As filed with the Securities and Exchange Commission on October 19, 2000
Registration No. 333-45884
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------
PRE-EFFECTIVE AMENDMENT NO. 2
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
GE CAPITAL COMMERCIAL MORTGAGE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
22-3755203
(I.R.S. Employer Identification Number)
292 Long Ridge Road
Stamford, Connecticut 06927
(203) 357-4000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Kathy Cassidy
President
GE Capital Commercial Mortgage Corporation
292 Long Ridge Road
Stamford, Connecticut 06927
(203) 357-4000
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
--------------
Copies to:
Kevin L. Korsh Anna H. Glick, Esq.
GE Capital Commercial Mortgage Cadwalader, Wickersham & Taft
Corporation 100 Maiden Lane
292 Long Ridge Road New York, New York 10038
Stamford, Connecticut 06927
Approximate date of commencement of proposed sale to the public: From time
to time on or after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
BEING REGISTERED(1) REGISTERED PER UNIT PRICE(2) FEE (3)
Mortgage Pass-Through
<S> <C> <C> <C> <C>
Certificates $2,000,000,000 100% $2,000,000,000 $528,000
--------------------------------------------------------------------------------------------
</TABLE>
(1) This Registration Statement and the registration fee pertain to the
initial offering of the Mortgage Pass-Through Certificates registered hereunder
by the Registrant.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) In accordance with Rule 457(o) of the Securities and Exchange
Commission's Rules and Regulations under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A) MAY DETERMINE.
<PAGE>
This information in this prospectus supplement is not complete and may be
changed. This prospectus supplement is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED ____________, 200_
PROSPECTUS SUPPLEMENT(1)
(To prospectus dated _______ __, 200_)
$______________ (APPROXIMATE)
GE CAPITAL COMMERCIAL MORTGAGE CORPORATION
Depositor
[____________]
Mortgage Loan Seller[s]
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 200_-_
--------------------
GE Capital Commercial Mortgage Corporation is offering certain classes of the
Series 200_-_ Commercial Mortgage Pass-Through Certificates, which represent the
beneficial ownership interests in a trust. The trust's assets will primarily be
___ mortgage loans secured by first liens on ___ commercial and multifamily
properties and are generally the sole source of payments on the certificates.
The Series 200_-_ Certificates are not obligations of GE Capital Commercial
Mortgage Corporation, The General Electric Company, General Electric Capital
Corporation, the Underwriter[s] or any of their affiliates, and neither the
certificates nor the underlying mortgage loans are insured or guaranteed by any
governmental agency or any other person or entity.
--------------------
Certain characteristics of the offered certificates include:
<TABLE>
<CAPTION>
INITIAL CLASS
CERTIFICATE PASS-THROUGH ASSUMED FINAL EXPECTED RATED FINAL
BALANCE OR PASS-THROUGH RATE DISTRIBUTION RATINGS DISTRIBUTION
NOTIONAL AMOUNT (1) RATE DESCRIPTION DATE (2) (___/___) DATE [(6)]
------------------- ------------ ------------ ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Class [A-1]
Class [A-2]
[Class X] [(4)]
[Class PO] [(5)]
Class [B]
Class [C]
Class [D]
Class [E]
</TABLE>
(FOOTNOTES TO TABLE ON PAGE S-[ ])
--------------------
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED OF THE OFFERED CERTIFICATES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS ARE TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
GE Capital Commercial Mortgage Corporation will not list the offered
certificates on any securities exchange or on any automated quotation system of
any securities association such as NASDAQ.
--------------------
Investing in the offered certificates involves risks. See "Risk Factors"
beginning on page __ in this prospectus supplement and page __ of the
prospectus.
--------------------
The underwriter, __________, will purchase the offered certificates from GE
Capital Commercial Mortgage Corporation and will offer them to the public at
negotiated prices, plus accrued interest, determined at the time of sale.
[__________] also expects to deliver the offered certificates to purchasers in
book-entry form only through the facilities of The Depository Trust Company
against payment in New York, New York on __________, 200_. We expect to receive
from this offering approximately _____% of the initial principal amount of the
offered certificates, plus accrued interest from __________, 200_, before
deducting expenses payable by us.
----------
(1) This form of Prospectus Supplement is representative of the form of
prospectus supplement that may typically be used in a particular
transaction. The provisions in this form may change from transaction to
transaction, whether or not the provisions are bracketed in the form to
reflect the specific parties, the structure of the certificates, servicing
provisions, asset pool, provisions of the pooling and servicing agreement
and other matters. In all cases, the provisions in the prospectus
supplement will be consistent in material respects with the provisions in
the prospectus.
--------------------
_______ __, 200_
<PAGE>
GE Capital Commercial Mortgage Corporation
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 200_--
[GEOGRAPHIC OVERVIEW OF MORTGAGE POOL]
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the offered certificates is contained in two separate
documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may not apply to
the offered certificates; and (b) this prospectus supplement, which describes
the specific terms of the offered certificates. IF THE TERMS OF THE OFFERED
CERTIFICATES VARY BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone to
provide you with information that is different from that contained in this
prospectus supplement and the prospectus. The information in this prospectus
supplement is accurate only as of the date of this prospectus supplement.
This prospectus supplement begins with several introductory sections
describing the Series 200_- certificates and the trust in abbreviated form:
Summary of Certificates, commencing on page S-__ of this prospectus
supplement, which sets forth important statistical information relating to the
certificates;
Summary of Terms, commencing on page S-__ of this prospectus supplement,
which gives a brief introduction of the key features of the Series 200_-__
certificates and a description of the mortgage loans; and
Risk Factors, commencing on page S-__ of this prospectus supplement, which
describe risks that apply to the Series 200_-__ certificates which are in
addition to those described in the prospectus with respect to the securities
issued by the trust generally.
This prospectus supplement and the accompanying prospectus include cross
references to sections in these materials where you can find further related
discussions. The Tables of Contents in this prospectus supplement and the
prospectus identify the pages where these sections are located.
Certain capitalized terms are defined and used in this prospectus
supplement and the prospectus to assist you in understanding the terms of the
offered certificates and this offering. The capitalized terms used in this
prospectus supplement are defined on the pages indicated under the caption
"Index of Principal Definitions" beginning on page S-__ in this prospectus
supplement. The capitalized terms used in the prospectus are defined on the
pages indicated under the caption "Index of Principal Definitions" beginning on
page __ in the prospectus.
In this prospectus supplement, the terms "Depositor," "we," "us" and "our"
refer to GE Capital Commercial Mortgage Corporation.
--------------------
Until ________ __, 200_ all dealers that buy, sell or trade the offered
certificates, 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.
--------------------
<PAGE>
[Insert Chart Depicting Subordination Levels]
<PAGE>
TABLE OF CONTENTS
SUMMARY of terms.............................................................S-2
RISK FACTORS................................................................S-16
Geographic Concentration Entails Risks................................S-16
Risks Relating to Loan Concentrations.................................S-16
[Risks Relating to Enforceability of Cross-Collateralization].........S-18
Ability to Incur Other Borrowings Entails Risk........................S-19
Borrower May Be Unable to Repay Remaining Principal Balance on
Maturity Date [or Anticipated Prepayment Date]..................S-20
Commercial and Multifamily Lending Is Dependent Upon Net
Operating Income................................................S-20
Tenant Concentration Entails Risk.....................................S-22
[Ground Leases].......................................................S-22
Mortgaged Properties Leased to Multiple Tenants Also Have Risks.......S-22
Tenant Bankruptcy Entails Risks.......................................S-23
Mortgage Loans Are Nonrecourse and Are Not Insured or Guaranteed......S-23
[Retail Properties Have Special Risks]................................S-23
[Office Properties Have Special Risks]................................S-24
[Hotel Properties Have Special Risks].................................S-24
[Multifamily Properties Have Special Risks]...........................S-25
[Warehouse/Industrial Properties Have Special Risks]..................S-25
[Credit Lease Properties Have Special Risks]..........................S-26
[Risks Relating to Section 8 Multifamily Properties]..................S-27
Certain Additional Risks Relating to Tenants..........................S-27
Some Mortgaged Properties May Not Be Readily Convertible to
Alternative Uses................................................S-27
Lack of Skillful Property Management Entails Risks....................S-28
Limitations of Appraisals.............................................S-28
Your Lack of Control Over Trust Fund Can Create Risks.................S-28
[Special Servicer May Have a Conflict of Interest]....................S-28
[Floating Rate Mortgage Loans/Risks Relating to Interest
Rate Cap Agreements]............................................S-29
Risks Relating to Prepayments and Repurchases.........................S-29
Risks Relating to Enforceability of Prepayment Premiums or
Defeasance Provisions...........................................S-30
Risks Relating to Borrower Default....................................S-30
Risks Relating to Certain Payments....................................S-31
Risks of Limited Liquidity and Market Value...........................S-31
Different Timing of Mortgage Loan Amortization Poses Certain Risks....S-31
Subordination of Subordinate Offered Certificates.....................S-32
Environmental Risks Relating to the Mortgaged Properties..............S-32
Tax Considerations Relating to Foreclosure............................S-32
Property Insurance....................................................S-32
Zoning Compliance.....................................................S-33
Litigation............................................................S-33
Book-Entry Registration...............................................S-33
Other Risks...........................................................S-33
DESCRIPTION OF THE MORTGAGE POOL............................................S-33
General...............................................................S-33
Significant Mortgage Loans............................................S-35
[Credit Lease Loans]..................................................S-35
[Section 8 Housing Assistance Payments Programs]......................S-36
Certain Terms and Conditions of the Mortgage Loans....................S-37
Additional Mortgage Loan Information..................................S-42
Underwritten Net Cash Flow............................................S-49
Assessments of Property Condition.....................................S-50
The Mortgage Loan Seller..............................................S-50
Underwriting Standards................................................S-50
Representations and Warranties; Repurchases and Substitutions.........S-52
Mortgaged Property Accounts...........................................S-55
DESCRIPTION OF THE CERTIFICATES.............................................S-55
General...............................................................S-55
Paying Agent, Certificate Registrar and Authenticating Agent..........S-57
Book-Entry Registration and Definitive Certificates...................S-57
Distributions.........................................................S-59
Allocation of Prepayment Premiums and Yield Maintenance Charges.......S-65
Assumed Final Distribution Date; Rated Final Distribution Date........S-66
Subordination; Allocation of Collateral Support Deficit...............S-66
Advances..............................................................S-68
Appraisal Reductions..................................................S-69
-i-
<PAGE>
Reports to Certificateholders; Certain Available Information..........S-71
Voting Rights.........................................................S-74
Termination; Retirement of Certificates...............................S-74
The Trustee...........................................................S-75
SERVICING OF THE MORTGAGE LOANS.............................................S-75
General...............................................................S-75
The Servicer..........................................................S-78
The Special Servicer..................................................S-78
Replacement of the Special Servicer...................................S-78
Servicing and Other Compensation and Payment of Expenses..............S-78
Maintenance of Insurance..............................................S-79
Modifications, Waiver and Amendments..................................S-80
Realization Upon Defaulted Mortgage Loans.............................S-81
Inspections; Collection of Operating Information......................S-83
Certain Matters Regarding the Servicer, the Special Servicer
and the Depositor...............................................S-84
Events of Default.....................................................S-84
Rights Upon Event of Default..........................................S-85
Amendment.............................................................S-86
YIELD AND MATURITY CONSIDERATIONS...........................................S-87
Yield Considerations..................................................S-87
Weighted Average Life.................................................S-89
[Yield Sensitivity of the Class X Certificates........................S-94
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.....................................S-95
METHOD OF DISTRIBUTION......................................................S-96
LEGAL MATTERS...............................................................S-97
RATING......................................................................S-97
LEGAL INVESTMENT............................................................S-98
ERISA CONSIDERATIONS........................................................S-98
INDEX OF PRINCIPAL DEFINITIONS.............................................S-101
-ii-
<PAGE>
SUMMARY OF CERTIFICATES
<TABLE>
<CAPTION>
INITIAL PRINCIPAL
INITIAL AGGREGATE ASSUMED RATED PASS- WEIGHTED EXPECTED OR
CERTIFICATE PASS-THROUGH FINAL FINAL THROUGH AVERAGE RATINGS NOTIONAL
BALANCE OR RATE DISTRIBUTION DISTRIBUTION RATE LIFE ___/ PRINCIPAL
CLASS NOTIONAL AMOUNT(1) DESCRIPTION DATE(2) DATE(6) (APPROX.) (APPROX.)(3) ___ WINDOW(3)
----- ------------------ ------------ ------------ ------------ --------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A-1 $ [Fixed] % yrs. --/--
A-2 $ [Fixed] % yrs. --/--
[X] $ [Variable % yrs. --/--
(Interest Only)(4)]
[PO] $ [Variable % yrs. --/--
(Principal
Only)(5)]
B $ [Fixed] % yrs. --/--
C $ [Fixed] % yrs. --/--
D $ [Fixed] % yrs. --/--
E $ [Fixed] % yrs. --/--
F $ [Fixed] N/A N/A % N/A N/A N/A
G $ [Fixed] N/A N/A % N/A N/A N/A
H $ [Fixed (7)] N/A N/A % N/A N/A N/A
I $ [Fixed (7)] N/A N/A % N/A N/A N/A
J $ [Fixed (7)] N/A N/A % N/A N/A N/A
</TABLE>
----------
(1) Approximate, subject to a permitted variance of plus or minus __%.
(2) The assumed final distribution dates set forth in this prospectus
supplement have been determined on the basis of the assumptions described
in "Description of the Certificates--Assumed Final Distribution Date;
Rated Final Distribution Date" in this prospectus supplement.
(3) The weighted average life and period during which distributions of
principal would be received set forth in the foregoing table with respect
to each class of certificates is based on the assumptions set forth under
"Yield and Maturity Considerations--Weighted Average Life" in this
prospectus supplement and on the assumptions that there are no prepayments
[(other than on each anticipated prepayment date, if any), or losses on
the mortgage loans and no extensions of maturity dates of mortgage loans
that do not have anticipated prepayment dates].
[(4) The pass-through rate on the Class X certificates will be equal to the
excess, if any, of (1) the weighted average of the net mortgage rates of
the mortgage loans, based on their respective stated principal balances,
over (2) the weighted average of the pass-through rates of the other
certificates, other than the residual certificates as described in this
prospectus supplement.]
[(5) The Class PO certificates will be principal-only certificates, will not
have a pass-through rate and will not be entitled to distributions in
respect of interest.]
(6) The rated final distribution date for each class of certificates is
_________. See "Description of the Certificates--Assumed Final
Distribution Date; Rated Final Distribution Date" in this prospectus
supplement.
(7) For any distribution date, if the weighted average net mortgage rate as of
the first day of the related due period is less than the rate specified
for the [Class F, Class G, Class H, Class I or Class J] certificates with
respect to that distribution date, then the pass-through rate for that
class of certificates on that distribution date will equal the weighted
average net mortgage rate.
S-1
<PAGE>
SUMMARY OF TERMS
This summary highlights selected information from this prospectus supplement. It
does not contain all of the information you need to consider in making your
investment decision. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING OF THE
OFFERED CERTIFICATES, READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS
CAREFULLY.
RELEVANT PARTIES AND DATES
DEPOSITOR......................... The Depositor is GE Capital Commercial
Mortgage Corporation, a Delaware
corporation. The principal executive offices
of the Depositor are located at 292 Long
Ridge Road, Stamford, Connecticut 06927. The
Depositor is a wholly-owned subsidiary of
General Electric Capital Corporation. All
outstanding common stock of General Electric
Capital Corporation is owned by General
Electric Capital Services, Inc., the common
stock of which is in turn wholly owned
directly or indirectly by General Electric
Company. See "The Depositor" in the
prospectus.
SERVICER.......................... GE Capital Loan Services, Inc., a Delaware
corporation. See "Servicing of the Mortgage
Loans--The Servicer" in this prospectus
supplement. The servicer's address is
_______ and its telephone number is _______.
See "Servicing of the Mortgage
Loans-General" in this prospectus
supplement.]
SPECIAL SERVICER.................. _____________________________________, a
________ _________. The special servicer's
address is _______ and its telephone number
is _______. See "Servicing of the Mortgage
Loans--The Special Servicer" in this
prospectus supplement.
TRUSTEE........................... _____________________________________, a
_______ __________. The trustee's address is
_______ and its telephone number is _______.
See "Description of the Certificates--The
Trustee" in this prospectus supplement.
PAYING AGENT...................... _____________________________________, a
_______ __________ will also act as the
certificate registrar and authenticating
agent. See "Description of the
Certificates--Paying Agent, Certificate
Registrar and Authenticating Agent" in this
prospectus supplement.
MORTGAGE LOAN SELLER[S]........... [General Electric Capital Corporation [or an
affiliate]] [and ______________]. See
"Description of the Mortgage Pool--The
Mortgage Loan Seller[s]" in this prospectus
supplement.
CUT-OFF DATE...................... ________ __, 200[ ] [, or, with respect to
___ mortgage loans representing
approximately ___% of the aggregate
principal balance of the mortgage loans,
________ __, 200_. References in this
prospectus supplement and in the prospectus
to the cut-off date with respect to the
mortgage loans refer to the applicable
cut-off date for those mortgage loans].
CLOSING DATE...................... On or about _________ __, 200[ ].
DISTRIBUTION DATE................. The ____ day of the month, or, if that day
is not a business day, the next business
day, beginning in __________ 200[ ].
S-2
<PAGE>
INTEREST ACCRUAL PERIOD........... [Interest will accrue on the offered
certificates during the calendar month prior
to the related distribution date] and [will
be calculated assuming that each month has
30 days and each year has 360 days].
OFFERED SECURITIES
GENERAL........................... We are offering the following _____ classes
of commercial mortgage pass-through
certificates as part of Series 200_-:
o Class A-1
o Class A-2
o [Class X]
o [Class PO]
o Class B
o Class C
o Class D
o Class E
Series 200_- will consist of a total of __
classes, the following -- ______ of which,
or the private certificates, are not being
offered --- through this prospectus
supplement and the accompanying prospectus:
Class __, Class __, Class __, Class __,
Class __, Class __ and Class ___.
The offered certificates and the private
certificates will represent beneficial
ownership interests in a trust created by GE
Capital Commercial Mortgage Corporation. The
trust's assets will primarily be ___
mortgage loans secured by first liens on ___
commercial and multifamily properties.
CERTIFICATE PRINCIPAL AMOUNTS
AND NOTIONAL AMOUNT............... Your certificates will have the approximate
aggregate initial principal amount or
notional amount set forth below, subject to
a variance of plus or minus __%:
--------------------------------------------
Class A-1 principal amount
--------------------------------------------
Class A-2 principal amount
--------------------------------------------
[Class X notional amount]
--------------------------------------------
[Class PO principal amount]
--------------------------------------------
Class B principal amount
--------------------------------------------
Class C principal amount
--------------------------------------------
Class D principal amount
--------------------------------------------
Class E principal amount
--------------------------------------------
[The notional amount of the Class X
certificates will generally be equal to the
aggregate stated principal balance of the
mortgage loans as of the preceding
distribution date, after giving effect to
the distribution of principal on that
distribution date, or, in the case of the
first distribution date, the cut-off date.]
S-3
<PAGE>
See "Description of the
Certificates--General" in this prospectus
supplement.
PASS-THROUGH RATES
A. OFFERED CERTIFICATES
[(OTHER THAN CLASS X)] Your certificates will accrue interest at an
annual rate called a pass-through rate which
is set forth below[, for each class other
than the Class X certificates,] [, for each
class other than the Class PO certificates,]
for each class.
--------------------------------------
Class A-1
--------------------------------------
Class A-2
--------------------------------------
Class B
--------------------------------------
Class C
--------------------------------------
Class D
--------------------------------------
Class E
--------------------------------------
[Interest on those classes of certificates
will be calculated based on a 360-day year
consisting of twelve 30-day months, or a
30/360 basis.]
[The Class PO certificates will not have a
pass-through rate or entitle their holders
to distributions of interest.]
[B. CLASS X CERTIFICATES.. If you invest in the Class X certificates,
your pass-through rate will be equal to the
excess, if any, of (1) the weighted average
interest rate of the mortgage loans, after
the payment of all servicing and trustee
fees over (2) the weighted average of the
pass-through rates of the other
certificates, other than the Class R and
Class LR certificates, as described in this
prospectus supplement. The weighting will be
based upon the respective principal amounts
of those classes.
For purposes of calculating the Class X
pass-through rate, the mortgage loan
interest rates will not reflect any default
interest rate, any rate increase occurring
after an anticipated prepayment date, any
loan term modifications agreed to by the
Special Servicer or any modifications
resulting from a borrower's bankruptcy or
insolvency. In addition, if a mortgage loan
does not accrue interest on a 30/360 basis,
its interest rate for any month that is not
a 30-day month will be recalculated so that
the amount of interest that would accrue at
that rate in that month, calculated on a
30/360 basis, will equal the amount of
interest that actually accrues on that loan
in that month.
See "Description of the
Certificates--Distributions--Pass-Through
Rates" and "Description of the
Certificates--Distributions--Certain
Calculations with Respect to Individual
Mortgage Loans" in this prospectus
supplement.]
DISTRIBUTIONS
A. AMOUNT AND ORDER
OF DISTRIBUTIONS...... On each distribution date, funds available
for distribution from the mortgage loans,
net of specified trust expenses, will be
distributed in the following amounts and
order of priority:
S-4
<PAGE>
First/Class A [and Class X]: To interest on
Class A [and Class X], pro rata, in
accordance with their interest entitlements.
Second/Class A: To the extent of funds
allocated to principal, to principal on
Classes A-1, A-2 [and Class PO], in that
order, until reduced to zero. If each class
of certificates other than Class A has been
reduced to zero, funds available for
principal will be distributed to Classes
A-1, A-2 [and Class PO], pro rata, rather
than sequentially.
Third/ Class A: After each class of
certificates other than Class A has been
reduced to zero, to reimburse Classes A-1,
A-2 [and Class PO], pro rata, for any
previously unreimbursed losses on the
mortgage loans allocable to principal that
were previously borne by those classes,
together with interest.
Fourth/Class B: To Class B as follows: (a)
to interest on Class B in the amount of its
interest entitlement; (b) to the extent of
funds allocated to principal remaining after
distributions in respect of principal to
each class with a higher priority (in this
case, Class A), to principal on Class B
until reduced to zero; and (c) to reimburse
Class B for any previously unreimbursed
losses on the mortgage loans allocable to
principal that were previously borne by that
class, together with interest.
[Fifth/Class C: To Class C in a manner
analogous to the Class B allocations of
priority Fourth above.
Sixth/Class D: To Class D in a manner
analogous to the Class B allocations of
priority Fourth above.
Seventh/Class E: To Class E in a manner
analogous to the Class B allocations of
priority Fourth above.
Eight/Private Certificates: In the amounts
and order of priority described in
"Description of the
Certificates--Distributions--Priority" 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--Interest
Distribution Amount" in this prospectus
supplement. As described in that section,
there are circumstances in which your
interest entitlement for a distribution date
could be less than one full month's interest
at the pass-through rate on your
certificate's principal amount or notional
amount.
A description of the amount of principal
required to be distributed to the classes
entitled to principal on a particular
distribution date also can be found in
"Description of the
Certificates--Distributions--Principal
Distribution Amount " in this prospectus
supplement.
C. PREPAYMENT PREMIUMS;
YIELD MAINTENANCE
CHARGES............... Prepayment premiums and yield maintenance
charges with respect to the mortgage loans
will be allocated between the related
certificates then entitled to principal
distributions [and the Class X and Class PO
certificates] as follows:
S-5
<PAGE>
On any distribution date, a percentage of
all prepayment premiums with respect to the
mortgage loans will be allocated to each
class of certificates then entitled to
principal distributions, which percentage
will be equal to the product of (a) the
percentage of the total principal
distribution that class receives out of the
entire principal distribution amount for
that distribution date, and (b) 25%. [The
remaining percentage of all prepayment
premiums will be allocated to the Class X
certificates.]
On any distribution date, a percentage of
all yield maintenance charges with respect
to the mortgage loans will be allocated to
each class of certificates then entitled to
principal distributions, which percentage
will be equal to the product of (a) the
percentage of the total principal
distribution that class receives out of the
entire principal distribution amount for
that distribution date, and (b) a percentage
(which can be no greater than 100%), the
numerator of which is the excess of the
pass-through rate of the class of the
certificates currently receiving principal
over the relevant yield rate used in
determining the yield maintenance charge
under the applicable mortgage loan, and the
denominator of which is the excess of the
interest rate of the related mortgage loan
over the yield rate. This formula is set
forth below.
<TABLE>
-------------------------------------------------------------------
<S> <C>
Yield Maintenance Charge (Pass-Through Rate - Yield Rate)
Allocation Percentage = ------------------------------------
Mortgage Interest Rate - Yield Rate)
-------------------------------------------------------------------
</TABLE>
[The remaining percentage of that yield
maintenance charges will be allocated to the
Class X certificates.]
For a definition of yield rate, see
"Description of the Mortgage Pool--Certain
Terms and Conditions of the Mortgage
Loans--Prepayment Provisions" in this
prospectus supplement.
[In general, this formula provides for an
increase in the allocation of yield
maintenance charges to the certificates then
entitled to principal distributions relative
to the Class X certificates as yield rates
decrease and a decrease in the allocation to
the other classes as yield rates rise.]
Example of Allocation of Yield Maintenance
Charges
Yield Rate Fraction Methodology:
Mortgage Interest Rate = 8%
Pass-Through Rate = 6%
Yield Rate = 5%
<TABLE>
<CAPTION>
Bond Class Allocation Class X Allocation
--------------------- ------------------
<S> <C>
6% - 5% = 33% Receives excess premiums = 66%
-------
8% - 5%
</TABLE>
See "Description of the
Certificates--Allocation of Prepayment
Premiums and Yield Maintenance Charges" in
this prospectus supplement.
The following table contains general
information regarding the prepayment
provisions of the mortgage loans:
S-6
<PAGE>
OVERVIEW OF PREPAYMENT PROTECTION(1)
<TABLE>
<CAPTION>
PREPAYMENT PROVISION PERCENTAGE
-------------------- ----------
<S> <C>
Lock-out period followed by defeasance %
Lock-out period followed by yield maintenance %
Lock-out period followed by fixed premium percentage %
</TABLE>
----------
[(1) Certain of the mortgage loans may
permit prepayment without penalty for a
specified period preceding the maturity
date or anticipated prepayment date.]
See "Description of the Mortgage
Pool--Additional Mortgage Loan Information,"
"Description of the Mortgage Pool--Certain
Terms and Conditions of the Mortgage Loans"
and "--Defeasance; Collateral Substitution"
in this prospectus supplement.
SUBORDINATION
A. GENERAL............... The chart on page S-__ describes the manner
in which the payment rights of certain
classes will be senior or subordinate, as
the case may be, to the payment rights of
other classes. Entitlement to receive
principal and interest [, other than excess
interest] on any distribution date is
depicted from right to left. The manner in
which mortgage loan losses are allocated is
depicted from left to right. [(However, no
principal payments or loan losses will be
allocated to the Class X certificates,
although loan losses will reduce the
notional amount of the Class X certificates
and, therefore, the amount of interest they
accrue.) No other form of credit enhancement
will be available for the benefit of the
holders of the offered certificates.]
NO OTHER FORM OF CREDIT ENHANCEMENT WILL BE
AVAILABLE FOR THE BENEFIT OF THE HOLDERS OF
THE OFFERED CERTIFICATES.
Any allocation of a loss to a class of
certificates will reduce the related
principal amount of that class.
See "Description of the Certificates" in
this prospectus supplement.
B. SHORTFALLS IN
AVAILABLE FUNDS....... The following types of shortfalls in
available funds will be allocated in the
same manner as mortgage loan losses:
o shortfalls resulting from
additional compensation, other than
the servicing fee, which the
servicer or special servicer is
entitled to receive;
o shortfalls resulting from interest
on advances made by the servicer or
the trustee, to the extent not
covered by default interest paid by
the borrower;
o shortfalls resulting from
extraordinary expenses of the
trust; and
o shortfalls resulting from a
reduction of a mortgage loan's
interest rate by a bankruptcy court
or from other unanticipated or
default-related expenses of the
trust.
S-7
<PAGE>
See "Description of the
Certificates--Distributions--Priority" in
this prospectus supplement.
THE MORTGAGE LOANS
THE MORTGAGE POOL................. The trust's primary assets will be ___
[fixed rate] mortgage loans, each evidenced
by one or more promissory notes secured by
first mortgages, deeds of trust or similar
security instruments on ___ commercial
properties and ___ multifamily properties,
or in the case of ___ mortgaged properties,
the leasehold estate in those properties.
The following tables set forth certain
anticipated characteristics of the mortgage
loans as of the cut-off date, unless
otherwise indicated. The sum in any column
may not equal the indicated total due to
rounding. Unless otherwise indicated, all
figures presented in this summary section
are calculated as described under
"Description of the Mortgage
Pool--Additional Mortgage Loan Information"
in this prospectus supplement and all
percentages represent the indicated
percentage of the aggregate principal
balance of the pool of mortgage loans as of
the cut-off date.
The mortgage loans will have the following
approximate characteristics as of the
cut-off date:
<TABLE>
--------------------------------------------------------
<S> <C>
Aggregate Principal Balance $
--------------------------------------------------------
Number of Mortgage Loans
--------------------------------------------------------
Number of Mortgaged Properties
--------------------------------------------------------
Number of "Balloon" Mortgage Loans
--------------------------------------------------------
Range of Mortgage Loan Principal
Balances $ to $
--------------------------------------------------------
Average Mortgage Loan Principal
Balance $
--------------------------------------------------------
Range of Remaining Terms to ___ months to ___
Maturity Date [or Anticipated months
Prepayment Date, as applicable]
--------------------------------------------------------
Weighted Average Original Term to ___ years
Maturity Date [or Anticipated
Prepayment Date, as applicable]
--------------------------------------------------------
Weighted Average Remaining Term to ___ months
Maturity Date [or Anticipated
Prepayment Date, as applicable]
--------------------------------------------------------
Weighted Average Original ___ years
Amortization Term
--------------------------------------------------------
Weighted Average Mortgage Rate ___%
--------------------------------------------------------
Range of Mortgage Rates ___% to ___%
--------------------------------------------------------
Range of Loan to Value Ratios ___% to ___%
--------------------------------------------------------
Weighted Average Loan to Value ___%
Ratio
--------------------------------------------------------
Weighted Average Loan to Value ___%
Ratio as of the Maturity Date
--------------------------------------------------------
</TABLE>
S-8
<PAGE>
<TABLE>
--------------------------------------------------------
<S> <C>
Weighted Average Occupancy Rate ___%
--------------------------------------------------------
Range of Debt Service Coverage ___x to ___x
Ratios
--------------------------------------------------------
Weighted Average Debt Service ___x
Coverage Ratio
--------------------------------------------------------
</TABLE>
CURRENT USES OF THE
MORTGAGED PROPERTIES[(1)]
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGED BALANCE OF THE
CURRENT USE PROPERTIES MORTGAGE LOANS PERCENTAGE
-------------------- ---------- -------------- ----------
<S> <C> <C> <C>
Anchored Retail..... $ %
Office..............
Multifamily.........
Hotel
Full Service......
Limited Service...
Industrial..........
Credit Lease........
Other...............
TOTAL............... $ %
[----------------------
</TABLE>
[(1) Because this table presents information
relating to the mortgaged properties
and not the mortgage loans, the
information for mortgage loans secured
by more than one mortgaged property is
based on allocated loan amounts
(allocating the mortgage loan principal
amount to each of those properties
either as set forth in the related
mortgage note or by the appraised
values of the mortgaged properties).]
[INSERT PIE CHART OF PROPERTY TYPES]
GEOGRAPHIC DISTRIBUTION [(1)]
AGGREGATE
PRINCIPAL
NUMBER OF BALANCE OF
MORTGAGED THE MORTGAGE
STATE PROPERTIES LOANS PERCENTAGE
----- ---------- ------------ ----------
$ %
TOTAL .......... $ %
----------
[(1) Because this table presents information
relating to the mortgaged properties
and not the mortgage loans, that
information for mortgage loans secured
by more than one mortgaged property is
based on allocated loan amounts
(allocating the mortgage loan principal
amount to each of those properties
either as set forth in the related
mortgage note or by the appraised
values of the mortgaged properties).]
S-9
<PAGE>
RANGE OF MORTGAGE RATES
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE OF THE
RANGE OF MORTGAGE RATES LOANS MORTGAGE LOANS PERCENTAGE
----------------------- --------- -------------- ----------
<S> <C> <C> <C>
___% to ___% $ %
___% to ___%
___% to ___%
___% to ___%
___% to ___%
___% to ___%
___% to ___%
TOTAL WEIGHTED AVERAGE $ %
</TABLE>
RANGE OF PRINCIPAL BALANCES
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
RANGE OF MORTGAGE BALANCE OF THE
CUT-OFF DATE BALANCES LOANS MORTGAGE LOANS PERCENTAGE
--------------------- --------- -------------- ----------
<S> <C> <C> <C>
$___to $___ $ %
$___to $___
$___to $___
$___to $___
$___to $___
$___to $___
TOTAL/WEIGHTED AVERAGE $ %
</TABLE>
RANGE OF DSCRS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PRINCIPAL
MORTGAGE BALANCE OF THE
RANGE OF DSCRS LOANS MORTGAGE LOANS PERCENTAGE
-------------- -------- -------------- ----------
<S> <C> <C> <C>
___ to ___ (1) $ %
___ to ___
___ to ___
___ to ___
___ to ___
___ to ___
TOTAL/WEIGHTED AVERAGE $ %
</TABLE>
----------
(1) __ of these mortgage loans,
representing approximately ____% of the
aggregate principal balance of all
mortgage loans, are mortgage loans
secured by credit leased properties
meeting the guidelines described under
"Description of the Mortgage
Pool--Underwriting Standards" in this
prospectus supplement. The DSCR for all
credit lease loans is generally 1.0x.
RANGE OF LTV RATIOS
<TABLE>
<CAPTION>
NUMBER AGGREGATE
OF PRINCIPAL
MORTGAGE BALANCE OF THE
RANGE OF LTV RATIOS LOANS MORTGAGE LOANS PERCENTAGE
------------------- --------- -------------- ----------
<S> <C> <C> <C>
___% to ___% (1) $ %
___% to ___%
___% to ___%
___% to ___%
___% to ___%
___% to ___%
___% to ___%
TOTAL/WEIGHTED AVERAGE $ %
</TABLE>
----------
(1) __ of these mortgage loans,
representing approximately ____% of the
aggregate principal balance of all
mortgage loans, are mortgage loans
secured by credit leased properties
meeting the guidelines described under
"Description of the Mortgage
Pool--Underwriting Standards" in this
prospectus supplement. The LTV for all
credit lease loans at origination is
generally 100%.
S-10
<PAGE>
RANGE OF REMAINING TERM TO MATURITY DATE
OR ANTICIPATED REPAYMENT DATE
<TABLE>
<CAPTION>
NUMBER AGGREGATE
RANGE OF OF PRINCIPAL
REMAINING TERMS MORTGAGE BALANCE OF THE
(MOS.) LOANS MORTGAGE LOANS PERCENTAGE
--------------- -------- -------------- ----------
<S> <C> <C> <C>
___ to ___ $ %
___ to ___
___ to ___
___ to ___
___ to ___
___ to ___
___ to ___
TOTAL/WEIGHTED AVERAGE $ %
</TABLE>
All of the mortgage loans bear interest at
fixed rates.
The mortgage loans require the borrowers to
make scheduled payments of principal and/or
interest on the following days of each month
(in some cases, subject to the indicated
grace periods):
DUE DATES AND GRACE PERIODS
<TABLE>
<CAPTION>
NUMBER AGGREGATE
OF PRINCIPAL
DUE DATE AND GRACE MORTGAGE BALANCE OF THE
PERIOD LOANS MORTGAGE LOANS PERCENTAGE
------------------ ------- -------------- ----------
<S> <C> <C> <C>
Due on the first of the
month with no grace period
Due on the first day of
the month with a __ to __
day grace period
Due on the tenth of the
month with no grace period
Due on the tenth of the
month with a grace period
of __ to __ days
TOTAL.....................
</TABLE>
AMORTIZATION SCHEDULES
<TABLE>
<CAPTION>
AGGREGATE
NUMBER PRINCIPAL
OF BALANCE OF
MORTGAGE THE MORTGAGE
AMORTIZATION SCHEDULE LOANS LOANS PERCENTAGE
--------------------- -------- ------------ ----------
<S> <C> <C> <C>
Significantly longer
than the remaining term
to maturity (balloon
loan)
Substantially the same
as the remaining term to
maturity
TOTAL...................
</TABLE>
[Certain mortgage loans provide for an
increase in the related interest rate after
the anticipated prepayment date. On __
mortgage loans, representing approximately
__% of the aggregate principal balance of
all mortgage loans as of the cut-off date,
the interest rate will increase by ___ to
__%. [The interest accrued in excess of the
original rate, together with any related
interest, will be deferred and will not be
paid until the principal balance of the
related mortgage loan has been paid. On each
distribution date, any amount received in
respect of excess
S-11
<PAGE>
interest during the related due period will
be payable to the holders of the Class [___]
certificates.]
After the anticipated prepayment date, cash
flow in excess of that required for debt
service and budgeted expenses with respect
to the related mortgaged properties will be
applied towards the payment of principal of
those mortgage loans until their principal
balance has been reduced to zero. A
substantial principal payment would be
required to pay off these mortgage loans on
their anticipated prepayment date. The
amortization term of the mortgage loans is
generally the same as the remaining term to
maturity if these mortgage loans are not
prepaid on their anticipated prepayment
date.]
The mortgage loans accrue interest based on
the following conventions:
<TABLE>
<CAPTION>
NUMBER AGGREGATE
OF PRINCIPAL
MORTGAGE BALANCE OF THE
ACCRUAL BASIS LOANS MORTGAGE LOANS PERCENTAGE
------------- -------- -------------- ----------
<S> <C> <C> <C>
30/360
Actual/360
TOTAL........
</TABLE>
See "Description of the Mortgage
Pool--Additional Mortgage Loan Information"
and "Description of the Mortgage
Pool--Certain Terms and Conditions of the
Mortgage Loans" in this prospectus
supplement.
SIGNIFICANT LOANS
TEN LARGEST MORTGAGE LOANS
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
--------------------------------------
AGGREGATE STATED
CUT-OFF DATE MORTGAGE REMAINING ORIGINAL LTV AT
PROPERTY NAME BALANCE PERCENTAGE RATE TERM DSCR LTV MATURITY
------------------------- ------------ ---------- -------- --------- -------- --- --------
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL/WEIGHTED AVERAGE...
</TABLE>
ADVANCES OF PRINCIPAL AND INTEREST
A. PI ADVANCES........... The servicer is required to make an advance
for delinquent monthly mortgage loan
payments, if it is determines that the
advance will be recoverable. If the servicer
fails to make a required advance, the
trustee is required to make the advance. The
servicer will not be --- required to advance
balloon payments due at maturity or interest
in excess of a loan's regular interest rate.
The servicer also is not required to advance
amounts deemed non-recoverable or prepayment
or yield maintenance charges. See
"Description of the Certificates--Advances"
S-12
<PAGE>
in this prospectus supplement. If an advance
is made, the servicer will not advance its
servicing fee, but will advance the
trustee's fee.
B. PROPERTY PROTECTION
ADVANCES............. The servicer may also be required to make
advances to pay delinquent real estate
taxes, assessments and hazard insurance
premiums and similar expenses necessary to
protect and maintain the mortgaged property,
to maintain the lien on the mortgaged
property or enforce the related mortgage
loan documents. If the servicer fails to
make a required advance of this sort, the
trustee is required to make the advance. The
servicer is not required to advance amounts
deemed non-recoverable. See "Description of
the Certificates--Advances" in this
prospectus supplement.
C. INTEREST ON ADVANCES.. The servicer and the trustee, as applicable,
will be entitled to interest on these
advances at the "Prime Rate" published in
The Wall Street Journal as described in this
prospectus supplement. Interest accrued on
outstanding advances may result in
reductions in amounts otherwise payable on
the certificates.
See "Description of the
Certificates--Advances" and
"--Subordination; Allocation of Collateral
Support Deficit" in this prospectus
supplement and "Description of the
Certificates--Advances in Respect of
Delinquencies" and "Description of the
Pooling Agreements--Certificate Account" in
the prospectus.
ADDITIONAL ASPECTS OF CERTIFICATES
DENOMINATIONS..................... The offered certificates [(other than the
Class X certificates)] will be offered in
minimum denominations of $25,000 initial
principal amount. [The Class X certificates
will be offered in minimum denominations of
$1,000,000 initial notional amount.
Investments in excess of the minimum
denominations may be made in multiples of
$1,000.]
REGISTRATION,
CLEARANCE AND SETTLEMENT.... Each class of offered certificates will be
registered in the name of Cede & Co., as
nominee of The Depository Trust Company.
You may hold your offered certificates
through:
o DTI in the United States; or
o Clearstream Banking, or
o The Euroclear System in Europe.
Transfers within DTC, Clearstream Banking or
Euroclear will be made in accordance with
the usual rules and operating procedures of
those systems.
We may elect to terminate the book-entry
system through DTC with respect to all or
any portion of any class of the offered
certificates.
See "Description of the
Certificates--Book-Entry Registration and
Definitive Certificates" in this prospectus
supplement and in the prospectus.
S-13
<PAGE>
INFORMATION AVAILABLE TO
CERTIFICATEHOLDERS.......... On each distribution date, the paying agent
will prepare and forward by mail to each
certificateholder of record initially
expected to be Cede & Co., a statement as to
the distributions being made on that date.
Additionally, under certain circumstances,
certificateholders of record may be entitled
to certain other information regarding the
trust.
See "Description of the
Certificates--Reports to Certificateholders;
Certain Available Information" in this
prospectus supplement.
DEAL INFORMATION/ANALYTICS........ Certain information concerning the mortgage
loans and the offered certificates will be
available to you through the following
services:
o Bloomberg, L.P.
o the paying agent's website at
[[__________]].
OPTIONAL TERMINATION.............. On any distribution date on which the
aggregate principal balance of the mortgage
loans remaining in the trust is less than
[__]% of the aggregate unpaid balance of the
mortgage loans as of the cut-off date,
certain entities specified in this
prospectus supplement will have the option
to purchase all of the remaining mortgage
loans at the price specified in this
prospectus supplement, and all property
acquired through exercise of remedies in
respect of any mortgage loan. Exercise of
this option will terminate the trust and
retire the then-outstanding certificates.
See "Description of the
Certificates--Termination; Retirement of
Certificates" in this prospectus supplement
and "Description of the
Certificates--Termination" in the
prospectus.
TAX STATUS........................ An election will be made to treat a portion
of the trust (exclusive of the excess
interest and the related distribution
account for it) as [two separate REMICs--a
Lower-Tier REMIC and an Upper-Tier
REMIC--]for federal income tax purposes. The
portion of the trust representing the excess
interest will be treated as a grantor trust
for federal income tax purposes. In the
opinion of counsel, the portion of the trust
referred to above will qualify for this
treatment.
Pertinent federal income tax consequences of
an investment in the offered certificates
include:
o Each class of offered certificates,
and the Class _, Class _, Class _,
Class _ and Class _ certificates,
will constitute "regular interests"
in the Upper-Tier REMIC.
o The regular interests will be treated
as newly originated debt instruments
for federal income tax purposes.
o You will be required to report income
on your certificates using the
accrual method of accounting.
S-14
<PAGE>
o The Class certificates will, and one
or more other classes of offered
certificates may, be issued with
original issue discount.
See "Certain Federal Income Tax
Consequences" in this prospectus supplement
and "Certain Federal Income Tax
Consequences--REMICs--Taxation of Regular
Certificates" in the prospectus.
ERISA CONSIDERATIONS.............. Subject to important considerations
described under "ERISA Considerations" in
this prospectus supplement and "Certain
ERISA Considerations" in the accompanying
prospectus, the Class , Class and Class
certificates are [not] eligible for purchase
by persons investing assets of employee
benefit plans or individual retirement
accounts.
THE CLASS , CLASS , CLASS , CLASS AND CLASS
CERTIFICATES MAY NOT BE PURCHASED BY, OR
TRANSFERRED TO, A PLAN OR ANY PERSON
INVESTING THE ASSETS OF A PLAN. (THIS
PROHIBITION DOES NOT APPLY TO AN INSURANCE
COMPANY INVESTING ASSETS OF ITS GENERAL
ACCOUNT UNDER CIRCUMSTANCES WHICH WOULD
QUALIFY FOR AN EXEMPTION UNDER PROHIBITED
TRANSACTION CLASS EXEMPTION 95-60.)
LEGAL INVESTMENT ................. [The Offered Certificates will NOT
constitute "mortgage related securities"
within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984].
See "Legal Investment" in this prospectus
supplement and in the accompanying
prospectus.
RATING............................ The offered certificates will not be issued
unless each of the offered classes receives
the following ratings from
[___________________] and
[_____________________].:
___ ___
Class A-1 ____ ____
Class A-2 ____ ____
[Class X] ____ ____
[Class PO] ____ ____
Class B ____ ____
Class C ____ ____
Class D ____ ____
Class E ____ ____
A rating agency may downgrade, qualify or
withdraw a security rating at any time.
See "Rating" in this prospectus supplement
and the prospectus for a discussion of the
basis upon which ratings are given and the
conclusions that may not be drawn from a
rating.
S-15
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. In particular, distributions on your certificates will
depend on payments received on and other recoveries with respect to the mortgage
loans. Therefore, you should carefully consider the risk factors relating to the
mortgage loans and the mortgaged properties.
The risks and uncertainties described below are not the only ones relating
to your certificates. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also impair your investment.
If any of the following risks actually occur, your investment could be
materially and adversely affected.
This prospectus supplement also contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including the risks described below and elsewhere in this prospectus
supplement.
GEOGRAPHIC CONCENTRATION ENTAILS RISKS
Mortgaged properties located in ____________, ____________, ____________
and ____________ represent ___%, _____%, _____% and _____%, respectively, of the
mortgaged properties. Concentrations of mortgaged properties in geographic areas
may increase the risk that adverse economic or other developments or natural
disaster affecting a particular region of the country could increase the
frequency and severity of losses on mortgage loans secured by those properties.
In recent periods, several regions of the United States have experienced
significant real estate downturns. Regional economic declines or conditions in
regional real estate markets could adversely affect the income from, and market
value of, the mortgaged properties. Other regional factors - - e.g.,
earthquakes, floods or hurricanes or changes in governmental rules or fiscal
policies - - also may adversely affect the mortgaged properties. For example,
mortgaged properties located in California may be more susceptible to certain
hazards (such as earthquakes) than properties in other parts of the country.
RISKS RELATING TO LOAN CONCENTRATIONS
The effect of mortgage pool loan losses will be more severe if the losses
relate to loans that account for a disproportionately large percentage of the
pool's aggregate principal balance. In this regard: O The largest mortgage loan
represents approximately _____% of the aggregate principal balance of the pool
of mortgage loans as of the cut-off date.
o The __ largest mortgage loans represent, in the aggregate,
approximately _____% of the aggregate principal balance of the
pool of mortgage loans as of the cut-off date.
o The ten largest mortgage loans represent, in the aggregate,
approximately _____% of the aggregate principal balance of the
pool of mortgage loans as of the cut-off date.
Each of the other mortgage loans represents less than __% of the cut-off
date aggregate principal balance of the pool of mortgage loans as of the cut-off
date.
A concentration of mortgaged property types or of mortgage loans with the
same borrower or related borrowers also can pose increased risks. In the former
regard:
o retail properties represent approximately _____% of the
aggregate principal balance of the pool of mortgage loans as
of the cut-off date [(based on the primary property type for
combined office/retail properties)];
S-16
<PAGE>
o office properties represent _____% [(based on the primary
property type for combined office/retail properties or
office/industrial properties)];
o multifamily properties represent _____%;
o hotel properties represent _____%;
o industrial properties represent _____% [based on the primary
use of the space for office/industrial properties];
o credit lease properties represent _____%; and
o other properties represent _____%
A concentration of mortgaged property types can increase the risk that a
decline in a particular industry or business would have a disproportionately
large impact on the pool of mortgage loans. For example, if there is a decline
in tourism, the hotel industry might be adversely effected, leading to increased
losses on loans secured by hotel properties as compared to the mortgage loans
secured by other property types.
[With respect to concentration of borrowers:
MORTGAGE LOANS WITH RELATED BORROWERS
<TABLE>
<CAPTION>
PERCENTAGE WEIGHTED AVERAGES
OF ----------------------------------------------------
NUMBER OF AGGREGATE INITIAL STATED CUT-OFF LTV
LOANS/ CUT-OFF DATE POOL MORTGAGE REMAINING DATE RATIO AT
ENTITY PROPERTIES BALANCE BALANCE RATE TERM (MO.) DSCR LTV RATIO MATURITY
----------------------- ---------- ------------ ---------- -------- ---------- ---- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL/WEIGHTED AVERAGE
</TABLE>
o [__ mortgage loans (those whose borrower affiliation is designated
"______" on Exhibit A hereto) have borrowers related to each other
and those mortgage loans represent, in the aggregate, approximately
______% of the aggregate principal balance of the pool of mortgage
loans as of the cut-off date. The property manager for each of the
related mortgaged properties is ______, an affiliate of ______.]
o [__ other mortgage loans (those whose borrower affiliation is
[designated "______" on Exhibit A hereto]) have borrowers related to
each other and those mortgage loans represent, in the aggregate,
approximately ______% of the aggregate principal balance of the pool
of mortgage loans as of the cut-off date. The property manager for
each of the related mortgaged properties is ______, a wholly-owned
subsidiary of ____________________.]
S-17
<PAGE>
o [__ other groups of mortgage loans have borrowers related to each
other, none of these groups of mortgage loans represent more than
_____% of the aggregate principal balance of the pool of mortgage
loans as of the cut-off date.]
o [[__ groups of ]__ mortgage loans, representing approximately __% of
the aggregate principal balance of the pool of mortgage loans as of
the cut-off date, are cross-collateralized and cross-defaulted with
each other.]
o [__ mortgage loans, representing approximately _____% of the
aggregate principal balance of the pool of mortgage loans as of the
cut-off date, are secured by more than one mortgaged property.]
[See "Description of the Mortgage Pool--Additional Mortgage Loan
Information" in this prospectus supplement and Exhibit A attached hereto].
[Mortgaged properties owned by related borrowers are likely to:
o have common management, increasing the risk that financial or
other difficulties experienced by the property manager could
have a greater impact on the pool of mortgage loans; and
o have common general partners which would increase the risk
that a financial failure or bankruptcy filing would have a
greater impact on the pool of mortgage loans.]
The terms of the mortgage loans generally require that the borrowers be
single-purpose entities. In addition, in most cases, those borrowers'
organizational documents or the terms of the mortgage loans limit their
activities to the ownership of only the related mortgaged property or properties
and limit the borrowers' ability to incur additional indebtedness. These
provisions are designed to mitigate the possibility that the borrower's
financial condition would be adversely impacted by factors unrelated to the
mortgaged property and the mortgage loan in the pool. However, we cannot assure
you that the related borrowers will comply with those requirements. Further, in
many cases the related borrowers are not required to observe all covenants and
conditions which typically are required in order for those borrowers to be
viewed under standard rating agency criteria as "special purpose entities." See
"Certain Legal Aspects of Mortgage Loans--Bankruptcy Laws" in the prospectus.
[RISKS RELATING TO ENFORCEABILITY OF CROSS-COLLATERALIZATION]
[[As described above, __ groups of mortgage loans, representing
approximately ____% of the aggregate principal balance of the pool of mortgage
loans as of the cut-off date, are cross-collateralized with other mortgage
loans. 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 the borrower were
to become a debtor in a bankruptcy case, by the borrower's representative.]
A lien granted by the borrower entity could be avoided if a court were to
determine that:
o the borrower was insolvent when it granted the lien, was
rendered insolvent by the granting of the lien or was left
with inadequate capital, or was not able to pay its debts as
they matured; and
o the borrower did not receive fair consideration or reasonably
equivalent value when it allowed its mortgaged property or
properties to be encumbered by a lien securing the entire
indebtedness.
Among other things, a legal challenge to the granting of the liens may
focus on the benefits realized by that borrower from the respective mortgage
loan proceeds, as well as the overall cross-collateralization. If a court were
to conclude that the granting of the liens was an avoidable fraudulent
conveyance, that court could:
o subordinate all or part of the pertinent mortgage loan to
existing or future indebtedness of that borrower;
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o recover payments made under that mortgage loan; or
o take other actions detrimental to the holders of the
certificates, including, under certain circumstances,
invalidating the mortgage loan or the mortgages securing the
cross-collateralization.]
[CROSS-COLLATERALIZED MORTGAGE LOANS]
NUMBER OF
CROSS-COLLATERALIZED TOTAL NUMBER
MORTGAGE LOAN OR LOANS PROPERTIES OF PROPERTIES
---------------------- -------------------- -------------
ABILITY TO INCUR OTHER BORROWINGS ENTAILS RISK
[The borrowers under __ mortgage loans, representing approximately __% of
the aggregate principal balance of the mortgage pool as of the cut-off date,
have unsecured affiliate debt payable to an affiliate of the borrower in
addition to the debt owed under the mortgage loan. Additionally, the borrowers
under __ of the mortgage loans, representing approximately __% of the aggregate
principal balance of the mortgage pool as of the cut-off date, do not currently
owe any affiliate debt, but the terms of the mortgage loans would allow the
related borrowers to incur secured and/or unsecured affiliate debt under certain
circumstances. __ of the mortgage loans, representing approximately __% of the
aggregate principal balance of the mortgage pool as of the cut-off date, do not
permit the related borrowers to incur affiliate debt.] Also, substantially all
of the mortgage loans 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 subordinated loans, the trust is subjected
to additional risk. The borrower may have difficulty servicing and repaying
multiple loans. The existence of another loan generally also will make it more
difficult for the borrower to obtain refinancing of the mortgage loan and may
thereby jeopardize repayment of the mortgage loan. Moreover, the need to service
additional debt may reduce the cash flow available to the borrower to operate
and maintain the mortgaged property.
Additionally, if the borrower, or its constituent members, defaults on the
mortgage loan and/or any other loan, actions taken by other lenders such as a
foreclosure by another lender or an involuntary petition for bankruptcy against
the borrower could impair the security available to the trust, including the
mortgaged property, or stay the trust's ability to foreclose during the course
of the bankruptcy case. The bankruptcy of another lender also may operate to
stay foreclosure by the trust. The trust may also be subject to the costs and
administrative burdens of involvement in foreclosure or bankruptcy proceedings
or related litigation.
[Each affiliate debt creditor has entered into a subordination agreement
with the lender acknowledging that the affiliate debt is non-foreclosable and
non-defaultable and imposing limits on the borrower's ability to incur any
further subordinate debt. Payments on the affiliate debt are required to be made
solely out of excess cash flow after monthly payments of principal and interest
have been made and any reserves required by the terms of the related
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mortgage loans have been funded as required under the mortgage loan documents.]
See "Description of the Mortgage Pool--General" in this prospectus supplement
and "Certain Legal Aspects of Mortgage Loans--Subordinate Financing" in the
prospectus.
[Except for the existing affiliate debt described above,] the mortgage
loans generally prohibit borrowers from incurring any debt that is secured by
the related mortgaged properties.
BORROWER MAY BE UNABLE TO REPAY REMAINING PRINCIPAL BALANCE ON MATURITY DATE [OR
ANTICIPATED PREPAYMENT DATE]
[___ of the mortgage loans, representing approximately __% of the
aggregate principal balance of the mortgage pool as of the cut-off date, are
expected to have substantial remaining principal balances as of their
[anticipated prepayment dates or] stated maturity dates.] [_____ of the mortgage
loans require balloon payments at stated maturity, [and __ of the loans would
require a substantial payment at their anticipated prepayment date]. Mortgage
loans with substantial remaining principal balances at their stated maturity
(i.e., "balloon loans") involve greater risk than fully amortizing loans.
A borrower's ability to repay a loan on its [anticipated prepayment date
or] stated maturity date typically will depend upon its ability either to
refinance the loan or to sell the mortgaged property at a price sufficient to
permit repayment. A borrower's ability to achieve either of these goals will be
affected by a number of factors, including:
o the availability of, and competition for, credit for
commercial real estate projects;
o the prevailing interest rates;
o the fair market value of the related properties;
o the borrower's equity in the related properties;
o the borrower's financial condition;
o the operating history and occupancy level of the property;
o the tax laws; and
o prevailing general and regional economic conditions.
The availability of funds in the credit markets fluctuates over time.
We cannot assure you that each borrower will have the ability to repay the
remaining principal balances on the pertinent date.
See "Description of the Mortgage Pool--Certain Terms and Conditions of the
Mortgage Loans" in this prospectus supplement and "Risk Factors--Borrowers May
Be Unable To Make Balloon Payments" in the prospectus.
COMMERCIAL AND MULTIFAMILY LENDING IS DEPENDENT UPON NET OPERATING INCOME
The mortgage loans are secured by various income-producing commercial
and/or multifamily properties. Commercial and multifamily lending are generally
thought to expose a lender to greater risk than residential one-to-four family
lending because it typically involves larger loans to a single borrower or
groups of related borrowers.
The repayment of a commercial or multifamily loan is typically dependent
upon the ability of the applicable property to produce cash flow through the
collection of rents. Even the liquidation value of a commercial
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property is determined, in substantial part, by the capitalization of the
property's cash flow. However, net operating income can be volatile and may be
insufficient to cover debt service on the loan at any given time.
The net operating incomes and property values of the mortgaged properties
may be adversely affected by a large number of factors. Some of these factors
relate to the properties themselves, such as:
o the age, design and construction quality of the properties;
o perceptions regarding the safety, convenience and
attractiveness of the properties;
o the proximity and attractiveness of competing properties;
o the adequacy of the property's management and maintenance;
o increases in operating expenses;
o an increase in the capital expenditures needed to maintain the
properties or make improvements;
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, industry slowdowns and unemployment rates;
o local real estate conditions, such as an oversupply of retail
space, office space or multifamily housing;
o demographic factors;
o consumer confidence;
o consumer tastes and preferences; and
o retroactive changes in building codes.
The volatility of net operating income will be influenced by many of the
foregoing factors, as well as by:
o the length of tenant leases;
o the creditworthiness of tenants;
o in the case of rental properties, the rate at which new
rentals occur; and
o the property's "operating leverage" which is generally 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.
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<PAGE>
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, such as short-term or
month to month leases, and may lead to higher rates of delinquency or defaults.
TENANT CONCENTRATION ENTAILS RISK
A deterioration in the financial condition of a tenant can be particularly
significant if a mortgaged property is leased to a single tenant, or a small
number of tenants. Mortgaged properties leased to a single tenant, or a small
number of tenants, also are more susceptible to interruptions of cash flow if a
tenant fails to renew its lease. This is so because:
o the financial effect of the absence of rental income may be
severe;
o more time may be required to re-lease the space; and
o substantial capital costs may be incurred to make the space
appropriate for replacement tenants.
Retail and office properties also may be adversely affected if there is a
concentration of particular tenants among the mortgaged properties or of tenants
in a particular business or industry.
[GROUND LEASES]
[[ ] of the mortgaged properties, representing security for approximately
[ ]% of the aggregate principal balance of the pool of mortgage loans as of the
cut-off date, are leasehold interests of the related borrower where a material
portion of the mortgaged property contains a ground lease and the ground lessor
is not a party to the mortgage. Any mortgaged property where the ground lessee
and ground lessor are both parties to the mortgage has been categorized as a
"fee simple estate". Each of the mortgage loans secured by mortgages on
leasehold estates were underwritten taking into account payment of the ground
lease rent, except in cases where the mortgage is a lien on both the ground
lessor's and ground lessee's interest in the mortgaged property. See "The
Pooling and Servicing Agreement--Representations and Warranties; Repurchase"
herein. On the bankruptcy of a lessor or a lessee under a ground lease, the
debtor entity has the right to assume (continue) or reject (terminate) the
ground lease. Pursuant to Section 365(h) of the Bankruptcy Code, as it is
presently in effect, a ground lessee whose ground lease is rejected by a debtor
ground lessor has the right to remain in possession of its leased premises under
the rent reserved in the lease for the term (including renewals) of the ground
lease, but is not entitled to enforce the obligation of the ground lessor to
provide any services required under the ground lease. In the event a ground
lessee/borrower in bankruptcy rejects any/or all of its ground leases, the
leasehold mortgagee would have the right to succeed to the ground
lessee/borrower's position under the lease only if the ground lessor had
specifically granted the mortgagee such right. In the event of concurrent
bankruptcy proceedings involving the ground lessor and the ground
lessee/borrower, the Trustee may be unable to enforce the ground
lessee/borrower's obligation to refuse to treat a ground lease rejected by a
bankrupt ground lessor as terminated. In such circumstances, a ground lease
could be terminated notwithstanding lender protection provisions contained
herein or in the mortgage. A lender could lose its security unless the borrower
holds a fee mortgage or the bankruptcy court, as a court of equity, allows the
lender to assume the ground lessee's obligations under the ground lease and
succeed to the position of a leasehold mortgagor. Although consistent with the
Bankruptcy Code, such position may not be adopted by a bankruptcy court. See
"Certain Legal Aspects of Mortgage Loans" in the prospectus.]
MORTGAGED PROPERTIES LEASED TO MULTIPLE TENANTS ALSO HAVE RISKS
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.
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<PAGE>
TENANT BANKRUPTCY ENTAILS RISKS
The bankruptcy or insolvency of a major tenant, or a number of smaller
tenants, in retail and office properties may adversely affect the income
produced by a mortgaged property. Under the federal bankruptcy code, a tenant
has the option of assuming or rejecting any unexpired lease. If the tenant
rejects the lease, the landlord's claim for breach of the lease would be a
general unsecured claim against the tenant (absent collateral securing the
claim). The claim would be limited to the unpaid rent reserved under the lease
for the periods prior to the bankruptcy petition (or earlier surrender of the
leased premises, which are unrelated to the rejection, plus the greater of one
year's rent or 15% of the remaining reserved rent, but not more than three
years' rent).
MORTGAGE LOANS ARE NONRECOURSE AND ARE NOT INSURED OR GUARANTEED
The mortgage loans are not insured or guaranteed by any person or entity,
governmental or otherwise.
Each mortgage loan is a nonrecourse loan. If a default occurs, recourse
generally may be had only against the specific properties and other assets that
have been pledged to secure the loan. Payment prior to maturity is consequently
dependent primarily on the sufficiency of the net operating income of the
mortgaged property. Payment at maturity is primarily dependent upon the market
value of the mortgaged property or the borrower's ability to refinance the
property.
[However, with respect to __ of the mortgage loans which are secured by
credit lease properties, which represent in the aggregate approximately __% of
the aggregate principal balance of the pool of mortgage loans as of the cut-off
date, the related borrower has purchased a surety bond which guarantees the
payment of all principal due at the stated maturity date of the related mortgage
loan. The surety bond issuer in each case is _____________________, which has a
claims paying ability rating of "__" by __.] See "Description of the Mortgage
Pool--General" in this prospectus supplement.
[RETAIL PROPERTIES HAVE SPECIAL RISKS]
[Retail properties secure __ of the underlying mortgage loans,
representing approximately _____% of the aggregate principal balance of the pool
of mortgage loans as of the cut-off date.
The quality and success of a retail property's tenants significantly
affect the property's value. For example, if the sales revenues of retail
tenants were to decline, rents tied to a percentage of gross sales revenues may
decline and those tenants may be unable to pay their rent or other occupancy
costs.
The presence or absence of an "anchor tenant" in a shopping center also
can be important, because anchors play a key role in generating customer traffic
and making a center desirable for other tenants. An "anchor tenant" is usually
proportionately larger in size and is vital in attracting customers to a retail
property, whether or not it is located on the related mortgaged property. __ of
the mortgage loans are secured by retail properties that are "anchored" and __
of the mortgage loans are secured by retail properties that are "unanchored".
If anchor stores in a mortgaged property were to close, the related
borrower may be unable to replace those anchors in a timely manner or without
suffering adverse economic consequences.
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.]
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<PAGE>
[OFFICE PROPERTIES HAVE SPECIAL RISKS]
[___ of the mortgage loans, representing approximately ___% of the
aggregate principal balance of the pool of mortgage loans as of the cut-off
date, are secured primarily by office properties.
A large number of factors may adversely affect the value of office
properties, including:
o the quality of an office building's tenants;
o the physical attributes of the building in relation to
competing buildings (e.g., age, condition, design, 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 for new tenants. See
"--Tenant Bankruptcy Entails Risk" above.]
[HOTEL PROPERTIES HAVE SPECIAL RISKS]
[______ of the mortgage loans, representing approximately ___% of the
aggregate principal balance of the mortgage pool as of the cut-off date, are
secured by hotel properties.
Various factors may adversely affect the economic performance of a hotel,
including:
o adverse economic and social conditions, either local, regional or
national, which may limit the amount that can be charged for a room
and reduce occupancy levels;
o the construction of competing hotels or resorts;
o continuing expenditures for modernizing, refurbishing, and
maintaining existing facilities prior to the expiration of their
anticipated useful lives;
o a deterioration in the financial strength or managerial capabilities
of the owner and operator of a hotel; and
o changes in travel patterns caused by changes in access, energy
prices, strikes, relocation of highways, the construction of
additional highways or other factors.
Because hotel rooms generally are rented for short periods of time, the
financial performance of hotels tends to be affected by adverse economic
conditions and competition more quickly than other commercial properties.
Moreover, the hotel and lodging industry is generally seasonal in nature,
different seasons affect different hotels depending on type and location. This
seasonality can be expected to cause periodic fluctuations in a hotel property's
room and restaurant revenues, occupancy levels, room rates and operating
expenses.
The performance of a hotel property that is affiliated with a franchise or
hotel management company will depend in part on the continued existence and
financial strength of the franchise or hotel management company, the public
perception of the franchise or hotel chain service mark, and the duration of the
franchise licensing or management agreement.
The performance of a hotel property that is not affiliated with a
franchise or hotel management company may be adversely affected by the lack of
public recognition, national and international marketing and a central
reservation system.]
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[MULTIFAMILY PROPERTIES HAVE SPECIAL RISKS]
[Multifamily properties secure ___ of the mortgage loans, representing
approximately ___% of the aggregate principal balance of the pool of mortgage
loans as of the cut-off date. A large number of factors may adversely affect the
value and successful operation of a multifamily property, including:
o the physical attributes of the apartment building such as, its
age, appearance and construction quality;
o the location of the property, for example, a change in the
neighborhood over time;
o the ability of management to provide adequate maintenance and
insurance;
o the types of services or amenities the property provides;
o the property's reputation;
o the level of mortgage interest rates, which may encourage
tenants to purchase rather than lease housing;
o the presence of competing properties;
o adverse local or national economic conditions; and
o state and local regulations.]
[WAREHOUSE/INDUSTRIAL PROPERTIES HAVE SPECIAL RISKS]
[Industrial properties secure ___ of the mortgage loans, representing
approximately ___% of the aggregate principal balance of the mortgage pool as of
the cut-off date. Significant factors determining the value of industrial
properties are:
o the quality of tenants;
o building design and adaptability; and
o the location of the property.
Concerns about the quality of tenants, particularly major tenants, are
similar in both office properties and industrial properties, although industrial
properties are more frequently dependent on a single or few tenants.
Industrial properties may be adversely affected by reduced demand for
industrial space occasioned by a decline in a particular industry segment (for
example, a decline in defense spending), and a particular industrial or
warehouse property that suited the needs of its original tenant may be difficult
to relet to another tenant or may become functionally obsolete relative to newer
properties. In addition, lease terms with respect to industrial properties are
generally for shorter periods of time and may result in a substantial percentage
of leases expiring in the same year at any particular industrial property.
Aspects of building site design and adaptability affect the value of an
industrial property. Site characteristics which are valuable to a
warehouse/industrial property include high clear ceiling heights, wide column
spacing, a large number of bays (loading docks) and large bay depths,
divisibility, large minimum truck turning radii and overall functionality and
accessibility.
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Location is also important because an industrial property requires the
availability of labor sources, proximity to supply sources and customers and
accessibility to rail lines, major roadways and other distribution channels.]
[CREDIT LEASE PROPERTIES HAVE SPECIAL RISKS]
[___ of the mortgage loans, representing approximately ___% of the
aggregate principal balance of the mortgage pool as of the cut-off date, are
secured by properties backed by credit lease obligations of a tenant, or net
lease obligations guaranteed by another entity.
NUMBER OF TENANT/GUARANTOR RATING PERCENTAGE OF POOL BALANCE
CREDIT LEASE LOANS BY AT LEAST ONE RATING AGENCY AS OF THE CUT-OFF DATE
------------------ ----------------------------- -------------------------
Investment Grade
Non-investment Grade
Any rating assigned to the tenant or guarantor, as applicable, by a rating
agency will reflect only that rating agency's assessment of the long-term
unsecured debt obligations of the tenant or its guarantor. That rating does NOT
imply an assessment of the likelihood that:
o the credit leases will not be terminated or the related
mortgage loans prepaid, through the exercise of a purchase
option by the lessee or otherwise;
o that principal prepayments on the related mortgage loans will
be made by the related borrowers; or
o that any prepayment premium will be paid, or, if paid, will be
sufficient to provide the anticipated yield on the loan.
As a result, the rating will not address the possibility that a prepayment
of a mortgage loan may cause you to experience a lower than anticipated yield.
See "Yield And Maturity Considerations" in this prospectus supplement. See
"Description of the Mortgage Pool--Additional Mortgage Loan Information" in this
prospectus supplement for certain statistical information on mortgage loans
backed by credit leases.
A downgrade in the credit rating of any of the tenants and/or the
guarantors may have a related adverse effect on the rating of your certificates.
If a tenant or guarantor defaults on its obligation to make monthly rental
payments under a credit lease or the related guarantee, the borrower under a
mortgage loan backed by credit leases may not have the ability to make required
payments on the loan. If the default occurs before significant amortization of
the loan has occurred and no recovery is available from the related borrower,
the tenant or any guarantor, it is unlikely in most cases that the special
servicer will be able to recover in full the amounts then due under the loan.
See "Description of the Mortgage Pool--Credit Lease Loans" in this prospectus
supplement.
Certain mortgage loans backed by credit leases have insurance policies for
the benefit of the lender to cover certain lease termination and abatement
events arising out of a condemnation of a credit lease property. Certain of the
credit leases have surety bonds or residual value insurance policy for the
benefit of the lender to cover the principal payments on the related loans at
maturity.
<TABLE>
<CAPTION>
RATINGS OF
PROVIDER BY NUMBER OF CREDIT PERCENTAGE OF POOL BALANCE
CREDIT LEASE LOAN PROTECTION [________] LEASE LOANS AS OF THE CUT-OFF DATE
--------------------------------- ----------- ---------------- --------------------------
<S> <C> <C> <C>
Lease Enhancement Policies AAA [___] %
Surety Bonds AA [___] %
Residual Value Insurance AA [___] %
</TABLE>
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See "Description of the Mortgage Pool--General" in this prospectus
supplement. Your investment would be adversely affected by any failure by the
insurer to pay under the terms of those policies or surety bonds, and any
downgrade of the credit rating of that insurer may adversely affect the ratings
of your certificates. See "Description of the Mortgage Pool--Credit Lease Loans"
in this prospectus supplement.]
[RISKS RELATING TO SECTION 8 MULTIFAMILY PROPERTIES]
[__ of the mortgage loans (those identified as loan numbers ___ on Annex A
hereto), representing approximately ____% of the aggregate principal balance of
the mortgage pool as of the cut-off date, are secured by mortgaged properties in
which the rents charged to some of the tenants are subsidized by housing
assistance payments under HUD's Section 8 Tenant-Based Assistance Rental Voucher
Program or Section 8 Tenant-Based Assistance Rental Certificate Program (now
combined into one voucher program). Those payments are made pursuant to housing
assistance payments contracts between the borrower and a local housing authority
which receives Section 8 funds from HUD. The term of each housing assistance
payments contract is limited to the term of the related tenant lease, generally
one year, renewable at the option of the tenant. Tenants may choose to move out
of the mortgaged properties and utilize their vouchers elsewhere, and we cannot
assure you that those units will be re-rented. The housing assistance payments
contracts impose certain management and maintenance obligations on the
borrowers, and housing assistance payments can be suspended, reduced, or
terminated if HUD or the local housing authority determines that the borrowers
have breached the housing assistance payments contracts. HUD may in the future
elect, or be required by Congress, to take actions with the effect of limiting
increases in rents subsidized under Section 8, or reducing rent levels currently
in effect. The ability of the respective borrowers to pay the housing assistance
payments loans, and the value of their mortgaged properties and consequent
ability to refinance the mortgage loans which are subject to housing assistance
payments contracts, could be adversely affected by some or all of the above
mentioned risks. See "Description of the Mortgage Pool--Section 8 Housing
Assistance Payments Programs" in this prospectus supplement.]
CERTAIN ADDITIONAL RISKS RELATING TO TENANTS
The income from, and market value of, the mortgaged properties leased to
various tenants would be adversely affected if:
o space in the mortgaged properties could not be leased or
re-leased;
o tenants were unable to meet their lease obligations;
o a significant tenant were to become a debtor in a bankruptcy
case; or
o rental payments could not be collected for any other reason.
Repayment of the mortgage loans secured by retail and office properties
will be affected by the expiration of leases and the ability of the respective
borrowers to renew the leases or relet the space on comparable terms.
Even if vacated space is successfully relet, the costs associated with
reletting, including tenant improvements and leasing commissions, could be
substantial and could reduce cash flow from the mortgaged properties. Moreover,
if a tenant defaults in its obligations to a borrower, the borrower may incur
substantial costs and experience significant delays associated with enforcing
its rights and protecting its investment, including costs incurred in renovating
and reletting the property.
SOME MORTGAGED PROPERTIES MAY NOT BE READILY CONVERTIBLE TO ALTERNATIVE USES
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 generally requires
substantial capital expenditures. The liquidation value of such a mortgaged
property consequently may be substantially less than would be the case if the
property were readily adaptable to other uses.
Zoning or other restrictions also may prevent alternative use.
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LACK OF SKILLFUL PROPERTY MANAGEMENT ENTAILS RISKS
The successful operation of a real estate project depends upon the
property manager's performance and viability. The property manager is
responsible for:
o responding to changes in the local market;
o planning and implementing the rental structure;
o operating the property and providing building services;
o managing operating expenses; and
o assuring that maintenance and capital improvements are carried
out in a timely fashion.
Properties deriving revenues primarily from short-term sources, such as
short-term or month-to-month leases, are generally more management intensive
than properties leased to creditworthy tenants under long-term leases.
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.
LIMITATIONS OF APPRAISALS
Appraisals were obtained with respect to each of the mortgaged properties
prior to the origination of the applicable mortgage loan. In general, appraisals
represent the analysis and opinion of qualified appraisers and are not
guarantees of present or future value. One appraiser may reach a different
conclusion than the conclusion that would be reached if a different appraiser
were appraising that property. Moreover, appraisals seek to establish the amount
a typically motivated buyer would pay a typically motivated seller and, in
certain cases, may have taken into consideration the purchase price paid by the
borrower. That amount could be significantly higher than the amount obtained
from the sale of a mortgaged property under a distress or liquidation sale. We
cannot assure you that the information set forth in this prospectus supplement
regarding appraised values or loan-to-value ratios accurately reflects past,
present or future market values of the mortgaged properties.
YOUR LACK OF CONTROL OVER TRUST FUND CAN CREATE RISKS
You and other certificateholders generally do not have a right to vote and
do not have the right to make decisions with respect to the administration of
the trust. See "Servicing of the Mortgage Loans--General" in this prospectus
supplement. Those decisions are generally made, subject to the express terms of
the pooling and servicing agreement, by the servicer, the trustee or the special
servicer, as applicable. Any decision made by one of those parties in respect of
the trust, even if that decision is determined to be in your best interests by
that party, may be contrary to the decision that you or other certificateholders
would have made and may negatively affect your interests.
[SPECIAL SERVICER MAY HAVE A CONFLICT OF INTEREST]
[We anticipate that the special servicer or an affiliate will purchase all
or a portion of the Class ___ certificates. This could cause a conflict between
the special servicer's duties to the trust under the pooling and servicing
agreement and its interest as a holder of a certificate. However, the pooling
and servicing agreement provides that the mortgage loans are required to be
administered in accordance with the servicing standards without regard to
ownership of any certificate by the servicer, the special servicer or any of
their affiliates. See "Servicing of the Mortgage Loans--General" in this
prospectus supplement.]
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[FLOATING RATE MORTGAGE LOANS/RISKS RELATING TO INTEREST RATE CAP AGREEMENTS]
[___ mortgage loans, representing approximately ___% of the aggregate
principal balance of the mortgage pool as of the cut-off date bear interest at a
floating rate based on LIBOR. Accordingly, debt service for the related mortgage
loans will generally increase as interest rates rise. In contrast, rental and
other income from existing leases of the related mortgaged properties is not
expected to rise significantly as interest rates rise. Accordingly, unless new
leases are executed and/or occupancies at the related mortgaged properties
increases, the debt service coverage ratio ("DSCR") of such mortgage loans will
generally be adversely affected by rising interest rates, and the borrower's
ability to make all payments due on the related mortgage loans may be adversely
affected. Information provided herein concerning the debt service coverage
ratios of such mortgage loans is based on an assumed level of LIBOR equal to [ ]
(which is consistent with the presentation in the preliminary version of this
prospectus supplement). However, LIBOR on [ ] (the date on which LIBOR was most
recently set for [ ] of the mortgage loans was approximately [ ]%.
There are no periodic or lifetime caps on the mortgage rate of any such
mortgage loan. With respect to all of the related mortgage loans, each related
borrower has been required to purchase an interest rate cap agreement to protect
itself against significant movements in LIBOR during the initial term of such
mortgage loan, each of which interest rate cap agreements have been pledged as
additional security for the related mortgage loan. Pursuant to each such
interest rate cap agreement, to the extent LIBOR increases above certain
specified levels, which levels may increase over the term of the interest rate
cap agreement depending on the performance of the related mortgage loan and
mortgaged property or properties, the borrower will be entitled to receive
payments calculated by applying an interest rate equal to the difference between
LIBOR and such level to a notional amount at least equal to the principal
balance of the related mortgage loan. At high interest rates, borrowers may be
dependent on such interest rate cap agreements for income needed to pay a
portion of the interest due on the related mortgage loans.
The existence of the interest rate cap agreements does not protect
investors from basis risk shortfalls.
There can be no assurance that any counterparty will have sufficient
assets or otherwise be able to fulfill its obligations under the related
interest rate cap agreement. In addition, if any such mortgage loan is
effectively extended in connection with a default, there is no requirement that
the related interest rate cap agreement extend beyond the original maturity of
such mortgage loan. Such circumstances could result in the downgrade, withdrawal
or qualification of the ratings on the certificates. The failure of a
counterparty to fulfill its obligations under an interest rate cap agreement
during periods of higher levels of LIBOR could result in the inability of the
related borrower to pay its required debt service on the related mortgage loan.
Mortgage loans with interest rate cap agreements generally require that such
mortgage loans may only be extended if the borrower is able to extend or replace
such interest rate cap agreement on similar terms. However, there can be no
assurance that a borrower will be able to extend an interest rate cap agreement
or enter into a replacement interest rate cap agreement in the event there is an
extension of the related mortgage loan.]
