<PAGE>
Filed Pursuant to Rule 424(B)(5)
Registration File No.: 333-62911
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IS NOT COMPLETE
AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE
ACCEPTED PRIOR TO THE TIME A FINAL PROSPECTUS IS DELIVERED. THIS PROSPECTUS
SUPPLEMENT AND PROSPECTUS ARE NOT AN OFFERING TO SELL THESE SECURITIES AND ARE
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 19, 1999
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 19, 1999)
$557,567,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
AS DEPOSITOR
PRINCIPAL COMMERCIAL FUNDING, LLC
JOHN HANCOCK REAL ESTATE FINANCE, INC.
MORGAN STANLEY MORTGAGE CAPITAL INC.
AS MORTGAGE LOAN SELLERS
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1999-LIFE1
--------------------
Morgan Stanley Capital I Inc. is offering selected classes of its
Series 1999-LIFE1 Commercial Mortgage Pass-Through Certificates, which represent
beneficial ownership interests in a trust. The trust's assets will primarily be
129 mortgage loans secured by liens on commercial and multifamily properties.
The Series 1999-LIFE1 Certificates are not obligations of Morgan Stanley Capital
I Inc., the sellers of the mortgage loans or any of their affiliates and neither
the certificates nor the underlying mortgage loans are insured or guaranteed by
any governmental agency.
--------------------
Morgan Stanley Capital I Inc. will not list the offered certificates on
any national securities exchange or on any automated quotation system of any
registered securities association such as NASDAQ.
--------------------
INVESTING IN THE OFFERED CERTIFICATES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE S-21 OF THIS PROSPECTUS SUPPLEMENT AND PAGE 13 OF THE
PROSPECTUS.
--------------------
Certain characteristics of the offered certificates include:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
APPROXIMATE INITIAL PASS-THROUGH EXPECTED FINAL
CERTIFICATE INITIAL RATE RATINGS DISTRIBUTION
CLASS BALANCE PASS-THROUGH RATE DESCRIPTION (FITCH/S&P) DATE
----- ------- ----------------- ----------- ----------- ----
CLASS A-1....... $77,037,000 6.73% FIXED AAA/AAA NOVEMBER 2008
CLASS A-2....... $411,600,000 6.98% FIXED AAA/AAA JULY 2009
CLASS B......... $21,445,000 NWAC-0.23% VARIABLE AA/AA JULY 2009
CLASS C......... $24,509,000 NWAC-0.08% VARIABLE A/A JULY 2009
CLASS D......... $9,190,000 NWAC VARIABLE A-/A- JULY 2009
CLASS E......... $13,786,000 NWAC VARIABLE BBB/BBB JULY 2009
</TABLE>
--------------------
See page S-3 of this Prospectus Supplement for a more complete
description of the Initial Pass-Through Rates listed above. The rated final
distribution date for each class of offered certificates is the distribution
date in April 2033.
--------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined that
this prospectus supplement or the accompanying prospectus are truthful or
complete. Any representation to the contrary is a criminal offense.
--------------------
Morgan Stanley & Co. Incorporated will act as sole lead manager and
bookrunner. Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co. will
purchase the offered certificates from Morgan Stanley Capital I Inc. and will
offer them to the public at negotiated prices determined at the time of sale.
Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co. expect to deliver the
offered certificates to purchasers on or about August __ , 1999. Morgan Stanley
Capital I Inc. expects to receive from this offering approximately $__________,
plus accrued interest from August 1, 1999, before deducting expenses payable by
Morgan Stanley Capital I Inc.
--------------------
MORGAN STANLEY DEAN WITTER
GOLDMAN, SACHS & CO.
The date of this Prospectus Supplement is July __, 1999
<PAGE>
MORGAN STANLEY CAPITAL I INC.
Commercial Mortgage Pass-Through Certificates, Series 1999 -- LIFE 1
Geographic Overview of Mortgage Pool
WASHINGTON ALABAMA NEW HAMPSHIRE
$9,706,774 $5,410,901 $11,915,229
1.58% of total 0.88% of total 1.94%
NEVADA FLORIDA NEW YORK
$24,651,358 $63,372,323 $68,888,195
4.02% of total 10.34% of total 11.24% of total
NORTHERN CALIFORNIA GEORGIA PENNSYLVANIA
$22,038,345 $32,789,449 $33,253,192
3.60% of total 5.35% of total 5.43% of total
CALIFORNIA SOUTH CAROLINA OHIO
$92,764,140 $16,621,161 $22,358,258
15.14% of total 2.71% of total 3.65% of total
SOUTHERN CALIFORNIA NORTH CAROLINA MICHIGAN
$70,725,795 $33,515,826 $11,491,829
11.54% of total 5.47% of total 1.88% of total
UTAH VIRGINIA INDIANA
$8,152,816 $36,824,466 $1,899,160
1.33% of total 6.01% of total 0.31% of total
ARIZONA MARYLAND WISCONSIN
$8,029,131 $5,642,731 $10,587,771
1.31% of total 0.92% of total 1.73% of total
COLORADO NEW JERSEY ILLINOIS
$10,291,368 $47,481,004 $1,523,859
1.68% of total 7.75% of total 0.25% of total
TEXAS MASSACHUSETTS MINNESOTA
$12,593,730 $10,349,506 $28,475,794
2.06% of total 1.69% of total 4.65% of total
MISSOURI
$4,121,825
0.67% of total
[less than] 1.0% of Cut-Off Date Balance
1.0% - 5.0% of Cut-Off Date Balance
5.0% - 10.0% of Cut-Off Date Balance
[greater than] 10.0% of Cut-Off Date Balance
<PAGE>
With respect to the table on the cover page:
The amounts under the column "Approximate Initial Certificate Balance" are
approximate and may vary by up to 5%.
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 described below for such distribution date. The pass-through rates for
the Class B, Class C, Class D and Class E Certificates set forth in the table
are the approximate initial pass-through rates for those classes. The
pass-through rate on the Class B Certificates will be a per annum rate equal to
the NWAC rate described below for such distribution date minus 0.23%, the
pass-through rate on the Class C Certificates will be a per annum rate equal to
the NWAC rate described below for such distribution date minus 0.08%, the
pass-through rate on the Class D Certificates will be a per annum rate equal to
the NWAC rate described below for such distribution date, and the pass-through
rate on the Class E Certificates will be a per annum rate equal to the NWAC rate
described below for such distribution date. The NWAC rate for a particular
distribution date is, generally, a weighted average of the interest rates on the
mortgage loans minus a weighted average annual administrative cost rate, which
includes the master servicing fee rate, any excess master servicing fee rate,
the primary servicing fee rate and the trustee fee rate, calculated as described
in this prospectus supplement. The Pass-Through Rates shown are only for
indicative purposes. The final Pass-Through Rates will be determined at pricing.
You should read the section entitled "Ratings" in this prospectus supplement.
The expected final distribution date for each class of offered certificates is
the date on which such class is expected to be paid in full, assuming timely
payments (and no principal prepayments) will be made on the mortgage loans and
otherwise based on the maturity assumptions set forth in this prospectus
supplement and a 0% CPR.
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. Morgan Stanley Capital I Inc. has
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
accompanying prospectus identify the pages where these sections are located.
--------------------
Until the date that is ninety days from the date of this prospectus
supplement, all dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus
supplement and the accompanying prospectus. This is in addition to the dealers'
obligation to deliver a prospectus supplement and the accompanying prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
S-3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
S-4
<PAGE>
TABLE OF CONTENTS
-----------------
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS .................................S-3
EXECUTIVE SUMMARY ..........................................................S-6
CERTIFICATE SUMMARY FOR OFFERED CERTIFICATES ...............................S-7
SUMMARY of terms ...........................................................S-9
What You Own ............................................................S-9
Relevant Parties and Dates ..............................................S-9
Offered Securities .....................................................S-10
Information About the Mortgage Pool ....................................S-13
Additional Aspects of Certificates .....................................S-18
RISK FACTORS ..............................................................S-21
DESCRIPTION OF THE CERTIFICATES ...........................................S-46
General ................................................................S-46
Certificate Balances and Notional Amount ...............................S-48
Pass-Through Rates .....................................................S-48
Distributions ..........................................................S-49
Optional Termination ...................................................S-55
Advances ...............................................................S-55
Reports to Certificateholders; Available Information ...................S-57
Example of Distributions ...............................................S-60
The Trustee and the Fiscal Agent .......................................S-61
Expected Final Distribution Date; Rated Final Distribution Date ........S-61
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS .............................S-62
General ................................................................S-62
Pass-Through Rates .....................................................S-62
Rate and Timing of Principal Payments ..................................S-62
Losses and Shortfalls ..................................................S-63
Relevant Factors .......................................................S-64
Weighted Average Life ..................................................S-64
DESCRIPTION OF THE MORTGAGE POOL ..........................................S-68
General ................................................................S-68
Material Terms and Characteristics of the Mortgage Loans ...............S-68
Property Types .........................................................S-68
Property Location ......................................................S-69
Cross Collateralization; Related Parties ...............................S-71
Assessments of Property Value and Condition ............................S-72
Additional Mortgage Loan Information ...................................S-73
Standard Hazard Insurance ..............................................S-75
The Sellers ............................................................S-75
Sale of the Mortgage Loans .............................................S-76
Representations and Warranties .........................................S-76
Repurchases and Other Remedies .........................................S-78
Changes In Mortgage Pool Characteristics ...............................S-78
SERVICING OF THE MORTGAGE LOANS ...........................................S-78
General ................................................................S-78
The Master Servicer and Special Servicer ...............................S-80
Master Servicer ........................................................S-81
Events of Default ......................................................S-81
The Special Servicer ...................................................S-82
The Operating Adviser ..................................................S-83
Mortgage Loan Modifications ............................................S-84
Sale of Defaulted Mortgage Loans and REO Properties ....................S-85
Foreclosures ...........................................................S-85
MATERIAL FEDERAL INCOME TAX CONSEQUENCES ..................................S-86
General ................................................................S-86
Original Issue Discount and Premium ....................................S-87
Additional Considerations ..............................................S-89
LEGAL ASPECTS OF MORTGAGE LOANS ...........................................S-89
ERISA CONSIDERATIONS ......................................................S-90
Plan Assets ............................................................S-90
Special Exemption Applicable to Class A Certificates ...................S-90
Insurance Company General Accounts .....................................S-92
General Investment Considerations ......................................S-92
LEGAL INVESTMENT ..........................................................S-93
USE OF PROCEEDS ...........................................................S-93
PLAN OF DISTRIBUTION ......................................................S-93
LEGAL MATTERS .............................................................S-94
RATINGS ...................................................................S-94
GLOSSARY OF TERMS .........................................................S-96
APPENDIX I - MORTGAGE POOL INFORMATION (TABLES).............................I-1
APPENDIX II - CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS................II-1
APPENDIX III - SIGNIFICANT LOAN SUMMARIES.................................III-1
TERM SHEET..................................................................T-1
FORM OF STATEMENT TO CERTIFICATEHOLDERS.....................................R-1
S-5
<PAGE>
EXECUTIVE SUMMARY
This executive summary highlights selected information regarding the
offered certificates. It does not contain all of the information you need to
consider in making your investment decision. TO UNDERSTAND ALL OF THE TERMS OF
THE OFFERING OF THE OFFERED CERTIFICATES AND THE UNDERLYING MORTGAGE LOANS, READ
THIS ENTIRE PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS CAREFULLY.
CERTIFICATE STRUCTURE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
APPROXIMATE INITIAL APPROXIMATE
CREDIT CERTIFICATE RATINGS PERCENT OF TOTAL
SUPPORT CLASS BALANCE (FITCH/S&P) CERTIFICATES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
20.25% CLASS X CLASS A-1 $ 77,037,000 AAA/AAA 12.57%
- ---------- $612,711,795 -----------------------------------------------------------
20.25% (Approximate CLASS A-2 $411,600,000 AAA/AAA 67.18%
- ---------- Notional Amount) -----------------------------------------------------------
16.75% CLASS B $ 21,445,000 AA/AA 3.50%
- ---------- -----------------------------------------------------------
12.75% CLASS C $ 24,509,000 A/A 4.00%
- ---------- -----------------------------------------------------------
11.25% CLASS D $ 9,190,000 A-/A- 1.50%
- ---------- -----------------------------------------------------------
9.00% CLASS E $ 13,786,000 BBB/BBB 2.25%
- ---------- -----------------------------------------------------------
-- CLASSES F-P -- -- --
- ------------------------------------------------------------------------------------------
</TABLE>
The percentages indicated under the columns "Approximate Credit Support" and
"Approximate Percent of Total Certificates" with respect to the Class A-1 and
Class A-2 Certificates represent the approximate credit support or percent of
total certificates, as applicable, for the Class A-1 and Class A-2 Certificates
in the aggregate.
The Class X, Class F, Class G, Class H, Class J, Class K, Class L, Class M,
Class N, Class O and Class P Certificates are not offered hereby.
The Series 1999-LIFE1 Class R-I, R-II and R-III Certificates also represent
ownership interests in the trust. Such certificates are not represented in this
table and are not offered hereby.
Offered certificates.
Certificates not offered hereby.
s-6
<PAGE>
CERTIFICATE SUMMARY FOR OFFERED CERTIFICATES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
INITIAL PASS-
APPROXIMATE INITIAL THROUGH WEIGHTED PRINCIPAL
CREDIT CERTIFICATE APPROXIMATE RATE AND RATE RATINGS AVERAGE WINDOW
SUPPORT CLASS BALANCE % OF TOTAL DESCRIPTION FITCH/S&P LIFE (YRS.) (MONTHS)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
20.25% A-1 $77,037,000 12.57% 6.73%(Fixed) AAA/AAA 5.70 1-111
- -------------------------------------------------------------------------------------------------------------
20.25% A-2 $411,600,000 67.18% 6.98%(Fixed) AAA/AAA 9.75 111-119
- -------------------------------------------------------------------------------------------------------------
16.75% B $21,445,000 3.50% 7.22%(NWAC) AA/AA 9.93 119-119
- -------------------------------------------------------------------------------------------------------------
12.75% C $24,509,000 4.00% 7.37%(NWAC) A/A 9.93 119-119
- -------------------------------------------------------------------------------------------------------------
11.25% D $9,190,000 1.50% 7.45%(NWAC) A-/A- 9.93 119-119
- -------------------------------------------------------------------------------------------------------------
9.00% E $13,786,000 2.25% 7.45%(NWAC) BBB/BBB 9.93 119-119
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The amounts under the column "Initial Certificate Balance" are approximate. It
is possible that the balance of the certificates will vary by up to 5%.
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. In each case, the pass-through rate will never exceed the NWAC rate for
such distribution date. The pass-through rates for the Class B, Class C, Class D
and Class E Certificates set forth in the table are the approximate initial
pass-through rates for those classes. Subsequent to the initial distribution
date, the pass-through rate on the Class B Certificates will be a per annum rate
equal to the NWAC rate for such distribution date minus 0.23%, the pass-through
rate on the Class C Certificates will be a per annum rate equal to the NWAC rate
for such distribution date minus 0.08%, the pass-through rate on the Class D
Certificates will be a per annum rate equal to the NWAC rate for such
distribution date and the pass-through rate on the Class E Certificates will be
a per annum rate equal to the NWAC rate for such distribution date. The
Pass-Through Rates shown are only for indicative purposes. The final
Pass-Through Rates will be determined at pricing.
With respect to the column entitled "Principal Window," the principal window is
expressed in months following the closing date and reflects the period during
which distributions of principal would be received. The weighted average life
and principal window figures set forth above are based on the assumptions that
the mortgage loans suffer no losses and that they are fully paid on their
respective stated maturity dates.
The percentages indicated under the columns "Approximate Credit Support" and
"Approximate % of Total" with respect to the Class A-1 and Class A-2
Certificates represent the approximate credit support or total certificate
balance as applicable for the Class A-1 and Class A-2 Certificates in the
aggregate.
S-7
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
S-8
<PAGE>
SUMMARY OF TERMS
This summary highlights selected information from this prospectus
supplement. It does not contain all of the information you need to consider in
making your investment decision. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING
OF THE OFFERED CERTIFICATES, READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING
PROSPECTUS CAREFULLY.
WHAT YOU OWN
------------
GENERAL.............Your certificates represent beneficial interests in a trust
created by Morgan Stanley Capital I Inc. All payments to you
will come only from the amounts received in connection with
those assets. The trust's assets will primarily be 129
mortgage loans secured by liens on commercial and
multifamily properties.
MORTGAGE POOL.......The mortgage pool consists of approximately 129 mortgage
loans with an aggregate principal balance of all mortgage
loans as of August 1, 1999, of approximately $612,711,795,
which may vary by up to 5%. For purposes of those mortgage
loans that have a due date on a date other than the first
of the month, we have assumed that such mortgage loans are
due on the first of the month for purposes of determining
their cut-off dates and cut-off date balances.
As of August 1, 1999, the balances of the mortgage loans in
the mortgage pool ranged from approximately $720,221 to
$29,706,627 and the mortgage loans had an average balance of
$4,749,704.
RELEVANT PARTIES AND DATES
--------------------------
ISSUER..............Morgan Stanley Capital I Trust 1999-LIFE1.
DEPOSITOR...........Morgan Stanley Capital I Inc.
MASTER SERVICER.....Wells Fargo Bank, National Association, a national banking
association.
SPECIAL SERVICER....Wells Fargo Bank, National Association, a national banking
association.
PRIMARY SERVICERS...John Hancock Real Estate Finance, Inc., Principal Capital
Management, LLC and Wells Fargo Bank, National Association.
TRUSTEE.............LaSalle Bank National Association, a national banking
association.
FISCAL AGENT........ABN AMRO Bank N.V., a Netherlands banking corporation and
indirect corporate parent of the Trustee.
OPERATING ADVISER...The holders of certificates representing more than 50% of
the aggregate certificate balance of the most subordinate
class of certificates outstanding at any time of
determination (or, if the certificate balance of such class
of certificates is less than 25% of the initial certificate
balance of such class, the next most subordinate class of
certificates) may appoint a representative for the purposes
described in this prospectus supplement.
SELLERS.............Principal Commercial Funding, LLC, as to 80 mortgage loans,
representing 55.1% of the initial outstanding pool balance.
John Hancock Real Estate Finance, Inc., as to 28 mortgage
loans, representing 31.3% of the initial outstanding pool
balance.
Morgan Stanley Mortgage Capital Inc., as to 21 mortgage
loans, representing 13.6% of the initial outstanding pool
balance.
UNDERWRITERS........Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co.
S-9
<PAGE>
CUT-OFF DATE........August 1, 1999. Six mortgage loans have due dates on the
fifth day of each calendar month. The cut-off date for such
mortgage loans shall be August 5, 1999.
CLOSING DATE........On or about August __, 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 September 1999.
RECORD DATE.........With respect to each distribution date, the close of
business on the last business day of the preceding month.
OFFERED SECURITIES
------------------
GENERAL.............Morgan Stanley Capital I Inc. is offering the following
six classes of its Series 1999-LIFE1 Commercial Mortgage
Pass-Through Certificates:
o Class A-l
o Class A-2
o Class B
o Class C
o Class D
o Class E
The entire series will consist of a total of 20 classes, the
following 14 of which are not being offered by this
prospectus supplement and the accompanying prospectus: Class
X, Class F, Class G, Class H, Class J, Class K, Class L,
Class M, Class N, Class O, Class P, Class R-I, Class R-II,
and Class R-III.
CERTIFICATE
BALANCE...........Your certificates will have the approximate aggregate
initial certificate balance set forth below, which may
vary by up to 5%:
-----------------------------------------------
Class A-1 $ 77,037,000 Certificate Balance
-----------------------------------------------
Class A-2 $411,600,000 Certificate Balance
-----------------------------------------------
Class B $ 21,445,000 Certificate Balance
-----------------------------------------------
Class C $ 24,509,000 Certificate Balance
-----------------------------------------------
Class D $ 9,190,000 Certificate Balance
-----------------------------------------------
Class E $ 13,786,000 Certificate Balance
-----------------------------------------------
S-10
<PAGE>
PASS-THROUGH
RATES.............Your certificates will accrue interest at an annual rate
called a "pass-through rate," which is set forth below for
each class of offered certificates:
--------------------------------------------------------
Class A-1 6.73%, but not in excess of the NWAC rate
--------------------------------------------------------
Class A-2 6.98%, but not in excess of the NWAC rate
--------------------------------------------------------
Class B NWAC rate minus 0.23%
--------------------------------------------------------
Class C NWAC rate minus 0.08%
--------------------------------------------------------
Class D NWAC rate
--------------------------------------------------------
Class E NWAC rate
--------------------------------------------------------
Interest on the offered certificates will be calculated on
the basis of a 360-day year consisting of twelve 30-day
months (i.e., a 30/360 basis).
The weighted average net mortgage rate or NWAC rate for a
particular distribution date is a weighted average of the
interest rates on the mortgage loans minus a weighted
average annual administrative cost rate, which includes the
master servicing fee rate, any excess servicing fee rate,
the primary servicing fee rate and the trustee fee rate. The
relevant weighting is based upon the respective principal
balances of the mortgage loans as in effect immediately
prior to such distribution date. For purposes of calculating
the NWAC rate, the mortgage loan interest rates will not
reflect any default interest rate. 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 any borrower's bankruptcy or insolvency. In
addition, for purposes of calculating the NWAC rate, 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, in general, be deemed to be the rate per annum that,
when calculated on a 30/360 basis, will produce 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,
including all servicing fees, trustee fees and related
compensation, will be distributed in the following amounts
and priority:
Step l/Class A and Class X: To interest on Classes A-1,
A-2 and X, pro rata, in accordance with their interest
entitlements.
Step 2/Class A: To the extent of amounts then required
to be distributed as principal on the Class A-1 and, if
Class A-1 has been retired, to Class A-2, until each in turn
is reduced to zero. If the principal amount of each class of
certificates other than Classes A-1 and A-2 has been reduced
to zero as a result of losses on the mortgage loans,
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
S-11
<PAGE>
principal that were previously borne by those classes,
together with interest thereon.
Step 4/Class B: To Class B as follows: (a) to interest
on Class B in the amount of its interest entitlement; (b) to
principal on Class B in the amount of its principal
entitlement until its principal amount is 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
thereon.
Step 5/Class C: To Class C in a manner analogous to the
Class B allocations of Step 4.
Step 6/Class D: To Class D in a manner analogous to the
Class B allocations of Step 4.
Step 7/Class E: To Class E in a manner analogous to the
Class B allocations of Step 4.
Step 8/Subordinate Private Certificates: In the amounts
and order of priority described in this prospectus
supplement.
B. INTEREST AND
PRINCIPAL
ENTITLEMENTS..A description of each class's interest entitlement can be
found in "Description of the Certificates--Distributions" in
this prospectus supplement. As described in such section,
there are circumstances relating to the timing of
prepayments in which your interest entitlement for a
distribution date could be less than one full month's
interest at the pass-through rate on your certificate's
principal amount.
The amount of principal required to be distributed on the
classes entitled to principal on a particular distribution
date will, in general, be equal to:
o the principal portion of all scheduled payments, other
than balloon payments, whether or not received, due during
the related collection period;
o all principal prepayments and the principal portion of
balloon payments received during the related collection
period;
o the principal portion of other collections on the mortgage
loans received during the related collection period, such as
liquidation proceeds, condemnation proceeds, insurance
proceeds and income on "real estate owned" or "REO"
property; and
o the principal portion of proceeds of mortgage loan
repurchases received during the related collection period.
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.
SUBORDINATION
A. GENERAL.........The chart below describes the manner in which the rights of
various classes will be senior to the rights of other
classes. Entitlement to receive principal and interest on
any distribution date is depicted in
S-12
<PAGE>
descending order. The manner in which mortgage loan losses
(including interest) are allocated is depicted in ascending
order.
Class A-1, Class A-2 and
Class X
Class B
Class C
Class D
Class E
Class F-P
NO OTHER FORM OF CREDIT ENHANCEMENT WILL BE AVAILABLE FOR
THE BENEFIT OF THE HOLDERS OF THE OFFERED CERTIFICATES.
B. SHORTFALLS
IN AVAILABLE
FUNDS........The following types of shortfalls in available funds will be
allocated in the same manner as mortgage loan losses:
o shortfalls resulting from compensation which the
special servicer is entitled to receive;
o 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); and
o shortfalls resulting from other extraordinary 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 fee, the
primary servicer's fee or special servicer's servicing fee,
as applicable, payable on the related distribution date)
will be allocated to each class of certificates, pro rata,
in accordance with their respective interest entitlements.
INFORMATION ABOUT THE MORTGAGE POOL
-----------------------------------
CHARACTERISTICS OF THE MORTGAGE POOL
A. GENERAL.........All numerical information in this prospectus supplement
concerning the mortgage loans is approximate. All weighted
average information regarding the mortgage loans reflects
the weighting of the mortgage loans based upon their
outstanding principal balances as of August 1, 1999.
Generally, for purposes of the presentation of mortgage pool
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<PAGE>
information in this prospectus supplement, multiple
mortgaged properties securing a single mortgage loan have
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 represented by such obligation.
B. PRINCIPAL
BALANCES......The trust's primary assets will be 129 mortgage loans with
an aggregate principal balance of all mortgage loans as of
August 1, 1999 of $612,711,795. It is possible that the
mortgage loan balance will vary by up to 5%. As of August 1,
1999, the principal balance of the mortgage loans in the
mortgage pool ranged from approximately $720,221 to
$29,706,627 and the mortgage loans had an average balance of
$4,749,704.
C. FEE SIMPLE......Each mortgage loan is secured by a first mortgage lien on a
fee simple estate in an income-producing real property. Two
of such mortgage loans are subject to a ground lease with
respect to a portion of the related mortgaged property.
However, in each case the fee owner is a party to the
related mortgage and has subordinated its interest, and
therefore such mortgage loans are disclosed as fee loans.
D. PROPERTY TYPES..
Percentage of Aggregate
Principal Balance of
Mortgage Loans as of Number of
Property Type August 1, 1999 Mortgage Loans
---------------------------------------------------------
Retail 32.5% 46
---------------------------------------------------------
Industrial 25.3% 43
---------------------------------------------------------
Office 21.6% 17
---------------------------------------------------------
Multifamily 16.5% 20
---------------------------------------------------------
Mixed Use 2.0% 1
---------------------------------------------------------
Senior Housing 1.6% 1
---------------------------------------------------------
Self Storage 0.4% 1
---------------------------------------------------------
E. PROPERTY
LOCATION......The number of mortgage loans, and the approximate percentage
of the aggregate principal balance of the mortgage loans
represented by such mortgage loans, that are secured by
mortgaged properties located in the eight states with the
highest concentrations of mortgaged properties, are as set
forth below:
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<PAGE>
Percentage of Aggregate
Principal Balance of Number of
Mortgage Loans as of Mortgage
State August 1, 1999 Loans
----------------------------------------------------------
California 15.1% 16
----------------------------------------------------------
New York 11.2% 9
----------------------------------------------------------
Florida 10.3% 13
----------------------------------------------------------
New Jersey 7.8% 7
----------------------------------------------------------
Virginia 6.0% 8
----------------------------------------------------------
North Carolina 5.5% 10
----------------------------------------------------------
Pennsylvania 5.4% 14
----------------------------------------------------------
Georgia 5.4% 7
----------------------------------------------------------
The remaining mortgaged properties are located throughout 18
other states. None of these states has a concentration of
mortgaged properties that represents security for more than
5% of the aggregate principal balance of the mortgage loans,
as of August 1, 1999.
F.OTHER MORTGAGE
LOAN FEATURES..As of August 1, 1999, the mortgage loans had the following
characteristics:
o No scheduled payment of principal and interest on any
mortgage loan was thirty days or more past due, and no
mortgage loan had been thirty days or more delinquent
in the past year.
o Seven (7) separate groups of mortgage loans are, within
such group, cross-collateralized with each other, the
largest group of which represents 13.6% of the
aggregate principal balance of the mortgage loans. See
Appendix III attached hereto.
o Nine (9) separate groups of mortgage loans are, within
such groups, single obligations secured by multiple
mortgaged properties, the largest group which
represents 6.9% of the aggregate principal balance of
the mortgage loans.
o Thirteen (13) groups of mortgage loans, including the
cross-collateralized mortgage loan groups and single
obligation multiple mortgaged property groups described
above (for this category, several of the above groups
are combined), 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 represent
13.6%, 4.6% and 3.4%, respectively, of the aggregate
principal balance of the mortgage loans.
o Twenty-eight (28) mortgage loans, representing 18.3% of
the aggregate principal balance of the mortgage loans,
are secured by mortgaged properties that are each 100%
leased to a single tenant.
o The mortgage loans bear interest at fixed rates.
o No mortgage loan permits negative amortization or the
deferral of accrued interest.
S-15
<PAGE>
G. BALLOON LOANS...As of August 1, 1999, the mortgage loans had the following
characteristics:
o One hundred twenty-seven (127) of the mortgage loans,
representing 98.9% of the aggregate principal balance
of the mortgage loans as of August 1, 1999, are
expected to have principal balances equal to or greater
than 5% of their respective original principal balance
as of their respective stated maturity dates.
o The remaining two (2) mortgage loans, representing 1.1%
of the aggregate principal balance of the mortgage
loans as of August 1, 1999 are expected to have
principal balances less than 5% of their respective
original principal balance as of their respective
stated maturity dates.
H. INTEREST ONLY
LOANS........ As of August 1, 1999, twenty-three (23) of the mortgage
loans had the following characteristics:
o Twenty-two (22) of the mortgage loans, representing
15.2% of the aggregate principal balance of the
mortgage loans as of August 1, 1999, provide for
monthly payments of interest only for the term of the
mortgage loan with a "balloon payment" due at maturity.
o One (1) such mortgage loan representing 1.6% of the
aggregate principal balance of the mortgage loans as of
August 1, 1999 provides for monthly payments of
interest only for a portion of its term and then
provides for the monthly payment of principal and
interest over its remaining term.
I. PREPAYMENT
PROVISIONS....As of August 1, 1999, all of the mortgage loans restricted
voluntary principal prepayments as follows:
o Ninety-eight (98) mortgage loans, representing 68.1% 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-one (31) mortgage loans, representing 31.9% of
the initial outstanding pool balance, prohibit
voluntary principal prepayments during a Lock-out
Period and thereafter provide for prepayment premiums
calculated on the basis of the greater of a yield
maintenance formula and 1% of the amount prepaid.
Notwithstanding the foregoing, the mortgage loans generally
provide for a maximum period of 3 to 7 payments prior to and
including the maturity date during which the related
borrower may prepay the mortgage loan without premium or
defeasance requirements.
S-16
<PAGE>
J. MORTGAGE LOAN
RANGES AND
WEIGHTED
AVERAGES..... As of August 1, 1999, the mortgage loans had the following
additional characteristics:
i. MORTGAGE
INTEREST
RATES Mortgage interest rates ranging from 6.510% per annum to
8.620% per annum, and a weighted average mortgage interest
rate of 7.367% per annum;
ii. REMAINING
TERMS Remaining terms to scheduled maturity ranging from 110
months to 238 months, and a weighted average remaining term
to scheduled maturity of 121 months;
iii. REMAINING
AMORTIZA-
TION TERMS Remaining amortization terms ranging from 174 months to 368
months, and a weighted average remaining amortization term
of 340 months;
iv. LOAN-TO-
VALUE RATIOS Loan-to-value ratios range from 37.1% to 79.8%, with a
weighted average loan-to-value ratio, calculated as
described in this prospectus supplement, of 64.0%.
v. DEBT SERVICE
COVERAGE
RATIOS Debt service coverage ratios, determined according to the
methodology set forth in this prospectus supplement, ranging
from 1.20x to 2.51x and a weighted average debt service
coverage ratio, calculated as described in this prospectus
supplement, of 1.63x.
ADVANCES OF PRINCIPAL AND INTEREST
A. GENERAL.........The master servicer is required to "advance" delinquent
monthly mortgage loan payments. The master servicer will not
be required to advance any additional interest accrued as a
result of the imposition of any default rate. The master
servicer also is not required to advance prepayment or yield
maintenance premiums, or balloon payments. With respect to
any balloon payment, the master servicer will instead be
required to advance an amount equal to the scheduled payment
that would have been due if the related balloon payment had
not become due. If this type of advance is made, the master
servicer will defer rather than advance its master servicing
fee and the primary servicing fee, but will advance the
trustee fee.
If the master servicer fails to make a required advance, the
trustee will be required to make the advance, and if the
trustee fails to make a required advance, the fiscal agent
will be required to make the advance, each subject to the
same limitations, and with the same rights of the master
servicer.
All advances made by the master servicer, the trustee or the
fiscal agent will accrue interest at a rate equal to the
"prime rate" as reported in The Wall Street Journal.
Neither the master servicer, the trustee nor the fiscal
agent will be obligated to make any advance if it reasonably
determines that such advance would not be recoverable.
B. ADVANCES DURING
AN APPRAISAL..REDUCTION EVENT The occurrence of certain adverse events
affecting a mortgage loan will require the special servicer
to obtain a new appraisal or other valuation of the related
mortgaged property. Based on the value of the mortgaged
property determined by such appraisal or other valuation, an
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<PAGE>
"appraisal reduction" may be created as described in this
prospectus supplement. If there exists an appraisal
reduction for any mortgage loan, the amount required to be
advanced on such mortgage loan will be proportionately
reduced to the extent of such appraisal reduction. Due to
the payment priorities described above, this will reduce the
funds available to pay interest and principal on the most
subordinate class (or, in some cases, classes) of
certificates then outstanding.
ADDITIONAL ASPECTS OF CERTIFICATES
----------------------------------
RATINGS.............The offered certificates will not be issued unless each such
class receives the following ratings from Fitch IBCA, Inc.
and Standard & Poor's Ratings Services.
------------------------------------------------------------
Rating
Class Fitch/S&P
------------------------------------------------------------
Classes A-1 and A-2 AAA/AAA
------------------------------------------------------------
Class B AA/AA
------------------------------------------------------------
Class C A/A
------------------------------------------------------------
Class D A-/A-
------------------------------------------------------------
Class E BBB/BBB
------------------------------------------------------------
A rating agency may lower or withdraw a security rating at
any time.
See "Ratings" in this prospectus supplement and in 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 certificate
balance of all classes of certificates is less than 1% of
the aggregate principal balance of the mortgage loans as of
August 1, 1999, the majority holders of the controlling
class, the depositor, the master servicer, the special
servicer and any holder of a majority interest in the Class
R-I Certificates, each in turn, will have the option to
purchase all of the remaining mortgage loans (and all
property acquired through exercise of remedies in respect of
any mortgage loan), at the price specified in this
prospectus supplement. Exercise of this option will
terminate the trust and retire the then outstanding
certificates.
DENOMINATIONS.......The Class A-1 and Class A-2 Certificates will be offered in
minimum denominations of $25,000. 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 not be a certificateholder
of record, and you will receive distributions on your
certificates and reports relating to distributions only
through DTC, or through participants in DTC, Cedelbank,
societe anonyme ("CEDEL") or the Euroclear System
("Euroclear").
S-18
<PAGE>
You may hold your offered certificates through (1) DTC in
the United States, or (2) 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.
Morgan Stanley Capital I Inc. expects that the offered
certificates will be delivered in book-entry form through
the facilities of DTC, CEDEL or Euroclear on or about August
___, 1999.
TAX STATUS..........An election will be made to treat designated portions of the
trust as three separate "real estate mortgage investment
conduits" --REMIC I, REMIC II and REMIC III--for federal
income tax purposes. In the opinion of counsel, the trust
will qualify for this treatment and each class of offered
certificates will constitute "regular interests" in REMIC
III.
Pertinent federal income tax consequences of an investment
in the offered certificates include:
o The regular interests will be treated as newly
originated debt instruments for federal income tax
purposes.
o Beneficial owners of offered certificates will be
required to report income thereon in accordance with
the accrual method of accounting.
o The Class E Certificates may, and the other classes of
offered certificates will not, be issued with original
issue discount.
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-1
and Class A-2 Certificates may be purchased by persons
investing assets of employee benefit plans or individual
retirement accounts.
THE CLASS B, CLASS C, CLASS D AND CLASS E CERTIFICATES MAY
NOT BE PURCHASED BY, OR TRANSFERRED TO, AN EMPLOYEE BENEFIT
PLAN OR INDIVIDUAL RETIREMENT ACCOUNT OR ANY PERSON
INVESTING THE ASSETS OF AN EMPLOYEE BENEFIT PLAN OR
INDIVIDUAL RETIREMENT ACCOUNT, UNLESS SUCH TRANSACTION IS
COVERED BY A PROHIBITED TRANSACTION CLASS EXEMPTION ISSUED
BY THE U.S. DEPARTMENT OF LABOR.
LEGAL INVESTMENTS...The offered certificates will not constitute "mortgage
related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984, as amended ("SMMEA").
No representation is made regarding the proper
characterization of the offered certificates for purposes of
any applicable legal investment restrictions, regulatory
capital requirements or other similar purposes. Regulated
entities should consult with their own advisors regarding
these matters.
S-19
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S-20
<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 summarize the material risks
relating to your certificates in addition to those risks described in the
prospectus under "Risk Factors."
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 a variety
of factors, including the risks described below and elsewhere in this prospectus
supplement.
YOUR INVESTMENT IS NOT INSURED OR
GUARANTEED AND YOUR SOURCE FOR
REPAYMENTS IS LIMITED Payments under the mortgage loans are not
insured or guaranteed by any governmental
entity or mortgage insurer.
Prospective investors should consider all of
the mortgage loans to be nonrecourse loans.
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.
Such remedies may be insufficient to provide
a full return on your investment. 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. 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.
In limited circumstances, Principal
Commercial Funding, LLC, John Hancock Real
Estate Finance, Inc. and Morgan Stanley
Mortgage Capital Inc., each as mortgage loan
sellers, may be obligated to repurchase or
replace a mortgage loan that it sold to the
depositor as to which its representations
and warranties concerning such mortgage loan
are breached or if there are material
defects in the documentation for the
mortgage loan. However, there can be no
assurance that any of such entities will be
in a financial position to effect such
repurchase or substitution.
THE REPAYMENT OF A COMMERCIAL
MORTGAGE LOAN IS DEPENDENT ON
THE CASH FLOW PRODUCED BY THE
PROPERTY WHICH CAN BE VOLATILE
AND INSUFFICIENT TO ALLOW TIMELY
PAYMENT ON YOUR CERTIFICATES The mortgage loans are secured by various
types of income-producing commercial
properties. Commercial lending is generally
thought to expose a lender to greater risk
than one-to-four family residential
lending because, among other things, it
typically involves larger loans.
All of the mortgage loans were originated
within twelve (12) months prior to the
cut-off date. Consequently, the mortgage
loans do not have a long-standing payment
history.
S-21
<PAGE>
The repayment of a commercial mortgage 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 the following
factors.
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;
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.
Other factors are more general in nature,
such as:
o national, regional or local economic
conditions (including plant closings,
military base 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.
S-22
<PAGE>
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 the level of tenant defaults;
o 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 mortgage loans.
CONVERTING COMMERCIAL PROPERTIES
TO ALTERNATIVE USES MAY REQUIRE
SIGNIFICANT EXPENSES WHICH COULD
REDUCE PAYMENTS ON YOUR
CERTIFICATES Some of the mortgaged properties may not be
readily convertible to alternative uses if
those properties were to become unprofitable
for any reason. Converting commercial
properties to alternate uses or converting
single tenant commercial properties to multi
tenant properties 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 mortgaged
property were readily adaptable to other
uses.
PROPERTY VALUE MAY BE ADVERSELY
AFFECTED EVEN WHEN THERE IS NO
CHANGE IN CURRENT OPERATING
INCOME Various factors may adversely affect the
value of the mortgaged properties without
affecting the properties' current net
operating income. These factors include,
among others:
o changes in governmental regulations,
fiscal policy, zoning or tax laws;
o potential environmental legislation or
liabilities or other legal liabilities;
o the availability of refinancing; and
o changes in interest rate levels.
S-23
<PAGE>
TENANT CONCENTRATION INCREASES
THE RISK THAT CASH FLOW WILL BE
INTERRUPTED WHICH MAY HAVE AN
ADVERSE EFFECT ON THE PAYMENT OF
YOUR CERTIFICATES 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.
Twenty-eight (28) mortgage loans,
representing 18.3% of the aggregate
principal balance of all mortgage loans as
of August 1, 1999, are secured by mortgaged
properties leased to single tenants and in
some cases, the tenant is related to the
Borrower. 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 or defaults under 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.
Retail, industrial and office properties
also may be adversely affected if there is a
concentration of particular tenants or of
tenants in a particular business or industry
at the property or properties.
LEASING MORTGAGED PROPERTIES TO
MULTIPLE TENANTS MAY RESULT IN
HIGHER RE-LEASING EXPENDITURES
WHICH MAY HAVE AN ADVERSE EFFECT
ON THE PAYMENT OF YOUR
CERTIFICATES If a mortgaged property has multiple
tenants, re-leasing expenditures may be 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.
THE CONCENTRATION OF LOANS WITH
THE SAME OR RELATED BORROWERS AND
PROPERTY TYPES INCREASES THE
POSSIBILITY OF LOSS ON THE LOANS
WHICH MAY HAVE AN ADVERSE EFFECT
ON YOUR CERTIFICATES 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 of
all mortgage loans. Thirteen (13) groups of
mortgage loans, including cross-
collateralized mortgage loan groups and
single obligation multiple mortgaged
property groups, are made to the same
borrower or borrowers related through common
ownership and where, in general, the related
mortgaged properties are commonly managed.
The loans associated with the ten largest
borrower concentrations constitute 41.0% of
the outstanding aggregate principal balance
of all mortgage loans, as of August 1, 1999.
The three largest borrower concentrations
represent 13.6%, 4.8% and 4.6% respectively
of the outstanding aggregate principal
balance of all mortgage loans as of August
1, 1999.
S-24
<PAGE>
A concentration of mortgaged property types
also can pose increased risks. The following
property types represent the indicated
percentage of the outstanding aggregate
principal balance of all mortgage loans as
of August 1, 1999:
o retail properties represent 32.5%;
o industrial properties represent 25.3%;
o office properties represent 21.6%;
o multifamily properties represent 16.5%;
o mixed use properties represent 2.0%;
o senior housing properties represent
1.6%;
o self storage properties represent 0.4%;
GEOGRAPHIC CONCENTRATIONS OF
MORTGAGED PROPERTIES MAY HAVE AN
ADVERSE EFFECT ON THE PAYMENT OF
YOUR CERTIFICATES 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 adverse conditions in regional real
estate markets could adversely affect the
income from, and market value of, the
mortgaged properties located in the region.
Other regional factors--e.g., earthquakes,
floods or hurricanes or changes in
governmental rules or fiscal policies--also
may adversely affect those mortgaged
properties.
The mortgaged properties are located
throughout 26 states. In particular,
investors should note that approximately
15.1% of the mortgaged properties, based on
the outstanding aggregate principal balance
of all mortgage loans as of August 1, 1999,
are located in California. Mortgaged
properties located in California may be more
susceptible to some types of special hazards
not covered by insurance (such as
earthquakes) than properties located in
other parts of the country. The mortgage
loans generally do not require any borrowers
to maintain earthquake insurance. In
addition, 11.2%, 10.3%, 7.8%, 6.0%, 5.5%,
5.4% and 5.4% of the mortgaged properties,
based on the outstanding aggregate principal
balance of all mortgage loans as of August
1, 1999, are located in New York, Florida,
New Jersey, Virginia, North Carolina,
Pennsylvania, and Georgia, respectively, and
concentrations of mortgaged properties, in
each case, representing less than 5% of the
outstanding aggregate principal balance of
all mortgage loans as of August 1, 1999,
also exist in several other states.
S-25
<PAGE>
RETAIL PROPERTIES SECURING
MORTGAGE LOANS WILL SUBJECT
YOUR INVESTMENT TO THE SPECIAL
RISKS OF RETAIL PROPERTIES Retail properties secure forty-six (46) of
the mortgage loans, representing 32.5% of
the outstanding aggregate principal balance
of all mortgage loans, as of August 1, 1999.
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 basic rent or other occupancy
costs.
The presence or absence of an "anchor store"
in a shopping center also can be important
because anchor stores play a key role in
generating customer traffic and making a
center desirable for other tenants.
Consequently, the economic performance of an
anchored retail property will be adversely
affected by:
o an anchor store's failure to renew its
lease;
o termination of an anchor store's lease;
o the bankruptcy or economic decline of an
anchor store or self-owned anchor or the
parent company thereof; or
o the cessation of the business of an
anchor store at the shopping center,
even if, as a tenant, it continues to
pay rent.
There are retail properties with anchor
stores that are permitted to cease operating
at any time if certain other stores are not
operated at those locations. Furthermore,
there may be non-anchor tenants that are
permitted to terminate their leases if
certain anchor stores are either not
operated or 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, which 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.
INDUSTRIAL PROPERTIES SECURING
MORTGAGE LOANS WILL SUBJECT YOUR
INVESTMENT TO THE SPECIAL RISKS
OF INDUSTRIAL PROPERTIES Industrial properties secure forty-three
(43) of the mortgage loans, representing
25.3% of the outstanding aggregate principal
balance of all mortgage loans, as of August
1, 1999. Various factors may adversely
affect the economic performance of these
industrial properties, including:
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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 to the property,
energy prices, strikes, relocation of
highways or the construction of
additional highways;
o a change in the proximity of supply
sources; and
o environmental hazards.
OFFICE PROPERTIES SECURING
MORTGAGE LOANS WILL SUBJECT
YOUR INVESTMENT TO THE SPECIAL
RISKS OF OFFICE PROPERTIES Office properties secure seventeen (17) of
the mortgage loans, representing 21.6% of
the outstanding aggregate principal balance
of all mortgage loans, as of August 1, 1999.
A large number of factors affect the value
of these office properties, including:
o the quality of an office building's
tenants;
o the diversity of an office building's
tenants (or reliance on a single or
dominant tenant);
o the physical attributes of the building
in relation to competing buildings
(e.g., age, condition, design, location,
access to transportation and ability to
offer certain amenities, such as
sophisticated building systems);
o the desirability of the area as a
business location; and
o the strength and nature of the local
economy (including labor costs and
quality, tax environment and quality of
life for employees).
Moreover, the cost of refitting office space
for a new tenant is often higher than the
cost of refitting other types of property.
MULTIFAMILY PROPERTIES SECURING
MORTGAGE LOANS WILL SUBJECT YOUR
INVESTMENT TO THE SPECIAL RISKS
OF MULTIFAMILY PROPERTIES Multifamily properties secure twenty (20) of
the mortgage loans, representing 16.5% of
the outstanding aggregate principal balance
of all mortgage loans, as of August 1, 1999.
A large number of factors may affect the
value and successful operation of these
multifamily properties, including:
o the physical attributes of the apartment
building, such as its age, appearance
and construction quality;
o the location of the property;
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o the ability of management to provide
adequate maintenance and insurance;
o the types of services and amenities
provided at the property;
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 local or national economic conditions;
o state and local regulations; and
o government assistance/rent subsidy
programs.
HOSPITALITY PROPERTIES SECURING
MORTGAGE LOANS WILL SUBJECT YOUR
INVESTMENT TO THE SPECIAL RISKS
OF HOSPITALITY PROPERTIES A mixed-use property with a hospitality
component secures one (1) of the mortgage
loans, representing 2.0% of the outstanding
aggregate principal balance of all mortgage
loans as of August 1, 1999. Various factors
may adversely affect the economic
performance of a hospitality property,
including:
o adverse economic and social conditions,
either local, regional, national or
international 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/or operator of a hotel;
and
o changes in travel patterns, increases in
energy prices, strikes, relocation of
highways or the construction of
additional highways.
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 are 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 hotel property's
revenues, occupancy levels, room rates and
operating expenses.
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SELF-STORAGE FACILITIES
SECURING MORTGAGE LOANS
WILL SUBJECT YOUR
INVESTMENT TO THE SPECIAL
RISKS OF SELF STORAGE FACILITIES Self-storage facilities secure one (1) of
the mortgage loans, representing 0.4% of the
outstanding aggregate principal balance of
all mortgage loans, as of August 1, 1999.
Various factors may adversely affect the
value and successful operation of a
self-storage facility:
o competition because both acquisition and
development costs and break-even
occupancy are relatively low;
o conversion of a self-storage facility to
an alternative use generally requires
substantial capital expenditures;
o security concerns; and
o user privacy and ease of access to
individual storage space may increase
environmental risks (although lease
agreements generally prohibit users from
storing hazardous substances in the
units).
The environmental assessments discussed
herein did not include an inspection of the
contents of the self-storage units of the
self-storage properties. Accordingly, there
is no assurance that all of the units
included in the self-storage properties are
free from hazardous substances or will
remain so in the future.
TENANT BANKRUPTCY MAY
ADVERSELY AFFECT THE INCOME
PRODUCED BY THE PROPERTY AND
MAY HAVE AN ADVERSE EFFECT ON
THE PAYMENT OF YOUR CERTIFICATES 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 the
property. Under the U.S. bankruptcy code, a
tenant/debtor has the option of affirming or
rejecting any unexpired lease. If the tenant
rejects the lease, the landlord's claim for
breach of the lease would be a general
unsecured claim against the tenant (absent
collateral securing the claim). The claim
would be limited to the unpaid rent under
the lease for the periods prior to the
bankruptcy petition (or earlier surrender of
the leased premises), plus the rent under
the lease for the greater of one year, or
15% (not to exceed three years), of the
remaining term of such lease.
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 or adjacent to 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 property
damage or personal injury associated with
releases of ACMs or other exposure to
hazardous substances related to the
properties.
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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 SPECIFIC MORTGAGED
PROPERTIES All of the mortgaged properties securing the
mortgage loans have been subject to
environmental site assessments (or in some
cases an update of a previous assessment) in
connection with the origination of the
loans. In all cases, the environmental site
assessment was a "Phase I" environmental
assessment. These reports generally did not
disclose the presence or risk of
environmental contamination that is
considered material to the interests of the
holders of the certificates; however, in
certain cases, such assessments did reveal
conditions that resulted in requirements
that the related borrowers establish
operations and maintenance plans, monitor
the mortgaged property, abate or remediate
the condition, and/or provide additional
security such as letters of credit or
reserves. 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.
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 tenants or by
the condition of land or operations in the
vicinity of the mortgaged properties (such
as underground storage tanks). Environmental
assessments on properties securing fourteen
(14) of the mortgage loans (representing
14.7% of the initial outstanding pool
balance) are more than a year old as of
August 1, 1999.
Portions of some of the mortgaged properties
securing the mortgage loans include tenants
which operate as gasoline stations. The
operation of a gasoline station involves the
use and storage of hazardous substances,
leading to an increased risk of liability to
the tenant, the landowner and, under certain
circumstances, a lender (such as the trust)
under environmental laws. Gasoline station
operators may be required to obtain various
environmental permits and licenses in
connection with their operations and
activities and comply with various
environmental laws, including those
governing the use and storage of hazardous
substances. Gasoline station operations
incur ongoing costs to comply with
environmental laws governing, among other
things, underground storage tank systems
("USTs") used in their operations. In
addition, any liability to gasoline station
borrowers under environmental laws,
including in connection with releases into
the environment of gasoline or other
hazardous substances from USTs or otherwise,
could adversely impact the related
borrower's ability to repay the related
mortgage loan.
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Before the special servicer acquires title
to a mortgaged property on behalf of the
trust or assumes operation of the property,
it must obtain an environmental assessment
of the property (or rely on a recent
environmental assesment). 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. Any such potential liability could
reduce or delay payments to
certificateholders.
BORROWER MAY BE UNABLE TO
REPAY THE REMAINING
PRINCIPAL BALANCE ON ITS
MATURITY DATE WHICH MAY
HAVE AN ADVERSE EFFECT ON
THE PAYMENT OF YOUR
CERTIFICATES One hundred twenty-seven (127) of the
mortgage loans, representing 98.9% of the
outstanding aggregate principal balance of
all mortgage loans as of August 1, 1999, are
expected to have substantial remaining
principal balances, equal to or greater than
5% of the original principal balance of each
mortgage loan, as of their respective stated
maturity dates. We cannot assure you that
each borrower will have the ability to repay
the principal balance outstanding on the
stated maturity dates. Mortgage loans with
substantial remaining principal balances at
their stated maturity date (i.e., "balloon
loans"), involve greater risk than fully
amortizing loans.
A borrower's ability to repay a loan on its
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 prevailing interest rates;
o the fair market value of the related
mortgaged property;
o the borrower's equity in the related
mortgaged property;
o the borrower's financial condition;
o the operating history and occupancy
level of the property;
o tax laws; and
o prevailing general and regional economic
conditions.
The availability of funds in the credit
markets fluctuates over time.
Principal Commercial Funding, LLC, John
Hancock Real Estate Finance, Inc. and Morgan
Stanley Mortgage Capital Inc., each as a
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<PAGE>
mortgage loan seller, and their respective
affiliates are not under any obligation to
refinance any mortgage loan.
THE MORTGAGE LOAN
BORROWER'S ABILITY TO
EFFECT OTHER BORROWINGS MAY
REDUCE THE CASH FLOW
AVAILABLE TO THE PROPERTY
WHICH MAY HAVE AN ADVERSE
EFFECT ON THE PAYMENT OF
YOUR CERTIFICATES As of August 1, 1999, none of the mortgaged
properties secures any debt other than the
related mortgage loan. One of the mortgage
loans, representing 4.8% of the aggregate
principal balance of all the mortgage loans
as of August 1, 1999 permits the borrower,
subject to a maximum loan-to-value ratio of
60% and minimum debt service coverage ratio
of 1.80x, to utilize the mortgaged property
as collateral for subordinated loans.
Substantially all of the mortgage loans also
permit the related borrower to incur limited
indebtedness in the ordinary course of
business.
When a mortgage loan borrower (or its
constituent members), also has one or more
other outstanding loans (even if the loans
are subordinated or mezzanine loans), the
trust is subjected to the following
additional risks. The borrower may have
difficulty servicing and repaying multiple
loans. Also, the existence of another loan
generally will make it more difficult for
the borrower to obtain refinancing of the
mortgage loan and may thus jeopardize
repayment of any balloon payment due under
the mortgage loan at maturity. Moreover, the
need to service additional debt may reduce
the cash flow available to the borrower to
operate and maintain the mortgaged property.
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 bankruptcy
petition 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 will be
automatically stayed, and principal and
interest payments might not be made during
the course of the bankruptcy case. The
bankruptcy of a junior 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
foreclosure proceedings or related
litigation.
BANKRUPTCY PROCEEDINGS
RELATING TO BORROWERS THAT
ARE PARTNERSHIPS CAN RESULT
IN DISSOLUTION OF THE
BORROWER AND THE
ACCELERATION OF THE
RELATED MORTGAGE LOAN
Under the Bankruptcy Code, the filing of a
bankruptcy petition by or against a borrower
will stay 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 reduce the amount of
secured
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<PAGE>
indebtedness to the then-current value of
the mortgaged property. Such an action would
make the lender a general unsecured creditor
for the difference between the then-current
value and the amount of its outstanding
mortgage indebtedness. A bankruptcy court
also may: (i) grant a debtor 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. Additionally, the
borrower's trustee or the borrower, as
debtor in possession, has special powers to
avoid, subordinate or disallow debts. In
some circumstances, the claims of the
mortgage lender may be subordinated to
financing obtained by a debtor-in-possession
subsequent to its bankruptcy.
The filing of a bankruptcy petition will
also stay the lender 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.
A number of the borrowers under the mortgage
loans are limited or general partnerships.
Under some circumstances, the bankruptcy of
a general partner in partnership may result
in the dissolution of such partnership. The
dissolution of a borrower partnership, the
winding up of its affairs and the
distribution of its assets could result in
an acceleration of its payment obligations
under the related mortgage loan.
BORROWERS THAT ARE NOT
BANKRUPTCY REMOTE ENTITIES
MAY BE MORE LIKELY TO FILE
BANKRUPTCY While the borrowers have generally
undertaken certain "special purpose"
covenants to limit the bankruptcy risk
arising from activities of the borrowers
unrelated to the operation of the property,
the borrowers (and any entity having an
interest in any such borrowers) generally do
not have an independent director whose
consent would be required to file a
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.
THE OPERATION OF COMMERCIAL
PROPERTIES IS DEPENDENT UPON
SUCCESSFUL MANAGEMENT The successful operation of a real estate
project depends upon the property manager's
performance and viability. The property
manager is generally responsible for:
o responding to changes in the local
market;
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<PAGE>
o planning and implementing the rental
structure;
o operating the property and providing
building services;
o managing operating expenses; and
o assuring that maintenance and capital
improvements are carried out in a timely
fashion.
Properties deriving revenues primarily from
short-term sources are generally more
management-intensive than properties leased
to creditworthy tenants under long-term
leases.
A good property manager, by controlling
costs, providing appropriate service to
tenants and, by seeing to the maintenance of
improvements, can 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.
YOUR INVESTMENT MAY BE
AFFECTED IF RENTS AND OTHER
PAYMENTS ARE NOT REQUIRED TO
BE MADE DIRECTLY TO LOCK BOXES The mortgage loans generally do not require
the related borrower to cause rent and other
payments to be made into a lock box account
maintained on behalf of the mortgagee. If
rental payments are not required to be made
directly into a lock box account, there is a
risk that the borrower will divert such
funds for other purposes.
YOUR INVESTMENT MAY BE
AFFECTED IF PROPERTIES
SECURING THE MORTGAGE LOANS
ARE NOT IN COMPLIANCE WITH
ZONING AND BUILDING CODE
REQUIREMENTS Noncompliance with zoning and building codes
may cause the borrower to experience cash
flow delays and shortfalls that would reduce
or delay the amount of proceeds available
for distributions to certificateholders. The
mortgage loan sellers have taken steps to
establish that the use and operation of the
mortgaged properties securing the mortgage
loans are in compliance in all material
respects with all applicable zoning,
land-use and building, ordinances, rules,
regulations, and orders. Evidence of this
compliance may be in the form of legal
opinions, confirmations from government
officials, title policy endorsements and/or
representations by the related borrower in
the related mortgage loan documents. These
steps may not have revealed all possible
violations.
Some violations may exist at any particular
mortgaged property, but the mortgage loan
sellers generally do not consider those
defects known to it to be material. In many
cases, the use, operation and/or structure
of a mortgaged property constitutes a
permitted nonconforming use and/or structure
that may not be rebuilt to its current state
if a material casualty
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<PAGE>
event occurs. Generally, insurance proceeds
would be available for application to the
mortgage loan if a material casualty event
were to occur, or the mortgage property, as
rebuilt for a conforming use, would generate
sufficient income to service the mortgage
loan. If a mortgaged property could not be
rebuilt to its current state or its current
use were no longer permitted due to building
violations or changes in zoning or other
regulations, then the borrower might
experience cash flow delays and shortfalls
that would reduce or delay the amount of
proceeds available for distributions to you.
YOUR INVESTMENT MAY BE
AFFECTED BY CONDEMNATIONS
WITH RESPECT TO PROPERTIES
SECURING THE MORTGAGE LOANS From time to time, there may be
condemnations pending or threatened against
one or more of the mortgaged properties.
There can be no assurance that the proceeds
payable in connection with a total
condemnation will be sufficient to restore
the related mortgaged property or to satisfy
the remaining indebtedness of the related
mortgage loan. The occurrence of a partial
condemnation may have a material adverse
effect on the continued use of the affected
mortgaged property, or on any borrower's
ability to meet its obligations under the
related mortgage loan. Therefore, no
assurance can be made that the occurrence of
any condemnation will not have a negative
impact upon the distributions to you.
THE ABSENCE OF OR
INADEQUACY OF INSURANCE
COVERAGE ON THE PROPERTY
MAY HAVE AN ADVERSE EFFECT
ON THE PAYMENT OF
YOUR CERTIFICATES The mortgaged properties may suffer casualty
losses due to risks that are not covered by
insurance or for which insurance coverage is
not available at commercially reasonable
rates. In addition, some of the mortgaged
properties are located in California and
Texas and in coastal areas of Florida,
Georgia, North Carolina and South Carolina,
areas that have historically been at greater
risk of acts of nature for which adequate
insurance is not generally available (such
as earthquakes, hurricanes and floods). The
mortgage loans generally do not require
borrowers to maintain earthquake, hurricane
or flood insurance and we cannot assure you
that borrowers will attempt or be able to
obtain adequate insurance against such
risks. Moreover, if reconstruction or major
repairs are required following a casualty,
changes in laws that have occurred since the
time of original construction may materially
affect the borrower's ability to effect such
reconstruction or major repairs or may
materially increase the cost thereof.
YOUR INVESTMENT MAY BE
AFFECTED IF BLANKET
INSURANCE POLICIES COVER
OTHER PROPERTIES OF RELATED
BORROWERS OR AFFILIATES Some of the mortgaged properties are covered
by blanket insurance policies which also
cover other properties of the related
borrower or its affiliates. In the event
that such policies are drawn on to cover
losses on such other properties, the amount
of insurance coverage available under such
policies may thereby be reduced and could be
insufficient to cover each mortgaged
property's insurable risks.
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<PAGE>
PROPERTY INSPECTIONS
PERFORMED ON THE MORTGAGED
PROPERTIES MAY NOT REFLECT
ALL CONDITIONS THAT REQUIRE
REPAIR ON THE PROPERTY Licensed engineers or consultants inspected
all of the mortgaged properties and prepared
engineering reports in connection with the
origination of all 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 cannot
assure you that all conditions requiring
repair or replacement were identified. In
those cases where a material condition was
disclosed, such condition has been remedied
to the seller's satisfaction, or funds as
deemed necessary by the sellers or the
related engineer or consultant, have been
reserved to remedy the material condition.
INACCURATE APPRAISALS MAY
INACCURATELY REFLECT THE
VALUE OF THE MORTGAGE LOANS A FIRREA appraisal was conducted in respect
of each mortgaged property in connection
with origination or securitization of the
related mortgage loan. The resulting
estimates of value are the basis of the
August 1, 1999 loan-to-value ratios referred
to in this prospectus supplement. 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
changed 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 August 1, 1999 is presented
for illustrative purposes only in Appendix I
and Appendix II hereto.
THE TIMING OF MORTGAGE LOAN
AMORTIZATION MAY HAVE AN
ADVERSE EFFECT ON THE PAYMENT
OF YOUR CERTIFICATES As principal payments or prepayments are
made on mortgage loans, the remaining
mortgage pool may be subject to increased
concentrations of property types, geographic
locations and other pool characteristics of
the mortgage loans and the mortgaged
properties, some of which may be
unfavorable. Classes of certificates that
have a lower payment priority are more
likely to be exposed to this concentration
risk than are certificate classes with a
higher payment priority. This occurs because
realized losses are allocated to the class
outstanding at any time with the lowest
payment priority and principal on the
certificates entitled to principal is
generally payable in sequential order (that
is, in alphabetical order), with such
classes generally not being entitled to
receive principal until the principal amount
of the preceding class or classes entitled
to receive principal has been retired.
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<PAGE>
SUBORDINATION OF
SUBORDINATE OFFERED
CERTIFICATES WILL AFFECT
THE TIMING OF PAYMENTS AND
THE APPLICATION OF LOSSES
ON YOUR CERTIFICATES As described in this prospectus supplement,
the rights of the holders of each class of
subordinate certificates to receive 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. Losses on
the mortgage loans will be allocated to the
Class P, Class O, Class N, Class M, Class L,
Class K, Class J, Class H, Class G, Class F,
Class E, Class D, Class C and Class B
Certificates, in that order, reducing
amounts otherwise payable to each class. Any
remaining losses would then be allocated to
the Class A-1 and Class A-2 certificates,
and, solely with respect to losses of
interest, to the Class X Certificates, in
proportion to the amounts of interest or
principal distributed thereon.
THE OPERATION OF THE
MORTGAGED PROPERTY UPON
FORECLOSURE OF THE MORTGAGE
LOAN MAY AFFECT THE TAX
STATUS OF THE TRUST AND MAY
HAVE AN ADVERSE EFFECT ON THE
PAYMENT OF YOUR CERTIFICATES If the trust acquires a mortgaged property
pursuant to a foreclosure or deed in lieu of
foreclosure, the special servicer will
generally retain an independent contractor
to operate the property. Any net income from
such operation other than qualifying "rents
from real property", or any rental income
based on the net profits of a tenant or
sub-tenant or allocable to a non-customary
service, will subject the trust to a federal
tax on such income at the highest marginal
corporate tax rate, which is currently 35%,
and, in addition, possible state or local
tax. In such event, the net proceeds
available for distribution to
certificateholders will be reduced. The
special servicer may permit the trust 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.
STATE LAWS APPLICABLE TO
FORECLOSURE ACTIONS MAY
AFFECT THE TIMING OF
PAYMENTS ON YOUR
CERTIFICATES AND MAY HAVE
AN ADVERSE EFFECT ON THE
PAYMENT OF YOUR CERTIFICATES 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 mortgage
loan secured by mortgaged properties located
in multiple states, the master servicer or
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. As a result, the
ability to realize upon the mortgage loans
may be limited by the application of state
laws.
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<PAGE>
CROSS-COLLATERALIZATION OF
GROUPS OF MORTGAGE LOANS
COULD LEAD TO REDUCED PAYMENT
ON YOUR CERTIFICATES AND MAY
HAVE AN ADVERSE EFFECT ON THE
PAYMENT OF YOUR CERTIFICATES The mortgage pool includes seven (7) groups
of mortgage loans, the largest of which
collectively represents 13.6% of the
outstanding aggregate principal balance of
all mortgage loans as of August 1, 1999,
under which an aggregate amount of
indebtedness is evidenced by multiple
obligations that are cross-defaulted and
cross-collateralized among multiple
mortgaged properties.
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,
if such borrower were to become a debtor in
a bankruptcy case, by the borrower or its
representative. Specifically, a lien granted
by a borrower entity for the benefit of
another borrower or borrowers in a
cross-collateralization arrangement could be
avoided if a court were to determine that:
(i) such borrower entity 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 entity did not receive fair
consideration or reasonably equivalent value
when it allowed its mortgaged property or
properties to be encumbered by a lien
benefiting the other borrowers. Among other
things, a legal challenge to the granting of
the liens may focus on the benefits realized
by such borrower entity from the respective
mortgage loan proceeds, as well as the
overall cross-collateralization. If a court
were to conclude that the granting of the
liens was an avoidable fraudulent
conveyance, that court could subordinate all
or part of the pertinent mortgage loan to
existing or future indebtedness of that
borrower. The court also could recover
payments made under that mortgage loan or
take other actions detrimental to the
holders of the certificates, including,
under certain circumstances, invalidating
the loan or the mortgages that are subject
to such cross-collateralization.
THE BANKRUPTCY OR INSOLVENCY
OF ANY GROUPS OF MORTGAGE
LOANS MADE TO AFFILIATED
BORROWERS MAY REDUCE THE CASH
FLOW OF THE PROPERTIES AND
MAY HAVE AN ADVERSE EFFECT ON
THE PAYMENT OF YOUR CERTIFICATES Thirteen (13) groups of mortgage loans
(including cross-collateralized mortgage
loan groups), the largest of which
represents 13.6% of the outstanding
aggregate principal balance of all mortgage
loans as of August 1, 1999, were made to
borrowers which are affiliated through
common ownership of partnership or other
equity interests and where, in general, the
related mortgaged properties are commonly
managed.
The bankruptcy or insolvency of any such
borrower or respective affiliate could have
an adverse effect on the operation of all of
the related mortgaged properties and on the
ability of such related mortgaged properties
to produce sufficient cash flow to make
required payments on the related mortgage
loans. For example, if a person that owns or
controls several mortgaged properties
experiences financial
S-38
<PAGE>
difficulty at one such property, it could
defer maintenance at one or more other
mortgaged properties in order to satisfy
current expenses with respect to the
mortgaged property experiencing financial
difficulty, or it could attempt to avert
foreclosure by filing a bankruptcy petition
that might have the effect of interrupting
monthly payments for an indefinite period on
all the related mortgage loans.
LEASES WHICH ARE
SUBORDINATE TO LIENS ON THE
MORTGAGED PROPERTIES MAY
HAVE AN ADVERSE EFFECT ON
THE PAYMENT OF YOUR CERTIFICATES In some jurisdictions, if tenant leases are
subordinate to the liens created by the
mortgage and do not contain attornment
provisions which require the tenant to
recognize a successor owner following
foreclosure as landlord under the lease, the
leases may terminate upon the transfer of
the property to a foreclosing lender or
purchaser at foreclosure. Not all leases
were reviewed to ascertain the existence of
these 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. Some of
the leases at the mortgaged properties
included in the trust may not be subordinate
to the related mortgage.
LITIGATION ARISING OUT OF
ORDINARY BUSINESS MAY
AFFECT THE TIMING AND/OR
PAYMENT ON YOUR CERTIFICATES
AND MAY HAVE AN ADVERSE EFFECT
ON YOUR CERTIFICATES 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. This litigation
could cause a delay in the payment on your
certificates. Therefore, we cannot assure
you that any such litigation would not have
a material adverse effect on your
certificates.
RISKS RELATING TO COMPLIANCE
WITH THE AMERICANS WITH
DISABILITIES ACT Under the Americans with Disabilities Act of
1990, public accommodations are required to
meet certain federal requirements related to
access and use by disabled persons.
Borrowers may incur
S-39
<PAGE>
costs complying with the Americans with
Disabilities Act. In addition, noncompliance
could result in the imposition of fines by
the federal government or an award of
damages to private litigants. If the related
borrower incurs such costs or fines the
amount available to pay debt service would
be reduced.
THERE ARE CONFLICTS OF
INTEREST OF THE OPERATING
ADVISER, THE MASTER SERVICER,
THE SPECIAL SERVICER, MORTGAGE
LOAN SELLERS AND THE MANAGERS OF
THE MORTGAGED PROPERTY THAT
MAY HAVE AN ADVERSE EFFECT
ON YOUR CERTIFICATES 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
have the right to replace the special
servicer upon satisfaction of selected
conditions. At any given time, the operating
adviser will be controlled generally by 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 master servicer and the
special servicer may have interests that
conflict with the interests of the other
holders of the certificates.
It is likely that many 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 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 of interest may arise between the
trust and each of the sellers or their
affiliates that engage in the acquisition,
development, operation, financing and
disposition of real estate.
Those conflicts may arise because each of
the sellers and their 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 the
sellers 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 the sellers or such affiliates may
differ from, and compete with, the interests
of the
S-40
<PAGE>
trust, and decisions made with respect to
those assets may adversely affect the amount
and timing of distributions with respect to
the certificates.
Affiliates of the sellers may acquire a
portion of the 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.
PREPAYMENTS MAY REDUCE
THE YIELD ON YOUR CERTIFICATES The yield to maturity on your certificates
will depend, in significant part, upon 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 as a result of a seller's breach
of representations and warranties or
material defects in a mortgage loan's
documentation.
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 some of the
mortgage loans require payment of a
prepayment premium unless the prepayment
occurs within generally three to seven
payments prior to and including the stated
maturity date. Nevertheless, we cannot
assure you that the related borrowers will
refrain from prepaying their mortgage loans
due to the existence of a prepayment
premium. We also cannot assure you that
involuntary prepayments will not occur. The
rate at which voluntary prepayments occur on
the mortgage loans will be affected by a
variety of factors, including:
o the terms of the mortgage loans;
o the length of any prepayment lockout
period;
o the level of prevailing interest rates;
o the availability of mortgage credit;
o the applicable yield maintenance charges
or prepayment premiums;
o the occurrence of casualties or natural
disasters; and
o economic, demographic, tax or legal
factors.
Generally, no prepayment premium will be
required for prepayments in connection with
a casualty or condemnation. In addition, if
a seller repurchases any mortgage loan from
the trust due to the breach of a
representation or warranty, 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 will be payable. Such a
repurchase may, therefore, adversely affect
the yield to maturity on your certificates.
S-41
<PAGE>
Also, the description in the mortgage notes
of the method of calculation of prepayment
premiums is complex and it is possible that
another person would apply a different
methodology than the one used in determining
the yield to maturity on your certificates
as described in this prospectus supplement.
THE YIELD ON YOUR CERTIFICATE
WILL BE AFFECTED BY THE PRICE AT
WHICH THE CERTIFICATE WAS
PURCHASED AND THE RATE, TIMING
AND AMOUNT OF DISTRIBUTIONS ON
THE CERTIFICATE The yield on any certificate will depend on
(1) the price at which such certificate is
purchased by an investor and (2) 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
certificate balance 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 timing and severity of any
reductions in the appraised value of any
mortgaged property in a manner that has
an effect on the amount of advancing
required on the related mortgage loan;
and
o the method of calculation of prepayment
premiums and the extent to which
prepayment premiums are collected and,
in turn, distributed on such
certificate.
YOU BEAR THE RISK OF BORROWER
DEFAULTS The rate and timing of delinquencies or
defaults on the mortgage loans will affect
the following aspects of the offered
certificates:
o the aggregate amount of distributions on
them;
o their yields to maturity;
o their rates of principal payments; and
o their weighted average lives.
The rights of holders of each class of
subordinate certificates to receive 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. Losses on
the mortgage loans will be allocated to the
Class P, Class O, Class N, Class M, Class L,
Class K, Class J, Class H, Class G, Class F,
S-42
<PAGE>
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-1 and Class A-2 Certificates.
If losses on the mortgage loans exceed the
aggregate certificate balance of the classes
of certificates subordinated to a particular
class, such class will suffer a loss equal
to the full amount of such excess (up to the
outstanding certificate balance 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 are experienced and such
losses are allocable to your certificates,
your actual yield to maturity will be lower
than the assumed yield. Under extreme
scenarios, such yield could be negative. In
general, the earlier a loss borne by your
certificates occurs, the greater the effect
on your yield to maturity.
Even if losses on the mortgage loans are not
borne by your certificates, those losses may
affect the weighted average life and yield
to maturity of your certificates. This may
be so because those losses cause your
certificates to have a higher percentage
ownership interest in the trust (and
therefore a greater portion of the related
distributions of principal payments on the
mortgage loans) than would otherwise have
been the case. The effect on the weighted
average life and yield to maturity of your
certificates will depend upon the
characteristics of the remaining mortgage
loans.
Additionally, delinquencies and defaults on
the mortgage loans may significantly delay
the receipt of distributions by you on your
certificates, unless 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.
COMPENSATION TO THE MASTER
SERVICER, THE SPECIAL SERVICER
AND THE TRUSTEE MAY HAVE AN
ADVERSE EFFECT ON THE PAYMENT OF
YOUR CERTIFICATES To the extent described in this prospectus
supplement, the master servicer, the trustee
or the fiscal agent will be entitled to
receive interest on unreimbursed advances
they have made with respect to defaulted
monthly payments or that are made with
respect to the preservation and protection
of the related mortgaged property. 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. This interest may be
offset in part by default interest and late
payment charges paid by the borrower or by
certain other amounts. In addition, under
certain circumstances, including
delinquencies in the payment of principal
and interest, a mortgage loan will be
serviced by the special servicer, and the
special servicer is entitled to compensation
for special servicing activities. The right
to receive interest on advances and special
servicing compensation is senior to the
rights of certificateholders to receive
distributions.
S-43
<PAGE>
THE SELLERS OF THE MORTGAGE
LOANS ARE SUBJECT TO
BANKRUPTCY OR INSOLVENCY
LAWS THAT MAY AFFECT THE
TRUST'S OWNERSHIP OF THE
MORTGAGE LOANS In the event of the insolvency of any
seller, it is possible the trust's right to
payment from or ownership of the mortgage
loans could be challenged, and if such
challenge were successful, delays or
reductions in payments on the certificates
could occur.
Based upon an opinion of counsel that the
conveyance of the mortgage loans would not
be property of the bankruptcy estate of
sellers, which opinion is subject to various
assumptions and qualifications, the sellers
believe that such a challenge will be
unsuccessful, but there can be no assurance
that a bankruptcy trustee, if applicable, or
other interested party will not attempt to
assert such a position. Even if actions
seeking such results were not successful, it
is possible that payments on the
certificates would be delayed while a court
resolves the claim.
LIMITED LIQUIDITY AND MARKET
VALUE MAY ADVERSELY EFFECT
PAYMENTS ON YOUR CERTIFICATES Your certificates will not be listed on any
securities exchange, and there is currently
no secondary market for the certificates.
While Morgan Stanley & Co. Incorporated, and
Goldman, Sachs & Co. each currently intends
to make a secondary market in the
certificates, none is 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.
COMPUTER PROGRAMMING PROBLEMS
RELATED TO THE YEAR 2000 MAY HAVE
ADVERSE EFFECTS ON THE PAYMENT
OF YOUR CERTIFICATES We are aware of the issues associated with
the programming code in existing computer
systems as the 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 trustee,
the fiscal agent, the master servicer and
the special servicer that they are committed
either to (1) implement modifications to
their respective existing systems to the
extent required to cause them to be year
2000 compliant or (2) acquire computer
systems that are year 2000 compliant, in
each case prior to January 1, 2000. However,
we have not made any independent
investigation of the computer systems of the
trustee, the master servicer or the special
servicer. 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
trustee, the fiscal agent, the master
servicer or
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<PAGE>
the special servicer 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.
Additionally, no independent investigation
of the computer systems of any borrower or
any tenant of a mortgaged property has been
completed. The operation of a borrower or a
tenant at a mortgaged property may be
dependent upon computer systems that are not
fully year 2000 compliant. In such case,
disruptions could occur in the borrower's
collection of rents and other income from
such mortgaged property, potentially
resulting in disruptions in the borrower's
required payments due in connection with
such mortgage loan.
S-45
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 1999-LIFE1 Commercial Mortgage Pass-Through Certificates will
be issued on or about August __, 1999 pursuant to a Pooling and Servicing
Agreement to be dated as of the Cut-off Date, among the Depositor, the Master
Servicer, the Special Servicer, the Fiscal Agent and the Trustee.
Capitalized terms used and not otherwise defined herein have the
meanings given to them in the section of this Prospectus Supplement entitled
"Glossary of Terms."
The Certificates will represent in the aggregate the entire beneficial
ownership interest in the Trust Fund consisting primarily of:
o the Mortgage Loans and all payments under and proceeds of the
Mortgage Loans received after the Cut-off Date (exclusive of
principal prepayments received prior to the Cut-off Date and
scheduled payments of principal and interest due on or before the
Cut-off Date);
o 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;
and
o certain rights of the Depositor under, or assigned to the
Depositor pursuant to, each of the Mortgage Loan Purchase
Agreements relating to Mortgage Loan document delivery
requirements and the representations and warranties of the
related Seller regarding its Mortgage Loans.
The Certificates will consist of 20 classes, to be designated as:
o the Class A-1 Certificates and the Class A-2 Certificates;
o the Class X Certificates;
o the Class B Certificates, the Class C Certificates, the Class D
Certificates, the Class E Certificates, the Class F Certificates,
the Class G Certificates, the Class H Certificates, the Class J
Certificates, the Class K Certificates, the Class L Certificates,
the Class M Certificates, the Class N Certificates, the Class O
Certificates and Class P Certificates; and
o the Class R-I Certificates, the Class R-II Certificates and the
Class R-III Certificates.
Only the Class A, Class B, Class C, Class D and Class E Certificates are
offered hereby. The Class X, Class F, Class G, Class H, Class J, Class K, Class
L, Class M, Class N, Class O and Class P Certificates and the Residual
Certificates have not been registered under the Securities Act of 1933, as
amended, and are not offered hereby.
The Class A Certificates will be issued in book-entry form in
denominations of $25,000 initial Certificate Balance and in any whole dollar
denomination in excess thereof. The Class B, Class C, Class D and Class E
Certificates will be issued in book-entry form in denominations of $100,000
initial Certificate Balance and in any whole dollar denomination in excess
thereof.
Each Class of Offered Certificates will initially be represented by one
or more global Certificates registered in the name of the nominee of DTC. The
Depositor has been informed by DTC that DTC's nominee initially will be Cede &
Co. No person acquiring an interest in an Offered Certificate will be entitled
to receive a fully registered physical 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 the Offered Certificates
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<PAGE>
will refer to actions taken by DTC upon instructions received from the related
Certificate Owners through DTC's participating organizations.
All references herein to payments, notices, reports and statements to
holders of the 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.
Certificateholders must hold their Offered Certificates in book-entry
form, and delivery of the Offered Certificates will be made through the
facilities of DTC, in the United States, and may be made through the facilities
of 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. or The Chase Manhattan Bank, the relevant
depositaries 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 participant or CEDEL customer on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
customer 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.
DTC management is aware that some DTC Systems are dependent upon
calendar dates, including dates before, on, and after January 1, 2000, may
encounter "Year 2000 problems." DTC has informed its Participants and other
members of the financial community that it has developed and is implementing a
program so that the DTC Systems, as the same relate to the timely payment of
distributions, including principal and income payments, to securityholders,
book-entry deliveries, and settlement of trades within DTC, continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as third party vendors from whom DTC licenses software and
hardware, and third party vendors on whom DTC relies for information or the
provisions of services, including telecommunication and electrical utility
service providers, among others.
DTC has informed its Participants and other members of the financial
community that it is contacting and will continue to contact third party vendors
from whom DTC acquires services to:
o impress upon them the importance of such services being Year 2000
compliant; and
o determine the extent of their efforts for Year 2000 remediation
and, as appropriate, testing of their services. In addition, DTC
is in the process of developing such contingency plans as it
deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to its Participants and other members of the financial community for
informational purposes only and is not intended to serve as a representation,
warranty, or contract modification of any kind.
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<PAGE>
CERTIFICATE BALANCES AND NOTIONAL AMOUNT
Upon initial issuance, the Class A-1, Class A-2, Class B, Class C, Class
D, Class E, and Class F through Class P Certificates will have the following
aggregate Certificate Balances. In each case, the Certificate Balances may vary
by 5%:
<TABLE>
<CAPTION>
APPROXIMATE
INITIAL AGGREGATE PERCENT OF INITIAL RATING APPROXIMATE
CLASS CERTIFICATE BALANCE POOL BALANCE (FITCH/S&P) CREDIT SUPPORT
----- ------------------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Class A-1 $ 77,037,000 12.57% AAA/AAA 20.25%
Class A-2 $411,600,000 67.18% AAA/AAA 20.25%
Class B $ 21,445,000 3.50% AA/AA 16.75%
Class C $ 24,509,000 4.00% A/A 12.75%
Class D $ 1.50% A-/A- 11.25%
Class E $ 2.25% BBB/BBB 9.00%
Classes F-P ------ ------ ------ ------
</TABLE>
The percentages indicated under the columns "Approximate Credit Support"
and "Approximate Percent of Initial Pool Balance" with respect to the Class A-1
and Class A-2 Certificates represent the approximate credit support and total
certificate balance as applicable, for the Class A-1 and Class A-2 Certificates
in the aggregate.
The initial Certificate Balance of each 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 that Certificate on the applicable
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 "--Distributions--Subordination; Allocation of Losses and
Certain Expenses" below.
The Interest Only Certificates will not have a Certificate Balance. Such
Class of Certificates will represent the right to receive distributions of
interest accrued as described herein on a Notional Amount.
The aggregate Notional Amount of the Interest Only Certificates will
equal 100% of the aggregate Scheduled Principal Balance of the Mortgage Loans
outstanding from time to time. The Interest Only Certificates will have an
initial aggregate Notional Amount of $612,711,795, subject to a permitted
variance of plus or minus 5%. The Notional Amount of each Interest Only
Certificate is used solely for the purpose of determining the amount of interest
to be distributed on such Certificate and does not represent the right to
receive any distributions of principal.
The Residual Certificates will not have Certificate Balances or Notional
Amounts.
PASS-THROUGH RATES
The Pass-Through Rates applicable to the Class A-1 and Class A-2
Certificates for each Distribution Date will, at all times, be equal to 6.73%
and 6.98% per annum, respectively; provided, however, that each such
Pass-Through Rate will not exceed the Weighted Average Net Mortgage Rate for
such Distribution Date.
The Pass-Through Rates applicable to the Class B, Class C, Class D and Class E
Certificates for the initial Distribution Date will equal approximately 7.22%,
7.37%, 7.45% and 7.45% per annum, respectively. For each subsequent Distribution
Date, the Pass-Through Rate on the Class B Certificates will be a per annum rate
equal to the Weighted Average Net Mortgage Rate for such Distribution Date minus
0.23%, the Pass-Through Rate on the Class C Certificates will be a per annum
rate equal to the Weighted Average Net Mortgage Rate for such Distribution Date
minus 0.08%. For each subsequent Distribution Date, the Pass-Through Rate on the
Class D Certificates and Class E Certificates will be a per annum rate equal to
the Weighted Average Net Mortgage Rate for
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such Distribution Date. The Pass-Through Rates shown are only for indicative
purposes. The final Pass-Through Rates will be determined at pricing.
The Pass-Through Rates applicable to the Class F and Class G
Certificates, which are Private Certificates, for each Distribution Date will
each, at all times, be equal to the Net Weighted Average Mortgage Rate. The
Pass-Through Rates applicable to the Class H, Class J, Class K, Class L, Class
M, Class N, Class O and Class P Certificates, which are Private Certificates,
for each Distribution Date will each, at all times, be equal to 6.48% per annum;
provided, however, that each such Pass-Through Rate will not exceed the Weighted
Average Net Mortgage Rate for such Distribution Date.
The Pass-Through Rate applicable to the Class X Certificates, which are
Private Certificates, for the initial Distribution Date will equal approximately
0.49% per annum.
The Pass-Through Rate applicable to the Class X Certificates for each
Distribution Date subsequent to the initial Distribution Date will, in general,
equal the excess, if any, of:
o the Weighted Average Net Mortgage Rate for such Distribution
Date, over
o the weighted average of the Pass-Through 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 Administrative Cost Rate for each Mortgage Loan is set forth in
Appendix II. The Administrative Cost Rate will be payable on the Scheduled
Principal Balance of each Mortgage Loan outstanding from time to time. The
Administrative Cost Rate applicable to a Mortgage Loan in any month will be
determined using the same interest accrual basis (i.e., a 360-day year
consisting of twelve 30-day months or a 360-day year and actual days elapsed) on
which interest accrues under the terms of such Mortgage Loan.
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 each Distribution Date, commencing in September
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. Every distribution 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 will be determined without
regard to any possible future reimbursement of any Realized Losses or Expense
Losses previously allocated to such Certificate. The final distribution will be
made in the same manner as earlier distributions, 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, will be made by check mailed to the Certificateholder that surrendered
such Certificate. The likelihood of any such distribution is remote. 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.
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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 that Distribution Date.
With respect to the Distribution Date occurring in each January, other
than a leap year, and each February, the Interest Reserve Amount will be
deposited to the Interest Reserve Account in respect of each Interest Reserve
Loan in an amount equal to one day's interest at the related Net Mortgage Rate
on its principal balance as of the Due Date in the month in which such
Distribution Date occurs, to the extent a Scheduled Payment or P&I Advance is
timely made in respect thereof for such Due Date. The Net Mortgage Rate will be
applied without regard to any adjustment for Interest Reserve Amounts or the
interest accrual basis as described in the definition of "Net Mortgage Rate" in
the Glossary. With respect to the Distribution Date occurring in March of each
year, an amount is required to be withdrawn from the Interest Reserve Account in
respect of each Interest Reserve Loan equal to the related Interest Reserve
Amount from the preceding January, if applicable, and February, and the
withdrawn amount is to be included as part of the Available Distribution Amount
for such Distribution Date.
Application of the Available Distribution Amount
On each Distribution Date, except as described under "--Optional
Termination" below, for so long as any Class of Offered Certificates remains
outstanding, the Trustee will apply the Available Distribution Amount (other
than Excess Liquidation Proceeds, if any) for such date for the following
purposes and in the following order of priority:
(i) to the holders of the Class A-1, Class A-2 and Class X
Certificates, the Distributable Certificate Interest Amount in
respect of each such Class of Certificates for such
Distribution Date, pro rata in proportion to the Distributable
Certificate Interest Amount payable in respect of each such
Class;
(ii) to the holders of the Class A-1 Certificates, the Principal
Distribution Amount for such Distribution Date, until the
aggregate Certificate Balance of the Class A-1 Certificates
has been reduced to zero;
(iii) upon payment in full of the aggregate Certificate Balance of
the Class A-1 Certificates, to the holders of the Class A-2
Certificates, the Principal Distribution Amount for such
Distribution Date until the aggregate Certificate Balance of
the Class A-2 Certificates has been reduced to zero; the
portion of the Principal Distribution Amount distributed
hereunder will be reduced by any portion thereof distributed
to the holders of the Class A-1 Certificates;
(iv) to the holders of the Class A and Class X Certificates, pro
rata in proportion to their respective entitlements to
reimbursement described in this clause, to reimburse them for
any Realized Losses previously allocated to such Classes of
Certificates, plus interest on such Realized Losses,
compounded monthly, at one-twelfth the applicable Pass-Through
Rate;
(v) to the holders of the Class B Certificates, the Distributable
Certificate Interest Amount in respect of such Class of
Certificates for such Distribution Date;
(vi) upon payment in full of the aggregate Certificate Balance of
the Class A-2 Certificates, to the holders of the Class B
Certificates, the Principal Distribution Amount for such
Distribution Date until the aggregate Certificate Balance of
the Class B Certificates has been reduced to zero; the portion
of the Principal Distribution Amount distributed hereunder
will be reduced by any portion thereof distributed to the
holders of the Class A Certificates;
(vii) to the holders of the Class B Certificates, to reimburse them
for any Realized Losses previously allocated to such Class of
Certificates, plus interest on such Realized Losses,
compounded monthly, at one-twelfth the applicable Pass-Through
Rate;
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(viii) to the holders of the Class C Certificates, the Distributable
Certificate Interest Amount in respect of such Class of
Certificates for such Distribution Date;
(ix) upon payment in full of the aggregate Certificate Balance of
the Class B Certificates, to the holders of the Class C
Certificates, the Principal Distribution Amount for such
Distribution Date until the aggregate Certificate Balance of
the Class C Certificates has been reduced to zero; the portion
of the Principal Distribution Amount distributed hereunder
will be reduced by any portion thereof distributed to the
holders of the Class A and Class B Certificates;
(x) to the holders of the Class C Certificates, to reimburse them
for any Realized Losses previously allocated to such Class of
Certificates, plus interest on such Realized Losses,
compounded monthly, at one-twelfth the applicable Pass-Through
Rate;
(xi) to the holders of the Class D Certificates, the Distributable
Certificate Interest Amount in respect of such Class of
Certificates for such Distribution Date;
(xii) upon payment in full of the aggregate Certificate Balance of
the Class C Certificates, to the holders of the Class D
Certificates, the Principal Distribution Amount for such
Distribution Date until the aggregate Certificate Balance of
the Class D Certificates has been reduced to zero; the portion
of the Principal Distribution Amount distributed hereunder
will be reduced by any portion thereof distributed to the
holders of the Class A, Class B and Class C Certificates;
(xiii) to the holders of the Class D Certificates, to reimburse them
for any Realized Losses previously allocated to such Class of
Certificates, plus interest on such Realized Losses,
compounded monthly, at one-twelfth the applicable Pass-Through
Rate;
(xiv) to the holders of the Class E Certificates, the Distributable
Certificate Interest Amount in respect of such Class of
Certificates for such Distribution Date;
(xv) upon payment in full of the aggregate Certificate Balance of
the Class D Certificates, to the holders of the Class E
Certificates, the Principal Distribution Amount for such
Distribution Date until the aggregate Certificate Balance of
the Class E Certificates has been reduced to zero; the portion
of the Principal Distribution Amount distributed hereunder
will be reduced by any portion thereof distributed to the
holders of the Class A, Class B, Class C and Class D
Certificates;
(xvi) to the holders of the Class E Certificates, to reimburse them
for any Realized Losses previously allocated to such Class of
Certificates, plus interest on such Realized Losses,
compounded monthly, at one-twelfth the applicable Pass-Through
Rate; and
(xvii) to make payments to the holders of the Private Certificates,
other than the Class X Certificates, as contemplated below.
Notwithstanding the foregoing, on each Distribution Date occurring on or
after the date, if any, upon which the aggregate Certificate Balance of all
Classes of Subordinate Certificates has been reduced to zero or the aggregate
Appraisal Reduction in effect is greater than or equal to the aggregate
Certificate Balance of all Classes of Subordinate Certificates, the Principal
Distribution Amount will be distributed, first, to the Class A-1 and Class A-2
Certificates, in proportion to their respective Certificate Balances, in
reduction of their respective Certificate Balances, until the aggregate
Certificate Balance of each such Class is reduced to zero; and, second, to the
Class A-1 and Class A-2 Certificates, in proportion to their respective
Certificate Balances, for the unreimbursed amount of Realized Losses and Expense
Losses previously allocated to such Classes.
On each Distribution Date, following the above-described distributions
on the Offered Certificates and the Class X Certificates, the Trustee will apply
the remaining portion, if any, of the Available Distribution Amount for such
date to make payments to the holders of each of the respective Classes of
Private Certificates (other than the Class X Certificates and Residual
Certificates), in alphabetical order of Class designation, in each case for the
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following purposes and in the following order of priority (i.e., payments under
clauses (1), (2) and (3) below, in that order, to the holders of the Class F
Certificates, then payments under clauses (1), (2), and (3) below, in that
order, to the holders of the Class G, Class H, Class J, Class K, Class L, Class
M, Class N, Class O and Class P Certificates):
(1) to pay interest to the holders of the particular Class of
Certificates, up to an amount equal to the Distributable
Certificate Interest Amount in respect of such Class of
Certificates for such Distribution Date;
(2) if the aggregate Certificate Balance of each other Class of
Subordinate Certificates, if any, with an earlier alphabetical
Class designation has been reduced to zero, to pay principal to
the holders of the particular Class of Certificates, 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 Amount for such
Distribution Date; and
(3) to reimburse the holders of the particular Class of Certificates,
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 one-twelfth the Pass-Through Rate of such Classes.
Any portion of the Available Distribution Amount for any Distribution
Date that is not otherwise payable to the holders of REMIC Regular Certificates
as contemplated above, will be paid to the holders of the Class R-I
Certificates.
Excess Liquidation Proceeds will be deposited to the Reserve Account. On
each Distribution Date, amounts on deposit in the Reserve Account will be used,
first, to reimburse the holders of the Principal Balance Certificates (in order
of alphabetical Class designation) for any, and to the extent of, Realized
Losses or Expense Losses (including interest on Advances) previously allocated
to them; second, to pay amounts that would otherwise constitute Realized Losses
or Expense Losses (including interest on Advances) in the future; and third,
upon the reduction of the aggregate Certificate Balance of the Principal Balance
Certificates to zero, to pay any amounts remaining on deposit in such account to
the Special Servicer as additional Special Servicer compensation.
Distributions of Prepayment Premiums
Any Prepayment Premium collected with respect to a Mortgage Loan during
any particular Collection Period will be distributed on the following
Distribution Date as follows: The holders of the Class A, Class B, Class C,
Class D and Class E Certificates then entitled to distributions of principal on
such Distribution Date will be entitled to an aggregate amount, allocable among
such Classes, if more than one, as described below, equal to the lesser of (a)
such Prepayment Premium and (b) such Prepayment Premium multiplied by a
fraction, the numerator of which is equal to the excess, if any, of the
Pass-Through Rate applicable to the most senior of such Classes of Principal
Balance Certificates then outstanding, or, in the case of the two Classes of
Class A Certificates, first, the Pass-Through Rate applicable to the Class A-1
Certificates and second, the Pass-Through Rate applicable to the Class A-2
Certificates, over the relevant Discount Rate, and the denominator of which is
equal to the excess, if any, of the Mortgage Rate of the Mortgage Loan that
prepaid, over the relevant Discount Rate. If there is more than one such Class
of Principal Balance Certificates entitled to distributions of principal on such
Distribution Date, the aggregate amount described in the preceding sentence will
be allocated among such Classes on a pro rata basis in accordance with the
relative amounts of entitlement to such distributions of principal.
Any portion of any Prepayment Premium remaining after any such payment
to the holders of such Principal Balance Certificates as described above will be
distributed to the holders of the Class X Certificates.
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.
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Treatment of REO Properties
Notwithstanding that any Mortgaged Property may be acquired as part of
the Trust Fund through foreclosure, deed in lieu of foreclosure or otherwise,
the related Mortgage Loan will, for purposes of, among other things, determining
Pass-Through Rates of, distributions on and allocations of Realized Losses and
Expense Losses to the Certificates, as well as the amount of Master Servicing
Fees, Primary Servicing Fees, Excess Servicing Fees, Trustee Fees and Special
Servicing Fees payable under the Pooling and Servicing Agreement, be treated as
having remained outstanding until such REO Property is liquidated. In connection
therewith, operating revenues and other proceeds derived from such REO Property,
exclusive of related operating costs, will be "applied" by the Master Servicer
as principal, interest and other amounts "due" on such Mortgage Loan; and,
subject to the recoverability determination described under "--Advances" below
and the effect of any Appraisal Reductions described under "--Appraisal
Reductions" below, the Master Servicer will be required to make P&I Advances in
respect of such Mortgage Loan, in all cases as if such Mortgage Loan had
remained outstanding. References to Mortgage Loan and Mortgage Loans in the
definitions of Weighted Average Net Mortgage Rate and Principal Distribution
Amount are intended to include any Mortgage Loan or Mortgage Loans as to which
the related Mortgaged Property has become an REO Property.
Appraisal Reductions
Not later than the earliest Appraisal Event, the Special Servicer is
required to obtain an MAI appraisal, if the Scheduled Principal Balance of the
Mortgage Loan is greater than $1,000,000, or an internal valuation, if the
Scheduled Principal Balance of the Mortgage Loan is equal to or less than
$1,000,000, of the related Mortgaged Property or REO Property, as the case may
be. However, the Special Servicer need not obtain either the MAI appraisal or
the internal valuation if such an appraisal or valuation had been obtained
within the prior twelve months.
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. No Appraisal Reduction will
exist as to any Mortgage Loan after it has been paid in full, liquidated,
repurchased or otherwise disposed of. An appraisal for any Mortgage Loan that
has not been brought current for at least three consecutive months will be
updated annually, with a corresponding adjustment to the amount of the related
Appraisal Reduction. In addition, the Operating Adviser may at any time request
the Special Servicer to obtain (at the Operating Adviser's expense) an updated
appraisal, with a corresponding adjustment to the amount of the Appraisal
Reduction.
The existence of an Appraisal Reduction will proportionately reduce the
Master Servicer's, the Trustee's or the Fiscal Agent's, as the case may be,
obligation to make P&I Advances in respect of the related Mortgage Loan, which
will generally result in a reduction in current distributions in respect of the
then most subordinate Class (or, in some cases, Classes) of Principal Balance
Certificates. See "--Advances--P&I Advances" below.
Subordination; Allocation of Losses and Certain Expenses
As and to the extent described herein, the rights of holders of the
Subordinate Certificates to receive distributions of amounts collected or
advanced on the Mortgage Loans will be subordinated, to the extent described
herein, to the rights of holders of the Senior Certificates, and to the rights
of the holders of each other Class of Subordinate Certificates with an earlier
alphabetical Class designation. This subordination is intended to enhance the
likelihood of timely receipt by the holders of the Senior Certificates of the
full amount of all interest payable in respect of the Senior Certificates on
each Distribution Date, and the ultimate receipt by the holders of each Class of
Class A Certificates of principal in an amount equal to the entire Certificate
Balance of the Class A Certificates.
Similarly, but to decreasing degrees and in alphabetical order of Class
designation, this subordination is also intended to enhance the likelihood of
timely receipt by the holders of the Subordinate Certificates, other than the
Class P Certificates, which do not have the benefit of any effective
subordination, of the full amount of interest payable in respect of such Classes
of Certificates on each Distribution Date, and the ultimate receipt by such
holders of principal equal to, in each case, the entire Certificate Balance of
such Class of Certificates. This subordination will be accomplished by the
application of the Available Distribution Amount on each Distribution Date in
accordance with the order of priority described above under "--Application of
the Available Distribution Amount"
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and by the allocation of Realized Losses and Expense Losses as described below.
No other form of credit support will be available for the benefit of the holders
of the Certificates.
Allocation to the Class A Certificates, for so long as they are
outstanding, of the entire Principal Distribution Amount for each Distribution
Date will generally have the effect of reducing the Certificate Balance of that
Class at a faster rate than would be the case if principal payments were
allocated pro rata to all Classes of Certificates with Certificate Balances.
Thus, as principal is distributed to the holders of the Class A Certificates,
the percentage interest in the Trust Fund evidenced by the Class A Certificates
will be decreased, with a corresponding increase in the percentage interest in
the Trust Fund evidenced by the Subordinate Certificates, thereby increasing,
relative to their respective Certificate Balances, the subordination afforded
the Class A Certificates by the Subordinate Certificates.
Following retirement of the Class A Certificates, the herein described
successive allocation to the Subordinate Certificates, in alphabetical order of
Class designation, in each case until such Class is paid in full, of the entire
Principal Distribution Amount for each Distribution Date will provide a similar
benefit to each such Class of Certificates as regards the relative amount of
subordination afforded thereto by the other Classes of Certificates with later
alphabetical Class designations.
Realized Losses of principal and interest on the Mortgage Loans and
Expense Losses for any Distribution Date (to the extent not previously allocated
and net of amounts, if any, on deposit in the Reserve Account) will be allocated
to the Class P, Class O, Class N, Class M, Class L, Class K, Class J, Class H,
Class G, Class F, Class E, Class D, Class C and Class B Certificates, in that
order, and then to the Class A-1 and Class A-2 Certificates and, solely with
respect to Realized Losses and Expense Losses of interest, to the Class X
Certificates, pro rata, in each case reducing principal and/or interest
otherwise payable thereon.
Any shortfall in the amount of the Distributable Certificate Interest
Amount paid to the Certificateholders of any Class of Certificates on any
Distribution Date will result in Unpaid Interest for such Class which, together
with interest thereon compounded monthly at one-twelfth the applicable
Pass-Through Rate, will be distributable in subsequent periods to the extent of
funds available therefor.
Prepayment Interest Shortfalls and Prepayment Interest Excesses
To the extent that the aggregate Prepayment Interest Shortfalls on all
Mortgage Loans other than Specially Serviced Mortgage Loans exceed the aggregate
Prepayment Interest Excesses for such Mortgage Loans for the Collection Period
related to a Distribution Date, the Master Servicing Fee (but not the Excess
Servicing Fee) will be reduced by the amount of such excess. Likewise, to the
extent that the aggregate Prepayment Interest Shortfalls on all Specially
Serviced Mortgage Loans that result from voluntary Principal Prepayments--not
from Liquidations Proceeds or from modifications to Specially Serviced Mortgage
Loans--exceed the aggregate Prepayment Interest Excesses for such Mortgage Loans
for the Collection Period related to a Distribution Date, the Special Servicing
Fee will be reduced by the amount of such excess. See "Servicing of the Mortgage
Loans--The Master Servicer--Master Servicer Compensation" and "--The Special
Servicer--Special Servicer Compensation" in this Prospectus Supplement.
Any Net Aggregate Prepayment Interest Shortfall for a Distribution Date
will be allocated to each Class of Certificates, pro rata, in each case reducing
interest otherwise payable thereon. The Distributable Certificate Interest
Amount 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" in this Prospectus Supplement.
On any Distribution Date, to the extent that the aggregate Prepayment
Interest Excesses on all Mortgage Loans other than Specially Serviced Mortgage
Loans exceed the aggregate Prepayment Interest Shortfalls for such Mortgage
Loans for such Distribution Date, the excess amount will be payable to the
Master Servicer as additional servicing compensation. Likewise, to the extent
that the aggregate Prepayment Interest Excesses on all Specially Serviced
Mortgage Loans exceed the aggregate Prepayment Interest Shortfalls for such
Mortgage Loans for such Distribution Date, the excess amount will be payable to
the Special Servicer as additional servicing compensation.
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OPTIONAL TERMINATION
The majority holders of the Controlling Class, the Depositor, the Master
Servicer, the Special Servicer and the holder of the majority interest in the
Class R-I Certificates, in that order, will 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 on or after the Distribution Date on
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.
The purchase price for any such purchase will be 100% of the aggregate
unpaid principal balances of the Mortgage Loans, other than any Mortgage Loans
as to which the Master Servicer has determined that all payments or recoveries
with respect thereto have been made, plus accrued and unpaid interest at the
Mortgage Rate--or the Mortgage Rate less the Master Servicing Fee Rate and
Primary Servicing Fee Rate if the Master Servicer is the purchaser--to the Due
Date for each Mortgage Loan ending in the Collection Period with respect to
which such purchase occurs, plus unreimbursed Advances, with interest thereon at
the Advance Rate, and the fair market value of any other property remaining in
the Trust Fund. The optional termination of the Trust Fund must be conducted so
as to constitute a "qualified liquidation" of each REMIC under Section 860F of
the Code.
Upon any such termination, the purchase price for the Mortgage Loans and
the other property in the Trust Fund will be applied to pay accrued and unpaid
interest on and reduce the Certificate Balance of all outstanding Classes to
zero in the manner provided under "Description of the
Certificates--Distributions--Application of the Available Distribution Amount"
in this Prospectus Supplement. Notice of any optional termination must be mailed
by the Trustee to the Certificateholders and the Rating Agencies upon the
receipt of written notice of such optional termination by the Trustee.
ANY SUCH TERMINATION WILL HAVE AN ADVERSE EFFECT ON THE YIELD OF ANY
OUTSTANDING OFFERED CERTIFICATES PURCHASED AT A PREMIUM. SEE "YIELD, PREPAYMENT
AND MATURITY CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT.
ADVANCES
P&I Advances
On the business day prior to each Distribution Date, the Master Servicer
will be obligated to make a P&I Advance, but only to the extent that the Master
Servicer determines, in its sole discretion, exercised in good faith, that the
amount so advanced, plus interest expected to accrue thereon, will be
recoverable from subsequent payments or collections, including Insurance
Proceeds and Liquidation Proceeds, in respect of the related Mortgage Loan, and
only until the Mortgage Loan has been liquidated; provided, however, that the
amount of any P&I Advance required to be advanced by the Master Servicer with
respect to interest on a Mortgage Loan as to which there has been an Appraisal
Reduction will be an amount equal to the product of:
o the amount required to be advanced by the Master Servicer
without giving effect to this sentence, and
o a fraction, the numerator of which is the Scheduled Principal
Balance of such Mortgage Loan as of the immediately preceding
Determination Date less any Appraisal Reduction in effect with
respect to such Mortgage Loan and the denominator of which is
the Scheduled Principal Balance of the Mortgage Loan as of
such Determination Date.
With respect to any Mortgage Loan that is delinquent in respect of its
Balloon Payment, including any REO Property as to which the related Mortgage
Loan provided for a Balloon Payment, P&I Advances will be required in an amount
equal to the Assumed Scheduled Payment, less the related Master Servicing Fee
and Primary Servicing Fee, subject to the same conditions and limitations, as
described above, that apply to P&I Advances of other Scheduled Payments.
The Master Servicer will be entitled to interest on P&I Advances, which
interest will accrue at the Advance Rate.
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P&I Advances and interest accrued thereon at the Advance Rate will be
reimbursable or payable from recoveries on the related Mortgage Loans and, to
the extent the Master Servicer determines in its sole discretion, exercised in
good faith, that a P&I Advance will not be ultimately recoverable from related
recoveries, from any funds on deposit in the Certificate Account and
Distribution Account. In no event will the Master Servicer be required to make
aggregate P&I Advances with respect to any Mortgage Loan which, when including
the amount of interest accrued thereon at the Advance Rate, equals an amount
greater than the Scheduled Principal Balance plus all overdue amounts thereof,
less any Appraisal Reductions with respect thereto.
The right of the Master Servicer to reimbursement or payment out of
recoveries will be prior to the right of the Certificateholders to receive any
amounts recovered with respect to any Mortgage Loan. If the Master Servicer
fails to make a required P&I Advance, the Trustee is required to make such P&I
Advance, and if the Trustee fails to make a required P&I Advance, the Fiscal
Agent is required to make such P&I Advance (each subject to the same
limitations, and with the same rights, as described above for the Master
Servicer).
Servicing Advances
Servicing Advances, in all cases, will be reimbursable as described
below. The Master Servicer will be permitted to pay, or to direct the payment
of, certain servicing expenses directly out of the Certificate Account or
Distribution Account and under certain circumstances without regard to the
relationship between the expense and the funds from which it is being paid.
With respect to Mortgage Loans, the Master Servicer will be obligated
to make Servicing Advances for real estate taxes and insurance premiums (to the
extent that insurance coverage is available at commercially reasonable rates)
not paid by the related borrower on a timely basis and for collection or
foreclosure costs, including reasonable attorneys fees. With respect to REO
Properties, the Master Servicer will be obligated to make Servicing Advances, if
necessary and to the extent that funds from the operation of the related REO
Property are unavailable to pay any amounts due and payable, for:
o insurance premiums (to the extent that insurance coverage is
available at commercially reasonable rates);
o real estate taxes and assessments in respect of such REO
Property that may result in the imposition of a lien;
o any ground rents in respect of such REO Property; and
o costs and expenses necessary to maintain, manage or operate
such REO Property.
Notwithstanding the foregoing, the Master Servicer will be obligated to
make such Servicing Advances only to the extent that the Master Servicer
determines that the amount so advanced will be recoverable from subsequent
payments or collections, including Insurance Proceeds, Liquidation Proceeds and
REO Income, in respect of such Mortgage Loan or REO Property.
Servicing Advances, including interest accrued thereon at the Advance
Rate, will be reimbursable from recoveries or collections on the related
Mortgage Loan or REO Property. However, if the Master Servicer determines, as
described below, that any Servicing Advance previously made, and accrued
interest thereon at the Advance Rate, will not be ultimately recoverable from
such related recoveries, such advances will be reimbursable from any amounts on
deposit in the Certificate or Distribution Account. If the Master Servicer fails
to make a required Servicing Advance, the Trustee is required to make such
Servicing Advance, and if the Trustee fails to make a required Servicing
Advance, the Fiscal Agent is required to make such Servicing Advance (each
subject to the same limitations, and with the same rights, as described above
for the Master Servicer).
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Nonrecoverable Advances
The determination by the Master Servicer that any P&I Advance or
Servicing Advance, previously made or proposed to be made, would not be
recoverable will be made in the sole discretion of the Master Servicer,
exercising good faith, and is required to be accompanied by an officer's
certificate delivered to the Trustee and the Depositor and setting forth the
reasons for such determination, with copies of appraisals or internal
valuations, if any, or other information that supports such determination. The
Master Servicer's determination of nonrecoverability will be conclusive and
binding upon the Certificateholders, the Trustee and the Fiscal Agent. The
Trustee and the Fiscal Agent shall be entitled to rely conclusively on any
determination by the Master Servicer of nonrecoverability with respect to such
Advance and shall have no obligation, but will be entitled, to make a separate
determination of recoverability.
REPORTS TO CERTIFICATEHOLDERS; AVAILABLE INFORMATION
Trustee Reports
Based solely on information provided in monthly reports prepared by the
Master Servicer and the Special Servicer and delivered to the Trustee (in CSSA
standard file format, CSSA loan setup file format and CSSA loan periodic update
file format), the Trustee will be required to provide or make available to each
Certificateholder on each Distribution Date:
(a) A statement setting forth, to the extent applicable:
(i) the amount, if any, of such distributions to the holders
of each Class of Principal Balance Certificates applied to
reduce the aggregate Certificate Balance thereof;
(ii) the amount of such distribution to holders of each Class
of REMIC Regular Certificates allocable to (A) interest
and (B) Prepayment Premiums;
(iii) the number of outstanding Mortgage Loans and the aggregate
principal balance and Scheduled Principal Balance of the
Mortgage Loans at the close of business on the related
Determination Date;
(iv) the number and aggregate Scheduled Principal Balance of
Mortgage Loans:
(A) delinquent 30 to 59 days,
(B) delinquent 60 to 89 days,
(C) delinquent 90 days or more, or
(D) as to which foreclosure proceedings have been
commenced;
(v) with respect to any REO Property included in the Trust
Fund, the principal balance of the related Mortgage Loan
as of the date of acquisition of the REO Property and the
Scheduled Principal Balance thereof;
(vi) as of the related Determination Date:
(A) 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 payments which it expects to be
finally recoverable and the amount of the proceeds
of such sale deposited into the Certificate
Account, and
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(B) 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 of
each Class of REMIC Regular Certificates before and after
giving effect to the distribution 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 REMIC
Regular Certificates for such Distribution Date;
(x) the aggregate amount of servicing fees paid to the Master
Servicer, the Primary Servicers and the Special Servicer;
(xi) the amount of Unpaid Interest, Realized Losses or Expense
Losses, if any, incurred with respect to the Mortgage
Loans;
(xii) the aggregate amount of Servicing Advances and P&I
Advances outstanding that have been made by the Master
Servicer, the Trustee and the Fiscal Agent, separately
stated;
(xiii) the amount of any Appraisal Reductions effected during the
related Collection Period on a loan-by-loan basis and the
total Appraisal Reductions in effect as of such
Distribution Date; and
(xiv) such other information and in such form as shall be
specified in the Pooling and Servicing Agreement.
(b) A report containing information regarding the Mortgage Loans as
of the end of the related Collection Period, which report will
contain substantially the categories of information regarding the
Mortgage Loans set forth in Appendix I and will be presented in a
tabular format substantially similar to the format utilized in
Appendix I.
In the case of information furnished pursuant to subclauses (a)(i),
(a)(ii) and (a)(xi) above, the amounts shall be expressed as a dollar amount per
$1,000 of original actual principal amount of the Certificates for all
Certificates of each applicable Class.
The Trustee will make available each month, to any interested party, the
foregoing reports via the Trustee's Website at www.lnbabs.com, its electronic
bulletin board; its customer service and its ASAP System (via facsimile). The
Trustee's electronic bulletin board may be accessed by calling (714) 282-3990,
its customer service may be accessed by calling (800) 246-5761 and its ASAP
System may be accessed by calling (714) 282-5518 and requesting statement number
430.
In addition, the Trustee will also make Mortgage Loan information as
presented in the CSSA standard file format, the CSSA loan setup file format, the
CSSA loan periodic update file format, the Special Servicer Reports and the
Annual Report each month to any Certificateholder, any Certificate Owner, the
Rating Agencies or any other interested party via the Trustee's Website or other
electronic means. The Trustee will make no representations or warranties as to
the accuracy or completeness of such documents and will assume no responsibility
therefor. In addition, the Trustee may disclaim responsibility for any
information of which it is not the original source.
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In connection with providing access to the Trustee's Website or
electronic bulletin board, the Trustee may require registration and the
acceptance of a disclaimer. The Trustee shall not be liable for the
dissemination of information in accordance with the Pooling and Servicing
Agreement.
On an annual basis, the Master Servicer is required to deliver the
Annual Report to the Trustee, which will deliver such report to the
Underwriters, the Certificateholders, the Depositor and anyone the Depositor or
any Underwriter reasonably designates, the Special Servicer, the Rating
Agencies, and, upon request, any Certificateholder.
On a monthly basis, the Trustee is required to make available on the
Trustee's website to the Underwriters, the Rating Agencies, the Depositor, the
Operating Adviser and anyone the Depositor or any Underwriter reasonably
designates, and upon request to any Certificateholder, a report, in electronic
format, substantially in the form of the data file contained on the diskette
attached to the inside back cover of this Prospectus Supplement with the
information contained therein updated to the date of such report.
Special Servicer Reports
On or about each Determination Date, the Special Servicer will prepare,
or provide the Master Servicer with the information to prepare, the Special
Servicer Reports with respect to Specially Serviced Mortgage Loans as required
by the Pooling and Servicing Agreement. Such reports will be delivered, no later
than the business day prior to each Distribution Date, to the Underwriters, the
Rating Agencies, the Trustee and the Depositor; provided that certain
limitations will be imposed on such recipients with respect to the use and
further dissemination of the information in such reports to the extent described
in the Pooling and Servicing Agreement.
