<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration File No.: 333-62911
PROSPECTUS SUPPLEMENT
(To Prospectus dated October 9, 1998)
$936,429,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
as Depositor
HELLER FINANCIAL CAPITAL FUNDING, INC. AND
MORGAN STANLEY MORTGAGE CAPITAL INC.
as Mortgage Loan Sellers
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-HF2
-------------------
Morgan Stanley Capital I Inc. is offering certain classes of its
Series 1998-HF2 Commercial Mortgage Pass-Through Certificates, which represent
beneficial ownership interests in a trust. The trust's assets will primarily be
262 mortgage loans secured by first liens on 277 commercial properties. The
Series 1998-HF2 Certificates are not obligations of Morgan Stanley Capital I
Inc. or any of its affiliates, and neither the certificates nor the underlying
mortgage loans are insured or guaranteed by any governmental agency.
-------------------
Morgan Stanley Capital I Inc. will not list the offered certificates
on any national securities exchange or on any automated quotation system of any
registered securities association such as NASDAQ.
-------------------
INVESTING IN THE OFFERED CERTIFICATES INVOLVES RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE S-23 OF THIS PROSPECTUS SUPPLEMENT AND PAGE 14 OF
THE PROSPECTUS.
-------------------
Certain characteristics of the offered certificates include:
<TABLE>
<CAPTION>
APPROXIMATE INITIAL
CERTIFICATE PRINCIPAL INITIAL RATE EXPECTED RATINGS RATED FINAL
CLASS AMOUNT(1) PASS-THROUGH RATE(2) DESCRIPTION(3) (DCR/FITCH)(4) DISTRIBUTION DATE(4)
----- --------- -------------------- -------------- -------------- --------------------
<S> <C> <C> <C> <C> <C>
CLASS A-1 $203,500,000 6.01% FIXED AAA/AAA 11/15/2030
CLASS A-2 $547,759,000 6.48% FIXED AAA/AAA 11/15/2030
CLASS B $52,906,000 6.71% WAC AA/AA 11/15/2030
CLASS C $52,905,000 7.11% WAC A/A 11/15/2030
CLASS D $58,196,000 7.15% WAC BBB/BBB 11/15/2030
CLASS E $21,163,000 7.15% WAC BBB-/BBB- 11/15/2030
</TABLE>
(FOOTNOTES ON PAGE S-3)
-------------------
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these securities or
determined that this prospectus supplement or the accompanying prospectus are
truthful or complete. Any representation to the contrary is a criminal offense.
-------------------
Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc. and
Prudential Securities Incorporated will purchase the offered certificates from
Morgan Stanley Capital I Inc. and will offer them to the public at negotiated
prices determined at the time of sale. Morgan Stanley & Co. Incorporated, Bear
Stearns & Co. Inc. and Prudential Securities Incorporated expect to deliver the
offered certificates to purchasers on or about November 12, 1998. Morgan
Stanley Capital I Inc. expects to receive from this offering approximately 101%
of the initial principal amount of the offered certificates, plus accrued
interest from November 1, 1998, before deducting expenses payable by Morgan
Stanley Capital I Inc.
-------------------
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
PRUDENTIAL SECURITIES INCORPORATED
NOVEMBER 5, 1998
<PAGE>
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
MORGAN STANLEY CAPITAL I INC. 1998-HF2
- -------------------------------------------------------------------------------
GEOGRAPHIC DISTRIBUTION
[MAP OF THE UNITED STATES OF AMERICA]
Washington Texas Virginia Ohio
$51,268,563 $82,969,532 $14,795,044 $14,290,027
4.8% of total 7.8% of total 1.4% of total 1.4% of total
Oregon Arkansas Maryland Indiana
$9,123,136 $947,164 $4,889,284 $16,206,829
0.9% of total 0.1% of total 0.5% of total 1.5% of total
Nevada Louisiana Delaware Michigan
$14,605,331 $7,948,555 $1,599,817 $49,701,641
1.4% of total 0.8% of total 0.2% of total 4.7% of total
Utah Mississippi Pennsylvania Illinois
$1,790,436 $6,174,088 $19,763,295 $18,953,665
0.2% of total 0.6% of total 1.9% of total 1.8% of total
Northern Alabama New Jersey Wisconsin
California $2,700,530 $9,427,914 $37,867,852
$99,345,043 0.3% of total 0.9% of total 3.6% of total
9.4% of total
Florida Rhode Island Missouri
California $74,972,984 $5,430,752 $7,518,269
$213,433,858 7.1% of total 0.5% of total 0.7% of total
20.2% of total
Georgia Massachusetts Minnesota
Southern $88,948,276 $23,044,820 $19,111,396
California 8.4% of total 2.2% of total 1.8% of total
$114,088,815
10.8% of total South Carolina New Hampshire North Dakota
$2,781,161 $9,973,175 $2,129,022
Arizona 0.3% of total 0.9% of total 0.2% of total
$51,360,664
4.9% of total Tennessee New York Colorado
$9,120,468 $51,110,534 $62,092,212
Kansas 0.9% of total 4.8% of total 5.9% of total
$1,696,632
0.2% of total Kentucky West Virginia Idaho
$6,310,939 $1,106,421 $9,459,629
Oklahoma 0.6% of total 0.1% of total 0.9% of total
$19,203,369
1.8% of total North Carolina
$34,284,672
3.2% of total
<PAGE>
- --------------
(1) Approximate; subject to a variance of plus or minus 5%.
(2) The pass-through rates for the Class A-1 and Class A-2 Certificates for
each distribution date will be equal to the fixed rates per annum set
forth in the table; provided, in each case, that such Pass-Through Rate
will not exceed the WAC Rate (as defined herein) for such distribution
date. The initial pass-through rates for the Class B, Class C, Class D and
Class E Certificates set forth in the table are the approximate initial
Pass-Through Rates. The pass-through rates for the Class B, Class C, Class
D and Class E Certificates are variable and, subsequent to the initial
distribution date, will be determined as described in "Description of the
Certificates--Pass-Through Rates" herein.
(3) "Fixed" and "WAC" are descriptions of the types of pass-through rates
borne by the related classes.
(4) See "Ratings" herein. The Rated Final distribution date for each class of
rated certificates is November 15, 2030.
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the offered certificates is contained in two
separate documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may not apply to
the offered certificates; and (b) this prospectus supplement, which describes
the specific terms of the offered certificates. IF THE TERMS OF THE OFFERED
CERTIFICATES VARY BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone to
provide you with information that is different from that contained in this
prospectus supplement and the prospectus. The information in this prospectus
supplement is accurate only as of the date of this prospectus supplement.
This prospectus supplement and the accompanying prospectus include
cross references to sections in these materials where you can find further
related discussions. The Tables of Contents in this prospectus supplement and
the prospectus identify the pages where these sections are located.
Certain capitalized terms are defined and used in this prospectus
supplement and the prospectus to assist you in understanding the terms of the
offered certificates and this offering. The capitalized terms used in this
prospectus supplement are defined on the pages indicated under the caption
"Index of Terms for prospectus supplement" beginning on page S-102 in this
prospectus supplement. The capitalized terms used in the prospectus are defined
on the pages indicated under the caption "Index of Principal Definitions"
beginning on page 102 in the prospectus.
-----------------------------
In this prospectus supplement, the terms "Depositor," "we," "us" and
"our" refer to Morgan Stanley Capital I Inc.
-----------------------------
Until the date that is ninety days from the date of this Prospectus
Supplement, all dealers that effect transactions in these securities, whether
or not participating in this offering, may be required to deliver a prospectus
supplement and the accompanying prospectus. This is in addition to the dealers'
obligation to deliver a prospectus supplement and the accompanying prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
S-3
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY OF TERMS.............................................................8
RISK FACTORS................................................................24
DESCRIPTION OF THE CERTIFICATES.............................................47
General..................................................................48
Registration; Denominations..............................................48
Book-Entry Registration..................................................48
Certificate Balances and Notional Amounts................................49
Pass-Through Rates.......................................................50
Distributions............................................................51
Appraisal Reductions.....................................................55
Subordination; Allocation of Losses and Certain Expenses.................56
Prepayment Interest Shortfalls...........................................58
Optional Termination.....................................................58
Advances.................................................................59
Reports to Certificateholders; Available Information.....................60
Book-Entry Certificates..................................................63
Example of Distributions.................................................63
Voting Rights............................................................64
The Trustee and the Fiscal Agent.........................................64
MATURITY CONSIDERATIONS.....................................................65
YIELD CONSIDERATIONS........................................................71
General..................................................................71
Rate and Timing of Principal Payments....................................71
Losses and Shortfalls....................................................72
Certain Relevant Factors.................................................72
Delay in Payment of Distributions........................................72
DESCRIPTION OF THE MORTGAGE POOL............................................72
General..................................................................72
Certain Terms and Characteristics of the Mortgage Loans..................74
Assessments of Property Value and Condition..............................81
Additional Mortgage Loan Information.....................................82
Standard Hazard Insurance................................................83
The Sellers..............................................................84
Assignment of the Mortgage Loans.........................................85
Representations and Warranties...........................................86
Repurchases and Other Remedies...........................................88
Changes in Mortgage Pool Characteristics.................................89
SERVICING OF THE MORTGAGE LOANS.............................................89
General..................................................................89
The Master Servicer and the Special Servicer.............................91
Sub-Servicers............................................................91
Servicing and Other Compensation and Payment of Expenses.................92
The Operating Adviser....................................................93
Mortgage Loan Modifications..............................................93
Sale of Defaulted Mortgage Loans and REO Properties......................95
REO Properties...........................................................95
Inspections; Collection of Operating Information.........................96
Maintenance of Master Servicer/Special Servicer Acceptability............96
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.....................................96
General..................................................................96
Original Issue Discount and Premium......................................97
Additional Considerations................................................99
ERISA CONSIDERATIONS.......................................................100
Plan Asset Regulation...................................................100
Individual Exemption....................................................100
Other Exemptions........................................................102
Insurance Company Purchasers............................................102
LEGAL INVESTMENT...........................................................103
USE OF PROCEEDS............................................................103
PLAN OF DISTRIBUTION.......................................................103
LEGAL MATTERS..............................................................104
RATINGS....................................................................104
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT...................................102
APPENDIX I - MORTGAGE POOL
INFORMATION..............................................................I-1
APPENDIX II - CERTAIN
CHARACTERISTICS OF THE MORTGAGE LOANS AND ADDITIONAL
INFORMATION REGARDING THE MULTI-FAMILY AND SENIOR HOUSING LOANS.........II-1
APPENDIX III - LARGEST LOAN
SUMMARIES..............................................................III-1
APPENDIX IV - FORM OF TRUSTEE
REPORTS.................................................................IV-1
TERM SHEET.................................................................T-1
S-4
<PAGE>
EXECUTIVE SUMMARY
This Executive Summary highlights selected information regarding the offered
certificates. It does not contain all of the information you need to consider
in making your investment decision. TO UNDERSTAND ALL OF THE TERMS OF THE
OFFERING OF THE OFFERED CERTIFICATES AND THE UNDERLYING MORTGAGE LOANS, READ
THIS ENTIRE PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS CAREFULLY.