RISKS RELATING TO PREPAYMENTS AND REPURCHASES
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, defaults and liquidations or repurchases upon breaches
of representations and warranties. [Because the notional amount of the Class X
certificates is based upon the outstanding principal balance of the mortgage
loans, the yield to maturity on the Class X certificates will be extremely
sensitive to the rate and timing of prepayments of principal.]
The investment performance of your certificates may vary materially and
adversely from your expectations if the actual rate of prepayment on the
mortgage loans is higher or lower than you anticipate.
Any changes in the weighted average lives of your certificates may
adversely affect your yield. Prepayments resulting in a shortening of weighted
averages of your certificates may be made at a time of low interest rates when
you may be unable to reinvest the resulting payment of principal on your
certificates at a rate comparable to the effective yield anticipated by you in
making your investment in the certificates, while delays and extensions
resulting in a lengthening of those weighted average lives may occur at a time
of high interest rates when
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<PAGE>
you may have been able to reinvest principal payments that would otherwise have
been received by you at higher rates.
Voluntary prepayments, if permitted, generally require payment of a
prepayment premium or yield maintenance charge unless the loan is within 90 to
180 days of the stated maturity date or anticipated prepayment date or after the
anticipated repayment date, as the case may be. See "Description of the Mortgage
Pool--Certain Terms and Condition of the Mortgage Loans--Prepayment Provisions"
in this prospectus supplement. Nevertheless, we cannot assure you that the
related borrowers will refrain from prepaying their mortgage loans due to the
existence of a prepayment premium or yield maintenance charges. Also, we 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 servicer's or special servicer's ability to enforce those
charges or premiums;
o the occurrence of casualties or natural disasters; and
o economic, demographic, tax, legal or other factors.
No yield maintenance charge or prepayment premium will be required for
prepayments in connection with a casualty or condemnation unless, in the case of
most of the mortgage loans, an event of default has occurred and is continuing.
In addition, if [General Electric Capital Corporation] repurchases any mortgage
from the trust due to breaches of representations or warranties, the repurchase
price paid will be passed through to the holders of the certificates with the
same effect as if the mortgage loan had been prepaid in part or in full, except
that no prepayment premium or yield maintenance charge would be payable. A
repurchase may adversely affect the yield to maturity on your certificates.
RISKS RELATING TO ENFORCEABILITY OF PREPAYMENT PREMIUMS OR DEFEASANCE PROVISIONS
Provisions requiring yield maintenance charges or prepayment premiums may
not be enforceable in some states and under federal bankruptcy law. Those
provisions also may be interpreted as constituting the collection of interest
for usury purposes. Accordingly, we cannot assure you that the obligation to pay
a yield maintenance charge or prepayment premium will be enforceable. Also, we
cannot assure you that foreclosure proceeds will be sufficient to pay an
enforceable yield maintenance charge or prepayment premium. Additionally,
although the collateral substitution provisions related to defeasance do not
have the same effect on the certificateholders as prepayment, we cannot assure
you that a court would not interpret those provisions as requiring a yield
maintenance charge or prepayment premium. In certain jurisdictions those
collateral substitution provisions might be deemed unenforceable under
applicable law, or usurious.
RISKS RELATING TO BORROWER DEFAULT
The rate and timing of delinquencies or defaults on the mortgage loans
will affect:
o the aggregate amount of distributions on the offered
certificates;
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o their yield to maturity;
o the rate of principal payments; and
o their weighted average life.
If losses on the mortgage loans exceed the aggregate principal amount of
the classes of certificates subordinated to a particular class, that class will
suffer a loss equal to the full amount of the excess, up to the outstanding
principal amount of that class.
If you calculate your anticipated yield based on assumed rates of defaults
and losses that are lower than the default rate and losses actually experienced
and those losses are allocated to your certificates, your actual yield to
maturity will be lower than the assumed yield. Under certain extreme scenarios,
that yield could be negative. In general, the earlier a loss borne by you on
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 lead to your certificates
having a higher percentage ownership interest in the trust and 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 delinquency or
default.
RISKS RELATING TO CERTAIN PAYMENTS
To the extent described in this prospectus supplement, the servicer, the
special servicer or the trustee, as applicable, will be entitled to receive
interest on unreimbursed P&I advances. This interest will generally accrue from
the date on which the related advance is made or the related expense is incurred
through the date of reimbursement. In addition, under certain circumstances,
including delinquencies in the payment of principal and interest, a mortgage
loan will be specially serviced and the special servicer is entitled to
compensation for special servicing activities. The right to receive interest on
advances or special servicing compensation is senior to the rights of
certificateholders to receive distributions on the offered certificates. The
payment of interest on advances and the payment of compensation to the special
servicer may lead to shortfalls in amounts otherwise distributable on your
certificates.
RISKS OF LIMITED LIQUIDITY AND MARKET VALUE
Your certificates will not be listed on any national securities exchange
or traded on any automated quotation systems of any registered securities
association such as NASDAQ, and there is currently no secondary market for your
certificates. While __________ currently intends to make a secondary market in
the offered certificates, it is not obligated to do so. Accordingly, you may not
have an active or liquid secondary market for your certificates. Lack of
liquidity could result in a substantial decrease in the market value of your
certificates. The market value of your certificates also may be affected by many
other factors, including the then-prevailing interest rates.
DIFFERENT TIMING OF MORTGAGE LOAN AMORTIZATION POSES CERTAIN RISKS
As principal payments or prepayments are made on a mortgage loan that is
part of a pool of mortgage loans, the pool will be subject to more concentrated
risks with respect to the diversity of mortgaged properties, types of mortgaged
properties and number of borrowers, as described above. Classes that have a
later sequential designation or a lower payment priority are more likely to be
exposed to this concentration risk than are classes with an earlier sequential
designation or a higher priority. This is so because principal on the offered
certificates is generally payable in sequential order, and no class entitled to
distribution of principal generally receives principal until the principal
amount of the preceding class or classes entitled to receive principal have been
reduced to zero.
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SUBORDINATION OF SUBORDINATE OFFERED CERTIFICATES
As described in this prospectus supplement, unless your certificates are
Class ___, Class ___, Class ___ or Class ___ certificates, your rights to
receive distributions of amounts collected or advanced on or in respect of the
mortgage loans[, other than excess interest] will be subordinated to those of
the holders of the offered certificates with an earlier alphabetical
designation.
See "Description of the Certificates--Distributions--Priority" and
"Description of the Certificates--Subordination; Allocation of Collateral
Support Deficit" in this prospectus supplement.
ENVIRONMENTAL RISKS RELATING TO THE MORTGAGED PROPERTIES
[_______ of the mortgaged properties have been subject to recent
environmental site assessments, including Phase I site assessments or updates of
previously performed Phase I site assessments. In some cases, Phase II site
assessments also have been performed.] Although those assessments involved site
visits and other types of review, we cannot assure you that all environmental
conditions and risks were identified.
[[Except as indicated below,] none of those environmental assessments
revealed any potentially material adverse environmental condition or
circumstance at any mortgaged property except
o for those which will be remediated by the cut-off date;
o for which an escrow for the remediation was established; or
o for which the consultant recommended an operations and
maintenance plan or periodic monitoring of nearby properties,
which recommendations are consistent with industrywide
practices.
Those conditions could, for example, include the presence of asbestos
containing materials, leaks from storage tanks, and on-site spills. Corrective
action, as required by the regulatory agencies, has been undertaken and, in some
cases, the related borrowers have made deposits into environmental reserve
accounts. However, we cannot assure you that the reserve amounts will be
sufficient to remediate the environmental conditions or that all environmental
conditions have been identified.]
[Insert any property specific disclosure.]
See "Servicing of the Mortgage Loans--Realization Upon Defaulted Mortgage
Loans" in this prospectus supplement and "Risk Factors--Environmental Risks" and
"Certain Legal Aspects of Mortgage Loans--Environmental Risks" in the
prospectus.
TAX CONSIDERATIONS RELATING TO FORECLOSURE
If the trust acquires a mortgaged property pursuant to a foreclosure or
deed in lieu of foreclosure, the Special Servicer must retain an independent
contractor to operate the property. Any net income from the operation of the
property (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 Lower-Tier REMIC to federal tax (and
possibly state or local tax) on that income at the highest marginal corporate
tax rate (currently 35%). In that event, the net proceeds available for
distribution to certificateholders will be reduced. The special servicer may
permit the Lower-Tier REMIC to earn "net income from foreclosure property" that
is subject to tax if it determines that the net after-tax benefit to
certificateholders is greater than under another method of operating or net
leasing the mortgaged property.
PROPERTY INSURANCE
[All of the mortgaged properties are covered by property insurance.]
However, the mortgaged properties may suffer casualty losses due to risks which
were not covered by insurance or for which insurance coverage is inadequate. In
addition, ___% of the mortgaged properties are located in _____, _________, and
___________, states that have historically been at greater risk regarding acts
of nature (such as hurricanes, floods and earthquakes)
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than other states. We cannot assure you that borrowers will be able to maintain
adequate insurance. Moreover, if reconstruction or any major repairs are
required, changes in laws may materially affect the borrower's ability to effect
the reconstruction or major repairs or may materially increase those costs.
As a result of any of the foregoing, the amount available to make
distributions on your certificates could be reduced.
ZONING COMPLIANCE
Due to changes in zoning requirements after certain of the mortgaged
properties were constructed or requested variances or special permits, those
mortgaged properties may not comply with current zoning laws, including density,
use, parking and set back requirements. The operation of these properties is
considered to be a "permitted non-conforming use." This means that the borrower
is not required to alter its structure to comply with the existing or new law;
however, the borrower may not be able to rebuild the premises "as is" in the
event of a substantial casualty loss. This may adversely affect the cash flow of
the property following that loss. If a substantial casualty were to occur, it is
expected, but we cannot assure you, that insurance proceeds would be available
to pay the mortgage loan in full. In addition, if the property were repaired or
restored in conformity with the current law, the value of the property or the
revenue-producing potential of the property may not be equal to that before the
casualty.
[In addition, certain of the mortgaged properties which are non-conforming
may not be "permitted non-conforming" uses. The failure of a mortgaged property
to comply with zoning laws or to be a "permitted non-conforming" use may
adversely affect market value of the mortgaged property or the borrower's
ability to continue to use it in the manner it is currently being used.]
LITIGATION
There may be pending or threatened legal proceedings against the borrowers
and managers of the mortgaged properties and their respective affiliates arising
out of the ordinary business of the borrowers, managers and affiliates. We
cannot assure you that litigation will not have a material adverse effect on
your investment.
BOOK-ENTRY REGISTRATION
Your certificates will be initially represented by one or more
certificates registered in the name of Cede & Co., as the nominee for DTC, and
will not be registered in your name. As a result, you will not be recognized as
a "Certificateholder", or holder of record of your certificates. See "Risk
Factors--Book-Entry System for Certain Classes May Decrease Liquidity and Delay
Payment" in the prospectus for a discussion of important considerations relating
to not being a certificateholder of record.
OTHER RISKS
See "Risk Factors" in the prospectus for a description of certain other
risks and special considerations that may be applicable to your certificates.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
All percentages of the mortgage loans and mortgaged properties, or of any
specified group of mortgage loans and mortgaged properties, referred to in this
prospectus supplement without further description are approximate percentages by
Initial Pool Balance. The trust will consist primarily of ___ commercial and ___
multifamily mortgage loans with aggregate principal balance of approximately
$______________ (the "Initial Pool Balance"). Each mortgage loan is evidenced by
a promissory note (a "Mortgage Note") and secured by a mortgage, deed of trust
or other similar security instrument (a "Mortgage") that creates a first
mortgage lien:
(1) on a fee simple estate in one or more commercial or multifamily
properties; or
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<PAGE>
(2) with respect to __ Mortgaged Properties, representing
approximately _____% of the Initial Pool Balance [(by allocated loan
amount)], the fee simple estate and a leasehold estate in a commercial
property; or
(3) with respect to __ mortgage loan, representing approximately
_____% of the Initial Pool Balance, a leasehold estate in a commercial
property (each of clauses (1) through (3), a "Mortgaged Property").
The term of any ground lease securing any mortgage loan that is not also
secured by the related fee interest, extends at least 10 years beyond the stated
maturity of that mortgage loan (including extensions at the lender's option).
The "Cut-off Date Balance" of any mortgage loan will be its unpaid principal
balance as of the Cut-off Date, after application of all payments due on or
before that date, whether or not received.
On or prior to the Closing Date, GE Capital Commercial Mortgage
Corporation (the "Depositor") will acquire the mortgage loans from
[____________] (the "Mortgage Loan Seller") pursuant to a purchase agreement,
dated as of the Cut-off Date, between the Depositor and the Mortgage Loan Seller
(the "Purchase Agreement"). The Depositor will then assign its interests in the
mortgage loans, without recourse, to [________________] (the "Trustee") for the
benefit of the Certificateholders. See "The Mortgage Loan Seller" below and
"Description of the Pooling Agreements--Assignment of Mortgage Loans;
Repurchases" in the prospectus. For purposes of the prospectus, the Mortgage
Loan Seller constitutes a Mortgage Asset Seller.
The mortgage loans were originated in the period between [________ and
________].
The mortgage loans are not insured or guaranteed by the Mortgage Loan
Seller, any governmental entity or private mortgage insurer. We have not
undertaken any evaluation of the significance of the recourse provisions of any
of a number of the mortgage loans that provide for recourse against the related
borrower or another person in the event of a default. Accordingly, investors
should consider all of the mortgage loans to be nonrecourse loans as to which
recourse in the case of default will be limited to the specific property and
other assets, if any, pledged to secure a mortgage loan.
With respect to __ of the mortgage loans, representing approximately __%
of the Initial Pool Balance, the related borrower has purchased a surety bond in
favor of the lender under that mortgage loan which guarantees the payment of all
principal due on those mortgage loans at the stated maturity date. The surety
bond issuer in each instance is ___________________________, which has a claims
paying ability rating of "__" by ___________________________ ("___"). Pursuant
to the terms of the Pooling Agreement, [_______________] (the "Servicer") or
[_____________] (the "Special Servicer"), as applicable, will be required to
enforce the terms of those surety bonds and perform the obligations, if any, of
the insured under those surety bonds.
With respect to __ mortgage loans, representing approximately _____% the
Initial Pool Balance, each borrower has secured and/or unsecured debt payable to
an affiliate of that borrower ("Affiliate Debt") in addition to the debt under
the mortgage loan. For each mortgage loan with Affiliate Debt, the Affiliate
Debt creditor has entered into a subordination agreement with the lender
acknowledging that the Affiliate Debt is non-foreclosable and non-defaultable
and imposing limits on the borrower's ability to incur any further subordinate
debt. Payments on that Affiliate Debt are required to be made solely out of
excess cash flow after monthly payments of principal and interest have been made
and any reserves required by the terms of the related mortgage loans have been
funded as required under the Mortgage Loan Documents. Additionally __ other
mortgage loans which do not currently have Affiliate Debt, representing
approximately ____% of the Initial Pool Balance, permit the related borrower to
incur Affiliate Debt under certain circumstances.
Certain risks relating to additional debt are described in "Risk
Factors--Ability to Incur Other Borrowings Entails Risks" in this prospectus
supplement and "Certain Legal Aspects of Mortgage Loans--Subordinate Financing"
in the prospectus.
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SIGNIFICANT MORTGAGE LOANS
[Insert Significant Mortgage Loan Descriptions if applicable]
[CREDIT LEASE LOANS]
[__ mortgage loans (the "Credit Lease Loans"), representing approximately
____% of the Initial Pool Balance, are backed by lease obligations (a "Credit
Lease") of a tenant (each, a "Tenant"). Each Credit Lease has a primary lease
term (the "Primary Term") that expires on or after the maturity date of the
related Credit Lease Loan. The Credit Lease Loans are scheduled to be repaid
from scheduled monthly rental payments ("Monthly Rental Payments") which are
equal to or greater than the scheduled payment of all principal, interest and
other amounts due each month on the related Credit Lease Loan. Notwithstanding
the foregoing, the borrowers remain liable for all obligations under the Credit
Lease Loans (subject to the non-recourse provisions).
Lease termination rights and rent abatement rights, if any, in the Credit
Leases may be divided into three categories: (i) termination and abatement
rights directly arising from certain defined casualties or condemnation
("Casualty or Condemnation Rights"), (ii) termination and abatement rights
arising from a borrower's default relating to its obligations (other than the
obligation to maintain a lease enhancement policy) under the Credit Leases to
perform required maintenance, repairs or replacements with respect to the
related Credit Lease Property ("Maintenance Rights") and (iii) termination and
abatement rights arising from a borrower's default in the performance of various
other obligations under the Credit Lease, including but not limited to
remediating environmental conditions not caused by the Tenant, enforcement of
restrictive covenants affecting property owned directly or indirectly by the
borrower in the area of the Credit Lease Property and complying with laws
regulating such Credit Lease Property or common areas related to such Credit
Lease Property ("Additional Rights"). Certain Credit Leases ("Bondable Leases")
have neither Casualty nor Condemnation Rights, Maintenance Rights nor Additional
Rights, and the Tenants thereunder are required, at their expense, to maintain
their Credit Lease Property in good order and repair. Other Credit Leases have
Casualty or Condemnation Rights and may have Additional Rights ("Triple Net
Leases"). The tenants under Triple Net Leases are required, and their expense,
to maintain their Credit Lease Property, including the roof and structure, in
good order and repair. Additionally, certain of the Credit Leases have Casualty
or Condemnation Rights and Maintenance Rights, and may have Additional Rights
("Double Net Leases"). If the Borrower defaults in the performance of certain
obligations under Triple Net Leases or Double Net Leases and the Tenant
exercises its Additional Rights or Maintenance Rights, there would be a
disruption in the stream of monthly rental payments available to pay principal
and interest to the Certificateholders.
The following table sets forth certain information regarding the Credit
Lease Loans:
<TABLE>
<CAPTION>
CUT-OFF DATE PERCENTAGE OF
PRINCIPAL INITIAL POOL TENANT/LEASE S&P/MOODY'S
PROPERTY NAME BALANCE BALANCE GUARANTOR LEASE TYPE RATING
---------------- ------------ ------------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
% [Bondable]
% [NNN]
% [NN]
%
%
%
%
</TABLE>
Each mortgagor under a Credit Lease Loan has assigned to the mortgagee of
the related Credit Lease Loan (each, a "Credit Lease Assignment"), as security
for the mortgagor's obligations, the mortgagor's rights under the Credit Leases
and its rights to all income and profits to be derived from the operation and
leasing of the related property (each, a "Credit Lease Property"), including,
but not limited to, an assignment of any guarantee of the Tenant's obligations
under the Credit Lease and an assignment of the right to receive all Monthly
Rental Payments and any other sums due under the Credit Leases.
Each Credit Lease generally provides that the related Tenant must pay all
real property taxes and assessments levied or assessed against the related
Credit Lease Property, all charges for utility services and other operating
expenses incurred in connection with the operation of the related Credit Lease
Property. Generally, each Credit Lease Loan provides that if the Tenant defaults
beyond applicable notice and grace periods in the
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performance of any covenant or agreement of that Credit Lease (a "Credit Lease
Default") and the related borrower defaults in its performance under that Credit
Lease Loan, the mortgagee may exercise rights under the related Credit Lease
Assignment to require the related mortgagor either (1) to terminate that Credit
Lease or (2) not to terminate that Credit Lease and exercise any of its rights.
A default under a Credit Lease will constitute a default under the related
Credit Lease Loan.
While each Credit Lease requires the Tenant to fulfill its payment and
maintenance obligations during the term of the Credit Lease, in some cases the
Tenant has not covenanted to operate the related Credit Lease Property for the
term of the Credit Lease, and the Tenant may at any time cease actual operations
at the Credit Lease Property, but it remains obligated to continue to meet all
of its obligations under the Credit Lease.
With respect to Credit Lease Loans which are not secured by the assignment
of a "Bondable Lease," (the "Lease Enhancement Policy Loans"), the lender is the
beneficiary of a non-cancelable insurance policy (a "Lease Enhancement Policy")
obtained to cover certain lease termination and rent abatement events arising
out of a casualty or condemnation [(or, with respect to __ mortgage loan,
representing approximately __% of the Initial Pool Balance, condemnation only)]
of the related Credit Lease Property. The following table sets forth certain
information with respect to each Lease Enhancement Policy for the Lease
Enhancement Policy Loans:
___ FINANCIAL
MORTGAGE LOAN LEASE ENHANCEMENT POLICY ISSUER STRENGTH RATING
------------- ------------------------------- ---------------
The Lease Enhancement Policies issued by the related insurer for the
related Credit Lease are subject to certain limited exclusions and do not insure
interest on the Lease Enhancement Policy Loans for a period of greater than __
days past the date of the occurrence of a Casualty or Condemnation Event. The
Lease Enhancement Policies permit payment of a lump sum payment of all
outstanding principal plus, subject to the limitation above, accrued interest in
the event of a permitted termination by the related Tenant of its Credit Lease
as a result of a casualty or condemnation. If the related Credit Lease permits
the related Tenant to abate all or a portion of the rent in the event of a
condemnation, that payment will be in an amount equal to the portion of any
Monthly Rental Payments not made by the Tenant for the period from the date the
abatement commences until the earlier of the date the abatement ceases or the
expiration date of the initial term of the Credit Lease; provided that in the
event those payments would exceed the limits of liability under the policy, then
the related Lease Enhancement Insurer, may, at its option, pay the present value
of the stream of partial abatement payments in a lump sum. The insurers are also
not required to pay amounts due under the related Lease Enhancement Policy Loan
other than amounts equal to principal and, subject to the limitation above,
accrued interest, and consequently, are not required to pay any amounts equal to
Prepayment Premiums or Yield Maintenance Charges due under the Lease Enhancement
Policy or any amounts the related mortgagor is obligated to pay under the Lease
Enhancement Policy to reimburse the Servicer or the Trustee for outstanding
Servicing Advances.
At the end of the term of the Credit Lease, the Tenant is generally
obligated to surrender the Credit Lease Property in good order and in its
original condition received by the Tenant, except for ordinary wear and tear and
repairs required to be performed by the related borrower.
The Mortgage Loan Seller's underwriting guidelines with respect to the
Credit Lease Loans are described under "Description of the Mortgage
Pool--Underwriting Standards" in this prospectus supplement.]
[SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAMS]
[__ of the mortgage loans (the "HAP Loans"), (identified as Loan Numbers
___ and __ on Annex A hereto), representing approximately ____% of the Initial
Pool Balance, [are secured by Mortgaged Properties which were formerly subject
to mortgage loans insured by HUD under low-to-moderate income programs. When the
HUD-insured mortgage loans were repaid upon origination of the HAP Loans, the
respective local housing authorities provided rental assistance payments under
HUD's Section 8 Tenant-Based Assistance Rental Voucher Program or Section 8
Tenant-Based Assistance Rental Certificate Program to low-income tenants in
those
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properties. The former Voucher and Certificate Programs have been combined into
one voucher program by the 1999 HUD Appropriations Act enacted October 19, 1998,
which amended Section 8(o) of the United States Housing Act of 1937. Section
8(o), as so amended, provides that a housing agency which administers
tenant-based assistance shall establish a payment standard, which, unless
otherwise approved by HUD, shall be between 90% and 110% of the Fair Market
Rental determined annually by HUD for the same size of dwelling unit in the same
market area. HUD may require modification of a payment standard, if a
significant percentage of families are found to be paying more than 30% of
adjusted income for rent. The monthly assistance payment for an eligible family
is the amount by which the lesser of (a) the actual rent, including the
allowance for tenant-paid utilities, or (b) the applicable payment standard,
exceeds the greatest of 30% of monthly adjusted income, 10% of monthly
unadjusted income, or the amount of welfare assistance designated for housing
costs. The vouchers are portable, so that if a family chooses not to renew the
lease, it may use the voucher for other housing in the same or other
jurisdiction.
We cannot assure you that the voucher program will be continued in its
present form or that the level of assistance provided to tenants will be
sufficient to assure revenues sufficient for the borrower to meet its
obligations under the HAP Loans and to pay for necessary property operations.]
CERTAIN TERMS AND CONDITIONS OF THE MORTGAGE LOANS
__ of the mortgage loans, representing approximately _____% of the Initial
Pool Balance, have Due Dates that occur on the first day of each month, and __
mortgage loans, representing approximately ____% of the Initial Pool Balance,
have Due Dates that occur on the tenth day of each month. All of the mortgage
loans whose Due Dates are the first day of each month provide for grace periods
which do not exceed __ days (other than __ mortgage loan, representing
approximately ____% of the Initial Pool Balance, which provides for a __ day
grace period). ___ of the mortgage loans, representing approximately ____% of
the Initial Pool Balance, whose Due Dates are the tenth day of each month
provide for a 1 day grace period. All of the mortgage loans bear interest at a
fixed rate. __ mortgage loans, representing approximately _____% of the Initial
Pool Balance, accrue interest on the basis of the actual number of days in a
month, assuming a 360-day year. The remaining __ mortgage loans, representing
approximately _____% of the Initial Pool Balance, accrue interest on the basis
of a 30-day month, assuming a 360-day year. Approximately _____% of the mortgage
loans (by Initial Pool Balance) provide for monthly payments (or, in the case of
___ mortgage loans representing approximately ____% of the Initial Pool Balance,
annual payments) of principal based on amortization schedules significantly
longer than the remaining terms of those mortgage loans. Thus, those mortgage
loans will have balloon payments due at their stated maturity dates, unless
earlier prepaid. __ mortgage loan (Loan Number __ on Annex A) representing
approximately ____% of the Initial Pool Balance, provides for monthly payments
of interest only for the first ____ years of the term of the mortgage loan and
payments [which would amortize a portion of the principal balance of the related
mortgage loan during the remaining five years of the term of that mortgage
loan]. [In addition, certain mortgage loans (the "APD Mortgage Loans") provide
for an increase in the related interest rate after a certain date (the
"Anticipated Prepayment Date"). The APD Mortgage Loans provide for monthly
payments of principal that will result in a substantial principal payment at the
Anticipated Prepayment Date if the related Borrower prepays the mortgage loan on
that date. Thus, those mortgage loans will have balloon payments due at their
stated maturity dates, unless earlier prepaid].
PREPAYMENT PROVISIONS. Each mortgage loan restricts voluntary prepayments
in one or more of the following ways:
(1) by prohibiting any prepayments for a specified period of time
after its date of origination (a "Lockout Period");
(2) by requiring that any principal prepayment made during a
specified period of time after its date of origination or, in the case of
a mortgage loan also subject to a Lockout Period, after the date of
expiration of the Lockout Period (a "Yield Maintenance Period") be
accompanied by a Yield Maintenance Charge (as defined below); and
(3) by imposing fees or premiums generally equal to a percentage of
the then outstanding principal balance of the mortgage loan ("Prepayment
Premiums") in connection with principal prepayments for a specified period
of time after the expiration of the related Yield Maintenance Period or,
in the case of mortgage loans not subject to a Yield Maintenance Period,
the related Lockout Period (in either case, a "Prepayment Premium
Period").
S-37
<PAGE>
___ of the mortgage loans, representing approximately _____% of the
Initial Pool Balance, which provide for a Lockout Period extending until
maturity date of the mortgage loan, provide for defeasances, as described in
"--Defeasance; Collateral Substitution" below. ___ of the mortgage loans,
representing approximately _____% of the Initial Pool Balance, specify a period
of time (generally between three and twelve months) immediately prior to the
maturity date of the mortgage loan during which there are no restrictions on
voluntary prepayments. In the case of the remaining __ mortgage loans,
representing approximately ____% of the Initial Pool Balance, those mortgage
loans are locked out until their respective maturity dates [(or with respect to
the APD Mortgage Loans, Anticipated Prepayment Date)]. All mortgage loans
require voluntary prepayments to be made on a Due Date or to be accompanied by
all interest that would be due on the mortgage loan as of the succeeding Due
Date.
The "Yield Maintenance Charge" will generally be equal to the greater of
(A) 1% of the entire unpaid principal balance of the mortgage loan at the time
of prepayment, and (B) the present value as of the date of prepayment and
calculated using the Yield Rate as the discount rate, for each month, of the
difference between (1) the remaining scheduled monthly payments of interest that
would be due on the principal being prepaid at the rate per annum provided for
in the related Mortgage Note from the date of prepayment to the maturity date
and (2) the remaining scheduled monthly payments of interest that would be due
on the principal amount being prepaid at the Yield Rate from the date of
prepayment to the maturity date.
The "Yield Rate" is a rate equal to a per annum rate calculated by the
linear interpolation of the semi-annual 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 prepayment, of the U.S. Treasury constant maturities with maturity
dates (one longer and one shorter) most nearly approximating the maturity date
of the mortgage loan being prepaid (or another comparable calculation based on
the United States Treasury Security set forth in another similar publication),
such rate converted to a monthly equivalent.
The following table summarizes the Lockout Periods, Yield Maintenance
Periods and Prepayment Premium Periods applicable to the mortgage loans:
PREPAYMENT RESTRICTIONS IN EFFECT AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
YIELD PREPAYMENT
MAINTENANCE CHARGES PREMIUMS
---------------------- -----------------------
AND/OR
YIELD
PERCENTAGE MAINTENANCE
AGGREGATE OF CHARGE OR FREELY
ORIGINAL TERM CUT-OFF INITIAL LOCKOUT PREPAYMENT PREPAYABLE
TO MATURITY/ NUMBER DATE POOL PERIOD PREMIUM DURING
APD (MOS.) OF LOANS BALANCE BALANCE (MOS.) DESCRIPTION BEGIN MONTH END MONTH BEGIN MONTH END MONTH LAST (1)
------------- -------- --------- ---------- ------ ----------- ----------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
----------
As used above, "Lockout Period", "Begin Month" and "End Month" are measured in
monthly payments.
As used above, "N/A" means not applicable.
[As used above, "APD" means Anticipated Prepayment Date.]
(1) Number of months prior to maturity date [or Anticipated Prepayment Date,
as applicable].
Prepayment Premiums and Yield Maintenance Charges are distributable as
described in this prospectus supplement under "Description of the
Certificates--Allocation of Prepayment Premiums and Yield Maintenance Charges."
S-38
<PAGE>
Unless a mortgage loan is relatively near its stated maturity date or
unless the sale price or the amount of the refinancing of the related Mortgaged
Property is considerably higher than the current outstanding principal balance
of the mortgage loan (due to an increase in the value of the Mortgaged Property
or otherwise), the Yield Maintenance Charge or Prepayment Premium may, even in a
relatively low interest rate environment, offset entirely or render
insignificant any economic benefit to be received by the borrower upon a
refinancing or sale of the Mortgaged Property. The Yield Maintenance Charge or
Prepayment Premium provision of a mortgage loan creates an economic disincentive
for the borrower to prepay that mortgage loan voluntarily and, accordingly, the
related borrower may elect not to prepay that mortgage loan. However, we cannot
assure you that the imposition of a Yield Maintenance Charge or Prepayment
Premium will provide a sufficient disincentive to prevent a voluntary principal
prepayment.
Certain state laws limit the amounts that a lender may collect from a
borrower as an additional charge in connection with the prepayment of a mortgage
loan. None of the mortgage loans require the payment of Prepayment Premiums or
Yield Maintenance Charges in connection with a prepayment of the related
mortgage loan as a result of a total casualty or condemnation. Furthermore, the
enforceability, under the laws of a number of states, of provisions providing
for payments comparable to the Prepayment Premiums and/or Yield Maintenance
Charges upon an involuntary prepayment is unclear. We cannot assure you that, at
the time a Prepayment Premium or a Yield Maintenance Charge is required to be
made on a mortgage loan in connection with an involuntary prepayment, the
obligation to pay the Prepayment Premium or Yield Maintenance Charge will be
enforceable under applicable state law. See "Certain Legal Aspects of Mortgage
Loans--Default Interest and Limitations on Prepayments" in the prospectus.
The following table sets forth for each month indicated in the table, (1)
the aggregate unpaid principal balance and the percentage of the Initial Pool
Balance expected to be outstanding and (2) the percentage of those amounts
subject to a Lockout Period, Yield Maintenance Charge or Prepayment Premium, in
each case assuming no prepayments, defaults or extensions and based also upon
the assumptions set forth preceding the tables appearing under "Yield and
Maturity Considerations--Weighted Average Life" in this prospectus supplement.
S-39
<PAGE>
PERCENTAGE OF REMAINING POOL BALANCE SUBJECT TO PREPAYMENT RESTRICTIONS
(DOLLAR AMOUNTS EXPRESSED IN MILLIONS)
<TABLE>
<CAPTION>
IPB OUTSTANDING
-----------------------------------------------------------------------------------------
INITIAL AMOUNT OF IPB OUTSTANDING LOCKOUT YIELD MAINTENANCE CHARGES
------- --------- --------------- -------------- -------------------------
POOL IPB
DATE BALANCE MATURED AMOUNT % IPB AMOUNT % UPB AMOUNT % UPB
---- ------- ------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
PREPAYMENT RESTRICTIONS
APPLICABLE TO UPB OUTSTANDING ON PREPAYABLE WITHOUT
EACH ANNIVERSARY OF THE CUT-OFF DATE PREMIUM OR CHARGE
------------------------------------------- ------------------
PREPAYMENT PREMIUMS
------------------------------------
DATE AMOUNT % UPB AMOUNT % UPB
---- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
</TABLE>
----------
As used above, "IPB" means Initial Pool Balance.
As used above, "UPB" means aggregate unpaid principal balance of all mortgage
loans.
S-40
<PAGE>
DEFEASANCE; COLLATERAL SUBSTITUTION. The terms of __ of the mortgage
loans, representing approximately ____% of the Initial Pool Balance (the
"Defeasance Loans"), permit the applicable borrower at any time after a
specified period (the "Defeasance Lock-out Period") to obtain a release of a
Mortgaged Property from the lien of the related Mortgage (a "Defeasance
Option"). The Defeasance Lockout Period is generally the lesser of approximately
three years from the date of origination and two years from the Closing Date,
provided no event of default exists. The release is subject to certain
conditions, including, among other conditions, that the borrower:
(a) pays on any Due Date (the "Release Date") (1) all interest
accrued and unpaid on the principal balance of the Note to and including
the Release Date, (2) all other sums, excluding scheduled interest or
principal payments, due under the mortgage loan and all other loan
documents executed in connection with the related mortgage loan, (3) an
amount (the "Collateral Substitution Deposit") that will be sufficient to
purchase direct non-callable United States government securities providing
payments (i) on or prior to, but as close as possible to, all successive
scheduled payment dates from the Release Date to the related maturity
date, [assuming, in the case of each APD Mortgage Loan, that this loan
prepays on the related Anticipated Prepayment Date] and (ii) in amounts at
least equal to the scheduled payments due on those dates under the
mortgage loan or the related defeased amount of the mortgage loan in the
case of a partial defeasance, and (4) any costs and expenses incurred in
connection with the purchase of the U.S. government obligations; and
(b) delivers a security agreement granting the trust fund a first
priority lien on the U.S. government obligations purchased as substitute
collateral and an opinion of counsel to that effect.
The Defeasance Loans secured by more than one Mortgaged Property generally
require that (1) prior to the release of a related Mortgaged Property, a
specified percentage (generally 125%) of the allocated loan amount for the
Mortgaged Property be defeased and (2) that the DSCR with respect to the
remaining Mortgaged Properties after the defeasance be no less than the greater
of (a) the DSCR at origination and (b) the DSCR immediately prior to the
defeasance.
The related borrower or, if that borrower is not required to do so under
the mortgage loan documents, the servicer will be responsible for purchasing the
U.S. government obligations on behalf of the borrower at the borrower's expense.
Any amount in excess of the amount necessary to purchase the U.S. government
obligations will be returned to the borrower. Simultaneously with these actions,
the related Mortgaged Property will be released from the lien of the mortgage
loan and the pledged U.S. government obligations (together with any Mortgaged
Property not released, in the case of a partial defeasance) will be substituted
as the collateral securing the mortgage loan.
In general, a successor borrower established or designated by the related
borrower (or, if that borrower is not required to do so under the mortgage loan
documents, the Servicer) will assume all of the defeased obligations of a
borrower exercising a Defeasance Option under a mortgage loan and the borrower
will be relieved of all of the defeased obligations under the mortgage loan. If
a mortgage loan is partially defeased, the related Mortgage Note will be split
and only the defeased portion of the borrower's obligations will be transferred
to the successor borrower.
Although the collateral substitution provisions related to defeasance are
not intended to be, and do not have the same effect on the Certificateholders
as, a prepayment of the related mortgage loan, a court could interpret these
provisions as being equivalent to an unenforceable Yield Maintenance Charge or
Prepayment Premium. We make no representation as to the enforceability of the
defeasance provisions of any mortgage loan.
"DUE-ON-SALE" AND "DUE-ON-ENCUMBRANCE" PROVISIONS. The mortgage loans
contain "due-on-sale" and "due-on-encumbrance" provisions that in each case,
with limited exceptions, 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 without the consent of the
holder of the Mortgage. However, under the terms of certain of the mortgage
loans, this consent must be granted if certain conditions are met. Certain of
the Mortgaged Properties have been, or may become, subject to additional
financing. See "--General" above. The Special Servicer will be required to
exercise (or waive its right to exercise, provided that a rating agency
confirmation has been obtained with respect to certain mortgage loans) any right
it may have with respect to a mortgage loan
S-41
<PAGE>
containing a "due-on-sale" clause (1) to accelerate the payments on those
mortgage loans, or (2) to withhold its consent to any sale or transfer,
consistent with the Servicing Standards. With respect to a mortgage loan with a
"due-on-encumbrance" clause, the Special Servicer will be required to exercise
(or waive its right to exercise, provided that a rating agency confirmation has
been obtained) any right it may have with respect to a mortgage loan containing
a "due-on-encumbrance" clause (1) to accelerate the payments thereon, or (2) to
withhold its consent to the creation of any additional lien or other
encumbrance, consistent with the Servicing Standards.
Notwithstanding the foregoing, the existence of any additional
indebtedness may increase the difficulty of refinancing the related mortgage
loan at maturity and the possibility that reduced cash flow could result in
deferred maintenance. Also, if the holder of the additional debt has filed for
bankruptcy or been placed in involuntary receivership, foreclosure of the
related mortgage loan could be delayed. See "Certain Legal Aspects of Mortgage
Loans--Due-on-Sale and Due-on-Encumbrance" and "--Subordinate Financing" in the
prospectus.
ADDITIONAL MORTGAGE LOAN INFORMATION
The following tables set forth certain anticipated characteristics of the
mortgage loans. The sum in any column may not equal the indicated total due to
rounding. The descriptions in this prospectus supplement of the mortgage loans
and the Mortgaged Properties are based upon the pool of mortgage loans as it is
expected to be constituted as of the close of business on the Closing Date,
assuming that (1) all scheduled principal and interest payments due on or before
the Cut-off Date will be made, and (2) there will be no principal prepayments on
or before the Cut-off Date. Prior to the issuance of the Certificates, mortgage
loans may be removed from the Mortgage Pool and not sold by the Mortgage Loan
Seller to the Depositor as a result of prepayments, delinquencies, incomplete
documentation or otherwise, if the Depositor or the Mortgage Loan Seller deems
the removal necessary, appropriate or desirable. A limited number of other
mortgage loans may be included in the Mortgage Pool prior to the issuance of the
Certificates, unless including those mortgage loans would materially alter the
characteristics of the Mortgage Pool as described in this prospectus supplement.
We believe that the information set forth in this prospectus supplement will be
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Certificates are issued, although the range of
mortgage rates and maturities as well as other characteristics of the mortgage
loans described in this prospectus supplement may vary.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the offered certificates on or shortly after the Closing Date and
will be filed, together with the Pooling and Servicing Agreement, with the SEC
within fifteen days after the initial issuance of the offered certificates. If
mortgage loans are removed from or added to the pool of mortgage loans as set
forth in the preceding paragraph, the removal or addition will be noted in the
Form 8-K.
S-42
<PAGE>
TYPE OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
CUT-OFF DATE
AGGREGATE PERCENTAGE NUMBER BALANCE PER
NUMBER OF CUT-OFF OF INITIAL OF UNITS OR NUMBER OF MTG.
PROPERTY TYPE PROPERTIES DATE BALANCE POOL BALANCE NRA(1) UNITS OR NRA RATE
------------------ ---------- ------------ ------------ ----------- ------------ ----
<S> <C> <C> <C> <C> <C> <C>
Anchored Retail
Office
Multifamily
Hotel
Industrial
Credit Lease
Parking Garage
Unanchored Retail
TOTAL /WEIGHTED AVERAGE
<CAPTION>
WEIGHTED AVERAGES
----------------------------------------------------------
STATED
REMAINING CUT-OFF LTV
TERM DATE LTV RATIO AT
PROPERTY TYPE (MO.)(2) OCCUPANCY DSCR RATIO MATURITY(2)
------------------ --------- --------- ---- -------- -----------
<S> <C> <C> <C> <C> <C>
Anchored Retail %
Office %
Multifamily %
Hotel %
Industrial %
Credit Lease %
Parking Garage %
Unanchored Retail %
TOTAL /WEIGHTED AVERAGE %
</TABLE>
(1) "NRA" means net rentable area and is applicable with respect to retail,
office and industrial properties.
(2) [Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.]
S-43
<PAGE>
RANGE OF MORTGAGE RATES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
PERCENTAGE ---------------------------------------------------------------
OF STATED
NUMBER AGGREGATE INITIAL REMAINING CUT-OFF
RANGE OF OF LOANS/ CUT-OFF DATE POOL MORTGAGE TERM DATE LTV RATIO AT
MORTGAGE RATES PROPERTIES BALANCE BALANCE RATE (MO.)(1) DSCR LTV RATIO MATURITY[(1)]
-------------- ---------- ------------ ---------- ------- --------- ---- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL/
WEIGHTED
AVERAGE.........
</TABLE>
----------
(1) [Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.]
MORTGAGE LOANS BY STATE(1)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
-----------------------------------------------------------------
STATED
AGGREGATE PERCENTAGE REMAINING CUT-OFF
NUMBER OF CUT-OFF DATE OF INITIAL MORTGAGE TERM DATE LTV RATIO
STATE PROPERTIES BALANCE POOL BALANCE RATE [MO.][(2)] DSCR LTV RATIO AT MATURITY[(2)]
--------------- ---------- ------------ ------------ -------- ---------- ---- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL/
WEIGHTED
AVERAGE......
</TABLE>
----------
(1) Because this table is presented at the Mortgaged Property level, weighted
averages are based on allocated loan amounts (allocated by either the
amount allocated in the related Mortgage Note or the appraised value for
the Mortgaged Property) for mortgage loans secured by more than one
Mortgaged Property and may therefore deviate slightly from weighted
averages presented at the mortgage loan level in other tables in this
prospectus supplement.
(2) [Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.]
S-44
<PAGE>
RANGE OF REMAINING TERMS IN MONTHS
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
----------------------------------------------------------
STATED
RANGE OF NUMBER OF AGGREGATE PERCENTAGE REMAINING CUT-OFF
REMAINING LOANS/ CUT-OFF DATE OF INITIAL MORTGAGE TERM DATE LTV RATIO AT
TERMS(1) PROPERTIES BALANCE POOL BALANCE RATE (MO.)[(1)] DSCR LTV RATIO MATURITY[(1)]
--------------- ---------- ------------ ------------ -------- ---------- ---- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL/WEIGHTED
AVERAGE
</TABLE>
----------
(1) [Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.]
YEARS OF MATURITY
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
---------------------------------------------------------
PERCENTAGE STATED
NUMBER OF AGGREGATE OF INITIAL REMAINING CUT-OFF LTV RATIO
YEARS OF LOANS/ CUT-OFF DATE POOL MORTGAGE TERM DATE AT
MATURITY(1) PROPERTIES BALANCE BALANCE RATE (MO.)[(1)] DSCR LTV RATIO MATURITY[(1)]
---------------- ---------- ------------ ---------- --------- ---------- ---- --------- -------------
<S> <C> <C> ` <C> <C> <C> <C> <C> <C>
TOTAL/WEIGHTED
AVERAGE
</TABLE>
----------
(1) [Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.]
S-45
<PAGE>
RANGE OF YEARS BUILT[(1)]
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
----------------------------------------------------------
AGGREGATE STATED CUT-OFF
CUT-OFF PERCENTAGE REMAINING DATE
RANGE OF NUMBER OF DATE OF INITIAL MORTGAGE TERM LTV LTV RATIO AT
YEARS BUILT PROPERTIES BALANCE POOL BALANCE RATE (MO.)[(2)] DSCR RATIO MATURITY[(2)]
----------------- ---------- --------- ------------ --------- ---------- ---- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL/WEIGHTED
AVERAGE
</TABLE>
----------
(1) [Because this table is presented at the Mortgaged Property level, weighted
averages are based on allocated loan amounts (allocated by either the
amount allocated in the related Mortgage Note or the appraised value for
the Mortgaged Property) for mortgage loans secured by more than one
Mortgaged Property and may therefore deviate slightly from weighted
averages presented at the mortgage loan level in other tables in this
prospectus supplement.]
(2) [Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.]
TEN LARGEST MORTGAGE LOANS
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
---------------------------------------------------------
AGGREGATE STATED
NUMBER CUT-OFF PERCENTAGE REMAINING CUT-OFF
OF DATE OF INITIAL MORTGAGE TERM DATE LTV RATIO AT
PROPERTY NAME PROPERTIES BALANCE POOL BALANCE RATE (MO.)[(1)] DSCR LTV RATIO MATURITY[(1)]
----------------- ---------- --------- ------------ -------- ---------- ---- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL/WEIGHTED
AVERAGE
</TABLE>
----------
(1) [Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.]
The following table sets forth a range of Debt Service Coverage Ratios for
the mortgage loans as of the Cut-off Date. The "Debt Service Coverage Ratio" or
"DSCR" for any mortgage loan is the ratio of (1) Underwritten Net Cash Flow
produced by the related Mortgaged Property or Mortgaged Properties to (2) the
aggregate amount of the scheduled payments of principal and/or interest (the
"Monthly Payments") due for the 12-month period immediately following the
Cut-off Date, [except with respect to __ mortgage loans (identified as Loan
Numbers ___ and __ on Annex A hereto), representing approximately ____% of the
Initial Pool Balance, where Monthly Payments are interest-only until
approximately ___ months after origination [and __ mortgage loans, representing
approximately __% of the Initial Pool Balance, where Monthly Payments are
interest only until approximately __ years after origination, after which date
those mortgage loans amortize based upon a 25-30-year amortization schedule (for
the purposes of calculating DSCR, the debt service of those mortgage loans will
be assumed to include interest and principal (based on the amortization schedule
that would be in effect after the respective interest-only period)]].
S-46
<PAGE>
RANGE OF DEBT SERVICE COVERAGE RATIOS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
---------------------------------------------------------
NUMBER OF STATED CUT-OFF
LOANS/ AGGREGATE PERCENTAGE REMAINING DATE
RANGE OF PROPERTIES CUT-OFF OF INITIAL MORTGAGE TERM LTV LTV RATIO AT
DSCRS [(1)] DATE BALANCE POOL BALANCE RATE (MO.)[(2)] DSCR RATIO MATURITY[(2)]
----------------- ---------- ------------ ------------ -------- ---------- ---- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL/WEIGHTED
AVERAGE
</TABLE>
----------
[(1) ___ of those mortgage loans, representing approximately _____% of the
Initial Pool Balance, are Credit Lease Loans meeting the guidelines
described under "--Underwriting Standards" below.]
(2) [Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.]
RANGE OF CURRENT OCCUPANCY RATES(1)
<TABLE>
<CAPTION>
WEIGHTED AVERAGES[(2)]
--------------------------------------------------------
AGGREGATE STATED
NUMBER CUT-OFF PERCENTAGE REMAINING CUT-OFF
RANGE OF OF LOANS/ DATE OF INITIAL MORTGAGE TERM DATE LTV RATIO AT
OCCUPANCY RATES(3) PROPERTIES BALANCE POOL BALANCE RATE (MO.)[(4)] DSCR LTV RATIO MATURITY[(4)]
--------------------- ---------- --------- ------------ -------- ---------- ---- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL/WEIGHTED
AVERAGE
</TABLE>
----------
(1) Current occupancy rates have been calculated in this table based upon rent
rolls made available to the Mortgage Loan Seller by the related borrowers
as of the dates set forth on Annex A hereto.
(2) [Because this table is presented at the Mortgaged Property level, weighted
averages are based on allocated loan amounts (allocated by either the
amount allocated in the related Mortgage Note or the appraised value for
that Mortgaged Property) for mortgage loans secured by more than one
Mortgaged Property and may therefore deviate slightly from weighted
averages presented at the mortgage loan level in other tables in this
prospectus supplement.]
(3) Occupancy Rates includes hotel and ___ properties, and range from ___ to
___. If hotel and ___ properties are excluded, the average occupancy would
be ___% and occupancy would range from ___% to ___%.
(4) [Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.]
S-47
<PAGE>
RANGE OF CUT-OFF DATE BALANCES
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
---------------------------------------------------------
NUMBER AGGREGATE PERCENTAGE STATED
RANGE OF OF CUT-OFF OF INITIAL REMAINING CUT-OFF
CUT-OFF DATE LOANS/ DATE POOL MORTGAGE TERM DATE LTV RATIO AT
BALANCES PROPERTIES BALANCE BALANCE RATE (MO.)[(1)] DSCR LTV RATIO MATURITY[(1)]
------------------- ---------- --------- ---------- -------- ---------- ---- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL/WEIGHTED
AVERAGE
</TABLE>
----------
(1) [Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.]
The following two tables set forth the range of LTV Ratios of the mortgage
loans as of the Cut-off Date and the maturity dates [or Anticipated Prepayment
Date of the mortgage loans]. An "LTV Ratio" for any mortgage loan, as of any
date of determination, is a fraction, expressed as a percentage, the numerator
of which is the scheduled principal balance of that mortgage loan as of that
date (assuming no defaults or prepayments on that mortgage loan prior to that
date), and the denominator of which is the appraised value of the related
Mortgaged Property or Mortgaged Properties as determined by an appraisal of the
property obtained in connection with the origination of that mortgage loan. The
LTV Ratio as of the mortgage loan maturity dates [or Anticipated Prepayment
Date], as the case may be, described below was calculated based on the principal
balance of the related mortgage loan on the maturity date [or Anticipated
Prepayment Date], as the case may be, assuming all principal payments required
to be made on or prior to the mortgage loan's maturity date [or Anticipated
Prepayment Date], as the case may be (not including the balloon payment), are
made. In addition, because it is based on the value of a Mortgaged Property
determined as of loan origination, the information set forth in the table below
is not necessarily a reliable measure of the related borrower's current equity
in each Mortgaged Property. In a declining real estate market, the appraised
value of a Mortgaged Property could have decreased from the appraised value
determined at origination and the current actual loan-to-value ratio of a
mortgage loan may be higher than its LTV Ratio at origination even after taking
into account amortization since origination.
RANGE OF LTV RATIOS AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
--------------------------------------------------------
STATED
NUMBER OF AGGREGATE PERCENTAGE REMAINING CUT-OFF
RANGE OF LOANS/ CUT-OFF OF INITIAL MORTGAGE TERM DATE LTV RATIO AT
LTV RATIOS PROPERTIES DATE BALANCE POOL BALANCE RATE (MO.)[(1)] DSCR LTV RATIO MATURITY[(1)]
----------------- ---------- ------------ ------------ -------- ---------- ---- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL/WEIGHTED
AVERAGE
</TABLE>
----------
(1) [Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.]
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<PAGE>
RANGE OF LTV RATIOS AS OF MORTGAGE LOAN MATURITY DATES
<TABLE>
<CAPTION>
WEIGHTED AVERAGES
---------------------------------------------------------
STATED
NUMBER OF AGGREGATE PERCENTAGE REMAINING CUT-OFF
RANGE OF MATURITY LOANS/ CUT-OFF OF INITIAL MORTGAGE TERM DATE LTV RATIO AT
LTV RATIOS PROPERTIES DATE BALANCE POOL BALANCE RATE (MO.)[(1)] DSCR LTV RATIO MATURITY[(1)]
----------------- ---------- ------------ ------------ -------- ---------- ---- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL/WEIGHTED
AVERAGE
</TABLE>
----------
(1) [Calculated with respect to the Anticipated Prepayment Date for the APD
Mortgage Loans.]
The foregoing characteristics, along with certain additional
characteristics of the mortgage loans presented on a loan-by-loan basis, are set
forth in Annex A to this prospectus supplement. Certain additional information
regarding the mortgage loans is set forth in this prospectus supplement below
under "--Underwriting Standards" and "--Representations and Warranties;
Repurchases" and in the prospectus under "Description of the Trust
Funds--Mortgage Loans" and "Certain Legal Aspects of Mortgage Loans."
UNDERWRITTEN NET CASH FLOW
The "Underwritten Net Cash Flow" for a Mortgaged Property is the estimated
annual revenue derived from the use and operation of the Mortgaged Property less
estimated annual expenses, including operating expenses (such as utilities,
administrative expenses, repairs and maintenance, management fees and
advertising), fixed expenses (such as insurance and real estate taxes) and any
applicable reserves. In calculating Underwritten Net Cash Flow, certain
non-operating items such as depreciation, amortization, partnership
distributions, financing fees and capital expenditures other than applicable
reserves, are not included as expenses.
REVENUE. In determining potential gross revenue for each Mortgaged
Property, the Mortgage Loan Seller generally annualized the potential rent as
presented in the latest available rent roll or used the potential gross revenue
received over a consecutive 12-month period or used annualized operating
statements for 200_. In determining other income for each Mortgaged Property,
the Mortgage Loan Seller generally relied on historical operating statements for
200_ or, if available and more recent, the other income received over a
consecutive 12-month period ("Rolling 12 Months"). Operating statements were
generally certified but unaudited.
VACANCY. In determining the vacancy allowance for each Mortgaged Property
(other than a Mortgaged Property improved by a hotel), the Mortgage Loan Seller
generally used (a), the greatest of (1) the actual or Rolling 12 Months vacancy
rate, (2) the vacancy rate in the related sub-market, and (3) a 5% vacancy rate
or (b), with respect to Mortgaged Properties Secured by hotels, a 20% vacancy
rate.
EXPENSES. In determining expenses for each Mortgaged Property, the
Mortgage Loan Seller relied on either historical operating statements for
calendar 200_ or the Rolling 12 Months. In all cases where historical operating
statements did not, in the opinion of the underwriter, reflect the true
stabilized level of an expense, other data such as prior year expense levels or
comparable property expenses were considered. Property management fees were
generally assumed to be the greater of (a) market rates, and (b) between [_% and
_%] (on a loan-by-loan basis) of effective gross revenue. As used in this
prospectus supplement, "effective gross revenue" means underwritten rental and
other income with respect to the related Mortgaged Property.
REPLACEMENT RESERVES. Replacement reserves were calculated in accordance
with the expected useful life of the components of the related Mortgaged
Property during the term of the mortgage loan. The useful life and cost of
replacements were based upon estimates provided by licensed engineers pursuant
to building condition reports completed for each Mortgaged Property, generally
subject to certain minimum underwritten replacement reserves which are described
under "--Underwriting Standards--Escrow Requirements" below.
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ASSESSMENTS OF PROPERTY CONDITION
PROPERTY INSPECTION. All of the Mortgaged Properties were inspected or
caused to be inspected during the underwriting process by the Mortgage Loan
Seller's professional staff or an agent of the Mortgage Loan Seller to assess
the Mortgaged Property's general condition. No inspection revealed any patent
structural deficiency or any deferred maintenance considered material and
adverse to the interest of the holders of the offered certificates or for which
adequate reserves have not been established.
APPRAISALS. All of the Mortgaged Properties were appraised in connection
with the origination of the related mortgage loans. All of these appraisals,
other than with respect to __ mortgage loans, representing approximately ____%
of the Initial Pool Balance, purported to be in compliance with the Code of
Professional Ethics and Standards of Professional Conduct of the Appraisal
Institute and the Uniform Standards of Professional Appraisal Practice as
adopted by the Appraisal Standards Board of the Appraisal Foundation and
accepted and incorporated into the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, as amended ("FIRREA").
The purpose of each appraisal was to provide an opinion as to the market
value of the related Mortgaged Property. We cannot assure you that another
appraiser would have arrived at the same opinion of market value.
ENVIRONMENTAL REPORTS. A "Phase I" environmental site assessment was
performed with respect to each Mortgaged Property. See "--Representations and
Warranties; Repurchases and Substitutions" below.
BUILDING CONDITION REPORTS. In connection with the origination of each
mortgage loan, a licensed engineer or consultant inspected each related
Mortgaged Property to assess the condition of the structure, exterior walls,
roofing, interior structure and mechanical and electrical systems. The resulting
reports indicated deferred maintenance items on certain Mortgaged Properties and
recommended certain capital improvements for which escrows were generally
established at origination. In addition, the building condition reports provided
a projection of necessary replacements and repair of structural and mechanical
systems over the life of the related mortgage loans.
THE MORTGAGE LOAN SELLER
The Mortgage Loan Seller is [General Electric Capital Corporation]
("GECC") [or an affiliate]. [GECC is the direct parent of the Depositor [and, an
affiliate of _______, the _______]. See "The Depositor" in the prospectus. [All
of the mortgage loans were originated by the Mortgage Loan Seller, generally in
accordance with the underwriting criteria described below.]
The information set forth in this prospectus supplement concerning the
Mortgage Loan Seller and its underwriting standards has been provided by the
Mortgage Loan Seller, and we make no representation or warranty as to the
accuracy or completeness of that information.
UNDERWRITING STANDARDS
General. Through its GE Capital Real Estate division, GECC has been
lending and investing in the commercial real estate industry for over 25 years
and has a portfolio of approximately $17 billion of assets. GE Capital Real
Estate originates commercial mortgage loans through approximately 20 offices
located throughout North America.
Loan Analysis. In general, all GECC credit underwriting is performed by
GECC employees. GECC performs both a credit analysis and a collateral analysis
with respect to each loan. The credit analysis of the borrower includes a review
of historical financial statements, including operating statements and rent
rolls (generally unaudited), historical tax returns, third party credit reports,
judgment, lien, bankruptcy and pending litigation searches and, if applicable,
the loan payment history of the borrower. Historical cashflow verification is
performed in most cases by staff of a "big five" accounting firm and reviewed by
GECC underwriting staff. GECC also performs a qualitative analysis which
generally incorporates independent credit checks, periodical searches, industry
research and published debt and equity information with respect to certain
principals of the borrower as well as the borrower itself. Generally, borrowers
are required to be single-purpose entities. The collateral analysis generally
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includes an analysis of the historical property operating statements, rent rolls
and a projection of future performance and a review of tenant leases. A member
of the loan underwriting team also conducts a site inspection to confirm the
occupancy rate of the Mortgaged Property, analyze the market and assess the
utility of the Mortgaged Property within the market. GECC requires third party
appraisals, as well as environmental reports, building condition reports and
seismic reports, if applicable. Each report is reviewed for acceptability by a
GECC staff member for compliance with program standards and the staff member
approves or rejects the report. The results of these reviews are incorporated
into the credit request.
[Credit Lease Loans. With respect to a Credit Lease Loan, GECC requires
that each Credit Lease have a primary lease term that expires on or after the
maturity date of the related Credit Lease Loan and be a "Bondable Lease." A
Bondable Lease generally means that the related Tenant has no Casualty or
Condemnation Rights, Maintenance Rights, or Additional Rights. Should a Credit
Lease not be a Bondable Lease, GECC requires the borrower to either obtain an
insurance policy or surety bond issued by a highly-rated entity or establish
reserves to cover any lease termination or rent abatement events.]
Loan Approval. Prior to commitment, all mortgage loans must be approved by
GE Capital Real Estate's credit committee (the make-up of which varies by loan
size) in accordance with its credit policies. The credit committee may approve a
mortgage loan as recommended, modify the loan terms or decline a loan
transaction.
Debt Service Coverage Ratio and LTV Ratio. GECC's underwriting standards
generally require the following minimum debt service coverage ratios for each of
the indicated property types:
PROPERTY TYPE DSCR GUIDELINE LTV RATIO GUIDELINE
----------------------------- -------------- -------------------
Multifamily.................. 1.20x 80%
Anchored Retail.............. 1.25x 75-80%
Unanchored Retail............ 1.25x 75%
Office....................... 1.25x 75%
Industrial/Warehouse......... 1.25x 75%
Hotel........................ 1.40x 70%
Self Storage................. 1.30x 75%
The debt service coverage ratio guidelines listed above are calculated
based on Underwritten Net Cash Flow. In addition, GECC's underwriting guidelines
generally permit a maximum amortization period of 30 years. However,
notwithstanding the foregoing, in certain circumstances the actual debt service
coverage ratios and loan-to-value ratios for the mortgage loans originated by
GECC may vary from these guidelines. See "Description of the Mortgage Pool" in
this prospectus supplement and Annex A to this prospectus supplement.
Escrow Requirements. Except with respect to certain loans or where tenants
are required in their leases to pay for the covered expenses, GECC generally
requires borrowers to fund various escrows for taxes and insurance, capital
expenses and/or replacement reserves. In some cases, the borrower is permitted
to post a letter of credit in lieu of funding a given reserve or escrow.
Generally, the required escrows for mortgage loans originated by GECC are as
follows:
o Taxes - Typically an initial deposit and monthly escrow deposits
equal to 1/12th of the annual property taxes (based on the most
recent property assessment and the current mileage rate) are
required to provide GECC with sufficient funds to satisfy all taxes
and assessments at least one month prior to their respective due
dates.
o Insurance - If the property is insured under an individual policy
(i.e., the property is not covered by a blanket policy), typically
an initial deposit and monthly escrow deposits equal to 1/12th of
the annual property insurance premium are required to provide GECC
with sufficient funds to pay all insurance premiums at least one
month prior to their respective due dates. If the property is
covered by a blanket policy of insurance, GECC generally reserves
the right in the mortgage to require a separate insurance policy and
insurance escrows.
o Replacement Reserves - Replacement reserves are calculated in
accordance with the expected useful life of the components of the
property during the term of the mortgage loan.
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<PAGE>
Notwithstanding the actual level of escrowed reserves, the following
minimum replacement reserve levels were generally assumed by GECC in determining
Underwritten Net Cash Flow:
Multifamily................. $250 per unit
Retail...................... $0.15 per square foot
Office...................... $0.20 per square foot
Industrial/Warehouse........ $0.10-0.15 per square
foot
Hotel....................... 4-5% of total income
Self Storage................ $25 per unit
o Completion Repair/Environmental Remediation - Typically, a
completion repair or remediation reserve is required if a material
item is identified in the property condition or environmental
report. An initial deposit, upon funding of the mortgage loan
generally in an amount equal to at least 125% of the estimated costs
of repairs or replacements to be completed within the first year of
the mortgage loan pursuant to the building condition report is
generally required.
o Re-tenanting- In most cases, major tenants and a significant number
of smaller tenants have lease expirations within the mortgage loan
term. To mitigate this risk, reserves for loans secured by
commercial properties are (in some cases) required to be funded
either at closing of the mortgage loan and/or during the mortgage
loan term to cover certain anticipated leasing commissions or tenant
improvement costs which might be associated with releasing the space
occupied by the tenants.]
REPRESENTATIONS AND WARRANTIES; REPURCHASES AND SUBSTITUTIONS
In each Purchase Agreement, the applicable Mortgage Loan Seller will
represent and warrant with respect to each mortgage loan (subject to certain
exceptions specified in the related Purchase Agreement) sold by the Mortgage
Loan Seller, as of the Closing Date, or as of another date specifically provided
in the representation and warranty, among other things, that:
(a) the information set forth in the schedule of mortgage
loans attached to the applicable Purchase Agreement (which contains
certain of the information set forth in Annex A) is true and correct
in all material respects as of the Cut-off Date;
(b) as of the date of its origination, the mortgage loan
complied in all material respects with, or was exempt from, all
requirements of federal, state or local law relating to the
origination and servicing of the mortgage loan;
(c) immediately prior to the sale, transfer and assignment to
the Depositor, the applicable Mortgage Loan Seller had good title
to, and was the sole owner of, each mortgage loan, and is
transferring the mortgage loan free and clear of any and all liens,
pledges, charges or security interests of any nature encumbering the
mortgage loan;
(d) the proceeds of the mortgage loan have been fully
disbursed and there is no requirement for future advances
thereunder;
(e) each of the related Mortgage Note, related Mortgage,
related assignment of leases, if any, and other agreements executed
in connection with the mortgage loan are the legal, valid and
binding obligations of the related mortgagor (subject to any
nonrecourse provisions therein and any state anti-deficiency
legislation), enforceable in accordance with their terms, except
with respect to provisions relating to default interest, yield
maintenance charges or prepayment premiums and except as the
enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally, and by general
principles of equity (regardless of whether the enforcement is
considered in a proceeding in equity or at law);
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<PAGE>
(f) as of the date of its origination, there was no valid
offset, defense, counterclaim or right to rescission with respect to
any of the related Mortgage Note, Mortgage(s) or other agreements
executed in connection therewith, and, as of the Cut-off Date, to
the best knowledge of the Mortgage Loan Seller there is no valid
offset, defense, counterclaim or right to rescission with respect to
the Mortgage Note, Mortgage(s) or other agreements;
(g) the assignment of the related Mortgage and assignment of
leases in favor of the Trustee constitutes the legal, valid and
binding assignment of the Mortgage to the Trustee (subject to
customary limitations). Each related Mortgage and assignment of
leases is freely assignable upon notice to the mortgagor;
(h) the related Mortgage is a legal valid and enforceable
first lien on the related Mortgaged Property subject only to the
following title exceptions (each exception, a "Title Exception") (A)
liens for current real property taxes, ground rents, water charges,
sewer rents and assessments not yet due and payable, (B) covenants,
conditions and restrictions, rights of way, easements and other
matters of public record, none of which, individually or in the
aggregate, materially interferes with the current use of the
Mortgaged Property or the security intended to be provided by the
Mortgage or with the borrowers ability to pay its obligations when
they become due or materially and adversely affects the value of the
Mortgaged Property and (C) the exceptions (general and specific) set
forth in the related title insurance policy or appearing of record,
none of which, individually or in the aggregate, materially
interferes with the current use of the Mortgaged Property or the
security intended to be provided by the Mortgage or with the
borrower's ability to pay its obligations when they become due or
materially and adversely affects the value of the Mortgaged Property
and the Mortgaged Property is free and clear of any mechanics' and
materialmen's liens which are prior to or equal with the lien of the
related Mortgage, except those which are insured against by a
lender's title insurance policy as described above;
(i) all taxes and governmental assessments that prior to the
Cut-off Date became due and owing in respect of the related
Mortgaged Property have been paid, or an escrow of funds in an
amount sufficient to cover the payments has been established;
(j) to the applicable Mortgage Loan Seller's knowledge as of
the Cut-off Date, after conducting due diligence consistent with the
practice of institutional lenders generally for properties of the
same type as the related Mortgaged Property, each related Mortgaged
Property was free and clear of any material damage (other than
deferred maintenance for which escrows were established at
origination) that would affect materially and adversely the value of
the Mortgaged Property as security for the mortgage loan and there
was no proceeding pending for the total or partial condemnation of
the Mortgaged Property;
(k) as of the date of its origination, all insurance coverage
required under each related Mortgage, which insurance covered those
risks as were customarily acceptable to prudent commercial and
multifamily mortgage lending institutions lending on the security of
property comparable to the related Mortgaged Property in the
jurisdiction in which the Mortgaged Property is located;
(l) as of the Cut-off Date, the mortgage loan is not, and in
the prior 12 months (or since the date of origination if the
mortgage loan has been originated within the past 12 months), has
not been, 30 days or more past due in respect of any scheduled
payment; and
(m) one or more Phase I environmental site assessments were
performed by an environmental consulting firm independent of the
applicable Mortgage Loan Seller and that Mortgage Loan Seller's
affiliates with respect to each related Mortgaged Property, and the
applicable Mortgage Loan Seller, having made no independent inquiry
other than to review the report(s) prepared in connection with the
assessment(s) referenced herein, has no knowledge and has received
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<PAGE>
no notice of any material and adverse environmental condition or
circumstance affecting the Mortgaged Property that was not disclosed
in those report(s).
If a Mortgage Loan Seller has been notified of a material breach of any of
the foregoing representations and warranties and if the respective Mortgage Loan
Seller cannot cure the breach within a period of 90 days following the earlier
of its receipt of that notice or its discovery of the breach, then the
respective Mortgage Loan Seller will be obligated pursuant to the respective
Purchase Agreement (the relevant rights under which will be assigned, together
with its interests in the mortgage loans, to the Trustee) to (a) repurchase the
affected mortgage loan within the 90-day period at a price (the "Purchase
Price") equal to the sum of (i) the outstanding principal balance of the
mortgage loan as of the date of purchase, (2) all accrued and unpaid interest on
the mortgage loan at the related Mortgage Rate, in effect from time to time, to
but not including the due date in the Due Period of purchase, (3) all related
unreimbursed Servicing Advances plus accrued and unpaid interest on related
Advances at the Reimbursement Rate, and unpaid Special Servicing Fees allocable
to the mortgage loan and (4) all reasonable out-of-pocket expenses reasonably
incurred or to be incurred by the Special Servicer, the Depositor and the
Trustee in respect of the breach giving rise to the repurchase obligation,
including any expenses arising out of the enforcement of the repurchase
obligation or (b) substitute a Qualified Substitute Mortgage Loan and pay any
shortfall amount equal to the difference between the Purchase Price of the
mortgage loan calculated as of the date of substitution and the stated principal
balance of the Qualified Substitute Mortgage Loan as of the date of
substitution; provided, that the applicable Mortgage Loan Seller generally has
an additional 90-day period to cure the breach if it is diligently proceeding
with that cure, and has delivered to the Trustee an officer's certificate that
describes the reasons that a cure was not effected within the first 90-day cure
period and the actions it proposes to take to effect the cure and which states
that it anticipates the cure will be effected within the additional 90-day
period.
A "Qualified Substitute Mortgage Loan" is a mortgage loan which must, on
the date of substitution: (a) have an outstanding principal balance, after
application of all scheduled payments of principal and interest due during or
prior to the month of substitution, not in excess of the outstanding principal
balance of the deleted mortgage loan as of the due date in the calendar month
during which the substitution occurs; (b) have a Mortgage Rate not less than the
Mortgage Rate of the deleted mortgage loan; (c) have a due date which does not
materially impact the receipt of payments by the Trustee when compared to the
deleted mortgage loan; (d) accrue interest on the same basis as the deleted
mortgage loan (for example, on the basis of a 360-day year consisting of twelve
30-day months); (e) have a remaining term to stated maturity not greater than,
and not more than two years less than, the remaining term to stated maturity of
the deleted mortgage loan; (f) have an original loan-to-value ratio not higher
than that of the deleted mortgage loan and a current loan-to-value ratio not
higher than the then-current loan-to-value ratio of the deleted mortgage loan;
(g) comply in all material respects as of the date of substitution with all of
the representations and warranties set forth in the applicable Purchase
Agreement; (h) have an environmental report with respect to the related
Mortgaged Property which will be delivered as a part of the related mortgage
file; (i) have an original Debt Service Coverage Ratio not less than the
original Debt Service Coverage Ratio of the deleted mortgage loan; (j) be
determined by an opinion of counsel to be a "qualified replacement mortgage"
within the meaning of Section 860G(a)(4) of the Code; (k) not have a maturity
date after the date two years prior to the Rated Final Distribution Date; (l)
not be substituted for a deleted mortgage loan unless the Trustee has received
prior confirmation in writing by each of the Rating Agencies that the
substitution will not result in the withdrawal, downgrade, or qualification of
the then current rating assigned by any of the Rating Agencies to any class of
Certificates then rated by such Rating Agency, (the cost, if any, of obtaining
the confirmation to be paid by the applicable Mortgage Loan Seller); (m) have a
date of origination that is not more than 12 months prior to the date of
substitution; and (n) not be substituted for a deleted mortgage loan if it would
result in the termination of the REMIC status of either REMIC or the imposition
of tax on either REMIC other than a tax on income expressly permitted or
contemplated to be received by the terms of the Pooling and Servicing Agreement.
In the event that one or more mortgage loans are substituted for one or more
deleted mortgage loans simultaneously, then the amounts described in clause (a)
are required to be determined on the basis of aggregate principal balances and
the rates described in clause (b) above and the remaining term to stated
maturity referred to in clause (e) above are required to be determined on a
weighted average basis. When a Qualified Substitute Mortgage Loan is substituted
for a deleted mortgage loan, the applicable Mortgage Loan Seller will be
required to certify that the mortgage loan meets all of the requirements of the
above definition and send the certification to the Trustee.
The foregoing repurchase or substitution obligation will constitute the
sole remedy available to the Certificateholders and the Trustee for any breach
of any Mortgage Loan Seller's representations and warranties
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regarding the mortgage loans. The respective Mortgage Loan Seller will be the
sole warranting party in respect of the mortgage loans sold by that Mortgage
Loan Seller to the Depositor, and none of the Depositor, the Servicer, the
Special Servicer, the Trustee, the Underwriters or any of their affiliates
(other than the respective Mortgage Loan Seller) will be obligated to repurchase
any affected mortgage loan in connection with a breach of the Mortgage Loan
Sellers representations and warranties if the Mortgage Loan Seller defaults on
its obligation to do so. However, the Depositor will not include any mortgage
loan in the pool of mortgage loans if anything has come to the Depositor's
attention prior to the Closing Date that causes it to believe that the
representations and warranties made by a Mortgage Loan Seller regarding the
mortgage loan will not be correct in all material respects when made. See
"Description of the Pooling Agreements--Representations and Warranties;
Repurchases" in the prospectus.
MORTGAGED PROPERTY ACCOUNTS
LOCK BOX ACCOUNTS. With respect to ____ mortgage loans representing
approximately _____% of the Initial Pool Balance (the "Lock Box Loans"), one or
more accounts (collectively, the "Lock Box Accounts") have been or may be
established into which the related property manager and/or tenants directly
deposits rents or other revenues from the Mortgaged Property. Pursuant to the
terms of __ of the Lock Box Loans, representing approximately _____% of the
Initial Pool Balance, the related Lock Box Accounts were required to be
established on the origination dates of those mortgage loans. The terms of __
Lock Box Loans, representing approximately ____% of the Initial Pool Balance,
provide for the establishment of a Lock Box Account upon the occurrence and
continuation of certain events, generally relating to the failure of certain
major tenants to renew or extend their respective leases, or the failure of the
related borrower to lease those premises to new tenants acceptable to the
lender. [Additionally, the _____________ Loan provides that a Lock Box Account
must be established upon the occurrence of a [sweep event] as described under
"--Significant Mortgage Loans--The _____________ Loan--Cash Management Account;
Reserve Accounts" above]. The agreements which govern the Lock Box Accounts
provide that the borrower has no withdrawal or transfer rights with respect
thereto and that all funds on deposit in the Lock Box Accounts are periodically
swept into the Cash Collateral Accounts. The Lock Box Accounts will not be
assets of either REMIC.
CASH COLLATERAL ACCOUNTS. Each Lock Box Loan has or may have one or more
accounts established in the name of the Servicer (the "Cash Collateral
Accounts") into which funds in the related Lock Box Accounts will be swept on a
regular basis. Each Cash Collateral Account will have sub-accounts (the "Reserve
Accounts") relating to taxes, insurance, replacement reserves and similar items.
Any excess over the amount necessary to fund the Monthly Payment with respect to
a Lock Box Loan, the Reserve Accounts and any other amounts due under the Lock
Box Loan, will be returned to the related borrower, provided that no event of
default has occurred and is continuing with respect to the Lock Box Loan. The
Cash Collateral Accounts will not be assets of either REMIC.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to a pooling and servicing
agreement, dated as of the Cut Off Date, among the Depositor, the Servicer, the
Special Servicer and the Trustee (the "Pooling and Servicing Agreement") and
will represent in the aggregate the entire beneficial ownership interest in the
trust fund consisting of: (1) the mortgage loans and all payments under and
proceeds of the mortgage loans received after the Cut-off Date (exclusive of
payments of principal and interest due on or before the Cut-off Date); (2) any
REO Property; (3) those funds or assets as from time to time are deposited in
the Certificate Account, the Distribution Accounts, the Interest Reserve Account
[, the Excess Interest Distribution Account] and the REO Account, if
established; (4) the rights of the mortgagee under all insurance policies with
respect to the mortgage loans; [(5) the interest rate cap agreements purchased
in connection with each floating rate mortgage loan;] and (6) certain rights of
the Depositor under the Purchase Agreement relating to mortgage loan document
delivery requirements and the representations and warranties of the Mortgage
Loan Seller regarding the mortgage loans.
The Depositor's Commercial Mortgage Pass-Through Certificates, Series
200_-_ (the "Certificates") will consist of the following [____] classes: the
Class A-1, and Class A-2 Certificates (collectively, the "Class A
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Certificates"), the [Class X,][Class PO,] Class B, [Class C, Class D, Class E,
Class F, Class G, Class H, Class I, Class J] and Class R and Class LR
Certificates. The Class A Certificates [the Class X and the Class PO
Certificates] are referred to collectively in this prospectus supplement as the
"Senior Certificates." The [Class B, Class C, Class D, Class E, Class F, Class
G, Class H, Class I and Class J] Certificates are referred to collectively in
this prospectus supplement as the "Subordinate Certificates." The [Class B,
Class C, Class D and Class E] Certificates are referred to collectively in this
prospectus supplement as the "Subordinate Offered Certificates." The Class R and
Class LR Certificates are referred to collectively in this prospectus supplement
as the "Residual Certificates."
Only the [Class A, Class X, Class B, Class C, Class D and Class E]
Certificates are offered hereby (collectively, the "Offered Certificates"). The
[Class F, Class G, Class H, Class I, Class J] and Class R and Class LR
Certificates (collectively, the "Non-Offered Certificates") have not been
registered under the Securities Act of 1933 and are not offered hereby.
The "Certificate Balance" of any class of Certificates (other than the
[Class X and] Residual Certificates) outstanding at any time represents the
maximum amount which its holders are entitled to receive as distributions
allocable to principal from the cash flow on the mortgage loans and the other
assets in the trust fund. On each distribution date, the Certificate Balance of
each class of Certificates will be reduced by any distributions of principal
actually made on, and any Collateral Support Deficit actually allocated to, that
class of Certificates on that distribution date. The initial Certificate Balance
of each class of Offered Certificates [(other than the Class X Certificates)] is
expected to be the balance set forth on the cover of this prospectus supplement.
[The Class X Certificates will not have a Certificate Balance or entitle their
holders to distributions of principal.]
[The Class X Certificates will, however, represent the right to receive
distributions of interest accrued as described in this prospectus supplement on
a notional amount (the "Notional Amount"). The Notional Amount of the Class X
Certificates will be equal to the aggregate Stated Principal Balance of the
mortgage loans as of the preceding distribution date (after giving effect to the
distribution of principal on that distribution date) or, prior to the first
distribution date, the Cut-off Date. The Notional Amount of the Class X
Certificates is used solely for purposes of describing the amounts of interest
payable on the Class X Certificates and does not represent an interest in
principal payments on the mortgage loans.] The [Class F, Class G, Class H, Class
I and Class J] Certificates will have an aggregate initial Certificate Balance
of approximately $___________________. The Class R and Class LR Certificates
will not have Certificate Balances.
The Offered Certificates will be maintained and transferred in book-entry
form and issued in denominations of $[ ] initial Certificate Balance, [or in the
case of the Class X Certificates, $[ ] initial Notional Amount, and integral
multiples of $1,000 in excess of that amount.] The "Percentage Interest"
evidenced by any Certificate (other than the Residual Certificates) is equal to
its initial denomination as of the Closing Date, divided by the initial
Certificate Balance or Notional Amount of the class to which it belongs.
