++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
THIS DOCUMENT IS A COPY OF THE PROSPECTUS SUPPLEMENT AND ACCOMPANYING
PROSPECTUS, EACH DATED MARCH 20, 1997, FILED ON MARCH 28, 1997 PURSUANT TO A
RULE 201 TEMPORARY HARDSHIP EXEMPTION.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Filed pursuant to Rule 424(b)(5)
Commission File No. 33-46723
PROSPECTUS SUPPLEMENT
(To Prospectus dated March 20, 1997)
$563,777,484 (Approximate)
Morgan Stanley Capital I Inc.
as Depositor
CONTITRADE SERVICES L.L.C. and
MORGAN STANLEY MORTGAGE CAPITAL INC.
as Mortgage Loan Sellers
GMAC COMMERCIAL MORTGAGE CORPORATION
as Master Servicer, Special Servicer and Mortgage Loan Seller
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1997-C1
----------
The Series 1997-C1 Commercial Mortgage Pass-Through Certificates (the
"Certificates") will consist of 17 classes (each, a "Class") of Certificates:
(i) the Class A-1A, Class A-1B, Class A-1C and Class A-2 Certificates
(collectively, the "Class A Certificates"); (ii) the Class IO-1 and Class IO-2
Certificates (collectively, the "Class IO Certificates" or the "Interest Only
Certificates" and, collectively with the Class A Certificates, the "Senior
Certificates"); (iii) the Class B, Class C, Class D, Class E, Class F, Class G,
Class H and Class J Certificates (collectively, the "Subordinate Certificates"
and, collectively with the Senior Certificates, the "REMIC Regular
Certificates"); and (iv) the Class R-I, Class R-II and Class R-III Certificates
(collectively, the "REMIC Residual Certificates"). Only the Class A-1A, Class
A-1B, Class A-1C, Class A-2, Class IO-1, Class IO-2, Class B, Class C, Class D
and Class E Certificates (collectively, the "Offered Certificates") are offered
hereby. It is a condition to their issuance that the respective Classes of
Offered Certificates be assigned ratings by Duff & Phelps Credit Rating Co.
("DCR") and/or by Moody's Investors Service, Inc. ("Moody's" and, together with
DCR, the "Rating Agencies") as set forth in the table below. Each Class of
Offered Certificates will be issued with the aggregate principal balance (the
aggregate "Certificate Balance") or aggregate notional amount (the aggregate
"Notional Amount"), and will accrue interest (initially, in the case of the
Class A-2 Certificates and the Interest Only Certificates) at the per annum rate
(the "Pass-Through Rate"), set forth in the table below.
The Certificates will evidence the entire beneficial ownership interest in
a trust fund (the "Trust Fund") to be established by Morgan Stanley Capital I
Inc. (the "Depositor") pursuant to a Pooling and Servicing Agreement, to be
dated as of March 1, 1997 (the "Pooling and Servicing Agreement"), among the
Depositor, GMAC Commercial Mortgage Corporation as master servicer (in such
capacity, the "Master Servicer") and as special servicer (in such capacity, the
"Special Servicer"), LaSalle National Bank as trustee (the "Trustee") and ABN
AMRO Bank N.V. as fiscal agent (the "Fiscal Agent"). Distributions on the
Certificates will be payable solely from the assets transferred to the Trust
Fund for the benefit of the holders of the Certificates (the
"Certificateholders"). The Certificates do not constitute obligations of the
Depositor, the Master Servicer, the Special Servicer, the Trustee, the Fiscal
Agent or any of their respective affiliates. Neither the Certificates nor the
Mortgage Loans (as defined below) will be insured or guaranteed by any
governmental agency or instrumentality or by the Depositor, the Sellers (as
defined herein), the Master Servicer, the Special Servicer, the Trustee, the
Fiscal Agent, any of their respective affiliates or any other person.
See "Risk Factors and Other Special Considerations" beginning on page S-39
herein and "Risk Factors" beginning on page 13 in the Prospectus for certain
factors to be considered in purchasing the Offered Certificates.
(cover continued on page S-3)
----------
<TABLE>
<CAPTION>
Approximate
Initial Aggregate Approximate
Certificate Balance or Initial Pass- Final Scheduled Rating
Class Notional Amount(1) Through Rate(2) Distribution Date(3) (DCR/Moody's)(4)
- ----- ------------------ --------------- -------------------- ----------------
<S> <C> <C> <C> <C>
Class A-1A.................. $ 61,700,000 6.85% February 17, 2003 AAA/Aaa
Class A-1B.................. 193,000,000 7.46% May 15, 2006 AAA/Aaa
Class A-1C.................. 139,496,000 7.63% December 15, 2006 AAA/Aaa
Class A-2................... 38,248,484 5.92% August 15, 2006 AAA/Aaa
Class IO-1.................. 601,807,030 1.42% February 15, 2017 AAA/Aaa
Class IO-2.................. 38,248,484 2.25% August 15, 2006 AAA/Aaa
Class B..................... 51,252,000 7.69% January 15, 2007 AA-/Aa2
Class C..................... 38,439,000 7.79% January 15, 2007 A-/A2
Class D..................... 35,236,000 7.85% March 15, 2007 BBB-/Baa2
Class E..................... 6,406,000 7.85% March 15, 2007 NR/Baa3
</TABLE>
- ----------
(Footnotes on page S-3)
----------
The Offered Certificates will be purchased from the Depositor by Morgan
Stanley & Co. Incorporated (the "Underwriter") and will be offered by the
Underwriter from time to time in negotiated transactions or otherwise at varying
prices to be determined at the time of sale. Proceeds to the Depositor from the
sale of the Offered Certificates, before deducting issuance expenses payable by
the Depositor, will be approximately $620,956,384 plus accrued interest. For
further information with respect to the plan of distribution and any discounts,
commissions and profits on resale that may be deemed underwriting discounts or
commissions, see "Plan of Distribution" herein.
The Offered Certificates are offered by the Underwriter when, as and if
issued by the Depositor, delivered to and accepted by the Underwriter and
subject to its right to reject orders in whole or in part. It is expected that
delivery of the Offered Certificates will be made in book-entry form through the
facilities of The Depository Trust Company against payment therefor on or about
March 26, 1997 (the "Closing Date").
----------
MORGAN STANLEY & CO.
Incorporated
The date of this Prospectus Supplement is March 20, 1997
<PAGE>
[GRAPHIC OMITTED]
[SET FORTH IN THE PRINTED MATERIALS IS A MAP OF THE CONTINENTAL UNITED STATES
SHOWING THE BORDERS OF THE STATES AND INDICATING, BY BULLET MARKS, THE LOCATIONS
OF THE MORTGAGED PROPERTIES.]
<PAGE>
The footnotes to the table on the cover page are as follows:
(1) The table sets forth: in the case of each Class of Interest Only
Certificates, the initial aggregate Notional Amount thereof; and, in
the case of each other Class of Offered Certificates, the initial
aggregate Certificate Balance thereof. The Interest Only Certificates
will not have Certificate Balances and will not entitle the holders
thereof to distributions of principal. The initial aggregate
Certificate Balance or Notional Amount of each Class of Offered
Certificates is subject to a permitted variance of plus or minus 5%.
(2) The Pass-Through Rates for the Class A-1A, Class A-1B, Class A-1C,
Class B, Class C, Class D and Class E Certificates are fixed at the
respective per annum rates set forth in the table. The Pass-Through
Rates for the Class A-2, Class IO-1 and Class IO-2 Certificates are
variable and, subsequent to the initial Distribution Date (as defined
herein), will be determined as described under "Description of the
Certificates--Pass-Through Rates" herein. The initial Pass-Through
Rates for the Class A-2 and Interest Only Certificates as set forth in
the table are approximate.
(3) The Final Scheduled Distribution Date with respect to any Class of
Offered Certificates is the Distribution Date (as defined herein) on
which the final distribution would occur for such Class based on the
assumption that no Mortgage Loan is prepaid in whole or in part and
otherwise based on the Maturity Assumptions (as described herein). The
actual performance and experiences of the Mortgage Loans will likely
differ from such assumptions. As described herein under "Ratings", the
Final Rated Distribution Date for those Classes of Offered
Certificates entitled to distributions of principal will be the
Distribution Date in February, 2020.
(4) See "Ratings" herein. "NR" means not rated.
- ----------
(cover continued from second preceding page)
Initially, the assets of the Trust Fund will consist primarily of a
segregated pool (the "Mortgage Pool") of 160 conventional commercial and
multifamily mortgage loans (the "Mortgage Loans"). The Cut-off Date is March 1,
1997 and, as of such date, the Mortgage Loans had an aggregate principal balance
(the "Initial Pool Balance") of $640,657,923, after application of all payments
of principal due on or before such date, whether or not received, and subject to
a variance of plus or minus 5%. One hundred fifty-six (156) of the Mortgage
Loans, representing 94.0% of the Initial Pool Balance, are fixed-rate mortgage
loans. The remaining four (4) Mortgage Loans, representing 6.0% of the Initial
Pool Balance, are adjustable-rate mortgage loans which bear interest at rates
that adjust semi-annually or, in one case, monthly, based on changes to the
applicable LIBOR-based indexes. The Mortgage Loans are further described under
"Description of the Mortgage Pool" herein and on Appendix I and Appendix II
hereto.
The Mortgage Pool has been divided into two separate sub-pools (each, a
"Loan Group") designated as "Loan Group 1" (and the Mortgage Loans included
therein, the "Group 1 Loans") and "Loan Group 2" (and the Mortgage Loans
included therein, the "Group 2 Loans"), each of which is described herein. Loan
Group 1 will consist of all the fixed-rate Mortgage Loans, and Loan Group 2 will
consist of all the adjustable-rate Mortgage Loans. As of the Cut-off Date, the
Group 1 Loans and the Group 2 Loans will have aggregate principal balances,
after taking into account all payments of principal due on or before such date,
whether or not received, of $602,409,439 and $38,248,484, respectively, in each
case subject to a variance of plus or minus 5%.
The Depositor will acquire the Mortgage Loans from the following sellers
(each, a "Seller"): GMAC Commercial Mortgage Corporation (56 Mortgage Loans,
representing 34.9% of the Initial Pool Balance); ContiTrade Services L.L.C. (68
Mortgage Loans, representing 34.4% of the Initial Pool Balance); and Morgan
Stanley Mortgage Capital Inc. (36 Mortgage Loans, representing 30.7% of the
initial Pool Balance).
Distributions on the Certificates will be made, to the extent of available
funds, on the 15th day of each month or, if any such 15th day is not a business
day, then on the next business day, beginning in April, 1997 (each, a
"Distribution Date"). As described herein, distributions of interest on each
Class of Offered Certificates will be made on each Distribution Date based on
the Pass-Through Rate then applicable to such Class and the aggregate
Certificate
S-3
<PAGE>
Balance or Notional Amount, as the case may be, of such Class outstanding
immediately prior to such Distribution Date.
Distributions allocable to principal of the respective Classes of
Certificates with Certificate Balances (the "Principal Balance Certificates")
will be made in the amounts and in accordance with the priorities described
herein until the Certificate Balance of each such Class is reduced to zero. The
Interest Only Certificates will not have Certificate Balances and will not
entitle the holders thereof to receive distributions of principal. As described
herein, any prepayment premiums, penalties or fees actually collected on the
Mortgage Loans will be distributed among certain of the Classes of Certificates
in the amounts and in accordance with the priorities described herein. See
"Description of the Certificates--Distributions" herein.
As and to the extent described herein, the Subordinate Certificates will be
subordinate to the Senior Certificates; and each Class of Subordinate
Certificates will further be subordinate to each other class of Subordinate
Certificates, if any, with an earlier alphabetical Class designation. The REMIC
Residual Certificates will be subordinate to the REMIC Regular Certificates. See
"Description of the Certificates--Distributions" and "--Subordination;
Allocation of Losses and Certain Expenses" herein.
The yield to maturity of each Class of Offered Certificates will depend on,
among other things, the rate and timing of principal payments (including by
reason of prepayments, loan extensions, defaults and liquidations) and losses on
or in respect of the Mortgage Loans that result in a reduction of the aggregate
Certificate Balance or Notional Amount of such Class. The yield to maturity of
the Interest Only Certificates will be highly sensitive to the rate and timing
of principal payments (including by reason of prepayments, defaults and
liquidations) and losses on or in respect of, in the case of the Class IO-1
Certificates, the Group 1 Loans (and, to a lesser extent, under certain
circumstances, the Group 2 Loans) and, in the case of the Class IO-2
Certificates, the Group 2 Loans, which rate and timing of principal payments and
losses may fluctuate significantly from time to time. A rate of principal
prepayments on the Mortgage Loans that is more rapid than expected by investors
will have a material negative effect on the yield to maturity of one or both
Classes of the Interest Only Certificates. Investors in the Interest Only
Certificates should consider the associated risks, including the risk that a
rapid rate of principal prepayments on the Mortgage Loans could result in the
failure of investors in either or both Classes of such Certificates to recover
fully their initial investments. See "Yield Considerations" and "Maturity
Considerations" herein and "Yield Considerations" and "Risk Factors--Average
Life of Certificates; Prepayments; Yields" in the Prospectus.
As described herein, three separate real estate mortgage investment conduit
("REMIC") elections will be made with respect to the Trust Fund for federal
income tax purposes (the REMICs formed thereby being herein referred to as
"REMIC I", "REMIC II" and "REMIC III", respectively). The Offered Certificates
will constitute "regular interests" in REMIC III. See "Certain Federal Income
Tax Consequences" herein and in the Prospectus.
See "Index of Principal Definitions" in the Prospectus for the location of
meanings of capitalized terms used but not defined herein. See "Index of
Principal Definitions" herein for location of meanings of other capitalized
terms used herein.
There is currently no secondary market for the Offered Certificates. The
Underwriter intends to make a secondary market in the Offered Certificates, but
is not obligated to do so. There can be no assurance that a secondary market for
the Offered Certificates will develop or, if it does develop, that it will
continue. The Offered Certificates will not be listed on any securities
exchange.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
SEE "RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS" BEGINNING ON PAGE S-35
HEREIN AND "RISK FACTORS" BEGINNING ON PAGE 13 IN THE PROSPECTUS FOR CERTAIN
FACTORS TO BE CONSIDERED IN PURCHASING THE OFFERED CERTIFICATES.
S-4
<PAGE>
THIS PROSPECTUS SUPPLEMENT IS NOT INTENDED TO FURNISH LEGAL, REGULATORY,
TAX OR ACCOUNTING ADVICE TO ANY PROSPECTIVE PURCHASER OF THE OFFERED
CERTIFICATES. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS SHOULD BE REVIEWED
BY EACH PROSPECTIVE PURCHASER AND ITS LEGAL, REGULATORY, TAX AND ACCOUNTING
ADVISORS. EACH PROSPECTIVE PURCHASER MUST RELY ON ITS OWN EXAMINATION OF THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
INVESTORS WHOSE INVESTMENT AUTHORITY IS SUBJECT TO LEGAL RESTRICTIONS
SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO WHAT EXTENT
THE OFFERED CERTIFICATES CONSTITUTE LEGAL INVESTMENTS FOR THEM.
THE UNDERWRITER MAY SELL OFFERED CERTIFICATES TO ITS AFFILIATES OR ENTITIES
OVER WHICH ITS AFFILIATES HAVE DISCRETIONARY AUTHORITY IN ACCORDANCE WITH
APPLICABLE LAW.
THE OFFERED CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE
PART OF A SEPARATE SERIES OF CERTIFICATES ISSUED BY THE DEPOSITOR AND ARE BEING
OFFERED PURSUANT TO ITS PROSPECTUS DATED MARCH __, 1997, OF WHICH THIS
PROSPECTUS SUPPLEMENT IS A PART AND WHICH ACCOMPANIES THIS PROSPECTUS
SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS
OFFERING WHICH IS NOT CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO
READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE OFFERED
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL JUNE 23, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------
THE UNDERWRITER MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR
OTHERWISE AFFECT THE PRICE THE MARKET PRICE OF THE OFFERED CERTIFICATES,
INCLUDING MAKING A SECONDARY MARKET IN THE OFFERED CERTIFICATES. SEE "PLAN OF
DISTRIBUBTION" HEREIN. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
----------
FORWARD-LOOKING STATEMENTS
IF AND WHEN INCLUDED IN THIS PROPSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS OR IN DOCUMENTS INCORPORATED HEREIN OR THEREIN BY REFERENCE, THE
WORDS "EXPECTS," "INTENDS," "ANTICIPATES," "ESTIMATES" AND ANALOGOUS EXPRESSIONS
ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ANY SUCH STATEMENTS, WHICH
MAY INCLUDE STATEMENTS CONTAINED IN "RISK FACTORS," INHERENTLY ARE SUBJECT TO A
VARIETY OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED. SUCH RISKS AND UNCERTAINTIES INCLUDE, AMONG
OTHERS, GENERAL ECONOMIC AND BUSINESS CONDITIONS, COMPETITION, CHANGES IN
FOREIGN POLITICAL, SOCIAL AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND
COMPLIANCE WITH GOVERNMENTAL REGULATIONS, CUSTOMER PREFERENCES AND VARIOUS AND
OTHER MATTERS, MANY OF WHICH ARE BEYOND THE DEPOSITOR'S CONTROL. THESE
FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS PROPSPECTUS
SUPPLEMENT.
S-5
<PAGE>
THE DEPOSITOR EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO RELEASE
PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENT CONTAINED
HEREIN TO REFLECT ANY CHANGE IN THE DEPOSITOR'S EXPECTATIONS WITH REGARD THERETO
OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT
IS BASED.
----------
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Offered Certificates. This Prospectus Supplement
and the related Prospectus, which form a part of the Registration Statement,
omit certain information contained in such Registration Statement pursuant to
the Rules and Regulations of the Commission. Such Registration Statement and
exhibits thereto can be inspected and copied at prescribed rates at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 and the Commission's regional offices at seven World Trade Center, Suite
1300, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. The Commission maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Depositor, that file
electronically with the Commission.
REPORTS TO CERTIFICATEHOLDERS
The Trustee will mail monthly reports concerning the Certificates to all
Certificateholders of record.
----------
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or the Underwriter. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus Supplement or the Prospectus nor any sale made hereunder shall, under
any circumstances, create an implication that the information herein or therein
is correct as of any time subsequent to the date hereof or that there has been
no change in the affairs of the Depositor since such date.
S-6
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
S-7
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION...........................................................................................S-6
REPORTS TO CERTIFICATEHOLDERS...................................................................................S-6
TRANSACTION OVERVIEW...........................................................................................S-10
SUMMARY........................................................................................................S-11
RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS..................................................................S-40
The Certificates......................................................................................S-40
The Mortgage Loans....................................................................................S-41
DESCRIPTION OF THE CERTIFICATES................................................................................S-47
General .............................................................................................S-47
Certificate Balances and Notional Amounts.............................................................S-48
Pass-Through Rates....................................................................................S-49
Calculation of One-Month Certificate LIBOR............................................................S-50
The Certificate Groups................................................................................S-51
Certain Considerations Regarding Reports to Holders of Class IO-1 Certificates........................S-51
Distributions.........................................................................................S-52
Appraisal Reductions..................................................................................S-56
Subordination; Allocation of Losses and Certain Expenses..............................................S-56
Prepayment Interest Shortfalls and Balloon Payment Interest Shortfalls................................S-58
Optional Termination..................................................................................S-58
Advances .............................................................................................S-59
Reports to Certificateholders; Available Information..................................................S-60
Example of Distributions..............................................................................S-62
Voting Rights.........................................................................................S-63
The Trustee and the Fiscal Agent......................................................................S-63
MATURITY CONSIDERATIONS........................................................................................S-64
YIELD CONSIDERATIONS...........................................................................................S-70
General .............................................................................................S-70
Pass-Through Rates....................................................................................S-70
Rate and Timing of Principal Payments.................................................................S-70
Losses and Shortfalls.................................................................................S-71
Certain Relevant Factors..............................................................................S-71
Delay in Payment of Distributions.....................................................................S-72
Yield Sensitivity of the Interest Only Certificates...................................................S-72
DESCRIPTION OF THE MORTGAGE POOL...............................................................................S-74
General .............................................................................................S-74
Certain Terms and Characteristics of the Mortgage Loans...............................................S-75
Assessments of Property Value and Condition...........................................................S-79
Additional Mortgage Loan Information..................................................................S-79
Standard Hazard Insurance.............................................................................S-81
The Sellers...........................................................................................S-82
Assignment of the Mortgage Loans......................................................................S-82
Representations and Warranties........................................................................S-83
Repurchases and Other Remedies........................................................................S-84
Changes in Mortgage Pool Characteristics..............................................................S-85
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
SERVICING OF THE MORTGAGE LOANS................................................................................S-86
General .............................................................................................S-86
GMAC Commercial Mortgage Corporation..................................................................S-87
Sub-Servicers.........................................................................................S-88
Servicing and Other Compensation and Payment of Expenses..............................................S-88
The Operating Adviser.................................................................................S-89
Modifications, Waivers, Amendments and Consents.......................................................S-90
Sale of Defaulted Mortgage Loans......................................................................S-91
REO Properties........................................................................................S-91
Inspections; Collection of Operating Information......................................................S-92
Maintenance of Master Servicer/Special Servicer Acceptability.........................................S-92
CERTAIN FEDERAL INCOME TAX CONSEQUENCES........................................................................S-93
General .............................................................................................S-93
Original Issue Discount and Premium...................................................................S-93
ERISA CONSIDERATIONS...........................................................................................S-95
Plan Asset Regulation.................................................................................S-96
Availability of Underwriter's Exemption...............................................................S-96
LEGAL INVESTMENT...............................................................................................S-97
USE OF PROCEEDS................................................................................................S-97
PLAN OF DISTRIBUTION...........................................................................................S-97
LEGAL MATTERS..................................................................................................S-98
RATINGS........................................................................................................S-98
INDEX OF PRINCIPAL DEFINITIONS................................................................................S-101
APPENDIX I - MORTGAGE POOL INFORMATION..........................................................................I-1
APPENDIX II - CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS....................................................II-1
APPENDIX III - PRELIMINARY TERM SHEET.........................................................................III-1
</TABLE>
S-9
<PAGE>
TRANSACTION OVERVIEW
Prospective investors are advised to carefully read, and should rely solely
on, the detailed information appearing elsewhere in this Prospectus Supplement
and in the Prospectus relating to the Offered Certificates in making their
investment decision. The following Transaction Overview does not include all
relevant information relating to the securities and underlying assets described
herein, particularly with respect to the risks and special considerations
involved with an investment in such securities and is qualified in its entirety
by reference to the detailed information appearing elsewhere in this Prospectus
Supplement and in the Prospectus. Prior to making an investment decision, a
prospective investor should carefully review this Prospectus Supplement and the
Prospectus in their entirety.
<TABLE>
<CAPTION>
INITIAL
AGGREGATE
CERTIFICATE
BALANCE OR RATINGS DESCRIPTION APPROX. INITIAL
NOTIONAL (DCR/ WEIGHTED PRINCIPAL OF PASS- PASS-THROUGH
CLASS AMOUNT(1) MOODY'S)(2) AVG. LIFE (3) WINDOW (3) THROUGH RATE RATE (4)
----- --------- ----------- ------------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
A-1A $ 61,700,000 AAA/Aaa 3.0 1-61 Fixed Rate 6.85%
A-1B $193,000,000 AAA/Aaa 7.0 61-108 Fixed Rate 7.46%
A-1C $139,496,000 AAA/Aaa 9.4 108-117 Fixed Rate 7.63%
A-2 $38,248,484 AAA/Aaa 5.8 1-113 Adjustable Rate 5.92%
IO-1 $601,807,030 (b) AAA/Aaa N/A N/A Variable Rate I/O 1.42%
IO-2 $ 38,248,484 (b) AAA/Aaa N/A N/A Variable Rate I/O 2.25%
B $51,252,000 AA-/Aa2 9.8 117-118 Fixed Rate 7.69%
C $38,439,000 A-/A2 9.8 118 Fixed Rate 7.79%
D $35,236,000 BBB-/Baa2 9.8 118-119 Fixed Rate 7.85%
E $6,406,000 NR/Baa3 9.9 119 Fixed Rate 7.85%
F(a) $19,220,000 BB/Ba2 10.2 119-134 Fixed Rate 6.85%
G(a) $11,211,000 BB-/Ba3 12.0 134-154 Fixed Rate 6.85%
H(a) $20,821,000 B/B3 14.3 154-179 Fixed Rate 6.85%
J(a) $25,628,439 NR/NR 17.3 179-239 Fixed Rate 6.85%
</TABLE>
(1) In each case, subject to a variance of plus or minus 5%.
(2) See "Ratings" herein.
(3) The weighted average life (expressed in years) and the period (expressed in
months following the Closing Date and commencing with the month of the
first Distribution Date) during which distributions of principal would be
received (the "Principal Window") set forth in the foregoing table is based
on the Maturity Assumptions (as defined herein) and a pricing speed of 5%
CPR (as defined in the Prospectus) applied to each Mortgage Loan during any
period that it permits voluntary prepayments of principal without imposing
a Yield Maintenance Premium (as defined herein) in connection therewith.
See "Yield Considerations" and "Maturity Considerations" herein.
(4) The initial Pass-Through Rates for the Class A-2 and the Interest Only
Certificates set forth in the table are approximate.
- ---------------
(a) Not offered hereby.
(b) Aggregate Notional Amount.
S-10
<PAGE>
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SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary are
defined elsewhere in this Prospectus Supplement or in the Prospectus. An "Index
of Principal Definitions" is included at the end of each of this Prospectus
Supplement and the Prospectus.
Depositor............................ Morgan Stanley Capital I Inc., a
Delaware corporation (the "Depositor").
The Depositor's principal offices are
located at 1585 Broadway, New York, New
York 10036, telephone (212) 761-4700.
The Certificates..................... The Series 1997-C1 Commercial Mortgage
Pass-Through Certificates (the
"Certificates") will be issued in 17
classes (each, a "Class") designated as:
(i) the Class A-1A, Class A- 1B, Class
A-1C and Class A-2 Certificates
(collectively, the "Class A
Certificates"); (ii) the Class IO-1 and
Class IO-2 Certificates (collectively,
the "Interest Only Certificates" or the
"Class IO Certificates" and ,
collectively with the Class A
Certificates, the "Senior
Certificates"); (iii) the Class B, Class
C, Class D, Class E, Class F, Class G,
Class H and Class J Certificates
(collectively, the "Subordinate
Certificates" and, collectively with the
Senior Certificates, the "REMIC Regular
Certificates"); and (iv) the Class R-I,
Class R-II and Class R- III Certificates
(collectively, the "REMIC Residual
Certificates").
The Certificates will evidence
beneficial ownership interests in a
trust fund (the "Trust Fund") to be
formed by the Depositor pursuant to a
Pooling and Servicing Agreement to be
dated as of the Cut-off Date (the
"Pooling and Servicing Agreement"),
among the Depositor, the Master
Servicer, the Special Servicer, the
Trustee and the Fiscal Agent. Initially,
the assets of the Trust Fund will
consist primarily of 160 conventional,
fixed- and adjustable-rate mortgage
loans (each, a "Mortgage Loan"). Each
Mortgage Loan is secured by a first
mortgage lien on the related borrower's
fee and/or leasehold interest in a
commercial or multifamily real property
(each, a "Mortgaged Property" and
collectively, the "Mortgaged
Properties"). As of the Cut-off Date,
the Mortgage Loans had an aggregate
principal balance (the "Initial Pool
Balance") of $640,657,923, after
application of all payments due on or
before such date, whether or not
received. The Trust Fund will also hold
(i) any Mortgaged Property acquired by
foreclosure or deed in lieu of
foreclosure in respect of a Mortgage
Loan that becomes defaulted (any such
property upon acquisition, an "REO
Property") and (ii) certain other
related property, as described herein.
The Certificates collectively represent
the entire interest in the Trust Fund.
Only the Class A-1A, Class A-1B, Class
A-1C, Class A-2, Class IO-1, Class IO-2,
Class B, Class C, Class D and Class E
Certificates (collectively, the "Offered
Certificates")
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are offered hereby. The Class F, Class
G, Class H, Class J, Class R-I, Class
R-II and Class R-III Certificates
(collectively, the "Private
Certificates") have not been registered
under the Securities Act of 1933, as
amended, and are not offered hereby.
Accordingly, to the extent this
Prospectus Supplement contains
information regarding the terms of the
Private Certificates, such information
is provided solely because of its
potential relevance to a prospective
purchaser of an Offered Certificate.
Sellers.............................. GMAC Commercial Mortgage Corporation
("GMACCM"), as to 56 Mortgage Loans,
representing 34.9% of the Initial Pool
Balance; ContiTrade Services L.L.C.
("ContiTrade"), as to 68 Mortgage Loans,
representing 34.4% of the Initial Pool
Balance; and Morgan Stanley Mortgage
Capital Inc. ("MSMC" and, collectively
with ContiTrade and, in such capacity,
GMACCM, the "Sellers"), as to 36
Mortgage Loans, representing 30.7% of
the Initial Pool Balance. Each Seller
will sell its Mortgage Loans on the
Closing Date pursuant to an agreement
(each, a "Mortgage Loan Purchase
Agreement"), which will be assigned in
relevant part to the Trustee. See
"Description of the Mortgage Pool--The
Sellers" herein.
Master Servicer...................... GMAC Commercial Mortgage Corporation.
The Master Servicer will be obligated to
make Advances (as defined herein) with
respect to the Mortgage Loans as
described herein. See "Servicing of the
Mortgage Loans--GMAC Commercial Mortgage
Corporation" and "Description of the
Certificates--Advances" herein.
Special Servicer..................... GMAC Commercial Mortgage Corporation.
The Special Servicer will be responsible
for performing certain servicing
functions with respect to Mortgage Loans
that, in general, are in default or as
to which default is imminent, and for
the management of REO Properties. The
Special Servicer will be required to
notify the Operating Adviser before
taking certain actions, and may be
replaced by the Operating Adviser
without cause, as described herein.
Initially, however, GMACCM will be the
Operating Adviser. See "Servicing of the
Mortgage Loans--GMAC Commercial Mortgage
Corporation" and "--The Operating
Adviser" herein.
Trustee.............................. LaSalle National Bank, a nationally
chartered bank. See "Description of the
Certificates--The Trustee and the Fiscal
Agent" herein. The Trustee will be
obligated to make Advances with respect
to the Mortgage Loans in certain
circumstances where the Master Servicer
or Special Servicer was required, but
failed, to do so, as described under
"Description of the Certificates
--Advances" herein.
Fiscal Agent......................... ABN AMRO Bank N.V., a Netherlands
banking corporation, and the indirect
corporate parent of the Trustee. See
"Description of the Certificates--The
Trustee and the Fiscal
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Agent." The Fiscal Agent will be
obligated to make Advances with respect
to the Mortgage Loans in certain
circumstances where the Master Servicer,
Special Servicer and/or Trustee were
required, but failed, to do so, as
described under "Description of the
Certificates--Advances" herein.
Operating Adviser..................... The holders of Certificates representing
more than 50% of the aggregate
Certificate Balance of the most
subordinate Class of Principal Balance
Certificates outstanding at any time of
determination (or, if the then aggregate
Certificate Balance of such Class of
Certificates is less than 25% of the
initial aggregate Certificate Balance of
such Class, of the next most subordinate
Class of Principal Balance Certificates)
(in any event, the "Controlling Class"),
may appoint a representative (the
"Operating Adviser") as described
herein. The Special Servicer will be
required to notify the Operating Adviser
before taking certain actions, and may
be replaced by the Operating Adviser
without cause, as described herein.
Initially, however, GMACCM will be the
Operating Adviser. See "Servicing of the
Mortgage Loans--The Operating Adviser"
herein.
Cut-off Date......................... March 1, 1997.
Closing Date......................... On or about March 26, 1997.
Record Date.......................... With respect to each Class of Offered
Certificates and each Distribution Date,
the last business day of the calendar
month immediately preceding the month in
which such Distribution Date occurs.
Distribution Date.................... The 15th day of each month or, if such
15th day is not a business day, the
business day immediately following such
15th day, commencing in April, 1997.
Determination Date................... With respect to each Distribution Date,
the fifth day of the month in which such
Distribution Date occurs (or, if such
fifth day is not a business day, the
business day immediately preceding such
fifth day).
Collection Period.................... With respect to the initial Distribution
Date, the period beginning on the day
after the Cut-off Date and ending on the
Determination Date in the month in which
such Distribution Date occurs. With
respect to any subsequent Distribution
Date, the period beginning on the day
after the Determination Date in the
calendar month preceding the month in
which such Distribution Date occurs and
ending on the Determination Date in the
calendar month in which such
Distribution Date occurs.
Interest Accrual Period.............. With respect to each Class of Offered
Certificates and each Distribution Date,
the calendar month immediately preceding
the month in which such Distribution
Date occurs. Interest payable in respect
of the Class A-2 Certificates will be
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calculated on the basis of a 360-day
year and the actual number of days
elapsed during each applicable Interest
Accrual Period. Interest payable in
respect of each other Class of Offered
Certificates will be calculated on the
basis of a 360-day year consisting of
twelve 30-day months.
Registration and Denominations....... The Class A Certificates will initially
be issued in book-entry format in
denominations of $5,000 initial
Certificate Balance and in any whole
dollar denomination in excess thereof.
The Class IO-1, Class IO-2, Class B,
Class C, Class D, and Class E
Certificates will initially be issued in
book-entry form in denominations of
$50,000 initial Certificate Balance or
Notional Amount, as applicable, and in
any whole dollar denomination in excess
thereof. Each Class of Offered
Certificates will be represented by one
or more Certificates registered in the
name of Cede & Co., as nominee of The
Depository Trust Company ("DTC"). No
person acquiring an interest in an
Offered Certificate (any such person, a
"Certificate Owner") will be entitled to
receive a fully registered physical
certificate (a "Definitive Certificate")
representing such interest, except under
the limited circumstances described
herein and in the Prospectus. See
"Description of the
Certificates--General" herein and
"Description of the
Certificates--Book-Entry Registration
and Definitive Certificates" in the
Prospectus.
Clearance and Settlement............. Certificateholders must elect to hold
their Offered Certificates through any
of DTC (in the United States) or Cedel
Bank, societe anonyme ("CEDEL") or
Euroclear System ("Euroclear") (in
Europe). Transfers within DTC, CEDEL or
Euroclear, as the case may be, will be
in accordance with the usual rules and
operating procedures of the relevant
system. Crossmarket transfers between
persons holding directly or indirectly
through DTC, on the one hand, and
counterparties holding directly or
indirectly through CEDEL or Euroclear,
on the other, will be effected in DTC
through Citibank, N.A. ("Citibank") or
The Chase Manhattan Bank ("Chase"), the
relevant depositaries of CEDEL and
Euroclear, respectively.
Subordination........................ Credit enhancement for each Class of
Offered Certificates will be provided by
those other Classes of Certificates that
are subordinate thereto with respect to
(a) rights to receive distributions of
interest and principal, to the extent
described herein, and (b) the allocation
of Realized Losses (as defined herein)
incurred on the Mortgage Loans and
Expense Losses (also as defined herein),
to the extent described herein. As
described herein, the REMIC Residual
Certificates are subordinate to the
REMIC Regular Certificates; each Class
of Subordinate Certificates is
subordinate to the Senior Certificates
and to each other Class of Subordinate
Certificates with an earlier
alphabetical Class designation (for
example, the Class J Certificates are
subordinate to the
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Class H Certificates); and the
respective Classes of Senior
Certificates rank pari passu in
entitlement to distributions of
interest. The level of credit
enhancement available to any Class of
Offered Certificates will change over
time as a result of (i) the allocation,
as described herein, of principal
payments on the Mortgage Loans
(including scheduled payments,
prepayments, liquidations of Mortgage
Loans or associated REO Properties or
the sale of defaulted Mortgage Loans)
and (ii) the allocation of any Realized
Losses and Expense Losses to one or more
Classes of Subordinate Certificates in
the order of priority described herein.
After the aggregate Certificate Balance
of the Subordinate Certificates has been
reduced to zero, Realized Losses and
Expense Losses will be allocated pro
rata among the Class A- 1A, Class A-1B,
Class A-1C and Class A-2 Certificates.
Description of the
Certificates....................... The Certificates will have the following
characteristics.
A. Certificate Balances
and Notional Amounts........... Upon initial issuance, the Class A-1A,
Class A-1B, Class A- 1C, Class A-2,
Class B, Class C, Class D, Class E,
Class F, Class G, Class H and Class J
Certificates (collectively, the
"Principal Balance Certificates") will
have the following aggregate Certificate
Balances (in each case, subject to a
variance of plus or minus 5%):
Approximate Approximate
Initial Aggregate Percentage of Initial
Class Certificate Balance Pool Balance
----- ------------------- ------------
Class A-1A .... $ 61,700,000 9.63%
Class A-1B .... 193,000,000 30.13
Class A-1C .... 139,496,000 21.77
Class A-2 ..... 38,248,484 5.97
Class B ....... 51,252,000 8.00
Class C ....... 38,439,000 6.00
Class D ....... 35,236,000 5.50
Class E ....... 6,406,000 1.00
Class F ....... 19,220,000 3.00
Class G ....... 11,211,000 1.75
Class H ....... 20,821,000 3.25
Class J ....... 25,628,439 4.00
The "Certificate Balance" of any
Principal Balance Certificate
outstanding at any time will equal the
then maximum amount that the holder will
be entitled to receive in respect of
principal out of future cash flow on the
Mortgage Loans and other assets included
in the Trust Fund. The initial
Certificate
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Balance of any Principal Balance
Certificate will be set forth on the
face thereof. On each Distribution Date,
the Certificate Balance of each
Principal Balance Certificate will be
reduced by any distributions of
principal actually made on such
Certificate on such Distribution Date
and will be further reduced by any
Realized Losses or Expense Losses
allocated to such Certificate on such
Distribution Date. See "Description of
the Certificates--Distributions" and
"--Subordination; Allocation of Losses
and Certain Expenses" herein.
The Interest Only Certificates will not
have Certificate Balances; each such
Certificate will instead represent the
right to receive distributions of
interest accrued as described herein on
a notional principal amount (a "Notional
Amount"). The aggregate Notional Amount
of the Class IO-1 Certificates will
equal 99.9% of the aggregate Stated
Principal Balance (as defined herein) of
the Group 1 Loans (or, following the
occurrence of the Class A-2 Cross-Over
Date (as defined herein), if any, 99.9%
the aggregate Stated Principal Balance
of all the Mortgage Loans) outstanding
from time to time. The aggregate
Notional Amount of the Class IO-2
Certificates will equal the aggregate
Stated Principal Balance of the Group 2
Loans outstanding from time to time. The
Notional Amount of each Interest Only
Certificate is used solely for the
purpose of determining the amount of
interest to be distributed on such
Certificate and does not represent the
right to receive any distributions of
principal.
The REMIC Residual Certificates will not
have Certificate Balances.
A Class of Offered Certificates will be
considered outstanding until its
aggregate Certificate Balance or
Notional Amount, as the case may be, is
reduced to zero; provided, however, that
reimbursements of any previously
allocated Realized Losses and Expense
Losses may thereafter still be made with
respect thereto. See "Description of the
Certificates--Certificate Balances and
Notional Amounts" and "--Distributions"
herein.
B. Pass-Through Rates.............. The Pass-Through Rates applicable to the
Class A-1A, Class A-1B, Class A-1C,
Class B, Class C, Class D and Class E
Certificates will, at all times, be
equal to 6.85%, 7.46%, 7.63%, 7.69%,
7.79%, 7.85% and 7.85% per annum,
respectively.
The Pass-Through Rate applicable to the
Class IO-1 Certificates for the initial
Distribution Date will equal 1.42% per
annum. The Pass-Through Rate applicable
to the Class IO-1 Certificates for each
subsequent Distribution Date (up to and
including the Class A-2 Cross-Over Date,
if any) will, in general, equal the
excess, if any, of (i) the weighted
average of the Net Mortgage Rates in
effect for the Group 1 Loans as of the
first day of the related
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Collection Period (in the case of each
such Mortgage Loan that is a Non-30/360
Loan, adjusted as described below), the
relevant weighting to be on the basis of
the respective Stated Principal Balances
of such Mortgage Loans immediately prior
to such Distribution Date, over (ii) the
weighted average of the Pass-Through
Rates applicable to the respective
Classes of Principal Balance
Certificates (other than the Class A-2
Certificates) for such Distribution
Date, the relevant weighting to be on
the basis of the respective aggregate
Certificate Balances of such Classes of
Certificates immediately prior to such
Distribution Date. The Pass-Through Rate
applicable to the Class IO-1
Certificates for each Distribution Date
following the Class A-2 Cross-Over Date,
if any, will, in general, equal the
excess, if any, of (i) the weighted
average of the Net Mortgage Rates in
effect for all of the Mortgage Loans as
of the first day of the related
Collection Period (in the case of each
Non-30/360 Loan, adjusted as described
below and, in the case of each Group 2
Loan, net of the Pass-Through Rate
applicable to the Class IO-2
Certificates for such Distribution
Date), the relevant weighting to be on
the basis of the respective Stated
Principal Balances of the Mortgage Loans
immediately prior to such Distribution
Date, over (ii) the weighted average of
the Pass- Through Rates applicable to
the respective Classes of Principal
Balance Certificates for such
Distribution Date (in the case of the
Class A-2 Certificates, adjusted as
described below), the relevant weighting
to be on the basis of the respective
aggregate Certificate Balances of such
Classes of Certificates immediately
prior to such Distribution Date. The
"Class A-2 Cross-Over Date", if it
occurs, will be the first Distribution
Date on which either (i) distributions
of principal are made on the Class A-2
Certificates from the Principal
Distribution Amount (as defined herein)
in respect of Loan Group 1 for such
Distribution Date or (ii) Realized
Losses incurred in respect of Loan Group
2 are allocated to the Principal Balance
Certificates.
The Pass-Through Rate applicable to the
Class A-2 Certificates for the initial
Distribution Date will equal
approximately 5.92% per annum. The
Pass-Through Rate applicable to the
Class A- 2 Certificates for each
subsequent Distribution Date will, in
general, equal the lesser of (i) the
applicable value of One-Month
Certificate LIBOR (which value will be
selected as described herein), plus
0.39%, and (ii) the weighted average of
the Net Mortgage Rates for the Group 2
Loans as of the first day of the related
Collection Period (in the case of each
such Mortgage Loan that is a 30/360
Loan, adjusted as described below), the
relevant weighting to be on the basis of
the respective Stated Principal Balances
of such Mortgage Loans immediately prior
to such Distribution Date (or, if there
are no longer any Group 2 Loans, 12.0%
per annum).
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The Pass-Through Rate applicable to the
Class IO-2 Certificates for the initial
Distribution Date will equal
approximately 2.25% per annum. The
Pass-Through Rate applicable to the
Class IO-2 Certificates for each
subsequent Distribution Date will, in
general, equal the excess, if any, of
(i) the weighted average of the Net
Mortgage Rates in effect for the Group 2
Loans as of the first day of the related
Collection Period (in the case of each
such Mortgage Loan that is a Non-30/360
Loan adjusted as described below), the
relevant weighting to be on the basis of
the respective Stated Principal Balances
of such Mortgage Loans immediately prior
to such Distribution Date), over (ii)
the Pass-Through Rate applicable to the
Class A-2 Certificates for such
Distribution Date (adjusted as described
below) (or, if the Class A-2
Certificates are no longer outstanding,
the Pass-Through Rate that would
otherwise have been applicable to the
Class A-2 Certificates for such
Distribution Date).
The Pass-Through Rates applicable to the
Class F, Class G, Class H and Class J
Certificates will, at all times, be
equal to 6.85%, 6.85%, 6.85% and 6.85%,
respectively.
The "Net Mortgage Rate" with respect to
any Mortgage Loan will, in general, be a
per annum rate equal to the related
Mortgage Rate in effect from time to
time, minus the applicable Master
Servicing Fee Rate. However, for
purposes of calculating Pass-Through
Rates, the Net Mortgage Rate for any
Mortgage Loan will be determined without
regard to any post-Closing Date
modification, waiver or amendment of the
terms of such Mortgage Loan. In
addition, because the Interest Only
Certificates accrue interest on the
basis of a 360-day year consisting of
twelve 30-day months, when calculating
the Pass-Through Rates in respect of
such Certificates for each Distribution
Date, the Net Mortgage Rate of each
relevant Mortgage Loan, if any, that
accrues interest other than on such
basis (each, a "Non-30/360 Loan"), and
the Pass-Through Rate for the Class A-2
Certificates (which accrue interest on
the basis of a 360-day year and the
actual number of days elapsed during the
applicable Interest Accrual Period),
will be appropriately adjusted to
reflect such differences. Similarly,
when calculating the Pass-Through Rate
for the Class A-2 Certificates, the Net
Mortgage Rate for each Group 2 Loan that
accrues interest on the basis of a
360-day year consisting of twelve 30-day
months (any Mortgage Loan that does so,
a "30/360 Loan"), will be appropriately
adjusted to reflect that difference.
The initial Pass-Through Rates for the
Offered Certificates set forth above are
approximate and subject to change in
connection with the initial pricing of
such Certificates.
See "Description of the
Certificates--Pass-Through Rates" and
"Servicing of the Mortgage
Loans--Servicing and Other Compensation
and Payment of Expenses" herein.
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C. The Certificate Groups......... The Class IO-1, Class A-1A, Class A-1B,
Class A-1C, Class B, Class C, Class D,
Class E, Class F, Class G, Class H and
Class J Certificates initially will
correspond to and evidence interests
generally in Loan Group 1 (such
Certificates, the "Group 1
Certificates"); and the Class IO-2 and
Class A-2 Certificates initially will
correspond to and evidence interests
generally in Loan Group 2 (such
Certificates, the "Group 2
Certificates"; the Group 1 Certificates
and the Group 2 Certificates, each a
"Certificate Group"). Distributions of
interest on and principal of the Group 1
Certificates will initially be based on
interest and/or principal due or
collected, as the case may be, on or
with respect to the Group 1 Loans.
Distributions of interest on and
principal of the Group 2 Certificates
will initially be based on interest
and/or principal due or collected, as
the case may be, on or with respect to
the Group 2 Loans. See "Description of
the Certificates--The Certificate
Groups" herein.
Distributions of Interest
and Principal...................... The total of all payments or other
collections (or advances in lieu
thereof) on or in respect of the
Mortgage Loans (exclusive of Prepayment
Premiums) that are available for
distributions of interest on and
principal of the Certificates on any
Distribution Date is herein referred to
as the "Available Distribution Amount"
for such date. See "Description of the
Certificates-- Distributions-- The
Available Distribution Amount" herein.
On each Distribution Date, the Trustee
will apply the Available Distribution
Amount for such date for the following
purposes and in the following order of
priority:
(1) to pay interest to the holders of
the respective Classes of Senior
Certificates, up to an amount
equal to, and pro rata as among
such Classes in accordance with,
all Distributable Certificate
Interest in respect of each such
Class of Certificates for such
Distribution Date;
(2) to pay principal: (a) from the
Principal Distribution Amount (as
defined below) with respect to
Loan Group 1 for such
Distribution Date, first to the
holders of the Class A-1A
Certificates, second to the
holders of the Class A-1B
Certificates, third to the
holders of the Class A-1C
Certificates and fourth to the
holders of the Class A-2
Certificates, in each case, up to
an amount equal to the lesser of
(i) the then outstanding
aggregate Certificate Balance of
such Class of Certificates and
(ii) the remaining portion of
such Principal Distribution
Amount; and (b) from the
Principal Distribution Amount
with respect to Loan Group 2 for
such Distribution Date, first to
the holders of the Class A-2
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Certificates, second to the holders of
the Class A-1A Certificates, third to
the holders of the Class A-1B
Certificates and fourth to the holders
of the Class A-1C Certificates, in each
case, up to an amount equal to the
lesser of (i) the then outstanding
aggregate Certificate Balance of such
Class of Certificates and (ii) the
remaining portion of such Principal
Distribution Amount;
(3) to reimburse the holders of the
respective Classes of Class A
Certificates, up to an amount
equal to, and pro rata as among
such Classes in accordance with,
(a) the respective amounts of
Realized Losses and Expense
Losses, if any, previously
allocated to such Classes of
Certificates and for which no
reimbursement has previously been
paid, plus (b) all unpaid
interest on such amounts
(compounded monthly) at the
respective Pass-Through Rates of
such Classes; and
(4) to make payments on the
Subordinate Certificates and the
REMIC Residual Certificates as
contemplated below;
provided that, on each Distribution Date
after the aggregate Certificate Balance
of the Subordinate Certificates has been
reduced to zero, and in any event on the
final Distribution Date in connection
with a termination of the Trust Fund
(see "Description of the
Certificates--Optional Termination"
herein), the payments of principal to be
made as contemplated by clause (2) above
with respect to the Class A
Certificates, will be so made to the
holders of the respective Classes of
such Certificates, up to an amount equal
to, and pro rata as among such Classes
in accordance with, the respective then
outstanding aggregate Certificate
Balances of such Classes of
Certificates, and without regard to the
Principal Distribution Amounts with
respect to the two Loan Groups for such
date.
On each Distribution Date, following the
above-described distributions on the
Senior Certificates, the Trustee will
apply the remaining portion, if any, of
the Available Distribution Amount for
such date to make payments to the
holders of each of the respective
Classes of Subordinate Certificates, in
alphabetical order of Class designation,
in each case for the following purposes
and in the following order of priority
(i.e., payments under clauses (1), (2)
and (3) below, in that order, to the
holders of the Class B Certificates,
then payments under clauses (1), (2) and
(3) below, in that order, to the holders
of the Class C Certificates, and in such
manner with respect to the Class D,
Class E, Class F, Class G, Class H and
Class J Certificates):
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(1) to pay interest to the holders of
the particular Class of
Certificates, up to an amount
equal to all Distributable
Certificate Interest in respect
of such Class of Certificates for
such Distribution Date;
(2) if the aggregate Certificate
Balance of the Class A
Certificates and each other Class
of Subordinate Certificates, if
any, with an earlier alphabetical
Class designation has been
reduced to zero, to pay principal
to the holders of the particular
Class of Certificates, up to an
amount equal to the lesser of (a)
the then outstanding aggregate
Certificate Balance of such Class
of Certificates and (b) the
aggregate of the remaining
Principal Distribution Amounts
for both Loan Groups for such
Distribution Date; and
(3) to reimburse the holders of the
particular Class of Certificates,
up to an amount equal to (a) all
Realized Losses and Expense
Losses, if any, previously
allocated to such Class of
Certificates and for which no
reimbursement has previously been
paid, plus (b) all unpaid
interest on such amounts
(compounded monthly) at the
respective Pass-Through Rates of
such Classes;
provided that, on the final Distribution
Date in connection with a termination of
the Trust Fund, the payments of
principal to be made as contemplated by
clause (2) above with respect to any
Class of Subordinate Certificates, will
be so made to the holders of such Class
of Certificates, up to an amount equal
to the entire then outstanding aggregate
Certificate Balance of such Class of
Certificates, and without regard to the
Principal Distribution Amounts with
respect to the two Loan Groups for such
date.
Any portion of the Available
Distribution Amount for any Distribution
Date that is not otherwise payable to
the holders of REMIC Regular
Certificates as contemplated above, will
be paid to the holders of the REMIC
Residual Certificates.
Reimbursement of previously allocated
Realized Losses and Expense Losses will
not constitute distributions of
principal for any purpose and will not
result in an additional reduction in the
Certificate Balances of the Certificates
in respect of which any such
reimbursement is made.
The "Distributable Certificate Interest"
in respect of any Class of REMIC Regular
Certificates for any Distribution Date
will equal the Accrued Certificate
Interest in respect of such Class of
Certificates for such Distribution Date,
reduced (to not less than zero) by such
Class of Certificates' allocable share
(calculated as described herein) of any
Net Aggregate Prepayment Interest
Shortfall (as defined herein) for such
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Distribution Date, and increased by any
Class Interest Shortfall in respect of
such Class of Certificates for such
Distribution Date. The "Accrued
Certificate Interest" in respect of any
Class of REMIC Regular Certificates for
any Distribution Date will equal the
amount of interest for the applicable
Interest Accrual Period accrued at the
applicable Pass-Through Rate on the
aggregate Certificate Balance or
Notional Amount, as the case may be, of
such Class of Certificates outstanding
immediately prior to such Distribution
Date. Accrued Certificate Interest will
be calculated on the basis of: (i) in
the case of the Class A-2 Certificates,
a 360-day year and the actual number of
days elapsed during the applicable
Interest Accrual Period; and (ii) in the
case of each other Class of REMIC
Regular Certificates, a 360-day year
consisting of twelve 30-day months. See
"Description of the Certificates
--Distributions--Distributable Certif-
icate Interest" and "--Prepayment
Interest Shortfalls and Balloon Payment
Interest Shortfalls" herein.
The "Class Interest Shortfall" with
respect to any Class of REMIC Regular
Certificates for any Distribution Date
will equal: (a) in the case of the
initial Distribution Date, zero; and (b)
in the case of any subsequent
Distribution Date, the sum of (i) the
excess, if any, of (A) all Distributable
Certificate Interest in respect of such
Class of Certificates for the
immediately preceding Distribution Date,
over (B) all distributions of interest
made with respect to such Class of
Certificates on the immediately
preceding Distribution Date, plus (ii)
to the extent permitted by applicable
law, other than in the case of the
Interest Only Certificates, one month's
interest on any such excess at the
Pass-Through Rate applicable to such
Class of Certificates for the current
Distribution Date.
The "Principal Distribution Amount" with
respect to each Loan Group for each
Distribution Date will, in general,
equal the aggregate of the following:
(a) the principal portions of all
Monthly Payments (other than
Balloon Payments (as defined
herein)) and any Assumed Monthly
Payments due or deemed due, as
the case may be, in respect of
the Mortgage Loans in such Loan
Group for their respective Due
Dates (as defined herein)
occurring during the related
Collection Period; and
(b) all payments (including voluntary
principal prepayments and Balloon
Payments) and other collections
received on the Mortgage Loans in
such Loan Group during the
related Collection Period that
were identified and applied by
the Master Servicer as recoveries
of principal thereof, in each
case net of any portion of such
amounts that represents a payment
or other recovery of the
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principal portion of any Monthly
Payment (other than a Balloon
Payment) due, or the principal
portion of any Assumed Monthly
Payment deemed due, in respect of
the related Mortgage Loan on a
Due Date during or prior to the
related Collection Period and not
previously paid or recovered.
The "Monthly Payment" for any Mortgage
Loan will, in general, be the scheduled
payment of principal and/or interest due
thereon from time to time (taking into
account any waiver, modification or
amendment of the terms of such Mortgage
Loan, whether agreed to by the Master
Servicer or Special Servicer or in
connection with a bankruptcy or similar
proceeding involving the related
borrower).
An "Assumed Monthly Payment" is an
amount deemed due in respect of: (i) any
Balloon Loan (as defined herein) that is
delinquent in respect of its Balloon
Payment beyond the end of the Collection
Period in which its stated maturity date
occurs and as to which no arrangements
have been agreed to for collection of
the delinquent amounts; or (ii) any
Mortgage Loan as to which the related
Mortgaged Property has become an REO
Property. The Assumed Monthly Payment
for any such Balloon Loan deemed due on
its stated maturity date and on each
successive Due Date that it remains or
is deemed to remain outstanding shall
equal the Monthly Payment that would
have been due thereon on such date if
the related Balloon Payment had not come
due, but rather such Mortgage Loan had
continued to amortize in accordance with
such loan's amortization schedule, if
any, in effect immediately prior to
maturity and had continued to accrue
interest in accordance with its terms in
effect immediately prior to maturity.
The Assumed Monthly Payment for any such
Mortgage Loan as to which the related
Mortgaged Property has become an REO
Property, deemed due on each Due Date
for so long as such REO Property remains
part of the Trust Fund, shall equal the
Monthly Payment (or, in the case of a
Balloon Loan described in the prior
sentence, the Assumed Monthly Payment)
due on the last Due Date prior to the
acquisition of such REO Property.
Distributions of
Prepayment Premiums................ Any Prepayment Premium collected with
respect to a Group 1 Loan during any
particular Collection Period will be
distributed on the following
Distribution Date as follows: The
holders of the respective Classes of
Principal Balance Certificates then
entitled to distributions of principal
from the Principal Distribution Amount
in respect of Loan Group 1 for such
Distribution Date (other than, if
applicable, the Class A-2 Certificates),
will be entitled to an aggregate amount
(allocable among such Classes, if more
than one, as described below) equal to
the product of (a) the amount of the
subject Prepayment Premium, multiplied
by (b) the lesser of (i) 25% and (ii) a
fraction, expressed as a percentage, the
numerator
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of which is equal to the excess, if any,
of the then current Pass-Through Rate
applicable to the most senior of such
Classes of Principal Balance
Certificates then outstanding (or, in
the case of two or more Classes of Class
A Certificates, the one with the
earliest payment priority), over the
relevant Discount Rate (as defined
herein), and the denominator of which is
equal to the excess, if any, of the
Mortgage Rate for the prepaid Group 1
Loan, over the relevant Discount Rate.
If there is more than one Class of
Principal Balance Certificates (other
than the Class A-2 Certificates)
entitled to distributions of principal
from the Principal Distribution Amount
for Loan Group 1 for such Distribution
Date, the aggregate amount described in
the preceding sentence shall be
allocated among such Classes on a pro
rata basis in accordance with the
relative sizes of such distributions of
principal. Any portion of such
Prepayment Premium that is not so
distributed to the holders of such
Principal Balance Certificates will be
distributed to the holders of the Class
IO-1 Certificates.
Any Prepayment Premium collected with
respect to a Group 2 Loan during any
particular Collection Period will be
distributed on the following
Distribution Date to the holders of the
Class IO-2 Certificates. See
"Description of the Certi-
ficates--Distributions--Distributions of
Prepayment Premiums" herein.
Appraisal Reductions................. As soon as reasonably practicable
following the earliest of (i) the date
120 days after the occurrence of any
delinquency in payment with respect to a
Mortgage Loan if such delinquency
remains uncured, (ii) the date 90 days
after the related borrower files a
bankruptcy petition or a receiver is
appointed in respect of the related
Mortgaged Property, provided such
petition or appointment is still in
effect, (iii) the effective date of any
modification to the maturity date,
Mortgage Rate, principal balance,
amortization term or payment frequency
(each, a "Money Term") of a Mortgage
Loan, other than the extension of the
date that a Balloon Payment is due for a
period of less than six months, and (iv)
the date 30 days following the date the
related Mortgaged Property becomes an
REO Property (each of (i), (ii), (iii)
and (iv), an "Appraisal Event"; and the
affected Mortgage Loan, a "Required
Appraisal Loan"), the Master Servicer or
Special Servicer, as applicable, will be
required to obtain an MAI appraisal of
the related Mortgaged Property or REO
Property, as the case may be (or, at its
discretion, if the Stated Principal
Balance of the particular Required
Appraisal Loan is less than or equal to
$1,000,000, to perform an internal
valuation of such property). As a result
of such appraisal or internal valuation,
an "Appraisal Reduction" may be created.
The Appraisal Reduction for any Mortgage
Loan, including a Mortgage Loan as to
which the related Mortgaged Property has
become an REO Property, will be an
amount, calculated
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as of the first Determination Date that
is at least fifteen days after the date
on which an appraisal report is
obtained, equal to the excess, if any,
of (a) the sum of (i) the Stated
Principal Balance of such Mortgage Loan,
(ii) to the extent not previously
advanced by the Master Servicer, the
Trustee or the Fiscal Agent, all unpaid
interest on the Mortgage Loan, (iii) all
related unreimbursed Advances and
interest on such Advances at the Advance
Rate (as defined herein) and (iv) all
currently due and unpaid real estate
taxes and assessments (net of any
amounts escrowed for such items),
insurance premiums and, if applicable,
ground rents in respect of the related
Mortgaged Property or REO Property, as
the case may be, over (b) 90% of the
appraised value (net of any prior
mortgage liens) of such Mortgaged
Property or REO Property as determined
by such appraisal. Notwithstanding the
foregoing, if an internal valuation of
the related Mortgaged Property or REO
Property is performed, the Appraisal
Reduction will equal the greater of (a)
the amount calculated as described in
the preceding sentence and (b) 25% of
the Stated Principal Balance of the
Mortgage Loan. An Appraisal Reduction
will be reduced to zero as of the date
the related Mortgage Loan is brought
current under the then current terms of
the Mortgage Loan for at least three
consecutive months or is paid in full,
liquidated, repurchased, replaced or
otherwise disposed of.
The existence of an Appraisal Reduction
proportionately reduces the Master
Servicer's, the Trustee's or the Fiscal
Agent's, as the case may be, advancing
obligation in respect of delinquent
principal and interest on the related
Mortgage Loan, which may result in a
reduction in current distributions in
respect of the then most subordinate
Class of Principal Balance Certificates.
See "Description of the Certificates--
Advances--P&I Advances" herein.
Allocation of Realized Losses
and Expense Losses................. As and to the extent described herein,
Realized Losses and Expense Losses will
generally be allocated with respect to
each Distribution Date to the Class J,
Class H, Class G, Class F, Class E,
Class D, Class C and Class B
Certificates, in that order, and then to
the Class A-1A, Class A-1B, Class A-1C
and Class A-2 Certificates, pro rata, in
each case by reducing the aggregate
Certificate Balance of such Class of
Certificates by the amount so allocated
thereto. See "Description of
Certificates--Subordination; Allocation
of Losses and Certain Expenses" herein.
Prepayment Interest Shortfalls
and Balloon Payment
Interest Shortfalls................ If a borrower prepays a Mortgage Loan,
in whole or in part, prior to the
Determination Date in any calendar
month, the amount of interest (net of
related Master Servicing Fees (as
described herein)) accrued on such
prepayment, in general, from the
beginning of such calendar month to, but
not including, the date of prepayment
(or any later date through
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which interest accrues) will, to the
extent actually collected, constitute a
"Prepayment Interest Excess".
Conversely, if a borrower prepays a
Mortgage Loan, in whole or in part,
after the Determination Date in any
calendar month and does not pay interest
on such prepayment through, in general,
the end of such calendar month, then the
shortfall in a full month's interest
(net of related Master Servicing Fees)
on such prepayment will constitute a
"Prepayment Interest Shortfall".
Similarly, if the stated maturity date
for any Balloon Loan occurs after the
first day of, but before the
Determination Date in, any calendar
month, the amount of interest (net of
related Master Servicing Fees) accrued
on the related Balloon Loan, in general,
from the beginning of such month to such
stated maturity date will, to the extent
actually collected in connection with
the payment of such Balloon Payment on
or before such Determination Date,
constitute a "Balloon Payment Interest
Excess". Conversely, if the stated
maturity date for any Balloon Payment
occurs after the Determination Date in
any calendar month, the amount of
interest (net of related Master
Servicing Fees) that would have accrued
on the related Balloon Loan, in general,
from such stated maturity date through
the end of such calendar month will, to
the extent not paid by the borrower,
constitute a "Balloon Payment Interest
Shortfall". Prepayment Interest Excesses
and Balloon Payment Interest Excesses
collected on the Mortgage Loans during
any Collection Period will first be
applied to offset Prepayment Interest
Shortfalls and Balloon Payment Interest
Shortfalls, respectively, incurred in
respect of the Mortgage Loans during
such Collection Period and, to the
extent not needed for such purposes,
will be retained by the Master Servicer
as additional servicing compensation.
The Master Servicer will be obligated to
cover, out of its own funds, without
right of reimbursement: (i) in their
entirety, any such Balloon Payment
Interest Shortfalls in respect of the
Mortgage Loans that are not so offset by
Balloon Payment Interest Excesses; and
(ii) to the extent of that portion of
its Master Servicing Fees for the
related Collection Period calculated in
respect of all the Mortgage Loans at a
rate of 0.05% per annum, any Prepayment
Interest Shortfalls in respect of the
Mortgage Loans that are not so offset by
Prepayment Interest Excesses. Any
payment so made by the Master Servicer
to cover such shortfalls will constitute
a "Compensating Interest Payment". The
aggregate of all Prepayment Interest
Shortfalls incurred in respect of the
Mortgage Loans during any Collection
Period that are neither offset by
Prepayment Interest Excesses collected
on the Mortgage Loans during such
Collection Period nor covered by a
Compensating Interest Payment made by
the Master Servicer, shall constitute
the "Net Aggregate Prepayment Interest
Shortfall" for the related Distribution
Date.
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Any Net Aggregate Prepayment Interest
Shortfall for a Distribution Date will
be allocated among the respective
Classes of REMIC Regular Certificates,
on a pro rata basis, in the ratio that
the Accrued Certificate Interest with
respect to any such Class of
Certificates for such Distribution Date,
bears to the total of the Accrued
Certificate Interest with respect to all
Classes of REMIC Regular Certificates
for such Distribution Date. The
Distributable Certificate Interest in
respect of any Class of REMIC Regular
Certificates will be reduced to the
extent that any Net Aggregate Prepayment
Interest Shortfalls are allocated
thereto. See "Servicing of the Mortgage
Loans--Servicing and Other Compensation
and Payment of Expenses" herein.
Optional Termination................. The Depositor, the Master Servicer, the
Special Servicer and any holder of a
majority interest in the Class R-I
Certificates, will each have the option
to purchase, in whole but not in part,
the Mortgage Loans and any other
property remaining in the Trust Fund on
any Distribution Date as of which the
aggregate Certificate Balance of all
Classes of Principal Balance
Certificates then outstanding is less
than or equal to 3% of the Initial Pool
Balance. Such purchase will be at the
price described herein. See "Description
of the Certificates-- Optional
Termination" herein.
Master Servicing Fees ............... The Master Servicer will be entitled to
receive a monthly fee (a "Master
Servicing Fee") in respect of each
Mortgage Loan (payable out of payments
(or advances in lieu thereof) and other
collections of interest thereon)
generally equal to that portion of the
interest accrued on such Mortgage Loan
from time to time at the related Master
Servicing Fee Rate. The "Master
Servicing Fee Rate" for each Mortgage
Loan will equal: (i) 0.136% per annum in
the case of 115 Mortgage Loans,
representing 85.5% of the Initial Pool
Balance; and (ii) 0.186% per annum in
the case of 45 Mortgage Loans,
representing 14.5% of the Initial Pool
Balance. As of the Cut-off Date, the
weighted average Master Servicing Fee
Rate for the Mortgage Loans was 0.143%
per annum. The Master Servicer will be
obligated to pay Special Servicer
Standby Fees, the fees of its
subservicers and the ongoing fees of the
Trustee out of its Master Servicing
Fees. For a discussion of additional
Master Servicer compensation, as well as
Special Servicer compensation, see
"Servicing of the Mortgage
Loans--Servicing and Other Compensation
and Payment of Expenses" herein.
Advances............................. As and to the extent described herein,
the Master Servicer, the Trustee and the
Fiscal Agent will each be obligated to
make advances ("Advances") in respect of
delinquent payments of principal (other
than the principal portion of Balloon
Payments) and/or interest on the
Mortgage Loans ("P&I Advances") and to
cover certain servicing expenses
("Servicing Advances") in accordance
with the provisions set
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forth in the Pooling and Servicing
Agreement. See "Description of the
Certificates--Advances" herein. If the
Master Servicer fails to make any
Advance that it is obligated to make
pursuant to the Pooling and Servicing
Agreement, the Trustee will be required
to make such Advance; if the Trustee
fails to make any Advance that it is so
obligated to make pursuant to the
Pooling and Servicing Agreement, the
Fiscal Agent will be required to make
such Advance.
Each of the Master Servicer, the Trustee
and the Fiscal Agent, as applicable,
will be obligated to make Advances only
to the extent that it determines, in its
reasonable discretion, that such
Advances are ultimately recoverable from
future payments and other collections on
the related Mortgage Loan or REO
Property. Such determination will be
conclusive and binding on the
Certificateholders.
The Master Servicer, the Special
Servicer, the Trustee and the Fiscal
Agent will each be entitled, with
respect to any Advance made thereby, to
receive interest accrued on the amount
of such Advance for so long as it is
outstanding at a rate per annum (the
"Advance Rate") equal to the "prime
rate" as published in the "Money Rates"
section of The Wall Street Journal, as
such "prime rate" may change from time
to time. Such interest on any Advance
will be payable to the Master Servicer,
the Special Servicer, the Trustee or the
Fiscal Agent, as the case may be, out of
default interest and late payment
charges actually collected by the Master
Servicer or the Special Servicer (and
not retainable by any Sub-Servicer) in
respect of the related Mortgage Loan or,
in connection with or at any time
following the reimbursement of such
Advance, out of any amounts then on
deposit in the Certificate Account. To
the extent not offset by default
interest and late payment charges
actually collected in respect of any
defaulted Mortgage Loan, interest
accrued on outstanding Advances made in
respect thereof will result in a
reduction in amounts payable on the
Certificates. See "Description of the
Certificates--Advances" herein.
Certain Yield and Prepayment
Considerations..................... The yield on the Offered Certificates of
each Class thereof will depend on, among
other things, the Pass-Through Rate for
such Certificates.
The yield on any Principal Balance
Certificate that is purchased at a
discount or premium will also be
affected by the rate and timing of
distributions in respect of principal on
such Certificate, which in turn will be
affected by (i) the rate and timing of
principal payments (including principal
prepayments) on the Mortgage Loans and
(ii) the extent to which such principal
payments are applied on any Distribution
Date in reduction of the Certificate
Balance of such Certificate. An investor
that purchases any Principal Balance
Certificate at a discount should
consider the risk that a slower than
anticipated rate of principal payments
on such Certificate will result in an
actual yield that is lower than such
investor's expected yield. An investor
that purchases any Principal Balance
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Certificate at a premium should consider
the risk that a faster than anticipated
rate of principal payments on such
Certificate will result in an actual
yield that is lower than such investor's
expected yield. Insofar as an investor's
initial investment in any Principal
Balance Certificate is returned in the
form of payments of principal thereon,
there can be no assurance that such
amounts can be reinvested in a
comparable alternative investment with a
comparable yield. See "Description of
the Certificates--Distributions--
Application of the Available
Distribution Amount" and
"--Distributions--Principal Distribution
Amount" herein.
The Class IO-1 and Class IO-2
Certificates are interest-only
Certificates and are not entitled to any
distributions in respect of principal.
The yield to maturity of the Interest
Only Certificates will be especially
sensitive to the prepayment, repurchase,
default and recovery experience on, in
the case of the Class IO-1 Certificates,
the Group 1 Loans (and, to a lesser
extent, under certain circumstances, the
Group 2 Loans) and, in the case of the
Class IO-2 Certificates, the Group 2
Loans only, which prepayment,
repurchase, default and recovery
experience may fluctuate significantly
from time to time. A rate of principal
payments and liquidations on the
Mortgage Loans that is more rapid than
expected by investors will have a
material negative effect on the yield to
maturity of one or both of the Classes
of Interest Only Certificates. See
"Yield Considerations--Yield Sensitivity
of the Interest Only Certificates"
herein.
The actual rate of prepayment of
principal on the Mortgage Loans cannot
be predicted. The investment performance
of the Offered Certificates may vary
materially and adversely from the
investment expectations of investors due
to prepayments on the Mortgage Loans
being higher or lower than anticipated
by investors. The actual yield to the
holder of an Offered Certificate may not
be equal to the yield anticipated at the
time of purchase of the Certificate or,
notwithstanding that the actual yield is
equal to the yield anticipated at that
time, the total return on investment
expected by the investor or the expected
weighted average life of the Certificate
may not be realized. For a discussion of
certain factors affecting prepayment of
the Mortgage Loans, including the effect
of Prepayment Premiums, see "Yield
Considerations" herein. In deciding
whether to purchase any Offered
Certificates, an investor should make an
independent decision as to the
appropriate prepayment assumptions to be
used.
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Certificate Ratings.................. It is a condition of the issuance of the
Offered Certificates that they receive
the following credit ratings from Duff &
Phelps Credit Rating Co. ("DCR") and/or
Moody's Investors Service, Inc.
("Moody's" and, together with DCR, the
"Rating Agencies"):
Class DCR Moody's
----- --- -------
Class A-1A... AAA Aaa
Class A-1B... AAA Aaa
Class A-1C... AAA Aaa
Class A-2.... AAA Aaa
Class IO-1... AAA Aaa
Class IO-2... AAA Aaa
Class B...... AA- Aa2
Class C...... A- A2
Class D...... BBB- Baa2
Class E...... NR* Baa3
* "NR" means not rated.
In addition, it is a condition of the
issuance of the Private Certificates
that the Class F, Class G and Class H
Certificates be rated "BB", "BB-" and
"B", respectively, by DCR and "Ba2",
"Ba3" and "B3", respectively, by
Moody's. The Class J Certificates and
the REMIC Residual Certificates will be
unrated.
A securities rating addresses the
likelihood of the receipt by
Certificateholders of distributions due
on their Certificates. The rating takes
into consideration the characteristics
of the Mortgage Loans and the structural
and legal aspects associated with the
Certificates, including, if applicable,
distribution of all principal by the
Distribution Date in February 2020 (the
"Final Rated Distribution Date"). Each
security rating assigned to the
Certificates should be evaluated
independently of any other security
rating.
The ratings on the Offered Certificates
do not represent any assessment of (i)
the likelihood or frequency of principal
prepayments on the Mortgage Loans or the
corresponding effect on yield to
investors, (ii) the degree to which such
prepayments might differ from those
originally anticipated or (iii) whether
and to what extent Prepayment Premiums
will be received. A security rating does
not represent any assessment of the
yield to maturity that investors may
experience or the possibility that the
holders of a Class of Interest Only
Certificates might not fully recover
their investment in the event of rapid
prepayments of the Mortgage Loans
(including both voluntary and
involuntary prepayments). In general,
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the ratings address credit risk and not
prepayment risk. As described herein,
the amounts payable with respect to the
Interest Only Certificates consist only
of interest and a portion of Prepayment
Premiums actually collected. The
aggregate Notional Amount upon which
interest in respect of either Class of
Interest Only Certificates is calculated
may be reduced by Realized Losses and
prepayments of principal, whether
voluntary or involuntary. If all of the
Mortgage Loans were to prepay in the
initial month, with the result that the
Interest Only Certificateholders receive
only a single month's interest and thus
suffer a nearly complete loss of their
investment, all amounts "due" to such
Certificateholders would nevertheless
have been paid, and such result will be
consistent with the "AAA/Aaa" rating
received on the Interest Only
Certificates because the rating
addresses only the obligation to pay
interest timely on the respective
Notional Amounts of such Certificates as
so reduced from time to time.
Accordingly, the ratings of the Interest
Only Certificates should be evaluated
independently from similar ratings on
other types of securities.
A credit 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.
See "Ratings" and "Risk Factors and
Other Special Considerations" herein.
The Mortgage Pool.................... The Mortgage Pool will consist of 160
Mortgage Loans with an Initial Pool
Balance of $640,657,923, subject to a
permitted variance of plus or minus 5%.
The Cut-off Date Balances of the
Mortgage Loans (that is, in each case,
its principal balance outstanding as of
the Cut-off Date, after application of
all payments of principal due on or
before such date, whether or not
received) range from $191,747 to
$15,125,403, and the Mortgage Loans have
an average Cut-off Date Balance of
$4,004,112. All numerical information
provided herein with respect to the
Mortgage Loans is provided on an
approximate basis. All weighted average
information regarding the Mortgage Loans
reflects weighting of the Mortgage Loans
by Cut-off Date Balance. For purposes of
calculations herein, each Mortgage Loan
is deemed to be secured by a Mortgage on
one Mortgaged Property, whether or not
such Mortgaged Property consists of more
than one parcel of real property. See
"Description of the Mortgage
Pool--Certain Terms and Characteristics
of the Mortgage Loans--Multiple
Mortgaged Properties" herein.
Substantially all of the Mortgage Loans
are non-recourse obligations of the
related borrowers, and prospective
investors should consider all of them to
be non-recourse. No Mortgage Loan will
be insured or guaranteed by any
governmental entity or private insurer,
or by any other person.
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Each Mortgage Loan is secured by a first
mortgage lien on the borrower's fee
simple (or, in three (3) cases, which
represent 3.7% of the Initial Pool
Balance, leasehold or partial leasehold)
estate in an income-producing real
property (each, a "Mortgaged Property").
Set forth below are the number of
Mortgage Loans, and the approximate
percentage of the Initial Pool Balance
represented by such Mortgage Loans, that
are secured by Mortgaged Properties
operated for each indicated purpose:
Percentage of Number of
Property Initial Pool Mortgage
Type Balance Loans
---- ------- -----
Multifamily....... 21.6% 35
Retail............ 18.2 23
Self-Storage...... 12.7 36
Industrial........ 10.3 11
Nursing Home...... 9.4 16
Office............ 4.9 8
Various........... 5.5 5
Mobile Home Park.. 5.4 10
Congregate Care... 4.7 3
Hospitality....... 3.4 6
Other............. 3.9 7
For purposes of the foregoing, the term
"Various" is used to denote a Mortgaged
Property that consists of multiple
properties, two or more of which are
used for different purposes, and the
term "Other" is used to denote a
Mortgaged Property that consists of a
single property used for certain
combined uses detailed on Appendix II.
Set forth below are the number of
Mortgage Loans, and the approximate
percentage of the Initial Pool Balance
represented by such Mortgage Loans, that
are secured by Mortgaged Properties
located in the six (6) states with the
highest concentrations.
Percentage of Number of
Initial Pool Mortgage
State Balance Loans
----- ------- -----
California........ 20.4% 37
New York ......... 9.4 7
Texas ............ 9.4 17
Arizona........... 8.3 11
Massachusetts..... 8.2 10
Michigan.......... 5.1 5
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The remaining Mortgaged Properties are
located throughout 25 other states. No
other state has a concentration of
Mortgaged Properties that represents
security for more than 4.2% of the
Initial Pool Balance. See Appendix I
hereto.
Seven (7) separate groups of Mortgage
Loans (the "Cross-Collateralized
Mortgage Loans") are, solely as among
the Mortgage Loans in each such group,
cross-collateralized with each other.
Each such group of Mortgage Loans
represents between 0.5% and 3.0% of the
Initial Pool Balance, and all such
groups of Mortgage Loans collectively
represent 11.2% of the Initial Pool
Balance. See "Description of the
Mortgage Pool--Cross-Collateralized
Mortgage Loans" herein and Appendix II
hereto.
Twelve (12) additional Mortgage Loans
(exclusive of the Mortgage Loans
described in the previous paragraph)
are, in each case, secured by one or
more Mortgages encumbering multiple real
properties. Each such Mortgage Loan
represents between 0.9% and 2.1% of the
Initial Pool Balance, and all such
Mortgage Loans collectively represent
16.4% of the Initial Pool Balance. See
"Description of the Mortgage
Pool--Certain Terms and Characteristics
of the Mortgage Loans--Multiple
Mortgaged Properties" herein and
Appendix II hereto.
One hundred fifty-six (156) of the
Mortgage Loans (the "Fixed-Rate Loans"),
representing 94.0% of the Initial Pool
Balance, bear interest at annualized
rates ("Mortgage Rates") that will
remain fixed for the remaining terms of
the Mortgage Loans. Four (4) of the
Mortgage Loans (the "ARM Loans"),
representing 6.0% of the Initial Pool
Balance, accrue interest at Mortgage
Rates that are subject to adjustment on
a semi-annual or, in one case, monthly
basis, in general, by adding a specified
percentage (a "Gross Margin") to the
value of an index (an "Index"), subject
to rounding conventions and specified
floors and caps. The Index for the ARM
Loans is Six-Month LIBOR or, in one
case, One-Month LIBOR (in each case,
calculated as described herein). No
Mortgage Loan permits negative
amortization or the deferral of accrued
interest. See "Description of the
Mortgage Pool -- Certain Terms and
Conditions of the Mortgage Loans --
Mortgage Rates; Calculations of
Interest" and "--Certain Terms and
Conditions of the Mortgage Loans--The
ARM Loans" herein.
For purposes of calculating certain
distributions on the Certificates, the
Mortgage Pool has been divided into two
Loan Groups, designated as "Loan Group
1" and "Loan Group 2", respectively.
Loan Group 1 consists of the Fixed Rate
Loans, and Loan Group 2 consists of the
ARM Loans. The Class IO-2 and Class A-2
Certificates initially will correspond
to and evidence interests generally in
Loan Group 2, and the other REMIC
Regular Certificates initially will
correspond to and evidence interests
generally in Loan Group 1.
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One hundred thirty-nine (139) of the
Mortgage Loans, representing 93.9% of
the Initial Pool Balance, provide for
one of the following: (i) Monthly
Payments based on amortization schedules
significantly longer than their
respective terms to maturity (135 of
such Mortgage Loans, representing 90.6%
of the Initial Pool Balance ); or (ii)
mortgagee call options prior to Stated
Maturity, which the Master Servicer will
be required to exercise (two of such
Mortgage Loans, representing 1.6% of the
Initial Pool Balance); or (iii)
increases in the Mortgage Rate and
principal amortization at a date (the
"Hyper-Amortization Date") prior to
stated maturity that create an incentive
for the related borrower to prepay the
loan (two of such Mortgage Loans,
representing 1.6% of the Initial Pool
Balance). As a result, such Mortgage
Loans (the "Balloon Loans") will have
substantial payments (each such payment,
a "Balloon Payment") due and payable on
their respective maturity dates, call
dates and Hyper-Amortization Dates, as
the case may be, unless prepaid prior
thereto. The remaining 21 Mortgage
Loans, representing 6.1% of the Initial
Pool Balance, are fully-amortizing. See
"Risk Factors and Other Special
Considerations--The Mortgage
Loans--Balloon Payments" and
"Description of the Mortgage
Pool--Certain Terms and Characteristics
of the Mortgage Loans--Amortization"
herein.
As of the Cut-off Date, all of the
Mortgage Loans restrict voluntary
principal prepayments as follows: (i) 42
Mortgage Loans, representing 31.1% of
the Initial Pool Balance, prohibit
voluntary prepayments for a period (a
"Lock-out Period") ending on a date
(generally ranging from one (1) to ten
(10) years from the date of origination
or the first Due Date) specified in the
related Mortgage Note and, in most such
cases, thereafter impose "Prepayment
Premiums" until, in general, a specified
date (generally six months) prior to
maturity; and (ii) the remaining
Mortgage Loans do not provide for
Lockout Periods but impose Prepayment
Premiums in connection with voluntary
principal prepayments made prior to a
specified date (also generally six
months) prior to maturity. "Prepayment
Premiums" are amounts required to be
paid in addition to the amount of a
principal prepayment and are calculated
on the basis of either or both of a
yield maintenance formula (a "Yield
Maintenance Premium") or as a percentage
of the amount prepaid, which percentage,
in most such cases, declines over time
(a "Percentage Premium"). See
"Description of the Mortgage
Pool--Certain Terms and Characteristics
of the Mortgage Loans--Prepayment
Restrictions" herein. However, seven
Mortgage Loans, representing 5.7% of the
Initial Pool Balance, permit, in each
such case, voluntary principal
prepayments of up to 10% of the original
principal balance of the Mortgage Loan
in any calendar year without the
imposition of a Prepayment Premium. The
Master Servicer may not waive the
imposition of a Prepayment Premium or
reduce the amount thereof. The
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Special Servicer may waive the
imposition of a Prepayment Premium, or
reduce the amount thereof, with respect
to a Specially Serviced Mortgage Loan if
such waiver or reduction is consistent
with the Servicing Standard (as
described herein). Neither the Depositor
nor any Seller makes any representation
as to the enforceability of any Mortgage
Loan provisions requiring the payment of
a Prepayment Premium or of the
collectability of any Prepayment
Premium.
As of the Cut-off Date, the Mortgage
Loans will have the following additional
characteristics:
(i) Mortgage Rates ranging from 7.9375%
per annum to 10.440% per annum, and
a weighted average Mortgage Rate of
8.940% per annum for all Mortgage
Loans, 8.968% per annum for the
Group 1 (fixed rate) Loans and
8.501% per annum for the Group 2
(adjustable rate) Loans.
(ii) remaining terms to scheduled
maturity ranging from 55 months to
239 months, and a weighted average
remaining term to scheduled
maturity of 121 months for all
Mortgage Loans, 123 months for the
Group 1 Loans and 87 months for the
Group 2 Loans;
(iii)remaining amortization terms
ranging from 168 months to 360
months, and a weighted average
remaining amortization term of 303
months for all Mortgage Loans, 301
months for the Group 1 Loans and
339 months for the Group 2 Loans;
(iv) a weighted average Loan-to-Value
Ratio (calculated as described
herein under "Description of the
Mortgage Pool--Additional Mortgage
Loan Information") of 69.2% for all
the Mortgage Loans, 69.5% for the
Group 1 Mortgage Loans and 64.2%
for the Group 2 Loans; and
(v) a weighted average Debt Service
Coverage Ratio (calculated as
described herein under "Description
of the Mortgage Pool--Additional
Mortgage Loan Information") of
1.41x for all the Mortgage Loans,
1.42x for the Group 1 Loans and
1.37x for the Group 2 Loans.
On or prior to the Closing Date, the
Depositor will purchase the Mortgage
Loans and assign the Mortgage Loans,
without recourse, to the Trustee for the
benefit of the holders of the
Certificates (the "Certificateholders").
Each Seller will make certain
representations and warranties (or,
alternatively,
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assign certain representations and
warranties made to it by third parties)
regarding the characteristics of the
Mortgage Loans assigned by such Seller;
and, as more particularly described
herein, such Seller will agree (or such
third party has agreed) to cure any
material breach thereof or, in the
absence of such a cure, to repurchase or
replace the affected Mortgage Loan. See
"Description of the Mortgage
Pool--Representations and Warranties"
and "-- Repurchases and Other Remedies"
herein.
The characteristics of the Mortgage
Loans are more particularly described
herein under "Description of the
Mortgage Pool," in the tables in
Appendix I and in the Mortgage Loan
Schedule in Appendix II.
Use of Proceeds...................... The Depositor will use substantially all
of the net proceeds from the sale of the
Offered Certificates to purchase the
Mortgage Loans and to pay certain
expenses in connection with the issuance
of the Offered Certificates.
Federal Income
Tax Considerations.................. Three separate "real estate mortgage
investment conduit" ("REMIC") elections
will be made with respect to the Trust
Fund for federal income tax purposes.
The assets of "REMIC I" will consist
primarily of the Mortgage Loans and any
properties acquired on behalf of the
Certificateholders. The assets of "REMIC
II" will consist of the separate
uncertificated REMIC I regular
interests. The assets of "REMIC III"
will consist of the separate
uncertificated REMIC II regular
interests. For federal income tax
purposes, (i) the REMIC Regular
Certificates will be the "regular
interests" in, and generally will be
treated as debt obligations of, REMIC
III, and (ii) the Class R-I Certificates
will be the sole class of residual
interests in REMIC I, the Class R-II
Certificates will be the sole class of
residual interests in REMIC II and the
Class R-III Certificates will be the
sole class of residual interests in
REMIC III.
The Offered Certificates will be treated
as "real estate assets" under Section
856(c)(5)(A) of the Internal Revenue
Code of 1986, as amended, (the "Code"),
generally in the same proportion that
the assets in the Trust Fund would be so
treated. In addition, interest on the
Offered Certificates will be treated as
"interest on obligations secured by
mortgages on real property" under
Section 856(c)(3)(B) of the Code
generally to the extent that such
Offered Certificates are treated as
"real estate assets" under Section
856(c)(5)(A) of the Code. The Offered
Certificates also will be treated as
"qualified mortgages" under Section
860G(a)(3) of the Code. However, the
Offered Certificates will generally only
be considered assets described in
Section 7701(a)(19)(C) of the Code to
the extent that the Mortgage Loans are
secured by residential property and,
accordingly, may not be suitable for
certain thrift institutions.
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The Interest Only Certificates will, and
the other Classes of Offered
Certificates will not, be treated for
Federal income tax information reporting
purposes as having been issued with
"original issue discount." The
prepayment assumption (the "Prepayment
Assumption") that will be used in
determining the rate of accrual of
original issue discount, market discount
and amortizable premium, if any, for
federal income tax purposes will be a 5%
CPR (as described in the Prospectus)
applied to each Mortgage Loan during any
period that voluntary principal
prepayments may be made thereon without
a Yield Maintenance Premium being
required. However, the Depositor makes
no representation that the Mortgage
Loans will in fact only prepay during
any such period or that they will prepay
at any particular rate before or during
any such period.
If the method for computing original
issue discount described herein results
in a negative amount for any period with
respect to an Offered Certificate issued
with original issue discount, in
particular, an Interest Only
Certificate, the amount of original
issue discount allocable to such period
will be zero and the holder of such a
Certificate will be permitted to offset
such negative amount only against future
original issue discount (if any)
attributable to such Certificate. See
"Certain Federal Income Tax
Considerations" herein and in the
Prospectus.
ERISA Considerations................. A fiduciary of an employee benefit plan
or other retirement plan or arrangement
subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA") or Section 4975 of the Code,
or an investor that is an insurance
company, should review carefully with
its legal advisors whether the purchase,
holding or sale of the Offered
Certificates could constitute or result
in a transaction that is prohibited or
is not otherwise permissible under ERISA
or Section 4975 of the Code and, if
prohibited, whether any statutory or
administrative exemption is applicable
to any such purchase, holding or sale.
The United States Department of Labor
has issued an individual prohibited
transaction exemption to the Underwriter
that generally exempts from the
application of certain of the prohibited
transaction provisions of ERISA and the
Code transactions relating to the
purchase, holding and sale of certain
pass-through certificates underwritten
by the Underwriter such as the Senior
Certificates and the servicing and
operation of asset pools such as the
Mortgage Pool, provided that certain
conditions are satisfied. These
exemptions are not applicable to the
Class B, Class C, Class D and Class E
Certificates; however, a class
prohibited transaction exemption granted
with respect to transactions involving
insurance company general accounts may
be applicable to the purchase and
holding by insurance
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companies of such Classes, provided that
the conditions of such exemption are
satisfied. See "ERISA Considerations"
herein.
Legal Investment..................... The Offered Certificates will not
constitute "mortgage related securities"
for purposes of the Secondary Mortgage
Market Enhancement Act of 1984
("SMMEA"). The appropriate
characterization of a Class of Offered
Certificates under various legal
investment restrictions, and thus the
ability of investors subject to these
restrictions to purchase Offered
Certificates, may be subject to
significant interpretive uncertainties.
All investors whose investment authority
is subject to legal restrictions should
consult their own legal advisors to
determine whether, and to what extent,
the Offered Certificates will constitute
legal investments for them.
The Depositor makes no representations
as to the proper characterization of the
Offered Certificates for legal
investment or financial institution
regulatory purposes, or as to the
ability of particular investors to
purchase the Offered Certificates under
applicable legal investment
restrictions. The uncertainties
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. See "Legal Investment" in
the Prospectus.
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<PAGE>
RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS
Investors should consider, among other things, the following risks and
other important factors (as well as the risk factors set forth under "Risk
Factors" in the Prospectus) in connection with a purchase of Offered
Certificates:
The Certificates
Limited Liquidity
There is currently no secondary market for the Offered Certificates. The
Depositor has been advised by the Underwriter that it presently intends to make
a secondary market in the Offered Certificates; however, it has no obligation to
do so and any market making activity may be discontinued at any time. There can
be no assurance that a secondary market for the Offered Certificates will
develop or, if it does develop, that it will provide holders of Offered
Certificates with liquidity of investment or that it will continue for the life
of the Offered Certificates. The Offered Certificates will not be listed on any
securities exchange. See "Risk Factors--Limited Liquidity" in the Prospectus.
Certain Yield Considerations
The yield on any Offered Certificate will depend on (x) the price at which
such Certificate is purchased by an investor and (y) the rate, timing and amount
of distributions on such Certificate. The rate, timing and amount of
distributions on any Offered Certificate will, in turn, depend on, among other
things, (a) the Pass-Through Rate for such Certificate, (b) the rate and timing
of principal payments (including principal prepayments) and other principal
collections on or in respect of the Mortgage Loans and the extent to which such
amounts are to be applied or otherwise result in a reduction of the Certificate
Balance or Notional Amount of such Certificate, (c) the rate, timing and
severity of Realized Losses on or in respect of the Mortgage Loans and of
Expense Losses and the extent to which such losses and expenses result in a
reduction of the Certificate Balance or Notional Amount of such Certificate, (d)
the timing and severity of any Net Aggregate Prepayment Interest Shortfalls and
the extent to which such shortfalls are allocated in reduction of the interest
payable on such Certificate, (e) the timing and severity of any Appraisal
Reductions and the extent to which such Appraisal Reductions result in a
reduction or deferral of amounts otherwise payable on such Certificate and (f)
the extent to which Prepayment Premiums are collected and, in turn, distributed
on such Certificate. Except for the Pass-Through Rates on the Class A-1A, Class
A-1B, Class A-1C, Class B, Class C, Class D and Class E Certificates (which are,
in each case, fixed), it is impossible to predict with certainty any of the
factors described in the preceding sentence. Accordingly, investors may find it
difficult to analyze the effect that such factors might have on the yield to
maturity of any Class of Offered Certificates. The yield to maturity of the
Interest Only Certificates will be highly sensitive to the rate and timing of
principal payments (including by reason of prepayments, defaults and
liquidations) on or in respect of the Group 1 Loans (and, to a lesser extent,
under certain circumstances, the Group 2 Loans), in the case of the Class IO-1
Certificates, and on or in respect of the Group 2 Loans (and not the Group 1
Loans), in the case of the Class IO-2 Certificates, and an investor in the
Interest Only Certificates should fully consider the associated risks, including
the risk that an extremely rapid rate of amortization and prepayment of the
aggregate Notional Amount of its Certificates could result in the failure of
such investors to recoup their initial investments. See "Description of the
Mortgage Pool", "Description of the Certificates--Distributions" and
"--Subordination; Allocation of Losses and Certain Expenses" and "Yield
Considerations" herein. See also "Yield Considerations" and "Risk
Factors--Average Life of Certificates; Prepayments; Yields" in the Prospectus.
Limited Obligations
The Offered Certificates will represent beneficial ownership interests
solely in the assets of the Trust Fund and will not represent an interest in or
obligation of the Depositor, any Seller, the Master Servicer, the Special
Servicer, the Fiscal Agent, the Trustee or any of their respective affiliates or
any other person. Distributions on any Class of Offered Certificates will depend
solely on the amount and timing of payments and other collections in respect of
the Mortgage Loans. Although amounts, if any, otherwise distributable to the
holders of any Class of Subordinate Certificates on any Distribution Date will
be available, to the extent set forth herein, to make distributions on the
Senior Certificates and the Classes of Subordinate Certificates senior thereto,
if Realized Losses or Expense Losses occur, there can be no assurance that these
amounts, together with other payments and collections in respect of the Mortgage
Loans, will be sufficient to
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<PAGE>
make full and timely distributions on any Class of Offered Certificates. See
"Risk Factors--Limited Assets" in the Prospectus.
Subordination of Class B, Class C, Class D and Class E Certificates
As described herein, the rights of holders of the Subordinate Certificates,
including the Class B, Class C, Class D and Class E Certificates, to receive
certain payments of principal and interest otherwise payable on their
Certificates will, in the case of each Class of Subordinate Certificates, be
subordinated to such rights of the holders of the Senior Certificates and the
holders of each other Class of Subordinate Certificates, if any, having an
earlier alphabetical Class designation, to the extent set forth herein. See
"Description of the Certificates--Distributions" herein. Realized Losses on the
Mortgage Loans and Expense Losses will be allocated to the Class J, Class H,
Class G, Class F, Class E, Class D, Class C and Class B Certificates, in that
order, reducing amounts payable to each such Class.
Potential Conflict of Interest in Connection with Specially Serviced Mortgage
Loans
The Special Servicer is given considerable latitude in determining whether
and in what manner to liquidate or modify defaulted Mortgage Loans. As described
under "Servicing of the Mortgage Loans--The Operating Adviser," the Operating
Adviser will be empowered to replace the Special Servicer. At any given time,
the Operating Adviser will be controlled generally by the holders of the most
subordinated (or, under certain circumstances as described herein, the next most
subordinated) Class of Principal Balance Certificates (that is, the Controlling
Class as described herein) outstanding from time to time, and such holders may
have interests in conflict with those of the holders of the Offered
Certificates. For instance, the holders of Certificates of the Controlling Class
might desire to mitigate the potential for loss to that Class from a troubled
Mortgage Loan by deferring enforcement in the hope of maximizing future
proceeds. However, the interests of the Trust Fund may be better served by
prompt action, since delay followed by a market downturn could result in less
proceeds to the Trust Fund than would have been realized if earlier action had
been taken. Furthermore, it is anticipated that the Special Servicer or an
affiliate will acquire certain Private Certificates (including those of the
initial Controlling Class). Thus, the Special Servicer may, in certain
circumstances, have interests that conflict with the interests of the holders of
the Offered Certificates.
The Mortgage Loans
Risks of Lending on Income-Producing Properties Generally
The Mortgaged Properties consist entirely of income-producing real estate.
Lending on the security of income-producing real estate is generally viewed as
exposing a lender to a greater risk of loss than lending on the security of
single-family residences. Multifamily and commercial real estate lending
typically involves larger loans than single-family lending. In addition, and
unlike the case of loans made on the security of single-family residences,
repayment of loans made on the security of income-producing real property
depends upon the ability of that property (i) to generate rental income
sufficient to pay operating expenses, to make necessary repairs, tenant
improvements and capital improvements and to pay debt service and (ii) in the
case of loans that do not fully amortize over their terms, to retain sufficient
value to permit the borrower to pay off the loan at maturity by sale or
refinancing. A number of factors, many beyond the control of the property owner,
can affect the ability of an income-producing real estate project to generate
sufficient net operating income to pay debt service and/or to maintain its
value. Among these factors are economic conditions generally and in the area of
the project, the age, quality and design of the project and the degree to which
it competes with other projects in the area, changes or continued weaknesses in
specific industry segments, increases in operating costs, the willingness and
ability of the owner to provide capable property management and maintenance and
the degree to which the project's revenue is dependent upon a single tenant or
user, a small group of tenants, or tenants concentrated in a particular business
or industry. If leases are not renewed or replaced, if tenants default, if
rental rates fall and/or if operating expenses increase, the borrower's ability
to repay the loan may be impaired and the resale value of the property, which is
substantially dependent upon the property's ability to generate income, may
decline. In addition, there are other factors, including changes in zoning or
tax laws, the availability of credit for financing, and changes in interest rate
levels that may adversely affect the value of a project (and thus the borrower's
ability to sell or refinance) without necessarily affecting the ability to
generate current income. In addition, particular types of income properties are
exposed to particular risks, some of which are summarized below.
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<PAGE>
Risks Particular to Retail, Office and Industrial Properties
Forty-nine (49) Mortgage Loans, representing 37.3% of the Initial Pool
Balance, are secured by Mortgages on retail (18.2% of the Initial Pool Balance),
industrial (10.3% of the Initial Pool Balance), office (4.9% of the Initial Pool
Balance) and other (3.9% of the Initial Pool Balance) properties used for a
combination of commercial purposes. In addition to risks generally associated
with real estate, such properties can also be adversely affected by other
factors.
For instance, retail properties can be affected significantly by adverse
changes in consumer spending patterns and competition from alternative forms of
retailing (such as direct mail, video shopping networks, telephone shopping and
electronic commerce) that reduce the need for retail space. In addition,
significant tenants at a retail property play an important part in generating
customer traffic and making a retail property a desirable location for other
tenants. Thus, a retail property may be adversely affected if an anchor or other
significant tenant ceases operations (which may occur at the expiration of a
lease term or the term of its covenant to operate, the tenant's bankruptcy, its
general cessation of business activities or for other reasons). In addition,
certain tenants at retail properties may be entitled to terminate their leases
if one or more anchor tenants cease operations.
Office properties generally require their owners to expend significant
amounts of cash to pay for general capital improvements, tenant improvements and
costs of re-leasing space. Office properties that are not equipped to
accommodate the needs of modern businesses may become functionally obsolete and
thus non-competitive. In addition, and like anchored shopping centers, the
success of an office property with a single or dominant tenant may depend
significantly on that tenant's continued occupancy.
Industrial properties may be adversely affected by reduced demand for
industrial space occasioned by a decline in a particular industry segment. Also,
an industrial property that suited the particular needs of its original tenant
may be difficult to relet to another tenant or, like office properties, may
become functionally obsolete relative to newer properties.
Risks Particular to Multifamily Properties
Thirty-five (35) Mortgage Loans, representing 21.6% of the Initial Pool
Balance, are secured by Mortgages on multifamily properties. Multifamily
projects are part of a market that, in general, is characterized by low barriers
to entry. Thus, a particular apartment market with historically low vacancies
could experience substantial new construction, and a resultant oversupply of
units, in a relatively short period of time. Since multifamily apartment units
are typically leased on a short-term basis, the tenants who reside in a
particular project within such a market may easily move to newer projects with
better amenities. In addition, occupancy and rent levels may be adversely
affected by unfavorable economic conditions generally, local military base or
factory closings and national and local politics, including current or future
rent stabilization and rent control laws and agreements. Further, reduced
mortgage interest rates may encourage renters to purchase single-family housing.
Certain of the multifamily Mortgaged Properties have material concentrations of
students as tenants.
Risks Particular to Nursing Home Properties
Sixteen (16) Mortgage Loans, representing 9.4% of the Initial Pool Balance,
are secured by Mortgages on properties operated as skilled nursing facilities.
Such facilities typically receive a substantial portion of their revenues
from government reimbursement programs, primarily Medicaid and Medicare.
Medicaid and Medicare are subject to statutory and regulatory changes,
retroactive rate adjustments, administrative rulings, policy interpretations,
delays by fiscal intermediaries and government funding restrictions, all of
which can adversely affect revenues from operation. Moreover, governmental
payors have employed cost-containment measures that limit payments to health
care providers and there are currently under consideration various proposals for
national health care relief that could further limit these payments. In
addition, providers of long-term nursing care and other medical services are
highly regulated by federal, state and local law and are subject to, among other
things, federal and state licensing requirements, facility inspections, rate
setting, reimbursement policies, and laws relating to the adequacy of medical
care, distribution of pharmaceuticals, equipment, personnel, operating policies
and maintenance of and additions to facilities and services, any or all of which
factors can increase the cost of operation, limit growth and, in extreme cases,
require or result in suspension or cessation of operations.