CERTIFICATE STRUCTURE
<TABLE>
<CAPTION>
Approximate Approximate
Credit Support Percent of
Total
Certificates
--------------------------------------------------------
INITIAL
CERTIFICATE
PRINCIPAL RATINGS
CLASS AMOUNT (DCR/FITCH)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS X(2) CLASS A-1 $203,500,000 AAA/AAA 19.23%
$1,058,111,956
(Approximate Notional
Amount)
--------------------------------------------------------
29.00(1)% AAA/AAA
CLASS A-2 $547,759,000 AAA/AAA 51.77%
--------------------------------------------------------
24.00%
CLASS B $52,906,000 AA/AA 5.00%
--------------------------------------------------------
19.00%
CLASS C $52,905,000 A/A 5.00%
--------------------------------------------------------
13.50%
CLASS D $58,196,000 BBB/BBB 5.50%
--------------------------------------------------------
11.50%
CLASS E $21,163,000 BBB-/BBB- 2.00%
--------------------------------------------------------
9.25%
CLASS F(2) $23,807,000 BB+/BB+ 2.25%
--------------------------------------------------------
7.50%
CLASS G(2) $18,517,000 BB/BB 1.75%
--------------------------------------------------------
6.50%
CLASS H(2) $10,581,000 BB-/BB- 1.00%
--------------------------------------------------------
4.50%
CLASS J(2) $21,162,000 NR/B+ 2.00%
--------------------------------------------------------
3.50%
CLASS K(2) $10,582,000 NR/B 1.00%
--------------------------------------------------------
2.00%
CLASS L(2) $15,871,000 NR/B- 1.50%
--------------------------------------------------------
1.00%
CLASS M(2) $10,581,000 NR/CCC 1.00%
--------------------------------------------------------
0.00%
CLASS N(2) $10,581,956 NR/NR 1.00%
---------------------------------------------------------------------------------
</TABLE>
(1) Represents the approximate credit support for the Class A-1 and Class A-2
Certificates in the aggregate.
(2) Not offered hereby.
The Class R-I, R-II and R-III Certificates are not represented in this
table.
S-5
<PAGE>
<TABLE>
<CAPTION>
CERTIFICATE SUMMARY
- ---------------------------------------------------------------------------------------------------------------------
APPROXIMATE
INITIAL INITIAL
CERTIFICATE PASS-THROUGH WEIGHTED
PRINCIPAL OR RATE AND RATE AVERAGE
APPROXIMATE NOTIONAL APPROXIMATE DESCRIPTION RATINGS LIFE PRINCIPAL
CREDIT SUPPORT CLASS AMOUNT (1) % OF TOTAL (2)(3) DCR/FITCH (4) (YRS.)(5) WINDOW (5)
- ---------------------------------------------------------------------------------------------------------------------
Offered Certificates
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 $203,500,000 19.23% 6.01% (Fixed) AAA/AAA 5.45 1-104
------------------------------------------------------------------------------------------------------
29.00%(6) A-2 $547,759,000 51.77% 6.48% (Fixed) AAA/AAA 9.44 104-116
------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
24.00% B $52,906,000 5.00% 6.71% (WAC) AA/AA 9.71 116-117
- ---------------------------------------------------------------------------------------------------------------------
19.00% C $52,905,000 5.00% 7.11% (WAC) A/A 9.76 117-117
- ---------------------------------------------------------------------------------------------------------------------
13.50% D $58,196,000 5.50% 7.15% (WAC) BBB/BBB 9.76 117-118
- ---------------------------------------------------------------------------------------------------------------------
11.50% E $21,163,000 2.00% 7.15% (WAC) BBB-/BBB- 9.90 118-119
- ---------------------------------------------------------------------------------------------------------------------
Non-Offered Certificates
- ---------------------------------------------------------------------------------------------------------------------
N/A X(7) $1,058,111,956 N/A 0.75% (Variable AAA/AAA 9.27 N/A
Rate IO)
- ---------------------------------------------------------------------------------------------------------------------
9.25% F $23,807,000 2.25% 6.01% (Fixed) BB+/BB+ 10.02 119-128
- ---------------------------------------------------------------------------------------------------------------------
7.50% G $18,517,000 1.75% 6.01% (Fixed) BB/BB 11.42 128-139
- ---------------------------------------------------------------------------------------------------------------------
6.50% H $10,581,000 1.00% 6.01% (Fixed) BB-/BB- 12.11 139-154
- ---------------------------------------------------------------------------------------------------------------------
4.50% J $21,162,000 2.00% 6.01% (Fixed) NR/B+ 14.14 154-174
- ---------------------------------------------------------------------------------------------------------------------
3.50% K $10,582,000 1.00% 6.01% (Fixed) NR/B 14.66 174-182
- ---------------------------------------------------------------------------------------------------------------------
2.00% L $15,871,000 1.50% 6.01% (Fixed) NR/B- 16.86 182-219
- ---------------------------------------------------------------------------------------------------------------------
1.00% M $10,581,000 1.00% 6.01% (Fixed) NR/CCC 19.10 219-231
- ---------------------------------------------------------------------------------------------------------------------
0.00% N(8) $10,581,956 1.00% 6.01% (Fixed) NR/NR 20.80 231-296
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Approximate; subject to a variance of plus or minus 5%.
(2) "Fixed" and "WAC" are descriptions of the types of pass-through rates
borne by the related classes. "IO" designates that Class X is entitled
only to distributions of interest; it will not receive distributions of
principal.
(3) The pass-through rates for the Class A-1, Class A-2, Class F, Class G,
Class H, Class J, Class K, Class L, Class M and Class N Certificates for
each distribution date will be equal to the fixed rates per annum set
forth in the table; provided, in each case, that such pass-through rate
will not exceed the WAC Rate (as defined herein) for such distribution
date. The initial pass-through rates for the Class X and the Class B,
Class C, Class D and Class E Certificates set forth in the table are the
approximate initial pass-through rates. The pass-through rates for the
Interest Only Certificates and the Class B, Class C, Class D and Class E
Certificates are variable and, subsequent to the initial distribution
date, will be determined as described in "Description of the
Certificates--Pass-Through Rates" herein.
(4) See "Ratings" herein. "NR" means not rated.
(5) The principal window is expressed in months following the closing date and
reflects the period during which distributions of principal would be
received. The Weighted Average Life and principal window figures set forth
above are based on the following assumptions, among others: (i) no losses
on the underlying mortgage loans; (ii) no extensions of maturity dates of
mortgage loans that do not have effective maturity dates; and (iii)
prepayment in full on the "effective maturity date" of each mortgage loan
having such a date. See the assumptions set forth under "Maturity
Considerations" in this prospectus supplement.
(6) Represents the approximate credit support for the Class A-1 and Class A-2
Certificates in the aggregate.
(7) The Class X Certificates will not have a Principal Amount. Interest will
accrue on the notional amount thereof, at a rate equal to the WAC Rate
minus the weighted average of the Pass-Through Rates of the classes of
certificates that have Principal Amounts.
(8) The Class N Certificates are an investment unit consisting of a REMIC
regular interest and beneficial ownership of Excess Interest in respect of
mortgage loans having a hyper-amortization feature.
The Class R Certificates are not represented in this table and are not offered
hereby.
S-6
<PAGE>
SUMMARY OF TERMS
This summary highlights selected information from this prospectus supplement.
It does not contain all of the information you need to consider in making your
investment decision. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING OF THE
OFFERED CERTIFICATES, READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS
CAREFULLY.
RELEVANT PARTIES AND DATES
DEPOSITOR........................... Morgan Stanley Capital I Inc.
MASTER SERVICER..................... GMAC Commercial Mortgage Corporation.
See "Servicing of the Mortgage Loans"
and "Description of the
Certificates--Advances" in this
prospectus supplement.
SPECIAL SERVICER.................... GMAC Commercial Mortgage Corporation.
See "Servicing of the Mortgage
Loans--The Operating Adviser" and
"--General" in this prospectus
supplement.
TRUSTEE............................. LaSalle National Bank. See "Description
of the Certificates--The Trustee and the
Fiscal Agent" in this prospectus
supplement and "--Advances" in this
prospectus supplement.
FISCAL AGENT........................ ABN AMRO Bank N.V., a Netherlands
banking corporation and the indirect
corporate parent of LaSalle National
Bank, the Trustee. See "Description of
the Certificates--The Trustee and the
Fiscal Agent" and "--Advances" in this
prospectus supplement.
OPERATING ADVISER................... The holders of certificates representing
more than 50% of the aggregate
certificate balance of the most
subordinate class of certificates (with
Principal Amounts) outstanding at any
time of determination (or, if the
aggregate balance of such class of
certificates is less than 25% of the
initial aggregate certificate balance of
such class, of the next most subordinate
class of certificates (with Principal
Amounts)) may appoint a representative
for the purposes described in this
prospectus supplement. See "Servicing of
the Mortgage Loans--The Operating
Adviser" and "--General" in this
prospectus supplement.
MORTGAGE LOAN SELLERS............... Heller Financial Capital Funding, Inc.,
as to 232 mortgage loans, representing
85.6% of the aggregate principal balance
of the mortgage pool; and Morgan Stanley
Mortgage Capital Inc., as to 30 mortgage
loans, representing 14.4% of the
aggregate principal balance of the
mortgage pool. Affiliates of Heller and
MSMC may acquire a significant portion
of certain Classes of the Certificates.
See "Description of the Mortgage
Pool--The Sellers" in this prospectus
supplement.
UNDERWRITERS........................ Morgan Stanley & Co. Incorporated, Bear,
Stearns & Co. Inc. and Prudential
Securities Incorporated. See "Plan of
Distribution" in this prospectus
supplement.