The 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 The Depository Trust Company ("DTC") that DTC's nominee
will be Cede & Co. No person acquiring an interest in the Offered Certificates
(this person, a "Certificate Owner") will be entitled to receive an Offered
Certificate in fully registered, certificated form (a "Definitive Certificate")
representing its interest in that class, except as set forth under "--Book-Entry
Registration and Definitive Certificates" below. Unless and until Definitive
Certificates are issued, all references to actions by holders of the Offered
Certificates will refer to actions taken by DTC upon instructions received from
Certificate Owners through its participating organizations (together with
Clearstream Banking, societe anonyme ("Clearstream Banking") and the Euroclear
System ("Euroclear") participating organizations, the "Participants"), and all
references in this prospectus supplement 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 Certificate Owners through its
Participants in accordance with DTC procedures. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates" in the
prospectus.
Until Definitive Certificates are issued, interests in any class of
Offered Certificates will be transferred on the book-entry records of DTC and
its Participants.
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PAYING AGENT, CERTIFICATE REGISTRAR AND AUTHENTICATING AGENT
[___] will be appointed by the Trustee as paying agent (in that capacity,
the "Paying Agent"). In addition, [_____] will initially serve as registrar (in
that capacity, the "Certificate Registrar") for purposes of recording and
otherwise providing for the registration of the Offered Certificates and of
transfers and exchanges of the Definitive Certificates, if issued, and as
authenticating agent of the Certificates (in that capacity, the "Authenticating
Agent").
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
GENERAL. Certificate Owners may hold their Certificates through DTC (in
the United States) or Clearstream Banking or Euroclear (in Europe) if they are
Participants of that system, or indirectly through organizations that are
Participants in those systems. Clearstream Banking and Euroclear will hold
omnibus positions on behalf of the Clearstream Banking Participants and the
Euroclear Participants, respectively, through customers' securities accounts in
Clearstream Banking's and Euroclear's names on the books of their respective
depositories (collectively, the "Depositories") which in turn will hold those
positions in customers' securities accounts in the Depositories' names on the
books of DTC. DTC is a limited purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to Section 17A of the Securities Exchange Act of
1934, as amended. DTC was created to hold securities for its Participants and to
facilitate the clearance and settlement of securities transactions between
Participants through electronic computerized book-entries, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between Clearstream Banking Participants and Euroclear
Participants will occur in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly through Clearstream Banking
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depository; however, these cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in that system in accordance with its rules and
procedures. If the transaction complies with all relevant requirements,
Euroclear or Clearstream Banking, as the case may be, will then deliver
instructions to the Depository to take action to effect final settlement on its
behalf.
Because of time-zone differences, credits of securities in Clearstream
Banking or Euroclear as a result of a transaction with a DTC Participant will be
made during the subsequent securities settlement processing, dated the business
day following the DTC settlement date, and those credits or any transactions in
those securities settled during that processing will be reported to the relevant
Clearstream Banking Participant or Euroclear Participant on that business day.
Cash received in Clearstream Banking or Euroclear as a result of sales of
securities by or through a Clearstream Banking Participant or a Euroclear
Participant to a DTC Participant will be received with value on the DTC
settlement date but will be available in the relevant Clearstream Banking or
Euroclear cash account only as of the business day following settlement in DTC.
Certificate Owners that are not Direct or Indirect Participants but desire
to purchase, sell or otherwise transfer ownership of, or other interests in, the
Offered Certificates may do so only through Direct and Indirect Participants. In
addition, Certificate Owners will receive all distributions of principal of and
interest on the Offered Certificates from the Paying Agent through DTC and its
Direct and Indirect Participants. Accordingly, Certificate Owners may experience
delays in their receipt of payments, since those payments will be forwarded by
the Paying Agent to Cede & Co., as nominee of DTC. DTC will forward those
payments to its Participants, which thereafter will forward them to Indirect
Participants or beneficial owners of Offered Certificates. Except as otherwise
provided under "--Reports to Certificateholders; Certain Available Information"
below, Certificate Owners will not be recognized by the Paying Agent, the
Certificate Registrar, the Trustee, the Special Servicer or the Servicer as
holders of record of Certificates, and Certificate Owners will be permitted to
receive information furnished to
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Certificateholders and to exercise the rights of Certificateholders only
indirectly through DTC and its Direct and Indirect Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
the Offered Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, the Offered Certificates. Direct
and Indirect Participants with which Certificate Owners have accounts with
respect to the Offered Certificates similarly are required to make book-entry
transfers and receive and transmit those distributions on behalf of their
respective Certificate Owners. Accordingly, although Certificate Owners will not
possess physical certificates evidencing their interests in the Offered
Certificates, the Rules provide a mechanism by which Certificate Owners, through
their Direct and Indirect Participants, will receive distributions and will be
able to transfer their interests in the Offered Certificates.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of
Certificateholders to pledge those Certificates to persons or entities that do
not participate in the DTC system, or to otherwise act with respect to those
Certificates, may be limited due to the lack of a physical certificate for those
Certificates.
DTC has advised the Depositor that it will take any action permitted to be
taken by a holder of an Offered Certificate under the Pooling and Servicing
Agreement only at the direction of one or more Participants to whose accounts
with DTC the Offered Certificates are credited. DTC may take conflicting actions
with respect to other undivided interests to the extent that those actions are
taken on behalf of Participants whose holdings include those undivided
interests.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related operating procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear system, withdrawal of
securities and cash from the Euroclear system, and receipts of payments with
respect to securities in the Euroclear system.
Although DTC, Euroclear and Clearstream Banking have implemented the
foregoing procedures in order to facilitate transfers of interests in global
Certificates among Participants of DTC, Euroclear and Clearstream Banking, they
are under no obligation to perform or to continue to comply with the foregoing
procedures, and those procedures may be discontinued at any time.
None of the Depositor, the Servicer, the Paying Agent, the Certificate
Registrar, the Underwriter, the Special Servicer or the Trustee will have any
liability for any actions taken by DTC, Euroclear or Clearstream Banking, their
respective Direct or Indirect Participants or their nominees, including, without
limitation, actions for any aspect of the records relating to or payments made
on account of beneficial ownership interests in the Offered Certificates held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to that beneficial ownership interest. The information in this
prospectus supplement concerning DTC, Clearstream Banking and Euroclear and
their book-entry systems has been obtained from sources believed to be reliable,
but the Depositor takes no responsibility for the accuracy or completeness of
that information.
DEFINITIVE CERTIFICATES. Definitive Certificates will be issued to
Certificate Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the prospectus under
"Description of the Certificates--Book-Entry Registration and Definitive
Certificates."
Upon the occurrence of an event described in the prospectus in the last
paragraph under "Description of the Certificates--Book-Entry Registration and
Definitive Certificates," the Paying Agent is required to notify, through DTC,
Direct Participants who have ownership of Offered Certificates as indicated on
the records of DTC of the availability of Definitive Certificates. Upon
surrender by DTC of the definitive certificates representing the Offered
Certificates and upon receipt of instructions from DTC for re-registration, the
Certificate Registrar and the Authenticating Agent will reissue the Offered
Certificates as Definitive Certificates issued in the respective Certificate
Balances or Notional Amounts, as applicable, owned by individual Certificate
Owners, and thereafter the Paying Agent, the Certificate Registrar, the Trustee,
the Special Servicer and the Servicer will recognize the holders of those
Definitive Certificates as Certificateholders under the Pooling and Servicing
Agreement.
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For additional information regarding DTC and Certificates maintained on
the book-entry records of DTC, see "Description of the Certificates--Book-Entry
Registration and Definitive Certificates" in the prospectus.
DISTRIBUTIONS
METHOD, TIMING AND AMOUNT. Distributions on the Certificates are required
to be made by the Paying Agent, to the extent of available funds, on the ____
day of each month or, if that ____ day is not a business day, then on the next
succeeding business day, commencing in _________ 200_ (each, a "Distribution
Date"). All these distributions (other than the final distribution on any
Certificate) are required to be made to the Certificateholders in whose names
the Certificates are registered at the close of business on each Record Date.
With respect to any Distribution Date, the "Record Date" will be the last
business day of the month preceding the month in which that Distribution Date
occurs. These distributions are required to 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, if that Certificateholder
has provided the Paying Agent and Trustee with written wiring instructions no
less than five business days prior to the related Record Date (which wiring
instructions may be in the form of a standing order applicable to all subsequent
distributions) and is the registered owner of Certificates with an aggregate
initial Certificate Balance or Notional Amount, as the case may be, of at least
$5,000,000, or otherwise by check mailed to that Certificateholder. The final
distribution on any Certificate is required to be made in like manner, but only
upon presentation and surrender of that Certificate at the location that will be
specified in a notice of the pendency of the final distribution. All
distributions made with respect to a class of Certificates will be allocated pro
rata among the outstanding Certificates of that class based on their respective
Percentage Interests.
The Servicer is required to establish and maintain, or cause to be
established and maintained, one or more accounts (collectively, the "Certificate
Account") as described in the Pooling and Servicing Agreement. The Servicer is
required to deposit in the Certificate Account on a daily basis (and in no event
later than the business day following receipt in available funds) all payments
and collections due after the Cut-off Date and other amounts received or
advanced with respect to the mortgage loans (including, without limitation,
Insurance and Condemnation Proceeds and Liquidation Proceeds), and will be
permitted to make withdrawals therefrom as set forth in the Pooling and
Servicing Agreement.
The Paying Agent is required to establish and maintain an account (the
"Lower-Tier Distribution Account"), and a second account (the "Upper-Tier
Distribution Account" and, together with the Lower-Tier Distribution Account,
the "Distribution Accounts") in the name of the Paying Agent and for the benefit
of the Certificateholders. On each Distribution Date, the Paying Agent is
required to apply amounts on deposit in the Upper-Tier Distribution Account
(which will include all funds that were remitted by the Servicer from the
Certificate Account plus, among other things, any P&I Advances less amounts, if
any, distributable to the Class LR Certificates as set forth in the Pooling and
Servicing Agreement) generally to make distributions of interest and principal
from the Available Distribution Amount to the Certificateholders as described in
this prospectus supplement. Each of the Certificate Account and the Distribution
Accounts will conform to certain eligibility requirements set forth in the
Pooling and Servicing Agreement.
[The Paying Agent is required to establish and maintain an "Interest
Reserve Account" in the name of the Trustee for the benefit of the holders of
the Certificates. On each Servicer Remittance Date occurring in February and on
any Servicer Remittance Date occurring in any January which occurs in a year
that is not a leap year, the Servicer will be required to deposit, in respect of
each of the mortgage loans identified as Loan Numbers ___________ and ____ on
Annex A hereto (collectively, the "Withheld Loans"), an amount equal to one
day's interest at the interest rate for that mortgage loan on its Stated
Principal Balance, as of the Distribution Date in the month preceding the month
in which that Servicer Remittance Date occurs, of that mortgage loan, to the
extent a Monthly Payment or P&I Advance is made in respect of the mortgage loans
(all amounts so deposited in any consecutive January (if applicable) and
February, "Withheld Amounts"). On each Servicer Remittance Date occurring in
March, the Servicer will be required to withdraw from the Interest Reserve
Account an amount equal to the Withheld Amounts from the preceding January (if
applicable) and February, if any, and deposit that amount into the Lower-Tier
Distribution Account. The Servicer is authorized but not required to direct the
investment of funds held in the Certificate Account, Interest Reserve Account
and the Distribution Accounts in Permitted Investments, and the Servicer will be
entitled to retain any interest or other income earned on those funds. The
Servicer will be required to bear any losses resulting from the investment of
those funds.]
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[The Paying Agent is required to establish and maintain an "Excess
Interest Distribution Account" in the name of the Trustee for the benefit of the
Certificateholders. Prior to the applicable Distribution Date, the Servicer is
required to remit to the Paying Agent for deposit into the Excess Interest
Distribution Account an amount equal to the Excess Interest received during the
related Due Period.]
The aggregate amount available for distribution to Certificateholders on
each Distribution Date (the "Available Distribution Amount") will, in general,
equal the sum of the following amounts:
(1) the total amount of all cash received on the mortgage loans and
any REO Properties that is on deposit in the Certificate Account and the
Lower-Tier Distribution Account as of the business day preceding the
related Servicer Remittance Date, exclusive of (without duplication):
(a) all Monthly Payments collected but due on a Due Date
subsequent to the related Due Period;
(b) all principal prepayments, Balloon Payments, Liquidation
Proceeds, Insurance and Condemnation Proceeds and other unscheduled
recoveries received subsequent to the related Due Period;
(c) all amounts in the Certificate Account and Lower-Tier
Distribution Account that are due or reimbursable to any person
other than the Certificateholders;
(d) all Prepayment Premiums and Yield Maintenance Charges;
(e) with respect to each Withheld Loan and any Distribution
Date occurring in each February and in any January occurring in a
year that is not a leap year, the related Withheld Amount to the
extent those funds are on deposit in the Certificate Account or the
Lower-Tier Distribution Account;
(f) [the proceeds, if any, relating to the interest rate cap
agreements.]
(g) [Excess Interest] and
(h) all amounts deposited in the Certificate Account and
Lower-Tier Distribution Account in error;
(2) all P&I Advances made by the Servicer or the Trustee, as
applicable, with respect to that Distribution Date (net of certain amounts
that are due or reimbursable to persons other than the
Certificateholders). See "Description of the Pooling
Agreements--Certificate Account" in the prospectus; and
(3) [for the Distribution Date occurring in each March, the related
Withheld Amounts required to be deposited in the Lower-Tier Distribution
Account pursuant to the Pooling Agreement.]
The "Due Period" for each Distribution Date and each mortgage loan will be
the period commencing on the second day of the month preceding the month in
which that Distribution Date occurs and ending on the first day of the month in
which that Distribution Date occurs [(or, with respect to the mortgage loans
identified on Annex A to this prospectus supplement as Loan Numbers _____ and
____, the period commencing on the eleventh day of the month preceding the month
in which that Distribution Date occurs and ending on the tenth day of the month
in which that Distribution Date occurs)]. Notwithstanding the foregoing, in the
event that the last day of a Due Period is not a business day, any payments
received with respect to the mortgage loans relating to that Due Period on the
business day immediately following that day will be deemed to have been received
during that Due Period and not during any other Due Period. For purposes of the
discussion in the prospectus, the Due Period is also the Prepayment Period (as
defined in the prospectus).
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PRIORITY. On each Distribution Date, for so long as the Certificate
Balances of the Certificates have not been reduced to zero, the Paying Agent is
required to apply amounts on deposit in the Upper-Tier Distribution Account, to
the extent of the Available Distribution Amount, in the following order of
priority:
first, to the Class A-1, Class A-2, [and Class X Certificates], pro
rata (based upon their respective entitlements to interest for that
Distribution Date), in respect of interest, up to an amount equal to the
aggregate Interest Distribution Amount for those classes;
second, (1) to the Class A-1 Certificates, in reduction of its
Certificate Balance, an amount equal to the Principal Distribution Amount
until the Certificate Balance of that class is reduced to zero, (2)
following reduction of the Certificate Balance of the Class A-1
Certificates to zero, to the Class A-2 Certificates, in reduction of its
Certificate Balance, an amount equal to the Principal Distribution Amount
(or the portion of it remaining after distributions on the Class A-1
Certificates on that Distribution Date) until the Certificate Balance of
that class is reduced to zero [and (3) following reduction of the
Certificate Balance of the Class A-2 Certificates to zero, to the Class PO
Certificates, in reduction of its Certificate Balance, an amount equal to
the Principal Distribution Amount (or the portion of it remaining after
distributions on the Class A-2 Certificates on that Distribution Date)
until the Certificate Balance of that class is reduced to zero];
third, to the Class A-1, Class A-2 [and Class PO] Certificates, pro
rata (based upon the aggregate unreimbursed Collateral Support Deficit
allocated to that class), until all amounts of Collateral Support Deficit
previously allocated to those classes, but not previously reimbursed, have
been reimbursed in full;
fourth, to the Class B Certificates, in respect of interest, up to
an amount equal to the Interest Distribution Amount for that class;
fifth, following reduction of the Certificate Balances of the Class
A Certificates to zero, to the Class B Certificates, in reduction of its
Certificate Balance, an amount equal to the Principal Distribution Amount
(or the portion of it remaining after distributions on the Class A
Certificates on that Distribution Date), until the Certificate Balance of
that class is reduced to zero;
sixth, to the Class B Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class B Certificates, but not
previously reimbursed, have been reimbursed in full;
seventh, to the Class C Certificates, in respect of interest, up to
an amount equal to the Interest Distribution Amount for that class;
eighth, following reduction of the Certificate Balances of the Class
A and Class B Certificates to zero, to the Class C Certificates, in
reduction of its Certificate Balance, an amount equal to the Principal
Distribution Amount (or the portion of it remaining after distributions on
the Class A and Class B Certificates on that Distribution Date), until the
Certificate Balance of that class is reduced to zero;
ninth, to the Class C Certificates, until all amounts of Collateral
Support Deficit previously allocated to the Class C Certificates, but not
previously reimbursed, have been reimbursed in full;
tenth, to the Class D Certificates, in respect of interest, up to an
amount equal to the Interest Distribution Amount for that class;
eleventh, following reduction of the Certificate Balances of the
Class A, Class B and Class C Certificates to zero, to the Class D
Certificates, in reduction of its Certificate Balance, an amount equal to
the Principal Distribution Amount (or the portion of it remaining after
distributions on the Class A, Class B and Class C Certificates on that
Distribution Date), until the Certificate Balance of that class is reduced
to zero;
twelfth, to the Class D Certificates, until all amounts of
Collateral Support Deficit previously allocated to the Class D
Certificates, but not previously reimbursed, have been reimbursed in full;
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thirteenth, to the Class E Certificates, in respect of interest, up
to an amount equal to the Interest Distribution Amount for that class;
fourteenth, following reduction of the Certificate Balances of the
Class A, Class B, Class C and Class D Certificates to zero, to the Class E
Certificates, in reduction of its Certificate Balance, an amount equal to
the Principal Distribution Amount (or the portion of it remaining after
distributions on the Class A, Class B, Class C and Class D Certificates on
that Distribution Date), until the Certificate Balance of that class is
reduced to zero;
fifteenth, to the Class E Certificates, until all amounts of
Collateral Support Deficit previously allocated to the Class E
Certificates, but not previously reimbursed, have been reimbursed in full;
sixteenth, to the Class F Certificates, in respect of interest, up
to an amount equal to the Interest Distribution Amount for that class;
seventeenth, following reduction of the Certificate Balances of the
Class A, Class B, Class C, Class D and Class E Certificates to zero, to
the Class F Certificates, in reduction of its Certificate Balance, an
amount equal to the Principal Distribution Amount (or the portion of it
remaining after distributions on the Class A, Class B, Class C, Class D
and Class E Certificates on that Distribution Date), until the Certificate
Balance of that class is reduced to zero;
eighteenth, to the Class F Certificates, until all amounts of
Collateral Support Deficit previously allocated to the Class F
Certificates, but not previously reimbursed, have been reimbursed in full;
nineteenth, to the Class G Certificates, in respect of interest, up
to an amount equal to the Interest Distribution Amount for that class;
twentieth, following reduction of the Certificate Balances of the
Class A, Class B, Class C, Class D, Class E and Class F Certificates to
zero, to the Class G Certificates, in reduction of its Certificate
Balance, an amount equal to the Principal Distribution Amount (or the
portion of it remaining after distributions on the Class A, Class B, Class
C, Class D, Class E and Class F Certificates on that Distribution Date),
until the Certificate Balance of that class is reduced to zero;
twenty-first, to the Class G Certificates, until all amounts of
Collateral Support Deficit previously allocated to the Class G
Certificates, but not previously reimbursed, have been reimbursed in full;
twenty-second, to the Class H Certificates, in respect of interest,
up to an amount equal to the Interest Distribution Amount for that class;
twenty-third, following reduction of the Certificate Balances of the
Class A, Class B, Class C, Class D, Class E, Class F and Class G
Certificates to zero, to the Class H Certificates, in reduction of its
Certificate Balance, an amount equal to the Principal Distribution Amount
(or the portion of it remaining after distributions on the Class A, Class
B, Class C, Class D, Class E, Class F and Class G Certificates on that
Distribution Date), until the Certificate Balance of that class is reduced
to zero;
twenty-fourth, to the Class H Certificates, until all amounts of
Collateral Support Deficit previously allocated to the Class H
Certificates, but not previously reimbursed, have been reimbursed in full;
twenty-fifth, to the Class I Certificates, in respect of interest,
up to an amount equal to the Interest Distribution Amount for that class;
twenty-sixth, following reduction of the Certificate Balances of the
Class A, Class B, Class C, Class D, Class E, Class F, Class G and Class H
Certificates to zero, to the Class I Certificates, in reduction of its
Certificate Balance, an amount equal to the Principal Distribution Amount
(or the portion of it remaining after distributions on the Class A, Class
B, Class C, Class D, Class E, Class F, Class G and Class H Certificates on
that Distribution Date), until the Certificate Balance of that class is
reduced to zero;
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twenty-seventh, to the Class I Certificates, until all amounts of
Collateral Support Deficit previously allocated to the Class I
Certificates, but not previously reimbursed, have been reimbursed in full;
twenty-eighth, to the Class J Certificates, in respect of interest,
up to an amount equal to the Interest Distribution Amount for that class;
twenty-ninth, following reduction of the Certificate Balances of the
Class A, Class B, Class C, Class D, Class E, Class F, Class G, Class H and
Class I Certificates to zero, to the Class J Certificates, in reduction of
its Certificate Balance, an amount equal to the Principal Distribution
Amount (or the portion of it remaining after distributions on the Class A,
Class B, Class C, Class D, Class E, Class F, Class G, Class H and Class I
Certificates on that Distribution Date), until the Certificate Balance of
that class is reduced to zero;
thirtieth, to the Class J Certificates, until all amounts of
Collateral Support Deficit previously allocated to the Class J
Certificates, but not previously reimbursed, have been reimbursed in full;
and
thirty-first, to the Class R Certificates, the amount, if any, of
the Available Distribution Amount remaining in the Upper-Tier Distribution
Account with respect to that Distribution Date.
Reimbursement of previously allocated Collateral Support Deficit will not
constitute distributions of principal for any purpose and will not result in an
additional reduction in the Certificate Balance of the class of Certificates in
respect of which reimbursement is made.
Notwithstanding the distribution priority set forth above, on and after
the Distribution Date on which the Certificate Balances of the Subordinate
Certificates have all been reduced to zero (that date, the "Cross-Over Date"),
the Principal Distribution Amount will be distributed, pro rata (based upon
their respective Certificate Balances), among the classes of Class A
Certificates without regard to the priorities set forth above.
PASS-THROUGH RATES. The Pass-Through Rate applicable to each class of
Offered Certificates [(other than the Class [X][PO] Certificates)] for any
Distribution Date will equal the rate per annum specified on the cover of this
prospectus supplement. Interest will accrue for each class of Certificates
during the related Interest Accrual Period. [The Pass-Through Rate for the Class
X Certificates (the "Class X Pass-Through Rate") for any Distribution Date will
equal the excess, if any, of (a) the weighted average of the applicable Net
Mortgage Rates for the mortgage loans weighted on the basis of their respective
Stated Principal Balances as of the first day of the related Due Period or, in
the case of the first Distribution Date, the Cut-off Date, over (b) the weighted
average of the Pass-Through Rates on all of the other Certificates (other than
the Residual Certificates) weighted on the basis of their respective Certificate
Balances immediately prior to that Distribution Date. The Class X Pass-Through
Rate for the first Distribution Date is expected to be approximately ________%
per annum.]
The "Net Mortgage Rate" for each mortgage loan is equal to the interest
rate on that mortgage loan in effect from time to time less the related
Administrative Cost Rate; provided however, that for purposes of calculating
Pass-Through Rates, the Net Mortgage Rate for any mortgage loan will be
determined without regard to any modification, waiver or amendment of the terms
of the mortgage loan, whether agreed to by the Servicer or resulting from a
bankruptcy, insolvency or similar proceeding involving the related borrower.
The "Mortgage Rate" with respect to any mortgage loan is the per annum
rate at which interest accrues on that mortgage loan as stated in the related
Mortgage Note in each case without giving effect to any default rate or an
increased interest rate. [Notwithstanding the foregoing, if any mortgage loan
does not accrue interest on the basis of a 360-day year consisting of twelve
30-day months, then, solely for purposes of calculating the Pass-Through Rate on
the Class X Certificates, the interest rate on that mortgage loan for any
one-month period preceding a related Due Date will be the annualized rate at
which interest would have to accrue in respect of that mortgage loan on the
basis of a 360-day year consisting of twelve 30-day months in order to produce
the aggregate amount of interest actually accrued in respect of that mortgage
loan during that one-month period at the mortgage loan's interest rate;
provided, however, that with respect to each Withheld Loan, the mortgage rate
for the one month period (1) preceding the Due Dates in January and February in
any year which is not a leap year or in February in any year which is a leap
year, and (2) preceding the Due Date in March, will be the per annum rate stated
in the related Mortgage Note.]
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["Excess Interest" with respect to any APD Mortgage Loan is the interest
accrued at an increased interest rate in respect of that APD Mortgage Loan in
excess of the interest accrued at the related initial interest rate, plus any
related interest, to the extent permitted by applicable law.]
INTEREST DISTRIBUTION AMOUNT. The "Interest Distribution Amount" of any
class of Certificates (other than the Residual Certificates) for any
Distribution Date is an amount equal to all Distributable Certificate Interest
in respect of that class for that Distribution Date and, to the extent not
previously paid, for all prior Distribution Dates.
The "Distributable Certificate Interest" in respect of each class of
Certificates (other than the Residual Certificates) for each Distribution Date
is equal to one month's interest at the Pass-Through Rate applicable to that
class of Certificates for that Distribution Date accrued for the related
Interest Accrual Period on the related Certificate Balance or Notional Amount,
as the case may be, outstanding immediately prior to that Distribution Date.
Distributable Certificate Interest will be calculated on the basis of [a 360-day
year consisting of twelve 30-day months.] [360 day year and the actual number of
days elapsed in the applicable Interest Accrual Period].
PRINCIPAL DISTRIBUTION AMOUNT. The "Principal Distribution Amount" for any
Distribution Date is an amount equal to the sum of (a) the Principal Shortfall
for that Distribution Date, (b) the Scheduled Principal Distribution Amount for
that Distribution Date and (c) the Unscheduled Principal Distribution Amount for
that Distribution Date.
The "Scheduled Principal Distribution Amount" for each Distribution Date
will equal the aggregate of the principal portions of (a) all Monthly Payments
(excluding Balloon Payments) due during or, if and to the extent not previously
received or advanced and distributed to Certificateholders on a preceding
Distribution Date, prior to, the related Due Period and all Assumed Scheduled
Payments for the related Due Period, in each case to the extent paid by the
related borrower as of the business day preceding the related Servicer
Remittance Date or advanced by the Servicer or the Trustee, as applicable, and
(b) all Balloon Payments to the extent received during the related Due Period,
and to the extent not included in clause (a) above. The Scheduled Principal
Distribution Amount from time to time will include all late payments of
principal made by a borrower, including late payments in respect of a delinquent
Balloon Payment, regardless of the timing of those late payments, except to the
extent those late payments are otherwise reimbursable to the Servicer or the
Trustee, as the case may be, for prior Advances.
The "Unscheduled Principal Distribution Amount" for each Distribution Date
will equal the aggregate of: (a) all voluntary prepayments of principal received
on the mortgage loans during the related Due Period; and (b) any other
collections (exclusive of payments by borrowers) received on the mortgage loans
and any REO Properties during the related Due Period, whether in the form of
Liquidation Proceeds, Insurance and Condemnation Proceeds, net income, rents,
and profits from REO Property or otherwise, that were identified and applied by
the Servicer as recoveries of previously unadvanced principal of the related
mortgage loan.
The "Assumed Scheduled Payment" for any Due Period and with respect to any
mortgage loan that is delinquent in respect of its Balloon Payment (including
any REO Loan as to which the Balloon Payment would have been past due), is an
amount equal to the sum of (a) the principal portion of the Monthly Payment that
would have been due on that mortgage loan on the related Due Date based on the
constant payment required by the related Mortgage Note or its original
amortization schedule (as calculated with interest at the mortgage loan's
interest rate), if applicable, assuming the Balloon Payment has not become due,
after giving effect to any modification, and (b) interest on the Stated
Principal Balance of that mortgage loan at its interest rate (net of the
applicable rate at which the Servicing Fee is calculated).
For purposes of the foregoing definitions of Principal Distribution
Amount, the term "Principal Shortfall" for any Distribution Date means the
amount, if any, by which (1) the Principal Distribution Amount for the preceding
Distribution Date, exceeds (2) the aggregate amount distributed in respect of
principal on the Class A, Class B, Class C, Class D, Class E, Class F, Class G,
Class H, Class I and Class J Certificates on the preceding Distribution Date.
There will be no Principal Shortfall on the first Distribution Date.
CERTAIN CALCULATIONS WITH RESPECT TO INDIVIDUAL MORTGAGE LOANS. The Stated
Principal Balance of each mortgage loan outstanding at any time represents the
principal balance of the mortgage loan ultimately due and payable to the
Certificateholders. The "Stated Principal Balance" of each mortgage loan will
initially equal its Cut-off Date Balance and, on each Distribution Date, will be
reduced by the portion of the Principal Distribution
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Amount for that date that is attributable to that mortgage loan. The Stated
Principal Balance of a mortgage loan may also be reduced in connection with any
forced reduction of its actual unpaid principal balance imposed by a court
presiding over a bankruptcy proceeding in which the related borrower is the
debtor. See "Certain Legal Aspects of Mortgage Loans--Bankruptcy Laws" in the
prospectus. If any mortgage loan is paid in full or the mortgage loan (or any
Mortgaged Property acquired in respect of the mortgage loan) is otherwise
liquidated, then, as of the first Distribution Date that follows the end of the
Due Period in which that payment in full or liquidation occurred and
notwithstanding that a loss may have occurred in connection with any such
liquidation, the Stated Principal Balance of the mortgage loan shall be zero.
For purposes of calculating distributions on, and allocations of
Collateral Support Deficit to, the Certificates, as well as for purposes of
calculating the Servicing Fee and Trustee Fee payable each month, each REO
Property will be treated as if there exists with respect thereto an outstanding
mortgage loan (an "REO Loan"), and all references to mortgage loan or mortgage
loans and "Mortgage Pool" in this prospectus supplement and in the prospectus,
when used in that context, will be deemed to also be references to or to also
include, as the case may be, any REO Loans. Each REO Loan will generally be
deemed to have the same characteristics as its actual predecessor mortgage loan,
including the same fixed interest rate (and, accordingly, the same Net Mortgage
Rate) and the same unpaid principal balance and Stated Principal Balance.
Amounts due on the predecessor mortgage loan, including any portion of it
payable or reimbursable to the Servicer, will continue to be "due" in respect of
the REO Loan; and amounts received in respect of the related REO Property, net
of payments to be made, or reimbursement to the Servicer or the Special Servicer
for payments previously advanced, in connection with the operation and
management of that property, generally will be applied by the Servicer as if
received on the predecessor mortgage loan.
[Excess Interest. On each Distribution Date, the Paying Agent is required
to distribute any Excess Interest received with respect to mortgage loans during
the related Due Period to the holders of the Class [_] Certificates.]
ALLOCATION OF PREPAYMENT PREMIUMS AND YIELD MAINTENANCE CHARGES
On any Distribution Date, Prepayment Premiums collected during the related
Due Period will be required to be distributed by the Paying Agent to the holders
of the classes of Offered Certificates as follows: to each of the Class A, Class
B, Class C, Class D and Class E Certificates, for each of these classes, an
amount equal to the product of (a) a fraction, the numerator of which is the
amount distributed as principal to that class on that Distribution Date, and the
denominator of which is the total amount distributed as principal to all classes
of Certificates on that Distribution Date, (b) [25%] and (c) the total amount of
Prepayment Premiums collected during the related Due Period. [Any Prepayment
Premiums collected during the related Due Period remaining after those
distributions will be distributed to the holders of the Class X Certificates.]
On any Distribution Date, Yield Maintenance Charges collected during the
related Due Period will be required to be distributed by the Paying Agent on the
classes of Offered Certificates as follows: to each of the Class A, Class B,
Class C, Class D and Class E Certificates, for each of these classes, an amount
equal to the product of (a) a fraction, the numerator of which is the amount
distributed as principal to that class on that Distribution Date, and the
denominator of which is the total amount distributed as principal to all classes
of Certificates on that Distribution Date, (b) the Base Interest Fraction for
the related principal prepayment and that class of Offered Certificates and (c)
the aggregate amount of Yield Maintenance Charges collected on that principal
prepayment during the related Due Period. [Any Yield Maintenance Charges
collected during the related Due Period remaining after those distributions will
be distributed to the holders of the Class X Certificates.]
The "Base Interest Fraction" with respect to any principal prepayment on
any mortgage loan and with respect to any class of Offered Certificates [(other
than the Class X Certificates)] is a fraction (A) whose numerator is the greater
of (a) zero and (b) the difference between (1) the Pass-Through Rate on that
class of Offered Certificates and (2) the Yield Rate used in calculating the
Yield Maintenance Charge with respect to that principal prepayment and (B) whose
denominator is the difference between (1) the interest rate on the related
mortgage loan and (2) the Yield Rate used in calculating the Yield Maintenance
Charge with respect to that principal prepayment. However, under no
circumstances will the Base Interest Fraction be greater than one. If that Yield
Rate is greater than the interest rate on the related mortgage loan, then the
Base Interest Fraction shall equal zero.
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[No Prepayment Premiums or Yield Maintenance Charges will be distributed
to holders of the Class F, Class G, Class H, Class I, Class J or Residual
Certificates; instead, after the Certificate Principal Balances of the Class A,
Class B, Class C, Class D and Class E Certificates have been reduced to zero,
all Prepayment Premiums and Yield Maintenance Charges will be distributed to
holders of the Class X Certificates.]
For a description of Prepayment Premiums and Yield Maintenance Charges,
see "Description of the Mortgage Pool--Certain Terms and Conditions of the
Mortgage Loans--Prepayment Provisions" in this prospectus supplement. See also
"Certain Legal Aspects of the Mortgage Loans--Default Interest and Limitations
on Prepayments" in the prospectus regarding the enforceability of Yield
Maintenance Charges and Prepayment Premiums.
ASSUMED FINAL DISTRIBUTION DATE; RATED FINAL DISTRIBUTION DATE
The "Assumed Final Distribution Date" with respect to any class of Offered
Certificates is the Distribution Date on which the aggregate Certificate Balance
or Notional Amount, as the case may be, of that class of Certificates would be
reduced to zero based on the assumptions set forth below. The Assumed Final
Distribution Date will in each case be as follows:
CLASS DESIGNATION ASSUMED FINAL DISTRIBUTION DATE
------------------------------ -------------------------------
Class A-1.............................
Class A-2.............................
[Class X].............................
[Class PO]............................
Class B...............................
Class C...............................
Class D...............................
Class E...............................
THE ASSUMED FINAL DISTRIBUTION DATES SET FORTH ABOVE WERE CALCULATED
WITHOUT REGARD TO ANY DELAYS IN THE COLLECTION OF BALLOON PAYMENTS AND WITHOUT
REGARD TO A REASONABLE LIQUIDATION TIME WITH RESPECT TO ANY MORTGAGE LOANS THAT
MAY BECOME DELINQUENT. ACCORDINGLY, IN THE EVENT OF DEFAULTS ON THE MORTGAGE
LOANS, THE ACTUAL FINAL DISTRIBUTION DATE FOR ONE OR MORE CLASSES OF THE OFFERED
CERTIFICATES MAY BE LATER, AND COULD BE SUBSTANTIALLY LATER, THAN THE RELATED
ASSUMED FINAL DISTRIBUTION DATE(S).
[In addition, the Assumed Final Distribution Dates set forth above were
calculated on the basis of a 0% CPR and assuming the _____________ Loan is
prepaid on its Anticipated Prepayment Date]. Since the rate of payment
(including prepayments) of the mortgage loans may exceed the scheduled rate of
payments, and could exceed that scheduled rate by a substantial amount, the
actual final Distribution Date for one or more classes of the Offered
Certificates may be earlier, and could be substantially earlier, than the
related Assumed Final Distribution Date(s). The rate of payments (including
prepayments) on the mortgage loans will depend on the characteristics of the
mortgage loans, as well as on the prevailing level of interest rates and other
economic factors, and we cannot assure you as to actual payment experience.
Finally, the Assumed Distribution Dates were calculated assuming that there
would not be an early termination of the trust fund.
The "Rated Final Distribution Date" for each class of Offered Certificates
will be _____________, the first Distribution Date after the [ ]th months
following the end of the amortization term for the mortgage loan that, as of the
Cut-off Date, will have the longest remaining amortization term.
SUBORDINATION; ALLOCATION OF COLLATERAL SUPPORT DEFICIT
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 in this prospectus supplement, to the
rights of holders of the Senior Certificates. Moreover, to the extent described
in this prospectus supplement:
o the rights of the holders of the Class J Certificates will be
subordinated to the rights of the Class I Certificates,
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o the rights of the holders of the Class J and Class I
Certificates will be subordinated to the rights of the holders
of the Class H Certificates,
o the rights of the holders of the Class H, Class I and Class J
Certificates will be subordinated to the rights of the holders
of the Class G Certificates,
o the rights of the holders of the Class G, Class H, Class I and
Class J Certificates will be subordinated to the rights of the
holders of the Class F Certificates,
o the rights of the holders of the Class F, Class G, Class H,
Class I and Class J Certificates will be subordinated to the
rights of the holders of the Class E Certificates,
o the rights of the holders of the Class E, Class F, Class G,
Class H, Class I and Class J Certificates will be subordinated
to the rights of the holders of the Class D Certificates,
o the rights of the holders of the Class D, Class E, Class F,
Class G, Class H, Class I and Class J Certificates will be
subordinated to the rights of the holders of the Class C
Certificates,
o the rights of the holders of the Class C, Class D, Class E,
Class F, Class G, Class H, Class I and Class J Certificates
will be subordinated to the rights of the holders of the Class
B Certificates, and
o the rights of holders of the Class B, Class C, Class D, Class
E, Class F, Class G, Class H, Class I and Class J Certificates
will be subordinated to the rights of the holders of the
Senior Certificates.
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 the Class A Certificates of principal in an
amount equal to, in each case, the entire Certificate Balance of the Class A
Certificates. Similarly, but to decreasing degrees, this subordination is also
intended to enhance the likelihood of timely receipt by the holders of the Class
B Certificates, the holders of the Class C Certificates, the holders of the
Class D Certificates and the holders of the Class E Certificates of the full
amount of interest payable in respect of those classes of Certificates on each
Distribution Date, and the ultimate receipt by the holders of the Class B
Certificates, the holders of the Class C Certificates, the holders of the Class
D Certificates and the holders of the Class E Certificates, of principal equal
to, in each case, the entire Certificate Balance of each of those classes of
Certificates.
The protection afforded to the holders of the Class E Certificates by
means of the subordination of the Non-Offered Certificates that are Subordinate
Certificates (the "Non-Offered Subordinate Certificates"), to the holders of the
Class D Certificates by the subordination of the Class E Certificates and the
Non-Offered Subordinate Certificates, to the holders of the Class C Certificates
by means of the subordination of the Class D and Class E Certificates and the
Non-Offered Subordinate Certificates, to the holders of the Class B Certificates
by means of the subordination of the Class C, Class D and Class E Certificates
and the Non-Offered Subordinate Certificates and to the holders of the Senior
Certificates by means of the subordination of the Subordinate Certificates, will
be accomplished by the application of the Available Distribution Amount on each
Distribution Date in accordance with the order of priority described under
"--Distributions" above and by the allocation of Collateral Support Deficits in
the manner described below. No other form of credit support will be available
for the benefit of the holders of the Offered Certificates.
Allocation to the Class A Certificates (unless the Cross-Over Date has
occurred, first to the Class A-1 Certificates until the Certificate Balance has
been reduced to zero, and then to the Class A-2 Certificates), for so long as
they are outstanding, of the entire Principal Distribution Amount for each
Distribution Date will have the effect of reducing the aggregate Certificate
Balance of the Class A Certificates at a proportionately faster rate than the
rate at which the aggregate Stated Principal Balance of the Mortgage Pool will
reduce. 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
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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 successive
allocation on each Distribution Date of the remaining Principal Distribution
Amount to the Class B Certificates, the Class C Certificates, the Class D
Certificates and the Class E Certificates, in that order, in each case for so
long as they are outstanding, will provide a similar benefit to each of those
classes of Certificates as to the relative amount of subordination afforded by
the outstanding classes of Certificates [(other than the Class X and the
Residual Certificates)] with later alphabetical class designations.
On each Distribution Date, immediately following the distributions to be
made to the Certificateholders on that date, the Paying Agent is required to
calculate the amount, if any, by which (1) the aggregate Stated Principal
Balance of the mortgage loans expected to be outstanding immediately following
that Distribution Date is less than (2) the aggregate Certificate Balance of the
Certificates after giving effect to distributions of principal on that
Distribution Date (that deficit, "Collateral Support Deficit"). The Paying Agent
will be required to allocate the Collateral Support Deficit among the respective
classes of Certificates as follows: to the Class J, Class I, Class H, Class G,
Class F, Class E, Class D, Class C and Class B Certificates in that order, and
in each case in respect of and until the remaining Certificate Balance of that
class has been reduced to zero. Following the reduction of the Certificate
Balances of those classes to zero, the Paying Agent will be required to allocate
the Collateral Support Deficit among the classes of Class A Certificates, pro
rata (based upon their respective Certificate Balances), until the remaining
Certificate Balances of those classes have been reduced to zero. Any Collateral
Support Deficit allocated to a class of Certificates will be allocated among
respective Certificates of that class in proportion to the Percentage Interests
evidenced thereby.
In general, Collateral Support Deficits could result from the occurrence
of: (1) losses and other shortfalls on or in respect of the mortgage loans,
including as a result of defaults and delinquencies on the mortgage loans,
related Nonrecoverable Advances, the payment to the Special Servicer of any
compensation as described in "Servicing of the Mortgage Loans--Servicing and
Other Compensation and Payment of Expenses" in this prospectus supplement, and
the payment of interest on Advances and certain servicing expenses; and (2)
certain unanticipated, non- mortgage loan specific expenses of the trust fund,
including certain reimbursements to the Trustee as described under "Description
of the Pooling Agreements--Certain Matters Regarding the Trustee" in the
prospectus, certain reimbursements to the Servicer and the Depositor as
described under "Description of the Pooling Agreements--Certain Matters
Regarding the Master Servicer and the Depositor" in the prospectus, and certain
federal, state and local taxes, and certain tax-related expenses, payable out of
the trust fund as described under "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates" and
"--Taxes That May Be Imposed on the REMIC Pool" in the prospectus. Accordingly,
the allocation of Collateral Support Deficit as described above will constitute
an allocation of losses and other shortfalls experienced by the trust fund.
A class of Offered Certificates will be considered outstanding until its
Certificate Balance or Notional Amount, as the case may be, is reduced to zero.
However, reimbursement of any previously allocated Collateral Support Deficit
may thereafter be made to that class in accordance with the payment priorities
set forth in "--Distributions--Priority" above.
ADVANCES
On the business day immediately preceding each Distribution Date (the
"Servicer Remittance Date"), the Servicer will be obligated, subject to the
recoverability determination described below, to make advances (each, a "P&I
Advance") out of its own funds or, subject to the replacement those funds as
provided in the Pooling and Servicing Agreement, certain funds held in the
Certificate Account that are not required to be part of the Available
Distribution Amount for that Distribution Date, in an amount equal to (but
subject to reduction as described in the following paragraph) the aggregate of:
(1) all Monthly Payments (net of the applicable Servicing Fee), other than
Balloon Payments, which were due on the mortgage loans during the related Due
Period and delinquent (or not advanced by any subservicer) as of the business
day preceding the Servicer Remittance Date; and (2) in the case of each mortgage
loan delinquent in respect of its Balloon Payment as of the end of the related
Due Period (including any REO Loan as to which the Balloon Payment would have
been past due), an amount equal to the Assumed Scheduled Payment. The Servicer's
obligations to make P&I Advances in respect of any mortgage loan or REO Property
will continue through liquidation of that mortgage loan or disposition of that
REO
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Property, as the case may be. To the extent that the Servicer fails to make a
P&I Advance that it is required to make under the Pooling and Servicing
Agreement, the Trustee will make the required P&I Advance pursuant to the
Pooling and Servicing Agreement.
The amount required to be advanced in respect of delinquent Monthly
Payments or Assumed Scheduled Payments on a mortgage loan with respect to any
Distribution Date that has been subject to an Appraisal Reduction Event will
equal the amount that would be required to be advanced by the Servicer without
giving effect to the Appraisal Reduction less any Appraisal Reduction Amount
with respect to that mortgage loan for that Distribution Date. Neither the
Servicer nor the Trustee will be required to make a P&I Advance for default
interest, Yield Maintenance Charges, Prepayment Premiums or Excess Interest.
In addition to P&I Advances, the Servicer will also be obligated (subject
to the limitations described in this prospectus supplement) to make advances
("Servicing Advances" and, collectively with P&I Advances, "Advances") in
connection with the servicing and administration of any mortgage loan in respect
of which a default, delinquency or other unanticipated event has occurred or is
reasonably foreseeable or in connection with the servicing and administration of
any Mortgaged Property or REO Property, to pay delinquent real estate taxes,
assessments and hazard insurance premiums and to cover other similar costs and
expenses necessary to preserve the priority of or enforce the related mortgage
loan documents or to protect, lease, manage and maintain the related Mortgaged
Property. To the extent that the Servicer fails to make a Servicing Advance that
it is required to make under the Pooling and Servicing Agreement and the Trustee
has notice of that failure, the Trustee will make the required Servicing Advance
pursuant to the Pooling and Servicing Agreement.
The Servicer or the Trustee, as applicable, will be entitled to recover
any Advance made out of its own funds from any amounts collected in respect of
the mortgage loan as to which that Advance was made, whether in the form of late
payments, Insurance and Condemnation Proceeds, Liquidation Proceeds or otherwise
from the mortgage loan ("Related Proceeds"). Notwithstanding the foregoing,
neither the Servicer nor the Trustee will be obligated to make any Advance that
it determines in its reasonable good faith judgment would, if made, not be
recoverable (including interest on the Advance) out of Related Proceeds (a
"Nonrecoverable Advance"), and the Servicer or the Trustee will be entitled to
recover any Advance that it so determines to be a Nonrecoverable Advance out of
general funds on deposit in the Certificate Account. The Trustee will be
entitled to rely conclusively on any non-recoverability determination of the
Servicer. Nonrecoverable Advances will represent a portion of the losses to be
borne by the Certificateholders. See "Description of the Certificates--Advances
in Respect of Delinquencies" and "Description of the Pooling
Agreements--Certificate Account" in the prospectus.
In connection with its recovery of any Advance, each of the Servicer and
the Trustee will be entitled to be paid, out of any amounts then on deposit in
the Certificate Account, interest at the Prime Rate (the "Reimbursement Rate")
accrued on the amount of that Advance from the date made to but not including
the date of reimbursement. The "Prime Rate" shall be the rate, for any day, set
forth in The Wall Street Journal, New York edition.
Each Distribution Date Statement delivered by the Paying Agent to the
Certificateholders will contain information relating to the amounts of Advances
made with respect to the related Distribution Date. See "Description of the
Certificates--Reports to Certificateholders; Certain Available Information" in
this prospectus supplement and "Description of the Certificates--Reports to
Certificateholders" in the prospectus.
APPRAISAL REDUCTIONS
After an Appraisal Reduction Event has occurred, an Appraisal Reduction is
required to be calculated. An "Appraisal Reduction Event" will occur on the
earliest of:
(1) the third anniversary of the date on which an extension of the
maturity date of a mortgage loan becomes effective as a result of a
modification of the mortgage loan by the Special Servicer, which extension
does not change the amount of Monthly Payments on the mortgage loan;
(2) 120 days after an uncured delinquency occurs in respect of a
mortgage loan;
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(3) the date on which a reduction in the amount of Monthly Payments
on a mortgage loan, or a change in any other material economic term of the
mortgage loan (other than an extension of its maturity), becomes effective
as a result of a modification of the mortgage loan by the Special
Servicer;
(4) 60 days after a receiver has been appointed;
(5) 60 days after a borrower declares bankruptcy;
(6) 60 days after an involuntary petition of bankruptcy is filed
with respect to the borrower, if the petition is not dismissed prior to
the expiration of that period; and
(7) immediately after a mortgage loan becomes an REO Loan.
No Appraisal Reduction Event may occur at any time when the aggregate
Certificate Balances of all classes of Certificates (other than the Class A
Certificates) has been reduced to zero.
The "Appraisal Reduction" for any Distribution Date and for any mortgage
loan as to which any Appraisal Reduction Event has occurred will be an amount
equal to the excess of (a) the outstanding Stated Principal Balance of that
mortgage loan over (b) the excess of (1) 90% of the appraised value of the
related Mortgaged Property as determined (A) by one or more independent MAI
appraisals with respect to any mortgage loan with an outstanding principal
balance equal to or in excess of $2,000,000 (the costs of which shall be paid by
the Servicer as an Advance), and (B) by an internal valuation performed by the
Special Servicer with respect to any mortgage loan with an outstanding principal
balance less than $2,000,000, over (2) the sum as of the Due Date occurring in
the month of that Distribution Date of (A) to the extent not previously advanced
by the Servicer or the Trustee, all unpaid interest on that mortgage loan at a
per annum rate equal to the interest rate for the mortgage loan, (B) all
unreimbursed Advances and interest on those Advances at the Reimbursement Rate
in respect of that mortgage loan and (C) all currently due and unpaid real
estate taxes and assessments, insurance premiums and ground rents and all other
amounts due and unpaid under the mortgage loan (which tax, premiums, ground
rents and other amounts have not been the subject of an Advance by the Servicer
and/or for which funds have not been escrowed).
Within 60 days after the Appraisal Reduction Event, the Special Servicer
will be required to receive an appraisal; provided, however, that with respect
to an Appraisal Reduction Event described in clause (2), the Special Servicer
will be required to receive an appraisal within the 120-day period set forth in
clause (2). On the first Determination Date occurring on or after the delivery
of the MAI appraisal, the Special Servicer will be required to calculate and
report to the Servicer, and the Servicer will be required to report to the
Paying Agent and the Trustee, the Appraisal Reduction to take into account that
appraisal. In the event that the Special Servicer has not received the MAI
appraisal within the timeframe described above (or, in the case of an appraisal
in connection with an Appraisal Reduction Amount described in clause (2), within
60 days following the 120-day period set forth in clause (2)), the amount of the
Appraisal Reduction will be deemed to be an amount equal to 25% of the current
Stated Principal Balance of the related mortgage loan until the MAI appraisal is
received. The "Determination Date" for each Distribution Date is the 13th day of
the month in which that Distribution Date occurs or, if the 13th day is not a
business day, then the immediately preceding business day.
As a result of calculating one or more Appraisal Reductions, the amount of
any required P&I Advance will be reduced by an amount equal to the Appraisal
Reduction Amount, which will have the effect of reducing the amount of interest
available to the most subordinate class of Certificates then outstanding (i.e.,
first to the Class J Certificates, then to the Class I Certificates, then to the
Class H Certificates, then to the Class G Certificates, then to the Class F
Certificates, then to the Class E Certificates, then to the Class D
Certificates, then to the Class C Certificates and then to the Class B
Certificates). See "--Advances" above. The "Appraisal Reduction Amount" for any
Distribution Date shall equal the product of (1) the applicable per annum
Pass-Through Rate (i.e., for any month, one twelfth of the Pass-Through Rate) on
the class of Certificates to which the Appraisal Reduction is allocated, and (2)
the sum of all Appraisal Reductions with respect to that Distribution Date. In
addition, Appraisal Reductions will be allocated to the most subordinate class
of Certificates then outstanding (i.e., first to the Class J Certificates, then
to the Class I Certificates, then to the Class H Certificates, then to the Class
G Certificates, then to the Class F Certificates, then to the Class E
Certificates, then to the Class D Certificates, then to the Class C Certificates
and then to the Class B Certificates) for purposes of determining Voting Rights
and the identity of the
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Controlling Class. See "--Voting Rights" below and "Servicing of the Mortgage
Loans--General" in this prospectus supplement.
With respect to each mortgage loan as to which an Appraisal Reduction has
occurred (unless the mortgage loan has become a Corrected Mortgage Loan and has
remained current for twelve consecutive Monthly Payments, and with respect to
which no other Appraisal Reduction Event has occurred with respect thereto
during the preceding twelve months), the Special Servicer is required, within 30
days of each anniversary of the related Appraisal Reduction Event, to order an
appraisal (which may be an update of a prior appraisal), the cost of which shall
be a Servicing Advance. Based upon that appraisal, the Special Servicer is
required to redetermine and report to the Paying Agent the amount of the
Appraisal Reduction with respect to that mortgage loan. Notwithstanding the
foregoing, the Special Servicer will not be required to obtain an appraisal with
respect to a mortgage loan which is the subject of an Appraisal Reduction Event
to the extent the Special Servicer has obtained an appraisal with respect to the
related Mortgaged Property within the 12-month period prior to the occurrence of
the Appraisal Reduction Event. Instead, the Special Servicer may use the prior
appraisal in calculating any Appraisal Reduction with respect to that mortgage
loan.
With respect to each mortgage loan as to which an Appraisal Reduction has
occurred and which has become current and has remained current for twelve
consecutive Monthly Payments, and with respect to which no other Appraisal
Reduction Event has occurred and is continuing, the Special Servicer may within
30 days of the date of the twelfth Monthly Payment, order an appraisal (which
may be an update of a prior appraisal), the cost of which shall be a Servicing
Advance. Based upon the appraisal, the Special Servicer is required to
redetermine and report to the Paying Agent the amount of the Appraisal Reduction
with respect to that mortgage loan.
REPORTS TO CERTIFICATEHOLDERS; CERTAIN AVAILABLE INFORMATION
On each Distribution Date, the Paying Agent will be required to forward by
mail to each holder of a Certificate, the Depositor, the Trustee, the
Underwriter, the Special Servicer and a financial market publisher (which is
anticipated to initially be Bloomberg, L.P.), if any, a statement (a
"Distribution Date Statement") setting forth, among other things:
(a) the amount of the distribution on the Distribution Date to
the holders of the class of Certificates in reduction of its
Certificate Balance;
(b) the amount of the distribution on the Distribution Date to
the holders of the class of Certificates allocable to Distributable
Certificate Interest;
(c) the aggregate amount of Advances made in respect of the
Distribution Date;
(d) the aggregate amount of compensation paid to the Trustee
and servicing compensation paid to the Servicer and the Special
Servicer during the Due Period for the Distribution Date;
(e) the aggregate Stated Principal Balance of the mortgage
loans and any REO Loans outstanding immediately before and
immediately after the Distribution Date;
(f) the number, aggregate principal balance, weighted average
remaining term to maturity and weighted average mortgage rate of the
mortgage loans as of the end of the related Due Period for the
Distribution Date;
(g) the number and aggregate principal balance of mortgage
loans (A) delinquent one month, (B) delinquent two months, (C)
delinquent three or more months and (D) as to which foreclosure
proceedings have been commenced;
(h) the value of any REO Property included in the trust fund
as of the end of the related Due Period for the Distribution Date,
based on the most recent appraisal or valuation;
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(i) the Available Distribution Amount for the Distribution
Date;
(j) the amount of the distribution on the Distribution Date to
the holders of the class of Certificates allocable to (A) Prepayment
Premiums (B) Yield Maintenance Charges [and (C) Excess Interest];
(k) the Pass-Through Rate for the class of Certificates for
the Distribution Date and the next succeeding Distribution Date;
(l) the Scheduled Principal Distribution Amount and the
Unscheduled Principal Distribution Amount for the Distribution Date;
(m) the Certificate Balance or Notional Amount, as the case
may be, of each class of Certificates immediately before and
immediately after the Distribution Date, separately identifying any
reduction in it as a result of the allocation of any Collateral
Support Deficit on the Distribution Date;
(n) the fraction, expressed as a decimal carried to eight
places, the numerator of which is the then related Certificate
Balance, and the denominator of which is the related initial
aggregate Certificate Balance, for each class of Certificates (other
than the Residual Certificates) immediately following the
Distribution Date;
(o) the amount of any Appraisal Reductions effected in
connection with the Distribution Date on a loan-by-loan basis, the
total Appraisal Reduction effected in connection with the
Distribution Date and the total Appraisal Reduction Amounts as of
the Distribution Date;
(p) the number and related principal balances of any mortgage
loans extended or modified during the related Due Period on a
loan-by-loan basis;
(q) the amount of any remaining unpaid interest shortfalls for
the class as of the Distribution Date;
(r) a loan-by-loan listing of each mortgage loan which was the
subject of a Principal Prepayment during the related Due Period and
the amount and the type of Principal Prepayment occurring;
(s) a loan-by-loan listing of any mortgage loan which was
defeased during the related Due Period; and
(t) all deposits into, withdrawals from, and the balance of
the Interest Reserve Account on the related Servicer Remittance
Dates.
In the case of information furnished pursuant to clauses (a), (b), (j) and (q)
above, the amounts shall be expressed as a dollar amount in the aggregate for
all Certificates of each applicable class and per Definitive Certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the Paying Agent is required to furnish to the Trustee and each
person or entity who at any time during the calendar year was a holder of a
Certificate, a statement containing the information set forth in clauses (a),
(b) and (j) above as to the applicable class, aggregated for that calendar year
or applicable partial year during which that person was a Certificateholder,
together with any other information the Paying Agent deems necessary or
desirable, or that a Certificateholder or Certificate Owner reasonably requests,
to enable Certificateholders to prepare their tax returns for that calendar
year. This obligation of the Paying Agent shall be deemed to have been satisfied
to the extent that substantially
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comparable information shall be provided by the Paying Agent pursuant to any
requirements of the Code as from time to time are in force.
The Servicer will be required to provide a financial market publisher,
which is anticipated to initially be Bloomberg, L.P., quarterly with certain
current information with respect to the Mortgaged Properties, including current
and original net operating income, debt service coverage ratios based upon
borrowers' annual operating statements and occupancy rates, to the extent it has
received the information from the borrowers pursuant to the related loan
documents.
The Pooling and Servicing Agreement requires that the Paying Agent (or the
Trustee with respect to clause (6) only) make available at its offices primarily
responsible for administration of the trust fund, during normal business hours,
for review by any holder of an Offered Certificate, the Depositor, the Mortgage
Loan Sellers, the Special Servicer, the Servicer, any rating agency or any other
person to whom the Paying Agent (or the Trustee, if applicable) believes the
disclosure is appropriate, originals or copies of, among other things, the
following items:
(1) the Pooling and Servicing Agreement and any amendments thereto;
(2) all Distribution Date Statements delivered to holders of the
relevant class of Offered Certificates since the Closing Date;
(3) all officer's certificates delivered to the Paying Agent since
the Closing Date as described under "Description of the Pooling
Agreements--Evidence as to Compliance" in the prospectus;
(4) all accountants' reports delivered to the Paying Agent since the
Closing Date as described under "Description of the Pooling
Agreements--Evidence as to Compliance" in the prospectus;
(5) the most recent property inspection report prepared by or on
behalf of the Servicer or the Special Servicer and delivered to the Paying
Agent in respect of each Mortgaged Property;
(6) copies of the mortgage loan documents;
(7) any and all modifications, waivers and amendments of the terms
of a mortgage loan entered into by the Servicer or the Special Servicer
and delivered to the Paying Agent; and
(8) any and all statements and reports delivered to, or collected
by, the Servicer or the Special Servicer, from the borrowers, including
the most recent annual property operating statements, rent rolls and
borrower financial statements, but only to the extent the statements and
reports have been delivered to the Paying Agent.
Copies of any and all of the foregoing items will be available to
Certificateholders from the Paying Agent (or the Trustee with respect to clause
(6) only) upon request; however, the Paying Agent (or the Trustee with respect
to clause (6) only) will be permitted to require payment of a sum sufficient to
cover the reasonable costs and expenses of providing the copies. Pursuant to the
Pooling and Servicing Agreement, the Servicer will be responsible for enforcing
all provisions of the mortgage loan documents relating to the submission of
financial and property information.
The Pooling and Servicing Agreement will require the Servicer and the
Paying Agent, subject to certain restrictions set forth in the Pooling and
Servicing Agreement, to provide the reports available to Certificateholders set
forth above, as well as certain other information received by the Servicer or
the Paying Agent, as the case may be, to any Certificateholder, the Underwriter,
any Certificate Owner or any prospective investor so identified by a Certificate
Owner or Underwriter, that requests those reports or information; provided that
the Servicer or the Paying Agent, as the case may be, will be permitted to
require payment of a sum sufficient to cover the reasonable costs and expenses
of providing copies of those reports or information. Except as otherwise set
forth in this paragraph, until the time Definitive Certificates are issued,
notices and statements required to be mailed to holders of Certificates will be
available to Certificate Owners of Offered Certificates only to the extent they
are forwarded by or otherwise available through DTC and its Participants.
Conveyance of notices and other communications by DTC to Participants, and by
Participants to those Certificate Owners, will be governed by arrangements among
them,
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subject to any statutory or regulatory requirements as may be in effect from
time to time. Except as otherwise set forth in this paragraph, the Servicer, the
Special Servicer, the Trustee, the Depositor, the Paying Agent and the
Certificate Registrar are required to recognize as Certificateholders only those
persons in whose names the Certificates are registered on the books and records
of the Offered Certificate Registrar. The initial registered holder of the
Offered Certificates will be Cede & Co. as nominee for DTC.
VOTING RIGHTS
At all times during the term of the Pooling and Servicing Agreement, the
voting rights for the Certificates (the "Voting Rights") shall be allocated
among the respective classes of Certificateholders as follows: [(1) [_]% in the
case of the Class X Certificates, and (2)] in the case of any other class of
Certificates (other than the Residual Certificates), a percentage equal to the
product of [_]% and a fraction, the numerator of which is equal to the aggregate
Certificate Balance of that class, in each case, determined as of the
Distribution Date immediately preceding that time, and the denominator of which
is equal to the aggregate Certificate Balance of all classes of Certificates,
each determined as of the Distribution Date immediately preceding that time.
Neither the Class R nor the Class LR Certificates will be entitled to any Voting
Rights. Voting Rights allocated to a class of Certificateholders shall be
allocated among those Certificateholders in proportion to the Percentage
Interests evidenced by their respective Certificates. Solely for purposes of
giving any consent, approval or waiver pursuant to the Pooling and Servicing
Agreement, neither the Servicer, the Special Servicer nor the Depositor will be
entitled to exercise any Voting Rights with respect to any Certificates
registered in its name, if that consent, approval or waiver would in any way
increase its compensation or limit its obligations in that capacity under the
Pooling and Servicing Agreement; provided, however, that the restrictions will
not apply to the exercise of the Special Servicer's rights, if any, as a member
of the Controlling Class.
TERMINATION; RETIREMENT OF CERTIFICATES
The obligations created by the Pooling and Servicing Agreement will
terminate upon payment (or provision for payment) to all Certificateholders of
all amounts held by or on behalf of the Trustee and required to be paid
following the earlier of (1) the final payment (or related advance) or other
liquidation of the last mortgage loan or REO Property subject thereto or (2) the
purchase of all of the assets of the trust fund by the holders of the
Controlling Class, the Special Servicer, the Servicer or the holders of the
Class LR Certificates. Written notice of termination of the Pooling and
Servicing Agreement will be given to each Certificateholder, and the final
distribution will be made only upon surrender and cancellation of the
Certificates at the office of the Certificate Registrar or other location
specified in the notice of termination.
The holders of the Controlling Class, the Special Servicer, the Servicer
and the holders of the Class LR Certificates (in that order) will have the right
to purchase all of the assets of the trust fund. This purchase of all the
mortgage loans and other assets in the trust fund is required to be made at a
price equal to the sum of (1) the aggregate Purchase Price of all the mortgage
loans (exclusive of REO Loans) then included in the trust fund and (2) the
aggregate fair market value of all REO Properties then included in the trust
fund (which fair market value for any REO Property may be less than the Purchase
Price for the corresponding REO Loan), as determined by an appraiser selected
and mutually agreed upon by the Servicer and the Trustee, and approved by more
than 50% of the Voting Rights of the classes of Certificates then outstanding,
other than the Controlling Class, unless the Controlling Class is the only class
of Certificates outstanding. This purchase will effect early retirement of the
then outstanding Offered Certificates, but the right of the Servicer, the
Special Servicer, the holders of the Controlling Class or the holders of the
Class LR Certificates to effect that termination is subject to the requirement
that the then aggregate Stated Principal Balance of the Mortgage Pool be less
than [__] % of the Initial Pool Balance.
On the final Distribution Date, the aggregate amount paid by the holders
of the Controlling Class, the Special Servicer, the Servicer or the holders of
the Class LR Certificates, as the case may be, for the mortgage loans and other
assets in the trust fund (if the trust fund is to be terminated as a result of
the purchase described in the preceding paragraph), together with all other
amounts on deposit in the Certificate Account and not otherwise payable to a
person other than the Certificateholders (see "Description of the Pooling
Agreements--Certificate Account" in the prospectus), will be applied generally
as described under "Distributions--Priority" above.
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[Any optional termination by the holders of the Controlling Class, the
Special Servicer, the Servicer or the holders of the Class LR Certificates would
result in prepayment in full of the Certificates and would have an adverse
effect on the yield of the Class X Certificates because a termination would have
an effect similar to a principal prepayment in full of the mortgage loans
(without, however, the payment of any Prepayment Premiums or Yield Maintenance
Charges) and, as a result, investors in the Class X Certificates and any other
Certificates purchased at premium might not fully recoup their initial
investment. See "Yield and Maturity Considerations" in this prospectus
supplement.]
THE TRUSTEE
_________________________ will act as Trustee of the trust fund. The
corporate trust office of the Trustee responsible for administration of the
Trust is located at _________________________, Attention:
_________________________. In its _________________________ as of
_________________________, _________________________, a
_________________________, reported total assets of $_________________________.
As compensation for the performance of its duties, the Trustee will be paid a
fee (the "Trustee Fee"). The Trustee Fee will be payable monthly on a
loan-by-loan basis from amounts received in respect of the mortgage loans and
will accrue at a rate (the "Trustee Fee Rate"), calculated on the basis of a
360-day year consisting of twelve 30-day months (other than in respect of
mortgage loans that are the subject of principal prepayments applied on a date
other than a Due Date) equal to [____]% per annum, and will be computed on the
basis of the Stated Principal Balance of the related mortgage loan. In addition,
the Trustee will be entitled to recover from the trust fund all reasonable
unanticipated expenses and disbursements incurred or made by the Trustee in
accordance with any of the provisions of the Pooling and Servicing Agreement,
but not including expenses incurred in the ordinary course of performing its
duties as Trustee under the Pooling and Servicing Agreement, and not including
that expense, disbursement or advance as may arise from its willful misconduct,
negligence or bad faith. See "Description of the Pooling Agreements--The
Trustee," "--Duties of the Trustee", "--Certain Matters Regarding the Trustee"
and "--Resignation and Removal of the Trustee" in the prospectus.
SERVICING OF THE MORTGAGE LOANS
GENERAL
The servicing of the mortgage loans and any REO Properties will be
governed by the Pooling and Servicing Agreement. The following summaries
describe certain provisions of the Pooling and Servicing Agreement relating to
the servicing and administration of the mortgage loans and any REO Properties.
The summaries do not purport to be complete and are subject, and qualified in
their entirety by reference, to the provisions of the Pooling and Servicing
Agreement. Reference is made to the prospectus for additional information
regarding the terms of the Pooling and Servicing Agreement relating to the
servicing and administration of the mortgage loans and any REO Properties,
provided that the information in this prospectus supplement supersedes any
contrary information set forth in the prospectus. See "Description of the
Pooling Agreements" in the prospectus.
Each of the Servicer (directly or through one or more subservicers) and
the Special Servicer will be required to service and administer the mortgage
loans for which it is responsible. The Servicer may delegate and/or assign some
or all of its servicing obligations and duties with respect to some or all of
the mortgage loans to one or more affiliates so long as the delegation and/or
assignment, in and of itself, does not cause the qualification, withdrawal or
downgrading of the then-current ratings assigned to any class of Certificates as
confirmed in writing by the Rating Agencies. The Servicer will be permitted, at
its own expense, to employ subservicers, agents or attorneys in performing any
of its obligations under the Pooling and Servicing Agreement, but will not be
thereby relieved of any such obligation, and will be responsible for the acts
and omissions of any such subservicers, agents or attorneys. Except in certain
limited circumstances set forth in the Pooling and Servicing Agreement, the
Special Servicer will not be permitted to appoint subservicers with respect to
any of its servicing obligations and duties.
The Servicer and the Special Servicer will be required to service and
administer the mortgage loans for which each is responsible on behalf of the
Trustee and in the best interests of and for the benefit of the
Certificateholders (as determined by the Servicer or the Special Servicer, as
the case may be, in its good faith and reasonable judgment), in accordance with
applicable law, the terms of the Pooling and Servicing Agreement, and the
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terms of the respective mortgage loans. To the extent consistent with the
foregoing, the Servicer and the Special Servicer are required to adhere to the
higher of the following standards of care:
(1) the same manner in which, and with the same care, skill,
prudence and diligence with which the 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 the customary and
usual standards of practice of prudent institutional commercial and
multifamily mortgage lenders servicing their own mortgage loans; and
(2) the same care, skill, prudence and diligence with which the
Servicer or the Special Servicer, as the case may be, services and
administers commercial and multifamily mortgage loans owned by the
Servicer or the Special Servicer, as the case may be.
In acting in accordance with the higher of the standards, the Servicer and the
Special Servicer must exercise reasonable business judgment and act in
accordance with applicable law, the terms of the Pooling and Servicing
Agreement, the respective mortgage loans or Specially Serviced Mortgage Loans,
as applicable, and with a view to the maximization of timely recovery of
principal and interest on the mortgage loans or Specially Serviced Mortgage
Loans, as applicable, and the best interests of the Trust and the
Certificateholders, as determined by the Servicer or the Special Servicer, as
the case may be, in its reasonable judgment. In doing so, the Servicer and the
Special Servicer are required not to take into account:
(A) any relationship that the Servicer or the Special
Servicer, as the case may be, or any of its affiliates, may have
with the related borrower or any other party to the Pooling and
Servicing Agreement;
(B) the ownership of any Certificate by the Servicer or the
Special Servicer, as the case may be, or any of its affiliates;
(C) the Servicer's obligation to make Advances, whether in
respect of delinquent payments of principal and/or interest or to
cover certain servicing expenses;
(D) the Servicer's or the Special Servicer's, as the case may
be, right to receive compensation for its services under the Pooling
and Servicing Agreement or with respect to any particular
transaction;
(E) the servicing of any other mortgage loans for itself or on
behalf of others; and
(F) any obligation of the Servicer (in its capacity as the
Mortgage Loan Seller) to cure a breach of a representation or
warranty or repurchase a mortgage loan. The foregoing standards to
which the Servicer and the Special Servicer are subject are
collectively referred to as the "Servicing Standards".
Except as otherwise described under "--Inspections; Collection of
Operating Information" below, the Servicer initially will be responsible for the
servicing and administration of the entire Mortgage Pool. With respect to any
mortgage loan (1) as to which a payment default has occurred at its original
maturity date, or, if the original maturity date has been extended, at its
extended maturity, (2) as to which any Monthly Payment (other than a Balloon
Payment) is more than 60 days delinquent, (3) as to which the borrower has
entered into or consented to bankruptcy, appointment of a receiver or
conservator or a similar insolvency proceeding, or the borrower has become the
subject of a decree or order for that proceeding (provided that if the
appointment, decree or order is stayed or discharged, or the consent revoked
within 60 days that mortgage loan shall not be considered a Specially Serviced
Mortgage Loan during that period), or the related borrower has admitted in
writing its inability to pay its debts generally as they become due, (4) as to
which the Servicer shall have received notice of the foreclosure or proposed
foreclosure of any other lien on the Mortgaged Property, (5) as to which, in the
judgment of the Servicer, a payment default has occurred or is reasonably
foreseeable and is not likely to be cured by the borrower within 60 days, and
prior to acceleration of amounts due under the related Mortgage Note or
commencement of any foreclosure or similar proceedings or (6) as to which a
default of which the Servicer has notice (other than a failure by the related
borrower to pay principal or interest) and which materially and adversely
affects the interests of the
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Certificateholders has occurred and remains unremediated for the applicable
grace period specified in the mortgage loan (or if no grace period is specified,
60 days), the Servicer will be required to transfer its servicing
responsibilities to the Special Servicer, but will be required to continue to
receive payments on the mortgage loan (including amounts collected by the
Special Servicer), to make certain calculations with respect to the mortgage
loan and to make remittances and prepare certain reports to the
Certificateholders with respect to that mortgage loan. If the related Mortgaged
Property is acquired in respect of that mortgage loan (upon acquisition, an "REO
Property") whether through foreclosure, deed-in-lieu of foreclosure or
otherwise, the Special Servicer will continue to be responsible for its
operation and management. The mortgage loans serviced by the Special Servicer
and any mortgage loans that have become REO Properties are referred to in this
prospectus supplement as the "Specially Serviced Mortgage Loans". The Servicer
shall have no responsibility for the performance by the Special Servicer of its
duties under the Pooling and Servicing Agreement.
If any Specially Serviced Mortgage Loan, in accordance with its original
terms or as modified in accordance with the Pooling and Servicing Agreement,
becomes a performing mortgage loan for at least 90 days (provided no additional
event of default is foreseeable in the reasonable judgment of the Special
Servicer), the Special Servicer will be required to return servicing of that
mortgage loan (a "Corrected Mortgage Loan") to the Servicer.
[The Special Servicer will be required to prepare a report (an "Asset
Status Report") for each mortgage loan which becomes a Specially Serviced
Mortgage Loan not later than 45 days after the servicing of the mortgage loan is
transferred to the Special Servicer. Each Asset Status Report will be delivered
to the Directing Certificateholder (as defined below), the Depositor and the
Rating Agencies, provided however, the Special Servicer will not be required to
deliver an Asset Status Report to the Directing Certificateholder if they are
the same entity. If the Directing Certificateholder does not disapprove an Asset
Status Report within 10 business days, the Special Servicer will be required to
implement the recommended action as outlined in the Asset Status Report. The
Directing Certificateholder may object to any Asset Status Report within 10
business days of receipt; provided, however, that the Special Servicer will be
required to implement the recommended action as outlined in the Asset Status
Report if it makes a determination in accordance with the Servicing Standards
that the objection is not in the best interest of all the Certificateholders or
violates the servicing standards. If the Directing Certificateholder disapproves
the Asset Status Report and the Special Servicer has not made the affirmative
determination described above, the Special Servicer will be required to revise
the Asset Status Report as soon as practicable thereafter, but in no event later
than 30 days after that disapproval. The Special Servicer will be required to
revise the Asset Status Report until the Directing Certificateholder fails to
disapprove the revised Asset Status Report as described above or until the
Special Servicer makes a determination that the objection is not in the best
interests of the Certificateholders.]
[The "Directing Certificateholder" will be the Controlling Class
Certificateholder selected by more than 50% of the Controlling Class
Certificateholders, by Certificate Balance, as certified by the Trustee from
time to time; provided, however, that (1) absent that selection, or (2) until a
Directing Certificateholder is so selected or (3) upon receipt of a notice from
a majority of the Controlling Class Certificateholders, by Certificate Balance,
that a Directing Certificateholder is no longer designated, the Controlling
Class Certificateholder that owns the largest aggregate Certificate Balance of
the Controlling Class will be the Directing Certificateholder.]
[A "Controlling Class Certificateholder" is each holder (or Certificate
Owner, if applicable) of a Certificate of the Controlling Class as certified to
the Trustee from time to time by the holder (or Certificate Owner).]
[The "Controlling Class" will be as of any time of determination the most
subordinate class of Certificates then outstanding that has a Certificate
Balance at least equal to the lesser of (a) 1% of the Initial Pool Balance or
(b) 20% of the initial Certificate Balance of that Class, in the case of the
Class Certificates, or 25% of the initial Certificate Balance of that Class, in
the case of any other Class.]
[The Controlling Class as of the Closing Date will be the Class
Certificates.]
The Special Servicer will not be required to take or refrain from taking
any action pursuant to instructions from the Directing Certificateholder that
would cause it to violate applicable law, the Pooling and Servicing Agreement,
including the Servicing Standards, or the REMIC Provisions.
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THE SERVICER
______________________________________, a _______________, will act as
servicer (in that capacity, the "Servicer") and in that capacity will be
responsible for servicing the mortgage loans. The principal offices of the
Servicer are located at ______________________________________. [Insert
description of Servicer.]
The information set forth in this prospectus supplement concerning the
Servicer has been provided by the Servicer, and neither the Depositor nor the
Underwriter make any representation or warranty as to the accuracy or
completeness of that information.
THE SPECIAL SERVICER
_____________________, a ___________________ ___________________, will
serve as the Special Servicer and in that capacity will be responsible for
servicing the Specially Serviced Mortgage loans. The principal offices of the
Special Servicer are located at _____________________. [Insert description of
Special Servicer.]
The information set forth in this prospectus supplement concerning the
Special Servicer has been provided by the Special Servicer, and neither the
Depositor nor the Underwriter make any representation or warranty as to the
accuracy or completeness of that information.
REPLACEMENT OF THE SPECIAL SERVICER
The Special Servicer may be removed, and a successor Special Servicer
appointed, at any time by the holders of Certificates representing more than 50%
of the aggregate Certificate Balance of the Controlling Class, provided that
each rating agency confirms in writing that the replacement of the Special
Servicer, in and of itself, will not cause a qualification, withdrawal or
downgrading of the then-current ratings assigned to any class of Certificates.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The fee of the Servicer (the "Servicing Fee") will be payable monthly on a
loan-by-loan basis from amounts received in respect of interest on each mortgage
loan, and will accrue at a rate (the "Servicing Fee Rate"), calculated on a
basis of a 360-day year consisting of twelve 30-day months equal to ______% per
annum and will be computed on the basis of the Stated Principal Balance of the
related mortgage loan. As of any date of determination, the "Administrative Cost
Rate" will be equal to the sum of the Servicing Fee Rate and the Trustee Fee
Rate, and shall _____% per annum. In addition to the Servicing Fee, the Servicer
will be entitled to retain, as additional servicing compensation, (1) a
percentage of all assumption and modification fees paid by the borrowers on
mortgage loans that are not Specially Serviced Mortgage Loans, and (2) late
payment charges and default interest paid by the borrowers (other than on
Specially Serviced Mortgage Loans), but only to the extent the amounts are not
needed to pay interest on Advances. The Servicer also is authorized but not
required to invest or direct the investment of funds held in the Certificate
Account and the Distribution Accounts in Permitted Investments, and the Servicer
will be entitled to retain any interest or other income earned on those funds
and will bear any losses resulting from the investment of those funds. The
Servicer also is entitled to retain any interest earned on any servicing escrow
account to the extent the interest is not required to be paid to the related
borrowers. The Servicer will be obligated to pay the annual fees of each rating
agency.
The principal compensation to be paid to the Special Servicer in respect
of its special servicing activities will be the Special Servicing Fee, the
Workout Fee and the Liquidation Fee.
The "Special Servicing Fee" will accrue with respect to each Specially
Serviced Mortgage Loan at a rate equal to ____% per annum (the "Special
Servicing Fee Rate") calculated on the basis of the Stated Principal Balance of
the related Specially Serviced Mortgage Loans and on the basis of a 360-day year
consisting of twelve 30-day months, and will be payable monthly from the trust
fund. That fee will be calculated on a basis of a 360-day year consisting of
twelve 30-day months.