Other Information
The Pooling and Servicing Agreement generally requires that the Trustee
make available, at its corporate trust offices or at such other office as it may
reasonably designate, during normal business hours, upon reasonable advance
notice for review by any Certificateholder, each Rating Agency or the Depositor,
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:
o the Pooling and Servicing Agreement and any amendments
thereto;
o all reports or statements delivered to holders of the relevant
Class of Certificates since the Closing Date;
o all officer's certificates delivered to the Trustee since the
Closing Date; o all accountants' reports delivered to the
Trustee since the Closing Date;
o 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;
o 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;
o 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
o any and all officer's 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.
Copies of any and all of the foregoing items and any servicer reports
will be available from the Trustee upon request; however, the Trustee will be
permitted to require the requesting party to pay a sum sufficient to cover
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the reasonable costs and expenses of providing such copies. Recipients of such
information will generally be required to acknowledge that such information may
be used only in connection with an evaluation of the Certificates by such
recipient.
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 or
otherwise made available publicly by the Trustee. The manner in which notices
and other communications are conveyed by DTC to its Participants, and by such
Participants to the Certificate Owners, will be governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
The Master Servicer, the Special Servicer, the Trustee and the Depositor
are required to recognize as Certificateholders only those persons in whose
names the Certificates are registered with the Certificate Registrar as of the
related Record Date; however, any Certificate Owner that has delivered to the
Certificate Registrar a written certification, in the form prescribed by the
Pooling and Servicing Agreement, 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 in August 1999:
The close of business on
August 1 (A) Cut-off Date.
August 30 (B) Record Date for all Classes of
August 1 - September 9 (C) The Collection Period. The Master
Servicer receives Scheduled
Payments due after the Cut-off
Date and any Principal Prepayments
made after the Cut-off Date and on
or prior to September 9.
September 9 (D) Determination Date.
September 12 (E) Master Servicer Remittance Date.
September 15 (F) Distribution Date.
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 outstanding principal balance of the Mortgage Loans at the close
of business on the Cut-off Date, after deducting principal payments due on or
before such date, whether or not received. 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 Scheduled Payments due and collected and Principal
Prepayments collected, after the Cut-off Date and on or prior to September 9,
1999 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 each Distribution Date and will end on the Determination Date in
the month in which the Distribution Date occurs.
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(D) As of the close of business on the Determination Date, the Master
Servicer will have determined the amounts of principal and interest that will be
remitted with respect to the related Collection Period.
(E) The Master Servicer will remit to the Trustee no later than the
business day prior to the related Distribution Date all amounts held by the
Master Servicer, and any P&I Advances required to be made by the Master
Servicer, that together constitute the Available Distribution Amount for such
Distribution Date.
(F) The Trustee will make distributions to Certificateholders on the
15th day of each month or, if such day is not a business day, the next
succeeding business day.
THE TRUSTEE AND THE FISCAL AGENT
The Trustee
LaSalle Bank National Association will act as the Trustee. LaSalle Bank
National Association 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 "AA" by S&P (or such
lower ratings as the Rating Agencies would permit without an adverse effect on
any of the then-current ratings of the Certificates). The corporate trust office
of the Trustee responsible for administration of the Trust Fund is located at
135 South LaSalle Street, Suite 1625, Chicago, Illinois 60674, Attention:
Asset-Backed Securities Trust Services Group - Morgan Stanley Capital I Inc.,
Commercial Mortgage Pass-Through Certificates, Series 1999-LIFE1. As of March
31, 1999, the Trustee had assets of approximately $28 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 Trustee will be paid the Trustee Fee as compensation for its duties
under the Pooling and Servicing Agreement.
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 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 Bank National Association 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.
EXPECTED FINAL DISTRIBUTION DATE; RATED FINAL DISTRIBUTION DATE
The Expected Final Distribution Date for each Class of Certificates
listed on the cover page of this Prospectus Supplement is the date on which such
Class is expected to be paid in full, assuming timely payments and no Principal
Prepayments will be made on the Mortgage Loans in accordance with their terms
and otherwise based on the Maturity Assumptions.
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The Rated Final Distribution Date of each Class of Certificates is the
Distribution Date in April 2033
The ratings assigned by the Rating Agencies to each Class of Principal
Balance Certificates reflects an assessment of the likelihood that the
Certificateholders of such Class will receive, on or before the Rated Final
Distribution Date, all principal distributions to which they are entitled.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The yield to maturity on the Offered Certificates will be affected by
the price paid by the Certificateholder, the related Pass-Through Rates and the
rate, timing and amount of distributions on such Offered Certificates. The rate,
timing and amount of distributions on any such Certificate will in turn depend
on, among other things:
o the Pass-Through Rate for such Certificate; o the rate and
timing of principal payments, including Principal Prepayments,
and other principal collections on the Mortgage Loans and the
extent to which such amounts are to be applied in reduction of
the Certificate Balance of such Certificate;
o the rate, timing and severity of Realized Losses and Expense
Losses and the extent to which such losses and expenses are
allocable in reduction of the Certificate Balance of such
Certificate; and
o the timing and severity of any Net Aggregate Prepayment
Interest Shortfalls and the extent to which such shortfalls
are allocable in reduction of the Distributable Certificate
Interest Amount payable on such Certificate.
In addition, the effective yield to holders of the Offered Certificates
will differ from the yield otherwise produced by the applicable Pass-Through
Rate and purchase prices of such Certificates because interest distributions
will not be payable to such holders until at least the 15th day of the month
following the month of accrual without any additional distribution of interest
or earnings thereon in respect of such delay.
PASS-THROUGH RATES
The Pass-Through Rates on the Offered Certificates will be based on or
subject to the Weighted Average Net Mortgage Rate. Accordingly, the yields on
the Offered Certificates will be sensitive to changes in the relative
composition of the Mortgage Pool as a result of scheduled amortization,
voluntary prepayments and any unscheduled collections of principal and/or any
experience of Realized Losses as a result of liquidations of Mortgage Loans. In
general, the effect of any such changes on such yields and Pass-Through Rates
will be particularly adverse to the extent that Mortgage Loans with relatively
higher Mortgage Rates experience faster rates of such scheduled amortization,
voluntary prepayments and unscheduled collections or Realized Losses than
Mortgage Loans with relatively lower Mortgage Rates.
RATE AND TIMING OF PRINCIPAL PAYMENTS
The yield to maturity on any Class of Offered Certificate purchased at a
discount or premium will be affected by the rate and timing of principal
payments made in reduction of the aggregate Certificate Balance of such Class of
Certificates. As described herein, the Principal Distribution Amount for each
Distribution Date will be distributable entirely in respect of the Class A-1
Certificates until the Certificate Balance thereof is reduced to zero, and will
thereafter be distributable entirely in respect of each other Class of Principal
Balance Certificates, in descending alphabetical, and, if applicable, descending
numerical, order of Class designation, in each case until the aggregate
Certificate Balance of such Class of Certificates is, in turn, reduced to zero.
Consequently, the rate and timing of principal payments that are distributed or
otherwise result in reduction of the aggregate Certificate Balance of each Class
of Offered Certificates will be directly related to the rate and timing of
principal payments on or in respect of the Mortgage Loans, which will in turn be
affected by the amortization schedules thereof, the dates on
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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 and
purchases of Mortgage Loans out of the Trust Fund.
Prepayments and, assuming the respective maturity dates therefor have
not occurred, liquidations of the Mortgage Loans will result in distributions on
the Certificates of amounts that would otherwise be distributed over the
remaining terms of the Mortgage Loans and will tend to shorten the weighted
average lives of the Principal Balance Certificates. Any early termination of
the Trust Fund as described herein under "Description of the
Certificates--Optional Termination" will also shorten the weighted average lives
of those Certificates then outstanding. Defaults on the Mortgage Loans,
particularly at or near their maturity dates, may result in significant delays
in payments of principal on the Mortgage Loans, and, accordingly, on the
Principal Balance Certificates, while work-outs are negotiated or foreclosures
are completed, and such delays will tend to lengthen the weighted average lives
of those Certificates. See "Servicing of the Mortgage Loans--Mortgage Loan
Modifications" in this Prospectus Supplement.
The extent to which the yield to maturity of any 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 in turn are distributed or otherwise
result in a reduction of the aggregate Certificate Balance of its Class. An
investor should consider, in the case of any such Certificate purchased at a
discount, the risk that a slower than anticipated rate of principal payments on
the Mortgage Loans could result in an actual yield to such investor that is
lower than the anticipated yield and, in the case of any Certificate purchased
at a premium, the risk that a faster than anticipated rate of principal payments
on the Mortgage Loans could result in an actual yield to such investor that is
lower than the anticipated yield.
In general, if an Offered Certificate is purchased at a discount or
premium, the earlier a payment of principal on the Mortgage Loans is distributed
or otherwise results in reduction of the Certificate Balance of the related
Class, the greater will be the effect on the yield to maturity of such
Certificate. As a result, the effect on an investor's yield of principal
payments on the Mortgage Loans occurring at a rate higher (or lower) than the
rate anticipated by the investor during any particular period may not be fully
offset by a subsequent like reduction (or increase) in the rate of such
principal payments. With respect to the Class A, Class B, Class C, Class D and
Class E Certificates, the allocation of a portion of collected Prepayment
Premiums to the Certificates as described herein is intended to mitigate those
risks; however, such allocation (if any) may be insufficient to offset fully the
adverse effects on yield that such prepayments may have. The Prepayment Premium
payable, if any, with respect to any Mortgage Loan, is required to be calculated
as set forth in "Appendix II - Certain Characteristics of the Mortgage Loans."
Because the rate of principal payments on the Mortgage Loans will depend
on future events and a variety of factors (as described more fully below), no
assurance can be given as to such rate or the rate of Principal Prepayments in
particular. The Depositor is not aware of any relevant publicly available or
authoritative statistics with respect to the historical prepayment experience of
a large group of Mortgage Loans comparable to the Mortgage Loans.
LOSSES AND SHORTFALLS
The yield to holders of the Offered Certificates will also depend on the
extent to which such holders are required to bear the effects of any losses or
shortfalls on the Mortgage Loans. Realized Losses and Expense Losses will
generally be applied to reduce the Certificate Balances of the Principal Balance
Certificates in the following order: first, to the Class P Certificates until
the Certificate Balance thereof has been reduced to zero; then to the other
respective Classes of Principal Balance Certificates, in ascending (that is,
from O to A) alphabetical order of Class designation, until the remaining
Certificate Balance of each such Class of Certificates has been reduced to zero;
provided that with respect to interest, Realized Losses and Expense Losses of
interest will be allocated to the Class A-1, Class A-2 and Class X Certificates,
pro rata based on interest distributable on such Certificates. Net Aggregate
Prepayment Interest Shortfalls will be borne by the holders of each Class of
Certificates, pro rata in each case reducing interest otherwise payable thereon.
Shortfalls arising from delinquencies and defaults, to the extent the Master
Servicer determines that P&I Advances would be nonrecoverable, Appraisal
Reductions, Expense Losses
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and Realized Losses generally will result in, among other things, a shortfall in
current distributions to the most subordinate Class of Certificates outstanding.
RELEVANT FACTORS
The rate and timing of principal payments and defaults and the severity
of losses on the Mortgage Loans may be affected by a number of factors
including, without limitation, prevailing interest rates, the terms of the
Mortgage Loans--for example, provisions prohibiting Principal Prepayments for
certain periods and/or requiring the payment of Prepayment Premiums, and
amortization terms that require Balloon Payments--the demographics and relative
economic vitality of the areas in which the Mortgaged Properties are located and
the general supply and demand for rental units or comparable commercial space,
as applicable, in such areas, the quality of management of the Mortgaged
Properties, the servicing of the Mortgage Loans, possible changes in tax laws
and other opportunities for investment. See "Risk Factors" in this Prospectus
Supplement and "Risk Factors" 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
interest rate, the related borrower has an incentive to refinance its Mortgage
Loan. A requirement that a prepayment be accompanied by a Prepayment Premium may
not provide a sufficient economic disincentive to deter a borrower from
refinancing at a more favorable interest rate.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell or
refinance Mortgaged Properties in order to realize their equity therein, to meet
cash flow needs or to make other investments. In addition, some borrowers may be
motivated by federal and state tax laws, which are subject to change, to sell
Mortgaged Properties prior to the exhaustion of tax depreciation benefits.
The Depositor makes no representation as to the particular factors that
will affect the rate and timing of prepayments and defaults on the Mortgage
Loans, as to the relative importance of such factors, as to the percentage of
the principal balance of the Mortgage Loans that will be prepaid or as to
whether a default will have occurred as of any date or as to the overall rate of
prepayment or default on the Mortgage Loans.
WEIGHTED AVERAGE LIFE
Weighted average life refers to the average amount of time from the date
of issuance of a security until each dollar of principal of such security will
be repaid to the investor. The weighted average life of any Principal Balance
Certificate will be influenced by, among other things, the rate at which
principal on the Mortgage Loans is paid or otherwise collected or advanced and
applied to reduce the Certificate Balance of such Certificate.
Prepayments on Mortgage Loans are commonly measured relative to a
prepayment standard or model. The prepayment model used in this Prospectus
Supplement is the Constant Prepayment Rate or CPR model. The Depositor makes no
representation as to the appropriateness of using the CPR model for purposes of
analyzing an investment in the Offered Certificates.
The following tables indicate the percent of the initial Certificate
Balance of each Class of Offered Certificates after each of the dates shown and
the corresponding weighted average life of each such Class of the Certificates,
if the Mortgage Pool were to prepay at the indicated levels of CPR, and sets
forth the percentage of the initial Certificate Balance of such Certificates
that would be outstanding after each of the dates shown. The tables below have
also been prepared generally on the basis of the Maturity Assumptions.
The Mortgage Loans do not have all of the characteristics of the
Maturity Assumptions. To the extent that the Mortgage Loans have characteristics
that differ from those assumed in preparing the tables, the Classes of
Certificates analyzed in the tables may mature earlier or later than indicated
by the tables. Certain of the Mortgage Loans permit partial prepayments.
Additionally, mortgage loans generally do not prepay at any constant rate.
Accordingly, it is highly unlikely that the Mortgage Loans will prepay in a
manner consistent with the Maturity Assumptions. Furthermore, it is unlikely
that the Mortgage Loans will experience no defaults or losses. In addition,
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variations in the actual prepayment experience and the balance of the Mortgage
Loans that prepay may increase or decrease the percentages of initial
Certificate Balances, and shorten or extend the weighted average lives, shown in
the following tables. Investors are urged to conduct their own analyses of the
rates at which the Mortgage Loans may be expected to prepay.
For the purposes of each table, the weighted average life of a
Certificate is determined by:
o multiplying the amount of each principal distribution thereon
by the number of years from the date of issuance of the
Certificate to the related Distribution Date;
o summing the results; and
o dividing the sum by the aggregate amount of the reductions in
the Certificate Balance of such Certificate.
The characteristics of the Mortgage Loans differ in substantial respects
from those assumed in preparing the tables below, and the tables are presented
for illustrative purposes only. In particular, it is unlikely that the Mortgage
Pool will not experience any defaults or losses, or that the Mortgage Pool or
any Mortgage Loan will prepay at any constant rate. Therefore, there can be no
assurance that the Mortgage Loans will prepay at any particular rate.
PERCENT OF INITIAL CERTIFICATE BALANCE OUTSTANDING FOR THE
CLASS A-1 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
DISTRIBUTION DATE 0% 3% 5% 7% 10% 15%
- ---------------------------- ------ ------ ------ ------ ----- ------
Initial 100% 100% 100% 100% 100% 100%
August 2000 93 93 93 93 93 93
August 2001 86 86 86 86 86 86
August 2002 78 78 78 78 78 78
August 2003 69 69 69 69 69 69
August 2004 60 60 60 60 60 60
August 2005 50 50 50 50 50 50
August 2006 39 39 39 39 39 39
August 2007 28 28 28 28 28 28
August 2008 15 15 15 15 15 15
August 2009 0 0 0 0 0 0
Weighted average life (years) 5.70 5.70 5.70 5.70 5.70 5.70
PERCENT OF INITIAL CERTIFICATE BALANCE OUTSTANDING FOR THE
CLASS A-2 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
DISTRIBUTION DATE 0% 3% 5% 7% 10% 15%
- ----------------------- -------- -------- -------- -------- --------- ----------
Initial 100% 100% 100% 100% 100% 100%
August 2000 100 100 100 100 100 100
August 2001 100 100 100 100 100 100
August 2002 100 100 100 100 100 100
August 2003 100 100 100 100 100 100
August 2004 100 100 100 100 100 100
August 2005 100 100 100 100 100 100
August 2006 100 100 100 100 100 100
August 2007 100 100 100 100 100 100
August 2008 100 100 100 100 100 100
August 2009 0 0 0 0 0 0
Weighted average life 9.75 9.75 9.74 9.74 9.74 9.74
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PERCENT OF INITIAL CERTIFICATE BALANCE OUTSTANDING FOR THE
CLASS B CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
DISTRIBUTION DATE 0% 3% 5% 7% 10% 15%
- ----------------------- -------- -------- -------- -------- --------- ----------
Initial 100% 100% 100% 100% 100% 100%
August 2000 100 100 100 100 100 100
August 2001 100 100 100 100 100 100
August 2002 100 100 100 100 100 100
August 2003 100 100 100 100 100 100
August 2004 100 100 100 100 100 100
August 2005 100 100 100 100 100 100
August 2006 100 100 100 100 100 100
August 2007 100 100 100 100 100 100
August 2008 100 100 100 100 100 100
August 2009 0 0 0 0 0 0
Weighted average life 9.93 9.93 9.93 9.93 9.93 9.93
PERCENT OF INITIAL CERTIFICATE BALANCE OUTSTANDING FOR THE
CLASS C CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
DISTRIBUTION DATE 0% 3% 5% 7% 10% 15%
- ----------------------- -------- -------- -------- -------- --------- ----------
Initial 100% 100% 100% 100% 100% 100%
August 2000 100 100 100 100 100 100
August 2001 100 100 100 100 100 100
August 2002 100 100 100 100 100 100
August 2003 100 100 100 100 100 100
August 2004 100 100 100 100 100 100
August 2005 100 100 100 100 100 100
August 2006 100 100 100 100 100 100
August 2007 100 100 100 100 100 100
August 2008 100 100 100 100 100 100
August 2009 0 0 0 0 0 0
Weighted average life 9.93 9.93 9.93 9.93 9.93 9.93
PERCENT OF INITIAL CERTIFICATE BALANCE OUTSTANDING FOR THE
CLASS D CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
DISTRIBUTION DATE 0% 3% 5% 7% 10% 15%
- ----------------------- -------- -------- -------- -------- --------- ----------
Initial 100% 100% 100% 100% 100% 100%
August 2000 100 100 100 100 100 100
August 2001 100 100 100 100 100 100
August 2002 100 100 100 100 100 100
August 2003 100 100 100 100 100 100
August 2004 100 100 100 100 100 100
August 2005 100 100 100 100 100 100
August 2006 100 100 100 100 100 100
August 2007 100 100 100 100 100 100
August 2008 100 100 100 100 100 100
August 2009 0 0 0 0 0 0
Weighted average life 9.93 9.93 9.93 9.93 9.93 9.93
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PERCENT OF INITIAL CERTIFICATE BALANCE OUTSTANDING FOR THE
CLASS E CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
DISTRIBUTION DATE 0% 3% 5% 7% 10% 15%
- ---------------------------- ------- ------- ------- ------- ------- --------
Initial 100% 100% 100% 100% 100% 100%
August 2000 100 100 100 100 100 100
August 2001 100 100 100 100 100 100
August 2002 100 100 100 100 100 100
August 2003 100 100 100 100 100 100
August 2004 100 100 100 100 100 100
August 2005 100 100 100 100 100 100
August 2006 100 100 100 100 100 100
August 2007 100 100 100 100 100 100
August 2008 100 100 100 100 100 100
August 2009 0 0 0 0 0 0
Weighted average life (years) 9.93 9.93 9.93 9.93 9.93 9.93
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DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of 129 fixed-rate Mortgage Loans with an
aggregate Cut-off Date Balance of $612,711,795 subject to a permitted variance
of plus or minus 5%. The Cut-off Date Balances of the Mortgage Loans range from
$720,221 to $29,706,627, and the Mortgage Loans have an average Cut-off Date
Balance of $4,749,704. Generally, for purposes of the presentation of Mortgage
Pool information in this Prospectus Supplement, multiple Mortgaged Properties
securing a single Mortgage Loan have 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 represented
by such obligation.
The Mortgage Loans were originated between August 28, 1998 and July 31,
1999. As of the Cut-off Date, none of the Mortgage Loans were 30 days or more
delinquent, or had been 30 days or more delinquent during the 12 calendar months
preceding the Cut-off Date. Brief summaries of the material terms of the
Mortgage Loans associated with the ten (10) largest Borrower concentrations in
the Mortgage Pool are contained in Appendix III attached hereto.
Each Mortgage Loan is evidenced by a Mortgage Note and secured by a
Mortgage that creates a first mortgage lien on a fee simple estate in one or
more income-producing Mortgaged Properties. Two of such Mortgage Loans are
subject to a ground lease with respect to a portion of the related Mortgaged
Property. However, in each case, the fee owner is a party to the related
Mortgage and has subordinated its interest; therefore such Mortgage Loans are
disclosed as fee loans.
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.
The Depositor will thereupon sell 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" below.
MATERIAL TERMS AND CHARACTERISTICS OF THE MORTGAGE LOANS
Mortgage Rates; Calculations of Interest
The Mortgage Loans bear interest at Mortgage Rates that will remain
fixed for their remaining terms. Thirty-three (33) of the Mortgage Loans,
representing 28.6% of the Initial Pool Balance, accrue interest on the basis of
a 360-day year consisting of twelve 30-day months. The remaining ninety-six (96)
Mortgage Loans, representing 71.4% of the Initial Pool Balance, accrue interest
on the basis of the actual number of days elapsed each month in a 360-day year.
PROPERTY TYPES
The Mortgaged Properties consist of the following property types:
o Retail - Forty-six (46) of the Mortgage Loans, which represent
32.5% of the Initial Pool Balance, are secured by retail
properties;
o Industrial - Forty-three (43) of the Mortgage Loans, which
represent 25.3% of the Initial Pool Balance, are secured by
industrial properties;
o Office - Seventeen (17) of the Mortgage Loans, which represent
21.6% of the Initial Pool Balance, are secured by office
properties;
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o Multifamily - Twenty (20) of the Mortgage Loans, which
represent 16.5% of the Initial Pool Balance, are secured by
multifamily properties; and
o Mixed Use - One (1) of the Mortgage Loans, which represent
security for 2.0% of the Initial Pool Balance, is secured by
mixed use property types;
o Senior Housing - One (1) of the Mortgage Loans, which
represent security for 1.6% of the Initial Pool Balance, is
secured by senior housing properties;
o Self-Storage -One (1) of the Mortgage Loans, which represent
security for 0.4% of the Initial Pool Balance, is secured by
self-storage properties.
PROPERTY LOCATION
The following eight states contain the largest concentrations of
Mortgaged Properties securing the Mortgage Loans:
o Sixteen (16) Mortgage Loans, representing 15.1% of the Initial
Pool Balance are secured by mortgaged properties located in
California;
o Nine (9) Mortgage Loans, representing 11.2% of the Initial
Pool Balance are secured by mortgaged properties located in
New York;
o Thirteen (13) Mortgage Loans, representing 10.3% of the
Initial Pool Balance are secured by mortgaged properties
located in Florida;
o Seven (7) Mortgage Loans, representing 7.8% of the Initial
Pool Balance are secured by mortgaged properties located in
New Jersey;
o Eight (8) Mortgage Loans, representing 6.0% of the Initial
Pool Balance are secured by mortgaged properties located in
Virginia;
o Ten (10) Mortgage Loans, representing 5.5% of the Initial Pool
Balance are secured by mortgaged properties located in North
Carolina;
o Fourteen (14) Mortgage Loans, representing 5.4% of the Initial
Pool Balance are secured by mortgaged properties located in
Pennsylvania;
o Seven (7) Mortgage Loans, representing 5.4% of the Initial
Pool Balance are secured by mortgaged properties located in
Georgia;
Due Dates
One hundred twenty-three (123) of the Mortgage Loans, representing 95.2%
of the Initial Pool Balance, have Due Dates on the first of each calendar month.
Six (6) of the Mortgage Loans, representing 4.8% of the Initial Pool Balance,
have Due Dates on the fifth day of each calendar month without any grace period
for late payments.
Amortization
The Mortgage Loans have the following amortization features:
o One hundred twenty-seven (127) of the Mortgage Loans,
representing 98.9% of the Initial Pool Balance, are Balloon
Loans and, as a result, will have a Balloon Payment greater
than 5% of their respective original principal balance on
their respective maturity dates, unless prepaid prior thereto.
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The amount of the Balloon Payments on those Mortgage Loans
that accrue interest on the basis of the actual number of days
elapsed each month in a 360-day year will be greater, and the
actual amortization terms will be longer, than would be the
case if such Mortgage Loans accrued interest on the basis of a
360-day year consisting of 30-day months as a result of the
application of interest and principal on such Mortgage Loans
over time. See "Risk Factors And Other Special
Considerations--The Mortgage Loans--Balloon Payments."
o Twenty-two (22) of such Balloon Loans, representing 15.2% of
the Initial Pool Balance, are interest-only loans and do not
provide for any amortization of their respective principal
balances over their respective terms.
o One (1) of such Balloon Loans, representing 1.6% of the
Initial Pool Balance, is an interest-only loan and does not
provide for any amortization of its principal balance for a
portion of its term, and then provides for the payment of
principal and interest until its maturity date.
o The remaining two (2) Mortgage Loans, representing 1.1% of the
Initial Pool Balance, fully amortize to an amount less than 5%
of the Original Principal Balance of the Mortgage Loans over
their respective terms.
Prepayment Restrictions
As of the Cut-off Date, the following prepayment restrictions applied
to the Mortgage Loans:
o Ninety-eight (98) Mortgage Loans, representing 68.1% of the
Initial Pool Balance, prohibit voluntary principal prepayments
during 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-one (31) Mortgage Loans, representing 31.9% of the
Initial Pool Balance, prohibit voluntary principal prepayments
during a Lock-out Period and thereafter provide for prepayment
premiums calculated on the basis of the greater of a yield
maintenance formula and 1% of the amount prepaid.
o Notwithstanding the foregoing, the Mortgage Loans generally
provide for a period of 3 to 7 payments prior to and including
the maturity date in which the related Borrower may prepay the
Mortgage Loan without premium or defeasance requirements.
The method of calculation of any Prepayment Premium will vary for any
Mortgage Loan as set forth in "Appendix II - Material Characteristics of the
Mortgage Loans."
Non-Recourse Obligations
The Mortgage Loans are generally non-recourse obligations of the related
borrowers and, upon any such borrower's default in the payment of any amount due
under the related Mortgage Loan, the holder thereof may look only to the related
Mortgaged Property for satisfaction of the borrower's obligations. In those
cases where the loan documents permit recourse to the borrower or a guarantor,
the Depositor has not evaluated the financial condition of any such person, and
prospective investors should thus consider all of the Mortgage Loans to be
non-recourse. None of the Mortgage Loans is insured or guaranteed by the United
States, any government entity or instrumentality or mortgage insurer.
"Due-on-Sale" and "Due-on-Encumbrance" Provisions
The Mortgages generally contain due-on-sale and due-on-encumbrance
clauses that permit the holder of the Mortgage to accelerate the maturity of the
related Mortgage Loan if the borrower sells or otherwise transfers or encumbers
the related Mortgaged Property or that prohibit the borrower from doing so
without the consent of the
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holder of the Mortgage. However, the Mortgage Loans generally permit transfers
of the related Mortgaged Property, subject to reasonable approval of the
proposed transferee by the holder of the Mortgage, payment of an assumption fee
(which may be waived by the Master Servicer or the Special Servicer, as the case
may be, or, if collected, will be paid to the Master Servicer or the Special
Servicer as additional servicing compensation) and certain other conditions.
In addition, some of the Mortgage Loans permit the borrower to transfer
the related Mortgaged Property to an affiliate or subsidiary of the borrower, or
an entity of which the borrower is the controlling beneficial owner, upon the
satisfaction of certain limited conditions set forth in the applicable Mortgage
Loan documents and/or as determined by the Master Servicer. The Master Servicer
or the Special Servicer, as the case may be, will determine, in a manner
consistent with the Servicing Standard, whether to exercise any right it may
have under any such clause to accelerate payment of the related Mortgage Loan
upon, or to withhold its consent to, any transfer or further encumbrance of the
related Mortgaged Property in accordance with the Pooling and Servicing
Agreement.
Subordinate and Other Financing
The Mortgage Loans prohibit the respective borrowers from incurring
secured subordinate indebtedness or require the consent of the holder of the
Mortgage prior to doing so, except with respect to one (1) Mortgage Loan,
representing 4.8% of the Initial Pool Balance, the related borrower may incur
secured subordinate debt, subject to the achievement of certain maximum combined
loan to value and minimum debt-service coverage ratios. Substantially all of the
Mortgage Loans also permit the related borrower to incur limited indebtedness in
the ordinary course of business. See "Certain Legal Aspects of the Mortgage
Loans and the Leases--Subordinate Financing" in the prospectus and "Risk
Factors--Authority to Effect Other Borrowings Entails Risks" in this Prospectus
Supplement.
Additional Collateral
Thirty (30) of the Mortgage Loans, representing 21.9% of the Initial
Pool Balance, have additional collateral in the form of holdbacks under which
monies disbursed by the originating lender or letters of credit are reserved for
specified periods which are to be released only upon the satisfaction of certain
conditions by the borrower. If the borrowers do not satisfy conditions for
release of the monies or letters of credit by the outside release date, such
monies or letters of credit may be applied to partially repay the related
Mortgage Loan (in some cases, without the payment of any prepayment premium) or
may be held by the lender as additional security for the Mortgage Loans. In
addition, some of the other Mortgage Loans provide for reserves for items such
as deferred maintenance, environmental remediation and capital improvements. For
further information with respect to additional collateral, see Appendix II.
Releases
Certain of the Mortgage Loans provide for a partial release of certain
parcels from the lien of the related Mortgage subject to the satisfaction of
certain conditions, including paydowns of the related Mortgage Loan which may be
subject to a yield maintenance premium to be paid by the related Borrower and/or
the creation of a separate tax parcel, and the payment of costs and expenses.
The Mortgage Pool contains additional mortgage loans that provide for a partial
release of collateral. In general, such collateral does not contribute to the
Underwritable Cash Flow of the property nor to the appraised value. In addition,
certain mortgage loans do not require partial prepayment as a condition of the
release. For further information with respect to certain releases, see Appendix
II.
CROSS COLLATERALIZATION; RELATED PARTIES
The Mortgage Pool includes nine (9) groups of Mortgage Loans, the
largest of which collectively represents 6.9% of the Initial Pool Balance, under
which an aggregate amount of indebtedness is evidenced by a single obligation
secured by multiple Mortgaged Properties. Two of such groups are
cross-collateralized and cross-defaulted with each other. Generally, for
purposes of the presentation of Mortgage Pool information herein, such Mortgage
Loans have been treated as multiple cross collateralized and cross defaulted
Mortgage Loans, each
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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
represented by such obligation.
In addition, the Mortgage Pool includes seven (7) groups of Mortgage
Loans, the largest of which collectively represents 13.6% of the Initial Pool
Balance, under which an aggregate amount of indebtedness is evidenced by
multiple obligations and is secured by mortgages on multiple Mortgaged
Properties. Such largest group consists of two single obligations, and multiple
Mortgaged Property groups which are cross-collaterialzed and cross defaulted
each other. Each such Mortgage Loan is cross defaulted and cross collateralized
with the other Mortgage Loan or Loans in such group. See Appendix II for further
information with respect to such groups.
ASSESSMENTS OF PROPERTY VALUE AND CONDITION
Appraisals
In connection with the origination of the Mortgage Loans, the related
Mortgaged Property was appraised by an independent appraiser who, generally, was
a Member of the Appraisal Institute. Each such appraisal complied with the real
estate appraisal regulations issued jointly by the federal bank regulatory
agencies under the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989, as amended. In general, those appraisals represent the analysis and
opinion of the person performing the appraisal and are not guarantees of, and
may not be indicative of, present or future value. There can be no assurance
that another person would not have arrived at a different valuation, even if
such person used the same general approach to and same method of valuing the
property. Moreover, such appraisals sought to establish the amount of typically
motivated buyer would pay a typically motivated seller. Such amount could be
significantly higher than the amount obtained from the sale of a Mortgaged
Property under a distress or liquidation sale. Information regarding the values
of the Mortgaged Properties as of the Cut-off Date is presented herein for
illustrative purposes only.
Environmental Assessments
An environmental site assessment was performed with respect to each
Mortgaged Property generally within the twelve-month period preceding the
origination of the related Mortgage Loan. In all cases, the environmental site
assessment was a "Phase I" environmental assessment, generally performed in
accordance with industry practice. In general, the environmental assessments
contained no recommendations for further significant environmental remediation
efforts which, if not undertaken, would have a material adverse effect on the
related mortgage loan. However, in certain cases, the assessment disclosed the
existence of or potential for adverse environmental conditions, generally the
result of the activities of identified tenants, adjacent property owners or
previous owners of the Mortgaged Property. In certain of such cases, the related
borrowers were required to establish operations and maintenance plans, monitor
the Mortgaged Property, abate or remediate the condition and/or provide
additional security such as letters of credit or reserves. See "Risk
Factors--Environmental Risks Relating to Specific Mortgaged Properties" in this
Prospectus Supplement.
Property Condition Assessments
The Mortgaged Properties were inspected in connection with the
origination of the related Mortgage Loan, by a representative of the related
Seller or by a third party professional engaged by such Seller. Furthermore, in
each case, a licensed engineer or consultant inspected the related Mortgaged
Property, in connection with the origination of the related Mortgage Loan, to
assess the structure, exterior walls, roofing, interior structure and mechanical
and electrical systems. Engineering reports by licensed engineers or consultants
were prepared with respect to all of the Mortgaged Properties in connection with
the origination or securitization of the related Mortgage Loan. See "Risk
Factors Risks Relating to Property Inspections" in this Prospectus Supplement
Environmental Assessments. In certain cases where material deficiencies were
noted in such reports, the related borrower was required to establish reserves
for replacement or repair or remediate the deficiency.
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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 and areas of other states where seismic risk is
deemed material obtain a seismic engineering report of the building and, based
thereon and on certain statistical information, an estimate of probable maximum
loss ("PML"), in an earthquake scenario. Generally, any of the Mortgage Loans as
to which the property was estimated to have PML in excess of 20% of the
estimated replacement cost would either be subject to a lower loan-to-value
limit at origination, be conditioned on seismic upgrading (or appropriate
reserves or letter of credit for retrofitting), be conditioned on satisfactory
earthquake insurance or be declined.
The Mortgage Pool contains three (3) Mortgage Loans, representing 3.0%
of the Initial Pool Balance, that have PMLs in excess of 20% of the estimated
replacement costs of the improvements and are subject to the above-described
mitigants.
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 given that such steps revealed all possible violations.
Evidence of such compliance may have been in the form of legal opinions,
confirmations from government officials, title insurance endorsements, survey
endorsements and/or representations by the related borrower contained in the
related Mortgage Loan documents. 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.
ADDITIONAL MORTGAGE LOAN INFORMATION
Each of the tables set forth in Appendix I sets forth selected
characteristics of the Mortgage Pool presented, where applicable, as of the
Cut-off Date. For a detailed presentation of certain of the characteristics of
the Mortgage Loans and the Mortgaged Properties, on an individual basis, see
Appendix II hereto, and for a brief summary of the Mortgage Loans associated
with the ten largest Borrower concentrations significant Mortgage Loans in the
Mortgage Pool, see Appendix III hereto. Additional information regarding the
Mortgage Loans is contained in this Prospectus Supplement under "Risk Factors"
elsewhere in this "Description of the Mortgage Pool" section and under "Legal
Aspects of Mortgage Loans and the Leases" in the Prospectus.
For purposes of the tables in Appendix I and for the information set
forth in Appendix II and Appendix III:
(1) References to "DSCR" are references to "Debt Service Coverage
Ratios". In general, debt service coverage ratios are used by
income property lenders to measure the ratio of (a) cash
currently generated by a property or expected to be generated by
a property based upon executed leases that is available for debt
service to (b) required debt service payments. However, debt
service coverage ratios only measure the current, or recent,
ability of a property to service mortgage debt. If a property
does not possess a stable operating expectancy (for instance, if
it is subject to material leases that are scheduled to expire
during the loan term and that provide for above-market rents
and/or that may be difficult to replace), a debt service coverage
ratio may not be a reliable indicator of a property's ability to
service the mortgage debt over the entire remaining loan term.
For purposes of this Prospectus Supplement, including for the
tables in Appendix I and the information set forth in Appendix II
and Appendix III, the "Debt Service Coverage Ratio" or "DSCR" for
any Mortgage Loan (or group of cross-collateralized Mortgage
Loans) is calculated pursuant to the definition thereof under the
"Glossary of Terms" in this Prospectus Supplement.
In connection with the calculation of DSCR and loan-to-value
ratios, in determining Underwritable Cash Flow for a Mortgaged
Property, the applicable Seller relied on rent rolls and other
generally unaudited financial information provided by the
respective borrowers and calculated stabilized estimates of cash
flow that took into consideration historical financial
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statements, material changes in the operating position of the
Mortgaged Property of which the Seller was aware (e.g., new
signed leases or end of "free rent" periods and market data), and
estimated capital expenditures, leasing commission and tenant
improvement reserves. The applicable Seller made changes to
operating statements and operating information obtained from the
respective borrowers, resulting in either an increase or decrease
in the estimate of Underwritable Cash Flow derived therefrom,
based upon the Seller's evaluation of such operating statements
and operating information and the assumptions applied by the
respective borrowers in preparing such statements and
information. In most cases, borrower supplied "trailing-12
months" income and/or expense information or the most recent
operating statements or rent rolls were utilized. In some cases,
partial year operating income data was annualized, with certain
adjustments for items deemed not appropriate to be annualized. In
some instances, historical expenses were inflated. For purposes
of calculating Underwritable Cash Flow for Mortgage Loans where
leases have been executed by one or more affiliates of the
borrower, the rents under some of such leases have been adjusted
to reflect market rents for similar properties.
Historical operating results may not be available for some of the
Mortgage Loans which are secured by Mortgaged Properties with
newly constructed improvements, Mortgaged Properties with triple
net leases, Mortgaged Properties that have recently undergone
substantial renovations and newly acquired Mortgaged Properties.
In such cases, items of revenue and expense used in calculating
Underwritable Cash Flow were generally derived from rent rolls,
estimates set forth in the related appraisal, leases with tenants
or from other borrower-supplied information. No assurance can be
given with respect to the accuracy of the information provided by
any borrowers, or the adequacy of the procedures used by the
applicable Seller in determining the presented operating
information.
The Debt Service Coverage Ratios are presented herein for
illustrative purposes only and, as discussed above, are limited
in their usefulness in assessing the current, or predicting the
future, ability of a Mortgaged Property to generate sufficient
cash flow to repay the related Mortgage Loan. Accordingly, no
assurance can be given, and no representation is made, that the
Debt Service Coverage Ratios accurately reflect that ability.
(2) References in the tables to "Cut-off Date LTV" are references to
"Cut-off Date Loan-to-Value" and references to "Balloon LTV" are
references to "Balloon Loan-to-Value." For purposes of this
Prospectus Supplement, including for the tables in Appendix I and
the information set forth in Appendix II and Appendix III, the
"Cut-off Date LTV," "Cut-off Date Loan-to-Value," "Balloon LTV"
or "Balloon Loan-to-Value" for any Mortgage Loan is calculated
pursuant to the definition thereof under the "Glossary of Terms"
in this Prospectus Supplement.
The value of the related Mortgaged Property or Properties for
purposes of determining the Cut-off Date LTV are each based on
the appraisals described above under "--Assessments of Property
Value and Condition--Appraisals".
No representation is made that any such value would approximate
either the value that would be determined in a current appraisal
of the related Mortgaged Property or the amount that would be
realized upon a sale.
(3) References to "weighted averages" are references to averages
weighted on the basis of the Cut-off Date Balances of the related
Mortgage Loans.
The sum in any column of any of the tables in Appendix I may not equal
the indicated total due to rounding.
Generally, the loan documents with respect to the Mortgage Loans require
the borrowers to provide the related lender with quarterly and/or annual
operating statements and rent rolls.
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STANDARD HAZARD INSURANCE
The Master Servicer will, consistent with the Servicing Standard require
each borrower to maintain a fire and hazard insurance policy with extended
coverage in the manner required under the related Mortgage Loan. The coverage of
each such policy will be in an amount, subject to a deductible customary in the
related geographic area, that is not less than the lesser of the full
replacement cost of the improvements that represent security for such Mortgage
Loan, with no deduction for depreciation, and the outstanding principal balance
owing on such Mortgage Loan, but in any event, unless otherwise specified in the
applicable Mortgage or Mortgage Note, in an amount sufficient to avoid the
application of any coinsurance clause.
If, on the date of origination of a Mortgage Loan, the portion of the
improvements on a related Mortgaged Property was in an area identified in the
Federal Register by the Federal Emergency Management Agency as having special
flood hazards (and such flood insurance has been made available), the Master
Servicer will cause to be maintained a flood insurance policy meeting the
requirements of the current guidelines of the Federal Insurance Administration
in an amount representing coverage of at least the lesser of:
o the outstanding principal balance of the related Mortgage
Loan; and
o the maximum amount of such insurance available for the related
Mortgaged Property, but only to the extent such Mortgage Loan
permits the lender to require such coverage and such coverage
conforms to the Servicing Standard.
If a borrower fails to maintain such hazard insurance, the Master
Servicer will be required to obtain such insurance and the cost thereof will be
a Servicing Advance, subject to a determination of recoverability. The Special
Servicer will be required to maintain fire insurance with extended coverage and,
if applicable, flood insurance on an REO Property in an amount not less than the
maximum amount obtainable with respect to such REO Property and the cost thereof
will be a Servicing Advance, subject to a determination of recoverability.
In addition, the Master Servicer may require any borrower to maintain
other forms of insurance as the Master Servicer may be permitted to require
under the related Mortgage, including, but not limited to, loss of rents
endorsements and comprehensive public liability insurance. The Master Servicer
will not require borrowers to maintain earthquake insurance unless the related
borrower is required under the terms of its Mortgage Loan to maintain earthquake
insurance or the Master Servicer is otherwise permitted to require earthquake
insurance. 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.
THE SELLERS
Principal Commercial Funding, LLC
PCF is wholly owned subsidiary of Principal Capital Management, LLC
which is wholly owned subsidiary of Principal Life Insurance Company. PCF was
formed as a Delaware limited liability company to originate and acquire loans
secured by commercial and multi-family real estate. Each of the PCF loans was
originated and underwritten by PCF and/or its affiliates. The offices of PCF are
located at 801 Grand, Des Moines, IA 50392. PCF's phone number is (515)247-7895.
John Hancock Real Estate Finance, Inc.
JHREF is a wholly-owned subsidiary of John Hancock Subsidiaries, Inc.
which is a wholly owned subsidiary of John Hancock Mutual Life Insurance
Company. JHREF was founded in 1982 and is headquartered in Boston,
Massachusetts.
JHREF presently has seven offices across the country and a loan
servicing center located in Atlanta, Georgia. Each of the JHREF Loans was
underwritten at JHREF's Boston headquarters and closed by JHREF (with the
exception of the Mortgage Loan referred to as Plaza Madison, which was
underwritten by John Hancock Mutual
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Life Insurance Company). The principal offices of JHREF are located at 200
Clarendon Street, 53rd Floor, Boston, Massachusetts 02117. JHREF's telephone
number is (617) 572-8716.
Morgan Stanley Mortgage Capital Inc.
MSMC is a subsidiary of Morgan Stanley & Co., Inc., formed as a New York
corporation to originate and acquire loans secured by mortgages on commercial
and multifamily real estate. Each of the Morgan Stanley Loans was originated by
MSMC, and underwritten by MSMC underwriters. The principal offices of MSMC are
located at 1585 Broadway, New York, New York 10036. Its telephone number is
(212) 761-4700.
SALE OF THE MORTGAGE LOANS
On or prior to the Closing Date, each Seller will sell its Mortgage
Loans, without recourse, to the Depositor, and the Depositor, in turn, will sell
all of the Mortgage Loans, without recourse, to the Trustee for the benefit of
the Certificateholders. In connection with such assignments, each Seller is
required in accordance with the related Mortgage Loan Purchase Agreement to
deliver the Mortgage File, with respect to each Mortgage Loan so assigned by it
to the Trustee.
The Trustee will be required to review the 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 90 days
following the Closing Date, pursuant to the Pooling and Servicing Agreement, the
assignments with respect to each Mortgage Loan and any related assignment of
rents and leases (as described in the "Glossary of Terms" under the term
"Mortgage File") are to be completed in the name of the Trustee (if delivered in
blank) and submitted for recording in the real property records of the
appropriate jurisdictions at the expense of the Trust.
REPRESENTATIONS AND WARRANTIES
In each Mortgage Loan Purchase Agreement, the related Seller has
represented and warranted with respect to each of its Mortgage Loans, subject to
certain specified exceptions, as of the Closing Date or as of such other date
specifically provided in the representation and warranty, among other things,
generally to the effect that:
(1) the information set forth in the schedule of the Mortgage Loans
attached to the related Mortgage Loan Purchase Agreement 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 creditor's rights exceptions, enforceable first priority
lien in the related borrower's interest in all leases of the Mortgaged Property;
(7) the Mortgage has not been satisfied, cancelled, 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;
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(8) 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;
(9) 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;
(10) the related Mortgaged Property is covered by an American Land
Title Association (or an equivalent form of) lender's title insurance policy
that insures that the related Mortgage is a valid, first priority lien on such
Mortgaged Property, subject only to certain permitted encumbrances;
(11) the proceeds of the Mortgage Loan have been fully disbursed and
there is no obligation for future advances with respect thereto;
(12) 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;
(13) each Mortgage Note, Mortgage and other agreement that evidences
or secures the Mortgage Loan 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;
(14) 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;
(15) to such Seller's knowledge, 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;
(16) the related borrower is not, to the Seller's knowledge, a debtor
in any state or federal bankruptcy or insolvency proceeding;
(17) the related Mortgaged Property consists of the related borrower's
fee simple estate in real estate;
(18) the Mortgage Loan is not cross-collateralized with any loan other
than one or more other Mortgage Loans;
(19) 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, 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 in underwriting the Mortgage Loan, the payment of a
release price and prepayment consideration in connection therewith; and
(20) 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 those defaults that are otherwise
described in this section).
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REPURCHASES AND OTHER REMEDIES
If any Mortgage Loan document required to be delivered to the Trustee by
a Seller with respect to its Mortgage Loans as described under "--Sale of the
Mortgage Loans" above has a Material Document Defect, or if there is a Material
Breach by a Seller regarding the characteristics of any of its Mortgage Loans
and/or the related Mortgaged Properties as described under "--Representations
and Warranties" above, then such Seller will be obligated to cure such Material
Document Defect or Material Breach in all material respects within the
applicable Permitted Cure Period.
If any such Material Document Defect or Material Breach cannot be
corrected or cured in all material respects within the applicable Permitted Cure
Period, the Seller will be obligated, not later than the last day of such
Permitted Cure Period, to:
o repurchase the affected Mortgage Loan from the Trust Fund at
the Purchase Price; or, at its option,
o if within the two-year period commencing on the Closing Date:
o replace such Mortgage Loan with a Qualifying
Substitute Mortgage Loan; and
o pay an 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.
The Seller must cure any Material Document Defect or the Material Breach
within the Permitted Cure Period, provided, however, that if such Material
Document Defect or Material Breach would cause the Mortgage Loan to be other
than a "qualified mortgage" (as defined in the Code), then the repurchase or
substitution must occur within 90 days from the date the Seller was notified of
the defect or breach.
The foregoing obligations of any 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 Sellers
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. Each Seller is obligated to cure, repurchase or replace only Mortgage Loans
that are sold by it, and will have no obligations with respect to any Mortgage
Loan sold by any other Seller.
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. Prior to the
issuance of the Offered Certificates, a Mortgage Loan may be removed from the
Mortgage Pool if the Depositor deems such removal necessary or appropriate or if
it is prepaid. A limited number of other Mortgage Loans may be included in the
Mortgage Pool prior to the issuance of the Offered Certificates, unless
including such Mortgage Loans would materially alter the characteristics of the
Mortgage Pool as described herein. The information set forth herein is
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Offered Certificates are issued, although the range
of Mortgage Rates and maturities and certain other characteristics of the
Mortgage Loans in the Mortgage Pool may vary.
SERVICING OF THE MORTGAGE LOANS
GENERAL
The Master Servicer and the Special Servicer, either directly or through
sub-servicers, will be required to service and administer the Mortgage Loans in
accordance with the Servicing Standard.
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Each of the Master Servicer and the Special Servicer is required to
adhere to the Servicing Standard without regard to any conflict of interest that
it may have, any fees or other compensation to which it is entitled, any
relationship it may have with any borrower, and the different payment priorities
among the Classes of Certificates. Each of the Master Servicer and the Special
Servicer may become the owner or pledgee of Certificates with the same rights as
each would have if it were not the Master Servicer or a Special Servicer, as the
case may be.
Any such interest of the Master Servicer or the Special Servicer in the
Certificates will not be taken into account when evaluating whether actions of
the Master Servicer or the Special Servicer are consistent with their respective
obligations in accordance with the Servicing Standard, regardless of whether
such actions may have the effect of benefiting the Class or Classes of
Certificates owned by the Master Servicer or the Special Servicer. In addition,
the Master Servicer or the Special Servicer may, under limited circumstances,
lend money on an unsecured basis to, accept deposits from, and otherwise
generally engage in any kind of business or dealings with, any borrower as
though the Master Servicer or the Special Servicer were not a party to the
transactions contemplated hereby.
On the Closing Date, the Master Servicer will enter into an agreement
with each of the Primary Servicers under which the Primary Servicers will assume
many of the servicing obligations of the Master Servicer set forth in this
paragraph with respect to Mortgage Loans sold by it or its affiliates to the
Trust. The Primary Servicers are subject to the Servicing Standard. If an Event
of Default occurs in respect of the Master Servicer and the Master Servicer is
terminated, such termination will not cause the termination of the Primary
Servicers.
Each of the Master Servicer, the Primary Servicers and the Special
Servicer is permitted to enter into a sub-servicing agreement and any such
Sub-Servicer will receive a fee for the services specified in such sub-servicing
agreement. However, any subservicing is subject to various conditions set forth
in the Pooling and Servicing Agreement including the requirement that the Master
Servicer or the Special Servicer, as the case may be, will remain liable for its
servicing obligations under the Pooling and Servicing Agreement. The Master
Servicer or the Special Servicer, as the case may be, will be required to pay
any servicing compensation due to any Sub-Servicer out of its own funds.
The Master Servicer may resign from the obligations and duties imposed
on it under the Pooling and Servicing Agreement, upon 30 days notice to the
Trustee, provided that:
o a successor servicer is available and willing to assume the
obligations of the Master Servicer, and accepts appointment as
successor Master Servicer, on substantially the same terms and
conditions, and for not more than equivalent compensation;
o the Master Servicer bears all costs associated with its
resignation and the transfer of servicing; and
o the Rating Agencies have confirmed in writing that such
servicing transfer will not result in a withdrawal, downgrade
or qualification of the then current ratings on the
Certificates.
Furthermore, the Master Servicer may resign if it determines that the
Master Servicer's duties are no longer permissible under applicable law or are
in material conflict by reason of applicable law with any other activities
carried on by it. If the Master Servicer ceases to serve as such and shall not
have been replaced by a qualified successor, the Trustee or an agent of the
Trustee will assume the Master Servicer's duties and obligations under the
Pooling and Servicing Agreement. If the Special Servicer shall cease to serve as
such and a qualified successor shall not have been engaged, the Master Servicer
will assume the Special Servicer's duties and obligations and, if the Master
Servicer fails to so assume such duties and responsibilities, the Trustee or an
agent will assume the duties and obligations of the Special Servicer.
The relationship of each of the Master Servicer and the Special Servicer
to the Trustee is intended to be that of an independent contractor and not that
of a joint venturer, partner or agent.
The Master Servicer will have no responsibility for the performance by
the Special Servicer, to the extent they are different entities, of its duties
under the Pooling and Servicing Agreement, and the Special Servicer will
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have no responsibility for the performance by the Master Servicer of its duties
under the Pooling and Servicing Agreement.
The Master Servicer initially will be responsible for the servicing and
administration of the entire Mortgage Pool. However, the Special Servicer will
be responsible for servicing and administering any Specially Serviced Mortgage
Loans.
In the event of any of the foregoing with respect to any Mortgage Loan,
the Master Servicer will be required to transfer its principal servicing
responsibilities with respect thereto to the Special Servicer in accordance with
the procedures set forth in the Pooling and Servicing Agreement. Notwithstanding
such transfer, the Master Servicer will continue to receive payments on such
Mortgage Loan, including amounts collected by the Special Servicer, to make
selected calculations with respect to such Mortgage Loan, and to make
remittances and prepare reports to the Trustee with respect to such Mortgage
Loan. If title to the related Mortgaged Property is acquired by the Trust Fund,
whether through foreclosure, deed-in-lieu of foreclosure or otherwise, the
Special Servicer will be responsible for the operation and management thereof
and such loan will be considered a Specially Serviced Mortgage Loan.
A Specially Serviced Mortgage Loan can become a Rehabilitated Mortgage
Loan to which the Master Servicer will re-assume all servicing responsibilities.
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. See "Description of the
Certificates--Advances--Servicing Advances" in this Prospectus Supplement.
THE MASTER SERVICER AND SPECIAL SERVICER
Wells Fargo will be responsible for servicing the Mortgage Loans as
Master Servicer and Special Servicer. Wells Fargo provides a full range of
banking services to individual, agribusiness, real estate, commercial and small
business customers.
Founded in 1852, Wells Fargo & Company is the holding company for Wells
Fargo. For the years ended December 31, 1998 and 1997, Wells Fargo & Company
reported, on a consolidated basis, total assets of $202.5 billion and $185.7
billion, respectively, and total capital (Tier 1 and 2) of $10.9 billion and
$11.2 billion, respectively. For the years ended December 31, 1998 and 1997,
respectively, Wells Fargo & Company reported, on a consolidated basis, net
income of $1,950 million and $2,499 million, respectively.
On November 2, 1998, the former Wells Fargo & Company merged with WFC
Holdings Corporation, a wholly-owned subsidiary of Norwest Corporation. In
connection with such merger, Norwest Corporation changed its name to Wells Fargo
& Company. Such merger was accounted for as a pooling of interests. The total
assets, total capital and net income indicated above for Wells Fargo & Company
reflect the consolidated assets, capital and income of such merged companies for
the periods set forth above.
As of December 31, 1998, Wells Fargo and its subsidiaries serviced
approximately $25.9 billion of multifamily and commercial mortgage loans,
including approximately $5.4 billion for third parties.
Commercial and multifamily mortgage loans originated for securitization
by Wells Fargo and its subsidiaries are currently serviced by Wells Fargo.
The information set forth herein concerning Wells Fargo has been
provided by Wells Fargo. Accordingly, the Depositor makes no representations or
warranty as to the accuracy or completeness of such information. Wells Fargo has
been approved as a servicer by all nationally recognized statistical rating
organizations.
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MASTER SERVICER
Master Servicer Compensation
The Master Servicer will be entitled to a Master Servicing Fee equal to
the Master Servicing Fee Rate applied to the outstanding Scheduled Principal
Balance of each Mortgage Loan, including REO Properties. The Master Servicer
will be entitled to retain as additional servicing compensation all investment
income earned on amounts on deposit in the Certificate Account and interest on
escrow accounts if permitted by the related loan documents, and--in each case to
the extent not payable to the Special Servicer or any Sub-Servicer as provided
in the Pooling and Servicing Agreement or any sub-servicing agreement--late
payment charges, assumption fees, modification fees, extension fees and default
interest payable at a rate above the related Mortgage Rate.
The amount of the related Master Servicing Fee will be reduced, to not
less than zero, on each Distribution Date by the amount (if any) of Compensating
Interest Payment made by the Master Servicer on such Distribution Date. The
amount of the related Primary Servicing Fee will not be reduced by any payments
in respect of Compensating Interest Payments. Any Net Aggregate Prepayment
Interest Shortfall will be allocated as set forth under "Description of the
Certificates--Distributions--Prepayment Interest Shortfalls and Prepayment
Interest Excesses" in this Prospectus Supplement. If Prepayment Interest
Excesses for all Mortgage Loans other than Specially Serviced Mortgage Loans
exceed Prepayment Interest Shortfalls for such Mortgage Loans as of any
Distribution Date, such excess amount will be payable to the Master Servicer as
additional servicing compensation.
In the event that Wells Fargo resigns or is no longer Master Servicer
for any reason, Wells Fargo will continue to have the right to receive its
portion of the Excess Servicing Fee. Any successor servicer will receive the
Master Servicing Fee as compensation. The portion of the Excess Fee payable to
John Hancock shall similarly not be terminated if it resigns or is terminated as
one of the Primary Servicers.
EVENTS OF DEFAULT
If an Event of Default described under the third, fourth, fifth or sixth
bullet under the definition of "Event of Default" under the "Glossary of Terms"
has occurred, the obligations and responsibilities of the Master Servicer under
the Pooling and Servicing Agreement will terminate on the date which is 60 days
following the date on which the Trustee or Depositor gives written notice to the
Master Servicer that the Master Servicer is terminated.
After any other Event of Default, the Trustee may elect to terminate the
Master Servicer by providing such notice, and shall provide such notice if
holders of Certificates representing more than 25% of the Certificate Balance of
all Certificates so direct the Trustee. Upon such termination, all authority,
power and rights of the Master Servicer under the Pooling and Servicing
Agreement, whether with respect to the Mortgage Loans or otherwise, shall
terminate except for any rights related to unpaid servicing compensation or
unreimbursed Advances or the Excess Servicing Fee, provided that in no event
shall the termination of the Master Servicer be effective until a successor
servicer shall have succeeded the Master Servicer as successor servicer (subject
to approval by the Rating Agencies), notified the Master Servicer of such
designation, and such successor servicer shall have assumed the Master
Servicer's obligations and responsibilities with respect to the Mortgage Loans,
as set forth in an agreement substantially in the form of the Pooling and
Servicing Agreement. The Trustee may not succeed the Master Servicer as servicer
until and unless it has satisfied the provisions specified in the Pooling and
Servicing Agreement. However, if the Master Servicer is terminated as a result
of an Event of Default described under the eighth, ninth or tenth bullet under
the definition of "Event of Default" under the "Glossary of Terms", the Trustee
shall act as successor servicer immediately and shall use its best efforts to
either satisfy the conditions specified in the Pooling and Servicing Agreement
or transfer the duties of the Master Servicer to a successor servicer who has
satisfied such conditions.
However, if the Master Servicer is terminated solely due to an Event of
Default described in the fifth, sixth or seventh bullet of the definition
thereof, prior to being replaced as described in the previous paragraph, the
terminated Master Servicer, will have sixty days to sell the rights and
obligations of the Master Servicer, under the Pooling and Servicing Agreement to
a successor servicer that meets the requirements of a Master Servicer under the
Pooling and Servicing Agreement, provided that the Rating Agencies have
confirmed in writing that such servicing transfer will not result in a
withdrawal, downgrade or qualification of the then current ratings on the
Certificates.
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The termination of the Master Servicer, will be effective when such servicer has
succeeded the Master Servicer, as successor servicer and such successor servicer
has assumed the Master Servicer's, obligations and responsibilities with respect
to the Mortgage Loans, as set forth in an agreement substantially in the form of
the Pooling and Servicing Agreement. If a successor Master Servicer is not
appointed within sixty days, the Master Servicer, will be replaced by the
Trustee as described in the previous paragraph.
THE SPECIAL SERVICER
The Special Servicer will oversee the resolution of Specially Serviced
Mortgage Loans, act as disposition manager of REO Properties acquired on behalf
of the Trust Fund through foreclosure or deed in lieu of foreclosure, maintain
insurance with respect to REO Properties and provide monthly reports to the
Master Servicer and the Trustee.
Special Servicer Compensation
The Special Servicer will be entitled to receive:
o a Special Servicing Fee;
o a Workout Fee; and
o a Liquidation Fee equal to 1.00% of the related Liquidation
Proceeds.
The Workout Fee with respect to any Rehabilitated 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 otherwise such
fee is paid until maturity. If the Special Servicer is terminated for any
reason, it will retain the right to receive any Workout Fees payable on Mortgage
Loans that became Rehabilitated Mortgage Loans while it acted as Special
Servicer and remained Rehabilitated Mortgage Loans at the time of such
termination until such Mortgage Loan becomes a Specially Serviced Mortgage Loan
or if the related Mortgaged Property becomes an REO Property. The successor
Special Servicer will not be entitled to any portion of such Workout Fees.
The Special Servicer is also permitted to retain, in general, certain
assumption fees, modification fees and extension fees collected on Specially
Serviced Mortgage Loans, certain borrower-paid fees, investment income earned on
amounts on deposit in any accounts maintained for REO Property collections, and
other charges specified in the Pooling and Servicing Agreement. The Special
Servicing Fee, the Liquidation Fee and the Workout Fee will be obligations of
the Trust Fund and will represent Expense Losses. The Special Servicer
Compensation will be payable in addition to the Servicing Fee payable to the
Master Servicer.
In addition, the Special Servicer will be entitled to all assumption
fees received in connection with any Specially Serviced Mortgage Loan and 50% of
any other assumption fees. The Special Servicer will be entitled to approve
assumptions with respect to all Mortgage Loans. The amount of the Special
Servicing Fee, but not the fee payable to the Trustee, will be reduced, to not
less than zero, on each Distribution Date by the amount (if any) of Compensating
Interest paid by the Special Servicer on such Distribution Date. If Prepayment
Interest Excesses for all Specially Serviced Mortgage Loans exceed Prepayment
Interest Shortfalls for such Mortgage Loans as of any Distribution Date, such
excess amount will be payable to the Special Servicer as additional servicing
compensation.
As described in this Prospectus Supplement under "--The Operating
Adviser," the Operating Adviser will have the right to receive notification of
actions of the Special Servicer, subject to the limitations described in this
Prospectus Supplement.
Termination of Special Servicer
The Trustee may terminate the Special Servicer upon a Special Servicer
Event of Default. However, if the Special Servicer is terminated solely due to
an Event of Default described in the fifth, sixth or seventh bullet of the
definition thereof, prior to being replaced as described in the previous
paragraph, the terminated Special Servicer,
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will have sixty days to sell the rights and obligations of the Special Servicer,
under the Pooling and Servicing Agreement to a successor servicer that meets the
requirements of a Special Servicer under the Pooling and Servicing Agreement,
provided that the Rating Agencies have confirmed in writing that such servicing
transfer will not result in a withdrawal, downgrade or qualification of the then
current ratings on the Certificates. The Special Servicer is required to consult
with the Operating Adviser in connection with such sale of servicing rights. The
termination of the Special Servicer, will be effective when such servicer has
succeeded the Special Servicer, as successor servicer and such successor
servicer has assumed the Special Servicer's, obligations and responsibilities
with respect to the Mortgage Loans, as set forth in an agreement substantially
in the form of the Pooling and Servicing Agreement. If a successor Special
Servicer is not appointed within sixty days, the Special Servicer, will be
replaced by the Trustee as described in the previous paragraphs.
In addition to the termination of the Special Servicer upon a Special
Servicer Event of Default, upon the direction of the Operating Adviser, subject
to the satisfaction of certain conditions, the Trustee will remove the Special
Servicer from its duties as Special Servicer at any time upon the appointment
and acceptance of such appointment by a successor Special Servicer appointed by
the Operating Adviser; provided that, prior to the effectiveness of any such
appointment the Trustee shall have received a letter from each Rating Agency to
the effect that such appointment would not result in a downgrade or withdrawal
in any rating then assigned to any Class of Certificates.
THE OPERATING ADVISER
An Operating Adviser appointed by the holders of a majority of the
Controlling Class will have the right to receive notification from the Special
Servicer in regard to certain actions. The Special Servicer will be required to
notify the Operating Adviser of, among other things:
o any proposed modification of a Money Term of a Mortgage Loan
other than an extension of the original maturity date for two
years or less;
o any foreclosure or comparable conversion of the ownership of a
Mortgaged Property;
o any proposed sale of a Specially Serviced Mortgage Loan, other
than in connection with the termination of the Trust Fund as
described in this Prospectus Supplement under "Description of
the Certificates--Optional Termination";
o any proposal to bring an REO Property into compliance with
applicable environmental laws; and
o any acceptance of substitute or additional collateral for a
Mortgage Loan.
In addition, subject to the satisfaction of certain conditions, the
Operating Adviser will have the right to direct the Trustee to remove the
Special Servicer at any time, with or without cause, upon the appointment and
acceptance of such appointment by a successor Special Servicer appointed by the
Operating Adviser; provided that, prior to the effectiveness of any such
appointment the Trustee shall have received a letter from each Rating Agency to
the effect that such appointment would not result in a downgrade or withdrawal
in any rating then assigned to any Class of Certificates.
At any time, the holders of a majority of the Controlling Class may
direct the Trustee in writing to hold an election for an Operating Adviser,
which election will be held commencing as soon as practicable thereafter or
upon:
o the resignation or removal of the person acting as Operating
Adviser; or
o a determination by the Trustee, based upon a written notice
from the Certificate Registrar, that the Controlling Class has
changed. After such receipt or determination, the Trustee is
required to call a meeting of the holders of the Controlling
Class, which may be held by telephone, in the manner, and in
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accordance with the procedures, specified in the Pooling and
Servicing Agreement. At the meeting, each such holder will be
entitled to nominate one person to act as Operating Adviser.
The Operating Adviser shall be responsible for its own expenses.
MORTGAGE LOAN MODIFICATIONS
Subject to any restrictions applicable to REMICs, and to limitations
imposed by the Pooling and Servicing Agreement, the Master Servicer may amend
any term, other than a Money Term, of a Mortgage Loan that is not a Specially
Serviced Mortgage Loan and may extend the maturity date of any Balloon Loan
(other than a Specially Serviced Mortgage Loan) to a date not more than 60 days
beyond the original maturity date.
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:
o reduce the amounts owing under any Specially Serviced Mortgage
Loan by forgiving principal, accrued interest and/or any
Prepayment Premium;
o reduce the amount of the Scheduled Payment on any Specially
Serviced Mortgage Loan, including by way of a reduction in the
related Mortgage Rate;
o forbear in the enforcement of any right granted under any
Mortgage Note or Mortgage relating to a Specially Serviced
Mortgage Loan;
o extend the maturity date of any Specially Serviced Mortgage
Loan; and/or
o accept a Principal Prepayment during any Lock-out Period;
provided in each case that (1) 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 (2) 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, as demonstrated in writing by the Special Servicer to the Trustee.
In no event, however, will the Special Servicer be permitted to:
o extend the maturity date of a Specially Serviced Mortgage Loan
beyond a date that is two years prior to the Rated Final
Distribution Date; and
o 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 which is ten (10) years prior to
the expiration of the term of such ground lease.
Modifications that forgive principal or interest of a Mortgage Loan 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 Expenses" in this Prospectus Supplement.
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,
Prepayment and Maturity Considerations" in this Prospectus Supplement.
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SALE OF DEFAULTED MORTGAGE LOANS AND REO PROPERTIES
The Pooling and Servicing Agreement grants to each of the Master
Servicer, the Special Servicer and any holder of Certificates evidencing a
majority interest in the Controlling Class and any Seller with respect to
Mortgage Loans it originated a right to purchase from the Trust Fund, at the
applicable Purchase Price, those defaulted Mortgage Loans that are at least 60
days delinquent and which the Special Servicer has determined, in its reasonable
and good faith judgment, in accordance with the Servicing Standard, will become
the subject of foreclosure proceedings (other than any such Mortgage Loan that
it determines, in its reasonable and good faith judgment, in accordance with the
Servicing Standard, is in default to avoid a prepayment restriction).
The Special Servicer may, upon notice to the Operating Adviser and the
Trustee, offer to sell any such defaulted Mortgage Loan not otherwise purchased
pursuant to the prior paragraph (other than any such Mortgage Loan that it
determines, in its reasonable and good faith judgment, in accordance with the
Servicing Standard, is in default to avoid a prepayment restriction), if and
when the Special Servicer determines, consistent with the Servicing Standard,
that such a sale would be in the best economic interests of the Trust Fund. Such
offer is to be made in a commercially reasonable manner for a period of not less
than 30 days. Unless the Special Servicer determines that acceptance, in
accordance with the Servicing Standard, of any offer would not be in the best
economic interests of the Trust Fund, the Special Servicer shall accept the
highest cash offer received from any person that constitutes a fair price (which
may be less than the Purchase Price) for such Mortgage Loan. When an Interested
Party is to be the purchaser of any such defaulted Mortgage Loan, the Trustee is
to determine (with the aid of an independent real estate adviser and an
appraisal) what constitutes a fair price. The Trustee is not permitted to
purchase any defaulted Mortgage Loan.
FORECLOSURES
The Special Servicer may at any time, with notification to the Operating
Adviser and in accordance with the Pooling and Servicing Agreement, institute
foreclosure proceedings, exercise any power of sale contained in any Mortgage,
accept a deed in lieu of foreclosure or otherwise acquire title to a Mortgaged
Property by operation of law or otherwise, if such action is consistent with the
Servicing Standard and a default on the related Mortgage Loan has occurred but
subject, in all cases, to limitations concerning environmental matters and, in
selected situations, the receipt of an opinion of counsel relating to REMIC
requirements.
If any Mortgaged Property is acquired as described in the preceding
paragraph, the Special Servicer is required to sell the REO Property within
three years after the end of the year in which it was acquired, or any
applicable extension period, unless the Special Servicer has obtained an
extension from the Internal Revenue Service or has previously delivered to the
Trustee an opinion of counsel to the effect that the holding of the REO Property
by the Trust Fund subsequent to three years after the end of the year in which
it was acquired, or to the expiration of such extension period, will not result
in the failure of such REO Property to qualify as "foreclosure property" under
the REMIC provisions of the Code. In addition, the Special Servicer is required
to use its best efforts to sell any REO Property prior to the Rated Final
Distribution Date.
If the Trust Fund acquires a Mortgaged Property by foreclosure or
deed-in-lieu of foreclosure upon a default of a Mortgage Loan, the Pooling and
Servicing Agreement provides that the Trustee (or the Special Servicer, on
behalf of the Trustee) must administer such Mortgaged Property so that it
qualifies at all times as "foreclosure property" within the meaning of Code
Section 860G(a)(8). The Pooling and Servicing Agreement also requires that any
such Mortgaged Property be managed and operated by an "independent contractor,"
within the meaning of applicable Treasury regulations, who furnishes or renders
services to the tenants of such Mortgaged Property. Among other things, the
independent contractor will not be permitted to perform construction work on the
Mortgaged Property unless such construction was at least 10% completed when
default on the related Mortgage Loan became imminent. Generally, REMIC I will
not be taxable on income received with respect to a Mortgaged Property to the
extent that it constitutes "rents from real property," within the meaning of
Code Section 856(c)(3)(A) and Treasury regulations thereunder. "Rents from real
property" do not include the portion of any rental based on the net income or
gain of any tenant or sub-tenant. No determination has been made whether rent on
any of the Mortgaged Properties meets this requirement. "Rents from real
property" include charges for services customarily furnished or rendered in
connection with the rental of real property, whether or not the charges are
separately stated. Services furnished to the tenants of a particular building
will be considered as customary if, in the geographic
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market in which the building is located, tenants in buildings which are of
similar Class are customarily provided with the service. No determination has
been made whether the services furnished to the tenants of the Mortgaged
Properties are "customary" within the meaning of applicable regulations. It is
therefore possible that a portion of the rental income with respect to a
Mortgaged Property owned by a Trust Fund, presumably allocated based on the
value of any non-qualifying services, would not constitute "rents from real
property." In addition to the foregoing, any net income from a trade or business
operated or managed by an independent contractor on a Mortgaged Property owned
by REMIC I, including but not limited to a hotel or healthcare business, will
not constitute "rents from real property." Any of the foregoing types of income
may instead constitute "net income from foreclosure property," which would be
taxable to REMIC I at the highest marginal federal corporate rate (currently
35%) and may also be subject to state or local taxes. Any such taxes would be
chargeable against the related income for purposes of determining the Net REO
Proceeds available for distribution to holders of Certificates. Under the
Pooling and Servicing Agreement, the Special Servicer is required to determine
whether the earning of such income taxable to REMIC I would result in a greater
recovery to Certificateholders on a net after-tax basis than a different method
of operation of such property. Prospective investors 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.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion, when read in conjunction with the discussion
of "Certain Federal Income Tax Consequences" in the Prospectus, describes the
material federal income tax considerations for investors in the Offered
Certificates. However, these two discussions do not purport to deal with all
federal tax consequences applicable to all categories of investors, some of
which may be subject to special rules, and do not address state and local tax
considerations. Prospective purchasers should consult their own tax advisers in
determining the federal, state, local and any other tax consequences to them of
the purchase, ownership and disposition of the Offered Certificates.
GENERAL
For United States federal income tax purposes, the Trust Fund will be a
"tiered REMIC structure" described in the Prospectus. See "Certain Federal
Income Tax Consequences--REMICs--Tiered REMIC Structures" in the Prospectus.
Three separate REMIC elections will be made with respect to designated portions
of the Trust Fund. Upon the issuance of the Offered Certificates, Latham &
Watkins, counsel to the Depositor, will deliver its opinion generally to the
effect that, assuming:
o the making of proper elections;
o ongoing compliance with all provisions of the Pooling and
Servicing Agreement; and
o 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 Code.
For federal income tax purposes, the Residual 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; and
the REMIC Regular Certificates will evidence the "regular interests" in, and
will be treated as debt instruments of, REMIC III. See "Certain Federal Income
Tax Consequences--REMICs" in the Prospectus. The Offered Certificates will be
REMIC Regular Certificates issued by REMIC III. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC 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. 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.
In addition, interest (including original issue discount, if any) on the Offered
Certificates will be
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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 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)(v) of the Code generally only to the extent that the Mortgage
Loans secured by mortgages on multifamily 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 is 18.1%. 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" in this Prospectus Supplement and "Certain Federal Income
Tax Consequences--REMICs" in the Prospectus.
ORIGINAL ISSUE DISCOUNT AND PREMIUM
The Class E Certificates may, and the other Offered Certificates will
not, be treated as having been issued with original issue discount or federal
income tax reporting purposes. Certain Classes of Offered Certificates may be
issued with premium depending on the price at which such Classes of Certificates
are initially sold. 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 Prepayment Premium being
required. For a description of CPR, see "Yield, Prepayment and Maturity
Considerations" in this Prospectus Supplement. However, the Depositor makes no
representation that the Mortgage Loans will not prepay during any such period or
that they will prepay at any particular rate before or during any such period.
The IRS has issued OID Regulations under Sections 1271 to 1275 of the
Code generally addressing the treatment of debt instruments issued with original
issue discount. See "Certain Federal Income Tax Consequences--REMICs--Taxation
of Owners of REMIC Regular Certificates--Original Issue Discount and Premium" in
the Prospectus. Purchasers of the Offered Certificates should be aware that the
OID Regulations and Section 1272(a)(6) of the Code do not adequately address all
of the issues relevant to accrual of original issue discount on prepayable
securities such as the Offered Certificates.
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 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. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount and Premium" in the Prospectus. Prospective purchasers of the
Offered Certificates are advised to consult their tax advisors concerning the
tax treatment of such Certificates, and the appropriate method of reporting
interest and original issue discount with respect to Offered Certificates.
If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period with respect to a holder
of a Certificate, the amount of original issue discount allocable to such period
would be zero and such Certificateholder will be permitted to offset such
negative amount only against future original issue discount (if any)
attributable to such Certificate. Although the matter is not free from doubt, a
holder may be permitted to deduct a loss to the extent that his or her
respective remaining basis in such Certificate exceeds the maximum amount of
future payments to which such Certificateholder is entitled, assuming no further
prepayments of the Mortgage Loans. Any such loss might be treated as a capital
loss.
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Whether any holder of any 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 of such instruments. Holders of each such Class of Certificates
should consult their tax advisors regarding the possibility of making an
election to amortize such premium. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Premium"
in the Prospectus. To the extent that any Offered Certificate is purchased in
this offering or in the secondary market at not more than a de minimis discount,
as defined in the Prospectus, a holder who receives a payment that is included
in the stated redemption price at maturity (generally, the principal amount) of
such Certificate will recognize gain equal to the excess, if any, of the amount
of the payment over an allocable portion of the holder's adjusted basis in the
Offered Certificate. Such allocable portion of the holder's adjusted basis will
be based upon the proportion that such payment of stated redemption price bears
to the total remaining stated redemption price at maturity, immediately before
such payment is made, of such Certificate. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount and Premium" and "--Sale Exchange or Redemption" in the
Prospectus.
The current administration's budget proposal for the fiscal year 2000,
released February 1, 1999, proposes legislation that would amend the market
discount provisions of the Code described in the Prospectus (see "Certain
Federal Income Tax Consequences--REMICs--Taxation of Owners of Regular
Certificates--Market Discount" in the Prospectus) to require holders of debt
instruments, such as REMIC Regular Certificates, that use an accrual method of
accounting to include market discount in income as it accrues. For purposes of
determining and accruing market discount, the proposed legislation would provide
that a Certificateholder's yield can not exceed 5 percentage points over the
greater of (1) the original yield to maturity of the Certificate, or (2) the
applicable Federal rate in effect at the time the Certificateholder acquired the
Certificate. It is unclear how this proposal would apply to instruments, such as
the REMIC Regular Certificates, which have uncertain yields to maturity
attributable to possible prepayments on an underlying pool of prepayable
securities. This proposal, which was not included in the Financial Freedom Act
of 1999 (H.R. 2488) passed by the House of Representatives Ways and Means
Committee on July 15, 1999, is intended to be effective for debt instruments
acquired on or after the date the proposed legislation is enacted.
The OID Regulations in some circumstances permit the holder of a debt
instrument to recognize original issue discount under a method that differs from
that used by the issuer. Accordingly, it is possible that holders of Offered
Certificates 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 original issue discount are advised to consult their tax advisors
concerning the treatment of such Certificates.
Prepayment Premiums actually collected on the Mortgage Loans will be
distributed to the holders of each Class of Certificates entitled thereto as
described under "Description of the Certificates--Distributions--Distributions
of Prepayment Premiums" in this Prospectus Supplement. It is not entirely clear
under the Code when the amount of a Prepayment Premium should be taxed to the
holders of a Class of Certificates entitled to a Prepayment Premium. For federal
income tax information reporting purposes, Prepayment Premiums will be treated
as income to the holders of a Class of Certificates entitled to Prepayment
Premiums only after the Master Servicer's actual receipt of a Prepayment Premium
to which the holders of such Class of Certificates is entitled under the terms
of the Pooling and Servicing Agreement, rather than including projected
Prepayment Premiums in the determination of a Certificateholder's projected
constant yield to maturity. It appears that Prepayment Premiums are treated as
ordinary income rather than capital gain. However, the timing and
characterization of such income is not entirely clear and Certificateholders
should consult their tax advisors concerning the treatment of Prepayment
Premiums.
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ADDITIONAL CONSIDERATIONS
The Special Servicer is authorized, when 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--Foreclosure" in this Prospectus Supplement.
Federal income tax information reporting duties with respect to the
Offered Certificates and REMIC I, REMIC II and REMIC III will be the obligation
of the Trustee, and not of the Master Servicer. See "Certain Federal Income Tax
Consequences REMICs--Information Reporting and Backup Withholding" in the
Prospectus.
For further information regarding the tax consequences of investing in
the Offered Certificates, see "Certain Federal Income Tax Consequences--REMICs"
and "State Tax Considerations" in the Prospectus.
LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion summarizes certain legal aspects of mortgage
loans secured by real property in California (approximately 15.1% of the initial
pool balance), New York (approximately 11.2% of the initial pool balance), and
Florida (approximately 10.3% of the initial pool balance) which are general in
nature. These 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.
CALIFORNIA
Under California law a foreclosure may be accomplished either judicially
or non-judicially. Generally, no deficiency judgment is permitted under
California law following a nonjudicial sale under a deed of trust. Other
California statutes, except in certain cases involving environmentally impaired
real property, require the lender to attempt to satisfy the full debt through a
foreclosure against the property before bringing a personal action (if otherwise
permitted) against the borrower for recovery of the debt. 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. Finally, other
statutory provisions in California limit any deficiency judgment (if otherwise
permitted) against the borrower, and possibly any guarantor, following a
judicial sale to the excess to the outstanding debt over the greater (i) the
fair market value of the property at the time of the public sale or (ii) the
amount of the winning bid in the foreclosure. Borrowers also are allowed a
one-year period within which to redeem the property.
NEW YORK
Under New York law, while a foreclosure may be accomplished either
judicially or non-judicially, nonjudicial foreclosures are virtually unused
today. Upon a default, a mortgagee may either proceed in equity to foreclose
upon the mortgaged property or proceed at law and sue on the note. New York law
does not require that the mortgagee bring a foreclosure action before being
entitled to sue on the note. However, once having begun a foreclosure action or
an action to sue on the note or guaranty, a mortgagee is generally not permitted
to initiate the other action without leave of court. New York does not restrict
a mortgagee from seeking a deficiency judgment. In order to obtain a deficiency
judgment, a series of procedural and substantive requirements must be satisfied.
FLORIDA
Mortgage loans involving real property in Florida are secured by
mortgages. Foreclosures of such mortgages are accomplished by judicial
foreclosure. There is no power of sale in Florida. After an action for
foreclosure is commenced and the lender secures a judgment, the final judgment
will provide that the property be sold at a public sale at the courthouse if the
full amount of the judgment is not paid prior to the scheduled sale. Generally,
the foreclosure sale must occur no earlier than twenty (20) (but not more than
thirty-five (35)) days after the judgment is entered. During this period, a
notice of sale must be published twice in the county in which the
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property is located. There is no right of redemption after the foreclosure sale.
Florida does not have a "one action rule" or "anti-deficiency legislation."
Subsequent to a foreclosure sale, however, a lender may be required to prove the
value of the property sold as of the date of foreclosure in order to recover a
deficiency. In certain circumstances, the lender may have a receiver appointed.
ERISA CONSIDERATIONS
ERISA and the Code impose restrictions on Plans that are subject to
ERISA and/or Section 4975 of the Code and on persons that are Parties in
Interest. ERISA also imposes duties on persons who are fiduciaries of Plans
subject to ERISA and prohibits selected transactions between a Plan and Parties
in Interest with respect to such Plan. Under ERISA, any person who exercises any
authority or control respecting the management or disposition of the assets of a
Plan, and any person who provides investment advice with respect to such assets
for a fee, is a fiduciary of such Plan.
PLAN ASSETS
The Department of Labor will promulgate the DOL Regulation, defining the
term "plan assets." There can be no assurance, however, that any of the
exceptions set forth in the DOL Regulation will apply to the purchase or holding
of Certificates. Accordingly, a Plan's investment in Certificates may cause the
Mortgage Loans or other assets constituting, or underlying the assets of, the
Trust Fund to be deemed Plan assets. If the Mortgage Loans or other Trust Fund
assets constitute Plan assets, then any party exercising management or
discretionary control regarding those assets may be deemed to be a "fiduciary"
with respect to those assets, and thus subject to the fiduciary requirements and
prohibited transaction provisions of ERISA and Section 4975 of the Code with
respect to the Mortgage Loans and other Trust Fund assets.
Affiliates of the Depositor, the Underwriters, the Master Servicer, the
Special Servicer and certain of their respective affiliates might be considered
or might become fiduciaries or other Parties in Interest with respect to
investing Plans. Moreover, the Trustee, the Fiscal Agent, the Master Servicer,
the Special Servicer, the Operating Adviser, any insurer, primary insurer or any
other issuer of a credit support instrument relating to the primary assets in
the Trust Fund or certain of their respective affiliates might be considered
fiduciaries or other Parties in Interest with respect to investing Plans. In the
absence of an applicable exemption, "prohibited transactions" (within the
meaning of ERISA and Section 4975 of the Code) could arise if Certificates were
acquired by, or with "plan assets" of, a Plan with respect to which any such
person is a Party in Interest.
In addition, an insurance company proposing to acquire or hold the
Subordinate Certificates with assets of its general account should consider the
extent to which such acquisition or holding would be subject to the requirements
of ERISA and Section 4975 of the Code under John Hancock Mutual Life Insurance
Co. v. Harris Trust and Savings Bank, 510 U.S. 86 (1993), and Section 401(c) of
ERISA, as amended by the Small Business Job Protection Act of 1996, Public Law
No. 104-188, and subsequent DOL and judicial guidance. See "--Insurance Company
General Accounts" below.
SPECIAL EXEMPTION APPLICABLE TO CLASS A CERTIFICATES
With respect to the acquisition and holding of Class A Certificates, the
DOL has granted to the Underwriters individual prohibited transaction
exemptions, which generally exempt from certain of the prohibited transaction
rules of ERISA and Section 4975 of the Code transactions relating to:
o the initial purchase, the holding, and the subsequent resale
by Plans of Certificates evidencing interests in pass-through
trusts; and
o transactions in connection with the servicing, management and
operation of such trusts, provided that the assets of such
trusts consist of certain secured receivables, loans and other
obligations that meet the conditions and requirements of the
Exemptions.
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The assets covered by the Exemptions include mortgage loans such as the
Mortgage Loans and fractional undivided interests in such loans.
Among the conditions that must be satisfied for the Exemptions to apply
are the following:
o The acquisition of the Certificates by a Plan must be on
terms, including the price for the Certificates, that are at
least as favorable to the Plan as they would be in an
arm's-length transaction with an unrelated party;
o The rights and interests evidenced by the Certificates
acquired by the Plan are not subordinated to the rights and
interests evidenced by other Certificates of the Trust Fund;
o The Certificates acquired by the Plan must have received a
rating at the time of such acquisition that is in one of the
three highest generic rating categories from Fitch, S&P,
Moody's Investor Services, Inc. or Duff & Phelps Credit Rating
Co.;
o The sum of all payments made to the Underwriters in connection
with the Distribution of the Certificates must represent not
more than reasonable compensation for underwriting the
Certificates; the sum of all payments made to and retained by
the Depositor in consideration of the assignment of the
Mortgage Loans to the Trust Fund must represent not more than
the fair market value of such Mortgage Loans; the sum of all
payments made to and retained by the Master Servicer, the
Special Servicer, and any sub-servicer must represent not more
than reasonable compensation for such person's services under
the Pooling and Servicing Agreement or other relevant
servicing agreement and reimbursement of such person's
reasonable expenses in connection therewith; and
o The Plan investing in the Certificates must be an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the 1933 Act.
Moreover, the Exemptions provide relief from certain
self-dealing/conflict of interest prohibited transactions, but only if, among
other requirements:
o the investing Plan fiduciary or its affiliates is an obligor
with respect to five percent or less of the fair market value
of the obligations contained in the trust;
o the Plan's investment in certificates does not exceed 25% of
all of the certificates outstanding at the time of the
acquisition; and
o immediately after the acquisition, no more than 25% of the
assets of the Plan are invested in certificates representing
an interest in one or more trusts containing assets sold or
serviced by the same entity.
The Depositor believes that the Exemptions will apply to the acquisition
and holding of Class A Certificates by Plans or persons acting on behalf of or
with "plan assets" of Plans, and that all conditions of the Exemptions, other
than those within the control of the investing Plans or Plan investors, have
been met. Upon request, the Underwriters will deliver to any fiduciary or other
person considering investing "plan assets" of any Plan in the Certificates a
list identifying each borrower that is the obligor under each Mortgage Loan that
constitutes more than 5% of the aggregate principal balance of the assets of the
Trust Fund.
Because the characteristics of the Class B, Class C, Class D and Class E
Certificates do not meet the requirements of the Exemptions, the purchase or
holding of such Certificates by, on behalf of or with "plan assets" of any Plan
may result in a non-exempt prohibited transaction or the imposition of excise
taxes or civil penalties under ERISA and/or Section 4975 of the Code.
Accordingly, such Certificates may not be purchased by, transferred to or held
by a Plan or any person using "plan assets" of any Plan to effect such
acquisition or holding. Each person that acquires or holds any Class B, Class C,
Class D or Class E Certificate shall be deemed to have represented and warranted
to the Depositor, the Trustee, the Fiscal Agent and the Master Servicer that it
satisfies the foregoing
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limitation, provided that an insurance company investing solely assets of its
general account may acquire and hold such Certificates subject to the
limitations described in "--Insurance Company General Accounts" below.
INSURANCE COMPANY GENERAL ACCOUNTS
The Small Business Job Protection Act of 1996 added a new Section 401(c)
to ERISA ("Section 401(c) Regulations"), which provides 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) required the DOL to issue
final regulations no later than December 31, 1997 to provide guidance for
purposes 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) generally provides that, until the date which is 18
months after the 401(c) Regulations become final, no person shall be subject to
liability under Part 4 of Title I of ERISA and Section 4975 of the Code on the
basis of a claim that the assets of an insurance company general account
constitute "plan assets" of any Plan, except:
o as otherwise provided by the DOL in the 401(c) Regulations to
prevent avoidance of the Regulations; or
o as determined in an action brought by the DOL for breaches of
fiduciary duty which would also constitute a violation of
federal or state criminal law.
Any assets of an insurance company general account which support
insurance policies or annuity contracts issued to Plans after December 31, 1998,
or on or before that date for which the insurer does not comply with the 401(c)
Regulations, may be treated as "plan assets" of such Plans. Because Section
401(c) does not relate to insurance company separate accounts, separate account
assets continue to be treated as "plan assets" of any Plan that is invested in
such separate account. Insurance companies contemplating the investment of
general account assets in the Subordinate Certificates should consult with their
legal counsel with respect to the applicability of Section 401(c), including the
general account's ability to continue to hold such Certificates after the date
which is 18 months after the date the 401(c) Regulations become final.
Accordingly, any insurance company that acquires or holds any Class B,
Class C, Class D or Class E Certificate shall be deemed to have represented and
warranted to the Depositor, the Trustee, the Fiscal Agent and the Master
Servicer that (1) such acquisition and holding is permissible under applicable
law, will not constitute or result in a non-exempt prohibited transaction under
ERISA or Section 4975 of the Code, and will not subject the Depositor, the
Trustee, the Fiscal Agent or the Master Servicer to any obligation in addition
to those undertaken in the Pooling and Servicing Agreement, and (2) the source
of funds used to acquire and hold such Certificates is an "insurance company
general account" (as defined in DOL Prohibited Transaction Class Exemption
95-60) and the applicable conditions set forth in PTCE 95-60 have been
satisfied.
GENERAL INVESTMENT CONSIDERATIONS
Prospective Plan investors should consult with their legal counsel
concerning the impact of ERISA and Section 4975 of the Code, the applicability
of the Exemptions, or other exemptive relief, and the potential consequences to
their specific circumstances, prior to making an investment in the Certificates.
Moreover, each Plan fiduciary should determine whether, under the general
fiduciary standards of ERISA regarding prudent investment procedure and
diversification, an investment in the Certificates is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
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LEGAL INVESTMENT
The Offered Certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended. The appropriate characterization of the Offered Certificates
under various legal investment restrictions, and thus the ability of investors
subject to these restrictions to purchase Offered Certificates, may be subject
to significant interpretive uncertainties. All investors whose investment
authority is subject to legal investment laws and regulations, regulatory
capital requirements or review by regulatory authorities should consult their
own legal advisors to determine whether, and to what extent, the Offered
Certificates will constitute legal investments for them or are subject to
investment, capital or other restrictions.
No representations are made 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 or other restrictions. The
uncertainties referred to above, and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteristics
of the Offered Certificates, may adversely affect the liquidity of the Offered
Certificates. See "Legal Investment" in the Prospectus.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans from the
Sellers and to the payment of expenses in connection with the issuance of the
Certificates.
PLAN OF DISTRIBUTION
The Depositor has entered into an Underwriting Agreement with Morgan
Stanley & Co., Incorporated, an affiliate of the Depositor, and Goldman, Sachs &
Co. Subject to the terms and conditions set forth in the Underwriting Agreement,
the Depositor has agreed to sell to each Underwriter, and each Underwriter has
agreed severally to purchase from the Depositor, the percentage of the
respective aggregate Certificate Balance of each Class of Offered Certificates
set forth below.
UNDERWRITERS CLASS A-1 CLASS A-2 CLASS B CLASS C CLASS D CLASS E
- --------------------- --------- --------- ------- ------- ------- -------
Morgan Stanley & Co. % % % % % %
Incorporated
Goldman, Sachs & Co. % % % % % %
Total............ 100% 100% 100% 100% 100% 100%
Morgan Stanley & Co. Incorporated will act as sole lead manager and
bookrunner with respect to the Offered Certificates.
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to conditions precedent, and that the Underwriters
severally will be obligated to purchase all of the Offered Certificates if any
are purchased. In the event of a default by an Underwriter, the Underwriting
Agreement provides that the purchase commitment of the non-defaulting
Underwriter may be increased. Proceeds to the Depositor from the sale of the
Offered Certificates, before deducting expenses payable by the Depositor, will
be approximately $______, plus accrued interest.
The Underwriters have advised the Depositor that they will propose to
offer the Offered Certificates from time to time for sale in one or more
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. The Underwriter 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
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commissions from the Underwriters and any purchasers of such Classes of Offered
Certificates for whom they 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 August __, 1999, which is
the tenth business day following the date of pricing of the Certificates.
Under Rule 15c6-1 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 such 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 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 currently intend to make a secondary market in the
Offered Certificates, but they are not obligated to do so.
LEGAL MATTERS
The legality of the Offered Certificates and the material federal income
tax consequences of investing in the Offered Certificates will be passed upon
for the Depositor by Latham & Watkins, New York, New York. Legal matters with
respect to the Offered Certificates will be passed upon for the Underwriters by
Latham & Watkins, New York, New York. Legal matters will be passed upon for
Principal Commercial Funding, LLC by Dechert Price & Rhoads, New York, New York,
John Hancock Real Estate Finance, Inc. by Cadwalader, Wickersham & Taft, New
York, New York and for Morgan Stanley Mortgage Capital Inc. by Latham & Watkins,
New York, New York.
RATINGS
It is a condition of the issuance of the Offered Certificates that they
receive the following credit ratings from Fitch and S&P.
CLASS FITCH S&P
- ----------------------------------- ------------- -------------
Class A-1.......................... AAA AAA
Class A-2.......................... AAA AAA
Class B............................ AA AA
Class C............................ A A
Class D............................ A- A-
Class E............................ BBB BBB
The ratings of the Offered Certificates address the likelihood of the
timely payment of interest and the ultimate payment of principal, if any, due on
the Offered Certificates by the Rated Final Distribution Date. That date is the
first Distribution Date that follows by at least 36 months the end of the
amortization term of the Mortgage Loan that, as of the Cut-off Date, has the
longest remaining amortization term. The ratings on the Offered
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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 (1)
the likelihood or frequency of principal prepayments, voluntary or involuntary,
on the Mortgage Loans, (2) the degree to which such prepayments might differ
from those originally anticipated, (3) whether and to what extent Prepayment
Premiums or default interest will be received or (4) the allocation of Net
Aggregate Prepayment Interest Shortfalls. A security rating does not represent
any assessment of the yield to maturity that investors may experience. In
general, the ratings thus address credit risk and not prepayment risk.
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.
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GLOSSARY OF TERMS
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement. The following Glossary of Terms is not complete. You should also
refer to the Prospectus and the Pooling and Servicing Agreement for additional
definitions. If you send a written request to the Trustee at its corporate
office, the Trustee will provide to you without charge a copy of the Pooling and
Servicing Agreement (without exhibits and schedules).
Unless the context requires otherwise, the definitions contained in this
Glossary of Terms apply only to this Series of Certificates and will not
necessarily apply to any other series of certificates the Trust may issue.
"Accrued Certificate Interest" means, in respect of each Class of REMIC
Regular Certificates for each Distribution Date, 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.
"Administrative Cost Rate" will equal the sum of the related Master
Servicing Fee, the Excess Servicing Fee, the Primary Servicing Fee and the
Trustee Fee for any month (in each case, expressed as a per annum rate) for any
Mortgage Loan in such month.
"Advance Rate" means a rate equal to the "Prime Rate" as reported in The
Wall Street Journal from time to time.
"Advances" means Servicing Advances and P&I Advances, collectively.
"Annual Report" means a report for each Mortgage Loan based on the most
recently available year-end financial statements and most recently available
rent rolls of each applicable borrower, to the extent such information is
provided to the Master Servicer, containing such information and analyses as
required by the Pooling and Servicing Agreement including, without limitation,
Debt Service Coverage Ratios, to the extent available, and in such form as shall
be specified in the Pooling and Servicing Agreement.
"Appraisal Event" means not later than the earliest of the following:
o the date 120 days after the occurrence of any delinquency in
payment with respect to a Mortgage Loan if such delinquency
remains uncured;
o the date 30 days after receipt of notice that the related
borrower has filed a bankruptcy petition, an involuntary
bankruptcy has occurred or a receiver is appointed in respect
of the related Mortgaged Property, provided that such petition
or appointment remains in effect;
o the effective date of any modification to a Money Term of a
Mortgage Loan, other than an extension of the date that a
Balloon Payment is due for a period of less than six months
from the original due date of such Balloon Payment; and
o the date 30 days following the date a Mortgaged Property
becomes an REO Property.
"Appraisal Reduction" will equal, for any Mortgage Loan, including a
Mortgage Loan as to which the related Mortgaged Property has become an REO
Property, an amount, calculated as of the first Determination Date that is at
least fifteen days after the date on which the appraisal is obtained or the
internal valuation is performed, equal to the excess, if any, of:
o the sum of:
o the Scheduled Principal Balance of such Mortgage
Loan;
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o to the extent not previously advanced by the Master
Servicer, the Trustee or the Fiscal Agent, all
accrued and unpaid interest on the Mortgage Loan;
o all related unreimbursed Advances and interest on
such Advances at the Advance Rate; and
o 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
o 90% of the value (net of any prior mortgage liens) of such
Mortgaged Property or REO Property as determined by such
appraisal or internal valuation. o 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 in the preceding sentence and (b)
25% of the Scheduled Principal Balance of the Mortgage Loan.
"Assumed Scheduled Payment" means an amount deemed due in respect of:
o any Balloon Loan that is delinquent in respect of its Balloon
Payment beyond the first Determination Date that follows its
original stated maturity date; or
o any Mortgage Loan as to which the related Mortgaged Property
has become an REO Property.
The Assumed Scheduled Payment deemed due on any such Balloon Loan on its
original stated maturity date and on each successive Due Date that it remains or
is deemed to remain outstanding will equal the Scheduled Payment that would have
been due on such date if the related Balloon Payment had not come due, but
rather such Mortgage Loan had continued to amortize in accordance with its
amortization schedule in effect immediately prior to maturity. With respect to
any Mortgage Loan as to which the related Mortgaged Property has become an REO
Property, the Assumed Scheduled Payment deemed due on each Due Date for so long
as the REO Property remains part of the Trust Fund, equals the Scheduled Payment
(or Assumed Scheduled Payment) due on the last Due Date prior to the acquisition
of such REO Property.
"Available Distribution Amount" means in general, for any Distribution
Date:
(1) all amounts on deposit in the Certificate Account as of the
business day preceding the related Distribution Date, exclusive
of any portion thereof that represents one or more of the
following:
o Scheduled Payments collected but due on a Due Date subsequent
to the related Collection Period;
o Prepayment Premiums (which are separately distributable on
the Certificates as hereinafter described);
o amounts that are payable or reimbursable to any person other
than the Certificateholders (including, among other things,
amounts attributable to Expense Losses and amounts payable
to the Master Servicer, the Special Servicer, the Trustee
and the Fiscal Agent as compensation or in reimbursement of
outstanding Advances);
o amounts deposited in the Certificate Account in error; and
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o if such Distribution Date occurs during January, other than
a leap year, or February of any year, the Interest Reserve
Amounts with respect to the Interest Reserve Loans to be
deposited into the Interest Reserve Account;
(2) to the extent not already included in clause (1), any P&I
Advances made and any Compensating Interest Payments paid with
respect to such Distribution Date; and
(3) if such Distribution Date occurs during March of any year, the
aggregate of the Interest Reserve Amounts then on deposit in the
Interest Reserve Account in respect of each Interest Reserve
Loan.
"Balloon Loans" means Mortgage Loans which provide for Scheduled
Payments based on amortization schedules significantly longer than their terms
to maturity and which are expected to have remaining principal balances equal to
or greater than 5% of the original principal balance of each Mortgage Loan as of
their respective Stated Maturity Date.
"Balloon LTV" - See "Balloon LTV Ratio."
"Balloon LTV Ratio" or "Balloon LTV" means the ratio, expressed as a
percentage, of the principal balance of a Balloon Loan anticipated to be
outstanding on the date on which the related Balloon Payment is scheduled to be
due (calculated based on the Maturity Assumptions and a 0% CPR) to the value of
the related Mortgaged Property or Properties determined as described under
"Description of the Mortgage Pool--Additional Mortgage Loan Information" in this
Prospectus Supplement.
"Balloon Payment" means, with respect to the Balloon Loans, the
principal payments and scheduled interest due and payable on the relevant
maturity dates.
"CEDEL" means Cedelbank, societe anonyme.
"Certificate" means any of the Class A-1, Class A-2, Class X, Class B,
Class C, Class D, Class E, Class F, Class G, Class H, Class J, Class K, Class L,
Class M, Class N, Class O, Class P, Class R-I, Class R-II or Class R-III
Certificates.
"Certificate Account" means one or more separate accounts established
and maintained by the Master Servicer (or any sub-servicer on behalf of the
Master Servicer) pursuant to the Pooling and Servicing Agreement.
"Certificate Balance" will equal the then maximum amount that the holder
of each Principal Balance Certificate 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.
"Certificateholder" or "Holder" means an investor certificateholder, a
Person in whose name a Certificate is registered in the Certificate Registrar or
a Person in whose name ownership of an uncertificated Certificate is recorded in
the books and records of the Trustee.
"Certificate Owner" means a Person acquiring an interest in an Offered
Certificate.
"Certificate Registrar" means the Trustee, in its capacity as the
Certificate Registrar.
"Class" means the designation applied to the Offered Certificates and
the Private Certificates, pursuant to this Prospectus Supplement.
"Class A Certificates" means the Class A-1 Certificates and the Class
A-2 Certificates.
"Closing Date" means August __, 1999.
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"Collection Period" means, with respect to any Distribution Date, the
period beginning with the day after the Determination Date in the month
preceding such Distribution Date (or, in the case of the first Distribution
Date, the Cut-off Date) and ending with the Determination Date occurring in the
month in which such Distribution Date occurs.
"Compensating Interest" means with respect to any Distribution Date, an
amount equal to the excess of (A) Prepayment Interest Shortfalls (plus the
Trustee Fee) resulting from Principal Prepayments during the related Collection
Period over (B) Prepayment Interest Excesses resulting from Principal
Prepayments during the same Collection Period, but in any event (i) with respect
to Compensating Interest to be paid by the Master Servicer, not more than the
portion of the aggregate Master Servicing Fee for the related Collection Period
calculated in respect of all the Mortgage Loans and (ii) with respect to
Compensating Interest to be paid by the Special Servicer, not more than the
portion of the aggregate Special Servicing Fee for the related Collection Period
calculated in respect of all the Specially Serviced Mortgage Loans.
"Compensating Interest Payment" means any payment of Compensating
Interest.
"Constant Prepayment Rate" or "CPR" means a rate that represents an
assumed constant rate of prepayment each month (which is expressed on a per
annum basis) relative to the then outstanding principal balance of a pool of
Mortgage Loans for the life of such Mortgage Loans. CPR does not purport to be
either a historical description of the prepayment experience of any pool of
Mortgage Loans or a prediction of the anticipated rate of prepayment of any
Mortgage Loans, including the Mortgage Loans.
"Controlling Class" means the most subordinate Class of Subordinate
Certificates outstanding at any time of determination; provided, however, that
if the aggregate Certificate Balance of such Class of Certificates is less than
25%, of the initial aggregate Certificate Balance of such Class as of the
Closing Date, the Controlling Class shall be the next most subordinate Class of
Certificates.
"CPR" - See "Constant Prepayment Rate" above.
"Cut-off Date" means August 1, 1999. Six Mortgage Loans have Due Dates
on the fifth day of each calendar month. The Cut-off Date for such Mortgage
Loans shall be August 5, 1999.
"Cut-off Date Balance" means, with respect to any Mortgage Loan, such
Mortgage Loan's principal balance outstanding as of the Cut-off Date, after
application of all payments of principal due on or before such date, whether or
not received determined as described under "Description of the Mortgage
Pool--Additional Mortgage Loan Information" in this Prospectus Supplement. For
purposes of those Mortgage Loans that have a due date on a date other than the
first of the month, we have assumed that such Mortgage Loans are due on the
first of the month for purposes of determining their Cut-off Date Balances.
"Cut-off Date Loan-to-Value" or "Cut-off Date LTV" means a ratio,
expressed as a percentage, of the Cut-off Date Balance of a Mortgage Loan (or
the aggregate principal balance of a group of cross-collateralized Mortgage
Loans) to the value of the related Mortgaged Property or Properties determined
as described under "Description of the Mortgage Pool--Additional Mortgage Loan
Information" in this Prospectus Supplement.
"Cut-off Date LTV" - See "Cut-off Date Loan-to-Value."
"Debt Service Coverage Ratio" or "DSCR" means, the ratio of
Underwritable Cash Flow estimated to be produced by the related Mortgaged
Property or Properties to the annualized amount of debt service payable under
that Mortgage Loan (or that group of cross-collateralized Mortgage Loans).
"Definitive Certificate" means a fully registered physical certificate.
"Depositor" means Morgan Stanley Capital I Inc.
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"Determination Date" means, with respect to any Distribution Date, the
earlier of (i) the 10th day of the month in which such Distribution Date occurs,
or, if such day is not a business day, the next preceding business day, and (ii)
the 4th business day prior to the related Distribution Date.
"Discount Rate" means, for the purposes of the distribution of
Prepayment Premiums, the rate which, when compounded monthly, is equivalent to
the Treasury Rate when compounded semi-annually.
"Distributable Certificate Interest Amount" means, in respect of any
Class of REMIC Regular Certificates for any Distribution Date, the sum of:
o Accrued Certificate Interest in respect of such Class of
Certificates for such Distribution Date, reduced (to not less
than zero) by:
o any Net Aggregate Prepayment Interest Shortfalls;
o Realized Losses and Expense Losses, in each case specifically
allocated with respect to such Distribution Date to reduce the
Distributable Certificate Interest Amount payable in respect
of such Class in accordance with the terms of the Pooling and
Servicing Agreement; and
o the portion of the Distributable Certificate Interest Amount
for such Class remaining unpaid as of the close of business on
the preceding Distribution Date, plus the Unpaid Interest.
"Distribution Account" means the distribution account maintained by the
Trustee, in accordance with the Pooling and Servicing Agreement.
"Distribution Date" means the 15th day of each month, or if any such
15th day is not a business day, on the next succeeding business day.
"Document Defect" means a situation in which a Mortgage Loan is not
delivered as and when required, is not properly executed or is defective on its
face.
"DOL Regulation" means that final regulation, promulgated by the DOL,
defining the term "plan assets" which provides, generally, that when a Plan
makes an equity investment in another entity, the underlying assets of that
entity may be considered plan assets unless exceptions apply.
"DSCR" - See "Debt Service Coverage Ratio."
"DTC" means The Depository Trust Company.
"DTC Systems" means those computer applications, systems, and the like
for processing data for DTC.
"Due Dates" means dates upon which the related Scheduled Payments are
due.
"EPA" means the United States Environmental Protection Agency.
"Euroclear" means the Euroclear System.
"Event of Default" means, with respect to the Master Servicer under the
Pooling and Servicing Agreement, any one of the following events:
o any failure by the Master Servicer to remit to the Trustee any
payment required to be remitted by the Master Servicer under
the terms of the Pooling and Servicing Agreement, including
any required Advances;
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o any failure by the Master Servicer to make a required deposit
to the Certificate Account or any other account which
continues unremedied for one Business Day following the date
on which such deposit was first required to be made;
o any failure on the part of the Master Servicer duly to observe
or perform in any material respect any other of the duties,
covenants or agreements on the part of the Master Servicer
contained in the Pooling and Servicing Agreement which
continues unremedied for a period of 30 days after the date on
which notice shall have been given by the Depositor or the
Trustee; provided, however, that if the Master Servicer
certifies to the Trustee and the Depositor that the Master
Servicer is in good faith attempting to remedy such failure,
such cure period will be extended to the extent necessary to
permit the Master Servicer to cure such failure; provided,
further that such cure period may not exceed 90 days;
o any breach of the representations and warranties of the Master
Servicer in the Pooling and Servicing Agreement that
materially and adversely affects the interest of any holder of
any Class of Certificates and that continues unremedied for a
period of 30 days after notice shall have been given to the
Master Servicer by the Depositor or the Trustee, provided,
however, that if the Master Servicer certifies to the Trustee
and the Depositor that the Master Servicer is in good faith
attempting to remedy such breach, such cure period will be
extended to the extent necessary to permit the Master Servicer
to cure such breach; provided, further that such cure period
may not exceed 90 days;
o the Trustee shall receive notice from Fitch to the effect that
the continuation of the Master Servicer in such capacity would
result in the downgrade, qualification or withdrawal of any
rating then assigned by Fitch to any Class of Certificates; or
o the Master Servicer has been downgraded to a servicer rating
level below CMS3 (or its then equivalent) by Fitch;
o the Master Servicer is no longer on the approved list of
commercial mortgage loan master servicers maintained by S&P;
o 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,
marshalling 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 and such decree
or order shall have remained in force undischarged or unstayed
for a period of 60 days;
o the Master Servicer shall consent to the appointment of a
conservator, receiver, liquidator, trustee or similar official
in any bankruptcy, insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings
of or relating to the Master Servicer or of or relating to all
or substantially all of its property; or
o the Master Servicer admits in writing its inability to pay its
debts generally as they become due, files a petition to take
advantage of any applicable bankruptcy, insolvency or
reorganization statute, makes an assignment for the benefit of
its creditors, voluntarily suspend payment of its obligations,
or takes any corporate action in furtherance of the foregoing.
"Excess Liquidation Proceeds" the excess of (i) proceeds from the sale
or liquidation of a Mortgage Loan or related REO Property, net of expenses and
any related Advances and interest thereon over (ii) the amount that would have
been received if a prepayment in full had been made with respect to such
Mortgage Loan on the date such proceeds were received.
"Excess Servicing Fee" means an additional fee payable to Wells Fargo or
JHREF that accrues at a rate set forth in the Pooling and Servicing Agreement,
which is assignable and non-terminable.
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"Exemptions" means the individual prohibited transaction exemptions
granted by the DOL to the Underwriters.
"Expense Losses" means, among other things:
o any interest paid to the Master Servicer; the Trustee or the
Fiscal Agent in respect of unreimbursed Advances;
o all Special Servicer Compensation payable to the Special
Servicer from amounts that are part of the Trust Fund;
o other expenses of the Trust Fund, including, but not limited
to, selected reimbursements and indemnification payments to
the Trustee and certain related persons, selected
reimbursements and indemnification payments to the Depositor,
the Master Servicer, the Special Servicer and certain related
persons, selected taxes payable from the assets of the Trust
Fund, the costs and expenses of any tax audits with respect to
the Trust Fund and other tax-related expenses and the cost of
various opinions of counsel required to be obtained in
connection with the servicing of the Mortgage Loans and
administration of the Trust Fund; and
o any other expense of the Trust Fund not specifically included
in the calculation of Realized Loss for which there is no
corresponding collection from the borrower.
"FASIT" means a financial asset securitization investment trust.
"Fiscal Agent" means ABN AMRO Bank N.V., a Netherlands banking
corporation and indirect corporate parent to the Trustee.
"Fitch " means Fitch IBCA, Inc.
"401(c) Regulations" means the final regulations that DOL is required to
issue according to Section 401(c) of ERISA.
"Hazardous Materials" means gasoline, petroleum products, explosives,
radioactive materials, polychlorinated biphenyls or related or similar
materials, and any other substance or material as may be defined as a hazardous
or toxic substance by any federal, state or local environmental law, ordinance,
rule, regulation or order, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. (section)(section) 9601 et seq.), the Hazardous Materials Transportation
Act, as amended (49 U.S.C. (section)(section) 1801, et seq.), the Resource
Conservation and Recovery Act, as amended (42 U.S.C. (section)(section) 6901 et
seq.), the Federal Water Pollution Control Act, as amended (33 U.S.C.
(section)(section) 1251 et seq.), the Clean Air Act, as amended (42 U.S.C.
(section)(section) 7401 et seq.), and any regulations promulgated pursuant
thereto.
"Initial Pool Balance" means the aggregate Cut-off Date Balance of
$612,711,795.
"Insurance Proceeds" means all amounts paid by an insurer in connection
with a Mortgage Loan, other than any amounts required to be paid to the related
borrower.
"Interest Accrual Period" means, for each Class of REMIC Regular
Certificates and each Distribution Date, the calendar month immediately
preceding the month in which such Distribution Date occurs.
"Interest Only Certificates" means the Class X Certificates.
"Interest Reserve Account" means an account that the Master Servicer has
established and will maintain for the benefit of the holders of the
Certificates.
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"Interest Reserve Amount" means all amounts deposited in the Interest
Reserve Account with respect to Scheduled Payments due in any applicable January
and February.
"Interest Reserve Loan" - See "Non-30/360 Loan" below.
"Interested Party" means the Special Servicer, the Master Servicer, the
Depositor, any Certificateholder, the Operating Advisor or any affiliate of such
party.
"JHREF" means John Hancock Real Estate Finance Inc.
"JHREF Loans" means the twenty-eight (28) Mortgage Loans that were
originated by JHREF.
"Lock-out Period" means the period ending on a date determined by the
related mortgage note during which voluntary principal prepayments are
prohibited.
"Liquidation Fee" means 1.00% of the related Liquidation Proceeds.
"Liquidation Proceeds" means proceeds from the sale or liquidation of a
Mortgage Loan or related REO Property, net of expenses and any related Advances
and interest thereon.
"Master Servicer" means Wells Fargo.
"Master Servicer Remittance Date" means in each month the Business Day
preceding the Distribution Date.
"Master Servicing Fee" means the monthly amount, based on the Master
Servicing Fee Rate, to which the Master Servicer is entitled in compensation for
servicing the Mortgage Loans.
"Master Servicing Fee Rate" means 0.03% per annum each month payable
with respect to a Mortgage Loan in connection with the Master Servicing Fee.
"Material Breach" means a breach of any of the representations and
warranties that materially and adversely affects the interests of the holders of
the Certificates.
"Material Document Defect" means a breach of any of the representations
and warranties has occurred that has resulted from a Document Defect and that
materially and adversely affects the interests of the holders of the
Certificates.
"Maturity Assumptions" means the following assumptions:
o the initial Certificate Balances and initial Pass-Through
Rates of the Certificates are as set forth herein;
o the settlement date for the sale of the Certificates is August
10, 1999;
o distributions on the Certificates are made on the 15th day of
each month, commencing in August, 1999;
o there are no delinquencies, defaults or Realized Losses with
respect to the Mortgage Loans;
o Scheduled Payments on the Mortgage Loans are timely received
on the first day of each month;
o the Trust Fund does not experience any Expense Losses;
o no Principal Prepayment on any Mortgage Loan is made during
its Lock-out Period (if any) or during any period when
Principal Prepayments on such Mortgage Loans are required to
be accompanied by a
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Prepayment Premium and otherwise Principal Prepayments are
made on the Mortgage Loans at the indicated levels of CPR
(notwithstanding any limitations in the Mortgage Loans on
partial prepayments);
o any Prepayment Premiums are allocated as described elsewhere
in this Prospectus Supplement;
o no Prepayment Interest Shortfalls occur; and
o no Mortgage Loan is the subject of a repurchase or
substitution by the respective Seller and no optional
termination of the Trust Fund occurs;
"Money Term" means, with respect to any Mortgage Loan, the maturity
date, Mortgage Rate, principal balance, amortization term or payment frequency
thereof or any provision thereof requiring the payment of a prepayment premium,
yield maintenance payment or percentage premium in connection with a Principal
Prepayment (but shall not include late fees or default interest provisions).