CUT-OFF DATE........................ November 1, 1998.
S-7
<PAGE>
CLOSING DATE........................ On or about November 12, 1998.
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 December 1998.
RECORD DATE......................... With respect to each distribution date,
the close of business on the last
business day of the preceding month.
OFFERED SECURITIES
GENERAL............................. Morgan Stanley Capital I Inc. is
offering the following six classes of
Commercial Mortgage Pass-Through
Certificates (collectively, the "Offered
Certificates") as part of Series
1998-HF2:
o Class A-1
o Class A-2
o Class B
o Class C
o Class D
o Class E
Series 1998-HF2 will consist of a total
of 18 classes, the following twelve of
which are not being offered through this
prospectus supplement and the
accompanying prospectus: Class X, Class
F, Class G, Class H, Class J, Class K,
Class L, Class M, Class N, Class R-I,
Class R-II, and Class R-III
(collectively, the "Private
Certificates").
The Offered Certificates and the Private
Certificates will represent beneficial
ownership interests in a trust created
by Morgan Stanley Capital I Inc. The
trust's assets will primarily be 262
mortgage loans secured by first liens on
277 commercial properties.
S-8
<PAGE>
CERTIFICATE PRINCIPAL AND
NOTIONAL AMOUNT.................. Your certificates will have the
approximate aggregate initial principal
amount or notional amount set forth
below, subject to a variance of plus or
minus 5%:
-----------------------------------------
Class A-1 $203,500,000 Principal Amount
-----------------------------------------
Class A-2 $547,759,000 Principal Amount
-----------------------------------------
Class B $ 52,906,000 Principal Amount
-----------------------------------------
Class C $ 52,905,000 Principal Amount
-----------------------------------------
Class D $ 58,196,000 Principal Amount
-----------------------------------------
Class E $ 21,163,000 Principal Amount
-----------------------------------------
PASS-THROUGH RATES
Your certificates will accrue interest
at an annual rate called a "Pass-Through
A. OFFERED CERTIFICATES........ Rate" which is set forth below:
---------------------------------------
Class A-1 6.01%, but not in
excess of WAC Rate
---------------------------------------
Class A-2 6.48%, but not in
excess of WAC Rate
---------------------------------------
Class B WAC Rate minus 0.46%
---------------------------------------
Class C WAC Rate minus 0.06%
---------------------------------------
Class D WAC Rate minus 0.02%
---------------------------------------
Class E WAC Rate minus 0.02%
---------------------------------------
Interest on the Offered Certificates
will be calculated based on a 360-day
year consisting of twelve 30-day months,
or a 30/360 basis.
The "WAC Rate" for a particular
distribution date is a weighted average
of the mortgage loan interest rates in
effect as of the first day of the
preceding month, minus the weighted
average annual administrative cost of
0.0584% (which includes the servicing
fee rates and the Trustee fee rate), and
adjusted as set forth herein. The
weighting of this average is based upon
the respective principal balances of
those mortgage loans.
S-9
<PAGE>
B. CLASS X CERTIFICATES........ The Pass-Through Rate on the Class X
Certificates will be equal to the WAC
Rate minus the weighted average of the
Pass-Through Rates of the classes of
certificates that have principal
amounts. The weighting will be based
upon the respective principal amount of
those classes.
The notional amount of the Class X
Certificates will generally be equal to
100% of the aggregate principal balance
of the mortgage loans outstanding from
time to time. The Class X Certificates
will receive interest only; they will
not be entitled to distributions of
principal.
For purposes of calculating the Class X
Pass-Through Rates, the mortgage loan
interest rates will not reflect any
default interest rate or any rate
increase occurring after an effective
maturity date. The mortgage loan
interest rates will also be determined
without regard to any loan term
modifications agreed to by the Special
Servicer or resulting from the
borrower's bankruptcy or insolvency. In
addition, if a mortgage loan does not
accrue interest on a 30/360 basis, its
interest rate for any month that is not
a 30-day month will be recalculated so
that the amount of interest that would
accrue at that rate in such month,
calculated on a 30/360 basis, will equal
the amount of interest that actually
accrues on that loan in that month.
DISTRIBUTIONS
On each distribution date, funds
A. AMOUNT AND ORDER available for distribution from the
OF DISTRIBUTIONS........... mortgage loans, net of specified trust
expenses, will be distributed in the
following amounts and order of priority:
Step 1/Class A and Class X: To interest
on Classes A-1 and A-2 and Class X, pro
rata, in accordance with their interest
entitlements.
Step 2/Class A: To the extent of funds
available for principal, to principal on
Classes A-1 and A-2, in that order,
until reduced to zero. If each class of
certificates other than Class A has been
reduced to zero, funds available for
principal will be distributed to Classes
A-1 and A-2, pro rata, rather than
sequentially.
Step 3/Class A: To reimburse Classes A-1
and A-2, pro rata, for any previously
unreimbursed losses on the mortgage
loans allocable to principal that were
previously borne by those classes.
Step 4/Class B: To Class B as follows:
(a) to interest on Class B in the amount
of its interest entitlement; (b) to the
extent of funds available for principal,
to principal on Class B until reduced to
zero; and (c) to reimburse Class B for
any previously unreimbursed losses on
the mortgage loans allocable to
principal that were previously borne by
that class, together with interest.
Step 5/Class C: To Class C in a manner
analogous to the Class B allocations of
Step 4.
S-10
<PAGE>
Step 6/Class D: To Class D in a manner
analogous to the Class B allocations of
Step 4.
Step 7/Class E: To Class E in a manner
analogous to the Class B allocations of
Step 4.
Step 8/Subordinate Private Certificates:
In the amounts and order of priority
described in "Description of the
Certificates--Distributions" in this
prospectus supplement.
B. INTEREST AND PRINCIPAL
ENTITLEMENTS.............. A description of each class's interest
entitlement can be found in "Description
of the Certificates--Distributions" in
this prospectus supplement. As described
in such section, there are circumstances
relating to the timing of prepayments in
which your interest entitlement for a
distribution date could be less than one
full month's interest at the
Pass-Through Rate on your certificate's
principal amount or notional amount.
The amount of principal required to be
distributed to the classes entitled to
principal on a particular distribution
date also can be found in "Description
of the Certificates--Distributions" in
this prospectus supplement.
C. PREPAYMENTS
PREMIUMS.................. The manner in which any prepayment
premiums and yield maintenance premiums
received during a particular collection
period will be allocated to the Class X
Certificates, on the one hand, and the
classes of certificates entitled to
principal, on the other hand, is
described in "Description of the
Certificates--Distributions" in this
prospectus supplement.
SUBORDINATION
A. GENERAL..................... The chart below describes the manner in
which the rights of various classes will
be senior to the rights of other
classes. Entitlement to receive
principal and interest on any
distribution date is depicted in
descending order. The manner in which
mortgage loan losses are allocated is
depicted in ascending order. (However,
no principal payments or loan losses
will be allocated to the Class X
Certificates).
S-11
<PAGE>
----------------------------
Class A-1, Class A-2,
Class X
----------------------------
|
----------------------------
Class B
----------------------------
|
----------------------------
Class C
----------------------------
|
----------------------------
Class D
----------------------------
|
----------------------------
Class E
----------------------------
|
----------------------------
Class F
----------------------------
|
----------------------------
Class G
----------------------------
|
----------------------------
Class H
----------------------------
|
----------------------------
Class J
----------------------------
|
----------------------------
Class K
----------------------------
|
----------------------------
Class L
----------------------------
|
----------------------------
Class M
----------------------------
|
----------------------------
Class N
----------------------------
|
----------------------------
Class R-I
----------------------------
NO OTHER FORM OF CREDIT ENHANCEMENT
WILL,BE AVAILABLE FOR THE BENEFIT OF THE
HOLDERS OF THE OFFERED CERTIFICATES.
See "Description of the Certificates" in
this prospectus supplement.
S-12
<PAGE>
B. SHORTFALLS IN AVAILABLE
FUNDS...................... The following types of shortfalls in
available funds will be allocated in the
same manner as mortgage loan losses: (i)
shortfalls resulting from additional
compensation (other than the servicing
fee) which the Master Servicer or
Special Servicer is entitled to receive;
(ii) shortfalls resulting from interest
on Advances made by the Master Servicer,
the Trustee or the Fiscal Agent (to the
extent not covered by default interest
and late payment charges paid by the
borrower); (iii) shortfalls resulting
from extraordinary expenses of the
trust; and (iv) shortfalls resulting
from a reduction of a mortgage loan's
interest rate by a bankruptcy court or
from other unanticipated or
default-related expenses of the trust.
Shortfalls in mortgage loan interest as
a result of the timing of prepayments
(net of the Master Servicer's servicing
fee payable on the related distribution
date) will be allocated to each class of
certificates, pro rata, based upon their
respective interest entitlements.
See "Description of the
Certificates-Distributions" in this
prospectus supplement.
THE MORTGAGE POOL
CHARACTERISTICS OF THE
MORTGAGE POOL
A. GENERAL.......................... For a more complete description of
the mortgage loans, see the
following sections in this
prospectus supplement:
o Description of the mortgage
pool;
o Appendix I (characteristics of
the mortgage loans);
o Appendix II (characteristics of
each mortgage loan on a
property-by-property basis and
certain information regarding
the multi-family and senior
housing loans); and
o Appendix III (descriptions of
the largest mortgage loans).
All numerical information provided
in this prospectus supplement with
respect to the mortgage loans is
approximate. All weighted average
information regarding the mortgage
loans reflects weighting of the
mortgage loans by Cut-off Date
Balance.
B. PRINCIPAL BALANCES............... The trust's primary assets will be
262 mortgage loans with an initial
principal balance of
$1,058,111,956, subject to a
permitted variance of plus or minus
5%. As of November 1, 1998, the
outstanding principal balances of
the mortgage loans in the mortgage
pool ranged from
S-13
<PAGE>
$528,151 to $23,949,234 and the
mortgage loans had an average
balance of $4,038,595. See
"Description of the Mortgage
Pool--Certain Terms and
Characteristics of the Mortgage
Loans" in this prospectus
supplement.
C. NON-RECOURSE.................. Substantially all of the mortgage
loans are non-recourse obligations.
No mortgage loan will be insured or
guaranteed by any governmental
entity or private insurer, or by
any other person.