The "Workout Fee" will generally be payable with respect to each Corrected
Mortgage Loan and will be calculated by application of a "Workout Fee Rate" of
____% to each collection of interest and principal (including
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scheduled payments, prepayments, Balloon Payments, and payments at maturity)
received on the respective mortgage loan for so long as it remains a Corrected
Mortgage Loan. The Workout Fee with respect to any Corrected Mortgage Loan will
cease to be payable if the Corrected Mortgage Loan again becomes a Specially
Serviced Mortgage Loan but will become payable again if and when the mortgage
loan again becomes a Corrected Mortgage Loan. If the Special Servicer is
terminated (other than for cause), it shall retain the right to receive any and
all Workout Fees payable with respect to mortgage loans that became Corrected
Mortgage Loans during the period that it acted as Special Servicer and were
still Corrected Mortgage Loans at the time of that termination or resignation
(and the successor Special Servicer shall not be entitled to any portion of the
Workout Fees), in each case until the Workout Fee for that loan ceases to be
payable in accordance with the preceding sentence.
A "Liquidation Fee" will be payable with respect to each Specially
Serviced Mortgage Loan as to which the Special Servicer obtains a full or
discounted payoff with respect thereto from the related borrower and, except as
otherwise described below, with respect to any Specially Serviced Mortgage Loan
or REO Property as to which the Special Servicer receives any Liquidation
Proceeds. The Liquidation Fee for each Specially Serviced Mortgage Loan will be
payable from, and will be calculated by application of a "Liquidation Fee Rate"
of ____% to the related payment or proceeds. Notwithstanding anything to the
contrary described above, no Liquidation Fee will be payable based on, or out
of, Liquidation Proceeds received in connection with the repurchase of any
mortgage loan by the Mortgage Loan Seller for a breach of representation or
warranty or for defective or deficient mortgage loan documentation, the purchase
of any Specially Serviced Mortgage Loan by the Servicer or the Special Servicer
or the purchase of all of the mortgage loans and REO Properties in connection
with an optional termination of the trust fund. If, however, Liquidation
Proceeds are received with respect to any Corrected Mortgage Loan and the
Special Servicer is properly entitled to a Workout Fee, that Workout Fee will be
payable based on and out of the portion of the Liquidation Proceeds that
constitutes principal and/or interest.
The Special Servicer will also be entitled to additional servicing
compensation in the form of a percentage of all assumption fees, extension fees
and modification fees received on or with respect to mortgage loans and all
assumption fees, modification fees and all extension fees received on or with
respect to Specially Serviced Mortgage Loans, except for the fees described
above that the Servicer is entitled to. The Special Servicer will also be
entitled to late payment charges and default interest paid by the borrowers on
Specially Serviced Mortgage Loans, but only to the extent those amounts are not
needed to pay interest on Advances. [The Special Servicer will not be entitled
to retain any portion of Excess Interest paid on the APD Mortgage Loans.]
Although the Servicer and the Special Servicer are each required to
service and administer the Mortgage Pool in accordance with the Servicing
Standards above and, accordingly, without regard to its right to receive
compensation under the Pooling and Servicing Agreement, additional servicing
compensation in the nature of assumption and modification fees may under certain
circumstances provide the Servicer or the Special Servicer, as the case may be,
with an economic disincentive to comply with that standard.
As and to the extent described in this prospectus supplement under
"Description of the Certificates--Advances," the Servicer will be entitled to
receive interest on Advances, which will be paid contemporaneously with the
reimbursement of the related Advance.
Each of the Servicer and the Special Servicer generally will be required
to pay all expenses incurred by it in connection with its servicing activities
under the Pooling and Servicing Agreement and will not be entitled to
reimbursement for such expense except as expressly provided in the Pooling and
Servicing Agreement. In connection therewith, the Servicer will be responsible
for all fees of any subservicers. See "Description of the
Certificates--Distributions--Method, Timing and Amount" in this prospectus
supplement and "Description of the Pooling Agreements--Certificate Account" and
"--Servicing Compensation and Payment of Expenses" in the prospectus.
MAINTENANCE OF INSURANCE
To the extent permitted by the related mortgage loan and required by the
Servicing Standards, the Servicer will be required to use its reasonable best
efforts to (1) cause each borrower to maintain or (2) itself maintain (to the
extent available at commercially reasonable rates), a fire and hazard insurance
policy with extended coverage covering the related Mortgaged Property. The
coverage of that kind of policy will be in an amount that is not less than the
lesser of the full replacement cost of the improvements securing that mortgage
loan or the outstanding
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principal balance owing on that mortgage loan, but in any event, in an amount
sufficient to avoid the application of any co-insurance clause unless otherwise
noted in the related mortgage loan documents. Whenever the Mortgaged Property is
located in an area identified as a federally designated special flood hazard
area (and the flood insurance has been made available), the Servicer will also
be required to use its reasonable best efforts to (1) cause each borrower to
maintain (to the extent required by the related mortgage loan) or (2) itself
maintain (to the extent available at commercially reasonable rates) a flood
insurance policy in an amount representing coverage not less than the lesser of
(1) the outstanding principal balance of the related mortgage loan and (2) the
maximum amount of insurance which is available under the Flood Disaster
Protection Act of 1973, as amended, but only to the extent that the related
mortgage loan permits the lender to require the coverage and maintaining the
coverage is consistent with the Servicing Standards.
The Special Servicer will be required to maintain (or cause to be
maintained), fire and hazard insurance on each REO Property, to the extent
obtainable, in an amount which is at least equal to the lesser of (1) an amount
necessary to avoid the application of any co-insurance clause and (2) the full
replacement cost of the improvements on that REO Property. In addition, while
the REO Property is located in an area identified as a federally designated
special flood hazard area, the Special Servicer will be required to cause to be
maintained, to the extent available at commercially reasonable rates (as
determined by the Special Servicer in accordance with the Servicing Standards),
a flood insurance policy meeting the requirements of the current guidelines of
the Federal Insurance Administration in an amount representing coverage not less
than the maximum amount of insurance which is available under the Flood Disaster
Protection Act of 1973, as amended.
The Pooling and Servicing Agreement provides that the Servicer and the
Special Servicer may satisfy their respective obligations to cause each borrower
to maintain a hazard insurance policy by maintaining a blanket or master single
interest policy insuring against hazard losses on the mortgage loans and REO
Properties. Any losses incurred with respect to mortgage loans or REO Properties
due to uninsured risks (including earthquakes, mudflows and floods) or
insufficient hazard insurance proceeds may adversely affect payments to
Certificateholders. Any cost incurred by the Servicer in maintaining of that
kind of insurance policy if the borrower defaults on its obligation to do so
shall be advanced by the Servicer as a Servicing Advance and will be charged to
the related borrower. Generally, no borrower is required by the mortgage loan
documents to maintain earthquake insurance on any Mortgaged Property and the
Special Servicer will not be required to maintain earthquake insurance on any
REO Properties. Any cost of maintaining that kind of required insurance or other
earthquake insurance obtained by the Special Servicer shall be paid out of a
segregated custodial account created and maintained by the Special Servicer on
behalf of the Trustee in trust for the Certificateholders (the "REO Account") or
advanced by the Servicer as a Servicing Advance.
The costs of the insurance may be recovered by the Servicer from
reimbursements received from the borrower or, if the borrower does not pay those
amounts, as a Servicing Advance as set forth in the Pooling and Servicing
Agreement.
No pool insurance policy, special hazard insurance policy, bankruptcy
bond, repurchase bond or certificate guarantee insurance will be maintained with
respect to the mortgage loans, nor will any mortgage loan be subject to FHA
insurance.
MODIFICATIONS, WAIVER AND AMENDMENTS
The Special Servicer may agree to extend the maturity date of a mortgage
loan that is not a Specially Serviced mortgage loan; except that this extension
entered into by the Special Servicer shall not extend the maturity date beyond
the earlier of (1) two years prior to the Rated Final Distribution Date and (2)
in the case of a mortgage loan secured by a leasehold estate, the date ten years
prior to the expiration of that leasehold estate; and provided further that, if
the extension would extend the maturity date of a mortgage loan for more than
twelve months from and after the original maturity date of the mortgage loan,
the Special Servicer must obtain the opinion of counsel described in the next
sentence. Except as otherwise set forth in this paragraph, the Special Servicer
(or in certain circumstances the Servicer) may not waive, modify or amend any
provision of a mortgage loan which is not in default or as to which default is
not reasonably foreseeable except for (1) the waiver of any due-on-sale clause
or due-on-encumbrance clause to the extent permitted in the Pooling and
Servicing Agreement, and (2) any waiver, modification or amendment that would
not be a "significant modification" of the mortgage loan within the meaning
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of Treasury Regulations Section 1.860G-2(b) and as to which the Special Servicer
has provided the Trustee with an opinion of counsel that the waiver,
modification or amendment will not constitute a "significant modification."
If, but only if, the Special Servicer determines that a modification,
waiver or amendment (including the forgiveness or deferral of interest or
principal or the substitution or release of collateral or the pledge of
additional collateral) of the terms of a Specially Serviced Mortgage Loan with
respect to which a payment default or other material default has occurred or a
payment default or other material default is, in the Special Servicer's
judgment, reasonably foreseeable, is reasonably likely to produce a greater
recovery on a net present value basis (the relevant discounting to be performed
at the related mortgage rate) than liquidation of the Specially Serviced
Mortgage Loan, then the Special Servicer may, but is not required to, agree to a
modification, waiver or amendment of the Specially Serviced Mortgage Loan,
subject to the restrictions and limitations described below. The Special
Servicer will use its best efforts to the extent possible to fully amortize a
modified mortgage loan prior to the Rated Final Distribution Date.
The Special Servicer may not agree to a modification, waiver or amendment
of any term of any Specially Serviced Mortgage Loan if that modification, waiver
or amendment would:
(1) extend the maturity date of the Specially Serviced Mortgage Loan
to a date occurring later than the earlier of (A) two years prior to the
Rated Final Distribution Date and (B) if the Specially Serviced Mortgage
Loan is secured by a leasehold estate, the date ten years prior to the
expiration of the leasehold;
(2) reduce the related Net Mortgage Rate to less than the lesser of
(A) the original Net Mortgage Rate and (B) the highest Pass-Through Rate
on any class of Certificates [(other than the Class X Certificates)]; or
(3) provide for the deferral of interest unless (A) interest accrues
on the mortgage loan, generally, at the interest rate on the mortgage loan
and (B) the aggregate amount of that deferred interest does not exceed 10%
of the unpaid principal balance of the Specially Serviced Mortgage Loan.
In the event of a modification which creates a deferral of interest, the
Pooling and Servicing Agreement will provide that the amount of deferred
interest will be allocated to reduce the Distributable Certificate Interest of
the class or classes [(other than the Class X Certificates)] with the latest
alphabetical designation then outstanding, and to the extent so allocated, shall
be added to the Certificate Balance of the class or classes.
The Special Servicer or the Servicer, as the case may be, will be required
to notify each other, the Rating Agencies and the Trustee of any modification,
waiver or amendment of any term of any mortgage loan and will be required to
deliver to the Trustee for deposit in the related mortgage file, an original
counterpart of the agreement related to that modification, waiver or amendment,
promptly following its execution. Copies of each agreement whereby that
modification, waiver or amendment of any term of any mortgage loan is effected
are required to be available for review during normal business hours at the
offices of the Paying Agent. See "Description of the Certificates--Reports to
Certificateholders; Certain Available Information" in this prospectus
supplement.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
Pursuant to the Pooling and Servicing Agreement, if a default on a
mortgage loan has occurred or, in the Special Servicer's judgment, a payment
default is imminent, the Special Servicer, on behalf of the Trustee, may at any
time institute foreclosure proceedings, exercise any power of sale contained in
the related Mortgage, obtain a deed in lieu of foreclosure or otherwise acquire
title to the related Mortgaged Property, by operation of law or otherwise. The
Special Servicer is not permitted, however, to acquire title to any Mortgaged
Property or take any other action with respect to any Mortgaged Property that
would cause the Trustee, for the benefit of the Certificateholders, or any other
specified person to be considered to hold title to, to be a
"mortgagee-in-possession" of or to be an "owner" or an "operator" of the
Mortgaged Property within the meaning of certain federal environmental laws,
unless the Special Servicer has previously received a report prepared by a
person who regularly conducts environmental audits (which report will be paid by
the Servicer as a Servicing Advance) and either:
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(1) the report indicates that (a) the Mortgaged Property is in
compliance with applicable environmental laws and regulations and (b)
there are no circumstances or conditions present at the Mortgaged Property
that have resulted in any contamination for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under
any applicable environmental laws and regulations; or
(2) the Special Servicer, based solely (as to environmental matters
and related costs) on the information set forth in the report, determines
that taking those actions as are necessary to bring the Mortgaged Property
into compliance with applicable environmental laws and regulations and/or
taking the actions contemplated by clause (1)(b) above, is reasonably
likely to produce a greater recovery, taking into account the time value
of money, than not taking those actions. See "Certain Legal Aspects of
Mortgage Loans--Environmental Risks" in the prospectus.
The Pooling and Servicing Agreement grants to the Servicer and the Special
Servicer a right of first refusal to purchase from the trust fund, at the
Purchase Price, any mortgage loan as to which a specified number of scheduled
payments are delinquent. In addition, the Special Servicer may offer to sell any
defaulted mortgage loan if and when the Special Servicer determines, consistent
with the Servicing Standards, that the sale would produce a greater recovery,
taking into account the time value of money, than would liquidation of the
related Mortgaged Property. In the absence of the sale, the Special Servicer
will generally be required to proceed against the related Mortgaged Property,
subject to the discussion above.
If title to any Mortgaged Property is acquired by the trust fund, the
Special Servicer, on behalf of the trust fund, will be required to sell the
Mortgaged Property prior to the close of the third calendar year beginning after
the year of acquisition, unless (1) the Internal Revenue Service (the "IRS")
grants an extension of time to sell the property or (2) the Trustee receives an
opinion of independent counsel to the effect that the holding of the property by
the trust fund longer than that period will not result in the imposition of a
tax on either the Upper-Tier REMIC or the Lower-Tier REMIC or cause the trust
fund (or either the Upper-Tier REMIC or the Lower-Tier REMIC) to fail to qualify
as a REMIC under the Code at any time that any Certificate is outstanding.
Subject to the foregoing and any other tax-related limitations, pursuant to the
Pooling and Servicing Agreement, the Special Servicer will generally be required
to attempt to sell any Mortgaged Property so acquired on the same terms and
conditions it would if it were the owner. The Special Servicer will also be
required to ensure that any Mortgaged Property acquired by the trust fund is
administered so that it constitutes "foreclosure property" within the meaning of
Code Section 860G(a)(8) at all times, that the sale of the property does not
result in the receipt by the trust fund of any income from nonpermitted assets
as described in Code Section 860F(a)(2)(B). If the trust fund acquires title to
any Mortgaged Property, the Special Servicer, on behalf of the trust fund, will
retain, at the expense of the trust fund, an independent contractor to manage
and operate that property. The retention of an independent contractor, however,
will not relieve the Special Servicer of its obligation to manage the Mortgaged
Property as required under the Pooling and Servicing Agreement.
Generally, neither the Upper-Tier REMIC nor the Lower-Tier REMIC will be
taxable on income received with respect to a Mortgaged Property acquired by the
trust fund to the extent that it constitutes "rents from real property," within
the meaning of Code Section 856(c)(3)(A) and Treasury regulations under the
Code. "Rents from real property" include fixed rents and rents based on the
receipts or sales of a tenant but do not include the portion of any rental based
on the net income or profit of any tenant or sub-tenant. No determination has
been made whether rent on any of the Mortgaged Properties meets this
requirement. "Rents from real property" include charges for services customarily
furnished or rendered in connection with the rental of real property, whether or
not the charges are separately stated. Services furnished to the tenants of a
particular building will be considered as customary if, in the geographic market
in which the building is located, tenants in buildings which are of similar
class are customarily provided with the service. No determination has been made
whether the services furnished to the tenants of the Mortgaged Properties are
"customary" within the meaning of applicable regulations. It is therefore
possible that a portion of the rental income with respect to a Mortgaged
Property owned by the trust fund, presumably allocated based on the value of any
non-qualifying services, would not constitute "rents from real property." "Rents
from real property" also do not include income from the operation of a trade or
business on the Mortgaged Property, such as a hotel. Any of the foregoing types
of income may instead constitute "net income from foreclosure property," which
would be taxable to the Lower-Tier REMIC at the highest marginal federal
corporate rate (currently 35%) and may also be subject to state or local taxes.
The Pooling Agreement provides that the
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Special Servicer will be permitted to cause the Lower-Tier REMIC to earn "net
income from foreclosure property" that is subject to tax if it determines that
the net after-tax benefit to Certificateholders is greater than another method
of operating or net leasing the Mortgaged Property. Because these sources of
income, if they exist, are already in place with respect to the Mortgaged
Properties, it is generally viewed as beneficial to Certificateholders to permit
the trust fund to continue to earn them if it acquires a Mortgaged Property,
even at the cost of this tax. These taxes would be chargeable against the
related income for purposes of determining the proceeds available for
distribution to holders of Certificates. See "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates" and
"--Taxes That May Be Imposed on the REMIC Pool" in the prospectus.
To the extent that Liquidation Proceeds collected with respect to any
mortgage loan are less than the sum of (1) the outstanding principal balance of
the mortgage loan, (2) interest accrued on the mortgage loan and (3) the
aggregate amount of outstanding reimbursable expenses (including any
unreimbursed Servicing Advances and unpaid and accrued interest on it) incurred
with respect to that mortgage loan, then the trust fund will realize a loss in
the amount of the shortfall. The Trustee, the Servicer and/or the Special
Servicer will be entitled to reimbursement out of the Liquidation Proceeds
recovered on any mortgage loan, prior to the distribution of the Liquidation
Proceeds to Certificateholders, of any and all amounts that represent unpaid
servicing compensation in respect of the mortgage loan, certain unreimbursed
expenses incurred with respect to the mortgage loan and any unreimbursed
Advances made with respect to the mortgage loan. In addition, amounts otherwise
distributable on the Certificates will be further reduced by interest payable to
the Servicer or Trustee on those Advances.
If any Mortgaged Property suffers damage and the proceeds, if any, of the
related hazard insurance policy are insufficient to restore fully the damaged
property, the Servicer will not be required to expend its own funds to effect
the restoration unless (1) the Special Servicer determines that the restoration
will increase the proceeds to Certificateholders on liquidation of the mortgage
loan after reimbursement of the Special Servicer or the Servicer, as the case
may be, for its expenses and (2) the Servicer determines that the expenses will
be recoverable by it from related Insurance and Condemnation Proceeds and
Liquidation Proceeds.
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
The Servicer will be required to perform or cause to be performed (at its
own expense), physical inspections of each Mortgaged Property at the times and
in the manner as is consistent with the Servicing Standards, but in any event is
required to inspect each Mortgaged Property securing a Mortgage Note with a
Stated Principal Balance of (A) $2,000,000 or more at least once every 12 months
and (B) less than $2,000,000 at least once every 24 months, in each case
commencing in the calendar year 200_; provided, however, that if the Servicer
has a reasonable basis to believe that (1) the DSCR with respect to any mortgage
loan has decreased by 25% or more from the DSCR as of the Cut-off Date or (2)
the DSCR with respect to any Mortgaged Property has decreased to 0.90x or less,
the Servicer shall inspect the related Mortgaged Property as soon as practicable
thereafter (the cost of which inspection shall be a Servicing Advance);
provided, further, however, that if any scheduled payment becomes more than 60
days delinquent on the related mortgage loan, the Special Servicer is required
to inspect the related Mortgaged Property as soon as practicable thereafter (the
cost of which inspection shall be a Servicing Advance). The Special Servicer or
the Servicer, as applicable, will be required to prepare a written report of the
inspection describing the condition of and any damage to the Mortgaged Property
and specifying the existence of any material vacancies in the Mortgaged
Property, of any sale, transfer or abandonment of the Mortgaged Property, of any
material change in the condition of the Mortgaged Property, or of any waste
committed on the Mortgaged Property.
With respect to each mortgage loan that requires the borrower to deliver
those statements, the Special Servicer or the Servicer, as applicable, is also
required to collect and review the annual operating statements of the related
Mortgaged Property. [Most] of the Mortgages obligate the related borrower to
deliver annual property operating statements. However, we cannot assure you that
any operating statements required to be delivered will in fact be delivered, nor
is the Special Servicer or the Servicer likely to have any practical means of
compelling the delivery in the case of an otherwise performing mortgage loan.
Copies of the inspection reports and operating statements referred to
above are to be available for review by Certificateholders during normal
business hours at the offices of the Paying Agent. See "Description of the
Certificates--Reports to Certificateholders; Certain Available Information" in
this prospectus supplement.
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CERTAIN MATTERS REGARDING THE SERVICER, THE SPECIAL SERVICER AND THE DEPOSITOR
The Pooling and Servicing Agreement permits the Servicer and the Special
Servicer to resign from their respective obligations only upon (a) in the case
of the Servicer only, the appointment of, and the acceptance of the appointment
by, a successor and receipt by the Trustee of written confirmation from each
applicable rating agency that the resignation and appointment will, in and of
itself, not cause a downgrade, withdrawal or qualification of the rating
assigned by the rating agency to any class of certificates or (b) a
determination that the obligations are no longer permissible with respect to the
Servicer or the Special Servicer, as the case may be, under applicable law. No
resignation will become effective until the Trustee or other successor has
assumed the obligations and duties of the resigning Servicer or Special
Servicer, as the case may be, under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement will provide that none of the
Servicer, the Special Servicer (or the Special Servicer's officers and
directors), the Depositor or any director, officer, employee or agent of any of
them will be under any liability to the trust fund or the Certificateholders for
any action taken, or not taken, in good faith pursuant to the Pooling and
Servicing Agreement or for errors in judgment; provided, however, that none of
the Servicer, the Special Servicer, the Depositor or similar person will be
protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of obligations
or duties under the Pooling and Servicing Agreement or by reason of negligent
disregard of the obligations and duties. The Pooling and Servicing Agreement
will also provide that the Servicer, the Special Servicer (or the Special
Servicer's officers and directors), the Depositor and any director, officer,
employee or agent of any of them will be entitled to indemnification by the
related trust fund against any loss, liability or expense incurred in connection
with any legal action that relates to the Pooling and Servicing Agreement or the
Certificates; provided, however, that the indemnification will not extend to any
loss, liability or expense incurred by reason of willful misfeasance, bad faith
or negligence in the performance of obligations or duties under the Pooling and
Servicing Agreement, by reason of negligent disregard of the obligations or
duties, or in the case of the Depositor and any of its directors, officers,
employees and agents, any violation by any of them of any state or federal
securities law.
In addition, the Pooling and Servicing Agreement will provide that none of
the Servicer, the Special Servicer or the Depositor will be under any obligation
to appear in, prosecute or defend any legal action that is not incidental to its
respective responsibilities under the Pooling and Servicing Agreement and that
in its opinion may involve it in any expense or liability. However, each of the
Servicer, the Special Servicer and the Depositor will be permitted, in the
exercise of its discretion, to undertake any action that it may deem necessary
or desirable with respect to the enforcement and/or protection of the rights and
duties of the parties to the Pooling and Servicing Agreement and the interests
of the Certificateholders under the Pooling and Servicing Agreement. In that
event, the legal expenses and costs of the action, and any liability resulting
therefrom, will be expenses, costs and liabilities of the Certificateholders,
and the Servicer, the Special Servicer or the Depositor, as the case may be,
will be entitled to charge the Certificate Account for the expenses.
Pursuant to the Pooling and Servicing Agreement, the Servicer and Special
Servicer will each be required to maintain a fidelity bond and errors and
omissions policy or their equivalent that provides coverage against losses that
may be sustained as a result of an officer's or employee's misappropriation of
funds or errors and omissions, subject to certain limitations as to amount of
coverage, deductible amounts, conditions, exclusions and exceptions permitted by
the Pooling and Servicing Agreement. Notwithstanding the foregoing, the Servicer
will be allowed to self-insure with respect to a fidelity bond so long as
certain conditions set forth in the Pooling and Servicing Agreement are met.
Any person into which the Servicer, the Special Servicer or the Depositor
may be merged or consolidated, or any person resulting from any merger or
consolidation to which the Servicer, the Special Servicer or the Depositor is a
party, or any person succeeding to the business of the Servicer, the Special
Servicer or the Depositor, will be the successor of the Servicer, the Special
Servicer or the Depositor, as the case may be, under the Pooling and Servicing
Agreement. The Servicer and the Special Servicer may have other normal business
relationships with the Depositor or the Depositor's affiliates.
EVENTS OF DEFAULT
"Events of Default" under the Pooling and Servicing Agreement with respect
to the Servicer or the Special Servicer, as the case may be, will include,
without limitation:
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(a) any failure by the Servicer to make any remittance
required to be made by the Servicer on the day and by the time the
remittance is required to be made under the terms of the Pooling and
Servicing Agreement;
(b) any failure by the Special Servicer to deposit into the
REO Account within one business day after the day the deposit is
required to be made, or to remit to the Servicer for deposit in the
Certificate Account any remittance required to be made by the
Special Servicer on the day the remittance is required to be made
under the Pooling and Servicing Agreement;
(c) any failure by the Servicer or the Special Servicer duly
to observe or perform in any material respect any of its other
covenants or obligations under the Pooling and Servicing Agreement,
which failure continues unremedied for thirty days after a written
notice has been given to the Servicer or the Special Servicer, as
the case may be, by any other party to the Pooling and Servicing
Agreement, or to the Servicer or the Special Servicer, as the case
may be, with a copy to each other party to the related Pooling and
Servicing Agreement, by Certificateholders of any Class, evidencing,
as to the Class, Percentage Interests aggregating not less than 25%;
provided, however, if that failure is capable of being cured and the
Master Servicer or Special Servicer, as applicable, is diligently
pursuing that cure, that 30 day period will be extended an
additional 30 days;
(d) any breach on the part of the Master Servicer or the
Special Servicer of any representation or warranty in the Pooling
and Servicing Agreement which materially and adversely affects the
interests of any class of Certificateholders and which continues
unremedied for a period of 30 days after the date on which notice of
that breach, requiring the same to be remedied, shall have been
given to the Master Servicer or the Special Servicer, as the case
may be, by the Depositor or the Trustee, or to the Master Servicer,
the Special Servicer, the Depositor and the Trustee by the Holders
of Certificates of any Class evidencing, as to that Class,
Percentage Interests aggregating not less than 25%; provided
however, if that breach is capable of being cured and the Master
Servicer or Special Servicer, as applicable, is diligently pursuing
that cure, that 30-day period will be extended an additional 30
days;
(e) certain events of insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings in
respect of or relating to the Servicer or the Special Servicer, and
certain actions by or on behalf of the Servicer or the Special
Servicer indicating its insolvency or inability to pay its
obligations; provided, however, if that breach is capable of being
cured and the Master Servicer or Special Servicer, as applicable, is
diligently pursuing that cure;
(f) the Trustee shall have received written notice from any
rating agency [(other than S&P)] that the continuation of the
Servicer or the Special Servicer in that capacity would result, or
has resulted, in a downgrade, qualification or withdrawal of any
rating then assigned by a rating agency to any class of
Certificates[; and
(g) the Master Servicer or the Special Servicer is removed
from S&P's approved master servicer list or approved special
servicer list, as applicable, and the removal coincides with the
downgrade, qualification (including, without limitation, "negative
credit watch") or withdrawal of the ratings of any of the
Certificates by S&P].
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default occurs with respect to the Servicer or the Special
Servicer under the Pooling and Servicing Agreement, then, in each and every
similar case, so long as the Event of Default remains unremedied, the Depositor
or the Trustee will be authorized, and at the direction of Certificateholders
entitled to not less than 51% of the Voting Rights, the Trustee will be
required, to terminate all of the rights and obligations of the defaulting party
as Servicer or Special Servicer, as applicable, under the Pooling and Servicing
Agreement, whereupon the Trustee will succeed to all of the responsibilities,
duties and liabilities of the defaulting party as Servicer or Special Servicer,
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as applicable, under the Pooling and Servicing Agreement and will be entitled to
similar compensation arrangements. If the Trustee is unwilling or unable so to
act, it may (or, at the written request of Certificateholders entitled to not
less than 51% of the Voting Rights, it will be required to) appoint, or petition
a court of competent jurisdiction to appoint, a loan servicing institution or
other entity that would not result in the downgrading, qualification or
withdrawal of the ratings assigned to any class of Certificates by any rating
agency to act as successor to the Servicer or Special Servicer, as the case may
be, under the Pooling and Servicing Agreement.
No Certificateholder will have any right under the Pooling and Servicing
Agreement to institute any proceeding with respect to the Certificates or the
Pooling and Servicing Agreement unless the holder previously has given to the
Trustee written notice of default and the continuance of the default and unless
the holders of Certificates of any Class evidencing not less than 25% of the
aggregate Percentage Interests constituting the Class have made written request
upon the Trustee to institute a proceeding in its own name (as Trustee) and have
offered to the Trustee reasonable indemnity, and the Trustee for 60 days after
receipt of the request and indemnity has neglected or refused to institute the
proceeding. However, the Trustee will be under no obligation to exercise any of
the trusts or powers vested in it by the Pooling and Servicing Agreement or to
institute, conduct or defend any related litigation at the request, order or
direction of any of the Certificateholders, unless the Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred as a result.
AMENDMENT
The Pooling and Servicing Agreement may be amended by the parties thereto,
without the consent of any of the holders of Certificates:
(a) to cure any ambiguity;
(b) to correct or supplement any of its provisions which may be
inconsistent with any other provisions or to correct any error;
(c) to change the timing and/or nature of deposits in the
Certificate Account, the Distribution Accounts or the REO Account,
provided that (A) the change would not adversely affect in any material
respect the interests of any Certificateholder, as evidenced by an opinion
of counsel (at the expense of the party requesting the amendment) and (B)
the change would not result in the downgrading, qualification or
withdrawal of the ratings assigned to any class of Certificates by any
rating agency, as evidenced by a letter from each rating agency;
(d) to modify, eliminate or add to any of its provisions (A) to the
extent as will be necessary to maintain the qualification of the trust
fund (or either the Upper-Tier REMIC or Lower-Tier REMIC) as a REMIC or to
avoid or minimize the risk of imposition of any tax on the trust fund,
provided that the Trustee has received an opinion of counsel (at the
expense of the party requesting the amendment) to the effect that (1) the
action is necessary or desirable to maintain the qualification or to avoid
or minimize the risk and (2) the action will not adversely affect in any
material respect the interests of any holder of the Certificates or (B) to
restrict the transfer of the Residual Certificates, provided that the
Depositor has determined that the amendment will not give rise to any tax
with respect to the transfer of the Residual Certificates to a
non-permitted transferee (see "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates" and
"--Taxation of Residual Certificates" in the prospectus);
(e) to make any other provisions with respect to matters or
questions arising under the Pooling and Servicing Agreement or any other
change, provided that the action will not adversely affect in any material
respect the interests of any Certificateholder, as evidenced by an opinion
of counsel or confirmation in writing from each Rating Agency that such
amendment will not result in a qualification, withdrawal or downgrade of
the then current ratings assigned to the Certificates; or
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(f) to amend or supplement any provision of the Pooling and
Servicing Agreement to the extent necessary to maintain the ratings
assigned to each class of Certificates by each rating agency.
The Pooling and Servicing Agreement may also be amended by the parties
thereto with the consent of the holders of Certificates of each Class affected
thereby evidencing, in each case, not less than 66 2/3% of the aggregate
Percentage Interests constituting the Class for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Pooling and Servicing Agreement or of modifying in any manner the rights of
the holders of the Certificates, except that the amendment may not (1) reduce in
any manner the amount of, or delay the timing of, payments received on the
mortgage loans which are required to be distributed on a Certificate of any
Class without the consent of the holder of the Certificate, (2) reduce the
aforesaid percentage of Certificates of any Class the holders of which are
required to consent to that amendment without the consent of the holders of all
Certificates of the Class then outstanding or (3) adversely affect the Voting
Rights of any class of Certificates without the consent of the holders of all
Certificates of the Class then outstanding.
Notwithstanding the foregoing, the Trustee will not be required to consent
to any amendment to the Pooling and Servicing Agreement without having first
received an opinion of counsel (at the trust fund's expense) to the effect that
the amendment or the exercise of any power granted to the Servicer, the Special
Servicer, the Depositor, the Trustee or any other specified person in accordance
with any amendment, will not result in the imposition of a tax on the REMIC
constituted by the trust fund or cause the trust fund (or either the Upper-Tier
REMIC or Lower-Tier REMIC) to fail to qualify as a REMIC [or cause the grantor
trust to fail to qualify as a grantor trust].
YIELD AND MATURITY CONSIDERATIONS
YIELD CONSIDERATIONS
GENERAL. The yield on any Offered Certificate will depend on: (1) the
Pass-Through Rate for the Certificate; (2) the price paid for the Certificate
and, if the price was other than par, the rate and timing of payments of
principal on that Certificate; (3) the aggregate amount of distributions on that
Certificate and (4) the aggregate amount of Collateral Support Deficit amounts
allocated to the class of Offered Certificates.
PASS-THROUGH RATE. The Pass-Through Rate applicable to each class of
Offered Certificates for any Distribution Date will equal the rate set forth on
the cover of this prospectus supplement. See "Description of the Certificates"
in this prospectus supplement.
RATE AND TIMING OF PRINCIPAL PAYMENTS. The yield to holders of Offered
Certificates that are purchased at a discount or premium will be affected by the
rate and timing of principal payments on the mortgage loans (including principal
prepayments on the mortgage loans resulting from both voluntary prepayments by
the mortgagors and involuntary liquidations). The rate and timing of principal
payments on the mortgage loans will in turn be affected by their amortization
schedules, the dates on which Balloon Payments are due, any extensions of
maturity dates by the Servicer or the Special Servicer and the rate and timing
of principal prepayments and other unscheduled collections on the mortgage loan
(including for this purpose, collections made in connection with liquidations of
mortgage loans due to defaults, casualties or condemnations affecting the
Mortgaged Properties, or purchases of mortgage loans out of the trust fund). [In
addition, although the borrowers under an APD Mortgage Loan may have certain
incentives to prepay APD Mortgage Loans on their Anticipated Prepayment Dates,
we cannot assure you that the related Borrowers will be able to prepay the APD
Mortgage Loans on their Anticipated Prepayment Date. The failure of a Borrower
to prepay the APD Mortgage Loans on their Anticipated Prepayment Dates will not
be an event of default under the terms of the APD Mortgage Loans, and pursuant
to the terms of the Pooling and Servicing Agreement, neither the Servicer nor
the Special Servicer will be permitted to take any enforcement action with
respect to a Borrower's failure to pay Excess Interest or principal in excess of
the principal component of the constant Monthly Payment, other than requests for
collection, until the scheduled maturity of the APD Mortgage Loans; provided,
that the Servicer or the Special Servicer, as the case may be, may take action
to enforce the trust fund's right to apply excess cash flow to principal in
accordance with the terms of the APD Mortgage Loans documents]. [See "Risk
Factors--Borrower May Be Unable to Repay Remaining Principal Balance on Maturity
Date [or Anticipated Prepayment Date]" in this prospectus supplement.]
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Prepayments and, assuming the respective stated maturity dates for the
mortgage loans have not occurred, liquidations and purchases of the mortgage
loans, will result in distributions on the Offered Certificates of amounts that
would otherwise be distributed over the remaining terms of the mortgage loans.
Defaults on the mortgage loans, particularly at or near their stated maturity
dates, may result in significant delays in payments of principal on the mortgage
loans (and, accordingly, on the Offered Certificates) while work-outs are
negotiated or foreclosures are completed. See "Servicing of the Mortgage
Loans--Modifications, Waiver and Amendments" and "--Realization Upon Defaulted
Mortgage Loans" in this prospectus supplement and "Certain Legal Aspects of
Mortgage Loans--Foreclosure" in the prospectus. [In general, the Class X
Certificates will be extremely sensitive to the rate of principal prepayments,
principal losses and interest rate reductions due to modifications on 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 below), we
cannot assure you as to the rate or the rate of principal prepayments in
particular. We are not aware of any relevant publicly available or authoritative
statistics with respect to the historical prepayment experience of a large group
of mortgage loans comparable to the mortgage loans.
The extent to which the yield to maturity of any class of Offered
Certificates may vary from the anticipated yield will depend upon the degree to
which the Certificates are purchased at a discount or premium and when, and to
what degree, payments of principal on the mortgage loans are in turn distributed
on the Certificates. An investor should consider, in the case of any Offered
Certificate purchased at a discount, the risk that a slower than anticipated
rate of principal payments on the mortgage loans will result in an actual yield
to the investor that is lower than the anticipated yield and, in the case of any
Offered Certificate purchased at a premium, [particularly the Class X
Certificates,] the risk that a faster than anticipated rate of principal
payments on the mortgage loans will result in an actual yield to an investor
that is lower than the anticipated yield. In general, the earlier a payment of
principal is distributed on an Offered Certificate purchased at a discount or
premium, the greater will be the effect on an investor's yield to maturity. As a
result, the effect on an investor's yield of principal payments distributed on
an investor's Offered Certificates occurring at a rate higher (or lower) than
the rate anticipated by the investor during any particular period would not be
fully offset by a subsequent like reduction (or increase) in the rate of
principal payments.
[With respect to the mortgage loans that are adjustable rate mortgage
loans ("ARMs"), the Depositor is not aware of any publicly available statistics
that set forth principal prepayment experience or prepayment forecasts of
commercial or multifamily mortgage loans over an extended period of time, either
for fixed-rate loans or ARMs. The rate of principal prepayments with respect to
ARMs has fluctuated in recent years. As is the case with fixed-rate mortgage
loans, ARMs may be subject to a greater rate of principal prepayments in a
declining interest rate environment. For example, if prevailing interest rates
fall significantly, ARMs could be subject to higher prepayment rates than if
prevailing interest rates remain constant because the availability of fixed-rate
mortgage loans at competitive interest rates may encourage mortgagors to
refinance their ARMs to "lock in" a lower fixed interest rate. No assurances can
be given as to the rate of prepayments on the Mortgage Loans in stable or
changing interest rate environments.]
LOSSES AND SHORTFALLS. The yield to holders of the Offered Certificates
will also depend on the extent to which the holders are required to bear the
effects of any losses or shortfalls on the mortgage loans. Losses and other
shortfalls on the mortgage loans will generally be borne by the holders of the
Class J, Class I, Class H, Class G, Class F, Class E, Class D, Class C and Class
B Certificates, in that order, and in each case to the extent of amounts
otherwise distributable in respect of the class of Certificates. In the event of
the reduction of the Certificate Balances of all those classes of Certificates
to zero, the resulting losses and shortfalls will then be borne, pro rata, by
the Class A-1 and Class A-2 Certificates [(and Class X Certificates with respect
to shortfalls of interest)].
CERTAIN RELEVANT FACTORS. The rate and timing of principal payments and
defaults and the severity of losses on the mortgage loans may be affected by a
number of factors, including, without limitation, prevailing interest rates, the
terms of the mortgage loans (for example, due-on-sale clauses, Lockout Periods,
Prepayment Premiums or Yield Maintenance Charges 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 properties in those areas, the quality of management of
the Mortgaged Properties, the servicing of the mortgage loans, possible changes
in tax laws and other opportunities for investment. See "Risk Factors" and
"Description of the Mortgage Pool" in this prospectus supplement and "Risk
Factors" and "Yield and Maturity Considerations--Yield and Prepayment
Considerations" in the prospectus.
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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 as the mortgage loans. When the prevailing market interest rate
is below a mortgage coupon, a borrower may have an increased incentive to
refinance its mortgage loan. However, under all of the mortgage loans voluntary
prepayments are subject to Lockout Periods and/or Prepayment Premium Periods
and/or Yield Maintenance Periods. See "Description of the Mortgage Pool--Certain
Terms and Conditions of the Mortgage Loans--Prepayment Provisions" in this
prospectus supplement.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity interest, 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 those factors, as to the percentage of
the principal balance of the mortgage loans that will be prepaid or as to which
a default will have occurred as of any date or as to the overall rate of
prepayment or default on the mortgage loans.
DELAY IN PAYMENT OF DISTRIBUTIONS. Because each monthly distribution is
made on each Distribution Date, which is at least 17 days after the end of the
related Interest Accrual Period, the effective yield to the holders of the
Offered Certificates will be lower than the yield that would otherwise be
produced by the applicable Pass-Through Rates and purchase prices (assuming the
prices did not account for the delay).
UNPAID DISTRIBUTABLE CERTIFICATE INTEREST. As described under "Description
of the Certificates--Distributions--Priority" in this prospectus supplement, if
the portion of the Available Distribution Amount distributable in respect of
interest on any class of Offered Certificates on any Distribution Date is less
than the Distributable Certificate Interest then payable for that Class, the
shortfall will be distributable to holders of that class of Certificates on
subsequent Distribution Dates, to the extent of available funds. The shortfall
will not bear interest, however, so it will negatively affect the yield to
maturity of the class of Certificates for so long as it is outstanding.
WEIGHTED AVERAGE LIFE
The weighted average life of an Offered Certificate [(other than the Class
X Certificates)] refers to the average amount of time that will elapse from the
date of its issuance until each dollar allocable to principal of the Certificate
is distributed to the investor. The weighted average life of an Offered
Certificate will be influenced by, among other things, the rate at which
principal on the mortgage loans is paid or otherwise collected, which may be in
the form of scheduled amortization, voluntary prepayments, Insurance and
Condemnation Proceeds and Liquidation Proceeds.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this prospectus supplement is the "Constant Prepayment
Rate" or "CPR" model. The CPR model represents an assumed constant annual rate
of prepayment each month, expressed as a per annum percentage of the
then-scheduled principal balance of the pool of mortgage loans. As used in each
of the following tables, the column headed "0% CPR" assumes that none of the
mortgage loans is prepaid before maturity [or the Anticipated Prepayment Date],
as the case may be. The columns headed "3% CPR", "6% CPR", "9% CPR" and "12%
CPR" assume that prepayments on the mortgage loans are made at those levels of
CPR following the expiration of any Lockout Period. We cannot assure you,
however, that prepayments of the mortgage loans will conform to any level of
CPR, and no representation is made that the mortgage loans will prepay at the
levels of CPR shown or at any other prepayment rate.
The following tables indicate the percentage of the initial Certificate
Balance of each class of the Offered Certificates [(other than the Class X
Certificates)] that would be outstanding after each of the dates shown at
various CPRs and the corresponding weighted average life of each class of
Certificates. The tables have been prepared on the basis of the following
assumptions, among others:
(a) scheduled monthly payments of principal and/or interest on the
mortgage loans (or, with respect to [__] mortgage loans, representing
approximately ____% of the Initial Pool Balance, annual payments of
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principal), in each case prior to any prepayment of the mortgage loan,
will be timely received (with no defaults) and will be distributed on the
___th day of each month commencing in _______ 200_;
(b) the mortgage rate in effect for each mortgage loan as of the
Cut-off Date will remain in effect to maturity [or the Anticipated
Prepayment Date], as the case may be, and will be adjusted as required
pursuant to the definition of mortgage rate;
(c) the monthly (except with respect to the mortgage loans
(identified as Loan numbers ___ and ___ on Annex A hereto) which mortgage
loans have monthly payments of interest and annual payments of principal)
principal and/or interest payment due for each mortgage loan on the first
Due Date following the Cut-off Date) will continue to be due on each Due
Date until maturity [or the Anticipated Prepayment Date], as the case may
be, except in the case of the __ mortgage loans (identified as Loan
Numbers ___ and ___ on Annex A hereto), which mortgage loan is assumed to
amortize in accordance with the amortization schedules set forth on Annex
A after an interest-only period of approximately ____ months from
origination;
(d) any principal prepayments on the mortgage loans will be received
on their respective Due Dates after the expiration of any applicable
Lockout Period at the respective levels of CPR set forth in the tables;
(e) the mortgage loan Seller will not be required to repurchase any
mortgage loan, and none of the Servicer, the Special Servicer, the holders
of the Controlling Class or the holders of the Class LR Certificates will
exercise its option to purchase all the mortgage loans and thereby cause
an early termination of the trust fund;
(f) no Prepayment Premiums or Yield Maintenance Charges are included
in any allocations or calculations;
(g) any principal prepayments received on the mortgage loans are
prepayments in full;
(h) the Closing Date is __, 200_;
(i) [the APD Mortgage Loans prepay on their Anticipated Prepayment
Date; and]
(j) [with respect to the table for Class X Certificates, there are
no Withheld Loans.]
To the extent that the mortgage loans have characteristics that differ from
those assumed in preparing the tables set forth below, a class of Offered
Certificates [(other than the Class X Certificates)] may mature earlier or later
than indicated by the tables. It is highly unlikely that the mortgage loans will
prepay at any constant rate until maturity or that all the mortgage loans will
prepay at the same rate. In addition, variations in the actual prepayment
experience and the balance of the mortgage loans that prepay may increase or
decrease the percentages of initial Certificate Balances (and weighted average
lives) shown in the following tables. These variations may occur even if the
average prepayment experience of the mortgage loans were to equal any of the
specified CPR percentages. Investors are urged to conduct their own analyses of
the rates at which the mortgage loans may be expected to prepay. Based on the
foregoing assumptions, the following tables indicate the resulting weighted
average lives of each class of Offered Certificates [(other than the Class X
Certificates)] and set forth the percentage of the initial Certificate Balance
of that class of the Offered Certificate that would be outstanding after each of
the dates shown at the indicated CPRs.
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PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS A-1 CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
DATE 0% CPR 3% CPR 6% CPR 9% CPR 12% CPR
---- ------ ------ ------ ------ -------
Initial Percent....................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
Weighted Average Life (Years)(A)...
Estimated Month of First Principal.
Estimated Month of Maturity........
----------
(A) The weighted average life of the Class A-1 Certificates is determined by
(1) multiplying the amount of each principal distribution on it by the
number of years from the date of issuance of the Class A-1 Certificates to
the related Distribution Date, (2) summing the results and (3) dividing
the sum by the aggregate amount of the reductions in the principal balance
of the Class A-1 Certificates.
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS A-2 CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
DATE 0% CPR 3% CPR 6% CPR 9% CPR 12% CPR
---- ------ ------ ------ ------ -------
Initial Percent....................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
Weighted Average Life (Years)(A)...
Estimated Month of First Principal.
Estimated Month of Maturity........
----------
(A) The weighted average life of the Class A-2 Certificates is determined by
(1) multiplying the amount of each principal distribution on it by the
number of years from the date of issuance of the Class A-2 Certificates to
the related Distribution Date, (2) summing the results and (3) dividing
the sum by the aggregate amount of the reductions in the principal balance
of the Class A-2 Certificates.
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PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS PO CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
DATE 0% CPR 3% CPR 6% CPR 9% CPR 12% CPR
---- ------ ------ ------ ------ -------
Initial Percent....................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
Weighted Average Life (Years)(A)...
Estimated Month of First Principal.
Estimated Month of Maturity........
----------
(A) The weighted average life of the Class PO Certificates is determined by
(1) multiplying the amount of each principal distribution on it by the
number of years from the date of issuance of the Class PO Certificates to
the related Distribution Date, (2) summing the results and (3) dividing
the sum by the aggregate amount of the reductions in the principal balance
of the Class PO Certificates.
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS B CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
DATE 0% CPR 3% CPR 6% CPR 9% CPR 12% CPR
---- ------ ------ ------ ------ -------
Initial Percent....................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
Weighted Average Life (Years)(A)...
Estimated Month of First Principal.
Estimated Month of Maturity........
----------
(A) The weighted average life of the Class B Certificates is determined by (1)
multiplying the amount of each principal distribution on it by the number
of years from the date of issuance of the Class B Certificates to the
related Distribution Date, (2) summing the results and (3) dividing the
sum by the aggregate amount of the reductions in the principal balance of
the Class B Certificates.
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PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS C CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
DATE 0% CPR 3% CPR 6% CPR 9% CPR 12% CPR
---- ------ ------ ------ ------ -------
Initial Percent....................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
Weighted Average Life (Years)(A)...
Estimated Month of First Principal.
Estimated Month of Maturity........
----------
(A) The weighted average life of the Class C Certificates is determined by (1)
multiplying the amount of each principal distribution on it by the number
of years from the date of issuance of the Class C Certificates to the
related Distribution Date, (2) summing the results and (3) dividing the
sum by the aggregate amount of the reductions in the principal balance of
the Class C Certificates.
PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS D CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
DATE 0% CPR 3% CPR 6% CPR 9% CPR 12% CPR
---- ------ ------ ------ ------ -------
Initial Percent....................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
Weighted Average Life (Years)(A)...
Estimated Month of First Principal.
Estimated Month of Maturity........
----------
(A) The weighted average life of the Class D Certificates is determined by (1)
multiplying the amount of each principal distribution on it by the number
of years from the date of issuance of the Class D Certificates to the
related Distribution Date, (2) summing the results and (3) dividing the
sum by the aggregate amount of the reductions in the principal balance of
the Class D Certificates.
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PERCENT OF THE INITIAL CERTIFICATE BALANCE
OF THE CLASS E CERTIFICATES AT THE RESPECTIVE CPRS
SET FORTH BELOW:
DATE 0% CPR 3% CPR 6% CPR 9% CPR 12% CPR
---- ------ ------ ------ ------ -------
Initial Percent....................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
________________...................
Weighted Average Life (Years)(A)...
Estimated Month of First Principal.
Estimated Month of Maturity........
----------
(A) The weighted average life of the Class E Certificates is determined by (1)
multiplying the amount of each principal distribution on it by the number
of years from the date of issuance of the Class E Certificates to the
related Distribution Date, (2) summing the results and (3) dividing the
sum by the aggregate amount of the reductions in the principal balance of
the Class E Certificates.
[YIELD SENSITIVITY OF THE CLASS X CERTIFICATES
The yield to maturity on the Class X Certificates will be extremely
sensitive to the rate and timing of principal payments (including prepayments),
principal losses and interest rate reductions due to modifications on the
mortgage loans and to other factors set forth above. Investors should fully
consider the associated risks, including the risk that a rapid rate of principal
payments or principal losses on the pool of mortgage loans could result in the
failure by investors in the Class X Certificates to fully recoup their initial
investments.
ANY OPTIONAL TERMINATION BY THE SPECIAL SERVICER, THE SERVICER, THE
HOLDERS OF THE CONTROLLING CLASS OR THE HOLDERS OF THE CLASS LR CERTIFICATES
WOULD RESULT IN PREPAYMENT IN FULL OF THE CERTIFICATES AND WOULD HAVE AN ADVERSE
EFFECT ON THE YIELD OF THE CLASS X CERTIFICATES BECAUSE A TERMINATION WOULD HAVE
AN EFFECT SIMILAR TO A PRINCIPAL PREPAYMENT IN FULL OF THE MORTGAGE LOANS
(WITHOUT, HOWEVER, THE PAYMENT OF ANY PREPAYMENT PREMIUMS OR YIELD MAINTENANCE
CHARGES) AND, AS A RESULT, INVESTORS IN THE CLASS X CERTIFICATES AND ANY OTHER
CERTIFICATES PURCHASED AT PREMIUM MIGHT NOT FULLY RECOUP THEIR INITIAL
INVESTMENT. SEE "DESCRIPTION OF THE CERTIFICATES--TERMINATION; RETIREMENT OF
CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.
The table below indicates the sensitivity of the pre-tax corporate bond
equivalent yields to maturity of the Class X Certificates at various prices and
constant prepayment rates. The allocations and calculations do not take account
of any Prepayment Premiums or Yield Maintenance Charges. The yields set forth in
the table were calculated by determining the monthly discount rates that, when
applied to the assumed stream of cash flows to be paid on the Class X
Certificates, would cause the discounted present value of the assumed stream of
cash flows to equal the assumed purchase prices plus accrued interest of the
class of Certificates and converting the monthly rates to corporate bond
equivalent rates. These calculations do not take into account variations that
may occur in the interest rates at which investors may be able to reinvest funds
received by them as distributions on the Class X Certificates and consequently
do not purport to reflect the return on any investment in the class of
Certificates when the reinvestment rates are considered.
The table below has been prepared based on the assumption that
distributions are made in accordance with "Description of the Certificates" in
this prospectus supplement and on the assumptions described in clauses (1)
through (10) on pages S-____ and S-____ and with the assumed respective purchase
prices (as a percentage of the initial Notional Amount of the Class X
Certificates) of the Class X Certificates set forth in the table[, plus accrued
interest on it from _________ __, ____ to the Closing Date].
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<PAGE>
SENSITIVITY TO PRINCIPAL PREPAYMENTS OF THE PRE-TAX YIELDS
TO MATURITY OF THE CLASS X CERTIFICATES
ASSUMED
PURCHASE PRICE 0% CPR 3% CPR 6% CPR 9% CPR 12% CPR
-------------- ------ ------ ------ ------ -------
We cannot assure you that the mortgage loans will prepay at any of the
rates shown in the table or at any other particular rate, that the cash flows on
the Class X Certificates will correspond to the cash flows assumed for purposes
of the above table or that the aggregate purchase price of the Class X
Certificates will be as assumed. In addition, it is unlikely that the mortgage
loans will prepay at any of the specified percentages of CPR until maturity or
that all the mortgage loans will so prepay at the same rate. Timing of changes
in the rate of prepayments may significantly affect the actual yield to maturity
to investors, even if the average rate of principal prepayments is consistent
with the expectations of investors. Investors must make their own decisions as
to the appropriate prepayment assumption to be used in deciding whether to
purchase the Class X Certificates.]
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Certificates, Cadwalader, Wickersham & Taft,
special counsel to the Depositor, will deliver its opinion that, assuming (1)
the making of appropriate elections, (2) compliance with the provisions of the
Pooling and Servicing Agreement and (3) compliance with applicable changes in
the Internal Revenue Code of 1986, as amended (the "Code"), [including the REMIC
Provisions, for federal income tax purposes, the trust fund will qualify as two
separate real estate mortgage investment conduits (the "Upper-Tier REMIC" and
the "Lower-Tier REMIC," respectively, and each a "REMIC") within the meaning of
Sections 860A through 860G (the "REMIC Provisions") of the Code, and (1) the
Class A-1, Class A-2, [Class PO, Class X,] Class B, Class C, Class D, Class E,
Class F, Class G, Class H, Class I and Class J Certificates will evidence the
"regular interests" in the Upper-Tier REMIC and (2) the Class R and Class LR
Certificates will be the sole classes of "residual interests" in the Upper-Tier
REMIC and Lower-Tier REMIC, respectively, within the meaning of the REMIC
Provisions in effect on the date of this prospectus supplement. The Offered
Certificates are "Regular Certificates" as defined in the prospectus.]
Because they represent regular interests, each class of Offered
Certificates generally will be treated as newly originated debt instruments for
federal income tax purposes. Holders of the classes of Offered Certificates will
be required to include in income all interest on the Certificates in accordance
with the accrual method of accounting, regardless of a Certificateholder's usual
method of accounting. It is anticipated that the [Class D and Class E]
Certificates will be issued with original issue discount ("OID")for federal
income tax purposes in an amount equal to the excess of their initial
Certificate Balances over their respective issue prices (including accrued
interest). It is also anticipated that the [Class _, Class _, Class _, and Class
_] Certificates will be issued at a premium and that the [Class ] Certificates
will be issued with de minimis OID for federal income tax purposes. The
prepayment assumption that will be used in determining the rate of accrual of
OID or whether the OID is de minimis and that may be used to amortize premium,
if any, for federal income tax purposes will be based on the assumption that
subsequent to the date of any determination the mortgage loans will prepay at a
rate equal to a CPR of 0%; [provided that it is assumed that the APD Mortgage
Loans prepay on their Anticipated Prepayment Date] (the "Prepayment
Assumption"). No representation is made that the mortgage loans will prepay at
that rate or at any other rate. See "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates" and
"--Taxation of Regular Certificates" in the prospectus.
[Although unclear for federal income tax purposes, it is anticipated that
the Class X Certificates will be considered to be issued with OID in an amount
equal to the excess of all distributions of interest expected to be received on
it (assuming the weighted average of the Pass-Through Rates changes in
accordance with the Prepayment Assumption) over their issue price (including
accrued interest). Any "negative" amounts of OID on the Class X Certificates
attributable to rapid prepayments with respect to the mortgage loans will not be
deductible currently, but may be offset against future positive accruals of OID,
if any. Finally, a holder of a Class X Certificate may be entitled to a loss
deduction to the extent it becomes certain that the holder will not recover a
portion of its basis in the Certificate, assuming no further prepayments. In the
alternative, it is possible that rules similar to the "noncontingent bond
method" of the contingent interest rules in the OID Regulations, as amended on
June 12, 1996,
S-95
<PAGE>
may be promulgated with respect to the Class X Certificates. See "Certain
Federal Income Tax Consequences--Federal Income Tax Consequences for REMIC
Certificates" and "--Taxation of Regular Certificates--Original Issue Discount"
in the prospectus.] Under the noncontingent bond method, if the interest payable
for any period is greater or less than the amount projected, the amount of
income included for that period would be either increased or decreased
accordingly. Any net reduction in the income accrual for the taxable year below
zero (a "Negative Adjustment") would be treated by a Certificateholder as
ordinary loss to the extent of prior income accruals and would be carried
forward to offset future interest accruals. At maturity, any remaining Negative
Adjustment would be treated as a loss on retirement of the Certificate. The
legislative history of relevant Code provisions indicates, however, that
negative amounts of OID on an instrument such as a REMIC regular interest may
not give rise to taxable losses in any accrual period prior to the instrument's
disposition or retirement. Thus, it is not clear whether any losses resulting
from a Negative Adjustment would be recognized currently or be carried forward
until disposition or retirement of the debt obligation.
Prepayment Premiums and Yield Maintenance Charges actually collected will
be distributed among the holders of the respective classes of Certificates as
described under "Description of the Certificates--Allocation of Prepayment
Premiums and Yield Maintenance Charges" in this prospectus supplement. It is not
entirely clear under the Code when the amount of Prepayment Premiums or Yield
Maintenance Charges so allocated should be taxed to the holder of an Offered
Certificate, but it is not expected, for federal income tax reporting purposes,
that Prepayment Premiums and Yield Maintenance Charges will be treated as giving
rise to any income to the holder of an Offered Certificate prior to the
Servicer's actual receipt of a Prepayment Premium or Yield Maintenance Charge.
It appears that Prepayment Premiums and Yield Maintenance Charges, if any, may
be treated as ordinary income, although authority exists for treating such
amounts as capital gains if they are treated as paid upon the retirement or
partial retirement of a Certificate. Certificateholders should consult their own
tax advisers concerning the treatment of Prepayment Premiums and Yield
Maintenance Charges.
The Offered Certificates will be treated as "real estate assets" within
the meaning of Section 856(c)(4)(A) of the Code, and interest (including OID, if
any) on the Offered Certificates will be interest described in Section
856(c)(3)(B) of the Code. Moreover, the Offered Certificates will be "qualified
mortgages" for another REMIC within the meaning of Section 860G(a)(3) of the
Code and "permitted assets" for a "financial asset securitization investment
trust" within the meaning of Section 860L(c) of the Code. The Offered
Certificates will be treated as "loans . . . secured by an interest in real
property which is . . . residential real property" to the extent the loans are
secured by multifamily properties. As of the Cut-off Date, mortgage loans
secured by multifamily properties will represent approximately [_____]% of the
Initial Pool Balance. See "Certain Federal Income Tax Consequences--Federal
Income Tax Consequences for REMIC Certificates" and "--Taxes That May Be Imposed
on the REMIC Pool" in the prospectus.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates" and
"--Taxation of Regular Certificates" in the prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting
agreement, dated as of the date of this prospectus supplement (the "Underwriting
Agreement"), between [__________] (the "Underwriter") and the Depositor, the
Depositor has agreed to sell to the Underwriter, and the Underwriter has agreed
to purchase from the Depositor, the Certificate Balances, or Notional Amounts,
as applicable, of each class of the Offered Certificates subject in each case to
a variance of 10%.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth in that Underwriting Agreement, to purchase all
of the Offered Certificates if any Offered Certificates are purchased. In the
event of a default by the Underwriter, the Underwriting Agreement provides that,
in certain circumstances the Underwriting Agreement may be terminated. Further,
the Depositor has agreed to indemnify the Underwriter, and the Mortgage Loan
Seller and the Underwriter have agreed to indemnify the Depositor, against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
S-96
<PAGE>
[The Depositor has been advised by the Underwriter that it proposes to
offer the Offered Certificates to the public from time to time in one or more
negotiated transactions, or otherwise, at varying prices to be determined at the
time of sale. Proceeds to the Depositor from the sale of Offered Certificates
before deducting expenses payable by the Depositor estimated to be approximately
$__________ will be ___% of the initial aggregate Certificate Balance of the
Offered Certificates, plus accrued interest on the Offered Certificates from
__________, 200_.]
The Underwriter may effect the transactions by selling Offered
Certificates to or through dealers, and the dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Underwriter. In connection with the purchase and sale of the Offered
Certificates offered hereby, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting discounts.
The Underwriter may effect the transactions by selling Offered
Certificates to or through dealers, and the dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Underwriter.
We cannot assure you that a secondary market for the Offered Certificates
will develop or, if it does develop, that it will continue. The Underwriter
expects to make, but is not obligated to make, a secondary market in the Offered
Certificates. The primary source of ongoing information available to investors
concerning the Offered Certificates will be the monthly statements discussed in
the prospectus under "Description of the Certificates--Reports to
Certificateholders," which will include information as to the outstanding
principal balance of the Offered Certificates and the status of the applicable
form of credit enhancement. Except as described in this prospectus supplement
under "Description of the Certificates--Reports to Certificateholders; Certain
Available Information," we cannot assure you that any additional information
regarding the Offered Certificates will be available through any other source.
In addition, we are not aware of any source through which price information
about the Offered Certificates will be generally available on an ongoing basis.
The limited nature of that information regarding the Offered Certificates may
adversely affect the liquidity of the Offered Certificates, even if a secondary
market for the Offered Certificates becomes available.
LEGAL MATTERS
The validity of the Certificates will be passed upon for the Depositor by
Cadwalader, Wickersham & Taft, New York, New York, and for the Underwriter by
[______________________], New York, New York. In addition, certain federal
income tax matters will be passed upon for the Depositor by Cadwalader,
Wickersham & Taft.
RATING
It is a condition to issuance that the Offered Certificates be rated not
lower than the following ratings by ________________________ ("__________") and
________________________ ("__________"):
CLASS [ ] [ ]
----- ----- -----
A-1................................................. ___ ___
A-2................................................. ___ ___
PO.................................................. ___ ___
X................................................... ___ ___
B................................................... ___ ___
C................................................... ___ ___
D................................................... ___ ___
E................................................... ___ ___
A securities rating on mortgage pass-through certificates addresses the
likelihood of the timely receipt by their holders of interest and the ultimate
repayment of principal to which they are entitled by the Final Rate of
Distribution Date. The rating takes into consideration the credit quality of the
pool of mortgage loans, structural and legal aspects associated with the
certificates, and the extent to which the payment stream from the mortgage pool
is adequate to make payments required under the certificates. The ratings on the
Offered Certificates do not, however,
S-97
<PAGE>
constitute a statement regarding the likelihood, timing or frequency of
prepayments (whether voluntary or involuntary) on the mortgage loans or the
degree to which the payments might differ from those originally contemplated. In
addition, a rating does not address the likelihood or frequency of voluntary or
mandatory prepayments of mortgage loans, payment of Excess Interest or net
default interest or whether and to what extent payments of Prepayment Premiums
or Yield Maintenance Charges will be received or the corresponding effect on
yield to investors. [As described in this prospectus supplement, the amounts
payable with respect to the Class X Certificates consist only of interest. If
the entire pool were to prepay in the initial month, with the result that the
Class X Certificateholders receive only a single month's interest and thus
suffer a nearly complete loss of their investment, all amounts "due" to those
holders will nevertheless have been paid, and that result is consistent with the
rating received on the Class X Certificates. Accordingly, the ratings of the
Class X Certificates should be evaluated independently from similar ratings on
other types of securities.] [A downgrade, withdrawal or qualification of a
rating with respect to a Lease Enhancement Insurer, a surety bond provider, a
Tenant or a guarantor of a Credit Lease may adversely affect the ratings of the
Offered Certificates.]
We cannot assure you as to whether any rating agency not requested to rate
the Offered Certificates will nonetheless issue a rating to any class of Offered
Certificates and, if so, what the rating would be. A rating assigned to any
class of Offered Certificates by a rating agency that has not been requested by
the Depositor to do so may be lower than the rating assigned thereto by ____ or
____.
The ratings on the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the assigning rating agency.
LEGAL INVESTMENT
The Certificates will not constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended.
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 the Offered Certificates under applicable legal investment
restrictions. These uncertainties may adversely affect the liquidity of the
Offered Certificates. Accordingly, all institutions whose investment activities
are subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their own
legal advisors in determining whether and to what extent the Offered
Certificates constitute a legal investment or are subject to investment, capital
or other restrictions. See "Legal Investment" in the prospectus.
ERISA CONSIDERATIONS
A fiduciary of any retirement plan or other employee benefit plan or
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds and separate accounts in which the plans,
annuities, accounts or arrangements are invested, including insurance company
general accounts, that is subject to the fiduciary responsibility rules of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Code (an "ERISA Plan") or which is a governmental plan, as
defined in Section 3(32) of ERISA, subject to any federal, state or local law
("Similar Law") which is, to a material extent, similar to the foregoing
provisions of ERISA or the Code (collectively, with an ERISA Plan, a "Plan")
should review with its legal advisors whether the purchase or holding of Offered
Certificates could give rise to a transaction that is prohibited or is not
otherwise permitted either under ERISA, the Code or Similar Law or whether there
exists any statutory or administrative exemption applicable thereto. Moreover,
each Plan fiduciary should determine whether an investment in the Offered
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.
The U.S. Department of Labor has issued to [________] an individual
prohibited transaction exemption, [____________] (the "Exemption") as
subsequently amended. The Exemption generally exempts from the application of
the prohibited transaction provisions of Sections 406 and 407 of ERISA, and the
excise taxes imposed on the prohibited transactions pursuant to Sections 4975(a)
and (b) of the Code, certain transactions, among others,
S-98
<PAGE>
relating to the servicing and operation of the pool of mortgage loans, such as
the pool of mortgage loans, and the purchase, sale and holding of mortgage
pass-through certificates, such as the Senior Certificates, underwritten by the
Underwriter, provided that certain conditions set forth in the Exemption are
satisfied.
The Exemption sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of the Senior
Certificates to be eligible for exemptive relief. First, the acquisition of the
Senior Certificates by a Plan must be on terms that are at least as favorable to
the Plan as they would be in an arm's-length transaction with an unrelated
party. Second, the rights and interests evidenced by the Senior Certificates
must not be subordinated to the rights and interests evidenced by the other
certificates of the same trust. Third, the Senior Certificates at the time of
acquisition by the Plan must be rated in one of the three highest generic rating
categories by Standard & Poor's Rating Services ("S&P"), Moody's Investors
Service, Inc. ("Moody's"), Duff & Phelps Credit Rating Co. ("DCR") or Fitch
IBCA, Inc. ("Fitch"). Fourth, the Trustee cannot be an affiliate of any other
member of the "Restricted Group", which consists of any Underwriter, the
Depositor, the Trustee, the Servicer, the Special Servicer, any sub-servicer,
any entity that provided insurance or other credit support to the trust fund and
any mortgagor with respect to mortgage loans constituting more than 5% of the
aggregate unamortized principal balance of the mortgage loans as of the date of
initial issuance of the Senior Certificates, and any affiliate of any of the
foregoing entities. Fifth, the sum of all payments made to and retained by the
Underwriter must represent not more than reasonable compensation for
underwriting the Senior Certificates, the sum of all payments made to and
retained by the Depositor pursuant to the assignment of the mortgage loans to
the trust fund must represent not more than the fair market value of those
obligations and the sum of all payments made to and retained by the Servicer,
the Special Servicer and any sub-servicer must represent not more than
reasonable compensation for that person's services under the Pooling and
Servicing Agreement and reimbursement of the person's reasonable expenses in
connection therewith. Sixth, the investing Plan must be an accredited investor
as defined in Rule 501(a)(1) of Regulation D of the SEC under the Securities Act
of 1933, as amended.
Because the Class A [and Class X] Certificates are not subordinated to any
other class of Certificates, the second general condition set forth above is
satisfied with respect to those Certificates. It is a condition of the issuance
of the Class A Certificates that they be rated not lower than "____" by ____ and
"____" by ___, [and it is a condition of the issuance of the Class X
Certificates that they be rated no lower than "____" by ____ and "____" by
____]. As of the Closing Date, the fourth general condition set forth above will
be satisfied with respect to the Senior Certificates. A fiduciary of a Plan
contemplating purchasing a Class A [or Class X] Certificate in the secondary
market must make its own determination that, at the time of that purchase the
Class A [or Class X] Certificates continue to satisfy the third and fourth
general conditions set forth above. A fiduciary of a Plan contemplating
purchasing a Senior Certificate, whether in the initial issuance of those
Certificates or in the secondary market, must make its own determination that
the first, fifth and sixth general conditions set forth above will be satisfied
with respect to the Senior Certificate.
The Exemption also requires that the trust fund meet the following
requirements: (1) the trust fund must consist solely of assets of the type that
have been included in other investment pools; (2) certificates in those other
investment pools must have been rated in one of the three highest categories of
S&P's, Moody's, Fitch or DCR for at least one year prior to the Plan's
acquisition of Senior Certificates; and (3) certificates in those other
investment pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of Senior Certificates.
If the general conditions of the Exemption are satisfied, the Exemption
may provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b)
of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code) in
connection with (1) the direct or indirect sale, exchange or transfer of Senior
Certificates in the initial issuance of Certificates between the Depositor or
the Underwriter and a Plan when the Depositor, the Underwriter, the Trustee, the
Servicer, the Special Servicer, a sub-servicer or a borrower is a Party in
Interest with respect to the investing Plan, (2) the direct or indirect
acquisition or disposition in the secondary market of the Senior Certificates by
a Plan and (3) the holding of Senior Certificates by a Plan. However, no
exemption is provided from the restrictions of Sections 406(a)(1)(E), 406(a)(2)
and 407 of ERISA for the acquisition or holding of a Senior Certificate on
behalf of an "Excluded Plan" or any person who has discretionary authority or
renders investment advice with respect to the assets of the Excluded Plan. For
purposes of this prospectus supplement, an Excluded Plan is a Plan sponsored by
any member of the Restricted Group.
S-99
<PAGE>
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E) of
the Code in connection with (1) the direct or indirect sale, exchange or
transfer of Senior Certificates in the initial issuance of Certificates between
the Depositor or the underwriter and a Plan when the person who has
discretionary authority or renders investment advice with respect to the
investment of Plan assets in those Certificates is (a) a borrower with respect
to 5% or less of the fair market value of the mortgage loans or (b) an affiliate
of that person, (2) the direct or indirect acquisition or disposition in the
secondary market of Senior Certificates by a Plan and (3) the holding of Senior
Certificates by a Plan.
Further, if certain specific conditions of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the pool of mortgage
loans.
Before purchasing a Senior Certificate, a fiduciary of a Plan should
itself confirm that (1) the Senior Certificates constitute "certificates" for
purposes of the Exemption and (2) the specific and general conditions and the
other requirements set forth in the Exemption would be satisfied. In addition to
making its own determination as to the availability of the exemptive relief
provided in the Exemption, the Plan fiduciary should consider the availability
of any other prohibited transaction exemptions, including with respect to
governmental plans, any exemptive relief afforded under Similar Laws. See
"Certain ERISA Considerations" in the prospectus. A purchaser of a Senior
Certificate should be aware, however, that even if the conditions specified in
one or more exemptions are satisfied, the scope of relief provided by an
exemption may not cover all acts which might be construed as prohibited
transactions.
Because the characteristics of the Subordinate Offered Certificates do not
meet the requirements of the Exemption, the purchase or holding of those
Certificates by a Plan may result in prohibited transactions or the imposition
of excise taxes or civil penalties. In no event may any transfer of a
Subordinate Offered Certificate or any interest in it be made to a Plan or to
any person who is directly or indirectly purchasing the Certificate or interest
in it on behalf of, as named fiduciary of, as trustee of, or with assets of a
Plan, unless the purchase and holding of the Certificate or interest in it is
exempt from the prohibited transaction provisions of Section 406 of ERISA and
the related excise tax provisions of Section 4975 of the Code under Prohibited
Transaction Class Exemption 95-60, which provides an exemption from the
prohibited transaction rules for certain transactions involving an insurance
company general account. The Plan or person to whom a transfer of the
Certificate or interest in it is made shall be deemed to have represented to the
Depositor, the Servicer, the Special Servicer, the Trustee, the Underwriter, any
sub-servicer and any borrower with respect to the mortgage loans that the
purchase and holding of the Certificate or interest in it is so exempt on the
basis of Prohibited Transaction Class Exemption 95-60. See "Certain ERISA
Considerations" in the prospectus. Any Plan fiduciary considering whether to
purchase an Offered Certificate on behalf of a Plan should consult with its
counsel regarding the applicability of the fiduciary responsibility and
prohibited transaction provisions of ERISA and the Code to the investment.
The sale of Certificates to a Plan is in no respect a representation by
the Depositor or the Underwriter that this investment meets all relevant legal
requirements with respect to investments by Plans generally or any particular
Plan, or that this investment is appropriate for Plans generally or any
particular Plan.
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<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
A
Additional Rights...........................................................S-35
Administrative Cost Rate....................................................S-78
Advances....................................................................S-69
Affiliate Debt..............................................................S-34
Anticipated Prepayment Date.................................................S-37
APD Mortgage Loans..........................................................S-37
Appraisal Reduction.........................................................S-70
Appraisal Reduction Amount..................................................S-70
Appraisal Reduction Event...................................................S-69
Asset Status Report.........................................................S-77
Assumed Final Distribution Date.............................................S-66
Assumed Scheduled Payment...................................................S-64
Authenticating Agent........................................................S-57
Available Distribution Amount...............................................S-60
...........................................................................
B
balloon loans...............................................................S-20
Base Interest Fraction......................................................S-65
Bondable Leases.............................................................S-35
C
Cash Collateral Accounts....................................................S-55
Casualty or Condemnation Rights.............................................S-35
Certificate Account.........................................................S-59
Certificate Balance.........................................................S-56
Certificate Owner...........................................................S-56
Certificate Registrar.......................................................S-57
Certificates................................................................S-55
Class A Certificates........................................................S-56
Class X Pass-Through Rate...................................................S-63
Clearstream Banking.........................................................S-56
Closing Date.................................................................S-2
Code........................................................................S-95
Collateral Substitution Deposit.............................................S-41
Collateral Support Deficit..................................................S-68
Constant Prepayment Rate....................................................S-89
Controlling Class...........................................................S-77
Controlling Class Certificateholder.........................................S-77
Corrected Mortgage Loan.....................................................S-77
CPR.........................................................................S-89
Credit Lease................................................................S-35
Credit Lease Assignment.....................................................S-35
Credit Lease Default........................................................S-36
Credit Lease Loans..........................................................S-35
Credit Lease Property.......................................................S-35
Cross-Over Date.............................................................S-63
Cut-off Date.................................................................S-2
Cut-off Date Balance........................................................S-34
D
DCR.........................................................................S-99
Debt Service Coverage Ratio.................................................S-46
Defeasance Loans............................................................S-41
Defeasance Lock-out Period..................................................S-41
Defeasance Option...........................................................S-41
Definitive Certificate......................................................S-56
Depositor...................................................................S-34
Depositories................................................................S-57
Determination Date..........................................................S-70
Directing Certificateholder.................................................S-77
Distributable Certificate Interest..........................................S-64
Distribution Accounts.......................................................S-59
Distribution Date...........................................................S-59
Distribution Date Statement.................................................S-71
Double Net Leases...........................................................S-35
DSCR........................................................................S-46
DTC.........................................................................S-56
Due Period..................................................................S-60
E
effective gross revenue.....................................................S-49
ERISA.......................................................................S-98
ERISA Plan..................................................................S-98
Euroclear...................................................................S-56
Events of Default...........................................................S-84
Excess Interest.............................................................S-64
Excess Interest Distribution Account........................................S-60
Exemption...................................................................S-98
F
FIRREA......................................................................S-50
Fitch.......................................................................S-99
Form 8-K....................................................................S-42
G
GECC........................................................................S-50
H
HAP Loans...................................................................S-36
I
Indirect Participants.......................................................S-57
Initial Pool Balance........................................................S-33
Interest Distribution Amount................................................S-64
Interest Reserve Account....................................................S-59
IRS.........................................................................S-82
S-101
<PAGE>
L
Lease Enhancement Policy....................................................S-36
Lease Enhancement Policy Loans..............................................S-36
Liquidation Fee.............................................................S-79
Liquidation Fee Rate........................................................S-79
Lock Box Accounts...........................................................S-55
Lock Box Loans..............................................................S-55
Lockout Period..............................................................S-37
Lower-Tier Distribution Account.............................................S-59
Lower-Tier REMIC............................................................S-95
LTV Ratio...................................................................S-48
M
Maintenance Rights..........................................................S-35
Monthly Payments............................................................S-46
Monthly Rental Payments.....................................................S-35
Moody's.....................................................................S-99
Mortgage....................................................................S-33
Mortgage Loan Seller........................................................S-34
Mortgage Note...............................................................S-33
Mortgage Pool...............................................................S-65
Mortgage Rate...............................................................S-63
Mortgaged Property..........................................................S-34
N
Negative Adjustment.........................................................S-96
Net Mortgage Rate...........................................................S-63
Non-Offered Certificates....................................................S-56
Non-Offered Subordinate Certificates........................................S-67
Nonrecoverable Advance......................................................S-69
Notional Amount.............................................................S-56
O
Offered Certificates........................................................S-56
OID.........................................................................S-95
P
P&I Advance.................................................................S-68
Participants................................................................S-56
Paying Agent................................................................S-57
Percentage Interest.........................................................S-56
Plan........................................................................S-98
Pooling and Servicing Agreement.............................................S-55
Prepayment Assumption.......................................................S-95
Prepayment Premium Period...................................................S-37
Prepayment Premiums.........................................................S-37
Primary Term................................................................S-35
Prime Rate..................................................................S-69
Principal Distribution Amount...............................................S-64
Principal Shortfall.........................................................S-64
Purchase Agreement..........................................................S-34
R
Rated Final Distribution Date...............................................S-66
Record Date.................................................................S-59
Reimbursement Rate..........................................................S-69
Related Proceeds............................................................S-69
Release Date................................................................S-41
REMIC.......................................................................S-95
REMIC Provisions............................................................S-95
REO Account.................................................................S-80
REO Loan....................................................................S-65
REO Property................................................................S-77
Reserve Accounts............................................................S-55
Residual Certificates.......................................................S-56
Restricted Group............................................................S-99
Rolling 12 Months...........................................................S-49
Rules.......................................................................S-58
S
S&P.........................................................................S-99
Scheduled Principal Distribution Amount.....................................S-64
Senior Certificates.........................................................S-56
Servicer..............................................................S-34, S-78
Servicer Remittance Date....................................................S-68
Servicing Advances..........................................................S-69
Servicing Fee...............................................................S-78
Servicing Fee Rate..........................................................S-78
Servicing Standards.........................................................S-76
Similar Law.................................................................S-98
Special Servicer............................................................S-34
Special Servicing Fee.......................................................S-78
Special Servicing Fee Rate..................................................S-78
Specially Serviced Mortgage Loans...........................................S-77
Stated Principal Balance....................................................S-64
Subordinate Certificates....................................................S-56
Subordinate Offered Certificates............................................S-56
T
Tenant......................................................................S-35
Terms and Conditions........................................................S-58
Triple Net Leases...........................................................S-35
Trustee.....................................................................S-34
Trustee Fee.................................................................S-75
Trustee Fee Rate............................................................S-75
U
Underwriter.................................................................S-96
Underwriting Agreement......................................................S-96
Underwritten Net Cash Flow..................................................S-49
Unscheduled Principal Distribution Amount...................................S-64
Upper-Tier Distribution Account.............................................S-59
Upper-Tier REMIC............................................................S-95
S-102
<PAGE>
V
Voting Rights...............................................................S-74
W
Withheld Amounts............................................................S-59
Withheld Loans..............................................................S-59
Workout Fee.................................................................S-78
Workout Fee Rate............................................................S-78
Y
Yield Maintenance Charge....................................................S-38
Yield Maintenance Period....................................................S-37
Yield Rate..................................................................S-38
S-103
<PAGE>
================================================================================
YOU SHOULD RELY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS. WE HAVE NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THESE CERTIFICATES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED.