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<PAGE>
Under applicable federal and state laws and regulations, Medicare and
Medicaid reimbursements are generally not permitted to be made to any person
other than the provider who actually furnished the related medical goods and
services. Accordingly, in the event of foreclosure on a nursing facility, a
subsequent lessee or operator of the facility would generally not be entitled to
obtain from government payors any outstanding reimbursement payments relating to
services furnished prior to such foreclosure.
Skilled nursing facilities are subject to state regulation that requires
the operators to be licensed (generally on an annual basis), and the facilities
must meet various state licensure requirements that relate, among other things,
to qualifications of personnel, quality of care and the adequacy of their
buildings, equipment and suppliers. In the event of foreclosure, there can be no
assurance that the Trustee or purchaser at a foreclosure sale would be entitled
to the rights under any required licenses and regulatory approvals, or that such
party, if required to apply in its own right, could obtain a new license or a
new approval. In addition, such facilities are generally "special purpose"
properties that are not readily converted to general residential, retail or
office use.
Risks Particular to Self-Storage Facilities
Thirty-six (36) Mortgage Loans, representing 12.7% of the Initial Pool
Balance, are secured by Mortgages on self-storage properties. Self-storage
properties are considered vulnerable to competition because both acquisition
costs and break-even occupancy are relatively low. In addition, conversion of a
self-storage facility to an alternative use generally requires substantial
capital expenditures. Thus, if the operations of any of the self-storage
Mortgaged Properties becomes unprofitable due to decreased demand, competition,
age of improvements or other factors such that the borrower becomes unable to
meet its obligations on the related Mortgage Loan, the liquidation value of that
Mortgaged Property may be substantially less, relative to the amount owing on
the Mortgage Loan, than would be the case if the Mortgaged Property were readily
adaptable to other uses. User privacy and ease of access to individual storage
space may heighten environmental risks, although lease agreements generally
prohibit users from storing hazardous substances in the units. The environmental
assessments discussed herein did not include an inspection of the contents of
the self-storage units of the self-storage Mortgaged Properties. Accordingly,
there is no assurance that all of the units included in the self-storage
Mortgaged Properties are free from hazardous substances or will remain so in the
future.
Mortgage Loans Not Insured
The Mortgage Loans are not insured or guaranteed by any governmental
entity, any private mortgage insurer or any other person. As described herein,
in certain limited circumstances, a Seller may be obligated to repurchase or
replace a Mortgage Loan if its representations and warranties concerning such
Mortgage Loan are breached; however, there can be no assurance that any Seller
will be in a financial position to effect such repurchase or substitution. See
"Description of the Mortgage Pool--The Sellers" and "--Representations and
Warranties" and "-- Repurchases and Other Remedies" herein.
Non-Recourse Mortgage Loans
Substantially all of the Mortgage Loans are non-recourse loans as to which
recourse, in the event of a default, will be limited to the related Mortgaged
Property. In those cases where the loan documents permit recourse to the
borrower or a guarantor, the related Seller has not evaluated the financial
condition of such person. Consequently, payment on each Mortgage Loan prior to
maturity is (or should be considered by investors to be) dependent primarily on
the sufficiency of the cash flow of the related Mortgaged Property, and at
maturity (whether at scheduled maturity or, in the event of a default, upon the
acceleration of such maturity) upon the then market value of the related
Mortgaged Property or the ability of the related borrower to refinance the
Mortgaged Property.
Environmental Considerations
Contamination of real property may give rise to a lien on that property to
assure payment of the cost of clean-up or, in certain circumstances, may result
in liability to the lender for that cost. Such contamination may also reduce the
value of a property. An environmental site assessment (or in some cases an
update of a previous assessment) was performed with respect to each Mortgaged
Property in connection with the origination or acquisition thereof. Although the
reports of such environmental site assessments generally did not disclose the
presence or risk of environmental
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contamination that is considered material to the interests of the holders of the
Offered Certificates, no assurance can be given that the environmental
assessments revealed all existing or potential environmental risks or that all
adverse environmental conditions have been completely remediated. Furthermore,
certain of such environmental assessments are more than a year old. See
"Description of the Mortgage Pool--Assessments of Property Value and
Condition--Environmental Assessments" herein and "Certain Legal Aspects of the
Mortgage Loans and the Leases--Environmental Legislation" in the Prospectus.
The Pooling and Servicing Agreement requires that the Special Servicer
obtain an environmental site assessment of a Mortgaged Property prior to
acquiring title thereto or assuming its operation. Such requirement effectively
precludes enforcement of the security of the related Mortgage Note until a
satisfactory environmental site assessment is obtained (or until any required
remedial action is thereafter taken); however, such requirement also decreases
the likelihood that the Trust Fund will become liable for a material adverse
environmental condition at a Mortgaged Property. However, there can be no
assurance that the requirements of the Pooling and Servicing Agreement will
effectively insulate the Trust Fund from potential liability for a materially
adverse environmental condition at any Mortgaged Property. See "Risk
Factors--Environmental Risks" and "Certain Legal Aspects of the Mortgage Loans
and the Leases--Environmental Legislation" in the Prospectus.
Balloon Payments
One hundred thirty-nine (139) of the Mortgage Loans, representing 93.9% of
the Initial Pool Balance, do not fully amortize over their respective terms to
maturity, or provide for mortgagee call options prior to stated maturity, which
the Master Servicer will be required to exercise, or provide for increases in
the Mortgage Rate and amortization at a specified date prior to stated maturity
(thereby creating an incentive for the borrow to prepay). Thus, each such
Mortgage Loan will have a substantial payment (that is, a "Balloon Payment") due
at its stated maturity date, call date or Hyper-Amortization Date, unless
prepaid prior thereto. Loans with Balloon Payments involve a greater risk to a
lender than fully-amortizing loans because the ability of a borrower to make a
Balloon Payment typically will depend upon its ability either to fully refinance
the loan or to sell the related Mortgaged Property at a price sufficient to
permit the borrower to make the Balloon Payment. The ability of a borrower to
effect a refinancing or sale will be affected by a number of factors, including
the value of the related Mortgaged Property, the level of available mortgage
rates at the time of sale or refinancing, the borrower's equity in the Mortgaged
Property, the financial condition and operating history of the borrower and the
Mortgaged Property, tax laws, prevailing economic conditions and the
availability of credit for loans secured by multifamily or commercial, as the
case may be, real properties generally. None of the Sellers, the Master
Servicer, the Special Servicer or their respective affiliates is under any
obligation to refinance any Mortgage Loan. See "Description of the Mortgage
Pool--Certain Terms and Characteristics of the Mortgage Loans" herein and "Risk
Factors--Balloon Payments; Obligor Default" in the Prospectus.
In order to maximize recoveries on defaulted Mortgage Loans, the Special
Servicer may modify and/or extend the maturity of Mortgage Loans that are in
material default or as to which a payment default (including the failure to make
a Balloon Payment) is imminent; subject, however, to the limitations described
under "Servicing of the Mortgage Loans--Modifications, Waivers, Amendments and
Consents" herein. There can be no assurance, however, that any such extension or
modification will increase the present value of recoveries in a given case. Any
delay in collection of a Balloon Payment that would otherwise be distributed in
respect of a Class of Principal Balance Certificates, whether such delay is due
to borrower default or to modification of the related Mortgage Loan, will likely
extend the weighted average life of such Class of Certificates. See "Yield
Considerations" herein and in the Prospectus.
Geographic Concentration
Thirty-seven (37) of the Mortgage Loans, representing 20.4% of the Initial
Pool Balance, are secured by liens on Mortgaged Properties located in
California. Concentrations of Mortgaged Properties (in each case representing
security for less than 10% of the Initial Pool Balance) also exist in several
other states. In general, a concentration of Mortgaged Properties in a
particular state or region increases the exposure of the Mortgage Pool to any
adverse economic or other developments or acts of nature that may occur in that
state or region. In recent periods, most regions of the United States (including
California and other regions in which the Mortgaged Properties are located) have
experienced downturns in the market value of real estate. In addition,
improvements on Mortgaged Properties located in California may be more
susceptible to certain types of special hazards not covered by insurance (such
as earthquakes) than properties
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located in other parts of the country. The Mortgage Loans generally do not
require any borrowers to maintain earthquake insurance.
Concentrations of Mortgage Loans
Many of the Mortgage Loans, either individually or together with other
Mortgage Loans with which they are cross-collateralized, have Cut-off Date
Balances that are substantially higher than the $4,004,112 average Cut-off Date
Balance. For instance, the seven largest Mortgage Loans constitute 4.4% of the
Mortgage Pool by number but have Cutoff Date Balances that represent, in the
aggregate, approximately 14.0% of the Initial Pool Balance.
Several groups of Mortgage Loans are made to the same borrower or have
related borrowers that are affiliated with one another through partial or
complete direct or indirect common ownership and where, in general, the related
Mortgaged Properties are commonly managed. The four largest of these groups, by
aggregate Cut-off Date Balance of the Mortgage Loans, represent 5.1%, 3.8%, 3.7%
and 3.7%, respectively, of the Initial Pool Balance. See "Description of the
Mortgage Pool--Certain Terms and Characteristics of the Mortgage Loans" herein
and Appendix II hereto.
In general, concentrations in a mortgage pool of loans with larger than
average principal balances can result in losses that are more severe, relative
to the size of the pool, than would be the case if the aggregate principal
balance of the pool were more evenly distributed. Concentration of borrower
representation in a mortgage pool can also pose increased risks. For instance,
Mortgaged Properties that are owned by a group of related borrowers and are
commonly managed create the risk that property management errors or poor
property management, or financial difficulties in respect of any such borrower,
could have a more widespread adverse effect on the Mortgage Pool than would be
the case absent such common ownership and management.
Limitations of Appraisals
An appraisal or other market analysis was conducted in respect of the
Mortgaged Properties in connection with the origination or acquisition of the
related Mortgage Loan, and the resulting estimates of value are the bases of the
Cut-off Date LTV Ratios referred to herein. However, those estimates represent
the analysis and opinion of the person performing the appraisal or market
analysis and are not guarantees of present or future values. Moreover, the
values of the Mortgaged Properties may have fluctuated significantly since the
appraisal or market study was performed. In addition, appraisals seek to
establish the amount a typically motivated buyer would pay a typically motivated
seller. Such amount could be significantly higher than the amount obtained from
the sale of a Mortgaged Property under a distress or liquidation sale.
Information regarding the values of Mortgaged Properties available to the
Depositor as of the Cut-off Date is presented in Appendix I and Appendix II
hereto for illustrative purposes only. See "Description of the Mortgage
Pool--Assessments of Property Value and Condition--Appraisals" herein.
Adjustable Rate Mortgage Loans
Four of the Mortgage Loans, representing 6.0% of the Initial Pool Balance,
are adjustable rate mortgage loans and constitute Loan Group 2. If, as a result
of increases in the value of the related Indexes, the amount of the required
Monthly Payments increase beyond the amounts assumed in the original
underwriting of such loans, a default rate higher than that on mortgage loans
with fixed mortgage rates could result.
Property Management
The successful operation of an income producing property is dependent on
the performance and viability of the property manager. The property manager is
responsible for responding to changes in the local market, planning and
implementing the rental structure, including establishing levels of rent
payments, and ensuring that maintenance and capital improvements are carried out
in a timely fashion. Accordingly, by controlling costs, providing appropriate
service to tenants and seeing to the maintenance of improvements, sound property
management can improve cash flow, reduce vacancy, leasing and repair costs and
preserve building value. On the other hand, management errors can, in some
cases, impair the long term viability of an income producing property. The
Sellers have identified several groups of Mortgage Loans that have the same or
related management.
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Leasehold Considerations
One (1) Mortgage Loan representing 1.4% of the Initial Pool Balance, is
secured solely by a Mortgage on the borrower's leasehold interest under a ground
lease. In addition, two (2) Mortgage Loans, which represent 2.3% of the Initial
Pool Balance, are each secured by a Mortgage on both the borrower's leasehold
interest in a portion of the related Mortgaged Property and the borrower's fee
simple interest in the remainder of the related Mortgaged Property. See
"Description of the Mortgage Pool--Additional Mortgage Loan Information--Ground
Leases" herein. 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. However, in each of these cases, the related ground
lease requires the lessor to give the leasehold mortgagee notice 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.
Risks of Secured Subordinate Financing
Two (2) of the Mortgaged Properties, representing security for 0.6% of the
Initial Pool Balance, are known to be encumbered by secured subordinated debt
held by third parties. In each such case, the holder of the subordinate debt has
agreed not to foreclose for so long as the related Mortgage Loan is outstanding
and the Trust Fund is not pursuing a foreclosure action. In addition, two (2)
other Mortgage Loans permit further encumbrances of the related Mortgaged
Property, subject to the satisfaction of certain conditions; and, in the case of
certain of the nursing home Mortgaged Properties, the borrower is permitted to
incur indebtedness secured by senior liens on its accounts receivable. Other
than as indicated above, the Depositor has not determined whether any other
secured subordinate financing currently encumbers any Mortgaged Property. See
"Description of the Mortgage Pool--Certain Terms and Characteristics of the
Mortgage Loans--Subordinate Financing" herein. The existence of secured
subordinate indebtedness may increase the difficulty of refinancing the related
Mortgage Loan at maturity. Also, if the holder of the secured subordinated debt
becomes a debtor in a bankruptcy proceeding, foreclosure of the Mortgage Loan
could be delayed.
Risk of Changes in Concentrations
As payments in respect of principal (including in the form of voluntary
principal prepayments and liquidation proceeds) are received with respect to the
Mortgage Loans, the Mortgage Pool may exhibit increased concentration with
respect to the type of properties, property characteristics, number of borrowers
and affiliated borrowers and geographic location. Because principal on the
Principal Balance Certificates is payable in sequential order, the Classes
thereof that have a lower priority with respect to the payment of principal are
relatively more likely to be exposed to any risks associated with changes in
concentrations of borrower, loan or property characteristics.
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DESCRIPTION OF THE CERTIFICATES
General
The Series 1997-C1 Commercial Mortgage Pass-Through Certificates (the
"Certificates") will be issued on or about March 26, 1997 (the "Closing Date")
pursuant to a Pooling and Servicing Agreement to be dated as of the Cut-off Date
(the "Pooling and Servicing Agreement"), among the Depositor, the Master
Servicer, the Special Servicer, the Trustee and the Fiscal Agent. Registered
holders of the Certificates are herein referred to as "Certificateholders". The
Certificates will represent in the aggregate the entire beneficial ownership
interest in a trust fund (the "Trust Fund") consisting primarily of: (i) the
Mortgage Loans and all payments under and proceeds of the Mortgage Loans
received after the Cut-off Date (exclusive of principal prepayments received
prior to the Cut-off Date, scheduled payments of principal and interest due on
or before the Cut-off Date and, in the case of one Mortgage Loan, payments in
the nature of an equity participation in certain revenues); (ii) any Mortgaged
Property acquired on behalf of the Certificateholders in respect of a defaulted
Mortgage Loan through foreclosure, deed in lieu of foreclosure or otherwise (any
such Mortgage Property, upon acquisition, an "REO Property"); and (iii) certain
rights of the Depositor under, or assigned to the Depositor pursuant to, each of
the Mortgage Loan Purchase Agreements relating to Mortgage Loan document
delivery requirements and the representations and warranties of the related
Seller regarding its Mortgage Loans.
The Certificates will consist of 17 classes (each, a "Class") thereof, to
be designated as: (i) the Class A-1A Certificates, the Class A-1B Certificates,
the Class A-1C Certificates and the Class A-2 Certificates (collectively, the
"Class A Certificates"); (ii) the Class IO-1 Certificates and the Class IO-2
Certificates (collectively, the "Interest Only Certificates" or the "Class IO
Certificates" and , collectively with the Class A Certificates, the "Senior
Certificates"); (iii) the Class B Certificates, the Class C Certificates, the
Class D Certificates, the Class E Certificates, the Class F Certificates, the
Class G Certificates, the Class H Certificates and the Class J Certificates
(collectively, the "Subordinate Certificates"; and, collectively with the Senior
Certificates, the "REMIC Regular Certificates"); and (iv) the Class R-I
Certificates, the Class R-II Certificates and the Class R-III Certificates
(collectively, the "REMIC Residual Certificates").
Only the Senior Certificates and the Class B, Class C, Class D and Class E
Certificates (collectively, the "Offered Certificates") are offered hereby. The
Class F, Class G, Class H and Class J Certificates and the REMIC Residual
Certificates (collectively, the "Private Certificates") have not been registered
under the Securities Act of 1933, as amended, and are not offered hereby.
The Class A Certificates will be issued in book-entry format in
denominations of $5,000 initial Certificate Balance and in any whole dollar
denomination in excess thereof. The Class IO-1, Class IO-2, Class B, Class C,
Class D and Class E Certificates will be issued in book-entry format in
denominations of $50,000 initial Certificate Balance or Notional Amount, as
applicable, and in any whole dollar denomination in excess thereof.
Each Class of Offered Certificates will initially be represented by one or
more global Certificates registered in the name of the nominee of The Depository
Trust Company ("DTC"). The Depositor has been informed by DTC that DTC's nominee
initially will be Cede & Co. No person acquiring an interest in an Offered
Certificate (any such person, a "Certificate Owner") will be entitled to receive
a fully registered physical certificate (a "Definitive Certificate")
representing such interest, except as set forth in the Prospectus under
"Description of the Certificates--Book-Entry Registration and Definitive
Certificates". Unless and until Definitive Certificates are issued in respect of
any Class of Offered Certificates, all references to actions by holders of the
Offered Certificates will refer to actions taken by DTC upon instructions
received from the related Certificate Owners through DTC's participating
organizations ("Participants"), and all references herein to payments, notices,
reports and statements to holders of the Offered Certificates will refer to
payments, notices, reports and statements to DTC or Cede & Co., as the
registered holder of the Offered Certificates, for distribution to the related
Certificate Owners through DTC's Participants in accordance with DTC procedures.
Until Definitive Certificates are issued in respect of any Class of Offered
Certificates, interests in such Certificates will be transferred on the
book-entry records of DTC and its Participants. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates" in the
Prospectus.
Certificateholders must elect to hold their Offered Certificates through
any of DTC (in the United States) or Cedel Bank, societe anonyme ("CEDEL") or
Euroclear System ("Euroclear") (in Europe). Transfers within DTC, CEDEL or
Euroclear, as the case may be, will be in accordance with the usual rules and
operating procedures of the
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relevant system. Crossmarket transfers between persons holding directly or
indirectly through DTC, on the one hand, and counterparties holding directly or
indirectly through CEDEL or Euroclear, on the other, will be effected in DTC
through Citibank, N.A. ("Citibank") or The Chase Manhattan Bank ("Chase"), the
relevant depositaries of CEDEL and Euroclear, respectively.
Because of time-zone differences, credits or securities received in Cedel
or Euroclear as a result of a transaction with a DTC participant will be made
during subsequent securities processing and dated the business day following the
DTC settlement date. Such credits or any transactions in such securities settled
during such processing will be reported to the relevant Euroclear or Cedel
participant on such business day. Cash received in Cedel or Euroclear as a
result of sales of securities by or through a Cedel participant or a Euroclear
participant to a DTC participant will be received with value on the DTC
settlement date but will be available in the relevant Cedel or Euroclear cash
account only as of the business day following settlement in DTC.
Certificate Balances and Notional Amounts
Upon initial issuance, the Class A-1A, Class A-1B, Class A-1C, Class A-2,
Class B, Class C, Class D, Class E, Class F, Class G, Class H and Class J
Certificates (collectively, the "Principal Balance Certificates") will have the
following aggregate Certificate Balances (in each case, subject to a variance of
plus or minus 5%):
Approximate Approximate
Initial Aggregate Percent of Initial Percent of Credit
Class Certificate Balance Pool Balance Support
----- ------------------- ------------ -------
Class A-1A $61,700,000 9.63% 32.50%
Class A-1B 193,000,000 30.13 32.50
Class A-1C 139,496,000 21.77 32.50
Class A-2 38,248,484 5.97 32.50
Class B 51,252,000 8.00 24.50
Class C 38,439,000 6.00 18.50
Class D 35,236,000 5.50 13.00
Class E 6,406,000 1.00 12.00
Class F 19,220,000 3.00 9.00
Class G 11,211,000 1.75 7.25
Class H 20,821,000 3.25 4.00
Class J 25,628,439 4.00 0.00
The "Certificate Balance" of any Principal Balance Certificate outstanding
at any time will equal the then maximum amount that the holder thereof will be
entitled to receive in respect of principal out of future cash flow on the
Mortgage Loans and other assets included in the Trust Fund. The initial
Certificate Balance of any Principal Balance Certificate will be set forth on
the face thereof. On each Distribution Date, the Certificate Balance of each
Principal Balance Certificate will be reduced by any distributions of principal
actually made on such Certificate on such Distribution Date, and will be further
reduced by any Realized Losses and Expense Losses allocated to such Certificate
on such Distribution Date. See "--Distributions" and "--Subordination;
Allocation of Losses and Certain Expenses" below.
The Interest Only Certificates will not have Certificate Balances. Each
such Certificate will represent the right to receive distributions of interest
accrued as described herein on a notional principal amount (a "Notional
Amount"). The aggregate Notional Amount of the Class IO-1 Certificates will
equal 99.9% of the aggregate Stated Principal Balance of the Group 1 Loans (or,
following the occurrence of the Class A-2 Cross-Over Date, if any, 99.9% of the
aggregate Stated Principal Balance of all the Mortgage Loans) outstanding from
time to time, and the aggregate Notional Amount of the Class IO-2 Certificates
will equal the aggregate Stated Principal Balance of the Group 2 Loans
outstanding from time to time. The Class IO-1 Certificates will have an initial
aggregate Notional Amount of $601,807,030 (subject to a variance of plus or
minus 5%), and the Class IO-2 Certificates will have an initial aggregate
Notional Amount of $38,248,484 (subject to a variance of plus or minus 5%).
The REMIC Residual Certificates will not have Certificate Balances.
The "Stated Principal Balance" of each Mortgage Loan will generally equal
the unpaid principal balance thereof as of the Cut-off Date (or, in the case of
a Qualifying Substitute Mortgage Loan (as defined herein), as of the date of
substitution), after application of all payments due on or before such date
(whether or not received), reduced (to not less
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than zero) on each subsequent Distribution Date by (i) any payments or other
collections (or advances in lieu thereof) of principal of such Mortgage Loan
that have been or, if they had not been applied to cover Additional Trust Fund
Expenses, would have been distributed on the Certificates on such date, and (ii)
the principal portion of any Realized Loss incurred in respect of or allocable
to such Mortgage Loan during the related Collection Period. Notwithstanding the
foregoing, but subject to the discussion under "--Distributions--Treatment of
REO Properties" below, if any Mortgage Loan is paid in full, liquidated or
otherwise removed from the Trust Fund, then, commencing as of the first
Distribution Date following the Collection Period during which such event
occurred, the Stated Principal Balance of such Mortgage Loan will be zero.
Pass-Through Rates
The rate per annum at which any Class of Certificates accrues interest from
time to time is herein referred to as its "Pass-Through Rate".
The Pass-Through Rates applicable to the Class A-1A, Class A-1B, Class
A-1C, Class B, Class C, Class D and Class E Certificates will, at all times, be
equal to 6.85%, 7.46%, 7.63%, 7.69%, 7.79%, 7.85% and 7.85% per annum,
respectively.
The Pass-Through Rate applicable to the Class IO-1 Certificates for the
initial Distribution Date will equal approximately 1.42% per annum. The
Pass-Through Rate applicable to the Class IO-1 Certificates for each subsequent
Distribution Date (up to and including the Class A-2 Cross-Over Date, if any)
will, in general, equal the excess, if any, of (i) the weighted average of the
Net Mortgage Rates in effect for the Group 1 Loans as of the first day of the
related Collection Period (in the case of each such Mortgage Loan that is a
Non-30/360 Loan, adjusted as described below), the relevant weighting to be on
the basis of the respective Stated Principal Balances of such Mortgage Loans
immediately prior to such Distribution Date, over (ii) the weighted average of
the Pass-Though Rates applicable to the respective Classes of Principal Balance
Certificates (other than the Class A-2 Certificates) for such Distribution Date,
the relevant weighting to be on the basis of the respective aggregate
Certificate Balances of such Classes of Certificates immediately prior to such
Distribution Date. The Pass-Through Rate applicable to the Class IO-1
Certificates for each Distribution Date following the Class A-2 Cross-Over Date,
if any, will, in general, equal the excess, if any, of (i) the weighted average
of the Net Mortgage Rates in effect for all of the Mortgage Loans as of the
first day of the related Collection Period (in the case of each Non-30/360 Loan,
adjusted as described below and, in the case of each Group 2 Loan, net of the
Pass-Through Rate applicable to the Class IO-2 Certificates for such
Distribution Date), the relevant weighting to be on the basis of the respective
Stated Principal Balances of the Mortgage Loans immediately prior to such
Distribution Date, over (ii) the weighted average of the Pass-Through Rates
applicable to the respective Classes of Principal Balance Certificates for such
Distribution Date (in the case of the Class A-2 Certificates, adjusted as
described below), the relevant weighting to be on the basis of the respective
aggregate Certificate Balances of such Classes of Certificates immediately prior
to such Distribution Date. The "Class A-2 Cross-Over Date", if it occurs, will
be the first Distribution Date on which either (i) distributions of principal
are made on the Class A-2 Certificates from the Principal Distribution Amount in
respect of Loan Group 1 for such Distribution Date or (ii) Realized Losses
incurred in respect of Loan Group 2 are allocated to the Principal Balance
Certificates.
The Pass-Through Rate applicable to the Class A-2 Certificates for the
initial Distribution Date will equal approximately 5.92% per annum. The
Pass-Through Rate applicable to the Class A-2 Certificates for each subsequent
Distribution Date will, in general, equal the lesser of (i) the applicable value
of One-Month Certificate LIBOR (which value shall be selected as described
herein), plus 0.39%, and (ii) the weighted average of the Net Mortgage Rates for
the Group 2 Loans as of the first day of the related Collection Period (in the
case of each such Mortgage Loan that is a 30/360 Loan, adjusted as described
below), the relevant weighting to be on the basis of the respective Stated
Principal Balances of such Mortgage Loans immediately prior to such Distribution
Date (or, if there are no longer any Group 2 Loans, 12.00% per annum).
The Pass-Through Rate applicable to the Class IO-2 Certificates for the
initial Distribution Date will equal approximately 2.25% per annum. The
Pass-Through Rate applicable to the Class IO-2 Certificates for each subsequent
Distribution Date will, in general, equal the excess, if any, of (i) the
weighted average of the Net Mortgage Rates in effect for the Group 2 Loans as of
the first day of the related Collection Period (in the case of each such
Mortgage Loan that is a Non-30/360 Loan, adjusted as described below), the
relevant weighting to be on the basis of the respective Stated Principal
Balances of such Mortgage Loans immediately prior to such Distribution Date),
over (ii) the Pass-Through Rate applicable to the Class A-2 Certificates for
such Distribution Date (adjusted as described below) (or, if the Class A-2
Certificates are no longer outstanding, the Pass-Through Rate that would
otherwise have been applicable to the Class A-2 Certificates for such
Distribution Date).
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The Pass-Through Rates applicable to the Class F, Class G, Class H and
Class J Certificates will, at all times, be equal to 6.85%, 6.85%, 6.85% and
6.85% per annum, respectively.
The "Net Mortgage Rate" with respect to any Mortgage Loan will, in general,
be a per annum rate equal to the related Mortgage Rate in effect from time to
time, minus the applicable Master Servicing Fee Rate. However, for purposes of
calculating Pass-Through Rates, the Net Mortgage Rate for any Mortgage Loan will
be determined without regard to any post-Closing Date modification, waiver or
amendment of the terms of such Mortgage Loan. In addition, because the Interest
Only Certificates accrue interest on the basis of a 360-day year consisting of
twelve 30-day months, when calculating the Pass-Through Rates in respect of such
Certificates for each Distribution Date, the Net Mortgage Rate of each relevant
Mortgage Loan that accrues interest other than on such basis (a "Non-30/360
Loan"), and the Pass-Through Rate for the Class A-2 Certificates (which accrue
interest on the basis of a 360-day year and the actual number of days elapsed
during the applicable Interest Accrual Period), will be appropriately adjusted
to reflect such differences. Similarly, when calculating the Pass-Through Rate
for the Class A-2 Certificates, the Net Mortgage Rate for each Group 2 Loan that
accrues interest on the basis of a 360-day year consisting of twelve 30-day
months (any Mortgage Loan that does so, a "30/360 Loan"), will be appropriately
adjusted to reflect that difference. See "Servicing of the Mortgage
Loans--Servicing and Other Compensation and Payment of Expenses" herein.
The "Collection Period" for each Distribution Date is the period that
begins immediately following the Determination Date in the calendar month
preceding the month in which such Distribution Date occurs (or, in the case of
the initial Distribution Date, that begins immediately following the Cut-off
Date) and ends on the Determination Date in the calendar month in which such
Distribution Date occurs. The "Determination Date" for each Distribution Date
will be the fifth day of the month in which such Distribution Date occurs (or,
if any such fifth day is not a business day, the business day immediately
preceding such fifth day).
Calculation of One-Month Certificate LIBOR
On the second LIBOR Business Day (that is, a business day on which banks in
both London and New York are open for business) prior to the commencement of
each Interest Accrual Period (other than the initial Interest Accrual Period)
for the Class A-2 Certificates (each, a "LIBOR Determination Date") until the
aggregate Certificate Balance of the Class A-2 Certificates has been reduced to
zero, the Trustee will determine One-Month Certificate LIBOR for the
Distribution Date in the following calendar month by reviewing the Telerate Page
3750 quotation, as of 11:00 a.m. (London time) on such LIBOR Determination Date,
for 30-day United States dollar deposits to leading banks in the London
interbank market.
One-Month Certificate LIBOR will be established by the Trustee on each
LIBOR Determination Date as follows:
(a) If on any LIBOR Determination Date the Telerate Page 3750 provides
such offered quotation, One-Month Certificate LIBOR for the Distribution
Date in the following calendar month will be such offered quotation.
(b) If on any LIBOR Determination Date the quotation specified in (a)
above does not appear on the Telerate Page 3750, One-Month Certificate
LIBOR for the Distribution Date in the following calendar month will be the
average of the London interbank market rates for one-month United States
dollar deposits appearing on the LIBO page of Reuters as of 11:00 a.m.
(London time) on such LIBOR Determination Date.
(c) If on any LIBOR Determination Date the quotations specified in (a)
or (b) above do not appear, One-Month Certificate LIBOR for the
Distribution Date in the following calendar month will be either (i) the
arithmetic mean of the offered rates which the Reference Banks (as defined
herein) are quoting, at approximately 11:00 a.m. (London time) on the
relevant LIBOR Determination Date, for 30-day United States dollar
deposits, at the principal London office of each of the Reference Banks or
those of them (being at least two in number) at which such offered
quotations are, in the opinion of the Trustee, being so made, or (ii) if
fewer than two quotations are provided as requested by the Trustee, the
arithmetic mean of the rates quoted by any two or more major banks in New
York City, selected by the Trustee, at approximately 11:00 a.m., New York
City time, on the relevant LIBOR Determination Date, for 30-day loans in
United States dollars to leading European banks, provided that if such
banks specified by the Trustee are not
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providing such quotations, One-Month Certificate LIBOR for the Distribution
Date in the following calendar month will be equal to One-Month Certificate
LIBOR for the prior Distribution Date.
Initially, the "Reference Banks" shall be Bank of Tokyo Ltd., Barclay's
Bank plc, National Westminster Bank plc, and Bankers Trust Company. Each
Reference Bank shall (i) be a leading bank engaged in transactions in Eurodollar
deposits in the international Eurocurrency market and (ii) have an established
place of business in London. If any such bank should fail to meet the
qualifications of a Reference Bank, the Trustee may designate alternative
Reference Banks meeting the criteria specified in this paragraph.
The establishment of One-Month Certificate LIBOR on each LIBOR
Determination Date by the Trustee and the Trustee's calculation of the
Pass-Through Rate applicable to the Class A-2 Certificates based thereon, will
(in the absence of manifest error) be final and binding. One-Month Certificate
LIBOR for the initial Distribution Date will be 5.43750% per annum.
The Certificate Groups
The Class IO-1, Class A-1A, Class A-1B, Class A-1C, Class B, Class C, Class
D, Class E, Class F, Class G, Class H and Class J Certificates initially will
correspond to and evidence interests solely in Loan Group 1 (such Certificates,
the "Group 1 Certificates"); and the Class IO-2 and Class A-2 Certificates
initially will correspond to and evidence interests solely in Loan Group 2 (such
Certificates, the "Group 2 Certificates"; the Group 1 Certificates and the Group
2 Certificates, each a "Certificate Group"). Distributions of interest on and
principal of the Group 1 Certificates will initially be based on interest and/or
principal due or collected, as the case may be, on or with respect to the Group
1 Loans. Distributions of interest on and principal of the Group 2 Certificates
will initially be based on interest and/or principal due or collected, as the
case may be, on or with respect to the Group 2 Loans. In general, the exceptions
to the foregoing would arise as a result of the subordination of the Subordinate
Certificates in connection with losses and defaults on the Mortgage Loans (in
particular, the Group 2 Loans) and, further, because no payments of principal
may be made with respect to the Subordinate Certificates for so long as any
Class of Class A Certificates is outstanding. The initial aggregate Certificate
Balance of the Group 1 Certificates with Certificate Balances will equal the
aggregate Cut-off Date Balance of the Group 1 Loans, and the initial aggregate
Notional Amount of the Class IO-1 Certificates will equal 99.9% of the aggregate
Cut-off Date Balance of the Group 1 Loans. The initial aggregate Certificate
Balance of the Class A-2 Certificates and the initial aggregate Notional Amount
of the Class IO-2 Certificates will each equal the aggregate Cut-off Date
Balance of the Group 2 Loans.
Certain Considerations Regarding Reports to Holders of Class IO-1 Certificates
The Pooling and Servicing Agreement will provide, and monthly statements to
Certificateholders will reflect, that the Pass-Through Rate and aggregate
Notional Amount of the Class IO-1 Certificates are, at all times (that is, both
prior to and following the Class A-2 Cross-Over Date) actually calculated as
described herein for the period following the Class A-2 Cross-Over Date (that
is, Loan Group 2 and the Class A-2 Certificates are at all times taken into
account). Prior to any Class A-2 Cross-Over Date (and for so long as any Group 2
Loans are outstanding), the calculation of such rate and amount in the manner
described herein would result in a smaller aggregate Notional Amount but a
higher Pass-Through Rate than the method that will in fact be employed because,
although the Group 2 Loans would add to the aggregate Notional Amount of the
Class IO-1 Certificates, they would effectively be weighted at zero in
calculating the related Pass-Through Rate. The aggregate amount of Accrued
Certificate Interest in respect of the Class IO-1 Certificates is unaffected by
which method is used to calculate the aggregate Notional Amount and Pass-Through
Rate for the Class IO-1 Certificates prior to the Class A-2 Cross-Over Date. The
expression of the Pass-Through Rate and aggregate Notional Amount for the Class
IO-1 Certificates set forth herein for the period prior to the Class A-2
Cross-Over Date is intended to demonstrate more clearly that during such period
the Class IO-1 Certificates are a variable rate interest strip solely off the
Group 1 Loans.
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Distributions
General
Distributions on or with respect to the Certificates will be made by the
Trustee, to the extent of available funds, and in accrodance with the manner and
priority set forth herein, on the 15th day of each month, or if any such 15th
day is not a business day, on the next succeeding business day (each, a
"Distribution Date"), commencing in April, 1997. Except as otherwise described
below, all such distributions will be made to the persons in whose names the
Certificates are registered at the close of business on the related Record Date
and, as to each such person, will be made by wire transfer in immediately
available funds to the account specified by the Certificateholder at a bank or
other entity having appropriate facilities therefor, if such Certificateholder
will have provided the Trustee with wiring instructions on or before the related
Record Date, or otherwise by check mailed to such Certificateholder. The final
distribution on any Certificate (determined without regard to any possible
future reimbursement of any Realized Losses or Expense Losses previously
allocated to such Certificate) will be made in a like manner, but only upon
presentation and surrender of such Certificate at the location that will be
specified in a notice of the pendency of such final distribution. Any
distribution that is to be made with respect to a Certificate in reimbursement
of a Realized Loss or Expense Loss previously allocated thereto, which
reimbursement is to occur after the date on which such Certificate is
surrendered as contemplated by the preceding sentence (the likelihood of any
such distribution being remote), will be made by check mailed to the
Certificateholder that surrendered such Certificate. All distributions made on
or with respect to a Class of Certificates will be allocated pro rata among such
Certificates based on their respective Percentage Interests in such Class.
The "Record Date" with respect to each Class of Offered Certificates for
each Distribution Date, will be the last business day of the calendar month
immediately preceding the month in which such Distribution Date occurs. The
"Percentage Interest" evidenced by any Offered Certificate in the Class to which
it belongs will be a fraction, expressed as a percentage, the numerator of which
is equal to the initial Certificate Balance or Notional Amount, as the case may
be, of such Certificate as set forth on the face thereof, and the denominator of
which is equal to the initial aggregate Certificate Balance or Notional Amount,
as the case may be, of such Class.
The Available Distribution Amount
With respect to any Distribution Date, distributions of interest on and
principal of the Certificates will be made from the Available Distribution
Amount for such Distribution Date. The "Available Distribution Amount" for any
Distribution Date will, in general, equal (a) all amounts on deposit in the
Certificate Account (as described in the Prospectus) as of the close of business
on the related Determination Date, exclusive of any portion thereof that
represents one or more of the following:
(i) Monthly Payments collected but due on a Due Date subsequent to the
related Collection Period;
(ii) Prepayment Premiums (which are separately distributable on the
Certificates as hereinafter described);
(iii) amounts that are payable or reimbursable to any person other
than the Certificateholders (including amounts payable to the Master
Servicer, the Special Servicer or the Trustee as compensation or in
reimbursement of outstanding Advances and amounts payable in respect of
Additional Trust Fund Expenses); and
(iv) amounts deposited in the Certificate Account in error; plus
(b) to the extent not already included in clause (a), any P&I Advances and
Compensating Interest Payments made with respect to such Distribution Date.
As used herein, "Certificate Account" includes, on a collective basis, each
collection account established and maintained by the Master Servicer for the
retention of payments and other collections of principal and interest in respect
of the Mortgage Loans and each distribution account established and maintained
by the Trustee for the retention of funds pending distribution on the
Certificates. See "Description of the Agreements--Certificate Account and Other
Collection Accounts" in the Prospectus.
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Application of the Available Distribution Amount
On each Distribution Date, the Trustee will apply the Available
Distribution Amount for such date for the following purposes and in the
following order of priority:
(1) to pay interest to the holders of the respective Classes of Senior
Certificates, up to an amount equal to, and pro rata as among such Classes
in accordance with, all Distributable Certificate Interest in respect of
each such Class of Certificates for such Distribution Date;
(2) to pay principal: (a) from the Principal Distribution Amount with
respect to Loan Group 1 for such Distribution Date, first to the holders of
the Class A-1A Certificates, second to the holders of the Class A-1B
Certificates, third to the holders of the Class A-1C Certificates and
fourth to the holders of the Class A-2 Certificates, in each case, up to an
amount equal to the lesser of (i) the then outstanding aggregate
Certificate Balance of such Class of Certificates and (ii) the remaining
portion of such Principal Distribution Amount and (b) from the Principal
Distribution Amount with respect to Loan Group 2 for such Distribution
Date, first to the holders of the Class A-2 Certificates, second to the
holders of the Class A-1A Certificates, third to the holders of the Class
A-1B Certificates and fourth to the holders of the Class A-1C Certificates,
in each case, up to an amount equal to the lesser of (i) the then
outstanding aggregate Certificate Balance of such Class of Certificates and
(ii) the remaining portion of such Principal Distribution Amount;
(3) to reimburse the holders of the respective Classes of Class A
Certificates, up to an amount equal to, and pro rata as among such Classes
in accordance with, (a) the respective amounts of Realized Losses and
Expense Losses, if any, previously allocated to such Classes of
Certificates and for which no reimbursement has previously been paid, plus
(b) all unpaid interest on such amounts (compounded monthly) at the
respective Pass-Through Rates of such Classes; and
(4) to make payments on the Subordinate Certificates and the REMIC
Residual Certificates as contemplated below;
provided that, on each Distribution Date after the aggregate Certificate Balance
of the Subordinate Certificates has been reduced to zero, and in any event on
the final Distribution Date in connection with a termination of the Trust Fund
(see "--Optional Termination" below), the payments of principal to be made as
contemplated by clause (2) above with respect to the Class A Certificates, will
be so made to the holders of the respective Classes of such Certificates, up to
an amount equal to, and pro rata as among such Classes in accordance with, the
respective then outstanding aggregate Certificate Balances of such Classes of
Certificates, and without regard to the Principal Distribution Amounts with
respect to the two Loan Groups for such date.
On each Distribution Date, following the above-described distributions on
the Senior Certificates, the Trustee will apply the remaining portion, if any,
of the Available Distribution Amount for such date to make payments on the
respective Classes of Subordinate Certificates in alphabetical order of Class
designation. On each Distribution Date, the holders of each Class of Subordinate
Certificates will be entitled, to the extent of the Available Distribution
Amount remaining after all required distributions to be made therefrom (as
described under this "--Distributions--Application of the Available Distribution
Amount" section) on the Senior Certificates and each other Class of Subordinate
Certificates, if any, with an earlier alphabetical Class designation: first, to
distributions of interest, up to an amount equal to all Distributable
Certificate Interest in respect of such Class of Certificates for such
Distribution Date; second, if the aggregate Certificate Balance of the Class A
Certificates and each other Class of Subordinate Certificates, if any, with an
earlier alphabetical Class designation has been reduced to zero, to
distributions of principal, up to an amount equal to the lesser of (a) the then
outstanding aggregate Certificate Balance of such Class of Certificates and (b)
the aggregate of the remaining Principal Distribution Amounts for both Loan
Groups for such Distribution Date (or, on the final Distribution Date in
connection with the termination of the Trust Fund, up to an amount equal to the
then outstanding aggregate Certificate Balance of such Class of Certificates);
and, third, to distributions for purposes of reimbursement, up to an amount
equal to (a) all Realized Losses and Expense Losses, if any, previously
allocated to such Class of Certificates and for which no reimbursement has
previously been paid, plus (b) all unpaid interest on such amounts (compounded
monthly) at the Pass-Through Rate for such Class of Certificates.
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On each Distribution, following the above-described distributions on the
REMIC Regular Certificates, the Trustee will pay the remaining portion, if any,
of the Available Distribution Amounts for such date to the holders of the REMIC
Residual Certificates.
Distributable Certificate Interest
The "Distributable Certificate Interest" in respect of each Class of REMIC
Regular Certificates for each Distribution Date will be equal to the Accrued
Certificate Interest in respect of such Class of Certificates for such
Distribution Date, reduced (to not less than zero) by such Class of
Certificates' allocable share (calculated as described below) of any Net
Aggregate Prepayment Interest Shortfall for such Distribution Date, and
increased by any Class Interest Shortfall in respect of such Class of
Certificates for such Distribution Date. See "--Prepayment Interest Shortfalls
and Balloon Payment Interest Shortfalls" below.
The "Accrued Certificate Interest" in respect of each Class of REMIC
Regular Certificates for each Distribution Date will equal the amount of
interest for the applicable Interest Accrual Period accrued at the applicable
Pass-Through Rate on the aggregate Certificate Balance or Notional Amount, as
the case may be, of such Class of Certificates outstanding immediately prior to
such Distribution Date. Accrued Certificate Interest will be calculated on the
basis of: (i) in the case of the Class A-2 Certificates, a 360-day year and the
actual number of days elapsed during the applicable Interest Accrual Period; and
(ii) in the case of each other class of REMIC Regular Certificates, a 360-day
year consisting of twelve 30-day months.
The "Class Interest Shortfall" with respect to any Class of REMIC Regular
Certificates for any Distribution Date, will equal: (a) in the case of the
initial Distribution Date, zero; and (b) in the case of any subsequent
Distribution Date, the sum of (i) the excess, if any, of (A) all Distributable
Certificate Interest in respect of such Class of Certificates for the
immediately preceding Distribution Date, over (B) all distributions of interest
made with respect to such Class of Certificates on the immediately preceding
Distribution Date, plus (ii) to the extent permitted by applicable law, other
than in the case of the Interest Only Certificates, one month's interest on any
such excess at the Pass-Through Rate applicable to such Class of Certificates
for the current Distribution Date.
The "Interest Accrual Period" for each Class of Offered Certificates and
each Distribution Date will be the calendar month immediately preceding the
month in which such Distribution Date occurs.
Principal Distribution Amount
The "Principal Distribution Amount" with respect to each Loan Group for any
Distribution Date will, in general, equal the aggregate of the following:
(a) the principal portions of all Monthly Payments (other than Balloon
Payments) and any Assumed Monthly Payments due or deemed due, as the case
may be, in respect of the Mortgage Loans in such Loan Group for their
respective Due Dates occurring during the related Collection Period; and
(b) all payments (including voluntary principal prepayments and
Balloon Payments) and other collections received on the Mortgage Loans in
such Loan Group during the related Collection Period that were identified
and applied by the Master Servicer as recoveries of principal thereof, in
each case net of any portion of such amounts that represents a payment or
other recovery of the principal portion of any Monthly Payment (other than
a Balloon Payment) due, or the principal portion of any Assumed Monthly
Payment deemed due, in respect of the related Mortgage Loan on a Due Date
during or prior to the related Collection Period and not previously paid or
recovered.
If on any Distribution Date the aggregate distributions of principal made
on the Principal Balance Certificates in respect of the Principal Distribution
Amount for either Loan Group is less than such Principal Distribution Amount,
then the amount of such shortfall will be included in the Principal Distribution
Amount for such Loan Group for the next succeeding Distribution Date.
The "Monthly Payment" for any Mortgage Loan will, in general, be the
scheduled payment of principal and/or interest due thereon from time to time
(taking into account any waiver, modification or amendment of the terms of such
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Mortgage Loan, whether agreed to by the Master Servicer or Special Servicer or
in connection with a bankruptcy or similar proceeding involving the related
borrower).
An "Assumed Monthly Payment" is an amount deemed due in respect of: (i) any
Balloon Loan that is delinquent in respect of its Balloon Payment beyond the end
of the Collection Period in which its stated maturity date occurs and as to
which no arrangements have been agreed to for collection of the delinquent
amounts; or (ii) any Mortgage Loan as to which the related Mortgaged Property
has become an REO Property. The Assumed Monthly Payment for any such Balloon
Loan deemed due on its stated maturity date and on each successive Due Date that
it remains or is deemed to remain outstanding shall equal the Monthly Payment
that would have been due thereon on such date if the related Balloon Payment had
not come due, but rather such Mortgage Loan had continued to amortize in
accordance with such loan's amortization schedule, if any, in effect immediately
prior to maturity and had continued to accrue interest in accordance with its
terms in effect immediately prior to maturity. The Assumed Monthly Payment for
any such Mortgage Loan as to which the related Mortgaged Property has become an
REO Property, deemed due on each Due Date for so long as such REO Property
remains part of the Trust Fund, will equal the Monthly Payment (or, in the case
of a Balloon Loan described in the prior sentence, the Assumed Monthly Payment)
due on the last Due Date prior to the acquisition of such REO Property or
Properties.
Distributions of Prepayment Premiums
Any Prepayment Premium collected with respect to a Group 1 Loan during any
particular Collection Period will be distributed on the following Distribution
Date as follows: The holders of the respective Classes of Principal Balance
Certificates then entitled to distributions of principal from the Principal
Distribution Amount in respect of Loan Group 1 for such Distribution Date (other
than, if applicable, the Class A-2 Certificates), will be entitled to an
aggregate amount (allocable among such Classes, if more than one, as described
below) equal to the product of (a) the amount of the subject Prepayment Premium,
multiplied by (b) the lesser of (i) 25% and (ii) a fraction, expressed as a
percentage, the numerator of which is equal to the excess, if any, of the then
current Pass-Through Rate applicable to the most senior of such Classes of
Certificates then outstanding (or, in the case of two or more Classes of Class A
Certificates, the one with the earliest payment priority), over the relevant
Discount Rate (as defined herein), and the denominator of which is equal to the
excess, if any, of the Mortgage Rate for the prepaid Group 1 Loan, over the
relevant Discount Rate. If there is more than one Class of Principal Balance
Certificates (other than the Class A-2 Certificates) entitled to distributions
of principal from the Principal Distribution Amount for Loan Group 1 for such
Distribution Date, the aggregate amount described in the preceding sentence
shall be allocated among such Classes on a pro rata basis in accordance with the
relative sizes of such distributions of principal. Any portion of such
Prepayment Premium that is not so distributed to the holders of such Principal
Balance Certificates will be distributed to the holders of the Class IO-1
Certificates.
Any Prepayment Premium collected with respect to a Group 2 Loan during any
particular Collection Period will be distributed on the following Distribution
Date to the holders of the Class IO-2 Certificates.
For purposes of the foregoing, the "Discount Rate" is the rate which, when
compounded monthly, is equivalent to the Treasury Rate when compounded
semi-annually. The "Treasury Rate" is the yield calculated by the linear
interpolation of the yields, as reported in Federal Reserve Statistical Release
H.15--Selected Interest Rates under the heading "U.S. government
securities/Treasury constant maturities" for the week ending prior to the date
of the relevant principal prepayment, of U.S. Treasury constant maturities with
a maturity date (one longer and one shorter) most nearly approximating the
maturity date of the Mortgage Loan prepaid. If Release H.15 is no longer
published, the Trustee will select a comparable publication to determine the
Treasury Rate.
Any Prepayment Premiums distributed to the holders of a Class of
Certificates may not be sufficient to fully compensate such Certificateholders
for any loss in yield attributable to the related Principal Prepayments.
Treatment of REO Properties
Notwithstanding that any Mortgaged Property may be acquired as part of the
Trust Fund through foreclosure, deed in lieu of foreclosure or otherwise, the
related Mortgage Loan will be treated, for purposes of, among other things,
determining distributions on the Certificates, allocations of Realized Losses
and Expense Losses to the Certificates, and the amount of Master Servicing Fees
and Special Servicing Fees payable under the Pooling and Servicing Agreement,
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as having remained outstanding until such REO Property is liquidated. Among
other things, such Mortgage Loan will be taken into account when determining
Pass-Through Rates and the Principal Distribution Amount for the related Loan
Group. In connection therewith, operating revenues and other proceeds derived
from such REO Property (after application thereof to pay certain costs and
taxes, including certain reimbursements payable to the Master Servicer, the
Special Servicer and/or the Trustee, incurred in connection with the operation
and disposition of such REO Property) will be "applied" by the Master Servicer
as principal, interest and other amounts "due" on such Mortgage Loan, and,
subject to the applicable limitations described under "--Advances" below, the
Master Servicer, the Trustee and the Fiscal Agent will each be required to make
P&I Advances in respect of such Mortgage Loan, in all cases as if such Mortgage
Loan had remained outstanding.
Appraisal Reductions
As soon as reasonably practicable following the earliest of (i) the date
120 days after the occurrence of any delinquency in payment with respect to a
Mortgage Loan if such delinquency remains uncured, (ii) the date 90 days after
the related borrower files a bankruptcy petition or a receiver is appointed in
respect of the related Mortgaged Property, provided such petition or appointment
is still in effect, (iii) the effective date of any modification to the maturity
date, Mortgage Rate, principal balance, amortization term or payment frequency
(each, a "Money Term") of a Mortgage Loan, other than the extension of the date
that a Balloon Payment is due for a period of less than six months, and (iv) the
date 30 days following the date a Mortgaged Property becomes an REO Property
(each of (i), (ii), (iii) and (iv), an "Appraisal Event"; and the affected
Mortgage Loan, a "Required Appraisal Loan"), the Master Servicer or Special
Servicer, as applicable, will be required to obtain an MAI appraisal of the
related Mortgaged Property or REO Property, as the case may be (or, at its
discretion, if the Stated Principal Balance of the particular Required Appraisal
Loan is less than or equal to $1,000,000, to perform an internal valuation of
such property). As a result of such appraisal or internal valuation, an
"Appraisal Reduction" may be created.
The Appraisal Reduction for any Mortgage Loan, including a Mortgage Loan as
to which the related Mortgaged Property has become an REO Property, will be an
amount, calculated as of the first Determination Date that is at least fifteen
days after the date on which an appraisal report is obtained, equal to the
excess, if any, of (a) the sum of (i) the Stated Principal Balance of such
Mortgage Loan, (ii) to the extent not previously advanced by the Master
Servicer, the Trustee or the Fiscal Agent, all unpaid interest on the Mortgage
Loan, (iii) all related unreimbursed Advances and interest on such Advances at
the Advance Rate (as defined herein) and (iv) all currently due and unpaid real
estate taxes and assessments (net of any amounts escrowed for such items),
insurance premiums and, if applicable, ground rents in respect of the related
Mortgaged Property or REO Property, as the case may be, over (b) 90% of the
appraised value (net of any prior mortgage liens) of such Mortgaged Property or
REO Property as determined by such appraisal. Notwithstanding the foregoing, if
an internal valuation of the related Mortgaged Property or REO Property is
performed, the Appraisal Reduction will equal the greater of (a) the amount
calculated as described in the preceding sentence and (b) 25% of the Stated
Principal Balance of the Mortgage Loan. An Appraisal Reduction will be reduced
to zero as of the date the related Mortgage Loan is brought current under the
then current terms of the Mortgage Loan for at least three consecutive months or
is paid in full, liquidated, repurchased, replaced or otherwise disposed of.
The existence of an Appraisal Reduction proportionately reduces the Master
Servicer's, the Trustee's or the Fiscal Agent's, as the case may be, advancing
obligation in respect of delinquent principal and interest on the related
Mortgage Loan, which may result in a reduction in distributions in respect of
the then most subordinate Class of Certificates. See "--Advances--P&I Advances"
below.
Subordination; Allocation of Losses and Certain Expenses
As and to the extent described herein, the rights of holders of Subordinate
Certificates to receive distributions of amounts collected or advanced on the
Mortgage Loans will, in the case of each Class thereof, be subordinated to the
rights of holders of the Senior Certificates and, further, to the rights of
holders of each other Class of Subordinate Certificates, if any, with an earlier
alphabetical Class designation. This subordination is intended to enhance the
likelihood of timely receipt by holders of the respective Classes of Senior
Certificates of the full amount of Distributable Certificate Interest payable in
respect of their Certificates on each Distribution Date, and the ultimate
receipt by holders of the respective Classes of Class A Certificates of
principal equal to, in each such case, the entire aggregate Certificate Balance
of such Class of Certificates. Similarly, but to decreasing degrees, this
subordination is also intended to enhance the
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likelihood of timely receipt by holders of the other Classes of Offered
Certificates of the full amount of Distributable Certificate Interest payable in
respect of their Certificates on each Distribution Date, and the ultimate
receipt by holders of such other Classes of Offered Certificates of principal
equal to, in each such case, the entire aggregate Certificate Balance of such
Class of Certificates. The subordination of each Class of Subordinate
Certificates will be accomplished by, among other things, the application of the
Available Distribution Amount on each Distribution Date in the order of priority
described under "--Distributions--Application of the Available Distribution
Amount" above. No other form of Credit Support will be available for the benefit
of holders of the Offered Certificates.
If, following the distributions to be made in respect of the Certificates
on any Distribution Date, the aggregate Stated Principal Balance of the Mortgage
Pool that will be outstanding immediately following such Distribution Date is
less than the then aggregate Certificate Balance of the Principal Balance
Certificates, the respective aggregate Certificate Balances of the Class J,
Class H, Class G, Class F, Class E, Class D, Class C and Class B Certificates
will be reduced, sequentially in that order, in the case of each such Class
until such deficit (or the related aggregate Certificate Balance) is reduced to
zero (whichever occurs first). If any portion of such deficit remains at such
time as the aggregate Certificate Balance of all such Classes of Certificates is
reduced to zero, then the respective aggregate Certificate Balances of the Class
A-1A, Class A-1B, Class A-1C and Class A-2 Certificates will be reduced, pro
rata in accordance with the relative sizes of the remaining aggregate
Certificate Balances of such Classes of Certificates, until such deficit (or the
aggregate Certificate Balance of each such Class of Certificates) is reduced to
zero. In general, any such deficit will be the result of Realized Losses
incurred in respect of the Mortgage Loans and/or Expense Losses. Accordingly,
the foregoing reductions in the aggregate Certificate Balances of the respective
Classes of Principal Balance Certificates will constitute an allocation of any
such Realized Losses and Expense Losses. Any such allocation of Realized Losses
and/or Expense Losses to a particular Class of Principal Balance Certificates
will be allocated among the Certificates of such Class in proportion to their
respective Percentage Interests in such Class.
"Realized Losses" are losses on or in respect of the Mortgage Loans arising
from the inability of the Master Servicer to collect all amounts due and owing
under any such Mortgage Loan, including by reason of the fraud or bankruptcy of
a borrower or a casualty of any nature at a Mortgaged Property, to the extent
not covered by insurance. The Realized Loss in respect of a liquidated Mortgage
Loan (or related REO Property) is an amount generally equal to the excess, if
any, of (a) the outstanding principal balance of such Mortgage Loan as of the
date of liquidation, together with (i) all accrued and unpaid interest thereon
at the related Mortgage Rate to but not including the Due Date in the Collection
Period in which the liquidation occurred and (ii) all related unreimbursed
Servicing Advances and outstanding liquidation expenses, over (b) the aggregate
amount of Liquidation Proceeds (as defined in the Prospectus), if any, recovered
in connection with such liquidation. If any portion of the debt due under a
Mortgage Loan is forgiven, whether in connection with a modification, waiver or
amendment granted or agreed to by the Special Servicer or in connection with the
bankruptcy or similar proceeding involving the related borrower, the amount so
forgiven also will be treated as a Realized Loss.
"Expense Losses" are losses incurred by the Trust Fund by reason of
Additional Trust Fund Expenses being paid out of the Trust Fund. "Additional
Trust Fund Expenses" include, among other things, (i) Special Servicing Fees,
Workout Fees and Liquidation Fees, (ii) interest in respect of unreimbursed
Advances, (iii) the cost of various opinions of counsel required or permitted to
be obtained in connection with the servicing of the Mortgage Loans and the
administration of the Trust Fund, (iv) certain unanticipated, non-Mortgage Loan
specific expenses of the Trust Fund, including certain indemnities and
reimbursements to the Trustee (and certain indemnities and reimbursements to the
Fiscal Agent comparable to those for the Trustee) as described under
"Description of the Agreements--The Trustee" in the Prospectus, certain
indemnities and reimbursements to the Master Servicer and the Depositor (and
certain indemnities and reimbursements to the Special Servicer comparable to
those for the Master Servicer) as described under "Description of the
Agreements--Certain Matters Regarding a Master Servicer and the Depositor" in
the Prospectus and certain federal, state and local taxes, and certain
tax-related expenses, payable out of the Trust Fund as described under
"Servicing of the Mortgage Loans--REO Properties" herein and "Certain Federal
Income Consequences--Prohibited Transactions and Other Taxes" in the Prospectus,
(v) any amounts expended on behalf of the Trust Fund to remediate an adverse
environmental condition at any Mortgaged Property securing a defaulted Mortgage
Loan (see "Description of the Agreements--Realization Upon Defaulted Whole
Loans" in the Prospectus), and (vi) any other expense of the Trust Fund not
specifically included in the calculation of "Realized Loss" for which there is
no corresponding collection from a borrower.
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<PAGE>
Prepayment Interest Shortfalls and Balloon Payment Interest Shortfalls
If a borrower prepays a Mortgage Loan, in whole or in part, prior to the
Determination Date in any calendar month, the amount of interest (net of related
Master Servicing Fees) accrued on such prepayment, in general, from the
beginning of such calendar month to, but not including, the date of prepayment
(or any later date through which interest accrues) will, to the extent actually
collected, constitute a "Prepayment Interest Excess". Conversely, if a borrower
prepays a Mortgage Loan, in whole or in part, after the Determination Date in
any calendar month and does not pay interest on such prepayment through, in
general, the end of such calendar month, then the shortfall in a full month's
interest (net of related Master Servicing Fees) on such prepayment will
constitute a "Prepayment Interest Shortfall". Similarly, if the stated maturity
date for any Balloon Loan occurs after the first day of, but before the
Determination Date in, any calendar month, the amount of interest (net of
related Master Servicing Fees) accrued on the related Balloon Loan, in general,
from the beginning of such month to such stated maturity date will, to the
extent actually collected in connection with the payment of such Balloon Payment
on or before such Determination Date, constitute a "Balloon Payment Interest
Excess". Conversely, if the stated maturity date for any Balloon Payment occurs
after the Determination Date in any calendar month, the amount of interest (net
of related Master Servicing Fees) that would have accrued on the related Balloon
Loan, in general, from such stated maturity date through the end of such
calendar month will, to the extent not paid by the borrower, constitute, a
"Balloon Payment Interest Shortfall". Prepayment Interest Excesses and Balloon
Payment Interest Excesses collected on the Mortgage Loans during any Collection
Period will first be applied to offset Prepayment Interest Shortfalls and
Balloon Payment Interest Shortfalls, respectively, incurred in respect of the
Mortgage Loans during such Collection Period and, to the extent not needed for
such purposes, will be retained by the Master Servicer as additional servicing
compensation. The Master Servicer will be obligated to cover, out of its own
funds, without right of reimbursement: (i) in their entirety, any such Balloon
Payment Interest Shortfalls in respect of the Mortgage Loans that are not so
offset by Balloon Payment Interest Excesses; and (ii) to the extent of that
portion of its Master Servicing Fees for the related Collection Period
calculated in respect of all the Mortgage Loans at a rate of 0.05% per annum,
any Prepayment Interest Shortfalls in respect of the Mortgage Loans that are not
so offset by Prepayment Interest Excesses. Any payment so made by the Master
Servicer to cover such shortfalls will constitute a "Compensating Interest
Payment". The aggregate of all Prepayment Interest Shortfalls incurred in
respect of the Mortgage Loans during any Collection Period that are neither
offset by Prepayment Interest Excesses collected on the Mortgage Loans during
such Collection Period nor covered by a Compensating Interest Payment made by
the Master Servicer, shall constitute the "Net Aggregate Prepayment Interest
Shortfall" for the related Distribution Date.
Any Net Aggregate Prepayment Interest Shortfall for a Distribution Date
will be allocated among the respective Classes of REMIC Regular Certificates, on
a pro rata basis, in the ratio that the Accrued Certificate Interest with
respect to any such Class of Certificates for such Distribution Date, bears to
the total of the Accrued Certificate Interest with respect to all Classes of
REMIC Regular Certificates for such Distribution Date. The Distributable
Certificate Interest in respect of any Class of REMIC Regular Certificates will
be reduced to the extent any Net Aggregate Prepayment Interest Shortfalls are
allocated to such Class of Certificates. See "Servicing of the Mortgage
Loans--Servicing and Other Compensation and Payment of Expense" herein.
Optional Termination
The Depositor, the Master Servicer, the Special Servicer and any holder of
a majority interest in the Class R-I Certificates, will each have the option to
purchase, in whole but not in part, the Mortgage Loans and any other property
remaining in the Trust Fund on any Distribution Date as of which the aggregate
Certificate Balance of all Classes of Principal Balance Certificates then
outstanding is less than or equal to 3% of the Initial Pool Balance. Such
purchase will be at a price (the "Termination Price") equal to 100% of the
aggregate unpaid principal balance of the Mortgage Loans (other than any
Mortgage Loans as to which the Special Servicer has determined that all payments
or recoveries with respect thereto have been made and other than any Mortgage
Loans as to which the related Mortgaged Property has become an REO Property),
plus accrued and unpaid interest on each such Mortgage Loan at the related
Mortgage Rate to the Due Date for such Mortgage Loan in the Collection Period
with respect to which such purchase occurs, plus related unreimbursed Servicing
Advances, plus interest on any related Advances at the Advance Rate, plus the
fair market value of any other property (including REO Property) remaining in
the Trust Fund. The Termination Price, net of any portion thereof payable to
persons other than the Certificateholders, will constitute part of the Available
Distribution Amount for the final Distribution Date.
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<PAGE>
Advances
P&I Advances
With respect to each Distribution Date, unless the Master Servicer, in its
reasonable discretion, determines that the funds therefor would not be
recoverable from subsequent payments or other collections (including Insurance
Proceeds (as defined in the Prospectus), condemnation proceeds and Liquidation
Proceeds) in respect of the related Mortgage Loan (such payments and other
collections, "Related Proceeds") as described in the Prospectus, the Master
Servicer, will be obligated to make advances (each, a "P&I Advance") out of its
own funds or, subject to the replacement thereof as provided in the Pooling and
Servicing Agreement, funds held in the Certificate Account that are not required
to be part of the Available Distribution Amount for such Distribution Date, in
an amount generally equal to the aggregate of all Monthly Payments (other than
Balloon Payments) and any Assumed Monthly Payments, in each case net of any
related Workout Fee, that were due or deemed due, as the case may be, in respect
of the Mortgage Loans during the related Collection Period and that were not
paid by or on behalf of the related borrowers or otherwise collected as of the
close of business on the last day of the related Collection Period or other
specified date prior to such Distribution Date. The Master Servicer's
obligations to make P&I Advances in respect of any Mortgage Loan will continue
through liquidation of such Mortgage Loan or disposition of any REO Property
acquired in respect thereof. Notwithstanding the foregoing, if it is determined
that an Appraisal Reduction exists with respect to any Mortgage Loan, then, with
respect to the Distribution Date immediately following the date of such
determination and with respect to each subsequent Distribution Date for so long
as such Appraisal Reduction exists, in the event of subsequent delinquencies on
such Mortgage Loan, the amount of the P&I Advance in respect of such Mortgage
Loan will be reduced to equal to the product of (i) the amount of such P&I
Advance that would otherwise be required to be made for such Distribution Date
without regard to this sentence, multiplied by (ii) a fraction (expressed as a
percentage), the numerator of which is equal to the Stated Principal Balance of
such Mortgage Loan, net of the amount of such Appraisal Reduction, and the
denominator of which is equal to the Stated Principal Balance of such Mortgage
Loan. See "--Appraisal Reductions" above. If the Master Servicer fails to make a
required P&I Advance, the Trustee will be obligated to make such P&I Advance;
and, if the Trustee fails to make a required P&I Advance, the Fiscal Agent will
be obligated to make such P&I Advance. See "--The Trustee and the Fiscal Agent"
below.
The Master Servicer, the Trustee and the Fiscal Agent will each be entitled
to recover any P&I Advance made by it from Related Proceeds collected in respect
of the Mortgage Loan as to which such P&I Advance was made. Notwithstanding the
foregoing, none of the Master Servicer, the Trustee or the Fiscal Agent will be
obligated to make a P&I Advance that would, if made, constitute a Nonrecoverable
Advance (as defined below). The Master Servicer, the Trustee and the Fiscal
Agent will each be entitled to recover any P&I Advance previously made by it
that is, at any time, determined to be a Nonrecoverable Advance, out of general
funds on deposit in the Certificate Account. See "Description of the
Certificates--Advances in Respect of Delinquencies" and "Description of the
Agreements--Certificate Account and Other Collection Accounts" in the
Prospectus.
Servicing Advances
In general, customary, reasonable and necessary "out-of-pocket" costs and
expenses required to be incurred by the Master Servicer or the Special Servicer,
as applicable, in connection with the servicing of a Mortgage Loan after a
default, delinquency or other unanticipated event, or in connection with the
administration of any REO Property, will constitute "Servicing Advances"
(Servicing Advances and P&I Advances, collectively, "Advances") and, in all
cases, will be reimbursable as described below. Notwithstanding the foregoing,
the Master Servicer and the Special Servicer will each be permitted to pay, or
to direct the payment of, certain servicing expenses directly out of the
Certificate Account and at times without regard to the relationship between the
expense and the funds from which it is being paid (including in connection with
the remediation of any adverse environmental circumstance or condition at a
Mortgaged Property or an REO Property, although in such specific circumstances
the Master Servicer or the Special Servicer may advance the costs thereof).
Furthermore, if the Special Servicer is required under the Pooling and Servicing
Agreement to make any Servicing Advance but does not desire to do so, and if the
Special Servicer and the Master Servicer are not the same person, then the
Special Servicer may, in its sole discretion, with limited exception, request
that the Master Servicer make such Advance, such request to be made in writing
and in a timely manner that does not adversely affect the interests of any
Certificateholder. The Master Servicer will be obligated to make any such
Servicing Advance that it is requested by the Special Servicer to so make within
ten (10) days of the Master Servicer's receipt of such request. With limited
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<PAGE>
exception, the Special Servicer will be relieved of any obligations with respect
to a Servicing Advance that it requests the Master Servicer to make (regardless
of whether or not the Master Servicer makes that Servicing Advance).
If the Master Servicer or the Special Servicer is required under the
Pooling and Servicing Agreement to make a Servicing Advance, but does not do so
within 15 days after such Servicing Advance is required to be made, then the
Trustee will, if it has actual knowledge of such failure, be required to give
the defaulting party notice of such failure and, if such failure continues for
three (3) more days, the Trustee will be obligated to make such Servicing
Advance (and, if the Trustee fails to make any Servicing Advance required under
the Pooling and Servicing Agreement, the Fiscal Agent will be obligated to make
such Servicing Advance on behalf of the Trustee).
The Master Servicer, the Special Servicer and the Trustee will each be
obligated to make Servicing Advances only to the extent that such Servicing
Advances are, in the reasonable and good faith judgment of such party,
ultimately recoverable from Related Proceeds.
Nonrecoverable Advances
The determination by the Master Servicer, the Special Servicer (or, if
applicable, the Trustee or Fiscal Agent) that any P&I Advance or Servicing
Advance previously made or proposed to be made would not be recoverable from
Related Proceeds, is to be made in the reasonable and good faith discretion of
such party and is to be accompanied by an officer's certificate delivered to the
Trustee and setting forth the reasons for such determination, together with
copies of appraisals, if any, or other information relevant thereto which
support such determination. The Master Servicer's or Special Servicer's
determination of nonrecoverability will be conclusive and binding upon the
Certificateholders, the Trustee, and the Fiscal Agent with respect to the
obligation of the Trustee or the Fiscal Agent to make any Advance. The Trustee
and the Fiscal Agent shall be entitled to rely conclusively on any determination
by the Master Servicer or Special Servicer of nonrecoverability with respect to
such Advance and shall have no obligation to make a separate determination of
recoverability.
Interest on Advances
The Master Servicer, the Special Servicer, the Trustee and the Fiscal Agent
will each be entitled, with respect to any Advance made thereby, to receive
interest accrued on the amount of such Advance for so long as it is outstanding
at a rate per annum (the "Advance Rate") equal to the "prime rate" as published
in the "Money Rates" section of The Wall Street Journal, as such "prime rate"
may change from time to time. Such interest on any Advance will be payable to
the Master Servicer, the Special Servicer, the Trustee or the Fiscal Agent, as
the case may be, out of default interest and late payment charges actually
collected by the Master Servicer or the Special Servicer (and not retainable by
any Sub-Servicer) in respect of the related Mortgage Loan or, in connection with
or at any time following the reimbursement of such Advance, out of any amounts
then on deposit in the Certificate Account. To the extent not offset by default
interest and late payment charges actually collected in respect of any defaulted
Mortgage Loan, interest accrued on outstanding Advances made in respect thereof
will result in a reduction in amounts payable on the Certificates.
Reports to Certificateholders; Available Information
Trustee Reports
1. Based on information provided in monthly reports prepared by the Master
Servicer and the Special Servicer and delivered to the Trustee, the Trustee will
prepare and forward on each Distribution Date to each Certificateholder:
(a) A statement setting forth, to the extent applicable: (i) the
amount, if any, of the distributions to the holders of each Class of
Principal Balance Certificates on such Distribution Date applied to reduce
the aggregate Certificate Balance thereof; (ii) the amount of the
distributions to holders of each Class of REMIC Regular Certificates on
such Distribution Date allocable to (A) interest and (B) Prepayment
Premiums; (iii) the number and aggregate Stated Principal Balance of
outstanding Mortgage Loans in the Mortgage Pool and in each Loan Group;
(iv) the number and aggregate Stated Principal Balance of Mortgage Loans in
the Mortgage Pool and in each Loan Group (A) delinquent one month, (B)
delinquent two months, (C) delinquent three or more months or (D) as to
which foreclosure proceedings have been commenced; (v) with respect to any
REO Property acquired during the related Collection Period, the Stated
Principal Balance of the related Mortgage Loan as of
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<PAGE>
the date of acquisition of the REO Property; (vi)(A) the book value of any
REO Property as of the related Determination Date, (B) as to any REO
Property sold during the related Collection Period, the date of the related
determination by the Special Servicer that it has recovered all Related
Proceeds which it expects to be finally recoverable and the amount of the
proceeds of such sale deposited into the Certificate Account, and (C) the
aggregate amount of other revenues collected by the Special Servicer with
respect to each REO Property during the related Collection Period and
credited to the Certificate Account, in each case identifying such REO
Property by the loan number of the related Mortgage Loan; (vii) the
aggregate Certificate Balance or Notional Amount of each Class of REMIC
Regular Certificates before and after giving effect to the distributions,
and any allocations of Realized Losses and Expense Losses, made on such
Distribution Date; (viii) the aggregate amount of principal prepayments
made during the related Collection Period; (ix) the Pass-Through Rate
applicable to each Class of REMIC Regular Certificates for such
Distribution Date; (x) the aggregate amount of servicing compensation
retained by or paid to the Master Servicer and the Special Servicer; (xi)
the amount of Realized Losses or Expense Losses, if any, incurred with
respect to the Mortgage Loans during the related Collection Period; (xii)
the aggregate amount of Servicing Advances and P&I Advances outstanding as
of the end of the prior calendar month that have been made by the Master
Servicer, the Special Servicer, the Trustee and the Fiscal Agent,
separately stated; (xiii) the amount of any Appraisal Reductions effected
during the related Collection Period on a loan-by-loan basis and the total
Appraisal Reductions as of such Distribution Date; and (xiv) such other
information and in such form as shall be specified in the Pooling and
Servicing Agreement. In the case of information furnished pursuant to
subclauses (i), (ii) and (xi) above, the amounts shall be expressed as a
dollar amount per $1,000 of original actual or notional principal amount of
the Certificates for all Certificates of each applicable Class.
(b) A report containing information regarding the Mortgage Loans as of
the end of the related Collection Period, which report will contain
substantially the categories of information regarding the Mortgage Loans
set forth in Appendix I and Appendix II, will be presented in a tabular
format substantially similar to the respective format utilized in Appendix
I and Appendix II and will be updated within a reasonable period after the
requisite underlying information is available.
2. For those who have obtained an account number on the Trustee's ASAP
(Automatic Statements Accessed by Phone) System, the foregoing report or a
summary report of bond factors may be obtained from the Trustee via automated
facsimile by placing a telephone call to (312) 904-2200 and following the voice
prompts to request "Statement Number 241." Account numbers on the Trustee's ASAP
System may be obtained by calling the same telephone number and following the
voice prompts for obtaining account numbers. Separately, bond factor information
may be obtained from the Trustee by calling (800) 246-5761. In addition, if the
Depositor so directs the Trustee and on terms acceptable to the Trustee, the
Trustee will make available through its electronic bulletin board system, on a
confidential basis, certain information related to the Mortgage Loans. The
bulletin board is located at (714) 282-3990. A directory has been set up on the
bulletin board in which an electronic file is stored containing monthly servicer
data. All files are password protected. Passwords to each file will be released
by the Trustee in accordance with the terms of the Pooling and Servicing
Agreement. Those who have an account on the bulletin board may retrieve the loan
level data file for each transaction in the directory. An account number may be
obtained by typing "NEW" upon logging into the bulletin board.
3. Unless otherwise reported pursuant to 1(b) above, on an annual basis,
the Master Servicer is required to deliver to the Trustee, who will deliver such
report to the Underwriter, the Certificateholders, the Depositor and anyone else
the Depositor or the Underwriter reasonably designates, a report setting forth
the debt service coverage ratio (and the calculation thereof) with respect to
each Mortgage Loan for which the Master Servicer obtains operating statements,
and such other information, including occupancy, to the extent available, and
substantially in the form set forth in the Pooling and Servicing Agreement.
Special Servicer Reports
No later than one business day following each Determination Date, the
Special Servicer will prepare, or provide the Master Servicer with the
information necessary to prepare, reports with respect to Specially Serviced
Mortgage Loans substantially in the form set forth in the Pooling and Servicing
Agreement. Such reports generally will include a report showing loan-by-
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loan detail on each Specially Serviced Mortgage Loan that is 60 days delinquent,
90 days delinquent, or in the process of foreclosure, an REO status report for
each REO Property and a modification report showing loan-by-loan detail for each
modification closed during the most recent reporting period. Such reports will
be delivered by the Trustee, no later than the business day prior to each
Distribution Date, to the Underwriter, the Rating Agencies and the Depositor.
Other Information
The Pooling and Servicing Agreement requires that the Trustee make
available, at its offices primarily responsible for administering the Trust Fund
or at such other office as it may reasonably designate, during normal business
hours, upon reasonable advance notice for review by any holder or prospective
purchaser of a Certificate, originals or copies of, among other things, the
following items (except to the extent not permitted by applicable law or under
any of the Mortgage Loan documents): (i) the Pooling and Servicing Agreement and
any amendments thereto, (ii) all reports or statements delivered by the Trustee
to holders of the relevant Class of Certificates since the Closing Date, (iii)
all accountants' reports delivered to the Trustee since the Closing Date, (iv)
the most recent property inspection report prepared by or on behalf of the
Master Servicer or the Special Servicer in respect of each Mortgaged Property
and delivered to the Trustee, (v) the most recent Mortgaged Property annual
operating statements and rent rolls, if any, collected by or on behalf of the
Master Servicer or the Special Servicer and delivered to the Trustee, (vi) any
and all modifications, waivers and amendments of the terms of a Mortgage Loan
entered into by the Master Servicer and/or the Special Servicer and delivered to
the Trustee, and (vii) any and all officers' certificates and other evidence
delivered to the Trustee to support the Master Servicer's determination that any
Advance was or, if made, would not be recoverable from Related Proceeds. Copies
of any and all of the foregoing items and any Special Servicer Reports delivered
to the Trustee will be available from the Trustee upon request; provided that
the Trustee will be permitted to require payment of a sum sufficient to cover
the reasonable costs and expenses of providing such copies; and provided further
that certain limitations will be imposed on the recipients with respect to the
use and further dissemination of the information to the extent described in the
Pooling and Servicing Agreement.
Book-Entry Certificates
Until such time, if any, as Definitive Certificates are issued in respect
of the Offered Certificates, the foregoing information and access will be
available to the related Certificate Owners only to the extent it is forwarded
by, or otherwise available through, DTC and its Participants. The manner in
which notices and other communications are conveyed by DTC to its Participants,
and by such Participants to the Certificate Owners, will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. The Master Servicer, the Special Servicer,
the Trustee and the Depositor are required to recognize as Certificateholders
only those persons in whose names the Certificates are registered on the books
and records of the Trustee; however, any Certificate Owner that has delivered to
the Trustee a written certification, in form and substance satisfactory to the
Trustee, regarding such Certificate Owner's beneficial ownership of Offered
Certificates will be recognized as Certificateholders for purposes of obtaining
the foregoing information and access.
Example of Distributions
The following chart sets forth an example of distributions on the
Certificates for the first month of the Trust Fund's existence, assuming the
Certificates are issued during March, 1997:
<TABLE>
<CAPTION>
The close of business on
<S> <C> <C>
March 1....................... (A) Cut-off Date.
March 31...................... (B) Record Date for all Classes of Certificates.
March 1 -April 4.............. (C) The Collection Period. The Master Servicer receives
Monthly Payments due, and any principal
prepayments made, after the Cut-off
Date and on or prior to April 4, the
last day of the Collection Period.
April 4....................... (D) Determination Date.
April 14...................... (E) Master Servicer Remittance Date.
April 15...................... (F) Distribution Date.
</TABLE>
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Succeeding monthly periods follow the pattern of (B) through (F) (except as
described below).
(A) The outstanding principal balance of the Mortgage Loans will be the
aggregate principal balance of the Mortgage Loans at the close of business on
March 1, 1997 (after deducting principal payments due on or before such date).
Those principal payments due on or before such date, and the accompanying
interest payments, are not part of the Trust Fund.
(B) Distributions on the next Distribution Date will be made to those
persons that are Certificateholders of record on this date. Each subsequent
Record Date will be the last business day of the month preceding the related
Distribution Date.
(C) Any Monthly Payments due and collected and Principal Prepayments
collected, after the Cut-off Date and on or prior to April 4, 1997 (the first
business day preceding April 5) will be deposited in the Certificate Account.
Each subsequent Collection Period will begin on the day after the Determination
Date in the month preceding the month of the related Distribution Date and will
end on the Determination Date in the month in which the related Distribution
Date occurs.
(D) As of the close of business on the Determination Date, the Master
Servicer will have determined the amounts of principal and interest due and
payable on the Mortgage Loans with respect to the related Collection Period.
(E) The Master Servicer will remit to the Trustee on the business day
preceding the related Distribution Date all amounts held by the Master Servicer
that are payable to Certificateholders on such Distribution Date.
(F) The Trustee will make distributions to Certificateholders on the 15th
day of each month or, if any such 15th day is not a business day, the next
succeeding business day.
Voting Rights
At all times during the term of the Pooling and Servicing Agreement, 97% of
the voting rights for the Certificates (the "Voting Rights") are to be allocated
among the holders of the respective Classes of Principal Balance Certificates in
proportion to the aggregate Certificate Balances of such Classes, 2% of the
Voting Rights are to be allocated among the holders of the respective Classes of
Interest Only Certificates in proportion to the aggregate Notional Amounts of
such Classes, and the remaining Voting Rights are to be allocated equally among
the holders of the respective Classes of REMIC Residual Certificates. Voting
Rights allocated to a Class of Certificateholders will be allocated among such
Certificateholders in proportion to the Percentage Interests in such Class
evidenced by their respective Certificates.
The Trustee and the Fiscal Agent
The Trustee
LaSalle National Bank ("LaSalle") will act as Trustee . LaSalle is a
subsidiary of LaSalle National Corporation which is a subsidiary of the Fiscal
Agent. The Trustee is at all times required to be, and will be required to
resign if it fails to be, (i) an institution insured by the FDIC, (ii) a
corporation, national bank or national banking association, organized and doing
business under the laws of the United States of America or any state thereof,
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of not less than $50,000,000 and subject to supervision or
examination by federal or state authority and (iii) an institution whose
long-term senior unsecured debt (or that of its fiscal agent, if applicable) is
rated not less than "Aa2" by Moody's and "AA" by DCR (or such lower rating as
the Rating Agencies would permit without an adverse effect on any of the
then-current ratings of the Certificates). The corporate trust office of the
Trustee responsible for administration of the Trust Fund (the "Corporate Trust
Office") is located at 135 South LaSalle Street, Suite 1740, Chicago, Illinois
60674-4107, Attention: Asset-Backed Securities Trust Services Group-- Morgan
Stanley Capital I Inc., Commercial Mortgage Pass-Through Certificates, Series
1997-C1. As of December 31, 1996, the Trustee had assets of approximately $13
billion. See "Description of the Agreements--The Trustee", "--Duties of the
Trustee", "--Certain Matters Regarding the Trustee" and "--Resignation and
Removal of the Trustee" in the Prospectus.
The Master Servicer will be responsible for payment of the compensation of
the Trustee.
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The Fiscal Agent
ABN AMRO Bank N.V., a Netherlands banking corporation and the indirect
corporate parent of the Trustee, will act as Fiscal Agent for the Trust Fund and
will be obligated to make any Advance required to be made, and not made, by the
Master Servicer and the Trustee under the Pooling and Servicing Agreement,
provided that the Fiscal Agent will not be obligated to make any Advance that it
deems to be a Nonrecoverable Advance. The Fiscal Agent will be entitled (but not
obligated) to rely conclusively on any determination by the Master Servicer, the
Special Servicer (solely in the case of Servicing Advances) or the Trustee that
an Advance, if made, would be a Nonrecoverable Advance. The Fiscal Agent will be
entitled to reimbursement for each Advance made by it in the same manner and to
the same extent as, but prior to, the Master Servicer and the Trustee. See
"--Advances" above. The Fiscal Agent will be entitled to various rights,
protections and indemnities similar to those afforded the Trustee. The Trustee
will be responsible for payment of the compensation of the Fiscal Agent. As of
June 30, 1996, the Fiscal Agent had consolidated assets of approximately $385
billion. In the event that LaSalle shall, for any reason, cease to act as
Trustee under the Pooling Agreement, ABN AMRO Bank N.V. likewise shall no longer
serve in the capacity of Fiscal Agent thereunder.
MATURITY CONSIDERATIONS
The weighted average life of a Principal Balance Certificate refers to the
average amount of time that will elapse from the date of its issuance until each
dollar allocable to principal of such Certificate is distributed to the
investor. For purposes of this Prospectus Supplement, the weighted average life
of a Principal Balance Certificate is determined by (i) multiplying the amount
of each principal distribution thereon by the number of years from the Closing
Date to the related Distribution Date, (ii) summing the results and (iii)
dividing the sum by the aggregate amount of the reductions in the Certificate
Balance of such Certificate. Accordingly, the weighted average life of any such
Certificate will be influenced by, among other things, the rate at which
principal of the Mortgage Loans is paid or otherwise collected or advanced and
the extent to which such payments, collections and/or advances of principal are
in turn applied in reduction of the Certificate Balance of such Certificate.
Prepayments on mortgage loans may be measured by a prepayment standard or
model. The model used in this Prospectus Supplement is the CPR prepayment model
(as described under "Yield Considerations--Prepayments--Maturity and Weighted
Average Life" in the Prospectus). As used in each of the following tables, the
column headed "0%" assumes that none of the Mortgage Loans is prepaid before
maturity. The columns headed "3%", "5%", "7%", "10%" and "15%" assume that no
prepayments are made on any Mortgage Loan during such Mortgage Loan's Lock-out
Period, if any, or during such Mortgage Loan's yield maintenance period, if any,
and are otherwise made on each of the Mortgage Loans at the indicated CPRs.
There is no assurance, however, that prepayments of the Mortgage Loans (whether
or not in a Lock-out Period or a yield maintenance period) will conform to any
particular CPR, and no representation is made that the Mortgage Loans will
prepay in accordance with the assumptions at any of the CPRs shown or at any
other particular prepayment rate, that all the Mortgage Loans will prepay in
accordance with the assumptions at the same rate or that Mortgage Loans that are
in a Lock-out Period or a yield maintenance period will not prepay as a result
of involuntary liquidations upon default or otherwise. A "yield maintenance
period" is any period during which a Mortgage Loan provides that voluntary
prepayments be accompanied by a Yield Maintenance Premium.
The following tables indicate the percentage of the initial aggregate
Certificate Balance of each Class of Offered Certificates (other than the
Interest Only Certificates) that would be outstanding after each of the dates
shown at various CPRs and the corresponding weighted average life of each such
Class of Certificates. The tables have been prepared on the basis of the
following assumptions (collectively, the "Maturity Assumptions"): (i) the
Initial Group 1 Balance is approximately $602,409,439 and the Initial Group 2
Balance is approximately $38,248,484, (ii) the initial aggregate Certificate
Balance or Notional Amount, as the case may be, for each Class of Offered
Certificates is as set forth on the cover page hereof, and the Pass-Through Rate
for each Class of Offered Certificates is as set forth or otherwise described
herein, (iii) the scheduled Monthly Payments for each Mortgage Loan are (A) in
the case of each ARM Loan, equal to the Monthly Payment in effect as of the
Cut-off Date until the next payment adjustment is scheduled to occur and
thereafter based on such Mortgage Loan's then scheduled principal balance and
remaining amortization term and the value of the applicable Index described in
clause (v) below, plus the related Gross Margin, subject to the respective
minimum
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<PAGE>
and maximum Mortgage Rates, and (B) in the case of each Fixed Rate Loan, based
on such Mortgage Loan's Cut-off Date Balance, calculated remaining amortization
term (or, in the case of the two Mortgage Loans that require quarterly payments
of principal based on "net cash flow" as described herein, a 25-year
amortization term) and the Mortgage Rate in effect as of the Cut-off Date, (iv)
all Monthly Payments are due and timely received on the first day of each month,
(v) One-Month LIBOR and One-Month Certificate LIBOR each remains constant at
5.52734% per annum and Six-Month LIBOR remains constant at 5.81250% per annum,
(vi) there are no delinquencies or losses in respect of the Mortgage Loans,
there are no extensions of maturity in respect of the Mortgage Loans, there are
no Appraisal Reductions with respect to the Mortgage Loans and there are no
casualties or condemnations affecting the Mortgaged Properties, (A) prepayments
are made on each of the Mortgage Loans at the indicated CPRs (except that
prepayments are assumed not to be received as to any Mortgage Loan during such
Mortgage Loan's Lock-out Period ("LOP"), if any, or yield maintenance period
("YMP"), if any), (B) both Mortgage Loans that provide for a mortgagee call
option prior to stated maturity are prepaid in full as of the date on which such
option becomes exercisable, and (C) both Mortgage Loans that provide for an
increase in the respective Mortgage Rate and principal amortization on a
specified date prior to stated maturity are prepaid in full on their respective
Hyper-Amortization Dates, (viii) (A) Mortgage Loans that are silent as to the
methodology of interest accrual on such loans are assumed to accrue on the basis
of a 360-day year consisting of twelve 30-day months (a "30/360 basis") and (B)
Mortgage Loans that accrue interest on the basis of the actual number of days
elapsed each month in a 360-day year pay principal based on monthly payments
that are calculated on a 30/360 basis, (ix) no party entitled thereto exercises
its right of optional termination described herein under "Description of the
Certificates--Optional Termination", (x) no Mortgage Loan is required to be
repurchased or replaced by a Seller or other party, (xi) no Prepayment Interest
Shortfalls are incurred, (xii) there are no Additional Trust Fund Expenses,
(xiii) distributions on the Certificates are made on the 15th day of each month,
commencing in April, 1997, (xiv) the Certificates are issued on March 26, 1997,
(xv) the prepayment provisions for each Mortgage Loan are assumed to begin on
the first payment date of such Mortgage Loan and any resulting Prepayment
Premiums are allocated, as described under "Description of the Certificates --
Distributions -- Distributions of Prepayment Premiums", and (xvi) the open
prepayment period, if any, is assumed to begin on the first day of the
respective month prior to the maturity date. To the extent that the Mortgage
Loans have characteristics that differ from those assumed in preparing the
tables set forth below, the Class A-1A, Class A-1B, Class A-1C, Class A-2, Class
B, Class C, Class D and/or Class E Certificates may mature earlier or later than
indicated by the tables. The "Final Scheduled Distribution Date" for each Class
of Offered Certificates set forth on the cover page hereof is the Distribution
Date on which the related aggregate Certificate Balance or Notional Amount, as
the case may be, would be reduced to zero based upon the Maturity Assumptions
and a 0% CPR. It is highly unlikely that the Mortgage Loans will prepay in
accordance with the Maturity Assumptions at any constant rate until maturity or
that all the Mortgage Loans will prepay in accordance with the Maturity
Assumptions at the same rate. In addition, variations in the actual prepayment
experience and the balance of the Mortgage Loans that prepay may increase or
decrease the percentages of initial aggregate Certificate Balances (and weighted
average lives) shown in the following tables. Such variations may occur even if
the average prepayment experience of the Mortgage Loans was to reflect the
Maturity Assumptions and any of the specified CPR percentages.
Investors are urged to conduct their own analyses of the rates at which the
Mortgage Loans may be expected to prepay.
Based on the Maturity Assumptions, the following tables indicate the
resulting weighted average lives of the Class A-1A, Class A-1B, Class A-1C,
Class A-2, Class B, Class C, Class D and Class E Certificates and set forth the
percentage of the initial Certificate Balance of each such Class of Certificates
that would be outstanding after each of the dates shown under the applicable
assumptions at the indicated CPRs.
S-64
<PAGE>
Percentages of the Initial Aggregate Certificate Balance of
the Class A-1A Certificates at the Specified CPRs
Prepayment Assumption (CPR)
----------------------------------------------
Date 0% 3% 5% 7% 10% 15%
---- -- -- -- -- --- ---
Closing Date ............. 100% 100% 100% 100% 100% 100%
March 1998 ............... 88 87 86 86 84 82
March 1999 ............... 75 73 72 70 68 65
March 2000 ............... 61 58 55 53 50 45
March 2001 ............... 46 39 35 30 24 15
March 2002 ............... 17 7 1 0 0 0
March 2003 ............... 0 0 0 0 0 0
Weighted Average
Life (years) ............. 3.4 3.1 3.0 2.9 2.8 2.6
Percentages of the Initial Aggregate Certificate Balance
of the Class A-1B Certificates at the Specified CPRs
Prepayment Assumption (CPR)
----------------------------------------------
Date 0% 3% 5% 7% 10% 15%
---- -- -- -- -- --- ---
Closing Date ............. 100% 100% 100% 100% 100% 100%
March 1998 ............... 100 100 100 100 100 100
March 1999 ............... 100 100 100 100 100 100
March 2000 ............... 100 100 100 100 100 100
March 2001 ............... 100 100 100 100 100 100
March 2002 ............... 100 100 100 98 96 92
March 2003 ............... 99 95 93 90 87 82
March 2004 ............... 36 32 29 27 23 19
March 2005 ............... 30 25 22 19 16 11
March 2006 ............... 7 1 0 0 0 0
March 2007 ............... 0 0 0 0 0 0
Weighted Average
Life (years) ............. 7.3 7.1 7.0 6.9 6.8 6.6
S-65
<PAGE>
Percentages of the Initial Aggregate Certificate Balance
of the Class A-1C Certificates at the Specified CPRs
Prepayment Assumption (CPR)
----------------------------------------------
Date 0% 3% 5% 7% 10% 15%
---- -- -- -- -- --- ---
Closing Date ............. 100% 100% 100% 100% 100% 100%
March 1998 ............... 100 100 100 100 100 100
March 1999 ............... 100 100 100 100 100 100
March 2000 ............... 100 100 100 100 100 100
March 2001 ............... 100 100 100 100 100 100
March 2002 ............... 100 100 100 100 100 100
March 2003 ............... 100 100 100 100 100 100
March 2004 ............... 100 100 100 100 100 100
March 2005 ............... 100 100 100 100 100 100
March 2006 ............... 100 100 97 93 87 80
March 2007 ............... 0 0 0 0 0 0
Weighted Average
Life (years) ............. 9.5 9.5 9.4 9.4 9.4 9.3
Percentages of the Initial Aggregate Certificate Balance of
the Class A-2 Certificates at the Specified CPRs
Prepayment Assumption (CPR)
----------------------------------------------
Date 0% 3% 5% 7% 10% 15%
---- -- -- -- -- --- ---
Closing Date ............. 100% 100% 100% 100% 100% 100%
March 1998 ............... 99 96 94 92 89 84
March 1999 ............... 98 92 89 85 79 71
March 2000 ............... 97 89 83 78 71 60
March 2001 ............... 96 85 78 72 63 50
March 2002 ............... 95 81 73 66 56 42
March 2003 ............... 75 63 55 49 40 28
March 2004 ............... 74 60 52 44 35 24
March 2005 ............... 4 3 2 2 2 1
March 2006 ............... 4 3 2 2 1 1
March 2007 ............... 0 0 0 0 0 0
Weighted Average
Life (years) ............. 6.9 6.2 5.8 5.4 4.9 4.1
S-66
<PAGE>
Percentages of the Initial Aggregate Certificate Balance of
the Class B Certificates at the Specified CPRs
Prepayment Assumption (CPR)
----------------------------------------------
Date 0% 3% 5% 7% 10% 15%
---- -- -- -- -- --- ---
Closing Date ............. 100% 100% 100% 100% 100% 100%
March 1998 ............... 100 100 100 100 100 100
March 1999 ............... 100 100 100 100 100 100
March 2000 ............... 100 100 100 100 100 100
March 2001 ............... 100 100 100 100 100 100
March 2002 ............... 100 100 100 100 100 100
March 2003 ............... 100 100 100 100 100 100
March 2004 ............... 100 100 100 100 100 100
March 2005 ............... 100 100 100 100 100 100
March 2006 ............... 100 100 100 100 100 100
March 2007 ............... 0 0 0 0 0 0
Weighted Average
Life (years) ............. 9.8 9.8 9.8 9.7 9.7 9.7
Percentages of the Initial Aggregate Certificate Balance of
the Class C Certificates at the Specified CPRs
Prepayment Assumption (CPR)
----------------------------------------------
Date 0% 3% 5% 7% 10% 15%
---- -- -- -- -- --- ---
Closing Date ............. 100% 100% 100% 100% 100% 100%
March 1998 ............... 100 100 100 100 100 100
March 1999 ............... 100 100 100 100 100 100
March 2000 ............... 100 100 100 100 100 100
March 2001 ............... 100 100 100 100 100 100
March 2002 ............... 100 100 100 100 100 100
March 2003 ............... 100 100 100 100 100 100
March 2004 ............... 100 100 100 100 100 100
March 2005 ............... 100 100 100 100 100 100
March 2006 ............... 100 100 100 100 100 100
March 2007 ............... 0 0 0 0 0 0
Weighted Average
Life (years) ............. 9.8 9.8 9.8 9.8 9.8 9.8
S-67
<PAGE>
Percentages of the Initial Aggregate Certificate Balance of
the Class D Certificates at the Specified CPRs
Prepayment Assumption (CPR)
----------------------------------------------
Date 0% 3% 5% 7% 10% 15%
---- -- -- -- -- --- ---
Closing Date ............. 100% 100% 100% 100% 100% 100%
March 1998 ............... 100 100 100 100 100 100
March 1999 ............... 100 100 100 100 100 100
March 2000 ............... 100 100 100 100 100 100
March 2001 ............... 100 100 100 100 100 100
March 2002 ............... 100 100 100 100 100 100
March 2003 ............... 100 100 100 100 100 100
March 2004 ............... 100 100 100 100 100 100
March 2005 ............... 100 100 100 100 100 100
March 2006 ............... 100 100 100 100 100 100
March 2007 ............... 0 0 0 0 0 0
Weighted Average
Life (years) ............. 9.8 9.8 9.8 9.8 9.8 9.8
Percentages of the Initial Aggregate Certificate Balance of
the Class E Certificates at the Specified CPRs
Prepayment Assumption (CPR)
----------------------------------------------
Date 0% 3% 5% 7% 10% 15%
---- -- -- -- -- --- ---
Closing Date ............. 100% 100% 100% 100% 100% 100%
March 1998 ............... 100 100 100 100 100 100
March 1999 ............... 100 100 100 100 100 100
March 2000 ............... 100 100 100 100 100 100
March 2001 ............... 100 100 100 100 100 100
March 2002 ............... 100 100 100 100 100 100
March 2003 ............... 100 100 100 100 100 100
March 2004 ............... 100 100 100 100 100 100
March 2005 ............... 100 100 100 100 100 100
March 2006 ............... 100 100 100 100 100 100
March 2007 ............... 0 0 0 0 0 0
Weighted Average
Life (years) ............. 10.0 9.9 9.9 9.8 9.8 9.8
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<PAGE>
YIELD CONSIDERATIONS
General
The yield on any Offered Certificate will depend on: (i) the Pass-Through
Rate in effect from time to time for such Certificate; (ii) the price paid for
such Certificate and, if the price was other than par, the rate and timing of
payments of principal on such Certificate; and (iii) the aggregate amount of
distributions on such Certificate.
Pass-Through Rates
The Pass-Through Rate for the Class IO-2 Certificates will be variable and
will be calculated based upon the Net Mortgage Rates of the Group 2 Loans from
time to time. The Pass-Through Rate for the Class IO-1 Certificates will also be
variable and will be calculated based upon the Net Mortgage Rates of the Group 1
Loans (and, after any Class A-2 Cross-Over Date, of all the Mortgage Loans) from
time to time. Accordingly, the yield on the Interest Only Certificates will be
sensitive to changes in the relative composition of the two Loan Groups (or, in
the case of the Class IO-2 Certificates, only Loan Group 2) as a result of
scheduled amortization, voluntary prepayments, liquidations of Mortgage Loans
following default and repurchases/substitutions of Mortgage Loans.
The yield on the Class IO-1 Certificates will also be sensitive to changes
in the relative sizes of the aggregate Certificate Balances of the respective
Classes of Principal Balance Certificates (other than the Class A-2 Certificates
until the occurrence of any Class A-2 Cross-Over Date). In addition, if as a
result of losses on or in respect of the Group 2 Loans, payments of interest on
the Class A-2 Certificates become dependent upon interest accrued on the Group 1
Loans, the Pass-Through Rate for (and, accordingly, the yield on) the Class IO-1
Certificates will be adversely affected by increases in One-Month Certificate
LIBOR. Furthermore, if as a result of the application of payments or other
collections of principal on or in respect of the Group 1 Loans to pay principal
of the Class A-2 Certificates following the retirement of the Class A-1A, Class
A-1B and Class A-1C Certificates, payments on the remaining Group 1 Certificates
become dependent upon interest accrued on the Group 2 Loans, the Pass-Through
Rate for (and, accordingly, the yield on) the Class IO-1 Certificates will be
adversely affected by decreases in One-Month LIBOR and Six-Month LIBOR (to the
extent reflected in the Net Mortgage Rates for the Group 2 Loans).
The yield on the Class IO-2 Certificates will also be sensitive to changes
in the Pass-Through Rate for the Class A-2 Certificates. If One-Month
Certificate LIBOR (and accordingly, the Pass-Through Rate for the Class A-2
Certificates) increases without a corresponding increase in the Net Mortgage
Rates for the Group 2 Loans (whether as a result of lifetime or periodic rate
caps for the Group 2 Loans or because the Mortgage Rates on the Six-Month LIBOR
Loans can only adjust semi-annually while One-Month Certificate LIBOR adjusts
monthly), the Pass-Through Rate (and, accordingly, the yield) on the Class IO-2
Certificates will be adversely affected.
See "Description of the Certificates--Pass-Through Rates" and "Description
of the Mortgage Pool" herein and "--Rate and Timing of Principal Payments" and
"--Yield Sensitivity of the Interest Only Certificates" below.