D. FEE SIMPLE/LEASEHOLD.......... Each mortgage loan is secured by a
first mortgage lien on the
borrower's fee simple (or, in 2
cases, which represent 0.8% of the
initial outstanding balance,
leasehold and in 1 case, which
represents 0.2% of the initial
outstanding balance, a leasehold
interest in a portion of the
property and a fee interest in the
remainder of the property) estate
in an income-producing real
property.
E. PROPERTY PURPOSE.............. Set forth below are the number of
mortgage loans, and the approximate
percentage of the initial pool
balance represented by such
mortgage loans, that are secured by
mortgaged properties operated for
each indicated purpose:
----------------------------------------------------
Percentage of
Initial Pool Number of
Property Type Balance Mortgage Loans
----------------------------------------------------
Multifamily 32.8% 75
----------------------------------------------------
Retail 22.9% 64
----------------------------------------------------
Industrial 8.7% 24
----------------------------------------------------
Office 7.8% 20
----------------------------------------------------
Senior Housing 7.6% 16
----------------------------------------------------
Self-Storage 7.3% 33
----------------------------------------------------
Hospitality 6.2% 9
----------------------------------------------------
Manufactured Housing 4.9% 17
----------------------------------------------------
Mixed Use 1.7% 4
----------------------------------------------------
F. PROPERTY LOCATION............. The number of mortgage loans, and
the approximate percentage of the
initial pool balance represented by
such mortgage loans, that are
secured by mortgaged properties
located in the five states with the
highest concentrations of mortgaged
properties are:
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<PAGE>
------------------------------------------
Percentage of
Initial Pool Number of
State Balance Mortgage Loans
------------------------------------------
California 20.2% 52
------------------------------------------
Georgia 8.4% 10
------------------------------------------
Texas 7.8% 24
------------------------------------------
Florida 7.1% 26
------------------------------------------
Colorado 5.9% 13
------------------------------------------
The remaining mortgaged properties
are located throughout 34 other
states. No other state has a
concentration of mortgaged
properties that represents security
for more than 4.9% of the initial
outstanding pool balance. See
Appendix I hereto.
G. OTHER MORTGAGE LOAN FEATURES.. As of November 1, 1998, the
mortgage loans had the following
approximate characteristics:
o No scheduled payment of
principal and interest on the
mortgage loan was thirty days or
more past due, and the mortgage
loan has not been thirty days or
more delinquent in the past
year.
o Four (4) separate groups of
mortgage loans are, within such
group, cross-collateralized with
each other, the largest group of
which represents 1.3% of the
initial outstanding pool balance
of mortgage loans.
o Several groups of mortgage loans
are made to the same borrower or
have related borrowers that are
affiliated with one another
through partial or complete
direct or indirect common
ownership, the three largest of
these groups representing 2.8%,
2.3% and 2.0%, respectively, of
the initial outstanding pool
balance of mortgage loans.
o Five (5) additional mortgage
loans are, in each case, secured
by one or more mortgages
encumbering multiple real
properties, with each such
mortgage loan representing
between 0.1% and 2.1% of the
initial outstanding pool balance
of mortgage loans, and all such
mortgage loans collectively
representing 3.4% of the initial
outstanding pool balance of
mortgage loans.
o Thirty-three (33) mortgage
loans, representing 6.0% of the
initial outstanding pool balance
of
S-15
<PAGE>
mortgage loans, are secured by a
mortgaged property which is 100%
leased to a single tenant, and 6
of such mortgage loans,
representing 2.0% of the initial
outstanding pool balance of
mortgage loans, are credit
tenant lease mortgage loans.
o All mortgage loans bear interest
at fixed rates.
o No mortgage loan permits
negative amortization or the
deferral of accrued interest.
H. BALLOON LOANS................. Two hundred forty-six (246) of the
mortgage loans, representing 93.9%
of the initial outstanding pool
balance, provide for one of the
following:
o Monthly payments based on
amortization schedules
significantly longer than their
respective terms to maturity
(209 of such mortgage loans,
representing 80.2% of the
initial outstanding pool
balance); or
o Monthly Payments that provide
for payment of interest only for
a certain period after the
Cut-off Date and then payments
of interest and principal based
on amortization schedules
significantly longer than their
respective terms to maturity (4
of such mortgage loans,
representing 3.4% of the initial
outstanding pool balance); or
o Increases in the mortgage rate
and/or principal amortization at
a date prior to stated maturity
that create an incentive for the
related borrower to prepay the
loan (33 of such mortgage loans,
representing 10.2% of the
initial outstanding pool
balance) (the "Hyper-Amortization
Loans"); such mortgage loans
will have substantial payments
payable on their respective
maturity dates, but balloon
payments on such mortgage loans
are anticipated to be made on
the date prior to stated
maturity that these increases
occur (the "Hyper-Amortization
Date") unless such loans are
prepaid.
The remaining 16 mortgage loans,
representing 6.1% of the initial
outstanding pool balance, have an
expected balloon balance equal to
less than 10% of the original
principal balance of each loan.
S-16
<PAGE>
I. PREPAYMENT PROVISIONS;
DEFEASANCE LOANS............ As of November 1, 1998, all of the
mortgage loans restricted voluntary
principal prepayments as follows:
o One hundred sixty (160) mortgage
loans, representing 58.2% of the
initial outstanding pool
balance, contain a defeasance
provision, whereby the related
borrower is permitted (after an
initial period during which
voluntary prepayments are
prohibited and until generally
three to six months prior to
maturity) to substitute direct,
non-callable United States
Treasury obligations for the
mortgaged property securing the
mortgage loan, thereby releasing
the mortgage from its property
without prepaying the mortgage
loan.
o Seventy-seven (77) mortgage
loans, representing 32.7% of the
initial outstanding pool
balance, prohibit voluntary
prepayments for a period ending
on a date specified in the
related mortgage note and, in
most such cases, thereafter
impose prepayment premiums until
a specified date prior to
maturity.
o Twenty-five (25) mortgage loans,
representing 9.2% of the initial
outstanding 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 (generally
zero to three months, but in two
such cases, representing 0.3% of
the initial outstanding pool
balance, 37 to 48 months prior
to maturity).
o Notwithstanding the foregoing, 2
mortgage loans, representing
0.6% of the initial outstanding
pool balance, permit voluntary
principal prepayments of up to
10% of the original principal
balance of the mortgage loan in
any calendar year without the
imposition of a prepayment
premium (the "10% Free
Prepayment Loans").
J. MORTGAGE LOAN RANGES AND
WEIGHTED AVERAGES........... As of November 1, 1998, the
mortgage loans will have the
following additional
characteristics:
I. MORTGAGE RATES Mortgage rates ranging from
6.510% per annum to 9.570% per
annum, and a weighted average
mortgage rate of 7.233% per
annum;
S-17
<PAGE>
II. REMAINING TERMS Remaining terms to scheduled
maturity ranging from 53 months
to 296 months, and a weighted
average remaining term to
scheduled maturity of 125
months;
III. REMAINING Remaining amortization terms
AMORTIZATION TERMS ranging from 152 months to 360
months, and a weighted average
remaining amortization term of
323 months (for the amortizing
loans);
IV. LOAN-TO-VALUE RATIOS Loan-to-value ratios ranging
from 26.3% to 96.4% and a
weighted average loan-to-value
ratio (calculated as described
in this prospectus supplement
under "Description of the
Mortgage Pool--Additional
Mortgage Loan Information") of
72.4%; and
V. DEBT SERVICE Debt service coverage ratios
COVERAGE RATIOS ranging from 0.97x to 2.81x and
a weighted average debt service
coverage ratio (calculated as
described in this prospectus
supplement under "Description of
the Mortgage Pool --Additional
Mortgage Loan Information") of
1.37x.
See "Description of the Mortgage
Pool--Representations and
Warranties" and "--Repurchases and
Other Remedies" in this prospectus
supplement.
The mortgage loans are more
particularly described herein under
"Description of the Mortgage Pool,"
in the tables in Appendix I and in
"Certain Characteristics of the
Mortgage Loans" in Appendix II. In
addition, certain information with
respect to mortgage loans secured
by mortgages on multifamily and
senior housing properties is also
set forth in Appendix II and a
brief summary of the material terms
of the largest mortgage loans in
the mortgage pool is set forth in
Appendix III.
ADVANCES OF PRINCIPAL AND INTEREST
A. GENERAL....................... The Master Servicer is required to
advance (each, a "P&I Advance")
delinquent monthly mortgage loan
payments, if it determines that the
advance will be recoverable. The
Master Servicer will not be
required to advance interest in
excess of a loan's regular interest
rate (not including any default
rate or any rate increase after an
effective maturity date). The
Master Servicer also is not
required to advance prepayment or
yield maintenance premiums, or
balloon payments. If an advance is
made, the Master Servicer will
defer rather than advance its
servicing fee, but will advance the
Trustee's fee.
If the Master Servicer fails to
make a required P&I Advance, the
Trustee will be required to make
the P&I Advance. If the Trustee
fails to make a required P & I
Advance, the Fiscal Agent -- ABN
AMRO Bank N.V., the
S-18
<PAGE>
indirect corporate parent of the
Trustee -- will be required to make
such P&I Advance. In both cases,
the obligation to make an Advance
will also be subject to a
determination of recoverability.
See "Description of the
Certificates--Advances" in this
prospectus supplement.
B. APPRAISAL REDUCTION
EVENT ADVANCES.............. Certain adverse events affecting a
mortgage loan, called "Appraisal
Reduction Events," will require the
Special Servicer to obtain a new
appraisal on the related mortgaged
property. Based on the appraised
value in such appraisal, it may be
necessary to calculate an
"Appraisal Reduction Amount." The
amount required to be advanced in
respect of a mortgage loan that has
been subject to an Appraisal
Reduction Event will be reduced so
that the Master Servicer will not
be required to advance interest on
the Appraisal Reduction Amount (as
described below). Due to the
payment priorities described above,
this will reduce the funds
available to pay interest on the
most subordinate class or classes
of certificates then outstanding.
See "Description of the
Certificates - Appraisal
Reductions" in this prospectus
supplement.
ADDITIONAL ASPECTS OF CERTIFICATES
RATINGS.................................. The Offered Certificates will not
be issued unless each of the
offered classes receives the
following ratings from Duff &
Phelps Credit Rating Co. and Fitch
IBCA, Inc.:
-----------------------------------
Class A-1 and A-2 AAA
-----------------------------------
Class B AA
-----------------------------------
Class C A
-----------------------------------
Class D BBB
-----------------------------------
Class E BBB-
-----------------------------------
A rating agency may lower or
withdraw a security rating at any
time.