"Mortgage" means a mortgage, deed of trust or other similar security
instrument.
"Mortgaged Property" means a fee simple estate income-producing real
property.
"Mortgage File" means the following documents, among others:
o the original Mortgage Note, endorsed (without recourse) in
blank or to the order of the Trustee;
o the original or a copy of the related Mortgage(s), together
with originals or copies of any intervening assignments of
such document(s), in each case with evidence of recording
thereon (unless such document(s) have not been returned by the
applicable recorder's office);
o the original or a copy of any related assignment(s) of rents
and leases (if any such item is a document separate from the
Mortgage), together with originals or copies of any
intervening assignments of such document(s), in each case with
evidence of recording thereon (unless such document(s) have
not been returned by the applicable recorder's office);
o an assignment of each related Mortgage in blank or in favor of
the Trustee, in recordable form;
o an assignment of any related assignment(s) of rents and leases
(if any such item is a document separate from the Mortgage) in
blank or in favor of the Trustee, in recordable form;
o an original or copy of the related lender's title insurance
policy (or, if a title insurance policy has not yet been
issued, a commitment for title insurance "marked-up" at the
closing of such Mortgage Loan); and
o when relevant, the related ground lease or a copy thereof.
"Mortgage Loan Purchase Agreement" means the agreements entered into
between the Depositor and each Seller, as the case may be.
"Mortgage Loans" and collectively, the "Mortgage Pool," means the 129
fixed rate Mortgage Loans with aggregate Cut-off Date Balances of $612,711,795
subject to a permitted variance of plus or minus 5%.
"Mortgage Note" means a promissory note evidencing a respective Mortgage
Loan.
"Mortgage Pool" - See "Mortgage Loans."
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"Mortgage Rate" means, for a given Mortgage Loan, the per annum rate at
which interest accrues on such Mortgage Loan.
"Mortgaged Property" means the real property, together with improvements
thereto, securing the indebtedness of the Mortgagor under the related Mortgage
Loan.
"MSMC" means Morgan Stanley Mortgage Capital Inc.
"MSMC Loans" means the twenty-one (21) Mortgage Loans that were
originated or acquired by MSMC.
"Net Aggregate Prepayment Interest Shortfall" means, for the related
Distribution Date, the aggregate of all Prepayment Interest Shortfalls incurred
in respect of all 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
paid by the Master Servicer or Special Servicer.
"Net Mortgage Rate" means, in general, with respect to any Mortgage
Loan, a per annum rate equal to the related Mortgage Rate minus the related
Administrative Cost Rate; provided that, for purposes of calculating the
Pass-Through Rate for each Class of REMIC Regular Certificates from time to
time, the Net Mortgage Rate for any Mortgage Loan will be calculated without
regard to any modification, waiver or amendment of the terms of such Mortgage
Loan subsequent to the Closing Date. 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 on a Non-30/360 Loan will be
appropriately adjusted to reflect such difference. However, with respect to each
Non-30/360 Loan:
o the Net Mortgage Rate that would otherwise be in effect for
purposes of the Scheduled Payment due in January of each year
(other than a leap year) and February of each year will be
adjusted to take into account the applicable Interest Reserve
Amount; and
o the Net Mortgage Rate that would otherwise be in effect for
purposes of the Scheduled Payment due in March of each year
(commencing in 2000) will be adjusted to take into account the
related withdrawal from the Interest Reserve Account for the
preceding January (if applicable) and February.
"Non-30/360 Loan" or "Interest Reserve Loan" means a Mortgage Loan that
accrues interest other than on the basis of a 360-day year consisting of 12
30-day months.
"Notional Amount" means the notional principal amount of the Class X
Certificates, which will be based upon the outstanding principal balance of all
Principal Balance Certificates.
"NWAC Rate" - See "Weighted Average Net Mortgage Rate."
"Offered Certificates" means the Class A-1, Class A-2, Class B, Class C,
Class D and Class E Certificates.
"OID" means original issue discount.
"Open Period" means the period beginning on a date prior to maturity as
determined by the related mortgage note when voluntary principal prepayments are
permitted without any Prepayment Premiums.
"Operating Adviser" means that entity appointed by the holders of a
majority of the Controlling Class which will have the right to receive
notification from the Special Servicer in regard to selected actions.
"P&I Advance" means the amount of any Scheduled Payments or Assumed
Schedule Payment (net of the related Master Servicing Fees and Primary Servicing
Fees), other than any Balloon Payment, on the Mortgage Loans that are delinquent
as of the close of business on the preceding Determination Date.
"Participants" means DTC's participating organizations.
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"Parties in Interest" means persons who have specified relationships to
Plans ("parties in interest" under ERISA or "disqualified persons" under Section
4975 of the Code).
"Pass-Through Rate" means the rate per annum at which any Class of
Certificates (other than the Residual Certificates) accrues interest.
"PCF" means Principal Commercial Funding, LLC.
"PCF Loans" means the eighty (80) of the Mortgage Loans that were
originated by PCF or its affiliates.
"Percentage Interest" will equal, as evidenced by any REMIC Regular
Certificate in the Class to which it belongs, 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.
"Permitted Cure Period" means, for the purposes of any Material Document
Defect or Material Breach in respect of any Mortgage Loan, 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 in all
material respects within such 90-day period, but the related Seller is
diligently attempting to effect such correction or cure, then the applicable
Permitted Cure Period will be extended for an additional 90 days.
"Plans" means, with respect to ERISA and the Code, employee benefit and
other plans that are subject to ERISA and/or Section 4975 of the Code.
"Pooling and Servicing Agreement" means the Pooling and Servicing
Agreement dated as of August 1, 1999, by and between Morgan Stanley Capital I
Inc., as Depositor, Wells Fargo, as Master Servicer and Special Servicer,
LaSalle Bank National Association, as Trustee and ABN AMRO Bank N.V., as Fiscal
Agent.
"Prepayment Interest Excess" means, in a case in which a full or partial
Principal Prepayment or a Balloon Payment is made during any Collection Period
after the Due Date for such Mortgage Loan, the amount of interest which accrues
on the amount of such Principal Prepayment or Balloon Payment that exceeds the
corresponding amount of interest accruing on the Certificates. The amount of the
Prepayment Interest Excess in any such case will generally equal the interest
that accrues on the Mortgage Loan from such Due Date to the date such payment
was made (net of the Master Servicing Fee, the Primary Servicing Fee and Excess
Servicing Fee (or, if the related Mortgage Loan is a Specially Serviced Mortgage
Loan, the Special Servicing Fee) and the Trustee Fee).
"Prepayment Interest Shortfall" means, for any Distribution Date and
with respect to any Mortgage Loan the related borrower has made a full or
partial Principal Prepayment or a Balloon Payment during the related Collection
Period, and the date such payment was made (or, in the case of a Balloon
Payment, the date through which interest thereon accrues) occurred prior to the
Due Date for such Mortgage Loan in such Collection Period. Such a shortfall
arises because the amount of interest (net of the Master Servicing Fee, the
Primary Servicing Fee and Excess Servicing Fee (or, if the related Mortgage Loan
is a Specially Serviced Mortgage Loan, the Special Servicing Fee) and the
Trustee Fee) that accrues on the amount of such Principal Prepayment or Balloon
Payment will be less than the corresponding amount of interest accruing on the
Certificates. In such a case, the Prepayment Interest Shortfall will generally
equal the excess of:
o the aggregate amount of interest which would have accrued at
the Net Mortgage Rate on the Scheduled Principal Balance of
such Mortgage Loan for the 30 days ending on such Due Date if
such Principal Prepayment or Balloon Payment had not been
made, over
o the aggregate interest that did so accrue through the date
such payment was made.
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"Prepayment Premium" means with respect to any Distribution Date, the
aggregate of all prepayment premiums, yield maintenance charges and prepayment
charges, if any, received during the related Collection Period in connection
with Principal Prepayments.
"Primary Servicer" means Principal Capital Management, LLC and John
Hancock Real Estate Finance, Inc.
"Primary Servicing Fee" means the monthly amount, based on the Primary
Servicing Fee Rate, to which the Primary Servicers are entitled in compensation
for servicing the Mortgage Loans.
"Primary Servicing Fee Rate" means an amount per annum set forth in the
Pooling and Servicing Agreement, which is payable each month with respect to a
Mortgage Loan in connection with the Primary Servicing Fee.
"Principal Balance Certificates" means, upon initial issuance, the Class
A-1, Class A-2, Class B, Class C, Class D, Class E, Class F, Class G, Class H,
Class J, Class K, Class L, Class M, Class N, Class O and Class P Certificates.
"Principal Distribution Amount" equals, in general, for any Distribution
Date, the aggregate of the following:
o the principal portions of all Scheduled Payments (other than
the principal portion of Balloon Payments) and any Assumed
Scheduled Payments due or deemed due, as the case may be, in
respect of the Mortgage Loans for their respective Due Dates
occurring during the related Collection Period; and
o all payments (including Principal Prepayments and the
principal portion of Balloon Payments) and other collections
(including Liquidation Proceeds (other than the portion
thereof, if any, constituting Excess Liquidation Proceeds),
Condemnation Proceeds, Insurance Proceeds and REO Income (each
as defined herein) and proceeds of Mortgage Loan repurchases)
that were received on or in respect of the Mortgage Loans
during the related Collection Period and that were identified
and applied by the Master Servicer as recoveries of principal
thereof, in each case net of any portion of such payment or
other collection that represents a recovery of the principal
portion of any Scheduled Payment (other than a Balloon
Payment) due, or the principal portion of any Assumed
Scheduled Payment deemed due, in respect of the related
Mortgage Loan on a Due Date during or prior to the related
Collection Period and not previously recovered.
"Principal Prepayments" means the payments and collections with respect
to principal of the Mortgage Loans including all voluntary and involuntary
prepayments of principal made prior to their scheduled Due Dates.
"Private Certificates" means the Class X, Class F, Class G, Class H,
Class J, Class K, Class L, Class M, Class N, Class O and Class P Certificates
and the Residual Certificates.
"PTCE" means a DOL Prohibited Transaction Class Exemption.
"Purchase Price" means that amount at least equal to the unpaid
principal balance of such Mortgage Loan, together with accrued but unpaid
interest thereon to but not including the date of the repurchase and any related
expenses reimbursable to the Master Servicer, the Special Servicer, the Trustee
or the Fiscal Agent or any related unreimbursed Servicing Advances, including
all unpaid interest on all Advances.
"Qualifying Substitute Mortgage Loan" means a Mortgage Loan having
payment terms comparable to the Mortgage Loan to be replaced due to a Material
Document Defect or a Material Breach and for which the Rating Agencies have
confirmed in writing that the replacement with such Mortgage Loan would not
result in a withdrawal, downgrade or qualification of the then current ratings
on the Certificates.
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"Rated Final Distribution Date" means the first Distribution Date that
follows by at least 36 months the end of the amortization term of the Mortgage
Loan that, as of the Cut-off Date, has the longest remaining amortization term.
"Rating Agencies" means Fitch and S&P.
"Realized Losses" means losses arising from the inability of the Master
Servicer, the Trustee or the Special Servicer to collect all amounts due and
owing under any defaulted Mortgage Loan, including by reason of any
modifications to the terms of a Mortgage Loan, bankruptcy of the related
borrower or a casualty of any nature at the related Mortgaged Property, to the
extent not covered by insurance. The Realized Loss, if any, in respect of a
liquidated Mortgage Loan or related REO Property, will generally equal the
excess, if any, of:
o the outstanding principal balance of such Mortgage Loan as of
the date of liquidation, together with all accrued and unpaid
interest thereon at the related Mortgage Rate, over
o the aggregate amount of Liquidation Proceeds, if any,
recovered in connection with such liquidation, net of any
portion of such liquidation proceeds that is payable or
reimbursable in respect of related liquidation and other
servicing expenses. If the Mortgage Rate on any Mortgage Loan
is reduced or a portion of the debt due under any Mortgage
Loan is forgiven, whether in connection with a modification,
waiver or amendment granted or agreed to by the Special
Servicer or in connection with a bankruptcy or similar
proceeding involving the related borrower, the resulting
reduction in interest paid and the principal amount so
forgiven, as the case may be, also will be treated as a
Realized Loss.
"Record Date" means, with respect to each Class of Offered Certificates
for each Distribution Date, the last business day of the calendar month
immediately preceding the month in which such Distribution Date occurs.
"Rehabilitated Mortgage Loan" will result from a Specially Serviced
Mortgage Loan when (a) three consecutive Scheduled Payments have been made (in
the case of any such Mortgage Loan that was modified, based on the modified
terms), (b) no other Servicing Transfer Event has occurred and is continuing
with respect to such Mortgage Loan and (c) the Trust Fund has been reimbursed
for all costs incurred as a result of the occurrence of the Servicing Transfer
Event or such amounts have been forgiven.
"REMIC Regular Certificates" means the Senior Certificates and the
Subordinate Certificates.
"REO Income" means the Liquidation Proceeds and income received in
connection with the operation of an REO Property, net of selected expenses.
"REO Property" means 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.
"REO Tax" means a tax on "net income from foreclosure property" within
the meaning of the REMIC provisions of the Code.
"Reserve Account" means an account in the name of the Trustee for the
deposit of any Excess Liquidation Proceeds.
"Residual Certificates" means the Class R-I Certificates, the Class R-II
Certificates and the Class R-III Certificates.
"Scheduled Payment" means, in general, for any Mortgage Loan on any Due
Date, the amount of the scheduled payment of principal and interest (or interest
only) due thereon on such date (taking into account any waiver, modification or
amendment of the terms of such Mortgage Loan subsequent to the Closing Date,
whether agreed to by the Special Servicer or occurring in connection with a
bankruptcy proceeding involving the related borrower).
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"Scheduled Principal Balance" of any Mortgage Loan on any Distribution
Date will generally equal the Cut-off Date Balance, as defined above, thereof,
reduced (to not less than zero) by:
o any payments or other collections of principal (or Advances in
lieu thereof) on such Mortgage Loan that have been collected
or received during any preceding Collection Period, other than
any Scheduled Payments due in any subsequent Collection
Period; and
o the principal portion of any Realized Loss incurred in respect
of such Mortgage Loan during any preceding Collection Period.
"Sellers" means Principal Commercial Funding, LLC, John Hancock Real
Estate Finance, Inc. and Morgan Stanley Mortgage Capital Inc.
"Senior Certificates" means the Class A Certificates and the Class X
Certificates.
"Servicing Advances" means, in general, customary, reasonable and
necessary "out-of-pocket" costs and expenses required to be incurred by the
Master Servicer in connection with the servicing of a Mortgage Loan after a
default (whether or not a payment default), delinquency or other unanticipated
event, or in connection with the administration of any REO Property.
"Servicing Standard" means the higher of the following standards of
care:
o in the same manner in which and with the same care, skill,
prudence and diligence with which the Master Servicer or the
Special Servicer, as the case may be, services and administers
similar mortgage loans for other third-party portfolios,
giving due consideration to customary and usual standards of
practice of prudent institutional commercial mortgage lenders
servicing their own mortgage loans and to the maximization of
the net present value of the Mortgage Loans; and
o the care, skill, prudence and diligence the Master Servicer or
the Special Servicer, as the case may be, uses for loans which
it owns and which are substantially the same as the Mortgage
Loans, giving due consideration to the maximization of the net
present value of the Mortgage Loans, but without regard to:
i. any other relationship that the Master Servicer,
the Special Servicer, the Primary Servicers, the Depositor or
the Trustee, or any affiliate of any of them may have with the
related borrower or any affiliate of the borrower;
ii. the ownership of any Certificate by the Master
Servicer, the Special Servicer or any affiliate of any of
them;
iii. the Master Servicer's or the Trustee's
obligation to make Advances or to incur servicing expenses
with respect to the Mortgage Loan;
iv. the Master Servicer's, the Special Servicer's or
the Primary Servicer's right to receive compensation for its
services or with respect to any particular transaction;
v. the ownership or servicing or management for
others by the Master Servicer, the Special Servicer or the
Primary Servicer of any other mortgage loans or property; or
vi. any obligation of the Master Servicer to pay any
indemnity with respect to any repurchase obligation.
"Servicing Transfer Event" means an instance where an event has occurred
that has caused a Mortgage Loan to become a Specially Serviced Mortgage Loan.
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"SMMEA" means the Secondary Mortgage Market Enhancement Act of 1984, as
amended.
"Specially Serviced Mortgage Loan" means the following:
o any Mortgage Loan as to which a Balloon Payment is past due,
and the Master Servicer has determined that payment is
unlikely to be made on or before the 60th day succeeding the
date the Balloon Payment was due, or any other payment is more
than 60 days past due or has not been made on or before the
second Due Date following the date such payment was due;
o any Mortgage Loan as to which, to the Master Servicer's
knowledge, the borrower has consented to the appointment of a
receiver or conservator in any insolvency or similar
proceeding of or relating to such borrower or to all or
substantially all of its property, or the borrower has become
the subject of a decree or order issued under a bankruptcy,
insolvency or similar law and such decree or order shall have
remained undischarged or unstayed for a period of 60 days;
o any Mortgage Loan as to which the Master Servicer shall have
received notice of the foreclosure or proposed foreclosure of
any other lien on the Mortgaged Property;
o any Mortgage Loan as to which the Master Servicer has
knowledge of a default (other than a failure by the related
borrower to pay principal or interest) which, in the judgement
of the Master Servicer, materially and adversely affects the
interests of the Certificateholders and which has occurred and
remains unremedied for the applicable grace period specified
in such Mortgage Loan (or, if no grace period is specified, 60
days;
o any Mortgage Loan as to which the borrower admits in writing
its inability to pay its debts generally as they become due,
files a petition to take advantage of any applicable
insolvency or reorganization statute, makes an assignment for
the benefit of its creditors or voluntarily suspends payment
of its obligations; and
o any Mortgage Loan as to which, in the judgment of the Master
Servicer, a default has occurred or in the judgment of the
Master Servier is imminent or is likely to occur within 60
days.
"Special Servicer" means Wells Fargo.
"Special Servicer Compensation" means such fees payable to the Special
Servicer, collectively, the Special Servicing Fee, the Workout Fee and the
Liquidation Fee.
"Special Servicer Event of Default" means, with respect to the Special
Servicer under the Pooling and Servicing Agreement, any one of the following
events:
o any failure by the Special Servicer to remit to the Trustee or
the Master Servicer when due any amount required to be so
remitted under the terms of the Pooling and Servicing
Agreement;
o any failure by the Special Servicer to deposit into any
account any amount required to be so deposited or remitted
under the terms of the Pooling and Servicing Agreement which
failure continues unremedied for one Business Day following
the date on which such deposit or remittance was first
required to be made;
o any failure on the part of the Special Servicer duly to
observe or perform in any material respect any other of the
covenants or agreements on the part of 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 Special Servicer by the
Depositor or the Trustee; provided, however, that to the
extent that the Special Servicer certifies to the Trustee and
the Depositor that the Special Servicer is in good faith
attempting to remedy such failure and the Certificateholders
shall not be materially and adversely affected thereby,
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such cure period will be extended to the extent necessary to
permit the Special Servicer to cure such failure, provided
that such cure period may not exceed 90 days;
o any breach by the Special Servicer of the representations and
warranties contained in the Pooling and Servicing Agreement
that materially and adversely affects the interests of the
holders of any Class of Certificates and that 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 Special Servicer by the Depositor
or the Trustee, provided, however, that to the extent that the
Special Servicer is in good faith attempting to remedy such
breach and the Certificateholders shall not be materially and
adversely affected thereby, such cure period may be extended
to the extent necessary to permit the Special Servicer to cure
such failure, provided that such cure period may not exceed 90
days;
o the Trustee shall receive notice from Fitch to the effect that
the continuation of the Special Servicer in such capacity
would result in the downgrade or withdrawal of any rating then
assigned by Fitch to any Class of Certificates;
o the Special Servicer has been downgraded to a servicer rating
level below CSS3 (or its then equivalent) by Fitch;
o the Special Servicer is no longer on the approved list of
commercial mortgage loan special servicers maintained by S&P;
o 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,
marshalling of assets and liabilities or similar proceedings,
or for the winding-up or liquidation of its affairs, shall
have been entered against the Special Servicer and such decree
or order shall have remained in force undischarged or unstayed
for a period of 60 days;
o the Special Servicer shall consent to the appointment of a
conservator, receiver, liquidator, trustee or similar official
in any bankruptcy, insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings
of or relating to the Special Servicer or of or relating to
all or substantially all of its property; or
o the Special Servicer's having admitted 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.
"Special Servicer Report" means, generally, a report showing
loan-by-loan detail on each Specially Serviced Mortgage Loan that is 60 days
delinquent, 90 days delinquent, or in the process of foreclosure, an REO status
report for each REO Property and a modification report showing loan-by-loan
detail for each modification closed during the most recent reporting period.
"Special Servicing Fee" means an amount equal to, in any month, the
portion of a rate equal to 0.25% per annum applicable to such month (determined
in the same manner as the applicable Mortgage Rate is determined for each
Specially Serviced Mortgage Loan for such month) of the outstanding Scheduled
Principal Balance of each Specially Serviced Mortgage Loan.
"S&P" means Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc.
"Subordinate Certificates" means the Class B Certificates, the Class C
Certificates, the Class D Certificates, the Class E Certificates, the Class F
Certificates, the Class G Certificates, the Class H Certificates, the Class J
Certificates, the Class K Certificates, the Class L Certificates, the Class M
Certificates, the Class N Certificates, the Class O Certificates and the Class P
Certificates.
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"Sub-Servicer" means an entity with whom either the Master Servicer, the
Primary Servicer or the Special Servicer has entered a sub-servicing agreement.
"Treasury Rate" is the yield calculated by the linear interpolation of
the yields, as reported in Federal Reserve Statistical Release H.15-Selected
Interest Rates under the heading "U.S. government securities/Treasury constant
maturities" for the week ending prior to the date of the relevant principal
prepayment, of U.S. Treasury constant maturities with a maturity date (one
longer and one shorter) most nearly approximating the maturity date of the
Mortgage Loan prepaid. If Release H.15 is no longer published, the Master
Servicer will select a comparable publication to determine the Treasury Rate.
"Trustee" means LaSalle Bank National Association, a national banking
association.
"Trustee Fee" means a monthly fee as set forth in the Pooling and
Servicing Agreement to be paid from the Distribution Account to the Trustee as
compensation for the performance of its duties.
"Trustee's Website" means the Trustee's website, initially located at
"lnbabs.com".
"Trust Fund" means the trust fund created by the Pooling and Servicing
Agreement consisting primarily of:
o the Mortgage Loans and all payments under and proceeds of the
Mortgage Loans received after the Cut-off Date (exclusive of
principal prepayments received prior to the Cut-off Date and
scheduled payments of principal and interest due on or before
the Cut-off Date);
o 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;
and
o certain rights of the Depositor under, or assigned to the
Depositor pursuant to, each of the Mortgage Loan Purchase
Agreements relating to Mortgage Loan document delivery
requirements and the representations and warranties of the
related Seller regarding its Mortgage Loans.
"Underwritable Cash Flow" means an estimate of stabilized cash flow
available for debt service. In general, it is the estimated stabilized revenue
derived from the use and operation of a Mortgaged Property (consisting primarily
of rental income) less the sum of (a) estimated stabilized operating expenses
(such as utilities, administrative expenses, repairs and maintenance, management
fees and advertising), (b) fixed expenses (such as insurance, real estate taxes
and, if applicable, ground lease payments) and (c) reserves for capital
expenditures, including tenant improvement costs and leasing commissions.
Underwritable Cash Flow generally does not reflect interest expenses and
non-cash items such as depreciation and amortization.
"Underwriting Agreement" means that agreement, dated July __, 1999,
entered into by the Depositor, Morgan Stanley & Co. Incorporated, an affiliate
of the Depositor and Goldman, Sachs & Co.
"Underwriters" means Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co.
"Unpaid Interest" means one month's interest upon the portion of the
Distributable Certificate Interest Amount for such Class remaining unpaid as of
the close of business on the preceding Distribution Date at the applicable
Pass-Through Rate.
"Weighted Average Net Mortgage Rate" or "NWAC Rate" means, for any
Distribution Date, the weighted average of the Net Mortgage Rates for the
Mortgage Loans (in the case of each Mortgage Loan that is a Non-30/360 Mortgage
Loan, adjusted as described under the definition of Net Mortgage Rate), weighted
on the basis of their respective Scheduled Principal Balances as of the close of
business on the preceding Distribution Date.
"Wells Fargo" means Wells Fargo Bank, National Association.
S-112
<PAGE>
"Workout Fee" means that fee, payable with respect to any Rehabilitated
Mortgage Loan, equal to 1.00% of the amount of each collection of interest and
principal received on such Mortgage Loan for so long as it remains a
Rehabilitated Mortgage Loan.
S-113
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
CUT-OFF DATE BALANCES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT BY WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE
CUT-OFF DATE BALANCE ($) LOANS BALANCE ($) BALANCE (%) RATE (%)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 to 1,000,000 3 2,282,355 0.37 7.381
1,000,001 to 2,000,000 24 36,753,675 6.00 7.215
2,000,001 to 3,000,000 22 55,236,722 9.02 7.469
3,000,001 to 4,000,000 19 65,220,258 10.64 7.372
4,000,001 to 5,000,000 14 61,890,633 10.10 7.346
5,000,001 to 6,000,000 19 103,056,190 16.82 7.400
6,000,001 to 7,000,000 6 39,659,262 6.47 7.635
7,000,001 to 8,000,000 3 23,229,474 3.79 7.177
8,000,001 to 9,000,000 4 32,460,510 5.30 7.146
9,000,001 to 10,000,000 5 49,521,126 8.08 7.400
10,000,001 to 20,000,000 9 113,694,965 18.56 7.507
20,000,001 to 30,000,000 1 29,706,627 4.85 6.730
- --------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 129 $612,711,795 100.00% 7.367%
============================================================================================
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING WEIGHTED AVERAGE AVERAGE
TERM TO AVERAGE CUT-OFF BALLOON
CUT-OFF DATE BALANCE ($) MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 to 1,000,000 117 1.41 72.1 63.7
1,000,001 to 2,000,000 118 1.78 64.2 57.7
2,000,001 to 3,000,000 123 1.53 68.1 56.3
3,000,001 to 4,000,000 117 1.50 69.8 61.7
4,000,001 to 5,000,000 124 1.54 67.2 55.1
5,000,001 to 6,000,000 118 1.65 64.1 57.4
6,000,001 to 7,000,000 119 1.76 58.3 52.1
7,000,001 to 8,000,000 116 1.82 65.1 59.5
8,000,001 to 9,000,000 117 1.78 65.7 59.5
9,000,001 to 10,000,000 116 1.73 64.8 58.6
10,000,001 to 20,000,000 117 1.44 64.6 54.7
20,000,001 to 30,000,000 169 2.12 37.1 27.6
- ----------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 121 1.63X 64.0% 55.6
==============================================================================================
</TABLE>
Min: $720,221
Max: $29,706,627
Average: $4,749,704
I-1
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
STATES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT BY WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE
STATE LOANS BALANCE ($) BALANCE (%) RATE (%)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California 16 92,764,140 15.14 7.349
New York 9 68,888,195 11.24 7.224
Florida 13 63,372,323 10.34 7.189
New Jersey 7 47,481,004 7.75 7.553
Virginia 8 36,824,466 6.01 7.403
North Carolina 10 33,515,826 5.47 6.985
Pennsylvania 14 33,253,192 5.43 7.563
Georgia 7 32,789,449 5.35 7.257
Minnesota 4 28,475,794 4.65 7.900
Nevada 6 24,651,358 4.02 7.319
Ohio 7 22,358,258 3.65 7.696
South Carolina 5 16,621,161 2.71 7.176
Texas 4 12,593,730 2.06 7.344
New Hampshire 1 11,915,229 1.94 7.300
Michigan 2 11,491,829 1.88 8.620
Wisconsin 2 10,587,771 1.73 7.903
Massachusetts 2 10,349,506 1.69 6.929
Colorado 2 10,291,368 1.68 7.579
Washington 1 9,706,774 1.58 7.190
Utah 1 8,152,816 1.33 6.750
Arizona 3 8,029,131 1.31 7.321
Maryland 1 5,642,731 0.92 6.800
Alabama 1 5,410,901 0.88 6.800
Missouri 1 4,121,825 0.67 7.250
Indiana 1 1,899,160 0.31 8.040
Illinois 1 1,523,859 0.25 7.750
- -------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 129 $612,711,795 100.00% 7.367%
=================================================================================================
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING WEIGHTED AVERAGE AVERAGE
TERM TO AVERAGE CUT-OFF BALLOON
STATE MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California 116 1.45 66.1 58.1
New York 140 1.71 54.8 45.2
Florida 118 1.93 61.2 56.9
New Jersey 116 1.53 66.5 59.7
Virginia 117 1.90 57.7 54.5
North Carolina 128 1.69 65.4 53.1
Pennsylvania 118 1.59 66.1 58.7
Georgia 117 1.82 64.4 59.2
Minnesota 119 1.44 59.9 49.5
Nevada 117 1.28 75.9 65.9
Ohio 119 1.33 75.3 65.7
South Carolina 144 1.74 64.1 43.7
Texas 114 1.42 70.5 60.1
New Hampshire 116 1.39 70.9 49.4
Michigan 119 1.25 63.8 53.8
Wisconsin 118 1.32 72.6 65.0
Massachusetts 118 2.27 54.5 52.6
Colorado 119 1.42 66.4 58.9
Washington 116 1.40 77.0 62.5
Utah 113 1.81 64.7 56.5
Arizona 113 1.66 62.1 53.9
Maryland 119 2.51 51.3 51.3
Alabama 119 2.51 51.3 51.3
Missouri 114 1.35 57.4 27.5
Indiana 119 1.21 78.8 70.7
Illinois 112 1.21 74.3 47.9
- -------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 121 1.63X 64.00% 55.6%
=================================================================================================
</TABLE>
I-2
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
PROPERTY TYPES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT BY WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE
PROPERTY TYPE LOANS BALANCE ($) BALANCE (%) RATE (%)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail
Anchored 31 141,147,486 23.04 7.131
Specialty Retail 2 25,987,974 4.24 7.411
Unanchored 7 17,290,074 2.82 7.421
Shadowed Anchored 6 14,847,779 2.42 7.272
- --------------------------------------------------------------------------------------------------
SUBTOTAL: 46 $199,273,313 32.52% 7.203%
Industrial
Warehouse 19 81,708,653 13.34 7.503
Flex Industrial 12 37,087,271 6.05 7.445
Light Industrial 12 36,313,523 5.93 7.730
- --------------------------------------------------------------------------------------------------
SUBTOTAL: 43 $155,109,448 25.32% 7.542%
Office
Suburban 11 68,816,261 11.23 7.719
Urban 5 61,722,677 10.07 7.242
Medical Office 1 1,899,160 0.31 8.040
- --------------------------------------------------------------------------------------------------
SUBTOTAL: 17 $132,438,098 21.62% 7.501%
Multifamily
Garden 20 101,091,329 16.50 7.133
- --------------------------------------------------------------------------------------------------
SUBTOTAL: 20 $101,091,329 16.50% 7.133%
Mixed Use
Retail/Hotel/Apartments 1 12,495,090 2.04 8.350
- --------------------------------------------------------------------------------------------------
SUBTOTAL: 1 $ 12,495,090 2.04% 8.350%
Senior Housing
Independent Living 1 9,706,774 1.58 7.190
- --------------------------------------------------------------------------------------------------
SUBTOTAL: 1 $ 9,706,774 1.58% 7.190%
Self Storage Facility 1 2,597,745 0.42 7.810
- --------------------------------------------------------------------------------------------------
SUBTOTAL: 1 $ 2,597,745 0.42% 7.810%
- --------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 129 $612,711,795 100.00% 7.367%
==================================================================================================
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING WEIGHTED AVERAGE AVERAGE
TERM TO AVERAGE CUT-OFF BALLOON
PROPERTY TYPE MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retail
Anchored 122 2.03 59.1 53.4
Specialty Retail 117 1.46 56.9 49.9
Unanchored 117 1.59 66.7 57.1
Shadowed Anchored 116 1.69 63.9 57.2
- --------------------------------------------------------------------------------------------------
SUBTOTAL: 120 1.89X 59.8% 53.6%
Industrial
Warehouse 117 1.42 66.7 55.5
Flex Industrial 117 1.39 68.4 60.1
Light Industrial 118 1.35 68.8 58.8
- --------------------------------------------------------------------------------------------------
SUBTOTAL: 117 1.40X 67.6% 57.4%
Office
Suburban 117 1.34 67.8 59.5
Urban 143 1.73 52.6 43.2
Medical Office 119 1.21 78.8 70.7
- --------------------------------------------------------------------------------------------------
SUBTOTAL: 129 1.52X 60.9% 52.1%
Multifamily
Garden 119 1.62 69.8 60.7
- --------------------------------------------------------------------------------------------------
SUBTOTAL: 119 1.62X 69.8% 60.7%
Mixed Use
Retail/Hotel/Apartments 119 1.73 61.0 55.1
- --------------------------------------------------------------------------------------------------
SUBTOTAL: 119 1.73X 61.0% 55.1%
Senior Housing
Independent Living 116 1.40 77.0 62.5
- --------------------------------------------------------------------------------------------------
SUBTOTAL: 116 1.40X 77.0% 62.5%
Self Storage Facility 119 1.58 68.4 56.3
- --------------------------------------------------------------------------------------------------
SUBTOTAL: 119 1.58X 68.4% 56.3%
- --------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 121 1.63X 64.0% 55.6%
==================================================================================================
</TABLE>
I-3
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
MORTGAGE RATES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT BY WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE
MORTGAGE RATE (%) LOANS BALANCE ($) BALANCE (%) RATE (%)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6.501 to 7.000 28 156,660,975 25.57 6.773
7.001 to 7.500 58 242,891,757 39.64 7.294
7.501 to 8.000 34 158,230,994 25.82 7.735
8.001 to 8.500 7 43,436,239 7.09 8.250
8.501 to 9.000 2 11,491,829 1.88 8.620
- -------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 129 $612,711,795 100.00% 7.367%
=================================================================================================
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING WEIGHTED AVERAGE AVERAGE
TERM TO AVERAGE CUT-OFF BALLOON
MORTGAGE RATE (%) MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6.501 to 7.000 127 2.24 51.9 48.2
7.001 to 7.500 120 1.47 68.3 56.9
7.501 to 8.000 118 1.37 68.9 60.0
8.001 to 8.500 118 1.40 66.0 58.9
8.501 to 9.000 119 1.25 63.8 53.8
- -------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 121 1.63X 64.0% 55.6%
================================================================================================
</TABLE>
Min: 6.510%
Max: 8.620%
Weighted Average Coupon: 7.367%
I-4
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
ORIGINAL TERMS TO STATED MATURITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT BY WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE
ORIGINAL TERM TO STATED MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE
MATURITY (MOS) LOANS BALANCE ($) BALANCE (%) RATE (%)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
120 126 576,169,968 94.04 7.402
180 1 29,706,627 4.85 6.730
240 2 6,835,200 1.12 7.258
- ------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 129 $612,711,795 100.00% 7.367%
=================================================================================================
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING WEIGHTED AVERAGE AVERAGE
ORIGINAL TERM TO STATED TERM TO AVERAGE CUT-OFF BALLOON
MATURITY (MOS) MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
120 117 1.61 65.3 57.6
180 169 2.12 37.1 27.6
240 237 1.30 70.4 2.0
- ------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 121 1.63X 64.0% 55.6%
=================================================================================================
</TABLE>
Min: 120
Max: 240
Weighted Average: 124
I-5
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
REMAINING TERMS TO STATED MATURITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT BY WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE
REMAINING TERM TO STATED MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE
MATURITY (MOS) LOANS BALANCE ($) BALANCE (%) RATE (%)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
61 to 120 126 576,169,968 94.04 7.402
121 to 180 1 29,706,627 4.85 6.730
181 to 240 2 6,835,200 1.12 7.258
- ---------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 129 $612,711,795 100.00% 7.367%
===================================================================================================
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING WEIGHTED AVERAGE AVERAGE
REMAINING TERM TO STATED TERM TO AVERAGE CUT-OFF BALLOON
MATURITY (MOS) MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
61 to 120 117 1.61 65.3 57.6
121 to 180 169 2.12 37.1 27.6
181 to 240 237 1.30 70.4 2.0
- -------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 121 1.63X 64.0% 55.6%
=================================================================================================
</TABLE>
Min: 110
Max: 238
Weighted Average: 121
I-6
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
ORIGINAL AMORTIZATION TERMS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT BY WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE
ORIGINAL AMORTIZATION TERM MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE
(MOS) LOANS BALANCE ($) BALANCE (%) RATE (%)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALLOON LOAN
Interest Only 22 93,182,148 15.21 6.805
180 1 4,121,825 0.67 7.250
216 1 1,523,859 0.25 7.750
240 1 11,915,229 1.94 7.300
276 1 3,146,866 0.51 8.240
300 17 89,524,064 14.61 7.757
360 83 398,473,050 65.03 7.411
372 1 3,989,555 0.65 7.080
- -------------------------------------------------------------------------------------------------
SUBTOTAL: 127 $605,876,595 98.88% 7.369%
FULLY AMORTIZING LOAN
240 2 $6,835,200 1.12% 7.258%
- -------------------------------------------------------------------------------------------------
SUBTOTAL: 2 $6,835,200 1.12% 7.258%
- -------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 129 $612,711,795 100.00% 7.367%
=================================================================================================
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING WEIGHTED AVERAGE AVERAGE
ORIGINAL AMORTIZATION TERM TERM TO AVERAGE CUT-OFF BALLOON
(MOS) MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALLOON LOAN
Interest Only 118 2.49 51.8 51.8
180 114 1.35 57.4 27.5
216 112 1.21 74.3 47.9
240 116 1.39 70.9 49.4
276 119 1.23 74.9 59.5
300 118 1.38 65.9 54.1
360 121 1.51 66.1 58.2
372 116 1.49 62.3 55.4
- -------------------------------------------------------------------------------------------------
SUBTOTAL: 120 1.63X 63.9% 56.2%
FULLY AMORTIZING LOAN
240 237 1.30x 70.4% 2.0%
- -------------------------------------------------------------------------------------------------
SUBTOTAL: 237 1.30X 70.4% 2.0%
- -------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 121 1.63X 64.0% 55.6%
=================================================================================================
</TABLE>
Min: 180
Max: 372
Weighted Average: 343
I-7
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
REMAINING AMORTIZATION TERMS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT BY WEIGHTED
AGGREGATE AGGREGATE AVERAGE
REMAINING AMORTIZATION TERM NUMBER OF CUT-OFF DATE CUT-OFF DATE MORTGAGE RATE
(MOS) MORTGAGE LOANS BALANCE BALANCE (%) (%)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Only 22 93,182,148 15.21 6.805
121 to 180 1 4,121,825 0.67 7.250
181 to 240 4 20,274,288 3.31 7.320
241 to 300 18 92,670,930 15.12 7.773
301 to 360 83 398,473,050 65.03 7.411
361 or greater 1 3,989,555 0.65 7.080
- -------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 129 $612,711,795 100.00% 7.367%
=================================================================================================
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING TERM WEIGHTED AVERAGE AVERAGE
REMAINING AMORTIZATION TERM TO MATURITY AVERAGE DSCR CUT-OFF BALLOON LTV
(MOS) (MOS) (X) DATE LTV (%) (%)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Only 118 2.49 51.8 51.8
121 to 180 114 1.35 57.4 27.5
181 to 240 156 1.34 71.0 33.3
241 to 300 118 1.37 66.2 54.3
301 to 360 121 1.51 66.1 58.2
361 or greater 116 1.49 62.3 55.4
- -------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 121 1.63X 64.0% 55.6%
=================================================================================================
</TABLE>
Min: 174
Max: 368
Weighted Average: 340
I-8
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
DEBT SERVICE COVERAGE RATIOS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT BY WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE
DEBT SERVICE MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE
COVERAGE RATIO (X) LOANS BALANCE ($) BALANCE (%) RATE (%)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1.20 to 1.29 23 123,438,702 20.15 7.773
1.30 to 1.39 25 100,986,869 16.48 7.584
1.40 to 1.49 28 128,337,664 20.95 7.408
1.50 to 1.59 18 66,493,719 10.85 7.399
1.60 to 1.74 8 45,452,635 7.42 7.337
1.75 or greater 27 148,002,207 24.16 6.842
- ------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 129 $612,711,795 100.00% 7.367%
================================================================================================
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING WEIGHTED AVERAGE AVERAGE
DEBT SERVICE TERM TO AVERAGE CUT-OFF BALLOON
COVERAGE RATIO (X) MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1.20 to 1.29 120 1.26 71.9 61.4
1.30 to 1.39 122 1.34 69.5 55.5
1.40 to 1.49 117 1.44 66.8 58.1
1.50 to 1.59 117 1.52 65.4 56.8
1.60 to 1.74 116 1.67 64.7 57.2
1.75 or greater 128 2.33 50.4 47.4
- --------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 121 1.63X 64.0% 55.6%
==================================================================================================
</TABLE>
Min: 1.20x
Max: 2.51x
Weighted Average: 1.63x
I-9
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
CUT-OFF DATE LOAN-TO-VALUE RATIOS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT BY WEIGHTED
CUT-OFF DATE NUMBER OF AGGREGATE AGGREGATE AVERAGE
LOAN-TO-VALUE MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE
RATIO (%) LOANS BALANCE ($) BALANCE (%) RATE (%)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
30.1 to 40.0 1 29,706,627 4.85 6.730
40.1 to 50.0 1 18,008,336 2.94 7.350
50.1 to 60.0 33 158,043,363 25.79 7.099
60.1 to 70.0 37 172,678,126 28.18 7.605
70.1 to 80.0 57 234,275,343 38.24 7.456
- --------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 129 $612,711,795 100.00% 7.367%
==================================================================================================
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
CUT-OFF DATE REMAINING WEIGHTED AVERAGE AVERAGE
LOAN-TO-VALUE TERM TO AVERAGE CUT-OFF BALLOON
RATIO (%) MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
30.1 to 40.0 169 2.12 37.1 27.6
40.1 to 50.0 117 1.48 50.0 43.5
50.1 to 60.0 118 2.14 54.4 50.6
60.1 to 70.0 120 1.46 65.1 55.4
70.1 to 80.0 118 1.36 74.2 63.5
- ----------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 121 1.63X 64.0% 55.6%
================================================================= ============================
</TABLE>
Min: 37.1%
Max: 79.8%
Weighted Average: 64.0%
I-10
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
BALLOON LOAN-TO-VALUE RATIOS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT BY WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE
BALLOON LOAN-TO-VALUE MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE
RATIO (%) LOANS BALANCE ($) BALANCE (%) RATE (%)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0.1 to 10.0 2 6,835,200 1.12 7.258
20.1 to 30.0 2 33,828,452 5.52 6.793
40.1 to 50.0 10 70,771,558 11.55 7.524
50.1 to 60.0 55 259,197,564 42.30 7.332
60.1 to 70.0 56 228,704,844 37.33 7.436
70.0 to 80.0 4 13,374,177 2.18 7.556
- -------------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 129 $612,711,795 100.00% 7.367%
=================================================================================================
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING WEIGHTED AVERAGE AVERAGE
BALLOON LOAN-TO-VALUE TERM TO AVERAGE CUT-OFF BALLOON
RATIO (%) MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0.1 to 10.0 237 1.30 70.4 2.0
20.1 to 30.0 162 2.03 39.6 27.6
40.1 to 50.0 117 1.46 58.6 47.4
50.1 to 60.0 118 1.86 59.5 54.2
60.1 to 70.0 117 1.38 73.3 64.5
70.0 to 80.0 116 1.29 79.6 70.7
- -----------------------------------------------------------------------------------------------
TOTAL OR WEIGHTED AVERAGE: 121 1.63X 64.0% 55.6%
===============================================================================================
</TABLE>
Min: 0.6%
Max: 71.4%
Weighted Average: 55.6%
I-11
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
PREPAYMENT RESTRICTION ANALYSIS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PREPAYMENT RESTRICTION AUG 99 AUG 00 AUG 01 AUG 02 AUG 03 AUG 04
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Locked Out/Defeasance 100.00% 100.00% 98.79% 98.79% 94.11% 72.88%
Yield Maintenance 0.00% 0.00% 1.21% 1.21% 5.89% 27.12%
Penalty Points
5.00% and greater 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
4.00% to 4.99% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
3.00% to 3.99% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2.00% to 2.99% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1.00% to 1.99% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Open 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTALS 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
===================================================================================================================================
Mortgage Pool Balance Outstanding
(in millions) $612,711,795 $601,864,472 $595,752,707 $607,534,610 $589,164,778 $582,121,162
% of Initial Pool Balance 100.00% 99.16% 98.23% 97.23% 96.16% 95.01%
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PREPAYMENT RESTRICTION AUG 05 AUG 06 AUG 07 AUG 08 AUG 09
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Locked Out/Defeasance 68.12% 68.13% 68.14% 66.64% 15.55%
Yield Maintenance 31.88% 31.87% 31.86% 27.84% 84.45%
Penalty Points
5.00% and greater 0.00% 0.00% 0.00% 0.00% 0.00%
4.00% to 4.99% 0.00% 0.00% 0.00% 0.00% 0.00%
3.00% to 3.99% 0.00% 0.00% 0.00% 0.00% 0.00%
2.00% to 2.99% 0.00% 0.00% 0.00% 0.00% 0.00%
1.00% to 1.99% 0.00% 0.00% 0.00% 0.00% 0.00%
Open 0.00% 0.00% 0.00% 5.53% 0.00%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTALS 100.00% 100.00% 100.00% 100.00% 100.00%
===================================================================================================================================
Mortgage Pool Balance Outstanding
(in millions) $574,382,925 $566,041,542 $557,049,812 $547,438,727 $29,607,039
% of Initial Pool Balance 93.74% 92.38% 90.92% 89.35% 4.83%
</TABLE>
Notes: (1) The above analysis is based on Maturity Assumptions and a 0% CPR as
discussed in the Prospectus Supplement.
(2) One loan with a balance of $4,403,461 provides, upon satisfaction of
certain conditions, for a partial release of a parcel from the lien
to be accompanied by a paydown of the loan of approximately
$1,100,000 to be accompanied by a yield maintenance premium.
(3) One loan with a balance of $1,729,931 provides, upon satisfaction of
certain conditions, for a partial release of two parcels from the
lien to be accompanied by a paydown of the loan of approximately
$550,000 to be accompanied by a yield maintenance premium.
(4) Twenty-nine loans with an aggregate principal balance of
$134,467,325 are structured with a performance holdback, or letter
of credit ("LOC") subject to achievement of certain release
conditions. If release conditions are not met, there will be partial
prepayments of said mortgage loans to be accompanied by
a yield maintenance premium. The aggregate amount of the partial
prepayments is $5,604,482.
(5) See footnote 14 in Appendix II for a description of the Yield
Maintenance.
I-12
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
LOAN INFORMATION
<TABLE>
<CAPTION>
AGGREGATE
LOAN RELATED BORROWER CUT-OFF
NO. SELLER(1) PROPERTY NAME(2) LOAN NUMBERS DATE BALANCE(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 MSMC Heritage Park (I) (A) 2-21 $8,048,394
2 MSMC Oakwood Square (I) (A) 1, 3-21 $7,297,001
3 MSMC Towne Crossings (I) (A) 1-2, 4-21 $6,548,222
4 MSMC Crofton Station (I) (A) 1-3, 5-20 $5,642,731
5 MSMC Village Court (I) (A) 1-4, 6-21 $3,206,994
6 MSMC The Marketplace at Ocala (I) (A) 1-5, 7-21 $3,114,231
7 MSMC University Center (I) (A) 1-6, 8-21 $1,852,724
8 MSMC Litchfield Landing (I) (A) 1-7, 9-21 $1,837,686
9 MSMC Robbins Towne Centre (I) (A) 1-8, 10-21 $1,692,218
10 MSMC First Street Station (I) (A) 1-9, 11-21 $1,641,797
11 MSMC Taylorsville (I) (A) 1-10, 12-21 $1,461,664
12 MSMC Lake Montclair Centre (II) (A) 1-11, 13-21 $6,914,560
13 MSMC Centre at Riverchase (II) (A) 1-12, 14-21 $5,410,901
14 MSMC The Corridors at Ponte Vedra (II) (A) 1-13, 15-21 $5,326,925
15 MSMC Shannon Crossing (II) (A) 1-14, 16-21 $5,300,598
16 MSMC Mandarin Oaks (II) (A) 1-15, 17-21 $4,836,743
17 MSMC Seven Hills Plaza (II) (A) 1-16, 18-21 $4,191,277
18 MSMC Barclay Square (II) (A) 1-17, 19-21 $2,942,718
19 MSMC Shoppes at Cloverplace (II) (A) 1-18, 20-21 $2,631,822
20 MSMC Hillview Plaza (II) (A) 1-19, 21 $1,676,710
21 MSMC River Bend (II) (A) 1-20 $1,606,232
22 JHREF Plaza Madison $29,706,627
23 JHREF Fontana Plaza (III) 24-25 $8,063,605
24 JHREF Foothill Plaza (III) 23, 25 $5,301,074
25 JHREF Plaza East (III) 23-24 $5,301,074
26 PCF Del Mar Plaza Shopping Center $18,008,336
27 PCF 609 Greenwich Street (7) $13,986,928
28 PCF The Office Center at Ramsey (7) $13,968,884
29 JHREF Peddler's Village $12,495,090
30 PCF Pine Ridge Apartments of Durham $11,980,455
31 JHREF DM Management $11,915,229
32 PCF Fridley Plus Property (B) 33, 37, 56 $6,594,394
33 PCF Plymouth Plus Property (B) (7) 32, 37, 56 $5,095,668
34 JHREF Plaza Building A of the Vienna Technology Park $11,156,935
35 JHREF DCT Industrial Buildings (IV) 36 $6,205,588
36 JHREF Noble International Industrial Building (IV) 35 $5,286,241
37 PCF Bloomington Distribution Center & StationStore (7) 32-33, 56 $10,131,388
38 PCF Indian Ridge Apartments $10,051,719
39 JHREF Parke Towne North Apts. $10,000,000
40 JHREF The Landings Apartments $10,000,000
41 PCF 849-909 Newark-Jersey City Turnpike $9,840,000
42 PCF Lucien Pointe $9,974,352
43 JHREF Point Defiance Village $9,706,774
44 PCF Brooklyn Heights Business Center $8,195,695
45 PCF Scottsdale Apartments $8,152,816
46 PCF Parkway Pavilion $7,979,637
47 PCF Lee's Hill Office (V) 48-49 $4,403,461
48 PCF Jackson Square Business Park (V) 47, 49 $1,729,931
49 PCF Shop's at Lee's Hill (V) 47-48 $1,258,132
50 JHREF Casa Grande Apartments $7,952,836
51 PCF Monticello Village (VI) (7) 52-54 $3,431,990
52 PCF Monticello Townhouses (VI) (7) 51, 53-54 $1,982,928
53 PCF Logan Way (VI) (7) 51-52, 54 $1,067,730
54 PCF Essex House (VI) (7) 51-53 $838,931
55 JHREF 110 Leroy Street $6,742,154
56 PCF Holiday Companies Headquarters (7) 32-33, 37 $6,654,344
57 PCF 2495 Boulevard Of The Generals (C) (7) 58-59, 84-86, 98-102, 111-112 $2,969,032
58 PCF 160 Rittenhouse Circle (C) 57, 59, 84-86, 98-102, 111-112 $2,122,556
59 PCF 603 General Washington Avenue (C) 57-58, 84-86, 98-102, 111-112 $1,467,625
60 PCF 4330-40 South Valley View Blvd. (VII) 61-62 $4,336,026
61 PCF 4325 West Tropicana Ave. (VII) 60, 62 $1,175,872
62 PCF 4333 West Tropicana Ave. (VII) 60-61 $720,221
63 JHREF 1275 Commerce Boulevard $5,979,612
64 PCF 1233-1259 Reamwood Ave. (7) $5,869,089
65 PCF 6285 Lookout Road $5,696,907
66 JHREF Encino Garden Court $5,693,331
67 JHREF Meadow Creek Village Shopping Center (VIII) (7) 68 $3,301,651
68 JHREF Woodlake Village Shopping Center (VIII) (7) 67 $2,381,054
69 JHREF Renaissance Plaza $5,593,636
70 PCF Northvale Industrial $5,492,037
71 PCF Diamondback Building (7) 79 $5,489,563
72 PCF Haywood Plaza Shopping Center (7) $5,277,096
73 PCF Ultimate Software Group Office Building $5,122,500
74 PCF Belz Factory Outlet Mall (7) $5,095,303
75 PCF 200 Forest Drive (7) $5,081,904
76 JHREF Merrill Ridge Plaza $4,994,135
77 JHREF Corporate Center II (IX) 78 $2,228,665
78 JHREF Corporate Center III (IX) 77 $2,669,524
79 PCF CCL Industries 71 $4,868,645
80 PCF Terrace Gardens Apartments $4,594,461
81 JHREF Bayshore Village Apartments $4,472,544
82 PCF Highland Ridge Apartments (7) 97 $4,468,393
83 JHREF Kings Hill Industrial Center $4,294,604
84 PCF 219 Rittenhouse Circle (D) 57-59, 85-86, 98-102, 111-112 $1,624,373
85 PCF 171 Rittenhouse Circle (D) 57-59, 84, 86, 98-102, 111-112 $1,338,157
86 PCF 4303 Lewis Road (D) 57-59, 84-85, 98-102, 111-112 $1,300,985
87 PCF Citrus Village Shopping Center $4,186,698
88 PCF Wagner Industries $4,121,825
89 PCF North Hill Centre $4,095,262
90 PCF Ocotillo Fiesta $4,026,560
91 PCF 7 Holland $3,989,555
92 PCF Oak Run Apartments $3,986,651
93 PCF 15800 NW 13th Ave (7) $3,795,121
94 PCF Rite Aid $3,748,038
95 PCF Eastgate Village Shopping Center (7) $3,734,407
96 PCF Normandy Manor Apartments (7) $3,694,117
97 PCF Highland Creste Apartments (7) 82 $3,640,780
98 PCF 2325 Maryland Road (E) (7) 57-59, 84-86, 99-102, 111-112 $2,279,798
99 PCF 701 Willowbrook Lane (E) 57-59, 84-86, 98, 100-102, 111-112 $1,278,433
100 PCF 2524 Ford Road (F) 57-59, 84-86, 98-99, 101-102, 111-112 $1,449,830
101 PCF 2554 Ford Road (F) 57-59, 84-86, 98-100, 102, 111-112 $1,190,965
102 PCF 247 Rittenhouse Circle (F) 57-59, 84-86, 98-101, 111-112 $723,203
103 PCF Marina View $3,297,295
104 PCF Riverview Village Shopping Center (7) $3,295,730
105 PCF American Plaza Shopping Center (7) $3,284,317
106 JHREF Festivals Office Park $3,272,217
107 PCF CCAi Renaissance Centre $3,146,866
108 PCF Ten Parkway Plaza 126 $3,139,997
109 PCF Mountain Ridge Business Park $3,098,301
110 PCF 4296 Albany Street (7) $3,041,998
111 PCF 130 Wharton Road (G) 57-59, 84-86, 98-102, 112 $1,644,942
112 PCF 2564 Boulevard Of The Generals (G) 57-59, 84-86, 98-102, 111 $1,368,203
113 PCF 910 Orlando Avenue (7) $2,993,763
114 JHREF Nypro Building $2,991,686
115 PCF The Weston Road Shoppes (7) $2,875,679
116 PCF Central Jersey Office and Industrial Park (7) $2,840,578
117 PCF Hampton Meadows Apartments $2,739,938
118 JHREF Jackson Street Mini Storage $2,597,745
119 PCF Federal Express Warehouse $2,438,481
120 PCF Shaker Heights Apartments $2,436,631
121 PCF Foothills Park Plaza $2,319,052
122 PCF Wampus Avenue Apts. $2,301,112
123 PCF 6 Corporate Drive $2,241,204
124 PCF Northlake Promenade $2,097,297
125 PCF Paddington Station Shopping Center $2,093,448
126 PCF Clarke American Building 108 $2,044,940
127 PCF Pembrooke Medical Office (7) $1,899,160
128 PCF Dobbs Plaza $1,683,520
129 JHREF Main Steel $1,523,859
TOTALS/WEIGHTED AVERAGES: $612,711,795
<PAGE>
<CAPTION>
ORIGINAL REM. ORIGINAL
CUT-OFF TERM TO TERM TO AMORT. BALLOON
LOAN DATE BALANCE/ MORTGAGE NOTE MATURITY MATURITY MATURITY TERM LOAN BALLOON SECURITY
NO. UNIT OR SF(4) RATE DATE DATE (MOS) (MOS) (MOS)(5) BALANCE LTV(4) TYPE(6)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $8,048,394 51.3% Fee
2 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $7,297,001 51.3% Fee
3 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $6,548,222 51.3% Fee
4 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $5,642,731 51.3% Fee
5 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $3,206,994 51.3% Fee
6 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $3,114,231 51.3% Fee
7 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $1,852,724 51.3% Fee
8 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $1,837,686 51.3% Fee
9 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $1,692,218 51.3% Fee
10 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $1,641,797 51.3% Fee
11 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $1,461,664 51.3% Fee
12 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $6,914,560 51.3% Fee
13 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $5,410,901 51.3% Fee
14 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $5,326,925 51.3% Fee
15 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $5,300,598 51.3% Fee
16 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $4,836,743 51.3% Fee
17 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $4,191,277 51.3% Fee
18 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $2,942,718 51.3% Fee
19 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $2,631,822 51.3% Fee
20 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $1,676,710 51.3% Fee
21 $51 6.800% 06/21/1999 07/01/2009 120 119 N/A $1,606,232 51.3% Fee
22 $141 6.730% 08/28/1998 09/01/2013 180 169 360 $22,041,661 27.6% Fee
23 $59 7.480% 04/22/1999 05/01/2009 120 117 360 $7,148,335 64.5% Fee
24 $59 7.480% 04/23/1999 05/01/2009 120 117 360 $4,699,429 64.5% Fee
25 $59 7.480% 04/24/1999 05/01/2009 120 117 360 $4,699,429 64.5% Fee
26 $240 7.350% 04/22/1999 05/01/2009 120 117 360 $15,642,843 43.5% Fee
27 $93 7.490% 06/15/1999 07/01/2009 120 119 300 $11,405,640 53.8% Fee
28 $100 7.540% 04/19/1999 05/01/2009 120 117 360 $12,183,701 62.5% Fee
29 $55 8.350% 06/21/1999 07/01/2009 120 119 360 $11,293,240 55.1% Fee
30 $36,086 6.510% 05/26/1999 06/01/2009 120 118 360 $10,347,277 56.9% Fee
31 $29 7.300% 03/01/1999 04/01/2009 120 116 240 $8,303,535 49.4% Fee
32 $40 7.900% 06/10/1999 07/01/2009 120 119 300 $5,441,851 49.5% Fee
33 $40 7.900% 06/10/1999 07/01/2009 120 119 300 $4,205,034 49.5% Fee
34 $103 8.040% 01/15/1999 02/01/2009 120 114 360 $10,036,416 58.4% Fee
35 $24 8.620% 06/11/1999 07/01/2009 120 119 300 $5,224,812 53.8% Fee
36 $24 8.620% 06/11/1999 07/01/2009 120 119 300 $4,450,766 53.8% Fee
37 $22 7.900% 06/10/1999 07/01/2009 120 119 300 $8,360,753 49.5% Fee
38 $54,629 7.160% 03/30/1999 04/05/2009 120 116 360 $8,844,351 69.6% Fee
39 $20,243 7.170% 03/25/1999 04/01/2009 120 116 360 $9,499,942 56.6% Fee
40 $24,038 6.850% 09/23/1998 10/01/2008 120 110 N/A $10,000,000 55.6% Fee
41 $26 8.280% 07/06/1999 08/01/2009 120 120 360 $8,871,999 57.2% Fee
42 $112 7.520% 03/26/1999 04/01/2009 120 116 360 $8,854,607 61.1% Fee
43 $62,223 7.190% 03/29/1999 04/01/2009 120 116 300 $7,869,319 62.5% Fee
44 $61 7.550% 06/04/1999 07/01/2009 120 119 360 $7,268,429 65.5% Fee
45 $18,656 6.750% 12/04/1998 01/01/2009 120 113 360 $7,115,091 56.5% Fee
46 $180 7.550% 03/10/1999 04/01/2009 120 116 360 $7,088,964 64.4% Fee
47 $66 7.930% 05/18/1999 06/01/2009 120 118 360 $3,942,583 56.3% Fee
48 $66 7.930% 05/18/1999 06/01/2009 120 118 360 $1,548,872 56.3% Fee
49 $66 7.930% 05/18/1999 06/01/2009 120 118 360 $1,126,452 56.3% Fee
50 $35,504 7.150% 11/23/1998 12/01/2008 120 112 360 $7,017,476 62.1% Fee
51 $33,280 7.890% 06/15/1999 07/01/2009 120 119 360 $3,068,883 68.2% Fee
52 $33,280 7.890% 06/15/1999 07/01/2009 120 119 360 $1,773,132 68.2% Fee
53 $33,280 7.890% 06/15/1999 07/01/2009 120 119 360 $954,764 68.2% Fee
54 $33,280 7.890% 06/15/1999 07/01/2009 120 119 360 $750,171 68.2% Fee
55 $81 7.875% 05/27/1999 06/01/2009 120 118 360 $6,028,680 57.4% Fee
56 $70 7.900% 06/10/1999 07/01/2009 120 119 300 $5,491,345 49.5% Fee
57 $40 7.090% 04/14/1999 05/01/2009 120 117 360 $2,606,465 60.5% Fee
58 $40 7.090% 04/14/1999 05/01/2009 120 117 360 $1,863,357 60.5% Fee
59 $40 7.090% 04/14/1999 05/01/2009 120 117 360 $1,288,403 60.5% Fee
60 $67 7.080% 03/17/1999 04/01/2009 120 116 360 $3,807,502 64.5% Fee
61 $67 7.080% 03/17/1999 04/01/2009 120 116 360 $1,032,543 64.5% Fee
62 $67 7.080% 03/17/1999 04/01/2009 120 116 360 $632,433 64.5% Fee
63 $30 7.180% 02/25/1999 03/01/2009 120 115 360 $5,259,920 65.2% Fee
64 $62 6.750% 01/26/1999 02/01/2009 120 114 360 $5,042,661 44.6% Fee
65 $71 7.450% 06/15/1999 07/01/2009 120 119 360 $5,039,840 53.6% Fee
66 $85 7.850% 05/10/1999 06/01/2009 120 118 360 $5,087,833 62.8% Fee
67 $42 7.480% 03/30/1999 05/01/2009 120 117 300 $2,697,316 58.4% Fee
68 $42 7.480% 03/30/1999 05/01/2009 120 117 300 $1,945,258 58.4% Fee
69 $67 7.960% 05/18/1999 06/01/2009 120 118 360 $5,011,719 62.7% Fee
70 $26 7.640% 05/25/1999 06/01/2009 120 118 360 $4,796,780 62.4% Fee
71 $41 7.350% 04/16/1999 05/01/2009 120 117 360 $4,850,889 64.7% Fee
72 $57 7.500% 01/07/1999 02/01/2009 120 114 360 $4,688,020 51.5% Fee
73 $133 7.790% 07/15/1999 08/01/2009 120 120 360 $4,565,595 66.8% Fee
74 $99 7.550% 06/16/1999 07/01/2009 120 119 300 $4,162,327 57.0% Fee
75 $37 7.010% 02/23/1999 03/01/2009 120 115 360 $4,460,596 61.1% Fee
76 $44 7.840% 05/27/1999 06/01/2009 120 118 360 $4,461,938 67.6% Fee
77 $53 8.500% 06/22/1999 07/01/2009 120 119 360 $2,019,111 68.3% Fee
78 $53 8.500% 06/22/1999 07/01/2009 120 119 360 $2,419,565 68.3% Fee
79 $46 7.430% 05/27/1999 06/01/2009 120 118 360 $4,306,789 67.3% Fee
80 $25,525 7.740% 05/28/1999 06/01/2009 120 118 360 $4,095,075 65.5% Fee
81 $29,425 7.000% 11/25/1998 12/01/2008 120 112 360 $3,931,939 65.5% Fee
82 $41,374 7.480% 03/26/1999 04/01/2009 120 116 360 $3,962,910 70.8% Fee
83 $25 7.580% 05/11/1999 06/01/2009 120 118 360 $3,813,027 54.5% Fee
84 $39 7.090% 04/14/1999 05/01/2009 120 117 360 $1,426,012 63.6% Fee
85 $39 7.090% 04/14/1999 05/01/2009 120 117 360 $1,174,746 63.6% Fee
86 $39 7.090% 04/14/1999 05/01/2009 120 117 360 $1,142,114 63.6% Fee
87 $146 7.450% 02/08/1999 03/05/2009 120 115 360 $3,715,324 66.3% Fee
88 $17 7.250% 01/13/1999 02/01/2009 120 114 180 $1,975,387 27.5% Fee
89 $61 7.150% 03/25/1999 04/01/2019 240 236 240 $173,565 2.9% Fee
90 $98 7.230% 11/30/1998 12/01/2008 120 112 360 $3,553,793 50.8% Fee
91 $48 7.080% 03/09/1999 04/05/2009 120 116 372 $3,545,123 55.4% Fee
92 $27,685 7.250% 01/22/1999 03/01/2009 120 115 360 $3,520,441 67.7% Fee
93 $18 7.490% 05/25/1999 06/01/2009 120 118 360 $3,362,132 51.3% Fee
94 $224 7.560% 06/04/1999 07/01/2009 120 119 360 $3,324,804 67.9% Fee
95 $61 7.100% 10/13/1998 11/05/2008 120 111 360 $3,292,920 70.1% Fee
96 $25,654 7.170% 05/20/1999 06/01/2009 120 118 360 $3,193,599 66.5% Fee
97 $30,340 7.580% 03/26/1999 04/01/2009 120 116 360 $3,236,744 67.4% Fee
98 $54 7.090% 04/14/1999 05/01/2009 120 117 360 $2,001,398 60.1% Fee
99 $54 7.090% 04/14/1999 05/01/2009 120 117 360 $1,122,315 60.1% Fee
100 $31 7.090% 04/14/1999 05/01/2009 120 117 360 $1,272,781 57.7% Fee
101 $31 7.090% 04/14/1999 05/01/2009 120 117 360 $1,045,529 57.7% Fee
102 $31 7.090% 04/14/1999 05/01/2009 120 117 360 $634,887 57.7% Fee
103 $41,216 7.000% 06/09/1999 07/01/2009 120 119 360 $2,837,210 64.6% Fee
104 $45 7.460% 05/17/1999 06/01/2009 120 118 360 $2,917,559 47.6% Fee
105 $43 7.050% 01/20/1999 02/01/2009 120 114 360 $2,885,795 64.5% Fee
106 $111 7.900% 05/14/1999 06/01/2009 120 118 360 $2,927,668 71.4% Fee
107 $114 8.240% 06/15/1999 07/01/2009 120 119 276 $2,499,045 59.5% Fee
108 $57 7.440% 02/09/1999 03/01/2009 120 115 360 $2,785,792 55.7% Fee
109 $44 7.420% 06/04/1999 07/01/2009 120 119 360 $2,738,897 65.2% Fee
110 $25 7.430% 03/30/1999 04/01/2009 120 116 360 $2,694,589 65.7% Fee
111 $34 7.090% 04/14/1999 05/01/2009 120 117 360 $1,444,068 61.9% Fee
112 $34 7.090% 04/14/1999 05/01/2009 120 117 360 $1,201,124 61.9% Fee
113 $20 7.500% 05/20/1999 06/01/2009 120 118 300 $2,443,923 50.9% Fee
114 $38 7.210% 03/22/1999 04/01/2009 120 116 360 $2,635,641 65.9% Fee
115 $140 7.840% 03/05/1999 04/01/2009 120 116 300 $2,375,510 61.7% Fee
116 $32 7.750% 04/07/1999 05/01/2009 120 117 300 $2,293,702 53.3% Fee
117 $38,055 7.420% 05/17/1999 06/01/2019 240 238 240 $21,882 0.6% Fee
118 $44 7.810% 06/08/1999 07/01/2009 120 119 300 $2,138,224 56.3% Fee
119 $26 7.660% 12/16/1998 01/01/2009 120 113 360 $2,176,015 54.4% Fee
120 $40,611 7.200% 05/10/1999 06/01/2009 120 118 360 $2,139,766 64.8% Fee
121 $115 7.530% 03/16/1999 04/01/2009 120 116 360 $2,059,209 63.4% Fee
122 $47,940 7.380% 02/09/1999 03/01/2009 120 115 360 $2,003,273 57.2% Fee
123 $42 7.300% 02/24/1999 03/05/2009 120 115 360 $1,947,763 64.9% Fee
124 $83 7.480% 05/20/1999 06/01/2009 120 118 360 $1,857,557 55.0% Fee
125 $104 7.340% 04/01/1999 05/01/2009 120 117 300 $1,703,233 60.8% Fee
126 $54 7.670% 03/18/1999 04/01/2009 120 116 360 $1,821,927 60.7% Fee
127 $67 8.040% 06/04/1999 07/01/2009 120 119 360 $1,704,257 70.7% Fee
128 $53 7.250% 11/16/1998 12/01/2008 120 112 300 $1,350,194 48.2% Fee
129 $19 7.750% 11/25/1998 12/01/2008 120 112 216 $981,167 47.9% Fee
TOTALS/WEIGHTED AVERAGES: 7.367% 124 121 343 55.6%
<PAGE>
<CAPTION>
LOAN PROPERTY
NO. ADDRESS CITY STATE ZIP CODE TYPE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 406 North Main Street East Longmeadow MA 01028 Retail
2 320 - 400 North Congress Avenue Boynton Beach FL 33426 Retail
3 11607 Midlothian Turnpike Richmond VA 23236 Retail
4 1149-1163 Route 3 North Gambrillis MD 21054 Retail
5 4119 Boonesboro Road Lynchburg VA 24503 Retail
6 NWC of US 27 & 44th Street Ocala FL 34482 Retail
7 1400 Charles Boulevard Greenville NC 27590 Retail
8 Lakeshore Drive & Boyle Road Pawleys Island SC 29585 Retail
9 West Side Old Plank Road Robbins NC 27325 Retail
10 803 - 819 North First Street Albermarle NC 28001 Retail
11 564 3rd Street SW Taylorsville NC 28631 Retail
12 5061-5074 Waterway Drive Lake Montclair VA 22026 Retail
13 1694 Montgomery Highway Hoover AL 35216 Retail
14 840 Ponce De Leon Boulevard Ponte Vedra FL 32082 Retail
15 4550 Jonesboro Road Union City GA 30291 Retail
16 11406 San Jose Boulevard Jacksonville FL 32223 Retail
17 11146-11234 Spring Hill Drive Spring Hills FL 34609 Retail
18 13819 Walsingham Road Largo FL 33544 Retail
19 3205-3351 State Route 584 Palm Harbor FL 34684 Retail
20 776 Wade Hampton Boulevard Greer SC 29561 Retail
21 315-337 West Thacker Road Covington VA 24426 Retail
22 655 Madison Avenue New York NY 10021 Office
23 9800-9880 Sierra Avenue Fontana CA 92335 Retail
24 16910-16990 Foothill Blvd. Fontana CA 92335 Retail
25 9765-9880 Sierra Avenue Fontana CA 92335 Retail
26 1555 Camino Del Mar Del Mar CA 92014 Retail
27 609 Greenwich Street New York NY 10014 Office
28 500 Franklin Turnpike Ramsey NJ 07446 Office
29 Routes 202 & 263 Lahaska PA 18931 Mixed Use
30 6001 Fayetteville Road Durham NC 27713 Multifamily
31 100 Birch Pond Drive Tilton NH 03276 Industrial
32 246 - 57th Ave. NE Fridley MN 55432 Retail
33 4445 Nathan Lane Plymouth MN 55442 Retail
34 1041 Electric Avenue Vienna VA 22180 Office
35 21555 and 21601 Mullin Avenue Warren MI 48089 Industrial
36 20101 Hoover Road Detroit MI 48205 Industrial
37 5501& 5401 W. Old Shakopee Road Bloomington MN 55437 Industrial
38 9353 W. Twain Ave. Las Vegas NV 89117 Multifamily
39 1432 North Cliff Valley Way Atlanta GA 30319 Multifamily
40 800 Falcon Drive Absecon NJ 08201 Multifamily
41 849-909 Newark-Jersey City Turnpike Kearny NJ 07032 Industrial
42 258 Southhall Lane Maitland FL 32751 Office
43 6414 North Park Way Tacoma WA 98407 Senior Housing
44 950 Keynote Circle & 1100 Resource Dr. & 1200 Resource Dr. Cleveland OH 44131 Industrial
45 4000 S. Redwood Road West Valley City UT 84119 Multifamily
46 2901 Parkway Blvd Kissimmee FL 34747 Retail
47 10700-09 Spotsylvania Ave. & 4505-4821 Carr Drive Fredricksburg VA 22408 Office
48 4300-4500 & 4700 Carr Drive Fredricksburg VA 22408 Industrial
49 10651-10673 Spotsylvania Avenue Fredricksburg VA 22408 Retail
50 501-525 North Fourth Street Montebello CA 90640 Multifamily
51 4116 Monticello Boulevard Youngstown OH 44505 Multifamily
52 Jefferson Court, Monticello Blvd., Madison Road Youngstown OH 44505 Multifamily
53 4000A-4150 Logangate Road & 4510-4530 Logan Way Youngstown OH 44505 Multifamily
54 4000 Logangate Road Youngstown OH 44505 Multifamily
55 110 Leroy Street New York NY 10014 Office
56 4567 W. 80th Street Bloomington MN 55437 Office
57 2495 Boulevard Of The Generals W. Norriton Township PA 19404 Industrial
58 160 Rittenhouse Circle Bristol Township PA 19007 Industrial
59 603 General Washington Avenue W. Norriton Township PA 19403 Industrial
60 4330-40 South Valley View Blvd. Las Vegas NV 89118 Industrial
61 4325 West Tropicana Ave. Las Vegas NV 89118 Industrial
62 4333 West Tropicana Ave. Las Vegas NV 89118 Industrial
63 1275 Commerce Blvd. American Canyon CA 94589 Industrial
64 1233-1259 Reamwood, 1240 Elko Dr., 1257 Tasman Dr. Sunnyvale CA 94089 Industrial
65 6285 Lookout Road Boulder CO 80301 Office
66 17327 Ventura Boulevard Encino CA 91316 Office
67 809-997 W. Centerville Road Garland TX 75043 Retail
68 3065 N. Josey Lane Carrollton TX 75007 Retail
69 4351 West College Avenue Appleton WI 54914 Office
70 275 Union Street Northvale NJ 07647 Industrial
71 300 Camarillo Ranch Road Camarillo CA 93012 Industrial
72 30 Orchard Park Drive Greenville SC 29615 Retail
73 1620 Town Center Circle Weston FL 33326 Office
74 7680 Las Vegas Blvd. South Las Vegas NV 89123 Retail
75 200 Forest Drive East Hills NY 11548 Industrial
76 3400 East Main Street Merrill WI 54452 Retail
77 700 Broadhollow Rd. Farmingdale NY 11735 Industrial
78 700 Sea Lane Farmingdale NY 11735 Industrial
79 4000 Westinghouse Bl Charlotte NC 28273 Industrial
80 7100 Hooker Street Westminster CO 80030 Multifamily
81 2101 Lakeview Circle Lewisville TX 75057 Multifamily
82 1899 Mulkey Road Austell GA 30060 Multifamily
83 701-751 Kingshill Place & 16830 Avalon Boulevard Carson CA 90746 Industrial
84 219 Rittenhouse Circle Bristol Township PA 19007 Industrial
85 171 Rittenhouse Circle Bristol Township PA 19007 Industrial
86 4303 Lewis Road Swatara Township PA 17111 Industrial
87 1140-1280 East Ontario Avenue Corona CA 91719 Retail
88 1601, 1705, 1731 St. Louis Avenue Kansas City MO 64101 Industrial
89 Clemson Blvd @ Beltline Blvd Anderson SC 29625 Retail
90 3065, 3125, & 3165 S. Alma School Road Chandler AZ 85248 Retail
91 7 Holland Irvine CA 92618 Industrial
92 7878 N. Main Street Jonesboro GA 30236 Multifamily
93 15800 NW 13th Ave North Miami Beach FL 33161 Industrial
94 1331 South Mission Road Fallbrook CA 92028 Retail
95 5000 Old Spartanburg Rd Greenville SC 29687 Retail
96 5782 Andrews Road Mentor-on-the-Lake OH 44060 Multifamily
97 2001 Godby Road College Park GA 30349 Multifamily
98 2325 Maryland Road Moreland Township PA 19090 Office
99 701 Willow Brook Lane West Goshen Township PA 19380 Industrial
100 2524 Ford Road Bristol Township PA 19007 Industrial
101 2554 Ford Road Bristol Township PA 19007 Industrial
102 247 Rittenhouse Circle Bristol Township PA 19007 Industrial
103 1101 N. Camino Alto Vallejo CA 94590 Multifamily
104 3300 Cobb (US Hwy. 41) Atlanta GA 30339 Retail
105 1500 W. Vine Street Kissimmee FL 34741 Retail
106 4170 S. Decatur Blvd. Las Vegas NV 89103 Office
107 5800 Landerbrook Dr. Mayfield Heights OH 44124 Office
108 5146 Parkway Plaza Blvd Charlotte NC 28217 Office
109 1258 Sussex Turnpike Randolph NJ 07869 Industrial
110 4296 Albany Street Colonie NY 12205 Industrial
111 130 Wharton Road Bristol Township PA 19007 Industrial
112 2564 Boulevard Of The Generals W. Norriton Township PA 19403 Industrial
113 910 Orlando Avenue West Hempstead NY 11552 Industrial
114 505 Otay Valley Road Chula Vista CA 91911 Industrial
115 100-150 Weston Road Sunrise FL 33326 Retail
116 111 Jocama Blvd. & 322 Spring Valley Road Old Bridge NJ 08857 Industrial
117 2000 Hampton Meadows Lane Cramerton NC 28032 Multifamily
118 77 Traynor Street Hayward CA 94544 Self Storage
119 5601 Mark IV Parkway Ft. Worth TX 76131 Industrial
120 276 Old Loudon Road Colonie NY 12110 Multifamily
121 SW Corner of Chandler & Desert Foothills Phoenix AZ 85048 Retail
122 10-16 Wampus Ave Acton MA 01720 Multifamily
123 6 Corporate Drive Cranbury NJ 08512 Industrial
124 4805 Briarcliff Road Atlanta GA 30345 Retail
125 New Hope Church Rd. & Craftman Drive Raleigh NC 27609 Retail
126 9711 David Taylor Dr Charlotte NC 28213 Industrial
127 1950 86th Street Indianapolis IN 46260 Office
128 2909-2917 S. Dobson Rd Mesa AZ 85202 Retail
129 571 South Wheeling Road Wheeling IL 60090 Industrial
<PAGE>
LOAN PROPERTY YEAR YEAR
NO. SUB-TYPE UNITS/NSF BUILT RENOVATED
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Anchored 116,840 1970 1995
2 Anchored 178,033 1987 N/A
3 Anchored 104,023 1978 1998
4 Anchored 81,398 1983 1992
5 Anchored 76,280 1986 1997
6 Anchored 71,620 1998 N/A
7 Anchored 56,180 1989 N/A
8 Anchored 42,201 1984 N/A
9 Anchored 42,577 1998 N/A
10 Anchored 52,230 1989 N/A
11 Anchored 48,537 1988 1991
12 Anchored 101,292 1998 N/A
13 Anchored 133,198 1986 N/A
14 Anchored 55,226 1999 N/A
15 Anchored 101,046 1980 1998
16 Anchored 56,700 1998 N/A
17 Anchored 87,191 1989 N/A
18 Anchored 98,323 1988 N/A
19 Unanchored 54,163 1986 N/A
20 Shadow Anchored 33,000 1998 N/A
21 Shadow Anchored 32,020 1998 N/A
22 Urban Office 210,793 1951 1997/1998
23 Anchored 124,342 1981 N/A
24 Anchored 93,989 1979/1987 N/A
25 Anchored 98,306 1985 N/A
26 Specialty Retail 74,958 1989 N/A
27 Urban Office 150,350 1920 1987
28 Suburban Office 139,410 1988 N/A
29 Retail/Hotel/Apts. 226,860 1962-1993 N/A
30 Garden Apts. 332 1998 N/A
31 Warehouse 404,736 1998 N/A
32 Anchored 164,983 1967 1998
33 Anchored 124,495 1984 1998
34 Suburban Office 108,411 1981 N/A
35 Light Industrial 260,000 1980/1994 N/A
36 Light Industrial 222,463 1966/1993 N/A
37 Warehouse 455,391 1965, 1971, 1980 N/A
38 Garden Apts. 184 1997 N/A
39 Garden Apts. 494 1964/1966 1983
40 Garden Apts. 416 1986/1989 N/A
41 Warehouse 382,969 1968-1970 1996
42 Suburban Office 89,242 1998 N/A
43 Independent Living 156 1989 N/A
44 Flex Industrial 135,145 1989 N/A
45 Garden Apts. 437 1985 N/A
46 Specialty Retail 44,359 1988 N/A
47 Suburban Office 68,260 1995-1999 N/A
48 Flex Industrial 30,000 1998-1999 N/A
49 Shadow Anchored 14,500 1996 N/A
50 Garden Apts. 224 1969 N/A
51 Garden Apts. 118 1965-1968 N/A
52 Garden Apts. 60 1970 N/A
53 Garden Apts. 30 1975 N/A
54 Garden Apts. 12 1989 N/A
55 Urban Office 82,800 1921 1989
56 Suburban Office 94,553 1968 1985
57 Flex Industrial 71,023 1988 N/A
58 Light Industrial 60,000 1973 N/A
59 Light Industrial 31,836 1991 N/A
60 Flex Industrial 60,296 1984 N/A
61 Warehouse 16,900 1985 N/A
62 Warehouse 15,600 1986 N/A
63 Warehouse 196,800 1997 N/A
64 Flex Industrial 94,591 1973-1974 N/A
65 Suburban Office 80,516 1984 N/A
66 Urban Office 66,797 1978 N/A
67 Unanchored 90,430 1977 1997
68 Unanchored 44,140 1977 N/A
69 Urban Office 83,587 1984 N/A
70 Warehouse 208,407 1965 1994
71 Light Industrial 133,294 1999 N/A
72 Anchored 92,079 1986 N/A
73 Suburban Office 38,619 1999 N/A
74 Anchored 51,511 1997 N/A
75 Warehouse 137,139 1968 N/A
76 Anchored 114,242 1989 N/A
77 Flex Industrial 47,900 1987 N/A
78 Flex Industrial 44,102 1990 N/A
79 Light Industrial 104,852 1999 N/A
80 Garden Apts. 180 1973 N/A
81 Garden Apts. 152 1968 1998
82 Garden Apts. 108 1986 1997
83 Warehouse 168,728 1980 N/A
84 Flex Industrial 36,820 1982 N/A
85 Warehouse 40,000 1972 N/A
86 Flex Industrial 32,664 1985 N/A
87 Shadow Anchored 28,700 1998 N/A
88 Warehouse 243,000 1970 1998
89 Anchored 67,575 1997 N/A
90 Shadow Anchored 40,946 1998 N/A
91 Warehouse 83,402 1981 1994
92 Garden Apts. 144 1971 1995
93 Warehouse 209,855 1969 1993
94 Anchored 16,708 1999 N/A
95 Anchored 61,703 1995 N/A
96 Garden Apts. 144 1968-1971 1996-1998
97 Garden Apts. 120 1971 1998
98 Suburban Office 32,517 1987 N/A
99 Flex Industrial 32,960 1985 N/A
100 Light Industrial 40,000 1984 N/A
101 Light Industrial 31,200 1984 N/A
102 Light Industrial 35,846 1981 N/A
103 Garden Apts. 80 1986 N/A
104 Anchored 73,426 1980 N/A
105 Anchored 76,160 1979 1996
106 Suburban Office 29,591 1986 N/A
107 Suburban Office 27,581 1998 N/A
108 Suburban Office 55,000 1988 N/A
109 Warehouse 69,950 1987 N/A
110 Warehouse 121,155 1964 1991
111 Warehouse 48,300 1974 N/A
112 Warehouse 40,000 1984 N/A
113 Light Industrial 147,835 1953-1979 1984
114 Light Industrial 79,602 1985 N/A
115 Unanchored 20,607 1998 N/A
116 Flex Industrial 88,408 1972-1987 N/A
117 Garden Apts. 72 1996-1998 N/A
118 Self Storage 58,496 1987 N/A
119 Warehouse 92,452 1997 N/A
120 Garden Apts. 60 1986 N/A
121 Unanchored 20,209 1998 N/A
122 Garden Apts. 48 1973 N/A
123 Warehouse 53,331 1998 N/A
124 Unanchored 25,388 1986 N/A
125 Shadow Anchored 20,124 1999 N/A
126 Flex Industrial 38,120 1988 N/A
127 Medical Office 28,171 1979 N/A
128 Unanchored 31,995 1987 N/A
129 Light Industrial 82,221 1957 N/A
<PAGE>
<CAPTION>
LOAN UNDERWRITABLE MONTHLY FIRST APPRAISED VALUATION
NO. CASH FLOW PAYMENT(8) PMT DATE(9) DSCR(4) VALUE DATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 $1,361,842 $45,608 08/01/1999 2.51 $14,750,000 05/21/1999
2 $1,256,146 $41,350 08/01/1999 2.51 $15,800,000 12/03/1998
3 $1,103,293 $37,107 08/01/1999 2.51 $12,750,000 03/01/1999
4 $951,479 $31,975 08/01/1999 2.51 $11,400,000 05/06/1999
5 $535,945 $18,173 08/01/1999 2.51 $5,733,000 12/08/1998
6 $536,988 $17,647 08/01/1999 2.51 $6,400,000 05/19/1999
7 $317,753 $10,499 08/01/1999 2.51 $3,750,000 05/07/1999
8 $308,843 $10,414 08/01/1999 2.51 $3,280,000 05/07/1999
9 $290,225 $9,589 08/01/1999 2.51 $3,365,000 06/02/1999
10 $282,154 $9,304 08/01/1999 2.51 $3,175,000 05/07/1999
11 $244,859 $8,283 08/01/1999 2.51 $2,800,000 05/07/1999
12 $1,188,025 $39,183 08/01/1999 2.51 $13,200,000 12/10/1998
13 $928,000 $30,662 08/01/1999 2.51 $11,250,000 12/04/1998
14 $913,598 $30,186 08/01/1999 2.51 $10,000,000 04/20/1999
15 $909,755 $30,037 08/01/1999 2.51 $10,800,000 12/18/1998
16 $829,529 $27,408 08/01/1999 2.51 $8,850,000 04/20/1999
17 $718,828 $23,751 08/01/1999 2.51 $7,850,000 02/12/1999
18 $505,442 $16,675 08/01/1999 2.51 $6,000,000 12/02/1998
19 $451,372 $14,914 08/01/1999 2.51 $4,700,000 02/24/1999
20 $287,565 $9,501 08/01/1999 2.51 $3,165,000 10/05/1998
21 $275,478 $9,102 08/01/1999 2.51 $3,050,000 10/19/1998
22 $4,943,459 $194,181 10/01/1998 2.12 $80,000,000 06/10/1999
23 $1,019,915 $56,375 06/01/1999 1.51 $11,800,000 11/04/1998
24 $671,347 $37,061 06/01/1999 1.51 $7,260,000 11/04/1998
25 $671,141 $37,061 06/01/1999 1.51 $6,600,000 11/04/1998
26 $2,215,890 $124,359 06/01/1999 1.48 $36,000,000 03/18/1999
27 $1,655,816 $103,368 08/01/1999 1.33 $21,200,000 04/14/1999
28 $1,524,223 $98,274 06/01/1999 1.29 $19,500,000 03/15/1999
29 $1,967,690 $94,789 08/01/1999 1.73 $20,500,000 06/05/1999
30 $1,529,936 $75,927 07/01/1999 1.68 $18,200,000 04/26/1999
31 $1,583,302 $95,209 05/01/1999 1.39 $16,800,000 03/01/1999
32 $848,275 $50,504 08/01/1999 1.40 $11,000,000 04/01/1999
33 $652,317 $39,026 08/01/1999 1.40 $8,500,000 04/01/1999
34 $1,272,338 $82,494 03/01/1999 1.29 $17,200,000 12/07/1998
35 $758,461 $50,508 08/01/1999 1.25 $11,500,000 04/24/1999
36 $645,195 $43,025 08/01/1999 1.25 $6,500,000 04/24/1999
37 $1,411,846 $77,592 08/01/1999 1.52 $16,900,000 04/01/1999
38 $979,861 $68,149 05/05/1999 1.20 $12,700,000 03/02/1999
39 $1,637,300 $60,580 05/01/1999 2.25 $16,800,000 02/13/1999
40 $1,610,046 $57,083 11/01/1998 2.35 $18,000,000 07/06/1998
41 $1,112,197 $74,132 09/01/1999 1.25 $15,500,000 04/30/1999
42 $1,174,776 $70,058 05/01/1999 1.40 $14,500,000 02/24/1999
43 $1,173,779 $70,097 05/01/1999 1.40 $12,600,000 02/19/1999
44 $885,929 $57,617 08/01/1999 1.28 $11,100,000 04/29/1999
45 $1,157,220 $53,185 02/01/1999 1.81 $12,600,000 10/21/1998
46 $953,458 $56,211 05/01/1999 1.41 $11,000,000 02/24/1999
47 $485,924 $32,133 07/01/1999 1.32 $7,000,000 05/04/1999
48 $214,807 $12,624 07/01/1999 1.32 $2,750,000 05/04/1999
49 $156,021 $9,181 07/01/1999 1.32 $2,000,000 05/04/1999
50 $1,037,610 $54,033 01/01/1999 1.60 $11,300,000 09/01/1998
51 $372,638 $24,932 08/01/1999 1.34 $4,500,000 05/05/1999
52 $251,471 $14,405 08/01/1999 1.34 $2,600,000 05/05/1999
53 $116,036 $7,757 08/01/1999 1.34 $1,400,000 05/05/1999
54 $115,551 $6,094 08/01/1999 1.34 $1,100,000 05/05/1999
55 $864,696 $48,942 07/01/1999 1.47 $10,500,000 05/03/1999
56 $849,159 $50,963 08/01/1999 1.39 $11,100,000 04/01/1999
57 $399,442 $19,973 06/01/1999 1.60 $4,425,000 03/12/1999
58 $257,417 $14,279 06/01/1999 1.60 $3,025,000 03/09/1999
59 $191,787 $9,873 06/01/1999 1.60 $2,075,000 03/12/1999
60 $481,248 $29,164 05/01/1999 1.40 $5,900,000 02/11/1999
61 $135,031 $7,909 05/01/1999 1.40 $1,600,000 02/25/1999
62 $87,329 $4,844 05/01/1999 1.40 $980,000 02/18/1999
63 $616,250 $40,646 04/01/1999 1.26 $8,070,000 01/06/1999
64 $718,634 $38,267 03/01/1999 1.56 $11,300,000 12/18/1998
65 $724,130 $39,660 08/01/1999 1.52 $9,400,000 05/05/1999
66 $661,077 $41,230 07/01/1999 1.34 $8,100,000 03/30/1999
67 $381,034 $24,430 06/01/1999 1.30 $5,000,000 06/01/1998
68 $275,755 $17,618 06/01/1999 1.30 $2,950,000 02/01/1999
69 $652,068 $40,935 07/01/1999 1.33 $8,000,000 03/25/1999
70 $681,989 $38,985 07/01/1999 1.46 $7,685,000 04/07/1999
71 $588,630 $37,893 06/01/1999 1.29 $7,500,000 02/23/1999
72 $797,585 $37,058 03/01/1999 1.79 $9,100,000 12/07/1998
73 $567,519 $36,840 09/01/1999 1.28 $6,830,000 06/07/1999
74 $576,905 $37,855 08/01/1999 1.27 $7,300,000 04/09/1999
75 $626,784 $33,965 04/05/1999 1.54 $7,300,000 01/26/1999
76 $568,951 $36,132 07/01/1999 1.31 $6,600,000 06/01/1999
77 $259,319 $17,154 08/01/1999 1.26 $2,957,500 04/22/1999
78 $310,255 $20,523 08/01/1999 1.26 $3,542,500 04/22/1999
79 $517,842 $33,853 07/01/1999 1.27 $6,400,000 03/11/1999
80 $513,521 $32,923 07/01/1999 1.30 $6,250,000 05/08/1999
81 $525,346 $29,939 01/01/1999 1.46 $6,000,000 10/15/1998
82 $468,389 $31,263 05/01/1999 1.25 $5,600,000 03/11/1999
83 $534,134 $30,302 07/01/1999 1.47 $7,000,000 03/30/1999
84 $177,752 $10,928 06/01/1999 1.50 $2,185,000 03/09/1999
85 $146,941 $9,002 06/01/1999 1.50 $1,800,000 03/09/1999
86 $193,174 $8,752 06/01/1999 1.50 $1,900,000 03/12/1999
87 $468,818 $29,223 04/05/1999 1.34 $5,600,000 12/20/1998
88 $623,370 $38,340 03/01/1999 1.35 $7,180,000 01/11/1999
89 $514,095 $32,354 05/01/1999 1.32 $5,950,000 02/17/1999
90 $567,349 $27,573 01/01/1999 1.71 $7,000,000 09/01/1998
91 $475,204 $26,580 05/05/1999 1.49 $6,400,000 03/18/1999
92 $450,992 $27,287 04/01/1999 1.38 $5,200,000 12/16/1998
93 $474,846 $26,544 07/01/1999 1.49 $6,560,000 04/19/1999
94 $398,537 $26,375 08/01/1999 1.26 $4,900,000 05/08/1999
95 $425,218 $25,268 12/05/1998 1.40 $4,700,000 07/12/1998
96 $447,011 $25,040 07/01/1999 1.49 $4,800,000 04/22/1999
97 $388,803 $25,722 05/01/1999 1.26 $4,800,000 03/11/1999
98 $223,089 $15,337 06/01/1999 1.34 $3,350,000 03/24/1999
99 $162,348 $8,600 06/01/1999 1.34 $1,850,000 03/12/1999
100 $183,518 $9,753 06/01/1999 1.51 $2,000,000 03/09/1999
101 $143,791 $8,012 06/01/1999 1.51 $1,570,000 03/09/1999
102 $82,673 $4,865 06/01/1999 1.51 $1,550,000 03/09/1999
103 $372,334 $21,955 08/01/1999 1.41 $4,390,000 05/12/1999
104 $427,527 $22,984 07/01/1999 1.55 $6,125,000 03/17/1999
105 $394,725 $22,066 03/01/1999 1.49 $4,475,000 12/15/1998
106 $364,770 $23,810 07/01/1999 1.28 $4,100,000 04/05/1999
107 $376,020 $25,485 08/01/1999 1.23 $4,200,000 05/07/1999
108 $374,821 $21,896 04/01/1999 1.43 $5,000,000 01/22/1999
109 $375,137 $21,506 08/01/1999 1.45 $4,200,000 04/29/1999
110 $368,205 $21,180 05/01/1999 1.45 $4,100,000 03/03/1999
111 $184,163 $11,066 06/01/1999 1.48 $2,200,000 03/09/1999
112 $176,130 $9,204 06/01/1999 1.48 $2,075,000 03/12/1999
113 $403,387 $22,170 07/01/1999 1.52 $4,800,000 03/24/1999
114 $346,762 $20,384 05/01/1999 1.42 $4,000,000 02/20/1999
115 $355,645 $21,977 05/01/1999 1.35 $3,850,000 12/23/1998
116 $315,977 $21,527 06/01/1999 1.22 $4,300,000 03/12/1999
117 $333,307 $22,019 07/01/1999 1.26 $3,763,000 04/08/1999
118 $375,021 $19,741 08/01/1999 1.58 $3,800,000 04/21/1999
119 $338,774 $17,400 02/01/1999 1.62 $4,000,000 10/01/1998
120 $298,591 $16,562 07/01/1999 1.50 $3,300,000 04/12/1999
121 $279,739 $16,305 05/01/1999 1.43 $3,250,000 12/10/1998
122 $271,589 $15,962 04/01/1999 1.42 $3,500,000 01/05/1999
123 $248,786 $15,425 04/05/1999 1.34 $3,000,000 01/27/1999
124 $268,660 $14,655 07/01/1999 1.53 $3,375,000 04/07/1999
125 $242,286 $15,301 06/01/1999 1.32 $2,800,000 02/26/1999
126 $253,678 $14,573 05/01/1999 1.45 $3,000,000 02/11/1999
127 $202,370 $13,995 08/01/1999 1.21 $2,410,000 05/11/1999
128 $277,000 $12,288 01/01/1999 1.88 $2,800,000 09/22/1998
129 $193,670 $13,329 01/01/1999 1.21 $2,050,000 10/15/1998
TOTALS/WEIGHTED AVERAGES: 1.63X
<PAGE>
<CAPTION>
LOAN PERCENT LEASED(10) TENANT INFORMATION(11)
NO. LTV(4) LEASED DATE LARGEST TENANT % NSF
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 51.3% 98.8% 07/01/1999 Super Stop & Shop 47.8%
2 51.3% 93.8% 03/16/1999 Winn-Dixie 20.2%
3 51.3% 97.8% 02/23/1999 Bed Bath and Beyond 38.5%
4 51.3% 97.5% 03/31/1999 Giant Food 53.5%
5 51.3% 88.1% 03/16/1999 Kroger 64.0%
6 51.3% 95.5% 06/01/1999 Winn-Dixie 61.4%
7 51.3% 93.6% 02/17/1999 Harris Teeter 58.7%
8 51.3% 97.6% 04/01/1999 Harris Teeter 58.8%
9 51.3% 97.2% 03/16/1999 Lowe's Food Store 76.7%
10 51.3% 100.0% 02/17/1999 Harris Teeter 63.1%
11 51.3% 100.0% 03/01/1999 Harris Teeter 64.2%
12 51.3% 96.1% 03/16/1999 Food Lion 32.6%
13 51.3% 100.0% 03/16/1999 Jumbo Sports 27.3%
14 51.3% 100.0% 04/01/1999 Harris Teeter 66.5%
15 51.3% 93.8% 04/09/1999 Kroger 56.4%
16 51.3% 100.0% 03/16/1999 Harris Teeter 80.9%
17 51.3% 100.0% 04/13/1999 Kash N' Karry 49.8%
18 51.3% 88.3% 03/16/1999 Kash N' Karry 41.8%
19 51.3% 97.8% 03/01/1999 Harr's Surf & Turf 16.1%
20 51.3% 100.0% 03/15/1999 Dollar Tree 13.0%
21 51.3% 100.0% 03/15/1999 Hibbett Sports 15.6%
22 37.1% 96.8% 05/12/1999 Loews Corporation 28.7%
23 72.7% 94.8% 03/29/1999 Lucky Supermarket 22.7%
24 72.7% 100.0% 03/29/1999 Fiesta Mexicana Market 37.2%
25 72.7% 100.0% 03/29/1999 Fontana Discount Center 51.1%
26 50.0% 82.6% 04/21/1999 Good Nature Mkt 16.5%
27 66.0% 100.0% 04/01/1999 Gun For Hire 60.0%
28 71.6% 98.4% 04/19/1999 United Parcel Service 46.6%
29 61.0% 100.0% 06/03/1999 Golden Plough Inn 17.6%
30 65.8% 99.0% 04/30/1999 N/A N/A
31 70.9% 100.0% 02/19/1999 DM Management Company 100.0%
32 59.9% 100.0% 05/12/1999 Cub Foods 63.0%
33 59.9% 100.0% 05/12/1999 Cub Foods 71.3%
34 64.9% 100.0% 12/21/1998 GSA - CIA 100.0%
35 63.8% 100.0% 04/01/1999 DCT, Inc. 100.0%
36 63.8% 100.0% 04/01/1999 Noble International, LTD. 100.0%
37 59.9% 100.0% 05/12/1999 Worldwide, Inc. 98.8%
38 79.1% 92.4% 03/18/1999 N/A N/A
39 59.5% 97.6% 03/12/1999 N/A N/A
40 55.6% 92.5% 03/24/1999 N/A N/A
41 63.5% 100.0% 4/23/99 Freeman 66.7%
42 68.8% 97.4% 03/17/1999 BAPCO/Bell South 42.2%
43 77.0% 94.2% 01/01/1999 N/A N/A
44 73.8% 92.8% 05/19/1999 Allen Bradley Company 15.9%
45 64.7% 92.0% 05/11/1999 N/A N/A
46 72.5% 100.0% 03/03/1999 Kobe Japanese Steakhouse 18.5%
47 62.9% 93.0% 05/13/1999 Capital One 14.7%
48 62.9% 100.0% 05/13/1999 Capital One 40.0%
49 62.9% 100.0% 05/13/1999 Danny's Pizza 14.2%
50 70.4% 95.5% 10/31/1998 N/A N/A
51 76.3% 93.0% 05/01/1999 N/A N/A
52 76.3% 98.3% 05/01/1999 N/A N/A
53 76.3% 96.7% 05/01/1999 N/A N/A
54 76.3% 100.0% 05/01/1999 N/A N/A
55 64.2% 100.0% 05/19/1999 The Shooting Gallery 100.0%
56 59.9% 100.0% 05/12/1999 Holiday Station Stores 100.0%
57 68.9% 100.0% 03/11/1999 US Postal Service 33.2%
58 68.9% 100.0% 03/11/1999 Federal Express Corporation 100.0%
59 68.9% 100.0% 03/11/1999 Airborne Freight Corp. 100.0%
60 73.5% 100.0% 03/03/1999 National Audit Defense 25.4%
61 73.5% 100.0% 03/03/1999 Cubic Enterprises 100.0%
62 73.5% 100.0% 03/03/1999 Artistic Autobody 100.0%
63 74.1% 100.0% 02/22/1999 Western Wine Services, Inc. 100.0%
64 51.9% 86.0% 03/31/1999 Adeza Biomedical 18.6%
65 60.6% 100.0% 06/15/1999 SCC 100.0%
66 70.3% 97.5% 03/31/1999 Digital Corporate Profiles, Inc. 9.2%
67 71.5% 89.3% 03/26/1999 R A Management (Nostalgia) 19.3%
68 71.5% 94.3% 03/26/1999 Dollar General 19.0%
69 69.9% 98.7% 05/01/1999 Kimberly Clark 48.1%
70 71.5% 100.0% 05/14/1999 Alex-Panline USA, zinc. 51.7%
71 73.2% 100.0% 04/15/1999 The Derby Cycle Corp 100.0%
72 58.0% 98.0% 04/14/1999 TJ Maxx Corp. 33.7%
73 75.0% 100.0% 06/01/1999 Ultimate Software Group Inc. 100.0%
74 69.8% 100.0% 05/18/1999 Saks & Company 42.5%
75 69.6% 100.0% 05/11/1999 Slant Fin Corp. 38.7%
76 75.7% 100.0% 05/13/1999 Wal-Mart 64.9%
77 75.4% 100.0% 05/04/1999 Lennox Industries 40.5%
78 75.4% 100.0% 05/04/1999 Forest Labs 73.7%
79 76.1% 100.0% 03/15/1999 CCL 100.0%
80 73.5% 100.0% 04/15/1999 N/A N/A
81 74.5% 95.0% 02/26/1999 N/A N/A
82 79.8% 98.0% 03/25/1999 N/A N/A
83 61.4% 100.0% 04/27/1999 Datalok 26.8%
84 72.4% 100.0% 03/11/1999 Bridgeport Machines 65.2%
85 72.4% 100.0% 03/11/1999 Alumax/Aluminum Corp./Alcoa 60.0%
86 72.4% 100.0% 03/11/1999 Federal Express Corporation 100.0%
87 74.8% 100.0% 04/30/1999 Hollywood Video 22.6%
88 57.4% 100.0% 04/29/1999 Wagner Industries, Inc. 100.0%
89 68.8% 100.0% 03/08/1999 TJ Maxx Corp. 41.1%
90 57.5% 100.0% 03/31/1999 Blockbuster Video 14.9%
91 62.3% 100.0% 03/03/1999 Cassette Productions Unlimited 100.0%
92 76.7% 91.0% 03/25/1999 N/A N/A
93 57.9% 97.0% 05/14/1999 Safari Program I of FL 52.3%
94 76.5% 100.0% 05/01/1999 Thrifty/Payless, Inc. 100.0%
95 79.5% 100.0% 04/14/1999 Winn Dixie 83.8%
96 77.0% 94.4% 04/23/1999 N/A N/A
97 75.8% 98.0% 03/25/1999 N/A N/A
98 68.4% 88.4% 03/11/1999 Dames & Moore 60.9%
99 68.4% 100.0% 03/11/1999 Federal Express 100.0%
100 65.7% 100.0% 03/11/1999 Roslyn Supply Co 63.0%
101 65.7% 100.0% 03/11/1999 Airborne Express 100.0%
102 65.7% 100.0% 03/11/1999 Ina Linear Technik, Inc. 100.0%
103 75.1% 100.0% 04/15/1999 N/A N/A
104 53.8% 80.0% 04/15/1999 The Kroger Co. 57.4%
105 73.4% 100.0% 04/30/1999 Winn Dixie 64.1%
106 79.8% 100.0% 05/01/1999 Kitrell & Garlock 32.0%
107 74.9% 100.0% 05/13/1999 Conley, Canitano & Associates 100.0%
108 62.8% 100.0% 01/25/1999 Wellman, Inc. 100.0%
109 73.8% 100.0% 04/16/1999 Hawk Graphics, Inc. 28.5%
110 74.2% 100.0% 02/19/1999 Tree Of Life 66.8%
111 70.5% 89.8% 03/11/1999 Universal Superab 44.4%
112 70.5% 100.0% 03/11/1999 MSA Industries (Dupont) 50.0%
113 62.4% 90.6% 03/26/1999 Natural Science Industries 90.6%
114 74.8% 100.0% 01/07/1999 Nypro San Diego, Inc. 100.0%
115 74.7% 100.0% 05/05/1999 The Creative Child Learning Center, Inc. 41.4%
116 66.1% 97.9% 05/17/1999 Jocama 11.3%
117 72.8% 98.6% 04/30/1999 N/A N/A
118 68.4% 96.3% 12/01/1998 N/A N/A
119 61.0% 100.0% 12/11/1998 Federal Express Corporation 100.0%
120 73.8% 100.0% 05/01/1999 N/A N/A
121 71.4% 94.0% 03/04/1999 Hollywood Video 32.2%
122 65.7% 100.0% 04/30/1999 N/A N/A
123 74.7% 100.0% 04/30/1999 Utrecht Manufacturing 87.0%
124 62.1% 100.0% 05/04/1999 Bellsouth Mobility 34.7%
125 74.8% 100.0% 04/01/1999 The Shoe Show of Rocky Mount, Inc. 23.1%
126 68.2% 100.0% 03/01/1999 Clarke American Checks Inc. 100.0%
127 78.8% 89.7% 05/13/1999 Indianapolis Breast Center 62.5%
128 60.1% 92.0% 05/11/1999 Waldenbooks 23.5%
129 74.3% 100.0% 11/25/1998 Main Steel Polishing Company 100.0%
TOTALS/WEIGHTED AVERAGES
64.0% 97.2%
<PAGE>
<CAPTION>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PREPAYMENT AND SERVICING INFORMATION
PREPAYMENT CODE(13)
LOAN INTEREST ACCRUAL LOCKOUT YM ADMINISTRATIVE
NO. METHOD SEASONING(12) PERIOD DEF YM1 OPEN FORMULA(14) COST RATE (bps)(15)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 30/360 1 25 92 3 N/A 9.40
2 30/360 1 25 92 3 N/A 9.40
3 30/360 1 25 92 3 N/A 9.40
4 30/360 1 25 92 3 N/A 9.40
5 30/360 1 25 92 3 N/A 9.40
6 30/360 1 25 92 3 N/A 9.40
7 30/360 1 25 92 3 N/A 9.40
8 30/360 1 25 92 3 N/A 9.40
9 30/360 1 25 92 3 N/A 9.40
10 30/360 1 25 92 3 N/A 9.40
11 30/360 1 25 92 3 N/A 9.40
12 30/360 1 25 92 3 N/A 9.40
13 30/360 1 25 92 3 N/A 9.40
14 30/360 1 25 92 3 N/A 9.40
15 30/360 1 25 92 3 N/A 9.40
16 30/360 1 25 92 3 N/A 9.40
17 30/360 1 25 92 3 N/A 9.40
18 30/360 1 25 92 3 N/A 9.40
19 30/360 1 25 92 3 N/A 9.40
20 30/360 1 25 92 3 N/A 9.40
21 30/360 1 25 92 3 N/A 9.40
22 30/360 11 72 104 4 D 13.40
23 Actual/360 3 60 53 7 A 13.40
24 Actual/360 3 60 53 7 A 13.40
25 Actual/360 3 60 53 7 A 13.40
26 30/360 3 27 89 4 N/A 6.40
27 Actual/360 1 48 68 4 N/A 6.40
28 30/360 3 48 68 4 N/A 6.40
29 Actual/360 1 60 56 4 A 13.40
30 Actual/360 2 26 90 4 N/A 6.40
31 Actual/360 4 41 75 4 N/A 13.40
32 Actual/360 1 25 91 4 N/A 6.40
33 Actual/360 1 25 91 4 N/A 6.40
34 Actual/360 6 48 68 4 A 13.40
35 Actual/360 1 60 56 4 A 13.40
36 Actual/360 1 60 56 4 A 13.40
37 Actual/360 1 25 91 4 N/A 6.40
38 Actual/360 4 48 68 4 N/A 6.40
39 Actual/360 4 60 56 4 A 13.40
40 Actual/360 10 60 56 4 A 13.40
41 Actual/360 0 24 92 4 N/A 6.40
42 Actual/360 4 28 88 4 N/A 6.40
43 Actual/360 4 48 68 4 A 13.40
44 Actual/360 1 48 68 4 N/A 6.40
45 Actual/360 7 35 81 4 N/A 6.40
46 Actual/360 4 47 69 4 C 6.40
47 Actual/360 2 24 92 4 B 6.40
48 Actual/360 2 24 92 4 B 6.40
49 Actual/360 2 24 92 4 B 6.40
50 Actual/360 8 60 56 4 A 13.40
51 Actual/360 1 25 88 7 N/A 6.40
52 Actual/360 1 25 88 7 N/A 6.40
53 Actual/360 1 25 88 7 N/A 6.40
54 Actual/360 1 25 88 7 N/A 6.40
55 Actual/360 2 60 56 4 A 13.40
56 Actual/360 1 25 91 4 N/A 6.40
57 Actual/360 3 48 68 4 N/A 6.40
58 Actual/360 3 48 68 4 N/A 6.40
59 Actual/360 3 48 68 4 N/A 6.40
60 Actual/360 4 48 68 4 N/A 6.40
61 Actual/360 4 48 68 4 N/A 6.40
62 Actual/360 4 48 68 4 N/A 6.40
63 Actual/360 5 60 56 4 A 13.40
64 30/360 6 47 69 4 N/A 6.40
65 Actual/360 1 25 91 4 N/A 6.40
66 Actual/360 2 60 56 4 A 13.40
67 Actual/360 3 60 56 4 A 13.40
68 Actual/360 3 60 56 4 A 13.40
69 Actual/360 2 60 56 4 A 13.40
70 30/360 2 26 90 4 N/A 6.40
71 Actual/360 3 48 68 4 N/A 6.40
72 Actual/360 6 47 69 4 N/A 6.40
73 Actual/360 0 48 68 4 N/A 6.40
74 Actual/360 1 48 68 4 N/A 6.40
75 Actual/360 5 48 68 4 N/A 6.40
76 Actual/360 2 60 56 4 A 13.40
77 Actual/360 1 60 56 4 A 13.40
78 Actual/360 1 60 56 4 A 13.40
79 Actual/360 2 48 68 4 N/A 6.40
80 Actual/360 2 47 69 4 N/A 6.40
81 Actual/360 8 60 56 4 A 13.40
82 Actual/360 4 28 88 4 N/A 6.40
83 Actual/360 2 60 56 4 A 13.40
84 Actual/360 3 48 68 4 N/A 6.40
85 Actual/360 3 48 68 4 N/A 6.40
86 Actual/360 3 48 68 4 N/A 6.40
87 Actual/360 5 47 69 4 N/A 6.40
88 Actual/360 6 48 68 4 N/A 6.40
89 Actual/360 4 48 188 4 N/A 6.40
90 Actual/360 8 35 81 4 N/A 6.40
91 Actual/360 4 48 68 4 N/A 6.40
92 Actual/360 5 47 69 4 N/A 6.40
93 Actual/360 2 26 90 4 N/A 6.40
94 Actual/360 1 25 91 4 N/A 6.40
95 Actual/360 9 35 81 4 N/A 6.40
96 30/360 2 48 68 4 N/A 6.40
97 Actual/360 4 28 88 4 N/A 6.40
98 Actual/360 3 48 68 4 N/A 6.40
99 Actual/360 3 48 68 4 N/A 6.40
100 Actual/360 3 48 68 4 N/A 6.40
101 Actual/360 3 48 68 4 N/A 6.40
102 Actual/360 3 48 68 4 N/A 6.40
103 30/360 1 25 91 4 N/A 6.40
104 Actual/360 2 26 90 4 N/A 6.40
105 Actual/360 6 47 70 3 N/A 6.40
106 Actual/360 2 60 56 4 A 13.40
107 Actual/360 1 48 68 4 N/A 6.40
108 Actual/360 5 47 69 4 N/A 6.40
109 Actual/360 1 25 91 4 N/A 6.40
110 Actual/360 4 47 69 4 N/A 6.40
111 Actual/360 3 48 68 4 N/A 6.40
112 Actual/360 3 48 68 4 N/A 6.40
113 Actual/360 2 48 68 4 N/A 6.40
114 Actual/360 4 60 56 4 A 13.40
115 Actual/360 4 48 68 4 N/A 6.40
116 30/360 3 47 69 4 N/A 6.40
117 30/360 2 26 210 4 N/A 6.40
118 Actual/360 1 60 56 4 A 13.40
119 Actual/360 7 35 81 4 N/A 6.40
120 Actual/360 2 47 69 4 N/A 6.40
121 Actual/360 4 49 67 4 N/A 6.40
122 30/360 5 48 72 N/A 6.40
123 30/360 5 48 68 4 N/A 6.40
124 Actual/360 2 48 68 4 N/A 6.40
125 Actual/360 3 27 89 4 N/A 6.40
126 Actual/360 4 28 88 4 N/A 6.40
127 Actual/360 1 25 91 4 N/A 6.40
128 30/360 8 35 81 4 N/A 6.40
129 Actual/360 8 60 56 4 A 13.40
TOTALS/WEIGHTED AVERAGES 3 9.00
<PAGE>
<CAPTION>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
ESCROW INFORMATION
INITIAL CAPITAL CURRENT CAPITAL
LOAN INSURANCE ESCROW TAX ESCROW CAPITAL EXPENDITURE TI/LC EXPENDITURE ESCROW EXPENDITURE ESCROW
NO. REQUIRED REQUIRED ESCROW REQUIRED(16) ESCROW REQUIRED(17) REQUIREMENT(18) BALANCE(19)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Yes Yes Yes Yes $2,927 $2,927
2 Yes Yes Yes Yes $4,451 $4,451
3 Yes Yes Yes Yes $2,601 $2,601
4 Yes Yes Yes Yes $2,035 $2,035
5 Yes Yes Yes Yes $1,907 $1,907
6 Yes Yes Yes Yes $1,791 $1,791
7 Yes Yes Yes Yes $1,405 $1,405
8 Yes Yes Yes Yes $1,055 $1,055
9 Yes Yes Yes Yes $1,064 $1,064
10 Yes Yes Yes Yes $1,306 $1,306
11 Yes Yes Yes Yes $1,213 $1,213
12 Yes Yes Yes Yes $2,532 $2,532
13 Yes Yes Yes Yes $3,330 $3,330
14 Yes Yes Yes Yes $1,381 $1,381
15 Yes Yes Yes Yes $2,526 $2,526
16 Yes Yes Yes Yes $1,418 $1,418
17 Yes Yes Yes Yes $2,180 $2,180
18 Yes Yes Yes Yes $2,458 $2,458
19 Yes Yes Yes Yes $1,354 $1,354
20 Yes Yes Yes Yes $825 $825
21 Yes Yes Yes Yes $801 $801
22 No Yes No No $0 $0
23 No Yes Yes Yes $11,141 $11,141
24 No Yes Yes Yes $7,324 $7,324
25 No Yes Yes Yes $7,324 $7,324
26 Yes Yes No Yes $0 $0
27 No Yes Yes No $0 $0
28 No Yes Yes Yes $0 $0
29 No Yes No No $0 $0
30 Yes Yes No No $0 $0
31 Yes Yes Yes Yes $0 $3,373
32 No Yes Yes No $0 $0
33 No Yes Yes No $16,875 $0
34 No Yes Yes Yes $200,000 $200,000
35 Yes Yes Yes Yes $3,257 $0
36 Yes Yes Yes Yes $2,774 $0
37 No Yes Yes No $12,500 $0
38 Yes Yes Yes No $0 $3,067
39 No Yes Yes No $345,000 $355,290
40 No Yes No No $0 $0
41 Yes Yes Yes Yes $0 $0
42 Yes Yes No No $0 $0
43 No Yes Yes No $1,950 $1,950
44 Yes Yes Yes No $0 $0
45 Yes Yes Yes No $10,545 $10,545
46 Yes Yes Yes Yes $40,000 $40,000
47 No Yes Yes Yes $22,703 $0
48 No Yes Yes Yes $9,979 $0
49 No Yes Yes Yes $4,822 $0
50 No Yes Yes No $27,100 $50,477
51 Yes Yes Yes No $34,797 $0
52 Yes Yes Yes No $17,693 $0
53 Yes Yes Yes No $8,847 $0
54 Yes Yes Yes No $3,539 $0
55 Yes No Yes Yes $0 $0
56 No Yes Yes No $49,875 $0
57 Yes Yes Yes Yes $19,375 $19,375
58 Yes Yes Yes Yes $0 $0
59 Yes Yes Yes Yes $0 $0
60 Yes Yes Yes Yes $0 $1,005
61 Yes Yes Yes Yes $0 $282
62 Yes Yes Yes Yes $0 $260
63 No Yes No No $0 $0
64 Yes Yes Yes No $0 $15,215
65 Yes Yes No No $0 $0
66 No Yes Yes Yes $2,200 $0
67 Yes Yes Yes Yes $40,151 $40,151
68 Yes Yes Yes Yes $29,075 $29,075
69 No Yes Yes Yes $25,000 $0
70 No Yes Yes Yes $0 $0
71 Yes Yes No No $0 $0
72 Yes Yes Yes Yes $75,000 $0
73 No No No No $0 $0
74 Yes Yes Yes No $17,600 $0
75 No Yes Yes Yes $26,739 $105,222
76 No Yes Yes Yes $0 $0
77 No Yes No No $0 $0
78 No Yes No No $0 $0
79 No Yes No No $0 $0
80 Yes Yes Yes No $0 $0
81 No Yes Yes No $0 $7,917
82 Yes Yes Yes No $54,571 $56,911
83 No Yes Yes No $95,400 $95,400
84 Yes Yes Yes Yes $0 $0
85 Yes Yes Yes Yes $0 $0
86 Yes Yes Yes Yes $0 $0
87 Yes Yes Yes Yes $0 $563
88 Yes Yes No No $0 $0
89 Yes Yes No No $0 $0
90 Yes Yes Yes Yes $0 $3,415
91 No No No No $0 $0
92 Yes Yes Yes No $0 $6,000
93 No Yes Yes Yes $50,000 $0
94 No No No No $0 $0
95 Yes Yes No Yes $0 $0
96 Yes Yes Yes No $27,438 $0
97 Yes Yes Yes No $55,780 $58,360
98 Yes Yes Yes Yes $17,750 $17,750
99 Yes Yes Yes Yes $0 $0
100 Yes Yes Yes Yes $0 $0
101 Yes Yes Yes Yes $0 $0
102 Yes Yes Yes Yes $0 $0
103 Yes Yes No No $0 $0
104 Yes Yes Yes Yes $108,000 $0
105 Yes Yes Yes No $13,750 $13,750
106 Yes Yes Yes Yes $1,045 $0
107 Yes Yes No No $0 $0
108 Yes Yes No Yes $0 $0
109 Yes Yes Yes Yes $0 $0
110 Yes Yes Yes Yes $58,375 $60,394
111 Yes Yes Yes Yes $0 $0
112 Yes Yes Yes Yes $0 $0
113 Yes Yes Yes No $51,813 $0
114 No Yes Yes Yes $0 $2,867
115 Yes Yes No Yes $0 $0
116 Yes Yes Yes Yes $18,600 $18,600
117 Yes Yes No No $0 $0
118 Yes Yes Yes No $1,170 $0
119 No Yes No Yes $0 $0
120 Yes Yes Yes No $0 $0
121 Yes Yes Yes Yes $0 $337
122 Yes Yes Yes No $0 $2,000
123 Yes Yes No Yes $0 $0
124 Yes Yes Yes No $10,000 $0
125 Yes Yes No No $0 $0
126 Yes Yes No Yes $0 $0
127 Yes Yes Yes Yes $9,375 $0
128 Yes Yes Yes No $0 $2,675
129 No Yes Yes No $41,000 $48,250
TOTAL/PERCENT OF CUT-OFF DATE BALANCE:
59.4% 96.8% 72.6% 63.4% $1,727,808 $1,336,821
<PAGE>
<CAPTION>
MONTHLY CAPITAL INITIAL TI/LC
LOAN EXPENDITURE ESCROW ESCROW CURRENT TI/LC
NO. REQUIREMENT(20) REQUIREMENT(21) ESCROW BALANCE(22)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 $976 $2,927 $2,927
2 $1,484 $4,451 $4,451
3 $867 $2,601 $2,601
4 $678 $2,035 $2,035
5 $636 $1,907 $1,907
6 $597 $1,791 $1,791
7 $468 $1,405 $1,405
8 $352 $1,055 $1,055
9 $355 $1,064 $1,064
10 $435 $1,306 $1,306
11 $404 $1,213 $1,213
12 $844 $2,532 $2,532
13 $1,110 $3,330 $3,330
14 $460 $1,381 $1,381
15 $842 $2,526 $2,526
16 $473 $1,418 $1,418
17 $727 $2,180 $2,180
18 $819 $2,458 $2,458
19 $451 $1,354 $1,354
20 $275 $825 $825
21 $267 $801 $801
22 $0 $0 $0
23 $2,736 $15,811 $15,811
24 $1,798 $10,394 $10,394
25 $1,798 $10,395 $10,395
26 $0 $427,185 $427,185
27 $2,506 $0 $0
28 $2,324 $505,000 $505,000
29 $0 $0 $0
30 $0 $0 $0
31 $3,373 $0 $8,400
32 $2,062 $0 $0
33 $1,556 $0 $0
34 $0 $700,000 $700,000
35 $3,257 $0 $0
36 $2,774 $0 $0
37 $4,554 $0 $0
38 $3,067 $0 $0
39 $10,290 $0 $0
40 $0 $0 $0
41 $4,787 $0 $0
42 $0 $0 $0
43 $1,950 $0 $0
44 $2,252 $0 $0
45 $9,104 $0 $0
46 $0 $50,000 $50,000
47 $0 $14,832 $0
48 $0 $6,519 $0
49 $0 $3,151 $0
50 $4,667 $0 $0
51 $2,458 $0 $0
52 $1,250 $0 $0
53 $625 $0 $0
54 $250 $0 $0
55 $1,250 $0 $0
56 $1,576 $0 $0
57 $888 $100,000 $100,000
58 $750 $0 $0
59 $398 $0 $0
60 $1,005 $0 $1,787
61 $282 $0 $501
62 $260 $0 $462
63 $0 $0 $0
64 $5,068 $0 $0
65 $0 $0 $0
66 $1,100 $40,000 $0
67 $1,301 $0 $0
68 $939 $100,000 $100,000
69 $1,393 $75,000 $0
70 $1,737 $0 $0
71 $0 $0 $0
72 $0 $150,000 $6,300
73 $0 $0 $0
74 $859 $0 $0
75 $1,739 $1,700 $5,104
76 $1,200 $0 $0
77 $0 $0 $0
78 $0 $0 $0
79 $0 $0 $0
80 $3,750 $0 $0
81 $1,583 $0 $0
82 $2,340 $0 $0
83 $0 $0 $0
84 $462 $0 $0
85 $500 $0 $0
86 $408 $50,000 $50,000
87 $281 $0 $2,500
88 $0 $0 $0
89 $0 $0 $0
90 $683 $27,000 $38,505
91 $0 $0 $0
92 $3,000 $0 $0
93 $0 $100,000 $100,000
94 $0 $0 $0
95 $0 $22,500 $22,754
96 $3,000 $0 $0
97 $2,580 $0 $0
98 $406 $50,000 $50,000
99 $412 $0 $0
100 $500 $0 $0
101 $403 $0 $0
102 $448 $0 $0
103 $0 $0 $0
104 $1,836 $200,000 $0
105 $0 $0 $0
106 $1,045 $1,670 $0
107 $0 $0 $0
108 $0 $0 $8,334
109 $583 $0 $0
110 $1,010 $2,020 $4,040
111 $604 $0 $0
112 $500 $0 $0
113 $0 $0 $0
114 $2,867 $0 $3,333
115 $0 $0 $1,030
116 $1,473 $0 $0
117 $0 $0 $0
118 $1,170 $0 $0
119 $0 $0 $0
120 $1,000 $0 $0
121 $337 $11,000 $11,915
122 $1,000 $0 $0
123 $0 $0 $3,300
124 $666 $0 $0
125 $0 $0 $0
126 $0 $0 $2,000
127 $705 $0 $0
128 $535 $0 $0
129 $1,450 $0 $0
TOTAL/PERCENT OF CUT-OFF DATE BALANCE:
$142,239 $2,714,735 $2,279,609
</TABLE>
<PAGE>
FOOTNOTES TO APPENDIX II
1 "PCF", "JHREF" and "MSMC" denote Principal Commercial Funding, LLC, John
Hancock Real Estate Finance, Inc., and Morgan Stanley Mortgage Capital Inc.,
respectively, as Sellers.