Rate and Timing of Principal Payments
The yield to holders of the Interest Only Certificates and any other
Offered Certificates that are purchased at a discount or premium will be
affected by the rate and timing of principal payments on the Mortgage Loans
(including principal prepayments on the Mortgage Loans resulting from both
voluntary prepayments by the mortgagors and involuntary liquidations). The rate
and timing of principal payments on the Mortgage Loans will in turn be affected
by the amortization schedules thereof, the dates on which Balloon Payments are
due and the rate and timing of principal prepayments and other unscheduled
collections thereon (including for this purpose, collections made in connection
with liquidations of Mortgage Loans due to defaults, casualties or condemnations
affecting the Mortgaged Properties, or purchases of Mortgage Loans out of the
Trust Fund). Prepayments and, assuming the respective stated maturity dates
therefor have not occurred, liquidations and purchases of the Mortgage Loans,
will result in distributions on the Principal Balance Certificates of amounts
that otherwise would have been distributed (and reductions in the Notional
Amounts of the Interest Only Certificates that would otherwise have occurred)
over the remaining terms of the Mortgage Loans. Defaults on the Mortgage Loans,
particularly at or near their stated maturity dates, may result in significant
delays in payments of principal on the Mortgage Loans (and, accordingly, on the
Principal Balance Certificates) while work-outs are negotiated or foreclosures
are completed. See "Servicing of the Mortgage Loans--Modifications, Waivers,
Amendments and Consents" herein and "Description of the Agreements--Realization
Upon Defaulted Whole Loans" and
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<PAGE>
"Certain Legal Aspects of the Mortgage Loans and Leases--Foreclosure" in the
Prospectus. Because the rate of principal payments on the Mortgage Loans will
depend on future events and a variety of factors (as described below), no
assurance can be given as to such rate or the rate of principal prepayments in
particular. The Depositor is not aware of any relevant publicly available or
authoritative statistics with respect to the historical prepayment experience of
a large group of mortgage loans comparable to the Mortgage Loans.
The extent to which the yield to maturity of an Offered Certificate may
vary from the anticipated yield will depend upon the degree to which such
Certificate is purchased at a discount or premium and when, and to what degree,
payments of principal on the Mortgage Loans are in turn distributed on or
otherwise result in the reduction of the Certificate Balance or Notional Amount,
as the case may be, of such Certificate. An investor should consider, in the
case of any Principal Balance Certificate purchased at a discount, the risk that
a slower than anticipated rate of principal payments on such Certificate could
result in an actual yield to such investor that is lower than the anticipated
yield and, in the case of any Principal Balance Certificate purchased at a
premium, the risk that a faster than anticipated rate of principal payments on
such Certificate could result in an actual yield to such investor that is lower
than the anticipated yield. In general, the earlier a payment of principal is
made on a Principal Balance Certificate purchased at a discount or premium, the
greater will be the effect on an investor's yield to maturity. As a result, the
effect on an investor's yield of principal payments on such investor's Principal
Balance Certificates occurring at a rate higher (or lower) than the rate
anticipated by the investor during any particular period would not be fully
offset by a subsequent like reduction (or increase) in the rate of principal
payments. The yield to maturity of each Class of Interest Only Certificates will
be highly sensitive to the rate and timing of principal payments (including by
reason of prepayments, defaults and liquidations) on or in respect of, in the
case of the Class IO-1 Certificates, the Group 1 Loans (and, to a lesser extent,
under certain circumstances, the Group 2 Loans) and, in the case of the Class
IO-2 Certificates, the Group 2 Loans only. Investors in the Interest Only
Certificates should fully consider the associated risks, including the risk that
an extremely rapid rate of amortization and prepayment of the Notional Amounts
of their Certificates could result in the failure of such investors to recoup
their initial investments.
Losses and Shortfalls
The yield to holders of the Offered Certificates will also depend on the
extent to which such holders are required to bear the effects of any losses or
shortfalls on the Mortgage Loans. Losses and other shortfalls on the Mortgage
Loans (other than Net Aggregate Prepayment Interest Shortfalls) will generally
be borne: first, by the holders of the respective Classes of Subordinate
Certificates, in reverse alphabetical order of Class designation, to the extent
of amounts otherwise distributable in respect of their Certificates; and then,
by the holders of the Senior Certificates. Net Aggregate Prepayment Interest
Shortfalls will be borne by the holders of the respective Classes of REMIC
Regular Certificates on a pro rata basis as described herein.
Certain Relevant Factors
The rate and timing of principal payments and defaults and the severity of
losses on the Mortgage Loans may be affected by a number of factors, including,
without limitation, prevailing interest rates, the terms of the Mortgage Loans
(for example, Prepayment Premiums, Lock-out Periods, adjustable Mortgage Rates
and amortization terms that require Balloon Payments), the demographics and
relative economic vitality of the areas in which the Mortgaged Properties are
located and the general supply and demand for comparable residential and/or
commercial space in such areas, the quality of management of the Mortgaged
Properties, the servicing of the Mortgage Loans, possible changes in tax laws
and other opportunities for investment. See "Risk Factors and Other Special
Considerations" and "Description of the Mortgage Pool" herein and "Risk Factors"
and "Yield Considerations" in the Prospectus.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. Even in the case of the ARM Loans, adjustments to the Mortgage Rates
thereon will generally be limited by lifetime and/or periodic caps and floors
and, in each case, will be based on the related Index (which may not rise and
fall consistently with mortgage interest rates then
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<PAGE>
available) plus the related Gross Margin (which may be different from margins
then offered on adjustable rate mortgage loans). See "Description of the
Mortgage Pool--Certain Terms and Characteristics of the Mortgage Loans--The ARM
Loans" herein. As a result, the Mortgage Rates on the ARM Loans at any time may
not be comparable to prevailing market interest rates. In addition, as
prevailing market interest rates decline, and without regard to whether the
Mortgage Rates on the ARM Loans decline in a manner consistent therewith,
related borrowers may have an increased incentive to refinance for purposes of
either (i) converting to a fixed rate loan and thereby "locking in" such rate,
or (ii) taking advantage of a different index, margin or rate cap or floor on
another adjustable rate mortgage loan. If a Mortgage Loan is not in a Lock-out
Period, the Prepayment Premium, if any, in respect of such Mortgage Loan may not
be sufficient economic disincentive to prevent the related borrower from
voluntarily prepaying the loan as part of a refinancing thereof. See
"Description of the Mortgage Pool--Certain Terms and Characteristics of the
Mortgage Loans" herein.
Delay in Payment of Distributions
Because monthly distributions will not be made to Certificateholders until
a date that is scheduled to be at least 15 days following the end of 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 such prices did
not account for such delay).
Yield Sensitivity of the Interest Only Certificates
The yield to maturity of each Class of Interest Only Certificates will be
especially sensitive to the prepayment and default experience on, in the case of
the Class IO-1 Certificates, the Group 1 Loans (and, to a lesser extent, under
certain circumstances, the Group 2 Loans) and, in the case of the Class IO-2
Certificates, the Group 2 Loans only, which prepayment, repurchase and default
experience may fluctuate significantly from time to time. A rapid rate of
principal payments will have a material negative effect on the yield to maturity
of either or both Classes of the Interest Only Certificates. There can be no
assurance that the Mortgage Loans will prepay at any particular rate.
Prospective investors in the Interest Only Certificates should fully consider
the associated risks, including the risk that such investors may not fully
recover their initial investment.
The following tables indicate the sensitivity of the pre-tax yield to
maturity on each Class of the Interest Only Certificates to various constant
rates of prepayment on the Mortgage Loans by projecting the monthly aggregate
payments of interest on the Interest Only Certificates and computing the
corresponding pre-tax yields to maturity on a corporate bond equivalent basis,
based on the Maturity Assumptions. It was further assumed that the respective
aggregate purchase prices of the Class IO-1 and Class IO-2 Certificates are as
specified below. Any differences between such assumptions and the actual
characteristics and performance of the Mortgage Loans and the Interest Only
Certificates may result in yields being different from those shown in such
table. Discrepancies between assumed and actual characteristics and performance
underscore the hypothetical nature of the table, which is provided only to give
a general sense of the sensitivity of yields in varying prepayment scenarios.
The pre-tax yields set forth in the following tables were calculated by
determining the monthly discount rates that, when applied to the assumed streams
of cash flows to be paid on each Class of Interest Only Certificates, would
cause the discounted present value of such assumed stream of cash flows to equal
the assumed aggregate purchase price thereof, which includes accrued interest,
and by converting such monthly rates to semi-annual corporate bond equivalent
rates. Such calculation does not take into account shortfalls in collection of
interest due to prepayments (or other liquidations) of the Mortgage Loans or the
interest rates at which investors may be able to reinvest funds received by them
as distributions on the Interest Only Certificates (and accordingly does not
purport to reflect the return on any investment in the Interest Only
Certificates when such reinvestment rates are considered).
Notwithstanding the assumed prepayment rates reflected in the following
tables, it is highly unlikely that the Mortgage Loans will be prepaid according
to one particular pattern. For this reason, and because the timing of cash flows
is critical to determining yields, the pre-tax yield to maturity on each Class
of Interest Only Certificates is likely to differ from those shown in the
tables, even if all of the Mortgage Loans prepay at the indicated CPRs over any
given time period or over the entire life of the Certificates.
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<PAGE>
There can be no assurance that the Mortgage Loans will prepay at any
particular rate or that the yield on either Class of Interest Only Certificates
will conform to the yields described herein. Investors are urged to make their
investment decisions based on the determinations as to anticipated rates of
prepayment under a variety of scenarios. Investors in the Interest Only
Certificates should fully consider the risk that a rapid rate of prepayments on
the Mortgage Loans could result in the failure of such investors to fully
recover their investments.
Pre-Tax Yield to Maturity (CBE)
of the Class IO-1 Certificates
<TABLE>
<CAPTION>
Assumed Aggregate Prepayment Assumption (CPR)
Purchase Price -----------------------------------------------------------
(including accrued interest) 0% 3% 5% 7% 10% 15%
- ---------------------------- -- -- -- -- --- ---
<S> <C> <C> <C> <C> <C> <C>
$50,270,382.......... 10.19% 9.86% 9.66% 9.49% 9.26% 8.95%
$51,022,641.......... 9.81 9.47 9.28 9.10 8.87 8.56
$51,774,899.......... 9.44 9.10 8.90 8.72 8.49 8.18
</TABLE>
Pre-Tax Yield to Maturity (CBE)
of the Class IO-2 Certificates
<TABLE>
<CAPTION>
Assumed Aggregate Prepayment Assumption (CPR)
Purchase Price -----------------------------------------------------------
(including accrued interest) 0% 3% 5% 7% 10% 15%
- ---------------------------- -- -- -- -- --- ---
<S> <C> <C> <C> <C> <C> <C>
$3,383,717........... 20.06% 17.34% 15.51% 13.66% 10.84% 6.03%
$3,431,527........... 19.50 16.78 14.95 13.09 10.27 5.46
$3,479,338........... 18.96 16.24 14.40 12.55 9.72 4.91
</TABLE>
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DESCRIPTION OF THE MORTGAGE POOL
General
The Mortgage Pool will consist of 160 mortgage loans (each, a "Mortgage
Loan") with an Initial Pool Balance of $640,657,923 equal to the aggregate
Cut-off Date Balance of the Mortgage Loans, subject to a permitted variance of
plus or minus 5%. The Cut-off Date Balances of the Mortgage Loans range from
$191,747 to $15,125,403, and the Mortgage Loans have an average Cut-off Date
Balance of $4,004,112. One hundred thirty-nine (139) of the Mortgage Loans,
representing 93.9% of the Initial Pool Balance, are Balloon Loans. All numerical
information provided herein with respect to the Mortgage Loans is provided on an
approximate basis. For purposes of calculations herein, each Mortgage Loan is
deemed to be secured by a mortgage on one Mortgaged Property, whether or not
such Mortgaged Property consists of more than one parcel of real property.
As of the Cut-off Date, none of the Mortgage Loans was 30 days or more
delinquent, or had been 30 days or more delinquent during the 12 calendar months
preceding the Cut-off Date.
Each Mortgage Loan is evidenced by a promissory note (a "Mortgage Note")
and secured by a mortgage, deed of trust or other similar security instrument (a
"Mortgage") that creates a first mortgage lien on a fee (or, in three (3) cases,
or 3.7% of the Initial Pool Balance, a leasehold or partial leasehold) estate in
income-producing real property (a "Mortgaged Property"). In 12 cases, a single
Mortgage Note is secured by Mortgages on multiple properties. The presentation
of numerical Mortgage Loan information herein reflects certain conventions that
pertain to those Mortgage Loans described under "--Certain Terms and
Characteristics of the Mortgage Loans--Multiple Mortgaged Properties" herein.
Thirty-five (35) of the Mortgaged Properties, which represent security for
21.6% of the Initial Pool Balance, are multifamily apartment properties; 23 of
the Mortgaged Properties, which represent security for 18.2% of the Initial Pool
Balance, are retail properties; 19 of the Mortgaged Properties, which represent
security for 14.2% of the Initial Pool Balance, are skilled nursing facilities
(9.4% of the Initial Pool Balance) or congregate care facilities (4.7% of the
Initial Pool Balance); 36 of the Mortgaged Properties, which represent security
for 12.7% of the Initial Pool Balance, are self-storage properties; 11 of the
Mortgaged Properties, which represent security for 10.3% of the Initial Pool
Balance, are warehouse/industrial properties; eight (8) of the Mortgaged
Properties, which represent security for 4.9% of the Initial Pool Balance, are
office properties; ten (10) of the Mortgaged Properties, which represent
security for 5.4% of the Initial Pool Balance, are mobile home park properties;
and six (6) of the Mortgaged Properties, which represent security for 3.4% of
the Initial Pool Balance, are hospitality properties, four (4) of which are
affiliated with national hotel/motel franchisors. The remaining Mortgaged
Properties, which represent security for 9.4% of the Initial Pool Balance, are
generally combinations of property types (for instance, retail/office and
retail/multifamily) as indicated on Appendix II. The Mortgaged Properties are
located throughout 31 states, with the largest concentration in California (37
Mortgaged Properties, which represent security for 20.4% of the Initial Pool
Balance). No other state has a concentration of Mortgaged Properties that
represents security for more than 9.4% of the Initial Pool Balance. See Appendix
II for a more detailed description of the Mortgage Loans.
Twelve (12) of the Mortgage Loans, each representing not more than 2.1% of
the Initial Pool Balance, are, in each such case, without regard to the
cross-collateralization described below, secured by one or more Mortgages
encumbering multiple properties. See "Certain Terms and Characteristics of the
Mortgage Loans -- Multiple Mortgaged Properties" below.
Fifty-six (56) of the Mortgage Loans (the "GMACCM Loans"), which represent
34.9% of the Initial Pool Balance, are currently held by GMACCM. All but three
(3) of the GMACCM Mortgage Loans were originated by GMACCM. Sixty-eight (68) of
the Mortgage Loans (the "ContiTrade Loans"), which represent 34.4% of the
Initial Pool Balance, are currently held by ContiTrade. Sixty-three (63) of the
ContiTrade Mortgage Loans were originated by participants in ContiTrade's
commercial and multifamily mortgage loan conduit program, and the remainder were
acquired in the secondary market. Thirty-six (36) of the Mortgage Loans (the
"Morgan Stanley Loans"), which represent 30.7% of the Initial Pool Balance, are
currently held by MSMC. Ten (10) of the Morgan Stanley Loans were originated by
participants in MSMC's commercial and multifamily mortgage loan conduit program,
and the remainder were acquired in the secondary market.
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On or prior to the Closing Date, the Depositor will acquire the Mortgage
Loans from the Sellers, in each case pursuant to a mortgage loan purchase
agreement to be entered into between the Depositor and the particular Seller
(each, a "Mortgage Loan Purchase Agreement"). The Depositor will thereupon
assign its interests in the Mortgage Loans, without recourse, to the Trustee for
the benefit of the Certificateholders. See "--The Sellers" and "--Assignment of
Mortgage Loans; Repurchases" below.
The Mortgage Loans were originated between 1993 and 1997.
Certain Terms and Characteristics of the Mortgage Loans
Mortgage Rates; Calculations of Interest
One hundred forty-five (145) of the Mortgage Loans, which represent 92.7%
of the Initial Pool Balance, accrue interest on the basis of a 360-day year
consisting of twelve 30-day months. Fifteen (15) of the Mortgage Loans, which
represent 7.3% of the Initial Pool Balance, accrue interest on the basis of the
actual number of days elapsed in a year consisting of 360 days.
The Mortgage Pool consists of 156 Fixed-Rate Loans, which represent 94.0%
of the Initial Pool Balance, and four (4) ARM Loans, which represent 6.0% of the
Initial Pool Balance.
For purposes of calculating distributions on the Certificates, the Mortgage
Pool has been divided into two Loan Groups, designated as Loan Group 1 and Loan
Group 2, respectively, based generally upon the Mortgage Rate type for the
Mortgage Loans. Loan Group 1, which has an aggregate Cut-off Date Balance (the
"Initial Group 1 Balance") of $602,409,439 (subject to a variance of plus or
minus 5%), consists of the Fixed Rate Loans. Loan Group 2, which has an
aggregate Cut-off Date Balance (the "Initial Group 2 Balance") of $38,248,484
(subject to a variance of plus or minus 5%), consists of the ARM Loans. As of
the Cut-off Date, the Mortgage Rates of the Mortgage Loans range from 7.9375% to
10.4400% per annum, and the weighted average Mortgage Rate of the Mortgage Loans
is 8.940% per annum; the Mortgage Rates of the Group 1 Loans range from 8.0000%
to 10.4400% per annum, and the weighted average Mortgage Rate of the Group 1
Loans is 8.968% per annum; and the Mortgage Rates of the Group 2 Loans range
from 7.9375% to 8.5313% per annum, and the weighted average Mortgage Rate of the
Group 2 Loans is 8.501% per annum.
The ARM Loans
The ARM Loans, all of which are secured by Mortgages on multifamily
properties, are subject to minimum and maximum lifetime Mortgage Rates, in each
case as described herein, and provide (i) in the case of three (3) of the ARM
Loans, which represent 5.7% of the Initial Pool Balance (the "Six-Month ARM
Loans"), that Mortgage Rate adjustments may occur semi-annually on April 1 and
October 1 (or, in one case January 1 and July 1) of each year and (ii) in the
case of the remaining ARM Loan (the "One-Month ARM Loan"), that Mortgage Rate
adjustments may occur monthly on the first day of each month. Any date on which
the Mortgage Rate for any ARM Loan is subject to adjustment is herein referred
to as a "Mortgage Rate Adjustment Date" for such ARM Loan.
Two of the Six-Month ARM Loans have minimum lifetime Mortgage Rates of
6.000% per annum; the remaining Six-Month ARM Loan has a minimum lifetime
Mortgage Rate of 8.500% per annum. The One-Month ARM Loan has a minimum lifetime
Mortgage Rate of 5.750% per annum. As of the Cut-off Date, the ARM Loans have a
weighted average minimum Mortgage Rate of 6.471% per annum. Two of the Six-Month
ARM Loans have maximum lifetime Mortgage Rates of 11.750% per annum and the
remaining Six-Month ARM Loan has a maximum lifetime Mortgage Rate of 13.750% per
annum. The One-Month ARM Loan has a maximum lifetime Mortgage Rate of 10.375%
per annum. As of the Cut-off Date, the ARM Loans had a weighted average maximum
lifetime Mortgage Rate of 12.080% per annum.
The Monthly Payments on each ARM Loan are subject to adjustment in response
to changes in the related Mortgage Rate to an amount that would amortize fully
the principal balance of the Mortgage Loan over its then remaining amortization
term and pay one month's interest thereon at the applicable Mortgage Rate.
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The Six-Month ARM Loans have a Gross Margin of 2.750% per annum and the
One-Month ARM Loan has a Gross Margin of 2.500% per annum. As of the Cut-off
Date, the weighted average Gross Margin of all of the ARM Loans is 2.740% per
annum.
On their respective Mortgage Rate Adjustment Dates, the ARM Loans are
subject to Mortgage Rate adjustments based on Six-Month LIBOR in the case of the
Six-Month ARM Loans, and One-Month LIBOR, in the case of the One-Month ARM Loan,
in each case as calculated below. With respect to the One-Month ARM Loan,
"One-Month LIBOR" is determined two (2) LIBOR Business Days prior to the
Mortgage Rate Adjustment Date by reference to the "average of London interbank
offered rates for dollar deposits in an amount equal to $1,000,000 offered in
the London interbank Euro-dollar market for a term of one month at 10:00 a.m.
(London time) as quoted by Telerate." With respect to the Six-Month ARM Loans,
Six-Month LIBOR is determined in each case two (2) LIBOR Business Days prior to
the related Mortgage Rate Adjustment Date by reference to the London interbank
offered rate for six-month United States dollar deposits as quoted, in the case
of two of the Six-Month ARM Loans, at 11:00 a.m. (London time) by Reuters
Monitor Money Rates Service, and in the case of the remaining Six-Month ARM
Loan, at 10:00 a.m. (London time) by Telerate. A "LIBOR Business Day" is any day
on which banks are open in New York City and in London.
Due Dates
All of the Mortgage Loans have Due Dates (that is, the dates upon which the
related Monthly Payments are due) that occur on the first day (99.4% of the
Initial Pool Balance), or last day (0.6% of the Initial Pool Balance) of each
month.
Amortization
One hundred thirty-five (135) of the Mortgage Loans, representing 90.6 % of
the Initial Pool Balance, provide for Monthly Payments of principal and interest
(or, in one case, representing 0.7% of the Initial Pool Balance, of interest
only until June 1997) based on amortization schedules significantly longer than
their terms to maturity, thereby leaving Balloon Payments due and payable on
their respective maturity dates, unless prepaid prior thereto. Two (2) of those
Mortgage Loans, which represent 1.6% of the Initial Pool Balance and are secured
by Mortgages on self-storage facilities, require quarterly payments of principal
equal to a percentage (50% during the first seven (7) years of the loan term and
100% thereafter) of "net cash flow" (that is, in general, gross revenues less
operating expenses (including debt service on the Mortgage Loan and any
subordinate loan) and capital expenditures) for the preceding calendar quarter.
Two (2) other Mortgage Loans, representing 1.6% of the Initial Pool Balance and
not included among such 135 Mortgage Loans, are fully amortizing but provide for
a mortgagee call option on a date approximately 120 months (in one case) or 180
months (in the other case) following the date of origination, which the Master
Servicer will be required to exercise. Furthermore, two (2) additional Mortgage
Loans, representing 1.6% of the Initial Pool Balance and also not included among
such 135 Mortgage Loans, are fully amortizing but each provides for, among other
things, significant increases in the Mortgage Rate and principal amortization of
the respective Mortgage Loan, commencing on a date approximately 96 months (in
one case) or 120 months (in the other case) following the date of origination,
thereby providing an increased incentive to prepay the Mortgage Loan. See "Risk
Factors--The Mortgage Loans--Balloon Payments" herein. The remaining 21 Mortgage
Loans, representing 6.1% of the Initial Pool Balance, are fully amortizing
without call or hyper-amortization provisions.
Prepayment Restrictions
As of the Cut-off Date, all of the Mortgage Loans restrict voluntary
principal prepayments as follows: (i) 42 Mortgage Loans, representing 31.1% of
the Initial Pool Balance, prohibit voluntary prepayments for a period (a
"Lock-out Period") ending on a date (ranging from three (3) months to 116 months
from the Cut-Off Date) specified in the related Mortgage Note and, in most such
cases, thereafter requires until a specified date (generally six (6) months)
prior to maturity, that any voluntary prepayment be accompanied by an additional
amount (a "Prepayment Premium") and (ii) the remaining Mortgage Loans do not
provide for Lock-out Periods but impose Prepayment Premiums in connection with
voluntary principal payments made prior to a specified date (also generally six
months) prior to maturity.
With respect to those Mortgage Loans that do not provide for Lock-out
Periods but impose Prepayment Premiums in connection with voluntary principal
prepayments, Prepayment Premiums are calculated on the basis of
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<PAGE>
(i) a yield maintenance formula ("Yield Maintenance Premium"), payable in the
case of 19 Mortgage Loans, or 18.3% of the Initial Pool Balance, a percentage of
the amount prepaid ("Percentage Premium"), payable in the case of twelve (12)
Mortgage Loans, representing 9.9% of the Initial Pool Balance, or the greater of
a Percentage Premium and a Yield Maintenance Premium, payable in the case of 87
Mortgage Loans, representing 40.6% of the Initial Pool Balance. However, seven
(7) Mortgage Loans, representing 5.7% of the Initial Pool Balance, permit, in
each such case, voluntary principal prepayments of up to 10% of the original
principal balance of the Mortgage Loan in any calendar year without the
imposition of a Prepayment Premium. In the case of the Mortgage Loans that are
subject to a Percentage Premium, such Percentage Premium generally declines over
time (in some cases to zero) until, in general, a specified date prior to
maturity, except that two of such Mortgage Loans, which were recently originated
and represent 0.4% of the Initial Pool Balance, each provides for Prepayment
Premiums that are: (i) for the first 16 months following the Cut-off Date,
calculated as a Percentage Premium (such percentage starting at 1% and
increasing to 2% after four (4) months and 3% after ten (10) months; and (ii)
following such 16-month period up to a Date approximately six months prior to
maturity, a Yield Maintenance Premium.
Yield Maintenance Premiums and Percentage Premiums, if and to the extent
collected, will be distributed to the holders of the Certificates as described
herein under "Description of the Certificates--Distributions--Distributions of
Prepayment Premiums" herein. The Master Servicer may not waive the imposition of
a Prepayment Premium or reduce the amount thereof. The Special Servicer may
waive the imposition of a Prepayment Premium, or reduce the amount thereof with
respect to a Specially Serviced Mortgage Loan, if such waiver or reduction is
consistent with the Servicing Standard. Neither the Depositor nor any Seller
makes any representation as to the enforceability of any Mortgage Loan
provisions requiring the payment of a Prepayment Premium or of the
collectibility of any Prepayment Premium.
Non-recourse Obligations
Substantially all of the Mortgage Loans are non-recourse obligations of the
related borrowers and, upon any such borrower's default in the payment of any
amount due under the related Mortgage Loan, the holder thereof may look only to
the related Mortgaged Property for satisfaction of the borrower's obligations.
In those cases where the loan documents permit recourse to the borrower or a
guarantor, the Depositor has not evaluated the financial condition of any such
person, and prospective investors should thus consider all of the Mortgage Loans
to be non-recourse. None of the Mortgage Loans is insured or guaranteed by the
United States, any government entity or instrumentality or any other person.
"Due-on-Sale" and "Due-on-Encumbrance" Provisions
The Mortgages contain "due-on-sale" and "due-on-encumbrance" clauses that,
in general, permit the holder of the Mortgage to accelerate the maturity of the
related Mortgage Loan if the borrower sells or otherwise transfers or encumbers
the related Mortgaged Property or that prohibit the borrower from doing so
without the consent of the holder of the Mortgage. However, the Mortgage Loans
generally permit a one-time transfer of the related Mortgaged Property, subject
to the satisfaction of certain conditions, including, in some cases, approval of
the proposed transferee by the Master Servicer or Special Servicer, as
applicable. In addition, certain Mortgage Loans permit the borrower to transfer
the related Mortgaged Property to an affiliate or subsidiary of the borrower, or
an entity of which the borrower is the controlling beneficial owner, upon the
satisfaction of certain limited conditions as determined by the Master Servicer
or Special Servicer, as applicable.
Borrower Concentrations
Several groups of Mortgage Loans are made to the same borrower or have
related borrowers that are affiliated with one another through partial or
complete direct or indirect common ownership. The four largest of these groups
represent 5.1%, 3.8%, 3.7% and 3.7%, respectively, of the Initial Pool Balance.
See Appendix II hereto.
Cross-Collateralized Mortgage Loans
The Mortgage Pool includes seven (7) separate sets of Cross-Collateralized
Mortgage Loans, each representing no more than 3.0% of the Initial Pool Balance.
See Appendix II hereto.
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Multiple Mortgaged Properties
In 12 cases, or 16.4% of the Initial Pool Balance (not including the seven
(7) cross-collateralized and cross-defaulted Mortgage Loan groups referred to
above in "--Cross-Collateralized Mortgage Loans"), a single Mortgage Note is
secured by a Mortgage or Mortgages on two or more Mortgaged Properties.
Accordingly, the total number of Mortgage Loans is 160 and the total number of
Mortgaged Properties is 194. In seven (7) of those cases, or 11.0% of the
Initial Pool Balance, the Mortgaged Properties are located in the same state and
are of the same property type; accordingly, in those cases, except for in
Appendix II, where the separate Mortgaged Properties are identified, the
Mortgaged Properties are collectively considered to constitute one Mortgaged
Property for purposes of presenting numerical information herein. In every case,
the related Mortgaged Properties are located in the same state. In five other
cases, the related Mortgaged Properties are in each case located in the same
state, but in each case are secured by Mortgages on two or more different types
of properties. In each of those cases, the single Mortgage Note is treated as a
single Mortgage Loan secured by a Mortgage on a single Mortgaged Property of a
type referred to herein and on Appendix II as "Various". In all cases, however,
the Debt Service Coverage Ratios were determined on the basis of the aggregate
Underwritable Cash Flow of all the related Mortgaged Properties and the Cut-off
Date LTVs and the Balloon LTVs were determined on the basis of the aggregate of
the appraised values of the related Mortgaged Properties.
Release Provisions
Most of the groups of Cross-Collateralized Mortgage Loans and individual
Mortgage Loans secured by multiple properties described under "--Borrower
Concentrations" and "--Multiple Mortgaged Properties", respectively, above,
permit the release of individual real properties from the lien of the related
Mortgage(s), subject to the satisfaction of certain specified conditions.
Ground Leases
One (1) of the Mortgage Loans, which represents 1.4% of the Initial Pool
Balance, is secured solely by a Mortgage on the borrower's leasehold interest in
the related Mortgaged Property. Two (2) of the Mortgage Loans, which represent
2.3% of the Initial Pool Balance, are secured by a Mortgage on both the
borrower's leasehold interest in a portion of the Mortgaged Property and the
borrower's fee simple interest in the remainder of the Mortgaged Property. None
of the ground leases expire prior to ten years after the stated maturity of the
related Mortgage Loan. In each such case, the related ground lessor has agreed
to give the holder of the Mortgage Loan notice of, and has granted such holder
the right to cure, any default by the borrower/lessee. See "Risk Factors and
Other Special Considerations--The Mortgage Loan--Leasehold Considerations"
herein.
Subordinate Financing
Two (2) of the Mortgaged Properties, which constitute security for Mortgage
Loans that represent 0.6% of the Initial Pool Balance, are encumbered by secured
subordinated debt that is not part of the Mortgage Pool. In each such case, the
holder of the subordinated debt has agreed not to foreclose for so long as the
related Mortgage Loan is outstanding and the Trust Fund is not pursuing a
foreclosure action. Two (2) other Mortgage Loans also permit the related
borrower to encumber the Mortgaged Property with subordinate debt provided that
the borrower satisfies certain conditions (such as maximum loan-to-value ratios,
minimum debt service coverage ratios, and limitations in the loan documentation
for the subordinated debt regarding the subordinate lender's ability to
foreclose while the related Mortgage Loan is outstanding). All of the remaining
Mortgage Loans either prohibit the related borrower from further encumbering the
Mortgaged Property with additional debt or require the consent of the holder of
the Mortgage prior to so encumbering such property. Other than as indicated
above, the Depositor is unaware of any other subordinate financing that
currently encumbers any Mortgaged Property. However, there are at least four
cases (which represent 1.4% of the Initial Pool Balance) where the borrower is
obligated to repay certain unsecured financing, and six (6) of the Mortgage
Loans secured by nursing facilities provide that the borrower may incur
indebtedness secured by senior liens on its accounts receivables. See "Risk
Factors and Other Special Considerations--The Mortgage Loans--Risks of
Subordinate Financing" herein and "Certain Legal Aspects of Mortgage Loans and
the Leases--Subordinate Financing" in the Prospectus.
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Assessments of Property Value and Condition
Appraisals
In connection with the origination or acquisition of most of the Mortgage
Loans, the related Mortgaged Property was appraised by an independent appraiser
who belonged to the Appraisal Institute. In certain cases, however, the values
of the related Mortgaged Properties were estimated internally on the basis of an
analysis of net operating income generated by the applicable property as well as
on the basis of sales and rental information with respect to comparable
properties. The purpose of each appraisal or other estimate of value was to
provide an opinion as to the fair market value of the related Mortgaged Property
as of the date thereof. There can be no assurance that such opinion represents a
reasonable approximation of the amount that could actually be realized from a
sale of the Mortgaged Property. None of the Depositor, any Seller, the
Underwriter, the Trustee, or any of their respective affiliates has prepared or
conducted its own separate appraisal or reappraisal of any Mortgaged Property.
See "Risk Factors and Other Special Considerations - the Mortgage Loans -
Limitations of Appraisal" herein. Not all of the above-described appraisals, and
none of the market value estimates, conformed to the appraisal guidelines set
forth in Title XI of the Federal Financial Institutions Reform, Recovery and
Enforcement Act of 1989.
Environmental Assessments
An environmental site assessment (or an update to a previously performed
environmental site assessment) was performed with respect to each Mortgaged
Property generally within the one-year period (and, in all cases within the
two-year period) preceding or following, or otherwise in connection with, the
origination of the related Mortgage Loan. In all cases, the environmental site
assessment was a "Phase I" environmental assessment. In general, the
environmental assessments did not reveal any environmental condition or
circumstance that would materially affect the interests of the holders of the
Offered Certificates. However, in certain cases, the assessment disclosed the
existence of or potential for adverse environmental conditions, such as the
existence of, among other things, asbestos-containing materials, underground
storage tanks and soil contamination. In certain cases, the related borrowers
were required to establish operations and maintenance plans, monitor the
Mortgaged Property or nearby properties, abate or remediate the condition and/or
provide additional security. See "Risk Factors and Other Special Considerations
- -- The Mortgage Loans --Environmental Considerations", herein.
Property Condition Assessments
Most of the Mortgaged Properties were inspected, in connection with the
origination or acquisition of the related Mortgage Loan, by an employee of the
related Seller or by a third party professional engaged by the Seller.
Furthermore, in most cases, a licensed engineer or consultant inspected the
related Mortgaged Property, in connection with the origination or acquisition of
the related Mortgage Loan, to assess the structure, exterior walls, roofing,
interior structure and mechanical and electrical systems. In general, where
material deficiencies were observed, the related borrower was required to
establish reserves for replacement or repair or remediate the deficiency.
Zoning and Building Code Compliance.
Each Seller took steps to establish that the use and operation of the
Mortgaged Properties that represent security for its Mortgage Loans were, at
their respective dates of origination, in compliance in all material respects
with applicable zoning, land-use and similar laws and ordinances, but no
assurance can be made that such steps revealed all possible violations. Evidence
of such compliance may have been in the form of legal opinions, certifications
from government officials and/or representations by the related borrower
contained in the related Mortgage Loan documents. Certain violations may exist
at any particular Mortgaged Property, but the related Seller does not consider
any such violations known to it to be material.
Additional Mortgage Loan Information
Each of the tables set forth in Appendix I sets forth certain
characteristics of the Mortgage Pool presented, where applicable, as of the
Cut-off Date. For a detailed presentation of certain of the characteristics of
the Mortgage Loans and the Mortgaged Properties, on an individual basis, see
Appendix II hereto. Certain additional information regarding the Mortgage Loans
is contained herein under "Risk-Factors and Other Special Considerations--The
Mortgage Loans",
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elsewhere in this "Description of Mortgage Pool" section and under "Certain
Legal Aspects of Mortgage Loans and the Leases" in the Prospectus.
For purposes of this Prospectus Supplement, including for the tables in
Appendix I and the information set forth in Appendix II:
(1) The "Debt Service Coverage Ratio" or "DSCR" for any Mortgage Loan (or
group of Cross-Collateralized Mortgage Loans) is the ratio of
"Underwritable Cash Flow" estimated to be produced by the related
Mortgaged Property or Properties to the annualized amount of debt
service payable under that Mortgage Loan (or those Mortgage Loans).
"Underwritable Cash Flow" in each case is an estimate of cash flow
available for debt service in a typical year of stable, normal
operations. In general, it is the estimated revenue derived from the
use and operation of a Mortgaged Property (consisting primarily of
rental income) less the sum of (a) estimated operating expenses (such
as utilities, administrative expenses, repairs and maintenance,
management and franchise fees and advertising), (b) fixed expenses
(such as insurance, real estate taxes and, if applicable, ground lease
payments) and (c) capital expenditures and reserves for capital
expenditures, including tenant improvement costs and leasing
commissions. Underwritable Cash Flow generally does not reflect
interest expenses and non-cash items such as depreciation and
amortization. In general, debt service coverage ratios are used by
income property lenders to measure the ratio of (a) cash currently
generated by a property that is available for debt service to (b)
required debt service payments. However, debt service coverage ratios
only measure the current, or recent, ability of a property to service
mortgage debt. If a property does not possess a stable operating
expectancy (for instance, if it is subject to material leases that are
scheduled to expire during the loan term and that provide for
above-market rents and/or that may be difficult to replace), a debt
service coverage ratio may not be a reliable indicator of a property's
ability to service the mortgage debt over the entire remaining loan
term.
In determining Underwritable Cash Flow for a Mortgaged Property, the
Sellers generally relied on rent rolls and other generally unaudited
financial information provided by the respective borrowers; in some
cases the appraisal and/or local market information was the primary
basis for the determination. From that information, the Sellers
calculated stabilized estimates of cash flow that took into
consideration historical financial statements, material changes in the
operating position of a Mortgaged Property of which the applicable
Seller was aware (e.g., newly signed leases, expirations of "free
rent" periods and market rent and market vacancy data), and estimated
capital expenditures, leasing commission and tenant improvement
reserves. In certain cases, the applicable Seller's estimate of
Underwritable Cash Flows reflected differences from the information
contained in the operating statements obtained from the respective
borrowers (resulting in either an increase or decrease in the estimate
of Underwritable Cash Flow derived therefrom) based upon the Seller's
own analysis of such operating statements and the assumptions applied
by the respective borrowers in preparing such statements and
information. In certain instances, for example, property management
fees and other expenses may have been included in the calculation of
Underwritable Cash Flow even though such expense may not have been
reflected in actual historic operating statements. In certain cases,
only partial year operating income information was available. In most
of those cases, the information was annualized, with certain
adjustments for items deemed not appropriate to be annualized, before
using it as a basis for the determination of Underwritable Cash Flow.
No assurance can be given with respect to the accuracy of the
information provided by any borrowers, or the adequacy of the
procedures used by any Seller in determining the presented operating
information.
The Debt Service Coverage Ratios are presented herein for illustrative
purposes only and, as discussed above, are limited in their usefulness
in assessing the current, or predicting the future, ability of a
Mortgaged Property to generate sufficient cash flow to repay the
related Mortgage Loan. Accordingly, no assurance can be given, and no
representation is made, that the Debt Service Coverage Ratios
accurately reflect that ability.
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(2) References to "Loan-to-Value Ratio" or "Cut-off Date LTV" or "Cut-off
Date LTV Ratio" are references to the ratio, expressed as a
percentage, of the Cut-off Date Balance of a Mortgage Loan (or the
aggregate Cut-off Date Balance of a group of Cross-Collateralized
Mortgage Loans) to the value of the related Mortgaged Property or
Properties as determined by the most recent appraisal or market
valuation of such Mortgaged Property or Properties available to the
Depositor. References to "Balloon LTV" or "Balloon LTV Ratio" are
references to the ratio, expressed as a percentage of the principal
balance of a Balloon Loan (or the aggregate principal balance of a
group of cross-collateralized Balloon Loans) anticipated to be
outstanding at the date on which the related Balloon Payment(s) are
scheduled to be due (calculated based on the Maturity Assumptions and
a 0% CPR) to the value of the related Mortgaged Property or Properties
as determined by the most recent appraisal or market valuation of such
Mortgage Property or Properties available to the Depositor. No
representation is made that any such value would approximate either
the value that would be determined in a current appraisal of the
related Mortgaged Property or the amount that would be realized upon a
sale.
(3) References to "Years Built/Renovated" are references to the later of
the year in which a Mortgaged Property was originally constructed or
the most recent year in which such Mortgaged Property was
substantially renovated.
(4) References to "weighted averages" are references to averages weighted
on the basis of the Cut-off Date Balances of the related Mortgage
Loans.
The sum in any column of any of the tables in Appendix I may not equal the
indicated total due to rounding.
Standard Hazard Insurance
To the extent permitted by the terms of the related Mortgage and consistent
with the Servicing Standard, the Master Servicer or the Special Servicer, as
applicable, will require each borrower to maintain a fire and hazard insurance
policy with extended coverage. The coverage of each such policy will be in an
amount (subject to a deductible customary in the related geographic area) that
is not less than the lesser of the full insurable replacement cost of the
improvements that represent security for such Mortgage Loan, with no deduction
for depreciation, and the principal amount of such Mortgage Loan, but in any
event, unless otherwise specified in the applicable Mortgage or Mortgage Note,
in an amount sufficient to avoid the application of any co-insurance clause. If
the related Mortgaged Property is in an area identified in the Federal Register
by the Federal Emergency Management Agency as having special flood hazards (and
such flood insurance has been made available), the Master Servicer or the
Special Servicer, as applicable, will cause to be maintained a flood insurance
policy meeting the requirements of the current guidelines of the Federal
Insurance Administration in an amount representing coverage of not less than the
least of (i) the principal balance of the related Mortgage Loan, (ii) the full
insurable value of the Mortgaged Property, (iii) the maximum amount required
under such current guidelines, and (iv) 100% of the replacement cost of the
improvements on the Mortgaged Property, but only to the extent such Mortgage
Loan permits the lender to require such coverage and such coverage conforms to
the Servicing Standard. In addition, the Master Servicer (or the Special
Servicer may require any borrower to maintain other forms of insurance as the
Master Servicer or the Special Servicer may be permitted to require under the
related Mortgage, including, but not limited to, loss of rents endorsements and
comprehensive public liability insurance. The Master Servicer will not require
borrowers to maintain earthquake insurance. Any losses incurred with respect to
Mortgage Loans due to uninsured risks (including earthquakes, mudflows and
floods) or insufficient hazard insurance proceeds may adversely affect payments
to Certificateholders. If a borrower fails to maintain the foregoing insurance,
the Master Servicer (or, with respect to Specially Serviced Mortgage Loans and
REO Properties, the Special Servicer) will be required to obtain such insurance
(to the extent available at commercially reasonable rates) and the cost thereof
will be a Servicing Advance.
Each Mortgage generally also requires the related borrower to maintain
comprehensive general liability insurance against claims for personal and bodily
injury, death or property damage occurring on, in or about the related Mortgaged
Property in an amount customarily required by institutional lenders.
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Each Mortgage generally further requires the related borrower to maintain
business interruption or rent loss insurance in an amount not less than 100% of
the projected rental income from the related Mortgaged Property for not less
than six months.
In general, the Mortgaged Properties are not insured for earthquake risk.
The Sellers
ContiTrade
ContiTrade was organized in the State of Delaware on June 1, 1995 and is a
wholly-owned indirect subsidiary of ContiFinancial Corporation, a Delaware
corporation. ContiFinancial Corporation is a majority-owned subsidiary of
Continental Grain Company. ContiFinancial Corporation engages in the consumer
and commercial finance business by originating and servicing home equity
mortgage loans, providing financing and asset securitization expertise to
originators of a broad range of loans, leases and receivables and acquiring and
selling commercial and home equity mortgage loans. ContiTrade was organized,
among other things, for the purposes of acquiring and selling mortgage assets.
Through its commercial mortgage conduit program, ContiMAP(R), ContiTrade
purchases commercial mortgage loans from its select correspondent network, then
pools loans for securitization. The principal executive offices of ContiTrade is
located at 277 Park Avenue, New York, New York 10172. Its telephone number is
(212) 207-2800.
GMAC Commercial Mortgage Corporation
GMACCM a corporation organized under the laws of the State of California,
is a wholly-owned direct subsidiary of GMAC Mortgage Group, Inc., which in turn
is a wholly-owned direct subsidiary of General Motors Acceptance Corporation.
The principal offices of GMACCM are located at 650 Dresher Road, Horsham,
Pennsylvania 19044. Its telephone number is (215) 328-4622.
Morgan Stanley Mortgage Capital
MSMC is a subsidiary of Morgan Stanley & Co., Inc. formed as a New York
corporation to originate and acquire loans secured by mortgages on commercial
and multifamily real estate. Each of MSMC's Mortgage Loans was originated by one
of the participants in MSMC's commercial and multifamily mortgage loan conduit
program, was originated directly by MSMC or was purchased in the secondary
market. All loans were underwritten by MSMC underwriters. The principal offices
of MSMC are located at 1585 Broadway, New York, New York 10036. Its telephone
number is (212) 761-4700.
Assignment of the Mortgage Loans
On or prior to the Closing Date, each Seller will assign its Mortgage
Loans, without recourse, to the Depositor, and the Depositor will assign all the
Mortgage Loans, without recourse, to the Trustee for the benefit of the
Certificateholders. In connection with the foregoing, each Seller is required in
accordance with the related Mortgage Loan Purchase Agreement to deliver the
following documents, among others, with respect to each Mortgage Loan so
assigned by it (such documents, collectively as to any Mortgage Loan, a
"Mortgage File") to the Trustee: (a) the original Mortgage Note, endorsed
(without recourse) in blank or to the order of Trustee; (b) the original or a
copy of the related Mortgage(s), together with originals or copies of any
intervening assignments of such document(s), in each case with evidence of
recording thereon (unless such document(s) have not been returned by the
applicable recorder's office); (c) the original or a copy of any related
assignment(s) of rents and leases (if any such item is a document separate from
the Mortgage), together with originals or copies of any intervening assignments
of such document(s), in each case with evidence of recording thereon (unless
such document(s) have not been returned by the applicable recorder's office);
(d) an assignment of each related Mortgage in blank or in favor of the Trustee,
in recordable form; (e) an assignment of any related assignment(s) of rents and
leases (if any such item is a document separate from the Mortgage) in blank or
in favor of the Trustee, in recordable form; (f) an original or copy of the
related lender's title insurance policy (or, if a title insurance policy has not
yet been issued, a commitment for title insurance "marked-up" at the closing of
such Mortgage Loan); and (g) when relevant, the related ground lease or a copy
thereof. The Trustee will be required to review the documents delivered by each
Seller with respect to its Mortgage Loans within 90 days following the Closing
Date, and the Trustee will hold the related documents in trust.
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Within 45 days following the Closing Date, pursuant to the Pooling and
Servicing Agreement, the assignments with respect to each Mortgage Loan
described in clauses (d) and (e) of the preceding paragraph are to be completed
in the name of the Trustee (if delivered in blank) and submitted for recording
in the real property records of the appropriate jurisdictions.
Representations and Warranties
In each Mortgage Loan Purchase Agreement, the related Seller has
represented and warranted with respect to each of its Mortgage Loans, as of the
Closing Date, or as of such other date specifically provided in the
representation and warranty, among other things, generally to the effect that:
(i) Immediately prior to the transfer thereof to the Depositor, the
Seller had good and marketable title to, and was the sole owner and holder
of, each of its Mortgage Loans, free and clear of any and all liens,
encumbrances and other interests on, in or to each such Mortgage Loan
(other than, in certain cases, the right of a subservicer to primary
service any such Mortgage Loan).
(ii) The Seller has full right and authority to sell, assign and
transfer each of its Mortgage Loans. No provision of the Mortgage Note,
Mortgage or other loan document relating to any such Mortgage Loan
prohibits or restricts the Seller's right to assign or transfer such
Mortgage Loan.
(iii) The information pertaining to each of the Seller's Mortgage
Loans set forth in the loan schedule attached to the related Mortgage Loan
Purchase Agreement was true and correct in all material respects as of the
Cut-off Date.
(iv) None of such Seller's Mortgage Loans was as of the Cut-off Date,
or had been during the twelve-month period prior thereto, 30 days or more
delinquent in respect of any debt service payment required thereunder,
without giving effect to any applicable grace period.
(v) The lien of the Mortgage relating to each of such Seller's
Mortgage Loans is insured by an ALTA lender's title insurance policy, or
its equivalent as adopted in the applicable jurisdiction, issued by a
nationally recognized title insurance company, insuring the originator of
such Mortgage Loan, its successors and assigns, as to the first priority
lien of such Mortgage in the original principal amount of such Mortgage
Loan after all advances of principal, subject only to Permitted
Encumbrances (or, if a title insurance policy has not yet been issued in
respect of the Mortgage Loan, a policy meeting the foregoing description is
evidenced by a commitment for title insurance "marked-up" at the closing of
such loan). "Permitted Encumbrances" consist of (A) the lien of current
real property taxes and assessments not yet due and payable, (B) covenants,
conditions and restrictions, rights of way, easements and other matters of
public record, and (C) exceptions and exclusions specifically referred to
in the lender's title insurance policy issued or, as evidenced by a
"marked-up" commitment, to be issued in respect of the subject Mortgage
Loan.
(vi) Such Seller has not waived any material default, breach,
violation or event of acceleration existing under the Mortgage or Mortgage
Note relating to any of its Mortgage Loans.
(vii) There is no valid offset, defense or counterclaim to any of such
Seller's Mortgage Loans.
(viii) Except as set forth in any engineering report prepared in
connection with the origination of (or obtained in connection with or
otherwise following such Seller's acquisition of) each of its Mortgage
Loans, the related Mortgaged Property is, to such Seller's knowledge, free
and clear of any damage that would materially and adversely affect its
value as security for such Mortgage Loan. The Seller has no actual notice
of the commencement of a proceeding for the condemnation of all or any
material portion of the Mortgaged Property relating to any of its Mortgage
Loans.
(ix) To such Seller's knowledge (which may be based solely on an
opinion of counsel obtained in connection with the origination of such
Mortgage Loan), each of such Seller's Mortgage Loans complied with all
applicable usury laws in effect at its date of origination.
(x) The proceeds of each of such Seller's Mortgage Loans have been
fully disbursed and there is no requirement for future advances thereunder.
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(xi) The related Mortgage Note and Mortgage and all other documents
and instruments evidencing, guaranteeing, insuring or otherwise securing
each of such Seller's Mortgage Loans have been duly and properly executed
by the parties thereto, and each is the legal, valid and binding obligation
of the maker thereof (subject to any non-recourse provisions contained in
any of the foregoing agreements and any applicable state anti-deficiency
legislation), enforceable in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium or other laws relating to or affecting the rights
of creditors generally and by general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at
law).
(xii) Such Seller is, as to each of its Mortgage Loans, in possession
of one or more environmental site assessments (or an update of a previously
conducted assessment) of the related Mortgaged Property which was (were)
performed in connection with the origination of, or in connection with or
otherwise following the Seller's acquisition of, such Mortgage Loan; and
such Seller, having made no independent inquiry other than reviewing the
resulting report(s) and/or employing an environmental consultant to perform
the assessment(s) referenced herein, has no knowledge of any material and
adverse environmental condition or circumstance affecting such Mortgaged
Property that was not disclosed in the related report(s).
(xiii) To such Seller's knowledge, as of the Closing Date, there are
no delinquent taxes, ground rents, water charges, sewer rents, assessments
or other similar outstanding charges affecting the Mortgaged Property
securing any of its Mortgage Loans, that are or may become a lien of
priority equal to or higher than the lien of the related Mortgage. For
purposes of this representation and warranty, real property taxes and
assessments will not be considered unpaid until the date on which interest
and/or penalties would be payable thereon.
(xiv) All escrow deposits relating to such Seller's Mortgage Loans
that are, as of the Closing Date, required to be deposited with the
mortgagee or its agent have been so deposited.
(xv) As of the date of origination of each of such Seller's Mortgage
Loans and, to the actual knowledge of the Seller, as of the Closing Date,
the related Mortgaged Property was and is free and clear of any mechanics'
and materialmen's liens or liens in the nature thereof which create a lien
prior to that created by the related Mortgage.
(xvi) To such Seller's knowledge (based on surveys and/or title
insurance obtained in connection with the origination of each of its
Mortgage Loans), as of the date of such origination, no improvement that
was included for the purpose of determining the appraised value of the
related Mortgaged Property at the time of origination of any such Mortgage
Loan lay outside the boundaries and building restriction lines of such
property to any material extent (unless affirmatively covered by the title
insurance referred to in paragraph (v) above), and no improvements on
adjoining properties encroached upon such Mortgaged Property to any
material extent. To such Seller's knowledge (in certain cases, based on
customary due diligence), the improvements located on or forming part of
such Mortgaged Property comply in all material respects with applicable
zoning laws and ordinances (except to the extent that they may constitute
legal non-conforming uses).
Notwithstanding the foregoing, in lieu of making certain of the foregoing
representations and warranties with respect to 26 of the Mortgage Loans sold by
it to the Depositor, MSMC assigned to the Trustee, for the benefit of the
Certificateholders, its right to require Heller Financial, Inc. ("Heller") (17
Mortgage Loans, representing 15.3% of the Initial Pool Balance) or General
American Life Insurance Company ("GAL") (nine (9) Mortgage Loans, representing
7.7% of the Initial Pool Balance) to (i) either cure a material breach of the
representations and warranties made to MSMC in connection with MSMC's
acquisition of such Mortgage Loans, which representations and warranties are
substantially similar to those listed above, or (ii) repurchase the Mortgage
Loan affected by any such breach.
Repurchases and Other Remedies
If any Mortgage Loan document required to be delivered to the Trustee by a
Seller as described under "--Assignment of the Mortgage Loans" above is not
delivered as and when required, contains information that does not conform to
the corresponding information in the Mortgage Loan schedule attached to the
related Mortgage Loan Purchase Agreement, is not properly executed or is
defective on its face (any such omission, nonconformity or other defect, a
"Document Defect"), or if there is a breach of any of the representations and
warranties required to be made by a Seller (which term, for purposes of this and
the following two paragraphs, includes Heller and GAL, as applicable)
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regarding the characteristics of its Mortgage Loans and/or the related Mortgaged
Properties as described under "--Representations and Warranties" above, and in
either case such Document Defect or breach materially and adversely affects the
interests of the holders of the Certificates (a "Material Document Defect" and a
"Material Breach", respectively), then the Seller will be obligated to cure such
Material Document Defect or Material Breach in all material respects within the
applicable Permitted Cure Period. If any such Material Document Defect or
Material Breach cannot be corrected or cured in all material respects within the
applicable Permitted Cure Period, the Seller will be obligated, not later than
the last day of such Permitted Cure Period, to (i) repurchase the affected
Mortgage Loan from the Purchaser or its assignee at a price (the "Purchase
Price") at least equal to the unpaid principal balance of such Mortgage Loan,
together with accrued but unpaid interest thereon to but not including the Due
Date in the Collection Period of the repurchase and any related unreimbursed
Servicing Advances, or (ii) if within the three-month period commencing on the
Closing Date (or within the two-year period commencing on the Closing Date if
the related Mortgage Loan is a "defective obligation" within the meaning of
Section 860(a)(4)(B) (ii) of the Code and Treasury Regulation Section
1.860G-2(f)), at its option, (A) replace such Mortgage Loan with a mortgage loan
having certain payment term comparable to the Mortgage Loan to be replaced and
that is acceptable to each Rating Agency (a "Qualifying Substitute Mortgage
Loan") and (B) pay an amount (a "Substitution Shortfall Amount") generally equal
to the excess of the applicable Purchase Price for the Mortgage Loan to be
replaced (calculated as if it were to be repurchased instead of replaced), over
the unpaid principal balance of the applicable Qualifying Substitute Mortgage
Loan as of the date of substitution, after application of all payments due on or
before such date, whether or not received.
For purposes of the foregoing, the "Permitted Cure Period" applicable to
any Material Document Defect or Material Breach in respect of any Mortgage Loan
will generally be the 90-day period immediately following the earlier of the
discovery by the related Seller or receipt by the related Seller of notice of
such Material Document Defect or Material Breach, as the case may be. However,
if such Material Document Defect or Material Breach, as the case may be, cannot
be corrected or cured in all material respects within such 90-day period, but it
is reasonably likely that such Material Document Defect or Material Breach, as
the case may be, could be corrected or cured within 180 days of the earlier of
discovery by the related Seller and receipt by the related Seller of notice of
such Material Document Defect or Material Breach, as the case may be, and the
related Seller is diligently attempting to effect such correction or cure, then
the applicable Permitted Cure Period will, with the consent of the Trustee
(which consent may not be unreasonably withheld), be extended for an additional
90 days.
The foregoing obligations of each Seller to cure a Material Document Defect
or a Material Breach in respect of any of its Mortgage Loans or repurchase or
replace the defective Mortgage Loan, will constitute the sole remedies of the
Trustee and the Certificateholders with respect to such Material Document Defect
or Material Breach; and none of the Depositor, either of the other Sellers or
any other person or entity will be obligated to repurchase or replace the
affected Mortgage Loan if the related Seller defaults on its obligation to do
so.
Changes in Mortgage Pool Characteristics
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the time the Offered Certificates are issued, as adjusted for the
scheduled principal payments due on or before the Cut-off Date. Prior to the
issuance of the Offered Certificates, a Mortgage Loan may be removed from the
Mortgage Pool if the Depositor deems such removal necessary or appropriate or if
it is prepaid. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Offered Certificates, unless
including such Mortgage Loans would materially alter the characteristics of the
Mortgage Pool as described herein. The information set forth herein is
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Offered Certificates are issued, although the range
of Mortgage Rates and maturities and certain other characteristics of the
Mortgage Loans in the Mortgage Pool may vary.
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SERVICING OF THE MORTGAGE LOANS
General
The Master Servicer and the Special Servicer, either directly or through
sub-servicers, will each be required to service and administer the Mortgage
Loans in the best interests and for the benefit of the Certificateholders (as
determined by the Master Servicer or Special Servicer, as applicable, in its
good faith and reasonable judgment), in accordance with applicable law, the
terms of the Pooling and Servicing Agreement and the terms of the respective
Mortgage Loans and, to the extent consistent with the foregoing, in accordance
with the following standard (the "Servicing Standard"): (i) with the same care,
skill and diligence as is normal and usual in its general mortgage servicing and
asset management activities on behalf of third parties or on behalf of itself,
whichever is higher, with respect to mortgage loans that are comparable to those
for which it is responsible hereunder; (ii) with a view to the timely collection
of all scheduled payments of principal and interest under the Mortgage Loans or,
if a Mortgage Loan comes into and continues in default and if, in the good faith
and reasonable judgment of the Special Servicer, no satisfactory arrangements
can be made for the collection of the delinquent payments, the maximization of
the recovery on such Mortgage Loan to the Certificateholders (as a collective
whole) on a present value basis (the relevant discounting of anticipated
collections that will be distributable to Certificateholders to be performed at
the related Net Mortgage Rate); and (iii) without regard to (A) any relationship
that the Master Servicer or the Special Servicer, as the case may be, or any
affiliate thereof may have with the related borrower; (B) the ownership of any
Certificate by the Master Servicer or the Special Servicer, as the case may be,
or any affiliate thereof; (C) the Master Servicer's obligation to make Advances
(as defined herein); (D) the Special Servicer's obligation to make (or to direct
the Master Servicer to make) Servicing Advances (as defined herein); and (E) the
right of the Master Servicer or the Special Servicer, as the case may be, to
receive reimbursement of costs, or the sufficiency of any compensation payable
to it under the Pooling and Servicing Agreement or with respect to any
particular transaction.
In general, the Master Servicer will be responsible for the servicing and
administration of all the Mortgage Loans as to which no Servicing Transfer Event
(as defined herein) has occurred and all Corrected Mortgage Loans (as defined
herein), and the Special Servicer will be obligated to service and administer
each Mortgage Loan (other than a Corrected Mortgage Loan) as to which a
Servicing Transfer Event has occurred (each, a "Specially Serviced Mortgage
Loan") and each Mortgaged Property acquired in respect of a defaulted Mortgage
Loan on behalf of the Certificateholders through foreclosure, deed-in-lieu of
foreclosure or otherwise (upon acquisition, an "REO Property"). A "Servicing
Transfer Event" with respect to any Mortgage Loan consists of any of the
following events: (i) the related borrower has failed to make when due a Balloon
Payment, which failure has continued unremedied for 30 days; (ii) the related
borrower has failed to make when due any Monthly Payment (other than a Balloon
Payment) or any other payment required under the related Mortgage Note or the
related Mortgage(s), which failure has continued unremedied for 60 days; (iii)
the Master Servicer has determined, in its good faith and reasonable judgment,
that a default in the making of a Monthly Payment or any other payment required
under the related Mortgage Note or the related Mortgage(s) is likely to occur
within 30 days and is likely to remain unremedied for at least 60 days or, in
the case of a Balloon Payment, for at least 30 days; (iv) there shall have
occurred a default under the related loan documents, other than as described in
clause (i) or (ii)
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above, that (in the Master Servicer's good faith and reasonable judgment)
materially impairs the value of the related Mortgaged Property as security for
the Mortgage Loan or otherwise materially and adversely affects the interests of
Certificateholders, which default has continued unremedied for the applicable
grace period under the terms of the Mortgage Loan (or, if no grace period is
specified, 60 days); (v) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises in an involuntary case under any
present or future federal or state bankruptcy, insolvency or similar law or the
appointment of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall have
been entered against the related borrower and such decree or order shall have
remained in force undischarged or unstayed for a period of 60 days; (vi) the
related borrower shall have consented to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings of or relating to such borrower or
of or relating to all or substantially all of its property; (vii) the related
borrower shall have admitted in writing its inability to pay its debts generally
as they become due, filed a petition to take advantage of any applicable
insolvency or reorganization statute, made an assignment for the benefit of its
creditors, or voluntarily suspended payment of its obligations; and (viii) the
Master Servicer shall have received notice of the commencement of foreclosure or
similar proceedings with respect to the related Mortgaged Property or
Properties. The Master Servicer will continue to collect information and prepare
all reports to the Trustee required under the Pooling Agreement with respect to
any Specially Serviced Mortgage Loans and REO Properties, and further to render
incidental services with respect to any Specially Serviced Mortgage Loans and
REO Properties as are specifically provided for in the Pooling and Servicing
Agreement. Neither the Master Servicer nor the Special Servicer shall have any
responsibility for the performance by the other of its duties under the Pooling
and Servicing Agreement.
A Mortgage Loan will cease to be a Specially Serviced Mortgage Loan (and
will become a "Corrected Mortgage Loan" as to which the Master Servicer will
re-assume servicing responsibilities) at such time as such of the following as
are applicable occur with respect to the circumstances identified above that
caused the Mortgage Loan to be characterized as a Specially Serviced Mortgage
Loan (and provided that no other Servicing Transfer Event then exists):
(w) with respect to the circumstances described in clauses (i) and
(ii) of the preceding paragraph, the related borrower has made three
consecutive full and timely Monthly Payments under the terms of such
Mortgage Loan (as such terms may be changed or modified in connection with
a bankruptcy or similar proceeding involving the related borrower or by
reason of a modification, waiver or amendment granted or agreed to by the
Special Servicer);
(x) with respect to the circumstances described in clauses (iii), (v),
(vi) and (vii) of the preceding paragraph, such circumstances cease to
exist in the good faith and reasonable judgment of the Special Servicer;
(y) with respect to the circumstances described in clause (iv) of the
preceding paragraph, such default is cured; and
(z) with respect to the circumstances described in clause (viii) of
the preceding paragraph, such proceedings are terminated.
The Master Servicer and Special Servicer will each be required to service
and administer the respective groups of Cross-Collateralized Mortgage Loans as a
single Mortgage Loan as and when it deems necessary and appropriate, consistent
with the Servicing Standard. If any Cross-Collateralized Mortgage Loan becomes a
Specially Serviced Mortgage Loan, then each other Mortgage Loan with which it is
cross-collateralized shall also become a Specially Serviced Mortgage Loan.
Similarly, no Cross-Collateralized Mortgage Loan may subsequently become a
Corrected Mortgage Loan, unless and until all Servicing Transfer Events in
respect of each other Mortgage Loan in the group are remediated or otherwise
addressed as contemplated above.
Set forth below is a description of certain pertinent provisions of the
Pooling and Servicing Agreement relating to the servicing of the Mortgage Loans.
Reference is also made to the Prospectus, in particular to the section captioned
"Description of the Agreements," for additional important information regarding
the terms and conditions of the Pooling and Servicing Agreement as such terms
and conditions relate to the rights and obligations of the Master Servicer and
the Special Servicer thereunder.
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GMAC Commercial Mortgage Corporation
GMACCM, a Seller as described herein, will be the Master Servicer and the
Special Servicer. The following information has been provided by GMACCM.
As of December 31, 1996, GMACCM was the servicer of a portfolio of
multifamily and commercial mortgage loans totaling approximately $24.8 billion
in aggregate outstanding principal amounts. See "Description of the Mortgage
Pool--The Sellers--GMACCM" herein.
Sub-Servicers
The Master Servicer and Special Servicer may each delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"); provided that the Master
Servicer or Special Servicer, as the case may be, will remain obligated under
the Pooling and Servicing Agreement for such delegated duties. Forty-six (46)
Mortgage Loans, representing 14.9% of the Initial Pool Balance, are currently
directly serviced by third-party servicers that are entitled to and will become
Sub-Servicers of such loans on behalf of the Master Servicer. Each sub-servicing
agreement between the Master Servicer or Special Servicer, as the case may be,
and a Sub-Servicer (each, a "Sub-Servicing Agreement") must provide that, if for
any reason the Master Servicer or Special Servicer, as the case may be, is no
longer acting in such capacity, the Trustee or any successor to such Master
Servicer or Special Servicer may assume such party's rights and obligations
under such Sub-Servicing Agreement or, in some circumstances, may terminate such
Sub-Servicer. The Master Servicer and Special Servicer will each be required to
monitor the performance of Sub-Servicers retained by it.
The Master Servicer and Special Servicer will each be solely liable for all
fees owed by it to any Sub-Servicer retained thereby, irrespective of whether
its compensation pursuant to the Pooling and Servicing Agreement is sufficient
to pay such fees. Each Sub-Servicer retained thereby will be reimbursed by the
Master Servicer or Special Servicer, as the case may be, for certain
expenditures which it makes, generally to the same extent the Master Servicer or
Special Servicer would be reimbursed under the Pooling and Servicing Agreement.
See "--Servicing and Other Compensation and Payment of Expenses" herein.
Servicing and Other Compensation and Payment of Expenses
The principal compensation to be paid to the Master Servicer in respect of
its master servicing activities will be the Master Servicing Fee. The "Master
Servicing Fee" will be payable monthly on a loan-by-loan basis from amounts
received in respect of interest on each Mortgage Loan (including Specially
Serviced Mortgage Loans and Mortgage Loans as to which the related Mortgaged
Property has become an REO Property), will accrue at the Master Servicing Fee
Rate and will be computed on the basis of the same principal amount and for the
same period respecting which any related interest payment on the related
Mortgage Loan is computed. The "Master Servicing Fee Rate" is: 0.136% per annum
in the case of 115 Mortgage Loans representing 85.5% of the Initial Pool
Balance, and 0.186% per annum in the case of 45 Mortgage Loans representing
14.5% of the Initial Pool Balance. As of the Cut-off Date, the weighted average
Master Servicing Fee Rate for the Mortgage Loans was 0.143% per annum. See
Appendix II for the Master Servicing Fee Rate for each Mortgage Loan. As
additional servicing compensation, the Master Servicer will be entitled to
retain all assumption fees, modification fees and any similar or ancillary fees,
in each case to the extent actually paid by a borrower with respect to a
Mortgage Loan that is not a Specially Serviced Mortgage Loan. The Master
Servicer will also be entitled to: (a) Prepayment Interest Excesses and Balloon
Payment Interest Excesses collected on the Mortgage Loans and not otherwise
applied to cover Prepayment Interest Shortfalls and Balloon Payment Interest
Shortfalls, respectively; and (b) any default interest and late payment charges
actually collected on the Mortgage Loans (other than Specially Serviced Mortgage
Loans), but only to the extent that such default interest and late payment
charges are not allocable to pay any portion of a Workout Fee or Liquidation Fee
(each as defined below) payable to the Special Servicer with respect to the
related Mortgage Loan or to cover interest payable to the Master Servicer, the
Special Servicer, the Trustee or the Fiscal Agent with respect to any Advances
made in respect of the related Mortgage Loan. In addition, the Master Servicer
will be authorized to invest or direct the investment of funds held in any and
all accounts maintained by it or the Trustee that constitute part of the
Certificate Account, in certain government securities and other investment grade
obligations specified in the Pooling and Servicing Agreement ("Permitted
Investments"), and the Master Servicer will be entitled to retain any interest
or other income earned on such funds, but will be required to cover any
investment losses on such funds from its own funds without any right to
reimbursement. Furthermore the Master Servicer will also be entitled to any
interest earned on escrow accounts and reserve accounts maintained in respect of
the Mortgage Loans (to the extent not otherwise payable to the borrowers.)
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The principal compensation to be paid to the Special Servicer in respect of
its special servicing activities will be the Special Servicer Standby Fee, the
Special Servicing Fee, the Workout Fee and the Liquidation Fee. The "Special
Servicer Standby Fee" will accrue with respect to each Mortgage Loan (including
a Specially Serviced Mortgage Loan and a Mortgage Loan as to which the related
Mortgaged Property has become an REO Property) in the same manner as the Master
Servicing Fee (but at a rate of 0.005% per annum). The "Special Servicing Fee"
will accrue with respect to each Specially Serviced Mortgage Loan and each
Mortgage Loan as to which the related Mortgaged Property has become an REO
Property, at a rate equal to 0.25% per annum (the "Special Servicing Fee Rate"),
on the basis of the same principal amount and for the same period respecting
which any related interest payment due or deemed due on such Mortgage Loan is
computed, and will be payable monthly from general collections on the Mortgage
Loans and any REO Properties held by the Master Servicer from time to time. A
"Workout Fee" will in general be payable with respect to each Corrected Mortgage
Loan. As to each Corrected Mortgage Loan, the Workout Fee will be payable out
of, and will be calculated by application of a "Workout Fee Rate" of 1.0% to,
each collection of interest and principal (including scheduled payments,
prepayments, Balloon Payments and payments at maturity) received on such
Mortgage Loan for so long as it remains a Corrected Mortgage Loan. The Workout
Fee with respect to any Corrected Mortgage Loan will cease to be payable if such
loan again becomes a Specially Serviced Mortgage Loan or if the related
Mortgaged Property becomes an REO Property; provided that a new Workout Fee will
become payable if and when such Mortgage Loan again becomes a Corrected Mortgage
Loan. If the Special Servicer is terminated (other than for cause) or resigns
with respect to any or all of its servicing duties, it shall retain the right to
receive any and all Workout Fees payable with respect to Mortgage Loans that
became Corrected Mortgage Loans during the period that it had responsibility for
servicing Specially Serviced Mortgage Loans and that were still Corrected
Mortgage Loans at the time of such termination or resignation (and the successor
Special Servicer shall not be entitled to any portion of such Workout Fees), in
each case until the Workout Fee for any such loan ceases to be payable in
accordance with the preceding sentence. A "Liquidation Fee" will be payable 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. As to each such Specially Serviced
Mortgage Loan and REO Property, the Liquidation Fee will be payable from, and
will be calculated by application of a "Liquidation Fee Rate" of 1.0% 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 or replacement of any
Mortgage Loan by a Seller for a breach of representation or warranty or for
defective or deficient Mortgage Loan documentation, in connection with the
purchase of any Specially Serviced Mortgage Loan or REO Property by the Master
Servicer, the Special Servicer or any holder of Certificates evidencing a
majority interest in the Controlling Class or in connection with the purchase of
all of the Mortgage Loans and REO Properties by any person entitled to effect an
optional termination of the Trust Fund. If, however, Liquidation Proceeds are
received with respect to any Corrected Mortgage Loan and the Special Servicer is
properly entitled to a Workout Fee, such Workout Fee will be payable based on
and out of the portion of such Liquidation Proceeds that constitute principal
and/or interest. The Special Servicer will be entitled to additional servicing
compensation in the form of assumption fees and modification fees received on or
with respect to Specially Serviced Mortgage Loans. The Special Servicer will
also be entitled to any default interest and late payment charges actually
collected on the Specially Serviced Mortgage Loans, but only to the extent that
(i) such default interest and late payment charges are not allocable to pay any
portion of a Workout Fee or Liquidation Fee payable to the Special Servicer with
respect to the related Mortgage Loan or to cover interest payable to the Master
Servicer, the Special Servicer or the Trustee with respect to any Advances made
in respect of the related Mortgage Loan and (ii) such default interest and late
payment charges are not otherwise payable to the Master Servicer as additional
servicing compensation.
The Master Servicer and the Special Servicer will, in general, each be
required to pay all ordinary expenses incurred by it in connection with its
servicing activities under the Pooling and Servicing Agreement and will not be
entitled to reimbursement therefor except as expressly provided in the Pooling
and Servicing Agreement. In addition, the Master Servicer will be required to
pay, from the Master Servicing Fee, the fees of all Sub-Servicers retained by
it, the Special Servicer Standby Fee and the fees of the Trustee.
The Operating Adviser
The Pooling and Servicing Agreement will permit the holder (or holders) of
Certificates representing more than 50% of the aggregate Certificate Balance of
the most subordinate Class of Principal Balance Certificates at any time of
determination (or, if the aggregate Certificate Balance of such Class of
Certificates is less than 25% of the original aggregate Certificate Balance
thereof, of the next most subordinate Class of Principal Balance Certificates)
(in any event,
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the "Controlling Class") to appoint any person or entity to act as the
representative of the Controlling Class to the extent described below (such
person or entity, in such capacity, the "Operating Adviser").
If the Special Servicer is not the Operating Adviser, the Special Servicer
will notify the Operating Adviser prior to the Special Servicer's taking any of
the following actions: (i) any foreclosure or comparable conversion (which may
include acquisition of an REO Property) of any Mortgaged Property; (ii) any
modification of a Money Term of a Mortgage Loan other than a modification
consisting of the extension of the original maturity of the Mortgage Loan for
two years or less; (iii) any proposed sale of a Specially Serviced Mortgage Loan
or REO Property (other than upon termination of the Trust Fund pursuant to the
Pooling and Servicing Agreement); (iv) any determination to bring an REO
Property into compliance with applicable environmental laws; and (v) any
acceptance of substitute or additional collateral for a Mortgage Loan.
The Operating Adviser may replace the Special Servicer, provided that such
replacement will be subject to, among other things, receipt from the Rating
Agencies of written confirmation that such replacement will not result in a
qualification, downgrade or withdrawal of any of the then current ratings
assigned to any Class of Certificates.
Modifications, Waivers, Amendments and Consents
The Master Servicer and the Special Servicer each may, consistent with the
Servicing Standard, agree to any modification, waiver or amendment of any term
of, forgive interest on and principal of, capitalize interest on, permit the
release, addition or substitution of collateral securing, and/or permit the
release of the borrower on or any guarantor of any Mortgage Loan it is required
to service and administer, without the consent of the Trustee or, except as
contemplated by clause (1) below, any Certificateholder, subject, however, to,
each of the following limitations, conditions and restrictions:
(1) with limited exception involving the waiver of late payment
charges, due on sale clauses and due on encumbrance clauses, the Master
Servicer may not agree to any modification, waiver or amendment of any term
of, or take any of the other above referenced actions with respect to, any
Mortgage Loan it is required to service and administer that would affect
the amount or timing of any related payment of principal, interest or other
amount payable thereunder or, in the Master Servicer's good faith and
reasonable judgment, would materially impair the security for such Mortgage
Loan or reduce the likelihood of timely payment of amounts due thereon;
however, the Special Servicer may agree to any modification, waiver or
amendment of any term of, or take any of the other above referenced actions
with respect to, a Specially Serviced Mortgage Loan that would have any
such effect, but only if (a) a material default on such Mortgage Loan has
occurred or, in the Special Servicer's reasonable and good faith judgment,
a default in respect of payment on such Mortgage Loan is reasonably
foreseeable, and such modification, waiver, amendment or other action is
reasonably likely to produce a greater recovery to Certificateholders on a
present value basis than would liquidation and (b) if such modification,
waiver or amendment accomplishes any of the following, the Special Servicer
has obtained the written consent of the holders of Certificates entitled to
more than 50% of the Voting Rights allocated to the most senior Class of
Principal Balance Certificates then outstanding (the Class A Certificates
to be treated as a single Class for this purpose) that has an aggregate
Certificate Balance at least equal to 25% of its original aggregate
Certificate Balance: (i) extends the maturity date of such Mortgage Loan
(A) beyond the third anniversary of its original scheduled maturity, (B) to
a date later than three years prior to the Final Rated Distribution Date or
(C) in the case of any Mortgage Loan secured by a Mortgage on the
borrower's leasehold estate, beyond the date that is ten years prior to the
expiration of such leasehold, (ii) reduces the Mortgage Rate of any Fixed
Rate Loan below the lesser of 5% per annum and the then current rate on
one-year Treasury securities, or (iii) permits deferral of interest without
accrual of interest at the Mortgage Rate on the amount so deferred;
(2) neither the Master Servicer nor the Special Servicer shall make or
permit any modification, waiver or amendment of any term of, or take any of
the other above referenced actions with respect to, any Mortgage Loan that
would (a) cause any of REMIC I, REMIC II or REMIC III to fail to qualify as
a REMIC under the Code or, except as otherwise described under "--REO
Properties" below, result in the imposition of any tax on "prohibited
transactions" or "contributions" after the startup date of any such REMIC
under the REMIC Provisions or (b) cause any Mortgage Loan to cease to be a
"qualified mortgage" within the meaning of Section 860G(a)(3) of the Code
(neither the Master Servicer nor the Special Servicer shall be liable for
judgments as regards decisions made under this subsection which were made
in good faith and, unless it would
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constitute bad faith or gross negligence to do so, each of the Master
Servicer and the Special Servicer may rely on opinions of counsel in making
such decisions);
(3) neither the Master Servicer nor the Special Servicer shall permit
any borrower to add or substitute any collateral for an outstanding
Mortgage Loan, which collateral constitutes real property, unless the
Master Servicer or the Special Servicer, as the case may be, shall have
first determined in accordance with the Servicing Standard, based upon a
Phase I environmental assessment (and such additional environmental testing
as the Master Servicer or Special Servicer, as the case may be, deems
necessary and appropriate), that such additional or substitute collateral
is in compliance with applicable environmental laws and regulations and
that there are no circumstances or conditions present with respect to such
new collateral relating to the use, management or disposal of any hazardous
materials for which investigation, testing, monitoring, containment,
clean-up or remediation would be required under any then applicable
environmental laws and/or regulations; and
(4) with limited exceptions, neither the Master Servicer nor the
Special Servicer shall release any collateral securing an outstanding
Mortgage Loan;
provided that (x) the limitations, conditions and restrictions set forth in
clauses (1) through (4) above will not apply to any modification of any term of
any Mortgage Loan or any of the other above-referred actions that is required
under the terms of such Mortgage Loan in effect on the Closing Date or that is
solely within the control of the related borrower, and (y) notwithstanding
clauses (1) through (4) above, neither the Master Servicer nor the Special
Servicer will be required to oppose the confirmation of a plan in any bankruptcy
or similar proceeding involving a borrower if in their reasonable and good faith
judgment such opposition would not ultimately prevent the confirmation of such
plan or one substantially similar.
Sale of Defaulted Mortgage Loans
The Pooling and Servicing Agreement grants to each of the Master Servicer,
the Special Servicer and any holder of Certificates evidencing a majority
interest in the Controlling Class a right to purchase from the Trust Fund, at
the applicable Purchase Price, those defaulted Mortgage Loans that are at least
60 days delinquent and which the Special Servicer has determined, in its
reasonable and good faith judgment, will become the subject of foreclosure
proceedings (other than any such Mortgage Loan that it determines, in its
reasonable and good faith judgment, is in default to avoid a prepayment
restriction).
The Special Servicer may offer to sell any such defaulted Mortgage Loan not
otherwise purchased pursuant to the prior paragraph (other than any such
Mortgage Loan that it determines, in its reasonable and good faith judgment, is
in default to avoid a prepayment restriction), if and when the Special Servicer
determines, consistent with the Servicing Standard, that such a sale would be in
the best economic interests of the Trust Fund. Such offer is to be made in a
commercially reasonable manner for a period of not less than 30 days. Unless the
Special Servicer determines that acceptance of any offer would not be in the
best economic interests of the Trust Fund, the Special Servicer shall accept the
highest cash offer received from any person that constitutes a fair price (which
may be less than the Purchase Price) for such Mortgage Loan; provided that none
of the Special Servicer, the Master Servicer, the Depositor, the holder of any
Certificate, the Operating Adviser or an affiliate of any such party (each, an
"Interested Party") may purchase such Mortgage Loan for less than the Purchase
Price unless at least two other offers are received from independent third
parties. When an Interested Party is to be the purchaser of any such defaulted
Mortgage Loan, the Trustee is to determine (with the aid of an independent real
estate adviser) what constitutes a fair price. See "Description of the
Agreements--Realization Upon Defaulted Whole Loans" in the Prospectus.
REO Properties
If title to any Mortgaged Property is acquired by the Special Servicer on
behalf of the Certificateholders, the Special Servicer, on behalf of such
holders, will be required to attempt to sell the Mortgaged Property for cash
within two years of acquisition, unless (i) the Internal Revenue Service grants
an extension of time to sell such property (an "REO Extension") or (ii) the
Special Servicer obtains an opinion of independent counsel generally to the
effect that the holding of the property for more than two years after its
acquisition will not result in the imposition of a tax on the Trust Fund or
cause REMIC I, REMIC II or REMIC III to fail to qualify as a REMIC under the
Code. Subject to the foregoing, the Special Servicer will generally be required
to attempt to sell any Mortgaged Property so acquired in such a manner as will
be reasonably likely to realize a fair price for such property. The Special
Servicer may retain an independent contractor to operate and manage any REO
Property; however, the retention of an independent contractor will not relieve
the Special Servicer of its obligations with respect to such REO Property.
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In general, the Special Servicer will be obligated to, or may contract with
a third party to, operate and manage any Mortgaged Property acquired as REO
Property in a manner that would, to the extent commercially feasible, maximize
the Trust Fund's net after-tax proceeds from such property. After the Special
Servicer reviews the operation of such property and consults with the Trustee to
determine the Trust Fund's federal income tax reporting position with respect to
income it is anticipated that the Trust Fund would derive from such property,
the Special Servicer could determine that it would not be commercially feasible
to manage and operate such property in a manner that would avoid the imposition
of a tax on "net income from foreclosure property" within the meaning of the
REMIC Provisions or a tax on "prohibited transactions" under Section 860F of the
Code (either such tax referred to herein as an "REO Tax"). To the extent that
income the Trust Fund receives from an REO Property is subject to a tax on (i)
"net income from foreclosure property", such income would be subject to federal
tax at the highest marginal corporate tax rate (currently 35%) and (ii)
"prohibited transactions", such income would be subject to federal tax at a 100%
rate. The determination as to whether income from an REO Property would be
subject to an REO Tax will depend on the specific facts and circumstances
relating to the management and operation of each REO Property. Generally, income
from an REO Property that is directly operated by the Special Servicer would be
apportioned and classified as "service" or "non-service" income. The "service"
portion of such income could be subject to federal tax either at the highest
marginal corporate tax rate or at the 100% rate on "prohibited transactions,"
and the "non-service" portion of such income could be subject to federal tax at
the highest marginal corporate tax rate or, although it appears unlikely, at the
100% rate applicable to "prohibited transactions". Any REO Tax imposed on the
Trust Fund's income from an REO Property would reduce the amount available for
distribution to Certificateholders. Certificateholders are advised to consult
their own tax advisors regarding the possible imposition of REO Taxes in
connection with the operation of commercial REO Properties by REMICs.
Inspections; Collection of Operating Information
The Master Servicer is required to, or may contract with a third party to,
perform physical inspections of each Mortgaged Property at least once every two
years (or, if the related Mortgage Loan has a then-current balance greater than
$2,000,000, at least once every year). In addition, the Special Servicer,
subject to statutory limitations or limitations set forth in the related loan
documents, is required to perform a physical inspection of each Mortgaged
Property as soon as practicable after servicing of the related Mortgage Loan is
transferred thereto, and annually thereafter for so long as it remains a
Specially Serviced Mortgage Loan or if such Mortgaged Property becomes REO
Property. The Special Servicer and the Master Servicer will each be required to
prepare or to contract with a third party to prepare a written report of each
such inspection performed thereby describing the condition of the Mortgaged
Property.
With respect to each Mortgage Loan that requires the borrower to deliver
annual operating statements with respect to the related Mortgaged Property, the
Master Servicer or the Special Servicer, depending on which is obligated to
service such Mortgage Loan, is also required to make reasonable efforts to
collect and review such statements. However, there can be no assurance that any
operating statements required to be delivered will in fact be delivered, nor is
the Master Servicer or the Special Servicer likely to have any practical means
of compelling such delivery in the case of an otherwise performing Mortgage
Loan.
Maintenance of Master Servicer/Special Servicer Acceptability
It will be an event of default in respect of the Master Servicer or the
Special Servicer, as applicable, if the Trustee receives notice from either
Rating Agency to the effect that the continuation of the then current Master
Servicer or Special Servicer, as the case may be, in such capacity would result
in the downgrade, qualification or withdrawal of any rating then assigned by
such Rating Agency to any Class of Certificates.
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FEDERAL INCOME TAX CONSEQUENCES
General
Upon the issuance of the Offered Certificates, Sidley & Austin, counsel to
the Depositor, will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the Pooling and Servicing Agreement, for
federal income tax purposes, REMIC I, REMIC II and REMIC III will each qualify
as a REMIC under the Code. For federal income tax purposes, the Class R-I
Certificates will be the sole class of "residual interests" in REMIC I; the
Class R-II Certificates will be the sole class of "residual interests" in REMIC
II; the REMIC Regular Certificates will evidence the "regular interests" in, and
will be treated as debt instruments of, REMIC III; and the Class R-III
Certificates will be the sole class of "residual interests" in REMIC III. See
"Certain Federal Income Tax Consequences--REMICs" in the Prospectus.
Original Issue Discount and Premium
The Interest Only Certificates will, and the other Classes of Offered
Certificates will not, be treated for Federal income tax reporting purposes as
having been issued with "original issue discount." The prepayment assumption
that will be used in determining the rate of accrual of original issue discount,
market discount and amortizable premium, if any, for federal income tax purposes
will be a 5% CPR (as described in the Prospectus) applied to each Mortgage Loan
during any period that voluntary principal prepayments may be made thereon
without a Yield Maintenance Premium being required. However, the Depositor makes
no representation that the Mortgage Loans will in fact only prepay during any
such period or that they will prepay at any particular rate before or during any
such period. See "Certain Federal Income Tax Consequences--REMICs--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount and Premium" in
the Prospectus.
The IRS has issued OID Regulations under Sections 1271 to 1275 of the Code
generally addressing the treatment of debt instruments issued with original
issue discount. Purchasers of the Offered Certificates should be aware that the
OID Regulations and Section 1272(a)(6) of the Code do not adequately address
certain issues relevant to, or are not applicable to, prepayable securities such
as the Offered Certificates. In addition, there is considerable uncertainty
concerning the application of Section 1272(a)(6) of the Code and the OID
Regulations to REMIC Regular Certificates that provide for payments based on an
adjustable rate, such as the Class A-2 Certificates and the Class IO-2
Certificates. Because of the uncertainties concerning the application of Section
1272(a)(6) of the Code to the Class A-2 Certificates and the Class IO-2
Certificates and because the rules of the OID Regulations relating to debt
instruments having an adjustable rate of interest are limited in their
application in ways that could preclude their application to those Classes of
Certificates even in the absence of Section 1272(a)(6) of the Code, the IRS
could assert that the Class A-2 Certificates and the Class IO-2 Certificates
should be treated as having been issued with original issue discount or should
be governed by some other method not yet set forth in regulations. Prospective
purchasers of the Offered Certificates are advised to consult their tax advisors
concerning the tax treatment of such Certificates.
In the case of the Class IO-2 Certificates, and if the Class A-2
Certificates are required to be treated as having been issued with original
issue discount), the Class A-2 Certificates, it appears that a reasonable method
of reporting original issue discount with respect to those Classes of
Certificates generally would be to report all income with respect to such
Certificates as original issue discount for each period, computing such original
issue discount (i) by assuming that the value of the applicable index will
remain constant for purposes of determining the original yield to maturity of,
and projecting future distributions on, such Certificates, thereby treating such
Certificates as fixed rate instruments to which the original issue discount
computation rules described in the Prospectus can be applied, and (ii) by
accounting for any positive or negative variation in the actual value of the
applicable index in any period from its assumed value as a current adjustment to
original issue discount with respect to such period. See "Certain Federal Income
Tax Consequences--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount and Premium" in the Prospectus.
If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period with respect to a holder
of a Certificate, in particular an Interest Only Certificate, the amount of
original issue discount allocable to such period would be zero and such
Certificateholder will be permitted to offset such negative amount only against
future original issue discount (if any) attributable to such Certificate.
Although the matter is not free from doubt, a holder of an Interest Only
Certificate may be permitted to deduct a loss to the extent that his or her
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respective remaining basis in such Certificate exceeds the maximum amount of
future payments to which such Certificateholder is entitled, assuming no further
prepayments of the Mortgage Loans. Any such loss might be treated as a capital
loss. The contingent payment regulations proposed in December, 1994 and referred
to in the Prospectus were published in final form in June, 1996 and specifically
do not apply to REMIC regular interests, including the Interest Only
Certificates.
The OID Regulations in some circumstances permit the holder of a debt
instrument to recognize original issue discount under a method that differs from
that of the issuer. Accordingly, it is possible that holders of Offered
Certificates issued with original issue discount may be able to select a method
for recognizing original issue discount that differs from that used by the
Trustee in preparing reports to Certificateholders and the IRS. Prospective
purchasers of Offered Certificates issued with original issue discount are
advised to consult their tax advisors concerning the treatment of such
Certificates.
To the extent that any Offered Certificate is purchased in this offering or
in the secondary market at not more than a de minimis discount, as defined in
the Prospectus, a holder who receives a payment that is included in the stated
redemption price at maturity (generally, the principal amount) of such
Certificate will recognize gain equal to the excess, if any, of the amount of
the payment over an allocable portion of the holder's adjusted basis in the
Offered Certificate. Such allocable portion of the holder's adjusted basis will
be based upon the proportion that such payment of stated redemption price bears
to the total remaining stated redemption price at maturity, immediately before
such payment is made, of such Certificate. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--
Original Issue Discount and Premium" and "--Sale, Exchange or Redemption" in the
Prospectus.
Prepayment Premiums actually collected on the Mortgage Loans will be
distributed to the holders of each Class of Certificates entitled thereto as
described herein. It is not entirely clear under the Code when the amount of a
Prepayment Premium should be taxed to the holder of a Class of Certificates
entitled to a Prepayment Premium. For federal income tax information reporting
purposes, Prepayment Premiums will be treated as income to the holders of a
Class of Certificates entitled to Prepayment Premiums only after the Servicer's
actual receipt of a Prepayment Premium as to which such Class of Certificates is
entitled under the terms of the Pooling and Servicing Agreement, rather than
including projected Prepayment Premiums in the determination of a
Certificateholder's projected constant yield to maturity. It appears that
Prepayment Premiums are to be treated as ordinary income rather than capital
gain. However, the timing and correct characterization of such income is not
entirely clear and Certificateholders should consult their tax advisors
concerning the treatment of Prepayment Premiums.
The Offered Certificates, other than the Interest Only Certificates, may be
treated for Federal income tax purposes as having been issued at a premium.
Whether any holder of any such Class of Certificates will be treated as holding
a Certificate with amortizable bond premium will depend on such
Certificateholder's purchase price and the distributions remaining to be made on
such Certificate at the time of its acquisition by such Certificateholder. On
June 27, 1996, the IRS published in the Federal Register proposed regulations on
the amortization of bond premium. Under those regulations, if a holder elects to
amortize bond premium, bond premium would be amortized on a constant yield
method and would be applied against qualified stated interest. The proposed
regulations generally would be effective for Certificates acquired on or after
the date 60 days after the date final regulations are published in the Federal
Register. Holders of each such Class of Certificates should consult their tax
advisors regarding the possibility of making an election to amortize such
premium. See "Certain Federal Income Tax Consequences--REMICs--Taxation of
Owners of REMIC Regular Certificates--Premium" in the Prospectus.
The Offered Certificates will be "real estate assets" within the meaning of
Section 856(c)(5)(A) of the Code in the same proportion that the assets of the
Trust Fund would be so treated. In addition, interest (including original issue
discount, if any) on the Offered Certificates will be interest described in
Section 856(c)(3)(B) of the Code to the extent that such Certificates are
treated as "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code. Moreover, the Offered Certificates will be "qualified mortgages" under
Section 860G(a)(3) of the Code if transferred to another REMIC on its start-up
day in exchange for regular or residual interests therein.
The Offered Certificates will be treated as assets within the meaning of
Section 7701(a)(19)(C) of the Code generally only to the extent that the
Mortgage Loans secured by mortgages on multifamily, nursing home and congregate
care properties are a percentage of the principal balance of the Mortgage Pool.
The percentage of such Mortgage Loans
S-93
<PAGE>
included in the initial principal balance of the Mortgage Pool (which is subject
to change due to changes in principal balances and prepayments) is initially
approximately 35.7%. The Small Business Job Protection Act of 1996, as part of
the repeal of the bad debt reserve method for thrift institutions, repealed the
application of section 593(d) to any taxable year beginning after December 31,
1995. See "Description of the Mortgage Pool" herein and "Certain Federal Income
Tax Consequences--REMICs" in the Prospectus.
The Small Business Job Protection Act of 1996 amended the definition of a
"foreign trust" for federal income tax purposes. Under the amended definition, a
"foreign trust" is any trust other than a trust as to which (i) a court within
the United States is able to exercise primary supervision over the
administration of the trust, and (ii) one or more United States fiduciaries have
the authority to control all substantial decisions of the trust. Under this
amended definition, certain trusts that would not have been classified as
foreign trust under prior law may be so classified and consequently be required
to comply with the identification and other requirements described in the
Prospectus (including, but not limited to, not holding 10% or more of the REMIC
Residual Interests) in order for payments of interest to be exempt from United
States withholding tax. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Non-U.S.
Persons" in the Prospectus.
The Special Servicer is authorized under certain circumstances in which
doing so is consistent with maximizing the Trust Fund's net after tax proceeds
from an REO Property, to incur taxes on the Trust Fund in connection with the
operation of such REO Property. Any such taxes imposed on the Trust Fund would
reduce the amount distributable to Certificateholders. See "Servicing of the
Mortgage Loans--REO Prospectus" herein.
Federal income tax information reporting duties with respect to the Offered
Certificates and REMIC I, REMIC II and REMIC III will be the obligation of the
Trustee, and not of the Master Servicer. See "Certain Federal Income Tax
Consequences REMICs--Information Reporting and Backup Withholding" in the
Prospectus.
For further information regarding the Federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences--REMICs" in the Prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans subject to ERISA ("ERISA
Plans") and on those persons who are fiduciaries of ERISA Plans. In accordance
with the general fiduciary standards of ERISA, a fiduciary of an ERISA Plan
should consider whether an investment in the Offered Certificates is permitted
under ERISA, permitted by the documents and instruments governing the ERISA
Plan, consistent with the ERISA Plan's overall investment policy and appropriate
in view of the composition of its investment portfolio.
In addition to imposing general fiduciary standards, ERISA prohibits sales,
exchanges, loans and certain other transactions involving assets of an ERISA
Plan and certain related persons ("Parties in Interest"). Section 4975 of the
Code imposes an excise tax on similar transactions between employee benefit
plans subject to such Section (such plans collectively with ERISA Plans,
"Plans") and similarly related persons ("Disqualified Persons"). Such a
transaction may be exempt from such prohibitions and excise taxes if a statutory
or administrative exemption applies thereto. The Depositor, the Sellers, the
Master Servicer, the Special Servicer, the Trustee or any obligor in respect of
any Mortgage Loan may be considered to be, or may become considered to be, a
Party in Interest or a Disqualified Person with respect to one or more Plans.
Accordingly, the acquisition of the Offered Certificates on behalf of, or using
the assets of, a Plan may constitute or result in a prohibited transaction under
ERISA or the Code unless an exemption applies.
Employee benefit plans that are governmental plans and certain church plans
(if no election has been made under Section 410(a) of the Code) are not subject
to ERISA or Section 4975 of the Code. Whether assets of such plans may be
invested in the Offered Certificates is determined under the provisions of
applicable law and, in the case of a plan that is qualified under Section 401(a)
of the Code, any restrictions imposed under Section 503 of the Code.
S-94
<PAGE>
Plan Asset Regulation
The United States Department of Labor (the "DOL") has issued a final
regulation (the "Final DOL Regulation") determining when assets of an entity in
which a Plan makes an equity investment will be treated as assets of the
investing Plan. Unless an exception provided by the Final DOL Regulation
applies, an undivided portion of the assets of the Trust Fund will be treated,
for purposes of applying the fiduciary standards of ERISA and the prohibited
transaction rules of ERISA and the Code, as an asset of each Plan that acquires
and holds the Offered Certificates. If the Trust Fund is deemed to include "plan
assets", transactions involving the assets of the Trust Fund will be subject to
the fiduciary standards of ERISA and the prohibited transaction rules of ERISA
and the Code.
The Final DOL Regulation provides an exception to "plan asset" treatment
for securities issued by an entity if, immediately after the most recent
acquisition of any equity interest in the entity, less than 25% of the value of
each class of equity interests in the entity (excluding interests held by any
person who has discretionary authority or control with respect to the assets of
the entity or any affiliate of such a person) are held by "benefit plan
investors" (e.g., Plans, governmental plans, foreign plans). There can be no
assurance that this exception will apply to the Trust Fund.
Availability of Underwriter's Exemption
The DOL has granted to the Underwriter Prohibited Transaction Exemption
90-24, 55 Fed. Reg. 20,548 (1990) (the "Underwriter's Exemption") which
generally exempts from the application of the prohibited transaction rules of
ERISA and the Code transactions relating to: (1) the acquisition, holding and
sale by Plans of certain certificates representing an undivided interest in
certain asset-backed pass-through trusts with respect to which the Underwriter
or any of its affiliates is the sole underwriter, the manager or co-manager of
the underwriting syndicate or a selling or placement agent and (2) the
servicing, operation and management of such asset-backed pass-through trusts,
provided that the general and specific conditions set forth in the Underwriter's
Exemption are satisfied. Among the conditions which must be satisfied for the
Underwriter's Exemption to apply are: (a) assets of the type included in the
Trust Fund have been included in other investment pools ("Other Pools"); (b)
certificates evidencing interests in Other Pools have been both (1) rated in one
of the three highest generic rating categories by Standard & Poor's Ratings
Services, Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. or
Fitch Investors Service, L.P. and (2) purchased by investors other than Plans
for at least one year prior to a Plan's acquisition of the Offered Certificates
in reliance upon the Underwriter's Exemption; (c) at the time of such
acquisition, the Offered Certificates acquired by the Plan have received a
rating in one of the rating categories referred to in condition (b) above; (d)
the Class of the Offered Certificates acquired by the Plan are not subordinated
to other Classes of the Offered Certificates with respect to the right to
receive payment in the event of a default or delinquency on the underlying
assets of the Trust Fund; (e) the Plan is an "accredited investor" (as defined
in Rule 501(a)(1) of Regulation D of the Securities and Exchange Commission
under the Securities Act of 1933, as amended); (f) the acquisition of the
Certificates by a Plan is on terms (including the price of the Certificates)
that are at least as favorable to the Plan as they would be in an arm's-length
transaction with an unrelated party; (g) the sum of all payments made to and
retained by the Underwriter in connection with the distribution of the Offered
Certificates represents not more than reasonable compensation for underwriting
the Offered Certificates; the sum of all payments made to and retained by the
Depositor pursuant to the sale of the assets of the Trust Fund to the trust
represents not more than the fair market value of such assets; and the sum of
all payments retained by the Master Servicer and the Special Servicer represents
not more than reasonable compensation for such servicers' services under the
Pooling and Servicing Agreement and reimbursement of such servicers' reasonable
expenses in connection therewith; and (h) the Trustee is not an affiliate of any
member of the Restricted Group (as defined in the Prospectus).
The Underwriter (as defined below) believes that conditions (a) through (d)
and (h) to the applicability of the Underwriter's Exemption as described above
are satisfied with respect to the Class A Certificates and the Interest Only
Certificates and that condition (g) is likely to be satisfied. Whether the other
requirements of the Underwriter's Exemption are satisfied (including conditions
(e) and (f) above) will depend upon the particular circumstances at the time a
Plan acquires any such Certificates.
The conditions to the applicability of the Underwriter's Exemption are not
satisfied with respect to Class B, Class C, Class D and Class E Certificates.
Accordingly, the Certificates of any such Class may not be acquired by or with
the assets of any Plan based on the availability of the Underwriter's Exemption.
The foregoing prohibition does not apply to the acquisition of Certificates by
an insurance company, provided that the requirements of Section III of
Prohibited
S-95
<PAGE>
Transaction Class Exemption 95-60, 56 Fed. Reg. 27543 (1995) ("PTE 95-60") are
satisfied with respect to such acquisition and holding. Each purchaser of a
Class B, Class C, Class D or Class E Certificate will be deemed to represent,
warrant and covenant that either (i) it is not acquiring such certificate with
the assets of any Plan; or (ii) it is an insurance company and its acquisition
and holding of such certificate satisfies the requirements of Section III of PTE
95-60.
Before purchasing any of the Offered Certificates, a fiduciary of a Plan
should itself confirm that the general and specific conditions of the
Underwriter's Exemption and the other requirements set forth therein would be
satisfied. Due to the complexity of the applicable provisions of ERISA and the
Code, it is particularly important that persons responsible for investment
decisions with respect to Plans review carefully the discussion above and
consult their counsel regarding the consequences under ERISA and the Code of
acquiring and holding the Offered Certificates.
LEGAL INVESTMENT
The Offered Certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
The appropriate characterization of a Class of Offered Certificates under
various legal investment restrictions, and thus the ability of investors subject
to these restrictions to purchase Offered Certificates, may be subject to
significant interpretive uncertainties. All investors whose investment authority
is subject to legal restrictions should consult their own legal advisors to
determine whether, and to what extent, the Offered Certificates will constitute
legal investments for them.