See "Ratings" in this prospectus
supplement and the prospectus for a
discussion of the basis upon which
ratings are given, the limitations
of and restrictions on the ratings,
and the conclusions that should not
be drawn from a rating.
S-19
<PAGE>
OPTIONAL TERMINATION..................... On any distribution date on which
the aggregate principal balance of
the mortgage loans remaining in the
trust is less than 1% of the
aggregate unpaid balance of the
mortgage loans as of the Cut-off
Date, the Depositor, Master
Servicer, the Special Servicer, the
majority holders of the Controlling
Class and any holder of a majority
interest in the Class R-I
Certificates will have the option
to purchase all of the remaining
mortgage loans (and all property
acquired through exercise of
remedies in respect of any mortgage
loan), at the price specified in
this prospectus supplement.
Exercise of this option will
terminate the trust and retire the
then-outstanding certificates.
See "Description of the
Certificates--Optional Termination"
in this prospectus supplement.
DENOMINATIONS............................ The Class A-1 and Class A-2
Certificates will be offered in
minimum denominations of $25,000.
The Class B Certificates will be
offered in minimum denominations of
$50,000. The remaining Offered
Certificates will be offered in
minimum denominations of $100,000.
Investments in excess of the
minimum denominations may be made
in multiples of $1.
REGISTRATION, CLEARANCE AND SETTLEMENT... Your certificates will be
registered in the name of CEDE &
Co., as nominee of the Depository
Trust Company, and will not be
registered in your name. You will
not receive a definitive
certificate representing your
interest, except in very limited
circumstances described in this
prospectus supplement. As a result,
you will not be a certificateholder
of record, and you will receive
distributions on your certificates
and reports relating to
distributions only through DTC,
CEDEL or Euroclear or through
participants in DTC, CEDEL or
Euroclear.
You may hold your Offered
Certificates through: (i) The
Depository Trust Company ("DTC") in
the United States; or (ii) Cedel
Bank, S.A. ("CEDEL") or The
Euroclear System ("Euroclear") in
Europe. Transfers within DTC, CEDEL
or Euroclear will be made in
accordance with the usual rules and
operating procedures of those
systems. Cross-market transfers
between persons holding directly
through DTC, CEDEL or Euroclear
will be effected in DTC through the
relevant depositories of CEDEL or
Euroclear.
The Depositor may elect to
terminate the book-entry system
through DTC with respect to all or
any portion of any class of the
Offered Certificates.
See "Description of the
Certificates--Book-Entry
Registration" and "-Definitive
Certificates" in this
S-20
<PAGE>
prospectus supplement and
"Description of the Certificates-
General" in the prospectus.
We expect that the Offered
Certificates will be delivered in
book-entry form through the
facilities of DTC, CEDEL or
Euroclear on or about November 12,
1998.
TAX STATUS............................... An election will be made to treat
the Trust as three separate REMICs
- - a Lower-Tier REMIC, a
Middle-Tier REMIC, and an
Upper-Tier REMIC - - for federal
income tax purposes. In the opinion
of counsel, the Trust will qualify
for this treatment.
Pertinent federal income tax
consequences of an investment in
the Offered Certificates include:
o Each class of Offered
Certificates will constitute
"regular interests" in the
Upper-Tier REMIC.
o The regular interests will be
treated as newly originated debt
instruments for federal income
tax purposes.
o Beneficial owners will be
required to report income
thereon in accordance with the
accrual method of accounting.
o One or more classes of Offered
Certificates may be issued with
original issue discount.
See "Certain Federal Income Tax
Consequences" in this prospectus
supplement and "Certain Federal
Income Tax Consequences-REMICs-
Taxation of Owners of REMIC Regular
Certificates" in the prospectus.
ERISA CONSIDERATIONS..................... Subject to the satisfaction of
important conditions described
under "ERISA Considerations" in
this prospectus supplement and in
the accompanying prospectus, the
Class A and Class X Certificates
may be purchased by persons
investing assets of employee
benefit plans or individual
retirement accounts.
THE CLASS B, CLASS C, CLASS D AND
CLASS E CERTIFICATES MAY NOT BE
PURCHASED BY, OR TRANSFERRED TO, A
PLAN OR ANY PERSON INVESTING THE
ASSETS OF A PLAN, UNLESS SUCH
TRANSACTION IS COVERED BY A
PROHIBITED TRANSACTION CLASS
EXEMPTION ISSUED BY THE U.S.
DEPARTMENT OF LABOR.
S-21
<PAGE>
LEGAL INVESTMENTS........................ The Offered Certificates will not
constitute "mortgage related
securities" for purposes of the
Secondary Mortgage Market
Enhancement Act of 1984, as amended
("SMMEA").
No representation is made regarding
the proper characterization of the
Offered Certificates for purposes
of any applicable legal investment
restrictions, regulatory capital
requirements or other similar
purposes. Regulated entities should
consult with their own advisors
regarding these matters.
See "Legal Investment" in this
prospectus supplement and in the
accompanying prospectus.
S-22
<PAGE>
RISK FACTORS
You should carefully consider the risks before making an investment
decision. In particular, the timing and amount of distributions on your
certificates will depend on payments received on and other recoveries with
respect to the mortgage loans. Therefore, you should carefully consider the
risk factors relating to the mortgage loans and the mortgaged properties.
The risks and uncertainties described below are not the only ones
relating to your certificates. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair your
investment.
If any of the following risks actually occur, your investment could be
materially and adversely affected.
This prospectus supplement also contains forward-looking statements
that involve risks and uncertainties. Actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including the risks described below and elsewhere in this
prospectus supplement.
MORTGAGE LOANS ARE Payments under the mortgage loans are
NONRECOURSE AND ARE NOT not insured or guaranteed by any person
INSURED OR GUARANTEED or entity.
Substantially all of the mortgage loans
are nonrecourse loans. If a default
occurs, the lender's remedies generally
are limited to foreclosing against the
specific properties and other assets
that have been pledged to secure the
loan. Payment of amounts due under the
mortgage loan prior to maturity is
consequently dependent primarily on the
sufficiency of the net operating income
of the mortgaged property. Payment of
the mortgage loan at maturity is
primarily dependent upon the borrower's
ability to sell or refinance the
property for an amount sufficient to
repay the loan.
All of the mortgaged loans were
originated within 37 months prior to the
Cut-off Date. Consequently, the mortgage
loans do not have a long standing
payment history.
COMMERCIAL LENDING IS The mortgage loans are secured by
DEPENDENT UPON NET various types of income-producing
OPERATING INCOME commercial properties. Commercial
lending is generally thought to expose a
lender to greater risk than one-to-four
family residential lending because it
typically involves larger loans to a
single borrower.
The repayment of a commercial loan is
typically dependent upon the ability of
the applicable property to produce cash
flow. Even the liquidation value of a
commercial property is determined, in
substantial part, by the amount of the
property's cash flow (or its potential
to generate cash flow). However, net
operating income and cash flow can be
volatile and may be insufficient to
cover debt service on the loan at any
given time.
The net operating income, cash flow and
property value of the mortgaged
properties may be adversely affected by
a large number of factors. Some of these
factors relate to the property itself,
such as:
o the age, design and construction
quality of the property;
S-23
<PAGE>
o perceptions regarding the safety,
convenience and attractiveness of
the property;
o the proximity and attractiveness of
competing properties;
o the adequacy of the property's
management and maintenance;
o increases in operating expenses at
the property and in relation to
competing properties;
o an increase in the capital
expenditures needed to maintain the
property or make improvements;
o the dependence upon a single tenant,
or a concentration of tenants in a
particular business or industry;
o a decline in the financial condition
of a major tenant;
o an increase in vacancy rates; and
o a decline in rental rates as leases
are renewed or entered into with new
tenants.
Others factors are more general in
nature, such as:
o national, regional or local economic
conditions (including plant
closings, industry slowdowns and
unemployment rates);
o local real estate conditions (such
as an oversupply of competing
properties, space or multifamily
housing);
o demographic factors;
o decreases in consumer confidence;
o changes in consumer tastes and
preferences; and
o retroactive changes in building
codes.
The volatility of net operating income
will be influenced by many of the
foregoing factors, as well as by:
o the length of tenant leases;
o the creditworthiness of tenants;
o tenant defaults;
o in the case of rental properties,
the rate at which new rentals occur;
and
o the property's "operating leverage"
(i.e., the percentage of total
property expenses in relation to
revenue, the ratio of fixed
operating
S-24
<PAGE>
expenses to those that vary with
revenues, and the level of capital
expenditures required to maintain
the property and to retain or
replace tenants).
A decline in the real estate market or
in the financial condition of a major
tenant will tend to have a more
immediate effect on the net operating
income of properties with short-term
revenue sources and may lead to higher
rates of delinquency or defaults under
mortgage loans.
SOME MORTGAGED PROPERTIES Some of the mortgaged properties may not
MAY NOT BE READILY CONVERTIBLE be readily convertible to alternative
TO ALTERNATIVE USES uses if those properties were to become
unprofitable for any reason. Converting
commercial properties to alternate uses
generally requires substantial capital
expenditures. In addition, zoning or
other restrictions also may prevent
alternative uses. The liquidation value
of any such mortgaged property
consequently may be substantially less
than would be the case if the property
were readily adaptable to other uses.
PROPERTY VALUE MAY BE Various factors may adversely affect the
ADVERSELY AFFECTED EVEN WHEN value of the mortgaged properties
CURRENT OPERATING INCOME IS without affecting the properties'
NOT current net operating income. These
factors include, among others:
o changes in governmental regulations,
fiscal policy, zoning or tax laws;
o potential environmental legislation
or liabilities or other legal
liabilities;
o the availability of refinancing; and
o changes in interest rate levels.
TENANT CONCENTRATION ENTAILS A deterioration in the financial
RISK condition of a tenant can be
particularly significant if a mortgaged
property is leased to a single tenant,
or a small number of tenants. Mortgaged
properties leased to a single tenant, or
a small number of tenants, also are more
susceptible to interruptions of cash
flow if a tenant fails to renew its
lease. This is so because: (i) the
financial effect of the absence of
rental income may be severe; (ii) more
time may be required to re-lease the
space; and (iii) substantial capital
costs may be incurred to make the space
appropriate for replacement tenants.
