Information contained herein is subject to completion or amendment. Offers to
buy these securities may not be accepted without the delivery of a final
prospectus supplement and prospectus. This prospectus supplement and the
accompanying prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, Dated December 11, 1997
Registration No. 033-46723
PROSPECTUS SUPPLEMENT
(To Prospectus dated December 11, 1997)
$658,634,000 (Approximate)
Morgan Stanley Capital I Inc.
as Depositor
AETNA LIFE INSURANCE COMPANY
as Mortgage Loan Seller and Special Servicer
MIDLAND LOAN SERVICES, L.P.
as Master Servicer
AETNA COMMERCIAL MORTGAGE TRUST MULTICLASS PASS-THROUGH CERTIFICATES,
SERIES 1997-ALIC
-------------------
The Series 1997-ALIC Aetna Commercial Mortgage Trust Multiclass
Pass-Through Certificates (the "Certificates") will consist of 17 classes (each,
a "Class") of Certificates: (i) the Class A-1A, Class A-1B and Class A-2
Certificates (together, the "Class A Certificates"); (ii) the Class IO
Certificates (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, Class
J, Class K and Class L Certificates (collectively, the "Subordinate
Certificates" and, collectively with the Senior Certificates, the "REMIC Regular
Certificates"); (iv) the Class R Certificate; (v) the Class V Certificates; and
(vi) the Class W Certificates (the Class V Certificates, together with the Class
W Certificates, collectively, the "Non-REMIC Certificates"). Only the Class
A-1A, Class A-1B, Class A-2, Class IO, 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 Fitch IBCA, Inc. ("Fitch") and/or by Moody's
Investors Service, Inc. ("Moody's" and, together with Fitch, 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 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 December 1, 1997 (the "Pooling and Servicing Agreement"), among the
Depositor, Midland Loan Services, L.P. as master servicer (the "Master
Servicer"), Aetna Life Insurance Company as special servicer (the "Special
Servicer") and State Street Bank and Trust Company as trustee (the "Trustee").
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 or any of
their respective affiliates. Neither the Certificates nor the Mortgage Loans (as
defined herein) will be insured or guaranteed by any governmental agency or
instrumentality or by the Depositor, the Seller (as defined herein), the Master
Servicer, the Special Servicer, the Trustee, any of their respective affiliates
or any other person.
See "Risk Factors and Other Special Considerations" beginning on page S-37
herein and "Risk Factors" beginning on page 13 in the Prospectus for certain
factors to be considered in purchasing the Offered Certificates.
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 TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(cover continued on page S-3)
<TABLE>
<CAPTION>
Approximate Initial
Aggregate Approximate
Certificate Balance or Initial Final Scheduled Ratings
Class Notional Amount(1) Pass-Through Rate(2) Distribution Date(3) (Fitch/Moody's)(4)
----- ------------------ -------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Class A-1A .......... $169,000,000 6.44% 10/15/00 AAA/Aaa
Class A-1B .......... $191,279,000 6.72% 11/15/02 AAA/Aaa
Class A-2 ........... $ 97,552,000 6.17% 3/15/05 AAA/Aaa
Class IO ............ $803,212,971 2.60% 1/15/18 AAA/Aaa
Class B ............. $ 64,257,000 7.04% 1/15/06 AA/Aa2
Class C ............. $ 68,273,000 7.33% 11/15/07 A/A2
Class D ............. $ 48,193,000 7.48% 12/15/07 BBB/Baa2
Class E ............. $ 20,080,000 7.52% 11/15/08 BBB-/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 to the public 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 $ 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 ("DTC") in the United States and may
be made in book-entry form through Cedel Bank, S.A. ("CEDEL") and the Euroclear
System ("Euroclear"), as participants of DTC, in Europe, against payment
therefor on or about December __, 1997 (the "Closing Date").
----------
MORGAN STANLEY DEAN WITTER
The date of this Prospectus Supplement is December __, 1997
<PAGE>
[MAP OF U.S.]
<PAGE>
[PHOTOS OF PROPERTIES]
<PAGE>
[PHOTOS OF PROPERTIES]
<PAGE>
The footnotes to the table on the cover page are as follows:
(1) The table sets forth: in the case of the 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-2,
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
Rate for the Class IO Certificates is 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 Rate for the Interest Only
Certificates as set forth in the table is 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 January 2028.
(4) See "Ratings" herein.
- ----------
(cover continued from second preceding page)
Initially, the assets of the Trust Fund will consist primarily of a
segregated pool (the "Mortgage Pool") of (i) 41 fixed-rate commercial and
multifamily mortgage loans (such mortgage loans, exclusive of the Additional
Interests (as defined herein), the "Mortgage Loans") and (ii) the Additional
Interests. The Cut-off Date is December 1, 1997 (the "Cut-off Date") and, as of
such date, the Mortgage Loans had an aggregate principal balance (the "Initial
Pool Balance") of $803,212,971, 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%. The Mortgage Loans are further described under "Description
of the Mortgage Pool" herein and on Appendix I, Appendix II and Appendix III
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 forty (40) fixed-rate Mortgage Loans, and Loan Group 2
will consist of one (1) Mortgage Loan. 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 $705,660,785 and $97,552,186, respectively, in each case subject to
a variance of plus or minus 5%.
The Depositor will acquire the Mortgage Loans from Aetna Life Insurance
Company (the "Seller") on the Closing Date pursuant to a Mortgage Loan Purchase
Agreement between the Seller and the Depositor.
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 January 1998 (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 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
S-3
<PAGE>
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 described herein, any amounts collected
in respect of the Non-REMIC Assets and the Non-REMIC Fees (each as described
herein) will be distributed to the Class V and the Class W Certificates,
respectively.
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 Class
R Certificate 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, loan extensions,
defaults and liquidations) and losses on or in respect of the Mortgage 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 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 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.
The Additional Interests included in the Trust Fund but not in any of the
REMICs will be held by the Trustee as a separate grantor trust, the beneficial
ownership of which will be represented by the Class V and Class W Certificates
(collectively, the "Non-REMIC Certificates").
See "Index of Principal Definitions" in the Prospectus for the location of
meanings of capitalized terms used but not defined therein. 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.
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-37
HEREIN AND "RISK FACTORS" BEGINNING ON PAGE 13 IN THE PROSPECTUS FOR CERTAIN
FACTORS TO BE CONSIDERED IN PURCHASING THE OFFERED CERTIFICATES.
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.
S-4
<PAGE>
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 DECEMBER 11, 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 FEBRUARY __, 1998, 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.
----------
FORWARD-LOOKING STATEMENTS
IF AND WHEN INCLUDED IN THIS PROSPECTUS 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 OTHER
EVENTS, CONDITIONS AND CIRCUMSTANCES, MANY OF WHICH ARE BEYOND THE DEPOSITOR'S
CONTROL. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS
PROSPECTUS SUPPLEMENT. THE DEPOSITOR EXPRESSLY DISCLAIMS ANY OBLIGATION OR
UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING
STATEMENT CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE DEPOSITOR'S EXPECTATIONS
WITH REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON
WHICH ANY SUCH STATEMENT IS BASED.
----------
S-5
<PAGE>
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 or otherwise make available 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>
Page
----
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS ............................................ S-5
AVAILABLE INFORMATION ................................................. S-6
REPORTS TO CERTIFICATEHOLDERS ......................................... S-6
TRANSACTION OVERVIEW .................................................. S-10
SUMMARY ............................................................... S-11
RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS ......................... S-37
The Certificates ............................................. S-37
The Mortgage Loans ........................................... S-38
DESCRIPTION OF THE CERTIFICATES ....................................... S-48
General ...................................................... S-48
Certificate Balances and Notional Amounts .................... S-50
Pass-Through Rates ........................................... S-51
Distributions ................................................ S-52
Appraisal Reductions ......................................... S-56
Subordination; Allocation of Losses and Certain Expenses ..... S-56
Prepayment Interest Shortfalls ............................... S-58
Optional Termination ......................................... S-58
Advances ..................................................... S-58
Reports to Certificateholders; Available Information ......... S-60
Example of Distributions ..................................... S-62
Voting Rights ................................................ S-63
The Trustee .................................................. S-63
MATURITY CONSIDERATIONS ............................................... S-63
YIELD CONSIDERATIONS .................................................. S-69
General ...................................................... S-69
Rate and Timing of Principal Payments ........................ S-69
Losses and Shortfalls ........................................ S-70
Certain Relevant Factors ..................................... S-70
Delay in Payment of Distributions ............................ S-70
Yield Sensitivity of the Interest Only Certificates .......... S-70
DESCRIPTION OF THE MORTGAGE POOL ...................................... S-71
General ...................................................... S-71
Additional Interests ......................................... S-72
Certain Terms and Characteristics of the Mortgage Loans ...... S-72
Assessments of Property Value ................................ S-76
Additional Mortgage Loan Information ......................... S-76
Standard Hazard Insurance .................................... S-78
The Seller ................................................... S-78
Underwriting Practices ....................................... S-78
Assignment of the Mortgage Loans ............................. S-79
Representations and Warranties ............................... S-80
Repurchases and Other Remedies ............................... S-82
Changes in Mortgage Pool Characteristics ..................... S-82
S-8
<PAGE>
Page
----
SERVICING OF THE MORTGAGE LOANS ........................................ S-83
General ....................................................... S-83
The Master Servicer ........................................... S-85
The Special Servicer .......................................... S-85
Sub-Servicers ................................................. S-85
Servicing and Other Compensation and Payment of Expenses ...... S-86
The Operating Adviser ......................................... S-87
Modifications, Waivers, Amendments and Consents ............... S-88
Sale of Defaulted Mortgage Loans and REO Properties ........... S-89
REO Properties ................................................ S-90
Inspections; Collection of Operating Information .............. S-90
Maintenance of Master Servicer/Special Servicer Acceptability.. S-92
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ................................ S-92
General ....................................................... S-92
Original Issue Discount and Premium ........................... S-93
Recent Tax Law Developments ................................... S-94
Additional Considerations ..................................... S-95
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS LOCATED IN CALIFORNIA,
NEW YORK AND MASSACHUSETTS ............................................. S-95
ERISA CONSIDERATIONS ................................................... S-96
Plan Asset Regulation ......................................... S-96
Availability of Underwriter's Exemption ....................... S-97
LEGAL INVESTMENT ....................................................... S-98
USE OF PROCEEDS ........................................................ S-98
PLAN OF DISTRIBUTION ................................................... S-98
LEGAL MATTERS .......................................................... S-99
RATINGS ................................................................ S-99
INDEX OF PRINCIPAL DEFINITIONS ......................................... S-100
APPENDIX I - MORTGAGE POOL INFORMATION (TABLES) ........................ I-1
APPENDIX II - CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS ............ II-1
APPENDIX III - SIGNIFICANT LOAN SUMMARIES .............................. III-1
APPENDIX IV - ENVIRONMENTAL DISCLOSURE ................................. IV-1
PRELIMINARY TERM SHEET ................................................. T-1
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 INITIAL
BALANCE OR RATINGS DESCRIPTION PASS-
NOTIONAL (FITCH/ WEIGHTED PRINCIPAL OF 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 $169,000,000 AAA/Aaa 2.0021 1-34 Fixed Rate 6.44%
- ----------------------------------------------------------------------------------------------------------------------------
A-1B $191,279,000 AAA/Aaa 4.0039 34-59 Fixed Rate 6.72%
- ----------------------------------------------------------------------------------------------------------------------------
A-2 $ 97,552,000 AAA/Aaa 5.3917 1-87 Fixed Rate 6.17%
- ----------------------------------------------------------------------------------------------------------------------------
IO $803,212,971 (b) AAA/Aaa 6.7613 N/A Variable Rate I/O 2.60%
- ----------------------------------------------------------------------------------------------------------------------------
B $ 64,257,000 AA/Aa2 7.7381 87-97 Fixed Rate 7.04%
- ----------------------------------------------------------------------------------------------------------------------------
C $ 68,273,000 A/A2 8.8920 97-119 Fixed Rate 7.33%
- ----------------------------------------------------------------------------------------------------------------------------
D $ 48,193,000 BBB/Baa2 9.9043 119-120 Fixed Rate 7.48%
- ----------------------------------------------------------------------------------------------------------------------------
E $ 20,080,000 BBB-/Baa3 10.2804 120-131 Fixed Rate 7.52%
- ----------------------------------------------------------------------------------------------------------------------------
F(a) $ 44,177,000 BB/Ba3 12.1032 131-152 Fixed Rate 6.44%
- ----------------------------------------------------------------------------------------------------------------------------
G(a) $ 8,032,000 BB-/NR 12.9435 152-159 Fixed Rate 6.44%
- ----------------------------------------------------------------------------------------------------------------------------
H(a) $ 14,056,000 B/B2 13.6676 159-169 Fixed Rate 6.44%
- ----------------------------------------------------------------------------------------------------------------------------
J(a) $ 26,104,000 B-/NR 14.1159 169-175 Fixed Rate 6.44%
- ----------------------------------------------------------------------------------------------------------------------------
K(a) $ 20,080,000 NR/NR 14.9249 175-183 Fixed Rate 6.44%
- ----------------------------------------------------------------------------------------------------------------------------
L(a) $ 32,129,971 NR/NR 15.9840 183-241 Fixed Rate 6.44%
- ----------------------------------------------------------------------------------------------------------------------------
V(a)(c) N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
W(a)(c) N/A N/A N/A N/A N/A N/A
============================================================================================================================
</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) for each Mortgage Loan commencing, in
each case, at the later of the end of the related Lock-out Period and the
end of the period during which a Yield Maintenance Premium (as defined
herein) (as defined herein) is payable with respect to prepayments of such
Mortgage Loan. See "Yield Considerations" and "Maturity Considerations"
herein.
(4) The initial Pass-Through Rate for the Interest Only Certificates set forth
in the table is approximate.
- ---------------
(a) Not offered hereby.
(b) Aggregate Notional Amount.
(c) The Class V and Class W Certificates represent beneficial ownership
interests in the Additional Interests included in the Trust Fund, and do
not have Certificate Balances, Notional Amounts, Pass-Through Rates or any
ratings thereon.
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<PAGE>
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 Aetna Commercial Mortgage Trust Multiclass
Pass- Through Certificates, Series 1997-ALIC
(the "Certificates") will be issued in 17
classes (each, a "Class") designated as: (i)
the Class A-1A, Class A-1B and Class A-2
Certificates (together, the "Class A
Certificates"); (ii) the Class IO Certificates
(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,
Class J, Class K and Class L Certificates
(collectively, the "Subordinate Certificates"
and, collectively with the Senior Certificates,
the "REMIC Regular Certificates"); (iv) the
Class R Certificate; (v) the Class V
Certificates; and (vi) the Class W Certificates
(the Class V Certificates, together with the
Class W Certificates, collectively, the
"Non-REMIC 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 and the
Trustee. Initially, the assets of the Trust
Fund will consist primarily of (i) 41
fixed-rate mortgage loans (such mortgage loans,
exclusive of the Additional Interests (as
defined herein), the "Mortgage Loans") and (ii)
the Additional Interests. As of the Cut-off
Date, the Mortgage Loans had an aggregate
principal balance (the "Initial Pool Balance")
of $803,212,971, 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-2,
Class IO, Class B, Class C, Class D and Class E
Certificates (collectively, the "Offered
Certificates") are offered hereby. The Class F,
Class G, Class H, Class J, Class K and Class L
Certificates, the Non-REMIC Certificates, and
the Class R Certificate (collectively, the
"Private Certificates") have not been
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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.
Seller......................... Aetna Life Insurance Company, a Connecticut
corporation. The Seller will sell the Mortgage
Loans on the Closing Date pursuant to an
agreement (the "Mortgage Loan Purchase
Agreement"), which will be assigned in relevant
part to the Trustee. See "Description of the
Mortgage Pool--The Seller" herein. The Class IO
Certificates and a portion of the Certificates
not offered hereby, including the Non-REMIC
Certificates, may be acquired by a limited
liability company whose sole members are the
Seller and a wholly-owned subsidiary of the
Seller.
Master Servicer................ Midland Loan Services, L.P., a Missouri limited
partnership. The Master Servicer will be
obligated to make Advances (as defined herein)
with respect to the Mortgage Loans as described
herein. See "Description of the
Certificates--Advances" herein. The Master
Servicer will be responsible for servicing the
Mortgage Loans except to the extent that the
Special Servicer is responsible for performing
certain asset management functions with respect
to the Mortgage Loans and for performing
certain broader servicing functions with
respect to Mortgage Loans that, in general, are
in default or as to which default is imminent,
and with respect to REO Properties and other
collateral. See "Servicing of the Mortgage
Loans--General"; "--Master Servicer" and
"--Special Servicer" herein.
Special Servicer............... Aetna Life Insurance Company. The Special
Servicer will be responsible for performing
certain asset management functions with respect
to the Mortgage Loans and for performing
certain broader servicing functions with
respect to Mortgage Loans that, in general, are
in default or as to which default is imminent,
and with respect to REO Properties and other
collateral. 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, CMBS
Holdings, L.L.C., a limited liability company
whose sole members are the Seller and a
wholly-owned subsidiary of the Seller, will be
the Operating Adviser. See "Servicing of the
Mortgage Loans--Special Servicer" and "--The
Operating Adviser" herein.
Trustee........................ State Street Bank and Trust Company, a
Massachusetts trust company. See "Description
of the Certificates--The Trustee" 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
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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, CMBS
Holdings, L.L.C., whose sole members are the
Special Servicer and a wholly-owned subsidiary
of the Special Servicer, will be the Operating
Adviser. See "Servicing of the Mortgage
Loans--The Operating Adviser" herein.
Cut-off Date .................. December 1, 1997.
Closing Date .................. On or about December __, 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 January 1998.
Determination Date............. With respect to each Distribution Date, the
fifth business day prior to such Distribution
Date.
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.
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<PAGE>
Registration and Denominations The Class A Certificates will initially be
issued in book-entry form in denominations of
$5,000 initial Certificate Balance and in any
whole dollar denomination in excess thereof.
The Class IO, 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 hold their Offered
Certificates in book entry form, delivery of
which will be made through the facilities of
DTC (in the United States) and may be made
through the facilities of 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. or The Chase Manhattan Bank, 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 Class R
Certificate is 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 L Certificates are subordinate to the
Class K 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,
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<PAGE>
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.
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- 2, Class B, Class C, Class D,
Class E, Class F, Class G, Class H, Class J,
Class K and Class L 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 Percentage
Initial Aggregate of Initial
Class Certificate Balance Pool Balance
----- ------------------- ------------
Class A-1A $169,000,000 57.00%
Class A-1B 191,279,000 57.00
Class A-2 97,552,000 57.00
Class B 64,257,000 8.00
Class C 68,273,000 8.50
Class D 48,193,000 6.00
Class E 20,080,000 2.50
Class F 44,177,000 5.50
Class G 8,032,000 1.00
Class H 14,056,000 1.75
Class J 26,104,000 3.25
Class K 20,080,000 2.50
Class L 32,129,971 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 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 Certificates will equal
100% of the aggregate Stated Principal Balance
(as
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<PAGE>
defined herein) of the Mortgage 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 Class V and Class W Certificates will not
have Certificate Balances or Notional Amounts.
The Class R Certificate will not have a
Certificate Balance.
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, A-2, Class B, Class C, Class
D and Class E Certificates will, at all times,
be equal to 6.44%, 6.72%, 6.17%, 7.04%, 7.33%,
7.48% and 7.52% per annum, respectively.
The Pass-Through Rate applicable to the Class
IO Certificates for the initial Distribution
Date will equal approximately 2.60% per annum.
The Pass-Through Rate applicable to the Class
IO 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
Mortgage 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-Through Rates applicable to the respective
Classes of Principal Balance Certificates for
such Distribution Date, the relevant weighting
to be on the basis of the respective aggregate
Certificate Balances of such Classes of
Certificates immediately prior to such
Distribution Date.
The Pass-Through Rates applicable to the Class
F, Class G, Class H, Class J, Class K and Class
L Certificates will, at all times, be equal to
6.44%, 6.44%, 6.44%, 6.44%, 6.44% and 6.44%,
respectively.
The Class V and Class W Certificates do not
have Pass-Through Rates.
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
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<PAGE>
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, 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"), will be
appropriately adjusted to reflect such
difference. See "Description of the
Certificates -- Pass-Through Rates" and
"Servicing of the Mortgage Loans--Servicing and
Other Compensation and Payment of Expenses"
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 and Additional Interests) 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.
The Available Distribution Amount will not
include any amount in respect of any of the
Additional Interests. The Non-REMIC
Certificates will be entitled to amounts that
are collected in respect of the Additional
Interests.
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, the
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 and third 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
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<PAGE>
the Class A-1A Certificates and
third to the holders of the Class
A-1B 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 (a) the respective amounts of
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 Class; and
(4) to make payments on the Subordinate
Certificates and the Class R
Certificate as contemplated below.
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, Class J, Class K
and Class L Certificates):
(1) to pay interest to the holders of
the particular Class of
Certificates, up to an amount equal
to the 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 Amount 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,
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<PAGE>
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.
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 holder of the Class R
Certificate.
Any reimbursement of previously allocated
Realized Losses and Expense Losses (the
likelihood of any such distribution being
remote) 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 each Class of REMIC Regular
Certificates for each 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 each
Net Aggregate Prepayment Interest Shortfall (as
defined herein) for such Distribution Date, and
increased by each Class Interest Shortfall in
respect of such Class of Certificates for such
Distribution Date. The "Accrued Certificate
Interest" in respect of each Class of REMIC
Regular Certificates for each Distribution Date
will equal the amount of interest for the
applicable Interest Accrual Period accrued at
the applicable Pass-Through Rate on the
aggregate Certificate Balance or Notional
Amount, as the case may be, of such Class of
Certificates outstanding immediately prior to
such Distribution Date. Accrued Certificate
Interest will be calculated on the basis of a
360-day year consisting of twelve 30-day
months. See "Description of the
Certificates--Distributions--Distributable
Certificate Interest" and "--Prepayment
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)
the Distributable Certificate Interest in
respect of such Class of Certificates for the
immediately preceding Distribution Date, over
(B) all distributions of interest made with
respect to such Class of Certificates on the
immediately preceding Distribution Date, plus
(ii) to the extent permitted by applicable law,
other than in the case of the Interest Only
Certificates, one month's interest on any such
excess at the Pass-Through Rate applicable to
such Class of Certificates.
The "Principal Distribution Amount" with
respect to each Loan Group for each
Distribution Date will, in general, equal the
aggregate of the following:
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(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 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 that is 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
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<PAGE>
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 (other than the Class E,
Class F, Class G, Class H, Class J, Class K and
Class L 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 amount of the
subject Prepayment Premium, multiplied by the
lesser of (i) 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 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 and (ii) 25%. 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 Certificates. See "Description of the
Certificates-- Distributions-- Distributions of
Prepayment Premiums" herein.
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 Certificates. See "Description of
the Certificates -- Distributions --
Distributions of Prepayment Premiums" herein.
Appraisal Reductions........... As soon as reasonably practicable following the
earliest of (i) the date 90 days after the
occurrence of any delinquency in payment with
respect to a Mortgage Loan if such delinquency
remains uncured, (ii) the date 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
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"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 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
$500,000, 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 or the Trustee, 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
or the Trustee's, as the case may be, advancing
obligation in respect of delinquent principal
and interest on the related Mortgage Loan,
which may result in a reduction in current
distributions in respect of the then most
subordinate Class of 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 L, Class K, Class J, Class
S-22
<PAGE>
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 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. Neither
Realized Losses nor Expenses Losses will be
allocated to the Non-REMIC Certificates.
Prepayment Interest
Shortfalls................... If a borrower prepays a Mortgage Loan, in whole
or in part, after the date in any calendar
month when the Monthly Payment is payable on
such Mortgage Loan (the "Due Date"), but prior
to the Determination Date in such month, the
amount of interest (net of related Master
Servicing Fees (as described herein)) accrued
on such prepayment, in general, from the Due
Date 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, prior to
the Due Date in any calendar month but after
the prior Determination Date and does not pay
interest on such prepayment through, in
general, the Due Date, then the shortfall in a
full month's interest (net of related Master
Servicing Fees) on such prepayment will
constitute a "Prepayment Interest Shortfall".
Prepayment Interest Excesses collected on the
Mortgage Loans during any Collection Period
will first be applied to offset Prepayment
Interest Shortfalls incurred in respect of the
Mortgage Loans during such Collection Period
and, to the extent not needed for such
purposes, will be retained by the Master
Servicer as additional servicing compensation.
The Master Servicer will be obligated to cover,
out of its own funds, without right of
reimbursement, to the extent of that portion of
its Master Servicing Fees for the related
Collection Period calculated in respect of all
the Mortgage Loans, 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 Prepayment Interest
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,
S-23
<PAGE>
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 to such Class of
Certificates. See "Servicing of the Mortgage
Loans--Servicing and Other Compensation and
Payment of Expenses" herein.
Optional Termination........... The Operating Advisor, the Special Servicer,
the Depositor, the Master Servicer and the
holder of a majority interest in the Class R
Certificate, in that order, 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 5% 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 0.054% per annum. The Master
Servicer will be obligated to pay the fees of
its subservicers and the ongoing fees of the
Trustee out of its Master Servicing Fee. 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 and the Trustee will each be
obligated to make 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 the Master Servicer will be
obligated to cover certain servicing expenses
("Servicing Advances", and, together with P&I
Advances, "Advances") in accordance with the
provisions set 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 as provided in
the Pooling and Servicing Agreement. No
Advances will be required in respect of
payments on the Non-REMIC Assets or the Non-
REMIC Fees.
S-24
<PAGE>
The Master Servicer and the Trustee, 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 and the Trustee will each
be entitled, with respect to any Advance made
thereby, to receive interest accrued on the
amount of such Advance for so long as it is
outstanding at a rate per annum (the "Advance
Rate") equal to the "prime rate" as published
in the "Money Rates" section of The Wall Street
Journal, as such "prime rate" may change from
time to time. Such interest on any Advance will
be payable to the Master Servicer or the
Trustee, as the case may be, out of the portion
of the default interest distributable to and
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 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
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 --
S-25
<PAGE>
Application of the Available Distribution
Amount" and "--Distributions -- Principal
Distribution Amount" herein.
The Class IO 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 the Mortgage Loans,
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 the 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 such
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 such 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.
For a discussion of certain prepayment and
default risks associated with Loan Group 2, see
"Risk Factors and Other Special
Considerations--Prepayment and Default Risks
Associated with Loan Group 2."
S-26
<PAGE>
Certificate Ratings............ It is a condition of the issuance of the
Offered Certificates that they receive the
following credit ratings from Fitch IBCA, Inc.
("Fitch") and/or Moody's Investors Service,
Inc. ("Moody's" and, together with Fitch, the
"Rating Agencies"):
Class Fitch Moody's
----- ----- -------
Class A-1A............ AAA Aaa
Class A-1B............ AAA Aaa
Class A-2............. AAA Aaa
Class IO.............. AAA Aaa
Class B............... AA Aa2
Class C............... A A2
Class D............... BBB Baa2
Class E............... BBB- Baa3
In addition, it is a condition of the issuance
of the Private Certificates that the Class F,
Class G, Class H and Class J Certificates be
rated "BB", "BB-", "B" and "B-", respectively,
by Fitch and that the Class F and Class H
Certificates be rated "Ba3" and "B2",
respectively, by Moody's. The Class G
Certificates and Class J Certificates will be
unrated by Moody's and the Class K
Certificates, Class L Certificates, the Class R
Certificate, the Class V Certificates and the
Class W Certificates will be unrated by either
of Fitch or Moody's.
A securities rating addresses the likelihood of
the receipt by Certificateholders of
distributions of interest and principal 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, ultimate distribution
of all principal by the Distribution Date in
January 2028 (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 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 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
S-27
<PAGE>
Premiums actually collected. The aggregate
Notional Amount upon which interest in respect
of the 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 or default 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 41 Mortgage
Loans with an Initial Pool Balance of
$803,212,971, 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 $41,298 to
$97,552,186, and the Mortgage Loans have an
average Cut- off Date Balance of $19,590,560.
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.
A brief summary of the material terms of the
largest Mortgage Loans in the Mortgage Pool is
set forth on Appendix III attached hereto.
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
generally by any other person.
Thirty-five (35) of the Mortgage Loans
(representing 77.6% of the Initial Pool
Balance) are secured by a first mortgage lien
on the related borrower's fee simple estate in
an income- producing real property. One (1) of
the Mortgage Loans (representing 3.1% of the
Initial Pool Balance) is secured by a second
mortgage lien on the related borrower's fee
simple
S-28
<PAGE>
estate in an income-producing real property.
Four (4) of the Mortgage Loans (representing
17.5% of the Initial Pool Balance) are secured
by a Mortgage that creates a first mortgage
lien on the related borrower's leasehold estate
in an income-producing real property. One (1)
of the Mortgage Loans (representing 1.8% of the
Initial Pool Balance) is secured by a second
mortgage lien on the related borrower's
leasehold estate in an income-producing real
property (each such fee simple estate or
leasehold or partial leasehold estate, as the
case may be, a "Mortgaged Property").
In the case of ten (10) of the Mortgage Loans,
representing 20.3% of the Initial Pool Balance,
the related Mortgagor granted to the Seller, at
the time of origination or modification of such
Mortgage Loan, one or more of the following
interests: (i) certain rights to share in the
proceeds from the sale or refinancing of the
related Mortgaged Property and/or the revenues
generated by such Mortgaged Property (for
instance, payments in the nature of equity
participations in certain revenues and
contingent interest) (eight (8) Mortgage Loans
representing 16.1% of the Initial Pool
Balance), (ii) certain rights to accrued
interest in those cases in which interest is
currently payable at a rate less than the rate
at which interest is accruing, with the
difference being added to the principal balance
of the Mortgage Loan (five (5) of the Mortgage
Loans, representing 9.0% of the Initial Pool
Balance), or (iii) certain rights to payments
required to be applied toward amounts owed on
an additional "note" issued by the Mortgagor to
the Seller (two (2) Mortgage Loans,
representing 2.9% of the Initial Pool Balance).
Such interests shall be referred to herein,
collectively, as the "Non-REMIC Assets".
The Non-REMIC Assets, along with the right to
receive 50% of the related mortgagee's interest
in any loan fees, assumption fees, extension
fees, modification fees or default interest
collected under any of the loan documents
relating to any Mortgage Loan (all such rights,
collectively, the "Non- REMIC Fees", and,
together with the Non-REMIC Assets, the
"Additional Interests") were transferred to the
Depositor by the Seller along with the Mortgage
Loans, and were transferred by the Depositor,
along with the Mortgage Loans, into the Trust
Fund on the Closing Date. Unlike the Mortgage
Loans, however, the Additional Interests are
not included in the Mortgage Pool and are
assets of the Trust Fund for which no REMIC
election has been or will be made; no "regular
interest" in any of REMIC I, REMIC II or REMIC
III will correspond to any Additional Interest;
and the Non-REMIC Certificates, which will be
the only Certificates representing an interest
in the pool of Additional Interests, will not
be issued by any of REMIC I, REMIC II or REMIC
III. No holder of any Certificate other than a
Non-REMIC Certificate will be entitled to any
cash flow or other collections in respect of
the Additional Interests.
S-29
<PAGE>
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
------------ ------------- ---------
Office............. 50.4% 20
Retail............. 16.2% 6
Mixed Use.......... 13.0% 2
Hospitality........ 8.7% 4
Industrial......... 8.0% 4
Multifamily........ 3.7% 5
For purposes of the foregoing, the term "mixed
use" is used to denote a Mortgaged Property
that consists of a single property used for
certain combined uses detailed on Appendix II
and Appendix III.
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 three (3) states with
the highest concentrations.
Percentage of Number of
Initial Pool Mortgage
State Balance Loans
------------- ------------- ---------
California....... 21.7% 7
Massachusetts.... 14.7% 3
New York......... 14.3% 2
The remaining Mortgaged Properties are located
throughout 16 other states. No other state has
a concentration of Mortgaged Properties that
represents security for more than 10.2% of the
Initial Pool Balance. See Appendix I hereto.
Two (2) 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
6.7% and 2.8% of the Initial Pool Balance, and
all such groups of Mortgage Loans collectively
represent 9.5% of the Initial Pool Balance. See
"Description of the Mortgage Pool--Certain
Terms and Characteristics of the Mortgage
Loans--Cross-Collateralized Mortgage Loans"
herein and Appendix II hereto.
Certain of the 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
S-30
<PAGE>
common ownership and where, in general, the
related Mortgaged Properties are commonly
managed. The four (4) groups, by aggregate
Cut-off Date Balance of the Mortgage Loans,
represent 10.2%, 6.7%, 4.5% and 2.7%,
respectively, of the Initial Pool Balance. See
"Description of the Mortgage Pool--Certain
Terms and Characteristics of the Mortgage
Loans--Borrower Concentrations" herein and
Appendix II hereto.
Thirty-eight (38) of the Mortgage Loans,
representing 91.0% of the Initial Pool Balance,
bear interest at annualized rates ("Mortgage
Rates") that will remain fixed for the
remaining terms of the Mortgage Loans. Two (2)
of the Mortgage Loans, representing 4.3% of the
Initial Pool Balance, bear interest at
annualized rates that are fixed until a certain
date and thereafter bear interest at a higher
annualized rate that is fixed until maturity.
One (1) of the Mortgage Loans, representing
4.7% of the Initial Pool Balance, bears
interest that is payable at an annualized fixed
rate of 10.02% until June 30, 1998, thereafter
bears interest at an annualized fixed rate of
8.975% until January 30, 2000, and thereafter
bears interest at an annualized fixed rate of
7.93% until November 1, 2007.
Thirty-three (33) of the Mortgage Loans,
representing 97.6% of the Initial Pool Balance,
provide for one of the following: (i)
twenty-two (22) of the Mortgage Loans,
representing 72.3% of the Initial Pool Balance,
provide for Monthly Payments of principal and
interest based on amortization schedules
significantly longer than their terms to
maturity, (ii) two (2) of the Mortgage Loans,
representing 2.9% of the Initial Pool Balance,
provide for Monthly Payments of interest only
for a period and then Monthly Payments of
principal and interest based on amortization
schedules significantly longer than their terms
to maturity, or Monthly Payments of interest
only for a period and then application of
principal amounts not sufficient to fully
amortize the Mortgage Loan, and (iii) nine (9)
of the Mortgage Loans, representing 22.4% of
the Initial Pool Balance, provide for Monthly
Payments of interest only. 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, unless prepaid prior
thereto. See "Risk Factors and Other Special
Considerations--The Mortgage Loans--Balloon
Payments" herein. The remaining eight (8)
Mortgage Loans, representing 2.4% of the
Initial Pool Balance, are fully amortizing,
with insignificant or no balances due at
maturity. See "Description of the Mortgage
Pool--Certain Terms and Characteristics of the
Mortgage Loans--Amortization" 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
forty (40) fixed-rate loans and Loan Group 2
consists of one (1) fixed-
S-31
<PAGE>
rate loan, the Poughkeepsie Galleria Loan.
Payments of principal in respect of the
Poughkeepsie Galleria Loan comprising Loan
Group 2 (including any prepayments) will be
distributed first to the holders of the Class
A-2 Certificates. See "--Distributions of
Interest and Principal."
As of the Cut-off Date, thirty-four (34) of the
Mortgage Loans, representing 93.8% of the
Initial Pool Balance, restrict voluntary
principal prepayments as follows: (i) eight (8)
Mortgage Loans, representing 31.6% of the
Initial Pool Balance, prohibit voluntary
prepayments for a period (a "Lock-out Period")
ending on a date (generally ranging from two
(2) months to 123 months from the Cut-off Date
and, in most such cases, thereafter impose
"Prepayment Premiums" until a specified date
(generally three to six months) prior to
maturity; and (ii) twenty-six (26) of the
Mortgage Loans, representing 62.2% of the
Initial Pool Balance, do not provide for
Lock-out Periods but impose Prepayment Premiums
in connection with voluntary principal
prepayments made prior to a specified date
(also generally three to 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 some 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 (7) of the Mortgage Loans,
representing 6.2% of the Initial Pool Balance,
permit, in each such case, voluntary principal
prepayments of the outstanding principal
balance of the Mortgage Loan without the
imposition of a Prepayment Premium.
For a discussion of certain prepayment and
default risks associated with Loan Group 2, see
"Risk Factors and Other Special
Considerations--Prepayment and Default Risks
Associated with Loan Group 2."
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 (as described herein). Neither the
Depositor nor the 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.
As of the Cut-off Date, the Mortgage Loans have
the following additional characteristics:
(i) Mortgage Rates ranging from 7.000%
per annum to 11.780% per annum, and
a weighted average Mortgage Rate of
9.331% per annum;
S-32
<PAGE>
(ii) Loan Constants (that is, in each
case, the ratio of (a) the annual
debt service to (b) the Cut-off Date
Balance) ranging from 7.000% to
67.040% and a weighted average Loan
Constant of 10.680%.
(iii) remaining terms to scheduled
maturity ranging from 1 month to 241
months, and a weighted average
remaining term to scheduled maturity
of 97 months for all Mortgage Loans;
(iv) remaining amortization terms ranging
from 20 months to 337 months, and a
weighted average remaining
amortization term of 188 months;
(v) Current Implied Loan-to-Value Ratios
(that is, in each case, the ratio of
(a) the Cut-off Date Balance of such
Mortgage Loan to (b) the capped
Underwritten NOI of such Mortgage
Loan (calculated as described herein
under "Description of the Mortgage
Pool--Additional Mortgage Loan
Information"), ranging from 15.2% to
119.3% and a weighted average
Current Implied Loan-to-Value Ratio
of 67.2%;
(vi) Debt Service Coverage Ratios
(calculated as described herein
under "Description of the Mortgage
Pool--Additional Mortgage Loan
Information") ranging from 0.50x to
2.69x and a weighted average Debt
Service Coverage Ratio of 1.26x; and
(vii) Assumed Debt Service Coverage Ratios
(calculated assuming each Mortgage
Loan has an assumed fixed constant
of 9.5% as described herein under
"Description of the Mortgage
Pool--Additional Mortgage Loan
Information") ranging from 0.79x to
4.27x and a weighted average Assumed
Debt Service Coverage Ratio of
1.38x.
In determining Current Implied Loan-to-Value
Ratios and Debt Service Coverage Ratios, (a)
all Cross-Collateralized Mortgage Loans were
aggregated and treated as a single loan (with
the values of their related Mortgaged
Properties similarly aggregated), and (b) the
amount of any Mortgage Loan secured by a second
mortgage lien on the related Mortgaged Property
was added to any amounts due under the loan
secured by the first mortgage lien on such
Mortgaged Property.
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
Certificateholders. The Seller will make
certain representations and warranties
regarding the characteristics of the Mortgage
Loans, and, as more particularly described
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herein, the Seller will agree 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. A brief summary of the
material terms of the largest Mortgage Loans in
the Mortgage Pool is set forth in Appendix III.
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
from the Seller and to pay certain expenses in
connection with the issuance of the
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 (but not including the
Additional Interests). 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 Certificate will represent three
classes of REMIC residual interests comprising
the sole class of residual interests in REMIC
I, REMIC II and REMIC III, respectively.
The Offered Certificates will be treated as
"real estate assets" under Section 856(c)(4)(A)
and 856(c)(5)(B) of the Internal Revenue Code
of 1986, as amended, (the "Code") and will
qualify for treatment as "permitted assets" for
a financial asset securitization investment
trust, within the meaning of Section
860L(c)(1)(G) of 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)(4)(A) of
the Code. The Offered Certificates also will be
treated as "qualified mortgages" under Section
860G(a)(3) of the Code with respect to other
REMICs and those held by certain financial
institutions will constitute "evidence of
indebtedness" within the meaning of Section
582(c)(1). However, the Offered Certificates
will generally only be considered assets
described in Section 7701(a)(19)(C)(xi) of
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<PAGE>
the Code to the extent that the Mortgage Loans
are secured by residential property and,
accordingly, may not be suitable for certain
thrift institutions.
The Class IO Certificates will, and the other
Classes of Offered Certificates may, 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 or the Offered Certificates will
only prepay during any such period or will
prepay at any particular rate before or during
any such period. See "Certain Federal Income
Tax Consequences" herein and in the Prospectus.
In addition, the Additional Interests included
in the Trust Fund but not in any of the REMICs
will be held by the Trustee as a separate
grantor trust, the beneficial ownership of
which will be represented by the Class V and
Class W Certificates. The V Certificates will
represent beneficial ownership of the Non-REMIC
Assets and the W Certificates will represent
beneficial ownership of the Non-REMIC Fees.
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 companies
of such Classes, provided that the conditions
of
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<PAGE>
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"
herein and 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.
Accordingly, 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 Principal Balance
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 Mortgage Loans 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",
"--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.
For a discussion of certain prepayment and default risks associated with
Loan Group 2, see "Risk Factors and Other Special Considerations--Prepayment and
Default Risks Associated with Loan Group 2."
Delays in liquidations of defaulted Mortgage Loans and modifications
extending the maturity of Mortgage Loans will tend to extend the payment of
principal of the Mortgage Loans. Because approximately 97.6% of the Initial Pool
Balance consists of Balloon Loans and because the ability of a borrower to make
a Balloon Payment typically will depend upon its ability either to refinance the
Mortgage Loan or to sell the related Mortgaged Property at a price sufficient to
permit the borrower
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<PAGE>
to make the Balloon Payment, there is a risk that a number of Mortgage Loans
having Balloon Payments may default at maturity, or that, following or in
anticipation of such a default, the Master Servicer or the Special Servicer may
extend the maturity of a number of such Mortgage Loans in connection with
working them out. In the case of a default, recovery of proceeds may be delayed
by, among other things, bankruptcy of the related borrower or adverse conditions
in the market where the Mortgaged Property is located.
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, the Seller, the Master Servicer, the Special
Servicer, 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 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 L, Class K,
Class J, Class H, Class G, Class F, Class E, Class D, Class C and Class B
Certificates, in that order, reducing amounts 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 controlled generally by the holders of the majority interest in
the most subordinated Class of REMIC Regular Certificates (that is, the
Controlling Class as described herein) outstanding from time to time, which
holders may have interests in conflict with those of the holders of the other
Classes of 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. Although the Operating Adviser is not permitted to direct the
Special Servicer to take, and the Special Servicer may not take, any action that
will violate the Servicing Standard or any other provision of the Pooling and
Servicing Agreement, the Operating Adviser may terminate the Special Servicer
without cause. It is anticipated that an affiliate of the Special Servicer will
be the initial holder of the Class L Certificates, which will be the initial
Controlling Class.
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
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<PAGE>
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.
Dependence on Tenants
The borrower under a mortgage loan secured by income-producing property
generally relies on periodic lease or rental payments from tenants to pay for
maintenance and other operating expenses of the building, to fund capital
improvements and to service the loan and any other debt or obligations it may
have outstanding. There can be no guaranty that tenants will renew leases upon
expiration or, in the case of a commercial tenant, that it will continue
operations throughout the term of its lease. The income of a borrower under a
Mortgage Loan would be adversely affected if tenants were unable to pay rent or
if space were unable to be rented on favorable terms or at all. For example, if
any borrower under a Mortgage Loan were to relet or renew the existing leases
(or renegotiate existing leases) for a significant amount of space at rental
rates significantly lower than expected rates, then such borrower's funds from
operations may be adversely affected. Changes in payment patterns by tenants may
result from a variety of social, legal and economic factors, including, without
limitation, the rate of inflation and unemployment levels and may be reflected
in the rental rates offered for comparable space. In addition, upon reletting or
renewing existing leases (or renegotiating existing leases), the borrower under
a Mortgage Loan secured by commercial and industrial property will likely be
required to pay leasing commissions and tenant improvement costs which may
adversely affect cash flow from the Mortgaged Property. There will be existing
leases that expire during the term of the Mortgage Loans and there can be no
assurance that such leases will be renewed. There can be no assurances whether,
or to what extent, economic, legal or social factors will affect future rental
or repayment patterns.
In the case of retail, office and industrial properties, the performances
and liquidation values of such properties may be dependent upon the businesses
operated by tenants, the creditworthiness of such tenants and the number of
tenants. In some cases, a relatively small number of tenants may account for a
disproportionately large share of the rentable space or rental income of such
property. Accordingly, a decline in the financial condition of a significant
tenant, or other adverse circumstances in respect of such a tenant (such as
bankruptcy or insolvency), may have a disproportionately greater effect on the
net operating income derived from such property than would be the case if
rentable space or rental income were more evenly distributed among the tenants
at such property.
If mortgaged properties are leased to single tenants, the lender does not
have the benefit of tenant credit risk diversification, but instead is
substantially reliant upon the creditworthiness of one tenant. The Mortgaged
Properties securing the Cambridge Park-2 Loan, the Clark Equipment Loan, the
Thornhill Road Loan and the Big 5 Sporting Goods Loan are in each case leased to
one tenant. In
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<PAGE>
addition, the Mortgaged Property securing the United Farm Bureau Headquarters
Loan is leased to two (2) subsidiaries of the same insurance company.
Additional risks are presented when a property is leased to a single tenant
and the lease expires prior to maturity of the mortgage loans secured thereby.
In the case of the Cambridge Park-2 Loan, the Clark Equipment Loan and the
Thornhill Road Loan, the respective single tenant's lease expires before the
maturity of the related Mortgage Loan (or in the case of the Thornhill Road Loan
is a month-to-month lease), such that the respective Mortgaged Property if not
relet may be vacant when substantial principal payments are due. In addition,
commercial properties typically experience more rapid deterioration when
unoccupied.
The bankruptcy or insolvency of a major tenant or a number of smaller
tenants may have an adverse impact on a Mortgaged Property leased to such
tenants and the income produced by such Mortgaged Property. Under bankruptcy
law, a tenant has the option of assuming (continuing), or rejecting
(terminating) or, subject to certain conditions, assigning to a third party any
unexpired lease. If the tenant assumes its lease, the tenant must cure all
defaults under the lease and provide the landlord with adequate assurance of its
future performance under the lease. If the tenant rejects the lease, the
landlord's claim for breach of the lease would be treated (absent collateral
securing the claim) as a general unsecured claim. In general, the amount of the
claim would be limited to the amount owed for unpaid pre-petition lease payments
unrelated to the rejection, plus lease payments for the greater of one year or
15% of the remaining lease term (but not to exceed three years). As a result of
these provisions, a credit lease lender may recover less from a bankrupt credit
tenant than it would recover if it held a direct unsecured debt obligation
against such tenant. If a tenant in bankruptcy assigns its lease, the tenant
must cure all defaults under the lease and the proposed assignee must
demonstrate adequate assurance of future performance under the lease.
No assurance can be given that tenants in a Mortgaged Property will
continue making payments under their leases or that other tenants will not file
for bankruptcy protection in the future or, if any such tenants file, that they
will continue to make rental payments in a timely manner. In the case of any
single tenant property, a bankruptcy of the single tenant would have a greater
impact on the borrower and the related Mortgage Loan than if such Mortgaged
Property were leased to separate unaffiliated tenant operators. In addition, a
tenant may, from time to time, experience a downturn in its business, which may
weaken its financial condition and result in a reduction of or failure to make
rental payments when due. If a tenant defaults in its obligations to a borrower,
the borrower may experience delays in enforcing its rights as lessor and may
incur substantial costs and experience significant delays associated with
protecting its investment, including costs incurred in renovating and reletting
the property.
The Mortgaged Property securing the Poughkeepsie Galleria Loan constitutes
a shopping mall which includes as anchor tenants Montgomery Ward and Lechmere,
both of which currently are in bankruptcy. Montgomery Ward has not given any
indication that it will reject its lease; however, there can be no assurance
that it will not reject the lease. In addition, although the Lechmere store does
not constitute collateral for the Poughkeepsie Galleria Loan, the ultimate
disposition of the Lechmere store may impact the financial performance of the
other stores in the shopping mall that are tenants of the Mortgaged Property.
Competition
Other multifamily residences, hotels, retail shopping facilities, office
buildings and industrial facilities located in the areas of the Mortgaged
Properties compete with the Mortgaged Properties of such types to attract
residents, retail sellers, tenants, customers and guests. The leasing of real
estate is highly competitive. The principal means of competition are price,
location and the nature and condition of the facility to be leased. A borrower
under a Mortgage Loan competes with all lessors and developers of comparable
types of real estate in the area in which the Mortgaged Property is located.
Such lessors or developers could have lower rentals, lower operating costs, more
favorable locations or better facilities. While a borrower under a Mortgage Loan
may renovate, refurbish or expand the Mortgaged Property to maintain it and
remain competitive, such renovation, refurbishment or expansion may itself
entail significant risks. Increased competition could adversely affect income
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<PAGE>
from and the market value of the Mortgaged Properties. In addition, the business
conducted at each Mortgaged Property may face competition from other industries
and industry segments.
Risks Particular to Retail, Office and Industrial Properties
Thirty-two (32) Mortgage Loans, representing 87.6% of the Initial Pool
Balance, are secured by Mortgages on office properties (50.4% of the Initial
Pool Balance), retail properties (16.2% of the Initial Pool Balance), mixed use
properties (13.0% of the Initial Pool Balance) used for a combination of
commercial purposes and industrial properties (8.0% of the Initial Pool
Balance). In addition to risks generally associated with real estate, such
properties can also be adversely affected by other factors. For instance, 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, as with anchored shopping centers, the success of
an office property with a single or dominant tenant may depend significantly on
that tenant's continued occupancy.
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.
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.
Properties used for a combination of commercial purposes generally will be
subject to one or more of the risks set forth herein.
Risks Particular to Hotels.
Four (4) Mortgage Loans (the "Hotel Loans"), representing 8.7% of the
Initial Pool Balance, are secured by Mortgages solely on hotel properties and
one (1) of the Mortgage Loans, representing 7.0% of the Initial Pool Balance, is
secured by a Mortgage on a mixed use property that includes a hotel, which
maintains no national franchise affiliation. Various factors, including
location, quality and franchise affiliation, if any, affect the economic
viability of a hotel. Adverse economic conditions, either local, regional or
national, may limit the amount that can be charged for a room and may result in
a reduction in occupancy levels. The construction of competing hotels or motels
can have similar effects. Because hotel and motel rooms generally are rented for
short periods of time, hotels and motels tend to respond more quickly to adverse
economic conditions and competition that do other commercial properties.
Furthermore, the financial strength and capabilities of the owner and operator
of a hotel or motel may have an impact on such hotel or motel's quality of
service and economic viability.
Certain of the Mortgaged Properties securing the Hotel Loans are
franchisees of national hotel chains. The viability of any hotel or motel
property which is affiliated with a franchise depends in part on the continued
existence and financial strength of the franchisor, the public perception of the
franchise service mark and the duration of the franchise licensing agreements.
The transferability of franchise license agreements may be restricted and, in
the event of a foreclosure on any Mortgaged Property, the purchaser of such
Mortgaged Property would not have the right to use the franchise license without
the franchisor's consent. Further, in the event of a foreclosure on a Mortgaged
Property, it is unlikely that the Trustee (or Master Servicer) or purchaser of
such Mortgaged Property
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would be entitled to the rights under any liquor license. Conversely, a lender
may be unable to remove a franchisor that it desires to replace following a
foreclosure.
Certain of the Mortgaged Properties securing the Hotel Loans are not
franchisees of national hotel chains and therefore do not have the benefits
typically associated with being part of such a chain (including, for example,
reservation systems and marketing).
Risks Particular to Multifamily Properties
Five (5) Mortgage Loans, representing 3.7% 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.
Mortgage Loans Not Insured
The Mortgage Loans are not insured or guaranteed by any governmental entity
or any private mortgage insurer. As described herein, in certain limited
circumstances, the 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 the Seller will be in a
financial position to effect such repurchase or substitution. See "Description
of the Mortgage Pool--The Seller", "--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 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. The Seller has represented to the Depositor that, with
respect to each Mortgage Loan, except for seven (7) Mortgage Loans,
(representing 0.2% of the Initial Pool Balance), an environmental site
assessment was performed with respect to the related Mortgaged Property in
connection with the sale of the Mortgage Loan, a report of such assessment has
been reviewed by the Seller and delivered to the Depositor, and, to the Seller's
knowledge, such assessment is not misleading and does not contain any false
statements. With respect to five (5) of the Mortgage Loans (14.9% of the Initial
Pool Balance), the Seller has provided to the Trustee a limited indemnity with
respect to certain covered conditions. 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.
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. A
brief description of certain of the environmental conditions at certain of the
Mortgaged Properties, the covered conditions affecting certain of the Mortgaged
Properties related to such Mortgage Loans and such indemnity is attached hereto
as Appendix IV.
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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). Furthermore, although such requirement
decreases the likelihood that the Trust Fund will become liable for a material
adverse environmental condition at a Mortgaged Property, 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
Thirty-three (33) of the Mortgage Loans, representing 97.6% of the Initial
Pool Balance, do not fully amortize over their respective terms to maturity
(thereby creating an incentive for the borrower to prepay). Thus, each such
Mortgage Loan will have a substantial payment (that is, a "Balloon Payment") due
at its stated maturity 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 Seller, 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.
The incentive for the borrower to prepay its Mortgage Loans created by
certain features of the Mortgage Loans, including (a) the balloon payments
described above and (b) certain terms of the Mortgage Loans which provide that a
borrower may prepay its loan without penalty for a certain period of time, could
have an adverse effect on the yield to maturity of Certificateholders,
particularly holders of the Interest Only Certificates, which will be highly
sensitive to the rate and timing of principal payments (including by reason of
prepayments, defaults and liquidations). See "Risk Factors and Other Special
Considerations--The Certificates--Certain Yield Considerations" herein and "Risk
Factors--Average Life of Certificates; Prepayments; Yields" 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.
Rate Increases
Two (2) of the Mortgage Loans, representing 4.3% of the Initial Pool
Balance, each bears interest at an annualized rate that is fixed until a certain
date and thereafter bears interest at a higher annualized rate that is fixed
until maturity. See "Description of the Mortgage Pool -- Certain Terms and
Characteristics of the Mortgage Loans -- Mortgage Rates; Calculations of
Interest" herein. Such increases in the monthly payments beyond the amounts
assumed in the original underwriting of such loans could cause a decrease in the
related debt service coverage ratio for such Mortgage Loan and
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a default rate higher than that on mortgage loans with rates that do not
increase over the term of the term of the loan.
Prepayment Premiums
Most of the Mortgage Loans require, during a substantial portion of the
terms of said Mortgage Loans, that any voluntary principal prepayment be
accompanied by a Prepayment Premium but seven (7) of the Mortgage Loans,
representing 6.2% of the Initial Pool Balance, permit, in each case, voluntary
principal payments of the outstanding principal balance without the imposition
of a Prepayment Premium. See "Description of the Mortgage Pool -- Certain Terms
and Characteristics of the Mortgage Loans -- Prepayment Restrictions" herein.
If and to the extent received, Prepayment Premiums will generally be
distributed among the holders of each of the respective Classes of Certificates
whose aggregate Certificate Balance or Notional Amount, as the case may be, is
reduced in connection with the distribution of the related prepayment of
principal, in the amounts and in accordance with the priorities described
herein. See "Description of the Certificates -- Distributions -- Distributions
of Prepayment Premiums" herein. No representation is made herein as to the
enforceability of the provision of any Mortgage Note requiring the payment of a
Prepayment Premium, or of the collectibility of any Prepayment Premium, or as to
whether, if enforceable and collectible, such payment of a Prepayment Premium
would adequately compensate Certificateholders for any loss of value caused by a
principal prepayment.
The enforceability, under the laws of a number of states, of provisions
similar to the provisions of the Mortgage Loans providing for the payment of a
Prepayment Premium upon a voluntary or involuntary prepayment is unclear. In
particular, no assurance can be given that, at any time that any Prepayment
Premium is required to be made in connection with an involuntary prepayment, the
obligation to pay such Prepayment Premium will be enforceable under applicable
law or, if enforceable, the foreclosure proceeds will be sufficient to make such
payment. Proceeds recovered in respect of any defaulted Mortgage Loan will, in
general, be applied to cover outstanding servicing expenses and unpaid principal
and interest prior to being applied to cover any Prepayment Premium due in
connection with the liquidation of such Mortgage Loan. For a discussion of
certain prepayment and default risks associated with Loan Group 2, see "Risk
Factors and Other Special Considerations--Prepayment and Default Risks
Associated with Loan Group 2, and for a general description of the
enforceability of Prepayment Premiums, see "Certain Legal Aspects of Mortgage
Loans -Enforceability of Prepayment and Late Payment Fees" in the Prospectus.
No Prepayment Premium will be payable in connection with any repurchase of
a Mortgage Loan by the Seller for a material breach of representation or
warranty on the part of the Seller or any failure to deliver documentation
relating thereto, and no Prepayment Premium will be payable in connection with
the purchase of all the Mortgage Loans and any REO Properties by the Master
Servicer, the Special Servicer, the Operating Advisor, the Depositor or and any
holder of a majority interest in the Class R Certificate in connection with the
termination of the Trust Fund. See "Description of the Certificates--Optional
Termination" herein.
Geographic Concentration
Seven (7) of the Mortgage Loans, representing 21.7% of the Initial Pool
Balance, are secured by liens on Mortgaged Properties located in the State of
California. Concentrations of Mortgaged Properties (in each case representing
security for 14.7% or less 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 located in other parts of the country. The
Mortgage Loans generally do not require borrowers to maintain earthquake
insurance.
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Concentrations of Mortgage Loans and Borrowers
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 $19,590,560 average Cut-off Date
Balance. For instance, the two largest Mortgage Loans constitute 4.9% of the
Mortgage Pool by number but have Cut-off Date Balances ($97,552,186 and
$55,997,412) that together represent approximately 19.1% of the Initial Pool
Balance, and the five largest Mortgage Loans (without taking into account
cross-collateralization) constitute 12.2% of the Mortgage Pool by number but
have Cut-off Date Balances that represent, in the aggregate, approximately 36.0%
of the Initial Pool Balance.
Four (4) 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 (4) groups, by aggregate
Cut-off Date Balance of the Mortgage Loans, represent 10.2%, 6.7%, 4.5% and
2.7%, respectively, of the Initial Pool Balance.
The Glen Pointe Centre West Loan and the Court Plaza Loan are a set of
related loans (representing, in the aggregate, 10.2% of the Initial Pool
Balance) in that such loans are under common management and related ownership.
The largest of the cross-collateralized groups, the Commerce Distribution Center
Loans (representing 6.7% of the Initial Pool Balance), is comprised of the
Commerce Distribution Center - 50 Loan and the Commerce Distribution Center - 36
Loan, which are secured by Mortgaged Properties in the same complex in
Bell/Commerce, California, are to the same borrower and are cross-defaulted and
cross-collateralized. The second related loan group, representing 4.5% of the
Initial Pool Balance, is the Timberland Loans, a set of three (3) loans due from
affiliated borrowers, secured by Mortgaged Properties that are part of the same
office complex in Troy, Michigan. In addition, within the set of Timberland
Loans, the Timberland B Loan and Timberland C Loan are cross-collateralized. The
Commerce Plaza--I Mortgage Loan and the Commerce Plaza--II Mortgage Loan
(representing, in the aggregate, 2.7% of the Initial Pool Balance) are secured
by adjacent Mortgaged Properties and are under common management and related
ownership. Accordingly, they present a concentration of credit risk.
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 because each
group of related or cross-collateralized Mortgage Loans can be viewed in some
respects as a single loan. Therefore, there is a greater risk that the
affiliated borrowers, particularly those whose Mortgage Loans are
cross-defaulted and cross-collateralized with one another, under certain
circumstances, could determine that it was in their collective interest to file
bankruptcy petitions that would stay the enforcement of their collective
Mortgage Loans which might result in the interruption of related Monthly
Payments for an indefinite period. In addition, 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 of each Mortgaged Property was performed in connection with
the origination of the related Mortgage Loan. In many cases such appraisal was
performed by the staff of a correspondent of the Seller. In general, an
appraisal represents the analysis and opinion of a qualified valuation expert
and is not a guarantee of present or future value. Moreover, appraisals
generally seek to establish the amount a typically motivated buyer would pay a
typically motivated seller acting without any particular time or other pressure.
Such amount could be significantly higher than the amount obtained from the sale
of a Mortgaged Property in a distress or liquidation sale.
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Furthermore, none of the estimates of the values of the Mortgaged
Properties, for purposes of determining the loan-to-value ratios contained
herein, were made on the basis of appraisals. Rather, such values were estimated
by applying capitalization rates which were determined by the Seller to
Underwritten NOI (as defined herein), as described herein under "The Mortgage
Loans--Additional Mortgage Loan Information."
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
Seller has identified several groups of Mortgage Loans that have the same or
related management. See "--Concentrations of Mortgage Loans and Borrowers"
herein.
Leasehold Considerations
Five (5) Mortgage Loans representing 19.3% of the Initial Pool Balance, are
secured solely by a Mortgage on the borrower's leasehold interest under a ground
lease. See "Description of the Mortgage Pool--Additional Mortgage Loan
Information" 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. With respect to four (4) of these Mortgage Loans, 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. With respect to one (1) of the Mortgage Loans, the mortgagee
has a binding agreement with the holder of the first leasehold mortgage (which
is the Seller) pursuant to which the first leasehold mortgagee agrees (x) to
promptly provide mortgagee with any notice it receives from the ground lease
landlord regarding the ground lease, (y) that mortgagee shall have and be
entitled to exercise "cure rights" with regard to the ground lease in the same
manner and timeframe as the first leasehold mortgagee and (z) that it will not
transfer its mortgage without ensuring that its transferee provides similar
assurances to the leasehold mortgagee. The Mortgaged Property securing the UCLA
Medical Center Loan (representing 2.6% of the Initial Pool Balance) is a
leasehold interest in which the ground lessor has, under certain circumstances,
a right of first refusal as well as options to purchase the leasehold interest
securing the Mortgage Loan. See "Appendix III--Significant Loan Summaries--UCLA
Medical Center Loan". The ground lessor and the ground lessee of the Mortgaged
Property securing the Charles Hotel Loan each have an option to purchase the
respective interest of the other under the circumstances set forth in the ground
lease. See "Appendix III--Significant Loan Summaries--Charles Hotel Loan".
Risks of Secured Subordinate Financing
Six (6) of the Mortgaged Properties, representing security for 5.1% of the
Initial Pool Balance, are known to be encumbered by secured subordinated debt
held by third parties.
The Mortgaged Property securing the Sonesta Beach Hotel Loan is encumbered
by the following: (i) a mortgage in favor of Florida Sonesta Corporation,
securing a loan in the amount of $5,000,000, maturing on December 31, 1997; (ii)
a mortgage in favor of Florida Sonesta Corporation, securing a loan in the
amount of $6,500,000, maturing on December 31, 2004; (iii) a mortgage in favor
of VMS Mortgage Company II, securing a loan in the amount of $2,000,000,
maturing on December 31, 1997; (iv) a mortgage in favor of Florida Sonesta
Corporation, securing a loan in the amount of $2,194,005; and (v) a mortgage in
favor of Key Biscayne Beach Hotel Associates Ltd., securing a loan in the amount
of $1,317,426.
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The Mortgaged Property securing the Crowne Plaza - Union Station Loan is
encumbered by a mortgage in favor of the City of Indianapolis, securing a loan
in the amount of $1,000,000, which bears interest at the rate of 6%, is subject
to a subordination agreement, and matures prior to the Crowne Plaza - Union
Station Loan.
The Mortgaged Property securing the Pinellas Center Loan is encumbered by a
mortgage in favor of Republic Bank, securing a loan in the amount of $235,580,
which requires monthly debt service of 0.5% of that amount.
The Mortgaged Property securing the Phillips Place Cooperative Loan is
encumbered by the following: (i) a mortgage in favor of Minneapolis/St. Paul
Family Housing, securing a loan in the amount of $600,000; (ii) a mortgage in
favor of Minneapolis/St. Paul Family Housing, securing a loan in the amount of
$150,000; and (iii) a mortgage in favor of Minneapolis Community Development
Agency, securing a loan in the amount of $600,000. The mortgages do not require
monthly debt service and they mature subsequent to the Phillips Place
Cooperative Loan.
The Mortgaged Property securing the Clinton Avenue Townhomes Loan is
encumbered by the following: (i) a mortgage in favor of Minneapolis/St. Paul
Housing Fund, securing a loan in the amount of $644,827; (ii) a mortgage in
favor of Minneapolis/St. Paul Housing Fund, securing a loan in the amount of
$482,000; and (iii) a Repayment Note and Grant of Lien in favor of Housing and
Redevelopment Authority of St. Paul in the amount of $39,210. Neither of the
mortgages requires monthly debt service or matures prior to the Clinton Avenue
Townhomes Loan.
The Mortgaged Property securing the 150 Sycamore Street Loan is encumbered
by a mortgage in favor of Mechanics Savings Bank, securing a loan in the amount
of $600,000.
Most of these subordinate loans are not subject to any intercreditor
agreements or other restrictions on the respective subordinate lender's exercise
of foreclosure rights or other remedies. In addition, eighteen (18) other
Mortgage Loans permit further encumbrances of the related Mortgaged Property,
generally subject to the satisfaction of certain conditions. 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.
Non-REMIC Assets
In the case of ten (10) of the Mortgage Loans, representing 20.3% of the
Initial Pool Balance, the related Mortgaged Property secures an obligation of
the related Mortgagor evidenced by a related Non-REMIC Asset. Each Non-REMIC
Asset constitutes an obligation of the related Mortgagor secured by the related
Mortgaged Property that is, pursuant to the related loan documents, secured
ratably with and in addition to the obligations the Mortgagor has with respect
to the related Mortgage Loan.
Pursuant to the terms of the Pooling and Servicing Agreement, so long as
payments in respect of the Mortgage Loans in the Trust Fund are current,
payments shall be made in respect of the Non- REMIC Assets as their interests
may appear, but in the event of a default under any of the Mortgage Loans in the
Trust Fund, the related Non-REMIC Asset will be subordinated and no payments
will be made in respect of such Non-REMIC Asset so long as such default is
continuing.
Certain of the Non-REMIC Assets that constitute shared appreciation
interest are not payable until the related Mortgage Loan is paid in full;
however the existence of such Non-REMIC Asset could adversely affect the ability
of the Mortgagor to refinance the related Mortgage and make full and timely
payments on the Mortgage Loan. See "Description of the Mortgage Pool--Certain
Terms and Characteristics of the Mortgage Loans--Additional Interests" herein.
In addition, because the Class V Certificates will initially be held by the
Operating Advisor, who will be an affiliate of the Special Servicer, and because
the Operating Advisor, who owes no duty of care to the holders of the Offered
Certificates, has the power, under the Pooling and Servicing
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Agreement, to remove the Special Servicer at any time without cause, the Special
Servicer may face a potential conflict of interest in servicing the Mortgage
Loans, subject to the Special Servicer's compliance with the Servicing Standard.
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.
Low Debt Service Coverage Ratios
Ten (10) of the Mortgage Loans representing 19.8% of the Initial Pool
Balance have Debt Service Coverage Ratios (calculated as described herein under
"Description of Mortgage Pool--Additional Mortgage Loan Information") below
1.00x. 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.
Consequently, debt service coverage ratios measure the current, or recent,
ability of a property to service mortgage debt. Accordingly, Mortgage Loans with
debt service coverage ratios less than 1.0x may be more likely to default than
Mortgage Loans with higher debt coverage ratios.
Prepayment and Default Risks Associated with Loan Group 2
Payments of principal in respect of the Poughkeepsie Galleria Loan
comprising Loan Group 2 (including any prepayments) will be distributed first to
the holders of the Class A-2 Certificates as described under "Description of the
Certificates--Distributions--Application of the Available Distribution Amount".
The Seller has received a letter from the Poughkeepsie Galleria Loan borrower in
which the borrower has stated that it intends to prepay the Poughkeepsie
Galleria Loan in not less than sixty-five days and not more than 370 days from
the Cut-off Date. The borrower further states in the letter that it does not
intend to pay the Prepayment Premium required under the loan documents in
connection with such prepayment, but rather intends to seek a judicial
determination that the Prepayment Premium is void and unenforceable. Any
prepayment of the Poughkeepsie Galleria Loan would result in a corresponding
distribution in respect of the Class A-2 Certificates which may, among other
things, reduce the average life of the Subordinated Certificates, and would
reduce the Notional Amount of the Class IO Certificates. In addition, such
letter may indicate an increased likelihood that the borrower under the
Poughkeepsie Galleria Loan will default under one or more of the terms of its
Mortgage Loan. Any Realized Loss resulting from such a default will be allocated
to Certificateholders as set forth under "Description of the
Certificates--Subordination; Allocation Losses and Certain Expenses."
DESCRIPTION OF THE CERTIFICATES
General
The Aetna Commercial Mortgage Trust Multiclass Pass-Through Certificates,
Series 1997- ALIC (the "Certificates") will be issued on or about December __,
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 and the Trustee. Registered
holders of the Certificates are herein referred to as "Certificateholders". The
Certificates will represent in the aggregate the entire beneficial ownership
interest in a trust fund (the "Trust Fund") consisting primarily of: (i) the
Mortgage Loans and all payments under and proceeds of the Mortgage Loans
received after the Cut-off Date (exclusive of principal prepayments received
prior to the Cut-off Dates, scheduled payments of principal and interest due on
or before the Cut-off Date); (ii) any Mortgaged Property acquired on behalf of
the Certificateholders in respect of a defaulted
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Mortgage Loan through foreclosure, deed in lieu of foreclosure or otherwise (any
such Mortgage Property, upon acquisition, an "REO Property"); (iii) certain
rights of the Depositor under, or assigned to the Depositor pursuant to, the
Mortgage Loan Purchase Agreement relating to Mortgage Loan document delivery
requirements and the representations and warranties of the Seller regarding the
Mortgage Loans; and (iv) the Additional Interests.
The Certificates will consist of 17 classes (each, a "Class") thereof, to
be designated as: (i) the Class A-1A, Class A-1B and Class A-2 Certificates
(together, the "Class A Certificates"); (ii) the Class IO Certificates (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, the Class J Certificates, the Class K Certificates and the Class L
Certificates (collectively, the "Subordinate Certificates"; and, collectively
with the Senior Certificates, the "REMIC Regular Certificates"); (iv) the Class
R Certificate; (v) the Class V Certificates; and (vi) the Class W Certificates
(the Class V Certificates, together with the Class W Certificates, the
"Non-REMIC Certificates"). The Class R Certificate represents three separate
interests in the Trust Fund, and the Pooling and Servicing Agreement will
provide that the Class R Certificate may be split into its three component
interests, each represented by a separate class of 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, Class J, Class K and Class L Certificates, the
Non-REMIC Certificates, and the Class R Certificate (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, 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 hold their Offered Certificates in book entry form,
delivery of which will be made through the facilities of DTC (in the United
States) and may be made through the facilities of 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. or The Chase Manhattan
Bank, the relevant depositaries of CEDEL and Euroclear, respectively.
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Because of time-zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a DTC participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel participant on such business day. Cash received in Cedel or
Euroclear as a result of sales of securities by or through a Cedel participant
or a Euroclear participant to a DTC participant will be received with value on
the DTC settlement date but will be available in the relevant Cedel or Euroclear
cash account only as of the business day following settlement in DTC.
Certificate Balances and Notional Amounts
Upon initial issuance, the Class A-1A, Class A-1B, Class A-2, Class B,
Class C, Class D, Class E, Class F, Class G, Class H, Class J, Class K and Class
L Certificates (collectively, the "Principal Balance Certificates") will have
the following aggregate Certificate Balances (in each case, subject to a
variance of plus or minus 5%):
<TABLE>
<CAPTION>
Approximate Approximate
Initial Aggregate Percent of Initial Percent of Credit
Class Certificate Balance Pool Balance Support
- ----- ------------------- ------------ -----------------
<S> <C> <C> <C>
Class A-1A $169,000,000 57.00% 43.00%
Class A-1B 191,279,000 57.00 43.00
Class A-2 97,552,000 57.00 43.00
Class B 64,257,000 8.00 35.00
Class C 68,273,000 8.50 26.50
Class D 48,193,000 6.00 20.50
Class E 20,080,000 2.50 18.00
Class F 44,177,000 5.50 12.50
Class G 8,032,000 1.00 11.50
Class H 14,056,000 1.75 9.75
Class J 26,104,000 3.25 6.50
Class K 20,080,000 2.50 4.00
Class L 32,129,971 4.00 0.00
</TABLE>
The "Certificate Balance" of any Principal Balance Certificate outstanding
at any time will equal the then maximum amount that the holder thereof will be
entitled to receive in respect of principal out of future cash 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 Certificates will equal
100% of the aggregate Stated Principal Balance of the REMIC II Regular
Interests, which will be the same as the aggregate Stated Principal Balance of
the Mortgage Loans outstanding from time to time. The Class IO Certificates will
have an initial aggregate Notional Amount of $803,212,971 (subject to a variance
of plus or minus 5%).
The Class V and Class W Certificates will not have Certificate Balances or
Notional Amounts.
The Class R Certificate will not have a Certificate Balance or Notional
Amount.
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
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Loan (as defined herein), as of the date of substitution), after application of
all payments due on or before such date (whether or not received), reduced (to
not less than zero) on each subsequent Distribution Date by (i) any payments or
other collections (or Advances in lieu thereof) of principal of such Mortgage
Loan that have been or, if they had not been applied to cover Additional Trust
Fund Expenses, would have been distributed on the Certificates on such date, and
(ii) the principal portion of any Realized Loss incurred in respect of or
allocable to such Mortgage Loan during the related Collection Period.
Notwithstanding the foregoing, but subject to the discussion under
"--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-2,
Class B, Class C, Class D and Class E Certificates will, at all times, be equal
to 6.44%, 6.72%, 6.17%, 7.04%, 7.33%, 7.48% and 7.52% per annum, respectively.
The Pass-Through Rate applicable to the Class IO Certificates for the
initial Distribution Date will equal approximately 2.60% per annum. The
Pass-Through Rate applicable to the Class IO 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 Mortgage 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-Through Rates applicable to the
respective Classes of Principal Balance Certificates for such Distribution Date,
the relevant weighting to be on the basis of the respective aggregate
Certificate Balances of such Classes of Certificates immediately prior to such
Distribution Date.
The Pass-Through Rates applicable to the Class F, Class G, Class H, Class
J, Class K and Class L Certificates will, at all times, be equal to 6.44%,
6.44%, 6.44%, 6.44%, 6.44% and 6.44%, respectively.
The Class V and Class W Certificates do not have Pass-Through Rates.
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, 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"), will be appropriately adjusted to
reflect such 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 business day prior to such Distribution Date.
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<PAGE>
Distributions
General
Distributions on or with respect to the Certificates will be made by the
Trustee, to the extent of available funds, and in accordance with the manner and
priority set forth herein, on the 15th day of each month, or if any such 15th
day is not a business day, on the next succeeding business day (each, a
"Distribution Date"), commencing in January 1998. 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 (other than the Non-REMIC 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 to the sum of (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 or the Trustee as compensation or in reimbursement of outstanding
Advances and interest thereon and amounts payable in respect of Additional
Trust Fund Expenses);
(iv) amounts that are collected in respect of the Additional Interests
(which are separately distributable on the Non-REMIC Certificates as
hereinafter described); and
(v) amounts deposited in the Certificate Account in error; plus
(b) to the extent not already included in clause (a), any P&I Advances and
Compensating Interest Payments made with respect to such Distribution Date.
