loan, to transfer the
entire Days Inn-Crystal City Property upon the satisfaction of certain
conditions, including Lender's receipt of Rating Agency Confirmation
and the specified assumption fee. In addition, certain transfers of
interests in Borrower and its constituent entities, including certain
transfers by devise or descent or for estate planning purposes are
permitted without Lender's consent upon the satisfaction of certain
conditions set forth in the Mortgage.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-28
ESCROWS/RESERVES:
Taxes, Insurance and Capital Expenditures
There is a tax and insurance escrow which requires monthly deposits in
an amount estimated to be sufficient to pay real estate taxes and
insurance premiums when due. There is also an escrow required for
future capital expenditures which is required to be funded monthly in
the amount of $22,934.00 during the first 12 months of the Loan term
and monthly payments of four percent (4%) of Effective Gross Income
thereafter.
SUBORDINATE/OTHER DEBT:
Subordinate indebtedness or encumbrances are prohibited without the
prior written consent of Lender.
THE PROPERTY
The Days Inn-Crystal City Property is a full service Days Inn hotel located in
Arlington, Virginia. The Days Inn-Crystal City Property consists of one,
eight-story building with interior corridors containing 247 guest rooms, seven
meeting rooms containing 5,790 square feet, and a full service restaurant and
lounge. The improvements were constructed in 1964 and renovated in 1993 and
1994. Guest rooms are configured into 202 double rooms, 25 queen rooms, 17 king
rooms, and three executive king rooms. In addition to the restaurant and banquet
space, other amenities include a fitness room, a gift shop, an outdoor swimming
pool, and complimentary airport shuttle service. According to the Days
Inn-Crystal City Borrower the occupancy at the Days Inn-Crystal City Property
was 71.63%, for the year ending December 31, 1998.
OPERATING HISTORY*
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
1996 1997 1998 Underwritten
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Revenues $6,574,793 $6,880,783 $7,099,130 $6,837,235
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Net Operating Income $2,735,632 $2,704,726 $2,942,738 $2,474,701
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Cash Flow $2,505,540 $2,463,899 $2,694,248 $2,201,211
- ---------------------------------------------------------------------------------------------
</TABLE>
*The 1996, 1997, and 1998 Days Inn-Crystal City Property Operating History
represent unaudited figures provided by the Days Inn-Crystal City Borrower.
THE MANAGEMENT
The Days Inn-Crystal City Property is managed by Sound Hospitality Management
Company, an entity affiliated with the Sponsor. Sound Hospitality manages and
operates the subject hotel, plus three other hotels owned by American Hotel
Holdings Company, for a total of 666 rooms under management.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-29
<TABLE>
<CAPTION>
CONTROL #10: LEVEQUE TOWER OFFICE BUILDING LOAN #: 6103429
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Cut-off Date Balance: $16,160,000 Property Type: Office
- -------------------------------------------------------------------------------------------------------------------------------
Loan Type: Principal and Interest; Hyperam Location: Columbus, OH
- -------------------------------------------------------------------------------------------------------------------------------
Origination Date: 04/06/1999 Year Built/Renovated: 1924-1927/1986-1990
- -------------------------------------------------------------------------------------------------------------------------------
Maturity Date: 05/01/2029 Net Rentable Square Feet: 347,867
- -------------------------------------------------------------------------------------------------------------------------------
Anticipated Repay Date: 05/01/2009 Cut-off Date Balance/sf: $46.45
- -------------------------------------------------------------------------------------------------------------------------------
Mortgage Rate: 8.02000% Appraised Value: $22,500,000
- -------------------------------------------------------------------------------------------------------------------------------
Annual Debt Service: $1,425,621 Current LTV: 71.82%
- -------------------------------------------------------------------------------------------------------------------------------
Underwritten DSCR: 1.30x Balance at ARD LTV: 64.30%
- -------------------------------------------------------------------------------------------------------------------------------
Underwritten Cash Flow: $1,853,306 Percent Leased: 88.60%
- -------------------------------------------------------------------------------------------------------------------------------
Balance at ARD: $14,488,818 Leasing Status Date: 03/01/1999
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The LeVeque Tower Office Building Loan (the "LeVeque Tower Office Building
Loan") is secured by a first mortgage on a 347,867 square foot office building
located in Columbus, Ohio (the "LeVeque Tower Office Building Property"). The
LeVeque Tower Office Building Loan was originated by Prudential Mortgage Capital
Company, LLC on April 6, 1999.
BORROWER:
The LeVeque Tower Office Building Borrower is LeVeque Tower LLC, a
single purpose, bankruptcy remote Ohio limited liability company (the
"LeVeque Tower Office Building Borrower").
SECURITY:
The LeVeque Tower Office Building Loan is evidenced by a promissory
note (the "Note") secured by an open-end Mortgage and Security
Agreement (the "Mortgage"), an Assignment of Leases and Rents, UCC
Financing Statements, and certain additional security documents. The
Mortgage is a first lien on a fee interest in the LeVeque Tower Office
Building Property.
RECOURSE:
The LeVeque Tower Office Building Loan is non-recourse, subject to
certain exceptions set forth in the Note which generally include, among
other things, liabilities relating to fraud, material
misrepresentation, misapplication of rents, and unauthorized transfers
or encumbrances of the LeVeque Tower Office Building Property (the
"Recourse Carveouts"). The obligations of the LeVeque Tower Office
Building Borrower under the Recourse Carveouts are guaranteed by
Katherine S. LeVeque (the "Sponsor") pursuant to the terms of an
Indemnity and Guaranty Agreement. In addition, under the terms of a
Hazardous Substances Indemnity Agreement, the LeVeque Tower Office
Building Borrower and the Sponsor assume liability for, guarantee
payment to Lender of, and indemnify Lender from specified costs and
liabilities arising out of the environmental condition of the Property.
PAYMENT TERMS:
The Mortgage Rate is fixed at 8.020% per annum until the anticipated
repayment date of May 1, 2009 (the "ARD"). The LeVeque Tower Office
Building Loan requires monthly payments of principal and interest of
$118,801.74 through the ARD. From and after the ARD, if the LeVeque
Tower Office Building Loan is not paid in full, the interest rate shall
increase as set forth in the Note and the Pooling and Servicing
Agreement and excess cash flow from the Property, after funding of
specified reserves, and payment of debt service and certain operating
expenses and capital expenditures, will be applied to the outstanding
principal balance of the Note. The LeVeque Tower Office Building Loan
accrues interest computed on the basis of the actual days elapsed in a
360-day year.
CASH MANAGEMENT/LOCKBOX:
The LeVeque Tower Office Building Borrower has agreed that from and
after the earlier to occur of (i) an Event of Default (as such term is
defined in the Mortgage), or (ii) the date that is six (6) months prior
to the ARD, and continuing until the Note is repaid in full, the
LeVeque Tower Office Building Borrower has agreed that all Rents and
Profits (as such term is defined in the Mortgage) will be deposited
into an account (the "Clearing Account") controlled by Lender with a
bank approved by Lender (the "Clearing Bank"). At Lender's request, all
such funds shall be transferred by the Clearing Bank to an account (the
"Deposit Account") under the sole dominion and control of Lender
established with a bank determined by Lender, to be applied in
accordance with the terms of the Note.
PREPAYMENT/DEFEASANCE:
Except in connection with certain casualty or condemnation events, the
LeVeque Tower Office Building Borrower is prohibited from prepaying the
Loan, in whole or in part, at any time before the date six (6) months
prior to the ARD. The Loan may be prepaid at par at any time
thereafter. The LeVeque Tower Office Building Borrower may defease the
Loan, in whole but not in part, at any time during the period
commencing June 1, 2003, but in no event earlier than 25 months after
the REMIC "start-up" date, and ending on the ARD, by providing Lender
with non-callable U.S. Treasury obligations sufficient to pay its
remaining obligations under the Loan.
TRANSFER OF LEVEQUE TOWER OFFICE BUILDING PROPERTY OR INTEREST IN
LEVEQUE TOWER OFFICE BUILDING BORROWER:
The Lender shall have the option to declare the LeVeque Tower Office
Building Loan immediately due and payable upon the transfer of the
LeVeque Tower Office Building Property or any ownership interest in the
LeVeque Tower Office Building Borrower, except in connection with the
rights of transfer described below. The LeVeque Tower Office Building
Borrower has the right, one or more times during the term of the Loan,
to transfer the entire LeVeque Tower Office Building Property upon the
satisfaction of certain conditions, including Lender's receipt of
Rating Agency Confirmation and the specified assumption fee. In
addition, certain transfers of interests in Borrower and its
constituent entities, including certain transfers by devise or descent
or for estate planning purposes are permitted without Lender's consent
upon the satisfaction of certain conditions set forth in the Mortgage.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
E-30
ESCROWS/RESERVES:
Taxes, Insurance and Capital Expenditures
There is a tax and insurance escrow which requires monthly deposits in
an amount estimated to be sufficient to pay real estate taxes and
insurance premiums when due. There is also an escrow required for
future capital expenditures which is required to be funded monthly in
the amount of $7,305.00.
Tenant Improvements and Leasing Commissions
LeVeque Tower Office Building Borrower was required to deposit $500,000
at closing into a tenant improvement and leasing commission reserve and
provide an additional $500,000 in the form of a letter of credit (the
"Letter of Credit"). Beginning January 1, 2001, LeVeque Tower Office
Building Borrower has the right to draw from the reserve, or if
insufficient, draw upon the Letter of Credit by amounts equal to
$6.00/SF for tenant improvements and leasing commissions relating to
the leasing of any space occupied by a current tenant whose lease
expires in 2001 or for any space which was vacant at closing and
remained vacant until 2001. All leases must be at arm's length with
third-party tenants for a minimum term of three (3) years (with the
exception of leases to state agencies) and with minimum rent of
$14.50/SF. In the event that the net operating income from the subject
property becomes insufficient to pay debt service, PMCC has the right
to draw from the escrow account for payment of any shortfall.
SUBORDINATE/OTHER DEBT:
Subordinate indebtedness or encumbrances are prohibited without prior
written consent of Lender.
THE PROPERTY
The LeVeque Tower Office Building Property is a forty-four story, 347,867 net
rentable square foot office building located in Columbus, Ohio. The building was
constructed between 1924 and 1927 and underwent an extensive $18 million
renovation from 1986 to 1990. In addition, over $1 million was spent on capital
improvements and tenant improvements from 1996 to 1998.
Major tenants include two State of Ohio agencies (Aa1 Moody's/ AA+ S&P/ AA+
Fitch). The Ohio Department of Human Resources occupies 69,816 square feet
through June 1999 with two two-year renewal options. The Ohio Department of
Human Services has exercised its renewal option under its lease. The Ohio
Department of Aging, which has been a tenant for 19 years, occupies 34,674
square feet through June 2001 with three two-year renewal options. According to
a rent roll provided by the LeVeque Tower Office Building Borrower, the LeVeque
Tower Office Building Property is 88.6% leased, as of March 1, 1999, to 90
tenants.
OPERATING HISTORY*
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1996 1997 1998 Underwritten
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Effective Gross Income $4,581,740 $4,601,716 $4,759,162 $5,007,982
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Net Operating Income $2,108,528 $2,104,351 $2,192,431 $2,361,110
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Cash Flow $2,108,528 $2,104,351 $2,192,431 $1,853,306
- ---------------------------------------------------------------------------------------------------
</TABLE>
*The 1996, 1997, and 1998 LeVeque Tower Operating History represent unaudited
figures provided by the LeVeque Tower Office Building Borrower.
THE MANAGEMENT
The LeVeque Tower Office Building Property is managed by CB Richard Ellis, a
third-party manager.
THIS STRUCTURAL TERM SHEET SUPERSEDES ANY PREVIOUS STRUCTURAL TERM SHEETS, AND
WILL BE SUPERSEDED BY THE STRUCTURAL INFORMATION IN ANY SUBSEQUENT STRUCTURAL
TERM SHEETS OR IN THE FINAL PROSPECTUS SUPPLEMENT. THIS PAGE MUST BE ACCOMPANIED
BY A DISCLAIMER. IF YOU DID NOT RECEIVE SUCH A DISCLAIMER, PLEASE CONTACT YOUR
PRUDENTIAL SECURITIES INCORPORATED OR MORGAN STANLEY & CO. INCOPORATED FINANCIAL
ADVISOR IMMEDIATELY. THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT
TO A DEFINITIVE FINAL PROSPECTUS SUPPLEMENT 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 FINAL PROSPECTUS
SUPPLEMENT.
PRUDENTIAL SECURITIES MORGAN STANLEY DEAN WITTER
- -------------------------------------------------------------------------------
<PAGE>
HELLER FINANCIAL COMMERCIAL MORTGAGE ASSET CORP.
Depositor
MORTGAGE PASS-THROUGH CERTIFICATES
(Issuable in Series)
--------------
The mortgage pass-through certificates (the "Offered Certificates")
offered hereby and by supplements hereto (each, a "Prospectus Supplement") will
be offered from time to time in one or more series (each, a "Series"). The
Offered Certificates of any Series, together with any other mortgage
pass-through certificates of such Series, are collectively referred to herein
as the "Certificates". Each Series 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 Loan"), mortgage participations, mortgage pass-through certificates
or other mortgage-backed securities evidencing interests in or secured by
multifamily or commercial mortgage loans (collectively, the "CMBS") or a
combination or Mortgage Loan and/or CMBS (with respect to any Series,
collectively, the "Mortgage 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 to 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. 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."
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Offered Certificates of any Series unless
accompanied by the Prospectus Supplement for such Series.
(cover continued on next page)
--------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT REPRESENT
ANINTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER, ANY SPECIAL
SERVICER, THE TRUSTEE, THE UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES.
NEITHER THE CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY
OTHER PERSON, EXCEPT TO THE EXTENT 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.
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.
--------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE 14 HEREIN AND SUCH INFORMATION AS MAY
BE SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS
SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATE.
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.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and the related Prospectus
Supplement.
--------------
THE DATE OF THIS PROSPECTUS IS JULY 17, 1998
<PAGE>
(continued from cover page)
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 floating 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."
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 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 under the caption "Certain Prepayment, Maturity and
Yield Considerations" 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.
All CMBS will have been acquired for inclusion in a Trust Fund in purely
secondary transactions from a seller other than the issuer thereof and any of
its affiliates. The factors considered by the Registrant in determining that
the CMBS have been acquired in purely secondary market transactions include the
following: the Depositor's historical relationship with the underlying issuer,
whether or not any distribution by the Depositor with respect to other
securities of that issuer is presently occurring or being considered, whether
the Depositor was involved in the initial distribution of the underlying
securities, and the period of time elapsed between initial distribution and the
securitization transaction.
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Trust Fund or a designated portion thereof as
a "real estate mortgage investment conduit" (each, a "REMIC") for federal
income tax purposes. See "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.
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.
<PAGE>
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to the Offered Certificates of each Series will, among other things, set forth
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
(or ownership) interests; (vii) the aggregate original percentage ownership
interest in the Trust Fund to be evidenced by each class of Certificates;
(viii) information as to any Master Servicer, any Special Servicer (or
provision for the appointment thereof) and the Trustee, as applicable; (ix)
information as to the nature and extent of subordination with respect to any
class of Certificates that is subordinate in right of payment to any other
class; and (x) whether such Certificates will be initially issued in definitive
or book-entry form.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Offered Certificates. This Prospectus and the Prospectus
Supplement relating to each Series of Certificates contain summaries of the
material terms of the documents referred to herein and therein, but do not
contain all of the information set forth in the Registration Statement pursuant
to the rules and regulations of the Commission. For further information,
reference is made to such Registration Statement and the exhibits thereto. Such
Registration Statement and exhibits can be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at its
Public Reference Section, 450 Fifth Street, N.W, Washington, D.C. 20549, and at
its Regional Offices located as follows: Midwest Regional Office, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661; and Northeast
Regional Office, Seven World Trade Center, Suite 1300, New York, New York
10048. The Commission maintains a Web site at http://www.sec.gov containing
reports, proxy and information statements and other information regarding
registrants, including the Depositor, that file electronically with the
Commission.
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") on the
related Mortgaged Property. 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 (the "Exchange Act").