Thirty-three (33) mortgage loans
(representing 6.0% of the initial
outstanding pool balance) are secured by
mortgaged properties leased to single
tenants.
Retail and office properties also may be
adversely affected if there is a
concentration of particular tenants
among the mortgaged properties or of
tenants in a particular business or
industry.
CREDIT TENANT LOANS HAVE Six (6) mortgage loans (representing
SPECIAL RISKS 2.0% of the initial outstanding pool
balance) are credit tenant loans. Credit
tenant loans are secured by net lease
obligations of a rated tenant or
guarantor. In reliance on the ratings,
the credit tenant loans were generally
underwritten to lower debt service
coverage ratios and/or higher
loan-to-value ratios then would have
been acceptable had the related mortgage
properties been leased to less
creditworthy tenants. In the event that
a tenant defaults in its obligations
under a credit lease the
S-25
<PAGE>
mortgaged property may not be relet for
sufficiently high rent to support debt
service on the related credit lease loan
or funds received in liquidation of such
mortgaged property may not be sufficient
to satisfy the borrower's obligations
under the credit lease loan.
Any rating assigned to a credit tenant
or guarantor by a rating agency will
reflect only such rating agency's
assessment of the long-term unsecured
debt obligations of such entity. Such
rating is not an assessment of the
likelihood that the credit leases will
not be terminated (pursuant to their
terms or otherwise), that the credit
lease loans will not be prepaid, that
principal prepayments on the credit
lease loans will be made by the related
borrowers, or that any prepayment
premium will be paid or, if paid, will
be sufficient to provide the anticipated
yield.
MORTGAGED PROPERTIES LEASED If a mortgaged property has multiple
TO MULTIPLE TENANTS ALSO tenants, re-leasing expenditures may be
HAVE RISKS more frequent than in the case of
mortgaged properties with fewer tenants,
thereby reducing the cash flow available
for debt service payments. Multi-tenanted
mortgaged properties also may experience
higher continuing vacancy rates and
greater volatility in rental income and
expenses.
RISKS RELATING TO LOAN The effect of mortgage pool loan losses
CONCENTRATION will be more severe: (i) if the pool is
comprised of a small number of loans,
each with a relatively large principal
amount; or (ii) if the losses relate to
loans that account for a
disproportionately large percentage of
the pool's aggregate principal balance.
The 5 largest loans equal 9.9% of the
mortgage pool. Losses on any of these
loans may have a particularly adverse
effect on the Offered Certificates.
Each of the other mortgage loans
represents less than 1.7% of the Cut-off
Date aggregate principal balance.
A concentration of mortgaged property
types or of mortgage loans with the same
borrower or related borrowers also can
pose increased risks. As to property
types:
o multifamily properties represent
32.8% of the aggregate principal
balance of the mortgage pool as of
the Cut-off Date;
o retail properties represent 22.9%;
o industrial properties represent
8.7%;
o office properties represent 7.8%;
o senior housing facilities represent
7.6%;
o self storage properties represent
7.3%;
o hospitality properties represent
6.2%;
o manufactured housing properties
represent 4.9%; and
o mixed use properties represent 1.7%.
S-26
<PAGE>
With respect to concentration of
borrowers, several groups of mortgage
loans are made to the same borrower or
borrowers related through common
ownership and where, in general, the
related mortgaged properties are
commonly managed. The three largest of
these groups represent 2.8%, 2.3%, and
2.0% respectively of the mortgage pool.
GEOGRAPHIC CONCENTRATION Concentrations of mortgaged properties
ENTAILS RISKS in geographic areas may increase the
risk that adverse economic or other
developments or a natural disaster
affecting a particular region of the
country could increase the frequency and
severity of losses on mortgage loans
secured by the properties. In recent
periods, several regions of the United
States have experienced significant real
estate downturns. Regional economic
declines or conditions in regional real
estate markets could adversely affect
the income from, and market value of,
the mortgaged properties. Other regional
factors - - e.g., earthquakes, floods or
hurricanes or changes in governmental
rules or fiscal policies - - also may
adversely affect the mortgaged
properties. For example, mortgaged
properties located in California may be
more susceptible to certain hazards
(such as earthquakes) than properties in
other parts of the country.
The mortgaged properties are located in
39 states. Approximately 20.2% of the
mortgaged properties (based on the
Cut-off Date principal amount) are
located in California, and there are 4
other states in which 5% or more of the
mortgaged properties (based on Cut-off
Date principal amount) are located. See
"Description of the Mortgage Pool" in
this prospectus supplement.
MULTIFAMILY PROPERTIES HAVE Multifamily properties secure 75 of the
SPECIAL RISKS underlying mortgage loans (representing
32.8% of the initial outstanding pool
balance).
A large number of factors may adversely
affect the value and successful
operation of a multifamily property,
including:
o the physical attributes of the
apartment building (e.g., its age,
appearance and construction
quality);
o the location of the property (e.g.,
a change in the neighborhood over
time);
o the ability of management to provide
adequate maintenance and insurance;
o the types of services the property
provides;
o the property's reputation;
o the level of mortgage interest rates
(which may encourage tenants to
purchase rather than rent housing);
o the presence of competing
properties;
o adverse local or national economic
conditions;
o state and local regulations; and
o government assistance/rent
subsidy programs.
S-27
<PAGE>
RETAIL PROPERTIES HAVE Retail properties secure 64 of the
SPECIAL RISKS underlying mortgage loans (representing
22.9% of the initial outstanding pool
balance). The quality and success of a
retail property's tenants significantly
affect the property's value. For
example, if the sales of retail tenants
were to decline, rents tied to a
percentage of gross sales may decline
and those tenants may be unable to pay
their rent or other occupancy costs.
The presence or absence of an "anchor
tenant" in a shopping center also can be
important, because anchors play a key
role in generating customer traffic and
making a center desirable for other
tenants. The economic performance of an
anchored retail property will
consequently be adversely affected by:
o an anchor tenant's failure to renew
its lease;
o termination of an anchor tenant's
lease;
o the bankruptcy or economic decline
of an anchor tenant or self-owned
anchor; or
o the cessation of the business of a
self-owned anchor or of an anchor
tenant (notwithstanding its
continued payment of rent).
If anchor stores in a mortgaged property
were to close, the related borrower may
be unable to replace those anchors in a
timely manner or without suffering
adverse economic consequences.
Furthermore, certain of the anchor
stores at the retail properties have
co-tenancy clauses in their leases or
operating agreements which permit those
anchors to cease operating if certain
other stores are not operated at those
locations. The breach of various other
covenants in anchor store leases or
operating agreements also may permit
those stores to cease operating. Certain
non-anchor tenants at retail properties
also may be permitted to terminate their
leases if certain other stores are not
operated or if those tenants fail to
meet certain business objectives.
Retail properties also face competition
from sources outside a given real estate
market. For example, all of the
following compete with more traditional
retail properties for consumer dollars:
factory outlet centers; discount
shopping centers and clubs; catalogue
retailers; home shopping networks;
internet web sites; and telemarketing.
Continued growth of these alternative
retail outlets (which often have lower
operating costs) could adversely affect
the rents collectible at the retail
properties included in the mortgage
pool, as well as the income from, and
market value of, the mortgaged
properties.
Moreover, additional competing retail
properties may be built in the areas
where the retail properties are located.
INDUSTRIAL PROPERTIES HAVE Industrial properties secure 24 of the
SPECIAL RISKS underlying mortgage loans (representing
8.7% of the initial outstanding pool
balance). Various factors may adversely
affect the economic performance of an
industrial property including:
o reduced demand for industrial space
because of a decline in a particular
industry segment;
S-28
<PAGE>
o a property becoming functionally
obsolete;
o the unavailability of labor sources;
o changes in access, energy prices,
strikes, relocation of highways, the
construction of additional highways
or other factors;
o a change in the proximity of supply
sources; and
o environmental hazards.
OFFICE PROPERTIES HAVE Office properties secure 20 of the
SPECIAL RISKS underlying mortgage loans (representing
7.8% of the initial outstanding pool
balance).
A large number of factors may adversely
affect the value of office properties,
including:
o the quality of an office building's
tenants;
o the diversity of an office
building's tenants (or reliance on a
single or dominant tenant);
o the physical attributes of the
building in relation to competing
buildings (e.g., age, condition,
design, location, access to
transportation and ability to offer
certain amenities, such as
sophisticated building systems);
o the desirability of the area as a
business location; and
o the strength and nature of the local
economy (including labor costs and
quality, tax environment and quality
of life for employees).
Moreover, the cost of refitting office
space for a new tenant is often higher
than the cost of refitting other types
of property.
SENIOR HOUSING PROPERTIES Congregate care, senior care and
HAVE SPECIAL RISKS assisted living facilities secure 16 of
the underlying mortgage loans
(representing 7.6% of the initial
outstanding pool balance). Four (4) of
the mortgage loans (representing 1.8% of
the initial outstanding pool balance)
are secured by facilities that typically
receive a portion of their revenues from
government reimbursement programs,
primarily Social Security, Medicaid and
Medicare. Social Security, Medicaid and
Medicare are subject to various
regulatory changes, rate adjustments,
rulings, delays in payment and
government restrictions, all of which
can adversely affect revenues from
operations of facilities. In addition,
governmental payors have employed
measures that limit payments to health
care providers.
S-29
<PAGE>
Providers of long-term nursing care and
other medical services are highly
regulated and are subject to licensing
requirements, facility inspections, rate
setting and reimbursement policies. They
are also subject to laws relating to the
adequacy of medical care, distribution
of pharmaceuticals, equipment, personnel
operating policies and maintenance of
and additions to facilities and
services. These factors can increase the
cost of operations, limit growth and in
extreme cases, require or result in
suspension or cessation of operations.
In the event that the trustee or another
party forecloses on a senior care
facility, it would not generally be
entitled to reimbursements by Social
Security, Medicare and Medicaid for
services rendered prior to such
foreclosure, if any. In addition, such
party may have to apply in its own right
for its necessary licenses and
regulatory approvals. There can be no
assurance that a new license could be
obtained or that new approvals would be
granted. This uncertainty may adversely
affect the liquidation value of the
facility.