As used herein, "Certificate Account" includes, on a collective basis, each
collection account established and maintained by the Master Servicer for the
retention of payments and other collections
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<PAGE>
of principal and interest in respect of the Mortgage Loans and Additional
Interests and each distribution account established and maintained by the
Trustee for the retention of funds pending distribution on the Certificates. See
"Description of the Agreements--Certificate Account and Other Collection
Accounts" in the Prospectus.
Application of the Available Distribution Amount
On each Distribution Date, the Trustee will apply the Available
Distribution Amount for such date for the following purposes and in the
following order of priority:
(1) to pay interest to the holders of the respective Classes of Senior
Certificates, up to an amount equal to, and pro rata as among such Classes
in accordance with, the 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 and third 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, 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 (a) the respective amounts of
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 Class; and
(4) to make payments on the Subordinate Certificates and the Class R
Certificate as contemplated below;
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 the 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 Amount 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.
On each Distribution Date, following the above-described distributions on
the REMIC Regular Certificates, the Trustee will pay the remaining portion, if
any, of the Available Distribution Amount for such date to the holders of the
Class R Certificate.
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<PAGE>
Distributable Certificate Interest
The "Distributable Certificate Interest" in respect of each Class of REMIC
Regular Certificates for each Distribution Date will be equal to the Accrued
Certificate Interest in respect of such Class of Certificates for such
Distribution Date, reduced (to not less than zero) by such Class of
Certificates' allocable share (calculated as described below) of any Net
Aggregate Prepayment Interest Shortfall for such Distribution Date, and
increased by any Class Interest Shortfall in respect of such Class of
Certificates for such Distribution Date. See "--Prepayment Interest Shortfalls"
below.
The "Accrued Certificate Interest" in respect of each Class of REMIC
Regular Certificates for each Distribution Date will equal the amount of
interest for the applicable Interest Accrual Period accrued at the applicable
Pass-Through Rate on the aggregate Certificate Balance or Notional Amount, as
the case may be, of such Class of Certificates outstanding immediately prior to
such Distribution Date. Accrued Certificate Interest will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.
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) the Distributable
Certificate Interest in respect of such Class of Certificates for the
immediately preceding Distribution Date, over (B) all distributions of interest
made with respect to such Class of Certificates on the immediately preceding
Distribution Date, plus (ii) to the extent permitted by applicable law, other
than in the case of the Interest Only Certificates, one month's interest on any
such excess at the Pass-Through Rate applicable to such Class of Certificates.
The "Interest Accrual Period" for each Class of 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
each 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 (in the absence of a default) due
thereon from time to time (taking into account any waiver, modification or
amendment of the terms of such Mortgage Loan, whether agreed to by the Master
Servicer or Special Servicer or in connection with a bankruptcy or similar
proceeding involving the related borrower).
An "Assumed Monthly Payment" is an amount deemed due in respect of: (i) any
Balloon Loan that is delinquent in respect of its Balloon Payment beyond the end
of the Collection Period in which its stated maturity date occurs 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
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<PAGE>
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 that is deemed due on each Due Date for so long as
such REO Property remains part of the Trust Fund, will equal the Monthly Payment
(or, in the case of a Balloon Loan described in the prior sentence, the Assumed
Monthly Payment) due on the last Due Date prior to the acquisition of such REO
Property.
Distributions of Prepayment Premiums
Any Prepayment Premium collected with respect to a 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 (other than the Class E, Class F, Class G, Class H, Class J, Class
K and Class L 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 amount of the subject Prepayment Premium,
multiplied by the lesser of (i) 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 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 and (ii) 25%. 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 Certificates.
Any Prepayment Premium collected with respect to a Group 2 Loan during any
Collection Period will be distributed on the following Distribution Date to the
holders of the Class IO 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.
Distributions of Additional Interest Amounts
Any amounts collected with respect to any Additional Interest during any
particular Collection Period will be distributed on the following Distribution
Date to the holders of the respective Classes of Non-REMIC Certificates as set
forth in the Pooling and Servicing Agreement. No such amounts will be
distributed to holders of any Certificates other than the Non-REMIC
Certificates.
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
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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, 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 and the Trustee 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 90
days after the occurrence of any delinquency in payment with respect to a
Mortgage Loan if such delinquency remains uncured, (ii) the date 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 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 $500,000, 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
or the Trustee, 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 or the Trustee's, as the case may be, advancing obligation in respect
of delinquent principal and interest on the related Mortgage Loan, which may
result in a reduction in distributions in respect of the then most subordinate
Class of Certificates. See "--Advances--P&I Advances" below.
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
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of the respective Classes of Class A Certificates of principal equal to the
entire aggregate Certificate Balance of such Class of Certificates. Similarly,
but to decreasing degrees, this subordination is also intended to enhance the
likelihood of timely receipt by holders of the other Classes of Offered
Certificates of the full amount of Distributable Certificate Interest payable in
respect of their Certificates on each Distribution Date, and the ultimate
receipt by holders of such other Classes of Offered Certificates of principal
equal to, in each such case, the entire aggregate Certificate Balance of such
Class of Certificates. The subordination of each Class of Subordinate
Certificates will be accomplished by, among other things, the application of the
Available Distribution Amount on each Distribution Date in the order of priority
described under "--Distributions--Application of the Available Distribution
Amount" above. No other form of Credit Support will be available for the benefit
of holders of 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 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.
Neither Realized Losses nor Expenses Losses will be allocated to the Non-REMIC
Certificates.
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 (as defined below) are losses arising from the inability of
the Master Servicer or the Special Servicer to collect all amounts due and owing
under any defaulted Mortgage Loan, including by reason of any modifications to
the terms of a Mortgage Loan, bankruptcy of the related borrower or a casualty
of any nature at the related Mortgaged Property, to the extent not covered by
insurance. "Realized Losses" with respect to any Distribution Date shall mean
the amount, if any, by which the aggregate of the Certificate Balances of the
Certificates, after giving effect to distributions made and the allocation of
Expense Losses on such Distribution Date, exceeds the aggregate Stated Principal
Balance of the Mortgage Loans as of the Due Date occurring in the month in which
such Distribution Date occurs.
"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 paid in respect of unreimbursed
Advances, (iii) 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), (iv) any of certain other expenses of the Trust
Fund, including, but not limited to, certain reimbursements and indemnification
payments to the Trustee and certain related persons, certain reimbursement and
indemnification payments to the Depositor, the Master Servicer, the Special
Servicer and certain related persons, certain taxes payable from the assets of
the Trust Fund, the costs and expenses of any tax audits with respect to the
Trust Fund and certain other tax-related expenses and the cost of various
opinions of counsel required to be obtained in connection with the servicing of
the Mortgage Loans and administration of the Trust Fund, and (v) any other
expense of the Trust Fund not specifically included in the calculation of
"Realized Loss" for which there is no corresponding collection from a borrower.
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Prepayment Interest Shortfalls
If a borrower prepays a Mortgage Loan, in whole or in part, after the Due
Date but 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 Due Date 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, prior to the Due Date but after
the prior Determination Date and does not pay interest on such prepayment
through, in general, the Due Date, then the shortfall in a full month's interest
(net of related Master Servicing Fees) on such prepayment will constitute a
"Prepayment Interest Shortfall". Prepayment Interest Excesses collected on the
Mortgage Loans during any Collection Period will first be applied to offset
Prepayment Interest Shortfalls incurred in respect of the Mortgage Loans during
such Collection Period and, to the extent not needed for such purposes, will be
retained by the Master Servicer as additional servicing compensation. The Master
Servicer will be obligated to cover, out of its own funds, without right of
reimbursement, to the extent of its Master Servicing Fees for the related
Collection Period, 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 Operating Advisor, the Special Servicer, the Depositor, the Master
Servicer and the holder of a majority interest in the Class R Certificate, in
that order, 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 5%
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.
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
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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
second business day 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 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 all the holders of Certificates
evidencing an interest in the Controlling Class so elect, such holders may limit
the number of Advances made in respect of the Certificates held by such holder.
If the Master Servicer fails to make a required P&I Advance, the Trustee will be
obligated to make such P&I Advance as provided in the Pooling and Servicing
Agreement. See "--The Trustee" below. No Advances will be required in respect of
payments on the Non-REMIC Assets.
The Master Servicer and the Trustee will each be entitled to recover any
P&I Advance made by it from Related Proceeds collected in respect of the
Mortgage Loan as to which such P&I Advance was made. Notwithstanding the
foregoing, neither of the Master Servicer or the Trustee will be obligated to
make a P&I Advance that would, if made, constitute a Nonrecoverable Advance (as
defined below). The Master Servicer and the Trustee will each be entitled to
recover any P&I Advance (with interest thereon) previously made by it that is,
at any time, determined to be a Nonrecoverable Advance, out of 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 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 will 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 may advance the costs thereof).
If the Master 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 as provided in the
Pooling and Servicing Agreement.
The Master 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.
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Nonrecoverable Advances.
The determination by the Master Servicer (or, if applicable, the Trustee)
that any P&I Advance or Servicing Advance previously made or proposed to be made
would not be recoverable from Related Proceeds, is to be made in the reasonable
and good faith discretion of such party and is to be accompanied by an officer's
certificate delivered to the Trustee and 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
determination of nonrecoverability will be conclusive and binding upon the
Certificateholders and the Trustee with respect to the obligation of the Trustee
to make any Advance. The Trustee shall be entitled to rely conclusively on any
determination by the Master Servicer 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 and the Trustee will each be entitled, with respect to
any Advance made thereby, to receive interest accrued on the amount of such
Advance for so long as it is outstanding at a rate per annum (the "Advance
Rate") equal to the "prime rate" as published in the "Money Rates" section of
The Wall Street Journal, as such "prime rate" may change from time to time. Such
interest on any Advance will be payable to the Master Servicer or the Trustee,
as the case may be, out of the portion of the default interest distributable to
and 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 amounts then on deposit in the Certificate Account. To the extent not offset
by default interest actually collected in respect of any defaulted Mortgage
Loan, interest 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 the date of
acquisition of the REO Property; (vi)(A) the most recent appraised value of
any REO Property as of the related Determination Date, (B) as to any REO
Property sold during the related Collection Period, the date of the related
determination by the Special Servicer that it has recovered all Related
Proceeds 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
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Servicing Advances and P&I Advances outstanding as of the end of the prior
calendar month that have been made by the Master Servicer or the Trustee,
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) and (ii) above, the amounts shall be expressed as a dollar
amount per $1,000 of original actual or notional principal amount of the
Certificates for all Certificates of each applicable Class.
(b) A report containing information regarding the Mortgage Loans as of
the end of the related Collection Period, which report will contain
substantially the categories of information regarding the Mortgage Loans
set forth in Appendix 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. If the Depositor so directs the Trustee, and on terms acceptable to the
Trustee, the Trustee will make available the monthly Reports to
Certificateholders and all associated reporting information through its
Corporate Trust home page on the world wide web and/or by facsimile through its
Street Fax automated fax-back system. The web page is located at
"corporatetrust.statestreet.com." CMBS information is available by clicking the
"Investor Information & Reporting" button, and selecting the appropriate
transaction. Interested parties can register for Street Fax by calling (617)
664-5600 and requesting an account application by following the instructions
provided by the system.
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 (or
make available electronically) 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 reasonably 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-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
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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 December 1997:
The close of business on
December 1.................... (A) Cut-off Date.
December 31................... (B) Record Date for all Classes of Certificates.
December 1 - January 8........ (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 January 8, the last day of
the Collection Period.
January 8..................... (D) Determination Date.
January 14.................... (E) Master Servicer Remittance Date.
January 15.................... (F) Distribution Date.
Succeeding monthly periods follow the pattern of (B) through (F) (except as
described below).
(A) The outstanding principal balance of the Mortgage Loans will be the
aggregate principal balance of the Mortgage Loans at the close of business on
December 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 January 8, 1997 (the fifth
business day preceding January 15) 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 that will be
remitted with respect to the related Collection Period.
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(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 constitute the Available Distribution Amount.
(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, 93% 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, 6% of the
Voting Rights are to be allocated among the holders of the Class IO
Certificates, and the remaining Voting Rights are to be allocated equally among
the holders of the Class R Certificate. 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
State Street Bank and Trust Company will act as Trustee. The Trustee is at
all times required to be, and will be required to resign if it fails to be, (i)
an institution insured by the FDIC, (ii) a corporation, national bank or
national banking association, organized and doing business under the laws of the
United States of America or any state thereof, authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus of not
less than $50,000,000 and subject to supervision or examination by federal or
state authority and (iii) an institution whose long-term senior unsecured debt
is rated not less than "Aa2" by Moody's and "AA" by Fitch (or such lower ratings
as the Rating Agencies would permit without an adverse effect on any of the
then-current ratings of the Certificates). The corporate trust office of the
Trustee responsible for administration of the Trust Fund (the "Corporate Trust
Office") is located at Two International Place - 5th Floor, Boston,
Massachusetts 02110, attention: Corporate Trust Department, ref: Aetna Series
1997-ALIC. 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.
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
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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 Stated
Principal Balance of the Mortgage Loans is approximately $803,212,971, the
Initial Group 1 Balance is approximately $705,660,785 and the Initial Group 2
Balance is $97,552,186, (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 based on such Mortgage
Loan's Cut-off Date Balance, calculated remaining amortization term and the
Mortgage Rate in effect as of the Cut-off Date, and any scheduled increases or
decreases in the Mortgage Rates are made in accordance with the terms of the
respective Mortgage Loans, (iv) all Monthly Payments are due and timely received
on the first day of each month, (v) there are no delinquencies or losses in
respect of the Mortgage Loans, there are no extensions of maturity in respect of
the Mortgage Loans, there are no Appraisal Reductions with respect to the
Mortgage Loans and there are no casualties or condemnations affecting the
Mortgaged Properties, (vi) (A) prepayments are made on each of the Mortgage
Loans at the indicated CPRs (except that prepayments are assumed not to be
received as to any Mortgage Loan during such Mortgage Loan's Lock-out Period
("LOP"), if any, or yield maintenance period ("YMP"), if any and no prepayment
is assumed to be received in respect of the Poughkeepsie Galleria Loan), and (B)
the Mortgage Loan that provides for a mortgagee call option prior to stated
maturity is not prepaid in full as of the date on which such option becomes
exercisable, and remains outstanding until Maturity, (vii) (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,
(viii) no party entitled thereto exercises its right of optional termination
described herein under "Description of the Certificates--Optional Termination",
(ix) no Mortgage Loan is required to be repurchased or replaced by the Seller or
other party, (x) no Prepayment Interest Shortfalls are incurred, (xi) there are
no Additional Trust Fund Expenses, (xii) distributions on the Certificates are
made on the 15th day of each month, commencing in January 1998, (xiii) the
Certificates are issued on December 22, 1997, (xiv) 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
herein under "Description of the Certificates--Distributions--Distributions of
Prepayment Premiums", and (xv) the open prepayment period, if any, is assumed to
begin on the first day of the respective month prior to the maturity date. To
the extent that the Mortgage Loans have characteristics that differ from those
assumed in preparing the tables set forth below, the Class A-1A, Class A-1B,
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 were to
reflect the Maturity Assumptions and any of the specified CPR percentages.
Investors are urged to conduct their own analyses of the rates at which the
Mortgage Loans may be expected to prepay.
Based on the Maturity Assumptions, the following tables indicate the
resulting weighted average lives of the Class A-1A, Class A-1B, 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.
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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%
December 1998 ............ 85 84 84 83 83 82
December 1999 ............ 61 60 59 58 57 55
December 2000 ............ 0 0 0 0 0 0
Weighted Average
Life (years) ............. 2.04 2.02 2.00 1.99 1.96 1.93
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%
December 1998 ............ 100 100 100 100 100 100
December 1999 ............ 100 100 100 100 100 100
December 2000 ............ 98 97 96 95 93 91
December 2001 ............ 69 67 65 64 63 60
December 2002 ............ 0 0 0 0 0 0
Weighted Average
Life (years) ............. 4.06 4.03 4.00 3.98 3.96 3.91
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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%
December 1998 ............ 97 97 97 97 97 97
December 1999 ............ 94 94 94 94 94 94
December 2000 ............ 91 91 91 91 91 91
December 2001 ............ 88 88 88 88 88 88
December 2002 ............ 76 72 70 69 66 63
December 2003 ............ 31 31 31 31 31 31
December 2004 ............ 3 3 2 2 2 2
December 2005 ............ 0 0 0 0 0 0
Weighted Average
Life (years) ............. 5.44 5.41 5.39 5.37 5.35 5.32
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%
December 1998 ............ 100 100 100 100 100 100
December 1999 ............ 100 100 100 100 100 100
December 2000 ............ 100 100 100 100 100 100
December 2001 ............ 100 100 100 100 100 100
December 2002 ............ 100 100 100 100 100 100
December 2003 ............ 100 100 100 100 100 100
December 2004 ............ 100 100 100 100 100 100
December 2005 ............ 54 53 52 52 51 50
December 2006 ............ 0 0 0 0 0 0
Weighted Average
Life (years) ............. 7.74 7.74 7.74 7.74 7.73 7.73
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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%
December 1998 ............ 100 100 100 100 100 100
December 1999 ............ 100 100 100 100 100 100
December 2000 ............ 100 100 100 100 100 100
December 2001 ............ 100 100 100 100 100 100
December 2002 ............ 100 100 100 100 100 100
December 2003 ............ 100 100 100 100 100 100
December 2004 ............ 100 100 100 100 100 100
December 2005 ............ 100 100 100 100 100 100
December 2006 ............ 34 33 33 33 32 31
December 2007 ............ 0 0 0 0 0 0
Weighted Average
Life (years) ............. 8.92 8.90 8.89 8.88 8.87 8.84
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%
December 1998 ............ 100 100 100 100 100 100
December 1999 ............ 100 100 100 100 100 100
December 2000 ............ 100 100 100 100 100 100
December 2001 ............ 100 100 100 100 100 100
December 2002 ............ 100 100 100 100 100 100
December 2003 ............ 100 100 100 100 100 100
December 2004 ............ 100 100 100 100 100 100
December 2005 ............ 100 100 100 100 100 100
December 2006 ............ 100 100 100 100 100 100
December 2007 ............ 0 0 0 0 0 0
Weighted Average
Life (years) ............. 9.91 9.91 9.90 9.90 9.90 9.90
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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%
December 1998 ............ 100 100 100 100 100 100
December 1999 ............ 100 100 100 100 100 100
December 2000 ............ 100 100 100 100 100 100
December 2001 ............ 100 100 100 100 100 100
December 2002 ............ 100 100 100 100 100 100
December 2003 ............ 100 100 100 100 100 100
December 2004 ............ 100 100 100 100 100 100
December 2005 ............ 100 100 100 100 100 100
December 2006 ............ 100 100 100 100 100 100
December 2007 ............ 78 68 62 56 46 31
December 2008 ............ 16 1 0 0 0 0
December 2009 ............ 0 0 0 0 0 0
Weighted Average
Life (years) ............. 10.51 10.36 10.28 10.21 10.14 10.04
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YIELD CONSIDERATIONS
General
The yield on any Offered Certificate will depend on: (i) the Pass-Through
Rate in effect from time to time for such Certificate; (ii) the price paid for
such Certificate and, if the price was other than par, the rate and timing of
payments of principal on such Certificate; and (iii) the aggregate amount of
distributions on such Certificate.
Rate and Timing of Principal Payments
The yield to holders of the Interest Only Certificates and any other
Offered Certificates that are purchased at a discount or premium will be
affected by the rate and timing of principal payments on the Mortgage Loans
(including principal prepayments on the Mortgage Loans resulting from both
voluntary prepayments by the mortgagors and involuntary liquidations). The rate
and timing of principal payments on the Mortgage Loans will in turn be affected
by the amortization schedules thereof, the Lock-out Period, the yield
maintenance period, 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. Conversely, 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 "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 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 Mortgage Loans.
Investors in the Interest Only Certificates should fully consider the associated
risks, including the risk that an extremely rapid rate of amortization and
prepayment of the Notional Amounts of their Certificates could result in the
failure of such investors to recoup their initial investments.
Payments of principal in respect of the Poughkeepsie Galleria Loan
comprising Loan Group 2 (including any prepayments) will be distributed first to
the holders of the Class A-2 Certificates as described under "Description of the
Certificates--Distributions--Application of the Available Distribution Amount".
The Seller has received a letter from the Poughkeepsie Galleria Loan borrower in
which the borrower has stated that it intends to prepay the Poughkeepsie
Galleria Loan in not less than sixty-five days and not more than 370 days from
the Cut-off Date. The borrower further states in the letter that it does not
intend to pay the Prepayment Premium required under the loan documents
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in connection with such prepayment, but rather intends to seek a judicial
determination that the Prepayment Premium is void and unenforceable. Any
prepayment of the Poughkeepsie Galleria Loan would result in a corresponding
distribution in respect of the Class A-2 Certificates which may, among other
things, reduce the average life of the Subordinated Certificates, and would
reduce the Notional Amount of the Class IO Certificates. In addition, such
letter may indicate an increased likelihood that the borrower under the
Poughkeepsie Galleria Loan will default under one or more of the terms of its
Mortgage Loan. Any Realized Loss resulting from such a default will be allocated
to Certificateholders as set forth under "Description of the
Certificates--Subordination; Allocation Losses and Certain Expenses".
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, yield maintenance periods
and amortization terms that require Balloon Payments), the demographics and
relative economic vitality of the areas in which the Mortgaged Properties are
located and the general supply and demand for comparable residential and/or
commercial space in such areas, the quality of management of the Mortgaged
Properties, the servicing of the Mortgage Loans, possible changes in tax laws
and other opportunities for investment. See "Risk Factors and Other Special
Considerations" and "Description of the Mortgage Pool" herein and "Risk Factors"
and "Yield Considerations" in the Prospectus.
The rate of prepayment on the Mortgage Pool is likely to be affected by
prevailing market interest rates for mortgage loans of a comparable type, term
and risk level. When the prevailing market interest rate is below a mortgage
coupon, a borrower may have an increased incentive to refinance its mortgage
loan. If a Mortgage Loan is not in a 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 the related
Interest Accrual Period, the effective yield to the holders of the Offered
Certificates will be lower than the yield that would otherwise be produced by
the applicable Pass-Through Rates and purchase prices (assuming such prices did
not account for such delay).
Yield Sensitivity of the Interest Only Certificates
The yield to maturity of the Interest Only Certificates will be especially
sensitive to the prepayment and default experience on the Mortgage Loans, 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 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.
There can be no assurance that the Mortgage Loans will prepay at any
particular rate or that the yield on the 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
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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.
DESCRIPTION OF THE MORTGAGE POOL
General
The Mortgage Pool will consist of forty-one (41) mortgage loans (each, a
"Mortgage Loan") with an Initial Pool Balance of $803,212,971 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 $41,298 to $97,552,186, and the Mortgage Loans have an average
Cut-off Date Balance of $19,590,560. Thirty-three (33) of the Mortgage Loans,
representing 97.6% 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.
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 forty (40)
fixed-rate loans and Loan Group 2 consists of one (1) fixed-rate loan, the
Poughkeepsie Galleria Loan. Payments of principal in respect of the Poughkeepsie
Galleria Loan comprising Loan Group 2 (including any prepayments) will be
distributed first to the holders of the Class A-2 Certificates. See
"--Distributions of Interest and Principal."
A brief summary of the material terms of the largest Mortgage Loans in the
Mortgage Pool is set forth on Appendix III attached hereto.
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 (with the exception of one (1) Mortgage Loan
representing 1.5% of the Initial Pool Balance, which has not been delinquent
since its date of modification).
Each Mortgage Loan is evidenced by a promissory note (a "Mortgage Note").
Thirty-five (35) of the Mortgage Loans (representing 77.6% of the Initial Pool
Balance) are secured by a mortgage, deed of trust or other similar security
instrument (a "Mortgage") that creates a first mortgage lien on the borrower's
fee simple estate in an income-producing real property. One (1) of the Mortgage
Loans (representing 3.1% of the Initial Pool Balance) is secured by a Mortgage
that creates a second mortgage lien on the borrower's fee simple estate in an
income-producing real property. Four (4) of the Mortgage Loans (representing
17.5% of the Initial Pool Balance) are secured by a Mortgage that creates a
first mortgage lien on the borrower's leasehold estate in an income-producing
real property. One (1) of the Mortgage Loans (representing 1.8% of the Initial
Pool Balance) is secured by a second mortgage lien on the related borrower's
leasehold estate in an income-producing real property (each such fee simple
estate or leasehold or partial leasehold estate, as the case may be, a
"Mortgaged Property" and collectively, the "Mortgaged Properties").
Twenty (20) of the Mortgaged Properties, which represent security for 50.4%
of the Initial Pool Balance, are office properties; six (6) of the Mortgaged
Properties, which represent security for 16.2% of the Initial Pool Balance, are
retail properties; four (4) of the Mortgaged Properties, which represent
security for 8.7% of the Initial Pool Balance, are hospitality properties, three
(3) of which are affiliated with national hotel/motel franchisors; four (4) of
the Mortgaged Properties, which represent security for 8.0% of the Initial Pool
Balance, are industrial properties; and five (5) of the Mortgaged Properties,
which represent security for 3.7% of the Initial Pool Balance, are multifamily
apartment properties. The remaining two (2) Mortgaged Properties, which
represent security for 13.0% of the Initial Pool Balance, are mixed use
properties used for a combination of commercial purposes (such as multifamily,
office, retail and/or hotel) as indicated on Appendix II and Appendix III. The
Mortgaged Properties are located throughout 19 states, with the largest
concentration in California (7 Mortgaged Properties, which represent security
for 21.7% of the Initial Pool Balance). No other state has a concentration of
Mortgaged Properties that represents security for more than 14.7% of the Initial
Pool Balance. See Appendix II and Appendix III for a more detailed description
of the Mortgage Loans.
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All of the Mortgage Loans were originated and are currently held by the
Seller. On or prior to the Closing Date, the Depositor will acquire the Mortgage
Loans from the Seller pursuant to a mortgage loan purchase agreement to be
entered into between the Depositor and the Seller (the "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 Seller", "--Assignment of the Mortgage Loans" and
"Repurchases and Other Remedies" below.
The Mortgage Loans were originated between 1974 and 1997.
Additional Interests
In the case of ten (10) of the Mortgage Loans, representing 20.3% of the
Initial Pool Balance, the related Mortgagor granted to the Seller, at the time
of origination or modification of such Mortgage Loan, one or more of the
following interests: (i) certain rights to share in the proceeds from the sale
or refinancing of the related Mortgaged Property and/or the revenues generated
by such Mortgaged Property (for instance, payments in the nature of equity
participations in certain revenues and contingent interest) (eight (8) Mortgage
Loans representing 16.1% of the Initial Pool Balance), (ii) certain rights to
accrued interest in those cases in which interest is currently payable at a rate
less than the rate at which interest is accruing, with the difference being
added to the principal balance of the Mortgage Loan (five (5) of the Mortgage
Loans, representing 9.0% of the Initial Pool Balance), or (iii) certain rights
to payments required to be applied toward amounts owed on an additional "note"
issued by the Mortgagor to the Seller (two (2) Mortgage Loan, representing 2.9%
of the Initial Pool Balance). Such interests shall be referred to herein,
collectively, as the "Non-REMIC Assets".
The Non-REMIC Assets, along with the right to receive 50% of the related
mortgagee's interest in any loan fees, assumption fees, extension fees,
modification fees or default interest collected under any of the loan documents
relating to any Mortgage Loan (all such rights, collectively, the "Non-REMIC
Fees", and, together with the Non-REMIC Assets, the "Additional Interests") were
transferred to the Depositor by the Seller along with the Mortgage Loans, and
were transferred by the Depositor, along with the Mortgage Loans, into the Trust
Fund on the Closing Date. Unlike the Mortgage Loans, however, the Additional
Interests are not included in the Mortgage Pool and are assets of the Trust Fund
for which no REMIC election has been or will be made; no "regular interest" in
any of REMIC I, REMIC II or REMIC III will correspond to any Additional
Interest; and the Non- REMIC Certificates, which will be the only Certificates
representing an interest in the pool of Additional Interests, will not be issued
by any of REMIC I, REMIC II or REMIC III. No holder of any Certificate other
than a Non-REMIC Certificate will be entitled to any cash flow or other
collections in respect of the Additional Interests.
Each Non-REMIC Asset constitutes an obligation of the related Mortgagor
secured by the related Mortgaged Property that is, pursuant to the related loan
documents, secured ratably with and in addition to the obligations the Mortgagor
has with respect to the related Mortgage Loan. Pursuant to the terms of the
Pooling and Servicing Agreement, so long as payments in respect of the Mortgage
Loans in the Trust Fund are current, payments shall be made in respect of the
Non-REMIC Assets as their interests may appear, but in the event of a default
under any of the Mortgage Loans in the Trust Fund, the related Non-REMIC Asset
will be subordinated and no payments will be made in respect of such Non-REMIC
Asset so long as such default is continuing.
Certain Terms and Characteristics of the Mortgage Loans
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 forty (40)
fixed-rate loans and Loan Group 2 consists of one (1) fixed-rate loan, the
Poughkeepsie Galleria Loan. Payments of principal in respect of the Poughkeepsie
Galleria Loan comprising Loan Group 2 (including any prepayments) will be
distributed first to the holders of the Class A-2 Certificates. See "Description
of the Certificates -- Distributions -- Application of the Available
Distribution Amount."
Mortgage Rates; Calculations of Interest; Interest Deferrals
The Mortgage Rates of the Mortgage Loans range from 7.000 to 11.780 per
annum, and the current weighted average Mortgage Rate of the Mortgage Loans is
9.331 per annum. Thirty-nine (39) of the Mortgage Loans, which represent 95.6%
of the Initial Pool Balance, accrue interest on the basis of a 360-day year
consisting of twelve 30-day months. Two (2) of the Mortgage Loans, which
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represent 4.4% of the Initial Pool Balance, accrue interest on the basis of the
actual number of days elapsed in a year consisting of 360 days.
Thirty-eight (38) of the Mortgage Loans, representing 91.0% of the Initial
Pool Balance, bear interest at annualized rates ("Mortgage Rates") that will
remain fixed for the remaining terms of the Mortgage Loans. Two (2) of the
Mortgage Loans, representing 4.3% of the Initial Pool Balance, each bears
interest at annualized rate that is fixed until a certain date and thereafter
bears interest at a higher annualized rate that is fixed until maturity. One (1)
of the Mortgage Loans, representing 4.7% of the Initial Pool Balance, bears
interest that is payable at an annualized fixed rate of 10.02% until June 30,
1998, thereafter bears interest that is payable at an annualized fixed rate of
8.975% until January 30, 2000, and thereafter bears interest at an annualized
fixed rate of 7.93% until November 1, 2007.
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 business day of each
month, except the Glen Point Centre West Loan which has a Due Date on the tenth
business day of each month and has no grace period.
Amortization
Twenty-two (22) of the Mortgage Loans, representing 72.3% of the Initial
Pool Balance, provide for Monthly Payments of principal and interest based on
amortization schedules significantly longer than their terms to maturity (or, in
10 additional cases, representing 23.9% of the Initial Pool Balance, provide for
Monthly Payments of interest only or Monthly Payments of interest only for a
period, and then Monthly Payments of principal and interest based on such an
amortization schedule), thereby leaving Balloon Payments due and payable on
their respective maturity dates, unless prepaid prior thereto. One (1) Mortgage
Loan, representing 1.4% of the Initial Pool Balance, provides for monthly
payments of interest only and provides for a fixed annual payment in April of
each year, beginning in 1998 and continuing through 2002, of $175,000, to be
applied toward the reduction of principal amounts due (with such amounts not
being sufficient to fully amortize such Mortgage Loan). Such annual payments of
principal will be applied first to pay amounts due on the related Non-REMIC
Asset, then to pay amounts due on the Mortgage Loan as follows: $53,514 in 1999
and $175,000 in 2000 through 2002. See "Risk Factors--The Mortgage
Loans--Balloon Payments" herein. The remaining eight (8) Mortgage Loans,
representing 2.4% of the Initial Pool Balance, are fully amortizing, with
insignificant or no balances due at maturity.
Prepayment Restrictions
As of the Cut-off Date, thirty-four (34) Mortgage Loans, representing 93.8%
of the Initial Pool Balance, restrict voluntary principal prepayments as
follows: (i) eight (8) Mortgage Loans, representing 31.6% of the Initial Pool
Balance, prohibit voluntary prepayments for a Lock-out Period ending on a date
(ranging from two (2) months to 123 months from the Cut-off Date) specified in
the related Mortgage Note and, in most such cases, thereafter require, until a
specified date (generally three to six months) prior to maturity, that any
voluntary prepayment be accompanied by a Prepayment Premium and (ii) twenty-six
(26) of the remaining Mortgage Loans, representing 62.2% of the Initial Pool
Balance, 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 three to 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 (i) a yield
maintenance formula ("Yield Maintenance Premium"), payable in the case of two
(2) Mortgage Loans, or 5.2% of the Initial Pool Balance, (ii) a percentage of
the amount prepaid ("Percentage Premium"), payable in the case of one (1)
Mortgage Loan, representing less than 0.1% of the Initial Pool Balance, (iii)
the greater of a Percentage Premium and a Yield Maintenance Premium, payable in
the case of twenty-two (22) Mortgage Loans, representing 53.8% of the Initial
Pool Balance, or (iv) a Yield Maintenance Premium measured against the rate of
comparable Treasury securities plus 150 basis points, payable in the case of one
(1) Mortgage Loan, representing 3.1% of the Initial Pool Balance.
Seven (7) of the Mortgage Loans, representing 6.2% of the Initial Pool
Balance, permit, in each such case, voluntary principal prepayments of the
original principal balance of the Mortgage Loan
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without the imposition of a Prepayment Premium. In the case of the Mortgage
Loans that are subject to a Percentage Premium, in some cases such Percentage
Premium declines over time.
Two (2) Mortgage Loans, representing 7.8% of the Initial Pool Balance,
provide for partial prepayments without the imposition of any Prepayment Premium
under certain particular circumstances: The Charles Hotel Mortgage Loan is
subject to such a partial prepayment in March 1998 through the application of
certain funds held in escrow. The Orchard Square Shopping Center Loan is subject
to such a partial prepayment in March 1998 through the application of a letter
of credit upon the failure by the Mortgagor to achieve certain specified leasing
goals.
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 the 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 or any government entity or instrumentality.
"Due-on-Sale" and "Due-on-Encumbrance" Provisions
The majority of the Mortgages contain "due-on-sale" 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 the related
Mortgaged Property or that prohibit the borrower from doing so without the
consent of the holder of the Mortgage. However, certain of the Mortgage Loans
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.
Most of the Mortgages contain "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 encumbers the related Mortgaged Property
or that prohibit the borrower from doing so without the consent of the holder of
the Mortgage. However, many due-on-encumbrance clauses provide such encumbrances
may be permitted generally provided that certain criteria, such as loan-to-value
and/or debt service coverage ratio tests are satisfied.
Junior Mortgages
One (1) of the Mortgage Loans (representing 3.1% of the Initial Pool
Balance) is secured by a Mortgage that creates a second mortgage lien on the
borrower's fee simple estate in an income-producing real property. The first
mortgage lien on such Mortgaged Property is in an original principal amount
equal to $70,000,000, bears interest at a rate equal to 7.000% and matures on
August 1, 2000, on which date a Balloon Payment is required. One (1) of the
Mortgage Loans (representing 1.8% of the Initial Pool Balance) is secured by a
second mortgage lien on the related borrower's leasehold estate in an
income-producing real property. The first mortgage lien on such Mortgaged
Property is in an original principal amount equal to $29,900,000, bears interest
at a rate equal to 9.750% and matures on March 1, 2015. See "Risk
Factors--Junior Mortgage Loans" in the Prospectus.
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Subordinate Financing
Six (6) of the Mortgaged Properties, which constitute security for Mortgage
Loans that represent 5.1% of the Initial Pool Balance, are encumbered by secured
subordinated debt that is not part of the Mortgage Pool. See "Risk Factors and
Other Special Considerations--The Mortgage Loans--Risks of Secured Subordinate
Financing" for a summary of such subordinated debt. Eighteen (18) other Mortgage
Loans, representing 55.7% of the Initial Pool Balance, also permit the related
borrower to encumber the Mortgaged Property with subordinate debt generally
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. See
"Risk Factors and Other Special Considerations--The Mortgage Loans--Risks of
Secured Subordinate Financing" herein and "Certain Legal Aspects of Mortgage
Loans and the Leases--Subordinate Financing" in the Prospectus.
Borrower Concentrations/Cross-Collateralized Mortgage Loans
Four (4) 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 (4) groups, by aggregate
Cut-off Date Balance of the Mortgage Loans, represent 10.2%, 6.7%, 4.5% and
2.7%, respectively, of the Initial Pool Balance.
The Glen Pointe Centre West Loan and the Court Plaza Loan are a set of
related loans (representing, in the aggregate, 10.2% of the Initial Pool
Balance) in that such loans are under common management and related ownership.
The largest of the cross-collateralized groups, the Commerce Distribution Center
Loans (representing 6.7% of the Initial Pool Balance), is comprised of the
Commerce Distribution Center - 50 Loan and the Commerce Distribution Center - 36
Loan, which are secured by Mortgaged Properties in the same complex in
Bell/Commerce, California, are to the same borrower and are cross-defaulted and
cross-collateralized. The second related loan group, representing 4.5% of the
Initial Pool Balance, is the Timberland Loans, a set of three (3) loans due from
affiliated borrowers, secured by Mortgaged Properties that are part of the same
office complex in Troy, Michigan. In addition, within the set of Timberland
Loans, the Timberland B Loan and Timberland C Loan are cross-collateralized. The
Commerce Plaza--I Mortgage Loan and the Commerce Plaza--II Mortgage Loan
(representing, in the aggregate, 2.7% of the Initial Pool Balance) are secured
by adjacent Mortgaged Properties and are under common management and related
ownership. Accordingly, they present a concentration of credit risk.
Ground Leases
Five (5) of the Mortgage Loans, which represent 19.3% of the Initial Pool
Balance, are secured solely by a Mortgage on the borrower's leasehold interest
in the related Mortgaged Property. None of the ground leases expire prior to ten
years after the stated maturity of the related Mortgage Loan. With respect to
four (4) of the Mortgage Loans, 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. With respect to one (1) of the
Mortgage Loans, the mortgagee has a binding agreement with the holder of the
first leasehold mortgage (which is the Seller) pursuant to which the first
leasehold mortgagee agrees (x) to promptly provide mortgagee with any notice it
receives from the ground lease landlord regarding the ground lease, (y) that
mortgagee shall have and be entitled to exercise "cure rights" with regard to
the ground lease in the same manner and timeframe as the first leasehold
mortgagee and (z) that it will not transfer its mortgage without ensuring that
its transferee provides similar assurances to the leasehold mortgagee. See "Risk
Factors and Other Special Considerations--The Mortgage Loans--Leasehold
Considerations" herein. The Mortgaged Property securing the UCLA Medical Center
Loan (representing 2.6% of the Initial Pool Balance) is a leasehold interest in
which the ground lessor has, under certain circumstances, a right of first
refusal as well as options to purchase the leasehold interest securing the
Mortgage Loan. See "Appendix III--Significant Loan Summaries--UCLA Medical
Center Loan". The ground lessor and the ground lessee of the Mortgaged Property
securing the Charles Hotel Loan each have an option to purchase the respective
interest of the other under the circumstances set forth in the ground lease. See
"Appendix III--Significant Loan Summaries--Charles Hotel Loan".
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Assessments of Property Value
Environmental Assessments
A brief description of certain environmental conditions affecting certain
Mortgaged Properties and Seller's limited indemnity with respect to certain
conditions is attached hereto as Appendix IV. In addition, see "Risk Factors and
Other Special Considerations--The Mortgage Loans--Environmental Considerations"
herein.
Property Condition Assessments
All of the Mortgaged Properties were inspected, in connection with the
origination of the related Mortgage Loan, by an employee of the 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. The Seller has represented to the Depositor that, with
respect to each Mortgage Loan, except for seven (7) Mortgage Loans (representing
0.2% of the Initial Pool Balance), an engineering report was performed with
respect to the related Mortgaged Property in connection with the sale of the
Mortgage Loan no earlier than the date that is three (3) months prior to the
Cut-off Date, such report has been reviewed by the Seller and delivered to the
Depositor, and, to the Seller's knowledge, such report is not misleading and
does not contain any false statements.
Zoning and Building Code Compliance.
The 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 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, and for a brief summary of the material terms of the largest
Mortgage Loans in the Mortgage Pool, see Appendix III hereto. Certain additional
information regarding the Mortgage Loans is contained herein under "Risk Factors
and Other Special Considerations--The Mortgage Loans", elsewhere in this
"Description of The Mortgage Pool" section and under "Certain Legal Aspects of
Mortgage Loans and the Leases" in the Prospectus.
As used in this Prospectus Supplement, including for the tables in Appendix
I and the information set forth in Appendix II and Appendix III, the following
terms shall have the meanings set forth below:
(1) References to "DSCR" are references to "Debt Service Coverage Ratios."
In general, debt service coverage ratios are used by income property
lenders to measure the ratio of (a) cash currently generated by a
property that is available for debt service to (b) required debt
service payments. However, debt service coverage ratios only measure
the current, or recent, ability of a property to service mortgage
debt. If a property does not possess a stable operating expectancy
(for instance, if it is subject to material leases that are scheduled
to expire during the loan term and that provide for above-market rents
and/or that may be difficult to replace), a debt service coverage
ratio may not be a reliable indicator of a property's ability to
service the mortgage debt over the entire remaining loan term. For
purposes of this Prospectus Supplement, including for the tables in
Appendix I and the information set forth in Appendix II and Appendix
III, the "Debt Service Coverage Ratio" or "DSCR" for any Mortgage Loan
(or group of Cross-Collateralized Mortgage Loans) is the ratio of
"Underwritten Cash Flow" estimated to be produced by the related
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Mortgaged Property or Properties to the annualized amount of debt
service payable under that Mortgage Loan (or those Mortgage Loans).
"Underwritten Cash Flow" in each case is an estimate of stabilized
cash flow available for debt service. In general, it is the estimated
stabilized revenue derived from the use and operation of a Mortgaged
Property (consisting primarily of rental income) less the sum of (a)
estimated stabilized operating expenses (such as utilities,
administrative expenses, repairs and maintenance, management and
franchise fees and advertising), (b) fixed expenses (such as
insurance, real estate taxes and, if applicable, ground lease
payments) and (c) reserves for capital expenditures, including tenant
improvement costs and leasing commissions, giving credit for certain
existing escrow amounts. Underwritten Cash Flow generally does not
reflect interest expenses and non-cash items such as depreciation and
amortization.
In determining Underwritten Cash Flow for a Mortgaged Property, the
Seller generally relied on rent rolls and other generally unaudited
financial information provided by the respective borrowers to
calculate stabilized estimates of cash flow that took into
consideration historical financial statements, material changes in the
operating position of a Mortgaged Property (e.g., newly signed leases,
expirations of "free rent" periods and market rent and market vacancy
data), and estimated capital expenditures, leasing commissions and
tenant improvement reserves. To calculate Underwritten Cash Flow,
certain changes were made to the operating statements and operating
information obtained from the respective borrowers, resulting in
either an increase or decrease in the estimate of Underwritten Cash
Flow derived therefrom, based upon an evaluation of such operating
statements and operating information and the assumptions applied by
the respective borrowers in preparing such statements and information.
No assurance can be given with respect to the accuracy of the
information provided by any borrowers, or the adequacy of the
procedures used by the 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.
References to "Assumed DSCR" are references to "Assumed Debt Service
Coverage Ratios." In general Assumed DSCR was calculated in the same
manner as DSCR, except that an assumed fixed constant of 9.5% was
assumed in such calculation to calculate annual debt service. In those
instances in which the applicable Mortgage Loan is secured by a second
lien on the related Mortgaged Property, the foregoing calculations are
adjusted to take account of the amount of debt service payable in
respect of the prior first lien on such Mortgaged Property.
(2) References to "Current Implied Loan-to-Value Ratio" or "Current
Implied LTV" or "Current Implied 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 estimated by applying a
capitalization rate determined by the Seller to Underwritten NOI
("Implied Value"). "Underwritten NOI" is calculated in the same manner
as Underwritten Cash Flow, except without deducting reserves for
capital expenditures, including tenant improvement costs and leasing
commissions. References to "Balloon Implied LTV" or "Balloon Implied
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 of the Balloon Amount (the "Balloon Amount")
to the Implied Value of such Balloon Loan. 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. In those instances in
which the applicable Mortgage Loan is secured by a second lien on the
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related Mortgaged Property, the foregoing calculations are adjusted to
take account of the amount of the prior first lien on such Mortgaged
Property.
(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 to the extent the
Trustee has an insurable interest) and the cost thereof will be a Servicing
Advance.
The Seller
The Seller, Aetna Life Insurance Company, is a Connecticut corporation and
a subsidiary of Aetna Services, Inc., formerly known as Aetna Life and Casualty
Company. Aetna Services, Inc. is a wholly-owned subsidiary of Aetna Inc. Aetna
Inc. and its subsidiaries (collectively, the "Company") constitute one of the
largest insurance and financial services organizations in the United States.
Based on published industry rankings, the Company is one of the nation's largest
writers of health care, group life, annuity and pension products. The Seller's
principal offices are located at 151 Farmington Avenue, Hartford, Connecticut
06156.
Underwriting Practices
All of the Mortgage Loans were originated by the Seller or its subsidiaries
or its affiliates (collectively, "Aetna"). Aetna's general procedures relating
to the underwriting and origination of the Mortgage Loans are described below.
Correspondent Network
The Mortgage Loans originated by Aetna were generated through Aetna's
nationwide network of approximately 35 to 40 correspondent mortgage banking
firms. Generally, each correspondent was responsible for cultivating and
canvassing its particular market area for potential mortgage loans that
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met Aetna's then-current criteria for such loans, including that the proposed
mortgaged property be a well-leased, well-located income-producing property with
strong ownership or other sponsorship. A correspondent identifying a potentially
suitable loan opportunity submitted to Aetna a document package including the
correspondent's underwriting and valuation (usually based on capitalization of
income) analysis and recommendations. Aetna then independently re-underwrote the
proposed mortgage loan based on its own criteria (but in many cases based upon
appraisals performed by the staff of the correspondent) and, if the proposal
satisfied its criteria, Aetna, with its correspondent's continued involvement,
negotiated the terms and conditions of the loan directly with the
applicant/borrower. Before Aetna issued a loan commitment, the loan application
was reviewed and approved by the Aetna officers or employees to whom appropriate
authority had been delegated. After Aetna funded the mortgage loan, its
correspondent generally serviced the loan for Aetna's benefit pursuant to its
servicing agreement or other agreement with Aetna.
General Underwriting Procedures
Aetna's underwriting procedures were intended to evaluate, among other
things, the income derived from the proposed mortgaged property, the
capabilities of the management of the project, including a review of
management's past performance record, its management reporting and control
procedures (to determine its ability to recognize and respond to problems) and
its accounting procedures to determine cash management ability, the
applicant/borrower's credit standing and repayment ability and the value and
adequacy of the mortgaged property as collateral.
Appraisals
An appraisal of each mortgaged property was performed in connection with
the origination of the Mortgage Loans. In many cases such appraisal was
performed by the staff of the correspondent. This appraisal helped establish
that at the time of the appraisal, the loan-to-value ratio of the proposed
mortgage loan conformed to Aetna's then-current loan-to-value requirement (which
was generally 75% during the period in which the Mortgage Loans were
originated).
In general, an appraisal represents the analysis and opinion of a qualified
valuation expert and is not a guarantee of present or future value. Moreover,
appraisals generally seek to establish the amount a typically motivated buyer
would pay a typically motivated seller acting without any particular time or
other pressure. Such amount could be significantly higher than the amount
obtained from the sale of a mortgaged property in a distress or liquidation
sale.
In connection with the sale of the Mortgage Loans by the Seller to the
Depositor, none of the Depositor, the 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. Not all of the
above-described appraisals conformed to the appraisal guidelines set forth in
Title XI of the Federal Financial Institutions Reform, Recovery and Enforcement
Act of 1989.
Occupancy Statements, Operating Statements and Other Data
In connection with its origination of mortgage loans, Aetna generally
reviewed rent rolls and related information or statements of occupancy rates,
census data, financial data, operating statements and, with respect to mortgage
loans secured by office properties and retail properties, selected major tenant
leases.
Zoning and Building Code Compliance
Under the related mortgage or loan documents, each borrower generally
represented as of the date on which the mortgage loan was originated, or
provided a legal opinion or other evidence to the effect, that the use and
operation of the related mortgaged property was in material compliance with
applicable zoning, environmental, building, and other similar laws applicable to
the mortgaged property, or covenanted to cure any material violations of such
laws that might exist.
Assignment of the Mortgage Loans
On the Closing Date, the Seller will assign its Mortgage Loans, without
recourse, to the Depositor, and the Depositor will assign all the Mortgage
Loans, without recourse, to the Trustee for the benefit of the
Certificateholders. In connection with the foregoing, the Seller is required,
generally, in accordance with the Mortgage Loan Purchase Agreement to deliver
the following documents, among others, with respect to each Mortgage Loan so
assigned by it (such documents, collectively as to any
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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); (g) when relevant, the related ground lease or a copy
thereof; and (h) copies of UCC-1's and original UCC-3's, if applicable. The
Trustee will be required to review the documents delivered by the Seller with
respect to its Mortgage Loans within 90 days following the Closing Date, and the
Trustee will hold the related documents in trust.
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
by the Seller in the name of the Trustee (if delivered in blank) and submitted
by Seller for recording in the real property records of the appropriate
jurisdictions.
Representations and Warranties
In the Mortgage Loan Purchase Agreement, the Seller has represented and
warranted with respect to each of the Mortgage Loans, as of the Closing Date, or
as of such other date specifically provided in the representation and warranty,
among other things, generally to the effect that: (1) the information pertaining
to the Mortgage Loan set forth in the mortgage loan schedule attached to the
Mortgage Loan Purchase Agreement was true and correct in all material respects
as of the Cut-off Date; (2) the Seller has good title to, and was the sole owner
of, the Mortgage Loan; (3) the proceeds of the Mortgage Loan have been fully
disbursed and there is no requirement for future advances thereunder; (4) each
of the related Mortgage Note, Mortgage, loan or credit agreement (if any), and
other material agreements executed in connection therewith is the legal, valid
and binding obligation of the maker thereof (subject to any non-recourse
provisions therein), enforceable in accordance with its terms, subject to
certain creditors' rights exceptions and exceptions of general application; (5)
the assignment of the related Mortgage constitutes the legal, valid and binding
assignment of such Mortgage from the Seller to the Trustee; (6) the related
Mortgage is a valid first lien on the related Mortgaged Property, which
Mortgaged Property is free and clear of all encumbrances and liens having
priority over or on a parity with the lien of the Mortgage, except for certain
customary permitted encumbrances (except for the following Mortgage Loans, which
constitute second liens on the related Mortgaged Properties: The One Post Office
Square Loan and The Crystal Square Plaza--2 Loan); (7) either the related
Mortgage contains an assignment of leases and rents or there is a separate
document providing for such assignment, which creates in favor of the holder
thereto a valid and perfected lien of the same priority as the related Mortgage
in the property and rights described therein, subject to certain customary
permitted encumbrances; (8) none of the related Mortgage, Mortgage Note or
Assignment of Leases has been waived, modified, altered, satisfied, cancelled or
subordinated in any material respect which continues to be in effect, and the
related Mortgaged Property has not been released from the lien or other
encumbrance of nor has the Mortgagor been released from its obligations under
the related Mortgage, in whole or in any part, in any material respect; (9) all
taxes and governmental assessments that on or prior to the Cut-off Date became
due and owing in respect of, and affect, the related Mortgaged Property have
been paid, or an escrow of funds in an amount sufficient to cover such payments
has been established; (10) the Seller has not, directly or indirectly, advanced
funds for the payment of any principal or interest on the Mortgage Loan or for
the payment of real estate taxes, other ad valorem taxes, insurance premiums or
any other material amount required by the related Mortgage Note or the related
Mortgage for the related Mortgaged Property; (11) the Seller has received no
notice of the commencement of any proceeding pending for the total or material
partial condemnation of the related Mortgaged Property; (12) an engineering
report was prepared with respect to the related Mortgaged Property and, to the
Seller's knowledge, such report is not misleading and does not contain any false
statements; (13) the related Mortgaged Property is covered by an American Land
Title Association (or an equivalent form thereof) lender's title insurance
policy that insures that the related Mortgage is a valid first (or second) lien
on such Mortgaged Property, subject
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only to the exceptions stated therein; (14) the related Mortgaged Property is,
and is required pursuant to the related Mortgage to be, insured by casualty and
liability insurance policies of a type specified in the Mortgage Loan Purchase
Agreement; (15) to Seller's knowledge, there is no material default, breach,
violation or event of acceleration existing under the related Mortgage or the
related Mortgage Note, and no existing event (other than payments due but not
yet delinquent) which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute any of the foregoing is
currently in effect; the Seller has not waived any material default, breach,
violation or event of acceleration under the related Mortgage or the related
Mortgage Note, which waiver is presently in effect and is not included in the
related Mortgage File; (16) pursuant to the terms of the Mortgage Loan, the
related Mortgage or the related Mortgage Note, no person or party other than the
mortgagee may declare an event of default or accelerate the related indebtedness
under any such Mortgage Loan, Mortgage or Mortgage Note; (17) no Mortgage Loan
was 30 days or more past due as of, or during the 12-month period preceding, the
Cut-off Date (with the exception of one (1) Mortgage Loan representing 1.5% of
the Initial Pool Balance, which has not been delinquent since its date of
modification); (18) no Mortgage Loan is cross-collateralized or cross-defaulted
with any loan other than one or more other Mortgage Loans; (19) the Mortgaged
Property consists of either a fee simple estate in real property or a ground
lease the presently existing term of which (including all consecutive renewal
terms which have been exercised) extends for at least ten years beyond the
stated Maturity Date for such Mortgage Loan; and, with respect to any Mortgage
Loan which is secured by a ground lease of the related Mortgaged Property: (a)
such ground lease or a memorandum thereof has been duly recorded and such ground
lease permits the interest of the ground lessee thereunder to be encumbered by
the related Mortgage; (b) except as indicated in the related lender's title
insurance policy, the ground lessee's interest in such ground lease is not
subject to any liens or encumbrances superior to, or of equal priority with, the
Mortgage other than the related ground lessor's fee interest; (c) upon the
foreclosure of the applicable Mortgage (or transfer in lieu thereof), the ground
lessee's interest in such ground lease is assignable to the Trustee for the
benefit of the Certificateholders upon notice to, but without the consent of,
the ground lessor thereunder; (d) such ground lease is in full force and effect
and the Seller has received no written notice from the ground lessor that any
default has occurred under such ground lease which remains uncured or that there
is any existing condition which, but for the passage of time or the giving of
notice, would result in a default under the terms of such ground lease; (e)
except with respect to the Crystal Square--2 Loan as described under "Risk
Factors and Other Special Considerations--Leasehold Considerations," such ground
lease or other agreement requires the ground lessor to give notice of any
default by the ground lessee to the mortgagee prior to the exercise of any
remedies under the ground lease and to enter into a new lease (if the ground
lessor consents) with the holder of the Mortgage or its successor or assign as
the ground lessee thereunder upon termination of the ground lease for any
reason, including rejection of the ground lease in a bankruptcy proceeding; (f)
except with respect to the Crystal Square--2 Loan as described under "Risk
Factors and Other Special Considerations--Leasehold Considerations," the
mortgagee is permitted a reasonable opportunity to cure any default under such
ground lease which is curable after the receipt of notice of any such default
before the ground lessor thereunder may terminate such ground lease; (g) under
the terms of such ground lease and the related Mortgage, taken together, any
related insurance proceeds or condemnation award (other than in respect of a
total or substantially total loss or taking) will be applied either to the
repair or restoration of all or part of the related Mortgaged Property, or to
the payment of the Mortgage Loan; (20) the Mortgage Loan is a "qualified
mortgage" within the meaning of Section 860G(a)(3) of the Code (without regard
to Treasury Regulation Section 1.860G-2(f) or any similar rule that provides
that a defective obligation is a qualified mortgage for a temporary period);
(21) the related Mortgagor is, to the Seller's knowledge, not the subject of a
bankruptcy proceeding; (22) the Mortgage Loan does not permit the related
Mortgaged Property to be encumbered by any lien junior to or of equal priority
with the lien of the related Mortgage without the prior written consent of the
holder thereof or the satisfaction of debt service coverage or similar criteria
specified therein, except as discussed under "Risk Factors and Other Special
Considerations--Risks of Secured Subordinate Financing"; and the Seller has
caused a title search to be performed for each Mortgaged Property by a reputable
title insurance company within 120 days prior to the date hereof, and, to
Seller's knowledge, based on such title searches, no Mortgaged Property is
encumbered by any junior or subordinate indebtedness except as set forth on such
report; (23) an environmental site assessment was performed with respect to the
related Mortgaged Property and, to the Seller's knowledge, the report prepared
in connection therewith is not misleading and does not contain any false
statements; and (24) the servicing and collection practices used by the Seller
have been in all material respects reasonable under the circumstances, and have
been in all material respects conducted in accordance with the Seller's usual
servicing and collection practices.
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Repurchases and Other Remedies
If any Mortgage Loan document required to be delivered to the Trustee by
the Seller as described under "--Assignment of the Mortgage Loans" above is not
delivered as and when required, contains information that does not conform to
the corresponding information in the Mortgage Loan schedule attached to the
Mortgage Loan Purchase Agreement, is not properly executed or is defective on
its face (any such omission, nonconformity or other defect, a "Document
Defect"), or if there is a breach of any of the representations and warranties
required to be made by the Seller regarding the characteristics of its Mortgage
Loans and/or the related Mortgaged Properties as described under
"--Representations and Warranties" above, and in either case such Document
Defect or breach materially and adversely affects the interests of the holders
of the Certificates (a "Material Document Defect" and a "Material Breach",
respectively), then the Seller will be obligated to cure such Material Document
Defect or Material Breach 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 (with
interest thereon), 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 terms comparable to the Mortgage Loan to be replaced and
that is acceptable to each Rating Agency and would be a qualified replacement
mortgage within the meaning of Code Section 860G(a)(4) (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 Seller or receipt by the 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 Seller and receipt by the Seller of notice of such Material
Document Defect or Material Breach, as the case may be, and the Seller is
diligently attempting to effect such correction or cure, then the applicable
Permitted Cure Period will, with the consent of the Trustee (which consent may
not be unreasonably withheld), be extended for an additional 90 days.
The foregoing obligations of the Seller to cure a Material Document Defect
or a Material Breach in respect of any of its Mortgage Loans or repurchase or
replace the defective Mortgage Loan, will constitute the sole remedies of the
Trustee and the Certificateholders with respect to such Material Document Defect
or Material Breach; and none of the Depositor or any other person or entity will
be obligated to repurchase or replace the affected Mortgage Loan if the 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
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. Further, the summary contained herein does not
purport to be complete and is subject, and qualified in its entirety, by
reference to the provisions of the Pooling and Servicing Agreement.
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); (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; and (F) without regard to the existence of any related
borrower.
In general, except as described below, 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"). However, the Special Servicer will have certain duties with respect
to the Mortgage Loans that are not Specially Serviced Mortgage Loans (prior to a
Servicing Transfer Event) that will generally include exercising whatever rights
and fulfilling whatever obligations are granted to the lender under the related
loan documents for each Mortgage Loan, including discharging what would
generally be described as asset management functions (including the processing
of requests for assumptions, releases of collateral, reviews and approvals of
leases, approvals of subordinate financing and similar functions). In addition,
the Special Servicer will be required to administer in all respects (other than
certain bookkeeping functions, for which the Master Servicer will be
responsible) the Non-REMIC Assets, including all discussions and negotiations
with respect thereto.
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 (in consultation with the Special 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
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likely to remain unremedied for at least 60 days or, in the case of a Balloon
Payment, for at least 30 days; (iv) there shall have occurred a default under
the related loan documents, other than as described in clause (i) or (ii) above,
that in the Master Servicer's good faith and reasonable judgment (in
consultation with the Special Servicer) 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)
commencement of any involuntary case against the related Mortgagor under any
present or future federal or state bankruptcy, insolvency or similar laws, 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 the related Mortgagor's
affairs; (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 receive payments (including amounts
collected by the Special Servicer), collect information, make certain
calculations and prepare all reports to the Trustee required under the Pooling
and Servicing 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 primary 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 as a result of a modification to
a Money Term of such Mortgage Loan; 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 any group of Cross-Collateralized Mortgage Loans as a single
Mortgage Loan, 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 each Mortgage Loan in the group independently meets the requirements to be
a Corrected Mortgage Loan.
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The Master Servicer
Midland Loan Services, L.P., a Missouri limited partnership, will act as
the Master Servicer with respect to the Mortgage Loans. Midland Loan Services,
L.P., ("Midland", or in its capacity as master servicer, the "Master Servicer")
was organized under the laws of Missouri in 1992 as a limited partnership.
Midland is a real estate financial services company which provides loan
servicing and asset management for large pools of commercial and multifamily
real estate assets and originates commercial real estate loans. Midland's
address is 210 West 10th Street, 6th Floor, Kansas City, Missouri 64105.
As of October 31, 1997, Midland and its affiliates were responsible for
servicing approximately 12,700 commercial and multifamily loans with an
aggregate principal balance of approximately $19.2 billion, the collateral for
which is located in all fifty states, Puerto Rico and the District of Columbia.
With respect to such loans, approximately 11,100 loans with an aggregate
principal balance of approximately $14.2 billion pertain to commercial and
multifamily mortgage-backed securities. Midland has been approved as a master
and special servicer for investment grade-rated commercial and multifamily
mortgage-backed securities by Fitch and Moody's.
The foregoing information was provided by the Master Servicer. None of the
Seller, the Special Servicer, the Underwriter, the Trustee, the Depositor or the
Operating Advisor takes any responsibility therefor, or makes any representation
or warranty as to the accuracy or completeness thereof.
The Special Servicer
The Special Servicer will be Aetna Life Insurance Company, the Seller of
the Mortgage Loans. The Special Servicer's principal place of business is in
Hartford, Connecticut.
The Special Servicer currently is the special servicer for the Aetna 1995
Commercial Mortgage Trust Multi-Class Pass-Through Certificates, Series 1995-C5
and the current outstanding principal balance of the related mortgage loans is
approximately $280,000,000 as of November 1997. In addition, the Special
Servicer manages certain other mortgage loans held by or in its name and the
name of its affiliates, resulting in total mortgage loans under management of
approximately $5.5 billion as of September 30, 1997. The Special Servicer is
rated "superior" by Standard & Poor's and "above-average" by Fitch and was
approved as a Special Servicer for the Mortgage Loans by Moody's. The Special
Servicer may own assets which, depending upon the particular circumstances, may
compete with one or more of the Mortgaged Properties.
The foregoing information was provided by the Special Servicer and neither
the Depositor, the Underwriter, the Trustee nor the Master Servicer makes any
representation or warranty as to the accuracy or completeness of such
information.
Sub-Servicers
The Master Servicer and Special Servicer may each delegate its servicing
obligations in respect of the Mortgage Loans serviced thereby to one or more
third-party servicers (each, a "Sub-Servicer"); provided that the Master
Servicer or Special Servicer, as the case may be, will remain obligated under
the Pooling and Servicing Agreement for such delegated duties. Each
sub-servicing agreement between the Master Servicer or Special Servicer, as the
case may be, and a Sub-Servicer (each, a "Sub-Servicing Agreement") must provide
that, if for any reason the Master Servicer or Special Servicer, as the case may
be, is no longer acting in such capacity, the Trustee or any successor to such
Master Servicer or Special Servicer may 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.
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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 0.054% per annum.
The Master Servicer may, at its option, assign to any third party or retain
for itself the Retained Servicing Interest. The "Retained Servicing Interest"
will consist of the amount of the Master Servicing Fees otherwise payable to the
Master Servicer that accrue at a per annum rate of 0.044%, which rate equals the
excess of the Master Servicing Fee Rate over a 0.01% floor (such floor, the
"Minimum Master Servicing Fee Rate"). The holder of the Retained Servicing
Interest (i.e., the Master Servicer or such third party) shall be entitled to
receive payment in respect of the Retained Servicing Interest at such time and
to the extent the Master Servicer is entitled to receive payment of the Master
Servicing Fees (subject to the Retained Servicing Interest) under the terms and
provisions of the Pooling and Servicing Agreement; provided, however, that such
payment to the holder of the Retained Servicing Interest shall continue
notwithstanding any termination without cause of the Master Servicer pursuant to
the Pooling and Servicing Agreement; provided, further, that the Retained
Servicing Interest may be reduced by the Trustee to the extent that all or a
portion of the Retained Servicing Interest is needed by the Trustee in its
discretion in order to obtain a qualified successor Master Servicer willing to
receive servicing compensation accruing at a per annum rate in excess of the
Minimum Master Servicing Fee Rate.
As additional servicing compensation, the Master Servicer will be entitled
to retain any late payment charges collected by it from a borrower with respect
to any Mortgage Loan and fifty percent (50%) of any default interest and
extension fees actually collected on any Mortgage Loan (other than a Specially
Serviced Mortgage Loan). The remainder of any such charges will be deposited in
a grantor trust, established by the Depositor as part of the Trust Fund;
however, such charges will not be a part of the Mortgage Pool, and will not be
available for distributions on any Certificate other than the Class W
Certificates. The Master Servicer will also be entitled to Prepayment Interest
Excesses collected on the Mortgage Loans and not otherwise applied to cover
Prepayment Interest Shortfalls (and will be charged to the extent Prepayment
Interest Shortfalls exceed Prepayment Interest Excesses). 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 and any fees associated therewith (to the extent not
otherwise payable to the borrowers).
The principal compensation to be paid to the Special Servicer in respect of
its special servicing activities will be the Special Servicing Fee, the Workout
Fee and the Liquidation Fee. The "Special Servicing Fee" will accrue with
respect to each Specially Serviced Mortgage Loan and each Mortgage Loan as to
which the related Mortgaged Property has become an REO Property, at a rate equal
to 0.25% per annum (the "Special Servicing Fee Rate"), 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 0.75% to, each collection of 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. A Workout Fee will be payable with respect to each Corrected
Mortgage Loan irrespective of how many times such Mortgage Loan has been 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 in
accordance with the terms described herein, it shall retain the right to receive
any
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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. The Special Servicer's fee for
administering the Non-REMIC Assets will be equal to 0.75% of the amount of any
distribution to the holders of the Class V Certificates and will be payable from
amounts collected in respect of the Non-REMIC Assets only.
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" equal to the product of (x) 1.0%, (y) a fraction, the
numerator of which is equal to the Liquidation Proceeds received in connection
with a final disposition of a Specially Serviced Mortgage Loan or REO Property
and the denominator of which is equal to the unpaid principal balance of the
related Mortgage Loan or REO Property and accrued and unpaid interest thereon
and (z) the related Liquidation Proceeds. Notwithstanding anything to the
contrary described above, no Liquidation Fee will be payable based on, or out
of, Liquidation Proceeds received in connection with the repurchase or
replacement of any Mortgage Loan by the 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 Operating Adviser, 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 the Liquidation Fee
otherwise payable shall be reduced to the extent of the Workout Fee paid or
payable to the Special Servicer.
The Special Servicer will be entitled to additional servicing compensation
in the form of all late payment charges collected by it from a borrower with
respect to any Mortgage Loan, and fifty percent (50%) of (i) any assumption fees
and modification fees received by it on or with respect to any Mortgage Loan,
including, but not limited to, any Specially Serviced Mortgage Loan, (ii) any
extension fees received by it on or with respect to any Specially Serviced
Mortgage Loan and (iii) any default interest actually collected on any Specially
Serviced Mortgage Loan; provided, however, that the Special Servicer will be
entitled to such default interest and late payment charges 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 payable to the Special Servicer with
respect to the related Mortgage Loan or to cover interest payable to the Master
Servicer or the Trustee with respect to any Advances made in respect of the
related Mortgage Loan and any other fees (including asset management fees)
collected from the related borrower in connection with the Special Servicer's
exercise or waiver of any of the rights of the related mortgagee under any of
the loan documents relating to any Mortgage Loan. The remainder of any such fees
or payments will be deposited in a grantor trust, established by the Depositor
as part of the Trust Fund; however, such fees and payments will not be a part of
the Mortgage Pool, and will not be available for distributions on any
Certificate other than the Class W Certificates.
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 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, the "Controlling Class")
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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 at least five (5) Business Days prior to the commencement
of any such action: (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. The initial Operating Advisor shall be
CMBS Holdings, L.L.C., whose sole members are the Seller and a wholly-owned
subsidiary of the Seller.
Modifications, Waivers, Amendments and Consents
Subject to any restrictions applicable to REMICs, and to certain
limitations imposed by the Pooling and Servicing Agreement, including the
requirement that the Master Servicer comply with the Servicing Standard, the
Master Servicer may extend the maturity date of any Balloon Loan (other than a
Specially Serviced Mortgage Loan) to a date that, in the aggregate, with all
previous extensions is not more than 60 days beyond the original maturity date.
Subject to any restrictions applicable to REMICs, and to certain limitations
imposed by the Pooling and Servicing Agreement, including the requirement that
the Special Servicer comply with the Servicing Standard, the Special Servicer
will be permitted to enter into a modification, waiver or amendment of the terms
of any Mortgage Loan, including any modification, waiver or amendment to (i)
reduce the amounts owing under any Specially Serviced Mortgage Loan by forgiving
principal, accrued interest and/or any Prepayment Premium, (ii) reduce the
amount of the Monthly Payment on any Specially Serviced Mortgage Loan, including
by way of reduction in the related Mortgage Rate, (iii) forebear in the
enforcement of any right granted under any Mortgage Note or Mortgage relating to
a Mortgage Loan, (iv) extend the maturity date of any Specially Serviced
Mortgage Loan, and/or (v) accept a principal prepayment during any Lock-out
Period; provided in each case that (w) such modification, waiver or amendment
would not cause any action that, under the REMIC Provisions, if taken or not
taken, as the case may be, would either (i) endanger the status of any REMIC as
a REMIC or (ii) subject to the restrictions set forth in the Pooling and
Servicing Agreement, result in the imposition of a tax upon the income of any
REMIC or any of their respective assets or transactions, including (without
limitation) the tax on prohibited transactions as defined in Code Section
860F(1)(2) and the tax on prohibited contributions set forth in Section 860G(d)
of the Code, (x) in the case of any Specially Serviced Mortgage Loan or, in the
reasonable judgment of the Special Servicer, such default is reasonably
foreseeable, and (y) in the reasonable judgment of the Special Servicer, such
modification, waiver or amendment would increase the recovery of the Specially
Serviced Mortgage Loan to Certificateholders on a net present value basis (the
relevant discounting of amounts that will be distributable to Certificateholders
to be performed at the related Mortgage Rate).
In no event, however, will the Special Servicer be permitted to (i) extend
the maturity date of a Specially Serviced Mortgage Loan beyond a date that is
two years prior to the Final Rated Distribution Date, (ii) extend the maturity
date of a Specially Serviced Mortgage Loan and provide for an interest rate
during such extension below the then prevailing interest rate for comparable
loans, as determined by the Special Servicer (such limitation of extensions made
at a below market rate shall not limit the ability of the Special Servicer to
extend the maturity date of any Specially Serviced Mortgage Loan at an interest
rate in excess of the prevailing rate for comparable loans at the time of such
modification), (iii) if the Specially Serviced Mortgage Loan is secured by a
ground lease, extend the Maturity Date of such Mortgage Loan beyond a date which
is ten (10) years prior to the expiration of the term of such ground lease, (iv)
reduce the Mortgage Rate of a Specially Serviced Mortgage Loan to a rate below
the then prevailing interest rate for comparable loans, as determined by the
Special Servicer or (v) defer interest due on any Specially Serviced Mortgage
Loan in excess of 25% of the Stated Principal Balance of such Specially Serviced
Mortgage Loan or defer the collection of
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interest on any Specially Serviced Mortgage Loan without accruing interest at a
rate at least equal to the Mortgage Rate of such Specially Serviced Mortgage
Loan.
Notwithstanding the foregoing, if a Mortgage Loan is a Balloon Loan that
has failed to make the Balloon Payment at its scheduled maturity, and such
Balloon Loan is not a Specially Serviced Mortgage Loan (other than by reason of
failure to make the Balloon Payment) and has not been delinquent in the
preceding 12 months (other than with respect to the Balloon Payment), then in
addition to the other alternatives specified above, the Special Servicer may
make up to five one-year extensions at the existing Mortgage Rate for such
Mortgage Loan.
Modifications of a Mortgage Loan that forgive principal or interest will
result in Realized Losses on such Mortgage Loan and such Realized Losses will be
allocated among the various Classes of Certificates in the manner described
herein under "Description of the Certificates--Distributions--Subordination;
Allocation of Losses and Certain Expenses."
The modification of a Mortgage Loan may tend to reduce prepayments by
avoiding liquidations and therefor may extend the weighted average life of the
Certificates beyond that which might otherwise be the case. See "Maturity
Considerations" and "Yield Considerations" herein.
Sale of Defaulted Mortgage Loans and REO Properties
The Special Servicer may offer to sell for cash to any person, for an
amount equal to the Purchase Price, any REO Property or any Mortgage Loan that
is in default or as to which the Special Servicer has made a determination that
default is imminent under the loan documents. The Special Servicer is required
to give the Operating Adviser and the Trustee not less than fifteen days' prior
written notice of its intention to sell any such defaulted Mortgage Loan or REO
Property, to offer such defaulted Mortgage Loan or REO Property for sale in a
fair auction or other manner as is consistent with the Servicing Standard, and
to accept the highest cash bid received in such auction or other procedure from
any person other than an interested person (as described in the Pooling and
Servicing Agreement) for any defaulted Mortgage Loan or REO Property in an
amount, except as otherwise provided in the Pooling and Servicing Agreement in
the case of REO Property, at least equal to the Purchase Price.
In the absence of any bid in the amount of the Purchase Price, the Special
Servicer may accept the highest cash bid, if the Special Servicer determines,
consistent with the Servicing Standard, that such sale at such price is in the
best interest of the Certificateholders; provided that the Special Servicer may
not accept such bid if made by the Trustee in its individual capacity, any of
its affiliates, or any interested person (as described in the Pooling and
Servicing Agreement), except in limited circumstances described in the Pooling
and Servicing Agreement.
Notwithstanding the above, if the Operating or the Special Servicer intends
to place its bid for an REO Property or defaulted Mortgage Loan that has been
offered for sale as described under this heading, it shall place such bid with
the Trustee. If the bid provided by the Operating Adviser or, in the absence of
a bid by the Operating Adviser, the Special Servicer is at least equal to the
Purchase Price, the Trustee will be required to accept such bid. If the bid
provided by the Special Servicer is below the Purchase Price, the auction
procedure provided for in the previous paragraph must be followed by the Special
Servicer. However, even after auction, the Operating Adviser and, in the absence
of a bid by the Operating Adviser, the Special Servicer is permitted under the
Pooling and Servicing Agreement to be the purchaser of a defaulted Mortgage Loan
or a related REO Property if there has been at least one other bid from a
non-affiliated party pursuant to such auction and the Trustee has determined
that the price at which the Special Servicer has bid is at least equal to the
highest bid received at such auction. See "Description of the
Agreements--Realization Upon Defaulted Whole Loans" in the Prospectus.