The Depositor makes no representations as to the proper characterization of
the Offered Certificates for legal investment or financial institution
regulatory purposes, or as to the ability of particular investors to purchase
the Offered Certificates under applicable legal investment restrictions. The
uncertainties referred to above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteristics
of the Offered Certificates) may adversely affect the liquidity of the Offered
Certificates. See "Legal Investment" in the Prospectus.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans.
PLAN OF DISTRIBUTION
The Depositor has entered into an underwriting agreement (the "Underwriting
Agreement") with Morgan Stanley & Co. Incorporated (the "Underwriter"), an
affiliate of the Depositor. The Underwriting Agreement provides that the
obligations of the Underwriter are subject to certain conditions precedent, and
that the Underwriter will be obligated to purchase all of the Offered
Certificates if any are purchased.
The Underwriter has advised the Depositor that it proposes to offer the
Offered Certificates from time to time for sale in one or more negotiated
transactions or otherwise at prices to be determined at the time of sale. The
Underwriter may effect such transactions by selling such Classes of Offered
Certificates to or through dealers and such dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Underwriter and any purchasers of such Classes of Offered Certificates for whom
it may act as agent.
The Offered Certificates are offered by the Underwriter when, as and if
issued by the Depositor, delivered to and accepted by the Underwriter and
subject to its right to reject orders in whole or in part. It is expected that
delivery of the Offered Certificates will be made in book-entry form through the
facilities of DTC against payment therefor on or about March 26, 1997, which is
the fourth business day following the date of pricing of the Certificates. Under
Rule 15c6-1 recently adopted by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, trades in the secondary market
generally are required to settle in three business days, unless the parties to
any such trade expressly agree otherwise. Accordingly, purchasers who wish to
trade Offered Certificates in the secondary market prior to such delivery should
specify a longer settlement cycle, or should refrain from specifying a shorter
S-96
<PAGE>
settlement cycle, to the extent that failing to do so would result in a
settlement date that is earlier than the date of delivery of such offered
Certificates.
The Underwriter and any dealers that participate with the Underwriter in
the distribution of the Offered Certificates may be deemed to be underwriters,
and any discounts or commissions received by them and any profit on the resale
of such Classes of Offered Certificates by them may be deemed to be underwriting
discounts or commissions, under the Securities Act of 1933, as amended.
The Depositor has agreed to indemnify the Underwriter against civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or contribute to payments the Underwriter may be required to make in respect
thereof.
The Underwriter intends to make a secondary market in the Offered
Certificates, but it is not obligated to do so.
LEGAL MATTERS
The legality of the Offered Certificates and the material federal income
tax consequences of investing in the Offered Certificates will be passed upon
for the Depositor by Sidley & Austin, New York, New York. Certain legal matters
with respect to the Offered Certificates will be passed upon for the Underwriter
by Thacher Proffitt & Wood, New York, New York.
RATINGS
It is a condition of the issuance of the Offered Certificates that they
receive the following credit ratings from DCR and Moody's:
CLASS DCR MOODY'S
- ----- --- -------
Class A-1A......................................... AAA Aaa
Class A-1B......................................... AAA Aaa
Class A-1C......................................... AAA Aaa
Class A-2.......................................... AAA Aaa
Class IO-1......................................... AAA Aaa
Class IO-2......................................... AAA Aaa
Class B............................................ AA- Aa2
Class C............................................ A- A2
Class D............................................ BBB- Baa2
Class E............................................ N/R Baa3
The ratings of the Offered Certificates address the likelihood of the
timely receipt by holders thereof of all payments of interest to which they are
entitled and the ultimate receipt by holders thereof of all payments of
principal to which they are entitled, if any, by the Distribution Date in
February 2020 (the "Rated Final Distribution Date"). The ratings on the Offered
Certificates should be evaluated independently from similar ratings on other
types of securities. A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time by the
assigning rating agency.
The ratings of the Certificates do not represent any assessment of (i) the
likelihood or frequency of principal prepayments on the Mortgage Loans, (ii) the
degree to which such prepayments might differ from those originally anticipated
or (iii) whether and to what extent Prepayment Premiums will be received. A
security rating does not represent any assessment of the yield to maturity that
investors may experience or the possibility that the holders of the Interest
Only Certificates might not fully recover their investment in the event of rapid
prepayments of the Mortgage Loans (including both voluntary and involuntary
prepayments). In general, the ratings thus address credit risk and not
prepayment risk. As described herein, the amounts payable with respect to the
Interest Only Certificates consist only of interest. If all of the Mortgage
Loans were to prepay in the initial month, with the result that the
Certificateholders
S-97
<PAGE>
receive only a single month's interest and thus suffer a nearly complete loss of
their investment, all amounts "due" to such Certificateholders would
nevertheless have been paid, and such result will be consistent with the
"AAA/Aaa" ratings received on the Interest Only Certificates. The respective
aggregate Notional Amounts upon which interest in respect of the two Classes of
Interest Only Certificates are calculated is reduced by the allocation of
Realized Losses, Expense Losses and prepayments of principal, whether voluntary
or involuntary. The ratings do not address the timing or magnitude of reductions
of such aggregate Notional Amounts, but only the obligation to pay interest
timely on such aggregate Notional Amounts as so reduced from time to time.
Accordingly, the rating of the Interest Only Certificates should be evaluated
independently from similar ratings on other types of securities.
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates will nonetheless issue a rating to any Class
thereof and, if so, what such rating would be. A rating assigned to any Class of
Offered Certificates by a rating agency that has not been requested by the
Depositor to do so may be lower than the ratings assigned thereto at the request
of the Depositor.
S-98
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
S-99
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
Page(s) on which
term is defined
Term in the Prospectus
- ---- -----------------
Accrued Certificate Interest ......................................... S-22
Advance Rate ......................................................... S-28
Advances ............................................................. S-27
Appraisal Event ...................................................... S-24
Appraisal Reduction .................................................. S-24
ARM Loans ............................................................ S-33
Assumed Monthly Payments ............................................. S-23
Available Distribution Amount ........................................ S-57
Balloon Payment Interest Shortfall ................................... S-26
Balloon Payment Interest Excess ...................................... S-26
Balloon Payment ...................................................... S-34
Balloon Loan ......................................................... S-14
CEDEL ................................................................ S-14
Certificate Account .................................................. S-87
Certificate Balance .................................................. S-1
Certificate Owner .................................................... S-14
Certificate Group .................................................... S-19
Certificateholder .................................................... S-1
Certificateholders ................................................... S-1
Certificates ......................................................... S-1
Class IO Certificates ................................................ S-1
Class A Certificates ................................................. S-1
Class Interest Shortfall ............................................. S-22
Class ................................................................ S-1
Class A-2 Cross-Over Date ............................................ S-17
Closing Date ......................................................... S-1
Collection Period .................................................... S-49
Commission ........................................................... S-6
Compensating Interest Payment ........................................ S-26
ContiTrade Loan ...................................................... S-73
ContiTrade ........................................................... S-12
Controlling Class .................................................... S-12
Corporate Trust Office ............................................... S-62
Corrected Mortgage Loan .............................................. S-86
Cross-Collateralized Mortgage Loan ................................... S-33
Cut-off Date ......................................................... S-3
DCR .................................................................. S-1
Definitive Certificate ............................................... S-14
Depositor ............................................................ S-1
Determination Date ................................................... S-49
Discount Rate ........................................................ S-54
Disqualified Persons ................................................. S-95
Distributable Certificate Interest ................................... S-21
Distribution Date .................................................... S-3
Document Defect ...................................................... S-84
DOL .................................................................. S-95
DSCR or Debt Service Coverage Ratio .................................. S-79
DTC .................................................................. S-14
ERISA ................................................................ S-36
ERISA Plans .......................................................... S-94
Euroclear ............................................................ S-14
Expense Losses ....................................................... S-56
Final DOL Regulation ................................................. S-95
Final Scheduled Distribution Date .................................... S-64
Fiscal Agent ......................................................... S-1
Fixed-Rate Loan ...................................................... S-33
S-100
<PAGE>
GAL .................................................................. S-83
GMACCM ............................................................... S-12
GMACCM Loan .......................................................... S-73
Gross Margin ......................................................... S-33
Group 1 Certificates ................................................. S-19
Group 2 Certificates ................................................. S-19
Group 2 Loans ........................................................ S-3
Group 1 Loans ........................................................ S-3
Heller ............................................................... S-83
Hyper Amortization Date .............................................. S-34
Index ................................................................ S-32
Initial Group 1 Balance .............................................. S-74
Initial Group 2 Balance .............................................. S-74
Initial Pool Balance ................................................. S-3
Interest Accrual Period .............................................. S-53
Interest Only Certificates ........................................... S-1
LIBOR Business Day ................................................... S-49
LIBOR Determination Date ............................................. S-49
Liquidation Fee Rate ................................................. S-88
Loan Group ........................................................... S-3
Loan Group 1 ......................................................... S-3
Loan Group 2 ......................................................... S-3
Lock-out Period ...................................................... S-34
LOP .................................................................. S-64
LTV or Loan to Value Ratio ........................................... S-44
Master Servicer ...................................................... S-1
Master Servicing Fee ................................................. S-27
Master Servicing Fee Rate ............................................ S-27
Material Breach ...................................................... S-84
Material Document Defect ............................................. S-84
Maturity Assumptions ................................................. S-63
Money Term ........................................................... S-24
Monthly Payment ...................................................... S-53
Moody's .............................................................. S-1
Morgan Stanley Loan .................................................. S-73
Mortgage Loan Purchase Agreement ..................................... S-12
Mortgage Rate ........................................................ S-32
Mortgage Pool ........................................................ S-3
Mortgage Loan ........................................................ S-3
Mortgage Note ........................................................ S-73
Mortgage Rate Adjustment Date ........................................ S-74
Mortgage File ........................................................ S-81
Mortgaged Property ................................................... S-11
MSMC ................................................................. S-12
Net Aggregate Prepayment Interest Shortfall .......................... S-26
Net Mortgage Rate .................................................... S-18
Non-30/360 Loan ...................................................... S-49
Notional Amount ...................................................... S-1
Offered Certificates ................................................. S-1
One-Month LIBOR ...................................................... S-75
One-Month ARM Loan ................................................... S-74
Operating Adviser .................................................... S-13
Other ................................................................ S-32
P&I Advance .......................................................... S-27
Participant .......................................................... S-46
Parties in Interest .................................................. S-94
Pass-Through Rate .................................................... S-1
Percentage Premium ................................................... S-34
Permitted Investment ................................................. S-87
Permitted Cure Period ................................................ S-84
Pooling and Servicing Agreement ...................................... S-1
Prepayment Interest Excess ........................................... S-26
S-101
<PAGE>
Prepayment Premium ................................................... S-33
Prepayment Interest Shortfall ........................................ S-26
Principal Balance Certificate ........................................ S-4
Principal Distribution Amount ........................................ S-22
Private Certificate .................................................. S-12
Purchase Price ....................................................... S-84
Qualifying Substitute Mortgage Loan .................................. S-84
Rated Final Distribution Date ........................................ S-97
Rating Agency ........................................................ S-1
Realized Losses ...................................................... S-56
Record Date .......................................................... S-51
Reference Bank ....................................................... S-50
Related Proceeds ..................................................... S-58
REMIC ................................................................ S-4
REMIC Regular Certificates ........................................... S-1
REMIC Residual Certificates .......................................... S-1
REMIC I .............................................................. S-4
REMIC II ............................................................. S-4
REMIC III ............................................................ S-4
REO Extension ........................................................ S-90
REO Tax .............................................................. S-91
REO Property ......................................................... S-85
Required Appraisal Loan .............................................. S-24
Seller ............................................................... S-3
Senior Certificates .................................................. S-11
Servicing Transfer Event ............................................. S-85
Servicing Advance .................................................... S-27
Servicing Standard ................................................... S-85
Six-Month ARM Loans .................................................. S-74
Six-Month LIBOR ...................................................... S-75
SMMEA ................................................................ S-38
Special Servicer ..................................................... S-1
Special Servicing Fee ................................................ S-88
Special Servicing Fee Rate ........................................... S-88
Special Servicer Standby Fee ......................................... S-87
Specially Serviced Mortgage Loan ..................................... S-85
Stated Principal Balance ............................................. S-47
Sub-Servicer ......................................................... S-87
Sub-Servicing Agreement .............................................. S-87
Subordinate Certificates ............................................. S-1
Substitution Shortfall Amount ........................................ S-84
Termination Price .................................................... S-57
Trust Fund ........................................................... S-1
Trustee .............................................................. S-1
Underwritable Cash Flow .............................................. S-79
Underwriter .......................................................... S-1
Underwriter's Exemption .............................................. S-95
Underwriting Agreement ............................................... S-96
Various .............................................................. S-32
Voting Rights ........................................................ S-62
Workout Fee .......................................................... S-88
Workout Fee Rate ..................................................... S-88
Years Built/Renovated ................................................ S-80
Yield Maintenance Premium ............................................ S-34
YMP .................................................................. S-64
"weighted average" ................................................... S-80
S-102
<PAGE>
<TABLE>
<CAPTION>
APPENDIX I
MORTGAGE POOL INFORMATION
CUT-OFF DATE BALANCES - Mortgage Pool
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Pool Average Remaining Weighted Cut-off
Mortgage Cut-off Date Balance Mortgage Term to Average Date
Cut-off Date Balance Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$250,000 and below 1 $191,747 0.0 10.000 239 1.38 64.5
$250,001 to 500,000 6 2,151,663 0.3 10.000 239 1.38 64.5
$500,001 to 750,000 3 1,799,233 0.3 9.228 159 1.65 59.9
$750,001 to 1,000,000 9 8,363,088 1.3 9.005 123 1.64 61.9
$1,000,001 to 2,000,000 31 47,993,841 7.5 9.136 125 1.48 66.5
$2,000,001 to 3,000,000 35 86,415,039 13.5 9.008 125 1.54 67.8
$3,000,001 to 4,000,000 13 46,018,300 7.2 9.207 129 1.54 65.6
$4,000,001 to 5,000,000 14 63,880,480 10.0 8.916 121 1.34 69.5
$5,000,001 to 7,500,000 29 185,390,210 28.9 8.981 115 1.38 71.3
$7,500,001 to 10,000,000 10 86,622,530 13.5 8.792 110 1.38 69.5
$10,000,001 to 12,500,000 6 69,113,699 10.8 8.812 120 1.33 71.2
$12,500,001 and above 3 42,718,093 6.7 8.575 137 1.37 66.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 160 $640,657,923 100.0 8.940 121 1.41 69.1
====================================================================================================================================
</TABLE>
Range of Cut-off Date Balances: $191,747 to $15,125,403
Average Cut-off Date Balance: $4,004,112
<TABLE>
<CAPTION>
CUT-OFF DATE BALANCES - Loan Group 1
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 1 Average Remaining Weighted Cut-off
Mortgage Cut-off Date Balance Mortgage Term to Average Date
Cut-off Date Balance Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$250,000 and below 1 $191,747 0.0 10.000 239 1.38 64.5
$250,001 to 500,000 6 2,151,663 0.4 10.000 239 1.38 64.5
$500,001 to 750,000 3 1,799,233 0.3 9.228 159 1.65 59.9
$750,001 to 1,000,000 9 8,363,088 1.4 9.005 123 1.64 61.9
$1,000,001 to 2,000,000 30 46,461,323 7.7 9.175 125 1.48 66.3
$2,000,001 to 3,000,000 35 86,415,039 14.3 9.008 125 1.54 67.8
$3,000,001 to 4,000,000 13 46,018,300 7.6 9.207 129 1.54 65.6
$4,000,001 to 5,000,000 14 63,880,480 10.6 8.916 121 1.34 69.5
$5,000,001 to 7,500,000 28 178,030,486 29.6 9.001 117 1.38 71.2
$7,500,001 to 10,000,000 10 86,622,530 14.4 8.792 110 1.38 69.5
$10,000,001 to 12,500,000 6 69,113,699 11.5 8.812 120 1.33 71.2
$12,500,001 and above 1 13,361,851 2.2 8.670 237 1.36 79.1
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 156 $602,409,439 100.0 8.968 123 1.42 69.5
====================================================================================================================================
</TABLE>
Range of Cut-off Date Balances: $191,747 to $13,361,851
Average Cut-off Date Balance: $3,861,599
I-1
<PAGE>
<TABLE>
<CAPTION>
CUT-OFF DATE BALANCES - Loan Group 2
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 2 Average Remaining Weighted Cut-off
Mortgage Cut-off Date Balance Mortgage Term to Average Date
Cut-off Date Balance Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$1,000,001 to 2,000,000 1 $1,532,518 4.0 7.938 113 1.33 74.8
$5,000,001 to 7,500,000 1 7,359,724 19.2 8.500 65 1.34 74.0
$12,500,001 and above 2 29,356,242 76.8 8.531 91 1.38 61.2
- -----------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 4 $38,248,484 100.0 8.501 87 1.37 64.2
===================================================================================================================================
</TABLE>
Range of Cut-off Date Balances: $1,532,518 to $15,125,403
Average Cut-off Date Balance: $9,562,121
I - 2
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE RATES - Mortgage Pool
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Pool Average Remaining Weighted Cut-off
Mortgage Cut-off Date Balance Mortgage Term to Average Date
Mortgage Rate (%) Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
8.000 and below 2 $4,977,476 0.8 7.981 198 1.25 74.6
8.001 to 8.500 29 134,610,147 21.0 8.409 120 1.30 71.1
8.501 to 9.000 53 270,922,338 42.3 8.787 117 1.36 69.9
9.001 to 9.500 45 154,857,859 24.2 9.244 118 1.56 68.0
9.501 to 10.000 27 57,227,816 8.9 9.742 138 1.50 67.2
10.001 and above 4 18,062,287 2.8 10.310 124 1.59 58.1
- -----------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 160 $640,657,923 100.0 8.940 121 1.41 69.1
===================================================================================================================================
</TABLE>
Range of Mortgage Rates: 7.938% to 10.440%
<TABLE>
<CAPTION>
MORTGAGE RATES - Loan Group 1
===================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 1 Average Remaining Weighted Cut-off
Mortgage Cut-off Date Balance Mortgage Term to Average Date
Mortgage Rate (%) Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
8.000 and below 1 $3,444,957 0.6 8.000 236 1.21 74.5
8.001 to 8.500 28 127,250,424 21.1 8.403 124 1.30 70.9
8.501 to 9.000 51 241,566,096 40.1 8.818 120 1.35 70.9
9.001 to 9.500 45 154,857,859 25.7 9.244 118 1.56 68.0
9.501 to 10.000 27 57,227,816 9.5 9.742 138 1.50 67.2
10.001 and above 4 18,062,287 3.0 10.310 124 1.59 58.1
- -----------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 156 $602,409,439 100.0 8.968 123 1.42 69.5
===================================================================================================================================
</TABLE>
Range of Mortgage Rates: 8.000% to 10.440%
<TABLE>
<CAPTION>
MORTGAGE RATES - Loan Group 2
===================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 2 Average Remaining Weighted Cut-off
Mortgage Cut-off Date Balance Mortgage Term to Average Date
Mortgage Rate (%) Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
8.000 and below 1 $1,532,518 4.0 7.938 113 1.33 74.8
8.001 to 8.500 1 7,359,724 19.2 8.500 65 1.34 74.0
8.501 to 9.000 2 29,356,242 76.8 8.531 91 1.38 61.2
- -----------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 4 $38,248,484 100.0 8.501 87 1.37 64.2
===================================================================================================================================
</TABLE>
Range of Mortgage Rates: 7.938% to 8.531%
I - 3
<PAGE>
<TABLE>
<CAPTION>
INDICES - Loan Group 2
===================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 2 Average Remaining Weighted Cut-off
Mortgage Cut-off Date Balance Mortgage Term to Average Date
Index Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Six-Month LIBOR 3 $36,715,966 96.0 8.525 86 1.37 63.8
One-Month LIBOR 1 1,532,518 4.0 7.938 113 1.33 74.8
- -----------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 4 $38,248,484 100.0 8.501 87 1.37 64.2
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
GROSS MARGINS - Loan Group 2
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 2 Average Remaining Weighted Cut-off
Mortgage Cut-off Date Balance Mortgage Term to Average Date
Gross Margin (%) Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2.500 1 $1,532,518 4.0 7.938 113 1.33 74.8
2.750 3 36,715,966 96.0 8.525 86 1.37 63.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 4 $38,248,484 100.0 8.501 87 1.37 64.2
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
MAXIMUM LIFETIME MORTGAGE RATES - Loan Group 2
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 2 Average Remaining Weighted Cut-off
Maximum Lifetime Mortgage Cut-off Date Balance Mortgage Term to Average Date
Mortgage Rate (%) Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
10.375 1 $1,532,518 4.0 7.938 113 1.33 74.8
11.750 2 29,356,242 76.8 8.531 91 1.38 61.2
13.750 1 7,359,724 19.2 8.500 65 1.34 74.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 4 $38,248,484 100.0 8.501 87 1.37 64.2
====================================================================================================================================
</TABLE>
Range of Max. Lifetime Mortgage Rates: 10.375% to 13.750%
Wted. Avg. Max. Lifetime Mortgage Rate: 12.080%
<TABLE>
<CAPTION>
MINIMUM LIFETIME MORTGAGE RATES - Loan Group 2
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 2 Average Remaining Weighted Cut-off
Minimum Lifetime Mortgage Cut-off Date Balance Mortgage Term to Average Date
Mortgage Rate (%) Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5.750 1 $1,532,518 4.0 7.938 113 1.33 74.8
6.000 2 29,356,242 76.8 8.531 91 1.38 61.2
8.500 1 7,359,724 19.2 8.500 65 1.34 74.0
- -----------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 4 $38,248,484 100.0 8.501 87 1.37 64.2
===================================================================================================================================
</TABLE>
Range of Min. Lifetime Mortgage Rates: 5.750% to 8.500%
Wted. Avg. Min. Lifetime Mortgage Rate: 6.471%
I - 4
<PAGE>
<TABLE>
<CAPTION>
PROPERTY TYPES - Mortgage Pool
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Pool Average Remaining Weighted Cut-off
Mortgage Cut-off Date Balance Mortgage Term to Average Date
Property Type Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Multifamily 35 $138,132,083 21.6 8.603 105 1.34 70.1
Retail 23 116,913,683 18.2 8.667 130 1.32 70.8
Self-Storage 36 81,350,900 12.7 9.402 118 1.45 69.4
Industrial 11 65,837,933 10.3 8.862 112 1.34 66.9
Nursing Home 16 60,388,912 9.4 9.339 129 1.90 67.8
Various 5 34,950,187 5.5 9.088 109 1.35 66.8
Mobile Home Park 10 34,467,540 5.4 8.809 86 1.25 73.2
Office 8 31,372,021 4.9 9.047 115 1.48 63.7
Congregate Care 3 30,400,739 4.7 8.819 225 1.35 77.8
Other 7 25,020,880 3.9 9.151 94 1.32 68.4
Hospitality 6 21,823,043 3.4 9.685 154 1.55 57.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 160 $640,657,923 100.0 8.940 121 1.41 69.1
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
PROPERTY TYPES - Loan Group 1
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 1 Average Remaining Weighted Cut-off
Mortgage Cut-off Date Balance Mortgage Term to Average Date
Property Type Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Retail 23 $116,913,683 19.4 8.667 130 1.32 70.8
Multifamily 31 99,883,599 16.6 8.642 112 1.33 72.3
Self-Storage 36 81,350,900 13.5 9.402 118 1.45 69.4
Industrial 11 65,837,933 10.9 8.862 112 1.34 66.9
Nursing Home 16 60,388,912 10.0 9.339 129 1.90 67.8
Various 5 34,950,187 5.8 9.088 109 1.35 66.8
Mobile Home Park 10 34,467,540 5.7 8.809 86 1.25 73.2
Office 8 31,372,021 5.2 9.047 115 1.48 63.7
Congregate Care 3 30,400,739 5.0 8.819 225 1.35 77.8
Other 7 25,020,880 4.2 9.151 94 1.32 68.4
Hospitality 6 21,823,043 3.6 9.685 154 1.55 57.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 156 $602,409,439 100.0 8.968 123 1.42 69.5
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
PROPERTY TYPES - Loan Group 2
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 2 Average Remaining Weighted Cut-off
Mortgage Cut-off Date Balance Mortgage Term to Average Date
Property Type Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Multifamily 4 $38,248,484 100.0 8.501 87 1.37 64.2
====================================================================================================================================
</TABLE>
I - 5
<PAGE>
<TABLE>
<CAPTION>
STATES - Mortgage Pool
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Pool Average Remaining Weighted Cut-off
Mortgage Cut-off Date Balance Mortgage Term to Average Date
State Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
California 37 $130,760,253 20.4 8.987 124 1.53 67.5
New York 7 60,445,369 9.4 9.104 170 1.36 74.6
Texas 17 60,357,326 9.4 9.044 109 1.38 67.7
Arizona 11 53,031,638 8.3 8.820 101 1.42 65.9
Massachusetts 10 52,610,576 8.2 8.759 110 1.30 72.5
Michigan 5 32,766,973 5.1 8.667 108 1.46 68.5
Colorado 7 27,069,546 4.2 9.247 99 1.44 68.1
Georgia 7 25,908,744 4.0 8.720 119 1.26 70.5
New Jersey 4 24,631,019 3.8 9.168 116 1.37 70.1
Illinois 3 18,542,529 2.9 8.765 131 1.20 71.4
Virginia 6 16,873,735 2.6 9.274 149 1.45 66.6
Pennsylvania 6 14,673,750 2.3 8.673 112 1.37 73.4
Utah 6 13,426,191 2.1 8.707 100 1.55 66.5
Missouri 3 12,986,557 2.0 9.034 166 1.50 73.2
Minnesota 3 12,462,190 1.9 8.910 97 1.37 68.2
Maryland 3 11,850,703 1.8 9.535 115 1.36 64.5
Washington 2 9,706,860 1.5 8.335 84 1.13 69.6
Tennessee 1 9,657,415 1.5 8.910 118 1.46 62.9
South Carolina 3 9,288,959 1.4 8.287 117 1.33 73.1
Nevada 2 8,899,273 1.4 8.993 128 1.37 64.2
Indiana 1 8,693,111 1.4 8.890 114 1.47 71.3
South Dakota 4 6,183,512 1.0 8.875 79 1.17 80.3
Florida 1 5,286,828 0.8 8.610 108 1.22 72.2
Kentucky 1 3,186,563 0.5 8.660 108 1.50 69.3
New Mexico 1 2,518,604 0.4 9.375 117 1.42 76.3
Connecticut 1 2,296,923 0.4 9.625 119 2.41 63.8
North Carolina 2 1,991,003 0.3 9.050 177 2.51 40.5
Rhode Island 1 1,498,719 0.2 9.260 119 1.32 68.1
Mississippi 1 1,394,241 0.2 9.750 237 1.92 43.6
Alabama 3 1,292,795 0.2 10.000 239 1.38 64.5
Louisiana 1 366,017 0.1 10.000 239 1.38 64.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 160 $640,657,923 100.0 8.940 121 1.41 69.1
====================================================================================================================================
</TABLE>
I - 6
<PAGE>
<TABLE>
<CAPTION>
STATES - Loan Group 1
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 1 Average Remaining Weighted Cut-off
Mortgage Cut-off Date Balance Mortgage Term to Average Date
State Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
California 37 $130,760,253 21.7 8.987 124 1.53 67.5
New York 7 60,445,369 10.0 9.104 170 1.36 74.6
Massachusetts 10 52,610,576 8.7 8.759 110 1.30 72.5
Texas 16 45,231,922 7.5 9.216 114 1.41 70.6
Arizona 10 38,800,799 6.4 8.926 104 1.42 66.7
Colorado 7 27,069,546 4.5 9.247 99 1.44 68.1
Georgia 7 25,908,744 4.3 8.720 119 1.26 70.5
Michigan 4 25,407,249 4.2 8.715 120 1.49 66.9
New Jersey 4 24,631,019 4.1 9.168 116 1.37 70.1
Illinois 3 18,542,529 3.1 8.765 131 1.20 71.4
Virginia 6 16,873,735 2.8 9.274 149 1.45 66.6
Pennsylvania 6 14,673,750 2.4 8.673 112 1.37 73.4
Utah 6 13,426,191 2.2 8.707 100 1.55 66.5
Missouri 3 12,986,557 2.2 9.034 166 1.50 73.2
Minnesota 3 12,462,190 2.1 8.910 97 1.37 68.2
Maryland 3 11,850,703 2.0 9.535 115 1.36 64.5
Tennessee 1 9,657,415 1.6 8.910 118 1.46 62.9
South Carolina 3 9,288,959 1.5 8.287 117 1.33 73.1
Nevada 2 8,899,273 1.5 8.993 128 1.37 64.2
Indiana 1 8,693,111 1.4 8.890 114 1.47 71.3
Washington 1 8,174,341 1.4 8.410 79 1.09 68.7
South Dakota 4 6,183,512 1.0 8.875 79 1.17 80.3
Florida 1 5,286,828 0.9 8.610 108 1.22 72.2
Kentucky 1 3,186,563 0.5 8.660 108 1.50 69.3
New Mexico 1 2,518,604 0.4 9.375 117 1.42 76.3
Connecticut 1 2,296,923 0.4 9.625 119 2.41 63.8
North Carolina 2 1,991,003 0.3 9.050 177 2.51 40.5
Rhode Island 1 1,498,719 0.2 9.260 119 1.32 68.1
Mississippi 1 1,394,241 0.2 9.750 237 1.92 43.6
Alabama 3 1,292,795 0.2 10.000 239 1.38 64.5
Louisiana 1 366,017 0.1 10.000 239 1.38 64.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 156 $602,409,439 100.0 8.968 123 1.42 69.5
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
STATES - Loan Group 2
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 2 Average Remaining Weighted Cut-off
Mortgage Cut-off Date Balance Mortgage Term to Average Date
State Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Texas 1 $15,125,403 39.5 8.531 91 1.32 59.1
Arizona 1 14,230,839 37.2 8.531 91 1.44 63.5
Michigan 1 7,359,724 19.2 8.500 65 1.34 74.0
Washington 1 1,532,518 4.0 7.938 113 1.33 74.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 4 $38,248,484 100.0 8.501 87 1.37 64.2
====================================================================================================================================
</TABLE>
I - 7
<PAGE>
<TABLE>
<CAPTION>
REMAINING TERMS TO STATED MATURITY - Mortgage Pool
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Pool Average Remaining Weighted Cut-off
Remaining Term Mortgage Cut-off Date Balance Mortgage Term to Average Date
to Stated Maturity (months) Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
49 to 60 1 $8,225,570 1.3 8.680 55 1.17 74.1
61 to 84 30 127,379,143 19.9 9.014 78 1.36 70.2
85 to 120 96 400,816,185 62.6 8.912 113 1.43 68.3
121 to 180 12 49,357,219 7.7 8.958 175 1.47 69.3
181 to 240 21 54,879,806 8.6 8.994 235 1.43 71.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 160 $640,657,923 100.0 8.940 121 1.41 69.1
====================================================================================================================================
</TABLE>
Range of Remaining Terms: 55 months to 239 months
<TABLE>
<CAPTION>
REMAINING TERMS TO STATED MATURITY - Loan Group 1
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 1 Average Remaining Weighted Cut-off
Remaining Term Mortgage Cut-off Date Balance Mortgage Term to Average Date
to Stated Maturity (months) Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
49 to 60 1 $8,225,570 1.4 8.680 55 1.17 74.1
61 to 84 29 120,019,419 19.9 9.045 79 1.36 70.0
85 to 120 93 369,927,425 61.4 8.947 115 1.43 68.9
121 to 180 12 49,357,219 8.2 8.958 175 1.47 69.3
181 to 240 21 54,879,806 9.1 8.994 235 1.43 71.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 156 $602,409,439 100.0 8.968 123 1.42 69.5
====================================================================================================================================
</TABLE>
Range of Remaining Terms: 55 months to 239 months
<TABLE>
<CAPTION>
REMAINING TERMS TO STATED MATURITY - Loan Group 2
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 2 Average Remaining Weighted Cut-off
Remaining Term Mortgage Cut-off Date Balance Mortgage Term to Average Date
to Stated Maturity (months) Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
61 to 84 1 $7,359,724 19.2 8.500 65 1.34 74.0
85 to 120 3 30,888,760 80.8 8.502 92 1.38 61.9
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 4 $38,248,484 100.0 8.501 87 1.37 64.2
====================================================================================================================================
</TABLE>
Range of Remaining Terms: 65 months to 113 months
I - 8
<PAGE>
<TABLE>
<CAPTION>
DEBT SERVICE COVERAGE RATIOS - Mortgage Pool
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Pool Average Remaining Weighted Cut-off
Debt Service Mortgage Cut-off Date Balance Mortgage Term to Average Date
Coverage Ratio Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1.000x to 1.150x 14 $58,866,188 9.2 8.647 141 1.13 70.7
1.151x to 1.250x 23 108,867,503 17.0 8.692 108 1.21 72.1
1.251x to 1.350x 35 138,879,322 21.7 8.866 111 1.31 71.2
1.351x to 1.500x 46 205,118,367 32.0 9.047 126 1.42 69.3
1.501x to 1.750x 19 71,917,506 11.2 9.129 102 1.61 66.3
1.751x to 2.000x 8 21,457,543 3.3 9.401 166 1.87 61.4
2.001x and above 15 35,551,496 5.5 9.197 144 2.23 59.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 160 $640,657,923 100.0 8.940 121 1.41 69.1
====================================================================================================================================
</TABLE>
Range of DSCRs: 1.07x to 3.08x
<TABLE>
<CAPTION>
DEBT SERVICE COVERAGE RATIOS - Loan Group 1
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 1 Average Remaining Weighted Cut-off
Debt Service Mortgage Cut-off Date Balance Mortgage Term to Average Date
Coverage Ratio Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1.000x to 1.150x 14 $58,866,188 9.8 8.647 141 1.13 70.7
1.151x to 1.250x 23 108,867,503 18.1 8.692 108 1.21 72.1
1.251x to 1.350x 32 114,861,677 19.1 8.946 116 1.30 72.5
1.351x to 1.500x 45 190,887,528 31.7 9.085 129 1.42 69.7
1.501x to 1.750x 19 71,917,506 11.9 9.129 102 1.61 66.3
1.751x to 2.000x 8 21,457,543 3.6 9.401 166 1.87 61.4
2.001x and above 15 35,551,496 5.9 9.197 144 2.23 59.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 156 $602,409,439 100.0 8.968 123 1.42 69.5
====================================================================================================================================
</TABLE>
Range of DSCRs: 1.07x to 3.08x
<TABLE>
<CAPTION>
DEBT SERVICE COVERAGE RATIOS - Loan Group 2
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 2 Average Remaining Weighted Cut-off
Debt Service Mortgage Cut-off Date Balance Mortgage Term to Average Date
Coverage Ratio Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1.251x to 1.350x 3 $24,017,645 62.8 8.484 84 1.33 64.6
1.351x to 1.500x 1 14,230,839 37.2 8.531 91 1.44 63.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 4 $38,248,484 100.0 8.501 87 1.37 64.2
====================================================================================================================================
Range of DSCRs: 1.32x to 1.44x
</TABLE>
I - 9
<PAGE>
<TABLE>
<CAPTION>
LOAN-TO-VALUE RATIOS - Mortgage Pool
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Pool Average Remaining Weighted Cut-off
Mortgage Cut-off Date Balance Mortgage Term to Average Date
Loan-To-Value Ratio (%) Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
30.01 to 50.00 3 $3,385,244 0.5 9.338 202 2.26 41.8
50.01 to 60.00 24 73,669,904 11.5 9.207 112 1.71 55.8
60.01 to 70.00 58 219,577,452 34.3 9.011 115 1.40 65.5
70.01 to 80.00 70 330,668,048 51.6 8.830 127 1.35 74.4
80.01 and above 5 13,357,275 2.1 8.910 80 1.23 80.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 160 $640,657,923 100.0 8.940 121 1.41 69.1
====================================================================================================================================
</TABLE>
Range of Cut-off Date LTVs: 34.6% to 80.6%
<TABLE>
<CAPTION>
LOAN-TO-VALUE RATIOS - Loan Group 1
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 1 Average Remaining Weighted Cut-off
Mortgage Cut-off Date Balance Mortgage Term to Average Date
Loan-To-Value Ratio (%) Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
30.01 to 50.00 3 $3,385,244 0.6 9.338 202 2.26 41.8
50.01 to 60.00 23 58,544,501 9.7 9.382 118 1.81 54.9
60.01 to 70.00 57 205,346,613 34.1 9.044 117 1.40 65.6
70.01 to 80.00 68 321,775,806 53.4 8.842 128 1.35 74.4
80.01 and above 5 13,357,275 2.2 8.910 80 1.23 80.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 156 $602,409,439 100.0 8.968 123 1.42 69.5
====================================================================================================================================
</TABLE>
Range of Cut-off Date LTVs: 34.6% to 80.6%
<TABLE>
<CAPTION>
LOAN-TO-VALUE RATIOS - Loan Group 2
====================================================================================================================================
Percentage Weighted Weighted
Number of Initial Weighted Average Average
of Aggregate Group 2 Average Remaining Weighted Cut-off
Mortgage Cut-off Date Balance Mortgage Term to Average Date
Loan-To-Value Ratio (%) Loans Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
50.01 to 60.00 1 $15,125,403 39.5 8.531 91 1.32 59.1
60.01 to 70.00 1 14,230,839 37.2 8.531 91 1.44 63.5
70.01 to 80.00 2 8,892,242 23.2 8.403 73 1.34 74.1
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average 4 $38,248,484 100.0 8.501 87 1.37 64.2
====================================================================================================================================
</TABLE>
Range of Cut-off Date LTVs: 59.1% to 74.8%
I - 10
<PAGE>
The following three tables indicate for each specified prepayment restriction
the portion of the Initial Pool Balance, Initial Loan Group 1 Balance or Initial
Loan Group 2 Balance to which such restriction is applicable as of the first day
of each of the specified months based on the Maturity Assumptions (as set forth
in the Prospectus Supplement of which this Appendix forms a part) and the
further assumption that no prepayments are made on any Mortgage Loan prior to
its stated maturity date. It is highly likely that the actual prepayment
experience and principal balances of the Mortgage Loans will not be in
accordance with such assumptions. Variations in the actual prepayment experience
and principal balances of the Mortgage Loans may increase or decrease the
percentage of the aggregate Mortgage Pool principal balance or Loan Group
principal balance that is subject to each indicated prepayment restriction at
any date.
<TABLE>
<CAPTION>
PREPAYMENT RESTRICTIONS - Mortgage Pool
====================================================================================================================================
Prepayment
Restrictions Current 12 Mo. 24 Mo. 36 Mo. 48 Mo. 60 Mo. 72 Mo. 84 Mo. 96 Mo. 108 Mo. 120 Mo.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Locked Out 31.14% 21.39% 20.46% 10.54% 8.88% 0.43% 0.43% 0.54% 0.58% 0.63% 0.00%
Yield Maintenance 58.95% 68.72% 70.06% 72.05% 72.16% 78.58% 76.16% 78.04% 82.07% 68.89% 44.76%
Penalty Points
5.00% and greater 0.53% 0.00% 0.00% 5.53% 0.00% 1.53% 1.28% 1.59% 1.70% 1.85% 1.10%
4.00% to 4.99% 2.54% 3.04% 2.49% 2.46% 7.97% 0.00% 0.27% 0.00% 0.00% 0.00% 8.53%
3.00% to 3.99% 5.73% 0.38% 0.53% 0.29% 0.00% 8.56% 2.42% 3.29% 3.09% 3.29% 3.07%
2.00% to 2.99% 0.00% 5.75% 0.00% 0.24% 0.29% 1.37% 6.21% 0.00% 0.35% 0.00% 0.00%
1.00% to 1.99% 1.12% 0.72% 6.47% 3.10% 3.03% 1.79% 3.18% 9.83% 9.31% 9.34% 40.88%
Less than 1.00%/Open 0.00% 0.00% 0.00% 5.78% 7.67% 7.75% 10.06% 6.71% 2.91% 16.00% 1.66%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Mortgage Pool Principal
Balance Outstanding
(in millions) $640.66 $633.10 $624.79 $615.71 $605.78 $587.08 $568.43 $445.59 $407.33 $362.12 $76.24
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
% of Initial Pool Balance 100.00% 98.82% 97.52% 96.11% 94.56% 91.64% 88.73% 69.55% 63.58% 56.52% 11.90%
====================================================================================================================================
</TABLE>
Note: 7 of the Mortgage Loans (5.7% of the Initial Balance) allow annual partial
voluntary Principal Payments without restriction.
<TABLE>
<CAPTION>
PREPAYMENT RESTRICTIONS - Loan Group 1
===================================================================================================================================
Prepayment
Restrictions Current 12 Mo. 24 Mo. 36 Mo. 48 Mo. 60 Mo. 72 Mo. 84 Mo. 96 Mo. 108 Mo. 120 Mo.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Locked Out 33.11% 22.75% 21.76% 11.21% 9.45% 0.45% 0.46% 0.58% 0.58% 0.63% 0.00%
Yield Maintenance 62.69% 73.09% 74.54% 76.67% 76.81% 83.73% 80.21% 83.32% 82.35% 69.15% 44.76%
Penalty Points
5.00% and greater 0.30% 0.00% 0.00% 5.89% 0.00% 1.63% 1.34% 1.70% 1.70% 1.86% 1.10%
4.00% to 4.99% 2.70% 2.98% 2.65% 2.62% 8.48% 0.00% 0.28% 0.00% 0.00% 0.00% 8.53%
3.00% to 3.99% 0.00% 0.41% 0.31% 0.31% 0.00% 9.12% 2.55% 3.51% 3.10% 3.30% 3.07%
2.00% to 2.99% 0.00% 0.00% 0.00% 0.00% 0.31% 1.46% 6.54% 0.00% 0.35% 0.00% 0.00%
1.00% to 1.99% 1.19% 0.77% 0.75% 3.30% 2.97% 1.90% 3.35% 10.49% 9.34% 9.37% 40.88%
Less than 1.00%/Open 0.00% 0.00% 0.00% 0.00% 1.98% 1.70% 5.28% 0.40% 2.58% 15.68% 1.66%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Aggregate Loan Group 1
Principal Balance
Outstanding (in millions) $602.41 $595.20 $587.28 $578.62 $569.15 $550.94 $539.71 $417.36 $405.94 $360.76 $76.24
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
% of Initial Group 1 Balance 100.00% 98.80% 97.49% 96.05% 94.48% 91.46% 89.59% 69.28% 67.39% 59.89% 12.66%
====================================================================================================================================
</TABLE>
Note: 7 of the Mortgage Loans (6.1% of the Initial Group 1 Balance) allow annual
partial voluntary Principal Payments without restriction.
<PAGE>
<TABLE>
<CAPTION>
PREPAYMENT RESTRICTIONS - Loan Group 2
====================================================================================================================================
Prepayment
Restrictions Current 12 Mo. 24 Mo. 36 Mo. 48 Mo. 60 Mo. 72 Mo. 84 Mo. 96 Mo. 108 Mo. 120 Mo.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Locked Out 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Yield Maintenance 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Penalty Points
5.00% and greater 4.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
4.00% to 4.99% 0.00% 4.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
3.00% to 3.99% 95.99% 0.00% 4.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2.00% to 2.99% 0.00% 95.99% 0.00% 4.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1.00% to 1.99% 0.00% 0.00% 95.99% 0.00% 4.02% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Less than 1.00%/Open 0.00% 0.00% 0.00% 95.99% 95.98% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTALS 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00%
Aggregate Loan Group 2
Principal Balance
Outstanding (in millions) $38.25 $37.89 $37.51 $37.09 $36.63 $36.14 $28.72 $28.24 $1.39 $1.36 $0.00
------ ------ ------ ------ ------ ------ ------ ------ ----- ----- -----
% of Initial Group 2 Balance 100.00% 99.07% 98.07% 96.97% 95.77% 94.48% 75.08% 73.82% 3.62% 3.56% 0.00%
====================================================================================================================================
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Loan Information
<TABLE>
<CAPTION>
Cut-off Cut-off Orig.
Seller Loan Foot Date Loan per Note Maturity Loan
(1) ID Property Name Notes Balance Unit(2) Rate Date Date Term
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loan Group 1
CT 1 Crestwood - Hampton 4(A) $2,518,939 $2,581 9.125% 12/30/96 1/1/07 120
CT 2 Crestwood - Redding 4(A) 2,116,747 2,581 9.125% 12/30/96 1/1/07 120
CT 3 Crestwood - Fremont 4(A) 2,030,920 2,581 9.125% 12/30/96 1/1/07 120
CT 4 Crestwood - Sacramento 4(A) 2,437,104 2,581 9.125% 12/30/96 1/1/07 120
CT 5 Crestwood - Stockton 4(A) 3,523,920 2,581 9.125% 12/30/96 1/1/07 120
CT 6 Crestwood - Modesto 4(A) 3,915,134 2,581 9.125% 12/30/96 1/1/07 120
CT 7 Crestwood Executive Office 4(A) 554,903 51 9.250% 12/30/96 1/1/07 120
CT 8 Kern Care Center 4(A) 1,897,251 2,581 9.250% 12/30/96 1/1/07 120
GMACCM 9 St. Paul Gardens 4(B) 6,035,423 67,627 8.350% 12/24/96 1/1/07 120
GMACCM 10 Chauncy Street 4(B) 5,779,744 67,627 8.350% 12/24/96 1/1/07 120
GMACCM 11 Auburn/Harris 4(B) 2,521,834 67,627 8.350% 12/24/96 1/1/07 120
CT 12 The Manors Rollup 13,361,851 55,443 8.670% 11/14/96 12/1/16 240
CT 12A Colonie Manor
CT 12B West Side Manor
CT 12C Woodland Manor
MSMC 13 Livonia Metroplex Roll-Up 12,017,061 27 8.390% 1/30/96 1/31/06 120
MSMC 13A Livonia Trade Center I and II
MSMC 13B Livonia Commerce Center
MSMC 13C Livonia Commerce Center West
MSMC 13D Jeffries Commerce Center
MSMC 13E Wayne Road Industrial
MSMC 13F Eight Mile Industrial
GMACCM 14 Sunset Industrial Park 11,966,972 39 8.875% 11/27/96 12/1/06 120
MSMC 15 Commonwealth Properties Rollup 11,639,503 38,288 8.900% 5/30/96 5/31/06 120
MSMC 15A 66-70 Chiswick Street
MSMC 15B 1626-1638 Commonwealth Avenue
MSMC 15C 1800-1820 Commonwealth Avenue
MSMC 15D 2045 Commonwealth Avenue
CT 16 Glenoaks Convalescent Hospital 4(D) 2,329,306 22,266 9.250% 1/31/97 2/1/12 180
CT 17 Golden State - Riverdale 4(D) 1,565,354 22,266 9.250% 1/31/97 2/1/12 180
CT 18 Sylmar Health & Rehab. Center 4(D) 5,512,441 22,266 9.250% 1/31/97 2/1/12 180
CT 19 Westlake Convalescent Hospital 4(D) 2,059,676 22,266 9.250% 1/31/97 2/1/12 180
GMACCM 20 Centerpoint Plaza 11,456,171 73 9.125% 7/24/96 8/1/03 84
GMACCM 21 Sandy Springs Crossing Shopping Center 11,434,255 86 8.920% 10/15/96 11/1/03 84
CT 22 The Manors Rollup 10,599,737 57,922 8.670% 11/14/96 12/1/16 240
CT 22A Bassett Manor
CT 22B Bassett Park Manor
</TABLE>
<TABLE>
<CAPTION>
Orig. Under- Related
Loan Foot Rem. Amort. Balloon Balloon writable Borrower
Seller (1) ID Property Name Notes Term Term Amount LTV Cash Flow DSCR Code (3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loan Group 1
CT 1 Crestwood - Hampton 4(A) 118 300 $2,149,101 44% $444,587 2.31
CT 2 Crestwood - Redding 4(A) 118 300 1,805,959 44% 599,497 2.31
CT 3 Crestwood - Fremont 4(A) 118 300 1,732,734 44% 560,342 2.31
CT 4 Crestwood - Sacramento 4(A) 118 300 2,079,280 44% 934,082 2.31
CT 5 Crestwood - Stockton 4(A) 118 300 3,006,527 44% 1,532,185 2.31
CT 6 Crestwood - Modesto 4(A) 118 300 3,340,302 44% 91,061 2.31
CT 7 Crestwood Executive Office 4(A) 118 300 474,945 44% 73,275 2.31
CT 8 Kern Care Center 4(A) 118 300 1,623,864 44% 240,047 2.31
GMACCM 9 St. Paul Gardens 4(B) 118 360 5,347,278 67% 659,758 1.20 I
GMACCM 10 Chauncy Street 4(B) 118 360 5,120,751 67% 645,735 1.20 I
GMACCM 11 Auburn/Harris 4(B) 118 360 2,234,301 67% 260,120 1.20 I
CT 12 The Manors Rollup 237 300 5,383,528 32% 1,784,336 1.36 II
CT 12A Colonie Manor 850,940 II
CT 12B West Side Manor 539,352 II
CT 12C Woodland Manor 394,044 II
MSMC 13 Livonia Metroplex Roll-Up 107 300 9,960,613 55% 1,604,793 1.38
MSMC 13A Livonia Trade Center I and II
MSMC 13B Livonia Commerce Center
MSMC 13C Livonia Commerce Center West
MSMC 13D Jeffries Commerce Center
MSMC 13E Wayne Road Industrial
MSMC 13F Eight Mile Industrial
GMACCM 14 Sunset Industrial Park 117 300 9,926,347 55% 1,470,804 1.23
MSMC 15 Commonwealth Properties Rollup 111 360 10,460,117 70% 1,557,979 1.39
MSMC 15A 66-70 Chiswick Street
MSMC 15B 1626-1638 Commonwealth Avenue
MSMC 15C 1800-1820 Commonwealth Avenue
MSMC 15D 2045 Commonwealth Avenue
CT 16 Glenoaks Convalescent Hospital 4(D) 179 300 1,656,501 52% 490,279 2.01
CT 17 Golden State - Riverdale 4(D) 179 300 1,113,210 52% 287,460 2.01
CT 18 Sylmar Health & Rehab. Center 4(D) 179 300 3,920,209 52% 1,143,666 2.01
CT 19 Westlake Convalescent Hospital 4(D) 179 300 1,464,751 52% 445,181 2.01
GMACCM 20 Centerpoint Plaza 77 360 10,795,568 64% 1,549,311 1.38
GMACCM 21 Sandy Springs Crossing Shopping Center 80 360 10,732,974 67% 1,339,913 1.22
CT 22 The Manors Rollup 237 300 4,270,667 32% 1,417,059 1.36 II
CT 22A Bassett Manor 770,149 II
CT 22B Bassett Park Manor 646,910 II
</TABLE>
II - 1
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Loan Information
<TABLE>
<CAPTION>
Cut-off Cut-off Orig.
Seller Loan Foot Date Loan per Note Maturity Loan
(1) ID Property Name Notes Balance Unit(2) Rate Date Date Term
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CT 23 Vineland Nursing Center 9,979,950 47,524 9.125% 12/31/96 1/1/07 120
GMACCM 24 Hampton Court 4(E) 4,949,974 70,891 8.500% 12/24/96 1/1/07 120
GMACCM 25 Langdon Terrace 4(E) 2,636,690 70,891 8.350% 12/24/96 1/1/07 120
GMACCM 26 Wendell Terrace 4(E) 2,267,154 70,891 8.350% 12/24/96 1/1/07 120
MSMC 27 Tennessee Office Rollup 9,657,415.11 36 8.910% 12/31/96 1/1/07 120
MSMC 27A Estate Office Park
MSMC 27B Perimeter II Office Building
MSMC 27C The Terraces
MSMC 27D Crossroad Commons
MSMC 27E Pine Ridge
GMACCM 28 Hilton Village Shopping Center 8,989,057 128 8.500% 12/6/96 1/1/07 120
MSMC 29 Safe Keep Self Storage - Redwood City 8,937,253.45 53 8.900% 3/14/96 3/31/03 85
MSMC 30 American Business Center 8,693,110.50 11 8.890% 8/13/96 8/31/06 121
GMACCM 31 Liberty Central Warehouse 8,448,971 14 9.375% 7/23/96 8/1/03 84
CT 32 Gem Suburban MHC 8,225,570 21,646 8.680% 9/16/96 10/1/01 60
GMACCM 33 Tower 801 Apt 8,174,341 47,803 8.410% 9/5/96 10/1/03 84
MSMC 34 North Broadway Plaza 5, 13 7,984,442 82 8.500% 12/26/96 1/1/12 180
GMACCM 35 Southpointe Plaza 4(C) 2,806,360 79 8.190% 12/6/96 1/1/07 120
GMACCM 36 Plantation Plaza 4(C) 2,396,891 79 8.190% 12/6/96 1/1/07 120
GMACCM 37 Mountain View Plaza 4(C) 2,446,826 79 8.190% 12/6/96 1/1/07 120
MSMC 38 Quincy Commons Shopping Center 7,532,419 45 8.500% 10/31/96 11/1/11 180
MSMC 39 Watt Properties Rollup 7,485,486 67 8.530% 12/18/96 1/1/07 120
MSMC 39A Country Hills Shopping Center
MSMC 39B Canyon Country Shopping Center
GMACCM 40 Trident Pool I Roll Up 7,450,162 164 8.510% 11/25/96 12/1/06 120
GMACCM 40A 7565 Melrose Avenue
GMACCM 40B Star Of India Building
GMACCM 40C Napoleon Bakery Building
GMACCM 40D 1426 Montana Retail Property
GMACCM 40E 1460 Westwood Office Building
GMACCM 41 Fenton Place Apartments 7,173,762 25,805 8.940% 10/3/96 11/1/03 84
MSMC 42 Rainbow Plaza 7,166,374 80 8.750% 11/19/96 12/1/06 120
GMACCM 43 Rock Grove Multiproperty Rollup 7,065,813 103 9.750% 8/9/96 9/1/06 120
GMACCM 43A Comfort Inn - Shady Grove
GMACCM 43B Shady Grove Professional Building
MSMC 44 1111 West Mockingbird Lane 7,050,000 27 9.230% 2/25/97 3/1/04 84
GMACCM 45 Trident Pool II - Rollup Of Six Properties 7,049,133 142 8.450% 11/25/96 12/1/06 120
GMACCM 45A Fourth Avenue Retail Property
GMACCM 45B Melrose Ave Retail Building
</TABLE>
<TABLE>
<CAPTION>
Orig. Under- Related
Loan Foot Rem. Amort. Balloon Balloon writable Borrower
Seller (1) ID Property Name Notes Term Term Amount LTV Cash Flow DSCR Code (3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CT 23 Vineland Nursing Center 118 300 8,514,660 68% 1,364,559 1.34
GMACCM 24 Hampton Court 4(E) 118 360 4,398,097 66% 517,706 1.15 I
GMACCM 25 Langdon Terrace 4(E) 118 360 2,336,060 66% 275,983 1.15 I
GMACCM 26 Wendell Terrace 4(E) 118 360 2,008,658 66% 243,590 1.15 I
MSMC 27 Tennessee Office Rollup 118 300 8,009,553 52% 1,411,501 1.46
MSMC 27A Estate Office Park 253,968
MSMC 27B Perimeter II Office Building 279,403
MSMC 27C The Terraces 431,762
MSMC 27D Crossroad Commons 116,739
MSMC 27E Pine Ridge 329,629
GMACCM 28 Hilton Village Shopping Center 118 360 7,986,858 55% 1,427,565 1.72 III
MSMC 29 Safe Keep Self Storage - Redwood City 73 360 8,417,827 68% 1,335,418 1.55 IV
MSMC 30 American Business Center 114 300 7,221,335 59% 1,280,705 1.47
GMACCM 31 Liberty Central Warehouse 77 300 7,672,640 57% 1,388,808 1.57 V
CT 32 Gem Suburban MHC 55 360 7,897,178 71% 908,721 1.17 VI
GMACCM 33 Tower 801 Apt 79 360 7,632,884 64% 817,056 1.09
MSMC 34 North Broadway Plaza 5, 13 178 300 5,223,034 48% 887,520 1.15
GMACCM 35 Southpointe Plaza 4(C) 118 360 2,478,683 65% 327,430 1.32
GMACCM 36 Plantation Plaza 4(C) 118 360 2,117,024 65% 284,997 1.32
GMACCM 37 Mountain View Plaza 4(C) 118 360 2,161,130 65% 297,143 1.32
MSMC 38 Quincy Commons Shopping Center 176 204 1,611,203 15% 971,045 1.15
MSMC 39 Watt Properties Rollup 118 300 6,154,032 59% 1,069,371 1.47
MSMC 39A Country Hills Shopping Center 453,087
MSMC 39B Canyon Country Shopping Center 615,767
GMACCM 40 Trident Pool I Roll Up 117 300 6,128,130 58% 905,846 1.25 VIII
GMACCM 40A 7565 Melrose Avenue 115,777 VIII
GMACCM 40B Star Of India Building 75,358 VIII
GMACCM 40C Napoleon Bakery Building 66,004 VIII
GMACCM 40D 1426 Montana Retail Property 490,780 VIII
GMACCM 40E 1460 Westwood Office Building 157,927 VIII
GMACCM 41 Fenton Place Apartments 80 300 6,458,513 73% 929,678 1.29
MSMC 42 Rainbow Plaza 117 240 5,103,318 47% 1,059,677 1.39
GMACCM 43 Rock Grove Multiproperty Rollup 114 300 5,987,155 57% 1,046,746 1.38
GMACCM 43A Comfort Inn - Shady Grove 689,336
GMACCM 43B Shady Grove Professional Building 357,410
MSMC 44 1111 West Mockingbird Lane 84 360 6,625,871 64% 958,610 1.38
GMACCM 45 Trident Pool II - Rollup Of Six Properties 117 300 5,790,100 55% 809,563 1.19 VIII
GMACCM 45A Fourth Avenue Retail Property 72,043 VIII
GMACCM 45B Melrose Ave Retail Building 163,987 VIII
</TABLE>
II - 2
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Loan Information
<TABLE>
<CAPTION>
Cut-off Cut-off Orig.
Seller Loan Foot Date Loan per Note Maturity Loan
(1) ID Property Name Notes Balance Unit(2) Rate Date Date Term
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GMACCM 45C 12260 - 12266 Ventura Blvd.
GMACCM 45D The Gap - 2654 Main Street
GMACCM 45E Men's Wearhouse Building
GMACCM 45F Larchmont Market Building -
125 N. Larchmont
GMACCM 46 Trident Pool III - Roll Up 7,017,227 103 8.450% 11/25/96 12/1/06 120
GMACCM 46A 6907 Melrose Ave. Retail Building
GMACCM 46B Pico Boulevard Retail Building
GMACCM 46C Midnite Expresso Building
GMACCM 46D First Republic Thrift Building
GMACCM 46E Pacific Plaza Shopping Center
MSMC 47 Big Key SSF 6,926,230 60 9.350% 3/14/96 2/28/06 120
GMACCM 48 Clinton Adams Corporation 6,887,645 15 9.000% 12/17/96 1/1/07 120
CT 49 Crocker's Lockers 6,800,000 89 9.250% 2/17/97 3/1/07 120
CT 50 Montgomery Nursing Home 6,767,936 67,679 9.875% 8/29/96 9/1/06 120
GMACCM 51 Lyons Plaza Shopping Center 6,745,301 86 9.000% 1/10/97 2/1/07 120
CT 52 Long Island Hebrew Living Ctr. 6,439,151 28,492 9.375% 12/26/96 1/1/12 180
MSMC 53 The Oxford Rollup 6 6,367,853 51 10.440% 7/18/96 7/31/03 84
MSMC 53A The Oxford Hotel and Parking
MSMC 53B The Oxford Office Annex
CT 54 Skyline Village MHC 6,331,767 17,113 8.830% 9/16/96 10/1/03 84
CT 55 Carriage Villa MHC 1,346,159 11,869 8.875% 9/24/96 10/1/03 84
CT 56 Johnson Estates MHC 2,094,026 11,869 8.875% 9/24/96 10/1/03 84
CT 57 Starlite Estates 1,745,021 11,869 8.875% 9/24/96 10/1/03 84
CT 58 Valley View 998,306 11,869 8.875% 11/22/96 12/1/03 84
MSMC 59 Intech of Novi 6,168,396 68 8.970% 5/30/96 5/31/06 120
CT 60 Brentwood Place 5,980,490 13,115 9.625% 10/2/96 11/1/06 120
MSMC 61 Apollo - Utah Retail Rollup 5,589,560 54 8.410% 11/20/96 12/1/03 84
MSMC 61A Highline Plaza
MSMC 61B Parley's Plaza
MSMC 61C Plaza 7000
MSMC 61D Antelope Plaza
MSMC 62 Columbia Plaza Shopping Center 5,553,999 70 8.375% 9/30/96 10/1/16 240
MSMC 63 Holiday Inn - Hasbrouck Heights 5,509,630 22,397 9.470% 3/29/96 4/30/06 121
CT 64 Westwood Hills Health Care Center 5,456,821 41,340 9.500% 10/25/96 11/1/06 120
MSMC 65 Colonial Acres Mobile Home Park 5,286,828 17,861 8.610% 2/28/96 2/28/06 120
MSMC 66 Regency Suites Hotel 13 5,267,899 54,874 9.000% 10/10/96 11/1/06 120
MSMC 67 Peachtree Marketplace 13 5,165,416 36 8.250% 10/31/96 11/1/06 120
GMACCM 68 Promenade Shopping Center 4,982,422 71 8.750% 8/14/96 9/1/06 120
GMACCM 69 Ashley Court 4,956,919 19,515 8.750% 5/30/96 5/30/06 120
</TABLE>
<TABLE>
<CAPTION>
Orig. Under- Related
Loan Foot Rem. Amort. Balloon Balloon writable Borrower
Seller (1) ID Property Name Notes Term Term Amount LTV Cash Flow DSCR Code (3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GMACCM 45C 12260 - 12266 Ventura Blvd. 76,478 VIII
GMACCM 45D The Gap - 2654 Main Street 251,383 VIII
GMACCM 45E Men's Wearhouse Building 83,495 VIII
GMACCM 45F Larchmont Market Building -
125 N. Larchmont 162,172 VIII
GMACCM 46 Trident Pool III - Roll Up 117 300 5,763,892 60% 890,435 1.31 VIII
GMACCM 46A 6907 Melrose Ave. Retail Building 22,203 VIII
GMACCM 46B Pico Boulevard Retail Building 46,191 VIII
GMACCM 46C Midnite Expresso Building 110,547 VIII
GMACCM 46D First Republic Thrift Building 181,922 VIII
GMACCM 46E Pacific Plaza Shopping Center 529,572 VIII
MSMC 47 Big Key SSF 108 300 5,852,446 67% 1,025,390 1.41
GMACCM 48 Clinton Adams Corporation 118 300 5,723,981 57% 813,049 1.17 V
CT 49 Crocker's Lockers 120 300 5,672,726 65% 921,962 1.32
CT 50 Montgomery Nursing Home 114 300 5,749,135 66% 1,145,907 1.56
GMACCM 51 Lyons Plaza Shopping Center 119 330 5,852,020 63% 833,432 1.26
CT 52 Long Island Hebrew Living Ctr. 178 300 4,356,482 50% 860,562 1.29
MSMC 53 The Oxford Rollup 6 77 300 5,858,880 50% 1,183,222 1.64
MSMC 53A The Oxford Hotel and Parking
MSMC 53B The Oxford Office Annex
CT 54 Skyline Village MHC 79 360 5,940,932 67% 755,161 1.25 VI
CT 55 Carriage Villa MHC 79 360 1,263,696 75% 148,323 1.17
CT 56 Johnson Estates MHC 79 360 1,965,750 75% 231,827 1.17
CT 57 Starlite Estates 79 360 1,638,124 75% 188,640 1.17
CT 58 Valley View 81 360 936,071 75% 122,641 1.17
MSMC 59 Intech of Novi 111 360 5,549,920 64% 870,112 1.46
CT 60 Brentwood Place 116 300 5,046,228 60% 943,217 1.48
MSMC 61 Apollo - Utah Retail Rollup 81 360 5,212,701 68% 783,085 1.53
MSMC 61A Highline Plaza 311,918
MSMC 61B Parley's Plaza 150,346
MSMC 61C Plaza 7000 162,626
MSMC 61D Antelope Plaza 158,191
MSMC 62 Columbia Plaza Shopping Center 235 240 0 0% 659,811 1.14
MSMC 63 Holiday Inn - Hasbrouck Heights 110 240 4,030,667 40% 909,262 1.45
CT 64 Westwood Hills Health Care Center 116 300 4,592,379 63% 1,121,953 1.95
MSMC 65 Colonial Acres Mobile Home Park 108 300 4,398,565 60% 638,792 1.22
MSMC 66 Regency Suites Hotel 13 116 240 3,783,679 45% 748,854 1.31
MSMC 67 Peachtree Marketplace 13 116 240 3,631,771 52% 649,872 1.22
GMACCM 68 Promenade Shopping Center 114 360 4,457,949 67% 614,078 1.30 III
GMACCM 69 Ashley Court 111 300 4,124,022 63% 702,850 1.42
</TABLE>
II - 3
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Loan Information
<TABLE>
<CAPTION>
Cut-off Cut-off Orig.
Seller Loan Foot Date Loan per Note Maturity Loan
(1) ID Property Name Notes Balance Unit(2) Rate Date Date Term
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GMACCM 70 Maple Hill Apartments 4,942,756 24,229 8.500% 12/12/96 1/1/07 120
MSMC 71 Bingham Office Park 7 4,707,661 30 9.000% 12/23/94 6/1/11 198
MSMC 72 11211 Vanowen Street 13 4,674,215 23 8.625% 12/18/96 1/1/12 180
MSMC 73 Highland Square Shopping Center 4,512,535 70 8.870% 11/26/96 12/1/06 120
CT 74 Country View 4,480,388 12,012 9.230% 9/4/96 10/1/06 120
MSMC 75 United Artists Theatre 4,425,000 105 9.060% 2/20/97 3/1/07 120
CT 76 Spectrum Self Storage 4,383,493 44 10.125% 9/20/96 10/1/06 120
MSMC 77 Security Public Storage 4,350,677 40 8.970% 3/8/96 2/28/06 120
GMACCM 78 The Dukes' Plaza 4,192,097 30 8.700% 12/31/96 1/1/07 120
GMACCM 79 Sportmart Sporting Goods Store 4,162,053 88 9.050% 10/21/96 11/1/03 84
GMACCM 80 Desert Gardens 4,160,292 13,551 8.850% 4/1/96 5/1/06 120
GMACCM 81 Mercado Del Lago 3,985,524 67 9.375% 7/10/96 8/1/06 120
MSMC 82 Best Western-Lubbock Regency 8 3,874,248 23,480 10.360% 6/7/96 6/30/06 121
MSMC 83 A-American SSF - Sun Valley 3,867,979 38 9.710% 4/30/96 4/30/06 120
CT 84 Mullikan Medical Center 3,800,000 115 8.750% 2/14/97 1/1/06 106
MSMC 85 Shoppes of Silverwood 13 3,444,957 59 8.000% 10/18/96 11/1/16 240
MSMC 86 Safe Keep Self Storage - Del Ray Oaks 3,439,021 54 8.900% 3/20/96 3/31/03 84
CT 87 Days Inn Hotel 3,436,693 28,639 10.250% 11/19/96 12/1/16 240
MSMC 88 A-American SSF- La Verne 3,322,497 31 9.710% 4/30/96 4/30/06 120
GMACCM 89 Creekside Apartments 3,199,367 19,996 8.250% 3/1/96 3/1/06 120
MSMC 90 Imperial Park & Imperial Estates 3,186,563 9,236 8.660% 2/27/96 2/28/06 120
MSMC 91 Town South Shopping Center 3,022,395 28 9.210% 1/29/97 2/1/09 144
GMACCM 92 Applied Materials 2,994,917 62 8.875% 11/11/96 12/1/03 84
GMACCM 93 Madison & Manzanita 2,987,310 65 9.410% 9/30/96 10/1/06 120
GMACCM 94 Sundance Apartments 2,985,849 20,312 8.750% 10/9/96 7/1/06 117
CT 95 U-STOR-IT - Decatur 4(F) 379,000 12 10.000% 1/8/97 2/1/17 240
CT 96 U-STOR-IT Self Storage 4(F) 191,747 12 10.000% 1/8/97 2/1/17 240
CT 97 U-STOR-IT Self-Storage 4(F) 617,186 12 10.000% 1/8/97 2/1/17 240
CT 98 U-STOR-IT - Mobile 2 4(F) 359,526 12 10.000% 1/8/97 2/1/17 240
CT 99 U-STOR-IT Self Storage 4(F) 316,083 12 10.000% 1/8/97 2/1/17 240
CT 100 U-STOR-IT - Shreveport 4(F) 366,017 12 10.000% 1/8/97 2/1/17 240
CT 101 U-STOR-IT - Tempe 4(F) 386,490 12 10.000% 1/8/97 2/1/17 240
CT 102 U-STOR-IT - Tuscon 4(F) 344,546 12 10.000% 1/8/97 2/1/17 240
CT 103 Greenbelt Vault 2,891,556 48 9.250% 12/9/96 1/1/07 120
GMACCM 104 Sherwood Village Apartments 2,891,328 24,297 8.370% 11/27/96 12/1/03 84
GMACCM 105 Lincoln Plaza 2,794,936 47 8.940% 12/24/96 1/1/07 120
CT 106 East Bank Self-Storage 2,784,540 36 9.730% 10/8/96 11/1/16 240
GMACCM 107 Parkway III & IV 2,750,603 43 9.350% 10/30/96 11/1/03 84
CT 108 Sierra Vista Apartments 2,690,358 12,011 9.063% 10/28/96 11/1/14 216
</TABLE>
<TABLE>
<CAPTION>
Orig. Under- Related
Loan Foot Rem. Amort. Balloon Balloon writable Borrower
Seller (1) ID Property Name Notes Term Term Amount LTV Cash Flow DSCR Code (3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GMACCM 70 Maple Hill Apartments 118 336 4,279,321 64% 640,368 1.38 IX
MSMC 71 Bingham Office Park 7 171 168 0 0% 1,050,420 1.77
MSMC 72 11211 Vanowen Street 13 178 180 0 0% 623,700 1.11
MSMC 73 Highland Square Shopping Center 117 300 3,742,628 59% 594,709 1.32
CT 74 Country View 115 300 3,752,348 57% 625,099 1.35
MSMC 75 United Artists Theatre 120 300 3,675,804 58% 640,177 1.43
CT 76 Spectrum Self Storage 115 300 3,739,074 53% 718,846 1.48
MSMC 77 Security Public Storage 108 300 3,647,593 61% 527,300 1.19
GMACCM 78 The Dukes' Plaza 118 300 3,460,133 61% 484,545 1.17
GMACCM 79 Sportmart Sporting Goods Store 80 300 3,752,900 68% 549,573 1.30
GMACCM 80 Desert Gardens 110 300 3,472,221 48% 547,268 1.31
GMACCM 81 Mercado Del Lago 113 360 3,605,810 67% 444,804 1.11
MSMC 82 Best Western-Lubbock Regency 8 112 300 3,322,022 50% 637,833 1.46
MSMC 83 A-American SSF - Sun Valley 110 300 3,285,967 54% 622,953 1.50 X
CT 84 Mullikan Medical Center 106 180 2,243,595 41% 576,459 1.26
MSMC 85 Shoppes of Silverwood 13 236 240 0 0% 420,820 1.21
MSMC 86 Safe Keep Self Storage - Del Ray Oaks 73 300 3,115,286 63% 470,385 1.36 IV
CT 87 Days Inn Hotel 237 240 0 0% 736,627 1.81 XI
MSMC 88 A-American SSF- La Verne 110 300 2,822,566 56% 552,524 1.55 X
GMACCM 89 Creekside Apartments 108 360 2,848,131 66% 370,738 1.28 VII
MSMC 90 Imperial Park & Imperial Estates 108 240 2,297,568 50% 512,228 1.50
MSMC 91 Town South Shopping Center 143 300 2,351,472 58% 402,653 1.30
GMACCM 92 Applied Materials 81 360 2,808,213 72% 322,925 1.13
GMACCM 93 Madison & Manzanita 115 300 2,511,473 54% 344,741 1.10
GMACCM 94 Sundance Apartments 112 300 2,493,992 47% 515,238 1.74
CT 95 U-STOR-IT - Decatur 4(F) 239 240 0 0% 65,359 1.38
CT 96 U-STOR-IT Self Storage 4(F) 239 240 0 0% 31,296 1.38
CT 97 U-STOR-IT Self-Storage 4(F) 239 240 0 0% 93,041 1.38
CT 98 U-STOR-IT - Mobile 2 4(F) 239 240 0 0% 52,386 1.38
CT 99 U-STOR-IT Self Storage 4(F) 239 240 0 0% 51,927 1.38
CT 100 U-STOR-IT - Shreveport 4(F) 239 240 0 0% 62,712 1.38
CT 101 U-STOR-IT - Tempe 4(F) 239 240 0 0% 57,829 1.38
CT 102 U-STOR-IT - Tuscon 4(F) 239 240 0 0% 60,494 1.38
CT 103 Greenbelt Vault 118 240 2,084,969 44% 467,250 1.47
GMACCM 104 Sherwood Village Apartments 81 300 2,578,768 69% 365,430 1.32 XIII
GMACCM 105 Lincoln Plaza 118 300 2,319,602 50% 444,248 1.58
CT 106 East Bank Self-Storage 236 240 0 0% 457,059 1.44
GMACCM 107 Parkway III & IV 80 300 2,490,474 65% 341,108 1.19
CT 108 Sierra Vista Apartments 212 300 1,424,721 41% 411,675 1.51
</TABLE>
II - 4
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Loan Information
<TABLE>
<CAPTION>
Cut-off Cut-off Orig.
Seller Loan Foot Date Loan per Note Maturity Loan
(1) ID Property Name Notes Balance Unit(2) Rate Date Date Term
- -------------------------------------------------------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CT 109 ABC Self-Storage 2,518,604 30 9.375% 11/5/96 12/1/06 120
MSMC 110 American Self Storage 2,514,131 31 9.110% 7/18/96 7/31/06 120
GMACCM 111 Woodcrest Pavilion 2,396,139 53 9.125% 11/8/96 12/1/06 120
CT 112 International Self Storage 2,390,409 15 9.750% 9/17/96 10/1/06 120
MSMC 113 Parkview Apartments 9, 13 2,384,526 35,067 8.500% 10/18/96 11/1/06 120
GMACCM 114 Park Village Apartments 2,373,358 20,113 8.790% 10/14/96 11/1/03 84
CT 115 ABC Mini Storage 2,340,450 30 9.650% 10/1/96 10/1/03 84
CT 116 Days Inn - Wytheville 2,340,333 19,833 9.750% 11/19/96 12/1/16 240
CT 117 Candlewood Valley Care Center 2,296,923 16,407 9.625% 1/10/97 2/1/07 120
CT 118 RitePlace Self Storage 2,162,944 18 9.625% 10/9/96 11/1/06 120
CT 119 United Artists Theaters 2,161,876 106 9.625% 10/10/96 3/1/16 232
CT 120 U-Haul Storage (S.Hulen) 10 2,058,811 25 9.000% 12/1/93 12/1/03 120
GMACCM 121 Pine Park Apartments 2,042,666 21,502 8.375% 11/20/95 12/1/05 120
GMACCM 122 The Registry 1,975,737 41 9.600% 6/3/96 6/1/06 120
GMACCM 123 Washington Woodworking 1,893,335 24 9.170% 10/23/96 11/1/06 120
GMACCM 124 Scott Manor Apartments 1,888,143 20,303 9.140% 7/17/96 8/1/06 120
MSMC 125 Security Self Storage 1,835,325 57 9.920% 4/24/96 4/30/06 120
CT 126 Budget Unit Storage 1,817,397 45 9.360% 1/7/97 2/1/17 240
CT 127 Shenandoah Apartments 1,797,262 9,361 8.875% 1/17/97 2/1/12 180
CT 128 Las Vegas Mini Storage 1,732,899 19 10.000% 10/9/96 11/1/11 180
MSMC 129 Ladson-Oakbrook S.C. 1,726,652 32 8.530% 11/21/96 12/1/06 119
CT 130 Stonewall Jackson Building 1,707,183 32 9.500% 12/18/96 1/1/04 84
GMACCM 131 Four Seasons Estates 1,650,035 17,188 8.350% 11/22/96 12/1/06 120
CT 132 Shaw Mini Storage 1,593,552 22 9.700% 9/18/96 10/1/03 84
CT 133 Congress-Sheraton Mini Storage 1,527,317 24 9.125% 12/5/96 1/1/04 84
MSMC 134 Lincoln Center 1,498,719 82 9.260% 1/17/97 1/31/07 120
CT 135 Dependable Mini Storage 1,495,123 27 9.625% 10/30/96 11/1/06 120
CT 136 U-Haul Storage (Pasadena) 10 1,476,371 37 9.000% 9/1/93 9/1/03 120
GMACCM 137 Valley View Apartments 1,443,638 17,823 9.190% 9/6/96 10/1/06 120
GMACCM 138 University Avenue Retail 1,430,765 165 8.450% 11/25/96 12/1/06 120
CT 139 Comfort Inn 1,394,241 16,798 9.750% 11/21/96 12/1/16 240
GMACCM 140 Oakland Terrace Apartments 1,343,725 17,227 8.840% 9/13/96 10/1/06 120
GMACCM 141 Capri/ Graham House/ Hale Hall Apartments 1,337,612 15,737 8.980% 8/19/96 9/1/16 240
CT 142 Alamo Self Storage 1,297,813 25 9.375% 12/23/96 1/1/04 84
GMACCM 143 Royal Garden Apartments 1,291,671 23,066 8.980% 7/31/96 8/1/06 120
GMACCM 144 Lincoln Court Apartments 1,263,874 21,791 9.125% 8/12/96 9/1/03 84
CT 145 Pantano/22nd St. Self Storage 1,222,940 26 9.375% 12/4/96 1/1/07 120
GMACCM 146 Kutztown Garden Apartments 1,168,288 17,701 8.500% 12/12/96 1/1/07 120
GMACCM 147 Clarke Products 1,097,923 12 8.680% 12/13/96 1/1/07 120
</TABLE>
<TABLE>
<CAPTION>
Orig. Under- Related
Loan Foot Rem. Amort. Balloon Balloon writable Borrower
Seller (1) ID Property Name Notes Term Term Amount LTV Cash Flow DSCR Code (3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CT 109 ABC Self-Storage 117 300 2,112,212 64% 371,637 1.42
MSMC 110 American Self Storage 113 300 2,104,010 61% 406,320 1.58
GMACCM 111 Woodcrest Pavilion 117 360 2,154,237 53% 385,303 1.64 XII
CT 112 International Self Storage 115 300 2,023,827 57% 375,075 1.46
MSMC 113 Parkview Apartments 9, 13 116 240 1,688,717 53% 329,944 1.32
GMACCM 114 Park Village Apartments 80 336 2,193,298 71% 296,752 1.30 XIII
CT 115 ABC Mini Storage 79 300 2,129,347 58% 324,878 1.30 XIV
CT 116 Days Inn - Wytheville 237 240 0 0% 509,714 1.91 XI
CT 117 Candlewood Valley Care Center 119 300 1,982,793 55% 586,602 2.41
CT 118 RitePlace Self Storage 116 300 1,825,053 59% 300,646 1.31
CT 119 United Artists Theaters 228 232 0 0% 313,647 1.26
CT 120 U-Haul Storage (S.Hulen) 10 81 300 1,858,512 62% 346,668 1.67
GMACCM 121 Pine Park Apartments 105 300 1,696,285 53% 338,002 1.70
GMACCM 122 The Registry 111 360 1,795,719 63% 255,072 1.26
GMACCM 123 Washington Woodworking 116 300 1,582,211 49% 218,677 1.13
GMACCM 124 Scott Manor Apartments 113 300 1,581,151 61% 221,968 1.15
MSMC 125 Security Self Storage 110 300 1,565,547 58% 291,968 1.46
CT 126 Budget Unit Storage 239 240 0 0% 247,738 1.23
CT 127 Shenandoah Apartments 179 240 785,716 26% 401,400 2.08
CT 128 Las Vegas Mini Storage 176 180 0 0% 291,002 1.29
MSMC 129 Ladson-Oakbrook S.C. 117 300 1,423,378 56% 281,294 1.68
CT 130 Stonewall Jackson Building 82 300 1,546,251 51% 254,928 1.42
GMACCM 131 Four Seasons Estates 117 300 1,352,120 47% 293,194 1.86
CT 132 Shaw Mini Storage 79 300 1,450,752 62% 238,221 1.40 XIV
CT 133 Congress-Sheraton Mini Storage 82 300 1,376,156 69% 197,087 1.27
MSMC 134 Lincoln Center 119 300 1,251,613 57% 203,020 1.32
CT 135 Dependable Mini Storage 116 300 1,261,557 64% 226,951 1.43 XV
CT 136 U-Haul Storage (Pasadena) 10 78 300 1,339,813 49% 290,048 1.95
GMACCM 137 Valley View Apartments 115 300 1,208,016 58% 228,280 1.54
GMACCM 138 University Avenue Retail 117 300 1,175,218 59% 174,219 1.26 VIII
CT 139 Comfort Inn 237 240 0 0% 306,137 1.92 XI
GMACCM 140 Oakland Terrace Apartments 115 300 1,115,813 65% 143,477 1.07
GMACCM 141 Capri/ Graham House/ Hale Hall Apartments 234 240 0 0% 197,521 1.36
CT 142 Alamo Self Storage 82 300 1,173,463 62% 202,769 1.50 XV
GMACCM 143 Royal Garden Apartments 113 300 1,077,942 52% 193,640 1.48
GMACCM 144 Lincoln Court Apartments 78 360 1,190,328 65% 155,434 1.26 XII
CT 145 Pantano/22nd St. Self Storage 118 300 1,024,736 51% 173,691 1.37
GMACCM 146 Kutztown Garden Apartments 118 336 1,011,477 60% 179,804 1.64 IX
GMACCM 147 Clarke Products 118 300 905,801 60% 141,797 1.31
</TABLE>
II - 5
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Loan Information
<TABLE>
<CAPTION>
Cut-off Cut-off Orig.