A Master Servicer or the Trustee will be required to mail to holders of
Definitive Certificates (as defined herein) of each Series periodic unaudited
reports concerning the related Trust Fund. Unless and until Definitive
Certificates are issued, or to the extent 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 Beneficial Owners (as defined
herein) in the Certificates upon request to their respective DTC Participants
or Indirect Participants (as defined herein). 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
Exchange Act, and the rules and regulations of the Commission thereunder. The
Depositor intends to make a written request to the staff of the Commission that
the staff either (i) issue an order pursuant to Section 12(h) of the Exchange
Act exempting the Depositor from certain reporting requirements under the
Exchange Act with respect to each Trust Fund or (ii) state that the staff will
not recommend that the Commission take enforcement action if the Depositor
fulfills its reporting obligations as described in its written request. If such
request is granted, the Depositor will file or cause
3
<PAGE>
to be filed with the Commission as to each Trust Fund the periodic unaudited
reports to holders of the Offered Certificates referenced in the preceding
paragraph; however, because of the nature of the Trust Funds, it is unlikely
that any significant additional information will be filed. In addition, because
of the limited number of Certificateholders expected for each series, the
Depositor anticipates that a significant portion of such reporting requirements
will be permanently suspended following the first fiscal year for the related
Trust Fund.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination
of an offering of Offered Certificates evidencing interests therein. The
Depositor will provide or cause to be provided without charge to each person to
whom this Prospectus is delivered in connection with the offering of one or
more classes of Offered Certificates, upon written or oral request of such
person, a copy of any or all documents or reports incorporated herein by
reference, in each case to the extent such documents or reports relate to one
or more of such classes of such Offered Certificates, other than the exhibits
to such documents (unless such exhibits are specifically incorporated by
reference in such documents). Requests to the Depositor should be directed in
writing to Heller Financial Commercial Mortgage Asset Corp., 500 West Monroe
Street, Chicago, Illinois 60661, Attention: Margaret E. Govern. The Depositor
has determined that its financial statements are not material to the offering
of any Offered Certificates.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF PROSPECTUS ................................ 7
RISK FACTORS ......................................... 14
DESCRIPTION OF THE TRUST FUNDS ....................... 20
General ........................................... 20
USE OF PROCEEDS ...................................... 26
YIELD CONSIDERATIONS ................................. 27
THE DEPOSITOR ........................................ 30
DESCRIPTION OF THE CERTIFICATES ...................... 31
Distributions ..................................... 31
Available Distribution Amount ..................... 31
Distributions of Interest on the Certificates ..... 32
Distributions of Principal Certificates ........... 33
Components ........................................ 33
Distributions on the Certificates of
Prepayment Premiums or in Respect of
Equity Participations ........................... 33
Allocation of Losses and Shortfalls ............... 33
Advances in Respect of Delinquencies .............. 33
Reports to Certificateholders ..................... 34
Termination ....................................... 36
Book-Entry Registration and Definitive
Certificates .................................... 36
DESCRIPTION OF THE AGREEMENTS ........................ 38
Assignment of Assets, Repurchases ................. 39
Representations and Warranties, Repurchases........ 40
Accounts .......................................... 41
Deposits .......................................... 41
Distribution Account .............................. 43
Other Collection Accounts ......................... 43
Collection and other Servicing Procedures ......... 43
Sub-Servicers ..................................... 44
Special Servicer .................................. 44
Hazard Insurance Policies ......................... 46
Rental Interruption Insurance Policy .............. 47
Fidelity Bonds and Errors and Omissions
Insurance ....................................... 47
Due-on-Sale and Due-on-Encumbrance
Provisions ...................................... 47
Retained Interest; Servicing Compensation
and Payment of Expenses ......................... 48
Evidence as to Compliance ......................... 48
Certain Matters Regarding each Servicer and
the Depositor ................................... 48
Events of Default ................................. 49
Rights Upon Event of Default ...................... 49
Amendment ......................................... 50
The Trustee ....................................... 51
Duties of the Trustee ............................. 51
Certain Matters Regarding the Trustee ............. 51
Resignation and Removal of the Trustee ............ 51
</TABLE>
<TABLE>
<S> <C>
DESCRIPTION OF CREDIT SUPPORT ........................ 52
Subordinate Certificates .......................... 52
Cross-Support Provisions .......................... 52
Insurance or Guarantees with Respect to the
Whole Loans ..................................... 52
Letter of Credit .................................. 52
Insurance Policies and Surety Bonds ............... 53
Reserve Funds ..................................... 53
Credit Support with Respect to CMBS ............... 53
CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS AND THE LEASES ........................ 54
General ........................................... 54
Types of Mortgage Instruments ..................... 54
Interest in Real Property ......................... 54
Leases and Rents .................................. 54
Personalty ........................................ 55
Cooperative Loans ................................. 55
Foreclosure ....................................... 56
Bankruptcy Laws ................................... 60
Environmental Legislation ......................... 62
Due-on-Sale and Due-on-Encumbrance ................ 65
Subordinate Financing ............................. 65
Default Interest, Prepayment Charges and
Prepayments ..................................... 65
Acceleration on Default ........................... 65
Applicability of Usury Laws ....................... 66
Certain Laws and Regulations; Types of
Mortgaged Properties ............................ 66
Americans with Disabilities Act ................... 66
Soldiers' and Sailors' Civil Relief Act of
1940 ............................................ 67
Forfeitures in Drug and Rico Proceedings .......... 67
FEDERAL INCOME TAX
CONSEQUENCES ......................................... 68
Grantor Trust Funds ............................... 68
Single Class of Grantor Trust Certificates ........ 68
Multiple Classes of Grantor Trust
Certificates .................................... 71
Sale or Exchange of a Grantor Trust
Certificate ..................................... 74
Non-U.S. Persons .................................. 74
Information Reporting and Backup
Withholding ..................................... 76
REMICS ............................................... 76
Taxation of Owners of REMIC ....................... 77
Prohibited Transactions and Other Taxes ........... 88
Liquidation and Termination ....................... 89
Administrative Matters ............................ 89
Tax-Exempt Investors .............................. 89
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Residual Certificate Payments to Non-U.S.
Persons ............................... 89
Tax-Related Restrictions on Transfers of
REMIC ................................. 90
STATE TAX CONSIDERATIONS ................ 91
ERISA CONSIDERATIONS .................... 91
Prohibited Transactions ................. 92
</TABLE>
<TABLE>
<S> <C>
Review by Plan Fiduciaries .............. 92
LEGAL INVESTMENT ........................ 93
METHOD OF DISTRIBUTION .................. 94
LEGAL MATTERS ........................... 95
FINANCIAL INFORMATION ................... 95
RATING .................................. 95
</TABLE>
6
<PAGE>
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each Series
of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of such "Series." An Index of
Principal Definitions is included at the end of this Prospectus.
TITLE OF CERTIFICATES... Mortgage Pass-Through Certificates, issuable in
Series (the "Certificates").
DEPOSITOR.............. Heller Financial Commercial Mortgage Asset Corp.
(the "Depositor"). 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."
RISK FACTORS........... Prospective investors should review the information
appearing under the caption "Risk Factors" beginning
on page 14 herein and such information as may be set
forth under the caption "Risk Factors" in the related
Prospectus Supplement before purchasing any Offered
Certificate.
THE TRUST ASSETS....... Each Series of Certificates will represent in the
aggregate the entire beneficial ownership interest in
a Trust Fund consisting 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/or mortgage participations,
mortgage pass-through certificates or other mortgage-
backed securities evidencing interests in or secured
by Mortgage Loans (collectively, the "CMBS") or a
combination of Mortgage Loans and CMBS. The Mortgage
Loans will not be guaranteed or insured by the
Depositor or any of its affiliates or, unless
otherwise provided in the Prospectus Supplement, by
any governmental agency or instrumentality or other
person. The CMBS may be guaranteed or insured by an
affiliate of the Depositor, the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage
Association, the Government National Mortgage
Association, or any other person specified in the
related Prospectus Supplement. 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, retail properties (including
single-tenant retail properties), hotels or motels,
health care-related facilities, industrial properties,
mini-warehouse facilities or self-storage facilities,
manufactured housing communities, 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,
7
<PAGE>
a "Lease") of one or more lessees (each, a "Lessee")
of all or a portion of the related Mortgaged
Properties. To the extent 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 the United
States or its territories. All Mortgage Loans will
have individual principal balances at origination of
not less than $100,000 and original terms to maturity
of not more than 40 years. All Mortgage Loans will
have been originated by persons other than the
Depositor (including affiliates of 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 Interest Rate") that is
fixed over its term or that adjusts from time to
time, or is partially fixed and partially floating or
that may be converted from a floating to a fixed
Mortgage Interest Rate, or from a fixed to a floating
Mortgage Interest Rate, from time to time at the
Mortgagor's election, in each case as described in
the related Prospectus Supplement. The floating
Mortgage Interest 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 Interest 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) 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--Distribution Account
and Other Collection Accounts."
(C) CREDIT SUPPORT.... If so provided in the related Prospectus Supplement,
partial or full protection against certain defaults
and losses on the Mortgage Assets in the related Trust
Fund may be provided to one or more classes of
Certificates of the related Series in the
8
<PAGE>
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 CMBS 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 CMBS.
See "Risk Factors-- Credit Support Limitations" and
"Description of Credit Support."
(D) CASH
FLOW AGREEMENT......... If so provided in the related Prospectus Supplement,
the Trust Fund may include guaranteed investment
contracts pursuant to which moneys held in the funds
and accounts established for the related Series will
be invested at a specified rate. The Trust Fund may
also include certain other agreements, such as
interest rate exchange agreements, interest rate cap
or floor agreements, currency exchange agreements or
similar agreements provided to reduce the effects of
interest rate or currency exchange rate fluctuations
on the Mortgage Assets of one or more classes of
Certificates. The principal terms of any such
guaranteed investment contract or other agreement (any
such agreement, a "Cash Flow Agreement"), including,
without limitation, provisions relating to the timing,
manner and amount of payments thereunder and
provisions relating to the termination thereof, will
be described in the Prospectus Supplement for the
related Series. In addition, the related Prospectus
Supplement will provide certain information with
respect to the obligor under any such Cash Flow
Agreement. The Prospectus Supplement for any Series of
Certificates evidencing an interest in a Trust Fund
that includes CMBS will describe any cash flow
agreements that are included as part of the trust fund
evidenced by or providing security for such CMBS. See
"Description of the Trust Funds--Cash Flow
DESCRIPTION OF
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. To the extent specified in the
Prospectus Supplement, the Mortgage Loans shall be
serviced pursuant to a pooling and servicing
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 floating
interest rate (a "Pass-Through Rate"). The related
Prospectus Supplement will specify the Certificate
Balance, if any, and the Pass-Through Rate, if any,
for each class of Certificates or, in the case of a
variable or floating Pass-Through Rate, the method for
determining the Pass-Through Rate.
DISTRIBUTIONS ON
CERTIFICATES........... 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 floating rates; (ii) be senior
(collectively, "Senior Certificates") or subordinate
9
<PAGE>
(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 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. Stripped Principal Certificates
with no stated Pass-Through Rate will not accrue
interest. See "Risk Factors--Prepayments and Effect on
Average Life of Certificates and 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 Mortgage 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 then
entitled to receive in respect of principal from
future cash flow on the assets in the related Trust
Fund. To the extent 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. To the extent 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
10
<PAGE>
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............... To the extent provided in the related Prospectus
Supplement, the Special Servicer or the Master
Servicer (each, a "Servicer") will be obligated as
part of its servicing responsibilities to make certain
advances with respect to delinquent scheduled payments
on the Whole Loans in such Trust Fund which it deems
recoverable. Any such advances will be made under and
subject to any determinations or conditions set forth
in the related Prospectus Supplement. 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, each 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 CMBS will
describe any corresponding advancing obligation of any
person in connection with such CMBS. 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 Mortgage 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 to a specified percentage or
amount (not to exceed 10% of the principal balance of
the remaining Mortgage Assets) 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 Mortgage Assets of the Trust Fund, or of
a sufficient portion of such Mortgage Assets to retire
such class or classes, or purchase such Mortgage
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 a single class of "residual interests" ("REMIC
Residual Certificates") in a Trust Fund or a portion
of a Trust Fund that is treated as a real estate
mortgage investment conduit ("REMIC") under Sections
860A through 860G of the Internal Revenue Code of
1986, as amended (the "Code"), or (ii) interests
("Grantor Trust Certificates") in a Trust Fund treated
as a grantor trust under applicable provisions of the
Code.
11
<PAGE>
Additionally, the Trust Fund may elect to be treated
as a partnership (the "Partnership") or, if the Trust
Fund has only one ownership interest, as a branch of
the sole owner of the Trust Fund's assets for federal
income tax purposes, in which case the Certificates
of such Series will consist of debt securities issued
by the partnership (or sole owner) (the "Notes") and
partnership interests ("Partnership Interest") in the
Partnership (or the ownership interest in the Trust
Fund).
(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 "Federal
Income Tax Consequences--REMICs" herein and in the
related Prospectus Supplement.
The Offered Certificates will be treated as (i)
assets described in section 7701(a)(19)(C) of the
Code and (ii) "real estate assets" within the meaning
of section 856(c)(5)(B) of the Code, in each case to
the extent described herein and in the related
Prospectus Supplement. See "Federal Income Tax
Consequences--REMICs" herein and in the related
Prospectus Supplement.
(B) GRANTOR TRUST..... If no election is made to treat the Trust Fund
relating to a Series of Certificates as a REMIC, a
partnership or a branch of the Depositor, 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. See "Federal Income Tax
Consequences--Grantors Trust" herein and in the
related Prospectus Supplement.
(C) PARTNERSHIP....... The Trust may elect to be treated for federal income
tax purposes as a partnership (the "Trust
Partnership") or as a branch of the Depositor. The
material federal income tax consequences of either
such election and of ownership of Certificates of the
related Series will be described in the Prospectus
Supplement.
Investors are urged to consult their tax advisors and
to review "Federal Income Tax Consequences" herein
and in the related Prospectus Supplement.
ERISA CONSIDERATIONS... A fiduciary of an employee benefit plan and certain
other retirement plans and arrangements, including
individual retirement accounts, annuities, Keogh
plans, and collective investment funds and separate
accounts in which such plans, accounts, annuities or
arrangements are invested and any entity whose
underlying assets include assets of such a plan by
reason of any such plan's investment in the entity,
that is subject to 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
"ERISA Considerations" herein and 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 and will not subject the Trustee, the Depositor
or the Master Servicer to additional obligations. See
"Description of the Certificates-- General" and "ERISA
Considerations."
LEGAL INVESTMENT....... The related Prospectus Supplement will specify
whether the Offered Certificates will constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984.
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.
12
<PAGE>
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.
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.
13
<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."
LIMITED ASSETS OF THE TRUST FUND
The Certificates will not represent an interest in or obligation of the
Depositor, any Servicer, or any of their affiliates. The only obligations with
respect to the Certificates or the Mortgage Assets will be the obligations (if
any) of the Depositor (or, if otherwise provided in the related Prospectus
Supplement, the person identified therein as the person making certain
representations and warranties with respect to the Mortgage Loans, as
applicable, the "Warranting Party") pursuant to certain limited representations
and warranties made with respect to the Mortgage Loans. 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, any 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, any Servicer or any of their affiliates. Proceeds of the assets
included in the related Trust Fund for each Series of Certificates (including
the Mortgage 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 Distribution Account, the Collection Account
and any accounts maintained as Credit Support, may be withdrawn under certain
conditions, as described in the related Prospectus Supplement. In the event of
such withdrawal, such amounts will not be available for future payment of
principal of or interest on the Certificates. 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 Trust 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.
PREPAYMENTS AND RISK OF LOWER YIELDS ON CERTIFICATES
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 weighted average life of
14
<PAGE>
each class of related Certificates. Any changes in weighted average life may
adversely affect the yield to holders of the Certificates. Prepayments
resulting in a shortening of the weighted average life of a Class of
Certificates may be made at a time of low interest rates when a holder may be
unable to reinvest the resulting payments of principal on its Certificates at a
rate comparable to the rate at which interest is payable on such Certificates,
while delays and extensions resulting in a lengthening of such weighted average
life may occur at a time of high interest rates when a holder may have been
able to reinvest principal payments that would otherwise have been received by
it at higher rates. 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 floating 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 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
15
<PAGE>
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."
DELINQUENCY AND DEFAULT RISKS OF MULTIFAMILY AND COMMERCIAL MORTGAGE LOANS
(a) Dependence on Operations. 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.
(b) Nonrecourse Obligations. 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.
(c) Concentration Risk. 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 single or limited number of Mortgage Loans and/or relate
to Leases to only a single Lessee or a limited number of Lessees.
If applicable, certain other legal aspects of the Mortgage Loans for a
Series of Certificates may be described in the related Prospectus Supplement.
In particular, if the Mortgage Assets in a Trust Fund include any Mortgage
Loans secured by Mortgaged Properties located outside the United States, the
related Prospectus Supplement will set forth any material risks arising
therefrom (including political, economic and legal risks) to the extent
applicable. See also "Certain Legal Aspects of the Mortgage Loans and the
Leases" herein.
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.
To the extent specified in the related Prospectus Supplement, 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
16
<PAGE>
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, 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 is
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.
CERTAIN MORTGAGE LOANS NOT FULLY AMORTIZING
Certain of the Mortgage Loans as of the Cut-off Date may not be fully
amortizing over their terms to maturity and, thus, will require substantial
principal payments (i.e., balloon payments) at their stated maturity (the
"Balloon Mortgage Loans"). 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 manufactured housing communities),
reimbursement rates (with respect to certain nursing 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.
HYPER-AMORTIZATION LOANS AND INCREASED PREPAYMENT RISK
Certain of the Mortgage Loans (the "Hyper-Amortization Loans ") as of the
Cut-Off Date may permit increases in the Mortgage Interest Rate and principal
amortization at a date (the "Hyper-Amortization Date") prior to stated
maturity, creating an incentive for the related borrower to prepay the loan.
Such prepayment may adversely affect the yield to maturity realized by an
investor on its Certificates. It is anticipated that Borrowers of
Hyper-Amortization Loans will prepay such loans on the Hyper-Amortization Date.
See "Yield Considerations" herein and, if applicable, in the related Prospectus
Supplement.
JUNIOR MORTGAGE LOANS AND EFFECT OF SUBORDINATION IN LIQUIDATION
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 Loans 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 or a Special Servicer
will be permitted (within prescribed parameters) to 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 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.
17
<PAGE>
MORTGAGOR TYPE AND INCREASED RISK OF LOSS WITH RESPECT TO MORTGAGE LOANS
Mortgage Loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of Mortgage Loans made to individuals. The Mortgagor's sophistication and
form of organization may increase the likelihood of protracted litigation or
bankruptcy in default situations.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a Series of Certificates will describe any
Credit Support in the related Trust Fund, which may include letters of credit,
insurance policies, guarantees, reserve funds or other types of credit support,
or combinations thereof. Use of Credit Support will be subject to the
conditions and limitations described herein and in the related Prospectus
Supplement. Moreover, such Credit Support may not cover all potential losses or
risks; for example, Credit Support may or may not cover fraud or negligence by
a mortgage loan originator or other parties.
A Series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), 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 Trust 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 may 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 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.
RISK OF NON-ENFORCEABILITY OF CERTAIN MORTGAGE CLAUSES
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
18
<PAGE>
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. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA") a lender may be liable, as an "owner" or
"operator," for 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. A lender also risks such liability on foreclosure of the mortgage.
Each Pooling and Servicing Agreement will provide that no 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 such 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 or, if not, that taking such actions as are
necessary to bring the Mortgaged Property in compliance therewith is likely to
produce a greater recovery on a present value basis, after taking into account
any risks associated therewith, than not taking such actions and (ii) there are
no circumstances present at the Mortgaged Property relating to the use,
management or disposal of any Hazardous Materials (as defined herein) for which
investigation, testing, monitoring, containment, cleanup or remediation could
be required under any federal, state or local law or regulation, or that, if
any Hazardous Materials are present for which such action would be required,
taking such actions with respect to the affected Mortgaged Property is
reasonably likely to produce a greater recovery on a present value basis, after
taking into account any risks associated therewith, than not taking such
actions. Any additional restrictions on acquiring title to a Mortgaged Property
may be set forth in the related Prospectus Supplement. See "Certain Legal
Aspects of the Mortgage Loans and the Leases--Environmental Legislation."