Due-on-Sale and Due-on-Encumbrance Provisions
The Special Servicer will determine whether to exercise or to waive any
right the Trustee may have under any "due-on-sale" provision or
"due-on-encumbrance" provision with respect to any Mortgage Loan in a manner
consistent with the Servicing Standard and shall promptly notify the Trustee of
any such exercise or waiver.
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REO Properties
If title to any Mortgaged Property is acquired by the Special Servicer on
behalf of the Certificateholders, the Special Servicer, on behalf of such
holders, will be required to attempt to sell the Mortgaged Property for cash by
the close of the third taxable year following the taxable year in which the
Mortgaged Property was acquired (such date, the "REO Sale Deadline"), unless (i)
the Internal Revenue Service grants an extension of time to sell such property
(an "REO Extension") or (ii) the Special Servicer obtains an opinion of
independent counsel generally to the effect that the holding of the property
beyond the REO Sale Deadline will not result in the imposition of a tax on the
Trust Fund or cause REMIC I, REMIC II or REMIC III to fail to qualify as a REMIC
under the Code. Subject to the foregoing, the Special Servicer will generally be
required to attempt to sell any Mortgaged Property so acquired in such a manner
as will be reasonably likely to realize a fair price for such property. The
Special Servicer may retain an independent contractor to operate and manage any
REO Property; however, the retention of an independent contractor will not
relieve the Special Servicer of its obligations with respect to such REO
Property.
In general, the Special Servicer will be obligated to, or may contract with
a third party to, operate and manage any Mortgaged Property acquired as REO
Property in a manner that would, to the extent commercially feasible, maximize
the Trust Fund's net after-tax proceeds from such property. After the Special
Servicer reviews the operation of such property and consults with the Trustee to
determine the Trust Fund's federal income tax reporting position with respect to
income it is anticipated that the Trust Fund would derive from such property,
the Special Servicer could determine that it would not be commercially feasible
to manage and operate such property in a manner that would avoid the imposition
of a tax on "net income from foreclosure property" within the meaning of the
REMIC Provisions or a tax on "prohibited transactions" under Section 860F of the
Code (either such tax referred to herein as an "REO Tax"). To the extent that
income the Trust Fund receives from an REO Property is subject to a tax on (i)
"net income from foreclosure property", such income would be subject to federal
tax at the highest marginal corporate tax rate (currently 35%) and (ii)
"prohibited transactions", such income would be subject to federal tax at a 100%
rate. The determination as to whether income from an REO Property would be
subject to an REO Tax will depend on the specific facts and circumstances
relating to the management and operation of each REO Property. Generally, income
from an REO Property that is directly operated by the Special Servicer would be
apportioned and classified as "service" or "non-service" income. The "service"
portion of such income could be subject to federal tax either at the highest
marginal corporate tax rate or at the 100% rate on "prohibited transactions,"
and the "non-service" portion of such income could be subject to federal tax at
the highest marginal corporate tax rate or, although it appears unlikely, at the
100% rate applicable to "prohibited transactions". Any REO Tax imposed on the
Trust Fund's income from an REO Property would reduce the amount available for
distribution to Certificateholders. Certificateholders are advised to consult
their own tax advisors regarding the possible imposition of REO Taxes in
connection with the operation of commercial REO Properties by REMICs.
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 (that does not relate to
a Specially Serviced Mortgage Loan) 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 to the
Special Servicer, 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, and
neither the Master Servicer nor the Special Servicer is likely to have any
practical means of compelling such delivery in the case of an otherwise
performing Mortgage Loan.
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Certain Matters Regarding the Master Servicer and the Special Servicer
Fidelity Bond and Errors and Omissions Insurance Policy
The Master Servicer and the Special Servicer will each be required to
maintain a fidelity bond and an errors and omissions insurance policy or their
equivalent that provides coverage against losses that may be sustained as a
result of an officer's or employee's misappropriation of funds or errors or
omissions, subject to certain limitations as to amount of coverage, deductible
amounts, conditions, exclusions and exceptions permitted under the Pooling and
Servicing Agreement.
Certain Information Compliance
Both the Master Servicer and the Special Servicer shall provide an annual
officer's certificate signed by an appropriate officer of each, stating that
applicable activities of the Master Servicer or the Special Servicer were
conducted under such officer's review and, to the best of such officer's
knowledge, the Master Servicer or the Special Servicer has fulfilled all of its
obligations under the Pooling and Servicing Agreement in all material respects.
Resignation
Except as otherwise provided in the following paragraph, neither the Master
Servicer nor the Special Servicer may resign from the obligations and duties
imposed on it under the Pooling and Servicing Agreement unless (as evidenced by
an opinion of counsel to such effect) it determines that its duties under the
Pooling and Servicing Agreement are no longer permissible under applicable law
or are in material conflict by reason of applicable law with other activities
carried on by it.
Each of the Master Servicer and the Special Servicer may resign from the
obligations and duties imposed on it under the Pooling and Servicing Agreement
upon 30 days notice to the Trustee, provided that (i) a successor servicer is
(A) available, (B) has assets of at least $15,000,000 and (C) willing to assume
the obligations, responsibilities and covenants to be performed under the
Pooling and Servicing Agreement by the resigning servicer on substantially the
same terms and conditions, and for not more than equivalent compensation, as
therein provided; (ii) the resigning party bears all costs associated with its
resignation and the transfer of servicing; and (iii) the Rating Agencies shall
have confirmed in writing that such resignation and designation of a successor
master servicer or special servicer shall not result in and of itself in a
qualification, downgrade or withdrawal of any rating of any of the Certificates
then rated.
No such resignation by either the Master Servicer or the Special Servicer
will become effective unless and until a successor thereto assumes the
obligations and responsibilities thereof under the Pooling and Servicing
Agreement. Notwithstanding the foregoing, the Master Servicer may not resign
without the approval of the Operating Adviser.
In connection with any such resignation by the Special Servicer, the
Special Servicer will be entitled to sell its servicing rights and obligations
under the Pooling and Servicing Agreement to a successor special servicer,
subject to the conditions set forth above and certain other requirements under
the Pooling and Servicing Agreement.
Limitation on Liability
None of the Master Servicer, the Special Servicer or any of the directors,
officers, employees or agents of the Master Servicer or the Special Servicer
will be under any liability to each other or the Certificateholders, the
Depositor or the Trustee, for any action taken or for refraining from the taking
of any action in good faith using reasonable business judgment pursuant to the
Pooling and Servicing Agreement; provided that the Master Servicer, the Special
Servicer and such other Persons will not be protected against any breach of a
representation or warranty contained in the Pooling and Servicing Agreement or
any liability which would otherwise be imposed by reason of willful misfeasance,
bad faith or negligence in its performance of duties or by reason of negligent
disregard for its obligations and duties under the Pooling and Servicing
Agreement. The Master Servicer, the Special Servicer and any director, officer,
employee or agent of the Master Servicer or the Special Servicer may rely in
good faith on any document of any kind prima facie properly executed and
submitted by any person respecting any matters arising under the Pooling and
Servicing Agreement. Neither the Master Servicer nor the Special Servicer will
be under any obligation to appear in, prosecute or defend any legal action which
is not incidental to its duties under the Pooling and Servicing Agreement;
provided that the Master Servicer or the Special Servicer in its sole discretion
may undertake any such action
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which it may reasonably deem necessary or desirable in order to protect the
interests of the Certificateholders and the Trustee in the Mortgage Loans
serviced by it, and is required to undertake any such action if instructed to do
so by the Trustee. All legal expenses and costs of such action will be expenses
and costs of the Trust Fund.
Indemnification of the Master Servicer and the Special Servicer
The Master Servicer, the Special Servicer and any director, officer,
employee or agent of the Master Servicer (or its general partner) or the Special
Servicer shall be indemnified and held harmless by the Trust Fund against any
and all claims, losses, penalties, fines, forfeitures, legal fees and related
costs, judgments and any other costs, liabilities, fees and expenses incurred in
connection with any legal action brought against the Master Servicer, the
Special Servicer or any such other Person relating to the Pooling and Servicing
Agreement, the Certificates or any asset of the Trust Fund, other than any loss,
liability or expense: (i) specifically required to be borne by such party
pursuant to the terms thereof; (ii) which constitutes a Servicing Advance (and
is otherwise specifically reimbursable thereunder); or (iii) which was incurred
in connection with claims against such party resulting from (A) any breach of a
representation or warranty made therein by such party, (B) willful misfeasance,
bad faith or negligence in the performance of obligations or duties thereunder
by such party, or from negligent disregard of such obligations or duties, or (C)
any violation by such party of any state or federal securities law. The Master
Servicer or the Special Servicer, as the case may be, will immediately notify
the Trustee if a claim is made by a third party with respect to the Pooling and
Servicing Agreement or the Mortgage Loans entitling the Master Servicer or the
Special Servicer, as the case may be, to indemnification.
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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion, when read in conjunction with the discussion of
"Certain Federal Income Tax Consequences" in the Prospectus, describes the
material federal income tax considerations for investors in the Offered
Certificates. However, these two discussions do not purport to deal with all
federal tax consequences applicable to all categories of investors some of which
may be subject to special rules, and do not address state and local tax
considerations. Prospective purchasers should consult their own tax advisers in
determining the federal, state, local and any other tax consequences to them of
the purchase, ownership and disposition of the Offered Certificates.
General
For United States federal income tax purposes, the Trust Fund (except for
the Additional Interests, which will be treated as a separate Grantor Trust)
will be a "tiered REMIC structure" described in the Prospectus. See "Certain
Federal Income Tax Consequences--REMICs--Tiered REMIC Structures" in the
Prospectus. Three separate REMIC elections will be made with respect to the
Trust Fund. Upon the issuance of the Offered Certificates, Latham & Watkins,
counsel to the Depositor, will deliver its opinion generally to the effect that,
assuming (i) the making of proper elections, (ii) ongoing compliance with all
provisions of the Pooling and Servicing Agreement and (iii) continuing
compliance with applicable provisions of the Code, as it may be amended from
time to time, and applicable Treasury Regulations adopted thereunder, for
federal income tax purposes, each of REMIC I, REMIC II and REMIC III will
qualify as a REMIC under the Code. For federal income tax purposes, the Class R
Certificate will represent three separate classes of REMIC residual interests
evidencing the sole class of "residual interests" in each of REMIC I, REMIC II
and REMIC III, respectively; and the REMIC Regular Certificates will evidence
the "regular interests" in, and will be treated as debt instruments of, REMIC
III. See "Certain Federal Income Tax Consequences--REMICs" in the Prospectus.
The Offered Certificates will be REMIC Regular Certificates issued by REMIC III.
See "Certain Federal Income Tax Consequences--REMICs--Taxation of Owners of
Regular Certificates" in the Prospectus for a discussion of the principle
federal income tax consequences of the purchase, ownership and disposition
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of the Offered Certificates. References in the Prospectus to the Master REMIC
should be read as references to REMIC III. Each of REMIC I and REMIC II will be
a Subsidiary REMIC as such term is used in the Prospectus.
The Offered Certificates will be "real estate assets" within the meaning of
Section 856(c)(4)(A) (formerly, Section 856(c)(5)(A)) and 856(c)(5)(B)
(formerly, Section 856(c)(6)(B)) of the Code in the same proportion that the
assets of the Trust Fund underlying such Certificates would be so treated. In
addition, interest (including original issue discount, if any) on the Offered
Certificates will be interest described in Section 856(c)(3)(B) of the Code to
the extent that such Certificates are treated as "real estate assets" under
Section 856(c)(4)(A) of the Code. Moreover, the Offered Certificates will be
"qualified mortgages" under Section 860G(a)(3) of the Code if transferred to
another REMIC on its start-up day in exchange for regular or residual interests
therein. Offered Certificates also will qualify for treatment as "permitted
assets," within the meaning of Section 860L(c)(1)(G) of the Code, of a financial
asset securitization investment trust (a "FASIT") generally in the same
proportion as the assets of the Trust Fund would be so treated, and those
Offered Certificates held by certain financial institutions will constitute
"evidence of indebtedness" within the meaning of Section 582(c)(1) of the Code.
The Offered Certificates will be treated as assets described in Section
7701(a)(19)(C)(v) 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 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 3.7%. 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.
Original Issue Discount and Premium
The Class IO Certificates will be treated for Federal income tax reporting
purposes as having been issued with "original issue discount" ("OID"). Based on
anticipated prices (including accrued interest), the assumed Mortgage Loan
characteristics and the prepayment assumption described below, the Classes of
Offered Certificates other than the Class IO Certificates should not be treated
as issued with OID. Certain Classes of Offered Certificates may be treated as
issued with OID not exceeding a de minimis amount, and certain other Classes of
Offered Certificates are expected to be issued with premium, depending on the
price at which such Classes of Certificates are sold. The prepayment assumption
that will be used in determining the rate of accrual of original issue discount
and amortizable premium, if any, for federal income tax purposes will be a 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. For a description of CPR, see "Yield
Considerations" and "Maturity Considerations" in this Prospectus Supplement.
However, the Depositor makes no representation that the Mortgage Loans or any
Class of Certificates will only prepay during any such period or that they will
prepay at any particular rate before or during any such period.
The IRS has issued OID Regulations under Sections 1271 to 1275 of the Code
generally addressing the treatment of debt instruments issued with original
issue discount. See "Certain Federal Income Tax Consequences--REMICs--Taxation
of Owners of REMIC Regular Certificates--Original Issue Discount and Premium" in
the Prospectus. Purchasers of the Offered Certificates should be aware that the
OID Regulations and Section 1272(a)(6) of the Code do not adequately address
certain issues relevant to prepayable securities such as the Offered
Certificates. Moreover, the OID Regulations include an antiabuse rule allowing
the Internal Revenue Service to apply or depart from the OID Regulations where
necessary or appropriate to ensure a reasonable tax result in light of
applicable statutory provisions. No assurance can be given that the Internal
Revenue Service will not take a different position as to matters respecting
accrual of original issue discount in respect of Offered Certificates. 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, such as the Class IO Certificates, that are Super-Premium
Certificates. See "Certain Federal Income Tax Consequences--REMICs--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount and Premium" in
the Prospectus. Prospective purchasers of the Offered Certificates are advised
to consult their tax advisors concerning the tax treatment of such Certificates,
and the appropriate method of reporting interest and original issue discount
with respect to Offered Certificates.
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If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period with respect to a holder
of a Certificate, the amount of original issue discount allocable to such period
would be zero and such Certificateholder will be permitted to offset such
negative amount only against future original issue discount (if any)
attributable to such Certificate. Although the matter is not free from doubt, a
holder may be permitted to deduct a loss to the extent that his or her
respective remaining basis in such Certificate exceeds the maximum amount of
future payments to which such Certificateholder is entitled, assuming no further
prepayments of the Mortgage Loans. Any such loss might be treated as a capital
loss.
Certain Classes of Offered Certificates, other than the Class IO
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.
To the extent that any Offered Certificate is purchased in this offering or
in the secondary market at not more than a de minimis discount, as defined in
the Prospectus, a holder who receives a payment that is included in the stated
redemption price at maturity (generally, the principal amount) of such
Certificate will recognize gain equal to the excess, if any, of the amount of
the payment over an allocable portion of the holder's adjusted basis in the
Offered Certificate. Such allocable portion of the holder's adjusted basis will
be based upon the proportion that such payment of stated redemption price bears
to the total remaining stated redemption price at maturity, immediately before
such payment is made, of such Certificate. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount and Premium" and "--Sale, Exchange or Redemption" in the
Prospectus.
The 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.
Prepayment Premiums actually collected on the Mortgage Loans will be
distributed to the holders of each Class of Certificates entitled thereto as
described herein. It is not entirely clear under the Code when the amount of a
Prepayment Premium should be taxed to the holder of a Class of Certificates
entitled to a Prepayment Premium. For federal income tax information reporting
purposes, Prepayment Premiums will be treated as income to the holders of a
Class of Certificates entitled to Prepayment Premiums only after the Master
Servicer's actual receipt of a Prepayment Premium to which such Class of
Certificates is entitled under the terms of the Pooling and Servicing Agreement,
rather than including projected Prepayment Premiums in the determination of a
Certificateholder's projected constant yield to maturity. It appears that
Prepayment Premiums are treated as ordinary income rather than capital gain.
However, the timing and characterization of such income is not entirely clear
and Certificateholders should consult their tax advisors concerning the
treatment of Prepayment Premiums.
Recent Tax Law Developments
The Small Business Job Protection Act of 1996 and the Taxpayer Relief Act
of 1997 amended the definition of a trust that qualifies as a "United States
person" for federal income tax purposes. Under the amended definition, a "United
States person" includes any trust as to which (i) a court within the United
States is able to exercise primary supervision over its administration, and (ii)
one or more United States persons have the authority to control all its
substantial decisions. Under this amended definition, certain trusts that would
not have been classified as foreign trusts under prior law
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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 Class R Certificate) 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.
Additional Considerations
The Special Servicer is authorized under certain circumstances in which
doing so is consistent with maximizing the Trust Fund's net after-tax proceeds
from an REO Property, to incur taxes on the Trust Fund in connection with the
operation of such REO Property. Any such taxes imposed on the Trust Fund would
reduce the amount distributable to Certificateholders. See "Servicing of the
Mortgage Loans--REO Properties" herein.
Federal income tax information reporting duties with respect to the Offered
Certificates and REMIC I, REMIC II and REMIC III will be the obligation of the
Trustee, and not of the Master Servicer. See "Certain Federal Income Tax
Consequences REMICs--Information Reporting and Backup Withholding" in the
Prospectus.
For further information regarding the tax consequences of investing in the
Offered Certificates, see "Certain Federal Income Tax Consequences--REMICs" and
"State Tax Considerations" in the Prospectus.
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS LOCATED IN CALIFORNIA,
NEW YORK AND MASSACHUSETTS
The following discussion contains summaries of certain legal aspects of
mortgage loans secured by real property in California (approximately 21.7% of
the Initial Pool Balance), Massachusetts (approximately 14.7% of the Initial
Pool Balance) and New York (approximately 14.3% of the Initial Pool Balance)
which are general in nature. The summaries do not purport to be complete and are
qualified in their entirety by reference to the applicable federal and state
laws governing the Mortgage Loans.
California
Mortgage Loans in California generally are secured by deeds of trust on the
related real estate. Foreclosure of a deed of trust in California may be
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust or by judicial foreclosure. Public notice of either the trustee's
sale or the judgment of foreclosure is given for a statutory period of time
after which the mortgaged real estate may be sold by the Trustee, if foreclosed
pursuant to the Trustee's power of sale, or by court appointed sheriff under a
judicial foreclosure. Following a judicial foreclosure sale, the borrower or its
successor in interest may, for a period of up to one year, redeem the property.
California's "one action rule" requires the lender to exhaust the security
afforded under the deed of trust by foreclosure in an attempt to satisfy the
full debt before bringing a personal action (if otherwise permitted) against the
borrower for recovery of the debt except in certain cases involving
environmentally impaired real property. California case law has held that acts
such as an offset of an unpledged account or the application of rents from
secured property prior to foreclosure, under some circumstances, constitute
violations of such statutes. Violations of such statutes may result in the loss
of some or all of the security under the loan. Other statutory provisions in
California limit any deficiency judgment (if otherwise permitted) against the
borrower following a judicial sale to the excess of the outstanding debt over
the greater of (i) the fair market value of the property at the time of the
public sale or (ii) the amount of the winning bid in the foreclosure. Further,
under California law, once a property has been sold pursuant to a power-of-sale
clause contained in a deed of trust, the lender is precluded from seeking a
deficiency judgment from the borrower or, under certain circumstances,
guarantors. In certain circumstances, the lender may have a receiver appointed.
Massachusetts
Mortgage Loans in Massachusetts generally are secured by mortgages on the
related real estate. Foreclosure of a mortgage generally is accomplished by a
non-judicial power of sale under a specific provision in the mortgage. Public
notice and advertisement of the sale is prescribed by statute. In the case of
registered land, a foreclosure action must be brought in the Land Court. The
proceeds of a foreclosure sale are applied first to the costs of the sale and
then in satisfaction of the
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indebtedness. There is no right of redemption after a properly conducted sale.
In certain circumstances, deficiency judgments may be obtained. The remedy of
the appointment of a receiver generally is not available in Massachusetts.
New York
Mortgage Loans in New York generally are secured by mortgages on the
related real estate. Upon default of a mortgage, a mortgagee is generally
presented with the choice of either proceeding in equity to foreclose upon the
mortgaged property or proceeding at law and suing on the note. New York law does
not require that the mortgagee bring a foreclosure action before being entitled
to sue on the note. However, once having begun a foreclosure action or an action
to sue on the note or guaranty, a mortgagee is generally not permitted to
initiate the other type of action without leave of the court. While a
foreclosure may proceed either judicially or non-judicially, nonjudicial
foreclosures are virtually unused today. In either case, sale is at auction and
the holder of mortgage may buy the property. The proceeds received from the sale
are applied first to the cost and expenses of the sale and then in satisfaction
of the indebtedness secured by the mortgage. There is no right of redemption
after foreclosure sale in New York. In certain circumstances, deficiency
judgments may be obtained, provided that a series of procedural and substantive
requirements are satisfied. The remedy of appointment of receiver for the
mortgaged real estate is available under certain circumstances.
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 Seller, 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.
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
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<PAGE>
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 IBCA, Inc. 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 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.
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<PAGE>
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 and to pay
certain expenses in connection with the issuance of the Certificates.
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 December __, 1997, which
is the ________ business day following the date of pricing of the Certificates.
Under Rule 15c6-1 under the Securities Exchange Act of 1934, as amended, trades
in the secondary market generally are required to settle in three business days,
unless the parties to any such trade expressly agree otherwise. Accordingly,
purchasers who wish to trade Offered Certificates in the secondary market prior
to such delivery should specify a longer settlement cycle, or should refrain
from specifying a shorter settlement cycle, to the extent that failing to do so
would result in a settlement date that is earlier than the date of delivery of
such Offered Certificates.
The 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.
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<PAGE>
LEGAL MATTERS
The legality of the Offered Certificates and the material federal income
tax consequences of investing in the Offered Certificates will be passed upon
for the Depositor by Latham & Watkins, New York, New York. Certain legal matters
with respect to the Offered Certificates will be passed upon for the Underwriter
by Latham & Watkins, New York, New York. Certain legal matters with respect to
the Offered Certificates will be passed upon for the Seller by Dechert Price &
Rhoads, New York, New York.
RATINGS
It is a condition of the issuance of the Offered Certificates that they
receive the following credit ratings from Fitch and Moody's:
CLASS FITCH MOODY'S
- ----- ----- -------
Class A-1A ............................... AAA Aaa
Class A-1B ............................... AAA Aaa
Class A-2 ................................ AAA Aaa
Class IO ................................. AAA Aaa
Class B .................................. AA Aa2
Class C .................................. A A2
Class D .................................. BBB Baa2
Class E .................................. BBB- 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 Final Rated 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 or default in the initial month, with the result that the
Certificateholders receive only a single month's interest and thus suffer a
nearly complete loss of their investment, all amounts "due" to such
Certificateholders would nevertheless have been paid, and such result will be
consistent with the "AAA/Aaa" ratings received on the Interest Only
Certificates. The Notional Amount upon which interest in respect of the Interest
Only Certificates is 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
Notional Amount, but only the obligation to pay interest timely on such Notional
Amount 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.
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<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
Page(s) on which
term is defined
Term in the Prospectus Supplement
- ---- ----------------------------
30/360 basis ........................................... S-64
Accrued Certificate Interest ........................... S-19, S-54
Additional Interests ................................... S-29, S-72
Additional Trust Fund Expenses ......................... S-57
Advance Rate ........................................... S-25, S-60
Advances ............................................... S-24, S-59
Aetna .................................................. S-78
Appraisal Event ........................................ S-22, S-56
Appraisal Reduction .................................... S-22, S-56
Assumed Monthly Payment ................................ S-20, S-54
Available Distribution Amount .......................... S-17, S-52
Balloon Amount ......................................... S-77
Balloon Implied LTV .................................... S-77
Balloon Implied LTV Ratio .............................. S-77
Balloon Loans .......................................... S-31
Balloon Payment ........................................ S-31, S-43
CEDEL .................................................. S-1, S-14, S-49
Certificate Account .................................... S-52
Certificate Balance .................................... S-1, S-15, S-50
Certificate Owner ...................................... S-14, S-49
Certificateholders ..................................... S-1, S-48
Certificates ........................................... S-1, S-11, S-48
Class .................................................. S-1, S-11, S-49
Class A Certificates ................................... S-1, S-11, S-49
Class Interest Shortfall ............................... S-19, S-54
Class IO Certificates .................................. S-1, S-11, S-49
Closing Date ........................................... S-1, S-48
Code ................................................... S-34
Collection Period ...................................... S-51
Commission ............................................. S-6
Company ................................................ S-78
Compensating Interest Payment .......................... S-23, S-58
Controlling Class ...................................... S-13, S-87
Corporate Trust Office ................................. S-63
Corrected Mortgage Loan ................................ S-84
Cross-Collateralized Mortgage Loans .................... S-30
Current Implied Loan-to-Value Ratio .................... S-77
Current Implied LTV .................................... S-77
Current Implied LTV Ratio .............................. S-77
Cut-off Date ........................................... S-3
Cut-Off Date Balance ................................... S-28
Debt Service Coverage Ratios ........................... S-76
Definitive Certificate ................................. S-14, S-49
Depositor .............................................. S-1, S-11
Determination Date ..................................... S-51
Discount Rate .......................................... S-55
Disqualified Persons ................................... S-96
Distributable Certificate Interest ..................... S-19, S-54
Distribution Date ...................................... S-3, S-52
Document Defect ........................................ S-82
DOL .................................................... S-96
DSCR ................................................... S-76
DTC .................................................... S-1, S-14, S-49
Due Date ............................................... S-23
ERISA .................................................. S-35, S-96
ERISA Plans ............................................ S-96
Euroclear .............................................. S-1, S-14, S-49
Expense Losses ......................................... S-57
FASIT .................................................. S-93
S-100
<PAGE>
Final DOL Regulation ..................................... S-96
Final Rated Distribution Date ............................ S-27
Final Scheduled Distribution Date ........................ S-64
Fitch .................................................... S-1, S-27
Hotel Loans .............................................. S-41
Implied Value ............................................ S-77
Initial Pool Balance ..................................... S-3, S-11
Interest Accrual Period .................................. S-54
Interest Only Certificates ............................... S-1, S-11, S-49
Liquidation Fee .......................................... S-87
Liquidation Fee Rate ..................................... S-87
Loan Constants
Loan Constant ................................... S-33
Lock-out Period .......................................... S-32
LOP ...................................................... S-64
Master Servicer .......................................... S-1, S-85
Master Servicing Fee ..................................... S-24, S-86
Master Servicing Fee Rate ................................ S-86
Material Breach .......................................... S-82
Material Document Defect ................................. S-82
Maturity Assumptions ..................................... S-64
Midland .................................................. S-85
Money Term ............................................... S-22, S-56
Monthly Payment .......................................... S-20, S-54
Moody's .................................................. S-1, S-27
Mortgage ................................................. S-71
Mortgage File ............................................ S-80
Mortgage Loan ............................................ S-71
Mortgage Loan Purchase Agreement ......................... S-12, S-72
Mortgage Loans ........................................... S-3, S-11
Mortgage Note ............................................ S-71
Mortgage Pool ............................................ S-3
Mortgage Rates ........................................... S-31, S-73
Mortgaged Property ....................................... S-29, S-71
Net Aggregate Prepayment Interest Shortfall .............. S-23, S-58
Net Mortgage Rate ........................................ S-16, S-51
Non-30/360 Loan .......................................... S-17, S-51
Non-REMIC Assets ......................................... S-29, S-72
Non-REMIC Certificates ................................... S-1, S-11, S-49
Non-REMIC Fees ........................................... S-29, S-72
Notional Amount .......................................... S-1, S-15, S-50
Offered Certificates ..................................... S-1, S-11, S-49
OID ...................................................... S-93
Operating Adviser ........................................ S-13, S-88
Other Pools .............................................. S-97
P&I Advance .............................................. S-58
P&I Advances ............................................. S-24
Participants ............................................. S-49
Parties in Interest ...................................... S-96
Pass-Through Rate ........................................ S-1, S-51
Percentage Interest ...................................... S-52
Percentage Premium ....................................... S-32, S-73
Permitted Cure Period .................................... S-82
Permitted Investments .................................... S-86
Plans .................................................... S-96
Pooling and Servicing Agreement .......................... S-1, S-11, S-48
Prepayment Assumption .................................... S-35
Prepayment Interest Excess ............................... S-23, S-58
Prepayment Interest Shortfall ............................ S-23, S-58
Prepayment Premiums ...................................... S-32
Principal Balance Certificates ........................... S-3, S-15, S-50
Principal Distribution Amount ............................ S-19, S-54
Principal Window ......................................... S-10
Private Certificates ..................................... S-11, S-49
PTE 95-60 ................................................ S-97
Purchase Price .................................... S-82
S-101
<PAGE>
Qualifying Substitute Mortgage Loan ............... S-82
Rating Agencies ................................... S-1, S-27
Realized Loss ..................................... S-57
Record Date ....................................... S-52
Related Proceeds .................................. S-58
REMIC ............................................. S-4, S-34
REMIC I ........................................... S-4, S-34
REMIC II .......................................... S-4, S-34
REMIC III ......................................... S-4, S-34
REMIC Regular Certificates ........................ S-1, S-11, S-34, S-49
REO Extension ..................................... S-90
REO Property ...................................... S-11, S-49, S-83
REO Sale Deadline ................................. S-90
REO Tax ........................................... S-90
Required Appraisal Loan ........................... S-22, S-56
Retained Servicing Interest ....................... S-86
Seller ............................................ S-3
Senior Certificates ............................... S-1, S-11, S-49
Servicing Advances ................................ S-24, S-59
Servicing Standard ................................ S-83
Servicing Transfer Event .......................... S-83
SMMEA ............................................. S-36, S-98
Special Servicer .................................. S-1
Special Servicing Fee ............................. S-86
Special Servicing Fee Rate ........................ S-86
Specially Serviced Mortgage Loan .................. S-83
Stated Principal Balance .......................... S-50
Sub-Servicer ...................................... S-85
Sub-Servicing Agreement ........................... S-85
Subordinate Certificates .......................... S-1, S-11, S-49
Substitution Shortfall Amount ..................... S-82
Termination Price ................................. S-58
Treasury Rate ..................................... S-55
Trust Fund ........................................ S-1, S-11, S-48
Trustee ........................................... S-1
Underwriter ....................................... S-1, S-98
Underwriter's Exemption ........................... S-97
Underwriting Agreement ............................ S-98
Underwritten Cash Flow ............................ S-77
Underwritten NOI .................................. S-77
Voting Rights ..................................... S-63
Workout Fee ....................................... S-86
Workout Fee Rate .................................. S-86
Yield Maintenance Premium ......................... S-73
Yield Maintenance Premiums ........................ S-32
YMP ............................................... S-64
S-102
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
CUT-OFF DATE BALANCES
<TABLE>
<CAPTION>
====================================================================================================================================
Weighted Weighted Weighted
Percent by Weighted Average Average Average
Number of Aggregate Aggregate Average Remaining Weighted Current Balloon
Mortgage Cut-off Date Cut-off Date Mortgage Term to Average Implied Implied
Cut-off Date Balance ($) Loans Balance Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 to 1,000,000 7 $1,893,845 0.24 9.525 59 0.91 28.52 0.36
1,000,001 to 3,000,000 1 2,618,345 0.33 9.000 1 1.24 64.37 64.37
5,000,001 to 10,000,000 5 38,800,526 4.83 9.621 82 1.06 73.39 68.70
10,000,001 to 25,000,000 18 308,028,203 38.35 9.133 77 1.20 73.75 67.45
25,000,001 to 50,000,000 8 298,322,455 37.14 9.219 107 1.27 67.39 52.20
50,000,001 and above 2 153,549,598 19.12 9.874 127 1.39 52.79 19.84
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average: 41 $803,212,971 100.00% 9.331% 97 1.26x 67.22% 52.58%
====================================================================================================================================
</TABLE>
Min: $41,298
Max: $97,552,186
Average: $19,590,560
I-1
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
MORTGAGE RATES
<TABLE>
<CAPTION>
====================================================================================================================================
Percent by Weighted Weighted Weighted
Aggregate Weighted Average Average Average
Number of Aggregate Cut-off Average Remaining Weighted Current Balloon
Mortgage Cut-off Date Date Mortgage Term to Average DSCR Implied Implied
Mortgage Rate (%) Loans Balance Balance (%) Rate (%) Maturity (mos) (x) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6.501 to 7.000 1 $23,500,000 2.93 7.000 16 1.08 119.25 119.25
7.501 to 8.000 7 177,504,019 22.10 7.928 69 1.53 64.64 61.23
8.001 to 8.500 3 37,309,427 4.64 8.335 37 1.17 76.95 73.87
8.501 to 9.000 8 106,555,516 13.27 9.000 60 1.45 61.53 59.05
9.001 to 9.500 3 77,032,135 9.59 9.292 73 1.16 63.50 55.09
9.501 to 10.000 8 88,087,212 10.97 9.846 135 0.97 73.57 48.34
10.001 to 10.500 5 216,590,412 26.97 10.296 141 1.12 66.15 36.01
10.501 to 11.000 5 54,202,764 6.75 10.621 165 1.22 64.53 39.01
11.001 and above 1 22,431,486 2.79 11.780 34 1.41 48.79 48.79
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average: 41 $803,212,971 100.00% 9.331% 97 1.26x 67.22% 52.58%
====================================================================================================================================
</TABLE>
Min: 7.000%
Max: 11.780%
WAC: 9.331%
I-2
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
LOAN CONSTANTS
<TABLE>
<CAPTION>
====================================================================================================================
Weighted
Weighted Average
Percent by Weighted Average Remaining
Number of Aggregate Aggregate Average Loan Term to Weighted
Mortgage Cut-off Date Cut-off Date Mortgage Constant Maturity Average
Loan Constant (%) Loans Balance Balance (%) Rate (%) (%) (mos) DSCR (x)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Less than or equal to 8.00 4 $99,140,000 12.34 7.752 7.752 49 1.36
8.01 to 9.00 6 73,180,478 9.11 8.666 8.902 68 1.07
9.01 to 10.00 4 110,399,047 13.74 8.238 9.236 79 1.52
10.01 to 11.00 4 30,915,553 3.85 9.729 10.563 112 1.00
11.01 to 12.00 13 357,352,087 44.49 9.800 11.419 89 1.22
12.01 to 13.00 3 130,331,962 16.23 10.448 12.674 188 1.23
15.01 and above 7 1,893,845 0.24 9.525 42.160 59 0.91
- --------------------------------------------------------------------------------------------------------------------
Total or Weighted Average: 41 $803,212,971 100.00% 9.331% 10.680% 97 1.26x
====================================================================================================================
<CAPTION>
============================================================
Weighted Weighted
Weighted Average Average
Average Current Balloon
Assumed Implied Implied
Loan Constant (%) DSCR (x) LTV (%) LTV(%)
- ------------------------------------------------------------
<S> <C> <C> <C>
Less than or equal to 8.00 1.12 79.63 79.63
8.01 to 9.00 1.00 83.81 82.93
9.01 to 10.00 1.47 63.67 58.29
10.01 to 11.00 1.12 73.72 65.08
11.01 to 12.00 1.42 65.41 52.26
12.01 to 13.00 1.63 55.48 8.77
15.01 and above 3.09 28.52 0.36
- ------------------------------------------------------------
Total or Weighted Average: 1.38x 67.22% 52.58%
============================================================
</TABLE>
Min: 7.000%
Max: 67.040%
Weighted Average: 10.680%
I-3
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
PROPERTY TYPES
<TABLE>
<CAPTION>
=======================================================================================================================
Weighted
Weighted Average
Percent by Weighted Average Remaining
Number of Aggregate Aggregate Average Loan Term to Weighted
Mortgage Cut-off Date Cut-off Date Mortgage Constant Maturity Average
Property Type Loans Balance Balance (%) Rate (%) (%) (mos) DSCR (x)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Office 20 $405,168,826 50.44 9.337 10.549 93 1.10
Retail 6 129,822,050 16.16 9.930 12.027 152 1.17
Mixed 2 104,471,612 13.01 8.536 10.435 47 1.48
Hotel 4 70,193,922 8.74 9.856 10.753 104 1.86
Industrial 4 64,058,113 7.98 8.264 8.530 48 1.36
Multifamily 5 29,498,449 3.67 10.496 11.923 176 1.37
- -----------------------------------------------------------------------------------------------------------------------
Total or Weighted Average: 41 $803,212,971 100.00% 9.331% 10.680% 97 1.26x
=======================================================================================================================
<CAPTION>
============================================================
Weighted Weighted
Weighted Average Average
Average Current Balloon
Assumed Implied Implied
Property Type DSCR (x) LTV (%) LTV(%)
- ------------------------------------------------------------
<S> <C> <C> <C>
Office 1.16 75.67 64.15
Retail 1.47 63.57 24.71
Mixed 1.67 57.19 52.79
Hotel 2.02 46.76 36.98
Industrial 1.21 65.87 65.61
Multifamily 1.72 54.50 24.32
- ------------------------------------------------------------
Total or Weighted Average: 1.38x 67.22% 52.58%
============================================================
</TABLE>
I-4
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
STATES
<TABLE>
<CAPTION>
================================================================================================================================
Weighted
Average Weighted Weighted
Percent by Weighted Remaining Average Average
Number of Aggregate Aggregate Average Term to Weighted Current Balloon
Mortgage Cut-off Date Cut-off Date Mortgage Maturity Average Implied Implied
State Loans Balance Balance (%) Rate (%) (mos) DSCR (x) LTV (%) LTV(%)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California 7 $174,471,035 21.72 8.419 76 1.44 65.57 61.05
Massachusetts 3 118,235,171 14.72 9.169 62 1.53 58.91 51.91
New York 2 115,012,599 14.32 10.413 188 1.22 55.36 6.37
New Jersey 2 82,092,779 10.22 10.084 175 0.93 75.08 39.82
Virginia 4 56,250,367 7.00 8.465 39 1.23 73.69 72.48
Indiana 2 48,962,596 6.10 10.435 82 1.12 70.09 59.29
Florida 3 48,549,832 6.04 9.316 24 1.24 83.73 83.73
Connecticut 2 40,921,260 5.09 9.115 103 1.29 55.85 41.09
Michigan 3 36,530,705 4.55 9.000 97 1.02 81.91 81.91
Alabama 2 22,115,849 2.75 9.507 49 0.96 79.83 79.51
Kansas 2 21,663,984 2.70 9.820 151 1.03 67.48 55.80
New Hampshire 1 11,884,801 1.48 8.500 49 1.05 98.40 97.55
Maryland 1 11,300,000 1.41 9.000 64 1.17 76.24 72.34
Kentucky 1 7,799,767 0.97 9.830 24 1.05 63.70 61.54
South Carolina 1 5,685,529 0.71 9.875 83 1.31 59.65 52.16
Pennsylvania 1 871,603 0.11 8.500 20 0.50 22.13 0.26
Texas 1 516,782 0.06 10.875 117 1.47 32.58 0.45
Minnesota 2 280,558 0.03 10.000 61 1.12 32.03 0.79
Arizona 1 67,756 0.01 8.750 42 1.20 19.34 0.00
- --------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average: 41 $803,212,971 100.00% 9.331% 97 1.26x 67.22% 52.58%
================================================================================================================================
</TABLE>
I-5
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
DEBT SERVICE COVERAGE RATIOS
<TABLE>
<CAPTION>
====================================================================================================================================
Weighted
Average Weighted Weighted
Percent by Weighted Remaining Weighted Average Average
Number of Aggregate Aggregate Average Term to Weighted Average Current Balloon
Debt Service Mortgage Cut-off Date Cut-off Date Mortgage Maturity Average Assumed Implied Implied
Coverage Ratio (x) Loans Balance Balance (%) Rate (%) (mos) DSCR (x) DSCR (x) LTV (%) LTV(%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.01 to 1.00 10 $158,633,409 19.75 9.925 130 0.92 1.07 78.26 58.10
1.01 to 1.15 13 294,372,360 36.65 9.322 94 1.10 1.25 72.25 53.81
1.16 to 1.25 4 38,359,125 4.80 8.522 39 1.23 1.21 70.41 67.01
1.26 to 1.35 5 99,697,138 12.41 9.747 121 1.30 1.45 62.61 46.29
1.36 to 1.50 4 76,588,268 9.54 9.127 49 1.41 1.36 60.92 60.70
1.51 to 1.75 3 52,627,716 6.55 8.850 139 1.57 1.60 60.32 42.17
1.76 to 2.00 1 55,997,412 6.97 9.000 37 1.80 2.18 45.21 41.32
2.01 and above 1 26,757,544 3.33 7.750 119 2.69 2.57 36.84 29.68
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average: 41 $803,212,971 100.00% 9.331% 97 1.26x 1.38x 67.22% 52.58%
====================================================================================================================================
</TABLE>
Min: 0.50x
Max: 2.69x
Weighted Average: 1.26x
I-6
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
ASSUMED DEBT SERVICE COVERAGE RATIOS
<TABLE>
<CAPTION>
====================================================================================================================================
Weighted Weighted Weighted
Percent by Weighted Average Weighted Average Average
Number of Aggregate Aggregate Average Remaining Weighted Average Current Balloon
Assumed Debt Service Mortgage Cut-off Date Cut-off Date Mortgage Term to Average Assumed Implied Implied
Coverage Ratio (x) Loans Balance Balance (%) Rate (%) Maturity (mos) DSCR (x) DSCR (x) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.01 to 1.00 8 $121,339,088 15.11 8.958 62 0.97 0.92 92.20 91.07
1.01 to 1.15 6 167,398,493 20.84 9.190 119 1.02 1.10 74.15 54.23
1.16 to 1.25 6 133,075,328 16.57 8.964 54 1.23 1.21 69.36 66.73
1.26 to 1.35 4 81,636,674 10.16 9.350 80 1.31 1.29 69.01 61.84
1.36 to 1.50 2 2,734,194 0.34 9.074 5 1.22 1.40 64.19 61.65
1.51 to 1.75 6 195,035,829 24.28 10.124 140 1.25 1.58 56.39 25.11
2.01 and above 9 101,993,365 12.70 8.958 94 1.99 2.28 42.73 30.48
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average: 41 $803,212,971 100.00% 9.331% 97 1.26x 1.38x 67.22% 52.58%
====================================================================================================================================
</TABLE>
Min: 0.79x
Max: 4.27x
Weighted Average: 1.38x
I-7
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
CURRENT IMPLIED LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
====================================================================================================================================
Weighted Weighted Weighted
Percent by Weighted Average Average Average
Number of Aggregate Aggregate Average Remaining Weighted Current Balloon
Current Implied Mortgage Cut-off Date Cut-off Date Mortgage Term to Average Implied Implied
Loan-to-Value Ratio (%) Loans Balance Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Less than or equal to 50.00 10 $124,424,851 15.49 9.467 83 1.88 43.83 33.78
50.01 to 75.00 19 453,016,678 56.40 9.324 111 1.22 64.66 46.20
75.01 to 100.00 11 202,271,443 25.18 9.533 84 0.98 81.33 70.68
100.01 to 125.00 1 23,500,000 2.93 7.000 16 1.08 119.25 119.25
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average: 41 $803,212,971 100.00% 9.331% 97 1.26x 67.22% 52.58%
====================================================================================================================================
</TABLE>
Min: 15.22%
Max: 119.25%
Weighted Average: 67.22%
I-8
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
BALLOON IMPLIED LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
===================================================================================================================================
Weighted Weighted Weighted
Percent by Weighted Average Average Average
Number of Aggregate Aggregate Average Remaining Weighted Current Balloon
Balloon Implied Mortgage Cut-off Date Cut-off Date Mortgage Term to Average Implied Implied
Loan-to-Value Ratio (%) Loans Balance Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%) LTV (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Less than or equal to 50.00 16 $360,384,990 44.87 9.867 136 1.37 56.45 28.57
50.01 to 75.00 16 308,023,922 38.35 8.925 69 1.24 69.32 64.22
75.01 to 100.00 8 111,304,059 13.86 9.211 66 0.98 85.31 83.99
100.01 to 125.00 1 23,500,000 2.93 7.000 16 1.08 119.25 119.25
- -----------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average: 41 $803,212,971 100.00% 9.331% 97 1.26x 67.22% 52.58%
===================================================================================================================================
</TABLE>
Min: 0.00%
Max: 119.25%
Weighted Average: 52.58%
I-9
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
REMAINING TERM TO MATURITIES
<TABLE>
<CAPTION>
====================================================================================================================================
Weighted Weighted Weighted
Percent by Weighted Average Average Average
Number of Aggregate Aggregate Average Remaining Weighted Current Balloon
Remaining Term to Mortgage Cut-off Date Cut-off Date Mortgage Term to Average Implied Implied
Maturity (mos) Loans Balance Balance (%) Rate (%) Maturity (mos) DSCR (x) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 to 12 2 $16,083,317 2.00 7.849 9 1.13 79.51 78.89
13 to 24 3 32,171,370 4.01 7.727 18 1.06 103.15 102.03
25 to 36 5 101,413,138 12.63 9.982 32 1.16 67.46 65.30
37 to 48 3 56,106,465 6.99 9.000 37 1.80 45.16 41.24
49 to 60 5 135,999,001 16.93 8.286 55 1.20 72.98 71.13
61 to 84 6 50,907,716 6.34 8.949 73 1.31 69.65 66.18
85 to 120 10 176,443,239 21.97 9.169 107 1.42 66.29 57.12
121 to 180 4 165,240,321 20.57 10.163 172 1.06 63.91 21.66
181 to 240 2 51,387,991 6.40 10.457 184 1.06 68.14 39.73
241 to 300 1 17,460,413 2.17 10.625 241 1.61 45.48 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total or Weighted Average: 41 $803,212,971 100.00% 9.331% 97 1.26x 67.22% 52.58%
====================================================================================================================================
</TABLE>
Min: 1
Max: 241
Weighted Average: 97
I-10
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
SEASONING
<TABLE>
<CAPTION>
============================================================================================================
Weighted
Percent by Weighted Average Weighted
Number of Aggregate Aggregate Average Remaining Average
Mortgage Cut-off Date Cut-off Date Mortgage Term to Seasoning
Seasoning (mos) Loans Balance Balance (%) Rate (%) Maturity (mos) (mos)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 to 12 6 $143,134,383 17.82 8.527 89 4
13 to 24 6 83,967,800 10.45 9.110 98 20
25 to 36 2 33,300,000 4.15 9.330 54 34
37 to 48 3 50,048,629 6.23 10.012 25 46
49 to 60 4 72,671,369 9.05 7.782 37 54
61 to 84 2 104,471,612 13.01 8.536 47 62
85 to 120 12 171,301,158 21.33 10.308 124 105
121 to 180 2 143,576,336 17.88 10.215 175 126
181 to 240 2 632,630 0.08 10.852 115 209
241 to 300 2 109,053 0.01 8.797 41 281
- ------------------------------------------------------------------------------------------------------------
Total or Weighted Average: 41 $803,212,971 100.00% 9.331% 97 65
============================================================================================================
<CAPTION>
=================================================================
Weighted Weighted
Average Average
Weighted Current Balloon
Average Implied Implied
Seasoning (mos) DSCR (x) LTV (%) LTV (%)
- ----------------------------------------------------------------
<S> <C> <C> <C>
1 to 12 1.61 64.99 58.79
13 to 24 1.17 67.11 59.19
25 to 36 1.03 78.68 77.35
37 to 48 1.23 61.00 59.92
49 to 60 1.28 85.19 84.01
61 to 84 1.48 57.19 52.79
85 to 120 1.07 70.60 54.17
121 to 180 1.07 63.37 16.51
181 to 240 1.34 37.61 0.37
241 to 300 1.18 17.78 0.00
- ---------------------------------------------------------------
Total or Weighted Average: 1.26x 67.22% 52.58%
===============================================================
</TABLE>
Min: 1
Max: 284
Weighted Average: 65
I-11
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
PREPAYMENT PROTECTION ANALYSIS
<TABLE>
<CAPTION>
Percentage of Mortgage Pool by
Prepayment Restriction Assuming No Prepayment
=======================================================================================================
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 31.63% 30.04% 25.09% 20.60% 22.38% 29.32% 28.30% 29.65% 31.60% 40.69% 18.41%
Yield Maintenance 62.06% 65.50% 68.38% 73.90% 71.56% 62.65% 71.61% 64.66% 56.78% 33.29% 47.37%
Penalty Points
5.00% and greater 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 25.99% 0.00%
4.00% to 4.99% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 34.22%
3.00% to 3.99% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
2.00% to 2.99% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
1.00% to 1.99% 0.06% 0.06% 0.06% 0.07% 0.07% 0.08% 0.07% 0.06% 0.04% 0.03% 0.00%
Open 6.25% 4.39% 6.47% 5.43% 6.00% 7.95% 0.01% 5.63% 11.58% 0.00% 0.00%
====================================================================================================================================
TOTALS 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Mortgage Pool Balance
Outstanding (in
millions) $803.21 $776.04 $733.04 $624.00 $562.84 $419.73 $375.42 $347.92 $315.68 $236.00 $160.24
-------- -------- -------- -------- -------- -------- -------- -------- ------- ------- -------
% of Initial Pool Balance 100.00% 96.62% 91.26% 77.69% 70.07% 52.26% 46.74% 43.32% 39.30% 29.38% 19.95%
====================================================================================================================================
</TABLE>
Note: Any penalty points less than 1% are considered to be open to prepayment
without restriction.
I-12
<PAGE>
<TABLE>
<CAPTION>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
LOAN INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregate Cut-off Date
Loan Loan Related Cut-off Date Balance/Unit
No. Group(1) Property Name Borrower (2) Balance or SF (3) Loan Type
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 2 Poughkeepsie Galleria $97,552,186 $155 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
2 1 Charles Hotel $55,997,412 $189,180(6) Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
3 1 Commerce Distribution Center-50 1A $28,790,000 $29 IO
- ------------------------------------------------------------------------------------------------------------------------------------
4 1 Commerce Distribution Center-36 1A $24,850,000 $29 IO
- ------------------------------------------------------------------------------------------------------------------------------------
5 1 Koll Center Irvine II $48,474,200 $106 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
6 1 Glen Pointe Centre West 1B $46,024,150 $138 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
7 1 High Ridge Office Park $40,879,963 $82 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
8 1 Cambridge Park-2 $37,684,735 $152 Normal P&I/Rate Decrease
- ------------------------------------------------------------------------------------------------------------------------------------
9 1 Court Plaza 1B $36,068,628 $111 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
10 1 United Farm Bureau Headquarters $33,643,233 $96 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
11 1 Doubletree Hotel-Fishermans Wharf $26,757,544 $71,544 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
12 1 One Post Office Square $24,553,024 $121 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
13 1 First Fort Lauderdale Place $23,500,000 $141 IO
- ------------------------------------------------------------------------------------------------------------------------------------
14 1 Timberlands Office Park-C 1C $13,536,095 $101 IO
- ------------------------------------------------------------------------------------------------------------------------------------
15 1 Timberlands Office Park-B 1C $9,084,565 $101 IO
- ------------------------------------------------------------------------------------------------------------------------------------
16 1 Sonesta Beach Hotel $22,431,486 $76,820 IO/Rate Increase
- ------------------------------------------------------------------------------------------------------------------------------------
17 1 Financial Center $22,000,000 $78 IO
- ------------------------------------------------------------------------------------------------------------------------------------
18 1 Hyatt Plaza Office-2 $22,000,000 $81 IO
- ------------------------------------------------------------------------------------------------------------------------------------
19 1 UCLA Medical Office Building $20,790,358 $174 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
20 1 Mercer Square Condos $17,460,413 $63,958 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
21 1 Crowne Plaza-Union Station $15,319,363 $55,707 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
22 1 Crystal Square-2 $14,152,172 $86 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
23 1 Timberlands Office Park-H 1C $13,910,046 $108 IO
- ------------------------------------------------------------------------------------------------------------------------------------
24 1 One Courthouse Metro $13,464,972 $140 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
25 1 Brentwood Gardens $13,167,303 $209 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
26 1 Commerce Plaza-I 1D $12,066,542 $77 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
27 1 Pentucket Shopping Center $11,884,801 $73 IO/Then Amortizing/Rate Increase
- ------------------------------------------------------------------------------------------------------------------------------------
28 1 Executive 2 Apartments $11,641,629 $45,475 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
29 1 Foxleigh Building $11,300,000 $113 IO/Then Amortizing
- ------------------------------------------------------------------------------------------------------------------------------------
30 1 Commerce Plaza-II 1D $9,597,442 $76 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
31 1 Clark Equipment $7,799,767 $21 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
32 1 Orchard Square Shopping Center $6,633,223 $75 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
33 1 Days Inn Surfside $5,685,529 $35,984 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
34 1 Pinellas Center $2,618,345 $25 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
35 1 Thorn Hill Road $871,603 $14 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
36 1 Park Plaza-1 $516,782 $25 Normal P&I
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Interest
Loan Loan Mortgage Loan Calculation Note
No. Group(1) Property Name Rate Constant Methodology Date (4)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 2 Poughkeepsie Galleria 10.375% 12.885% 30/360 9/17/87
- ----------------------------------------------------------------------------------------------------------------------------------
2 1 Charles Hotel 9.000% 11.509% 30/360 9/1/92
- ----------------------------------------------------------------------------------------------------------------------------------
3 1 Commerce Distribution Center-50 8.000% 8.000% 30/360 3/17/97
- ----------------------------------------------------------------------------------------------------------------------------------
4 1 Commerce Distribution Center-36 8.000% 8.000% 30/360 3/17/97
- ----------------------------------------------------------------------------------------------------------------------------------
5 1 Koll Center Irvine II 8.000% 9.195% 30/360 11/1/92
- ----------------------------------------------------------------------------------------------------------------------------------
6 1 Glen Pointe Centre West 9.875% 11.660% 30/360 12/12/86
- ----------------------------------------------------------------------------------------------------------------------------------
7 1 High Ridge Office Park 9.115% 11.184% 30/360 7/1/96
- ----------------------------------------------------------------------------------------------------------------------------------
8 1 Cambridge Park-2 10.020%(7) 11.308%(7) 30/360 11/1/97
- ----------------------------------------------------------------------------------------------------------------------------------
9 1 Court Plaza 10.350% 11.397% 30/360 2/17/88
- ----------------------------------------------------------------------------------------------------------------------------------
10 1 United Farm Bureau Headquarters 10.310% 11.243% 30/360 10/26/90
- ----------------------------------------------------------------------------------------------------------------------------------
11 1 Doubletree Hotel-Fishermans Wharf 7.750% 9.074% 30/360 11/1/97
- ----------------------------------------------------------------------------------------------------------------------------------
12 1 One Post Office Square 8.250% 11.362% 30/360 8/3/93
- ----------------------------------------------------------------------------------------------------------------------------------
13 1 First Fort Lauderdale Place 7.000% 7.000% 30/360 12/1/92
- ----------------------------------------------------------------------------------------------------------------------------------
14 1 Timberlands Office Park-C 9.000% 9.000% 30/360 12/1/95
- ----------------------------------------------------------------------------------------------------------------------------------
15 1 Timberlands Office Park-B 9.000% 9.000% 30/360 12/1/95
- ----------------------------------------------------------------------------------------------------------------------------------
16 1 Sonesta Beach Hotel 11.780%(8) 11.780% 30/360 12/1/93
- ----------------------------------------------------------------------------------------------------------------------------------
17 1 Financial Center 9.500% 9.500% 30/360 1/1/95
- ----------------------------------------------------------------------------------------------------------------------------------
18 1 Hyatt Plaza Office-2 7.949% 7.949% Act/360 11/8/93
- ----------------------------------------------------------------------------------------------------------------------------------
19 1 UCLA Medical Office Building 10.545% 11.128% 30/360 2/27/89
- ----------------------------------------------------------------------------------------------------------------------------------
20 1 Mercer Square Condos 10.625% 12.067% 30/360 12/15/87
- ----------------------------------------------------------------------------------------------------------------------------------
21 1 Crowne Plaza-Union Station 10.710% 12.026% 30/360 8/12/88
- ----------------------------------------------------------------------------------------------------------------------------------
22 1 Crystal Square-2 9.480% 11.839% 30/360 7/1/94
- ----------------------------------------------------------------------------------------------------------------------------------
23 1 Timberlands Office Park-H 9.000% 9.000% 30/360 12/1/95
- ----------------------------------------------------------------------------------------------------------------------------------
24 1 One Courthouse Metro 7.625% 8.911% Act/360 1/1/94
- ----------------------------------------------------------------------------------------------------------------------------------
25 1 Brentwood Gardens 8.000% 9.272% 30/360 11/1/97
- ----------------------------------------------------------------------------------------------------------------------------------
26 1 Commerce Plaza-I 9.820% 10.529% 30/360 6/29/90
- ----------------------------------------------------------------------------------------------------------------------------------
27 1 Pentucket Shopping Center 8.500%(9) 8.500% 30/360 1/1/97
- ----------------------------------------------------------------------------------------------------------------------------------
28 1 Executive 2 Apartments 10.313% 11.337% 30/360 10/10/88
- ----------------------------------------------------------------------------------------------------------------------------------
29 1 Foxleigh Building 9.000% 9.000% 30/360 3/1/95
- ----------------------------------------------------------------------------------------------------------------------------------
30 1 Commerce Plaza-II 9.820% 10.529% 30/360 6/29/90
- ----------------------------------------------------------------------------------------------------------------------------------
31 1 Clark Equipment 9.830% 11.445% 30/360 12/1/87
- ----------------------------------------------------------------------------------------------------------------------------------
32 1 Orchard Square Shopping Center 9.720% 10.619% 30/360 3/12/90
- ----------------------------------------------------------------------------------------------------------------------------------
33 1 Days Inn Surfside 9.875% 11.169% 30/360 4/1/96
- ----------------------------------------------------------------------------------------------------------------------------------
34 1 Pinellas Center 9.000% 10.703% 30/360 7/1/93
- ----------------------------------------------------------------------------------------------------------------------------------
35 1 Thorn Hill Road 8.500% 67.040% 30/360 8/1/96
- ----------------------------------------------------------------------------------------------------------------------------------
36 1 Park Plaza-1 10.875% 16.680% 30/360 8/26/80
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Rem. Non-
Loan Loan Maturity Orig. Rem. Amort. Security Lien REMIC
No. Group(1) Property Name Date Term (5) Term (5) Term Type Status Asset
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2 Poughkeepsie Galleria 10/1/12 301 178 190 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
2 1 Charles Hotel 1/1/01 100 37 204 Leasehold First
- ------------------------------------------------------------------------------------------------------------------------------------
3 1 Commerce Distribution Center-50 6/1/02 62 54 N/A Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
4 1 Commerce Distribution Center-36 6/1/02 62 54 N/A Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
5 1 Koll Center Irvine II 11/1/02 120 59 308 Leasehold First
- ------------------------------------------------------------------------------------------------------------------------------------
6 1 Glen Pointe Centre West 1/1/12 300 169 229 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
7 1 High Ridge Office Park 6/30/06 120 103 223 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
8 1 Cambridge Park-2 11/1/07 120 119 299 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
9 1 Court Plaza 3/1/13 301 183 278 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
10 1 United Farm Bureau Headquarters 10/1/00 120 34 291 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
11 1 Doubletree Hotel-Fishermans Wharf 11/1/07 120 119 299 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
12 1 One Post Office Square 8/1/00 84 32 189 Fee Simple Second
- ------------------------------------------------------------------------------------------------------------------------------------
13 1 First Fort Lauderdale Place 4/1/99 76 16 N/A Fee Simple First (12)
- ------------------------------------------------------------------------------------------------------------------------------------
14 1 Timberlands Office Park-C 1/1/06 121 97 N/A Fee Simple First (13)
- ------------------------------------------------------------------------------------------------------------------------------------
15 1 Timberlands Office Park-B 1/1/06 121 97 N/A Fee Simple First (13)
- ------------------------------------------------------------------------------------------------------------------------------------
16 1 Sonesta Beach Hotel 10/1/00 82 34 N/A Fee Simple First (14)
- ------------------------------------------------------------------------------------------------------------------------------------
17 1 Financial Center 1/1/02(10) 84 49 N/A Fee Simple First (15)
- ------------------------------------------------------------------------------------------------------------------------------------
18 1 Hyatt Plaza Office-2 9/30/03 119 70 N/A Fee Simple First (16)
- ------------------------------------------------------------------------------------------------------------------------------------
19 1 UCLA Medical Office Building 3/1/05 192 87 337 Leasehold First
- ------------------------------------------------------------------------------------------------------------------------------------
20 1 Mercer Square Condos 1/1/18 361 241 241 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
21 1 Crowne Plaza-Union Station 8/1/13 299 188 249 Leasehold First
- ------------------------------------------------------------------------------------------------------------------------------------
22 1 Crystal Square-2 1/1/00 67 25 205 Leasehold Second
- ------------------------------------------------------------------------------------------------------------------------------------
23 1 Timberlands Office Park-H 1/1/06 121 97 N/A Fee Simple First (13)
- ------------------------------------------------------------------------------------------------------------------------------------
24 1 One Courthouse Metro 10/1/98 57 10 306 Fee Simple First (17)
- ------------------------------------------------------------------------------------------------------------------------------------
25 1 Brentwood Gardens 12/1/07 121 120 299 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
26 1 Commerce Plaza-I 7/1/10 240 151 331 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
27 1 Pentucket Shopping Center 1/1/02 60 49 N/A Fee Simple First (18)
- ------------------------------------------------------------------------------------------------------------------------------------
28 1 Executive 2 Apartments 11/1/04 193 83 281 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
29 1 Foxleigh Building 3/31/03 96 64 N/A Fee Simple First (19)
- ------------------------------------------------------------------------------------------------------------------------------------
30 1 Commerce Plaza-II 7/1/10 240 151 331 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
31 1 Clark Equipment 11/30/99 144 24 240 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
32 1 Orchard Square Shopping Center 3/1/00 120 27 306 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
33 1 Days Inn Surfside 11/1/04 103 83 263 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
34 1 Pinellas Center 1/1/98 55 1 246 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
35 1 Thorn Hill Road 8/1/99 36 20 20 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
36 1 Park Plaza-1 9/1/07 324 117 117 Fee Simple First
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
LOAN INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregate Cut-off Date
Loan Loan Related Cut-off Date Balance/Unit
No. Group(1) Property Name Borrower (2) Balance or SF (3) Loan Type
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
37 1 Phillips Place Cooperative $153,010 $6,653 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
38 1 Clinton Avenue Townhomes $127,548 $7,086 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
39 1 Enterprise Apartments $115,849 $7,241 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
40 1 Big 5 Sporting Goods $67,756 $6 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
41 1 150 Sycamore Street $41,298 $6 Normal P&I
- ------------------------------------------------------------------------------------------------------------------------------------
Total/Weighted Average $803,212,971
<CAPTION>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
LOAN INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Interest
Loan Loan Mortgage Loan Calculation Note
No. Group(1) Property Name Rate Constant Methodology Date (4)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
37 1 Phillips Place Cooperative 10.000% 24.862% 30/360 1/15/88
- ------------------------------------------------------------------------------------------------------------------------------------
38 1 Clinton Avenue Townhomes 10.000% 25.174% 30/360 12/14/87
- ------------------------------------------------------------------------------------------------------------------------------------
39 1 Enterprise Apartments 10.750% 17.501% 30/360 11/27/79
- ------------------------------------------------------------------------------------------------------------------------------------
40 1 Big 5 Sporting Goods 8.750% 33.686% 30/360 7/2/74
- ------------------------------------------------------------------------------------------------------------------------------------
41 1 150 Sycamore Street 8.875% 35.523% 30/360 3/29/74
- ------------------------------------------------------------------------------------------------------------------------------------
Total/Weighted Average 9.331% 10.680%
<CAPTION>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
LOAN INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Rem. Non-
Loan Loan Maturity Orig. Rem. Amort. Security Lien REMIC
No. Group(1) Property Name Date Term (5) Term (5) Term Type Status Asset
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
37 1 Phillips Place Cooperative 1/1/03 179 61 62 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
38 1 Clinton Avenue Townhomes 2/1/03 180 61 61 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
39 1 Enterprise Apartments 12/1/06 323 107 107 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
40 1 Big 5 Sporting Goods 9/1/02 336 42(11) 42 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
41 1 150 Sycamore Street 4/1/01 324 40 39 Fee Simple First
- ------------------------------------------------------------------------------------------------------------------------------------
Total/Weighted Average 162 97 251
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PROPERTY INFORMATION
- ----------------------------------------------------------------------------------------------------------------------------------
Loan Loan
No. Group(1) Property Name Address City State Zipcode
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 2 Poughkeepsie Galleria Rt. 9 & Cottam Hill Road Poughkeepsie NY 12601
- ----------------------------------------------------------------------------------------------------------------------------------
2 1 Charles Hotel University/Bennett Street Cambridge MA 02138
- ----------------------------------------------------------------------------------------------------------------------------------
3 1 Commerce Distribution Center-50 Lindberg Lane & Bandini Blvd. Bell CA 90201
4 1 Commerce Distribution Center-36 4801-19 Eastern Avenue Bell CA 90201
- ----------------------------------------------------------------------------------------------------------------------------------
5 1 Koll Center Irvine II NEC Von Karman & Michelson Irvine CA 92715
- ----------------------------------------------------------------------------------------------------------------------------------
6 1 Glen Pointe Centre West 500 Frank W. Burr Blvd. Teaneck NJ 07666
- ----------------------------------------------------------------------------------------------------------------------------------
7 1 High Ridge Office Park High Ridge Park Stamford CT 06905
- ----------------------------------------------------------------------------------------------------------------------------------
8 1 Cambridge Park-2 150 Cambridge Park Drive Cambridge MA 02140
- ----------------------------------------------------------------------------------------------------------------------------------
9 1 Court Plaza 25 Main Street Hackensack NJ 07601
- ----------------------------------------------------------------------------------------------------------------------------------
10 1 United Farm Bureau Headquarters 225 South East St. Indianapolis IN 46204
- ----------------------------------------------------------------------------------------------------------------------------------
11 1 Doubletree Hotel-Fishermans Wharf Delmonte Avenue Monterey CA 93940
- ----------------------------------------------------------------------------------------------------------------------------------
12 1 One Post Office Square One Post Office Square Boston MA 02109
- ----------------------------------------------------------------------------------------------------------------------------------
13 1 First Fort Lauderdale Place 100 NE 3rd Avenue Fort Lauderdale FL 33301
- ----------------------------------------------------------------------------------------------------------------------------------
14 1 Timberlands Office Park-C Building C 5445 Corporate Dr Troy MI 48098
15 1 Timberlands Office Park-B Building B 5435 Corporate Dr. Troy MI 48098
- ----------------------------------------------------------------------------------------------------------------------------------
16 1 Sonesta Beach Hotel 350 Ocean Drive Key Biscayne FL 33149
- ----------------------------------------------------------------------------------------------------------------------------------
17 1 Financial Center 501 North 20th Street Birmingham AL 35203
- ----------------------------------------------------------------------------------------------------------------------------------
18 1 Hyatt Plaza Office-2 12701 Fairlakes Circle Fairfax VA 22033
- ----------------------------------------------------------------------------------------------------------------------------------
19 1 UCLA Medical Office Building 100 UCLA Medical Plaza Los Angeles CA 90024
- ----------------------------------------------------------------------------------------------------------------------------------
20 1 Mercer Square Condos 250 Mercer Street New York NY 10012
- ----------------------------------------------------------------------------------------------------------------------------------
21 1 Crowne Plaza-Union Station 123 Louisiana Street Indianapolis IN 46204
- ----------------------------------------------------------------------------------------------------------------------------------
22 1 Crystal Square-2 1725 Jefferson Davis Highway Arlington VA 22202
- ----------------------------------------------------------------------------------------------------------------------------------
23 1 Timberlands Office Park-H 1450 West Long Lake Rd. Troy MI 48098
- ----------------------------------------------------------------------------------------------------------------------------------
24 1 One Courthouse Metro 2200 Wilson Boulevard Arlington VA 22201
- ----------------------------------------------------------------------------------------------------------------------------------
25 1 Brentwood Gardens 11677 San Vicente Boulevard Los Angeles CA 90049
- ----------------------------------------------------------------------------------------------------------------------------------
26 1 Commerce Plaza-I 7300 W. 100th Street Overland Park KS 66210
- ----------------------------------------------------------------------------------------------------------------------------------
27 1 Pentucket Shopping Center Route 125 Plaistow NH 03865
- ----------------------------------------------------------------------------------------------------------------------------------
28 1 Executive 2 Apartments 11343 Mountain View Avenue Rancho Cucamonga CA 91730
- ----------------------------------------------------------------------------------------------------------------------------------
29 1 Foxleigh Building 2330 W. Joppa Road Lutherville MD 21093
- ----------------------------------------------------------------------------------------------------------------------------------
30 1 Commerce Plaza-II 7400 W. 110th Street Overland Park KS 66210
- ----------------------------------------------------------------------------------------------------------------------------------
31 1 Clark Equipment 172 Trade Street Lexington KY 40511
- ----------------------------------------------------------------------------------------------------------------------------------
32 1 Orchard Square Shopping Center Kempsville Rd & Volvo Pkwy Chesapeake VA 23320
- ----------------------------------------------------------------------------------------------------------------------------------
33 1 Days Inn Surfside 15 South Ocean Boulevard Surfside Beach SC 29587
- ----------------------------------------------------------------------------------------------------------------------------------
34 1 Pinellas Center 12555 Enterprise Blvd. Largo FL 33542
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Loan Loan
No. Group(1) Property Name Property Type Management Company Units/NSF
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 2 Poughkeepsie Galleria Retail Pyramid Management Group, Inc. 630,158
- ------------------------------------------------------------------------------------------------------------------------------------
2 1 Charles Hotel Hotel/Office/Retail Cambridge Hotel Assoc. 296(6)
- ------------------------------------------------------------------------------------------------------------------------------------
3 1 Commerce Distribution Center-50 Industrial Trammell Crow Company 1,000,751
4 1 Commerce Distribution Center-36 Industrial Trammell Crow Company 821,695
- ------------------------------------------------------------------------------------------------------------------------------------
5 1 Koll Center Irvine II Office/Retail CB/Koll Real Estate Company 457,312
- ------------------------------------------------------------------------------------------------------------------------------------
6 1 Glen Pointe Centre West Office A.S. Management 333,561
- ------------------------------------------------------------------------------------------------------------------------------------
7 1 High Ridge Office Park Office F.D. Rich Company 498,091
- ------------------------------------------------------------------------------------------------------------------------------------
8 1 Cambridge Park-2 Office Spaulding and Slye 248,152
- ------------------------------------------------------------------------------------------------------------------------------------
9 1 Court Plaza Office A.S. Management 325,325
- ------------------------------------------------------------------------------------------------------------------------------------
10 1 United Farm Bureau Headquarters Office United Farm Bureau 350,000
- ------------------------------------------------------------------------------------------------------------------------------------
11 1 Doubletree Hotel-Fishermans Wharf Hotel Doubletree 374
- ------------------------------------------------------------------------------------------------------------------------------------
12 1 One Post Office Square Office Beacon Management 753,500
- ------------------------------------------------------------------------------------------------------------------------------------
13 1 First Fort Lauderdale Place Office Draper & Kramer 166,790
- ------------------------------------------------------------------------------------------------------------------------------------
14 1 Timberlands Office Park-C Office Etkin Management 132,854
15 1 Timberlands Office Park-B Office Etkin Management 91,809
- ------------------------------------------------------------------------------------------------------------------------------------
16 1 Sonesta Beach Hotel Hotel Sonesta 292
- ------------------------------------------------------------------------------------------------------------------------------------
17 1 Financial Center Office Johnson-Rast & Hays, Co., Inc. 282,788
- ------------------------------------------------------------------------------------------------------------------------------------
18 1 Hyatt Plaza Office-2 Office Fair Lakes Management Co. 272,563
- ------------------------------------------------------------------------------------------------------------------------------------
19 1 UCLA Medical Office Building Office Held Properties 119,374
- ------------------------------------------------------------------------------------------------------------------------------------
20 1 Mercer Square Condos Multi-Family Casdal Realty Corp. 273
- ------------------------------------------------------------------------------------------------------------------------------------
21 1 Crowne Plaza-Union Station Hotel General Hotels Corporation 275
- ------------------------------------------------------------------------------------------------------------------------------------
22 1 Crystal Square-2 Office Charles E. Smith Management 458,652
- ------------------------------------------------------------------------------------------------------------------------------------
23 1 Timberlands Office Park-H Office Etkin Management 128,732
- ------------------------------------------------------------------------------------------------------------------------------------
24 1 One Courthouse Metro Office Guardian Realty Management 96,468
- ------------------------------------------------------------------------------------------------------------------------------------
25 1 Brentwood Gardens Retail Brentwood Leasing & Management 63,135
- ------------------------------------------------------------------------------------------------------------------------------------
26 1 Commerce Plaza-I Office The Winbury Group, Kansas City 156,110
- ------------------------------------------------------------------------------------------------------------------------------------
27 1 Pentucket Shopping Center Retail Atlantic Retail 163,392
- ------------------------------------------------------------------------------------------------------------------------------------
28 1 Executive 2 Apartments Multi-Family Lewis Homes Managment Corp. 256
- ------------------------------------------------------------------------------------------------------------------------------------
29 1 Foxleigh Building Office Mullan Enterprises, Inc. 100,388
- ------------------------------------------------------------------------------------------------------------------------------------
30 1 Commerce Plaza-II Office The Winbury Group, Kansas City 125,868
- ------------------------------------------------------------------------------------------------------------------------------------
31 1 Clark Equipment Industrial Angelucci Company 374,000
- ------------------------------------------------------------------------------------------------------------------------------------
32 1 Orchard Square Shopping Center Retail The Breeden Company 88,728
- ------------------------------------------------------------------------------------------------------------------------------------
33 1 Days Inn Surfside Hotel Harold Coker, CHA 158
- ------------------------------------------------------------------------------------------------------------------------------------
34 1 Pinellas Center Industrial Rubin Management 103,600
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Year Pct.