Seller Loan Foot Date Loan per Note Maturity Loan
(1) ID Property Name Notes Balance Unit(2) Rate Date Date Term
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GMACCM 148 Springview Garden Apartments 998,188 19,964 8.550% 11/22/96 12/1/06 120
CT 149 Morningstar Mini Storage 995,615 12 9.250% 11/7/96 12/1/16 240
GMACCM 150 Greystone Court Apartments 995,321 27,648 8.800% 9/13/96 10/1/03 84
GMACCM 151 Fort Knox Storage Park 995,388 7 8.850% 11/20/96 12/1/06 120
CT 152 Atherton Storage 949,204 24 9.375% 1/15/97 2/1/07 120
CT 153 Beauford Manor 900,000 12,676 8.875% 2/13/97 3/1/07 120
CT 154 Colonial Mobile Home Park 772,911 6,495 9.000% 11/27/96 12/1/06 120
CT 155 City Center Plaza & Storage 758,154 30 9.625% 11/11/96 12/1/06 120
GMACCM 156 Montana Avenue Retail 627,144 187 8.450% 11/25/96 12/1/06 120
Loan Group 2
CT 157 Holly Hall Apartments 12 15,125,403 26,582 8.531% 9/16/94 10/1/04 120
CT 158 Olive Tree Apartments 12 14,230,839 18,676 8.531% 9/9/94 10/1/04 120
CT 159 Donner Apartments 12 7,359,724 36,077 8.500% 7/20/95 8/1/02 84
GMACCM 160 Northview Terrace Apartments 12 1,532,518 29,473 7.938% 7/8/96 8/1/06 120
</TABLE>
<TABLE>
<CAPTION>
Orig. Under- Related
Loan Foot Rem . Amort. Balloon Balloon writable Borrower
Seller (1) ID Property Name Notes Term Term Amount LTV Cash Flow DSCR Code (3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GMACCM 148 Springview Garden Apartments 117 360 888,271 59% 114,388 1.23
CT 149 Morningstar Mini Storage 237 240 0 0% 338,334 3.08
GMACCM 150 Greystone Court Apartments 79 300 895,145 66% 122,360 1.24
GMACCM 151 Fort Knox Storage Park 117 240 710,843 33% 206,020 1.93
CT 152 Atherton Storage 119 300 794,694 57% 139,433 1.41
CT 153 Beauford Manor 120 300 744,476 47% 151,258 1.69
CT 154 Colonial Mobile Home Park 117 300 642,911 64% 120,052 1.54
CT 155 City Center Plaza & Storage 117 300 639,189 47% 111,664 1.39
GMACCM 156 Montana Avenue Retail 117 300 515,131 52% 81,404 1.34 VIII
Loan Group 2
CT 157 Holly Hall Apartments 12 91 360 13,695,134 54% 1,888,119 1.32 VII
CT 158 Olive Tree Apartments 12 91 360 12,885,233 58% 1,928,200 1.44 VII
CT 159 Donner Apartments 12 65 360 6,943,621 70% 921,368 1.34
GMACCM 160 Northview Terrace Apartments 12 113 360 1,351,500 66% 178,964 1.33
</TABLE>
II - 6
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Property Information
<TABLE>
<CAPTION>
Loan Foot Units Ownership
Seller (1) ID Property Name Notes City State Property Type or NSF Interest
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loan Group 1
CT 1 Crestwood - Hampton 4(A) Stockton CA Nursing Home 120 Fee
CT 2 Crestwood - Redding 4(A) Redding CA Nursing Home 113 Fee
CT 3 Crestwood - Fremont 4(A) Fremont CA Nursing Home 126 Fee
CT 4 Crestwood - Sacramento 4(A) Sacramento CA Nursing Home 130 Fee
CT 5 Crestwood - Stockton 4(A) Stockton CA Nursing Home 190 Fee
CT 6 Crestwood - Modesto 4(A) Modesto CA Nursing Home 194 Fee
CT 7 Crestwood Executive Office 4(A) Stockton CA Office 10,788 Fee
CT 8 Kern Care Center 4(A) Bakersfield CA Nursing Home 109 Fee
GMACCM 9 St. Paul Gardens 4(B) Brookline MA Multifamily 80 Fee
GMACCM 10 Chauncy Street 4(B) Cambridge MA Multifamily 98 Fee
GMACCM 11 Auburn/Harris 4(B) Brookline MA Multifamily 34 Fee
CT 12 The Manors Rollup Various NY Congregate Care 241 Fee
CT 12A Colonie Manor Latham NY Congregate Care 94 Fee
CT 12B West Side Manor Rochester NY Congregate Care 72 Fee
CT 12C Woodland Manor Vestal NY Congregate Care 75 Fee
MSMC 13 Livonia Metroplex Roll-Up Various MI Industrial 440,672 Fee
MSMC 13A Livonia Trade Center I and II Livonia MI Industrial 101,376 Fee
MSMC 13B Livonia Commerce Center Livonia MI Industrial 38,085 Fee
MSMC 13C Livonia Commerce Center West Livonia MI Industrial 87,200 Fee
MSMC 13D Jeffries Commerce Center Livonia MI Industrial 159,144 Fee
MSMC 13E Wayne Road Industrial Livonia MI Industrial 24,200 Fee
MSMC 13F Eight Mile Industrial Farmington Hills MI Industrial 30,667 Fee
GMACCM 14 Sunset Industrial Park Brooklyn NY Industrial 305,561 Fee
MSMC 15 Commonwealth Properties Rollup Boston MA Multifamily 304 Fee
MSMC 15A 66-70 Chiswick Street Boston MA Multifamily 53 Fee
MSMC 15B 1626-1638 Commonwealth Avenue Boston MA Multifamily 107 Fee
MSMC 15C 1800-1820 Commonwealth Avenue Boston MA Multifamily 108 Fee
MSMC 15D 2045 Commonwealth Avenue Boston MA Multifamily 35 Fee
CT 16 Glenoaks Convalescent Hospital 4(D) Glendale CA Nursing Home 99 Fee
CT 17 Golden State - Riverdale 4(D) Glendale CA Nursing Home 94 Fee
CT 18 Sylmar Health & Rehab. Center 4(D) Sylmar CA Nursing Home 208 Fee
CT 19 Westlake Convalescent Hospital 4(D) Los Angeles CA Nursing Home 114 Fee
GMACCM 20 Centerpoint Plaza Tempe AZ Office/Retail 157,231 Fee & lease
GMACCM 21 Sandy Springs Crossing Shopping Center Atlanta GA Retail 133,324 Fee
CT 22 The Manors Rollup Williamsville NY Congregate Care 183 Fee
CT 22A Bassett Manor Williamsville NY Congregate Care 105 Fee
CT 22B Bassett Park Manor Williamsville NY Congregate Care 78 Fee
CT 23 Vineland Nursing Center Vineland NJ Nursing Home 210 Fee
GMACCM 24 Hampton Court 4(E) Brookline MA Multifamily 68 Fee
GMACCM 25 Langdon Terrace 4(E) Cambridge MA Multifamily 33 Fee
</TABLE>
<TABLE>
<CAPTION>
Loan
Loan Foot Value To Yr. Built/ Occupancy
Seller (1) ID Property Name Notes Value (15) Date (15) Value Renov. Occupancy(11) Date (11)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loan Group 1
CT 1 Crestwood - Hampton 4(A) $3,610,000 11/18/96 52% 1980 96% 12/24/96
CT 2 Crestwood - Redding 4(A) 4,550,000 11/18/96 52% 1990 92% 12/21/96
CT 3 Crestwood - Fremont 4(A) 4,870,000 11/18/96 52% 1968 91% 12/20/96
CT 4 Crestwood - Sacramento 4(A) 7,020,000 11/18/96 52% 1971 81% 12/21/96
CT 5 Crestwood - Stockton 4(A) 9,610,000 11/18/96 52% 1973 95% 11/18/96
CT 6 Crestwood - Modesto 4(A) 4,000,000 11/18/96 52% 1970 77% 12/28/96
CT 7 Crestwood Executive Office 4(A) 750,000 11/11/96 52% 1981 50% 12/24/96
CT 8 Kern Care Center 4(A) 2,400,000 11/18/96 52% 1970 61% 12/16/96
GMACCM 9 St. Paul Gardens 4(B) 8,000,000 9/16/96 75% 1953 100% 1/14/97
GMACCM 10 Chauncy Street 4(B) 7,700,000 9/16/96 75% 1890 97% 1/15/97
GMACCM 11 Auburn/Harris 4(B) 3,300,000 9/16/96 75% 1939 100% 1/14/97
CT 12 The Manors Rollup 16,900,000 Various 79% Various Various Various
CT 12A Colonie Manor 8,400,000 9/1/96 1989 98% 9/1/96
CT 12B West Side Manor 5,300,000 9/1/96 1988 100% 12/18/96
CT 12C Woodland Manor 3,200,000 9/1/96 1992 92% 12/20/96
MSMC 13 Livonia Metroplex Roll-Up 18,200,000 Various 66% Various Various 9/1/96
MSMC 13A Livonia Trade Center I and II 4,310,000 12/8/95 1972 98% 9/1/96
MSMC 13B Livonia Commerce Center 1,800,000 12/8/95 1974 100% 9/1/96
MSMC 13C Livonia Commerce Center West 3,670,000 12/8/95 1975 100% 9/1/96
MSMC 13D Jeffries Commerce Center 6,730,000 12/8/95 1978 92% 9/1/96
MSMC 13E Wayne Road Industrial 704,000 12/8/95 1971 100% 9/1/96
MSMC 13F Eight Mile Industrial 986,000 12/8/95 1971 100% 9/1/96
GMACCM 14 Sunset Industrial Park 18,000,000 7/30/96 66% 1989 96% 11/27/96
MSMC 15 Commonwealth Properties Rollup 15,000,000 7/19/96 78% Various Various 12/27/96
MSMC 15A 66-70 Chiswick Street 2,630,000 7/19/96 1910 94% 12/27/96
MSMC 15B 1626-1638 Commonwealth Avenue 5,270,000 7/19/96 1990 94% 12/27/96
MSMC 15C 1800-1820 Commonwealth Avenue 5,270,000 7/19/96 1990 95% 12/27/96
MSMC 15D 2045 Commonwealth Avenue 1,830,000 7/19/96 1991 100% 12/27/96
CT 16 Glenoaks Convalescent Hospital 4(D) 3,110,000 10/15/96 73% 1970 91% 12/11/96
CT 17 Golden State - Riverdale 4(D) 2,090,000 10/15/96 73% 1963 83% 10/31/96
CT 18 Sylmar Health & Rehab. Center 4(D) 7,360,000 10/15/96 73% 1992 94% 12/11/96
CT 19 Westlake Convalescent Hospital 4(D) 3,090,000 10/15/96 73% 1970 83% 12/11/96
GMACCM 20 Centerpoint Plaza 17,000,000 5/1/96 67% 1989 100% 1/4/97
GMACCM 21 Sandy Springs Crossing Shopping Center 16,000,000 3/22/96 71% 1988 100% 1/17/97
CT 22 The Manors Rollup 13,400,000 9/1/96 79% Various Various 12/18/96
CT 22A Bassett Manor 7,100,000 9/1/96 1995 92% 12/18/96
CT 22B Bassett Park Manor 6,300,000 9/1/96 1992 99% 12/18/96
CT 23 Vineland Nursing Center 12,500,000 10/1/96 80% 1986 98% 12/22/96
GMACCM 24 Hampton Court 4(E) 6,700,000 9/16/96 74% 1970 97% 1/14/97
GMACCM 25 Langdon Terrace 4(E) 3,400,000 9/16/96 74% 1924 97% 1/15/97
</TABLE>
II - 7
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Property Information
<TABLE>
<CAPTION>
Loan Foot Units Ownership
Seller (1) ID Property Name Notes City State Property Type or NSF Interest
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GMACCM 26 Wendell Terrace 4(E) Cambridge MA Multifamily 38 Fee
MSMC 27 Tennessee Office Rollup Various TN Office 269,238 Fee
MSMC 27A Estate Office Park Memphis TN Office 41,926 Fee
MSMC 27B Perimeter II Office Building Nashville TN Office 65,347 Fee
MSMC 27C The Terraces Knoxville TN Office 69,815 Fee
MSMC 27D Crossroad Commons Knoxville TN Office 32,300 Fee
MSMC 27E Pine Ridge Oak Ridge TN Office 59,850 Fee
GMACCM 28 Hilton Village Shopping Center Scottsdale AZ Retail 70,184 Leasehold
MSMC 29 Safe Keep Self Storage - Redwood City Redwood City CA Self-Storage 167,932 Fee
MSMC 30 American Business Center Hammond IN Industrial 762,528 Fee
GMACCM 31 Liberty Central Warehouse Worcester MA Industrial 606,462 Fee
CT 32 Gem Suburban MHC Rockford IL Mobile Home Park 380 Fee
GMACCM 33 Tower 801 Apt Seattle WA Multifamily 171 Fee
MSMC 34 North Broadway Plaza 5, 13 Santa Maria CA Retail 97,555 Fee
GMACCM 35 Southpointe Plaza 4(C) Augusta GA Retail 31,475 Fee
GMACCM 36 Plantation Plaza 4(C) Georgetown SC Retail 31,400 Fee
GMACCM 37 Mountain View Plaza 4(C) Martinsville VA Retail 34,000 Fee
MSMC 38 Quincy Commons Shopping Center Quincy IL Retail 167,117 Fee
MSMC 39 Watt Properties Rollup Various CA Retail 112,214 Fee
MSMC 39A Country Hills Shopping Center Torrance CA Retail 53,296 Fee
MSMC 39B Canyon Country Shopping Center Santa Clarita CA Retail 58,918 Fee
GMACCM 40 Trident Pool I Roll Up Various CA Various 45,328 Fee
GMACCM 40A 7565 Melrose Avenue Los Angeles CA Retail 3,426 Fee
GMACCM 40B Star Of India Building La Jolla CA Retail 3,679 Fee
GMACCM 40C Napoleon Bakery Building Santa Monica CA Retail 8,701 Fee
GMACCM 40D 1426 Montana Retail Property Santa Monica CA Retail 14,237 Fee
GMACCM 40E 1460 Westwood Office Building Los Angeles CA Office 15,285 Fee
GMACCM 41 Fenton Place Apartments Denver CO Multifamily 278 Fee
MSMC 42 Rainbow Plaza Las Vegas NV Retail 90,000 Fee
GMACCM 43 Rock Grove Multiproperty Rollup Gaithersburg MD Various 68,672 Fee
GMACCM 43A Comfort Inn - Shady Grove Gaithersburg MD Hotel 127 Fee
GMACCM 43B Shady Grove Professional Building Gaithersburg MD Office/Retail 68,672 Fee
MSMC 44 1111 West Mockingbird Lane Dallas TX Office 265,409 Fee
GMACCM 45 Trident Pool II-Rollup Of Six Properties Various CA Various 49,601 Fee
GMACCM 45A Fourth Avenue Retail Property San Diego CA Retail 5,771 Fee
GMACCM 45B Melrose Ave Retail Building Los Angeles CA Retail 6,100 Fee
GMACCM 45C 12260 - 12266 Ventura Blvd. Studio City CA Office/Retail 6,517 Fee
GMACCM 45D The Gap - 2654 Main Street Santa Monica CA Retail 9,334 Fee
GMACCM 45E Men's Wearhouse Building San Diego CA Office/Retail 9,906 Fee
GMACCM 45F Larchmont Market Building-125 N. Larchmont Los Angeles CA Office/Retail 11,973 Fee
GMACCM 46 Trident Pool III - Roll Up Various CA Various 68,138 Fee
GMACCM 46A 6907 Melrose Ave. Retail Building Los Angeles CA Retail 2,770 Fee
</TABLE>
<TABLE>
<CAPTION>
Loan
Loan Foot Value To Yr. Built/ Occupancy
Seller (1 ID Property Name Notes Value (15) Date (15) Value Renov. Occupancy(11) Date (11)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GMACCM 26 Wendell Terrace 4(E) 3,200,00 9/16/96 74% 1900 97% 1/15/97
MSMC 27 Tennessee Office Rollup 15,350,000 Various 63% Various Various Various
MSMC 27A Estate Office Park 3,000,000 12/5/96 1982 100% 1/1/97
MSMC 27B Perimeter II Office Building 4,150,000 12/2/96 1983 99% 1/1/97
MSMC 27C The Terraces 4,200,000 11/18/96 1987 85% 12/31/96
MSMC 27D Crossroad Commons 1,400,000 11/18/96 1980 91% 12/4/96
MSMC 27E Pine Ridge 2,600,000 11/18/96 1985 86% 1/1/97
GMACCM 28 Hilton Village Shopping Center 14,555,000 7/10/96 62% 1987 100% 12/4/96
MSMC 29 Safe Keep Self Storage - Redwood City 12,400,000 1/18/96 72% 1984 99% 7/1/96
MSMC 30 American Business Center 12,200,000 7/30/96 71% 1996 100% 9/30/96
GMACCM 31 Liberty Central Warehouse 13,550,000 6/3/96 62% 1945 98% 1/21/97
CT 32 Gem Suburban MHC 11,100,000 8/20/96 74% 1996 96% 11/30/96
GMACCM 33 Tower 801 Apt 11,900,000 6/21/96 69% 1970 99% 12/21/96
MSMC 34 North Broadway Plaza 5, 13 10,900,000 8/5/96 73% 100% 12/26/96
GMACCM 35 Southpointe Plaza 4(C) 3,750,000 9/6/96 74% 1996 100% 8/22/96
GMACCM 36 Plantation Plaza 4(C) 3,275,000 9/11/96 74% 1996 100% 1/16/97
GMACCM 37 Mountain View Plaza 4(C) 3,340,000 9/9/96 74% 1996 88% 8/13/96
MSMC 38 Quincy Commons Shopping Center 11,000,000 5/30/96 68% 1990 99% 11/12/96
MSMC 39 Watt Properties Rollup 10,450,000 8/1/96 72% Various Various Various
MSMC 39A Country Hills Shopping Center 5,250,000 8/1/96 1976 84% 12/1/96
MSMC 39B Canyon Country Shopping Center 5,200,000 8/1/96 1976 100% 12/1/96
GMACCM 40 Trident Pool I Roll Up 10,580,000 Various 70% Various Various Various
GMACCM 40A 7565 Melrose Avenue 1,200,000 10/31/96 1949 100% 11/4/96
GMACCM 40B Star Of India Building 750,000 10/17/96 1989 100% 11/4/96
GMACCM 40C Napoleon Bakery Building 1,040,000 10/15/96 1940 85% 10/1/96
GMACCM 40D 1426 Montana Retail Property 5,700,000 10/15/96 1986 100% 10/1/96
GMACCM 40E 1460 Westwood Office Building 1,890,000 11/4/96 1972 100% 11/4/96
GMACCM 41 Fenton Place Apartments 8,900,000 7/25/96 81% 1973 97% 1/6/97
MSMC 42 Rainbow Plaza 10,900,000 6/19/96 66% 1994 100% 11/14/96
GMACCM 43 Rock Grove Multiproperty Rollup 10,455,000 4/12/96 68% Various Various Various
GMACCM 43A Comfort Inn - Shady Grove 5,450,000 4/12/96 1994 83% 11/30/96
GMACCM 43B Shady Grove Professional Building 5,120,000 4/12/96 1979 92% 11/25/96
MSMC 44 1111 West Mockingbird Lane 10,400,000 12/10/96 68% 1989 92% 12/1/96
GMACCM 45 Trident Pool II - Rollup Of Six Properties 10,445,000 Various 67% Various Various Various
GMACCM 45A Fourth Avenue Retail Property 895,000 10/16/96 1989 100% 10/1/96
GMACCM 45B Melrose Ave Retail Building 1,960,000 10/21/96 1985 100% 10/1/96
GMACCM 45C 12260 - 12266 Ventura Blvd. 900,000 11/4/96 1940 53% 10/1/96
GMACCM 45D The Gap - 2654 Main Street 3,350,000 10/15/96 1960 83% 10/1/96
GMACCM 45E Men's Wearhouse Building 950,000 11/5/96 1975 100% 10/1/96
GMACCM 45F Larchmont Market Building - 125 N. Larchmont 2,390,000 10/21/96 1926 76% 11/4/96
GMACCM 46 Trident Pool III - Roll Up 9,610,000 Various 73% Various 100% 10/1/96
GMACCM 46A 6907 Melrose Ave. Retail Building 370,000 10/21/96 1952 100% 10/1/96
</TABLE>
II - 8
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Property Information
<TABLE>
<CAPTION>
Loan Foot Units Ownership
Seller(1)ID Property Name Notes City State Property Type or NSF Interest
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GMACCM 46B Pico Boulevard Retail Building Los Angeles CA Retail 2,900 Fee
GMACCM 46C Midnite Expresso Building Long Beach CA Office/Retail 5,220 Fee
GMACCM 46D First Republic Thrift Building Beverly Hills CA Office/Retail 5,766 Fee
GMACCM 46E Pacific Plaza Shopping Center San Diego CA Retail 51,482 Fee
MSMC 47 Big Key SSF Long Island City NY Self-Storage 114,820 Fee
GMACCM 48 Clinton Adams Corporation Clinton MA Industrial 457,000 Fee
CT 49 Crocker's Lockers San Francisco CA Self-Storage 76,341 Fee
CT 50 Montgomery Nursing Home Montgomery NY Nursing Home 100 Fee
GMACCM 51 Lyons Plaza Shopping Center Irvington/Newark NJ Retail 78,411 Fee
CT 52 Long Island Hebrew Living Ctr. Far Rockaway NY Congregate Care 226 Fee
MSMC 53 The Oxford Rollup 6 Denver CO Various 145,873 Fee
MSMC 53A The Oxford Hotel and Parking Denver CO Hospitality 77,940 Fee
MSMC 53B The Oxford Office Annex Denver CO Office 39,775 Fee
CT 54 Skyline Village MHC Inver Grove Heights MN Mobile Home Park 370 Fee
CT 55 Carriage Villa MHC Sioux Falls SD Mobile Home Park 119 Fee
CT 56 Johnson Estates MHC Sioux Falls SD Mobile Home Park 157 Fee
CT 57 Starlite Estates Sioux Falls SD Mobile Home Park 145 Fee
CT 58 Valley View Sioux Falls SD Mobile Home Park 100 Fee
MSMC 59 Intech of Novi Novi MI Industrial 91,381 Fee
CT 60 Brentwood Place Dallas TX Nursing Home 456 Fee
MSMC 61 Apollo - Utah Retail Rollup Various UT Retail 103,341 Fee
MSMC 61A Highline Plaza Salt Lake City UT Retail 45,170 Fee
MSMC 61B Parley's Plaza Salt Lake City UT Retail 16,371 Fee
MSMC 61C Plaza 7000 Salt Lake City UT Retail 21,800 Fee
MSMC 61D Antelope Plaza Clearfield UT Retail 20,000 Fee
MSMC 62 Columbia Plaza Shopping Center Columbia MO Retail 78,789 Fee
MSMC 63 Holiday Inn - Hasbrouck Heights Hasbrouck Heights NJ Hospitality 246 Fee
CT 64 Westwood Hills Health Care Center Poplar Bluff MO Nursing Home 132 Fee
MSMC 65 Colonial Acres Mobile Home Park Miami FL Mobile Home Park 296 Fee
MSMC 66 Regency Suites Hotel 13 Atlanta GA Hospitality 96 Fee
MSMC 67 Peachtree Marketplace 13 Gaffney SC Retail 141,679 Fee
GMACCM 68 Promenade Shopping Center Sun City AZ Retail 70,125 Fee
GMACCM 69 Ashley Court Philadelphia PA Multifamily 254 Fee
GMACCM 70 Maple Hill Apartments Horsham Twp. PA Multifamily 204 Fee
MSMC 71 Bingham Office Park 7 Bingham Farms MI Office 154,375 Fee
MSMC 72 11211 Vanowen Street 13 North Hollywood CA Industrial 202,000 Fee
MSMC 73 Highland Square Shopping Center Sugar Land TX Retail 64,171 Fee
CT 74 Country View Lakeville MN Mobile Home Park 373 Fee
MSMC 75 United Artists Theatre Denver CO Retail 42,180 Fee
CT 76 Spectrum Self Storage Brooklyn NY Self-Storage/Mini-Storage98,999 Fee
MSMC 77 Security Public Storage South Gate CA Self-Storage 108,270 Fee
GMACCM 78 The Dukes' Plaza Harrisonburg VA Retail 139,956 Fee
</TABLE>
<TABLE>
<CAPTION>
Loan
Loan Foot Value To Yr. Built/ Occupancy
Seller (1 ID Property Name Notes Value (15) Date (15) Value Renov. Occupancy(11) Date (11)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GMACCM 46B Pico Boulevard Retail Building 530,000 10/22/96 1948 100% 10/1/96
GMACCM 46C Midnite Expresso Building 1,250,000 11/1/96 1928 100% 10/1/96
GMACCM 46D First Republic Thrift Building 2,060,000 10/29/96 1940 100% 10/1/96
GMACCM 46E Pacific Plaza Shopping Center 5,400,000 11/5/96 1988 96% 10/1/96
MSMC 47 Big Key SSF 8,700,000 11/3/95 80% 1988 82% 9/30/96
GMACCM 48 Clinton Adams Corporation 10,000,000 9/10/96 69% 1972 100% 12/17/96
CT 49 Crocker's Lockers 8,700,000 11/23/96 78% 1984 92% 10/25/96
CT 50 Montgomery Nursing Home 8,700,000 7/1/96 78% 1993 99% 12/31/96
GMACCM 51 Lyons Plaza Shopping Center 9,300,000 6/13/96 73% 1990 96% 1/10/97
CT 52 Long Island Hebrew Living Ctr. 8,800,000 10/1/96 73% 1996 89% 12/28/96
MSMC 53 The Oxford Rollup 6 11,730,000 7/10/96 54% Various Various Various
MSMC 53A The Oxford Hotel and Parking 10,900,000 7/10/96 1983 79% 12/31/95
MSMC 53B The Oxford Office Annex 830,000 7/10/96 1983 95% 1/1/96
CT 54 Skyline Village MHC 8,900,000 8/26/96 71% 1990 89% 11/1/96
CT 55 Carriage Villa MHC 1,700,000 8/1/96 80% 1973 100% 8/1/96
CT 56 Johnson Estates MHC 2,450,000 8/1/96 80% 1963 100% 12/27/96
CT 57 Starlite Estates 2,300,000 8/1/96 80% 1988 100% 8/1/96
CT 58 Valley View 1,250,000 8/1/96 80% 1960 100% 8/1/96
MSMC 59 Intech of Novi 8,700,000 5/8/96 71% 1996 96% 5/8/96
CT 60 Brentwood Place 8,400,000 1/1/96 71% 1993 84% 1/1/96
MSMC 61 Apollo - Utah Retail Rollup 7,700,000 10/19/96 73% Various 9/24/96
MSMC 61A Highline Plaza 3,125,000 10/19/96 1984 100% 9/24/96
MSMC 61B Parley's Plaza 1,450,000 10/19/96 1987 85% 9/24/96
MSMC 61C Plaza 7000 1,775,000 10/19/96 1988 88% 9/24/96
MSMC 61D Antelope Plaza 1,350,000 10/19/96 1987 88% 9/24/96
MSMC 62 Columbia Plaza Shopping Center 7,600,000 2/1/96 73% 1993 100% 11/30/96
MSMC 63 Holiday Inn - Hasbrouck Heights 10,100,000 4/1/96 55% 1988 88% 9/30/96
CT 64 Westwood Hills Health Care Center 7,300,000 12/1/95 75% 1995 99% 1/7/97
MSMC 65 Colonial Acres Mobile Home Park 7,325,000 1/23/96 72% 1970 99% 1/23/96
MSMC 66 Regency Suites Hotel 13 8,370,000 7/11/96 63% 1985 72% 3/31/96
MSMC 67 Peachtree Marketplace 13 6,933,000 4/12/96 75% 1989 99% 1/10/97
GMACCM 68 Promenade Shopping Center 6,670,000 6/12/96 75% 1984 97% 12/30/96
GMACCM 69 Ashley Court 6,570,000 2/22/96 75% 1991 93% 11/19/96
GMACCM 70 Maple Hill Apartments 6,700,000 9/18/96 74% 1964 94% 1/15/97
MSMC 71 Bingham Office Park 7 7,750,000 61% 1978 90% 1/16/97
MSMC 72 11211 Vanowen Street 13 7,550,000 8/20/96 62% 1953 100% 10/1/96
MSMC 73 Highland Square Shopping Center 6,365,000 9/18/96 71% 1981 98% 11/7/96
CT 74 Country View 6,600,000 6/24/96 68% 1971 99% 12/4/96
MSMC 75 United Artists Theatre 6,300,000 9/26/96 70% 1996 100% 10/24/96
CT 76 Spectrum Self Storage 7,100,000 2/14/96 62% 1986 84% 1/9/97
MSMC 77 Security Public Storage 5,940,000 11/22/95 73% 1980 91% 7/1/96
GMACCM 78 The Dukes' Plaza 5,700,000 11/26/96 74% 1987 87% 1/18/97
</TABLE>
II - 9
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Property Information
<TABLE>
<CAPTION>
Loan Foot Units Ownership
Seller(1)ID Property Name Notes City State Property Type or NSF Interest
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GMACCM 79 Sportmart Sporting Goods Store Torrance CA Retail 47,328 Fee
GMACCM 80 Desert Gardens Glendale AZ Multifamily 307 Fee
GMACCM 81 Mercado Del Lago Scottsdale AZ Office/Retail 59,512 Fee
MSMC 82 Best Western-Lubbock Regency 8 Lubbock TX Hospitality 165 Fee
MSMC 83 A-American SSF - Sun Valley Sun Valley CA Self-Storage 101,780 Fee
CT 84 Mullikan Medical Center Hawthorne CA Office 33,000 Fee
MSMC 85 Shoppes of Silverwood 13 Rincon GA Retail 58,100 Fee
MSMC 86 Safe Keep Self Storage - Del Ray Oaks Del Rey Oaks CA Self-Storage 63,247 Fee
CT 87 Days Inn Hotel Midlothian VA Hospitality 120 Fee
MSMC 88 A-American SSF- La Verne La Verne CA Self-Storage 108,701 Fee
GMACCM 89 Creekside Apartments San Angelo TX Multifamily 160 Fee
MSMC 90 Imperial Park & Imperial Estates Lexington KY Mobile Home Park 345 Fee
MSMC 91 Town South Shopping Center Greenville TX Retail 108,795 Fee & lease
GMACCM 92 Applied Materials Austin TX Industrial 48,396 Fee
GMACCM 93 Madison & Manzanita Sacramento CA Retail 46,237 Fee
GMACCM 94 Sundance Apartments Colorado Springs CO Multifamily 147 Fee
CT 95 U-STOR-IT - Decatur 4(F) Atlanta GA Self-Storage/Mini-Storage 23,410 Fee
CT 96 U-STOR-IT Self Storage 4(F) Macon GA Self-Storage/Mini-Storage 22,425 Fee
CT 97 U-STOR-IT Self-Storage 4(F) Mobile AL Self-Storage/Mini-Storage 54,400 Fee
CT 98 U-STOR-IT - Mobile 2 4(F) Mobile AL Self-Storage/Mini-Storage 27,600 Fee
CT 99 U-STOR-IT Self Storage 4(F) Montgomery AL Self-Storage/Mini-Storage 26,926 Fee
CT 100 U-STOR-IT - Shreveport 4(F) Shreveport LA Self-Storage/Mini-Storage 31,860 Fee
CT 101 U-STOR-IT - Tempe 4(F) Tempe AZ Self-Storage/Mini-Storage 24,960 Fee
CT 102 U-STOR-IT - Tuscon 4(F) Tucson AZ Self-Storage/Mini-Storage 27,100 Fee
CT 103 Greenbelt Vault Lanham MD Self-Storage/Mini-Storage 60,380 Fee
GMACCM 104 Sherwood Village Apartments Aurora CO Multifamily 119 Fee
GMACCM 105 Lincoln Plaza Salt Lake City UT Office/Retail 59,115 Fee
CT 106 East Bank Self-Storage Chicago IL Self-Storage/Mini-Storage 77,313 Fee
GMACCM 107 Parkway III & IV Virginia Beach VA Office/Warehouse 64,437 Fee
CT 108 Sierra Vista Apartments Dallas TX Multifamily 224 Fee
CT 109 ABC Self-Storage Sante Fe NM Self-Storage/Mini-Storage 84,554 Fee
MSMC 110 American Self Storage Novi MI Self-Storage 80,200 Fee
GMACCM 111 Woodcrest Pavilion Cherry Hill NJ Office 45,191 Fee
CT 112 International Self Storage San Ysidro CA Self-Storage/Mini-Storage159,802 Fee
MSMC 113 Parkview Apartments 9, 13 Columbus GA Multifamily 68 Fee
GMACCM 114 Park Village Apartments Mesa AZ Multifamily 118 Fee
CT 115 ABC Mini Storage Santa Rosa CA Self-Storage/Mini-Storage 78,015 Fee
CT 116 Days Inn - Wytheville Wytheville VA Hospitality 118 Fee
CT 117 Candlewood Valley Care Center New Milford CT Nursing Home 140 Fee
CT 118 RitePlace Self Storage Corpus Christi TX Self-Storage/Mini-Storage122,600 Fee
CT 119 United Artists Theaters Bakersfield CA Retail 20,400 Fee
CT 120 U-Haul Storage (S.Hulen) 10 Fort Worth TX Self-Storage/Mini-Storage 83,063 Fee
</TABLE>
<TABLE>
<CAPTION>
Loan
Loan Foot Value To Yr. Built/ Occupancy
Seller (1 ID Property Name Notes Value (15) Date (15) Value Renov. Occupancy(11) Date (11)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GMACCM 79 Sportmart Sporting Goods Store 5,550,000 7/16/96 75% 1994 100% 10/14/96
GMACCM 80 Desert Gardens 7,200,000 12/12/95 58% 1984 82% 9/9/96
GMACCM 81 Mercado Del Lago 5,400,000 5/15/96 74% 1994 91% 1/6/97
MSMC 82 Best Western-Lubbock Regency 8 6,680,000 1/1/96 58% 1995 57% 12/31/15
MSMC 83 A-American SSF - Sun Valley 6,100,000 3/27/96 63% 1975 94% 3/27/96
CT 84 Mullikan Medical Center 5,500,000 11/27/96 69% 1996 100% 11/27/96
MSMC 85 Shoppes of Silverwood 13 4,625,000 2/20/96 74% 1996 96% 1/19/96
MSMC 86 Safe Keep Self Storage - Del Ray Oaks 4,950,000 1/18/96 69% 1988 98% 1/18/96
CT 87 Days Inn Hotel 5,650,000 6/20/96 61% 1995 73% 11/30/96
MSMC 88 A-American SSF- La Verne 5,000,000 3/29/96 66% 1974 95% 3/29/96
GMACCM 89 Creekside Apartments 4,300,000 11/20/95 74% 1995 94% 1/3/97
MSMC 90 Imperial Park & Imperial Estates 4,600,000 12/29/95 69% 1973 95% 12/31/95
MSMC 91 Town South Shopping Center 4,073,000 9/24/96 74% 1996 98% 11/1/96
GMACCM 92 Applied Materials 3,885,000 8/1/96 77% 1996 100% 1/16/97
GMACCM 93 Madison & Manzanita 4,625,000 7/18/96 65% 1979 87% 6/26/96
GMACCM 94 Sundance Apartments 5,350,000 4/24/96 56% 1997 97% 6/10/96
CT 95 U-STOR-IT - Decatur 4(F) 600,000 7/15/96 65% 1973 96% 7/15/96
CT 96 U-STOR-IT Self Storage 4(F) 400,000 7/10/96 65% 1994 99% 7/10/96
CT 97 U-STOR-IT Self-Storage 4(F) 800,000 7/28/96 65% 1972 89% 7/28/96
CT 98 U-STOR-IT - Mobile 2 4(F) 580,000 7/28/96 65% 1974 98% 7/28/96
CT 99 U-STOR-IT Self Storage 4(F) 500,000 7/27/96 65% 1992 98% 7/11/96
CT 100 U-STOR-IT - Shreveport 4(F) 520,000 7/22/96 65% 1992 99% 7/22/96
CT 101 U-STOR-IT - Tempe 4(F) 650,000 7/19/96 65% 1975 99% 7/19/96
CT 102 U-STOR-IT - Tuscon 4(F) 540,000 7/11/96 65% 1972 98% 7/11/96
CT 103 Greenbelt Vault 4,770,000 10/22/96 61% 1988 98% 12/18/96
GMACCM 104 Sherwood Village Apartments 3,750,000 9/10/96 77% 1994 95% 1/6/97
GMACCM 105 Lincoln Plaza 4,600,000 10/4/96 61% 1990 96% 1/17/97
CT 106 East Bank Self-Storage 3,900,000 2/15/96 71% 1981 88% 12/1/96
GMACCM 107 Parkway III & IV 3,850,000 8/1/96 71% 1986 97% 1/1/97
CT 108 Sierra Vista Apartments 3,500,000 8/12/96 77% 1996 97% 11/27/96
CT 109 ABC Self-Storage 3,300,000 5/14/96 76% 1992 89% 11/30/96
MSMC 110 American Self Storage 3,440,000 3/22/96 73% 1987 93% 3/22/96
GMACCM 111 Woodcrest Pavilion 4,100,000 9/10/96 58% 1990 92% 1/15/97
CT 112 International Self Storage 3,550,000 6/7/96 67% 1985 63% 12/2/96
MSMC 113 Parkview Apartments 9, 13 3,200,000 8/5/96 75% 1994 96% 1/9/97
GMACCM 114 Park Village Apartments 3,100,000 8/24/96 77% 1992 94% 1/4/97
CT 115 ABC Mini Storage 3,650,000 1/16/96 64% 1984 100% 12/29/96
CT 116 Days Inn - Wytheville 4,100,000 6/21/96 57% 1995 66% 11/30/96
CT 117 Candlewood Valley Care Center 3,600,000 5/1/96 64% 1992 89% 5/14/96
CT 118 RitePlace Self Storage 3,100,000 8/15/96 70% 1995 97% 12/27/96
CT 119 United Artists Theaters 3,500,000 1/1/96 62% 1995 100% 11/1/96
CT 120 U-Haul Storage (S.Hulen) 10 3,000,000 11/1/95 69% 1987 97% 12/17/96
</TABLE>
II - 10
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Property Information
<TABLE>
<CAPTION>
Loan Foot Units Ownership
Seller(1) ID Property Name Notes City State Property Type or NSF Interest
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GMACCM 121 Pine Park Apartments Midvale UT Multifamily 95 Fee
GMACCM 122 The Registry St. Louis MO Office/Warehouse 48,121 Fee
GMACCM 123 Washington Woodworking Landover MD Industrial 78,427 Fee
GMACCM 124 Scott Manor Apartments Denver CO Multifamily 93 Fee
MSMC 125 Security Self Storage Hollywood CA Self-Storage 31,937 Fee
CT 126 Budget Unit Storage Westminster CA Self-Storage/Mini-Storage 40,145 Fee
CT 127 Shenandoah Apartments Richardson TX Multifamily 192 Fee
CT 128 Las Vegas Mini Storage Las Vegas NV Self-Storage/Mini-Storage 91,775 Fee
MSMC 129 Ladson-Oakbrook S.C. Summerville SC Retail 54,152 Fee
CT 130 Stonewall Jackson Building Alexandria VA Office 52,903 Fee
GMACCM 131 Four Seasons Estates Plymouth MN Multifamily 96 Fee
CT 132 Shaw Mini Storage Fresno CA Self-Storage/Mini-Storage 73,074 Fee
CT 133 Congress-Sheraton Mini Storage Austin TX Self-Storage/Mini-Storage 62,630 Fee
MSMC 134 Lincoln Center Lincoln RI Office 18,316 Fee
CT 135 Dependable Mini Storage Dallas TX Self-Storage/Mini-Storage 55,625 Fee
CT 136 U-Haul Storage (Pasadena) 10 Pasadena CA Self-Storage/Mini-Storage 39,556 Fee
GMACCM 137 Valley View Apartments Holyoke MA Multifamily 81 Fee
GMACCM 138 University Avenue Retail San Diego CA Retail/Multifamily 8,655 Fee
CT 139 Comfort Inn Tupelo MS Hospitality 83 Fee
GMACCM 140 Oakland Terrace Apartments Philadelphia PA Multifamily 78 Fee
GMACCM 141 Capri/ Graham House/
Hale Hall Apartments Denver CO Multifamily 85 Fee
CT 142 Alamo Self Storage Carson CA Self-Storage/Mini-Storage 52,778 Fee
GMACCM 143 Royal Garden Apartments Salt Lake City UT Multifamily 56 Fee
GMACCM 144 Lincoln Court Apartments Philadelphia PA Multifamily 58 Fee
CT 145 Pantano/22nd St. Self Storage Tucson AZ Self-Storage/Mini-Storage 46,360 Fee
GMACCM 146 Kutztown Garden Apartments Borough of Kutztown PA Multifamily 66 Fee
GMACCM 147 Clarke Products Grand Prairie TX Industrial 92,500 Fee
GMACCM 148 Springview Garden Apartments Morton PA Multifamily 50 Fee
CT 149 Morningstar Mini Storage Burlington NC Self-Storage/Mini-Storage 84,450 Fee
GMACCM 150 Greystone Court Apartments Dallas TX Multifamily 36 Fee
GMACCM 151 Fort Knox Storage Park Greensboro NC Warehouse 153,251 Fee
CT 152 Atherton Storage Taylorsville UT Self-Storage/Mini-Storage 39,550 Fee
CT 153 Beauford Manor Phoenix AZ Multifamily 71 Fee
CT 154 Colonial Mobile Home Park Pasadena TX Mobile Home Park 119 Fee
CT 155 City Center Plaza & Storage Salt Lake City UT Self-Storage/Mini-Storage 25,688 Fee
GMACCM 156 Montana Avenue Retail Santa Monica CA Retail/Office 3,354 Fee
Loan Group 2
CT 157 Holly Hall Apartments 12 Houston TX Multifamily 569 Fee
CT 158 Olive Tree Apartments 12 Glendale AZ Multifamily 762 Fee
CT 159 Donner Apartments 12 Chesterfield Township MI Multifamily 204 Fee
GMACCM 160 Northview Terrace Apartments 12 Federal Way WA Multifamily 52 Fee
</TABLE>
<TABLE>
<CAPTION>
Loan
Loan Foot Value To Yr. Built/ Occupancy
Seller (1 ID Property Name Notes Value (15) Date (15) Value Renov. Occupancy(11) Date (11)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GMACCM 121 Pine Park Apartments 3,200,000 8/4/95 64% 1974 98% 1/4/97
GMACCM 122 The Registry 2,850,000 4/16/96 69% 1973 98% 12/23/96
GMACCM 123 Washington Woodworking 3,200,000 5/30/96 59% 1986 100% 1/3/97
GMACCM 124 Scott Manor Apartments 2,600,000 5/20/96 73% 1968 96% 1/6/97
MSMC 125 Security Self Storage 2,700,000 3/13/96 68% 1990 93% 3/13/96
CT 126 Budget Unit Storage 2,500,000 11/19/96 73% 1988 91% 12/20/96
CT 127 Shenandoah Apartments 3,000,000 11/21/96 60% 1993 94% 11/21/96
CT 128 Las Vegas Mini Storage 3,000,000 4/23/96 58% 1984 79% 9/29/96
MSMC 129 Ladson-Oakbrook S.C. 2,550,000 9/17/96 68% 1988 79% 11/19/96
CT 130 Stonewall Jackson Building 3,060,000 8/21/96 56% 1984 88% 12/15/96
GMACCM 131 Four Seasons Estates 2,850,000 2/26/96 58% 1991 100% 11/1/96
CT 132 Shaw Mini Storage 2,330,000 6/1/96 68% 1976 84% 5/18/96
CT 133 Congress-Sheraton Mini Storage 2,000,000 10/18/96 76% 1977 79% 10/18/96
MSMC 134 Lincoln Center 2,200,000 11/21/96 68% 1989 100% 1/13/97
CT 135 Dependable Mini Storage 1,980,000 9/15/96 76% 1986 94% 9/15/96
CT 136 U-Haul Storage (Pasadena) 10 2,750,000 11/1/95 54% 1989 83% 9/18/96
GMACCM 137 Valley View Apartments 2,100,000 6/7/96 69% 1974 98% 12/28/96
GMACCM 138 University Avenue Retail 2,000,000 10/16/96 72% 1987 100% 11/4/96
CT 139 Comfort Inn 3,200,000 6/19/96 44% 1986 75% 11/30/96
GMACCM 140 Oakland Terrace Apartments 1,725,000 5/21/96 78% 1961 96% 12/11/96
GMACCM 141 Capri/ Graham House/ Hale Hall Apartments 2,200,000 5/29/96 61% 1953 95% 1/6/97
CT 142 Alamo Self Storage 1,900,000 10/18/96 68% 1989 68% 11/30/96
GMACCM 143 Royal Garden Apartments 2,090,000 4/27/96 62% 1964 100% 1/6/97
GMACCM 144 Lincoln Court Apartments 1,825,000 6/13/96 69% 1987 97% 1/14/97
CT 145 Pantano/22nd St. Self Storage 2,000,000 8/6/96 61% 1994 95% 8/6/96
GMACCM 146 Kutztown Garden Apartments 1,700,000 9/19/96 69% 1964 96% 1/13/97
GMACCM 147 Clarke Products 1,500,000 9/12/96 73% 1975 100% 12/24/96
GMACCM 148 Springview Garden Apartments 1,500,000 8/20/96 67% 1996 94% 1/13/97
CT 149 Morningstar Mini Storage 2,880,000 9/18/96 35% 1990 84% 12/13/96
GMACCM 150 Greystone Court Apartments 1,350,000 6/25/96 74% 1985 100% 1/2/97
GMACCM 151 Fort Knox Storage Park 2,140,000 8/13/96 47% 1996 90% 1/7/97
CT 152 Atherton Storage 1,400,000 11/6/96 68% 1994 88% 11/1/96
CT 153 Beauford Manor 1,600,000 11/27/96 56% 1985 99% 11/1/96
CT 154 Colonial Mobile Home Park 1,000,000 6/26/96 77% 1972 98% 5/1/96
CT 155 City Center Plaza & Storage 1,350,000 7/30/96 56% 1904 93% 7/30/96
GMACCM 156 Montana Avenue Retail 1,000,000 10/15/96 63% 1994 100% 10/1/96
Loan Group 2
CT 157 Holly Hall Apartments 12 25,600,000 4/11/94 59% 1991 89% 12/19/96
CT 158 Olive Tree Apartments 12 22,400,000 2/28/94 64% 1984 93% 12/9/96
CT 159 Donner Apartments 12 9,950,000 4/28/95 74% 1994 97% 12/8/96
GMACCM 160 Northview Terrace Apartments 12 2,050,000 11/1/95 75% 1986 95% 12/21/96
</TABLE>
II - 11
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Prepayment and Servicing Information
<TABLE>
<CAPTION>
Penalty First
Loan Foot Lockout Start Open
Seller (1) ID Property Name Notes Period Date Date
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loan Group 1
CT 1 Crestwood - Hampton 4(A) 0 12/30/96 7/1/06
CT 2 Crestwood - Redding 4(A) 0 12/30/96 7/1/06
CT 3 Crestwood - Fremont 4(A) 0 12/30/96 7/1/06
CT 4 Crestwood - Sacramento 4(A) 0 12/30/96 7/1/06
CT 5 Crestwood - Stockton 4(A) 0 12/30/96 7/1/06
CT 6 Crestwood - Modesto 4(A) 0 12/30/96 7/1/06
CT 7 Crestwood Executive Office 4(A) 0 12/30/96 7/1/06
CT 8 Kern Care Center 4(A) 0 12/30/96 7/1/06
GMACCM 9 St. Paul Gardens 4(B) 0 12/24/96 7/1/06
GMACCM 10 Chauncy Street 4(B) 0 12/24/96 7/1/06
GMACCM 11 Auburn/Harris 4(B) 0 12/24/96 7/1/06
CT 12 The Manors Rollup 36 12/1/99 12/1/15
CT 12A Colonie Manor
CT 12B West Side Manor
CT 12C Woodland Manor
MSMC 13 Livonia Metroplex Roll-Up 0 1/30/96 ######
MSMC 13A Livonia Trade Center I and II
MSMC 13B Livonia Commerce Center
MSMC 13C Livonia Commerce Center West
MSMC 13D Jeffries Commerce Center
MSMC 13E Wayne Road Industrial
MSMC 13F Eight Mile Industrial
GMACCM 14 Sunset Industrial Park 0 11/27/96 6/1/06
MSMC 15 Commonwealth Properties Rollup 0 5/30/96 5/31/06
MSMC 15A 66-70 Chiswick Street
MSMC 15B 1626-1638 Commonwealth Avenue
MSMC 15C 1800-1820 Commonwealth Avenue
MSMC 15D 2045 Commonwealth Avenue
CT 16 Glenoaks Convalescent Hospital 4(D) 36 2/1/00 8/1/11
CT 17 Golden State - Riverdale 4(D) 36 2/1/00 8/1/11
CT 18 Sylmar Health & Rehab. Center 4(D) 36 2/1/00 8/1/11
CT 19 Westlake Convalescent Hospital 4(D) 36 2/1/00 8/1/11
GMACCM 20 Centerpoint Plaza 12 7/24/97 4/30/03
GMACCM 21 Sandy Springs Crossing Shopping Center 12 10/15/97 8/1/03
CT 22 The Manors Rollup 36 12/1/99 12/1/15
CT 22A Bassett Manor
CT 22B Bassett Park Manor
CT 23 Vineland Nursing Center 0 12/31/96 7/1/06
GMACCM 24 Hampton Court 4(E) 0 12/24/96 7/1/06
GMACCM 25 Langdon Terrace 4(E) 0 12/24/96 7/1/06
</TABLE>
<TABLE>
<CAPTION>
Servicing
Seller Loan Foot Fee
(1) ID Property Name Notes Prepayment Code (14) (bps)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loan
Group
1
CT 1 Crestwood - Hampton 4(A) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 2 Crestwood - Redding 4(A) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 3 Crestwood - Fremont 4(A) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 4 Crestwood - Sacramento 4(A) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 5 Crestwood - Stockton 4(A) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 6 Crestwood - Modesto 4(A) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 7 Crestwood Executive Office 4(A) 1(.5)/2(.5)/3(.5)/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/0(.5) 13.6
CT 8 Kern Care Center 4(A) 1(.5)/2(.5)/3(.5)/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/0(.5) 13.6
GMACCM 9 St. Paul Gardens 4(B) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 10 Chauncy Street 4(B) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 11 Auburn/Harris 4(B) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 12 The Manors Rollup LO/LO/LO/5/4/3/2/1/1/1/1/.5/.5/.5/.5/.5/.5/.5/.5/0 13.6
CT 12A Colonie Manor
CT 12B West Side Manor
CT 12C Woodland Manor
MSMC 13 Livonia Metroplex Roll-Up YM/YM/YM/YM/YM/YM/YM/YM/YM/YM(.75)/0(.25) 13.6
MSMC 13A Livonia Trade Center I and II
MSMC 13B Livonia Commerce Center
MSMC 13C Livonia Commerce Center West
MSMC 13D Jeffries Commerce Center
MSMC 13E Wayne Road Industrial
MSMC 13F Eight Mile Industrial
GMACCM 14 Sunset Industrial Park YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
MSMC 15 Commonwealth Properties Rollup YM/YM/YM/YM/YM/YM/YM/YM/YM/YM 13.6
MSMC 15A 66-70 Chiswick Street
MSMC 15B 1626-1638 Commonwealth Avenue
MSMC 15C 1800-1820 Commonwealth Avenue
MSMC 15D 2045 Commonwealth Avenue
CT 16 Glenoaks Convalescent Hospital 4(D) LO/LO/LO/5/4/3/2/1/1/1/1/1/1/1/1(.5)/0(.5) 13.6
CT 17 Golden State - Riverdale 4(D) LO/LO/LO/5/4/3/2/1/1/1/1/1/1/1/1(.5)/0(.5) 13.6
CT 18 Sylmar Health & Rehab. Center 4(D) LO/LO/LO/5/4/3/2/1/1/1/1/1/1/1/1(.5)/0(.5) 13.6
CT 19 Westlake Convalescent Hospital 4(D) LO/LO/LO/5/4/3/2/1/1/1/1/1/1/1/1(.5)/0(.5) 13.6
GMACCM 20 Centerpoint Plaza LO/YM1/YM1/YM1/YM1/YM1/YM1(.75)/0(.25) 13.6
GMACCM 21 Sandy Springs Crossing
Shopping Center LO/YM1/YM1/YM1/YM1/YM1/YM1(.75)0/(.25) 13.6
CT 22 The Manors Rollup LO/LO/LO/5/4/3/2/1/1/1/1/.5/.5/.5/.5/.5/.5/.5/.5/0 13.6
CT 22A Bassett Manor
CT 22B Bassett Park Manor
CT 23 Vineland Nursing Center YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 24 Hampton Court 4(E) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 25 Langdon Terrace 4(E) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
</TABLE>
II - 12
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Prepayment and Servicing Information
<TABLE>
<CAPTION>
Penalty First
Loan Foot Lockout Start Open
Seller (1) ID Property Name Notes Period Date Date
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GMACCM 26 Wendell Terrace 4(E) 0 12/24/96 7/1/06
MSMC 27 Tennessee Office Rollup 60 1/2/02 7/1/06
MSMC 27A Estate Office Park
MSMC 27B Perimeter II Office Building
MSMC 27C The Terraces
MSMC 27D Crossroad Commons
MSMC 27E Pine Ridge
GMACCM 28 Hilton Village Shopping Center 12 12/6/97 10/1/06
MSMC 29 Safe Keep Self Storage - Redwood City 0 3/14/96 ######
MSMC 30 American Business Center 0 8/13/96 2/28/06
GMACCM 31 Liberty Central Warehouse 12 7/23/97 2/1/03
CT 32 Gem Suburban MHC 0 9/16/96 10/1/00
GMACCM 33 Tower 801 Apt 0 9/5/96 4/1/03
MSMC 34 North Broadway Plaza 5, 13 60 2/1/02
GMACCM 35 Southpointe Plaza 4(C) 0 12/6/96 7/1/06
GMACCM 36 Plantation Plaza 4(C) 0 12/6/96 7/1/06
GMACCM 37 Mountain View Plaza 4(C) 0 12/6/96 7/1/06
MSMC 38 Quincy Commons Shopping Center 36 10/31/99 11/1/11
MSMC 39 Watt Properties Rollup 60 1/1/02 7/1/06
MSMC 39A Country Hills Shopping Center
MSMC 39B Canyon Country Shopping Center
GMACCM 40 Trident Pool I Roll Up 0 11/25/96 6/1/06
GMACCM 40A 7565 Melrose Avenue
GMACCM 40B Star Of India Building
GMACCM 40C Napoleon Bakery Building
GMACCM 40D 1426 Montana Retail Property
GMACCM 40E 1460 Westwood Office Building
GMACCM 41 Fenton Place Apartments 0 10/3/96 5/1/03
MSMC 42 Rainbow Plaza 36 11/19/99 9/1/06
GMACCM 43 Rock Grove Multiproperty Rollup 0 8/9/96 3/1/06
GMACCM 43A Comfort Inn - Shady Grove
GMACCM 43B Shady Grove Professional Building
MSMC 44 1111 West Mockingbird Lane 36 3/2/00 9/1/03
GMACCM 45 Trident Pool II - Rollup Of Six Properties 0 11/25/96 6/1/06
GMACCM 45A Fourth Avenue Retail Property
GMACCM 45B Melrose Ave Retail Building
GMACCM 45C 12260 - 12266 Ventura Blvd.
GMACCM 45D The Gap - 2654 Main Street
GMACCM 45E Men's Wearhouse Building
GMACCM 45F Larchmont Market Building - 125 N. Larchmont
GMACCM 46 Trident Pool III - Roll Up 0 11/25/96 6/1/06
GMACCM 46A 6907 Melrose Ave. Retail Building
</TABLE>
<TABLE>
<CAPTION>
Servicing
Seller Loan Foot Fee
(1) ID Property Name Notes Prepayment Code (14) (bps)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GMACCM 26 Wendell Terrace 4(E) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
MSMC 27 Tennessee Office Rollup LO/LO/LO/LO/LO/YM1/YM1/YM1/YM1/YM1(.50)/0(.50) 13.6
MSMC 27A Estate Office Park
MSMC 27B Perimeter II Office Building
MSMC 27C The Terraces
MSMC 27D Crossroad Commons
MSMC 27E Pine Ridge
GMACCM 28 Hilton Village Shopping Center LO/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.75)/0(.25) 13.6
MSMC 29 Safe Keep Self Storage-
Redwood City YM/YM/YM/YM/YM/YM/YM(.75)/0(.25) 13.6
MSMC 30 American Business Center YM/YM/YM/YM/YM/YM/YM/YM/YM/YM(.5)/0(.5) 13.6
GMACCM 31 Liberty Central Warehouse LO/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 32 Gem Suburban MHC YM/YM/YM/1/0 18.6
GMACCM 33 Tower 801 Apt YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
MSMC 34 North Broadway Plaza 5, 13 LO/LO/LO/LO/LO/5/5/5/5/5/4/4/4/4/4 13.6
GMACCM 35 Southpointe Plaza 4(C) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 36 Plantation Plaza 4(C) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 37 Mountain View Plaza 4(C) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
MSMC 38 Quincy Commons Shopping Center LO/LO/LO/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1 13.6
MSMC 39 Watt Properties Rollup LO/LO/LO/LO/LO/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
MSMC 39A Country Hills Shopping Center
MSMC 39B Canyon Country Shopping Center
GMACCM 40 Trident Pool I Roll Up YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 40A 7565 Melrose Avenue
GMACCM 40B Star Of India Building
GMACCM 40C Napoleon Bakery Building
GMACCM 40D 1426 Montana Retail Property
GMACCM 40E 1460 Westwood Office Building
GMACCM 41 Fenton Place Apartments YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
MSMC 42 Rainbow Plaza LO/LO/LO/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.75)/0(.25) 13.6
GMACCM 43 Rock Grove Multiproperty Rollup YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 43A Comfort Inn - Shady Grove
GMACCM 43B Shady Grove Professional Building
MSMC 44 1111 West Mockingbird Lane LO/LO/LO/1/1/1/1(.5)/0(.5) 13.6
GMACCM 45 Trident Pool II-
Rollup Of Six Properties YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 45A Fourth Avenue Retail Property
GMACCM 45B Melrose Ave Retail Building
GMACCM 45C 12260 - 12266 Ventura Blvd.
GMACCM 45D The Gap - 2654 Main Street
GMACCM 45E Men's Wearhouse Building
GMACCM 45F Larchmont Market Building-
125 N. Larchmont
GMACCM 46 Trident Pool III - Roll Up YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 46A 6907 Melrose Ave. Retail Building
</TABLE>
II - 13
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Prepayment and Servicing Information
<TABLE>
<CAPTION>
Penalty First
Loan Foot Lockout Start Open
Seller (1) ID Property Name Notes Period Date Date
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GMACCM 46B Pico Boulevard Retail Building
GMACCM 46C Midnite Expresso Building
GMACCM 46D First Republic Thrift Building
GMACCM 46E Pacific Plaza Shopping Center
MSMC 47 Big Key SSF 0 3/14/96 12/1/05
GMACCM 48 Clinton Adams Corporation 0 12/17/96 7/1/06
CT 49 Crocker's Lockers 0 2/17/97 9/1/06
CT 50 Montgomery Nursing Home 0 8/29/96 9/1/05
GMACCM 51 Lyons Plaza Shopping Center 0 1/10/97 8/1/06
CT 52 Long Island Hebrew Living Ctr. 0 12/26/96 7/1/11
MSMC 53 The Oxford Rollup 6 0 7/18/96 7/31/03
MSMC 53A The Oxford Hotel and Parking
MSMC 53B The Oxford Office Annex
CT 54 Skyline Village MHC 0 9/16/96 10/1/01
CT 55 Carriage Villa MHC 0 9/24/96 4/1/03
CT 56 Johnson Estates MHC 0 9/24/96 4/1/03
CT 57 Starlite Estates 0 9/24/96 4/1/03
CT 58 Valley View 0 11/22/96 6/1/03
MSMC 59 Intech of Novi 0 5/30/96 2/28/06
CT 60 Brentwood Place 0 10/2/96 5/1/06
MSMC 61 Apollo - Utah Retail Rollup 24 11/22/98 6/1/03
MSMC 61A Highline Plaza
MSMC 61B Parley's Plaza
MSMC 61C Plaza 7000
MSMC 61D Antelope Plaza
MSMC 62 Columbia Plaza Shopping Center 60 9/30/01 10/1/16
MSMC 63 Holiday Inn - Hasbrouck Heights 0 3/29/96 1/31/06
CT 64 Westwood Hills Health Care Center 0 10/25/96 5/1/06
MSMC 65 Colonial Acres Mobile Home Park 0 2/28/96 ######
MSMC 66 Regency Suites Hotel 13 0 10/10/96 5/1/06
MSMC 67 Peachtree Marketplace 13 0 12/1/96 11/1/06
GMACCM 68 Promenade Shopping Center 12 8/14/97 6/1/06
GMACCM 69 Ashley Court 48 5/30/00 12/1/05
GMACCM 70 Maple Hill Apartments 0 12/12/96 7/1/06
MSMC 71 Bingham Office Park 7 0 12/23/94 6/1/11
MSMC 72 11211 Vanowen Street 13 36 1/30/00 7/1/11
MSMC 73 Highland Square Shopping Center 60 12/1/01 6/1/06
CT 74 Country View 0 9/4/96 4/1/06
MSMC 75 United Artists Theatre 60 3/2/02 9/1/06
CT 76 Spectrum Self Storage 0 10/1/96 10/1/05
MSMC 77 Security Public Storage 0 3/8/96 ######
GMACCM 78 The Dukes' Plaza 0 12/31/96 7/1/06
</TABLE>
<TABLE>
<CAPTION>
Servicing
Seller Loan Foot Fee
(1) ID Property Name Notes Prepayment Code (14) (bps)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GMACCM 46B Pico Boulevard Retail Building
GMACCM 46C Midnite Expresso Building
GMACCM 46D First Republic Thrift Building
GMACCM 46E Pacific Plaza Shopping Center
MSMC 47 Big Key SSF YM/YM/YM/YM/YM/YM/YM/YM/YM/YM(.75)/0(.25) 13.6
GMACCM 48 Clinton Adams Corporation YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 49 Crocker's Lockers YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
CT 50 Montgomery Nursing Home YM/YM/YM/YM/YM/2/1.5/1/.5/0 13.6
GMACCM 51 Lyons Plaza Shopping Center YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 52 Long Island Hebrew Living Ctr. YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/YM1(.5)/0(.5) 13.6
MSMC 53 The Oxford Rollup 6 YM/YM/YM/YM/YM/YM/YM 13.6
MSMC 53A The Oxford Hotel and Parking
MSMC 53B The Oxford Office Annex
CT 54 Skyline Village MHC YM/YM/YM/YM/1/0/0 18.6
CT 55 Carriage Villa MHC YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
CT 56 Johnson Estates MHC YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
CT 57 Starlite Estates YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
CT 58 Valley View YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
MSMC 59 Intech of Novi YM/YM/YM/YM/YM/YM/YM/YM/YM/YM(.75)/0(.25) 13.6
CT 60 Brentwood Place YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
MSMC 61 Apollo - Utah Retail Rollup LO/LO/YM1/YM1/YM1/YM1/YM1(0.5)/0(0.5) 13.6
MSMC 61A Highline Plaza
MSMC 61B Parley's Plaza
MSMC 61C Plaza 7000
MSMC 61D Antelope Plaza
MSMC 62 Columbia Plaza Shopping Center LO/LO/LO/LO/LO/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/YM1/YM1/YM1/YM1/YM1 13.6
MSMC 63 Holiday Inn - Hasbrouck Heights YM/YM/YM/YM/YM/YM/YM/YM/YM/YM(.75)/0(.25) 13.6
CT 64 Westwood Hills Health Care Center YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
MSMC 65 Colonial Acres Mobile Home Park YM/YM/YM/YM/YM/YM/YM/YM/YM/YM(.75)/0(.25) 13.6
MSMC 66 Regency Suites Hotel 13 4/4/4/4/4/3/3/3/3/3(.5)/0(.5) 13.6
MSMC 67 Peachtree Marketplace 13 4/4/4/4/4/3/3/3/3/3 13.6
GMACCM 68 Promenade Shopping Center LO/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.75)/0(.25) 13.6
GMACCM 69 Ashley Court LO/LO/LO/LO/YM1/YM1/YM1/YM1/YM1(.5)/1(.5)/1(.5)/0(.5) 13.6
GMACCM 70 Maple Hill Apartments YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
MSMC 71 Bingham Office Park 7 2(.5)/1.5(1)/1/1/1/1/1/1/1/1/1/1/1/1/1/1/1 13.6
MSMC 72 11211 Vanowen Street 13 LO/LO/LO/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/YM1(.5)/0(.5) 13.6
MSMC 73 Highland Square Shopping Center LO/LO/LO/LO/LO/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 74 Country View YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
MSMC 75 United Artists Theatre LO/LO/LO/LO/LO/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 76 Spectrum Self Storage YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/0 18.6
MSMC 77 Security Public Storage YM/YM/YM/YM/YM/YM/YM/YM/YM/YM(.75)/0(.25) 13.6
GMACCM 78 The Dukes' Plaza YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
</TABLE>
II - 14
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Prepayment and Servicing Information
<TABLE>
<CAPTION>
Penalty First
Loan Foot Lockout Start Open
Seller (1) ID Property Name Notes Period Date Date
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GMACCM 79 Sportmart Sporting Goods Store 0 10/21/96 5/1/03
GMACCM 80 Desert Gardens 60 4/1/02 11/1/05
GMACCM 81 Mercado Del Lago 12 7/10/97 5/1/06
MSMC 82 Best Western-Lubbock Regency 8 0 6/7/96 4/1/06
MSMC 83 A-American SSF - Sun Valley 0 4/30/96 1/31/06
CT 84 Mullikan Medical Center 0 2/14/97 7/1/05
MSMC 85 Shoppes of Silverwood 13 0 10/18/96 11/1/16
MSMC 86 Safe Keep Self Storage - Del Ray Oaks 0 4/1/96 ######
CT 87 Days Inn Hotel 12 12/1/97 6/1/16
MSMC 88 A-American SSF- La Verne 0 4/30/96 1/31/06
GMACCM 89 Creekside Apartments 12 3/1/97 3/1/05
MSMC 90 Imperial Park & Imperial Estates 0 2/27/96 ######
MSMC 91 Town South Shopping Center 60 2/2/02 8/1/08
GMACCM 92 Applied Materials 0 11/11/96 9/1/03
GMACCM 93 Madison & Manzanita 0 9/30/96 4/1/06
GMACCM 94 Sundance Apartments 0 7/1/96 1/1/06
CT 95 U-STOR-IT - Decatur 4(F) 0 2/1/97 2/1/16
CT 96 U-STOR-IT Self Storage 4(F) 0 2/1/97 2/1/16
CT 97 U-STOR-IT Self-Storage 4(F) 0 2/1/97 2/1/16
CT 98 U-STOR-IT - Mobile 2 4(F) 0 2/1/97 2/1/16
CT 99 U-STOR-IT Self Storage 4(F) 0 2/1/97 2/1/16
CT 100 U-STOR-IT - Shreveport 4(F) 0 2/1/97 8/1/16
CT 101 U-STOR-IT - Tempe 4(F) 0 2/1/97 2/1/16
CT 102 U-STOR-IT - Tuscon 4(F) 0 2/1/97 2/1/16
CT 103 Greenbelt Vault 0 12/9/96 7/1/06
GMACCM 104 Sherwood Village Apartments 0 11/27/96 6/1/03
GMACCM 105 Lincoln Plaza 0 12/24/96 7/1/06
CT 106 East Bank Self-Storage 0 10/8/96 11/1/13
GMACCM 107 Parkway III & IV 0 10/30/96 5/1/03
CT 108 Sierra Vista Apartments 120 12/1/06 5/1/14
CT 109 ABC Self-Storage 0 11/5/96 5/1/06
MSMC 110 American Self Storage 0 7/18/96 4/30/06
GMACCM 111 Woodcrest Pavilion 12 11/8/97 9/1/06
CT 112 International Self Storage 0 9/17/96 4/1/06
MSMC 113 Parkview Apartments 9, 13 0 10/18/96 11/1/06
GMACCM 114 Park Village Apartments 0 10/14/96 5/1/03
CT 115 ABC Mini Storage 0 10/1/96 4/1/03
CT 116 Days Inn - Wytheville 12 12/1/97 6/1/16
CT 117 Candlewood Valley Care Center 0 1/10/97 8/1/06
CT 118 RitePlace Self Storage 0 10/9/96 5/1/06
CT 119 United Artists Theaters 36 10/10/99 9/1/15
CT 120 U-Haul Storage (S.Hulen) 10 84 12/1/00
</TABLE>
<TABLE>
<CAPTION>
Servicing
Seller Loan Foot Fee
(1) ID Property Name Notes Prepayment Code (14) (bps)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GMACCM 79 Sportmart Sporting Goods Store YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 80 Desert Gardens LO/LO/LO/LO/LO/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 81 Mercado Del Lago LO/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.75)/0(.25) 13.6
MSMC 82 Best Western-Lubbock Regency 8 YM/YM/YM/YM/YM/YM/YM/YM/YM/YM(.75)/0(.25) 13.6
MSMC 83 A-American SSF - Sun Valley YM/YM/YM/YM/YM/YM/YM/YM/YM/YM(.75)/0(.25) 13.6
CT 84 Mullikan Medical Center YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.33)/0(.5) 13.6
MSMC 85 Shoppes of Silverwood 13 4/4/4/4/4/3/3/3/3/3/3/3/3/3/3/3/3/3/3/3 13.6
MSMC 86 Safe Keep Self Storage-
Del Ray Oaks YM/YM/YM/YM/YM/YM/YM(.75)/0(.25) 13.6
CT 87 Days Inn Hotel LO/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/3/2/1/1/1/1(.5)/0(.5) 18.6
MSMC 88 A-American SSF- La Verne YM/YM/YM/YM/YM/YM/YM/YM/YM/YM(.75)/0(.25) 13.6
GMACCM 89 Creekside Apartments LO/YM1/YM1/YM1/YM1/YM1/3/2/1/0 13.6
MSMC 90 Imperial Park &
Imperial Estates YM/YM/YM/YM/YM/YM/YM/YM/YM/YM(.75)/0(.25) 13.6
MSMC 91 Town South Shopping Center LO/LO/LO/LO/LO/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 92 Applied Materials YM1/YM1/YM1/YM1/YM1/YM1/YM1(.75)/0(.25) 13.6
GMACCM 93 Madison & Manzanita YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 94 Sundance Apartments YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 95 U-STOR-IT - Decatur 4(F) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/YM1/4/3/2/1/0 18.6
CT 96 U-STOR-IT Self Storage 4(F) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/YM1/4/3/2/1/0 18.6
CT 97 U-STOR-IT Self-Storage 4(F) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/YM1/4/3/2/1/0 18.6
CT 98 U-STOR-IT - Mobile 2 4(F) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/YM1/4/3/2/1/0 18.6
CT 99 U-STOR-IT Self Storage 4(F) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/YM1/4/3/2/1/0 18.6
CT 100 U-STOR-IT - Shreveport 4(F) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
CT 101 U-STOR-IT - Tempe 4(F) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/YM1/4/3/2/1/0 18.6
CT 102 U-STOR-IT - Tuscon 4(F) YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/YM1/4/3/2/1/0 18.6
CT 103 Greenbelt Vault YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
GMACCM 104 Sherwood Village Apartments YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 105 Lincoln Plaza YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 106 East Bank Self-Storage YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/(Greater than)5-YM/(Greater than)4-YM/(Greater than)3-YM
/(Greater than)2-YM/(Greater than)1-YM/0/0/0 18.6
GMACCM 107 Parkway III & IV YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 108 Sierra Vista Apartments LO/LO/LO/LO/LO/LO/LO/LO/LO/LO/YM1/YM1/YM1/YM1/YM1
/YM1/YM1/YM1(.5)/0(.5) 18.6
CT 109 ABC Self-Storage YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
MSMC 110 American Self Storage YM/YM/YM/YM/YM/YM/YM/YM/YM/YM(.75)/0(.25) 13.6
GMACCM 111 Woodcrest Pavilion LO/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.75)/0(.25) 13.6
CT 112 International Self Storage YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
MSMC 113 Parkview Apartments 9, 13 4/4/4/4/4/3/3/3/3/3 13.6
GMACCM 114 Park Village Apartments YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 115 ABC Mini Storage YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
CT 116 Days Inn - Wytheville LO/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/3/2/1/1/1/1(.5)/0(.5) 18.6
CT 117 Candlewood Valley Care Center YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 118 RitePlace Self Storage YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
CT 119 United Artists Theaters LO/LO/LO/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
CT 120 U-Haul Storage (S.Hulen) 10 LO/LO/LO/LO/LO/LO/LO/0/0/0 18.6
</TABLE>
II - 15
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
Prepayment and Servicing Information
<TABLE>
<CAPTION>
Penalty First
Loan Foot Lockout Start Open
Seller (1) ID Property Name Notes Period Date Date
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GMACCM 121 Pine Park Apartments 60 11/20/00 6/1/05
GMACCM 122 The Registry 12 6/3/97 12/1/05
GMACCM 123 Washington Woodworking 0 10/23/96 5/1/06
GMACCM 124 Scott Manor Apartments 0 7/17/96 2/1/06
MSMC 125 Security Self Storage 0 4/24/96 4/30/03
CT 126 Budget Unit Storage 60 2/1/02 2/1/12
CT 127 Shenandoah Apartments 60 2/1/02 2/1/07
CT 128 Las Vegas Mini Storage 0 10/9/96 11/1/10
MSMC 129 Ladson-Oakbrook S.C. 60 12/1/01 6/1/06
CT 130 Stonewall Jackson Building 0 12/18/96 7/1/03
GMACCM 131 Four Seasons Estates 0 11/22/96 6/1/06
CT 132 Shaw Mini Storage 0 9/18/96 4/1/03
CT 133 Congress-Sheraton Mini Storage 0 12/5/96 7/1/03
MSMC 134 Lincoln Center 60 2/1/02 7/31/06
CT 135 Dependable Mini Storage 0 10/30/96 5/1/06
CT 136 U-Haul Storage (Pasadena) 10 84 9/1/00
GMACCM 137 Valley View Apartments 0 9/6/96 4/1/06
GMACCM 138 University Avenue Retail 0 11/25/96 6/1/06
CT 139 Comfort Inn 12 12/1/97 6/1/16
GMACCM 140 Oakland Terrace Apartments 0 9/13/96 4/1/06
GMACCM 141 Capri/ Graham House/ Hale Hall Apartments 0 8/19/96 3/1/16
CT 142 Alamo Self Storage 0 12/23/96 7/1/03
GMACCM 143 Royal Garden Apartments 0 7/31/96 2/1/06
GMACCM 144 Lincoln Court Apartments 12 8/12/97 6/1/03
CT 145 Pantano/22nd St. Self Storage 0 12/4/96 7/1/06
GMACCM 146 Kutztown Garden Apartments 0 12/12/96 7/1/06
GMACCM 147 Clarke Products 0 12/13/96 7/1/06
GMACCM 148 Springview Garden Apartments 0 11/22/96 6/1/06
CT 149 Morningstar Mini Storage 0 11/7/96 6/1/16
GMACCM 150 Greystone Court Apartments 0 9/13/96 4/1/03
GMACCM 151 Fort Knox Storage Park 0 11/20/96 6/1/06
CT 152 Atherton Storage 0 1/15/97 2/1/06
CT 153 Beauford Manor 60 3/1/02 9/1/06
CT 154 Colonial Mobile Home Park 0 11/27/96 6/1/06
CT 155 City Center Plaza & Storage 0 11/11/96 6/1/06
GMACCM 156 Montana Avenue Retail 0 11/25/96 6/1/06
Loan Group 2
CT 157 Holly Hall Apartments 12 0 10/1/94 10/1/99
CT 158 Olive Tree Apartments 12 0 10/1/94 10/1/99
CT 159 Donner Apartments 12 0 7/20/95 7/20/99
GMACCM 160 Northview Terrace Apartments 12 0 9/1/96 9/1/01
</TABLE>
<TABLE>
<CAPTION>
Servicing
Seller Loan Foot Fee
(1) ID Property Name Notes Prepayment Code (14) (bps)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GMACCM 121 Pine Park Apartments LO/LO/LO/LO/LO/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 122 The Registry LO/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 123 Washington Woodworking YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 124 Scott Manor Apartments YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
MSMC 125 Security Self Storage 5/4/3/3/2/2/1/0/0/0 13.6
CT 126 Budget Unit Storage LO/LO/LO/LO/LO/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/0/0/0/0/0 18.6
CT 127 Shenandoah Apartments LO/LO/LO/LO/LO/5/4/3/2/1/0/0/0/0/0 18.6
CT 128 Las Vegas Mini Storage YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/5/3/1/1/0 18.6
MSMC 129 Ladson-Oakbrook S.C. LO/LO/LO/LO/LO/YM1/YM1/YM1/YM1/YM1(0.5)/0(0.5) 13.6
CT 130 Stonewall Jackson Building YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
GMACCM 131 Four Seasons Estates YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 132 Shaw Mini Storage YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
CT 133 Congress-Sheraton Mini Storage YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
MSMC 134 Lincoln Center LO/LO/LO/LO/LO/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
CT 135 Dependable Mini Storage YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
CT 136 U-Haul Storage (Pasadena) 10 LO/LO/LO/LO/LO/LO/LO/0/0/0 18.6
GMACCM 137 Valley View Apartments YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 138 University Avenue Retail YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 139 Comfort Inn LO/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/3/2/1/1/1/1(.5)/0(.5) 18.6
GMACCM 140 Oakland Terrace Apartments YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 141 Capri/ Graham House/
Hale Hall Apartments YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 142 Alamo Self Storage YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
GMACCM 143 Royal Garden Apartments YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 144 Lincoln Court Apartments LO/YM1/YM1/YM1/YM1/YM1/YM1(.75.)/0(.25) 13.6
CT 145 Pantano/22nd St. Self Storage YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
GMACCM 146 Kutztown Garden Apartments YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 147 Clarke Products YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 148 Springview Garden Apartments YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 149 Morningstar Mini Storage YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1
/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
GMACCM 150 Greystone Court Apartments YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
GMACCM 151 Fort Knox Storage Park YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
CT 152 Atherton Storage YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/0 18.6
CT 153 Beauford Manor LO/LO/LO/LO/LO/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
CT 154 Colonial Mobile Home Park YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
CT 155 City Center Plaza & Storage YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 18.6
GMACCM 156 Montana Avenue Retail YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1/YM1(.5)/0(.5) 13.6
Loan
Group
2
CT 157 Holly Hall Apartments 12 5/4/3/2/1/0/0/0/0/0 13.6
CT 158 Olive Tree Apartments 12 5/4/3/2/1/0/0/0/0/0 13.6
CT 159 Donner Apartments 12 4/3/2/1/0/0/0 13.6
GMACCM 160 Northview Terrace Apartments 12 5/4/3/2/1/0/0/0/0/0 13.6
</TABLE>
II - 16
<PAGE>
Footnotes to Appendix II
1 "CT", "GMACCM", and "MSMC" denote ContiTrade Services L.L.C., GMAC
Commercial Mortgage Corporation, Morgan Stanley Mortgage Capital Inc.,
respectively as Sellers.
2 Loan per Unit of Mortgage Loans secured by a portfolio of properties
(Cross-Collateralized Mortgage Loans and Mortgage Loans secured by multiple
Mortgaged Properties) are calculated based on the combined Cut-off Date
Balances and relevant units except where not possible due to differing
property types.
3 Sets of Mortgage Loans that have identical roman numeral coding designate
Mortgaged Properties as to which the related borrowers are the same or
affiliated with one another.
4 Sets of Mortgage Loans that have identical alphabetical coding designate
Cross-Collateralized Mortgaged Properties.
5 This loan has a stated maturity date of January 1, 2017 but contains a call
option and the Pooling and Servicing Agreement will provide for the Master
Servicer to call the loan on January 1, 2012.
6 Denotes hyper amortizing loan. Interest rate increases 500 basis points in
the 8th year and all excess cashflow is applied to pay down principal.
7 The Bingham Office Park Loan (MSMC 71) is an interest only loan through
June 1997. Amortization begins July 1, 1997 and the Mortgage Loan will
fully amortize over the remaining 168 months of the term. Debt Service and
DSCR reflect the payment of principal and interest commencing in July of
1997.
8 Denotes hyper amortizing loan. Interest rate increases 500 bps in the 10th
year and all excess cashflow is applied to pay down principal.
9 This loan has a stated maturity date of November 1, 2016 but contains a
call option and the Pooling and Servicing Agreement will provide for the
Master Servicer to call the loan on November 1, 2006.
10 The U-Haul Loans pay interest on a monthly basis at the stated rate on the
last day of every month. For the first seven years, principal payments are
due on the last day of each calendar quarter in an amount equal to 50% of
net cash flow from the related Mortgaged Property for such calendar
quarter. For the final years, principal payments are due on the last day of
each calendar quarter in an amount equal to 100% of the net cash flow from
the related Mortgaged Property for such calendar quarter.
11 In general for each property, occupancy was determined based on a rent roll
provided by the borrower. In certain cases, occupancy was determined based
on an appraisal or site inspection. "Occupancy Date" indicates the date as
of which occupancy is determined based on such information.
12 Denotes adjustable rate Loans with the following features:
<TABLE>
<CAPTION>
Gross Adj. Adj.
Seller Loan ID Property Name Rate Cap Floor Margin Index Frequency Dates
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CT 157 Holly Hall Apartments 8.531% 11.750% 6.000% 2.750 LIBOR - 6 mo Semiannually April 1, October 1
CT 158 Olive Tree Apartments 8.531% 11.750% 6.000% 2.750 LIBOR - 6 mo Semiannually April 1, October 1
CT 159 Donner Apartments 8.500% 13.750% 8.500% 2.750 LIBOR - 6 mo Semiannually April 1, October 1
GMACCM 160 Northview Terrace Apartments 7.938% 10.375% 5.750% 2.500 LIBOR - 1 mo Monthly Monthly
</TABLE>
13 Denotes Mortgage Loans wherein up to 10% of the loan may be prepaid without
penalty each year.
14 Indicates prepayment provisions from first Due Date as stated in the
Mortgage Loan. "YM" represents yield maintenance and "YM1" represents the
greater of yield maintenance or one percent of the outstanding Principal
Balance at such time.
15 Values are generally based upon appraisals but in certain cases, values of
the related Mortgaged Property were estimated internally based on the net
operating income generated by the Mortgaged Property as well as sales and
rental information with respect to comparable properties.
II - 17
<PAGE>
================================================================================
MORGAN STANLEY | | March 20, 1997
Real Estate Debt Capital Markets | [SMALL WORLD MAP] |
Mortgage/Asset Capital Markets | |
================================================================================
CMBS New Issue
Term Sheet
----------
Pricing Date: March 20, 1997
----------
$563,777,484
(Approximate)
Morgan Stanley Capital I, Inc.
as Depositor
ContiTrade Services L.L.C.
Morgan Stanley Mortgage Capital Inc.
as Mortgage Loan Sellers
GMAC Commercial Mortgage Corporation
as Master Servicer, Special Servicer
and Mortgage Loan Seller
Commercial Mortgage Pass-Through Certificates,
Series 1997-C1
----------
Morgan Stanley & Co.
Incorporated
THE SERCURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS AND PROSPECTUS SUPPLEMENT AND PROSPECTIVE INVESTORS WHO CONSIDER
PURCHASING ANY SUCH SECURITIES SHOULD MAKE THEIR INVESTMENT DECISION BASED ONLY
UPON THE INFORMATION PROVIDED THEREIN. CAPITALIZED TERMS USED BUT NOT DEFINED
HEREIN HAVE THE MEANINGS GIVEN TO SUCH TERMS IN THE PROSPECTUS SUPPLEMENT.
<PAGE>
$563,777,484
(Approximate)
Morgan Stanley Capital I Inc.
Commercial Mortgage Pass-Through Certificates,
Series 1997-C1
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Initial Aggregate
Certificate
Balance or Weighted Description of
Notional Amount Ratings Average Principal Expected Final Pass-Through
Class ($MM)(1) (DCR/Moody's) Life (yrs.)(3) Window (mos.)(3)(4) Distribution Date(3) Rate
- ----- -------- ------------- -------------- ------------------- -------------------- ----
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A-1A $61.7 AAA/Aaa 3.0 1-61 April 15, 2002 Fixed
- -----------------------------------------------------------------------------------------------------------------------
A-1B 193.0 AAA/Aaa 7.0 61-108 March 15, 2006 Fixed
- -----------------------------------------------------------------------------------------------------------------------
A-1C 139.5 AAA/Aaa 9.4 108-117 December 15, 2006 Fixed
- -----------------------------------------------------------------------------------------------------------------------
A-2 38.2 AAA/Aaa 5.8 1-113 August 15, 2006 LIBOR-Based
- -----------------------------------------------------------------------------------------------------------------------
IO-1 601.8 (2) AAA/Aaa - - February 15, 2017 Variable
- -----------------------------------------------------------------------------------------------------------------------
IO-2 38.2 (2) AAA/Aaa - - August 15, 2006 Variable
- -----------------------------------------------------------------------------------------------------------------------
B 51.3 AA-/Aa2 9.8 117-118 January 15, 2007 Fixed
- -----------------------------------------------------------------------------------------------------------------------
C 38.4 A-/A2 9.8 118 January 15, 2007 Fixed
- -----------------------------------------------------------------------------------------------------------------------
D 35.2 BBB-/Baa2 9.8 118-119 February 15, 2007 Fixed
- -----------------------------------------------------------------------------------------------------------------------
E 6.4 NR/Baa3 9.9 119 February 15, 2007 Fixed
- -----------------------------------------------------------------------------------------------------------------------
F 19.2 BB/Ba2 10.2 119-134 May 15, 2008 Fixed
- -----------------------------------------------------------------------------------------------------------------------
G 11.2 BB-/Ba3 12.0 134-154 January 15, 2010 Fixed
- -----------------------------------------------------------------------------------------------------------------------
H 20.8 B/B3 14.3 154-179 February 16, 2012 Fixed
- -----------------------------------------------------------------------------------------------------------------------
J 25.6 NR/NR 17.3 179-239 February 15, 2017 Fixed
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes: (1) In the case of each Class subject to a variance of plus or minus 5%.
(2) The aggregate Notional Amount of Class IO-1 Cerfiticates is equal to
99.9% of the aggregate stated principal balance of the Group 1
Mortgage Loans (or, following the Class A-2 Cross-Over Date, if any,
of all the Mortgage Loans) outstanding from time to time. The
aggregate Notional Amount of the Class IO-2 Certificates is equal to
the aggregate Stated Principal Balance of the Group 2 Loans
outstanding from time to time.
(3) Based on Maturity Assumptions and a pricing speed of 5% CPR for each
Mortgage Loan commencing in each case at the end of the period where
voluntary principal prepayments are prohibited and/or Yield
Maintenance Premiums are imposed.
(4) Principal Window is the period (expressed in terms of months and
commencing with the month of the first Distribution Date) during
which distributions of principal will be made to the holders of each
designated Class.
T-1
<PAGE>
$563,777,484
(Approximate)
Morgan Stanley Capital I Inc.
Commercial Mortgage Pass-Through Certificates
Series 1997-C1
I. Issue Characteristics
Issue Type: The Class A-1A, A-1B, A-1C, A-2, IO-1, IO-2, B, C, D and E
Certificates will be offered by a Prospectus Supplement (and
accompanying Prospectus) to be dated March __, 1997, and the
Class F, G, H and J Certificates will be privately placed
(including pursuant to Rule 144A under the Securities Act of
1933, as amended) pursuant to a Private Placement
Memorandum, to be dated March __, 1997.
Offered
Certificates: $563.8MM sequential monthly pay, multi-class, Commercial
Mortgage Pass-Through Certificates; 7 fixed rate Classes of
Certificates (Classes A-1A, A-1B, A-1C, B, C, D and E); one
adjustable rate (LIBOR-Based) Class of Certificates (Class
A-2); and two variable rate Interest Only Classes of
Certificates (Classes IO-1 and IO-2).
Loan Groups: Loan Group 1 will consist of 156 fixed rate Mortgage Loans
with an aggregate principal balance as of the Cut-off Date
of approximately $602.4MM and Loan Group 2 will consist of
four adjustable rate Mortgage Loans with an aggregate
principal balance as of the Cut-off Date of approximately
$38.2MM. The Class A-1A, A-1B, A-1C, IO-1, B, C, D, E, F, G,
H and J Certificates will be primarily supported by Loan
Group 1, while the Class A-2 and IO-2 Certificates will be
primarily supported by Loan Group 2.
Sellers: GMAC Commercial Mortgage Corporation, ContiTrade Services
L.L.C. and Morgan Stanley Mortgage Capital Inc.
Underwriter: Morgan Stanley & Co. Incorporated
Master Servicer: GMAC Commercial Mortgage Corporation
Special Servicer: GMAC Commercial Mortgage Corporation
Trustee/
Fiscal Agent: LaSalle National Bank/ABN AMRO Bank N.V.
Pricing Date: March 20, 1997
Closing Date: March 26, 1997
Distribution
Dates: The 15th day of each month or, if such 15th day is not a
business day, the business day immediately following such
15th day, commencing on April 15, 1997.
Minimum
Denominations: In the case of the Class A Certificates, $5,000 Certificate
Balance and multiples of $1 in excess thereof, and in the
case of the other Offered Certificates $50,000 Certificate
Balance and multiples of $1 in excess thereof.
Settlement Terms: DTC, Euroclear and Cedel, same day funds, with accrued
interest.
Legal/
Regulatory Status: The Class A-1A, A-1B, A-1C, A-2, IO-1 and IO-2 Certificates
are expected to be ERISA eligible. No Class of Certificates
is SMMEA eligible.
Risk Factors: THE OFFERED CERTIFICATES INVOLVE A DEGREE OF RISK AND MAY
NOT BE SUITABLE FOR ALL INVESTORS. PLEASE SEE THE "RISK
FACTORS AND OTHER SPECIAL CONSIDERATIONS" SECTION OF THE
PROSPECTUS SUPPLEMENT AND THE "RISK FACTORS" SECTION OF THE
PROSPECTUS.
T-2
<PAGE>
$563,777,484
(Approximate)
Morgan Stanley Capital I Inc.
Commercial Mortgage Pass-Through Certificates
Series 1997-C1
[GRAPHIC OMITTED]
[IN THE PRINTED MATERIAL, A BAR CHART DEPICTS THE PORTION OF INTEREST CASH FLOW,
ON EACH OF LOAN GROUP 1 AND LOAN GROUP 2, TO WHICH EACH CLASS OF CERTIFICATES IS
GENERALLY ENTITLED.]
II. Structure Characteristics
The Class A-1A, A-1B, A-1C, B, C, D, E, F, G, H and J Certificates are fixed
rate, sequential monthly pay, pass-through certificates and Class IO-1 is a
variable rate interest strip, all of which are generally supported by cash flow
from Loan Group 1. The Pass-Through Rate of the Class A-2 Certificates adjusts
monthly based upon a spread over 1-month LIBOR and Class IO-2 is a variable rate
interest strip, both of which are primarily supported by Loan Group 2. As
described in the Prospectus Supplement, in certain circumstances principal
and/or interest from Loan Group 1 can be utilized to make payments on the
Certificates supported primarily by Loan Group 2, and the aggregate Balance of
the Senior Certificates will be paid down first before any principal from either
Loan Group will be allocated to pay down the Subordinate Classes. After such
"Class A-2 Cross-Over Date," the Pass-Through Rate of the Class IO-1
Certificates will be calculated based upon the Net Mortgage Rates of all of the
Mortgage Loans, including the Group 2 Mortgage Loans.
T-3
<PAGE>
$563,777,484
(Approximate)
Morgan Stanley Capital I Inc.
Commercial Mortgage Pass-Through Certificates
Series 1997-C1
Priority of Cash Flows
[GRAPHIC OMITTED]
[IN THE PRINTED MATERIAL, A BAR CHART DEPICTS THE GENERAL TIMING AND PRIORITY OF
DISTRIBUTIONS OF INTEREST AND PRINCIPAL CASH FLOW, ON EACH OF THE LOAN GROUP 1
AND LOAN GROUP 2, TO EACH CLASS OF CERTIFICATES.]
Notes: (1) The Class A-1A, A-1B, A-1C, A-2, IO-1 and IO-2 Certificates will
be paid interest on a pro rata basis.
(2) Based on the Maturity Assumptions, a pricing speed of 5% CPR for
each Mortgage Loan commencing in each case at the end of the period
where voluntary principal prepayments are prohibited and/or Yield
Maintenance Premiums are imposed and no defaults on any of the
Mortgage Loans.
T-4
<PAGE>
$563,777,484
(Approximate)
Morgan Stanley Capital I Inc.
Commercial Mortgage Pass-Through Certificates
Series 1997-C1
Interest
Distributions: Interest will be distributed on each Distribution Date to
each class of Certificates at its Pass-Through Rate, on the
outstanding Certificate Principal Balance or Notional Amount
as applicable.
Pass-Through Rates: A-1A Pass-Through Rate: 6.85%
A-1B Pass-Through Rate: 7.46%
A-1C Pass-Through Rate: 7.63%
A-2 Pass-Through Rate: 1 month LIBOR + 39 bps
B Pass-Through Rate: 7.69%
C Pass-Through Rate: 7.79%
D Pass-Through Rate: 7.85%
E Pass-Through Rate: 7.85%
F Pass-Through Rate: 6.85%
G Pass-Through Rate: 6.85%
H Pass-Through Rate: 6.85%
J Pass-Through Rate: 6.85%
IO-1 Pass-Through Rate: Variable Rate. See "Description
of the Certificates--Pass-Through
Rates" in the Prospectus
Supplement.
IO-2 Pass-Through Rate: Variable Rate. See "Description
of the Certificates--Pass-Through
Rates" in the Prospectus
Supplement.
Principal
Distributions: Principal with respect to Loan Group 1 will be distributed
(in sequential order) to the Class A-1A, A-1B, A-1C and A-2
Certificates and principal with respect to Loan Group 2 will
be distributed (in sequential order) to the Class A-2, A-1A,
A-1B and A-1C Certificates with the remaining portion of
principal to the Class B, C, D, E, F, G, H and J
Certificates, in each case in sequential order until their
principal balances are reduced to zero.
Prepayment Penalty
Allocation: Prepayment Premiums will be distributed to the Principal
Balance Certificates and/or the Interest Only Certificates
with respect to the applicable Loan Groups as described
further in the "DESCRIPTION OF THE CERTIFICATES -
Distibutions--Distributions of Prepayment Premiums" in the
Prospectus Supplement.
Credit Enhancement: Each Class of Certificates shall be subordinated to all
other Classes, if any, with higher ratings.
Advancing: The Master Servicer, the Trustee and the Fiscal Agent, in
that order, will each be obligated to make P&I Advances and
Servicing Advances, including to cover delinquent property
taxes and insurance, generally only to the extent that such
Advances are deemed to be recoverable from Related Proceeds.
Realized Losses
and Interest
Shortfalls: Realized Losses and Expense Losses, if any, will be
allocated to the Class J, Class H, Class G, Class F, Class
E, Class D, Class C and Class B Certificates, in that order,
and then to the Class A-1A, A-1B, A-1C, A-2 Certificates,
pro rata with respect to principal.
Any interest shortfall on any Class of Certificates will
result in unpaid interest for such Class which, together
with (except in the case of the Interest Only Certificates)
interest thereon compounded monthly at an annualized rate
equal to the applicable Pass-Through Rate, will be included
in subsequent periods subject to available funds.
Prepayment Interest
Shortfalls: To the extent that aggregate Prepayment Interest Shortfalls
exceed the aggregate Prepayment Interest Excesses for the
Collection Period related to a Distribution Date, such
amount will reduce the aggregate Master Servicing Fee for
such Collection Period (such reduction not to exceed .05%
per annum applied to all of the Mortgage Loans). On each
Distribution Date, any Prepayment Interest Shortfall not
offset in such manner by the Master Servicing Fee or by
Prepayment Interest Excesses will generally be allocated pro
rata to each Class of Certificates proportionately to the
amount of interest that would otherwise be payable thereon.
T-5
<PAGE>
$563,777,484
(Approximate)
Morgan Stanley Capital I Inc.
Commercial Mortgage Pass-Through Certificates
Series 1997-C1
Appraisal
Reductions: Appraisal reductions will be created in the amount, if any,
by which the Stated Principal Balance of a Required
Appraisal Loan (plus certain other amounts overdue in
connection with such Mortgage Loan) exceeds 90% of the
appraised value of the related mortgaged property.
Notwithstanding the foregoing, if an internal valuation of
the mortgaged property is performed, the appraisal reduction
will be the greater of (a) the amount calculated as
described in the preceding sentence and (b) 25% of the
Stated Principal Balance of the Mortgage Loan.
The Appraisal Reduction amount will reduce proportionately
the amount of P&I Advances for such loan, which reduction is
borne by the most subordinate Class of Principal Balance
Certificates outstanding. An Appraisal Reduction will be
reduced to zero as of the date the related Mortgage Loan has
been brought current for three months, paid in full,
liquidated, repurchased or otherwise disposed of.
Servicing
Standard: Subject to the Servicing Standard as described in the
Prospectus Supplement, the Master Servicer and, as
applicable, the Special Servicer will, in its reasonable
discretion, service and administer the Mortgage Loans in the
best interest of, and for the benefit of, the
Certificateholders.
Operating Advisor: The Operating Advisor, which will be appointed by the
Controlling Class, will have the right to be notified by the
Special Servicer with respect to certain events regarding
specially serviced Mortgage Loans. Examples include the
right to make certain modifications, foreclose, sell, bring
an REO Property into environmental compliance or accept
substitute or additional collateral. In addition, the
Operating Advisor will have the right to terminate the
Special Servicer and appoint a successor Special Servicer
which is acceptable to the Rating Agencies. Initially, the
Operating Advisor will be the same entity as the Special
Servicer.
Controlling Class: The Controlling Class will be the most subordinate Class of
Principal Balance Certificates outstanding at any time or,
if the aggregate Certificate Balance of such Class is less
than 25% of the initial aggregate Certificate Balance of
such Class, the next most subordinate Class of Principal
Balance Certificates.
Optional
Termination: The Depositor, the Master Servicer, the Special Servicer and
the holder of a majority interest in the Class R-I
Certificates will have the option to purchase, in whole, but
not in part, the remaining collateral on or after the
Distribution Date on which the aggregate Certificate Balance
of all Classes of Certificates then outstanding is less than
or equal to 3% of the Initial Pool Balance at a price
generally equal to the unpaid principal balance plus accrued
and unpaid interest and unreimbursed Servicing Advances and
expenses with respect to the Mortgage Loans and the fair
market value of any other collateral in the Trust Fund.
Reports to
Certificateholders: The Trustee will prepare and deliver monthly
Certificateholder Reports. The Master Servicer and the
Special Servicer will prepare and deliver to the Trustee a
monthly report setting forth, among other things, the DSCRs
for each Mortgage Loan, as available. The Special Servicer
will prepare and deliver to the Trustee a monthly Special
Servicer Report detailing the status of each specially
serviced Mortgage Loan. Each of the reports will be
available to the Certificateholders.
III. Sellers: GMACCM
The Mortgage Pool includes approximately $223.4MM of
Mortgage Loans representing 34.9% of the Initial Pool
Balance that are owned by GMAC Commercial Mortgage
Corporation ("GMACCM").
GMACCM, a corporation organized under the laws of the State
of California, is a wholly-owned direct subsidiary of GMAC
Mortgage Group, Inc., which in turn is a wholly-owned direct
subsidiary of General Motors Acceptance Corporation. The
principal offices of GMACCM are located at 650 Dresher Road,
Horsham, Pennsylvania 19044. Its telephone number is (215)
328-4622.
T-6
<PAGE>
$563,777,484
(Approximate)
Morgan Stanley Capital I Inc.
Commercial Mortgage Pass-Through Certificates
Series 1997-C1
ContiTrade
The Mortgage Pool includes approximately $220.4MM of
Mortgage Loans representing 34.4% of the Initial Pool
Balance that are owned by ContiTrade Services L.L.C.
("ContiTrade").
ContiTrade was organized in the State of Delaware on June 1,
1995 and is a wholly-owned indirect subsidiary of
ContiFinancial Corporation, a Delaware corporation.
ContiFinancial Corporation is a majority-owned subsidiary of
Continental Grain Company. ContiFinancial Corporation
engages in the consumer and commercial finance business by
originating and servicing home equity mortgage loans,
providing financing and asset securitization expertise to
originators of a broad range of loans, leases and
receivables and acquiring and selling commercial and home
equity mortgage loans. ContiTrade was organized, among other
things, for the purpose of acquiring and selling mortgage
assets. Through its commercial mortgage conduit program,
ContiMAP(R), ContiTrade purchases commercial mortgage loans
from its select correspondent network and then pools loans
for securitization. The principal executive offices of
ContiTrade is located at 277 Park Avenue, New York, New York
10172. Its telephone number is (212) 207-2800.
Morgan Stanley Mortgage Capital Inc.
The Mortgage Pool includes approximately $196.8MM of
Mortgage Loans representing 30.7% of the Initial Pool
Balance originated by or on behalf of, or acquired by,
Morgan Stanley Mortgage Capital Inc. ("MSMC").
MSMC is a subsidiary of Morgan Stanley & Co., Inc. formed to
originate and purchase loans secured by commercial real
estate including multifamily assets. Each of the Mortgage
Loans was originated by one of the participants in MSMC's
commercial and multifamily mortgage loan conduit program,
directly by MSMC or purchased by MSMC in the secondary
market. All loans were underwritten by MSMC underwriters.
The principal offices of MSMC are located at 1585 Broadway,
New York, NY 10036. Its telephone number is (212) 761-4700.
IV. Collateral Description
Collateral: The collateral for the Certificates is a $640.7MM pool of
156 fixed-rate and four adjustable rate, first lien,
commercial and multifamily mortgage loans secured by
commercial properties located in 31 different states with a
WAC of 8.94%, and a WAM of 121 months The loans were
originated or acquired by GMACCM (34.9%), ContiTrade (34.4%)
and MSMC (30.7%).
T-7
<PAGE>
$563,777,484
(Approximate)
Morgan Stanley Capital I Inc.
Commercial Mortgage Pass-Through Certificates
Series 1997-C1
PROPERTY SUMMARY
----------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Weighted
Weighted Weighted Average Weighted
Aggregate Percentage Average Average Debt Average
Number Cut-off Date of Initial Mortgage Remaining Term Service Loan to
Property Type of Loans Balance Pool Balance Rate to Stated Coverage Value
Maturity (mos. Ratio
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Multifamily 35 $138,132,083 21.6% 8.603% 105 1.34x 70.1%
- --------------------------------------------------------------------------------------------------------------------------
Retail 23 116,913,683 18.2 8.667 130 1.32 70.8
- --------------------------------------------------------------------------------------------------------------------------
Self-Storage 36 81,350,900 12.7 9.402 118 1.45 69.4
- --------------------------------------------------------------------------------------------------------------------------
Industrial 11 65,837,933 10.3 8.862 112 1.34 66.9
- --------------------------------------------------------------------------------------------------------------------------
Nursing Home 16 60,388,912 9.4 9.339 129 1.90 67.8
- --------------------------------------------------------------------------------------------------------------------------
Office 8 31,372,021 4.9 9.047 115 1.48 63.7
- --------------------------------------------------------------------------------------------------------------------------
Various 5 34,950,187 5.5 9.088 109 1.35 67.9
- --------------------------------------------------------------------------------------------------------------------------
Mobile Home Park 10 34,467,540 5.4 8.809 86 1.25 73.2
- --------------------------------------------------------------------------------------------------------------------------
Congregate Care 3 30,400,739 4.7 8.819 225 1.35 77.8
- --------------------------------------------------------------------------------------------------------------------------
Hospitality 6 21,823,043 3.4 9.685 154 1.55 57.7
- --------------------------------------------------------------------------------------------------------------------------
Other 7 25,020,880 3.9 9.151 94 1.32 68.4
- --------------------------------------------------------------------------------------------------------------------------
TOTAL 160 $640,657,923 100.0% 8.940% 121 1.41x 69.2%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
GEOGRAPHIC DISTRIBUTION
-----------------------
[GRAPHIC OMITTED]
[SET FORTH IN THE PRINTED MATERIALS IS A MAP OF THE CONTINENTAL UNITED STATES
SHOWING THE BORDERS OF THE UNITED STATES.]
[THE FIGURES SET FORTH IN THE FOLLOWING TABLE WERE SET FORTH ON SUCH MAP OF THE
UNITED STATES.]
AL .................................................... 0.2%
AZ .................................................... 8.3%
CA .................................................... 20.4%
CO .................................................... 4.2%
CT .................................................... 0.4%
FL .................................................... 0.8%
GA .................................................... 4.0%
IL .................................................... 2.9%
IN .................................................... 1.4%
KY .................................................... 0.5%
LA .................................................... 0.1%
MA .................................................... 8.2%
MD .................................................... 1.8%
MI .................................................... 5.1%
MN .................................................... 1.9%
MO .................................................... 2.0%
MS .................................................... 0.2%
NC .................................................... 0.3%
NJ .................................................... 3.8%
NM .................................................... 0.4%
NV .................................................... 1.4%
NY .................................................... 9.4%
PA .................................................... 2.3%
RI .................................................... 0.2%
SC .................................................... 1.4%
SD .................................................... 1.0%
TN .................................................... 1.5%
TX .................................................... 9.4%
UT .................................................... 2.1%
VA .................................................... 2.6%
WA .................................................... 1.5%
T-8
<PAGE>
PROSPECTUS DATED MARCH 20, 1997
Mortgage Pass-Through Certificates
(Issuable in Series)
Morgan Stanley Capital I Inc.
Depositor
--------
The Certificates offered hereby and by Supplements to this Prospectus (the
"Offered Certificates") will be offered from time to time in one or more series.
Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any series, the
"Trust Fund") consisting of one or more segregated pools of various types of
multifamily or commercial mortgage loans (the "Mortgage Loans"), mortgage
participations, mortgage pass-through certificates, mortgage-backed securities
evidencing interests therein or secured thereby (the "MBS"), certain direct
obligations of the United States, agencies thereof or agencies created thereby
(the "Government Securities") or a combination of Mortgage Loans, MBS and/or
Government Securities (with respect to any series, collectively, "Assets"). If
so specified in the related Prospectus Supplement, some or all of the Mortgage
Loans will include assignments of the leases of the related Mortgaged Properties
(as defined herein) and/or assignments of the rental payments due from the
lessees under such leases (each type of assignment, a "Lease Assignment"). A
significant or the sole source of payments on certain Commercial Loans (as
defined herein) and, therefore, of distributions on certain series of
Certificates, will be such rent payments. The Mortgage Loans and MBS are
collectively referred to herein as the "Mortgage Assets." If so specified in the
related Prospectus Supplement, the Trust Fund for a series of Certificates may
include letters of credit, insurance policies, guarantees, reserve funds or
other types of credit support, or any combination thereof (with respect to any
series, collectively, "Credit Support"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any series, collectively, "Cash Flow Agreements"). See "Description of the
Trust Funds," "Description of the Certificates" and "Description of Credit
Support."
Each series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon based on
fixed, variable or adjustable rates; (ii) be senior or subordinate to one or
more other classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iv) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (v) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; (vi)
provide for distributions of principal sequentially, based on specified payment
schedules or other methodologies; and/or (vii) provide for distributions based
on a combination of two or more components thereof with one or more of the
characteristics described in this paragraph, to the extent of available funds,
in each case as described in the related Prospectus Supplement. Any such classes
may include classes of Offered Certificates. See "Description of the
Certificates."
(cover continued on next page)
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------
Investors should consider, among other things, certain risks set forth
under the caption "Risk Factors" herein and in the related Prospectus
Supplement.
Prior to issuance there will have been no market for the Certificates of
any series and there can be no assurance that a secondary market for any Offered
Certificates will develop or that, if it does develop, it will continue. This
Prospectus may not be used to consummate sales of the Offered Certificates of
any series unless accompanied by the Prospectus Supplement for such series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters, as more fully
described under "Plan of Distribution" herein and in the related Prospectus
Supplement.
--------
MORGAN STANLEY & CO.
INCORPORATED
March 20, 1997
<PAGE>
Principal and interest with respect to Certificates will be distributable
monthly, quarterly, semi-annually or at such other intervals and on the dates
specified in the related Prospectus Supplement. Distributions on the
Certificates of any series will be made only from the assets of the related
Trust Fund.
The Certificates of each series will not represent an obligation of or
interest in the Depositor, Morgan Stanley & Co. Incorporated, any Master
Servicer, any Sub-Servicer, any Special Servicer or any of their respective
affiliates, except to the limited extent described herein and in the related
Prospectus Supplement. Neither the Certificates nor any assets in the related
Trust Fund will be guaranteed or insured by any governmental agency or
instrumentality or by any other person, unless otherwise provided in the related
Prospectus Supplement. The assets in each Trust Fund will be held in trust for
the benefit of the holders of the related series of Certificates pursuant to a
Pooling and Servicing Agreement or a Trust Agreement, as more fully described
herein.
The yield on each class of Certificates of a series will be affected by,
among other things, the rate of payment of principal (including prepayments,
repurchase and defaults) on the Mortgage Assets in the related Trust Fund and
the timing of receipt of such payments as described under the caption "Yield
Considerations" herein and in the related Prospectus Supplement. A Trust Fund
may be subject to early termination under the circumstances described herein and
in the related Prospectus Supplement.
Prospective investors should review the information appearing under the
caption "Risk Factors" herein and such information as may be set forth under the
caption "Risk Factors" in the related Prospectus Supplement before purchasing
any Offered Certificate.
If so provided in the related Prospectus Supplement, one or more elections
may be made to treat the related Trust Fund or a designated portion thereof as a
"real estate mortgage investment conduit" for federal income tax purposes. See
also "Certain Federal Income Tax Consequences" herein.
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus and Prospectus
Supplement when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement relating
to the Offered Certificates of each series will, among other things, set forth
with respect to such Certificates, as appropriate: (i) a description of the
class or classes of Certificates, the payment provisions with respect to each
such class and the Pass-Through Rate or method of determining the Pass-Through
Rate with respect to each such class; (ii) the aggregate principal amount and
distribution dates relating to such series and, if applicable, the initial and
final scheduled distribution dates for each class; (iii) information as to the
assets comprising the Trust Fund, including the general characteristics of the
assets included therein, including the Mortgage Assets and any Credit Support
and Cash Flow Agreements (with respect to the Certificates of any series, the
"Trust Assets"); (iv) the circumstances, if any, under which the Trust Fund may
be subject to early termination; (v) additional information with respect to the
method of distribution of such Certificates; (vi) whether one or more REMIC
elections will be made and designation of the regular interests and residual
interests; (vii) the aggregate original percentage ownership interest in the
Trust Fund to be evidenced by each class of Certificates; (viii) information as
to any Master Servicer, any Sub-Servicer, any Special Servicer (or provision for
the appointment thereof) and the Trustee, as applicable; (ix) information as to
the nature and extent of subordination with respect to any class of Certificates
that is subordinate in right of payment to any other class; and (x) whether such
Certificates will be initially issued in definitive or book-entry form.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended, with respect to the Offered
Certificates. This Prospectus and the Prospectus Supplement relating to each
series of Certificates contain
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summaries of the material terms of the documents referred to herein and therein,
but do not contain all of the information set forth in the Registration
Statement pursuant to the rules and regulations of the Commission. For further
information, reference is made to such Registration Statement and the exhibits
thereto. Such Registration Statement and exhibits can be inspected and copied at
prescribed rates at the public reference facilities maintained by the Commission
at its Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at its Regional Offices located as follows: Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661; and New York
Regional Office, Seven World Trade Center, New York, New York 10048.
To the extent described in the related Prospectus Supplement, some or all
of the Mortgage Loans may be secured by an assignment of the lessors' (i.e., the
related mortgagors') rights in one or more leases (each, a "Lease") of the
related Mortgaged Property. Unless otherwise specified in the related Prospectus
Supplement, no series of Certificates will represent interests in or obligations
of any lessee (each, a "Lessee") under a Lease. If indicated, however, in the
Prospectus Supplement for a given series, a significant or the sole source of
payments on the Mortgage Loans in such series, and, therefore, of distributions
on such Certificates, will be rental payments due from the Lessees under the
Leases. Under such circumstances, prospective investors in the related series of
Certificates may wish to consider publicly available information, if any,
concerning the Lessees. Reference should be made to the related Prospectus
Supplement for information concerning the Lessees and whether any such Lessees
are subject to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Offered
Certificates or an offer of the Offered Certificates to any person in any state
or other jurisdiction in which such offer would be unlawful. The delivery of
this Prospectus at any time does not imply that information herein is correct as
of any time subsequent to its date; however, if any material change occurs while
this Prospectus is required by law to be delivered, this Prospectus will be
amended or supplemented accordingly.
A Master Servicer or the Trustee will be required to mail to holders of
Offered Certificates of each series periodic unaudited reports concerning the
related Trust Fund. Unless and until definitive Certificates are issued, or
unless otherwise provided in the related Prospectus Supplement, such reports
will be sent on behalf of the related Trust Fund to Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC") and registered holder of the
Offered Certificates, pursuant to the applicable Agreement. Such reports may be
available to holders of interests in the Certificates (the "Certificateholders")
upon request to their respective DTC participants. See "Description of the
Certificates-Reports to Certificateholders" and "Description of the
Agreements-Evidence as to Compliance." The Depositor will file or cause to be
filed with the Commission such periodic reports with respect to each Trust Fund
as are required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination
of an offering of Offered Certificates evidencing interests therein. The
Depositor will provide or cause to be provided without charge to each person to
whom this Prospectus is delivered in connection with the offering of one or more
classes of Offered Certificates, a copy of any or all documents or reports
incorporated herein by reference, in each case to the extent such documents or
reports relate to one or more of such classes of such Offered Certificates,
other than the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests to the Depositor should
be directed in writing to Morgan Stanley Capital I Inc., c/o Morgan Stanley &
Co. Incorporated, 1585 Broadway, 37th Floor, New York, New York 10036,
Attention: John E. Westerfield, or by telephone at (212) 761-4700. The Depositor
has determined that its financial statements are not material to the offering of
any Offered Certificates.
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TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT.........................................................2
AVAILABLE INFORMATION.........................................................2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.............................3
SUMMARY OF PROSPECTUS.........................................................5
RISK FACTORS.................................................................13
DESCRIPTION OF THE TRUST FUNDS...............................................19
USE OF PROCEEDS..............................................................25
YIELD CONSIDERATIONS.........................................................26
THE DEPOSITOR................................................................29
DESCRIPTION OF THE CERTIFICATES..............................................29
DESCRIPTION OF THE AGREEMENTS................................................36
DESCRIPTION OF CREDIT SUPPORT................................................52
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES...................54
CERTAIN FEDERAL INCOME TAX CONSEQUENCES......................................69
STATE TAX CONSIDERATIONS.....................................................92
ERISA CONSIDERATIONS.........................................................92
LEGAL INVESTMENT.............................................................94
PLAN OF DISTRIBUTION.........................................................96
LEGAL MATTERS................................................................97
FINANCIAL INFORMATION........................................................97
RATING ....................................................................97
INDEX OF PRINCIPAL DEFINITIONS...............................................98
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SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each series
of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of such series. An Index of Principal
Definitions is included at the end of this Prospectus.
Title of Certificates............... Mortgage Pass-Through Certificates,
issuable in series (the "Certificates").
Depositor........................... Morgan Stanley Capital I Inc., a
wholly-owned subsidiary of Morgan
Stanley Group Inc. See "The Depositor."
Master Servicer..................... The master servicer (the "Master
Servicer"), if any, for each series of
Certificates, which may be an affiliate
of the Depositor, will be named in the
related Prospectus Supplement. See
"Description of the
Agreements-Collection and Other
Servicing Procedures."
Special Servicer.................... The special servicer (the "Special
Servicer"), if any, for each series of
Certificates, which may be an affiliate
of the Depositor, will be named, or the
circumstances in accordance with which a
Special Servicer will be appointed will
be described, in the related Prospectus
Supplement. See "Description of the
Agreements--Special Servicers."
Trustee............................. The trustee (the "Trustee") for each
series of Certificates will be named in
the related Prospectus Supplement. See
"Description of the Agreements--The
Trustee."
The Trust Assets.................... Each series of Certificates will
represent in the aggregate the entire
beneficial ownership interest in a Trust
Fund consisting primarily of:
(a) Mortgage Assets........... The Mortgage Assets with respect to each
series of Certificates will consist of a
pool of multifamily and/or commercial
mortgage loans (collectively, the
"Mortgage Loans") and mortgage
participations, mortgage pass-through
certificates or other mortgage-backed
securities evidencing interests in or
secured by Mortgage Loans (collectively,
the "MBS") or a combination of Mortgage
Loans and MBS. The Mortgage Loans will
not be guaranteed or insured by the
Depositor or any of its affiliates or,
unless otherwise provided in the
Prospectus Supplement, by any
governmental agency or instrumentality
or other person. As more specifically
described herein, the Mortgage Loans
will be secured by first or junior liens
on, or security interests in, properties
consisting of (i) residential properties
consisting of five or more rental or
cooperatively-owned dwelling units (the
"Multifamily Properties") or (ii) office
buildings, shopping centers, retail
stores, hotels or motels, nursing homes,
hospitals or other health-care related
facilities, mobile home parks, warehouse
facilities, mini-warehouse facilities or
self-storage facilities, industrial
plants, congregate care facilities,
mixed use or other types of commercial
properties (the "Commercial
Properties"). The term "Mortgaged
Properties" shall refer to Multifamily
Properties or Commercial Properties, or
both.
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To the extent described in the related
Prospectus Supplement, some or all of
the Mortgage Loans may also be secured
by an assignment of one or more leases
(each, a "Lease") of one or more lessees
(each, a "Lessee") of all or a portion
of the related Mortgaged Properties.
Unless otherwise specified in the
related Prospectus Supplement, a
significant or the sole source of
payments on certain Commercial Loans (as
defined herein) will be the rental
payments due under the related Leases.
In certain circumstances, with respect
to Commercial Properties, the material
terms and conditions of the related
Leases may be set forth in the related
Prospectus Supplement. See "Description
of the Trust Funds--Mortgage
Loans--Leases" and "Risk
Factors--Limited Assets" herein.
The Mortgaged Properties may be located
in any one of the fifty states, the
District of Columbia or the Commonwealth
of Puerto Rico. The Prospectus
Supplement will indicate additional
jurisdictions, if any, in which the
Mortgaged Properties may be located.
Unless otherwise provided in the related
Prospectus Supplement, all Mortgage
Loans will have individual principal
balances at origination of not less than
$25,000 and original terms to maturity
of not more than 40 years. All Mortgage
Loans will have been originated by
persons other than the Depositor, and
all Mortgage Assets will have been
purchased, either directly or
indirectly, by the Depositor on or
before the date of initial issuance of
the related series of Certificates. The
related Prospectus Supplement will
indicate if any such persons are
affiliates of the Depositor.
Each Mortgage Loan may provide for no
accrual of interest or for accrual of
interest thereon at an interest rate (a
"Mortgage Rate") that is fixed over its
term or that adjusts from time to time,
or that may be converted from an
adjustable to a fixed Mortgage Rate, or
from a fixed to an adjustable Mortgage
Rate, from time to time at the
mortgagor's election, in each case as
described in the related Prospectus
Supplement. Adjustable Mortgage Rates on
the Mortgage Loans in a Trust Fund may
be based on one or more indices. Each
Mortgage Loan may provide for scheduled
payments to maturity, payments that
adjust from time to time to accommodate
changes in the Mortgage Rate or to
reflect the occurrence of certain
events, and may provide for negative
amortization or accelerated
amortization, in each case as described
in the related Prospectus Supplement.
Each Mortgage Loan may be fully
amortizing or require a balloon payment
due on its stated maturity date, in each
case as described in the related
Prospectus Supplement. Each Mortgage
Loan may contain prohibitions on
prepayment or require payment of a
premium or a yield maintenance penalty
in connection with a prepayment, in each
case as described in the related
Prospectus Supplement. The Mortgage
Loans may provide for payments of
principal, interest or both, on due
dates that occur monthly, quarterly,
semi-annually or at such other interval
as is specified in the related
Prospectus Supplement. See "Description
of the Trust Funds-Assets."
(b) Government Securities..... If so provided in the related Prospectus
Supplement, the Trust Fund may include,
in addition to Mortgage Assets, certain
direct
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obligations of the United States,
agencies thereof or agencies created
thereby which provide for payment of
interest and/or principal (collectively,
"Government Securities").
(c) Collection Accounts....... Each Trust Fund will include one or more
accounts established and maintained on
behalf of the Certificateholders into
which the person or persons designated
in the related Prospectus Supplement
will, to the extent described herein and
in such Prospectus Supplement, deposit
all payments and collections received or
advanced with respect to the Mortgage
Assets and other assets in the Trust
Fund. Such an account may be maintained
as an interest bearing or a non-interest
bearing account, and funds held therein
may be held as cash or invested in
certain short-term, investment grade
obligations, in each case as described
in the related Prospectus Supplement.
See "Description of the
Agreements--Certificate Account and
Other Collection Accounts."
(d) Credit Support............ If so provided in the related Prospectus
Supplement, partial or full protection
against certain defaults and losses on
the Mortgage Assets in the related Trust
Fund may be provided to one or more
classes of Certificates of the related
series in the form of subordination of
one or more other classes of
Certificates of such series, which other
classes may include one or more classes
of Offered Certificates, or by one or
more other types of credit support, such
as a letter of credit, insurance policy,
guarantee, reserve fund or another type
of credit support, or a combination
thereof (any such coverage with respect
to the Certificates of any series,
"Credit Support"). The amount and types
of coverage, the identification of the
entity providing the coverage (if
applicable) and related information with
respect to each type of Credit Support,
if any, will be described in the
Prospectus Supplement for a series of
Certificates. The Prospectus Supplement
for any series of Certificates
evidencing an interest in a Trust Fund
that includes MBS will describe any
similar forms of credit support that are
provided by or with respect to, or are
included as part of the trust fund
evidenced by or providing security for,
such MBS. See "Risk Factors--Credit
Support Limitations" and "Description of
Credit Support."