--------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
SUMMARY of terms.............................................................S-2
RISK FACTORS................................................................S-16
DESCRIPTION OF THE MORTGAGE POOL............................................S-33
DESCRIPTION OF THE CERTIFICATES.............................................S-55
SERVICING OF THE MORTGAGE LOANS.............................................S-75
YIELD AND MATURITY CONSIDERATIONS...........................................S-87
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.....................................S-95
METHOD OF DISTRIBUTION......................................................S-96
LEGAL MATTERS...............................................................S-97
RATING......................................................................S-97
LEGAL INVESTMENT............................................................S-98
ERISA CONSIDERATIONS........................................................S-98
PROSPECTUS
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
AND EACH PROSPECTUS SUPPLEMENT ..........................................2
SUMMARY OF PROSPECTUS..........................................................5
RISK FACTORS..................................................................11
DESCRIPTION OF THE TRUST FUNDS................................................21
YIELD AND MATURITY CONSIDERATIONS.............................................27
THE DEPOSITOR.................................................................32
USE OF PROCEEDS...............................................................33
DESCRIPTION OF THE CERTIFICATES...............................................34
DESCRIPTION OF THE POOLING AGREEMENTS.........................................41
DESCRIPTION OF CREDIT SUPPORT.................................................55
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS.......................................58
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.......................................69
STATE AND OTHER TAX CONSIDERATIONS............................................94
CERTAIN ERISA CONSIDERATIONS..................................................94
LEGAL INVESTMENT..............................................................96
METHOD OF DISTRIBUTION........................................................98
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.............................99
LEGAL MATTERS................................................................100
FINANCIAL INFORMATION........................................................100
RATING.......................................................................100
INDEX OF PRINCIPAL DEFINITIONS...............................................101
--------------------
Dealers will be required to deliver a prospectus supplement and prospectus
when acting as underwriters of these certificates and with respect to their
unsold allotments or subscriptions. In addition, all dealers selling these
certificates will deliver a prospectus supplement and prospectus until
____________, 200_.
================================================================================
================================================================================
[$_________]
(APPROXIMATE)
GE CAPITAL COMMERCIAL
MORTGAGE CORPORATION
COMMERCIAL
MORTGAGE PASS-THROUGH
CERTIFICATES,
SERIES 200_-_
[GE LOGO]
--------------------------------------------------------------------------------
Class A-1 Certificates $
Class A-2 Certificates $
[Class X Certificates $]
[Class PO Certificates $]
Class B Certificates $
Class C Certificates $
Class D Certificates $
Class E Certificates $
--------------------------------------------------------------------------------
---------------------
PROSPECTUS
SUPPLEMENT
---------------------
[__________]
_________ ___, 200_
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED ____________, 200_
PROSPECTUS
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
GE CAPITAL COMMERCIAL MORTGAGE CORPORATION
(DEPOSITOR)
----------
GE Capital Commercial Mortgage Corporation from time to time will offer
commercial mortgage pass-through certificates in separate series. We will offer
the certificates through this prospectus and a separate prospectus supplement
for each series.
For each series we will establish a trust fund consisting primarily of a
segregated pool of various types of multifamily or commercial mortgage loans,
mortgage-backed securities that evidence interests in, or that are secured by
pledges of, one or more of various types of multifamily or commercial mortgage
loans, or a combination of mortgage loans and mortgage-backed securities.
If 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, interest rate exchange
agreements, interest rate cap or floor agreements or currency exchange
agreements as described in this prospectus.
The certificates of a series will evidence beneficial ownership interests in the
trust fund. We may divide the certificates of a series into two or more classes
which may have different interest rates and which may receive principal payments
in differing proportions and at different times. In addition, your rights as
holders of certain classes may be subordinate to the rights of holders of other
classes to receive principal and interest.
No series of certificates will represent an obligation of or interest in GE
Capital Commercial Mortgage Corporation, the Mortgage Asset Seller, the
Underwriter or any of their affiliates. Neither the certificates of any series
nor the assets in any 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, as more fully described in this prospectus.
No secondary market will exist for a series of certificates prior to its
offering. We cannot assure you that a secondary market will develop for the
certificates of any series, or, if it does develop, that it will continue.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 13 OF THIS
PROSPECTUS AND IN THE RELATED PROSPECTUS SUPPLEMENT.
----------
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved of the offered certificates or notes or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We may offer certain of the certificates of any series through one or more
different methods, including offerings through underwriters, as more fully
described in this prospectus under "Method of Distribution" and in the related
prospectus supplement. We may retain or hold for sale one or more classes of a
series of certificates. Offerings of certain classes of the certificates, if so
specified in the related prospectus supplement, may be made in one or more
transactions exempt from the registration requirements of the Securities Act of
1933, as amended. Those offerings are not being made pursuant to this prospectus
or the related registration statement.
This prospectus may not be used to consummate sales of the certificates of any
series unless accompanied by the prospectus supplement for that series.
The date of this Prospectus is [__________], 200_
<PAGE>
TABLE OF CONTENTS
Important Notice About Information Presented in this Prospectus and Each
Accompanying Prospectus Supplement..........................................5
SUMMARY OF PROSPECTUS..........................................................6
RISK FACTORS..................................................................13
Limited Liquidity of Your Certificates.....................................13
Limited Assets of Each Trust Fund..........................................14
Prepayment Considerations; Variability in Average Life of Offered
Certificates; Special Yield Considerations..............................14
Limited Nature of Ratings..................................................15
Risks Associated with Certain Mortgage Loans and Mortgaged Properties......16
Borrowers May Be Unable to Make Balloon Payments...........................18
Credit Support Limitations.................................................18
Leases and Rents...........................................................19
Environmental Risks........................................................19
Special Hazard Losses......................................................20
Some Certificates May Not Be Appropriate for ERISA Plans...................20
Certain Federal Tax Considerations Regarding Residual Certificates.........20
Certain Federal Tax Considerations Regarding Original Issue Discount.......21
Bankruptcy Proceedings Entail Certain Risks................................21
Book-Entry System for Certain Classes May Decrease Liquidity and Delay
Payment.................................................................22
Delinquent and Non-Performing Mortgage Loans...............................22
DESCRIPTION OF THE TRUST FUNDS................................................23
General....................................................................23
Mortgage Loans.............................................................23
MBS........................................................................26
Certificate Accounts.......................................................28
Credit Support.............................................................28
Cash Flow Agreements.......................................................28
YIELD AND MATURITY CONSIDERATIONS.............................................29
General....................................................................29
Pass-Through Rate..........................................................29
Payment Delays.............................................................29
Certain Shortfalls in Collections of Interest..............................29
Yield and Prepayment Considerations........................................30
Weighted Average Life and Maturity.........................................31
Controlled Amortization Classes and Companion Classes......................32
Other Factors Affecting Yield, Weighted Average Life and Maturity..........33
THE DEPOSITOR.................................................................34
USE OF PROCEEDS...............................................................35
DESCRIPTION OF THE CERTIFICATES...............................................36
General....................................................................36
Distributions..............................................................36
Distributions of Interest on the Certificates..............................37
Distributions of Principal on the Certificates.............................38
Distributions on the Certificates in Respect of Prepayment Premiums or
in Respect of Equity Participations.....................................38
Allocation of Losses and Shortfalls........................................38
Advances in Respect of Delinquencies.......................................39
Reports to Certificateholders..............................................39
Voting Rights..............................................................41
Termination................................................................41
Book-Entry Registration and Definitive Certificates........................41
2
<PAGE>
DESCRIPTION OF THE POOLING AGREEMENTS.........................................44
General....................................................................44
Assignment of Mortgage Loans; Repurchases..................................44
Representations and Warranties; Repurchases................................45
Collection and Other Servicing Procedures..................................46
Sub-Servicers..............................................................46
Special Servicers..........................................................47
Certificate Account........................................................47
Modifications, Waivers and Amendments of Mortgage Loans....................50
Realization Upon Defaulted Mortgage Loans..................................50
Hazard Insurance Policies..................................................52
Due-on-Sale and Due-on-Encumbrance Provisions..............................52
Servicing Compensation and Payment of Expenses.............................52
Evidence as to Compliance..................................................53
Certain Matters Regarding the Master Servicer and the Depositor............53
Events of Default..........................................................54
Rights Upon Event of Default...............................................55
Amendment..................................................................55
List of Certificateholders.................................................56
The Trustee................................................................56
Duties of the Trustee......................................................56
Certain Matters Regarding the Trustee......................................57
Resignation and Removal of the Trustee.....................................57
DESCRIPTION OF CREDIT SUPPORT.................................................58
General....................................................................58
Subordinate Certificates...................................................58
Cross-Support Provisions...................................................59
Insurance or Guarantees with Respect to Mortgage Loans.....................59
Letter of Credit...........................................................59
Certificate Insurance and Surety Bonds.....................................59
Reserve Funds..............................................................59
Credit Support with Respect to MBS.........................................60
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS.......................................61
General....................................................................61
Types of Mortgage Instruments..............................................61
Leases and Rents...........................................................61
Personalty.................................................................62
Foreclosure................................................................62
Bankruptcy Laws............................................................65
Environmental Risks........................................................67
Due-on-Sale and Due-on-Encumbrance.........................................69
Subordinate Financing......................................................69
Default Interest and Limitations on Prepayments............................69
Applicability of Usury Laws................................................69
Soldiers' and Sailors' Civil Relief Act of 1940............................70
Type of Mortgaged Property.................................................70
Americans with Disabilities Act............................................71
Forfeitures In Drug and RICO Proceedings...................................71
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.......................................72
Federal Income Tax Consequences for REMIC Certificates.....................72
Taxation of Regular Certificates...........................................75
Taxation of Residual Certificates..........................................81
Taxes That May Be Imposed on the REMIC Pool................................87
Liquidation of the REMIC Pool..............................................88
Administrative Matters.....................................................88
Limitations on Deduction of Certain Expenses...............................88
3
<PAGE>
Taxation of Certain Foreign Investors......................................89
Backup Withholding.........................................................90
Reporting Requirements.....................................................90
Federal Income Tax Consequences for Certificates as to Which No REMIC
Election Is Made...........................................................92
Standard Certificates......................................................92
Stripped Certificates......................................................94
Reporting Requirements and Backup Withholding..............................97
Taxation of Certain Foreign Investors......................................97
STATE AND OTHER TAX CONSIDERATIONS............................................98
CERTAIN ERISA CONSIDERATIONS..................................................99
General....................................................................99
Plan Asset Regulations.....................................................99
Administrative Exemptions.................................................100
Insurance Company General Accounts........................................100
Unrelated Business Taxable Income; Residual Certificates..................101
LEGAL INVESTMENT.............................................................101
METHOD OF DISTRIBUTION.......................................................103
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE............................104
LEGAL MATTERS................................................................104
FINANCIAL INFORMATION........................................................104
RATING.......................................................................105
INDEX OF PRINCIPAL DEFINITIONS...............................................106
4
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND EACH ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about the offered certificates is contained in two separate
documents that progressively provide more detail: (a) this prospectus, which
provides general information, some of which may not apply to the offered
certificates; and (b) the accompanying prospectus supplement for each series,
which describes the specific terms of the offered certificates. IF THE TERMS OF
THE OFFERED CERTIFICATES VARY BETWEEN THIS PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT, YOU SHOULD RELY ON THE INFORMATION IN THE PROSPECTUS
SUPPLEMENT.
You should rely only on the information contained in this prospectus and
the accompanying prospectus supplement. We have not authorized anyone to provide
you with information that is different from that contained in this prospectus
and the related prospectus supplement. The information in this prospectus is
accurate only as of the date of this prospectus.
Certain capitalized terms are defined and used in this prospectus to
assist you in understanding the terms of the offered certificates and this
offering. The capitalized terms used in this prospectus are defined on the pages
indicated under the caption "Index of Principal Definitions" beginning on page
106 in this prospectus.
In this prospectus, the terms "Depositor," "we," "us" and "our" refer to
GE Capital Commercial Mortgage Corporation.
----------
If you require additional information, the mailing address of our
principal executive offices is GE Capital Commercial Mortgage Corporation, 292
Long Ridge Road, Stamford, Connecticut 06927, and telephone number is (203)
357-4000.
5
<PAGE>
SUMMARY OF PROSPECTUS
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES
NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING AN
INVESTMENT DECISION. PLEASE READ THIS ENTIRE PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT AS WELL AS THE TERMS AND PROVISIONS OF THE RELATED POOLING
AND SERVICING AGREEMENT CAREFULLY TO UNDERSTAND ALL OF THE TERMS OF A SERIES OF
CERTIFICATES. AN INDEX OF PRINCIPAL DEFINITIONS IS INCLUDED AT THE END OF THIS
PROSPECTUS.
TITLE OF CERTIFICATES............... Mortgage pass-through certificates,
issuable in series.
DEPOSITOR........................... GE Capital Commercial Mortgage Corporation
is a wholly-owned subsidiary of General
Electric Capital Corporation. All
outstanding common stock of General
Electric Capital Corporation is owned by
General Electric Capital Services, Inc.,
the common stock of which is in turn wholly
owned directly or indirectly by General
Electric Company.
MASTER SERVICER..................... The master servicer, if any, for a series
of certificates will be named in the
related prospectus supplement. The master
servicer for any series of certificates may
be an affiliate of the Depositor or a
special servicer.
SPECIAL SERVICER.................... One or more special servicers, if any, for
a series of certificates will be named, or
the circumstances under which a special
servicer will be appointed will be
described, in the related prospectus
supplement. A special servicer for any
series of certificates may be an affiliate
of the Depositor or the master servicer.
TRUSTEE............................. The trustee for each series of certificates
will be named in the related prospectus
supplement.
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, in general,
consist of a pool of loans secured by liens
on, or security interests in:
o residential properties consisting of
five or more rental or
cooperatively-owned dwelling units or by
shares allocable to a number of those
units and the related leases; or
o office buildings, shopping centers,
retail stores and establishments, hotels
or motels, nursing homes, hospitals or
other health-care related facilities,
manufactured housing properties,
warehouse facilities, mini-warehouse
facilities, self-storage facilities,
industrial plants, parking lots, mixed
use or various other types of
income-producing properties described in
this prospectus or unimproved land.
Mortgage loans may be secured by properties
backed by credit lease obligations of a
tenant or net lease obligations guaranteed
by another entity. Either the tenant or the
guarantor will have a credit rating form a
rating agency as described in the
prospectus supplement. If so specified in
the related prospectus supplement, a trust
fund may include mortgage loans secured by
liens on real estate projects under
construction. No one will guarantee the
mortgage loans, unless
6
<PAGE>
otherwise provided in the related
prospectus supplement. If so specified in
the related prospectus supplement, some
mortgage loans may be delinquent. In no
event will delinquent mortgage loans
comprise 20 percent or more of the trust
fund at the time the mortgage loans are
transferred to the trust fund.
As described in the related prospectus
supplement, a mortgage loan:
o may provide for no accrual of interest
or for accrual of interest at a mortgage
interest rate that is fixed over its
term or that adjusts from time to time,
or that the borrower may elect to
convert from an adjustable to a fixed
mortgage interest rate, or from a fixed
to an adjustable mortgage interest rate;
o may provide for level payments to
maturity or for payments that adjust
from time to time to accommodate changes
in the mortgage interest rate or to
reflect the occurrence of certain
events, and may permit negative
amortization;
o may be fully amortizing or partially
amortizing or non-amortizing, with a
balloon payment due on its stated
maturity date;
o may prohibit prepayments over its term
or for a certain period and/or require
payment of a premium or a yield
maintenance penalty in connection with
certain prepayments;
o may permit defeasance with non-callable
U.S. Treasury securities or securities
issued by government agencies; and
o may provide for payments of principal,
interest or both, on due dates that
occur monthly, quarterly, semi-annually
or at another interval specified in the
related prospectus supplement.
Some or all of the mortgage loans in any
trust fund may have been originated by an
affiliate of the Depositor. See
"Description of the Trust Funds--Mortgage
Loans" in this prospectus.
If specified in the related prospectus
supplement, the mortgage assets with
respect to a series of certificates may
also include, or consist of,
o private mortgage participations,
mortgage pass-through certificates or
other mortgage-backed securities, or
o certificates insured or guaranteed by
any of the Federal Home Loan Mortgage
Corporation, the Federal National
Mortgage Association, the Governmental
National Mortgage Association or the
Federal Agricultural Mortgage
Corporation.
Each of the above mortgage assets will
evidence an interest in, or will be secured
by a pledge of, one or more mortgage loans
that conform to the descriptions of the
mortgage loans contained in this
prospectus. See "Description of the Trust
Funds--MBS" in this prospectus.
B. CERTIFICATE ACCOUNT..... Each trust fund will include one or more
certificate accounts established and
maintained on behalf of the
certificateholders. The person or persons
designated in the related prospectus
supplement will be required to, to the
extent described in this prospectus and in
that
7
<PAGE>
prospectus supplement, deposit all payments
and other collections received or advanced
with respect to the mortgage assets and
other assets in the trust fund into the
certificate accounts. A certificate account
may be maintained as an interest bearing or
a non-interest bearing account, and its
funds may be held as cash or invested in
certain obligations acceptable to the
rating agencies rating one or more classes
of the related series of offered
certificates. See "Description of the Trust
Funds--Certificate Accounts" and
"Description of the Pooling
Agreements--Certificate Account" in this
prospectus.
C. CREDIT SUPPORT.......... If so provided in the related prospectus
supplement, partial or full protection
against certain defaults and losses on the
mortgage assets in the related trust fund
may be provided to one or more classes of
certificates of the related series in the
form of subordination of one or more other
classes of certificates of that 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 described in this
prospectus, or a combination of these
features. The amount and types of any
credit support, the identification of any
entity providing it and related information
will be set forth in the prospectus
supplement for a series of offered
certificates. See "Risk Factors--Credit
Support Limitations", "Description of the
Trust Funds--Credit Support" and
"Description of Credit Support" in this
prospectus.
D. CASH FLOW AGREEMENTS.... If so provided in the related prospectus
supplement, a 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 interest rate
exchange agreements, interest rate cap or
floor agreements, or currency exchange
agreements, all of which are designed to
reduce the effects of interest rate or
currency exchange rate fluctuations on the
mortgage assets or on one or more classes
of certificates. The principal terms of
that guaranteed investment contract or
other agreement, including, without
limitation, provisions relating to the
timing, manner and amount of any
corresponding payments and provisions
relating to their termination, will be
described in the prospectus supplement for
the related series. In addition, the
related prospectus supplement will contain
certain information that pertains to the
obligor under any cash flow agreements of
this type. See "Description of the Trust
Funds--Cash Flow Agreements" in this
prospectus.
DESCRIPTION OF CERTIFICATES......... We will offer certificates in one or more
classes of a series of certificates issued
pursuant to a pooling and servicing
agreement or other agreement specified in
the related prospectus supplement. The
certificates will represent in the
aggregate the entire beneficial ownership
interest in the trust fund created by that
agreement.
As described in the related prospectus
supplement, the certificates of each
series, may consist of one or more classes
of certificates that, among other things:
o are senior or subordinate to one or more
other classes of certificates in
entitlement to certain distributions on
the certificates;
8
<PAGE>
o are principal-only certificates entitled
to distributions of principal, with
disproportionately small, nominal or no
distributions of interest;
o are interest-only certificates entitled
to distributions of interest, with
disproportionately small, nominal or no
distributions of principal;
o provide for distributions of interest
on, or principal of, the certificates
that begin only after the occurrence of
certain events, such as the retirement
of one or more other classes of
certificates of that series;
o provide for distributions of principal
of the certificates to be made, from
time to time or for designated periods,
at a rate that is faster, or slower than
the rate at which payments or other
collections of principal are received on
the mortgage assets in the related trust
fund;
o provide for controlled distributions of
principal to be made based on a
specified schedule or other methodology,
subject to available funds; or
o provide for distributions based on
collections of prepayment premiums,
yield maintenance penalties or equity
participations on the mortgage assets in
the related trust fund.
Each class of certificates, other than
interest-only certificates and residual
certificates which are only entitled to a
residual interest in the trust fund, will
have a stated principal balance. Each class
of certificates, other than principal-only
certificates and residual certificates,
will accrue interest on its stated
principal balance or, in the case of
interest-only certificates, on a notional
amount. Each class of certificates entitled
to interest will accrue interest based on a
fixed, variable or adjustable pass-through
interest rate. The related prospectus
supplement will specify the principal
balance, notional amount and/or fixed
pass-through interest rate, or, in the case
of a variable or adjustable pass-through
interest rate, the method for determining
that rate, as applicable, for each class of
offered certificates.
The certificates will not be guaranteed or
insured by anyone, unless otherwise
provided in the related prospectus
supplement. See "Risk Factors--Limited
Assets of Each Trust Fund" and "Description
of the Certificates" in this prospectus.
DISTRIBUTIONS OF INTEREST
ON THE CERTIFICATES........... Interest on each class of offered
certificates, other than certain classes of
principal-only certificates and certain
classes of residual certificates, of each
series will accrue at the applicable fixed,
variable or adjustable pass-through
interest rate on the principal balance or,
in the case of certain classes of
interest-only certificates, on the notional
amount, outstanding from time to time.
Interest will be distributed to you as
provided in the related prospectus
supplement on specified distribution dates.
Distributions of interest with respect to
one or more classes of accrual certificates
may not begin until the occurrence of
certain events, such as the retirement of
one or more other classes of certificates,
and interest accrued with respect to a
class of accrual
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certificates before the occurrence of that
event will either be added to its principal
balance or otherwise deferred.
Distributions of interest with respect to
one or more classes of certificates may be
reduced to the extent of certain
delinquencies, losses and other
contingencies described in this prospectus
and in the related prospectus supplement.
See "Risk Factors--Prepayment
Considerations; Variability in Average Life
of Offered Certificates; Special Yield
Considerations", "Yield and Maturity
Considerations" and "Description of the
Certificates--Distributions of Interest on
the Certificates" in this prospectus.
DISTRIBUTIONS OF PRINCIPAL
OF THE CERTIFICATES........... Each class of certificates of each series,
other than certain classes of interest-only
certificates and certain classes of
residual certificates, will have a
principal balance. The principal balance of
a class of certificates will represent the
maximum amount that you are entitled to
receive as principal from future cash flows
on the assets in the related trust fund.
Distributions of principal with respect to
one or more classes of certificates may:
o be made at a rate that is faster, and,
in some cases, substantially faster,
than the rate at which payments or other
collections of principal are received on
the mortgage assets in the related trust
fund;
o or may be made at a rate that is slower,
and, in some cases, substantially
slower, than the rate at which payments
or other collections of principal are
received on the mortgage assets in the
related trust fund;
o not commence until the occurrence of
certain events, such as the retirement
of one or more other classes of
certificates of the same series;
o be made, subject to certain limitations,
based on a specified principal payment
schedule resulting in a controlled
amortization class of certificates; or
o be contingent on the specified principal
payment schedule for a controlled
amortization class of the same series
and the rate at which payments and other
collections of principal on the mortgage
assets in the related trust fund are
received.
Unless otherwise specified in the related
prospectus supplement, distributions of
principal of any class of offered
certificates will be made on a pro rata
basis among all of the certificates of that
class. See "Description of the
Certificates--Distributions of Principal on
the Certificates" in this prospectus.
ADVANCES............................ If provided in the related prospectus
supplement, if a trust fund includes
mortgage loans, the master servicer, a
special servicer, the trustee, any provider
of credit support and/or any other
specified person may be obligated to make,
or have the option of making, certain
advances with respect to delinquent
scheduled payments of principal and/or
interest on those mortgage loans. Any of
the advances of
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principal and interest made with respect to
a particular mortgage loan will be
reimbursable from subsequent recoveries
from the related mortgage loan and
otherwise to the extent described in this
prospectus and in the related prospectus
supplement. If provided in the prospectus
supplement for a series of certificates,
any entity making these advances may be
entitled to receive interest on those
advances while they are outstanding,
payable from amounts in the related trust
fund. If a trust fund includes mortgage
participations, pass-through certificates
or other mortgage-backed securities, any
comparable advancing obligation will be
described in the related prospectus
supplement. See "Description of the
Certificates--Advances in Respect of
Delinquencies" in this prospectus.
TERMINATION......................... If so specified in the related prospectus
supplement, the mortgage assets in the
related trust fund may be sold, causing an
early termination of a series of
certificates in the manner set forth in the
prospectus supplement. If so provided in
the related prospectus supplement, upon the
reduction of the principal balance of a
specified class or classes of certificates
by a specified percentage or amount, the
party specified in the prospectus
supplement may be authorized or required to
bid for or solicit bids for the purchase of
all of the mortgage assets of the related
trust fund, or of a sufficient portion of
the mortgage assets to retire the class or
classes, as described in the related
prospectus supplement. See "Description of
the Certificates--Termination" in this
prospectus.
REGISTRATION OF BOOK-ENTRY
CERTIFICATES.................. If so provided in the related prospectus
supplement, one or more classes of the
offered certificates of any series will be
book-entry certificates offered through the
facilities of The Depository Trust Company.
Each class of book-entry certificates will
be initially represented by one or more
certificates registered in the name of a
nominee of The Depository Trust Company. No
person acquiring an interest in a class of
book-entry certificates will be entitled to
receive definitive certificates of that
class in fully registered form, except
under the limited circumstances described
in this prospectus. See "Risk
Factors--Book-Entry System for Certain
Classes May Decrease Liquidity and Delay
Payment" and "Description of the
Certificates--Book-Entry Registration and
Definitive Certificates" in this
prospectus.
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES.................. The federal income tax consequences to
certificateholders will vary depending on
whether one or more elections are made to
treat the trust fund or specified portions
of the trust fund as one or more "real
estate mortgage investment conduits" (each,
a "REMIC") under the provisions of the
Internal Revenue Code. The prospectus
supplement for each series of certificates
will specify whether one or more REMIC
elections will be made. See "Certain
Federal Income Tax Consequences" in this
prospectus.
CERTAIN ERISA CONSIDERATIONS........ If you are a fiduciary of any employee
benefit plans or certain other retirement
plans and arrangements, including
individual retirement accounts, annuities,
Keogh plans, and collective investment
funds and insurance company general and
separate accounts in which those plans,
accounts, annuities or arrangements are
invested, that are subject to ERISA or
Section 4975 of the Internal Revenue Code,
you should
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<PAGE>
carefully review with your 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
the Internal Revenue Code. See "Certain
ERISA Considerations" in this prospectus
and "ERISA Considerations" in the related
prospectus supplement.
LEGAL INVESTMENT.................... The applicable prospectus supplement will
specify whether the offered certificates
will constitute "mortgage related
securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984, as
amended. If your investment authority is
subject to legal restrictions you should
consult your own legal advisors to
determine if the offered certificates
constitute legal investments for you. See
"Legal Investment" in this prospectus and
in the related prospectus supplement.
RATING.............................. At their dates of issuance, each class of
offered certificates will be rated at least
investment grade by one or more nationally
recognized statistical rating agencies. See
"Rating" in this prospectus and "Ratings"
in the related prospectus supplement.
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RISK FACTORS
You should carefully consider the following risks and the risks described
under "RISK FACTORS" in the prospectus supplement for the applicable series of
certificates before making an investment decision. In particular, distributions
on your certificates will depend on payments received on and other recoveries
with respect to the mortgage loans. Thus, you should carefully consider the risk
factors relating to the mortgage loans and the mortgaged properties.
LIMITED LIQUIDITY OF YOUR CERTIFICATES
We cannot assure you that a secondary market for the certificates will
develop or, if it does develop, that it will provide you with liquidity of
investment or will continue for the life of your certificates. The prospectus
supplement for any series of offered certificates may indicate that an
underwriter intends to make a secondary market in those offered certificates;
however, no underwriter will be obligated to do so. Any resulting secondary
market may provide you with less liquidity than any comparable market for
certificates that evidence interests in single-family mortgage loans.
The primary source of ongoing information regarding the offered
certificates of any series, including information regarding the status of the
related mortgage assets and any credit support for your certificates, will be
the periodic reports delivered to you. See "Description of the
Certificates--Reports to Certificateholders" in this prospectus. We cannot
assure you that any additional ongoing information regarding your certificates
will be available through any other source. The limited nature of the available
information in respect of a series of offered certificates may adversely affect
its liquidity, even if a secondary market for those certificates does develop.
Even if a secondary market does develop with respect to any series or
class of certificates, the market value of those certificates will be affected
by several factors, including:
o The perceived liquidity of the certificates;
o The anticipated cash flow of the certificates, which may vary
widely depending upon the prepayment and default assumptions
applied in respect of the underlying mortgage loans and
prevailing interest rates;
o The price payable at any given time in respect of certain
classes of offered certificates may be extremely sensitive to
small fluctuations in prevailing interest rates, particularly,
for a class with a relatively long average life, a companion
class to a controlled amortization class, a class of
interest-only certificates or principal-only certificates; and
o The relative change in price for an offered certificate in
response to an upward or downward movement in prevailing
interest rates may not equal the relative change in price for
that certificate in response to an equal but opposite movement
in those rates. Accordingly, the sale of your certificates in
any secondary market that may develop may be at a discount
from the price you paid.
We are not aware of any source through which price information about the
offered certificates will be generally available on an ongoing basis.
Except to the extent described in this prospectus and in the related
prospectus supplement, you will have no redemption rights, and the certificates
of each series will be subject to early retirement only under certain specified
circumstances described in this prospectus and in the related prospectus
supplement. See "Description of the Certificates--Termination" in this
prospectus.
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LIMITED ASSETS OF EACH TRUST FUND
Unless otherwise specified in the related prospectus supplement,
o The certificates of any series and the mortgage assets in the
related trust fund 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 or entity; and
o The certificate of any series will not represent a claim
against or security interest in the trust funds for any other
series.
Accordingly, if the related trust fund has insufficient assets to make
payments on a series of offered certificates, no other assets will be available
to make those payments. Additionally, certain amounts on deposit from time to
time in certain funds or accounts constituting part of a trust fund may be
withdrawn under certain conditions, as described in the related prospectus
supplement, for purposes other than the payment of principal of or interest on
the related series of certificates. If so provided in the prospectus supplement
for a series of certificates consisting of one or more classes of subordinate
certificates, if losses or shortfalls in collections have occurred with respect
to any distribution date, all or a portion of the amount of these losses or
shortfalls will be borne first by one or more classes of the subordinate
certificates, and, thereafter, by the remaining classes of certificates in the
priority and manner and subject to the limitations specified in the prospectus
supplement.
PREPAYMENT CONSIDERATIONS; VARIABILITY IN AVERAGE LIFE OF OFFERED CERTIFICATES;
SPECIAL YIELD CONSIDERATIONS
As a result of, among other things, prepayments on the mortgage loans in
any trust fund, the amount and timing of distributions of principal and/or
interest on the offered certificates of the related series may be highly
unpredictable. Prepayments on the mortgage loans in any trust fund will result
in a faster rate of principal payments on one or more classes of the related
series of certificates than if payments on those mortgage loans were made as
scheduled. Thus, the prepayment experience on the mortgage loans in a trust fund
may affect the average life of one or more classes of offered certificates of
the related series.
The rate of principal payments on pools of mortgage loans varies among
pools and from time to time is influenced by a variety of economic, demographic,
geographic, social, tax, legal and other factors. For example, if prevailing
interest rates fall significantly below the mortgage interest rates of the
mortgage loans included in a trust fund, then, subject to, among other things,
the particular terms of the mortgage loans and the ability of borrowers to get
new financing, principal prepayments on those mortgage loans are likely to be
higher than if prevailing interest rates remain at or above the rates on those
mortgage loans. Conversely, if prevailing interest rates rise significantly
above the mortgage interest rates of the mortgage loans included in a trust
fund, then principal prepayments on those mortgage loans are likely to be lower
than if prevailing interest rates remain at or below the rates on those mortgage
loans. We cannot assure you as to the actual rate of prepayment on the mortgage
loans in any trust fund or that the rate of prepayment will conform to any model
described in this prospectus or in any prospectus supplement. As a result,
depending on the anticipated rate of prepayment for the mortgage loans in any
trust fund, the retirement of any class of certificates of the related series
could occur significantly earlier or later than expected.
The extent to which prepayments on the mortgage loans in any trust fund
ultimately affect the average life of your certificates will depend on the terms
of your certificates.
o A class of certificates that entitles the holders of those
certificates to a disproportionately large share of the
prepayments on the mortgage loans in the related trust fund
increases the "call risk" or the likelihood of early
retirement of that class if the rate of prepayment is
relatively fast; and
o A class of certificates that entitles the holders of the
certificates to a disproportionately small share of the
prepayments on the mortgage loans in the related trust fund
increases the likelihood of "extension risk" or an extended
average life of that class if the rate of prepayment is
relatively slow.
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As described in the related prospectus supplement, the respective
entitlements of the various classes of certificate of any series to receive
payments, especially prepayments, of principal of the mortgage loans in the
related trust fund may vary based on the occurrence of certain events such as
the retirement of one or more classes of certificates of that series, or subject
to certain contingencies such as the rate of prepayments and defaults with
respect to those mortgage loans.
A series of certificates may include one or more controlled amortization
classes, which will entitle you to receive principal distributions according to
a specified principal payment schedule. Although prepayment risk cannot be
eliminated entirely for any class of certificates, a controlled amortization
class will generally provide a relatively stable cash flow so long as the actual
rate of prepayment on the mortgage loans in the related trust fund remains
relatively constant at the rate, or within the range of rates, of prepayment
used to establish the specific principal payment schedule for those
certificates. Prepayment risk with respect to a given pool of mortgage assets
does not disappear, however, and the stability afforded to a controlled
amortization class comes at the expense of one or more companion classes of the
same series, any of which companion classes may also be a class of offered
certificates. In general, and as more specifically described in the related
prospectus supplement, a companion class may entitle you to a disproportionately
large share of prepayments on the mortgage loans in the related trust fund when
the rate of prepayment is relatively fast, or may entitle you to a
disproportionately small share of prepayments on the mortgage loans in the
related trust fund when the rate of prepayment is relatively slow. As described
in the related prospectus supplement, a companion class absorbs some (but not
all) of the "call risk" and/or "extension risk" that would otherwise belong to
the related controlled amortization class if all payments of principal of the
mortgage loans in the related trust fund were allocated on a pro rata basis.
A series of certificates may include one or more classes of offered
certificates offered at a premium or discount. Yields on those classes of
certificates will be sensitive, and in some cases extremely sensitive, to
prepayments on the mortgage loans in the related trust fund. Where the amount of
interest payable with respect to a class is disproportionately large, as
compared to the amount of principal, as with certain classes of interest-only
certificates, you might fail to recover your original investment under some
prepayment scenarios. The extent to which the yield to maturity of any class of
offered certificates may vary from the anticipated yield will depend upon the
degree to which they are purchased at a discount or premium and the amount and
timing of distributions on those certificates. You should consider, in the case
of any offered 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 that is lower than the anticipated yield and, in the case of any
offered certificate purchased at a premium, the risk that a faster than
anticipated rate of principal payments could result in an actual yield that is
lower than the anticipated yield. See "Yield and Maturity Considerations" in
this prospectus.
LIMITED NATURE OF RATINGS
Any rating assigned to a class of offered certificates by a rating agency
will only reflect its assessment of the probability that you will receive
payments to which you are entitled. This rating will not constitute an
assessment of the probability:
o that principal prepayments on the related mortgage loans will
be made;
o of the degree to which the rate of prepayments might differ
from the rate of prepayments that was originally anticipated;
or
o of the likelihood of early optional termination of the related
trust fund.
Furthermore, the rating will not address the possibility that prepayment
of the related mortgage loans at a higher or lower rate than you anticipated may
cause you to experience a lower than anticipated yield or that if you purchase a
certificate at a significant premium you might fail to recover your initial
investment under certain prepayment scenarios.
The amount, type and nature of credit support, if any, provided with
respect to a series of certificates will be determined on the basis of criteria
established by each rating agency rating classes of the certificates of that
series. These criteria are sometimes based upon analysis of the behavior of
mortgage loans in a larger group. However, we cannot assure you that the
historical data supporting that analysis will accurately reflect future
experience, or that the
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data derived from a large pool of mortgage loans will accurately predict the
delinquency, foreclosure or loss experience of any particular pool of mortgage
loans. In other cases, the criteria may be based upon determinations of the
values of the mortgaged properties that provide security for the mortgage loans
in the related trust fund. However, we cannot assure you that those values will
not decline in the future. See "Description of Credit Support" and "Rating" in
this prospectus.
RISKS ASSOCIATED WITH CERTAIN MORTGAGE LOANS AND MORTGAGED PROPERTIES
A description of risks associated with investments in mortgage loans is
included under "Certain Legal Aspects of Mortgage Loans" in this prospectus.
Commercial and multifamily lending generally exposes the lender to a greater
risk of loss than one-to four-family residential lending. Commercial and
multifamily lending typically involves larger loans to single borrowers or
groups of related borrowers than residential one- to four-family mortgage loans.
Further, the repayment of loans secured by income producing properties is
typically dependent upon the successful operation of the related real estate
project. If the cash flow from the project is reduced (for example, if leases
are not obtained or renewed), the borrower's ability to repay the loan may be
impaired. Commercial and multifamily real estate can be affected significantly
by the supply and demand in the market for the type of property securing the
loan and, therefore, may be subject to adverse economic conditions. Market
values may vary as a result of economic events or governmental regulations
outside the control of the borrower or lender that impact the cash flow of the
property. For example, some laws, such as the Americans with Disabilities Act,
may require modifications to properties, and rent control laws may limit rent
collections in the case of multifamily properties. A number of the mortgage
loans may be secured by liens on owner-occupied mortgaged properties or on
mortgaged properties leased to a single tenant or a small number of significant
tenants. Accordingly, a decline in the financial condition of the borrower or a
significant tenant, as applicable, may have a disproportionately greater effect
on the net operating income from those mortgaged properties than would be the
case with respect to mortgaged properties with multiple tenants.
Furthermore, the value of any mortgaged property may be adversely affected
by risks generally incident to interests in real property, including:
o Changes in general or local economic conditions and/or
specific industry segments;
o Declines in real estate values;
o Declines in rental or occupancy rates;
o Increases in interest rates, real estate tax rates and other
operating expenses;
o Changes in governmental rules, regulations and fiscal
policies, including environmental legislation;
o Acts of God; and
o Other factors beyond the control of a master servicer.
The type and use of a particular mortgaged property may present additional
risk. For instance:
o Mortgaged properties that operate as hospitals and nursing
homes may present special risks to lenders due to the
significant governmental regulation of the ownership,
operation, maintenance and financing of health care
institutions.
o Hotel and motel properties are often operated pursuant to
franchise, management or operating agreements that may be
terminable by the franchisor or operator. Moreover, the
transferability of a hotel's operating, liquor and other
licenses upon a transfer of the hotel, whether through
purchase or foreclosure, is subject to local law requirements.
o The ability of a borrower to repay a mortgage loan secured by
shares allocable to one or more cooperative dwelling units may
depend on the ability of the dwelling units to generate
sufficient
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rental income, which may be subject to rent control or
stabilization laws, to cover both debt service on the loan as
well as maintenance charges to the cooperative. Further, a
mortgage loan secured by cooperative shares is subordinate to
the mortgage, if any, on the cooperative apartment building.
The economic performance of mortgage loans that are secured by full
service hotels, limited service hotels, hotels associated with national
franchise chains, hotels associated with regional franchise chains and hotels
that are not affiliated with any franchise chain but may have their own brand
identity, are affected by various factors, including:
o Adverse economic and social conditions, either local, regional
or national (which may limit the amount that can be charged
for a room and reduce occupancy levels);
o 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 Deterioration in the financial strength or managerial
capabilities of the owner and operator of a hotel; and
o Changes in travel patterns caused by changes in access, energy
prices, strikes, relocation of highways, the construction of
additional highways or other factors.
Additionally, the hotel and lodging industry is generally seasonal in
nature and this seasonality can be expected to cause periodic fluctuations in
room and other revenues, occupancy levels, room rates and operating expenses.
The demand for particular accommodations may also be affected by changes in
travel patterns caused by changes in energy prices, strikes, relocation of
highways, the construction of additional highways and other factors.
The viability of any hotel property that is the franchisee of a national
or regional chain depends in part on the continued existence and financial
strength of the franchisor, the public perception of the franchise service mark
and the duration of the franchise licensing agreements. The transferability of
franchise license agreements may be restricted and, in the event of a
foreclosure on that hotel property, the property would not have the right to use
the franchise license without the franchisor's consent. Conversely, a lender may
be unable to remove a franchisor that it desires to replace following a
foreclosure. Further, in the event of a foreclosure on a hotel property, it is
unlikely that the trustee (or servicer or special servicer) or purchaser of that
hotel property would be entitled to the rights under any existing liquor license
for that hotel property. It is more likely that those persons would have to
apply for new licenses. We cannot assure you that a new license could be
obtained or that it could be obtained promptly.
Other multifamily properties, hotels, retail properties, office buildings,
manufactured housing properties, nursing homes and self-storage facilities
located in the areas of the mortgaged properties compete with the mortgaged
properties to attract residents and customers. The leasing of real estate is
highly competitive. The principal means of competition are price, location and
the nature and condition of the facility to be leased. A borrower under a
mortgage loan competes with all lessors and developers of comparable types of
real estate in the area in which the mortgaged property is located. Those
lessors or developers could have lower rentals, lower operating costs, more
favorable locations or better facilities. While a borrower under a mortgage loan
may renovate, refurbish or expand the mortgaged property to maintain it and
remain competitive, that renovation, refurbishment or expansion may itself
entail significant risk. Increased competition could adversely affect income
from and market value of the mortgaged properties. In addition, the business
conducted at each mortgaged property may face competition from other industries
and industry segments.
It is anticipated that some or all 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 that mortgage loan, recourse in the event of
borrower default will be limited to the specific real property and other assets,
if any, that were pledged to secure the mortgage loan. However, even with
respect to those mortgage loans that provide for recourse against the borrower
and its assets generally, we cannot assure you that enforcement of those
recourse provisions will be practicable, or that the assets of the borrower will
be sufficient to permit a recovery in respect of a defaulted mortgage loan in
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excess of the liquidation value of the related mortgaged property. See "Certain
Legal Aspects of Mortgage Loans--Foreclosure" in this prospectus.
Further, the concentration of default, foreclosure and loss risks in
individual mortgage loans in a particular trust fund will generally be greater
than for pools of single-family loans because mortgage loans in a trust fund
will generally consist of a smaller number of higher balance loans than would a
pool of single-family loans of comparable aggregate unpaid principal balance.
BORROWERS MAY BE UNABLE TO MAKE BALLOON PAYMENTS
Certain of the mortgage loans included in a trust fund may be
non-amortizing or only partially amortizing over their terms to maturity and,
thus, will require substantial principal payments (that is, balloon payments) at
their stated maturity. Mortgage loans of this type involve a greater degree of
risk than self-amortizing loans because the ability of a borrower to make a
balloon payment typically will depend upon its ability either to refinance the
loan or to sell the related mortgaged property. The ability of a borrower to
accomplish either of these goals will be affected by:
o The value of the related mortgaged property;
o The level of available mortgage interest rates at the time of
sale or refinancing;
o The borrower's equity in the related mortgaged property;
o The financial condition and operating history of the borrower
and the related mortgaged property;
o Tax laws, rent control laws, with respect to certain
residential properties;
o Medicaid and Medicare reimbursement rates, with respect to
hospitals and nursing homes;
o Prevailing general economic conditions; and
o The availability of credit for loans secured by multifamily or
commercial real properties generally.
Neither the Depositor nor any of its affiliates will be required to
refinance any mortgage loan.
If described in this prospectus and in the related prospectus supplement,
to maximize recoveries on defaulted mortgage loans, the master servicer or a
special servicer may, within prescribed limits, extend and modify mortgage loans
that are in default or as to which a payment default is reasonably foreseeable.
While a master servicer or a special servicer generally will be required to
determine that any extension or modification is reasonably likely to produce a
greater recovery, taking into account the time value of money, than liquidation,
we cannot assure you that any extension or modification will in fact increase
the present value of receipts from or proceeds of the affected mortgage loans.
CREDIT SUPPORT LIMITATIONS
The prospectus supplement for a series of certificates will describe any
credit support provided for those certificates. Any use of credit support will
be subject to the conditions and limitations described in this prospectus and in
the related prospectus supplement, and may not cover all potential losses or
risks. For example, it 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, 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 described in the related
prospectus supplement. 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 later paid classes of
certificates of that series has been repaid in full. As a result, the impact of
losses and shortfalls
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experienced with respect to the mortgage assets may fall primarily upon those
subordinate classes of certificates. Moreover, if a form of credit support
covers more than one series of certificates, holders of certificates of one
series will be subject to the risk that the credit support will be exhausted by
the claims of the holders of certificates of one or more other series.
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 those classes of certificates. Such criteria will be based
on an assumed level of defaults, delinquencies and losses on the underlying
mortgage assets and certain other factors. However, we cannot assure you that
the default, delinquency or loss experience on the related mortgage assets will
not exceed the assumed levels. See "--Limited Nature of Ratings", "Description
of the Certificates" and "Description of Credit Support" in this prospectus.
LEASES AND RENTS
Each mortgage loan included in any trust fund secured by mortgaged
property that is subject to leases typically will be secured by an assignment of
leases and rents pursuant to which the borrower assigns to the lender its right,
title and interest as landlord under the leases of the related mortgaged
property, and the income derived from those leases, as further security for the
related mortgage loan, while retaining a license to collect rents for so long as
there is no default. If the borrower defaults, the license terminates and the
lender is entitled to collect rents. 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
borrower, the lender's ability to collect the rents may be adversely affected.
See "Certain Legal Aspects of Mortgage Loans--Leases and Rents" in this
prospectus.
ENVIRONMENTAL RISKS
Under federal law and the laws of certain states, contamination of real
property may give rise to a lien on the property to assure or reimburse the
costs of cleanup. In several states, that lien has priority over an existing
mortgage lien on that property. In addition, under various federal, state and
local laws, ordinances and regulations, an owner or operator of real estate may
be liable for the costs of removal or remediation of hazardous substances or
toxic substances on, in or beneath the property. This liability may be imposed
without regard to whether the owner knew of, or was responsible for, the
presence of those hazardous or toxic substances. The costs of any required
remediation and the owner or operator's liability for them as to any property
are generally not limited under these laws, ordinances and regulations and could
exceed the value of the mortgaged property and the aggregate assets of the owner
or operator. In addition, as to the owners or operators of mortgaged properties
that generate hazardous substances that are disposed of at "off-site" locations,
the owners or operators may be held strictly, jointly and severally liable if
there are releases or threatened releases of hazardous substances at the
off-site locations where that person's hazardous substances were disposed. Two
methods to attempt to reduce the trust's potential exposure to cleanup costs are
to establish reserves for cleanup costs when they can be anticipated and
estimated, or to designate the trust as the named insured in specialized
environmental insurance that is designed for secured lenders. However, there can
be no assurance that reserves or environmental insurance will in fact be
applicable or adequate to cover all costs and any other liabilities that may
eventually be incurred.
Under some environmental laws, such as the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, as
well as some state laws, a secured lender (such as the trust) may be liable as
an "owner" or "operator" for the costs of dealing with hazardous substances
affecting a borrower's property, if agents or employees of the lender have
participated in the management of the borrower's property. This liability could
exist even if a previous owner caused the environmental damage. The trust's
potential exposure to liability for cleanup costs may increase if the trust
actually takes possession of a borrower's property, or control of its day-to-day
operations, as for example through the appointment of a receiver. See "Certain
Legal Aspects of the Mortgage Loans--Environmental Risks" in this prospectus.
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SPECIAL HAZARD LOSSES
Unless otherwise specified in a prospectus supplement, the master servicer
for the related trust fund will be required to cause the borrower on each
mortgage loan in that trust fund to maintain the insurance coverage in respect
of the related mortgaged property required under the related mortgage, including
hazard insurance. The master servicer may satisfy its obligation to cause hazard
insurance to be maintained with respect to any mortgaged property through
acquisition of a blanket policy.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by:
o fire;
o lightning;
o explosion;
o smoke;
o windstorm and hail; and
o riot, strike and civil commotion.
Each policy is subject to the conditions and exclusions specified in that
policy.
The policies covering the mortgaged properties will be underwritten by
different insurers under different state laws, and therefore will not contain
identical terms and conditions. However, most policies do not typically 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 risks. Unless the related mortgage specifically requires the
mortgagor to insure against physical damage arising from those causes, those
losses may be borne, at least in part, by the holders of one or more classes of
offered certificates of the related series, to the extent they are not covered
by any available credit support. See "Description of the Pooling
Agreements--Hazard Insurance Policies" in this prospectus.
SOME CERTIFICATES MAY NOT BE APPROPRIATE FOR ERISA PLANS
Generally, ERISA applies to investments made by employee benefit plans and
transactions involving the assets of those plans. Due to the complexity of
regulations that govern those plans, if you are subject to ERISA you are urged
to consult your own counsel regarding consequences under ERISA of acquisition,
ownership and disposition of the offered certificates of any series. See
"Certain ERISA Considerations" in this prospectus.
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING RESIDUAL CERTIFICATES
If you hold certain classes of certificates that constitute a residual
interest in a "real estate mortgage investment conduit" for federal income tax
purposes, you will be required to report on your federal income tax returns as
ordinary income your pro rata share of the taxable income of the REMIC,
regardless of the amount or timing of your receipt of cash payments, as
described in "Certain Federal Income Tax Consequences--Federal Income Tax
Consequences for REMIC Certificates" in this prospectus. Accordingly, under
certain circumstances, if you hold residual certificates you may have taxable
income and tax liabilities arising from your investment during a taxable year in
excess of the cash received during that period. The requirement to report your
pro rata share of the taxable income and net loss of the REMIC will continue
until the principal balances of all classes of certificates of the related
series have been reduced to zero, even though you have received full payment of
their stated interest and principal. A portion, or, in certain circumstances,
all, of your share of the REMIC taxable income may be treated as "excess
inclusion" income to you, which:
o generally, will not be subject to offset by losses from other
activities;
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o if you are a tax-exempt holder, will be treated as unrelated
business taxable income; and
o if you are a foreign holder, will not qualify for exemption
from withholding tax.
If you are an individual and you hold a class of residual certificates,
you may be limited in your ability to deduct servicing fees and other expenses
of the REMIC. In addition, classes of residual certificates are subject to
certain restrictions on transfer. Because of the special tax treatment of
classes of residual certificates, the taxable income arising in a given year on
a class of residual certificates will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pre-tax yield. As a result, the after-tax
yield on the classes of residual certificates may be significantly less than
that of a corporate bond or stripped instrument having similar cash flow
characteristics.
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING ORIGINAL ISSUE DISCOUNT
Certain classes of certificates of a series may be issued with "original
issue discount" for federal income tax purposes, which generally will result in
recognition of some taxable income in advance of the receipt of cash
attributable to that income. See "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for REMIC Certificates" and
"--Taxation of Regular Certificates" in this prospectus.
BANKRUPTCY PROCEEDINGS ENTAIL CERTAIN RISKS
Under the federal bankruptcy code, the filing of a petition in bankruptcy
by or against a borrower will stay the sale of the mortgaged property owned by
that borrower, as well as the commencement or continuation of a foreclosure
action. In addition, even if a court determines that the value of the mortgaged
property is less than the principal balance of the mortgage loan it secures, the
court may prevent a lender from foreclosing on the mortgaged property, subject
to certain protections available to the lender. As part of a restructuring plan,
a court also may reduce the amount of secured indebtedness to the then-current
value of the mortgaged property. This 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:
o grant a debtor a reasonable time to cure a payment default on
a mortgage loan;
o reduce monthly payments due under a mortgage loan;
o change the rate of interest due on a mortgage loan; or
o otherwise alter the mortgage loan's repayment schedule.
Moreover, the filing of a petition in bankruptcy by, or on behalf of, a
junior lienholder may stay the senior lienholder from taking action to foreclose
on the junior lien. Additionally, the borrower's trustee or the borrower, as
debtor-in-possession, has certain special powers to avoid, subordinate or
disallow debts. In certain circumstances, the claims of the trustee may be
subordinated to financing obtained by a debtor-in-possession subsequent to its
bankruptcy.
Under the federal bankruptcy code, the lender will be stayed from
enforcing a borrower's assignment of rents and leases. The bankruptcy code also
may interfere with the trustee's ability to enforce lockbox requirements. The
legal proceedings necessary to resolve these issues can be time consuming and
costly and may significantly delay or diminish the 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.
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BOOK-ENTRY SYSTEM FOR CERTAIN CLASSES MAY DECREASE LIQUIDITY AND DELAY PAYMENT
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. Each class of book-entry certificates will be initially
represented by one or more certificates registered in the name of a nominee for
The Depository Trust Company, or DTC. Since transactions in the classes of
book-entry certificates of any series generally can be effected only through The
Depository Trust Company, and its participating organizations:
o the liquidity of book-entry certificates in secondary trading
market that may develop may be limited because investors may
be unwilling to purchase certificates for which they cannot
obtain physical certificates;
o your ability to pledge certificates to persons or entities
that do not participate in the DTC system, or otherwise to
take action in respect of the certificates, may be limited due
to lack of a physical security representing the certificates;
o your access to information regarding the certificates may be
limited since conveyance of notices and other communications
by The Depository Trust Company to its participating
organizations, and directly and indirectly through those
participating organizations to you, will be governed by
arrangements among them, subject to any statutory or
regulatory requirements as may be in effect at that time; and
o you may experience some delay in receiving distributions of
interest and principal on your certificates because
distributions will be made by the trustee to DTC and DTC will
then be required to credit those distributions to the accounts
of its participating organizations and only then will they be
credited to your account either directly or indirectly through
DTC's participating organizations.
See "Description of the Certificates--Book-Entry Registration and
Definitive Certificates" in this prospectus.
DELINQUENT AND NON-PERFORMING MORTGAGE LOANS
If so provided in the related prospectus supplement, the trust fund for a
particular series of certificates may include mortgage loans that are past due.
In no event will the mortgage loans that are past due comprise 20 percent or
more of the trust fund at the time the mortgage loans are transferred to the
trust fund. None of the mortgage loans will be non-performing (i.e., more than
90 days delinquent or in foreclosure) at the time the mortgage loans are
transferred by the Depositor to a trust fund for a series. If so specified in
the related prospectus supplement, a special servicer may perform the servicing
of delinquent mortgage loans or mortgage loans that become non-performing after
the time they are transferred to a trust fund. Credit support provided with
respect to a particular series of certificates may not cover all losses related
to those delinquent or non-performing mortgage loans. You should consider the
risk that the inclusion of those mortgage loans in the trust fund may adversely
affect the rate of defaults and prepayments on the mortgage assets in the trust
fund and the yield on your certificates of that series. See "Description of the
Trust Funds--Mortgage Loans--General" in this prospectus.
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DESCRIPTION OF THE TRUST FUNDS
GENERAL
The primary assets of each trust fund will consist of (1) various types of
multifamily or commercial mortgage loans, (2) mortgage participations,
pass-through certificates or other mortgage-backed securities ("MBS") that
evidence interests in, or that are secured by pledges of, one or more of various
types of multifamily or commercial mortgage loans or (3) a combination of
mortgage loans and MBS. GE Capital Commercial Mortgage Corporation (the
"Depositor" ) will establish each trust fund. Each mortgage asset will be
selected by the Depositor for inclusion in a trust fund from among those
purchased, either directly or indirectly, from a prior holder of the mortgage
asset (a "Mortgage Asset Seller"), which prior holder may or may not be the
originator of that mortgage loan or the issuer of that MBS and may be our
affiliate. The mortgage assets will not be guaranteed or insured by the
Depositor, the Mortgage Asset Seller, the Underwriters or any of their
affiliates or, unless otherwise provided in the related prospectus supplement,
by any governmental agency or instrumentality or by any other person. The
discussion under the heading "--Mortgage Loans" below, unless otherwise noted,
applies equally to mortgage loans underlying any MBS included in a particular
trust fund.
MORTGAGE LOANS
General. The mortgage loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages, deeds of trust or similar security
instruments (the "Mortgages") that create liens on fee or leasehold estates in
properties (the "Mortgaged Properties" ) consisting of:
o Residential properties consisting of five or more rental or
cooperatively-owned dwelling units in high-rise, mid-rise or
garden apartment buildings or other residential structures; or
o Office buildings, retail stores and establishments, hotels or
motels, nursing homes, assisted living facilities, continuum
care facilities, day care centers, schools, hospitals or other
healthcare related facilities, manufactured housing
properties, warehouse facilities, mini-warehouse facilities,
self-storage facilities, distribution centers, transportation
centers, industrial plants, parking facilities, entertainment
and/or recreation facilities, mixed use properties and/or
unimproved land.
The multifamily properties may include mixed commercial and residential
structures, apartment buildings owned by private cooperative housing
corporations ("Cooperatives"), and shares of the Cooperative allocable to one or
more dwelling units occupied by non-owner tenants or to vacant units. Each
Mortgage will create a first priority or junior priority mortgage lien on a
borrower's fee estate in a Mortgaged Property. If a Mortgage creates a lien on a
borrower's leasehold estate in a property, then, unless otherwise specified in
the related prospectus supplement, the term of that leasehold will exceed the
term of the Mortgage Note by at least two years. Unless otherwise specified in
the related prospectus supplement, a person other than the Depositor will have
originated each mortgage loan, and the originator may be or may have been an
affiliate of the Depositor.
If so specified in the related prospectus supplement, mortgage assets for
a series of certificates may include mortgage loans made on the security of real
estate projects under construction. In that case, the related prospectus
supplement will describe the procedures and timing for making disbursements from
construction reserve funds as portions of the related real estate project are
completed. In addition, the mortgage assets for a particular series of
certificates may include mortgage loans that are delinquent or non-performing as
of the date those certificates are issued. In that case, the related prospectus
supplement will set forth, as to those mortgage loans, available information as
to the period of the delinquency or non-performance of those loans, any
forbearance arrangement then in effect, the condition of the related Mortgaged
Property and the ability of the Mortgaged Property to generate income to service
the mortgage debt.
Default and Loss Considerations with Respect to the Mortgage Loans.
Mortgage loans secured by liens on income-producing properties are substantially
different from loans made on the security of owner-occupied single-family homes.
The repayment of a loan secured by a lien on an income- producing property is
typically dependent
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upon the successful operation of that property (that is, its ability to generate
income). Moreover, some or all of the mortgage loans included in a particular
trust fund may be non-recourse loans, which means that, absent special facts,
recourse in the case of default will be limited to the Mortgaged Property and
those other assets, if any, that were pledged to secure repayment of the
mortgage loan.
Lenders typically look to the Debt Service Coverage Ratio of a loan
secured by income-producing property as an important factor in evaluating the
risk of default on that loan. Unless otherwise defined in the related prospectus
supplement, the "Debt Service Coverage Ratio" of a mortgage loan at any given
time is the ratio of (1) the Net Operating Income derived from the related
Mortgaged Property for a twelve-month period or an annualized rent roll to (2)
the annualized scheduled payments on the mortgage loan and any other loans
senior thereto that are secured by the related Mortgaged Property. Unless
otherwise defined in the related prospectus supplement, "Net Operating Income"
means, for any given period, the total operating revenues derived from a
Mortgaged Property during that period, minus the total operating expenses
incurred in respect of that Mortgaged Property during that period other than
o non-cash items such as depreciation and amortization,
o capital expenditures, and
o debt service on the related mortgage loan or on any other
loans that are secured by that Mortgaged Property.
The Net Operating Income of a Mortgaged Property will fluctuate over time
and may or may not be sufficient to cover debt service on the related mortgage
loan at any given time. As the primary source of the operating revenues of a
non-owner occupied, income-producing property, rental income (and, with respect
to a mortgage loan secured by a Cooperative apartment building, maintenance
payments from tenant-stockholders of a Cooperative) may be affected by the
condition of the applicable real estate market and/or area economy. In addition,
properties typically leased, occupied or used on a short-term basis, such as
certain healthcare-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 typically leased for longer periods,
such as warehouses, retail stores, office buildings and industrial plants.
Commercial properties may be owner-occupied or leased to a small number of
tenants. Thus, the Net Operating Income of a commercial property may depend
substantially on the financial condition of the borrower or a tenant, and
mortgage loans secured by liens on those properties may pose greater risks than
loans secured by liens on multifamily properties or on multi-tenant commercial
properties.
Increases in operating expenses due to the general economic climate or
economic conditions in a locality or industry segment, such as increases in
interest rates, real estate tax rates, energy costs, labor costs and other
operating expenses, and/or to changes in governmental rules, regulations and
fiscal policies, may also affect the risk of default on a 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
borrower/landlord, is responsible for payment of operating expenses ("Net
Leases"). However, the existence of these "net of expense" provisions will
result in stable Net Operating Income to the borrower/landlord only to the
extent that the lessee is able to absorb operating expense increases while
continuing to make rent payments.
Lenders also look to the Loan-to-Value Ratio of a mortgage loan as a
factor in evaluating risk of loss if a property must be liquidated following a
default. Unless otherwise defined in the related prospectus supplement, the
"Loan-to-Value Ratio" of a mortgage loan at any given time is the ratio
(expressed as a percentage) of
o the then outstanding principal balance of the mortgage loan
and any other loans senior thereto that are secured by the
related Mortgaged Property to
o the Value of the related Mortgaged Property.
The "Value" of a Mortgaged Property is generally its fair market value
determined in an appraisal or market study obtained by the originator at the
origination of that loan. The lower the Loan-to-Value Ratio, the greater the
percentage of the borrower's equity in a Mortgaged Property, and thus
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(a) the greater the incentive of the borrower to perform under the
terms of the related mortgage loan (in order to protect its equity); and
(b) the greater the cushion provided to the lender against loss on
liquidation following a default.
Loan-to-Value Ratios will not necessarily constitute an accurate measure
of the risk of liquidation loss in a pool of mortgage loans. For example, the
value of a Mortgaged Property as of the date of initial issuance of the related
series of certificates may be less than the Value determined at loan
origination, and will likely continue to fluctuate from time to time based upon
changes in economic conditions, the real estate market and other factors
described in this prospectus. Moreover, even when current, an appraisal is not
necessarily a reliable estimate of value. Appraised values of income-producing
properties are generally based on
o the market comparison method (which compares recent resale
value of comparable properties at the date of the appraisal),
o the cost replacement method which calculates the cost of
replacing the property at that date,
o the income capitalization method which projects value based
upon the property's projected net cash flow, or
o upon a selection from or interpolation of the values derived
from those methods.
Each of these appraisal methods can present analytical difficulties. 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 and discount rate. Where more than one of these appraisal
methods are used and provide significantly different results, an accurate
determination of value and, correspondingly, a reliable analysis of default and
loss risks, is even more difficult.
While we believe that the foregoing considerations are important factors
that generally distinguish loans secured by liens on income-producing real
estate from single-family mortgage loans, we cannot assure you that all of these
factors will in fact have been prudently considered by the originators of the
mortgage loans, or that, for a particular mortgage loan, they are complete or
relevant. See "Risk Factors--Risks Associated with Certain Mortgage Loans and
Mortgaged Properties" and "--Borrowers May Be Unable to Make Balloon Payments"
in this prospectus.
Payment Provisions of the Mortgage Loans. In general, each mortgage loan
o will provide for scheduled payments of principal, interest or
both, to be made on specified dates ("Due Dates") that occur
monthly, quarterly, semi-annually or annually,
o may provide for no accrual of interest or for accrual of
interest at an interest rate that is fixed over its term or
that adjusts from time to time, or that may be converted at
the borrower's election from an adjustable to a fixed interest
rate, or from a fixed to an adjustable interest rate,
o may provide for level payments to maturity or for payments
that adjust from time to time to accommodate changes in the
interest rate or to reflect the occurrence of certain events,
and may permit negative amortization,
o may be fully amortizing or partially amortizing or
non-amortizing, with a balloon payment due on its stated
maturity date, and
o may prohibit over its term or for a certain period prepayments
(the period of that prohibition, a "Lock-out Period" and its
date of expiration, a "Lock-out Date") and/or require payment
of a premium or a yield maintenance penalty (a "Prepayment
Premium") in connection with certain prepayments, in each case
as described in the related prospectus supplement.
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A mortgage loan may also contain a provision that entitles the lender to a
share of appreciation of the related Mortgaged Property, or profits realized
from the operation or disposition of that Mortgaged Property or the benefit, if
any, resulting from the refinancing of the mortgage loan (this provision, an
"Equity Participation"), as described in the related prospectus supplement. If
holders of any class or classes of offered certificates of a series will be
entitled to all or a portion of an Equity Participation in addition to payments
of interest on and/or principal of those offered certificates, the related
prospectus supplement will describe the Equity Participation and the method or
methods by which distributions will be made to holders of those certificates.
Mortgage Loan Information in Prospectus Supplements. Each prospectus
supplement will contain certain information pertaining to the mortgage loans in
the related trust fund, which will generally be current as of a date specified
in the related prospectus supplement and which, to the extent then applicable
and specifically known to the Depositor, will include the following:
o the aggregate outstanding principal balance and the largest,
smallest and average outstanding principal balance of the
mortgage loans,
o the type or types of property that provide security for
repayment of the mortgage loans,
o the earliest and latest origination date and maturity date of
the mortgage loans,
o the original and remaining terms to maturity of the mortgage
loans, or the respective ranges of remaining terms to
maturity, and the weighted average original and remaining
terms to maturity of the mortgage loans,
o the original Loan-to-Value Ratios of the mortgage loans, or
the range of the Loan-to-Value Ratios, and the weighted
average original Loan-to-Value Ratio of the mortgage loans,
o the interest rates borne by the mortgage loans, or range of
the interest rates, and the weighted average interest rate
borne by the mortgage loans,
o with respect to mortgage loans with adjustable mortgage
interest rates ("ARM Loans"), the index or indices upon which
those adjustments are based, the adjustment dates, the range
of gross margins and the weighted average gross margin, and
any limits on mortgage interest rate adjustments at the time
of any adjustment and over the life of the ARM Loan,
o information regarding the payment characteristics of the
mortgage loans, including, without limitation, balloon payment
and other amortization provisions, Lock-out Periods and
Prepayment Premiums,
o the Debt Service Coverage Ratios of the mortgage loans (either
at origination or as of a more recent date), or the range of
the Debt Service Coverage Ratios, and the weighted average of
the Debt Service Coverage Ratios, and
o the geographic distribution of the Mortgaged Properties on a
state-by-state basis.
In appropriate cases, the related prospectus supplement will also contain
certain information available to the Depositor that pertains to the provisions
of leases and the nature of tenants of the Mortgaged Properties. If we are
unable to tabulate the specific information described above at the time offered
certificates of a series are initially offered, we will provide more general
information of the nature described above in the related prospectus supplement,
and specific information will be set forth in a report which we will make
available to purchasers of those certificates at or before the initial issuance
of the certificates and will be filed as part of a Current Report on Form 8-K
with the Securities and Exchange Commission within fifteen days following that
issuance.
MBS
MBS may include:
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o private (that is, not guaranteed or insured by the United
States or any agency or instrumentality of the United States)
mortgage participations, mortgage pass-through certificates or
other mortgage-backed securities, or
o certificates insured or guaranteed by the Federal Home Loan
Mortgage Corporation ("FHLMC" ), the Federal National Mortgage
Association ("FNMA"), the Governmental National Mortgage
Association ("GNMA") or the Federal Agricultural Mortgage
Corporation ("FAMC") provided that, unless otherwise specified
in the related prospectus supplement, each MBS will evidence
an interest in, or will be secured by a pledge of, mortgage
loans that conform to the descriptions of the mortgage loans
contained in this prospectus.
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, an indenture or similar agreement
(an "MBS Agreement"). The issuer of the MBS (the "MBS Issuer") and/or the
servicer of the underlying mortgage loans (the "MBS Servicer") will have entered
into the MBS Agreement, generally with a trustee (the "MBS Trustee") or, in the
alternative, with the original purchaser or purchasers of the MBS.
The MBS may have been issued in one or more classes with characteristics
similar to the classes of certificates described in this prospectus. The MBS
Issuer, the MBS Servicer or the MBS Trustee will make distributions in respect
of the MBS on the dates specified in the related prospectus supplement. 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.
Reserve funds, subordination or other credit support similar to that
described for the certificates under "Description of Credit Support" may have
been provided with respect to the MBS. The type, characteristics and amount of
credit support, if any, will be a function of the characteristics of the
underlying mortgage loans and other factors and generally will have been
established on the basis of the requirements of any rating agency that may have
assigned a rating to the MBS, or by the initial purchasers of the MBS.
The prospectus supplement for a series of certificates that evidence
interests in MBS will specify, to the extent available:
o the aggregate approximate initial and outstanding principal
amount and type of the MBS to be included in the trust fund,
o the original and remaining term to stated maturity of the MBS,
if applicable,
o the pass-through or bond rate of the MBS or the formula for
determining the rates,
o the payment characteristics of the MBS,
o the MBS Issuer, MBS Servicer and MBS Trustee, as applicable,
o a description of the credit support, if any,
o the circumstances under which the related underlying mortgage
loans, or the MBS themselves, may be purchased prior to their
maturity,
o the terms on which mortgage loans may be substituted for those
originally underlying the MBS,
o the type of mortgage loans underlying the MBS and, to the
extent available to the Depositor and appropriate under the
circumstances, the other information in respect of the
underlying mortgage loans described under "--Mortgage
Loans--Mortgage Loan Information in Prospectus Supplements"
above, and
o the characteristics of any cash flow agreements that relate to
the MBS.
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CERTIFICATE ACCOUNTS
Each trust fund will include one or more certificate 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 in this prospectus and in that prospectus supplement, deposit all
payments and collections received or advanced with respect to the mortgage
assets and other assets in the trust fund. A certificate account may be
maintained as an interest bearing or a non-interest bearing account, and funds
held in a certificate account may be held as cash or invested in certain
obligations acceptable to each rating agency rating one or more classes of the
related series of offered certificates.
CREDIT SUPPORT
If so provided in the prospectus supplement for a series of certificates,
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 that series in the form of subordination of one or more other
classes of certificates of that series or by one or more other types of credit
support, such as letters of credit, overcollateralization, insurance policies,
guarantees, surety bonds or reserve funds, or a combination of them. The amount
and types of credit support, the identification of the entity providing it (if
applicable) and related information with respect to each type of credit support,
if any, will be set forth in the prospectus supplement for a series of
certificates. See "Risk Factors--Credit Support Limitations" and "Description of
Credit Support" in this prospectus.
CASH FLOW AGREEMENTS
If so provided in the prospectus supplement for a series of certificates,
the related trust fund may include guaranteed investment contracts pursuant to
which moneys held in the funds and accounts established for those series will be
invested at a specified rate. The trust fund may also include interest rate
exchange agreements, interest rate cap or floor agreements, or currency exchange
agreements, which agreements are designed to reduce the effects of interest rate
or currency exchange rate fluctuations on the mortgage assets on one or more
classes of certificates. The principal terms of a guaranteed investment contract
or other agreement (any of these agreements, a "Cash Flow Agreement"), and the
identity of the Cash Flow Agreement obligor, will be described in the prospectus
supplement for a series of certificates.
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YIELD AND MATURITY CONSIDERATIONS
GENERAL
The yield on any offered certificate will depend on the price you paid,
the fixed, variable or adjustable pass-through interest rate of the certificate
and the amount and timing of distributions on the certificate. See "Risk
Factors--Prepayment Considerations; Variability in Average Life of Offered
Certificates; Special Yield Considerations" in this prospectus. The following
discussion contemplates a trust fund that consists solely of mortgage loans.
While the characteristics and behavior of mortgage loans underlying an MBS can
generally be expected to have the same effect on the yield to maturity and/or
weighted average life of a class of certificates as will the characteristics and
behavior of comparable mortgage loans, the effect may differ due to the payment
characteristics of the MBS. If a trust fund includes MBS, the related prospectus
supplement will discuss the effect that the MBS payment characteristics may have
on the yield to maturity and weighted average lives of the offered certificates
of the related series.
PASS-THROUGH RATE
The certificates of any class within a series may have a fixed, variable
or adjustable pass-through interest rate, which may or may not be based upon the
interest rates borne by the mortgage loans in the related trust fund. The
prospectus supplement with respect to any series of certificates will specify
the pass-through interest rate for each class of offered certificates of that
series or, in the case of a class of offered certificates with a variable or
adjustable pass-through interest rate, the method of determining the
pass-through interest rate; the effect, if any, of the prepayment of any
mortgage loan on the pass-through interest rate of one or more classes of
offered certificates; and whether the distributions of interest on the offered
certificates of any class will be dependent, in whole or in part, on the
performance of any obligor under a Cash Flow Agreement.
PAYMENT DELAYS
With respect to any series of certificates, a period of time will elapse
between the date upon which payments on the mortgage loans in the related trust
fund are due and the distribution date on which those payments are passed
through to certificateholders. That delay will effectively reduce the yield that
would otherwise be produced if payments on those mortgage loans were distributed
to certificateholders on or near the date they were due.
CERTAIN SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full or in part is made on a mortgage loan,
the borrower is generally charged interest on the amount of that prepayment only
through the date of prepayment, instead of through the Due Date for the next
succeeding scheduled payment. However, interest accrued on any series of
certificates and distributable on them on any distribution date will generally
correspond to interest accrued on the mortgage loans to their respective Due
Dates during the related Due Period. Unless otherwise specified in the
prospectus supplement for a series of certificates, a "Due Period" is a
specified time period generally corresponding in length to the time period
between distribution dates, and all scheduled payments on the mortgage loans in
the related trust fund that are due during a given Due Period will, to the
extent received by a specified date (the "Determination Date") or otherwise
advanced by the related master servicer or other specified person, be
distributed to the holders of the certificates of that series on the next
succeeding distribution date. Consequently, if a prepayment on any mortgage loan
is distributable to certificateholders on a particular distribution date, but
that prepayment is not accompanied by interest on it to the Due Date for that
mortgage loan in the related Due Period, then the interest charged to the
borrower (net of servicing and administrative fees) may be less (that shortfall,
a "Prepayment Interest Shortfall") than the corresponding amount of interest
accrued and otherwise payable on the certificates of the related series. If that
shortfall is allocated to a class of offered certificates, their yield will be
adversely affected. The prospectus supplement for each series of certificates
will describe the manner in which those shortfalls will be allocated among the
classes of those certificates. If so specified in the prospectus supplement for
a series of certificates, the master servicer for that series will be required
to apply some or all of its servicing compensation for the corresponding period
to offset the amount of those shortfalls. The related prospectus supplement will
also describe any other amounts available to offset those
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shortfalls. See "Description of the Pooling Agreements--Servicing Compensation
and Payment of Expenses" in this prospectus.
YIELD AND PREPAYMENT CONSIDERATIONS
A certificate's yield to maturity will be affected by the rate of
principal payments on the mortgage loans in the related trust fund and the
allocation of principal to reduce the principal balance (or notional amount, if
applicable) of that certificate. The rate of principal payments on the mortgage
loans in any trust fund will in turn be affected by the amortization schedules
of the mortgage loans (which, in the case of ARM Loans, may change periodically
to accommodate adjustments to their mortgage interest rates), the dates on which
any balloon payments are due, and the rate of principal prepayments on them
(including for this purpose, prepayments resulting from liquidations of mortgage
loans due to defaults, casualties or condemnations affecting the Mortgaged
Properties, or purchases of mortgage loans out of the related trust fund).
Because the rate of principal prepayments on the mortgage loans in any trust
fund will depend on future events and a variety of factors (as described more
fully below), we cannot assure you as to that rate.
The extent to which the yield to maturity of a class of offered
certificates of any series may vary from the anticipated yield will depend upon
the degree to which they are purchased at a discount or premium and when, and to
what degree, payments of principal on the mortgage loans in the related trust
fund are in turn distributed on those certificates, or, in the case of a class
of interest-only certificates, result in the reduction of its notional amount.
An investor should consider, in the case of any offered certificate purchased at
a discount, the risk that a slower than anticipated rate of principal payments
on the mortgage loans in the related trust fund could result in an actual yield
to that investor that is lower than the anticipated yield and, in the case of
any offered certificate purchased at a premium, the risk that a faster than
anticipated rate of principal payments on those mortgage loans could result in
an actual yield to that investor that is lower than the anticipated yield. In
addition, if an investor purchases an offered certificate at a discount (or
premium), and principal payments are made in reduction of the principal balance
or notional amount of that investor's offered certificates at a rate slower (or
faster) than the rate anticipated by the investor during any particular period,
the consequent adverse effects on that investor's yield would not be fully
offset by a subsequent like increase (or decrease) in the rate of principal
payments.
A class of certificates, including a class of offered certificates, may
provide that on any distribution date the holders of those certificates are
entitled to a pro rata share of the prepayments on the mortgage loans in the
related trust fund that are distributable on that date, to a disproportionately
large share (which, in some cases, may be all) of those prepayments, or to a
disproportionately small share (which, in some cases, may be none) of those
prepayments. As described in the related prospectus supplement, the respective
entitlements of the various classes of certificates of any series to receive
distributions in respect of payments (and, in particular, prepayments) of
principal of the mortgage loans in the related trust fund may vary based on the
occurrence of certain events, such as, the retirement of one or more classes of
certificates of that series, or subject to certain contingencies, such as,
prepayment and default rates with respect to those mortgage loans.
In general, the notional amount of a class of interest-only certificates
will either (1) be based on the principal balances of some or all of the
mortgage assets in the related trust fund or (2) equal the principal balances of
one or more of the other classes of certificates of the same series.
Accordingly, the yield on those interest-only certificates will be inversely
related to the rate at which payments and other collections of principal are
received on those mortgage assets or distributions are made in reduction of the
principal balances of those classes of certificates, as the case may be.
Consistent with the foregoing, if a class of certificates of any series
consists of interest-only certificates or principal-only certificates, a lower
than anticipated rate of principal prepayments on the mortgage loans in the
related trust fund will negatively affect the yield to investors in
principal-only certificates, and a higher than anticipated rate of principal
prepayments on those mortgage loans will negatively affect the yield to
investors in interest-only certificates. If the offered certificates of a series
include those certificates, the related prospectus supplement will include a
table showing the effect of various assumed levels of prepayment on yields on
those certificates. Those tables will be intended to illustrate the sensitivity
of yields to various assumed prepayment rates and will not be intended to
predict, or to provide information that will enable investors to predict, yields
or prepayment rates.