Loan Loan Built/ Percent Leased as
No. Group(1) Property Name Renovated Leased (20) of Date (20)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 2 Poughkeepsie Galleria 1987 91% 6/30/97
- ----------------------------------------------------------------------------------------------------------
2 1 Charles Hotel 1995 93%(6) 9/1/97(6)
- ----------------------------------------------------------------------------------------------------------
3 1 Commerce Distribution Center-50 1979 99% 7/31/97
4 1 Commerce Distribution Center-36 1979 89% 9/1/97
- ----------------------------------------------------------------------------------------------------------
5 1 Koll Center Irvine II 1983 99% 9/20/97
- ----------------------------------------------------------------------------------------------------------
6 1 Glen Pointe Centre West 1985 95% 2/1/97
- ----------------------------------------------------------------------------------------------------------
7 1 High Ridge Office Park 1989 97% 9/8/97
- ----------------------------------------------------------------------------------------------------------
8 1 Cambridge Park-2 1987 100% 9/1/97
- ----------------------------------------------------------------------------------------------------------
9 1 Court Plaza 1984 99% 2/1/97
- ----------------------------------------------------------------------------------------------------------
10 1 United Farm Bureau Headquarters 1992 100% 4/17/96
- ----------------------------------------------------------------------------------------------------------
11 1 Doubletree Hotel-Fishermans Wharf 1996 79% 9/1/97
- ----------------------------------------------------------------------------------------------------------
12 1 One Post Office Square 1981 100% 9/26/97
- ----------------------------------------------------------------------------------------------------------
13 1 First Fort Lauderdale Place 1984 90% 8/1/97
- ----------------------------------------------------------------------------------------------------------
14 1 Timberlands Office Park-C 1989 100% 6/30/97
15 1 Timberlands Office Park-B 1987 100% 6/30/97
- ----------------------------------------------------------------------------------------------------------
16 1 Sonesta Beach Hotel 1994 76% 12/31/96
- ----------------------------------------------------------------------------------------------------------
17 1 Financial Center 1997 86% 3/31/97
- ----------------------------------------------------------------------------------------------------------
18 1 Hyatt Plaza Office-2 1988 98% 4/1/97
- ----------------------------------------------------------------------------------------------------------
19 1 UCLA Medical Office Building 1990 96% 11/11/97
- ----------------------------------------------------------------------------------------------------------
20 1 Mercer Square Condos 1983 100% 9/1/97
- ----------------------------------------------------------------------------------------------------------
21 1 Crowne Plaza-Union Station 1996 74% 12/31/96
- ----------------------------------------------------------------------------------------------------------
22 1 Crystal Square-2 1980 100% 5/1/97
- ----------------------------------------------------------------------------------------------------------
23 1 Timberlands Office Park-H 1990 100% 9/30/97
- ----------------------------------------------------------------------------------------------------------
24 1 One Courthouse Metro 1988 100% 6/1/97
- ----------------------------------------------------------------------------------------------------------
25 1 Brentwood Gardens 1988 93% 10/17/97
- ----------------------------------------------------------------------------------------------------------
26 1 Commerce Plaza-I 1986 98% 7/24/97
- ----------------------------------------------------------------------------------------------------------
27 1 Pentucket Shopping Center 1987 89% 10/30/97
- ----------------------------------------------------------------------------------------------------------
28 1 Executive 2 Apartments 1990 96% 5/27/97
- ----------------------------------------------------------------------------------------------------------
29 1 Foxleigh Building 1987 100% 3/1/97
- ----------------------------------------------------------------------------------------------------------
30 1 Commerce Plaza-II 1989 93% 9/16/97
- ----------------------------------------------------------------------------------------------------------
31 1 Clark Equipment 1987 100% 9/19/97
- ----------------------------------------------------------------------------------------------------------
32 1 Orchard Square Shopping Center 1990 96% 8/1/97
- ----------------------------------------------------------------------------------------------------------
33 1 Days Inn Surfside 1987 76% 12/31/96
- ----------------------------------------------------------------------------------------------------------
34 1 Pinellas Center 1982 89% 6/1/97
- ----------------------------------------------------------------------------------------------------------
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PROPERTY INFORMATION
- -------------------------------------------------------------------------------------------------------------------------------
Loan Loan
No. Group(1) Property Name Address City State Zipcode
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
35 1 Thorn Hill Road Thorn Hill Road Marshall Twnshp PA 15005
- -------------------------------------------------------------------------------------------------------------------------------
36 1 Park Plaza-1 1301-45 Hwy 3 Webster TX 77598
- -------------------------------------------------------------------------------------------------------------------------------
37 1 Phillips Place Cooperative East 19th Street Minneapolis MN 55418
- -------------------------------------------------------------------------------------------------------------------------------
38 1 Clinton Avenue Townhomes 465-499 Clinton Avenue St. Paul MN 55107
- -------------------------------------------------------------------------------------------------------------------------------
39 1 Enterprise Apartments 4508 Bob Wallace Ave Huntsville AL 35805
- -------------------------------------------------------------------------------------------------------------------------------
40 1 Big 5 Sporting Goods 921 E. Southern Ave. Tempe AZ 85282
- -------------------------------------------------------------------------------------------------------------------------------
41 1 150 Sycamore Street 150 Sycamore St Glastonbury CT 06033
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Loan Loan
No. Group(1) Property Name Property Type Management Company Units/NSF
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
35 1 Thorn Hill Road Office Thorn Hill Place 60,499
- ----------------------------------------------------------------------------------------------------------------------------------
36 1 Park Plaza-1 Retail Professional Park Plaza Partnership 20,919
- ----------------------------------------------------------------------------------------------------------------------------------
37 1 Phillips Place Cooperative Multi-Family The Parliament Company 23
- ----------------------------------------------------------------------------------------------------------------------------------
38 1 Clinton Avenue Townhomes Multi-Family Perennial Properties 18
- ----------------------------------------------------------------------------------------------------------------------------------
39 1 Enterprise Apartments Multi-Family Enterprise Apartments 16
- ----------------------------------------------------------------------------------------------------------------------------------
40 1 Big 5 Sporting Goods Retail Pernell J H 12,000
- ----------------------------------------------------------------------------------------------------------------------------------
41 1 150 Sycamore Street Office CF & DP Monzeglio 6,404
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Year Pct.
Loan Loan Built/ Percent Leased as
No. Group(1) Property Name Renovated Leased (20) of Date (20)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
35 1 Thorn Hill Road 1985 100% 9/24/97
- ----------------------------------------------------------------------------------------------------
36 1 Park Plaza-1 1980 85% 8/7/97
- ----------------------------------------------------------------------------------------------------
37 1 Phillips Place Cooperative 1988 100% 6/30/97
- ----------------------------------------------------------------------------------------------------
38 1 Clinton Avenue Townhomes 1987 100% 7/31/97
- ----------------------------------------------------------------------------------------------------
39 1 Enterprise Apartments 1980 88% 8/18/97
- ----------------------------------------------------------------------------------------------------
40 1 Big 5 Sporting Goods 1974 100% 7/1/97
- ----------------------------------------------------------------------------------------------------
41 1 150 Sycamore Street 1973 100% 7/31/97
- ----------------------------------------------------------------------------------------------------
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PROPERTY OPERATING INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Loan Loan Underwritten Monthly Debt Assumed Underwritten Implied Cap
No. Group(1) Property Name Cash Flow Service DSCR(3) DSCR(3) NOI Value Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2 Poughkeepsie Galleria $14,498,821 $1,047,500 1.15 1.56 $15,366,972 $170,744,133 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
2 1 Charles Hotel $11,590,933 $537,051 1.80 2.18 $12,384,729 $123,847,290 10.00%
- ------------------------------------------------------------------------------------------------------------------------------------
3 1 Commerce Distribution Center-50 $3,293,337 $191,933 1.41 1.19 $3,738,421 $43,981,424 8.50%
4 1 Commerce Distribution Center-36 $2,777,193 $165,667 1.41 1.19 $3,142,257 $36,967,729 8.50%
- ------------------------------------------------------------------------------------------------------------------------------------
5 1 Koll Center Irvine II $5,013,445 $371,416 1.12 1.09 $6,142,348 $68,248,311 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
6 1 Glen Pointe Centre West $4,827,204 $447,200 0.90 1.10 $5,408,031 $60,089,233 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
7 1 High Ridge Office Park $5,890,293 $380,997 1.29 1.52 $6,582,450 $73,138,333 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
8 1 Cambridge Park-2 $4,537,561 $355,123(7) 1.31(7) 1.27(7) $4,646,273 $51,625,256 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
9 1 Court Plaza $3,943,652 $342,560 0.96 1.15 $4,438,146 $49,312,733 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
10 1 United Farm Bureau Headquarters $3,931,486 $315,198 1.04 1.23 $3,966,486 $44,072,067 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
11 1 Doubletree Hotel-Fishermans Wharf $6,532,200 $202,329 2.69 2.57 $7,264,080 $72,640,800 10.00%
- ------------------------------------------------------------------------------------------------------------------------------------
12 1 One Post Office Square $10,691,819 $232,483 1.25 1.23 $12,001,905 $133,354,500 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
13 1 First Fort Lauderdale Place $1,773,654 $137,083 1.08 0.79 $1,773,654 $19,707,267 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
14 1 Timberlands Office Park-C $1,303,476 $101,521 1.06 1.00 $1,537,564 $17,084,044 9.00%
15 1 Timberlands Office Park-B $848,153 $68,134 1.06 1.00 $978,016 $10,866,844 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
16 1 Sonesta Beach Hotel $3,733,095 $220,202 1.41 1.75 $4,597,734 $45,977,340 10.00%
- ------------------------------------------------------------------------------------------------------------------------------------
17 1 Financial Center $2,013,234 $174,167 0.96 0.96 $2,477,189 $27,524,322 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
18 1 Hyatt Plaza Office-2 $2,690,343 $145,732(21) 1.54 1.29 $2,832,276 $31,469,733 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
19 1 UCLA Medical Office Building $1,974,567 $192,802 0.85 1.00 $2,141,615 $23,795,722 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
20 1 Mercer Square Condos $3,387,297 $175,579 1.61 2.04 $3,455,547 $38,394,967 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
21 1 Crowne Plaza-Union Station $2,374,406 $153,530 1.29 1.63 $2,718,089 $27,180,890 10.00%
- ------------------------------------------------------------------------------------------------------------------------------------
22 1 Crystal Square-2 $5,026,938 $139,624 1.07 1.35 $5,906,403 $65,626,700 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
23 1 Timberlands Office Park-H $1,198,051 $104,325 0.96 0.91 $1,499,381 $16,659,789 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
24 1 One Courthouse Metro $1,334,260 $99,991 1.11 1.04 $1,469,666 $16,329,622 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
25 1 Brentwood Gardens $1,906,519 $101,734 1.56 1.52 $2,058,018 $20,580,180 10.00%
- ------------------------------------------------------------------------------------------------------------------------------------
26 1 Commerce Plaza-I $1,259,709 $105,877 0.99 1.10 $1,571,156 $17,457,289 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
27 1 Pentucket Shopping Center $1,061,233 $84,184 1.05 0.94 $1,213,555 $12,135,550 10.00%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------
Current Balloon
Loan Loan Implied Balloon Implied
No. Group(1) Property Name LTV (3) Amount LTV (3)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 2 Poughkeepsie Galleria 57% $12,827,793 8%
- -----------------------------------------------------------------------------------------
2 1 Charles Hotel 45% $51,179,632 41%
- -----------------------------------------------------------------------------------------
3 1 Commerce Distribution Center-50 66% $28,790,000 66%
4 1 Commerce Distribution Center-36 66% $24,850,000 66%
- -----------------------------------------------------------------------------------------
5 1 Koll Center Irvine II 71% $45,070,943 66%
- -----------------------------------------------------------------------------------------
6 1 Glen Pointe Centre West 77% $21,379,930 36%
- -----------------------------------------------------------------------------------------
7 1 High Ridge Office Park 56% $30,081,790 41%
- -----------------------------------------------------------------------------------------
8 1 Cambridge Park-2 73% $30,501,339 59%
- -----------------------------------------------------------------------------------------
9 1 Court Plaza 73% $22,302,106 45%
- -----------------------------------------------------------------------------------------
10 1 United Farm Bureau Headquarters 76% $32,650,555 74%
- -----------------------------------------------------------------------------------------
11 1 Doubletree Hotel-Fishermans Wharf 37% $21,558,285 30%
- -----------------------------------------------------------------------------------------
12 1 One Post Office Square 69% $22,361,120 65%
- -----------------------------------------------------------------------------------------
13 1 First Fort Lauderdale Place 119% $23,500,000 119%
- -----------------------------------------------------------------------------------------
14 1 Timberlands Office Park-C 81% $13,536,095 81%
15 1 Timberlands Office Park-B 81% $9,084,565 81%
- -----------------------------------------------------------------------------------------
16 1 Sonesta Beach Hotel 49% $22,431,486 49%
- -----------------------------------------------------------------------------------------
17 1 Financial Center 80% $22,000,000 80%
- -----------------------------------------------------------------------------------------
18 1 Hyatt Plaza Office-2 70% $22,000,000 70%
- -----------------------------------------------------------------------------------------
19 1 UCLA Medical Office Building 87% $19,499,745 82%
- -----------------------------------------------------------------------------------------
20 1 Mercer Square Condos 45% $0 0%
- -----------------------------------------------------------------------------------------
21 1 Crowne Plaza-Union Station 56% $7,284,028 27%
- -----------------------------------------------------------------------------------------
22 1 Crystal Square-2 60% $13,420,124 57%
- -----------------------------------------------------------------------------------------
23 1 Timberlands Office Park-H 83% $13,910,046 83%
- -----------------------------------------------------------------------------------------
24 1 One Courthouse Metro 82% $13,343,302 82%
- -----------------------------------------------------------------------------------------
25 1 Brentwood Gardens 64% $10,645,543 52%
- -----------------------------------------------------------------------------------------
26 1 Commerce Plaza-I 69% $9,978,592 57%
- -----------------------------------------------------------------------------------------
27 1 Pentucket Shopping Center 98% $11,838,353 98%
- ---------------------------------------------------------------------------------------
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PROPERTY OPERATING INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Loan Loan Underwritten Monthly Debt Assumed Underwritten Implied Cap
No. Group(1) Property Name Cash Flow Service DSCR(3) DSCR(3) NOI Value Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
28 1 Executive 2 Apartments $1,350,647 $109,981 1.02 1.22 $1,401,847 $16,992,085 8.25%
- ------------------------------------------------------------------------------------------------------------------------------------
29 1 Foxleigh Building $1,189,819 $84,750(22) 1.17 1.11 $1,333,977 $14,821,967 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
30 1 Commerce Plaza-II $1,094,685 $84,212 1.08 1.20 $1,320,362 $14,670,689 9.00%
- ------------------------------------------------------------------------------------------------------------------------------------
31 1 Clark Equipment $941,008 $74,393 1.05 1.27 $1,040,842 $12,245,200 8.50%
- ------------------------------------------------------------------------------------------------------------------------------------
32 1 Orchard Square Shopping Center $576,866 $58,701 0.82 0.92 $678,346 $6,783,460 10.00%
- ------------------------------------------------------------------------------------------------------------------------------------
33 1 Days Inn Surfside $829,990 $52,918(23) 1.31 1.54 $953,110 $9,531,100 10.00%
- ------------------------------------------------------------------------------------------------------------------------------------
34 1 Pinellas Center $348,020 $23,354 1.24 1.40 $406,737 $4,067,370 10.00%
- ------------------------------------------------------------------------------------------------------------------------------------
35 1 Thorn Hill Road $290,374 $48,693 0.50 3.51 $393,850 $3,938,500 10.00%
- ------------------------------------------------------------------------------------------------------------------------------------
36 1 Park Plaza-1 $126,627 $7,183 1.47 2.58 $158,643 $1,586,430 10.00%
- ------------------------------------------------------------------------------------------------------------------------------------
37 1 Phillips Place Cooperative $37,616 $3,170 0.99 2.59 $43,366 $433,660 10.00%
- ------------------------------------------------------------------------------------------------------------------------------------
38 1 Clinton Avenue Townhomes $40,838 $2,676 1.27 3.37 $45,338 $453,380 10.00%
- ------------------------------------------------------------------------------------------------------------------------------------
39 1 Enterprise Apartments $15,279 $1,690 0.75 1.39 $19,279 $192,790 10.00%
- ------------------------------------------------------------------------------------------------------------------------------------
40 1 Big 5 Sporting Goods $27,345 $1,902 1.20 4.25 $35,025 $350,250 10.00%
- ------------------------------------------------------------------------------------------------------------------------------------
41 1 150 Sycamore Street $16,752 $1,223 1.14 4.27 $27,134 $271,340 10.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Total/Weighted Average 1.26 1.38 9.15%
<CAPTION>
- ---------------------------------------------------------------------------------------
Current Balloon
Loan Loan Implied Balloon Implied
No. Group(1) Property Name LTV (3) Amount LTV (3)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
28 1 Executive 2 Apartments 69% $10,466,195 62%
- ---------------------------------------------------------------------------------------
29 1 Foxleigh Building 76% $10,721,486 72%
- ---------------------------------------------------------------------------------------
30 1 Commerce Plaza-II 65% $7,936,736 54%
- ---------------------------------------------------------------------------------------
31 1 Clark Equipment 64% $7,535,207 62%
- ---------------------------------------------------------------------------------------
32 1 Orchard Square Shopping Center 98% $6,489,970 96%
- ---------------------------------------------------------------------------------------
33 1 Days Inn Surfside 60% $4,971,651 52%
- ---------------------------------------------------------------------------------------
34 1 Pinellas Center 64% $2,618,345 64%
- ---------------------------------------------------------------------------------------
35 1 Thorn Hill Road 22% $10,104(24) 0%
- ---------------------------------------------------------------------------------------
36 1 Park Plaza-1 33% $7,113(24) 0%
- ---------------------------------------------------------------------------------------
37 1 Phillips Place Cooperative 35% $6,266(24) 1%
- ---------------------------------------------------------------------------------------
38 1 Clinton Avenue Townhomes 28% $0 0%
- ---------------------------------------------------------------------------------------
39 1 Enterprise Apartments 60% $0 0%
- ---------------------------------------------------------------------------------------
40 1 Big 5 Sporting Goods 19% $0 0%
- ---------------------------------------------------------------------------------------
41 1 150 Sycamore Street 15% $0 0%
- ---------------------------------------------------------------------------------------
Total/Weighted Average 67% 53%
</TABLE>
II-6
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PREPAYMENT INFORMATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Partial Yield
Loan Loan Paydowns Lockout Yield Maintenance
No. Group(1) Property Name Allowed (25) Seasoning (5) Open Period Maintenance Description
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 2 Poughkeepsie Galleria Yes 123 121 108 YM0.5
- ------------------------------------------------------------------------------------------------------------------------------------
2 1 Charles Hotel No 63 93 7 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
3 1 Commerce Distribution Center-50 No 8 59 YM1
4 1 Commerce Distribution Center-36 No 8 59 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
5 1 Koll Center Irvine II No 61 120 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
6 1 Glen Pointe Centre West Yes 131 240 57 YM
- ------------------------------------------------------------------------------------------------------------------------------------
7 1 High Ridge Office Park No 17 115 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
8 1 Cambridge Park-2 No 1 117
- ------------------------------------------------------------------------------------------------------------------------------------
9 1 Court Plaza Yes 118 241 57 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
10 1 United Farm Bureau Headquarters No 86 60 60 YM
- ------------------------------------------------------------------------------------------------------------------------------------
11 1 Doubletree Hotel-Fishermans Wharf No 1 117 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
12 1 One Post Office Square No 52 81 YM+150 bps
- ------------------------------------------------------------------------------------------------------------------------------------
13 1 First Fort Lauderdale Place No 60 73
- ------------------------------------------------------------------------------------------------------------------------------------
14 1 Timberlands Office Park-C No 24 115 YM1
15 1 Timberlands Office Park-B No 24 115 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
16 1 Sonesta Beach Hotel No 48 82 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
17 1 Financial Center No 35 48 36 YM
- ------------------------------------------------------------------------------------------------------------------------------------
18 1 Hyatt Plaza Office-2 No 49
- ------------------------------------------------------------------------------------------------------------------------------------
19 1 UCLA Medical Office Building No 105 60 128 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
20 1 Mercer Square Condos Yes 120 122 236 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
21 1 Crowne Plaza-Union Station No 111 179 114 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
22 1 Crystal Square-2 No 42 64 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
23 1 Timberlands Office Park-H No 24 115 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
24 1 One Courthouse Metro Yes 47
- ------------------------------------------------------------------------------------------------------------------------------------
25 1 Brentwood Gardens No 1 118 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
26 1 Commerce Plaza-I No 89 234 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
27 1 Pentucket Shopping Center No 11
- ------------------------------------------------------------------------------------------------------------------------------------
28 1 Executive 2 Apartments No 110 60 129 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
29 1 Foxleigh Building No 32 90 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
30 1 Commerce Plaza-II No 89 234 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
31 1 Clark Equipment No 120 83 58 YM
- ------------------------------------------------------------------------------------------------------------------------------------
32 1 Orchard Square Shopping Center No 93 60 57 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
33 1 Days Inn Surfside Yes 20 18 83 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
34 1 Pinellas Center Yes 54
- ------------------------------------------------------------------------------------------------------------------------------------
35 1 Thorn Hill Road No 16 13 20 YM1
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Prepayment Code (26)
Loan Loan
No. Group(1) Property Name 5% 4.5% 4% 3.5% 3% 2.5% 2% 1.5% 1% 0.5% Open
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2 Poughkeepsie Galleria 6 6 6 6 6 6 6 6 6 12 6
- ------------------------------------------------------------------------------------------------------------------------
2 1 Charles Hotel
- ------------------------------------------------------------------------------------------------------------------------
3 1 Commerce Distribution Center-50 3
4 1 Commerce Distribution Center-36 3
- ------------------------------------------------------------------------------------------------------------------------
5 1 Koll Center Irvine II
- ------------------------------------------------------------------------------------------------------------------------
6 1 Glen Pointe Centre West 3
- ------------------------------------------------------------------------------------------------------------------------
7 1 High Ridge Office Park 5
- ------------------------------------------------------------------------------------------------------------------------
8 1 Cambridge Park-2 3
- ------------------------------------------------------------------------------------------------------------------------
9 1 Court Plaza 3
- ------------------------------------------------------------------------------------------------------------------------
10 1 United Farm Bureau Headquarters
- ------------------------------------------------------------------------------------------------------------------------
11 1 Doubletree Hotel-Fishermans Wharf 3
- ------------------------------------------------------------------------------------------------------------------------
12 1 One Post Office Square 3
- ------------------------------------------------------------------------------------------------------------------------
13 1 First Fort Lauderdale Place 3
- ------------------------------------------------------------------------------------------------------------------------
14 1 Timberlands Office Park-C 6
15 1 Timberlands Office Park-B 6
- ------------------------------------------------------------------------------------------------------------------------
16 1 Sonesta Beach Hotel
- ------------------------------------------------------------------------------------------------------------------------
17 1 Financial Center
- ------------------------------------------------------------------------------------------------------------------------
18 1 Hyatt Plaza Office-2 119
- ------------------------------------------------------------------------------------------------------------------------
19 1 UCLA Medical Office Building 4
- ------------------------------------------------------------------------------------------------------------------------
20 1 Mercer Square Condos 3
- ------------------------------------------------------------------------------------------------------------------------
21 1 Crowne Plaza-Union Station 6
- ------------------------------------------------------------------------------------------------------------------------
22 1 Crystal Square-2 3
- ------------------------------------------------------------------------------------------------------------------------
23 1 Timberlands Office Park-H 6
- ------------------------------------------------------------------------------------------------------------------------
24 1 One Courthouse Metro 57
- ------------------------------------------------------------------------------------------------------------------------
25 1 Brentwood Gardens 3
- ------------------------------------------------------------------------------------------------------------------------
26 1 Commerce Plaza-I 6
- ------------------------------------------------------------------------------------------------------------------------
27 1 Pentucket Shopping Center 60
- ------------------------------------------------------------------------------------------------------------------------
28 1 Executive 2 Apartments 4
- ------------------------------------------------------------------------------------------------------------------------
29 1 Foxleigh Building 6
- ------------------------------------------------------------------------------------------------------------------------
30 1 Commerce Plaza-II 6
- ------------------------------------------------------------------------------------------------------------------------
31 1 Clark Equipment 3
- ------------------------------------------------------------------------------------------------------------------------
32 1 Orchard Square Shopping Center 3
- ------------------------------------------------------------------------------------------------------------------------
33 1 Days Inn Surfside 2
- ------------------------------------------------------------------------------------------------------------------------
34 1 Pinellas Center 55
- ------------------------------------------------------------------------------------------------------------------------
35 1 Thorn Hill Road 3
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
II-7
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PREPAYMENT INFORMATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Partial Yield
Loan Loan Paydowns Lockout Yield Maintenance
No. Group(1) Property Name Allowed (25) Seasoning (5) Open Period Maintenance Descriptio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
36 1 Park Plaza-1 Yes 207 97
- ------------------------------------------------------------------------------------------------------------------------------------
37 1 Phillips Place Cooperative No 118 96 80 YM*
- ------------------------------------------------------------------------------------------------------------------------------------
38 1 Clinton Avenue Townhomes No 119 96 82 YM**
- ------------------------------------------------------------------------------------------------------------------------------------
39 1 Enterprise Apartments No 216 96
- ------------------------------------------------------------------------------------------------------------------------------------
40 1 Big 5 Sporting Goods Yes 279 120
- ------------------------------------------------------------------------------------------------------------------------------------
41 1 150 Sycamore Street Yes 284 60
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Prepayment Code (26)
Loan Loan
No. Group(1) Property Name 5% 4.5% 4% 3.5% 3% 2.5% 2% 1.5% 1% 0.5% Open
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
36 1 Park Plaza-1 227
- ---------------------------------------------------------------------------------------------------------------------------
37 1 Phillips Place Cooperative 3
- ---------------------------------------------------------------------------------------------------------------------------
38 1 Clinton Avenue Townhomes 3
- ---------------------------------------------------------------------------------------------------------------------------
39 1 Enterprise Apartments 12 12 12 12 179
- ---------------------------------------------------------------------------------------------------------------------------
40 1 Big 5 Sporting Goods 12 12 12 12 12 12 12 12 12 12 96
- ---------------------------------------------------------------------------------------------------------------------------
41 1 150 Sycamore Street 12 12 12 12 12 12 192
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
II-8
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
FOOTNOTES TO APPENDIX II
1 Loan Group 2 contains only one Mortgage Loan, the Poughkeepsie Galleria
Loan. The remainder of the Mortgage Loans are in Loan Group 1. The Seller
has received a letter from the borrower on the Poughkeepsie Galleria Loan
in which the borrower has stated that it intends to prepay the Poughkeepsie
Galleria Loan in not less than 65 days, and not more than 370 days from the
Cut-off Date. The borrower further states in the letter that it does not
intend to pay the Prepayment Premium required under the loan documents in
connection with such prepayment, but rather intends to seek a judicial
determination that the Prepayment Premium is void and unenforceable.
2 Sets of Mortgage Loans that have identical alphabetical coding designate
Mortgage Loans that are either cross-collateralized and cross-defaulted or
Mortgage Loans that are not cross-collateralized and cross-defaulted but
have related borrowers. Commerce Distribution Center-50 and Commerce
Distribution Center-36 are cross-collateralized and cross-defaulted.
Timberlands Office Park-B and Timberlands Office Park-C are
cross-collateralized and cross-defaulted and have a related borrower to
Timberlands Office Park-H. Glenpointe Center West and Court Plaza have a
related borrower. Commerce Plaza-I and Commerce Plaza-II have a related
borrower.
3 Certain ratios including Cut-off Date Balance Loan per Unit, DSCR, Assumed
DSCR, Current Implied LTV and Balloon Implied LTV are calculated on a
combined basis for Mortgage Loans that are cross-collateralized and
cross-defaulted and for the two Mortgage Loans that are secured by second
liens, include any amount due under the loan secured by the first mortgage
lien on such Mortgaged Property.
4 Note Date indicates the most recent date of origination or modification.
5 Original Term, Remaining Term and Seasoning are all calculated based on the
first payment date under the current note.
6 The Charles Hotel Loan has 296 rooms, 107,724 square feet of office space
and 40,237 square feet of retail space. For this Loan, Cut-off Date Balance
Loan per Unit is calculated based on the Cut-off Date Balance and number of
rooms only. The average occupancy of the hotel was 81% for the eight months
ended 9/1/97 and the percent leased of commercial space is 93% as of
9/1/97.
7 The Mortgage Rate on the Cambridge Park-2 Loan will decrease to 8.975% on
7/1/98 and then decrease to 7.930% on 2/1/00. The Monthly Debt Service that
the Certificateholders are entitled to for the Cambridge Park-2 Loan will
decrease to $321,985 on 7/1/98 and then decrease to $289,419 on 2/1/00. The
borrower's pay rate remains at 7.930% through the life of the Loan;
however, there is an escrow in place to fund the difference between the
7.930% pay rate and the 10.020% Mortgage Rate until 7/1/98 and the
difference between the 7.930% pay rate and the 8.975% Mortgage Rate until
2/1/00. Certain ratios, including DSCR and Assumed DSCR, are calculated by
taking into account the borrower's pay rate of 7.930% and Monthly Debt
Service of $289,419; however, Loan Constant is calculated by taking into
account the current Mortgage Rate of 10.020% and current Monthly Debt
Service of $355,123.
II-9
<PAGE>
8 The Mortgage Rate on the Sonesta Beach Hotel Loan will increase to 12.780%
on 4/1/99.
9 The Mortgage Rate to which the Certificateholders will be entitled on the
Pentucket Shopping Center Loan will increase to 9.000% on 8/1/99. The Loan
will begin amortizing on a 30 year schedule at that time.
10 The Financial Center Loan has a call option on 1/1/99 but the Master
Servicer will be prohibited from exercising said call option.
11 Remaining Term is inconsistent with Maturity Date due to prepayments over
the life of the Loan that have shortened the actual term.
12 First Fort Lauderdale Loan
A. Interest Accrual. Interest accrues at the rate of 9%, but is paid at
the rate of 7%. Deferred interest accrues thereon, and is paid at
maturity.
B. Equity Kicker. After payment of loan and deferred interest, additional
amounts are due and payable based on availability of Net Sales
Proceeds or, if no sale, Net Appraisal Value. Holder's claim equals
(a) the first $771,445.77 and (b) 20% of any remaining proceeds or
value.
13 Timberland Office Park Loans
A. Interest Accrual. The Timberland B and C Loans accrue interest at the
rate of 10.3% and the Timberland H Loan accrues interest at the rate
of 10.085%. Interest on all three (3) loans is paid at the rate of 9%.
Deferred interest does not accrue interest and is payable solely as
part of the Equity Kicker. If the loans are repaid in accordance with
the loan terms, including amounts related to the equity kickers, the
accrued interest will be forgiven.
B. Equity Kicker. After payment of all three (3) loans (the documents
provide various formulas for computation of the Equity Kicker in the
event the loans are not paid off together), additional amounts are due
and payable based on availability of Net Sales Proceeds or, if no
sale, Net Appraisal Value, (which Net Sales Proceeds or Net Appraisal
Value, as applicable, includes amounts in the Master Reserve Account,
the reserve accounts and the outstanding letter of credit). Holder's
claim equals (a) after payment of the first $1.4 million to borrowers
(which may be in the form of cancellation of any remaining face amount
of a letter of credit held for the benefit of the first mortgage, 50%
of proceeds or value, up to the amount of the deferred interest
(capped at $4.45 million), and (b) 25% of any remaining proceeds or
value.
14 Sonesta Beach Hotel Loan
A. Interest Accrual. Deferred interest: (i) accrued at the rate of 2% for
the period December 1, 1993 up to November 1, 1997, as well as the
period October 1, 1991 through December 1, 1993; and (ii) accrues at
the rate of 1% for the period from November 1, 1997 through March 1,
1999. From March 1, 1999 to October 1, 2000 the Mortgage Rate is
scheduled to be 12.78% and there will be no accrual. The first payment
date based on the 12.78% Mortgage Rate will be 4/1/99. Deferred
interest will be forgiven if loan is otherwise paid in full on or
before its maturity.
15 Financial Center Loan
A. B Note. B Note in amount of $12.2 million, which accrues interest at
the rate of 9.5%. Forgiven upon payment of the Equity Kicker.
B. Equity Kicker. After payment of senior note, additional amounts are
due and payable based on availability of Net Sales Proceeds or, if no
sale, Net Appraisal Value. Holder's claim equals (a) 75% of the first
$4 million in proceeds or value, and (b) 90% of any remaining proceeds
or value.
II-10
<PAGE>
16 Hyatt Plaza Office-2 Loan
A. B Note. B Note in amount of $15.5 million, which accrues interest at
the rate of 2.49%, payable if available from current cash flow.
Forgiven upon repayment of the Equity Kicker.
B. Equity Kicker. After payment of senior note, additional amounts are
due and payable based on availability of Net Sale Proceeds or, if no
sale, Net Appraisal Value. Holder's claim equals (a) the first $3
million of proceeds or value, (b) 50% of next $6.7 million, and (c)
75% of any remaining proceeds or value.
C. Right of First Refusal. Holder has a right of first refusal on the
purchase of the property.
17 One Courthouse Metro Loan
A. B Note. B Note in the amount of $7.95 million, which does not accrue
interest and is payable solely from Equity Kicker. B. Equity Kicker.
After payment of the senior note, additional amounts are due and
payable based on availability of Net Sales Proceeds or, if no sale,
Net Appraisal Value. Holder's claim equals (a) the first $7.95 million
of proceeds or value after payment of the senior note, and (b) 15% of
any remaining proceeds or value.
18 Pentucket Shopping Center Loan
A. Interest Accrual. Interest accrues at a rate of 9.0%, but through July
1, 1999 is paid at the rate of 8.5%. Deferred interest accrues
interest thereon, and is payable monthly (with interest) as a pro-rata
portion of the principal and interest payment upon commencement of
amortization, with the balance at maturity. Amortization begins on
8/1/99 over a 30 year schedule for the accrued interest amount.
B. Contract Claim. Holder has a non-interest bearing contract claim in
the amount of $474,000, which is payable at maturity of loan.
C. Equity Kicker. After payment of the senior note and the contract
claim, additional amounts are due and payable based on availability of
Net Sale Proceeds or, if no sale, Net Appraisal Value. Holder's claim
equals 25% of any remaining proceeds or value.
19 Foxleigh Building Loan
A. B Note. B Note in the amount of $296,486, which does not accrue
interest and is payable in annual principal payments of $175,000 due
each April beginning in 1998 through 2002. Any such principal payments
in excess of the amount of the B Note are applied to reduce senior
note without prepayment penalty.
20 For most Mortgaged Properties, percent leased was determined based on a
rent roll provided by the borrower. "Percent Leased as of Date" indicates
the date as of which percent leased was determined.
21 Due to the actual/360 Interest Calculation Methodology, the amount of
monthly interest only payments will vary according to number of days in the
applicable month.
22 The Foxleigh Building Loan will have a principal payment of $53,514 on
April 1, 1999 and annual principal payments of $175,000 on April 1 of 2000,
2001 and 2002.
23 The Days Inn Surfside Loan pays $70,557 on a monthly basis from March
through November and no payments are made by the borrower from December
through February to meet their contractual obligation of a monthly payment
of $52,918 to which Certificateholders are entitled.
II-11
<PAGE>
24 Due to insignificant Balloon Amounts, Thorn Hill, Park Plaza-1 and Phillips
Place Cooperative Loans are not considered Balloon Loans for disclosure
purposes.
25 "Yes" indicates that partial prepayment is allowed with the payment of the
corresponding Prepayment Charge, if any. "No" indicates that only
prepayment in full with the corresponding Prepayment Charge is allowed.
Notwithstanding these provisions, the Charles Hotel Mortgage Loan is
subject to a partial prepayment in March, 1998 through the application of
certain funds held in escrow. The Orchard Square Shopping Center Loan is
subject to partial prepayment in March, 1998 through the application of a
letter of credit upon failure by the borrower to achieve certain specified
leasing goals. Both partial prepayments will be without a prepayment
penalty.
26 Indicates prepayment provisions from the first Due Date as stated in the
Mortgage Loan. "YM" represents yield maintenance and "YM0.5" and "YM1"
represent the greater of yield maintenance or one-half of one percent or
one percent, respectively, of the outstanding Principal Balance at such
time. "YM+150 bps" represents yield maintenance measured against the rate
of comparable Treasury Securities plus 150 basis points. "YM*" represents
the greater of yield maintenance or 4% for 12 months, yield maintenance or
3% for 12 months, yield maintenance or 2% for 12 months and yield
maintenance or 1% for 44 months. "YM**" represents the greater of yield
maintenance or 4% for 12 months, yield maintenance or 3% for 12 months,
yield maintenance or 2% for 12 months and yield maintenance or 1% for 46
months.
II-12
<PAGE>
APPENDIX III
SIGNIFICANT LOAN SUMMARIES
Loan No. 1 - Poughkeepsie Galleria Loan and Property
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $97,552,186 Property Type: Retail
Loan Type: Normal Principal Location: Poughkeepsie, NY
and Interest
Maturity Date: 10/1/12 Year Built/Renovated: 1987
Mortgage Rate: 10.375% Square Feet: 630,158
Loan Constant: 12.885% Cut-off Date Balance/SF: $155
Annual Debt Service: $12,570,005 Cap Rate: 9.00%
DSCR: 1.15 Implied Value: $170,744,133
DSCR at a 9.5% Constant: 1.56 Current LTV: 57%
Underwritten Cash Flow: $14,498,821 Balloon LTV: 8%
Underwritten NOI: $15,366,972 Percent Leased: 91%
Balloon Balance: $12,827,793 Percent Leased as of Date: 6/30/97
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Loan
The Poughkeepsie Galleria Loan (the "Poughkeepsie Loan") is secured by a
fee mortgage on 630,158 square feet of a two-level regional mall located in
Poughkeepsie, New York (the "Poughkeepsie Property"). The Loan was originated by
Seller on September 17, 1987.
The Borrower. The borrower is Poughkeepsie Galleria Company, a New York
general partnership (the "PGC Borrower"). The authorized principals of PGC
Borrower are Bruce A. Kenan and Marc A. Malifitano. Principals of PGC Borrower
include affiliates of Pyramid Management Group, Inc.
Security. The Poughkeepsie Loan is secured by a Consolidation and Extension
Agreement, which consolidated five mortgages into a single mortgage of
$112,000,000, an Assignment of Leases and Rents and a UCC Financing Statement,
and certain additional security documents. The mortgage is a first lien on a fee
interest in the Poughkeepsie Property . The Poughkeepsie Loan is non-recourse,
subject to certain limited exceptions.
Major Anchors. The major anchor stores at the Poughkeepsie Property are:
Filene's, Sears, J.C. Penney, Montgomery Ward and, prior to its closure in
conjunction with its bankruptcy, Lechmere. The Construction, Operation and
Reciprocal Easement Agreement ("COREA"), Allied Allocable Share Agreement,
Lechmere Allocable Share Agreement, May Repurchase Agreement and Declaration of
Restrictions and Easements ("Declaration") establish the rights and obligations
of the anchor stores and PGC Borrower.
Bankruptcy of Anchors. Montgomery Ward and Lechmere are presently in
bankruptcy; however neither bankruptcy affects the current cash flow securing
the Poughkeepsie Loan.
III-1
<PAGE>
Payment Terms. The Mortgage Rate is fixed at 10.375%. The Poughkeepsie Loan
requires monthly payments of principal and interest of $1,047,500 until its
maturity on October 1, 2012, at which time all unpaid principal and accrued but
unpaid interest is due. The remaining amortization term is 190 months, but if
the lender applies insurance proceeds or condemnation proceeds to pay down the
Poughkeepsie Loan, then the amortization changes to a 30 year schedule. The
Poughkeepsie Loan accrues interest computed on the basis of an assumed 30 day
month and 360 day year.
If there is an event of default and the lender accelerates the Poughkeepsie
Loan, the security documents require PGC Borrower to pay a prepayment premium as
described below. There is a 4% late fee on overdue installments, and the Loan
accrues interest at 16.375% while the Loan is in default.
Prepayment. Prior to October 1, 2006, the Poughkeepsie Loan may be prepaid
in whole, but not in part, upon 60 days written notice and upon payment of a
prepayment premium equal to the greater of 1/2% of outstanding principal or a
yield maintenance charge tied to Treasuries. From October 1, 2006 to March 31,
2012, the premium is equal to a declining percentage of the amount prepaid,
commencing with 5% on October 1, 2006 and decreasing 0.5% every six months. No
prepayment penalty or premium is due if the Loan is prepaid within the six
months prior to maturity.
Transfer of Properties or Interest in Borrower. The Poughkeepsie Loan
becomes immediately due and payable upon the transfer of the Poughkeepsie
Property or the transfer of an interest in PGC Borrower. However, if the
Poughkeepsie Loan is not in default and the lender has been provided with 60
days prior notice, the lender must consent to the following transfers: (i) a
transfer to an entity controlled or owned by PGC Borrower or its general
partners or affiliates; (ii) a transfer to an entity which, in the lender's
opinion, is of equal or greater financial capability as PGC Borrower; (iii) a
transfer of partnership interests in PGC Borrower among existing partners, (iv)
transfers, (including testamentary), to immediate family members of general
partners or trusts for the benefit of immediate family members; and (v) a
transfer of ownership interests in PGC Borrower to any person, provided that the
original partners retain 75% of the partnership interests in PGC Borrower. PGC
Borrower does not need the lender to consent in order to release certain parcels
set forth in the mortgage, which parcels include the Filene's, Sears and
Lechmere parcels.
Escrow/Reserves. There are no tax and insurance escrows. There is a Reserve
and Escrow Agreement which establishes a reserve for the cost of tenant
improvements and leasing commissions. The current balance is approximately
$53,143. Such amount will be disbursed to pay such costs as the work is
completed and provide additional security for the Poughkeepsie Loan.
Subordination/Other Debt. Subordinate indebtedness and encumbrances are
prohibited without the prior consent of the lender, except that subordinate
indebtedness to an institutional lender is permitted upon notice to the first
mortgage lender, subject to certain conditions, including the right of the first
mortgage lender to notice of and opportunity to cure defaults under
III-2
<PAGE>
the second mortgage, and the requirement that the NOI for the previous 12 months
to annual debt service shall not be less than 1.1 to 1.0.
Prepayment and Default Risks Associated with Loan Group 2
Payments of principal in respect of the Poughkeepsie Galleria Loan
comprising Loan Group 2 (including any prepayments) will be distributed first to
the holders of the Class A-2 Certificates as described under "Description of the
Certificates--Distributions--Application of the Available Distribution Amount."
The Seller has received a letter from the borrower in which the borrower has
stated that it intends to prepay the Mortgage Loan in not less than sixty-five
days and not more than 370 days from the Cut-off Date. The borrower further
states in the letter that it does not intend to pay the Prepayment Premium
required under the loan documents in connection with such prepayment, but rather
intends to seek a judicial determination that the Prepayment Premium is
unenforceable. Any prepayment of the Poughkeepsie Galleria Loan would result in
a corresponding distribution in respect of the Class A-2 Certificates. In
addition, such letter may indicate an increased likelihood that the Borrower
under the Poughkeepsie Galleria Loan will default under the terms of its
Mortgage Loan. Any Realized Loss resulting from such a default will be allocated
to Certificateholders as set forth under "Description of the
Certificates--Subordination; Allocation Losses and Certain Expenses."
The Property
Poughkeepsie Galleria is a two-level regional mall. The Poughkeepsie
Galleria is located in the Town of Poughkeepsie, Duchess County, New York,
approximately 84 miles north of New York City and 72 miles south of Albany, New
York. The Poughkeepsie Galleria opened in the summer of 1987 and was expanded in
1991, 1992, and 1995. Within a total of 1,100,000 square feet of GLA, the
Poughkeepsie Galleria contains a base of anchor stores that includes the major
facility for each of the four department stores represented in the trade area,
plus a junior anchor store, a 12-screen cinema, and 321,508 square feet of mall
shops including a 12-unit food court with 10,064 square feet; the 128-acre site
provides surface and decked parking for a total of 5,468 cars (4.95 spaces for
each 1,000 SF of GLA).
Situated on the west side of Route 9 approximately 5 miles south of the
City of Poughkeepsie and 7 miles north of I-84, the Poughkeepsie Galleria is
mid-way along the region's retail strip which extends along both sides of Rt. 9
from the City of Poughkeepsie south to I-84. According to the PGC Borrower,
total mall shop sales at Poughkeepsie Galleria for 1996 were approximately 4%
over the 1995 level; the average mall shop sales for 1996 was $315 per square
foot. The majority of the anchor stores also had sales increases in 1996 over
1995: JC Penney's sales increased 30% to $150 psf; Filene's sales increased 30%
to $300 psf; Sear's sales were up just under 1% to $180 psf; and Montgomery
Ward's sales held flat at $164 psf. Lechmere had the only decline in sales, 5%
to $334 psf. Seller's estimate, based upon information supplied by the PGC
Borrower, of current annual gross revenue from the Loan's collateral is $35.50
per square foot.
Security for the Loan currently includes a total of 751,818 square feet in
the following space: JC Penney, Montgomery Ward, the junior anchor, the cinema,
the mall shops, and the
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<PAGE>
common areas. The Montgomery Ward space was constructed after the Loan had
closed and was not part of the original loan underwriting. The loan documents
include a provision that, following construction, upon the request of the PGC
Borrower, the space that was constructed for Montgomery Ward would be released
from the loan without payment to the lender. Assuming release of this space, the
security for the loan will include a total of 630,158 square feet of space. All
of the various parcels that comprise the whole Poughkeepsie Galleria Mall are
tied together and controlled via the COREA, which was put in place in October,
1986, and runs for a term of 65 years.
In addition to the aforementioned release of the Montgomery Ward space, the
PGC Borrower has requested the release of approximately 11.9 acres in the
southwest corner of the site from the lien of the loan. No provision for this
release was included in the loan documents. This land is excess land given no
value in the original loan underwriting, has never been developed, and is now
defined as a separate legal parcel. The release was requested to facilitate the
development and financing of a Lowe's Home Center for which the PGC Borrower has
successfully negotiated a 20-year net lease with Lowe's Home Centers, Inc. The
Seller has agreed to this release. Reciprocal easements for parking, ingress,
and egress will be provided to insure that the Poughkeepsie Galleria parcel and
the adjoining Lowe's parcel will function as one unit as they appear to the
public. As compensation for the release of this excess land, the PGC Borrower
would deposit cash into the existing reserve for the costs of tenant
improvements and leasing commissions, and the existing Reserve and Escrow
Agreement would be modified accordingly. These funds would be released to the
PGC Borrower to pay for tenant improvements and leasing commissions incurred in
subsequent new or renewal leasing of space in the Poughkeepsie Galleria.
Management
The Poughkeepsie Galleria Property is managed by Pyramid Management Group,
Inc. (the "Property Manager"). As an affiliate of the developer and the owners,
the Property Manager was responsible for the initial leasing of the Galleria and
has managed and leased it ever since. The Property Manager and its affiliates
have over 20 years of experience in developing and managing shopping centers and
manage a significant number of regional and super-regional shopping centers in
the Northeast.
III-4
<PAGE>
Loan No. 2 - Charles Hotel Loan and Property
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $55,997,412 Property Type: Hotel/Office/Retail
Loan Type: Normal Principal Location: Cambridge, MA
and Interest
Maturity Date: 1/1/01 Year Built/Renovated: 1995
Mortgage Rate: 9.000% Units: 296
Loan Constant: 11.509% Cut-off Date Balance/Rm: $189,180
Annual Debt Service: $6,444,616 Cap Rate: 10.00%
DSCR: 1.80 Implied Value: $123,847,290
DSCR at a 9.5% Constant: 2.18 Current LTV: 45%
Underwritten Cash Flow: $11,590,933 Balloon LTV: 41%
Underwritten NOI: $12,384,729 Percent Leased: Commercial 93%
Hotel 81%
Balloon Balance: $51,179,632 Percent Leased as of Date: 9/1/97
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Loan
The Charles Hotel loan ("Charles Hotel Loan") is secured by a 296 unit
hotel, a seven (7) story office building containing 107,724 square feet of
office space, and a two (2) story retail facility containing 40,237 square feet
of retail space, situated on 2.60 acres, located in Cambridge, Massachusetts
(the "Charles Hotel Property"). The Charles Hotel Loan was originated by Seller
on December 16, 1985 and subsequently was modified to its current terms as of
September 1, 1992, when the Charles Hotel Loan was extended for eight years
beyond its original maturity date of January 1, 1993. For the first three years
of the extended term, the borrower agreed to allow cash flow in excess of debt
service to be held in escrow which was applied to the Loan balance
(approximately $4 million) according to the loan documents.
The Borrower. The borrower is KSA Realty Trust (the "Charles Hotel
Borrower"), a trust created pursuant to a Declaration of Trust dated June 11,
1982, designating Richard L. Friedman, John L. Hall II, Coleman J. Benedict and
Michael R. Chase as trustees for the benefit of Charles Square Limited
Partnership n/k/a CH&S Limited Partnership (the "Beneficiary"). The
Beneficiary's managing general partner is Charles Square Associates, a
Massachusetts joint venture composed of KSA Properties Limited Partnership and
Carpenter/Cambridge Associates.
Security. The Charles Hotel Loan is secured by a first Mortgage, Assignment
of Leases and Rents, UCC Financing Statement and certain additional security
documents. The mortgage is a first lien on Charles Hotel Borrower's leasehold
interest in the Charles Hotel Property and a fee interest, subject to a ground
lease, in all buildings, structures and other improvements erected on the
Charles Hotel Property. The Charles Hotel Borrower is the ground lessee of the
Charles Hotel Property under a ground lease with EMI Cambridge Limited
Partnership, as ground lessor, dated December 16, 1985. The ground lease
commenced on December 16, 1985 and terminates on December 15, 2035. The current
annual base rent is $500,000 plus percentage rent in years one through fifteen
of the ground lease, which percentage rent is subordinate to the mortgage. If
the ground lessor desires to sell its interest, the Charles Hotel Borrower has
the right of first offer
III-5
<PAGE>
to purchase the land. In the event that the ground lessor and the Charles Hotel
Borrower are unable to agree upon the resetting of contingent rent (which is
subordinate to the Charles Hotel Loan) in years 15 (2001) and 30 (2016) of the
ground lease term, the parties have rights to cause the sale of the ground
lessee's estate for the remainder of the initial term, subject to any leasehold
mortgage then in place and upon other terms and conditions set forth in the
ground lease. The Charles Hotel Loan is non-recourse, subject to certain limited
exceptions.
Payment Terms. The Mortgage Rate is fixed at 9%. The Charles Hotel Loan
requires monthly payments of principal and interest of $537,051 until its
maturity on January 1, 2001, at which time all unpaid principal and accrued but
unpaid interest is due. The remaining amortization term is 204 months. The
Charles Hotel Loan accrues interest computed on the basis of an assumed 30 day
month and 360 day year.
The Loan accrues interest at a rate equal to the lesser of the maximum rate
of interest then permitted by law or 15% while the loan is in default There is a
6% late fee on overdue payments.
Prepayment. The Charles Hotel Loan may be prepaid in whole, but not in
part, on or after June 1, 2000, upon 60 days written notice and upon payment of
a premium equal to the greater of 1% of the amount prepaid or a yield
maintenance charge tied to Treasuries.
Transfer of Properties or Interest in Borrower. The Charles Hotel Loan
becomes immediately due and payable upon the transfer of the Charles Hotel
Property or the transfer of interests in Charles Hotel Borrower without the
lender's prior consent. However, the lender may not unreasonably withhold its
consent to transfers of limited partnership interests in the Beneficiary, or a
transfer of any interest in either Charles Hotel Borrower or the Beneficiary by
devise or descent or by operation of law upon the death of a person holding an
interest in Charles Hotel Borrower or the Beneficiary.
Escrow/Reserves. There is a tax escrow. There is also a cash flow escrow to
be used for capital expenses and debt service, which has a balance of
approximately $2,026,473 at December 1, 1997; such escrow is to be terminated,
with a portion of the balance thereof to be applied to the principal balance of
the Loan. Such amounts will be disbursed to pay such costs and provide
additional security for the Charles Hotel Loan.
Subordination/Other Debt. Subordinate indebtedness and encumbrances are
prohibited without the prior consent of the lender.
The Property
The Charles Hotel is a 296-room luxury hotel located adjacent to the
Charles River in the Harvard Square area of Cambridge, Massachusetts. Facilities
at the hotel include 3 food and beverage outlets and 8,000 square feet of
meeting and banquet space. In addition, the Charles Hotel Property has
approximately 148,000 square feet of office and retail space, which includes a
full health and fitness center with pool and whirlpool that is available for
guest use. Approximately 108,000 square feet of the leased space was designed
for office use and the remainder was originally designed as retail; however, the
majority has been converted to medical office use.
III-6
<PAGE>
Hotel occupancy was 78% in 1994 and has increased to approximately 81% in
1996. Estimated year end occupancy in 1997 again will be 81%. According to the
Charles Hotel Borrower the Charles Hotel Property achieved an ADR of $156 in
1994 and $183 in 1996. The office space is fully occupied. The retail space has
one vacant space of 9,800 SF. Within the 148,000 square feet of office and
retail space, contractual lease expirations are as follows: 1998 - 27,225 SF
(18% of the office and retail space); 1999 - 19,886 SF (13%); 2000 - 18,922 SF
(13%); 2001 - none; and 2002 - none. Average rent for the commercial space is
$28 per square foot.
Management
The Charles Hotel Property is managed by Cambridge Hotel Associates, an
affiliate of Interstate Hotels. Interstate Hotels is a full service hotel
operator, with a portfolio that includes Marriotts, Sheratons, and Hiltons,
among other full service chain affiliations. The hotel management fee is 3.5% of
gross revenues plus an incentive fee equal to 10% of house profit and the
agreement is terminable on 60 days notice. Carpenter and Company, an affiliate
of the Charles Hotel Borrower, manages the office and retail component of the
Charles Hotel Property for an annual fee of 4.5% of gross revenues. The
agreement is renewable annually and subordinate to the first mortgage. The
parking garage is managed by Standard Parking in an agreement that is also
subordinate to the first mortgage and renewable annually.
Loan No. 3 - Commerce Distribution Center-50 Loan and Property
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $28,790,000 Property Type: Industrial
Loan Type: Interest Only Location: Bell, CA
Maturity Date: 6/1/02 Year Built/Renovated: 1979
Mortgage Rate: 8.000% Square Feet: 1,000,751
Loan Constant: 8.000% Cut-off Date Balance/SF: $29
Annual Debt Service: $2,303,200 Cap Rate: 8.50%
DSCR: 1.41 Implied Value: $43,981,424
DSCR at a 9.5% Constant: 1.19 Current LTV: 66%
Underwritten Cash Flow: $3,293,337 Balloon LTV: 66%
Underwritten NOI: $3,738,421 Percent Leased: 99%
Balloon Balance: $28,790,000 Percent Leased as of Date: 7/31/97
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
III-7
<PAGE>
Loan No. 4 - Commerce Distribution Center-36 Loan and Property
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $24,850,000 Property Type: Industrial
Loan Type: Interest Only Location: Bell, CA
Maturity Date: 6/1/02 Year Built/Renovated: 1979
Mortgage Rate: 8.000% Square Feet: 821,695
Loan Constant: 8.000% Cut-off Date Balance/SF: $29
Annual Debt Service: $1,988,000 Cap Rate: 8.50%
DSCR: 1.41 Implied Value: $36,967,729
DSCR at a 9.5% Constant: 1.19 Current LTV: 66%
Underwritten Cash Flow: $2,777,193 Balloon LTV: 66%
Underwritten NOI: $3,142,257 Percent Leased: 89%
Balloon Balance: $24,850,000 Percent Leased as of Date: 9/1/97
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Loans
The Commerce Distribution Center III Loans consist of the cross-defaulted,
cross-collateralized Commerce Distribution Center-36 Loan and Commerce
Distribution Center-50 Loan (collectively, the "Commerce Newcrow III Loans").
The Commerce Newcrow III Loans were originated by Seller on May 16, 1988 and
modified on March 17, 1997 in connection with a modification of the Loans
wherein the borrower bought down the Mortgage Rate to 8% for a payment of
approximately $5,600,000. In addition, the two Loans were cross-defaulted and
cross-collateralized.
The Commerce Distribution Center-36 Loan and the Commerce Distribution
Center-50 Loan are each secured by a first mortgage on industrial park property
consisting of eight industrial buildings totaling 821,695 square feet situated
on 36.02 acres and six industrial buildings totaling 1,000,751 square feet
situated on 37.22 acres, respectively (collectively, the "Commerce Newcrow III
Properties"), all part of the 6.5 million square foot Commerce Distribution
Center Industrial Park located in Commerce and Bell, California.
The Borrower. The borrower is Newcrow III (the "Commerce Newcrow III
Borrower"), a California joint venture composed of Crow-Los Angeles #8, a Texas
limited partnership ("Crow"), and Copley Investors Limited Partnership, a
Delaware limited partnership ("CILP). The principals of the borrower include
affiliates of Trammell Crow Company.
Security. Each of the Commerce Newcrow III Loans is secured by a Deed of
Trust, Assignment of Rents, Security Agreement and Fixture Filing, Assignment of
Leases and Rents, UCC financing statements, security documents. Each mortgage is
a first lien on the fee interest in the corresponding Commerce Newcrow III
Properties. The Commerce Newcrow III Loans are non-recourse, subject to
customary exceptions. The Commerce Newcrow III Loans are cross-collateralized
and cross-defaulted.
Payment Terms. The Mortgage Rate is fixed at 8%. The Commerce Newcrow III
Loans require monthly interest-only payments in the following amounts:
III-8
<PAGE>
Commerce Distribution Center-36: $165,667
Commerce Distribution Center-50: $191,933
The Commerce Newcrow III Loans mature on June 1, 2002, at which time all
unpaid principal and accrued but unpaid interest are due. Interest is being
computed on the loans on the basis of an assumed 30 day month and 360 day year.
If Commerce Newcrow III Borrower fails to make any payment when due, the
security documents require a late charge of 6% of the overdue amount. The lender
will waive the late fee, no more than twice in any twelve-month period, if the
overdue installment is paid within three days of when due. During the existence
of a default under either of the Commerce Newcrow III Loans, all outstanding
principal and interest accrue interest at 14%. If, after a default under any of
the Commerce Newcrow III Loans the lender elects to accelerate such loan,
Commerce Newcrow III Borrower must pay a prepayment premium as described below.
Prepayment. The Commerce Newcrow III Loans may be prepaid in whole, but not
in part, upon 60 days written notice and upon payment of a premium equal to a
yield maintenance formula tied to Treasuries. No prepayment penalty or premium
is due for prepayments made within the three months prior to maturity.
Transfer of Properties or Interest in Borrower. The Commerce Newcrow III
Loans become immediately due and payable upon the transfer of any of the
Commerce Newcrow III Properties or the transfer of any ownership interests in
Commerce Newcrow III Borrower at whatever tier. However, a one-time transfer to
a transferee meeting the lender's customary credit and experience standards is
permitted. Furthermore, the following transfers of ownership are permitted
without the lender's consent: (i) transfers of limited partnership interests in
Crow, CILP, and CILP's general partner, Copley Management Partnership ("CMP");
(ii) transfers of partnership interests in CMP, provided that an entity
50%-owned by either Copley Real Estate Advisors or New England Mutual Life
Insurance Company remains the managing general partner of CMP; (iii) transfers
of general partnership interests in Crow, provided that general partners of
Trammell Crow Company own a 10% interest in Crow and one general partner of
Trammell Crow Company is a managing general partner of Crow; (iv) transfers of
joint venture partner interests in Commerce Newcrow III Borrower between Crow
and CILP, provided that CILP retains at least a 25% joint venture partner
interest in Commerce Newcrow III Borrower; and (v) transfers of interests among
the partners of Crow.
Escrow/Reserves. There are no escrows or reserves for the Commerce Newcrow
III Loans.
Subordination/Other debt. Subordinate indebtedness secured by any portion
of the Commerce Newcrow III Properties is prohibited without the prior consent
of the lender, except that each of the Commerce Newcrow III Loans allows a
one-time subordinate loan from an institutional lender under certain conditions,
including the following: (i) the total debt secured by any property shall not
exceed 85% of the fair market value of such property and (ii) the projected
annual net cash flow from the property must equal at least 115% of the annual
total of all payments required by any indebtedness secured by the property.
III-9
<PAGE>
The Properties
The Commerce Distribution Center is a 6.5 million SF industrial park
located 6 miles southeast of downtown Los Angeles and in close proximity to the
I-710/Long Beach, I-5/Santa Ana, I-605/San Gabriel and I-10/Santa Monica
freeways. The tenancy is a diversified mix of distribution, warehouse and light
manufacturing users, a number of whom are food distributors, Pacific Rim
importers and clothing manufacturers.
Commerce-36 includes eight 24 foot clear height single-story industrial
buildings ranging in size from 46,550 to 215,056 square feet, for a total of
821,695 square feet, on 36.02 acres. Completed between 1979 and 1982, the
buildings are constructed of steel frame with concrete tilt up panels, are
fully-sprinklered and have dock high doors. The average office finish is 9%. As
of September 1, 1997, the Commerce-36 properties are 89% leased at an average
net rent of $4.34 per square foot, with the largest tenants being California
Equipment Distributors (8%) and GATX Logistics (8%). Contractual lease
expirations are as follows: 1998 - 132,745 SF (16%); 1999 - 136,943 SF (17%);
2000 - 201,903 SF (25%); 2001 - 66,384 SF (8%); and 2002 - 27,350 SF (3%).
Commerce-50 includes six 24 foot clear height, single-story industrial
buildings, ranging in size from 64,848 to 307,101 square feet for a total of
1,000,751 square feet on 37.2 acres. Completed between 1979 and 1982, the
buildings are constructed of steel frame with concrete tilt up panels, are
fully-sprinklered and have dock high doors. The average office finish is 8%.
Three of the six buildings are rail served. As of July 31, 1997, the Commerce-50
properties are 99% leased at an average net rent of $4.27 per square foot, with
the largest tenants being The Individual Group (17%) and OSP Publishing (10%).
Contractual lease expirations are as follows: 1998 - 189,241 SF (19%); 1999 -
66,541 SF (7%); 2000 - 37,865 SF (4%); 2001 - 165,570 SF (17%); and 2002 -
25,920 SF (3%).
Management
All of the Commerce Newcrow III Properties are managed by Trammell Crow
Company, an affiliate of the Commerce Newcrow III Borrower, a large industrial
leasing and management company.
III-10
<PAGE>
Loan No. 5 - Koll Center Irvine-II Loan and Property
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $48,474,200 Property Type: Office/Retail
Loan Type: Normal Principal Location: Irvine, CA
and Interest
Maturity Date: 11/1/02 Year Built/Renovated: 1983
Mortgage Rate: 8.000% Square Feet: 457,312
Loan Constant: 9.195% Cut-off Date Balance/SF: $106
Annual Debt Service: $4,456,995 Cap Rate: 9.00%
DSCR: 1.12 Implied Value: $68,248,311
DSCR at a 9.5% Constant: 1.09 Current LTV: 71%
Underwritten Cash Flow: $5,013,445 Balloon LTV: 66%
Underwritten NOI: $6,142,348 Percent Leased: 99%
Balloon Balance: $45,070,943 Percent Leased as of Date: 9/20/97
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Loan
The Koll Center Irvine II Loan (the "Koll Loan") is secured by a first
leasehold mortgage on eight parcels, constituting approximately 31.3 acres,
located in Irvine, California which are improved in part with two office
buildings and two restaurants owned by the borrower (the "Koll Property"). In
addition, there are two additional office buildings and a Marriott hotel located
on the Koll Property, each of which are subject to sub-ground leases which have
been assigned to lender as collateral for the Loan and which are superior to the
leasehold mortgage. Borrower has assigned its interest under the three
sub-ground leases to lender as further collateral for its Loan. The Loan was
originated by Seller on October 9, 1986 and subsequently was modified to its
current terms as of November 1, 1992. The modification extended the Koll Loan
for ten years and required borrower-funded principal reductions totaling
approximately $11.5 million dollars since the modification. Fifteen million in
debt was forgiven in conjunction with the modification.
The Borrower. The borrower is Koll Center Irvine Number Two, a California
limited partnership, whose general partners are Koll Parker Associates, a
California general partnership, and Connecticut General Life Insurance Company
("CGLIC"), (the "Koll Borrower"). Principals of Koll Parker Associates include
senior management of The Koll Company.
Security. The Koll Loan is secured by a Modification Agreement and
Supplement to Deed of Trust, Assignment of Rents and Security Agreement, an
Assignment of Leases and Rents, and a UCC Financing Statement and certain
additional security documents. The mortgage is a first lien on a leasehold
interest in the Koll Property. The Koll Loan is non-recourse, subject to certain
limited exceptions, including an environmental indemnity referenced below.
The Koll Borrower is a ground lessee under a ground lease with Security
Pacific National Bank, sub-trustee under a Trust Agreement dated May 28, 1991,
creating Parker-Hannifin Real Estate Collection Trust, successor-in-interest to
Parker-Hannifin Corporation, as ground lessor. The Koll Loan is secured by a
first mortgage on Koll Borrower's leasehold interest under the ground lease. The
ground lease has a 75 year term with a commencement date of March 1,1981.
Current annual base rent is $2,050,000 through March 1, 2001, after which base
rent will be
III-11
<PAGE>
increased based on a CPI formula with a cap of 175% of the then current rent.
There are subsequent ten year adjustments of rent equal to 10% of fair market
value. There are additional rent provisions based on a percentage of net cash
flow and there is a refinancing charge in the event that any permanent loan is
refinanced. Subground leases to two other office buildings and the hotel in the
park pay sublease rent that totals in excess of 95% of the rent under the
Parker-Hannifin ground lease.
Environmental Indemnity. There is an environmental indemnity agreement from
Koll Borrower to lender.
Payment Terms. The Mortgage Rate is fixed at 8%. The Koll Loan requires
monthly payments of principal and interest of $ 371,416 until its maturity on
November 1, 2002, at which time all unpaid principal and accrued but unpaid
interest is due. The remaining amortization term of the Koll Loan is 308 months.
The Koll Loan accrues interest computed on the basis of an assumed 30 day month
and 360 day year.
If there is an event of default and the lender accelerates the Koll Loan,
the security documents require Koll Borrower to pay a premium as described
below. There is a 6% late fee on overdue installments, and the loan accrues
interest at 14% while the loan is in default.
Prepayment. The Koll Loan may be prepaid in whole, but not in part, upon 60
days written notice and upon payment of a premium equal to the greater of 1% of
the amount prepaid or a yield maintenance charge tied to Treasuries.
Transfer of Properties or Interest in Borrower. The Koll Loan becomes
immediately due and payable upon the transfer of the Koll Property or the
transfer of partnership interests in Koll Borrower or in Koll Parker Associates,
its general partner. However, the lender's consent is not required for: (i) a
transfer of partnership interests in Koll Borrower between Koll Parker
Associates and Connecticut General Life Insurance Company (CGLIC); (ii) a change
in the composition, control or ownership of Koll Borrower or of Koll Parker
Associates, which occurs by virtue of any will, testament or law of descent;
(iii) transfers of partnership interests in Koll Borrower to CGLIC; or (iv) a
pledge of partnership interests in Koll Borrower to secure financing from CGLIC.
Escrow/Reserves. There is a tax escrow which escrow will be disbursed to
pay taxes and provide additional security for the Koll Loan. There are no
additional escrows or reserves.
Subordination/Other Debt. Subordinate indebtedness and encumbrances are
prohibited without the prior consent of the lender.
The Property
Koll Center Irvine II is part of a 31.3 acre mixed-use development located
at the corner of Michelson and Von Karman Avenues in close proximity to the
Orange County Airport. The Koll Property includes two 11-story, black glass
faced office buildings totaling 426,312 square feet and two retail buildings
totaling 31,000 square feet. The remainder of the development includes two
additional office towers and a 504-room Marriott hotel.
III-12
<PAGE>
As of September 20, 1997, the Koll Property was 99% leased at an average
rent of $21.47 SF with the largest tenants being Union Bank (10%), Ernst & Young
(7%), and New Century Financial (9%). Contractual lease expirations are as
follows: 1998 - 62,978 SF (14%); 1999 - 32,816 SF - (7%); 2000 - 63,354 SF
(14%); 2001 - 106,464 SF (23%); and 2002 - 106,890 SF (23%).
Management
The entire Koll Center Irvine development (exclusive of the Marriott Hotel)
is managed by CB/Koll Real Estate Company.
Loan No. 6 - Glenpointe Centre West Loan and Property
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $46,024,150 Property Type: Office
Loan Type: Normal Principal Location: Teaneck, NJ
and Interest
Maturity Date: 1/1/12 Year Built/Renovated: 1985
Mortgage Rate: 9.875% Square Feet: 333,561
Loan Constant: 11.660% Cut-off Date Balance/SF: $138
Annual Debt Service: $5,366,395 Cap Rate: 9.00%
DSCR: .90 Implied Value: $60,089,233
DSCR at a 9.5% Constant: 1.10 Current LTV: 77%
Underwritten Cash Flow: $4,827,204 Balloon LTV: 36%
Underwritten NOI: $5,408,031 Percent Leased: 95%
Balloon Balance: $21,379,930 Percent Leased as of Date: 2/1/97
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Loan
The Glenpointe Centre West Loan (the "Glenpointe Loan") is secured by a
first mortgage on a 333,561 square foot 7-story office building situated on 2.44
acres and a second mortgage on an adjacent parking garage, which is part of a
mixed use project located in Teaneck, New Jersey (the "Glenpointe Property").
The Loan was originated by Seller on December 12, 1986.
The Borrower. The borrower is Glenpointe Associates, a New Jersey general
partnership (the "Glenpointe Borrower"). The principals of Glenpointe Borrower
are Alfred Sanzari and Sanzari Associates, a New Jersey limited partnership,
which also are principals of the Court Plaza Borrower.
Security. The Glenpointe Loan is secured by a First Mortgage, Assignment of
Leases and Rents, UCC financing statements, and certain additional security
documents. The mortgage is a first lien on a fee interest in the Glenpointe
Property, except for the parking garage, which is subject to a prior mortgage in
favor of The Prudential Insurance Company of America to secure a loan in the
principal amount of $41,000,000. The rights and obligations with respect to the
use of
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<PAGE>
the parking garage are set forth in a Reciprocal Easement Agreement and
amendments thereto, all of which are prior to the first and second mortgages.
The Glenpointe Loan is non-recourse.
Payment Terms. The Mortgage Rate is fixed at 9.875%. The Glenpointe Loan
requires monthly payments of principal and interest of $447,200 until its
maturity on January 1, 2012, at which time all unpaid principal and accrued but
unpaid interest is due. The remaining amortization term is 229 months. The
Glenpointe Loan accrues interest computed on the basis of a 30 day month and 360
day year.
If there is an event of default and the Seller accelerates the Glenpointe
Loan, the security documents require Glenpointe Borrower to pay a premium as
described under Prepayment below. If no prepayment option exists at the time of
default, the premium is the greater of 6% of the outstanding balance or a yield
maintenance charge tied to Treasuries. There is a 6% late fee on overdue
installments, and the Loan accrues interest at 15.875% while the Loan is in
default.
Prepayment. The Glenpointe Loan may be prepaid in whole or in part upon 60
days written notice from and after January 1, 2007 and upon payment of a premium
equal to a yield maintenance charge tied to Treasuries. No prepayment penalty or
premium is due if the loan is prepaid at any time after October 1, 2011.
Transfer of Properties or Interest in Borrower. The Glenpointe Loan becomes
immediately due and payable, at lender's option, upon the transfer of the
Glenpointe Property or partnership interests in Glenpointe Borrower. The
Glenpointe Borrower, however, has a one-time right to transfer partnership
interests in the Glenpointe Borrower or to transfer the Glenpointe Property,
subject to certain financial and management requirements and a payment of a fee
equal to 1% of the outstanding principal balance. In addition, the lender's
consent is not required for: (i) a transfer of partnership interests in
Glenpointe Borrower if the present partners of Glenpointe Borrower continue to
maintain at least a 50% interest in Glenpointe Borrower and if Alfred Sanzari
remains the managing general partner of Glenpointe Borrower and continues to
maintain at least a 19.25% partnership interest in Glenpointe Borrower; (ii) a
transfer in trust, or otherwise, by reason of the death of Alfred Sanzari,
subject to certain conditions; and (iii) a change in Glenpointe Borrower from a
general partnership to another entity, subject to the same requirements that the
present partners continue to maintain a 50% interest in Glenpointe Borrower and
Alfred Sanzari remains responsible for management of the Glenpointe Property and
continues to maintain at least a 19.25% ownership interest in Glenpointe
Borrower.
Escrow/Reserves. There are no tax, insurance, or tenant improvement escrows
or reserves.
Subordination/Other Debt. Subordinate indebtedness and encumbrances are
prohibited without the prior consent of the lender, except that subordinate
indebtedness is permitted with respect to certain specific parcels of the
Glenpointe Property, provided that the subordinate mortgage serves as additional
collateral for a mortgage loan made by an institutional lender in connection
with a permanent financing of any of the other buildings in the Glenpointe
project.
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<PAGE>
In addition, Glenpointe Borrower may, upon prior notice, obtain subordinate
financing if: (i) the aggregate principal amount outstanding under the
Glenpointe Loan and the principal amount outstanding under the subordinate
mortgage is not greater than 75% of the then appraised value of the Glenpointe
Property and (ii) the net operating income before debt service is not less than
120% of the aggregate debt service projected for a one year period.
The Property
The Glenpointe Property is a 95% leased 7-story office building built in
1985 containing 333,561 SF with the right to use a shared parking structure and
surface parking spaces. The subject is part of a mixed-use project that includes
an additional 7-story, 250,000 SF office building (Glenpointe East); a 345 room
Marriott Hotel; a 25,000 SF health club; and a 2-story connector space (the
Atrium) which includes 75,000 SF of retail/service space. Both Glenpointe East
and the Marriott were built in 1983.
The Glenpointe Loan is secured by a first lien on the office building
portion of the Glenpointe Property and the 2.44 acre parcel of land associated
with it, which includes surface parking for approximately 151 cars, and a second
lien on the parking structure, which includes parking for approximately 2,400
cars. Free and complete access to all parking and common areas in the Glenpointe
Centre Development, together with detailed provision for the maintenance and
management thereof and the sharing of the costs associated therewith, are
controlled by a Reciprocal Easement Agreement that is senior to all mortgages
and runs with the land.
The Glenpointe Property is located immediately adjacent to a full
interchange of I-95/I-80, 5 minutes west of the George Washington Bridge to
Manhattan, 1 mile east of the N.J. Turnpike, and 5 miles east of the Garden
State Parkway; both Newark Airport and mid-town Manhattan are 20 minutes driving
time. The project's amenities include service retail, hotel, and a health club.
Major tenants in the Glenpointe Property include The Mutual Life Insurance
Company of New York (33%), EISAI Corporation of North America (15%), and
Univision Television Group, Inc. (14%). Contractual lease expirations are as
follows: 1998 - 129,286 SF (39%); 1999 - 26,232 SF (8%); 2000 - none: 2001 -
17,441 SF (5%); and 2002 - 14,971 SF (4%). Average base rent in place is $24.50
per square foot.
Management
The Glenpointe Property is owned and managed by A.S. Management, a New
Jersey based commercial real estate firm that is affiliated with the Glenpointe
Borrower.