(e) Cash Flow Agreements...... If so provided in the related Prospectus
Supplement, the Trust Fund may include
guaranteed investment contracts pursuant
to which moneys held in the funds and
accounts established for the related
series will be invested at a specified
rate. The Trust Fund may also include
certain other agreements, such as
interest rate exchange agreements,
interest rate cap or floor agreements,
currency exchange agreements or similar
agreements provided to reduce the
effects of interest rate or currency
exchange rate fluctuations on the Assets
or on one or more classes of
Certificates. (Currency exchange
agreements might be included in the
Trust Fund if some or all of the
Mortgage Assets (such as Mortgage Loans
secured by Mortgaged Properties located
outside the United States) were
denominated in a non-United States
currency.) The principal terms of any
such guaranteed investment contract or
other agreement (any such agreement, a
"Cash Flow Agreement"), including,
without limitation, provisions relating
to the timing, manner and amount of
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payments thereunder and provisions
relating to the termination thereof,
will be described in the Prospectus
Supplement for the related series. In
addition, the related Prospectus
Supplement will provide certain
information with respect to the obligor
under any such Cash Flow Agreement. The
Prospectus Supplement for any series of
Certificates evidencing an interest in a
Trust Fund that includes MBS will
describe any cash flow agreements that
are included as part of the trust fund
evidenced by or providing security for
such MBS. See "Description of the Trust
Funds--Cash Flow Agreements."
Description of Certificates......... Each series of Certificates evidencing
an interest in a Trust Fund that
includes Mortgage Loans as part of its
assets will be issued pursuant to a
pooling and servicing agreement, and
each series of Certificates evidencing
an interest in a Trust Fund that does
not include Mortgage Loans will be
issued pursuant to a trust agreement.
Pooling and servicing agreements and
trust agreements are referred to herein
as the "Agreements." Each series of
Certificates will include one or more
classes. Each series of Certificates
(including any class or classes of
Certificates of such series not offered
hereby) will represent in the aggregate
the entire beneficial ownership interest
in the Trust Fund. Each class of
Certificates (other than certain
Stripped Interest Certificates, as
defined below) will have a stated
principal amount (a "Certificate
Balance") and (other than certain
Stripped Principal Certificates, as
defined below), will accrue interest
thereon based on a fixed, variable or
adjustable interest rate (a
"Pass-Through Rate"). The related
Prospectus Supplement will specify the
Certificate Balance, if any, and the
Pass-Through Rate for each class of
Certificates or, in the case of a
variable or adjustable Pass-Through
Rate, the method for determining the
Pass-Through Rate.
Distributions on Certificates....... Each series of Certificates will consist
of one or more classes of Certificates
that may (i) provide for the accrual of
interest thereon based on fixed,
variable or adjustable rates; (ii) be
senior (collectively, "Senior
Certificates") or subordinate
(collectively, "Subordinate
Certificates") to one or more other
classes of Certificates in respect of
certain distributions on the
Certificates; (iii) be entitled to
principal distributions, with
disproportionately low, nominal or no
interest distributions (collectively,
"Stripped Principal Certificates"); (iv)
be entitled to interest distributions,
with disproportionately low, nominal or
no principal distributions
(collectively, "Stripped Interest
Certificates"); (v) provide for
distributions of accrued interest
thereon commencing only following the
occurrence of certain events, such as
the retirement of one or more other
classes of Certificates of such series
(collectively, "Accrual Certificates");
(vi) provide for distributions of
principal sequentially, based on
specified payment schedules or other
methodologies; and/or (vii) provide for
distributions based on a combination of
two or more components thereof with one
or more of the characteristics described
in this paragraph, including a Stripped
Principal Certificate component and a
Stripped Interest Certificate component,
to the extent of available funds, in
each case as described in the related
Prospectus Supplement. Any such
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classes may include classes of Offered
Certificates. With respect to
Certificates with two or more
components, references herein to
Certificate Balance, notional amount and
Pass-Through Rate refer to the principal
balance, if any, notional amount, if
any, and the Pass-Through Rate, if any,
for any such component.
The Certificates will not be guaranteed
or insured by the Depositor or any of
its affiliates, by any governmental
agency or instrumentality or by any
other person, unless otherwise provided
in the related Prospectus Supplement.
See "Risk Factors--Limited Assets" and
"Description of the Certificates."
(a) Interest.................. Interest on each class of Offered
Certificates (other than Stripped
Principal Certificates and certain
classes of Stripped Interest
Certificates) of each series will accrue
at the applicable Pass-Through Rate on
the outstanding Certificate Balance
thereof and will be distributed to
Certificateholders as provided in the
related Prospectus Supplement (each of
the specified dates on which
distributions are to be made, a
"Distribution Date"). Distributions with
respect to interest on Stripped Interest
Certificates may be made on each
Distribution Date on the basis of a
notional amount as described in the
related Prospectus Supplement.
Distributions of interest with respect
to one or more classes of Certificates
may be reduced to the extent of certain
delinquencies, losses, prepayment
interest shortfalls, and other
contingencies described herein and in
the related Prospectus Supplement. See
"Risk Factors--Average Life of
Certificates; Prepayments; Yields,"
"Yield Considerations" and "Description
of the Certificates--Distributions of
Interest on the Certificates."
(b) Principal................. The Certificates of each series
initially will have an aggregate
Certificate Balance no greater than the
outstanding principal balance of the
Assets as of, unless the related
Prospectus Supplement provides
otherwise, the close of business on the
first day of the month of formation of
the related Trust Fund (the "Cut-off
Date"), after application of scheduled
payments due on or before such date,
whether or not received. The Certificate
Balance of a Certificate outstanding
from time to time represents the maximum
amount that the holder thereof is then
entitled to receive in respect of
principal from future cash flow on the
assets in the related Trust Fund. Unless
otherwise provided in the related
Prospectus Supplement, distributions of
principal will be made on each
Distribution Date to the class or
classes of Certificates entitled thereto
until the Certificate Balances of such
Certificates have been reduced to zero.
Unless otherwise specified in the
related Prospectus Supplement,
distributions of principal of any class
of Certificates will be made on a pro
rata basis among all of the Certificates
of such class or by random selection, as
described in the related Prospectus
Supplement or otherwise established by
the related Trustee. Stripped Interest
Certificates with no Certificate Balance
will not receive distributions in
respect of principal. See "Description
of the Certificates--Distributions of
Principal of the Certificates."
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Advances............................ Unless otherwise provided in the related
Prospectus Supplement, the Master
Servicer will be obligated as part of
its servicing responsibilities to make
certain advances that in its good faith
judgment it deems recoverable with
respect to delinquent scheduled payments
on the Whole Loans in such Trust Fund.
Neither the Depositor nor any of its
affiliates will have any responsibility
to make such advances. Advances made by
a Master Servicer are reimbursable
generally from subsequent recoveries in
respect of such Whole Loans and
otherwise to the extent described herein
and in the related Prospectus
Supplement. If and to the extent
provided in the Prospectus Supplement
for any series, the Master Servicer will
be entitled to receive interest on its
outstanding advances, payable from
amounts in the related Trust Fund. The
Prospectus Supplement for any series of
Certificates evidencing an interest in a
Trust Fund that includes MBS will
describe any corresponding advancing
obligation of any person in connection
with such MBS. See "Description of the
Certificates--Advances in Respect of
Delinquencies."
Termination......................... If so specified in the related
Prospectus Supplement, a series of
Certificates may be subject to optional
early termination through the repurchase
of the Assets in the related Trust Fund
by the party specified therein, under
the circumstances and in the manner set
forth therein. If so provided in the
related Prospectus Supplement, upon the
reduction of the Certificate Balance of
a specified class or classes of
Certificates by a specified percentage
or amount or on and after a date
specified in such Prospectus Supplement,
the party specified therein will solicit
bids for the purchase of all of the
Assets of the Trust Fund, or of a
sufficient portion of such Assets to
retire such class or classes, or
purchase such Assets at a price set
forth in the related Prospectus
Supplement. In addition, if so provided
in the related Prospectus Supplement,
certain classes of Certificates may be
purchased subject to similar conditions.
See "Description of the
Certificates--Termination."
Registration of Certificates........ If so provided in the related Prospectus
Supplement, one or more classes of the
Offered Certificates will initially be
represented by one or more Certificates
registered in the name of Cede & Co., as
the nominee of DTC. No person acquiring
an interest in Offered Certificates so
registered will be entitled to receive a
definitive certificate representing such
person's interest except in the event
that definitive certificates are issued
under the limited circumstances
described herein. See "Risk
Factors--Book-Entry Registration" and
"Description of the
Certificates--Book-Entry Registration
and Definitive Certificates."
Tax Status of the Certificates...... The Certificates of each series will
constitute either (i) "regular
interests" ("REMIC Regular
Certificates") and "residual interests"
("REMIC Residual Certificates") in a
Trust Fund treated as a REMIC under
Sections 860A through 860G of the Code,
or (ii) interests ("Grantor Trust
Certificates") in a Trust Fund treated
as a grantor trust under applicable
provisions of the Code.
(a) REMIC..................... REMIC Regular Certificates generally
will be treated as debt obligations of
the applicable REMIC for federal income
tax
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purposes. Certain REMIC Regular
Certificates may be issued with original
issue discount for federal income tax
purposes. See "Certain Federal Income
Tax Consequences" in the Prospectus
Supplement.
The Offered Certificates will be treated
as (i) assets described in section
7701(a)(19)(C) of the Internal Revenue
Code of 1986, as amended (the "Code")
and (ii) "real estate assets" within the
meaning of section 856(c)(5)(A) of the
Code, in each case to the extent
described herein and in the Prospectus.
See "Certain Federal Income Tax
Consequences" herein and in the
Prospectus.
(b) Grantor Trust............. If no election is made to treat the
Trust Fund relating to a Series of
Certificates as a real estate mortgage
investment conduit ("REMIC"), the Trust
Fund will be classified as a grantor
trust and not as an association taxable
as a corporation for federal income tax
purposes, and therefore holders of
Certificates will be treated as the
owners of undivided pro rata interests
in the Mortgage Pool or pool of
securities and any other assets held by
the Trust Fund.
Investors are advised to consult their
tax advisors and to review "Certain
Federal Income Tax Consequences" herein
and in the related Prospectus
Supplement.
ERISA Considerations................ A fiduciary of an employee benefit plan
and certain other retirement plans and
arrangements, including individual
retirement accounts, annuities, Keogh
plans, and collective investment funds,
separate accounts and certain insurance
company general accounts in which such
plans, accounts, annuities or
arrangements are invested, that is
subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code
should carefully review with its legal
advisors whether the purchase or holding
of Offered Certificates could give rise
to a transaction that is prohibited or
is not otherwise permissible either
under ERISA or Section 4975 of the Code.
See "ERISA Considerations" herein and in
the related Prospectus Supplement.
Certain classes of Certificates may not
be transferred unless the Trustee and
the Depositor are furnished with a
letter of representations or an opinion
of counsel to the effect that such
transfer will not result in a violation
of the prohibited transaction provisions
of ERISA and the Code, will not cause
the assets of the Trust to be deemed
"plan assets" for purposes of ERISA and
the Code and will not subject the
Trustee, the Depositor or the Master
Servicer to additional obligations. See
"Description of the
Certificates--General" and "ERISA
Considerations".
Legal Investment.................... The related Prospectus Supplement will
specify whether any class or classes of
the Offered Certificates will constitute
"mortgage related securities" for
purposes of the Secondary Mortgage
Market Enhancement Act of 1984.
Investors whose investment authority is
subject to legal restrictions should
consult their own legal advisors to
determine whether and to what extent the
Offered Certificates constitute legal
investments for them. See "Legal
Investment" herein and in the related
Prospectus Supplement.
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Rating.............................. At the date of issuance, as to each
series, each class of Offered
Certificates will be rated not lower
than investment grade by one or more
nationally recognized statistical rating
agencies (each, a "Rating Agency"). See
"Rating" herein and in the related
Prospectus Supplement.
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RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "Risk Factors" in the related Prospectus
Supplement.
Limited Liquidity
There can be no assurance that a secondary market for the Certificates of
any series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such series
remain outstanding. Any such secondary market may provide less liquidity to
investors than any comparable market for securities evidencing interests in
single family mortgage loans. The market value of Certificates will fluctuate
with changes in prevailing rates of interest. Consequently, sale of Certificates
by a holder in any secondary market that may develop may be at a discount from
100% of their original principal balance or from their purchase price.
Furthermore, secondary market purchasers may look only hereto, to the related
Prospectus Supplement and to the reports to Certificateholders delivered
pursuant to the related Agreement as described herein under the heading
"Description of the Certificates--Reports to Certificateholders", "--Book-Entry
Registration and Definitive Certificates" and "Description of the
Agreements--Evidence as to Compliance" for information concerning the
Certificates. Except to the extent described herein and in the related
Prospectus Supplement, Certificateholders will have no redemption rights and the
Certificates are subject to early retirement only under certain specified
circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination". Morgan Stanley & Co.
Incorporated currently expects to make a secondary market in the Offered
Certificates, but has no obligation to do so.
Limited Assets
The Certificates will not represent an interest in or obligation of the
Depositor, the Master Servicer, or any of their affiliates. The only obligations
with respect to the Certificates or the Assets will be the obligations (if any)
of the Warrantying Party (as defined herein) pursuant to certain limited
representations and warranties made with respect to the Mortgage Loans, the
Master Servicer's, any Special Servicer's and any Sub-Servicer's servicing
obligations under the related Pooling and Servicing Agreement (including the
limited obligation to make certain advances in the event of delinquencies on the
Mortgage Loans, but only to the extent deemed recoverable). Since certain
representations and warranties with respect to the Mortgage Assets may have been
made and/or assigned in connection with transfers of such Mortgage Assets prior
to the Closing Date, the rights of the Trustee and the Certificateholders with
respect to such representations or warranties will be limited to their rights as
an assignee thereof. Unless otherwise specified in the related Prospectus
Supplement, none of the Depositor, the Master Servicer or any affiliate thereof
will have any obligation with respect to representations or warranties made by
any other entity. Unless otherwise specified in the related Prospectus
Supplement, neither the Certificates nor the underlying Mortgage Assets will be
guaranteed or insured by any governmental agency or instrumentality, or by the
Depositor, the Master Servicer, any Special Servicer, any Sub-Servicer or any of
their affiliates. Proceeds of the assets included in the related Trust Fund for
each series of Certificates (including the Assets and any form of credit
enhancement) will be the sole source of payments on the Certificates, and there
will be no recourse to the Depositor or any other entity in the event that such
proceeds are insufficient or otherwise unavailable to make all payments provided
for under the Certificates.
Unless otherwise specified in the related Prospectus Supplement, a series
of Certificates will not have any claim against or security interest in the
Trust Funds for any other series. If the related Trust Fund is insufficient to
make payments on such Certificates, no other assets will be available for
payment of the deficiency. Additionally, certain amounts remaining in certain
funds or accounts, including the Certificate Account and any accounts maintained
as Credit Support, may be withdrawn under certain conditions, as described in
the related Prospectus Supplement. In the event of such withdrawal, such amounts
will not be available for future payment of principal of or interest on the
Certificates. If so provided in the Prospectus Supplement for a series of
Certificates consisting of one or more classes of Subordinate Certificates, on
any Distribution Date in respect of which losses or shortfalls in collections on
the Assets have been incurred, the amount of such losses or shortfalls will be
borne first by one or more classes of the Subordinate Certificates, and,
thereafter, by the remaining classes of Certificates in the priority and manner
and subject to the limitations specified in such Prospectus Supplement.
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Average Life of Certificates; Prepayments; Yields
Prepayments (including those caused by defaults) on the Mortgage Assets in
any Trust Fund generally will result in a faster rate of principal payments on
one or more classes of the related Certificates than if payments on such
Mortgage Assets were made as scheduled. Thus, the prepayment experience on the
Mortgage Assets may affect the average life of each class of related
Certificates. The rate of principal payments on pools of mortgage loans varies
between pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax, legal and other factors. There can be no
assurance as to the rate of prepayment on the Mortgage Assets in any Trust Fund
or that the rate of payments will conform to any model described herein or in
any Prospectus Supplement. If prevailing interest rates fall significantly below
the applicable mortgage interest rates, principal prepayments are likely to be
higher than if prevailing rates remain at or above the rates borne by the
Mortgage Loans underlying or comprising the Mortgage Assets in any Trust Fund.
As a result, the actual maturity of any class of Certificates could occur
significantly earlier than expected. A series of Certificates may include one or
more classes of Certificates with priorities of payment and, as a result, yields
on other classes of Certificates, including classes of Offered Certificates, of
such series may be more sensitive to prepayments on Mortgage Assets. A series of
Certificates may include one or more classes offered at a significant premium or
discount. Yields on such classes of Certificates will be sensitive, and in some
cases extremely sensitive, to prepayments on Mortgage Assets and, where the
amount of interest payable with respect to a class is disproportionately high,
as compared to the amount of principal, as with certain classes of Stripped
Interest Certificates, a holder might, in some prepayment scenarios, fail to
recoup its original investment. A series of Certificates may include one or more
classes of Certificates, including classes of Offered Certificates, that provide
for distribution of principal thereof from amounts attributable to interest
accrued but not currently distributable on one or more classes of Accrual
Certificates and, as a result, yields on such Certificates will be sensitive to
(a) the provisions of such Accrual Certificates relating to the timing of
distributions of interest thereon and (b) if such Accrual Certificates accrue
interest at a variable or adjustable Pass-Through Rate, changes in such rate.
See "Yield Considerations" herein and, if applicable, in the related Prospectus
Supplement.
Limited Nature of Ratings
Any rating assigned by a Rating Agency to a class of Certificates will
reflect such Rating Agency's assessment solely of the likelihood that holders of
Certificates of such class will receive payments to which such
Certificateholders are entitled under the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments
(including those caused by defaults) on the related Mortgage Assets will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of the
series of Certificates. Such rating will not address the possibility that
prepayment at higher or lower rates than anticipated by an investor may cause
such investor to experience a lower than anticipated yield or that an investor
purchasing a Certificate at a significant premium might fail to recoup its
initial investment under certain prepayment scenarios. Each Prospectus
Supplement will identify any payment to which holders of Offered Certificates of
the related series are entitled that is not covered by the applicable rating.
The amount, type and nature of credit support, if any, established with
respect to a series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating classes of such series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of credit support required with respect to each
such class. There can be no assurance that the historical data supporting any
such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of mortgage loans accurately
predicts the delinquency, foreclosure or loss experience of any particular pool
of Mortgage Assets. No assurance can be given that values of any Mortgaged
Properties have remained or will remain at their levels on the respective dates
of origination of the related Mortgage Loans. Moreover, there is no assurance
that appreciation of real estate values generally will limit loss experiences on
the Mortgaged Properties. If the commercial or multifamily residential real
estate markets should experience an overall decline in property values such that
the outstanding principal balances of the Mortgage Loans underlying or
comprising the Mortgage Assets in a particular Trust Fund and any secondary
financing on the related Mortgaged Properties become equal to or greater than
the value of the Mortgaged Properties, the rates of delinquencies, foreclosures
and losses could be higher than those now generally experienced by institutional
lenders. In addition, adverse economic conditions (which may or may not affect
real property values) may affect the timely payment by mortgagors
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of scheduled payments of principal and interest on the Mortgage Loans and,
accordingly, the rates of delinquencies, foreclosures and losses with respect to
any Trust Fund. To the extent that such losses are not covered by the Credit
Support, if any, described in the related Prospectus Supplement, such losses
will be borne, at least in part, by the holders of one or more classes of the
Certificates of the related series. See "Description of Credit Support" and
"Rating."
Risks Associated with Mortgage Loans and Mortgaged Properties
Mortgage loans made with respect to multifamily or commercial property may
entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single family
property. See "Description of the Trust Funds-Assets." The ability of a
mortgagor to repay a loan secured by an income-producing property typically is
dependent primarily upon the successful operation of such property rather than
any independent income or assets of the mortgagor; thus, the value of an
income-producing property is directly related to the net operating income
derived from such property. In contrast, the ability of a mortgagor to repay a
single family loan typically is dependent primarily upon the mortgagor's
household income, rather than the capacity of the property to produce income;
thus, other than in geographical areas where employment is dependent upon a
particular employer or an industry, the mortgagor's income tends not to reflect
directly the value of such property. A decline in the net operating income of an
income-producing property will likely affect both the performance of the related
loan as well as the liquidation value of such property, whereas a decline in the
income of a mortgagor on a single family property will likely affect the
performance of the related loan but may not affect the liquidation value of such
property. Moreover, a decline in the value of a Mortgaged Property will increase
the risk of loss particularly with respect to any related junior Mortgage Loan.
See "-Junior Mortgage Loans."
The performance of a mortgage loan secured by an income-producing property
leased by the mortgagor to tenants as well as the liquidation value of such
property may be dependent upon the business operated by such tenants in
connection with such property, the creditworthiness of such tenants or both; the
risks associated with such loans may be offset by the number of tenants or, if
applicable, a diversity of types of business operated by such tenants.
It is anticipated that a substantial portion of the Mortgage Loans included
in any Trust Fund will be nonrecourse loans or loans for which recourse may be
restricted or unenforceable, as to which, in the event of mortgagor default,
recourse may be had only against the specific property and such other assets, if
any, as have been pledged to secure the related Mortgage Loan. With respect to
those Mortgage Loans that provide for recourse against the mortgagor and its
assets generally, there can be no assurance that such recourse will ensure a
recovery in respect of a defaulted Mortgage Loan greater than the liquidation
value of the related Mortgaged Property.
Further, the concentration of default, foreclosure and loss risks in
individual mortgagors or Mortgage Loans in a particular Trust Fund or the
related Mortgaged Properties will generally be greater than for pools of single
family loans both because the Mortgage Assets in a Trust Fund will generally
consist of a smaller number of loans than would a single family pool of
comparable aggregate unpaid principal balance and because of the higher
principal balance of individual Mortgage Loans. Mortgage Assets in a Trust Fund
may consist of only a limited number of Mortgage Loans and/or relate to Leases
to only a single Lessee or a limited number of Lessees. .
If applicable, certain legal aspects of the Mortgage Loans for a series of
Certificates may be described in the related Prospectus Supplement. See also
"Certain Legal Aspects of the Mortgage Loans and the Leases" herein.
Risks Associated with Commercial Loans and Leases
If so described in the related Prospectus Supplement, each mortgagor under
a Commercial Loan may be an entity created by the owner or purchaser of the
related Commercial Property solely to own or purchase such property, in part to
isolate the property from the debts and liabilities of such owner or purchaser.
Unless otherwise specified, each such Commercial Loan will represent a
nonrecourse obligation of the related mortgagor secured by the lien of the
related Mortgage and the related Lease Assignments. Whether or not such loans
are recourse or nonrecourse obligations, it is not expected that the mortgagors
will have any significant assets other than the Commercial Properties and the
related Leases, which will be pledged to the Trustee under the related
Agreement. Therefore, the payment of amounts due on any such Commercial Loans,
and, consequently, the payment of principal of and interest on the related
Certificates, will depend primarily or solely on rental payments by the Lessees.
Such rental payments will, in turn, depend on continued
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occupancy by, and/or the creditworthiness of, such Lessees, which in either case
may be adversely affected by a general economic downturn or an adverse change in
their financial condition. Moreover, to the extent a Commercial Property was
designed for the needs of a specific type of tenant (e.g., a nursing home,
hospital, hotel or motel), the value of such property in the event of a default
by the Lessee or the early termination of such Lease may be adversely affected
because of difficulty in re-leasing the property to a suitable substitute lessee
or, if re-leasing to such a substitute is not possible, because of the cost of
altering the property for another more marketable use. As a result, without the
benefit of the Lessee's continued support of the Commercial Property, and absent
significant amortization of the Commercial Loan, if such loan is foreclosed on
and the Commercial Property liquidated following a lease default, the net
proceeds might be insufficient to cover the outstanding principal and interest
owing on such loan, thereby increasing the risk that holders of the Certificates
will suffer some loss.
Balloon Payments
Certain of the Mortgage Loans (the "Balloon Mortgage Loans") as of the
Cut-off Date may not be fully amortizing over their terms to maturity and, thus,
will require substantial principal payments (i.e., balloon payments) at their
stated maturity. Mortgage Loans with balloon payments involve a greater degree
of risk because the ability of a mortgagor to make a balloon payment typically
will depend upon its ability either to timely refinance the loan or to timely
sell the related Mortgaged Property. The ability of a mortgagor to accomplish
either of these goals will be affected by a number of factors, including the
level of available mortgage interest rates at the time of sale or refinancing,
the mortgagor's equity in the related Mortgaged Property, the financial
condition and operating history of the mortgagor and the related Mortgaged
Property, tax laws, rent control laws (with respect to certain Multifamily
Properties and mobile home parks), reimbursement rates (with respect to certain
hospitals, nursing homes and convalescent homes), renewability of operating
licenses, prevailing general economic conditions and the availability of credit
for commercial or multifamily real properties, as the case may be, generally.
Junior Mortgage Loans
To the extent specified in the related Prospectus Supplement, certain of
the Mortgage Loans may be secured primarily by junior mortgages. In the case of
liquidation, Mortgage Loans secured by junior mortgages are entitled to
satisfaction from proceeds that remain from the sale of the related Mortgaged
Property after the mortgage loans senior to such Mortgage Loans have been
satisfied. If there are not sufficient funds to satisfy such junior Mortgage
Loans and senior mortgage loans, such Mortgage Loan would suffer a loss and,
accordingly, one or more classes of Certificates would bear such loss.
Therefore, any risks of deficiencies associated with first Mortgage Loans will
be greater with respect to junior Mortgage Loans. See "--Risks Associated with
Mortgage Loans and Mortgaged Properties."
Obligor Default
If so specified in the related Prospectus Supplement, in order to maximize
recoveries on defaulted Whole Loans, a Master Servicer, a Sub-Servicer or a
Special Servicer will be permitted (within prescribed parameters) to extend and
modify Whole Loans that are in default or as to which a payment default is
imminent, including in particular with respect to balloon payments. In addition,
a Master Servicer, a Sub-Servicer or a Special Servicer may receive a workout
fee based on receipts from or proceeds of such Whole Loans. While any such
entity generally will be required to determine that any such extension or
modification is reasonably likely to produce a greater recovery on a present
value basis than liquidation, there can be no assurance that such flexibility
with respect to extensions or modifications or payment of a workout fee will
increase the present value of receipts from or proceeds of Whole Loans that are
in default or as to which a payment default is imminent. Additionally, if so
specified in the related Prospectus Supplement, certain of the Mortgage Loans
included in the Mortgage Pool for a Series may have been subject to workouts or
similar arrangements following periods of delinquency and default.
Mortgagor Type
Mortgage Loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of single family mortgage loans. The mortgagor's sophistication and form
of organization may increase the likelihood of protracted litigation or
bankruptcy in default situations.
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Credit Support Limitations
The Prospectus Supplement for a series of Certificates will describe any
Credit Support in the related Trust Fund, which may include letters of credit,
insurance policies, guarantees, reserve funds or other types of credit support,
or combinations thereof. Use of Credit Support will be subject to the conditions
and limitations described herein and in the related Prospectus Supplement.
Moreover, such Credit Support may not cover all potential losses or risks; for
example, Credit Support may or may not cover fraud or negligence by a mortgage
loan originator or other parties.
A series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce the
risk to holders of Senior Certificates of delinquent distributions or ultimate
losses, the amount of subordination will be limited and may decline under
certain circumstances. In addition, if principal payments on one or more classes
of Certificates of a series are made in a specified order of priority, any
limits with respect to the aggregate amount of claims under any related Credit
Support may be exhausted before the principal of the lower priority classes of
Certificates of such series has been repaid. As a result, the impact of
significant losses and shortfalls on the Assets may fall primarily upon those
classes of Certificates having a lower priority of payment. Moreover, if a form
of Credit Support covers more than one series of Certificates (each, a "Covered
Trust"), holders of Certificates evidencing an interest in a Covered Trust will
be subject to the risk that such Credit Support will be exhausted by the claims
of other Covered Trusts.
The amount of any applicable Credit Support supporting one or more classes
of Offered Certificates, including the subordination of one or more classes of
Certificates, will be determined on the basis of criteria established by each
Rating Agency rating such classes of Certificates based on an assumed level of
defaults, delinquencies, other losses or other factors. There can, however, be
no assurance that the loss experience on the related Mortgage Assets will not
exceed such assumed levels. See "--Limited Nature of Ratings," "Description of
the Certificates" and "Description of Credit Support."
Regardless of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will be subject to periodic
reduction in accordance with a schedule or formula. The Master Servicer will
generally be permitted to reduce, terminate or substitute all or a portion of
the credit enhancement for any series of Certificates, if the applicable Rating
Agency indicates that the then-current rating thereof will not be adversely
affected. The rating of any series of Certificates by any applicable Rating
Agency may be lowered following the initial issuance thereof as a result of the
downgrading of the obligations of any applicable credit support provider, or as
a result of losses on the related Mortgage Assets substantially in excess of the
levels contemplated by such Rating Agency at the time of its initial rating
analysis. None of the Depositor, the Master Servicer or any of their affiliates
will have any obligation to replace or supplement any credit enhancement, or to
take any other action to maintain any rating of any series of Certificates.
Subordination of the Subordinate Certificates; Effect of Losses on the Assets
The rights of Subordinate Certificateholders to receive distributions to
which they would otherwise be entitled with respect to the Assets will be
subordinate to the rights of the Master Servicer (to the extent that the Master
Servicer is paid its servicing fee, including any unpaid servicing fees with
respect to one or more prior Due Periods, and is reimbursed for certain
unreimbursed advances and unreimbursed liquidation expenses) and the Senior
Certificateholders to the extent described herein. As a result of the foregoing,
investors must be prepared to bear the risk that they may be subject to delays
in payment and may not recover their initial investments in the Subordinate
Certificates. See "Description of the Certificates--General" and "--Allocation
of Losses and Shortfalls."
The yields on the Subordinate Certificates may be extremely sensitive to
the loss experience of the Assets and the timing of any such losses. If the
actual rate and amount of losses experienced by the Assets exceed the rate and
amount of such losses assumed by an investor, the yields to maturity on the
Subordinate Certificates may be lower than anticipated.
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Enforceability
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the mortgagor sells, transfers
or conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages may also include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or non-monetary default of the
mortgagor. Such clauses are generally enforceable subject to certain exceptions.
The courts of all states will enforce clauses providing for acceleration in the
event of a material payment default. The equity courts of any state, however,
may refuse the foreclosure of a mortgage or deed of trust when an acceleration
of the indebtedness would be inequitable or unjust or the circumstances would
render the acceleration unconscionable.
If so specified in the related Prospectus Supplement, the Mortgage Loans
will be secured by an assignment of leases and rents pursuant to which the
mortgagor typically assigns its right, title and interest as landlord under the
leases on the related Mortgaged Property and the income derived therefrom to the
lender as further security for the related Mortgage Loan, while retaining a
license to collect rents for so long as there is no default. In the event the
mortgagor defaults, the license terminates and the lender is entitled to collect
rents. Such assignments are typically not perfected as security interests prior
to actual possession of the cash flows. Some state laws may require that the
lender take possession of the Mortgaged Property and obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. In
addition, if bankruptcy or similar proceedings are commenced by or in respect of
the mortgagor, the lender's ability to collect the rents may be adversely
affected. See "Certain Legal Aspects of the Mortgage Loans and the
Leases--Leases and Rents."
Environmental Risks
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination of
a property may give rise to a lien on the property to assure the costs of
cleanup. In several states, such a lien has priority over the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA") a lender may be liable, as an "owner" or
"operator," for costs of addressing releases or threatened releases of hazardous
substances that require remedy at a property, if agents or employees of the
lender have become sufficiently involved in the operations of the mortgagor,
regardless of whether or not the environmental damage or threat was caused by a
prior owner. A lender also risks such liability on foreclosure of the mortgage.
Unless otherwise specified in the related Prospectus Supplement, each Pooling
and Servicing Agreement will provide that none of the Master Servicer, the
Sub-Servicer or the Special Servicer, acting on behalf of the Trust Fund, may
acquire title to a Mortgaged Property securing a Mortgage Loan or take over its
operation unless the Master Servicer has previously determined, based upon a
report prepared by a person who regularly conducts environmental audits, that:
(i) the Mortgaged Property is in compliance with applicable environmental laws,
and there are no circumstances present at the Mortgaged Property relating to the
use, management or disposal of any hazardous substances, hazardous materials,
wastes, or petroleum based materials for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under any
federal, state or local law or regulation; or (ii) if the Mortgaged Property is
not so in compliance or such circumstances are so present, then it would be in
the best economic interest of the Trust Fund to acquire title to the Mortgaged
Property and further to take such actions as would be necessary and appropriate
to effect such compliance and/or respond to such circumstances. See "Certain
Legal Aspects of the Mortgage Loans and the Leases--Environmental Legislation."
ERISA Considerations
Generally, ERISA applies to investments made by employee benefit plans and
transactions involving the assets of such plans. Due to the complexity of
regulations which govern such plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the Offered Certificates of any
series. In particular, investors that are insurance companies should consult
with their counsel with respect to the United States Supreme Court case, John
Hancock Mutual Life Insurance Co. v. Harris Trust & Savings Bank. See "ERISA
Considerations."
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Certain Federal Tax Considerations Regarding REMIC Residual Certificates
Holders of REMIC Residual Certificates will be required to report on their
federal income tax returns as ordinary income their pro rata share of the
taxable income of the REMIC, regardless of the amount or timing of their receipt
of cash payments, as described in "Certain Federal Income Tax
Consequences--REMICs." Accordingly, under certain circumstances, holders of
Offered Certificates that constitute REMIC Residual Certificates may have
taxable income and tax liabilities arising from such investment during a taxable
year in excess of the cash received during such period. Individual holders of
REMIC Residual Certificates may be limited in their ability to deduct servicing
fees and other expenses of the REMIC. In addition, REMIC Residual Certificates
are subject to certain restrictions on transfer. Because of the special tax
treatment of REMIC Residual Certificates, the taxable income arising in a given
year on a REMIC Residual Certificate will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pre- tax yield. Therefore, the after-tax
yield on the REMIC Residual Certificate may be significantly less than that of a
corporate bond or stripped instrument having similar cash flow characteristics.
Additionally, prospective purchasers of a REMIC Residual Certificate should be
aware that recently issued temporary regulations provide restrictions on the
ability to mark-to-market certain "negative value" REMIC residual interests. See
"Certain Federal Income Tax Consequences--REMICs."
Control
Under certain circumstances, the consent or approval of the holders of a
specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of a series or a similar means of allocating decision-making under
the related Agreement ("Voting Rights") will be required to direct, and will be
sufficient to bind all Certificateholders of such series to, certain actions,
including directing the Special Servicer or the Master Servicer with respect to
actions to be taken with respect to certain Mortgage Loans and REO Properties
and amending the related Agreement in certain circumstances. See "Description of
the Agreements--Events of Default," "--Rights Upon Event of Default,"
"--Amendment" and "--List of Certificateholders."
Book-Entry Registration
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be registered
in the names of the Certificateholders or their nominees. Because of this,
unless and until Definitive Certificates are issued, Certificateholders will not
be recognized by the Trustee as "Certificateholders" (as that term is to be used
in the related Agreement). Hence, until such time, Certificateholders will be
able to exercise the rights of Certificateholders only indirectly through DTC
and its participating organizations. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates."
DESCRIPTION OF THE TRUST FUNDS
Assets
The primary assets of each Trust Fund (the "Assets") will include (i)
multifamily and/or commercial mortgage loans (the "Mortgage Loans"), (ii)
mortgage participations, pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by one or more Mortgage Loans or
other similar participations, certificates or securities ("MBS"), (iii) direct
obligations of the United States, agencies thereof or agencies created thereby
which are not subject to redemption prior to maturity at the option of the
issuer and are (a) interest-bearing securities, (b) non-interest-bearing
securities, (c) originally interest-bearing securities from which coupons
representing the right to payment of interest have been removed, or (d)
interest-bearing securities from which the right to payment of principal has
been removed (the "Government Securities"), or (iv) a combination of Mortgage
Loans, MBS and Government Securities. As used herein, "Mortgage Loans" refers to
both whole Mortgage Loans and Mortgage Loans underlying MBS. Mortgage Loans that
secure, or interests in which are evidenced by, MBS are herein sometimes
referred to as Underlying Mortgage Loans. Mortgage Loans that are not Underlying
Mortgage Loans are sometimes referred to as "Whole Loans." Any mortgage
participations, pass-through certificates or other asset-backed certificates in
which an MBS evidences an interest or which secure an MBS are sometimes referred
to herein also as MBS or as "Underlying MBS." Mortgage Loans and MBS are
sometimes referred to herein as "Mortgage Assets." The Mortgage Assets will not
be guaranteed or insured by Morgan
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Stanley Capital I Inc. (the "Depositor") or any of its affiliates or, unless
otherwise provided in the Prospectus Supplement, by any governmental agency or
instrumentality or by any other person. Each Asset will be selected by the
Depositor for inclusion in a Trust Fund from among those purchased, either
directly or indirectly, from a prior holder thereof (an "Asset Seller"), which
may be an affiliate of the Depositor and, with respect to Mortgage Assets, which
prior holder may or may not be the originator of such Mortgage Loan or the
issuer of such MBS.
Unless otherwise specified in the related Prospectus Supplement, the
Certificates will be entitled to payment only from the assets of the related
Trust Fund and will not be entitled to payments in respect of the assets of any
other trust fund established by the Depositor. If specified in the related
Prospectus Supplement, the assets of a Trust Fund will consist of certificates
representing beneficial ownership interests in another trust fund that contains
the Assets.
Mortgage Loans
General
The Mortgage Loans will be secured by liens on, or security interests in,
Mortgaged Properties consisting of (i) residential properties consisting of five
or more rental or cooperatively-owned dwelling units in high-rise, mid-rise or
garden apartment buildings ("Multifamily Properties" and the related loans,
"Multifamily Loans") or (ii) office buildings, shopping centers, retail stores,
hotels or motels, nursing homes, hospitals or other health care-related
facilities, mobile home parks, warehouse facilities, mini-warehouse facilities
or self-storage facilities, industrial plants, congregate care facilities, mixed
use or other types of commercial properties ("Commercial Properties" and the
related loans, "Commercial Loans") located, unless otherwise specified in the
related Prospectus Supplement, in any one of the fifty states, the District of
Columbia or the Commonwealth of Puerto Rico. To the extent specified in the
related Prospectus Supplement, the Mortgage Loans will be secured by first or
junior mortgages or deeds of trust or other similar security instruments
creating a first or junior lien on Mortgaged Property. Multifamily Property may
include mixed commercial and residential structures and may include apartment
buildings owned by private cooperative housing corporations ("Cooperatives").
The Mortgaged Properties may include leasehold interests in properties, the
title to which is held by third party lessors. Unless otherwise specified in the
Prospectus Supplement, the term of any such leasehold will exceed the term of
the related mortgage note by at least five years. Each Mortgage Loan will have
been originated by a person (the "Originator") other than the Depositor. The
related Prospectus Supplement will indicate if any Originator is an affiliate of
the Depositor. The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages or deeds of trust (the "Mortgages")
creating a lien on the Mortgaged Properties. Mortgage Loans will generally also
be secured by an assignment of leases and rents and/or operating or other cash
flow guarantees relating to the Mortgage Loan.
Leases
To the extent specified in the related Prospectus Supplement, the
Commercial Properties may be leased to Lessees that respectively occupy all or a
portion of such properties. Pursuant to a Lease Assignment, the related
mortgagor may assign its rights, title and interest as lessor under each Lease
and the income derived therefrom to the related mortgagee, while retaining a
license to collect the rents for so long as there is no default. If the
mortgagor defaults, the license terminates and the mortgagee or its agent is
entitled to collect the rents from the related Lessee or Lessees for application
to the monetary obligations of the mortgagor. State law may limit or restrict
the enforcement of the Lease Assignments by a mortgagee until it takes
possession of the related Mortgaged Property and/or a receiver is appointed. See
"Certain Legal Aspects of the Mortgage Loans and the Leases--Leases and Rents."
Alternatively, to the extent specified in the related Prospectus Supplement, the
mortgagor and the mortgagee may agree that payments under Leases are to be made
directly to the Master Servicer.
To the extent described in the related Prospectus Supplement, the Leases
may require the Lessees to pay rent that is sufficient in the aggregate to cover
all scheduled payments of principal and interest on the related Mortgage Loans
and, in certain cases, their pro rata share of the operating expenses, insurance
premiums and real estate taxes associated with the Mortgaged Properties. Certain
of the Leases may require the mortgagor to bear costs associated with structural
repairs and/or the maintenance of the exterior or other portions of the
Mortgaged Property or provide for certain limits on the aggregate amount of
operating expenses, insurance premiums, taxes and other expenses that the
Lessees are required to pay. If so specified in the related Prospectus
Supplement, under certain circumstances the Lessees may be
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permitted to set off their rental obligations against the obligations of the
mortgagors under the Leases. In those cases where payments under the Leases (net
of any operating expenses payable by the mortgagors) are insufficient to pay all
of the scheduled principal and interest on the related Mortgage Loans, the
mortgagors must rely on other income or sources (including security deposits)
generated by the related Mortgaged Property to make payments on the related
Mortgage Loan. To the extent specified in the related Prospectus Supplement,
some Commercial Properties may be leased entirely to one Lessee. In such cases,
absent the availability of other funds, the mortgagor must rely entirely on rent
paid by such Lessee in order for the mortgagor to pay all of the scheduled
principal and interest on the related Commercial Loan. To the extent specified
in the related Prospectus Supplement, certain of the Leases may expire prior to
the stated maturity of the related Mortgage Loan. In such cases, upon expiration
of the Leases the mortgagors will have to look to alternative sources of income,
including rent payment by any new Lessees or proceeds from the sale or
refinancing of the Mortgaged Property, to cover the payments of principal and
interest due on such Mortgage Loans unless the Lease is renewed. As specified in
the related Prospectus Supplement, certain of the Leases may provide that upon
the occurrence of a casualty affecting a Mortgaged Property, the Lessee will
have the right to terminate its Lease, unless the mortgagor, as lessor, is able
to cause the Mortgaged Property to be restored within a specified period of
time. Certain Leases may provide that it is the lessor's responsibility, while
other Leases provide that it is the Lessee's responsibility, to restore the
Mortgaged Property after a casualty to its original condition. Certain Leases
may provide a right of termination to the related Lessee if a taking of a
material or specified percentage of the leased space in the Mortgaged Property
occurs, or if the ingress or egress to the leased space has been materially
impaired.
Default and Loss Considerations with Respect to the Mortgage Loans
Mortgage loans secured by commercial and multifamily properties are
markedly different from owner-occupied single family mortgage loans. The
repayment of loans secured by commercial or multifamily properties is typically
dependent upon the successful operation of such property rather than upon the
liquidation value of the real estate. Unless otherwise specified in the
Prospectus Supplement, the Mortgage Loans will be non-recourse loans, which
means that, absent special facts, the mortgagee may look only to the Net
Operating Income from the property for repayment of the mortgage debt, and not
to any other of the mortgagor's assets, in the event of the mortgagor's default.
Lenders typically look to the Debt Service Coverage Ratio of a loan secured by
income-producing property as an important measure of the risk of default on such
a loan. The "Debt Service Coverage Ratio" of a Mortgage Loan at any given time
is the ratio of the Net Operating Income for a twelve-month period to the
annualized scheduled payments on the Mortgage Loan. "Net Operating Income"
means, for any given period, unless otherwise specified in the related
Prospectus Supplement, the total operating revenues derived from a Mortgaged
Property during such period, minus the total operating expenses incurred in
respect of such Mortgaged Property during such period other than (i) non-cash
items such as depreciation and amortization, (ii) capital expenditures and (iii)
debt service on loans secured by the Mortgaged Property. The Net Operating
Income of a Mortgaged Property will fluctuate over time and may be sufficient or
insufficient to cover debt service on the related Mortgage Loan at any given
time.
As the primary component of Net Operating Income, rental income (as well as
maintenance payments from tenant-stockholders of a Cooperative) is subject to
the vagaries of the applicable real estate market and/or business climate.
Properties typically leased, occupied or used on a short-term basis, such as
health care-related facilities, hotels and motels, and mini-warehouse and
self-storage facilities, tend to be affected more rapidly by changes in market
or business conditions than do properties leased, occupied or used for longer
periods, such as (typically) warehouses, retail stores, office buildings and
industrial plants. Commercial Loans may be secured by owner-occupied Mortgaged
Properties or Mortgaged Properties leased to a single tenant. Accordingly, a
decline in the financial condition of the mortgagor or single tenant, as
applicable, may have a disproportionately greater effect on the Net Operating
Income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants.
Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal property
tax rates and other operating expenses, including energy costs; changes in
governmental rules, regulations and fiscal policies, including environmental
legislation; and acts of God may also affect the risk of default on the related
Mortgage Loan. As may be further described in the related Prospectus Supplement,
in some cases leases of Mortgaged Properties may provide that the Lessee, rather
than the mortgagor, is responsible for payment of some or all of these expenses;
however, because leases are subject to default risks as well when a tenant's
income is insufficient to cover its rent and operating expenses,
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the existence of such "net of expense" provisions will only temper, not
eliminate, the impact of expense increases on the performance of the related
Mortgage Loan. See "--Leases" above.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
such risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the latter
include mortgage loans secured by health care-related facilities and hospitals,
the income from which and the operating expenses of which are subject to state
and/or federal regulations, such as Medicare and Medicaid, and multifamily
properties and mobile home parks, which may be subject to state or local rent
control regulation and, in certain cases, restrictions on changes in use of the
property. Low- and moderate-income housing in particular may be subject to legal
limitations and regulations but, because of such regulations, may also be less
sensitive to fluctuations in market rents generally.
The Debt Service Coverage Ratio should not be relied upon as the sole
measure of the risk of default of any loan, however, since other factors may
outweigh a high Debt Service Coverage Ratio. With respect to a Balloon Mortgage
Loan, for example, the risk of default as a result of the unavailability of a
source of funds to finance the related balloon payment at maturity on terms
comparable to or better than those of such Balloon Mortgage Loans could be
significant even though the related Debt Service Coverage Ratio is high.
The liquidation value of any Mortgaged Property may be adversely affected
by risks generally incident to interests in real property, including declines in
rental or occupancy rates. Lenders generally use the Loan-to-Value Ratio of a
mortgage loan as a measure of risk of loss if a property must be liquidated upon
a default by the mortgagor.
Appraised values of income-producing properties may be based on the market
comparison method (recent resale value of comparable properties at the date of
the appraisal), the cost replacement method (the cost of replacing the property
at such date), the income capitalization method (a projection of value based
upon the property's projected net cash flow), or upon a selection from or
interpolation of the values derived from such methods. Each of these appraisal
methods presents analytical challenges. It is often difficult to find truly
comparable properties that have recently been sold; the replacement cost of a
property may have little to do with its current market value; and income
capitalization is inherently based on inexact projections of income and expense
and the selection of an appropriate capitalization rate. Where more than one of
these appraisal methods are used and create significantly different results, or
where a high Loan-to-Value Ratio accompanies a high Debt Service Coverage Ratio
(or vice versa), the analysis of default and loss risks is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish the Multifamily and Commercial
Loans from single family mortgage loans and provide insight to the risks
associated with income-producing real estate, there is no assurance that such
factors will in fact have been considered by the Originators of the Multifamily
and Commercial Loans, or that, for any of such Mortgage Loans, they are complete
or relevant. See "Risk Factors--Risks Associated with Mortgage Loans and
Mortgaged Properties," "--Balloon Payments," "--Junior Mortgage Loans,"
"--Obligor Default" and "--Mortgagor Type."
Loan-to-Value Ratio
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the ratio
(expressed as a percentage) of the then outstanding principal balance of the
Mortgage Loan to the Value of the related Mortgaged Property. The "Value" of a
Mortgaged Property, other than with respect to Refinance Loans, is generally the
lesser of (a) the appraised value determined in an appraisal obtained by the
originator at origination of such loan and (b) the sales price for such
property. "Refinance Loans" are loans made to refinance existing loans. Unless
otherwise set forth in the related Prospectus Supplement, the Value of the
Mortgaged Property securing a Refinance Loan is the appraised value thereof
determined in an appraisal obtained at the time of origination of the Refinance
Loan. The Value of a Mortgaged Property as of the date of initial issuance of
the related series of Certificates may be less than the value at origination and
will fluctuate from time to time based upon changes in economic conditions and
the real estate market.
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Mortgage Loan Information in Prospectus Supplements
Each Prospectus Supplement will contain information, as of the date of such
Prospectus Supplement and to the extent then applicable and specifically known
to the Depositor, with respect to the Mortgage Loans, including (i) the
aggregate outstanding principal balance and the largest, smallest and average
outstanding principal balance of the Mortgage Loans as of the applicable Cut-off
Date, (ii) the type of property securing the Mortgage Loans (e.g., Multifamily
Property or Commercial Property and the type of property in each such category),
(iii) the weighted average (by principal balance) of the original and remaining
terms to maturity of the Mortgage Loans, (iv) the earliest and latest
origination date and maturity date of the Mortgage Loans, (v) the weighted
average (by principal balance) of the Loan-to-Value Ratios at origination of the
Mortgage Loans, (vi) the Mortgage Rates or range of Mortgage Rates and the
weighted average Mortgage Rate borne by the Mortgage Loans, (vii) the state or
states in which most of the Mortgaged Properties are located, (viii) information
with respect to the prepayment provisions, if any, of the Mortgage Loans, (ix)
the weighted average Retained Interest, if any, (x) with respect to Mortgage
Loans with adjustable Mortgage Rates ("ARM Loans"), the index, the frequency of
the adjustment dates, the highest, lowest and weighted average note margin and
pass-through margin, and the maximum Mortgage Rate or monthly payment variation
at the time of any adjustment thereof and over the life of the ARM Loan and the
frequency of such monthly payment adjustments, (xi) the Debt Service Coverage
Ratio either at origination or as of a more recent date (or both) and (xii)
information regarding the payment characteristics of the Mortgage Loans,
including without limitation balloon payment and other amortization provisions.
The related Prospectus Supplement will also contain certain information
available to the Depositor with respect to the provisions of leases and the
nature of tenants of the Mortgaged Properties and other information referred to
in a general manner under "--Mortgage Loans--Default and Loss Considerations
with Respect to the Mortgage Loans" above. If specific information respecting
the Mortgage Loans is not known to the Depositor at the time Certificates are
initially offered, more general information of the nature described above will
be provided in the Prospectus Supplement, and specific information will be set
forth in a report which will be available to purchasers of the related
Certificates at or before the initial issuance thereof and will be filed as part
of a Current Report on Form 8-K with the Securities and Exchange Commission
within fifteen days after such initial issuance.
Payment Provisions of the Mortgage Loans
Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans will (i) have individual principal balances at origination of not
less than $25,000, (ii) have original terms to maturity of not more than 40
years and (iii) provide for payments of principal, interest or both, on due
dates that occur monthly, quarterly or semi-annually or at such other interval
as is specified in the related Prospectus Supplement. Each Mortgage Loan may
provide for no accrual of interest or for accrual of interest thereon at an
interest rate (a "Mortgage Rate") that is fixed over its term or that adjusts
from time to time, or that may be converted from an adjustable to a fixed
Mortgage Rate, or from a fixed to an adjustable Mortgage Rate, from time to time
pursuant to an election or as otherwise specified on the related Mortgage Note,
in each case as described in the related Prospectus Supplement. Each Mortgage
Loan may provide for scheduled payments to maturity or payments that adjust from
time to time to accommodate changes in the Mortgage Rate or to reflect the
occurrence of certain events, and may provide for negative amortization or
accelerated amortization, in each case as described in the related Prospectus
Supplement. Each Mortgage Loan may be fully amortizing or require a balloon
payment due on its stated maturity date, in each case as described in the
related Prospectus Supplement. Each Mortgage Loan may contain prohibitions on
prepayment (a "Lock-out Period" and the date of expiration thereof, a "Lock-out
Date") or require payment of a premium or a yield maintenance penalty (a
"Prepayment Premium") in connection with a prepayment, in each case as described
in the related Prospectus Supplement. In the event that holders of any class or
classes of Offered Certificates will be entitled to all or a portion of any
Prepayment Premiums collected in respect of Mortgage Loans, the related
Prospectus Supplement will specify the method or methods by which any such
amounts will be allocated. A Mortgage Loan may also contain provisions entitling
the mortgagee to a share of profits realized from the operation or disposition
of the Mortgaged Property ("Equity Participations"), as described in the related
Prospectus Supplement. In the event that holders of any class or classes of
Offered Certificates will be entitled to all or a portion of an Equity
Participation, the related Prospectus Supplement will specify the terms and
provisions of the Equity Participation and the method or methods by which
distributions in respect thereof will be allocated among such Certificates.
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MBS
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, a trust agreement, an indenture or
similar agreement (an "MBS Agreement"). A seller (the "MBS Issuer") and/or
servicer (the "MBS Servicer") of the underlying Mortgage Loans (or Underlying
MBS) will have entered into the MBS Agreement with a trustee or a custodian
under the MBS Agreement (the "MBS Trustee"), if any, or with the original
purchaser of the interest in the underlying Mortgage Loans or MBS evidenced by
the MBS.
Distributions of any principal or interest, as applicable, will be made on
MBS on the dates specified in the related Prospectus Supplement. The MBS may be
issued in one or more classes with characteristics similar to the classes of
Certificates described in this Prospectus. Any principal or interest
distributions will be made on the MBS by the MBS Trustee or the MBS Servicer.
The MBS Issuer or the MBS Servicer or another person specified in the related
Prospectus Supplement may have the right or obligation to repurchase or
substitute assets underlying the MBS after a certain date or under other
circumstances specified in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination or other forms of
credit support similar to that described for the Certificates under "Description
of Credit Support" may be provided with respect to the MBS. The type,
characteristics and amount of such credit support, if any, will be a function of
certain characteristics of the Mortgage Loans or Underlying MBS evidenced by or
securing such MBS and other factors and generally will have been established for
the MBS on the basis of requirements of either any Rating Agency that may have
assigned a rating to the MBS or the initial purchasers of the MBS.
The Prospectus Supplement for a series of Certificates evidencing interests
in Mortgage Assets that include MBS will specify, to the extent available, (i)
the aggregate approximate initial and outstanding principal amount or notional
amount, as applicable, and type of the MBS to be included in the Trust Fund,
(ii) the original and remaining term to stated maturity of the MBS, if
applicable, (iii) whether such MBS is entitled only to interest payments, only
to principal payments or to both, (iv) the pass-through or bond rate of the MBS
or formula for determining such rates, if any, (v) the applicable payment
provisions for the MBS, including, but not limited to, any priorities, payment
schedules and subordination features, (vi) the MBS Issuer, MBS Servicer and MBS
Trustee, as applicable, (vii) certain characteristics of the credit support, if
any, such as subordination, reserve funds, insurance policies, letters of credit
or guarantees relating to the related Underlying Mortgage Loans, the Underlying
MBS or directly to such MBS, (viii) the terms on which the related Underlying
Mortgage Loans or Underlying MBS for such MBS or the MBS may, or are required
to, be purchased prior to their maturity, (ix) the terms on which Mortgage Loans
or Underlying MBS may be substituted for those originally underlying the MBS,
(x) the servicing fees payable under the MBS Agreement, (xi) the type of
information in respect of the Underlying Mortgage Loans described under
"--Mortgage Loans--Mortgage Loan Information in Prospectus Supplements" above,
and the type of information in respect of the Underlying MBS described in this
paragraph, (xii) the characteristics of any cash flow agreements that are
included as part of the trust fund evidenced or secured by the MBS and (xiii)
whether the MBS is in certificated form, book-entry form or held through a
depository such as The Depository Trust Company or the Participants Trust
Company.
Government Securities
The Prospectus Supplement for a series of Certificates evidencing interests
in Assets of a Trust Fund that include Government Securities will specify, to
the extent available, (i) the aggregate approximate initial and outstanding
principal amounts or notional amounts, as applicable, and types of the
Government Securities to be included in the Trust Fund, (ii) the original and
remaining terms to stated maturity of the Government Securities, (iii) whether
such Government Securities are entitled only to interest payments, only to
principal payments or to both, (iv) the interest rates of the Government
Securities or the formula to determine such rates, if any, (v) the applicable
payment provisions for the Government Securities and (vi) to what extent, if
any, the obligation evidenced thereby is backed by the full faith and credit of
the United States.
Accounts
Each Trust Fund will include one or more accounts established and
maintained on behalf of the Certificateholders into which the person or persons
designated in the related Prospectus Supplement will, to the extent described
herein and
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in such Prospectus Supplement deposit all payments and collections received or
advanced with respect to the Assets and other assets in the Trust Fund. Such an
account may be maintained as an interest bearing or a non-interest bearing
account, and funds held therein may be held as cash or invested in certain
short-term, investment grade obligations, in each case as described in the
related Prospectus Supplement. See "Description of the Agreement--Certificate
Account and Other Collection Accounts."
Credit Support
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Assets in the related
Trust Fund may be provided to one or more classes of Certificates in the related
series in the form of subordination of one or more other classes of Certificates
in such series or by one or more other types of credit support, such as a letter
of credit, insurance policy, guarantee, reserve fund or another type of credit
support, or a combination thereof (any such coverage with respect to the
Certificates of any series, "Credit Support"). The amount and types of coverage,
the identification of the entity providing the coverage (if applicable) and
related information with respect to each type of Credit Support, if any, will be
described in the Prospectus Supplement for a series of Certificates. See "Risk
Factors--Credit Support Limitations" and "Description of Credit Support."
Cash Flow Agreements
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to reduce the
effects of interest rate or currency exchange rate fluctuations on the Assets or
on one or more classes of Certificates. (Currency exchange agreements might be
included in the Trust Fund if some or all of the Mortgage Assets (such as
Mortgage Loans secured by Mortgaged Properties located outside the United
States) were denominated in a non-United States currency.) The principal terms
of any such guaranteed investment contract or other agreement (any such
agreement, a "Cash Flow Agreement"), including, without limitation, provisions
relating to the timing, manner and amount of payments thereunder and provisions
relating to the termination thereof, will be described in the Prospectus
Supplement for the related series. In addition, the related Prospectus
Supplement will provide certain information with respect to the obligor under
any such Cash Flow Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor to the purchase of Assets and to pay for certain
expenses incurred in connection with such purchase of Assets and sale of
Certificates. The Depositor expects to sell the Certificates from time to time,
but the timing and amount of offerings of Certificates will depend on a number
of factors, including the volume of Assets acquired by the Depositor, prevailing
interest rates, availability of funds and general market conditions.
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YIELD CONSIDERATIONS
General
The yield on any Offered Certificate will depend on the price paid by the
Certificateholder, the Pass-Through Rate of the Certificate, the receipt and
timing of receipt of distributions on the Certificate and the weighted average
life of the Assets in the related Trust Fund (which may be affected by
prepayments, defaults, liquidations or repurchases). See "Risk Factors."
Pass-Through Rate
Certificates of any class within a series may have fixed, variable or
adjustable Pass-Through Rates, which may or may not be based upon the interest
rates borne by the Assets in the related Trust Fund. The Prospectus Supplement
with respect to any series of Certificates will specify the Pass-Through Rate
for each class of such Certificates or, in the case of a variable or adjustable
Pass-Through Rate, the method of determining the Pass-Through Rate; the effect,
if any, of the prepayment of any Mortgage Asset on the Pass-Through Rate of one
or more classes of Certificates; and whether the distributions of interest on
the Certificates of any class will be dependent, in whole or in part, on the
performance of any obligor under a Cash Flow Agreement.
The effective yield to maturity to each holder of Certificates entitled to
payments of interest will be below that otherwise produced by the applicable
Pass-Through Rate and purchase price of such Certificate because, while interest
may accrue on each Asset during a certain period, the distribution of such
interest will be made on a day which may be several days, weeks or months
following the period of accrual.
Timing of Payment of Interest
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a class of Accrual Certificates) on a Distribution Date
will include interest accrued during the Interest Accrual Period for such
Distribution Date. As indicated above under "--Pass-Through Rate," if the
Interest Accrual Period ends on a date other than a Distribution Date for the
related series, the yield realized by the holders of such Certificates may be
lower than the yield that would result if the Interest Accrual Period ended on
such Distribution Date. In addition, if so specified in the related Prospectus
Supplement, interest accrued for an Interest Accrual Period for one or more
classes of Certificates may be calculated on the assumption that distributions
of principal (and additions to the Certificate Balance of Accrual Certificates)
and allocations of losses on the Assets may be made on the first day of the
Interest Accrual Period for a Distribution Date and not on such Distribution
Date. Such method would produce a lower effective yield than if interest were
calculated on the basis of the actual principal amount outstanding during an
Interest Accrual Period. The Interest Accrual Period for any class of Offered
Certificates will be described in the related Prospectus Supplement.
Payments of Principal; Prepayments
The yield to maturity on the Certificates will be affected by the rate of
principal payments on the Assets (including principal prepayments on Mortgage
Loans resulting from both voluntary prepayments by the mortgagors and
involuntary liquidations). Such payments may be directly dependent upon the
payments on Leases underlying such Mortgage Loans. The rate at which principal
prepayments occur on the Mortgage Loans will be affected by a variety of
factors, including, without limitation, the terms of the Mortgage Loans, the
level of prevailing interest rates, the availability of mortgage credit and
economic, demographic, geographic, tax, legal and other factors. In general,
however, if prevailing interest rates fall significantly below the Mortgage
Rates on the Mortgage Loans comprising or underlying the Assets in a particular
Trust Fund, such Mortgage Loans are likely to be the subject of higher principal
prepayments than if prevailing rates remain at or above the rates borne by such
Mortgage Loans. In this regard, it should be noted that certain Assets may
consist of Mortgage Loans with different Mortgage Rates and the stated
pass-through or pay-through interest rate of certain MBS may be a number of
percentage points higher or lower than certain of the underlying Mortgage Loans.
The rate of principal payments on some or all of the classes of Certificates of
a series will correspond to the rate of principal payments on the Assets in the
related Trust Fund and is likely to be affected by the existence of Lock-out
Periods and Prepayment Premium provisions of the Mortgage Loans underlying or
comprising such Assets, and
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by the extent to which the servicer of any such Mortgage Loan is able to enforce
such provisions. Mortgage Loans with a Lock-out Period or a Prepayment Premium
provision, to the extent enforceable, generally would be expected to experience
a lower rate of principal prepayments than otherwise identical Mortgage Loans
without such provisions, with shorter Lock-out Periods or with lower Prepayment
Premiums.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Assets, the
actual yield to maturity will be lower than that so calculated. Conversely, if
the purchaser of a Certificate offered at a premium calculates its anticipated
yield to maturity based on an assumed rate of distributions of principal that is
slower than that actually experienced on the Assets, the actual yield to
maturity will be lower than that so calculated. In either case, if so provided
in the Prospectus Supplement for a series of Certificates, the effect on yield
on one or more classes of the Certificates of such series of prepayments of the
Assets in the related Trust Fund may be mitigated or exacerbated by any
provisions for sequential or selective distribution of principal to such
classes.
When a full prepayment is made on a Mortgage Loan, the mortgagor is charged
interest on the principal amount of the Mortgage Loan so prepaid for the number
of days in the month actually elapsed up to the date of the prepayment. Unless
otherwise specified in the related Prospectus Supplement, the effect of
prepayments in full will be to reduce the amount of interest paid in the
following month to holders of Certificates entitled to payments of interest
because interest on the principal amount of any Mortgage Loan so prepaid will be
paid only to the date of prepayment rather than for a full month. Unless
otherwise specified in the related Prospectus Supplement, a partial prepayment
of principal is applied so as to reduce the outstanding principal balance of the
related Mortgage Loan as of the Due Date in the month in which such partial
prepayment is received. As a result, unless otherwise specified in the related
Prospectus Supplement, the effect of a partial prepayment on a Mortgage Loan
will be to reduce the amount of interest passed through to holders of
Certificates in the month following the receipt of such partial prepayment by an
amount equal to one month's interest at the applicable Pass-Through Rate on the
prepaid amount.
The timing of changes in the rate of principal payments on the Mortgage
Assets may significantly affect an investor's actual yield to maturity, even if
the average rate of distributions of principal is consistent with an investor's
expectation. In general, the earlier a principal payment is received on the
Mortgage Assets and distributed on a Certificate, the greater the effect on such
investor's yield to maturity. The effect on an investor's yield of principal
payments occurring at a rate higher (or lower) than the rate anticipated by the
investor during a given period may not be offset by a subsequent like decrease
(or increase) in the rate of principal payments.
Prepayments--Maturity and Weighted Average Life
The rates at which principal payments are received on the Assets included
in or comprising a Trust Fund and the rate at which payments are made from any
Credit Support or Cash Flow Agreement for the related series of Certificates may
affect the ultimate maturity and the weighted average life of each class of such
series. Prepayments on the Mortgage Loans comprising or underlying the Mortgage
Assets in a particular Trust Fund will generally accelerate the rate at which
principal is paid on some or all of the classes of the Certificates of the
related series.
If so provided in the Prospectus Supplement for a series of Certificates,
one or more classes of Certificates may have a final scheduled Distribution
Date, which is the date on or prior to which the Certificate Balance thereof is
scheduled to be reduced to zero, calculated on the basis of the assumptions
applicable to such series set forth therein.
Weighted average life refers to the average amount of time that will elapse
from the date of issue of a security until each dollar of principal of such
security will be repaid to the investor. The weighted average life of a class of
Certificates of a series will be influenced by the rate at which principal on
the Mortgage Loans comprising or underlying the Mortgage Assets is paid to such
class, which may be in the form of scheduled amortization or prepayments (for
this purpose, the term "prepayment" includes prepayments, in whole or in part,
and liquidations due to default).
In addition, the weighted average life of the Certificates may be affected
by the varying maturities of the Mortgage Loans comprising or underlying the
MBS. If any Mortgage Loans comprising or underlying the Assets in a particular
Trust Fund have actual terms to maturity of less than those assumed in
calculating final scheduled Distribution Dates for the classes of Certificates
of the related series, one or more classes of such Certificates may be fully
paid prior
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to their respective final scheduled Distribution Dates, even in the absence of
prepayments. Accordingly, the prepayment experience of the Assets will, to some
extent, be a function of the mix of Mortgage Rates and maturities of the
Mortgage Loans comprising or underlying such Assets. See "Description of the
Trust Funds."
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment
model. CPR represents a constant assumed rate of prepayment each month relative
to the then outstanding principal balance of a pool of loans for the life of
such loans.
Neither CPR nor any other prepayment model or assumption purports to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the Mortgage
Loans underlying or comprising the Mortgage Assets. Moreover, CPR was developed
based upon historical prepayment experience for single family loans. Thus, it is
likely that prepayment of any Mortgage Loans comprising or underlying the
Mortgage Assets for any series will not conform to any particular level of CPR.
The Depositor is not aware of any meaningful publicly available prepayment
statistics for multifamily or commercial mortgage loans.
The Prospectus Supplement with respect to each series of Certificates will
contain tables, if applicable, setting forth the projected weighted average life
of each class of Offered Certificates of such series and the percentage of the
initial Certificate Balance of each such class that would be outstanding on
specified Distribution Dates based on the assumptions stated in such Prospectus
Supplement, including assumptions that prepayments on the Mortgage Loans
comprising or underlying the related Assets are made at rates corresponding to
various percentages of CPR or at such other rates specified in such Prospectus
Supplement. Such tables and assumptions are intended to illustrate the
sensitivity of weighted average life of the Certificates to various prepayment
rates and will not be intended to predict or to provide information that will
enable investors to predict the actual weighted average life of the
Certificates. It is unlikely that prepayment of any Mortgage Loans comprising or
underlying the Mortgage Assets for any series will conform to any particular
level of CPR or any other rate specified in the related Prospectus Supplement.
Other Factors Affecting Weighted Average Life
Type of Mortgage Asset
A number of Mortgage Loans may have balloon payments due at maturity, and
because the ability of a mortgagor to make a balloon payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a number of Mortgage Loans having
balloon payments may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the mortgagor or adverse conditions in the market where the property is
located. In order to minimize losses on defaulted Mortgage Loans, the servicer
may, to the extent and under the circumstances set forth in the related
Prospectus Supplement, be permitted to modify Mortgage Loans that are in default
or as to which a payment default is imminent. Any defaulted balloon payment or
modification that extends the maturity of a Mortgage Loan will tend to extend
the weighted average life of the Certificates, thereby lengthening the period of
time elapsed from the date of issuance of a Certificate until it is retired.
Foreclosures and Payment Plans
The number of foreclosures and the principal amount of the Mortgage Loans
comprising or underlying the Mortgage Assets that are foreclosed in relation to
the number and principal amount of Mortgage Loans that are repaid in accordance
with their terms will affect the weighted average life of the Mortgage Loans
comprising or underlying the Mortgage Assets and that of the related series of
Certificates. Servicing decisions made with respect to the Mortgage Loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of Mortgage Loans in bankruptcy proceedings, may also have an
effect upon the payment patterns of particular Mortgage Loans and thus the
weighted average life of the Certificates.
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Due-on-Sale and Due-on-Encumbrance Clauses
Acceleration of mortgage payments as a result of certain transfers of or
the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of the
Mortgage Loans comprising or underlying the Assets may include "due-on-sale"
clauses or "due-on-encumbrance" clauses that allow the holder of the Mortgage
Loans to demand payment in full of the remaining principal balance of the
Mortgage Loans upon sale or certain other transfers of or the creation of
encumbrances upon the related Mortgaged Property. With respect to any Whole
Loans, unless otherwise provided in the related Prospectus Supplement, the
Master Servicer, on behalf of the Trust Fund, will be required to exercise (or
waive its right to exercise) any such right that the Trustee may have as
mortgagee to accelerate payment of the Whole Loan in a manner consistent with
the Servicing Standard. See "Certain Legal Aspects of the Mortgage Loans and the
Leases--Due-on-Sale and Due-on-Encumbrance" and "Description of the
Agreements--Due-on-Sale and Due-on-Encumbrance Provisions."
THE DEPOSITOR
Morgan Stanley Capital I Inc., the Depositor, is a direct wholly-owned
subsidiary of Morgan Stanley Group Inc. and was incorporated in the State of
Delaware on January 28, 1985. The principal executive offices of the Depositor
are located at 1585 Broadway, 37th Floor, New York, New York 10036. Its
telephone number is (212) 761-4700.
The Depositor does not have, nor is it expected in the future to have, any
significant assets.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates of each series (including any class of Certificates not
offered hereby) will represent the entire beneficial ownership interest in the
Trust Fund created pursuant to the related Agreement. Each series of
Certificates will consist of one or more classes of Certificates that may (i)
provide for the accrual of interest thereon based on fixed, variable or
adjustable rates; (ii) be senior (collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate Certificates") to one or more other
classes of Certificates in respect of certain distributions on the Certificates;
(iii) be entitled to principal distributions, with disproportionately low,
nominal or no interest distributions (collectively, "Stripped Principal
Certificates"); (iv) be entitled to interest distributions, with
disproportionately low, nominal or no principal distributions (collectively,
"Stripped Interest Certificates"); (v) provide for distributions of accrued
interest thereon commencing only following the occurrence of certain events,
such as the retirement of one or more other classes of Certificates of such
series (collectively, "Accrual Certificates"); (vi) provide for payments of
principal sequentially, based on specified payment schedules, from only a
portion of the Assets in such Trust Fund or based on specified calculations, to
the extent of available funds, in each case as described in the related
Prospectus Supplement; and/or (vii) provide for distributions based on a
combination of two or more components thereof with one or more of the
characteristics described in this paragraph including a Stripped Principal
Certificate component and a Stripped Interest Certificate component. Any such
classes may include classes of Offered Certificates.
Each class of Offered Certificates of a series will be issued in minimum
denominations corresponding to the Certificate Balances or, in case of Stripped
Interest Certificates, notional amounts or percentage interests specified in the
related Prospectus Supplement. The transfer of any Offered Certificates may be
registered and such Certificates may be exchanged without the payment of any
service charge payable in connection with such registration of transfer or
exchange, but the Depositor or the Trustee or any agent thereof may require
payment of a sum sufficient to cover any tax or other governmental charge. One
or more classes of Certificates of a series may be issued in definitive form
("Definitive Certificates") or in book-entry form ("Book-Entry Certificates"),
as provided in the related Prospectus Supplement. See "Risk Factors--Book-Entry
Registration" and "Description of the Certificates--Book-Entry Registration and
Definitive Certificates." Definitive Certificates will be exchangeable for other
Certificates of the same class and series of a like aggregate Certificate
Balance, notional amount or percentage interest but of different authorized
denominations. See "Risk Factors--Limited Liquidity" and "Limited Assets."
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Distributions
Distributions on the Certificates of each series will be made by or on
behalf of the Trustee on each Distribution Date as specified in the related
Prospectus Supplement from the Available Distribution Amount for such series and
such Distribution Date. Except as otherwise specified in the related Prospectus
Supplement, distributions (other than the final distribution) will be made to
the persons in whose names the Certificates are registered at the close of
business on the last business day of the month preceding the month in which the
Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date
specified in the related Prospectus Supplement (the "Determination Date"). All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such class
or by random selection, as described in the related Prospectus Supplement or
otherwise established by the related Trustee. Payments will be made either by
wire transfer in immediately available funds to the account of a
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has so notified the Trustee or other person
required to make such payments no later than the date specified in the related
Prospectus Supplement (and, if so provided in the related Prospectus Supplement,
holds Certificates in the requisite amount specified therein), or by check
mailed to the address of the person entitled thereto as it appears on the
Certificate Register; provided, however, that the final distribution in
retirement of the Certificates (whether Definitive Certificates or Book-Entry
Certificates) will be made only upon presentation and surrender of the
Certificates at the location specified in the notice to Certificateholders of
such final distribution.
Available Distribution Amount
All distributions on the Certificates of each series on each Distribution
Date will be made from the Available Distribution Amount described below, in
accordance with the terms described in the related Prospectus Supplement. Unless
provided otherwise in the related Prospectus Supplement, the "Available
Distribution Amount" for each Distribution Date equals the sum of the following
amounts:
(i) the total amount of all cash on deposit in the related Certificate
Account as of the corresponding Determination Date, exclusive of:
(a) all scheduled payments of principal and interest collected but due
on a date subsequent to the related Due Period (unless the related
Prospectus Supplement provides otherwise, a "Due Period" with respect
to any Distribution Date will commence on the second day of the month
in which the immediately preceding Distribution Date occurs, or the
day after the Cut-off Date in the case of the first Due Period, and
will end on the first day of the month of the related Distribution
Date),
(b) unless the related Prospectus Supplement provides otherwise, all
prepayments, together with related payments of the interest thereon
and related Prepayment Premiums, Liquidation Proceeds, Insurance
Proceeds and other unscheduled recoveries received subsequent to the
related Due Period, and
(c) all amounts in the Certificate Account that are due or
reimbursable to the Depositor, the Trustee, an Asset Seller, a
Sub-Servicer, a Special Servicer, the Master Servicer or any other
entity as specified in the related Prospectus Supplement or that are
payable in respect of certain expenses of the related Trust Fund;
(ii) if the related Prospectus Supplement so provides, interest or
investment income on amounts on deposit in the Certificate Account,
including any net amounts paid under any Cash Flow Agreements;
(iii) all advances made by a Master Servicer or any other entity as
specified in the related Prospectus Supplement with respect to such
Distribution Date;
(iv) if and to the extent the related Prospectus Supplement so provides,
amounts paid by a Master Servicer or any other entity as specified in the
related Prospectus Supplement with respect to interest shortfalls resulting
from prepayments during the related Prepayment Period; and
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(v) unless the related Prospectus Supplement provides otherwise, to the
extent not on deposit in the related Certificate Account as of the
corresponding Determination Date, any amounts collected under, from or in
respect of any Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Certificates (including any Certificates not
offered hereby) on each Distribution Date, and accordingly will be released from
the Trust Fund and will not be available for any future distributions.
Distributions of Interest on the Certificates
Each class of Certificates (other than classes of Stripped Principal
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which will be a fixed, variable or adjustable rate at which interest will
accrue on such class or a component thereof (the "Pass-Through Rate"). The
related Prospectus Supplement will specify the Pass-Through Rate for each class
or component or, in the case of a variable or adjustable Pass-Through Rate, the
method for determining the Pass-Through Rate. Unless otherwise specified in the
related Prospectus Supplement, interest on the Certificates will be calculated
on the basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of the Certificates of any class will
be made on each Distribution Date (other than any class of Accrual Certificates,
which will be entitled to distributions of accrued interest commencing only on
the Distribution Date, or under the circumstances, specified in the related
Prospectus Supplement, and any class of Stripped Principal Certificates that are
not entitled to any distributions of interest) based on the Accrued Certificate
Interest for such class and such Distribution Date, subject to the sufficiency
of the portion of the Available Distribution Amount allocable to such class on
such Distribution Date. Prior to the time interest is distributable on any class
of Accrual Certificates, the amount of Accrued Certificate Interest otherwise
distributable on such class will be added to the Certificate Balance thereof on
each Distribution Date. With respect to each class of Certificates and each
Distribution Date (other than certain classes of Stripped Interest
Certificates), "Accrued Certificate Interest" will be equal to interest accrued
for a specified period on the outstanding Certificate Balance thereof
immediately prior to the Distribution Date, at the applicable Pass-Through Rate,
reduced as described below. Unless otherwise provided in the Prospectus
Supplement, Accrued Certificate Interest on Stripped Interest Certificates will
be equal to interest accrued for a specified period on the outstanding notional
amount thereof immediately prior to each Distribution Date, at the applicable
Pass-Through Rate, reduced as described below. The method of determining the
notional amount for any class of Stripped Interest Certificates will be
described in the related Prospectus Supplement. Reference to notional amount is
solely for convenience in certain calculations and does not represent the right
to receive any distributions of principal. Unless otherwise provided in the
related Prospectus Supplement, the Accrued Certificate Interest on a series of
Certificates will be reduced in the event of prepayment interest shortfalls,
which are shortfalls in collections of interest for a full accrual period
resulting from prepayments prior to the due date in such accrual period on the
Mortgage Loans comprising or underlying the Mortgage Assets in the Trust Fund
for such series. The particular manner in which such shortfalls are to be
allocated among some or all of the classes of Certificates of that series will
be specified in the related Prospectus Supplement. The related Prospectus
Supplement will also describe the extent to which the amount of Accrued
Certificate Interest that is otherwise distributable on (or, in the case of
Accrual Certificates, that may otherwise be added to the Certificate Balance of)
a class of Offered Certificates may be reduced as a result of any other
contingencies, including delinquencies, losses and deferred interest on or in
respect of the Mortgage Loans comprising or underlying the Mortgage Assets in
the related Trust Fund. Unless otherwise provided in the related Prospectus
Supplement, any reduction in the amount of Accrued Certificate Interest
otherwise distributable on a class of Certificates by reason of the allocation
to such class of a portion of any deferred interest on the Mortgage Loans
comprising or underlying the Mortgage Assets in the related Trust Fund will
result in a corresponding increase in the Certificate Balance of such class. See
"Risk Factors--Average Life of Certificates; Prepayments; Yields" and "Yield
Considerations."
Distributions of Principal of the Certificates
The Certificates of each series, other than certain classes of Stripped
Interest Certificates, will have a "Certificate Balance" which, at any time,
will equal the then maximum amount that the holder will be entitled to receive
in respect of principal out of the future cash flow on the Assets and other
assets included in the related Trust Fund. The outstanding Certificate Balance
of a Certificate will be reduced to the extent of distributions of principal
thereon from time to time and, if and to the extent so provided in the related
Prospectus Supplement, by the amount of losses incurred in respect
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of the related Assets, may be increased in respect of deferred interest on the
related Mortgage Loans to the extent provided in the related Prospectus
Supplement and, in the case of Accrual Certificates prior to the Distribution
Date on which distributions of interest are required to commence, will be
increased by any related Accrued Certificate Interest. Unless otherwise provided
in the related Prospectus Supplement, the initial aggregate Certificate Balance
of all classes of Certificates of a series will not be greater than the
outstanding aggregate principal balance of the related Assets as of the
applicable Cut-off Date. The initial aggregate Certificate Balance of a series
and each class thereof will be specified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, distributions of
principal will be made on each Distribution Date to the class or classes of
Certificates entitled thereto in accordance with the provisions described in
such Prospectus Supplement until the Certificate Balance of such class has been
reduced to zero. Stripped Interest Certificates with no Certificate Balance are
not entitled to any distributions of principal.
Components
To the extent specified in the related Prospectus Supplement, distribution
on a class of Certificates may be based on a combination of two or more
different components as described under "--General" above. To such extent, the
descriptions set forth under "--Distributions of Interests on the Certificates"
and "--Distributions of Principal of the Certificates" above also relate to
components of such a class of Certificates. In such case, reference in such
sections to Certificate Balance and Pass-Through Rate refer to the principal
balance, if any, of any such component and the Pass-Through Rate, if any, on any
such component, respectively.
Distributions on the Certificates of Prepayment Premiums or in Respect of Equity
Participations
If so provided in the related Prospectus Supplement, Prepayment Premiums or
payments in respect of Equity Participations that are collected on the Mortgage
Assets in the related Trust Fund will be distributed on each Distribution Date
to the class or classes of Certificates entitled thereto in accordance with the
provisions described in such Prospectus Supplement.
Allocation of Losses and Shortfalls
If so provided in the Prospectus Supplement for a series of Certificates
consisting of one or more classes of Subordinate Certificates, on any
Distribution Date in respect of which losses or shortfalls in collections on the
Mortgage Assets have been incurred, the amount of such losses or shortfalls will
be borne first by a class of Subordinate Certificates in the priority and manner
and subject to the limitations specified in such Prospectus Supplement. See
"Description of Credit Support" for a description of the types of protection
that may be included in a Trust Fund against losses and shortfalls on Mortgage
Assets comprising such Trust Fund.
Advances in Respect of Delinquencies
With respect to any series of Certificates evidencing an interest in a
Trust Fund, unless otherwise provided in the related Prospectus Supplement, the
Master Servicer or another entity described therein will be required as part of
its servicing responsibilities to advance on or before each Distribution Date
its own funds or funds held in the Certificate Account that are not included in
the Available Distribution Amount for such Distribution Date, in an amount equal
to the aggregate of payments of principal (other than any balloon payments) and
interest (net of related servicing fees and Retained Interest) that were due on
the Whole Loans in such Trust Fund during the related Due Period and were
delinquent on the related Determination Date, subject to the Master Servicer's
(or another entity's) good faith determination that such advances will be
reimbursable from Related Proceeds (as defined below). In the case of a series
of Certificates that includes one or more classes of Subordinate Certificates
and if so provided in the related Prospectus Supplement, the Master Servicer's
(or another entity's) advance obligation may be limited only to the portion of
such delinquencies necessary to make the required distributions on one or more
classes of Senior Certificates and/or may be subject to the Master Servicer's
(or another entity's) good faith determination that such advances will be
reimbursable not only from Related Proceeds but also from collections on other
Assets otherwise distributable on one or more classes of such Subordinate
Certificates. See "Description of Credit Support."
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of Certificates entitled
thereto, rather than to guarantee or insure against losses. Unless otherwise
provided
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in the related Prospectus Supplement, advances of the Master Servicer's (or
another entity's) funds will be reimbursable only out of related recoveries on
the Mortgage Loans (including amounts received under any form of Credit Support)
respecting which such advances were made (as to any Mortgage Loan, "Related
Proceeds") and, if so provided in the Prospectus Supplement, out of any amounts
otherwise distributable on one or more classes of Subordinate Certificates of
such series; provided, however, that any such advance will be reimbursable from
any amounts in the Certificate Account prior to any distributions being made on
the Certificates to the extent that the Master Servicer (or such other entity)
shall determine in good faith that such advance (a "Nonrecoverable Advance") is
not ultimately recoverable from Related Proceeds or, if applicable, from
collections on other Assets otherwise distributable on such Subordinate
Certificates. If advances have been made by the Master Servicer from excess
funds in the Certificate Account, the Master Servicer is required to replace
such funds in the Certificate Account on any future Distribution Date to the
extent that funds in the Certificate Account on such Distribution Date are less
than payments required to be made to Certificateholders on such date. If so
specified in the related Prospectus Supplement, the obligations of the Master
Servicer (or another entity) to make advances may be secured by a cash advance
reserve fund, a surety bond, a letter of credit or another form of limited
guaranty. If applicable, information regarding the characteristics of, and the
identity of any obligor on, any such surety bond, will be set forth in the
related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement, the
Master Servicer (or another entity) will be entitled to receive interest at the
rate specified therein on its outstanding advances and will be entitled to pay
itself such interest periodically from general collections on the Assets prior
to any payment to Certificateholders or as otherwise provided in the related
Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any corresponding
advancing obligation of any person in connection with such MBS.
Reports to Certificateholders
Unless otherwise provided in the Prospectus Supplement, with each
distribution to holders of any class of Certificates of a series, the Master
Servicer or the Trustee, as provided in the related Prospectus Supplement, will
forward or cause to be forwarded to each such holder, to the Depositor and to
such other parties as may be specified in the related Agreement, a statement
setting forth, in each case to the extent applicable and available:
(i) the amount of such distribution to holders of Certificates of such
class applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of Certificates of
such class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to (a) Prepayment
Premiums and (b) payments on account of Equity Participations;
(iv) the amount of related servicing compensation received by a Master
Servicer (and, if payable directly out of the related Trust Fund, by any
Special Servicer and any Sub-Servicer) and such other customary information
as any such Master Servicer or the Trustee deems necessary or desirable, or
that a Certificateholder reasonably requests, to enable Certificateholders
to prepare their tax returns;
(v) the aggregate amount of advances included in such distribution,
and the aggregate amount of unreimbursed advances at the close of business
on such Distribution Date;
(vi) the aggregate principal balance of the Assets at the close of
business on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans in
respect of which (a) one scheduled payment is delinquent, (b) two scheduled
payments are delinquent, (c) three or more scheduled payments are
delinquent and (d) foreclosure proceedings have been commenced;
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(viii) with respect to each Whole Loan that is delinquent two or more
months, (a) the loan number thereof, (b) the unpaid balance thereof, (c)
whether the delinquency is in respect of any balloon payment, (d) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof, (e) if applicable, the aggregate amount of any
interest accrued and payable on related servicing expenses and related
advances assuming such Mortgage Loan is subsequently liquidated through
foreclosure, (f) whether a notice of acceleration has been sent to the
mortgagor and, if so, the date of such notice, (g) whether foreclosure
proceedings have been commenced and, if so, the date so commenced and (h)
if such Mortgage Loan is more than three months delinquent and foreclosure
has not been commenced, the reason therefor;
(ix) with respect to any Whole Loan liquidated during the related Due
Period (other than by payment in full), (a) the loan number thereof, (b)
the manner in which it was liquidated and (c) the aggregate amount of
liquidation proceeds received;
(x) with respect to any Whole Loan liquidated during the related Due
Period, (a) the portion of such liquidation proceeds payable or
reimbursable to the Master Servicer (or any other entity) in respect of
such Mortgage Loan and (b) the amount of any loss to Certificateholders;
(xi) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the
loan number of the related Mortgage Loan and (b) the date of acquisition;
(xii) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the
book value, (b) the principal balance of the related Mortgage Loan
immediately following such Distribution Date (calculated as if such
Mortgage Loan were still outstanding taking into account certain limited
modifications to the terms thereof specified in the Agreement), (c) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof and (d) if applicable, the aggregate amount of
interest accrued and payable on related servicing expenses and related
advances;
(xiii) with respect to any such REO Property sold during the related
Due Period (a) the loan number of the related Mortgage Loan, (b) the
aggregate amount of sale proceeds, (c) the portion of such sales proceeds
payable or reimbursable to the Master Servicer or a Special Servicer in
respect of such REO Property or the related Mortgage Loan and (d) the
amount of any loss to Certificateholders in respect of the related Mortgage
Loan;
(xiv) the aggregate Certificate Balance or notional amount, as the
case may be, of each class of Certificates (including any class of
Certificates not offered hereby) at the close of business on such
Distribution Date, separately identifying any reduction in such Certificate
Balance due to the allocation of any loss and increase in the Certificate
Balance of a class of Accrual Certificates in the event that Accrued
Certificate Interest has been added to such balance;
(xv) the aggregate amount of principal prepayments made during the
related Due Period;
(xvi) the amount deposited in the reserve fund, if any, on such
Distribution Date;
(xvii) the amount remaining in the reserve fund, if any, as of the
close of business on such Distribution Date;
(xviii) the aggregate unpaid Accrued Certificate Interest, if any, on
each class of Certificates at the close of business on such Distribution
Date;
(xix) in the case of Certificates with a variable Pass-Through Rate,
the Pass-Through Rate applicable to such Distribution Date, and, if
available, the immediately succeeding Distribution Date, as calculated in
accordance with the method specified in the related Prospectus Supplement;
(xx) in the case of Certificates with an adjustable Pass-Through Rate,
for statements to be distributed in any month in which an adjustment date
occurs, the adjustable Pass-Through Rate applicable to such Distribution
Date and the immediately succeeding Distribution Date as calculated in
accordance with the method specified in the related Prospectus Supplement;
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(xxi) as to any series which includes Credit Support, the amount of
coverage of each instrument of Credit Support included therein as of the
close of business on such Distribution Date; and
(xxii) the aggregate amount of payments by the mortgagors of (a)
default interest, (b) late charges and (c) assumption and modification fees
collected during the related Due Period.
In the case of information furnished pursuant to subclauses (i)-(iv) above,
the amounts shall be expressed as a dollar amount per minimum denomination of
Certificates or for such other specified portion thereof. In addition, in the
case of information furnished pursuant to subclauses (i), (ii), (xiv), (xviii)
and (xix) above, such amounts shall also be provided with respect to each
component, if any, of a class of Certificates. The Master Servicer or the
Trustee, as specified in the related Prospectus Supplement, will forward or
cause to be forwarded to each holder, to the Depositor and to such other parties
as may be specified in the Agreement, a copy of any statements or reports
received by the Master Servicer or the Trustee, as applicable, with respect to
any MBS. The Prospectus Supplement for each series of Offered Certificates will
describe any additional information to be included in reports to the holders of
such Certificates.
Within a reasonable period of time after the end of each calendar year, the
Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the calendar
year was a holder of a Certificate a statement containing the information set
forth in subclauses (i)-(iv) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a Certificateholder.
Such obligation of the Master Servicer or the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information shall be
provided by the Master Servicer or the Trustee pursuant to any requirements of
the Code as are from time to time in force. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates."
Termination
The obligations created by the Agreement for each series of Certificates
will terminate upon the payment to Certificateholders of that series of all
amounts held in the Certificate Account or by the Master Servicer, if any, or
the Trustee and required to be paid to them pursuant to such Agreement following
the earlier of (i) the final payment or other liquidation of the last Asset
subject thereto or the disposition of all property acquired upon foreclosure of
any Whole Loan subject thereto and (ii) the purchase of all of the assets of the
Trust Fund by the party entitled to effect such termination, under the
circumstances and in the manner set forth in the related Prospectus Supplement.
In no event, however, will the trust created by the Agreement continue beyond
the date specified in the related Prospectus Supplement. Written notice of
termination of the Agreement will be given to each Certificateholder, and the
final distribution will be made only upon presentation and surrender of the
Certificates at the location to be specified in the notice of termination.
If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the repurchase
of the assets in the related Trust Fund by the party specified therein, under
the circumstances and in the manner set forth therein. If so provided in the
related Prospectus Supplement, upon the reduction of the Certificate Balance of
a specified class or classes of Certificates by a specified percentage or
amount, the party specified therein will solicit bids for the purchase of all
assets of the Trust Fund, or of a sufficient portion of such assets to retire
such class or classes or purchase such class or classes at a price set forth in
the related Prospectus Supplement, in each case, under the circumstances and in
the manner set forth therein.
Book-Entry Registration and Definitive Certificates
If so provided in the related Prospectus Supplement, one or more classes of
the Offered Certificates of any series will be issued as Book-Entry
Certificates, and each such class will be represented by one or more single
Certificates registered in the name of a nominee for the depository, The
Depository Trust Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes in their accounts, thereby eliminating the need
for physical movement of certificates. Participants include Morgan Stanley & Co.
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Incorporated, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Unless otherwise provided in the related Prospectus Supplement, investors
that are not Participants or Indirect Participants but desire to purchase, sell
or otherwise transfer ownership of, or other interests in, Book-Entry
Certificates may do so only through Participants and Indirect Participants. In
addition, such investors ("Certificate Owners") will receive all distributions
on the Book-Entry Certificates through DTC and its Participants. Under a
book-entry format, Certificate Owners will receive payments after the related
Distribution Date because, while payments are required to be forwarded to Cede &
Co., as nominee for DTC ("Cede"), on each such date, DTC will forward such
payments to its Participants which thereafter will be required to forward them
to Indirect Participants or Certificate Owners. Unless otherwise provided in the
related Prospectus Supplement, the only "Certificateholder" (as such term is
used in the Agreement) will be Cede, as nominee of DTC, and the Certificate
Owners will not be recognized by the Trustee as Certificateholders under the
Agreement. Certificate Owners will be permitted to exercise the rights of
Certificateholders under the related Agreement only indirectly through the
Participants who in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Book-Entry Certificates and is
required to receive and transmit distributions of principal of and interest on
the Book-Entry Certificates. Participants and Indirect Participants with which
Certificate Owners have accounts with respect to the Book-Entry Certificates
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Certificate Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge its interest in the Book-Entry Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of its interest in the Book-Entry Certificates, may be limited due to
the lack of a physical certificate evidencing such interest.
DTC has advised the Depositor that it will take any action permitted to be
taken by a Certificateholder under an Agreement only at the direction of one or
more Participants to whose account with DTC interests in the Book-Entry
Certificates are credited.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Certificate Owners or their nominees
("Definitive Certificates"), rather than to DTC or its nominee only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to properly discharge its responsibilities as depository with respect to the
Certificates and the Depositor is unable to locate a qualified successor or (ii)
the Depositor, at its option, elects to terminate the book-entry system through
DTC.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Certificate Owners.
Upon surrender by DTC of the certificate or certificates representing the
Book-Entry Certificates, together with instructions for reregistration, the
Trustee will issue (or cause to be issued) to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
DESCRIPTION OF THE AGREEMENTS
The Certificates of each series evidencing interests in a Trust Fund
including Whole Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer, any Special Servicer appointed
as of the date of the Pooling and Servicing Agreement and the Trustee. The
Certificates of each series evidencing interests in a Trust Fund not including
Whole Loans will be issued pursuant to a Trust Agreement between the Depositor
and a Trustee. Any Master Servicer, any such Special Servicer and the Trustee
with respect to any series of Certificates will be named in the related
Prospectus Supplement. In lieu of appointing a Master Servicer, a servicer may
be appointed pursuant to the Pooling and Servicing Agreement for any Trust Fund.
Such servicer will service all or a significant
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number of Whole Loans directly without a Sub-Servicer. Unless otherwise
specified in the related Prospectus Supplement, the obligations of any such
servicer shall be commensurate with those of the Master Servicer described
herein. References in this prospectus to Master Servicer and its rights and
obligations, unless otherwise specified in the related Prospectus Supplement,
shall be deemed to also be references to any servicer servicing Whole Loans
directly. A manager or administrator may be appointed pursuant to the Trust
Agreement for any Trust Fund to administer such Trust Fund. The provisions of
each Agreement will vary depending upon the nature of the Certificates to be
issued thereunder and the nature of the related Trust Fund. A form of a Pooling
and Servicing Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. Any Trust Agreement will generally
conform to the form of Pooling and Servicing Agreement filed herewith, but will
not contain provisions with respect to the servicing and maintenance of Whole
Loans. The following summaries describe certain provisions that may appear in
each Agreement. The Prospectus Supplement for a series of Certificates will
describe any provision of the Agreement relating to such series that materially
differs from the description thereof contained in this Prospectus. The summaries
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Agreement for each Trust
Fund and the description of such provisions in the related Prospectus
Supplement. As used herein with respect to any series, the term "Certificate"
refers to all of the Certificates of that series, whether or not offered hereby
and by the related Prospectus Supplement, unless the context otherwise requires.
The Depositor will provide a copy of the Agreement (without exhibits) relating
to any series of Certificates without charge upon written request of a holder of
a Certificate of such series addressed to Morgan Stanley Capital I Inc., c/o
Morgan Stanley & Co. Incorporated, 1585 Broadway, 37th Floor, New York, New York
10036, Attention: John E. Westerfield.
Assignment of Assets; Repurchases
At the time of issuance of any series of Certificates, the Depositor will
assign (or cause to be assigned) to the designated Trustee the Assets to be
included in the related Trust Fund, together with all principal and interest to
be received on or with respect to such Assets after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date and other than any
Retained Interest. The Trustee will, concurrently with such assignment, deliver
the Certificates to the Depositor in exchange for the Assets and the other
assets comprising the Trust Fund for such series. Each Mortgage Asset will be
identified in a schedule appearing as an exhibit to the related Agreement.
Unless otherwise provided in the related Prospectus Supplement, such schedule
will include detailed information (i) in respect of each Whole Loan included in
the related Trust Fund, including without limitation, the address of the related
Mortgaged Property and type of such property, the Mortgage Rate and, if
applicable, the applicable index, margin, adjustment date and any rate cap
information, the original and remaining term to maturity, the original and
outstanding principal balance and balloon payment, if any, the Value,
Loan-to-Value Ratio and the Debt Service Coverage Ratio as of the date indicated
and payment and prepayment provisions, if applicable, and (ii) in respect of
each MBS included in the related Trust Fund, including without limitation, the
MBS Issuer, MBS Servicer and MBS Trustee, the pass-through or bond rate or
formula for determining such rate, the issue date and original and remaining
term to maturity, if applicable, the original and outstanding principal amount
and payment provisions, if applicable.
With respect to each Whole Loan, the Depositor will deliver or cause to be
delivered to the Trustee (or to the custodian hereinafter referred to) certain
loan documents, which unless otherwise specified in the related Prospectus
Supplement will include the original Mortgage Note endorsed, without recourse,
in blank or to the order of the Trustee, the original Mortgage (or a certified
copy thereof) with evidence of recording indicated thereon and an assignment of
the Mortgage to the Trustee in recordable form. Notwithstanding the foregoing, a
Trust Fund may include Mortgage Loans where the original Mortgage Note is not
delivered to the Trustee if the Depositor delivers to the Trustee or the
custodian a copy or a duplicate original of the Mortgage Note, together with an
affidavit certifying that the original thereof has been lost or destroyed. With
respect to such Mortgage Loans, the Trustee (or its nominee) may not be able to
enforce the Mortgage Note against the related borrower. Unless otherwise
specified in the related Prospectus Supplement, the Asset Seller will be
required to agree to repurchase, or substitute for, each such Mortgage Loan that
is subsequently in default if the enforcement thereof or of the related Mortgage
is materially adversely affected by the absence of the original Mortgage Note.
Unless otherwise provided in the related Prospectus Supplement, the related
Agreement will require the Depositor or another party specified therein to
promptly cause each such assignment of Mortgage to be recorded in the
appropriate public office for real property records, except in the State of
California or in other states where, in the opinion of counsel acceptable to the
Trustee, such recording is not required to protect the Trustee's interest in the
related Whole Loan against the claim of any subsequent transferee or any
successor to or creditor of the Depositor, the Master Servicer, the relevant
Asset Seller or any other prior holder of the Whole Loan.
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The Trustee (or a custodian) will review such Whole Loan documents within a
specified period of days after receipt thereof, and the Trustee (or a custodian)
will hold such documents in trust for the benefit of the Certificateholders.
Unless otherwise specified in the related Prospectus Supplement, if any such
document is found to be missing or defective in any material respect, the
Trustee (or such custodian) shall immediately notify the Master Servicer and the
Depositor, and the Master Servicer shall immediately notify the relevant Asset
Seller. If the Asset Seller cannot cure the omission or defect within a
specified number of days after receipt of such notice, then unless otherwise
specified in the related Prospectus Supplement, the Asset Seller will be
obligated, within a specified number of days of receipt of such notice, to
repurchase the related Whole Loan from the Trustee at the Purchase Price or
substitute for such Mortgage Loan. There can be no assurance that an Asset
Seller will fulfill this repurchase or substitution obligation, and neither the
Master Servicer nor the Depositor will be obligated to repurchase or substitute
for such Mortgage Loan if the Asset Seller defaults on its obligation. Unless
otherwise specified in the related Prospectus Supplement, this repurchase or
substitution obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for omission of, or a material defect in, a
constituent document. To the extent specified in the related Prospectus
Supplement, in lieu of curing any omission or defect in the Asset or
repurchasing or substituting for such Asset, the Asset Seller may agree to cover
any losses suffered by the Trust Fund as a result of such breach or defect.
If so provided in the related Prospectus Supplement, the Depositor will, as
to some or all of the Mortgage Loans, assign or cause to be assigned to the
Trustee the related Lease Assignments. In certain cases, the Trustee, or Master
Servicer, as applicable, may collect all moneys under the related Leases and
distribute amounts, if any, required under the Lease for the payment of
maintenance, insurance and taxes, to the extent specified in the related Lease
agreement. The Trustee, or if so specified in the Prospectus Supplement, the
Master Servicer, as agent for the Trustee, may hold the Lease in trust for the
benefit of the Certificateholders.
With respect to each Government Security or MBS in certificated form, the
Depositor will deliver or cause to be delivered to the Trustee (or the
custodian) the original certificate or other definitive evidence of such
Government Security or MBS, as applicable, together with bond power or other
instruments, certifications or documents required to transfer fully such
Government Security or MBS, as applicable, to the Trustee for the benefit of the
Certificateholders. With respect to each Government Security or MBS in
uncertificated or book-entry form or held through a "clearing corporation"
within the meaning of the UCC, the Depositor and the Trustee will cause such
Government Security or MBS to be registered directly or on the books of such
clearing corporation or of a financial intermediary in the name of the Trustee
for the benefit of the Certificateholders. Unless otherwise provided in the
related Prospectus Supplement, the related Agreement will require that either
the Depositor or the Trustee promptly cause any MBS and Government Securities in
certificated form not registered in the name of the Trustee to be re-registered,
with the applicable persons, in the name of the Trustee.