DELINQUENT AND NON-PERFORMING MORTGAGE LOANS
If so provided in the related Prospectus Supplement, the Trust Fund for a
particular series of Certificates may include Mortgage Loans that are past due
or are non-performing, provided that no Mortgage Loan will be more than 59 days
delinquent and no Trust Fund on the respective Closing Date will consist of 20%
or more of delinquent Mortgage Loans. To the extent described in the related
Prospectus Supplement, the servicing of such Mortgage Loans as to which a
specified number of payments are delinquent will be performed by the Special
Servicer; however, the same entity may act as both Master Servicer and Special
Servicer. Credit Support provided with respect to a particular series of
Certificates may not cover all losses related to such delinquent or
nonperforming Mortgage Loans, and investors should consider the risk that the
inclusion of such Mortgage Loans in the Trust Fund may adversely affect the
rate of defaults and prepayments on the Mortgage Assets in such Trust Fund and
the yield on the Certificates of such series.
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 TAX CONSIDERATIONS REGARDING REMIC RESIDUAL CERTIFICATES
Holders of REMIC Residual Certificates will be required to report on their
federal income tax returns as ordinary income their pro rata share of the
taxable income of the REMIC, regardless of the amount or timing of their
receipt of cash payments, as described in "Federal Income Tax
Consequences--REMICs." Accordingly, under certain circumstances, holders of
Offered Certificates that constitute REMIC Residual Certificates may have
taxable income and tax liabilities arising from such investment during a
taxable year in excess of the cash received during such period. Individual
holders of REMIC Residual Certificates may be limited in their ability to
deduct servicing fees and other expenses of the REMIC. In addition, REMIC
Residual Certificates are subject to certain restrictions on transfer. Because
of the special tax treatment of REMIC Residual Certificates, the taxable income
arising in a given year on a REMIC Residual Certificate will not be equal
19
<PAGE>
to, and may be substantially more than, the taxable income associated with
investment in a corporate bond or stripped instrument having similar cash flow
characteristics and pre-tax yield. Therefore, the after-tax yield on the REMIC
Residual Certificate may be significantly less than that of a corporate bond or
stripped instrument having similar cash flow characteristics. Additionally,
prospective purchasers of a REMIC Residual Certificate should be aware that
under applicable Treasury regulations REMIC residual interests cannot be
marked-to-market. See "Federal Income Tax Consequences-- REMICs."
CONTROL MAY BE EXERCISED BY LESS THAN ALL CERTIFICATEHOLDERS
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" and
"--Amendment."
BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be registered
in the names of the Beneficial Owners or their nominees. Because of this,
unless and until Definitive Certificates are issued, Beneficial Owners will not
be recognized by the Trustee as "Certificateholders" (as that term is to be
used in the related Agreement). Hence, until such time, Beneficial Owners 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 will include (i) one or more
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 (collectively, the
"CMBS"), or (iii) a combination of Mortgage Loans and CMBS. As used herein,
"Mortgage Loans" refers to both whole Mortgage Loans and Mortgage Loans
underlying CMBS. Mortgage Loans that secure, or interests in which are
evidenced by, CMBS 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 CMBS evidences an
interest or which secure an CMBS are sometimes referred to herein also as CMBS
or as "Underlying CMBS". Mortgage Loans and CMBS are sometimes referred to
herein as "Mortgage Assets". No CMBS originally issued in a private placement
will be included as an asset of a Trust Fund until the holding period provided
for under Rule 144(k) promulgated under the Securities Act has expired or such
CMBS has been registered under the Securities Act to the extent required under
federal securities law. The Mortgage Assets will not be guaranteed or insured
by Heller Financial Commercial Mortgage Asset Corp. (the "Depositor") or any of
its affiliates or, unless otherwise provided in the related Prospectus
Supplement, by any governmental agency or instrumentality or by any other
person. Each Mortgage Asset will be selected by the Depositor for inclusion in
a Trust Fund from among those purchased, either directly or indirectly, from a
prior holder thereof (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 CMBS. To the
extent 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 Mortgage 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
20
<PAGE>
garden apartment buildings ("Multifamily Properties" and the related loans,
"Multifamily Loans") or (ii) office buildings, retail properties (including
single-tenant retail properties), hotels or motels, health care-related
facilities, industrial properties, mini-warehouse facilities or self-storage
facilities, manufactured housing communities, mixed use or other types of
commercial properties ("Commercial Properties" and the related loans,
"Commercial Loans") located, to the extent specified in the related Prospectus
Supplement, in any one of the fifty states, the District of Columbia or any
territories of the United States. To the extent specified in the related
Prospectus Supplement, the Mortgage Loans will be secured by first mortgages or
deeds of trust or other similar security instruments creating a first lien on
Mortgaged Property. Multifamily Properties 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. The Prospectus Supplement will specify whether the term of any
such leasehold exceeds the term of the mortgage note by at least ten years.
Each Mortgage Loan will have been originated by a person (the "Originator")
other than the Depositor. The 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 a 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.
21
<PAGE>
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. To the extent 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, to the extent 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) retail properties, office buildings and industrial
properties. 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 "--Mortgage Loans--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, 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 manufactured housing communities, 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 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
(defined below) of a mortgage loan as a measure of risk of loss if a property
must be liquidated upon a default by the Mortgagor. Where more than one of the
appraisal methods described in "--Loan-to-Value Ratio" below 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.
22
<PAGE>
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. To the extent 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.
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.
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 Interest Rates or range of
Mortgage Interest Rates and the weighted average Mortgage Interest 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 any, of the Mortgage Loans, (ix) the weighted average Retained
Interest, if any, (x) with respect to Mortgage Loans with floating Mortgage
Interest 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 Interest 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.
23
<PAGE>
Payment Provisions of the Mortgage Loans
To the extent specified in the related Prospectus Supplement, all of the
Mortgage Loans will (i) have individual principal balances at origination of
not less than $100,000, (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 Interest Rate") that is fixed over its term or that
adjusts from time to time, or that is partially fixed and partially floating,
or that may be converted from a floating to a fixed Mortgage Interest Rate, or
from a fixed to a floating Mortgage Interest 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. To the extent specified
in the related Prospectus Supplement, the documentation relating to certain
Mortgage Loans, (the "Hyper-Amortization Loans") may provide for increases in
the related Mortgage Interest Rate and principal amortization, creating an
incentive for the related Borrower to prepay the loan. Each Mortgage Loan may
provide for scheduled payments to maturity or payments that adjust from time to
time to accommodate changes in the Mortgage Interest 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. To the extent specified in the related
Prospectus Supplement, the documentation relating to certain Mortgage Loans
(the "Hyper-Amortization Loans") may provide for increases in the related
Mortgage Interest Rate and principal amortization, creating an incentive for
the related borrower to prepay the loan. 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. In addition, a Mortgage Loan may contain provisions allowing for
the substitution of certain securities for the Mortgaged Property securing the
related Mortgage Note upon the satisfaction of certain conditions set forth in
the related Pooling and Servicing Agreement.
CMBS
Any CMBS 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 "CMBS Agreement"). A seller (the "CMBS Issuer") and/or
servicer (the "CMBS Servicer") of the underlying Mortgage Loans (or Underlying
CMBS) will have entered into the CMBS Agreement with a trustee or a custodian
under the CMBS Agreement (the "CMBS Trustee"), if any, or with the original
purchaser of the interest in the underlying Mortgage Loans or CMBS evidenced by
the CMBS.
Distributions of any principal or interest, as applicable, will be made on
CMBS on the dates specified in the related Prospectus Supplement. The CMBS 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 CMBS by the CMBS Trustee or the CMBS
Servicer. The CMBS Issuer or the CMBS Servicer or another person specified in
the related Prospectus Supplement may have the right or obligation to
repurchase or substitute assets underlying the CMBS 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 CMBS. The
type, characteristics and amount of such credit support, if any, will be a
function of certain characteristics of the Mortgage Loans or Underlying CMBS
evidenced by or securing such CMBS and other factors and generally will have
been established for the CMBS on the basis of requirements of either any Rating
Agency that may have assigned a rating to the CMBS or the initial purchasers of
the CMBS.
The Prospectus Supplement for a Series of Certificates evidencing
interests in Mortgage Assets that include CMBS will specify, to the extent
available, (i) the aggregate approximate initial and outstanding principal
amount or notional amount,
24
<PAGE>
as applicable, and type of the CMBS to be included in the Trust Fund, (ii) the
original and remaining term to stated maturity of the CMBS, if applicable,
(iii) whether such CMBS is entitled only to interest payments, only to
principal payments or to both, (iv) the pass-through or bond rate of the CMBS
or formula for determining such rates, if any, (v) the applicable payment
provisions for the CMBS, including, but not limited to, any priorities, payment
schedules and subordination features, (vi) the CMBS Issuer, CMBS Servicer and
CMBS 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 CMBS or directly to such CMBS, (viii) the terms on which
the related Underlying Mortgage Loans or Underlying CMBS for such CMBS or the
CMBS may, or are required to, be purchased prior to their maturity, (ix) the
terms on which Mortgage Loans or Underlying CMBS may be substituted for those
originally underlying the CMBS, (x) the servicing fees payable under the CMBS
Agreement, (xi) to the extent available to the Depositor, 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 CMBS 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 CMBS, (xiii)
whether the CMBS is in certificated form, book-entry form or held through a
depository such as The Depository Trust Company or the Participants Trust
Company and (xiv) whether any election will be made to treat all or a portion
of the assets included in the Trust Fund as a REMIC.
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--Accounts--Distribution Account" and "--Accounts-- Other Collection
Accounts."
To the extent provided in the related Prospectus Supplement, the Depositor
will establish an account (a "Pre-Funded Account") into which amounts will be
deposited on the related closing date for the purpose of subsequently
purchasing Mortgage Assets, provided that the amounts so deposited to a
Pre-Funded Account in respect of a Trust Fund shall not exceed 25% of the total
assets in the Trust Fund or be invested in such Pre-Funded Account for longer
than six months.
CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Trust 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 Mortgage
Assets or on one or more classes of Certificates. The principal terms of any
such guaranteed investment contract or other agreement (any such agreement, a
"Cash Flow Agreement"), 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.
25
<PAGE>
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor to the purchase of Trust Assets and to pay for certain
expenses incurred in connection with such purchase of Trust 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 Mortgage Assets acquired by the Depositor,
prevailing interest rates, availability of funds and general market conditions.
26
<PAGE>
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate, the receipt and
timing of receipt of distributions on the Certificate and the weighted average
life of the Mortgage Assets in the related Trust Fund (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
floating Pass-Through Rates, which may or may not be based upon the interest
rates borne by the Mortgage Assets in the related Trust Fund. The Prospectus
Supplement with respect to any Series of Certificates will specify the
Pass-Through Rate for each class of such Certificates or, in the case of a
variable or floating Pass-Through Rate, the method of determining the
Pass-Through Rate; the effect, if any, of the prepayment of any Mortgage Asset
on the Pass-Through Rate of one or more classes of Certificates; and whether
the distributions of interest on the Certificates of any class will be
dependent, in whole or in part, on the performance of any obligor under a Cash
Flow Agreement.
The effective yield to maturity to each holder of Certificates entitled to
payments of interest may be below that otherwise produced by the applicable
Pass-Through Rate and purchase price of such Certificate because, while
interest may accrue on each Mortgage 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 Mortgage Assets may be made on the first day
of the Interest Accrual Period for a Distribution Date and not on such
Distribution Date. Such method would produce a lower effective yield than if
interest were calculated on the basis of the actual principal amount
outstanding during an Interest Accrual Period. The Interest Accrual Period for
any class of Offered Certificates will be described in the related Prospectus
Supplement.
PAYMENTS OF PRINCIPAL; PREPAYMENTS
The yield to maturity on the Certificates will be affected by the rate of
principal payments on the Mortgage Assets (including principal prepayments on
Mortgage Loans resulting from voluntary prepayments by the Mortgagors,
insurance proceeds, condemnations 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 Interest Rates on the Mortgage Loans comprising or
underlying the Mortgage Assets in a particular Trust Fund, such Mortgage Loans
are likely to be the subject of higher principal prepayments than if prevailing
rates remain at or above the rates borne by such Mortgage Loans. In this
regard, it should be noted that certain Mortgage Assets may consist of Mortgage
Loans with different Mortgage Interest Rates and the stated pass-through or
pay-through interest rate of certain CMBS may be a number of percentage points
higher or lower than certain of the underlying Mortgage Loans. The rate of
principal payments on some or all of the classes of Certificates of a Series
will correspond to the rate of principal payments on the Mortgage Assets in the
related Trust Fund and is likely to be affected by the existence of Lock-out
Periods and Prepayment Premium provisions of the Mortgage Loans underlying or
comprising such Mortgage Assets, and by the extent to which the servicer of any
such Mortgage Loan is able to enforce such
27
<PAGE>
provisions. Mortgage Loans with a Lock-out Period or a Prepayment Premium
provision, to the extent enforceable, generally would be expected to experience
a lower rate of principal prepayments than otherwise identical Mortgage Loans
without such provisions, with shorter Lock-out Periods or with lower Prepayment
Premiums.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Mortgage Assets,
the actual yield to maturity will be lower than that so calculated. Conversely,
if the purchaser of a Certificate offered at a premium calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is slower than that actually experienced on the Mortgage 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 classes of the Certificates of such Series
of prepayments of the Mortgage 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. To the extent 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. To the
extent 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, to the extent 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 Mortgage Assets
included in or comprising a Trust Fund and the rate at which payments are made
from any Credit Support or Cash Flow Agreement for the related Series of
Certificates may affect the ultimate maturity and the weighted average life of
each class of such Series. Prepayments on the Mortgage Loans comprising or
underlying the Mortgage Assets in a particular Trust Fund will generally
accelerate the rate at which principal is paid on some or all of the classes of
the Certificates of the related Series.
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
CMBS. If any Mortgage Loans comprising or underlying the Mortgage Assets in a
particular Trust Fund have actual terms to maturity of less than those assumed
in calculating final scheduled Distribution Dates for the classes of
Certificates of the related Series, one or more classes of such Certificates
may be fully paid prior to their respective final scheduled Distribution Dates,
even in the absence of prepayments. Accordingly, the prepayment experience of
the Mortgage Assets will, to some extent, be a function of the mix of Mortgage
Interest Rates and maturities of the Mortgage Loans comprising or underlying
such Mortgage Assets. See "Description of the Trust Funds."
28
<PAGE>
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.
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 Mortgage 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 FACTS 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. Conversely, Mortgage Loans (the "Hyper-Amortization Loans") that
permit increases in the Mortgage Interest Rate and principal amortization at a
date prior to stated maturity (the "Hyper-Amortization Date") create an
incentive for the related borrower to prepay the loan, which will tend to
shorten the weighted average life of the Certificates to the extent an
investor's calculation of the weighted average life of the Certificates does
not assume prepayment of such loans on the related Hyper-Amortization Date.
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 Mortgage Assets may include
"due-on-sale" clauses or "due-on-encumbrance" clauses that allow the holder of
the Mortgage
29
<PAGE>
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, to the extent 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."
Single Mortgage Loan or Single Mortgagor
The Mortgage Assets in a particular Trust Fund may consist of a single
Mortgage Loan or obligations of a single Mortgagor or related Mortgagors as
specified in the related Prospectus Supplement. Assumptions used with respect
to the prepayment standards or models based upon analysis of the behavior of
mortgage loans in a larger group will not necessarily be relevant in
determining prepayment experience on a single Mortgage Loan or with respect to
a single Mortgagor.
THE DEPOSITOR
Heller Financial Commercial Mortgage Asset Corp., the Depositor, is a
direct wholly-owned subsidiary of Heller Financial, Inc. and was incorporated
in the State of Delaware on January 7, 1998. The principal executive offices of
the Depositor are located at 500 West Monroe Street, Chicago, Illinois 60661.
Its telephone number is (312) 441-7000.
The Depositor does not have, nor is it expected in the future to have, any
significant assets.
30
<PAGE>
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
floating 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 Trust 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."
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:
31
<PAGE>
(i) the total amount of all cash on deposit in the related Distribution
Account as of the corresponding Determination Date, including Servicer
advances, net of any scheduled payments due and payable after such
Distribution Date;
(ii) interest or investment income on amounts on deposit in the
Distribution Account, including any net amounts paid under any Cash Flow
Agreements; and
(iii) to the extent not on deposit in the related Distribution 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 floating 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 floating Pass-Through Rate, the
method for determining the Pass-Through Rate. To the extent 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. To the extent 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. The
aggregate notional amount of any Class of Stripped Interest Certificates will
generally equal 100% of the aggregate Stated Principal Balance (as defined in
the related Prospectus Supplement) of all Mortgage Loans outstanding from time
to time. To the extent 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. To the extent 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--Prepayments and Effect on Average Life of
Certificates and Yields" and "Yield Considerations."
32
<PAGE>
DISTRIBUTIONS OF PRINCIPAL CERTIFICATES
The Certificates of each Series, other than certain classes of Stripped
Interest Certificates, will have a "Certificate Balance" which, at any time,
will equal the then maximum amount that the holder will be entitled to receive
in respect of principal out of the future cash flow on the Mortgage Assets and
other assets included in the related Trust Fund. The outstanding Certificate
Balance of a Certificate will be reduced to the extent of distributions of
principal thereon from time to time and, if and to the extent so provided in
the related Prospectus Supplement, by the amount of losses incurred in respect
of the related Mortgage Assets, may be increased in respect of deferred
interest on the related Mortgage Loans to the extent provided in the related
Prospectus Supplement and, in the case of Accrual Certificates prior to the
Distribution Date on which distributions of interest are required to commence,
will be increased by any related Accrued Certificate Interest. The initial
aggregate Certificate Balance of all classes of Certificates of a Series will
not be greater than the outstanding aggregate principal balance of the related
Mortgage Assets as of the applicable Cut-off Date. The initial aggregate
Certificate Balance of a Series and each class thereof will be specified in the
related Prospectus Supplement. To the extent 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 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, to the extent provided in the related Prospectus Supplement, a
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 Distribution 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 and were delinquent on the
related Determination Date, subject to such 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, each 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 such Servicer's (or another entity's)
good faith determination that such advances will be reimbursable not only from
Related Proceeds but also from collections on other Trust Assets otherwise
distributable on one or more classes of such Subordinate Certificates. See
"Description of Credit Support."