2 The following loan pools represent multiple properties secured under a
single note, and are designated by Roman Numeral coding: Mortgage Loan Nos.
1-11, 12-21, 23-25, 35-36, 47-49, 51-54, 60-62, 67-68, and 77-78. For the
purpose of the statistical information set forth in this Prospectus
Supplement, as to single-note multiple-property loans, a portion of the
aggregate Cut-Off Date Balance has been allocated to each property, based on
respective appraised values or Underwritable Cash Flows. The following loan
pools represent cross-collateralized/cross-defaulted properties and are
designated by identical alphabetical coding: Mortgage Loan Nos. 1-21, 32-33,
57-59, 84-86, 98-99, 100-102, and 111-112. The Edens & Avant Retail Center
Properties, Mortgage Loan Nos. 1-11 and 12-21, consist of two single-note,
multiple-property loans that are cross-collateralized/cross-defaulted.
3 With respect to Mortgage Loans 1-21, the Edens & Avant Retail Center
Properties, one or more of the Mortgage Loans may be released upon
defeasance of an amount equal to 125% of the allocated loan amount of the
property or properties released.
With respect to Mortgage Loan No. 29, Peddler's Village, one parcel of land
may be released from the security upon satisfaction of conditions, which
include that the Borrower is required to legally and validly subdivide the
parcel from the remaining security, which shall be separate tax and zoning
lots, and provide Lender with new surveys and title endorsements. Borrower
must also provide Lender with evidence that the release will not interfere
with vehicular, pedestrian or rail access, utilities or other items
affecting the remaining security. No consideration is required for the
release. The indicated Underwritable Cash Flow for the property does not
include revenue from the parcels.
With respect to Mortgage Loan Nos. 47 and 48, Lee's Hill Office and Jackson
Square Business Park, the deed of trust provides for a partial release of
the following three parcels from the lien upon satisfaction of certain
conditions: 1) Building 2 of Jackson Square Business Park, located at
4300-4500 Carr Drive, Fredericksburg, VA, to be accompanied by a paydown of
the loan of approximately $1,100,000; 2) vacant parcel of 1.5 acres of land;
and 3) Building 4 of Lee's Hill Professional Center, located at 10705
Spotsylvania Avenue, Fredericksburg, VA, to be accompanied by a paydown of
the loan of $550,000. Any such paydowns are subject to a minimum DSCR of
1.45x, and are subject to a yield maintenance premium to be paid by the
Borrower.
The Mortgage Pool contains additional Mortgage Loans that provide for a
partial release of collateral. In general, such collateral does not
contribute to the Underwritable Cash Flow of the property, nor to the
Appraised Value. In addition, such Mortgage Loans do not require partial
prepayment as a condition of the release.
Mortgage Loan No. 22, Plaza Madison, is permitted to obtain secured
subordinate financing subject to conditions established in the note,
including a maximum combined 60% LTV and a minimum combined 1.80x DSCR.
4 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
cross-collateralized and cross-defaulted. The indicated Cut-Off Date
Balance/SF for Mortgage Loan No. 29, Peddler's Village, is based on the
predominant property usage (retail).
5 The "Original Amortization Term" shown is the basis for determining the
fixed monthly principal and interest payment as set forth in the related
note. Due to the Actual/360 interest calculation methodology applied to most
Mortgage Loans, the actual amortization to a zero balance for such loans
will be longer.
6 Mortgage Loan No. 29, Peddler's Village, is subject to a ground lease on a
portion of the subject property. However, as the related fee-owner is a
party to the mortgage and has subordinated its interest, the loan is
disclosed as a fee loan.
Mortgage Loan No. 55, 110 Leroy Street, is subject to a ground lease under a
city agency for the purposes of tax relief. However, as the fee-owner is a
party to the mortgage and has subordinated its interest, the loan is
disclosed as a fee loan.
II-16
<PAGE>
FOOTNOTES TO APPENDIX II
7 Each of the following Mortgage Loans is structured with a performance
holdback or letter of credit ("LOC") subject to achievement of certain
release conditions. The amount of the holdback was escrowed, or the letter
of credit was established, for each Mortgage Loan at closing. Although
Mortgage Loan Nos. 72, Haywood Plaza Shopping Center, and 93, 15800 NW 13th
Ave, do not have defined Outside Dates for Release, their loan balances may
be prepaid if the associated LOCs are not replaced per LOC Agreement terms,
or upon an event of default. Although all Mortgage Loans prohibit voluntary
partial prepayment, the following Mortgage Loans may require partial
prepayments as described.
<TABLE>
<CAPTION>
Escrowed
Holdback or
Mortgage Letter of Credit Outside Date Prepayment
Loan No. Property Name Release Conditions Amount for Release Premium Provisions
- -------- -------------- ------------------ ------ ----------- ------------------
<S> <C> <C> <C> <C> <C>
27 609 Greenwich 1) Base rents increase for current tenant, $3,100,000 3/27/00 Yield Maintenance
Gun for Hire, per lease conditions.
2) Tenant delivers to Lender an estoppel
certificate indicating that the Lease is
in full force and effect, and there are
no defaults under the Mortgage Loan.
28 The Office Center at 1) Borrower has completed and performed or $270,000 10/31/03 Yield Maintenance
Ramsey paid for all Tenant Improvements ("TIs")
and Leasing Commissions ("LCs") associated
with the JD Rspace.
1) Base rents increase for current tenant, $235,000 10/31/99 Yield Maintenance
UPS, per lease conditions.
33 Plymouth Plus Property 1) Immediate Repairs are performed per $16,875 12/10/99 Yield Maintenance
agreement.
37 Bloomington Distribution 1) Environmental Remediation is performed $12,500 12/10/99 Yield Maintenance
Center & StationStore per agreement.
51 Monticello Village 1) Immediate Repairs are performed per $34,797 6/1/00 Yield Maintenance
agreement.
52 Monticello Townhouses 1) Immediate Repairs are performed per $17,693 6/1/00 Yield Maintenance
agreement.
53 Logan Way 1) Immediate Repairs are performed per $8,847 6/1/00 Yield Maintenance
agreement.
54 Essex House 1) Immediate Repairs are performed per $3,539 6/1/00 Yield Maintenance
agreement.
56 Holiday Companies 1) Immediate Repairs are performed per $49,875 12/10/99 Yield Maintenance
Headquarters agreement.
57 2495 Boulevard of 1) Immediate Repairs are performed per $19,375 1/1/00 Yield Maintenance
the Generals agreement.
64 1233-1259 Reamwood Ave. 1) Seismic Upgrading is performed per $170,000 2/1/00 Yield Maintenance
agreement.
67-68 Meadow Creek Village 1) Borrower to provide evidence that $100,000 9/30/99 Yield Maintenance
Shopping Center Blockbuster has accepted leased premises
and Woodlake Vilage and is paying rent.
Shopping Center 2) Lender has received estoppel certificate.
3) Lender's fees and expenses are reimbursed.
II-17
<PAGE>
<CAPTION>
FOOTNOTES TO APPENDIX II
Escrowed
Holdback or
Mortgage Letter of Credit Outside Date Prepayment
Loan No. Property Name Release Conditions Amount for Release Premium Provisions
- -------- -------------- ------------------ ------ ----------- ------------------
<S> <C> <C> <C> <C> <C>
71 Diamondback Building 1) Single tenant, Derby Cycle Corp., $177,000 8/15/99 Yield Maintenance
commences paying full rent.
72 Haywood Plaza Shopping 1) Borrower has completed and performed $150,000 N/A Yield Maintenance
Center or paid all TIs and LCs associated with
the largest tenant space, TJX.
2) Lender has received architect
certificate, fully executed lease(s), and
lessee's estoppel certificate(s).
1) Borrower has completed and performed $75,000 N/A Yield Maintenance
the Ongoing Repairs and has paid all
associated costs.
2) Lender approves of all such repairs.
74 Belz Factory Outlet Mall 1) Immediate Repairs are performed per $17,600 1/1/00 Yield Maintenance
agreement.
75 200 Forest Drive 1) Environmental Remediation is $25,000 5/1/99 Yield Maintenance
performed per agreement.
2) Immediate Repairs are performed per $100,000 12/31/01 Yield Maintenance
agreement.
82 Highland Ridge 1) Immediate Repairs are performed per $26,500 11/1/99 Yield Maintenance
Apartments agreement.
93 15800 NW 13th Ave 1) Borrower has completed and performed $150,000 N/A Yield Maintenance
or paid for Capital Expenses and TI/LCs
that occur throughout the term of the
Mortgage Loan per agreements.
95 Eastgate Village 1) Borrower has completed and performed $22,500 12/1/99 Yield Maintenance
Shopping Center or paid for all TIs associated with the
box condition. build-out of a vacant
space to a vanilla box condition.
96 Normandy Manor Apartments 1) Immediate Repairs are performed per $27,438 11/1/99 Yield Maintenance
agreement.
97 Highland Creste Apartments 1) Immediate Repairs are performed per $55,780 11/1/99 Yield Maintenance
agreement.
98 2325 Maryland Road 1) Immediate Repairs are performed per $17,750 1/1/00 Yield Maintenance
agreement.
104 Riverview Village 1) Immediate Repairs are performed per $108,000 6/1/00 Yield Maintenance
Shopping Center agreement.
105 American Plaza 1) Immediate Repairs are performed per $13,750 1/1/00 Yield Maintenance
Shopping Center agreement.
110 4296 Albany Street 1) Immediate Repairs are performed per $58,375 3/30/00 Yield Maintenance
agreement.
113 910 Orlando Avenue 1) Immediate Repairs are performed per $51,813 5/1/00 Yield Maintenance
agreement.
II-18
<PAGE>
FOOTNOTES TO APPENDIX II
<CAPTION>
Escrowed
Holdback or
Mortgage Letter of Credit Outside Date Prepayment
Loan No. Property Name Release Conditions Amount for Release Premium Provisions
- -------- -------------- ------------------ ------ ----------- ------------------
<S> <C> <C> <C> <C> <C>
115 The Weston Road Shoppes 1) Lady Fitness Center takes occupancy $461,500 9/2/99 Yield Maintenance
and commences paying rent per the
executed lease.
116 Central Jersey Office and 1) Immediate Repairs are performed per $18,600 5/1/01 Yield Maintenance
Industrial Park agreement.
127 Pembrooke Medical Office 1) Immediate Repairs are performed per $9,375 12/31/99 Yield Maintenance
agreement.
</TABLE>
All yield maintenance premiums indicated above are to be paid by the
Borrower.
With respect to Mortgage Loan. 75, 200 Forest Drive, the required
environmental remediation has been performed per the requirements of the
environmental consultant. However, the Nassau County Department of Health
has required further action outside of the recommended remediation. The
Borrower has complied with all requirements to date, and the escrow will be
held until closure is reached.
8 Mortgage Loan Nos. 1-21, the Edens & Avant Retail Properties, and Mortgage
Loan No. 40, The Landings Apartments, require monthly payments of
interest-only until their scheduled maturity. Mortgage Loan No. 39, Park
Towne North Apartments, requires monthly payments of interest-only for five
(5) years from the First Payment Date. On 5/1/2004, the loan will begin to
amortize according to a 360-month amortization schedule with principal and
interest payments of $67,675.85 per month. The indicated DSCR for such loans
reflects current scheduled payments of interest only.
9 The "First Payment Date" represents the date of the first payment of
principal and interest, except for Loan Nos. 1-21, the Edens & Avant Retail
Center Properties, 39, Park Towne Apartments, and 40, The Landings
Apartments, for which the identified dates represent the date of the first
full payment of interest for each Mortgage Loan.
10 In general for each property, Percent Leased was determined based on a rent
roll provided by the borrower. For certain single-tenant properties, Percent
Leased was determined based on an executed lease. Percent Leased as of Date
indicates the date as of which Percent Leased was determined based on such
information.
Mortgage Loan No. 93, 15800 NW 13th Ave, contains approximately 48,345 SF of
vacant mezzanine office space, per the certified rent roll, that is not
included in the determination of Percent Leased, given the predominant
industrial property usage and the mezzanine-level location of the office
space.
11 "Largest Tenant" refers to the tenant that represents the greatest
percentage of the total square footage at the subject property.
12 "Seasoning" represents the number of months elapsed from the date of the
First Payment Date to the Cut-Off Date.
13 The prepayment term includes the number of loan payments from the first Due
Date (after the initial partial month interest only payment date, if any) to
the stated maturity. "DEF" represents defeasance. "YM1" represents the
greater of yield maintenance and 1%. "Open" represents the number of
payments, including the maturity date, at which principal prepayments are
permitted without payment of a prepayment premium. For each Mortgage Loan,
the number set forth under a category of prepayment provisions represents
the number of payments in the Original Term to Maturity for which such
provision applies. See Footnote 7 for additional prepayment information.
14 Mortgage Loans with associated Yield Maintenance Prepayment Premiums are
categorized according to unique Yield Maintenance formulas. There are four
different Yield Maintenance formulas represented by the loans in the subject
mortgage loan pool. The different formulas are reference by the letters "A",
"B", "C", and "D". Summaries for the four formulas as listed beginning on
page II-21.
15 The Administrative Cost Rate indicated for each Mortgage Loan will be
calculated based on the same interest accrual method applicable to each
Mortgage Loan.
II-19
<PAGE>
FOOTNOTES TO APPENDIX II
16 For "Capital Expenditure Escrow Required" identified as "Yes," collections
may occur at one-time or are ongoing. In certain instances, the amount of
the escrow may be capped or collected only for certain periods of such
Mortgage Loan or may not be replenished after a release of funds.
17 For "TI/LC Escrow Required" identified as "Yes," collections may occur at
one-time or are ongoing. In certain instances, the amount of the escrow may
be capped or collected only for certain periods of such Mortgage Loan or may
not be replenished after a release of funds. The weighted percentage of
Mortgaged Loans disclosed as having TI/LC cash or letter of credit balances
in place considers only Mortgage Loans on commercial-type properties,
excluding multifamily, senior housing and self storage Mortgage Loans.
18 "Initial Capital Expenditures Reserve Requirement" indicates the amount or,
in certain cases, a letter of credit amount, deposited at loan closing. For
certain single-note multi-property loans, such escrows may be allocated to
each property based on the related allocated loan balance, or by square
footage or number of units relative to the loan pool.
19 "Current Capital Expenditure Escrow Balance" indicates the balance or, in
certain cases, a letter of credit, in place as of May 5, 1999, except for
Mortgage Loan Nos. 1-21, of The Edens & Avant Retail Center Portfolio, which
are disclosed as of June 21, 1999.
20 "Monthly Capital Expenditure Escrow Requirement" indicates the monthly
amount designated for Capital Expenditure Escrow in the loan documents for
such Mortgage Loan (see Footnote 16 above).
21 "Initial TI/LC Escrow Requirement" indicates the amount or, in certain
cases, a letter of credit balance, deposited at loan closing. For certain
single-note multiple-property loans, such escrows may be allocated to each
property based on the related allocated loan balance, or by square footage
or number of units relative to the loan pool.
22 "Current Capital Expenditure Escrow Balance" indicates the balance or, in
certain cases, a letter of credit, in place as of May 5, 1999, except for
Mortgage Loan Nos. 1-21, The Edens & Avant Retail Center Portfolio, which
are disclosed as of June 21, 1999. With respect to Mortgage Loan No. 41,
849-909 Newark-Jersey City Turnpike, TI/LC reserves are required only
between 8/1/2005 and 8/1/2008. With respect to Mortgage Loan No. 119,
Federal Express Warehouse, TI/LC reserves are required only between 1/1/2006
and 1/1/2008.
II-20
<PAGE>
FOOTNOTES TO APPENDIX II
YIELD MAINTENANCE FORMULAS
The following are summaries of yield maintenance provisions, or formulas,
contained in the related promissory note for certain of the mortgage loans.
There are four unique yield maintenance formulas represented by the mortgage
loans, each labeled as "A", "B", "C" or "D". Each Mortgage Loan, which provides
for a yield maintenance formula, references the applicable formula printed below
in the column titled "YM Formula".
A
On or after the end of the applicable Loan Year (as hereinafter defined),
on any scheduled payment date and subject to giving Payee not less than thirty
(30) nor more than ninety (90) days' prior written notice specifying the
scheduled payment date on which prepayment is to be made (the "Prepayment
Date"), Maker may prepay the entire principal amount together with any and all
accrued interest and other sums due under the Loan Documents, and subject to
payment of a prepayment premium equal to the greater of:
(a) the positive amount, if any, equal to (i) the sum of the present
values of all scheduled payments due under the Note from the
Prepayment Date to and including the Maturity Date, minus (ii) the
principal balance of the Note immediately prior to such
prepayment; or
(b) one percent (1.00%) of the principal balance of the Note
immediately prior to such prepayment.
All present values shall be calculated as of the Prepayment Date, using a
discount rate, compounded monthly, equal to the yield rate, converted to its
monthly equivalent, of the United States Treasury Security having the closest
maturity date to the Maturity Date of the Note as established in the Wall Street
Journal or other business publication of general circulation five (5) business
days before the Prepayment Date.
In the event that the yield rate on publicly traded United States Treasury
Securities is not obtainable, then the nearest equivalent issue or index shall
be selected, at Payee's reasonable determination, and used to calculate the
prepayment premium.
- --------------------------------------------------------------------------------
The loan will be open to prepayment without premium during the last ninety
(90) days of the term of the loan. If any notice of prepayment is given, the
principal balance of the loan and the other sums required pursuant to this
Section 2 shall be due and payable on the Prepayment Date, unless Maker provides
written notice to Payee that it is revoking said prepayment notice no later than
five (5) business days prior to the Prepayment Date.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Provided no default exists under the Loan Documents, the above premium
shall not be applicable to a prepayment resulting from Payee's election to
require insurance loss proceeds or condemnation awards to be applied to a
payment of principal.
- --------------------------------------------------------------------------------
No partial prepayment shall be allowed.
The Loan Year is defined as any twelve month period commencing with the
date on which the first monthly installment is due or any anniversary thereof.
- --------------------------------------------------------------------------------
NOTE: For Mortgage Loans 23-25, Fontana Plaza, Foothill Plaza, and Plaza East,
the first paragaraph highlighted above should be substituted by the following
language:
The loan will be open to prepayment without premium during the last one
hundred eighty (180) days of the term of the loan. If any notice of prepayment
is given, the principal balance of the loan and the other sums required pursuant
to this Section 2 shall be due and payable on the Prepayment Date, unless Maker
provides written notice to Payee that it is revoking said prepayment notice no
later than five (5) business days prior to the Prepayment Date.
NOTE: For Mortgage Loan 83, Kings Hill Industrial Center, the second paragaraph
highlighted above should be substituted by the following language:
The above premium shall not be applicable to a prepayment resulting from
Payee's election to require insurance loss proceeds or condemnation awards to be
applied to a payment of principal.
- --------------------------------------------------------------------------------
II-21
<PAGE>
FOOTNOTES TO APPENDIX II
YIELD MAINTENANCE FORMULAS
B
Loan Prepayment. Borrower may not prepay any principal of the Note prior to
the Maturity Date, except that after the Lockout Date, Borrower may prepay the
Loan, upon thirty (30) days' prior written notice to the Lender, in full, but
not in part, except as allowed pursuant to paragraph 42 of the Mortgage, by
paying all principal and interest to the date of prepayment, along with all
other Indebtedness then due, and (subject to the provisions in the Mortgage
regarding the disposition of casualty and condemnation proceeds) upon the
payment of a "Make Whole Premium." The Make Whole Premium shall be the greater
of one percent (1%) of the principal amount to be prepaid or a premium
calculated as provided in subparagraphs (i) and (iv) below:
(i) Determine the "Reinvestment Yield." The Reinvestment Yield will
be equal to the yield on the U.S. Treasury Issue ("Primary
Issue")* published one week prior to the date of prepayment and
converted to an equivalent monthly compounded nominal yield.
* At this time there is not a U.S. Treasury Issue for this prepayment
period. At the time of prepayment, Lender shall select in its sole and
absolute discretion a U.S. Treasury Issue with similar remaining time to
maturity as the Note.
(ii) Calculate the "Present Value of the Loan." The Present Value of
the Loan is the present value of the payments to be made in
accordance with the Note (all installment payments and any
remaining payment due on the Maturity Date) discounted at the
Reinvestment Yield for the number of months remaining from the
date of prepayment to the Maturity Date.
(iii) Subtract the amount of the prepaid proceeds from the Present
Value of the Loan as of the date of prepayment. Any resulting
positive differential shall be the premium.
(iv) In the event the Loan is prepaid on or after that date which is
three (3) months prior to the Maturity Date, no Make Whole
Premium shall be due.
C
Loan Prepayment. Borrower may not prepay any principal of the Note prior to
the Maturity Date, except that after the Lockout Date, Borrower may prepay the
Loan, upon thirty (30) days' prior written notice to the Lender, in full, but
not in part, by paying all principal and interest to the date of prepayment,
along with all other Indebtedness then due, and (subject to the provisions in
the Mortgage regarding the disposition of casualty and condemnation proceeds)
upon the payment of a "Make Whole Premium." The Make Whole Premium shall be the
greater of one percent (1%) of the principal amount to be prepaid or a premium
calculated as provided in subparagraphs (i) and (iii) below:
(i) Determine the "Reinvestment Yield." The Reinvestment Yield will
be equal to the yield on the * U.S. Treasury Issue ("Primary
Issue") published one week prior to the date of prepayment and
converted to an equivalent monthly compounded nominal yield. In
the event there is no market activity involving the Primary
Issue at the time of prepayment, the Lender shall choose a
comparable Treasury Bond, Note or Bill ("Secondary Issue")
which the Lender reasonably deems to be similar to the Primary
Issue's characteristics (i.e., rate, remaining time to
maturity, yield).
* At this time there is not a U.S. Treasury Issue for this prepayment
period. At the time of prepayment, Lender shall select a U.S. Treasury Issue
with similar remaining time to maturity as the Note.
(ii) Calculate the "Present Value of the Loan." The Present Value of
the Loan is the present value of the payments to be made in
accordance with the Note (all installment payments and any
remaining payment due on the Maturity Date) discounted at the
Reinvestment Yield for the number of months remaining from the
date of prepayment to the Maturity Date.
(iii) Subtract the amount of the prepaid Indebtedness from the
Present Value of the Loan as of the date of prepayment. Any
resulting positive differential shall be the premium.
(iv) In the event the Loan is prepaid on or after that date which is
three (3) months prior to the Maturity Date, no Make Whole
Premium shall be due.
(v) In the event an Event of Default and acceleration occur, the
Make Whole Premium shall be due and payable.
II-22
<PAGE>
FOOTNOTES TO APPENDIX II
YIELD MAINTENANCE FORMULAS
D
(A) On any Installment Payment Date on or after October 1, 2004, upon not
less than 30 nor more than 90 days' prior written notice to the Payee, the Maker
may, at its option, prepay the entire (but not less than the entire) aggregate
principal amount of this Note, at the principal amount so prepaid, together with
unpaid interest on the Note accrued to the date fixed for such prepayment, plus
a premium, unless all or any part of the principal of the Note has become due
and payable by declaration or acceleration following an Event of Default in
which event the premium shall be as provided in subsection (B), equal to the
greater of:
(i) 1% of the then outstanding principal balance of the Note or
(ii) the sum obtained by multiplying the then outstanding principal
balance of the Note by (x) the difference obtained by
subtracting the yield rate on publicly traded United States
Treasury Securities having the closest matching maturity date
to the maturity date of the Note as such yield rate is reported
in the Wall Street Journal or other similar business
publication of general circulation on the fifth business day
preceding the prepayment date or, if no yield rate on publicly
traded United States Treasury Securities is obtainable, at the
yield rate of the issue most closely equivalent to such United
States Treasury Securities, as determined by Payee in its
reasonable discretion, from 6.825% and (y) the number of years
and fraction thereof remaining between the prepayment date and
the scheduled maturity date of the Note.
In addition, during the final 90 days before maturity of the Note, upon not
less than 30 days' prior written notice, Maker may prepay the entire (but not
less than the entire) aggregate principal amount of the Note at the time
outstanding, at the principal amount so prepaid, together with unpaid interest
on the Note accrued to the date fixed for such prepayment and together with
other sums due under this Mortgage and all other documents evidencing or
securing the Note or otherwise pertaining thereto, without premium, unless Payee
has accelerated following an Event of Default as provided below.
The entire unpaid and outstanding aggregate principal amount of the Note
shall mature and become due and payable on the date fixed for prepayment,
together with the applicable premium and interest accrued and unpaid on such
date and together with such other sums due under the Mortgage and all other
documents evidencing or securing the Note or otherwise pertaining thereto.
(B) Except as specifically set forth in this Note and in Section 1.3 of the
Mortgage, this Note may not be prepaid in whole or in part. If, pursuant to any
provision of the Mortgage or otherwise, any principal of this Note shall become
due and payable by declaration of the Payee or acceleration by the Payee
following the occurrence of an Event of Default, the Payee shall be entitled to
receive a premium equal to the greater of:
(i) 10% of the then outstanding principal balance of the Note or
(ii) the sum obtained by multiplying the then outstanding principal
balance of the Note by (x) the difference obtained by
subtracting the yield rate on publicly traded United States
Treasury Securities having the closest matching maturity date
to the maturity date of the Note as such yield rate is reported
in the Wall Street Journal or other similar business
publication of general circulation on the fifth business day
preceding the prepayment date or, if no yield rate on publicly
traded United States Treasury Securities is obtainable, at the
yield rate of the issue most closely equivalent to such United
States Treasury Securities, as determined by Payee in its
reasonable discretion from 6.825% and (y) the number of years
and fraction thereof remaining between the prepayment date and
the scheduled maturity date of the Note.
If such Event of Default occurs on or after the date specified in the first
sentence of subsection (A) above, then in lieu of the premium specified in this
subsection (B), payment of a premium calculated in the manner set forth in such
subsection (A) shall be required.
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<PAGE>
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<PAGE>
APPENDIX III
- ------------
LOAN SUMMARIES WITH RESPECT TO THE TEN LARGEST BORROWER CONCENTRATIONS
LOAN NOS. 1 - 21 EDENS & AVANT RETAIL CENTER LOANS AND PROPERTIES
LOAN NOS. 1-11
<TABLE>
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance (1): $42,343,662 Property Type: Retail
Loan Type: Interest Only; Location: Various (2)
Balloon
Origination Date: 6/21/99 Year Built/Renovated: Various (3)
Maturity Date: 7/1/09 Square Feet: 869,919
Mortgage Rate: 6.800% Cut-Off Date Balance/SF (1): $51
Annual Debt Service (1): $2,879,369 Appraised Value (1): $83,203,000
DSCR (1): 2.51x Cut-Off Date LTV (1): 51.3%
Underwritable Cash Flow (1): $7,189,527 Balloon LTV (1): 51.3%
Balance at Maturity: $42,343,662 Percent Leased (1): 96.4%
Percent Leased as of Date Various(4)
- -------------
<FN>
(1) DSCR, Cut-Off Date Balance/SF, Current LTV and Balloon LTV calculations, as
well as Percent Leased, are based on Mortgage Loans 1 - 21, combined. Cut-
Off Date Balance, Annual Debt Service, Underwritable Cash Flow and Appraised
Value are based only on loans 1-11.
(2) The 11 properties that comprise this loan are located in Florida (two
properties), Virginia (two properties), Massachusetts (one property),
Maryland (one property), North Carolina (four properties) and South Carolina
(one property). Please refer to Appendix II for loan specific detail.
(3) The properties were constructed between 1970 and 1998, with ten of the
properties renovated or constructed between 1989 and 1998. Please refer to
Appendix II for loan specific detail.
(4) Rent rolls were obtained for the periods between 2/17/99 and 7/1/99. Please
refer to Appendix II for loan specific detail.
</FN>
- ---------------------------------------------------------------------------------------------
</TABLE>
LOAN NOS. 12 - 21
<TABLE>
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance (1): $40,838,486 Property Type: Retail
Loan Type: Interest Only; Location: Various (2)
Balloon
Origination Date: 6/21/99 Year Built/Renovated: Various (3)
Maturity Date: 7/1/09 Square Feet: 752,159
Mortgage Rate: 6.800% Cut-Off Date Balance/SF (1): $51
Annual Debt Service (1): $2,777,017 Appraised Value (1): $78,865,000
DSCR (1): 2.51x Cut-Off Date LTV (1): 51.3%
Underwritable Cash Flow (1) $7,007,591 Balloon LTV (1): 51.3%
Balance at Maturity: $40,838,486 Percent Leased (1): 96.4%
Percent Leased as of Date Various (4):
- -------------
<FN>
(1) DSCR, Cut-Off Date Balance/SF, Current LTV and Balloon LTV calculations, as
well as Percent Leased, are based on Mortgage Loans 1 - 21, combined. Cut-
Off Date Balance, Annual Debt Service, Underwritable Cash Flow and Appraised
Value are based only on loans 12-21.
(2) The 10 properties that comprise this loan are located in Florida (five
properties), Virginia (two properties), Alabama (one property), Georgia (one
property) and South Carolina (one property). Please refer to Appendix II for
loan specific detail.
(3) The properties were constructed between 1980 and 1999, with eight properties
renovated or constructed between 1988 and 1999. Please refer to Appendix II
for loan specific detail.
(4) Rent rolls were obtained for the periods between 3/1/99 and 4/13/99. Please
refer to Appendix II for loan specific detail.
</FN>
- ---------------------------------------------------------------------------------------------
</TABLE>
III-1
<PAGE>
THE LOANS
The Edens & Avant Retail Center Loans (the "Edens Pool Loans") are
secured by first mortgage on twenty-one (21) retail properties in eight (8)
states. The Edens Pool Loans were originated by MSMC on June 21, 1999. The Edens
Pool Loans consist of two loans, one with 11 properties and one with 10
properties, with original principal balances of $42,343,662 and $40,838,486,
respectively, which loans are cross-collateralized and cross-defaulted.
THE BORROWERS. E&A Acquisition Limited Partnership and E&A Acquisition
Two Limited Partnership (together, the "Edens Pool Borrowers") are bankruptcy
remote Delaware limited partnerships whose purpose is limited by the loan
documents and their organizational documents to owning and operating the Edens
Pool Properties and related activities.
SECURITY. The Edens Pool Loans are secured by Deed of Trust Security
Agreements, Loan Agreements, Assignments of Leases and Rents, UCC Financing
Statements and certain additional Security documents. The Edens Pool Loans are
non-recourse, subject to certain limited exceptions.
MAJOR TENANTS. Approximately 78.0% of the GLA is anchored by various
grocery anchor tenants, including Harris Teeter, Super Stop & Shop, Giant Foods,
Kroger, Food Lion and Winn-Dixie, while about 18.6% is anchored or shadow
anchored by the likes of Bed Bath and Beyond or Super Wal-Mart.
The largest single tenant of the Edens Pool Properties is Ruddick
Corporation, whose six leased Harris Teeter stores contribute less than
approximately 13.2% of the annualized base rent. The 10 largest tenants average
approximately 33,476 square feet per lease. Other than the Ruddick Corporation,
as of April 30, 1999, no single tenant contributes more than approximately 7.4%
of the annualized base rent of the Edens Pool Properties.
PAYMENT TERMS. The Mortgage Rates are fixed at 6.800% (the "Interest
Rate"). The Edens Pool Loans require combined monthly interest payments of
$471,365.52 until July 1, 2009 (the "Maturity Date"), at which time all unpaid
principal and accrued but unpaid interest is due. The Edens Pool Loans accrue
interest computed on the basis of twelve 30 day months in a 360-day year.
PREPAYMENT/DEFEASANCE. By their terms, the Edens Pool Loans may not be
voluntarily prepaid, in whole or in part, without payment of a prepayment
charge, except during the sixty (60) days prior to the Maturity Date. Commencing
on the date that is two years after the Edens Pool Loans are placed in a REMIC,
the Edens Pool Loans permit the release of any one or all of the Edens Pool
Properties upon delivery to mortgagee of U.S. Obligations which provide for
payments on or prior to, but as close as possible to, each payment date up to
the Maturity Date and in amounts equal to the interest payments due on the Edens
Pool Loans or Edens Pool Defeased Loan Amount, as applicable, on such dates, and
provide for payment on the Maturity Date of the remaining principal balance of
the Edens Pool Loans (a "Defeasance"). For a Defeasance of less than all of the
Edens Pool Properties, the "Edens Pool Defeased Loan Amount" is an amount equal
to 125% of the allocated loan amount (the "Allocated Loan Amount") of the Edens
Pool Property proposed to be released.
SUBSTITUTION OF PROPERTIES. Subject to specific terms set forth in the
loan documents, the Edens Pool Borrowers are permitted to substitute one or more
properties (each, an "Edens Substitute Property") for properties which are
collateral for the Edens Pool Loans (each, an "Edens Replaced Property"). Rating
Agency approval is required for any substitution in which (i) the net operating
income for the Edens Substitute Property is greater than 5% of the net operating
income for all of the Edens Pool Properties, and (ii) the aggregate amount of
net operating income for all Edens Substitute Properties is greater than 15% of
the net operating income for all Edens Pool Properties. No substitution may be
effected if the total Allocated Loan Amount for all prior substituted properties
is equal to 40% or more of the original principal amount of the Edens Pool
Loans.
LOCKBOX AND RESERVES. Pursuant to the Edens Pool Loans, the Edens Pool
Borrowers have established a soft lockbox (the "Lockbox") into which deposits
are made on a daily basis by the Edens Pool Manager. Tenants are currently
instructed to send rental payments to the Edens Pool Manager. The lockbox bank
is The National Bank of South Carolina. Pursuant to the Edens Pool Loans, the
Edens Pool Borrowers are required to direct tenants to make
III-2
<PAGE>
deposits directly to the Lockbox upon the occurrence of any of the following
events: (i) following the occurrence of a Loan Default, (ii) at the Maturity
Date, (iii) if the DSCR falls below 1.25x.
The Edens Pool Loans require initial and ongoing monthly escrows for
payment of debt service, taxes, insurance and capital expenditure reserves in
the amount of $0.20 per square foot annually. In addition, the Edens Pool Loans
require initial escrows for remediating deferred maintenance identified in the
engineering and environmental reports. As additional collateral for the Edens
Pool Loans, the Edens Pool Borrowers have escrowed approximately $865,000 in
additional reserves.
TRANSFER OF PROPERTIES AND INTEREST IN BORROWER; ENCUMBRANCE; OTHER
DEBT. Transfers of limited partner interests in the Edens Pool Borrowers are
permitted without the mortgagee's consent, provided that (i) no event of default
shall have occurred and be continuing, (ii) at least 15 business days' notice
shall be delivered to the mortgagee, (iii) the Edens Pool Borrowers shall remain
single purpose entities, (iv) no transfer of limited partner, non-managing
member or shareholder interests shall result in any one person (together with
members of his or her immediate family or any affiliates thereof) owning,
directly, indirectly or beneficially, 49% or more of the interest in the Edens
Pool Borrowers, (v) no such transfer of interest shall result in a change of
control of the Edens Pool Borrowers or the day to day operations of the Edens
Pool Properties, (vi) each Rating Agency will not qualify, reduce or withdraw
the ratings applicable to the certificates, and (vii) the Edens Pool Borrowers
provide such legal opinions as may be reasonably required by the mortgagee and
each Rating Agency.
However, (x) any transfer of limited partner, non-managing member or
shareholder interests in the Edens Pool Borrowers which results in any one
person (together with members of his or her immediate family or any affiliates
thereof) owning, directly, indirectly or beneficially, 49% or more of the
interest in the Edens Pool Borrowers, or (y) any transfer of interest in the
Edens Pool Borrower which results in a change of control of the Edens Pool
Borrowers or the day to day operations of the Edens Pool Properties shall not
require Rating Agency confirmation in the event such transfer is to any one or
more of the following: (A) an insurance company that has investments in real
estate and real estate-related assets equal in value to at least $500,000,000
and that has a senior unsecured credit rating by S&P of at least "AA-" and by
Moody's of at least "Aa3", (B) a pension fund that has investments in real
estate and real estate-related assets equal in value to at least $500,000,000
and that has a senior unsecured credit rating by S&P of at least "A-" and by
Moody's of at least "A3", (C) a real estate investment trust having a senior
unsecured credit rating of at least investment grade, or (D) any affiliate or
subsidiary of the foregoing so long as such affiliate or subsidiary has the
equivalent rating.
The Edens Pool Borrowers are not permitted to incur any additional
indebtedness other than unsecured indebtedness for trade payables incurred in
the ordinary course of owning and operating the Edens Pool Properties which does
not exceed, at any time, $1,100,000.00 and is paid within 60 days of the date
incurred.
THE PROPERTIES
The Edens Pool Properties securing the Edens Pool Loans are the Edens
Pool Borrowers' fee interest in 21 community and neighborhood retail shopping
centers located in Florida, Virginia, Massachusetts, South Carolina, Alabama,
Maryland, Georgia and North Carolina. Most of the Edens and Avant Pool
Properties were recently acquired by the Edens and Avant Pool Borrowers. The
Edens Pool Properties combined contain approximately 1,622,078 total square feet
of GLA and range in size from approximately 32,020 square feet to 178,033 square
feet of GLA, with an average size of approximately 77,241 square feet. As of
April 30, 1999, the average combined occupancy rate of the Edens Pool Properties
was approximately 96.4% and the aggregate annualized base rent was $16,619,392
or approximately $10.62 per square foot of occupied GLA. Twenty of the Edens
Pool Properties were recently purchased for $154,253,485. One property was
assigned a valuation of $3,365,000, as this property was previously owned or
developed by the Edens and Avant Pool Borrowers, and has similar loan to value
ratios as the 20 recently purchased properties. As of April 30, 1999, no single
Edens Pool Property accounted for more than approximately 11.0% of the total
GLA, more than approximately 9.9% of Annualized Base Rent or more than
approximately 9.5% of the Net Operating Income. No more than 8.5% of the total
combined square footage of the Edens Pool Properties rolls over per year before
2008. During 2008, approximately 11.8% of the total square footage rolls over,
with 36.9% rolling over thereafter.
III-3
<PAGE>
MANAGEMENT
The Edens Pool Properties are managed by Edens & Avant Properties
Limited Partnership (the "Edens Pool Manager"), which is an affiliate of the
Edens Pool Borrowers.
III-4
<PAGE>
LOAN NO. 22 - PLAZA MADISON LOAN AND PROPERTY
<TABLE>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $29,706,627 Property Type: Office/Retail
Loan Type: Principal & Interest Location: New York, NY
Balloon
Origination Date: August 28, 1998 Year Built/Renovated: 1951/1998
Maturity Date: 09/01/2013 Square Feet: 210,793
Mortgage Rate: 6.730% Cut-Off Date Balance/SF: $141
Annual Debt Service: $2,330,169 Appraised Value: $80,000,000
DSCR: 2.12x Cut-Off Date LTV: 37.1%
Underwritable Cash Flow: $4,943,459 Balloon LTV: 27.6%
Balance at Maturity: $22,041,661 Percent Leased: 96.8%
Percent Leased as of Date 5/12/99
- ---------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Plaza Madison Loan (the "Plaza Madison Loan") is secured by a first
mortgage on a 210,793 square foot office building (the "Plaza Madison
Property"), located in mid-town Manhattan, New York, New York. A predecessor
loan to the Plaza Madison Loan was originated by John Hancock Mutual Life
Insurance Company ("JHMLICO") in March of 1988. That loan was refinanced by
JHMLICO upon maturity on February 28, 1994 and was refinanced again in the
current Plaza Madison Loan on August 28, 1998. The Plaza Madison Loan was sold
to JHREF on May 14, 1999.
THE BORROWER. The Borrower is Plaza Madison Associates, L.P., a New York
limited partnership (the "Plaza Madison Borrower"). The partners of the Plaza
Madison Borrower consist of Kenneth Carmel ("Carmel"), Edwin Roos ("Roos"),
Jerome Cohen ("Cohen") and Norman Gross as executor of and nominee for the
Estate of Aaron Diamond (collectively, the "Plaza Madison General Partners"),
and approximately 18 limited partners including Carmel, Roos and Cohen.
SECURITY. The Plaza Madison Loan is secured by a Mortgage, a Collateral
Security Agreement, UCC Financing Statements and certain additional security
documents. The mortgage is a first lien on the fee interest in the Plaza Madison
Property. The Plaza Madison Loan is non-recourse, subject to certain limited
exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 6.730%. The Plaza Madison
Loan requires monthly payments of principal and interest of $194,180.76 until
its maturity on September 1, 2013, at which time all unpaid principal and
accrued but unpaid interest is due. The Plaza Madison Loan accrues interest
computed on the basis of twelve 30-days months in a 360-day year.
PREPAYMENT. The Plaza Madison Loan may be prepaid in whole, but not in
part, with at least 30 days prior written notice on or after October 1, 2004
upon payment of a Yield Maintenance Payment calculated on the basis of the
greater of a Yield Maintenance Premium calculated by reference to U.S. Treasury
obligations and one percent (1%) of the amount prepaid. No Yield Maintenance
Payment is due if the Plaza Madison Loan is prepaid within ninety (90) days
prior to maturity.
If there is an event of default and the lender accelerates the Plaza
Madison Loan, the security documents require the Plaza Madison Borrower to pay a
Yield Maintenance Payment calculated on the basis of the greater of (i) a Yield
Maintenance Premium calculated by reference to U.S. Treasury obligations and
(ii) ten percent (10%) of the then outstanding principal amount of the Plaza
Madison Loan.
LATE FEES AND DEFAULT INTEREST. There is a 7% late fee on overdue
installments. The Plaza Madison Loan accrues interest at the Mortgage Rate plus
7% per annum while the Plaza Madison Loan is in default.
III-5
<PAGE>
TRANSFER OF PROPERTY OR INTERESTS IN THE BORROWER. The Plaza Madison
Loan becomes immediately due and payable upon the transfer of the Plaza Madison
Property or any ownership interest in the Plaza Madison Borrower except in
connection with transfer by the Plaza Madison General Partners of their
partnership interests to (i) any other of the Plaza Madison General Partners,
(ii) family members of the Plaza Madison General Partners, (iii) a corporation
which becomes the general partner of the Plaza Madison Borrower or a limited
liability company, as long as the controlling interest in the corporation or
limited liability company is held by the present Plaza Madison General Partners.
ESCROW/RESERVES. There is a tax reserve which requires deposits in an
amount sufficient to pay taxes when due. There are no other reserves.
SUBORDINATE/OTHER DEBT. Subordinate indebtedness or encumbrances of the
Plaza Madison Property are prohibited except for a one-time right to incur
subordinated debt if the net annual income (the income from the operation of the
Plaza Madison Property after deducting all operating expenses, provisions for
taxes and reserves and all other property deductions) in any year is more than
180% of the combined annual debt service and the combined loan to value ratio
does not exceed 60%.
THE PROPERTY
The Plaza Madison Property is a 24-story office building with 210,793
square feet of rentable space, located in midtown Manhattan. The Plaza Madison
Property was 96.8% leased and 88.0% occupied as of May 12, 1999. The street
level retail tenant, Donna Karan International, is in the process of building
out its space and occupancy is anticipated by the end of August 1999. The
building is concrete and steel construction.
Major office tenants of the Plaza Madison Property include Loews
Corporation and E-L Management, Inc., an affiliate of Estee Lauder Cosmetics.
The retail tenant of the Plaza Madison Property is Donna Karan International.
Contractual lease expirations during the loan term are as follows: 11,400 square
feet (5%) in 1999, 11,050 square feet (5%) in 2000, 6,000 square feet (3%) in
2001, 4,500 square feet (2%) in 2002, 64,624 square feet (31%) in 2005, 2,650
square feet (1%) in 2006, 12,100 square feet (6%) in 2008, 3,550 square feet
(2%) in 2009, 69,500 square feet (33%) in 2012 and 18,630 square feet (9%) in
2013. As of May 12, 1999, the average rent was $41.93 per square foot.
MANAGEMENT
The Plaza Madison Property is managed by GVA Williams Real Estate
Company (the "Plaza Madison Property Manager"). Carmel, Roos and Cohen are the
principals of the Plaza Madison Property Manager. According to information
supplied by the Plaza Madison Borrower, the Plaza Madison Property Manager is a
large New York City commercial property management and leasing company, which
manages over 17 million square feet of office space in Manhattan.
III-6
<PAGE>
LOAN NOS. 32 & 33 - FRIDLEY PLUS AND PLYMOUTH PLUS HEADQUARTERS LOANS AND
PROPERTIES
LOAN NO. 32 - FRIDLEY PLUS
<TABLE>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $ 6,594,394 Property Type: Retail
Loan Type: Principal & Location: Fridley, MN
Interest; Balloon
Year Built/Renovated: 1967/1998
Origination Date: 06/10/1999 Square Footage: 164,983
Maturity Date: 07/01/2009 Cut-Off Date Balance/SF: $40
Mortgage Rate: 7.900% Appraisal Value: $11,000,000
Annual Debt Service: $ 606,048 Cut-Off Date LTV: 59.9%
DSCR: 1.40x Balloon LTV: 49.5%
Underwritable Cash Flow: $ 848,275 Percent Leased: 100.0%
Balance at Maturity: $ 5,441,851 Percent Leased as of Date: 05/12/1999
- --------------------------------------------------------------------------------------------
</TABLE>
LOAN NO. 33 - PLYMOUTH PLUS HEADQUARTERS
<TABLE>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $ 5,095,668 Property Type: Retail
Loan Type: Principal & Location: Plymouth, MN
Interest; Balloon
Year Built/Renovated: 1984/1998
Origination Date: 06/10/1999 Square Footage: 124,495
Maturity Date: 07/01/2009 Cut-Off Date Balance/SF: $40
Mortgage Rate: 7.900% Appraisal Value: $ 8,500,000
Annual Debt Service: $468,312 Cut-Off Date LTV: 59.9%
DSCR: 1.40x Balloon LTV: 49.5%
Underwritable Cash Flow: $ 652,317 Percent Leased: 100.0%
Balance at Maturity: $ 4,205,034 Percent Leased as of Date: 05/12/1999
- ----------------------------------------------------------------------------------------------
</TABLE>
THE LOANS
The Fridley Plus Loan (the "Fridley Plus Loan") is secured by a first
mortgage on a 164,983 square foot single story, grocery anchored, retail
shopping center located in Fridley, Minnesota (the "Fridley Plus Property"). The
Plymouth Plus Loan (the "Plymouth Plus Loan") is secured by a first mortgage on
a 124,495 square foot single story, grocery anchored, retail shopping center
located in Plymouth, Minnesota (the "Plymouth Plus Property"). The Fridley Plus
Loan and the Plymouth Plus Loan are referred to herein as the "Loans". The Loans
were originated by Principal Commercial Funding, LLC on June 10, 1999.
The Loans are cross-collateralized and cross-defaulted.
THE BORROWERS The borrowers, Fridley SPE, LLC and Plymouth SPE, LLC,
respectively, are Delaware limited liability companies (the "Borrowers"). The
Borrowers are 100% owned by Lyndale Terminal Co., a Minnesota sub S corporation,
incorporated in 1955 for the purpose of owning, operating and managing
commercial real estate. Lyndale Terminal Co. also owns 100% of two (2) other
borrowers in this securitization, Holiday Companies Headquarters Loan (No. 56)
and Bloomington Distribution Center and StationStore Loan (No. 37). The
Borrowers are single member, single purpose entities with an independent member
on their board of managers. Lender has also received legal opinions on issues
regarding substantive non-consolidation, the continuing existence of the
Borrowers in the event of a bankruptcy and certain other matters relating to the
Borrowers' single member structure.
SECURITY The Loans are secured by Mortgages, Assignments of Rents and
Leases, UCC Financing Statements and certain additional security documents (the
"Financing Documents"). Each Mortgage is a first lien on the related Borrower's
fee interest in the related Property. The Loans are non-recourse to the
Borrowers, subject to
III-7
<PAGE>
certain limited exceptions. Lyndale Terminal Co. has executed guaranties for the
fraud, misrepresentation and environmental carve outs.
The Loans are cross-collateralized with each other.
PAYMENT TERMS. The Mortgage Rates are fixed at 7.900% per annum. The
Fridley Plus Loan requires monthly payments of principal and interest of $50,504
until July 1, 2009, at which time all unpaid principal and interest is due. The
Plymouth Plus Loan requires monthly payments of principal and interest of
$39,026 until July 1, 2009, at which time all unpaid principal and interest is
due. The Loans accrue interest computed on the basis of the actual number of
days elapsed in each month in a 360-day year. There are lock boxes in place for
each Loan.
PREPAYMENT/DEFEASANCE. Voluntary prepayment is prohibited until three
(3) months prior to maturity. However, each Borrower may defease at any time
after two (2) years following issuance of the certificates. Defeasance is
permitted only upon the satisfaction of certain conditions specified in the
Financing Documents, including receipt of a REMIC opinion, and, at lender's
option, confirmation from each Rating Agency that defeasance would not result in
a downgrade, qualification or withdrawal of the then current ratings assigned to
any class of certificates. No prepayment premium is due if the Loans are prepaid
within three (3) months prior to maturity.
LATE FEES AND DEFAULT INTEREST. There is a 4% late fee on installments
overdue for a period exceeding five (5) days. There are lock box agreements that
permit the lender access to the related collection account for the monthly
installment on the 20th day of the preceding calendar month. The Loans accrue
interest at the mortgage rate plus 4% per annum while the related Loan is in
default. If an Event of Default occurs prior to the defeasance lock-out date,
the related Borrower is obligated to pay a make whole premium of at least 2% of
the outstanding loan amount.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Loans provide that
they will become immediately due and payable upon the transfer of the related
Property or any ownership interest in the related Borrower, except in connection
with any of the following permitted transfers.
Upon the payment of an assumption fee in the amount of the greater of
one percent (1%) of the outstanding principal balance of the related Loan or
$15,000, the Financing Documents permit each Borrower to transfer its Property
two (2) times during the life of the related Loan, subject to the Financing
Documents, provided that the transferee has a sponsor with a $10,000,000
tangible net worth and such sponsor assumes the related Loan's guaranty
obligations. In addition, any proposed transferee must reasonably satisfy the
lender's underwriting standards with respect to the proposed transferee. Such
transfers are permitted only upon the satisfaction of certain conditions
specified in the Financing Documents, including confirmation, at lender's
discretion, from each Rating Agency that the transfer would not result in a
downgrade, qualification or withdrawal of the then current ratings assigned to
any class of certificates. If any transfer of a Property does not satisfy the
foregoing requirements, lender's consent may be withheld or conditioned, at
lender's sole discretion.
The Financing Documents also permit the transfer of a direct ownership
interest in each Borrower provided that Lyndale Terminal Co. remains obligated
under its guaranty and retains a 51% interest in such Borrower and that certain
conditions specified in the Financing Documents are satisfied, including
confirmation, at lender's discretion, from each Rating Agency that the transfer
would not result in a downgrade, qualification or withdrawal of the then current
ratings assigned to any class of certificates. Any other transfer of a direct
ownership interest in Borrower is subject to lender's approval (which may be
withheld or conditioned at lender's sole discretion) and payment of the
assumption fee set out above. The Financing Documents permit transfers of equity
in Lyndale Terminal Co. and any future member of the Borrower.
ESCROWS/RESERVES. The Financing Documents require monthly escrow
deposits in amounts sufficient to pay taxes when due. The Borrowers maintain
blanket insurance policies that are prepaid one year in advance. Under certain
circumstances, Lender can require the Borrowers to deposit monthly reserves for
insurance premiums. The Fridley Plus Financing Documents require the Fridley
Plus Borrower to fund escrow for capital expenditures monthly in the amount of
$2,062. The Plymouth Plus Financing Documents require the Plymouth Plus Borrower
to fund an escrow for capital expenditures monthly in the amount of $1,556. In
addition, the Plymouth Plus Borrower
III-8
<PAGE>
has funded into escrow $16,875 for deferred maintenance of identified immediate
physical improvements in the amount of $13,500.
SUBORDINATED/OTHER DEBT. Secured subordinate indebtedness and
encumbrances are prohibited by the Financing Documents.
THE PROPERTIES
The Fridley Plus Property consists of 164,983 square feet of a single
story, grocery anchored, retail shopping center located in Fridley, Minnesota.
The Fridley Plus Property also consists of an undeveloped out parcel that may be
released from the lien of the mortgage subject to the Fridley Plus Financing
Document requirements. This out parcel was not included in the underwriting
analysis for this loan. The Fridley Plus Property is situated in the northwest
quadrant of Interstate 494 and University Avenue in the City of Fridley. The
Fridley Plus Property is accessible and visible from two major thoroughfares.
The building was constructed in 1967 of painted block.
As of May 12, 1999, the Fridley Plus Property is 100% leased to four (4)
tenants. An affiliate of Cub Foods Stores, Lyndale Terminal/Gander Mountain,
Lyndale Terminal/Fridley, and McDonalds. The Cub Foods Store affiliate is the
largest tenant and occupies approximately 63% (103,967 square feet) of the
Fridley Plus Property. Cub Foods Stores is a discount superstore that is owned
by SuperValu, Inc. Lyndale Terminal Co. leases 58,577 square feet (36%). Lyndale
Terminal Co. subleases 45,246 square feet of that space to its retail sporting
goods affiliate, Gander Mountain. Gander Mountain and Lyndale Terminal Co. are
affiliates of the Holiday Companies, a holding company founded in 1928 which was
ranked 140th on Forbes Top Private Companies 1997 list. Contractual lease
expirations during the loan term for all tenants are as follows: 2,439 square
feet (1.5%) in 2004; 103,967 square feet (63.0%) in 2013 and 58,577 square feet
(35.5%) in 2014.
The Plymouth Plus Property consists of 124,495 square feet in a single
story, grocery anchored, retail shopping center located in Plymouth, Minnesota.
The Plymouth Plus Property also consists of an undeveloped out parcel that may
be released from the lien of the mortgage subject to the Plymouth Plus Financing
Document requirements. This out parcel was not included in the underwriting
analysis for this loan. The Plymouth Plus Property is situated in the northwest
quadrant of Highway 169 and Rockford Road in the City of Plymouth. The Plymouth
Plus Property is accessible and visible from the interchange at Highway 169 and
Rockford Road, both major thoroughfares in the submarket. The building was
constructed in 1984 of painted, textured decorative block.
As of May 12, 1999, the Plymouth Plus Property was 100% leased to two
(2) tenants. An affiliate of Cub Foods, Inc. occupies 88,802 square feet (71%).
Lyndale Terminal Co. leases 35,693 square feet (29%). Lyndale Terminal Co.
subleases this space to its retail sporting goods affiliate, Gander Mountain.
Contractual lease expiration during loan term for all tenants are as
follows: 88,802 square feet (71.3%) in 2013 and 35,693 square feet (28.7%) in
2014.
MANAGEMENT
Lyndale Terminal Co. is the manager of the Properties. Lyndale Terminal
Co. is affiliated with the Borrowers. The Financing Documents contain management
termination and management fee subordination provisions.
III-9
<PAGE>
LOAN NO. 37 - BLOOMINGTON DISTRIBUTION CENTER AND STATION STORE LOAN AND
PROPERTY
<TABLE>
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $10,131,388 Property Type: Industrial
Loan Type: Principal & Location: Bloomington, MN
Interest; Balloon
Year Built/Renovated: 1965,1971,1980/NAP
Origination Date: 06/10/1999 Square Footage: 455,391
Maturity Date: 07/01/2009 Cut-Off Date Balance/SF: $22
Mortgage Rate: 7.900% Appraisal Value: $16,900,000
Annual Debt Service: $931,104 Cut-Off Date LTV: 59.9%
DSCR: 1.52x Balloon LTV: 49.5%
Underwritable Cash Flow: $ 1,411,846 Percent Leased: 100.0%
Balance at Maturity: $ 8,360,753 Percent Leased as of Date 05/12/1999
- -----------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Bloomington Distribution Center and StationStore Loan (the
"Bloomington Distribution Loan") is secured by a first mortgage on a 455,391
square foot distribution warehouse which includes 12,000 square feet of
mezzanine space and a two story truck maintenance building containing 13,182
square feet located in Bloomington, Minnesota (the "Bloomington Distribution
Property"). The Bloomington Distribution Loan was originated by Principal
Commercial Funding, LLC on June 10, 1999.
THE BORROWER. The borrower is World Wide SPE, LLC, a Delaware limited
liability company (the "Bloomington Distribution Borrower"). The Bloomington
Distribution Borrower is 100% owned by Lyndale Terminal Co., a Minnesota sub S
corporation, incorporated in 1955 for the purpose of owning, operating and
managing commercial real estate. Lyndale Terminal Co. also owns 100% of three
(3) other borrowers under loans in this securitization, Holiday Headquarters
Loan (No. 56), Plymouth Plus Loan (No. 33), and Fridley Plus Loan (No. 32). The
Bloomington Distribution Borrower is a single member, single purpose entity with
an independent member on its board of managers. Lender has also received legal
opinions on issues regarding substantive non-consolidation, the continuing
existence of the Bloomington Distribution Borrower in the event of a bankruptcy
and certain other matters relating to the Bloomington Distribution Borrower's
single member structure.
SECURITY. The Bloomington Distribution Loan is secured by a Mortgage,
Assignment of Rents and Leases, UCC Financing Statements and certain additional
security documents (the "Bloomington Distribution Financing Documents"). The
Mortgage is a first lien on the Bloomington Distribution Borrower's fee interest
in the Bloomington Distribution Property. The Bloomington Distribution Loan is
non-recourse to the Bloomington Distribution Borrower, subject to certain
limited exceptions. Lyndale Terminal Co. has executed a guaranty for the fraud,
misrepresentation and environmental carve outs.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.900% per annum. The
Bloomington Distribution Loan requires monthly payments of principal and
interest of $77,592 until July 1, 2009, at which time all unpaid principal and
accrued but unpaid interest is due. The Bloomington Distribution Loan accrues
interest computed on the basis of the actual number of days elapsed in each
month in a 360-day year. There is a lock box in place.
PREPAYMENT/DEFEASANCE. Voluntary prepayment is prohibited until ninety
(90) days prior to maturity. However, the Bloomington Distribution Borrower may
defease at any time after two (2) years following issuance of the certificates.
Defeasance is permitted only upon the satisfaction of certain conditions
specified in the Bloomington Distribution Financing Documents, including receipt
of a REMIC opinion, and, at lender's option, confirmation from each Rating
Agency that defeasance would not result in a downgrade, qualification or
withdrawal of the then current ratings assigned to any class of certificates. No
prepayment premium is due if the Bloomington Distribution Loan is prepaid within
ninety (90) days prior to maturity.
LATE FEES AND DEFAULT INTEREST. There is a 4% late fee on installments
overdue for a period exceeding five (5) days. There is a lock box agreement that
permits the lender access to the collection account for the monthly
III-10
<PAGE>
installment on the 20th day of the preceding calendar month. The Bloomington
Distribution Loan accrues interest at the mortgage rate plus 4% per annum while
the Bloomington Distribution Loan is in default. If an Event of Default occurs
prior to the defeasance lock-out date, the Bloomington Distribution Borrower is
obligated to pay a make whole premium of at least 2% of the outstanding loan
amount.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Bloomington
Distribution Loan provides that it will become immediately due and payable upon
the transfer of the Bloomington Distribution Property or any ownership interest
in the Bloomington Distribution Borrower, except in connection with any of the
following permitted transfers.
Upon the payment of an assumption fee in the amount of the greater of
one percent (1%) of the outstanding principal balance of the Bloomington
Distribution Loan or $15,000, the Bloomington Distribution Financing Documents
permit the Bloomington Distribution Borrower to transfer the Bloomington
Distribution Property two (2) times during the life of the Bloomington
Distribution Loan, subject to the Bloomington Distribution Financing Documents
provided that the transferee has a sponsor with a $10,000,000 tangible net worth
and such sponsor assumes the loan's guaranty obligations. In addition, any
proposed transferee must reasonably satisfy the lender's underwriting standards
with respect to the proposed transferee. Such transfers are permitted only upon
the satisfaction of certain conditions specified in the Bloomington Distribution
Financing Documents, including confirmation, at lender's discretion, from each
Rating Agency that the transfer would not result in a downgrade, qualification
or withdrawal of the then current ratings assigned to any class of certificates.
If any transfer of the Bloomington Distribution Property does not satisfy the
foregoing requirements, lender's consent may be withheld or conditioned, at
lender's sole discretion.
The Bloomington Distribution Financing Documents also permit the
transfer of the ownership interest in the Bloomington Distribution Borrower
provided that Lyndale Terminal Co. remains obligated under its guaranty and
retains a 51% interest in the Bloomington Distribution Borrower and that certain
conditions specified in the Bloomington Distribution Financing Documents are
satisfied, including confirmation, at lender's discretion, from each Rating
Agency that the transfer would not result in a downgrade, qualification or
withdrawal of the then current ratings assigned to any class of certificates.
Any other transfer of a direct ownership interest in the Bloomington
Distribution Borrower is subject to lender's approval (which may be withheld or
conditioned at lender's sole discretion) and payment of the assumption fee set
out above. The Bloomington Distribution Financing Documents permit transfers of
equity in Lyndale Terminal Co. and any future member of the Bloomington
Distribution Borrower.
ESCROWS/RESERVES. The Bloomington Distribution Financing Documents
require monthly escrow deposits in amounts sufficient to pay taxes when due. The
Bloomington Distribution Borrower maintains a blanket insurance policy which is
prepared one year in advance. Under certain circumstances, lender can require
the Bloomington Distribution Borrower to deposit monthly reserves for insurance
premiums. The Bloomington Distribution Financing Documents also require the
Bloomington Distribution Borrower to fund an escrow for capital expenditures
monthly in the amount of $4,554. In addition, the Bloomington Distribution
Borrower has funded into escrow $12,500 for identified environmental remediation
work in the amount of $10,000.
SUBORDINATED/OTHER DEBT. Secured subordinate indebtedness and
encumbrances are prohibited by the Bloomington Distribution Financing Documents.
THE PROPERTY
The Bloomington Distribution Property consists of a 455,391 square foot
distribution warehouse which includes 12,000 square feet of mezzanine space and
a two story truck maintenance building containing 13,182 square feet located in
Bloomington, Minnesota. The Bloomington Distribution Property is situated in the
southwest quadrant of Old Shakopee Road and Normandale Boulevard in the City of
Bloomington. The Bloomington Distribution Property is three miles west of
Interstate 35W and is accessed directly off of Shakopee Road, a major east/west
thoroughfare through the south suburbs of Minneapolis and St. Paul. The building
was completed in three phases in 1965, 1971 and 1980.
III-11
<PAGE>
As of May 12, 1999, the Bloomington Distribution Property was 100.0%
leased to two (2) tenants, World Wide Inc. and Lyndale Terminal Co. World Wide
Inc. occupies 99% (449,690 square feet) with a lease expiration date in 2014.
World Wide is the primary central inventory distribution arm for the Holiday
StationStores and the Gander Mountain Stores. World Wide is a subsidiary of
Holiday Companies, a holding company formed in 1928 that was ranked 140th on the
Forbes 500 Top Private Companies list in 1997. Holiday Companies has retail
interests in the areas of convenience stores/service stations (Holiday
StationStores, Inc.), sporting goods (Gander Mountain), and food wholesaling
(Fairway Foods). Lyndale Terminal Co., a sister company of Holiday Companies,
operates 1% (5,701 square feet) as a Holiday Stationstore.
MANAGEMENT
Lyndale Terminal Co. is the manager of the Bloomington Distribution
Property. Lyndale Terminal Co. is affiliated with the Bloomington Distribution
Borrower. The Bloomington Distribution Financing Documents contain management
termination and fee management subordination provisions.
III-12
<PAGE>
LOAN NO. 56 -- HOLIDAY COMPANIES HEADQUARTERS LOAN AND PROPERTY
<TABLE>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $ 6,654,344 Property Type: Office
Loan Type: Principal & Location: Bloomington, MN
Interest; Balloon
Year Built/Renovated: 1968/1985
Origination Date: 06/10/1999 Square Footage: 94,553
Maturity Date: 07/01/2009 Cut-Off Date Balance/SF: $70
Mortgage Rate: 7.900% Appraisal Value: $11,100,000
Annual Debt Service: $ 611,556 Cut-Off Date LTV: 59.9%
DSCR: 1.39x Balloon LTV: 49.5%
Underwritable Cash Flow: $849,159 Percent Leased: 100.0%
Balance at Maturity: $ 5,491,345 Percent Leased as of Date 05/12/1999
- --------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Holiday Companies Headquarters Loan (the "Holiday Headquarters
Loan") is secured by a first mortgage on a 94,553 square foot four story
suburban office building located in Bloomington, Minnesota (the "Holiday
Headquarters Property"). The Holiday Headquarters Loan was originated by
Principal Commercial Funding, LLC on June 10, 1999.
THE BORROWER. The borrower is Holiday SPE, LLC, a Delaware limited
liability company (the "Holiday Headquarters Borrower"). The Holiday
Headquarters Borrower is 100% owned by Lyndale Terminal Co., a Minnesota sub S
corporation, incorporated in 1955 for the purpose of owning, operating and
managing commercial real estate. Lyndale Terminal Co. also owns 100% of three
(3) other borrowers under loans in this securitization, Fridley Plus Loan (No.
32), Plymouth Plus Loan (No. 33) and Bloomington Distribution Center and
StationStore Loan (No. 37). The Holiday Headquarters Borrower is a single
member, single purpose entity with an independent member on its board of
managers. Lender has also received legal opinions on issues regarding
substantive non-consolidation, the continuing existence of the Holiday
Headquarters Borrower in the event of a bankruptcy and certain other matters
relating to the Holiday Headquarters Borrower's single member structure.
SECURITY. The Holiday Headquarters Loan is secured by a Mortgage,
Assignment of Rents and Leases, UCC Financing Statements and certain additional
security documents (the "Holiday Headquarters Financing Documents"). The
Mortgage is a first lien on the Holiday Headquarters Borrower's fee interest in
the Holiday Headquarters Property. The Holiday Headquarters Loan is non-recourse
to the Holiday Headquarters Borrower, subject to certain limited exceptions.
Lyndale Terminal Co. has executed a guaranty for the fraud, misrepresentation
and environmental carve outs.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.900% per annum. The
Holiday Headquarters Loan requires monthly payments of principal and interest of
$50,963 until July 1, 2009, at which time all unpaid principal and interest is
due. The Holiday Headquarters Loan accrues interest computed on the basis of the
actual number of days elapsed in each month in a 360-day year. There is a lock
box in place.
PREPAYMENT/DEFEASANCE. Voluntary prepayment is prohibited until three
(3) months prior to maturity. However, the Holiday Headquarters Borrower may
defease at any time after two (2) years following issuance of the certificates.
Defeasance is permitted only upon the satisfaction of certain conditions
specified in the Holiday Headquarters Financing Documents, including receipt of
a REMIC opinion, and, at lender's option, confirmation from each Rating Agency
that defeasance would not result in a downgrade, qualification or withdrawal of
the then current ratings assigned to any class of certificates. No prepayment
premium is due if the Holiday Headquarters Loan is prepaid within three (3)
months prior to maturity.
LATE FEES AND DEFAULT INTEREST. There is a 4% late fee on installments
overdue for a period exceeding five (5) days. There is a lock box agreement that
permits the lender access to the collection account for the monthly installment
on the 20th day of the preceding calendar month. The Holiday Headquarters Loan
accrues interest at the
III-13
<PAGE>
mortgage rate plus 4% per annum while the Holiday Headquarters Loan is in
default. If an Event of Default occurs prior to the defeasance lock-out date,
the Holiday Headquarters Borrower is obligated to pay a make whole premium of at
least 2% of the outstanding loan amount.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Holiday Headquarters
Loan provides that it will become immediately due and payable upon the transfer
of the Holiday Headquarters Property or any ownership interest in the Holiday
Headquarters Borrower, except in connection with any of the following permitted
transfers.
Upon the payment of an assumption fee in the amount of the greater of
one percent (1%) of the outstanding principal balance of the Holiday
Headquarters Loan or $15,000, the Holiday Headquarters Financing Documents
permit the Holiday Headquarters Borrower to transfer the Holiday Headquarters
Property two (2) times during the life of the Holiday Headquarters Loan, subject
to the Holiday Headquarters Financing Documents provided that the transferee has
a sponsor with a $10,000,000 tangible net worth and such sponsor assumes the
loan's guaranty obligations. In addition, any proposed transferee must
reasonably satisfy the lender's underwriting standards with respect to the
proposed transferee. Such transfers are permitted only upon the satisfaction of
certain conditions specified in the Holiday Headquarters Financing Documents,
including confirmation, at lender's discretion, from each Rating Agency that the
transfer would not result in a downgrade, qualification or withdrawal of the
then current ratings assigned to any class of certificates. If any transfer of
the Holiday Headquarters Property does not satisfy the foregoing requirements,
lender's consent may be withheld or conditioned, at lender's sole discretion.
The Holiday Headquarters Financing Documents also permit the transfer of
the ownership interest in the Holiday Headquarters Borrower provided that
Lyndale Terminal Co. remains obligated under this guaranty and retains a 51%
interest in the Holiday Headquarters Borrower and that certain conditions
specified in the Holiday Headquarters Financing Documents are satisfied,
including confirmation, at lender's discretion, from each Rating Agency that the
transfer would not result in a downgrade, qualification or withdrawal of the
then current ratings assigned to any class of certificates. Any other transfer
of a direct ownership interest in the Holiday Headquarters Borrower is subject
to lender's approval (which may be withheld or conditioned at lender's sole
discretion) and payment of the assumption fee set out above. The Holiday
Headquarters Financing Documents permit transfers of equity in Lyndale Terminal
Co. and any future member of the Holiday Headquarters Borrower.
ESCROWS/RESERVES. The Holiday Headquarters Financing Documents require
monthly escrow deposits in amounts sufficient to pay taxes when due. Under
certain circumstances, lender can require the Holiday Headquarters Borrower to
deposit monthly reserves for insurance premiums. The Holiday Headquarters
Financing Documents also require the Holiday Headquarters Borrower to fund an
escrow for capital expenditures monthly in the amount of $1,576. In addition,
the Holiday Headquarters Borrower has funded into escrow $49,875 for deferred
maintenance of identified immediate physical improvements in the amount of
$39,900.
SUBORDINATED/OTHER DEBT. Secured subordinate indebtedness and
encumbrances are prohibited by the Holiday Headquarters Financing Documents.
THE PROPERTY
The Holiday Headquarters Property consists of 94,553 square feet of a
four story suburban office building located in Bloomington, Minnesota. The
Holiday Headquarters Property is situated in the southwest quadrant of
Interstate 494 and France Avenue in the City of Bloomington. The Holiday
Headquarters Property fronts on Interstate 494, the primary ring artery around
the MSA. The building was completed in two phases. In 1968, a 62,524 square foot
two story office building was completed. In 1985, 5,245 square feet of heated
parking; 23,76 square feet of unheated parking and 32,029 square feet of office
were added.
As of May 12, 1999, the Holiday Headquarters Property is 100% leased to
one tenant, Holiday Stationstores, Inc. which operates convenience stores
throughout the Midwest and is one of the top 40 convenience store companies in
North America according to 1999 CSnews online. Holiday StationStores, Inc. is
wholly owned by Holiday Companies, a holding company founded in 1928 which was
ranked 140th on Forbes Top Private Companies 1997 list. Holiday StationStores,
Inc lease expires June 30, 2014.
III-14
<PAGE>
MANAGEMENT
Lyndale Terminal Co. is the manager of the Holiday Headquarters
Property. Lyndale Terminal Co. is affiliated with the Holiday Headquarters
Borrower. The Holiday Headquarters Financing Documents contain management
termination and management fee subordination provisions.
III-15
<PAGE>
LOAN NOS. 57, 58 & 59 -- 2495 BOULEVARD OF THE GENERALS, 160 RITTENHOUSE CIRCLE,
AND 603 GENERAL WASHINGTON AVENUE LOANS AND PROPERTIES
LOAN NO. 57 -- 2495 BOULEVARD OF THE GENERALS
<TABLE>
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $ 2,969,032 Property Type: Industrial
Loan Type: Principal & Location: W. Norriton, PA
Interest; Balloon
Year Built/Renovated: 1988/NAP
Origination Date: 04/14/1999 Square Footage: 71,023
Maturity Date: 05/01/2009 Cut-Off Date Balance/SF: $40
Mortgage Rate: 7.090% Appraisal Value: $ 4,425,000
Annual Debt Service: $ 239,682 Cut-Off Date LTV: 68.9%
DSCR: 1.60x Balloon LTV: 60.5%
Underwritable Cash Flow: $399,442 Percent Leased: 100.0%
Balance at Maturity: $ 2,606,465 Percent Leased as of Date 03/11/1999
- -------------------------------------------------------------------------------------------
</TABLE>
LOAN NO. 58 -- 160 RITTENHOUSE CIRCLE
<TABLE>
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $ 2,122,556 Property Type: Industrial
Loan Type: Principal & Location: Bristol Twp., PA
Interest; Balloon
Year Built/Renovated: 1973/NAP
Origination Date: 04/14/1999 Square Footage: 60,000
Maturity Date: 05/01/2009 Cut-Off Date Balance/SF: $40
Mortgage Rate: 7.090% Appraisal Value: $ 3,025,000
Annual Debt Service: $ 171,348 Cut-Off Date LTV: 68.9%
DSCR: 1.60x Balloon LTV: 60.5%
Underwritable Cash Flow: $257,417 Percent Leased: 100.0%
Balance at Maturity: $ 1,863,357 Percent Leased as of Date 03/11/1999
- -----------------------------------------------------------------------------------------------
</TABLE>
LOAN NO. 59 -- 603 GENERAL WASHINGTON AVENUE
<TABLE>
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $ 1,467,625 Property Type: Industrial
Loan Type: Principal & Location: W. Norriton Twp.,
Interest; Balloon PA
Year Built/Renovated: 1991/NAP
Origination Date: 04/14/1999 Square Footage: 31,836
Maturity Date: 05/01/2009 Cut-Off Date Balance/SF: $40
Mortgage Rate: 7.090% Appraisal Value: $ 2,075,000
Annual Debt Service: $ 118,477 Cut-Off Date LTV: 68.9%
DSCR: 1.60x Balloon LTV: 60.5%
Underwritable Cash Flow: $191,787 Percent Leased: 100.0%
Balance at Maturity: $ 1,288,403 Percent Leased as of Date 03/11/1999
- -----------------------------------------------------------------------------------------------
</TABLE>
THE LOANS
The 2495 Boulevard of the Generals Loan (the "2495 Boulevard Loan") is
secured by a first mortgage on 71,023 square feet in 3 one-story flex
office/industrial buildings located in West Norriton Township, Pennsylvania (the
"2495 Boulevard Property"). The 160 Rittenhouse Circle Loan (the "160
Rittenhouse Loan") is secured by a first mortgage on a 60,000 square foot single
story light industrial building located in Bristol Township, Pennsylvania (the
"160 Rittenhouse Property"). The 603 General Washington Avenue Loan (the
"General Washington Loan") is secured by a first mortgage on a 31,836 square
foot single story industrial building located in
III-16
<PAGE>
West Norriton Township, Pennsylvania (the "General Washington Property"). The
2495 Boulevard Loan, 160 Rittenhouse Loan and the General Washington Loan are
referred to herein as the "Loans". The Loans were originated by Principal
Commercial Funding, LLC on April 14th, 1999. The Loans are cross-collateralized.
THE BORROWERS. The borrower for the 2495 Boulevard Loan is PKW
Associates, a Pennsylvania limited partnership (the "2495 Boulevard Borrower").
The 2495 Boulevard Borrower is controlled by the Korngold Ltd (85%) and Gary
Whelan (15%). Korngold Ltd is a limited partnership with Eric Korngold and Leon
Korngold as 66% general partners and the limited partners are their children.
The borrower for the 160 Rittenhouse Loan is Rittenhouse Circle
Associates, a Pennsylvania limited partnership (the "160 Rittenhouse Borrower").
The 160 Rittenhouse Borrower is controlled by Korngold Ltd. (68.3%) and
grandchildren of Eric and Leon Korngold (31.7%). Korngold Ltd. is a limited
partnership with Eric Korngold and Leon Korngold as 66% general partners and the
limited partners are their children.
The borrower for the General Washington Loan is Weld Associates, L.P., a
Pennsylvania limited partnership (the "General Washington Borrower"). The
General Washington Borrower is controlled by Eric and Leon Korngold (6.7%), Gary
Whelan (14.2%) and the Korngold grandchildren (79.7%). Eric and Leon Korngold
each have over 50 years of real estate experience. Together they own or manage
850,000 square feet of commercial property. Eric and Leon Korngold also own a
controlling interest in the borrowers under ten (10) other loans in this
securitization:
219 Rittenhouse Circle Loan (#84);
171 Rittenhouse Circle Loan (#85);
4303 Lewis Road Loan (#86);
2325 Maryland Road Loan (#98);
701 Willowbrook Lane Loan (#99);
2524 Ford Road Loan (#100);
2554 Ford Road Loan (#101);
247 Rittenhouse Circle Loan (#102);
130 Wharton Road Loan (#111) and
2564 Boulevard of the Loan (#112).
SECURITY Each loan is secured by a Mortgage, Assignment of Rents and
Leases, UCC Financing Statements and certain additional security documents (the
"Financing Documents"). Each Deed of Trust is a first lien on the related
Borrower's fee interest in the related Property. The Loans are non-recourse to
the Borrowers, subject to certain limited exceptions. Eric Korngold and Leon
Korngold have executed guaranties for the fraud, misrepresentation and
environmental carveouts.
The Loans are cross-collateralized with each other.
PAYMENT TERMS. The Mortgage Rates are fixed at 7.090% per annum. The
2495 Boulevard Loan requires monthly payments of principal and interest of
$19,973.46 until May 1, 2009, at which time all unpaid principal and accrued but
unpaid interest is due. The 160 Rittenhouse Loan requires monthly payments of
principal and interest of $14,278.99 until May 1, 2009, at which time all unpaid
principal and accrued but unpaid interest is due. The General Washington Loan
requires monthly payments of principal and interest of $9,873.10 until May 1,
2009, at which time all unpaid principal and accrued but unpaid interest is due.
The Loans accrue interest computed on the basis of the actual number of days
elapsed in each month in a 360-day year.
PREPAYMENT/DEFEASANCE. Voluntary prepayment is prohibited until three
(3) months prior to maturity. However, each Borrower may defease at any time
after June 1, 2003. Defeasance is permitted only upon the satisfaction of
certain conditions specified in the Financing Documents, including, at lender's
option, confirmation from each Rating Agency that defeasance would not result in
a downgrade, qualification or withdrawal of the then current ratings assigned to
any class of certificates. No prepayment premium is due if the Loans are prepaid
within three (3) months prior to maturity.
LATE FEES AND DEFAULT INTEREST. There is a 4% late fee on overdue
installments. The Loans accrue interest at the mortgage rate plus 4% per annum
while the related Loan is in default.
III-17
<PAGE>
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Loans provide that
they will become immediately due and payable upon the transfer of the related
Property or any ownership interest in the related Borrower, except in connection
with any of the following permitted transfers.
Upon payment of an assumption fee equal to the greater of $15,000 or one
percent (1%) of the outstanding principal balance on the related Loan, the
Financing Documents permit each Borrower to transfer two (2) times each related
Property, subject to the Financing Documents. Such transfer is permitted only
upon the satisfaction of certain conditions specified in the Financing
Documents, including the proposed transferee must reasonably satisfy the
Lender's underwriting standards for proposed transferees.
Upon payment of an assumption fee equal to the greater of $15,000 or one
(1%) of the outstanding principal balance of the related Loan or a prorated
amount of said one (1%) if less than the entire interest in the related Borrower
is transferred, the Financing Documents also permit the transfer of all or part
of the ownership interest in the related Borrower provided: (i) the transfer of
the partnership interest is to the immediate family members of Eric Korngold or
Leon Korngold; (ii) Eric Korngold or Leon Korngold retain a general partnership
interest in the related Borrower as well as manage and control the related
Borrower; and (iii) an experienced property manager acceptable to the Lender
continues to manage and Lease the related Property.
ESCROWS/RESERVES. The Financing Documents require monthly escrow
deposits in amounts sufficient to pay taxes and insurance premiums when due.
The 2495 Boulevard Financing Documents also provide for $100,000 in an
up front cash escrow and a 2,500 monthly escrow to cover tenant improvements and
leasing commissions. This escrow is capped at 175,000 and anytime the escrow
balance falls below the capped amount, the monthly cash flows escrow will
resume. In addition, the 2495 Boulevard Financing Documents provide for a $888
monthly escrow to cover replacement reserves. This escrow is capped at $21,307
and anytime the escrow balance falls below the capped amount, the monthly cash
flow escrow will resume.
The 160 Rittenhouse Financing Documents also provide for $1,250 monthly
escrow to cover tenant improvements and leasing commissions. This escrow is
capped at $90,000 and anytime the escrow balance falls below the capped amount,
the monthly cashflow escrow will resume. In addition, the 160 Rittenhouse
Financing Documents provide for a $750 monthly escrow to cover replacement
reserves. This escrow is capped at $18,000 and anytime the escrow balance falls
below the capped amount, the monthly cashflow escrow will resume.
The General Washington Financing Documents also provide for $1,250
monthly escrow to cover tenant improvements and leasing commissions. This escrow
is capped at $60,000 and anytime the escrow balance falls below the capped
amount, the monthly cashflow escrow will resume. In addition, the General
Washington Financing Documents provide for a $398 monthly escrow to cover
replacement reserves. This escrow is capped at $9,551 and anytime the escrow
balance falls below the capped amount, the monthly cashflow escrow will resume.
SUBORDINATED/OTHER DEBT. Secured subordinate indebtedness and
encumbrances are prohibited by the Financing Documents.
THE PROPERTIES
The 2495 Boulevard Property consists of 3 one story flex
office/industrial buildings with a total of 71,023 square feet, including 8,400
square feet of finished mezzanine office area designed for multi-tenant use
located in West Norriton Township, Pennsylvania. The 2495 Boulevard Property is
located in a 231 acre business park which is located off Route 363 and is less
than one mile from the intersection of Routes 363 and 422 and is approximately 3
miles from the Pennsylvania Turnpike, I-76 and Route 202. The buildings are
constructed of structural steel and brick veneer on masonry blocks with 18 foot
clear heights and 5, 5 and 2 dock high doors, respectively, and 1, 3 and 1
drive-in doors, respectively, with 50% total office finish. Contractual lease
expirations during the loan term for all tenants are as follows: 23,600 square
feet (33%) in 1999, 15,990 square feet (23%) in 2000; 6,280 square feet (9%) in
2001; 3,410 square feet (5%) in 2002; 21,743 square feet (31%) in 2003.
III-18
<PAGE>
As of March 11, 1999, the 2495 Boulevard Property was 100% leased to 8
tenants. The largest tenant, U.S. Postal, leases 33% and operates a mail drop
off and sorting operation.
The 160 Rittenhouse Property is a 60,000 square foot single story
industrial building located in Bristol Township, Pennsylvania. The 160
Rittenhouse Property is located in the Keystone Industrial Park which is at the
intersection of Interstate 95 and State Route 413 and less than 2 miles from
Exit 30 of the Pennsylvania Turnpike. The building has 20 foot clear heights
with 8 tailgate and 4 drive-in loading docks. The building is constructed of
structural steel framing with stone masonry over masonry block and insulated
metal paneling with 71% office finish.
As of March 11, 1999, the 160 Rittenhouse Property was 100% leased to
one tenant, Federal Express. Federal Express has been in this location for 5
years. Federal Express lease expires May 31, 2004
The General Washington Property is a single story 31,836 square foot
industrial building located in West Norriton Township, Pennsylvania. The General
Washington Property is located in a 231 acre business park less than one mile
from the intersection of Route 363 and 422 and approximately three miles from
the Pennsylvania Turnpike, I-76 and Route 202. The General Washington Property
has 20 foot clearing height with 10 drive-in loading docks with 10% office
finish. The building is constructed of free standing rigid steel framing and
brick veneer over masonry blocks with approximately 10% office finish.
As of March 11, 1999, the General Washington Property was 100% leased to
one tenant, Airborne Freight Corporation. Airborne Freight Corporation has been
in the General Washington building for 8 years and provides international and
domestic freight shipping services. Airborne Freight Corporation lease expires
September 30, 2001.
MANAGEMENT
Korngold Company is the manager of the Properties. Korngold Company
currently manages in excess of 850,000 square feet and has managed real property
since 1971. Korngold Company is affiliated with the related Borrowers. The
Financing Documents contain a management termination provision.
III-19
<PAGE>
LOAN NOS. 84, 85, & 86 -- 219 RITTENHOUSE CIRCLE, 171 RITTENHOUSE CIRCLE, AND
4303 LEWIS ROAD LOANS AND PROPERTIES
LOAN NO. 84 - 219 RITTENHOUSE CIRCLE
<TABLE>
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $ 1,624,373 Property Type: Industrial
Loan Type: Principal & Location: Bristol, PA
Interest; Balloon
Year Built/Renovated: 1982/NAP
Origination Date: 04/14/1999 Square Footage: 36,820
Maturity Date: 05/01/2009 Cut-Off Date Balance/SF: $39
Mortgage Rate: 7.090% Appraisal Value: $ 2,185,000
Annual Debt Service: $131,131 Cut-Off Date LTV: 72.4%
DSCR: 1.50x Balloon LTV: 63.6%
Underwritable Cash Flow: $177,752 Percent Leased: 100.0%
Balance at Maturity: $ 1,426,012 Percent Leased as of Date 03/11/1999
- --------------------------------------------------------------------------------------
</TABLE>
LOAN NO. 85 -- 171 RITTENHOUSE CIRCLE
<TABLE>
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $ 1,338,157 Property Type: Industrial
Loan Type: Principal & Location: Bristol, PA
Interest; Balloon
Year Built/Renovated: 1972/NAP
Origination Date: 04/14/1999 Square Footage: 40,000
Maturity Date: 05/01/2009 Cut-Off Date Balance/SF: $39
Mortgage Rate: 7.090% Appraisal Value: $ 1,800,000
Annual Debt Service: $108,026 Cut-Off Date LTV: 72.4%
DSCR: 1.50x Balloon LTV: 63.6%
Underwritable Cash Flow: $146,941 Percent Leased: 100.0%
Balance at Maturity: $ 1,174,746 Percent Leased as of Date 03/11/1999
- --------------------------------------------------------------------------------------
</TABLE>
LOAN NO. 86 -- 4303 LEWIS ROAD
<TABLE>
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $ 1,300,985 Property Type: Industrial
Loan Type: Principal & Location: Swatara, PA
Interest; Balloon
Year Built/Renovated: 1985/NAP
Origination Date: 04/14/1999 Square Footage: 32,664
Maturity Date: 05/01/2009 Cut-Off Date Balance/SF: $39
Mortgage Rate: 7.090% Appraisal Value: $ 1,900,000
Annual Debt Service: $105,025 Cut-Off Date LTV: 72.4%
DSCR: 1.50x Balloon LTV: 63.6%
Underwritable Cash Flow: $193,174 Percent Leased: 100.0%
Balance at Maturity: $ 1,142,114 Percent Leased as of Date 03/11/1999
- ----------------------------------------------------------------------------------------
</TABLE>
THE LOANS
The 219 Rittenhouse Circle Loan (the "219 Rittenhouse Loan") is secured
by a first mortgage on a 36,820 square foot single story flex industrial
building located in Bristol Township, Pennsylvania (the "219 Rittenhouse
Property"). The 171 Rittenhouse Circle Loan (the "171 Rittenhouse Loan") is
secured by a first mortgage on a 40,000 square foot single story warehouse
building located in Bristol Township, Pennsylvania (the "171 Rittenhouse
Property"). The 4303 Lewis Road Loan (the "4303 Lewis Loan") is secured by a
first mortgage on a 32,664 square
III-20
<PAGE>
foot single story flex industrial building located in Swatara Township,
Pennsylvania (the "4303 Lewis Property"). The 219 Rittenhouse Loan, 171
Rittenhouse Loan and the 4303 Lewis Loan are referred to herein as the "Loans".
The Loans were originated by Principal Commercial Funding, LLC on April 14th,
1999. The Loans are cross-collateralized.
THE BORROWERS. The borrower for the 219 Rittenhouse Loan is G.E.L.
Associates, a Pennsylvania limited partnership (the "219 Rittenhouse Borrower").
The 219 Rittenhouse Borrower is controlled by Korngold Ltd. (90%) and Gary
Whelan (10%). Korngold Ltd. is a limited partnership with Eric Korngold and Leon
Korngold as 66% general partners and the limited partners are their children.
The borrower for the 171 Rittenhouse Loan is Rittenhouse Circle
Properties, Inc., a Pennsylvania limited partnership (the "171 Rittenhouse
Borrower"). The 171 Rittenhouse Borrower is controlled by Korngold Ltd. (68.3%)
and Korngold grandchildren (31.7%). Korngold Ltd. is a limited partnership with
Eric Korngold and Leon Korngold as 66% general partners and the limited partners
are their children.
The borrower for the 4303 Lewis Loan is The borrower is Tara Associates,
a Pennsylvania limited partnership (the "4303 Lewis Borrower"). The 4303 Lewis
Borrower is controlled by Eric Korngold (37.5%), Leon Korngold (37.5%) and Gary
Whalen (25%).
Eric and Leon Korngold also own a controlling interest in the borrowers
under ten (10) other loans in this securitization:
2495 Boulevard of the Generals Loan (No. 57);
160 Rittenhouse Circle Loan (No. 58);
603 General Washington Avenue Loan (No. 59);
2325 Maryland Road Loan (No. 98);
701 Willowbrook Lane Loan (No. 99);
2524 Ford Road Loan (No. 100);
2554 Ford Road Loan (No. 101);
247 Rittenhouse Circle Loan (No. 102);
130 Wharton Road Loan (No. 111); and
2564 Boulevard of the Generals Loan (No. 112)
SECURITY Each loan is secured by a Mortgage , Assignment of Rents and
Leases, UCC Financing Statements and certain additional security documents (the
"Financing Documents"). Each Deed of Trust is a first lien on the related
Borrower's fee interest in the related Property. The Loans are non-recourse to
the Borrowers, subject to certain limited exceptions. Eric Korngold and Leon
Korngold have executed guaranties for the fraud, misrepresentation and
environmental carveouts.
The Loans are cross-collateralized with each other.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.090% per annum. The 219
Rittenhouse Loan requires monthly payments of principal and interest of
$10,927.58 until May 1, 2009, at which time all unpaid principal and accrued but
unpaid interest is due. The 171 Rittenhouse Loan requires monthly payments of
principal and interest of $9,002.13 until May 1, 2009, at which time all unpaid
principal and accrued but unpaid interest is due. The 4303 Lewis Loan requires
monthly payments of principal and interest of $8,752.07 until May 1, 2009, at
which time all unpaid principal and accrued but unpaid interest is due. The
Loans accrue interest computed on the basis of the actual number of days elapsed
in each month in a 360-day year.
PREPAYMENT/DEFEASANCE. Voluntary prepayment is prohibited until three
(3) months prior to maturity. However, each Borrower may defease at any time
after June 1, 2003. Defeasance is permitted only upon the satisfaction of
certain conditions specified in the Financing Documents, including, at lender's
option, confirmation from each Rating Agency that defeasance would not result in
a downgrade, qualification or withdrawal of the then current ratings assigned to
any class of certificates. No prepayment premium is due if the Loans are prepaid
within three (3) months prior to maturity.
III-21
<PAGE>
LATE FEES AND DEFAULT INTEREST. There is a 4% late fee on overdue
installments. The Loans accrue interest at the mortgage rate plus 4% per annum
while the related Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Loans provide that
they will become immediately due and payable upon the transfer of the related
Property or any ownership interest in the related Borrower, except in connection
with any of the following permitted transfers.
Upon payment of an assumption fee equal to the greater of $15,000 or one
percent (1%) of the outstanding principal balance on the related Loan, the
Financing Documents permit each Borrower to transfer two (2) times each related
Property, subject to the Financing Documents. Such transfer is permitted only
upon the satisfaction of certain conditions specified in the Financing
Documents, including the proposed transferee must reasonably satisfy the
Lender's underwriting standards for proposed transferees.
Upon payment of an assumption fee equal to the greater of $15,000 or one
(1%) of the outstanding principal balance of the related Loan or a prorated
amount of said one (1%) if less than the entire interest in the related Borrower
is transferred, the Financing Documents also permit the transfer of all or part
of the ownership interest in the related Borrower provided: (i) the transfer of
the partnership interest is to the immediate family members of Eric Korngold or
Leon Korngold; (ii) Eric Korngold or Leon Korngold retain a general partnership
interest in the related Borrower as well as manage and control the related
Borrower; and (iii) an experienced property manager acceptable to the Lender
continues to manage and Lease the related Property.
ESCROWS/RESERVES The Financing Documents require monthly escrow deposits
in amounts sufficient to pay taxes and insurance premiums when due.
The 219 Rittenhouse Financing Documents also provide for $1,250 monthly
escrow to cover tenant improvements and leasing commissions. This escrow is
capped at $60,000 and anytime the escrow balance falls below the capped amount,
the monthly cashflow escrow will resume. In addition, the 219 Rittenhouse
Financing Documents provide for a $462 monthly escrow to cover replacement
reserves. This escrow is capped at $11,076 and anytime the escrow balance falls
below the capped amount, the monthly cashflow escrow will resume.
The 171 Rittenhouse Financing Documents also provide for $1,000 monthly
escrow to cover tenant improvements and leasing commissions. This escrow is
capped at $48,000 and anytime the escrow balance falls below the capped amount,
the monthly cashflow escrow will resume. In addition, the 171 Rittenhouse
Financing Documents provide for a $500 monthly escrow to cover replacement
reserves. This escrow is capped at $12,000 and anytime the escrow balance falls
below the capped amount, the monthly cashflow escrow will resume.
The 4303 Lewis Financing Documents also provide for a $50,000 up front
cash escrow and $408 monthly escrow to cover tenant improvements and leasing
commissions. This escrow is capped at $70,000 and anytime the escrow balance
falls below the capped amount, the monthly cashflow escrow will resume. In
addition, the 4303 Lewis Financing Documents provide for a $835 monthly escrow
to cover replacement reserves. This escrow is capped at $9,799 and anytime the
escrow balance falls below the capped amount, the monthly cashflow escrow will
resume.
SUBORDINATED/OTHER DEBT. Secured subordinate indebtedness and
encumbrances are prohibited by the Financing Documents.
THE PROPERTIES
The 219 Rittenhouse Property is a 36,820 square foot single story flex
industrial building located in Bristol Township, Pennsylvania. The 219
Rittenhouse Property is located in Keystone Industrial Park which is located at
the intersection of Interstate 95 and State Route 413 and is less than two (2)
miles from Exit 30 of the Pennsylvania Turnpike. The building has 18 foot clear
height and 5 tailgate doors and 2 drive-in loading docks. The building was
constructed with structural steel framing and with brick veneer over masonry
brick and insulated metal paneling and approximately 67% office finish.
III-22
<PAGE>
As of March 11, 1999, the 219 Rittenhouse Property was 100% leased to
two tenants. Bridgeport occupies 24,000 square feet (65%) and distributes and
produces metal cutting machine tools and accessories. Bridgeport has a
contractual lease expiration of 12/31/01. Professional Software Tech. occupies
12,820 square feet (35%) and is a developer of imaging and art work primarily
utilized by public relations firms. Professional Software Tech. has a
contractual lease expiration of 1/31/01.
The 171 Rittenhouse Property is a 40,000 square foot single story
warehouse building located in Bristol Township, Pennsylvania. The 171
Rittenhouse Property is located in Keystone Industrial Park which is located at
the intersection of Interstate 95 and State Route 413 and is less than two miles
from Exit 30 of the Pennsylvania Turnpike. The building has 20 foot clear
heights with 8 tailgate loading docks and one drive-in door. The building is
constructed with structural steel framing with masonry block and brick veneer
with approximately 13% office finish.
As of March 11, 1999, the 171 Rittenhouse Property was 100% leased to
two tenants. Alumax Aluminum occupies 24,000 square feet (60%) and is a
subsidiary of the Alcoa Corporation. Alumax Aluminum has a contractual lease
expiration of 1/31/00. Clopay Corp. occupies 16,000 square feet (40%) and uses
this property for the manufacture of plastic film used by disposable surgical
carriers. Clopay Corp. has a contractual lease expiration of 9/30/2002.
The 4303 Lewis Property is a 32,664 square foot single story flex
industrial building located in Swatara Township, Pennsylvania. The 4303 Lewis
Property is located less than 1/4 mile from interchange 27 of Route 322,
Interstate 83 and Interstate 283. The building is constructed of fluted block,
concrete block and insulated metal paneling with approximately 13% office
finish.
As of March 11, 1999, the 4303 Lewis Property was 100% leased to one
tenant, Federal Express. Federal Express has been in this location for 13 years
occupies 32,664 square feet and has a contractual lease expiration of 11/30/00.
MANAGEMENT
Korngold Company is the manager of the Properties. Korngold Company
currently manages in excess of 850,000 square feet and has managed real property
since 1971. Korngold Company is affiliated with the Borrowers. The Financing
Documents contain a management termination provision.
III-23
<PAGE>
LOAN NOS. 98 & 99 -- 2325 MARYLAND ROAD AND 701 WILLOWBROOK LANE LOANS AND
PROPERTIES
LOAN NO. 98 -- 2325 MARYLAND ROAD
<TABLE>
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $ 2,279,798 Property Type: Office
Loan Type: Principal & Location: Moreland, PA
Interest; Balloon
Year Built/Renovated: 1987/NAP
Origination Date: 04/14/1999 Square Footage: 32,517
Maturity Date: 05/01/2009 Cut-Off Date Balance/SF: $54
Mortgage Rate: 7.090% Appraisal Value: $ 3,350,000
Annual Debt Service: $184,042 Cut-Off Date LTV: 68.4%
DSCR: 1.34x Balloon LTV: 60.1%
Underwritable Cash Flow: $223,089 Percent Leased: 88.4%
Balance at Maturity: $ 2,001,398 Percent Leased as of Date 03/11/1999
- ----------------------------------------------------------------------------------------
</TABLE>
LOAN NO. 99 -- 701 WILLOWBROOK LANE
<TABLE>
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $ 1,278,433 Property Type: Industrial
Loan Type: Principal & Location: West Goshen, PA
Interest; Balloon
Year Built/Renovated: 1985/NAP
Origination Date: 04/14/1999 Square Footage: 32,960
Maturity Date: 05/01/2009 Cut-Off Date $54
Mortgage Rate: 7.090% Appraisal Value: $ 1,850,000
Annual Debt Service: $103,204 Cut-Off Date LTV: 68.4%
DSCR: 1.34x Balloon LTV: 60.1%
Underwritable Cash Flow: $162,348 Percent Leased: 100.0%
Balance at Maturity: $ 1,122,315 Percent Leased as of Date 03/11/1999
- -------------------------------------------------------------------------------------------
</TABLE>
THE LOANS
The 2325 Maryland Road Loan (the "Maryland Road Loan") is secured by a
first mortgage on a 32,517 square foot two story suburban office building
located in Mooreland Township, Pennsylvania (the "Maryland Road Property"). The
701 Willowbrook Lane Loan (the "Willowbrook Loan") is secured by a first
mortgage on a 31,960 square foot single story building located in West Goshen
Township, Pennsylvania (the "Willowbrook Property").
The Maryland Road Loan and the Willowbrook Loan are referred to herein
as the "Loans". The Loans were originated by Principal Commercial Funding, LLC
on April 14th, 1999. The Loans are cross-collateralized.
THE BORROWERS The borrower for the Maryland Road Loan is Maryland-Blair
Associates, a Pennsylvania limited partnership (the "Maryland Road Borrower").
The Maryland Road Borrower is controlled by Korngold Ltd. (85%) and Gary Whelan
(15%). Korngold Ltd. is a limited partnership with Eric Korngold and Leon
Korngold as 66% general partners and the limited partners are their children.
The borrower for the Willowbrook Loan is Matlock Street Associates, a
Pennsylvania limited partnership (the "Willowbrook Borrower"). The Willowbrook
Borrower is controlled by Korngold Ltd. (85%) and Gary Whelan (15%). Korngold
Ltd. is a limited partnership with Eric Korngold and Leon Korngold as 66%
general partners and the limited partners are their children.
Eric and Leon Korngold also own a controlling interest in the borrowers
under eleven (11) other loans in this securitization:
III-24
<PAGE>
2495 Boulevard of the Generals Loan (No. 57);
160 Rittenhouse Circle Loan (No. 58);
603 General Washington Avenue Loan (No. 59);
219 Rittenhouse Circle Loan (No. 84);
171 Rittenhouse Circle Loan (No. 85);
4303 Lewis Road Loan (No. 86);
2524 Ford Road Loan (No. 100);
2554 Ford Road Loan (No. 101);
247 Rittenhouse Circle Loan (No. 102);
130 Wharton Road Loan (No. 111); and
2564 Boulevard of the Generals Loan (No. 112)
SECURITY. Each loan is secured by a Deed of Trust, Assignment of Rents
and Leases, UCC Financing Statements and certain additional security documents
(the "Financing Documents"). Each Deed of Trust is a first lien on the related
Borrower's fee interest in the related Property. The Loans are non-recourse to
the Borrowers, subject to certain limited exceptions. Eric Korngold and Leon
Korngold have executed guaranties for the fraud, misrepresentation and
environmental carveouts.
The Loans are cross-collateralized with each other.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.090% per annum. The
Maryland Road Loan requires monthly payments of principal and interest of
$15,336.80 until May 1, 2009, at which time all unpaid principal and accrued but
unpaid interest is due. The Willowbrook Loan requires monthly payments of
principal and interest of $8,600.35 until May 1, 2009, at which time all unpaid
principal and accrued but unpaid interest is due. The Loans accrue interest
computed on the basis of the actual number of days elapsed in each month in a
360-day year.
PREPAYMENT/DEFEASANCE. Voluntary prepayment is prohibited until three
(3) months prior to maturity. However, each Borrower may defease at any time
after June 1, 2003. Defeasance is permitted only upon the satisfaction of
certain conditions specified in the Financing Documents, including, at lender's
option, confirmation from each Rating Agency that defeasance would not result in
a downgrade, qualification or withdrawal of the then current ratings assigned to
any class of certificates. No prepayment premium is due if the Loans are prepaid
within three (3) months prior to maturity.
LATE FEES AND DEFAULT INTEREST. There is a 4% late fee on overdue
installments. The Loans accrue interest at the mortgage rate plus 4% per annum
while the related Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Loans provide that
they will become immediately due and payable upon the transfer of the related
Property or any ownership interest in the related Borrower, except in connection
with any of the following permitted transfers.
Upon payment of an assumption fee equal to the greater of $15,000 or one
percent (1%) of the outstanding principal balance on the related Loan, the
Financing Documents permit each Borrower to transfer two (2) times each related
Property, subject to the Financing Documents. Such transfer is permitted only
upon the satisfaction of certain conditions specified in the Financing
Documents, including the proposed transferee must reasonably satisfy the
Lender's underwriting standards for proposed transferees.
Upon payment of an assumption fee equal to the greater of $15,000 or one
(1%) of the outstanding principal balance of the related Loan or a prorated
amount of said one (1%) if less than the entire interest in the related Borrower
is transferred, the Financing Documents also permit the transfer of all or part
of the ownership interest in the related Borrower provided: (i) the transfer of
the partnership interest is to the immediate family members of Eric Korngold or
Leon Korngold; (ii) Eric Korngold or Leon Korngold retain a general partnership
interest in the related Borrower as well as manage and control the related
Borrower; and (iii) an experienced property manager acceptable to the Lender
continues to manage and Lease the related Property.
III-25
<PAGE>
ESCROWS/RESERVES. The Financing Documents require monthly escrow
deposits in amounts sufficient to pay taxes and insurance premiums when due.
The Maryland Road Financing Documents also provide for a $50,000 up
front cash escrow and a $2,500 monthly escrow to cover tenant improvements and
leasing commissions. This escrow is capped at $175,000 and anytime the escrow
balance falls below the capped amount, the monthly cashflow escrow will resume.
In addition, the Maryland Road Documents provide for a $406 monthly escrow to
cover replacement reserves. This escrow is capped at $9,755 and anytime the
escrow balance falls below the capped amount, the monthly cashflow escrow will
resume. In addition, an up front cash escrow in the amount of $17,750 to cover
deferred maintenance was established which represents 125% of the immediate
repairs identified by the Physical Property Condition Report.
The Willowbrook Financing Documents also provide for a $1,000 monthly
escrow to cover tenant improvements and leasing commissions. This escrow is
capped at $48,000 and anytime the escrow balance falls below the capped amount,
the monthly cashflow escrow will resume. In addition, the Willowbrook Financing
Documents provide for a $412 monthly escrow to cover replacement reserves. This
escrow is capped at $9,888 and anytime the escrow balance falls below the capped
amount, the monthly cashflow escrow will resume.
SUBORDINATED/OTHER DEBT. Secured subordinate indebtedness and
encumbrances are prohibited by the Financing Documents.
THE PROPERTIES
The Maryland Road Property consists of a two story 32,517 square foot
suburban office building located in Mooreland Township, Pennsylvania. The
Maryland Road Property is directly adjacent to the Willow Grove Interchange 27
of the Pennsylvania Turnpike and has access to Routes 611 and 63 and Blair Mill
Road. The building has 8 foot ceilings and hydraulic elevator. It is constructed
of free standing rigid steel frame with enameled, insulated steel panel
exterior.