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We are not aware of any relevant publicly available or authoritative
statistics with respect to the historical prepayment experience of a group of
multifamily or commercial mortgage loans. However, the extent of prepayments of
principal of the mortgage loans in any trust fund may be affected by a factors
such as:
o the availability of mortgage credit,
o the relative economic vitality of the area in which the Mortgaged
Properties are located,
o the quality of management of the Mortgaged Properties,
o the servicing of the mortgage loans,
o possible changes in tax laws and other opportunities for investment,
o the existence of Lock-out Periods,
o requirements that principal prepayments be accompanied by Prepayment
Premiums, and
o by the extent to which these provisions may be practicably enforced.
The rate of prepayment on a pool of mortgage loans is also 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
loan's interest rate, a borrower may have an increased incentive to refinance
its mortgage loan. Even in the case of ARM Loans, as prevailing market interest
rates decline, and without regard to whether the mortgage interest rates on the
ARM Loans decline in a manner consistent therewith, the related borrowers may
have an increased incentive to refinance for purposes of either (1) converting
to a fixed rate loan and thereby "locking in" that rate or (2) taking advantage
of a different index, margin or rate cap or floor on another adjustable rate
mortgage loan.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some borrowers may sell
Mortgaged Properties in order to realize their equity in the Mortgaged
Properties, 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. We will make no representation as to the particular
factors that will affect the prepayment of the mortgage loans in any trust fund,
as to the relative importance of those factors, as to the percentage of the
principal balance of the mortgage loans that will be paid as of any date or as
to the overall rate of prepayment on the mortgage loans.
WEIGHTED AVERAGE LIFE AND MATURITY
The rate at which principal payments are received on the mortgage loans in
any trust fund will affect the ultimate maturity and the weighted average life
of one or more classes of the certificates of that series. Weighted average life
refers to the average amount of time that will elapse from the date of issuance
of an instrument until each dollar allocable as principal of that instrument is
repaid to the investor.
The weighted average life and maturity of a class of certificates of any
series will be influenced by the rate at which principal on the related mortgage
loans, whether in the form of scheduled amortization or prepayments (for this
purpose, the term "prepayment" includes voluntary prepayments, liquidations due
to default and purchases of mortgage loans out of the related trust fund), is
paid to that class. Prepayment rates on loans are commonly measured relative to
a prepayment standard or model, such as the Constant Prepayment Rate ("CPR")
prepayment model or the Standard Prepayment Assumption ("SPA") prepayment model.
CPR represents an assumed constant rate of prepayment each month (expressed as
an annual percentage) relative to the then outstanding principal balance of a
pool of loans for the life of those loans. SPA represents an assumed variable
rate of prepayment each month (expressed as an annual percentage) relative to
the then outstanding principal balance of a pool of loans, with different
prepayment assumptions often expressed as percentages of SPA. For example, a
prepayment assumption of 100% of SPA assumes prepayment rates of 0.2% per annum
of the then outstanding principal balance of the loans in the first month of the
life of the loans and an additional 0.2% per annum in each month thereafter
until the thirtieth month. Beginning in the
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thirtieth month, and in each month thereafter during the life of the loans, 100%
of SPA assumes a constant prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any particular pool of loans. Moreover, the
CPR and SPA models were developed based upon historical prepayment experience
for single-family loans. Thus, it is unlikely that the prepayment experience of
the mortgage loans included in any trust fund will conform to any particular
level of CPR or SPA.
The prospectus supplement with respect to each series of certificates will
contain tables, if applicable, setting forth the projected weighted average life
of each class of offered certificates of those series and the percentage of the
initial principal balance of each class that would be outstanding on specified
distribution dates based on the assumptions stated in that prospectus
supplement, including assumptions that prepayments on the related mortgage loans
are made at rates corresponding to various percentages of CPR or SPA, or at
other rates specified in that prospectus supplement. Those tables and
assumptions will illustrate the sensitivity of the weighted average lives of the
certificates to various assumed prepayment rates and will not be intended to
predict, or to provide information that will enable investors to predict, the
actual weighted average lives of the certificates.
CONTROLLED AMORTIZATION CLASSES AND COMPANION CLASSES
A series of certificates may include one or more controlled amortization
classes, which will entitle the holders of those certificates to receive
principal distributions according to a specified principal payment schedule,
which schedule is supported by creating priorities, as described in the related
prospectus supplement, to receive principal payments from the mortgage loans in
the related trust fund. Unless otherwise specified in the related prospectus
supplement, each controlled amortization class will either be a planned
amortization class or a targeted amortization class. In general, a planned
amortization class has a "prepayment collar", that is, a range of prepayment
rates that can be sustained without disruption, that determines the principal
cash flow of those certificates. That prepayment collar is not static, and may
expand or contract after the issuance of the planned amortization class
depending on the actual prepayment experience for the underlying mortgage loans.
Distributions of principal on a planned amortization class would be made in
accordance with the specified schedule so long as prepayments on the underlying
mortgage loans remain at a relatively constant rate within the prepayment collar
and, as described below, companion classes exist to absorb "excesses" or
"shortfalls" in principal payments on the underlying mortgage loans. If the rate
of prepayment on the underlying mortgage loans from time to time falls outside
the prepayment collar, or fluctuates significantly within the prepayment collar,
especially for any extended period of time, that event may have material
consequences in respect of the anticipated weighted average life and maturity
for a planned amortization class. A targeted amortization class is structured so
that principal distributions generally will be payable on it in accordance with
its specified principal payments schedule so long as the rate of prepayments on
the related mortgage assets remains relatively constant at the particular rate
used in establishing that schedule. A targeted amortization class will generally
afford the holders of those certificates some protection against early
retirement or some protection against an extended average life, but not both.
Although prepayment risk cannot be eliminated entirely for any class of
certificates, a controlled amortization class will generally provide a
relatively stable cash flow so long as the actual rate of prepayment on the
mortgage loans in the related trust fund remains relatively constant at the
rate, or within the range of rates, of prepayment used to establish the specific
principal payment schedule for those certificates. Prepayment risk with respect
to a given pool of mortgage assets does not disappear, however, and the
stability afforded to a controlled amortization class comes at the expense of
one or more companion classes of the same series, any of which companion classes
may also be a class of offered certificates. In general, and as more
particularly described in the related prospectus supplement, a companion class
will entitle the holders of those certificates to a disproportionately large
share of prepayments on the mortgage loans in the related trust fund when the
rate of prepayment is relatively fast, and will entitle the holders of those
certificates to a disproportionately small share of prepayments on the mortgage
loans in the related trust fund when the rate of prepayment is relatively slow.
A class of certificates that entitles the holders of those certificates to a
disproportionately large share of the prepayments on the mortgage loans in the
related trust fund enhances the risk of early retirement of that class, or call
risk, if the rate of prepayment is relatively fast; while a class of
certificates that entitles the holders of those certificates to a
disproportionately small share of the prepayments on the mortgage loans in the
related trust fund enhances the risk of an extended average life of that
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class, or extension risk, if the rate of prepayment is relatively slow. Thus, as
described in the related prospectus supplement, a companion class absorbs some
(but not all) of the "call risk" and/or "extension risk" that would otherwise
belong to the related controlled amortization class if all payments of principal
of the mortgage loans in the related trust fund were allocated on a pro rata
basis.
OTHER FACTORS AFFECTING YIELD, WEIGHTED AVERAGE LIFE AND MATURITY
Balloon Payments; Extensions of Maturity. Some or all of the mortgage
loans included in a particular trust fund may require that balloon payments be
made at maturity. Because the ability of a borrower to make a balloon payment
typically will depend upon its ability either to refinance the loan or to sell
the related Mortgaged Property, there is a risk that mortgage loans that require
balloon payments may default at maturity, or that the maturity of that mortgage
loan may be extended in connection with a workout. In the case of defaults,
recovery of proceeds may be delayed by, among other things, bankruptcy of the
borrower or adverse conditions in the market where the property is located. In
order to minimize losses on defaulted mortgage loans, the master servicer or a
special servicer, to the extent and under the circumstances set forth in this
prospectus and in the related prospectus supplement, may be authorized 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 may delay distributions of principal on a class of offered
certificates and thereby extend the weighted average life of your certificates
and, if those certificates were purchased at a discount, reduce your yield.
Negative Amortization. The weighted average life of a class of
certificates can be affected by mortgage loans that permit negative amortization
to occur. A mortgage loan that provides for the payment of interest calculated
at a rate lower than the rate at which interest accrues on it would be expected
during a period of increasing interest rates to amortize at a slower rate (and
perhaps not at all) than if interest rates were declining or were remaining
constant. This slower rate of mortgage loan amortization would correspondingly
be reflected in a slower rate of amortization for one or more classes of
certificates of the related series. In addition, negative amortization on one or
more mortgage loans in any trust fund may result in negative amortization on the
certificates of the related series. The related prospectus supplement will
describe, if applicable, the manner in which negative amortization in respect of
the mortgage loans in any trust fund is allocated among the respective classes
of certificates of the related series. The portion of any mortgage loan negative
amortization allocated to a class of certificates may result in a deferral of
some or all of the interest payable on them, which deferred interest may be
added to the principal balance of the certificates. Accordingly, the weighted
average lives of mortgage loans that permit negative amortization and that of
the classes of certificates to which the negative amortization would be
allocated or that would bear the effects of a slower rate of amortization on
those mortgage loans, may increase as a result of that feature.
Negative amortization also may occur in respect of an ARM Loan that limits
the amount by which its scheduled payment may adjust in response to a change in
its mortgage interest rate, provides that its scheduled payment will adjust less
frequently than its mortgage interest rate or provides for constant scheduled
payments notwithstanding adjustments to its mortgage interest rate. Accordingly,
during a period of declining interest rates, the scheduled payment on that
mortgage loan may exceed the amount necessary to amortize the loan fully over
its remaining amortization schedule and pay interest at the then applicable
mortgage interest rate, thereby resulting in the accelerated amortization of
that mortgage loan. This acceleration in amortization of its principal balance
will shorten the weighted average life of that mortgage loan and,
correspondingly, the weighted average lives of those classes of certificates
entitled to a portion of the principal payments on that mortgage loan.
The extent to which the yield on any offered certificate will be affected
by the inclusion in the related trust fund of mortgage loans that permit
negative amortization, will depend upon (1) whether that offered certificate was
purchased at a premium or a discount and (2) the extent to which the payment
characteristics of those mortgage loans delay or accelerate the distributions of
principal on that certificate or, in the case of an interest-only certificate,
delay or accelerate the amortization of the notional amount of that certificate.
See "--Yield and Prepayment Considerations" above.
Foreclosures and Payment Plans. The number of foreclosures and the
principal amount of the mortgage loans 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 lives of those mortgage loans and,
accordingly, the weighted average lives of and yields on the certificates of the
related series. Servicing decisions made with respect to the
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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 lives of and yields on the certificates of the
related series.
Losses and Shortfalls on the Mortgage Assets. The yield on your
certificates will directly depend on the extent to which you are required to
bear the effects of any losses or shortfalls in collections arising out of
defaults on the mortgage loans in the related trust fund and the timing of those
losses and shortfalls. In general, the earlier that any loss or shortfall
occurs, the greater will be the negative effect on yield for any class of
certificates that is required to bear the effects of the shortfall.
The amount of any losses or shortfalls in collections on the mortgage
assets in any trust fund, to the extent not covered or offset by draws on any
reserve fund or under any instrument of credit support, will be allocated among
the respective classes of certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related prospectus
supplement. As described in the related prospectus supplement, those allocations
may be effected by a reduction in the entitlements to interest and/or principal
balances of one or more classes of certificates, or by establishing a priority
of payments among those classes of certificates.
The yield to maturity on a class of Subordinate Certificates may be
extremely sensitive to losses and shortfalls in collections on the mortgage
loans in the related trust fund.
Additional Certificate Amortization. In addition to entitling the holders
of one or more classes of a series of certificates to a specified portion, which
may during specified periods range from none to all, of the principal payments
received on the mortgage assets in the related trust fund, one or more classes
of certificates of any series, including one or more classes of offered
certificates of those series, may provide for distributions of principal of
those certificates from (1) amounts attributable to interest accrued but not
currently distributable on one or more classes of accrual certificates, (2)
Excess Funds or (3) any other amounts described in the related prospectus
supplement. Unless otherwise specified in the related prospectus supplement,
"Excess Funds" will, in general, represent that portion of the amounts
distributable in respect of the certificates of any series on any distribution
date that represent (1) interest received or advanced on the mortgage assets in
the related trust fund that is in excess of the interest currently accrued on
the certificates of that series, or (2) Prepayment Premiums, payments from
Equity Participations or any other amounts received on the mortgage assets in
the related trust fund that do not constitute interest on, or principal of,
those certificates.
The amortization of any class of certificates out of the sources described
in the preceding paragraph would shorten the weighted average life of those
certificates and, if those certificates were purchased at a premium, reduce the
yield on those certificates. The related prospectus supplement will discuss the
relevant factors to be considered in determining whether distributions of
principal of any class of certificates out of those sources would have any
material effect on the rate at which those certificates are amortized.
Optional Early Termination. If so specified in the related prospectus
supplement, a series of certificates may be subject to optional early
termination through the repurchase of the mortgage assets in the related trust
fund by the party or parties specified in the related prospectus supplement,
under the circumstances and in the manner set forth in the prospectus
supplement. If so provided in the related prospectus supplement, upon the
reduction of the principal balance of a specified class or classes of
certificates by a specified percentage or amount, the specified party may be
authorized or required to solicit bids for the purchase of all of the mortgage
assets of the related trust fund, or of a sufficient portion of those mortgage
assets to retire that class or classes, as set forth in the related prospectus
supplement. In the absence of other factors, any early retirement of a class of
offered certificates would shorten the weighted average life of those
certificates and, if those certificates were purchased at premium, reduce the
yield on those certificates.
THE DEPOSITOR
GE Capital Commercial Mortgage Corporation, the Depositor, is a Delaware
corporation organized on September 6, 2000. The Depositor is a wholly-owned
subsidiary of General Electric Capital Corporation. All outstanding common stock
of General Electric Capital Corporation is owned by General Electric Capital
Services, Inc., the common stock of which is in turn wholly owned directly or
indirectly by General Electric Company. The
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Depositor maintains its principal office at 292 Long Ridge Road, Stamford,
Connecticut 06927. Its telephone number is (203) 357-4000. The Depositor does
not have, nor is it expected in the future to have, any significant assets.
USE OF PROCEEDS
We will apply the net proceeds to be received from the sale of the
certificates of any series to the purchase of Trust Assets or use the net
proceeds for general corporate purposes. We expect to sell the certificates from
time to time, but the timing and amount of offerings of certificates will depend
on a number of factors, including the volume of mortgage assets we have
acquired, prevailing interest rates, availability of funds and general market
conditions.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
Each series of certificates will represent the entire beneficial ownership
interest in a trust fund. As described in the related prospectus supplement, the
certificates of each series, including the offered certificates of that series,
may consist of one or more classes of certificates that, among other things:
o provide for the accrual of interest on the certificates at a fixed,
variable or adjustable rate;
o are senior (collectively, "Senior Certificates") or subordinate
(collectively, "Subordinate Certificates") to one or more other
classes of certificates in entitlement to certain distributions on
the certificates;
o are principal-only certificates entitled to distributions of
principal, with disproportionately small, nominal or no
distributions of interest;
o are interest-only certificates entitled to distributions of
interest, with disproportionately small, nominal or no distributions
of principal;
o provide for distributions of interest on, or principal of, those
certificates that commence only after the occurrence of certain
events, such as the retirement of one or more other classes of
certificates of that series;
o provide for distributions of principal of those certificates to be
made, from time to time or for designated periods, at a rate that is
faster, and, in some cases, substantially faster, or slower, and, in
some cases, substantially slower, than the rate at which payments or
other collections of principal are received on the mortgage assets
in the related trust fund;
o provide for controlled distributions of principal of those
certificates to be made based on a specified payment schedule or
other methodology, subject to available funds; or
o provide for distributions based on collections of Prepayment
Premiums and Equity Participations on the mortgage assets in the
related trust fund.
Each class of offered certificates of a series will be issued in minimum
denominations corresponding to the principal balances or, in case of certain
classes of interest-only certificates or residual certificates, notional amounts
or percentage interests, specified in the related prospectus supplement. As
provided in the related prospectus supplement, one or more classes of offered
certificates of any series may be issued in fully registered, definitive form
(those certificates, "Definitive Certificates") or may be offered in book-entry
format (those certificates, "Book-Entry Certificates") through the facilities of
The Depository Trust Company ("DTC" ). The offered certificates of each series
(if issued as Definitive Certificates) may be transferred or exchanged, subject
to any restrictions on transfer described in the related prospectus supplement,
at the location specified in the related prospectus supplement, without the
payment of any service charges, other than any tax or other governmental charge
payable in connection therewith. Interests in a class of Book-Entry Certificates
will be transferred on the book-entry records of DTC and its participating
organizations. See "Risk Factors--Limited Liquidity of Your Certificates" and
"--Book-Entry System for Certain Classes May Decrease Liquidity and Delay
Payment" in this prospectus.
DISTRIBUTIONS
Distributions on the certificates of each series will be made on each
distribution date as specified in the related prospectus supplement from the
Available Distribution Amount for that series and that distribution date. Unless
otherwise provided in the related prospectus supplement, the "Available
Distribution Amount" for any series of certificates and any distribution date
will refer to the total of all payments or other collections on or in respect of
the mortgage assets and any other assets included in the related trust fund that
are available for distribution to the
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holders of certificates of that series on that date. The particular components
of the Available Distribution Amount for any series on each distribution date
will be more specifically described in the related prospectus supplement.
Except as otherwise specified in the related prospectus supplement,
distributions on the certificates of each series, other than the final
distribution in retirement of that certificate, will be made to the persons in
whose names those certificates are registered at the close of business on the
last business day of the month preceding the month in which the applicable
distribution date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the Determination
Date specified in the related prospectus supplement. All distributions with
respect to each class of certificates on each distribution date will be
allocated pro rata among the outstanding certificates in that class. Payments
will be made either by wire transfer in immediately available funds to your
account at a bank or other entity having appropriate facilities for the
transfer, if you have provided the person required to make those payments with
wiring instructions no later than the date specified in the related prospectus
supplement (and, if so provided in the related prospectus supplement, that you
hold certificates in the amount or denomination specified in the prospectus
supplement), or by check mailed to the address of that certificateholder as it
appears on the certificate register; provided, however, that the final
distribution in retirement of any class of certificates (whether Definitive
Certificates or Book-Entry Certificates) will be made only upon presentation and
surrender of those certificates at the location specified in the notice to
certificateholders of the final distribution.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of certificates of each series, other than certain classes of
principal-only certificates and residual certificates ("Residual Certificates")
that have no pass-through interest rate, may have a different pass-through
interest rate, which in each case may be fixed, variable or adjustable. The
related prospectus supplement will specify the pass-through interest rate or, in
the case of a variable or adjustable pass-through interest rate, the method for
determining the pass-through interest rate, for each class. Unless otherwise
specified in the related prospectus supplement, interest on the certificates of
each series will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Distributions of interest in respect of any class of certificates (other
than certain classes of certificates that will be entitled to distributions of
accrued interest commencing only on the distribution date, or under the
circumstances, specified in the related prospectus supplement ("Accrual
Certificates"), and other than any class of principal-only certificates or
Residual Certificates which are not entitled to distributions of interest) will
be made on each distribution date based on the Accrued Certificate Interest for
that class and that distribution date, subject to the sufficiency of the portion
of the Available Distribution Amount allocable to that class on that
distribution date. Prior to the time interest is distributable on any class of
Accrual Certificates, the amount of Accrued Certificate Interest otherwise
distributable on that class will be added to the principal balance of those
certificates on each distribution date. With respect to each class of
certificates, other than certain classes of interest-only certificates and
certain classes of residual certificates, the "Accrued Certificate Interest" for
each distribution date will be equal to interest at the applicable pass-through
interest rate accrued for a specified time period generally corresponding in
length to the time period between distribution dates, on the outstanding
principal balance of that class of certificates immediately prior to that
distribution date.
Unless otherwise provided in the related prospectus supplement, the
Accrued Certificate Interest for each distribution date on a class of
interest-only certificates will be similarly calculated except that it will
accrue on a notional amount that is either (1) based on the principal balances
of some or all of the mortgage assets in the related trust fund, (2) equal to
the principal balances of one or more other classes of certificates of the same
series or (3) an amount or amounts specified in the applicable prospective
supplement. Reference to a notional amount with respect to a class of
interest-only certificates is solely for convenience in making certain
calculations and does not represent the right to receive any distributions of
principal. If so specified in the related prospectus supplement, 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 principal balance
of, one or more classes of the certificates of a series will be reduced to the
extent that any Prepayment Interest Shortfalls, as described under "Yield and
Maturity Considerations--Certain Shortfalls in Collections of Interest" in this
prospectus, exceed the amount of any sums that are applied to offset the amount
of those shortfalls. The particular manner in which those shortfalls will be
allocated among some or all of the classes of certificates of that series will
be specified in the related prospectus supplement. The related
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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 principal 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 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 that class of a portion of any deferred interest
on or in respect of the mortgage assets in the related trust fund will result in
a corresponding increase in the principal balance of that class. See "Risk
Factors--Prepayment Considerations; Variability in Average Life of Offered
Certificates; Special Yield Considerations" and "Yield and Maturity
Considerations" in this prospectus.
DISTRIBUTIONS OF PRINCIPAL ON THE CERTIFICATES
Each class of certificates of each series, other than certain classes of
interest-only certificates and Residual Certificates, will have a principal
balance which, at any time, will equal the then maximum amount that the holders
of certificates of that class will be entitled to receive in respect of
principal out of the future cash flow on the mortgage assets and other assets
included in the related trust fund. The outstanding principal balance of a class
of certificates will be reduced by distributions of principal made on the
certificates from time to time and, if so provided in the related prospectus
supplement, further by any losses incurred in respect of the related mortgage
assets allocated thereto from time to time. In turn, the outstanding principal
balance of a class of certificates may be increased as a result of any deferred
interest on or in respect of the related mortgage assets being allocated to that
class from time to time, and will be increased, in the case of a class of
Accrual Certificates prior to the distribution date on which distributions of
interest on the certificates are required to commence, by the amount of any
Accrued Certificate Interest in respect of those certificates (reduced as
described above). The initial principal balance of each class of a series of
certificates will be specified in the related prospectus supplement. As
described in the related prospectus supplement, distributions of principal with
respect to a series of certificates will be made on each distribution date to
the holders of the class or classes of certificates of that series entitled
thereto until the principal balances of those certificates have been reduced to
zero. Distributions of principal with respect to one or more classes of
certificates may be made at a rate that is faster, and, in some cases,
substantially faster, than the rate at which payments or other collections of
principal are received on the mortgage assets in the related trust fund.
Distributions of principal with respect to one or more classes of certificates
may not commence until the occurrence of certain events, including the
retirement of one or more other classes of certificates of the same series, or
may be made at a rate that is slower, and, in some cases, substantially slower,
than the rate at which payments or other collections of principal are received
on the mortgage assets in the related trust fund. Distributions of principal
with respect to one or more classes of certificates may be made, subject to
available funds, based on a specified principal payment schedule. Distributions
of principal with respect to one or more classes of certificates may be
contingent on the specified principal payment schedule for another class of the
same series and the rate at which payments and other collections of principal on
the mortgage assets in the related trust fund are received. Unless otherwise
specified in the related prospectus supplement, distributions of principal of
any class of offered certificates will be made on a pro rata basis among all of
the certificates of that class.
DISTRIBUTIONS ON THE CERTIFICATES IN RESPECT 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 received on or in connection
with the mortgage assets in any trust fund will be distributed on each
distribution date to the holders of the class of certificates of the related
series entitled thereto in accordance with the provisions described in that
prospectus supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
The amount of any losses or shortfalls in collections on the mortgage
assets in any trust fund, to the extent not covered or offset by draws on any
reserve fund or under any instrument of credit support, will be allocated among
the respective classes of certificates of the related series in the priority and
manner, and subject to the limitations, specified in the related prospectus
supplement. As described in the related prospectus supplement, those allocations
may be effected by a reduction in the entitlements to interest and/or principal
balances of one or more classes of certificates, or by establishing a priority
of payments among those classes of certificates.
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ADVANCES IN RESPECT OF DELINQUENCIES
If provided in the related prospectus supplement, if a trust fund includes
mortgage loans, the master servicer, a special servicer, the trustee, any
provider of credit support and/or any other specified person may be obligated to
advance, or have the option of advancing, on or before each distribution date,
from its or their own funds or from excess funds held in the related certificate
account that are not part of the Available Distribution Amount for the related
series of certificates for that distribution date, an amount up to the aggregate
of any payments of principal, other than any balloon payments, and interest that
were due on or in respect of those mortgage loans during the related Due Period
and were delinquent on the related Determination Date.
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. Accordingly, all
advances made out of a specific entity's own funds will be reimbursable out of
related recoveries on the mortgage loans, including amounts received under any
instrument of credit support, respecting which those advances were made (as to
any mortgage loan, "Related Proceeds") and those other specific sources as may
be identified in the related prospectus supplement, including in the case of a
series that includes one or more classes of Subordinate Certificates,
collections on other mortgage loans in the related trust fund that would
otherwise be distributable to the holders of one or more classes of those
Subordinate Certificates. No advance will be required to be made by a master
servicer, special servicer or trustee if, in the good faith judgment of the
master servicer, special servicer or trustee, as the case may be, that advance
would not be recoverable from Related Proceeds or another specifically
identified source (each, a "Nonrecoverable Advance"); and, if previously made by
a master servicer, special servicer or trustee, a Nonrecoverable Advance will be
reimbursable to the advancing party from any amounts in the related certificate
account prior to any distributions being made to the related series of
certificateholders.
If advances have been made by a master servicer, special servicer, trustee
or other entity from excess funds in a certificate account, the advancing party
will be required to replace those funds in that certificate account on any
future distribution date to the extent that funds in that certificate account on
that distribution date are less than payments required to be made to the related
series of certificateholders on that date. If so specified in the related
prospectus supplement, the obligation of a master servicer, special servicer,
trustee or other entity to make advances may be secured by a cash advance
reserve fund or a surety bond. If applicable, information regarding the
characteristics of a surety bond, and the identity of any obligor on that surety
bond, will be set forth in the related prospectus supplement.
If so provided in the related prospectus supplement, any entity making
advances will be entitled to receive interest on those advances for the period
that those advances are outstanding at the rate specified in that prospectus
supplement, and that entity will be entitled to payment of that interest
periodically from general collections on the mortgage loans in the related trust
fund prior to any payment to the related series of certificateholders or as
otherwise described in the prospectus supplement.
The prospectus supplement for any series of certificates evidencing an
interest in a trust fund that includes MBS will describe any comparable
advancing obligation.
REPORTS TO CERTIFICATEHOLDERS
On each distribution date, together with the distribution to the holders
of each class of the offered certificates of a series, a master servicer or
trustee, as provided in the related prospectus supplement, will forward to each
holder a statement (a "Distribution Date Statement") that, unless otherwise
provided in the related prospectus supplement, will set forth, among other
things, in each case to the extent applicable:
o the amount of that distribution to holders of that class of offered
certificates that was applied to reduce the principal balance of
those certificates, expressed as a dollar amount per minimum
denomination of the relevant class of offered certificates or per a
specified portion of that minimum denomination;
o the amount of that distribution to holders of that class of offered
certificates that is allocable to Accrued Certificate Interest,
expressed as a dollar amount per minimum denomination of the
relevant class of offered certificates or per a specified portion of
that minimum denomination;
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o the amount, if any, of that distribution to holders of that class of
offered certificates that is allocable to (A) Prepayment Premiums
and (B) payments on account of Equity Participations, expressed as a
dollar amount per minimum denomination of the relevant class of
offered certificates or per a specified portion of that minimum
denomination;
o the amount, if any, by which that distribution is less than the
amounts to which holders of that class of offered certificates are
entitled;
o if the related trust fund includes mortgage loans, the aggregate
amount of advances included in that distribution;
o if the related trust fund includes mortgage loans, the amount of
servicing compensation received by the related master servicer (and,
if payable directly out of the related trust fund, by any special
servicer and any sub-servicer) and other customary information as
the reporting party deems necessary or desirable, or that a
certificateholder reasonably requests, to enable certificateholders
to prepare their tax returns;
o information regarding the aggregate principal balance of the related
mortgage assets on or about that distribution date;
o if the related trust fund includes mortgage loans, information
regarding the number and aggregate principal balance of those
mortgage loans that are delinquent in varying degrees;
o if the related trust fund includes mortgage loans, information
regarding the aggregate amount of losses incurred and principal
prepayments made with respect to those mortgage loans during the
specified period, generally equal in length to the time period
between distribution dates, during which prepayments and other
unscheduled collections on the mortgage loans in the related trust
fund must be received in order to be distributed on a particular
distribution date;
o the principal 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 that distribution date,
separately identifying any reduction in that principal balance or
notional amount due to the allocation of any losses in respect of
the related mortgage assets, any increase in that principal balance
or notional amount due to the allocation of any negative
amortization in respect of the related mortgage assets and any
increase in the principal balance of a class of Accrual
Certificates, if any, in the event that Accrued Certificate Interest
has been added to that balance;
o if the class of offered certificates has a variable pass-through
interest rate or an adjustable pass-through interest rate, the
pass-through interest rate applicable to that class for that
distribution date and, if determinable, for the next succeeding
distribution date;
o the amount deposited in or withdrawn from any reserve fund on that
distribution date, and the amount remaining on deposit in that
reserve fund as of the close of business on that distribution date;
o if the related trust fund includes one or more instruments of credit
support, like a letter of credit, an insurance policy and/or a
surety bond, the amount of coverage under that instrument as of the
close of business on that distribution date; and
o to the extent not otherwise reflected through the information
furnished as described above, the amount of credit support being
afforded by any classes of Subordinate Certificates.
The prospectus supplement for each series of certificates may describe
additional information to be included in reports to the holders of the offered
certificates of that series.
Within a reasonable period of time after the end of each calendar year,
the master servicer or trustee for a series of certificates, as the case may be,
will be required to furnish to each person who at any time during the calendar
year was a holder of an offered certificate of that series a statement
containing the information set forth in the first three categories described
above, aggregated for that calendar year or the applicable portion of that year
during
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which that person was a certificateholder. This obligation will be deemed to
have been satisfied to the extent that substantially comparable information is
provided pursuant to any requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), as are from time to time in force. See, however,
"Description of the Certificates--Book-Entry Registration and Definitive
Certificates" in this prospectus.
If the trust fund for a series of certificates includes MBS, the ability
of the related master servicer or trustee, as the case may be, to include in any
Distribution Date Statement information regarding the mortgage loans underlying
that MBS will depend on the reports received with respect to that MBS. In those
cases, the related prospectus supplement will describe the loan-specific
information to be included in the distribution date statements that will be
forwarded to the holders of the offered certificates of that series in
connection with distributions made to them.
VOTING RIGHTS
The voting rights evidenced by each series of certificates will be
allocated among the respective classes of that series in the manner described in
the related prospectus supplement.
Certificateholders will generally not have a right to vote, except with
respect to required consents to certain amendments to the agreement pursuant to
which the certificates are issued and as otherwise specified in the related
prospectus supplement. See "Description of the Pooling Agreements--Amendment" in
this prospectus. The holders of specified amounts of certificates of a
particular series will have the right to act as a group to remove the related
trustee and also upon the occurrence of certain events which if continuing would
constitute an event of default on the part of the related master servicer. See
"Description of the Pooling Agreements--Events of Default", "--Rights Upon Event
of Default" and "--Resignation and Removal of the Trustee" in this prospectus.
TERMINATION
The obligations created by the pooling and servicing or other agreement
creating a series of certificates will terminate following:
o the final payment or other liquidation of the last mortgage asset
underlying the series or the disposition of all property acquired
upon foreclosure of any mortgage loan underlying the series, and
o the payment to the certificateholders of the series of all amounts
required to be paid to them.
Written notice of termination will be given to each certificateholder of
the related series, and the final distribution will be made only upon
presentation and surrender of the certificates of that series 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 mortgage assets in the related trust fund by the party or parties
specified in the prospectus supplement, in the manner set forth in the
prospectus supplement. If so provided in the related prospectus supplement, upon
the reduction of the principal balance of a specified class or classes of
certificates by a specified percentage or amount, a party designated in the
prospectus supplement may be authorized or required to bid for or solicit bids
for the purchase of all the mortgage assets of the related trust fund, or of a
sufficient portion of those mortgage assets to retire those class or classes, in
the manner set forth in the prospectus supplement.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the prospectus supplement for a series of certificates,
one or more classes of the offered certificates of that series will be offered
in book-entry format through the facilities of The Depository Trust Company, and
that class will be represented by one or more global certificates registered in
the name of DTC or its nominee.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking corporation" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its
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participating organizations ("Participants") and facilitate the clearance and
settlement of securities transactions between Participants through electronic
computerized book-entry changes in their accounts, thereby eliminating the need
for physical movement of securities certificates. "Direct Participants", which
maintain accounts with DTC, include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other organizations.
DTC is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. Access to the DTC system also is available to others
like banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants").
Purchases of Book-Entry Certificates under the DTC system must be made by
or through Direct Participants, which will receive a credit for the Book-Entry
Certificates on DTC's records. The ownership interest of each actual purchaser
of a Book-Entry Certificate (a "Certificate Owner") is in turn to be recorded on
the Direct and Indirect Participants' records. Certificate Owners will not
receive written confirmation from DTC of their purchases, but Certificate Owners
are expected to receive written confirmations providing details of those
transactions, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which each Certificate Owner entered into the
transaction. Transfers of ownership interest in the Book-Entry Certificates are
to be accomplished by entries made on the books of Participants acting on behalf
of Certificate Owners. Certificate Owners will not receive certificates
representing their ownership interests in the Book-Entry Certificates, except in
the event that use of the book-entry system for the Book-Entry Certificates of
any series is discontinued as described below.
DTC has no knowledge of the actual Certificate Owners of the Book-Entry
Certificates; DTC's records reflect only the identity of the Direct Participants
to whose accounts those certificates are credited, which may or may not be the
Certificate Owners. The Participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to 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.
Distributions on the Book-Entry Certificates will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the related distribution
date in accordance with their respective holdings shown on DTC's records unless
DTC has reason to believe that it will not receive payment on that date.
Disbursement of those distributions by Participants to Certificate Owners will
be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered
in "street name", and will be the responsibility of that Participant (and not of
DTC, the Depositor or any trustee or master servicer), subject to any statutory
or regulatory requirements as may be in effect from time to time. Under a
book-entry system, Certificate Owners may receive payments after the related
distribution date.
Unless otherwise provided in the related prospectus supplement, the only
certificateholder of record will be the nominee of DTC, and the Certificate
Owners will not be recognized as certificateholders under the agreement pursuant
to which the certificates are issued. Certificate Owners will be permitted to
exercise the rights of certificateholders under that agreement only indirectly
through the Participants who in turn will exercise their rights through DTC. The
Depositor is informed that DTC will take action permitted to be taken by a
certificateholder under that agreement only at the direction of one or more
Participants to whose account with DTC interests in the Book-Entry Certificates
are credited.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain Certificate Owners, the ability of a
Certificate Owner to pledge its interest in 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 Book-Entry Certificates, may be limited due to the
lack of a physical certificate evidencing that interest.
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Unless otherwise specified in the related prospectus supplement,
certificates initially issued in book-entry form will be issued as Definitive
Certificates to Certificate Owners or their nominees, rather than to DTC or its
nominee, only if
o the Depositor advises the trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as
depository with respect to those certificates and the Depositor is
unable to locate a qualified successor, or
o the Depositor, at its option, elects to terminate the book-entry
system through DTC with respect to those certificates.
Upon the occurrence of either of the events described above, DTC will be
required to notify all Participants of the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the certificate or
certificates representing a class of Book-Entry Certificates, together with
instructions for registration, the trustee for the related series or other
designated party will be required to issue to the Certificate Owners identified
in those instructions the Definitive Certificates to which they are entitled,
and thereafter the holders of those Definitive Certificates will be recognized
as certificateholders of record under the related agreement pursuant to which
the certificates are issued.
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DESCRIPTION OF THE POOLING AGREEMENTS
GENERAL
The certificates of each series will be issued pursuant to a pooling and
servicing agreement or other agreement specified in the related prospectus
supplement (in either case, a "Pooling Agreement"). In general, the parties to a
Pooling Agreement will include the Depositor, a trustee, a master servicer and,
in some cases, a special servicer appointed as of the date of the Pooling
Agreement. However, a Pooling Agreement may include a Mortgage Asset Seller as a
party, and a Pooling Agreement that relates to a trust fund that consists solely
of MBS may not include a master servicer or other servicer as a party. All
parties to each Pooling Agreement under which certificates of a series are
issued will be identified in the related prospectus supplement. If so specified
in the related prospectus supplement, an affiliate of the Depositor, or the
Mortgage Asset Seller or an affiliate of the Mortgage Asset Seller, may perform
the functions of master servicer or special servicer. Any party to a Pooling
Agreement may own certificates.
A form of a Pooling Agreement has been filed as an exhibit to the
Registration Statement of which this prospectus is a part. However, the
provisions of each Pooling Agreement will vary depending upon the nature of the
certificates to be issued and the nature of the related trust fund. The
following summaries describe certain provisions that may appear in a Pooling
Agreement under which certificates that evidence interests in mortgage loans
will be issued. The prospectus supplement for a series of certificates will
describe any provision of the related Pooling Agreement that materially differs
from the description contained in this prospectus and, if the related trust fund
includes MBS, will summarize all of the material provisions of the related
Pooling Agreement. The summaries in this prospectus 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 Pooling Agreement for each series of
certificates and the description of those provisions in the related prospectus
supplement. We will provide a copy of the Pooling Agreement (without exhibits)
that relates to any series of certificates without charge upon written request
of a holder of a certificate of that series addressed to GE Capital Commercial
Mortgage Corporation, 292 Long Ridge Road, Stamford, Connecticut 06927,
Attention: President.
ASSIGNMENT OF MORTGAGE LOANS; REPURCHASES
At the time of issuance of any series of certificates, we will assign (or
cause to be assigned) to the designated trustee the mortgage loans to be
included in the related trust fund. The trustee will, concurrently with the
assignment, deliver the certificates to or at the direction of the Depositor in
exchange for the mortgage loans and the other assets to be included in the trust
fund for that series. Each mortgage loan will be identified in a schedule. That
schedule generally will include detailed information that pertains to each
mortgage loan included in the related trust fund, which information will
typically include the address of the related Mortgaged Property and type of that
property; the mortgage interest rate and, if applicable, the applicable index,
gross margin, adjustment date and any rate cap information; the original and
remaining term to maturity; the original amortization term; and the original and
outstanding principal balance.
With respect to each mortgage loan to be included in a trust fund, we will
deliver (or cause to be delivered) to the related trustee (or to a custodian
appointed by the trustee) certain loan documents which, unless otherwise
specified in the related prospectus supplement, will include the original
Mortgage Note endorsed, without recourse, to the order of the trustee, the
original Mortgage, or a certified copy, in each case with evidence of recording
indicated on it and an assignment of the Mortgage to the trustee in recordable
form. Unless otherwise provided in the prospectus supplement for a series of
certificates, the related Pooling Agreement will require us or another party to
the agreement to promptly cause each assignment of Mortgage to be recorded in
the appropriate public office for real property records.
The trustee (or a custodian appointed by the trustee) for a series of
certificates will be required to review the mortgage loan documents delivered to
it within a specified period of days after receipt of the mortgage loan
documents, and the trustee (or that custodian) will hold those documents in
trust for the benefit of the certificateholders of that series. Unless otherwise
specified in the related prospectus supplement, if that document is found to be
missing or defective, and that omission or defect, as the case may be,
materially and adversely affects
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the interests of the certificateholders of the related series, the trustee (or
that custodian) will be required to notify the master servicer and the
Depositor, and one of those persons will be required to notify the relevant
Mortgage Asset Seller. In that case, and if the Mortgage Asset Seller cannot
deliver the document or cure the defect within a specified number of days after
receipt of that notice, then, except as otherwise specified below or in the
related prospectus supplement, the Mortgage Asset Seller will be obligated to
repurchase the related mortgage loan from the trustee at a price that will be
specified in the related prospectus supplement. If so provided in the prospectus
supplement for a series of certificates, a Mortgage Asset Seller, in lieu of
repurchasing a mortgage loan as to which there is missing or defective loan
documentation, will have the option, exercisable upon certain conditions and/or
within a specified period after initial issuance of that series of certificates,
to replace those mortgage loans with one or more other mortgage loans, in
accordance with standards that will be described in the prospectus supplement.
Unless otherwise specified in the related prospectus supplement, this repurchase
or substitution obligation will constitute the sole remedy to holders of the
certificates of any series or to the related trustee on their behalf for missing
or defective loan documentation and neither the Depositor nor, unless it is the
Mortgage Asset Seller, the master servicer will be obligated to purchase or
replace a mortgage loan if a Mortgage Asset Seller defaults on its obligation to
do so. Notwithstanding the foregoing, if a document has not been delivered to
the related trustee (or to a custodian appointed by the trustee) because that
document has been submitted for recording, and neither that document nor a
certified copy, in either case with evidence of recording on it, can be obtained
because of delays on the part of the applicable recording office, then, unless
otherwise specified in the related prospectus supplement, the Mortgage Asset
Seller will not be required to repurchase or replace the affected mortgage loan
on the basis of that missing document so long as it continues in good faith to
attempt to obtain that document or that certified copy.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the prospectus supplement for a series of
certificates, the Depositor will, with respect to each mortgage loan in the
related trust fund, make or assign, or cause to be made or assigned, certain
representations and warranties (the person making those representations and
warranties, the "Warranting Party") covering, by way of example:
o the accuracy of the information set forth for that mortgage loan on
the schedule of mortgage loans delivered upon initial issuance of
the certificates;
o the enforceability of the related Mortgage Note and Mortgage and the
existence of title insurance insuring the lien priority of the
related Mortgage;
o the Warranting Party's title to the mortgage loan and the authority
of the Warranting Party to sell the mortgage loan; and
o the payment status of the mortgage loan.
It is expected that in most cases the Warranting Party will be the
Mortgage Asset Seller; however, the Warranting Party may also be an affiliate of
the Mortgage Asset Seller, the Depositor or an affiliate of the Depositor, the
master servicer, a special servicer or another person acceptable to the
Depositor. The Warranting Party, if other than the Mortgage Asset Seller, will
be identified in the related prospectus supplement.
Unless otherwise provided in the related prospectus supplement, each
Pooling Agreement will provide that the master servicer and/or trustee will be
required to notify promptly any Warranting Party of any breach of any
representation or warranty made by it in respect of a mortgage loan that
materially and adversely affects the interests of the certificateholders of the
related series. If that Warranting Party cannot cure that breach within a
specified period following the date on which it was notified of the breach,
then, unless otherwise provided in the related prospectus supplement, it will be
obligated to repurchase that mortgage loan from the trustee at a price that will
be specified in the related prospectus supplement. If so provided in the
prospectus supplement for a series of certificates, a Warranting Party, in lieu
of repurchasing a mortgage loan as to which a breach has occurred, will have the
option, exercisable upon certain conditions and/or within a specified period
after initial issuance of that series of certificates, to replace that mortgage
loan with one or more other mortgage loans, in accordance with standards that
will be described in the prospectus supplement. Unless otherwise specified in
the related prospectus supplement, this repurchase or substitution obligation
will constitute the sole remedy available to holders of the certificates of
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any series or to the related trustee on their behalf for a breach of
representation and warranty by a Warranting Party and neither the Depositor nor
the master servicer, in either case unless it is the Warranting Party, will be
obligated to purchase or replace a mortgage loan if a Warranting Party defaults
on its obligation to do so.
In some cases, representations and warranties will have been made in
respect of a mortgage loan as of a date prior to the date upon which the related
series of certificates is issued, and thus may not address events that may occur
following the date as of which they were made. However, we will not include any
mortgage loan in the trust fund for any series of certificates if anything has
come to our attention that would cause us to believe that the representations
and warranties made in respect of that mortgage loan will not be accurate in all
material respects as of the date of issuance. The date as of which the
representations and warranties regarding the mortgage loans in any trust fund
were made will be specified in the related prospectus supplement.
COLLECTION AND OTHER SERVICING PROCEDURES
The master servicer for any trust fund, directly or through sub-servicers,
will be required to make reasonable efforts to collect all scheduled payments
under the mortgage loans in that trust fund, and will be required to follow the
same collection procedures as it would follow with respect to mortgage loans
that are comparable to the mortgage loans in that trust fund and held for its
own account, provided those procedures are consistent with (1) the terms of the
related Pooling Agreement and any related instrument of credit support included
in that trust fund, (2) applicable law and (3) the servicing standard specified
in the related Pooling Agreement and prospectus supplement (the "Servicing
Standard").
The master servicer for any trust fund, directly or through sub-servicers,
will also be required to perform as to the mortgage loans in that trust fund
various other customary functions of a servicer of comparable loans, including
maintaining escrow or impound accounts, if required under the related Pooling
Agreement, for payment of taxes, insurance premiums, ground rents and similar
items, or otherwise monitoring the timely payment of those items; attempting to
collect delinquent payments; supervising foreclosures; negotiating
modifications; conducting property inspections on a periodic or other basis;
managing (or overseeing the management of) Mortgaged Properties acquired on
behalf of that trust fund through foreclosure, deed-in-lieu of foreclosure or
otherwise (each, an "REO Property"); and maintaining servicing records relating
to those mortgage loans. Unless otherwise specified in the related prospectus
supplement, the master servicer will be responsible for filing and settling
claims in respect of particular mortgage loans under any applicable instrument
of credit support. See "Description of Credit Support" in this prospectus.
SUB-SERVICERS
A master servicer may delegate its servicing obligations in respect of the
mortgage loans serviced thereby to one or more third-party servicers; provided
that, unless otherwise specified in the related prospectus supplement, the
master servicer will remain obligated under the related Pooling Agreement. A
sub-servicer for any series of certificates may be an affiliate of the Depositor
or master servicer. Unless otherwise provided in the related prospectus
supplement, each sub-servicing agreement between a master servicer and a
sub-servicer (a "Sub-Servicing Agreement") will provide that, if for any reason
the master servicer is no longer acting in that capacity, the trustee or any
successor master servicer may assume the master servicer's rights and
obligations under that Sub-Servicing Agreement. A master servicer will be
required to monitor the performance of sub-servicers retained by it and will
have the right to remove a sub-servicer retained by it at any time it considers
removal to be in the best interests of certificateholders.
Unless otherwise provided in the related prospectus supplement, a master
servicer will be solely liable for all fees owed by it to any sub-servicer,
irrespective of whether the master servicer's compensation pursuant to the
related Pooling Agreement is sufficient to pay those fees. Each sub-servicer
will be reimbursed by the master servicer that retained it for certain
expenditures which it makes, generally to the same extent the master servicer
would be reimbursed under a Pooling Agreement. See "--Certificate Account" and
"--Servicing Compensation and Payment of Expenses" in this prospectus.
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SPECIAL SERVICERS
To the extent so specified in the related prospectus supplement, one or
more special servicers may be a party to the related Pooling Agreement or may be
appointed by the master servicer or another specified party. A special servicer
for any series of certificates may be an affiliate of the Depositor or the
master servicer. A special servicer may be entitled to any of the rights, and
subject to any of the obligations, described in this prospectus in respect of a
master servicer. The related prospectus supplement will describe the rights,
obligations and compensation of any special servicer for a particular series of
certificates. The master servicer will not be liable for the performance of a
special servicer.
CERTIFICATE ACCOUNT
General. The master servicer, the trustee and/or a special servicer will,
as to each trust fund that includes mortgage loans, establish and maintain or
cause to be established and maintained one or more separate accounts for the
collection of payments on or in respect of those mortgage loans, which will be
established so as to comply with the standards of each rating agency that has
rated any one or more classes of certificates of the related series. A
certificate account may be maintained as an interest-bearing or a
non-interest-bearing account and the funds held in a certificate account may be
invested pending each succeeding distribution date in United States government
securities and other obligations that are acceptable to each rating agency that
has rated any one or more classes of certificates of the related series
("Permitted Investments"). Unless otherwise provided in the related prospectus
supplement, any interest or other income earned on funds in a certificate
account will be paid to the related master servicer, trustee or any special
servicer as additional compensation. A certificate account may be maintained
with the related master servicer, special servicer or Mortgage Asset Seller or
with a depository institution that is an affiliate of any of the foregoing or of
the Depositor, provided that it complies with applicable rating agency
standards. If permitted by the applicable 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 representing payments on mortgage loans
owned by the related master servicer or any special servicer or serviced by
either on behalf of others.
Deposits. Unless otherwise provided in the related Pooling Agreement and
described in the related prospectus supplement, a master servicer, trustee or
special servicer will be required to deposit or cause to be deposited in the
certificate account for each trust fund that includes mortgage loans, within a
certain period following receipt (in the case of collections on or in respect of
the mortgage loans) or otherwise as provided in the related Pooling Agreement,
the following payments and collections received or made by the master servicer,
the trustee or any special servicer subsequent to the cut-off date (other than
payments due on or before the cut-off date):
1. all payments on account of principal, including principal
prepayments, on the mortgage loans;
2. all payments on account of interest on the mortgage loans,
including any default interest collected, in each case net of
any portion retained by the master servicer or any special
servicer as its servicing compensation or as compensation to
the trustee;
3. all proceeds received under any hazard, title or other
insurance policy that provides coverage with respect to a
Mortgaged Property or the related mortgage loan or in
connection with the full or partial condemnation of a
Mortgaged Property (other than proceeds applied to the
restoration of the property or released to the related
borrower in accordance with the customary servicing practices
of the master servicer (or, if applicable, a special servicer)
and/or the terms and conditions of the related Mortgage)
(collectively, "Insurance and Condemnation Proceeds") and all
other amounts received and retained in connection with the
liquidation of defaulted mortgage loans or property acquired
by foreclosure or otherwise ("Liquidation Proceeds"), together
with the net operating income (less reasonable reserves for
future expenses) derived from the operation of any Mortgaged
Properties acquired by the trust fund through foreclosure or
otherwise;
4. 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" in this prospectus;
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5. any advances made as described under "Description of the
Certificates--Advances in Respect of Delinquencies" in this
prospectus;
6. any amounts paid under any Cash Flow Agreement, as described
under "Description of the Trust Funds--Cash Flow Agreements"
in this prospectus;
7. all proceeds of the purchase of any mortgage loan, or property
acquired in respect of a mortgage loan, by the Depositor, any
Mortgage Asset Seller or any other specified person as
described under "--Assignment of Mortgage Loans; Repurchases"
and "--Representations and Warranties; Repurchases" in this
prospectus, all proceeds of the purchase of any defaulted
mortgage loan as described under "--Realization Upon Defaulted
Mortgage Loans" in this prospectus, and all proceeds of any
mortgage asset purchased as described under "Description of
the Certificates--Termination" in this prospectus (all of the
foregoing, also "Liquidation Proceeds");
8. any amounts paid by the master servicer to cover Prepayment
Interest Shortfalls arising out of the prepayment of mortgage
loans as described under "--Servicing Compensation and Payment
of Expenses" in this prospectus;
9. to the extent that this item does not constitute additional
servicing compensation to the master servicer or a special
servicer, any payments on account of modification or
assumption fees, late payment charges, Prepayment Premiums or
Equity Participations with respect to the mortgage loans;
10. 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"
in this prospectus;
11. any amount required to be deposited by the 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
12. any other amounts required to be deposited in the certificate
account as provided in the related Pooling Agreement and
described in the related prospectus supplement.
Withdrawals. Unless otherwise provided in the related Pooling Agreement
and described in the related prospectus supplement, a master servicer, trustee
or special servicer may make withdrawals from the certificate account for each
trust fund that includes mortgage loans for any of the following purposes:
1. to make distributions to the certificateholders on each
distribution date;
2. to pay the master servicer, the trustee or a special servicer
any servicing fees not previously retained by them out of
payments on the particular mortgage loans as to which those
fees were earned;
3. to reimburse the master servicer, a special servicer, the
trustee or any other specified person for any unreimbursed
amounts advanced by it as described under "Description of the
Certificates--Advances in Respect of Delinquencies" in this
prospectus, the reimbursement to be made out of amounts
received that were identified and applied by the master
servicer or a special servicer, as applicable, as late
collections of interest on and principal of the particular
mortgage loans with respect to which the advances were made or
out of amounts drawn under any form of credit support with
respect to those mortgage loans;
4. to reimburse the master servicer, the trustee or a special
servicer for unpaid servicing fees earned by it and certain
unreimbursed servicing expenses incurred by it with respect to
mortgage loans in the trust fund and properties acquired in
respect of the mortgage loans, the reimbursement to be made
out of amounts that represent Liquidation Proceeds and
Insurance and Condemnation Proceeds collected on the
particular mortgage loans and properties, and net income
collected on the particular properties, with respect to which
those fees were earned or those expenses were incurred or out
of amounts drawn under any form of credit support with respect
to those mortgage loans and properties;
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5. to reimburse the master servicer, a special servicer, the
trustee or other specified person for any advances described
in clause (3) above made by it and/or any servicing expenses
referred to in clause (4) above incurred by it that, in the
good faith judgment of the master servicer, special servicer,
trustee or other specified person, as applicable, will not be
recoverable from the amounts described in clauses (3) and (4),
respectively, the reimbursement to be made from amounts
collected on other mortgage loans in the same trust fund or,
if so provided by the related Pooling Agreement and described
in the related prospectus supplement, only from that portion
of amounts collected on those other mortgage loans that is
otherwise distributable on one or more classes of Subordinate
Certificates of the related series;
6. if described in the related prospectus supplement, to pay the
master servicer, a special servicer, the trustee or any other
specified person interest accrued on the advances described in
clause (3) above made by it and the servicing expenses
described in clause (4) above incurred by it while they remain
outstanding and unreimbursed;
7. to pay for costs and expenses incurred by the trust fund for
environmental site assessments performed with respect to
Mortgaged Properties that constitute security for defaulted
mortgage loans, and for any containment, clean-up or
remediation of hazardous wastes and materials present on those
Mortgaged Properties, as described under "--Realization Upon
Defaulted Mortgage Loans" in this prospectus;
8. to reimburse the master servicer, the special 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 described
under "--Certain Matters Regarding the Master Servicer and the
Depositor" in this prospectus;
9. if described in the related prospectus supplement, to pay the
fees of the trustee;
10. 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 described
under "--Certain Matters Regarding the Trustee" in this
prospectus;
11. if described in the related prospectus supplement, to pay the
fees of any provider of credit support;
12. if described in the related prospectus supplement, to
reimburse prior draws on any form of credit support;
13. to pay the master servicer, a special servicer or the trustee,
as appropriate, interest and investment income earned in
respect of amounts held in the certificate account as
additional compensation;
14. to pay (generally from related income) for costs incurred in
connection with the operation, management and maintenance of
any Mortgaged Property acquired by the trust fund by
foreclosure or otherwise;
15. if one or more elections have been made to treat the trust
fund or designated portions of the trust fund as a REMIC, to
pay any federal, state or local taxes imposed on the trust
fund or its assets or transactions, as described under
"Certain Federal Income Tax Consequences--Federal Income Tax
Consequences for REMIC Certificates" and "--Taxes That May Be
Imposed on the REMIC Pool" in this prospectus;
16. 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 mortgage loan or a property
acquired in respect a defaulted mortgage loan in connection
with the liquidation of that mortgage loan or property;
17. to pay for the cost of various opinions of counsel obtained
pursuant to the related Pooling Agreement for the benefit of
certificateholders;
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18. to make any other withdrawals permitted by the related Pooling
Agreement and described in the related prospectus supplement;
and
19. to clear and terminate the certificate account upon the
termination of the trust fund.
MODIFICATIONS, WAIVERS AND AMENDMENTS OF MORTGAGE LOANS
A master servicer may agree to modify, waive or amend any term of any
mortgage loan serviced by it in a manner consistent with the applicable
Servicing Standard; provided that, unless otherwise set forth in the related
prospectus supplement, the modification, waiver or amendment (1) will not affect
the amount or timing of any scheduled payments of principal or interest on the
mortgage loan, (2) will not, in the judgment of the master servicer, materially
impair the security for the mortgage loan or reduce the likelihood of timely
payment of amounts due on them and (3) will not adversely affect the coverage
under any applicable instrument of credit support. Unless otherwise provided in
the related prospectus supplement, a master servicer also may agree to any other
modification, waiver or amendment if, in its judgment, (1) a material default on
the mortgage loan has occurred or a payment default is reasonably foreseeable,
(2) the modification, waiver or amendment is reasonably likely to produce a
greater recovery with respect to the mortgage loan, taking into account the time
value of money, than would liquidation and (3) the modification, waiver or
amendment will not adversely affect the coverage under any applicable instrument
of credit support.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
A borrower's failure to make required mortgage loan payments may mean that
operating income is insufficient to service the mortgage debt, or may reflect
the diversion of that income from the servicing of the mortgage debt. In
addition, a borrower that is unable to make mortgage loan payments may also be
unable to make timely payment of taxes and insurance premiums and to otherwise
maintain the related Mortgaged Property. In general, the master servicer or the
special servicer, if any, for a series of certificates will be required to
monitor any mortgage loan in the related trust fund that is in default, evaluate
whether the causes of the default can be corrected over a reasonable period
without significant impairment of the value of the related Mortgaged Property,
initiate corrective action in cooperation with the borrower if cure is likely,
inspect the related Mortgaged Property and take any other actions as are
consistent with the Servicing Standard. A significant period of time may elapse
before the servicer is able to assess the success of the corrective action or
the need for additional initiatives.
The time within which the servicer can make the initial determination of
appropriate action, evaluate the success of corrective action, develop
additional initiatives, institute foreclosure proceedings and actually foreclose
(or accept a deed to a Mortgaged Property in lieu of foreclosure) on behalf of
the certificateholders may vary considerably depending on the particular
mortgage loan, the Mortgaged Property, the borrower, the presence of an
acceptable party to assume the mortgage loan and the laws of the jurisdiction in
which the Mortgaged Property is located. If a borrower files a bankruptcy
petition, the master servicer may not be permitted to accelerate the maturity of
the related mortgage loan or to foreclose on the related Mortgaged Property for
a considerable period of time, and that mortgage loan may be restructured in the
resulting bankruptcy proceedings. See "Certain Legal Aspects of Mortgage Loans"
in this prospectus.
A Pooling Agreement may grant to the master servicer, a special servicer,
a provider of credit support and/or the holder or holders of certain classes of
the related series of certificates a right of first refusal to purchase from the
trust fund, at a predetermined purchase price (which, if insufficient to fully
fund the entitlements of certificateholders to principal and interest on the
certificates, will be specified in the related prospectus supplement), any
mortgage loan as to which a specified number of scheduled payments are
delinquent. In addition, unless otherwise specified in the related prospectus
supplement, a servicer may offer to sell any defaulted mortgage loan if and when
the master servicer determines, consistent with the applicable Servicing
Standard, that a sale would produce a greater recovery, taking into account the
time value of money, than would liquidation of the related Mortgaged Property.
Unless otherwise provided in the related prospectus supplement, the related
Pooling Agreement will require that the servicer accept the highest cash bid
received from any person (including itself, the Depositor or any affiliate of
either of them or any certificateholder) that constitutes a fair price for that
defaulted mortgage loan. In the absence of any bid determined in accordance with
the related Pooling Agreement to be fair,
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the master servicer will generally be required to proceed against the related
Mortgaged Property, subject to the discussion below.
If a default on a mortgage loan has occurred or, in the servicer's
judgment, a payment default is imminent, the servicer, on behalf of the trustee,
may at any time institute foreclosure proceedings, exercise any power of sale
contained in the related Mortgage, obtain a deed in lieu of foreclosure, or
otherwise acquire title to the related Mortgaged Property, by operation of law
or otherwise, if that action is consistent with the Servicing Standard. Unless
otherwise specified in the related prospectus supplement, the servicer may not,
however, acquire title to any Mortgaged Property, have a receiver of rents
appointed with respect to any Mortgaged Property or take any other action with
respect to any Mortgaged Property that would cause the trustee, for the benefit
of the related series 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 that 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:
1. the Mortgaged Property is in compliance with applicable
environmental laws and regulations or, if not, that taking
those actions as are necessary to bring the Mortgaged Property
into compliance therewith is reasonably likely to produce a
greater recovery, taking into account the time value of money,
than not taking those actions; and
2. there are no circumstances or conditions present at the
Mortgaged Property that have resulted in any contamination for
which investigation, testing, monitoring, containment,
clean-up or remediation could be required under any applicable
environmental laws and regulations or, if those circumstances
or conditions are present for which that action could be
required, taking those actions with respect to the Mortgaged
Property is reasonably likely to produce a greater recovery,
taking into account the time value of money, than not taking
those actions. See "Certain Legal Aspects of Mortgage
Loans--Environmental Risks" in this prospectus.
Unless otherwise provided in the related prospectus supplement, if title
to any Mortgaged Property is acquired by a trust fund as to which one or more
REMIC elections have been made, the 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, unless (1) the Internal Revenue
Service grants an extension of time to sell that property or (2) the trustee
receives an opinion of independent counsel to the effect that the holding of the
property by the trust fund beyond that period will not result in the imposition
of a tax on the trust fund or cause the trust fund (or any designated portion)
to fail to qualify as a REMIC under the Code at any time that any certificate is
outstanding. Subject to the foregoing, the servicer will generally be required
to solicit bids for any Mortgaged Property so acquired in that manner as will be
reasonably likely to realize a fair price for that property. If the trust fund
acquires title to any Mortgaged Property, the servicer, on behalf of the trust
fund, generally must retain an independent contractor to manage and operate that
property. The retention of an independent contractor, however, will not relieve
the servicer of its obligation to manage that Mortgaged Property in a manner
consistent with the Servicing Standard.
If Liquidation Proceeds collected with respect to a defaulted mortgage
loan are less than the outstanding principal balance of the defaulted mortgage
loan plus interest accrued on the mortgage loan plus the aggregate amount of
reimbursable expenses incurred by the servicer in connection with that mortgage
loan, the trust fund will realize a loss in the amount of that shortfall. The
servicer will be entitled to reimbursement out of the Liquidation Proceeds
recovered on any defaulted mortgage loan, prior to the distribution of those
Liquidation Proceeds to certificateholders, amounts that represent unpaid
servicing compensation in respect of the mortgage loan, unreimbursed servicing
expenses incurred with respect to the mortgage loan and any unreimbursed
advances of delinquent payments made with respect to the mortgage loan.
If any Mortgaged Property suffers damage so that the proceeds, if any, of
the related hazard insurance policy are insufficient to restore fully the
damaged property, the servicer will not be required to expend its own funds to
effect that restoration unless (and to the extent not otherwise provided in the
related prospectus supplement) it determines (1) that the restoration will
increase the proceeds to certificateholders on liquidation of the mortgage loan
after reimbursement of the servicer for its expenses and (2) that the expenses
will be recoverable by it from related Insurance and Condemnation Proceeds or
Liquidation Proceeds.
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HAZARD INSURANCE POLICIES
Unless otherwise specified in the related prospectus supplement, each
Pooling Agreement will require the master servicer to cause each mortgage loan
borrower to maintain a hazard insurance policy that provides for the coverage
required under the related Mortgage or, if the Mortgage permits the mortgagee to
dictate to the borrower the insurance coverage to be maintained on the related
Mortgaged Property, the coverage consistent with the requirements of the
Servicing Standard. Unless otherwise specified in the related prospectus
supplement, the coverage generally will be in an amount equal to the lesser of
the principal balance owing on that mortgage loan and the replacement cost of
the related Mortgaged Property. The ability of a 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 concerning covered losses is furnished by borrowers. All amounts
collected by a master servicer under that policy (except for amounts to be
applied to the restoration or repair of the Mortgaged Property or released to
the borrower in accordance with the master servicer's normal servicing
procedures and/or to the terms and conditions of the related Mortgage and
Mortgage Note) will be deposited in the related certificate account. The Pooling
Agreement may provide that the master servicer may satisfy its obligation to
cause each borrower to maintain a hazard insurance policy by maintaining a
blanket policy insuring against hazard losses on all of the mortgage loans in a
trust fund. If the blanket policy contains a deductible clause, the master
servicer will be required, in the event of a casualty covered by the blanket
policy, to deposit in the related certificate account all sums that would have
been deposited in that certificate account but for that deductible 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 covering the Mortgaged Properties 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, most 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 risks. Accordingly,
a Mortgaged Property may not be insured for losses arising from that cause
unless the related Mortgage specifically requires, or permits the mortgagee to
require, that coverage.
The hazard insurance policies covering the Mortgaged Properties will
typically contain co-insurance clauses that in effect require an insured at all
times to carry insurance of a specified percentage, generally 80% to 90%, of the
full replacement value of the improvements on the property in order to recover
the full amount of any partial loss. If the insured's coverage falls below this
specified percentage, those clauses generally provide that the insurer's
liability in the event of partial loss does not exceed the lesser of (1) the
replacement cost of the improvements less physical depreciation and (2) that
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of those improvements.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the mortgage loans may contain a due-on-sale clause that
entitles the lender to accelerate payment of the mortgage loan upon any sale or
other transfer of the related Mortgaged Property made without the lender's
consent. Certain of the mortgage loans may also contain a due-on-encumbrance
clause that entitles the lender to accelerate the maturity of the mortgage 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 will determine whether to exercise any right the trustee may have under
that provision in a manner consistent with the Servicing Standard. Unless
otherwise specified in the related prospectus supplement, the master servicer
will be entitled to retain as additional servicing compensation any fee
collected in connection with the permitted transfer of a Mortgaged Property. See
"Certain Legal Aspects of Mortgage Loans--Due-on-Sale and Due-on-Encumbrance" in
this prospectus.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related prospectus supplement, a master
servicer's primary servicing compensation with respect to a series of
certificates will come from the periodic payment to it of a specified portion
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of the interest payments on each mortgage loan in the related trust fund.
Because that compensation is generally based on a percentage of the principal
balance of each mortgage loan outstanding from time to time, it will decrease in
accordance with the amortization of the mortgage loans. The prospectus
supplement with respect to a series of certificates may provide that, as
additional compensation, the master servicer may retain all or a portion of late
payment charges, Prepayment Premiums, modification fees and other fees collected
from borrowers and any interest or other income that may be earned on funds held
in the certificate account. Any sub-servicer will receive a portion of the
master servicer's compensation as its sub-servicing compensation.
In addition to amounts payable to any sub-servicer, a master servicer may
be required, to the extent provided in the related prospectus supplement, to pay
from amounts that represent its servicing compensation certain expenses incurred
in connection with the administration of the related trust fund, including,
without limitation, payment of the fees and disbursements of independent
accountants and payment of expenses incurred in connection with distributions
and reports to certificateholders. Certain other expenses, including certain
expenses related to mortgage loan defaults and liquidations and, to the extent
so provided in the related prospectus supplement, interest on those expenses at
the rate specified in the prospectus supplement, and the fees of any special
servicer, may be required to be borne by the trust fund.
If provided in the related prospectus supplement, a master servicer may be
required to apply a portion of the servicing compensation otherwise payable to
it in respect of any period to Prepayment Interest Shortfalls. See "Yield and
Maturity Considerations--Certain Shortfalls in Collections of Interest" in this
prospectus.
EVIDENCE AS TO COMPLIANCE
Unless otherwise provided in the related prospectus supplement, each
Pooling Agreement will require, on or before a specified date in each year, the
master servicer to cause a firm of independent public accountants to furnish to
the trustee a statement to the effect that, on the basis of the examination by
that firm conducted substantially in compliance with either the Uniform Single
Audit Program for Mortgage Bankers or the Audit Program for Mortgages serviced
for FHLMC, the servicing by or on behalf of the master servicer of mortgage
loans under pooling and servicing agreements substantially similar to each other
(which may include that Pooling Agreement) was conducted through the preceding
calendar year or other specified twelve month period in compliance with the
terms of those 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 Audit Program for
Mortgage Bankers, requires it to report.
Each Pooling Agreement will also require, on or before a specified date in
each year, the master servicer to furnish to the trustee a statement signed by
one or more officers of the master servicer to the effect that the master
servicer has fulfilled its material obligations under that Pooling Agreement
throughout the preceding calendar year or other specified twelve month period.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The entity serving as master servicer under a Pooling Agreement may be an
affiliate of the Depositor and may have other normal business relationships with
the Depositor or the Depositor's affiliates. Unless otherwise specified in the
prospectus supplement for a series of certificates, the related Pooling
Agreement will permit the master servicer to resign from its obligations under
the Pooling Agreement only upon (a) the appointment of, and the acceptance of
that appointment by, a successor master servicer and receipt by the trustee of
written confirmation from each applicable rating agency that the resignation and
appointment will not have an adverse effect on the rating assigned by that
rating agency to any class of certificates of that series or (b) a determination
that those obligations are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it. This resignation will not become effective until the trustee or a
successor servicer has assumed the master servicer's obligations and duties
under the Pooling Agreement. Unless otherwise specified in the related
prospectus supplement, the master servicer for each trust fund will be required
to maintain a fidelity bond and errors and omissions policy or their equivalent
that provides coverage against losses that may be sustained as a result of an
officer's or employee's misappropriation of funds or errors and omissions,
subject to certain limitations as to amount of coverage, deductible amounts,
conditions, exclusions and exceptions permitted by the related Pooling
Agreement.
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Unless otherwise specified in the related prospectus supplement, each
Pooling Agreement will further provide that none of the master servicer, the
Depositor or any director, officer, employee or agent of either of them will be
under any liability to the related trust fund or certificateholders for any
action taken, or not taken, in good faith pursuant to the Pooling Agreement or
for errors in judgment. However, neither the master servicer nor the Depositor
will be protected against any breach of a representation, warranty or covenant
made in the Pooling Agreement, or against any expense or liability that they are
specifically required to bear pursuant to the terms of the Pooling Agreement, or
against any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of their
obligations or duties or by reason of reckless disregard of those obligations
and duties. Unless otherwise specified in the related prospectus supplement,
each Pooling Agreement will further provide that the master servicer, the
Depositor and any director, officer, employee or agent of either of them will be
entitled to indemnification by the related trust fund against any loss,
liability or expense incurred in connection with any legal action that relates
to the Pooling Agreement or the related series of certificates. However, the
indemnification will not extend to any loss, liability or expense
o that one or both of them are specifically required to bear pursuant
to the terms of the Pooling Agreement, or is incidental to the
performance of their obligations and duties and is not otherwise
reimbursable pursuant to the Pooling Agreement;
o incurred in connection with any breach of a representation, warranty
or covenant made in the Pooling Agreement;
o incurred by reason of misfeasance, bad faith or negligence in the
performance of their obligations or duties under that the Pooling
Agreement, or by reason of negligent disregard of those obligations
or duties; or
o incurred in connection with any violation of any state or federal
securities law.
In addition, each Pooling Agreement will provide that neither the master
servicer nor the Depositor will be under any obligation to appear in, prosecute
or defend any legal action that is not incidental to its respective
responsibilities under the Pooling Agreement and that in its opinion may involve
it in any expense or liability. However, each of the master servicer and the
Depositor will be permitted, in the exercise of its discretion, to undertake any
action that it may deem necessary or desirable with respect to the enforcement
and/or protection of the rights and duties of the parties to the Pooling
Agreement and the interests of the related series of certificateholders. In that
event, the legal expenses and costs of that action, and any liability resulting
from that action, will be expenses, costs and liabilities of the related series
of certificateholders, and the master servicer or the Depositor, as the case may
be, will be entitled to charge the related certificate account for those legal
costs and expenses.
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
Pooling Agreement.
EVENTS OF DEFAULT
Unless otherwise provided in the prospectus supplement for a series of
certificates, "Events of Default" under the related Pooling Agreement will
include
o any failure by the master servicer to distribute or cause to be
distributed to the certificateholders of that series, or to remit to
the trustee for distribution to those certificateholders, any amount
required to be so distributed or remitted, which failure continues
unremedied for five days after written notice of the 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
certificateholders entitled to not less than 25% (or other
percentage specified in the related prospectus supplement) of the
voting rights for that series;
o any failure by the master servicer duly to observe or perform in any
material respect any of its other covenants or obligations under the
related Pooling Agreement, which failure continues unremedied for
sixty days after written notice has been given to the master
servicer by the trustee or the Depositor, or to the
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master servicer, the Depositor and the trustee by certificateholders
entitled to not less than 25% (or other percentage specified in the
related prospectus supplement) of the voting rights for that series;
and
o certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities, or similar proceedings in respect of or
relating to the master servicer 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 add
to them or shorten cure periods or eliminate notice requirements) will be
specified in the related prospectus supplement.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default occurs with respect to the master servicer under a
Pooling Agreement, then, in each and every case, so long as the Event of Default
remains unremedied, the Depositor or the trustee will be authorized, and at the
direction of certificateholders of the related series entitled to not less than
51% (or other percentage specified in the related prospectus supplement) of the
voting rights for that series, the trustee will be required, to terminate all of
the rights and obligations of the master servicer as master servicer under the
Pooling Agreement. Upon termination, the trustee will succeed to all of the
responsibilities, duties and liabilities of the master servicer under the
Pooling Agreement (except that if the master servicer is required to make
advances regarding delinquent mortgage loans, but the trustee is prohibited by
law from obligating itself to do so, or if the related prospectus supplement so
specifies, the trustee will not be obligated to make those advances) and will be
entitled to similar compensation arrangements. Unless otherwise specified in the
related prospectus supplement, if the trustee is unwilling or unable so to act,
it may (or, at the written request of certificateholders of the related series
entitled to not less than 51% (or other percentage specified in the related
prospectus supplement) of the voting rights for that series, it will be required
to) appoint, or petition a court of competent jurisdiction to appoint, a loan
servicing institution that (unless otherwise provided in the related prospectus
supplement) is acceptable to each applicable rating agency to act as successor
to the master servicer under the Pooling Agreement. Pending that appointment,
the trustee will be obligated to act in that capacity.
No certificateholder will have the right under any Pooling Agreement to
institute any proceeding with respect to the Pooling Agreement unless that
holder previously has given to the trustee written notice of default and unless
certificateholders of the same series entitled to not less than 25% (or other
percentage specified in the related prospectus supplement) of the voting rights
for that series shall have made written request upon the trustee to institute
that proceeding in its own name as trustee and shall have offered to the trustee
reasonable indemnity, and the trustee for sixty days (or other period specified
in the related prospectus supplement) shall have neglected or refused to
institute that proceeding. The trustee, however, will be under no obligation to
exercise any of the trusts or powers vested in it by any Pooling Agreement or to
make any investigation of matters arising under the Pooling Agreement or to
institute, conduct or defend any litigation under the Pooling Agreement or in
relation to it at the request, order or direction of any of the holders of
certificates of the related series, unless those certificateholders have offered
to the trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred by that action.
AMENDMENT
Each Pooling Agreement may be amended, without the consent of any of the
holders of the related series of certificates,
1. to cure any ambiguity,
2. to correct a defective provision in the Pooling Agreement or
to correct, modify or supplement any of its provisions that
may be inconsistent with any other of its provisions,
3. to add any other provisions with respect to matters or
questions arising under the Pooling Agreement that are not
inconsistent with its provisions,
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4. to comply with any requirements imposed by the Code, or
5. for any other purpose;
provided that the amendment (other than an amendment for the specific purpose
referred to in clause (4) above) may not (as evidenced by an opinion of counsel
to an effect satisfactory to the trustee) adversely affect in any material
respect the interests of any holder; and provided further that the amendment
(other than an amendment for one of the specific purposes referred to in clauses
(1) through (4) above) must be acceptable to each applicable rating agency.
Unless otherwise specified in the related prospectus supplement, each
Pooling Agreement may also be amended, with the consent of the holders of the
related series of certificates entitled to not less than 51% (or other
percentage specified in the related prospectus supplement) of the voting rights
for that series allocated to the affected classes, for any purpose. However,
unless otherwise specified in the related prospectus supplement, that amendment
may not (1) reduce in any manner the amount of, or delay the timing of, payments
received or advanced on mortgage loans that are required to be distributed in
respect of any certificate without the consent of the holder of that
certificate, (2) adversely affect in any material respect the interests of the
holders of any class of certificates, in a manner other than as described in
clause (1), without the consent of the holders of all certificates of that class
or (3) modify the amendment provisions of the Pooling Agreement described in
this paragraph without the consent of the holders of all certificates of the
related series. Unless otherwise specified in the related prospectus supplement,
the trustee will be prohibited from consenting to any amendment of a Pooling
Agreement pursuant to which one or more REMIC elections are to be or have been
made unless the trustee shall first have received an opinion of counsel to the
effect that the amendment will not result in the imposition of a tax on the
related trust fund or cause the related trust fund, or the designated portion,
to fail to qualify as a REMIC at any time that the related certificates are
outstanding.
LIST OF CERTIFICATEHOLDERS
Unless otherwise specified in the related prospectus supplement, upon
written request of three or more certificateholders of record made for purposes
of communicating with other holders of certificates of the same series with
respect to their rights under the related Pooling Agreement, the trustee or
other specified person will afford those certificateholders access during normal
business hours to the most recent list of certificateholders of that series held
by that person. If that list is of a date more than 90 days prior to the date of
receipt of that certificateholder's request, then that person, if not the
registrar for that series of certificates, will be required to request from that
registrar a current list and to afford those requesting certificateholders
access thereto promptly upon receipt.
THE TRUSTEE
The trustee under each Pooling Agreement will be named in the related
prospectus supplement. The commercial bank, national banking association,
banking corporation or trust company that serves as trustee may have typical
banking relationships with the Depositor and its affiliates and with any master
servicer or special servicer and its affiliates.
DUTIES OF THE TRUSTEE
The trustee for each series of certificates will make no representation as
to the validity or sufficiency of the related Pooling Agreement, the
certificates or any underlying mortgage loan or related document and will not be
accountable for the use or application by or on behalf of the master servicer
for that series of any funds paid to the master servicer or any special servicer
in respect of the certificates or the underlying mortgage loans, or any funds
deposited into or withdrawn from the certificate account or any other account
for that series by or on behalf of the master servicer or any special servicer.
If no Event of Default has occurred and is continuing, the trustee for each
series of certificates will be required to perform only those duties
specifically required under the related Pooling Agreement. However, upon receipt
of any of the various certificates, reports or other instruments required to be
furnished to it pursuant to the related Pooling Agreement, a trustee will be
required to examine those documents and to determine whether they conform to the
requirements of that agreement.
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CERTAIN MATTERS REGARDING THE TRUSTEE
As described in the related prospectus supplement, the fees and normal
disbursements of any trustee may be the expense of the related master servicer
or other specified person or may be required to be borne by the related trust
fund.
Unless otherwise specified in the related prospectus supplement, the
trustee for each series of certificates will be entitled to indemnification,
from amounts held in the certificate account for that series, for any loss,
liability or expense incurred by the trustee in connection with the trustee's
acceptance or administration of its trusts under the related Pooling Agreement.
However, the indemnification will not extend to any loss, liability or expense
that constitutes a specific liability imposed on the trustee pursuant to the
related Pooling Agreement, or to any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or gross negligence on the part of the
trustee in the performance of its obligations and duties under the Pooling
Agreement, or by reason of its reckless disregard of those obligations or
duties, or as may arise from a breach of any representation, warranty or
covenant of the trustee made in the Pooling Agreement.
Unless otherwise specified in the related prospectus supplement, the
trustee for each series of certificates will be entitled to execute any of its
trusts or powers under the related Pooling Agreement or perform any of its
duties under that Pooling Agreement either directly or by or through agents or
attorneys, and the trustee will not be relieved of any of its duties or
obligations by virtue of the appointment of any agents or attorneys.