Representations and Warranties; Repurchases
Unless otherwise provided in the related Prospectus Supplement the
Depositor will, with respect to each Whole Loan, make or assign certain
representations and warranties, as of a specified date (the person making such
representations and warranties, the "Warrantying Party") covering, by way of
example, the following types of matters: (i) the accuracy of the information set
forth for such Whole Loan on the schedule of Assets appearing as an exhibit to
the related Agreement; (ii) the existence of title insurance insuring the lien
priority of the Whole Loan; (iii) the authority of the Warrantying Party to sell
the Whole Loan; (iv) the payment status of the Whole Loan and the status of
payments of taxes, assessments and other charges affecting the related Mortgaged
Property; (v) the existence of customary provisions in the related Mortgage Note
and Mortgage to permit realization against the Mortgaged Property of the benefit
of the security of the Mortgage; and (vi) the existence of hazard and extended
perils insurance coverage on the Mortgaged Property.
Any Warrantying Party, if other than the Depositor, shall be an Asset
Seller or an affiliate thereof or such other person acceptable to the Depositor
and shall be identified in the related Prospectus Supplement.
Representations and warranties made in respect of a Whole Loan may have
been made as of a date prior to the applicable Cut-off Date. A substantial
period of time may have elapsed between such date and the date of initial
issuance of the related series of Certificates evidencing an interest in such
Whole Loan. Unless otherwise specified in the related Prospectus Supplement, in
the event of a breach of any such representation or warranty, the Warrantying
Party will be
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obligated to reimburse the Trust Fund for losses caused by any such breach or
either cure such breach or repurchase or replace the affected Whole Loan as
described below. Since the representations and warranties may not address events
that may occur following the date as of which they were made, the Warrantying
Party will have a reimbursement, cure, repurchase or substitution obligation in
connection with a breach of such a representation and warranty only if the
relevant event that causes such breach occurs prior to such date. Such party
would have no such obligations if the relevant event that causes such breach
occurs after such date.
Unless otherwise provided in the related Prospectus Supplement, each
Agreement will provide that the Master Servicer and/or Trustee will be required
to notify promptly the relevant Warrantying Party of any breach of any
representation or warranty made by it in respect of a Whole Loan that materially
and adversely affects the value of such Whole Loan or the interests therein of
the Certificateholders. If such Warrantying Party cannot cure such breach within
a specified period following the date on which such party was notified of such
breach, then such Warrantying Party will be obligated to repurchase such Whole
Loan from the Trustee within a specified period from the date on which the
Warrantying Party was notified of such breach, at the Purchase Price therefor.
As to any Whole Loan, unless otherwise specified in the related Prospectus
Supplement, the "Purchase Price" is equal to the sum of the unpaid principal
balance thereof, plus unpaid accrued interest thereon at the Mortgage Rate from
the date as to which interest was last paid to the due date in the Due Period in
which the relevant purchase is to occur, plus certain servicing expenses that
are reimbursable to the Master Servicer. If so provided in the Prospectus
Supplement for a series, a Warrantying Party, rather than repurchase a Whole
Loan as to which a breach has occurred, will have the option, within a specified
period after initial issuance of such series of Certificates, to cause the
removal of such Whole Loan from the Trust Fund and substitute in its place one
or more other Whole Loans, in accordance with the standards described in the
related Prospectus Supplement. If so provided in the Prospectus Supplement for a
series, a Warrantying Party, rather than repurchase or substitute a Whole Loan
as to which a breach has occurred, will have the option to reimburse the Trust
Fund or the Certificateholders for any losses caused by such breach. Unless
otherwise specified in the related Prospectus Supplement, this reimbursement,
repurchase or substitution obligation will constitute the sole remedy available
to holders of Certificates or the Trustee for a breach of representation by a
Warrantying Party.
Neither the Depositor (except to the extent that it is the Warrantying
Party) nor the Master Servicer will be obligated to purchase or substitute for a
Whole Loan if a Warrantying Party defaults on its obligation to do so, and no
assurance can be given that Warrantying Parties will carry out such obligations
with respect to Whole Loans.
Unless otherwise provided in the related Prospectus Supplement the
Warrantying Party will, with respect to a Trust Fund that includes Government
Securities or MBS, make or assign certain representations or warranties, as of a
specified date, with respect to such Government Securities or MBS, covering (i)
the accuracy of the information set forth therefor on the schedule of Assets
appearing as an exhibit to the related Agreement and (ii) the authority of the
Warrantying Party to sell such Assets. The related Prospectus Supplement will
describe the remedies for a breach thereof.
A Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the related Agreement. A breach of any such representation of
the Master Servicer which materially and adversely affects the interests of the
Certificateholders and which continues unremedied for thirty days after the
giving of written notice of such breach to the Master Servicer by the Trustee or
the Depositor, or to the Master Servicer, the Depositor and the Trustee by the
holders of Certificates evidencing not less than 25% of the Voting Rights
(unless otherwise specified in the related Prospectus Supplement), will
constitute an Event of Default under such Pooling and Servicing Agreement. See
"Events of Default" and "Rights Upon Event of Default."
Certificate Account and Other Collection Accounts
General
The Master Servicer and/or the Trustee will, as to each Trust Fund,
establish and maintain or cause to be established and maintained one or more
separate accounts for the collection of payments on the related Assets
(collectively, the "Certificate Account"), which must be either (i) an account
or accounts the deposits in which are insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the Federal Deposit Insurance Corporation
("FDIC") (to the limits established by the FDIC) and the uninsured deposits in
which are otherwise secured such that the
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Certificateholders have a claim with respect to the funds in the Certificate
Account or a perfected first priority security interest against any collateral
securing such funds that is superior to the claims of any other depositors or
general creditors of the institution with which the Certificate Account is
maintained or (ii) otherwise maintained with a bank or trust company, and in a
manner, satisfactory to the Rating Agency or Agencies rating any class of
Certificates of such series. The collateral eligible to secure amounts in the
Certificate Account is limited to United States government securities and other
investment grade obligations specified in the Agreement ("Permitted
Investments"). A Certificate Account may be maintained as an interest bearing or
a non-interest bearing account and the funds held therein may be invested
pending each succeeding Distribution Date in certain short-term Permitted
Investments. Unless otherwise provided in the related Prospectus Supplement, any
interest or other income earned on funds in the Certificate Account will be paid
to a Master Servicer or its designee as additional servicing compensation. The
Certificate Account may be maintained with an institution that is an affiliate
of the Master Servicer, if applicable, provided that such institution meets the
standards imposed by the Rating Agency or Agencies. If permitted by the Rating
Agency or Agencies and so specified in the related Prospectus Supplement, a
Certificate Account may contain funds relating to more than one series of
mortgage pass-through certificates and may contain other funds respecting
payments on mortgage loans belonging to the Master Servicer or serviced or
master serviced by it on behalf of others.
Deposits
A Master Servicer or the Trustee will deposit or cause to be deposited in
the Certificate Account for one or more Trust Funds on a daily basis, unless
otherwise provided in the related Agreement, the following payments and
collections received, or advances made, by the Master Servicer or the Trustee or
on its behalf subsequent to the Cut-off Date (other than payments due on or
before the Cut-off Date, and exclusive of any amounts representing a Retained
Interest):
(i) all payments on account of principal, including principal
prepayments, on the Assets;
(ii) all payments on account of interest on the Assets, including any
default interest collected, in each case net of any portion thereof
retained by a Master Servicer, a Sub-Servicer or a Special Servicer as its
servicing compensation and net of any Retained Interest;
(iii) all proceeds of the hazard, business interruption and general
liability insurance policies to be maintained in respect of each Mortgaged
Property securing a Whole Loan in the Trust Fund (to the extent such
proceeds are not applied to the restoration of the property or released to
the mortgagor in accordance with the normal servicing procedures of a
Master Servicer or the related Sub-Servicer, subject to the terms and
conditions of the related Mortgage and Mortgage Note) and all proceeds of
rental interruption policies, if any, insuring against losses arising from
the failure of Lessees under a Lease to make timely rental payments because
of certain casualty events (collectively, "Insurance Proceeds") and all
other amounts received and retained in connection with the liquidation of
defaulted Mortgage Loans in the Trust Fund, by foreclosure or otherwise
("Liquidation Proceeds"), together with the net proceeds on a monthly basis
with respect to any Mortgaged Properties acquired for the benefit of
Certificateholders by foreclosure or by deed in lieu of foreclosure or
otherwise;
(iv) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related series of Certificates as
described under "Description of Credit Support";
(v) any advances made as described under "Description of the
Certificates--Advances in Respect of Delinquencies";
(vi) any amounts representing Prepayment Premiums;
(vii) any amounts paid under any Cash Flow Agreement, as described
under "Description of the Trust Funds-- Cash Flow Agreements";
(viii) all proceeds of any Asset or, with respect to a Whole Loan,
property acquired in respect thereof purchased by the Depositor, any Asset
Seller or any other specified person as described under "Assignment of
Assets; Repurchases" and "Representations and Warranties; Repurchases," all
proceeds of any defaulted Mortgage Loan
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purchased as described under "Realization Upon Defaulted Whole Loans," and
all proceeds of any Asset purchased as described under "Description of the
Certificates Termination" (also, "Liquidation Proceeds");
(ix) any amounts paid by a Master Servicer to cover certain interest
shortfalls arising out of the prepayment of Whole Loans in the Trust Fund
as described under "Description of the Agreements Retained Interest;
Servicing Compensation and Payment of Expenses";
(x) to the extent that any such item does not constitute additional
servicing compensation to a Master Servicer, any payments on account of
modification or assumption fees, late payment charges, Prepayment Premiums
or Equity Participations on the Mortgage Assets;
(xi) all payments required to be deposited in the Certificate Account
with respect to any deductible clause in any blanket insurance policy
described under "Hazard Insurance Policies";
(xii) any amount required to be deposited by a Master Servicer or the
Trustee in connection with losses realized on investments for the benefit
of the Master Servicer or the Trustee, as the case may be, of funds held in
the Certificate Account; and
(xiii) any other amounts required to be deposited in the Certificate
Account as provided in the related Agreement and described in the related
Prospectus Supplement.
Withdrawals
A Master Servicer or the Trustee may, from time to time, unless otherwise
provided in the related Agreement and described in the related Prospectus
Supplement, make withdrawals from the Certificate Account for each Trust Fund
for any of the following purposes:
(i) to make distributions to the Certificateholders on each
Distribution Date;
(ii) to reimburse a Master Servicer for unreimbursed amounts advanced
as described under "Description of the Certificates Advances in Respect of
Delinquencies," such reimbursement to be made out of amounts received which
were identified and applied by the Master Servicer as late collections of
interest (net of related servicing fees and Retained Interest) on and
principal of the particular Whole Loans with respect to which the advances
were made or out of amounts drawn under any form of Credit Support with
respect to such Whole Loans;
(iii) to reimburse a Master Servicer for unpaid servicing fees earned
and certain unreimbursed servicing expenses incurred with respect to Whole
Loans and properties acquired in respect thereof, such reimbursement to be
made out of amounts that represent Liquidation Proceeds and Insurance
Proceeds collected on the particular Whole Loans and properties, and net
income collected on the particular properties, with respect to which such
fees were earned or such expenses were incurred or out of amounts drawn
under any form of Credit Support with respect to such Whole Loans and
properties;
(iv) to reimburse a Master Servicer for any advances described in
clause (ii) above and any servicing expenses described in clause (iii)
above which, in the Master Servicer's good faith judgment, will not be
recoverable from the amounts described in clauses (ii) and (iii),
respectively, such reimbursement to be made from amounts collected on other
Assets or, if and to the extent so provided by the related Agreement and
described in the related Prospectus Supplement, just from that portion of
amounts collected on other Assets that is otherwise distributable on one or
more classes of Subordinate Certificates, if any, remain outstanding, and
otherwise any outstanding class of Certificates, of the related series;
(v) if and to the extent described in the related Prospectus
Supplement, to pay a Master Servicer interest accrued on the advances
described in clause (ii) above and the servicing expenses described in
clause (iii) above while such remain outstanding and unreimbursed;
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(vi) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments with respect to, and for containment,
clean-up or remediation of hazardous wastes and materials on, Mortgaged
Properties securing defaulted Whole Loans as described under "Realization
Upon Defaulted Whole Loans";
(vii) to reimburse a Master Servicer, the Depositor, or any of their
respective directors, officers, employees and agents, as the case may be,
for certain expenses, costs and liabilities incurred thereby, as and to the
extent described under "Certain Matters Regarding a Master Servicer and the
Depositor";
(viii) if and to the extent described in the related Prospectus
Supplement, to pay (or to transfer to a separate account for purposes of
escrowing for the payment of) the Trustee's fees;
(ix) to reimburse the Trustee or any of its directors, officers,
employees and agents, as the case may be, for certain expenses, costs and
liabilities incurred thereby, as and to the extent described under "Certain
Matters Regarding the Trustee";
(x) unless otherwise provided in the related Prospectus Supplement, to
pay a Master Servicer, as additional servicing compensation, interest and
investment income earned in respect of amounts held in the Certificate
Account;
(xi) to pay the person entitled thereto any amounts deposited in the
Certificate Account that were identified and applied by the Master Servicer
as recoveries of Retained Interest;
(xii) to pay for costs reasonably incurred in connection with the
proper operation, management and maintenance of any Mortgaged Property
acquired for the benefit of Certificateholders by foreclosure or by deed in
lieu of foreclosure or otherwise, such payments to be made out of income
received on such property;
(xiii) if one or more elections have been made to treat the Trust Fund
or designated portions thereof as a REMIC, to pay any federal, state or
local taxes imposed on the Trust Fund or its assets or transactions, as and
to the extent described under "Certain Federal Income Tax
Consequences--REMICS--Prohibited Transactions Tax and Other Taxes";
(xiv) to pay for the cost of an independent appraiser or other expert
in real estate matters retained to determine a fair sale price for a
defaulted Whole Loan or a property acquired in respect thereof in
connection with the liquidation of such Whole Loan or property;
(xv) to pay for the cost of various opinions of counsel obtained
pursuant to the related Agreement for the benefit of Certificateholders;
(xvi) to pay for the costs of recording the related Agreement if such
recordation materially and beneficially affects the interests of
Certificateholders, provided that such payment shall not constitute a
waiver with respect to the obligation of the Warrantying Party to remedy
any breach of representation or warranty under the Agreement;
(xvii) to pay the person entitled thereto any amounts deposited in the
Certificate Account in error, including amounts received on any Asset after
its removal from the Trust Fund whether by reason of purchase or
substitution as contemplated by "Assignment of Assets; Repurchase" and
"Representations and Warranties; Repurchases" or otherwise;
(xviii) to make any other withdrawals permitted by the related
Agreement and described in the related Prospectus Supplement; and
(xix) to clear and terminate the Certificate Account at the
termination of the Trust Fund.
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Other Collection Accounts
Notwithstanding the foregoing, if so specified in the related Prospectus
Supplement, the Agreement for any series of Certificates may provide for the
establishment and maintenance of a separate collection account into which the
Master Servicer or any related Sub-Servicer or Special Servicer will deposit on
a daily basis the amounts described under "--Deposits" above for one or more
series of Certificates. Any amounts on deposit in any such collection account
will be withdrawn therefrom and deposited into the appropriate Certificate
Account by a time specified in the related Prospectus Supplement. To the extent
specified in the related Prospectus Supplement, any amounts which could be
withdrawn from the Certificate Account as described under "--Withdrawals" above,
may also be withdrawn from any such collection account. The Prospectus
Supplement will set forth any restrictions with respect to any such collection
account, including investment restrictions and any restrictions with respect to
financial institutions with which any such collection account may be maintained.
Collection and Other Servicing Procedures
The Master Servicer, directly or through Sub-Servicers, is required to make
reasonable efforts to collect all scheduled payments under the Whole Loans and
will follow or cause to be followed such collection procedures as it would
follow with respect to mortgage loans that are comparable to the Whole Loans and
held for its own account, provided such procedures are consistent with (i) the
terms of the related Agreement and any related hazard, business interruption,
rental interruption or general liability insurance policy or instrument of
Credit Support included in the related Trust Fund described herein or under
"Description of Credit Support," (ii) applicable law and (iii) the general
servicing standard specified in the related Prospectus Supplement or, if no such
standard is so specified, its normal servicing practices (in either case, the
"Servicing Standard"). In connection therewith, the Master Servicer will be
permitted in its discretion to waive any late payment charge or penalty interest
in respect of a late Whole Loan payment.
Each Master Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining (or causing
the mortgagor or Lessee on each Mortgage or Lease to maintain) hazard, business
interruption and general liability insurance policies (and, if applicable,
rental interruption policies) as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder; maintaining escrow or
impoundment accounts of mortgagors for payment of taxes, insurance and other
items required to be paid by any mortgagor pursuant to the Whole Loan;
processing assumptions or substitutions in those cases where the Master Servicer
has determined not to enforce any applicable due-on-sale clause; attempting to
cure delinquencies; supervising foreclosures; inspecting and managing Mortgaged
Properties under certain circumstances; and maintaining accounting records
relating to the Whole Loans. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer will be responsible for filing and
settling claims in respect of particular Whole Loans under any applicable
instrument of Credit Support. See "Description of Credit Support."
The Master Servicer may agree to modify, waive or amend any term of any
Whole Loan in a manner consistent with the Servicing Standard so long as the
modification, waiver or amendment will not (i) affect the amount or timing of
any scheduled payments of principal or interest on the Whole Loan or (ii) in its
judgment, materially impair the security for the Whole Loan or reduce the
likelihood of timely payment of amounts due thereon. The Master Servicer also
may agree to any modification, waiver or amendment that would so affect or
impair the payments on, or the security for, a Whole Loan if, unless otherwise
provided in the related Prospectus Supplement, (i) in its judgment, a material
default on the Whole Loan has occurred or a payment default is imminent and (ii)
in its judgment, such modification, waiver or amendment is reasonably likely to
produce a greater recovery with respect to the Whole Loan on a present value
basis than would liquidation. The Master Servicer is required to notify the
Trustee in the event of any modification, waiver or amendment of any Whole Loan.
Sub-Servicers
A Master Servicer may delegate its servicing obligations in respect of the
Whole Loans to third-party servicers (each, a "Sub-Servicer"), but such Master
Servicer will remain obligated under the related Agreement. Each sub-servicing
agreement between a Master Servicer and a Sub-Servicer (a "Sub-Servicing
Agreement") must be consistent with the terms of the related Agreement and must
provide that, if for any reason the Master Servicer for the related series of
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Certificates is no longer acting in such capacity, the Trustee or any successor
Master Servicer may assume the Master Servicer's rights and obligations under
such Sub-Servicing Agreement.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will be solely liable for all fees owed by it to any Sub-Servicer,
irrespective of whether the Master Servicer's compensation pursuant to the
related Agreement is sufficient to pay such fees. However, a Sub-Servicer may be
entitled to a Retained Interest in certain Whole Loans. Each Sub-Servicer will
be reimbursed by the Master Servicer for certain expenditures which it makes,
generally to the same extent the Master Servicer would be reimbursed under an
Agreement. See "Retained Interest, Servicing Compensation and Payment of
Expenses."
Special Servicers
To the extent so specified in the related Prospectus Supplement, a special
servicer (the "Special Servicer") may be appointed. The related Prospectus
Supplement will describe the rights, obligations and compensation of a Special
Servicer. The Master Servicer will only be responsible for the duties and
obligations of a Special Servicer to the extent set forth in the Prospectus
Supplement.
Realization Upon Defaulted Whole Loans
A mortgagor's failure to make required payments may reflect inadequate
income or the diversion of that income from the service of payments due under
the Mortgage Loan, and may call into question such mortgagor's ability to make
timely payment of taxes and to pay for necessary maintenance of the related
Mortgaged Property. Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer is required to monitor any Whole Loan which is
in default, contact the mortgagor concerning the default, evaluate whether the
causes of the default can be cured over a reasonable period without significant
impairment of the value of the Mortgaged Property, initiate corrective action in
cooperation with the mortgagor if cure is likely, inspect the Mortgaged Property
and take such other actions as are consistent with the Servicing Standard. A
significant period of time may elapse before the Master Servicer is able to
assess the success of such corrective action or the need for additional
initiatives.
The time within which the Master Servicer makes the initial determination
of appropriate action, evaluates the success of corrective action, develops
additional initiatives, institutes foreclosure proceedings and actually
forecloses (or takes a deed to a Mortgaged Property in lieu of foreclosure) on
behalf of the Certificateholders, may vary considerably depending on the
particular Whole Loan, the Mortgaged Property, the mortgagor, the presence of an
acceptable party to assume the Whole Loan and the laws of the jurisdiction in
which the Mortgaged Property is located. Under federal bankruptcy law, the
Master Servicer in certain cases may not be permitted to accelerate a Whole Loan
or to foreclose on a Mortgaged Property for a considerable period of time. See
"Certain Legal Aspects of the Mortgage--Loans and the Leases."
Any Agreement relating to a Trust Fund that includes Whole Loans may grant
to the Master Servicer and/or the holder or holders of certain classes of
Certificates a right of first refusal to purchase from the Trust Fund at a
predetermined purchase price any such Whole Loan as to which a specified number
of scheduled payments thereunder are delinquent. Any such right granted to the
holder of an Offered Certificate will be described in the related Prospectus
Supplement. The related Prospectus Supplement will also describe any such right
granted to any person if the predetermined purchase price is less than the
Purchase Price described under "Representations and Warranties; Repurchases."
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer may offer to sell any defaulted Whole Loan described in the preceding
paragraph and not otherwise purchased by any person having a right of first
refusal with respect thereto, if and when the Master Servicer determines,
consistent with the Servicing Standard, that such a sale would produce a greater
recovery on a present value basis than would liquidation through foreclosure or
similar proceeding. The related Agreement will provide that any such offering be
made in a commercially reasonable manner for a specified period and that the
Master Servicer accept the highest cash bid received from any person (including
itself, an affiliate of the Master Servicer or any Certificateholder) that
constitutes a fair price for such defaulted Whole Loan. In the absence of any
bid determined in accordance with the related Agreement to be fair, the Master
Servicer shall
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proceed with respect to such defaulted Mortgage Loan as described below. Any bid
in an amount at least equal to the Purchase Price described under
"Representations and Warranties; Repurchases" will in all cases be deemed fair.
The Master Servicer, on behalf of the Trustee, may at any time institute
foreclosure proceedings, exercise any power of sale contained in any mortgage,
obtain a deed in lieu of foreclosure, or otherwise acquire title to a Mortgaged
Property securing a Whole Loan by operation of law or otherwise, if such action
is consistent with the Servicing Standard and a default on such Whole Loan has
occurred or, in the Master Servicer's judgment, is imminent. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer may not
acquire title to any related Mortgaged Property or take any other action that
would cause the Trustee, for the benefit of Certificateholders, or any other
specified person to be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or an "operator" of such
Mortgaged Property within the meaning of certain federal environmental laws,
unless the Master Servicer has previously determined, based on a report prepared
by a person who regularly conducts environmental audits (which report will be an
expense of the Trust Fund), that either:
(i) the Mortgaged Property is in compliance with applicable environmental
laws, and there are no circumstances present at the Mortgaged Property
relating to the use, management or disposal of any hazardous substances,
hazardous materials, wastes, or petroleum-based materials for which
investigation, testing, monitoring, containment, clean-up or remediation
could be required under any federal, state or local law or regulation; or
(ii) if the Mortgaged Property is not so in compliance or such
circumstances are so present, then it would be in the best economic
interest of the Trust Fund to acquire title to the Mortgaged Property and
further to take such actions as would be necessary and appropriate to
effect such compliance and/or respond to such circumstances (the cost of
which actions will be an expense of the Trust Fund).
Unless otherwise provided in the related Prospectus Supplement, if title to
any Mortgaged Property is acquired by a Trust Fund as to which a REMIC election
has been made, the Master Servicer, on behalf of the Trust Fund, will be
required to sell the Mortgaged Property within two years of acquisition, unless
(i) the Internal Revenue Service grants an extension of time to sell such
property or (ii) the Trustee receives an opinion of independent counsel to the
effect that the holding of the property by the Trust Fund subsequent to two
years after its acquisition will not result in the imposition of a tax on the
Trust Fund or cause the Trust Fund to fail to qualify as a REMIC under the Code
at any time that any Certificate is outstanding. Subject to the foregoing, the
Master Servicer will be required to (i) solicit bids for any Mortgaged Property
so acquired in such a manner as will be reasonably likely to realize a fair
price for such property and (ii) accept the first (and, if multiple bids are
contemporaneously received, the highest) cash bid received from any person that
constitutes a fair price.
If the Trust Fund acquires title to any Mortgaged Property, the Master
Servicer, on behalf of the Trust Fund, may retain an independent contractor to
manage and operate such property. The retention of an independent contractor,
however, will not relieve the Master Servicer of any of its obligations with
respect to the management and operation of such Mortgaged Property. Unless
otherwise specified in the related Prospectus Supplement, any such property
acquired by the Trust Fund will be managed in a manner consistent with the
management and operation of similar property by a prudent lending institution.
The limitations imposed by the related Agreement and the REMIC provisions
of the Code (if a REMIC election has been made with respect to the related Trust
Fund) on the operations and ownership of any Mortgaged Property acquired on
behalf of the Trust Fund may result in the recovery of an amount less than the
amount that would otherwise be recovered. See "Certain Legal Aspects of the
Mortgage Loans and the Leases--Foreclosure."
If recovery on a defaulted Whole Loan under any related instrument of
Credit Support is not available, the Master Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and procedures
as it deems necessary or advisable to realize upon the defaulted Whole Loan. If
the proceeds of any liquidation of the property securing the defaulted Whole
Loan are less than the outstanding principal balance of the defaulted Whole Loan
plus interest accrued thereon at the Mortgage Rate plus the aggregate amount of
expenses incurred by the Master Servicer in connection with such proceedings and
which are reimbursable under the Agreement, the Trust Fund will realize a loss
in the amount of such difference. The Master Servicer will be entitled to
withdraw or cause to be withdrawn from the
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Certificate Account out of the Liquidation Proceeds recovered on any defaulted
Whole Loan, prior to the distribution of such Liquidation Proceeds to
Certificateholders, amounts representing its normal servicing compensation on
the Whole Loan, unreimbursed servicing expenses incurred with respect to the
Whole Loan and any unreimbursed advances of delinquent payments made with
respect to the Whole Loan.
If any property securing a defaulted Whole Loan is damaged and proceeds, if
any, from the related hazard insurance policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under the related
instrument of Credit Support, if any, the Master Servicer is not required to
expend its own funds to restore the damaged property unless it determines (i)
that such restoration will increase the proceeds to Certificateholders on
liquidation of the Whole Loan after reimbursement of the Master Servicer for its
expenses and (ii) that such expenses will be recoverable by it from related
Insurance Proceeds or Liquidation Proceeds.
As servicer of the Whole Loans, a Master Servicer, on behalf of itself, the
Trustee and the Certificateholders, will present claims to the obligor under
each instrument of Credit Support, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
defaulted Whole Loans.
If a Master Servicer or its designee recovers payments under any instrument
of Credit Support with respect to any defaulted Whole Loan, the Master Servicer
will be entitled to withdraw or cause to be withdrawn from the Certificate
Account out of such proceeds, prior to distribution thereof to
Certificateholders, amounts representing its normal servicing compensation on
such Whole Loan, unreimbursed servicing expenses incurred with respect to the
Whole Loan and any unreimbursed advances of delinquent payments made with
respect to the Whole Loan. See "Hazard Insurance Policies" and "Description of
Credit Support."
Hazard Insurance Policies
Unless otherwise specified in the related Prospectus Supplement, each
Agreement for a Trust Fund that includes Whole Loans will require the Master
Servicer to cause the mortgagor on each Whole Loan to maintain a hazard
insurance policy providing for such coverage as is required under the related
Mortgage or, if any Mortgage permits the holder thereof to dictate to the
mortgagor the insurance coverage to be maintained on the related Mortgaged
Property, then such coverage as is consistent with the Servicing Standard.
Unless otherwise specified in the related Prospectus Supplement, such coverage
will be in general in an amount equal to the lesser of the principal balance
owing on such Whole Loan and the amount necessary to fully compensate for any
damage or loss to the improvements on the Mortgaged Property on a replacement
cost basis, but in either case not less than the amount necessary to avoid the
application of any co-insurance clause contained in the hazard insurance policy.
The ability of the Master Servicer to assure that hazard insurance proceeds are
appropriately applied may be dependent upon its being named as an additional
insured under any hazard insurance policy and under any other insurance policy
referred to below, or upon the extent to which information in this regard is
furnished by mortgagors. All amounts collected by the Master Servicer under any
such policy (except for amounts to be applied to the restoration or repair of
the Mortgaged Property or released to the mortgagor in accordance with the
Master Servicer's normal servicing procedures, subject to the terms and
conditions of the related Mortgage and Mortgage Note) will be deposited in the
Certificate Account. The Agreement will provide that the Master Servicer may
satisfy its obligation to cause each mortgagor to maintain such a hazard
insurance policy by the Master Servicer's maintaining a blanket policy insuring
against hazard losses on the Whole Loans. If such blanket policy contains a
deductible clause, the Master Servicer will be required to deposit in the
Certificate Account all sums that would have been deposited therein but for such
clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Whole Loans will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do not cover any physical damage resulting from
war, revolution, governmental actions, floods and other water-related causes,
earth movement (including earthquakes, landslides and mudflows), wet or dry rot,
vermin, domestic animals and certain other kinds of uninsured risks.
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The hazard insurance policies covering the Mortgaged Properties securing
the Whole Loans will typically contain a co-insurance clause that in effect
requires the insured at all times to carry insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the improvements on the
property in order to recover the full amount of any partial loss. If the
insured's coverage falls below this specified percentage, such clause generally
provides that the insurer's liability in the event of partial loss does not
exceed the lesser of (i) the replacement cost of the improvements less physical
depreciation and (ii) such proportion of the loss as the amount of insurance
carried bears to the specified percentage of the full replacement cost of such
improvements.
Each Agreement for a Trust Fund that includes Whole Loans will require the
Master Servicer to cause the mortgagor on each Whole Loan, or, in certain cases,
the related Lessee, to maintain all such other insurance coverage with respect
to the related Mortgaged Property as is consistent with the terms of the related
Mortgage and the Servicing Standard, which insurance may typically include flood
insurance (if the related Mortgaged Property was located at the time of
origination in a federally designated flood area).
In addition, to the extent required by the related Mortgage, the Master
Servicer may require the mortgagor or related Lessee to maintain other forms of
insurance including, but not limited to, loss of rent endorsements, business
interruption insurance and comprehensive public liability insurance, and the
related Agreement may require the Master Servicer, Sub-Servicer or Special
Servicer to maintain public liability insurance with respect to any REO
Properties. Any cost incurred by the Master Servicer in maintaining any such
insurance policy will be added to the amount owing under the Mortgage Loan where
the terms of the Mortgage Loan so permit; provided, however, that the addition
of such cost will not be taken into account for purposes of calculating the
distribution to be made to Certificateholders. Such costs may be recovered by
the Master Servicer, Sub-Servicer or Special Servicer, as the case may be, from
the Collection Account, with interest thereon, as provided by the Agreement.
Under the terms of the Whole Loans, mortgagors will generally be required
to present claims to insurers under hazard insurance policies maintained on the
related Mortgaged Properties. The Master Servicer, on behalf of the Trustee and
Certificateholders, is obligated to present or cause to be presented claims
under any blanket insurance policy insuring against hazard losses on Mortgaged
Properties securing the Whole Loans. However, the ability of the Master Servicer
to present or cause to be presented such claims is dependent upon the extent to
which information in this regard is furnished to the Master Servicer by
mortgagors.
Rental Interruption Insurance Policy
If so specified in the related Prospectus Supplement, the Master Servicer
or the mortgagors will maintain rental interruption insurance policies in full
force and effect with respect to some or all of the Leases. Although the terms
of such policies vary to some degree, a rental interruption insurance policy
typically provides that, to the extent that a Lessee fails to make timely rental
payments under the related Lease due to a casualty event, such losses will be
reimbursed to the insured. If so specified in the related Prospectus Supplement,
the Master Servicer will be required to pay from its servicing compensation the
premiums on the rental interruption policy on a timely basis. If so specified in
the Prospectus Supplement, if such rental interruption policy is canceled or
terminated for any reason (other than the exhaustion of total policy coverage),
the Master Servicer will exercise its best reasonable efforts to obtain from
another insurer a replacement policy comparable to the rental interruption
policy with a total coverage that is equal to the then existing coverage of the
terminated rental interruption policy; provided that if the cost of any such
replacement policy is greater than the cost of the terminated rental
interruption policy, the amount of coverage under the replacement policy will,
unless otherwise specified in the related Prospectus Supplement, be reduced to a
level such that the applicable premium does not exceed, by a percentage that may
be set forth in the related Prospectus Supplement, the cost of the rental
interruption policy that was replaced. Any amounts collected by the Master
Servicer under the rental interruption policy in the nature of insurance
proceeds will be deposited in the Certificate Account.
Fidelity Bonds and Errors and Omissions Insurance
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will require that the Master Servicer and any Special Servicer obtain
and maintain in effect a fidelity bond or similar form of insurance coverage
(which may provide blanket coverage) or any combination thereof insuring against
loss occasioned by fraud, theft or other intentional misconduct of the officers,
employees and agents of the Master Servicer or the Special Servicer, as
applicable.
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The related Agreement will allow the Master Servicer and any Special Servicer to
self-insure against loss occasioned by the errors and omissions of the officers,
employees and agents of the Master Servicer or the Special Servicer so long as
certain criteria set forth in the Agreement are met.
Due-on-Sale and Due-on-Encumbrance Provisions
Certain of the Whole Loans may contain clauses requiring the consent of the
mortgagee to any sale or other transfer of the related Mortgaged Property, or
due-on-sale clauses entitling the mortgagee to accelerate payment of the Whole
Loan upon any sale or other transfer of the related Mortgaged Property. Certain
of the Whole Loans may contain clauses requiring the consent of the mortgagee to
the creation of any other lien or encumbrance on the Mortgaged Property or
due-on-encumbrance clauses entitling the mortgagee to accelerate payment of the
Whole Loan upon the creation of any other lien or encumbrance upon the Mortgaged
Property. Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer, on behalf of the Trust Fund, will exercise any right the
Trustee may have as mortgagee to accelerate payment of any such Whole Loan or to
withhold its consent to any transfer or further encumbrance in a manner
consistent with the Servicing Standard. Unless otherwise specified in the
related Prospectus Supplement, any fee collected by or on behalf of the Master
Servicer for entering into an assumption agreement will be retained by or on
behalf of the Master Servicer as additional servicing compensation. See "Certain
Legal Aspects of the Mortgage Loans and the Leases--Due-on-Sale and
Due-on-Encumbrance."
Retained Interest; Servicing Compensation and Payment of Expenses
The Prospectus Supplement for a series of Certificates will specify whether
there will be any Retained Interest in the Assets, and, if so, the initial owner
thereof. If so, the Retained Interest will be established on a loan-by-loan
basis and will be specified on an exhibit to the related Agreement. A "Retained
Interest" in an Asset represents a specified portion of the interest payable
thereon. The Retained Interest will be deducted from mortgagor payments as
received and will not be part of the related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer's and a Sub-Servicer's primary servicing compensation with respect to a
series of Certificates will come from the periodic payment to it of a portion of
the interest payment on each Asset. Since any Retained Interest and a Master
Servicer's primary compensation are percentages of the principal balance of each
Asset, such amounts will decrease in accordance with the amortization of the
Assets. The Prospectus Supplement with respect to a series of Certificates
evidencing interests in a Trust Fund that includes Whole Loans may provide that,
as additional compensation, the Master Servicer or the Sub-Servicers may retain
all or a portion of assumption fees, modification fees, late payment charges or
Prepayment Premiums collected from mortgagors and any interest or other income
which may be earned on funds held in the Certificate Account or any account
established by a Sub-Servicer pursuant to the Agreement.
The Master Servicer may, to the extent provided in the related Prospectus
Supplement, pay from its servicing compensation certain expenses incurred in
connection with its servicing and managing of the Assets, including, without
limitation, payment of the fees and disbursements of the Trustee and independent
accountants, payment of expenses incurred in connection with distributions and
reports to Certificateholders, and payment of any other expenses described in
the related Prospectus Supplement. Certain other expenses, including certain
expenses relating to defaults and liquidations on the Whole Loans and, to the
extent so provided in the related Prospectus Supplement, interest thereon at the
rate specified therein, and the fees of any Special Servicer, may be borne by
the Trust Fund.
Evidence as to Compliance
Each Agreement relating to Assets which include Whole Loans will provide
that on or before a specified date in each year, beginning with the first such
date at least six months after the related Cut-off Date, a firm of independent
public accountants will furnish a statement to the Trustee to the effect that,
on the basis of the examination by such firm conducted substantially in
compliance with either the Uniform Single Attestation Program for Mortgage
Bankers or the Audit Program for Mortgages serviced for the Federal Home Loan
Mortgage Corporation ("FHLMC"), the servicing by or on behalf of the Master
Servicer of mortgage loans under pooling and servicing agreements substantially
similar to each other (including the related Agreement) was conducted in
compliance with the terms of such agreements except for any significant
exceptions or errors in records that, in the opinion of the firm, either the
Audit Program for Mortgages
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serviced for FHLMC, or paragraph 4 of the Uniform Single Attestation Program for
Mortgage Bankers, requires it to report. In rendering its statement such firm
may rely, as to matters relating to the direct servicing of mortgage loans by
Sub-Servicers, upon comparable statements for examinations conducted
substantially in compliance with the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC (rendered
within one year of such statement) of firms of independent public accountants
with respect to the related Sub-Servicer.
Each such Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by two
officers of the Master Servicer to the effect that the Master Servicer has
fulfilled its obligations under the Agreement throughout the preceding calendar
year or other specified twelve-month period.
Unless otherwise provided in the related Prospectus Supplement, copies of
such annual accountants' statement and such statements of officers will be
obtainable by Certificateholders without charge upon written request to the
Master Servicer at the address set forth in the related Prospectus Supplement.
Certain Matters Regarding a Master Servicer and the Depositor
The Master Servicer, if any, or a servicer for substantially all the Whole
Loans under each Agreement will be named in the related Prospectus Supplement.
The entity serving as Master Servicer (or as such servicer) may be an affiliate
of the Depositor and may have other normal business relationships with the
Depositor or the Depositor's affiliates. Reference herein to the Master Servicer
shall be deemed to be to the servicer of substantially all of the Whole Loans,
if applicable.
Unless otherwise specified in the related Prospectus Supplement, the
related Agreement will provide that the Master Servicer may resign from its
obligations and duties thereunder only upon a determination that its duties
under the Agreement are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it, the other activities of the Master Servicer so causing such a conflict
being of a type and nature carried on by the Master Servicer at the date of the
Agreement. No such resignation will become effective until the Trustee or a
successor servicer has assumed the Master Servicer's obligations and duties
under the Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will further provide that neither any Master Servicer, the Depositor
nor any director, officer, employee, or agent of a Master Servicer or the
Depositor will be under any liability to the related Trust Fund or
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to the Agreement; provided, however, that
neither a Master Servicer, the Depositor nor any such person will be protected
against any breach of a representation, warranty or covenant made in such
Agreement, or against any liability specifically imposed thereby, or against any
liability which would otherwise be imposed by reason of willful misfeasance, bad
faith or gross negligence in the performance of obligations or duties thereunder
or by reason of reckless disregard of obligations and duties thereunder. Unless
otherwise specified in the related Prospectus Supplement, each Agreement will
further provide that any Master Servicer, the Depositor and any director,
officer, employee or agent of a Master Servicer or the Depositor will be
entitled to indemnification by the related Trust Fund and will be held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to the Agreement or the Certificates; provided, however, that
such indemnification will not extend to any loss, liability or expense (i)
specifically imposed by such Agreement or otherwise incidental to the
performance of obligations and duties thereunder, including, in the case of a
Master Servicer, the prosecution of an enforcement action in respect of any
specific Whole Loan or Whole Loans (except as any such loss, liability or
expense shall be otherwise reimbursable pursuant to such Agreement); (ii)
incurred in connection with any breach of a representation, warranty or covenant
made in such Agreement; (iii) incurred by reason of misfeasance, bad faith or
gross negligence in the performance of obligations or duties thereunder, or by
reason of reckless disregard of such obligations or duties; (iv) incurred in
connection with any violation of any state or federal securities law; or (v)
imposed by any taxing authority if such loss, liability or expense is not
specifically reimbursable pursuant to the terms of the related Agreement. In
addition, each Agreement will provide that neither any Master Servicer nor the
Depositor will be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its respective responsibilities under
the Agreement and which in its opinion may involve it in any expense or
liability. Any such Master Servicer or the Depositor may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the Agreement and the rights and duties of the parties thereto
and the interests of the Certificateholders thereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom will be
expenses, costs and liabilities of the Certificateholders, and the Master
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Servicer or the Depositor, as the case may be, will be entitled to be reimbursed
therefor and to charge the Certificate Account.
Any person into which the Master Servicer or the Depositor may be merged or
consolidated, or any person resulting from any merger or consolidation to which
the Master Servicer or the Depositor is a party, or any person succeeding to the
business of the Master Servicer or the Depositor, will be the successor of the
Master Servicer or the Depositor, as the case may be, under the related
Agreement.
Events of Default
Unless otherwise provided in the related Prospectus Supplement for a Trust
Fund that includes Whole Loans, Events of Default under the related Agreement
will include (i) any failure by the Master Servicer to distribute or cause to be
distributed to Certificateholders, or to remit to the Trustee for distribution
to Certificateholders, any required payment; (ii) any failure by the Master
Servicer duly to observe or perform in any material respect any of its other
covenants or obligations under the Agreement which continues unremedied for
thirty days after written notice of such failure has been given to the Master
Servicer by the Trustee or the Depositor, or to the Master Servicer, the
Depositor and the Trustee by the holders of Certificates evidencing not less
than 25% of the Voting Rights; (iii) any breach of a representation or warranty
made by the Master Servicer under the Agreement which materially and adversely
affects the interests of Certificateholders and which continues unremedied for
thirty days after written notice of such breach has been given to the Master
Servicer by the Trustee or the Depositor, or to the Master Servicer, the
Depositor and the Trustee by the holders of Certificates evidencing not less
than 25% of the Voting Rights; and (iv) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings and certain actions by or on behalf of the Master Servicer
indicating its insolvency or inability to pay its obligations. Material
variations to the foregoing Events of Default (other than to shorten cure
periods or eliminate notice requirements) will be specified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the Trustee shall, not later than the later of 60 days after the
occurrence of any event which constitutes or, with notice or lapse of time or
both, would constitute an Event of Default and five days after certain officers
of the Trustee become aware of the occurrence of such an event, transmit by mail
to the Depositor and all Certificateholders of the applicable series notice of
such occurrence, unless such default shall have been cured or waived.
Rights Upon Event of Default
So long as an Event of Default under an Agreement remains unremedied, the
Depositor or the Trustee may, and at the direction of holders of Certificates
evidencing not less than 51% of the Voting Rights, the Trustee shall, terminate
all of the rights and obligations of the Master Servicer under the Agreement and
in and to the Mortgage Loans (other than as a Certificateholder or as the owner
of any Retained Interest), whereupon the Trustee will succeed to all of the
responsibilities, duties and liabilities of the Master Servicer under the
Agreement (except that if the Trustee is prohibited by law from obligating
itself to make advances regarding delinquent mortgage loans, or if the related
Prospectus Supplement so specifies, then the Trustee will not be obligated to
make such advances) and will be entitled to similar compensation arrangements.
Unless otherwise specified in the related Prospectus Supplement, in the event
that the Trustee is unwilling or unable so to act, it may or, at the written
request of the holders of Certificates entitled to at least 51% of the Voting
Rights, it shall appoint, or petition a court of competent jurisdiction for the
appointment of, a loan servicing institution acceptable to the Rating Agency
with a net worth at the time of such appointment of at least $15,000,000 to act
as successor to the Master Servicer under the Agreement. Pending such
appointment, the Trustee is obligated to act in such capacity. The Trustee and
any such successor may agree upon the servicing compensation to be paid, which
in no event may be greater than the compensation payable to the Master Servicer
under the Agreement.
Unless otherwise described in the related Prospectus Supplement, the
holders of Certificates representing at least 66 2/3% of the Voting Rights
allocated to the respective classes of Certificates affected by any Event of
Default will be entitled to waive such Event of Default; provided, however, that
an Event of Default involving a failure to distribute a required payment to
Certificateholders described in clause (i) under "Events of Default" may be
waived only by all of the Certificateholders. Upon any such waiver of an Event
of Default, such Event of Default shall cease to exist and shall be deemed to
have been remedied for every purpose under the Agreement.
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No Certificateholder will have the right under any Agreement to institute
any proceeding with respect thereto unless such holder previously has given to
the Trustee written notice of default and unless the holders of Certificates
evidencing not less than 25% of the Voting Rights have made written request upon
the Trustee to institute such proceeding in its own name as Trustee thereunder
and have offered to the Trustee reasonable indemnity, and the Trustee for sixty
days has neglected or refused to institute any such proceeding. The Trustee,
however, is under no obligation to exercise any of the trusts or powers vested
in it by any Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the holders of
Certificates covered by such Agreement, unless such Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
Amendment
Each Agreement may be amended by the parties thereto without the consent of
any of the holders of Certificates covered by the Agreement, (i) to cure any
ambiguity, (ii) to correct, modify or supplement any provision therein which may
be inconsistent with any other provision therein, (iii) to make any other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions thereof, or (iv) to comply with
any requirements imposed by the Code; provided that such amendment (other than
an amendment for the purpose specified in clause (iv) above) will not (as
evidenced by an opinion of counsel to such effect) adversely affect in any
material respect the interests of any holder of Certificates covered by the
Agreement. Unless otherwise specified in the related Prospectus Supplement, each
Agreement may also be amended by the Depositor, the Master Servicer, if any, and
the Trustee, with the consent of the holders of Certificates affected thereby
evidencing not less than 51% of the Voting Rights, for any purpose; provided,
however, that unless otherwise specified in the related Prospectus Supplement,
no such amendment may (i) reduce in any manner the amount of or delay the timing
of, payments received or advanced on Mortgage Loans which are required to be
distributed on any Certificate without the consent of the holder of such
Certificate, (ii) adversely affect in any material respect the interests of the
holders of any class of Certificates in a manner other than as described in (i),
without the consent of the holders of all Certificates of such class or (iii)
modify the provisions of such Agreement described in this paragraph without the
consent of the holders of all Certificates covered by such Agreement then
outstanding. However, with respect to any series of Certificates as to which a
REMIC election is to be made, the Trustee will not consent to any amendment of
the Agreement unless it shall first have received an opinion of counsel to the
effect that such amendment will not result in the imposition of a tax on the
related Trust Fund or cause the related Trust Fund to fail to qualify as a REMIC
at any time that the related Certificates are outstanding.
The Trustee
The Trustee under each Agreement will be named in the related Prospectus
Supplement. The commercial bank, national banking association, banking
corporation or trust company serving as Trustee may have a banking relationship
with the Depositor and its affiliates and with any Master Servicer and its
affiliates.
Duties of the Trustee
The Trustee will make no representations as to the validity or sufficiency
of any Agreement, the Certificates or any Asset or related document and is not
accountable for the use or application by or on behalf of any Master Servicer of
any funds paid to the Master Servicer or its designee or any Special Servicer in
respect of the Certificates or the Assets, or deposited into or withdrawn from
the Certificate Account or any other account by or on behalf of the Master
Servicer or any Special Servicer. If no Event of Default has occurred and is
continuing, the Trustee is required to perform only those duties specifically
required under the related Agreement. However, upon receipt of the various
certificates, reports or other instruments required to be furnished to it, the
Trustee is required to examine such documents and to determine whether they
conform to the requirements of the Agreement.
Certain Matters Regarding the Trustee
Unless otherwise specified in the related Prospectus Supplement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
entitled to indemnification out of the Certificate Account for any loss,
liability or expense (including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in settlement)
incurred in connection with the Trustee's (i) enforcing its rights and remedies
and protecting the interests, and
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enforcing the rights and remedies, of the Certificateholders during the
continuance of an Event of Default, (ii) defending or prosecuting any legal
action in respect of the related Agreement or series of Certificates, (iii)
being the mortgagee of record with respect to the Mortgage Loans in a Trust Fund
and the owner of record with respect to any Mortgaged Property acquired in
respect thereof for the benefit of Certificateholders, or (iv) acting or
refraining from acting in good faith at the direction of the holders of the
related series of Certificates entitled to not less than 25% (or such higher
percentage as is specified in the related Agreement with respect to any
particular matter) of the Voting Rights for such series; provided, however, that
such indemnification will not extend to any loss, liability or expense that
constitutes a specific liability of the Trustee pursuant to the related
Agreement, or to any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence on the part of the Trustee in the
performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties, or as may arise from a breach
of any representation, warranty or covenant of the Trustee made therein.
Resignation and Removal of the Trustee
The Trustee may at any time resign from its obligations and duties under an
Agreement by giving written notice thereof to the Depositor, the Master
Servicer, if any, and all Certificateholders. Upon receiving such notice of
resignation, the Depositor is required promptly to appoint a successor trustee
acceptable to the Master Servicer, if any. If no successor trustee shall have
been so appointed and have accepted appointment within 30 days after the giving
of such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible to continue as such
under the related Agreement, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Depositor
may remove the Trustee and appoint a successor trustee acceptable to the Master
Servicer, if any. Holders of the Certificates of any series entitled to at least
51% of the Voting Rights for such series may at any time remove the Trustee
without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall not become effective until acceptance of appointment by the
successor trustee.
DESCRIPTION OF CREDIT SUPPORT
General
For any series of Certificates, Credit Support may be provided with respect
to one or more classes thereof or the related Assets. Credit Support may be in
the form of the subordination of one or more classes of Certificates, letters of
credit, insurance policies, guarantees, the establishment of one or more reserve
funds or another method of Credit Support described in the related Prospectus
Supplement, or any combination of the foregoing. If so provided in the related
Prospectus Supplement, any form of Credit Support may be structured so as to be
drawn upon by more than one series to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a series
of Certificates, the Credit Support will not provide protection against all
risks of loss and will not guarantee repayment of the entire Certificate Balance
of the Certificates and interest thereon. If losses or shortfalls occur that
exceed the amount covered by Credit Support or that are not covered by Credit
Support, Certificateholders will bear their allocable share of deficiencies.
Moreover, if a form of Credit Support covers more than one series of
Certificates (each, a "Covered Trust"), holders of Certificates evidencing
interests in any of such Covered Trusts will be subject to the risk that such
Credit Support will be exhausted by the claims of other Covered Trusts prior to
such Covered Trust receiving any of its intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or the related Assets, the related Prospectus
Supplement will include a description of (a) the nature and amount of coverage
under such Credit Support, (b) any conditions to payment thereunder not
otherwise described herein, (c) the conditions (if any) under which the amount
of coverage under such Credit Support may be reduced and under which such Credit
Support may be
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terminated or replaced and (d) the material provisions relating to such Credit
Support. Additionally, the related Prospectus Supplement will set forth certain
information with respect to the obligor under any instrument of Credit Support,
including (i) a brief description of its principal business activities, (ii) its
principal place of business, place of incorporation and the jurisdiction under
which it is chartered or licensed to do business, (iii) if applicable, the
identity of regulatory agencies that exercise primary jurisdiction over the
conduct of its business and (iv) its total assets, and its stockholders' or
policyholders' surplus, if applicable, as of the date specified in the
Prospectus Supplement. See "Risk Factors--Credit Support Limitations."
Subordinate Certificates
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a series may be Subordinate Certificates. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
Subordinate Certificates to receive distributions of principal and interest from
the Certificate Account on any Distribution Date will be subordinated to such
rights of the holders of Senior Certificates. If so provided in the related
Prospectus Supplement, the subordination of a class may apply only in the event
of (or may be limited to) certain types of losses or shortfalls. The related
Prospectus Supplement will set forth information concerning the amount of
subordination of a class or classes of Subordinate Certificates in a series, the
circumstances in which such subordination will be applicable and the manner, if
any, in which the amount of subordination will be effected.
Cross-Support Provisions
If the Assets for a series are divided into separate groups, each
supporting a separate class or classes of Certificates of a series, credit
support may be provided by cross-support provisions requiring that distributions
be made on Senior Certificates evidencing interests in one group of Mortgage
Assets prior to distributions on Subordinate Certificates evidencing interests
in a different group of Mortgage Assets within the Trust Fund. The Prospectus
Supplement for a series that includes a cross-support provision will describe
the manner and conditions for applying such provisions.
Insurance or Guarantees with Respect to the Whole Loans
If so provided in the Prospectus Supplement for a series of Certificates,
the Whole Loans in the related Trust Fund will be covered for various default
risks by insurance policies or guarantees. A copy of any such material
instrument for a series will be filed with the Commission as an exhibit to a
Current Report on Form 8-K to be filed within 15 days of issuance of the
Certificates of the related series.
Letter of Credit
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more letters of credit, issued by a
bank or financial institution specified in such Prospectus Supplement (the "L/C
Bank"). Under a letter of credit, the L/C Bank will be obligated to honor draws
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, generally equal to a percentage specified in the related Prospectus
Supplement of the aggregate principal balance of the Mortgage Assets on the
related Cut-off Date or of the initial aggregate Certificate Balance of one or
more classes of Certificates. If so specified in the related Prospectus
Supplement, the letter of credit may permit draws in the event of only certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments
thereunder and may otherwise be reduced as described in the related Prospectus
Supplement. The obligations of the L/C Bank under the letter of credit for each
series of Certificates will expire at the earlier of the date specified in the
related Prospectus Supplement or the termination of the Trust Fund. A copy of
any such letter of credit for a series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of issuance
of the Certificates of the related series.
Insurance Policies and Surety Bonds
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by insurance policies and/or surety bonds
provided
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by one or more insurance companies or sureties. Such instruments may cover, with
respect to one or more classes of Certificates of the related series, timely
distributions of interest and/or full distributions of principal on the basis of
a schedule of principal distributions set forth in or determined in the manner
specified in the related Prospectus Supplement. A copy of any such instrument
for a series will be filed with the Commission as an exhibit to a Current Report
on Form 8-K to be filed with the Commission within 15 days of issuance of the
Certificates of the related series.
Reserve Funds
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more reserve funds in which cash, a
letter of credit, Permitted Investments, a demand note or a combination thereof
will be deposited, in the amounts so specified in such Prospectus Supplement.
The reserve funds for a series may also be funded over time by depositing
therein a specified amount of the distributions received on the related Assets
as specified in the related Prospectus Supplement.
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. A
reserve fund may be provided to increase the likelihood of timely distributions
of principal of and interest on the Certificates. If so specified in the related
Prospectus Supplement, reserve funds may be established to provide limited
protection against only certain types of losses and shortfalls. Following each
Distribution Date amounts in a reserve fund in excess of any amount required to
be maintained therein may be released from the reserve fund under the conditions
and to the extent specified in the related Prospectus Supplement and will not be
available for further application to the Certificates.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investments, except as otherwise specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, any
reinvestment income or other gain from such investments will be credited to the
related Reserve Fund for such series, and any loss resulting from such
investments will be charged to such Reserve Fund. However, such income may be
payable to any related Master Servicer or another service provider as additional
compensation. The Reserve Fund, if any, for a series will not be a part of the
Trust Fund unless otherwise specified in the related Prospectus Supplement.
Additional information concerning any Reserve Fund will be set forth in the
related Prospectus Supplement, including the initial balance of such Reserve
Fund, the balance required to be maintained in the Reserve Fund, the manner in
which such required balance will decrease over time, the manner of funding such
Reserve Fund, the purposes for which funds in the Reserve Fund may be applied to
make distributions to Certificateholders and use of investment earnings from the
Reserve Fund, if any.
Credit Support with respect to MBS
If so provided in the Prospectus Supplement for a series of Certificates,
the MBS in the related Trust Fund and/or the Mortgage Loans underlying such MBS
may be covered by one or more of the types of Credit Support described herein.
The related Prospectus Supplement will specify as to each such form of Credit
Support the information indicated above with respect thereto, to the extent such
information is material and available.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties
that are general in nature. Because such legal aspects are governed by
applicable state law (which laws may differ substantially), the summaries do not
purport to be complete nor to reflect the laws of any particular state, nor to
encompass the laws of all states in which the security for the Mortgage Loans is
situated. The summaries are qualified in their entirety by reference to the
applicable federal and state laws governing the Mortgage Loans. See "Description
of the Trust Funds--Assets."
General
All of the Mortgage Loans are loans evidenced by a note or bond and secured
by instruments granting a security interest in real property which may be
mortgages, deeds of trust, security deeds or deeds to secure debt, depending
upon
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the prevailing practice and law in the state in which the Mortgaged Property is
located. Mortgages, deeds of trust and deeds to secure debt are herein
collectively referred to as "mortgages." Any of the foregoing types of mortgages
will create a lien upon, or grant a title interest in, the subject property, the
priority of which will depend on the terms of the particular security
instrument, as well as separate, recorded, contractual arrangements with others
holding interests in the mortgaged property, the knowledge of the parties to
such instrument as well as the order of recordation of the instrument in the
appropriate public recording office. However, recording does not generally
establish priority over governmental claims for real estate taxes and
assessments and other charges imposed under governmental police powers.
Types of Mortgage Instruments
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties--a mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). In contrast, a deed
of trust is a three-party instrument, among a trustor (the equivalent of a
mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "mortgagor" includes the
trustor under a deed of trust and a grantor under a security deed or a deed to
secure debt. Under a deed of trust, the mortgagor grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale as
security for the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties. By executing a deed to secure debt, the grantor
conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid,
generally with a power of sale as security for the indebtedness evidenced by the
related mortgage note. In case the mortgagor under a mortgage is a land trust,
there would be an additional party because legal title to the property is held
by a land trustee under a land trust agreement for the benefit of the mortgagor.
At origination of a mortgage loan involving a land trust, the mortgagor executes
a separate undertaking to make payments on the mortgage note. The mortgagee's
authority under a mortgage, the trustee's authority under a deed of trust and
the grantee's authority under a deed to secure debt are governed by the express
provisions of the mortgage, the law of the state in which the real property is
located, certain federal laws (including, without limitation, the Soldiers' and
Sailors' Civil Relief Act of 1940) and, in some cases, in deed of trust
transactions, the directions of the beneficiary.
Interest in Real Property
The real property covered by a mortgage, deed of trust, security deed or
deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property such
as a tenant's interest in a lease of land or improvements, or both, and the
leasehold estate created by such lease. An instrument covering an interest in
real property other than the fee estate requires special provisions in the
instrument creating such interest or in the mortgage, deed of trust, security
deed or deed to secure debt, to protect the mortgagee against termination of
such interest before the mortgage, deed of trust, security deed or deed to
secure debt is paid. Unless otherwise specified in the Prospectus Supplement,
the Depositor or the Asset Seller will make certain representations and
warranties in the Agreement with respect to the Mortgage Loans which are secured
by an interest in a leasehold estate. Such representation and warranties will be
set forth in the Prospectus Supplement if applicable.
Leases and Rents
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the mortgagor assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while the mortgagor retains a revocable license to
collect the rents for so long as there is no default. Under such assignments,
the mortgagor typically assigns its right, title and interest as lessor under
each lease and the income derived therefrom to the mortgagee, while retaining a
license to collect the rents for so long as there is no default under the
mortgage loan documentation. The manner of perfecting the mortgagee's interest
in rents may depend on whether the mortgagor's assignment was absolute or one
granted as security for the loan. Failure to properly perfect the mortgagee's
interest in rents may result in the loss of substantial pool of funds, which
could otherwise serve as a source of repayment for such loan. If the mortgagor
defaults, the license terminates and the lender is entitled to collect the
rents. Local law may require that the lender take possession of the property
and/or obtain a court-appointed receiver before becoming entitled to collect the
rents. In most states, hotel and motel room rates are considered accounts
receivable under the UCC; generally these rates are either assigned by the
mortgagor, which remains entitled to collect such rates absent a default, or
pledged by the mortgagor, as security for the loan. In general, the lender must
file financing statements in
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order to perfect its security interest in the rates and must file continuation
statements, generally every five years, to maintain perfection of such security
interest. Even if the lender's security interest in room rates is perfected
under the UCC, the lender will generally be required to commence a foreclosure
or otherwise take possession of the property in order to collect the room rates
after a default.
Even after a foreclosure, the potential rent payments from the property may
be less than the periodic payments that had been due under the mortgage. For
instance, the net income that would otherwise be generated from the property may
be less than the amount that would have been needed to service the mortgage debt
if the leases on the property are at below-market rents, or as the result of
excessive maintenance, repair or other obligations which a lender succeeds to as
landlord.
Lenders that actually take possession of the property, however, may incur
potentially substantial risks attendant to being a mortgagee in possession. Such
risks include liability for environmental clean-up costs and other risks
inherent in property ownership. See "Environmental Legislation" below.
Personalty
Certain types of Mortgaged Properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value from
personal property which does not constitute "fixtures" under applicable state
real property law and, hence, would not be subject to the lien of a mortgage.
Such property is generally pledged or assigned as security to the lender under
the UCC. In order to perfect its security interest therein, the lender generally
must file UCC financing statements and, to maintain perfection of such security
interest, file continuation statements generally every five years.
Foreclosure
General
Foreclosure is a legal procedure that allows the mortgagee to recover its
mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the mortgagor defaults in payment or performance of its obligations
under the note or mortgage, the mortgagee has the right to institute foreclosure
proceedings to sell the mortgaged property at public auction to satisfy the
indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage vary
from state to state. Two primary methods of foreclosing a mortgage are judicial
foreclosure and non-judicial foreclosure pursuant to a power of sale granted in
the mortgage instrument. There are several other foreclosure procedures
available in some states that are either infrequently used or available only in
certain limited circumstances, such as strict foreclosure.
Judicial Foreclosure
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having a subordinate interest of
record in the real property and all parties in possession of the property, under
leases or otherwise, whose interests are subordinate to the mortgage. Delays in
completion of the foreclosure may occasionally result from difficulties in
locating defendants. When the lender's right to foreclose is contested, the
legal proceedings can be time-consuming. Upon successful completion of a
judicial foreclosure proceeding, the court generally issues a judgment of
foreclosure and appoints a referee or other officer to conduct a public sale of
the mortgaged property, the proceeds of which are used to satisfy the judgment.
Such sales are made in accordance with procedures that vary from state to state.
Equitable Limitations on Enforceability of Certain Provisions
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an
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injustice, undue oppression or overreaching, or may require the lender to
undertake affirmative and expensive actions to determine the cause of the
mortgagor's default and the likelihood that the mortgagor will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's and have required that lenders reinstate loans or recast payment
schedules in order to accommodate mortgagors who are suffering from a temporary
financial disability. In other cases, courts have limited the right of the
lender to foreclose if the default under the mortgage is not monetary, e.g., the
mortgagor failed to maintain the mortgaged property adequately or the mortgagor
executed a junior mortgage on the mortgaged property. The exercise by the court
of its equity powers will depend on the individual circumstances of each case
presented to it. Finally, some courts have been faced with the issue of whether
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that a mortgagor receive notice in addition to
statutorily-prescribed minimum notice. For the most part, these cases have
upheld the reasonableness of the notice provisions or have found that a public
sale under a mortgage providing for a power of sale does not involve sufficient
state action to afford constitutional protections to the mortgagor.
A foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses are raised or counterclaims are interposed, and sometimes
require several years to complete. Moreover, as discussed below, a
non-collusive, regularly conducted foreclosure sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court determines
that the sale was for less than fair consideration and such sale occurred while
the mortgagor was insolvent (or the mortgagor was rendered insolvent as a result
of such sale) and within one year (or within the state statute of limitations if
the trustee in bankruptcy elects to proceed under state fraudulent conveyance
law) of the filing of bankruptcy.
Non-Judicial Foreclosure/Power of Sale
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale pursuant to the power of sale granted in the deed of trust. A
power of sale is typically granted in a deed of trust. It may also be contained
in any other type of mortgage instrument. A power of sale allows a non-judicial
public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such sale,
the trustee under a deed of trust must record a notice of default and notice of
sale and send a copy to the mortgagor and to any other party who has recorded a
request for a copy of a notice of default and notice of sale. In addition, in
some states the trustee must provide notice to any other party having an
interest of record in the real property, including junior lienholders. A notice
of sale must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. The mortgagor or junior
lienholder may then have the right, during a reinstatement period required in
some states, to cure the default by paying the entire actual amount in arrears
(without acceleration) plus the expenses incurred in enforcing the obligation.
In other states, the mortgagor or the junior lienholder is not provided a period
to reinstate the loan, but has only the right to pay off the entire debt to
prevent the foreclosure sale. Generally, the procedure for public sale, the
parties entitled to notice, the method of giving notice and the applicable time
periods are governed by state law and vary among the states. Foreclosure of a
deed to secure debt is also generally accomplished by a non-judicial sale
similar to that required by a deed of trust, except that the lender or its
agent, rather than a trustee, is typically empowered to perform the sale in
accordance with the terms of the deed to secure debt and applicable law.
Public Sale
A third party may be unwilling to purchase a mortgaged property at a public
sale because of the difficulty in determining the value of such property at the
time of sale, due to, among other things, redemption rights which may exist and
the possibility of physical deterioration of the property during the foreclosure
proceedings. For these reasons, it is common for the lender to purchase the
mortgaged property for an amount equal to or less than the underlying debt and
accrued and unpaid interest plus the expenses of foreclosure. Generally, state
law controls the amount of foreclosure costs and expenses which may be recovered
by a lender. Thereafter, subject to the mortgagor's right in some states to
remain in possession during a redemption period, if applicable, the lender will
become the owner of the property and have both the benefits and burdens of
ownership of the mortgaged property. For example, the lender will have the
obligation to pay debt service on any senior mortgages, to pay taxes, obtain
casualty insurance and to make such repairs at its own expense as are necessary
to render the property suitable for sale. Frequently, the lender employs a third
party management company to manage and operate the property. The costs of
operating and maintaining a commercial or multifamily
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residential property may be significant and may be greater than the income
derived from that property. The costs of management and operation of those
mortgaged properties which are hotels, motels, restaurants, nursing or
convalescent homes or hospitals may be particularly significant because of the
expertise, knowledge and, with respect to nursing or convalescent homes or
hospitals, regulatory compliance, required to run such operations and the effect
which foreclosure and a change in ownership may have on the public's and the
industry's (including franchisors') perception of the quality of such
operations. The lender will commonly obtain the services of a real estate broker
and pay the broker's commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property. Moreover, a
lender commonly incurs substantial legal fees and court costs in acquiring a
mortgaged property through contested foreclosure and/or bankruptcy proceedings.
Furthermore, a few states require that any environmental contamination at
certain types of properties be cleaned up before a property may be resold. In
addition, a lender may be responsible under federal or state law for the cost of
cleaning up a mortgaged property that is environmentally contaminated. See
"Environmental Legislation." Generally state law controls the amount of
foreclosure expenses and costs, including attorneys' fees, that may be recovered
by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior mortgages
to avoid their foreclosure. In addition, in the event that the foreclosure of a
junior mortgage triggers the enforcement of a "due-on-sale" clause contained in
a senior mortgage, the junior mortgagee may be required to pay the full amount
of the senior mortgage to avoid its foreclosure. Accordingly, with respect to
those Mortgage Loans, if any, that are junior mortgage loans, if the lender
purchases the property the lender's title will be subject to all senior
mortgages, prior liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage under which the sale was conducted. Any
proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in order
of their priority, whether or not the mortgagor is in default. Any additional
proceeds are generally payable to the mortgagor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgage or a subsequent ancillary proceeding or may require the
institution of separate legal proceedings by such holders.
In connection with a series of Certificates for which an election is made
to qualify the Trust Fund, or a portion thereof, as a REMIC, the REMIC
Provisions and the Agreement may require the Master Servicer to hire an
independent contractor to operate any foreclosed property relating to Whole
Loans.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an interest
in the property which is subordinate to the mortgage being foreclosed, from
exercise of their "equity of redemption." The doctrine of equity of redemption
provides that, until the property covered by a mortgage has been sold in
accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing mortgagee
have an equity of redemption and may redeem the property by paying the entire
debt with interest. In addition, in some states, when a foreclosure action has
been commenced, the redeeming party must pay certain costs of such action. Those
having an equity of redemption must generally be made parties and joined in the
foreclosure proceeding in order for their equity of redemption to be cut off and
terminated.
The equity of redemption is a common-law (non-statutory) right which exists
prior to completion of the foreclosure, is not waivable by the mortgagor, must
be exercised prior to foreclosure sale and should be distinguished from the
post-sale statutory rights of redemption. In some states, after sale pursuant to
a deed of trust or foreclosure of a mortgage, the mortgagor and foreclosed
junior lienors are given a statutory period in which to redeem the property from
the foreclosure sale. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
authorized if the former mortgagor pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser from a foreclosure sale or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the
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expenses of ownership until the redemption period has expired. In some states, a
post-sale statutory right of redemption may exist following a judicial
foreclosure, but not following a trustee's sale under a deed of trust.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held for more than two years. Unless otherwise
provided in the related Prospectus Supplement, with respect to a series of
Certificates for which an election is made to qualify the Trust Fund or a part
thereof as a REMIC, the Agreement will permit foreclosed property to be held for
more than two years if the Internal Revenue Service grants an extension of time
within which to sell such property or independent counsel renders an opinion to
the effect that holding such property for such additional period is permissible
under the REMIC Provisions.
Anti-Deficiency Legislation
Some or all of the Mortgage Loans may be nonrecourse loans, as to which
recourse may be had only against the specific property securing the related
Mortgage Loan and a personal money judgment may not be obtained against the
mortgagor. Even if a mortgage loan by its terms provides for recourse to the
mortgagor, some states impose prohibitions or limitations on such recourse. For
example, statutes in some states limit the right of the lender to obtain a
deficiency judgment against the mortgagor following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former mortgagor equal to the difference between the net amount realized upon
the public sale of the real property and the amount due to the lender. Some
states require the lender to exhaust the security afforded under a mortgage by
foreclosure in an attempt to satisfy the full debt before bringing a personal
action against the mortgagor. In certain other states, the lender has the option
of bringing a personal action against the mortgagor on the debt without first
exhausting such security; however, in some of these states, the lender,
following judgment on such personal action, may be deemed to have elected a
remedy and may be precluded from exercising remedies with respect to the
security. In some cases, a lender will be precluded from exercising any
additional rights under the note or mortgage if it has taken any prior
enforcement action. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the mortgagor. Finally, other statutory provisions limit any
deficiency judgment against the former mortgagor following a judicial sale to
the excess of the outstanding debt over the fair market value of the property at
the time of the public sale. The purpose of these statutes is generally to
prevent a lender from obtaining a large deficiency judgment against the former
mortgagor as a result of low or no bids at the judicial sale.
Leasehold Risks
Mortgage Loans may be secured by a mortgage on a ground lease. Leasehold
mortgages are subject to certain risks not associated with mortgage loans
secured by the fee estate of the mortgagor. The most significant of these risks
is that the ground lease creating the leasehold estate could terminate, leaving
the leasehold mortgagee without its security. The ground lease may terminate if,
among other reasons, the ground lessee breaches or defaults in its obligations
under the ground lease or there is a bankruptcy of the ground lessee or the
ground lessor. This risk may be minimized if the ground lease contains certain
provisions protective of the mortgagee, but the ground leases that secure
Mortgage Loans may not contain some of these protective provisions, and
mortgages may not contain the other protections discussed in the next paragraph.
Protective ground lease provisions include the right of the leasehold mortgagee
to receive notices from the ground lessor of any defaults by the mortgagor; the
right to cure such defaults, with adequate cure periods; if a default is not
susceptible of cure by the leasehold mortgagee, the right to acquire the
leasehold estate through foreclosure or otherwise; the ability of the ground
lease to be assigned to and by the leasehold mortgagee or purchaser at a
foreclosure sale and for the concomitant release of the ground lessee's
liabilities thereunder; and the right of the leasehold mortgagee to enter into a
new ground lease with the ground lessor on the same terms and conditions as the
old ground lease in the event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may require
that the ground lease or leasehold mortgage prohibit the ground lessee from
treating the ground lease as terminated in the event of the ground lessor's
bankruptcy and rejection of the ground lease by the trustee for the
debtor-ground lessor. As further protection, a leasehold mortgage may provide
for the assignment of the debtor-ground lessee's right to reject a lease
pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as amended (Title
11 of the United States Code) (the "Bankruptcy Code"), although the
enforceability of such clause has not been established. Without the protections
described above, a leasehold mortgagee may lose the collateral securing its
leasehold mortgage. In addition, terms and conditions of a leasehold mortgage
are
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subject to the terms and conditions of the ground lease. Although certain rights
given to a ground lessee can be limited by the terms of a leasehold mortgage,
the rights of a ground lessee or a leasehold mortgagee with respect to, among
other things, insurance, casualty and condemnation will be governed by the
provisions of the ground lease.
Bankruptcy Laws
The Bankruptcy Code and related state laws may interfere with or affect the
ability of a lender to realize upon collateral and/or to enforce a deficiency
judgment. For example, under the Bankruptcy Code, virtually all actions
(including foreclosure actions and deficiency judgment proceedings) are
automatically stayed upon the filing of the bankruptcy petition, and, usually,
no interest or principal payments are made during the course of the bankruptcy
case. The delay and the consequences thereof caused by such automatic stay can
be significant. Also, under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a junior lienor may stay the senior lender from
taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage secured by
property of the debtor may be modified under certain circumstances. In many
jurisdictions, the outstanding amount of the loan secured by the real property
may be reduced to the then-current value of the property (with a corresponding
partial reduction of the amount of lender's security interest) pursuant to a
confirmed plan or lien avoidance proceeding, thus leaving the lender a general
unsecured creditor for the difference between such value and the outstanding
balance of the loan. Other modifications may include the reduction in the amount
of each scheduled payment, which reduction may result from a reduction in the
rate of interest and/or the alteration of the repayment schedule (with or
without affecting the unpaid principal balance of the loan), and/or an extension
(or reduction) of the final maturity date. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a mortgage loan default by
paying arrearages over a number of years. Also, under federal bankruptcy law, a
bankruptcy court may permit a debtor through its rehabilitative plan to
de-accelerate a secured loan and to reinstate the loan even though the lender
accelerated the mortgage loan and final judgment of foreclosure had been entered
in state court (provided no sale of the property had yet occurred) prior to the
filing of the debtor's petition. This may be done even if the full amount due
under the original loan is never repaid.
Federal bankruptcy law provides generally that rights and obligation under
an unexpired lease of the debtor/lessee may not be terminated or modified at any
time after the commencement of a case under the Bankruptcy Code solely on the
basis of a provision in the lease to such effect or because of certain other
similar events. This prohibition on so-called "ipso facto clauses" could limit
the ability of the Trustee for a series of Certificates to exercise certain
contractual remedies with respect to the Leases. In addition, Section 362 of the
Bankruptcy Code operates as an automatic stay of, among other things, any act to
obtain possession of property from a debtor's estate, which may delay a
Trustee's exercise of such remedies for a related series of Certificates in the
event that a related Lessee or a related mortgagor becomes the subject of a
proceeding under the Bankruptcy Code. For example, a mortgagee would be stayed
from enforcing a Lease Assignment by a mortgagor related to a Mortgaged Property
if the related mortgagor was in a bankruptcy proceeding. The legal proceedings
necessary to resolve the issues could be time-consuming and might result in
significant delays in the receipt of the assigned rents. Similarly, the filing
of a petition in bankruptcy by or on behalf of a Lessee of a Mortgaged Property
would result in a stay against the commencement or continuation of any state
court proceeding for past due rent, for accelerated rent, for damages or for a
summary eviction order with respect to a default under the Lease that occurred
prior to the filing of the Lessee's petition. Rents and other proceeds of a
Mortgage Loan may also escape an assignment thereof if the assignment is not
fully perfected under state law prior to commencement of the bankruptcy
proceeding. See "--Leases and Rents" above.
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court, (a) assume the lease
and retain it or assign it to a third party or (b) reject the lease. If the
lease is assumed, the trustee in bankruptcy on behalf of the lessee, or the
lessee as debtor-in-possession, or the assignee, if applicable, must cure any
defaults under the lease, compensate the lessor for its losses and provide the
lessor with "adequate assurance" of future performance. Such remedies may be
insufficient, however, as the lessor may be forced to continue under the lease
with a lessee that is a poor credit risk or an unfamiliar tenant if the lease
was assigned, and any assurances provided to the lessor may, in fact, be
inadequate. If the lease is rejected, such rejection generally constitutes a
breach of the executory contract or unexpired lease immediately before the date
of filing the petition. As a consequence, the other party or parties to such
lease, such as the mortgagor, as lessor under a Lease, would have only
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an unsecured claim against the debtor for damages resulting from such breach,
which could adversely affect the security for the related Mortgage Loan. In
addition, pursuant to Section 502(b)(6) of the Bankruptcy Code, a lessor's
damages for lease rejection in respect of future rent installments are limited
to the rent reserved by the lease, without acceleration, for the greater of one
year or 15%, not to exceed three years, of the remaining term of the lease.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as
debtor-in-possession, rejects an unexpired lease of real property, the lessee
may treat such lease as terminated by such rejection or, in the alternative, the
lessee may remain in possession of the leasehold for the balance of such term
and for any renewal or extension of such term that is enforceable by the lessee
under applicable nonbankruptcy law. The Bankruptcy Code provides that if a
lessee elects to remain in possession after such a rejection of a lease, the
lessee may offset against rents reserved under the lease for the balance of the
term after the date of rejection of the lease, and any such renewal or extension
thereof, any damages occurring after such date caused by the nonperformance of
any obligation of the lessor under the lease after such date. To the extent
provided in the related Prospectus Supplement, the Lessee will agree under
certain Leases to pay all amounts owing thereunder to the Master Servicer
without offset. To the extent that such a contractual obligation remains
enforceable against the Lessee, the Lessee would not be able to avail itself of
the rights of offset generally afforded to lessees of real property under the
Bankruptcy Code.
In a bankruptcy or similar proceeding of a mortgagor, action may be taken
seeking the recovery, as a preferential transfer or on other grounds, of any
payments made by the mortgagor, or made directly by the related Lessee, under
the related Mortgage Loan to the Trust Fund. Payments on long-term debt may be
protected from recovery as preferences if they are payments in the ordinary
course of business made on debts incurred in the ordinary course of business.
Whether any particular payment would be protected depends upon the facts
specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may have
the power to grant liens senior to the lien of a mortgage, and analogous state
statutes and general principles of equity may also provide a mortgagor with
means to halt a foreclosure proceeding or sale and to force a restructuring of a
mortgage loan on terms a lender would not otherwise accept. Moreover, the laws
of certain states also give priority to certain tax liens over the lien of a
mortgage or deed of trust. Under the Bankruptcy Code, if the court finds that
actions of the mortgagee have been unreasonable, the lien of the related
mortgage may be subordinated to the claims of unsecured creditors.
To the extent described in the related Prospectus Supplement, certain of
the Mortgagors may be partnerships. The laws governing limited partnerships in
certain states provide that the commencement of a case under the Bankruptcy Code
with respect to a general partner will cause a person to cease to be a general
partner of the limited partnership, unless otherwise provided in writing in the
limited partnership agreement. This provision may be construed as an "ipso
facto" clause and, in the event of the general partner's bankruptcy, may not be
enforceable. To the extent described in the related Prospectus Supplement,
certain limited partnership agreements of the Mortgagors may provide that the
commencement of a case under the Bankruptcy Code with respect to the related
general partner constitutes an event of withdrawal (assuming the enforceability
of the clause is not challenged in bankruptcy proceedings or, if challenged, is
upheld) that might trigger the dissolution of the limited partnership, the
winding up of its affairs and the distribution of its assets, unless (i) at the
time there was at least one other general partner and the written provisions of
the limited partnership permit the business of the limited partnership to be
carried on by the remaining general partner and that general partner does so or
(ii) the written provisions of the limited partnership agreement permit the
limited partner to agree within a specified time frame (often 60 days) after
such withdrawal to continue the business of the limited partnership and to the
appointment of one or more general partners and the limited partners do so. In
addition, the laws governing general partnerships in certain states provide that
the commencement of a case under the Bankruptcy Code or state bankruptcy laws
with respect to a general partner of such partnerships triggers the dissolution
of such partnership, the winding up of its affairs and the distribution of its
assets. Such state laws, however, may not be enforceable or effective in a
bankruptcy case. The dissolution of a Mortgagor, the winding up of its affairs
and the distribution of its assets could result in an acceleration of its
payment obligation under a related Mortgage Loan, which may reduce the yield on
the related series of Certificates in the same manner as a principal prepayment.
In addition, the bankruptcy of the general partner of a Mortgagor that is a
partnership may provide the opportunity for a trustee in bankruptcy for such
general partner, such general partner as a debtor-in-possession, or a
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creditor of such general partner to obtain an order from a court consolidating
the assets and liabilities of the general partner with those of the Mortgagor
pursuant to the doctrines of substantive consolidation or piercing the corporate
veil. In such a case, the respective Mortgaged Property, for example, would
become property of the estate of such bankrupt general partner. Not only would
the Mortgaged Property be available to satisfy the claims of creditors of such
general partner, but an automatic stay would apply to any attempt by the Trustee
to exercise remedies with respect to such Mortgaged Property. However, such an
occurrence should not affect the Trustee's status as a secured creditor with
respect to the Mortgagor or its security interest in the Mortgaged Property.
Junior Mortgages; Rights of Senior Mortgagees or Beneficiaries
To the extent specified in the related Prospectus Supplement, some of the
Mortgage Loans for a series will be secured by junior mortgages or deeds of
trust which are subordinated to senior mortgages or deeds of trust held by other
lenders or institutional investors. The rights of the Trust Fund (and therefore
the related Certificateholders), as beneficiary under a junior deed of trust or
as mortgagee under a junior mortgage, are subordinate to those of the mortgagee
or beneficiary under the senior mortgage or deed of trust, including the prior
rights of the senior mortgagee or beneficiary to receive rents, hazard insurance
and condemnation proceeds and to cause the Mortgaged Property securing the
Mortgage Loan to be sold upon default of the Mortgagor or trustor, thereby
extinguishing the junior mortgagee's or junior beneficiary's lien unless the
Master Servicer or Special Servicer, as applicable, asserts its subordinate
interest in a Mortgaged Property in foreclosure litigation or satisfies the
defaulted senior loan. As discussed more fully below, in many states a junior
mortgagee or beneficiary may satisfy a defaulted senior loan in full, or may
cure such default and bring the senior loan current, in either event adding the
amounts expended to the balance due on the junior loan. Absent a provision in
the senior mortgage, no notice of default is required to be given to the junior
mortgagee unless otherwise required by law.
The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgagee or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the mortgagee or
beneficiary under the senior mortgage or deed of trust will have the prior right
to collect any insurance proceeds payable under the hazard insurance policy and
any award of damages in connection with the condemnation and to apply the same
to the indebtedness secured by the senior mortgage or deed of trust. Proceeds in
excess of the amount of senior mortgage indebtedness will, in most cases, be
applied to the indebtedness of a junior mortgage or trust deed. The laws of
certain states may limit the ability of mortgagees or beneficiaries to apply the
proceeds of hazard insurance and partial condemnation awards to the secured
indebtedness. In such states, the mortgagor or trustor must be allowed to use
the proceeds of hazard insurance to repair the damage unless the security of the
mortgagee or beneficiary has been impaired. Similarly, in certain states, the
mortgagee or beneficiary is entitled to the award for a partial condemnation of
the real property security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an "obligatory" or "optional" advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance may be entitled to
receive the same priority as amounts initially made under the mortgage or deed
of trust, notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens between the date of recording of the mortgage or
deed of trust and the date of the future advance, and notwithstanding that the
mortgagee or beneficiary had actual knowledge of such intervening junior
mortgages or deeds of trust and other liens at the time of the advance. Where
the mortgagee or beneficiary is not obligated to advance the additional amounts
and has actual knowledge of the intervening junior mortgages or deeds of trust
and other liens, the advance may be subordinated to such intervening junior
mortgages or deeds of trust and other liens. Priority of advances under a
"future advance" clause rests, in many other states, on state law giving
priority to all advances made under the loan agreement up to a "credit limit"
amount stated in the recorded mortgage.
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Another provision typically found in the form of the mortgage or deed of
trust used by many institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to perform
any of these obligations, the mortgagee or beneficiary is given the right under
the mortgage or deed of trust to perform the obligation itself, at its election,
with the mortgagor or trustor agreeing to reimburse the mortgagee or beneficiary
on behalf of the mortgagor or trustor. All sums so expended by the mortgagee or
beneficiary become part of the indebtedness secured by the mortgage or deed of
trust.
The form of mortgage or deed of trust used by many institutional lenders
typically requires the mortgagor or trustor to obtain the consent of the
mortgagee or beneficiary in respect of actions affecting the mortgaged property,
including, without limitation, leasing activities (including new leases and
termination or modification of existing leases), alterations and improvements to
buildings forming a part of the mortgaged property and management and leasing
agreements for the mortgaged property. Tenants will often refuse to execute a
lease unless the mortgagee or beneficiary executes a written agreement with the
tenant not to disturb the tenant's possession of its premises in the event of a
foreclosure. A senior mortgagee or beneficiary may refuse to consent to matters
approved by a junior mortgagee or beneficiary with the result that the value of
the security for the junior mortgage or deed of trust is diminished. For
example, a senior mortgagee or beneficiary may decide not to approve the lease
or to refuse to grant a tenant a non-disturbance agreement. If, as a result, the
lease is not executed, the value of the mortgaged property may be diminished.
Environmental Legislation
Real property pledged as security to a lender may be subject to unforeseen
environmental liabilities. Of particular concern may be those Mortgaged
Properties which are, or have been, the site of manufacturing, industrial or
disposal activity. Such environmental liabilities may give rise to (i) a
diminution in value of property securing any Mortgage Loan, (ii) limitation on
the ability to foreclose against such property or (iii) in certain circumstances
as more fully described below, liability for clean-up costs or other remedial
actions, which liability could exceed the value of the principal balance of the
related Mortgage Loan or of such Mortgaged Property.
Under the laws of many states, contamination on a property may give rise to
a lien on the property for cleanup costs. In several states, such a lien has
priority over all existing liens (a "superlien") including those of existing
mortgages; in these states, the lien of a mortgage contemplated by this
transaction may lose its priority to such a superlien.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), a lender may be liable either to
the government or to private parties for cleanup costs on a property securing a
loan, even if the lender does not cause or contribute to the contamination.
CERCLA imposes strict, as well as joint and several, liability on several
classes of potentially responsible parties, including current owners and
operators of the property, regardless of whether they caused or contributed to
the contamination. Many states have laws similar to CERCLA.
Lenders may be held liable under CERCLA as owners or operators. Excluded
from CERCLA's definition of "owner or operator," however, is a person "who
without participating in the management of the facility, holds indicia of
ownership primarily to protect his security interest." This exemption for
holders of a security interest such as a secured lender applies only in
circumstances where the lender acts to protect its security interest in the
contaminated facility or property. Thus, if a lender's activities encroach on
the actual management of such facility or property, the lender faces potential
liability as an "owner or operator" under CERCLA. Similarly, when a lender
forecloses and takes title to a contaminated facility or property (whether it
holds the facility or property as an investment or leases it to a third party),
the lender may incur potential CERCLA liability.
Whether actions taken by a lender would constitute such an encroachment on
the actual management of a facility or property, so as to render the secured
creditor exemption unavailable to the lender has been a matter of judicial
interpretation of the statutory language, and court decisions have historically
been inconsistent. In 1990, the Court of Appeals for the Eleventh Circuit
suggested that the mere capacity of the lender to influence a borrower's
decisions
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regarding disposal of hazardous substances was sufficient participation in the
management of the borrower's business to deny the protection of the secured
creditor exemption to the lender.
This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996 (the
"Asset Conservation Act"), which was signed into law by President Clinton on
September 30, 1996. The Asset Conservation Act provides that in order to be
deemed to have participated in the management of a secured property, a lender
must actually participate in the operational affairs of the property or the
borrower. The Asset Conservation Act also provides that participation in the
management of the property does not include "merely having the capacity to
influence, or unexercised right to control" operations. Rather, a lender will
lose the protection of the secured creditor exemption only if it exercises
decision-making control over the borrower's environmental compliance and
hazardous substance handling and disposal practices, or assumes day-to-day
management of all operational functions of the secured property. The Asset
Conservation Act also provides that a lender will continue to have the benefit
of the secured creditor exemption even if it forecloses on a mortgaged property,
purchases it at a foreclosure sale or accepts a deed-in-lieu of foreclosure
provided that the lender seeks to sell the mortgaged property at the earliest
practicable commercially reasonable time on commercially reasonable terms.
The secured creditor exemption does not protect a lender from liability
under CERCLA in cases where the lender arranges for disposal of hazardous
substances or for transportation of hazardous substances. In addition, the
secured creditor exemption does not govern liability for cleanup costs under
federal laws other than CERCLA. CERCLA's jurisdiction extends to the
investigation and remediation of releases of "hazardous substances." The
definition of "hazardous substances" under CERCLA specifically excludes
petroleum products. Therefore, a federal statute of particular significance is
Subtitle I of the Resource Conservation and Recovery Act ("RCRA"), which governs
the operation and management of underground petroleum storage tanks. Under the
Asset Conservation Act, the protections accorded to lenders under CERCLA are
also accorded to the holders of security interests in underground storage tanks.
It should be noted, however, that liability for cleanup of petroleum
contamination may be governed by state law, which may not provide for any
specific protection for secured creditors.
In a few states, transfer of some types of properties is conditioned upon
cleanup of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed-in-lieu of foreclosure
or otherwise, may be required to cleanup the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law causes
of action (for example, actions based on nuisance or on toxic tort resulting in
death, personal injury or damage to property) related to hazardous environmental
conditions on a property. While it may be more difficult to hold a lender liable
in such cases, unanticipated or uninsurable liabilities of the borrower may
jeopardize the borrower's ability to meet its loan obligations.
If a lender is or becomes liable, it may bring an action for contribution
against the owner or operator who created the environmental hazard, but that
person or entity may be bankrupt or otherwise judgment proof. It is possible
that cleanup costs could become a liability of the Trust Fund and occasion a
loss to Certificateholders in certain circumstances described above if such
remedial costs were incurred.
Unless otherwise provided in the related Prospectus Supplement, the
Warrantying Party with respect to any Whole Loan included in a Trust Fund for a
particular series of Certificates will represent that a "Phase I Assessment" as
described in and meeting the requirements of the then current version of Chapter
5 of the Federal National Mortgage Association ("FNMA") Multifamily Guide has
been received and reviewed. In addition, unless otherwise provided in the
related Prospectus Supplement, the related Agreement will provide that the
Master Servicer, acting on behalf of the Trustee, may not acquire title to a
Mortgaged Property or take over its operation unless the Master Servicer has
previously determined, based on a report prepared by a person who regularly
conducts environmental audits, that: (i) such Mortgaged Property is in
compliance with applicable environmental laws, and there are no circumstances
present at the Mortgaged Property relating to the use, management or disposal of
any hazardous substances, hazardous materials, wastes, or petroleum based
materials for which investigation, testing, monitoring, containment, clean-up or
remediation could be required under any federal, state or local law or
regulation; or (ii) if such Mortgaged Property is not so in compliance or such
circumstances are so present, then it would be in the best economic interest of
the Trust Fund to acquire title to the Mortgaged Property and further to take
such actions as would be necessary and appropriate to effect such compliance
and/or respond to such circumstances. This requirement effectively precludes
enforcement of the
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security for the related Mortgage Note until a satisfactory environmental
inquiry is undertaken or any required remedial action is provided for, reducing
the likelihood that a given Trust Fund will become liable for any condition or
circumstance that may give rise to any environmental claim (an "Environmental
Hazard Condition") affecting a Mortgaged Property, but making it more difficult
to realize on the security for the Mortgage Loan. However, there can be no
assurance that any environmental assessment obtained by the Master Servicer or a
Special Servicer, as the case may be, will detect all possible Environmental
Hazard Conditions or that the other requirements of the Agreement, even if fully
observed by the Master Servicer or Special Servicer, as the case may be, will in
fact insulate a given Trust Fund from liability for Environmental Hazard
Conditions. See "Description of the Agreements--Realization Upon Defaulted Whole
Loans."
Unless otherwise specified in the related Prospectus Supplement, the
Depositor generally will not have determined whether environmental assessments
have been conducted with respect to the Mortgaged Properties relating to the
Mortgage Loans included in the Mortgage Pool for a Series, and it is likely that
any environmental assessments which would have been conducted with respect to
any of the Mortgaged Properties would have been conducted at the time of the
origination of the related Mortgage Loans and not thereafter. If specified in
the related Prospectus Supplement, a Warrantying Party will represent and
warrant that, as of the date of initial issuance of the Certificates of a Series
or as of another specified date, no related Mortgaged Property is affected by a
Disqualifying Condition (as defined below). In the event that, following a
default in payment on a Mortgage Loan that continues for 60 days, (i) the
environmental inquiry conducted by the Master Servicer or Special Servicer, as
the case may be, prior to any foreclosure indicates the presence of a
Disqualifying Condition that arose prior to the date of initial issuance of the
Certificates of a Series and (ii) the Master Servicer or the Special Servicer
certify that it has acted in compliance with the Servicing Standard and has not,
by any action, created, caused or contributed to a Disqualifying Condition the
Warrantying Party, at its option, will reimburse the Trust Fund, cure such
Disqualifying Condition or repurchase or substitute the affected Whole Loan, as
described under "Description of the Agreements--Representations and Warranties;
Repurchases." No such person will however, be responsible for any Disqualifying
Condition which may arise on a Mortgaged Property after the date of initial
issuance of the Certificates of the related Series, whether due to actions of
the Mortgagor, the Master Servicer, the Special Servicer or any other person. It
may not always be possible to determine whether a Disqualifying Condition arose
prior or subsequent to the date of the initial issuance of the Certificates of a
Series.
A "Disqualifying Condition" is defined generally as a condition, existing
as a result of, or arising from, the presence of Hazardous Materials (as defined
below) on a Mortgaged Property, such that the Mortgage Loan secured by the
affected Mortgaged Property would be ineligible, solely by reason of such
condition, for purchase by FNMA under the relevant provisions of FNMA's
Multifamily Seller/Servicer Guide in effect as of the date of initial issuance
of the Certificates of such series, including a condition that would constitute
a material violation of applicable federal state or local law in effect as of
their date of initial issuance of the Certificates of such series.
"Hazardous Materials" are generally defined under several federal and state
statutes, and include dangerous toxic or hazardous pollutants, chemicals, wastes
or substances, including, without limitation, those so identified pursuant to
CERCLA and RCRA, and specifically including, asbestos and asbestos containing
materials, polychlorinated biphenyls, radon gas, petroleum and petroleum
products, urea formaldehyde and any substances classified as being "in
inventory," "usable work in process" or similar classification which would, if
classified as unusable, be included in the foregoing definition.
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Due-on-Sale and Due-on-Encumbrance
Certain of the Mortgage Loans may contain due-on-sale and
due-on-encumbrance clauses. These clauses generally provide that the lender may
accelerate the maturity of the loan if the mortgagor sells or otherwise
transfers or encumbers the related Mortgaged Property. Certain of these clauses
may provide that, upon an attempted breach thereof by the mortgagor of an
otherwise non-recourse loan, the mortgagor becomes personally liable for the
mortgage debt. The enforceability of due-on-sale clauses has been the subject of
legislation or litigation in many states and, in some cases, the enforceability
of these clauses was limited or denied. However, with respect to certain loans
the Garn-St Germain Depository Institutions Act of 1982 preempts state
constitutional, statutory and case law that prohibits the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms subject to certain limited exceptions. Unless otherwise
provided in the related Prospectus Supplement, a Master Servicer, on behalf of
the Trust Fund, will determine whether to exercise any right the Trustee may
have as mortgagee to accelerate payment of any such Mortgage Loan or to withhold
its consent to any transfer or further encumbrance in a manner consistent with
the Servicing Standard.
In addition, under federal bankruptcy laws, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances, be
eliminated in any modified mortgage resulting from such bankruptcy proceeding.
Subordinate Financing
Where a mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and the
senior loan does not, a mortgagor may be more likely to repay sums due on the
junior loan than those on the senior loan. Second, acts of the senior lender
that prejudice the junior lender or impair the junior lender's security may
create a superior equity in favor of the junior lender. For example, if the
mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions taken
by junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
Default Interest, Prepayment Charges and Prepayments
Forms of notes and mortgages used by lenders may contain provisions
obligating the mortgagor to pay a late charge or additional interest if payments
are not timely made, and in some circumstances may provide for prepayment fees
or yield maintenance penalties if the obligation is paid prior to maturity or
prohibit such prepayment for a specified period. In certain states, there are or
may be specific limitations upon the late charges which a lender may collect
from a mortgagor for delinquent payments. Certain states also limit the amounts
that a lender may collect from a mortgagor as an additional charge if the loan
is prepaid. The enforceability, under the laws of a number of states of
provisions providing for prepayment fees or penalties upon, or prohibition of,
an involuntary prepayment is unclear, and no assurance can be given that, at the
time a Prepayment Premium is required to be made on a Mortgage Loan in
connection with an involuntary prepayment, the obligation to make such payment,
or the provisions of any such prohibition, will be enforceable under applicable
state law. The absence of a restraint on prepayment, particularly with respect
to Mortgage Loans having higher Mortgage Rates, may increase the likelihood of
refinancing or other early retirements of the Mortgage Loans.
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Acceleration on Default
Unless otherwise specified in the related prospectus Supplement, some of
the Mortgage Loans included in the Mortgage Pool for a Series will include a
"debt-acceleration" clause, which permits the lender to accelerate the full debt
upon a monetary or nonmonetary default of the Mortgagor. The courts of all
states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
equity courts of the state, however, may refuse to foreclose a mortgage or deed
of trust when an acceleration of the indebtedness would be inequitable or unjust
or the circumstances would render the acceleration unconscionable. Furthermore,
in some states, the mortgagor may avoid foreclosure and reinstate an accelerated
loan by paying only the defaulted amounts and the costs and attorneys' fees
incurred by the lender in collecting such defaulted payments.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential (including
multifamily but not other commercial) first mortgage loans originated by certain
lenders after March 31, 1980. A similar federal statute was in effect with
respect to mortgage loans made during the first three months of 1980. The
statute authorized any state to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision that expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits and/or to limit
discount points or other charges.
The Depositor has been advised by counsel that a court interpreting Title V
would hold that residential first mortgage loans that are originated on or after
January 1, 1980 are subject to federal preemption. Therefore, in a state that
has not taken the requisite action to reject application of Title V or to adopt
a provision limiting discount points or other charges prior to origination of
such mortgage loans, any such limitation under such state's usury law would not
apply to such mortgage loans.
In any state in which application of Title V has been expressly rejected or
a provision limiting discount points or other charges is adopted, no Mortgage
Loan originated after the date of such state action will be eligible for
inclusion in a Trust Fund unless (i) such Mortgage Loan provides for such
interest rate, discount points and charges as are permitted in such state or
(ii) such Mortgage Loan provides that the terms thereof shall be construed in
accordance with the laws of another state under which such interest rate,
discount points and charges would not be usurious and the mortgagor's counsel
has rendered an opinion that such choice of law provision would be given effect.
Statutes differ in their provisions as to the consequences of a usurious
loan. One group of statutes requires the lender to forfeit the interest due
above the applicable limit or impose a specified penalty. Under this statutory
scheme, the mortgagor may cancel the recorded mortgage or deed of trust upon
paying its debt with lawful interest, and the lender may foreclose, but only for
the debt plus lawful interest. A second group of statutes is more severe. A
violation of this type of usury law results in the invalidation of the
transaction, thereby permitting the mortgagor to cancel the recorded mortgage or
deed of trust without any payment or prohibiting the lender from foreclosing.
Certain Laws and Regulations; Types of Mortgaged Properties
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgage Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(e.g., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan. Mortgages on
Mortgaged Properties which are owned by the Mortgagor under a condominium form
of ownership are subject to the declaration, by-laws and other rules and
regulations of the condominium association. Mortgaged Properties which are
hotels or motels may present additional risk in that hotels and motels are
typically operated pursuant to franchise, management and operating agreements
which may be terminable by the operator, and the transferability of the hotel's
operating, liquor and other licenses to the entity acquiring the hotel either
through purchases or foreclosure is subject to the vagaries of local law
requirements. In addition, Mortgaged
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Properties which are multifamily residential properties may be subject to rent
control laws, which could impact the future cash flows of such properties.
Americans With Disabilities Act
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the Mortgagor in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the Mortgagor as owner of landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
Mortgagor of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the Mortgagor is subject.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a mortgagor who enters military service after the
origination of such mortgagor's Mortgage Loan (including a mortgagor who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such mortgagor's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
mortgagors who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to mortgagors
who enter military service (including reservists who are called to active duty)
after origination of the related Mortgage Loan, no information can be provided
as to the number of loans that may be affected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability of any servicer to collect full amounts of interest on certain of the
Mortgage Loans. Any shortfalls in interest collections resulting from the
application of the Relief Act would result in a reduction of the amounts
distributable to the holders of the related series of Certificates, and would
not be covered by advances or, unless otherwise specified in the related
Prospectus Supplement, any form of Credit Support provided in connection with
such Certificates. In addition, the Relief Act imposes limitations that would
impair the ability of the servicer to foreclose on an affected Mortgage Loan
during the mortgagor's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter. Thus, in the
event that such a Mortgage Loan goes into default, there may be delays and
losses occasioned thereby.