As of March 11, 1999, the Maryland Road Property was leased to two
tenants. Dames & Moore leases 61% and provides services and expertise to a wide
variety of government groups, businesses and industries. Dames & Moore is
headquartered in Los Angeles with 230 offices in 30 countries. The remainder of
the space is leased to Prudential. Contractual lease expirations during the loan
term for both tenants are 8,961 square feet (28%) on 12/31/1999 and 19,799
square feet (61%) on 5/31/03.
The Willowbrook Property is a 32,960 square foot single story building
with 18 foot clear heights, 2 dock doors and 5 drive-in doors with approximately
12% office finish located in West Goshen Township, Pennsylvania. The Willowbrook
Property has access to Route 202 and 3 and is at the West Chester By Pass
(interchange of Route 202 and 322) 18 miles southwest of the King Prussia Market
and 24 miles west of the Center City Philadelphia. The Willowbrook Property is
constructed of fluted block, concrete block and insulated metal paneling.
As of March 11, 1999, the Willowbrook Property was 100% leased to a
single tenant, Federal Express. Federal Express has been at this location for
the last two years. Contractual lease expiration during the term for the tenant
is: 32,960 square feet (100%) on 4/30/2002.
MANAGEMENT
Korngold Company is the manager of the Properties. Korngold Company
currently manages in excess of 850,000 square feet and has managed real property
since 1971. Korngold Company is affiliated with the Borrowers. The Financing
Documents contain a management termination provision.
III-26
<PAGE>
LOAN NOS. 100, 101 & 102 -- 2524 FORD ROAD, 2554 FORD ROAD, AND 247 RITTENHOUSE
CIRCLE LOANS AND PROPERTIES
LOAN NO. 100 -- 2524 FORD ROAD
<TABLE>
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $ 1,449,830 Property Type: Industrial
Loan Type: Principal & Location: Bristol, PA
Interest; Balloon
Year Built/Renovated: 1984/NAP
Origination Date: 04/14/1999 Square Footage: 40,000
Maturity Date: 05/01/2009 Cut-Off Date Balance/SF: $31
Mortgage Rate: 7.090% Appraisal Value: $ 2,000,000
Annual Debt Service: $117,041 Cut-Off Date LTV: 65.7%
DSCR: 1.51x Balloon LTV: 57.7%
Underwritable Cash Flow: $183,518 Percent Leased: 100.0%
Balance at Maturity: $ 1,272,781 Percent Leased as of Date: 03/11/1999
- -----------------------------------------------------------------------------------------
</TABLE>
LOAN NO. 101 -- 2554 FORD ROAD
<TABLE>
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $ 1,190,965 Property Type: Industrial
Loan Type: Principal & Location: Bristol, PA
Interest; Balloon
Year Built/Renovated: 1984/NAP
Origination Date: 04/14/1999 Square Footage: 31,200
Maturity Date: 05/01/2009 Cut-Off Date Balance/SF: $31
Mortgage Rate: 7.090% Appraisal Value: $ 1,570,000
Annual Debt Service: $ 96,143 Cut-Off Date LTV: 65.7%
DSCR: 1.51x Balloon LTV: 57.7%
Underwritable Cash Flow: $143,791 Percent Leased: 100.0%
Balance at Maturity: $ 1,045,529 Percent Leased as of Date: 03/11/1999
- -----------------------------------------------------------------------------------------
</TABLE>
LOAN NO. 102 -- 247 RITTENHOUSE CIRCLE
<TABLE>
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $723,203 Property Type: Industrial
Loan Type: Principal & Location: Bristol, PA
Interest; Balloon
Year Built/Renovated: 1981/NAP
Origination Date: 04/14/1999 Square Footage: 35,846
Maturity Date: 05/01/2009 Cut-Off Date Balance/SF: $31
Mortgage Rate: 7.090% Appraisal Value: $ 1,550,000
Annual Debt Service: $ 58,382 Cut-Off Date LTV: 65.7%
DSCR: 1.51x Balloon LTV: 57.7%
Underwritable Cash Flow: $82,673 Percent Leased: 100.0%
Balance at Maturity: $ 634,887 Percent Leased as of Date: 03/11/1999
- -----------------------------------------------------------------------------------------
</TABLE>
THE LOANS
The 2524 Ford Road Loan (the "2524 Ford Loan") is secured by a first
mortgage on a 40,000 square foot single story light industrial building located
in Bristol Township, Pennsylvania (the "2524 Ford Property"). The 2554 Ford Road
Loan (the "2554 Ford Loan") is secured by a first mortgage on a 31,200 square
foot single story light industrial building located in Bristol Township,
Pennsylvania (the "2554 Ford Property"). The 247 Rittenhouse
III-27
<PAGE>
Circle Loan (the "247 Rittenhouse Loan") is secured by a first mortgage on a
35,846 square foot single story light industrial building located in Bristol
Township, Pennsylvania (the "247 Rittenhouse Property").
The 2523 Ford Loan, 2554 Ford Loan and the 247 Rittenhouse Loan are
referred to herein as the "Loans". The Loans were originated by Principal
Commercial Funding, LLC on April 14th, 1999. The Loans are cross-collateralized.
THE BORROWERS. The borrower for the 2524 Ford Loan is L.E.G.S.
Associates, a Pennsylvania limited partnership (the "2524 Ford Borrower"). The
2524 Ford Borrower is controlled by Korngold Ltd. (85%) and Gary Whelan (15%).
Korngold Ltd. is a limited partnership with Eric Korngold and Leon Korngold as
66% general partners and the limited partners are their children.
The borrower for the 2554 Ford loan is Buck Associates, a Pennsylvania
limited partnership (the "2554 Ford Borrower"). The 2554 Ford Borrower is
controlled by Korngold Ltd. (90%) and Gary Whelan (10%). Korngold Ltd. is a
limited partnership with Eric Korngold and Leon Korngold as 66% general partners
and the limited partners are their children.
The borrower for the 247 Rittenhouse Loan is K & W Associates, a
Pennsylvania limited partnership (the "247 Rittenhouse Borrower"). The 247
Rittenhouse Borrower is controlled by Korngold Ltd. (90%) and Gary Whelan (10%).
Korngold Ltd. is a limited partnership with Eric Korngold and Leon Korngold as
66% general partners and the limited partners are their children.
Eric and Leon Korngold also own a controlling interest in the borrowers
under ten (10) other loans in this securitization:
2495 Boulevard of the Generals Loan (No. 57);
160 Rittenhouse Circle Loan (No. 58);
603 General Washington Avenue Loan (No. 59);
219 Rittenhouse Circle Loan (No. 84);
171 Rittenhouse Circle Loan (No. 85);
4303 Lewis Road Loan (No. 86);
2325 Maryland Road Loan (No. 98);
701 Willowbrook Lane Loan (No. 99);
130 Wharton Road Loan (No. 111); and
2564 Boulevard of the Generals Loan (No. 112)
SECURITY. Each Loans is secured by a Mortgage , Assignment of Rents and
Leases, UCC Financing Statements and certain additional security documents (the
"Financing Documents"). Each Mortgage is a first lien on the related Borrower's
fee interest in the related Property. The Loans are non-recourse to the
Borrowers, subject to certain limited exceptions. Eric Korngold and Leon
Korngold have executed guaranties for the fraud, misrepresentation and
environmental carveouts.
The Loans are cross-collateralized with each other.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.090% per annum. The 2524
Ford Loan requires monthly payments of principal and interest of $9,753.39 until
May 1, 2009, at which time all unpaid principal and accrued but unpaid interest
is due. The 2554 Ford Loan requires monthly payments of principal and interest
of $8,011.93 until May 1, 2009, at which time all unpaid principal and accrued
but unpaid interest is due. The 247 Rittenhouse Loan requires monthly payments
of principal and interest of $4,865.18 until May 1, 2009, at which time all
unpaid principal and accrued but unpaid interest is due. The Loans accrue
interest computed on the basis of the actual number of days elapsed in each
month in a 360-day year.
PREPAYMENT/DEFEASANCE. Voluntary prepayment is prohibited until three
(3) months prior to maturity. However, each Borrower may defease at any time
after June 1, 2003. Defeasance is permitted only upon the satisfaction of
certain conditions specified in the Financing Documents, including, at lender's
option, confirmation
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from each Rating Agency that defeasance would not result in a downgrade,
qualification or withdrawal of the then current ratings assigned to any class of
certificates. No prepayment premium is due if the Loans are prepaid within three
(3) months prior to maturity.
LATE FEES AND DEFAULT INTEREST. There is a 4% late fee on overdue
installments. The Loans accrue interest at the mortgage rate plus 4% per annum
while the related Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Loans provide that
they will become immediately due and payable upon the transfer of the related
Property or any ownership interest in the related Borrower, except in connection
with any of the following permitted transfers.
Upon payment of an assumption fee equal to the greater of $15,000 or one
percent (1%) of the outstanding principal balance on the related Loan, the
Financing Documents permit each Borrower to transfer two (2) times each related
Property, subject to the Financing Documents. Such transfer is permitted only
upon the satisfaction of certain conditions specified in the Financing
Documents, including the proposed transferee must reasonably satisfy the
Lender's underwriting standards for proposed transferees.
Upon payment of an assumption fee equal to the greater of $15,000 or one
(1%) of the outstanding principal balance of the related Loan or a prorated
amount of said one (1%) if less than the entire interest in the related Borrower
is transferred, the Financing Documents also permit the transfer of all or part
of the ownership interest in the related Borrower provided: (i) the transfer of
the partnership interest is to the immediate family members of Eric Korngold or
Leon Korngold; (ii) Eric Korngold or Leon Korngold retain a general partnership
interest in the related Borrower as well as manage and control the related
Borrower; and (iii) an experienced property manager acceptable to the Lender
continues to manage and Lease the related Property.
ESCROWS/RESERVES. The Financing Documents require monthly escrow
deposits in amounts sufficient to pay taxes and insurance premiums when due.
The 2524 Ford Financing Documents also provide for $1,250 monthly escrow
to cover tenant improvements and leasing commissions. This escrow is capped at
$60,000 and anytime the escrow balance falls below the capped amount, the
monthly cashflow escrow will resume. In addition, the 2524 Ford Financing
Documents provide for a $500 monthly escrow to cover replacement reserves. This
escrow is capped at $12,000 and anytime the escrow balance falls below the
capped amount, the monthly cashflow escrow will resume.
The 2554 Ford Financing Documents also provide for $1,000 monthly escrow
to cover tenant improvements and leasing commissions. This escrow is capped at
$48,000 and anytime the escrow balance falls below the capped amount, the
monthly cashflow escrow will resume. In addition, the 2554 Ford Financing
Documents provide for a $403 monthly escrow to cover replacement reserves. This
escrow is capped at $9,660 and anytime the escrow balance falls below the capped
amount, the monthly cashflow escrow will resume.
The 247 Rittenhouse Financing Documents also provide for $2,000 monthly
escrow to cover tenant improvements and leasing commissions. This escrow is
capped at $60,000 and anytime the escrow balance falls below the capped amount,
the monthly cashflow escrow will resume. In addition, the 171 Rittenhouse
Financing Documents provide for a $448 monthly escrow to cover replacement
reserves. This escrow is capped at $10,754 and anytime the escrow balance falls
below the capped amount, the monthly cashflow escrow will resume.
SUBORDINATED/OTHER DEBT. Secured subordinate indebtedness and
encumbrances are prohibited by the Financing Documents.
THE PROPERTIES
The 2524 Ford Property is a 40,000 square foot single story light
industrial building located in Bristol Township, Pennsylvania. The 2524 Ford
Property is located in the Keystone Industrial Park which is located at the
intersection of Interstate 95 and State Route 413 and is less than two (2) miles
from Exit 30 on the Pennsylvania Turnpike. The building has 20 foot clear
heights, 7 tailgate loading docks and 2 drive-in doors. The building is
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<PAGE>
constructed of structural steel framing with split faced block and insulated
metal panels with approximately 21% office finish.
As of March 11, 1999, the 2524 Ford Property was 100% leased to 3
tenants. The largest tenant, Roslyn Supply Co., leases 65% and have been in this
location for 5 years. Contractual leases expirations during the loan term for
all tenants are as follows: 26,000 square feet (65%) on 1/31/01; 4,000 square
feet (10%) on 1/31/03; 10,000 square feet (25%) on 2/28/04.
The 2554 Ford Property is a 31,200 square foot single story light
industrial building located in Bristol Township, Pennsylvania. The 2554 Ford
Property is located in the Keystone Industrial Park which is located at the
intersection of Interstate 95 and State Route 413 and is less than 2 miles from
Exit 30 on the Pennsylvania Turnpike. The building has 18 foot clear heights
with 6 tailgate loading docks and 11 drive-in docks and has approximately 10%
office finish. The building is constructed of structural steel framing with
split faced block and insulated metal panels.
As of March 11, 1999, the 2554 Ford Property was 100% leased to one
tenant, Airborne Express. Airborne Express was formed in 1968 and specializes in
providing freight shipments domestically and internationally. Airborne Express
lease expires 6/30/01.
The 247 Rittenhouse Property is a 35,846 square foot single story
industrial building located in Bristol Township, Pennsylvania. The 247
Rittenhouse Property is located in the Keystone Industrial Park which is at the
intersection of Interstate 95 and State Route 413 and less than two (2) miles
from Exit 30 of the Pennsylvania Turnpike. The building has 20 foot clear
heights with 4 tailgate loading docks and 1 drive-in door. The building is
constructed of structural steel framing and brick on block with approximately
16% office finish.
As of March 11, 1999, the 247 Rittenhouse Property was 100% leased to
one tenant, Ina Linear Technik, Inc. Ina Linear Technik, Inc. manufactures
needle roller bearings and has been at this location for four (4) years. Ina
Linear Technik, Inc. lease expires 3/31/00.
MANAGEMENT
Korngold Company is the manager of the Properties. Korngold Company
currently manages in excess of 850,000 square feet and has managed real property
since 1971. Korngold Company is affiliated with the Borrowers. The Financing
Documents contain a management termination provision.
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<PAGE>
LOAN NOS. 111 & 112 -- 130 WHARTON ROAD AND 2564 BOULEVARD OF THE GENERALS LOANS
AND PROPERTIES
LOAN NO. 111 -- 130 WHARTON ROAD
<TABLE>
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $ 1,644,942 Property Type: Industrial
Loan Type: Principal & Location: Bristol, PA
Interest; Balloon
Year Built/Renovated: 1974/NAP
Origination Date: 04/14/1999 Square Footage: 48,300
Maturity Date: 05/01/2009 Cut-Off Date Balance/SF: $34
Mortgage Rate: 7.090% Appraisal Value: $ 2,200,000
Annual Debt Service: $132,791 Cut-Off Date LTV: 70.5%
DSCR: 1.48x Balloon LTV: 61.9%
Underwritable Cash Flow: $184,163 Percent Leased: 89.8%
Balance at Maturity: $ 1,444,068 Percent Leased as of Date: 03/11/1999
- ----------------------------------------------------------------------------------------
</TABLE>
LOAN NO. 112 - 2564 BOULEVARD OF THE GENERALS
<TABLE>
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $ 1,368,203 Property Type: Industrial
Loan Type: Principal & Location: W. Norriton, PA
Interest; Ball
Year Built/Renovated: 1984/NAP
Origination Date: 04/14/1999 Square Footage: 40,000
Maturity Date: 05/01/2009 Cut-Off Date Balance/SF: $34
Mortgage Rate: 7.090% Appraisal Value: $ 2,075,000
Annual Debt Service: $110,451 Cut-Off Date LTV: 70.5%
DSCR: 1.48x Balloon LTV: 61.9%
Underwritable Cash Flow: $176,130 Percent Leased: 100.0%
Balance at Maturity: $ 1,201,124 Percent Leased as of Date 03/11/1999
- ---------------------------------------------------------------------------------------
</TABLE>
THE LOANS
The 130 Wharton Road Loan (the "Wharton Loan") is secured by a first
mortgage on a 48,300 square foot single story warehouse located in Bristol
Township, Pennsylvania (the "Wharton Property"). The 2564 Boulevard of the
Generals Loan (the "2564 Boulevard Loan") is secured by a first mortgage on a
40,000 square foot single story warehouse located in West Norriton Township,
Pennsylvania (the "2564 Boulevard Property").
The Wharton Loan and the 2564 Boulevard Loan are referred to herein as
the "Loans". The Loans were originated by Principal Commercial Funding, LLC on
April 14th, 1999. The Loans are cross-collateralized.
THE BORROWERS The borrower for the Wharton Loan is Wharton Associates, a
Pennsylvania limited partnership (the "Wharton Borrower"). The Wharton Borrower
is a limited partnership controlled by Korngold Ltd. (52.5%) and grandchildren
of Eric and Leon Korngold (47.5%), sole general partners of Korngold Ltd.
Korngold Ltd. is a limited partnership with Eric Korngold and Leon Korngold as
66% general partners and the limited partners are their children.
The borrower for the 2564 Boulevard Loan is Trooper Road Associates, a
Pennsylvania limited partnership (the "2564 Boulevard Borrower"). The 2564
Boulevard Borrower is a limited partnership controlled by Korngold Ltd. (90%)
and Gary Whalen (10%). Korngold Ltd. is a limited partnership with Eric Korngold
and Leon Korngold as 66% general partners and the limited partners are their
children.
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<PAGE>
Eric and Leon Korngold. also own a controlling interest in the borrowers
under eleven (11) other loans in this securitization:
2495 Boulevard of the Generals Loan (No. 57);
160 Rittenhouse Circle Loan (No. 58);
603 General Washington Avenue Loan (No. 59);
219 Rittenhouse Circle Loan (No. 84);
171 Rittenhouse Circle Loan (No. 85);
4303 Lewis Road Loan (No. 86);
2325 Maryland Road Loan (No. 98);
701 Willowbrook Lane Loan (No. 99);
2524 Ford Road Loan (No. 100);
2554 Ford Road Loan (No. 101);
247 Rittenhouse Circle Loan (No. 102);
SECURITY The Loans are each secured by a Mortgage, Assignment of Rents
and Leases, UCC Financing Statements and certain additional security documents
(the "Lewis Financing Documents"). Each Mortgage is a first lien on the related
Borrower's fee interest in the related Property. The Loans are non-recourse to
the Borrowers, subject to certain limited exceptions. Eric Korngold and Leon
Korngold have executed guaranties for the fraud, misrepresentation and
environmental carveouts.
The Loans are cross-collateralized with each other.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.090% per annum. The
Wharton Loan requires monthly payments of principal and interest of $11,065.95
until May 1, 2009, at which time all unpaid principal and accrued but unpaid
interest is due. The 2564 Boulevard Loan requires monthly payments of principal
and interest of $9,204.26 until May 1, 2009, at which time all unpaid principal
and accrued but unpaid interest is due. Loans accrue interest computed on the
basis of the actual number of days elapsed in each month in a 360-day year.
PREPAYMENT/DEFEASANCE. Voluntary prepayment is prohibited until three
(3) months prior to maturity. However, each Borrower may defease at any time
after June 1, 2003. Defeasance is permitted only upon the satisfaction of
certain conditions specified in the Lewis Financing Documents, including, at
lender's option, confirmation from each Rating Agency that defeasance would not
result in a downgrade, qualification or withdrawal of the then current ratings
assigned to any class of certificates. No prepayment premium is due if the Loans
are prepaid within three (3) months prior to maturity.
LATE FEES AND DEFAULT INTEREST. There is a 4% late fee on overdue
installments. The Loans accrue interest at the mortgage rate plus 4% per annum
while the related Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Loans provide that
they will become immediately due and payable upon the transfer of the related
Property or any ownership interest in the related Borrower, except in connection
with any of the following permitted transfers.
Upon payment of an assumption fee equal to the greater of $15,000 or one
percent (1%) of the outstanding principal balance on the related Loan, the
Financing Documents permit each Borrower to transfer two (2) times each related
Property, subject to the Financing Documents. Such transfer is permitted only
upon the satisfaction of certain conditions specified in the Financing
Documents, including the proposed transferee must reasonably satisfy the
Lender's underwriting standards for proposed transferees.
Upon payment of an assumption fee equal to the greater of $15,000 or one
(1%) of the outstanding principal balance of the related Loan or a prorated
amount of said one (1%) if less than the entire interest in the related Borrower
is transferred, the Financing Documents also permit the transfer of all or part
of the ownership interest in the related Borrower provided: (i) the transfer of
the partnership interest is to the immediate family members of Eric Korngold or
Leon Korngold; (ii) Eric Korngold or Leon Korngold retain a general partnership
interest in the related Borrower as well as manage and control the related
Borrower; and (iii) an experienced property manager acceptable to the Lender
continues to manage and Lease the related Property.
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<PAGE>
ESCROWS/RESERVES. The Financing Documents require monthly escrow
deposits in amounts sufficient to pay taxes and insurance premiums when due.
The Wharton Financing Documents also provide for a $835 monthly escrow
to cover tenant improvements and leasing commissions. This escrow is capped at
$60,000 and anytime the escrow balance falls below the capped amount, the
monthly cashflow escrow will resume. In addition, the Wharton Financing
Documents provide for a $604 monthly escrow to cover replacement reserves. This
escrow is capped at $14,490 and anytime the escrow balance falls below the
capped amount, the monthly cashflow escrow will resume.
The 2564 Boulevard Financing Documents also provide for $1,835 monthly
escrow to cover tenant improvements and leasing commissions. This escrow is
capped at $66,000 and anytime the escrow balance falls below the capped amount,
the monthly cashflow escrow will resume. In addition, the 2564 Boulevard
Financing Documents provide for a $500 monthly escrow to cover replacement
reserves. This escrow is capped at $12,000 and anytime the escrow balance falls
below the capped amount, the monthly cashflow escrow will resume.
SUBORDINATED/OTHER DEBT. Secured subordinate indebtedness and
encumbrances are prohibited by the Financing Documents.
THE PROPERTIES
The Wharton Property is a single story 48,300 square foot industrial
building located in Bristol Township, Pennsylvania. The Wharton Property is
located in the Keystone Industrial Park which is located at the intersection of
Interstate 95 and State Route 413 and is less than 2 miles from Exit 30 of the
Pennsylvania Turnpike. The Wharton Property has 20 foot clear heights with 8
tailgate and 2 drive-in loading docks with approximately 7% office finish. The
building is constructed of structural steel framing with masonry block and brick
veneer.
As of March 11, 1999, approximately 89.8% of the space was leased by the
following national or regional tenants: Universal Superab (44%) Kemutec, Inc
(23%) and Racing Network (22%).
Contractual lease expiration during the loan term for all tenants are as
follows: 10,750 square feet (22%) in 2002; 11,150 square feet (23%) in 2003 and
21,450 square feet (44%) in 2004.
The 2564 Boulevard Property is a single story 40,000 square foot
warehouse located in West Norriton Township, Pennsylvania. The 2564 Boulevard
Property is located in Valley Forge Business Center which is located off Route
363 and is less than one mile from the intersection of Route 363 and 422 and is
approximately 3 miles from the Pennsylvania Turnpike, I-76 and Route 202. The
2564 Boulevard Property has 18 foot clear heights with 5 tailgate and 2 drive-in
loading docks and approximately 25% office finish. The building is constructed
of structural steel framing with brick veneer over masonry block and insulated
metal paneling.
As of March 11, 1999, the 2564 Boulevard Property was 100.0% leased to 2
tenants. MSA Industries, a division of DuPont Commercial Flooring Systems,
occupies 20,000 square feet (50%) of the space with a lease expiration date of
10/31/2001.
Specialty Products and Insulation Corporation, a global and domestic
distributor in the fabrication of mechanical insulation, occupies 20,000 square
feet (50%) of the space with a lease expiration date of 7/31/2001.
MANAGEMENT
Korngold Company is the manager of the Properties. Korngold Company
currently manages in excess of 850,000 square feet and has managed real property
since 1971. Korngold Company is affiliated with the Borrowers. The Financing
Documents contain a management termination provision.
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<PAGE>
LOAN NOS. 23-25 - FONTANA RETAIL LOAN AND PROPERTIES
<TABLE>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $18,665,752 Property Type: Retail
Loan Type: Principal & Location: Fontana, CA
Interest; Balloon
Origination Date: 4/22/1999 Year Built/Renovated: Various(1)
Maturity Date: 5/1/2009 Square Feet: 316,637 (2)
Mortgage Rate: 7.480% Cut-Off Date Balance/SF: $58.95
Annual Debt Service: $1,565,964 Appraised Value: Various(3)
DSCR: 1.51x Cut-Off Date LTV: 72.7%
Underwritable Cash Flow: $2,362,403 Balloon LTV: 64.5%
Balance at Maturity: $16,547,193 Percent Leased: 97.7%(4)
Percent Leased as of Date 3/29/99
- ----------
<FN>
(1) Fontana Plaza: 1981/NAP; Foothill Plaza: 1979-1987/NAP; and Plaza East:
1985/NAP.
(2) Fontana Plaza: 124,342 square feet; Foothill Plaza: 93,989 square feet;
and Plaza East: 98,306 square feet.
(3) Fontana Plaza: $11,800,000; Foothill Plaza: $7,260,000; and Plaza East:
$6,600,000.
(4) Percent listed indicates the weighted average percentage leased.
</FN>
- ---------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Fontana Retail Loan (the "Fontana Loan") is secured by a first
mortgage on a 124,342 square foot shopping center (the "Fontana Plaza
Property"), a 93,989 square foot shopping center (the "Foothill Plaza Property")
and a 98,306 square foot shopping center (the "Plaza East Property" and,
together with the Fontana Plaza Property and the Foothill Plaza Property, the
"Fontana Properties"), each located in Fontana, California. The Fontana Loan was
originated by JHREF on April 22, 1999.
THE BORROWER. The Borrower is Fontana Properties, Ltd., L.P., a
California limited partnership (the "Fontana Borrower"). The partners of the
Fontana Borrower consist of Sara Management Co. Inc. (General Partner, 1%) and
David Wiener and Renee Wiener, as trustees of Wiener Family Revocable Trust
(Limited Partner, 99%).
SECURITY. The Fontana Loan is secured by a Deed of Trust, Assignment of
Leases and Rents, Security Agreement and Fixture Filing, UCC Financing
Statements and certain additional security documents. The mortgage is a first
lien on the fee interest on each of the Fontana Properties. The Fontana Loan is
non-recourse, subject to certain limited exceptions.
MAJOR TENANTS. The major tenants at the Fontana Plaza Property are Lucky
Supermarket and Sav-On Drug Store. The major tenants at the Foothill Plaza
Property are Fiesta Mexicana Market and Rite Aid Drug Store. The major tenant at
the Plaza East Property is Fontana Discount Center and Medina, Inc.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.480%. The Fontana Loan
requires monthly payments of principal and interest of $130,497.11 until its
maturity on May 1, 2009, at which time all unpaid principal and accrued but
unpaid interest is due. The Fontana Loan accrues interest computed on the basis
of the actual number of days elapsed each month in a 360-day year.
PREPAYMENT. The Fontana Loan may be prepaid in whole, but not in part,
on or after June 1, 2004 upon payment of a Yield Maintenance Payment calculated
on the basis of the greater of a Yield Maintenance Premium calculated by
reference to U.S. Treasury obligations or one percent (1%) of the amount
prepaid. No Yield Maintenance Payment is due if the Fontana Loan is prepaid
within one-hundred eighty (180) days prior to maturity.
If there is an event of default and the lender accelerates the Fontana
Loan, the security documents require the Fontana Borrower to pay a Yield
Maintenance Payment calculated on the basis of the greater of (i) a Yield
Maintenance Premium calculated by reference to U.S. Treasury obligations plus
five percent (5%) or (ii) ten percent (10%) of the then outstanding principal
amount of the Fontana Loan.
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<PAGE>
LATE FEES AND DEFAULT INTEREST. There is a 5% late fee on overdue
installments. The Fontana Loan accrues interest at the Mortgage Rate plus 5% per
annum while the Fontana Loan is in default.
TRANSFER OF PROPERTIES OR INTERESTS IN THE BORROWER. The Fontana Loan
becomes immediately due and payable upon the transfer of the Fontana Properties
or any ownership interest in the Fontana Borrower without the lender's consent.
However, the lender may not unreasonably withhold its consent to a transfer of
the Fontana Properties to a special purpose, bankruptcy remote transferee if,
among other things: (i) the Fontana Loan is not in default; (ii) the transferee
assumes the Fontana Loan; (iii) the Rating Agencies have confirmed in writing
that such transfer will not result in a qualification, reduction or withdrawal
of the ratings of the Certificates; and (iv) the lender has received an
assumption fee of 1% of the then outstanding principal amount of the Fontana
Loan. Furthermore, the limited partnership interests in the Fontana Borrower may
be transferred by the limited partners to another limited partner or a family
member of the transferor, if, among other things: (i) the Fontana Loan is not in
default; (ii) the transfer does not result in the proposed transferee owning
more than forty-nine percent (49%) of the interest in the Fontana Borrower; and
(ii) the transfer does not cause the Fontana Borrower to breach the single
purpose entity and separateness covenants in the loan agreement.
ESCROW/RESERVES. There is a tax reserve which requires deposits in an
amount sufficient to pay taxes when due. There is also a reserve for capital
expenditures which is funded monthly in an amount of 1/12th of the anticipated
annual costs of replacements and capital repairs. Lastly, there is a reserve for
tenant improvements and leasing commission (the "TI/LC Reserve"), which was
partially funded at closing and requires a monthly contribution of $7,300. The
balance of the TI/LC Reserve is capped at $350,000. Such amounts will be
disbursed to pay such costs and provide additional security for the Fontana
Loan.
There is no requirement to reserve for insurance unless the Fontana Loan
is in default or payments of insurance premiums are not current.
SUBORDINATE/OTHER DEBT. Subordinate indebtedness and encumbrance of the
Fontana Properties are prohibited, other than unsecured trade and operational
debt incurred in the ordinary course of business.
THE PROPERTIES
The Fontana Plaza Property is a 124,342 square foot shopping center
located in Fontana, California. The Fontana Plaza Property was approximately
94.8% leased as of 3/29/1999. The buildings are wood frame and stucco
construction.
Approximately 24.6% of rents are provided by national or regional
tenants including Lucky's, OSCO/Sav-on and Kragen Auto Parts. As of 3/29/99, the
Fontana Plaza Property was 94.8% leased to 36 tenants. Anchor tenants occupy
approximately 40.8% of the space, or 50,717 square feet. Contractual lease
expirations during the loan term are as follows: 13,622 square feet (11%) in
2000, 15,245 square feet (12%) in 2001, 6,980 square feet (6%) in 2002, 14,078
square feet (11%) in 2003, 1,342 square feet (1%) in 2004, 28,217 square feet
(23%) in 2006, 24,300 square feet (20%) in 2008 and 1,388 square feet (1%) in
2009. As of 3/29/99, average rents for anchor space was $5.03 per square foot
and average base rents for in-line space was $14.12 per square foot.
The Foothill Plaza Property is a 93,989 square foot shopping center
located in Fontana, California. The Foothill Plaza Property was 100% leased and
occupied as of 3/29/99. The buildings are wood frame and stucco construction.
Approximately 23% of rents are provided by national/regional tenants
including Fiesta Mexicana, Rite Aid, Kragen Auto Parts and Radio Shack. As of
3/29/99, the Foothill Plaza Property was 100% leased to 24 tenants. Anchor
tenants occupy approximately 56.0% of the space, or 52,640 square feet.
Contractual lease expirations during the loan term are as follows: 11,941 square
feet (13%) in 2000, 10,604 square feet (11%) in 2001, 25,060 square feet (27%)
in 2002, 3,746 square feet (4%) in 2003, 1,869 square feet (2%) in 2004, 2,640
square feet (3%) in 2006, and 35,000 square feet (37%) in 2007. As of 3/29/99,
average base rents for anchor space was $4.59 per square foot and average base
rents for in-line space was $13.71 per square foot.
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<PAGE>
The Plaza East Property is a 98,306 square foot shopping center located
in Fontana, California. The Plaza East Property was 100% leased and occupied as
of 3/29/99. The buildings are wood frame and stucco construction.
As of 3/29/99, the Plaza East Property was 100.0% leased to 15 tenants.
Anchor tenants occupy approximately 51.51% of the space, or 50285 square feet.
Contractual lease expirations during the loan term are as follows: 6,277 square
feet (6%) in 2000, 8,463 square feet (9%) in 2001, 8,211 square feet (8%) in
2002, 12,828 square feet (13%) in 2003, 3,084 square feet (3%) in 2004, 50,252
square feet (51%) in 2005, 2,560 square feet (3%) in 2006, and 5,525 square feet
(16%) in 2011. As of 3/29/99, average base rents at the property were $8.68 per
square foot.
MANAGEMENT
Medina, Inc. is the property manager. David Wiener, the principal owner
of Medina, Inc., is an experienced owner, operator and investor in commercial
real estate.
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<PAGE>
LOAN NO. 26 -- DEL MAR PLAZA SHOPPING CENTER
<TABLE>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $18,008,336 Property Type: Retail
Loan Type: Principal & Interest; Location: Del Mar, CA
Balloon
Year Built/Renovated: 1989/NAP
Origination Date: 04/22/1999 Square Footage: 74,958
Maturity Date: 05/01/2009 Cut-Off Date $240
Mortgage Rate: 7.350 % Appraisal Value: $36,000,000
Annual Debt Service: $ 1,492,314 Cut-Off Date LTV: 50.0%
DSCR: 1.48x Balloon LTV: 43.5%
Underwritable Cash Flow: $ 2,215,890 Percent Leased: 82.6%
Balance at Maturity: $15,642,843 Percent Leased as of Date 04/21/1999
- --------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Del Mar Plaza Shopping Center Loan (the "Del Mar Loan") is secured
by a first mortgage on a 74,958 square foot three level retail plaza located in
Del Mar, California (the "Del Mar Property"). The Del Mar Loan was originated by
Principal Commercial Funding, LLC on April 22, 1999.
THE BORROWER The borrower is HERS Del Mar Corp., a Delaware corporation
(the "Del Mar Borrower"). The Del Mar Borrower is 100% owned by Employee's
Retirement System of the State of Hawaii (the "HERS"). The Del Mar Borrower
structure is the equivalent of a double special purpose entity and has an
independent trustee.
SECURITY. The Del Mar Loan is secured by a Deed of Trust, Assignment of
Rents and Leases, UCC Financing Statements and certain additional security
documents (the "Del Mar Financing Documents"). The Deed of Trust is a first lien
on the Del Mar Borrower's fee interest in the Del Mar Property. The Del Mar Loan
is non-recourse to the Del Mar Borrower, subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.350% per annum. The Del
Mar Loan requires monthly payments of principal and interest of $124,359.47
until May 1, 2009, at which time all unpaid principal and accrued but unpaid
interest is due. The Del Mar Loan accrues interest computed on the basis of a
360-day year composed of twelve 30-day months.
PREPAYMENT/DEFEASANCE. Voluntary prepayment is prohibited until three
(3) months prior to maturity. However, the Del Mar Borrower may defease at any
time after two (2) years following issuance of the certificates. Defeasance is
permitted only upon the satisfaction of certain conditions specified in the Del
Mar Financing Documents, including confirmation from each Rating Agency that
defeasance would not result in a downgrade, qualification or withdrawal of the
then current ratings assigned to any class of certificates. No prepayment is due
if the Del Mar Loan is prepaid within three (3) months prior to maturity.
LATE FEES AND DEFAULT INTEREST . There is a 4% late fee on overdue
installments except that said late fee is reduced to $0.005 for each dollar for
the first late payment; $0.01 for each dollar for the second and third late
payments; $0.02 for each dollar for the fourth and fifth late payments
cumulatively over the term of the Del Mar Loan. The Del Mar Loan accrues
interest at the mortgage rate plus 4% per annum while the Del Mar Loan is in
default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Del Mar Loan provides
that it will become immediately due and payable upon the transfer of the Del Mar
Property or any ownership interest in the Del Mar Borrower, except in connection
with any of the following permitted transfers.
Upon the payment of an assumption fee in the amount of one-half percent
(1/2%) or one percent (1%) of the outstanding principal balance of the Del Mar
Loan for the first and second transfers, respectively, the Del Mar
III-37
<PAGE>
Financing Documents permit the Del Mar Borrower to transfer the Del Mar
Property, subject to the Del Mar Financing Documents (with a full release of the
obligations of the transferor) under the Del Mar Loan. In addition, a one time
transfer of the Del Mar Property is permitted under the Del Mar Financing
Documents to any entity in which HERS owns at least 51% of the interests is
permitted. Such transfers are permitted only upon the satisfaction of certain
conditions specified in the Del Mar Financing Documents, including confirmation,
at lender's discretion, from each Rating Agency that the transfer would not
result in a downgrade, qualification or withdrawal of the then current ratings
assigned to any class of certificates. Any proposed transferee must reasonably
satisfy the lender's underwriting standards with respect to the proposed
transferee.
Upon payment of an assumption fee equal to the greater of $15,000 or one
percent (1%) of the outstanding principal balance of the Del Mar Loan or the
prorated amount of said one percent (1%) if less than the entire interest in the
Del Mar Borrower is transferred, the Del Mar Financing Documents also permit the
transfer of the ownership interest in the Del Mar Borrower if (i) equity
interests in the successor borrower are securities registered with the
Securities and Exchange Commission provided the SPE status is maintained and
(ii) the management and leasing of the Del Mar Property has been approved by the
lender. Transfers of up to 49% interest in the ownership interest in the Del Mar
Borrower are permitted provided certain conditions specified in the Del Mar
Financing Documents are satisfied, including confirmation, at lender's
discretion, from each Rating Agency that the transfer would not result in a
downgrade, qualification or withdrawal of the then current ratings assigned to
any class of certificates.
ESCROWS/RESERVES. The Del Mar Financing Documents require monthly escrow
deposits in amounts sufficient to pay taxes and insurance premiums when due. The
Del Mar Financing Documents also provide for escrows in the amount of $427,185
to cover Borrower expenditures for the leasing commissions and tenant
expenditures for 7,767 square feet of leased space.
SUBORDINATED/OTHER DEBT. Secured Subordinate indebtedness and
encumbrances are prohibited by the Del Mar Financing Documents.
THE PROPERTY
The Del Mar Property consists of 74,958 square feet of a three level
retail plaza located in Del Mar, California. As of April 21, 1999, the Del Mar
Property was 82% leased to 36 tenants. The Del Mar Property is situated within
the city of Del Mar which is located along the Pacific Ocean in the north
central portion of San Diego County.
The street level of the Del Mar Property is anchored by a new Banana
Republic. The second level is directly accessible from the parking garage and
walkways from the street level. The plaza level is open air and is anchored by 3
restaurants, Pacifica Del Mar, Epazote and Il Fornaio and overlooks the Pacific
Ocean. Contractual lease expirations during the loan term for all tenants are as
follows: 10,053 square feet (13.41%) in 1999; 10,295 square feet (13.73%) in
2000; 8,767 square feet (11.7%) in 2001; 9,841 square feet (13.13%) in 2002;
2,933 square feet (3.91%) in 2003; 13,916 square feet (18.57%) in 2004; 14,015
square feet (18.70%) in 2007 and 1,913 square feet (2.55%) in 2008.
MANAGEMENT
Clarion Realty Services is the manager of the Del Mar Property. Clarion
Realty Services is Clarion Partners' management subsidiary. Clarion Realty
Services has hired an on-site manager for the Del Mar Property. The Del Mar
Financing Documents contain a termination and management fee subordination
provision.
III-38
<PAGE>
LOAN NO. 27 -- 609 GREENWICH STREET LOAN AND PROPERTY
<TABLE>
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $13,986,928 Property Type: Office
Loan Type: Principal & Location: New York, NY
Balloon Year Built/Renovated: 1920/1987
Origination Date: 06/15/1999 Square Footage: 150,350
Maturity Date: 07/01/2009 Cut-Off Date Balance/SF: $93
Mortgage Rate: 7.490% Appraisal Value: $21,200,000
Annual Debt Service: $ 1,240,413 Cut-Off Date LTV: 66.0%
DSCR: 1.33x Balloon LTV: 53.8%
Underwritable Cash Flow: $ 1,655,816 Percent Leased: 100.0%
Balance at Maturity: $11,405,640 Percent Leased as of Date: 04/01/1999
- ---------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The 609 Greenwich Street Loan (the "609 Greenwich Loan") is secured by a
first mortgage on a 150,350 square foot office building located in New York, New
York (the "609 Greenwich Property"). The 609 Greenwich Loan was originated by
Principal Commercial Funding, LLC on June 15, 1999.
THE BORROWER. The borrower is S&P Greenwich Associates, LLC, a New York
limited liability company (the "609 Greenwich Borrower"). The 609 Greenwich
Borrower is owned by three key principals and their families (Michael L.
Steinberg (25%), Arnold Steinburg (25%), and Harold Derfner (20%) and their
families). The 609 Greenwich Borrower structure is a special purpose entity.
SECURITY. The 609 Greenwich Loan is secured by a Mortgage, Assignment of
Rents and Leases, UCC Financing Statements and certain additional security
documents (the "609 Greenwich Financing Documents"). The Deed of Trust is a
first lien on the 609 Greenwich Borrower's fee interest in the 609 Greenwich
Property. The 609 Greenwich Loan is non-recourse to the 609 Greenwich Borrower,
subject to certain limited exceptions. The three key principals, Michael L.
Steinberg, Arnold Steinburg and Harold Derfner have executed a joint and several
guaranty for the fraud, misrepresentation and environmental carve outs.
The 609 Greenwich Loan is also secured by $3,100,000 letter of credit.
The letter of credit will continue to exist until the tenant Gun For Hire begins
to pay full rent on February 1, 2000. Gun For Hire is paying reduced rent while
some of its space is being completed. If Gun For Hire does not commence full
rent on February 1, 2000, then the letter of credit may be used to pay down the
609 Greenwich Loan with prepayment premium.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.490% per annum. The 609
Greenwich Loan requires monthly payments of principal and interest of
$103,367.71 until July 1, 2009, at which time all unpaid principal and accrued
but unpaid interest is due. The 609 Greenwich Loan accrues interest computed on
the basis of the actual number of days elapsed in each month in a 360-day year.
PREPAYMENT/DEFEASANCE. Voluntary prepayment is prohibited until three
(3) months prior to maturity. However, the 609 Greenwich Borrower may defease at
any time after August 1, 2003. Defeasance is permitted only upon the
satisfaction of certain conditions specified in the 609 Greenwich Financing
Documents, including confirmation, at lender's option, from each Rating Agency
that defeasance would not result in a downgrade, qualification or withdrawal of
the then current ratings assigned to any class of certificates. No prepayment
premium is due if the 609 Greenwich Loan is prepaid within three (3) months
prior to maturity.
LATE FEES AND DEFAULT INTEREST. There is a 4% late fee on overdue
installments. The 609 Greenwich Loan accrues interest at the mortgage rate plus
4% per annum while the 609 Greenwich Loan is in default.
III-39
<PAGE>
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The 609 Greenwich Loan
provides that it will become immediately due and payable upon the transfer of
the 609 Greenwich Property or any ownership interest in the 609 Greenwich
Borrower, except in connection with any of the following permitted transfers.
Upon the payment of an assumption fee in the amount of the greater of
$15,000 or 1% of the outstanding principal balance of the 609 Greenwich Loan,
the 609 Greenwich Financing Documents permit the 609 Greenwich Borrower to
transfer the Greenwich Property two (2) times during the life of the Greenwich
Loan, subject to the 609 Greenwich Financing Documents (with a full release of
the obligations of the transferor) under the 609 Greenwich Loan. Such transfers
are permitted only upon the satisfaction of certain conditions specified in the
609 Greenwich Financing Documents. In addition, any proposed transferee must
reasonably satisfy the lender's underwriting standards with respect to the
proposed transferee.
Upon the payment of a reasonable fee, the 609 Greenwich Financing
Documents also permit the transfer of all or part of the ownership interest in
the 609 Greenwich Borrower provided (i) the interest is transferred to immediate
family members of Max Steinberg and Abraham Pokoik, (ii) the 609 Greenwich
Borrower remains 100% owned by the Steinberg/Pokoik family, (iii) experienced
management and leasing reasonably acceptable to the lender is in place, and (iv)
provided certain conditions specified in the 609 Greenwich Financing Documents
are satisfied.
ESCROWS/RESERVES. The 609 Greenwich Financing Documents require monthly
escrow deposits in amounts sufficient to pay taxes when due. The 609 Greenwich
Financing Documents also require the 609 Greenwich Borrower to fund an escrow
for capital reserves monthly in the amount of $2,500. In addition, the 609
Greenwich Borrower has funded into escrow $571,333, which is the amount of
prepaid rent paid by the tenant Gun for Hire, and that will continue to be held
in escrow until such time as the amount shall be deemed to be a security deposit
(and not prepaid rent) under the terms of the Gun for Hire lease. In addition,
there is a $3,100,000 letter of credit in favor of the lender which may be used
to pay down the 609 Greenwich Loan with prepayment premium if the tenant, Gun
For Hire, does not pay full rent beginning February 1, 2000. Upon Gun For Hire
paying full rent, the letter of credit must be released to the 609 Greenwich
Borrower.
SUBORDINATED/OTHER DEBT. Secured subordinate indebtedness and
encumbrances are prohibited by the 609 Greenwich Financing Documents.
THE PROPERTY
The 609 Greenwich Property consists of a 150,350 square foot nine story
office building built in 1920 located in New York, New York. The 609 Greenwich
Property is a former warehouse. The building underwent extensive renovations
over the past ten years at a total cost of $11.2 million. The 609 Greenwich
Property is in the southwest quadrant of the West Village area of Manhattan. The
West Village area of Manhattan is located along the lower west portion of the
Manhattan island.
As of June 15, 1999, the 609 Greenwich Property was 100.0% leased to 2
tenants. Gun For Hire occupies 60% of the building with a lease expiration date
of 10/31/2013.
Gun For Hire is a fully integrated film production company that has been
producing movies for six years. Gun For Hire also occupies all of a nine story
building across the street. Andin International occupies the remaining 40% of
the space and since 1981 and has a lease expiration date of 6/30/2009 is engaged
in the design, manufacture and distribution of precious metal jewelry.
MANAGEMENT
Steinberg and Pokoik Management is the manager of the 609 Greenwich
Property. Steinberg and Pokoik Management currently manages 1.25 million square
feet and has been in business in Manhattan since 1910. Steinberg and Pokoik
Management is affiliated with the 609 Greenwich Borrower. The 609 Greenwich
Financing Documents contain termination and management fee subordination
provisions.
III-40
<PAGE>
LOAN NO. 28 - THE OFFICE CENTER AT RAMSEY LOAN AND PROPERTY
<TABLE>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $13,968,884 Property Type: Office
Loan Type: Principal & Location: Ramsey, NJ
Balloon Year Built/Renovated: 1988/NAP
Origination Date: 04/19/1999 Square Footage: 139,410
Maturity Date: 05/01/2009 Cut-Off Date Balance/SF: $100
Mortgage Rate: 7.540% Appraisal Value: $19,500,000
Annual Debt Service: $1,179,285 Cut-Off Date LTV: 71.6%
DSCR: 1.29x Balloon LTV: 62.5%
Underwritable Cash Flow: $1,524,223 Percent Leased: 98.4%
Balance at Maturity: $12,183,701 Percent Leased as of Date: 04/19/1999
- --------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Office Center at Ramsey Loan (the "Ramsey Loan") is secured by a
first mortgage on a 139,410 square foot three story office building located in
Ramsey, New Jersey (the "Ramsey Property"). The Ramsey Loan was originated by
Principal Commercial Funding, LLC on April 19, 1999.
THE BORROWER. The borrower is Raia Properties-Ramsey, L.P., a New Jersey
limited liability company (the "Ramsey Borrower"). The Ramsey Borrower is owned
equally by three key principals, Samuel Raia, Joseph Raia and Lawrence Raia.
SECURITY. The Ramsey Loan is secured by a Deed of Trust, Assignment of
Rents and Leases, UCC Financing Statements and certain additional security
documents (the "Ramsey Financing Documents"). The Mortgage is a first lien on
the Ramsey Borrower's fee interest in the Ramsey Property. The Ramsey Loan is
non-recourse to the Ramsey Borrower, subject to certain limited exceptions. The
three key principals, Samuel Raia, Joseph Raia and Lawrence Raia have executed a
joint and several guaranty for the fraud, misrepresentation and environmental
carve outs.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.540% per annum. The
Ramsey Loan requires monthly payments of principal and interest of $98,273.78
until May 1, 2009, at which time all unpaid principal and accrued but unpaid
interest is due. The Ramsey Loan accrues interest computed on the basis of a 360
day year composed of twelve 30-day months.
PREPAYMENT/DEFEASANCE. Voluntary prepayment is prohibited until three
(3) months prior to maturity. However, the Ramsey Borrower may defease at any
time after June 1, 2003. Defeasance is permitted only upon the satisfaction of
certain conditions specified in the Ramsey Financing Documents, including
confirmation, at lender's option, from each Rating Agency that defeasance would
not result in a downgrade, qualification or withdrawal of the then current
ratings assigned to any class of certificates. No prepayment premium is due if
the Ramsey Loan is prepaid within three (3) months prior to maturity.
LATE FEES AND DEFAULT INTEREST. There is a 4% late fee on overdue
installments. The Ramsey Loan accrues interest at the mortgage rate plus 4% per
annum while the Ramsey Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Ramsey Loan provides
that it will become immediately due and payable upon the transfer of the Ramsey
Property or any ownership interest in the Ramsey Borrower, except in connection
with any of the following permitted transfers.
Upon the payment of an assumption fee in the amount of the greater of
$15,000 or 1% of the outstanding principal balance of the Ramsey Loan, the
Ramsey Financing Documents permit the Ramsey Borrower to transfer the Ramsey
Property or interest in the Ramsey Borrower two (2) times during the life of the
Ramsey Loan, subject to the Ramsey Financing Documents (with a full release of
the obligations of the transferor) under the Ramsey Loan. Such transfers are
permitted only upon the satisfaction of certain conditions specified in the
Ramsey Financing
III-41
<PAGE>
Documents. In addition, any proposed transferee must reasonably satisfy the
lender's underwriting standards with respect to the proposed transferee.
The Ramsey Financing Documents also permit, without an assumption fee,
transfers of partnership interests in the Ramsey Borrower between Joseph S.
Raia, Lawrence A. Raia and Samuel S. Raia and their families provided that at
least two (2) of the following, Joseph S. Raia, Lawrence A. Raia and Samuel S.
Raia, cumulatively retain a 51% ownership interest, remain as shareholders of
the general partner of the Ramsey Borrower and continue to manage and lease the
Ramsey Property. Such transfers are permitted only upon the satisfaction of
certain conditions specified in the Ramsey Financing Documents.
ESCROWS/RESERVES. The Ramsey Financing Documents require monthly escrow
deposits in amounts sufficient to pay taxes when due. The Ramsey Financing
Documents also require the Ramsey Borrower to fund an escrow for replacement
reserves monthly in the amount of $2,324. This escrow is capped at $50,000 and
anytime the escrow balance falls below the capped amount, the monthly cashflow
escrow will resume. In addition, the Ramsey Borrower is required to fund an
escrow for tenant improvements and leasing commissions monthly in the amount of
$5,000. This escrow is capped at $300,000 and anytime the balance falls below
the capped amount, the monthly cashflow escrow will resume. In addition, at
closing $270,000 was escrowed for tenant improvements and leasing commissions
related to the JDR Recovery Corporation space. Also at closing, $235,000 was
escrowed as additional security until UPS unconditionally accepts its leased
space and commences paying rent at $102,916.67 per month beginning September 1,
1999 as set forth in its lease. The Ramsey Financing Documents permit the Ramsey
Borrower to replace both the $270,000 and $235,000 escrowed dollars with a
letter of credit upon the satisfaction of certain conditions specified in the
Ramsey Financing Documents.
SUBORDINATED/OTHER DEBT Subordinate indebtedness and encumbrances are
prohibited by the Ramsey Financing Documents.
THE PROPERTY
The Ramsey Property consists of a 139,410 square foot three story office
building built in 1988 located in Ramsey, New Jersey. The Ramsey Property is on
the east side of the North Franklin Turnpike. It has access to Interstate 80 and
287, the Garden State Parkway and the Franklin Turnpike. The building has a
steel framed structure, face brick and aluminum framed glass curtain wall
exteriors.
As of April 19, 1999, the Ramsey Property was 98.4% leased to 10
tenants. United Parcel Service occupies 65,000 square feet (47%) and is the
world's largest package delivery company with a lease expiration date of
8/31/2004. JDR Recovery Corp. occupies 54,305 square feet (39%) with a lease
expiration date of 10/31/2002 and is a national collection agency headquartered
in the Ramsey Property. JDR Recovery has been in the business for over 17 years
and has 4 satellites across the United States. Contractual lease expirations for
the remainder of the tenants are as follows: 5,465 square feet (3.9%) in 1999;
969 square feet (0.1%) in 2000; 1,161 square feet (0.1%) in 2001; 6,600 square
feet (4.7%) in 2003.
MANAGEMENT
Raia Properties is the manager of the Ramsey Property. Raia Properties
currently manages 700,000 square feet in the New Jersey area. Raia Properties is
affiliated with the Ramsey Borrower.
III-42
<PAGE>
LOAN NO. 29 - PEDDLER'S VILLAGE LOAN AND PROPERTY
<TABLE>
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<S> <C> <C> <C>
Cut-Off Date Balance: $12,495,090 Property Type: Various(1)
Loan Type: Principal & Location: Lahaska, PA
Origination Date: 6/14/99 Year Built/Renovated: 1962/1993
Maturity Date: 7/1/2009 Square Feet: 226,860
Mortgage Rate: 8.350% Cut-Off Date Balance/SF: $55
Annual Debt Service: $1,137,468 Appraised Value: $20,500,000
DSCR: 1.73x Cut-Off Date LTV: 61.0%
Underwritable Cash Flow: $1,967,690 Balloon LTV: 55.1%
Balance at Maturity: $11,293,240 Percent Leased: 100.0%
Percent Leased as of 6/3/1999
<FN>
- ------------
(1) The property contains retail, hotel, apartment, museum and other space.
</FN>
- -------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Peddler's Village Loan (the "Peddler's Village Loan") is secured by
a first mortgage on a 226,860 square foot retail complex (the "Peddler's Village
Property"), located in Lahaska, Pennsylvania. The Peddler's Village Loan was
originated by JHREF on June 14, 1999.
THE BORROWER. The Borrowers are Peddler's Village Partnership, ("PVP"),
a Pennsylvania limited partnership, Peddler's Village of Lahaska, Inc., a
Pennsylvania corporation, D.J.Y., Inc., a Pennsylvania corporation and Earl H.
Jamison (collectively, the "Peddler's Village Borrower"). The partners of PVP
consist of Peddler's Village of Lahaska, Inc. (50% General Partner), Earl H.
Jamison ("Jamison"), (10% General Partner) and 30% Limited Partner and five (5)
trusts for the benefit of Jamison's children (10% Limited Partner).
SECURITY. The Peddler's Village Loan is secured by an Open-End Mortgage,
Assignment of Leases and Rents, Security Agreement, UCC Financing Statements and
certain additional security documents. The mortgage is a first lien on the fee
interest and partial leasehold interest pursuant to a ground lease (the
"Peddler's Village Ground Lease") in the Peddler's Village Property. The
Peddler's Village Loan is full recourse to the Peddler's Village Borrower.
PAYMENT TERMS. The Mortgage Rate is fixed at 8.350%. The Peddler's
Village Loan requires monthly payments of principal and interest of $94,788.53
until its maturity on July 1, 2009, at which time all unpaid principal and
accrued but unpaid interest is due. The Peddler's Village Loan accrues interest
computed on the basis of the actual number of days elapsed in each month in a
360-day year.
PREPAYMENT. The Peddler's Village Loan may be prepaid in whole, but not
in part, with at least 30 days prior written notice on or after August 1, 2004
upon payment of a Yield Maintenance Payment calculated on the basis of the
greater of a Yield Maintenance Premium calculated by reference to U.S. Treasury
obligations or one percent (1%) of the amount prepaid. No Yield Maintenance
Payment is due if the Peddler's Village Loan is prepaid within ninety (90) days
prior to maturity.
If there is an event of default and the lender accelerates the Peddler's
Village Loan, the security documents require the Peddler's Village Borrower to
pay a Yield Maintenance Payment calculated on the basis of the greater of a
Yield Maintenance Premium calculated by reference to U.S. Treasury obligations
or ten percent (10%) of the then outstanding principal amount of the Peddler's
Village Loan.
LATE FEES AND DEFAULT INTEREST. There is a 5% late fee on overdue
installments. The Peddler's Village Loan accrues interest at the Mortgage Rate
plus 7% per annum while the Peddler's Village Loan is in default.
III-43
<PAGE>
TRANSFER OF PROPERTY OR INTERESTS IN THE BORROWER. The Peddler's Village
Loan becomes immediately due and payable upon the transfer of the Peddler's
Village Property except for a one-time right to transfer the Peddler's Village
Property, if among other things, (i) there is no event of default; (ii) the
Rating Agencies have confirmed in writing that such transfer will not result in
a requalification, reduction or withdrawal of the ratings assigned to the
Certificates; (iii) the transferee is a single-purpose, bankruptcy remote
entity; and (iv) the transferee has assumed the Peddler's Village Loan.
The Peddler's Village Loan becomes immediately due and payable upon the
transfer of any ownership interest in the Peddler's Village Borrower except for
the transfer of partnership interests by any limited partner of the Peddler's
Village Borrower or the transfer of any stock of the Peddler's Village of
Lahaska, Inc. to any family member of Jamison, if, among other things, Jamison
remains the owner of at least fifty-one percent (51%) of the stock of the
Peddler's Village of Lahaska, Inc., continues to control the Peddler's Village
Borrower and continues to conduct the day-to-day operations of the Peddler's
Village Property.
ESCROW/RESERVES. There is a tax reserve which requires deposits in an
amount sufficient to pay taxes when due. There is a repair escrow for deferred
maintenance. There are no other reserves.
SUBORDINATE/OTHER DEBT. Subordinate indebtedness or encumbrances of the
Peddler's Village Property are prohibited.
THE PROPERTY
The Peddler's Village Property is a 226,680 square foot specialty
shopping center located in Lahaska, Pennsylvania. The Peddler's Village Property
was 100% leased and 100% occupied as of June 3, 1999. The building is wood and
steel construction.
The property is occupied by 75 retail tenants (76% of the gross
potential rent ("GPR")), a country inn (12.5% of GPR), 17 apartment units (5.7%
of GPR) and an antique carousel and museum (5.8% of GPR). According to the
Peddler's Village Borrower, the Peddler's Village Property receives over two
million visitors per year. Six tenants of the Peddler's Village Property,
leasing a total of 100,219 square feet (approximately 44% of the total square
footage) and paying approximately $1.6 million in annual base rent
(approximately 45% of the total base rent), are affiliated with the Peddler's
Village Borrower.
As of June 3, 1999, the Peddler's Village Property was 100% leased to 77
tenants. Contractual lease expirations during the loan term are as follows:
17,035 square feet (7%) in 1999, 41,320 square feet (18%) in 2000, 7,570 square
feet (3%) in 2001, 7,450 square feet (3%) in 2002, 22,700 square feet (10%) in
2003, 2,906 square feet (1%) in 2004, 3,500 square feet (2%) in 2006 and 104,719
square feet (46%) in 2009. As of 6/3/99, average rents at the property were
$16.94 per square foot.
The term of the Peddler's Village Ground Lease, which is subordinate to
the first mortgage lien, is 30 years, expiring on December 31, 2025. The lessor
is D.J.Y., Inc, a Pennsylvania corporation. The base rent is currently $120,000
annually.
MANAGEMENT
The Peddler's Village Property is managed by Jamison. Jamison developed
and has owned and managed the Peddler's Village Property since 1962. In addition
to managing the Peddler's Village Property, Jamison owns several companies that
operate the restaurants, lodging, conference facilities and apartments located
at the Peddler's Village Property.
III-44
<PAGE>
LOAN NO. 30 - PINE RIDGE APARTMENTS OF DURHAM LOAN AND PROPERTY
<TABLE>
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-Off Date Balance: $11,980,455 Property Type: Multifamily
Loan Type: Principal & Location: Durham, NC
Interest; Balloon
Year Built/Renovated: 1998/NAP
Origination Date: 05/26/1999 Units: 332
Maturity Date: 06/01/2009 Cut-Off Date Balance/Unit: $36,086
Mortgage Rate: 6.510% Appraisal Value: $18,200,000
Annual Debt Service: $911,125 Cut-Off Date LTV: 65.8%
DSCR: 1.68x Balloon LTV: 56.9%
Underwritable Cash Flow: $ 1,529,936 Percent Leased: 99.0%
Balance at Maturity: $10,347,277 Percent Leased as of Date: 04/30/1999
- ---------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Pine Ridge Apartments of Durham Loan (the "Pine Ridge Loan") is
secured by a first lien on 332 units in a garden apartment complex located in
Durham, North Carolina (the "Pine Ridge Property"). The Pine Ridge Loan was
originated by Principal Commercial Funding, LLC on May 26, 1999.
THE BORROWER The borrower is Pine Ridge Apartments of Durham, LLC, a
North Carolina limited liability company (the "Pine Ridge Borrower"). The Pine
Ridge Borrower is 100% owned by Ticon, Inc. Ticon, Inc. is a real estate holding
entity with 100% ownership interest in 30 properties in the Durham area. The
Pine Ridge Borrower is a special purpose entity.
SECURITY. The Pine Ridge Loan is secured by a Deed of Trust, Assignment
of Rents and Leases, UCC Financing Statements and certain additional security
documents (the "Pine Ridge Financing Documents"). The Deed of Trust is a first
lien on the Pine Ridge Borrower's fee interest in the Pine Ridge Property. The
Pine Ridge Loan is non-recourse to the Pine Ridge Borrower, subject to certain
limited exceptions. Ticon, Inc. has executed a guaranty for the fraud,
misrepresentation and environmental carve outs.
PAYMENT TERMS. The Mortgage Rate is fixed at 6.510% per annum. The Pine
Ridge Loan requires monthly payments of principal and interest of $75,927.10
until June 1, 2009, at which time all unpaid principal and accrued but unpaid
interest is due. The Pine Ridge Loan accrues interest computed on the basis of
the actual number of days elapsed in each month in a 360-day year.
PREPAYMENT/DEFEASANCE. Voluntary prepayment is prohibited until three
(3) months prior to maturity. However, the Pine Ridge Borrower may defease at
any time after two (2) years following the issuance of the certificates.
Defeasance is permitted only upon the satisfaction of certain conditions
specified in the Pine Ridge Financing Documents, including confirmation, at
lender's option, from each Rating Agency that defeasance would not result in a
downgrade, qualification or withdrawal of the then current ratings assigned to
any class of certificates. No prepayment premium is due if the Pine Ridge Loan
is prepaid within three (3) months prior to maturity.
LATE FEES AND DEFAULT INTEREST. There is a 4% late fee on overdue
installments for a period exceeding fifteen (15) days or such shorter period as
may be permitted by North Carolina law. The Pine Ridge Loan accrues interest at
the mortgage rate plus 4% per annum while the Pine Ridge Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Pine Ridge Loan
provides that it will become immediately due and payable upon the transfer of
the Pine Ridge Property or any ownership interest in the Pine Ridge Borrower,
except in connection with any of the following permitted transfers.
Upon the payment of an assumption fee in the amount of the greater of
$15,000 or 1% of the outstanding principal balance of the Pine Ridge Loan, the
Pine Ridge Financing Documents permit the Pine Ridge Borrower to
III-45
<PAGE>
transfer the Pine Ridge Property two (2) times during the life of the Pine Ridge
Loan, subject to the Pine Ridge Financing Documents. Such transfers are
permitted only upon the satisfaction of certain conditions specified in the Pine
Ridge Financing Documents. In addition, any proposed transferee must reasonably
satisfy the lender's underwriting standards with respect to the proposed
transferee.
The Pine Ridge Financing Documents also permit transfers of a membership
interest in the Pine Ridge Borrower to W. Jack McGhee, his parents, siblings,
grandchildren and spouses provided that (i) Ticon, Inc. maintains a 51% interest
in the Pine Ridge Borrower, and (ii) certain other conditions specified in the
Pine Ridge Financing Documents are satisfied. Transfers of the shareholder
interest in Ticon, Inc. to W. Jack McGhee, his parents, siblings, grandchildren
and spouses are permitted provided that (i) W. Jack McGhee maintains at least a
51% interest in Ticon, Inc., and (ii) certain conditions specified in the Pine
Ridge Financing Documents are satisfied.
ESCROWS/RESERVES. The Pine Ridge Financing Documents require monthly
escrow deposits in amounts sufficient to pay insurance and taxes when due.
SUBORDINATED/OTHER DEBT. Secured subordinate indebtedness and
encumbrances are prohibited by the Pine Ridge Financing Documents.
THE PROPERTY
The Pine Ridge Property consists of 332 units in a three story garden
apartment complex built in phases from 1996 through 1998 and is located in
Durham, North Carolina. The Pine Ridge Property consists of 39 two-story and
three-story buildings. The buildings are wood frame with painted hard plank
siding. All units contain a range, refrigerator, disposal, washer/dryer hook-up,
security system, miniblinds and ceiling fans. One bedrooms have a washer and
dryer and the 2-3 bedroom units have a fireplace and covered porch. Complex
amenities include a club house with a community room and exercise facility,
playground and swimming pool.
As of April 30, 1999, the Pine Ridge Property was 98.8% occupied.
MANAGEMENT
Ticon Properties, LLC is the management and leasing firm of the Pine
Ridge Property. Ticon Properties, LLC currently manages 30 properties in the
Durham area and has been in business over 25 years. The Pine Ridge Financing
Documents contain a management termination provision.
III-46
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
- --------------------------------- ---------------------- -----------------------
MORGAN STANLEY July 19, 1999
Real Estate Debt Capital Markets [MORGAN STANLEY
Mortgage Capital Markets DEAN WITTER LOGO]
- --------------------------------- ---------------------- -----------------------
CMBS NEW ISSUE
PRELIMINARY TERM SHEET
------------------------------------------
EXPECTED PRICING DATE: JULY 27, 1999
------------------------------------------
$557,567,000
(APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
AS DEPOSITOR
PRINCIPAL COMMERCIAL FUNDING, LLC
JOHN HANCOCK REAL ESTATE FINANCE, INC.
MORGAN STANLEY MORTGAGE CAPITAL INC.
AS MORTGAGE LOAN SELLERS
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
------------------------------------------
MORGAN STANLEY DEAN WITTER
GOLDMAN, SACHS & CO.
- --------------------------------------------------------------------------------
This information is being delivered to a specific number of prospective
sophisticated investors in order to assist them in determining whether they have
an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with respect
to the terms of any future offer of securities conforming to the terms hereof.
Any such offer of securities would be made pursuant to a definitive Prospectus
or Private Placement Memorandum, as the case may be, prepared by the issuer
which could contain material information not contained herein and to which the
prospective purchasers are referred. In the event of any such offering, this
information shall be deemed superseded, amended and supplemented in its entirety
by such Prospectus or Private Placement Memorandum. Such Prospectus or Private
Placement Memorandum will contain all material information in respect of any
securities offered thereby and any decision to invest in such securities should
be made solely in reliance upon such Prospectus or Private Placement Memorandum.
Certain assumptions may have been made in this analysis which have resulted in
any returns detailed herein. No representation is made that any returns
indicated will be achieved. Changes to the assumptions may have a material
impact on any returns detailed. Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co. (the "Underwriters") disclaim any and all liability relating to this
information, including without limitation any express or implied representations
and warranties for, statements contained in, and omissions from, this
information. Additional information is available upon request. The Underwriters
and others associated with them may have positions in, and may effect
transaction in, securities and instruments of issuers mentioned herein and may
also perform or seek to perform investment banking services for the issuers of
such securities and instruments. Past performance is not necessarily indicative
of future results. Price and availability are subject to change without notice.
This material may be filed with the Securities and Exchange Commission (the
"SEC") and incorporated by reference into an effective registration statement
previously filed with the SEC under Rule 415 of the Securities Act of 1933,
including in cases where the material does not pertain to securities that are
ultimately offered for sale pursuant to such registration statement. To Morgan
Stanley's readers worldwide: In addition, please note that this publication has
been issued by Morgan Stanley & Co. Incorporated, approved by Morgan Stanley
International Limited, a member of The Securities and Futures Authority, any by
Morgan Stanley Japan Ltd. Morgan Stanley recommends that such readers obtain the
advice of their Morgan Stanley & Co. Incorporated, Morgan Stanley International
or Morgan Stanley Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY
THE U.K. SECURITIES AND FUTURES AUTHORITY
- --------------------------------------------------------------------------------
<PAGE>
$557,567,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
TRANSACTION FEATURES
- --------------------
>> Sellers:
- --------------------------------------------------------------------------------
NO. %
OF CUT-OFF DATE OF
SELLERS LOANS BALANCE POOL
- --------------------------------------------------------------------------------
Principal Commercial Funding, LLC 80 $337,702,158 55.1%
John Hancock Real Estate Finance, Inc. 28 191,827,489 31.3
Morgan Stanley Mortgage Capital Inc. 21 83,182,148 13.6
- --------------------------------------------------------------------------------
TOTAL: 129 $612,711,795 100.0%
- --------------------------------------------------------------------------------
>> Loan Pool:
o Average Cut-Off Date Balance: $4,749,704
o Largest loan by Cut-Off Date Balance (including crossed loans):
$83,182,148 (13.6% of Pool) (secured by a cross-collateralized pool of
21 retail properties)
o Five largest and ten largest loans (including crossed loans): 26.7% and
36.8% of Pool, respectively
>> Credit Statistics:
o Weighted average debt service coverage ratio of 1.63x
o Weighted average loan-to-value of 64.0%
o Weighted average balloon loan-to-value of 55.6% >>
>> Property Types:
o Retail, industrial, office and multifamily properties comprise 96.0% of
Pool
INDUSTRIAL 25.3%
MULITIFAMILY 16.5%
MIXED USE 2.0%
SENIOR HOUSING 1.6%
SELF-STORAGE FACILITY 0.4%
RETAIL 32.5%
OFFICE 21.6%
>> Call Protection:
o Lockout period ranging from 24 to 49 months, then defeasance provisions:
68.1%
o Lockout period ranging from 24 to 72 months, then the greater of yield
maintenance and 1.0%: 31.9% Notwithstanding the foregoing, each loan
provides an open period of 0 to 7 monthly payments prior to and
including the maturity date of the Mortgage Loan in which such loan may
be prepaid without premium or defeasance.
>> Reserves:
o 96.8% of the Mortgage Loans have tax escrow requirements
o 59.4% of the Mortgage Loans have insurance escrow requirements
o 72.6% of the Mortgage Loans have capital expenditure escrow requirements
o 63.4% of the Mortgage Loans (excluding those secured by multifamily,
senior housing and self-storage properties) have TI/LC escrow
requirements
>> Collateral Information Updates: Updated loan information is expected to be
part of the monthly Certificateholder Reports available from the Trustee in
addition to detailed payment and delinquency information. Information
provided by the Trustee is expected to be available at www.lnbabs.com.
Updated property operating and occupancy information, to the extent
delivered by borrowers, is expected to be available to Certificateholders
from the Master Servicer
>> Bond Information: Cash flows are expected to be modeled by TREPP, CONQUEST
and INTEX and are expected to be available on BLOOMBERG
>> Lehman Aggregate Bond Index: It is expected that this transaction will be
included in the Lehman Aggregate Bond Index
T-2
- --------------------------------------------------------------------------------
This information is being delivered to a specific number of prospective
sophisticated investors in order to assist them in determining whether they have
an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with respect
to the terms of any future offer of securities conforming to the terms hereof.
Any such offer of securities would be made pursuant to a definitive Prospectus
or Private Placement Memorandum, as the case may be, prepared by the issuer
which could contain material information not contained herein and to which the
prospective purchasers are referred. In the event of any such offering, this
information shall be deemed superseded, amended and supplemented in its entirety
by such Prospectus or Private Placement Memorandum. Such Prospectus or Private
Placement Memorandum will contain all material information in respect of any
securities offered thereby and any decision to invest in such securities should
be made solely in reliance upon such Prospectus or Private Placement Memorandum.
Certain assumptions may have been made in this analysis which have resulted in
any returns detailed herein. No representation is made that any returns
indicated will be achieved. Changes to the assumptions may have a material
impact on any returns detailed. Morgan Stanley & Co. Incorporated and
Goldman, Sachs & Co. (the "Underwriters") disclaim any and all liability
relating to this information, including without limitation any express or
implied representations and warranties for, statements contained in, and
omissions from, this information. Additional information is available upon
request. The Underwriters and others associated with them may have positions in,
and may effect transaction in, securities and instruments of issuers mentioned
herein and may also perform or seek to perform investment banking services for
the issuers of such securities and instruments. Past performance is not
necessarily indicative of future results. Price and availability are subject to
change without notice. This material may be filed with the Securities and
Exchange Commission (the "SEC") and incorporated by reference into an effective
registration statement previously filed with the SEC under Rule 415 of the
Securities Act of 1933, including in cases where the material does not pertain
to securities that are ultimately offered for sale pursuant to such registration
statement. To Morgan Stanley's readers worldwide: In addition, please note that
this publication has been issued by Morgan Stanley & Co. Incorporated, approved
by Morgan Stanley International Limited, a member of The Securities and Futures
Authority, any by Morgan Stanley Japan Ltd. Morgan Stanley recommends that such
readers obtain the advice of their Morgan Stanley & Co. Incorporated, Morgan
Stanley International or Morgan Stanley Japan Ltd. representative about the
investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY
THE U.K. SECURITIES AND FUTURES AUTHORITY
- --------------------------------------------------------------------------------
<PAGE>
$557,567,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
OFFERED CERTIFICATES
- --------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
INITIAL AGGREGATE
CERTIFICATE EXPECTED FINAL INITIAL
BALANCE OR SUBORDINATION RATINGS AVERAGE PRINCIPAL DISTRIBUTION PASS-THROUGH
CLASS NOTIONAL AMOUNT(1) LEVELS (FITCH/S&P) LIFE(2) WINDOW(2)(3) DATE(2) RATE(4)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 $77,037,000 20.25%(5) AAA/AAA 5.70 1-111 11/15/08 [6.73%]
- ------------------------------------------------------------------------------------------------------------------------------------
A-2 $411,600,000 20.25%(5) AAA/AAA 9.75 111-119 7/15/09 [6.98%]
- ------------------------------------------------------------------------------------------------------------------------------------
B $21,445,000 16.75% AA/AA 9.93 119-119 7/15/09 NWAC - [0.23%](6)
- ------------------------------------------------------------------------------------------------------------------------------------
C $24,509,000 12.75% A/A 9.93 119-119 7/15/09 NWAC - [0.08%](6)
- ------------------------------------------------------------------------------------------------------------------------------------
D $9,190,000 11.25% A-/A- 9.93 119-119 7/15/09 NWAC(6)
- ------------------------------------------------------------------------------------------------------------------------------------
E $13,786,000 9.00% BBB/BBB 9.93 119-119 7/15/09 NWAC(6)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PRIVATE CERTIFICATES(7)
- -----------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
INITIAL AGGREGATE
CERTIFICATE EXPECTED FINAL INITIAL
BALANCE OR SUBORDINATION RATINGS AVERAGE PRINCIPAL DISTRIBUTION PASS-THROUGH
CLASS NOTIONAL AMOUNT(1) LEVELS (FITCH/S&P) LIFE(2) WINDOW(2)(3) DATE(2) RATE(4)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
X $612,711,795(8) -- AAA/AAAr 9.48 -- -- Variable Rate(9)
- ------------------------------------------------------------------------------------------------------------------------------------
F $7,659,000 7.75% BBB-/BBB- 9.93 119-119 7/15/09 NWAC(6)
- ------------------------------------------------------------------------------------------------------------------------------------
G $1,532,000 7.50% BBB-/NR 9.93 119-119 7/15/09 NWAC(6)
- ------------------------------------------------------------------------------------------------------------------------------------
H - P $45,953,795 -- -- -- -- -- [6.48%](6)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes: (1) In the case of each such Class, subject to a permitted variance
of plus or minus 5%.
(2) Based on Maturity Assumptions described in the Prospectus
Supplement.
(3) Principal window is the period (expressed in terms of months
and commencing with the month of the first Distribution Date)
during which distributions of principal are expected to be made
to the holders of each designated Class in accordance with the
maturity assumptions.
(4) Other than the Class X Certificates and the Class B, C, D, E, F
and G Certificates, each Class of Certificates will accrue
interest generally at a fixed rate of interest as described in
the Prospectus Supplement provided that the Pass-Through Rate,
in each case, will not exceed the NWAC Rate for each
Distribution Date. The Class X, B, C, D, E, F and G
Certificates will accrue interest at a variable rate as
described below. The Pass-Through Rates shown are only for
indicative purposes. The final Pass-Through Rates will be
determined at pricing.
(5) Represents the approximate credit support for the Class A-1 and
Class A-2 Certificates in the aggregate.
(6) The Pass-Through Rate on the Class B and C Certificates on each
Distribution Date will equal the NWAC Rate minus 0.23% and
0.08%, respectively. The Pass-Through Rate on the D, E, F and G
certificates on each Distribution Date will equal the NWAC
Rate.
(7) Certificates to be offered privately pursuant to Rule 144A.
(8) Class X Notional Amount is equal to the sum of all Principal
Balance Certificates outstanding from time to time.
(9) The Pass-Through Rate on the Class X Certificates on each
Distribution Date will equal, in general, the NWAC Rate minus
the weighted average of the Pass-Through Rates of the classes
of certificates that have principal amounts.
T-3
- --------------------------------------------------------------------------------
This information is being delivered to a specific number of prospective
sophisticated investors in order to assist them in determining whether they have
an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with respect
to the terms of any future offer of securities conforming to the terms hereof.
Any such offer of securities would be made pursuant to a definitive Prospectus
or Private Placement Memorandum, as the case may be, prepared by the issuer
which could contain material information not contained herein and to which the
prospective purchasers are referred. In the event of any such offering, this
information shall be deemed superseded, amended and supplemented in its entirety
by such Prospectus or Private Placement Memorandum. Such Prospectus or Private
Placement Memorandum will contain all material information in respect of any
securities offered thereby and any decision to invest in such securities should
be made solely in reliance upon such Prospectus or Private Placement Memorandum.
Certain assumptions may have been made in this analysis which have resulted in
any returns detailed herein. No representation is made that any returns
indicated will be achieved. Changes to the assumptions may have a material
impact on any returns detailed. Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co. (the "Underwriters") disclaim any and all liability relating to this
information, including without limitation any express or implied representations
and warranties for, statements contained in, and omissions from, this
information. Additional information is available upon request. The Underwriters
and others associated with them may have positions in, and may effect
transaction in, securities and instruments of issuers mentioned herein and may
also perform or seek to perform investment banking services for the issuers of
such securities and instruments. Past performance is not necessarily indicative
of future results. Price and availability are subject to change without notice.
This material may be filed with the Securities and Exchange Commission (the
"SEC") and incorporated by reference into an effective registration statement
previously filed with the SEC under Rule 415 of the Securities Act of 1933,
including in cases where the material does not pertain to securities that are
ultimately offered for sale pursuant to such registration statement. To Morgan
Stanley's readers worldwide: In addition, please note that this publication has
been issued by Morgan Stanley & Co. Incorporated, approved by Morgan Stanley
International Limited, a member of The Securities and Futures Authority, any by
Morgan Stanley Japan Ltd. Morgan Stanley recommends that such readers obtain the
advice of their Morgan Stanley & Co. Incorporated, Morgan Stanley International
or Morgan Stanley Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY
THE U.K. SECURITIES AND FUTURES AUTHORITY
- --------------------------------------------------------------------------------
<PAGE>
$557,567,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
I. ISSUE CHARACTERISTICS
---------------------
Issue Type: Public: Class A-1, A-2, B, C, D and E (the
"Offered Certificates")
Private (Rule 144A): Class X, F, G, H, J, K,
L, M, N, O and P
Securities Offered: $557,567,000 monthly pay, multi-class
sequential pay commercial mortgage REMIC
Pass-Through Certificates, including two
fixed-rate principal and interest classes (A-1
and A-2) and four variable-rate principal and
interest classes (B, C, D and E)
Collateral: The collateral consists of a $612,711,795 pool
of 129 fixed-rate commercial and multifamily
Mortgage Loans
Sellers: Principal Commercial Funding, LLC, John
Hancock Real Estate Finance, Inc. and Morgan
Stanley Mortgage Capital Inc.
Lead Manager: Morgan Stanley & Co. Incorporated
Co-Manager: Goldman, Sachs & Co.
Master Servicer: Wells Fargo Bank, National Association
Primary Servicers: Principal Capital Management, LLC, John
Hancock Real Estate Finance, Inc. and Wells
Fargo Bank, National Association
Special Servicer: Wells Fargo Bank, National Association
Trustee/Fiscal Agent: LaSalle Bank National Association/ABN AMRO
Bank N.V.
Expected Pricing Date: On or about July 27, 1999
Expected Closing Date: On or about August ___, 1999
Distribution Dates: The 15th of each month, commencing September
15, 1999
Cut-Off Date: August 1, 1999, except for 6 Mortgage Loans,
that have a due date of the 5th of each month,
August 5, 1999
Minimum Denominations: $25,000 for Class A Certificates; $100,000 for
all other Certificates (other than the Class R
Certificates)
Settlement Terms: DTC, Euroclear and Cedel, same day funds, with
accrued interest
Legal/Regulatory Status: Class A-1 and A-2 Certificates are expected to
be eligible for exemptive relief under ERISA.
No Class of Certificates is SMMEA eligible
Risk Factors: THE CERTIFICATES INVOLVE A DEGREE OF RISK AND
MAY NOT BE SUITABLE FOR ALL INVESTORS. SEE THE
"RISK FACTORS" SECTION OF THE PROSPECTUS
SUPPLEMENT AND THE "RISK FACTORS" SECTION OF
THE PROSPECTUS
T-4
- --------------------------------------------------------------------------------
This information is being delivered to a specific number of prospective
sophisticated investors in order to assist them in determining whether they have
an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with respect
to the terms of any future offer of securities conforming to the terms hereof.
Any such offer of securities would be made pursuant to a definitive Prospectus
or Private Placement Memorandum, as the case may be, prepared by the issuer
which could contain material information not contained herein and to which the
prospective purchasers are referred. In the event of any such offering, this
information shall be deemed superseded, amended and supplemented in its entirety
by such Prospectus or Private Placement Memorandum. Such Prospectus or Private
Placement Memorandum will contain all material information in respect of any
securities offered thereby and any decision to invest in such securities should
be made solely in reliance upon such Prospectus or Private Placement Memorandum.
Certain assumptions may have been made in this analysis which have resulted in
any returns detailed herein. No representation is made that any returns
indicated will be achieved. Changes to the assumptions may have a material
impact on any returns detailed. Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co. (the "Underwriters") disclaim any and all liability relating to this
information, including without limitation any express or implied representations
and warranties for, statements contained in, and omissions from, this
information. Additional information is available upon request. The Underwriters
and others associated with them may have positions in, and may effect
transaction in, securities and instruments of issuers mentioned herein and may
also perform or seek to perform investment banking services for the issuers of
such securities and instruments. Past performance is not necessarily indicative
of future results. Price and availability are subject to change without notice.
This material may be filed with the Securities and Exchange Commission (the
"SEC") and incorporated by reference into an effective registration statement
previously filed with the SEC under Rule 415 of the Securities Act of 1933,
including in cases where the material does not pertain to securities that are
ultimately offered for sale pursuant to such registration statement. To Morgan
Stanley's readers worldwide: In addition, please note that this publication has
been issued by Morgan Stanley & Co. Incorporated, approved by Morgan Stanley
International Limited, a member of The Securities and Futures Authority, any by
Morgan Stanley Japan Ltd. Morgan Stanley recommends that such readers obtain the
advice of their Morgan Stanley & Co. Incorporated, Morgan Stanley International
or Morgan Stanley Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY
THE U.K. SECURITIES AND FUTURES AUTHORITY
- --------------------------------------------------------------------------------
<PAGE>
$557,567,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
II. STRUCTURE CHARACTERISTICS
-------------------------
The Class A-1 and Class A-2 Certificates are fixed-rate, monthly pay,
multi-class, sequential pay REMIC Pass-Through Certificates. The Class B, C, D
and E Certificates are variable rate, monthly pay, multi-class, sequential pay
REMIC Pass-Through Certificates. The Class X Certificates are variable rate
interest only REMIC Pass-Through Certificates. All Classes of Certificates
derive their cash flows from the entire pool of Mortgage Loans.
CLASS X (1)(2)
CLASS A-1 AAA/AAA $77.0MM
[6.73%]
CLASS A-2 AAA/AAA $411.6MM
[6.98%]
CLASS B AA/AA $21.4MM
NWAC-[0.23%]
CLASS C A/A $24.5MM
NWAC-[0.08%]
CLASS D A-/A- $9.2MM
NWAC
CLASS E BBB/BBB $13.8MM
NWAC
CLASS F(2) BBB-/BBB- $7.7MM
NWAC
CLASS G(2) BBB-/NR $1.5MM
NWAC
CLASS H-P(2) $46.0MM
[6.84%]
NR = NOT RATED
Notes: (1) Class X is entitled to interest (on a notional amount equal to the
aggregate pool balance) at the weighted average Class X Strip Rates
for the respective classes of Principal Balance Certificates. The
Class X Strip Rate for each such class for any Distribution Date is
equal to the NWAC minus the Pass-Through Rate for such class and
such Distribution Date.
(2) To be offered privately pursuant to Rule 144A.
(3) The above information is based on the Maturity Assumptions and a 0%
CPR as described in the Prospectus Supplement.
T-5
- --------------------------------------------------------------------------------
This information is being delivered to a specific number of prospective
sophisticated investors in order to assist them in determining whether they have
an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with respect
to the terms of any future offer of securities conforming to the terms hereof.
Any such offer of securities would be made pursuant to a definitive Prospectus
or Private Placement Memorandum, as the case may be, prepared by the issuer
which could contain material information not contained herein and to which the
prospective purchasers are referred. In the event of any such offering, this
information shall be deemed superseded, amended and supplemented in its entirety
by such Prospectus or Private Placement Memorandum. Such Prospectus or Private
Placement Memorandum will contain all material information in respect of any
securities offered thereby and any decision to invest in such securities should
be made solely in reliance upon such Prospectus or Private Placement Memorandum.
Certain assumptions may have been made in this analysis which have resulted in
any returns detailed herein. No representation is made that any returns
indicated will be achieved. Changes to the assumptions may have a material
impact on any returns detailed. Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co. (the "Underwriters") disclaim any and all liability relating to this
information, including without limitation any express or implied representations
and warranties for, statements contained in, and omissions from, this
information. Additional information is available upon request. The Underwriters
and others associated with them may have positions in, and may effect
transaction in, securities and instruments of issuers mentioned herein and may
also perform or seek to perform investment banking services for the issuers of
such securities and instruments. Past performance is not necessarily indicative
of future results. Price and availability are subject to change without notice.
This material may be filed with the Securities and Exchange Commission (the
"SEC") and incorporated by reference into an effective registration statement
previously filed with the SEC under Rule 415 of the Securities Act of 1933,
including in cases where the material does not pertain to securities that are
ultimately offered for sale pursuant to such registration statement. To Morgan
Stanley's readers worldwide: In addition, please note that this publication has
been issued by Morgan Stanley & Co. Incorporated, approved by Morgan Stanley
International Limited, a member of The Securities and Futures Authority, any by
Morgan Stanley Japan Ltd. Morgan Stanley recommends that such readers obtain the
advice of their Morgan Stanley & Co. Incorporated, Morgan Stanley International
or Morgan Stanley Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY
THE U.K. SECURITIES AND FUTURES AUTHORITY
- --------------------------------------------------------------------------------
<PAGE>
$557,567,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
-------------------------------------------------------------
CLASS X
A A-1
P A-1
P C A-2 INTEREST
L A A-2 PRINCIPAL
I S B
E H B
D C
F C
L L D
O O D
S W E
S E
E F
S F
G
G
H
H
J
J
K
K
L
L
M
M
N
N
O
O
P
P
-------------------------------------------------------------
0 50 100 150 200 250
Notes: (1) The class A-1, A-2 and X certificates will be paid interest on a
pro rata basis.
(2) The above analysis is based on the Maturity Assumptions and a 0%
CPR as described in the Prospectus Supplement.
T-6
- --------------------------------------------------------------------------------
This information is being delivered to a specific number of prospective
sophisticated investors in order to assist them in determining whether they have
an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with respect
to the terms of any future offer of securities conforming to the terms hereof.
Any such offer of securities would be made pursuant to a definitive Prospectus
or Private Placement Memorandum, as the case may be, prepared by the issuer
which could contain material information not contained herein and to which the
prospective purchasers are referred. In the event of any such offering, this
information shall be deemed superseded, amended and supplemented in its entirety
by such Prospectus or Private Placement Memorandum. Such Prospectus or Private
Placement Memorandum will contain all material information in respect of any
securities offered thereby and any decision to invest in such securities should
be made solely in reliance upon such Prospectus or Private Placement Memorandum.
Certain assumptions may have been made in this analysis which have resulted in
any returns detailed herein. No representation is made that any returns
indicated will be achieved. Changes to the assumptions may have a material
impact on any returns detailed. Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co. (the "Underwriters") disclaim any and all liability relating to this
information, including without limitation any express or implied representations
and warranties for, statements contained in, and omissions from, this
information. Additional information is available upon request. The Underwriters
and others associated with them may have positions in, and may effect
transaction in, securities and instruments of issuers mentioned herein and may
also perform or seek to perform investment banking services for the issuers of
such securities and instruments. Past performance is not necessarily indicative
of future results. Price and availability are subject to change without notice.
This material may be filed with the Securities and Exchange Commission (the
"SEC") and incorporated by reference into an effective registration statement
previously filed with the SEC under Rule 415 of the Securities Act of 1933,
including in cases where the material does not pertain to securities that are
ultimately offered for sale pursuant to such registration statement. To Morgan
Stanley's readers worldwide: In addition, please note that this publication has
been issued by Morgan Stanley & Co. Incorporated, approved by Morgan Stanley
International Limited, a member of The Securities and Futures Authority, any by
Morgan Stanley Japan Ltd. Morgan Stanley recommends that such readers obtain the
advice of their Morgan Stanley & Co. Incorporated, Morgan Stanley International
or Morgan Stanley Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY
THE U.K. SECURITIES AND FUTURES AUTHORITY
- --------------------------------------------------------------------------------
<PAGE>
$557,567,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
Interest Distributions: Each Class of Certificates (other than the Class
R-I, Class R-II and Class R-III Certificates)
will be entitled on each Distribution Date to
interest accrued at its Pass-Through Rate on the
outstanding Certificate Balance or Notional
Amount of such Class, as applicable.
Pass-Through Rates: Class A-1: [6.73%]
Class A-2: [6.98%]
Class B: NWAC - [0.23%]
Class C: NWAC - [0.08%]
Class D: NWAC
Class E: NWAC
Class F: NWAC
Class G: NWAC
Classes H-P: [6.48%]
Class X: See Note 1 on page T-4
The Pass-Through Rate for each class of
Principal Balance Certificates for any
Distribution Date will not exceed the Weighted
Average Net Mortgage Rate ("NWAC") for such
Distribution Date.
Principal Distributions: Principal will be distributed on each
Distribution Date to the most senior Class
(i.e., the Class with the earliest
alphabetical/numerical Class designation) of the
Principal Balance Certificates outstanding,
until its Certificate Balance is reduced to zero
(sequential order). If, due to losses, the
Certificate Balances of the Class B through
Class P Certificates are reduced to zero or
Appraisal Reductions exceed the aggregate
Certificate Balance of the Subordinate
Certificates, payments of principal to the Class
A-1 and A-2 Certificates will be made on a pro
rata basis.
T-7
- --------------------------------------------------------------------------------
This information is being delivered to a specific number of prospective
sophisticated investors in order to assist them in determining whether they have
an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with respect
to the terms of any future offer of securities conforming to the terms hereof.
Any such offer of securities would be made pursuant to a definitive Prospectus
or Private Placement Memorandum, as the case may be, prepared by the issuer
which could contain material information not contained herein and to which the
prospective purchasers are referred. In the event of any such offering, this
information shall be deemed superseded, amended and supplemented in its entirety
by such Prospectus or Private Placement Memorandum. Such Prospectus or Private
Placement Memorandum will contain all material information in respect of any
securities offered thereby and any decision to invest in such securities should
be made solely in reliance upon such Prospectus or Private Placement Memorandum.
Certain assumptions may have been made in this analysis which have resulted in
any returns detailed herein. No representation is made that any returns
indicated will be achieved. Changes to the assumptions may have a material
impact on any returns detailed. Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co. (the "Underwriters") disclaim any and all liability relating to this
information, including without limitation any express or implied representations
and warranties for, statements contained in, and omissions from, this
information. Additional information is available upon request. The Underwriters
and others associated with them may have positions in, and may effect
transaction in, securities and instruments of issuers mentioned herein and may
also perform or seek to perform investment banking services for the issuers of
such securities and instruments. Past performance is not necessarily indicative
of future results. Price and availability are subject to change without notice.
This material may be filed with the Securities and Exchange Commission (the
"SEC") and incorporated by reference into an effective registration statement
previously filed with the SEC under Rule 415 of the Securities Act of 1933,
including in cases where the material does not pertain to securities that are
ultimately offered for sale pursuant to such registration statement. To Morgan
Stanley's readers worldwide: In addition, please note that this publication has
been issued by Morgan Stanley & Co. Incorporated, approved by Morgan Stanley
International Limited, a member of The Securities and Futures Authority, any by
Morgan Stanley Japan Ltd. Morgan Stanley recommends that such readers obtain the
advice of their Morgan Stanley & Co. Incorporated, Morgan Stanley International
or Morgan Stanley Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY
THE U.K. SECURITIES AND FUTURES AUTHORITY
- --------------------------------------------------------------------------------
<PAGE>
$557,567,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
Prepayment Premium Allocation: Any Prepayment Premiums collected with
respect to a Mortgage Loan during any
particular Collection Period will be
distributed to the holders of each Class
of Principal Balance Certificates (other
than an excluded class as defined below)
then entitled to distributions of
principal on such distribution date
(allocable on a pro-rata basis based on
principal payments if there is more than
one Class of Principal Balance
Certificates entitled to a distribution
of principal) in an amount equal to the
lesser of (a) such Prepayment Premium and
(b) Prepayment Premium multiplied by a
fraction, the numerator of which is equal
to the excess, if any, of the
Pass-Through Rate applicable to the most
senior of such Classes of Principal
Balance Certificates then outstanding
(or, in the case of two Classes of Class
A Certificates, the one with the earlier
payment priority), over the relevant
Discount Rate (as defined in the
Prospectus Supplement), and the
denominator of which is equal to the
excess, if any, of the Mortgage Rate of
the Mortgage Loan that prepaid, over the
relevant Discount Rate.
The portion, if any, of the Prepayment
Premium remaining after such payments to
the holders of the Principal Balance
Certificates will be distributed to the
holders of the Class X Certificates. For
the purposes of the foregoing, the H, J,
K, L, M, N, O and P Certificates are the
excluded classes.
The following is an example of the
Prepayment Premium Allocation under (b)
above based on the information contained
herein and the following assumptions:
o Two Classes of Certificates: Class A-1
and X
o The characteristics of the Mortgage
Loan being prepaid are as follows:
- Loan Balance: $10,000,000
- Mortgage Rate: 8.0%
- Maturity Date: 10 years (August 1,
2009)
o The Discount Rate is equal to 5.75%
o The Class A-1 Pass-Through Rate is
equal to 7.00%
CLASS A-1 CLASS X
METHOD CERTIFICATES CERTIFICATES
------------------------------------------ ------------------ -----------------
(Class A-1 Pass Through
Rate - Discount Rate) (7.00%-5.75%) (100.00%-55.56%)
------------------------------- ----------------
(Mortgage Rate - Discount Rate) (8.00%-5.75%)
------------------ ----------------
Prepayment Premium Allocation 55.56% 44.44%
Credit Enhancement: Each Class of Certificates (other than
Classes A-1, A-2 and X) will be
subordinate to all other Classes with an
earlier alphabetical Class designation.
Advancing: The Master Servicer, the Trustee and the
Fiscal Agent (in that order) will each be
obligated to make P&I Advances and
Servicing Advances, including delinquent
property taxes and insurance, but only to
the extent that such Advances are deemed
T-8
- --------------------------------------------------------------------------------
This information is being delivered to a specific number of prospective
sophisticated investors in order to assist them in determining whether they have
an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with respect
to the terms of any future offer of securities conforming to the terms hereof.
Any such offer of securities would be made pursuant to a definitive Prospectus
or Private Placement Memorandum, as the case may be, prepared by the issuer
which could contain material information not contained herein and to which the
prospective purchasers are referred. In the event of any such offering, this
information shall be deemed superseded, amended and supplemented in its entirety
by such Prospectus or Private Placement Memorandum. Such Prospectus or Private
Placement Memorandum will contain all material information in respect of any
securities offered thereby and any decision to invest in such securities should
be made solely in reliance upon such Prospectus or Private Placement Memorandum.
Certain assumptions may have been made in this analysis which have resulted in
any returns detailed herein. No representation is made that any returns
indicated will be achieved. Changes to the assumptions may have a material
impact on any returns detailed. Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co. (the "Underwriters") disclaim any and all liability relating to this
information, including without limitation any express or implied representations
and warranties for, statements contained in, and omissions from, this
information. Additional information is available upon request. The Underwriters
and others associated with them may have positions in, and may effect
transaction in, securities and instruments of issuers mentioned herein and may
also perform or seek to perform investment banking services for the issuers of
such securities and instruments. Past performance is not necessarily indicative
of future results. Price and availability are subject to change without notice.
This material may be filed with the Securities and Exchange Commission (the
"SEC") and incorporated by reference into an effective registration statement
previously filed with the SEC under Rule 415 of the Securities Act of 1933,
including in cases where the material does not pertain to securities that are
ultimately offered for sale pursuant to such registration statement. To Morgan
Stanley's readers worldwide: In addition, please note that this publication has
been issued by Morgan Stanley & Co. Incorporated, approved by Morgan Stanley
International Limited, a member of The Securities and Futures Authority, any by
Morgan Stanley Japan Ltd. Morgan Stanley recommends that such readers obtain the
advice of their Morgan Stanley & Co. Incorporated, Morgan Stanley International
or Morgan Stanley Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY
THE U.K. SECURITIES AND FUTURES AUTHORITY
- --------------------------------------------------------------------------------
<PAGE>
$557,567,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
Realized Losses and Expense Realized Losses and Expense Losses, if
Losses: any, will be allocated to the Class P,
Class O, Class N, Class M, Class L, Class
K, Class J, Class H, Class G, Class F,
Class E, Class D, Class C and Class B
Certificates, in that order, and then to
Classes A-1 and A-2 and, with respect to
losses allocated to interest, Class X
Certificates, pro rata, in each case
reducing amounts payable thereto. Any
interest shortfall of any Class of
Certificates will result in unpaid
interest for such Class which, together
with interest thereon compounded monthly
at one-twelfth the applicable
Pass-Through Rate for such Class, will
be payable in subsequent periods,
subject to available funds.
Prepayment Interest Shortfalls: For any Distribution Date, any Net
Aggregate Prepayment Interest Shortfall
not offset by the Master Servicing Fee
will generally be allocated pro rata to
each Class of Certificates in proportion
to its entitlement to interest.
Appraisal Reductions: An appraisal reduction generally will be
created in the amount, if any, by which
the Principal Balance of a Specially
Serviced Mortgage Loan (plus other
amounts overdue in connection with such
loan) exceeds 90% of the appraised value
of the related Mortgaged Property. The
Appraisal Reduction Amount will reduce
proportionately the amount of advances
for such loan, which reduction will
result, in general, in a reduction of
interest distributable to the most
subordinate Class of Principal Balance
Certificate outstanding.
An Appraisal Reduction will be reduced
to zero as of the date the related
Mortgage Loan has been brought current
for at least three consecutive months,
paid in full, liquidated, repurchased or
otherwise disposed of.
Operating Adviser: The Operating Adviser, which may be
appointed by the Controlling Class, will
have the right to receive notice from the
Special Servicer with respect to certain
actions regarding Specially Serviced
Mortgage Loans. Examples include the
right to make certain modifications,
foreclose, sell, bring an REO Property
into environmental compliance or accept
substitute or additional collateral.
T-9
- --------------------------------------------------------------------------------
This information is being delivered to a specific number of prospective
sophisticated investors in order to assist them in determining whether they have
an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with respect
to the terms of any future offer of securities conforming to the terms hereof.
Any such offer of securities would be made pursuant to a definitive Prospectus
or Private Placement Memorandum, as the case may be, prepared by the issuer
which could contain material information not contained herein and to which the
prospective purchasers are referred. In the event of any such offering, this
information shall be deemed superseded, amended and supplemented in its entirety
by such Prospectus or Private Placement Memorandum. Such Prospectus or Private
Placement Memorandum will contain all material information in respect of any
securities offered thereby and any decision to invest in such securities should
be made solely in reliance upon such Prospectus or Private Placement Memorandum.
Certain assumptions may have been made in this analysis which have resulted in
any returns detailed herein. No representation is made that any returns
indicated will be achieved. Changes to the assumptions may have a material
impact on any returns detailed. Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co. (the "Underwriters") disclaim any and all liability relating to this
information, including without limitation any express or implied representations
and warranties for, statements contained in, and omissions from, this
information. Additional information is available upon request. The Underwriters
and others associated with them may have positions in, and may effect
transaction in, securities and instruments of issuers mentioned herein and may
also perform or seek to perform investment banking services for the issuers of
such securities and instruments. Past performance is not necessarily indicative
of future results. Price and availability are subject to change without notice.
This material may be filed with the Securities and Exchange Commission (the
"SEC") and incorporated by reference into an effective registration statement
previously filed with the SEC under Rule 415 of the Securities Act of 1933,
including in cases where the material does not pertain to securities that are
ultimately offered for sale pursuant to such registration statement. To Morgan
Stanley's readers worldwide: In addition, please note that this publication has
been issued by Morgan Stanley & Co. Incorporated, approved by Morgan Stanley
International Limited, a member of The Securities and Futures Authority, any by
Morgan Stanley Japan Ltd. Morgan Stanley recommends that such readers obtain the
advice of their Morgan Stanley & Co. Incorporated, Morgan Stanley International
or Morgan Stanley Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY
THE U.K. SECURITIES AND FUTURES AUTHORITY
- --------------------------------------------------------------------------------
<PAGE>
$557,567,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
Controlling Class: The Controlling Class will generally be
the most subordinate Class of
Certificates outstanding at any time or,
if the Certificate Balance of such Class
is less than 25% of the initial
Certificate Balance of such Class, the
next most subordinate Class of Principal
Balance Certificates.
Special Servicer: In general, the Special Servicer has the
right to modify the terms of a Specially
Serviced Mortgage Loan if it determines
that such modification would increase the
net present value of the proceeds to the
Trust, provided that the Special Servicer
generally may not (i) extend the maturity
date of a Mortgage Loan beyond two years
prior to the Final Rated Distribution
Date or (ii) if the Specially Serviced
Mortgage Loan is secured by a ground
lease, extend the maturity date beyond a
date which is ten (10) years prior to the
expiration of the ground lease.
Optional Termination: The majority holders of the Controlling
Class, the Depositor, the Master
Servicer, the Special Servicer and the
holder of the majority interest in the
Class R-I Certificates, in that order,
will 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 on or
after the Distribution Date on 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. The
purchase price for any such purchase will
be 100% of the aggregate unpaid principal
balances of the Mortgage Loans, other
than any Mortgage Loans as to which the
Master Servicer has determined that all
payments or recoveries with respect
thereto have been made, plus accrued and
unpaid interest at the Mortgage Rate - or
the Mortgage Rates less the Master
Servicing Fee Rate if the Master Servicer
is the purchaser - to the Due Date for
each Mortgage Loan ending in the
Collection Period with respect to which
such purchase occurs, plus un-reimbursed
Advances, with interest thereon at the
Advance Rate and the fair market value of
any other property remaining in the Trust
Fund.
Reports to Certificateholders: The Trustee will prepare and deliver
monthly Certificateholder Reports. The
Special Servicer will prepare and deliver
to the Trustee a monthly Special Servicer
Report summarizing the status of each
Specially Serviced Mortgage Loan. The
Master Servicer and the Special Servicer
will prepare and deliver to the Trustee
an annual report setting forth, among
other things, the debt service coverage
ratios for each Mortgage Loan, as
available. Each of the reports will be
available to the Certificateholders. A
report containing information regarding
the Mortgage Loans is expected to be
available electronically at
www.lnbabs.com.
The foregoing terms and structural characteristics of the Certificates are in
all respects subject to the more detailed description thereof in the Prospectus,
Prospectus Supplement and Pooling and Servicing Agreement.
T-10
- --------------------------------------------------------------------------------
This information is being delivered to a specific number of prospective
sophisticated investors in order to assist them in determining whether they have
an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with respect
to the terms of any future offer of securities conforming to the terms hereof.
Any such offer of securities would be made pursuant to a definitive Prospectus
or Private Placement Memorandum, as the case may be, prepared by the issuer
which could contain material information not contained herein and to which the
prospective purchasers are referred. In the event of any such offering, this
information shall be deemed superseded, amended and supplemented in its entirety
by such Prospectus or Private Placement Memorandum. Such Prospectus or Private
Placement Memorandum will contain all material information in respect of any
securities offered thereby and any decision to invest in such securities should
be made solely in reliance upon such Prospectus or Private Placement Memorandum.
Certain assumptions may have been made in this analysis which have resulted in
any returns detailed herein. No representation is made that any returns
indicated will be achieved. Changes to the assumptions may have a material
impact on any returns detailed. Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co. (the "Underwriters") disclaim any and all liability relating to this
information, including without limitation any express or implied representations
and warranties for, statements contained in, and omissions from, this
information. Additional information is available upon request. The Underwriters
and others associated with them may have positions in, and may effect
transaction in, securities and instruments of issuers mentioned herein and may
also perform or seek to perform investment banking services for the issuers of
such securities and instruments. Past performance is not necessarily indicative
of future results. Price and availability are subject to change without notice.
This material may be filed with the Securities and Exchange Commission (the
"SEC") and incorporated by reference into an effective registration statement
previously filed with the SEC under Rule 415 of the Securities Act of 1933,
including in cases where the material does not pertain to securities that are
ultimately offered for sale pursuant to such registration statement. To Morgan
Stanley's readers worldwide: In addition, please note that this publication has
been issued by Morgan Stanley & Co. Incorporated, approved by Morgan Stanley
International Limited, a member of The Securities and Futures Authority, any by
Morgan Stanley Japan Ltd. Morgan Stanley recommends that such readers obtain the
advice of their Morgan Stanley & Co. Incorporated, Morgan Stanley International
or Morgan Stanley Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY
THE U.K. SECURITIES AND FUTURES AUTHORITY
- --------------------------------------------------------------------------------
<PAGE>
$557,567,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
III. Sellers Principal Commercial Funding, LLC ("PCF")
------- -----------------------------------------
The Mortgage Pool includes 80 Mortgage Loans,
representing 55.1% of the Initial Pool Balance, that
were originated by PCF and/or its affiliates.
PCF is a wholly owned subsidiary of Principal Capital
Management, LLC, which is a wholly owned subsidiary
of Principal Life Insurance Company. PCF was formed
as a Delaware limited liability company to originate
and acquire loans secured by commercial and
multi-family real estate. Each of the PCF loans was
originated and underwritten by PCF and/or its
affiliates. The primary offices of PCF are located at
801 Grand, Des Moines, IA 50392.
PCF's phone number is (515) 247-7895.
John Hancock Real Estate Finance, Inc. ("JHREF")
------------------------------------------------
The Mortgage Pool includes 28 Mortgage Loans,
representing 31.3% of the Initial Pool Balance, that
were originated by JHREF (other than one such loan,
as described below).
JHREF is a wholly owned subsidiary of John Hancock
Subsidiaries, Inc., which is a wholly owned
subsidiary of John Hancock Mutual Life Insurance
Company. JHREF was founded in 1982 and is
headquartered in Boston, Massachusetts.
JHREF presently has seven offices across the country
and a loan servicing center located in Atlanta,
Georgia. Each of the JHREF Loans was underwritten at
JHREF's Boston headquarters and closed by JHREF (with
the exception of the Mortgage Loan referred to as
Plaza Madison, which was underwritten and closed by
John Hancock Mutual Life Insurance Company). The
principal offices of JHREF are located at 200
Clarendon Street, 53rd Floor, Boston, Massachusetts
02117. JHREF's telephone number is (617) 572-8716.
Morgan Stanley Mortgage Capital Inc. ("MSMC")
---------------------------------------------
The Mortgage Pool includes 21 Mortgage Loans,
representing 13.6% of the Initial Pool Balance, that
were originated by or on behalf of MSMC. MSMC is a
subsidiary of Morgan Stanley & Co. Incorporated and
was formed to originate and purchase mortgage loans
secured by commercial and multifamily real estate.
T-11
- --------------------------------------------------------------------------------
This information is being delivered to a specific number of prospective
sophisticated investors in order to assist them in determining whether they have
an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with respect
to the terms of any future offer of securities conforming to the terms hereof.
Any such offer of securities would be made pursuant to a definitive Prospectus
or Private Placement Memorandum, as the case may be, prepared by the issuer
which could contain material information not contained herein and to which the
prospective purchasers are referred. In the event of any such offering, this
information shall be deemed superseded, amended and supplemented in its entirety
by such Prospectus or Private Placement Memorandum. Such Prospectus or Private
Placement Memorandum will contain all material information in respect of any
securities offered thereby and any decision to invest in such securities should
be made solely in reliance upon such Prospectus or Private Placement Memorandum.
Certain assumptions may have been made in this analysis which have resulted in
any returns detailed herein. No representation is made that any returns
indicated will be achieved. Changes to the assumptions may have a material
impact on any returns detailed. Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co. (the "Underwriters") disclaim any and all liability relating to this
information, including without limitation any express or implied representations
and warranties for, statements contained in, and omissions from, this
information. Additional information is available upon request. The Underwriters
and others associated with them may have positions in, and may effect
transaction in, securities and instruments of issuers mentioned herein and may
also perform or seek to perform investment banking services for the issuers of
such securities and instruments. Past performance is not necessarily indicative
of future results. Price and availability are subject to change without notice.
This material may be filed with the Securities and Exchange Commission (the
"SEC") and incorporated by reference into an effective registration statement
previously filed with the SEC under Rule 415 of the Securities Act of 1933,
including in cases where the material does not pertain to securities that are
ultimately offered for sale pursuant to such registration statement. To Morgan
Stanley's readers worldwide: In addition, please note that this publication has
been issued by Morgan Stanley & Co. Incorporated, approved by Morgan Stanley
International Limited, a member of The Securities and Futures Authority, any by
Morgan Stanley Japan Ltd. Morgan Stanley recommends that such readers obtain the
advice of their Morgan Stanley & Co. Incorporated, Morgan Stanley International
or Morgan Stanley Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY
THE U.K. SECURITIES AND FUTURES AUTHORITY
- --------------------------------------------------------------------------------
<PAGE>
$557,567,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
IV. COLLATERAL DESCRIPTION
----------------------
Summary: The Mortgage Pool consists of a $612,711,795 pool of 129 fixed-rate,
mortgage loans secured by first liens on commercial and multifamily
properties located throughout 26 states. As of the Cut-Off Date, the
Mortgage Loans have a weighted average mortgage rate of 7.367% and a
weighted average remaining term to maturity of 121 months. See the
Appendices to the Prospectus Supplement for more detailed collateral
information.
<TABLE>
<CAPTION>
TEN LARGEST LOANS
-----------------
- ------------------------------------------------------------------------------------------------------------------------------------
BALLOON
PROPERTY CURRENT LOAN PER LOAN TO LOAN TO
PROPERTY NAME CITY STATE TYPE BALANCE UNITS/SF UNIT/SF DSCR VALUE VALUE
- ------------------------------ ---------------- ------- ------------ ------------ ---------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Heritage Park East Longmeadow MA Retail $8,048,394 116,840 $51 2.51 51.3% 51.3%
Oakwood Square Boynton Beach FL Retail $7,297,001 178,033 $51 2.51 51.3% 51.3%
Towne Crossings Richmond VA Retail $6,548,222 104,023 $51 2.51 51.3% 51.3%
Crofton Station Gambrillis MD Retail $5,642,731 81,398 $51 2.51 51.3% 51.3%
Village Court Lynchburg VA Retail $3,206,994 76,280 $51 2.51 51.3% 51.3%
The Marketplace at Ocala Ocala FL Retail $3,114,231 71,620 $51 2.51 51.3% 51.3%
University Center Greenville NC Retail $1,852,724 56,180 $51 2.51 51.3% 51.3%
Litchfield Landing Pawleys Island SC Retail $1,837,686 42,201 $51 2.51 51.3% 51.3%
Robbins Towne Centre Robbins NC Retail $1,692,218 42,577 $51 2.51 51.3% 51.3%
First Street Station Albermarle NC Retail $1,641,797 52,230 $51 2.51 51.3% 51.3%
Taylorsville Taylorsville NC Retail $1,461,664 48,537 $51 2.51 51.3% 51.3%
Lake Montclair Centre Lake Montclair VA Retail $6,914,560 101,292 $51 2.51 51.3% 51.3%
Centre at Riverchase Hoover AL Retail $5,410,901 133,198 $51 2.51 51.3% 51.3%
The Corridors at Ponte Vedra Ponte Vedra FL Retail $5,326,925 55,226 $51 2.51 51.3% 51.3%
Shannon Crossing Union City GA Retail $5,300,598 101,046 $51 2.51 51.3% 51.3%
Mandarin Oaks Jacksonville FL Retail $4,836,743 56,700 $51 2.51 51.3% 51.3%
Seven Hills Plaza Spring Hills FL Retail $4,191,277 87,191 $51 2.51 51.3% 51.3%
Barclay Square Largo FL Retail $2,942,718 98,323 $51 2.51 51.3% 51.3%
Shoppes at Cloverplace Palm Harbor FL Retail $2,631,822 54,163 $51 2.51 51.3% 51.3%
Hillview Plaza Greer SC Retail $1,676,710 33,000 $51 2.51 51.3% 51.3%
River Bend Covington VA Retail $1,606,232 32,020 $51 2.51 51.3% 51.3%
----------
SUBTOTAL: $83,182,148
- ------------------------------------------------------------------------------------------------------------------------------------
Plaza Madison New York NY Office $29,706,627 210,793 $141 2.12 37.1% 27.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Fontana Plaza Fontana CA Retail $8,063,605 124,342 $59 1.51 72.7% 64.5%
Foothill Plaza Fontana CA Retail $5,301,074 93,989 $59 1.51 72.7% 64.5%
Plaza East Fontana CA Retail $5,301,074 98,306 $59 1.51 72.7% 64.5%
----------
SUBTOTAL: $18,665,752
- ------------------------------------------------------------------------------------------------------------------------------------
Del Mar Plaza Shopping Center Del Mar CA Retail $18,008,336 74,958 $240 1.48 50.0% 43.5%
- ------------------------------------------------------------------------------------------------------------------------------------
609 Greenwich Street New York NY Office $13,986,928 150,350 $93 1.33 66.0% 53.8%
- ------------------------------------------------------------------------------------------------------------------------------------
The Office Center at Ramsey Ramsey NJ Office $13,968,884 139,410 $100 1.29 71.6% 62.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Peddler's Village Lahaska PA Mixed Use $12,495,090 226,860 $55 1.73 61.0% 55.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Pine Ridge Apartments of
Durham Durham NC Multifamily $11,980,455 332 $36,086 1.68 65.8% 56.9%
- ------------------------------------------------------------------------------------------------------------------------------------
DM Management Tilton NH Industrial $11,915,229 404,736 $29 1.39 70.9% 49.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Fridley Plus Property Fridley MN Retail $6,594,394 164,983 $40 1.40 59.9% 49.5%
Plymouth Plus Property Plymouth MN Retail $5,095,668 124,495 $40 1.40 59.9% 49.5%
----------
SUBTOTAL: $11,690,063
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
T-12
- --------------------------------------------------------------------------------
This information is being delivered to a specific number of prospective
sophisticated investors in order to assist them in determining whether they have
an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with respect
to the terms of any future offer of securities conforming to the terms hereof.