Other factors that may adversely effect
the value and successful operation of a
senior housing facility include:
o increasing governmental regulation
and supervision (as to those
facilities not already subject to
it);
o a decline in the financial health,
skills or reputation of the
operator;
o increased operational expenses; and
o competing facilities owned by
non-profit organizations or
government agencies supported by
endowments, charitable
contributions, tax revenues and
other sources.
SELF-STORAGE FACILITIES HAVE Self-storage facilities secure 33 of the
SPECIAL RISKS underlying mortgage loans (representing
7.3% of the initial outstanding pool
balance). Various factors may adversely
affect the value and successful
operation of a self-storage facility:
o competition because both acquisition
and development costs and break-even
occupancy are relatively low;
o conversion of a self-storage
facility to an alternative use
generally requires substantial
capital expenditures;
o security concerns; and
o user privacy and ease of access to
individual storage space may
increase environmental risks
(although lease agreements generally
prohibit users from storing
hazardous substances in the units).
The environmental assessments discussed
herein did not include an inspection of
the contents of the self-storage units
of the self-storage properties.
Accordingly, there is no assurance that
all of the units included in the
self-storage properties are free from
hazardous substances or will remain so
in the future.
S-30
<PAGE>
HOSPITALITY PROPERTIES HAVE Hospitality properties secure 9 of the
SPECIAL RISKS underlying mortgage loans (representing
6.2% of the initial outstanding pool
balance). Various factors may adversely
affect the economic performance of a
hotel, including:
o adverse economic and social
conditions, either local, regional
or national (which may limit the
amount that can be charged for a
room and reduce occupancy levels);
o the construction of competing hotels
or resorts;
o continuing expenditures for
modernizing, refurbishing, and
maintaining existing facilities
prior to the expiration of their
anticipated useful lives;
o a deterioration in the financial
strength or managerial capabilities
of the owner and operator of a
hotel; and
o changes in travel patterns caused by
changes in access, energy prices,
strikes, relocation of highways, the
construction of additional highways
or other factors.
Because hotel rooms generally are rented
for short periods of time, the financial
performance of hotels tends to be
affected by adverse economic conditions
and competition more quickly than other
types of commercial properties.
Moreover, the hotel and lodging industry
is generally seasonal in nature. This
seasonality can be expected to cause
periodic fluctuations in a hotel
property's revenues, occupancy levels,
room rates and operating expenses.
RISKS RELATING TO Certain of the hospitality properties
AFFILIATION WITH A FRANCHISE are franchises of national hotel chains
OR HOTEL MANAGEMENT COMPANY or managed by a hotel management
company. The performance of a hotel
property affiliated with a franchise or
hotel management company depends in part
on:
(i) the continued existence and
financial strength of the
franchiser or hotel management
company;
(ii) the public perception of the
franchise or hotel chain service
mark; and
(iii) the duration of the franchise
licensing or agreements.
Any provision in a franchise agreement
or management agreement providing for
termination because of a bankruptcy of a
franchisor or manager generally will not
be enforceable.
The transferability of franchise license
agreements may be restricted. In the
event of a foreclosure, the lender or
its agent may not have the right to use
the franchise license without the
franchiser's consent. Conversely, in the
case of certain mortgage loans, the
lender may be unable to remove a
franchisor or a hotel management company
that it desires to replace following a
foreclosure.
S-31
<PAGE>
Further, in the event of a foreclosure,
the Trustee or a purchaser of such
mortgaged property probably would not be
entitled to the rights under any liquor
license for the mortgaged property. Such
party would be required to apply in its
own right for such a license, and we
cannot assure you that a new license
could be obtained.
HOTEL AFFILIATION The adverse effect of an economic
CONCENTRATION ENTAILS RISKS decline in a particular hotel chain will
be more significant if there is a
concentration of hotels operated by that
chain among the properties securing a
mortgage loan. In this regard, the
largest concentration in the mortgage
loan pool consists of three (3) mortgage
loans (representing 1.7% of the initial
pool balance) secured by mortgaged
properties that are operated as Holiday
Inn hotels under management by a single
management company.
MANUFACTURED HOUSING Manufactured Housing Communities secure
COMMUNITIES HAVE SPECIAL 17 of the underlying mortgage loans
RISKS (representing 4.9% of the initial
outstanding pool balance). Loans secured
by liens on properties of these types
pose risks not associated with loans
secured by liens on other types of
income-producing real estate, including:
o the number of competing manufactured
housing communities and other
residential developments (such as
apartment buildings and single
family homes) in the local market;
o the age, appearance and reputation
of the community;
o the ability of management to provide
adequate maintenance and insurance;
and
o the types of services and amenities
it provides.
The Manufactured Housing Communities are
"special purpose" properties that could
not be readily converted to general
residential, retail or office use.
Some properties within the Manufactured
Housing Communities may lease sites to
non-permanent recreational vehicles,
which occupancy is often very seasonal
in nature.
CERTAIN ADDITIONAL RISKS The income from, and market value of,
RELATING TO TENANTS the mortgaged properties leased to
various tenants would be adversely
affected if:
o space in the mortgaged properties
could not be leased or re-leased;
o tenants were unable to meet their
lease obligations;
o a significant tenant were to become
a debtor in a bankruptcy case; or
o rental payments could not be
collected for any other reason.
Repayment of the mortgage loans secured
by retail and office properties will be
affected by the expiration of leases and
the ability of the respective borrowers
to renew the leases or relet the space
on comparable terms.
S-32
<PAGE>
Even if vacated space is successfully
relet, the costs associated with
reletting, including tenant improvements
and leasing commissions, could be
substantial and could reduce cash flow
from the mortgaged properties. Moreover,
if a tenant defaults in its obligations
to a borrower, the borrower may incur
substantial costs and experience
significant delays associated with
enforcing its rights and protecting its
investment, including costs incurred in
renovating and reletting the property.
TENANT BANKRUPTCY ENTAILS The bankruptcy or insolvency of a major
RISKS tenant, or a number of smaller tenants,
in retail and office properties may
adversely affect the income produced by
a mortgaged property. Under the
Bankruptcy Code, a tenant has the option
of assuming or rejecting any unexpired
lease. If the tenant rejects the lease,
the landlord's claim for breach of the
lease would be a general unsecured claim
against the tenant (absent collateral
securing the claim). The claim would be
limited to the unpaid rent under the
lease for the periods prior to the
bankruptcy petition (or earlier
surrender of the leased premises), plus
the rent under the lease for the greater
of one year, or 15% (not to exceed three
years), of the remaining term of such
lease.
RISKS RELATING TO GOVERNMENT Two (2) of the mortgage loans
ASSISTED PROPERTIES (representing 0.2% of the initial
outstanding pool balance) are believed
to have tenants eligible for rental
subsidy payments under certain federal
housing assistance payment programs,
including Section 8 of United States
Housing Act of 1937, as amended. Under
that program, administered by the
Department of Housing and Urban
Development, a mortgaged property must
satisfy certain requirements to qualify
for inclusion in the program. These
requirements relate to, among other
things, income limitations on tenants in
the mortgaged property. The borrower
under these mortgage loans may be
adversely affected if it or the
mortgaged property fails to qualify for
inclusion in the program, if subsidies
thereunder are reduced, or if the
programs are otherwise terminated.
ENVIRONMENTAL LAWS ENTAIL Various environmental laws may make a
RISKS current or previous owner or operator of
real property liable for the costs of
removal or remediation of hazardous or
toxic substances on, under, adjacent to,
or in such property. Those laws often
impose liability whether or not the
owner or operator knew of, or was
responsible for, the presence of the
hazardous or toxic substances. For
example, certain laws impose liability
for release of asbestos-containing
materials ("ACMs") into the air or
require the removal or containment of
ACMs. In some states, contamination of a
property may give rise to a lien on the
property to assure payment of the costs
of cleanup. In some states, this lien
has priority over the lien of a
pre-existing mortgage. Additionally,
third parties may seek recovery from
owners or operators of real properties
for personal injury associated with ACMs
or other exposure to hazardous
substances related to the properties.
<PAGE>
The owner's liability for any required
remediation generally is not limited by
law and could accordingly exceed the
value of the property and/or the
aggregate assets of the owner. The
presence of hazardous or toxic
substances also may adversely affect the
owner's ability to refinance the
property or to sell the property to a
third party. The presence of, or strong
potential for contamination by,
hazardous substances consequently can
have a materially adverse effect on the
value of the property and a borrower's
ability to repay its mortgage loan.
S-33
<PAGE>
In addition, under certain circumstances,
a lender (such as the trust) could be
liable for the costs of responding to an
environmental hazard. See "Legal
Matters" in the prospectus.
ENVIRONMENTAL RISKS RELATING All of the mortgaged properties securing
TO SPECIFIC MORTGAGED the mortgage loans have been subject to
PROPERTIES environmental site assessments in
connection with the origination or
acquisition of the loans. In certain
cases, the assessment disclosed the
existence of or potential for adverse
environmental conditions, such as the
existence of, among other things, ACMs,
underground storage tanks and soil
contamination. We cannot assure you,
however, that the environmental
assessments revealed all existing or
potential environmental risks or that
all adverse environmental conditions
have been completely remediated.
Furthermore, environmental assessments
on properties securing 32 of the
underlying mortgage loans (representing
11.8% of the initial pool balance) are
more than a year old, but in no event
more than 33 months old. In certain
cases, Phase II site assessments also
have been performed.
ACMs have been detected through sampling
by environmental consultants at several
mortgaged properties and suspected at
others. ACMs found or suspected at these
mortgaged properties are not expected to
present a significant risk as long as
the property continues to be properly
managed. Nonetheless, the value of a
mortgaged property as collateral for the
mortgage loan could be adversely
affected.
The environmental assessments have not
revealed any environmental liability
that the Depositor believes would have a
material adverse effect on the borrowers'
businesses, assets or results of
operations taken as a whole.
Nevertheless, there may be material
environmental liabilities of which the
Depositor is unaware. Moreover, there is
no assurance that: (i) future laws,
ordinances or regulations will not
impose any material environmental
liability; or (ii) the current
environmental condition of the mortgaged
properties will not be adversely
affected by tenants or by the condition
of land or operations in the vicinity of
the mortgaged properties (such as
underground storage tanks).