Forfeitures in Drug and RICO Proceedings
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may give notice
to all parties "known to have an alleged interest in the property," including
the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered Certificates
is based on the advice of Sidley & Austin or Milbank, Tweed, Hadley & McCloy or
Brown & Wood LLP, counsel to the Depositor. This summary is based on laws,
regulations, including the REMIC regulations promulgated by the Treasury
Department (the "REMIC Regulations"), rulings and decisions now in effect or
(with respect to regulations) proposed, all of which are subject to change
either prospectively or retroactively. This summary does not address the federal
income tax consequences of an investment in Certificates applicable to all
categories of investors, some of which (for example, banks and insurance
companies) may be subject to special rules. Prospective investors should consult
their tax advisors regarding the federal, state, local and any other tax
consequences to them of the purchase, ownership and disposition of Certificates.
General
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund relating to a
particular Series of Certificates as a REMIC under the Code. The Prospectus
Supplement for each Series of Certificates will specify whether a REMIC election
will be made.
Grantor Trust Funds
If a REMIC election is not made, Sidley & Austin or Milbank, Tweed, Hadley
& McCloy or Brown & Wood LLP will deliver its opinion that the Trust Fund will
not be classified as an association taxable as a corporation and that each such
Trust Fund will be classified as a grantor trust under subpart E, Part I of
subchapter J of the Code. In this case, owners of Certificates will be treated
for federal income tax purposes as owners of a portion of the Trust Fund's
assets as described below.
a. Single Class of Grantor Trust Certificates
Characterization. The Trust Fund may be created with one class of Grantor
Trust Certificates. In this case, each Grantor Trust Certificateholder will be
treated as the owner of a pro rata undivided interest in the interest and
principal portions of the Trust Fund represented by the Grantor Trust
Certificates and will be considered the equitable owner of a pro rata undivided
interest in each of the Mortgage Assets in the Pool. Any amounts received by a
Grantor Trust Certificateholder in lieu of amounts due with respect to any
Mortgage Asset because of a default or delinquency in payment will be treated
for federal income tax purposes as having the same character as the payments
they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Mortgage Loans in the Trust Fund represented by Grantor Trust
Certificates, including interest, original issue discount ("OID"), if any,
prepayment fees, assumption fees, any gain recognized upon an assumption and
late payment charges received by the Master Servicer. Under Code Sections 162 or
212 each Grantor Trust Certificateholder will be entitled to deduct its pro rata
share of servicing fees, prepayment fees, assumption fees, any loss recognized
upon an assumption and late payment charges retained by the Master Servicer,
provided that such amounts are reasonable compensation for services rendered to
the Trust Fund. Grantor Trust Certificateholders that are individuals, estates
or trusts will be entitled to deduct their share of expenses as itemized
deductions only to the extent such expenses plus all other Code Section 212
expenses exceed two percent of its adjusted gross income. In addition, the
amount of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds the applicable amount (which
amount will be adjusted for inflation) will be reduced by the lesser of (i) 3%
of the excess of adjusted gross income over the applicable amount and (ii) 80%
of the amount of itemized deductions otherwise allowable for such taxable year.
A Grantor Trust Certificateholder using the cash method of accounting must take
into account its pro rata share of income and deductions as and when collected
by or paid to the Master Servicer. A Grantor Trust Certificateholder using an
accrual method of accounting must take into account its pro rata share of income
and deductions as they become due or are paid to the Master Servicer, whichever
is earlier. If the servicing fees paid to the Master Servicer are deemed to
exceed reasonable servicing compensation, the amount of such excess could be
considered as an ownership interest retained by the Master Servicer (or any
person to whom the Master Servicer assigned for value all or a portion of the
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servicing fees) in a portion of the interest payments on the Mortgage Assets.
The Mortgage Assets would then be subject to the "coupon stripping" rules of the
Code discussed below.
Unless otherwise specified in the related Prospectus Supplement, as to each
Series of Certificates, Sidley & Austin or Milbank, Tweed, Hadley & McCloy or
Brown & Wood LLP will have advised the Depositor that:
(i) a Grantor Trust Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) representing
principal and interest payments on Mortgage Assets will be considered to
represent "loans ... secured by an interest in real property which is ...
residential property" within the meaning of Code Section 7701(a)(19)(C)(v),
to the extent that the Mortgage Assets represented by that Grantor Trust
Certificate are of a type described in such Code section;
(ii) a Grantor Trust Certificate owned by a real estate investment
trust representing an interest in Mortgage Assets will be considered to
represent "real estate assets" within the meaning of Code Section
856(c)(5)(A), and interest income on the Mortgage Assets will be considered
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B), to the extent that the Mortgage
Assets represented by that Grantor Trust Certificate are of a type
described in such Code section; and
(iii) a Grantor Trust Certificate owned by a REMIC will represent
"obligation[s] ... which [are] principally secured by an interest in real
property" within the meaning of Code Section 860G(a)(3).
The Small Business Job Protection Act of 1996, as part of the repeal of the
bad debt reserve method for thrift institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
Stripped Bonds and Coupons. Certain Trust Funds may consist of Government
Securities which constitute "stripped bonds" or "stripped coupons" as those
terms are defined in section 1286 of the Code, and, as a result, such assets
would be subject to the stripped bond provisions of the Code. Under these rules,
such Government Securities are treated as having original issue discount based
on the purchase price and the stated redemption price at maturity of each
Security. As such, Grantor Trust Certificateholders would be required to include
in income their pro rata share of the original issue discount on each Government
Security recognized in any given year on an economic accrual basis even if the
Grantor Trust Certificateholder is a cash method taxpayer. Accordingly, the sum
of the income includible to the Grantor Trust Certificateholder in any taxable
year may exceed amounts actually received during such year.
Premium. The price paid for a Grantor Trust Certificate by a holder will be
allocated to such holder's undivided interest in each Mortgage Asset based on
each Mortgage Asset's relative fair market value, so that such holder's
undivided interest in each Mortgage Asset will have its own tax basis. A Grantor
Trust Certificateholder that acquires an interest in Mortgage Assets at a
premium may elect to amortize such premium under a constant interest method,
provided that the underlying mortgage loans with respect to such Mortgage Assets
were originated after September 27, 1985. Premium allocable to mortgage loans
originated on or before September 27, 1985 should be allocated among the
principal payments on such mortgage loans and allowed as an ordinary deduction
as principal payments are made. Amortizable bond premium will be treated as an
offset to interest income on such Grantor Trust Certificate. The basis for such
Grantor Trust Certificate will be reduced to the extent that amortizable premium
is applied to offset interest payments. It is not clear whether a reasonable
prepayment assumption should be used in computing amortization of premium
allowable under Code Section 171. A Certificateholder that makes this election
for a Mortgage Asset or any other debt instrument that is acquired at a premium
will be deemed to have made an election to amortize bond premium with respect to
all debt instruments having amortizable bond premium that such Certificateholder
acquires during the year of the election or thereafter.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Grantor Trust Certificate representing an interest
in a Mortgage Asset or Mortgage Loan acquired at a premium should recognize a
loss if a Mortgage Loan (or an underlying mortgage loan with respect to a
Mortgage Asset) prepays in full, equal to the difference between the portion of
the prepaid principal amount of such Mortgage Loan (or underlying mortgage loan)
that is allocable to the Certificate and the portion of the adjusted basis of
the Certificate that is allocable to such Mortgage Loan (or underlying mortgage
loan). If a reasonable prepayment assumption is used to amortize such premium,
it appears that such a loss would be available, if at all, only if prepayments
have occurred at a rate faster than the reasonable
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assumed prepayment rate. It is not clear whether any other adjustments would be
required to reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
Original Issue Discount. The Internal Revenue Service (the "IRS") has
stated in published rulings that, in circumstances similar to those described
herein, the special rules of the Code relating to original issue discount
("OID") (currently Code Sections 1271 through 1273 and 1275) and Treasury
regulations issued on January 27, 1994, under such Sections (the "OID
Regulations"), will be applicable to a Grantor Trust Certificateholder's
interest in those Mortgage Assets meeting the conditions necessary for these
sections to apply. Rules regarding periodic inclusion of OID income are
applicable to mortgages of corporations originated after May 27, 1969, mortgages
of noncorporate mortgagors (other than individuals) originated after July 1,
1982, and mortgages of individuals originated after March 2, 1984. Such OID
could arise by the financing of points or other charges by the originator of the
mortgages in an amount greater than a statutory de minimis exception to the
extent that the points are not currently deductible under applicable Code
provisions or are not for services provided by the lender. OID generally must be
reported as ordinary gross income as it accrues under a constant interest
method. See "--Multiple Classes of Grantor Trust Certificates--Accrual of
Original Issue Discount" below.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Mortgage Assets may be subject to the market discount
rules of Code Sections 1276 through 1278 to the extent an undivided interest in
a Mortgage Asset is considered to have been purchased at a "market discount."
Generally, the amount of market discount is equal to the excess of the portion
of the principal amount of such Mortgage Asset allocable to such holder's
undivided interest over such holder's tax basis in such interest. Market
discount with respect to a Grantor Trust Certificate will be considered to be
zero if the amount allocable to the Grantor Trust Certificate is less than 0.25%
of the Grantor Trust Certificate's stated redemption price at maturity
multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986 shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the market
discount bond is to be reduced by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. While the
Treasury Department has not yet issued regulations, rules described in the
relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or according to one of the following methods. If a
Grantor Trust Certificate is issued with OID, the amount of market discount that
accrues during any accrual period would be equal to the product of (i) the total
remaining market discount and (ii) a fraction, the numerator of which is the OID
accruing during the period and the denominator of which is the total remaining
OID at the beginning of the accrual period. For Grantor Trust Certificates
issued without OID, the amount of market discount that accrues during a period
is equal to the product of (i) the total remaining market discount and (ii) a
fraction, the numerator of which is the amount of stated interest paid during
the accrual period and the denominator of which is the total amount of stated
interest remaining to be paid at the beginning of the accrual period. For
purposes of calculating market discount under any of the above methods in the
case of instruments (such as the Grantor Trust Certificates) that provide for
payments that may be accelerated by reason of prepayments of other obligations
securing such instruments, the same prepayment assumption applicable to
calculating the accrual of OID will apply. Because the regulations described
above have not been issued, it is impossible to predict what effect those
regulations might have on the tax treatment of a Grantor Trust Certificate
purchased at a discount or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount also
may be required to defer a portion of its interest deductions for the taxable
year attributable to any indebtedness incurred or continued to purchase or carry
such Grantor Trust Certificate purchased with market discount. For these
purposes, the de minimis rule referred above applies. Any such deferred interest
expense would not exceed the market discount that accrues during such taxable
year
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and is, in general, allowed as a deduction not later than the year in which such
market discount is includible in income. If such holder elects to include market
discount in income currently as it accrues on all market discount instruments
acquired by such holder in that taxable year or thereafter, the interest
deferral rule described above will not apply.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method for Certificates acquired on or after April 4,
1994. If such an election were to be made with respect to a Grantor Trust
Certificate with market discount, the Certificateholder would be deemed to have
made an election to include in income currently market discount with respect to
all other debt instruments having market discount that such Certificateholder
acquires during the year of the election or thereafter. Similarly, a
Certificateholder that makes this election for a Certificate that is acquired at
a premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. See "--Regular Certificates--Premium"
herein. The election to accrue interest, discount and premium on a constant
yield method with respect to a Certificate is irrevocable without consent of the
IRS.
Anti-Abuse Rule. The Internal Revenue Service can apply or depart from the
rules contained in the OID Regulations as necessary or appropriate to achieve a
reasonable result where a principal purpose in structuring a Mortgage Asset,
Mortgage Loan or Grantor Trust Certificate or applying the otherwise applicable
rules is to achieve a result that is unreasonable in light of the purposes of
the applicable statutes (which generally are intended to achieve the clear
reflection of income for both issuers and holders of debt instruments).
b. Multiple Classes of Grantor Trust Certificates
1. Stripped Bonds and Stripped Coupons
Pursuant to Code Section 1286, the separation of ownership of the right to
receive some or all of the interest payments on an obligation from ownership of
the right to receive some or all of the principal payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of Code Sections 1271
through 1288, Code Section 1286 treats a stripped bond or a stripped coupon as
an obligation issued on the date that such stripped interest is created. If a
Trust Fund is created with two classes of Grantor Trust Certificates, one class
of Grantor Trust Certificates may represent the right to principal and interest,
or principal only, on all or a portion of the Mortgage Assets (the "Stripped
Bond Certificates"), while the second class of Grantor Trust Certificates may
represent the right to some or all of the interest on such portion (the
"Stripped Coupon Certificates").
Servicing fees in excess of reasonable servicing fees ("excess servicing")
will be treated under the stripped bond rules. If the excess servicing fee is
less than 100 basis points (i.e., 1% interest on the Mortgage Asset principal
balance) or the Certificates are initially sold with a de minimis discount
(assuming no prepayment assumption is required), any non-de minimis discount
arising from a subsequent transfer of the Certificates should be treated as
market discount. The IRS appears to require that reasonable servicing fees be
calculated on a Mortgage Asset by Mortgage Asset basis, which could result in
some Mortgage Assets being treated as having more than 100 basis points of
interest stripped off. See "--Non-REMIC Certificates" and "Multiple Classes of
Grantor Trust Certificates--Stripped Bonds and Stripped Coupons" herein.
Although not entirely clear, a Stripped Bond Certificate generally should
be treated as an interest in Mortgage Assets issued on the day such Certificate
is purchased for purposes of calculating any OID. Generally, if the discount on
a Mortgage Asset is larger than a de minimis amount (as calculated for purposes
of the OID rules) a purchaser of such a Certificate will be required to accrue
the discount under the OID rules of the Code. See "--Non-REMIC Certificates" and
"--Single Class of Grantor Trust Certificates--Original Issue Discount" herein.
However, a purchaser of a Stripped Bond Certificate will be required to account
for any discount on the Mortgage Assets as market discount rather than OID if
either (i) the amount of OID with respect to the Mortgage Assets is treated as
zero under the OID de minimis rule when the Certificate was stripped or (ii) no
more than 100 basis points (including any amount of servicing fees in excess of
reasonable servicing fees) is stripped off of the Trust Fund's Mortgage Assets.
Pursuant to Revenue Procedure 91-49, issued on August 8, 1991, purchasers of
Stripped Bond Certificates using an inconsistent method of accounting must
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change their method of accounting and request the consent of the IRS to the
change in their accounting method on a statement attached to their first timely
tax return filed after August 8, 1991.
The precise tax treatment of Stripped Coupon Certificates is substantially
uncertain. The Code could be read literally to require that OID computations be
made for each payment from each Mortgage Asset. However, based on certain
provisions of the OID Regulations, it appears that all payments from a Mortgage
Asset underlying a Stripped Coupon Certificate should be treated as a single
installment obligation subject to the OID rules of the Code, in which case, all
payments from such Mortgage Asset would be included in the Mortgage Asset's
stated redemption price at maturity for purposes of calculating income on such
certificate under the OID rules of the Code.
It is unclear under what circumstances, if any, the prepayment of Mortgage
Assets will give rise to a loss to the holder of a Stripped Bond Certificate
purchased at a premium or a Stripped Coupon Certificate. If such Certificate is
treated as a single instrument (rather than an interest in discrete mortgage
loans) and the effect of prepayments is taken into account in computing yield
with respect to such Grantor Trust Certificate, it appears that no loss will be
available as a result of any particular prepayment unless prepayments occur at a
rate sufficiently faster than the assumed prepayment rate so that the
Certificateholder will not recover its investment. However, if such Certificate
is treated as an interest in discrete Mortgage Assets, or if no prepayment
assumption is used, then when a Mortgage Asset is prepaid, the holder of such
Certificate should be able to recognize a loss equal to the portion of the
adjusted issue price of such Certificate that is allocable to such Mortgage
Asset.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates are
urged to consult with their own tax advisors regarding the proper treatment of
these Certificates for federal income tax purposes.
Treatment of Certain Owners. Several Code sections provide beneficial
treatment to certain taxpayers that invest in Mortgage Assets of the type that
make up the Trust Fund. With respect to these Code sections, no specific legal
authority exists regarding whether the character of the Grantor Trust
Certificates, for federal income tax purposes, will be the same as that of the
underlying Mortgage Assets. While Code Section 1286 treats a stripped obligation
as a separate obligation for purposes of the Code provisions addressing OID, it
is not clear whether such characterization would apply with regard to these
other Code sections. Although the issue is not free from doubt, based on policy
considerations, each class of Grantor Trust Certificates, unless otherwise
specified in the related Prospectus Supplement, should be considered to
represent"real estate assets" within the meaning of Code Section 856(c)(5)(A)
and "loans . . . secured by, an interest in real property which is . . .
residential real property" within the meaning of Code Section 7701(a)(19)(C)(v),
and interest income attributable to Grantor Trust Certificates should be
considered to represent "interest on obligations secured by mortgages on real
property" within the meaning of Code Section 856(c)(3)(B), provided that in each
case the underlying Mortgage Assets and interest on such Mortgage Assets qualify
for such treatment. Prospective purchasers to which such characterization of an
investment in Certificates is material should consult their own tax advisors
regarding the characterization of the Grantor Trust Certificates and the income
therefrom. Grantor Trust Certificates will be "obligation[s] ... which [are]
principally secured, directly or indirectly, by an interest in real property"
within the meaning of Code Section 860G(a)(3).
2. Grantor Trust Certificates Representing Interests in Loans Other Than
ARM Loans
The original issue discount rules of Code Sections 1271 through 1275 will
be applicable to a Certificateholder's interest in those Mortgage Assets as to
which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount in income are applicable
to mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate mortgagors (other than individuals) originated after July 1, 1982,
and mortgages of individuals originated after March 2, 1984. Under the OID
Regulations, such original issue discount could arise by the charging of points
by the originator of the mortgage in an amount greater than the statutory de
minimis exception, including a payment of points that is currently deductible by
the borrower under applicable Code provisions, or under certain circumstances,
by the presence of "teaser" rates on the Mortgage Assets. OID on each Grantor
Trust Certificate must be included in the owner's ordinary income for federal
income tax purposes as it accrues, in accordance with a constant interest method
that takes into account the compounding of interest, in advance of receipt of
the cash attributable to such income. The amount of OID required to be included
in an owner's income in any taxable year with respect to a Grantor Trust
Certificate representing an interest in Mortgage Assets other than Mortgage
Assets with interest rates
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that adjust periodically ("ARM Loans") likely will be computed as described
below under "--Accrual of Original Issue Discount." The following discussion is
based in part on the OID Regulations and in part on the provisions of the Tax
Reform Act of 1986 (the "1986 Act"). The OID Regulations generally are effective
for debt instruments issued on or after April 4, 1994, but may be relied upon as
authority with respect to debt instruments, such as the Grantor Trust
Certificates, issued after December 21, 1992. Alternatively, proposed Treasury
regulations issued December 21, 1992 may be treated as authority for debt
instruments issued after December 21, 1992 and prior to April 4, 1994, and
proposed Treasury regulations issued in 1986 and 1991 may be treated as
authority for instruments issued before December 21, 1992. In applying these
dates, the issue date of the Mortgage Assets should be used, or, in the case of
Stripped Bond Certificates or Stripped Coupon Certificates, the date such
Certificates are acquired. The holder of a Certificate should be aware, however,
that neither the proposed OID Regulations nor the OID Regulations adequately
address certain issues relevant to prepayable securities.
Under the Code, the Mortgage Assets underlying the Grantor Trust
Certificate will be treated as having been issued on the date they were
originated with an amount of OID equal to the excess of such Mortgage Asset's
stated redemption price at maturity over its issue price. The issue price of a
Mortgage Asset is generally the amount lent to the mortgagee, which may be
adjusted to take into account certain loan origination fees. The stated
redemption price at maturity of a Mortgage Asset is the sum of all payments to
be made on such Mortgage Asset other than payments that are treated as qualified
stated interest payments. The accrual of this OID, as described below under
"--Accrual of Original Issue Discount," will, unless otherwise specified in the
related Prospectus Supplement, utilize the original yield to maturity of the
Grantor Trust Certificate calculated based on a reasonable assumed prepayment
rate for the mortgage loans underlying the Grantor Trust Certificates (the
"Prepayment Assumption"), and will take into account events that occur during
the calculation period. The Prepayment Assumption will be determined in the
manner prescribed by regulations that have not yet been issued. The legislative
history of the 1986 Act (the "Legislative History") provides, however, that the
regulations will require that the Prepayment Assumption be the prepayment
assumption that is used in determining the offering price of such Certificate.
No representation is made that any Certificate will prepay at the Prepayment
Assumption or at any other rate. The prepayment assumption contained in the Code
literally only applies to debt instruments collateralized by other debt
instruments that are subject to prepayment rather than direct ownership
interests in such debt instruments, such as the Certificates represent. However,
no other legal authority provides guidance with regard to the proper method for
accruing OID on obligations that are subject to prepayment, and, until further
guidance is issued, the Master Servicer intends to calculate and report OID
under the method described below.
Accrual of Original Issue Discount. Generally, the owner of a Grantor Trust
Certificate must include in gross income the sum of the "daily portions," as
defined below, of the OID on such Grantor Trust Certificate for each day on
which it owns such Certificate, including the date of purchase but excluding the
date of disposition. In the case of an original owner, the daily portions of OID
with respect to each component generally will be determined as set forth under
the OID Regulations. A calculation will be made by the Master Servicer or such
other entity specified in the related Prospectus Supplement of the portion of
OID that accrues during each successive monthly accrual period (or shorter
period from the date of original issue) that ends on the day in the calendar
year corresponding to each of the Distribution Dates on the Grantor Trust
Certificates (or the day prior to each such date). This will be done, in the
case of each full month accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the respective component under the Prepayment
Assumption) of all remaining payments to be received under the Prepayment
Assumption on the respective component and (b) any payments included in the
state redemption price at maturity received during such accrual period, and (ii)
subtracting from that total the "adjusted issue price" of the respective
component at the beginning of such accrual period. The adjusted issue price of a
Grantor Trust Certificate at the beginning of the first accrual period is its
issue price; the adjusted issue price of a Grantor Trust Certificate at the
beginning of a subsequent accrual period is the adjusted issue price at the
beginning of the immediately preceding accrual period plus the amount of OID
allocable to that accrual period reduced by the amount of any payment other than
a payment of qualified stated interest made at the end of or during that accrual
period. The OID accruing during such accrual period will then be divided by the
number of days in the period to determine the daily portion of OID for each day
in the period. With respect to an initial accrual period shorter than a full
monthly accrual period, the daily portions of OID must be determined according
to an appropriate allocation under any reasonable method.
Original issue discount generally must be reported as ordinary gross income
as it accrues under a constant interest method that takes into account the
compounding of interest as it accrues rather than when received. However, the
amount of original issue discount includible in the income of a holder of an
obligation is reduced when the obligation
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is acquired after its initial issuance at a price greater than the sum of the
original issue price and the previously accrued original issue discount, less
prior payments of principal. Accordingly, if such Mortgage Assets acquired by a
Certificateholder are purchased at a price equal to the then unpaid principal
amount of such Mortgage Asset, no original issue discount attributable to the
difference between the issue price and the original principal amount of such
Mortgage Asset (i.e. points) will be includible by such holder. Other original
issue discount on the Mortgage Assets (e.g., that arising from a "teaser" rate)
would still need to be accrued.
3. Grantor Trust Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such as
the Grantor Trust Certificates, which represent interests in ARM Loans.
Additionally, the IRS has not issued guidance under the Code's coupon stripping
rules with respect to such instruments. In the absence of any authority, the
Master Servicer will report OID on Grantor Trust Certificates attributable to
ARM Loans ("Stripped ARM Obligations") to holders in a manner it believes is
consistent with the rules described above under the heading "--Grantor Trust
Certificates Representing Interests in Loans Other Than ARM Loans" and with the
OID Regulations. In general, application of these rules may require inclusion of
income on a Stripped ARM Obligation in advance of the receipt of cash
attributable to such income. Further, the addition of interest deferred by
reason of negative amortization ("Deferred Interest") to the principal balance
of an ARM Loan may require the inclusion of such amount in the income of the
Grantor Trust Certificateholder when such amount accrues. Furthermore, the
addition of Deferred Interest to the Grantor Trust Certificate's principal
balance will result in additional income (including possibly OID income) to the
Grantor Trust Certificateholder over the remaining life of such Grantor Trust
Certificates.
Because the treatment of Stripped ARM Obligations is uncertain, investors
are urged to consult their tax advisors regarding how income will be includible
with respect to such Certificates.
c. Sale or Exchange of a Grantor Trust Certificate
Sale or exchange of a Grantor Trust Certificate prior to its maturity will
result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the Grantor Trust Certificate. Such
adjusted basis generally will equal the seller's purchase price for the Grantor
Trust Certificate, increased by the OID included in the seller's gross income
with respect to the Grantor Trust Certificate, and reduced by principal payments
on the Grantor Trust Certificate previously received by the seller. Such gain or
loss will be capital gain or loss to an owner for which a Grantor Trust
Certificate is a "capital asset" within the meaning of Code Section 1221, and
will be long-term or short-term depending on whether the Grantor Trust
Certificate has been owned for the long-term capital gain holding period
(currently more than one year).
It is possible that capital gain realized by holders of one or more classes
of Grantor Trust Certificates could be considered gain realized upon the
disposition of property that was part of a "conversion transaction." A sale of a
Grantor Trust Certificate will be part of a "conversion transaction" if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and (i) the holder entered the contract to
sell the Grantor Trust Certificate substantially contemporaneously with
acquiring the Grantor Trust Certificate, (ii) the Grantor Trust Certificate is
part of a straddle, (iii) the Grantor Trust Certificate is marketed or sold as
producing capital gains, or (iv) other transactions to be specified in Treasury
regulations that have not yet been issued. If the sale or other disposition of a
Grantor Trust Certificate is part of a conversion transaction, all or any
portion of the gain realized upon the sale or other disposition of the Grantor
Trust Certificate would be treated as ordinary income instead of capital gain.
Grantor Trust Certificates will be "evidences of indebtedness" within the
meaning of Code Section 582(c)(1), so that gain or loss recognized from the sale
of a Grantor Trust Certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
d. Non-U.S. Persons
Generally, to the extent that a Grantor Trust Certificate evidences
ownership in underlying Mortgage Assets that were issued on or before July 18,
1984, interest or OID paid by the person required to withhold tax under Code
Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as defined
below) or (ii) a Grantor Trust Certificateholder holding
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on behalf of an owner that is not a U.S. Person will be subject to federal
income tax, collected by withholding, at a rate of 30% or such lower rate as may
be provided for interest by an applicable tax treaty. Accrued OID recognized by
the owner on the sale or exchange of such a Grantor Trust Certificate also will
be subject to federal income tax at the same rate. Generally, such payments
would not be subject to withholding to the extent that a Grantor Trust
Certificate evidences ownership in Mortgage Assets issued after July 18, 1984,
by natural persons if such Grantor Trust Certificateholder complies with certain
identification requirements (including delivery of a statement, signed by the
Grantor Trust Certificateholder under penalties of perjury, certifying that such
Grantor Trust Certificateholder is not a U.S. Person and providing the name and
address of such Grantor Trust Certificateholder). Additional restrictions apply
to Mortgage Assets of where the mortgagor is not a natural person in order to
qualify for the exemption from withholding.
As used herein, a "U.S. Person" means a citizen or resident of the United
States, a corporation or a partnership organized in or under the laws of the
United States or any political subdivision thereof, an estate the income of
which from sources outside the United States is includible in gross income for
federal income tax purposes regardless of its connection with the conduct of a
trade or business within the United States or a trust if a court within the
United States is able to exercise primary supervision of the administration of
the trust and one or more United States fiduciaries have the authority to
control all substantial decisions of the trust.
e. Information Reporting and Backup Withholding
The Master Servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each person who was a
Certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
Certificates as nominees on behalf of beneficial owners. If a holder, beneficial
owner, financial intermediary or other recipient of a payment on behalf of a
beneficial owner fails to supply a certified taxpayer identification number or
if the Secretary of the Treasury determines that such person has not reported
all interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments. Any
amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against such recipient's federal income tax liability.
REMICs
The Trust Fund relating to a Series of Certificates may elect to be treated
as a REMIC. Qualification as a REMIC requires ongoing compliance with certain
conditions. Although a REMIC is not generally subject to federal income tax
(see, however "--Taxation of Owners of REMIC Residual Certificates" and
"--Prohibited Transactions" below), if a Trust Fund with respect to which a
REMIC election is made fails to comply with one or more of the ongoing
requirements of the Code for REMIC status during any taxable year, including the
implementation of restrictions on the purchase and transfer of the residual
interests in a REMIC as described below under "Taxation of Owners of REMIC
Residual Certificates," the Code provides that a Trust Fund will not be treated
as a REMIC for such year and thereafter. In that event, such entity may be
taxable as a separate corporation, and the related Certificates (the "REMIC
Certificates") may not be accorded the status or given the tax treatment
described below. While the Code authorizes the Treasury Department to issue
regulations providing relief in the event of an inadvertent termination of the
status of a trust fund as a REMIC, no such regulations have been issued. Any
such relief, moreover, may be accompanied by sanctions, such as the imposition
of a corporate tax on all or a portion of the REMIC's income for the period in
which the requirements for such status are not satisfied. With respect to each
Trust Fund that elects REMIC status, Sidley & Austin or Milbank, Tweed, Hadley &
McCloy or Brown & Wood LLP will deliver its opinion generally to the effect
that, under then existing law and assuming compliance with all provisions of the
related Pooling and Servicing Agreement, such Trust Fund will qualify as a
REMIC, and the related Certificates will be considered to be regular interests
("REMIC Regular Certificates") or a sole class of residual interests ("REMIC
Residual Certificates") in the REMIC. The related Prospectus Supplement for each
Series of Certificates will indicate whether the Trust Fund will make a REMIC
election and whether a class of Certificates will be treated as a regular or
residual interest in the REMIC.
A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in such an obligation and any "regular interest"
in another REMIC) that is principally secured by an interest in real property
and that is transferred to the REMIC within a prescribed time period in exchange
for regular or residual interests in the REMIC.
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In general, with respect to each Series of Certificates for which a REMIC
election is made, (i) Certificates held by a thrift institution taxed as a
"domestic building and loan association" will constitute assets described in
Code Section 7701(a)(19)(C); (ii) Certificates held by a real estate investment
trust will constitute "real estate assets" within the meaning of Code Section
856(c)(5)(A); and (iii) interest on Certificates held by a real estate
investment trust will be considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section 856(c)(3)(B). If
less than 95% of the REMIC's assets are assets qualifying under any of the
foregoing Code sections, the Certificates will be qualifying assets only to the
extent that the REMIC's assets are qualifying assets.
Tiered REMIC Structures. For certain Series of Certificates, two separate
elections may be made to treat designated portions of the related Trust Fund as
REMICs (respectively, the "Subsidiary REMIC" and the "Master REMIC") for federal
income tax purposes. Upon the issuance of any such Series of Certificates,
Sidley & Austin or Milbank, Tweed, Hadley & McCloy or Brown & Wood LLP, counsel
to the Depositor, will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the related Agreement, the Master
REMIC as well as any Subsidiary REMIC will each qualify as a REMIC, and the
REMIC Certificates issued by the Master REMIC and the Subsidiary REMIC,
respectively, will be considered to evidence ownership of REMIC Regular
Certificates or REMIC Residual Certificates in the related REMIC within the
meaning of the REMIC provisions.
Only REMIC Certificates, other than the residual interest in the Subsidiary
REMIC, issued by the Master REMIC will be offered hereunder. The Subsidiary
REMIC and the Master REMIC will be treated as one REMIC solely for purposes of
determining whether the REMIC Certificates will be (i) "real estate assets"
within the meaning of Section 856(c)(5)(A) of the Code; (ii) "loans secured by
an interest in real property" under Section 7701(a)(19)(C) of the Code; and
(iii) whether the income on such Certificates is interest described in Section
856(c)(3)(B) of the Code.
a. Taxation of Owners of REMIC Regular Certificates
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
Original Issue Discount and Premium. The REMIC Regular Certificates may be
issued with OID. Generally, such OID, if any, will equal the difference between
the "stated redemption price at maturity" of a REMIC Regular Certificate and its
"issue price." Holders of any class of Certificates issued with OID will be
required to include such OID in gross income for federal income tax purposes as
it accrues, in accordance with a constant interest method based on the
compounding of interest as it accrues rather than in accordance with receipt of
the interest payments. The following discussion is based in part on the OID
Regulations and in part on the provisions of the Tax Reform Act of 1986 (the
"1986 Act"). Holders of REMIC Regular Certificates (the "REMIC Regular
Certificateholders") should be aware, however, that the OID Regulations do not
adequately address certain issues relevant to prepayable securities, such as the
REMIC Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273 and
1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated reinvestment
rate, if any, relating to the REMIC Regular Certificates and prescribe a method
for adjusting the amount and rate of accrual of such discount where the actual
prepayment rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The Legislative History
provides, however, that Congress intended the regulations to require that the
Prepayment Assumption be the prepayment assumption that is used in determining
the initial offering price of such REMIC Regular Certificates. The Prospectus
Supplement for each Series of REMIC Regular Certificates will specify the
Prepayment Assumption to be used for the purpose of determining the amount and
rate of accrual of OID. No representation is made that the REMIC Regular
Certificates will prepay at the Prepayment Assumption or at any other rate.
In general, each REMIC Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
"stated redemption price at maturity" over its "issue price." The issue price of
a REMIC Regular Certificate is the first price at which a substantial amount of
REMIC Regular Certificates of that class
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are first sold to the public (excluding bond houses, brokers, underwriters or
wholesalers). If less than a substantial amount of a particular class of REMIC
Regular Certificates is sold for cash on or prior to the date of their initial
issuance (the "Closing Date"), the issue price for such class will be treated as
the fair market value of such class on the Closing Date. The issue price of a
REMIC Regular Certificate also includes the amount paid by an initial
Certificateholder for accrued interest that relates to a period prior to the
issue date of the REMIC Regular Certificate. The stated redemption price at
maturity of a REMIC Regular Certificate includes the original principal amount
of the REMIC Regular Certificate, but generally will not include distributions
of interest if such distributions constitute "qualified stated interest."
Qualified stated interest generally means interest payable at a single fixed
rate or qualified variable rate (as described below) provided that such interest
payments are unconditionally payable at intervals of one year or less during the
entire term of the REMIC Regular Certificate. Interest is payable at a single
fixed rate only if the rate appropriately takes into account the length of the
interval between payments. Distributions of interest on REMIC Regular
Certificates with respect to which Deferred Interest will accrue will not
constitute qualified stated interest payments, and the stated redemption price
at maturity of such REMIC Regular Certificates includes all distributions of
interest as well as principal thereon.
Where the interval between the issue date and the first Distribution Date
on a REMIC Regular Certificate is longer than the interval between subsequent
Distribution Dates, the greater of any original issue discount (disregarding the
rate in the first period) and any interest foregone during the first period is
treated as the amount by which the stated redemption price at maturity of the
Certificate exceeds its issue price for purposes of the de minimis rule
described below. The OID Regulations suggest that all interest on a long first
period REMIC Regular Certificate that is issued with non-de minimis OID, as
determined under the foregoing rule, will be treated as OID. Where the interval
between the issue date and the first Distribution Date on a REMIC Regular
Certificate is shorter than the interval between subsequent Distribution Dates,
interest due on the first Distribution Date in excess of the amount that accrued
during the first period would be added to the Certificates stated redemption
price at maturity. REMIC Regular Certificateholders should consult their own tax
advisors to determine the issue price and stated redemption price at maturity of
a REMIC Regular Certificate.
Under the de minimis rule, OID on a REMIC Regular Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average maturity of the REMIC Regular Certificate. For this purpose, the
weighted average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial years) from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included in
the stated redemption price at maturity of the REMIC Regular Certificate and the
denominator of which is the stated redemption price at maturity of the REMIC
Regular Certificate. Although currently unclear, it appears that the schedule of
such distributions should be determined in accordance with the Prepayment
Assumption. The Prepayment Assumption with respect to a Series of REMIC Regular
Certificates will be set forth in the related Prospectus Supplement. Holders
generally must report de minimis OID pro rata as principal payments are
received, and such income will be capital gain if the REMIC Regular Certificate
is held as a capital asset. However, accrual method holders may elect to accrue
all de minimis OID as well as market discount under a constant interest method.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain REMIC Regular Certificates to be issued at prices significantly
exceeding their principal amounts or based on notional principal balances (the
"Super-Premium Certificates"). The income tax treatment of such REMIC Regular
Certificates is not entirely certain. For information reporting purposes, the
Trust Fund intends to take the position that the stated redemption price at
maturity of such REMIC Regular Certificates is the sum of all payments to be
made on such REMIC Regular Certificates determined under the Prepayment
Assumption, with the result that such REMIC Regular Certificates would be issued
with OID. The calculation of income in this manner could result in negative
original issue discount (which delays future accruals of OID rather than being
immediately deductible) when prepayments on the Mortgage Assets exceed those
estimated under the Prepayment Assumption. The IRS might contend, however, that
certain proposed contingent payment rules contained in proposed regulations
issued on December 15, 1994, with respect to original issue discount, should
apply to such Certificates. Although such rules are not applicable to
instruments governed by Code Section 1276(a)(6), they represent the only
guidance regarding the current views of the IRS with respect to contingent
payment instruments. These proposed regulations, if applicable, generally would
require holders of Regular Interest Certificates to take the payments considered
contingent interest payments into income on a yield to maturity basis in
accordance with a schedule of projected payments provided by the Depositor and
to make annual adjustments to income to account for the difference
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between actual payments received and projected payment amounts accrued. In the
alternative, the IRS could assert that the stated redemption price at maturity
of such REMIC Regular Certificates should be limited to their principal amount
(subject to the discussion below under "--Accrued Interest Certificates"), so
that such REMIC Regular Certificates would be considered for federal income tax
purposes to be issued at a premium. If such a position were to prevail, the
rules described below under "--Taxation of Owners of REMIC Regular
Certificates--Premium" would apply. It is unclear when a loss may be claimed for
any unrecovered basis for a Super-Premium Certificate. It is possible that a
holder of a Super-Premium Certificate may only claim a loss when its remaining
basis exceeds the maximum amount of future payments, assuming no further
prepayments or when the final payment is received with respect to such
Super-Premium Certificate.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than REMIC Regular Certificate based on a notional amount)
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular Certificate
generally should not be treated as a Super-Premium Certificate and the rules
described below under "--REMIC Regular Certificates--Premium" should apply.
However, it is possible that holders of REMIC Regular Certificates issued at a
premium, even if the premium is less than 25% of such Certificate's actual
principal balance, will be required to amortize the premium under an original
issue discount method or contingent interest method even though no election
under Code Section 171 is made to amortize such premium.
Generally, a REMIC Regular Certificateholder must include in gross income
the "daily portions," as determined below, of the OID that accrues on a REMIC
Regular Certificate for each day a Certificateholder holds the REMIC Regular
Certificate, including the purchase date but excluding the disposition date. In
the case of an original holder of a REMIC Regular Certificate, a calculation
will be made of the portion of the OID that accrues during each successive
period ("an accrual period") that ends on the day in the calendar year
corresponding to a Distribution Date (or if Distribution Dates are on the first
day or first business day of the immediately preceding month, interest may be
treated as payable on the last day of the immediately preceding month) and
begins on the day after the end of the immediately preceding accrual period (or
on the issue date in the case of the first accrual period). This will be done,
in the case of each full accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the REMIC Regular Certificates as calculated under
the Prepayment Assumption) of all remaining payments to be received on the REMIC
Regular Certificates under the Prepayment Assumption and (b) any payments
included in the stated redemption price at maturity received during such accrual
period, and (ii) subtracting from that total the adjusted issue price of the
REMIC Regular Certificates at the beginning of such accrual period. The adjusted
issue price of a REMIC Regular Certificate at the beginning of the first accrual
period is its issue price; the adjusted issue price of a REMIC Regular
Certificate at the beginning of a subsequent accrual period is the adjusted
issue price at the beginning of the immediately preceding accrual period plus
the amount of OID allocable to that accrual period and reduced by the amount of
any payment other than a payment of qualified stated interest made at the end of
or during that accrual period. The OID accrued during an accrual period will
then be divided by the number of days in the period to determine the daily
portion of OID for each day in the accrual period. The calculation of OID under
the method described above will cause the accrual of OID to either increase or
decrease (but never below zero) in a given accrual period to reflect the fact
that prepayments are occurring faster or slower than under the Prepayment
Assumption. With respect to an initial accrual period shorter than a full
accrual period, the daily portions of OID may be determined according to an
appropriate allocation under any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate issued with OID who
purchases the REMIC Regular Certificate at a cost less than the remaining stated
redemption price at maturity will also be required to include in gross income
the sum of the daily portions of OID on that REMIC Regular Certificate. In
computing the daily portions of OID for such a purchaser (as well as an initial
purchaser that purchases at a price higher than the adjusted issue price but
less than the stated redemption price at maturity), however, the daily portion
is reduced by the amount that would be the daily portion for such day (computed
in accordance with the rules set forth above) multiplied by a fraction, the
numerator of which is the amount, if any, by which the price paid by such holder
for that REMIC Regular Certificate exceeds the following amount: (a) the sum of
the issue price plus the aggregate amount of OID that would have been includible
in the gross income of an original REMIC Regular Certificateholder (who
purchased the REMIC Regular Certificate at its issue price), less (b) any prior
payments included in the stated redemption price at maturity, and the
denominator of which is the sum of the daily portions for that REMIC Regular
Certificate for all days beginning on the date after the purchase date
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and ending on the maturity date computed under the Prepayment Assumption. A
holder who pays an acquisition premium instead may elect to accrue OID by
treating the purchase as a purchase at original issue.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates may
provide for interest based on a variable rate. Interest based on a variable rate
will constitute qualified stated interest and not contingent interest if,
generally, (i) such interest is unconditionally payable at least annually, (ii)
the issue price of the debt instrument does not exceed the total noncontingent
principal payments and (iii) interest is based on a "qualified floating rate,"
an "objective rate," a combination of a single fixed rate and one or more
"qualified floating rates," one "qualified inverse floating rate," or a
combination of "qualified floating rates "--that do not operate in a manner that
significantly accelerates or defers interest payments on such REMIC Regular
Certificates.
The amount of OID with respect to a REMIC Regular Certificate bearing a
variable rate of interest will accrue in the manner described above under
"--Original Issue Discount and Premium" by assuming generally that the index
used for the variable rate will remain fixed throughout the term of the
Certificate. Appropriate adjustments are made for the actual variable rate.
Although unclear at present, the Depositor intends to treat interest on a
REMIC Regular Certificate that is a weighted average of the net interest rates
on Mortgage Loans as qualified stated interest. In such case, the weighted
average rate used to compute the initial pass-through rate on the REMIC Regular
Certificates will be deemed to be the index in effect through the life of the
REMIC Regular Certificates. It is possible, however, that the IRS may treat some
or all of the interest on REMIC Regular Certificates with a weighted average
rate as taxable under the rules relating to obligations providing for contingent
payments. Such treatment may effect the timing of income accruals on such REMIC
Regular Certificates.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method. If such an election were to be made with
respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Certificateholder acquires during the year of the
election or thereafter. Similarly, a Certificateholder that makes this election
for a Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. See
"--REMIC Regular Certificates--Premium" herein. The election to accrue interest,
discount and premium on a constant yield method with respect to a Certificate is
irrevocable without the consent of the IRS.
Market Discount. A purchaser of a REMIC Regular Certificate may also be
subject to the market discount provisions of Code Sections 1276 through 1278.
Under these provisions and the OID Regulations, "market discount" equals the
excess, if any, of (i) the REMIC Regular Certificate's stated principal amount
or, in the case of a REMIC Regular Certificate with OID, the adjusted issue
price (determined for this purpose as if the purchaser had purchased such REMIC
Regular Certificate from an original holder) over (ii) the price for such REMIC
Regular Certificate paid by the purchaser. A Certificateholder that purchases a
REMIC Regular Certificate at a market discount will recognize income upon
receipt of each distribution representing amounts included in such certificate's
stated redemption price at maturity. In particular, under Section 1276 of the
Code such a holder generally will be required to allocate each such distribution
first to accrued market discount not previously included in income, and to
recognize ordinary income to that extent. A Certificateholder may elect to
include market discount in income currently as it accrues rather than including
it on a deferred basis in accordance with the foregoing. If made, such election
will apply to all market discount bonds acquired by such Certificateholder on or
after the first day of the first taxable year to which such election applies.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular Certificate
is less than 0.25% of such REMIC Regular Certificate's stated redemption price
at maturity multiplied by such REMIC Regular Certificate's weighted average
maturity remaining after the date of purchase. If market discount on a REMIC
Regular Certificate is considered to be zero under this rule, the actual amount
of market discount must be allocated to the remaining principal payments on the
REMIC Regular Certificate, and gain equal to such allocated amount will be
recognized when the corresponding principal payment is made. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own
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tax advisors regarding the application of these rules and the advisability of
making any of the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986, shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the market
discount bond is to be reduced by the amount so treated as ordinary income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, rules described in
the Legislative History will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest method rate or according to one of the following methods. For
REMIC Regular Certificates issued with OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the OID accruing
during the period and the denominator of which is the total remaining OID at the
beginning of the period. For REMIC Regular Certificates issued without OID, the
amount of market discount that accrues during a period is equal to the product
of (a) the total remaining market discount and (b) a fraction, the numerator of
which is the amount of stated interest paid during the accrual period and the
denominator of which is the total amount of stated interest remaining to be paid
at the beginning of the period. For purposes of calculating market discount
under any of the above methods in the case of instruments (such as the REMIC
Regular Certificates) that provide for payments that may be accelerated by
reason of prepayments of other obligations securing such instruments, the same
Prepayment Assumption applicable to calculating the accrual of OID will apply.
A holder who acquired a REMIC Regular Certificate at a market discount also
may be required to defer a portion of its interest deductions for the taxable
year attributable to any indebtedness incurred or continued to purchase or carry
such Certificate purchased with market discount. For these purposes, the de
minimis rule referred to above applies. Any such deferred interest expense would
not exceed the market discount that accrues during such taxable year and is, in
general, allowed as a deduction not later than the year in which such market
discount is includible in income. If such holder elects to include market
discount in income currently as it accrues on all market discount instruments
acquired by such holder in that taxable year or thereafter, the interest
deferral rule described above will not apply.
Premium. A purchaser of a REMIC Regular Certificate that purchases the
REMIC Regular Certificate at a cost (not including accrued qualified stated
interest) greater than its remaining stated redemption price at maturity will be
considered to have purchased the REMIC Regular Certificate at a premium and may
elect to amortize such premium under a constant yield method. A
Certificateholder that makes this election for a Certificate that is acquired at
a premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Certificateholder acquires during the year of the election or thereafter. It is
not clear whether the Prepayment Assumption would be taken into account in
determining the life of the REMIC Regular Certificate for this purpose. However,
the Legislative History states that the same rules that apply to accrual of
market discount (which rules require use of a Prepayment Assumption in accruing
market discount with respect to REMIC Regular Certificates without regard to
whether such Certificates have OID) will also apply in amortizing bond premium
under Code Section 171. The Code provides that amortizable bond premium will be
allocated among the interest payments on such REMIC Regular Certificates and
will be applied as an offset against such interest payment.
Deferred Interest. Certain classes of REMIC Regular Certificates may
provide for the accrual of Deferred Interest with respect to one or more ARM
Loans. Any Deferred Interest that accrues with respect to a class of REMIC
Regular Certificates will constitute income to the holders of such Certificates
prior to the time distributions of cash with respect to such Deferred Interest
are made. It is unclear, under the OID Regulations, whether any of the interest
on such Certificates will constitute qualified stated interest or whether all or
a portion of the interest payable on such Certificates must be included in the
stated redemption price at maturity of the Certificates and accounted for as OID
(which could accelerate such inclusion). Interest on REMIC Regular Certificates
must in any event be accounted for under an accrual method by the holders of
such Certificates and, therefore, applying the latter analysis may result only
in a slight difference in the timing of the inclusion in income of interest on
such REMIC Regular Certificates.
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Effects of Defaults and Delinquencies. Certain Series of Certificates may
contain one or more classes of Subordinated Certificates, and in the event there
are defaults or delinquencies on the Mortgage Assets, amounts that would
otherwise be distributed on the Subordinated Certificates may instead be
distributed on the Senior Certificates. Subordinated Certificateholders
nevertheless will be required to report income with respect to such Certificates
under an accrual method without giving effect to delays and reductions in
distributions on such Subordinated Certificates attributable to defaults and
delinquencies on the Mortgage Assets, except to the extent that it can be
established that such amounts are uncollectible. As a result, the amount of
income reported by a Subordinated Certificateholder in any period could
significantly exceed the amount of cash distributed to such holder in that
period. The holder will eventually be allowed a loss (or will be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Subordinated Certificate is reduced as a result of defaults
and delinquencies on the Mortgage Assets. Timing and characterization of such
losses is discussed in "--REMIC Regular Certificates--Treatment of Realized
Losses" below.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption, or
retirement and the seller's adjusted basis in the REMIC Regular Certificate.
Such adjusted basis generally will equal the cost of the REMIC Regular
Certificate to the seller, increased by any OID and market discount included in
the seller's gross income with respect to the REMIC Regular Certificate, and
reduced (but not below zero) by payments included in the stated redemption price
at maturity previously received by the seller and by any amortized premium.
Similarly, a holder who receives a payment that is part of the stated redemption
price at maturity of a REMIC Regular Certificate will recognize gain equal to
the excess, if any, of the amount of the payment over an allocable portion of
the holder's adjusted basis in the REMIC Regular Certificate. A REMIC Regular
Certificateholder who receives a final payment that is less than the holder's
adjusted basis in the REMIC Regular Certificate will generally recognize a loss.
Except as provided in the following paragraph and as provided under "--Market
Discount" above, any such gain or loss will be capital gain or loss, provided
that the REMIC Regular Certificate is held as a "capital asset" (generally,
property held for investment) within the meaning of Code Section 1221.
Gain from the sale or other disposition of a REMIC Regular Certificate that
might otherwise be capital gain will be treated as ordinary income to the extent
that such gain does not exceed the excess, if any, of (i) the amount that would
have been includible in such holder's income with respect to the REMIC Regular
Certificate had income accrued thereon at a rate equal to 110% of the AFR as
defined in Code Section 1274(d) determined as of the date of purchase of such
REMIC Regular Certificate, over (ii) the amount actually includible in such
holder's income.
It is possible that capital gain realized by holders of one or more classes
of REMIC Regular Certificates could be considered gain realized upon the
disposition of property that was part of a "conversion transaction." A sale of a
REMIC Regular Certificate will be part of a "conversion transaction" if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and (i) the holder entered the contract to
sell the REMIC Regular Certificate substantially contemporaneously with
acquiring the REMIC Regular Certificate, (ii) the REMIC Regular Certificate is
part of a straddle, (iii) the REMIC Regular Certificate is marketed or sold as
producing capital gains, or (iv) other transactions to be specified in Treasury
regulations that have not yet been issued. If the sale or other disposition of a
REMIC Regular Certificate is part of a conversion transaction, all or a portion
of the gain realized upon the sale or other disposition of the REMIC Regular
Certificate would be treated as ordinary income instead of capital gain.
The Certificates will be "evidences of indebtedness" within the meaning of
Code Section 582(c)(1), so that gain or loss recognized from the sale of a REMIC
Regular Certificate by a bank or a thrift institution to which such section
applies will be ordinary income or loss.
The REMIC Regular Certificate information reports will include a statement
of the adjusted issue price of the REMIC Regular Certificate at the beginning of
each accrual period. In addition, the reports will include information necessary
to compute the accrual of any market discount that may arise upon secondary
trading of REMIC Regular Certificates. Because exact computation of the accrual
of market discount on a constant yield method would require information relating
to the holder's purchase price which the REMIC may not have, it appears that the
information reports will only provide information pertaining to the appropriate
proportionate method of accruing market discount.
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Accrued Interest Certificates. Certain of the REMIC Regular Certificates
("Payment Lag Certificates") may provide for payments of interest based on a
period that corresponds to the interval between Distribution Dates but that ends
prior to each such Distribution Date. The period between the Closing Date for
Payment Lag Certificates and their first Distribution Date may or may not exceed
such interval. Purchasers of Payment Lag Certificates for which the period
between the Closing Date and the first Distribution Date does not exceed such
interval could pay upon purchase of the REMIC Regular Certificates accrued
interest in excess of the accrued interest that would be paid if the interest
paid on the Distribution Date were interest accrued from Distribution Date to
Distribution Date. If a portion of the initial purchase price of a REMIC Regular
Certificate is allocable to interest that has accrued prior to the issue date
("pre-issuance accrued interest") and the REMIC Regular Certificate provides for
a payment of stated interest on the first payment date (and the first payment
date is within one year of the issue date) that equals or exceeds the amount of
the pre-issuance accrued interest, then the REMIC Regular Certificate's issue
price may be computed by subtracting from the issue price the amount of
pre-issuance accrued interest, rather than as an amount payable on the REMIC
Regular Certificate. However, it is unclear under this method how the OID
Regulations treat interest on Payment Lag Certificates. Therefore, in the case
of a Payment Lag Certificate, the Trust Fund intends to include accrued interest
in the issue price and report interest payments made on the first Distribution
Date as interest to the extent such payments represent interest for the number
of days that the Certificateholder has held such Payment Lag Certificate during
the first accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury regulations,
if the REMIC is considered to be a "single-class REMIC," a portion of the
REMIC's servicing, administrative and other non-interest expenses will be
allocated as a separate item to those REMIC Regular Certificateholders that are
"pass-through interest holders." Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of these
rules on an investment in the REMIC Regular Certificates. See "Pass-Through of
Non-Interest Expenses of the REMIC" under "Taxation of Owners of REMIC Residual
Certificates" below.
Treatment of Realized Losses. Although not entirely clear, it appears that
holders of REMIC Regular Certificates that are corporations should in general be
allowed to deduct as an ordinary loss any loss sustained during the taxable year
on account of any such Certificates becoming wholly or partially worthless, and
that, in general, holders of Certificates that are not corporations should be
allowed to deduct as a short-term capital loss any loss sustained during the
taxable year on account of any such Certificates becoming wholly worthless.
Potential investors and holders of the Certificates are urged to consult their
own tax advisors regarding the appropriate timing, amount and character of any
loss sustained with respect to such Certificates, including any loss resulting
from the failure to recover previously accrued interest or discount income.
Special loss rules are applicable to banks and thrift institutions, including
rules regarding reserves for bad debts. Such taxpayers are advised to consult
their tax advisors regarding the treatment of losses on Certificates.
Non-U.S. Persons. Generally, payments of interest (including any payment
with respect to accrued OID) on the REMIC Regular Certificates to a REMIC
Regular Certificateholder who is not a U.S. Person and is not engaged in a trade
or business within the United States will not be subject to federal withholding
tax if (i) such REMIC Regular Certificateholder does not actually or
constructively own 10 percent or more of the combined voting power of all
classes of equity in the Issuer; (ii) such REMIC Regular Certificateholder is
not a controlled foreign corporation (within the meaning of Code Section 957)
related to the Issuer; and (iii) such REMIC Regular Certificateholder complies
with certain identification requirements (including delivery of a statement,
signed by the REMIC Regular Certificateholder under penalties of perjury,
certifying that such REMIC Regular Certificateholder is a foreign person and
providing the name and address of such REMIC Regular Certificateholder). If a
REMIC Regular Certificateholder is not exempt from withholding, distributions of
interest to such holder, including distributions in respect of accrued OID, may
be subject to a 30% withholding tax, subject to reduction under any applicable
tax treaty. If the interest on a REMIC Regular Certificate is effectively
connected with the conduct by the Non-U.S. REMIC Regular Certificateholder of a
trade or business within the United States, then the Non-U.S. REMIC Regular
Certificateholder will be subject to U.S. income
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tax at regular graduated rates. Such a Non-U.S. REMIC Regular Certificateholder
also may be subject to the branch profits tax.
Further, a REMIC Regular Certificate will not be included in the estate of
a non-resident alien individual that does not actually or constructively own 10%
or more of the combined voting power of all classes of equity in the Issuer and
will not be subject to United States estate taxes. However, Certificateholders
who are non-resident alien individuals should consult their tax advisors
concerning this question.
REMIC Regular Certificateholders who are not U.S. Persons and persons
related to such holders should not acquire any REMIC Residual Certificates, and
holders of REMIC Residual Certificates (the "REMIC Residual Certificateholder")
and persons related to REMIC Residual Certificateholders should not acquire any
REMIC Regular Certificates without consulting their tax advisors as to the
possible adverse tax consequences of doing so.
Information Reporting and Backup Withholding. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a REMIC Regular Certificateholder at any
time during such year, such information as may be deemed necessary or desirable
to assist REMIC Regular Certificateholders in preparing their federal income tax
returns, or to enable holders to make such information available to beneficial
owners or financial intermediaries that hold such REMIC Regular Certificates on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against such recipient's federal income tax liability.
b. Taxation of Owners of REMIC Residual Certificates
Allocation of the Income of the REMIC to the REMIC Residual Certificates.
The REMIC will not be subject to federal income tax except with respect to
income from prohibited transactions and certain other transactions. See
"--Prohibited Transactions and Other Taxes" below. Instead, each original holder
of a REMIC Residual Certificate will report on its federal income tax return, as
ordinary income, its share of the taxable income of the REMIC for each day
during the taxable year on which such holder owns any REMIC Residual
Certificates. The taxable income of the REMIC for each day will be determined by
allocating the taxable income of the REMIC for each calendar quarter ratably to
each day in the quarter. Such a holder's share of the taxable income of the
REMIC for each day will be based on the portion of the outstanding REMIC
Residual Certificates that such holder owns on that day. The taxable income of
the REMIC will be determined under an accrual method and will be taxable to the
holders of REMIC Residual Certificates without regard to the timing or amounts
of cash distributions by the REMIC. Ordinary income derived from REMIC Residual
Certificates will be "portfolio income" for purposes of the taxation of
taxpayers subject to the limitations on the deductibility of "passive losses."
As residual interests, the REMIC Residual Certificates will be subject to tax
rules, described below, that differ from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the Certificates or as debt instruments issued by the
REMIC.
A REMIC Residual Certificateholder may be required to include taxable
income from the REMIC Residual Certificate in excess of the cash distributed.
For example, a structure where principal distributions are made serially on
regular interests (that is, a fast-pay, slow-pay structure) may generate such a
mismatching of income and cash distributions (that is, "phantom income"). This
mismatching may be caused by the use of certain required tax accounting methods
by the REMIC, variations in the prepayment rate of the underlying Mortgage
Assets and certain other factors. Depending upon the structure of a particular
transaction, the aforementioned factors may significantly reduce the after-tax
yield of a REMIC Residual Certificate to a REMIC Residual Certificateholder.
Investors should consult their own tax advisors concerning the federal income
tax treatment of a REMIC Residual Certificate and the impact of such tax
treatment on the after-tax yield of a REMIC Residual Certificate.
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A subsequent REMIC Residual Certificateholder also will report on its
federal income tax return amounts representing a daily share of the taxable
income of the REMIC for each day that such REMIC Residual Certificateholder owns
such REMIC Residual Certificate. Those daily amounts generally would equal the
amounts that would have been reported for the same days by an original REMIC
Residual Certificateholder, as described above. The Legislative History
indicates that certain adjustments may be appropriate to reduce (or increase)
the income of a subsequent holder of a REMIC Residual Certificate that purchased
such REMIC Residual Certificate at a price greater than (or less than) the
adjusted basis such REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder. See "--Sale or Exchange of REMIC
Residual Certificates" below. It is not clear, however, whether such adjustments
will in fact be permitted or required and, if so, how they would be made. The
REMIC Regulations do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The taxable
income of the REMIC will reflect a netting of (i) the income from the Mortgage
Assets and the REMIC's other assets and (ii) the deductions allowed to the REMIC
for interest and OID on the REMIC Regular Certificates and, except as described
above under "--Taxation of Owners of REMIC Regular Certificates--Non-Interest
Expenses of the REMIC," other expenses. REMIC taxable income is generally
determined in the same manner as the taxable income of an individual using the
accrual method of accounting, except that (i) the limitations on deductibility
of investment interest expense and expenses for the production of income do not
apply, (ii) all bad loans will be deductible as business bad debts, and (iii)
the limitation on the deductibility of interest and expenses related to
tax-exempt income will apply. The REMIC's gross income includes interest,
original issue discount income, and market discount income, if any, on the
Mortgage Loans, reduced by amortization of any premium on the Mortgage Loans,
plus income on reinvestment of cash flows and reserve assets, plus any
cancellation of indebtedness income upon allocation of realized losses to the
REMIC Regular Certificates. Note that the timing of cancellation of indebtedness
income recognized by REMIC Residual Certificateholders resulting from defaults
and delinquencies on Mortgage Assets may differ from the time of the actual loss
on the Mortgage Asset. The REMIC's deductions include interest and original
issue discount expense on the REMIC Regular Certificates, servicing fees on the
Mortgage Loans, other administrative expenses of the REMIC and realized losses
on the Mortgage Loans. The requirement that REMIC Residual Certificateholders
report their pro rata share of taxable income or net loss of the REMIC will
continue until there are no Certificates of any class of the related Series
outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the REMIC Regular Certificates and the REMIC Residual Certificates (or, if a
class of Certificates is not sold initially, its fair market value). Such
aggregate basis will be allocated among the Mortgage Assets and other assets of
the REMIC in proportion to their respective fair market value. A Mortgage Asset
will be deemed to have been acquired with discount or premium to the extent that
the REMIC's basis therein is less than or greater than its principal balance,
respectively. Any such discount (whether market discount or OID) will be
includible in the income of the REMIC as it accrues, in advance of receipt of
the cash attributable to such income, under a method similar to the method
described above for accruing OID on the REMIC Regular Certificates. The REMIC
expects to elect under Code Section 171 to amortize any premium on the Mortgage
Assets. Premium on any Mortgage Asset to which such election applies would be
amortized under a constant yield method. It is not clear whether the yield of a
Mortgage Asset would be calculated for this purpose based on scheduled payments
or taking account of the Prepayment Assumption. Additionally, such an election
would not apply to the yield with respect to any underlying mortgage loan
originated on or before September 27, 1985. Instead, premium with respect to
such a mortgage loan would be allocated among the principal payments thereon and
would be deductible by the REMIC as those payments become due.
The REMIC will be allowed a deduction for interest and OID on the REMIC
Regular Certificates. The amount and method of accrual of OID will be calculated
for this purpose in the same manner as described above with respect to REMIC
Regular Certificates except that the 0.25% per annum de minimis rule and
adjustments for subsequent holders described therein will not apply.
A REMIC Residual Certificateholder will not be permitted to amortize the
cost of the REMIC Residual Certificate as an offset to its share of the REMIC's
taxable income. However, REMIC taxable income will not include cash received by
the REMIC that represents a recovery of the REMIC's basis in its assets, and, as
described above, the
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issue price of the REMIC Residual Certificates will be added to the issue price
of the REMIC Regular Certificates in determining the REMIC's initial basis in
its assets. See "--Sale or Exchange of REMIC Residual Certificates" below. For a
discussion of possible adjustments to income of a subsequent holder of a REMIC
Residual Certificate to reflect any difference between the actual cost of such
REMIC Residual Certificate to such holder and the adjusted basis such REMIC
Residual Certificate would have in the hands of an original REMIC Residual
Certificateholder, see "--Allocation of the Income of the REMIC to the REMIC
Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any calendar
quarter in which its deductions exceed its gross income. Such net loss would be
allocated among the REMIC Residual Certificateholders in the same manner as the
REMIC's taxable income. The net loss allocable to any REMIC Residual Certificate
will not be deductible by the holder to the extent that such net loss exceeds
such holder's adjusted basis in such REMIC Residual Certificate. Any net loss
that is not currently deductible by reason of this limitation may only be used
by such REMIC Residual Certificateholder to offset its share of the REMIC's
taxable income in future periods (but not otherwise). The ability of REMIC
Residual Certificateholders that are individuals or closely held corporations to
deduct net losses may be subject to additional limitations under the Code.
Mark to Market Rules. Prospective purchasers of a REMIC Residual
Certificate should be aware that the IRS has issued proposed regulations (the
"Proposed Mark-to-Market Regulations") which provide that a REMIC Residual
Certificate acquired after January 3, 1995 cannot be marked to market. The
Proposed Mark-to-Market Regulations change the temporary regulations which
allowed a Residual Certificate to be marked to market provided that it was not a
"negative value" residual interest and did not have the same economic effect as
a "negative value" residual interest.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule, all
of the fees and expenses of a REMIC will be taken into account by holders of the
REMIC Residual Certificates. In the case of a single class REMIC, however, the
expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the REMIC Regular Certificateholders and
the REMIC Residual Certificateholders on a daily basis in proportion to the
relative amounts of income accruing to each Certificateholder on that day. In
general terms, a single class REMIC is one that either (i) would qualify, under
existing Treasury regulations, as a grantor trust if it were not a REMIC
(treating all interests as ownership interests, even if they would be classified
as debt for federal income tax purposes) or (ii) is similar to such a trust and
is structured with the principal purpose of avoiding the single class REMIC
rules. Unless otherwise stated in the applicable Prospectus Supplement, the
expenses of the REMIC will be allocated to holders of the related REMIC Residual
Certificates in their entirety and not to holders of the related REMIC Regular
Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest in a
REMIC Regular Certificate or a REMIC Residual Certificate directly or through a
pass-through interest holder that is required to pass miscellaneous itemized
deductions through to its owners or beneficiaries (e.g. a partnership, an S
corporation or a grantor trust), such expenses will be deductible under Code
Section 67 only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such individual's adjusted
gross income. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a certain amount (the "Applicable Amount") will be reduced by the lesser
of (i) 3% of the excess of the individual's adjusted gross income over the
Applicable Amount or (ii) 80% of the amount of itemized deductions otherwise
allowable for the taxable year. The amount of additional taxable income
recognized by REMIC Residual Certificateholders who are subject to the
limitations of either Code Section 67 or Code Section 68 may be substantial.
Further, holders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holders' alternative minimum taxable income. The REMIC is required to report to
each pass-through interest holder and to the IRS such holder's allocable share,
if any, of the REMIC's non-interest expenses. The term "pass-through interest
holder" generally refers to individuals, entities taxed as individuals and
certain pass-through entities, but does not include real estate investment
trusts. REMIC Residual Certificateholders that are pass-through interest holders
should consult their own tax advisors about the impact of these rules on an
investment in the REMIC Residual Certificates.
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Excess Inclusions. A portion of the income on a REMIC Residual Certificate
(referred to in the Code as an "excess inclusion") for any calendar quarter will
be subject to federal income tax in all events. Thus, for example, an excess
inclusion (i) may not, except as described below, be offset by any unrelated
losses, deductions or loss carryovers of a REMIC Residual Certificateholder;
(ii) will be treated as "unrelated business taxable income" within the meaning
of Code Section 512 if the REMIC Residual Certificateholder is a pension fund or
any other organization that is subject to tax only on its unrelated business
taxable income (see "--Tax-Exempt Investors" below); and (iii) is not eligible
for any reduction in the rate of withholding tax in the case of a REMIC Residual
Certificateholder that is a foreign investor. See "--Non-U.S. Persons" below.
Except as discussed in the following paragraph, with respect to any REMIC
Residual Certificateholder, the excess inclusions for any calendar quarter is
the excess, if any, of (i) the income of such REMIC Residual Certificateholder
for that calendar quarter from its REMIC Residual Certificate over (ii) the sum
of the "daily accruals" (as defined below) for all days during the calendar
quarter on which the REMIC Residual Certificateholder holds such REMIC Residual
Certificate. For this purpose, the daily accruals with respect to a REMIC
Residual Certificate are determined by allocating to each day in the calendar
quarter its ratable portion of the product of the "adjusted issue price" (as
defined below) of the REMIC Residual Certificate at the beginning of the
calendar quarter and 120 percent of the "Federal long-term rate" in effect at
the time the REMIC Residual Certificate is issued. For this purpose, the
"adjusted issue price" of a REMIC Residual Certificate at the beginning of any
calendar quarter equals the issue price of the REMIC Residual Certificate,
increased by the amount of daily accruals for all prior quarters, and decreased
(but not below zero) by the aggregate amount of payments made on the REMIC
Residual Certificate before the beginning of such quarter. The "federal
long-term rate" is an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published monthly by the
IRS.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Regulated investment companies, common trust funds and certain
cooperatives are subject to similar rules.
Payments. Any distribution made on a REMIC Residual Certificate to a REMIC
Residual Certificateholder will be treated as a non-taxable return of capital to
the extent it does not exceed the REMIC Residual Certificateholder's adjusted
basis in such REMIC Residual Certificate. To the extent a distribution exceeds
such adjusted basis, it will be treated as gain from the sale of the REMIC
Residual Certificate.
The Small Business Job Protection Act of 1996 has eliminated the special
rule permitting Section 593 institutions ("thrift institutions") to use net
operating losses and other allowable deductions to offset their excess inclusion
income from REMIC residual certificates that have "significant value" within the
meaning of the REMIC Regulations, effective for taxable years beginning after
December 31, 1995, except with respect to residual certificates continuously
held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative minimum
taxable income of a residual holder. First, alternative minimum taxable income
for such residual holder is determined without regard to the special rule that
taxable income cannot be less than excess inclusions. Second, a residual
holder's alternative minimum taxable income for a tax year cannot be less than
excess inclusions for the year. Third, the amount of any alternative minimum tax
net operating loss deductions must be computed without regard to any excess
inclusions. These rules are effective for tax years beginning after December 31,
1986, unless a residual holder elects to have such rules apply only to tax years
beginning after August 20, 1996.
Sale or Exchange of REMIC Residual Certificates. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or exchange
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and its adjusted basis in the REMIC Residual Certificate (except that the
recognition of loss may be limited under the "wash sale" rules described below).
A holder's adjusted basis in a REMIC Residual Certificate generally equals the
cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder, increased by the taxable income of the REMIC that was
included in the income of such REMIC Residual Certificateholder with respect to
such REMIC Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to such REMIC Residual
Certificateholder with respect to such REMIC Residual Certificate and by the
distributions received thereon by such REMIC Residual Certificateholder. In
general, any such gain or loss will be capital gain or loss provided the REMIC
Residual Certificate is held as a capital asset. However, REMIC Residual
Certificates will be "evidences of indebtedness" within the meaning of Code
Section 582(c)(1), so that gain or loss recognized from sale of a REMIC Residual
Certificate by a bank or thrift institution to which such section applies would
be ordinary income or loss. In addition, a transfer of a REMIC Residual
Certificate that is a "noneconomic residual interest" may be subject to
different rules. See "--Tax Related Restrictions on Transfers of REMIC Residual
Certificates--Noneconomic REMIC Residual Certificates" below.
Except as provided in Treasury regulations yet to be issued, if the seller
of a REMIC Residual Certificate reacquires such REMIC Residual Certificate, or
acquires any other REMIC Residual Certificate, any residual interest in another
REMIC or similar interest in a "taxable mortgage pool" (as defined in Code
Section 7701(i)) during the period beginning six months before, and ending six
months after, the date of such sale, such sale will be subject to the "wash
sale" rules of Code Section 1091. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but, instead,
will increase such REMIC Residual Certificateholder's adjusted basis in the
newly acquired asset.
Prohibited Transactions and Other Taxes
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (the "Prohibited Transactions Tax"). In general,
subject to certain specified exceptions, a prohibited transaction means the
disposition of a Mortgage Asset, the receipt of income from a source other than
a Mortgage Asset or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Assets for temporary investment pending
distribution on the Certificates. It is not anticipated that the Trust Fund for
any Series of Certificates will engage in any prohibited transactions in which
it would recognize a material amount of net income.
In addition, certain contributions to a Trust Fund as to which an election
has been made to treat such Trust Fund as a REMIC made after the day on which
such Trust Fund issues all of its interests could result in the imposition of a
tax on the Trust Fund equal to 100% of the value of the contributed property
(the "Contributions Tax"). No Trust Fund for any Series of Certificates will
accept contributions that would subject it to such tax.
In addition, a Trust Fund as to which an election has been made to treat
such Trust Fund as a REMIC may also be subject to federal income tax at the
highest corporate rate on "net income from foreclosure property," determined by
reference to the rules applicable to real estate investment trusts. "Net income
from foreclosure property" generally means income from foreclosure property
other than qualifying income for a real estate investment trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net income
from foreclosure property or state or local income or franchise tax that may be
imposed on a REMIC relating to any Series of Certificates arises out of or
results from (i) a breach of the related Master Servicer's, Trustee's or Asset
Seller's obligations, as the case may be, under the related Agreement for such
Series, such tax will be borne by such Master Servicer, Trustee or Asset Seller,
as the case may be, out of its own funds or (ii) the Asset Seller's obligation
to repurchase a Mortgage Loan, such tax will be borne by the Asset Seller. In
the event that such Master Servicer, Trustee or Asset Seller, as the case may
be, fails to pay or is not required to pay any such tax as provided above, such
tax will be payable out of the Trust Fund for such Series and will result in a
reduction in amounts available to be distributed to the Certificateholders of
such Series.
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Liquidation and Termination
If the REMIC adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC's final tax return a date on which such adoption is deemed to occur, and
sells all of its assets (other than cash) within a 90-day period beginning on
such date, the REMIC will not be subject to any Prohibited Transaction Tax,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash (other than the amounts retained to meet claims) to
holders of Regular and REMIC Residual Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis in
the REMIC Residual Certificate exceeds the amount of cash distributed to such
REMIC Residual Certificateholder in final liquidation of its interest, then it
would appear that the REMIC Residual Certificateholder would be entitled to a
loss equal to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
Administrative Matters
Solely for the purpose of the administrative provisions of the Code, the
REMIC generally will be treated as a partnership and the REMIC Residual
Certificateholders will be treated as the partners. Certain information will be
furnished quarterly to each REMIC Residual Certificateholder who held a REMIC
Residual Certificate on any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the REMIC
Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting an
administrative proceeding at the REMIC level. The REMIC does not intend to
register as a tax shelter pursuant to Code Section 6111 because it is not
anticipated that the REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
Tax-Exempt Investors
Any REMIC Residual Certificateholder that is a pension fund or other entity
that is subject to federal income taxation only on its "unrelated business
taxable income" within the meaning of Code Section 512 will be subject to such
tax on that portion of the distributions received on a REMIC Residual
Certificate that is considered an excess inclusion. See "--Taxation of Owners of
REMIC Residual Certificates--Excess Inclusions" above.
Residual Certificate Payments--Non-U.S. Persons
Amounts paid to REMIC Residual Certificateholders who are not U.S. Persons
(see "--Taxation of Owners of REMIC Regular Certificates--Non-U.S. Persons"
above) are treated as interest for purposes of the 30% (or lower treaty rate)
United States withholding tax. Amounts distributed to holders of REMIC Residual
Certificates should qualify as "portfolio interest," subject to the conditions
described in "--Taxation of Owners of REMIC Regular Certificates" above, but
only to the extent that the underlying mortgage loans were originated after July
18, 1984. Furthermore, the rate of withholding on any income on a REMIC Residual
Certificate that is excess inclusion income will not be subject to reduction
under any applicable tax treaties. See "--Taxation of Owners of REMIC Residual
Certificates--Excess Inclusions" above. If the portfolio interest exemption is
unavailable, such amount will be subject to United States withholding tax when
paid or otherwise distributed (or when the REMIC Residual Certificate is
disposed of) under rules similar to those for withholding upon disposition of
debt instruments that have OID. The Code, however, grants the Treasury
Department authority to issue regulations requiring that those amounts be taken
into account earlier than
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otherwise provided where necessary to prevent avoidance of tax (for example,
where the REMIC Residual Certificates do not have significant value). See
"--Taxation of Owners of REMIC Residual Certificates--Excess Inclusions" above.
If the amounts paid to REMIC Residual Certificateholders that are not U.S.
Persons are effectively connected with their conduct of a trade or business
within the United States, the 30% (or lower treaty rate) withholding will not
apply. Instead, the amounts paid to such non-U.S. Person will be subject to U.S.
federal income taxation at regular graduated rates. For special restrictions on
the transfer of REMIC Residual Certificates, see "--Tax-Related Restrictions on
Transfers of REMIC Residual Certificates" below.
REMIC Regular Certificateholders and persons related to such holders should
not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their tax
advisors as to the possible adverse tax consequences of such acquisition.
Tax-Related Restrictions on Transfers of REMIC Residual Certificates
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by "disqualified organizations" (as defined below).
Further, a tax is imposed on the transfer of a residual interest in a REMIC to a
"disqualified organization." The amount of the tax equals the product of (A) an
amount (as determined under the REMIC Regulations) equal to the present value of
the total anticipated "excess inclusions" with respect to such interest for
periods after the transfer and (ii) the highest marginal federal income tax rate
applicable to corporations. The tax is imposed on the transferor unless the
transfer is through an agent (including a broker or other middleman) for a
disqualified organization, in which event the tax is imposed on the agent. The
person otherwise liable for the tax shall be relieved of liability for the tax
if the transferee furnished to such person an affidavit that the transferee is
not a disqualified organization and, at the time of the transfer, such person
does not have actual knowledge that the affidavit is false. A "disqualified
organization" means (A) the United States, any State, possession or political
subdivision thereof, any foreign government, any international organization or
any agency or instrumentality of any of the foregoing (provided that such term
does not include an instrumentality if all its activities are subject to tax
and, except for FHLMC, a majority of its board of directors is not selected by
any such governmental agency), (B) any organization (other than certain farmers'
cooperatives) generally exempt from federal income taxes unless such
organization is subject to the tax on "unrelated business taxable income" and
(C) a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding a
residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity. The amount of the tax is equal to the product of (A)
the amount of excess inclusions for the taxable year allocable to the interest
held by the disqualified organization and (B) the highest marginal federal
income tax rate applicable to corporations. The pass-through entity otherwise
liable for the tax, for any period during which the disqualified organization is
the record holder of an interest in such entity, will be relieved of liability
for the tax if such record holder furnishes to such entity an affidavit that
such record holder is not a disqualified organization and, for such period, the
pass-through entity does not have actual knowledge that the affidavit is false.
For this purpose, a "pass-through entity" means (i) a regulated investment
company, real estate investment trust or common trust fund, (ii) a partnership,
trust or estate and (iii) certain cooperatives. Except as may be provided in
Treasury regulations not yet issued, any person holding an interest in a
pass-through entity as a nominee for another will, with respect to such
interest, be treated as a pass-through entity. The tax on pass-through entities
is generally effective for periods after March 31, 1988, except that in the case
of regulated investment companies, real estate investment trusts, common trust
funds and publicly-traded partnerships the tax shall apply only to taxable years
of such entities beginning after December 31, 1988. Under proposed legislation,
large partnerships (generally with 250 or more partners) will be taxable on
excess inclusion income as if all partners were disqualified organizations.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a REMIC Residual Certificate may be
purchased, transferred or sold, directly or indirectly, without the express
written consent of the Master Servicer. The Master Servicer will grant such
consent to a proposed transfer only if it receives
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the following: (i) an affidavit from the proposed transferee to the effect that
it is not a disqualified organization and is not acquiring the REMIC Residual
Certificate as a nominee or agent for a disqualified organization and (ii) a
covenant by the proposed transferee to the effect that the proposed transferee
agrees to be bound by and to abide by the transfer restrictions applicable to
the REMIC Residual Certificate.
Noneconomic REMIC Residual Certificates. The REMIC Regulations disregard,
for federal income tax purposes, any transfer of a Noneconomic REMIC Residual
Certificate to a "U.S. Person," as defined above, unless no significant purpose
of the transfer is to enable the transferor to impede the assessment or
collection of tax. A Noneconomic REMIC Residual Certificate is any REMIC
Residual Certificate (including a REMIC Residual Certificate with a positive
value at issuance) unless, at the time of transfer, taking into account the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents, (i) the
present value of the expected future distributions on the REMIC Residual
Certificate at least equals the product of the present value of the anticipated
excess inclusions and the highest corporate income tax rate in effect for the
year in which the transfer occurs and (ii) the transferor reasonably expects
that the transferee will receive distributions from the REMIC at or after the
time at which taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. A significant purpose to impede the
assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known that the transferee would be
unwilling or unable to pay taxes due on its share of the taxable income of the
REMIC. A transferor is presumed not to have such knowledge if (i) the transferor
conducted a reasonable investigation of the transferee and (ii) the transferee
acknowledges to the transferor that the residual interest may generate tax
liabilities in excess of the cash flow and the transferee represents that it
intends to pay such taxes associated with the residual interest as they become
due. If a transfer of a Noneconomic REMIC Residual Certificate is disregarded,
the transferor would continue to be treated as the owner of the REMIC Residual
Certificate and would continue to be subject to tax on its allocable portion of
the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
REMIC Residual Certificate that has a "tax avoidance potential" to a "foreign
person" will be disregarded for federal income tax purposes. This rule appears
to apply to a transferee who is not a U.S. Person unless such transferee's
income in respect of the REMIC Residual Certificate is effectively connected
with the conduct of a United Sates trade or business. A REMIC Residual
Certificate is deemed to have a tax avoidance potential unless, at the time of
transfer, the transferor reasonably expect that the REMIC will distribute to the
transferee amounts that will equal at least 30 percent of each excess inclusion,
and that such amounts will be distributed at or after the time the excess
inclusion accrues and not later than the end of the calendar year following the
year of accrual. If the non-U.S. Person transfers the REMIC Residual Certificate
to a U.S. Person, the transfer will be disregarded, and the foreign transferor
will continue to be treated as the owner, if the transfer has the effect of
allowing the transferor to avoid tax on accrued excess inclusions. The
provisions in the REMIC Regulations regarding transfers of REMIC Residual
Certificates that have tax avoidance potential to foreign persons are effective
for all transfers after June 30, 1992. The Agreement will provide that no record
or beneficial ownership interest in a REMIC Residual Certificate may be
transferred, directly or indirectly, to a non-U.S. Person unless such person
provides the Trustee with a duly completed IRS Form 4224 and the Trustee
consents to such transfer in writing.
Any attempted transfer or pledge in violation of the transfer restrictions
shall be absolutely null and void and shall vest no rights in any purported
transferee. Investors in REMIC Residual Certificates are advised to consult
their own tax advisors with respect to transfers of the REMIC Residual
Certificates and, in addition, pass-through entities are advised to consult
their own tax advisors with respect to any tax which may be imposed on a
pass-through entity.
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STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Offered Certificates.
ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans subject to ERISA ("ERISA
Plans") and on persons who are parties in interest or disqualified persons
("parties in interest") with respect to such Plans. Certain employee benefit
plans, such as governmental plans and church plans (if no election has been made
under Section 410(d) of the Code), are not subject to the restrictions of ERISA,
and assets of such plans may be invested in the Certificates without regard to
the ERISA considerations described below, subject to other applicable federal
and state law. However, any such governmental or church plan which is qualified
under Section 401(a) of the Code and exempt from taxation under Section 501(a)
of the Code is subject to the prohibited transaction rules set forth in Section
503 of the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the ERISA Plan.
Prohibited Transactions
General
Section 406 of ERISA prohibits parties in interest with respect to an ERISA
Plan from engaging in certain transactions involving such Plan and its assets
unless a statutory or administrative exemption applies to the transaction. In
some cases, a civil penalty may be assessed on non-exempt prohibited
transactions pursuant to Section 502(i) of ERISA). Section 4975 of the Code
imposes certain excise taxes on similar transactions between employee benefit
plan subject to Section 4975 of the Code and disqualified persons with respect
to such plans (together with ERISA Plans, "Plans").
The United States Department of Labor ("Labor") has issued a final
regulation (29 C.F.R. Section 2510.3-101) containing rules for determining what
constitutes the assets of a Plan. This regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships, trusts
and certain other entities in which a Plan makes an "equity investment" will be
deemed for purposes of ERISA and Section 4975 of the Code to be assets of the
Plan unless certain exceptions apply.
Under the terms of the regulation, the Trust may be deemed to hold plan
assets by reason of a Plan's investment in a Certificate; such plan assets would
include an undivided interest in the Mortgage Loans and any other assets held by
the Trust. In such an event, the Asset Seller, the Master Servicer, the Trustee,
any insurer of the Mortgage Assets and other persons, in providing services with
respect to the assets of the Trust, may be fiduciaries, subject to the fiduciary
responsibility provisions of Title I of ERISA, or may otherwise be parties in
interest or disqualified persons, with respect to such Plan. In addition,
transactions involving such assets could constitute or result in prohibited
transactions under Section 406 of ERISA or Section 4975 of the Code unless such
transactions are subject to a statutory or administrative exemption.
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The regulations contain a de minimis safe-harbor rule that exempts any
entity from plan assets status as long as the aggregate equity investment in
such entity by plans is not significant. For this purpose, equity participation
in the entity will be significant if immediately after any acquisition of any
equity interest in the entity, "benefit plan investors" in the aggregate, own at
least 25% of the value of any class of equity interest (excluding equity
interests held by persons who have discretionary authority or control with
respect to the assets of the entity (or by affiliates of such persons)).
"Benefit plan investors" are defined as ERISA Plans as well as employee benefit
plans not subject to ERISA (e.g., governmental plans and foreign plans). The 25%
limitation must be met with respect to each class of certificates, regardless of
the portion of total equity value represented by such class, on an ongoing
basis.
Availability of Underwriter's Exemption for Certificates
Labor has granted to Morgan Stanley & Co. Incorporated Prohibited
Transaction Exemption 90-24, Exemption Application No. D-8019, 55 Fed. Reg.
20548 (1990) (the "Exemption") which exempts from the application of the
prohibited transaction rules transactions relating to: (1) the acquisition, sale
and holding by Plans of certain certificates representing an undivided interest
in certain asset-backed pass-through trusts, with respect to which Morgan
Stanley & Co. Incorporated or any of its affiliates is the sole underwriter or
the manager or co-manager of the underwriting syndicate; and (2) the servicing,
operation and management of such asset-backed pass-through trusts, provided that
the general conditions and certain other conditions set forth in the Exemption
are satisfied.
General Conditions of the Exemption. Section II of the Exemption sets forth
the following general conditions which must be satisfied before a transaction
involving the acquisition, sale and holding of the Certificates or a transaction
in connection with the servicing, operation and management of the Trust may be
eligible for exemptive relief thereunder:
(1) The acquisition of the Certificates by a Plan is on terms
(including the price for such Certificates) that are at least as favorable
to the investing Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust with respect to the right to receive
payment in the event of default or delinquencies in the underlying assets
of the Trust;
(3) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic
rating categories from any of Duff & Phelps Inc., Fitch Investors Service,
Inc., Moody's Investors Service, Inc. and Standard & Poor's Ratings Group;
(4) The Trustee is not an affiliate of the Depositor, any Underwriter,
the Asset Seller, the Master Servicer, insurer of the Mortgage Assets, any
borrower whose obligations under one or more Mortgage Loans constitute more
than 5% of the aggregate unamortized principal balance of the assets in the
Trust, or any of their respective affiliates (the "Restricted Group");
(5) The sum of all payments made to and retained by the Underwriter in
connection with the distribution of the Certificates represents not more
than reasonable compensation for underwriting such Certificates; the sum of
all payments made to and retained by the Asset Seller pursuant to the sale
of the Mortgage Loans to the Trust represents not more than the fair market
value of such Mortgage Loans; the sum of all payments made to and retained
by the Master Servicer represent not more than reasonable compensation for
the Master Servicer's services under the Pooling Agreement and
reimbursement of the Master Servicer's reasonable expenses in connection
therewith; and
(6) The Plan investing in the Certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933 as amended.
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Before purchasing a Certificate, a fiduciary of a Plan should itself
confirm (a) that the Certificates constitute "certificates" for purposes of the
Exemption and (b) that the specific and general conditions set forth in the
Exemption and the other requirements set forth in the Exemption would be
satisfied.
Review by Plan Fiduciaries
Any Plan fiduciary considering whether to purchase any Certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Among other things, before purchasing any
Certificates, a fiduciary of a Plan subject to the fiduciary responsibility
provisions of ERISA or an employee benefit plan subject to the prohibited
transaction provisions of the Code should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions. The
Prospectus Supplement with respect to a series of Certificates may contain
additional information regarding the application of the Exemption, Prohibited
Transaction Class Exemption 83-1, or any other exemption, with respect to the
Certificates offered thereby.
Purchasers that are insurance companies should consult with their counsel
with respect to the recent United States Supreme Court case interpreting the
fiduciary responsibility rules of ERISA, John Hancock Mutual Life Insurance Co.
v. Harris Trust & Savings Bank (decided December 13, 1993). In John Hancock, the
Supreme Court ruled that assets held in an insurance company's general account
may be deemed to be "plan assets" for ERISA purposes under certain
circumstances. Prospective purchasers should determine whether the decision
affects their ability to make purchases of the Certificates and the extent to
which Prohibited Transaction Class Exemption 95-60 (for certain transactions
involving insurance company general accounts) may be available.
LEGAL INVESTMENT
The Prospectus Supplement for each series of Offered Certificates will
identify those classes of Offered Certificates, if any, which constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Such classes will constitute "mortgage
related securities" for so long as they are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization (the "SMMEA Certificates"). As "mortgage related securities," the
SMMEA Certificates will constitute legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including, but not limited to, state chartered savings banks, commercial banks,
savings and loan associations and insurance companies, as well as trustees and
state government employee retirement systems) created pursuant to or existing
under the laws of the United States or of any state (including the District of
Columbia and Puerto Rico) whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities. Alaska,
Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Kansas,
Maryland, Michigan, Missouri, Nebraska, New Hampshire, New York, North Carolina,
Ohio, South Dakota, Utah, Virginia and West Virginia enacted legislation, before
the October 4, 1991 cutoff established by SMMEA for such enactments, limiting to
varying extents the ability of certain entities (in particular, insurance
companies) to invest in mortgage related securities, in most cases by requiring
the affected investors to rely solely upon existing state law, and not SMMEA.
Investors affected by such legislation will be authorized to invest in SMMEA
Certificates only to the extent provided in such legislation. SMMEA provides,
however, that in no event will the enactment of any such legislation affect the
validity of any contractual commitment to purchase, hold or invest in "mortgage
related securities," or require the sale or other disposition of such
securities, so long as such contractual commitment was made or such securities
acquired prior to the enactment of such legislation.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without regard
to the limitations generally applicable to investment securities set forth in 12
U.S.C. 24 (Seventh), subject in each case to such
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regulations as the applicable federal regulatory authority may prescribe. In
this connection, federal credit unions should review the National Credit Union
Administration ("NCUA") Letter to Credit Unions No. 96, as modified by Letter to
Credit Unions No. 108, which includes guidelines to assist federal credit unions
in making investment decisions for mortgage related securities, and the NCUA's
regulation "Investment and Deposit Activities" (12 C.F.R. Part 703), which sets
forth certain restrictions on investment by federal credit unions in mortgage
related securities.
Institutions where investment activities are subject to legal investment
laws or regulations or review by certain regulatory authorities may be subject
to restrictions on investment in certain classes of Offered Certificates. Any
financial institution which is subject to the jurisdiction of the Comptroller of
the Currency, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation ("FDIC"), the Office of Thrift Supervision
("OTS"), the NCUA or other federal or state agencies with similar authority
should review any applicable rules, guidelines and regulations prior to
purchasing any Offered Certificate. The Federal Financial Institutions
Examination Council, for example, has issued a Supervisory Policy Statement on
Securities Activities effective February 10, 1992 (the "Policy Statement")
setting forth guidelines for and significant restrictions on investments in
"high-risk mortgage securities." The Policy Statement has been adopted by the
Comptroller of the Currency, the Federal Reserve Board, the FDIC, the OTS and
the NCUA (with certain modifications), with respect to the depository
institutions that they regulate. The Policy Statement generally indicates that a
mortgage derivative product will be deemed to be high risk if it exhibits
greater price volatility than a standard fixed rate thirty-year mortgage
security. According to the Policy Statement, prior to purchase, a depository
institution will be required to determine whether a mortgage derivative product
that it is considering acquiring is high-risk, and if so that the proposed
acquisition would reduce the institution's overall interest rate risk. Reliance
on analysis and documentation obtained from a securities dealer or other outside
party without internal analysis by the institution would be unacceptable. There
can be no assurance that any classes of Offered Certificates will not be treated
as high-risk under the Policy Statement.
The predecessor to the OTS issued a bulletin, entitled, "Mortgage
Derivative Products and Mortgage Swaps", which is applicable to thrift
institutions regulated by the OTS. The bulletin established guidelines for the
investment by savings institutions in certain "high-risk" mortgage derivative
securities and limitations on the use of such securities by insolvent,
undercapitalized or otherwise "troubled" institutions. According to the
bulletin, such "high-risk" mortgage derivative securities include securities
having certain specified characteristics, which may include certain classes of
Certificates. In accordance with Section 402 of the Financial Institutions
Reform, Recovery and Enhancement Act of 1989, the foregoing bulletin will remain
in effect unless and until modified, terminated, set aside or superseded by the
FDIC. Similar policy statements have been issued by regulators having
jurisdiction over the types of depository institutions.
In September 1993 the National Association of Insurance Commissioners
released a draft model investment law (the "Model Law") which sets forth model
investment guidelines for the insurance industry. Institutions subject to
insurance regulatory authorities may be subject to restrictions on investment
similar to those set forth in the Model Law and other restrictions.
If specified in the related Prospectus Supplement, other classes of Offered
Certificates offered pursuant to this Prospectus will not constitute "mortgage
related securities" under SMMEA. The appropriate characterization of this
Offered Certificate under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase such Offered
Certificates, may be subject to significant interpretive uncertainties.
Except as to the status of SMMEA Certificates identified in the Prospectus
Supplement for a series as "mortgage related securities" under SMMEA, the
Depositor will make no representations as to the proper characterization of the
Offered Certificates for legal investment or financial institution regulatory
purposes, or as to the ability of particular investors to purchase any Offered
Certificates under applicable legal investment restrictions. The uncertainties
described above (and any unfavorable future determinations concerning legal
investment or financial institution regulatory characteristics of the Offered
Certificates) may adversely affect the liquidity of the Offered Certificates.
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The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Offered Certificates or to
purchase Offered Certificates representing more than a specified percentage of
the investor's assets. Accordingly, all investors whose investment activities
are subject to legal investment laws and regulations, regulatory capital
requirements or review by regulatory authorities should consult with their own
legal advisors in determining whether and to what extent the Offered
Certificates of any class constitute legal investments or are subject to
investment, capital or other restrictions, and, if applicable, whether SMMEA has
been overridden in any jurisdiction relevant to such investor.
PLAN OF DISTRIBUTION
The Offered Certificates offered hereby and by the Supplements to this
Prospectus will be offered in series. The distribution of the Certificates may
be effected from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If so
specified in the related Prospectus Supplement, the Offered Certificates will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by Morgan Stanley & Co. Incorporated
("Morgan Stanley") acting as underwriter with other underwriters, if any, named
therein. In such event, the Prospectus Supplement may also specify that the
underwriters will not be obligated to pay for any Offered Certificates agreed to
be purchased by purchasers pursuant to purchase agreements acceptable to the
Depositor. In connection with the sale of Offered Certificates, underwriters may
receive compensation from the Depositor or from purchasers of Offered
Certificates in the form of discounts, concessions or commissions. The
Prospectus Supplement will describe any such compensation paid by the Depositor.
Alternatively, the Prospectus Supplement may specify that Offered
Certificates will be distributed by Morgan Stanley acting as agent or in some
cases as principal with respect to Offered Certificates that it has previously
purchased or agreed to purchase. If Morgan Stanley acts as agent in the sale of
Offered Certificates, Morgan Stanley will receive a selling commission with
respect to such Offered Certificates, depending on market conditions, expressed
as a percentage of the aggregate Certificate Balance or notional amount of such
Offered Certificates as of the Cut-off Date. The exact percentage for each
series of Certificates will be disclosed in the related Prospectus Supplement.
To the extent that Morgan Stanley elects to purchase Offered Certificates as
principal, Morgan Stanley may realize losses or profits based upon the
difference between its purchase price and the sales price. The Prospectus
Supplement with respect to any series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the Depositor and purchasers of Offered
Certificates of such series.
The Depositor will indemnify Morgan Stanley and any underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, or will contribute to payments Morgan Stanley and any underwriters may be
required to make in respect thereof.
In the ordinary course of business, Morgan Stanley and the Depositor may
engage in various securities and financing transactions, including repurchase
agreements to provide interim financing of the Depositor's mortgage loans
pending the sale of such mortgage loans or interests therein, including the
Certificates.
Offered Certificates will be sold primarily to institutional investors.
Purchasers of Offered Certificates, including dealers, may, depending on the
facts and circumstances of such purchases, be deemed to be "underwriters" within
the meaning of the Securities Act of 1933 in connection with reoffers and sales
by them of Offered Certificates. Certificateholders should consult with their
legal advisors in this regard prior to any such reoffer or sale.
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As to each series of Certificates, only those classes rated in an
investment grade rating category by any Rating Agency will be offered hereby.
Any non-investment-grade class may be initially retained by the Depositor, and
may be sold by the Depositor at any time in private transactions.
LEGAL MATTERS
Certain legal matters in connection with the Certificates, including
certain federal income tax consequences, will be passed upon for the Depositor
by Sidley & Austin, New York, New York or Milbank, Tweed, Hadley & McCloy, New
York, New York or Brown & Wood LLP, New York, New York.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of Certificates
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related series of Certificates.
Accordingly, no financial statements with respect to any Trust Fund will be
included in this Prospectus or in the related Prospectus Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates that
they shall have been rated not lower than investment grade, that is, in one of
the four highest rating categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. As a result, certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped interest certificates in extreme cases might fail to recoup their
initial investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
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INDEX OF PRINCIPAL DEFINITIONS
Page(s) on which
term is defined
Term in the Prospectus
1986 Act......................................................................78
Accrual Certificates.......................................................9, 31
Accrued Certificate Interest..................................................33
ADA...........................................................................72
Agreements.....................................................................8
Applicable Amount.............................................................92
ARM Loans.................................................................23, 78
Asset Seller..................................................................20
Assets.....................................................................1, 20
Available Distribution Amount.................................................32
Balloon Mortgage Loans........................................................16
Bankruptcy Code...............................................................63
Book-Entry Certificates.......................................................31
Cash Flow Agreement............................................................8
Cash Flow Agreements...........................................................1
Cede.......................................................................3, 38
CERCLA....................................................................18, 68
Certificate...................................................................39
Certificate Account...........................................................42
Certificate Balance........................................................8, 33
Certificate Owners............................................................38
Certificateholders.........................................................3, 20
Certificates...................................................................5
Closing Date..................................................................83
Commercial Loans..............................................................20
Commercial Properties......................................................5, 20
Commission.....................................................................2
Contributions Tax.............................................................92
Cooperatives..................................................................21
Covered Trust.............................................................17, 56
CPR...........................................................................29
Credit Support..............................................................1, 7
Crime Control Act.............................................................73
Cut-off Date...................................................................9
Debt Service Coverage Ratio...................................................22
Deferred Interest.............................................................80
Definitive Certificates...................................................31, 38
Depositor.....................................................................20
Determination Date............................................................31
Disqualifying Condition.......................................................70
Distribution Date..............................................................9
DTC........................................................................3, 37
Due Period....................................................................32
Environmental Hazard Condition................................................69
Equity Participations.........................................................24
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ERISA.....................................................................11, 98
Events of Default.............................................................53
Exchange Act...................................................................3
Exemption.....................................................................99
FDIC..........................................................................42
FHLMC.........................................................................51
FNMA..........................................................................69
Government Securities...................................................1, 7, 20
Grantor Trust Certificates....................................................11
Hazardous Materials...........................................................70
Indirect Participants.........................................................38
Insurance Proceeds............................................................43
IRS...........................................................................75
L/C Bank......................................................................57
Labor.........................................................................98
Lease.......................................................................3, 6
Lease Assignment...............................................................1
Lessee......................................................................3, 6
Liquidation Proceeds..........................................................43
Loan-to-Value Ratio...........................................................23
Lock-out Date.................................................................24
Lock-out Period...............................................................24
Master REMIC..................................................................82
Master Servicer................................................................5
MBS.....................................................................1, 5, 20
MBS Agreement.................................................................24
MBS Issuer....................................................................24
MBS Servicer..................................................................24
MBS Trustee...................................................................24
Morgan Stanley...............................................................102
Mortgage Assets............................................................1, 20
Mortgage Loans..........................................................1, 6, 20
Mortgage Notes................................................................20
Mortgage Rate..............................................................6, 24
Mortgaged Properties...........................................................6
Mortgages.....................................................................21
Multifamily LoanMultifamily Properties.....................................6, 20
Net Operating Income..........................................................22
Nonrecoverable Advance........................................................34
Offered Certificates...........................................................1
OID...........................................................................75
OID Regulations...............................................................75
Originator....................................................................21
Participants..................................................................38
Pass-Through Rate..........................................................8, 32
Payment Lag Certificates......................................................88
Permitted Investments.........................................................42
Plans.........................................................................98
Prepayment Assumption.........................................................79
Prepayment Premium............................................................24
Prohibited Transactions Tax...................................................94
Purchase Price................................................................41
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Rating Agency.................................................................12
Record Date...................................................................31
Refinance Loans...............................................................23
Related Proceeds..............................................................34
Relief Act....................................................................72
REMIC.........................................................................11
REMIC Certificates............................................................81
REMIC Regular Certificateholders..............................................82
REMIC Regular Certificates................................................11, 81
REMIC Regulations.............................................................73
REMIC Residual Certificateholder..............................................89
REMIC Residual Certificates...............................................11, 81
Restricted Group.............................................................100
Retained Interest.............................................................51
Senior Certificates........................................................8, 31
Servicing Standard............................................................46
SMMEA........................................................................100
SMMEA Certificates...........................................................100
Special Servicer...........................................................5, 46
Stripped ARM Obligations......................................................80
Stripped Bond Certificates....................................................77
Stripped Coupon Certificates..................................................77
Stripped Interest Certificates.............................................8, 31
Stripped Principal Certificates............................................8, 31
Sub-Servicer..................................................................46
Sub-Servicing Agreement.......................................................46
Subordinate Certificates...................................................8, 31
Subsidiary REMIC..............................................................82
Super-Premium Certificates....................................................84
Title V.......................................................................71
Trust Assets...................................................................2
Trust Fund.....................................................................1
Trustee........................................................................5
U.S. Person...................................................................81
UCC...........................................................................38
Underlying MBS................................................................20
Value.........................................................................23
Voting Rights.................................................................19
Warrantying Party.............................................................41
Whole Loans...................................................................20
100