Any such offer of securities would be made pursuant to a definitive Prospectus
or Private Placement Memorandum, as the case may be, prepared by the issuer
which could contain material information not contained herein and to which the
prospective purchasers are referred. In the event of any such offering, this
information shall be deemed superseded, amended and supplemented in its entirety
by such Prospectus or Private Placement Memorandum. Such Prospectus or Private
Placement Memorandum will contain all material information in respect of any
securities offered thereby and any decision to invest in such securities should
be made solely in reliance upon such Prospectus or Private Placement Memorandum.
Certain assumptions may have been made in this analysis which have resulted in
any returns detailed herein. No representation is made that any returns
indicated will be achieved. Changes to the assumptions may have a material
impact on any returns detailed. Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co. (the "Underwriters") disclaim any and all liability relating to this
information, including without limitation any express or implied representations
and warranties for, statements contained in, and omissions from, this
information. Additional information is available upon request. The Underwriters
and others associated with them may have positions in, and may effect
transaction in, securities and instruments of issuers mentioned herein and may
also perform or seek to perform investment banking services for the issuers of
such securities and instruments. Past performance is not necessarily indicative
of future results. Price and availability are subject to change without notice.
This material may be filed with the Securities and Exchange Commission (the
"SEC") and incorporated by reference into an effective registration statement
previously filed with the SEC under Rule 415 of the Securities Act of 1933,
including in cases where the material does not pertain to securities that are
ultimately offered for sale pursuant to such registration statement. To Morgan
Stanley's readers worldwide: In addition, please note that this publication has
been issued by Morgan Stanley & Co. Incorporated, approved by Morgan Stanley
International Limited, a member of The Securities and Futures Authority, any by
Morgan Stanley Japan Ltd. Morgan Stanley recommends that such readers obtain the
advice of their Morgan Stanley & Co. Incorporated, Morgan Stanley International
or Morgan Stanley Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY
THE U.K. SECURITIES AND FUTURES AUTHORITY
- --------------------------------------------------------------------------------
<PAGE>
$557,567,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
GEOGRAPHIC DISTRIBUTION
-----------------------
WA 1.58%
CA 15.14%
NV 4.02%
AZ 1.31%
UT 1.33%
CO 1.68%
TX 2.06%
MN 4.65%
MO 0.67%
WI 1.73%
IL 0.25%
MI 1.88%
IN 0.31%
AL 0.88%
OH 3.65%
GA 5.35%
FL 10.34%
PA 5.43%
VA 6.01%
NC 5.47%
SC 2.71%
NY 11.24%
NJ 7.75%
MD 0.92%
NH 1.94%
MA 1.69%
T-13
- --------------------------------------------------------------------------------
This information is being delivered to a specific number of prospective
sophisticated investors in order to assist them in determining whether they have
an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with respect
to the terms of any future offer of securities conforming to the terms hereof.
Any such offer of securities would be made pursuant to a definitive Prospectus
or Private Placement Memorandum, as the case may be, prepared by the issuer
which could contain material information not contained herein and to which the
prospective purchasers are referred. In the event of any such offering, this
information shall be deemed superseded, amended and supplemented in its entirety
by such Prospectus or Private Placement Memorandum. Such Prospectus or Private
Placement Memorandum will contain all material information in respect of any
securities offered thereby and any decision to invest in such securities should
be made solely in reliance upon such Prospectus or Private Placement Memorandum.
Certain assumptions may have been made in this analysis which have resulted in
any returns detailed herein. No representation is made that any returns
indicated will be achieved. Changes to the assumptions may have a material
impact on any returns detailed. Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co. (the "Underwriters") disclaim any and all liability relating to this
information, including without limitation any express or implied representations
and warranties for, statements contained in, and omissions from, this
information. Additional information is available upon request. The Underwriters
and others associated with them may have positions in, and may effect
transaction in, securities and instruments of issuers mentioned herein and may
also perform or seek to perform investment banking services for the issuers of
such securities and instruments. Past performance is not necessarily indicative
of future results. Price and availability are subject to change without notice.
This material may be filed with the Securities and Exchange Commission (the
"SEC") and incorporated by reference into an effective registration statement
previously filed with the SEC under Rule 415 of the Securities Act of 1933,
including in cases where the material does not pertain to securities that are
ultimately offered for sale pursuant to such registration statement. To Morgan
Stanley's readers worldwide: In addition, please note that this publication has
been issued by Morgan Stanley & Co. Incorporated, approved by Morgan Stanley
International Limited, a member of The Securities and Futures Authority, any by
Morgan Stanley Japan Ltd. Morgan Stanley recommends that such readers obtain the
advice of their Morgan Stanley & Co. Incorporated, Morgan Stanley International
or Morgan Stanley Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY
THE U.K. SECURITIES AND FUTURES AUTHORITY
- --------------------------------------------------------------------------------
<PAGE>
$557,567,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
<TABLE>
<CAPTION>
CUT-OFF BALANCE ($) STATE
- ---------------------------------------------------------------------- -----------------------------------------------------------
NO. OF AGGREGATE NO. OF AGGREGATE
MORTGAGE CUT-OFF DATE % OF MORTGAGE CUT-OFF DATE % OF
LOANS BALANCE ($) POOL LOANS BALANCE ($) POOL
- ---------------------------------------------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 to 1,000,000 3 2,282,355 0.37 California 16 92,764,140 15.14
1,000,001 to 2,000,000 24 36,753,675 6.00 New York 9 68,888,195 11.24
2,000,001 to 3,000,000 22 55,236,722 9.02 Florida 13 63,372,323 10.34
3,000,001 to 4,000,000 19 65,220,258 10.64 New Jersey 7 47,481,004 7.75
4,000,001 to 5,000,000 14 61,890,633 10.10 Virginia 8 36,824,466 6.01
5,000,001 to 6,000,000 19 103,056,190 16.82 North Carolina 10 33,515,826 5.47
6,000,001 to 7,000,000 6 39,659,262 6.47 Pennsylvania 14 33,253,192 5.43
7,000,001 to 8,000,000 3 23,229,474 3.79 Georgia 7 32,789,449 5.35
8,000,001 to 9,000,000 4 32,460,510 5.30 Minnesota 4 28,475,794 4.65
9,000,001 to 10,000,000 5 49,521,126 8.08 Nevada 6 24,651,358 4.02
10,000,001 to 20,000,000 9 113,694,965 18.56 Ohio 7 22,358,258 3.65
20,000,001 to 20,000,000 1 29,706,627 4.85 Other 28 128,337,790 20.95
- ---------------------------------------------------------------------- -----------------------------------------------------------
TOTAL: 129 $612,711,795 5 100.00% TOTAL: 129 $612,711,795 100.00%
- ---------------------------------------------------------------------- -----------------------------------------------------------
Min: $720,221 Max: $29,706,627 Average: $4,749,704
- ----------------------------------------------------------------------
<CAPTION>
PROPERTY TYPE MORTGAGE RATE (%)
- ---------------------------------------------------------------------- -----------------------------------------------------------
NO. OF AGGREGATE NO. OF AGGREGATE
MORTGAGE CUT-OFF DATE % OF MORTGAGE CUT-OFF DATE % OF
LOANS BALANCE ($) POOL LOANS BALANCE ($) POOL
- ----------------------------------------------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Retail 46 199,273,313 2.52 6.501 to 7.000 28 156,660,975 25.57
Industrial 43 155,109,442 5.32 7.001 to 7.500 58 242,891,757 39.64
Office 17 132,438,092 1.62 7.501 to 8.000 34 158,230,994 25.82
Multifamily 20 101,091,321 6.50 8.001 to 8.500 7 43,436,239 7.09
Mixed Use 1 12,495,090 2.04 8.501 to 9.000 2 11,491,829 1.88
Senior Housing 1 9,706,774 1.58 -----------------------------------------------------------
Self Storage Facility 1 2,597,745 0.42 TOTAL: 129 $612,711,795 100.00%
- ----------------------------------------------------------------------- -----------------------------------------------------------
TOTAL: 129 $612,711,795 100.00% Min: 6.510% Max: 8.620% Wtd Avg: 7.367%
- ----------------------------------------------------------------------- -----------------------------------------------------------
<CAPTION>
ORIGINAL TERM TO STATED MATURITY (MOS) REMAINING TERM TO STATED MATURITY (MOS)
- ---------------------------------------------------------------------- -----------------------------------------------------------
NO. OF AGGREGATE NO. OF AGGREGATE
MORTGAGE CUT-OFF DATE % OF MORTGAGE CUT-OFF DATE % OF
LOANS BALANCE ($) POOL LOANS BALANCE ($) POOL
- ----------------------------------------------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
120 126 576,169,968 94.04 61 - 120 126 576,169,968 94.04
180 1 29,706,627 4.85 121 - 180 1 29,706,627 4.85
240 2 6,835,200 1.12 181 - 240 2 6,835,200 1.12
- ----------------------------------------------------------------------- -----------------------------------------------------------
TOTAL: 129 $612,711,795 100.00% TOTAL: 129 $612,711,795 100.00%
- ----------------------------------------------------------------------- -----------------------------------------------------------
Min: 120 Max: 240 Wtd Avg: 124 Min: 110 Max: 238 Wtd Avg: 121
- ----------------------------------------------------------------------- -----------------------------------------------------------
<CAPTION>
CUT-OFF DATE LOAN-TO-VALUE RATIO (%) BALLOON LOAN-TO-VALUE RATIO (%)
- ---------------------------------------------------------------------- -----------------------------------------------------------
NO. OF AGGREGATE NO. OF AGGREGATE
MORTGAGE CUT-OFF DATE % OF MORTGAGE CUT-OFF DATE % OF
LOANS BALANCE ($) POOL LOANS BALANCE ($) POOL
- ----------------------------------------------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
30.1 to 40.0 1 29,706,627 4.85 0.1 to 10.0 2 6,835,200 1.12
40.1 to 50.0 1 18,008,336 2.94 20.1 to 30.0 2 33,828,452 5.52
50.1 to 60.0 33 158,043,363 25.79 40.1 to 50.0 10 70,771,558 11.55
60.1 to 70.0 37 172,678,126 28.18 50.1 to 60.0 55 259,197,564 42.30
70.1 to 80.0 57 234,275,343 38.24 60.1 to 70.0 56 228,704,844 37.33
- ----------------------------------------------------------------------- 70.0 to 80.0 4 13,374,177 2.18
TOTAL: 129 $612,711,795 100.00% -----------------------------------------------------------
- ----------------------------------------------------------------------- TOTAL: 129 $612,711,795 100.00%
Min: 37.1% Max: 79.8% Wtd Avg: 64.0% -----------------------------------------------------------
- ----------------------------------------------------------------------- Min: 0.6% Max: 71.4% Wtd Avg: 55.6%
-----------------------------------------------------------
</TABLE>
DEBT SERVICE COVERAGE RATIO (X)
- ----------------------------------------------------------------------
NO. OF AGGREGATE
MORTGAGE CUT-OFF DATE % OF
LOANS BALANCE ($) POOL
- -----------------------------------------------------------------------
1.20 to 1.29 23 123,438,702 20.15
1.30 to 1.39 25 100,986,869 16.48
1.40 to 1.49 28 128,337,664 20.95
1.50 to 1.59 18 66,493,719 10.85
1.60 to 1.74 8 45,452,635 7.42
1.75 or greater 27 148,002,207 24.16
- -----------------------------------------------------------------------
TOTAL: 129 $612,711,795 100.00%
- -----------------------------------------------------------------------
Min: 1.20x Max: 2.51x Wtd Avg: 1.63x
- -----------------------------------------------------------------------
All numerical information concerning the Mortgage Loans is approximate. All
weighted average information regarding the Mortgage Loans reflects the weighting
of the Mortgage Loans based upon their outstanding principal balances as of the
Cut-Off Date. Generally, for the purposes of the presentation of Mortgage Pool
information, multiple mortgaged properties securing a single mortgage loan have
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 represented by such obligation.
T-14
- --------------------------------------------------------------------------------
This information is being delivered to a specific number of prospective
sophisticated investors in order to assist them in determining whether they have
an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with respect
to the terms of any future offer of securities conforming to the terms hereof.
Any such offer of securities would be made pursuant to a definitive Prospectus
or Private Placement Memorandum, as the case may be, prepared by the issuer
which could contain material information not contained herein and to which the
prospective purchasers are referred. In the event of any such offering, this
information shall be deemed superseded, amended and supplemented in its entirety
by such Prospectus or Private Placement Memorandum. Such Prospectus or Private
Placement Memorandum will contain all material information in respect of any
securities offered thereby and any decision to invest in such securities should
be made solely in reliance upon such Prospectus or Private Placement Memorandum.
Certain assumptions may have been made in this analysis which have resulted in
any returns detailed herein. No representation is made that any returns
indicated will be achieved. Changes to the assumptions may have a material
impact on any returns detailed. Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co. (the "Underwriters") disclaim any and all liability relating to this
information, including without limitation any express or implied representations
and warranties for, statements contained in, and omissions from, this
information. Additional information is available upon request. The Underwriters
and others associated with them may have positions in, and may effect
transaction in, securities and instruments of issuers mentioned herein and may
also perform or seek to perform investment banking services for the issuers of
such securities and instruments. Past performance is not necessarily indicative
of future results. Price and availability are subject to change without notice.
This material may be filed with the Securities and Exchange Commission (the
"SEC") and incorporated by reference into an effective registration statement
previously filed with the SEC under Rule 415 of the Securities Act of 1933,
including in cases where the material does not pertain to securities that are
ultimately offered for sale pursuant to such registration statement. To Morgan
Stanley's readers worldwide: In addition, please note that this publication has
been issued by Morgan Stanley & Co. Incorporated, approved by Morgan Stanley
International Limited, a member of The Securities and Futures Authority, any by
Morgan Stanley Japan Ltd. Morgan Stanley recommends that such readers obtain the
advice of their Morgan Stanley & Co. Incorporated, Morgan Stanley International
or Morgan Stanley Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY
THE U.K. SECURITIES AND FUTURES AUTHORITY
- --------------------------------------------------------------------------------
<PAGE>
$557,567,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
<TABLE>
<CAPTION>
PERCENTAGE OF MORTGAGE POOL BALANCE BY PREPAYMENT RESTRICTION (%)
- --------------------------------------------------------------------------------------------------------------------------
PREPAYMENT AUG 99 AUG 00 AUG 01 AUG 02 AUG 03 AUG 04
RESTRICTIONS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Locked Out 100.00% 100.00% 98.79% 98.79% 94.11% 72.88%
Yield Maintenance Total 0.00% 0.00% 1.21% 1.21% 5.89% 27.12%
Penalty Points:
5.00% and greater 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
4.00% to 4.99% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
3.00% to 3.99% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2.00% to 2.99% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1.00% to 1.99% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Open 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------------------------------------------------
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
- --------------------------------------------------------------------------------------------------------------------------
Pool Balance Outstanding $612,711,795 $607,534,610 $601,864,472 $595,752,707 $589,164,778 $582,121,162
%of Initial Pool Balance 100.00% 99.16% 98.23% 97.23% 96.16% 95.01%
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PERCENTAGE OF MORTGAGE POOL BALANCE BY PREPAYMENT RESTRICTION (%) - CONTINUED
- --------------------------------------------------------------------------------------------------------------------------------
PREPAYMENT
RESTRICTIONS AUG 05 AUG 06 AUG 07 AUG 08 AUG 09
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Locked Out 68.12% 68.13% 68.14% 66.64% 15.55%
Yield Maintenance Total 31.88% 31.87% 31.86% 27.84% 84.45%
Penalty Points:
5.00% and greater 0.00% 0.00% 0.00% 0.00% 0.00%
4.00% to 4.99% 0.00% 0.00% 0.00% 0.00% 0.00%
3.00% to 3.99% 0.00% 0.00% 0.00% 0.00% 0.00%
2.00% to 2.99% 0.00% 0.00% 0.00% 0.00% 0.00%
1.00% to 1.99% 0.00% 0.00% 0.00% 0.00% 0.00%
Open 0.00% 0.00% 0.00% 5.53% 0.00%
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00%
- --------------------------------------------------------------------------------------------------------------------------------
Pool Balance Outstanding $574,382,925 $566,041,542 $557,049,812 $547,438,727 $29,607,039
% of Initial Pool Balance 93.74% 92.38% 90.92% 89.35% 4.83%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes: (1) The above analysis is based on Maturity Assumptions and a 0% CPR as
discussed in the Prospectus Supplement.
(2) One loan with a balance of $4,403,461 provides, upon satisfaction of
certain conditions, for a partial release of a parcel from the lien
to be accompanied by a paydown of the loan of approximately
$1,100,000 to be accompanied by a yield maintenance premium.
(3) One loan with a balance of $1,729,931 provides, upon satisfaction of
certain conditions, for a partial release of two parcels from the
lien to be accompanied by a paydown of the loan of approximately
$550,000 to be accompanied by a yield maintenance premium.
(4) Twenty-nine loans with an aggregate principal balance of
$134,467,325 are structured with a performance holdback, or letter
of credit ("LOC") subject to achievement of certain release
conditions. If release conditions are not met, there will be partial
prepayments of said mortgage loans to be accompanied by a yield
maintenance premium. The aggregate amount of the partial prepayments
is $5,604,482.
(5) See footnote 14 in Appendix II for a description of the Yield
Maintenance.
T-15
- --------------------------------------------------------------------------------
This information is being delivered to a specific number of prospective
sophisticated investors in order to assist them in determining whether they have
an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with respect
to the terms of any future offer of securities conforming to the terms hereof.
Any such offer of securities would be made pursuant to a definitive Prospectus
or Private Placement Memorandum, as the case may be, prepared by the issuer
which could contain material information not contained herein and to which the
prospective purchasers are referred. In the event of any such offering, this
information shall be deemed superseded, amended and supplemented in its entirety
by such Prospectus or Private Placement Memorandum. Such Prospectus or Private
Placement Memorandum will contain all material information in respect of any
securities offered thereby and any decision to invest in such securities should
be made solely in reliance upon such Prospectus or Private Placement Memorandum.
Certain assumptions may have been made in this analysis which have resulted in
any returns detailed herein. No representation is made that any returns
indicated will be achieved. Changes to the assumptions may have a material
impact on any returns detailed. Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co. (the "Underwriters") disclaim any and all liability relating to this
information, including without limitation any express or implied representations
and warranties for, statements contained in, and omissions from, this
information. Additional information is available upon request. The Underwriters
and others associated with them may have positions in, and may effect
transaction in, securities and instruments of issuers mentioned herein and may
also perform or seek to perform investment banking services for the issuers of
such securities and instruments. Past performance is not necessarily indicative
of future results. Price and availability are subject to change without notice.
This material may be filed with the Securities and Exchange Commission (the
"SEC") and incorporated by reference into an effective registration statement
previously filed with the SEC under Rule 415 of the Securities Act of 1933,
including in cases where the material does not pertain to securities that are
ultimately offered for sale pursuant to such registration statement. To Morgan
Stanley's readers worldwide: In addition, please note that this publication has
been issued by Morgan Stanley & Co. Incorporated, approved by Morgan Stanley
International Limited, a member of The Securities and Futures Authority, any by
Morgan Stanley Japan Ltd. Morgan Stanley recommends that such readers obtain the
advice of their Morgan Stanley & Co. Incorporated, Morgan Stanley International
or Morgan Stanley Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY
THE U.K. SECURITIES AND FUTURES AUTHORITY
- --------------------------------------------------------------------------------
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
ABN AMRO
LaSalle Bank N.A.
Administrator:
Thomas Baumgart (800) 246-5761
135 S. LaSalle Street Suite 1740
Chicago, IL 60603
MORGAN STANLEY CAPITAL I TRUST
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
ABN AMRO ACCT: 99-9999-99-9
Statement Date: 09/15/99
Payment Date: 09/15/99
Prior Payment:
Record Date: 08/31/99
WAC:
WAMM:
Number Of Pages
---------------
Table Of Contents
TOTAL PAGES INCLUDED IN THIS PACKAGE
Specially Serviced Loan Detail Appendix A
Modified Loan Detail Appendix B
Realized Loan Detail Appendix C
- ------------------------------------------------------------------
INFORMATION IS AVAILABLE FOR THIS ISSUE FROM THE FOLLOWING SOURCES
- ------------------------------------------------------------------
LaSalle Web Site www.lnbabs.com
LaSalle Bulletin Board (714) 282-3990
LaSalle ASAP Fax System (714) 282-5518
ASAP #: 430
Monthly Data File Name: 0430MMYY.EXE
- ------------------------------------------------------------------
<PAGE>
ABN AMRO
LaSalle Bank N.A.
Administrator:
Thomas Baumgart (800) 246-5761
135 S. LaSalle Street Suite 1740
Chicago, IL 60603
MORGAN STANLEY CAPITAL I TRUST
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
ABN AMRO ACCT: 99-9999-99-9
Statement Date: 09/15/99
Payment Date: 09/15/99
Prior Payment:
Record Date: 08/31/99
WAC:
WAMM:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ORIGINAL OPENING PRINCIPAL PRINCIPAL NEGATIVE CLOSING INTEREST INTEREST PASS-THROUGH
CLASS FACE VALUE (1) BALANCE PAYMENT ADJ. OR LOSS AMORTIZATION BALANCE PAYMENT ADJUSTMENT RATE (2)
CUSIP PER $1,000 PER $1,000 PER $1,000 PER $1,000 PER $1,000 PER $1,000 PER $1,000 PER $1,000 NEXT RATE (3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
0.00 0.00 0.00 0.00 0.00 0.00 0.00 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
<PAGE>
ABN AMRO
LaSalle Bank N.A.
Administrator:
Thomas Baumgart (800) 246-5761
135 S. LaSalle Street Suite 1625
Chicago, IL 60674-4107
MORGAN STANLEY CAPITAL I TRUST
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
ABN AMRO ACCT: 99-9999-99-9
OTHER RELATED INFORMATION
Statement Date: 09/15/99
Payment Date: 09/15/99
Prior Payment:
Record Date: 08/31/99
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
SERVICER/POOL INFORMATION
Beginning Scheduled Unscheduled Realized Ending Scheduled Prepayment Interest
Balance Principal Principal Losses Balance Interest Shortfall Excess
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning Ending Gross W/Avg Months Prepayment Disposition
Loan Count Loan Count Servicing Fees to Maturity Penalties Fees
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Current Cumulative
Unpaid Unpaid
Class Interest Interest
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ABN AMRO
LaSalle Bank N.A.
Administrator:
Thomas Baumgart (800) 246-5761
135 S. LaSalle Street Suite 1625
Chicago, IL 60674-4107
MORGAN STANLEY CAPITAL I TRUST
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
ABN AMRO ACCT: 99-9999-99-9
OTHER RELATED INFORMATION
Statement Date: 09/15/99
Payment Date: 09/15/99
Prior Payment:
Record Date: 08/31/99
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
P&I ADVANCES MADE BY: Beginning Current Ending
Unreimbursed Period Reimbursed Unreimbursed
- ------------------------------------------------------------------------------------------------------------------------------------
Servicer
Trustee
Fiscal Agent
- ------------------------------------------------------------------------------------------------------------------------------------
Total P&I Advances
- ------------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF EXPENSES:
Current Period Servicing Fees
Current Period Trustee Fees
Current Period Special Servicing Fees
Principal Recovery Fees
Other Servicing Compensation - Interest on Advances
Total
Net Aggregate PPIS Allocable to the Bonds
Trust Fund Expenses
Current Realized Losses on Mortgage Loans
Cumulative Realized Losses on Mortgage Loans
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ABN AMRO
LaSalle Bank N.A.
Administrator:
Thomas Baumgart (800) 246-5761
135 S. LaSalle Street Suite 1625
Chicago, IL 60674-4107
MORGAN STANLEY CAPITAL I TRUST
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
ABN AMRO ACCT: 99-9999-99-9
OTHER RELATED INFORMATION
Statement Date: 09/15/99
Payment Date: 09/15/99
Prior Payment:
Record Date: 08/31/99
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
REO PROPERTY SOLD OF DISPOSED OF DURING THE RELATED COLLECTION PERIOD
Portion Final
Realized Included in Recovery
Loan Loss Sale Other Available Determination
Number Attributable Proceeds Proceeds Funds Date
- ------------------------------------------------------------------------------------------------------------------------------------
1
2
3
- ------------------------------------------------------------------------------------------------------------------------------------
Totals
- ------------------------------------------------------------------------------------------------------------------------------------
REO PROPERTY INCLUDED IN THE TRUST
Most Aggregate Aggregate Portion
Recent Amount Amount Included in
Loan Appraisal of Net of Other Available
Number Valuation Income Revenues Funds
- ------------------------------------------------------------------------------------------------------------------------------------
1
2
3
- ------------------------------------------------------------------------------------------------------------------------------------
Totals
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ABN AMRO
LaSalle Bank N.A.
Administrator:
Thomas Baumgart (800) 246-5761
135 S. LaSalle Street Suite 1625
Chicago, IL 60674-4107
MORGAN STANLEY CAPITAL I TRUST
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
ABN AMRO ACCT: 99-9999-99-9
OTHER RELATED INFORMATION
Statement Date: 09/15/99
Payment Date: 09/15/99
Prior Payment: 02/17/98
Record Date: 08/31/99
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
MORTGAGED PROPERTIES THAT BECAME REO DURING THE PRECEDING CALENDAR MONTH
Unpaid
Debt Principal
Service Stated Balance
Loan Property Coverage Principal as of REO
Number City State Type Ratio Balance Date
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Totals
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
APPRAISAL REDUCTION AMOUNTS
Loan Current Total
Number Period Reduction
- ------------------------------------------------------------------------------------------------------------------------------------
1
2
3
- ------------------------------------------------------------------------------------------------------------------------------------
Totals
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ABN AMRO
LaSalle Bank N.A.
Administrator:
Thomas Baumgart (800) 246-5761
135 S. LaSalle Street Suite 1740
Chicago, IL 60603
MORGAN STANLEY CAPITAL I TRUST
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
ABN AMRO ACCT: 99-9999-99-9
Statement Date: 09/15/99
Payment Date: 09/15/99
Prior Payment:
Record Date: 08/31/99
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DELINQ 1 MONTH DELINQ 2 MONTHS DELINQ 3+ MONTHS FORECLOSURE/BANKRUPTCY
DISTRIBUTION -------------------------------------------------------------------------------------------------------------------
DATE # BALANCE # BALANCE # BALANCE # BALANCE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
09/15/99 0 0 0 0 0 0 0 0
0.00% 0.000% 0.00% 0.000% 0.00% 0.000% 0.00% 0.000%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[RESTUBBED TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
REO MODIFICATIONS PREPAYMENTS CURR WEIGHTED AVG.
# BALANCE # BALANCE # BALANCE COUPON REMIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0 0 0 0 0 0
0.000% 0.000% 0.00% 0.000% 0.00% 0.000%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Foreclosure and REO Totals are Included in the
Appropriate Delinquency Aging Category
<PAGE>
ABN AMRO
LaSalle Bank N.A.
Administrator:
Thomas Baumgart (800) 246-5761
135 S. LaSalle Street Suite 1740
Chicago, IL 60603
MORGAN STANLEY CAPITAL I TRUST
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
ABN AMRO ACCT: 99-9999-99-9
DELINQUENT LOAN DETAIL
Statement Date: 09/15/99
Payment Date: 09/15/99
Prior Payment:
Record Date: 08/31/99
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Paid Outstanding Out. Property
Disclosure Doc Thru Current P&I P&I Protection Advance
Control # Date Advance Advances** Advances Description (1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
A. P&I Advance - Loan in Grace Period 1. P&I Advance - Loan delinquent 1 month
B. P&I Advance - Late Payment but (less than) one month delinq 2. P&I Advance - Loan delinquent 2 months
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[RESTUBBED TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Special Servicer Foreclosure Bankruptcy REO
Transfer Date Date Date Date
- --------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------
3. P&I Advance - Loan delinquent 3 months or More
4. Matured Balloon/Assumed Scheduled Payment
- ----------------------------------------------------------------------
</TABLE>
** Outstanding P&I Advances include the current period P&I Advance
<PAGE>
ABN AMRO
LaSalle Bank N.A.
Administrator:
Thomas Baumgart (800) 246-5761
135 S. LaSalle Street Suite 1740
Chicago, IL 60603
MORGAN STANLEY CAPITAL I TRUST
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
ABN AMRO ACCT: 99-9999-99-9
POOL TOTAL
Statement Date: 09/15/99
Payment Date: 09/15/99
Prior Payment:
Record Date: 08/31/99
DISTRIBUTION OF PRINCIPAL BALANCES
- -------------------------------------------------------------------------
(2) Current Scheduled Number (2)Scheduled Based on
Balances of Loans Balance Balance
- -------------------------------------------------------------------------
$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
$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%
- -------------------------------------------------------------------------
Average Scheduled Balance is 0
Maximum Scheduled Balance is 0
Minimum Scheduled Balance is 0
DISTRIBUTION OF PROPERTY TYPES
- -------------------------------------------------------------------------
Number (2)Scheduled Based on
Property Types of Loans Balance Balance
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Total 0 0 0.00%
- -------------------------------------------------------------------------
<PAGE>
DISTRIBUTION OF MORTGAGE INTEREST RATES
- -------------------------------------------------------------------------
Current Mortgage Number (2)Scheduled Based on
Interest Rate of Loans Balance Balance
- -------------------------------------------------------------------------
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%
- -------------------------------------------------------------------------
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%
- -------------------------------------------------------------------------
<PAGE>
ABN AMRO
LaSalle Bank N.A.
Administrator:
Thomas Baumgart (800) 246-5761
135 S. LaSalle Street Suite 1740
Chicago, IL 60603
MORGAN STANLEY CAPITAL I TRUST
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
ABN AMRO ACCT: 99-9999-99-9
POOL TOTAL
Statement Date: 09/15/99
Payment Date: 09/15/99
Prior Payment:
Record Date: 08/31/99
LOAN SEASONING
- -------------------------------------------------------------------------
Number (2)Scheduled Based on
Number of Years of Loans Balance Balance
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Weighted Average Seasoning is 0.0
DISTRIBUTION OF REMAINING TERM
FULLY AMORTIZING
- -------------------------------------------------------------------------
Fully Amortizing Number (2)Scheduled Based on
Mortgage Loans of Loans Balance Balance
- -------------------------------------------------------------------------
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
DISTRIBUTION OF DSCR
- -------------------------------------------------------------------------
Debt Service Number (2)Scheduled Based on
Coverage Ratio (1) of Loans Balance Balance
- -------------------------------------------------------------------------
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 0.0000
DISTRIBUTION OF AMORTIZATION TYPE
- -------------------------------------------------------------------------
Number (2)Scheduled Based on
Amortization Type of Loans Balance Balance
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Total 0 0 0.00%
- -------------------------------------------------------------------------
DISTRIBUTION OF REMAINING TERM
BALLOON LOANS
- -------------------------------------------------------------------------
Balloon Number (2)Scheduled Based on
Mortgage Loans of Loans Balance Balance
- -------------------------------------------------------------------------
12 months or less
13 to 24 months
25 to 36 months
37 to 48 months
49 to 60 months
61 to 120 months
121 to 180 months
181 to 240 months
- -------------------------------------------------------------------------
Total 0 0 0.00%
- -------------------------------------------------------------------------
Weighted Average Months to Maturity is 0
NOI AGING
- -------------------------------------------------------------------------
Number (2)Scheduled Based on
NOI Date of Loans Balance Balance
- -------------------------------------------------------------------------
1 year or less
1 to 2 years
2 years or More
Unknown
- -------------------------------------------------------------------------
Total 0 0 0.00%
- -------------------------------------------------------------------------
(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.
<PAGE>
ABN AMRO
LASALLE BANK N.A.
Administrator:
Thomas Baumgart (800) 246-5761
135 S. LaSalle Street Suite 1740
Chicago, IL 60603
MORGAN STANLEY CAPITAL I TRUST
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
Statement Date: 09/15/99
Payment Date: 09/15/99
Prior Payment:
Record Date: 08/31/99
ABN AMRO ACCT: 99-9999-99-9
LOAN LEVEL DETAIL
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
APPRAISAL PROPERTY OPERATING
DISCLOSURE REDUCTION TYPE MATURITY STATEMENT
CONTROL # AMOUNTS CODE DATE DSCR NOI DATE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ENDING LOAN
PRINCIPAL NOTE SCHEDULED PREPAYMENT STATUS
BALANCE RATE P&I PREPAYMENT DATE CODE (1)
- --------------------------------------------------------------------------------
</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 - (less than) 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
<PAGE>
ABN AMRO
LASALLE BANK N.A.
Administrator:
Thomas Baumgart (800) 246-5761
135 S. LaSalle Street Suite 1740
Chicago, IL 60603
MORGAN STANLEY CAPITAL I TRUST
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
Statement Date: 09/15/99
Payment Date: 09/15/99
Prior Payment:
Record Date: 08/31/99
ABN AMRO ACCT: 99-9999-99-9
SPECIALLY SERVICED LOAN DETAIL
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BEGINNING SPECIALLY
DISCLOSURE SCHEDULED INTEREST MATURITY PROPERTY SERVICED
CONTROL # BALANCE RATE DATE TYPE STATUS CODE (1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMENTS
- --------------------------------------------------------------------------------
</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
<PAGE>
ABN AMRO
LASALLE BANK N.A.
Administrator:
Thomas Baumgart (800) 246-5761
135 S. LaSalle Street Suite 1740
Chicago, IL 60603
MORGAN STANLEY CAPITAL I TRUST
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
Statement Date: 09/15/99
Payment Date: 09/15/99
Prior Payment:
Record Date: 08/31/99
ABN AMRO ACCT: 99-9999-99-9
MODIFIED LOAN DETAIL
- --------------------------------------------------------------------------------
DISCLOSURE MODIFICATION MODIFICATION
CONTROL # DATE DESCRIPTION
- --------------------------------------------------------------------------------
APPENDIX B
<PAGE>
ABN AMRO
LASALLE BANK N.A.
Administrator:
Thomas Baumgart (800) 246-5761
135 S. LaSalle Street Suite 1740
Chicago, IL 60603
MORGAN STANLEY CAPITAL I TRUST
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-LIFE1
Statement Date: 09/15/99
Payment Date: 09/15/99
Prior Payment:
Record Date: 08/31/99
ABN AMRO ACCT: 99-9999-99-9
REALIZED LOSS DETAIL
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BEGINNING
DIST. DISCLOSURE APPRAISAL APPRAISAL SCHEDULED GROSS
DATE CONTROL # DATE VALUE BALANCE PROCEEDS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GROSS PROCEEDS AGGREGATE NET NET PROCEEDS
AS A % OF LIQUIDATION LIQUIDATION AS A % OF REALIZED
SCHED PRINCIPAL EXPENSES* PROCEEDS SCHED. BALANCE LOSS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CURRENT TOTAL 0.00 0.00 0.00 0.00 0.00
CUMULATIVE 0.00 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------
</TABLE>
* Aggregate liquidation expenses also include outstanding P&I advances and
unpaid servicing fees, unpaid trustee fees, etc..
APPENDIX C
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
MORGAN STANLEY CAPITAL I INC.
DEPOSITOR
The Certificates offered hereby and by Supplements to this Prospectus
(the "Offered Certificates") will be offered from time to time in one or more
series. Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any series, the
"Trust Fund") consisting of one or more segregated pools of various types of
multifamily or commercial mortgage loans (the "Mortgage Loans"), mortgage
participations, mortgage pass-through certificates, mortgage-backed securities
evidencing interests therein or secured thereby (the "MBS"), certain direct
obligations of the United States, agencies thereof or agencies created thereby
(the "Government Securities") or a combination of Mortgage Loans, MBS and/or
Government Securities (with respect to any series, collectively, "Assets"). If
so specified in the related Prospectus Supplement, some or all of the Mortgage
Loans will include assignments of the leases of the related Mortgaged Properties
(as defined herein) and/or assignments of the rental payments due from the
lessees under such leases (each type of assignment, a "Lease Assignment"). A
significant or the sole source of payments on certain Commercial Loans (as
defined herein) and, therefore, of distributions on certain series of
Certificates, will be such rent payments. The Mortgage Loans and MBS are
collectively referred to herein as the "Mortgage Assets." If so specified in the
related Prospectus Supplement, the Trust Fund for a series of Certificates may
include letters of credit, insurance policies, guarantees, reserve funds or
other types of credit support, or any combination thereof (with respect to any
series, collectively, "Credit Support"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any series, collectively, "Cash Flow Agreements"). See "Description of the
Trust Funds," "Description of the Certificates" and "Description of Credit
Support."
Each series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon based on
fixed, variable or adjustable rates; (ii) be senior or subordinate to one or
more other classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iv) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (v) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; (vi)
provide for distributions of principal sequentially, based on specified payment
schedules or other methodologies; and/or (vii) provide for distributions based
on a combination of two or more components thereof with one or more of the
characteristics described in this paragraph, to the extent of available funds,
in each case as described in the related Prospectus Supplement. Any such classes
may include classes of Offered Certificates. See "Description of the
Certificates."
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters, as more fully
described under "Plan of Distribution" herein and in the related Prospectus
Supplement.
-----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------
INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, CERTAIN RISKS SET FORTH
UNDER THE CAPTION "RISK FACTORS" HEREIN AND IN THE RELATED PROSPECTUS
SUPPLEMENT.
Prior to issuance there will have been no market for the Certificates
of any series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will continue.
This Prospectus may not be used to consummate sales of the Offered Certificates
of any series unless accompanied by the Prospectus Supplement for such series.
------------------------------
MORGAN STANLEY & CO.
INCORPORATED
July 19, 1999
<PAGE>
Principal and interest with respect to Certificates will be
distributable monthly, quarterly, semi-annually or at such other intervals and
on the dates specified in the related Prospectus Supplement. Distributions on
the Certificates of any series will be made only from the assets of the related
Trust Fund.
The Certificates of each series will not represent an obligation of or
interest in the Depositor, Morgan Stanley & Co. Incorporated, any Master
Servicer, any Sub-Servicer, any Special Servicer or any of their respective
affiliates, except to the limited extent described herein and in the related
Prospectus Supplement. Neither the Certificates nor any assets in the related
Trust Fund will be guaranteed or insured by any governmental agency or
instrumentality or by any other person, unless otherwise provided in the related
Prospectus Supplement. The assets in each Trust Fund will be held in trust for
the benefit of the holders of the related series of Certificates pursuant to a
Pooling and Servicing Agreement or a Trust Agreement, as more fully described
herein.
The yield on each class of Certificates of a series will be affected by,
among other things, the rate of payment of principal (including prepayments,
repurchase and defaults) on the Mortgage Assets in the related Trust Fund and
the timing of receipt of such payments as described under the caption "Yield
Considerations" herein and in the related Prospectus Supplement. A Trust Fund
may be subject to early termination under the circumstances described herein and
in the related Prospectus Supplement.
Prospective investors should review the information appearing under the
caption "Risk Factors" herein and such information as may be set forth under the
caption "Risk Factors" in the related Prospectus Supplement before purchasing
any Offered Certificate.
If so provided in the related Prospectus Supplement, one or more
elections may be made to treat the related Trust Fund or a designated portion
thereof as a "real estate mortgage investment conduit" for federal income tax
purposes. See also "Certain Federal Income Tax Consequences" herein.
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus and Prospectus
Supplement when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement
relating to the Offered Certificates of each series will, among other things,
set forth with respect to such Certificates, as appropriate: (i) a description
of the class or classes of Certificates, the payment provisions with respect to
each such class and the Pass-Through Rate or method of determining the
Pass-Through Rate with respect to each such class; (ii) the aggregate principal
amount and distribution dates relating to such series and, if applicable, the
initial and final scheduled distribution dates for each class; (iii) information
as to the assets comprising the Trust Fund, including the general
characteristics of the assets included therein, including the Mortgage Assets
and any Credit Support and Cash Flow Agreements (with respect to the
Certificates of any series, the "Trust Assets"); (iv) the circumstances, if any,
under which the Trust Fund may be subject to early termination; (v) additional
information with respect to the method of distribution of such Certificates;
(vi) whether one or more REMIC elections will be made and designation of the
regular interests and residual interests; (vii) the aggregate original
percentage ownership interest in the Trust Fund to be evidenced by each class of
Certificates; (viii) information as to any Master Servicer, any Sub-Servicer,
any Special Servicer (or provision for the appointment thereof) and the Trustee,
as applicable; (ix) information as to the nature and extent of subordination
with respect to any class of Certificates that is subordinate in right of
payment to any other class; and (x) whether such Certificates will be initially
issued in definitive or book-entry form.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended, with respect to the Offered
Certificates. This Prospectus and the Prospectus Supplement relating to each
series of Certificates contain
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summaries of the material terms of the documents referred to herein
and therein, but do not contain all of the information set forth in the
Registration Statement pursuant to the rules and regulations of the Commission.
For further information, reference is made to such Registration Statement and
the exhibits thereto. Such Registration Statement and exhibits can be inspected
and copied at prescribed rates at the public reference facilities maintained by
the Commission at its Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its Regional Offices located as follows: Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661; and New York Regional Office, Seven World Trade Center, New York, New
York 10048.
To the extent described in the related Prospectus Supplement, some or
all of the Mortgage Loans may be secured by an assignment of the lessors' (i.e.,
the related mortgagors') rights in one or more leases (each, a "Lease") of the
related Mortgaged Property. Unless otherwise specified in the related Prospectus
Supplement, no series of Certificates will represent interests in or obligations
of any lessee (each, a "Lessee") under a Lease. If indicated, however, in the
Prospectus Supplement for a given series, a significant or the sole source of
payments on the Mortgage Loans in such series, and, therefore, of distributions
on such Certificates, will be rental payments due from the Lessees under the
Leases. Under such circumstances, prospective investors in the related series of
Certificates may wish to consider publicly available information, if any,
concerning the Lessees. Reference should be made to the related Prospectus
Supplement for information concerning the Lessees and whether any such Lessees
are subject to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Offered
Certificates or an offer of the Offered Certificates to any person in any state
or other jurisdiction in which such offer would be unlawful. The delivery of
this Prospectus at any time does not imply that information herein is correct as
of any time subsequent to its date; however, if any material change occurs while
this Prospectus is required by law to be delivered, this Prospectus will be
amended or supplemented accordingly.
A Master Servicer or the Trustee will be required to mail to holders of
Offered Certificates of each series periodic unaudited reports concerning the
related Trust Fund. Unless and until definitive Certificates are issued, or
unless otherwise provided in the related Prospectus Supplement, such reports
will be sent on behalf of the related Trust Fund to Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC") and registered holder of the
Offered Certificates, pursuant to the applicable Agreement. Such reports may be
available to holders of interests in the Certificates (the "Certificateholders")
upon request to their respective DTC participants. See "Description of the
Certificates--Reports to Certificateholders" and "Description of the
Agreements--Evidence as to Compliance." The Depositor will file or cause to be
filed with the Commission such periodic reports with respect to each Trust Fund
as are required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports
filed or caused to be filed by the Depositor with respect to a Trust Fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of an offering of Offered Certificates evidencing interests therein.
The Depositor will provide or cause to be provided without charge to each person
to whom this Prospectus is delivered in connection with the offering of one or
more classes of Offered Certificates, a copy of any or all documents or reports
incorporated herein by reference, in each case to the extent such documents or
reports relate to one or more of such classes of such Offered Certificates,
other than the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests to the Depositor should
be directed in writing to Morgan Stanley Capital I Inc., c/o Morgan Stanley &
Co. Incorporated, 1585 Broadway, 37th Floor, New York, New York 10036,
Attention: John E. Westerfield, or by telephone at (212) 761-4700. The Depositor
has determined that its financial statements are not material to the offering of
any Offered Certificates.
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TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT.........................................................2
AVAILABLE INFORMATION.........................................................2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.............................3
RISK FACTORS.................................................................13
DESCRIPTION OF THE TRUST FUNDS...............................................19
USE OF PROCEEDS..............................................................25
YIELD CONSIDERATIONS.........................................................25
THE DEPOSITOR................................................................29
DESCRIPTION OF THE CERTIFICATES..............................................29
DESCRIPTION OF THE AGREEMENTS................................................36
DESCRIPTION OF CREDIT SUPPORT................................................52
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES...................54
CERTAIN FEDERAL INCOME TAX CONSEQUENCES......................................69
STATE TAX CONSIDERATIONS.....................................................94
CERTAIN ERISA CONSIDERATIONS.................................................94
LEGAL INVESTMENT.............................................................96
PLAN OF DISTRIBUTION.........................................................98
LEGAL MATTERS................................................................98
FINANCIAL INFORMATION........................................................99
RATING.......................................................................99
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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 "Certificate ").
DEPOSITOR...........................Morgan Stanley Capital I Inc., a wholly-
owned subsidiary of Morgan Stanley Group
Inc. See "The Depositor."
MASTER SERVICER.....................The master servicer (the "Master
Servicer"), if any, for each series of
Certificates, which may be an affiliate of
the Depositor, will be named in the related
Prospectus Supplement. See "Description of
the Agreements--Collection and Other
Servicing Procedures."
SPECIAL SERVICER....................The special servicer (the "Special
Servicer"), if any, for each series of
Certificates, which may be an affiliate of
the Depositor, will be named, or the
circumstances in accordance with which a
Special Servicer will be appointed will be
described, in the related Prospectus
Supplement. See "Description of the
Agreements--Special Servicers."
TRUSTEE.............................The trustee (the "Trustee") for each series
of Certificates will be named in the related
Prospectus Supplement. See "Description of
the Agreements--The Trustee."
THE TRUST ASSETS....................Each series of Certificates will represent
in the aggregate the entire beneficial
ownership interest in a Trust Fund
consisting primarily of:
(A) MORTGAGE ASSETS.................The Mortgage Assets with respect to each
series of Certificates will consist of a
pool of multifamily and/or commercial
mortgage loans (collectively, the "Mortgage
Loans")and mortgage participations, mortgage
pass-through certificates or other
mortgage-backed securities evidencing
interests in or secured by Mortgage Loans
(collectively, the "MBS") or a combination
of Mortgage Loans and MBS. The Mortgage
Loans will not be guaranteed or insured by
the Depositor or any of its affiliates or,
unless otherwise provided in the Prospectus
Supplement, by any governmental agency or
instrumentality or other person. As more
specifically described herein, the Mortgage
Loans will be secured by first or junior
liens on, or security interests in,
properties consisting of (i) residential
properties consisting of five or more rental
or cooperatively-owned dwelling units (the
"Multifamily Properties") or (ii) office
buildings, shopping centers, retail stores,
hotels or motels, nursing homes, hospitals
or other health-care related facilities,
mobile home
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parks, warehouse facilities, mini-warehouse
facilities or self-storage facilities,
industrial plants, congregate care
facilities, mixed use or other types of
commercial properties (the "Commercial
Properties"). The term "Mortgaged
Properties" shall refer to Multifamily
Properties or Commercial Properties, or
both.
To the extent described in the related
Prospectus Supplement, some or all of the
Mortgage Loans may also be secured by an
assignment of one or more leases (each, a
"Lease") of one or more lessees (each, a
"Lessee") of all or a portion of the related
Mortgaged Properties. Unless otherwise
specified in the related Prospectus
Supplement, a significant or the sole source
of payments on certain Commercial Loans (as
defined herein) will be the rental payments
due under the related Leases. In certain
circumstances, with respect to Commercial
Properties, the material terms and
conditions of the related Leases may be set
forth in the related Prospectus Supplement.
See "Description of the Trust
Funds--Mortgage Loans--Leases" and "Risk
Factors--Limited Assets" herein.
The Mortgaged Properties may be located in
any one of the fifty states, the District of
Columbia or the Commonwealth of Puerto Rico.
The Prospectus Supplement will indicate
additional jurisdictions, if any, in which
the Mortgaged Properties may be located.
Unless otherwise provided in the related
Prospectus Supplement, all Mortgage Loans
will have individual principal balances at
origination of not less than $25,000 and
original terms to maturity of not more than
40 years. All Mortgage Loans will have been
originated by persons other than the
Depositor, and all Mortgage Assets will have
been purchased, either directly or
indirectly, by the Depositor on or before
the date of initial issuance of the related
series of Certificates. The related
Prospectus Supplement will indicate if any
such persons are affiliates of the
Depositor.
Each Mortgage Loan may provide for no
accrual of interest or for accrual of
interest thereon at an interest rate (a
"Mortgage Rate") that is fixed over its term
or that adjusts from time to time, or that
may be converted from an adjustable to a
fixed Mortgage Rate, or from a fixed to an
adjustable Mortgage Rate, from time to time
at the mortgagor's election, in each case as
described in the related Prospectus
Supplement. Adjustable Mortgage Rates on the
Mortgage Loans in a Trust Fund may be based
on one or more indices. Each Mortgage Loan
may provide for scheduled payments to
maturity, payments that adjust from time to
time to accommodate changes in the Mortgage
Rate or to reflect the occurrence of certain
events, and may provide for negative
amortization or accelerated amortization, in
each case as described in the related
Prospectus Supplement. Each Mortgage Loan
may be fully amortizing or require a balloon
payment due on its stated maturity date, in
each case as described in the related
Prospectus Supplement. Each Mortgage Loan
may contain prohibitions on prepayment or
require payment of a premium or a yield
maintenance penalty in connection
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<PAGE>
with a prepayment, in each case as described
in the related Prospectus Supplement. The
Mortgage Loans may provide for payments of
principal, interest or both, on due dates
that occur monthly, quarterly, semi-annually
or at such other interval as is specified in
the related Prospectus Supplement. See
"Description of the Trust Funds--Assets."
(B) GOVERNMENT SECURITIES...........If so provided in the related Prospectus
Supplement, the Trust Fund may include, in
addition to Mortgage Assets, certain direct
obligations of the United States, agencies
thereof or agencies created thereby which
provide for payment of interest and/or
principal (collectively, "Government
Securities").
(C) COLLECTION ACCOUNTS.............Each Trust Fund will include one or more
accounts established and maintained on
behalf of the Certificateholders into which
the person or persons designated in the
related Prospectus Supplement will, to the
extent described herein and in such
Prospectus Supplement, deposit all payments
and collections received or advanced with
respect to the Mortgage Assets and other
assets in the Trust Fund. Such an account
may be maintained as an interest bearing or
a non-interest bearing account, and funds
held therein may be held as cash or invested
in certain short-term, investment grade
obligations, in each case as described in
the related Prospectus Supplement. See
"Description of the Agreements--Certificate
Account and Other Collection Accounts."
(D)CREDIT SUPPORT..................If so provided in the related Prospectus
Supplement, partial or full protection
against certain defaults and losses on the
Mortgage Assets in the related Trust Fund
may be provided to one or more classes of
Certificates of the related series in the
form of subordination of one or more other
classes of Certificates of such series,
which other classes may include one or more
classes of Offered Certificates, or by one
or more other types of credit support, such
as a letter of credit, insurance policy,
guarantee, reserve fund or another type of
credit support, or a combination thereof
(any such coverage with respect to the
Certificates of any series, "Credit
Support"). The amount and types of coverage,
the identification of the entity providing
the coverage (if applicable) and related
information with respect to each type of
Credit Support, if any, will be described in
the Prospectus Supplement for a series of
Certificates. The Prospectus Supplement for
any series of Certificates evidencing an
interest in a Trust Fund that includes MBS
will describe any similar forms of credit
support that are provided by or with respect
to, or are included as part of the trust
fund evidenced by or providing security for,
such MBS. See "Risk Factors--Credit Support
Limitations" and "Description of Credit
Support."
(E) CASH FLOW AGREEMENTS............If so provided in the related Prospectus
Supplement, the Trust Fund may include
guaranteed investment contracts pursuant to
which moneys held in the funds and accounts
established for the related series will be
invested at a specified rate. The Trust Fund
may also include certain other agreements,
such as interest rate exchange
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<PAGE>
agreements, interest rate cap or floor
agreements, currency exchange agreements or
similar agreements provided to reduce the
effects of interest rate or currency
exchange rate fluctuations on the Assets or
on one or more classes of Certificates.
(Currency exchange agreements might be
included in the Trust Fund if some or all of
the Mortgage Assets (such as Mortgage Loans
secured by Mortgaged Properties located
outside the United States) were denominated
in a non-United States currency.) The
principal terms of any such guaranteed
investment contract or other agreement (any
such agreement, a "Cash Flow Agreement"),
including, without limitation, provisions
relating to the timing, manner and amount of
payments thereunder and provisions relating
to the termination thereof, will be
described in the Prospectus Supplement for
the related series. In addition, the related
Prospectus Supplement will provide certain
information with respect to the obligor
under any such Cash Flow Agreement. The
Prospectus Supplement for any series of
Certificates evidencing an interest in a
Trust Fund that includes MBS will describe
any cash flow agreements that are included
as part of the trust fund evidenced by or
providing security for such MBS. See
"Description of the Trust Funds--Cash Flow
Agreements." Description of Certificates.
DISTRIBUTIONS ON CERTIFICATES.......Each series of Certificates evidencing an
interest in a Trust Fund that includes
Mortgage Loans as part of its assets will be
issued pursuant to a pooling and servicing
agreement, and each series of Certificates
evidencing an interest in a Trust Fund that
does not include Mortgage Loans will be
issued pursuant to a trust agreement.
Pooling and servicing agreements and trust
agreements are referred to herein as the
"Agreements." Each series of Certificates
will include one or more classes. Each
series of Certificates (including any class
or classes of Certificates of such series
not offered hereby) will represent in the
aggregate the entire beneficial ownership
interest in the Trust Fund. Each class of
Certificates (other than certain Stripped
Interest Certificates, as defined below)
will have a stated principal amount (a
"Certificate Balance") and (other than
certain Stripped Principal Certificates, as
defined below), will accrue interest thereon
based on a fixed, variable or adjustable
interest rate (a "Pass-Through Rate"). The
related Prospectus Supplement will specify
the Certificate Balance, if any, and the
Pass-Through Rate for each class of
Certificates or, in the case of a variable
or adjustable Pass-Through Rate, the method
for determining the Pass-Through Rate.
Each series of Certificates will consist of
one or more classes of Certificates that may
(i) provide for the accrual of interest
thereon based on fixed, variable or
adjustable rates; (ii) be senior
(collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate
Certificates") to one or more other classes
of Certificates in respect of certain
distributions on the Certificates; (iii) be
entitled to principal distributions, with
disproportionately low, nominal or no
interest distributions (collectively,
"Stripped Principal Certificates"); (iv) be
entitled to interest distributions,
8
<PAGE>
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. See "Risk
Factors--Average Life of Certificates;
Prepayments; Yields," "Yield Considerations"
and "Description of the Certificates--
Distributions of Interest on the
Certificates."
(B) PRINCIPAL.....................The Certificates of each series initially
will have an aggregate Certificate Balance
no greater than the outstanding principal
balance of the Assets as of, unless the
related Prospectus Supplement provides
otherwise, the close of business on the
first day of the month of formation of the
related Trust Fund (the "Cut-off Date"),
after application of scheduled payments due
on or before such date, whether or not
received. The Certificate Balance of a
Certificate outstanding from time to time
represents the maximum amount that the
holder thereof is then entitled to receive
9
<PAGE>
in respect of principal from future cash
flow on the assets in the related Trust
Fund. Unless otherwise provided in the
related Prospectus Supplement, distributions
of principal will be made on each
Distribution Date to the class or classes of
Certificates entitled thereto until the
Certificate Balances of such Certificates
have been reduced to zero. Unless otherwise
specified in the related Prospectus
Supplement, distributions of principal of
any class of Certificates will be made on a
pro rata basis among all of the Certificates
of such class or by random selection, as
described in the related Prospectus
Supplement or otherwise established by the
related Trustee. Stripped Interest
Certificates with no Certificate Balance
will not receive distributions in respect of
principal. See "Description of the
Certificates--Distributions of Principal of
the Certificates."
ADVANCES.......................Unless otherwise provided in the related
Prospectus Supplement, the Master Servicer
will be obligated as part of its servicing
responsibilities to make certain advances
that in its good faith judgment it deems
recoverable with respect to delinquent
scheduled payments on the Whole Loans in
such Trust Fund. Neither the Depositor nor
any of its affiliates will have any
responsibility to make such advances.
Advances made by a Master Servicer are
reimbursable generally from subsequent
recoveries in respect of such Whole Loans
and otherwise to the extent described herein
and in the related Prospectus Supplement. If
and to the extent provided in the Prospectus
Supplement for any series, the Master
Servicer will be entitled to receive
interest on its outstanding advances,
payable from amounts in the related Trust
Fund. The Prospectus Supplement for any
series of Certificates evidencing an
interest in a Trust Fund that includes MBS
will describe any corresponding advancing
obligation of any person in connection with
such MBS. See "Description of the
Certificates--Advances in Respect of
Delinquencies."
TERMINATION....................If so specified in the related Prospectus
Supplement, a series of Certificates may be
subject to optional early termination
through the repurchase of the Assets in the
related Trust Fund by the party specified
therein, under the circumstances and in the
manner set forth therein. If so provided in
the related Prospectus Supplement, upon the
reduction of the Certificate Balance of a
specified class or classes of Certificates
by a specified percentage or amount or on
and after a date specified in such
Prospectus Supplement, the party specified
therein will solicit bids for the purchase
of all of the Assets of the Trust Fund, or
of a sufficient portion of such Assets to
retire such class or classes, or purchase
such Assets at a price set forth in the
related Prospectus Supplement. In addition,
if so provided in the related Prospectus
Supplement, certain classes of Certificates
may be purchased subject to similar
conditions. See "Description of the
Certificates--Termination."
REGISTRATION OF CERTIFICATES...If so provided in the related Prospectus
Supplement, one or more classes of the
Offered Certificates will initially be
represented by
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<PAGE>
one or more Certificates registered in
the name of Cede & Co., as the nominee
of DTC. No person acquiring an interest in
Offered Certificates so registered will
be entitled to receive a definitive
certificate representing such person's
interest except in the event that definitive
certificates are issued under the limited
circumstances described herein. See "Risk
Factors--Book-Entry Registration" and
"Description of the Certificates--Book-Entry
Registration and Definitive Certificates."
TAX STATUS OF THE CERTIFICATES.The Certificates of each series will
constitute either (i) "regular interests"
("REMIC Regular Certificates") and "residual
interests" ("REMIC Residual Certificates")
in a Trust Fund treated as a REMIC under
Sections 860A through 860G of the Code, or
(ii) interests ("Grantor Trust
Certificates") in a Trust Fund treated as a
grantor trust under applicable provisions of
the Code.
(A) REMIC......................REMIC Regular Certificates generally will be
treated as debt obligations of the
applicable REMIC for federal income tax
purposes. Certain REMIC Regular Certificates
may be issued with original issue discount
for federal income tax purposes. See
"Certain Federal Income Tax Consequences" in
the Prospectus Supplement.
A portion (or, in certain cases, all) of the
income from REMIC Residual Certificates (i)
may not be offset by any losses from other
activities of the holder of such REMIC
Residual Certificates, (ii) may be treated
as unrelated business taxable income for
holders of REMIC Residual Certificates that
are subject to tax on unrelated business
taxable income (as defined in Section 511 of
the Code), and (iii) may be subject to
foreign withholding rules. See "Certain
Federal Income Tax Consequences--REMICs--
Taxation of Owners of REMIC Residual
Certificates".
The Offered Certificates will be treated as
(i) assets described in section
7701(a)(19)(C) of the Internal Revenue Code
of 1986, as amended (the "Code") and (ii)
"real estate assets" within the meaning of
section 856(c)(4)(A) of the Code, in each
case to the extent described herein and in
the Prospectus. See "Certain Federal Income
Tax Consequences" herein and in the
Prospectus.
(B) GRANTOR TRUST................If no election is made to treat the Trust
Fund relating to a Series of Certificates as
a real estate mortgage investment conduit
("REMIC"), the Trust Fund will be classified
as a grantor trust and not as an association
taxable as a corporation for federal income
tax purposes, and therefore holders of
Certificates will be treated as the owners
of undivided pro rata interests in the
Mortgage Pool or pool of securities and any
other assets held by the Trust Fund.
Investors are advised to consult their tax
advisors and to review "Certain Federal
Income Tax Consequences" herein and in the
related Prospectus Supplement.
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ERISA CONSIDERATIONS..............A fiduciary of retirement plan or other
employee benefit plan or other retirement
plan or arrangement, including an individual
retirement account or annuity or a Keogh
plan, and any collective investment fund or
insurance company general or separate
account in which such plans, accounts,
annuities or arrangements are invested, that
is subject to Title I of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the
Code should carefully review with its legal
advisors whether the purchase or holding of
Offered Certificates could give rise to a
transaction that is prohibited or is not
otherwise permissible either under ERISA or
Section 4975 of the Code. See "Certain ERISA
Considerations" herein and in the related
Prospectus Supplement. To the extent
specified in the related Prospectus
Supplement, certain classes of Certificates
may not be transferred unless the Trustee
and the Depositor are furnished with a
letter of representations or an opinion of
counsel to the effect that such transfer
will not result in a violation of the
prohibited transaction provisions of ERISA
and the Code, will not cause the assets of
the Trust to be deemed "plan assets" for
purposes of ERISA and the Code and will not
subject the Trustee, the Depositor or the
Master Servicer to additional obligations.
See "Certain ERISA Considerations" herein
and in the related Prospectus Supplement.
LEGAL INVESTMENT..................The related Prospectus Supplement will
specify whether any class or classes of the
Offered Certificates will constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market Enhancement
Act of 1984, as amended. Investors whose
investment authority is subject to legal
restrictions should consult their own legal
advisors to determine whether and to what
extent the Offered Certificates constitute
legal investments for them. See "Legal
Investment" herein and in the related
Prospectus Supplement.
RATING............................At the date of issuance, as to each series,
each class of Offered Certificates
will be rated not lower than investment
grade by one or more nationally recognized
statistical rating agencies (each, a "Rating
Agency"). See "Rating" herein and in the
related Prospectus Supplement.
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RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "Risk Factors" in the related Prospectus
Supplement.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates
of any series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such series
remain outstanding. Any such secondary market may provide less liquidity to
investors than any comparable market for securities evidencing interests in
single family mortgage loans. The market value of Certificates will fluctuate
with changes in prevailing rates of interest. Consequently, sale of Certificates
by a holder in any secondary market that may develop may be at a discount from
100% of their original principal balance or from their purchase price.
Furthermore, secondary market purchasers may look only hereto, to the related
Prospectus Supplement and to the reports to Certificateholders delivered
pursuant to the related Agreement as described herein under the heading
"Description of the Certificates--Reports to Certificateholders", "--Book-Entry
Registration and Definitive Certificates" and "Description of the
Agreements--Evidence as to Compliance" for information concerning the
Certificates. Except to the extent described herein and in the related
Prospectus Supplement, Certificateholders will have no redemption rights and the
Certificates are subject to early retirement only under certain specified
circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination". Morgan Stanley & Co.
Incorporated currently expects to make a secondary market in the Offered
Certificates, but has no obligation to do so.
LIMITED ASSETS
The Certificates will not represent an interest in or obligation of the
Depositor, the Master Servicer, or any of their affiliates. The only obligations
with respect to the Certificates or the Assets will be the obligations (if any)
of the Warrantying Party (as defined herein) pursuant to certain limited
representations and warranties made with respect to the Mortgage Loans, the
Master Servicer's, any Special Servicer's and any Sub-Servicer's servicing
obligations under the related Pooling and Servicing Agreement (including the
limited obligation to make certain advances in the event of delinquencies on the
Mortgage Loans, but only to the extent deemed recoverable). Since certain
representations and warranties with respect to the Mortgage Assets may have been
made and/or assigned in connection with transfers of such Mortgage Assets prior
to the Closing Date, the rights of the Trustee and the Certificateholders with
respect to such representations or warranties will be limited to their rights as
an assignee thereof. Unless otherwise specified in the related Prospectus
Supplement, none of the Depositor, the Master Servicer or any affiliate thereof
will have any obligation with respect to representations or warranties made by
any other entity. Unless otherwise specified in the related Prospectus
Supplement, neither the Certificates nor the underlying Mortgage Assets will be
guaranteed or insured by any governmental agency or instrumentality, or by the
Depositor, the Master Servicer, any Special Servicer, any Sub-Servicer or any of
their affiliates. Proceeds of the assets included in the related Trust Fund for
each series of Certificates (including the Assets and any form of credit
enhancement) will be the sole source of payments on the Certificates, and there
will be no recourse to the Depositor or any other entity in the event that such
proceeds are insufficient or otherwise unavailable to make all payments provided
for under the Certificates.
Unless otherwise specified in the related Prospectus Supplement, a
series of Certificates will not have any claim against or security interest in
the Trust Funds for any other series. If the related Trust Fund is insufficient
to make payments on such Certificates, no other assets will be available for
payment of the deficiency. Additionally, certain amounts remaining in certain
funds or accounts, including the Certificate Account and any accounts maintained
as Credit Support, may be withdrawn under certain conditions, as described in
the related Prospectus Supplement. In the event of such withdrawal, such amounts
will not be available for future payment of principal of or interest on the
Certificates. If so provided in the Prospectus Supplement for a series of
Certificates consisting of one or more classes of Subordinate Certificates, on
any Distribution Date in respect of which losses or shortfalls in collections on
the Assets have been incurred, the amount of such losses or shortfalls will be
borne first by one or
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more classes of the Subordinate Certificates, and, thereafter, by the remaining
classes of Certificates in the priority and manner and subject to the
limitations specified in such Prospectus Supplement.
AVERAGE LIFE OF CERTIFICATES; PREPAYMENTS; YIELDS
Prepayments (including those caused by defaults) on the Mortgage Assets
in any Trust Fund generally will result in a faster rate of principal payments
on one or more classes of the related Certificates than if payments on such
Mortgage Assets were made as scheduled. Thus, the prepayment experience on the
Mortgage Assets may affect the average life of each class of related
Certificates. The rate of principal payments on pools of mortgage loans varies
between pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax, legal and other factors. There can be no
assurance as to the rate of prepayment on the Mortgage Assets in any Trust Fund
or that the rate of payments will conform to any model described herein or in
any Prospectus Supplement. If prevailing interest rates fall significantly below
the applicable mortgage interest rates, principal prepayments are likely to be
higher than if prevailing rates remain at or above the rates borne by the
Mortgage Loans underlying or comprising the Mortgage Assets in any Trust Fund.
As a result, the actual maturity of any class of Certificates could occur
significantly earlier than expected. A series of Certificates may include one or
more classes of Certificates with priorities of payment and, as a result, yields
on other classes of Certificates, including classes of Offered Certificates, of
such series may be more sensitive to prepayments on Mortgage Assets. A series of
Certificates may include one or more classes offered at a significant premium or
discount. Yields on such classes of Certificates will be sensitive, and in some
cases extremely sensitive, to prepayments on Mortgage Assets and, where the
amount of interest payable with respect to a class is disproportionately high,
as compared to the amount of principal, as with certain classes of Stripped
Interest Certificates, a holder might, in some prepayment scenarios, fail to
recoup its original investment. A series of Certificates may include one or more
classes of Certificates, including classes of Offered Certificates, that provide
for distribution of principal thereof from amounts attributable to interest
accrued but not currently distributable on one or more classes of Accrual
Certificates and, as a result, yields on such Certificates will be sensitive to
(a) the provisions of such Accrual Certificates relating to the timing of
distributions of interest thereon and (b) if such Accrual Certificates accrue
interest at a variable or adjustable Pass-Through Rate, changes in such rate.
See "Yield Considerations" herein and, if applicable, in the related Prospectus
Supplement.
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a class of Certificates will
reflect such Rating Agency's assessment solely of the likelihood that holders of
Certificates of such class will receive payments to which such
Certificateholders are entitled under the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments
(including those caused by defaults) on the related Mortgage Assets will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of the
series of Certificates. Such rating will not address the possibility that
prepayment at higher or lower rates than anticipated by an investor may cause
such investor to experience a lower than anticipated yield or that an investor
purchasing a Certificate at a significant premium might fail to recoup its
initial investment under certain prepayment scenarios. Each Prospectus
Supplement will identify any payment to which holders of Offered Certificates of
the related series are entitled that is not covered by the applicable rating.
The amount, type and nature of credit support, if any, established with
respect to a series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating classes of such series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of credit support required with respect to each
such class. There can be no assurance that the historical data supporting any
such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of mortgage loans accurately
predicts the delinquency, foreclosure or loss experience of any particular pool
of Mortgage Assets. No assurance can be given that values of any Mortgaged
Properties have remained or will remain at their levels on the respective dates
of origination of the related Mortgage Loans. Moreover, there is no assurance
that appreciation of 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
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now generally experienced by institutional lenders. In addition, adverse
economic conditions (which may or may not affect real property values) may
affect the timely payment by mortgagors of scheduled payments of principal and
interest on the Mortgage Loans and, accordingly, the rates of delinquencies,
foreclosures and losses with respect to any Trust Fund. To the extent that such
losses are not covered by the Credit Support, if any, described in the related
Prospectus Supplement, such losses will be borne, at least in part, by the
holders of one or more classes of the Certificates of the related series. See
"Description of Credit Support" and "Rating."
RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGED PROPERTIES
Mortgage loans made with respect to multifamily or commercial property
may entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single family
property. See "Description of the Trust Funds--Assets." The ability of a
mortgagor to repay a loan secured by an income-producing property typically is
dependent primarily upon the successful operation of such property rather than
any independent income or assets of the mortgagor; thus, the value of an
income-producing property is directly related to the net operating income
derived from such property. In contrast, the ability of a mortgagor to repay a
single family loan typically is dependent primarily upon the mortgagor's
household income, rather than the capacity of the property to produce income;
thus, other than in geographical areas where employment is dependent upon a
particular employer or an industry, the mortgagor's income tends not to reflect
directly the value of such property. A decline in the net operating income of an
income-producing property will likely affect both the performance of the related
loan as well as the liquidation value of such property, whereas a decline in the
income of a mortgagor on a single family property will likely affect the
performance of the related loan but may not affect the liquidation value of such
property. Moreover, a decline in the value of a Mortgaged Property will increase
the risk of loss particularly with respect to any related junior Mortgage Loan.
See "--Junior Mortgage Loans."
The performance of a mortgage loan secured by an income-producing
property leased by the mortgagor to tenants as well as the liquidation value of
such property may be dependent upon the business operated by such tenants in
connection with such property, the creditworthiness of such tenants or both; the
risks associated with such loans may be offset by the number of tenants or, if
applicable, a diversity of types of business operated by such tenants.
It is anticipated that a substantial portion of the Mortgage Loans
included in any Trust Fund will be nonrecourse loans or loans for which recourse
may be restricted or unenforceable, as to which, in the event of mortgagor
default, recourse may be had only against the specific property and such other
assets, if any, as have been pledged to secure the related Mortgage Loan. With
respect to those Mortgage Loans that provide for recourse against the mortgagor
and its assets generally, there can be no assurance that such recourse will
ensure a recovery in respect of a defaulted Mortgage Loan greater than the
liquidation value of the related Mortgaged Property.
Further, the concentration of default, foreclosure and loss risks in
individual mortgagors or Mortgage Loans in a particular Trust Fund or the
related Mortgaged Properties will generally be greater than for pools of single
family loans both because the Mortgage Assets in a Trust Fund will generally
consist of a smaller number of loans than would a single family pool of
comparable aggregate unpaid principal balance and because of the higher
principal balance of individual Mortgage Loans. Mortgage Assets in a Trust Fund
may consist of only a limited number of Mortgage Loans and/or relate to Leases
to only a single Lessee or a limited number of Lessees.
If applicable, certain legal aspects of the Mortgage Loans for a series
of Certificates may be described in the related Prospectus Supplement. See also
"Certain Legal Aspects of the Mortgage Loans and the Leases" herein.
RISKS ASSOCIATED WITH COMMERCIAL LOANS AND LEASES
If so described in the related Prospectus Supplement, each mortgagor
under a Commercial Loan may be an entity created by the owner or purchaser of
the related Commercial Property solely to own or purchase such property, in part
to isolate the property from the debts and liabilities of such owner or
purchaser. Unless otherwise specified, each such Commercial Loan will represent
a nonrecourse obligation of the related mortgagor secured by the lien of the
related Mortgage and the related Lease Assignments. Whether or not such loans
are recourse or nonrecourse obligations, it is not expected that the mortgagors
will have any significant assets other than the Commercial Properties and the
related Leases, which will be pledged to the Trustee under the related
Agreement. Therefore, the payment of amounts due on any such Commercial Loans,
and, consequently, the payment of principal
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of and interest on the related Certificates, will depend primarily or
solely on rental payments by the Lessees. Such rental payments will, in turn,
depend on continued occupancy by, and/or the creditworthiness of, such Lessees,
which in either case may be adversely affected by a general economic downturn or
an adverse change in their financial condition. Moreover, to the extent a
Commercial Property was designed for the needs of a specific type of tenant
(e.g., a nursing home, hospital, hotel or motel), the value of such property in
the event of a default by the Lessee or the early termination of such Lease may
be adversely affected because of difficulty in re-leasing the property to a
suitable substitute lessee or, if re-leasing to such a substitute is not
possible, because of the cost of altering the property for another more
marketable use. As a result, without the benefit of the Lessee's continued
support of the Commercial Property, and absent significant amortization of the
Commercial Loan, if such loan is foreclosed on and the Commercial Property
liquidated following a lease default, the net proceeds might be insufficient to
cover the outstanding principal and interest owing on such loan, thereby
increasing the risk that holders of the Certificates will suffer some loss.
BALLOON PAYMENTS
Certain of the Mortgage Loans (the "Balloon Mortgage Loans") as of the
Cut-off Date may not be fully amortizing over their terms to maturity and, thus,
will require substantial principal payments (i.e., balloon payments) at their
stated maturity. Mortgage Loans with balloon payments involve a greater degree
of risk because the ability of a mortgagor to make a balloon payment typically
will depend upon its ability either to timely refinance the loan or to timely
sell the related Mortgaged Property. The ability of a mortgagor to accomplish
either of these goals will be affected by a number of factors, including the
level of available mortgage interest rates at the time of sale or refinancing,
the mortgagor's equity in the related Mortgaged Property, the financial
condition and operating history of the mortgagor and the related Mortgaged
Property, tax laws, rent control laws (with respect to certain Multifamily
Properties and mobile home parks), reimbursement rates (with respect to certain
hospitals, nursing homes and convalescent homes), renewability of operating
licenses, prevailing general economic conditions and the availability of credit
for commercial or multifamily real properties, as the case may be, generally.
JUNIOR MORTGAGE LOANS
To the extent specified in the related Prospectus Supplement, certain of
the Mortgage Loans may be secured primarily by junior mortgages. In the case of
liquidation, Mortgage Loans secured by junior mortgages are entitled to
satisfaction from proceeds that remain from the sale of the related Mortgaged
Property after the mortgage loans senior to such Mortgage Loans have been
satisfied. If there are not sufficient funds to satisfy such junior Mortgage
Loans and senior mortgage loans, such Mortgage Loan would suffer a loss and,
accordingly, one or more classes of Certificates would bear such loss.
Therefore, any risks of deficiencies associated with first Mortgage Loans will
be greater with respect to junior Mortgage Loans. See "--Risks Associated with
Mortgage Loans and Mortgaged Properties."
OBLIGOR DEFAULT
If so specified in the related Prospectus Supplement, in order to
maximize recoveries on defaulted Whole Loans, a Master Servicer, a Sub-Servicer
or a Special Servicer will be permitted (within prescribed parameters) to extend
and modify Whole Loans that are in default or as to which a payment default is
imminent, including in particular with respect to balloon payments. In addition,
a Master Servicer, a Sub-Servicer or a Special Servicer may receive a workout
fee based on receipts from or proceeds of such Whole Loans. While any such
entity generally will be required to determine that any such extension or
modification is reasonably likely to produce a greater recovery on a present
value basis than liquidation, there can be no assurance that such flexibility
with respect to extensions or modifications or payment of a workout fee will
increase the present value of receipts from or proceeds of Whole Loans that are
in default or as to which a payment default is imminent. Additionally, if so
specified in the related Prospectus Supplement, certain of the Mortgage Loans
included in the Mortgage Pool for a Series may have been subject to workouts or
similar arrangements following periods of delinquency and default.
MORTGAGOR TYPE
Mortgage Loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of single family mortgage loans. The mortgagor's
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sophistication and form of organization may increase the likelihood of
protracted litigation or bankruptcy in default situations.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a series of Certificates will describe any
Credit Support in the related Trust Fund, which may include letters of credit,
insurance policies, guarantees, reserve funds or other types of credit support,
or combinations thereof. Use of Credit Support will be subject to the conditions
and limitations described herein and in the related Prospectus Supplement.
Moreover, such Credit Support may not cover all potential losses or risks; for
example, Credit Support may or may not cover fraud or negligence by a mortgage
loan originator or other parties.
A series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce the
risk to holders of Senior Certificates of delinquent distributions or ultimate
losses, the amount of subordination will be limited and may decline under
certain circumstances. In addition, if principal payments on one or more classes
of Certificates of a series are made in a specified order of priority, any
limits with respect to the aggregate amount of claims under any related Credit
Support may be exhausted before the principal of the lower priority classes of
Certificates of such series has been repaid. As a result, the impact of
significant losses and shortfalls on the Assets may fall primarily upon those
classes of Certificates having a lower priority of payment. Moreover, if a form
of Credit Support covers more than one series of Certificates (each, a "Covered
Trust"), holders of Certificates evidencing an interest in a Covered Trust will
be subject to the risk that such Credit Support will be exhausted by the claims
of other Covered Trusts.
The amount of any applicable Credit Support supporting one or more
classes of Offered Certificates, including the subordination of one or more
classes of Certificates, will be determined on the basis of criteria established
by each Rating Agency rating such classes of Certificates based on an assumed
level of defaults, delinquencies, other losses or other factors. There can,
however, be no assurance that the loss experience on the related Mortgage Assets
will not exceed such assumed levels. See "--Limited Nature of Ratings,"
"Description of the Certificates" and "Description of Credit Support."
Regardless of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will be subject to periodic
reduction in accordance with a schedule or formula. The Master Servicer will
generally be permitted to reduce, terminate or substitute all or a portion of
the credit enhancement for any series of Certificates, if the applicable Rating
Agency indicates that the then-current rating thereof will not be adversely
affected. The rating of any series of Certificates by any applicable Rating
Agency may be lowered following the initial issuance thereof as a result of the
downgrading of the obligations of any applicable credit support provider, or as
a result of losses on the related Mortgage Assets substantially in excess of the
levels contemplated by such Rating Agency at the time of its initial rating
analysis. None of the Depositor, the Master Servicer or any of their affiliates
will have any obligation to replace or supplement any credit enhancement, or to
take any other action to maintain any rating of any series of Certificates.
SUBORDINATION OF THE SUBORDINATE CERTIFICATES; EFFECT OF LOSSES ON THE ASSETS
The rights of Subordinate Certificateholders to receive distributions to
which they would otherwise be entitled with respect to the Assets will be
subordinate to the rights of the Master Servicer (to the extent that the Master
Servicer is paid its servicing fee, including any unpaid servicing fees with
respect to one or more prior Due Periods, and is reimbursed for certain
unreimbursed advances and unreimbursed liquidation expenses) and the Senior
Certificateholders to the extent described herein. As a result of the foregoing,
investors must be prepared to bear the risk that they may be subject to delays
in payment and may not recover their initial investments in the Subordinate
Certificates. See "Description of the Certificates--General" and "--Allocation
of Losses and Shortfalls."
The yields on the Subordinate Certificates may be extremely sensitive to
the loss experience of the Assets and the timing of any such losses. If the
actual rate and amount of losses experienced by the Assets exceed the rate and
amount of such losses assumed by an investor, the yields to maturity on the
Subordinate Certificates may be lower than anticipated.
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ENFORCEABILITY
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the mortgagor sells, transfers
or conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages may also include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or non-monetary default of the
mortgagor. Such clauses are generally enforceable subject to certain exceptions.
The courts of all states will enforce clauses providing for acceleration in the
event of a material payment default. The equity courts of any state, however,
may refuse the foreclosure of a mortgage or deed of trust when an acceleration
of the indebtedness would be inequitable or unjust or the circumstances would
render the acceleration unconscionable.
If so specified in the related Prospectus Supplement, the Mortgage Loans
will be secured by an assignment of leases and rents pursuant to which the
mortgagor typically assigns its right, title and interest as landlord under the
leases on the related Mortgaged Property and the income derived therefrom to the
lender as further security for the related Mortgage Loan, while retaining a
license to collect rents for so long as there is no default. In the event the
mortgagor defaults, the license terminates and the lender is entitled to collect
rents. Such assignments are typically not perfected as security interests prior
to actual possession of the cash flows. Some state laws may require that the
lender take possession of the Mortgaged Property and obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. In
addition, if bankruptcy or similar proceedings are commenced by or in respect of
the mortgagor, the lender's ability to collect the rents may be adversely
affected. See "Certain Legal Aspects of the Mortgage Loans and the
Leases--Leases and Rents."
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination of
a property may give rise to a lien on the property to assure the costs of
cleanup. In several states, such a lien has priority over the lien of an
existing mortgage against such property. Moreover, the presence of hazardous or
toxic substances, or the failure to remediate such property, may adversely
affect the owner or operator's ability to borrow using such property as
collateral. In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA") and other federal law, a lender may be liable, as an "owner" or
"operator," for costs of addressing releases or threatened releases of hazardous
substances that require remedy at a property, if agents or employees of the
lender have become sufficiently involved in the operations of the mortgagor,
regardless of whether or not the environmental damage or threat was caused by a
prior owner. A lender also risks such liability on foreclosure of the mortgage
under certain circumstances. Unless otherwise specified in the related
Prospectus Supplement, each Pooling and Servicing Agreement will provide that
none of the Master Servicer, the Sub-Servicer or the Special Servicer, acting on
behalf of the Trust Fund, may acquire title to a Mortgaged Property securing a
Mortgage Loan or take over its operation unless the Master Servicer has
previously determined, based upon a report prepared by a person who regularly
conducts environmental audits, that: (i) the Mortgaged Property is in compliance
with applicable environmental laws, and there are no circumstances present at
the Mortgaged Property relating to the use, management or disposal of any
hazardous substances, hazardous materials, wastes, or petroleum based materials
for which investigation, testing, monitoring, containment, clean-up or
remediation could be required under any federal, state or local law or
regulation; or (ii) if the Mortgaged Property is not so in compliance or such
circumstances are so present, then it would be in the best economic interest of
the Trust Fund to acquire title to the Mortgaged Property and further to take
such actions as would be necessary and appropriate to effect such compliance
and/or respond to such circumstances. See "Certain Legal Aspects of the Mortgage
Loans and the Leases--Environmental Legislation."
ERISA CONSIDERATIONS
Generally, ERISA applies to investments made by employee benefit plans
and transactions involving the assets of such plans. Due to the complexity of
regulations which govern such plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the Offered Certificates of any
series.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS REGARDING REMIC RESIDUAL CERTIFICATES
Except as provided in the Prospectus Supplement, REMIC Residual
Certificates, if offered hereunder, are anticipated to have "phantom income"
associated with them. That is, taxable income is anticipated to be allocated to
the REMIC Residual Certificates in the early years of the existence of the
related REMIC, even if the REMIC Residual Certificates receive no distributions
from the related REMIC, with a corresponding amount of losses allocated to the
REMIC Residual Certificates in later years. Accordingly, the present value of
the tax detriments associated with the REMIC Residual Certificates may
significantly exceed the present value of the tax benefits related thereto, and
the REMIC Residual Certificates may have a negative "value." Moreover, the REMIC
Residual Certificates will in effect be allocated an amount of gross income
equal to the non-interest expenses of the REMIC, but such expenses will be
deductible by holders of the REMIC Residual Certificates that are individuals
only as itemized deductions (and be subject to all the limitations applicable to
itemized deductions). Accordingly, investment in the REMIC Residual Certificates
will generally not be suitable for individuals or for certain pass-through
entities, such as partnerships or S corporations, that have individuals as
partners or shareholders. In addition, REMIC Residual Certificates are subject
to certain restrictions on transfer. Finally, prospective purchasers of a REMIC
Residual Certificate should be aware that recently issued final regulations
provide restrictions on the ability to mark-to-market certain "negative value"
REMIC residual interests may not be marked to market. See "Certain Federal
Income Tax Consequences--REMICs."
CONTROL
Under certain circumstances, the consent or approval of the holders of a
specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of a series or a similar means of allocating decision-making under
the related Agreement ("Voting Rights") will be required to direct, and will be
sufficient to bind all Certificateholders of such series to, certain actions,
including directing the Special Servicer or the Master Servicer with respect to
actions to be taken with respect to certain Mortgage Loans and REO Properties
and amending the related Agreement in certain circumstances. See "Description of
the Agreements--Events of Default," "--Rights Upon Event of Default,"
"--Amendment" and "--List of Certificateholders."
BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be registered
in the names of the Certificateholders or their nominees. Because of this,
unless and until Definitive Certificates are issued, Certificateholders will not
be recognized by the Trustee as "Certificateholders" (as that term is to be used
in the related Agreement). Hence, until such time, Certificateholders will be
able to exercise the rights of Certificateholders only indirectly through DTC
and its participating organizations. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates."
DESCRIPTION OF THE TRUST FUNDS
ASSETS
The primary assets of each Trust Fund (the "Assets") will include (i)
multifamily and/or commercial mortgage loans (the "Mortgage Loans"), (ii)
mortgage participations, pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by one or more Mortgage Loans or
other similar participations, certificates or securities ("MBS"), (iii) direct
obligations of the United States, agencies thereof or agencies created thereby
which are not subject to redemption prior to maturity at the option of the
issuer and are (a) interest-bearing securities, (b) non-interest-bearing
securities, (c) originally interest-bearing securities from which coupons
representing the right to payment of interest have been removed, or (d)
interest-bearing securities from which the right to payment of principal has
been removed (the "Government Securities"), or (iv) a combination of Mortgage
Loans, MBS and Government Securities. As used herein, "Mortgage Loans" refers to
both whole Mortgage Loans and Mortgage Loans underlying MBS. Mortgage Loans that
secure, or interests in which are evidenced by, MBS are herein sometimes
referred to as Underlying Mortgage Loans. Mortgage Loans that are not Underlying
Mortgage Loans are sometimes referred to as "Whole Loans." Any mortgage
participations, pass-through certificates or other asset-backed certificates in
which an MBS evidences an interest or which secure
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an MBS are sometimes referred to herein also as MBS or as "Underlying MBS."
Mortgage Loans and MBS are sometimes referred to herein as "Mortgage Assets."
The Mortgage Assets will not be guaranteed or insured by Morgan Stanley Capital
I Inc. (the "Depositor") or any of its affiliates or, unless otherwise provided
in the Prospectus Supplement, by any governmental agency or instrumentality or
by any other person. Each Asset will be selected by the Depositor for inclusion
in a Trust Fund from among those purchased, either directly or indirectly, from
a prior holder thereof (an "Asset Seller"), which may be an affiliate of the
Depositor and, with respect to Mortgage Assets, which prior holder may or may
not be the originator of such Mortgage Loan or the issuer of such MBS.
Unless otherwise specified in the related Prospectus Supplement, the
Certificates will be entitled to payment only from the assets of the related
Trust Fund and will not be entitled to payments in respect of the assets of any
other trust fund established by the Depositor. If specified in the related
Prospectus Supplement, the assets of a Trust Fund will consist of certificates
representing beneficial ownership interests in another trust fund that contains
the Assets.
MORTGAGE LOANS
GENERAL
The Mortgage Loans will be secured by liens on, or security interests
in, Mortgaged Properties consisting of (i) residential properties consisting of
five or more rental or cooperatively-owned dwelling units in high-rise, mid-rise
or garden apartment buildings ("Multifamily Properties" and the related loans,
"Multifamily Loans") or (ii) office buildings, shopping centers, retail stores,
hotels or motels, nursing homes, hospitals or other health care-related
facilities, mobile home parks, warehouse facilities, mini-warehouse facilities
or self-storage facilities, industrial plants, congregate care facilities, mixed
use or other types of commercial properties ("Commercial Properties" and the
related loans, "Commercial Loans") located, unless otherwise specified in the
related Prospectus Supplement, in any one of the fifty states, the District of
Columbia or the Commonwealth of Puerto Rico. To the extent specified in the
related Prospectus Supplement, the Mortgage Loans will be secured by first or
junior mortgages or deeds of trust or other similar security instruments
creating a first or junior lien on Mortgaged Property. Multifamily Property may
include mixed commercial and residential structures and may include apartment
buildings owned by private cooperative housing corporations ("Cooperatives").
The Mortgaged Properties may include leasehold interests in properties, the
title to which is held by third party lessors. Unless otherwise specified in the
Prospectus Supplement, the term of any such leasehold will exceed the term of
the related mortgage note by at least five years. Each Mortgage Loan will have
been originated by a person (the "Originator") other than the Depositor. The
related Prospectus Supplement will indicate if any Originator is an affiliate of
the Depositor. The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages or deeds of trust (the "Mortgages")
creating a lien on the Mortgaged Properties. Mortgage Loans will generally also
be secured by an assignment of leases and rents and/or operating or other cash
flow guarantees relating to the Mortgage Loan.
LEASES
To the extent specified in the related Prospectus Supplement, the
Commercial Properties may be leased to Lessees that respectively occupy all or a
portion of such properties. Pursuant to a Lease Assignment, the related
mortgagor may assign its rights, title and interest as lessor under each Lease
and the income derived therefrom to the related mortgagee, while retaining a
license to collect the rents for so long as there is no default. If the
mortgagor defaults, the license terminates and the mortgagee or its agent is
entitled to collect the rents from the related Lessee or Lessees for application
to the monetary obligations of the mortgagor. State law may limit or restrict
the enforcement of the Lease Assignments by a mortgagee until it takes
possession of the related Mortgaged Property and/or a receiver is appointed. See
"Certain Legal Aspects of the Mortgage Loans and the Leases--Leases and Rents."
Alternatively, to the extent specified in the related Prospectus Supplement, the
mortgagor and the mortgagee may agree that payments under Leases are to be made
directly to the Master Servicer.
To the extent described in the related Prospectus Supplement, the Leases
may require the Lessees to pay rent that is sufficient in the aggregate to cover
all scheduled payments of principal and interest on the related Mortgage Loans
and, in certain cases, their pro rata share of the operating expenses, insurance
premiums and real
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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.
DEFAULT AND LOSS CONSIDERATIONS WITH RESPECT TO THE MORTGAGE LOANS
Mortgage loans secured by commercial and multifamily properties are
markedly different from owner-occupied single family mortgage loans. The
repayment of loans secured by commercial or multifamily properties is typically
dependent upon the successful operation of such property rather than upon the
liquidation value of the real estate. Unless otherwise specified in the
Prospectus Supplement, the Mortgage Loans will be non-recourse loans, which
means that, absent special facts, the mortgagee may look only to the Net
Operating Income from the property for repayment of the mortgage debt, and not
to any other of the mortgagor's assets, in the event of the mortgagor's default.
Lenders typically look to the Debt Service Coverage Ratio of a loan secured by
income-producing property as an important measure of the risk of default on such
a loan. The "Debt Service Coverage Ratio" of a Mortgage Loan at any given time
is the ratio of the Net Operating Income for a twelve-month period to the
annualized scheduled payments on the Mortgage Loan. "Net Operating Income"
means, for any given period, unless otherwise specified in the related
Prospectus Supplement, the total operating revenues derived from a Mortgaged
Property during such period, minus the total operating expenses incurred in
respect of such Mortgaged Property during such period other than (i) non-cash
items such as depreciation and amortization, (ii) capital expenditures and (iii)
debt service on loans secured by the Mortgaged Property. The Net Operating
Income of a Mortgaged Property will fluctuate over time and may be sufficient or
insufficient to cover debt service on the related Mortgage Loan at any given
time.
As the primary component of Net Operating Income, rental income (as well
as maintenance payments from tenant-stockholders of a Cooperative) is subject to
the vagaries of the applicable real estate market and/or business climate.
Properties typically leased, occupied or used on a short-term basis, such as
health care-related facilities, hotels and motels, and mini-warehouse and
self-storage facilities, tend to be affected more rapidly by changes in market
or business conditions than do properties leased, occupied or used for longer
periods, such as (typically) warehouses, retail stores, office buildings and
industrial plants. Commercial Loans may be secured by owner-occupied Mortgaged
Properties or Mortgaged Properties leased to a single tenant. Accordingly, a
decline in the financial condition of the mortgagor or single tenant, as
applicable, may have a disproportionately greater effect on the Net Operating
Income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants.
Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal
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property tax rates and other operating expenses, including energy costs;
changes in governmental rules, regulations and fiscal policies, including
environmental legislation; and acts of God may also affect the risk of default
on the related Mortgage Loan. As may be further described in the related
Prospectus Supplement, in some cases leases of Mortgaged Properties may provide
that the Lessee, rather than the mortgagor, is responsible for payment of some
or all of these expenses; however, because leases are subject to default risks
as well when a tenant's income is insufficient to cover its rent and operating
expenses, the existence of such "net of expense" provisions will only temper,
not eliminate, the impact of expense increases on the performance of the related
Mortgage Loan. See "--Leases" above.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
such risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the latter
include mortgage loans secured by health care-related facilities and hospitals,
the income from which and the operating expenses of which are subject to state
and/or federal regulations, such as Medicare and Medicaid, and multifamily
properties and mobile home parks, which may be subject to state or local rent
control regulation and, in certain cases, restrictions on changes in use of the
property. Low-and moderate-income housing in particular may be subject to legal
limitations and regulations but, because of such regulations, may also be less
sensitive to fluctuations in market rents generally.
The Debt Service Coverage Ratio should not be relied upon as the sole
measure of the risk of default of any loan, however, since other factors may
outweigh a high Debt Service Coverage Ratio. With respect to a Balloon Mortgage
Loan, for example, the risk of default as a result of the unavailability of a
source of funds to finance the related balloon payment at maturity on terms
comparable to or better than those of such Balloon Mortgage Loans could be
significant even though the related Debt Service Coverage Ratio is high.
The liquidation value of any Mortgaged Property may be adversely
affected by risks generally incident to interests in real property, including
declines in rental or occupancy rates. Lenders generally use the Loan-to-Value
Ratio of a mortgage loan as a measure of risk of loss if a property must be
liquidated upon a default by the mortgagor.
Appraised values of income-producing properties may be based on the
market comparison method (recent resale value of comparable properties at the
date of the appraisal), the cost replacement method (the cost of replacing the
property at such date), the income capitalization method (a projection of value
based upon the property's projected net cash flow), or upon a selection from or
interpolation of the values derived from such methods. Each of these appraisal
methods presents analytical challenges. It is often difficult to find truly
comparable properties that have recently been sold; the replacement cost of a
property may have little to do with its current market value; and income
capitalization is inherently based on inexact projections of income and expense
and the selection of an appropriate capitalization rate. Where more than one of
these appraisal methods are used and create significantly different results, or
where a high Loan-to-Value Ratio accompanies a high Debt Service Coverage Ratio
(or vice versa), the analysis of default and loss risks is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish the Multifamily and Commercial
Loans from single family mortgage loans and provide insight to the risks
associated with income-producing real estate, there is no assurance that such
factors will in fact have been considered by the Originators of the Multifamily
and Commercial Loans, or that, for any of such Mortgage Loans, they are complete
or relevant. See "Risk Factors--Risks Associated with Mortgage Loans and
Mortgaged Properties," "--Balloon Payments," "--Junior Mortgage Loans,"
"--Obligor Default" and "--Mortgagor Type."
LOAN-TO-VALUE RATIO
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the
ratio (expressed as a percentage) of the then outstanding principal balance of
the Mortgage Loan to the Value of the related Mortgaged Property. The "Value" of
a Mortgaged Property, other than with respect to Refinance Loans, is generally
the lesser of (a) the appraised value determined in an appraisal obtained by the
originator at origination of such loan and (b) the sales price for such
property. "Refinance Loans" are loans made to refinance existing loans. Unless
otherwise set forth in the related Prospectus Supplement, the Value of the
Mortgaged Property securing a Refinance Loan is the appraised value thereof
determined in an appraisal obtained at the time of origination of the Refinance
Loan. The Value of a
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Mortgaged Property as of the date of initial issuance of the related series of
Certificates may be less than the value at origination and will fluctuate from
time to time based upon changes in economic conditions and the real estate
market.
MORTGAGE LOAN INFORMATION IN PROSPECTUS SUPPLEMENTS
Each Prospectus Supplement will contain information, as of the date of
such Prospectus Supplement and to the extent then applicable and specifically
known to the Depositor, with respect to the Mortgage Loans, including (i) the
aggregate outstanding principal balance and the largest, smallest and average
outstanding principal balance of the Mortgage Loans as of the applicable Cut-off
Date, (ii) the type of property securing the Mortgage Loans (e.g., Multifamily
Property or Commercial Property and the type of property in each such category),
(iii) the weighted average (by principal balance) of the original and remaining
terms to maturity of the Mortgage Loans, (iv) the earliest and latest
origination date and maturity date of the Mortgage Loans, (v) the weighted
average (by principal balance) of the Loan-to-Value Ratios at origination of the
Mortgage Loans, (vi) the Mortgage Rates or range of Mortgage Rates and the
weighted average Mortgage Rate borne by the Mortgage Loans, (vii) the state or
states in which most of the Mortgaged Properties are located, (viii) information
with respect to the prepayment provisions, if any, of the Mortgage Loans, (ix)
the weighted average Retained Interest, if any, (x) with respect to Mortgage
Loans with adjustable Mortgage Rates ("ARM Loans"), the index, the frequency of
the adjustment dates, the highest, lowest and weighted average note margin and
pass-through margin, and the maximum Mortgage Rate or monthly payment variation
at the time of any adjustment thereof and over the life of the ARM Loan and the
frequency of such monthly payment adjustments, (xi) the Debt Service Coverage
Ratio either at origination or as of a more recent date (or both) and (xii)
information regarding the payment characteristics of the Mortgage Loans,
including without limitation balloon payment and other amortization provisions.
The related Prospectus Supplement will also contain certain information
available to the Depositor with respect to the provisions of leases and the
nature of tenants of the Mortgaged Properties and other information referred to
in a general manner under "--Mortgage Loans--Default and Loss Considerations
with Respect to the Mortgage Loans" above. If specific information respecting
the Mortgage Loans is not known to the Depositor at the time Certificates are
initially offered, more general information of the nature described above will
be provided in the Prospectus Supplement, and specific information will be set
forth in a report which will be available to purchasers of the related
Certificates at or before the initial issuance thereof and will be filed as part
of a Current Report on Form 8-K with the Securities and Exchange Commission
within fifteen days after such initial issuance.
PAYMENT PROVISIONS OF THE MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans will (i) have individual principal balances at origination of
not less than $25,000, (ii) have original terms to maturity of not more than 40
years and (iii) provide for payments of principal, interest or both, on due
dates that occur monthly, quarterly or semi-annually or at such other interval
as is specified in the related Prospectus Supplement. Each Mortgage Loan may
provide for no accrual of interest or for accrual of interest thereon at an
interest rate (a "Mortgage Rate") that is fixed over its term or that adjusts
from time to time, or that may be converted from an adjustable to a fixed
Mortgage Rate, or from a fixed to an adjustable Mortgage Rate, from time to time
pursuant to an election or as otherwise specified on the related Mortgage Note,
in each case as described in the related Prospectus Supplement. Each Mortgage
Loan may provide for scheduled payments to maturity or payments that adjust from
time to time to accommodate changes in the Mortgage Rate or to reflect the
occurrence of certain events, and may provide for negative amortization or
accelerated amortization, in each case as described in the related Prospectus
Supplement. Each Mortgage Loan may be fully amortizing or require a balloon
payment due on its stated maturity date, in each case as described in the
related Prospectus Supplement. Each Mortgage Loan may contain prohibitions on
prepayment (a "Lock-out Period" and the date of expiration thereof, a "Lock-out
Date") or require payment of a premium or a yield maintenance penalty (a
"Prepayment Premium") in connection with a prepayment, in each case as described
in the related Prospectus Supplement. In the event that holders of any class or
classes of Offered Certificates will be entitled to all or a portion of any
Prepayment Premiums collected in respect of Mortgage Loans, the related
Prospectus Supplement will specify the method or methods by which any such
amounts will be allocated. A Mortgage Loan may also contain provisions entitling
the mortgagee to a share of profits realized from the operation or disposition
of the Mortgaged Property ("Equity Participations"), as described in the related
Prospectus Supplement. In the event that holders of any class or classes of
Offered Certificates will be entitled to all or a portion of an Equity
Participation, the related Prospectus Supplement will specify the terms and
provisions of the
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Equity Participation and the method or methods by which distributions in
respect thereof will be allocated among such Certificates.
MBS
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, a trust agreement, an indenture or
similar agreement (an "MBS Agreement"). A seller (the "MBS Issuer") and/or
servicer (the "MBS Servicer") of the underlying Mortgage Loans (or Underlying
MBS) will have entered into the MBS Agreement with a trustee or a custodian
under the MBS Agreement (the "MBS Trustee"), if any, or with the original
purchaser of the interest in the underlying Mortgage Loans or MBS evidenced by
the MBS.
Distributions of any principal or interest, as applicable, will be made
on MBS on the dates specified in the related Prospectus Supplement. The MBS may
be issued in one or more classes with characteristics similar to the classes of
Certificates described in this Prospectus. Any principal or interest
distributions will be made on the MBS by the MBS Trustee or the MBS Servicer.
The MBS Issuer or the MBS Servicer or another person specified in the related
Prospectus Supplement may have the right or obligation to repurchase or
substitute assets underlying the MBS after a certain date or under other
circumstances specified in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination or other forms
of credit support similar to that described for the Certificates under
"Description of Credit Support" may be provided with respect to the MBS. The
type, characteristics and amount of such credit support, if any, will be a
function of certain characteristics of the Mortgage Loans or Underlying MBS
evidenced by or securing such MBS and other factors and generally will have been
established for the MBS on the basis of requirements of either any Rating Agency
that may have assigned a rating to the MBS or the initial purchasers of the MBS.
The Prospectus Supplement for a series of Certificates evidencing
interests in Mortgage Assets that include MBS will specify, to the extent
available, (i) the aggregate approximate initial and outstanding principal
amount or notional amount, as applicable, and type of the MBS to be included in
the Trust Fund, (ii) the original and remaining term to stated maturity of the
MBS, if applicable, (iii) whether such MBS is entitled only to interest
payments, only to principal payments or to both, (iv) the pass-through or bond
rate of the MBS or formula for determining such rates, if any, (v) the
applicable payment provisions for the MBS, including, but not limited to, any
priorities, payment schedules and subordination features, (vi) the MBS Issuer,
MBS Servicer and MBS Trustee, as applicable, (vii) certain characteristics of
the credit support, if any, such as subordination, reserve funds, insurance
policies, letters of credit or guarantees relating to the related Underlying
Mortgage Loans, the Underlying MBS or directly to such MBS, (viii) the terms on
which the related Underlying Mortgage Loans or Underlying MBS for such MBS or
the MBS may, or are required to, be purchased prior to their maturity, (ix) the
terms on which Mortgage Loans or Underlying MBS may be substituted for those
originally underlying the MBS, (x) the servicing fees payable under the MBS
Agreement, (xi) the type of information in respect of the Underlying Mortgage
Loans described under "--Mortgage Loans--Mortgage Loan Information in Prospectus
Supplements" above, and the type of information in respect of the Underlying MBS
described in this paragraph, (xii) the characteristics of any cash flow
agreements that are included as part of the trust fund evidenced or secured by
the MBS and (xiii) whether the MBS is in certificated form, book-entry form or
held through a depository such as The Depository Trust Company or the
Participants Trust Company.
GOVERNMENT SECURITIES
The Prospectus Supplement for a series of Certificates evidencing
interests in Assets of a Trust Fund that include Government Securities will
specify, to the extent available, (i) the aggregate approximate initial and
outstanding principal amounts or notional amounts, as applicable, and types of
the Government Securities to be included in the Trust Fund, (ii) the original
and remaining terms to stated maturity of the Government Securities, (iii)
whether such Government Securities are entitled only to interest payments, only
to principal payments or to both, (iv) the interest rates of the Government
Securities or the formula to determine such rates, if any, (v) the applicable
payment provisions for the Government Securities and (vi) to what extent, if
any, the obligation evidenced thereby is backed by the full faith and credit of
the United States.
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ACCOUNTS
Each Trust Fund will include one or more accounts established and
maintained on behalf of the Certificateholders into which the person or persons
designated in the related Prospectus Supplement will, to the extent described
herein and in such Prospectus Supplement deposit all payments and collections
received or advanced with respect to the Assets and other assets in the Trust
Fund. Such an account may be maintained as an interest bearing or a non-interest
bearing account, and funds held therein may be held as cash or invested in
certain short-term, investment grade obligations, in each case as described in
the related Prospectus Supplement. See "Description of the Agreement-- and Other
Collection Accounts."
CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Assets in the related
Trust Fund may be provided to one or more classes of Certificates in the related
series in the form of subordination of one or more other classes of Certificates
in such series or by one or more other types of credit support, such as a letter
of credit, insurance policy, guarantee, reserve fund or another type of credit
support, or a combination thereof (any such coverage with respect to the
Certificates of any series, "Credit Support"). The amount and types of coverage,
the identification of the entity providing the coverage (if applicable) and
related information with respect to each type of Credit Support, if any, will be
described in the Prospectus Supplement for a series of Certificates. See "Risk
Factors--Credit Support Limitations" and "Description of Credit Support."
CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to reduce the
effects of interest rate or currency exchange rate fluctuations on the Assets or
on one or more classes of
Certificates. (Currency exchange agreements might be included in the Trust Fund
if some or all of the Mortgage Assets (such as Mortgage Loans secured by
Mortgaged Properties located outside the United States) were denominated in a
non-United States currency.) The principal terms of any such guaranteed
investment contract or other agreement (any such agreement, a "Cash Flow
Agreement"), including, without limitation, provisions relating to the timing,
manner and amount of payments thereunder and provisions relating to the
termination thereof, will be described in the Prospectus Supplement for the
related series. In addition, the related Prospectus Supplement will provide
certain information with respect to the obligor under any such Cash Flow
Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will
be applied by the Depositor to the purchase of Assets and to pay for certain
expenses incurred in connection with such purchase of Assets and sale of
Certificates. The Depositor expects to sell the Certificates from time to time,
but the timing and amount of offerings of Certificates will depend on a number
of factors, including the volume of Assets acquired by the Depositor, prevailing
interest rates, availability of funds and general market conditions.
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by
the Certificateholder, the Pass-Through Rate of the Certificate, the receipt and
timing of receipt of distributions on the Certificate and the weighted average
life of the Assets in the related Trust Fund (which may be affected by
prepayments, defaults, liquidations or repurchases). See "Risk Factors."
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PASS-THROUGH RATE
Certificates of any class within a series may have fixed, variable or
adjustable Pass-Through Rates, which may or may not be based upon the interest
rates borne by the Assets in the related Trust Fund. The Prospectus Supplement
with respect to any series of Certificates will specify the Pass-Through Rate
for each class of such Certificates or, in the case of a variable or adjustable
Pass-Through Rate, the method of determining the Pass-Through Rate; the effect,
if any, of the prepayment of any Mortgage Asset on the Pass-Through Rate of one
or more classes of Certificates; and whether the distributions of interest on
the Certificates of any class will be dependent, in whole or in part, on the
performance of any obligor under a Cash Flow Agreement.
The effective yield to maturity to each holder of Certificates entitled
to payments of interest will be below that otherwise produced by the applicable
Pass-Through Rate and purchase price of such Certificate because, while interest
may accrue on each Asset during a certain period, the distribution of such
interest will be made on a day which may be several days, weeks or months
following the period of accrual.
TIMING OF PAYMENT OF INTEREST
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a class of Accrual Certificates) on a Distribution Date
will include interest accrued during the Interest Accrual Period for such
Distribution Date. As indicated above under "--Pass-Through Rate," if the
Interest Accrual Period ends on a date other than a Distribution Date for the
related series, the yield realized by the holders of such Certificates may be
lower than the yield that would result if the Interest Accrual Period ended on
such Distribution Date. In addition, if so specified in the related Prospectus
Supplement, interest accrued for an Interest Accrual Period for one or more
classes of Certificates may be calculated on the assumption that distributions
of principal (and additions to the Certificate Balance of Accrual Certificates)
and allocations of losses on the Assets may be made on the first day of the
Interest Accrual Period for a Distribution Date and not on such Distribution
Date. Such method would produce a lower effective yield than if interest were
calculated on the basis of the actual principal amount outstanding during an
Interest Accrual Period. The Interest Accrual Period for any class of Offered
Certificates will be described in the related Prospectus Supplement.
PAYMENTS OF PRINCIPAL; PREPAYMENTS
The yield to maturity on the Certificates will be affected by the rate
of principal payments on the Assets (including principal prepayments on Mortgage
Loans resulting from both voluntary prepayments by the mortgagors and
involuntary liquidations). Such payments may be directly dependent upon the
payments on Leases underlying such Mortgage Loans. The rate at which principal
prepayments occur on the Mortgage Loans will be affected by a variety of
factors, including, without limitation, the terms of the Mortgage Loans, the
level of prevailing interest rates, the availability of mortgage credit and
economic, demographic, geographic, tax, legal and other factors. In general,
however, if prevailing interest rates fall significantly below the Mortgage
Rates on the Mortgage Loans comprising or underlying the Assets in a particular
Trust Fund, such Mortgage Loans are likely to be the subject of higher principal
prepayments than if prevailing rates remain at or above the rates borne by such
Mortgage Loans. In this regard, it should be noted that certain Assets may
consist of Mortgage Loans with different Mortgage Rates and the stated
pass-through or pay-through interest rate of certain MBS may be a number of
percentage points higher or lower than certain of the underlying Mortgage Loans.
The rate of principal payments on some or all of the classes of Certificates of
a series will correspond to the rate of principal payments on the Assets in the
related Trust Fund and is likely to be affected by the existence of Lock-out
Periods and Prepayment Premium provisions of the Mortgage Loans underlying or
comprising such Assets, and by the extent to which the servicer of any such
Mortgage Loan is able to enforce such provisions. Mortgage Loans with a Lock-out
Period or a Prepayment Premium provision, to the extent enforceable, generally
would be expected to experience a lower rate of principal prepayments than
otherwise identical Mortgage Loans without such provisions, with shorter
Lock-out Periods or with lower Prepayment Premiums.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Assets, the
actual yield to maturity will be lower than that so calculated. Conversely, if
the purchaser of a Certificate offered at a premium calculates its anticipated
yield to maturity based on an assumed rate of distributions of principal that is
slower than
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that actually experienced on the Assets, the actual yield to maturity will
be lower than that so calculated. In either case, if so provided in the
Prospectus Supplement for a series of Certificates, the effect on yield on one
or more classes of the Certificates of such series of prepayments of the Assets
in the related Trust Fund may be mitigated or exacerbated by any provisions for
sequential or selective distribution of principal to such classes.
When a full prepayment is made on a Mortgage Loan, the mortgagor is
charged interest on the principal amount of the Mortgage Loan so prepaid for the
number of days in the month actually elapsed up to the date of the prepayment.
Unless otherwise specified in the related Prospectus Supplement, the effect of
prepayments in full will be to reduce the amount of interest paid in the
following month to holders of Certificates entitled to payments of interest
because interest on the principal amount of any Mortgage Loan so prepaid will be
paid only to the date of prepayment rather than for a full month. Unless
otherwise specified in the related Prospectus Supplement, a partial prepayment
of principal is applied so as to reduce the outstanding principal balance of the
related Mortgage Loan as of the Due Date in the month in which such partial
prepayment is received. As a result, unless otherwise specified in the related
Prospectus Supplement, the effect of a partial prepayment on a Mortgage Loan
will be to reduce the amount of interest passed through to holders of
Certificates in the month following the receipt of such partial prepayment by an
amount equal to one month's interest at the applicable Pass-Through Rate on the
prepaid amount.
The timing of changes in the rate of principal payments on the Mortgage
Assets may significantly affect an investor's actual yield to maturity, even if
the average rate of distributions of principal is consistent with an investor's
expectation. In general, the earlier a principal payment is received on the
Mortgage Assets and distributed on a Certificate, the greater the effect on such
investor's yield to maturity. The effect on an investor's yield of principal
payments occurring at a rate higher (or lower) than the rate anticipated by the
investor during a given period may not be offset by a subsequent like decrease
(or increase) in the rate of principal payments.
PREPAYMENTS--MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Assets
included in or comprising a Trust Fund and the rate at which payments are made
from any Credit Support or Cash Flow Agreement for the related series of
Certificates may affect the ultimate maturity and the weighted average life of
each class of such series. Prepayments on the Mortgage Loans comprising or
underlying the Mortgage Assets in a particular Trust Fund will generally
accelerate the rate at which principal is paid on some or all of the classes of
the Certificates of the related series.
If so provided in the Prospectus Supplement for a series of
Certificates, one or more classes of Certificates may have a final scheduled
Distribution Date, which is the date on or prior to which the Certificate
Balance thereof is scheduled to be reduced to zero, calculated on the basis of
the assumptions applicable to such series set forth therein.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of a
class of Certificates of a series will be influenced by the rate at which
principal on the Mortgage Loans comprising or underlying the Mortgage Assets is
paid to such class, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes prepayments, in
whole or in part, and liquidations due to default).
In addition, the weighted average life of the Certificates may be
affected by the varying maturities of the Mortgage Loans comprising or
underlying the MBS. If any Mortgage Loans comprising or underlying the Assets in
a particular Trust Fund have actual terms to maturity of less than those assumed
in calculating final scheduled Distribution Dates for the classes of
Certificates of the related series, one or more classes of such Certificates may
be fully paid prior to their respective final scheduled Distribution Dates, even
in the absence of prepayments. Accordingly, the prepayment experience of the
Assets will, to some extent, be a function of the mix of Mortgage Rates and
maturities of the Mortgage Loans comprising or underlying such Assets. See
"Description of the Trust Funds."
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment
model. CPR represents a constant assumed rate of prepayment each month relative
to the then outstanding principal balance of a pool of loans for the life of
such loans.
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Neither CPR nor any other prepayment model or assumption purports to be
a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the Mortgage
Loans underlying or comprising the Mortgage Assets. Moreover, CPR was developed
based upon historical prepayment experience for single family loans. Thus, it is
likely that prepayment of any Mortgage Loans comprising or underlying the
Mortgage Assets for any series will not conform to any particular level of CPR.
The Depositor is not aware of any meaningful publicly available
prepayment statistics for multifamily or commercial mortgage loans.
The Prospectus Supplement with respect to each series of Certificates
will contain tables, if applicable, setting forth the projected weighted average
life of each class of Offered Certificates of such series and the percentage of
the initial Certificate Balance of each such class that would be outstanding on
specified Distribution Dates based on the assumptions stated in such Prospectus
Supplement, including assumptions that prepayments on the Mortgage Loans
comprising or underlying the related Assets are made at rates corresponding to
various percentages of CPR or at such other rates specified in such Prospectus
Supplement. Such tables and assumptions are intended to illustrate the
sensitivity of weighted average life of the Certificates to various prepayment
rates and will not be intended to predict or to provide information that will
enable investors to predict the actual weighted average life of the
Certificates. It is unlikely that prepayment of any Mortgage Loans comprising or
underlying the Mortgage Assets for any series will conform to any particular
level of CPR or any other rate specified in the related Prospectus Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
TYPE OF MORTGAGE ASSET
A number of Mortgage Loans may have balloon payments due at maturity,
and because the ability of a mortgagor to make a balloon payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a number of Mortgage Loans having
balloon payments may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the mortgagor or adverse conditions in the market where the property is
located. In order to minimize losses on defaulted Mortgage Loans, the servicer
may, to the extent and under the circumstances set forth in the related
Prospectus Supplement, be permitted to modify Mortgage Loans that are in default
or as to which a payment default is imminent. Any defaulted balloon payment or
modification that extends the maturity of a Mortgage Loan will tend to extend
the weighted average life of the Certificates, thereby lengthening the period of
time elapsed from the date of issuance of a Certificate until it is retired.