III-15
<PAGE>
Loan No. 7 - High Ridge Office Park Loan and Property
<TABLE>
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<S> <C> <C> <C>
Cut-off Date Balance: $40,879,963 Property Type: Office
Loan Type: Normal Principal Location: Stamford, CT
and Interest
Maturity Date: 6/30/06 Year Built/Renovated: 1989
Mortgage Rate: 9.115% Square Feet: 498,091
Loan Constant: 11.184% Cut-off Date Balance/SF: $82
Annual Debt Service: $4,571,962 Cap Rate: 9.00%
DSCR: 1.29 Implied Value: $73,138,333
DSCR at a 9.5% Constant: 1.52 Current LTV: 56%
Underwritten Cash Flow: $5,890,293 Balloon LTV: 41%
Underwritten NOI: $6,582,450 Percent Leased: 97%
Balloon Balance: $30,081,790 Percent Leased as of Date: 9/8/97
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Loan
The High Ridge Office Park Loan (the "High Ridge Loan") is secured by a
first mortgage on six 3 and 4-story office buildings totaling 498,091 square
feet situated on the 40 acre High Ridge Office Park located in Stamford,
Connecticut (the "High Ridge Property"). The Loan was originated by Seller on
March 1, 1989, and subsequently was modified to its current terms as of its
original maturity date of July 1, 1996. The High Ridge Loan was extended for ten
years to June 30, 2006. As part of the extension, the borrower paid down the
High Ridge Loan by $3 million and established the escrows described herein.
The Borrower. The borrower is High Ridge Park Associates, LLC, a
Connecticut limited liability company (the "High Ridge Borrower"). The
principals of High Ridge Borrower are Winter Realty Corp.; Parkway Associates,
LLC; Ginsberg High Ridge, LLC; and Samuel S. Miller. Winter Realty Corp. is a
wholly-owned subsidiary of F.D. Rich Company, Inc. Members of the Hoffman family
are principals of Parkway Associates, LLC.
Security. The High Ridge Loan is secured by an Open-End Mortgage Deed and
Security Agreement, an Assignment of Leases and Rents, a UCC Financing
Statement, and certain additional security documents. The mortgage is a first
lien on a fee interest in the High Ridge Property. The High Ridge Loan is
non-recourse, subject to certain limited exceptions including the guaranty and
environmental indemnity described below.
Guaranty. The High Ridge Loan is guaranteed by F.D. Rich, Jr., Robert N.
Rich, Stephen J. Hoffman, and Steven D. Robinson, severally but not jointly. The
guarantee is triggered only if the guarantors either contest a foreclosure of
the mortgage or other exercise of the lender's remedies or if the guarantors
cause High Ridge Borrower to seek bankruptcy relief.
Environmental Indemnity. There is an environmental indemnity from High
Ridge Borrower, the principals of High Ridge Borrower, F.D. Rich Jr., Robert N.
Rich, Stephen J. Hoffman and Steven D. Robinson.
III-16
<PAGE>
Payment Terms. The Mortgage Rate is fixed at 9.115%. The High Ridge Loan
requires monthly payments of principal and interest of $380,997 until its
maturity on June 30, 2006, at which time all unpaid principal and accrued but
unpaid interest is due. The remaining amortization term is 223 months. The High
Ridge Loan accrues interest on an assumed 30 day month and 360 day year.
If after an event of default, the lender elects to accelerate the High
Ridge Loan, the security documents require High Ridge Borrower to pay a
prepayment premium as described under Prepayment below. There is a 6% late fee
on overdue installments, and the Loan accrues interest at 15.115% while the Loan
is in default.
Prepayment. The High Ridge Loan may be prepaid in whole, but not in part,
upon 45 days written notice and upon payment of a premium equal to the greater
of either 1% of the amount prepaid or a yield maintenance charge tied to
Treasuries. No prepayment penalty or premium is due if the Loan is prepaid
within the five months prior to maturity.
Transfer of Properties or Interest in Borrower. The High Ridge Loan becomes
immediately due and payable upon the transfer of the High Ridge Property or the
transfer of an equity interest in High Ridge Borrower, except for transfers of
equity interests to family members or affiliates. However, the lender's consent
is not required to transfer the High Ridge Property to a limited liability
company whose members then own not less than 62% of High Ridge Borrower or if
High Ridge Borrower's members transfer, in the aggregate, no more than 38% of
the equity interests in High Ridge Borrower.
Escrow/Reserves. Pursuant to a separate Escrow Agreement, High Ridge
Borrower must also deposit in escrow, on a monthly basis, $102,000, including
$85,000 a month (reducible to $67,000 upon certain conditions) for tenant
improvements and leasing commissions plus $17,000 a month for capital
improvements. From January 1, 1998, High Ridge Borrower must make any additional
contributions to the escrow necessary to ensure that the escrow balance for
tenant improvements and leasing commissions is no less than $1,000,000 at all
times. The current balance in the aforesaid escrow is approximately $1,082,000,
but it will be reduced by payment for tenant improvement work in progress to
approximately $1,000,000 by year-end 1997. There also is a tax escrow. Such
amounts will be disbursed to pay such costs and provide additional security for
the High Ridge Loan.
Subordination/Other Debt. Subordinate indebtedness secured by the High
Ridge Property is prohibited without the prior consent of the lender.
The Property
The High Ridge Property is a six building multi-tenant office park on 40
acres. The buildings were constructed between 1967 and 1974 and total square
footage is 498,091, including some lower level space for a lunch room, health
club, storage areas, etc. There are a total of 1,350 parking spaces indicating a
parking ratio of 2.71 per 1,000 SF. The High Ridge Property is
III-17
<PAGE>
97% leased as of September 8, 1997. The three major tenants (Cadbury, General
Signal and Citizens Utility), which collectively lease 68% of the High Ridge
Property, have been at the High Ridge Property between 16 and 28 years. Overall,
contractual lease expirations are as follows: 1998 - 15,293 SF (3%); 1999 -
48,028 SF (10%); 2000 - 112,428 SF (23%); 2001 - 78,929 SF (16%); and 2002 -
1,810 SF (less than 1%).
The High Ridge Property is well located at the Southeast corner of the
Merritt Parkway and High Ridge Road, one of the two main roads connecting the
Stamford CBD and the northern suburbs.
Building # SF Tenant
---------- -- ------
1 73,611 General Signal
2 31,500 Cadbury
3 78,929 Citizen's
4 61,000 Multiple tenants
5 93,771 Multiple tenants
6 159,280 Cadbury
-------
Total 498,091
Building 1 is a 3-story 73,611 SF office building built in 1967 and
renovated in 1990. Adjacent to the property is a 264 space parking lot (3.59 per
1000 SF). The building is partially sprinklered and 100% occupied by General
Signal.
Building 2 is a 3-story 31,500 SF office building with a unique circular
design. It was constructed in 1968 with its last renovation in 1990. Adjacent to
the property is a 77 space parking lot (2.44 per 1,000 SF). The building is 100%
leased by Cadbury.
Building 3 is a 4-story 78,929 SF office building built in 1970 with 239
parking spaces (3.02 spaces per 1,000 SF). The building was recently renovated
including the complete buildout of new tenant space, exterior repainting, full
sprinklering and new HVAC system. It is 100% leased to Citizens.
Building 4 is a 4-story 61,000 SF multi-tenant office building built in
1970. The building is serviced by a 192 space parking lot (3.15 spaces per 1,000
SF). Currently the building is 100% leased to 9 tenants.
Building 5 is a 4-story 93,771 SF office building built in 1974 with a 317
car parking lot (3.38 spaces per 1,000 SF). This building is 90% leased to 15
tenants.
Building 6 is a 3-story office complex with 159,280 SF and 2 levels of
underground parking. It was constructed in 1973 and last renovated in 1994. The
building is fully sprinklered. There are 407 parking spaces (2.55 spaces per
1,000 SF). 160 spaces are outdoors on-grade and 247 spaces are inside the
garage. Cadbury leases 100% of the space.
III-18
<PAGE>
Management
High Ridge Property is managed by F.D. Rich Company as a designee of Winter
Management Company, a general partnership of F.D.Rich, Jr. and Robert N. Rich,
who manage other projects in the Stamford area.
Loan No. 8 - Cambridge Park 2 Loan and Property
<TABLE>
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<S> <C> <C> <C>
Cut-off Date Balance: $37,684,735 Property Type: Office
Loan Type: Normal Principal Location: Cambridge, MA
and Interest
Maturity Date: 11/1/07 Year Built/Renovated: 1987
Mortgage Rate: 10.0200% Square Feet: 248,152
Loan Constant: 11.308% Cut-off Date Balance/SF: $152
Annual Debt Service: $3,473,032 Cap Rate: 9.00%
DSCR: 1.31 Implied Value: $51,625,256
DSCR at a 9.5% Constant: 1.27 Current LTV: 73%
Underwritten Cash Flow: $4,537,561 Balloon LTV: 59%
Underwritten NOI: $4,646,273 Percent Leased: 100%
Balloon Balance: $30,501,339 Percent Leased as of Date: 9/1/97
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Loan
The Cambridge Park-2 Loan (the "Cambridge Loan") is secured by a first
mortgage on a 10-story, 248,152 square foot office building situated on 3.5
acres located in West Cambridge, Massachusetts (the "Cambridge Property"). The
Cambridge Loan was originated by Seller on January 29, 1988. The Cambridge Loan
subsequently was modified to its current terms as of November 1, 1997. Pursuant
to said modification, the borrower obtained a reduction in payment terms, an
extension of maturity, and pre-funded a $4 million reserve account for approved
tenant improvements and certain operating deficits. The borrower also funded an
additional $1,150,000 to fund a portion of the interest payments due, (as
hereinafter described), which reserve accounts have been assigned to lender as
additional collateral for the Cambridge Loan.
The Borrower. The borrower is Cambridge Park Two Limited Partnership, a
Massachusetts limited partnership (the "Cambridge Borrower"), whose general
partner is Triangle Park Associates, a Massachusetts joint venture. The
principals of the Cambridge Borrower include affiliates of Spaulding and Slye
Company.
Security. The Cambridge Loan is secured by a Mortgage and Security
Agreement, an Assignment of Leases and Rents, financing statements and other
customary security documents. The Cambridge Loan is a first lien on a fee
interest in the Cambridge Property. The Cambridge Loan is non-recourse, subject
to customary exceptions.
Guaranty. The Cambridge Loan is guaranteed jointly and severally by
Spaulding and Slye Services Limited Partnership and Spaulding and Slye
Properties Limited Partnership, subject
III-19
<PAGE>
to certain conditions, including a $5,000,000 limit on the guarantors'
liability, and subject further to a discharge of the guarantors' liability upon
(i) achievement of certain leasing standards, (ii) payment of the guaranteed
amount, or (iii) lender's acquisition of title to the Cambridge Property without
impediment such as a contested foreclosure or bankruptcy filing by the Cambridge
Borrower or any general partner thereof.
Environmental Indemnity. There is an environmental indemnity from Cambridge
Borrower and Spaulding and Slye Properties Limited Partnership to lender.
Payment Terms. The Mortgage Rate is 10.02% through June 30, 1997, 8.975%
through January 30, 2000 and 7.93% thereafter. The Cambridge Loan requires
monthly payments of principal and interest of $289,419, until its maturity on
November 1, 2007, at which time all unpaid principal and accrued but unpaid
interest is due. In addition, until February 1, 2000, interest only payments are
due monthly equal to the difference between 7.93% per annum and the
then-effective Mortgage Rate. The remaining amortization is 300 months. The
Cambridge Loan accrues interest computed on the basis of an assumed 30 day month
and 360 day year.
If there is an event of default and lender accelerates the Cambridge Loan,
the security documents require Cambridge Borrower to pay a prepayment premium
equal to the greater of (i) 1% of amount being paid, and (ii) a yield
maintenance charge tied to Treasuries. There is a 6% late fee on overdue
installments, and the Loan accrues interest at a rate of 6% above the then
applicable interest rate while the Loan is in default.
Prepayment. The Cambridge Loan may not be prepaid in whole or in part prior
to 90 days prior to the Maturity Date.
Transfer of Properties or Interest in Borrower. The Cambridge Loan becomes
immediately due and payable upon the transfer of the Cambridge Property or a
pledge of any general partnership or other interest in the Cambridge Borrower.
However, the lender's consent is not required for the transfer of certain
limited indirect equity interests in Cambridge Borrower. Cambridge Borrower also
has a one-time right to sell the Cambridge Property to a creditworthy purchaser
for a purchase price of no less than $52,000,000, provided: (i) the purchase
price is not financed by a mortgage on the Cambridge Property; (ii) the
Cambridge Loan shall not be in default at the time of sale; and (iii) the lender
is satisfied that the proposed operator of the Cambridge Property is reputable
and experienced. In 1996, the Seller consented to the transfer of certain equity
interests in Cambridge Borrower, which resulted in the ownership structure
reflected above.
Escrow/Reserves. There will be a reserve for the payment of taxes
commencing July 1, 1998; however, there is no reserve for insurance. Additional
reserves have been established for payment of tenant improvements, leasing
commissions, capital improvements and certain premises operating deficits as
well as for payment of certain debt service. The current balances of said
reserves are approximately $4,000,000 and $1,150,000, respectively. Such amounts
will be used to pay the costs described above and provide additional security
for the Cambridge Loan.
III-20
<PAGE>
Subordination/Other Debt. Subordinate indebtedness and encumbrances are
prohibited without the prior consent of the lender.
The Property
The Cambridge Property is a 10-story suburban office building containing
248,152 SF which was constructed in 1987 of steel frame with pre-cast concrete
panels and bronze glass windows. It contains a 3-story interior atrium lobby,
upper level balconies, a cafeteria, and parking for 744 cars (3 per 1,000 SF).
The Cambridge Property is located in Cambridge, MA, 5 miles west of downtown
Boston, and is situated at the intersection of Routes 2 and 16, and adjacent to
the MBTA's Alewife station. The property is part of a three building office park
known as Cambridge Park which contains a total of 567,444 SF and has a vacancy
rate of 2%.
The Cambridge Property is 100% leased to Bolt Beranek Newman (BBN), a
diversified high-technology company heavily involved in the Internet. BBN has
fully leased the entire building since 1987 and currently pays $20.50 NNN
through their lease expiration of 6/30/98. BBN did not exercise its renewal
option as required by June 30, 1997, and its plans for occupancy after lease
expiration are uncertain.
Management
The Cambridge Property is managed and leased by Spaulding & Slye, a
Boston-based full service real estate firm which owns and manages two of the
three buildings in Cambridge Park.
Loan No. 9 - Court Plaza Loan and Property
<TABLE>
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<S> <C> <C> <C>
Cut-off Date Balance: $36,068,628 Property Type: Office
Loan Type: Normal Principal Location: Hackensack, NJ
and Interest
Maturity Date: 3/1/13 Year Built/Renovated: 1984
Mortgage Rate: 10.350% Square Feet: 325,325
Loan Constant: 11.397% Cut-off Date Balance/SF: $111
Annual Debt Service: $4,110,722 Cap Rate: 9.00%
DSCR: 0.96 Implied Value: $49,312,733
DSCR at a 9.5% Constant: 1.15 Current LTV: 73%
Underwritten Cash Flow: $3,943,652 Balloon LTV: 45%
Underwritten NOI: $4,438,146 Percent Leased: 99%
Balloon Balance: $22,302,106 Percent Leased as of Date: 2/1/97
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Loan
The Court Plaza Loan is secured by a mortgage on two office buildings of 3
and 6-stories totaling 325,325 square feet situated on a two-level garage on 5.4
acres located in Hackensack, New Jersey (the "Court Plaza Property"). The Court
Plaza Loan was originated by Seller on February 17, 1988.
III-21
<PAGE>
The Borrower. The borrower is Court Plaza Associates, a New Jersey limited
partnership (the "Court Plaza Borrower"). The principals of Court Plaza Borrower
are Alfred Sanzari, David Sanzari, and Ben Sanzari which also are principals of
the Glenpointe Borrower.
Security. The Court Plaza Loan is secured by a Mortgage, Assignment of
Rents and Leases, a UCC financing statement and certain additional security
documents. The mortgage is a first lien on a fee interest in the Court Plaza
Property. The Court Plaza Loan is non-recourse, subject to certain limited
exceptions.
Payment Terms. The Mortgage Rate is fixed at 10.35%. The Court Plaza Loan
requires monthly payments of principal and interest of $342,560 until its
maturity on March 1, 2013, at which time all unpaid principal and accrued but
unpaid interest is due. The remaining amortization term is 278 months. The Court
Plaza Loan accrues interest computed on the basis of a 30 day month and 360 day
year.
If there is an event of default and the lender accelerates the Court Plaza
Loan, the security documents require the Court Plaza Borrower to pay a premium
equal to the amount it would have paid if it had prepaid the loan at that time.
If no prepayment option exists at the time of default, the premium is the
greater of 6% of the outstanding principal balance or a yield maintenance charge
tied to Treasuries. There is a 6% late fee on overdue installments, and the Loan
accrues interest at 16.35% while the Loan is in default.
Prepayment. The Court Plaza Loan may be prepaid in whole, but not in part,
upon 60 days written notice on or after March 1, 2008, and upon payment of a
premium equal to the greater of 1% of the amount prepaid or a yield maintenance
charge tied to Treasuries. No prepayment penalty or premium is due if the Loan
is prepaid within the three months prior to maturity.
Transfer of Properties or Interest in Borrower. The Court Plaza Loan
becomes immediately due and payable upon the transfer of the Court Plaza
Property, except for a one-time transfer to a transferee who meets the lender's
standards for credit and experience. The Court Plaza Loan also becomes
immediately due and payable upon a transfer of interests in Court Plaza
Borrower. However, the lender's consent is not required if the present
principals retain 50% control after the transfer.
Escrow/Reserves. There are no tax, insurance or tenant improvement escrows
or reserves.
Subordination/Other debt. Subordinate indebtedness and encumbrances are
prohibited without the prior consent of the lender, except that the lender's
consent is not required if: (i) the subordinate indebtedness does not have an
interest accrual feature; (ii) the combined indebtedness secured by the Court
Plaza Property does not exceed 75% of the value of the Property; and (iii) the
net cash flow from the Court Plaza Property is at least 115% of the combined
annual debt service for all debt secured by the Court Plaza Property.
III-22
<PAGE>
The Property
The Court Plaza Property is a 99% leased two-building office complex of
325,325 SF situated on a raised, 5.4 acre landscaped plaza on top of a two level
garage for 1,018 cars (3.13/1,000 SF). The project is located in the center of
Hackensack, New Jersey directly across from the county court and registry
complex. In the North tower, contractual lease expirations are as follows: 1998
- - 3,733 SF (1% of the total project); 1999 - 23,989 SF (7%); 2000 - 39,481 SF
(12%); 2001 - 3,369 SF (1%); and 2002 - none. Built in 1984, the 6-story North
tower contains 165,325 SF with multiple occupancy. In the South tower, the
Bergen County lease was recently extended for three years from its original
March 31, 1998 expiration date. It represents 49% of the total project and now
has a contractual expiration date of March 31, 2001. Built in 1988, the 3-story
South tower contains 160,000 SF occupied by a single tenant, Bergen County. Base
rents in place average $19.80 per square foot.
Management
The Court Plaza Property is owned and managed by A.S. Management, a New
Jersey based commercial real estate firm that is affiliated with the Borrower.
Loan No. 10 - United Farm Bureau Loan and Property
<TABLE>
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<S> <C> <C> <C>
Cut-off Date Balance: $33,643,233 Property Type: Office
Loan Type: Normal Principal Location: Indianapolis, IN
and Interest
Maturity Date: 10/1/00 Year Built/Renovated: 1992
Mortgage Rate: 10.310% Square Feet: 350,000
Loan Constant: 11.243% Cut-off Date Balance/SF: $96
Annual Debt Service: $3,782,372 Cap Rate: 9.00%
DSCR: 1.04 Implied Value: $44,072,067
DSCR at a 9.5% Constant: 1.23 Current LTV: 76%
Underwritten Cash Flow: $3,931,486 Balloon LTV: 74%
Underwritten NOI: $3,966,486 Percent Leased: 100%
Balloon Balance: $32,650,555 Percent Leased as of Date: 4/17/96
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Loan
The United Farm Bureau Headquarters Loan ("United Loan") is secured by a
first mortgage on a 7-story, 350,000 square foot building situated on 9 acres
located in Indianapolis, Indiana (the "United Property"). The United Loan was
originated by Seller on October 26, 1990.
The Borrower. The borrower is UFB Properties, an Indiana general
partnership (the "United Borrower"). The principals of United Borrower are the
United Property's two tenants, United Farm Bureau Family Life Insurance Company
(35%) and United Farm Bureau Mutual Insurance Company (65%). The principals are
wholly-owned subsidiaries of Farm Bureau, Inc. and are rated "AQ" by Standard &
Poors.
III-23
<PAGE>
Security. The United Loan is secured by a Mortgage, Security Agreement and
Assignment of Rents and Leases, a UCC financing statement and certain additional
security documents. The mortgage is a first lien on a fee interest in the United
Property. The United Loan is with recourse against United Borrower.
Guaranty. The United Loan is jointly and severally guaranteed by United
Farm Bureau Family Life Insurance Company and United Farm Bureau Mutual
Insurance Company.
Payment Terms. The Mortgage Rate is fixed at 10.31%. The United Loan
requires monthly payments of principal and interest of $315,198 until its
maturity on October 1, 2000, at which time all unpaid principal and accrued but
unpaid interest is due. The remaining amortization term is 291 months. The
United Loan accrues interest computed on the basis of an assumed 30 day month
and 360 day year.
If there is an event of default and the lender accelerates the United Loan,
the security documents require United Borrower to pay a prepayment premium as
described below. There is a 6% late fee on overdue installments, and the Loan
accrues interest at a rate of 16.31% while the Loan is in default.
Prepayment. The United Loan may be prepaid in whole, but not in part, upon
60 days written notice and upon payment of a premium equal to a yield
maintenance charge tied to Treasuries.
Transfer of Properties or Interest in Borrower. The United Loan becomes
immediately due and payable upon the transfer of the United Property or a change
in ownership of the United Borrower.
Escrow/Reserves. There are no tax, insurance or tenant improvement reserves
or escrows.
Subordination/Other debt. Subordinate indebtedness and encumbrances are
prohibited without the prior consent of the lender.
The Property
The United Property is a 350,000 SF seven story office building on
approximately 9 acres of land on the southeast side of the Indianapolis CBD. The
United Property was a build-to-suit for Farm Bureau, Inc. and serves as the
headquarters for two of its subsidiary insurance companies. The 1991/1992 total
renovation of this former industrial property included the addition of an
attached 2-story parking structure with parking for 676 cars. The building
includes a cafeteria, gift shop and a fitness center available to all occupants.
The United Property is 100% leased to United Farm Bureau Family Life
Insurance Company and United Farm Bureau Mutual Insurance Company; the terms of
each lease include a triple-net rent of $11.89 SF and an expiration date in
2022.
III-24
<PAGE>
Management
The United Property is managed by United Farm Bureau Life Company's tax and
accounting department.
Loan No. 11 - Doubletree Hotel-Fishermans Loan and Property
<TABLE>
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<S> <C> <C> <C>
Cut-off Date Balance: $26,757,544 Property Type: Hotel
Loan Type: Normal Principal Location: Monterey, CA
and Interest
Maturity Date: 11/1/07 Year Built/Renovated: 1996
Mortgage Rate: 7.750% Units: 374
Loan Constant: 9.074% Cut-off Date Balance/Rm: $71,544
Annual Debt Service: $2,427,948 Cap Rate: 10.00%
DSCR: 2.69 Implied Value: $72,640,800
DSCR at a 9.5% Constant: 2.57 Current LTV: 37%
Underwritten Cash Flow: $6,532,200 Balloon LTV: 30%
Underwritten NOI: $7,264,080 Percent Leased: 79%
Balloon Balance: $21,558,285 Percent Leased as of Date: 9/1/97
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Loan
The Doubletree Hotel - Fishermans Loan ("Doubletree Loan") is secured by a
first mortgage on a 374-room hotel comprised of 12 low to mid-rise buildings
situated on approximately 4.55 acres in Monterey, California (the "Doubletree
Property"). The Doubletree Loan was originated by the Seller on August 7, 1986
and subsequently was extended as of November 1, 1997.
The Borrower. The borrower is Custom House Hotel, L.P., a Missouri limited
partnership (the "Doubletree Borrower"). The general partners of Doubletree
Borrower are Custom House, Inc., a Delaware corporation, and CDT Investments,
Inc., an Arizona corporation. The founder of Doubletree hotels, no longer an
executive of Doubletree hotels, is actively involved with the Doubletree
Borrower as president of Custom House, Inc.
Security. The Doubletree Loan is secured by a Deed of Trust and Assignment
of Rents ("Deed of Trust"), an Assignment of Leases, UCC Financing Statement and
certain additional security documents. The Deed of Trust creates a first lien on
a fee interest in the Doubletree Property. The Doubletree Loan is non-recourse
subject to certain limited exceptions, including an environmental indemnity
described below.
Environmental indemnity. There is an environmental indemnity from the
general partners of the Doubletree Borrower to lender.
Payment Terms. The Mortgage Rate is fixed at 7.75%. The Doubletree Loan
requires monthly payments of principal and interest of $202,329 until its
maturity on November 1, 2007, at
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<PAGE>
which time all unpaid principal and accrued but unpaid interest is due. The
remaining amortization term is 299 months. The Doubletree Loan accrues interest
computed on the basis of an assumed 30 day month and 360 day year.
If there is an event of default and the Doubletree Loan is accelerated, the
security documents require the Doubletree Borrower to pay the same premium as
would be payable if the Doubletree Loan were prepaid voluntarily, as explained
below. There is a 6% late fee on overdue installments, and the Loan accrues
interest at 13.75% while is in default.
Prepayment. The Doubletree Loan may be prepaid in full, but not in part, on
any payment date upon 60 days prior written notice. Unless the prepayment occurs
within ninety (90) days prior to the maturity date, a prepayment charge is
payable equal to the greater of 1% of the amount prepaid or a yield maintenance
charge tied to Treasuries. No prepayment premium is payable upon a sale of the
Doubletree Property and assumption of the Doubletree Loan by a transferee
approved by lender in its sole discretion, as set forth below, provided that the
outstanding principal balance of the Doubletree Loan is reduced to $20,000,000
and the monthly payments are modified based on a 12.25% constant. No prepayment
penalty or premium is due if the Doubletree Loan is prepaid within ninety (90)
days prior to maturity.
Transfer of Property or Interest in Borrower. The security documents
prohibit any transfer of the Doubletree Property, any change in Doubletree
Borrower's general partners, or aggregate transfers of more than 25% of the
ownership interests in Doubletree Borrower. However, Doubletree Borrower has a
one-time right to transfer the Doubletree Property to a transferee, approved by
the lender in its sole discretion, who assumes the Doubletree Loan and prepays
an amount sufficient to reduce the outstanding balance to $20,000,000.00.
Escrow/Reserves. Doubletree Borrower has created a capital reserve fund for
the payment of capital improvement expenses specified in annual budgets approved
by the Seller. The current balance is approximately $727,000. The reserve is
funded quarterly in the amount of 3% of gross revenues. There also is a tax
escrow. Such amounts will be disbursed to pay such costs and provide additional
security for the Doubletree Loan.
Subordinated/Other Debt. Doubletree Borrower is not permitted to place
subordinate liens on the Doubletree Property except for a maximum aggregate of
$250,000 of liens on furnishings, fixtures and equipment.
The Property
The Doubletree Fishermans Wharf is a 374-room first class hotel located on
the bay in Monterey, California. Facilities include 13,000 square feet of
meeting and banquet space, 37,000 square feet of retail space, four restaurants
and lounges, three tennis courts, and an outdoor pool and whirlpool. The
property contains 12 interconnected low to mid-rise buildings spread out over
4.55 acres adjacent to the City of Monterey's convention center and Fisherman's
Wharf and the Monterey Bay. The property has undergone substantial recent
renovations and all rooms have bay front views. Six additional luxury suites
have been created in 1997, increasing the room count to 380.
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<PAGE>
Management
The Doubletree Borrower, principals of which include certain former senior
Doubletree executives, manages the property for .75% of revenue under a contract
that is subordinate to the mortgage. Doubletree is the franchisee.
Loan No. 12 - One Post Office Square Loan and Property
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $24,553,024 Property Type: Office
Loan Type: Normal Principal Location: Boston, MA
and Interest
Maturity Date: 8/1/00 Year Built/Renovated: 1981
Mortgage Rate: 8.250% Square Feet: 753,500
Loan Constant: 11.362% Cut-off Date Balance/SF: $121
Annual Debt Service: $2,789,799 Cap Rate: 9.00%
DSCR: 1.25 Implied Value: $133,354,500
DSCR at a 9.5% Constant: 1.23 Current LTV: 69%
Underwritten Cash Flow: $10,691,819 Balloon LTV: 65%
Underwritten NOI: $12,001,905 Percent Leased: 100%
Balloon Balance: $22,361,120 Percent Leased as of Date: 9/26/97
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The Loan
The One Post Office Square Loan ("PO Square Loan") is secured by a second
mortgage on a 41-story, 753,500 square foot office tower located in the
financial district of Boston, Massachusetts ("PO Square Property"). The PO
Square Loan was originated by Seller on August 3, 1993. Seller originally held a
$106 million first mortgage on the PO Square Property that was scheduled to
mature in December 1994. In August 1993, a Connecticut General Life Insurance
Company's ("CGLIC") first mortgage, Seller's second mortgage and a $10 million
borrower equity infusion combined to refinance Seller's original first mortgage.
The Borrower. The borrower is One Post Office Square Associates, a
Massachusetts general partnership (the "PO Square Borrower"). The principals of
PO Square Borrower are Beacon Properties, L.P., a Delaware limited partnership,
and The Equitable Life Assurance Society of the United States, a New York
corporation.
Security. The PO Square Loan is secured by a Mortgage and Security
Agreement and an Assignment of Leases and Rents, a UCC Financing Statement and
certain additional security documents. The mortgage is a second lien on a fee
interest in the PO Square Property. The Post Office Square Loan is fully
non-recourse.
Payment Terms. The Mortgage Rate is fixed at 8.25%. The PO Square Loan
requires monthly payments of principal and interest of $232,483.24 until its
maturity on August 1, 2000, at which time all unpaid principal and accrued but
unpaid interest is due. The remaining
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<PAGE>
amortization term is 189 months. The PO Square Loan accrues interest based on an
assumed 30 day month and 360 day year.
If there is an event of default and the lender accelerates the PO Square
Loan, the security documents require the Borrower to pay a prepayment premium as
described below. There is a 6% late fee on overdue installments, and the loan
accrues interest at the base rate plus 6% while the loan is in default.
Prepayment. The PO Square Loan may be prepaid in whole, but not in part,
upon 60 days written notice and upon payment of a premium equal to a yield
maintenance charge tied to Treasuries plus 150 basis points. No prepayment
penalty or premium is due if the loan is prepaid within the three months prior
to maturity.
Transfer of Properties or Interest in Borrower. The PO Square Loan becomes
immediately due and payable upon the transfer of the PO Square Property or the
transfer of general partnership interests in PO Square Borrower.
Escrow/Reserves. There are tax and leasing cost reserves pursuant to a
Leasing Cost Reserve Account Agreement and the Real Estate Tax Escrow and
Security Agreement between the first mortgagee, CGLIC and PO Square Borrower, in
which Seller was joined by a Joinder Agreement attached to the escrow agreements
for purposes of establishing a subordinate interest in the escrow funds. The
current balance of the leasing cost reserve is approximately $1,498,000. Such
amount will be disbursed to pay such costs and provide additional security for
the PO Square Loan. The reserve is funded by monthly deposits of $167,000.
Terms Of First Mortgage Loan. The original principal amount of the first
mortgage loan , held by CGLIC, was $70,000,000 with a fixed interest rate of
7.0% and a maturity date of August 1, 2000. The monthly debt service payments
are $481,470.
Intercreditor Agreement. Lender and CGLIC are parties to a Subordination
and Intercreditor Agreement. CGLIC and lender have reciprocal rights to notice
of and opportunity to cure defaults under either loan. If CGLIC does not cure a
default in the second mortgage, lender is required to obtain CGLIC's consent
before exercising its remedies, which shall not be unreasonably withheld. Lender
cannot modify material terms of the PO Square Loan without CGLIC's consent,
which must not be unreasonably withheld. Lender is required to obtain the
consent of CGLIC prior to any transfer or assignment of lender's interest under
the second mortgage, subject to certain limitations. Lender, however, has a
right to assign to a trust which is 51% or more controlled or owned by an
"Institution" as those terms are defined in the related Mortgage, subject to
certain limited conditions.
The Property
The PO Square Property was constructed in 1981 and consists of a 753,500
SF. 41-story office tower with an enclosed 375 space parking garage. The PO
Square Property is located in Boston's Financial District, a submarket of the
Boston CBD office market.
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<PAGE>
The PO Square Property currently is 100% leased as of September 26, 1997.
Four tenants occupy a total of 77% of the building: Putnam Investments (28%);
Coopers and Lybrand (20%); Foley Hoag and Elliot (16%); and Sullivan Worcester
(13%). The remaining space is leased to a variety of financial, accounting,
consulting and attorney's firms. Average base rent in place is $28.50 per square
foot.
Contractual lease expirations are as follows: 1998 - 24,257 SF (3%); 1999 -
25,653 SF (3%); 2000 - 33,536 SF (4%); 2001 - 448,383 SF (60%); and 2002 -
32,985 SF (4%).
Management
The Post Office Square Property is managed and leased by the Beacon REIT.
Loan No. 13 - First Fort Lauderdale Loan and Property
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $23,500,000 Property Type: Office
Loan Type: Interest Only Location: Fort Lauderdale, FL
Maturity Date: 4/1/99 Year Built/Renovated: 1984
Mortgage Rate: 7.000% Square Feet: 166,790
Loan Constant: 7.000% Cut-off Date Balance/SF: $141
Annual Debt Service: $1,645,000 Cap Rate: 9.00%
DSCR: 1.08 Implied Value: $19,707,267
DSCR at a 9.5% Constant: 0.79 Current LTV: 119%
Underwritten Cash Flow: $1,773,654 Balloon LTV: 119%
Underwritten NOI: $1,773,654 Percent Leased: 90%
Balloon Balance: $23,500,000 Percent Leased as of Date: 8/1/97
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Loan
The First Fort Lauderdale Place Loan (the "FFLP Loan") is secured by a
first mortgage on an 11-story office building located in Fort Lauderdale,
Florida (the "FFLP Property"). The FFLP Loan was originated by Seller on
November 26, 1985. Two early 1990's modifications reset payments under the FFLP
Loan to its current pay/accrue status and established the contingent claim
outlined below. In addition, the modifications required approximately $1.7
million in new borrower equity contributions to the capital escrow.
The Borrower. The borrower is First Fort Lauderdale Place, LTD., a Florida
limited partnership (the "FFLP Borrower"). The general partners of the FFLP
Borrower are Draper & Kramer Inc., an Illinois corporation, Douglas Kramer, and
Frederick Ford.
Security. The FFLP Loan is secured by a first priority Mortgage, Assignment
of Rents and Leases, UCC financing statements and other security documents on a
fee interest in the FFLP Property. The FFLP Loan is non-recourse, subject to
customary exceptions.
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<PAGE>
Guaranty. FFLP Borrower's obligations under the FFLP Loan are guaranteed by
Draper & Kramer Inc., however, the guaranty is effective only upon the
occurrence of certain events, including FFLP Borrower or any of its general
partners filing bankruptcy or contesting the lender's foreclosure of or right to
foreclose its mortgage on the FFLP Property.
Payment Terms. The Mortgage Rate is fixed at 7%. The FFLP Loan requires
monthly interest-only payments of $137,083 until its maturity on April 1, 1999,
at which time all unpaid principal and accrued but unpaid interest is due.
Interest is computed on the basis of an assumed 30-day month and 360-day year.
If there is an event of default and the lender accelerates the FFLP Loan,
the security documents require FFLP Borrower to pay a prepayment premium as
described below. There is a charge of 6% late fee on overdue installments and
the loan accrues interest at 15% while the loan is in default. If the FFLP Loan
is accelerated because of a default, FFLP Borrower is required to pay a
prepayment charge equal to the greater of 6% of the outstanding principal
balance, or a yield maintenance charge tied to Treasuries.
Non-REMIC Assets. The Mortgage Rate is fixed at 7%; the interest accrual
rate is 9%. Deferred interest is added to principal and accrues interest thereon
and is a Non-REMIC Asset. At the maturity of the FFLP Loan, the FFLP Borrower is
obligated to pay to lender, in addition to all other amounts due thereunder,
additional amounts as follows: (a) the first $771,445 of (1) the Net Sales
Proceeds, if the Loan is repaid with proceeds from a sale of the FFLP Property
approved by Seller, or (2) the Net Appraised Proceeds, if the Loan is prepaid
from sources other than a sale of the FFLP Property approved by lender; plus (b)
20% of the remaining proceeds. In no event, however, shall the aggregate amounts
of (a) and (b) exceed the amount of the Net Sales Proceeds or Net Appraised
Proceeds, as applicable, as those terms are defined in the Second Loan
Modification Agreement. The foregoing interests constitute a Non-REMIC Asset.
Amounts collected in respect of such Non-REMIC Asset will not be part of the
Available Distribution Amount, and will not be available for distribution on any
Certificates other than the Non-REMIC Certificates.
Prepayment. The FFLP Loan may not be prepaid in whole, or in part, prior to
90 days prior to Maturity Date.
Transfer of Properties or Interest in FFLP Borrower. The FFLP Loan becomes
immediately due and payable upon the transfer of the FFLP Property or the
transfer of interests in FFLP Borrower. However, the lender's consent is not
required for sales of limited partnership interests in the FFLP Borrower
constituting, in the aggregate, no more than 25% of the partnership interests in
FFLP Borrower.
Escrow/Reserves. Reserves have been established for taxes and insurance.
Additional reserves have been established for tenant improvements and leasing
commissions which are replenished from cash flow; the current balance in this
reserve is approximately $2,935,000 and such amounts will be disbursed to fund
such items and constitute additional security for the FFLP Loan.
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<PAGE>
Subordination/Other Debt. Subordinate indebtedness and encumbrances are
prohibited without the prior consent of the lender.
The Property
The FFLP Property is an 11-story office building with an attached
multi-level parking garage with capacity for 588 cars (3.6 / 1,000 SF) which was
constructed in 1984. The FFLP Property is located in the northern most section
of the Fort Lauderdale CBD with immediate access off of Broward Avenue, the main
artery in the CBD.
The FFLP Property is currently 90% leased at average base rents of
$20.25/SF as of August 1, 1997. The largest Tenants are Oppenheimer & Co. with
21,027 SF (13.8%), Florida Panthers Hockey Club with 19,988 SF (12%), and Berger
& Davis with 16,395 SF (9.8%). Contractual lease expirations are as follows:
1998 - 44,212 SF (27%); 1999 - 1,613 SF (1%); 2000 - 9,466 SF (6%); 2001 - 6,017
SF (4%); and 2002 - 11,269 SF (7%).
Management
The FFLP Property is owned by a limited partnership, whose general partners
are Draper & Kramer, Inc. and three of its principals. The property is managed,
with on-site services and leasing, by the Florida division of Draper & Kramer.
Loan No. 14 - Timberland Office Park - C Loan and Property
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $13,536,095 Property Type: Office
Loan Type: Interest Only Location: Troy, MI
Maturity Date: 1/1/06 Year Built/Renovated: 1989
Mortgage Rate: 9.000% Square Feet: 132,854
Loan Constant: 9.000% Cut-off Date Balance/SF: $101
Annual Debt Service: $1,218,249 Cap Rate: 9.00%
DSCR: 1.06 Implied Value: $17,084,044
DSCR at a 9.5% Constant: 1.00 Current LTV: 81%
Underwritten Cash Flow: $1,303,476 Balloon LTV: 81%
Underwritten NOI: $1,537,564 Percent Leased: 100%
Balloon Balance: $13,536,095 Percent Leased as of Date: 6/30/97
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
Loan No. 15 - Timberland Office Park - B Loan and Property
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $9,084,565 Property Type: Office
Loan Type: Interest Only Location: Troy, MI
Maturity Date: 1/1/06 Year Built/Renovated: 1987
Mortgage Rate: 9.000% Square Feet: 91,809
Loan Constant: 9.000% Cut-off Date Balance/SF: $101
Annual Debt Service: $817,612 Cap Rate: 9.00%
DSCR: 1.06 Implied Value: $10,866,844
DSCR at a 9.5% Constant: 1.00 Current LTV: 81%
Underwritten Cash Flow: $848,153 Balloon LTV: 81%
Underwritten NOI: $978,016 Percent Leased: 100%
Balloon Balance: $9,084,565 Percent Leased as of Date: 6/30/97
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Loan No. 23 - Timberland Office Park - H Loan and Property
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $13,910,046 Property Type: Office
Loan Type: Interest Only Location: Troy, MI
Maturity Date: 1/1/06 Year Built/Renovated: 1990
Mortgage Rate: 9.000% Square Feet: 128,732
Loan Constant: 9.000% Cut-off Date Balance/SF: $108
Annual Debt Service: $1,251,904 Cap Rate: 9.00%
DSCR: 0.96 Implied Value: $16,659,789
DSCR at a 9.5% Constant: 0.91 Current LTV: 83%
Underwritten Cash Flow: $1,198,051 Balloon LTV: 83%
Underwritten NOI: $1,499,381 Percent Leased: 100%
Balloon Balance: $13,910,046 Percent Leased as of Date: 9/30/97
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Loans
The Timberland Office Park Loans consist of the Timberland Office Park
Building-B Loan ("Timberland B Loan"), the Timberland Office Park Building-C
Loan ("Timberland C Loan") and the Timberland Office Park Building-H Loan
("Timberland H Loan") (collectively the "Timberland Loans"). Most of the terms
for the Timberland Loans are the same, except for the property descriptions,
tenant lists, rent rolls and the loan amounts and payments as set forth herein.
The Timberland B Loan is secured by a first mortgage on a 3-story, 91,809
square foot office building situated on 7.4 acres, the Timberland C Loan is
secured by a first mortgage on a 4-story, 132,854 square foot office building
situated on 7.8 acres, and the Timberland H Loan is secured by a first mortgage
on a 4 story, 128,732 square foot building situated on 10 acres, all of which
are located in the Timberland Office Park in Troy, Michigan. The Timberland B
and C Loans were originated by Seller on September 15, 1988, the Timberland H
Loan was originated by Seller on August 11, 1989, and all three Timberland Loans
were modified as of December 1, 1995 in anticipation of the need for additional
capital investment over the life of the Loans and to
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<PAGE>
resolve a dispute regarding the application of the proceeds from a letter of
credit originally posted as a rental achievement letter of credit. The
modification shortened the Loan terms by approximately three years, converted
the Loans to pay/accrue status, and added the appreciation interest feature
described herein. At the time of the modification, the Borrowers agreed to leave
in place the existing $1.4 million letter of credit securing the Timberland
Loans as the deposit into the Master Reserve Account (described below) for all
three Timberland Properties.
The Borrowers. The Timberland B Loan borrower is Timberland Associates of
Troy Limited Partnership, a Michigan limited partnership (the "Timberland B
Borrower"). The Timberland B Borrower has two general partners. One is
Etkin/Equitable Building Limited Partnership, a Michigan limited partnership,
which has as its general partner Etkin/Equitable Life, Inc., a Michigan
corporation. The other general partner is Grand/Timberland A Limited
Partnership, a Michigan limited partnership, which has as its general partner
Grand Timberland, Inc., a Michigan corporation.
The Timberland C Loan borrower is EGH/Timberland Three Limited Partnership,
a Michigan limited partnership (the "Timberland C Borrower"). The Timberland C
Borrower general partner is Timberland Three Limited Partnership a Michigan
limited partnership, which has two general partners. One is Timberland
Three/Etkin Limited Partnership, a Michigan limited partnership, which has as
its general partner Timberland 3/Etkin, Inc., a Michigan corporation. The other
general partner is Timberland 3/Grand, Inc., a Michigan corporation.
The Timberland H Loan borrower is Timberland Four Limited Partnership, a
Michigan limited partnership (the "Timberland H. Borrower"). The Timberland H
Borrower has two general partners. One general partner is Etkin Associates/Four
Limited Partnership, a Michigan limited partnership, which has as its general
partner Etkin Group T-Four Limited Partnership, a Michigan limited partnership,
which has as its general partner Timberland Four/Etkin, Inc., a Michigan
corporation. The second general partner of the Timberland H Loan Borrower is
Timberland Four/Grand, Inc., a Michigan corporation.
Security. Each of the Timberland Loans is secured by a Mortgage, Assignment
of Rents and Leases, and UCC financing statements, as modified, among other
security documents. Each mortgage is a first lien on a fee interest in the
corresponding Timberland Property. The Timberland Loans are non-recourse,
subject to certain customary limited exceptions including, without limitation,
certain environmental indemnities. The Timberland B Loan and Timberland C Loan
are cross-defaulted and cross-collateralized.
Guaranty. The Timberland Loans are subject to a limited guaranty of payment
from Bruce Etkin, Douglas Etkin and Stephen Grand. The guaranty is joint and
several, is applicable to all three Loans and is limited to a maximum amount of
$6 million. In addition, the guaranty is only "triggered" by a voluntary
bankruptcy of any Timberland Borrower, or the filing (and failure to discharge
within 120 days) of an involuntary proceeding against any Timberland Borrower by
a general partner thereof, any guarantor, or any insider of any of them. In
addition, each of the Timberland Loans is guaranteed by the same three
principals of the Timberland Borrowers, by a guaranty of each respective
borrower's obligations: (i) to fund the cash reserve and cash collateral
accounts; (ii) to pay amounts described below under Non-REMIC Assets due lender;
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<PAGE>
and (iii) to indemnify and hold lender harmless pursuant to the mortgages
(indemnification for borrower fraud or certain other "bad acts").
Environmental Indemnity. The aforedescribed guarantees include guarantees
of each respective Timberland Borrower's obligation to indemnify and hold lender
harmless from environmental liability.
Payment Terms.. The Mortgage Rate on the Timberland Loans is 9.0%. The
Timberland B Loan requires monthly interest-only payments of $68,134. The
Timberland C Loan requires monthly interest only-payments of $101,521. The
Timberland H Loan requires monthly interest-only payments of $104,325. The
Timberland Loans mature on January 1, 2006, at which time all unpaid principal
and accrued but unpaid interest is due. Interest on the Timberland Loans is
computed on the basis of an assumed 30 day month and 360 day year.
If there is an event of default and the lender accelerates the Timberland
Loans, the security documents require the Timberland Borrowers to pay a premium
equal to the prepayment premium as described below. There is a 6% late fee on
overdue installments, and the outstanding indebtedness accrues interest at a
rate equal to the contract rate plus 6% while the Loans are in default.
Non-REMIC Assets. The contract interest rate on the Timberland B and C
Loans is 10.3% and the contract interest rate on the Timberland H Loan is
10.085%. The Mortgage Rate on the Timberland Loans is 9%. The Timberland Loans
provide that if the Timberland Loans are paid at maturity in accordance with
their terms and including the respective Equity Kickers (defined below), then
any unpaid accrued interest will be forgiven. In addition, each of the
Timberland B, C and H Loans provide for amounts to be payable to lender, which
amounts, together with the deferred interest described above, constitute
Non-REMIC Assets, as follows. If all three (3) Timberland Loans are paid at the
same time, the proceeds are to be used as follows: (i) pay off all three (3)
notes, including accrued and unpaid interest at the pay rate and any applicable
prepayment premiums; (ii) the Timberland Borrowers are to receive the next $1.4
million; (iii) the remaining proceeds are to be split 50%/50% until such time as
lender has received $4.45 million; (iv) the remaining proceeds are split 25% to
lender and 75% to the Timberland Borrowers (the amounts due lender pursuant to
subsections (iii) and (iv) constitute the "Equity Kickers"). In the event the
notes are not paid at the same time, the loan documents provide formulas for
paying proceeds into the Master Reserve Account in order that at the time the
remaining notes are paid, there are sufficient proceeds to satisfy the above
formula. "Proceeds" for the purposes of calculating the Equity Kickers include
amounts in the Master Reserve Account and are determined based on the sale price
of the respective Timberland Property, or an appraisal value. Amounts collected
in respect of such Non-REMIC Assets will not be part of the Available
Distribution Amount, and will not be available for distribution on any
Certificates other than the Non-REMIC Certificates.
Prepayment. The Timberland B and C Loans may be prepaid together in whole,
but not in part, and the Timberland H Loan may be prepaid in whole, but not in
part, upon 60 days written notice and upon payment of a premium equal to the
greater of 1% of the Loan balance or a yield maintenance amount tied to
Treasuries. No prepayment penalty or premium is due if any
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<PAGE>
Loan is prepaid within the six months prior to maturity. At time of prepayment,
the respective Timberland Borrower must also repay all outstanding loans made to
said borrower from the Master Reserve Account. If said borrower prepays within
six months prior to maturity date, borrower must also prepay the other
Timberland Loans.
Transfer of Properties or Interest in Borrower. Each Timberland Loan
becomes immediately due and payable upon the transfer of the related Timberland
property or the transfer of a 75% or greater undivided interest in such property
or a transfer after which Stephen Grand, Bruce Etkin and Douglas Etkin do not
hold in the aggregate at least 51% of the controlling interest in the respective
Timberland Borrower. Notwithstanding the foregoing, the Timberland B Borrower
and the Timberland H Borrower have a one-time right to transfer the respective
properties upon prior notice to the lender and upon payment of a fee equal to 1%
of the loan balance, to a transferee meeting the lender's customary lending
requirements who assumes the mortgage and complies with the lender's standard
documentation requirements. A similar one-time transfer right with respect to
the Timberland C Borrower has already been exercised.
Escrow/Reserves. The Timberland Loans are subject to a Master Reserve
Agreement and Rent Collection and Reserve Account Cash Management Agreements,
which, inter alia: (i) created a master reserve account (the "Master Reserve
Account") for the benefit of all three Timberland Properties, which Master
Reserve Account originally was funded with the $1.4 million letter of credit
described above; (ii) established individual tax reserves for each Timberland
Property, and (iii) created individual property level reserve accounts for the
payment of tenant improvements and leasing commissions. In addition to the
$104,496 in the Master Reserve Account, there is approximately $888,182 in the
property level account for the Timberland C Property, $63,567 in the property
level account for the Timberland B Property, and $278,462 in the property level
account for the Timberland H Property. Said funds will be used to pay the costs
described herein, and constitute additional collateral for the Timberland Loans.
Subordination/Other debt. Subordinate indebtedness and encumbrances are
prohibited without the prior consent of the lender, except that indebtedness to
an institutional lender which debt is subordinate both in payment and lien
priority is permitted if: (i) the respective Timberland Loan is not in default;
(ii) net operating income is not less than 115% of the combined debt service on
all debt secured by the respective property; (iii) the subordinate indebtedness
carries either a fixed interest rate or a floating rate with a ceiling approved
by the lender, and (iv) the subordinate loan matures on or before September 1,
2008 (Timberland B Loan), September 1, 2009 (Timberland C Loan) or October 1,
2008 (Timberland H Loan).
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<PAGE>
The Properties
The Timberland B Property is a three story suburban office building
containing 91,809 SF on 7.4 acres; the Timberland C Property is a 4-story
132,854 SF office building on 7.8 acres; and the Timberland H Property is a
4-story 128,732 SF office building on 10 acres in the Timberland Office Park.
The Park is located approximately 30 minutes north of downtown Detroit in Troy,
Michigan, a submarket of metropolitan Detroit. The Timberland Properties were
constructed in 1987, 1989 and 1990, respectively, with steel frames and
exteriors of brown brick and bronze insulated glass together with surface
parking. The Timberland Office Park contains two other office buildings each in
excess of 100,000 SF.
The Timberland B, C and H Properties are multi-tenanted and were 100%
occupied, as of June 30, 1997 (with respect to the Timberland B and C
Properties) and September 30, 1997 (with respect to the Timberland H Property),
with average gross base rents of approximately $19.00 per SF. In Timberland B,
contractual lease expirations are as follows: 1998 - 25,722 SF (28%); 1999 -
none; 2000 - 7,510 SF (8%); 2001 - 4,735 SF (5%); and 2002 - 43,929 SF (48%). In
Timberland C, contractual lease expirations are as follows: 1998 - 2,637 SF
(2%); 1999 - 62,872 SF (47%); 2000 - none; 2001 - none; and 2002 - 26,835 SF
(20%). In Timberland H contractual lease expirations are as follows: 1998 -
3,293 SF (3%); 1999 - 18,025 SF (14%); 2000 - 2,961 SF (2%); 2001 - 29,100 SF
(23%); and 2002 - 25,219 SF (20%).
Management
Etkin Management, Inc., a Michigan based developer/manager of office and
industrial properties, manages the Timberland Properties.
Loan No. 16 - Sonesta Beach Hotel Loan and Property
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $22,431,486 Property Type: Hotel
Loan Type: Interest Only; Location: Key Biscayne, FL
Rate Increase
Maturity Date: 10/1/00 Year Built/Renovated: 1994
Mortgage Rate: 11.78% Units: 292
Loan Constant: 11.78% Cut-off Date Balance/Rm: $76,820
Annual Debt Service: $2,642,429 Cap Rate: 10.00%
DSCR: 1.41 Implied Value: $45,977,340
DSCR at a 9.5% Constant: 1.75 Current LTV: 49%
Underwritten Cash Flow: $3,733,095 Balloon LTV: 49%
Underwritten NOI: $4,597,734 Percent Leased: 76%
Balloon Balance: $22,431,486 Percent Leased as of Date: 12/31/96
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
The Loan
The Sonesta Beach Hotel Loan ("Sonesta Loan") is secured by a first
mortgage on a 292-room resort hotel situated on 11 acres located in Key
Biscayne, Florida ("Sonesta Property"). The Seller originated the Sonesta Loan
in December of 1984. The Sonesta Loan subsequently was modified to its current
terms as of December 1, 1993. Hurricane Andrew damaged the Sonesta Property in
1992 resulting in its closure for over a year to accommodate extensive repair
and renovation work. Repairs and lost income were covered by insurance proceeds,
but the hotel's closure required an interest accrual which was later
substantially repaid with insurance settlement proceeds.
The Borrower. The borrower is Key Biscayne Limited Partnership, a Florida
limited partnership (The "Sonesta Borrower"). Sonesta Borrower's managing
general partner is VMS Realty Investment Ltd., an Illinois limited partnership.
Sonesta Borrower acquired the Sonesta Property from Florida Sonesta Corporation
("Sonesta") which remains as operator and manager of the Sonesta Property
pursuant to a management agreement (the "Management Agreement").
Security. The Sonesta Loan is secured by a Mortgage and Security Agreement,
Assignment of Rents and Leases, UCC Financing Statement and certain additional
security documents. The Management Agreement is assigned as collateral security
for the loan, is subordinated to the mortgage, and is terminable at the option
of the lender upon foreclosure. The mortgage is a first lien on a fee interest
in the Sonesta Property. The Loan is non-recourse, subject to certain limited
exceptions, including an environmental indemnity described below.
Environmental Indemnity. There is an environmental indemnity from the
general partners of the Sonesta Borrower to lender.
Payment Terms. The Mortgage Rate is 11.78% through March 1, 1999 and
increases to 12.78% thereafter until maturity. Interest only is payable in
monthly installments until its maturity on October 1, 2000 when the entire
outstanding principal amount, together with accrued but unpaid interest is due
and payable. There is a 6% late fee on overdue installments. During the
existence of a default under the Loan, interest accrues at a rate of 6% above
the rate otherwise payable.
Non-REMIC Assets. The following described deferred interest constitutes a
Non-REMIC Asset: Interest accrues at the rate of 11.78% through March 1, 1999,
and thereafter at the rate of 12.78%. Deferred interest at the rate of 2% has
accrued for the period of December 1, 1993 through November 1, 1997. Deferred
interest at the rate of 1% will accrue during the period of November 1, 1997
through March 1, 1999. Thereafter, interest will be payable as accrued at the
12.78% rate. The sum of such deferred interest plus additional deferred interest
at the rate of 2% on the original $22,000,000 principal amount of the Sonesta
Loan for the period of October 1, 1991 through December 1, 1993 will be waived
and forgiven if the Loan is paid in full on or prior to the maturity date.
Amounts collected in respect of such Non-REMIC Asset will not be part of the
Available Distribution Amount, and will not be available for distribution on any
Certificates other than the Non-REMIC Certificates.
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<PAGE>
Prepayment. The Loan may be prepaid in whole, but not in part, on any
payment date upon 60 days written notice. There is a prepayment charge equal to
the greater of 1% of the amount prepaid or a yield maintenance charge tied to
Treasuries.
Transfer of Properties or Interest in Borrower. The Sonesta Loan becomes
immediately due and payable upon the transfer of the Sonesta Property or the
transfer of partnership interests in Sonesta Borrower or VMS Realty Investment
Ltd.
Escrow/Reserves. There is a tax escrow which requires monthly deposits in
an amount sufficient to pay taxes and insurance premiums when due. Such amounts
will be disbursed to pay such costs and provide additional security for the
Sonesta Loan.
Subordinated/Other Debt. Subordinate indebtedness and encumbrances are
prohibited without the prior consent of the Seller. Seller has approved certain
existing subordinate debt in favor of Sonesta and an affiliate of Sonesta
Borrower, some of which is secured by the Sonesta Property.
The Property
The Sonesta Property is a 292-room beachfront resort in Key Biscayne,
Florida. The property has 38,000 square feet of meeting space, five food and
beverage outlets, tennis courts, an outdoor pool and fitness center. Land area
is approximately 11 acres and includes a full beach with amenities that include
water sports, beach furniture and a food service/bar area.
The Sonesta Property achieved an occupancy of 69.5% in 1994, 72.2% in 1995,
and 75.7% in 1996, while increasing the average daily rate from $161 in 1994 and
$166 in 1995, to $175 in 1996.
The Sonesta Property was originally developed in 1969 with several
subsequent renovations including a renovation currently underway.
Management
The Sonesta Property is managed by Sonesta Hotels, an international resort
operator. The management agreement term is 20 years commencing in 1984. The
agreement calls for a base fee of 3% of gross revenue, plus a 1.5% of gross
advertising and promotional fee. No franchise fees are paid for use of the
Sonesta name.
III-38
<PAGE>
Loan No. 17 - Financial Center Loan and Property
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $22,000,000 Property Type: Office
Loan Type: Interest Only Location: Birmingham, AL
Maturity Date: 1/1/02 Year Built/Renovated: 1997
Mortgage Rate: 9.500% Square Feet: 282,788
Loan Constant: 9.500% Cut-off Date Balance/SF: $78
Annual Debt Service: $2,090,000. Cap Rate: 9.00%
DSCR: 0.96 Implied Value: $27,524,322
DSCR at a 9.5% Constant: 0.96 Current LTV: 80%
Underwritten Cash Flow: $2,013,234 Balloon LTV: 80%
Underwritten NOI: $2,477,189 Percent Leased: 86%
Balloon Balance: $22,000,000 Percent Leased as of Date: 3/31/97
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Loan
The Financial Center Loan ("Financial Loan") is secured by a first mortgage
on a 17-story office, 282,788 square foot building located in Birmingham,
Alabama (the "Financial Property"). The Financial Loan was originated by the
Seller on December 31, 1986 and modified to its current terms as of January 1,
1995. Effective December, 1994, the original $30.5 million note was converted to
a $22 million senior note and the balance was converted to the junior contingent
note (which constitutes a Non-REMIC Asset) described below. The modification
required the borrower to contribute $1 million to a capital escrow, into which
all net cash flows is deposited.
The Borrower. The borrower is FCB, L.L.C., an Alabama limited liability
company ("Financial Borrower") whose members and managers are Thomas E. Rast,
Robert E. Reed, Robert A. Schleusner and E. Todd Sharley, Jr. (collectively, the
"Principals").
Security. The Financial Center Loan is secured by a first lien Mortgage,
Assignment of Rents and Security Agreement, as amended (the "Mortgage"), an
Assignment of Rents and Leases, as amended, UCC financing statements, and other
customary security documents, on a fee interest in the Financial Property. The
manager's management agreement also has been assigned to the lender as
additional security for the Financial Loan and is subordinated to the mortgage.
The Loan is non-recourse subject to certain customary exceptions, and the
guaranty and environmental indemnity described below.
Guaranty. The Principals have guaranteed payment of the Financial Loan, but
the guarantees are limited to circumstances dealing with bankruptcy or other
judicial proceedings which prevent, halt or delay the exercise of the lender's
rights and remedies to enforce the Financial Loan. In addition, the Principals
have guaranteed Financial Borrower's obligation to fund required reserves.
Environmental Indemnity. There is an environmental indemnity from members
of Financial Borrower to lender.
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<PAGE>
Payment Terms. The Mortgage Rate is 9.5% payable in monthly installments of
$174,167, through January 1, 2002, when the entire outstanding principal amount
together with accrued but unpaid interest is due and payable. Interest is being
computed on the basis of an assumed 30 day month and 360 day year.
Maturity of the Loan is subject to acceleration at the option of the lender
(the "Call Right") on January 1, 1999 and thereafter upon six months written
notice to Financial Borrower. The Master Servicer will be prohibited from
exercising the Call Right. The loan documents provide for a 6% late charge on
payments more than five days late, and the Loan accrues interest at 15.5% while
the loan is in default.
Non-REMIC Asset. In addition to the $22,000,000 senior note described
above, lender also holds a $12,241,109 junior note which accrues interest at the
rate of 9.5% and matures on January 1, 2002. Upon maturity or prepayment of the
notes, whether pursuant to acceleration or as scheduled, or upon a sale or other
disposition of the Financial Property, the Financial Borrower is obligated to
pay lender an amount after payment of the amounts due under the senior note,
equal to 75% of the next $4,000,000 and 90% of any remaining Net Sales Proceeds
or Net Appraisal Proceeds (as those terms are defined in the senior note). Upon
payment of such amounts, the junior note thereupon is deemed satisfied and
canceled. Lender's right to receive such amounts constitutes a Non-REMIC Asset.
Amounts collected in respect of such Non-REMIC Asset will not be part of the
Available Distribution Amount, and will not be available for distribution on any
Certificates other than the Non-REMIC Certificates.
Prepayment. The Financial Loan may be prepaid in whole, but not in part, on
or after January 1, 1999 upon 60 days notice to lender and the payment of a
prepayment premium based on a yield maintenance formula tied to Treasuries. The
prepayment premium is payable upon acceleration of maturity for default or any
other reason, except upon exercise of the Call Right by lender, in which case no
prepayment premium is required.
Escrow/Reserves. Reserves have been established to fund tax and insurance
payments. Additional reserves have been established to pay certain other
approved expenses, including tenant improvement expenses, leasing commissions
and capital improvement expenses, which reserves are replenished from cash flow.
The current balance of such reserves is approximately $646,000 which is
available to pay the aforesaid, as well as provide additional security for the
Financial Loan.
Transfer of Property or Interests In Borrower. The Financial Loan becomes
due and payable upon the transfer of the Financial Property. Financial Borrower
is also prohibited from making any distribution of cash or property to or for
the benefit of any Principal, including payments of principal and interest on
loans extended to Financial Borrower by any Principal, except for amounts to pay
back principal of loans, without interest, incurred by Financial Borrower to pay
operating expenses of the Financial Property. Financial Borrower may not add
members and may not permit transfers of membership interests in excess of an
aggregate 25%, except among the Principals or in connection with estate
planning.
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<PAGE>
Subordination/Other Debt. Unsecured loans to Financial Borrower from its
principals, which loans are subordinate to the Financial Loan, are permitted
under certain circumstances.
The Property
The Financial Property is a 17-story, 282,788 square foot, multi-tenanted
office tower located in Birmingham, AL. The property, built in 1982, is located
at the center of the CBD. The Financial Borrower controls, through a lease with
the city, approximately 350 parking spaces in an adjacent city owned parking
deck.
As of March 31, 1997 the building was 86% leased to approximately 30
tenants, generally law firms and accountants, the largest of which occupies
32,575 SF (11.5%). Contractual lease expirations are as follows: 1998 - 27,423
SF (10%); 1999 - 22,362 SF (8%); 2000 - 36,532 SF (13%); 2001 - 2,489 SF (1%);
and 2002 - 51,386 SF (18%). Average base rents were $15.25 per square foot as of
June 16, 1997.
Management
The Financial Center Property is managed by Johnson-Rast & Hays Co., Inc.
Loan No. 18 - Hyatt Plaza Office-2 Loan and Property
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $22,000,000 Property Type: Office
Loan Type: Interest Only Location: Fairfax, VA
Maturity Date: 9/30/03 Year Built/Renovated: 1988
Mortgage Rate: 7.949% Square Feet: 272,563
Loan Constant: 7.949% Cut-off Date Balance/SF: $81
Annual Debt Service: $1,773,068 Cap Rate: 9.00%
DSCR: 1.54 Implied Value: $31,469,733
DSCR at a 9.5% Constant: 1.29 Current LTV: 70%
Underwritten Cash Flow: $2,690,343 Balloon LTV: 70%
Underwritten NOI: $2,832,276 Percent Leased: 98%
Balloon Balance: $22,000,000 Percent Leased as of Date: 4/1/97
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The Loan
The Hyatt Plaza Office-2 Loan (the "Hyatt Loan") is secured by a first
mortgage on a 10-story office building containing 273,563 square feet of office
space, situated on 12.7 acres and located in Fairfax, Virginia (the "Hyatt
Property"). The Hyatt Loan was originated by Seller on July 24, 1987, and
effective November 1993, the original $39,500,000 note was converted to a
$22,000,000 senior note and the balance was converted to the junior contingent
note (which constitutes a Non-REMIC Asset) described below. At the time of the
modification, the borrower contributed $1,000,000 to the capital escrow in the
form of a letter of credit.
The Borrower. The borrower is Hyatt Plaza Limited Partnership, a Virginia
limited partnership (the "Hyatt Borrower"). John T. Hazel and Milton V. Peterson
are sharesellers of the
III-41
<PAGE>
corporate general partner of Hyatt Borrower and are limited partners of Hyatt
Borrower. Messrs. Hazel and Peterson are principals of The Hazel-Peterson
Companies, a full service real estate company focused on the Northern Virginia
markets.
Security. The Hyatt Loan is secured by a Deed of Trust, Assignment of
Leases and Rent, UCC financing statements and other customary security
documents. The Deed of Trust is a first lien on a fee interest in the Hyatt
Property. The Hyatt Loan is non-recourse, subject to customary exceptions, as
well as exceptions if the Hyatt Borrower fails to pay the Hyatt Loan at maturity
and Hyatt Borrower either (i) challenges a foreclosure action by the lender, or
(ii) is the subject of a bankruptcy proceeding.
Guaranty. The Hyatt Loan is jointly and severally guaranteed by John T.
Hazel and Milton v. Peterson, but only in the event of the occurrence of certain
specified conditions, including the following: Hyatt Borrower defaults in the
payment of the Hyatt Loan at maturity and Hyatt Borrower either (i) contests a
foreclosure by the lender; or (ii) is the subject of a bankruptcy proceeding.
Payment Terms. The Mortgage Rate is fixed at 7.949%. The senior note
requires monthly interest only payments based on an actual day month, 360 day
year, ranging from $136,016 to $150,589 until its maturity on September 30,
2003, at which time all unpaid principal and accrued but unpaid interest is due.
There is a 6% late fee on overdue payments, and the Loan accrues interest
at a rate of 13.949% while the loan is in default.
Non-REMIC Assets. In addition to the aforementioned senior note, the lender
holds a $15,000,000 junior note which accrues interest at a rate of 2.49%, which
is payable if there is available cash flow. There is no monthly payment of
interest or principal required under the junior note. Upon the maturity of the
notes (whether by acceleration or otherwise), in addition to payment of the
amounts due under the senior note, lender is entitled to a portion of the Net
Proceeds if an Approved Transfer or the Net Appraisal Value if an Approved
Refinancing (as defined in the notes) as follows: 100% of the first $3,000,000;
50% of the next $6,700,000; and 75% of any remaining proceeds. The junior note,
including accrued interest thereon, is forgiven upon payment of such amounts.
Lender's right to receive such amounts constitutes a Non-REMIC Asset. Amounts
collected in respect of such Non-REMIC Asset will not be part of the Available
Distribution Amount, and will not be available for distribution on any
Certificates other than the Non-REMIC Certificates.
Prepayment. The Hyatt Loan may be prepaid either in whole or in part,
without a prepayment premium.
Transfer of Properties or Interest in Borrower. The Hyatt Loan becomes
immediately due and payable upon the transfer of the Hyatt Property or an
aggregate transfer of more than 25% of the equity interest in Hyatt Borrower.
However, the lender's consent is not required if: (i) the lender receives
written notice of any such transfer at least 30 days prior to the closing of
such transfer; (ii) Milton Peterson and/or entities in which Milton Peterson
controls at least a 50% interest (collectively the "Peterson Group") remain the
sole general partners of Hyatt Borrower; (iii) the Peterson Group continues to
control the decision-making and management of Hyatt Borrower; (iv) the Peterson
Group owns at least a 50% interest in the general partner of Hyatt
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<PAGE>
Borrower's general partner, and (v) the Peterson Group retains at least a 55%
partnership interest as a limited partner of the general partner of Hyatt
Borrower. In addition, lender has a right of first refusal upon a transfer of
the Hyatt Property pursuant to a Right of First Refusal Agreement.
Escrow/Reserves. There are reserves for taxes and insurance. There also is
a reserve account for tenant improvements, capital improvements, and leasing
commissions, which reserve account is replenished from cash flow and has a
current balance of approximately $2,831,000. Said amounts will be disbursed to
fund such costs, and constitute additional collateral for the Hyatt Loan.
Subordination/Other Debt. Subordinate indebtedness and encumbrances secured
by the Hyatt Property are prohibited without the prior consent of the lender.
The Property
The Hyatt Property is a 10-story plus basement office building containing
272,563 square feet of net rentable office area on a 12.7 acre site in Fairfax
County, Virginia. The property is located on the south side of Fair Lakes Circle
in the Fair Lakes planned community, in Fairfax, Fairfax County, Virginia.
Surrounding land uses consist of a mixture of commercial developments, including
retail centers, office buildings, a regional mall (Fair Oaks Regional Mall), and
residential developments. Specifically, the property is located in the
Fairfax/Oakton/Vienna sub-market of Fairfax County in Northern Virginia.
The subject's building facade is precast granite chip and imported granite
in three shades. The glass is double insulated, blue green low reflecting in
aluminum frames. There is a three story atrium finished in granite pavers, with
polished granite on the first floor walls. On site surface parking is available
for 896 cars (3.29/1000 SF). The building was built in 1988. As of April 1,
1997, the Hyatt Property was 98% leased with the largest tenants being Aetna
Casualty and Surety Company (19%) and American Management Systems (19%).
Contractual lease expirations are as follows: 1998 - 70,210 SF (26%); 1999 -
21,038 SF - (8%); 2000 - 58,594 SF (21%); 2001 - none; and 2002 - none. Average
base rent as of April 1, 1997 was $17.75 per square foot.
Management
Fair Lakes Management Co., an affiliate of The Hazel-Peterson Companies,
manages the Hyatt Property.
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<PAGE>
Loan No. 19 - UCLA Medical Office Building Loan and Property
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $20,790,358 Property Type: Office
Loan Type: Normal Principal Location: Los Angeles, CA
and Interest
Maturity Date: 3/1/05 Year Built/Renovated: 1990
Mortgage Rate: 10.545% Square Feet: 119,374
Loan Constant: 11.128% Cut-off Date Balance/SF: $174
Annual Debt Service: $2,313,625 Cap Rate: 9.00%
DSCR: 0.85 Implied Value: $23,795,722
DSCR at a 9.5% Constant: 1.00 Current LTV: 87%
Underwritten Cash Flow: $1,974,567 Balloon LTV: 82%
Underwritten NOI: $2,141,615 Percent Leased: 96%
Balloon Balance: $19,499,745 Percent Leased as of Date: 11/11/97
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Loan
The UCLA Medical Office Building Loan ("UCLA Loan") is secured by a first
leasehold mortgage on a 7-story, 119,374 square foot medical office building
situated in the Ambulatory Care Complex on the UCLA campus located in Los
Angeles, California (the "UCLA Property"). The UCLA Loan was originated by
Seller on February 27, 1989.
The Borrower. The borrower is Held/Jones III, a California limited
partnership (the "UCLA Borrower"). The general partners are Held Properties and
Jones Brothers, each a California general partnership. Principals of Jones
Brothers are the principals of Peck Jones, a Southern California contractor.
Security. The UCLA Loan is secured by a Deed of Trust, Assignment of Rents,
UCC Financing Statement, and certain additional security documents. The Deed of
Trust is a first lien on a leasehold interest in the air rights to the UCLA
Property and a fee simple interest in the improvements located thereon. The air
lot lease is between UCLA Borrower, as ground lessee, and the University of
California Board of Regents, as ground lessor. The air lot lease grants UCLA
Borrower certain rights of use and easements over and upon the fee parcel
appurtenant to UCLA Borrower's leasehold interest, which are more fully set
forth in said lease. The UCLA Loan is subordinate to the air lot lease.
The air lot lease term is 55 years, expiring on January 1, 2045. If gross
revenues from the UCLA Property are $3,500,000 or more, the rent is the greater
of: (i) $280,000 plus 20% of gross revenues above $3,500,000 or (ii) 50% of net
revenues, defined as income after operating expenses, leasing costs and debt
service. If gross revenues from the UCLA Property are less than $3,500,000, then
the rent is 90% of the first $500,000 of net revenue, plus 10% of the next
$500,000 of net revenue, plus 50% of net revenue (if any) in excess of
$1,000,000.
Ground lessor has under certain circumstances a right of first refusal as
well as options to purchase the leasehold interest securing the UCLA Loan. The
right of first refusal arises any time the ground lessee receives or solicits a
purchase offer for the leasehold estate. The purchase options arise under
certain circumstances: (i) when the debt service for the UCLA Property
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<PAGE>
exceeds net operating income by at least $50,000 for two consecutive years; or
(ii) upon a transfer which, when aggregated with all prior transfers, would
result in the transfer of 49% or more of the voting power equity interests in
the ground lessee. The exercise of the purchase option would require the ground
lessor to pay the outstanding indebtedness (except payments delinquent more than
150 days), including any applicable prepayment premium.
The UCLA Loan is non-recourse subject to certain limited exceptions,
including the environmental indemnity described below.
Environmental Indemnity. There is an environmental indemnity agreement from
UCLA Borrower to lender.
Payment Terms. The Mortgage Rate is fixed at 10.545%. The UCLA Loan
requires monthly payments of principal and interest of $192,802 until its
maturity on March 1, 2005, at which time all unpaid principal and accrued but
unpaid interest is due. The remaining amortization term is 337 months. The UCLA
Loan accrues interest computed on the basis of an assumed 30 day month and 360
day year.
If there is an event of default and lender accelerates the UCLA Loan, the
security documents require UCLA Borrower to pay a premium equal to the greater
of (i) 1% of the loan balance on the date of acceleration or (ii) the prepayment
premium, as described below. There is a 6% late fee on overdue payments, and the
loan accrues interest at a rate of the base rate plus 6% while the loan is in
default.
Prepayment. The UCLA Loan may be prepaid in whole, but not in part, upon 60
days written notice and upon payment of a premium equal to the greater of 1% of
the amount prepaid or a yield maintenance charge tied to Treasuries. No
prepayment premium is due if the loan is prepaid on or after November 1, 2004.