33
<PAGE>
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. To the extent
provided in the related Prospectus Supplement, advances of a 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 Distribution Account prior to any
distributions being made on the Certificates to the extent that a 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 Trust Assets otherwise
distributable on such Subordinate Certificates. If advances have been made by a
Servicer from excess funds in the Distribution Account, such Servicer is
required to replace such funds in the Distribution Account on any future
Distribution Date to the extent that funds in the Distribution 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 a 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, a
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 Trust 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 CMBS will describe any corresponding advancing obligation of
any person in connection with such CMBS.
REPORTS TO CERTIFICATEHOLDERS
To the extent 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 each
Servicer and such other customary information as any such Master Servicer or
the Trustee deems necessary or desirable, or that a Certificateholder
reasonably requests, to enable Certificateholders to prepare their tax
returns;
(v) the aggregate amount of advances included in such distribution, and
the aggregate amount of any unreimbursed advances at the close of business
on such Distribution Date;
(vi) the aggregate principal balance of the Mortgage Assets at the close
of business on such Distribution Date;
(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;
34
<PAGE>
(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 each 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 each 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;
(xvi) the aggregate Accrued Certificate Interest and unpaid Accrued
Certificate Interest, if any, on each class of Certificates at the close of
business on such Distribution Date;
(xvii) in the case of Certificates with a variable Pass-Through Rate, the
Pass-Through Rate applicable to such Distribution Date, and, if available,
the immediately succeeding Distribution Date, as calculated in accordance
with the method specified in the related Prospectus Supplement;
(xviii) in the case of Certificates with a floating Pass-Through Rate, for
statements to be distributed in any month in which an adjustment date
occurs, the floating 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;
(xix) as to any Series which includes Credit Support, the amount of
coverage of each instrument of Credit Support included therein as of the
close of business on such Distribution Date; and
(xx) the aggregate amount of payments by the Mortgagors of (a) default
interest, (b) late charges and (c) assumption and modification fees
collected during the related 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), (xvi) and (xvii) 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 of any class of
Certificates, 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 CMBS. 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
35
<PAGE>
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.
Unless and until Definitive Certificates are issued, or to the extent
provided in the related Prospectus Supplement, such statements or reports will
be forwarded by the Master Servicer or the Trustee to Cede. Such statements or
reports may be available to Beneficial Owners upon request to DTC or their
respective Participant or Indirect Participant. In addition, the Trustee shall
furnish a copy of any such statement or report to any Beneficial Owner which
requests such copy and certifies to the Trustee or the Master Servicer, as
applicable, that it is the Beneficial Owner of a Certificate. See "--Book-Entry
Registration and Definitive Certificates."
TERMINATION
The obligations created by the Agreements for each Series of Certificates
will terminate upon the payment to Certificateholders of that Series of all
amounts held in the Distribution Account or by any Servicer, if any, or the
Trustee and required to be paid to them pursuant to such Agreements following
the earlier of (i) the final payment or other liquidation of the last Mortgage
Asset subject thereto or the disposition of all property acquired upon
foreclosure of any 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 Agreements
continue beyond the date specified in the related Prospectus Supplement.
Written notice of termination of the Agreements 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.
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 to a
specified percentage or amount (not to exceed 10% of the principal balance of
the remaining Mortgage Assets), 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. In such an event, the
applicable purchase price will be sufficient to pay the aggregate Certificate
Balance and any undistributed shortfall in interest of such class or classes of
Certificates. Further, in such an event, there will be no continuing direct or
indirect liability of the related trust or Certificateholders as sellers of
such assets in connection with any such sale.
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").
If so provided in the related Prospectus Supplement, holders of Book-Entry
Certificates may hold their Certificates through DTC (in the United States) or
CEDEL or Euroclear (in Europe) if they are Participants of such system, or
indirectly through organizations that are participants in such systems. CEDEL
and Euroclear will hold omnibus positions on behalf of the CEDEL Participants
and the Euroclear Participants, respectively, through customers' securities
accounts in CEDEL's and Euroclear's names on the books of their respective
depositories (collectively, the "Depositaries"), which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on the
books of DTC. DTC is a limited purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code (the "UCC") and a "clearing
agency" registered pursuant to Section 17A of the Securities Exchange Act of
1934, as amended. DTC was created to hold securities for its Participants and
to facilitate the clearance and settlement of securities transactions through
electronic computerized book-entries, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations. Indirect access to the DTC
system also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in accordance with their applicable rules and operating procedures.
36
<PAGE>
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly through CEDEL Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance
with DTC rules on behalf of the relevant European international clearing system
by its Depositary; however, such cross-market transactions will require
delivery of instructions to the relevant European international clearing system
by the counterparty in such system in accordance with its rules and procedures
and within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC,
and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing day, dated the business
day following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing will be reported to the relevant
CEDEL Participant or Euroclear Participant on such business day. Cash received
in CEDEL or Euroclear as 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.
The beneficial owners of Book-Entry Certificates that are not Participants
or Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of, or other interest in, Book-Entry Certificates may do so only
through Participants and Indirect Participants. In addition, beneficial owners
of Book-Entry Certificates will receive all distributions of principal and
interest from the Trustee through the Participants who in turn will receive
them from DTC. Under a book-entry format, beneficial owners of Book-Entry
Certificates may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede & Co., ("Cede") as nominee
for DTC. DTC will forward such payments to its Participants, which thereafter
will forward them to Indirect Participants or beneficial owners of Book-Entry
Certificates.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Book-Entry Certificates among Participants on whose behalf it acts with respect
to the Book-Entry Certificates and to receive and transmit distributions of
principal of, and interest on, the Book-Entry Certificates. Participants and
Indirect Participants with which the beneficial owners of Book-Entry
Certificates 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 beneficial owners of Book-Entry
Certificates. Accordingly, although the beneficial owners of Book-Entry
Certificates will not possess the Book-Entry Certificates, the Rules provide a
mechanism by which Participants will receive payments on Book-Entry
Certificates and will be able to transfer their interest.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants, the ability of a holder of Book-Entry
Certificates to pledge such Certificates to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such
Certificates, may be limited due to the lack of a physical certificate for such
Certificates.
DTC has advised the Depositor that it will take any action permitted to be
taken by a beneficial owner of a Book-Entry Certificate under the Pooling and
Servicing Agreement only at the direction of one or more Participants to whose
accounts with DTC the Book-Entry Certificates are credited. DTC may take
conflicting actions with respect to other undivided interests to the extent
that such actions are taken on behalf of Participants whose holdings include
such undivided interests.
Except as required by law, none of the Depositor, the Master Servicer, the
Trustee or the Fiscal Agent will have any liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Book-Entry Certificates held by Cede, as nominee for DTC, or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes
in accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. CEDEL provides to its CEDEL Participants, among other
things, services for safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing. CEDEL
interfaces with domestic markets in several countries. As a professional
depositary, CEDEL is subject to regulation by the Luxembourg Monetary
Institute. CEDEL Participants are recognized financial institutions
37
<PAGE>
around the world, including underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations
and may include the underwriters. Indirect access to CEDEL is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a CEDEL Participant, either directly
or indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear system ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. The Euroclear system includes various other services,
including securities lending and borrowing and interfaces with domestic markets
in several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by Morgan Guaranty
Trust Company of New York, Brussels office (the "Euroclear Operator"), under
contract with Euroclear Clearance System, S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for the Euroclear system on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries.
Indirect access to the Euroclear system is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
The information contained herein concerning DTC, CEDEL and Euroclear and
their book-entry systems has been obtained from sources believed to be
reliable, but none of the Depositor, the Master Servicer, the Trustee or the
Fiscal Agent take any responsibility for the accuracy or completeness thereof.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Beneficial 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 Beneficial 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 Beneficial 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, if specified in the related
Prospectus Supplement, a Special Servicer 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.
The Master Servicer, any 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. The Mortgage Loans
shall be serviced pursuant to the terms of the Pooling and Servicing Agreement.
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 Agreements 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
38
<PAGE>
are qualified in their entirety by reference to, all of the provisions of the
Agreements 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 Agreements
(without exhibits) relating to any Series of Certificates without charge upon
written request of a holder of a Certificate of such Series addressed to the
Trustee specified in the related Prospectus Supplement.
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 Trust Assets to
be included in the related Trust Fund, together with all principal and interest
to be received on or with respect to such Trust 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 Trust
Assets and the other assets comprising the Trust Fund for such Series. Each
Mortgage Asset will be identified in a schedule appearing as an exhibit to the
related Agreement. To the extent 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 Interest 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 CMBS included in the related Trust
Fund, including without limitation, the CMBS Issuer, CMBS Servicer and CMBS
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 to the extent 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 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 Company 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. To the extent provided
in the related Prospectus Supplement, the related Agreements will require that
the Depositor or another party specified therein promptly cause each such
assignment of Mortgage to be recorded in the appropriate public office for real
property records, except in 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. To the extent 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
Depositor. If the Depositor cannot cure the omission or defect within a
specified number of days after receipt of such notice, then to the extent
specified in the related Prospectus Supplement, the Depositor 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. To the extent 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 Mortgage Asset or repurchasing or substituting for such Mortgage Asset, the
Depositor 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
39
<PAGE>
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.
With respect to each CMBS 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 CMBS together with bond power
or other instruments, certifications or documents required to transfer fully
such CMBS to the Trustee for the benefit of the Certificateholders. With
respect to each CMBS 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 CMBS 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. To the extent provided in the
related Prospectus Supplement, the related Agreement will require that either
the Depositor or the Trustee promptly cause any CMBS 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
To the extent provided in the related Prospectus Supplement the Depositor
will, with respect to each Whole Loan, make or assign representations and
warranties, as of a specified date (the person making such representations and
warranties, the "Warranting Party") covering, by way of example, the following
types of matters: (i) the accuracy of the information set forth for such Whole
Loan on the schedule of Mortgage Assets appearing as an exhibit to the related
Agreement; (ii) the existence of title insurance insuring the lien priority of
the Whole Loan; (iii) the authority of the Warranting 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 Warranting 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. To the extent specified in the related Prospectus Supplement, in
the event of a breach of any such representation or warranty, the Warranting
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 Warranting 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.
To the extent provided in the related Prospectus Supplement, the
Agreements will provide that the Master Servicer and/or Trustee will be
required to notify promptly the relevant Warranting Party of any breach of any
representation or warranty made by 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 Warranting Party cannot cure such
breach within a specified period following the date on which such party was
notified of such breach, then such Warranting Party will be obligated to
repurchase such Whole Loan from the Trustee within a specified period from the
date on which the Warranting Party was notified of such breach, at the Purchase
Price therefor. As to any Whole Loan, the "Purchase Price" is generally equal
to the sum of the unpaid principal balance thereof, plus unpaid accrued
interest thereon at the Mortgage Interest 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
each Servicer. If so provided in the Prospectus Supplement for a Series, a
Warranting 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 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
Warranting 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
40
<PAGE>
Certificateholders for any losses caused by such breach. To the extent
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 Warranting
Party.
Neither the Depositor (except to the extent that it is the Warranting
Party) nor any Servicer will be obligated to purchase or substitute for a Whole
Loan if a Warranting Party defaults on its obligation to do so, and no
assurance can be given that Warranting Parties will carry out such obligations
with respect to Whole Loans.
To the extent provided in the related Prospectus Supplement the Warranting
Party will, with respect to a Trust Fund that includes CMBS, make or assign
certain representations or warranties, as of a specified date, with respect to
such CMBS, covering (i) the accuracy of the information set forth therefor on
the schedule of Mortgage Assets appearing as an exhibit to the related
Agreement and (ii) the authority of the Warranting Party to sell such Mortgage
Assets. The related Prospectus Supplement will describe the remedies for a
breach thereof.
Each 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 in a Pooling and
Servicing Agreement of a Master Servicer or Special 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 such Servicer by the Trustee or the Depositor, or to such Servicer,
the Depositor and the Trustee by the holders of Certificates evidencing not
less than 25% of the Voting Rights, will constitute an Event of Default under
such Pooling and Servicing Agreement. A breach of any such representation in a
Servicing Agreement of a Servicer which continues unremedied for thirty days
after giving notice of such breach to such Servicer will constitute an Event of
Default under such Servicing Agreement. See "Events of Default" and "Rights
Upon Event of Default."
ACCOUNTS
General
Each 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 Mortgage Assets
(collectively, the "Accounts"), 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 an 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 such
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 an Account is limited to United States government securities and
other investment grade obligations specified in the Agreement ("Permitted
Investments"). An 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.
To the extent provided in the related Prospectus Supplement, any interest or
other income earned on funds in an Account will be paid to a Servicer or its
designee as additional servicing compensation. An Account may be maintained
with an institution that is an affiliate of a Servicer 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, an Account may contain funds relating to more than one
Series of mortgage pass-through certificates and may contain other funds
respecting payments on mortgage loans belonging to a Servicer or serviced or
master serviced by it on behalf of others.
DEPOSITS
To the extent provided in the related Prospectus Supplement, the Master
Servicer will deposit or cause to be deposited in an Account on a daily basis,
to the extent provided in the related Agreement, the following payments and
collections received, or advances made, by the Master Servicer:
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Assets;
(ii) all payments on account of interest on the Mortgage Assets, including
any default interest collected, in each case net of any portion thereof
retained by a Servicer as its servicing compensation;
41
<PAGE>
(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
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, condemnation or otherwise 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 advances made as described under "Description of the
Certificates--Advances in Respect of Delinquencies";
(v) any amounts representing Prepayment Premiums;
(vi) any amounts received from a Special Servicer; but excluding any REO
Proceeds and penalties or modification fees which may be retained by the
Master Servicer. REO Proceeds shall be maintained in an Account by the
Special Servicer.
The Special Servicer will remit funds on deposit in the Account it
maintains together with any P&I Advances to the Master Servicer for deposit in
an Account maintained by the Master Servicer.
Withdrawals
A Servicer may, from time to time, to the extent provided in the related
Agreement and described in the related Prospectus Supplement, make withdrawals
from an Account for each Trust Fund for any of the following purposes:
(i) to reimburse a 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 such Servicer as late collections of interest
on and principal of the particular Whole Loans with respect to which the
advances were made;
(ii) to reimburse a 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;
(iii) to reimburse a Servicer for any advances described in clause (i)
above and any servicing expenses described in clause (ii) above which, in
the Master Servicer's good faith judgment, will not be recoverable from the
amounts described in clauses (i) and (ii), respectively, such reimbursement
to be made from amounts collected on other Trust 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
Trust 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;
(iv) if and to the extent described in the related Prospectus Supplement,
to pay a Servicer interest accrued on the advances described in clause (i)
above and the servicing expenses described in clause (ii) above while such
remain outstanding and unreimbursed;
(v) to the extent provided in the related Prospectus Supplement, to pay a
Servicer, as additional servicing compensation, interest and investment
income earned in respect of amounts held in the Account; and
(vi) to make any other withdrawals permitted by the related Agreement and
described in the related Prospectus Supplement.
If and to the extent specified in the Prospectus Supplement amounts may be
withdrawn from any Account to cover additional costs, expenses or liabilities
associated with: the preparation of environmental site assessments with respect
to, and for containment, clean-up or remediation of hazardous wastes and
materials, the proper operation, management and
42
<PAGE>
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; if
one or more elections have been made to treat the Trust Fund or designated
portions thereof as a REMIC, any federal, state or local taxes imposed on the
Trust Fund or its assets or transactions, as and to the extent described under
"Federal Income Tax Consequences-- REMIC--Prohibited Transactions and Other
Taxes" in the case of REMIC; retaining an independent appraiser or other expert
in real estate matters 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; and obtaining various opinions of
counsel pursuant to the related Agreement for the benefit of
Certificateholders.
Distribution Account
To the extent specified in the related Prospectus Supplement, 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
from the Master Servicer immediately preceding each Distribution Date (the
"Distribution Account"). The Trustee will also deposit or cause to be deposited
in a Distribution Account the following amounts:
(i) 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";
(ii) any amounts paid under any Cash Flow Agreement, as described under
"Description of the Trust Funds--Cash Flow Agreements";
(iii) all proceeds of any Trust 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, and all proceeds of any Mortgage Asset
purchased as described under "Description of the Certificates--Termination"
(also, Liquidation Proceeds); and
(iv) any other amounts required to be deposited in the Distribution
Account as provided in the related Agreement and described in the related
Prospectus Supplement.
The Trustee may, from time to time, to the extent provided in the related
Agreements and described in the related Prospectus Supplement, make a
withdrawal from a Distribution Account to make distributions to the
Certificateholders on each Distribution Date.
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 Special Servicer will deposit on a daily basis the amounts
described under "--Accounts--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 Distribution 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 Distribution Account as described under "--Accounts--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
Master Servicer
The Master Servicer is required under each Pooling and Servicing Agreement
to make reasonable efforts to collect all scheduled payments under the Mortgage
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 Mortgage
Loans and held for its own account, provided such procedures are consistent
with (i) the terms of the related Pooling and Servicing Agreement, (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").
The 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
43
<PAGE>
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 an Mortgagor pursuant to the Mortgage 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 Mortgage Loans.
The Master Servicer shall monitor the actions of the Special Servicer to
confirm compliance with the Agreements.
To the extent specified in the related Prospectus Supplement, a Master
Servicer, as servicer of the Mortgage Loans, 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 Mortgage Loans. See "Description of Credit Support."
If a Master Servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted Mortgage Loan, the
Master Servicer will be entitled to withdraw or cause to be withdrawn from the
Distribution Account out of such proceeds, prior to distribution thereof to
Certificateholders, amounts representing its normal servicing compensation on
such Mortgage Loan, unreimbursed servicing expenses incurred with respect to
the Mortgage Loan and any unreimbursed advances of delinquent payments made
with respect to the Mortgage Loan. See "--Hazard Insurance Policies" and
"Description of Credit Support."
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. 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.