FORECLOSURES AND PAYMENT PLANS
The number of foreclosures and the principal amount of the Mortgage
Loans comprising or underlying the Mortgage Assets that are foreclosed in
relation to the number and principal amount of Mortgage Loans that are repaid in
accordance with their terms will affect the weighted average life of the
Mortgage Loans comprising or underlying the Mortgage Assets and that of the
related series of Certificates. Servicing decisions made with respect to the
Mortgage Loans, including the use of payment plans prior to a demand for
acceleration and the restructuring of Mortgage Loans in bankruptcy proceedings,
may also have an effect upon the payment patterns of particular Mortgage Loans
and thus the weighted average life of the Certificates.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE CLAUSES
Acceleration of mortgage payments as a result of certain transfers of or
the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of the
Mortgage Loans comprising or underlying the Assets may include "due-on-sale"
clauses or "due-on-encumbrance" clauses that allow the holder of the Mortgage
Loans to demand payment in full of the remaining principal balance of the
Mortgage Loans upon sale or certain other transfers of or the creation of
encumbrances upon the related Mortgaged Property. With respect to any Whole
Loans, unless otherwise provided in the related Prospectus Supplement, the
Master
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Servicer, on behalf of the Trust Fund, will be required to exercise (or waive
its right to exercise) any such right that the Trustee may have as mortgagee
to accelerate payment of the Whole Loan in a manner consistent with the
Servicing Standard. See "Certain Legal Aspects of the Mortgage Loans and the
Leases--Due-on-Sale and Due-on-Encumbrance" and "Description of the
Agreements--Due-on-Sale and Due-on-Encumbrance Provisions."
THE DEPOSITOR
Morgan Stanley Capital I Inc., the Depositor, is a direct wholly-owned
subsidiary of Morgan Stanley Group Inc. and was incorporated in the State of
Delaware on January 28, 1985. The principal executive offices of the Depositor
are located at 1585 Broadway, 37th Floor, New York, New York 10036. Its
telephone number is (212) 761-4700.
The Depositor does not have, nor is it expected in the future to have,
any significant assets.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of each series (including any class of Certificates not
offered hereby) will represent the entire beneficial ownership interest in the
Trust Fund created pursuant to the related Agreement. Each series of
Certificates will consist of one or more classes of Certificates that may (i)
provide for the accrual of interest thereon based on fixed, variable or
adjustable rates; (ii) be senior (collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate Certificates") to one or more other
classes of Certificates in respect of certain distributions on the Certificates;
(iii) be entitled to principal distributions, with disproportionately low,
nominal or no interest distributions (collectively, "Stripped Principal
Certificates"); (iv) be entitled to interest distributions, with
disproportionately low, nominal or no principal distributions (collectively,
"Stripped Interest Certificates"); (v) provide for distributions of accrued
interest thereon commencing only following the occurrence of certain events,
such as the retirement of one or more other classes of Certificates of such
series (collectively, "Accrual Certificates"); (vi) provide for payments of
principal sequentially, based on specified payment schedules, from only a
portion of the Assets in such Trust Fund or based on specified calculations, to
the extent of available funds, in each case as described in the related
Prospectus Supplement; and/or (vii) provide for distributions based on a
combination of two or more components thereof with one or more of the
characteristics described in this paragraph including a Stripped Principal
Certificate component and a Stripped Interest Certificate component. Any such
classes may include classes of Offered Certificates.
Each class of Offered Certificates of a series will be issued in minimum
denominations corresponding to the Certificate Balances or, in case of Stripped
Interest Certificates, notional amounts or percentage interests specified in the
related Prospectus Supplement. The transfer of any Offered Certificates may be
registered and such Certificates may be exchanged without the payment of any
service charge payable in connection with such registration of transfer or
exchange, but the Depositor or the Trustee or any agent thereof may require
payment of a sum sufficient to cover any tax or other governmental charge. One
or more classes of Certificates of a series may be issued in definitive form
("Definitive Certificates") or in book-entry form ("Book-Entry Certificates"),
as provided in the related Prospectus Supplement. See "Risk Factors--Book-Entry
Registration" and "Description of the Certificates--Book-Entry Registration and
Definitive Certificates." Definitive Certificates will be exchangeable for other
Certificates of the same class and series of a like aggregate Certificate
Balance, notional amount or percentage interest but of different authorized
denominations. See "Risk Factors--Limited Liquidity" and "Limited Assets."
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
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of business on the date specified in the related Prospectus Supplement (the
"Determination Date"). All distributions with respect to each class of
Certificates on each Distribution Date will be allocated pro rata among the
outstanding Certificates in such class or by random selection, as described in
the related Prospectus Supplement or otherwise established by the related
Trustee. Payments will be made either by wire transfer in immediately available
funds to the account of a Certificateholder at a bank or other entity having
appropriate facilities therefor, if such Certificateholder has so notified the
Trustee or other person required to make such payments no later than the date
specified in the related Prospectus Supplement (and, if so provided in the
related Prospectus Supplement, holds Certificates in the requisite amount
specified therein), or by check mailed to the address of the person entitled
thereto as it appears on the Certificate Register; provided, however, that the
final distribution in retirement of the Certificates (whether Definitive
Certificates or Book-Entry Certificates) will be made only upon presentation and
surrender of the Certificates at the location specified in the notice to
Certificateholders of such final distribution.
AVAILABLE DISTRIBUTION AMOUNT
All distributions on the Certificates of each series on each
Distribution Date will be made from the Available Distribution Amount described
below, in accordance with the terms described in the related Prospectus
Supplement. Unless provided otherwise in the related Prospectus Supplement, the
"Available Distribution Amount" for each Distribution Date equals the sum of the
following amounts:
(i) the total amount of all cash on deposit in the related Certificate
Account as of the corresponding Determination Date, exclusive of:
(a) all scheduled payments of principal and interest collected but
due on a date subsequent to the related Due Period (unless the related
Prospectus Supplement provides otherwise, a "Due Period" with respect
to any Distribution Date will commence on the second day of the month in
which the immediately preceding Distribution Date occurs, or the day
after the Cut-off Date in the case of the first Due Period, and will end
on the first day of the month of the related Distribution Date),
(b) unless the related Prospectus Supplement provides otherwise, all
prepayments, together with related payments of the interest thereon and
related Prepayment Premiums, Liquidation Proceeds, Insurance Proceeds
and other unscheduled recoveries received subsequent to the related Due
Period, and
(c) all amounts in the Certificate Account that are due or reimbursab
le to the Depositor, the Trustee, an Asset Seller, a Sub-Servicer, a
Special Servicer, the Master Servicer or any other entity as specified
in the related Prospectus Supplement or that are payable in respect of
certain expenses of the related Trust Fund;
(ii)if the related Prospectus Supplement so provides, interest or
investment income on amounts on deposit in the Certificate Account,
including any net amounts paid under any Cash Flow Agreements;
(iii) all advances made by a Master Servicer or any other entity as
specified in the related Prospectus Supplement with respect to such
Distribution Date;
(iv)if and to the extent the related Prospectus Supplement so provides,
amounts paid by a Master Servicer or any other entity as specified in the
related Prospectus Supplement with respect to interest shortfalls resulting
from prepayments during the related Prepayment Period; and
(v) unless the related Prospectus Supplement provides otherwise, to the
extent not on deposit in the related Certificate Account as of the
corresponding Determination Date, any amounts collected under, from or in
respect of any Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Certificates (including any Certificates not
offered hereby) on each Distribution Date, and accordingly will be released from
the Trust Fund and will not be available for any future distributions.
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DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates (other than classes of Stripped Principal
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which will be a fixed, variable or adjustable rate at which interest will
accrue on such class or a component thereof (the "Pass-Through Rate"). The
related Prospectus Supplement will specify the Pass-Through Rate for each class
or component or, in the case of a variable or adjustable Pass-Through Rate, the
method for determining the Pass-Through Rate. Unless otherwise specified in the
related Prospectus Supplement, interest on the Certificates will be calculated
on the basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of the Certificates of any class
will be made on each Distribution Date (other than any class of Accrual
Certificates, which will be entitled to distributions of accrued interest
commencing only on the Distribution Date, or under the circumstances, specified
in the related Prospectus Supplement, and any class of Stripped Principal
Certificates that are not entitled to any distributions of interest) based on
the Accrued Certificate Interest for such class and such Distribution Date,
subject to the sufficiency of the portion of the Available Distribution Amount
allocable to such class on such Distribution Date. Prior to the time interest is
distributable on any class of Accrual Certificates, the amount of Accrued
Certificate Interest otherwise distributable on such class will be added to the
Certificate Balance thereof on each Distribution Date. With respect to each
class of Certificates and each Distribution Date (other than certain classes of
Stripped Interest Certificates), "Accrued Certificate Interest" will be equal to
interest accrued for a specified period on the outstanding Certificate Balance
thereof immediately prior to the Distribution Date, at the applicable
Pass-Through Rate, reduced as described below. Unless otherwise provided in the
Prospectus Supplement, Accrued Certificate Interest on Stripped Interest
Certificates will be equal to interest accrued for a specified period on the
outstanding notional amount thereof immediately prior to each Distribution Date,
at the applicable Pass-Through Rate, reduced as described below. The method of
determining the notional amount for any class of Stripped Interest Certificates
will be described in the related Prospectus Supplement. Reference to notional
amount is solely for convenience in certain calculations and does not represent
the right to receive any distributions of principal. Unless otherwise provided
in the related Prospectus Supplement, the Accrued Certificate Interest on a
series of Certificates will be reduced in the event of prepayment interest
shortfalls, which are shortfalls in collections of interest for a full accrual
period resulting from prepayments prior to the due date in such accrual period
on the Mortgage Loans comprising or underlying the Mortgage Assets in the Trust
Fund for such series. The particular manner in which such shortfalls are to be
allocated among some or all of the classes of Certificates of that series will
be specified in the related Prospectus Supplement. The related Prospectus
Supplement will also describe the extent to which the amount of Accrued
Certificate Interest that is otherwise distributable on (or, in the case of
Accrual Certificates, that may otherwise be added to the Certificate Balance of)
a class of Offered Certificates may be reduced as a result of any other
contingencies, including delinquencies, losses and deferred interest on or in
respect of the Mortgage Loans comprising or underlying the Mortgage Assets in
the related Trust Fund. Unless otherwise provided in the related Prospectus
Supplement, any reduction in the amount of Accrued Certificate Interest
otherwise distributable on a class of Certificates by reason of the allocation
to such class of a portion of any deferred interest on the Mortgage Loans
comprising or underlying the Mortgage Assets in the related Trust Fund will
result in a corresponding increase in the Certificate Balance of such class. See
"Risk Factors--Average Life of Certificates; Prepayments; Yields" and "Yield
Considerations."
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The Certificates of each series, other than certain classes of Stripped
Interest Certificates, will have a "Certificate Balance" which, at any time,
will equal the then maximum amount that the holder will be entitled to receive
in respect of principal out of the future cash flow on the Assets and other
assets included in the related Trust Fund. The outstanding Certificate Balance
of a Certificate will be reduced to the extent of distributions of principal
thereon from time to time and, if and to the extent so provided in the related
Prospectus Supplement, by the amount of losses incurred in respect of the
related Assets, may be increased in respect of deferred interest on the related
Mortgage Loans to the extent provided in the related Prospectus Supplement and,
in the case of Accrual Certificates prior to the Distribution Date on which
distributions of interest are required to commence, will be increased by any
related Accrued Certificate Interest. Unless otherwise provided in the related
Prospectus Supplement, the initial aggregate Certificate Balance of all classes
of Certificates of a series will not be greater than the outstanding aggregate
principal balance of the related Assets as of the applicable Cut-off Date. The
initial aggregate Certificate
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Balance of a series and each class thereof will be specified in the related
Prospectus Supplement. Unless otherwise provided in the related Prospectus
Supplement, distributions of principal will be made on each Distribution Date to
the class or classes of Certificates entitled thereto in accordance with the
provisions described in such Prospectus Supplement until the Certificate Balance
of such class has been reduced to zero. Stripped Interest Certificates with no
Certificate Balance are not entitled to any distributions of principal.
COMPONENTS
To the extent specified in the related Prospectus Supplement,
distribution on a class of Certificates may be based on a combination of two or
more different components as described under "--General" above. To such extent,
the descriptions set forth under "--Distributions of Interests on the
Certificates" and "--Distributions of Principal of the Certificates" above also
relate to components of such a class of Certificates. In such case, reference in
such sections to Certificate Balance and Pass-Through Rate refer to the
principal balance, if any, of any such component and the Pass-Through Rate, if
any, on any such component, respectively.
DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUMS OR IN RESPECT OF EQUITY
PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment Premiums
or payments in respect of Equity Participations that are collected on the
Mortgage Assets in the related Trust Fund will be distributed on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the Prospectus Supplement for a series of Certificates
consisting of one or more classes of Subordinate Certificates, on any
Distribution Date in respect of which losses or shortfalls in collections on the
Mortgage Assets have been incurred, the amount of such losses or shortfalls will
be borne first by a class of Subordinate Certificates in the priority and manner
and subject to the limitations specified in such Prospectus Supplement. See
"Description of Credit Support" for a description of the types of protection
that may be included in a Trust Fund against losses and shortfalls on Mortgage
Assets comprising such Trust Fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any series of Certificates evidencing an interest in a
Trust Fund, unless otherwise provided in the related Prospectus Supplement, the
Master Servicer or another entity described therein will be required as part of
its servicing responsibilities to advance on or before each Distribution Date
its own funds or funds held in the Certificate Account that are not included in
the Available Distribution Amount for such Distribution Date, in an amount equal
to the aggregate of payments of principal (other than any balloon payments) and
interest (net of related servicing fees and Retained Interest) that were due on
the Whole Loans in such Trust Fund during the related Due Period and were
delinquent on the related Determination Date, subject to the Master Servicer's
(or another entity's) good faith determination that such advances will be
reimbursable from Related Proceeds (as defined below). In the case of a series
of Certificates that includes one or more classes of Subordinate Certificates
and if so provided in the related Prospectus Supplement, the Master Servicer's
(or another entity's) advance obligation may be limited only to the portion of
such delinquencies necessary to make the required distributions on one or more
classes of Senior Certificates and/or may be subject to the Master Servicer's
(or another entity's) good faith determination that such advances will be
reimbursable not only from Related Proceeds but also from collections on other
Assets otherwise distributable on one or more classes of such Subordinate
Certificates. See "Description of Credit Support."
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Certificates
entitled thereto, rather than to guarantee or insure against losses. Unless
otherwise provided in the related Prospectus Supplement, advances of the Master
Servicer's (or another entity's) funds will be reimbursable only out of related
recoveries on the Mortgage Loans (including amounts received under any form of
Credit Support) respecting which such advances were made (as to any Mortgage
Loan, "Related Proceeds") and, if so provided in the Prospectus Supplement, out
of any amounts otherwise distributable on one or more classes of Subordinate
Certificates of such series; provided, however, that any such advance will be
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reimbursable from any amounts in the Certificate Account prior to any
distributions being made on the Certificates to the extent that the Master
Servicer (or such other entity) shall determine in good faith that such advance
(a "Nonrecoverable Advance") is not ultimately recoverable from Related Proceeds
or, if applicable, from collections on other Assets otherwise distributable on
such Subordinate Certificates. If advances have been made by the Master Servicer
from excess funds in the Certificate Account, the Master Servicer is required to
replace such funds in the Certificate Account on any future Distribution Date to
the extent that funds in the Certificate Account on such Distribution Date are
less than payments required to be made to Certificateholders on such date. If so
specified in the related Prospectus Supplement, the obligations of the Master
Servicer (or another entity) to make advances may be secured by a cash advance
reserve fund, a surety bond, a letter of credit or another form of limited
guaranty. If applicable, information regarding the characteristics of, and the
identity of any obligor on, any such surety bond, will be set forth in the
related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement,
the Master Servicer (or another entity) will be entitled to receive interest at
the rate specified therein on its outstanding advances and will be entitled to
pay itself such interest periodically from general collections on the Assets
prior to any payment to Certificateholders or as otherwise provided in the
related Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any corresponding
advancing obligation of any person in connection with such MBS.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise provided in the Prospectus Supplement, with each
distribution to holders of any class of Certificates of a series, the Master
Servicer or the Trustee, as provided in the related Prospectus Supplement, will
forward or cause to be forwarded to each such holder, to the Depositor and to
such other parties as may be specified in the related Agreement, a statement
setting forth, in each case to the extent applicable and available:
(i) the amount of such distribution to holders of Certificates of such
class applied to reduce the Certificate Balance thereof;
(ii)the amount of such distribution to holders of Certificates of such
class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to (a) Prepayment
Premiums and (b) payments on account of Equity Participations;
(iv)the amount of related servicing compensation received by a Master
Servicer (and, if payable directly out of the related Trust Fund, by any
Special Servicer and any Sub-Servicer) and such other customary information
as any such Master Servicer or the Trustee deems necessary or desirable, or
that a Certificateholder reasonably requests, to enable Certificateholders
to prepare their tax returns;
(v) the aggregate amount of advances included in such distribution, and
the aggregate amount of unreimbursed advances at the close of business on
such Distribution Date;
(vi)the aggregate principal balance of the Assets at the close of
business on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans in
respect of which (a) one scheduled payment is delinquent, (b) two scheduled
payments are delinquent, (c) three or more scheduled payments are
delinquent and (d) foreclosure proceedings have been commenced;
(viii) with respect to each Whole Loan that is delinquent two or more
months, (a) the loan number thereof, (b) the unpaid balance thereof, (c)
whether the delinquency is in respect of any balloon payment, (d) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof, (e) if applicable, the aggregate amount of any
interest accrued and payable on related servicing expenses and related
advances assuming such Mortgage Loan is subsequently liquidated through
foreclosure, (f) whether a notice of acceleration has been sent to the
mortgagor and, if so, the date of such notice, (g) whether foreclosure
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proceedings have been commenced and, if so, the date so commenced and (h)
if such Mortgage Loan is more than three months delinquent and foreclosure
has not been commenced, the reason therefor;
(ix)with respect to any Whole Loan liquidated during the related Due
Period (other than by payment in full), (a) the loan number thereof, (b)
the manner in which it was liquidated and (c) the aggregate amount of
liquidation proceeds received;
(x) with respect to any Whole Loan liquidated during the related Due
Period, (a) the portion of such liquidation proceeds payable or
reimbursable to the Master Servicer (or any other entity) in respect of
such Mortgage Loan and (b) the amount of any loss to Certificateholders;
(xi)with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the
loan number of the related Mortgage Loan and (b) the date of acquisition;
(xii) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the
book value, (b) the principal balance of the related Mortgage Loan
immediately following such Distribution Date (calculated as if such
Mortgage Loan were still outstanding taking into account certain limited
modifications to the terms thereof specified in the Agreement), (c) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof and (d) if applicable, the aggregate amount of
interest accrued and payable on related servicing expenses and related
advances;
(xiii) with respect to any such REO Property sold during the related Due
Period (a) the loan number of the related Mortgage Loan, (b) the aggregate
amount of sale proceeds, (c) the portion of such sales proceeds payable or
reimbursable to the Master Servicer or a Special Servicer in respect of
such REO Property or the related Mortgage Loan and (d) the amount of any
loss to Certificateholders in respect of the related Mortgage Loan;
(xiv) the aggregate Certificate Balance or notional amount, as the case
may be, of each class of Certificates (including any class of Certificates
not offered hereby) at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance due to the
allocation of any loss and increase in the Certificate Balance of a class
of Accrual Certificates in the event that Accrued Certificate Interest has
been added to such balance;
(xv) the aggregate amount of principal prepayments made during the
related Due Period;
(xvi) the amount deposited in the reserve fund, if any, on such
Distribution Date;
(xvii) the amount remaining in the reserve fund, if any, as of the close
of business on such Distribution Date;
(xviii) the aggregate unpaid Accrued Certificate Interest, if any, on
each class of Certificates at the close of business on such Distribution
Date;
(xix) in the case of Certificates with a variable Pass-Through Rate, the
Pass-Through Rate applicable to such Distribution Date, and, if available,
the immediately succeeding Distribution Date, as calculated in accordance
with the method specified in the related Prospectus Supplement;
(xx)in the case of Certificates with an adjustable Pass-Through Rate,
for statements to be distributed in any month in which an adjustment date
occurs, the adjustable Pass-Through Rate applicable to such Distribution
Date and the immediately succeeding Distribution Date as calculated in
accordance with the method specified in the related Prospectus Supplement;
(xxi) as to any series which includes Credit Support, the amount of
coverage of each instrument of Credit Support included therein as of the
close of business on such Distribution Date; and
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(xxii) the aggregate amount of payments by the mortgagors of (a) default
interest, (b) late charges and (c) assumption and modification fees
collected during the related Due Period.
In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of Certificates or for such other specified portion thereof. In
addition, in the case of information furnished pursuant to subclauses (i), (ii),
(xiv), (xviii) and (xix) above, such amounts shall also be provided with respect
to each component, if any, of a class of Certificates. The Master Servicer or
the Trustee, as specified in the related Prospectus Supplement, will forward or
cause to be forwarded to each holder, to the Depositor and to such other parties
as may be specified in the Agreement, a copy of any statements or reports
received by the Master Servicer or the Trustee, as applicable, with respect to
any MBS. The Prospectus Supplement for each series of Offered Certificates will
describe any additional information to be included in reports to the holders of
such Certificates.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the calendar
year was a holder of a Certificate a statement containing the information set
forth in subclauses (i)-(iv) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a Certificateholder.
Such obligation of the Master Servicer or the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information shall be
provided by the Master Servicer or the Trustee pursuant to any requirements of
the Code as are from time to time in force. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates."
TERMINATION
The obligations created by the Agreement for each series of Certificates
will terminate upon the payment to Certificateholders of that series of all
amounts held in the Certificate Account or by the Master Servicer, if any, or
the Trustee and required to be paid to them pursuant to such Agreement following
the earlier of (i) the final payment or other liquidation of the last Asset
subject thereto or the disposition of all property acquired upon foreclosure of
any Whole Loan subject thereto and (ii) the purchase of all of the assets of the
Trust Fund by the party entitled to effect such termination, under the
circumstances and in the manner set forth in the related Prospectus Supplement.
In no event, however, will the trust created by the Agreement continue beyond
the date specified in the related Prospectus Supplement. Written notice of
termination of the Agreement will be given to each Certificateholder, and the
final distribution will be made only upon presentation and surrender of the
Certificates at the location to be specified in the notice of termination.
If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the repurchase
of the assets in the related Trust Fund by the party specified therein, under
the circumstances and in the manner set forth therein. If so provided in the
related Prospectus Supplement, upon the reduction of the Certificate Balance of
a specified class or classes of Certificates by a specified percentage or
amount, the party specified therein will solicit bids for the purchase of all
assets of the Trust Fund, or of a sufficient portion of such assets to retire
such class or classes or purchase such class or classes at a price set forth in
the related Prospectus Supplement, in each case, under the circumstances and in
the manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the related Prospectus Supplement, one or more classes
of the Offered Certificates of any series will be issued as Book-Entry
Certificates, and each such class will be represented by one or more single
Certificates registered in the name of a nominee for the depository, The
Depository Trust Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes in their accounts, thereby eliminating the need
for physical movement of certificates. Participants include Morgan Stanley & Co.
Incorporated, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to
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others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). Unless otherwise provided in the related
Prospectus Supplement, investors that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Book-Entry Certificates may do so only through Participants
and Indirect Participants. In addition, such investors ("Certificate Owners")
will receive all distributions on the Book-Entry Certificates through DTC and
its Participants. Under a book-entry format, Certificate Owners will receive
payments after the related Distribution Date because, while payments are
required to be forwarded to Cede & Co., as nominee for DTC ("Cede"), on each
such date, DTC will forward such payments to its Participants which thereafter
will be required to forward them to Indirect Participants or Certificate Owners.
Unless otherwise provided in the related Prospectus Supplement, the only
"Certificateholder" (as such term is used in the Agreement) will be Cede, as
nominee of DTC, and the Certificate Owners will not be recognized by the Trustee
as Certificateholders under the Agreement. Certificate Owners will be permitted
to exercise the rights of Certificateholders under the related Agreement only
indirectly through the Participants who in turn will exercise their rights
through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Book-Entry Certificates
and is required to receive and transmit distributions of principal of and
interest on the Book-Entry Certificates. Participants and Indirect Participants
with which Certificate Owners have accounts with respect to the Book-Entry
Certificates similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of their respective Certificate Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge its interest in the Book-Entry Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of its interest in the Book-Entry Certificates, may be limited due to
the lack of a physical certificate evidencing such interest.
DTC has advised the Depositor that it will take any action permitted to
be taken by a Certificateholder under an Agreement only at the direction of one
or more Participants to whose account with DTC interests in the Book-Entry
Certificates are credited.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Certificate Owners or their nominees
("Definitive Certificates"), rather than to DTC or its nominee only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to properly discharge its responsibilities as depository with respect to the
Certificates and the Depositor is unable to locate a qualified successor or (ii)
the Depositor, at its option, elects to terminate the book-entry system through
DTC.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Certificate Owners.
Upon surrender by DTC of the certificate or certificates representing the
Book-Entry Certificates, together with instructions for reregistration, the
Trustee will issue (or cause to be issued) to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
DESCRIPTION OF THE AGREEMENTS
The Certificates of each series evidencing interests in a Trust Fund
including Whole Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer, any Special Servicer appointed
as of the date of the Pooling and Servicing Agreement and the Trustee. The
Certificates of each series evidencing interests in a Trust Fund not including
Whole Loans will be issued pursuant to a Trust Agreement between the Depositor
and a Trustee. Any Master Servicer, any such Special Servicer and the Trustee
with respect to any series of Certificates will be named in the related
Prospectus Supplement. In lieu of appointing a Master Servicer, a servicer may
be appointed pursuant to the Pooling and Servicing Agreement for any Trust Fund.
Such servicer will service all or a significant number of Whole Loans directly
without a Sub-Servicer. Unless otherwise specified in the related Prospectus
Supplement, the obligations of any such servicer shall be commensurate with
those of the Master Servicer described herein. References in this prospectus to
Master Servicer and its rights and
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obligations, unless otherwise specified in the related Prospectus Supplement,
shall be deemed to also be references to any servicer servicing Whole Loans
directly. A manager or administrator may be appointed pursuant to the Trust
Agreement for any Trust Fund to administer such Trust Fund. The provisions of
each Agreement will vary depending upon the nature of the Certificates to be
issued thereunder and the nature of the related Trust Fund. A form of a Pooling
and Servicing Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. Any Trust Agreement will generally
conform to the form of Pooling and Servicing Agreement filed herewith, but will
not contain provisions with respect to the servicing and maintenance of Whole
Loans. The following summaries describe certain provisions that may appear in
each Agreement. The Prospectus Supplement for a series of Certificates will
describe any provision of the Agreement relating to such series that materially
differs from the description thereof contained in this Prospectus. The summaries
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Agreement for each Trust
Fund and the description of such provisions in the related Prospectus
Supplement. As used herein with respect to any series, the term "Certificate"
refers to all of the Certificates of that series, whether or not offered hereby
and by the related Prospectus Supplement, unless the context otherwise requires.
The Depositor will provide a copy of the Agreement (without exhibits) relating
to any series of Certificates without charge upon written request of a holder of
a Certificate of such series addressed to Morgan Stanley Capital I Inc., c/o
Morgan Stanley & Co. Incorporated, 1585 Broadway, 37th Floor, New York, New York
10036, Attention: John E. Westerfield.
ASSIGNMENT OF ASSETS; REPURCHASES
At the time of issuance of any series of Certificates, the Depositor
will assign (or cause to be assigned) to the designated Trustee the Assets to be
included in the related Trust Fund, together with all principal and interest to
be received on or with respect to such Assets after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date and other than any
Retained Interest. The Trustee will, concurrently with such assignment, deliver
the Certificates to the Depositor in exchange for the Assets and the other
assets comprising the Trust Fund for such series. Each Mortgage Asset will be
identified in a schedule appearing as an exhibit to the related Agreement.
Unless otherwise provided in the related Prospectus Supplement, such schedule
will include detailed information (i) in respect of each Whole Loan included in
the related Trust Fund, including without limitation, the address of the related
Mortgaged Property and type of such property, the Mortgage Rate and, if
applicable, the applicable index, margin, adjustment date and any rate cap
information, the original and remaining term to maturity, the original and
outstanding principal balance and balloon payment, if any, the Value,
Loan-to-Value Ratio and the Debt Service Coverage Ratio as of the date indicated
and payment and prepayment provisions, if applicable, and (ii) in respect of
each MBS included in the related Trust Fund, including without limitation, the
MBS Issuer, MBS Servicer and MBS Trustee, the pass-through or bond rate or
formula for determining such rate, the issue date and original and remaining
term to maturity, if applicable, the original and outstanding principal amount
and payment provisions, if applicable.
With respect to each Whole Loan, the Depositor will deliver or cause to
be delivered to the Trustee (or to the custodian hereinafter referred to)
certain loan documents, which unless otherwise specified in the related
Prospectus Supplement will include the original Mortgage Note endorsed, without
recourse, in blank or to the order of the Trustee, the original Mortgage (or a
certified copy thereof) with evidence of recording indicated thereon and an
assignment of the Mortgage to the Trustee in recordable form. Notwithstanding
the foregoing, a Trust Fund may include Mortgage Loans where the original
Mortgage Note is not delivered to the Trustee if the Depositor delivers to the
Trustee or the custodian a copy or a duplicate original of the Mortgage Note,
together with an affidavit certifying that the original thereof has been lost or
destroyed. With respect to such Mortgage Loans, the Trustee (or its nominee) may
not be able to enforce the Mortgage Note against the related borrower. Unless
otherwise specified in the related Prospectus Supplement, the Asset Seller will
be required to agree to repurchase, or substitute for, each such Mortgage Loan
that is subsequently in default if the enforcement thereof or of the related
Mortgage is materially adversely affected by the absence of the original
Mortgage Note. Unless otherwise provided in the related Prospectus Supplement,
the related Agreement will require the Depositor or another party specified
therein to promptly cause each such assignment of Mortgage to be recorded in the
appropriate public office for real property records, except in the State of
California or in other states where, in the opinion of counsel acceptable to the
Trustee, such recording is not required to protect the Trustee's interest in the
related Whole Loan against the claim of any subsequent transferee or any
successor to or creditor of the Depositor, the Master Servicer, the relevant
Asset Seller or any other prior holder of the Whole Loan.
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The Trustee (or a custodian) will review such Whole Loan documents
within a specified period of days after receipt thereof, and the Trustee (or a
custodian) will hold such documents in trust for the benefit of the
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, if any such document is found to be missing or defective in any
material respect, the Trustee (or such custodian) shall immediately notify the
Master Servicer and the Depositor, and the Master Servicer shall immediately
notify the relevant Asset Seller. If the Asset Seller cannot cure the omission
or defect within a specified number of days after receipt of such notice, then
unless otherwise specified in the related Prospectus Supplement, the Asset
Seller will be obligated, within a specified number of days of receipt of such
notice, to repurchase the related Whole Loan from the Trustee at the Purchase
Price or substitute for such Mortgage Loan. There can be no assurance that an
Asset Seller will fulfill this repurchase or substitution obligation, and
neither the Master Servicer nor the Depositor will be obligated to repurchase or
substitute for such Mortgage Loan if the Asset Seller defaults on its
obligation. Unless otherwise specified in the related Prospectus Supplement,
this repurchase or substitution obligation constitutes the sole remedy available
to the Certificateholders or the Trustee for omission of, or a material defect
in, a constituent document. To the extent specified in the related Prospectus
Supplement, in lieu of curing any omission or defect in the Asset or
repurchasing or substituting for such Asset, the Asset Seller may agree to cover
any losses suffered by the Trust Fund as a result of such breach or defect.
If so provided in the related Prospectus Supplement, the Depositor will,
as to some or all of the Mortgage Loans, assign or cause to be assigned to the
Trustee the related Lease Assignments. In certain cases, the Trustee, or Master
Servicer, as applicable, may collect all moneys under the related Leases and
distribute amounts, if any, required under the Lease for the payment of
maintenance, insurance and taxes, to the extent specified in the related Lease
agreement. The Trustee, or if so specified in the Prospectus Supplement, the
Master Servicer, as agent for the Trustee, may hold the Lease in trust for the
benefit of the Certificateholders.
With respect to each Government Security or MBS in certificated form,
the Depositor will deliver or cause to be delivered to the Trustee (or the
custodian) the original certificate or other definitive evidence of such
Government Security or MBS, as applicable, together with bond power or other
instruments, certifications or documents required to transfer fully such
Government Security or MBS, as applicable, to the Trustee for the benefit of the
Certificateholders. With respect to each Government Security or MBS in
uncertificated or book-entry form or held through a "clearing corporation"
within the meaning of the UCC, the Depositor and the Trustee will cause such
Government Security or MBS to be registered directly or on the books of such
clearing corporation or of a financial intermediary in the name of the Trustee
for the benefit of the Certificateholders. Unless otherwise provided in the
related Prospectus Supplement, the related Agreement will require that either
the Depositor or the Trustee promptly cause any MBS and Government Securities in
certificated form not registered in the name of the Trustee to be re-registered,
with the applicable persons, in the name of the Trustee.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the related Prospectus Supplement the
Depositor will, with respect to each Whole Loan, make or assign certain
representations and warranties, as of a specified date (the person making such
representations and warranties, the "Warrantying Party") covering, by way of
example, the following types of matters: (i) the accuracy of the information set
forth for such Whole Loan on the schedule of Assets appearing as an exhibit to
the related Agreement; (ii) the existence of title insurance insuring the lien
priority of the Whole Loan; (iii) the authority of the Warrantying Party to sell
the Whole Loan; (iv) the payment status of the Whole Loan and the status of
payments of taxes, assessments and other charges affecting the related Mortgaged
Property; (v) the existence of customary provisions in the related Mortgage Note
and Mortgage to permit realization against the Mortgaged Property of the benefit
of the security of the Mortgage; and (vi) the existence of hazard and extended
perils insurance coverage on the Mortgaged Property.
Any Warrantying Party, if other than the Depositor, shall be an Asset
Seller or an affiliate thereof or such other person acceptable to the Depositor
and shall be identified in the related Prospectus Supplement.
Representations and warranties made in respect of a Whole Loan may have
been made as of a date prior to the applicable Cut-off Date. A substantial
period of time may have elapsed between such date and the date of initial
issuance of the related series of Certificates evidencing an interest in such
Whole Loan. Unless otherwise specified in the related Prospectus Supplement, in
the event of a breach of any such representation or warranty, the
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Warrantying Party will be obligated to reimburse the Trust Fund for losses
caused by any such breach or either cure such breach or repurchase or replace
the affected Whole Loan as described below. Since the representations and
warranties may not address events that may occur following the date as of which
they were made, the Warrantying Party will have a reimbursement, cure,
repurchase or substitution obligation in connection with a breach of such a
representation and warranty only if the relevant event that causes such breach
occurs prior to such date. Such party would have no such obligations if the
relevant event that causes such breach occurs after such date.
Unless otherwise provided in the related Prospectus Supplement, each
Agreement will provide that the Master Servicer and/or Trustee will be required
to notify promptly the relevant Warrantying Party of any breach of any
representation or warranty made by it in respect of a Whole Loan that materially
and adversely affects the value of such Whole Loan or the interests therein of
the Certificateholders. If such Warrantying Party cannot cure such breach within
a specified period following the date on which such party was notified of such
breach, then such Warrantying Party will be obligated to repurchase such Whole
Loan from the Trustee within a specified period from the date on which the
Warrantying Party was notified of such breach, at the Purchase Price therefor.
As to any Whole Loan, unless otherwise specified in the related Prospectus
Supplement, the "Purchase Price" is equal to the sum of the unpaid principal
balance thereof, plus unpaid accrued interest thereon at the Mortgage Rate from
the date as to which interest was last paid to the due date in the Due Period in
which the relevant purchase is to occur, plus certain servicing expenses that
are reimbursable to the Master Servicer. If so provided in the Prospectus
Supplement for a series, a Warrantying Party, rather than repurchase a Whole
Loan as to which a breach has occurred, will have the option, within a specified
period after initial issuance of such series of Certificates, to cause the
removal of such Whole Loan from the Trust Fund and substitute in its place one
or more other Whole Loans, in accordance with the standards described in the
related Prospectus Supplement. If so provided in the Prospectus Supplement for a
series, a Warrantying Party, rather than repurchase or substitute a Whole Loan
as to which a breach has occurred, will have the option to reimburse the Trust
Fund or the Certificateholders for any losses caused by such breach. Unless
otherwise specified in the related Prospectus Supplement, this reimbursement,
repurchase or substitution obligation will constitute the sole remedy available
to holders of Certificates or the Trustee for a breach of representation by a
Warrantying Party.
Neither the Depositor (except to the extent that it is the Warrantying
Party) nor the Master Servicer will be obligated to purchase or substitute for a
Whole Loan if a Warrantying Party defaults on its obligation to do so, and no
assurance can be given that Warrantying Parties will carry out such obligations
with respect to Whole Loans.
Unless otherwise provided in the related Prospectus Supplement the
Warrantying Party will, with respect to a Trust Fund that includes Government
Securities or MBS, make or assign certain representations or warranties, as of a
specified date, with respect to such Government Securities or MBS, covering (i)
the accuracy of the information set forth therefor on the schedule of Assets
appearing as an exhibit to the related Agreement and (ii) the authority of the
Warrantying Party to sell such Assets. The related Prospectus Supplement will
describe the remedies for a breach thereof.
A Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the related Agreement. A breach of any such representation of
the Master Servicer which materially and adversely affects the interests of the
Certificateholders and which continues unremedied for thirty days after the
giving of written notice of such breach to the Master Servicer by the Trustee or
the Depositor, or to the Master Servicer, the Depositor and the Trustee by the
holders of Certificates evidencing not less than 25% of the Voting Rights
(unless otherwise specified in the related Prospectus Supplement), will
constitute an Event of Default under such Pooling and Servicing Agreement. See
"Events of Default" and "Rights Upon Event of Default."
CERTIFICATE ACCOUNT AND OTHER COLLECTION ACCOUNTS
GENERAL
The Master Servicer and/or the Trustee will, as to each Trust Fund,
establish and maintain or cause to be established and maintained one or more
separate accounts for the collection of payments on the related Assets
(collectively, the "Certificate Account"), which must be either (i) an account
or accounts the deposits in which are insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the Federal Deposit Insurance
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Corporation ("FDIC") (to the limits established by the FDIC) and the uninsured
deposits in which are otherwise secured such that the Certificateholders have a
claim with respect to the funds in the Certificate Account or a perfected first
priority security interest against any collateral securing such funds that is
superior to the claims of any other depositors or general creditors of the
institution with which the Certificate Account is maintained or (ii) otherwise
maintained with a bank or trust company, and in a manner, satisfactory to the
Rating Agency or Agencies rating any class of Certificates of such series. The
collateral eligible to secure amounts in the Certificate Account is limited to
United States government securities and other investment grade obligations
specified in the Agreement ("Permitted Investments"). A Certificate Account may
be maintained as an interest bearing or a non-interest bearing account and the
funds held therein may be invested pending each succeeding Distribution Date in
certain short-term Permitted Investments. Unless otherwise provided in the
related Prospectus Supplement, any interest or other income earned on funds in
the Certificate Account will be paid to a Master Servicer or its designee as
additional servicing compensation. The Certificate Account may be maintained
with an institution that is an affiliate of the Master Servicer, if applicable,
provided that such institution meets the standards imposed by the Rating Agency
or Agencies. If permitted by the Rating Agency or Agencies and so specified in
the related Prospectus Supplement, a Certificate Account may contain funds
relating to more than one series of mortgage pass-through certificates and may
contain other funds respecting payments on mortgage loans belonging to the
Master Servicer or serviced or master serviced by it on behalf of others.
DEPOSITS
A Master Servicer or the Trustee will deposit or cause to be deposited
in the Certificate Account for one or more Trust Funds on a daily basis, unless
otherwise provided in the related Agreement, the following payments and
collections received, or advances made, by the Master Servicer or the Trustee or
on its behalf subsequent to the Cut-off Date (other than payments due on or
before the Cut-off Date, and exclusive of any amounts representing a Retained
Interest):
(i) all payments on account of principal, including principal
prepayments, on the Assets;
(ii) all payments on account of interest on the Assets, including any
default interest collected, in each case net of any portion thereof
retained by a Master Servicer, a Sub-Servicer or a Special Servicer as its
servicing compensation and net of any Retained Interest;
(iii) all proceeds of the hazard, business interruption and general
liability insurance policies to be maintained in respect of each Mortgaged
Property securing a Whole Loan in the Trust Fund (to the extent such
proceeds are not applied to the restoration of the property or released to
the mortgagor in accordance with the normal servicing procedures of a
Master Servicer or the related Sub-Servicer, subject to the terms and
conditions of the related Mortgage and Mortgage Note) and all proceeds of
rental interruption policies, if any, insuring against losses arising from
the failure of Lessees under a Lease to make timely rental payments because
of certain casualty events (collectively, "Insurance Proceeds") and all
other amounts received and retained in connection with the liquidation of
defaulted Mortgage Loans in the Trust Fund, by foreclosure or otherwise
("Liquidation Proceeds"), together with the net proceeds on a monthly basis
with respect to any Mortgaged Properties acquired for the benefit of
Certificateholders by foreclosure or by deed in lieu of foreclosure or
otherwise;
(iv)any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of Certificates as
described under "Description of Credit Support";
(v) any advances made as described under "Description of the
Certificates--Advances in Respect of Delinquencies";
(vi) any amounts representing Prepayment Premiums;
(vii) any amounts paid under any Cash Flow Agreement, as described under
"Description of the Trust Funds--Cash Flow Agreements";
(viii) all proceeds of any Asset or, with respect to a Whole Loan,
property acquired in respect thereof purchased by the Depositor, any Asset
Seller or any other specified person as described under "Assignment of
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Assets; Repurchases" and "Representations and Warranties; Repurchases," all
proceeds of any defaulted Mortgage Loan purchased as described under
"Realization Upon Defaulted Whole Loans," and all proceeds of any Asset
purchased as described under "Description of the Certificates Termination"
(also, "Liquidation Proceeds");
(ix)any amounts paid by a Master Servicer to cover certain interest
shortfalls arising out of the prepayment of Whole Loans in the Trust Fund
as described under "Description of the Agreements Retained Interest;
Servicing Compensation and Payment of Expenses";
(x) to the extent that any such item does not constitute additional
servicing compensation to a Master Servicer, any payments on account of
modification or assumption fees, late payment charges, Prepayment Premiums
or Equity Participations on the Mortgage Assets; (xi) all payments required
to be deposited in the Certificate Account with respect to any deductible
clause in any blanket insurance policy described under "Hazard Insurance
Policies";
(xi)any amount required to be deposited by a Master Servicer or the
Trustee in connection with losses realized on investments for the benefit
of the Master Servicer or the Trustee, as the case may be, of funds held in
the Certificate Account; and
(xii) any other amounts required to be deposited in the Certificate
Account as provided in the related Agreement and described in the related
Prospectus Supplement.
WITHDRAWALS
A Master Servicer or the Trustee may, from time to time, unless
otherwise provided in the related Agreement and described in the related
Prospectus Supplement, make withdrawals from the Certificate Account for each
Trust Fund for any of the following purposes:
(i) to make distributions to the Certificateholders on each Distribution
Date;
(ii) to reimburse a Master Servicer for unreimbursed amounts advanced as
described under "Description of the Certificates Advances in Respect of
Delinquencies," such reimbursement to be made out of amounts received which
were identified and applied by the Master Servicer as late collections of
interest (net of related servicing fees and Retained Interest) on and
principal of the particular Whole Loans with respect to which the advances
were made or out of amounts drawn under any form of Credit Support with
respect to such Whole Loans;
(iii) to reimburse a Master Servicer for unpaid servicing fees earned
and certain unreimbursed servicing expenses incurred with respect to Whole
Loans and properties acquired in respect thereof, such reimbursement to be
made out of amounts that represent Liquidation Proceeds and Insurance
Proceeds collected on the particular Whole Loans and properties, and net
income collected on the particular properties, with respect to which such
fees were earned or such expenses were incurred or out of amounts drawn
under any form of Credit Support with respect to such Whole Loans and
properties;
(iv)to reimburse a Master Servicer for any advances described in clause
(ii) above and any servicing expenses described in clause (iii) above
which, in the Master Servicer's good faith judgment, will not be
recoverable from the amounts described in clauses (ii) and (iii),
respectively, such reimbursement to be made from amounts collected on other
Assets or, if and to the extent so provided by the related Agreement and
described in the related Prospectus Supplement, just from that portion of
amounts collected on other Assets that is otherwise distributable on one or
more classes of Subordinate Certificates, if any, remain outstanding, and
otherwise any outstanding class of Certificates, of the related series;
(v) if and to the extent described in the related Prospectus Supplement,
to pay a Master Servicer interest accrued on the advances described in
clause (ii) above and the servicing expenses described in clause (iii)
above while such remain outstanding and unreimbursed;
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(vi)to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments with respect to, and for containment,
clean-up or remediation of hazardous wastes, substances and materials on,
Mortgaged Properties securing defaulted Whole Loans as described under
"Realization Upon Defaulted Whole Loans";
(vii) to reimburse a Master Servicer, the Depositor, or any of their
respective directors, officers, employees and agents, as the case may be,
for certain expenses, costs and liabilities incurred thereby, as and to the
extent described under "Certain Matters Regarding a Master Servicer and the
Depositor";
(viii) if and to the extent described in the related Prospectus
Supplement, to pay (or to transfer to a separate account for purposes of
escrowing for the payment of) the Trustee's fees;
(ix)to reimburse the Trustee or any of its directors, officers,
employees and agents, as the case may be, for certain expenses, costs and
liabilities incurred thereby, as and to the extent described under "Certain
Matters Regarding the Trustee";
(x) unless otherwise provided in the related Prospectus Supplement, to
pay a Master Servicer, as additional servicing compensation, interest and
investment income earned in respect of amounts held in the Certificate
Account;
(xi)to pay the person entitled thereto any amounts deposited in the
Certificate Account that were identified and applied by the Master Servicer
as recoveries of Retained Interest;
(xii) to pay for costs reasonably incurred in connection with the proper
operation, management and maintenance of any Mortgaged Property acquired
for the benefit of Certificateholders by foreclosure or by deed in lieu of
foreclosure or otherwise, such payments to be made out of income received
on such property;
(xiii) if one or more elections have been made to treat the Trust Fund
or designated portions thereof as a REMIC, to pay any federal, state or
local taxes imposed on the Trust Fund or its assets or transactions, as and
to the extent described under "Certain Federal Income Tax
Consequences--REMICS--Prohibited Transactions Tax and Other Taxes";
(xiv) to pay for the cost of an independent appraiser or other expert in
real estate matters retained to determine a fair sale price for a defaulted
Whole Loan or a property acquired in respect thereof in connection with the
liquidation of such Whole Loan or property;
(xv)to pay for the cost of various opinions of counsel obtained pursuant
to the related Agreement for the benefit of Certificateholders;
(xvi) to pay for the costs of recording the related Agreement if such
recordation materially and beneficially affects the interests of
Certificateholders, provided that such payment shall not constitute a
waiver with respect to the obligation of the Warrantying Party to remedy
any breach of representation or warranty under the Agreement;
(xvii) to pay the person entitled thereto any amounts deposited in the
Certificate Account in error, including amounts received on any Asset after
its removal from the Trust Fund whether by reason of purchase or
substitution as contemplated by "Assignment of Assets; Repurchase" and
"Representations and Warranties; Repurchases" or otherwise;
(xviii) to make any other withdrawals permitted by the related Agreement
and described in the related Prospectus Supplement; and
(xix) to clear and terminate the Certificate Account at the termination
of the Trust Fund.
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
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the Master Servicer or any related Sub-Servicer or Special Servicer will deposit
on a daily basis the amounts described under "--Deposits" above for one or more
series of Certificates. Any amounts on deposit in any such collection account
will be withdrawn therefrom and deposited into the appropriate Certificate
Account by a time specified in the related Prospectus Supplement. To the extent
specified in the related Prospectus Supplement, any amounts which could be
withdrawn from the Certificate Account as described under "--Withdrawals" above,
may also be withdrawn from any such collection account. The Prospectus
Supplement will set forth any restrictions with respect to any such collection
account, including investment restrictions and any restrictions with respect to
financial institutions with which any such collection account may be maintained.
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer, directly or through Sub-Servicers, is required to
make reasonable efforts to collect all scheduled payments under the Whole Loans
and will follow or cause to be followed such collection procedures as it would
follow with respect to mortgage loans that are comparable to the Whole Loans and
held for its own account, provided such procedures are consistent with (i) the
terms of the related Agreement and any related hazard, business interruption,
rental interruption or general liability insurance policy or instrument of
Credit Support included in the related Trust Fund described herein or under
"Description of Credit Support," (ii) applicable law and (iii) the general
servicing standard specified in the related Prospectus Supplement or, if no such
standard is so specified, its normal servicing practices (in either case, the
"Servicing Standard"). In connection therewith, the Master Servicer will be
permitted in its discretion to waive any late payment charge or penalty interest
in respect of a late Whole Loan payment.
Each Master Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining (or causing
the mortgagor or Lessee on each Mortgage or Lease to maintain) hazard, business
interruption and general liability insurance policies (and, if applicable,
rental interruption policies) as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder; maintaining escrow or
impoundment accounts of mortgagors for payment of taxes, insurance and other
items required to be paid by any mortgagor pursuant to the Whole Loan;
processing assumptions or substitutions in those cases where the Master Servicer
has determined not to enforce any applicable due-on-sale clause; attempting to
cure delinquencies; supervising foreclosures; inspecting and managing Mortgaged
Properties under certain circumstances; and maintaining accounting records
relating to the Whole Loans. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer will be responsible for filing and
settling claims in respect of particular Whole Loans under any applicable
instrument of Credit Support. See "Description of Credit Support."
The Master Servicer may agree to modify, waive or amend any term of any
Whole Loan in a manner consistent with the Servicing Standard so long as the
modification, waiver or amendment will not (i) affect the amount or timing of
any scheduled payments of principal or interest on the Whole Loan or (ii) in its
judgment, materially impair the security for the Whole Loan or reduce the
likelihood of timely payment of amounts due thereon. The Master Servicer also
may agree to any modification, waiver or amendment that would so affect or
impair the payments on, or the security for, a Whole Loan if, unless otherwise
provided in the related Prospectus Supplement, (i) in its judgment, a material
default on the Whole Loan has occurred or a payment default is imminent and (ii)
in its judgment, such modification, waiver or amendment is reasonably likely to
produce a greater recovery with respect to the Whole Loan on a present value
basis than would liquidation. The Master Servicer is required to notify the
Trustee in the event of any modification, waiver or amendment of any Whole Loan.
SUB-SERVICERS
A Master Servicer may delegate its servicing obligations in respect of
the Whole Loans to third-party servicers (each, a "Sub-Servicer"), but such
Master Servicer will remain obligated under the related Agreement. Each
sub-servicing agreement between a Master Servicer and a Sub-Servicer (a
"Sub-Servicing Agreement") must be consistent with the terms of the related
Agreement and must provide that, if for any reason the Master Servicer for the
related series of Certificates is no longer acting in such capacity, the Trustee
or any successor Master Servicer may assume the Master Servicer's rights and
obligations under such Sub-Servicing Agreement.
Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer will be solely liable for all fees owed by it to any
Sub-Servicer, irrespective of whether the Master Servicer's compensation
pursuant to
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the related Agreement is sufficient to pay such fees. However, a Sub-Servicer
may be entitled to a Retained Interest in certain Whole Loans. Each Sub-Servicer
will be reimbursed by the Master Servicer for certain expenditures which it
makes, generally to the same extent the Master Servicer would be reimbursed
under an Agreement. See "Retained Interest, Servicing Compensation and Payment
of Expenses."
SPECIAL SERVICERS
To the extent so specified in the related Prospectus Supplement, a
special servicer (the "Special Servicer") may be appointed. The related
Prospectus Supplement will describe the rights, obligations and compensation of
a Special Servicer. The Master Servicer will only be responsible for the duties
and obligations of a Special Servicer to the extent set forth in the Prospectus
Supplement.
REALIZATION UPON DEFAULTED WHOLE LOANS
A mortgagor's failure to make required payments may reflect inadequate
income or the diversion of that income from the service of payments due under
the Mortgage Loan, and may call into question such mortgagor's ability to make
timely payment of taxes and to pay for necessary maintenance of the related
Mortgaged Property. Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer is required to monitor any Whole Loan which is
in default, contact the mortgagor concerning the default, evaluate whether the
causes of the default can be cured over a reasonable period without significant
impairment of the value of the Mortgaged Property, initiate corrective action in
cooperation with the mortgagor if cure is likely, inspect the Mortgaged Property
and take such other actions as are consistent with the Servicing Standard. A
significant period of time may elapse before the Master Servicer is able to
assess the success of such corrective action or the need for additional
initiatives.
The time within which the Master Servicer makes the initial
determination of appropriate action, evaluates the success of corrective action,
develops additional initiatives, institutes foreclosure proceedings and actually
forecloses (or takes a deed to a Mortgaged Property in lieu of foreclosure) on
behalf of the Certificateholders, may vary considerably depending on the
particular Whole Loan, the Mortgaged Property, the mortgagor, the presence of an
acceptable party to assume the Whole Loan and the laws of the jurisdiction in
which the Mortgaged Property is located. Under federal bankruptcy law, the
Master Servicer in certain cases may not be permitted to accelerate a Whole Loan
or to foreclose on a Mortgaged Property for a considerable period of time. See
"Certain Legal Aspects of the Mortgage--Loans and the Leases."
Any Agreement relating to a Trust Fund that includes Whole Loans may
grant to the Master Servicer and/or the holder or holders of certain classes of
Certificates a right of first refusal to purchase from the Trust Fund at a
predetermined purchase price any such Whole Loan as to which a specified number
of scheduled payments thereunder are delinquent. Any such right granted to the
holder of an Offered Certificate will be described in the related Prospectus
Supplement. The related Prospectus Supplement will also describe any such right
granted to any person if the predetermined purchase price is less than the
Purchase Price described under "Representations and Warranties; Repurchases."
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer may offer to sell any defaulted Whole Loan described in the
preceding paragraph and not otherwise purchased by any person having a right of
first refusal with respect thereto, if and when the Master Servicer determines,
consistent with the Servicing Standard, that such a sale would produce a greater
recovery on a present value basis than would liquidation through foreclosure or
similar proceeding. The related Agreement will provide that any such offering be
made in a commercially reasonable manner for a specified period and that the
Master Servicer accept the highest cash bid received from any person (including
itself, an affiliate of the Master Servicer or any Certificateholder) that
constitutes a fair price for such defaulted Whole Loan. In the absence of any
bid determined in accordance with the related Agreement to be fair, the Master
Servicer shall proceed with respect to such defaulted Mortgage Loan as described
below. Any bid in an amount at least equal to the Purchase Price described under
"Representations and Warranties; Repurchases" will in all cases be deemed fair.
The Master Servicer, on behalf of the Trustee, may at any time institute
foreclosure proceedings, exercise any power of sale contained in any mortgage,
obtain a deed in lieu of foreclosure, or otherwise acquire title to a Mortgaged
Property securing a Whole Loan by operation of law or otherwise, if such action
is consistent with the
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Servicing Standard and a default on such Whole Loan has
occurred or, in the Master Servicer's judgment, is imminent. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer may not
acquire title to any related Mortgaged Property or take any other action that
would cause the Trustee, for the benefit of Certificateholders, or any other
specified person to be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or an "operator" of such
Mortgaged Property within the meaning of certain federal environmental laws,
unless the Master Servicer has previously determined, based on a report prepared
by a person who regularly conducts environmental audits (which report will be an
expense of the Trust Fund), that either:
(i) the Mortgaged Property is in compliance with applicable
environmental laws, and there are no circumstances present at the Mortgaged
Property relating to the use, management or disposal of any hazardous
substances, hazardous materials, wastes, or petroleum-based materials for
which investigation, testing, monitoring, containment, clean-up or
remediation could be required under any federal, state or local law or
regulation; or
(ii)if the Mortgaged Property is not so in compliance or such
circumstances are so present, then it would be in the best economic
interest of the Trust Fund to acquire title to the Mortgaged Property and
further to take such actions as would be necessary and appropriate to
effect such compliance and/or respond to such circumstances (the cost of
which actions will be an expense of the Trust Fund).
Unless otherwise provided in the related Prospectus Supplement, if title
to any Mortgaged Property is acquired by a Trust Fund as to which a REMIC
election has been made, the Master Servicer, on behalf of the Trust Fund, will
be required to sell the Mortgaged Property prior to the close of the third
calendar year following the year of acquisition of such Mortgaged Property by
the Trust Fund, unless (i) the Internal Revenue Service grants an extension of
time to sell such property or (ii) the Trustee receives an opinion of
independent counsel to the effect that the holding of the property by the Trust
Fund subsequent to such period will not result in the imposition of a tax on the
Trust Fund or cause the Trust Fund to fail to qualify as a REMIC under the Code
at any time that any Certificate is outstanding. Subject to the foregoing, the
Master Servicer will be required to (i) solicit bids for any Mortgaged Property
so acquired in such a manner as will be reasonably likely to realize a fair
price for such property and (ii) accept the first (and, if multiple bids are
contemporaneously received, the highest) cash bid received from any person that
constitutes a fair price.
If the Trust Fund acquires title to any Mortgaged Property, the Master
Servicer, on behalf of the Trust Fund, may retain an independent contractor to
manage and operate such property. The retention of an independent contractor,
however, will not relieve the Master Servicer of any of its obligations with
respect to the management and operation of such Mortgaged Property. Unless
otherwise specified in the related Prospectus Supplement, any such property
acquired by the Trust Fund will be managed in a manner consistent with the
management and operation of similar property by a prudent lending institution.
The limitations imposed by the related Agreement and the REMIC
provisions of the Code (if a REMIC election has been made with respect to the
related Trust Fund) on the operations and ownership of any Mortgaged Property
acquired on behalf of the Trust Fund may result in the recovery of an amount
less than the amount that would otherwise be recovered. See "Certain Legal
Aspects of the Mortgage Loans and the Leases--Foreclosure."
If recovery on a defaulted Whole Loan under any related instrument of
Credit Support is not available, the Master Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and procedures
as it deems necessary or advisable to realize upon the defaulted Whole Loan. If
the proceeds of any liquidation of the property securing the defaulted Whole
Loan are less than the outstanding principal balance of the defaulted Whole Loan
plus interest accrued thereon at the Mortgage Rate plus the aggregate amount of
expenses incurred by the Master Servicer in connection with such proceedings and
which are reimbursable under the Agreement, the Trust Fund will realize a loss
in the amount of such difference. The Master Servicer will be entitled to
withdraw or cause to be withdrawn from the Certificate Account out of the
Liquidation Proceeds recovered on any defaulted Whole Loan, prior to the
distribution of such Liquidation Proceeds to Certificateholders, amounts
representing its normal servicing compensation on the Whole Loan, unreimbursed
servicing expenses incurred with respect to the Whole Loan and any unreimbursed
advances of delinquent payments made with respect to the Whole Loan.
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If any property securing a defaulted Whole Loan is damaged and proceeds,
if any, from the related hazard insurance policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under the related
instrument of Credit Support, if any, the Master Servicer is not required to
expend its own funds to restore the damaged property unless it determines (i)
that such restoration will increase the proceeds to Certificateholders on
liquidation of the Whole Loan after reimbursement of the Master Servicer for its
expenses and (ii) that such expenses will be recoverable by it from related
Insurance Proceeds or Liquidation Proceeds.
As servicer of the Whole Loans, a Master Servicer, on behalf of itself,
the Trustee and the Certificateholders, will present claims to the obligor under
each instrument of Credit Support, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
defaulted Whole Loans.
If a Master Servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted Whole Loan, the
Master Servicer will be entitled to withdraw or cause to be withdrawn from the
Certificate Account out of such proceeds, prior to distribution thereof to
Certificateholders, amounts representing its normal servicing compensation on
such Whole Loan, unreimbursed servicing expenses incurred with respect to the
Whole Loan and any unreimbursed advances of delinquent payments made with
respect to the Whole Loan. See "Hazard Insurance Policies" and "Description of
Credit Support."
HAZARD INSURANCE POLICIES
Unless otherwise specified in the related Prospectus Supplement, each
Agreement for a Trust Fund that includes Whole Loans will require the Master
Servicer to cause the mortgagor on each Whole Loan to maintain a hazard
insurance policy providing for such coverage as is required under the related
Mortgage or, if any Mortgage permits the holder thereof to dictate to the
mortgagor the insurance coverage to be maintained on the related Mortgaged
Property, then such coverage as is consistent with the Servicing Standard.
Unless otherwise specified in the related Prospectus Supplement, such coverage
will be in general in an amount equal to the lesser of the principal balance
owing on such Whole Loan and the amount necessary to fully compensate for any
damage or loss to the improvements on the Mortgaged Property on a replacement
cost basis, but in either case not less than the amount
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 the Certificate Account. The Agreement will provide that the Master
Servicer may satisfy its obligation to cause each mortgagor to maintain such a
hazard insurance policy by the Master Servicer's maintaining a blanket policy
insuring against hazard losses on the Whole Loans. If such blanket policy
contains a deductible clause, the Master Servicer will be required to deposit in
the Certificate Account all sums that would have been deposited therein but for
such clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements of the property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies relating to the Whole Loans will be underwritten
by different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do not cover any physical damage resulting from
war, revolution, governmental actions, floods and other water-related causes,
earth movement (including earthquakes, landslides and mudflows), wet or dry rot,
vermin, domestic animals and certain other kinds of uninsured risks.
The hazard insurance policies covering the Mortgaged Properties securing
the Whole Loans will typically contain a co-insurance clause that in effect
requires the insured at all times to carry insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the improvements on the
property in order to
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recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause generally provides that the
insurer's liability in the event of partial loss does not exceed the lesser of
(i) the replacement cost of the improvements less physical depreciation and (ii)
such proportion of the loss as the amount of insurance carried bears to the
specified percentage of the full replacement cost of such improvements.
Each Agreement for a Trust Fund that includes Whole Loans will require
the Master Servicer to cause the mortgagor on each Whole Loan, or, in certain
cases, the related Lessee, to maintain all such other insurance coverage with
respect to the related Mortgaged Property as is consistent with the terms of the
related Mortgage and the Servicing Standard, which insurance may typically
include flood insurance (if the related Mortgaged Property was located at the
time of origination in a federally designated flood area).
In addition, to the extent required by the related Mortgage, the Master
Servicer may require the mortgagor or related Lessee to maintain other forms of
insurance including, but not limited to, loss of rent endorsements, business
interruption insurance and comprehensive public liability insurance, and the
related Agreement may require the Master Servicer, Sub-Servicer or Special
Servicer to maintain public liability insurance with respect to any REO
Properties. Any cost incurred by the Master Servicer in maintaining any such
insurance policy will be added to the amount owing under the Mortgage Loan where
the terms of the Mortgage Loan so permit; provided, however, that the addition
of such cost will not be taken into account for purposes of calculating the
distribution to be made to Certificateholders. Such costs may be recovered by
the Master Servicer, Sub-Servicer or Special Servicer, as the case may be, from
the Collection Account, with interest thereon, as provided by the Agreement.
Under the terms of the Whole Loans, mortgagors will generally be
required to present claims to insurers under hazard insurance policies
maintained on the related Mortgaged Properties. The Master Servicer, on behalf
of the Trustee and Certificateholders, is obligated to present or cause to be
presented claims under any blanket insurance policy insuring against hazard
losses on Mortgaged Properties securing the Whole Loans. However, the ability of
the Master Servicer to present or cause to be presented such claims is dependent
upon the extent to which information in this regard is furnished to the Master
Servicer by mortgagors.
RENTAL INTERRUPTION INSURANCE POLICY
If so specified in the related Prospectus Supplement, the Master
Servicer or the mortgagors will maintain rental interruption insurance policies
in full force and effect with respect to some or all of the Leases. Although the
terms of such policies vary to some degree, a rental interruption insurance
policy typically provides that, to the extent that a Lessee fails to make timely
rental payments under the related Lease due to a casualty event, such losses
will be reimbursed to the insured. If so specified in the related Prospectus
Supplement, the Master Servicer will be required to pay from its servicing
compensation the premiums on the rental interruption policy on a timely basis.
If so specified in the Prospectus Supplement, if such rental interruption policy
is canceled or terminated for any reason (other than the exhaustion of total
policy coverage), the Master Servicer will exercise its best reasonable efforts
to obtain from another insurer a replacement policy comparable to the rental
interruption policy with a total coverage that is equal to the then existing
coverage of the terminated rental interruption policy; provided that if the cost
of any such replacement policy is greater than the cost of the terminated rental
interruption policy, the amount of coverage under the replacement policy will,
unless otherwise specified in the related Prospectus Supplement, be reduced to a
level such that the applicable premium does not exceed, by a percentage that may
be set forth in the related Prospectus Supplement, the cost of the rental
interruption policy that was replaced. Any amounts collected by the Master
Servicer under the rental interruption policy in the nature of insurance
proceeds will be deposited in the Certificate Account.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will require that the Master Servicer and any Special Servicer obtain
and maintain in effect a fidelity bond or similar form of insurance coverage
(which may provide blanket coverage) or any combination thereof insuring against
loss occasioned by fraud, theft or other intentional misconduct of the officers,
employees and agents of the Master Servicer or the Special Servicer, as
applicable. The related Agreement will allow the Master Servicer and any Special
Servicer to self-insure against loss occasioned by the errors and omissions of
the officers, employees and agents of the Master Servicer or the Special
Servicer so long as certain criteria set forth in the Agreement are met.
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DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Whole Loans may contain clauses requiring the consent of
the mortgagee to any sale or other transfer of the related Mortgaged Property,
or due-on-sale clauses entitling the mortgagee to accelerate payment of the
Whole Loan upon any sale or other transfer of the related Mortgaged Property.
Certain of the Whole Loans may contain clauses requiring the consent of the
mortgagee to the creation of any other lien or encumbrance on the Mortgaged
Property or due-on-encumbrance clauses entitling the mortgagee to accelerate
payment of the Whole Loan upon the creation of any other lien or encumbrance
upon the Mortgaged Property. Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer, on behalf of the Trust Fund, will exercise any
right the Trustee may have as mortgagee to accelerate payment of any such Whole
Loan or to withhold its consent to any transfer or further encumbrance in a
manner consistent with the Servicing Standard. Unless otherwise specified in the
related Prospectus Supplement, any fee collected by or on behalf of the Master
Servicer for entering into an assumption agreement will be retained by or on
behalf of the Master Servicer as additional servicing compensation. See "Certain
Legal Aspects of the Mortgage Loans and the Leases--Due-on-Sale and
Due-on-Encumbrance."
RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Prospectus Supplement for a series of Certificates will specify
whether there will be any Retained Interest in the Assets, and, if so, the
initial owner thereof. If so, the Retained Interest will be established on a
loan-by-loan basis and will be specified on an exhibit to the related Agreement.
A "Retained Interest" in an Asset represents a specified portion of the interest
payable thereon. The Retained Interest will be deducted from mortgagor payments
as received and will not be part of the related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer's and a Sub-Servicer's primary servicing compensation with
respect to a series of Certificates will come from the periodic payment to it of
a portion of the interest payment on each Asset. Since any Retained Interest and
a Master Servicer's primary compensation are percentages of the principal
balance of each Asset, such amounts will decrease in accordance with the
amortization of the Assets. The Prospectus Supplement with respect to a series
of Certificates evidencing interests in a Trust Fund that includes Whole Loans
may provide that, as additional compensation, the Master Servicer or the
Sub-Servicers may retain all or a portion of assumption fees, modification fees,
late payment charges or Prepayment Premiums collected from mortgagors and any
interest or other income which may be earned on funds held in the Certificate
Account or any account established by a Sub-Servicer pursuant to the Agreement.
The Master Servicer may, to the extent provided in the related
Prospectus Supplement, pay from its servicing compensation certain expenses
incurred in connection with its servicing and managing of the Assets, including,
without limitation, payment of the fees and disbursements of the Trustee and
independent accountants, payment of expenses incurred in connection with
distributions and reports to Certificateholders, and payment of any other
expenses described in the related Prospectus Supplement. Certain other expenses,
including certain expenses relating to defaults and liquidations on the Whole
Loans and, to the extent so provided in the related Prospectus Supplement,
interest thereon at the rate specified therein, and the fees of any Special
Servicer, may be borne by the Trust Fund.
EVIDENCE AS TO COMPLIANCE
Each Agreement relating to Assets which include Whole Loans will provide
that on or before a specified date in each year, beginning with the first such
date at least six months after the related Cut-off Date, a firm of independent
public accountants will furnish a statement to the Trustee to the effect that,
on the basis of the examination by such firm conducted substantially in
compliance with either the Uniform Single Attestation Program for Mortgage
Bankers or the Audit Program for Mortgages serviced for the Federal Home Loan
Mortgage Corporation ("FHLMC"), the servicing by or on behalf of the Master
Servicer of mortgage loans under pooling and servicing agreements substantially
similar to each other (including the related Agreement) was conducted in
compliance with the terms of such agreements except for any significant
exceptions or errors in records that, in the opinion of the firm, either the
Audit Program for Mortgages serviced for FHLMC, or paragraph 4 of the Uniform
Single Attestation Program for Mortgage Bankers, requires it to report. In
rendering its statement such firm may rely, as to matters relating to the direct
servicing of mortgage loans by Sub-Servicers, upon comparable statements
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for examinations conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers or the Audit Program for Mortgages
serviced for FHLMC (rendered within one year of such statement) of firms of
independent public accountants with respect to the related Sub-Servicer.
Each such Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by two
officers of the Master Servicer to the effect that the Master Servicer has
fulfilled its obligations under the Agreement throughout the preceding calendar
year or other specified twelve-month period.
Unless otherwise provided in the related Prospectus Supplement, copies
of such annual accountants' statement and such statements of officers will be
obtainable by Certificateholders without charge upon written request to the
Master Servicer at the address set forth in the related Prospectus Supplement.
CERTAIN MATTERS REGARDING A MASTER SERVICER AND THE DEPOSITOR
The Master Servicer, if any, or a servicer for substantially all the
Whole Loans under each Agreement will be named in the related Prospectus
Supplement. The entity serving as Master Servicer (or as such servicer) may be
an affiliate of the Depositor and may have other normal business relationships
with the Depositor or the Depositor's affiliates. Reference herein to the Master
Servicer shall be deemed to be to the servicer of substantially all of the Whole
Loans, if applicable.
Unless otherwise specified in the related Prospectus Supplement, the
related Agreement will provide that the Master Servicer may resign from its
obligations and duties thereunder only upon a determination that its duties
under the Agreement are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it, the other activities of the Master Servicer so causing such a conflict
being of a type and nature carried on by the Master Servicer at the date of the
Agreement. No such resignation will become effective until the Trustee or a
successor servicer has assumed the Master Servicer's obligations and duties
under the Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will further provide that neither any Master Servicer, the Depositor
nor any director, officer, employee, or agent of a Master Servicer or the
Depositor will be under any liability to the related Trust Fund or
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to the Agreement; provided, however, that
neither a Master Servicer, the Depositor nor any such person will be protected
against any breach of a representation, warranty or covenant made in such
Agreement, or against any liability specifically imposed thereby, or against any
liability which would otherwise be imposed by reason of willful misfeasance, bad
faith or gross negligence in the performance of obligations or duties thereunder
or by reason of reckless disregard of obligations and duties thereunder. Unless
otherwise specified in the related Prospectus Supplement, each Agreement will
further provide that any Master Servicer, the Depositor and any director,
officer, employee or agent of a Master Servicer or the Depositor will be
entitled to indemnification by the related Trust Fund and will be held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to the Agreement or the Certificates; provided, however, that
such indemnification will not extend to any loss, liability or expense (i)
specifically imposed by such Agreement or otherwise incidental to the
performance of obligations and duties thereunder, including, in the case of a
Master Servicer, the prosecution of an enforcement action in respect of any
specific Whole Loan or Whole Loans (except as any such loss, liability or
expense shall be otherwise reimbursable pursuant to such Agreement); (ii)
incurred in connection with any breach of a representation, warranty or covenant
made in such Agreement; (iii) incurred by reason of misfeasance, bad faith or
gross negligence in the performance of obligations or duties thereunder, or by
reason of reckless disregard of such obligations or duties; (iv) incurred in
connection with any violation of any state or federal securities law; or (v)
imposed by any taxing authority if such loss, liability or expense is not
specifically reimbursable pursuant to the terms of the related Agreement. In
addition, each Agreement will provide that neither any Master Servicer nor the
Depositor will be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its respective responsibilities under
the Agreement and which in its opinion may involve it in any expense or
liability. Any such Master Servicer or the Depositor may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the Agreement and the rights and duties of the parties thereto
and the interests of the Certificateholders thereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom will be
expenses, costs
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and liabilities of the Certificateholders, and the Master Servicer or the
Depositor, as the case may be, will be entitled to be reimbursed therefor and to
charge the Certificate Account.
Any person into which the Master Servicer or the Depositor may be merged
or consolidated, or any person resulting from any merger or consolidation to
which the Master Servicer or the Depositor is a party, or any person succeeding
to the business of the Master Servicer or the Depositor, will be the successor
of the Master Servicer or the Depositor, as the case may be, under the related
Agreement.
EVENTS OF DEFAULT
Unless otherwise provided in the related Prospectus Supplement for a
Trust Fund that includes Whole Loans, Events of Default under the related
Agreement will include (i) any failure by the Master Servicer to distribute or
cause to be distributed to Certificateholders, or to remit to the Trustee for
distribution to Certificateholders, any required payment; (ii) any failure by
the Master Servicer duly to observe or perform in any material respect any of
its other covenants or obligations under the Agreement which continues
unremedied for thirty days after written notice of such failure has been given
to the Master Servicer by the Trustee or the Depositor, or to the Master
Servicer, the Depositor and the Trustee by the holders of Certificates
evidencing not less than 25% of the Voting Rights; (iii) any breach of a
representation or warranty made by the Master Servicer under the Agreement which
materially and adversely affects the interests of Certificateholders and which
continues unremedied for thirty days after written notice of such breach has
been given to the Master Servicer by the Trustee or the Depositor, or to the
Master Servicer, the Depositor and the Trustee by the holders of Certificates
evidencing not less than 25% of the Voting Rights; and (iv) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings and certain actions by or on behalf of the Master Servicer
indicating its insolvency or inability to pay its obligations. Material
variations to the foregoing Events of Default (other than to shorten cure
periods or eliminate notice requirements) will be specified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the Trustee shall, not later than the later of 60 days after the
occurrence of any event which constitutes or, with notice or lapse of time or
both, would constitute an Event of Default and five days after certain officers
of the Trustee become aware of the occurrence of such an event, transmit by mail
to the Depositor and all Certificateholders of the applicable series notice of
such occurrence, unless such default shall have been cured or waived.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under an Agreement remains unremedied,
the Depositor or the Trustee may, and at the direction of holders of
Certificates evidencing not less than 51% of the Voting Rights, the Trustee
shall, terminate all of the rights and obligations of the Master Servicer under
the Agreement and in and to the Mortgage Loans (other than as a
Certificateholder or as the owner of any Retained Interest), whereupon the
Trustee will succeed to all of the responsibilities, duties and liabilities of
the Master Servicer under the Agreement (except that if the Trustee is
prohibited by law from obligating itself to make advances regarding delinquent
mortgage loans, or if the related Prospectus Supplement so specifies, then the
Trustee will not be obligated to make such advances) and will be entitled to
similar compensation arrangements. Unless otherwise specified in the related
Prospectus Supplement, in the event that the Trustee is unwilling or unable so
to act, it may or, at the written request of the holders of Certificates
entitled to at least 51% of the Voting Rights, it shall appoint, or petition a
court of competent jurisdiction for the appointment of, a loan servicing
institution acceptable to the Rating Agency with a net worth at the time of such
appointment of at least $15,000,000 to act as successor to the Master Servicer
under the Agreement. Pending such appointment, the Trustee is obligated to act
in such capacity. The Trustee and any such successor may agree upon the
servicing compensation to be paid, which in no event may be greater than the
compensation payable to the Master Servicer under the Agreement.
Unless otherwise described in the related Prospectus Supplement, the
holders of Certificates representing at least 66 2/3% of the Voting Rights
allocated to the respective classes of Certificates affected by any Event of
Default will be entitled to waive such Event of Default; provided, however, that
an Event of Default involving a failure to distribute a required payment to
Certificateholders described in clause (i) under "Events of Default" may be
waived only by all of the Certificateholders. Upon any such waiver of an Event
of Default, such Event of Default shall cease to exist and shall be deemed to
have been remedied for every purpose under the Agreement.
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No Certificateholder will have the right under any Agreement to
institute any proceeding with respect thereto unless such holder previously has
given to the Trustee written notice of default and unless the holders of
Certificates evidencing not less than 25% of the Voting Rights have made written
request upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity, and the Trustee
for sixty days has neglected or refused to institute any such proceeding. The
Trustee, however, is under no obligation to exercise any of the trusts or powers
vested in it by any Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the holders of
Certificates covered by such Agreement, unless such Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
AMENDMENT
Each Agreement may be amended by the parties thereto without the consent
of any of the holders of Certificates covered by the Agreement, (i) to cure any
ambiguity, (ii) to correct, modify or supplement any provision therein which may
be inconsistent with any other provision therein, (iii) to make any other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions thereof, or (iv) to comply with
any requirements imposed by the Code; provided that such amendment (other than
an amendment for the purpose specified in clause (iv) above) will not (as
evidenced by an opinion of counsel to such effect) adversely affect in any
material respect the interests of any holder of Certificates covered by the
Agreement. Unless otherwise specified in the related Prospectus Supplement, each
Agreement may also be amended by the Depositor, the Master Servicer, if any, and
the Trustee, with the consent of the holders of Certificates affected thereby
evidencing not less than 51% of the Voting Rights, for any purpose; provided,
however, that unless otherwise specified in the related Prospectus Supplement,
no such amendment may (i) reduce in any manner the amount of or delay the timing
of, payments received or advanced on Mortgage Loans which are required to be
distributed on any Certificate without the consent of the holder of such
Certificate, (ii) adversely affect in any material respect the interests of the
holders of any class of Certificates in a manner other than as described in (i),
without the consent of the holders of all Certificates of such class or (iii)
modify the provisions of such Agreement described in this paragraph without the
consent of the holders of all Certificates covered by such Agreement then
outstanding. However, with respect to any series of Certificates as to which a
REMIC election is to be made, the Trustee will not consent to any amendment of
the Agreement unless it shall first have received an opinion of counsel to the
effect that such amendment will not result in the imposition of a tax on the
related Trust Fund or cause the related Trust Fund to fail to qualify as a REMIC
at any time that the related Certificates are outstanding.
THE TRUSTEE
The Trustee under each Agreement will be named in the related Prospectus
Supplement. The commercial bank, national banking association, banking
corporation or trust company serving as Trustee may have a banking relationship
with the Depositor and its affiliates and with any Master Servicer and its
affiliates.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or
sufficiency of any Agreement, the Certificates or any Asset or related document
and is not accountable for the use or application by or on behalf of any Master
Servicer of any funds paid to the Master Servicer or its designee or any Special
Servicer in respect of the Certificates or the Assets, or deposited into or
withdrawn from the Certificate Account or any other account by or on behalf of
the Master Servicer or any Special Servicer. If no Event of Default has occurred
and is continuing, the Trustee is required to perform only those duties
specifically required under the related Agreement. However, upon receipt of the
various certificates, reports or other instruments required to be furnished to
it, the Trustee is required to examine such documents and to determine whether
they conform to the requirements of the Agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
Unless otherwise specified in the related Prospectus Supplement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
entitled to indemnification out of the Certificate Account for any loss,
liability or expense (including costs and expenses of litigation, and of
investigation, counsel fees, damages,
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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 Agreement, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Depositor
may remove the Trustee and appoint a successor trustee acceptable to the Master
Servicer, if any. Holders of the Certificates of any series entitled to at least
51% of the Voting Rights for such series may at any time remove the Trustee
without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall not become effective until acceptance of appointment by the
successor trustee.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any series of Certificates, Credit Support may be provided with
respect to one or more classes thereof or the related Assets. Credit Support may
be in the form of the subordination of one or more classes of Certificates,
letters of credit, insurance policies, guarantees, the establishment of one or
more reserve funds or another method of Credit Support described in the related
Prospectus Supplement, or any combination of the foregoing. If so provided in
the related Prospectus Supplement, any form of Credit Support may be structured
so as to be drawn upon by more than one series to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a
series of Certificates, the Credit Support will not provide protection against
all risks of loss and will not guarantee repayment of the entire Certificate
Balance of the Certificates and interest thereon. If losses or shortfalls occur
that exceed the amount covered by Credit Support or that are not covered by
Credit Support, Certificateholders will bear their allocable share of
deficiencies. Moreover, if a form of Credit Support covers more than one series
of Certificates (each, a "Covered Trust"), holders of Certificates evidencing
interests in any of such Covered Trusts will be subject to the risk that such
Credit Support will be exhausted by the claims of other Covered Trusts prior to
such Covered Trust receiving any of its intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or the related Assets, the related Prospectus
Supplement will include a description of (a) the nature and amount of coverage
under
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such Credit Support, (b) any conditions to payment thereunder not otherwise
described herein, (c) the conditions (if any) under which the amount of coverage
under such Credit Support may be reduced and under which such Credit Support may
be terminated or replaced and (d) the material provisions relating to such
Credit Support. Additionally, the related Prospectus Supplement will set forth
certain information with respect to the obligor under any instrument of Credit
Support, including (i) a brief description of its principal business activities,
(ii) its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business, (iii) if
applicable, the identity of regulatory agencies that exercise primary
jurisdiction over the conduct of its business and (iv) its total assets, and its
stockholders' or policyholders' surplus, if applicable, as of the date specified
in the Prospectus Supplement. See "Risk Factors--Credit Support Limitations."
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more
classes of Certificates of a series may be Subordinate Certificates. To the
extent specified in the related Prospectus Supplement, the rights of the holders
of Subordinate Certificates to receive distributions of principal and interest
from the Certificate Account on any Distribution Date will be subordinated to
such rights of the holders of Senior Certificates. If so provided in the related
Prospectus Supplement, the subordination of a class may apply only in the event
of (or may be limited to) certain types of losses or shortfalls. The related
Prospectus Supplement will set forth information concerning the amount of
subordination of a class or classes of Subordinate Certificates in a series, the
circumstances in which such subordination will be applicable and the manner, if
any, in which the amount of subordination will be effected.
CROSS-SUPPORT PROVISIONS
If the Assets for a series are divided into separate groups, each
supporting a separate class or classes of Certificates of a series, credit
support may be provided by cross-support provisions requiring that distributions
be made on Senior Certificates evidencing interests in one group of Mortgage
Assets prior to distributions on Subordinate Certificates evidencing interests
in a different group of Mortgage Assets within the Trust Fund. The Prospectus
Supplement for a series that includes a cross-support provision will describe
the manner and conditions for applying such provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO THE WHOLE LOANS
If so provided in the Prospectus Supplement for a series of
Certificates, the Whole Loans in the related Trust Fund will be covered for
various default risks by insurance policies or guarantees. A copy of any such
material instrument for a series will be filed with the Commission as an exhibit
to a Current Report on Form 8-K to be filed within 15 days of issuance of the
Certificates of the related series.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by one or more letters of credit, issued
by a bank or financial institution specified in such Prospectus Supplement (the
"L/C Bank"). Under a letter of credit, the L/C Bank will be obligated to honor
draws thereunder in an aggregate fixed dollar amount, net of unreimbursed
payments thereunder, generally equal to a percentage specified in the related
Prospectus Supplement of the aggregate principal balance of the Mortgage Assets
on the related Cut-off Date or of the initial aggregate Certificate Balance of
one or more classes of Certificates. If so specified in the related Prospectus
Supplement, the letter of credit may permit draws in the event of only certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments
thereunder and may otherwise be reduced as described in the related Prospectus
Supplement. The obligations of the L/C Bank under the letter of credit for each
series of Certificates will expire at the earlier of the date specified in the
related Prospectus Supplement or the termination of the Trust Fund. A copy of
any such letter of credit for a series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of issuance
of the Certificates of the related series.
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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 Assets as specified in the related Prospectus Supplement.
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. A
reserve fund may be provided to increase the likelihood of timely distributions
of principal of and interest on the Certificates. If so specified in the related
Prospectus Supplement, reserve funds may be established to provide limited
protection against only certain types of losses and shortfalls. Following each
Distribution Date amounts in a reserve fund in excess of any amount required to
be maintained therein may be released from the reserve fund under the conditions
and to the extent specified in the related Prospectus Supplement and will not be
available for further application to the Certificates.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investments, except as otherwise specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, any
reinvestment income or other gain from such investments will be credited to the
related Reserve Fund for such series, and any loss resulting from such
investments will be charged to such Reserve Fund. However, such income may be
payable to any related Master Servicer or another service provider as additional
compensation. The Reserve Fund, if any, for a series will not be a part of the
Trust Fund unless otherwise specified in the related Prospectus Supplement.
Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such Reserve
Fund, the balance required to be maintained in the Reserve Fund, the manner in
which such required balance will decrease over time, the manner of funding such
Reserve Fund, the purposes for which funds in the Reserve Fund may be applied to
make distributions to Certificateholders and use of investment earnings from the
Reserve Fund, if any.
CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the Prospectus Supplement for a series of
Certificates, the MBS in the related Trust Fund and/or the Mortgage Loans
underlying such MBS may be covered by one or more of the types of Credit Support
described herein. The related Prospectus Supplement will specify as to each such
form of Credit Support the information indicated above with respect thereto, to
the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties
that are general in nature. Because such legal aspects are governed by
applicable state law (which laws may differ substantially), the summaries do not
purport to be complete nor to reflect the laws of any particular state, nor to
encompass the laws of all states in which the security for the
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Mortgage Loans is situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage Loans.
See "Description of the Trust Funds--Assets."
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond and
secured by instruments granting a security interest in real property which may
be mortgages, deeds of trust, security deeds or deeds to secure debt, depending
upon the prevailing practice and law in the state in which the Mortgaged
Property is located. Mortgages, deeds of trust and deeds to secure debt are
herein collectively referred to as "mortgages." Any of the foregoing types of
mortgages will create a lien upon, or grant a title interest in, the subject
property, the priority of which will depend on the terms of the particular
security instrument, as well as separate, recorded, contractual arrangements
with others holding interests in the mortgaged property, the knowledge of the
parties to such instrument as well as the order of recordation of the instrument
in the appropriate public recording office. However, recording does not
generally establish priority over governmental claims for real estate taxes and
assessments and other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties--a mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). In contrast, a deed
of trust is a three-party instrument, among a trustor (the equivalent of a
mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "mortgagor" includes the
trustor under a deed of trust and a grantor under a security deed or a deed to
secure debt. Under a deed of trust, the mortgagor grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale as
security for the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties. By executing a deed to secure debt, the grantor
conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid,
generally with a power of sale as security for the indebtedness evidenced by the
related mortgage note. In case the mortgagor under a mortgage is a land trust,
there would be an additional party because legal title to the property is held
by a land trustee under a land trust agreement for the benefit of the mortgagor.
At origination of a mortgage loan involving a land trust, the mortgagor executes
a separate undertaking to make payments on the mortgage note. The mortgagee's
authority under a mortgage, the trustee's authority under a deed of trust and
the grantee's authority under a deed to secure debt are governed by the express
provisions of the mortgage, the law of the state in which the real property is
located, certain federal laws (including, without limitation, the Soldiers' and
Sailors' Civil Relief Act of 1940) and, in some cases, in deed of trust
transactions, the directions of the beneficiary.
INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed or
deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property such
as a tenant's interest in a lease of land or improvements, or both, and the
leasehold estate created by such lease. An instrument covering an interest in
real property other than the fee estate requires special provisions in the
instrument creating such interest or in the mortgage, deed of trust, security
deed or deed to secure debt, to protect the mortgagee against termination of
such interest before the mortgage, deed of trust, security deed or deed to
secure debt is paid. Unless otherwise specified in the Prospectus Supplement,
the Depositor or the Asset Seller will make certain representations and
warranties in the Agreement with respect to the Mortgage Loans which are secured
by an interest in a leasehold estate. Such representation and warranties will be
set forth in the Prospectus Supplement if applicable.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the mortgagor assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while the mortgagor retains a revocable license to
collect the rents for so long as there is no default. Under such assignments,
the mortgagor typically assigns its right, title and interest as lessor
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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 revenues are considered
accounts receivable under the UCC; generally these revenues are either assigned
by the mortgagor, which remains entitled to collect such revenues absent a
default, or pledged by the mortgagor, as security for the loan. In general, the
lender must file financing statements in order to perfect its security interest
in the revenues and must file continuation statements, generally every five
years, to maintain perfection of such security interest. Even if the lender's
security interest in room revenues is perfected under the UCC, the lender will
generally be required to commence a foreclosure or otherwise take possession of
the property in order to collect the room revenues after a default.
Even after a foreclosure, the potential rent payments from the property
may be less than the periodic payments that had been due under the mortgage. For
instance, the net income that would otherwise be generated from the property may
be less than the amount that would have been needed to service the mortgage debt
if the leases on the property are at below-market rents, or as the result of
excessive maintenance, repair or other obligations which a lender succeeds to as
landlord.
Lenders that actually take possession of the property, however, may
incur potentially substantial risks attendant to being a mortgagee in
possession. Such risks include liability for environmental clean-up costs and
other risks inherent in property ownership.
See "Environmental Legislation" below.
PERSONALTY
Certain types of Mortgaged Properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value from
personal property which does not constitute "fixtures" under applicable state
real property law and, hence, would not be subject to the lien of a mortgage.
Such property is generally pledged or assigned as security to the lender under
the UCC. In order to perfect its security interest therein, the lender generally
must file UCC financing statements and, to maintain perfection of such security
interest, file continuation statements generally every five years.
FORECLOSURE
GENERAL
Foreclosure is a legal procedure that allows the mortgagee to recover
its mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the mortgagor defaults in payment or performance of its obligations
under the note or mortgage, the mortgagee has the right to institute foreclosure
proceedings to sell the mortgaged property at public auction to satisfy the
indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage
vary from state to state. Two primary methods of foreclosing a mortgage are
judicial foreclosure and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage instrument. There are several other foreclosure
procedures available in some states that are either infrequently used or
available only in certain limited circumstances, such as strict foreclosure.
JUDICIAL FORECLOSURE
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having a subordinate interest of
record in the real property and all parties in possession of the property, under
leases or otherwise, whose interests are subordinate to the mortgage. Delays in
completion of the foreclosure may occasionally result from difficulties in
locating defendants. When the lender's right to foreclose is contested, the
legal proceedings can be time-consuming. Upon successful completion of a
judicial foreclosure proceeding, the court generally issues a judgment of
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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 to accommodate mortgagors who are suffering from a temporary
financial disability. In other cases, courts have limited the right of the
lender to foreclose if the default under the mortgage is not monetary, e.g., the
mortgagor failed to maintain the mortgaged property adequately or the mortgagor
executed a junior mortgage on the mortgaged property. The exercise by the court
of its equity powers will depend on the individual circumstances of each case
presented to it. Finally, some courts have been faced with the issue of whether
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that a mortgagor receive notice in addition to
statutorily-prescribed minimum notice. For the most part, these cases have
upheld the reasonableness of the notice provisions or have found that a public
sale under a mortgage providing for a power of sale does not involve sufficient
state action to afford constitutional protections to the mortgagor.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes require several years to complete. Moreover, as discussed below, a
non-collusive, regularly conducted foreclosure sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court determines
that the sale was for less than fair consideration and such sale occurred while
the mortgagor was insolvent (or the mortgagor was rendered insolvent as a result
of such sale) and within one year (or within the state statute of limitations if
the trustee in bankruptcy elects to proceed under state fraudulent conveyance
law) of the filing of bankruptcy.
NON-JUDICIAL FORECLOSURE/POWER OF SALE
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale pursuant to the power of sale granted in the deed of
trust. A power of sale is typically granted in a deed of trust. It may also be
contained in any other type of mortgage instrument. A power of sale allows a
non-judicial public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such sale,
the trustee under a deed of trust must record a notice of default and notice of
sale and send a copy to the mortgagor and to any other party who has recorded a
request for a copy of a notice of default and notice of sale. In addition, in
some states the trustee must provide notice to any other party having an
interest of record in the real property, including junior lienholders. A notice
of sale must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. The mortgagor or junior
lienholder may then have the right, during a reinstatement period required in
some states, to cure the default by paying the entire actual amount in arrears
(without acceleration) plus the expenses incurred in enforcing the obligation.
In other states, the mortgagor or the junior lienholder is not provided a period
to reinstate the loan, but has only the right to pay off the entire debt to
prevent the foreclosure sale. Generally, the procedure for public sale, the
parties entitled to notice, the method of giving notice and the applicable time
periods are governed by state law and vary among the states. Foreclosure of a
deed to secure debt is also generally accomplished by a non-judicial sale
similar to that required by a deed of trust, except that the lender or its
agent, rather than a trustee, is typically empowered to perform the sale in
accordance with the terms of the deed to secure debt and applicable law.
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PUBLIC SALE
A third party may be unwilling to purchase a mortgaged property at a
public sale because of the difficulty in determining the value of such property
at the time of sale, due to, among other things, redemption rights which may
exist and the possibility of physical deterioration of the property during the
foreclosure proceedings. For these reasons, it is common for the lender to
purchase the mortgaged property for an amount equal to or less than the
underlying debt and accrued and unpaid interest plus the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs and
expenses which may be recovered by a lender. Thereafter, subject to the
mortgagor's right in some states to remain in possession during a redemption
period, if applicable, the lender will become the owner of the property and have
both the benefits and burdens of ownership of the mortgaged property. For
example, the lender will have the obligation to pay debt service on any senior
mortgages, to pay taxes, obtain casualty insurance and to make such repairs at
its own expense as are necessary to render the property suitable for sale.
Frequently, the lender employs a third party management company to manage and
operate the property. The costs of operating and maintaining a commercial or
multifamily residential property may be significant and may be greater than the
income derived from that property. The costs of management and operation of
those mortgaged properties which are hotels, motels, restaurants, nursing or
convalescent homes or hospitals may be particularly significant because of the
expertise, knowledge and, with respect to nursing or convalescent homes or
hospitals, regulatory compliance, required to run such operations and the effect
which foreclosure and a change in ownership may have on the public's and the
industry's (including franchisors') perception of the quality of such
operations. The lender will commonly obtain the services of a real estate broker
and pay the broker's commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property. Moreover, a
lender commonly incurs substantial legal fees and court costs in acquiring a
mortgaged property through contested foreclosure and/or bankruptcy proceedings.
Furthermore, a few states require that any environmental contamination at
certain types of properties be cleaned up before a property may be resold. In
addition, a lender may be responsible under federal or state law for the cost of
cleaning up a mortgaged property that is environmentally contaminated. See
"Environmental Legislation." Generally state law controls the amount of
foreclosure expenses and costs, including attorneys' fees, that may be recovered
by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior mortgages
to avoid their foreclosure. In addition, in the event that the foreclosure of a
junior mortgage triggers the enforcement of a "due-on-sale" clause contained in
a senior mortgage, the junior mortgagee may be required to pay the full amount
of the senior mortgage to avoid its foreclosure. Accordingly, with respect to
those Mortgage Loans, if any, that are junior mortgage loans, if the lender
purchases the property the lender's title will be subject to all senior
mortgages, prior liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are
applied first to the costs, fees and expenses of sale and then in satisfaction
of the indebtedness secured by the mortgage under which the sale was conducted.
Any proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in order
of their priority, whether or not the mortgagor is in default. Any additional
proceeds are generally payable to the mortgagor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgage or a subsequent ancillary proceeding or may require the
institution of separate legal proceedings by such holders.
REO PROPERTIES
If title to any Mortgaged Property is acquired by the Trustee on behalf
of the Certificateholders, the Master Servicer or any related Sub-servicer or
the Special Servicer, on behalf of such holders, will be required to sell the
Mortgaged Property prior to the close of the third calendar year following the
year of acquisition of such Mortgaged Property by the Trust Fund, unless (i) the
Internal Revenue Service grants an extension of time to sell such property (an
"REO Extension") or (ii) it obtains an opinion of counsel generally to the
effect that the holding of the property beyond the close of the third calendar
year after its acquisition will not result in the imposition of a tax on the
Trust Fund or cause any REMIC created pursuant to the Pooling and Servicing
Agreement to fail to qualify as a REMIC under the Code. Subject to the
foregoing, the Master Servicer or any related Sub-servicer or the Special
Servicer will generally be required to solicit bids for any Mortgaged Property
so acquired in such a manner as will be
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reasonably likely to realize a fair price for such property. The Master Servicer
or any related Sub-servicer or 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 Master Servicer or any related
Sub-servicer or the Special Servicer of its obligations with respect to such REO
Property.
In general, the Master Servicer or any related Sub-servicer or the
Special Servicer or an independent contractor employed by the Master Servicer or
any related Sub-servicer or the Special Servicer at the expense of the Trust
Fund will be obligated to operate and manage any Mortgaged Property acquired as
REO Property in a manner that would, to the extent commercially feasible,
maximize the Trust Fund's net after-tax proceeds from such property. After the
Master Servicer or any related Sub-servicer or the Special Servicer reviews the
operation of such property and consults with the Trustee to determine the Trust
Fund's federal income tax reporting position with respect to the income it is
anticipated that the Trust Fund would derive from such property, the Master
Servicer or any related Sub-servicer or the Special Servicer could determine
(particularly in the case of an REO Property that is a hospitality or
residential health care facility) that it would not be commercially feasible to
manage and operate such property in a manner that would avoid the imposition of
a tax on "net income from foreclosure property," within the meaning of Section
857(b)(4)(B) of the Code (an "REO Tax") at the highest marginal corporate tax
rate (currently 35%). The determination as to whether income from an REO
Property would be subject to an REO Tax will depend on the specific facts and
circumstances relating to the management and operation of each REO Property. Any
REO Tax imposed on the Trust Fund's income from an REO Property would reduce the
amount available for distribution to Certificateholders. Certificateholders are
advised to consult their tax advisors regarding the possible imposition of REO
Taxes in connection with the operation of commercial REO Properties by REMICs.
See "Certain Federal Income Tax Consequences" herein and "Certain Federal Income
Tax Consequences-REMICs" in the Prospectus.
RIGHTS OF REDEMPTION
The purposes of a foreclosure action are to enable the mortgagee to
realize upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the mortgage being foreclosed,
from exercise of their "equity of redemption." The doctrine of equity of
redemption provides that, until the property covered by a mortgage has been sold
in accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing mortgagee
have an equity of redemption and may redeem the property by paying the entire
debt with interest. In addition, in some states, when a foreclosure action has
been commenced, the redeeming party must pay certain costs of such action. Those
having an equity of redemption must generally be made parties and joined in the
foreclosure proceeding in order for their equity of redemption to be cut off and
terminated.
The equity of redemption is a common-law (non-statutory) right which
exists prior to completion of the foreclosure, is not waivable by the mortgagor,
must be exercised prior to foreclosure sale and should be distinguished from the
post-sale statutory rights of redemption. In some states, after sale pursuant to
a deed of trust or foreclosure of a mortgage, the mortgagor and foreclosed
junior lienors are given a statutory period in which to redeem the property from
the foreclosure sale. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
authorized if the former mortgagor pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser from a foreclosure sale or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has expired. In some states, a post-sale statutory
right of redemption may exist following a judicial foreclosure, but not
following a trustee's sale under a deed of trust.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held beyond the close of the third calendar
year following the year of acquisition. Unless otherwise provided in the related
Prospectus Supplement, with respect to a series of Certificates for which an
election is made to qualify the Trust Fund or a part thereof as a REMIC, the
Agreement will permit foreclosed property to be held beyond the close of the
third calendar year following the year of acquisition if the Internal Revenue
Service grants an extension of 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.
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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.
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
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of the bankruptcy petition, and, usually, no interest or principal payments are
made during the course of the bankruptcy case. The delay and the consequences
thereof caused by such automatic stay can be significant. Also, under the
Bankruptcy Code, the filing of a petition in bankruptcy by or on behalf of a
junior lienor may stay the senior lender from taking action to foreclose out
such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage secured by
property of the debtor may be modified under certain circumstances. In many
jurisdictions, the outstanding amount of the loan secured by the real property
may be reduced to the then-current value of the property (with a corresponding
partial reduction of the amount of lender's security interest) pursuant to a
confirmed plan or lien avoidance proceeding, thus leaving the lender a general
unsecured creditor for the difference between such value and the outstanding
balance of the loan. Other modifications may include the reduction in the amount
of each scheduled payment, which reduction may result from a reduction in the
rate of interest and/or the alteration of the repayment schedule (with or
without affecting the unpaid principal balance of the loan), and/or an extension
(or reduction) of the final maturity date. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a mortgage loan default by
paying arrearages over a number of years. Also, under federal bankruptcy law, a
bankruptcy court may permit a debtor through its rehabilitative plan to
de-accelerate a secured loan and to reinstate the loan even though the lender
accelerated the mortgage loan and final judgment of foreclosure had been entered
in state court (provided no sale of the property had yet occurred) prior to the
filing of the debtor's petition. This may be done even if the full amount due
under the original loan is never repaid.
Federal bankruptcy law provides generally that rights and obligation
under an unexpired lease of the debtor/lessee may not be terminated or modified
at any time after the commencement of a case under the Bankruptcy Code solely on
the basis of a provision in the lease to such effect or because of certain other
similar events. This prohibition on so-called "ipso facto clauses" could limit
the ability of the Trustee for a series of Certificates to exercise certain
contractual remedies with respect to the Leases. In addition, Section 362 of the
Bankruptcy Code operates as an automatic stay of, among other things, any act to
obtain possession of property from a debtor's estate, which may delay a
Trustee's exercise of such remedies for a related series of Certificates in the
event that a related Lessee or a related mortgagor becomes the subject of a
proceeding under the Bankruptcy Code. For example, a mortgagee would be stayed
from enforcing a Lease Assignment by a mortgagor related to a Mortgaged Property
if the related mortgagor was in a bankruptcy proceeding. The legal proceedings
necessary to resolve the issues could be time-consuming and might result in
significant delays in the receipt of the assigned rents. Similarly, the filing
of a petition in bankruptcy by or on behalf of a Lessee of a Mortgaged Property
would result in a stay against the commencement or continuation of any state
court proceeding for past due rent, for accelerated rent, for damages or for a
summary eviction order with respect to a default under the Lease that occurred
prior to the filing of the Lessee's petition. Rents and other proceeds of a
Mortgage Loan may also escape an assignment thereof if the assignment is not
fully perfected under state law prior to commencement of the bankruptcy
proceeding. See "--Leases and Rents" above.
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court, (a) assume the lease
and retain it or assign it to a third party or (b) reject the lease. If the
lease is assumed, the trustee in bankruptcy on behalf of the lessee, or the
lessee as debtor-in-possession, or the assignee, if applicable, must cure any
defaults under the lease, compensate the lessor for its losses and provide the
lessor with "adequate assurance" of future performance. Such remedies may be
insufficient, however, as the lessor may be forced to continue under the lease
with a lessee that is a poor credit risk or an unfamiliar tenant if the lease
was assigned, and any assurances provided to the lessor may, in fact, be
inadequate. If the lease is rejected, such rejection generally constitutes a
breach of the executory contract or unexpired lease immediately before the date
of filing the petition. As a consequence, the other party or parties to such
lease, such as the mortgagor, as lessor under a Lease, 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
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may treat such lease as terminated by such rejection or, in the alternative, the
lessee may remain in possession of the leasehold for the balance of such term
and for any renewal or extension of such term that is enforceable by the lessee
under applicable nonbankruptcy law. The Bankruptcy Code provides that if a
lessee elects to remain in possession after such a rejection of a lease, the
lessee may offset against rents reserved under the lease for the balance of the
term after the date of rejection of the lease, and any such renewal or extension
thereof, any damages occurring after such date caused by the nonperformance of
any obligation of the lessor under the lease after such date. To the extent
provided in the related Prospectus Supplement, the Lessee will agree under
certain Leases to pay all amounts owing thereunder to the Master Servicer
without offset. To the extent that such a contractual obligation remains
enforceable against the Lessee, the Lessee would not be able to avail itself of
the rights of offset generally afforded to lessees of real property under the
Bankruptcy Code.
In a bankruptcy or similar proceeding of a mortgagor, action may be
taken seeking the recovery, as a preferential transfer or on other grounds, of
any payments made by the mortgagor, or made directly by the related Lessee,
under the related Mortgage Loan to the Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may have
the power to grant liens senior to the lien of a mortgage, and analogous state
statutes and general principles of equity may also provide a mortgagor with
means to halt a foreclosure proceeding or sale and to force a restructuring of a
mortgage loan on terms a lender would not otherwise accept. Moreover, the laws
of certain states also give priority to certain tax liens over the lien of a
mortgage or deed of trust. Under the Bankruptcy Code, if the court finds that
actions of the mortgagee have been unreasonable, the lien of the related
mortgage may be subordinated to the claims of unsecured creditors.
To the extent described in the related Prospectus Supplement, certain of
the Mortgagors may be partnerships. The laws governing limited partnerships in
certain states provide that the commencement of a case under the Bankruptcy Code
with respect to a general partner will cause a person to cease to be a general
partner of the limited partnership, unless otherwise provided in writing in the
limited partnership agreement. This provision may be construed as an "ipso
facto" clause and, in the event of the general partner's bankruptcy, may not be
enforceable. To the extent described in the related Prospectus Supplement,
certain limited partnership agreements of the Mortgagors may provide that the
commencement of a case under the Bankruptcy Code with respect to the related
general partner constitutes an event of withdrawal (assuming the enforceability
of the clause is not challenged in bankruptcy proceedings or, if challenged, is
upheld) that might trigger the dissolution of the limited partnership, the
winding up of its affairs and the distribution of its assets, unless (i) at the
time there was at least one other general partner and the written provisions of
the limited partnership permit the business of the limited partnership to be
carried on by the remaining general partner and that general partner does so or
(ii) the written provisions of the limited partnership agreement permit the
limited partner to agree within a specified time frame (often 60 days) after
such withdrawal to continue the business of the limited partnership and to the
appointment of one or more general partners and the limited partners do so. In
addition, the laws governing general partnerships in certain states provide that
the commencement of a case under the Bankruptcy Code or state bankruptcy laws
with respect to a general partner of such partnerships triggers the dissolution
of such partnership, the winding up of its affairs and the distribution of its
assets. Such state laws, however, may not be enforceable or effective in a
bankruptcy case. The dissolution of a Mortgagor, the winding up of its affairs
and the distribution of its assets could result in an acceleration of its
payment obligation under a related Mortgage Loan, which may reduce the yield on
the related series of Certificates in the same manner as a principal prepayment.
In addition, the bankruptcy of the general partner of a Mortgagor that
is a partnership may provide the opportunity for a trustee in bankruptcy for
such general partner, such general partner as a debtor-in-possession, or a
creditor of such general partner to obtain an order from a court consolidating
the assets and liabilities of the general partner with those of the Mortgagor
pursuant to the doctrines of substantive consolidation or piercing the corporate
veil. In such a case, the respective Mortgaged Property, for example, would
become property of the estate of such bankrupt general partner. Not only would
the Mortgaged Property be available to satisfy the claims of creditors of such
general partner, but an automatic stay would apply to any attempt by the Trustee
to exercise remedies with
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respect to such Mortgaged Property. However, such an occurrence should not
affect the Trustee's status as a secured creditor with respect to the Mortgagor
or its security interest in the Mortgaged Property.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES OR BENEFICIARIES
To the extent specified in the related Prospectus Supplement, some of
the Mortgage Loans for a series will be secured by junior mortgages or deeds of
trust which are subordinated to senior mortgages or deeds of trust held by other
lenders or institutional investors. The rights of the Trust Fund (and therefore
the related Certificateholders), as beneficiary under a junior deed of trust or
as mortgagee under a junior mortgage, are subordinate to those of the mortgagee
or beneficiary under the senior mortgage or deed of trust, including the prior
rights of the senior mortgagee or beneficiary to receive rents, hazard insurance
and condemnation proceeds and to cause the Mortgaged Property securing the
Mortgage Loan to be sold upon default of the Mortgagor or trustor, thereby
extinguishing the junior mortgagee's or junior beneficiary's lien unless the
Master Servicer or Special Servicer, as applicable, asserts its subordinate
interest in a Mortgaged Property in foreclosure litigation or satisfies the
defaulted senior loan. As discussed more fully below, in many states a junior
mortgagee or beneficiary may satisfy a defaulted senior loan in full, or may
cure such default and bring the senior loan current, in either event adding the
amounts expended to the balance due on the junior loan. Absent a provision in
the senior mortgage, no notice of default is required to be given to the junior
mortgagee unless otherwise required by law.
The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgagee or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the mortgagee or
beneficiary under the senior mortgage or deed of trust will have the prior right
to collect any insurance proceeds payable under the hazard insurance policy and
any award of damages in connection with the condemnation and to apply the same
to the indebtedness secured by the senior mortgage or deed of trust. Proceeds in
excess of the amount of senior mortgage indebtedness will, in most cases, be
applied to the indebtedness of a junior mortgage or trust deed. The laws of
certain states may limit the ability of mortgagees or beneficiaries to apply the
proceeds of hazard insurance and partial condemnation awards to the secured
indebtedness. In such states, the mortgagor or trustor must be allowed to use
the proceeds of hazard insurance to repair the damage unless the security of the
mortgagee or beneficiary has been impaired. Similarly, in certain states, the
mortgagee or beneficiary is entitled to the award for a partial condemnation of
the real property security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an "obligatory" or "optional" advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance may be entitled to
receive the same priority as amounts initially made under the mortgage or deed
of trust, notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens between the date of recording of the mortgage or
deed of trust and the date of the future advance, and notwithstanding that the
mortgagee or beneficiary had actual knowledge of such intervening junior
mortgages or deeds of trust and other liens at the time of the advance. Where
the mortgagee or beneficiary is not obligated to advance the additional amounts
and has actual knowledge of the intervening junior mortgages or deeds of trust
and other liens, the advance may be subordinated to such intervening junior
mortgages or deeds of trust and other liens. Priority of advances under a
"future advance" clause rests, in many other states, on state law giving
priority to all advances made under the loan agreement up to a "credit limit"
amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by many institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or
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trustor to perform any of these obligations, the mortgagee or beneficiary is
given the right under the mortgage or deed of trust to perform the obligation
itself, at its election, with the mortgagor or trustor agreeing to reimburse the
mortgagee or beneficiary on behalf of the mortgagor or trustor. All sums so
expended by the mortgagee or beneficiary become part of the indebtedness secured
by the mortgage or deed of trust.
The form of mortgage or deed of trust used by many institutional lenders
typically requires the mortgagor or trustor to obtain the consent of the
mortgagee or beneficiary in respect of actions affecting the mortgaged property,
including, without limitation, leasing activities (including new leases and
termination or modification of existing leases), alterations and improvements to
buildings forming a part of the mortgaged property and management and leasing
agreements for the mortgaged property. Tenants will often refuse to execute a
lease unless the mortgagee or beneficiary executes a written agreement with the
tenant not to disturb the tenant's possession of its premises in the event of a
foreclosure. A senior mortgagee or beneficiary may refuse to consent to matters
approved by a junior mortgagee or beneficiary with the result that the value of
the security for the junior mortgage or deed of trust is diminished. For
example, a senior mortgagee or beneficiary may decide not to approve the lease
or to refuse to grant a tenant a non-disturbance agreement. If, as a result, the
lease is not executed, the value of the mortgaged property may be diminished.
ENVIRONMENTAL LEGISLATION
Real property pledged as security to a lender may be subject to
unforeseen environmental liabilities. Of particular concern may be those
Mortgaged Properties which are, or have been, the site of manufacturing,
industrial or disposal activity. Such environmental liabilities may give rise to
(i) a diminution in value of property securing any Mortgage Loan, (ii)
limitation on the ability to foreclose against such property or (iii) in certain
circumstances, as more fully described below, liability for clean-up costs or
other remedial actions, which liability could exceed the value of the principal
balance of the related Mortgage Loan or of such Mortgaged Property.
Under the laws of many states, contamination on a property may give rise
to a lien on the property for cleanup costs. In several states, such a lien has
priority over all existing liens (a "superlien") including those of existing
mortgages; in these states, the lien of a mortgage contemplated by this
transaction may lose its priority to such a superlien.
The presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the market value of the
property, as well as the owner's ability to sell or use the real estate or to
borrow using the real estate as collateral. In addition, certain environmental
laws and common law principles govern the responsibility for the removal,
encapsulation or disturbance of asbestos containing materials ("ACMs") when
these ACMs are in poor condition or when a property with ACMs is undergoing
repair, renovation or demolition. Such laws could also be used to impose
liability upon owners and operators of real properties for release of ACMs into
the air that cause personal injury or other damage. In addition to cleanup and
natural resource damages actions brought by federal, state, and local agencies
and private parties, the presence of hazardous substances on a property may lead
to claims of personal injury, property damage, or other claims by private
plaintiffs.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), and under other federal law and
the law of certain states, a secured party which takes a deed-in-lieu of
foreclosure, purchases a mortgaged property at a foreclosure sale, or operates a
Mortgaged Property may become liable in some circumstances either to the
government or to private parties for cleanup costs, even if the lender does not
cause or contribute to the contamination. Liability under some federal or state
statutes may not be limited to the original or unamortized principal balance of
a loan or to the value of the property securing a loan. CERCLA imposes strict,
as well as joint and several, liability on several classes of potentially
responsible parties, including current owners and operators of the property,
regardless of whether they caused or contributed to the contamination. Many
states have laws similar to CERCLA.
Lenders may be held liable under CERCLA as owners or operators. Excluded
from CERCLA's definition of "owner or operator," however, is a person "who
without participating in the management of the facility, holds indicia of
ownership primarily to protect his security interest." This exemption for
holders of a security interest such as a secured lender applies only in
circumstances where the lender acts to protect its security interest in the
contaminated facility or property. Thus, if a lender's activities encroach on
the actual management of such facility
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or property, the lender faces potential liability as an "owner or operator"
under CERCLA. Similarly, when a lender forecloses and takes title to a
contaminated facility or property (whether it holds the facility or property as
an investment or leases it to a third party), the lender may incur potential
CERCLA liability.
Whether actions taken by a lender would constitute such an encroachment
on the actual management of a facility or property, so as to render the secured
creditor exemption unavailable to the lender has been a matter of judicial
interpretation of the statutory language, and court decisions have historically
been inconsistent.
This scope of the secured creditor exemption has been clarified by the
enactment of the Asset Conservation, Lender Liability and Deposit Insurance
Protection Act of 1996 (the "Asset Conservation Act"), which was signed into law
by President Clinton on September 30, 1996, and which lists permissible actions
that may be undertaken by a lender holding security in a contaminated facility
without exceeding the bounds of the secured creditor exemption, subject to
certain conditions and limitations. The Asset Conservation Act provides that in
order to be deemed to have participated in the management of a secured property,
a lender must actually participate in the operational affairs of the property or
the borrower. The Asset Conservation Act also provides that a lender will
continue to have the benefit of the secured creditor exemption even if it
forecloses on a mortgaged property, purchases it at a foreclosure sale or
accepts a deed-in-lieu of foreclosure provided that the lender seeks to sell the
mortgaged property at the earliest practicable commercially reasonable time on
commercially reasonable terms. The protections afforded lenders under the Asset
Conversion Act are subject to terms and conditions that have not been clarified
by the courts.