Transfer of Properties or Interest in Borrower. The UCLA Loan becomes
immediately due and payable upon the transfer of the UCLA Property, except for:
(i) a transfer to an entity substantially owned by or under common control with
UCLA Borrower who meets the lender's credit and business standards; and (ii) a
one-time transfer right to a third-party transferee with commercial real estate
experience and a financial capability similar to that of the UCLA Borrower,
provided the outstanding indebtedness secured by the UCLA Property does not
exceed 75% of the purchase price paid by the third-party transferee.
The UCLA Loan also becomes immediately due and payable, at lender's option,
upon the transfer of any interest in the UCLA Borrower, except transfers by the
original Held Partners of an interest in Held Properties, or a transfer by the
original Jones Partners of an interest in Jones Brothers that occurs upon such
person's death, or in trust for the benefit of family members, provided: (i)
Held Properties and Jones Brothers remain the general partners of the UCLA
Borrower; (ii) Held Properties remains the managing general partner of UCLA
Borrower; and (iii) at least 51% of the voting power and ownership of UCLA
Borrower is vested in the original Held Partners, the original Jones Partners,
and immediate family members or in trust therefore.
Escrow/Reserves. There is an account to pay back taxes for 1993 and 1994.
This account was established consensually by the UCLA Borrower in anticipation
of full assessment of the UCLA Property, which was delayed due to an
administrative oversight by the taxing authority. There is a capital expenditure
escrow which is comprised of approximately $116,172
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for initial build out of tenant space, approximately $405,000 for capital
expenses for existing tenant space and approximately $143,874 for discretionary
tenant expenses. Such amounts will be disbursed to pay such costs and provide
additional security for the UCLA Loan and shall not be replenished.
Subordination/Other Debt. Subordinate indebtedness and encumbrances are
prohibited without the prior consent of lender, except that subordinate
indebtedness from an institutional lender is permitted upon prior written notice
to lender and payment of a nonrefundable unconditional processing fee, if: (i)
the actual and sustainable property cash flow is at least 115% of the debt
service of all indebtedness secured by the UCLA Property; (ii) the subordinate
loan requires interest as accrued to be paid in full on a monthly or quarterly
basis; and (iii) the total debt secured by the UCLA Property does not exceed 75%
of the actual value of the UCLA Property as determined by the lender.
The Property
UCLA Medical Center is a seven-story, 119,374 SF medical office building
located within the Ambulatory Care Complex on the campus of the University of
California at Los Angeles' Medical Center and Hospital. The complex's other two
buildings are owned by UCLA. Completed in 1990, building amenities include
column-free floor plates, individually-controlled after hours HVAC and direct
access from a two level, subterranean parking garage.
As of November 1997, UCLA Medical Center was 96% leased at an average base
rent of $32.81 per square foot. 30% of the building is leased to UCLA.
Contractual lease expirations are as follows: 1998 - 12,956 SF (11%); 1999 -
21,139 SF - (18%); 2000 - 35,763 SF (30%); 2001 - 25,278 SF (21%); and 2002 -
none.
Management
UCLA Medical Center is managed by Held Properties, which holds a 50%
interest in Held/Jones III.
III-46
<PAGE>
APPENDIX IV
A "Phase I" environmental site assessment was performed by Dames & Moore,
Inc. ("Dames & Moore") with respect to each of the Mortgaged Properties
(excluding seven (7) Mortgaged Properties representing .2 % of the Initial Pool
Balance) within three (3) months prior to the Cut-off Date. With respect to
certain of the Mortgaged Properties, depending on the results of the "Phase I"
assessment, a "Phase II" environmental site assessment was also performed. The
Seller did not direct Dames & Moore to recommend Phase II assessments with
respect to potential sources of contamination (such as leaking underground
storage tanks) not located on the Mortgaged Properties.
Asbestos-containing materials were identified at several Mortgaged
Properties. Dames & Moore stated that these materials could be left in place
using operations and maintenance programs. The Seller did not institute such
operations and maintenance programs.
In connection with the Pinellas Center Mortgaged Property, Dames & Moore
analyzed a groundwater sample from an existing monitoring well to determine if
the property had been impacted by contamination from an adjacent property that
had reported releases of chlorinated hydrocarbons. Although no contamination was
detected in the sample, Dames & Moore recommended the well be sampled
periodically and that remediation activities being conducted by the responsible
party at the adjacent site be periodically reviewed to confirm they are
protective of the Pinellas Center Mortgaged Property. The Seller does not intend
to undertake such activities.
In connection with the Glen Pointe Centre West Mortgaged Property, soil and
groundwater samples taken in the vicinity of a diesel fuel underground storage
tank used to power an emergency generator showed total petroleum hydrocarbons
("TPH") in soil and petroleum-related base neutrals compounds in groundwater.
Dames & Moore concluded, however, that based on the levels identified, the New
Jersey Department of Environmental Protection would not be likely to require a
remedial response. Dames & Moore also concluded that tank integrity testing
would be appropriate. Such testing was not completed by the Seller.
In connection with the United Farm Bureau Headquarters Mortgaged Property,
the environmental assessment noted the past use of the property as a rubber
manufacturer, machine shop, lumber shop, iron yard and junkyard, and that
underground storage tanks were used at the property for many years. Dames &
Moore therefore recommended sampling soil and groundwater to determine if
contamination exists from these historic uses or underground storage tanks.
However, UFB Family Life Insurance Company and UFB Mutual Insurance Company net
lease the property and are jointly and severally liable on the underlying
Mortgage Loan. Based on its view of the creditworthiness of these entities, the
Seller took no further action.
IV-1
<PAGE>
In connection with the Poughkeepsie Galleria Mortgaged Property, the
environmental assessment noted certain potential environmental conditions
associated with the operations of the Sears and Montgomery Wards stores and
Dames & Moore recommended a Phase II investigation thereof. However, because the
Sears store is not part of the Mortgaged Property, the Seller believes that
Sears would be responsible for any expenses or liabilities associated with any
environmental conditions at this facility. Based on its view of the
creditworthiness of Sears, Seller did not conduct a Phase II investigation at
the Sears store. Because the property on which the Montgomery Wards store is
located is a separate parcel that the lender has the right unilaterally to
release from its collateral securing the Mortgage Loan at any time, Seller did
not conduct a Phase II investigation at the Montgomery Wards store.
In connection with the Financial Center Mortgaged Property, two soil
samples taken to determine whether any diesel fuel had leaked from an
underground storage tank on the property used to fuel an emergency generator
detected the presence of TPH in excess of the Alabama Department of
Environmental Management's action level for TPH of 100 parts per million.
Groundwater sampling was attempted, but no groundwater was obtained. According
to Dames & Moore, further investigation activities, including additional
groundwater sampling, would be necessary in order to achieve a regulatory
closure at this site. Seller did not conduct any such further activities and has
provided the Environmental Indemnity Agreement described below.
In connection with the Court Plaza Property, soil and groundwater samples
taken in the vicinity of two existing diesel fuel underground storage tanks used
to power an emergency generator showed TPH in soil and volatile organic
compounds and petroleum-related base neutrals compounds in groundwater. Dames &
Moore concluded, however, that based on the levels identified, the New Jersey
Department of Environmental Protection would not be likely to require a remedial
response. Soil and groundwater samples taken from the vicinity of former
gasoline station operations detected the presence of lead, chlorinated solvents
and volatile organic compounds. Some separate phase product was also identified
in one sampling location. Dames & Moore concluded that the New Jersey Department
of Environmental Protection would likely require additional investigation and
response actions with respect to this contamination and the Seller has provided
the Environmental Indemnity Agreement described below.
In connection with the Commerce Center-36 and Commerce Center-50 Mortgaged
Properties and the Clark Equipment Mortgaged Property, Dames & Moore concluded
that Phase II activities (such as soil and groundwater sampling) may be
appropriate to determine if there have been impacts to soil or groundwater, if
any, from historic and/or present industrial activities with respect to these
properties. Seller did not conduct any Phase II investigations at these
properties and has provided the Environmental Indemnity Agreement described
below.
IV-2
<PAGE>
With respect to the Financial Center Mortgaged Property, the Commerce
Center-36 Mortgaged Property, the Commerce Center-50 Mortgaged Property, the
Clark Equipment Mortgaged Property and the Court Plaza Mortgaged Property (the
"Covered Properties"), the Seller (in such capacity, the "Indemnitor") and the
Trustee will enter into a limited environmental indemnity agreement, dated as of
December 1, 1997 (the "Environmental Indemnity Agreement"), solely with respect
to specific potential adverse environmental conditions described for such
properties in the Environmental Indemnity Agreement (the "Covered Conditions").
The Environmental Indemnity Agreement will provide that if, prior to foreclosing
upon, accepting a deed in lieu of foreclosure or otherwise taking or accepting
title to a Covered Property, the Trustee (or the Special Servicer acting on
behalf of the Trustee) obtains a "Phase II" environmental site assessment for
such Covered Property and such "Phase II" assessment states that a Covered
Condition for such Covered Property then exists and is required under applicable
law to be remediated, removed or otherwise cured, the Indemnitor shall, at its
option, either (i) purchase the related Mortgage Loan from the Trust at the
Purchase Price, (ii) deliver to the Trustee its written undertaking to
remediate, remove or otherwise cure the Covered Condition in accordance with
applicable law, or (iii) deliver to the Trustee a written undertaking pursuant
to which the Indemnitor will, subject to certain conditions, agree to pay all
reasonable direct out-of-pocket expenses incurred by the Trustee for the
remediation, removal or curing of the Covered Condition in accordance with
applicable law.
IV-3
<PAGE>
- --------------------------------------------------------------------------------
MORGAN STANLEY [GRAPHIC OMITTED] December [ ], 1997
Real Estate Debt Capital Markets
Mortgage/Asset Capital Markets
- --------------------------------------------------------------------------------
CMBS New Issue
Preliminary Term Sheet
----------
Expected Pricing Date: December [ ], 1997
----------
$658,634,000
(Approximate)
Morgan Stanley Capital I Inc.
as Depositor
Aetna Life Insurance Company
as Seller and Special Servicer
Midland Loan Services, L.P.
as Master Servicer
Aetna Commercial Mortgage Trust
Multiclass Pass-Through Certificates
Series 1997-ALIC
----------
MORGAN STANLEY DEAN WITTER
THE SECURITIES DESCRIBED HEREIN ARE OFFERED ONLY PURSUANT TO A DEFINITIVE
PROSPECTUS SUPPLEMENT AND PROSPECTUS AND PROSPECTIVE INVESTORS WHO CONSIDER
PURCHASING ANY SUCH SECURITIES SHOULD MAKE THEIR INVESTMENT DECISION BASED ONLY
UPON THE INFORMATION PROVIDED THEREIN. CAPITALIZED TERMS USED BUT NOT DEFINED
HEREIN HAVE THE MEANINGS GIVEN TO SUCH TERMS IN THE PROSPECTUS SUPPLEMENT.
<PAGE>
Morgan Stanley Capital I Inc.
$658,634,000 (Approximate)
Aetna Commercial Mortgage Trust Multiclass Pass-Through Certificates
Series 1997-ALIC
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Final Scheduled Pass-
Amount(2) Rating Average Principal Distribution Through
Class ($MM) (Fitch/ Moody's) Life(4) Window(4)(5) Date(4) Rate(6)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A-1A $169.0 AAA/Aaa 2.0 1-34 10/15/00 [6.44%]
- -------------------------------------------------------------------------------------------------------------------------
A-1B 191.3 AAA/Aaa 4.0 34-59 11/15/02 [6.72]
- -------------------------------------------------------------------------------------------------------------------------
A-2(1) 97.6 AAA/Aaa 5.4 1-87 3/15/05 [6.17]
- -------------------------------------------------------------------------------------------------------------------------
IO 803.2(3) AAA/Aaa N/A N/A 1/15/18 [2.60]
- -------------------------------------------------------------------------------------------------------------------------
B 64.3 AA/Aa2 7.7 87-97 1/15/06 [7.04]
- -------------------------------------------------------------------------------------------------------------------------
C 68.3 A/A2 8.9 97-119 11/15/07 [7.33]
- -------------------------------------------------------------------------------------------------------------------------
D 48.2 BBB/Baa2 9.9 119-120 12/15/07 [7.48]
- -------------------------------------------------------------------------------------------------------------------------
E 20.1 BBB-/Baa3 10.3 120-131 11/15/08 [7.52]
- -------------------------------------------------------------------------------------------------------------------------
F* 44.2 BB/Ba3 12.1 131-152 8/15/10 [6.44]
- -------------------------------------------------------------------------------------------------------------------------
G* 8.0 BB-/NR 12.9 152-159 3/15/11 [6.44]
- -------------------------------------------------------------------------------------------------------------------------
H* 14.1 B/B2 13.7 159-169 1/15/12 [6.44]
- -------------------------------------------------------------------------------------------------------------------------
J* 26.1 B-/NR 14.1 169-175 7/15/12 [6.44]
- -------------------------------------------------------------------------------------------------------------------------
K* 20.1 NR/NR 14.9 175-183 3/15/13 [6.44]
- -------------------------------------------------------------------------------------------------------------------------
L* 32.1 NR/NR 16.0 183-241 1/15/18 [6.44]
- -------------------------------------------------------------------------------------------------------------------------
V*(7) N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
W*(7) N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes: (1) Payments of principal in respect of the Poughkeepsie Galleria
Loan (including any prepayments) will be distributed first to
holders of the Class A-2 Certificates.
(2) In the case of each such Class, subject to a permitted variance
of plus or minus 5%.
(3) Class IO Notional Amount is equal to the sum of the aggregate
Stated Principal Balance of all of the Mortgage Loans outstanding
from time to time.
(4) Based on Maturity Assumptions described in the Prospectus
Supplement, including that the Poughkeepsie Galleria Loan will
not prepay, and a pricing speed (the "Pricing Speed") of 5% CPR
for each Mortgage Loan commencing, in each case, at the later of
the end of the related Lock-out Period and the end of the period
during which a Yield Maintenance Premium is payable with respect
to prepayments of such Mortgage Loan.
(5) Principal Window is the period (expressed in terms of months and
commencing with the month of the first Distribution Date) during
which distributions of principal are expected to be made to the
holders of each designated Class in accordance with the Maturity
Assumptions and the Pricing Speed.
(6) Other than the Class IO Certificates, each Class of Certificates
will accrue interest generally at a fixed rate of interest except
in limited circumstances as described in the Prospectus
Supplement.
(7) The Class V Certificates and the Class W Certificates
(collectively, the "Non-REMIC Certificates") represent certain
interests in non-REMIC eligible assets and will not be offered.
Morgan Stanley Capital I Inc.
$658,634,000 (Approximate)
Aetna Commercial Mortgage Trust Multiclass Pass-Through Certificates
Series 1997-ALIC
- ------------------
* Not Offered
T-1
<PAGE>
Morgan Stanley Capital I Inc.
$658,634,000 (Approximate)
Aetna Commercial Mortgage Trust Multiclass Pass-Through Certificates
Series 1997-ALIC
I. Issue Characteristics
Issue Type: The Class A-1A, A-1B, A-2, B, C, D, E and IO
Certificates are offered pursuant to the Prospectus
Supplement (and accompanying Prospectus) dated
December [ ], 1997, and the Class F, G, H, J, K and
L Certificates will be offered privately (pursuant
to Rule 144A under the Securities Act of 1933, as
amended) pursuant to a Private Placement Memorandum,
also dated December [ ], 1997. The Class V
Certificates and the Class W Certificates represent
interests in certain non-REMIC eligible assets and
will not be offered.
Offered Certificates: $658,634,000 fixed rate, monthly pay, multiclass,
sequential pay commercial mortgage REMIC
Pass-Through Certificates, including seven principal
and interest Classes (Classes A-1A, A-1B, A-2, B, C,
D and E) and an interest-only Class (Class IO) whose
Notional Amount consists of thirteen separate
variable rate components, each corresponding to the
Classes of the Principal Balance Certificates.
Collateral: The collateral consists of a $803,212,971 pool of 41
seasoned, generally fixed rate, mortgage loans
secured by commercial and multifamily properties
originated by Aetna Life Insurance Company. All of
the Mortgage Loans are secured by first liens with
the exception of two loans representing 4.8% of the
Initial Pool Balance which are secured by second
liens.
Loan Groups: Loan Group 1 will consist of 40 Mortgage Loans with
an aggregate principal balance as of the Cut-off
Date of $705,660,785 and Loan Group 2 will consist
of one Mortgage Loan, the Poughkeepsie Galleria
Loan, with a Cut-off Date Balance of $97,552,186.
Generally, so long as the Poughkeepsie Galleria Loan
is not prepaid prior to its stated maturity date,
all Principal Balance and Interest Only Certificates
will receive distributions of principal and interest
from Mortgage Loans within both Loan Group 1 and
Loan Group 2. However, so long as the Class A-2
Certificates are outstanding, payments of principal
(including prepayments and amortization) from the
Poughkeepsie Galleria Loan will be distributed to
the Class A-2 Certificates. As is more fully
described herein, the Seller has received a letter
from the borrower in which the borrower has stated
that it intends to prepay the Poughkeepsie Galleria
Loan in not less than 65 days and no more than 370
days from the Cut-off Date, without payment of the
required prepayment penalty.
T-2
<PAGE>
Morgan Stanley Capital I Inc.
$658,634,000 (Approximate)
Aetna Commercial Mortgage Trust Multiclass Pass-Through Certificates
Series 1997-ALIC
Seller:
Aetna Life Insurance Company
Sole Manager: Morgan Stanley & Co. Incorporated
Master Servicer: Midland Loan Services, L.P.
Special Servicer: Aetna Life Insurance Company
Trustee: State Street Bank and Trust Company
Expected Pricing Date: On or about December [ ] , 1997
Expected Closing Date: On or about December [ ] , 1997
Distribution Dates: The 15th of each month, commencing January 15, 1998
Minimum Denominations: $5,000 for Class A Certificates; $50,000 for all
other Principal Balance and Interest Only
Certificates
Settlement Terms: DTC, Euroclear and Cedel, same day funds, with
accrued interest
Legal/Regulatory Status: Class A-1A, A-1B, A-2 and IO Certificates are
expected to be eligible for exemptive relief under
ERISA. No Class of Certificates is SMMEA eligible.
Risk Factors: THE CERTIFICATES INVOLVE A DEGREE OF RISK AND MAY
NOT BE SUITABLE FOR ALL INVESTORS. PLEASE SEE THE
"RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS"
SECTION OF THE PROSPECTUS SUPPLEMENT AND THE "RISK
FACTORS" SECTION OF THE PROSPECTUS.
T-3
<PAGE>
Morgan Stanley Capital I Inc.
$658,634,000 (Approximate)
Aetna Commercial Mortgage Trust Multiclass Pass-Through Certificates
Series 1997-ALIC
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
CLASS RATING & RETURN CLASS IO(1) VALUE AMOUNT
- ----- ----------------- ----------- ------------
<S> <C> <C> <C>
CLASS A-1A AAA/Aaa (6.44%) $169.0MM
CLASS A-1B AAA/Aaa (6.72%) $191.3MM
CLASS A-2(2) AAA/Aaa (6.17%) $ 97.6MM
CLASS B AA/Aa2 (7.04%) $ 64.3MM
CLASS C A/A2 (7.33%) $ 68.3MM
CLASS D BBB/Baa2 (7.48%) $ 48.2MM
CLASS E BBB/Baa3 (7.52%) $ 20.1MM
CLASS F BB/Ba3 (6.44%) $ 44.2MM
CLASS G B-/NR (6.44%) $ 8.0MM
CLASS H B/B2 (6.44%) $ 14.1MM
CLASS J B-/NR (6.44%) $ 26.1MM
CLASS K NR/NR (6.44%) $ 20.1MM
CLASS L NR/NR (6.44%) $ 32.1MM
</TABLE>
NR=Not Rated
Note: (1) The Class IO Notional Amount is equal to the sum of the aggregate
Stated Principal Balance of all of the Mortgage Loans outstanding
from time to time. The Pass-Through Rate on the Class IO
Certificates on each Distribution Date will equal, in general, the
weighted average of the Class IO Strip Rates for the respective
Principal Balance Certificates for such Distribution Date. The
Class IO Strip Rate will, in general, equal the excess, if any, of
the Net Mortgage Rates in effect for the Mortgage Loans over the
weighted average of the Pass-Through Rates applicable to the
Classes of Principal Balance Certificates. The Class IO
Certificates are rated AAA/Aaa by Fitch and Moody's.
(2) Generally, so long as the Poughkeepsie Galleria Loan is not
prepaid prior to its stated maturity date, all Principal Balance
and Interest Only Certificates will receive distributions of
principal and interest from Mortgage Loans within both Loan Group
1 and Loan Group 2. However, so long as the Class A-2 Certificates
are outstanding, payments of principal (including prepayments and
amortization) from the Poughkeepsie Galleria Loan will be
distributed to the Class A-2 Certificates. As is more fully
described herein, the Seller has received a letter from the
borrower in which the borrower has stated that it intends to
prepay the Poughkeepsie Galleria Loan in not less than 65 days and
no more than 370 days from the Cut-off Date, without payment of
the required prepayment penalty.
T-4
<PAGE>
Morgan Stanley Capital I Inc.
$658,634,000 (Approximate)
Aetna Commercial Mortgage Trust Multiclass Pass-Through Certificates
Series 1997-ALIC
II. Structure Characteristics
The Principal Balance Certificates are fixed rate, monthly pay, multiclass,
sequential pay REMIC Pass-Through Certificates. Generally, so long as the
Poughkeepsie Galleria Loan is not prepaid prior to its stated maturity date, all
Principal Balance and Interest Only Certificates will receive distributions of
principal and interest from Mortgage Loans within both Loan Group 1 and Loan
Group 2. However, so long as the Class A-2 Certificates are outstanding,
payments of principal (including prepayments and amortization) from the
Poughkeepsie Galleria Loan will be distributed to the Class A-2 Certificates. As
is more fully described herein, the Seller has received a letter from the
borrower in which the borrower has stated that it intends to prepay the
Poughkeepsie Galleria Loan in not less than 65 days and no more than 370 days
from the Cut-off Date, without payment of the required prepayment penalty. The
Class V Certificates and the Class W Certificates are entitled to cash flow from
"Additional Interests" including (i) certain rights to share in the proceeds
from the sale or refinancing of the related Mortgaged Properties and/or the
revenues generated by such Mortgaged Properties such as, payments in the nature
of equity participations in certain revenues, contingent interest and certain
accrued interest (such rights, collectively the "Non-REMIC Assets"), and (ii)
the right to receive certain fees provided for in the respective loan documents
relating to assumption fees, default interest, extension fees and modification
fees (collectively, the "Non-REMIC Fees").
T-5
<PAGE>
Morgan Stanley Capital I Inc.
$658,634,000 (Approximate)
Aetna Commercial Mortgage Trust Multiclass Pass-Through Certificates
Series 1997-ALIC
[GRAPHIC OMITTED]
Notes: (1) The Class A-1A, A-1B, A-2 and IO Certificates will be paid
interest on a pro rata basis.
(2) The above analysis is based on Maturity Assumptions described in
the Prospectus Supplement, including that the Poughkeepsie
Galleria Loan will not prepay, and a pricing speed (the "Pricing
Speed") of 5% CPR for each Mortgage Loan commencing, in each
case, at the later of the end of the related Lock-out Period and
the end of the period during which a Yield Maintenance Premium is
payable with respect to prepayments of such Mortgage Loan.
(3) Generally, so long as the Poughkeepsie Galleria Loan is not
prepaid prior to its stated maturity date, all Principal Balance
and Interest Only Certificates will receive distributions of
principal and interest from Mortgage Loans within both Loan Group
1 and Loan Group 2. However, so long as the Class A-2
Certificates are outstanding, payments of principal (including
prepayments and amortization) from the Poughkeepsie Galleria Loan
will be distributed to the Class A-2 Certificates. As is more
fully described herein, the Seller has received a letter from the
borrower in which the borrower has stated that it intends to
prepay the Poughkeepsie Galleria Loan in not less than 65 days
and no more than 370 days from the Cut-off Date, without payment
of the required prepayment penalty.
T-6
<PAGE>
Morgan Stanley Capital I Inc.
$658,634,000 (Approximate)
Aetna Commercial Mortgage Trust Multiclass Pass-Through Certificates
Series 1997-ALIC
Interest Distributions: Each Class of Principal Balance and Interest Only
Certificates will be entitled on each Distribution
Date to interest accrued at its Pass-Through Rate on
the outstanding Certificate Principal Amount or
Notional Amount of such Class, as applicable.
Pass-Through Rates: Class A-1A: [6.44%]
Class A-1B: [6.72%]
Class A-2: [6.17%]
Class B: [7.04%]
Class C: [7.33%]
Class D: [7.48%]
Class E: [7.52%]
Class F: [6.44%]
Class G: [6.44%]
Class H: [6.44%]
Class J: [6.44%]
Class K: [6.44%]
Class L: [6.44%]
Class IO: The Pass-Through Rate for the
Class IO Certificates will, in
general, equal the excess, if
any, of the weighted average of
the Net Mortgage Rates in effect
for the Mortgage Loans over the
weighted average of the
Pass-Through Rates applicable to
the respective Classes of
Principal Balance Certificates.
The Pass-Through Rate for each class of Principal
Balance Certificates for any Distribution Date will
not exceed the Weighted Average Net Mortgage Rate
for such Distribution Date.
Principal Distributions: Principal payments with respect to the Mortgage
Loans within each Loan Group will be distributed as
follows: principal payments with respect to the
Mortgage Loans within Loan Group 1 will be
distributed on each Distribution Date sequentially
to pay the Class A-1A, A-1B and A-2 Certificates and
then to the Subordinate Certificates; principal
payments with respect to the Mortgage Loans within
Loan Group 2 will be distributed on each
Distribution Date sequentially to pay the Class A-2,
A1-A and A1-B Certificates and then to the
Subordinate Certificates. If, due to losses, the
Certificate Principal Amounts of the Class B through
Class L Certificates are reduced to zero or
Appraisal Reductions
T-7
<PAGE>
Morgan Stanley Capital I Inc.
$658,634,000 (Approximate)
Aetna Commercial Mortgage Trust Multiclass Pass-Through Certificates
Series 1997-ALIC
exceed the aggregate Certificate Principal Amount of
the Subordinate Certificates, payments of principal
to the Class A-1A, A-1B and A-2 Certificates will be
made on a pro rata basis.
Prepayment Premium
Allocation: Prepayment Premiums on all of the Mortgage Loans
other than the Poughkeepsie Galleria Loan (to the
extent received) will be allocated among the Class
IO Certificates and the Principal Balance
Certificates (other than Classes E, F, G, H, J, K
and L) entitled to distributions in respect of
principal on any Distribution Date, as described in
the Prospectus Supplement under "DESCRIPTION OF THE
CERTIFICATES - Distributions of Prepayment
Premiums." Prepayment Premiums received in respect
of the Poughkeepsie Galleria Loan will be allocated
to the Class IO Certificates.
Credit Enhancement: Each Class of Principal Balance Certificates (other
than Classes A-1A, A-1B and A-2) will be subordinate
to all other Classes with an earlier alphabetical
Class designation.
Advancing: The Master Servicer and the Trustee (as applicable)
will each be obligated to make P&I Advances and
Servicing Advances, including delinquent property
taxes and insurance, but only to the extent that
such Advances are deemed recoverable.
Realized Losses and
Expense Losses: Realized Losses and Expense Losses, if any, will be
allocated to the Class L, Class K, Class J, Class H,
Class G, Class F, Class E, Class D, Class C and
Class B Certificates, in that order, and then to
Classes A-1A, A-1B and A-2 and, with respect to
losses that would reduce Distributable Interest,
Class IO Certificates, pro rata, in each case
reducing amounts payable thereto. Any interest
shortfall of any Class of Principal Balance
Certificates will result in unpaid interest for such
Class which, together with interest thereon
compounded monthly at one-twelfth the applicable
Class Pass-Through Rate, will be payable in
subsequent periods, subject to available funds.
Prepayment Interest
Shortfalls: For any Distribution Date, any Net Aggregate
Prepayment Interest Shortfall will generally be
allocated pro rata to each Class of Principal
Balance and Interest Only Certificates in proportion
to its entitlement to interest.
Appraisal Reductions: Any appraisal reduction generally will be created in
the amount, if any, by which the Principal Balance
of a Mortgage Loan (plus
T-8
<PAGE>
Morgan Stanley Capital I Inc.
$658,634,000 (Approximate)
Aetna Commercial Mortgage Trust Multiclass Pass-Through Certificates
Series 1997-ALIC
other amounts overdue in connection with such loan)
exceeds 90% of the appraised value of the related
Mortgaged Property or REO Property. The Appraisal
Reduction Amount will reduce proportionately the
amount of P&I Advances for such Mortgage Loan, which
reduction will be borne, in general, by a reduction
of interest distributable to 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 at least three consecutive months, paid
in full, liquidated, repurchased, replaced or
otherwise disposed of.
Operating Advisor: The Operating Advisor, which will be appointed by
the Controlling Class, will have the right to be
notified of certain actions of the Special Servicer
with respect to Specially Serviced Mortgage Loans.
Examples include the right to be notified of certain
modifications, foreclosures, sales, bringing an REO
Property into environmental compliance or acceptance
of substitute or additional collateral. The
Operating Advisor may remove the Special Servicer
without cause.
Controlling Class: The Controlling Class will generally be the most
subordinate Class of Principal Balance Certificates
outstanding at any time or, if the Certificate
Principal Amount of such Class is less than 25% of
the initial Certificate Principal Amount of such
Class, the next most subordinate Class of Principal
Balance Certificates.
Special Servicer: The Special Servicer will be responsible for
performing certain asset management functions with
respect to the Mortgage Loans and for performing
broader servicing functions with respect to
Specially Serviced Mortgage Loans. In general, the
Special Servicer has the right to modify the terms
of a Specially Serviced Mortgage Loan if it
determines that such modification would increase the
net present value of the proceeds to the Trust,
provided that the Special Servicer generally may not
extend the maturity date of a Specially Serviced
Mortgage Loan beyond two years prior to the Final
Rated Distribution Date, extend the maturity date of
a Specially Serviced Mortgage Loan which has a
below-market rate (except in limited circumstances),
reduce the Mortgage Rate to a rate below the market
rate or defer interest due in excess of 25% of the
Stated Principal Balance of such Specially Serviced
Mortgage Loan.
T-9
<PAGE>
Morgan Stanley Capital I Inc.
$658,634,000 (Approximate)
Aetna Commercial Mortgage Trust Multiclass Pass-Through Certificates
Series 1997-ALIC
Optional Termination: The Operating Advisor, the Special Servicer, the
Depositor, the Master Servicer and any holder of a
majority interest in the R Certificate will have the
option to purchase, in whole but not in part, the
remaining assets of the Trust on or after the
Distribution Date on which the aggregate Certificate
Principal Amount of all the Classes of Principal
Balance Certificates then outstanding is less than
or equal to 5% of the Initial Pool Balance. Such
purchase price will generally be at a price equal to
the aggregate unpaid principal balance of the
Mortgage Loans, plus accrued and unpaid interest and
unreimbursed Advances.
Reports to
Certificateholders: The Trustee will prepare and deliver monthly
Certificateholder Reports including a report
containing individual Mortgage Loan information that
will be available electronically. The
Certificateholder Report will be based on
information provided by the Master Servicer and a
monthly Special Servicer Report summarizing the
status of each Specially Serviced Mortgage Loan
prepared by the Special Servicer. In addition, the
Trustee will make available to Certificateholders an
annual report prepared by the Master Servicer
setting forth, among other things, the debt service
coverage ratios for each Mortgage Loan, as
available.
T-10
<PAGE>
Morgan Stanley Capital I Inc.
$658,634,000 (Approximate)
Aetna Commercial Mortgage Trust Multiclass Pass-Through Certificates
Series 1997-ALIC
III. Collateral Description
Summary: The Mortgage Pool consists of a $803,212,971 pool of
41 seasoned, generally fixed rate, mortgage loans
secured by liens on commercial properties located
throughout 19 states originated by Aetna Life
Insurance Company. All of the Mortgage Loans are
secured by first liens with the exception of two
Mortgage Loans, representing 4.8% of the Initial
Pool Balance which are secured by second liens. As
of the Cut-off Date, the Mortgage Loans have a
weighted average Mortgage Rate of 9.331%, a weighted
average Loan Constant of 10.680%, a weighted average
DSCR of 1.26x, a weighted average DSCR at a 9.5%
constant of 1.38x, a weighted average seasoning of
65 months and a weighted average remaining term to
maturity of 97 months. See the Appendices to the
Prospectus Supplement for more detailed collateral
information.
Significant Mortgage The following is a brief overview of the five
Loans: largest Mortgage Loans in the pool by Cut-off Date
Balance.
T-11
<PAGE>
Morgan Stanley Capital I Inc.
$658,634,000 (Approximate)
Aetna Commercial Mortgage Trust Multiclass Pass-Through Certificates
Series 1997-ALIC
Poughkeepsie Galleria Loan and Property
The Poughkeepsie Galleria Loan has a Cut-off Date Balance of $97,552,186
and is secured by a first lien fee simple mortgage on 630,158 square feet
of a two-level regional mall located in Poughkeepsie, New York. Three
anchors, Sears, Filene's and Montgomery Ward, either have fee title to
their locations or the borrower has the right to have such locations
released from the mortgage without compensation. Security for the Loan
includes the following space: JC Penney, one junior anchor, the cinema,
the mall shop space and common areas. The Poughkeepsie Galleria Loan was
originated on September 17, 1987 and matures on October 1, 2012. The
Mortgage Rate is fixed at 10.375% and the remaining amortization period
is 190 months. The DSCR is 1.15x while the DSCR at a 9.5% constant is
1.56x. The prepayment provisions on the Loan are generally yield
maintenance followed by a declining percentage penalty period with a six
month open period prior to maturity. The Seller has received a letter
from the borrower in which the borrower has stated that it intends to
prepay the Mortgage Loan in not less than 65 days and no more than 370
days from the Cut-off Date. Borrower further states in the letter that it
does not intend to pay the Prepayment Premium required under the loan
documents in connection with such prepayment, but rather intends to seek
a judicial determination that the Prepayment Premium is void and
unenforceable. Any prepayment of the Poughkeepsie Galleria Loan would
result in a corresponding distribution in respect of the Class A-2
Certificates which, among other things, may reduce the average life of
the Subordinate Certificates and would reduce the Notional Amount of the
Class IO Certificates. In addition, such letter may indicate an increased
likelihood that the borrower under the Poughkeepsie Galleria Loan will
default under one or more of the terms of its Mortgage Loan. The borrower
is Poughkeepsie Galleria Company and the property is managed by Pyramid
Management Group, Inc., an affiliate of the borrower.
T-12
<PAGE>
Morgan Stanley Capital I Inc.
$658,634,000 (Approximate)
Aetna Commercial Mortgage Trust Multiclass Pass-Through Certificates
Series 1997-ALIC
Charles Hotel Loan and Property
The Charles Hotel Loan has a Cut-off Date Balance of $55,997,412 and is
secured by a first lien leasehold mortgage on a 296 unit hotel, a 7-story
office building containing 107,724 square feet of office space and a two
story retail facility containing 40,237 square feet of retail space
located in Cambridge, Massachusetts. The Charles Hotel Loan was
originated on December 16, 1985, modified on September 1, 1992 and
matures on January 1, 2001. The Mortgage Rate is fixed at 9.000% and the
remaining amortization period is 204 months. The DSCR is 1.80x while the
DSCR at a 9.5% constant is 2.18x. The prepayment provision on the Loan is
generally yield maintenance. The borrower is KSA Realty Trust and the
hotel is managed by Cambridge Hotel Associates, an affiliate of
Interstate Hotels.
Commerce Distribution Center 50, 36 Loans and Properties
The Commerce Distribution Center Loans and Properties consist of the
cross-defaulted, cross-collateralized Commerce Distribution Center-36
Loan (Cut-off Date Balance of $24,850,000) and Commerce Distribution
Center-50 Loan (Cut-off Date Balance of $28,790,000) which are secured by
first lien fee simple mortgages on fourteen industrial buildings totaling
1,822,446 square feet which are all a part of the 6.5 million square foot
Commerce Distribution Center Industrial Park located in Bell, California.
The Commerce Distribution Center Loans were originated on May 16, 1988
and modified on March 17, 1997 when the borrower bought down the interest
rate on the loans, and mature on June 1, 2002. The Mortgage Rate is fixed
at 8.000% and is interest only until maturity. The DSCR is 1.41x while
the DSCR at a 9.5% constant is 1.19x. The prepayment provisions on the
Loan are generally yield maintenance with a three month open period prior
to maturity. The borrower is Newcrow III and the property is managed by
Trammell Crow Company, an affiliate of the borrower.
T-13
<PAGE>
Morgan Stanley Capital I Inc.
$658,634,000 (Approximate)
Aetna Commercial Mortgage Trust Multiclass Pass-Through Certificates
Series 1997-ALIC
Koll Center Irvine II Loan and Property
The Koll Center Irvine II Loan has a Cut-off Date Balance of $48,474,200
and is secured by a first lien leasehold mortgage on two office buildings
and two restaurants that are part of a mixed use facility located in
Irvine, California that contains two additional office buildings and a
Marriott hotel that are not part of the subject collateral. The Koll
Center Irvine II Loan was originated on October 9, 1986 and matures on
November 1, 2002. The Mortgage Rate is fixed at 8.000% and has a
remaining amortization period of 308 months. The DSCR is 1.12x while the
DSCR at a 9.5% constant is 1.09x. The prepayment provision on the Loan is
generally yield maintenance. The borrower is Koll Center Irvine Number
Two and the property is managed by CB/Koll Real Estate Company.
Glenpointe Centre West Loan and Property
The Glenpointe Centre West Loan has a Cut-off Date Balance of $46,024,150
and is secured by a first lien fee simple mortgage on a 333,561 square
foot, 7-story office building located in Teaneck, New Jersey. The
Glenpointe Centre West Loan was originated on December 12, 1986 and
matures on January 1, 2012. The Mortgage Rate is fixed at 9.875% and has
a remaining amortization period of 229 months. The DSCR is .90x while the
DSCR at a 9.5% constant is 1.10x. The prepayment provisions on the Loan
are generally yield maintenance with a three month open period prior to
maturity. The borrower is Glenpointe Associates and the property is
managed by A.S. Management, an affiliate of the borrower.
T-14
<PAGE>
Morgan Stanley Capital I Inc.
$658,634,000 (Approximate)
Aetna Commercial Mortgage Trust Multiclass Pass-Through Certificates
Series 1997-ALIC
PROPERTY SUMMARY
----------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Initial Weighted Average Average Debt Average
Number Aggregate Pool Average Remaining Term Service Current
of Balance as Balance as Mortgage to Maturity Coverage Implied LTV
Property Type Loans of Cut-off of Cut-off Rate (%) (mos) Ratio (x) (%)
Date Date (%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Office 20 $405,168,826 50.44 9.337 93 1.10 75.67
- --------------------------------------------------------------------------------------------------------------------------
Retail 6 129,822,050 16.16 9.930 152 1.17 63.57
- --------------------------------------------------------------------------------------------------------------------------
Mixed Use 2 104,471,612 13.01 8.536 47 1.48 57.19
- --------------------------------------------------------------------------------------------------------------------------
Hotel 4 70,193,922 8.74 9.856 104 1.86 46.76
- --------------------------------------------------------------------------------------------------------------------------
Industrial 4 64,058,113 7.98 8.264 48 1.36 65.87
- --------------------------------------------------------------------------------------------------------------------------
Multifamily 5 29,498,449 3.67 10.496 176 1.37 54.50
- --------------------------------------------------------------------------------------------------------------------------
Total or Weighted
Average 41 $803,212,971 100.00 9.331 97 1.26 67.22
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
GEOGRAPHIC DISTRIBUTION
[THE FOLLOWING TABLE WAS REPRESENTED AS A MAP IN THE PRINTED MATERIAL]
New Hampshire 1.48%
Massachusetts 14.72%
New York 14.32%
Connecticut 5.09%
Pennsylvania 0.11%
New Jersey 10.22%
Maryland 1.41%
Virginia 7.00%
South Carolina 0.71%
Florida 6.04%
Alabama 2.75%
Kentucky 0.97%
Indiana 6.10%
Michigan 4.55%
Minnesota 0.03%
Kansas 2.70%
Texas 0.06%
Arizona 0.01%
California 21.72%
T-15
<PAGE>
PROSPECTUS
Mortgage Pass-Through Certificates
(Issuable in Series)
Morgan Stanley Capital I Inc.
Depositor
----------
The Certificates offered hereby and by Supplements to this Prospectus (the
"Offered Certificates") will be offered from time to time in one or more series.
Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any series, the
"Trust Fund") consisting of one or more segregated pools of various types of
multifamily or commercial mortgage loans (the "Mortgage Loans"), mortgage
participations, mortgage pass-through certificates, mortgage-backed securities
evidencing interests therein or secured thereby (the "MBS"), certain direct
obligations of the United States, agencies thereof or agencies created thereby
(the "Government Securities") or a combination of Mortgage Loans, MBS and/or
Government Securities (with respect to any series, collectively, "Assets"). If
so specified in the related Prospectus Supplement, some or all of the Mortgage
Loans will include assignments of the leases of the related Mortgaged Properties
(as defined herein) and/or assignments of the rental payments due from the
lessees under such leases (each type of assignment, a "Lease Assignment"). A
significant or the sole source of payments on certain Commercial Loans (as
defined herein) and, therefore, of distributions on certain series of
Certificates, will be such rent payments. The Mortgage Loans and MBS are
collectively referred to herein as the "Mortgage Assets." If so specified in the
related Prospectus Supplement, the Trust Fund for a series of Certificates may
include letters of credit, insurance policies, guarantees, reserve funds or
other types of credit support, or any combination thereof (with respect to any
series, collectively, "Credit Support"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any series, collectively, "Cash Flow Agreements"). See "Description of the
Trust Funds," "Description of the Certificates" and "Description of Credit
Support."
Each series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon based on
fixed, variable or adjustable rates; (ii) be senior or subordinate to one or
more other classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iv) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (v) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; (vi)
provide for distributions of principal sequentially, based on specified payment
schedules or other methodologies; and/or (vii) provide for distributions based
on a combination of two or more components thereof with one or more of the
characteristics described in this paragraph, to the extent of available funds,
in each case as described in the related Prospectus Supplement. Any such classes
may include classes of Offered Certificates. See "Description of the
Certificates."
(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
December 11, 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.
2
<PAGE>
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended, with respect to the Offered
Certificates. This Prospectus and the Prospectus Supplement relating to each
series of Certificates contain summaries of the material terms of the documents
referred to herein and therein, but do not contain all of the 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.
3
<PAGE>
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.
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT .................................................... 2
AVAILABLE INFORMATION .................................................... 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ........................ 4
SUMMARY OF PROSPECTUS .................................................... 5
RISK FACTORS ............................................................. 13
DESCRIPTION OF THE TRUST FUNDS ........................................... 20
USE OF PROCEEDS .......................................................... 26
YIELD CONSIDERATIONS ..................................................... 27
THE DEPOSITOR ............................................................ 30
DESCRIPTION OF THE CERTIFICATES .......................................... 30
DESCRIPTION OF THE AGREEMENTS ............................................ 38
DESCRIPTION OF CREDIT SUPPORT ............................................ 55
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES ............... 57
CERTAIN FEDERAL INCOME TAX CONSEQUENCES .................................. 74
STATE TAX CONSIDERATIONS ................................................. 98
ERISA CONSIDERATIONS ..................................................... 99
LEGAL INVESTMENT ......................................................... 101
PLAN OF DISTRIBUTION ..................................................... 103
LEGAL MATTERS ............................................................ 103
FINANCIAL INFORMATION .................................................... 103
RATING ................................................................... 104
INDEX OF PRINCIPAL DEFINITIONS ........................................... 105
4
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each series
of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of such series. An Index of Principal
Definitions is included at the end of this Prospectus.
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,
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
warehouse facilities, mini-warehouse
facilities or self-storage facilities,
industrial plants, congregate care
facilities, mixed use or other types of
commercial properties (the "Commercial
Properties"). The term "Mortgaged
Properties" shall refer to Multifamily
Properties or Commercial Properties, or
both.
To the extent described in the related
Prospectus Supplement, some or all of the
Mortgage Loans may also be secured by an
assignment of one or more leases (each, a
"Lease") of one or more lessees (each, a
"Lessee") of all or a portion of the
related Mortgaged Properties. Unless
otherwise specified in the related
Prospectus Supplement, a significant or
the sole source of payments on certain
Commercial Loans (as defined herein) will
be the rental payments due under the
related Leases. In certain circumstances,
with respect to Commercial Properties,
the material terms and conditions of the
related Leases may be set forth in the
related Prospectus Supplement. See
"Description of the Trust Funds--Mortgage
Loans--Leases" and "Risk Factors--Limited
Assets" herein.
The Mortgaged Properties may be located
in any one of the fifty states, the
District of Columbia or the Commonwealth
of Puerto Rico. The Prospectus Supplement
will indicate additional jurisdictions,
if any, in which the Mortgaged Properties
may be located. Unless otherwise provided
in the related Prospectus Supplement, all
Mortgage Loans will have individual
principal balances at origination of not
less than $25,000 and original terms to
maturity of not more than 40 years. All
Mortgage Loans will have been originated
by persons other than the Depositor, and
all Mortgage Assets will have been
purchased, either directly or indirectly,
by the Depositor on or before the date of
initial issuance of the related series of
Certificates. The related Prospectus
Supplement will indicate if any such
persons are affiliates of the Depositor.
Each Mortgage Loan may provide for no
accrual of interest or for accrual of
interest thereon at an interest rate (a
"Mortgage Rate") that is fixed over its
term or that adjusts from time to time,
or that may be converted from an
adjustable to a fixed Mortgage Rate, or
from a fixed to an adjustable Mortgage
Rate, from time to time at the
mortgagor's election, in each case as
described in the related Prospectus
Supplement. Adjustable Mortgage Rates on
the Mortgage Loans in a Trust Fund may be
based on one or more indices. Each
Mortgage Loan may provide for scheduled
payments to maturity, payments that
adjust from time to time to accommodate
changes in the Mortgage Rate or to
reflect the occurrence of certain events,
and may provide for negative amortization
or accelerated amortization, in each case
as described in the related Prospectus
Supplement. Each Mortgage Loan may be
fully amortizing or require a balloon
payment due on its stated maturity date,
in each case as described in the related
Prospectus Supplement. Each Mortgage Loan
may contain prohibitions on prepayment
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
or require payment of a premium or a
yield maintenance penalty in connection
with a prepayment, in each case as
described in the related Prospectus
Supplement. The Mortgage Loans may
provide for payments of principal,
interest or both, on due dates that occur
monthly, quarterly, semi-annually or at
such other interval as is specified in
the related Prospectus Supplement. See
"Description of the Trust Funds--Assets."
(b) Government Securities .......... If so provided in the related Prospectus
Supplement, the Trust Fund may include,
in addition to Mortgage Assets, certain
direct obligations of the United States,
agencies thereof or agencies created
thereby which provide for payment of
interest and/or principal (collectively,
"Government Securities").
(c) Collection Accounts ............ Each Trust Fund will include one or more
accounts established and maintained on
behalf of the Certificateholders into
which the person or persons designated in
the related Prospectus Supplement will,
to the extent described herein and in
such Prospectus Supplement, deposit all
payments and collections received or
advanced with respect to the Mortgage
Assets and other assets in the Trust
Fund. Such an account may be maintained
as an interest bearing or a non-interest
bearing account, and funds held therein
may be held as cash or invested in
certain short-term, investment grade
obligations, in each case as described in
the related Prospectus Supplement. See
"Description of the Agreements--
Certificate Account and Other Collection
Accounts."
(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
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7
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which moneys held in the funds and
accounts established for the related
series will be invested at a specified
rate. The Trust Fund may also include
certain other agreements, such as
interest rate exchange agreements,
interest rate cap or floor agreements,
currency exchange agreements or similar
agreements provided to reduce the effects
of interest rate or currency exchange
rate fluctuations on the Assets or on one
or more classes of Certificates.
(Currency exchange agreements might be
included in the Trust Fund if some or all
of the Mortgage Assets (such as Mortgage
Loans secured by Mortgaged Properties
located outside the United States) were
denominated in a non-United States
currency.) The principal terms of any
such guaranteed investment contract or
other agreement (any such agreement, a
"Cash Flow Agreement"), including,
without limitation, provisions relating
to the timing, manner and amount of
payments thereunder and provisions
relating to the termination thereof, will
be described in the Prospectus Supplement
for the related series. In addition, the
related Prospectus Supplement will
provide certain information with respect
to the obligor under any such Cash Flow
Agreement. The Prospectus Supplement for
any series of Certificates evidencing an
interest in a Trust Fund that includes
MBS will describe any cash flow
agreements that are included as part of
the trust fund evidenced by or providing
security for such MBS. See "Description
of the Trust Funds--Cash Flow
Agreements." Description of Certificates.
Distributions on Certificates ....... Each series of Certificates evidencing an
interest in a Trust Fund that includes
Mortgage Loans as part of its assets will
be issued pursuant to a pooling and
servicing agreement, and each series of
Certificates evidencing an interest in a
Trust Fund that does not include Mortgage
Loans will be issued pursuant to a trust
agreement. Pooling and servicing
agreements and trust agreements are
referred to herein as the "Agreements."
Each series of Certificates will include
one or more classes. Each series of
Certificates (including any class or
classes of Certificates of such series
not offered hereby) will represent in the
aggregate the entire beneficial ownership
interest in the Trust Fund. Each class of
Certificates (other than certain Stripped
Interest Certificates, as defined below)
will have a stated principal amount (a
"Certificate Balance") and (other than
certain Stripped Principal Certificates,
as defined below), will accrue interest
thereon based on a fixed, variable or
adjustable interest rate (a "Pass-Through
Rate"). The related Prospectus Supplement
will specify the Certificate Balance, if
any, and the Pass-Through Rate for each
class of Certificates or, in the case of
a variable or adjustable Pass-Through
Rate, the method for determining the
Pass-Through Rate.
Each series of Certificates will consist
of one or more classes of Certificates
that may (i) provide for the accrual of
interest thereon based on fixed, variable
or adjustable rates; (ii) be senior
(collectively, "Senior Certificates") or
subordinate (col-
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8
<PAGE>
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lectively, "Subordinate Certificates") to
one or more other classes of Certificates
in respect of certain distributions on
the Certificates; (iii) be entitled to
principal distributions, with
disproportionately low, nominal or no
interest distributions (collectively,
"Stripped Principal Certificates"); (iv)
be entitled to interest distributions,
with disproportionately low, nominal or
no principal distributions (collectively,
"Stripped Interest Certificates"); (v)
provide for distributions of accrued
interest thereon commencing only
following the occurrence of certain
events, such as the retirement of one or
more other classes of Certificates of
such series (collectively, "Accrual
Certificates"); (vi) provide for
distributions of principal sequentially,
based on specified payment schedules or
other methodologies; and/or (vii) provide
for distributions based on a combination
of two or more components thereof with
one or more of the characteristics
described in this paragraph, including a
Stripped Principal Certificate component
and a Stripped Interest Certificate
component, to the extent of available
funds, in each case as described in the
related Prospectus Supplement. Any such
classes may include classes of Offered
Certificates. With respect to
Certificates with two or more components,
references herein to Certificate Balance,
notional amount and Pass-Through Rate
refer to the principal balance, if any,
notional amount, if any, and the
Pass-Through Rate, if any, for any such
component.
The Certificates will not be guaranteed
or insured by the Depositor or any of its
affiliates, by any governmental agency or
instrumentality or by any other person,
unless otherwise provided in the related
Prospectus Supplement. See "Risk
Factors--Limited Assets" and "Description
of the Certificates."
(a) Interest ....................... Interest on each class of Offered
Certificates (other than Stripped
Principal Certificates and certain
classes of Stripped Interest
Certificates) of each series will accrue
at the applicable Pass-Through Rate on
the outstanding Certificate Balance
thereof and will be distributed to
Certificateholders as provided in the
related Prospectus Supplement (each of
the specified dates on which
distributions are to be made, a
"Distribution Date"). Distributions with
respect to interest on Stripped Interest
Certificates may be made on each
Distribution Date on the basis of a
notional amount as described in the
related Prospectus Supplement.
Distributions of interest with respect to
one or more classes of Certificates may
be reduced to the extent of certain
delinquencies, losses, prepayment
interest shortfalls, and other
contingencies described herein and in the
related Prospectus Supplement. 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
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9
<PAGE>
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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."
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
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10
<PAGE>
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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
purposes. Certain REMIC Regular
Certificates may be issued with original
issue discount for federal income tax
purposes. See "Certain Federal Income Tax
Consequences" in the Prospectus
Supplement.
A portion (or, in certain cases, all) of
the income from REMIC Residual
Certificates (i) may not be offset by any
losses from other activities of the
holder of such REMIC Residual
Certificates, (ii) may be treated as
unrelated business taxable income for
holders of REMIC Residual Certificates
that are subject to tax on unrelated
business taxable income (as defined in
Section 511 of the Code), and (iii) may
be subject to foreign withholding rules.
See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners
of REMIC Residual Certificates".
The Offered Certificates will be treated
as (i) assets described in section
7701(a)(19)(C) of the Internal Revenue
Code of 1986, as amended (the "Code") and
(ii) "real estate assets" within the
meaning of section 856(c)(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.
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11
<PAGE>
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(b) Grantor Trust .................. If no election is made to treat the Trust
Fund relating to a Series of Certificates
as a real estate mortgage investment
conduit ("REMIC"), the Trust Fund will be
classified as a grantor trust and not as
an association taxable as a corporation
for federal income tax purposes, and
therefore holders of Certificates will be
treated as the owners of undivided pro
rata interests in the Mortgage Pool or
pool of securities and any other assets
held by the Trust Fund.
Investors are advised to consult their
tax advisors and to review "Certain
Federal Income Tax Consequences" herein
and in the related Prospectus Supplement.
ERISA Considerations ................ A fiduciary of an employee benefit plan
or other retirement plan or arrangement,
including an individual retirement
account or annuity or a Keogh plan, and
any collective investment fund or
insurance company general or separate
account in which such plans, accounts,
annuities or arrangements are invested,
that is subject to Title I of the
Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or Section
4975 of the Code should carefully review
with its legal advisors whether the
purchase or holding of Offered
Certificates could give rise to a
transaction that is prohibited or is not
otherwise permissible either under ERISA
or Section 4975 of the Code. See "ERISA
Considerations" herein and in the related
Prospectus Supplement. To the extent
specified in the related Prospectus
Supplement, certain classes of
Certificates may not be transferred
unless the Trustee and the Depositor are
furnished with a letter of
representations or an opinion of counsel
to the effect that such transfer will not
result in a violation of the prohibited
transaction provisions of ERISA and the
Code, will not cause the assets of the
Trust to be deemed "plan assets" for
purposes of ERISA and the Code and will
not subject the Trustee, the Depositor or
the Master Servicer to additional
obligations. See "ERISA Considerations"
herein and in the related Prospectus
Supplement.
Legal Investment .................... The related Prospectus Supplement will
specify whether any class or classes of
the Offered Certificates will constitute
"mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended.
Investors whose investment authority is
subject to legal restrictions should
consult their own legal advisors to
determine whether and to what extent the
Offered Certificates constitute legal
investments for them. See "Legal
Investment" herein and in the related
Prospectus Supplement.
Rating .............................. At the date of issuance, as to each
series, each class of Offered
Certificates will be rated not lower than
investment grade by one or more
nationally recognized statistical rating
agencies (each, a "Rating Agency"). See
"Rating" herein and in the related
Prospectus Supplement.
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12
<PAGE>
RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "Risk Factors" in the related Prospectus
Supplement.
Limited Liquidity
There can be no assurance that a secondary market for the Certificates of
any series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such series
remain outstanding. Any such secondary market may provide less liquidity to
investors than any comparable market for securities evidencing interests in
single family mortgage loans. The market value of Certificates will fluctuate
with changes in prevailing rates of interest. Consequently, sale of Certificates
by a holder in any secondary market that may develop may be at a discount from
100% of their original principal balance or from their purchase price.
Furthermore, secondary market purchasers may look only hereto, to the related
Prospectus Supplement and to the reports to Certificateholders delivered
pursuant to the related Agreement as described herein under the heading
"Description of the Certificates--Reports to Certificateholders", "--Book-Entry
Registration and Definitive Certificates" and "Description of the
Agreements--Evidence as to Compliance" for information concerning the
Certificates. Except to the extent described herein and in the related
Prospectus Supplement, Certificateholders will have no redemption rights and the
Certificates are subject to early retirement only under certain specified
circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination". Morgan Stanley & Co.
Incorporated currently expects to make a secondary market in the Offered
Certificates, but has no obligation to do so.
Limited Assets
The Certificates will not represent an interest in or obligation of the
Depositor, the Master Servicer, or any of their affiliates. The only obligations
with respect to the Certificates or the Assets will be the obligations (if any)
of the Warrantying Party (as defined herein) pursuant to certain limited
representations and warranties made with respect to the Mortgage Loans, the
Master Servicer's, any Special Servicer's and any Sub-Servicer's servicing
obligations under the related Pooling and Servicing Agreement (including the
limited obligation to make certain advances in the event of delinquencies on the
Mortgage Loans, but only to the extent deemed recoverable). Since certain
representations and warranties with respect to the Mortgage Assets may have been
made and/or assigned in connection with transfers of such Mortgage Assets prior
to the Closing Date, the rights of the Trustee and the Certificateholders with
respect to such representations or warranties will be limited to their rights as
an assignee thereof. Unless otherwise specified in the related Prospectus
Supplement, none of the Depositor, the Master Servicer or any affiliate thereof
will have any obligation with respect to representations or warranties made by
any other entity. Unless otherwise specified in the related Prospectus
Supplement, neither the Certificates nor the underlying Mortgage Assets will be
guaranteed or insured by any governmental agency or instrumentality, or by the
Depositor, the Master Servicer, any Special Servicer, any Sub-Servicer or any of
their affiliates. Proceeds of the assets included in the related Trust Fund for
each series of Certificates (including the Assets and any form of credit
enhancement) will be the sole source of payments on the Certificates, and there
will be no recourse to the Depositor or any other entity in the event that such
proceeds are insufficient or otherwise unavailable to make all payments provided
for under the Certificates.
Unless otherwise specified in the related Prospectus Supplement, a series
of Certificates will not have any claim against or security interest in the
Trust Funds for any other series. If the related Trust Fund is insufficient to
make payments on such Certificates, no other assets will be available for
payment of the deficiency. Additionally, certain amounts remaining in certain
funds or accounts, including the Certificate Account and any accounts maintained
as Credit Support, may be withdrawn under certain conditions, as described in
the related Prospectus Supplement. In the event of such withdrawal, such amounts
will not be available for future payment of principal of or interest on the
Certificates. If so provided in the Prospectus Supplement for a series of
Certificates consisting of one or more classes of Subordinate
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<PAGE>
Certificates, on any Distribution Date in respect of which losses or shortfalls
in collections on the Assets have been incurred, the amount of such losses or
shortfalls will be borne first by one or more classes of the Subordinate
Certificates, and, thereafter, by the remaining classes of Certificates in the
priority and manner and subject to the limitations specified in such Prospectus
Supplement.
Average Life of Certificates; Prepayments; Yields
Prepayments (including those caused by defaults) on the Mortgage Assets in
any Trust Fund generally will result in a faster rate of principal payments on
one or more classes of the related Certificates than if payments on such
Mortgage Assets were made as scheduled. Thus, the prepayment experience on the
Mortgage Assets may affect the average life of each class of related
Certificates. The rate of principal payments on pools of mortgage loans varies
between pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax, legal and other factors. There can be no
assurance as to the rate of prepayment on the Mortgage Assets in any Trust Fund
or that the rate of payments will conform to any model described herein or in
any Prospectus Supplement. If prevailing interest rates fall significantly below
the applicable mortgage interest rates, principal prepayments are likely to be
higher than if prevailing rates remain at or above the rates borne by the
Mortgage Loans underlying or comprising the Mortgage Assets in any Trust Fund.
As a result, the actual maturity of any class of Certificates could occur
significantly earlier than expected. A series of Certificates may include one or
more classes of Certificates with priorities of payment and, as a result, yields
on other classes of Certificates, including classes of Offered Certificates, of
such series may be more sensitive to prepayments on Mortgage Assets. A series of
Certificates may include one or more classes offered at a significant premium or
discount. Yields on such classes of Certificates will be sensitive, and in some
cases extremely sensitive, to prepayments on Mortgage Assets and, where the
amount of interest payable with respect to a class is disproportionately high,
as compared to the amount of principal, as with certain classes of Stripped
Interest Certificates, a holder might, in some prepayment scenarios, fail to
recoup its original investment. A series of Certificates may include one or more
classes of Certificates, including classes of Offered Certificates, that provide
for distribution of principal thereof from amounts attributable to interest
accrued but not currently distributable on one or more classes of Accrual
Certificates and, as a result, yields on such Certificates will be sensitive to
(a) the provisions of such Accrual Certificates relating to the timing of
distributions of interest thereon and (b) if such Accrual Certificates accrue
interest at a variable or adjustable Pass-Through Rate, changes in such rate.
See "Yield Considerations" herein and, if applicable, in the related Prospectus
Supplement.
Limited Nature of Ratings
Any rating assigned by a Rating Agency to a class of Certificates will
reflect such Rating Agency's assessment solely of the likelihood that holders of
Certificates of such class will receive payments to which such
Certificateholders are entitled under the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments
(including those caused by defaults) on the related Mortgage Assets will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of the
series of Certificates. Such rating will not address the possibility that
prepayment at higher or lower rates than anticipated by an investor may cause
such investor to experience a lower than anticipated yield or that an investor
purchasing a Certificate at a significant premium might fail to recoup its
initial investment under certain prepayment scenarios. Each Prospectus
Supplement will identify any payment to which holders of Offered Certificates of
the related series are entitled that is not covered by the applicable rating.
The amount, type and nature of credit support, if any, established with
respect to a series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating classes of such series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of credit support required with respect to each
such class. There can be no assurance that the historical data supporting any
such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of mortgage loans accurately
predicts the delinquency,
14
<PAGE>
foreclosure or loss experience of any particular pool of Mortgage Assets. No
assurance can be given that values of any Mortgaged Properties have remained or
will remain at their levels on the respective dates of origination of the
related Mortgage Loans. Moreover, there is no assurance that appreciation of
real estate values generally will limit loss experiences on the Mortgaged
Properties. If the commercial or multifamily residential real estate markets
should experience an overall decline in property values such that the
outstanding principal balances of the Mortgage Loans underlying or comprising
the Mortgage Assets in a particular Trust Fund and any secondary financing on
the related Mortgaged Properties become equal to or greater than the value of
the Mortgaged Properties, the rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced by institutional lenders.
In addition, adverse economic conditions (which may or may not affect real
property values) may affect the timely payment by mortgagors of scheduled
payments of principal and interest 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.
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<PAGE>
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 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."
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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.
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
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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.
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
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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.
Certain Federal Income Tax Considerations Regarding REMIC Residual Certificates
Except as provided in the Prospectus Supplement, REMIC Residual
Certificates, if offered hereunder, are anticipated to have "phantom income"
associated with them. That is, taxable income is anticipated to be allocated to
the REMIC Residual Certificates in the early years of the existence of the
related REMIC, even if the REMIC Residual Certificates receive no distributions
from the related REMIC, with a corresponding amount of losses allocated to the
REMIC Residual Certificates in later years. Accordingly, the present value of
the tax detriments associated with the REMIC Residual Certificates may
significantly exceed the present value of the tax benefits related thereto, and
the REMIC Residual Certificates may have a negative "value." Moreover, the REMIC
Residual Certificates will in effect be allocated an amount of gross income
equal to the non-interest expenses of the REMIC, but such expenses will be
deductible by holders of the REMIC Residual Certificates that are individuals
only as itemized deductions (and be subject to all the limitations applicable to
itemized deductions). Accordingly, investment in the REMIC Residual Certificates
will generally not be suitable for individuals or for certain pass-through
entities, such as partnerships or S corporations, that have individuals as
partners or shareholders. In addition, REMIC Residual Certificates are subject
to certain restrictions on transfer. Finally, prospective purchasers of a REMIC
Residual Certificate should be aware that recently issued 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
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not be registered in the names of the Certificateholders or their nominees.
Because of this, unless and until Definitive Certificates are issued,
Certificateholders will not be recognized by the Trustee as "Certificateholders"
(as that term is to be used in the related Agreement). Hence, until such time,
Certificateholders will be able to exercise the rights of Certificateholders
only indirectly through DTC and its participating organizations. See
"Description of the Certificates--Book-Entry Registration and Definitive
Certificates."
DESCRIPTION OF THE TRUST FUNDS
Assets
The primary assets of each Trust Fund (the "Assets") will include (i)
multifamily and/or commercial mortgage loans (the "Mortgage Loans"), (ii)
mortgage participations, pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by one or more Mortgage Loans or
other similar participations, certificates or securities ("MBS"), (iii) direct
obligations of the United States, agencies thereof or agencies created thereby
which are not subject to redemption prior to maturity at the option of the
issuer and are (a) interest-bearing securities, (b) non-interest-bearing
securities, (c) originally interest-bearing securities from which coupons
representing the right to payment of interest have been removed, or (d)
interest-bearing securities from which the right to payment of principal has
been removed (the "Government Securities"), or (iv) a combination of Mortgage
Loans, MBS and Government Securities. As used herein, "Mortgage Loans" refers to
both whole Mortgage Loans and Mortgage Loans underlying MBS. Mortgage Loans that
secure, or interests in which are evidenced by, MBS are herein sometimes
referred to as Underlying Mortgage Loans. Mortgage Loans that are not Underlying
Mortgage Loans are sometimes referred to as "Whole Loans." Any mortgage
participations, pass-through certificates or other asset-backed certificates in
which an MBS evidences an interest or which secure an MBS are sometimes referred
to herein also as MBS or as "Underlying MBS." Mortgage Loans and MBS are
sometimes referred to herein as "Mortgage Assets." The Mortgage Assets will not
be guaranteed or insured by Morgan Stanley Capital I Inc. (the "Depositor") or
any of its affiliates or, unless otherwise provided in the Prospectus
Supplement, by any governmental agency or instrumentality or by any other
person. Each Asset will be selected by the Depositor for inclusion in a Trust
Fund from among those purchased, either directly or indirectly, from a prior
holder thereof (an "Asset Seller"), which may be an affiliate of the Depositor
and, with respect to Mortgage Assets, which prior holder may or may not be the
originator of such Mortgage Loan or the issuer of such MBS.
Unless otherwise specified in the related Prospectus Supplement, the
Certificates will be entitled to payment only from the assets of the related
Trust Fund and will not be entitled to payments in respect of the assets of any
other trust fund established by the Depositor. If specified in the related
Prospectus Supplement, the assets of a Trust Fund will consist of certificates
representing beneficial ownership interests in another trust fund that contains
the Assets.
Mortgage Loans
General
The Mortgage Loans will be secured by liens on, or security interests in,
Mortgaged Properties consisting of (i) residential properties consisting of five
or more rental or cooperatively-owned dwelling units in high-rise, mid-rise or
garden apartment buildings ("Multifamily Properties" and the related loans,
"Multifamily Loans") or (ii) office buildings, shopping centers, retail stores,
hotels or motels, nursing homes, hospitals or other health care-related
facilities, mobile home parks, warehouse facilities, mini-warehouse facilities
or self-storage facilities, industrial plants, congregate care facilities, mixed
use or other types of commercial properties ("Commercial Properties" and the
related loans, "Commercial Loans") located, unless otherwise specified in the
related Prospectus 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
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apartment buildings owned by private cooperative housing corporations
("Cooperatives"). The Mortgaged Properties may include leasehold interests in
properties, the title to which is held by third party lessors. Unless otherwise
specified in the Prospectus Supplement, the term of any such leasehold will
exceed the term of the related mortgage note by at least five years. Each
Mortgage Loan will have been originated by a person (the "Originator") other
than the Depositor. The related Prospectus Supplement will indicate if any
Originator is an affiliate of the Depositor. The Mortgage Loans will be
evidenced by promissory notes (the "Mortgage Notes") secured by mortgages or
deeds of trust (the "Mortgages") creating a lien on the Mortgaged Properties.
Mortgage Loans will generally also be secured by an assignment of leases and
rents and/or operating or other cash flow guarantees relating to the Mortgage
Loan.
Leases
To the extent specified in the related Prospectus Supplement, the
Commercial Properties may be leased to Lessees that respectively occupy all or a
portion of such properties. Pursuant to a Lease Assignment, the related
mortgagor may assign its rights, title and interest as lessor under each Lease
and the income derived therefrom to the related mortgagee, while retaining a
license to collect the rents for so long as there is no default. If the
mortgagor defaults, the license terminates and the mortgagee or its agent is
entitled to collect the rents from the related Lessee or Lessees for application
to the monetary obligations of the mortgagor. State law may limit or restrict
the enforcement of the Lease Assignments by a mortgagee until it takes
possession of the related Mortgaged Property and/or a receiver is appointed. See
"Certain Legal Aspects of the Mortgage Loans and the Leases--Leases and Rents."
Alternatively, to the extent specified in the related Prospectus Supplement, the
mortgagor and the mortgagee may agree that payments under Leases are to be made
directly to the Master Servicer.
To the extent described in the related Prospectus Supplement, the Leases
may require the Lessees to pay rent that is sufficient in the aggregate to cover
all scheduled payments of principal and interest on the related Mortgage Loans
and, in certain cases, their pro rata share of the operating expenses, insurance
premiums and real estate taxes associated with the Mortgaged Properties. Certain
of the Leases may require the mortgagor to bear costs associated with structural
repairs and/or the maintenance of the exterior or other portions of the
Mortgaged Property or provide for certain limits on the aggregate amount of
operating expenses, insurance premiums, taxes and other expenses that the
Lessees are required to pay. If so specified in the related Prospectus
Supplement, under certain circumstances the Lessees may be permitted to set off
their rental obligations against the obligations of the mortgagors under the
Leases. In those cases where payments under the Leases (net of any operating
expenses payable by the mortgagors) are insufficient to pay all of the scheduled
principal and interest on the related Mortgage Loans, the mortgagors must rely
on other income or sources (including security deposits) generated by the
related Mortgaged Property to make payments on the related Mortgage Loan. To the
extent specified in the related Prospectus Supplement, some Commercial
Properties may be leased entirely to one Lessee. In such cases, absent the
availability of other funds, the mortgagor must rely entirely on rent paid by
such Lessee in order for the mortgagor to pay all of the scheduled principal and
interest on the related Commercial Loan. To the extent specified in the related
Prospectus Supplement, certain of the Leases may expire prior to the stated
maturity of the related Mortgage Loan. In such cases, upon expiration of the
Leases the mortgagors will have to look to alternative sources of income,
including rent payment by any new Lessees or proceeds from the sale or
refinancing of the Mortgaged Property, to cover the payments of principal and
interest due on such Mortgage Loans unless the Lease is renewed. As specified in
the related Prospectus Supplement, certain of the Leases may provide that upon
the occurrence of a casualty affecting a Mortgaged Property, the Lessee will
have the right to terminate its Lease, unless the mortgagor, as lessor, is able
to cause the Mortgaged Property to be restored within a specified period of
time. Certain Leases may provide that it is the lessor's responsibility, while
other Leases provide that it is the Lessee's responsibility, to restore the
Mortgaged Property after a casualty to its original condition. Certain Leases
may provide a right of termination to the related Lessee if a taking of a
material or specified percentage of the leased space in the Mortgaged Property
occurs, or if the ingress or egress to the leased space has been materially
impaired.
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Default and Loss Considerations with Respect to the Mortgage Loans
Mortgage loans secured by commercial and multifamily properties are
markedly different from owner-occupied single family mortgage loans. The
repayment of loans secured by commercial or multifamily properties is typically
dependent upon the successful operation of such property rather than upon the
liquidation value of the real estate. Unless otherwise specified in the
Prospectus Supplement, the Mortgage Loans will be non-recourse loans, which
means that, absent special facts, the mortgagee may look only to the Net
Operating Income from the property for repayment of the mortgage debt, and not
to any other of the mortgagor's assets, in the event of the mortgagor's default.
Lenders typically look to the Debt Service Coverage Ratio of a loan secured by
income-producing property as an important measure of the risk of default on such
a loan. The "Debt Service Coverage Ratio" of a Mortgage Loan at any given time
is the ratio of the Net Operating Income for a twelve-month period to the
annualized scheduled payments on the Mortgage Loan. "Net Operating Income"
means, for any given period, unless otherwise specified in the related
Prospectus Supplement, the total operating revenues derived from a Mortgaged
Property during such period, minus the total operating expenses incurred in
respect of such Mortgaged Property during such period other than (i) non-cash
items such as depreciation and amortization, (ii) capital expenditures and (iii)
debt service on loans secured by the Mortgaged Property. The Net Operating
Income of a Mortgaged Property will fluctuate over time and may be sufficient or
insufficient to cover debt service on the related Mortgage Loan at any given
time.
As the primary component of Net Operating Income, rental income (as well as
maintenance payments from tenant-stockholders of a Cooperative) is subject to
the vagaries of the applicable real estate market and/or business climate.
Properties typically leased, occupied or used on a short-term basis, such as
health care-related facilities, hotels and motels, and mini-warehouse and
self-storage facilities, tend to be affected more rapidly by changes in market
or business conditions than do properties leased, occupied or used for longer
periods, such as (typically) warehouses, retail stores, office buildings and
industrial plants. Commercial Loans may be secured by owner-occupied Mortgaged
Properties or Mortgaged Properties leased to a single tenant. Accordingly, a
decline in the financial condition of the mortgagor or single tenant, as
applicable, may have a disproportionately greater effect on the Net Operating
Income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants.
Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal property
tax rates and other operating expenses, including energy costs; changes in
governmental rules, regulations and fiscal policies, including environmental
legislation; and acts of God may also affect the risk of default on the related
Mortgage Loan. As may be further described in the related Prospectus Supplement,
in some cases leases of Mortgaged Properties may provide that the Lessee, rather
than the mortgagor, is responsible for payment of some or all of these expenses;
however, because leases are subject to default risks as well when a tenant's
income is insufficient to cover its rent and operating expenses, the existence
of such "net of expense" provisions will only temper, not eliminate, the impact
of expense increases on the performance of the related Mortgage Loan. See
"--Leases" above.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
such risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the latter
include mortgage loans secured by health care-related facilities and hospitals,
the income from which and the operating expenses of which are subject to state
and/or federal regulations, such as Medicare and Medicaid, and multifamily
properties and mobile home parks, which may be subject to state or local rent
control regulation and, in certain cases, restrictions on changes in use of the
property. Low- and moderate-income housing in particular may be subject to legal
limitations and regulations but, because of such regulations, may also be less
sensitive to fluctuations in market rents generally.
The Debt Service Coverage Ratio should not be relied upon as the sole
measure of the risk of default of any loan, however, since other factors may
outweigh a high Debt Service Coverage Ratio. With respect
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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.
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
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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.