Generally, 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 Servicer
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. To the extent provided in the related Prospectus
Supplement, upon the occurrence of any of the following events (each a
"Servicing Transfer Event") with respect to a Mortgage Loan, servicing for such
Mortgage Loan (thereafter, a "Specially Serviced Mortgage Loan") will be
transferred from the Master Servicer to the Special Servicer:
(a) such Mortgage Loan becomes a defaulted Mortgage Loan,
(b) the occurrence of certain events indicating the possible insolvency
of the Mortgagor,
(c) the receipt by the Master Servicer of a notice of foreclosure of any
other lien on the related Mortgaged Property,
(d) the Master Servicer determines that a payment default is imminent,
(e) with respect to a Balloon Mortgage Loan, no assurances have been given
as to the ability of the Mortgagor to make the final payment thereon, or
(f) the occurrence of certain other events constituting defaults under
the terms of such Mortgage Loan.
The Special Servicer is required to monitor any Mortgage 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
44
<PAGE>
the Mortgaged Property and take such other actions as are consistent with the
Servicing Standard. A significant period of time may elapse before the Special
Servicer is able to assess the success of such corrective action or the need
for additional initiatives.
The time within which the Special 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 Mortgage Loan, the Mortgaged Property, the Mortgagor, the presence
of an acceptable party to assume the Mortgage Loan and the laws of the
jurisdiction in which the Mortgaged Property is located. Under federal
bankruptcy law, the Special Servicer in certain cases may not be permitted to
accelerate a Mortgage 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 Mortgage 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 Mortgage 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."
The Special Servicer may agree to modify, waive or amend any term of any
Specially Serviced Mortgage 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
Mortgage Loan or (ii) in its judgment, materially impair the security for the
Mortgage Loan or reduce the likelihood of timely payment of amounts due
thereon. Generally, the Special Servicer also may agree to any modification,
waiver or amendment that would so affect or impair the payments on, or the
security for, a Mortgage Loan if (i) in its judgment, a material default on the
Mortgage 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 Mortgage Loan on a present value
basis than would liquidation. The Special Servicer is required to notify the
Trustee in the event of any modification, waiver or amendment of any Mortgage
Loan.
The Special 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 Mortgage Loan by operation of law or otherwise, if such
action is consistent with the Servicing Standard and a default on such Mortgage
Loan has occurred or, in the Special Servicer's judgment, is imminent. The
Special Servicer generally 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 Special 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:
(i) the Mortgaged Property is in compliance with applicable environmental
laws; or if not, that taking such actions as are necessary to bring the
Mortgaged Property in compliance therewith is reasonably likely to produce a
greater recovery on a present value basis, after taking into account any
risks associated therewith, than not taking such actions; and
(ii) 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
that, if any such materials are present, taking such action with respect to
the affected Mortgaged Property is reasonably likely to produce a greater
recovery on a present value basis, after taking into account any risks
associated therewith, than not taking such actions.
To the extent provided in the related Prospectus Supplement, if title to
any Mortgaged Property is acquired by a Trust Fund as to which a REMIC election
has been made, the Special Servicer, on behalf of the Trust Fund, will be
required to sell the Mortgaged Property within two years of acquisition, 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 by the close of the
third taxable year following the taxable year of the property's acquisition
will not result in the imposition of a tax on the Trust Fund or cause the Trust
Fund to fail to qualify as a REMIC under the Code
45
<PAGE>
at any time that any Certificate is outstanding. Subject to the foregoing, the
Special 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 Special
Servicer, on behalf of the Trust Fund, may retain an independent contractor to
manage and operate such property. The retention of an independent contractor,
however, will not relieve the Special Servicer of any of its obligations with
respect to the management and operation of such Mortgaged Property. To the
extent 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."
If recovery on a defaulted Mortgage Loan under any related instrument of
Credit Support is not available, the Special 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
Mortgage Loan. If the proceeds of any liquidation of the property securing the
defaulted Mortgage Loan are less than the outstanding principal balance of the
defaulted Mortgage Loan plus interest accrued thereon at the Mortgage Interest
Rate plus the aggregate amount of expenses incurred by the Special 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 Special Servicer will be entitled to withdraw or cause to be withdrawn from
a related Account out of the Liquidation Proceeds recovered on any defaulted
Mortgage Loan, prior to the distribution of such Liquidation Proceeds to
Certificateholders, amounts representing its normal servicing compensation on
the Mortgage Loan, unreimbursed servicing expenses incurred with respect to the
Mortgage Loan and any unreimbursed advances of delinquent payments made with
respect to the Mortgage Loan.
If any property securing a defaulted Mortgage 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 Special 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 Mortgage 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.
HAZARD INSURANCE POLICIES
To the extent 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. To the extent specified in the related Prospectus Supplement, such
coverage will be in general in an amount equal to the amount necessary to fully
compensate for any damage or loss to the improvements on the Mortgaged Property
on a replacement cost basis, but not less than the amount necessary to avoid
the application of any co-insurance clause contained in the hazard insurance
policy. The ability of the Master Servicer to assure that hazard insurance
proceeds are appropriately applied may be dependent upon its being named as an
additional insured 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 a related Account.
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.
46
<PAGE>
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.
The Agreements 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, 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. 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 a Servicer from a related Account, with interest thereon, as
provided by the Agreements.
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 (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, to the extent 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 a related Account.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
To the extent specified in the related Prospectus Supplement, the
Agreements will require that the Servicers 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
such Servicer. The related Agreements will allow a 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 Agreements 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. To the extent 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
47
<PAGE>
of any such Whole Loan or to withhold its consent to any transfer or further
encumbrance. To the extent 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 Mortgage 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 a Mortgage Asset represents a specified
portion of the interest payable thereon. The Retained Interest will be deducted
from Mortgagor payments as received and will not be part of the related Trust
Fund.
To the extent specified in the related Prospectus Supplement, each
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 Mortgage Asset. Since any Retained Interest and a
Servicer's primary compensation are percentages of the principal balance of
each Mortgage Asset, such amounts will decrease in accordance with the
amortization of the Mortgage 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, a Servicer 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 a related Account.
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 Mortgage 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
The Pooling and Servicing Agreement will provide that on or before a
specified date in each year, beginning on a date specified therein, 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 the Uniform Single Attestation Program for
Mortgage Bankers, the servicing by or on behalf of the Master Servicer was
conducted in compliance with the terms of such agreements except for any
exceptions the Uniform Single Attestation Program for Mortgage Bankers requires
it to report.
The Pooling and Servicing Agreement will also provide for delivery to the
Trustee, on or before a specified date in the Master year, of an annual
statement signed by an officer of the Master Servicer to the effect that the
Master Servicer has fulfilled its obligations under the Pooling and Servicing
Agreement throughout the preceding calendar year or other specified
twelve-month period.
To the extent provided in the related Prospectus Supplement, copies of
such annual accountants' statement and such statements of officers will be
obtainable by Certificateholders and Beneficial Owners without charge upon
written request to the Master Servicer or the Trustee at the address set forth
in the related Prospectus Supplement; provided that such Beneficial Owner shall
have certified to the Master Servicer or the Trustee that it is the Beneficial
Owner of a Certificate.
CERTAIN MATTERS REGARDING EACH SERVICER AND THE DEPOSITOR
The Master Servicer and the Special Servicer, or a servicer for
substantially all the Whole Loans under each Agreement will be named in the
related Prospectus Supplement. Each entity serving as 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 a Servicer shall be deemed to be to the servicer of
substantially all of the Whole Loans, if applicable.
To the extent specified in the related Prospectus Supplement, the related
Agreement will provide that any Servicer may resign from its obligations and
duties thereunder only with the consent of the Trustee, which may not be
unreasonably
48
<PAGE>
withheld or upon a determination that its duties under the Agreement are no
longer permissible under applicable law. No such resignation will become
effective until a successor servicer has assumed such Servicer's obligations
and duties under the Pooling and Servicing Agreement. To the extent specified
in the related Prospectus Supplement, the Pooling and Servicing Agreement will
further provide that none of the Servicers, or any officer, employee, or agent
thereof 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 accordance with the servicing standards set forth in the Pooling
and Servicing Agreement, in good faith; provided, however, that no Servicer nor
any such person will be protected against any breach of a representation or
warranty 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 negligence in the performance of duties
thereunder or by reason of reckless disregard of obligations and duties
thereunder. To the extent specified in the related Prospectus Supplement, the
Depositor shall be liable only to the extent of its obligations specifically
imposed upon and undertaken by the Depositor. To the extent specified in the
related Prospectus Supplement, the Pooling and Servicing Agreement will further
provide that each Servicer will be entitled to indemnification by the related
Trust Fund against any loss, liability or expense incurred in connection with
any legal action relating to the Pooling and Servicing Agreement or the
Mortgage Loans; provided, however, that such indemnification will not extend to
any loss, liability or expense incurred by reason of misfeasance, bad faith or
negligence in the performance of obligations or duties thereunder, or by reason
of reckless disregard of such obligations or duties. In addition, the Pooling
and Servicing Agreement will provide that no Servicer will be under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its responsibilities under the Pooling and Servicing Agreement
and which in its opinion may involve it in any expense or liability. Any
Servicer may, however, with the consent of the Trustee 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 Servicer will be entitled to be
reimbursed therefor.
Any person into which a Servicer or the Depositor may be merged or
consolidated, or any person resulting from any merger or consolidation to which
a Servicer or the Depositor is a party, or any person succeeding to the
business of a Servicer or the Depositor will be the successor of such Servicer
or the Depositor, as applicable, under the related Agreements.
EVENTS OF DEFAULT
To the extent provided in the related Prospectus Supplement for a Trust
Fund that includes Whole Loans, "Event of Default" with respect to a Servicer
under the related Agreements will include (i) any failure by such Servicer to
distribute or cause to be distributed to the Trustee, another Servicer or the
Certificateholders, any required payment on the date due or within a specified
grace period; (ii) any failure by such Servicer to timely deliver a report that
continues unremedied for a certain number days after receipt of notice of such
failure has been given to such Servicer by the Trustee or another Servicer;
(iii) any failure by such Servicer duly to observe or perform in any material
respect any of its other covenants or obligations under the Agreement which
continues unremedied for a specified number of days after written notice of
such failure has been given to such Servicer; (iv) any breach of a
representation or warranty made by such Servicer under the Agreement which
materially and adversely affects the interests of Certificateholders and which
continues unremedied for a specified number of days after written notice of
such breach has been given to such Servicer; (v) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings and certain actions by or on behalf of such Servicer indicating its
insolvency or inability to pay its obligations; and (vi) any failure by such
Servicer to maintain a required license to do business or service the Mortgage
Loans pursuant to the related Agreements. Material variations to the foregoing
Events of Default will be specified in the related Prospectus Supplement. To
the extent specified in the related Prospectus Supplement, the Trustee shall,
not later than the later of a specified number of days after the occurrence of
any event which constitutes or, with notice or lapse of time or both, would
constitute an Event of Default and a specified number of 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 a percentage of the Voting Rights specified in the
related Prospectus Supplement, the Trustee shall, terminate all of the rights
and obligations of the related Servicer under the Agreement and in and to the
Mortgage Loans (other than as a Certificateholder or as the owner of any
Retained Interest),
49
<PAGE>
whereupon the Master Servicer (or if such Servicer is the Master Servicer, the
Trustee) will succeed to all of the responsibilities, duties and liabilities of
such Servicer under the Agreements (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. To the extent 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 a
percentage of the Voting Rights specified in the related Prospectus Supplement,
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 as specified in the related
Prospectus Supplement 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, to the extent so specified in the related
Prospectus Supplement, may be no greater than the compensation payable to the
Master Servicer under the Agreement.
To the extent described in the related Prospectus Supplement, the holders
of Certificates representing the percentage of the Voting Rights specified in
such Prospectus Supplement 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 the percentage of the Voting Rights specified in the
related Prospectus Supplement 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 a specified
number of 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.
As described under "Description of the Certificates--Book-Entry
Registration and Definitive Certificates," unless and until Definitive
Certificates are issued, Beneficial Owners may only exercise their rights as
owners of Certificates indirectly through DTC, or their respective Participants
and Indirect Participants.
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. To the extent specified in the related 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 to the extent 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.
50
<PAGE>
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 Trust Asset or related document and
is not accountable for the use or application by or on behalf of any Servicer
of any funds paid to such Servicer or its designee in respect of the
Certificates or the Trust Assets, or deposited into or withdrawn from any
Account or any other account by or on behalf of any 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 Agreements. 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 Agreements.
CERTAIN MATTERS REGARDING THE TRUSTEE
To the extent 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 Distribution 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 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 Agreements, 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.
51
<PAGE>
DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any Series of Certificates, Credit Support may be provided with
respect to one or more classes thereof or the related Mortgage Assets. Credit
Support may be in the form of the subordination of one or more classes of
Certificates, letters of credit, insurance policies, 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 Mortgage Assets, the related
Prospectus Supplement will include a description of (a) the nature and amount
of coverage under such Credit Support, (b) any conditions to payment thereunder
not otherwise described herein, (c) the conditions (if any) under which the
amount of coverage under such Credit Support may be reduced and under which
such Credit Support may be terminated or replaced and (d) the material
provisions relating to such Credit Support. Additionally, the related
Prospectus Supplement will set forth certain information with respect to the
obligor under any instrument of Credit Support, including (i) a brief
description of its principal business activities, (ii) its principal place of
business, place of incorporation and the jurisdiction under which it is
chartered or licensed to do business, (iii) if applicable, the identity of
regulatory agencies that exercise primary jurisdiction over the conduct of its
business and (iv) its total assets, and its stockholders' or policyholders'
surplus, if applicable, as of the date specified in the Prospectus Supplement.
See "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 Distribution Account on any Distribution Date will be subordinated to
such rights of the holders of Senior Certificates. If so provided in the
related Prospectus Supplement, the subordination of a class may apply only in
the event of (or may be limited to) certain types of losses or shortfalls. The
related Prospectus Supplement will set forth information concerning the amount
of subordination of a class or classes of Subordinate Certificates in a Series,
the circumstances in which such subordination will be applicable and the
manner, if any, in which the amount of subordination will be effected.
CROSS-SUPPORT PROVISIONS
If the Mortgage Assets for a Series are divided into separate groups, each
supporting a separate class or classes of Certificates of a Series, credit
support may be provided by cross-support provisions requiring that
distributions be made on Senior Certificates evidencing interests in one group
of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a Series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO THE 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
52
<PAGE>
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.
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 Trust
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. To the extent 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 CMBS
If so provided in the Prospectus Supplement for a Series of Certificates,
the CMBS in the related Trust Fund and/or the Mortgage Loans underlying such
CMBS 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.
53
<PAGE>
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. 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, 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. The 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,
54
<PAGE>
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 the lender is entitled to collect the
rents. Local law may require that the lender take possession of the property
and/or obtain a court-appointed receiver before becoming entitled to collect
the rents. In most states, hotel and motel room rates are considered accounts
receivable under the UCC; generally these rates are either assigned by the
Mortgagor, which remains entitled to collect such rates absent a default, or
pledged by the Mortgagor, as security for the loan. In general, the lender must
file financing statements in order to perfect its security interest in the
rates and must file continuation statements, generally every five years, to
maintain perfection of such security interest. Even if the lender's security
interest in room rates is perfected under the UCC, the lender will generally be
required to commence a foreclosure or otherwise take possession of the property
in order to collect the room rates after a default.
Even after a foreclosure, the potential rent payments from the property
may be less than the periodic payments that had been due under the mortgage.
For instance, the net income that would otherwise be generated from the
property may be less than the amount that would have been needed to service the
mortgage debt if the leases on the property are at below-market rents, or as
the result of excessive maintenance, repair or other obligations which a lender
succeeds to as landlord.
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.
COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a Series of Offered
Certificate, the Mortgage Loans may also consist of cooperative apartment loans
("Cooperative Loans") secured by security interests in shares issued by a
cooperative housing corporation (a "Cooperative") and in the related
proprietary leases or occupancy agreements granting exclusive rights to occupy
specific dwelling units in the cooperatives' buildings. The security agreement
will create a lien upon, or grant a title interest in, the property which it
covers, the priority of which will depend on the terms of the particular
security agreement as well as the order of recordation of the agreement in the
appropriate recording office. Such a lien or title interest is not prior to the
lien for real estate taxes and assessments and other charges imposed under
governmental police powers.
Each cooperative owns in fee or has a leasehold interest in all the real
property and owns in fee or leases the building and all separate dwelling units
therein. The cooperative is directly responsible for property management and,
in most cases, payment of real estate taxes, other governmental impositions and
hazard and liability insurance. If there is a blanket mortgage or mortgages on
the cooperative apartment building or underlying land, as is generally the
case, or an underlying lease of the land, as is the case in some instances, the
cooperative, as property Mortgagor, or lessee, as the case may be, is also
responsible for meeting these mortgage or rental obligations. A blanket
mortgage is ordinarily incurred by the cooperative in connection with either
the construction or purchase of the cooperative's apartment building or
obtaining of capital by the cooperative. The interest of the occupant under
proprietary leases or occupancy agreements as to which that cooperative is the
landlord are generally subordinate to the interest of the holder of a blanket
mortgage and to the interest of the holder of a land lease. If the cooperative
is unable to meet the payment obligations (i) arising under a blanket mortgage,
the mortgagee holding a blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements or (ii)
arising under its land lease, the holder of the landlord's interest under the
land lease could terminate it and all subordinate proprietary leases and
occupancy agreements. Also, a blanket mortgage on a cooperative may provide
financing in the form of a mortgage that does not fully amortize, with a
significant portion of principal being due in one final payment at maturity.
The inability of the cooperative to refinance a mortgage and its
55
<PAGE>
consequent inability to make such final payment could lead to foreclosure by
the mortgagee. Similarly, a land lease has an expiration date and the inability
of the cooperative to extend its term or, in the alternative, to purchase the
land could lead to termination of the cooperative's interest in the property
and termination of all proprietary leases and occupancy agreement. In either
event, a foreclosure by the holder of a blanket mortgage or the termination of
the underlying lease could eliminate or significantly diminish the value of any
collateral held by whomever financed the purchase by an individual tenant
stockholder of cooperative shares or, in the case of the Mortgage Loans, the
collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary lease or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed
through a cooperative share loan evidenced by a promissory note and secured by
an assignment of and a security interest in the occupancy agreement or
proprietary lease and a security interest in the related cooperative shares.
The lender generally takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement and a financing
statement covering the proprietary lease or occupancy agreement and the
cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares. See "--Foreclosure--Cooperative Loans" below.
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 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
56
<PAGE>
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.