RESIGNATION AND REMOVAL OF THE TRUSTEE
A trustee will be permitted at any time to resign from its obligations and
duties under the related Pooling Agreement by giving written notice to the
Depositor, the servicer, the special servicer and to all certificateholders.
Upon receiving this notice of resignation, the Depositor, or other person as may
be specified in the related prospectus supplement, will be required to use its
best efforts to promptly appoint a successor trustee. If no successor trustee
shall have accepted an appointment within a specified period after the giving of
notice of resignation, the resigning trustee may petition any court of competent
jurisdiction to appoint a successor trustee.
If at any time a trustee ceases to be eligible to continue as trustee
under the related Pooling Agreement, or if at any time the trustee becomes
incapable of acting, or if certain events of, or proceedings in respect of,
bankruptcy or insolvency occur with respect to the trustee, the Depositor will
be authorized to remove the trustee and appoint a successor trustee. In
addition, holders of the certificates of any series entitled to at least 51% (or
other percentage specified in the related prospectus supplement) of the voting
rights for that series may at any time, with or without cause, remove the
trustee under the related Pooling Agreement and appoint a successor trustee.
Any resignation or removal of a trustee and appointment of a successor
trustee will not become effective until acceptance of appointment by the
successor trustee.
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DESCRIPTION OF CREDIT SUPPORT
GENERAL
Credit support may be provided with respect to one or more classes of the
certificates of any series, or with respect to the related mortgage assets.
Credit support may be in the form of letters of credit, overcollateralization,
the subordination of one or more classes of certificates, insurance policies,
surety bonds, guarantees or reserve funds, or any combination of the foregoing.
If so provided in the related prospectus supplement, any form of credit support
may provide credit enhancement for more than one series of certificates to the
extent described in that prospectus supplement.
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 payment to certificateholders of all
amounts to which they are entitled under the related Pooling Agreement. If
losses or shortfalls occur that exceed the amount covered by the related credit
support or that are not covered by that credit support, certificateholders will
bear their allocable share of deficiencies. Moreover, if a form of credit
support covers more than one series of certificates, holders of certificates of
one series will be subject to the risk that the credit support will be exhausted
by the claims of the holders of certificates of one or more other series before
the former receive their intended share of that coverage.
If credit support is provided with respect to one or more classes of
certificates of a series, or with respect to the related mortgage assets, the
related prospectus supplement will include a description of
o the nature and amount of coverage under the credit support,
o any conditions to payment under the credit support not otherwise
described in this prospectus,
o any conditions under which the amount of coverage under the credit
support may be reduced and under which that credit support may be
terminated or replaced and
o the material provisions relating to the credit support.
Additionally, the related prospectus supplement will set forth certain
information with respect to the obligor under any instrument of credit support,
including
o a brief description of its principal business activities;
o its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business,
o if applicable, the identity of regulatory agencies that exercise
primary jurisdiction over the conduct of its business and
o its total assets, and its stockholders' equity or policyholders'
surplus, if applicable, as of a date that will be specified in the
prospectus supplement. See "Risk Factors--Credit Support
Limitations" in this prospectus.
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 from the certificate account
on any distribution date will be subordinated to the corresponding 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 method
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and amount of subordination provided by a class or classes of Subordinate
Certificates in a series and the circumstances under which that subordination
will be available.
CROSS-SUPPORT PROVISIONS
If the mortgage assets in any trust fund are divided into separate groups,
each supporting a separate class or classes of certificates of the related
series, credit support may be provided by cross-support provisions requiring
that distributions be made on Senior Certificates evidencing interests in one
group of 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 those provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO MORTGAGE LOANS
If so provided in the prospectus supplement for a series of certificates,
mortgage loans included in the related trust fund will be covered for certain
default risks by insurance policies or guarantees. To the extent deemed by the
Depositor to be material, a copy of that instrument will accompany the Current
Report on Form 8-K to be filed with the SEC 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 those certificates or certain
classes of those certificates will be covered by one or more letters of credit,
issued by a bank or financial institution specified in the prospectus supplement
(the "L/C Bank"). Under a letter of credit, the L/C Bank will be obligated to
honor draws under a letter of credit in an aggregate fixed dollar amount, net of
unreimbursed payments, 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 principal balance of one
or more classes of certificates. If so specified in the related prospectus
supplement, the letter of credit may permit draws only in the event of certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments under
the letter of credit 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 that letter of credit will accompany the Current Report on Form
8-K to be filed with the SEC within 15 days of issuance of the certificates of
the related series.
CERTIFICATE INSURANCE AND SURETY BONDS
If so provided in the prospectus supplement for a series of certificates,
insurance policies and/or surety bonds provided by one or more insurance
companies or sureties of the insurance companies will cover deficiencies in
amounts otherwise payable on those certificates or certain classes. Those
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. The
related prospectus supplement will describe any limitations on the draws that
may be made under that instrument. A copy of that instrument will accompany the
Current Report on Form 8-K to be filed with the SEC 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 those certificates or certain
classes of those certificates will be covered, to the extent of available funds,
by one or more reserve funds in which cash, a letter of credit, short-term debt
obligations, a demand note or a combination of those features will be deposited,
in the amounts specified in the prospectus supplement. If so specified in the
related prospectus supplement, the reserve fund for a series may also be funded
over time by a specified amount of the collections received on the related
mortgage assets.
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Amounts on deposit in any reserve fund for a series, together with the
reinvestment income on those amounts, if any, will be applied for the purposes,
in the manner, specified in the related prospectus supplement. If so specified
in the related prospectus supplement, reserve funds may be established to
provide protection only against certain types of losses and shortfalls.
Following each distribution date, amounts in a reserve fund in excess of any
amount required to be maintained in that reserve fund may be released from it
under the conditions specified in the related prospectus supplement.
If so specified in the related prospectus supplement, amounts deposited in
any reserve fund will be invested in short-term debt obligations. Unless
otherwise specified in the related prospectus supplement, any reinvestment
income or other gain from those investments will be credited to the related
reserve fund for that series, and any loss resulting from those investments will
be charged to that reserve fund. However, that income may be payable to any
related master servicer or another service provider as additional compensation
for its services. 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.
CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the prospectus supplement for a series of certificates,
any MBS included in the related trust fund and/or the related underlying
mortgage loans may be covered by one or more of the types of credit support
described in this prospectus. The related prospectus supplement will specify, as
to each form of credit support, the information indicated above with respect to
the credit support for each series, to the extent that information is material
and available.
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CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties.
Because those legal aspects are governed by applicable state law, which laws may
differ substantially, the summaries do not purport to be complete, to reflect
the laws of any particular state, or to encompass the laws of all states in
which the security for the mortgage loans, or mortgage loans underlying any MBS,
is situated. Accordingly, the summaries are qualified in their entirety by
reference to the applicable laws of those states. See "Description of the Trust
Funds--Mortgage Loans" in this prospectus.
GENERAL
Each mortgage loan will be evidenced by a note or bond and secured by an
instrument granting a security interest in real property, which may be a
mortgage, deed of trust or a deed to secure debt, depending upon the prevailing
practice and law in the state in which the related Mortgaged Property is
located. Mortgages, deeds of trust and deeds to secure debt are in this
prospectus collectively referred to as "mortgages". A mortgage creates a lien
upon, or grants a title interest in, the real property covered thereby, and
represents the security for the repayment of the indebtedness customarily
evidenced by a promissory note. The priority of the lien created or interest
granted will depend on the terms of the mortgage and, in some cases, on the
terms of separate subordination agreements or intercreditor agreements with
others that hold interests in the real property, the knowledge of the parties to
the mortgage and, generally, the order of recordation of the mortgage in the
appropriate public recording office. However, the lien of a recorded mortgage
will generally be subordinate to later-arising liens for real estate taxes and
assessments and other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
There are two parties to a mortgage: a mortgagor who is the borrower and
usually the owner of the subject property, and a mortgagee, who is the lender.
In contrast, a deed of trust is a three-party instrument, among a trustor who is
the equivalent of a borrower, a trustee to whom the real property is conveyed,
and a beneficiary, who is the lender, for whose benefit the conveyance is made.
Under a deed of trust, the trustor grants the property, irrevocably until the
debt is paid, in trust and generally with a power of sale, to the trustee to
secure repayment of the indebtedness evidenced by the related note. A deed to
secure debt typically has two parties. The grantor (the borrower) conveys title
to the real property to the grantee (the lender) generally with a power of sale,
until the time the debt is repaid. In a case where the borrower is a land trust,
there would be an additional party because a land trustee holds legal title to
the property under a land trust agreement for the benefit of the borrower. At
origination of a mortgage loan involving a land trust, the borrower 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 related instrument, 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 deed of trust
transactions, the directions of the beneficiary.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease and
the income derived therefrom, while, unless rents are to be paid directly to the
lender, retaining a revocable license to collect the rents for so long as there
is no default. If the borrower defaults, the license terminates and the lender
is entitled to collect the rents. Local law may require that the lender take
possession of the property and/or obtain a court-appointed receiver before
becoming entitled to collect the rents.
In most states, hotel and motel room rates are considered accounts
receivable under the Uniform Commercial Code, also known as the UCC, in cases
where hotels or motels constitute loan security, the borrower as additional
security for the loan generally pledges the rates. In general, the lender must
file financing statements in order to perfect its security interest in the rates
and must file continuation statements, generally every five years, to maintain
perfection of that security interest. Even if the lender's security interest in
room rates is perfected under the UCC, it
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may be required to commence a foreclosure action or otherwise take possession of
the property in order to collect the room rates following a default. See
"--Bankruptcy Laws" below.
PERSONALTY
In the case of certain types of mortgaged properties, for instance hotels,
motels and nursing homes, personal property (to the extent owned by the borrower
and not previously pledged) may constitute a significant portion of the
property's value as security. The creation and enforcement of liens on personal
property are governed by the UCC. Accordingly, if a borrower pledges personal
property as security for a mortgage loan, the lender generally must file UCC
financing statements in order to perfect its security interest in that personal
property, and must file continuation statements, generally every five years, to
maintain that perfection.
FORECLOSURE
General. Foreclosure is a legal procedure that allows the lender to
recover its mortgage debt by enforcing its rights and available legal remedies
under the mortgage. If the borrower defaults in payment or performance of its
obligations under the note or mortgage, the lender has the right to institute
foreclosure proceedings to sell the real property at public auction to satisfy
the indebtedness.
Foreclosure procedures vary from state to state. Two primary methods of
foreclosing a mortgage are judicial foreclosure, involving court proceedings,
and non-judicial foreclosure pursuant to a power of sale granted in the mortgage
instrument. Other foreclosure procedures are available in some states, but they
are either infrequently used or available only in limited circumstances.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes requires several years to complete. Moreover, as discussed below, even
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 that sale occurred while
the borrower was insolvent and within a specified period prior to the borrower's
filing for bankruptcy protection.
Judicial Foreclosure. A judicial foreclosure proceeding is conducted in a
court having jurisdiction over the mortgaged property. Generally, the action is
initiated by the service of legal pleadings upon all parties having a
subordinate interest of record in the real property and all parties in
possession of the property, under leases or otherwise, whose interests are
subordinate to the mortgage. Delays in completion of the foreclosure may
occasionally result from difficulties in locating defendants. When the lender's
right to foreclose is contested, the legal proceedings can be time-consuming.
Upon successful completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other
officer to conduct a public sale of the mortgaged property, the proceeds of
which are used to satisfy the judgment. Those 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 lenders in foreclosure actions. These principles are
generally designed to relieve borrowers from the effects of mortgage defaults
perceived as harsh or unfair. Relying on those 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 actions to determine the cause of the borrower's
default and the likelihood that the borrower will be able to reinstate the loan.
In some cases, courts have substituted their judgment for the lenders and have
required that lenders reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from a temporary financial disability.
In other cases, courts have limited the right of the lender to foreclose in the
case of a non-monetary default, such as a failure to adequately maintain the
mortgaged property or an impermissible further encumbrance of the mortgaged
property. Finally, some courts have addressed the issue of whether federal or
state constitutional provisions reflecting due process concerns for adequate
notice require that a borrower receive notice in addition to
statutorily-prescribed minimum notice. For the most part, these cases have
upheld the reasonableness of the notice provisions or have found that a public
sale under a mortgage providing for a power of sale does not involve sufficient
state action to trigger constitutional protections.
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Non-Judicial Foreclosure/Power of Sale. Foreclosure of a deed of trust is
generally accomplished by a non-judicial trustee's sale pursuant to a power of
sale typically granted in the deed of trust. A power of sale may also be
contained in any other type of mortgage instrument if applicable law so permits.
A power of sale under a deed of trust allows a non-judicial public sale to be
conducted generally following a request from the beneficiary/lender to the
trustee to sell the property upon default by the borrower and after notice of
sale is given in accordance with the terms of the mortgage and applicable state
law. In some states, prior to that sale, the trustee under the deed of trust
must record a notice of default and notice of sale and send a copy to the
borrower and to any other party who has recorded a request for a copy of a
notice of default and notice of sale. In addition, in some states the trustee
must provide notice to any other party having an interest of record in the real
property, including junior lienholders. A notice of sale must be posted in a
public place and, in most states, published for a specified period of time in
one or more newspapers. The borrower or junior lienholder may then have the
right, during a reinstatement period required in some states, to cure the
default by paying the entire actual amount in arrears (without regard to the
acceleration of the indebtedness), plus the lender's expenses incurred in
enforcing the obligation. In other states, the borrower or the junior lienholder
is not provided a period to reinstate the loan, but has only the right to pay
off the entire debt to prevent the foreclosure sale. Generally, state law
governs the procedure for public sale, the parties entitled to notice, the
method of giving notice and the applicable time periods.
Public Sale. A third party may be unwilling to purchase a mortgaged
property at a public sale because of the difficulty in determining the value of
that property at the time of sale, due to, among other things, redemption rights
which may exist and the possibility of physical deterioration of the property
during the foreclosure proceedings. Potential buyers may be reluctant to
purchase property at a foreclosure sale as a result of the 1980 decision of the
United States Court of Appeals for the Fifth Circuit in Durrett v. Washington
National Insurance Company and other decisions that have followed its reasoning.
The court in Durrett held that even a non-collusive, regularly conducted
foreclosure sale was a fraudulent transfer under the federal bankruptcy code, as
amended from time to time (11 U.S.C.) (the "Bankruptcy Code") and, thus, could
be rescinded in favor of the bankrupt's estate, if (1) the foreclosure sale was
held while the debtor was insolvent and not more than one year prior to the
filing of the bankruptcy petition and (2) the price paid for the foreclosed
property did not represent "fair consideration", which is "reasonably equivalent
value" under the Bankruptcy Code. Although the reasoning and result of Durrett
in respect of the Bankruptcy Code was rejected by the United States Supreme
Court in May 1994, the case could nonetheless be persuasive to a court applying
a state fraudulent conveyance law which has provisions similar to those
construed in Durrett. For these reasons, it is common for the lender to purchase
the mortgaged property for an amount equal to the lesser of fair market value
and the underlying debt and accrued and unpaid interest plus the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs and
expenses which may be recovered by a lender. Thereafter, subject to the
mortgagor's right in some states to remain in possession during a redemption
period, if applicable, the lender will become the owner of the property and have
both the benefits and burdens of ownership of the mortgaged property. For
example, the lender will have the obligation to pay debt service on any senior
mortgages, to pay taxes, obtain casualty insurance and to make those repairs at
its own expense as are necessary to render the property suitable for sale.
Frequently, the lender employs a third party management company to manage and
operate the property. The costs of operating and maintaining a commercial or
multifamily residential property may be significant and may be greater than the
income derived from that property. The costs of management and operation of
those mortgaged properties which are hotels, motels or restaurants or nursing or
convalescent homes or hospitals may be particularly significant because of the
expertise, knowledge and, with respect to nursing or convalescent homes or
hospitals, regulatory compliance, required to run those 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 those
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 amount of the mortgage against 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 Risks" below. Generally state law controls
the amount of foreclosure expenses and costs, including attorneys' fees, that
may be recovered by a lender.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens, and may be
obliged to keep senior mortgage loans current in order to avoid foreclosure of
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its interest in the property. In addition, if the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause contained in a
senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
Rights of Redemption. The purposes of a foreclosure action are to enable
the lender to realize upon its security and to bar the borrower, and all persons
who have interests in the property that are subordinate to that of the
foreclosing lender, from exercise of their "equity of redemption". The doctrine
of equity of redemption provides that, until the property encumbered by a
mortgage has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having interests that are subordinate to that of the
foreclosing lender have an equity of redemption and may redeem the property by
paying the entire debt with interest. Those having an equity of redemption must
generally be made parties and joined in the foreclosure proceeding in order for
their equity of redemption to be terminated.
The equity of redemption is a common-law (non-statutory) right which
should be distinguished from post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the property. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
permitted if the former borrower pays only a portion of the sums due. The effect
of a statutory right of redemption is to diminish the ability of the lender to
sell the foreclosed property because the exercise of a right of redemption would
defeat the title of any purchaser through a foreclosure. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption period has
expired. In some states, a post-sale statutory right of redemption may exist
following a judicial foreclosure, but not following a trustee's sale under a
deed of trust.
Anti-Deficiency Legislation. Some or all of the mortgage loans may be
nonrecourse loans, as to which recourse in the case of default will be limited
to the Mortgaged Property and those other assets, if any, that were pledged to
secure the mortgage loan. However, even if a mortgage loan by its terms provides
for recourse to the borrower's other assets, a lender's ability to realize upon
those assets may be limited by state law. For example, in some states a lender
cannot obtain a deficiency judgment against the borrower following foreclosure
or sale under a deed of trust. A deficiency judgment is a personal judgment
against the former borrower equal to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes may require the lender to exhaust the security afforded
under a mortgage before bringing a personal action against the borrower. In
certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting that security;
however, in some of those states, the lender, following judgment on that
personal action, may be deemed to have elected a remedy and thus may be
precluded from foreclosing upon the security. Consequently, lenders in those
states where an election of remedy provision exists will usually proceed first
against the security. Finally, other statutory provisions, designed to protect
borrowers from exposure to large deficiency judgments that might result from
bidding at below-market values at the foreclosure sale, limit any deficiency
judgment to the excess of the outstanding debt over the fair market value of the
property at the time of the sale.
Leasehold Risks. Mortgage loans may be secured by a mortgage on the
borrower's leasehold interest in a ground lease. Leasehold mortgage loans are
subject to certain risks not associated with mortgage loans secured by a lien on
the fee estate of the borrower. The most significant of these risks is that if
the borrower's leasehold were to be terminated upon a lease default, the
leasehold mortgagee would lose its security. This risk may be lessened if the
ground lease requires the lessor to give the leasehold mortgagee notices of
lessee defaults and an opportunity to cure them, permits the leasehold estate to
be assigned to and by the leasehold mortgagee or the purchaser at a foreclosure
sale, and contains certain other protective provisions typically included in a
"mortgageable" ground lease.
Cooperative Shares. Mortgage loans may be secured by a security interest
on the borrower's ownership interest in shares, and the proprietary leases
appurtenant thereto, allocable to cooperative dwelling units that may be vacant
or occupied by non-owner tenants. Those loans are subject to certain risks not
associated with mortgage loans secured by a lien on the fee estate of a borrower
in real property. This kind of loan typically is subordinate to the mortgage, if
any, on the Cooperative's building which, if foreclosed, could extinguish the
equity in the building and the proprietary leases of the dwelling units derived
from ownership of the shares of the Cooperative. Further, transfer of shares in
a Cooperative are subject to various regulations as well as to restrictions
under the governing documents of the Cooperative, and the shares may be
cancelled in the event that associated maintenance charges due
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under the related proprietary leases are not paid. Typically, a recognition
agreement between the lender and the Cooperative provides, among other things,
the lender with an opportunity to cure a default under a proprietary lease.
Under the laws applicable in many states, "foreclosure" on Cooperative
shares is accomplished by a sale in accordance with the provisions of Article 9
of the UCC and the security agreement relating to the shares. Article 9 of the
UCC requires that a sale be conducted in a "commercially reasonable" manner,
which may be dependent upon, among other things, the notice given the debtor and
the method, manner, time, place and terms of the sale. Article 9 of the UCC
provides that the proceeds of the sale will be applied first to pay the costs
and expenses of the sale and then to satisfy the indebtedness secured by the
lender's security interest. A recognition agreement, however, generally provides
that the lender's right to reimbursement is subject to the right of the
Cooperative to receive sums due under the proprietary leases.
BANKRUPTCY LAWS
The Bankruptcy Code and related state laws may interfere with or affect
the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) are
automatically stayed upon the filing of the bankruptcy petition, and, usually,
no interest or principal payments are made during the course of the bankruptcy
case. The delay and the consequences of a delay caused by an 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 a 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 the 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.
The Bankruptcy Code has been amended to provide that a lender's perfected
pre-petition security interest in leases, rents and hotel revenues continues in
the post-petition leases, rents and hotel revenues, unless a bankruptcy court
orders to the contrary "based on the equities of the case." Thus, unless a court
orders otherwise, revenues from a mortgaged property generated after the date
the bankruptcy petition is filed will constitute "cash collateral" under the
Bankruptcy Code. Debtors may only use cash collateral upon obtaining the
lender's consent or a prior court order finding that the lender's interest in
the mortgaged property and the cash collateral is "adequately protected" as the
term is defined and interpreted under the Bankruptcy Code. It should be noted,
however, that the court may find that the lender has no security interest in
either pre-petition or post-petition revenues if the court finds that the loan
documents do not contain language covering accounts, room rents, or other forms
of personalty necessary for a security interest to attach to hotel revenues.
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 because
of a provision in the lease to that effect or because of certain other similar
events. This prohibition on so-called "ipso facto clauses" could limit the
ability of the trustee to exercise certain contractual remedies with respect to
the leases on any mortgaged property. 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 those remedies in the event that a lessee becomes the subject of a
proceeding
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under the Bankruptcy Code. For example, a mortgagee would be stayed from
enforcing an assignment of the lease by a borrower related to a mortgaged
property if the related borrower 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 related 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 if the assignment is not fully perfected under state law prior to
commencement of the bankruptcy proceeding.
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. These remedies may be
insufficient, however, as the lessor may be forced to continue under the lease
with a lessee that is a poor credit risk or an unfamiliar tenant if the lease
was assigned, and any assurances provided to the lessor may, in fact, be
inadequate. If the lease is rejected, the 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 the
lease, such as the borrower, as lessor under a lease, would have only an
unsecured claim against the debtor for damages resulting from the 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
percent, not to exceed three years, of the remaining term of the lease.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as
debtor-in-possession, rejects an unexpired lease of real property, the lessee
may treat the lease as terminated by the rejection or, in the alternative, the
lessee may remain in possession of the leasehold for the balance of the term and
for any renewal or extension of the 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 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 the related renewal or extension of the
lease, any damages occurring after that date caused by the nonperformance of any
obligation of the lessor under the lease after that date.
On the bankruptcy of a lessor or a lessee under a ground lease, the debtor
entity has the right to assume (continue) or reject (terminate) the ground
lease. Pursuant to Section 365(h) of the Bankruptcy Code, as it is presently in
effect, a ground lessee whose ground lease is rejected by a debtor ground lessor
has the right to remain in possession of its leased premises under the rent
reserved in the lease for the term (including renewals) of the ground lease, but
is not entitled to enforce the obligation of the ground lessor to provide any
services required under the ground lease. In the event a ground lessee/borrower
in bankruptcy rejects any/or all of its ground leases, the leasehold mortgagee
would have the right to succeed to the ground lessee/borrower's position under
the lease only if the ground lessor had specifically granted the mortgagee such
right. In the event of concurrent bankruptcy proceedings involving the ground
lessor and the ground lessee/borrower, the Trustee may be unable to enforce the
ground lessee/borrower's obligation to refuse to treat a ground lease rejected
by a bankrupt ground lessor as terminated. In such circumstances, a ground lease
could be terminated notwithstanding lender protection provisions contained
herein or in the mortgage. A lender could lose its security unless the borrower
holds a fee mortgage or the bankruptcy court, as a court of equity, allows the
lender to assume the ground lessee's obligations under the ground lease and
succeed to the position of a leasehold mortgagor. Although consistent with the
Bankruptcy Code, such position may not be adopted by a bankruptcy court.
In a bankruptcy or similar proceeding of a borrower, action may be taken
seeking the recovery, as a preferential transfer or on other grounds, of any
payments made by the borrower, 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.
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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 borrower 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.
Certain of the borrowers 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. Certain limited partnership agreements of the borrowers
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 partners to agree within a specified
time frame (often 60 days) after the 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 the
partnerships triggers the dissolution of the partnership, the winding up of its
affairs and the distribution of its assets. Those state laws, however, may not
be enforceable or effective in a bankruptcy case. The dissolution of a borrower,
the winding up of its affairs and the distribution of its assets could result in
an acceleration of its payment obligation under the borrower's mortgage loan,
which may reduce the yield on the notes in the same manner as a principal
prepayment.
In addition, the bankruptcy of the general or limited partner of a
borrower that is a partnership, or the bankruptcy of a member of a borrower that
is a limited liability company or the bankruptcy of a shareholder of a borrower
that is a corporation may provide the opportunity in the bankruptcy case of the
partner, member or shareholder to obtain an order from a court consolidating the
assets and liabilities of the partner, member or shareholder 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 the bankrupt partner, member or
shareholder. Not only would the mortgaged property be available to satisfy the
claims of creditors of the partner, member or shareholder, but an automatic stay
would apply to any attempt by the trustee to exercise remedies with respect to
the mortgaged property. However, such an occurrence should not affect the
trustee's status as a secured creditor with respect to the mortgagor or its
security interest in the mortgaged property.
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under federal law, including the Comprehensive
Environmental Response and Liability Act of 1980, as amended (also known as
CERCLA) and the laws of certain states, failure to perform the remediation
required or demanded by the state or federal government of any condition or
circumstance that
o may pose an imminent or substantial endangerment to the public
health or welfare or the environment,
o may result in a release or threatened release of any hazardous
material, or
o may give rise to any environmental claim or demand,
may give rise to a lien on the property to ensure the reimbursement of remedial
costs incurred by the federal or state government. In several states, the lien
has priority over the lien of an existing mortgage against the property. Of
particular concern may be those mortgaged properties which are, or have been,
the site of manufacturing, industrial
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or disposal activity. Those environmental risks may give rise to (a) a
diminution in value of property securing a mortgage note or the inability to
foreclose against the property or (b) 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 property, the aggregate assets of the
owner or operator, or the principal balance of the related indebtedness.
The state of the law is currently unclear as to whether and under what
circumstances cleanup costs, or the obligation to take remedial actions, could
be imposed on a secured lender. Under the laws of some states and under CERCLA,
a lender may become liable as an "owner" or an "operator" of a contaminated
mortgaged property for the costs of remediation of releases or threatened
releases of hazardous substances at the mortgaged property. The liability may
attach if the lender or its agents or employees have participated in the
management of the operations of the borrower, even though the environmental
damage or threat was caused by a prior owner, operator, or other third party.
Excluded from CERCLA's definition of "owner or operator" is any person
"who, without participating in the management of a facility, holds indicia of
ownership primarily to protect his security interest" (the "secured-creditor
exemption"). This exemption for holders of a security interest such as a secured
lender applies only in circumstances when the lender seeks to protect its
security interest in the contaminated facility or property. Thus, if a lender's
activities encroach on the actual management of that facility or property, the
lender faces potential liability as an "owner or operator" under CERCLA.
Similarly, when a lender forecloses and takes title to a contaminated facility
or property (whether it holds the facility or property as an investment or
leases it to a third party), under some circumstances the lender may incur
potential CERCLA liability.
Recent amendments to CERCLA list 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. Additionally, the amendments provide certain
protections from CERCLA liability as an "owner or operator" to a lender who
forecloses on contaminated property, as long as it seeks to divest itself of the
facility at the earliest practicable commercially reasonable time on
commercially reasonable terms. The amendments also limit the liability of
lenders under the federal Solid Waste Disposal Act for costs of responding to
leaking underground storage tanks. However, the protections afforded lenders
under the amendments are subject to terms and conditions that have not been
clarified by the courts. Moreover, the CERCLA secured-creditor exemption does
not necessarily affect the potential for liability in actions under other
federal or state laws which may impose liability on "owners or operators" but do
not incorporate the secured-creditor exemption. Furthermore, the
secured-creditor exemption does not protect lenders from other bases of CERCLA
liability, such as that imposed on "generators" or "transporters" of hazardous
substances.
Environmental clean-up costs may be substantial. It is possible that those
costs could become a liability of the Trust and occasion a loss to
certificateholders if those remedial costs were incurred.
In a few states, transfers of some types of properties are conditioned
upon clean-up of contamination prior to transfer. It is possible that a property
securing a mortgage loan could be subject to these transfer restrictions. If
this occurs, and if the lender becomes the owner upon foreclosure, the lender
may be required to clean up the contamination before selling the property.
The cost of remediating hazardous substance contamination at a property
can be substantial. If a lender is or becomes liable, it can bring an action for
contribution against the owner or operator that created the environmental
hazard, but that person or entity may be without substantial assets.
Accordingly, it is possible that these costs could become a liability of a trust
fund and occasion a loss to certificateholders of the related series.
To reduce the likelihood of this kind of loss, and unless otherwise
provided in the related prospectus supplement, the related Pooling Agreement
will provide that the master servicer may not, on behalf of the trust fund,
acquire title to a Mortgaged Property or take over its operation unless the
master servicer, based on a report prepared by a person who regularly conducts
environmental site assessments, has made the determination that it is
appropriate to do so, as described under "Description of the Pooling
Agreements--Realization Upon Defaulted Mortgage Loans" in this prospectus.
Even when a lender is not directly liable for cleanup costs on property
securing loans, if a property securing a loan is contaminated, the value of the
security is likely to be affected. In addition, a lender bears the risk that
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unanticipated cleanup costs may jeopardize the borrower's repayment. Neither of
these two issues is likely to pose risks exceeding the amount of unpaid
principal and interest of a particular loan secured by a contaminated property,
particularly if the lender declines to foreclose on a mortgage secured by the
property.
If a lender forecloses on a mortgage secured by a property the operations
of which are subject to environmental laws and regulations, the lender will be
required to operate the property in accordance with those laws and regulations.
Compliance may entail substantial expense.
In addition, a lender may be obligated to disclose environmental
conditions on a property to government entities and/or to prospective buyers,
including prospective buyers at a foreclosure sale or following foreclosure.
That disclosure may decrease the amount that prospective buyers are willing to
pay for the affected property and thereby lessen the ability of the lender to
recover its investment in a loan upon foreclosure.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the mortgage loans may contain "due-on-sale" and
"due-on-encumbrance" clauses that purport to permit the lender to accelerate the
maturity of the loan if the borrower transfers or encumbers the related
Mortgaged Property. In recent years, court decisions and legislative actions
placed substantial restrictions on the right of lenders to enforce those clauses
in many states. By virtue, however, of the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn Act"), effective October 15, 1982, which
purports to preempt state laws that prohibit the enforcement of due-on-sale
clauses by providing among other matters, that "due-on-sale" clauses in certain
loans made after the effective date of the Garn Act are enforceable, within
certain limitations as set forth in the Garn Act, a master servicer may
nevertheless have the right to accelerate the maturity of a mortgage loan that
contains a "due-on-sale" provision upon transfer of an interest in the property,
regardless of the master servicer's ability to demonstrate that a sale threatens
its legitimate security interest.
SUBORDINATE FINANCING
Certain of the mortgage loans may not restrict the ability of the borrower
to use the Mortgaged Property as security for one or more additional loans.
Where a borrower encumbers a mortgaged property with one or more junior liens,
the senior lender is subjected to additional risk. First, the borrower may have
difficulty servicing and repaying multiple loans. Moreover, if the subordinate
financing permits recourse to the borrower, as is frequently the case, and the
senior loan does not, a borrower may have more incentive to repay sums due on
the subordinate loan. 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 borrower 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 borrower is additionally
burdened. Third, if the borrower defaults on the senior loan and/or any junior
loan or loans, the existence of junior loans and actions taken by junior lenders
can impair the security available to the senior lender and can interfere with or
delay the taking of action by the senior lender. Moreover, the bankruptcy of a
junior lender may operate to stay foreclosure or similar proceedings by the
senior lender.
DEFAULT INTEREST AND LIMITATIONS ON PREPAYMENTS
Notes and mortgages may contain provisions that obligate the borrower to
pay a late charge or additional interest if payments are not timely made, and in
some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower for
delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon an involuntary prepayment is unclear under the laws of many
states.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 ("Title V") provides that state usury limitations shall not apply to
certain types of residential, including multifamily but not commercial, first
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mortgage loans originated by certain lenders after March 31, 1980. A similar
Federal statute was in effect with respect to mortgage loans made during the
first three months of 1980. The statute authorized any state to reimpose
interest rate limits by adopting, before April 1, 1983, a law or constitutional
provision that expressly rejects application of the federal law. In addition,
even where Title V is not so rejected, any state is authorized by the law to
adopt a provision limiting discount points or other charges on mortgage loans
covered by Title V. Certain states have taken action to reimpose interest rate
limits and/or to limit discount points or other charges.
In any state in which application of Title V has been expressly rejected
or a provision limiting discount points or other charges has been adopted, no
mortgage loan originated after the date of that state action will (if originated
after that rejection or adoption) be eligible for inclusion in a trust fund
unless (1) the mortgage loan provides for an interest rate, discount points and
charges as are permitted in that state or (2) the mortgage loan provides that
the terms are to be construed in accordance with the laws of another state under
which the interest rate, discount points and charges would not be usurious and
the borrower's counsel has rendered an opinion that the 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 borrower may cancel the recorded mortgage or deed of trust upon
paying its debt with lawful interest, and the lender may foreclose, but only for
the debt plus lawful interest. A second group of statutes is more severe. A
violation of this type of usury law results in the invalidation of the
transaction, thereby permitting the borrower to cancel the recorded mortgage or
deed of trust without any payment or prohibiting the lender from foreclosing.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a borrower who enters military service after the
origination of that borrower's mortgage loan, including a borrower who was in
reserve status and is called to active duty after origination of the mortgage
loan, may not be charged interest, including fees and charges, above an annual
rate of 6% during the period of that borrower's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
individuals who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to
individuals who enter military service, including reservists who are called to
active duty, after origination of the related mortgage loan, no information can
be provided as to the number of loans with individuals as borrowers that may be
affected by the Relief Act. Application of the Relief Act would adversely
affect, for an indeterminate period of time, the ability of 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 those 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 borrower's period of active
duty status, and, under certain circumstances, during an additional three-month
period thereafter.
TYPE OF MORTGAGED PROPERTY
The lender may be subject to additional risk depending upon the type and
use of the Mortgaged Property in question. For instance, Mortgaged Properties
which are hospitals, nursing homes or convalescent homes may present special
risks to lenders in large part due to significant governmental regulation of the
operation, maintenance, control and financing of health care institutions.
Mortgages on Mortgaged Properties which are owned by the borrower under a
condominium form of ownership are subject to the declaration, by-laws and other
rules and regulations of the condominium association. Mortgaged Properties which
are hotels or motels may present additional risk to the lender in that:
1. hotels and motels are typically operated pursuant to
franchise, management and operating agreements which may be
terminable by the operator; and
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2. the transferability of the hotel's operating, liquor and other
licenses to the entity acquiring the hotel either through
purchase or foreclosure is subject to the vagaries of local
law requirements.
In addition, Mortgaged Properties which are multifamily properties or
cooperatively owned multifamily properties may be subject to rent control laws,
which could impact the future cash flows of those properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 (the
"ADA"), in order to protect individuals with disabilities, public accommodations
(such as hotels, restaurants, shopping centers, hospitals, schools and social
service center establishments) must remove architectural and communication
barriers which are structural in nature from existing places of public
accommodation to the extent "readily achievable." In addition, under the ADA,
alterations to a place of public accommodation or a commercial facility are to
be made so that, to the maximum extent feasible, the altered portions are
readily accessible to and usable by disabled individuals. The "readily
achievable" standard takes into account, among other factors, the financial
resources of the affected site, owner, landlord or other applicable person. In
addition to imposing a possible financial burden on the borrower in its capacity
as owner or landlord, the ADA may also impose these requirements on a
foreclosing lender who succeeds to the interest of the borrower as owner or
landlord. Furthermore, since the "readily achievable" standard may vary
depending on the financial condition of the owner or landlord, a foreclosing
lender who is financially more capable than the borrower of complying with the
requirements of the ADA may be subject to more stringent requirements than those
to which the borrower is subject.
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 statute, also known as "RICO", can be seized by the
government if the property was used in, or purchased with the proceeds of, those
crimes. Under procedures contained in the Comprehensive Crime Control Act of
1984, the 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
established that: (1) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (2) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of
certificates. The discussion below does not purport to address all federal
income tax consequences that may be applicable to particular categories of
investors, some of which may be subject to special rules. The authorities on
which this discussion is based are subject to change or differing
interpretations, and any change or interpretation could apply retroactively.
This discussion reflects the applicable provisions of the Code as well as
regulations (the "REMIC Regulations") promulgated by the U.S. Department of
Treasury (the "Treasury"). Investors should consult their own tax advisors in
determining the federal, state, local and other tax consequences to them of the
purchase, ownership and disposition of certificates.
For purposes of this discussion, (1) references to the mortgage loans
include references to the mortgage loans underlying MBS included in the mortgage
assets and (2) where the applicable prospectus supplement provides for a fixed
retained yield with respect to the mortgage loans underlying a series of
certificates, references to the mortgage loans will be deemed to refer to that
portion of the mortgage loans held by the trust fund which does not include the
Retained Interest. References to a "holder" or "certificateholder" in this
discussion generally mean the beneficial owner of a certificate.
FEDERAL INCOME TAX CONSEQUENCES FOR REMIC CERTIFICATES
General
With respect to a particular series of certificates, an election may be
made to treat the trust fund or one or more segregated pools of assets in the
trust fund as one or more REMICs within the meaning of Code Section 860D. A
trust fund or a portion of a trust fund as to which a REMIC election will be
made will be referred to as a "REMIC Pool". For purposes of this discussion,
certificates of a series as to which one or more REMIC elections are made are
referred to as "REMIC Certificates" and will consist of one or more classes of
"Regular Certificates" and one class of Residual Certificates in the case of
each REMIC Pool. Qualification as a REMIC requires ongoing compliance with
certain conditions. With respect to each series of REMIC Certificates,
Cadwalader, Wickersham & Taft, counsel to the Depositor, has advised the
Depositor that in the firm's opinion, assuming (1) the making of an election,
(2) compliance with the Pooling Agreement and (3) compliance with any changes in
the law, including any amendments to the Code or applicable Treasury regulations
under the Code, each REMIC Pool will qualify as a REMIC. In that case, the
Regular Certificates will be considered to be "regular interests" in the REMIC
Pool and generally will be treated for federal income tax purposes as if they
were newly originated debt instruments, and the Residual Certificates will be
considered to be "residual interests" in the REMIC Pool. The prospectus
supplement for each series of certificates will indicate whether one or more
REMIC elections with respect to the related trust fund will be made, in which
event references to "REMIC" or "REMIC Pool" below shall be deemed to refer to
that REMIC Pool. If so specified in the applicable prospectus supplement, the
portion of a trust fund as to which a REMIC election is not made may be treated
as a grantor trust for federal income tax purposes. See "--Federal Income Tax
Consequences for Certificates as to Which No REMIC Election Is Made" below.
Status of REMIC Certificates
REMIC Certificates held by a domestic building and loan association will
constitute "a regular or residual interest in a REMIC" within the meaning of
Code Section 7701(a)(19)(C)(xi), but only in the same proportion that the assets
of the REMIC Pool would be treated as "loans . . . secured by an interest in
real property which is . . . residential real property" (such as single family
or multifamily properties, but not commercial properties) within the meaning of
Code Section 7701(a)(19)(C)(v) or as other assets described in Code Section
7701(a)(19)(C), and otherwise will not qualify for that treatment. REMIC
Certificates held by a real estate investment trust will constitute "real estate
assets" within the meaning of Code Section 856(c)(4)(A), and interest on the
Regular Certificates and income with respect to Residual Certificates will be
considered "interest on obligations secured by mortgages on real property or on
interests in real property" within the meaning of Code Section 856(c)(3)(B) in
the same proportion that, for both purposes, the assets of the REMIC Pool would
be so treated. If at all times 95% or more of the assets of the REMIC Pool
qualify for each of the foregoing respective treatments, the REMIC
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Certificates will qualify for the corresponding status in their entirety. For
purposes of Code Section 856(c)(4)(A), payments of principal and interest on the
mortgage loans that are reinvested pending distribution to holders of REMIC
Certificates qualify for that treatment. Where two REMIC Pools are a part of a
tiered structure they will be treated as one REMIC for purposes of the tests
described above respecting asset ownership of more or less than 95%. Regular
Certificates will be "qualified mortgages" for another REMIC for purposes of
Code Section 860(G)(a)(3) and "permitted assets" for a financial asset
securitization investment trust for purposes of Section 860(L)(c). REMIC
Certificates held by a regulated investment company will not constitute
"Government Securities" within the meaning of Code Section 851(b)(3)(A)(i).
REMIC Certificates held by certain financial institutions will constitute an
"evidence of indebtedness" within the meaning of Code Section 582(c)(1). The
Small Business Job Protection Act of 1996 (the "SBJPA of 1996") repealed the
reserve method for bad debts of domestic building and loan associations and
mutual savings banks, and thus has eliminated the asset category of "qualifying
real property loans" in former Code Section 593(d) for taxable years beginning
after December 31, 1995. The requirement in the SBJPA of 1996 that those
institutions must "recapture" a portion of their existing bad debt reserves is
suspended if a certain portion of their assets are maintained in "residential
loans" under Code Section 7701(a)(19)(C)(v), but only if those loans were made
to acquire, construct or improve the related real property and not for the
purpose of refinancing. However, no effort will be made to identify the portion
of the mortgage loans of any Series meeting this requirement, and no
representation is made in this regard.
Qualification as a REMIC
In order for the REMIC Pool to qualify as a REMIC, there must be ongoing
compliance on the part of the REMIC Pool with the requirements set forth in the
Code. The REMIC Pool must fulfill an asset test, which requires that no more
than a de minimis portion of the assets of the REMIC Pool, as of the close of
the third calendar month beginning after the "Startup Day" (which for purposes
of this discussion is the date of issuance of the REMIC Certificates) and at all
times thereafter, may consist of assets other than "qualified mortgages" and
"permitted investments". The REMIC Regulations provide a safe harbor pursuant to
which the de minimis requirement is met if at all times the aggregate adjusted
basis of the nonqualified assets is less than 1% of the aggregate adjusted basis
of all the REMIC Pool's assets. An entity that fails to meet the safe harbor may
nevertheless demonstrate that it holds no more than a de minimis amount of
nonqualified assets. A REMIC also must provide "reasonable arrangements" to
prevent its residual interest from being held by "disqualified organizations"
and must furnish applicable tax information to transferors or agents that
violate this requirement. The Pooling Agreement for each series will contain a
provision designed to meet this requirement. See "--Taxation of Residual
Certificates--Tax-Related Restrictions on Transfer of Residual
Certificates--Disqualified Organizations" below.
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC Pool on
the Startup Day or is purchased by the REMIC Pool within a three-month period
thereafter pursuant to a fixed price contract in effect on the Startup Day.
Qualified mortgages include whole mortgage loans, such as the mortgage loans,
certificates of beneficial interest in a grantor trust that holds mortgage
loans, including certain of the MBS, regular interests in another REMIC, such as
MBS in a trust as to which a REMIC election has been made, loans secured by
timeshare interests and loans secured by shares held by a tenant stockholder in
a cooperative housing corporation, provided, in general, (1) the fair market
value of the real property security (including buildings and structural
components) is at least 80% of the principal balance of the related mortgage
loan or mortgage loan underlying the mortgage certificate either at origination
or as of the Startup Day (an original loan-to-value ratio of not more than 125%
with respect to the real property security) or (2) substantially all the
proceeds of the mortgage loan or the underlying mortgage loan were used to
acquire, improve or protect an interest in real property that, at the
origination date, was the only security for the mortgage loan or underlying
mortgage loan. If the mortgage loan has been substantially modified other than
in connection with a default or reasonably foreseeable default, it must meet the
loan-to-value test in (1) of the preceding sentence as of the date of the last
modification or at closing. A qualified mortgage includes a qualified
replacement mortgage, which is any property that would have been treated as a
qualified mortgage if it were transferred to the REMIC Pool on the Startup Day
and that is received either (1) in exchange for any qualified mortgage within a
three-month period thereafter or (2) in exchange for a "defective obligation"
within a two-year period thereafter. A "defective obligation" includes
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o a mortgage in default or as to which default is reasonably
foreseeable,
o a mortgage as to which a customary representation or warranty made
at the time of transfer to the REMIC Pool has been breached,
o a mortgage that was fraudulently procured by the mortgagor, and
o a mortgage that was not in fact principally secured by real property
(but only if the mortgage is disposed of within 90 days of
discovery).
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13 months,
until the next scheduled distribution to holders of interests in the REMIC Pool.
A qualified reserve asset is any intangible property held for investment that is
part of any reasonably required reserve maintained by the REMIC Pool to provide
for payments of expenses of the REMIC Pool or amounts due on the regular or
residual interests in the event of defaults (including delinquencies) on the
qualified mortgages, lower than expected reinvestment returns, prepayment
interest shortfalls and certain other contingencies. The reserve fund will be
disqualified if more than 30% of the gross income from the assets in the fund
for the year is derived from the sale or other disposition of property held for
less than three months, unless required to prevent a default on the regular
interests caused by a default on one or more qualified mortgages. A reserve fund
must be reduced "promptly and appropriately" as payments on the mortgage loans
are received. Foreclosure property is real property acquired by the REMIC Pool
in connection with the default or imminent default of a qualified mortgage,
provided the Depositor had no knowledge that the mortgage loan would go into
default at the time it was transferred to the REMIC Pool. Foreclosure property
generally must be disposed of prior to the close of the third calendar year
following the acquisition of the property by the REMIC Pool, with an extension
that may be granted by the IRS.
In addition to the foregoing requirements, the various interests in a
REMIC Pool also must meet certain requirements. All of the interests in a REMIC
Pool must be either of the following: (1) one or more classes of regular
interests or (2) a single class of residual interests on which distributions, if
any, are made pro rata. A regular interest is an interest in a REMIC Pool that
is issued on the Startup Day with fixed terms, is designated as a regular
interest, and unconditionally entitles the holder to receive a specified
principal amount (or other similar amount), and provides that interest payments
(or other similar amounts), if any, at or before maturity either are payable
based on a fixed rate or a qualified variable rate, or consist of a specified,
nonvarying portion of the interest payments on qualified mortgages. The
specified portion may consist of a fixed number of basis points, a fixed
percentage of the total interest, or a fixed or qualified variable or inverse
variable rate on some or all of the qualified mortgages minus a different fixed
or qualified variable rate. The specified principal amount of a regular interest
that provides for interest payments consisting of a specified, nonvarying
portion of interest payments on qualified mortgages may be zero. A residual
interest is an interest in a REMIC Pool other than a regular interest that is
issued on the Startup Day and that is designated as a residual interest. An
interest in a REMIC Pool may be treated as a regular interest even if payments
of principal with respect to that interest are subordinated to payments on other
regular interests or the residual interest in the REMIC Pool, and are dependent
on the absence of defaults or delinquencies on qualified mortgages or permitted
investments, lower than reasonably expected returns on permitted investments,
unanticipated expenses incurred by the REMIC Pool or prepayment interest
shortfalls. Accordingly, the Regular Certificates of a series will constitute
one or more classes of regular interests, and the Residual Certificates for each
REMIC Pool of that series will constitute a single class of residual interests
on which distributions are made pro rata.
If an entity, such as the REMIC Pool, fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable year,
the Code provides that the entity will not be treated as a REMIC for that year
and thereafter. In this event, an entity with multiple classes of ownership
interests may be treated as a separate association taxable as a corporation
under Treasury regulations, and the Regular Certificates may be treated as
equity interests in the REMIC Pool. The Code, however, authorizes the Treasury
Department to issue regulations that address situations where failure to meet
one or more of the requirements for REMIC status occurs inadvertently and in
good faith, and disqualification of the REMIC Pool would occur absent regulatory
relief. Investors should be aware, however, that the Conference Committee Report
to the Tax Reform Act of 1986 (the "Reform Act") indicates
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that the relief may be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the REMIC Pool's income for the period of
time in which the requirements for REMIC status are not satisfied.
TAXATION OF REGULAR CERTIFICATES
General
In general, interest, original issue discount and market discount on a
Regular Certificate will be treated as ordinary income to a holder of the
Regular Certificate (the "Regular Certificateholder") as they accrue, and
principal payments on a Regular Certificate will be treated as a return of
capital to the extent of the Regular Certificateholder's basis in the Regular
Certificate allocable thereto. Regular Certificateholders must use the accrual
method of accounting with regard to Regular Certificates, regardless of the
method of accounting otherwise used by those Regular Certificateholders.
Original Issue Discount
Accrual Certificates and principal-only certificates will be, and other
classes of Regular Certificates may be, issued with "original issue discount"
within the meaning of Code Section 1273(a). Holders of any class of Regular
Certificates having original issue discount generally must include original
issue discount in ordinary income for federal income tax purposes as it accrues,
in accordance with the constant yield method that takes into account the
compounding of interest, in advance of receipt of the cash attributable to that
income. The following discussion is based in part on temporary and final
Treasury regulations issued on February 2, 1994, as amended on June 14, 1996
(the "OID Regulations") under Code Sections 1271 through 1273 and 1275 and in
part on the provisions of the Reform Act. Regular Certificateholders should be
aware, however, that the OID Regulations do not adequately address certain
issues relevant to prepayable securities, such as the Regular Certificates. To
the extent those issues are not addressed in those regulations, the Depositor
intends to apply the methodology described in the Conference Committee Report to
the Reform Act. We cannot assure you that the IRS will not take a different
position as to those matters not currently addressed by the OID Regulations.
Moreover, the OID Regulations include an anti-abuse rule allowing the IRS to
apply or depart from the OID Regulations where necessary or appropriate to
ensure a reasonable tax result in light of the applicable statutory provisions.
A tax result will not be considered unreasonable under the anti-abuse rule in
the absence of a substantial effect on the present value of a taxpayer's tax
liability. Investors are advised to consult their own tax advisors as to the
discussion in this prospectus and the appropriate method for reporting interest
and original issue discount with respect to the Regular Certificates.
Each Regular Certificate, except to the extent described below with
respect to a Regular Certificate on which principal is distributed by random lot
("Random Lot Certificates"), will be treated as a single installment obligation
for purposes of determining the original issue discount includible in a Regular
Certificateholder's income. The total amount of original issue discount on a
Regular Certificate is the excess of the "stated redemption price at maturity"
of the Regular Certificate over its "issue price". The issue price of a class of
Regular Certificates offered pursuant to this prospectus generally is the first
price at which a substantial amount of Regular Certificates of that class is
sold to the public (excluding bond houses, brokers and underwriters). Although
unclear under the OID Regulations, the Depositor intends to treat the issue
price of a class as to which there is no substantial sale as of the issue date
or that is retained by the Depositor as the fair market value of that class as
of the issue date. The issue price of a Regular Certificate also includes the
amount paid by an initial Regular Certificateholder for accrued interest that
relates to a period prior to the issue date of the Regular Certificate, unless
the Regular Certificateholder elects on its federal income tax return to exclude
that amount from the issue price and to recover it on the first distribution
date. The stated redemption price at maturity of a Regular Certificate always
includes the original principal amount of the Regular Certificate, but generally
will not include distributions of stated interest if those interest
distributions constitute "qualified stated interest". Under the OID Regulations,
qualified stated interest generally means interest payable at a single fixed
rate or a qualified variable rate (as described below) provided that those
interest payments are unconditionally payable at intervals of one year or less
during the entire term of the Regular Certificate. Because there is no penalty
or default remedy in the case of nonpayment of interest with respect to a
Regular Certificate, it is possible that no interest on any class of Regular
Certificates will be treated as qualified stated interest. However, except as
provided in the following three sentences or in the applicable prospectus
supplement, because the underlying mortgage loans provide for remedies in the
event of default, we intend to treat interest with respect to the Regular
Certificates as qualified stated interest. Distributions of interest on an
Accrual Certificate, or
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on other Regular Certificates with respect to which deferred interest will
accrue, will not constitute qualified stated interest, in which case the stated
redemption price at maturity of the Regular Certificates includes all
distributions of interest as well as principal on those Regular Certificates.
Likewise, we intend to treat an "interest only" class, or a class on which
interest is substantially disproportionate to its principal amount, a so-called
"super-premium" class, as having no qualified stated interest. Where the
interval between the issue date and the first distribution date on a Regular
Certificate is shorter than the interval between subsequent distribution dates,
the interest attributable to the additional days will be included in the stated
redemption price at maturity.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered to be zero if the original issue discount is less than 0.25%
of the stated redemption price at maturity of the Regular Certificate multiplied
by the weighted average maturity of the Regular Certificate. For this purpose,
the weighted average maturity of the Regular Certificate is computed as the sum
of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial years) from the issue date until each distribution is
scheduled to be made by a fraction, the numerator of which is the amount of each
distribution included in the stated redemption price at maturity of the Regular
Certificate and the denominator of which is the stated redemption price at
maturity of the Regular Certificate. The Conference Committee Report to the
Reform Act provides that the schedule of distributions should be determined in
accordance with the assumed rate of prepayment of the mortgage loans (the
"Prepayment Assumption") and the anticipated reinvestment rate, if any, relating
to the Regular Certificates. The Prepayment Assumption with respect to a Series
of Regular Certificates will be set forth in the related prospectus supplement.
Holders generally must report de minimis original issue discount pro rata as
principal payments are received, and that income will be capital gain if the
Regular Certificate is held as a capital asset. However, under the OID
Regulations, Regular Certificateholders may elect to accrue all de minimis
original issue discount as well as market discount and market premium under the
constant yield method. See "--Election to Treat All Interest Under the Constant
Yield Method" below.
A Regular Certificateholder generally must include in gross income for any
taxable year the sum of the "daily portions," as defined below, of the original
issue discount on the Regular Certificate accrued during an accrual period for
each day on which it holds the Regular Certificate, including the date of
purchase but excluding the date of disposition. We intend to treat the monthly
period ending on the day before each distribution date as the accrual period.
With respect to each Regular Certificate, a calculation will be made of the
original issue discount that accrues during each successive full accrual period,
or shorter period from the date of original issue, that ends on the day before
the related distribution date on the Regular Certificate. The Conference
Committee Report to the Reform Act states that the rate of accrual of original
issue discount is intended to be based on the Prepayment Assumption. Other than
as discussed below with respect to a Random Lot Certificate, the original issue
discount accruing in a full accrual period would be the excess, if any, of
1. the sum of (a) the present value of all of the remaining
distributions to be made on the Regular Certificate as of the
end of that accrual period that are included in the Regular
Certificate's stated redemption price at maturity and (b) the
distributions made on the Regular Certificate during the
accrual period that are included in the Regular Certificate's
stated redemption price at maturity, over
2. the adjusted issue price of the Regular Certificate at the
beginning of the accrual period.
The present value of the remaining distributions referred to in the
preceding sentence is calculated based on (1) the yield to maturity of the
Regular Certificate at the issue date, (2) events (including actual prepayments)
that have occurred prior to the end of the accrual period and (3) the Prepayment
Assumption. For these purposes, the adjusted issue price of a Regular
Certificate at the beginning of any accrual period equals the issue price of the
Regular Certificate, increased by the aggregate amount of original issue
discount with respect to the Regular Certificate that accrued in all prior
accrual periods and reduced by the amount of distributions included in the
Regular Certificate's stated redemption price at maturity that were made on the
Regular Certificate in those prior periods. The original issue discount accruing
during any accrual period (as determined in this paragraph) will then be divided
by the number of days in the period to determine the daily portion of original
issue discount for each day in the period. With respect to an initial accrual
period shorter than a full accrual period, the daily portions of original issue
discount must be determined according to an appropriate allocation under any
reasonable method.
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Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Certificateholder
generally will increase to take into account prepayments on the Regular
Certificates as a result of prepayments on the mortgage loans that exceed the
Prepayment Assumption, and generally will decrease, but not below zero for any
period, if the prepayments are slower than the Prepayment Assumption. An
increase in prepayments on the mortgage loans with respect to a Series of
Regular Certificates can result in both a change in the priority of principal
payments with respect to certain classes of Regular Certificates and either an
increase or decrease in the daily portions of original issue discount with
respect to those Regular Certificates.
In the case of a Random Lot Certificate, we intend to determine the yield
to maturity of that certificate based upon the anticipated payment
characteristics of the class as a whole under the Prepayment Assumption. In
general, the original issue discount accruing on each Random Lot Certificate in
a full accrual period would be its allocable share of the original issue
discount with respect to the entire class, as determined in accordance with the
preceding paragraph. However, in the case of a distribution in retirement of the
entire unpaid principal balance of any Random Lot Certificate, or portion of
that unpaid principal balance, (a) the remaining unaccrued original issue
discount allocable to that certificate (or to that portion) will accrue at the
time of that distribution, and (b) the accrual of original issue discount
allocable to each remaining certificate of the class (or the remaining unpaid
principal balance of a partially redeemed Random Lot Certificate after a
distribution of principal has been received) will be adjusted by reducing the
present value of the remaining payments on that class and the adjusted issue
price of that class to the extent attributable to the portion of the unpaid
principal balance of the class that was distributed. We believe that the
foregoing treatment is consistent with the "pro rata prepayment" rules of the
OID Regulations, but with the rate of accrual of original issue discount
determined based on the Prepayment Assumption for the class as a whole. You are
advised to consult your tax advisors as to this treatment.
Acquisition Premium
A purchaser of a Regular Certificate at a price greater than its adjusted
issue price but less than its stated redemption price at maturity will be
required to include in gross income the daily portions of the original issue
discount on the Regular Certificate reduced pro rata by a fraction, the
numerator of which is the excess of its purchase price over the adjusted issue
price and the denominator of which is the excess of the remaining stated
redemption price at maturity over the adjusted issue price. Alternatively, a
subsequent purchaser may elect to treat all of the acquisition premium under the
constant yield method, as described below under the heading "--Election to Treat
All Interest Under the Constant Yield Method" below.
Variable Rate Regular Certificates
Regular Certificates may provide for interest based on a variable rate.
Under the OID Regulations, interest is treated as payable at a variable rate if,
generally, (1) the issue price does not exceed the original principal balance by
more than a specified amount and (2) the interest compounds or is payable at
least annually at current values of (a) one or more "qualified floating rates",
(b) a single fixed rate and one or more qualified floating rates, (c) a single
"objective rate", or (d) a single fixed rate and a single objective rate that is
a "qualified inverse floating rate". A floating rate is a qualified floating
rate if variations in the rate can reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds, where the rate
is subject to a fixed multiple that is greater than 0.65, but not more than
1.35. The rate may also be increased or decreased by a fixed spread or subject
to a fixed cap or floor, or a cap or floor that is not reasonably expected as of
the issue date to affect the yield of the instrument significantly. An objective
rate (other than a qualified floating rate) is a rate that is determined using a
single fixed formula and that is based on objective financial or economic
information, provided that the information is not (1) within the control of the
issuer or a related party or (2) unique to the circumstances of the issuer or a
related party. A qualified inverse floating rate is a rate equal to a fixed rate
minus a qualified floating rate that inversely reflects contemporaneous
variations in the cost of newly borrowed funds; an inverse floating rate that is
not a qualified floating rate may nevertheless be an objective rate. A class of
Regular Certificates may be issued under this prospectus that does not have a
variable rate under the OID Regulations, for example, a class that bears
different rates at different times during the period it is outstanding so that
it is considered significantly "front-loaded" or "back-loaded" within the
meaning of the OID Regulations. It is possible that a class of this type may be
considered to bear "contingent interest" within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of contingent
interest, are by their terms not applicable to Regular Certificates. However, if
final regulations dealing with contingent interest with respect to Regular
Certificates apply the same principles as
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the OID Regulations, those regulations may lead to different timing of income
inclusion than would be the case under the OID Regulations. Furthermore,
application of those principles could lead to the characterization of gain on
the sale of contingent interest Regular Certificates as ordinary income.
Investors should consult their tax advisors regarding the appropriate treatment
of any Regular Certificate that does not pay interest at a fixed rate or
variable rate as described in this paragraph.
Under the REMIC Regulations, a Regular Certificate (1) bearing a rate that
qualifies as a variable rate under the OID Regulations that is tied to current
values of a variable rate (or the highest, lowest or average of two or more
variable rates), including a rate based on the average cost of funds of one or
more financial institutions, or a positive or negative multiple of a rate (plus
or minus a specified number of basis points), or that represents a weighted
average of rates on some or all of the mortgage loans, including a rate that is
subject to one or more caps or floors, or (2) bearing one or more of these
variable rates for one or more periods or one or more fixed rates for one or
more periods, and a different variable rate or fixed rate for other periods
qualifies as a regular interest in a REMIC. Accordingly, unless otherwise
indicated in the applicable prospectus supplement, we intend to treat Regular
Certificates that qualify as regular interests under this rule in the same
manner as obligations bearing a variable rate for original issue discount
reporting purposes.
The amount of original issue discount with respect to a Regular
Certificate bearing a variable rate of interest will accrue in the manner
described above under "--Original Issue Discount" with the yield to maturity and
future payments on that Regular Certificate generally to be determined by
assuming that interest will be payable for the life of the Regular Certificate
based on the initial rate (or, if different, the value of the applicable
variable rate as of the pricing date) for the relevant class. Unless otherwise
specified in the applicable prospectus supplement, we intend to treat variable
interest as qualified stated interest, other than variable interest on an
interest-only or super-premium class, which will be treated as non-qualified
stated interest includible in the stated redemption price at maturity. Ordinary
income reportable for any period will be adjusted based on subsequent changes in
the applicable interest rate index.
Although unclear under the OID Regulations, unless required otherwise by
applicable final regulations, we intend to treat Regular Certificates bearing an
interest rate that is a weighted average of the net interest rates on mortgage
loans or Mortgage Certificates having fixed or adjustable rates, as having
qualified stated interest, except to the extent that initial "teaser" rates
cause sufficiently "back-loaded" interest to create more than de minimis
original issue discount. The yield on those Regular Certificates for purposes of
accruing original issue discount will be a hypothetical fixed rate based on the
fixed rates, in the case of fixed rate mortgage loans, and initial "teaser
rates" followed by fully indexed rates, in the case of adjustable rate mortgage
loans. In the case of adjustable rate mortgage loans, the applicable index used
to compute interest on the mortgage loans in effect on the pricing date (or
possibly the issue date) will be deemed to be in effect beginning with the
period in which the first weighted average adjustment date occurring after the
issue date occurs. Adjustments will be made in each accrual period either
increasing or decreasing the amount of ordinary income reportable to reflect the
actual pass-through interest rate on the Regular Certificates.
Deferred Interest
Under the OID Regulations, all interest on a Regular Certificate as to
which there may be deferred interest is includible in the stated redemption
price at maturity thereof. Accordingly, any deferred interest that accrues with
respect to a class of Regular Certificates may constitute income to the holders
of such Regular Certificates prior to the time distributions of cash with
respect to such deferred interest are made.
Market Discount
A purchaser of a Regular Certificate also may be subject to the market
discount rules of Code Section 1276 through 1278. Under these Code sections and
the principles applied by the OID Regulations in the context of original issue
discount, "market discount" is the amount by which the purchaser's original
basis in the Regular Certificate (1) is exceeded by the then-current principal
amount of the Regular Certificate or (2) in the case of a Regular Certificate
having original issue discount, is exceeded by the adjusted issue price of that
Regular Certificate at the time of purchase. The purchaser generally will be
required to recognize ordinary income to the extent of accrued market discount
on the Regular Certificate as distributions includible in the stated redemption
price at
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maturity of the Regular Certificate are received, in an amount not exceeding
that distribution. The market discount would accrue in a manner to be provided
in Treasury regulations and should take into account the Prepayment Assumption.
The Conference Committee Report to the Reform Act provides that until
regulations are issued, the market discount would accrue either (1) on the basis
of a constant interest rate or (2) in the ratio of stated interest allocable to
the relevant period to the sum of the interest for that period plus the
remaining interest as of the end of that period, or in the case of a Regular
Certificate issued with original issue discount, in the ratio of original issue
discount accrued for the relevant period to the sum of the original issue
discount accrued for that period plus the remaining original issue discount as
of the end of that period. You also generally will be required to treat a
portion of any gain on a sale or exchange of the Regular Certificate as ordinary
income to the extent of the market discount accrued to the date of disposition
under one of the foregoing methods, less any accrued market discount previously
reported as ordinary income as partial distributions in reduction of the stated
redemption price at maturity were received. You will be required to defer
deduction of a portion of the excess of the interest paid or accrued on
indebtedness incurred to purchase or carry a Regular Certificate over the
interest distributable on those Regular Certificates. The deferred portion of an
interest expense in any taxable year generally will not exceed the accrued
market discount on the Regular Certificate for that year. The deferred interest
expense is, in general, allowed as a deduction not later than the year in which
the related market discount income is recognized or the Regular Certificate is
disposed of. As an alternative to the inclusion of market discount in income on
the foregoing basis, you may elect to include market discount in income
currently as it accrues on all market discount instruments you acquired in that
taxable year or thereafter, in which case the interest deferral rule will not
apply. See "--Election to Treat All Interest Under the Constant Yield Method"
below regarding an alternative manner in which that election may be deemed to be
made.
Market discount with respect to a Regular Certificate will be considered
to be zero if the market discount is less than 0.25% of the remaining stated
redemption price at maturity of the Regular Certificate multiplied by the
weighted average maturity of the Regular Certificate (determined as described
above in the third paragraph under "Original Issue Discount") remaining after
the date of purchase. It appears that de minimis market discount would be
reported in a manner similar to de minimis original issue discount. See
"--Original Issue Discount" above. Treasury regulations implementing the market
discount rules have not yet been issued, and therefore investors should consult
their own tax advisors regarding the application of these rules. You should also
consult Revenue Procedure 92-67 concerning the elections to include market
discount in income currently and to accrue market discount on the basis of the
constant yield method.
Premium
A Regular Certificate purchased at a cost greater than its remaining
stated redemption price at maturity generally is considered to be purchased at a
premium. If you hold a Regular Certificate as a "capital asset" within the
meaning of Code Section 1221, you may elect under Code Section 171 to amortize
that premium under the constant yield method. Final regulations with respect to
amortization of bond premium do not by their terms apply to prepayable
obligations such as the Regular Certificates. However, the Conference Committee
Report to the Reform Act indicates a Congressional intent that the same rules
that will apply to the accrual of market discount on installment obligations
will also apply to amortizing bond premium under Code Section 171 on installment
obligations such as the Regular Certificates, although it is unclear whether the
alternatives to the constant yield method described above under "Market
Discount" are available. Amortizable bond premium will be treated as an offset
to interest income on a Regular Certificate rather than as a separate deduction
item. See "--Election to Treat All Interest Under the Constant Yield Method"
below regarding an alternative manner in which the Code Section 171 election may
be deemed to be made.
Election to Treat All Interest Under the Constant Yield Method
A holder of a debt instrument such as a Regular Certificate may elect to
treat all interest that accrues on the instrument using the constant yield
method, with none of the interest being treated as qualified stated interest.
For purposes of applying the constant yield method to a debt instrument subject
to an election, (1) "interest" includes stated interest, original issue
discount, de minimis original issue discount, market discount and de minimis
market discount, as adjusted by any amortizable bond premium or acquisition
premium and (2) the debt instrument is treated as if the instrument were issued
on the holder's acquisition date in the amount of the holder's adjusted basis
immediately after acquisition. It is unclear whether, for this purpose, the
initial Prepayment Assumption would
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continue to apply or if a new prepayment assumption as of the date of the
holder's acquisition would apply. A holder generally may make an election on an
instrument by instrument basis or for a class or group of debt instruments.
However, if the holder makes an election with respect to a debt instrument with
amortizable bond premium or with market discount, the holder is deemed to have
made elections to amortize bond premium or to report market discount income
currently as it accrues under the constant yield method, respectively, for all
debt instruments acquired by the holder in the same taxable year or thereafter.
The election is made on the holder's federal income tax return for the year in
which the debt instrument is acquired and is irrevocable except with the
approval of the IRS. You should consult their own tax advisors regarding the
advisability of making an election.
Sale or Exchange of Regular Certificates
If you sell or exchange a Regular Certificate, you will recognize gain or
loss equal to the difference, if any, between the amount received and its
adjusted basis in the Regular Certificate. The adjusted basis of a Regular
Certificate generally will equal the cost of the Regular Certificate to the
seller, increased by any original issue discount or market discount previously
included in the seller's gross income with respect to the Regular Certificate
and reduced by amounts included in the stated redemption price at maturity of
the Regular Certificate that were previously received by the seller, by any
amortized premium and by previously recognized losses.
Except as described above with respect to market discount, and except as
provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Certificate realized by an investor who holds the Regular Certificate as
a capital asset will be capital gain or loss and will be long-term or short-term
depending on whether the Regular Certificate has been held for the applicable
holding period (described below). That gain will be treated as ordinary income
1. if a Regular Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the
amount of interest that would have accrued on the Regular
Certificateholder's net investment in the conversion
transaction at 120% of the appropriate applicable Federal rate
under Code Section 1274(d) in effect at the time the taxpayer
entered into the transaction minus any amount previously
treated as ordinary income with respect to any prior
distribution of property that was held as a part of that
transaction,
2. in the case of a non-corporate taxpayer, to the extent the
taxpayer has made an election under Code Section 163(d)(4) to
have net capital gains taxed as investment income at ordinary
rates, or
3. to the extent that the gain does not exceed the excess, if
any, of (a) the amount that would have been includible in the
gross income of the holder if its yield on the Regular
Certificate were 110% of the applicable Federal rate as of the
date of purchase, over (b) the amount of income actually
includible in the gross income of that holder with respect to
the Regular Certificate.
In addition, gain or loss recognized from the sale of a Regular
Certificate by certain banks or thrift institutions will be treated as ordinary
income or loss pursuant to Code Section 582(c). Long-term capital gains of
certain non-corporate taxpayers generally are subject to a lower maximum tax
rate (20%) than ordinary income or short-term capital gains of those taxpayers
(39.6%) for property held for more than one year. The maximum tax rate for
corporations is the same with respect to both ordinary income and capital gains.
Treatment of Losses
Holders of Regular Certificates will be required to report income with
respect to Regular Certificates on the accrual method of accounting, without
giving effect to delays or reductions in distributions attributable to defaults
or delinquencies on the mortgage loans allocable to a particular class of
Regular Certificates, except to the extent it can be established that those
losses are uncollectible. Accordingly, the holder of a Regular Certificate may
have income, or may incur a diminution in cash flow as a result of a default or
delinquency, but may not be able to take a deduction (subject to the discussion
below) for the corresponding loss until a subsequent taxable year. In this
regard, investors are cautioned that while they may generally cease to accrue
interest income if it reasonably appears that the interest will be
uncollectible, the IRS may take the position that original issue discount must
continue to be
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accrued in spite of its uncollectibility until the debt instrument is disposed
of in a taxable transaction or becomes worthless in accordance with the rules of
Code Section 166.
Under Code Section 166, it appears that holders of Regular Certificates
that are corporations or that otherwise hold the Regular Certificates in
connection with a trade or business should in general be allowed to deduct, as
an ordinary loss, a loss sustained during the taxable year on account of those
Regular Certificates becoming wholly or partially worthless, and that, in
general, holders of Regular Certificates that are not corporations and do not
hold the Regular Certificates in connection with a trade or business will be
allowed to deduct as a short-term capital loss any loss with respect to
principal sustained during the taxable year on account of a portion of any class
or subclass of those Regular Certificates becoming wholly worthless. Although
the matter is not free from doubt, non-corporate holders of Regular Certificates
should be allowed a bad debt deduction at that time as the principal balance of
any class or subclass of those Regular Certificates is reduced to reflect losses
resulting from any liquidated mortgage loans. The IRS, however, could take the
position that non-corporate holders will be allowed a bad debt deduction to
reflect those losses only after all mortgage loans remaining in the trust fund
have been liquidated or that class of Regular Certificates has been otherwise
retired. The IRS could also assert that losses on the Regular Certificates are
deductible based on some other method that may defer those deductions for all
holders, such as reducing future cash flow for purposes of computing original
issue discount. This may have the effect of creating "negative" original issue
discount which would be deductible only against future positive original issue
discount or otherwise upon termination of the class. You are urged to consult
your own tax advisors regarding the appropriate timing, amount and character of
any loss sustained with respect to the Regular Certificates. While losses
attributable to interest previously reported as income should be deductible as
ordinary losses by both corporate and non-corporate holders, the IRS may take
the position that losses attributable to accrued original issue discount may
only be deducted as short-term capital losses by non-corporate holders not
engaged in a trade or business. Special loss rules are applicable to banks and
thrift institutions, including rules regarding reserves for bad debts. Banks and
thrift institutions are advised to consult their tax advisors regarding the
treatment of losses on Regular Certificates.
TAXATION OF RESIDUAL CERTIFICATES
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net loss will
be includible as ordinary income or loss in determining the federal taxable
income of holders of certain classes of Residual Certificates ("Residual
Certificateholders"), and will not be taxed separately to the REMIC Pool. The
daily portions of REMIC taxable income or net loss of a Residual
Certificateholder are determined by allocating the REMIC Pool's taxable income
or net loss for each calendar quarter ratably to each day in that quarter and by
allocating that daily portion among the Residual Certificateholders in
proportion to their respective holdings of certain classes of Residual
Certificates in the REMIC Pool on that day. REMIC taxable income is generally
determined in the same manner as the taxable income of an individual using the
accrual method of accounting, except that (1) the limitations on deductibility
of investment interest expense and expenses for the production of income do not
apply, (2) all bad loans will be deductible as business bad debts and (3) the
limitation on the deductibility of interest and expenses related to tax-exempt
income will apply. The REMIC Pool's gross income includes interest, original
issue discount income and market discount income, if any, on the mortgage loans,
reduced by amortization of any premium on the mortgage loans, plus income from
amortization of issue premium, if any, on the Regular Certificates, plus income
on reinvestment of cash flows and reserve assets, plus any cancellation of
indebtedness income upon allocation of realized losses to the Regular
Certificates. The REMIC Pool's deductions include interest and original issue
discount expense on the Regular Certificates, servicing fees on the mortgage
loans, other administrative expenses of the REMIC Pool and realized losses on
the mortgage loans. The requirement that Residual Certificateholders report
their pro rata share of taxable income or net loss of the REMIC Pool will
continue until there are no certificates of any class of the related series
outstanding.
The taxable income recognized by a Residual Certificateholder in any
taxable year will be affected by, among other factors, the relationship between
the timing of recognition of interest and original issue discount or market
discount income or amortization of premium with respect to the mortgage loans,
on the one hand, and the timing of deductions for interest (including original
issue discount) on the Regular Certificates or income from amortization of issue
premium on the Regular Certificates, on the other hand. In the event that an
interest in the mortgage loans is acquired by the REMIC Pool at a discount, and
one or more of those mortgage loans is prepaid, the Residual
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Certificateholder may recognize taxable income without being entitled to receive
a corresponding amount of cash because (1) the prepayment may be used in whole
or in part to make distributions in reduction of principal on the Regular
Certificates and (2) the discount on the mortgage loans which is includible in
income may exceed the deduction allowed upon those distributions on those
Regular Certificates on account of any unaccrued original issue discount
relating to those Regular Certificates. When there is more than one class of
Regular Certificates that distribute principal sequentially, this mismatching of
income and deductions is particularly likely to occur in the early years
following issuance of the Regular Certificates when distributions in reduction
of principal are being made in respect of earlier classes of Regular
Certificates to the extent that those classes are not issued with substantial
discount. If taxable income attributable to that kind of mismatching is
realized, in general, losses would be allowed in later years as distributions on
the later classes of Regular Certificates are made. Taxable income may also be
greater in earlier years than in later years as a result of the fact that
interest expense deductions, expressed as a percentage of the outstanding
principal amount of that series of Regular Certificates, may increase over time
as distributions in reduction of principal are made on the lower yielding
classes of Regular Certificates, whereas to the extent that the REMIC Pool
includes fixed rate mortgage loans, interest income with respect to any given
mortgage loan will remain constant over time as a percentage of the outstanding
principal amount of that loan. Consequently, Residual Certificateholders must
have sufficient other sources of cash to pay any federal, state or local income
taxes due as a result of that mismatching or unrelated deductions against which
to offset that income, subject to the discussion of "excess inclusions" below
under "--Limitations on Offset or Exemption of REMIC Income". The timing of that
mismatching of income and deductions described in this paragraph, if present
with respect to a series of certificates, may have a significant adverse effect
upon the Residual Certificateholder's after-tax rate of return. In addition, a
Residual Certificateholder's taxable income during certain periods may exceed
the income reflected by that Residual Certificateholder for those periods in
accordance with generally accepted accounting principles. You should consult
their own accountants concerning the accounting treatment of your investment in
Residual Certificates.
Basis and Losses
The amount of any net loss of the REMIC Pool that you may take into
account is limited to the adjusted basis of the Residual Certificate as of the
close of the quarter (or time of disposition of the Residual Certificate if
earlier), determined without taking into account the net loss for the quarter.
The initial adjusted basis of a purchaser of a Residual Certificate is the
amount paid for that Residual Certificate. The adjusted basis will be increased
by the amount of taxable income of the REMIC Pool reportable by the Residual
Certificateholder and will be decreased (but not below zero), first, by a cash
distribution from the REMIC Pool and, second, by the amount of loss of the REMIC
Pool reportable by the Residual Certificateholder. Any loss that is disallowed
on account of this limitation may be carried over indefinitely with respect to
the Residual Certificateholder as to whom that loss was disallowed and may be
used by that Residual Certificateholder only to offset any income generated by
the same REMIC Pool.
You will not be permitted to amortize directly the cost of your Residual
Certificate as an offset to its share of the taxable income of the related REMIC
Pool. However, that taxable income will not include cash received by the REMIC
Pool that represents a recovery of the REMIC Pool's basis in its assets. That
recovery of basis by the REMIC Pool will have the effect of amortization of the
issue price of the Residual Certificates over their life. However, in view of
the possible acceleration of the income of Residual Certificateholders described
under "--Taxation of REMIC Income" above, the period of time over which the
issue price is effectively amortized may be longer than the economic life of the
Residual Certificates.
A Residual Certificate may have a negative value if the net present value
of anticipated tax liabilities exceeds the present value of anticipated cash
flows. The REMIC Regulations appear to treat the issue price of a residual
interest as zero rather than a negative amount for purposes of determining the
REMIC Pool's basis in its assets. The preamble to the REMIC Regulations states
that the IRS may provide future guidance on the proper tax treatment of payments
made by a transferor of a residual interest to induce the transferee to acquire
the interest, and you should consult your own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual
Certificateholder (other than an original holder) in the Residual Certificate is
greater that the corresponding portion of the REMIC Pool's basis in the mortgage
loans, the Residual Certificateholder will not recover a portion of that basis
until termination of the REMIC Pool unless future Treasury regulations provide
for periodic adjustments to the REMIC income otherwise reportable by
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that holder. The REMIC Regulations currently in effect do not so provide. See
"--Treatment of Certain Items of REMIC Income and Expense--Market Discount"
below regarding the basis of mortgage loans to the REMIC Pool and "--Sale or
Exchange of a Residual Certificate" below regarding possible treatment of a loss
upon termination of the REMIC Pool as a capital loss.