MBS
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, a trust agreement, an indenture or
similar agreement (an "MBS Agreement"). A seller (the "MBS Issuer") and/or
servicer (the "MBS Servicer") of the underlying Mortgage Loans (or Underlying
MBS) will have entered into the MBS Agreement with a trustee or a custodian
under the MBS Agreement (the "MBS Trustee"), if any, or with the original
purchaser of the interest in the underlying Mortgage Loans or MBS evidenced by
the MBS.
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Distributions of any principal or interest, as applicable, will be made on
MBS on the dates specified in the related Prospectus Supplement. The MBS may be
issued in one or more classes with characteristics similar to the classes of
Certificates described in this Prospectus. Any principal or interest
distributions will be made on the MBS by the MBS Trustee or the MBS Servicer.
The MBS Issuer or the MBS Servicer or another person specified in the related
Prospectus Supplement may have the right or obligation to repurchase or
substitute assets underlying the MBS after a certain date or under other
circumstances specified in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination or other forms of
credit support similar to that described for the Certificates under "Description
of Credit Support" may be provided with respect to the MBS. The type,
characteristics and amount of such credit support, if any, will be a function of
certain characteristics of the Mortgage Loans or Underlying MBS evidenced by or
securing such MBS and other factors and generally will have been established for
the MBS on the basis of requirements of either any Rating Agency that may have
assigned a rating to the MBS or the initial purchasers of the MBS.
The Prospectus Supplement for a series of Certificates evidencing interests
in Mortgage Assets that include MBS will specify, to the extent available, (i)
the aggregate approximate initial and outstanding principal amount or notional
amount, as applicable, and type of the MBS to be included in the Trust Fund,
(ii) the original and remaining term to stated maturity of the MBS, if
applicable, (iii) whether such MBS is entitled only to interest payments, only
to principal payments or to both, (iv) the pass-through or bond rate of the MBS
or formula for determining such rates, if any, (v) the applicable payment
provisions for the MBS, including, but not limited to, any priorities, payment
schedules and subordination features, (vi) the MBS Issuer, MBS Servicer and MBS
Trustee, as applicable, (vii) certain characteristics of the credit support, if
any, such as subordination, reserve funds, insurance policies, letters of credit
or guarantees relating to the related Underlying Mortgage Loans, the Underlying
MBS or directly to such MBS, (viii) the terms on which the related Underlying
Mortgage Loans or Underlying MBS for such MBS or the MBS may, or are required
to, be purchased prior to their maturity, (ix) the terms on which Mortgage Loans
or Underlying MBS may be substituted for those originally underlying the MBS,
(x) the servicing fees payable under the MBS Agreement, (xi) the type of
information in respect of the Underlying Mortgage Loans described under
"--Mortgage Loans--Mortgage Loan Information in Prospectus Supplements" above,
and the type of information in respect of the Underlying MBS described in this
paragraph, (xii) the characteristics of any cash flow agreements that are
included as part of the trust fund evidenced or secured by the MBS and (xiii)
whether the MBS is in certificated form, book-entry form or held through a
depository such as The Depository Trust Company or the Participants Trust
Company.
Government Securities
The Prospectus Supplement for a series of Certificates evidencing interests
in Assets of a Trust Fund that include Government Securities will specify, to
the extent available, (i) the aggregate approximate initial and outstanding
principal amounts or notional amounts, as applicable, and types of the
Government Securities to be included in the Trust Fund, (ii) the original and
remaining terms to stated maturity of the Government Securities, (iii) whether
such Government Securities are entitled only to interest payments, only to
principal payments or to both, (iv) the interest rates of the Government
Securities or the formula to determine such rates, if any, (v) the applicable
payment provisions for the Government Securities and (vi) to what extent, if
any, the obligation evidenced thereby is backed by the full faith and credit of
the United States.
Accounts
Each Trust Fund will include one or more accounts established and
maintained on behalf of the Certificateholders into which the person or persons
designated in the related Prospectus Supplement will, to the extent described
herein and in such Prospectus Supplement deposit all payments and collections
received or advanced with respect to the Assets and other assets in the Trust
Fund. Such an account may be maintained as an interest bearing or a non-interest
bearing account, and funds held therein may be held as cash or invested in
certain short-term, investment grade obligations, in each case as described in
the related Prospectus Supplement. See "Description of the
Agreement--Certificate Account and Other Collection Accounts."
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Credit Support
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Assets in the related
Trust Fund may be provided to one or more classes of Certificates in the related
series in the form of subordination of one or more other classes of Certificates
in such series or by one or more other types of credit support, such as a letter
of credit, insurance policy, guarantee, reserve fund or another type of credit
support, or a combination thereof (any such coverage with respect to the
Certificates of any series, "Credit Support"). The amount and types of coverage,
the identification of the entity providing the coverage (if applicable) and
related information with respect to each type of Credit Support, if any, will be
described in the Prospectus Supplement for a series of Certificates. See "Risk
Factors--Credit Support Limitations" and "Description of Credit Support."
Cash Flow Agreements
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to reduce the
effects of interest rate or currency exchange rate fluctuations on the Assets or
on one or more classes of Certificates. (Currency exchange agreements might be
included in the Trust Fund if some or all of the Mortgage Assets (such as
Mortgage Loans secured by Mortgaged Properties located outside the United
States) were denominated in a non-United States currency.) The principal terms
of any such guaranteed investment contract or other agreement (any such
agreement, a "Cash Flow Agreement"), including, without limitation, provisions
relating to the timing, manner and amount of payments thereunder and provisions
relating to the termination thereof, will be described in the Prospectus
Supplement for the related series. In addition, the related Prospectus
Supplement will provide certain information with respect to the obligor under
any such Cash Flow Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor to the purchase of Assets and to pay for certain
expenses incurred in connection with such purchase of Assets and sale of
Certificates. The Depositor expects to sell the Certificates from time to time,
but the timing and amount of offerings of Certificates will depend on a number
of factors, including the volume of Assets acquired by the Depositor, prevailing
interest rates, availability of funds and general market conditions.
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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
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higher or lower than certain of the underlying Mortgage Loans. The rate of
principal payments on some or all of the classes of Certificates of a series
will correspond to the rate of principal payments on the Assets in the related
Trust Fund and is likely to be affected by the existence of Lock-out Periods and
Prepayment Premium provisions of the Mortgage Loans underlying or comprising
such Assets, and by the extent to which the servicer of any such Mortgage Loan
is able to enforce such provisions. Mortgage Loans with a Lock-out Period or a
Prepayment Premium provision, to the extent enforceable, generally would be
expected to experience a lower rate of principal prepayments than otherwise
identical Mortgage Loans without such provisions, with shorter Lock-out Periods
or with lower Prepayment Premiums.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Assets, the
actual yield to maturity will be lower than that so calculated. Conversely, if
the purchaser of a Certificate offered at a premium calculates its anticipated
yield to maturity based on an assumed rate of distributions of principal that is
slower than that actually experienced on the Assets, the actual yield to
maturity will be lower than that so calculated. In either case, if so provided
in the Prospectus Supplement for a series of Certificates, the effect on yield
on one or more 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
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average life of a class of Certificates of a series will be influenced by the
rate at which principal on the Mortgage Loans comprising or underlying the
Mortgage Assets is paid to such class, which may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
prepayments, in whole or in part, and liquidations due to default).
In addition, the weighted average life of the Certificates may be affected
by the varying maturities of the Mortgage Loans comprising or underlying the
MBS. If any Mortgage Loans comprising or underlying the Assets in a particular
Trust Fund have actual terms to maturity of less than those assumed in
calculating final scheduled Distribution Dates for the classes of Certificates
of the related series, one or more classes of such Certificates may be fully
paid prior to their respective final scheduled Distribution Dates, even in the
absence of prepayments. Accordingly, the prepayment experience of the Assets
will, to some extent, be a function of the mix of Mortgage Rates and maturities
of the Mortgage Loans comprising or underlying such Assets. See "Description of
the Trust Funds."
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment
model. CPR represents a constant assumed rate of prepayment each month relative
to the then outstanding principal balance of a pool of loans for the life of
such loans.
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.
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Foreclosures and Payment Plans
The number of foreclosures and the principal amount of the Mortgage Loans
comprising or underlying the Mortgage Assets that are foreclosed in relation to
the number and principal amount of Mortgage Loans that are repaid in accordance
with their terms will affect the weighted average life of the Mortgage Loans
comprising or underlying the Mortgage Assets and that of the related series of
Certificates. Servicing decisions made with respect to the Mortgage Loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of Mortgage Loans in bankruptcy proceedings, may also have an
effect upon the payment patterns of particular Mortgage Loans and thus the
weighted average life of the Certificates.
Due-on-Sale and Due-on-Encumbrance Clauses
Acceleration of mortgage payments as a result of certain transfers of or
the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of the
Mortgage Loans comprising or underlying the Assets may include "due-on-sale"
clauses or "due-on-encumbrance" clauses that allow the holder of the Mortgage
Loans to demand payment in full of the remaining principal balance of the
Mortgage Loans upon sale or certain other transfers of or the creation of
encumbrances upon the related Mortgaged Property. With respect to any Whole
Loans, unless otherwise provided in the related Prospectus Supplement, the
Master 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
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will be exchangeable for other Certificates of the same class and series of a
like aggregate Certificate Balance, notional amount or percentage interest but
of different authorized denominations. See "Risk Factors--Limited Liquidity" and
"Limited Assets."
Distributions
Distributions on the Certificates of each series will be made by or on
behalf of the Trustee on each Distribution Date as specified in the related
Prospectus Supplement from the Available Distribution Amount for such series and
such Distribution Date. Except as otherwise specified in the related Prospectus
Supplement, distributions (other than the final distribution) will be made to
the persons in whose names the Certificates are registered at the close of
business on the last business day of the month preceding the month in which the
Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date
specified in the related Prospectus Supplement (the "Determination Date"). All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such class
or by random selection, as described in the related Prospectus Supplement or
otherwise established by the related Trustee. Payments will be made either by
wire transfer in immediately available funds to the account of a
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has so notified the Trustee or other person
required to make such payments no later than the date specified in the related
Prospectus Supplement (and, if so provided in the related Prospectus Supplement,
holds Certificates in the requisite amount specified therein), or by check
mailed to the address of the person entitled thereto as it appears on the
Certificate Register; provided, however, that the final distribution in
retirement of the Certificates (whether Definitive Certificates or Book-Entry
Certificates) will be made only upon presentation and surrender of the
Certificates at the location specified in the notice to Certificateholders of
such final distribution.
Available Distribution Amount
All distributions on the Certificates of each series on each Distribution
Date will be made from the Available Distribution Amount described below, in
accordance with the terms described in the related Prospectus Supplement. Unless
provided otherwise in the related Prospectus Supplement, the "Available
Distribution Amount" for each Distribution Date equals the sum of the following
amounts:
(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
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(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
(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
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amount of Accrued Certificate Interest that is otherwise distributable on (or,
in the case of Accrual Certificates, that may otherwise be added to the
Certificate Balance of) a class of Offered Certificates may be reduced as a
result of any other contingencies, including delinquencies, losses and deferred
interest on or in respect of the Mortgage Loans comprising or underlying the
Mortgage Assets in the related Trust Fund. Unless otherwise provided in the
related Prospectus Supplement, any reduction in the amount of Accrued
Certificate Interest otherwise distributable on a class of Certificates by
reason of the allocation to such class of a portion of any deferred interest on
the Mortgage Loans comprising or underlying the Mortgage Assets in the related
Trust Fund will result in a corresponding increase in the Certificate Balance of
such class. See "Risk Factors--Average Life of Certificates; Prepayments;
Yields" and "Yield Considerations."
Distributions of Principal of the Certificates
The Certificates of each series, other than certain classes of Stripped
Interest Certificates, will have a "Certificate Balance" which, at any time,
will equal the then maximum amount that the holder will be entitled to receive
in respect of principal out of the future cash flow on the Assets and other
assets included in the related Trust Fund. The outstanding Certificate Balance
of a Certificate will be reduced to the extent of distributions of principal
thereon from time to time and, if and to the extent so provided in the related
Prospectus Supplement, by the amount of losses incurred in respect of the
related Assets, may be increased in respect of deferred interest on the related
Mortgage Loans to the extent provided in the related Prospectus Supplement and,
in the case of Accrual Certificates prior to the Distribution Date on which
distributions of interest are required to commence, will be increased by any
related Accrued Certificate Interest. Unless otherwise provided in the related
Prospectus Supplement, the initial aggregate Certificate Balance of all classes
of Certificates of a series will not be greater than the outstanding aggregate
principal balance of the related Assets as of the applicable Cut-off Date. The
initial aggregate Certificate 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.
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Advances in Respect of Delinquencies
With respect to any series of Certificates evidencing an interest in a
Trust Fund, unless otherwise provided in the related Prospectus Supplement, the
Master Servicer or another entity described therein will be required as part of
its servicing responsibilities to advance on or before each Distribution Date
its own funds or funds held in the Certificate Account that are not included in
the Available Distribution Amount for such Distribution Date, in an amount equal
to the aggregate of payments of principal (other than any balloon payments) and
interest (net of related servicing fees and Retained Interest) that were due on
the Whole Loans in such Trust Fund during the related Due Period and were
delinquent on the related Determination Date, subject to the Master Servicer's
(or another entity's) good faith determination that such advances will be
reimbursable from Related Proceeds (as defined below). In the case of a series
of Certificates that includes one or more classes of Subordinate Certificates
and if so provided in the related Prospectus Supplement, the Master Servicer's
(or another entity's) advance obligation may be limited only to the portion of
such delinquencies necessary to make the required distributions on one or more
classes of Senior Certificates and/or may be subject to the Master Servicer's
(or another entity's) good faith determination that such advances will be
reimbursable not only from Related Proceeds but also from collections on other
Assets otherwise distributable on one or more classes of such Subordinate
Certificates. See "Description of Credit Support."
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of Certificates entitled
thereto, rather than to guarantee or insure against losses. Unless otherwise
provided in the related Prospectus Supplement, advances of the Master Servicer's
(or another entity's) funds will be reimbursable only out of related recoveries
on the Mortgage Loans (including amounts received under any form of Credit
Support) respecting which such advances were made (as to any Mortgage Loan,
"Related Proceeds") and, if so provided in the Prospectus Supplement, out of any
amounts otherwise distributable on one or more classes of Subordinate
Certificates of such series; provided, however, that any such advance will be
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:
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(i) the amount of such distribution to holders of Certificates of such
class applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of Certificates of such
class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to (a) Prepayment Premiums
and (b) payments on account of Equity Participations;
(iv) the amount of related servicing compensation received by a Master
Servicer (and, if payable directly out of the related Trust Fund, by any Special
Servicer and any Sub-Servicer) and such other customary information as any such
Master Servicer or the Trustee deems necessary or desirable, or that a
Certificateholder reasonably requests, to enable Certificateholders to prepare
their tax returns;
(v) the aggregate amount of advances included in such distribution, and the
aggregate amount of unreimbursed advances at the close of business on such
Distribution Date;
(vi) the aggregate principal balance of the Assets at the close of business
on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans in respect
of which (a) one scheduled payment is delinquent, (b) two scheduled payments are
delinquent, (c) three or more scheduled payments are delinquent and (d)
foreclosure proceedings have been commenced;
(viii) with respect to each Whole Loan that is delinquent two or more
months, (a) the loan number thereof, (b) the unpaid balance thereof, (c) whether
the delinquency is in respect of any balloon payment, (d) the aggregate amount
of unreimbursed servicing expenses and unreimbursed advances in respect thereof,
(e) if applicable, the aggregate amount of any interest accrued and payable on
related servicing expenses and related advances assuming such Mortgage Loan is
subsequently liquidated through foreclosure, (f) whether a notice of
acceleration has been sent to the mortgagor and, if so, the date of such notice,
(g) whether foreclosure 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
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Distribution Date, separately identifying any reduction in such Certificate
Balance due to the allocation of any loss and increase in the Certificate
Balance of a class of Accrual Certificates in the event that Accrued Certificate
Interest has been added to such balance;
(xv) the aggregate amount of principal prepayments made during the related
Due Period;
(xvi) the amount deposited in the reserve fund, if any, on such
Distribution Date;
(xvii) the amount remaining in the reserve fund, if any, as of the close of
business on such Distribution Date;
(xviii) the aggregate unpaid Accrued Certificate Interest, if any, on each
class of Certificates at the close of business on such Distribution Date;
(xix) in the case of Certificates with a variable Pass-Through Rate, the
Pass-Through Rate applicable to such Distribution Date, and, if available, the
immediately succeeding Distribution Date, as calculated in accordance with the
method specified in the related Prospectus Supplement;
(xx) in the case of Certificates with an adjustable Pass-Through Rate, for
statements to be distributed in any month in which an adjustment date occurs,
the adjustable Pass-Through Rate applicable to such Distribution Date and the
immediately succeeding Distribution Date as calculated in accordance with the
method specified in the related Prospectus Supplement;
(xxi) as to any series which includes Credit Support, the amount of
coverage of each instrument of Credit Support included therein as of the close
of business on such Distribution Date; and
(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,
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will the trust created by the Agreement continue beyond the date specified in
the related Prospectus Supplement. Written notice of termination of the
Agreement will be given to each Certificateholder, and the final distribution
will be made only upon presentation and surrender of the Certificates at the
location to be specified in the notice of termination.
If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the repurchase
of the assets in the related Trust Fund by the party specified therein, under
the circumstances and in the manner set forth therein. If so provided in the
related Prospectus Supplement, upon the reduction of the Certificate Balance of
a specified class or classes of Certificates by a specified percentage or
amount, the party specified therein will solicit bids for the purchase of all
assets of the Trust Fund, or of a sufficient portion of such assets to retire
such class or classes or purchase such class or classes at a price set forth in
the related Prospectus Supplement, in each case, under the circumstances and in
the manner set forth therein.
Book-Entry Registration and Definitive Certificates
If so provided in the related Prospectus Supplement, one or more classes of
the Offered Certificates of any series will be issued as Book-Entry
Certificates, and each such class will be represented by one or more single
Certificates registered in the name of a nominee for the depository, The
Depository Trust Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes in their accounts, thereby eliminating the need
for physical movement of certificates. Participants include Morgan Stanley & Co.
Incorporated, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to 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.
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DTC has advised the Depositor that it will take any action permitted to be
taken by a Certificateholder under an Agreement only at the direction of one or
more Participants to whose account with DTC interests in the Book-Entry
Certificates are credited.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Certificate Owners or their nominees
("Definitive Certificates"), rather than to DTC or its nominee only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to properly discharge its responsibilities as depository with respect to the
Certificates and the Depositor is unable to locate a qualified successor or (ii)
the Depositor, at its option, elects to terminate the book-entry system through
DTC.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Certificate Owners.
Upon surrender by DTC of the certificate or certificates representing the
Book-Entry Certificates, together with instructions for reregistration, the
Trustee will issue (or cause to be issued) to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
DESCRIPTION OF THE AGREEMENTS
The Certificates of each series evidencing interests in a Trust Fund
including Whole Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer, any Special Servicer appointed
as of the date of the Pooling and Servicing Agreement and the Trustee. The
Certificates of each series evidencing interests in a Trust Fund not including
Whole Loans will be issued pursuant to a Trust Agreement between the Depositor
and a Trustee. Any Master Servicer, any such Special Servicer and the Trustee
with respect to any series of Certificates will be named in the related
Prospectus Supplement. In lieu of appointing a Master Servicer, a servicer may
be appointed pursuant to the Pooling and Servicing Agreement for any Trust Fund.
Such servicer will service all or a significant number of Whole Loans directly
without a Sub-Servicer. Unless otherwise specified in the related Prospectus
Supplement, the obligations of any such servicer shall be commensurate with
those of the Master Servicer described herein. References in this prospectus to
Master Servicer and its rights and 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
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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.
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.
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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 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
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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 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
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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 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,
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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;
(vi) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments with respect to, and for containment, clean-up or
remediation of hazardous wastes, substances and materials on, Mortgaged
Properties securing defaulted Whole Loans as described under "Realization Upon
Defaulted Whole Loans";
(vii) to reimburse a Master Servicer, the Depositor, or any of their
respective directors, officers, employees and agents, as the case may be, for
certain expenses, costs and liabilities incurred thereby, as and to the extent
described under "Certain Matters Regarding a Master Servicer and the Depositor";
(viii) if and to the extent described in the related Prospectus Supplement,
to pay (or to transfer to a separate account for purposes of escrowing for the
payment of) the Trustee's fees;
(ix) to reimburse the Trustee or any of its directors, officers, employees
and agents, as the case may be, for certain expenses, costs and liabilities
incurred thereby, as and to the extent described under "Certain Matters
Regarding the Trustee";
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(x) unless otherwise provided in the related Prospectus Supplement, to pay
a Master Servicer, as additional servicing compensation, interest and investment
income earned in respect of amounts held in the Certificate Account;
(xi) to pay the person entitled thereto any amounts deposited in the
Certificate Account that were identified and applied by the Master Servicer as
recoveries of Retained Interest;
(xii) to pay for costs reasonably incurred in connection with the proper
operation, management and maintenance of any Mortgaged Property acquired for the
benefit of Certificateholders by foreclosure or by deed in lieu of foreclosure
or otherwise, such payments to be made out of income received on such property;
(xiii) if one or more elections have been made to treat the Trust Fund or
designated portions thereof as a REMIC, to pay any federal, state or local taxes
imposed on the Trust Fund or its assets or transactions, as and to the extent
described under "Certain Federal Income Tax Consequences--REMICS--Prohibited
Transactions Tax and Other Taxes";
(xiv) to pay for the cost of an independent appraiser or other expert in
real estate matters retained to determine a fair sale price for a defaulted
Whole Loan or a property acquired in respect thereof in connection with the
liquidation of such Whole Loan or property;
(xv) to pay for the cost of various opinions of counsel obtained pursuant
to the related Agreement for the benefit of Certificateholders;
(xvi) to pay for the costs of recording the related Agreement if such
recordation materially and beneficially affects the interests of
Certificateholders, provided that such payment shall not constitute a waiver
with respect to the obligation of the Warrantying Party to remedy any breach of
representation or warranty under the Agreement;
(xvii) to pay the person entitled thereto any amounts deposited in the
Certificate Account in error, including amounts received on any Asset after its
removal from the Trust Fund whether by reason of purchase or substitution as
contemplated by "Assignment of Assets; Repurchase" and "Representations and
Warranties; Repurchases" or otherwise;
(xviii) to make any other withdrawals permitted by the related Agreement
and described in the related Prospectus Supplement; and
(xix) to clear and terminate the Certificate Account at the termination of
the Trust Fund.
Other Collection Accounts
Notwithstanding the foregoing, if so specified in the related Prospectus
Supplement, the Agreement for any series of Certificates may provide for the
establishment and maintenance of a separate collection account into which 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
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insurance policy or instrument of Credit Support included in the related Trust
Fund described herein or under "Description of Credit Support," (ii) applicable
law and (iii) the general servicing standard specified in the related Prospectus
Supplement or, if no such standard is so specified, its normal servicing
practices (in either case, the "Servicing Standard"). In connection therewith,
the Master Servicer will be permitted in its discretion to waive any late
payment charge or penalty interest in respect of a late Whole Loan payment.
Each Master Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining (or causing
the mortgagor or Lessee on each Mortgage or Lease to maintain) hazard, business
interruption and general liability insurance policies (and, if applicable,
rental interruption policies) as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder; maintaining escrow or
impoundment accounts of mortgagors for payment of taxes, insurance and other
items required to be paid by any mortgagor pursuant to the Whole Loan;
processing assumptions or substitutions in those cases where the Master Servicer
has determined not to enforce any applicable due-on-sale clause; attempting to
cure delinquencies; supervising foreclosures; inspecting and managing Mortgaged
Properties under certain circumstances; and maintaining accounting records
relating to the Whole Loans. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer will be responsible for filing and
settling claims in respect of particular Whole Loans under any applicable
instrument of Credit Support. See "Description of Credit Support."
The Master Servicer may agree to modify, waive or amend any term of any
Whole Loan in a manner consistent with the Servicing Standard so long as the
modification, waiver or amendment will not (i) affect the amount or timing of
any scheduled payments of principal or interest on the Whole Loan or (ii) in its
judgment, materially impair the security for the Whole Loan or reduce the
likelihood of timely payment of amounts due thereon. The Master Servicer also
may agree to any modification, waiver or amendment that would so affect or
impair the payments on, or the security for, a Whole Loan if, unless otherwise
provided in the related Prospectus Supplement, (i) in its judgment, a material
default on the Whole Loan has occurred or a payment default is imminent and (ii)
in its judgment, such modification, waiver or amendment is reasonably likely to
produce a greater recovery with respect to the Whole Loan on a present value
basis than would liquidation. The Master Servicer is required to notify the
Trustee in the event of any modification, waiver or amendment of any Whole Loan.
Sub-Servicers
A Master Servicer may delegate its servicing obligations in respect
of the Whole Loans to third-party servicers (each, a "Sub-Servicer"), but such
Master Servicer will remain obligated under the related Agreement. Each
sub-servicing agreement between a Master Servicer and a Sub-Servicer (a
"Sub-Servicing Agreement") must be consistent with the terms of the related
Agreement and must provide that, if for any reason the Master Servicer for the
related series of Certificates is no longer acting in such capacity, the Trustee
or any successor Master Servicer may assume the Master Servicer's rights and
obligations under such Sub-Servicing Agreement.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will be solely liable for all fees owed by it to any Sub-Servicer,
irrespective of whether the Master Servicer's compensation pursuant to 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.
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Realization Upon Defaulted Whole Loans
A mortgagor's failure to make required payments may reflect inadequate
income or the diversion of that income from the service of payments due under
the Mortgage Loan, and may call into question such mortgagor's ability to make
timely payment of taxes and to pay for necessary maintenance of the related
Mortgaged Property. Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer is required to monitor any Whole Loan which is
in default, contact the mortgagor concerning the default, evaluate whether the
causes of the default can be cured over a reasonable period without significant
impairment of the value of the Mortgaged Property, initiate corrective action in
cooperation with the mortgagor if cure is likely, inspect the Mortgaged Property
and take such other actions as are consistent with the Servicing Standard. A
significant period of time may elapse before the Master Servicer is able to
assess the success of such corrective action or the need for additional
initiatives.
The time within which the Master Servicer makes the initial determination
of appropriate action, evaluates the success of corrective action, develops
additional initiatives, institutes foreclosure proceedings and actually
forecloses (or takes a deed to a Mortgaged Property in lieu of foreclosure) on
behalf of the Certificateholders, may vary considerably depending on the
particular Whole Loan, the Mortgaged Property, the mortgagor, the presence of an
acceptable party to assume the Whole Loan and the laws of the jurisdiction in
which the Mortgaged Property is located. Under federal bankruptcy law, the
Master Servicer in certain cases may not be permitted to accelerate a Whole Loan
or to foreclose on a Mortgaged Property for a considerable period of time. See
"Certain Legal Aspects of the Mortgage--Loans and the Leases."
Any Agreement relating to a Trust Fund that includes Whole Loans may grant
to the Master Servicer and/or the holder or holders of certain classes of
Certificates a right of first refusal to purchase from the Trust Fund at a
predetermined purchase price any such Whole Loan as to which a specified number
of scheduled payments thereunder are delinquent. Any such right granted to the
holder of an Offered Certificate will be described in the related Prospectus
Supplement. The related Prospectus Supplement will also describe any such right
granted to any person if the predetermined purchase price is less than the
Purchase Price described under "Representations and Warranties; Repurchases."
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer may offer to sell any defaulted Whole Loan described in the preceding
paragraph and not otherwise purchased by any person having a right of first
refusal with respect thereto, if and when the Master Servicer determines,
consistent with the Servicing Standard, that such a sale would produce a greater
recovery on a present value basis than would liquidation through foreclosure or
similar proceeding. The related Agreement will provide that any such offering be
made in a commercially reasonable manner for a specified period and that the
Master Servicer accept the highest cash bid received from any person (including
itself, an affiliate of the Master Servicer or any Certificateholder) that
constitutes a fair price for such defaulted Whole Loan. In the absence of any
bid determined in accordance with the related Agreement to be fair, the Master
Servicer shall proceed with respect to such defaulted Mortgage Loan as described
below. Any bid in an amount at least equal to the Purchase Price described under
"Representations and Warranties; Repurchases" will in all cases be deemed fair.
The Master Servicer, on behalf of the Trustee, may at any time institute
foreclosure proceedings, exercise any power of sale contained in any mortgage,
obtain a deed in lieu of foreclosure, or otherwise acquire title to a Mortgaged
Property securing a Whole Loan by operation of law or otherwise, if such action
is consistent with the 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:
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(i) the Mortgaged Property is in compliance with applicable environmental
laws, and there are no circumstances present at the Mortgaged Property
relating to the use, management or disposal of any hazardous substances,
hazardous materials, wastes, or petroleum-based materials for which
investigation, testing, monitoring, containment, clean-up or remediation
could be required under any federal, state or local law or regulation; or
(ii) if the Mortgaged Property is not so in compliance or such
circumstances are so present, then it would be in the best economic
interest of the Trust Fund to acquire title to the Mortgaged Property and
further to take such actions as would be necessary and appropriate to
effect such compliance and/or respond to such circumstances (the cost of
which actions will be an expense of the Trust Fund).
Unless otherwise provided in the related Prospectus Supplement, if title to
any Mortgaged Property is acquired by a Trust Fund as to which a REMIC election
has been made, the Master Servicer, on behalf of the Trust Fund, will be
required to sell the Mortgaged Property prior to the close of the third calendar
year following the year of acquisition of such Mortgaged Property by the Trust
Fund, unless (i) the Internal Revenue Service grants an extension of time to
sell such property or (ii) the Trustee receives an opinion of independent
counsel to the effect that the holding of the property by the Trust Fund
subsequent to such period will not result in the imposition of a tax on the
Trust Fund or cause the Trust Fund to fail to qualify as a REMIC under the Code
at any time that any Certificate is outstanding. Subject to the foregoing, the
Master Servicer will be required to (i) solicit bids for any Mortgaged Property
so acquired in such a manner as will be reasonably likely to realize a fair
price for such property and (ii) accept the first (and, if multiple bids are
contemporaneously received, the highest) cash bid received from any person that
constitutes a fair price.
If the Trust Fund acquires title to any Mortgaged Property, the Master
Servicer, on behalf of the Trust Fund, may retain an independent contractor to
manage and operate such property. The retention of an independent contractor,
however, will not relieve the Master Servicer of any of its obligations with
respect to the management and operation of such Mortgaged Property. Unless
otherwise specified in the related Prospectus Supplement, any such property
acquired by the Trust Fund will be managed in a manner consistent with the
management and operation of similar property by a prudent lending institution.
The limitations imposed by the related Agreement and the REMIC provisions
of the Code (if a REMIC election has been made with respect to the related Trust
Fund) on the operations and ownership of any Mortgaged Property acquired on
behalf of the Trust Fund may result in the recovery of an amount less than the
amount that would otherwise be recovered. See "Certain Legal Aspects of the
Mortgage Loans and the Leases--Foreclosure."
If recovery on a defaulted Whole Loan under any related instrument of
Credit Support is not available, the Master Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and procedures
as it deems necessary or advisable to realize upon the defaulted Whole Loan. If
the proceeds of any liquidation of the property securing the defaulted Whole
Loan are less than the outstanding principal balance of the defaulted Whole Loan
plus interest accrued thereon at the Mortgage Rate plus the aggregate amount of
expenses incurred by the Master Servicer in connection with such proceedings and
which are reimbursable under the Agreement, the Trust Fund will realize a loss
in the amount of such difference. The Master Servicer will be entitled to
withdraw or cause to be withdrawn from the Certificate Account out of the
Liquidation Proceeds recovered on any defaulted Whole Loan, prior to the
distribution of such Liquidation Proceeds to Certificateholders, amounts
representing its normal servicing compensation on the Whole Loan, unreimbursed
servicing expenses incurred with respect to the Whole Loan and any unreimbursed
advances of delinquent payments made with respect to the Whole Loan.
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.
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As servicer of the Whole Loans, a Master Servicer, on behalf of itself, the
Trustee and the Certificateholders, will present claims to the obligor under
each instrument of Credit Support, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
defaulted Whole Loans.
If a Master Servicer or its designee recovers payments under any instrument
of Credit Support with respect to any defaulted Whole Loan, the Master Servicer
will be entitled to withdraw or cause to be withdrawn from the Certificate
Account out of such proceeds, prior to distribution thereof to
Certificateholders, amounts representing its normal servicing compensation on
such Whole Loan, unreimbursed servicing expenses incurred with respect to the
Whole Loan and any unreimbursed advances of delinquent payments made with
respect to the Whole Loan. See "Hazard Insurance Policies" and "Description of
Credit Support."
Hazard Insurance Policies
Unless otherwise specified in the related Prospectus Supplement, each
Agreement for a Trust Fund that includes Whole Loans will require the Master
Servicer to cause the mortgagor on each Whole Loan to maintain a hazard
insurance policy providing for such coverage as is required under the related
Mortgage or, if any Mortgage permits the holder thereof to dictate to the
mortgagor the insurance coverage to be maintained on the related Mortgaged
Property, then such coverage as is consistent with the Servicing Standard.
Unless otherwise specified in the related Prospectus Supplement, such coverage
will be in general in an amount equal to the lesser of the principal balance
owing on such Whole Loan and the amount necessary to fully compensate for any
damage or loss to the improvements on the Mortgaged Property on a replacement
cost basis, but in either case not less than the amount necessary to avoid the
application of any co-insurance clause contained in the hazard insurance policy.
The ability of the Master Servicer to assure that hazard insurance proceeds are
appropriately applied may be dependent upon its being named as an additional
insured under any hazard insurance policy and under any other insurance policy
referred to below, or upon the extent to which information in this regard is
furnished by mortgagors. All amounts collected by the Master Servicer under any
such policy (except for amounts to be applied to the restoration or repair of
the Mortgaged Property or released to the mortgagor in accordance with the
Master Servicer's normal servicing procedures, subject to the terms and
conditions of the related Mortgage and Mortgage Note) will be deposited in the
Certificate Account. The Agreement will provide that the Master Servicer may
satisfy its obligation to cause each mortgagor to maintain such a hazard
insurance policy by the Master Servicer's maintaining a blanket policy insuring
against hazard losses on the Whole Loans. If such blanket policy contains a
deductible clause, the Master Servicer will be required to deposit in the
Certificate Account all sums that would have been deposited therein but for such
clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Whole Loans will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do not cover any physical damage resulting from
war, revolution, governmental actions, floods and other water-related causes,
earth movement (including earthquakes, landslides and mudflows), wet or dry rot,
vermin, domestic animals and certain other kinds of uninsured risks.
The hazard insurance policies covering the Mortgaged Properties securing
the Whole Loans will typically contain a co-insurance clause that in effect
requires the insured at all times to carry insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the improvements on the
property in order to 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.
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Each Agreement for a Trust Fund that includes Whole Loans will require the
Master Servicer to cause the mortgagor on each Whole Loan, or, in certain cases,
the related Lessee, to maintain all such other insurance coverage with respect
to the related Mortgaged Property as is consistent with the terms of the related
Mortgage and the Servicing Standard, which insurance may typically include flood
insurance (if the related Mortgaged Property was located at the time of
origination in a federally designated flood area).
In addition, to the extent required by the related Mortgage, the Master
Servicer may require the mortgagor or related Lessee to maintain other forms of
insurance including, but not limited to, loss of rent endorsements, business
interruption insurance and comprehensive public liability insurance, and the
related Agreement may require the Master Servicer, Sub-Servicer or Special
Servicer to maintain public liability insurance with respect to any REO
Properties. Any cost incurred by the Master Servicer in maintaining any such
insurance policy will be added to the amount owing under the Mortgage Loan where
the terms of the Mortgage Loan so permit; provided, however, that the addition
of such cost will not be taken into account for purposes of calculating the
distribution to be made to Certificateholders. Such costs may be recovered by
the Master Servicer, Sub-Servicer or Special Servicer, as the case may be, from
the Collection Account, with interest thereon, as provided by the Agreement.
Under the terms of the Whole Loans, mortgagors will generally be required
to present claims to insurers under hazard insurance policies maintained on the
related Mortgaged Properties. The Master Servicer, on behalf of the Trustee and
Certificateholders, is obligated to present or cause to be presented claims
under any blanket insurance policy insuring against hazard losses on Mortgaged
Properties securing the Whole Loans. However, the ability of the Master Servicer
to present or cause to be presented such claims is dependent upon the extent to
which information in this regard is furnished to the Master Servicer by
mortgagors.
Rental Interruption Insurance Policy
If so specified in the related Prospectus Supplement, the Master Servicer
or the mortgagors will maintain rental interruption insurance policies in full
force and effect with respect to some or all of the Leases. Although the terms
of such policies vary to some degree, a rental interruption insurance policy
typically provides that, to the extent that a Lessee fails to make timely rental
payments under the related Lease due to a casualty event, such losses will be
reimbursed to the insured. If so specified in the related Prospectus Supplement,
the Master Servicer will be required to pay from its servicing compensation the
premiums on the rental interruption policy on a timely basis. If so specified in
the Prospectus Supplement, if such rental interruption policy is canceled or
terminated for any reason (other than the exhaustion of total policy coverage),
the Master Servicer will exercise its best reasonable efforts to obtain from
another insurer a replacement policy comparable to the rental interruption
policy with a total coverage that is equal to the then existing coverage of the
terminated rental interruption policy; provided that if the cost of any such
replacement policy is greater than the cost of the terminated rental
interruption policy, the amount of coverage under the replacement policy will,
unless otherwise specified in the related Prospectus Supplement, be reduced to a
level such that the applicable premium does not exceed, by a percentage that may
be set forth in the related Prospectus Supplement, the cost of the rental
interruption policy that was replaced. Any amounts collected by the Master
Servicer under the rental interruption policy in the nature of insurance
proceeds will be deposited in the Certificate Account.
Fidelity Bonds and Errors and Omissions Insurance
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will require that the Master Servicer and any Special Servicer obtain
and maintain in effect a fidelity bond or similar form of insurance coverage
(which may provide blanket coverage) or any combination thereof insuring against
loss occasioned by fraud, theft or other intentional misconduct of the officers,
employees and agents of the Master Servicer or the Special Servicer, as
applicable. The related Agreement will allow the Master Servicer and any Special
Servicer to self-insure against loss occasioned by the errors and omissions of
the officers, employees and agents of the Master Servicer or the Special
Servicer so long as certain criteria set forth in the Agreement are met.
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Due-on-Sale and Due-on-Encumbrance Provisions
Certain of the Whole Loans may contain clauses requiring the consent of the
mortgagee to any sale or other transfer of the related Mortgaged Property, or
due-on-sale clauses entitling the mortgagee to accelerate payment of the Whole
Loan upon any sale or other transfer of the related Mortgaged Property. Certain
of the Whole Loans may contain clauses requiring the consent of the mortgagee to
the creation of any other lien or encumbrance on the Mortgaged Property or
due-on-encumbrance clauses entitling the mortgagee to accelerate payment of the
Whole Loan upon the creation of any other lien or encumbrance upon the Mortgaged
Property. Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer, on behalf of the Trust Fund, will exercise any right the
Trustee may have as mortgagee to accelerate payment of any such Whole Loan or to
withhold its consent to any transfer or further encumbrance in a manner
consistent with the Servicing Standard. Unless otherwise specified in the
related Prospectus Supplement, any fee collected by or on behalf of the Master
Servicer for entering into an assumption agreement will be retained by or on
behalf of the Master Servicer as additional servicing compensation. See "Certain
Legal Aspects of the Mortgage Loans and the Leases--Due-on-Sale and
Due-on-Encumbrance."
Retained Interest; Servicing Compensation and Payment of Expenses
The Prospectus Supplement for a series of Certificates will specify whether
there will be any Retained Interest in the Assets, and, if so, the initial owner
thereof. If so, the Retained Interest will be established on a loan-by-loan
basis and will be specified on an exhibit to the related Agreement. A "Retained
Interest" in an Asset represents a specified portion of the interest payable
thereon. The Retained Interest will be deducted from mortgagor payments as
received and will not be part of the related Trust Fund.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer's and a Sub-Servicer's primary servicing compensation with respect to a
series of Certificates will come from the periodic payment to it of a portion of
the interest payment on each Asset. Since any Retained Interest and a Master
Servicer's primary compensation are percentages of the principal balance of each
Asset, such amounts will decrease in accordance with the amortization of the
Assets. The Prospectus Supplement with respect to a series of Certificates
evidencing interests in a Trust Fund that includes Whole Loans may provide that,
as additional compensation, the Master Servicer or the Sub-Servicers may retain
all or a portion of assumption fees, modification fees, late payment charges or
Prepayment Premiums collected from mortgagors and any interest or other income
which may be earned on funds held in the Certificate Account or any account
established by a Sub-Servicer pursuant to the Agreement.
The Master Servicer may, to the extent provided in the related Prospectus
Supplement, pay from its servicing compensation certain expenses incurred in
connection with its servicing and managing of the Assets, including, without
limitation, payment of the fees and disbursements of the Trustee and independent
accountants, payment of expenses incurred in connection with distributions and
reports to Certificateholders, and payment of any other expenses described in
the related Prospectus Supplement. Certain other expenses, including certain
expenses relating to defaults and liquidations on the Whole Loans and, to the
extent so provided in the related Prospectus Supplement, interest thereon at the
rate specified therein, and the fees of any Special Servicer, may be borne by
the Trust Fund.
Evidence as to Compliance
Each Agreement relating to Assets which include Whole Loans will provide
that on or before a specified date in each year, beginning with the first such
date at least six months after the related Cut-off Date, a firm of independent
public accountants will furnish a statement to the Trustee to the effect that,
on the basis of the examination by such firm conducted substantially in
compliance with either the Uniform Single Attestation Program for Mortgage
Bankers or the Audit Program for Mortgages serviced for the Federal Home Loan
Mortgage Corporation ("FHLMC"), the servicing by or on behalf of the Master
Servicer of mortgage loans under pooling and servicing agreements substantially
similar to each other (including the related Agreement) was conducted in
compliance with the terms of such agreements except for any significant
exceptions or errors in records that, in the opinion of the firm, either the
Audit
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Program for Mortgages serviced for FHLMC, or paragraph 4 of the Uniform Single
Attestation Program for Mortgage Bankers, requires it to report. In rendering
its statement such firm may rely, as to matters relating to the direct servicing
of mortgage loans by Sub-Servicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC (rendered within one year of such statement) of firms of independent
public accountants with respect to the related Sub-Servicer.
Each such Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by two
officers of the Master Servicer to the effect that the Master Servicer has
fulfilled its obligations under the Agreement throughout the preceding calendar
year or other specified twelve-month period.
Unless otherwise provided in the related Prospectus Supplement, copies of
such annual accountants' statement and such statements of officers will be
obtainable by Certificateholders without charge upon written request to the
Master Servicer at the address set forth in the related Prospectus Supplement.
Certain Matters Regarding a Master Servicer and the Depositor
The Master Servicer, if any, or a servicer for substantially all the Whole
Loans under each Agreement will be named in the related Prospectus Supplement.
The entity serving as Master Servicer (or as such servicer) may be an affiliate
of the Depositor and may have other normal business relationships with the
Depositor or the Depositor's affiliates. Reference herein to the Master Servicer
shall be deemed to be to the servicer of substantially all of the Whole Loans,
if applicable.
Unless otherwise specified in the related Prospectus Supplement, the
related Agreement will provide that the Master Servicer may resign from its
obligations and duties thereunder only upon a determination that its duties
under the Agreement are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it, the other activities of the Master Servicer so causing such a conflict
being of a type and nature carried on by the Master Servicer at the date of the
Agreement. No such resignation will become effective until the Trustee or a
successor servicer has assumed the Master Servicer's obligations and duties
under the Agreement.
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
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Agreement and which in its opinion may involve it in any expense or liability.
Any such Master Servicer or the Depositor may, however, in its discretion
undertake any such action which it may deem necessary or desirable with respect
to the Agreement and the rights and duties of the parties thereto and the
interests of the Certificateholders thereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom will be
expenses, costs and liabilities of the Certificateholders, and the Master
Servicer or the Depositor, as the case may be, will be entitled to be reimbursed
therefor and to charge the Certificate Account.
Any person into which the Master Servicer or the Depositor may be merged or
consolidated, or any person resulting from any merger or consolidation to which
the Master Servicer or the Depositor is a party, or any person succeeding to the
business of the Master Servicer or the Depositor, will be the successor of the
Master Servicer or the Depositor, as the case may be, under the related
Agreement.
Events of Default
Unless otherwise provided in the related Prospectus Supplement for a Trust
Fund that includes Whole Loans, Events of Default under the related Agreement
will include (i) any failure by the Master Servicer to distribute or cause to be
distributed to Certificateholders, or to remit to the Trustee for distribution
to Certificateholders, any required payment; (ii) any failure by the Master
Servicer duly to observe or perform in any material respect any of its other
covenants or obligations under the Agreement which continues unremedied for
thirty days after written notice of such failure has been given to the Master
Servicer by the Trustee or the Depositor, or to the Master Servicer, the
Depositor and the Trustee by the holders of Certificates evidencing not less
than 25% of the Voting Rights; (iii) any breach of a representation or warranty
made by the Master Servicer under the Agreement which materially and adversely
affects the interests of Certificateholders and which continues unremedied for
thirty days after written notice of such breach has been given to the Master
Servicer by the Trustee or the Depositor, or to the Master Servicer, the
Depositor and the Trustee by the holders of Certificates evidencing not less
than 25% of the Voting Rights; and (iv) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings and certain actions by or on behalf of the Master Servicer
indicating its insolvency or inability to pay its obligations. Material
variations to the foregoing Events of Default (other than to shorten cure
periods or eliminate notice requirements) will be specified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the Trustee shall, not later than the later of 60 days after the
occurrence of any event which 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
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Master Servicer under the Agreement. Pending such appointment, the Trustee is
obligated to act in such capacity. The Trustee and any such successor may agree
upon the servicing compensation to be paid, which in no event may be greater
than the compensation payable to the Master Servicer under the Agreement.
Unless otherwise described in the related Prospectus Supplement, the
holders of Certificates representing at least 66 2/3% of the Voting Rights
allocated to the respective classes of Certificates affected by any Event of
Default will be entitled to waive such Event of Default; provided, however, that
an Event of Default involving a failure to distribute a required payment to
Certificateholders described in clause (i) under "Events of Default" may be
waived only by all of the Certificateholders. Upon any such waiver of an Event
of Default, such Event of Default shall cease to exist and shall be deemed to
have been remedied for every purpose under the Agreement.
No Certificateholder will have the right under any Agreement to institute
any proceeding with respect thereto unless such holder previously has given to
the Trustee written notice of default and unless the holders of Certificates
evidencing not less than 25% of the Voting Rights have made written request upon
the Trustee to institute such proceeding in its own name as Trustee thereunder
and have offered to the Trustee reasonable indemnity, and the Trustee for sixty
days has neglected or refused to institute any such proceeding. The Trustee,
however, is under no obligation to exercise any of the trusts or powers vested
in it by any Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the holders of
Certificates covered by such Agreement, unless such Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
Amendment
Each Agreement may be amended by the parties thereto without the consent of
any of the holders of Certificates covered by the Agreement, (i) to cure any
ambiguity, (ii) to correct, modify or supplement any provision therein which may
be inconsistent with any other provision therein, (iii) to make any other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions thereof, or (iv) to comply with
any requirements imposed by the Code; provided that such amendment (other than
an amendment for the purpose specified in clause (iv) above) will not (as
evidenced by an opinion of counsel to such effect) adversely affect in any
material respect the interests of any holder of Certificates covered by the
Agreement. Unless otherwise specified in the related 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.
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Duties of the Trustee
The Trustee will make no representations as to the validity or sufficiency
of any Agreement, the Certificates or any Asset or related document and is not
accountable for the use or application by or on behalf of any Master Servicer of
any funds paid to the Master Servicer or its designee or any Special Servicer in
respect of the Certificates or the Assets, or deposited into or withdrawn from
the Certificate Account or any other account by or on behalf of the Master
Servicer or any Special Servicer. If no Event of Default has occurred and is
continuing, the Trustee is required to perform only those duties specifically
required under the related Agreement. However, upon receipt of the various
certificates, reports or other instruments required to be furnished to it, the
Trustee is required to examine such documents and to determine whether they
conform to the requirements of the Agreement.
Certain Matters Regarding the Trustee
Unless otherwise specified in the related Prospectus Supplement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
entitled to indemnification out of the Certificate Account for any loss,
liability or expense (including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in settlement)
incurred in connection with the Trustee's (i) enforcing its rights and remedies
and protecting the interests, and enforcing the rights and remedies, of the
Certificateholders during the continuance of an Event of Default, (ii) defending
or prosecuting any legal action in respect of the related Agreement or series of
Certificates, (iii) being the mortgagee of record with respect to the Mortgage
Loans in a Trust Fund and the owner of record with respect to any Mortgaged
Property acquired in respect thereof for the benefit of Certificateholders, or
(iv) acting or refraining from acting in good faith at the direction of the
holders of the related series of Certificates entitled to not less than 25% (or
such higher percentage as is specified in the related Agreement with respect to
any particular matter) of the Voting Rights for such series; provided, however,
that such indemnification will not extend to any loss, liability or expense that
constitutes a specific liability of the Trustee pursuant to the related
Agreement, or to any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence on the part of the Trustee in the
performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties, or as may arise from a breach
of any representation, warranty or covenant of the Trustee made therein.
Resignation and Removal of the Trustee
The Trustee may at any time resign from its obligations and duties under an
Agreement by giving written notice thereof to the Depositor, the Master
Servicer, if any, and all Certificateholders. Upon receiving such notice of
resignation, the Depositor is required promptly to appoint a successor trustee
acceptable to the Master Servicer, if any. If no successor trustee shall have
been so appointed and have accepted appointment within 30 days after the 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.
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DESCRIPTION OF CREDIT SUPPORT
General
For any series of Certificates, Credit Support may be provided with respect
to one or more classes thereof or the related Assets. Credit Support may be in
the form of the subordination of one or more classes of Certificates, letters of
credit, insurance policies, guarantees, the establishment of one or more reserve
funds or another method of Credit Support described in the related Prospectus
Supplement, or any combination of the foregoing. If so provided in the related
Prospectus Supplement, any form of Credit Support may be structured so as to be
drawn upon by more than one series to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a series
of Certificates, the Credit Support will not provide protection against all
risks of loss and will not guarantee repayment of the entire Certificate Balance
of the Certificates and interest thereon. If losses or shortfalls occur that
exceed the amount covered by Credit Support or that are not covered by Credit
Support, Certificateholders will bear their allocable share of deficiencies.
Moreover, if a form of Credit Support covers more than one series of
Certificates (each, a "Covered Trust"), holders of Certificates evidencing
interests in any of such Covered Trusts will be subject to the risk that such
Credit Support will be exhausted by the claims of other Covered Trusts prior to
such Covered Trust receiving any of its intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or the related Assets, the related Prospectus
Supplement will include a description of (a) the nature and amount of coverage
under such Credit Support, (b) any conditions to payment thereunder not
otherwise described herein, (c) the conditions (if any) under which the amount
of coverage under such Credit Support may be reduced and under which such Credit
Support may be terminated or replaced and (d) the material provisions relating
to such Credit Support. Additionally, the related Prospectus Supplement will set
forth certain information with respect to the obligor under any instrument of
Credit Support, including (i) a brief description of its principal business
activities, (ii) its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business, (iii) if
applicable, the identity of regulatory agencies that exercise primary
jurisdiction over the conduct of its business and (iv) its total assets, and its
stockholders' or policyholders' surplus, if applicable, as of the date specified
in the Prospectus Supplement. See "Risk Factors--Credit Support Limitations."
Subordinate Certificates
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a series may be Subordinate Certificates. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
Subordinate Certificates to receive distributions of principal and interest from
the Certificate Account on any Distribution Date will be subordinated to such
rights of the holders of Senior Certificates. If so provided in the 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
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of any such material instrument for a series will be filed with the Commission
as an exhibit to a Current Report on Form 8-K to be filed within 15 days of
issuance of the Certificates of the related series.
Letter of Credit
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more letters of credit, issued by a
bank or financial institution specified in such Prospectus Supplement (the "L/C
Bank"). Under a letter of credit, the L/C Bank will be obligated to honor draws
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, generally equal to a percentage specified in the related Prospectus
Supplement of the aggregate principal balance of the Mortgage Assets on the
related Cut-off Date or of the initial aggregate Certificate Balance of one or
more classes of Certificates. If so specified in the related Prospectus
Supplement, the letter of credit may permit draws in the event of only certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments
thereunder and may otherwise be reduced as described in the related Prospectus
Supplement. The obligations of the L/C Bank under the letter of credit for each
series of Certificates will expire at the earlier of the date specified in the
related Prospectus Supplement or the termination of the Trust Fund. A copy of
any such letter of credit for a series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of issuance
of the Certificates of the related series.
Insurance Policies and Surety Bonds
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by insurance policies and/or surety bonds
provided by one or more insurance companies or sureties. Such instruments may
cover, with respect to one or more classes of Certificates of the related
series, timely distributions of interest and/or full distributions of principal
on the basis of a schedule of principal distributions set forth in or determined
in the manner specified in the related Prospectus Supplement. A copy of any such
instrument for a series will be filed with the Commission as an exhibit to a
Current Report on Form 8-K to be filed with the Commission within 15 days of
issuance of the Certificates of the related series.
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.
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Additional information concerning any Reserve Fund will be set forth in the
related Prospectus Supplement, including the initial balance of such Reserve
Fund, the balance required to be maintained in the Reserve Fund, the manner in
which such required balance will decrease over time, the manner of funding such
Reserve Fund, the purposes for which funds in the Reserve Fund may be applied to
make distributions to Certificateholders and use of investment earnings from the
Reserve Fund, if any.
Credit Support with respect to MBS
If so provided in the Prospectus Supplement for a series of Certificates,
the MBS in the related Trust Fund and/or the Mortgage Loans underlying such MBS
may be covered by one or more of the types of Credit Support described herein.
The related Prospectus Supplement will specify as to each such form of Credit
Support the information indicated above with respect thereto, to the extent such
information is material and available.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties
that are general in nature. Because such legal aspects are governed by
applicable state law (which laws may differ substantially), the summaries do not
purport to be complete nor to reflect the laws of any particular state, nor to
encompass the laws of all states in which the security for the Mortgage Loans is
situated. The summaries are qualified in their entirety by reference to the
applicable federal and state laws governing the Mortgage Loans. See "Description
of the Trust Funds--Assets."
General
All of the Mortgage Loans are loans evidenced by a note or bond and secured
by instruments granting a security interest in real property which may be
mortgages, deeds of trust, security deeds or deeds to secure debt, depending
upon the prevailing practice and law in the state in which the Mortgaged
Property is located. Mortgages, 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
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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 revenues are considered accounts
receivable under the UCC; generally these revenues are either assigned by the
mortgagor, which remains entitled to collect such revenues absent a default, or
pledged by the mortgagor, as security for the loan. In general, the lender must
file financing statements in order to perfect its security interest in the
revenues and must file continuation statements, generally every five years, to
maintain perfection of such security interest. Even if the lender's security
interest in room revenues is perfected under the UCC, the lender will generally
be required to commence a foreclosure or otherwise take possession of the
property in order to collect the room revenues after a default.
Even after a foreclosure, the potential rent payments from the property may
be less than the periodic payments that had been due under the mortgage. For
instance, the net income that would otherwise be generated from the property may
be less than the amount that would have been needed to service the mortgage debt
if the leases on the property are at below-market rents, or as the result of
excessive maintenance, repair or other obligations which a lender succeeds to as
landlord.
Lenders that actually take possession of the property, however, may incur
potentially substantial risks attendant to being a mortgagee in possession. Such
risks include liability for environmental clean-up costs and other risks
inherent in property ownership. See "Environmental Legislation" below.
Personalty
Certain types of Mortgaged Properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value from
personal property which does not constitute "fixtures" under applicable state
real property law and, hence, would not be subject to the lien of a mortgage.
Such
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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 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
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consideration and such sale occurred while the mortgagor was insolvent (or the
mortgagor was rendered insolvent as a result of such sale) and within one year
(or within the state statute of limitations if the trustee in bankruptcy elects
to proceed under state fraudulent conveyance law) of the filing of bankruptcy.
Non-Judicial Foreclosure/Power of Sale
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale pursuant to the power of sale granted in the deed of trust. A
power of sale is typically granted in a deed of trust. It may also be contained
in any other type of mortgage instrument. A power of sale allows a non-judicial
public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such sale,
the trustee under a deed of trust must record a notice of default and notice of
sale and send a copy to the mortgagor and to any other party who has recorded a
request for a copy of a notice of default and notice of sale. In addition, in
some states the trustee must provide notice to any other party having an
interest of record in the real property, including junior lienholders. A notice
of sale must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. The mortgagor or junior
lienholder may then have the right, during a reinstatement period required in
some states, to cure the default by paying the entire actual amount in arrears
(without acceleration) plus the expenses incurred in enforcing the obligation.
In other states, the mortgagor or the junior lienholder is not provided a period
to reinstate the loan, but has only the right to pay off the entire debt to
prevent the foreclosure sale. Generally, the procedure for public sale, the
parties entitled to notice, the method of giving notice and the applicable time
periods are governed by state law and vary among the states. Foreclosure of a
deed to secure debt is also generally accomplished by a non-judicial sale
similar to that required by a deed of trust, except that the lender or its
agent, rather than a trustee, is typically empowered to perform the sale in
accordance with the terms of the deed to secure debt and applicable law.
Public Sale
A third party may be unwilling to purchase a mortgaged property at a public
sale because of the difficulty in determining the value of such property at the
time of sale, due to, among other things, redemption rights which may exist and
the possibility of physical deterioration of the property during the foreclosure
proceedings. For these reasons, it is common for the lender to purchase the
mortgaged property for an amount equal to or less than the underlying debt and
accrued and unpaid interest plus the expenses of foreclosure. Generally, state
law controls the amount of foreclosure costs and expenses which may be recovered
by a lender. Thereafter, subject to the mortgagor's right in some states to
remain in possession during a redemption period, if applicable, the lender will
become the owner of the property and have both the benefits and burdens of
ownership of the mortgaged property. For example, the lender will have the
obligation to pay debt service on any senior mortgages, to pay taxes, obtain
casualty insurance and to make such repairs at its own expense as are necessary
to render the property suitable for sale. Frequently, the lender employs a third
party management company to manage and operate the property. The costs of
operating and maintaining a commercial or multifamily residential property may
be significant and may be greater than the income derived from that property.
The costs of management and operation of those mortgaged properties which are
hotels, motels, restaurants, nursing or convalescent homes or hospitals may be
particularly significant because of the expertise, knowledge and, with respect
to nursing or convalescent homes or hospitals, regulatory compliance, required
to run such operations and the effect which foreclosure and a change in
ownership may have on the public's and the industry's (including franchisors')
perception of the quality of such operations. The lender will commonly obtain
the services 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
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federal or state law for the cost of cleaning up a mortgaged property that is
environmentally contaminated. See "Environmental Legislation." Generally state
law controls the amount of foreclosure expenses and costs, including attorneys'
fees, that may be recovered by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior mortgages
to avoid their foreclosure. In addition, in the event that the foreclosure of a
junior mortgage triggers the enforcement of a "due-on-sale" clause contained in
a senior mortgage, the junior mortgagee may be required to pay the full amount
of the senior mortgage to avoid its foreclosure. Accordingly, with respect to
those Mortgage Loans, if any, that are junior mortgage loans, if the lender
purchases the property the lender's title will be subject to all senior
mortgages, prior liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage under which the sale was conducted. Any
proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in order
of their priority, whether or not the mortgagor is in default. Any additional
proceeds are generally payable to the mortgagor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgage or a subsequent ancillary proceeding or may require the
institution of separate legal proceedings by such holders.
REO Properties
If title to any Mortgaged Property is acquired by the Trustee on behalf of
the Certificateholders, the Master Servicer or any related Sub-servicer or the
Special Servicer, on behalf of such holders, will be required to sell the
Mortgaged Property prior to the close of the third calendar year following the
year of acquisition of such Mortgaged Property by the Trust Fund, unless (i) the
Internal Revenue Service grants an extension of time to sell such property (an
"REO Extension") or (ii) it obtains an opinion of counsel generally to the
effect that the holding of the property for more than two years after its
acquisition will not result in the imposition of a tax on the Trust Fund or
cause any REMIC created pursuant to the Pooling and Servicing Agreement to fail
to qualify as a REMIC under the Code. Subject to the foregoing, the Master
Servicer or any related Sub-servicer or the Special Servicer will generally be
required to solicit bids for any Mortgaged Property so acquired in such a manner
as will be reasonably likely to realize a fair price for such property. The
Master Servicer or any related Sub-servicer or the Special Servicer may retain
an independent contractor to operate and manage any REO Property; however, the
retention of an independent contractor will not relieve the Master Servicer or
any related Sub-servicer or the Special Servicer of its obligations with respect
to such REO Property.
In general, the Master Servicer or any related Sub-servicer or the Special
Servicer or an independent contractor employed by the Master Servicer or any
related Sub-servicer or the Special Servicer at the expense of the Trust Fund
will be obligated to operate and manage any Mortgaged Property acquired as REO
Property in a manner that would, to the extent commercially feasible, maximize
the Trust Fund's net after-tax proceeds from such property. After the Master
Servicer or any related Sub-servicer or the Special Servicer reviews the
operation of such property and consults with the Trustee to determine the Trust
Fund's federal income tax reporting position with respect to the income it is
anticipated that the Trust Fund would derive from such property, the Master
Servicer or any related Sub-servicer or the Special Servicer could determine
(particularly in the case of an REO Property that is a hospitality or
residential health care facility) that it would not be commercially feasible to
manage and operate such property in a manner that would avoid the imposition of
a tax on "net income from foreclosure property," within the meaning of Section
857(b)(4)(B) of the Code (an "REO Tax") at the highest marginal corporate tax
rate (currently 35%). The determination as to whether income from an REO
Property would be subject to an REO Tax will depend on the specific facts and
circumstances relating to the management and operation of each REO Property. Any
REO Tax imposed on the Trust Fund's income from an REO Property would reduce the
amount available for distribution to Certificateholders. Certificateholders are
advised to consult their tax advisors regarding the possible imposition of REO
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Taxes in connection with the operation of commercial REO Properties by REMICs.
See "Certain Federal Income Tax Consequences" herein and "Certain Federal Income
Tax Consequences-REMICs" in the Prospectus.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an interest
in the property which is subordinate to the mortgage being foreclosed, from
exercise of their "equity of redemption." The doctrine of equity of redemption
provides that, until the property covered by a mortgage has been sold in
accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing mortgagee
have an equity of redemption and may redeem the property by paying the entire
debt with interest. In addition, in some states, when a foreclosure action has
been commenced, the redeeming party must pay certain costs of such action. Those
having an equity of redemption must generally be made parties and joined in the
foreclosure proceeding in order for their equity of redemption to be cut off and
terminated.
The equity of redemption is a common-law (non-statutory) right which exists
prior to completion of the foreclosure, is not waivable by the mortgagor, must
be exercised prior to foreclosure sale and should be distinguished from the
post-sale statutory rights of redemption. In some states, after sale pursuant to
a deed of trust or foreclosure of a mortgage, the mortgagor and foreclosed
junior lienors are given a statutory period in which to redeem the property from
the foreclosure sale. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
authorized if the former mortgagor pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser from a foreclosure sale or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has expired. In some states, a post-sale statutory
right of redemption may exist following a judicial foreclosure, but not
following a trustee's sale under a deed of trust.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held 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
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permitting such election, is that lenders will usually proceed against the
security first rather than bringing a personal action against the mortgagor.
Finally, other statutory provisions limit any deficiency judgment against the
former mortgagor following a judicial sale to the excess of the outstanding debt
over the fair market value of the property at the time of the public sale. The
purpose of these statutes is generally to prevent a lender from obtaining a
large deficiency judgment against the former mortgagor as a result of low or no
bids at the judicial sale.
Leasehold Risks
Mortgage Loans may be secured by a mortgage on a ground lease. Leasehold
mortgages are subject to certain risks not associated with mortgage loans
secured by the fee estate of the mortgagor. The most significant of these risks
is that the ground lease creating the leasehold estate could terminate, leaving
the leasehold mortgagee without its security. The ground lease may terminate if,
among other reasons, the ground lessee breaches or defaults in its obligations
under the ground lease or there is a bankruptcy of the ground lessee or the
ground lessor. This risk may be minimized if the ground lease contains certain
provisions protective of the mortgagee, but the ground leases that secure
Mortgage Loans may not contain some of these protective provisions, and
mortgages may not contain the other protections discussed in the next paragraph.
Protective ground lease provisions include the right of the leasehold mortgagee
to receive notices from the ground lessor of any defaults by the mortgagor; the
right to cure such defaults, with adequate cure periods; if a default is not
susceptible of cure by the leasehold mortgagee, the right to acquire the
leasehold estate through foreclosure or otherwise; the ability of the ground
lease to be assigned to and by the leasehold mortgagee or purchaser at a
foreclosure sale and for the concomitant release of the ground lessee's
liabilities thereunder; and the right of the leasehold mortgagee to enter into a
new ground lease with the ground lessor on the same terms and conditions as the
old ground lease in the event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may require
that the ground lease or leasehold mortgage prohibit the ground lessee from
treating the ground lease as terminated in the event of the ground lessor's
bankruptcy and rejection of the ground lease by the trustee for the
debtor-ground lessor. As further protection, a leasehold mortgage may provide
for the assignment of the debtor-ground lessee's right to reject a lease
pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as amended (Title
11 of the United States Code) (the "Bankruptcy Code"), although the
enforceability of such clause has not been established. Without the protections
described above, a leasehold mortgagee may lose the collateral securing its
leasehold mortgage. In addition, terms and conditions of a leasehold mortgage
are subject to the terms and conditions of the ground lease. Although certain
rights given to a ground lessee can be limited by the terms of a leasehold
mortgage, the rights of a ground lessee or a leasehold mortgagee with respect
to, among other things, insurance, casualty and condemnation will be governed by
the provisions of the ground lease.
Bankruptcy Laws
The Bankruptcy Code and related state laws may interfere with or affect the
ability of a lender to realize upon collateral and/or to enforce a deficiency
judgment. For example, under the Bankruptcy Code, virtually all actions
(including foreclosure actions and deficiency judgment proceedings) are
automatically stayed upon the filing 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
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outstanding balance of the loan. Other modifications may include the reduction
in the amount of each scheduled payment, which reduction may result from a
reduction in the rate of interest and/or the alteration of the repayment
schedule (with or without affecting the unpaid principal balance of the loan),
and/or an extension (or reduction) of the final maturity date. Some courts with
federal bankruptcy jurisdiction have approved plans, based on the particular
facts of the reorganization case, that effected the curing of a mortgage loan
default by paying arrearages over a number of years. Also, under federal
bankruptcy law, a bankruptcy court may permit a debtor through its
rehabilitative plan to de-accelerate a secured loan and to reinstate the loan
even though the lender accelerated the mortgage loan and final judgment of
foreclosure had been entered in state court (provided no sale of the property
had yet occurred) prior to the filing of the debtor's petition. This may be done
even if the full amount due under the original loan is never repaid.
Federal bankruptcy law provides generally that rights and obligation under
an unexpired lease of the debtor/lessee may not be terminated or modified at any
time after the commencement of a case under the Bankruptcy Code solely on the
basis of a provision in the lease to such effect or because of certain other
similar events. This prohibition on so-called "ipso facto clauses" could limit
the ability of the Trustee for a series of Certificates to exercise certain
contractual remedies with respect to the Leases. In addition, Section 362 of the
Bankruptcy Code operates as an automatic stay of, among other things, any act to
obtain possession of property from a debtor's estate, which may delay a
Trustee's exercise of such remedies for a related series of Certificates in the
event that a related Lessee or a related mortgagor becomes the subject of a
proceeding under the Bankruptcy Code. For example, a mortgagee would be stayed
from enforcing a Lease Assignment by a mortgagor related to a Mortgaged Property
if the related mortgagor was in a bankruptcy proceeding. The legal proceedings
necessary to resolve the issues could be time-consuming and might result in
significant delays in the receipt of the assigned rents. Similarly, the filing
of a petition in bankruptcy by or on behalf of a Lessee of a Mortgaged Property
would result in a stay against the commencement or continuation of any state
court proceeding for past due rent, for accelerated rent, for damages or for a
summary eviction order with respect to a default under the Lease that occurred
prior to the filing of the Lessee's petition. Rents and other proceeds of a
Mortgage Loan may also escape an assignment thereof if the assignment is not
fully perfected under state law prior to commencement of the bankruptcy
proceeding. See "--Leases and Rents" above.
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court, (a) assume the lease
and retain it or assign it to a third party or (b) reject the lease. If the
lease is assumed, the trustee in bankruptcy on behalf of the lessee, or the
lessee as debtor-in-possession, or the assignee, if applicable, must cure any
defaults under the lease, compensate the lessor for its losses and provide the
lessor with "adequate assurance" of future performance. Such remedies may be
insufficient, however, as the lessor may be forced to continue under the lease
with a lessee that is a poor credit risk or an unfamiliar tenant if the lease
was assigned, and any assurances provided to the lessor may, in fact, be
inadequate. If the lease is rejected, such rejection generally constitutes a
breach of the executory contract or unexpired lease immediately before the date
of filing the petition. As a consequence, the other party or parties to such
lease, such as the mortgagor, as lessor under a Lease, would have only an
unsecured claim against the debtor for damages resulting from such breach, which
could adversely affect the security for the related Mortgage Loan. In addition,
pursuant to Section 502(b)(6) of the Bankruptcy Code, a lessor's damages for
lease rejection in respect of future rent installments are limited to the rent
reserved by the lease, without acceleration, for the greater of one year or 15%,
not to exceed three years, of the remaining term of the lease.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as
debtor-in-possession, rejects an unexpired lease of real property, the lessee
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
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extent provided in the related Prospectus Supplement, the Lessee will agree
under certain Leases to pay all amounts owing thereunder to the Master Servicer
without offset. To the extent that such a contractual obligation remains
enforceable against the Lessee, the Lessee would not be able to avail itself of
the rights of offset generally afforded to lessees of real property under the
Bankruptcy Code.
In a bankruptcy or similar proceeding of a mortgagor, action may be taken
seeking the recovery, as a preferential transfer or on other grounds, of any
payments made by the mortgagor, or made directly by the related Lessee, under
the related Mortgage Loan to the Trust Fund. Payments on long-term debt may be
protected from recovery as preferences if they are payments in the ordinary
course of business made on debts incurred in the ordinary course of business.
Whether any particular payment would be protected depends upon the facts
specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may have
the power to grant liens senior to the lien of a mortgage, and analogous state
statutes and general principles of equity may also provide a mortgagor with
means to halt a foreclosure proceeding or sale and to force a restructuring of a
mortgage loan on terms a lender would not otherwise accept. Moreover, the laws
of certain states also give priority to certain tax liens over the lien of a
mortgage or deed of trust. Under the Bankruptcy Code, if the court finds that
actions of the mortgagee have been unreasonable, the lien of the related
mortgage may be subordinated to the claims of unsecured creditors.
To the extent described in the related Prospectus Supplement, certain of
the Mortgagors may be partnerships. The laws governing limited partnerships in
certain states provide that the commencement of a case under the Bankruptcy Code
with respect to a general partner will cause a person to cease to be a general
partner of the limited partnership, unless otherwise provided in writing in the
limited partnership agreement. This provision may be construed as an "ipso
facto" clause and, in the event of the general partner's bankruptcy, may not be
enforceable. To the extent described in the related Prospectus Supplement,
certain limited partnership agreements of the Mortgagors may provide that the
commencement of a case under the Bankruptcy Code with respect to the related
general partner constitutes an event of withdrawal (assuming the enforceability
of the clause is not challenged in bankruptcy proceedings or, if challenged, is
upheld) that might trigger the dissolution of the limited partnership, the
winding up of its affairs and the distribution of its assets, unless (i) at the
time there was at least one other general partner and the written provisions of
the limited partnership permit the business of the limited partnership to be
carried on by the remaining general partner and that general partner does so or
(ii) the written provisions of the limited partnership agreement permit the
limited partner to agree within a specified time frame (often 60 days) after
such withdrawal to continue the business of the limited partnership and to the
appointment of one or more general partners and the limited partners do so. In
addition, the laws governing general partnerships in certain states provide that
the commencement of a case under the Bankruptcy Code or state bankruptcy laws
with respect to a general partner of such partnerships triggers the dissolution
of such partnership, the winding up of its affairs and the distribution of its
assets. Such state laws, however, may not be enforceable or effective in a
bankruptcy case. The dissolution of a Mortgagor, the winding up of its affairs
and the distribution of its assets could result in an acceleration of its
payment obligation under a related Mortgage Loan, which may reduce the yield on
the related series of Certificates in the same manner as a principal prepayment.
In addition, the bankruptcy of the general partner of a Mortgagor that is a
partnership may provide the opportunity for a trustee in bankruptcy for such
general partner, such general partner as a debtor-in-possession, or a creditor
of such general partner to obtain an order from a court consolidating the assets
and liabilities of the general partner with those of the Mortgagor pursuant to
the doctrines of substantive consolidation or piercing the corporate veil. In
such a case, the respective Mortgaged Property, for example, would become
property of the estate of such bankrupt general partner. Not only would the
Mortgaged Property be available to satisfy the claims of creditors of such
general partner, but an automatic stay would apply to any attempt by the Trustee
to exercise remedies with 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.
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Junior Mortgages; Rights of Senior Mortgagees or Beneficiaries
To the extent specified in the related Prospectus Supplement, some of the
Mortgage Loans for a series will be secured by junior mortgages or deeds of
trust which are subordinated to senior mortgages or deeds of trust held by other
lenders or institutional investors. The rights of the Trust Fund (and therefore
the related Certificateholders), as beneficiary under a junior deed of trust or
as mortgagee under a junior mortgage, are subordinate to those of the mortgagee
or beneficiary under the senior mortgage or deed of trust, including the prior
rights of the senior mortgagee or beneficiary to receive rents, hazard insurance
and condemnation proceeds and to cause the Mortgaged Property securing the
Mortgage Loan to be sold upon default of the Mortgagor or trustor, thereby
extinguishing the junior mortgagee's or junior beneficiary's lien unless the
Master Servicer or Special Servicer, as applicable, asserts its subordinate
interest in a Mortgaged Property in foreclosure litigation or satisfies the
defaulted senior loan. As discussed more fully below, in many states a junior
mortgagee or beneficiary may satisfy a defaulted senior loan in full, or may
cure such default and bring the senior loan current, in either event adding the
amounts expended to the balance due on the junior loan. Absent a provision in
the senior mortgage, no notice of default is required to be given to the junior
mortgagee unless otherwise required by law.