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
57
<PAGE>
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 which are junior
mortgage loans, if the lender purchases the property the lender's title will be
subject to all senior mortgages, prior liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are 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.
In connection with a Series of Certificates for which an election is made
to qualify the Trust Fund, or a portion thereof, as a REMIC, the REMIC
Provisions and the Agreement may require the Master Servicer to hire an
independent contractor to operate any foreclosed property relating to Whole
Loans.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to
realize upon its security and to bar the Mortgagor, and all persons who have an
interest in the property which is subordinate to the mortgage being foreclosed,
from exercise of their "equity of redemption." The doctrine of equity of
redemption provides that, until the property covered by a mortgage has been
sold in accordance with a properly conducted foreclosure and foreclosure sale,
those having an interest which is subordinate to that of the foreclosing
mortgagee have an equity of redemption and may redeem the property by paying
the entire debt with interest. In addition, in some states, when a foreclosure
action has been commenced, the redeeming party must pay certain costs of such
action. Those having an equity of redemption must generally be made parties and
joined in the foreclosure proceeding in order for their equity of redemption to
be cut off and terminated.
The equity of redemption is 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 and FASIT Provisions currently in effect,
property acquired by foreclosure generally must not be held beyond the close of
the third taxable year following the taxable year the property was acquired. To
the extent 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 for longer than the permitted period if the Internal Revenue Service
grants an extension of 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 or FASIT
Provisions, as applicable. This grace period may be reduced for foreclosed
property
58
<PAGE>
other than real property or personal property incident to real property by
Treasury regulations under the FASIT Provisions (which have not yet been
issued). To the extent any such property may be acquired by a Trust Fund making
a FASIT election, the related Prospectus Supplement will specify the applicable
grace period beyond which the Trust FASIT may not hold such foreclosed
property.
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.
Cooperative Loans
The cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the Cooperative's Certificate of Incorporation and By-laws, as well as
the proprietary
59
<PAGE>
lease or occupancy agreement, and may be cancelled by the cooperative for
failure by the tenant- stockholder to pay rent or other obligations or charges
owed by such tenant-stockholder, including mechanics' liens against the
cooperative apartment building incurred by such tenant-stockholder. The
proprietary lease or occupancy agreement generally permits the Cooperative to
terminate such lease or agreement in the event an obligor fails to make
payments or defaults in the performance of covenants required thereunder.
Typically, the lender and the Cooperative enter into a recognition agreement
which establishes the rights and obligations of both parties in the event of a
default by the tenant-stockholder under the proprietary lease or occupancy
agreement will usually constitute a default under the security agreement
between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement is terminated, the Cooperative will recognize the lender's lien
against proceeds from the sale of the Cooperative apartment, subject, however,
to the Cooperative's right to sums due under such proprietary lease or
occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on
a Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the UCC and the security
agreement relating to those shares. Article 9 of the UCC requires that a sale
be conducted in a "commercially reasonable" manner. Whether a foreclosure sale
has been conducted in a "commercially reasonable" manner will depend on the
facts in each case. In determining commercial reasonableness, a court will look
to the notice given the debtor and the method, manner, time, place and terms of
the foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperatives to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency.
In the case of foreclosure on a building which was converted from a rental
building to a building owned by a Cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elected to remain in the building was so converted.
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 and no interest accrues 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 lien or 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 some
circumstances, the outstanding amount of the loan secured by the real property
may be reduced to the then-current value of the property pursuant to a
confirmed plan or lien avoidance proceeding, thus leaving the lender with a
general unsecured claim 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. It is possible
that a bankruptcy court would confirm a plan of reorganization, based on the
particular facts of the reorganization case, that provided for the curing of a
mortgage loan
60
<PAGE>
default through payment of arrearages over a number of years. Also, under
federal bankruptcy law, a bankruptcy court may permit a debtor through its plan
of reorganization 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.
Federal bankruptcy law provides generally that rights and obligation under
an unexpired lease of the debtor 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 that is conditioned upon the commencement of the
bankruptcy case or 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 were 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. An assignment of rents and other proceeds of a Mortgage Loan
may not be respected in bankruptcy if the assignment is not fully and timely
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 a lease
and retain it or assign it to a third party or (b) reject the lease. If a lease
under which the debtor is a lessee 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 lease immediately before the
date of the filing of the petition. As a consequence, the other party or
parties to such lease, such as the Mortgagor, as lessor under a Lease, 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 generally treat such lease as terminated by such rejection or, in the
alternative, the lessee may retain its rights under the lease (including
possession) for the balance of such term and for any renewal or extension of
such term to the extent such rights are 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 renewal or extension thereof,
any damages caused by the nonperformance after such date of any obligation of
the lessor under the lease. 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 the event their lessors
become the subject of bankruptcy proceedings.
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.
61
<PAGE>
A trustee in bankruptcy or debtor in possession, 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
bankruptcy court may authorize the granting of liens senior to the lien of a
mortgage, and certain 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. In addition, under the
Bankruptcy Code, if the court finds that the mortgagee engaged in inequitable
conduct, the mortgagee's claim 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 agreement permit the
business of the limited partnership to be carried on by the remaining general
partner, and the general partner does so or (ii) the written provisions of the
limited partnership agreement permit the limited partners to agree within a
specified time frame (often 60 days) after such withdrawal to continue the
business of the limited partnership and to appoint 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 insolvency 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 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 doctrine of substantive consolidation. 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.
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 or that are in close proximity to such properties. 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 and to some degree under Federal law,
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
62
<PAGE>
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.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), a lender may be liable either to
the government or to private parties for cleanup costs on a property securing a
loan, even if the lender does not cause or contribute to the contamination.
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.
A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in United States v. Fleet Factors Corp. very narrowly
construed CERCLA's secured-creditor exemption. The court held that a lender
need not have involved itself in the day-to-day operations of the facility or
participated in decisions relating to hazardous waste to be liable under
CERCLA; rather, liability could attach to a lender if its involvement with the
management of the facility is broad enough to support the inference that the
lender had the capacity to influence the borrower's treatment of hazardous
waste. The court added that a lender's capacity to influence such decision
could be inferred from the extent of its involvement in the facility's
financial management.
On April 29, 1992, in response to the decision in Fleet Factors Corp., the
United States Environmental Protection Agency (the "EPA") adopted a rule
interpreting and delineating CERCLA's secured-creditor exemption in EPA
enforcement proceedings. The rule attempted to define and specify the range of
permissible actions that may be undertaken by a foreclosing lender/holder of a
contaminated facility without exceeding the bounds of the secured- creditor
exemption. The rule also attempted to specify the circumstances under which
governmental or government-appointed entities that acquire possession or
control of contaminated facilities as conservators or receivers will be
considered "involuntary" owners for purposes of CERCLA's "innocent landowner"
defense to liability. Issuance of this rule by the EPA under CERCLA did not
necessarily affect the potential for liability in actions by either a state or
a private party under CERCLA or in actions under other federal or state laws
which may impose liability on "owners or operators" but did not incorporate the
secured-creditor exemption.
The validity of the EPA rule was challenged in the U.S. Court of Appeals
for the District of Columbia in Kelley v. EPA. In an opinion issued on February
4, 1994, the D.C. Circuit Court invalidated EPA's lender liability rule,
holding that EPA exceeded its authority in enacting the rule. The U.S. Supreme
Court denied certiorari on January 17, 1995. In response, the Department of
Justice ("DOJ") and the Agency issued a policy statement entitled "The Effect
of Superfund on Lenders That Hold Security Interests in Contaminated Property,"
published in the Federal Register in Volume 60, Number 237, at pages 63517 to
63519 (December 11, 1995). That policy statement directed parties to the voided
rule as the Agency's definitive view on CERCLA's secured creditor exemption,
and stated that EPA and DOJ will generally follow the approach of the Lender
Liability Rule and its preamble when exercising their enforcement discretion
with respect to lenders.
Under the Kelley case, the secured-creditor exemption under CERCLA will be
subject to existing case law interpretations. Some of those cases have
interpreted the exemption extremely narrowly, but most of the cases since
promulgation of the EPA rule have held that a lender is entitled to the
protection of the secured-creditor exemption provided that a lender complies
with the provisions set out in the EPA rule and does not itself (or through its
agents) cause or contribute to contamination. As a result of Kelley, the cases
applying the EPA rule have little, if any, precedential value and, thus,
lenders expected a return to the narrower interpretations of the exemption. In
fact, recent judicial opinions indicate that a court facing lender liability
issues is likely to apply principles and rationale that are consistent with EPA
and DOJ's Lender Policy. See, e.g., United States v. Wallace, 893 F. Supp. 627
(N.D. Tex. 1995); Z & Z Leasing, Inc. v. Graying Reel, Inc., 873 F. Supp. 51
(E.D. Mich. 1995); Kemp Industries, Inc. v. Safety Light Corp., 857 F. Supp.
373 (D.N.J. 1994).
63
<PAGE>
Finally, as part of the Omnibus Consolidated Appropriations Bill for
Fiscal Year 1997 signed by President Clinton on September 30, 1996, Congress
enacted the Asset Conservation, Lender Liability, and Deposit Insurance
Protection Act of 1996 (the "Act"). The Act includes lender and fiduciary
liability amendments to CERCLA, amendments to the secured creditor exemption
set forth in Subtitle I of RCRA, and validation of the portion of the CERCLA
Lender Liability Rule that addresses involuntary acquisitions by government
entities. The amendments made by the Act apply to all claims not finally
adjudicated as of September 30, 1996, which include all cases that are in the
process of being settled, and are generally based on the CERCLA Lender
Liability Rule. However, the amendments do not explicitly describe the steps a
lender can take to avoid liability after foreclosure.
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. The definition of
"hazardous substances" under CERCLA specifically excludes petroleum products,
and the secured-creditor exemption does not govern liability for cleanup costs
under federal laws other than CERCLA, in particular Subtitle I of the federal
Resource Conservation and Recovery Act ("RCRA"), which regulates underground
petroleum (other than heating oil) storage tanks. However, the EPA adopted a
lender liability rule for underground storage tanks under Subtitle I of RCRA.
Under such rule, a holder of a security interest in an underground storage tank
or real property containing an underground storage tank is not considered an
operator of the underground storage tank as long as petroleum is not added to,
stored in or dispensed from the tank. 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 protections 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, 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.
The related Agreement will provide that the Special Servicer, acting on
behalf of the Trustee, may not acquire title to a Mortgaged Property or take
over its operation unless the Special Servicer has previously determined, based
on a report prepared by a person who regularly conducts environmental
assessments, that: (i) such Mortgaged Property is in compliance with applicable
environmental laws, or, if not, that taking such actions as are necessary to
bring the Mortgaged Property in compliance therewith is likely to produce a
greater recovery on a present value basis, after taking into account any risks
associated therewith, than not taking such actions and (ii) there are no
circumstances present at the Mortgaged Property relating to the use, management
or disposal of any Hazardous Materials for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under any
federal, state or local law or regulation. This requirement effectively
precludes enforcement of the security for the related Mortgage Note until a
satisfactory environmental inquiry is undertaken, or that, if any Hazardous
Materials are present for which such action could be required, taking such
actions with respect to the affected Mortgaged Property is reasonably likely to
produce a greater recovery on a present value basis, after taking into account
any risks associated therewith, than not taking such actions, 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 Special Servicer
will detect all possible Environmental Hazard Conditions, that any estimate of
the costs of effecting compliance at any Mortgaged Property and the recovery
thereon will be correct, 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. Any additional restrictions on acquiring titles to a
Mortgaged Property may be set forth 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.
64
<PAGE>
"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 specifically including, asbestos and asbestos
containing materials, polychlorinated biphenyls, radon gas, petroleum and
petroleum products and urea formaldehyde.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the Mortgage Loans may contain due-on-sale and
due-on-encumbrance clauses. These clauses generally provide that the lender may
accelerate the maturity of the loan if the Mortgagor sells or otherwise
transfers or encumbers the mortgaged property. Certain of these clauses may
provide that, upon an attempted breach thereof by the Mortgagor of an otherwise
non-recourse loan, the 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, 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. To the extent provided in the related Prospectus Supplement, the
Master Servicer on behalf of the Trust Fund, will determine whether to exercise
any right the Trustee may have as mortgagee to accelerate payment of any such
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 the Mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the Mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the Mortgagor (as junior loans often do) and
the senior loan does not, a Mortgagor may be more likely to repay sums due on
the junior loan than those on the senior loan. Second, acts of the senior
lender that prejudice the junior lender or impair the junior lender's security
may create a superior equity in favor of the junior lender. For example, if the
Mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the Mortgagor is
additionally burdened. Third, if the Mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions
taken by junior lenders can impair the security available to the senior lender
and can interfere with or delay the taking of action by the senior lender.
Moreover, the bankruptcy of a junior lender may operate to stay foreclosure or
similar proceedings by the senior lender.
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 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
Interest Rates, may increase the likelihood of refinancing or other early
retirements of the Mortgage Loans.
ACCELERATION ON DEFAULT
To the extent 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,
65
<PAGE>
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.
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.
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.
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 borrower 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 borrower 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 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
66
<PAGE>
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 generally not be covered by advances or 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 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.
67
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following summary sets forth the anticipated material federal income
tax consequences of the purchase, ownership and disposition of Offered
Certificates. 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. In
the opinion of Latham & Watkins and Katten Muchin & Zavis the information set
forth under this caption, "Federal Income Tax Consequences," to the extent that
it constitutes matters of law or legal conclusions, is correct in all material
respects. 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 or, except as expressly indicated, to investors that do not acquire
Certificates in an initial offering. 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, or a
segregated portion thereof, 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 and the related Prospectus Supplement
indicates that the Trust Fund will be treated as a grantor trust, Latham &
Watkins or Katten Muchin & Zavis 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 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. In general, 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.
Tax Treatment of Income and Expense. 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 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 their 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 or (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 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 generally
must
68
<PAGE>
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 would otherwise be deductible had the Certificateholder 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.
Treatment of Certain Owners. As to each Series of Certificates evidencing
an interest in a Trust Fund comprised of Mortgage Loans, counsel to the
Depositor will have advised the Depositor that, except as described below under
"B. Multiple Classes of Grantor Trust Certificates--Treatment of Certain
Owners":
(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; and
(iii) a Grantor Trust Certificate owned by a REMIC will represent an
"obligation . . . which is principally secured by an interest in real
property" within the meaning of Code Section 860G(a)(3) to the extent that
the Mortgage Assets represented by that Grantor Trust Certificate would be
"qualified mortgages" or "permitted investments" within the meaning of Code
Section 860G(a).
Stripped Bonds and Coupons. Certain Trust Funds may consist of Government
Securities which 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 are treated as having OID based on the
purchase price and the stated redemption price at maturity of each Government
Security. As such, Grantor Trust Certificateholders would be required to
include in income their pro rata share of the OID 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 by the Certificateholder 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 is treated as acquiring 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 holds 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 Loan or a Mortgage Asset 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 amount by which the portion of
the prepaid principal amount of such Mortgage Loan (or underlying mortgage
loan) that is allocable to the Certificate is less than the portion of the
adjusted basis of the Certificate that is allocable to such Mortgage Loan (or
69
<PAGE>
underlying mortgage loan), if any. 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 IRS issued final regulations (the "Amortizable
Bond Premium Regulations") dealing with amortizable bond premium. These
regulations generally will be 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 such election). The
Amortizable Bond Premium Regulations specifically do not apply to prepayable
debt instruments or any pool of debt instruments, such as the Trust Fund, the
yield on which may be affected by prepayments subject to Code Section
1272(a)(6)(C). Absent further guidance from the IRS, the Trustee intends to
account for amortizable bond premium in the manner described above. Prospective
purchasers of Certificates should consult their tax advisors regarding the
possible application of the Amortizable Bond Premium Regulations.
Original Issue Discount. The Internal Revenue Service (the "IRS") has
stated in published rulings that, in circumstances similar to those described
herein, the special rules of the Code relating to OID (currently Code Sections
1271 through 1273 and 1275) and Treasury regulations issued on January 27,
1994, as amended on June 14, 1996, 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 1, 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 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
"--Grantor Trust Funds--Multiple Classes of Grantor Trust Certificates--Accrual
of Original Issue Discount" below.
Market Discount. A Grantor Trust Certificateholder that is treated as
acquiring 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 (or, if
such Mortgage Asset has OID, of such Mortgage Asset's revised issue price) 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
70
<PAGE>
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 the excess of the interest paid or
incurred for the taxable year attributable to any indebtedness incurred or
continued to purchase or carry such Grantor Trust Certificate purchased with
market discount over the interest distributable thereon. For these purposes,
the de minimis rule referred to above applies. Any such deferred excess
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. The amount of any
remaining deferred deduction is to be taken into account in the taxable year in
which the Grantor Trust Certificate matures or is disposed of in a taxable
transaction. In the case of a disposition in which gain or loss is not
recognized in whole or in part, any remaining deferred deduction will be
allowed to the extent of gain recognized on the disposition. 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 discount or OID) and premium in income as interest, based on a
constant yield method. 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 made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Certificateholder owns or acquires. See "--Grantor Trust
Funds--Single Class of Grantor Trust Certificates-- Premium." The election to
accrue interest, discount and premium on a constant yield method with respect
to a Certificate is irrevocable except with the approval of the IRS.
Anti-abuse Rule. The Internal Revenue Service 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
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 discount that is not de
minimis 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.
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 "--Grantor Trust
Funds--Single Class of Grantor
71
<PAGE>
Trust Certificates--Original Issue Discount." 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.
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 subsequent clarification
of such treatment requires an alternative method be used (which method would be
specified in a related Prospectus Supplement) payments from a Mortgage Asset
underlying a Stripped 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 faster than the assumed prepayment rate. 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 should be considered to represent
"real estate assets" within the meaning of Code Section 856(c)(4)(A) 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) to the extent that the Mortgage Assets represented by that
Grantor Trust Certificate would be "qualified mortgages" or "permitted
investments" within the meaning of Code Section 860G(a). Grantor Trust
Certificates generally will be "loans . . . secured by an interest in real
property which is . . . residential real property" within the meaning of Code
Section 7701(a)(19)(C)(v) only to the extent the underlying Mortgage Assets are
secured by multifamily, nursing home, or congregate care properties.