The secured creditor exemption does not protect a lender from liability
under CERCLA in cases where the lender arranges for disposal of hazardous
substances or for transportation of hazardous substances. In addition, the
secured creditor exemption does not govern liability for cleanup costs under
federal laws other than CERCLA or under state law. CERCLA's jurisdiction extends
to the investigation and remediation of releases of "hazardous substances." The
definition of "hazardous substances" under CERCLA specifically excludes
petroleum products. Therefore, a federal statute of particular significance is
Subtitle I of the Resource Conservation and Recovery Act ("RCRA"), which governs
the operation and management of underground petroleum storage tanks. Under the
Asset Conservation Act, the holders of security interests in underground storage
tanks or properties containing such tanks are accorded protections similar to
the protections accorded to lenders under CERCLA. It should be noted, however,
that liability for cleanup of petroleum contamination may be governed by state
law, which may not provide for any specific protection for secured creditors.
In a few states, transfer of some types of properties is conditioned
upon clean up of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed-in-lieu of foreclosure
or otherwise, may be required to cleanup the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law
causes of action (for example, actions based on nuisance or on toxic tort
resulting in death, personal injury or damage to property) related to hazardous
environmental conditions on a property. While it may be more difficult to hold a
lender liable in such cases, unanticipated or uninsurable liabilities of the
borrower may jeopardize the borrower's ability to meet its loan obligations.
If a lender is or becomes liable, it may bring an action for
contribution against the owner or operator who created the environmental hazard,
but that person or entity may be bankrupt or otherwise judgment proof. It is
possible that cleanup costs could become a liability of the Trust Fund and
occasion a loss to Certificateholders in certain circumstances described above
if such remedial costs were incurred.
Unless otherwise provided in the related Prospectus Supplement, the
Warrantying Party with respect to any Whole Loan included in a Trust Fund for a
particular series of Certificates will represent that a "Phase I Assessment" as
described in and meeting the requirements of the then current version of Chapter
5 of the Federal National Mortgage Association ("FNMA") Multifamily Guide has
been received and reviewed. In addition, unless otherwise provided in the
related Prospectus Supplement, the related Agreement will provide that the
Master Servicer, acting on behalf of the Trustee, may not acquire title to a
Mortgaged Property or take over its operation unless the Master Servicer has
previously determined, based on a report prepared by a person who regularly
conducts environmental audits, that: (i) such Mortgaged Property is in
compliance with applicable environmental
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laws, and there are no circumstances present at the Mortgaged Property relating
to the use, management or disposal of any hazardous substances, hazardous
materials, wastes, or petroleum based materials for which investigation,
testing, monitoring, containment, clean-up or remediation could be required
under any federal, state or local law or regulation; or (ii) if such Mortgaged
Property is not so in compliance or such circumstances are so present, then it
would be in the best economic interest of the Trust Fund to acquire title to the
Mortgaged Property and further to take such actions as would be necessary and
appropriate to effect such compliance and/or respond to such circumstances. This
requirement effectively precludes enforcement of the security for the related
Mortgage Note until a satisfactory environmental inquiry is undertaken or any
required remedial action is provided for, reducing the likelihood that a given
Trust Fund will become liable for any condition or circumstance that may give
rise to any environmental claim (an "Environmental Hazard Condition") affecting
a Mortgaged Property, but making it more difficult to realize on the security
for the Mortgage Loan. However, there can be no assurance that any environmental
assessment obtained by the Master Servicer or a Special Servicer, as the case
may be, will detect all possible Environmental Hazard Conditions or that the
other requirements of the Agreement, even if fully observed by the Master
Servicer or Special Servicer, as the case may be, will in fact insulate a given
Trust Fund from liability for Environmental Hazard Conditions. See "Description
of the Agreements--Realization Upon Defaulted Whole Loans."
Unless otherwise specified in the related Prospectus Supplement, the
Depositor generally will not have determined whether environmental assessments
have been conducted with respect to the Mortgaged Properties relating to the
Mortgage Loans included in the Mortgage Pool for a Series, and it is likely that
any environmental assessments which would have been conducted with respect to
any of the Mortgaged Properties would have been conducted at the time of the
origination of the related Mortgage Loans and not thereafter. If specified in
the related Prospectus Supplement, a Warrantying Party will represent and
warrant that, as of the date of initial issuance of the Certificates of a Series
or as of another specified date, no related Mortgaged Property is affected by a
Disqualifying Condition (as defined below). In the event that, following a
default in payment on a Mortgage Loan that continues for 60 days, (i) the
environmental inquiry conducted by the Master Servicer or Special Servicer, as
the case may be, prior to any foreclosure indicates the presence of a
Disqualifying Condition that arose prior to the date of initial issuance of the
Certificates of a Series and (ii) the Master Servicer or the Special Servicer
certify that it has acted in compliance with the Servicing Standard and has not,
by any action, created, caused or contributed to a Disqualifying Condition the
Warrantying Party, at its option, will reimburse the Trust Fund, cure such
Disqualifying Condition or repurchase or substitute the affected Whole Loan, as
described under "Description of the Agreements--Representations and Warranties;
Repurchases." No such person will however, be responsible for any Disqualifying
Condition which may arise on a Mortgaged Property after the date of initial
issuance of the Certificates of the related Series, whether due to actions of
the Mortgagor, the Master Servicer, the Special Servicer or any other person. It
may not always be possible to determine whether a Disqualifying Condition arose
prior or subsequent to the date of the initial issuance of the Certificates of a
Series.
A "Disqualifying Condition" is defined generally as a condition,
existing as a result of, or arising from, the presence of Hazardous Materials
(as defined below) on a Mortgaged Property, such that the Mortgage Loan secured
by the affected Mortgaged Property would be ineligible, solely by reason of such
condition, for purchase by FNMA under the relevant provisions of FNMA's
Multifamily Seller/Servicer Guide in effect as of the date of initial issuance
of the Certificates of such series, including a condition that would constitute
a material violation of applicable federal state or local law in effect as of
their date of initial issuance of the Certificates of such series.
"Hazardous Materials" are generally defined under several federal and
state statutes, and include dangerous toxic or hazardous pollutants, chemicals,
wastes or substances, including, without limitation, those so identified
pursuant to CERCLA and RCRA, and specifically including, asbestos and asbestos
containing materials, polychlorinated biphenyls, radon gas, petroleum and
petroleum products, urea formaldehyde and any substances classified as being "in
inventory," "usable work in process" or similar classification which would, if
classified as unusable, be included in the foregoing definition.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the Mortgage Loans may contain due-on-sale and
due-on-encumbrance clauses. These clauses generally provide that the lender may
accelerate the maturity of the loan if the mortgagor sells or otherwise
transfers or encumbers the related Mortgaged Property. Certain of these clauses
may provide that, upon an attempted breach
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thereof by the mortgagor of an otherwise non-recourse loan, the mortgagor
becomes personally liable for the mortgage debt. The enforceability of
due-on-sale clauses has been the subject of legislation or litigation in many
states and, in some cases, the enforceability of these clauses was limited or
denied. However, with respect to certain loans the Garn-St Germain Depository
Institutions Act of 1982 preempts state constitutional, statutory and case law
that prohibits the enforcement of due-on-sale clauses and permits lenders to
enforce these clauses in accordance with their terms subject to certain limited
exceptions. Unless otherwise provided in the related Prospectus Supplement, a
Master Servicer, on behalf of the Trust Fund, will determine whether to exercise
any right the Trustee may have as mortgagee to accelerate payment of any such
Mortgage Loan or to withhold its consent to any transfer or further encumbrance
in a manner consistent with the Servicing Standard.
In addition, under federal bankruptcy laws, due-on-sale clauses may not
be enforceable in bankruptcy proceedings and may, under certain circumstances,
be eliminated in any modified mortgage resulting from such bankruptcy
proceeding.
SUBORDINATE FINANCING
Where a mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and the
senior loan does not, a mortgagor may be more likely to repay sums due on the
junior loan than those on the senior loan. Second, acts of the senior lender
that prejudice the junior lender or impair the junior lender's security may
create a superior equity in favor of the junior lender. For example, if the
mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions taken
by junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
DEFAULT INTEREST, PREPAYMENT CHARGES AND PREPAYMENTS
Forms of notes and mortgages used by lenders may contain provisions
obligating the mortgagor to pay a late charge or additional interest if payments
are not timely made, and in some circumstances may provide for prepayment fees
or yield maintenance penalties if the obligation is paid prior to maturity or
prohibit such prepayment for a specified period. In certain states, there are or
may be specific limitations upon the late charges which a lender may collect
from a mortgagor for delinquent payments. Certain states also limit the amounts
that a lender may collect from a mortgagor as an additional charge if the loan
is prepaid. The enforceability, under the laws of a number of states of
provisions providing for prepayment fees or penalties upon, or prohibition of,
an involuntary prepayment is unclear, and no assurance can be given that, at the
time a Prepayment Premium is required to be made on a Mortgage Loan in
connection with an involuntary prepayment, the obligation to make such payment,
or the provisions of any such prohibition, will be enforceable under applicable
state law. The absence of a restraint on prepayment, particularly with respect
to Mortgage Loans having higher Mortgage Rates, may increase the likelihood of
refinancing or other early retirements of the Mortgage Loans.
ACCELERATION ON DEFAULT
Unless otherwise specified in the related prospectus Supplement, some of
the Mortgage Loans included in the Mortgage Pool for a Series will include a
"debt-acceleration" clause, which permits the lender to accelerate the full debt
upon a monetary or nonmonetary default of the Mortgagor. The courts of all
states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
equity courts of the state, however, may refuse to foreclose a mortgage or deed
of trust when an acceleration of the indebtedness would be inequitable or unjust
or the circumstances would render the acceleration unconscionable. Furthermore,
in some states, the mortgagor may avoid foreclosure and reinstate an accelerated
loan by paying only the defaulted amounts and the costs and attorneys' fees
incurred by the lender in collecting such defaulted payments.
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APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential (including
multifamily but not other commercial) first mortgage loans originated by certain
lenders after March 31, 1980. A similar federal statute was in effect with
respect to mortgage loans made during the first three months of 1980. The
statute authorized any state to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision that expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits and/or to limit
discount points or other charges.
The Depositor has been advised by counsel that a court interpreting
Title V would hold that residential first mortgage loans that are originated on
or after January 1, 1980 are subject to federal preemption. Therefore, in a
state that has not taken the requisite action to reject application of Title V
or to adopt a provision limiting discount points or other charges prior to
origination of such mortgage loans, any such limitation under such state's usury
law would not apply to such mortgage loans.
In any state in which application of Title V has been expressly rejected
or a provision limiting discount points or other charges is adopted, no Mortgage
Loan originated after the date of such state action will be eligible for
inclusion in a Trust Fund unless (i) such Mortgage Loan provides for such
interest rate, discount points and charges as are permitted in such state or
(ii) such Mortgage Loan provides that the terms thereof shall be construed in
accordance with the laws of another state under which such interest rate,
discount points and charges would not be usurious and the mortgagor's counsel
has rendered an opinion that such choice of law provision would be given effect.
Statutes differ in their provisions as to the consequences of a usurious
loan. One group of statutes requires the lender to forfeit the interest due
above the applicable limit or impose a specified penalty. Under this statutory
scheme, the mortgagor may cancel the recorded mortgage or deed of trust upon
paying its debt with lawful interest, and the lender may foreclose, but only for
the debt plus lawful interest. A second group of statutes is more severe. A
violation of this type of usury law results in the invalidation of the
transaction, thereby permitting the mortgagor to cancel the recorded mortgage or
deed of trust without any payment or prohibiting the lender from foreclosing.
CERTAIN LAWS AND REGULATIONS; TYPES OF MORTGAGED PROPERTIES
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgage Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(e.g., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan. Mortgages on
Mortgaged Properties which are owned by the Mortgagor under a condominium form
of ownership are subject to the declaration, by-laws and other rules and
regulations of the condominium association. Mortgaged Properties which are
hotels or motels may present additional risk in that hotels and motels are
typically operated pursuant to franchise, management and operating agreements
which may be terminable by the operator, and the transferability of the hotel's
operating, liquor and other licenses to the entity acquiring the hotel either
through purchases or foreclosure is subject to the vagaries of local law
requirements. In addition, Mortgaged Properties which are multifamily
residential properties may be subject to rent control laws, which could impact
the future cash flows of such properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other
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factors, the financial resources of the affected site, owner, landlord or other
applicable person. In addition to imposing a possible financial burden on the
Mortgagor in its capacity as owner or landlord, the ADA may also impose such
requirements on a foreclosing lender who succeeds to the interest of the
Mortgagor as owner of landlord. Furthermore, since the "readily achievable"
standard may vary depending on the financial condition of the owner or landlord,
a foreclosing lender who is financially more capable than the Mortgagor of
complying with the requirements of the ADA may be subject to more stringent
requirements than those to which the Mortgagor is subject.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "Relief Act"), a mortgagor who enters military service after the
origination of such mortgagor's Mortgage Loan (including a mortgagor who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such mortgagor's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
mortgagors who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to mortgagors
who enter military service (including reservists who are called to active duty)
after origination of the related Mortgage Loan, no information can be provided
as to the number of loans that may be affected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability of any servicer to collect full amounts of interest on certain of the
Mortgage Loans. Any shortfalls in interest collections resulting from the
application of the Relief Act would result in a reduction of the amounts
distributable to the holders of the related series of Certificates, and would
not be covered by advances or, unless otherwise specified in the related
Prospectus Supplement, any form of Credit Support provided in connection with
such Certificates. In addition, the Relief Act imposes limitations that would
impair the ability of the servicer to foreclose on an affected Mortgage Loan
during the mortgagor's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter. Thus, in the
event that such a Mortgage Loan goes into default, there may be delays and
losses occasioned thereby.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may give notice
to all parties "known to have an alleged interest in the property," including
the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered Certificates
is based on the advice of Brown & Wood LLP or Cadwalader, Wickersham & Taft or
Latham & Watkins or such other counsel as may be specified in the related
Prospectus Supplement, counsel to the Depositor. This summary is based on laws,
regulations, including the REMIC regulations promulgated by the Treasury
Department (the "REMIC Regulations"), rulings and decisions now in effect or
(with respect to regulations) proposed, all of which are subject to change
either prospectively or retroactively. This summary does not address the federal
income tax consequences of an investment in Certificates applicable to all
categories of investors, some of which (for example, banks and insurance
companies) may be subject to special rules. Prospective investors should consult
their tax advisors regarding the federal, state, local and any other tax
consequences to them of the purchase, ownership and disposition of Certificates.
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GENERAL
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund relating to a
particular Series of Certificates as a REMIC under the Code. The Prospectus
Supplement for each Series of Certificates will specify whether a REMIC election
will be made.
GRANTOR TRUST FUNDS
If a REMIC election is not made, Brown & Wood LLP or Cadwalader,
Wickersham & Taft or Latham & Watkins or such other counsel as may be specified
in the related Prospectus Supplement will deliver its opinion that the Trust
Fund will not be classified as an association taxable as a corporation and that
each such Trust Fund will be classified as a grantor trust under subpart E, Part
I of subchapter J of Chapter 1 of Subtitle A of the Code. In this case, owners
of Certificates will be treated for federal income tax purposes as owners of a
portion of the Trust Fund's assets as described below.
A. SINGLE CLASS OF GRANTOR TRUST CERTIFICATES
Characterization. The Trust Fund may be created with one class of
Grantor Trust Certificates. In this case, each Grantor Trust Certificateholder
will be treated as the owner of a pro rata undivided interest in the interest
and principal portions of the Trust Fund represented by the Grantor Trust
Certificates and will be considered the equitable owner of a pro rata undivided
interest in each of the Mortgage Assets in the Pool. Any amounts received by a
Grantor Trust Certificateholder in lieu of amounts due with respect to any
Mortgage Asset because of a default or delinquency in payment will be treated
for federal income tax purposes as having the same character as the payments
they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Mortgage Loans in the Trust Fund represented by Grantor Trust
Certificates, including interest, original issue discount ("OID"), if any,
prepayment fees, assumption fees, any gain recognized upon an assumption and
late payment charges received by the Master Servicer. Under Code Sections 162 or
212 each Grantor Trust Certificateholder will be entitled to deduct its pro rata
share of servicing fees, prepayment fees, assumption fees, any loss recognized
upon an assumption and late payment charges retained by the Master Servicer,
provided that such amounts are reasonable compensation for services rendered to
the Trust Fund. Grantor Trust Certificateholders that are individuals, estates
or trusts will be entitled to deduct their share of expenses as itemized
deductions only to the extent such expenses plus all other Code Section 212
expenses exceed two percent of its adjusted gross income. In addition, the
amount of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds the applicable amount under Code
Section 68(b) (which amount will be adjusted for inflation) will be reduced by
the lesser of (i) 3% of the excess of adjusted gross income over the applicable
amount and (ii) 80% of the amount of itemized deductions otherwise allowable for
such taxable year. In general, a Grantor Trust Certificateholder using the cash
method of accounting must take into account its pro rata share of income as and
deductions as and when collected by or paid to the Master Servicer or, with
respect to original issue discount or certain other income items for which the
Certificateholder has made an election, as such amounts are accrued by the Trust
Fund on a constant interest basis, and will be entitled to claim its pro rata
share of deductions (subject to the foregoing limitations) when such amounts are
paid or such Certificateholder would otherwise be entitled to claim such
deductions had it held the Mortgage Assets directly. A Grantor Trust
Certificateholder using an accrual method of accounting must take into account
its pro rata share of income as payment becomes due or is made to the Master
Servicer, whichever is earlier and may deduct its pro rata share of expense
items (subject to the foregoing limitations) when such amounts are paid or such
Certificateholder otherwise would be entitled to claim such deductions had it
held the Mortgage Assets directly. If the servicing fees paid to the Master
Servicer are deemed to exceed reasonable servicing compensation, the amount of
such excess could be considered as an ownership interest retained by the Master
Servicer (or any person to whom the Master Servicer assigned for value all or a
portion of the servicing fees) in a portion of the interest payments on the
Mortgage Assets. The Mortgage Assets would then be subject to the "coupon
stripping" rules of the Code discussed below.
Unless otherwise specified in the related Prospectus Supplement or
otherwise provided below, as to each Series of Certificates, counsel to the
Depositor will have advised the Depositor that:
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(i) a Grantor Trust Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) representing
principal and interest payments on Mortgage Assets will be considered to
represent "loans . . . secured by an interest in real property which is . .
. residential property" within the meaning of Code Section
7701(a)(19)(C)(v), to the extent that the Mortgage Assets represented by
that Grantor Trust Certificate are of a type described in such Code
section;
(ii)a Grantor Trust Certificate owned by a real estate investment trust
representing an interest in Mortgage Assets will be considered to represent
"real estate assets" within the meaning of Code Section 856(c)(4)(A), and
interest income on the Mortgage Assets will be considered "interest on
obligations secured by mortgages on real property" within the meaning of
Code Section 856(c)(3)(B), to the extent that the Mortgage Assets
represented by that Grantor Trust Certificate are of a type described in
such Code section;
(iii) a Grantor Trust Certificate owned by a REMIC will represent
"obligation[s] . . . which [are] principally secured by an interest in real
property" within the meaning of Code Section 860G(a)(3); and
(iv)a Grantor Trust Certificate owned by a financial asset
securitization investment trust will represent "permitted assets" with the
meaning of Code Section 860L(c).
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
Stripped Bonds and Coupons. Certain Trust Funds may consist of
Government Securities that constitute "stripped bonds" or "stripped coupons" as
those terms are defined in section 1286 of the Code, and, as a result, such
assets would be subject to the stripped bond provisions of the Code. Under these
rules, such Government Securities are treated as having original issue discount
based on the purchase price and the stated redemption price at maturity of each
Security. As such, Grantor Trust Certificateholders would be required to include
in income their pro rata share of the original issue discount on each Government
Security recognized in any given year on an economic accrual basis even if the
Grantor Trust Certificateholder is a cash method taxpayer. Accordingly, the sum
of the income includible to the Grantor Trust Certificateholder in any taxable
year may exceed amounts actually received during such year.
Premium. The price paid for a Grantor Trust Certificate by a holder will
be allocated to such holder's undivided interest in each Mortgage Asset based on
each Mortgage Asset's relative fair market value, so that such holder's
undivided interest in each Mortgage Asset will have its own tax basis. A Grantor
Trust Certificateholder that acquires an interest in Mortgage Assets at a
premium may elect to amortize such premium under a constant interest method,
provided that the underlying mortgage loans with respect to such Mortgage Assets
were originated after September 27, 1985. Premium allocable to mortgage loans
originated on or before September 27, 1985 should be allocated among the
principal payments on such mortgage loans and allowed as an ordinary deduction
as principal payments are made. Amortizable bond premium will be treated as an
offset to interest income on such Grantor Trust Certificate. The basis for such
Grantor Trust Certificate will be reduced to the extent that amortizable premium
is applied to offset interest payments. It is not clear whether a reasonable
prepayment assumption should be used in computing amortization of premium
allowable under Code Section 171. A Certificateholder that makes this election
for a Mortgage Asset or any other debt instrument that is acquired at a premium
will be deemed to have made an election to amortize bond premium with respect to
all debt instruments having amortizable bond premium that such Certificateholder
acquires during the year of the election or thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Grantor Trust Certificate representing an
interest in a Mortgage Asset or Mortgage Loan acquired at a premium should
recognize a loss if a Mortgage Loan (or an underlying mortgage loan with respect
to a Mortgage Asset) prepays in full, equal to the difference between the
portion of the prepaid principal amount of such Mortgage Loan (or underlying
mortgage loan) that is allocable to the Certificate and the portion of the
adjusted basis of the Certificate that is allocable to such Mortgage Loan (or
underlying mortgage loan). If a reasonable prepayment assumption is used to
amortize such premium, it appears that such a loss would be available, if at
all, only if prepayments have occurred at a rate faster than the reasonable
assumed prepayment rate. It is not clear whether any other adjustments would be
required to reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
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On December 30, 1997, the Internal Revenue Service (the "IRS") issued
final regulations (the "Amortizable Bond Premium Regulations") dealing with
amortizable bond premium. These regulations, which generally are effective for
bonds issued or acquired on or after March 2, 1998 (or, for holders making an
election for the taxable year that includes March 2, 1998 or any subsequent
taxable year, shall apply to bonds held on or after the first day of the taxable
year of the election). The Amortizable Bond Premium Regulations specifically do
not apply to prepayable debt instruments or any pool of debt instruments the
yield on which may be affected by prepayments, such as the Trust Fund, which are
subject to Section 1272(a)(6) of the Code. Absent further guidance from the IRS
and unless otherwise specified in the related Prospectus Supplement, the Trustee
will account for amortizable bond premium in the manner described above.
Prospective purchasers should consult their tax advisors regarding amortizable
bond premium and the Amortizable Bond Premium Regulations.
Original Issue Discount. The IRS has stated in published rulings that,
in circumstances similar to those described herein, the special rules of the
Code relating to original issue discount ("OID") (currently Code Sections 1271
through 1273 and 1275) and Treasury regulations issued on January 27, 1994,
under such Sections (the "OID Regulations"), will be applicable to a Grantor
Trust Certificateholder's interest in those Mortgage Assets meeting the
conditions necessary for these sections to apply. Rules regarding periodic
inclusion of OID income are applicable to mortgages of corporations originated
after May 27, 1969, mortgages of noncorporate mortgagors (other than
individuals) originated after July 1, 1982, and mortgages of individuals
originated after March 2, 1984. Such OID could arise by the financing of points
or other charges by the originator of the mortgages in an amount greater than a
statutory de minimis exception to the extent that the points are not currently
deductible under applicable Code provisions or are not for services provided by
the lender. OID generally must be reported as ordinary gross income as it
accrues under a constant interest method. See "--Multiple Classes of Grantor
Trust Certificates--Accrual of Original Issue Discount" below.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Mortgage Assets may be subject to the market discount
rules of Code Sections 1276 through 1278 to the extent an undivided interest in
a Mortgage Asset is considered to have been purchased at a "market discount."
Generally, the amount of market discount is equal to the excess of the portion
of the principal amount of such Mortgage Asset allocable to such holder's
undivided interest over such holder's tax basis in such interest. Market
discount with respect to a Grantor Trust Certificate will be considered to be
zero if the amount allocable to the Grantor Trust Certificate is less than 0.25%
of the Grantor Trust Certificate's stated redemption price at maturity
multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986 shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described in
the relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or according to one of the following methods. If a
Grantor Trust Certificate is issued with OID, the amount of market discount that
accrues during any accrual period would be equal to the product of (i) the total
remaining market discount and (ii) a fraction, the numerator of which is the OID
accruing during the period and the denominator of which is the total remaining
OID at the beginning of the accrual period. For Grantor Trust Certificates
issued without OID, the amount of market discount that accrues during a period
is equal to the product of (i) the total remaining market discount and (ii) a
fraction, the numerator of which is the amount of stated interest paid during
the accrual period and the denominator of which is the total amount of stated
interest remaining to be paid at the beginning of the accrual period. For
purposes of calculating market discount under any of the above methods in the
case of instruments (such as the Grantor Trust Certificates) that provide for
payments that may be accelerated by reason of prepayments of other obligations
securing such instruments, the same prepayment assumption applicable to
calculating the accrual of OID will apply. Because the regulations described
above have
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not been issued, it is impossible to predict what effect those regulations might
have on the tax treatment of a Grantor Trust Certificate purchased at a discount
or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry such Grantor Trust Certificate purchased with market discount. For
these purposes, the de minimis rule referred to above applies. Any such deferred
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which such market discount is includible in income. If such holder elects to
include market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method for Certificates acquired on or after April 4,
1994. If such an election were to be made with respect to a Grantor Trust
Certificate with market discount, the Certificateholder would be deemed to have
made an election to include in income currently market discount with respect to
all other debt instruments having market discount that such Certificateholder
acquires during the year of the election or thereafter. Similarly, a
Certificateholder that makes this election for a Certificate that is acquired at
a premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. See "--Premium" herein. The election to
accrue interest, discount and premium on a constant yield method with respect to
a Certificate is irrevocable without consent of the IRS.
Anti-Abuse Rule. The IRS can apply or depart from the rules contained in
the OID Regulations as necessary or appropriate to achieve a reasonable result
where a principal purpose in structuring a Mortgage Asset, Mortgage Loan or
Grantor Trust Certificate or applying the otherwise applicable rules is to
achieve a result that is unreasonable in light of the purposes of the applicable
statutes (which generally are intended to achieve the clear reflection of income
for both issuers and holders of debt instruments).
B. MULTIPLE CLASSES OF GRANTOR TRUST CERTIFICATES
1. Stripped Bonds and Stripped Coupons
Pursuant to Code Section 1286, the separation of ownership of the right
to receive some or all of the interest payments on an obligation from ownership
of the right to receive some or all of the principal payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of Code Sections 1271
through 1288, Code Section 1286 treats a stripped bond or a stripped coupon as
an obligation issued on the date that such stripped interest is created. If a
Trust Fund is created with two classes of Grantor Trust Certificates, one class
of Grantor Trust Certificates may represent the right to principal and interest,
or principal only, on all or a portion of the Mortgage Assets (the "Stripped
Bond Certificates"), while the second class of Grantor Trust Certificates may
represent the right to some or all of the interest on such portion (the
"Stripped Coupon Certificates").
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points (i.e., 1% interest on the Mortgage
Asset principal balance) or the Certificates are initially sold with a de
minimis discount (assuming no prepayment assumption is required), any non-de
minimis discount arising from a subsequent transfer of the Certificates should
be treated as market discount. The IRS appears to require that reasonable
servicing fees be calculated on a Mortgage Asset by Mortgage Asset basis, which
could result in some Mortgage Assets being treated as having more than 100 basis
points of interest stripped off. See "--Non-REMIC Certificates" and "Multiple
Classes of Grantor Trust Certificates--Stripped Bonds and Stripped Coupons"
herein.
Although not entirely clear, a Stripped Bond Certificate generally
should be treated as an interest in Mortgage Assets issued on the day such
Certificate is purchased for purposes of calculating any OID. Generally, if the
discount on a Mortgage Asset is larger than a de minimis amount (as calculated
for purposes of the OID rules) a purchaser of such a Certificate will be
required to accrue the discount under the OID rules of the Code. See
"--Non-REMIC Certificates" and "--Single Class of Grantor Trust
Certificates--Original Issue Discount" herein.
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However, a purchaser of a Stripped Bond Certificate will be required to account
for any discount on the Mortgage Assets as market discount rather than OID if
either (i) the amount of OID with respect to the Mortgage Assets is treated as
zero under the OID de minimis rule when the Certificate was stripped or (ii) no
more than 100 basis points (including any amount of servicing fees in excess of
reasonable servicing fees) is stripped off of the Trust Fund's Mortgage Assets.
Pursuant to Revenue Procedure 91-49, issued on August 8, 1991, purchasers of
Stripped Bond Certificates using an inconsistent method of accounting must
change their method of accounting and request the consent of the IRS to the
change in their accounting method on a statement attached to their first timely
tax return filed after August 8, 1991.
The precise tax treatment of Stripped Coupon Certificates is
substantially uncertain. The Code could be read literally to require that OID
computations be made for each payment from each Mortgage Asset. Unless otherwise
specified in the related prospectus supplement, all payments from a Mortgage
Asset underlying a Stripped Coupon Certificate will be treated as a single
installment obligation subject to the OID rules of the Code, in which case, all
payments from such Mortgage Asset would be included in the Mortgage Asset's
stated redemption price at maturity for purposes of calculating income on such
Certificate under the OID rules of the Code.
It is unclear under what circumstances, if any, the prepayment of
Mortgage Assets will give rise to a loss to the holder of a Stripped Bond
Certificate purchased at a premium or a Stripped Coupon Certificate. If such
Certificate is treated as a single instrument (rather than an interest in
discrete mortgage loans) and the effect of prepayments is taken into account in
computing yield with respect to such Grantor Trust Certificate, it appears that
no loss will be available as a result of any particular prepayment unless
prepayments occur at a rate sufficiently faster than the assumed prepayment rate
so that the Certificateholder will not recover its investment. However, if such
Certificate is treated as an interest in discrete Mortgage Assets, or if no
prepayment assumption is used, then when a Mortgage Asset is prepaid, the holder
of such Certificate should be able to recognize a loss equal to the portion of
the adjusted issue price of such Certificate that is allocable to such Mortgage
Asset.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates
are urged to consult with their own tax advisors regarding the proper treatment
of these Certificates for federal income tax purposes.
Treatment of Certain Owners. Several Code sections provide beneficial
treatment to certain taxpayers that invest in Mortgage Assets of the type that
make up the Trust Fund. With respect to these Code sections, no specific legal
authority exists regarding whether the character of the Grantor Trust
Certificates, for federal income tax purposes, will be the same as that of the
underlying Mortgage Assets. While Code Section 1286 treats a stripped obligation
as a separate obligation for purposes of the Code provisions addressing OID, it
is not clear whether such characterization would apply with regard to these
other Code sections. Although the issue is not free from doubt, each class of
Grantor Trust Certificates, unless otherwise specified in the related Prospectus
Supplement, should be considered to represent "real estate assets" within the
meaning of Code Section 856(c)(4)(A) and "loans . . . secured by, an interest in
real property which is . . . residential real property" within the meaning of
Code Section 7701(a)(19)(C)(v), and interest income attributable to Grantor
Trust Certificates should be considered to represent "interest on obligations
secured by mortgages on real property" within the meaning of Code Section
856(c)(3)(B), provided that in each case the underlying Mortgage Assets and
interest on such Mortgage Assets qualify for such treatment. Prospective
purchasers to which such characterization of an investment in Certificates is
material should consult their own tax advisors regarding the characterization of
the Grantor Trust Certificates and the income therefrom. Grantor Trust
Certificates will be "obligation[s] . . . which [are] principally secured by an
interest in real property" within the meaning of Code Section 860G(a)(3)(A) and
"permitted assets" within the meaning of Code Section 860L(c).
2. Grantor Trust Certificates Representing Interests in Loans Other Than
ARM Loans
The original issue discount rules of Code Sections 1271 through 1275
will be applicable to a Certificateholder's interest in those Mortgage Assets as
to which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount in income are applicable
to mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate mortgagors (other than individuals) originated after July 1, 1982,
and mortgages of individuals originated after March 2, 1984. Under the OID
Regulations, such original issue discount could arise by the charging of points
by the originator of the mortgage in an amount greater than the statutory de
minimis exception, including a payment of points that is currently deductible by
the borrower under applicable Code provisions, or under certain circumstances,
by the presence of "teaser" rates
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on the Mortgage Assets. OID on each Grantor Trust Certificate must be included
in the owner's ordinary income for federal income tax purposes as it accrues, in
accordance with a constant interest method that takes into account the
compounding of interest, in advance of receipt of the cash attributable to such
income. The amount of OID required to be included in an owner's income in any
taxable year with respect to a Grantor Trust Certificate representing an
interest in Mortgage Assets other than Mortgage Assets with interest rates that
adjust periodically ("ARM Loans") likely will be computed as described below
under "--Accrual of Original Issue Discount." The following discussion is based
in part on the OID Regulations and in part on the provisions of the Tax Reform
Act of 1986 (the "1986 Act"). The OID Regulations generally are effective for
debt instruments issued on or after April 4, 1994, but may be relied upon as
authority with respect to debt instruments, such as the Grantor Trust
Certificates, issued after December 21, 1992. Alternatively, proposed Treasury
regulations issued December 21, 1992 may be treated as authority for debt
instruments issued after December 21, 1992 and prior to April 4, 1994, and
proposed Treasury regulations issued in 1986 and 1991 may be treated as
authority for instruments issued before December 21, 1992. In applying these
dates, the issue date of the Mortgage Assets should be used, or, in the case of
Stripped Bond Certificates or Stripped Coupon Certificates, the date such
Certificates are acquired. The holder of a Certificate should be aware, however,
that neither the proposed OID Regulations nor the OID Regulations adequately
address certain issues relevant to prepayable securities.
Under the Code, the Mortgage Assets underlying the Grantor Trust
Certificate will be treated as having been issued on the date they were
originated with an amount of OID equal to the excess of such Mortgage Asset's
stated redemption price at maturity over its issue price. The issue price of a
Mortgage Asset is generally the amount lent to the mortgagee, which may be
adjusted to take into account certain loan origination fees. The stated
redemption price at maturity of a Mortgage Asset is the sum of all payments to
be made on such Mortgage Asset other than payments that are treated as qualified
stated interest payments. The accrual of this OID, as described below under
"--Accrual of Original Issue Discount," will, unless otherwise specified in the
related Prospectus Supplement, utilize the original yield to maturity of the
Grantor Trust Certificate calculated based on a reasonable assumed prepayment
rate for the mortgage loans underlying the Grantor Trust Certificates (the
"Prepayment Assumption") on the issue date of such Grantor Trust Certificate,
and will take into account events that occur during the calculation period. The
Prepayment Assumption will be determined in the manner prescribed by regulations
that have not yet been issued. In the absence of such regulations, the
Prepayment Assumption used will be the prepayment assumption that is used in
determining the offering price of such Certificate. No representation is made
that any Certificate will prepay at the Prepayment Assumption or at any other
rate. The prepayment assumption contained in the Code literally only applies to
debt instruments collateralized by other debt instruments that are subject to
prepayment rather than direct ownership interests in such debt instruments, such
as the Certificates represent. However, no other legal authority provides
guidance with regard to the proper method for accruing OID on obligations that
are subject to prepayment, and, until further guidance is issued, the Master
Servicer intends to calculate and report OID under the method described below.
Accrual of Original Issue Discount. Generally, the owner of a Grantor
Trust Certificate must include in gross income the sum of the "daily portions,"
as defined below, of the OID on such Grantor Trust Certificate for each day on
which it owns such Certificate, including the date of purchase but excluding the
date of disposition. In the case of an original owner, the daily portions of OID
with respect to each component generally will be determined as set forth under
the OID Regulations. A calculation will be made by the Master Servicer or such
other entity specified in the related Prospectus Supplement of the portion of
OID that accrues during each successive monthly accrual period (or shorter
period from the date of original issue) that ends on the day in the calendar
year corresponding to each of the Distribution Dates on the Grantor Trust
Certificates (or the day prior to each such date). This will be done, in the
case of each full month accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the respective component under the Prepayment
Assumption) of all remaining payments to be received under the Prepayment
Assumption on the respective component and (b) any payments included in the
stated redemption price at maturity received during such accrual period, and
(ii) subtracting from that total the "adjusted issue price" of the respective
component at the beginning of such accrual period. The adjusted issue price of a
Grantor Trust Certificate at the beginning of the first accrual period is its
issue price; the adjusted issue price of a Grantor Trust Certificate at the
beginning of a subsequent accrual period is the adjusted issue price at the
beginning of the immediately preceding accrual period plus the amount of OID
allocable to that accrual period reduced by the amount of any payment other than
a payment of qualified stated interest made at the end of or during that accrual
period. The OID accruing during such accrual period will then be divided by the
number of days in the period to determine the daily portion of OID for each day
in
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the period. With respect to an initial accrual period shorter than a full
monthly accrual period, the daily portions of OID must be determined according
to an appropriate allocation under any reasonable method.
Original issue discount generally must be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest as it accrues rather than when received. However,
the amount of original issue discount includible in the income of a holder of an
obligation is reduced when the obligation is acquired after its initial issuance
at a price greater than the sum of the original issue price and the previously
accrued original issue discount, less prior payments of principal. Accordingly,
if such Mortgage Assets acquired by a Certificateholder are purchased at a price
equal to the then unpaid principal amount of such Mortgage Asset, no original
issue discount attributable to the difference between the issue price and the
original principal amount of such Mortgage Asset (i.e. points) will be
includible by such holder. Other original issue discount on the Mortgage Assets
(e.g., that arising from a "teaser" rate) would still need to be accrued.
3. Grantor Trust Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such as
the Grantor Trust Certificates, which represent interests in ARM Loans.
Additionally, the IRS has not issued guidance under the Code's coupon stripping
rules with respect to such instruments. In the absence of any authority, the
Master Servicer will report OID on Grantor Trust Certificates attributable to
ARM Loans ("Stripped ARM Obligations") to holders in a manner it believes is
consistent with the rules described above under the heading "--Grantor Trust
Certificates Representing Interests in Loans Other Than ARM Loans" and with the
OID Regulations. In general, application of these rules may require inclusion of
income on a Stripped ARM Obligation in advance of the receipt of cash
attributable to such income. Further, the addition of interest deferred by
reason of negative amortization ("Deferred Interest") to the principal balance
of an ARM Loan may require the inclusion of such amount in the income of the
Grantor Trust Certificateholder when such amount accrues. Furthermore, the
addition of Deferred Interest to the Grantor Trust Certificate's principal
balance will result in additional income (including possibly OID income) to the
Grantor Trust Certificateholder over the remaining life of such Grantor Trust
Certificates.
Because the treatment of Stripped ARM Obligations is uncertain,
investors are urged to consult their tax advisors regarding how income will be
includible with respect to such Certificates.
C. SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE
Sale or exchange of a Grantor Trust Certificate prior to its maturity
will result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the Grantor Trust Certificate. Such
adjusted basis generally will equal the seller's purchase price for the Grantor
Trust Certificate, increased by the OID included in the seller's gross income
with respect to the Grantor Trust Certificate, and reduced by principal payments
on the Grantor Trust Certificate previously received by the seller. Such gain or
loss will be capital gain or loss to an owner for which a Grantor Trust
Certificate is a "capital asset" within the meaning of Code Section 1221, and
will generally be long-term capital gain if the Grantor Trust Certificate has
been owned for more than one year. Long-term capital gains of individuals are
subject to reduced maximum tax rates while capital gains recognized by
individuals on capital assets held less than twelve months are generally subject
to ordinary income tax rates. The use of capital losses is limited.
It is possible that capital gain realized by holders of one or more
classes of Grantor Trust Certificates could be considered gain realized upon the
disposition of property that was part of a "conversion transaction." A sale of a
Grantor Trust Certificate will be part of a conversion transaction if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and (i) the holder entered the contract to
sell the Grantor Trust Certificate substantially contemporaneously with
acquiring the Grantor Trust Certificate, (ii) the Grantor Trust Certificate is
part of a straddle, (iii) the Grantor Trust Certificate is marketed or sold as
producing capital gain, or (iv) other transactions to be specified in Treasury
regulations that have not yet been issued. If the sale or other disposition of a
Grantor Trust Certificate is part of a conversion transaction, all or any
portion of the gain realized upon the sale or other disposition would be treated
as ordinary income instead of capital gain.
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Code Section 582(c)(1), so that gain or loss recognized from the
sale of a Grantor Trust Certificate by a bank or a thrift institution to which
such section applies will be treated as ordinary income or loss.
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D. NON-U.S. PERSONS
Generally, to the extent that a Grantor Trust Certificate evidences
ownership in underlying Mortgage Assets that were issued on or before July 18,
1984, interest or OID paid by the person required to withhold tax under Code
Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as defined
below) or (ii) a Grantor Trust Certificateholder holding on behalf of an owner
that is not a U.S. Person will be subject to federal income tax, collected by
withholding, at a rate of 30% or such lower rate as may be provided for interest
by an applicable tax treaty, unless such income is effectively connected with a
U.S. trade or business of such owner or beneficial owner. Accrued OID recognized
by the owner on the sale or exchange of such a Grantor Trust Certificate also
will be subject to federal income tax at the same rate. Generally, such payments
would not be subject to withholding to the extent that a Grantor Trust
Certificate evidences ownership in Mortgage Assets issued after July 18, 1984,
by natural persons if such Grantor Trust Certificateholder complies with certain
identification requirements (including delivery of a statement, signed by the
Grantor Trust Certificateholder under penalties of perjury, certifying that such
Grantor Trust Certificateholder is not a U.S. Person and providing the name and
address of such Grantor Trust Certificateholder). To the extent payments to
Grantor Trust Certificateholders that are not U.S. Persons are payments of
"contingent interest" on the underlying Mortgage Assets, or such Grantor Trust
Certificateholder is ineligible for the exemption described in the preceding
sentence, the 30% withholding tax will apply unless such withholding taxes are
reduced or eliminated by an applicable tax treaty and such holder meets the
eligibility and certification requirements necessary to obtain the benefits of
such treaty. Additional restrictions apply to Mortgage Assets where the
mortgagor is not a natural person in order to qualify for the exemption from
withholding. If capital gain derived from the sale, retirement or other
disposition of a Grantor Trust Certificate is effectively connected with a U.S.
trade or business of a Grantor Trust Certificateholder that is not a U.S.
Person, such Certificateholder will be taxed on the net gain under the graduated
U.S. federal income tax rates applicable to U.S. Persons (and, with respect to
Grantor Trust Certificates held by or on behalf of corporations, also may be
subject to branch profits tax). In addition, if the Trust Fund acquires a United
States real property interest through foreclosure, deed in lieu of foreclosure
or otherwise on a Mortgage Asset secured by such an interest (which for this
purpose includes real property located in the United States and the Virgin
Islands), a Grantor Trust Certificateholder that is not a U.S. Person will
potentially be subject to federal income tax on any gain attributable to such
real property interest that is allocable to such holder. Non-U.S. Persons should
consult their tax advisors regarding the application to them of the foregoing
rules.
As used herein, a "U.S. Person" means a citizen or resident of the
United States, a corporation or a partnership organized in or under the laws of
the United States or any political subdivision thereof (other than a partnership
that is not treated as a U.S. Person under any applicable Treasury regulations),
an estate the income of which from sources outside the United States is
includible in gross income for federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United States or a
trust if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more U.S. Persons have
the authority to control all substantial decisions of the trust. In addition,
certain trusts treated as U.S. Persons before August 20, 1996 may elect to
continue to be so treated to the extent provided in regulations.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The Master Servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each person who was a
Certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
Certificates as nominees on behalf of beneficial owners. If a holder, beneficial
owner, financial intermediary or other recipient of a payment on behalf of a
beneficial owner fails to supply a certified taxpayer identification number or
if the Secretary of the Treasury determines that such person has not reported
all interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments to
registered owners who are not "exempt recipients." In addition, upon the sale of
a Grantor Trust Certificate to (or through) a broker, the broker must withhold
31% of the entire purchase price, unless either (i) the broker determines that
the seller is a corporation or other exempt recipient, or (ii) the seller
provides, in the required manner, certain identifying information and, in the
case of a non-U.S. Person, certifies that such seller is a Non-U.S. Person, and
certain other conditions are met. Such as sale must also be reported by the
broker to the IRS, unless either (a) the broker determines that the seller is an
exempt recipient or (b) the seller certifies its non-U.S. Person status (and
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certain other conditions are met). Certification of the registered owner's
non-U.S. Person status normally would be made on IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
documentary evidence. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal income
tax liability.
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New Regulations
attempt to unify certification requirements and modify reliance standards. The
New Regulations will generally be effective for payments made after December 31,
2000, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
REMICS
The Trust Fund relating to a Series of Certificates may elect to be
treated as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Although a REMIC is not generally subject to federal income
tax (see, however "--Taxation of Owners of REMIC Residual Certificates" and
"--Prohibited Transactions" below), if a Trust Fund with respect to which a
REMIC election is made fails to comply with one or more of the ongoing
requirements of the Code for REMIC status during any taxable year, including the
implementation of restrictions on the purchase and transfer of the residual
interests in a REMIC as described below under "Taxation of Owners of REMIC
Residual Certificates," the Code provides that a Trust Fund will not be treated
as a REMIC for such year and thereafter. In that event, such entity may be
taxable as a separate corporation, and the related Certificates (the "REMIC
Certificates") may not be accorded the status or given the tax treatment
described below. While the Code authorizes the Treasury Department to issue
regulations providing relief in the event of an inadvertent termination of the
status of a trust fund as a REMIC, no such regulations have been issued. Any
such relief, moreover, may be accompanied by sanctions, such as the imposition
of a corporate tax on all or a portion of the REMIC's income for the period in
which the requirements for such status are not satisfied. With respect to each
Trust Fund that elects REMIC status, Brown & Wood LLP or Cadwalader, Wickersham
& Taft or Latham & Watkins or such other counsel as may be specified in the
related Prospectus Supplement will deliver its opinion generally to the effect
that, under then existing law and assuming compliance with all provisions of the
related Pooling and Servicing Agreement, such Trust Fund will qualify as a
REMIC, and the related Certificates will be considered to be regular interests
("REMIC Regular Certificates") or a sole class of residual interests ("REMIC
Residual Certificates") in the REMIC. The related Prospectus Supplement for each
Series of Certificates will indicate whether the Trust Fund will make a REMIC
election and whether a class of Certificates will be treated as a regular or
residual interest in the REMIC.
A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in such an obligation and any "regular interest"
in another REMIC) that is principally secured by an interest in real property
and that is transferred to the REMIC within a prescribed time period in exchange
for regular or residual interests in the REMIC.
In general, with respect to each Series of Certificates for which a
REMIC election is made, (i) Certificates held by a thrift institution taxed as a
"domestic building and loan association" will constitute assets described in
Code Section 7701(a)(19)(C); (ii) Certificates held by a real estate investment
trust will constitute "real estate assets" within the meaning of Code Section
856(c)(4)(A); and (iii) interest on Certificates held by a real estate
investment trust will be considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section 856(c)(3)(B). If
less than 95% of the REMIC's assets are assets qualifying under any of the
foregoing Code sections, the Certificates will be qualifying assets only to the
extent that the REMIC's assets are qualifying assets.
Tiered REMIC Structures. For certain Series of Certificates, two or more
separate elections may be made to treat designated portions of the related Trust
Fund as REMICs (respectively, the "Subsidiary REMIC" and the "Master REMIC") for
federal income tax purposes. Upon the issuance of any such Series of
Certificates, Brown & Wood LLP or Cadwalader, Wickersham & Taft or Latham &
Watkins or such other counsel as may be specified in the related Prospectus
Supplement, counsel to the Depositor, will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related Agreement,
the Master REMIC as well as any Subsidiary REMIC will each qualify as a REMIC,
and the REMIC Certificates issued by the Master REMIC and the Subsidiary
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REMIC or REMICs, respectively, will be considered to evidence ownership of
regular interests ("REMIC Regular Certificates") or residual interests ("REMIC
Residual Certificates") in the related REMIC within the meaning of the REMIC
provisions.
Other than the residual interest in a Subsidiary REMIC, only REMIC
Certificates issued by the Master REMIC will be offered hereunder. The
Subsidiary REMIC or REMICs and the Master REMIC will be treated as one REMIC
solely for purposes of determining whether the REMIC Certificates will be (i)
"real estate assets" within the meaning of Section 856(c)(4)(A) of the Code;
(ii) "loans secured by an interest in real property" under Section
7701(a)(19)(C) of the Code; and (iii) whether the income on such Certificates is
interest described in Section 856(c)(3)(B) of the Code.
A. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
Original Issue Discount and Premium. The REMIC Regular Certificates may
be issued with OID. Generally, such OID, if any, will equal the difference
between the "stated redemption price at maturity" of a REMIC Regular Certificate
and its "issue price." Holders of any class of Certificates issued with OID will
be required to include such OID in gross income for federal income tax purposes
as it accrues, in accordance with a constant interest method based on the
compounding of interest as it accrues rather than in accordance with receipt of
the interest payments. The following discussion is based in part on the OID
Regulations and in part on the provisions of the Tax Reform Act of 1986 (the
"1986 Act"). Holders of REMIC Regular Certificates (the "REMIC Regular
Certificateholders") should be aware, however, that the OID Regulations do not
adequately address certain issues relevant to prepayable securities, such as the
REMIC Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273 and
1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated reinvestment
rate, if any, relating to the REMIC Regular Certificates and prescribe a method
for adjusting the amount and rate of accrual of such discount where the actual
prepayment rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The legislative history
of the 1986 Act (the "Legislative History") provides, however, that Congress
intended the regulations to require that the Prepayment Assumption be the
prepayment assumption that is used in determining the initial offering price of
such REMIC Regular Certificates. The Prospectus Supplement for each Series of
REMIC Regular Certificates will specify the Prepayment Assumption to be used for
the purpose of determining the amount and rate of accrual of OID. No
representation is made that the REMIC Regular Certificates will prepay at the
Prepayment Assumption or at any other rate.
In general, each REMIC Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
"stated redemption price at maturity" over its "issue price." The issue price of
a REMIC Regular Certificate is the first price at which a substantial amount of
REMIC Regular Certificates of that class are first sold to the public (excluding
bond houses, brokers, underwriters or wholesalers). If less than a substantial
amount of a particular class of REMIC Regular Certificates is sold for cash on
or prior to the date of their initial issuance (the "Closing Date"), the issue
price for such class will be treated as the fair market value of such class on
the Closing Date. The issue price of a REMIC Regular Certificate also includes
the amount paid by an initial Certificateholder for accrued interest that
relates to a period prior to the issue date of the REMIC Regular Certificate.
The stated redemption price at maturity of a REMIC Regular Certificate includes
the original principal amount of the REMIC Regular Certificate, but generally
will not include distributions of interest if such distributions constitute
"qualified stated interest." Qualified stated interest generally means interest
payable at a single fixed rate or qualified 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
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will accrue will not constitute qualified stated interest payments, and the
stated redemption price at maturity of such REMIC Regular Certificates includes
all distributions of interest as well as principal thereon.
Where the interval between the issue date and the first Distribution
Date on a REMIC Regular Certificate is longer than the interval between
subsequent Distribution Dates, the greater of any original issue discount
(disregarding the rate in the first period) and any interest foregone during the
first period is treated as the amount by which the stated redemption price at
maturity of the Certificate exceeds its issue price for purposes of the de
minimis rule described below. The OID Regulations suggest that all interest on a
long first period REMIC Regular Certificate that is issued with non-de minimis
OID, as determined under the foregoing rule, will be treated as OID. Where the
interval between the issue date and the first Distribution Date on a REMIC
Regular Certificate is shorter than the interval between subsequent Distribution
Dates, interest due on the first Distribution Date in excess of the amount that
accrued during the first period would be added to the Certificates, stated
redemption price at maturity. REMIC Regular Certificateholders should consult
their own tax advisors to determine the issue price and stated redemption price
at maturity of a REMIC Regular Certificate.
Under the de minimis rule, OID on a REMIC Regular Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average maturity of the REMIC Regular Certificate. For this purpose, the
weighted average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial years) from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included in
the stated redemption price at maturity of the REMIC Regular Certificate and the
denominator of which is the stated redemption price at maturity of the REMIC
Regular Certificate. Although currently unclear, it appears that the schedule of
such distributions should be determined in accordance with the Prepayment
Assumption. The Prepayment Assumption with respect to a Series of REMIC Regular
Certificates will be set forth in the related Prospectus Supplement. Holders
generally must report de minimis OID pro rata as principal payments are
received, and such income will be capital gain if the REMIC Regular Certificate
is held as a capital asset. However, accrual method holders may elect to accrue
all de minimis OID as well as market discount under a constant interest method.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain REMIC Regular Certificates to be issued at prices significantly
exceeding their principal amounts or based on notional principal balances (the
"Super-Premium Certificates"). The income tax treatment of such REMIC Regular
Certificates is not entirely certain. For information reporting purposes, the
Trust Fund intends to take the position that the stated redemption price at
maturity of such REMIC Regular Certificates is the sum of all payments to be
made on such REMIC Regular Certificates determined under the Prepayment
Assumption, with the result that such REMIC Regular Certificates would be issued
with OID. The calculation of income in this manner could result in negative
original issue discount (which delays future accruals of OID rather than being
immediately deductible) when prepayments on the Mortgage Assets exceed those
estimated under the Prepayment Assumption. The IRS might contend, however, that
certain contingent payment rules contained in final regulations issued on June
11, 1996, with respect to original issue discount, should apply to such
Certificates. Although such rules are not applicable to instruments governed by
Code Section 1272(a)(6), they represent the only guidance regarding the current
views of the IRS with respect to contingent payment instruments. These proposed
regulations, if applicable, generally would require holders of Regular Interest
Certificates to take the payments considered contingent interest payments into
income on a yield to maturity basis in accordance with a schedule of projected
payments provided by the Depositor and to make annual adjustments to income to
account for the difference between actual payments received and projected
payment amounts accrued. In the alternative, the IRS could assert that the
stated redemption price at maturity of such REMIC Regular Certificates should be
limited to their principal amount (subject to the discussion below under
"--Accrued Interest Certificates"), so that such REMIC Regular Certificates
would be considered for federal income tax purposes to be issued at a premium.
If such a position were to prevail, the rules described below under "--Taxation
of Owners of REMIC Regular Certificates--Premium" would apply. It is unclear
when a loss may be claimed for any unrecovered basis for a Super-Premium
Certificate. It is possible that a holder of a Super-Premium Certificate may
only claim a loss when its remaining basis exceeds the maximum amount of future
payments, assuming no further prepayments or when the final payment is received
with respect to such Super-Premium Certificate.
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Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than REMIC Regular Certificate based on a notional amount)
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular Certificate
generally should not be treated as a Super-Premium Certificate and the rules
described below under "--REMIC Regular Certificates--Premium" should apply.
However, it is possible that holders of REMIC Regular Certificates issued at a
premium, even if the premium is less than 25% of such Certificate's actual
principal balance, will be required to amortize the premium under an original
issue discount method or contingent interest method even though no election
under Code Section 171 is made to amortize such premium.
Generally, a REMIC Regular Certificateholder must include in gross
income the "daily portions," as determined below, of the OID that accrues on a
REMIC Regular Certificate for each day a Certificateholder holds the REMIC
Regular Certificate, including the purchase date but excluding the disposition
date. In the case of an original holder of a REMIC Regular Certificate, a
calculation will be made of the portion of the OID that accrues during each
successive period ("an accrual period") that ends on the day in the calendar
year corresponding to a Distribution Date (or if Distribution Dates are on the
first day or first business day of the immediately preceding month, interest may
be treated as payable on the last day of the immediately preceding month) and
begins on the day after the end of the immediately preceding accrual period (or
on the issue date in the case of the first accrual period). This will be done,
in the case of each full accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the REMIC Regular Certificates as calculated under
the Prepayment Assumption) of all remaining payments to be received on the REMIC
Regular Certificates under the Prepayment Assumption and (b) any payments
included in the stated redemption price at maturity received during such accrual
period, and (ii) subtracting from that total the adjusted issue price of the
REMIC Regular Certificates at the beginning of such accrual period. The adjusted
issue price of a REMIC Regular Certificate at the beginning of the first accrual
period is its issue price; the adjusted issue price of a REMIC Regular
Certificate at the beginning of a subsequent accrual period is the adjusted
issue price at the beginning of the immediately preceding accrual period plus
the amount of OID allocable to that accrual period and reduced by the amount of
any payment other than a payment of qualified stated interest made at the end of
or during that accrual period. The OID accrued during an accrual period will
then be divided by the number of days in the period to determine the daily
portion of OID for each day in the accrual period. The calculation of OID under
the method described above will cause the accrual of OID to either increase or
decrease (but never below zero) in a given accrual period to reflect the fact
that prepayments are occurring faster or slower than under the Prepayment
Assumption. With respect to an initial accrual period shorter than a full
accrual period, the daily portions of OID may be determined according to an
appropriate allocation under any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate issued with OID
who purchases the REMIC Regular Certificate at a cost less than the remaining
stated redemption price at maturity will also be required to include in gross
income the sum of the daily portions of OID on that REMIC Regular Certificate.
In computing the daily portions of OID for such a purchaser (as well as an
initial purchaser that purchases at a price higher than the adjusted issue price
but less than the stated redemption price at maturity), however, the daily
portion is reduced by the amount that would be the daily portion for such day
(computed in accordance with the rules set forth above) multiplied by a
fraction, the numerator of which is the amount, if any, by which the price paid
by such holder for that REMIC Regular Certificate exceeds the following amount:
(a) the sum of the issue price plus the aggregate amount of OID that would have
been includible in the gross income of an original REMIC Regular
Certificateholder (who purchased the REMIC Regular Certificate at its issue
price), less (b) any prior payments included in the stated redemption price at
maturity, and the denominator of which is the sum of the daily portions for that
REMIC Regular Certificate for all days beginning on the date after the purchase
date and ending on the maturity date computed under the Prepayment Assumption. A
holder who pays an acquisition premium instead may elect to accrue OID by
treating the purchase as a purchase at original issue.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates may
provide for interest based on a variable rate. Interest based on a variable rate
will constitute qualified stated interest and not contingent interest if,
generally, (i) such interest is unconditionally payable at least annually, (ii)
the issue price of the debt instrument does not exceed the total noncontingent
principal payments and (iii) interest is based on a "qualified floating rate,"
an "objective rate," a combination of a single fixed rate and one or more
"qualified floating rates," one "qualified inverse floating rate," or a
combination of "qualified floating rates that do not operate in a manner that
significantly accelerates or defers interest payments" on such REMIC Regular
Certificates.
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The amount of OID with respect to a REMIC Regular Certificate bearing a
variable rate of interest will accrue in the manner described above under
"--Original Issue Discount and Premium" by assuming generally that the index
used for the variable rate will remain fixed throughout the term of the
Certificate. Appropriate adjustments are made for the actual variable rate.
Although unclear at present, the Depositor intends to treat interest on
a REMIC Regular Certificate that is a weighted average of the net interest rates
on Mortgage Loans as qualified stated interest. In such case, the weighted
average rate used to compute the initial pass-through rate on the REMIC Regular
Certificates will be deemed to be the index in effect through the life of the
REMIC Regular Certificates. It is possible, however, that the IRS may treat some
or all of the interest on REMIC Regular Certificates with a weighted average
rate as taxable under the rules relating to obligations providing for contingent
payments. Such treatment may effect the timing of income accruals on such REMIC
Regular Certificates.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market discount or original issue discount) and premium in income as
interest, based on a constant yield method. If such an election were to be made
with respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Certificateholder acquires during the year of the
election or thereafter. Similarly, a Certificateholder that makes this election
for a Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. See
"--REMIC Regular Certificates--Premium" herein. The election to accrue interest,
discount and premium on a constant yield method with respect to a Certificate is
irrevocable without the consent of the IRS.
Market Discount. A purchaser of a REMIC Regular Certificate may also be
subject to the market discount provisions of Code Sections 1276 through 1278.
Under these provisions and the OID Regulations, "market discount" equals the
excess, if any, of (i) the REMIC Regular Certificate's stated principal amount
or, in the case of a REMIC Regular Certificate with OID, the adjusted issue
price (determined for this purpose as if the purchaser had purchased such REMIC
Regular Certificate from an original holder) over (ii) the price for such REMIC
Regular Certificate paid by the purchaser. A Certificateholder that purchases a
REMIC Regular Certificate at a market discount will recognize income upon
receipt of each distribution representing amounts included in such certificate's
stated redemption price at maturity. In particular, under Section 1276 of the
Code such a holder generally will be required to allocate each such distribution
first to accrued market discount not previously included in income, and to
recognize ordinary income to that extent. A Certificateholder may elect to
include market discount in income currently as it accrues rather than including
it on a deferred basis in accordance with the foregoing. If made, such election
will apply to all market discount bonds acquired by such Certificateholder on or
after the first day of the first taxable year to which such election applies.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular Certificate
is less than 0.25% of such REMIC Regular Certificate's stated redemption price
at maturity multiplied by such REMIC Regular Certificate's weighted average
maturity remaining after the date of purchase. If market discount on a REMIC
Regular Certificate is considered to be zero under this rule, the actual amount
of market discount must be allocated to the remaining principal payments on the
REMIC Regular Certificate, and gain equal to such allocated amount will be
recognized when the corresponding principal payment is made. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, 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
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apply. Under those rules, the holder of a market discount bond may elect to
accrue market discount either on the basis of a constant interest method rate or
according to one of the following methods. For REMIC Regular Certificates issued
with OID, the amount of market discount that accrues during a period is equal to
the product of (i) the total remaining market discount and (ii) a fraction, the
numerator of which is the OID accruing during the period and the denominator of
which is the total remaining OID at the beginning of the period. For REMIC
Regular Certificates issued without OID, the amount of market discount that
accrues during a period is equal to the product of (a) the total remaining
market discount and (b) a fraction, the numerator of which is the amount of
stated interest paid during the accrual period and the denominator of which is
the total amount of stated interest remaining to be paid at the beginning of the
period. For purposes of calculating market discount under any of the above
methods in the case of instruments (such as the REMIC Regular Certificates) that
provide for payments that may be accelerated by reason of prepayments of other
obligations securing such instruments, the same Prepayment Assumption applicable
to calculating the accrual of OID will apply.
A holder who acquired a REMIC Regular Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry such Certificate purchased with market discount. For these purposes,
the de minimis rule referred to above applies. Any such deferred interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later than the year in which
such market discount is includible in income. If such holder elects to include
market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
Premium. A purchaser of a REMIC Regular Certificate that purchases the
REMIC Regular Certificate at a cost (not including accrued qualified stated
interest) greater than its remaining stated redemption price at maturity will be
considered to have purchased the REMIC Regular Certificate at a premium and may
elect to amortize such premium under a constant yield method. A
Certificateholder that makes this election for a Certificate that is acquired at
a premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Certificateholder acquires during the year of the election or thereafter. It is
not clear whether the Prepayment Assumption would be taken into account in
determining the life of the REMIC Regular Certificate for this purpose. However,
the Legislative History states that the same rules that apply to accrual of
market discount (which rules require use of a Prepayment Assumption in accruing
market discount with respect to REMIC Regular Certificates without regard to
whether such Certificates have OID) will also apply in amortizing bond premium
under Code Section 171. The Code provides that amortizable bond premium will be
allocated among the interest payments on such REMIC Regular Certificates and
will be applied as an offset against such interest payment. On December 30,
1997, the IRS issued final regulations on the amortizable bond premium, which
generally are effective for bonds acquired on or after March 2, 1998 or, for
holders making an election to amortize bond premium as described above for the
taxable year that includes March 2, 1998 or any subsequent taxable year, will
apply to bonds held on or after the first day of the taxable year in which the
election is made. The final regulations, by their express terms, do not apply to
prepayable securities described in Section 1272(a)(6) 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.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption, or
retirement and the seller's adjusted basis in the REMIC Regular Certificate.
Such adjusted basis
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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, by any amortized premium and by previously recognized
losses. Similarly, a holder who receives a payment that is part of the stated
redemption price at maturity of a REMIC Regular Certificate will recognize gain
equal to the excess, if any, of the amount of the payment over an allocable
portion of the holder's adjusted basis in the REMIC Regular Certificate. A REMIC
Regular Certificateholder who receives a final payment that is less than the
holder's adjusted basis in the REMIC Regular Certificate will generally
recognize a loss. Except as provided in the following paragraph and as provided
under "--Market Discount" above, any such gain or loss will be capital gain or
loss, provided that the REMIC Regular Certificate is held as a "capital asset"
(generally, property held for investment) within the meaning of Code Section
1221.
Except as provided below, such capital gain or loss will generally be
long-term capital gain or loss if the REMIC Regular Certificate was held for
more than one year. Long-term capital gains of individuals are subject to
reduced maximum tax rates while capital gains recognized by individual on
capital assets held less than twelve months are generally subject to ordinary
income tax rates. The use of capital losses is limited.
Gain from the sale or other disposition of a REMIC Regular Certificate
that might otherwise be capital gain will be treated as ordinary income to the
extent that such gain does not exceed the excess, if any, of (i) the amount that
would have been includible in such holder's income with respect to the REMIC
Regular Certificate had income accrued thereon at a rate equal to 110% of the
AFR as defined in Code Section 1274(d) determined as of the date of purchase of
such REMIC Regular Certificate, over (ii) the amount actually includible in such
holder's income. Gain from the sale or other disposition of a REMIC Regular
Certificate that might otherwise be capita gain will be treated as ordinary
income if the REMIC Regular Certificate is held as part of a "conversion
transaction" as defined in Code section 1258(c), up to the amount of interest
that would have accrued on the REMIC Regular Certificateholder's net investment
in the conversion transaction at 120% of the appropriate applicable federal rate
under Code section 1274(d) in effect at the time the taxpayer entered into the
transaction minus any amount previously treated as ordinary income with respect
to any prior disposition of property that was held as part of such transaction,
or if the REMIC Regular Certificate is held as part of a straddle. Potential
investors should consult their tax advisors with respect to tax consequences of
ownership and disposition of an investment in REMIC Regular Certificates in
their particular circumstances.
It is possible that capital gain realized by holders of one or more
classes of REMIC Regular Certificates could be considered gain realized upon the
disposition of property that was part of a "conversion transaction." A sale of a
REMIC Regular Certificate will be part of a "conversion transaction" if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and (i) the holder entered the contract to
sell the REMIC Regular Certificate substantially contemporaneously with
acquiring the REMIC Regular Certificate, (ii) the REMIC Regular Certificate is
part of a straddle, (iii) the REMIC Regular Certificate is marketed or sold as
producing capital gains, or (iv) other transactions to be specified in Treasury
regulations that have not yet been issued. If the sale or other disposition of a
REMIC Regular Certificate is part of a conversion transaction, all or a portion
of the gain realized upon the sale or other disposition of the REMIC Regular
Certificate would be treated as ordinary income instead of capital gain.
The Certificates will be "evidences of indebtedness" within the meaning
of Code Section 582(c)(1), so that gain or loss recognized from the sale of a
REMIC Regular Certificate by a bank or a thrift institution to which such
section applies will be ordinary income or loss.
The REMIC Regular Certificate information reports will include a
statement of the adjusted issue price of the REMIC Regular Certificate at the
beginning of each accrual period. In addition, the reports will include
information necessary to compute the accrual of any market discount that may
arise upon secondary trading of REMIC Regular Certificates. Because exact
computation of the accrual of market discount on a constant yield method would
require information relating to the holder's purchase price which the REMIC may
not have, it appears that the information reports will only provide information
pertaining to the appropriate proportionate method of accruing market discount.
Accrued Interest Certificates. Certain of the REMIC Regular Certificates
("Payment Lag Certificates") may provide for payments of interest based on a
period that corresponds to the interval between Distribution Dates but
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that ends prior to each such Distribution Date. The period between the Closing
Date for Payment Lag Certificates and their first Distribution Date may or may
not exceed such interval. Purchasers of Payment Lag Certificates for which the
period between the Closing Date and the first Distribution Date does not exceed
such interval could pay upon purchase of the REMIC Regular Certificates accrued
interest in excess of the accrued interest that would be paid if the interest
paid on the Distribution Date were interest accrued from Distribution Date to
Distribution Date. If a portion of the initial purchase price of a REMIC Regular
Certificate is allocable to interest that has accrued prior to the issue date
("pre-issuance accrued interest") and the REMIC Regular Certificate provides for
a payment of stated interest on the first payment date (and the first payment
date is within one year of the issue date) that equals or exceeds the amount of
the pre-issuance accrued interest, then the REMIC Regular Certificate's issue
price may be computed by subtracting from the issue price the amount of
pre-issuance accrued interest, rather than as an amount payable on the REMIC
Regular Certificate. However, it is unclear under this method how the OID
Regulations treat interest on Payment Lag Certificates. Therefore, in the case
of a Payment Lag Certificate, the Trust Fund intends to include accrued interest
in the issue price and report interest payments made on the first Distribution
Date as interest to the extent such payments represent interest for the number
of days that the Certificateholder has held such Payment Lag Certificate during
the first accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury
regulations, if the REMIC is considered to be a "single-class REMIC," a portion
of the REMIC's servicing, administrative and other non-interest expenses will be
allocated as a separate item to those REMIC Regular Certificateholders that are
"pass-through interest holders." Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of these
rules on an investment in the REMIC Regular Certificates. See "Pass-Through of
Non-Interest Expenses of the REMIC" under "Taxation of Owners of REMIC Residual
Certificates" below.
Effects of Defaults, Delinquencies and Losses. Certain Series of
Certificates may contain one or more classes of Subordinated Certificates, and
in the event there are defaults or delinquencies on the Mortgage Assets, amounts
that would otherwise be distributed on the Subordinated Certificates may instead
be distributed on the Senior Certificates. Subordinated Certificateholders
nevertheless will be required to report income with respect to such Certificates
under an accrual method without giving effect to delays and reductions in
distributions on such Subordinated Certificates attributable to defaults and
delinquencies on the Mortgage Assets, except to the extent that it can be
established that such amounts are uncollectible. As a result, the amount of
income reported by a Subordinated Certificateholder in any period could
significantly exceed the amount of cash distributed to such holder in that
period. The holder will eventually be allowed a loss (or will be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Subordinated Certificate is reduced as a result of defaults
and delinquencies on the Mortgage Assets.
Although not entirely clear, it appears that holders of REMIC Regular
Certificates that are corporations should in general be allowed to deduct as an
ordinary loss any loss sustained during the taxable year on account of any such
Certificates becoming wholly or partially worthless, and that, in general,
holders of Certificates that are not corporations should be allowed to deduct as
a short-term capital loss any loss sustained during the taxable year on account
of any such Certificates becoming wholly worthless. Potential investors and
holders of the Certificates are urged to consult their own tax advisors
regarding the appropriate timing, amount and character of any loss sustained
with respect to such Certificates, including any loss resulting from the failure
to recover previously accrued interest or discount income. Special loss rules
are applicable to banks and thrift institutions, including rules regarding
reserves for bad debts. Such taxpayers are advised to consult their tax advisors
regarding the treatment of losses on Certificates.
Non-U.S. Persons. Generally, payments of interest (including any payment
with respect to accrued OID) on the REMIC Regular Certificates to a REMIC
Regular Certificateholder who is not a U.S. Person and is not engaged in a trade
or business within the United States will not be subject to federal withholding
tax if (i) such REMIC Regular Certificateholder does not actually or
constructively own 10 percent or more of the combined voting power of all
classes of equity in the issuer; (ii) such REMIC Regular Certificateholder is
not a controlled foreign corporation (within the meaning of Code Section 957)
related to the issuer; and (iii) such REMIC Regular Certificateholder complies
with certain identification requirements (including delivery of a statement,
signed by the REMIC Regular Certificateholder under penalties of perjury,
certifying that such REMIC Regular Certificateholder
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is a foreign person and providing the name and address of such REMIC Regular
Certificateholder). If a REMIC Regular Certificateholder is not exempt from
withholding, distributions of interest to such holder, including distributions
in respect of accrued OID, may be subject to a 30% withholding tax, subject to
reduction under any applicable tax treaty. If the interest on a REMIC Regular
Certificate is effectively connected with the conduct by the Non-U.S. REMIC
Regular Certificateholder of a trade or business within the United States, then
the Non-U.S. REMIC Regular Certificateholder will be subject to U.S. income tax
at regular graduated rates. Such a Non-U.S. REMIC Regular Certificateholder also
may be subject to the branch profits tax.
Further, a REMIC Regular Certificate will not be included in the estate
of a non-resident alien individual that does not actually or constructively own
10% or more of the combined voting power of all classes of equity in the Issuer
and will not be subject to United States estate taxes. However,
Certificateholders who are non-resident alien individuals should consult their
tax advisors concerning this question.
REMIC Regular Certificateholders who are not U.S. Persons and persons
related to such holders should not acquire any REMIC Residual Certificates, and
holders of REMIC Residual Certificates (the "REMIC Residual Certificateholder")
and persons related to REMIC Residual Certificateholders should not acquire any
REMIC Regular Certificates without consulting their tax advisors as to the
possible adverse tax consequences of doing so. In addition, the IRS may assert
that non-U.S Persons that own directly or indirectly, a greater than 10%
interest in any Mortgagor, and foreign corporations that are "controlled foreign
corporations" as to the United States of which such a Mortgagor is a "United
States shareholder" within the meaning of Section 951(b) of the Code, are
subject to United States withholding tax on interest distributed to them to the
extent of interest concurrently paid by the related Mortgagor.
For these purposes, a "U.S. Person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in, or under the laws of, the United States or any political subdivision
thereof, an estate the income of which from sources without the United States is
includible in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business or a trust
as to which (i) a court in the United States is able to exercise primary
supervision over its administration and (ii) one or more U.S. Persons have the
right to control all substantial decisions of the trust.
Information Reporting and Backup Withholding. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a REMIC Regular Certificateholder at any
time during such year, such information as may be deemed necessary or desirable
to assist REMIC Regular Certificateholders in preparing their federal income tax
returns, or to enable holders to make such information available to beneficial
owners or financial intermediaries that hold such REMIC Regular Certificates on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments with respect to
any payments to registered owners who are not "exempt recipients." In addition,
upon the sale of a REMIC Regular Certificate to (or through) a broker, the
broker must withhold 31% of the entire purchase price, unless either (i) the
broker determines that the seller is a corporation or other exempt recipient, or
(ii) the seller provides, in the required manner, certain identifying
information and, in the case of a non-U.S. Person, certifies that such seller is
a Non-U.S. Person, and certain other conditions are met. Such as sale must also
be reported by the broker to the IRS, unless either (a) the broker determines
that the seller is an exempt recipient or (b) the seller certifies its non-U.S.
Person status (and certain other conditions are met). Certification of the
registered owner's non-U.S. Person status normally would be made on IRS Form W-8
under penalties of perjury, although in certain cases it may be possible to
submit other documentary evidence. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
On October 6, 1997, the Treasury Department issued the New Regulations,
which make certain modifications to the withholding, backup withholding and
information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
2000, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
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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 or
cause the REMIC Residual Certificate to have negative "value." Investors should
consult their own tax advisors concerning the federal income tax treatment of a
REMIC Residual Certificate and the impact of such tax treatment on the after-tax
yield of a REMIC Residual Certificate.
A subsequent REMIC Residual Certificateholder also will report on its
federal income tax return amounts representing a daily share of the taxable
income of the REMIC for each day that such REMIC Residual Certificateholder owns
such REMIC Residual Certificate. Those daily amounts generally would equal the
amounts that would have been reported for the same days by an original REMIC
Residual Certificateholder, as described above. The Legislative History
indicates that certain adjustments may be appropriate to reduce (or increase)
the income of a subsequent holder of a REMIC Residual Certificate that purchased
such REMIC Residual Certificate at a price greater than (or less than) the
adjusted basis such REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder. See "--Sale or Exchange of REMIC
Residual Certificates" below. It is not clear, however, whether such adjustments
will in fact be permitted or required and, if so, how they would be made. The
REMIC Regulations do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of (i) the income from the
Mortgage Assets and the REMIC's other assets and (ii) the deductions allowed to
the REMIC for interest and OID on the REMIC Regular Certificates and, except as
described above under "--Taxation of Owners of REMIC Regular
Certificates--Non-Interest Expenses of the REMIC," other expenses. REMIC taxable
income is generally determined in the same manner as the taxable income of an
individual using the accrual method of accounting, except that (i) the
limitations on deductibility of investment interest expense and expenses for the
production of income do not apply, (ii) all bad loans will be deductible as
business bad debts, and (iii) the limitation on the deductibility of interest
and expenses related to tax-exempt income will apply. The REMIC's gross income
includes interest, original issue discount income, and market discount income,
if any, on the Mortgage Loans, reduced by amortization of any premium on the
Mortgage Loans, plus income on reinvestment of cash flows and reserve assets,
plus any cancellation of indebtedness income upon allocation of realized losses
to the REMIC Regular Certificates. Note that the timing of cancellation of
indebtedness income recognized by REMIC Residual Certificateholders resulting
from defaults and delinquencies on Mortgage Assets may differ from the time of
the actual loss on the Mortgage Asset. The REMIC's deductions include interest
and original issue discount expense on the REMIC Regular Certificates, servicing
fees on the Mortgage Loans, other administrative expenses of the REMIC and
realized losses on the Mortgage Loans. The requirement that REMIC
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Residual Certificateholders report their pro rata share of taxable income or net
loss of the REMIC will continue until there are no Certificates of any class of
the related Series outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the REMIC Regular Certificates and the REMIC Residual Certificates (or, if a
class of Certificates is not sold initially, its fair market value). Such
aggregate basis will be allocated among the Mortgage Assets and other assets of
the REMIC in proportion to their respective fair market values. A Mortgage Asset
will be deemed to have been acquired with discount or premium to the extent that
the REMIC's basis therein is less than or greater than its principal balance,
respectively. Any such discount (whether market discount or OID) will be
includible in the income of the REMIC as it accrues, in advance of receipt of
the cash attributable to such income, under a method similar to the method
described above for accruing OID on the REMIC Regular Certificates. The REMIC
may elect under Code Section 171 to amortize any premium on the Mortgage Assets.
Premium on any Mortgage Asset to which such election applies would be amortized
under a constant yield method. It is not clear whether the yield of a Mortgage
Asset would be calculated for this purpose based on scheduled payments or taking
account of the Prepayment Assumption. Additionally, such an election would not
apply to the yield with respect to any underlying mortgage loan originated on or
before September 27, 1985. Instead, premium with respect to such a mortgage loan
would be allocated among the principal payments thereon and would be deductible
by the REMIC as those payments become due.
The REMIC will be allowed a deduction for interest and OID on the REMIC
Regular Certificates. The amount and method of accrual of OID will be calculated
for this purpose in the same manner as described above with respect to REMIC
Regular Certificates except that the 0.25% per annum de minimis rule and
adjustments for subsequent holders described therein will not apply.
A REMIC Residual Certificateholder will not be permitted to amortize the
cost of the REMIC Residual Certificate as an offset to its share of the REMIC's
taxable income. However, REMIC taxable income will not include cash received by
the REMIC that represents a recovery of the REMIC's basis in its assets, and, as
described above, the issue price of the REMIC Residual Certificates will be
added to the issue price of the REMIC Regular Certificates in determining the
REMIC's initial basis in its assets. See "--Sale or Exchange of REMIC Residual
Certificates" below. For a discussion of possible adjustments to income of a
subsequent holder of a REMIC Residual Certificate to reflect any difference
between the actual cost of such REMIC Residual Certificate to such holder and
the adjusted basis such REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder, see "--Allocation of the Income of
the REMIC to the REMIC Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any calendar
quarter in which its deductions exceed its gross income. Such net loss would be
allocated among the REMIC Residual Certificateholders in the same manner as the
REMIC's taxable income. The net loss allocable to any REMIC Residual Certificate
will not be deductible by the holder to the extent that such net loss exceeds
such holder's adjusted basis in such REMIC Residual Certificate. Any net loss
that is not currently deductible by reason of this limitation may only be used
by such REMIC Residual Certificateholder to offset its share of the REMIC's
taxable income in future periods (but not otherwise). The ability of REMIC
Residual Certificateholders that are individuals or closely held corporations to
deduct net losses may be subject to additional limitations under the Code.
Mark to Market Rules. Prospective purchasers of a REMIC Residual
Certificate should be aware that the IRS has finalized regulations (the
"Mark-to-Market Regulations") which provide that a REMIC Residual Certificate
acquired after January 3, 1995 cannot be marked to market. The Mark-to-Market
Regulations replaced the temporary regulations which allowed a Residual
Certificate to be marked to market provided that it was not a "negative value"
residual interest and did not have the same economic effect as a "negative
value" residual interest.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule,
all of the fees and expenses of a REMIC will be taken into account by holders of
the REMIC Residual Certificates. In the case of a single class REMIC, however,
the expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the REMIC Regular Certificateholders and
the REMIC Residual Certificateholders on a daily basis in proportion to the
relative amounts of income accruing to each Certificateholder on that day. In
general terms, a single class REMIC is one that either (i) would qualify, under
existing Treasury regulations, as a grantor trust if it were not a REMIC
(treating all interests as ownership interests, even if they would be classified
as
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debt for federal income tax purposes) or (ii) is similar to such a trust and is
structured with the principal purpose of avoiding the single class REMIC rules.
Unless otherwise stated in the applicable Prospectus Supplement, the expenses of
the REMIC will be allocated to holders of the related REMIC Residual
Certificates in their entirety and not to holders of the related REMIC Regular
Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest in a
REMIC Regular Certificate or a REMIC Residual Certificate directly or through a
pass-through interest holder that is required to pass miscellaneous itemized
deductions through to its owners or beneficiaries (e.g. a partnership, an S
corporation or a grantor trust), such expenses will be deductible under Code
Section 67 only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such individual's adjusted
gross income. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a certain amount (the "Applicable Amount") will be reduced by the lesser
of (i) 3% of the excess of the individual's adjusted gross income over the
Applicable Amount or (ii) 80% of the amount of itemized deductions otherwise
allowable for the taxable year. The amount of additional taxable income
recognized by REMIC Residual Certificateholders who are subject to the
limitations of either Code Section 67 or Code Section 68 may be substantial.
Further, holders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holders' alternative minimum taxable income. The REMIC is required to report to
each pass-through interest holder and to the IRS such holder's allocable share,
if any, of the REMIC's non-interest expenses. The term "pass-through interest
holder" generally refers to individuals, entities taxed as individuals and
certain pass-through entities, but does not include real estate investment
trusts. Accordingly, investment in REMIC Residual Certificates will in general
not be suitable for individuals or for certain pass-through entities, such as
partnerships and S corporations, that have individuals as partners or
shareholders.
Excess Inclusions. A portion of the income on a REMIC Residual
Certificate (referred to in the Code as an "excess inclusion") for any calendar
quarter will be subject to federal income tax in all events. Thus, for example,
an excess inclusion (i) may not, except as described below, be offset by any
unrelated losses, deductions or loss carryovers of a REMIC Residual
Certificateholder; (ii) will be treated as "unrelated business taxable income"
within the meaning of Code Section 512 if the REMIC Residual Certificateholder
is a pension fund or any other organization that is subject to tax only on its
unrelated business taxable income (see "--Tax-Exempt Investors" below); and
(iii) is not eligible for any reduction in the rate of withholding tax in the
case of a REMIC Residual Certificateholder that is a foreign investor. See
"--Non-U.S. Persons" below.
Except as discussed in the following paragraph, with respect to any
REMIC Residual Certificateholder, the excess inclusions for any calendar quarter
is the excess, if any, of (i) the income of such REMIC Residual
Certificateholder for that calendar quarter from its REMIC Residual Certificate
over (ii) the sum of the "daily accruals" (as defined below) for all days during
the calendar quarter on which the REMIC Residual Certificateholder holds such
REMIC Residual Certificate. For this purpose, the daily accruals with respect to
a REMIC Residual Certificate are determined by allocating to each day in the
calendar quarter its ratable portion of the product of the "adjusted issue
price" (as defined below) of the REMIC Residual Certificate at the beginning of
the calendar quarter and 120 percent of the "Federal long-term rate" in effect
at the time the REMIC Residual Certificate is issued. For this purpose, the
"adjusted issue price" of a REMIC Residual Certificate at the beginning of any
calendar quarter equals the issue price of the REMIC Residual Certificate,
increased by the amount of daily accruals for all prior quarters, and decreased
(but not below zero) by the aggregate amount of payments made on the REMIC
Residual Certificate before the beginning of such quarter. The "federal
long-term rate" is an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published monthly by the
IRS.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Regulated investment companies, common trust funds and certain
cooperatives are subject to similar rules.
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The Small Business Job Protection Act of 1996 has eliminated the special
rule permitting Section 593 institutions ("thrift institutions") to use net
operating losses and other allowable deductions to offset their excess inclusion
income from REMIC residual certificates that have "significant value" within the
meaning of the REMIC Regulations, effective for taxable years beginning after
December 31, 1995, except with respect to residual certificates continuously
held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum taxable
income for such residual holder is determined without regard to the special rule
that taxable income cannot be less than excess inclusions. Second, the amount of
any alternative minimum tax net operating loss deductions must be computed
without regard to any excess inclusions. Third, a residual holder's alternative
minimum taxable income for a tax year cannot be less than excess inclusions for
the year. The effect of this last statutory amendment is to prevent the use of
nonrefundable tax credits to reduce a taxpayer's income tax below its tentative
minimum tax computed only on excess inclusions. These rules are effective for
tax years beginning after December 31, 1986, unless a residual holder elects to
have such rules apply only to tax years beginning after August 20, 1996.
Payments. Any distribution made on a REMIC Residual Certificate to a
REMIC Residual Certificateholder will be treated as a non-taxable return of
capital to the extent it does not exceed the REMIC Residual Certificateholder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
exceeds such adjusted basis, it will be treated as gain from the sale of the
REMIC Residual Certificate.
Sale or Exchange of REMIC Residual Certificates. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or exchange
and its adjusted basis in the REMIC Residual Certificate (except that the
recognition of loss may be limited under the "wash sale" rules described below).
A holder's adjusted basis in a REMIC Residual Certificate generally equals the
cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder, increased by the taxable income of the REMIC that was
included in the income of such REMIC Residual Certificateholder with respect to
such REMIC Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to such REMIC Residual
Certificateholder with respect to such REMIC Residual Certificate and by the
distributions received thereon by such REMIC Residual Certificateholder. In
general, any such gain or loss will be capital gain or loss provided the REMIC
Residual Certificate is held as a capital asset. Such capital gain or loss will
generally be long-term capital gain or loss if the REMIC Residual Certificate
was held for more than one year. Long-term capital gains of individuals are
subject to reduced maximum tax rates while capital gains recognized by
individuals on capital assets held less than twelve months are generally subject
to ordinary income tax rates. The use of capital losses is limited. However,
REMIC Residual Certificates will be "evidences of indebtedness" within the
meaning of Code Section 582(c)(1), so that gain or loss recognized from sale of
a REMIC Residual Certificate by a bank or thrift institution to which such
section applies would be ordinary income or loss. In addition, a transfer of a
REMIC Residual Certificate that is a "noneconomic residual interest" may be
subject to different rules. See "--Tax Related Restrictions on Transfers of
REMIC Residual Certificates--Noneconomic REMIC Residual Certificates" below.
Except as provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other REMIC Residual Certificate, any residual
interest in another REMIC or similar interest in a "taxable mortgage pool" (as
defined in Code Section 7701(i)) during the period beginning six months before,
and ending six months after, the date of such sale, such sale will be subject to
the "wash sale" rules of Code Section 1091. In that event, any loss realized by
the REMIC Residual Certificateholder on the sale will not be deductible, but,
instead, will increase such REMIC Residual Certificateholder's adjusted basis in
the newly acquired asset.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (the "Prohibited Transactions Tax"). In general,
subject to certain specified exceptions, a prohibited transaction means the
disposition of a Mortgage Asset, the receipt of income from a source other than
a Mortgage Asset or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Assets for temporary investment pending
distribution on
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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.
LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC's final tax return a date on which such adoption is deemed to occur,
and sells all of its assets (other than cash) within a 90-day period beginning
on such date, the REMIC will not be subject to any Prohibited Transaction Tax,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash (other than the amounts retained to meet claims) to
holders of Regular and REMIC Residual Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis in
the REMIC Residual Certificate exceeds the amount of cash distributed to such
REMIC Residual Certificateholder in final liquidation of its interest, then it
would appear that the REMIC Residual Certificateholder would be entitled to a
loss equal to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code, the
REMIC generally will be treated as a partnership and the REMIC Residual
Certificateholders will be treated as the partners. Certain information will be
furnished quarterly to each REMIC Residual Certificateholder who held a REMIC
Residual Certificate on any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the REMIC
Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting an
administrative proceeding at the REMIC level. The REMIC does not intend to
register as a tax shelter pursuant to Code Section 6111 because it is not
anticipated that the REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
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TAX-EXEMPT INVESTORS
Any REMIC Residual Certificateholder that is a pension fund or other
entity that is subject to federal income taxation only on its "unrelated
business taxable income" within the meaning of Code Section 512 will be subject
to such tax on that portion of the distributions received on a REMIC Residual
Certificate that is considered an excess inclusion. See "--Taxation of Owners of
REMIC Residual Certificates--Excess Inclusions" above.
RESIDUAL CERTIFICATE PAYMENTS--NON-U.S. PERSONS
Amounts paid to REMIC Residual Certificateholders who are not U.S.
Persons (see "--Taxation of Owners of REMIC Regular Certificates--Non-U.S.
Persons" above) are treated as interest for purposes of the 30% (or lower treaty
rate) United States withholding tax. Amounts distributed to holders of REMIC
Residual Certificates should qualify as "portfolio interest," subject to the
conditions described in "--Taxation of Owners of REMIC Regular Certificates"
above, but only to the extent that the underlying mortgage loans were originated
after July 18, 1984. Furthermore, the rate of withholding on any income on a
REMIC Residual Certificate that is excess inclusion income will not be subject
to reduction under any applicable tax treaties. See "--Taxation of Owners of
REMIC Residual Certificates--Excess Inclusions" above. If the portfolio interest
exemption is unavailable, such amount will be subject to United States
withholding tax when paid or otherwise distributed (or when the REMIC Residual
Certificate is disposed of) under rules similar to those for withholding upon
disposition of debt instruments that have OID. The Code, however, grants the
Treasury Department authority to issue regulations requiring that those amounts
be taken into account earlier than otherwise provided where necessary to prevent
avoidance of tax (for example, where the REMIC Residual Certificates do not have
significant value). See "--Taxation of Owners of REMIC Residual
Certificates--Excess Inclusions" above. If the amounts paid to REMIC Residual
Certificateholders that are not U.S. Persons are effectively connected with
their conduct of a trade or business within the United States, the 30% (or lower
treaty rate) withholding will not apply. Instead, the amounts paid to such
non-U.S. Person will be subject to U.S. federal income taxation at regular
graduated rates. For special restrictions on the transfer of REMIC Residual
Certificates, see "--Tax-Related Restrictions on Transfers of REMIC Residual
Certificates" below.
REMIC Regular Certificateholders and persons related to such holders
should not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their tax
advisors as to the possible adverse tax consequences of such acquisition.
TAX-RELATED RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by "disqualified organizations" (as defined below).
Further, a tax is imposed on the transfer of a residual interest in a REMIC to a
"disqualified organization." The amount of the tax equals the product of (A) an
amount (as determined under the REMIC Regulations) equal to the present value of
the total anticipated "excess inclusions" with respect to such interest for
periods after the transfer and (ii) the highest marginal federal income tax rate
applicable to corporations. The tax is imposed on the transferor unless the
transfer is through an agent (including a broker or other middleman) for a
disqualified organization, in which event the tax is imposed on the agent. The
person otherwise liable for the tax shall be relieved of liability for the tax
if the transferee furnished to such person an affidavit that the transferee is
not a disqualified organization and, at the time of the transfer, such person
does not have actual knowledge that the affidavit is false. A "disqualified
organization" means (A) the United States, any State, possession or political
subdivision thereof, any foreign government, any international organization or
any agency or instrumentality of any of the foregoing (provided that such term
does not include an instrumentality if all its activities are subject to tax
and, except for FHLMC, a majority of its board of directors is not selected by
any such governmental agency), (B) any organization (other than certain farmers'
cooperatives) generally exempt from federal income taxes unless such
organization is subject to the tax on "unrelated business taxable income" and
(C) a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding a
residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity, provided that all partners of an "electing large
partnership" as defined in Section 775 of the
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Code, are deemed to be disqualified organizations. The amount of the tax is
equal to the product of (A) the amount of excess inclusions for the taxable year
allocable to the interest held by the disqualified organization and (B) the
highest marginal federal income tax rate applicable to corporations. The
pass-through entity otherwise liable for the tax, for any period during which
the disqualified organization is the record holder of an interest in such
entity, will be relieved of liability for the tax if such record holder
furnishes to such entity an affidavit that such record holder is not a
disqualified organization and, for such period, the pass-through entity does not
have actual knowledge that the affidavit is false. For this purpose, a
"pass-through entity" means (i) a regulated investment company, real estate
investment trust or common trust fund, (ii) a partnership, trust or estate and
(iii) certain cooperatives. Except as may be provided in Treasury regulations
not yet issued, any person holding an interest in a pass-through entity as a
nominee for another will, with respect to such interest, be treated as a
pass-through entity. Electing large partnerships (generally, non-service
partnerships with 100 or more members electing to be subject to simplified IRS
reporting provisions under Code sections 771 through 777) will be taxable on
excess inclusion income as if all partners were disqualified organizations.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a REMIC Residual Certificate may be
purchased, transferred or sold, directly or indirectly, without the express
written consent of the Master Servicer. The Master Servicer will grant such
consent to a proposed transfer only if it receives the following: (i) an
affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the REMIC Residual Certificate as
a nominee or agent for a disqualified organization and (ii) a covenant by the
proposed transferee to the effect that the proposed transferee agrees to be
bound by and to abide by the transfer restrictions applicable to the REMIC
Residual Certificate.
Noneconomic REMIC Residual Certificates. The REMIC Regulations
disregard, for federal income tax purposes, any transfer of a Noneconomic REMIC
Residual Certificate to a "U.S. Person," as defined above, unless no significant
purpose of the transfer is to enable the transferor to impede the assessment or
collection of tax. A Noneconomic REMIC Residual Certificate is any REMIC
Residual Certificate (including a REMIC Residual Certificate with a positive
value at issuance) unless, at the time of transfer, taking into account the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents, (i) the
present value of the expected future distributions on the REMIC Residual
Certificate at least equals the product of the present value of the anticipated
excess inclusions and the highest corporate income tax rate in effect for the
year in which the transfer occurs and (ii) the transferor reasonably expects
that the transferee will receive distributions from the REMIC at or after the
time at which taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. A significant purpose to impede the
assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known that the transferee would be
unwilling or unable to pay taxes due on its share of the taxable income of the
REMIC. A transferor is presumed not to have such knowledge if (i) the transferor
conducted a reasonable investigation of the transferee and (ii) the transferee
acknowledges to the transferor that the residual interest may generate tax
liabilities in excess of the cash flow and the transferee represents that it
intends to pay such taxes associated with the residual interest as they become
due. If a transfer of a Noneconomic REMIC Residual Certificate is disregarded,
the transferor would continue to be treated as the owner of the REMIC Residual
Certificate and would continue to be subject to tax on its allocable portion of
the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
REMIC Residual Certificate that has a "tax avoidance potential" to a "foreign
person" will be disregarded for federal income tax purposes. This rule appears
to apply to a transferee who is not a U.S. Person unless such transferee's
income in respect of the REMIC Residual Certificate is effectively connected
with the conduct of a United Sates trade or business. A REMIC Residual
Certificate is deemed to have a tax avoidance potential unless, at the time of
transfer, the transferor reasonably expect that the REMIC will distribute to the
transferee amounts that will equal at least 30 percent of each excess inclusion,
and that such amounts will be distributed at or after the time the excess
inclusion accrues and not later than the end of the calendar year following the
year of accrual. If the non-U.S. Person transfers the REMIC Residual Certificate
to a U.S. Person, the transfer will be disregarded, and the foreign transferor
will continue to be treated as the owner, if the transfer has the effect of
allowing the transferor to avoid tax on accrued excess inclusions. The
provisions in the REMIC Regulations regarding transfers of REMIC Residual
Certificates that have tax avoidance potential to foreign persons are effective
for all transfers after June 30, 1992. The Pooling and Servicing Agreement will
provide that no record or beneficial ownership interest in a REMIC Residual
Certificate may be transferred, directly or indirectly, to a non-U.S. Person
unless such person provides the Trustee with a duly
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completed IRS Form 4224 (or applicable successor IRS Form for establishing that
such non-U.S. Person is engaged in a U.S. trade or business to which income from
the Residual Certificate is effectively connected) 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.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Offered Certificates.
CERTAIN ERISA CONSIDERATIONS
GENERAL
Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), imposes certain restrictions on employee benefit plans
subject thereto ("ERISA Plans") and on persons who are parties in interest or
disqualified persons ("parties in interest") with respect to such ERISA Plans.
Certain employee benefit plans, such as governmental plans and church plans (if
no election has been made under Section 410(d) of the Code), are not subject to
the restrictions of ERISA, and assets of such plans may be invested in the
Certificates without regard to the ERISA considerations described below, subject
to other applicable federal, state or local law. However, any such governmental
or church plan which is qualified under Section 401(a) of the Code and exempt
from taxation under Section 501(a) of the Code is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that an ERISA Plan's investments be made in
accordance with the documents governing the ERISA Plan.
PROHIBITED TRANSACTIONS
GENERAL
Section 406 of ERISA prohibits parties in interest with respect to an
ERISA Plan from engaging in certain transactions involving such Plan and its
assets unless a statutory or administrative exemption applies to the
transaction. In some cases, a civil penalty may be assessed on non-exempt
prohibited transactions pursuant to Section 502(i) of ERISA. Section 4975 of the
Code imposes certain excise taxes on similar transactions between retirement
plans and certain other employee benefit plans and arrangements subject thereto,
including individual retirement accounts or annuities and Keogh plans subject
thereto, and disqualified persons with respect to such plans and arrangements
(together with ERISA Plans, "Plans").
The United States Department of Labor ("Labor") has issued a final
regulation (29 C.F.R. Section 2510.3-101) containing rules for determining what
constitutes the assets of a Plan. This regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships, trusts
and certain other entities in which a Plan makes an "equity investment" will be
deemed for purposes of ERISA and Section 4975 of the Code to be assets of the
Plan unless certain exceptions apply.
Under the terms of the regulation, the Trust may be deemed to hold plan
assets by reason of a Plan's investment in a Certificate; such plan assets would
include an undivided interest in the Mortgage Loans and any
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other assets held by the Trust. In such an event, the Depositor, the Master
Servicer, any Sub-Servicer, the Trustee, any insurer of the Mortgage Assets and
other persons, in providing services with respect to the assets of the Trust,
may become fiduciaries subject to the fiduciary responsibility provisions of
Title I of ERISA, or may otherwise become parties in interest or disqualified
persons, with respect to such Plan. In addition, transactions involving such
assets could constitute or result in prohibited transactions under Section 406
of ERISA or Section 4975 of the Code unless such transactions are subject to a
statutory or administrative exemption.
The regulations contain a de minimis safe-harbor rule that exempts the
assets of an entity from plan assets status as long as the aggregate equity
investment in such entity by plans is not significant. For this purpose, equity
participation in the entity will be significant if immediately after any
acquisition of any equity interest in the entity, "benefit plan investors" in
the aggregate, own at least 25% of the value of any class of equity interest
(excluding equity interests held by persons who have discretionary authority or
control with respect to the assets of the entity (or held by affiliates of such
persons)). "Benefit plan investors" are defined as Plans as well as employee
benefit plans not subject to Title I of ERISA (e.g., governmental plans and
foreign plans) and entities whose underlying assets include plan assets by
reason of plan investment in such entities. The 25% limitation must be met with
respect to each class of equity interests, regardless of the portion of total
equity value represented by such class, on an ongoing basis.
AVAILABILITY OF UNDERWRITER'S EXEMPTION FOR CERTIFICATES
Labor has granted to Morgan Stanley & Co. Incorporated Prohibited
Transaction Exemption 90-24, Exemption Application No. D-8019, 55 Fed. Reg.
20548 (1990) (the "Exemption") which exempts from the application of the
prohibited transaction rules transactions relating to: (1) the acquisition, sale
and holding by Plans of certain certificates representing an undivided interest
in certain asset-backed pass-through trusts, with respect to which Morgan
Stanley & Co. Incorporated or any of its affiliates is the sole underwriter or
the manager or co-manager of the underwriting syndicate; and (2) the servicing,
operation and management of such asset-backed pass-through trusts, provided that
the general conditions and certain other conditions set forth in the Exemption
are satisfied.
General Conditions of the Exemption. Section II of the Exemption sets
forth the following general conditions which must be satisfied before a
transaction involving the acquisition, sale and holding of the Certificates or a
transaction in connection with the servicing, operation and management of the
Trust may be eligible for exemptive relief thereunder:
(1) The acquisition of the Certificates by a Plan is on terms (including
the price for such Certificates) that are at least as favorable to the investing
Plan as they would be in an arm's-length transaction with an unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by other
certificates of the Trust with respect to the right to receive payment in the
event of default or delinquencies in the underlying assets of the Trust;
(3) The Certificates acquired by the Plan have received a rating at the
time of such acquisition that is in one of the three highest generic rating
categories from any of Duff & Phelps Credit Rating Co., Fitch Investors Service,
L.P., Moody's Investors Service, Inc. and Standard & Poor's Ratings Services;
(4) The Trustee is not an affiliate of the Depositor, any Underwriter,
the Master Servicer, any insurer of the Mortgage Assets, any borrower whose
obligations under one or more Mortgage Loans constitute more than 5% of the
aggregate unamortized principal balance of the assets in the Trust, or any of
their respective affiliates (the "Restricted Group");
(5) The sum of all payments made to and retained by the Underwriter in
connection with the distribution of the Certificates represents not more than
reasonable compensation for underwriting such Certificates; the sum of all
payments made to and retained by the Asset Seller pursuant to the sale of the
Mortgage Loans to the Trust represents not more than the fair market value of
such Mortgage Loans; the sum of all payments made to and retained by the Master
Servicer represent not more than reasonable compensation for the Master
Servicer's services
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under the Pooling Agreement and reimbursement of the Master Servicer's
reasonable expenses in connection therewith; and
(6) The Plan investing in the Certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933 as amended.
Before purchasing a Certificate in reliance on the Exemption, a
fiduciary of a Plan should itself confirm (a) that the Certificates constitute
"certificates" for purposes of the Exemption and (b) that the general conditions
and other requirements set forth in the Exemption would be satisfied.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any Certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Among other things, before purchasing any
Certificates, a fiduciary of a Plan should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions. In
this regard, purchasers that are insurance companies should determine the extent
to which Prohibited Transaction Class Exemption 95-60 (for certain transactions
involving insurance company general accounts) may be available. The Prospectus
Supplement with respect to a series of Certificates may contain additional
information regarding the application of the Exemption, Prohibited Transaction
Class Exemption 83-1 (for certain transactions involving mortgage pool
investment trusts), or any other exemption, with respect to the Certificates
offered thereby.
LEGAL INVESTMENT
The Prospectus Supplement for each series of Offered Certificates will
identify those classes of Offered Certificates, if any, which constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"). Generally, only those classes of
Offered Certificates that (i) are rated in one of the two highest rating
categories by one or more Rating Agencies and (ii) are part of a series
representing interests in a Trust Fund consisting of Mortgage Loans or MBS,
provided that such Mortgage Loans (or the Mortgage Loans underlying the MBS) are
secured by first liens on Mortgaged Property and were originated by certain
types of originators as specified in SMMEA, will be "mortgage related
securities" for purposes of SMMEA (the "SMMEA Certificates"). As "mortgage
related securities," the SMMEA Certificates will constitute legal investments
for persons, trusts, corporations, partnerships, associations, business trusts
and business entities (including, but not limited to, depository institutions,
insurance companies, trustees and pension funds) created pursuant to or existing
under the laws of the United States or of any state (including the District of
Columbia and Puerto Rico) whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities. Pursuant
to SMMEA, a number of states enacted legislation, on or before the October 3,
1991 cutoff established by SMMEA for such enactments, limiting to varying
extents the ability of certain entities (in particular, insurance companies) to
invest in mortgage related securities, in most cases by requiring the affected
investors to rely solely upon existing state law, and not SMMEA. Pursuant to
Section 347 of the Riegle Community Development and Regulatory Improvement Act
of 1994, which amended the definition of "mortgage related security" (effective
December 31, 1996) to include, in relevant part, Offered Certificates satisfying
the rating, first lien and qualified originator requirements for "mortgage
related securities," but representing interests in a Trust Fund consisting, in
whole or in part, of first liens on one or more parcels of real estate upon
which are located one or more commercial structures, states were authorized to
enact legislation, on or before September 23, 2001, specifically referring to
Section 347 and prohibiting or restricting the purchase, holding or investment
by state-regulated entities in such types of Offered Certificates. Section 347
also provides that the enactment by a state of any such legislative restrictions
shall not affect the validity of any contractual commitment to purchase, hold or
invest in securities qualifying as "mortgage related securities" solely by
reason of Section 347 that was made, and shall not require the sale or
disposition of any securities acquired, prior to the enactment of such state
legislation. Accordingly, investors affected by such legislation, when and if
enacted, will be authorized to invest in SMMEA Certificates only to the extent
provided in such legislation.
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SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage related
securities" without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.
ss. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, the Office of
the Comptroller of the Currency (the "OCC") has amended 12 C.F.R. Part 1 to
authorize national banks to purchase and sell for their own account, without
limitation as to a percentage of the bank's capital and surplus (but subject to
compliance with certain general standards 12 C.F.R. ss. 1.5 concerning "safety
and soundness" and retention of credit information), certain "Type IV
securities," defined in 12 C.F.R. ss. 1.2(1) to include certain "commercial
mortgage-related securities" and "residential mortgage-related securities." As
so defined, "commercial mortgage-related security" and "residential
mortgage-related security" mean, in relevant part, "mortgage-related security"
within the meaning of SMMEA, provided that, in the case of a "commercial
mortgage-related security," it "represents ownership of a promissory note or
certificate of interest or participation that is directly secured by a first
lien on one or more parcels of real estate upon which one or more commercial
structures are located and that is fully secured by interests in a pool of loans
to numerous obligors." In the absence of any rule or administrative
interpretation by the OCC defining the term "numerous obligors," no
representation is made as to whether any class of Offered Certificates will
qualify as "commercial mortgage-related securities," and thus as "Type IV
securities," for investment by national banks. The National Credit Union
Administration ("NCUA") has adopted rules, codified at 12 C.F.R. Part 703, which
permit federal credit unions to invest in "mortgage related securities" under
certain limited circumstances, other than stripped mortgage related securities,
residual interests in mortgage related securities, and commercial mortgage
related securities, unless the credit union has obtained written approval from
the NCUA to participate in the "investment pilot program" described in 12 C.F.R.
ss. 703.140. The Office of Thrift Supervision (the "OTS") has issued Thrift
Bulletin 13a (December 1, 1998), "Management of Interest Rate Risk, Investment
Securities, and Derivative Activities," which thrift institutions subject to the
jurisdiction of the OTS should consider before investing in any of the Offered
Certificates.
All depository institutions considering an investment in the Offered
Certificates should review the "Supervisory Policy Statement on Investment
Securities and End-User Derivatives Activities" (the "1998 Policy Statement") of
the Federal Financial Institutions Examination Council, which has been adopted
by the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the OCC and the OTS effective May 26, 1998, and by the
NCUA, effective October 1, 1998. The 1998 Policy Statement sets forth general
guidelines which depository institutions must follow in managing risks
(including market, credit, liquidity, operational (transaction), and legal
risks) applicable to all securities (including mortgage pass-through securities
and mortgage-derivative products) used for investment purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any Offered
Certificates, as certain series or classes may be deemed to be unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," and, with regard to any Offered Certificates issued
in book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
If specified in the related Prospectus Supplement, other classes of
Offered Certificates offered pursuant to this Prospectus will not constitute
"mortgage related securities" under SMMEA. The appropriate characterization of
such Offered Certificates under various legal investment restrictions, and thus
the ability of investors subject to these restrictions to purchase such Offered
Certificates, may be subject to significant interpretive uncertainties.
Except as to the status of certain classes of Offered Certificates
identified in the Prospectus Supplement for a series as "mortgage related
securities" under SMMEA, no representations are made as to the proper
characterization of the Offered Certificates for legal investment purposes,
financial institution regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase any Offered Certificates under
applicable
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legal investment restrictions. The uncertainties described above (and any
unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Offered Certificates) may
adversely affect the liquidity of the Offered Certificates.
Accordingly, all investors whose investment activities are subject to
legal investment laws and regulations, regulatory capital requirements or review
by regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Offered Certificates of any class
constitute legal investments or are subject to investment, capital or other
restrictions, and, if applicable, whether SMMEA has been overridden in any
jurisdiction relevant to such investor.
PLAN OF DISTRIBUTION
The Offered Certificates offered hereby and by the Supplements to this
Prospectus will be offered in series. The distribution of the Certificates may
be effected from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If so
specified in the related Prospectus Supplement, the Offered Certificates will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by Morgan Stanley & Co. Incorporated
("Morgan Stanley") acting as underwriter with other underwriters, if any, named
therein. In such event, the Prospectus Supplement may also specify that the
underwriters will not be obligated to pay for any Offered Certificates agreed to
be purchased by purchasers pursuant to purchase agreements acceptable to the
Depositor. In connection with the sale of Offered Certificates, underwriters may
receive compensation from the Depositor or from purchasers of Offered
Certificates in the form of discounts, concessions or commissions. The
Prospectus Supplement will describe any such compensation paid by the Depositor.
Alternatively, the Prospectus Supplement may specify that Offered
Certificates will be distributed by Morgan Stanley acting as agent or in some
cases as principal with respect to Offered Certificates that it has previously
purchased or agreed to purchase. If Morgan Stanley acts as agent in the sale of
Offered Certificates, Morgan Stanley will receive a selling commission with
respect to such Offered Certificates, depending on market conditions, expressed
as a percentage of the aggregate Certificate Balance or notional amount of such
Offered Certificates as of the Cut-off Date. The exact percentage for each
series of Certificates will be disclosed in the related Prospectus Supplement.
To the extent that Morgan Stanley elects to purchase Offered Certificates as
principal, Morgan Stanley may realize losses or profits based upon the
difference between its purchase price and the sales price. The Prospectus
Supplement with respect to any series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the Depositor and purchasers of Offered
Certificates of such series.
The Depositor will indemnify Morgan Stanley and any underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, or will contribute to payments Morgan Stanley and any underwriters may be
required to make in respect thereof.
In the ordinary course of business, Morgan Stanley and the Depositor may
engage in various securities and financing transactions, including repurchase
agreements to provide interim financing of the Depositor's mortgage loans
pending the sale of such mortgage loans or interests therein, including the
Certificates.
Offered Certificates will be sold primarily to institutional investors.
Purchasers of Offered Certificates, including dealers, may, depending on the
facts and circumstances of such purchases, be deemed to be "underwriters" within
the meaning of the Securities Act of 1933 in connection with reoffers and sales
by them of Offered Certificates. Certificateholders should consult with their
legal advisors in this regard prior to any such reoffer or sale.
As to each series of Certificates, only those classes rated in an
investment grade rating category by any Rating Agency will be offered hereby.
Any non-investment-grade class may be initially retained by the Depositor, and
may be sold by the Depositor at any time in private transactions.
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LEGAL MATTERS
Certain legal matters in connection with the Certificates, including
certain federal income tax consequences, will be passed upon for the Depositor
by Cadwalader, Wickersham & Taft, New York, New York or Latham & Watkins, New
York, New York or Brown & Wood LLP, New York, New York or such other counsel as
may be specified in the related Prospectus Supplement.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of
Certificates and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in one
of the four highest rating categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. As a result, certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped interest certificates in extreme cases might fail to recoup their
initial investments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
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INDEX OF PRINCIPAL DEFINITIONS
Page(s) on which
term is defined
Term in the Prospectus
- ---- -----------------
Accrual Certificates..........................................................9
ADA..........................................................................68
Applicable Amount............................................................89
ARM Loans....................................................................23
Asset Conservation Act.......................................................65
Asset Seller.................................................................20
Assets........................................................................2
Balloon Mortgage Loans.......................................................16
Bankruptcy Code..............................................................60
Book-Entry Certificates......................................................29
Cash Flow Agreement...........................................................2
Cash Flow Agreements..........................................................2
Cede..........................................................................3
CERCLA.......................................................................64
Certificate Account...........................................................7
Certificate Balance...........................................................8
Certificate Owners...........................................................36
Certificateholders............................................................3
Closing Date.................................................................13
Commercial Loans..............................................................2
Commercial Properties.........................................................6
Commission....................................................................2
Contributions Tax............................................................91
Cooperatives.................................................................20
Covered Trust................................................................17
CPR..........................................................................27
Credit Support................................................................2
Crime Control Act............................................................69
Deferred Interest............................................................31
Definitive Certificates.......................................................3
Depositor.....................................................................2
Determination Date...........................................................30
DTC...........................................................................3
Due Period...................................................................17
Environmental Hazard Condition...............................................66
Equity Participations........................................................23
ERISA........................................................................12
Exchange Act..................................................................3
Exemption....................................................................64
FDIC.........................................................................40
FHLMC........................................................................48
FNMA.........................................................................65
Government Securities.........................................................2
Indirect Participants........................................................36
Insurance Proceeds...........................................................30
IRS...........................................................................5
L/C Bank.....................................................................53
Labor........................................................................94
Lease.........................................................................3
Lease Assignment.............................................................15
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Legislative History..........................................................72
Lessee........................................................................3
Liquidation Proceeds.........................................................30
Lock-out Date................................................................23
Lock-out Period..............................................................23
Mark-to-Market Regulations...................................................88
Master REMIC.................................................................78
MBS...........................................................................5
MBS Agreement................................................................24
MBS Issuer...................................................................24
MBS Servicer.................................................................24
MBS Trustee..................................................................24
Morgan Stanley................................................................2
Mortgage Loans................................................................3
Mortgage Notes...............................................................20
Mortgage Rate.................................................................6
Mortgages....................................................................16
Multifamily Loans............................................................20
Multifamily Properties........................................................5
NCUA.........................................................................97
Nonrecoverable Advance.......................................................33
OID..........................................................................72
OID Regulations..............................................................72
Originator...................................................................17
Participants..............................................................., 35
Pass-Through Rate.............................................................2
Payment Lag Certificates.....................................................84
Permitted Investments........................................................40
Plans........................................................................94
Prepayment Assumption........................................................75
Prepayment Premium...........................................................23
Prohibited Transactions Tax..................................................90
RCRA.........................................................................65
Record Date..................................................................29
Related Proceeds.............................................................32
Relief Act...................................................................69
REMIC Certificates...........................................................78
REMIC Regular Certificateholders.............................................79
REMIC Regular Certificates...................................................11
REMIC Regulations............................................................69
REMIC Residual Certificateholder.............................................11
REMIC Residual Certificates..................................................11
REO Extension................................................................58
REO Tax......................................................................59
Restricted Group.............................................................95
RICO.........................................................................69
Senior Certificates...........................................................8
Servicing Standard...........................................................43
SMMEA........................................................................96
SMMEA Certificates...........................................................96
Special Servicer..............................................................5
Stripped ARM Obligations.....................................................76
Stripped Bond Certificates...................................................73
Stripped Coupon Certificates.................................................73
Stripped Interest Certificates................................................9
Stripped Principal Certificates...............................................8
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Subordinate Certificates......................................................8
Sub-Servicers................................................................43
Sub-Servicing Agreement......................................................43
Subsidiary REMIC.............................................................78
Super-Premium Certificates...................................................80
Title V......................................................................68
Trust Assets..................................................................2
Trust Fund....................................................................2
UCC..........................................................................35
Voting Rights................................................................19
Warrantying Party............................................................38
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