The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgagee or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the mortgagee or
beneficiary under the senior mortgage or deed of trust will have the prior right
to collect any insurance proceeds payable under the hazard insurance policy and
any award of damages in connection with the condemnation and to apply the same
to the indebtedness secured by the senior mortgage or deed of trust. Proceeds in
excess of the amount of senior mortgage indebtedness will, in most cases, be
applied to the indebtedness of a junior mortgage or trust deed. The laws of
certain states may limit the ability of mortgagees or beneficiaries to apply the
proceeds of hazard insurance and partial condemnation awards to the secured
indebtedness. In such states, the mortgagor or trustor must be allowed to use
the proceeds of hazard insurance to repair the damage unless the security of the
mortgagee or beneficiary has been impaired. Similarly, in certain states, the
mortgagee or beneficiary is entitled to the award for a partial condemnation of
the real property security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional lenders
typically contains a "future advance" clause, which provides in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an "obligatory" or "optional" advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance may be entitled to
receive the same priority as amounts initially made under the mortgage or deed
of trust, notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens between the date of recording of the mortgage or
deed of trust and the date of the future advance, and notwithstanding that the
mortgagee or beneficiary had actual knowledge of such intervening junior
mortgages or deeds of trust and other liens at the time of the advance. Where
the mortgagee or beneficiary is not obligated to advance the additional amounts
and has actual knowledge of the intervening junior mortgages or deeds of trust
and other liens, the advance may be subordinated to such intervening junior
mortgages or deeds of trust and other liens. Priority of advances under a
"future advance" clause rests, in many other states, on state law giving
priority to all advances made under the loan agreement up to a "credit limit"
amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by many institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and
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defend any action or proceeding purporting to affect the property or the rights
of the mortgagee or beneficiary under the mortgage or deed of trust. Upon a
failure of the mortgagor or trustor to perform any of these obligations, the
mortgagee or beneficiary is given the right under the mortgage or deed of trust
to perform the obligation itself, at its election, with the mortgagor or trustor
agreeing to reimburse the mortgagee or beneficiary on behalf of the mortgagor or
trustor. All sums so expended by the mortgagee or beneficiary become part of the
indebtedness secured by the mortgage or deed of trust.
The form of mortgage or deed of trust used by many institutional lenders
typically requires the mortgagor or trustor to obtain the consent of the
mortgagee or beneficiary in respect of actions affecting the mortgaged property,
including, without limitation, leasing activities (including new leases and
termination or modification of existing leases), alterations and improvements to
buildings forming a part of the mortgaged property and management and leasing
agreements for the mortgaged property. Tenants will often refuse to execute a
lease unless the mortgagee or beneficiary executes a written agreement with the
tenant not to disturb the tenant's possession of its premises in the event of a
foreclosure. A senior mortgagee or beneficiary may refuse to consent to matters
approved by a junior mortgagee or beneficiary with the result that the value of
the security for the junior mortgage or deed of trust is diminished. For
example, a senior mortgagee or beneficiary may decide not to approve the lease
or to refuse to grant a tenant a non-disturbance agreement. If, as a result, the
lease is not executed, the value of the mortgaged property may be diminished.
Environmental Legislation
Real property pledged as security to a lender may be subject to unforeseen
environmental liabilities. Of particular concern may be those Mortgaged
Properties which are, or have been, the site of manufacturing, industrial or
disposal activity. Such environmental liabilities may give rise to (i) a
diminution in value of property securing any Mortgage Loan, (ii) limitation on
the ability to foreclose against such property or (iii) in certain
circumstances, as more fully described below, liability for clean-up costs or
other remedial actions, which liability could exceed the value of the principal
balance of the related Mortgage Loan or of such Mortgaged Property.
Under the laws of many states, contamination on a property may give rise to
a lien on the property for cleanup costs. In several states, such a lien has
priority over all existing liens (a "superlien") including those of existing
mortgages; in these states, the lien of a mortgage contemplated by this
transaction may lose its priority to such a superlien.
The presence of hazardous or toxic substances, or the failure to remediate
such property properly, may adversely affect the market value of the property,
as well as the owner's ability to sell or use the real estate or to borrow using
the real estate as collateral. In addition, certain environmental laws and
common law principles govern the responsibility for the removal, encapsulation
or disturbance of asbestos containing materials ("ACMs") when these ACMs are in
poor condition or when a property with ACMs is undergoing repair, renovation or
demolition. Such laws could also be used to impose liability upon owners and
operators of real properties for release of ACMs into the air that cause
personal injury or other damage. In addition to cleanup and natural resource
damages actions brought by federal, state, and local agencies and private
parties, the presence of hazardous substances on a property may lead to claims
of personal injury, property damage, or other claims by private plaintiffs.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), and under the law of certain
states, a secured party which takes a deed-in-lieu of foreclosure, purchases a
mortgaged property at a foreclosure sale, or operates a Mortgaged Property may
become liable in some circumstances either to the government or to private
parties for cleanup costs, even if the lender does not cause or contribute to
the contamination. Liability under some federal or state statutes may not be
limited to the original or unamortized principal balance of a loan or to the
value of the property securing a loan. CERCLA imposes strict, as well as joint
and several, liability on several classes of potentially responsible parties,
including current owners and operators of the property, regardless of whether
they caused or contributed to the contamination. Many states have laws similar
to CERCLA.
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Lenders may be held liable under CERCLA as owners or operators. Excluded
from CERCLA's definition of "owner or operator," however, is a person "who
without participating in the management of the facility, holds indicia of
ownership primarily to protect his security interest." This exemption for
holders of a security interest such as a secured lender applies only in
circumstances where the lender acts to protect its security interest in the
contaminated facility or property. Thus, if a lender's activities encroach on
the actual management of such facility or property, the lender faces potential
liability as an "owner or operator" under CERCLA. Similarly, when a lender
forecloses and takes title to a contaminated facility or property (whether it
holds the facility or property as an investment or leases it to a third party),
the lender may incur potential CERCLA liability.
Whether actions taken by a lender would constitute such an encroachment on
the actual management of a facility or property, so as to render the secured
creditor exemption unavailable to the lender has been a matter of judicial
interpretation of the statutory language, and court decisions have historically
been inconsistent.
This 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 lists permissible actions that may be undertaken by a lender
holding security in a contaminated facility without exceeding the bounds of the
secured creditor exemption, subject to certain conditions and limitations. The
Asset Conservation Act provides that in order to be deemed to have participated
in the management of a secured property, a lender must actually participate in
the operational affairs of the property or the borrower. The Asset Conservation
Act also provides that a lender will continue to have the benefit of the secured
creditor exemption even if it forecloses on a mortgaged property, purchases it
at a foreclosure sale or accepts a deed-in-lieu of foreclosure provided that the
lender seeks to sell the mortgaged property at the earliest practicable
commercially reasonable time on commercially reasonable terms. The protections
afforded lenders under the Asset Conversion Act are subject to terms and
conditions that have not been clarified by the courts.
The secured creditor exemption does not protect a lender from liability
under CERCLA in cases where the lender arranges for disposal of hazardous
substances or for transportation of hazardous substances. In addition, the
secured creditor exemption does not govern liability for cleanup costs under
federal laws other than CERCLA. 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
clean up of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed-in-lieu of foreclosure
or otherwise, may be required to cleanup the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law causes
of action (for example, actions based on nuisance or on toxic tort resulting in
death, personal injury or damage to property) related to hazardous environmental
conditions on a property. While it may be more difficult to hold a lender liable
in such cases, unanticipated or uninsurable liabilities of the borrower may
jeopardize the borrower's ability to meet its loan obligations.
If a lender is or becomes liable, it may bring an action for contribution
against the owner or operator who created the environmental hazard, but that
person or entity may be bankrupt or otherwise judgment proof. It is possible
that cleanup costs could become a liability of the Trust Fund and occasion a
loss to Certificateholders in certain circumstances described above if such
remedial costs were incurred.
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Unless otherwise provided in the related Prospectus Supplement, the
Warrantying Party with respect to any Whole Loan included in a Trust Fund for a
particular series of Certificates will represent that a "Phase I Assessment" as
described in and meeting the requirements of the then current version of Chapter
5 of the Federal National Mortgage Association ("FNMA") Multifamily Guide has
been received and reviewed. In addition, unless otherwise provided in the
related Prospectus Supplement, the related Agreement will provide that the
Master Servicer, acting on behalf of the Trustee, may not acquire title to a
Mortgaged Property or take over its operation unless the Master Servicer has
previously determined, based on a report prepared by a person who regularly
conducts environmental audits, that: (i) such Mortgaged Property is in
compliance with applicable environmental laws, and there are no circumstances
present at the Mortgaged Property relating to the use, management or disposal of
any hazardous substances, hazardous materials, wastes, or petroleum based
materials for which investigation, testing, monitoring, containment, clean-up or
remediation could be required under any federal, state or local law or
regulation; or (ii) if such Mortgaged Property is not so in compliance or such
circumstances are so present, then it would be in the best economic interest of
the Trust Fund to acquire title to the Mortgaged Property and further to take
such actions as would be necessary and appropriate to effect such compliance
and/or respond to such circumstances. This requirement effectively precludes
enforcement of the security for the related Mortgage Note until a satisfactory
environmental inquiry is undertaken or any required remedial action is provided
for, reducing the likelihood that a given Trust Fund will become liable for any
condition or circumstance that may give rise to any environmental claim (an
"Environmental Hazard Condition") affecting a Mortgaged Property, but making it
more difficult to realize on the security for the Mortgage Loan. However, there
can be no assurance that any environmental assessment obtained by the Master
Servicer or a Special Servicer, as the case may be, will detect all possible
Environmental Hazard Conditions or that the other requirements of the Agreement,
even if fully observed by the Master Servicer or Special Servicer, as the case
may be, will in fact insulate a given Trust Fund from liability for
Environmental Hazard Conditions. See "Description of the Agreements--Realization
Upon Defaulted Whole Loans."
Unless otherwise specified in the related Prospectus Supplement, the
Depositor generally will not have determined whether environmental assessments
have been conducted with respect to the Mortgaged Properties relating to the
Mortgage Loans included in the Mortgage Pool for a Series, and it is likely that
any environmental assessments which would have been conducted with respect to
any of the Mortgaged Properties would have been conducted at the time of the
origination of the related Mortgage Loans and not thereafter. If specified in
the related Prospectus Supplement, a Warrantying Party will represent and
warrant that, as of the date of initial issuance of the Certificates of a Series
or as of another specified date, no related Mortgaged Property is affected by a
Disqualifying Condition (as defined below). In the event that, following a
default in payment on a Mortgage Loan that continues for 60 days, (i) the
environmental inquiry conducted by the Master Servicer or Special Servicer, as
the case may be, prior to any foreclosure indicates the presence of a
Disqualifying Condition that arose prior to the date of initial issuance of the
Certificates of a Series and (ii) the Master Servicer or the Special Servicer
certify that it has acted in compliance with the Servicing Standard and has not,
by any action, created, caused or contributed to a Disqualifying Condition the
Warrantying Party, at its option, will reimburse the Trust Fund, cure such
Disqualifying Condition or repurchase or substitute the affected Whole Loan, as
described under "Description of the Agreements--Representations and Warranties;
Repurchases." No such person will however, be responsible for any Disqualifying
Condition which may arise on a Mortgaged Property after the date of initial
issuance of the Certificates of the related Series, whether due to actions of
the Mortgagor, the Master Servicer, the Special Servicer or any other person. It
may not always be possible to determine whether a Disqualifying Condition arose
prior or subsequent to the date of the initial issuance of the Certificates of a
Series.
A "Disqualifying Condition" is defined generally as a condition, existing
as a result of, or arising from, the presence of Hazardous Materials (as defined
below) on a Mortgaged Property, such that the Mortgage Loan secured by the
affected Mortgaged Property would be ineligible, solely by reason of such
condition, for purchase by FNMA under the relevant provisions of FNMA's
Multifamily Seller/Servicer Guide in effect as of the date of initial issuance
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.
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"Hazardous Materials" are generally defined under several federal and state
statutes, and include dangerous toxic or hazardous pollutants, chemicals, wastes
or substances, including, without limitation, those so identified pursuant to
CERCLA and RCRA, and specifically including, asbestos and asbestos containing
materials, polychlorinated biphenyls, radon gas, petroleum and petroleum
products, urea formaldehyde and any substances classified as being "in
inventory," "usable work in process" or similar classification which would, if
classified as unusable, be included in the foregoing definition.
Due-on-Sale and Due-on-Encumbrance
Certain of the Mortgage Loans may contain due-on-sale and
due-on-encumbrance clauses. These clauses generally provide that the lender may
accelerate the maturity of the loan if the mortgagor sells or otherwise
transfers or encumbers the related Mortgaged Property. Certain of these clauses
may provide that, upon an attempted breach thereof by the mortgagor of an
otherwise non-recourse loan, the mortgagor becomes personally liable for the
mortgage debt. The enforceability of due-on-sale clauses has been the subject of
legislation or litigation in many states and, in some cases, the enforceability
of these clauses was limited or denied. However, with respect to certain loans
the Garn-St Germain Depository Institutions Act of 1982 preempts state
constitutional, statutory and case law that prohibits the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms subject to certain limited exceptions. Unless otherwise
provided in the related Prospectus Supplement, a Master Servicer, on behalf of
the Trust Fund, will determine whether to exercise any right the Trustee may
have as mortgagee to accelerate payment of any such Mortgage Loan or to withhold
its consent to any transfer or further encumbrance in a manner consistent with
the Servicing Standard.
In addition, under federal bankruptcy laws, due-on-sale clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances, be
eliminated in any modified mortgage resulting from such bankruptcy proceeding.
Subordinate Financing
Where a mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and the
senior loan does not, a mortgagor may be more likely to repay sums due on the
junior loan than those on the senior loan. Second, acts of the senior lender
that prejudice the junior lender or impair the junior lender's security may
create a superior equity in favor of the junior lender. For example, if the
mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions taken
by junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
Default Interest, Prepayment Charges and Prepayments
Forms of notes and mortgages used by lenders may contain provisions
obligating the mortgagor to pay a late charge or additional interest if payments
are not timely made, and in some circumstances may provide for prepayment fees
or yield maintenance penalties if the obligation is paid prior to maturity or
prohibit such prepayment for a specified period. In certain states, there are or
may be specific limitations upon the late charges which a lender may collect
from a mortgagor for delinquent payments. Certain states also limit the amounts
that a lender may collect from a mortgagor as an additional charge if the loan
is prepaid. The enforceability, under the laws of a number of states of
provisions providing for prepayment fees or penalties upon, or prohibition of,
an involuntary prepayment is unclear, and no assurance can be given that, at the
time a Prepayment Premium is required to be made on a Mortgage Loan in
connection with an involuntary prepayment, the obligation to make such payment,
or the provisions of any such
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prohibition, will be enforceable under applicable state law. The absence of a
restraint on prepayment, particularly with respect to Mortgage Loans having
higher Mortgage Rates, may increase the likelihood of refinancing or other early
retirements of the Mortgage Loans.
Acceleration on Default
Unless otherwise specified in the related prospectus Supplement, some of
the Mortgage Loans included in the Mortgage Pool for a Series will include a
"debt-acceleration" clause, which permits the lender to accelerate the full debt
upon a monetary or nonmonetary default of the Mortgagor. The courts of all
states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
equity courts of the state, however, may refuse to foreclose a mortgage or deed
of trust when an acceleration of the indebtedness would be inequitable or unjust
or the circumstances would render the acceleration unconscionable. Furthermore,
in some states, the mortgagor may avoid foreclosure and reinstate an accelerated
loan by paying only the defaulted amounts and the costs and attorneys' fees
incurred by the lender in collecting such defaulted payments.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential (including
multifamily but not other commercial) first mortgage loans originated by certain
lenders after March 31, 1980. A similar federal statute was in effect with
respect to mortgage loans made during the first three months of 1980. The
statute authorized any state to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision that expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits and/or to limit
discount points or other charges.
The Depositor has been advised by counsel that a court interpreting Title V
would hold that residential first mortgage loans that are originated on or after
January 1, 1980 are subject to federal preemption. Therefore, in a state that
has not taken the requisite action to reject application of Title V or to adopt
a provision limiting discount points or other charges prior to origination of
such mortgage loans, any such limitation under such state's usury law would not
apply to such mortgage loans.
In any state in which application of Title V has been expressly rejected or
a provision limiting discount points or other charges is adopted, no Mortgage
Loan originated after the date of such state action will be eligible for
inclusion in a Trust Fund unless (i) such Mortgage Loan provides for such
interest rate, discount points and charges as are permitted in such state or
(ii) such Mortgage Loan provides that the terms thereof shall be construed in
accordance with the laws of another state under which such interest rate,
discount points and charges would not be usurious and the mortgagor's counsel
has rendered an opinion that such choice of law provision would be given effect.
Statutes differ in their provisions as to the consequences of a usurious
loan. One group of statutes requires the lender to forfeit the interest due
above the applicable limit or impose a specified penalty. Under this statutory
scheme, the mortgagor may cancel the recorded mortgage or deed of trust upon
paying its debt with lawful interest, and the lender may foreclose, but only for
the debt plus lawful interest. A second group of statutes is more severe. A
violation of this type of usury law results in the invalidation of the
transaction, thereby permitting the mortgagor to cancel the recorded mortgage or
deed of trust without any payment or prohibiting the lender from foreclosing.
Certain Laws and Regulations; Types of Mortgaged Properties
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgage Property which could, together with the
possibility of limited alternative uses 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
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on Mortgaged Properties which are owned by the Mortgagor under a condominium
form of ownership are subject to the declaration, by-laws and other rules and
regulations of the condominium association. Mortgaged Properties which are
hotels or motels may present additional risk in that hotels and motels are
typically operated pursuant to franchise, management and operating agreements
which may be terminable by the operator, and the transferability of the hotel's
operating, liquor and other licenses to the entity acquiring the hotel either
through purchases or foreclosure is subject to the vagaries of local law
requirements. In addition, Mortgaged Properties which are multifamily
residential properties may be subject to rent control laws, which could impact
the future cash flows of such properties.
Americans With Disabilities Act
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the Mortgagor in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the Mortgagor as owner of landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
Mortgagor of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the Mortgagor is subject.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a mortgagor who enters military service after the
origination of such mortgagor's Mortgage Loan (including a mortgagor who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such mortgagor's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
mortgagors who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to mortgagors
who enter military service (including reservists who are called to active duty)
after origination of the related Mortgage Loan, no information can be provided
as to the number of loans that may be affected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability of any servicer to collect full amounts of interest on certain of the
Mortgage Loans. Any shortfalls in interest collections resulting from the
application of the Relief Act would result in a reduction of the amounts
distributable to the holders of the related series of Certificates, and would
not be covered by advances or, unless otherwise specified in the related
Prospectus Supplement, any form of Credit Support provided in connection with
such Certificates. In addition, the Relief Act imposes limitations that would
impair the ability of the servicer to foreclose on an affected Mortgage Loan
during the mortgagor's period of active duty status, and, under certain
circumstances, during an additional three month period thereafter. Thus, in the
event that such a Mortgage Loan goes into default, there may be delays and
losses occasioned thereby.
Forfeitures in Drug and RICO Proceedings
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures
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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 Latham & Watkins or Brown & Wood
LLP or such other counsel as may be specified in the related Prospectus
Supplement, counsel to the Depositor. This summary is based on laws,
regulations, including the REMIC regulations promulgated by the Treasury
Department (the "REMIC Regulations"), rulings and decisions now in effect or
(with respect to regulations) proposed, all of which are subject to change
either prospectively or retroactively. This summary does not address the federal
income tax consequences of an investment in Certificates applicable to all
categories of investors, some of which (for example, banks and insurance
companies) may be subject to special rules. Prospective investors should consult
their tax advisors regarding the federal, state, local and any other tax
consequences to them of the purchase, ownership and disposition of Certificates.
General
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund relating to a
particular Series of Certificates as a REMIC under the Code. The Prospectus
Supplement for each Series of Certificates will specify whether a REMIC election
will be made.
Grantor Trust Funds
If a REMIC election is not made, Sidley & Austin or Latham & Watkins or
Brown & Wood LLP or such other counsel as may be specified in the related
Prospectus Supplement will deliver its opinion that the Trust Fund will not be
classified as an association taxable as a corporation and that each such Trust
Fund will be classified as a grantor trust under subpart E, Part I of subchapter
J of 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
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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 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 Latham & Watkins or Brown & Wood LLP
or such other counsel as may be specified in the related Prospectus Supplement
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
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Certificateholder that makes this election for a Mortgage Asset or any other
debt instrument that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder acquires during the year of
the election or thereafter.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Grantor Trust Certificate representing an interest
in a Mortgage Asset or Mortgage Loan acquired at a premium should recognize a
loss if a Mortgage Loan (or an underlying mortgage loan with respect to a
Mortgage Asset) prepays in full, equal to the difference between the portion of
the prepaid principal amount of such Mortgage Loan (or underlying mortgage loan)
that is allocable to the Certificate and the portion of the adjusted basis of
the Certificate that is allocable to such Mortgage Loan (or underlying mortgage
loan). If a reasonable prepayment assumption is used to amortize such premium,
it appears that such a loss would be available, if at all, only if prepayments
have occurred at a rate faster than the reasonable assumed prepayment rate. It
is not clear whether any other adjustments would be required to reflect
differences between an assumed prepayment rate and the actual rate of
prepayments.
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
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and (ii) a fraction, the numerator of which is the OID accruing during the
period and the denominator of which is the total remaining OID at the beginning
of the accrual period. For Grantor Trust Certificates issued without OID, the
amount of market discount that accrues during a period is equal to the product
of (i) the total remaining market discount and (ii) a fraction, the numerator of
which is the amount of stated interest paid during the accrual period and the
denominator of which is the total amount of stated interest remaining to be paid
at the beginning of the accrual period. For purposes of calculating market
discount under any of the above methods in the case of instruments (such as the
Grantor Trust Certificates) that provide for payments that may be accelerated by
reason of prepayments of other obligations securing such instruments, the same
prepayment assumption applicable to calculating the accrual of OID will apply.
Because the regulations described above have not been issued, it is impossible
to predict what effect those regulations might have on the tax treatment of a
Grantor Trust Certificate purchased at a discount or premium in the secondary
market.
A holder who acquired a Grantor Trust Certificate at a market discount also
may be required to defer a portion of its interest deductions for the taxable
year attributable to any indebtedness incurred or continued to purchase or carry
such Grantor Trust Certificate purchased with market discount. For these
purposes, the de minimis rule referred to above applies. Any such deferred
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which such market discount is includible in income. If such holder elects to
include market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method for Certificates acquired on or after April 4,
1994. If such an election were to be made with respect to a Grantor Trust
Certificate with market discount, the Certificateholder would be deemed to have
made an election to include in income currently market discount with respect to
all other debt instruments having market discount that such Certificateholder
acquires during the year of the election or thereafter. Similarly, a
Certificateholder that makes this election for a Certificate that is acquired at
a premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. See "--Premium" herein. The election to
accrue interest, discount and premium on a constant yield method with respect to
a Certificate is irrevocable without consent of the IRS.
Anti-Abuse Rule. The 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").
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Servicing fees in excess of reasonable servicing fees ("excess servicing")
will be treated under the stripped bond rules. If the excess servicing fee is
less than 100 basis points (i.e., 1% interest on the Mortgage Asset principal
balance) or the Certificates are initially sold with a de minimis discount
(assuming no prepayment assumption is required), any non-de minimis discount
arising from a subsequent transfer of the Certificates should be treated as
market discount. The IRS appears to require that reasonable servicing fees be
calculated on a Mortgage Asset by Mortgage Asset basis, which could result in
some Mortgage Assets being treated as having more than 100 basis points of
interest stripped off. See "--Non-REMIC Certificates" and "Multiple Classes of
Grantor Trust Certificates--Stripped Bonds and Stripped Coupons" herein.
Although not entirely clear, a Stripped Bond Certificate generally should
be treated as an interest in Mortgage Assets issued on the day such Certificate
is purchased for purposes of calculating any OID. Generally, if the discount on
a Mortgage Asset is larger than a de minimis amount (as calculated for purposes
of the OID rules) a purchaser of such a Certificate will be required to accrue
the discount under the OID rules of the Code. See "--Non-REMIC Certificates" and
"--Single Class of Grantor Trust Certificates--Original Issue Discount" herein.
However, a purchaser of a Stripped Bond Certificate will be required to account
for any discount on the Mortgage Assets as market discount rather than OID if
either (i) the amount of OID with respect to the Mortgage Assets is treated as
zero under the OID de minimis rule when the Certificate was stripped or (ii) no
more than 100 basis points (including any amount of servicing fees in excess of
reasonable servicing fees) is stripped off of the Trust Fund's Mortgage Assets.
Pursuant to Revenue Procedure 91-49, issued on August 8, 1991, purchasers of
Stripped Bond Certificates using an inconsistent method of accounting must
change their method of accounting and request the consent of the IRS to the
change in their accounting method on a statement attached to their first timely
tax return filed after August 8, 1991.
The precise tax treatment of Stripped Coupon Certificates is substantially
uncertain. The Code could be read literally to require that OID computations be
made for each payment from each Mortgage Asset. 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
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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 that adjust periodically ("ARM Loans") likely will be
computed as described below under "--Accrual of Original Issue Discount." The
following discussion is based in part on the OID Regulations and in part on the
provisions of the Tax Reform Act of 1986 (the "1986 Act"). The OID Regulations
generally are effective for debt instruments issued on or after April 4, 1994,
but may be relied upon as authority with respect to debt instruments, such as
the Grantor Trust Certificates, issued after December 21, 1992. Alternatively,
proposed Treasury regulations issued December 21, 1992 may be treated as
authority for debt instruments issued after December 21, 1992 and prior to April
4, 1994, and proposed Treasury regulations issued in 1986 and 1991 may be
treated as authority for instruments issued before December 21, 1992. In
applying these dates, the issue date of the Mortgage Assets should be used, or,
in the case of Stripped Bond Certificates or Stripped Coupon Certificates, the
date such Certificates are acquired. The holder of a Certificate should be
aware, however, that neither the proposed OID Regulations nor the OID
Regulations adequately address certain issues relevant to prepayable securities.
Under the Code, the Mortgage Assets underlying the Grantor Trust
Certificate will be treated as having been issued on the date they were
originated with an amount of OID equal to the excess of such Mortgage Asset's
stated redemption price at maturity over its issue price. The issue price of a
Mortgage Asset is generally the amount lent to the mortgagee, which may be
adjusted to take into account certain loan origination fees. The stated
redemption price at maturity of a Mortgage Asset is the sum of all payments to
be made on such Mortgage Asset other than payments that are treated as qualified
stated interest payments. The accrual of this OID, as described below under
"--Accrual of Original Issue Discount," will, unless otherwise specified in the
related Prospectus Supplement, utilize the original yield to maturity of the
Grantor Trust Certificate calculated based on a reasonable assumed prepayment
rate for the mortgage loans underlying the Grantor Trust Certificates (the
"Prepayment Assumption") on the issue date of such Grantor Trust Certificate,
and will take into account events that occur during the calculation period. The
Prepayment Assumption will be determined in the manner prescribed by regulations
that have not yet been issued. In the absence of such regulations, the
Prepayment Assumption used will be the prepayment assumption that is used in
determining the offering price of such Certificate. No representation is made
that any Certificate will prepay at the Prepayment Assumption or at any other
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rate. The prepayment assumption contained in the Code literally only applies to
debt instruments collateralized by other debt instruments that are subject to
prepayment rather than direct ownership interests in such debt instruments, such
as the Certificates represent. However, no other legal authority provides
guidance with regard to the proper method for accruing OID on obligations that
are subject to prepayment, and, until further guidance is issued, the Master
Servicer intends to calculate and report OID under the method described below.
Accrual of Original Issue Discount. Generally, the owner of a Grantor Trust
Certificate must include in gross income the sum of the "daily portions," as
defined below, of the OID on such Grantor Trust Certificate for each day on
which it owns such Certificate, including the date of purchase but excluding the
date of disposition. In the case of an original owner, the daily portions of OID
with respect to each component generally will be determined as set forth under
the OID Regulations. A calculation will be made by the Master Servicer or such
other entity specified in the related Prospectus Supplement of the portion of
OID that accrues during each successive monthly accrual period (or shorter
period from the date of original issue) that ends on the day in the calendar
year corresponding to each of the Distribution Dates on the Grantor Trust
Certificates (or the day prior to each such date). This will be done, in the
case of each full month accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the respective component under the Prepayment
Assumption) of all remaining payments to be received under the Prepayment
Assumption on the respective component and (b) any payments included in the
stated redemption price at maturity received during such accrual period, and
(ii) subtracting from that total the "adjusted issue price" of the respective
component at the beginning of such accrual period. The adjusted issue price of a
Grantor Trust Certificate at the beginning of the first accrual period is its
issue price; the adjusted issue price of a Grantor Trust Certificate at the
beginning of a subsequent accrual period is the adjusted issue price at the
beginning of the immediately preceding accrual period plus the amount of OID
allocable to that accrual period reduced by the amount of any payment other than
a payment of qualified stated interest made at the end of or during that accrual
period. The OID accruing during such accrual period will then be divided by the
number of days in the period to determine the daily portion of OID for each day
in the period. With respect to an initial accrual period shorter than a full
monthly accrual period, the daily portions of OID must be determined according
to an appropriate allocation under any reasonable method.
Original issue discount generally must be reported as ordinary gross income
as it accrues under a constant interest method that takes into account the
compounding of interest as it accrues rather than when received. However, the
amount of original issue discount includible in the income of a holder of an
obligation is reduced when the obligation is acquired after its initial issuance
at a price greater than the sum of the original issue price and the 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
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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). Lower capital gains rates generally will apply
to individuals who hold Grantor Trust Certificates for more than 18 months.
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 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 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
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States or a trust if a court within the United States is able to exercise
primary supervision of the administration of the trust and one or more U.S.
Persons have the authority to control all substantial decisions of the trust.
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 Latham & Watkins or
Brown & Wood LLP or such other counsel as may be specified in the related
Prospectus Supplement will deliver its opinion generally to the effect that,
under then existing law and assuming compliance with all provisions of the
related Pooling and Servicing Agreement, such Trust Fund will qualify as a
REMIC, and the related Certificates will be considered to be regular interests
("REMIC Regular Certificates") or a sole class of residual interests ("REMIC
Residual Certificates") in the REMIC. The related Prospectus Supplement for each
Series of Certificates will indicate whether the Trust Fund will make a REMIC
election and whether a class of Certificates will be treated as a regular or
residual interest in the REMIC.
A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in such an obligation and any "regular interest"
in another REMIC) that is principally secured by an interest in real property
and that is transferred to the REMIC within a prescribed time period in exchange
for regular or residual interests in the REMIC.
In general, with respect to each Series of Certificates for which a REMIC
election is made, (i) Certificates held by a thrift institution taxed as a
"domestic building and loan association" will constitute assets described in
Code Section 7701(a)(19)(C); (ii) Certificates held by a real estate investment
trust will constitute "real estate assets" within the meaning of Code Section
856(c)(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.
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Tiered REMIC Structures. For certain Series of Certificates, two or more
separate elections may be made to treat designated portions of the related Trust
Fund as REMICs (respectively, the "Subsidiary REMIC" and the "Master REMIC") for
federal income tax purposes. Upon the issuance of any such Series of
Certificates, Sidley & Austin or Latham & Watkins or Brown & Wood LLP or such
other counsel as may be specified in the related Prospectus Supplement, counsel
to the Depositor, will deliver its opinion generally to the effect that,
assuming compliance with all provisions of the related Agreement, the Master
REMIC as well as any Subsidiary REMIC will each qualify as a REMIC, and the
REMIC Certificates issued by the Master REMIC and the Subsidiary REMIC or
REMICs, respectively, will be considered to evidence ownership of 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 a Subsidiary
REMIC, issued by the Master REMIC will be offered hereunder. The Subsidiary
REMIC or REMICs and the Master REMIC will be treated as one REMIC solely for
purposes of determining whether the REMIC Certificates will be (i) "real estate
assets" within the meaning of Section 856(c)(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
of the 1986 Act (the "Legislative History") provides, however, that Congress
intended the regulations to require that the Prepayment Assumption be the
prepayment assumption that is used in determining the initial offering price of
such REMIC Regular Certificates. The Prospectus Supplement for each Series of
REMIC Regular Certificates will specify the Prepayment Assumption to be used for
the purpose of determining the amount and rate of accrual of OID. No
representation is made that the REMIC Regular Certificates will prepay at the
Prepayment Assumption or at any other rate.
In general, each REMIC Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
"stated redemption price at maturity" over its "issue price." The issue price of
a REMIC Regular Certificate is the first price at which a substantial amount of
REMIC Regular Certificates of that class are first sold to the public (excluding
bond houses, brokers, underwriters or wholesalers). If less than a substantial
amount of a particular class of REMIC Regular Certificates is sold for cash on
or prior to the date of their initial issuance (the "Closing Date"), the issue
price for such class will be treated as the fair market value of such class on
the Closing Date. The issue
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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 contingent payment rules contained in final regulations issued on June
11, 1996, with respect to original issue discount, should apply to such
Certificates. Although such rules are not applicable to instruments governed by
Code Section 1272(a)(6), they represent the only guidance regarding the current
views of the
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IRS with respect to contingent payment instruments. These proposed regulations,
if applicable, generally would require holders of Regular Interest Certificates
to take the payments considered contingent interest payments into income on a
yield to maturity basis in accordance with a schedule of projected payments
provided by the Depositor and to make annual adjustments to income to account
for the difference between actual payments received and projected payment
amounts accrued. In the alternative, the IRS could assert that the stated
redemption price at maturity of such REMIC Regular Certificates should be
limited to their principal amount (subject to the discussion below under
"--Accrued Interest Certificates"), so that such REMIC Regular Certificates
would be considered for federal income tax purposes to be issued at a premium.
If such a position were to prevail, the rules described below under "--Taxation
of Owners of REMIC Regular Certificates--Premium" would apply. It is unclear
when a loss may be claimed for any unrecovered basis for a Super-Premium
Certificate. It is possible that a holder of a Super-Premium Certificate may
only claim a loss when its remaining basis exceeds the maximum amount of future
payments, assuming no further prepayments or when the final payment is received
with respect to such Super-Premium Certificate.
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
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be required to include in gross income the sum of the daily portions of OID on
that REMIC Regular Certificate. In computing the daily portions of OID for such
a purchaser (as well as an initial purchaser that purchases at a price higher
than the adjusted issue price but less than the stated redemption price at
maturity), however, the daily portion is reduced by the amount that would be the
daily portion for such day (computed in accordance with the rules set forth
above) multiplied by a fraction, the numerator of which is the amount, if any,
by which the price paid by such holder for that REMIC Regular Certificate
exceeds the following amount: (a) the sum of the issue price plus the aggregate
amount of OID that would have been includible in the gross income of an original
REMIC Regular Certificateholder (who purchased the REMIC Regular Certificate at
its issue price), less (b) any prior payments included in the stated redemption
price at maturity, and the denominator of which is the sum of the daily portions
for that REMIC Regular Certificate for all days beginning on the date after the
purchase date and ending on the maturity date computed under the Prepayment
Assumption. A holder who pays an acquisition premium instead may elect to accrue
OID by treating the purchase as a purchase at original issue.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates may
provide for interest based on a variable rate. Interest based on a variable rate
will constitute qualified stated interest and not contingent interest if,
generally, (i) such interest is unconditionally payable at least annually, (ii)
the issue price of the debt instrument does not exceed the total noncontingent
principal payments and (iii) interest is based on a "qualified floating rate,"
an "objective rate," a combination of a single fixed rate and one or more
"qualified floating rates," one "qualified inverse floating rate," or a
combination of "qualified floating rates "--that do not operate in a manner that
significantly accelerates or defers interest payments on such REMIC Regular
Certificates.
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
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price at maturity. In particular, under Section 1276 of the Code such a holder
generally will be required to allocate each such distribution first to accrued
market discount not previously included in income, and to recognize ordinary
income to that extent. A Certificateholder may elect to include market discount
in income currently as it accrues rather than including it on a deferred basis
in accordance with the foregoing. If made, such election will apply to all
market discount bonds acquired by such Certificateholder on or after the first
day of the first taxable year to which such election applies.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular Certificate
is less than 0.25% of such REMIC Regular Certificate's stated redemption price
at maturity multiplied by such REMIC Regular Certificate's weighted average
maturity remaining after the date of purchase. If market discount on a REMIC
Regular Certificate is considered to be zero under this rule, the actual amount
of market discount must be allocated to the remaining principal payments on the
REMIC Regular Certificate, and gain equal to such allocated amount will be
recognized when the corresponding principal payment is made. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond acquired
by the taxpayer after October 22, 1986, shall be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. The amount of accrued market discount for purposes of determining
the tax treatment of subsequent principal payments or dispositions of the market
discount bond is to be reduced by the amount so treated as ordinary income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, rules described in
the Legislative History will 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
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election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder acquires during the year of
the election or thereafter. It is not clear whether the Prepayment Assumption
would be taken into account in determining the life of the REMIC Regular
Certificate for this purpose. However, the Legislative History states that the
same rules that apply to accrual of market discount (which rules require use of
a Prepayment Assumption in accruing market discount with respect to REMIC
Regular Certificates without regard to whether such Certificates have OID) will
also apply in amortizing bond premium under Code Section 171. The Code provides
that amortizable bond premium will be allocated among the interest payments on
such REMIC Regular Certificates and will be applied as an offset against such
interest payment. On June 27, 1996, the IRS published in the Federal Register
proposed regulations on the amortization of bond premium. The foregoing
discussion is based in part on such proposed regulations. The proposed
regulations generally would be effective for Certificates acquired on or after
the date 60 days after the date they are published as final regulations in the
Federal Register. Certificateholders should consult their tax advisors regarding
the possibility of making an election to amortize any such bond premium.
Deferred Interest. Certain classes of REMIC Regular Certificates may
provide for the accrual of Deferred Interest with respect to one or more ARM
Loans. Any Deferred Interest that accrues with respect to a class of REMIC
Regular Certificates will constitute income to the holders of such Certificates
prior to the time distributions of cash with respect to such Deferred Interest
are made. It is unclear, under the OID Regulations, whether any of the interest
on such Certificates will constitute qualified stated interest or whether all or
a portion of the interest payable on such Certificates must be included in the
stated redemption price at maturity of the Certificates and accounted for as OID
(which could accelerate such inclusion). Interest on REMIC Regular Certificates
must in any event be accounted for under an accrual method by the holders of
such Certificates and, therefore, applying the latter analysis may result only
in a slight difference in the timing of the inclusion in income of interest on
such REMIC Regular Certificates.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption, or
retirement and the seller's adjusted basis in the REMIC Regular Certificate.
Such adjusted basis generally will equal the cost of the REMIC Regular
Certificate to the seller, increased by any OID and market discount included in
the seller's gross income with respect to the REMIC Regular Certificate, and
reduced (but not below zero) by payments included in the stated redemption price
at maturity previously received by the seller and by any amortized premium.
Similarly, a holder who receives a payment that is part of the stated redemption
price at maturity of a REMIC Regular Certificate will recognize gain equal to
the excess, if any, of the amount of the payment over an allocable portion of
the holder's adjusted basis in the REMIC Regular Certificate. A REMIC Regular
Certificateholder who receives a final payment that is less than the holder's
adjusted basis in the REMIC Regular Certificate will generally recognize a loss.
Except as provided in the following paragraph and as provided under "--Market
Discount" above, any such gain or loss will be capital gain or loss, provided
that the REMIC Regular Certificate is held as a "capital asset" (generally,
property held for investment) within the meaning of Code Section 1221.
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
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Certificate is part of a straddle, (iii) the REMIC Regular Certificate is
marketed or sold as producing capital gains, or (iv) other transactions to be
specified in Treasury regulations that have not yet been issued. If the sale or
other disposition of a REMIC Regular Certificate is part of a conversion
transaction, all or a portion of the gain realized upon the sale or other
disposition of the REMIC Regular Certificate would be treated as ordinary income
instead of capital gain.
The Certificates will be "evidences of indebtedness" within the meaning of
Code Section 582(c)(1), so that gain or loss recognized from the sale of a REMIC
Regular Certificate by a bank or a thrift institution to which such section
applies will be ordinary income or loss.
The REMIC Regular Certificate information reports will include a statement
of the adjusted issue price of the REMIC Regular Certificate at the beginning of
each accrual period. In addition, the reports will include information necessary
to compute the accrual of any market discount that may arise upon secondary
trading of REMIC Regular Certificates. Because exact computation of the accrual
of market discount on a constant yield method would require information relating
to the holder's purchase price which the REMIC may not have, it appears that the
information reports will only provide information pertaining to the appropriate
proportionate method of accruing market discount.
Accrued Interest Certificates. Certain of the REMIC Regular Certificates
("Payment Lag Certificates") may provide for payments of interest based on a
period that corresponds to the interval between Distribution Dates but that ends
prior to each such Distribution Date. The period between the Closing Date for
Payment Lag Certificates and their first Distribution Date may or may not exceed
such interval. Purchasers of Payment Lag Certificates for which the period
between the Closing Date and the first Distribution Date does not exceed such
interval could pay upon purchase of the REMIC Regular Certificates accrued
interest in excess of the accrued interest that would be paid if the interest
paid on the Distribution Date were interest accrued from Distribution Date to
Distribution Date. If a portion of the initial purchase price of a REMIC Regular
Certificate is allocable to interest that has accrued prior to the issue date
("pre-issuance accrued interest") and the REMIC Regular Certificate provides for
a payment of stated interest on the first payment date (and the first payment
date is within one year of the issue date) that equals or exceeds the amount of
the pre-issuance accrued interest, then the REMIC Regular Certificate's issue
price may be computed by subtracting from the issue price the amount of
pre-issuance accrued interest, rather than as an amount payable on the REMIC
Regular Certificate. However, it is unclear under this method how the OID
Regulations treat interest on Payment Lag Certificates. Therefore, in the case
of a Payment Lag Certificate, the Trust Fund intends to include accrued interest
in the issue price and report interest payments made on the first Distribution
Date as interest to the extent such payments represent interest for the number
of days that the Certificateholder has held such Payment Lag Certificate during
the first accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury regulations,
if the REMIC is considered to be a "single-class REMIC," a portion of the
REMIC's servicing, administrative and other non-interest expenses will be
allocated as a separate item to those REMIC Regular Certificateholders that are
"pass-through interest holders." Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of these
rules on an investment in the REMIC Regular Certificates. See "Pass-Through of
Non-Interest Expenses of the REMIC" under "Taxation of Owners of REMIC Residual
Certificates" below.
Effects of Defaults, Delinquencies and Losses. Certain Series of
Certificates may contain one or more classes of Subordinated Certificates, and
in the event there are defaults or delinquencies on the Mortgage Assets, amounts
that would otherwise be distributed on the Subordinated Certificates may instead
be distributed on the Senior Certificates. Subordinated Certificateholders
nevertheless will be required to report income with respect to such Certificates
under an accrual method without giving effect to delays and reductions in
distributions on such Subordinated Certificates attributable to defaults and
delinquencies on the Mortgage Assets, except to the extent that it can be
established that such amounts are uncollectible. As a result, the amount of
income reported by a Subordinated Certificateholder in any
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period could significantly exceed the amount of cash distributed to such holder
in that period. The holder will eventually be allowed a loss (or will be allowed
to report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Subordinated Certificate is reduced as a result of defaults
and delinquencies on the Mortgage Assets.
Although not entirely clear, it appears that holders of REMIC Regular
Certificates that are corporations should in general be allowed to deduct as an
ordinary loss any loss sustained during the taxable year on account of any such
Certificates becoming wholly or partially worthless, and that, in general,
holders of Certificates that are not corporations should be allowed to deduct as
a short-term capital loss any loss sustained during the taxable year on account
of any such Certificates becoming wholly worthless. Potential investors and
holders of the Certificates are urged to consult their own tax advisors
regarding the appropriate timing, amount and character of any loss sustained
with respect to such Certificates, including any loss resulting from the failure
to recover previously accrued interest or discount income. Special loss rules
are applicable to banks and thrift institutions, including rules regarding
reserves for bad debts. Such taxpayers are advised to consult their tax advisors
regarding the treatment of losses on Certificates.
Non-U.S. Persons. Generally, payments of interest (including any payment
with respect to accrued OID) on the REMIC Regular Certificates to a REMIC
Regular Certificateholder who is not a U.S. Person and is not engaged in a trade
or business within the United States will not be subject to federal withholding
tax if (i) such REMIC Regular Certificateholder does not actually or
constructively own 10 percent or more of the combined voting power of all
classes of equity in the Issuer; (ii) such REMIC Regular Certificateholder is
not a controlled foreign corporation (within the meaning of Code Section 957)
related to the Issuer; and (iii) such REMIC Regular Certificateholder complies
with certain identification requirements (including delivery of a statement,
signed by the REMIC Regular Certificateholder under penalties of perjury,
certifying that such REMIC Regular Certificateholder is a foreign person and
providing the name and address of such REMIC Regular Certificateholder). If a
REMIC Regular Certificateholder is not exempt from withholding, distributions of
interest to such holder, including distributions in respect of accrued OID, may
be subject to a 30% withholding tax, subject to reduction under any applicable
tax treaty. If the interest on a REMIC Regular Certificate is effectively
connected with the conduct by the Non-U.S. REMIC Regular Certificateholder of a
trade or business within the United States, then the Non-U.S. REMIC Regular
Certificateholder will be subject to U.S. income tax at regular graduated rates.
Such a Non-U.S. REMIC Regular Certificateholder also may be subject to the
branch profits tax.
Further, a REMIC Regular Certificate will not be included in the estate of
a non-resident alien individual that does not actually or constructively own 10%
or more of the combined voting power of all classes of equity in the Issuer and
will not be subject to United States estate taxes. However, Certificateholders
who are non-resident alien individuals should consult their tax advisors
concerning this question.
REMIC Regular Certificateholders who are not U.S. Persons and persons
related to such holders should not acquire any REMIC Residual Certificates, and
holders of REMIC Residual Certificates (the "REMIC Residual Certificateholder")
and persons related to REMIC Residual Certificateholders should not acquire any
REMIC Regular Certificates without consulting their tax advisors as to the
possible adverse tax consequences of doing so. In addition, the IRS may assert
that non-U.S Persons that own directly or indirectly, a greater than 10%
interest in any Mortgagor, and foreign corporations that are "controlled foreign
corporations" as to the United States of which such a Mortgagor is a "United
States shareholder" within the meaning of Section 951(b) of the Code, are
subject to United States withholding tax on interest distributed to them to the
extent of interest concurrently paid by the related Mortgagor.
For these purposes, a "U.S. Person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in, or under the laws of, the United States or any political subdivision
thereof, an estate the income of which from sources without the United States is
includible in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business or a trust
as to which (i) a court in the United States is able to exercise primary
supervision over its administration and (ii) one or more U.S. Persons have the
right to control all substantial decisions of the trust.
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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 or
cause the REMIC Residual Certificate to have negative "value." Investors should
consult their own tax advisors concerning the federal income tax treatment of a
REMIC Residual Certificate and the impact of such tax treatment on the after-tax
yield of a REMIC Residual Certificate.
A subsequent REMIC Residual Certificateholder also will report on its
federal income tax return amounts representing a daily share of the taxable
income of the REMIC for each day that such REMIC Residual Certificateholder owns
such REMIC Residual Certificate. Those daily amounts generally would equal the
amounts that would have been reported for the same days by an original REMIC
Residual Certificateholder, as described above. The Legislative History
indicates that certain adjustments may be appropriate to reduce (or increase)
the income of a subsequent holder of a REMIC Residual Certificate that purchased
such REMIC Residual Certificate at a price greater than (or less than) the
adjusted basis such REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder. See "--Sale or Exchange of REMIC
Residual Certificates" below. It is not clear, however, whether such adjustments
will in fact be permitted or required and, if so, how they would be made. The
REMIC Regulations do not provide for any such adjustments.
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Taxable Income of the REMIC Attributable to Residual Interests. The taxable
income of the REMIC will reflect a netting of (i) the income from the Mortgage
Assets and the REMIC's other assets and (ii) the deductions allowed to the REMIC
for interest and OID on the REMIC Regular Certificates and, except as described
above under "--Taxation of Owners of REMIC Regular Certificates--Non-Interest
Expenses of the REMIC," other expenses. REMIC taxable income is generally
determined in the same manner as the taxable income of an individual using the
accrual method of accounting, except that (i) the limitations on deductibility
of investment interest expense and expenses for the production of income do not
apply, (ii) all bad loans will be deductible as business bad debts, and (iii)
the limitation on the deductibility of interest and expenses related to
tax-exempt income will apply. The REMIC's gross income includes interest,
original issue discount income, and market discount income, if any, on the
Mortgage Loans, reduced by amortization of any premium on the Mortgage Loans,
plus income on reinvestment of cash flows and reserve assets, plus any
cancellation of indebtedness income upon allocation of realized losses to the
REMIC Regular Certificates. Note that the timing of cancellation of indebtedness
income recognized by REMIC Residual Certificateholders resulting from defaults
and delinquencies on Mortgage Assets may differ from the time of the actual loss
on the Mortgage Asset. The REMIC's deductions include interest and original
issue discount expense on the REMIC Regular Certificates, servicing fees on the
Mortgage Loans, other administrative expenses of the REMIC and realized losses
on the Mortgage Loans. The requirement that REMIC Residual Certificateholders
report their pro rata share of taxable income or net loss of the REMIC will
continue until there are no Certificates of any class of the related Series
outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the REMIC Regular Certificates and the REMIC Residual Certificates (or, if a
class of Certificates is not sold initially, its fair market value). Such
aggregate basis will be allocated among the Mortgage Assets and other assets of
the REMIC in proportion to their respective fair market value. A Mortgage Asset
will be deemed to have been acquired with discount or premium to the extent that
the REMIC's basis therein is less than or greater than its principal balance,
respectively. Any such discount (whether market discount or OID) will be
includible in the income of the REMIC as it accrues, in advance of receipt of
the cash attributable to such income, under a method similar to the method
described above for accruing OID on the REMIC Regular Certificates. The REMIC
may elect under Code Section 171 to amortize any premium on the Mortgage Assets.
Premium on any Mortgage Asset to which such election applies would be amortized
under a constant yield method. It is not clear whether the yield of a Mortgage
Asset would be calculated for this purpose based on scheduled payments or taking
account of the Prepayment Assumption. Additionally, such an election would not
apply to the yield with respect to any underlying mortgage loan originated on or
before September 27, 1985. Instead, premium with respect to such a mortgage loan
would be allocated among the principal payments thereon and would be deductible
by the REMIC as those payments become due.
The REMIC will be allowed a deduction for interest and OID on the REMIC
Regular Certificates. The amount and method of accrual of OID will be calculated
for this purpose in the same manner as described above with respect to REMIC
Regular Certificates except that the 0.25% per annum de minimis rule and
adjustments for subsequent holders described therein will not apply.
A REMIC Residual Certificateholder will not be permitted to amortize the
cost of the REMIC Residual Certificate as an offset to its share of the REMIC's
taxable income. However, REMIC taxable income will not include cash received by
the REMIC that represents a recovery of the REMIC's basis in its assets, and, as
described above, the issue price of the REMIC Residual Certificates will be
added to the issue price of the REMIC Regular Certificates in determining the
REMIC's initial basis in its assets. See "--Sale or Exchange of REMIC Residual
Certificates" below. For a discussion of possible adjustments to income of a
subsequent holder of a REMIC Residual Certificate to reflect any difference
between the actual cost of such REMIC Residual Certificate to such holder and
the adjusted basis such REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder, see "--Allocation of the Income of
the REMIC to the REMIC Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any calendar
quarter in which its deductions exceed its gross income. Such net loss would be
allocated among the REMIC Residual
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Certificateholders in the same manner as the REMIC's taxable income. The net
loss allocable to any REMIC Residual Certificate will not be deductible by the
holder to the extent that such net loss exceeds such holder's adjusted basis in
such REMIC Residual Certificate. Any net loss that is not currently deductible
by reason of this limitation may only be used by such REMIC Residual
Certificateholder to offset its share of the REMIC's taxable income in future
periods (but not otherwise). The ability of REMIC Residual Certificateholders
that are individuals or closely held corporations to deduct net losses may be
subject to additional limitations under the Code.
Mark to Market Rules. Prospective purchasers of a REMIC Residual
Certificate should be aware that the IRS has finalized regulations (the
"Mark-to-Market Regulations") which provide that a REMIC Residual Certificate
acquired after January 3, 1995 cannot be marked to market. The Mark-to-Market
Regulations replaced the temporary regulations which allowed a Residual
Certificate to be marked to market provided that it was not a "negative value"
residual interest and did not have the same economic effect as a "negative
value" residual interest.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule, all
of the fees and expenses of a REMIC will be taken into account by holders of the
REMIC Residual Certificates. In the case of a single class REMIC, however, the
expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the REMIC Regular Certificateholders and
the REMIC Residual Certificateholders on a daily basis in proportion to the
relative amounts of income accruing to each Certificateholder on that day. In
general terms, a single class REMIC is one that either (i) would qualify, under
existing Treasury regulations, as a grantor trust if it were not a REMIC
(treating all interests as ownership interests, even if they would be classified
as debt for federal income tax purposes) or (ii) is similar to such a trust and
is structured with the principal purpose of avoiding the single class REMIC
rules. Unless otherwise stated in the applicable Prospectus Supplement, the
expenses of the REMIC will be allocated to holders of the related REMIC Residual
Certificates in their entirety and not to holders of the related REMIC Regular
Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest in a
REMIC Regular Certificate or a REMIC Residual Certificate directly or through a
pass-through interest holder that is required to pass miscellaneous itemized
deductions through to its owners or beneficiaries (e.g. a partnership, an S
corporation or a grantor trust), such expenses will be deductible under Code
Section 67 only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such individual's adjusted
gross income. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a certain amount (the "Applicable Amount") will be reduced by the lesser
of (i) 3% of the excess of the individual's adjusted gross income over the
Applicable Amount or (ii) 80% of the amount of itemized deductions otherwise
allowable for the taxable year. The amount of additional taxable income
recognized by REMIC Residual Certificateholders who are subject to the
limitations of either Code Section 67 or Code Section 68 may be substantial.
Further, holders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holders' alternative minimum taxable income. The REMIC is required to report to
each pass-through interest holder and to the IRS such holder's allocable share,
if any, of the REMIC's non-interest expenses. The term "pass-through interest
holder" generally refers to individuals, entities taxed as individuals and
certain pass-through entities, but does not include real estate investment
trusts. Accordingly, investment in REMIC Residual Certificates will in general
not be suitable for individuals or for certain pass-through entities, such as
partnerships and S corporations, that have individuals as partners or
shareholders.
Excess Inclusions. A portion of the income on a REMIC Residual Certificate
(referred to in the Code as an "excess inclusion") for any calendar quarter will
be subject to federal income tax in all events. Thus, for example, an excess
inclusion (i) may not, except as described below, be offset by any unrelated
losses, deductions or loss carryovers of a REMIC Residual Certificateholder;
(ii) will be treated as "unrelated business taxable income" within the meaning
of Code Section 512 if the REMIC Residual Certificateholder is a pension fund or
any other organization that is subject to tax only on its unrelated business
taxable income (see "--Tax-Exempt Investors" below); and (iii) is not eligible
for any reduction in the rate of withholding tax in the case of a REMIC Residual
Certificateholder that is a foreign investor. See "--Non-U.S. Persons" below.
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Except as discussed in the following paragraph, with respect to any REMIC
Residual Certificateholder, the excess inclusions for any calendar quarter is
the excess, if any, of (i) the income of such REMIC Residual Certificateholder
for that calendar quarter from its REMIC Residual Certificate over (ii) the sum
of the "daily accruals" (as defined below) for all days during the calendar
quarter on which the REMIC Residual Certificateholder holds such REMIC Residual
Certificate. For this purpose, the daily accruals with respect to a REMIC
Residual Certificate are determined by allocating to each day in the calendar
quarter its ratable portion of the product of the "adjusted issue price" (as
defined below) of the REMIC Residual Certificate at the beginning of the
calendar quarter and 120 percent of the "Federal long-term rate" in effect at
the time the REMIC Residual Certificate is issued. For this purpose, the
"adjusted issue price" of a REMIC Residual Certificate at the beginning of any
calendar quarter equals the issue price of the REMIC Residual Certificate,
increased by the amount of daily accruals for all prior quarters, and decreased
(but not below zero) by the aggregate amount of payments made on the REMIC
Residual Certificate before the beginning of such quarter. The "federal
long-term rate" is an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published monthly by the
IRS.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Regulated investment companies, common trust funds and certain
cooperatives are subject to similar rules.
The Small Business Job Protection Act of 1996 has eliminated the special
rule permitting Section 593 institutions ("thrift institutions") to use net
operating losses and other allowable deductions to offset their excess inclusion
income from REMIC residual certificates that have "significant value" within the
meaning of the REMIC Regulations, effective for taxable years beginning after
December 31, 1995, except with respect to residual certificates continuously
held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative minimum
taxable income of a residual holder. First, alternative minimum taxable income
for such residual holder is determined without regard to the special rule that
taxable income cannot be less than excess inclusions. Second, the amount of any
alternative minimum tax net operating loss deductions must be computed without
regard to any excess inclusions. Third, a residual holder's alternative minimum
taxable income for a tax year cannot be less than excess inclusions for the
year. The effect of this last statutory amendment is to prevent the use of
nonrefundable tax credits to reduce a taxpayer's income tax below its tentative
minimum tax computed only on excess inclusions. These rules are effective for
tax years beginning after December 31, 1986, unless a residual holder elects to
have such rules apply only to tax years beginning after August 20, 1996.
Payments. Any distribution made on a REMIC Residual Certificate to a REMIC
Residual Certificateholder will be treated as a non-taxable return of capital to
the extent it does not exceed the REMIC Residual Certificateholder's adjusted
basis in such REMIC Residual Certificate. To the extent a distribution exceeds
such adjusted basis, it will be treated as gain from the sale of the REMIC
Residual Certificate.
Sale or Exchange of REMIC Residual Certificates. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or exchange
and its adjusted basis in the REMIC Residual Certificate (except that the
recognition of loss may be limited under the "wash sale" rules described below).
A holder's adjusted basis in a REMIC Residual Certificate generally equals the
cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder, increased by the taxable income of the REMIC that was
included in the income of such REMIC Residual Certificateholder with respect to
such REMIC Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to such REMIC Residual
Certificateholder with respect to such REMIC Residual Certificate and by the
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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.
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
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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 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
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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.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a REMIC Residual Certificate may be
purchased, transferred or sold, directly or indirectly, without the express
written consent of the Master Servicer. The Master Servicer will grant such
consent to a proposed transfer only if it receives the following: (i) an
affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the REMIC Residual
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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.
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
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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
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain restrictions on employee benefit plans subject
thereto ("ERISA Plans") and on persons who are parties in interest or
disqualified persons ("parties in interest") with respect to such ERISA Plans.
Certain employee benefit plans, such as governmental plans and church plans (if
no election has been made under Section 410(d) of the Code), are not subject to
the restrictions of ERISA, and assets of such plans may be invested in the
Certificates without regard to the ERISA considerations described below, subject
to other applicable federal, state or local law. However, any such governmental
or church plan which is qualified under Section 401(a) of the Code and exempt
from taxation under Section 501(a) of the Code is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that an ERISA Plan's investments be made in
accordance with the documents governing the ERISA Plan.
Prohibited Transactions
General
Section 406 of ERISA prohibits parties in interest with respect to an ERISA
Plan from engaging in certain transactions involving such Plan and its assets
unless a statutory or administrative exemption applies to the transaction. In
some cases, a civil penalty may be assessed on non-exempt prohibited
transactions pursuant to Section 502(i) of ERISA. Section 4975 of the Code
imposes certain excise taxes on similar transactions between employee benefit
plans and certain other retirement plans and arrangements, including individual
retirement accounts or annuities and Keogh plans, subject thereto and
disqualified persons with respect to such plans and arrangements (together with
ERISA Plans, "Plans").
The United States Department of Labor ("Labor") has issued a final
regulation (29 C.F.R. Section 2510.3-101) containing rules for determining what
constitutes the assets of a Plan. This regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships, trusts
and certain other entities in which a Plan makes an "equity investment" will be
deemed for purposes of ERISA and Section 4975 of the Code to be assets of the
Plan unless certain exceptions apply.
Under the terms of the regulation, the Trust may be deemed to hold plan
assets by reason of a Plan's investment in a Certificate; such plan assets would
include an undivided interest in the Mortgage Loans and any other assets held by
the Trust. In such an event, the Depositor, the Master Servicer, any
Sub-Servicer, the Trustee, any insurer of the Mortgage Assets and other persons,
in providing services with respect to the assets of the Trust, 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.
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 Plans as well as employee benefit plans
not subject to Title I of ERISA (e.g., governmental plans and foreign plans) and
entities whose underlying assets include plan assets by reason of plan
investment in such entities. The 25% limitation must be met with respect to each
class of equity interests, regardless of the portion of total equity value
represented by such class, on an ongoing basis.
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Availability of Underwriter's Exemption for Certificates
Labor has granted to Morgan Stanley & Co. Incorporated Prohibited
Transaction Exemption 90-24, Exemption Application No. D-8019, 55 Fed. Reg.
20548 (1990) (the "Exemption") which exempts from the application of the
prohibited transaction rules transactions relating to: (1) the acquisition, sale
and holding by Plans of certain certificates representing an undivided interest
in certain asset-backed pass-through trusts, with respect to which Morgan
Stanley & Co. Incorporated or any of its affiliates is the sole underwriter or
the manager or co-manager of the underwriting syndicate; and (2) the servicing,
operation and management of such asset-backed pass-through trusts, provided that
the general conditions and certain other conditions set forth in the Exemption
are satisfied.
General Conditions of the Exemption. Section II of the Exemption sets forth
the following general conditions which must be satisfied before a transaction
involving the acquisition, sale and holding of the Certificates or a transaction
in connection with the servicing, operation and management of the Trust may be
eligible for exemptive relief thereunder:
(1) The acquisition of the Certificates by a Plan is on terms
(including the price for such Certificates) that are at least as favorable
to the investing Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust with respect to the right to receive
payment in the event of default or delinquencies in the underlying assets
of the Trust;
(3) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic
rating categories from any of Duff & Phelps Credit Rating Co., Fitch
Investors Service, L.P., Moody's Investors Service, Inc. and Standard &
Poor's Ratings Services;
(4) The Trustee is not an affiliate of the Depositor, any Underwriter,
the Master Servicer, 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.
Before purchasing a Certificate in reliance on the Exemption, a fiduciary
of a Plan should itself confirm (a) that the Certificates constitute
"certificates" for purposes of the Exemption and (b) that the general conditions
and other requirements set forth in the Exemption would be satisfied.
Review by Plan Fiduciaries
Any Plan fiduciary considering whether to purchase any Certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Among other things, before purchasing any
Certificates, a fiduciary of a Plan should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions. In
this regard, purchasers that are insurance companies should determine the extent
to which Prohibited Transaction Class Exemption 95-60 (for certain transactions
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involving insurance company general accounts) may be available. The Prospectus
Supplement with respect to a series of Certificates may contain additional
information regarding the application of the Exemption, Prohibited Transaction
Class Exemption 83-1 (for certain transactions involving mortgage pool
investment trusts), or any other exemption, with respect to the Certificates
offered thereby.
LEGAL INVESTMENT
The Prospectus Supplement for each series of Offered Certificates will
identify those classes of Offered Certificates, if any, which constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"). Those classes of Offered
Certificates that (i) are rated in one of the two highest rating categories by
one or more Rating Agencies and (ii) are part of a series representing interests
in, or secured by, a Trust Fund consisting of Mortgage Loans or MBS, provided
that such Mortgage Loans (or the Mortgage Loans underlying the MBS) are secured
by first liens on Mortgaged Property and were originated by certain types of
originators as specified in SMMEA, will be "mortgage related securities" for
purposes of SMMEA (the "SMMEA Certificates"). As "mortgage related securities,"
the SMMEA Certificates will constitute legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including, but not limited to, 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. Pursuant
to SMMEA, a number of states 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. Pursuant to Section 347
of the Riegle Community Development and Regulatory Improvement Act of 1994,
which amended the definition of "mortgage related security" (effective December
31, 1996) to include, in relevant part, Offered Certificates satisfying the
rating, first lien and qualified originator requirements for "mortgage related
securities," but representing interests in, or secured by, a Trust Fund
consisting, in whole or in part, of first liens on one or more parcels of real
estate upon which are located one or more commercial structures, states were
authorized to enact legislation, on or before September 23, 2001, specifically
referring to Section 347 and prohibiting or restricting the purchase, holding or
investment by state-regulated entities in such types of Offered Certificates.
Investors affected by such legislation will be authorized to invest in SMMEA
Certificates only to the extent provided in 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 in "mortgage related
securities" without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
Section 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, the Office of
the Comptroller of the Currency (the "OCC") has amended 12 C.F.R. Part 1 to
authorize national banks to purchase and sell for their own account, without
limitation as to a percentage of the bank's capital and surplus (but subject to
compliance with certain general standards concerning "safety and soundness" and
retention of credit information in 12 C.F.R. Section 1.5), certain "Type IV
securities," defined in 12 C.F.R. Section 1.2(1) to include certain "commercial
mortgage-related securities" and "residential mortgage-related securities." As
so defined, "commercial mortgage-related security" and "residential
mortgage-related security" mean, in relevant part, "mortgage-related security"
within the meaning of SMMEA, provided that, in the case of a "commercial
mortgage-related security," it "represents ownership of a promissory note or
certificate of interest or participation that is directly secured by a first
lien on one or more parcels of real estate upon which one or more commercial
structures are located and that is fully secured by interests in a pool of loans
to numerous obligors." In the absence of any rule or administrative
interpretation by the OCC
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defining the term "numerous obligors," no representation is made as to whether
any class of Offered Certificates will qualify as "commercial mortgage-related
securities," and thus as "Type IV securities," for investment by national banks.
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. The NCUA has adopted
rules, codified as 12 C.F.R. Section Section 703.5(f)-(k), which prohibit
federal credit unions from investing in certain mortgage related securities
(including securities such as certain series or classes of Offered
Certificates), except under limited circumstances. Effective January 1, 1998,
the NCUA has amended its rules governing investments by federal credit unions at
12 C.F.R. Part 703; the revised rules will permit investments in "mortgage
related securities" under certain limited circumstances, but will prohibit
investments in stripped mortgage related securities, residual interests in
mortgage related securities, and commercial mortgage related securities, unless
the credit union has obtained written approval from the NCUA to participate in
the "investment pilot program" described in 12 C.F.R. Section 703.140.
All depository institutions considering an investment in the Offered
Certificates should review the "Supervisory Policy Statement on Securities
Activities" dated January 28, 1992, as revised April 15, 1994 (the "Policy
Statement") of the Federal Financial Institutions Examination Council. The
Policy Statement, which has been adopted by the Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance Corporation, the OCC and
the Office of Thrift Supervision, and by the NCUA (with certain modifications),
prohibits depository institutions from investing in certain "high-risk mortgage
securities" (including securities such as certain series or classes of the
Offered Certificates), except under limited circumstances, and sets forth
certain investment practices deemed to be unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any Offered
Certificates, as certain series or classes may be deemed unsuitable investments,
or may otherwise be restricted, under such rules, policies or guidelines (in
certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," and, with regard to any Offered Certificates issued
in book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
If specified in the related Prospectus Supplement, other classes of Offered
Certificates offered pursuant to this Prospectus will not constitute "mortgage
related securities" under SMMEA. The appropriate characterization of such
Offered Certificates under various legal investment restrictions, and thus the
ability of investors subject to these restrictions to purchase such Offered
Certificates, may be subject to significant interpretive uncertainties.
Except as to the status of SMMEA Certificates identified in the Prospectus
Supplement for a series as "mortgage related securities" under SMMEA, no
representations are made as to the proper characterization of the Offered
Certificates for legal investment 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.
Investors 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.
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PLAN OF DISTRIBUTION
The Offered Certificates offered hereby and by the Supplements to this
Prospectus will be offered in series. The distribution of the Certificates may
be effected from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If so
specified in the related Prospectus Supplement, the Offered Certificates will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by Morgan Stanley & Co. Incorporated
("Morgan Stanley") acting as underwriter with other underwriters, if any, named
therein. In such event, the Prospectus Supplement may also specify that the
underwriters will not be obligated to pay for any Offered Certificates agreed to
be purchased by purchasers pursuant to purchase agreements acceptable to the
Depositor. In connection with the sale of Offered Certificates, underwriters may
receive compensation from the Depositor or from purchasers of Offered
Certificates in the form of discounts, concessions or commissions. The
Prospectus Supplement will describe any such compensation paid by the Depositor.
Alternatively, the Prospectus Supplement may specify that Offered
Certificates will be distributed by Morgan Stanley acting as agent or in some
cases as principal with respect to Offered Certificates that it has previously
purchased or agreed to purchase. If Morgan Stanley acts as agent in the sale of
Offered Certificates, Morgan Stanley will receive a selling commission with
respect to such Offered Certificates, depending on market conditions, expressed
as a percentage of the aggregate Certificate Balance or notional amount of such
Offered Certificates as of the Cut-off Date. The exact percentage for each
series of Certificates will be disclosed in the related Prospectus Supplement.
To the extent that Morgan Stanley elects to purchase Offered Certificates as
principal, Morgan Stanley may realize losses or profits based upon the
difference between its purchase price and the sales price. The Prospectus
Supplement with respect to any series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the Depositor and purchasers of Offered
Certificates of such series.
The Depositor will indemnify Morgan Stanley and any underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, or will contribute to payments Morgan Stanley and any underwriters may be
required to make in respect thereof.
In the ordinary course of business, Morgan Stanley and the Depositor may
engage in various securities and financing transactions, including repurchase
agreements to provide interim financing of the Depositor's mortgage loans
pending the sale of such mortgage loans or interests therein, including the
Certificates.
Offered Certificates will be sold primarily to institutional investors.
Purchasers of Offered Certificates, including dealers, may, depending on the
facts and circumstances of such purchases, be deemed to be "underwriters" within
the meaning of the Securities Act of 1933 in connection with reoffers and sales
by them of Offered Certificates. Certificateholders should consult with their
legal advisors in this regard prior to any such reoffer or sale.
As to each series of Certificates, only those classes rated in an
investment grade rating category by any Rating Agency will be offered hereby.
Any non-investment-grade class may be initially retained by the Depositor, and
may be sold by the Depositor at any time in private transactions.
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 Latham & Watkins, New York, New York
or Brown & Wood LLP, New York, New York or such other counsel as may be
specified in the related Prospectus Supplement.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of Certificates
and no Trust Fund will engage in any business activities or have any assets or
obligations prior to the issuance of the related series
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of Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates that
they shall have been rated not lower than investment grade, that is, in one of
the four highest rating categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood of
principal prepayments by mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. As a result, certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped interest certificates in extreme cases might fail to recoup their
initial investments.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
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INDEX OF PRINCIPAL DEFINITIONS
Page(s) on which
term is defined
Term in the Prospectus
- ---- -----------------
Accrual Certificates ........................................................ 30
ADA ......................................................................... 72
Applicable Amount ........................................................... 93
ARM Loans ............................................................... 24, 79
Asset Conservation Act ...................................................... 68
Asset Seller ................................................................ 20
Assets ...................................................................1.. 20
Balloon Mortgage Loans ...................................................... 16
Bankruptcy Code ............................................................. 63
Book-Entry Certificates ..................................................... 31
Cash Flow Agreement ......................................................... 26
Cash Flow Agreements ........................................................ 1
Cede ..................................................................... 3, 37
CERCLA .................................................................. 18, 68
Certificate Account ......................................................... 41
Certificate Owners .......................................................... 37
Certificateholders .......................................................... 3
Closing Date ................................................................ 83
Commercial Loans ............................................................ 20
Commercial Properties ....................................................... 20
Commission .................................................................. 3
Contributions Tax ........................................................... 95
Cooperatives ................................................................ 21
Covered Trust ........................................................... 17, 55
CPR ......................................................................... 29
Credit Support ........................................................... 1, 26
Crime Control Act ........................................................... 73
Deferred Interest ........................................................... 80
Definitive Certificates ................................................. 31, 38
Depositor ................................................................... 20
Determination Date .......................................................... 31
DTC ...................................................................... 3, 37
Due Period .................................................................. 31
Environmental Hazard Condition .............................................. 69
Equity Participations ....................................................... 24
ERISA Plans ................................................................. 99
Exchange Act ................................................................ 3
Exemption ...................................................................100
FDIC ........................................................................ 41
FHLMC ....................................................................... 50
FNMA ........................................................................ 69
Government Securities .....................................................1, 20
Indirect Participants ....................................................... 37
Insurance Proceeds .......................................................... 42
IRS ......................................................................... 76
Labor ....................................................................... 99
L/C Bank .................................................................... 56
Lease ....................................................................... 3
Lease Assignment ............................................................ 1
Legislative History ......................................................... 83
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Lessee ...................................................................... 3
Liquidation Proceeds ........................................................ 42
Lock-out Date ............................................................... 24
Lock-out Period ............................................................. 24
Mark-to-Market Regulations .................................................. 93
Master REMIC ................................................................ 83
MBS ...................................................................... 1, 20
MBS Agreement ............................................................... 24
MBS Issuer .................................................................. 24
MBS Servicer ................................................................ 24
MBS Trustee ................................................................. 24
Morgan Stanley ..............................................................103
Mortgage Loans ........................................................... 1, 20
Mortgage Notes .............................................................. 21
Mortgage Rate ............................................................... 24
Mortgages ................................................................... 21
Multifamily Loans ........................................................... 20
Multifamily Properties ...................................................... 20
NCUA ........................................................................102
Nonrecoverable Advance ...................................................... 34
Offered Certificates ........................................................ 1
OID ..................................................................... 74, 76
OID Regulations ............................................................. 76
Originator .................................................................. 21
Participants ................................................................ 37
Pass-Through Rate ........................................................... 32
Payment Lag Certificates .................................................... 89
Permitted Investments ....................................................... 41
Plans ....................................................................... 99
Prepayment Assumption ....................................................... 79
Prepayment Premium .......................................................... 24
Prohibited Transactions Tax ................................................. 95
RCRA ........................................................................ 68
Record Date ................................................................. 31
Related Proceeds ............................................................ 34
Relief Act ................................................................. 72
REMIC Certificates ......................................................... 82
REMIC Regular Certificateholders ........................................... 83
REMIC Regular Certificates ................................................. 82
REMIC Regulations .......................................................... 74
REMIC Residual Certificateholder ........................................... 90
REMIC Residual Certificates ................................................ 82
REO Extension .............................................................. 61
REO Tax .................................................................... 61
Restricted Group ........................................................... 100
RICO ....................................................................... 73
Senior Certificates ........................................................ 30
Servicing Standard ......................................................... 45
SMMEA ...................................................................... 101
SMMEA Certificates ......................................................... 101
Special Servicer ........................................................... 45
Stripped ARM Obligations ................................................... 80
Stripped Bond Certificates ................................................. 77
Stripped Coupon Certificates ............................................... 77
Stripped Interest Certificates ............................................. 30
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Stripped Principal Certificates ............................................ 30
Subordinate Certificates ................................................... 30
Sub-Servicer ............................................................... 45
Sub-Servicing Agreement .................................................... 45
Subsidiary REMIC ........................................................... 83
Super-Premium Certificates ................................................. 84
Title V .................................................................... 71
Trust Assets ............................................................... 2
Trust Fund ................................................................. 1
UCC ........................................................................ 37
Voting Rights .............................................................. 19
Warrantying Party ......................................................... 40
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