Grantor Trust Certificates Representing Interests in Loans Other Than ARM
Loans. The OID 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 OID 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 1, 1984. Under the OID Regulations, such OID 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
72
<PAGE>
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 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, in general, 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"), 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. The legislative history of the 1986 Act (the "Legislative
History") provides, however, that the regulations will require that the
Prepayment Assumption 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 applies only to debt
instruments collateralized by other debt instruments that are subject to
prepayment, and to pooled 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.
OID 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 OID
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 previously accrued OID, less prior
payments of principal. Accordingly, if such
73
<PAGE>
Mortgage Assets treated as acquired by a Certificateholder are purchased at a
price equal to the then unpaid principal amount of such Mortgage Asset, no OID
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 OID on the Mortgage Assets (e.g., that arising from a
"teaser" rate) would still need to be accrued.
Grantor Trust Certificates Representing Interests in ARM Loans. The OID
Regulations do not address the treatment of instruments such as Grantor Trust
Certificates that 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 "--Grantor Trust Funds--Multiple Classes of Grantor
Trust Certificates--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 (other than amounts attributable to accrued but unpaid interest) 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 be long-term or short-term depending on whether the Grantor Trust
Certificate has been owned for the long-term capital gain holding period
(currently more than one year).
The Taxpayer Relief Act of 1997 (the "Act") reduces the maximum rates on
long-term capital gains recognized on capital assets held by individual
taxpayers for more than eighteen months as of the date of disposition (and
would further reduce the maximum rates on such gains in the year 2001 and
thereafter for certain individual taxpayers who meet specified conditions). The
capital gains rate for capital assets held by individual taxpayers for more
than twelve months but not more than eighteen months was not changed by the Act
("mid-term rate"). The Act does not change the capital gain rates for
corporations. Prospective investors should consult their own tax advisors
concerning these tax law changes.
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 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 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.
D. NON-U.S. PERSONS
Generally, in the case of a Grantor Trust Certificateholder that is not a
"U.S. Person" (as defined below) and that is not holding its Certificate in
connection with a United States trade or business of such Certificateholder, to
the extent that a
74
<PAGE>
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.
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) except to the extent such payments are payments of
"contingent interest" or are otherwise ineligible for the portfolio interest
exemption. Additional restrictions apply to Mortgage Assets where the Mortgagor
is not a natural person in order to qualify for the exemption from withholding.
Generally, a Grantor Trust Certificateholder that is not a U.S. Person will not
be subject to federal income tax on any amount that constitutes capital gain
upon the retirement or disposition of a Grantor Trust Certificate or a Mortgage
Asset, provided the gain is not effectively connected with the conduct of a
trade or business in the U.S. by such Certificateholder or, in the case of a
Certificateholder who is a nonresident alien individual and hold the
Certificate as a capital asset, such holder is present in the U.S. for 183 days
or more in the taxable year and certain other requirements are met. Special
rules apply also to certain former citizens and residents of the U.S.
Interest paid to a Grantor Trust Certificateholder that is not a U.S.
Person that is effectively connected with a United States trade or business of
such Certificateholder will be taxed at graduated rates as if such Grantor
Trust Certificateholder were a U.S. Person, and will not be subject to
withholding if the Certificateholder gives an appropriate statement to that
effect to the Trustee in advance of such payment. In addition to the graduated
tax, effectively connected interest income received by a non-U.S. Person that
is a corporation may also be subject to an additional branch profits tax at a
rate of 30% (or such lower rate as may be specified in an applicable income tax
treaty). If capital gain derived from the sale, retirement or 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 United
States federal income tax rates applicable to U.S. Persons (and, with respect
to corporate Grantor Trust Certificateholders, may also be subject to branch
profits tax).
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 upon the earlier of the Trust Fund's disposition of
the property or such a holder's disposition of its Grantor Trust Certificate.
The amount of gain subject to tax should not exceed the amount by which the
value of the acquired property increased during the period such property was
held by the Trust Fund. The Grantor Trust Certificateholder's allocable share
of the gain generally would be taxed as though the gain were effectively
connected with a U.S. trade or business of such holder, and the purchaser would
withhold 10% of the gross amount realized on the disposition that is allocable
to the Non-U.S. Certificateholder's interest. Such amount withheld is
creditable against such Certificateholder's actual tax liability. Additionally,
to the extent a Grantor Trust Certificateholder that is not a U.S. person is
treated as owning an interest in real property acquired by foreclosure, deed in
lieu of foreclosure or otherwise, such Certificateholder would be subject to
United States federal income tax withholding at a rate of 30% (subject to
reduction under an applicable income tax treaty), on income from the property
unless such Certificateholder has in effect an election to be taxed at ordinary
U.S. tax rates on net income from all U.S. real property owned by it. An
interest in foreclosed property deemed to be acquired by a Non-U.S. Person that
owns a Grantor Trust Certificate would be includable in such individual's
estate for U.S. estate tax purposes. In addition, depending on the Trust Fund's
level of activities, its realization of gain and how long it held the
foreclosed property, such a Certificateholder may be deemed to be engaged in a
U.S. trade or business and may be required to file U.S. and state tax returns.
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 an individual who is a citizen of
the United States or is treated as a resident of the United States for United
States federal income tax purposes, an entity organized in or under the laws of
the United States or any political subdivision thereof treated as a corporation
or a partnership for such purposes, an estate the income of which from sources
outside the United States is includible in gross income for such 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
75
<PAGE>
supervision over the administration of the trust and one or more United States
persons have authority to control all substantial decisions of the trust (and,
to the extent provided in applicable Treasury regulations, a trust that was in
existence as of August 20, 1996 that elects to be treated as a U.S. Person).
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The Master Servicer or Trustee 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, certain information to assist
in preparing federal income tax returns of Certificateholders or other
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 conditions
are met. Such a 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 would
normally 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 for non-U.S.
Persons. 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. The REMIC must fulfill an asset test, which requires that
no more than a de minimis amount of the assets of the REMIC, as of the close of
the third calendar month beginning after the "Startup Day" (which for purposes
of this discussion is the date of issuance of the Certificates by the REMIC
(the "REMIC Certificates") and at all times thereafter, may consist of assets
other than "qualified mortgages" and "permitted investments." A "qualified
mortgage" for REMIC purposes is any obligation (including certificates of
participation in such an obligation) 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. The REMIC
Regulations provide a "safe harbor" pursuant to which the de minimis
requirement will be met if at all times the aggregate adjusted basis of any
nonqualified assets (i.e., assets other than qualified mortgages and permitted
investments) is less than 1% of the aggregate adjusted basis of all the REMIC's
assets. Although a REMIC is not generally subject to federal income tax (see,
however "--REMICs--Taxation of Owners of REMIC Residual Certificates" and
"--Prohibited Transactions and Other Taxes" 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 "--REMICs--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, the
classification of the REMIC for federal income tax purposes is uncertain. The
REMIC might be entitled to treatment as a grantor trust under the rules
described above under "--Grantor Trust Funds". In that case, no entity-level
tax would be imposed on the REMIC. Alternatively, the REMIC Regular
Certificates may continue to be treated as debt instruments for federal income
tax purposes; but the REMIC pool could be treated as a taxable mortgage pool (a
"TMP"). If the REMIC is treated as a TMP, any residual income of the REMIC
(i.e., income from the Mortgage Loans less interest and OID expense allocable
to the REMIC Regular Certificates and any administrative expenses of the REMIC
to the extent deductible) would be subject to corporate income tax at the
entity level. If such entity is taxable as a separate corporation, the related
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
76
<PAGE>
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, assuming
existing law and continued compliance with all provisions of the related
Pooling and Servicing Agreement, such Trust Fund will qualify as one or more
REMICs, and the related Certificates will be considered to be regular interests
("REMIC Regular Certificates") or residual interests ("REMIC Residual
Certificates") in a 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.
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)(ix) only to the extent provided in the related
Prospectus Supplement (generally, to the extent the Mortgage Assets are secured
by residential real property, such as multifamily, nursing home or congregate
care properties); (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 (c)(5)(B); 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 assets described in the
foregoing Code Sections only to the extent that the REMIC's assets are
qualifying assets described in such section. In addition, payments on Mortgage
Assets held pending distribution on the REMIC Certificates will be considered
to be "real estate assets" for purposes of Code Section 856(c). REMIC
Certificates held by a regulated investment company will not constitute
"government securities" within the meaning of Code Section 851(b)(4)(A)(i).
REMIC Certificates held by certain financial institutions will constitute an
"evidence of indebtedness" within the meaning of Code Section 582(c)(1). REMIC
Regular Certificates acquired by another REMIC on its Startup Day in exchange
for regular or residual interests in the REMIC will constitute "qualified
mortgages" within the meaning of Code Section 860G(a)(3). REMIC Regular
Certificates also will qualify as "regular interests in a REMIC" for purposes
of Code Section 860L(c)(1)(G), and may constitute a "permitted asset" of a
financial asset securitization investment trust ("FASIT").
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" or "Subsidiary
REMICs" and the "Master REMIC") for federal income tax purposes. Upon the
issuance of any such Series of Certificates, Latham & Watkins or Katten Muchin
& Zavis, 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 Subsidiary REMIC,
respectively, will be considered to evidence ownership of the regular interests
or residual interest 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 and the Master REMIC will be treated as one REMIC solely for
purposes of determining whether (i) the REMIC Certificates will be "real estate
assets" within the meaning of Section 856(c)(4)(A) of the Code; (ii) the REMIC
Certificates will be "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.
Moreover, the REMIC Regulations provide that, for purposes of Code Section
856(c)(4)(A), payments of principal and interest on the mortgage loans that are
reinvested pending distribution to holders of REMIC Certificates constitute
qualifying assets for such entities. Where two or more REMIC Pools are part of
a tiered structure they will be treated as one REMIC for purposes of the test
described above respecting asset ownership of more or less than 95%.
Notwithstanding the foregoing, however, REMIC income received by a real estate
investment trust ("REIT") owning a residual interest in a REMIC could be
treated in part as non-qualifying REIT income if the REMIC holds mortgage loans
with respect to which income is contingent on mortgagor profits or property
appreciation. In addition, if the assets of the REMIC include buy-down mortgage
loans, it is possible that the percentage of such assets constituting
"qualifying real property loans" or "loans . . . secured by an interest in real
property" for purposes of Code Section 7701(a)(19)(C)(v), may be required to be
reduced by the amount of the related buy-down funds.
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. However,
77
<PAGE>
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 1986 Act and Legislative
History. 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 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. Moreover, the OID Regulations include an anti-abuse rule allowing the IRS
to apply or depart from the OID Regulations where necessary or appropriate to
ensure a reasonable tax result in light of the applicable statutory provisions.
A tax result will not be considered unreasonable under the anti-abuse rule in
the absence of a substantial effect on the present value of a taxpayer's tax
liability. Investors are advised to consult their own tax advisors as to the
discussion herein and the appropriate method for reporting interest and
original issue discount with respect to the REMIC Regular Certificates.
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 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 OID (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 stated redemption price at maturity of the
Certificates. 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.
78
<PAGE>
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 OID (which delays future accruals of OID rather than being immediately
deductible) when prepayments on the Mortgage Assets exceed those estimated
under the Prepayment Assumption. If the Super Premium Certificates were treated
as contingent payment obligations, it is unclear how holders of those
Certificates would report income or recover their basis. The OID Regulations,
as they relate to the treatment of contingent interest, are by their terms not
applicable to Regular Certificates. However, if final regulations dealing with
contingent interest with respect to Regular Certificates apply the same
principles as the OID Regulations, such regulations may lead to different
timing of income inclusion and different characterization of any gain on the
sale of a Super-Premium Certificate than discussed above. 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 "--REMICs--Taxation of Owners of REMIC Regular
Certificates--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 "--REMICs--Taxation of Owners of REMIC Regular Certificates--Premium"
would apply. It is unclear when a loss may be claimed for any unrecovered basis
for a Super-Premium Certificate. It is possible that a holder of a
Super-Premium Certificate may claim a loss only 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. Investors should consult their tax advisors regarding the
appropriate treatment of Super-Premium Certificates.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than a 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 "--REMICs--Taxation of Owners of 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 OID 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
79
<PAGE>
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.
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
Certificate.
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
"--REMICs--Taxation of Owners of REMIC Regular Certificates--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 unless an alternative method
(which would be specified in the related Prospectus Supplement) is required
based on a subsequent clarification of the treatment of interest on weighted
average rate debt instruments under the OID Regulations. 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 rules similar to those relating to
obligations providing for contingent payments. Such treatment may affect 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 OID) 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
80
<PAGE>
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
"--REMICs--Taxation of Owners of REMIC Regular Certificates-- Premium" below.
The election to accrue interest, discount and premium on a constant yield
method with respect to a Certificate is irrevocable except with the approval 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, regardless of whether
the holder is a cash-basis or an accrual basis taxpayer. 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, 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 the excess of the interest paid or
incurred for the taxable year attributable to any indebtedness incurred or
continued to purchase or carry such Certificate purchased with market discount
over the interest distributable thereon. For these purposes, the de minimis
rule referred to above applies. Any such deferred excess 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. The amount of any remaining deferred
deduction is to be taken into account in the
81
<PAGE>
taxable year in which the Certificate matures or is disposed of in a taxable
transaction. In the case of a disposition in which gain or loss is not
recognized in whole or in part, any remaining deferred deduction will be
allowed to the extent of gain recognized on the disposition. 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 holds 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. The proposed regulations, with certain
modifications, were published in the Federal Register in final form on December
31, 1997, and such final regulations generally will be effective for bonds
acquired on or after March 2, 1998 or, for bondholders 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)(C) of the Code,
such as the REMIC 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.
Effects of Defaults and Delinquencies. 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 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. Timing and characterization
of such losses is discussed in "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Treatment of Realized Losses" below.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale, exchange,
redemption, or retirement (other than amounts attributable to qualified stated
interest) 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
82
<PAGE>
of a REMIC Regular Certificate will recognize gain equal to the excess, if any,
of the amount of the payment over 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 "--REMICs--Taxation of Owners of
REMIC Regular Certificates--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.
Gain from the sale or other disposition of a REMIC Regular Certificate
that might otherwise be capital gain will be treated as ordinary income (i) if
a 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,
(ii) in the case of a non-corporate taxpayer, to the extent such taxpayer has
made an election under Code Section 163(d)(4) to have net capital gains taxed
as investment income at ordinary income rates, or (iii) in the case of a REMIC
Regular Certificate 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 the 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.
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 require 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
Certificates' 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
"--REMICs--Taxation of Owners of REMIC Residual Certificates--Pass-Through of
Non-Interest Expenses of the REMIC" below.
83
<PAGE>
Treatment of Realized Losses. 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. Although the matter is not entirely clear, non-corporate
holders of Certificates may be allowed a bad debt deduction at such time that
the principal balance of any such Certificate is reduced to reflect realized
losses resulting from any liquidated Mortgage Assets. The Internal Revenue
Service, however, could take the position that non-corporate holders will be
allowed a bad debt deduction to reflect realized losses only after all Mortgage
Assets remaining in the related Trust Fund have been liquidated or the
Certificates of the related Series have been otherwise retired. 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 (a "Non-U.S. REMIC Regular
Certificateholder") 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 non-U.S. 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 that is a corporation
for U.S. federal income tax purposes may also be subject to the branch profits
tax.
Further, a REMIC Regular Certificate will not be included in the estate of
a nonresident alien individual 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
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 doing so.
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, certain information 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. 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. 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 conditions are met. Such a 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 would normally 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.
84
<PAGE>
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 reduce the after- tax
yield of a REMIC Residual Certificate to a REMIC Residual Certificateholder.
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 "--REMICs-- Taxation
of Owners of REMIC Residual Certificates--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 "--REMICs-- 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, OID 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 OID 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.
85
<PAGE>
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
expects to 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 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 "--REMICs--Taxation of Owners of REMIC
Residual Certificates--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 "--REMICs--Taxation of Owners of REMIC Residual
Certificates--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. A REMIC Residual Certificate acquired after January
3, 1995 cannot be marked-to-market.
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. 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
86
<PAGE>
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 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.
REMIC Residual 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 Residual Certificates.
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 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.
As an exception to the general rule described above, the Treasury
Department has authority to issue regulations that would treat the entire
amount of income accruing on a REMIC Residual Certificate as excess inclusions
if the REMIC Residual Certificates in the aggregate are considered not to have
"significant value." The Small Business Job Protection Act ("SBJPA") of 1996
has eliminated the special rule permitting Section 593 institutions ("Thrift
Institutions") to use net operating losses and other allowable deductions to
offset their excess inclusion income from 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 REMIC
Residual Certificates continuously held by thrift institutions since November
1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
REMIC Residual Certificateholder. First, alternative minimum taxable income for
a REMIC Residual Certificateholder is determined without regard to the special
rule, discussed above, that taxable income cannot be less than excess
inclusions. Second, a REMIC Residual Certificateholder's alternative minimum
taxable income for a taxable year cannot be less than the excess inclusions for
the year. Third, the amount of any alternative minimum tax net operating loss
deduction must be computed without regard to any excess inclusions. These rules
are effective for taxable years beginning after December 31, 1986, unless a
REMIC Residual Certificateholder elects to have such rules apply only to
taxable years beginning after August 20, 1996.
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
87
<PAGE>
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.
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. 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.
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.
C. 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.
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.
88
<PAGE>
D. 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.
E. 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.
F. 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 "--REMICs --Taxation of
Owners of REMIC Residual Certificates--Excess Inclusions" above.
G. RESIDUAL CERTIFICATE PAYMENTS TO NON-U.S. PERSONS
Amounts paid to REMIC Residual Certificateholders who are not U.S. Persons
(see "--REMICs--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 other than Excess Inclusions should qualify as
"portfolio interest," subject to the conditions described in
"--REMICs--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 "--REMICs--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 "--REMICs--Taxation of Owners of REMIC
Residual Certificates--Excess Inclusions" above. In addition, payments to REMIC
Residual Certificateholders of amounts that are "contingent interest" are
ineligible for the portfolio interest exemption. 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)
89
<PAGE>
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.
H. 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 (B) 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. 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 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
90
<PAGE>
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. The Pooling and Servicing Agreement will require
the transferee of a REMIC Residual Certificate to state as part of the
affidavit described above under "--Tax-Related Restrictions on Transfers of
REMIC Residual Certificates--Disqualified Organizations" that such transferee
(i) has historically paid its debts as they come due, (ii) intends to continue
to pay its debts as they come due in the future; (iii) understands that, as the
holder of a noneconomic REMIC Residual Certificate, it may incur tax
liabilities in excess of any cash flows generated by the REMIC Residual
Certificate as they become due. The transferor must have no reason to believe
that such statement is untrue.