Treatment of Certain Items of REMIC Income and Expense
Although we intend to compute REMIC income and expense in accordance with
the Code and applicable regulations, the authorities regarding the determination
of specific items of income and expense are subject to differing
interpretations. We make no representation as to the specific method that will
be used for reporting income with respect to the mortgage loans and expenses
with respect to the Regular Certificates, and different methods could result in
different timing of reporting of taxable income or net loss to you or
differences in capital gain versus ordinary income.
Original Issue Discount and Premium. Generally, the REMIC Pool's
deductions for original issue discount and income from amortization of issue
premium will be determined in the same manner as original issue discount income
on Regular Certificates as described under "--Taxation of Regular
Certificates--Original Issue Discount" and "--Variable Rate Regular
Certificates", without regard to the de minimis rule described in that section,
and "--Premium" above.
Deferred Interest. Any deferred interest that accrues with respect to any
adjustable rate mortgage loans held by the REMIC Pool will constitute income to
the REMIC Pool and will be treated in a manner similar to the deferred interest
that accrues with respect to Regular Certificates as described under "--Taxation
of Regular Certificates--Deferred Interest" above.
Market Discount. The REMIC Pool will have market discount income in
respect of mortgage loans if, in general, their unpaid principal balances exceed
the basis of the REMIC Pool allocable to those mortgage loans. The REMIC Pool's
basis in those mortgage loans is generally the fair market value of the mortgage
loans immediately after the transfer of the mortgage loans to the REMIC Pool.
The REMIC Regulations provide that the basis is equal in the aggregate to the
issue prices of all regular and residual interests in the REMIC Pool (or the
fair market value at the Closing Date, in the case of a retained class). In
respect of mortgage loans that have market discount to which Code Section 1276
applies, the accrued portion of the market discount would be recognized
currently as an item of ordinary income in a manner similar to original issue
discount. Market discount income generally should accrue in the manner described
under "--Taxation of Regular Certificates--Market Discount" above.
Premium. Generally, if the basis of the REMIC Pool in the mortgage loans
exceeds the unpaid principal balances of the mortgage loans, the REMIC Pool will
be considered to have acquired those mortgage loans at a premium equal to the
amount of that excess. As stated above, the REMIC Pool's basis in mortgage loans
is the fair market value of the mortgage loans, based on the aggregate of the
issue prices (or the fair market value of retained classes) of the regular and
residual interests in the REMIC Pool immediately after the transfer of the
mortgage loans to the REMIC Pool. In a manner analogous to the discussion above
under "--Taxation of Regular Certificates--Premium", a REMIC Pool that holds a
mortgage loan as a capital asset under Code Section 1221 may elect under Code
Section 171 to amortize premium on whole mortgage loans or mortgage loans
underlying MBS that were originated after September 27, 1985 or MBS that are
REMIC regular interests under the constant yield method. Amortizable bond
premium will be treated as an offset to interest income on the mortgage loans,
rather than as a separate deduction item. To the extent that the mortgagors with
respect to the mortgage loans are individuals, Code Section 171 will not be
available for premium on mortgage loans, including underlying mortgage loans,
originated on or prior to September 27, 1985. Premium with respect to those
mortgage loans may be deductible in accordance with a reasonable method
regularly employed by the related holder. The allocation of the premium pro rata
among principal payments should be considered a reasonable method; however, the
IRS may argue that the premium should be allocated in a different manner, such
as allocating the premium entirely to the final payment of principal.
Limitations on Offset or Exemption of REMIC Income
A portion or all of the REMIC taxable income includible in determining
your federal income tax liability will be subject to special treatment. That
portion, referred to as the "excess inclusion", is equal to the excess of REMIC
taxable income for the calendar quarter allocable to a Residual Certificate over
the daily accruals for that quarterly
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period of (1) 120% of the long-term applicable Federal rate that would have
applied to the Residual Certificate if it were a debt instrument, on the Startup
Day under Code Section 1274(d), multiplied by (2) the adjusted issue price of
such Residual Certificate at the beginning of that quarterly period. For this
purpose, the adjusted issue price of a Residual Certificate at the beginning of
a quarter is the issue price of the Residual Certificate, plus the amount of
those daily accruals of REMIC income described in this paragraph for all prior
quarters, decreased by any distributions made with respect to that Residual
Certificate prior to the beginning of that quarterly period. Accordingly, the
portion of the REMIC Pool's taxable income that will be treated as excess
inclusions will be a larger portion of that income as the adjusted issue price
of the Residual Certificates diminishes.
The portion of your REMIC taxable income consisting of the excess
inclusions generally may not be offset by other deductions, including net
operating loss carryforwards, on that Residual Certificateholder's return.
However, net operating loss carryovers are determined without regard to excess
inclusion income. Further, if you are an organization subject to the tax on
unrelated business income imposed by Code Section 511, the excess inclusions
will be treated as unrelated business taxable income of that Residual
Certificateholder for purposes of Code Section 511. In addition, REMIC taxable
income is subject to 30% withholding tax with respect to certain persons who are
not U.S. Persons, as defined below under "--Tax-Related Restrictions on Transfer
of Residual Certificates--Foreign Investors" below, and that portion
attributable to excess inclusions is not eligible for any reduction in the rate
of withholding tax, by treaty or otherwise. See "--Taxation of Certain Foreign
Investors--Residual Certificates" below. Finally, if a real estate investment
trust or a regulated investment company owns a Residual Certificate, a portion
(allocated under Treasury regulations yet to be issued) of dividends paid by the
real estate investment trust or a regulated investment company could not be
offset by net operating losses of its shareholders, would constitute unrelated
business taxable income for tax-exempt shareholders, and would be ineligible for
reduction of withholding to certain persons who are not U.S. Persons. The SBJPA
of 1996 has eliminated the special rule permitting Section 593 institutions
("thrift institutions") to use net operating losses and other allowable
deductions to offset their excess inclusion income from Residual Certificates
that have "significant value" within the meaning of the REMIC Regulations,
effective for taxable years beginning after December 31, 1995, except with
respect to Residual Certificates continuously held by thrift institutions since
November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on your alternative minimum taxable income of a
Residual Certificateholder. First, your alternative minimum taxable income is
determined without regard to the special rule, discussed above, that taxable
income cannot be less than excess inclusions. Second, your alternative minimum
taxable income for a taxable year cannot be less than the excess inclusions for
the year. Third, the amount of any alternative minimum tax net operating loss
deduction must be computed without regard to any excess inclusions. These rules
are effective for taxable years beginning after December 31, 1996, unless you
elect to have those rules apply only to taxable years beginning after August 20,
1996.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a
Residual Certificate is transferred to a Disqualified Organization (as defined
below), a tax would be imposed in an amount equal to the product of (1) the
present value of the total anticipated excess inclusions with respect to that
Residual Certificate for periods after the transfer and (2) the highest marginal
federal income tax rate applicable to corporations. The REMIC Regulations
provide that the anticipated excess inclusions are based on actual prepayment
experience to the date of the transfer and projected payments based on the
Prepayment Assumption. The present value rate equals the applicable Federal rate
under Code Section 1274(d) as of the date of the transfer for a term ending with
the last calendar quarter in which excess inclusions are expected to accrue. The
tax generally would be imposed on the transferor of the Residual Certificate,
except that where the transfer is through an agent, including a broker, nominee
or other middleman, for a Disqualified Organization, the tax would instead be
imposed on that agent. However, a transferor of a Residual Certificate would in
no event be liable for the tax with respect to a transfer if the transferee
furnishes to the transferor an affidavit that the transferee is not a
Disqualified Organization and, as of the time of the transfer, the transferor
does not have actual knowledge that the affidavit is false. The tax also may be
waived by the Treasury Department if the Disqualified Organization promptly
disposes of the residual interest and the transferor pays income tax at the
highest corporate rate on the excess inclusions for the period the Residual
Certificate is actually held by the Disqualified Organization.
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In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
that entity, then a tax is imposed on the entity equal to the product of (1) the
amount of excess inclusions on the Residual Certificate that are allocable to
the interest in the Pass-Through Entity during the period the interest is held
by the Disqualified Organization, and (2) the highest marginal federal corporate
income tax rate. This tax would be deductible from the ordinary gross income of
the Pass-Through Entity for the taxable year. The Pass-Through Entity would not
be liable for the tax if it has received an affidavit from the record holder
that it is not a Disqualified Organization or stating the holder's taxpayer
identification number and, during the period that person is the record holder of
the Residual Certificate, the Pass-Through Entity does not have actual knowledge
that the affidavit is false.
For taxable years beginning on or after January 1, 1998, if an "electing
large partnership" holds a Residual Certificate, all interests in the electing
large partnership are treated as held by Disqualified Organizations for purposes
of the tax imposed upon a Pass-Through Entity by section 860E(c) of the Code. An
exception to this tax, otherwise available to a Pass-Through Entity that is
furnished certain affidavits by record holders of interests in the entity and
that does not know the affidavits are false, is not available to an electing
partnership.
For these purposes, (1) "Disqualified Organization" means the United
States, any state or one of their political subdivisions, any foreign
government, any international organization, any agency or instrumentality of any
of the foregoing (provided, that the term does not include an instrumentality if
all of its activities are subject to tax and a majority of its board of
directors is not selected by one of those governmental entities), any
cooperative organization furnishing electric energy or providing telephone
service to persons in rural areas as described in Code Section 1381(a)(2)(C),
and any organization (other than a farmers' cooperative described in Code
Section 521) that is exempt from taxation under the Code unless that
organization is subject to the tax on unrelated business income imposed by Code
Section 511, (2) "Pass-Through Entity" means any regulated investment company,
real estate investment trust, common trust fund, partnership, trust or estate
and certain corporations operating on a cooperative basis. Except as may be
provided in Treasury regulations, any person holding an interest in a
Pass-Through Entity as a nominee for another will, with respect to that
interest, be treated as a Pass-Through Entity, and (3) an "electing large
partnership" means any partnership having more than 100 members during the
preceding tax year (other than certain service partnerships and commodity
pools), which elect to apply simplified reporting provisions under the Code.
The Pooling Agreement with respect to a series of certificates will
provide that no legal or beneficial interest in a Residual Certificate may be
transferred unless (1) the proposed transferee provides to the transferor and
the trustee an affidavit providing its taxpayer identification number and
stating that the transferee is the beneficial owner of the Residual Certificate,
is not a Disqualified Organization and is not purchasing the Residual
Certificates on behalf of a Disqualified Organization (i.e., as a broker,
nominee or other middleman), and (2) the transferor provides a statement in
writing to the Depositor and the trustee that it has no actual knowledge that
the affidavit is false. Moreover, the Pooling Agreement will provide that any
attempted or purported transfer in violation of these transfer restrictions will
be null and void and will vest no rights in any purported transferee. Each
Residual Certificate with respect to a series will bear a legend referring to
the restrictions on transfer, and each Residual Certificateholder will be deemed
to have agreed, as a condition of ownership of the Residual Certificates, to any
amendments to the related Pooling Agreement required under the Code or
applicable Treasury regulations to effectuate the foregoing restrictions.
Information necessary to compute an applicable excise tax must be furnished to
the IRS and to the requesting party within 60 days of the request, and the
Depositor or the trustee may charge a fee for computing and providing that
information.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor would
continue to be treated as the owner of the Residual Certificates and thus would
continue to be subject to tax on its allocable portion of the net income of the
REMIC Pool. Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" (as defined below) to a Residual Certificateholder (other than a
Residual Certificateholder who is not a U.S. Person, as defined under "--Foreign
Investors" below) is disregarded for all federal income tax purposes if a
significant purpose of the transferor is to impede the assessment or collection
of tax. A residual interest in a REMIC, including a residual interest with a
positive value at issuance, is a "noneconomic residual interest" unless, at the
time of the transfer, (1) the present value of the expected future distributions
on the residual interest at least equals the product of the present value of the
anticipated excess inclusions and the highest corporate income tax rate in
effect for the year in which the transfer
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occurs, and (2) the transferor reasonably expects that the transferee will
receive distributions from the REMIC at or after the time at which taxes accrue
on the anticipated excess inclusions in an amount sufficient to satisfy the
accrued taxes. The anticipated excess inclusions and the present value rate are
determined in the same manner as set forth under "--Disqualified Organizations"
above. The REMIC Regulations explain that a significant purpose to impede the
assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known that the transferee would be
unwilling or unable to pay taxes due on its share of the taxable income of the
REMIC. A safe harbor is provided if (1) the transferor conducted, at the time of
the transfer, a reasonable investigation of the financial condition of the
transferee and found that the transferee historically had paid its debts as they
came due and found no significant evidence to indicate that the transferee would
not continue to pay its debts as they came due in the future, and (2) the
transferee represents to the transferor that it understands that, as the holder
of the noneconomic residual interest, the transferee may incur tax liabilities
in excess of cash flows generated by the interest and that the transferee
intends to pay taxes associated with holding the residual interest as they
become due. The Pooling Agreement with respect to each series of certificates
will require the transferee of a Residual Certificate to certify to the matters
in the preceding sentence as part of the affidavit described under the heading
"--Disqualified Organizations" above. The transferor must have no actual
knowledge or reason to know that those statements are false.
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has "tax avoidance potential" to a "foreign person"
will be disregarded for all federal tax purposes. This rule appears intended to
apply to a transferee who is not a "U.S. Person" (as defined below), unless the
transferee's income is effectively connected with the conduct of a trade or
business within the United States. A Residual Certificate is deemed to have tax
avoidance potential unless, at the time of the transfer, (1) the future value of
expected distributions equals at least 30% of the anticipated excess inclusions
after the transfer, and (2) the transferor reasonably expects that the
transferee will receive sufficient distributions from the REMIC Pool at or after
the time at which the excess inclusions accrue and prior to the end of the next
succeeding taxable year for the accumulated withholding tax liability to be
paid. If the non-U.S. Person transfers the Residual Certificates back to a U.S.
Person, the transfer will be disregarded and the foreign transferor will
continue to be treated as the owner unless arrangements are made so that the
transfer does not have the effect of allowing the transferor to avoid tax on
accrued excess inclusions.
The prospectus supplement relating to a series of certificates may provide
that a Residual Certificate may not be purchased by or transferred to any person
that is not a U.S. Person or may describe the circumstances and restrictions
pursuant to which a transfer may be made. The term "U.S. Person" means a citizen
or resident of the United States, a corporation, or partnership (except to the
extent provided in applicable Treasury regulations) created or organized in or
under the laws of the United States, any state, or the District of Columbia, or
their political subdivisions, including any entity treated as a corporation or
partnership for federal income tax purposes, an estate that is subject to United
States federal income tax regardless of the source of its income, or a trust if
a court within the United States is able to exercise primary supervision over
the administration of that trust, and one or more such U.S. Persons have the
authority to control all substantial decisions of that trust (or, to the extent
provided in applicable Treasury regulations, certain trusts in existence on
August 20, 1996 which are eligible to elect to be treated as U.S. Persons).
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, you will recognize
gain or loss equal to the excess, if any, of the amount realized over your
adjusted basis, as described under "--Taxation of Residual Certificates--Basis
and Losses" above, in the Residual Certificate at the time of the sale or
exchange. In addition to reporting the taxable income of the REMIC Pool, you
will have taxable income to the extent that any cash distribution to it from the
REMIC Pool exceeds the adjusted basis on that distribution date. That income
will be treated as gain from the sale or exchange of the Residual Certificates.
It is possible that the termination of the REMIC Pool may be treated as a sale
or exchange of Residual Certificates, in which case, you have an adjusted basis
in the Residual Certificates remaining when its interest in the REMIC Pool
terminates, and if you hold the Residual Certificate as a capital asset under
Code Section 1221, then you will recognize a capital loss at that time in the
amount of the remaining adjusted basis.
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Any gain on the sale of Residual Certificates will be treated as ordinary
income (1) if you hold the Residual Certificates as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on your net investment in the conversion transaction at
120% of the appropriate applicable Federal rate in effect at the time the
taxpayer entered into the transaction minus any amount previously treated as
ordinary income with respect to any prior disposition of property that was held
as a part of that transaction or (2) if you are a non-corporate taxpayer, to the
extent that you have made an election under Code Section 163(d)(4) to have net
capital gains taxed as investment income at ordinary income rates. In addition,
gain or loss recognized from the sale of a Residual Certificate by certain banks
or thrift institutions will be treated as ordinary income or loss pursuant to
Code Section 582(c).
The Conference Committee Report to the Reform Act provides that, except as
provided in Treasury regulations yet to be issued, the wash sale rules of Code
Section 1091 will apply to dispositions of Residual Certificates where the
seller of those certificates, during the period beginning six months before the
sale or disposition of the Residual Certificate and ending six months after the
sale or disposition, acquires (or enters into any other transaction that results
in the application of Section 1091) any residual interest in any REMIC or any
interest in a "taxable mortgage pool" (such as a non-REMIC owner trust) that is
economically comparable to a Residual Certificate.
Mark to Market Regulations
The IRS has issued regulations, the "Mark to Market Regulations", under
Code Section 475 relating to the requirement that a securities dealer mark to
market securities held for sale to customers. This mark-to-market requirement
applies to all securities of a dealer, except to the extent that the dealer has
specifically identified a security as held for investment. The Mark to Market
Regulations provide that, for purposes of this mark-to-market requirement, a
Residual Certificate is not treated as a security and thus may not be marked to
market. The Mark to Market Regulations apply to all Residual Certificates
acquired on or after January 4, 1995.
TAXES THAT MAY BE IMPOSED ON THE REMIC POOL
Prohibited Transactions
Income from certain transactions by the REMIC Pool, called prohibited
transactions, will not be part of the calculation of income or loss includible
in the federal income tax returns of Residual Certificateholders, but rather
will be taxed directly to the REMIC Pool at a 100% rate. Prohibited transactions
generally include
1. the disposition of a qualified mortgage other than for (a)
substitution within two years of the Startup Day for a
defective (including a defaulted) obligation (or repurchase in
lieu of substitution of a defective (including a defaulted)
obligation at any time) or for any qualified mortgage within
three months of the Startup Day, (b) foreclosure, default or
imminent default of a qualified mortgage, (c) bankruptcy or
insolvency of the REMIC Pool or (d) a qualified (complete)
liquidation,
2. the receipt of income from assets that are not the type of
mortgages or investments that the REMIC Pool is permitted to
hold,
3. the receipt of compensation for services or
4. the receipt of gain from disposition of cash flow investments
other than pursuant to a qualified liquidation.
Notwithstanding (1) and (4) it is not a prohibited transaction to sell
REMIC Pool property to prevent a default on Regular Certificates as a result of
a default on qualified mortgages or to facilitate a clean-up call, generally, an
optional termination to save administrative costs when no more than a small
percentage of the certificates is outstanding. The REMIC Regulations indicate
that the modification of a mortgage loan generally will not be treated as a
disposition if it is occasioned by a default or reasonably foreseeable default,
an assumption of the mortgage loan, the waiver of a due-on-sale or
due-on-encumbrance clause or the conversion of an interest rate by a mortgagor
pursuant to the terms of a convertible adjustable rate mortgage loan.
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Contributions to the REMIC Pool After the Startup Day
In general, the REMIC Pool will be subject to a tax at a 100% rate on the
value of any property contributed to the REMIC Pool after the Startup Day.
Exceptions are provided for cash contributions to the REMIC Pool (1) during the
three months following the Startup Day, (2) made to a qualified reserve fund by
a Residual Certificateholder, (3) in the nature of a guarantee, (4) made to
facilitate a qualified liquidation or clean-up call and (5) as otherwise
permitted in Treasury regulations yet to be issued.
Net Income from Foreclosure Property
The REMIC Pool will be subject to federal income tax at the highest
corporate rate on "net income from foreclosure property", determined by
reference to the rules applicable to real estate investment trusts. Generally,
property acquired by deed in lieu of foreclosure would be treated as
"foreclosure property" for a period ending with the third calendar year
following the year of acquisition of that property, with a possible extension.
Net income from foreclosure property generally means gain from the sale of a
foreclosure property that is inventory property and gross income from
foreclosure property other than qualifying rents and other qualifying income for
a real estate investment trust.
It is not anticipated that the REMIC Pool will receive income or
contributions subject to tax under the preceding three paragraphs, except as
described in the applicable prospectus supplement with respect to net income
from foreclosure property on a commercial or multifamily residential property
that secured a mortgage loan. In addition, unless otherwise disclosed in the
applicable prospectus supplement, it is not anticipated that any material state
income or franchise tax will be imposed on a REMIC Pool.
LIQUIDATION OF THE REMIC POOL
If a REMIC Pool adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC Pool's final tax return a date on which that adoption is deemed to
occur, and sells all of its assets (other than cash) within a 90-day period
beginning on the date of the adoption of the plan of liquidation, the REMIC Pool
will not be subject to the prohibited transaction rules on the sale of its
assets, provided that the REMIC Pool credits or distributes in liquidation all
of the sale proceeds plus its cash (other than amounts retained to meet claims)
to holders of Regular Certificates and Residual Certificateholders within the
90-day period.
ADMINISTRATIVE MATTERS
The REMIC Pool will be required to maintain its books on a calendar year
basis and to file federal income tax returns for federal income tax purposes in
a manner similar to a partnership. The form for that income tax return is Form
1066, U.S. Real Estate Mortgage Investment Conduit Income Tax Return. The
trustee will be required to sign the REMIC Pool's returns. Treasury regulations
provide that, except where there is a single Residual Certificateholder for an
entire taxable year, the REMIC Pool will be subject to the procedural and
administrative rules of the Code applicable to partnerships, including the
determination by the IRS of any adjustments to, among other things, items of
REMIC income, gain, loss, deduction or credit in a unified administrative
proceeding. The Residual Certificateholder owning the largest percentage
interest in the Residual Certificates will be obligated to act as "tax matters
person", as defined in applicable Treasury regulations, with respect to the
REMIC Pool. Each Residual Certificateholder will be deemed, by acceptance of the
Residual Certificates, to have agreed (1) to the appointment of the tax matters
person as provided in the preceding sentence and (2) to the irrevocable
designation of the master servicer as agent for performing the functions of the
tax matters person.
LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSES
An investor who is an individual, estate or trust will be subject to
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that those itemized deductions, in the aggregate, do not
exceed 2% of the investor's adjusted gross income. In addition, Code Section 68
provides that itemized deductions otherwise allowable for a taxable year of an
individual taxpayer will be reduced by the lesser of (1) 3% of the excess, if
any, of adjusted gross income over $128,950 for 2000 ($64,475 in the case of a
married individual filing a
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separate return) (subject to annual adjustments for inflation) or (2) 80% of the
amount of itemized deductions otherwise allowable for that year. In the case of
a REMIC Pool, those deductions may include deductions under Code Section 212 for
the servicing fee and all administrative and other expenses relating to the
REMIC Pool, or any similar expenses allocated to the REMIC Pool with respect to
a regular interest it holds in another REMIC. Those investors who hold REMIC
Certificates either directly or indirectly through certain pass-through entities
may have their pro rata share of those expenses allocated to them as additional
gross income, but may be subject to those limitation on deductions. In addition,
those expenses are not deductible at all for purposes of computing the
alternative minimum tax, and may cause those investors to be subject to
significant additional tax liability. Temporary Treasury regulations provide
that the additional gross income and corresponding amount of expenses generally
are to be allocated entirely to the holders of Residual Certificates in the case
of a REMIC Pool that would not qualify as a fixed investment trust in the
absence of a REMIC election. However, that additional gross income and
limitation on deductions will apply to the allocable portion of those expenses
to holders of Regular Certificates, as well as holders of Residual Certificates,
where those Regular Certificates are issued in a manner that is similar to
pass-through certificates in a fixed investment trust. In general, that
allocable portion will be determined based on the ratio that a REMIC
Certificateholder's income, determined on a daily basis, bears to the income of
all holders of Regular Certificates and Residual Certificates with respect to a
REMIC Pool. As a result, individuals, estates or trusts holding REMIC
Certificates (either directly or indirectly through a grantor trust,
partnership, S corporation, REMIC, or certain other pass-through entities
described in the foregoing temporary Treasury regulations) may have taxable
income in excess of the interest income at the pass-through rate on Regular
Certificates that are issued in a single class or otherwise consistently with
fixed investment trust status or in excess of cash distributions for the related
period on Residual Certificates. Unless otherwise indicated in the applicable
prospectus supplement, all those expenses will be allocable to the Residual
Certificates.
TAXATION OF CERTAIN FOREIGN INVESTORS
Regular Certificates
Interest, including original issue discount, distributable to Regular
Certificateholders who are non-resident aliens, foreign corporations, or other
Non-U.S. Persons (as defined below), will be considered "portfolio interest"
and, therefore, generally will not be subject to 30% United States withholding
tax, provided that the Non-U.S. Person (1) is not a "10-percent shareholder"
within the meaning of Code Section 871(h)(3)(B) or a controlled foreign
corporation described in Code Section 881(c)(3)(C) and (2) provides the trustee,
or the person who would otherwise be required to withhold tax from those
distributions under Code Section 1441 or 1442, with an appropriate statement,
signed under penalties of perjury, identifying the beneficial owner and stating,
among other things, that the beneficial owner of the Regular Certificate is a
Non-U.S. Person. If that statement, or any other required statement, is not
provided, 30% withholding will apply unless reduced or eliminated pursuant to an
applicable tax treaty or unless the interest on the Regular Certificate is
effectively connected with the conduct of a trade or business within the United
States by the Non-U.S. Person. In the latter case, the Non-U.S. Person will be
subject to United States federal income tax at regular rates. Prepayment
Premiums distributable to Regular Certificateholders who are Non-U.S. Persons
may be subject to 30% United States withholding tax. Investors who are Non-U.S.
Persons should consult their own tax advisors regarding the specific tax
consequences to them of owning a Regular Certificate. The term "Non-U.S. Person"
means any person who is not a U.S. Person.
The IRS has issued final regulations (the "New Regulations") which would
provide alternative methods of satisfying the beneficial ownership certification
requirement described above. The New Regulations will be effective January 1,
2001. Current withholding certificates will remain valid until the earlier of
December 31, 2000 or the due date of expiration of the certificate under the
rules as currently in effect. The New Regulations would require, in the case of
Regular Certificates held by a foreign partnership, that (1) the certification
described above be provided by the partners rather than by the foreign
partnership and (2) the partnership provide certain information, including a
United States taxpayer identification number. A look-through rule would apply in
the case of tiered partnerships. Non-U.S. Persons should consult their own tax
advisors concerning the application of the certification requirements in the New
Regulations.
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Residual Certificates
The Conference Committee Report to the Reform Act indicates that amounts
paid to Residual Certificateholders who are Non-U.S. Persons are treated as
interest for purposes of the 30% (or lower treaty rate) United States
withholding tax. Treasury regulations provide that amounts distributed to
Residual Certificateholders may qualify as "portfolio interest", subject to the
conditions described in "Regular Certificates" above, but only to the extent
that (1) the mortgage loans (including mortgage loans underlying MBS) were
issued after July 18, 1984 and (2) the trust fund or segregated pool of assets
in the trust fund (as to which a separate REMIC election will be made), to which
the Residual Certificate relates, consists of obligations issued in "registered
form" within the meaning of Code Section 163(f)(1). Generally, whole mortgage
loans will not be, but MBS and regular interests in another REMIC Pool will be,
considered obligations issued in registered form. Furthermore, a Residual
Certificateholder will not be entitled to any exemption from the 30% withholding
tax (or lower treaty rate) to the extent of that portion of REMIC taxable income
that constitutes an "excess inclusion". See "--Taxation of Residual
Certificates--Limitations on Offset or Exemption of REMIC Income" above. If the
amounts paid to Residual Certificateholders who are Non-U.S. Persons are
effectively connected with the conduct of a trade or business within the United
States by Non-U.S. Persons, 30% (or lower treaty rate) withholding will not
apply. Instead, the amounts paid to Non-U.S. Persons will be subject to United
States federal income tax at regular rates. If 30% (or lower treaty rate)
withholding is applicable, those amounts generally will be taken into account
for purposes of withholding only when paid or otherwise distributed (or when the
Residual Certificate is disposed of) under rules similar to withholding upon
disposition of debt instruments that have original issue discount. See
"--Tax-Related Restrictions on Transfer of Residual Certificates--Foreign
Investors" above concerning the disregard of certain transfers having "tax
avoidance potential". Investors who are Non-U.S. Persons should consult their
own tax advisors regarding the specific tax consequences to them of owning
Residual Certificates.
BACKUP WITHHOLDING
Distributions made on the Regular Certificates, and proceeds from the sale
of the Regular Certificates to or through certain brokers, may be subject to a
"backup" withholding tax under Code Section 3406 of 31% on "reportable payments"
(including interest distributions, original issue discount, and, under certain
circumstances, principal distributions) unless the Regular Certificateholder
complies with certain reporting and/or certification procedures, including the
provision of its taxpayer identification number to the trustee, its agent or the
broker who effected the sale of the Regular Certificate, or that
certificateholder is otherwise an exempt recipient under applicable provisions
of the Code. Any amounts to be withheld from distribution on the Regular
Certificates would be refunded by the IRS or allowed as a credit against the
Regular Certificateholder's federal income tax liability. The New Regulations
will change certain of the rules relating to certain presumptions currently
available relating to information reporting and backup withholding. Non-U.S.
Persons are urged to contact their own tax advisors regarding the application to
them of backup and withholding and information reporting.
REPORTING REQUIREMENTS
Reports of accrued interest, original issue discount and information
necessary to compute the accrual of any market discount on the Regular
Certificates will be made annually to the IRS and to individuals, estates,
non-exempt and non-charitable trusts, and partnerships who are either holders of
record of Regular Certificates or beneficial owners who own Regular Certificates
through a broker or middleman as nominee. All brokers, nominees and all other
non-exempt holders of record of Regular Certificates (including corporations,
non-calendar year taxpayers, securities or commodities dealers, real estate
investment trusts, investment companies, common trust funds, thrift institutions
and charitable trusts) may request that information for any calendar quarter by
telephone or in writing by contacting the person designated in IRS Publication
938 with respect to a particular series of Regular Certificates. Holders through
nominees must request that information from the nominee.
The IRS' Form 1066 has an accompanying Schedule Q, Quarterly Notice to
Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation.
Treasury regulations require that Schedule Q be furnished by the REMIC Pool to
each Residual Certificateholder by the end of the month following the close of
each calendar quarter (41 days after the end of a quarter under proposed
Treasury regulations) in which the REMIC Pool is in existence.
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Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual
Certificateholders, furnished annually, if applicable, to holders of Regular
Certificates, and filed annually with the IRS concerning Code Section 67
expenses, see "--Limitations on Deduction of Certain Expenses" above, allocable
to those holders. Furthermore, under those regulations, information must be
furnished quarterly to Residual Certificateholders, furnished annually to
holders of Regular Certificates, and filed annually with the IRS concerning the
percentage of the REMIC Pool's assets meeting the qualified asset tests
described under "--Status of REMIC Certificates" above.
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FEDERAL INCOME TAX CONSEQUENCES FOR CERTIFICATES AS
TO WHICH NO REMIC ELECTION IS MADE
STANDARD CERTIFICATES
General
In the event that no election is made to treat a trust fund (or a
segregated pool of assets in the trust fund) with respect to a series of
certificates that are not designated as "Stripped Certificates", as described
below, as a REMIC (certificates of that kind of series are referred to as
"Standard Certificates"), in the opinion of Cadwalader, Wickersham & Taft the
trust fund will be classified as a grantor trust under subpart E, Part 1 of
subchapter J of the Code and not as an association taxable as a corporation or a
"taxable mortgage pool" within the meaning of Code Section 7701(i). Where there
is no fixed retained yield with respect to the mortgage loans underlying the
Standard Certificates, the holder of a Standard Certificate (a "Standard
Certificateholder") in that series will be treated as the owner of a pro rata
undivided interest in the ordinary income and corpus portions of the trust fund
represented by its Standard Certificate and will be considered the beneficial
owner of a pro rata undivided interest in each of the mortgage loans, subject to
the discussion under "--Recharacterization of Servicing Fees" below.
Accordingly, the holder of a Standard Certificate of a particular series will be
required to report on its federal income tax return its pro rata share of the
entire income from the mortgage loans represented by its Standard Certificate,
including interest at the coupon rate on those mortgage loans, original issue
discount (if any), prepayment fees, assumption fees, and late payment charges
received by the master servicer, in accordance with that Standard
Certificateholder's method of accounting. A Standard Certificateholder generally
will be able to deduct its share of the servicing fee and all administrative and
other expenses of the trust fund in accordance with its method of accounting,
provided that those amounts are reasonable compensation for services rendered to
that trust fund. However, investors who are individuals, estates or trusts who
own Standard Certificates, either directly or indirectly through certain
pass-through entities, will be subject to limitation with respect to certain
itemized deductions described in Code Section 67, including deductions under
Code Section 212 for the servicing fee and all the administrative and other
expenses of the trust fund, to the extent that those deductions, in the
aggregate, do not exceed two percent of an investor's adjusted gross income. In
addition, Code Section 68 provides that itemized deductions otherwise allowable
for a taxable year of an individual taxpayer will be reduced by the lesser of
(1) 3% of the excess, if any, of adjusted gross income over $128,950 for 2000
($64,475 in the case of a married individual filing a separate return) (subject
to annual adjustments for inflation), or (2) 80% of the amount of itemized
deductions otherwise allowable for that year. As a result, those investors
holding Standard Certificates, directly or indirectly through a pass-through
entity, may have aggregate taxable income in excess of the aggregate amount of
cash received on those Standard Certificates with respect to interest at the
pass-through rate on those Standard Certificates. In addition, those expenses
are not deductible at all for purposes of computing the alternative minimum tax,
and may cause the investors to be subject to significant additional tax
liability. Moreover, where there is fixed retained yield with respect to the
mortgage loans underlying a series of Standard Certificates or where the
servicing fee is in excess of reasonable servicing compensation, the transaction
will be subject to the application of the "stripped bond" and "stripped coupon"
rules of the Code, as described under "--Stripped Certificates" and
"--Recharacterization of Servicing Fees", below.
Tax Status
In the opinion of Cadwalader, Wickersham & Taft, Standard Certificates
will have the following status for federal income tax purposes:
1. Standard Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19)
will be considered to represent "loans . . . secured by an
interest in real property which is . . . residential real
property" within the meaning of Code Section
7701(a)(19)(C)(v), provided that the real property securing
the mortgage loans represented by that Standard Certificate is
of the type described in that section of the Code.
2. Standard Certificate owned by a real estate investment trust
will be considered to represent "real estate assets" within
the meaning of Code Section 856(c)(4)(A) to the extent that
the assets of the related trust fund consist of qualified
assets, and interest income on those assets will be considered
"interest on
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obligations secured by mortgages on real property" to such
extent within the meaning of Code Section 856(c)(3)(B).
3. Standard Certificate owned by a REMIC will be considered to
represent an "obligation . . . which is principally secured by
an interest in real property" within the meaning of Code
Section 860G(a)(3)(A) to the extent that the assets of the
related trust fund consist of "qualified mortgages" within the
meaning of Code Section 860G(a)(3).
4. Standard Certificate owned by a financial asset securitization
investment trust will be considered to represent "permitted
assets" within the meaning of Code Section 860(L)(c).
Premium and Discount
Standard Certificateholders are advised to consult with their tax advisors
as to the federal income tax treatment of premium and discount arising either
upon initial acquisition of Standard Certificates or thereafter.
Premium. The treatment of premium incurred upon the purchase of a Standard
Certificate will be determined generally as described under "--Federal Income
Tax Consequences for REMIC Certificates--Taxation of Residual
Certificates--Treatment of Certain Items of REMIC Income and Expense--Premium"
above.
Original Issue Discount. The original issue discount rules will be
applicable to a Standard Certificateholder's interest in those mortgage loans as
to which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount income are applicable to
mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate mortgagors (other than individuals) originated after July 1, 1982,
and mortgages of individuals originated after March 2, 1984. Under the OID
Regulations, the original issue discount could arise by the charging of points
by the originator of the mortgages in an amount greater than a statutory de
minimis exception, including a payment of points currently deductible by the
borrower under applicable Code provisions or, under certain circumstances, by
the presence of "teaser rates" on the mortgage loans.
Original issue discount must generally be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest, in advance of the cash attributable to that income.
Unless indicated otherwise in the applicable prospectus supplement, no
prepayment assumption will be assumed for purposes of that accrual. However,
Code Section 1272 provides for a reduction in the amount of original issue
discount includible in the income of a holder of an obligation that acquires the
obligation after its initial issuance at a price greater than the sum of the
original issue price and the previously accrued original issue discount, less
prior payments of principal. Accordingly, if the mortgage loans acquired by a
Standard Certificateholder are purchased at a price equal to the then unpaid
principal amount of the mortgage loans, no original issue discount attributable
to the difference between the issue price and the original principal amount of
the mortgage loans (i.e., points) will be includible by that holder.
Market Discount. Standard Certificateholders also will be subject to the
market discount rules to the extent that the conditions for application of those
sections are met. Market discount on the mortgage loans will be determined and
will be reported as ordinary income generally in the manner described under
"--Federal Income Tax Consequences for REMIC Certificates--Taxation of Regular
Certificates--Market Discount" above, except that the ratable accrual methods
described there will not apply and it is unclear whether a Prepayment Assumption
would apply. Rather, the holder will accrue market discount pro rata over the
life of the mortgage loans, unless the constant yield method is elected. Unless
indicated otherwise in the applicable prospectus supplement, no prepayment
assumption will be assumed for purposes of that accrual.
Recharacterization of Servicing Fees
If the servicing fee paid to the master servicer were deemed to exceed
reasonable servicing compensation, the amount of that excess would represent
neither income nor a deduction to certificateholders. In this regard, there are
no authoritative guidelines for federal income tax purposes as to either the
maximum amount of servicing compensation that may be considered reasonable in
the context of this or similar transactions or whether, in the case of the
Standard Certificate, the reasonableness of servicing compensation should be
determined on a weighted
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average or loan-by-loan basis. If a loan-by-loan basis is appropriate, the
likelihood that the amount would exceed reasonable servicing compensation as to
some of the mortgage loans would be increased. IRS guidance indicates that a
servicing fee in excess of reasonable compensation ("excess servicing") will
cause the mortgage loans to be treated under the "stripped bond" rules. That
guidance provides safe harbors for servicing deemed to be reasonable and
requires taxpayers to demonstrate that the value of servicing fees in excess of
those amounts is not greater than the value of the services provided.
Accordingly, if the IRS' approach is upheld, a servicer who receives a
servicing fee in excess of those amounts would be viewed as retaining an
ownership interest in a portion of the interest payments on the mortgage loans.
Under the rules of Code Section 1286, the separation of ownership of the right
to receive some or all of the interest payments on an obligation from the right
to receive some or all of the principal payments on the obligation would result
in treatment of those mortgage loans as "stripped coupons" and "stripped bonds".
Subject to the de minimis rule discussed under "--Stripped Certificates" below,
each stripped bond or stripped coupon could be considered for this purpose as a
non-interest bearing obligation issued on the date of issue of the Standard
Certificates, and the original issue discount rules of the Code would apply to
that holder. While Standard Certificateholders would still be treated as owners
of beneficial interests in a grantor trust for federal income tax purposes, the
corpus of the trust could be viewed as excluding the portion of the mortgage
loans the ownership of which is attributed to the master servicer, or as
including that portion as a second class of equitable interest. Applicable
Treasury regulations treat that arrangement as a fixed investment trust, since
the multiple classes of trust interests should be treated as merely facilitating
direct investments in the trust assets and the existence of multiple classes of
ownership interests is incidental to that purpose. In general, a
recharacterization should not have any significant effect upon the timing or
amount of income reported by a Standard Certificateholder, except that the
income reported by a cash method holder may be slightly accelerated. See
"--Stripped Certificates" below for a further description of the federal income
tax treatment of stripped bonds and stripped coupons.
Sale or Exchange of Standard Certificates
Upon sale or exchange of a Standard Certificate, a Standard
Certificateholder will recognize gain or loss equal to the difference between
the amount realized on the sale and its aggregate adjusted basis in the mortgage
loans and the other assets represented by the Standard Certificate. In general,
the aggregate adjusted basis will equal the Standard Certificateholder's cost
for the Standard Certificate, increased by the amount of any income previously
reported with respect to the Standard Certificate and decreased by the amount of
any losses previously reported with respect to the Standard Certificate and the
amount of any distributions received on those Standard Certificates. Except as
provided above with respect to market discount on any mortgage loans, and except
for certain financial institutions subject to the provisions of Code Section
582(c), that gain or loss would be capital gain or loss if the Standard
Certificate was held as a capital asset. However, gain on the sale of a Standard
Certificate will be treated as ordinary income (1) if a Standard Certificate is
held as part of a "conversion transaction" as defined in Code Section 1258(c),
up to the amount of interest that would have accrued on the Standard
Certificateholder's net investment in the conversion transaction at 120% of the
appropriate applicable Federal rate in effect at the time the taxpayer entered
into the transaction minus any amount previously treated as ordinary income with
respect to any prior disposition of property that was held as a part of that
transaction or (2) in the case of a non-corporate taxpayer, to the extent the
taxpayer has made an election under Code Section 163(d)(4) to have net capital
gains taxed as investment income at ordinary income rates. Long-term capital
gains of certain non-corporate taxpayers generally are subject to a lower
maximum tax rate (20%) than ordinary income or short-term capital gains of those
taxpayers (39.6%) for property held for more than one year. The maximum tax rate
for corporations is the same with respect to both ordinary income and capital
gains.
STRIPPED CERTIFICATES
General
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the principal payments on an obligation from ownership of
the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of this discussion,
certificates that are subject to those rules will be referred to as "Stripped
Certificates". Stripped Certificates include interest-only certificates entitled
to distributions of interest, with
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disproportionately small, nominal or no distributions of principal and
principal-only certificates entitled to distributions of principal, with
disproportionately small, nominal or no distributions of interest as to which no
REMIC election is made.
The certificates will be subject to those rules if (1) we or any of our
affiliates retain, for our own account or for purposes of resale, in the form of
fixed retained yield or otherwise, an ownership interest in a portion of the
payments on the mortgage loans, (2) the master servicer is treated as having an
ownership interest in the mortgage loans to the extent it is paid, or retains,
servicing compensation in an amount greater than reasonable consideration for
servicing the mortgage loans (see "--Standard Certificates--Recharacterization
of Servicing Fees" above) and (3) certificates are issued in two or more classes
or subclasses representing the right to non-pro-rata percentages of the interest
and principal payments on the mortgage loans.
In general, a holder of a Stripped Certificate will be considered to own
"stripped bonds" with respect to its pro rata share of all or a portion of the
principal payments on each mortgage loan and/or "stripped coupons" with respect
to its pro rata share of all or a portion of the interest payments on each
mortgage loan, including the Stripped Certificate's allocable share of the
servicing fees paid to the master servicer, to the extent that those fees
represent reasonable compensation for services rendered. See discussion under
"--Standard Certificates--Recharacterization of Servicing Fees" above. Although
not free from doubt, for purposes of reporting to Stripped Certificateholders,
the servicing fees will be allocated to the Stripped Certificates in proportion
to the respective entitlements to distributions of each class, or subclass, of
Stripped Certificates for the related period or periods. The holder of a
Stripped Certificate generally will be entitled to a deduction each year in
respect of the servicing fees, as described under "--Standard
Certificates--General" above, subject to the limitation described there.
Code Section 1286 treats a stripped bond or a stripped coupon as an
obligation issued at an original issue discount on the date that the stripped
interest is purchased. Although the treatment of Stripped Certificates for
federal income tax purposes is not clear in certain respects at this time,
particularly where the Stripped Certificates are issued with respect to a
Mortgage Pool containing variable-rate mortgage loans, in the opinion of
Cadwalader, Wickersham & Taft (1) the trust fund will be treated as a grantor
trust under subpart E, Part 1 of subchapter J of the Code and not as an
association taxable as a corporation or a "taxable mortgage pool" within the
meaning of Code Section 7701(i), and (2) each Stripped Certificate should be
treated as a single installment obligation for purposes of calculating original
issue discount and gain or loss on disposition. This treatment is based on the
interrelationship of Code Section 1286, Code Sections 1272 through 1275, and the
OID Regulations. While under Code Section 1286 computations with respect to
Stripped Certificates arguably should be made in one of the ways described under
"--Taxation of Stripped Certificates--Possible Alternative Characterizations"
below, the OID Regulations state, in general, that two or more debt instruments
issued by a single issuer to a single investor in a single transaction should be
treated as a single debt instrument for original issue discount purposes. The
Pooling Agreement requires that the trustee make and report all computations
described below using this aggregate approach, unless substantial legal
authority requires otherwise.
Furthermore, Treasury regulations issued December 28, 1992 provide for the
treatment of a Stripped Certificate as a single debt instrument issued on the
date it is purchased for purposes of calculating any original issue discount. In
addition, under these regulations, a Stripped Certificate that represents a
right to payments of both interest and principal may be viewed either as issued
with original issue discount or market discount, as described below, at a de
minimis original issue discount, or, presumably, at a premium. This treatment
suggests that the interest component of that Stripped Certificate would be
treated as qualified stated interest under the OID Regulations. Further, these
final regulations provide that the purchaser of a Stripped Certificate will be
required to account for any discount as market discount rather than original
issue discount if either (1) the initial discount with respect to the Stripped
Certificate was treated as zero under the de minimis rule, or (2) no more than
100 basis points in excess of reasonable servicing is stripped off the related
mortgage loans. This market discount would be reportable as described under
"--Federal Income Tax Consequences for REMIC Certificates--Taxation of Regular
Certificates--Market Discount" above, without regard to the de minimis rule
there, assuming that a prepayment assumption is employed in that computation.
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Status of Stripped Certificates
No specific legal authority exists as to whether the character of the
Stripped Certificates, for federal income tax purposes, will be the same as that
of the mortgage loans. Although the issue is not free from doubt, in the opinion
of Cadwalader, Wickersham & Taft Stripped Certificates owned by applicable
holders should be considered to represent "real estate assets" within the
meaning of Code Section 856(c)(4)(A), "obligation[s] principally secured by an
interest in real property" within the meaning of Code Section 860G(a)(3)(A), and
"loans . . . secured by an interest in real property which is . . . residential
real property" within the meaning of Code Section 7701(a)(19)(C)(v), and
interest (including original issue discount) income attributable to Stripped
Certificates should be considered to represent "interest on obligations secured
by mortgages on real property" within the meaning of Code Section 856(c)(3)(B),
provided that in each case the mortgage loans and interest on those mortgage
loans qualify for that treatment.
Taxation of Stripped Certificates
Original Issue Discount. Except as described under "--General" above, each
Stripped Certificate will be considered to have been issued at an original issue
discount for federal income tax purposes. Original issue discount with respect
to a Stripped Certificate must be included in ordinary income as it accrues, in
accordance with a constant interest method that takes into account the
compounding of interest, which may be prior to the receipt of the cash
attributable to that income. Based in part on the OID Regulations and the
amendments to the original issue discount sections of the Code made by the
Reform Act, the amount of original issue discount required to be included in the
income of a holder of a Stripped Certificate (referred to in this discussion as
a "Stripped Certificateholder") in any taxable year likely will be computed
generally as described under "--Federal Income Tax Consequences for REMIC
Certificates--Taxation of Regular Certificates--Original Issue Discount" and
"--Variable Rate Regular Certificates" above. However, with the apparent
exception of a Stripped Certificate qualifying as a market discount obligation,
as described under "--General" above, the issue price of a Stripped Certificate
will be the purchase price paid by each holder of the Stripped Certificate, and
the stated redemption price at maturity will include the aggregate amount of the
payments, other than qualified stated interest to be made on the Stripped
Certificate to that Stripped Certificateholder, presumably under the Prepayment
Assumption.
If the mortgage loans prepay at a rate either faster or slower than that
under the Prepayment Assumption, a Stripped Certificateholder's recognition of
original issue discount will be either accelerated or decelerated and the amount
of the original issue discount will be either increased or decreased depending
on the relative interests in principal and interest on each mortgage loan
represented by that Stripped Certificateholder's Stripped Certificate. While the
matter is not free from doubt, the holder of a Stripped Certificate should be
entitled in the year that it becomes certain, assuming no further prepayments,
that the holder will not recover a portion of its adjusted basis in that
Stripped Certificate to recognize an ordinary loss equal to that portion of
unrecoverable basis.
As an alternative to the method described above, the fact that some or all
of the interest payments with respect to the Stripped Certificates will not be
made if the mortgage loans are prepaid could lead to the interpretation that the
interest payments are "contingent" within the meaning of the OID Regulations.
The OID Regulations, as they relate to the treatment of contingent interest, are
by their terms not applicable to prepayable securities such as the Stripped
Certificates. However, if final regulations dealing with contingent interest
with respect to the Stripped Certificates apply the same principles as the OID
Regulations, those regulations may lead to different timing of income inclusion
that would be the case under the OID Regulations. Furthermore, application of
those principles could lead to the characterization of gain on the sale of
contingent interest Stripped Certificates as ordinary income. Investors should
consult their tax advisors regarding the appropriate tax treatment of Stripped
Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a Stripped
Certificate prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in that Stripped Certificate, as described
under "--Federal Income Tax Consequences for REMIC Certificates--Taxation of
Regular Certificates--Sale or Exchange of Regular Certificates" above. To the
extent that a subsequent purchaser's purchase price is exceeded by the remaining
payments on the Stripped Certificates, that subsequent purchaser will be
required for federal income tax purposes to accrue and report that excess as if
it were original issue discount in the manner described above. It is not clear
for this purpose whether the assumed prepayment rate that is to be used in the
case of a Stripped Certificateholder other
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than an original Stripped Certificateholder should be the Prepayment Assumption
or a new rate based on the circumstances at the date of subsequent purchase.
Purchase of More Than One Class of Stripped Certificates. Where an
investor purchases more than one class of Stripped Certificates, it is currently
unclear whether for federal income tax purposes those classes of Stripped
Certificates should be treated separately or aggregated for purposes of the
rules described above.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates discussed above are not the only possible interpretations
of the applicable Code provisions. For example, the Stripped Certificateholder
may be treated as the owner of
1. one installment obligation consisting of that Stripped
Certificate's pro rata share of the payments attributable to
principal on each mortgage loan and a second installment
obligation consisting of that Stripped Certificate's pro rata
share of the payments attributable to interest on each
mortgage loan,
2. as many stripped bonds or stripped coupons as there are
scheduled payments of principal and/or interest on each
mortgage loan or
3. a separate installment obligation for each mortgage loan,
representing the Stripped Certificate's pro rata share of
payments of principal and/or interest to be made with respect
thereto.
Alternatively, the holder of one or more classes of Stripped Certificates
may be treated as the owner of a pro rata fractional undivided interest in each
mortgage loan to the extent that the Stripped Certificate, or classes of
Stripped Certificates in the aggregate, represent the same pro rata portion of
principal and interest on that mortgage loan, and a stripped bond or stripped
coupon (as the case may be), treated as an installment obligation or contingent
payment obligation, as to the remainder. Final regulations issued on December
28, 1992 regarding original issue discount on stripped obligations make the
foregoing interpretations less likely to be applicable. The preamble to those
regulations states that they are premised on the assumption that an aggregation
approach is appropriate for determining whether original issue discount on a
stripped bond or stripped coupon is de minimis, and solicits comments on
appropriate rules for aggregating stripped bonds and stripped coupons under Code
Section 1286.
Because of these possible varying characterizations of Stripped
Certificates and the resultant differing treatment of income recognition,
Stripped Certificateholders are urged to consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income tax
purposes.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The trustee will furnish, within a reasonable time after the end of each
calendar year, to each Standard Certificateholder or Stripped Certificateholder
at any time during that year, the information, prepared on the basis described
above, as the trustee deems to be necessary or desirable to enable those
certificateholders to prepare their federal income tax returns. The information
will include the amount of original issue discount accrued on certificates held
by persons other than certificateholders exempted from the reporting
requirements. The amounts required to be reported by the trustee may not be
equal to the proper amount of original issue discount required to be reported as
taxable income by a certificateholder, other than an original certificateholder
that purchased at the issue price. In particular, in the case of Stripped
Certificates, unless provided otherwise in the applicable prospectus supplement,
the reporting will be based upon a representative initial offering price of each
class of Stripped Certificates. The trustee will also file the original issue
discount information with the IRS. If a certificateholder fails to supply an
accurate taxpayer identification number or if the Secretary of the Treasury
determines that a certificateholder has not reported all interest and dividend
income required to be shown on his federal income tax return, 31% backup
withholding may be required in respect of any reportable payments, as described
under "--Federal Income Tax Consequences for REMIC Certificates--Backup
Withholding" above.
TAXATION OF CERTAIN FOREIGN INVESTORS
To the extent that a certificate evidences ownership in mortgage loans
that are issued on or before July 18, 1984, interest or original issue discount
paid by the person required to withhold tax under Code Section 1441 or
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1442 to nonresident aliens, foreign corporations, or other Non-U.S. Persons
generally will be subject to 30% United States withholding tax, or a lower rate
as may be provided for interest by an applicable tax treaty. Accrued original
issue discount recognized by the Standard Certificateholder or Stripped
Certificateholder on original issue discount recognized by the Standard
Certificateholder or Stripped Certificateholders on the sale or exchange of that
certificate also will be subject to federal income tax at the same rate.
Treasury regulations provide that interest or original issue discount paid
by the trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in mortgage loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and those persons will
be subject to the same certification requirements, described under "--Federal
Income Tax Consequences for REMIC Certificates--Taxation of Certain Foreign
Investors--Regular Certificates" above.
STATE AND OTHER TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences" above, you should consider the state and local
tax consequences of the acquisition, ownership, and disposition of the offered
certificates. State tax law may differ substantially from the corresponding
federal law, and the discussion above does not purport to describe any aspect of
the tax laws of any state or other jurisdiction. Thus, you should consult your
own tax advisors with respect to the various tax consequences of investments in
the offered certificates.
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CERTAIN ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended, or ERISA,
and the Code impose certain requirements on retirement plans, and on certain
other employee benefit plans and arrangements, including individual retirement
accounts and annuities, Keogh plans, collective investment funds, insurance
company separate accounts and some insurance company general accounts in which
those plans, accounts or arrangements are invested that are subject to the
fiduciary responsibility provisions of ERISA and Section 4975 of the Code (all
of which are referred to as "Plans"), and on persons who are fiduciaries with
respect to Plans, in connection with the investment of Plan assets. Certain
employee benefit plans, such as governmental plans (as defined in ERISA Section
3(32)), and, if no election has been made under Section 410(d) of the Code,
church plans (as defined in Section 3(33) of ERISA) are not subject to ERISA
requirements. Accordingly, assets of those plans may be invested in offered
certificates without regard to the ERISA considerations described below, subject
to the provisions of other applicable federal and state law. Any of these plans
which are qualified and exempt from taxation under Sections 401(a) and 501(a) of
the Code, however, are subject to the prohibited transaction rules set forth in
Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, ERISA and the Code prohibit a broad range of
transactions involving assets of a Plan and persons ("Parties in Interest") who
have certain specified relationships to the Plan, unless a statutory or
administrative exemption is available. Certain Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant to Section 4975 of the Code, unless a statutory or administrative
exemption is available. These prohibited transactions generally are set forth in
Section 406 of ERISA and Section 4975 of the Code. Special caution should be
exercised before the assets of a Plan are used to purchase a certificate if,
with respect to those assets, the Depositor, the master servicer or the trustee
or one of their affiliates, either: (a) has investment discretion with respect
to the investment of those assets of that Plan; or (b) has authority or
responsibility to give, or regularly gives, investment advice with respect to
those assets for a fee and pursuant to an agreement or understanding that the
advice will serve as a primary basis for investment decisions with respect to
those assets and that the advice will be based on the particular investment
needs of the Plan.
Before purchasing any offered certificates, a Plan fiduciary should
consult with its counsel and determine whether there exists any prohibition to
that purchase under the requirements of ERISA, whether any prohibited
transaction class-exemption or any individual administrative prohibited
transaction exemption (as described below) applies, including whether the
appropriate conditions set forth in those exemptions would be met, or whether
any statutory prohibited transaction exemption is applicable, and further should
consult the applicable prospectus supplement relating to that series of
certificates.
PLAN ASSET REGULATIONS
A Plan's investment in certificates may cause the Trust Assets to be
deemed Plan assets. Section 2510.3-101 of the regulations of the United States
Department of Labor ("DOL") provides that when a Plan acquires an equity
interest in an entity, the Plan's assets include both the equity interest and an
undivided interest in each of the underlying assets of the entity, unless
certain exceptions not applicable to this discussion apply, or unless the equity
participation in the entity by "benefit plan investors" (that is, Plans and
certain employee benefit plans not subject to ERISA) is not "significant". For
this purpose, in general, equity participation in a trust fund will be
"significant" on any date if, immediately after the most recent acquisition of
any certificate, 25% or more of any class of certificates is held by benefit
plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to those assets for a fee, is a fiduciary of the investing
Plan. If the Trust Assets constitute Plan assets, then any party exercising
management or discretionary control regarding those assets, such as a master
servicer, a special servicer or any sub-servicer, may be deemed to be a Plan
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"fiduciary" with respect to the investing Plan, and thus subject to the
fiduciary responsibility provisions and prohibited transaction provisions of
ERISA and the Code. In addition, if the Trust Assets constitute Plan assets, the
purchase of certificates by a Plan, as well as the operation of the trust fund,
may constitute or involve a prohibited transaction under ERISA and the Code.
ADMINISTRATIVE EXEMPTIONS
Several underwriters of mortgage-backed securities have applied for and
obtained individual administrative ERISA prohibited transaction exemptions (the
"Exemptions") which can only apply to the purchase and holding of
mortgage-backed securities which, among other conditions, are sold in an
offering with respect to which that underwriter serves as the sole or a managing
underwriter, or as a selling or placement agent. If that exemption might be
applicable to a series of certificates, the related prospectus supplement will
refer to the possibility, as well as provide a summary of the conditions to the
applicability.
In considering an investment in the offered certificates, a Plan fiduciary
also should consider the availability of prohibited transaction class exemptions
promulgated by the DOL including, among others, Prohibited Transaction Class
Exemption ("PTCE") 75-1, which exempts certain transactions between Plans and
broker/dealers, reporting dealers and banks; PTCE 90-1, which exempts certain
transactions between insurance company separate accounts and Parties in
Interest; PTCE 91-38, which exempts certain transactions between bank collective
investment funds and Parties in Interest; PTCE 84-14, which exempts certain
transactions effected on behalf of a Plan by a "qualified professional asset
manager"; PTCE 95-60, which exempts certain transactions between insurance
company general accounts and Parties in Interest; and PTCE 96-23, which exempts
certain transactions effected on behalf of a Plan by an "in-house asset
manager." We cannot assure you that any of these class exemptions will apply
with respect to any particular Plan investment in the certificates or, even if
it were deemed to apply, that any exemption would apply to all prohibited
transactions that may occur in connection with that investment. The prospectus
supplement with respect to a series of certificates may contain additional
information regarding the availability of other exemptions with respect to the
certificates offered thereby.
INSURANCE COMPANY GENERAL ACCOUNTS
Section III of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")
exempts from the application of the prohibited transaction provisions of
Sections 406(a), 406(b) and 407(a) of ERISA and Section 4975 of the Code
transaction in connection with the servicing, management and operation of a
trust (such as the trust fund) in which an insurance company general account has
an interest as a result of its acquisition of certificates issued by the trust,
provided that certain conditions are satisfied. If these conditions are met,
insurance company general accounts would be allowed to purchase certain classes
of certificates which do not meet the requirements of the Exemptions solely
because they (1) are subordinated to other classes of certificates issued by the
trust fund and/or (2) have not received a rating at the time of the acquisition
in one of the three highest rating categories from Standard & Poor's Ratings
Services, a division of The McGraw Hill Companies, Inc., Moody's Investors
Service, Inc., Duff & Phelps Credit Rating Co. or Fitch IBCA, Inc. All other
conditions of the Exemptions would have to be satisfied in order for PTCE 95-60
to be available. Before purchasing that class of certificates, an insurance
company general account seeking to rely on Section III of PTCE 95-60 should
itself confirm that all applicable conditions and other requirements have been
satisfied.
The Small Business Job Protection Act of 1996 added a new Section 401(c)
to ERISA, which provides certain exemptive relief from the provisions of Part 4
of Title I of ERISA and Section 4975 of the Code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the Code, for transactions involving an insurance company general account.
Pursuant to Section 401(c) of ERISA, the DOL was required to issue regulations
("401(c) Regulations") to provide guidance for the purpose of determining, in
cases where insurance policies supported by an insured'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. On January 5, 2000, the DOL
published the 401(c) Regulations. Section 401(c) of ERISA generally provides
that, until the date which is 18 months after the 401(c) Regulations become
final, no person shall be subject to liability under Part 4 of Tile 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, unless (1) as
otherwise provided by the Secretary of Labor in the 401(c) Regulations to
prevent avoidance of the regulations or (2) an action is brought by the
Secretary of Labor for certain breaches of
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fiduciary duty which would also constitute a violation of federal or state
criminal law. Any assets of an insurance company general account which support
insurance policies issued to a Plan after December 31, 1998 or issued to Plans
on or before December 31, 1998 for which the insurance company does not comply
with the 401(c) Regulations may be treated as Plan assets. In addition, because
Section 401(c) does not relate to insurance company separate accounts, separate
account assets are still treated as Plan assets of any Plan invested in that
separate account. Insurance companies contemplating the investment of general
account assets in the offered certificates should consult with their legal
counsel with respect to the applicability of Section 401(c) of ERISA, including
the general account's ability to continue to hold the offered certificates after
the date which is 18 months after the date the 401(c) Regulations became final.
UNRELATED BUSINESS TAXABLE INCOME; RESIDUAL CERTIFICATES
The purchase of a Residual Certificate by any employee benefit plan
qualified under Code Section 401(a) and exempt from taxation under Code Section
501(a), including most varieties of Plans, may give rise to "unrelated business
taxable income" as described in Code Sections 511-515 and 860E. Further, prior
to the purchase of Residual Certificates, a prospective transferee may be
required to provide an affidavit to a transferor that it is not, nor is it
purchasing a Residual Certificate on behalf of, a "Disqualified Organization,"
which term as defined above includes certain tax-exempt entities not subject to
Code Section 511 including certain governmental plans, as discussed above under
the caption "Certain Federal Income Tax Consequences--Federal Income Tax
Consequences for REMIC Certificates--Taxation of Residual
Certificates--Tax-Related Restrictions on Transfer of Residual
Certificates--Disqualified Organizations."
Due to the complexity of these rules and the penalties imposed upon
persons involved in prohibited transactions, it is particularly important that
potential investors who are Plan fiduciaries consult with their counsel
regarding the consequences under ERISA of their acquisition and ownership of
certificates.
The sale of certificates to an employee benefit plan is in no respect a
representation by the Depositor or the underwriter that this investment meets
all relevant legal requirements with respect to investments by plans generally
or by any particular plan, or that this investment is appropriate for plans
generally or for any particular plan.
LEGAL INVESTMENT
The offered certificates will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended
("SMMEA"), only if so specified in the related prospectus supplement. The
appropriate characterization of those certificates not qualifying as "mortgage
related securities" ("Non-SMMEA Certificates") under various legal investment
restrictions, and thus the ability of investors subject to these restrictions to
purchase those certificates, may be subject to significant interpretive
uncertainties. Accordingly, investors whose investment authority is subject to
legal restrictions should consult their own legal advisors to determine whether
and to what extent the Non-SMMEA Certificates constitute legal investments for
them.
Generally, only classes of offered certificates that (1) are rated in one
of the two highest rating categories by one or more rating agencies and (2) are
part of a series evidencing interests in a trust fund consisting of loans
secured by first liens and originated by certain types of originators as
specified in SMMEA, will be "mortgage related securities" for purposes of SMMEA.
As "mortgage related securities," those classes will constitute legal
investments for persons, trusts, corporations, partnerships, associations,
business trusts and business entities, including 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 of its
agencies or instrumentalities constitute legal investments for those entities.
Under SMMEA, a number of states enacted legislation, on or prior to the
October 3, 1991 cut-off for those enactments, limiting to various extents the
ability of certain entities (in particular, insurance companies) to invest in
"mortgage related securities" secured by liens on residential, or mixed
residential and commercial properties, in most cases by requiring the affected
investors to rely solely upon existing state law, and not SMMEA. Pursuant to
Section 347 of the Riegle Community Development and Regulatory Improvement Act
of 1994, which amended the
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definition of "mortgage related security" to include, in relevant part, offered
certificates satisfying the rating and qualified originator requirements for
"mortgage related securities," but evidencing interests in a trust fund
consisting, in whole or in part, of first liens on one or more parcels of real
estate upon which are located one or more commercial structures, states were
authorized to enact legislation, on or before September 23, 2001, specifically
referring to Section 347 and prohibiting or restricting the purchase, holding or
investment by state-regulated entities in those types of offered certificates.
Section 347 also provides that the enactment by a state of any of those
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 that state legislation. Accordingly, the investors affected by any
of that kind of state legislation, when and if enacted, will be authorized to
invest in offered certificates qualifying as "mortgage related securities" only
to the extent provided in that legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage related
securities" without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in those securities, and national
banks may purchase those securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
ss. 24 (Seventh), subject in each case to those 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 in 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 (the "NCUA") has adopted rules, codified at 12 C.F.R. Part 703,
which permit federal credit unions to invest in "mortgage related securities"
under certain limited circumstances, other than stripped mortgage related
securities, residual interests in mortgage related securities, and commercial
mortgage related securities, unless the credit union has obtained written
approval 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 OCC, the Federal
Deposit Insurance Corporation 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 those authorities before purchasing any offered
certificates, as certain classes may be deemed unsuitable investments, or may
otherwise be restricted, under those 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
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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.
Except as to the status of certain classes of offered certificates as
"mortgage related securities," no representations are made as to the proper
characterization of offered certificates for legal investment purposes,
financial institution regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase offered certificates under
applicable legal investment restrictions. The uncertainties described above (and
any unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the offered certificates) may
adversely affect the liquidity of the offered certificates.
Accordingly, all investors whose investment activities are subject to
legal investment laws and regulations, regulatory capital requirements or review
by regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the offered certificates of any class
constitute legal investments or are subject to investment, capital or other
restrictions, and, if applicable, whether SMMEA has been overridden in any
jurisdiction relevant to that investor.
METHOD OF DISTRIBUTION
The offered certificates offered by this prospectus and by the related
prospectus supplements will be offered in series through one or more of the
methods described below. The prospectus supplement prepared for each series will
describe the method of offering being utilized for that series and will state
our net proceeds from that sale.
We intend that offered certificates will be offered through the following
methods from time to time and that offerings may be made concurrently through
more than one of these methods or that an offering of a particular series of
certificates may be made through a combination of two or more of these methods.
Those methods are as follows:
1. by negotiated firm commitment underwriting and public offering
by one or more underwriters specified in the related
prospectus supplement;
2. by placements through one or more placement agents specified
in the related prospectus supplement primarily with
institutional investors and dealers; and
3. through direct offerings by the Depositor.
If underwriters are used in a sale of any offered certificates (other than
in connection with an underwriting on a best efforts basis), those certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment. The managing
underwriter or underwriters with respect to the offer and sale of a particular
series of certificates will be set forth in the cover of the prospectus
supplement relating to that series and the members of the underwriting
syndicate, if any, will be named in that prospectus supplement.
In connection with the sale of the offered certificates, underwriters may
receive compensation from us or from purchasers of the offered certificates in
the form of discounts, concessions or commissions. Underwriters and dealers
participating in the distribution of the offered certificates may be deemed to
be underwriters in connection with those offered certificates, and any discounts
or commissions received by them from us and any profit on the resale of offered
certificates by them may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended (the "Securities Act").
It is anticipated that the underwriting agreement pertaining to the sale
of any series of certificates will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all offered certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that we will indemnify the several underwriters, and each person, if
any, who controls that underwriter within the meaning of Section 15 of the
Securities Act, against certain civil liabilities, including liabilities under
the Securities Act, or will contribute to payments required to be made in
respect of these liabilities.
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The prospectus supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of that offering
and any agreements to be entered into between us and purchasers of offered
certificates of that series.
We anticipate that the offered certificates offered by this prospectus and
the related prospectus supplement will be sold primarily to institutional
investors. Purchasers of offered certificates, including dealers, may, depending
on the facts and circumstances of those purchases, be deemed to be
"underwriters" within the meaning of the Securities Act in connection with
reoffers and sales by them of offered certificates. You should consult with your
legal advisors in this regard prior to any similar 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 by this
prospectus. We may initially retain any unrated class and we may sell it at any
time to one or more institutional investors.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
With respect to each series of certificates offered by this prospectus,
there are incorporated in this prospectus and in the related prospectus
supplement 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 Securities Exchange Act of 1934, that relate specifically to the
related series of certificates. The Depositor will provide or cause to be
provided without charge to each person to whom this prospectus is delivered in
connection with the offering of one or more classes of offered certificates,
upon written or oral request of that person, a copy of any or all documents or
reports incorporated in this prospectus by reference, in each case to the extent
the documents or reports relate to one or more of the classes of offered
certificates, other than the exhibits to those documents (unless the exhibits
are specifically incorporated by reference in those documents). Requests to the
Depositor should be directed in writing to its principal executive offices at
292 Long Ridge Road, Stamford, Connecticut 06927, Attention: President, or by
telephone at (203) 357-4000. The Depositor has determined that its financial
statements will not be material to the offering of any Offered Certificates.
The Depositor filed a registration statement (the "Registration
Statement") relating to the certificates with the Securities and Exchange
Commission. This prospectus is part of the Registration Statement, but the
Registration Statement includes additional information.
Copies of the Registration Statement may be obtained from the Public
Reference Section of the Securities and Exchange Commission, Washington, D.C.
20549, upon payment of the prescribed charges, or may be examined free of charge
at the Securities and Exchange Commission's offices, 450 Fifth Street N.W.,
Washington, D.C. 20549 or at the regional offices of the Securities and Exchange
Commission located at Suite 1300, 7 World Trade Center, New York, New York 10048
and Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661-2511. The Securities and Exchange Commission also maintains a site on the
World Wide Web at "http://www.sec.gov" at which you can view and download copies
of reports, proxy and information statements and other information filed
electronically through the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system. The Depositor has filed the Registration Statement, including
all exhibits thereto, through the EDGAR system, so the materials should be
available by logging onto the Securities and Exchange Commission's Web site. The
Securities and Exchange Commission maintains computer terminals providing access
to the EDGAR system at each of the offices referred to above.
LEGAL MATTERS
The validity of the certificates of each series and certain federal income
tax matters will be passed upon for us by Cadwalader, Wickersham & Taft, New
York, New York.
FINANCIAL INFORMATION
A new trust fund will be formed with respect to each series of
certificates, and no trust fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
certificates.
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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 at least one rating agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders of those certificates of all collections on the
underlying mortgage assets to which those holders are entitled. These ratings
address the structural, legal and issuer-related aspects associated with those
certificates, the nature of the underlying mortgage assets and the credit
quality of the guarantor, if any. Ratings on mortgage pass-through certificates
do not represent any assessment of the likelihood of principal prepayments by
borrowers or of the degree by which those prepayments might differ from those
originally anticipated. As a result, you 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
1998 Policy Statement........................................................102
401(c) Regulations...........................................................100
Accrual Certificates..........................................................37
Accrued Certificate Interest..................................................37
ADA...........................................................................71
ARM Loans.....................................................................26
Available Distribution Amount.................................................36
Bankruptcy Code...............................................................63
Book-Entry Certificates.......................................................36
capital asset.................................................................79
Cash Flow Agreement...........................................................28
Certificate Owner.............................................................42
Code..........................................................................41
Constant Prepayment Rate......................................................31
Cooperatives..................................................................23
CPR...........................................................................31
Debt Service Coverage Ratio...................................................24
Definitive Certificates.......................................................36
Depositor..................................................................6, 23
Determination Date............................................................29
Direct Participants...........................................................42
Disqualified Organization.....................................................85
Distribution Date Statement...................................................39
DOL...........................................................................99
DTC...........................................................................36
Due Dates.....................................................................25
Due Period....................................................................29
EDGAR........................................................................104
Equity Participation..........................................................26
Events of Default.............................................................54
Excess Funds..................................................................34
excess servicing..............................................................94
Exemptions...................................................................100
FAMC..........................................................................27
FHLMC.........................................................................27
FNMA..........................................................................27
Garn Act......................................................................69
GNMA..........................................................................27
Indirect Participants.........................................................42
Insurance and Condemnation Proceeds ......................................... 47
L/C Bank......................................................................59
Liquidation Proceeds..........................................................47
Loan-to-Value Ratio...........................................................24
Lock-out Date.................................................................25
Lock-out Period...............................................................25
Mark to Market Regulations....................................................87
market discount...............................................................78
master servicer................................................................6
MBS...........................................................................23
MBS Agreement.................................................................27
MBS Issuer....................................................................27
MBS Servicer..................................................................27
MBS Trustee...................................................................27
Mortgage Asset Seller.........................................................23
Mortgage Notes................................................................23
Mortgaged Properties..........................................................23
Mortgages.....................................................................23
NCUA.........................................................................102
Net Leases....................................................................24
Net Operating Income..........................................................24
New Regulations...............................................................89
Nonrecoverable Advance........................................................39
Non-SMMEA Certificates.......................................................101
Non-U.S. Person...............................................................89
OCC..........................................................................102
OID Regulations...............................................................75
OTS..........................................................................102
Participants..................................................................42
Parties in Interest...........................................................99
Permitted Investments.........................................................47
Plans.........................................................................99
Pooling Agreement.............................................................44
Prepayment Assumption.........................................................76
Prepayment Interest Shortfall.................................................29
Prepayment Premium............................................................25
PTCE.........................................................................100
PTCE 95-60...................................................................100
Random Lot Certificates.......................................................75
Record Date...................................................................37
Reform Act....................................................................74
Registration Statement.......................................................104
Regular Certificateholder.....................................................75
Regular Certificates..........................................................72
Related Proceeds..............................................................39
Relief Act....................................................................70
REMIC.........................................................................11
REMIC Certificates............................................................72
REMIC Pool....................................................................72
REMIC Regulations.............................................................72
REO Property..................................................................46
Residual Certificateholders...................................................81
Residual Certificates.........................................................37
RICO..........................................................................71
SBJPA of 1996.................................................................73
secured-creditor exemption....................................................68
Securities Act...............................................................103
Senior Certificates...........................................................36
Servicing Standard............................................................46
SMMEA........................................................................101
SPA...........................................................................31
Standard Certificateholder....................................................92
Standard Certificates.........................................................92
Standard Prepayment Assumption................................................31
Startup Day...................................................................73
106
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Stripped Certificates.........................................................94
Subordinate Certificates......................................................36
Sub-Servicing Agreement.......................................................46
thrift institutions...........................................................84
Title V.......................................................................69
Treasury......................................................................72
U.S. Person...................................................................86
Value.........................................................................24
Warranting Party..............................................................45
107
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The approximate expenses expected to be incurred in connection with
the issuance and distribution of the Certificates being registered, other than
underwriting compensation, are set forth below.
SEC Registration Fee............... $ 528,000
Printing and Engraving Fees........ $ 130,000*
Legal Fees and Expenses............ $ 350,000*
Accounting Fees and Expenses....... 75,000*
Trustee Fees and Expenses.......... 100,000*
Rating Agency Fees................. $1,600,000*
Miscellaneous...................... $ 250,000
----------
Total......................... $3,033,000
==========
-------------
* Based on the offering of a single series of Certificates.
Item 15. Indemnification of Directors and Officers.
Under Section 7 of the proposed form of Underwriting Agreement, the
Underwriters are obligated under certain circumstances to indemnify certain
controlling persons of the Depositor against certain liabilities, including
liabilities under the Securities Act of 1933.
The By-laws of the Depositor provide, in effect, that to the full
extent permitted by law, the Depositor shall indemnify and hold harmless each
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether or not by or in the right
of the Depositor, by reason of the fact that he is or was a director or officer,
or his testator or intestate is or was a director or officer of the Depositor,
or by reason of the fact that such person is or was serving at the request of
the Depositor as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise of any type or kind,
domestic or foreign, against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement, actually and reasonably incurred as a
result of such action, suit or proceeding.
Subsection (a) of Section 145 of the General Corporation Law of
Delaware empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
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<PAGE>
Subsection (b) of Section 145 of the General Corporation Law of
Delaware empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that such person acted in any of the capacities set forth
above, against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification may be made in respect to any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
Section 145 of the General Corporation Law of Delaware further
provides that to the extent a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding referred to in subsections (a) and (b), or in the
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification and advancement of expenses provided
by, or granted pursuant to, Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and empowers the
corporation to purchase and maintain insurance on behalf of a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145.
An affiliate of the Depositor maintains liability insurance covering
the directors and principal officers of the Depositor.
The Pooling and Servicing Agreements will provide that, with the
exceptions stated above, a director, officer, employee or agent of the Depositor
is entitled to be indemnified against any loss, liability or expense incurred in
connection with the Pooling and Servicing Agreements and related Certificates,
except for those incurred by reason of such person's own willful misfeasance,
bad faith or negligence in the performance of obligations and duties under such
Pooling and Servicing Agreements.
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<PAGE>
Item 16. Exhibits.
*1.1 Form of Underwriting Agreement.
*4.1 Form of Pooling and Servicing Agreement.
*5.1 Opinion of Cadwalader, Wickersham & Taft as to legality of
the Certificates.
*8.1 Opinion of Cadwalader, Wickersham & Taft as to certain tax
matters (included in Exhibit 5.1).
*23.1 Consent of Cadwalader, Wickersham & Taft (included as part
of Exhibit 5.1).
*24.1 Powers of Attorney.
* Previously Filed.
Item 17. Undertakings.
A. Undertaking Pursuant to Rule 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement; and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change of such
information in the Registration Statement; provided, however, that paragraphs
(i) and (ii) do not apply if the information required to be included in the
post-effective amendment is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to Section 13 or Section
15(d) of the Securities Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
B. Undertaking in connection with incorporation by reference of certain
filings under the Securities Exchange Act of 1934.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
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<PAGE>
C. Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 15 above,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted against the Registrant by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, GE
Capital Commercial Mortgage Corporation certifies that it has reasonable grounds
to believe that it meets all of the requirements for filing on Form S-3 and has
duly caused this Pre-effective Amendment No. 2 to this Form S-3 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 18th day of October, 2000.
GE CAPITAL COMMERCIAL MORTGAGE
CORPORATION
By: *
------------------------------------
Kathy Cassidy
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS PRE-EFFECTIVE AMENDMENT NO. 2 TO THIS FORM S-3 REGISTRATION STATEMENT HAS
BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
Signature Capacity Date
--------- -------- ----
* President and Chief October 18, 2000
------------------------ Executive Officer;
Kathy Cassidy Director
* Treasurer and Chief October 18, 2000
------------------------ Financial Officer
Greg Hanson
/s/ Daniel J. Vinson
------------------------
*Daniel J. Vinson
as Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
*1.1 Form of Underwriting Agreement.
*4.1 Form of Pooling and Servicing Agreement.
*5.1 Opinion of Cadwalader, Wickersham & Taft as to
legality of the Certificates.
*8.1 Opinion of Cadwalader, Wickersham & Taft as to certain
tax matters (included in Exhibit 5.1).
*23.1 Consent of Cadwalader, Wickersham & Taft (included as
part of Exhibit 5.1).
*24.1 Powers of Attorney.
------------------------
* Previously filed.