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 States trade or business. A REMIC Residual
Certificate is deemed to have a tax avoidance potential unless, at the time of
transfer, the transferor reasonably expects 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 Agreement will provide that no record of 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 I.R.S. Form 4224 or applicable successor I.R.S. Form 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 entities are advised to consult
their own tax advisors with respect to any tax which may be imposed on a
pass-through entity.
DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO
CERTIFICATEHOLDERS AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS WITH RESPECT TO
MANY ASPECTS OF THOSE RULES, POTENTIAL INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS RESPECTING THE PURCHASE, OWNERSHIP OR DISPOSITION OF AN INVESTMENT IN
CERTIFICATES.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "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.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans subject to ERISA and on
any entity whose underlying assets include assets of such a plan by reason of
any such plan's investment in the entity ("ERISA Plans") and on persons who are
parties in interest or disqualified persons
91
<PAGE>
("parties in interest") with respect to such ERISA Plans. Section 4975 of the
Code imposes substantially similar prohibited transaction restrictions on tax
qualified retirement plans described in Section 401(a) of the Code and on
individual retirement accounts described in Section 408 of the Code ("Qualified
Plans" and together with ERISA Plans, "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 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.
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 an ERISA Plan and
its assets unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes (and, in
some cases, a civil penalty may be assessed pursuant to Section 502(i) of
ERISA) on parties in interest which engage in nonexempt prohibited
transactions.
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 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 Servicers, the Trustee
and other persons, in providing services with respect to the assets of the
Trust, may be parties in interest, subject to the fiduciary responsibility
provisions of Title I of ERISA, including the prohibited transaction provisions
of Section 406 of ERISA (and of Section 4975 of the Code), with respect to
transactions involving such assets unless such transactions are subject to a
statutory or administrative exemption.
The regulations contain a de minimis safe-harbor rule that exempts any
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. "Benefit plan
investors" are defined as Plans as well as employee benefit plans not subject
to ERISA (e.g., governmental plans). The 25% limitation must be met with
respect to each class of certificates, regardless of the portion of total
equity value represented by such class, on an ongoing basis.
AVAILABILITY OF UNDERWRITER'S EXEMPTION FOR CERTIFICATES
As specified in the related Prospectus Supplement, Labor has granted to
the Underwriter a Prohibited Transaction Exemption (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 the Underwriter 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 and specified in the
related Prospectus Supplement are satisfied.
Before purchasing a Certificate, a fiduciary of a Plan should itself
confirm (a) that the Certificates constitute "certificates" for purposes of the
Exemption and (b) that the specific and general conditions set forth in the
Exemption and the 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
92
<PAGE>
such investment. Among other things, before purchasing any Certificates, a
fiduciary of a Plan subject to the fiduciary responsibility provisions of ERISA
or an employee benefit plan subject to the prohibited transaction provisions of
the Code 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. The Prospectus Supplement with
respect to a Series of Certificates may contain additional information
regarding the application of the Exemption, PTCE 83-1, 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 ("SMMEA"). Such classes will constitute "mortgage
related securities" for so long as they are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization (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, state chartered savings banks, commercial
banks, savings and loan associations and insurance companies, as well as
trustees and state government employee retirement systems) created pursuant to
or existing under the laws of the United States or of any state (including the
District of Columbia and Puerto Rico) whose authorized investments are subject
to state regulation to the same extent that, under applicable law, obligations
issued by or guaranteed as to principal and interest by the United States or
any agency or instrumentality thereof constitute legal investments for such
entities. Alaska, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia,
Illinois, Kansas, Maryland, Michigan, Missouri, Nebraska, New Hampshire, New
York, North Carolina, Ohio, South Dakota, Utah, Virginia and West Virginia
enacted legislation, on or before the October 4, 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. In addition, pursuant to the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "1994
Amendment"), Congress expanded the definition of securities entitled to the
benefits of SMMEA to include those evidencing ownership of, or secured by,
notes secured by a first lien on one or more parcels of real estate, upon which
is located one or more commercial structures. The terms of this amendment
permit states to prohibit or limit, by specific legislation, the authority of
persons, trusts, corporations, partnerships, associations, business trusts or
business entities to purchase, hold or invest, in securities evidencing
ownership of, or secured by, such notes to the extent predicated on the
expansion of SMMEA. The 1994 Amendment permits enactment of such restrictions
until September 23, 2001. It provides, however, that no enactment will affect
the validity of a contractual commitment to purchase, hold or invest in
securities made before such enactment, or require sale of any securities
previously acquired. The Prospectus Supplement for each Series will identify
the states, if any, that have enacted any such limitations through the date of
the Prospectus Supplement. Enactment of such restrictions could adversely
affect the liquidity of any Offered Certificates entitled to the benefits of
SMMEA solely by reason of the 1994 Amendment. Accordingly, the investors
affected by such legislation will be authorized to invest in SMMEA Certificates
only to the extent provided in such legislation. Accordingly, 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.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as
the applicable federal regulatory authority may prescribe.
Institutions where investment activities are subject to legal investment
laws or regulations or review by certain regulatory authorities may be subject
to restrictions on investment in certain classes of Offered Certificates. Any
financial institution which is subject to the jurisdiction of the Comptroller
of the Currency, the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation ("FDIC"), the Office of Thrift
Supervision ("OTS"), the National Credit Union Administration ("NCUA") or other
federal or state agencies with similar authority should review any applicable
rules, guidelines and regulations prior to purchasing any Offered Certificate.
The Federal Financial Institutions Examination Council, for example, has issued
a Supervisory Policy Statement on Securities Activities effective February 10,
1992 (the "Policy Statement"). The Policy Statement has been adopted by the
Comptroller of the Currency, the Federal Reserve Board, the FDIC, the OTS and
the NCUA (with certain modifications), with respect to the depository
institutions that they
93
<PAGE>
regulate. The Policy Statement prohibits depository institutions from investing
in certain "high-risk mortgage securities" (including securities such as
certain classes of Offered Certificates), except under limited circumstances,
and sets forth certain investment practices deemed to be unsuitable for
regulated institutions. The NCUA issued final regulations effective December 2,
1991 that restrict and in some instances prohibit the investment by federal
credit unions in certain types of mortgage related securities.
In September 1993 the National Association of Insurance Commissioners
released a draft model investment law (the "Model Law") which sets forth model
investment guidelines for the insurance industry. Institutions subject to
insurance regulatory authorities may be subject to restrictions on investment
similar to those set forth in the Model Law and other restrictions.
The appropriate characterization under various legal investment
restrictions of those Offered Certificates that do not constitute "mortgage
related securities" under SMMEA, and thus the ability of investors subject to
these restrictions to purchase such Offered Certificates, may be subject to
significant interpretive uncertainties.
Notwithstanding SMMEA, there may be other restrictions on the ability of
certain investors, including depository institutions, either to purchase any
Offered Certificates or to purchase Offered Certificates representing more than
a specified percentage of the investors' assets.
Except as to the status of SMMEA Certificates identified in the Prospectus
Supplement for a Series as "mortgage related securities" under SMMEA, the
Depositor will make no representations as to the proper characterization of the
Certificates for legal investment or financial institution regulatory 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
Certificates) may adversely affect the liquidity of the Certificates.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Offered Certificates or
to purchase Offered Certificates representing more than a specified percentage
of the investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Offered Certificates constitute
legal investments for such investors.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus Supplements
will be offered in series through one or more of the methods described below.
The Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the net proceeds to the
Depositor from such sale.
The Depositor intends that Offered Certificates will be offered through
the following methods from time to time and that offerings may be made
concurrently through more than one of these methods or that an offering of the
Offered Certificates of a particular series may be made through a combination
of two or more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and public
re-offering by underwriters;
2. By placements by the Depositor with institutional investors through
dealers; and
3. By direct placements by the Depositor with institutional investors.
In addition, if specified in the related Prospectus Supplement, the
Offered Certificates of a series may be offered in whole or in part to the
seller of the related Mortgage Assets that would comprise the Trust Fund for
such Certificates.
If underwriters are used in a sale of any Offered Certificates (other than
in connection with an underwriting on a best efforts basis), such Certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Such
underwriters may be broker-dealers affiliated with
94
<PAGE>
the Depositor whose identities and relationships to the Depositor will be as
set forth in the related Prospectus Supplement. The managing underwriter or
underwriters with respect to the offer and sale of Offered Certificates of a
particular series will be set forth on the cover of the Prospectus Supplement
relating to such series and the members of the underwriting syndicate, if any,
will be named in such Prospectus Supplement.
In connection with the sale of Offered Certificates, underwriters may
receive compensation from the Depositor or from purchasers of the Offered
Certificates in the form of discounts, concessions or commissions. Underwriters
and dealers participating in the distribution of the Offered Certificates may
be deemed to be underwriters in connection with such Certificates, and any
discounts or commissions received by them from the Depositor and any profit on
the resale of Offered Certificates by them may be deemed to be underwriting
discounts and commissions under the Securities Act.
It is anticipated that the underwriting agreement pertaining to the sale
of the Offered Certificates of any series will provide that the obligations of
the underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Depositor will indemnify the
several underwriters and the underwriters will indemnify the Depositor against
certain civil liabilities, including liabilities under the Securities Act or
will contribute to payments required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Depositor and purchasers of
Offered Certificates of such series.
The Depositor anticipates that the Certificates offered hereby will be
sold primarily to institutional investors. Purchasers of Offered Certificates,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act in connection with reoffers and sales by them of Offered Certificates.
Holders of Offered Certificates should consult with their legal advisors in
this regard prior to any such reoffer or sale.
LEGAL MATTERS
Certain legal matters in connection with the Certificates, including
certain federal income tax consequences, will be passed upon for the Depositor
by Latham & Watkins, New York, New York or by Katten Muchin & Zavis, Chicago,
Illinois.
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.
95
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
DEFINITIONS PAGE
Accounts.................................................................. 41
Accrual Certificates.................................................. 10, 31
ACMs...................................................................... 62
Act................................................................... 64, 74
ADA....................................................................... 66
Amortizable Bond Premium Regulations...................................... 70
Applicable Amount......................................................... 87
ARM Loans............................................................. 23, 73
Asset Seller.............................................................. 20
Balloon Mortgage Loans.................................................... 17
Bankruptcy Code........................................................... 59
Cash Flow Agreement.................................................... 9, 25
Cash Flow Agreements....................................................... 1
Cede................................................................... 3, 37
CEDEL Participants........................................................ 37
CERCLA................................................................ 19, 63
Certificate Balance........................................................ 9
Certificates............................................................... 7
Closing Date.............................................................. 78
CMBS................................................................ 1, 7, 20
CMBS Agreement............................................................ 24
CMBS Issuer............................................................... 24
CMBS Servicer............................................................. 24
CMBS Trustee.............................................................. 24
Code...................................................................... 11
Commercial Loans.......................................................... 21
Commercial Properties.................................................. 7, 21
Commission................................................................. 3
Contributions Tax......................................................... 88
Cooperative........................................................... 38, 55
Cooperative Loans......................................................... 55
Cooperatives.............................................................. 21
Covered Trust......................................................... 18, 52
CPR....................................................................... 29
Credit Support...................................................... 1, 9, 25
Crime Control Act......................................................... 67
Deferred Interest......................................................... 74
Definitive Certificates............................................... 31, 38
Depositaries.............................................................. 36
Depositor.............................................................. 7, 20
Determination Date........................................................ 31
Distribution Account...................................................... 43
Distribution Date......................................................... 10
DOJ....................................................................... 63
DTC.................................................................... 3, 36
Environmental Hazard Condition............................................ 64
EPA....................................................................... 63
Equity Participations..................................................... 24
ERISA................................................................. 12, 91
ERISA Plans............................................................... 91
Euroclear Operator........................................................ 38
Euroclear Participants.................................................... 38
96
<PAGE>
Exchange Act............................................................... 3
Exemption................................................................. 92
FASIT..................................................................... 77
FDIC.................................................................. 41, 93
Grantor Trust Certificates................................................ 11
Indirect Participants..................................................... 36
Insurance Proceeds........................................................ 42
IRS....................................................................... 70
Labor..................................................................... 92
L/C Bank.................................................................. 53
Lease................................................................... 3, 8
Lease Assignment........................................................... 1
Legislative History....................................................... 73
Lessee.................................................................. 3, 8
Master REMIC.............................................................. 77
Master Servicer............................................................ 7
Model Law................................................................. 94
Mortgage Assets............................................................ 1
Mortgage Interest Rate................................................. 8, 24
Mortgage Loan.............................................................. 1
Mortgage Loans......................................................... 7, 20
Mortgage Notes............................................................ 21
Mortgages................................................................. 21
Multifamily Loans......................................................... 21
Multifamily Properties................................................. 7, 21
NCUA...................................................................... 93
New Regulations........................................................... 76
Nonrecoverable Advance.................................................... 34
Notes..................................................................... 12
Offered Certificates....................................................... 1
OID....................................................................... 68
OID Regulations........................................................... 70
Originator................................................................ 21
OTS....................................................................... 93
Partnership............................................................... 12
Partnership Interest...................................................... 12
Payment Lag Certificates.................................................. 83
Permitted Investments..................................................... 41
Plans..................................................................... 92
Policy Statement.......................................................... 93
Prepayment Assumption..................................................... 73
Prepayment Premium........................................................ 24
Prohibited Transactions Tax............................................... 88
Prospectus Supplement...................................................... 1
Qualified Plans........................................................... 92
Rating Agency............................................................. 13
RCRA...................................................................... 64
Record Date............................................................... 31
REIT...................................................................... 77
Related Proceeds.......................................................... 34
Relief Act................................................................ 67
REMIC.................................................................. 2, 11
REMIC Certificates........................................................ 76
REMIC Regular Certificates............................................ 11, 77
REMIC Regulations......................................................... 68
97
<PAGE>
REMIC Residual Certificateholders......................................... 84
REMIC Residual Certificates........................................... 11, 77
Rico...................................................................... 67
Rules..................................................................... 37
SBJPA..................................................................... 87
Securities Act............................................................. 3
Senior Certificates.................................................... 9, 31
Series..................................................................... 1
Servicer.................................................................. 11
Servicing Standard........................................................ 43
Servicing Transfer Event.................................................. 44
SMMEA..................................................................... 93
SMMEA Certificates........................................................ 93
Special Servicer........................................................... 7
Specially Serviced Mortgage Loan.......................................... 44
Stripped ARM Obligations.................................................. 74
Stripped Bond Certificates................................................ 71
Stripped Coupon Certificates.............................................. 71
Stripped Interest Certificates........................................ 10, 31
Stripped Principal Certificates....................................... 10, 31
Subordinate Certificates.............................................. 10, 31
Subsidiary REMIC.......................................................... 77
Subsidiary REMICs......................................................... 77
Thrift Institutions....................................................... 87
Title V................................................................... 66
TMP....................................................................... 76
Trust Assets............................................................... 3
Trust Fund................................................................. 1
Trust Partnership......................................................... 12
Trustee.................................................................... 7
UCC....................................................................... 36
Voting Rights............................................................. 20
Warranting Party...................................................... 14, 40
98
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS AND
PROSPECTUS SUPPLEMENT. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION OR
REPRESENTATIONS. THIS PROSPECTUS AND PROSPECTUS SUPPLEMENT IS AN OFFER TO SELL
ONLY THE CERTIFICATES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN
JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS AND PROSPECTUS SUPPLEMENT IS CURRENT ONLY AS OF ITS DATE.
TABLE OF CONTENTS
-----------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUPPLEMENT
Executive Summary .................................... S-5
Summary of Terms ..................................... S-7
Offered Securities ................................... S-8
The Mortgage Pool .................................... S-12
Additional Aspects of Certificates ................... S-17
Risk Factors ......................................... S-20
Description of the Certificates ...................... S-43
Maturity Considerations .............................. S-59
Yield Considerations ................................. S-64
Description of the Mortgage Pool ..................... S-65
Servicing of the Mortgage Loans ...................... S-81
Certain Legal Aspects of the Mortgage Loans .......... S-90
Certain Federal Income Tax Consequences .............. S-93
ERISA Considerations ................................. S-97
Legal Investment ..................................... S-99
Use of Proceeds ...................................... S-100
Plan of Distribution ................................. S-100
Legal Matters ........................................ S-101
Ratings .............................................. S-101
Index of Terms for Prospectus Supplement ............. S-102
Annex A--The Mortgage Loan Characteristics ........... A-1
Annex B--Additional Step Loan and Interest-Only B-1
Loan Characteristics ..............................
Annex C--Affiliated Borrowers ........................ C-1
Annex D--Form of Statement to D-1
Certificateholders ................................
Annex E--Structural and Collateral Term Sheet E-1
and Top Ten Loan Descriptions .....................
PROSPECTUS
Prospectus Supplement ................................ 3
Available Information ................................ 3
Incorporation of Certain Information by Reference..... 4
Summary of Prospectus ................................ 7
Risk Factors ......................................... 14
Description of the Trust Funds ....................... 20
Use of Proceeds ...................................... 26
Yield Considerations ................................. 27
The Depositor ........................................ 30
Description of the Certificates ...................... 31
Description of the Agreements ........................ 38
Description of Credit Support ........................ 52
Certain Legal Aspects of Mortgage Loans and the
Leases ............................................ 54
Federal Income Tax Consequences ...................... 68
State Tax Considerations ............................. 91
ERISA Considerations ................................. 91
Legal Investment ..................................... 93
Method of Distribution ............................... 94
Legal Matters ........................................ 95
Financial Information ................................ 95
Rating ............................................... 95
Index of Principal Definitions ....................... 96
</TABLE>
$835,556,000
(APPROXIMATE)
HELLER FINANCIAL
COMMERCIAL
MORTGAGE ASSET
CORP.
-----------------
CLASS A-1, CLASS A-2,
CLASS B, CLASS C AND CLASS D
MORTGAGE PASS-THROUGH
CERTIFICATES
SERIES 1999 PH-1
-----------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------
PRUDENTIAL SECURITIES
MORGAN STANLEY DEAN WITTER
May 21, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