Before the Special Servicer acquires
title to a property on behalf of the
trust or assumes operation of the
property, it must obtain an environmental
assessment of the property. This
requirement will decrease the likelihood
that the trust will become liable under
any environmental law. However, this
requirement may effectively preclude
foreclosure until a satisfactory
environmental assessment is obtained (or
until any required remedial action is
thereafter taken). There is accordingly
some risk that the mortgaged property
will decline in value while this
assessment is being obtained. Moreover,
there is no assurance this requirement
will effectively insulate the trust from
potential liability under environmental
laws.
<PAGE>
BORROWER MAY BE UNABLE Two hundred forty-six (246) of the
TO REPAY REMAINING PRINCIPAL mortgage loans, representing 93.9% of
BALANCE ON MATURITY DATE the initial pool balance, are expected
to have substantial remaining principal
balances (equal to greater than 10% of
the original principal balance of each
respective mortgage loan) as of their
respective effective maturity dates or
stated maturity dates. We cannot assure
you that each borrower will have the
ability to repay the remaining principal
balances on the pertinent date. Mortgage
loans with substantial remaining
principal balances at their stated
S-34
<PAGE>
maturity (i.e., "balloon loans") involve
greater risk than fully amortizing
loans.
A borrower's ability to repay a loan on
its effective maturity date or stated
maturity date typically will depend upon
its ability either to refinance the loan
or to sell the mortgaged property at a
price sufficient to permit repayment. A
borrower's ability to achieve either of
these goals will be affected by a number
of factors, including:
o the availability of, and competition
for, credit for commercial real
estate projects;
o the prevailing interest rates;
o the fair market value of the related
properties;
o the borrower's equity in the related
properties;
o the borrower's financial condition;
o the operating history and occupancy
level of the property;
o the tax laws; and
o prevailing general and regional
economic conditions.
The availability of funds in the credit
markets fluctuates over time.
We cannot assure you that each borrower
will have the ability to repay the
remaining principal balances on the
pertinent date. See "Mortgage Pool
Characteristics--Certain Characteristics
of the Mortgage Loans" in this prospectus
supplement.
RISKS RELATING TO BORROWERS The business activities of most of the
THAT ARE NOT SPECIAL-PURPOSE borrowers are not limited to owning
ENTITIES their respective properties by their
organizational documents. However, most
of the loan documents of those borrowers
do contain the covenants customarily
employed to ensure that a borrower is a
special-purpose, single asset entity
(such as limitations on indebtedness and
affiliate transactions and restrictions
on the borrower's ability to dissolve,
liquidate, consolidate, merge, sell all
of its assets or amend its
organizational documents).
Most of the borrowers (and any
special-purpose entity having an
interest in any such borrowers) do not
have an independent director whose
consent would be required to file a
voluntary bankruptcy petition on behalf
of such borrower. One of the purposes of
an independent director (or of a
special-purpose entity having an
interest in the borrower) is to avoid a
bankruptcy petition filing which is
intended solely to benefit an affiliate
and is not justified by the borrower's
own economic circumstances.
AUTHORITY TO EFFECT OTHER Four (4) of the mortgage loans
BORROWINGS ENTAILS RISKS (representing 1.9% of the initial
outstanding pool balance) permit the
borrower to incur additional
indebtedness other than in the ordinary
course of business or to utilize the
mortgaged property as collateral for
subordinated loans. See "Description of
the Mortgage Pool--Certain Terms and
Characteristics of the Mortgage
Loans--Subordinate
S-35
<PAGE>
Financing" in this prospectus
supplement. Generally, prior to any
subordinate loan being allowed, certain
conditions must be satisfied.
Substantially all of the mortgage loans
also permit the related borrower to
incur limited indebtedness in the
ordinary course of business.
When a mortgage loan borrower (or its
constituent members) also has one or
more other outstanding loans (even if
subordinated or mezzanine loans), the
trust is subjected to additional risk.
The borrower may have difficulty
servicing and repaying multiple loans.
The existence of another loan generally
also will make it more difficult for the
borrower to obtain refinancing of the
mortgage loan and may thereby jeopardize
repayment of the mortgage loan.
Moreover, the need to service additional
debt may reduce the cash flow available
to the borrower to operate and maintain
the mortgaged property.
Additionally, if the borrower (or its
constituent members) defaults on the
mortgage loan and/or any other loan,
actions taken by other lenders could
impair the security available to the
trust. If a junior lender files an
involuntary petition for bankruptcy
against the borrower (or the borrower
files a voluntary petition to stay
enforcement by a junior lender), the
trust's ability to foreclose on the
property would be automatically stayed,
and principal and interest payments
might not be made during the course of
the bankruptcy case. The bankruptcy of
another lender also may operate to stay
foreclosure by the trust.
Further, if another loan secured by the
mortgaged property is in default, the
other lender may foreclose on the
mortgaged property, absent an agreement
to the contrary, thereby causing a delay
in payments and/or an involuntary
repayment of the mortgage loan prior to
maturity. The trust may also be subject
to the costs and administrative burdens
of involvement in foreclosure
proceedings or related litigation.
BANKRUPTCY PROCEEDINGS Under the Bankruptcy Code, the filing of
ENTAILS CERTAIN RISKS a petition in bankruptcy by or against a
borrower will stay the sale of the real
property owned by that borrower, as well
as the commencement or continuation of a
foreclosure action. In addition, if a
court determines that the value of the
mortgaged property is less than the
principal balance of the mortgage loan
it secures, the court may prevent a
lender from foreclosing on the mortgaged
property (subject to certain protections
available to the lender). As part of a
restructuring plan, a court also may
reduce the amount of secured indebtedness
to the then-value of the mortgaged
property. Such an action would make the
lender a general unsecured creditor for
the difference between the then-value
and the amount of its outstanding
mortgage indebtedness. A bankruptcy
court also may: (i) grant a debtor a
reasonable time to cure a payment
default on a mortgage loan; (ii) reduce
monthly payments due under a mortgage
loan; (iii) change the rate of interest
due on a mortgage loan; or (iv)
otherwise alter the mortgage loan's
repayment schedule.
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<PAGE>
Moreover, the filing of a petition in
bankruptcy by, or on behalf of, a junior
lienholder may stay the senior lienholder
from taking action to foreclose on the
junior lien. Additionally, the borrower's
trustee or the borrower, as debtor-in-
possession, has certain special powers
to avoid, subordinate or disallow debts.
In certain circumstances, the claims of
the trustee may be subordinated to
financing obtained by a debtor-in-
possession subsequent to its bankruptcy.
Under the Bankruptcy Code, the lender
will be stayed from enforcing a
borrower's assignment of rents and
leases. The Bankruptcy Code also may
interfere with the Trustee's ability to
enforce any lockbox requirements. The
legal proceedings necessary to resolve
these issues can be time consuming and
may significantly delay the lender's
receipt of rents. Rents also may escape
an assignment to the extent they are
used by the borrower to maintain the
mortgaged property or for other court
authorized expenses.
As a result of the foregoing, the
Trustee's recovery with respect to
borrowers in bankruptcy proceedings may
be significantly delayed, and the
aggregate amount ultimately collected
may be substantially less than the
amount owed.
LACK OF SKILLFUL PROPERTY The successful operation of a real
MANAGEMENT ENTAIL RISKS estate project depends upon the property
manager's performance and viability. The
property manager is generally
responsible for:
o responding to changes in the local
market;
o planning and implementing the rental
structure;
o operating the property and providing
building services;
o managing operating expenses; and
o assuring that maintenance and
capital improvements are carried out
in a timely fashion.
Properties deriving revenues primarily
from short-term sources are generally
more management intensive than
properties leased to creditworthy
tenants under long-term leases.
A good property manager, by controlling
costs, providing appropriate service to
tenants and seeing to the maintenance of
improvements, can improve cash flow,
reduce vacancy, leasing and repair costs
and preserve building value. On the
other hand, management errors can, in
some cases, impair short-term cash flow
and the long term viability of an income
producing property.
We make no representation or warranty as
to the skills of any present or future
managers. Additionally, we cannot assure
you that the property managers will be
in a financial condition to fulfill
their management responsibilities
throughout the terms of their respective
management agreements.
RISKS OF INSPECTIONS Licensed engineers or consultants
RELATING TO PROPERTY inspected the mortgaged properties in
connection with the origination of the
mortgage loans to assess items such as
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structure, exterior walls, roofing,
interior construction, mechanical and
electrical systems and general condition
of the site, buildings and other
improvements. However, there is no
assurance that all conditions requiring
repair or replacement were identified.
ABSENCE OR INADEQUACY OF The mortgaged properties may suffer
INSURANCE COVERAGE ENTAILS casualty losses due to risks which were
RISKS not covered by insurance or for which
insurance coverage is inadequate. In
addition, certain of the mortgaged
properties are located in California and
Texas and in coastal areas of Florida,
states that have historically been at
greater risk regarding acts of nature
(such as hurricanes, floods and
earthquakes) than other states. There is
no assurance borrowers will be able to
maintain adequate insurance. Moreover,
if reconstruction or any major repairs
are required, changes in laws may
materially affect the borrower's ability
to effect such reconstruction or major
repairs or may materially increase the
cost thereof.
As a result of any of the foregoing, the
amount available to make distributions
on the Offered Certificates could be
reduced.
APPRAISALS AND MARKET An appraisal or other market analysis
STUDIES HAVE CERTAIN was conducted in respect of the
LIMITATIONS mortgaged properties in connection with
the origination or acquisition of the
related mortgage loan. The resulting
estimates of value are the bases of the
Cut-off Date LTV Ratios referred to
herein. Those estimates represent the
analysis and opinion of the person
performing the appraisal or market
analysis and are not guarantees of
present or future values. Moreover, the
values of the mortgaged properties may
have fluctuated significantly since the
appraisal or market study was performed.
In addition, appraisals seek to
establish the amount a typically
motivated buyer would pay a typically
motivated seller. Such amount could be
significantly higher than the amount
obtained from the sale of a mortgaged
property under a distress or liquidation
sale. Information regarding the values
of mortgaged properties available to the
Depositor as of the Cut-off Date is
presented in Appendix I and Appendix II
hereto for illustrative purposes only.
See "Description of the Mortgage
Pool--Assessments of Property Value and
Condition--Appraisals" in this
prospectus supplement.
DIFFERENT TIMING OF MORTGAGE As principal payments or prepayments are
LOAN AMORTIZATION POSES made on a mortgage loan that is part of
CERTAIN RISKS a pool of loans, the pool may be subject
to more risk with respect to the
decreased diversity of mortgaged
properties, types of mortgaged
properties, geographic location and
number of borrowers and affiliated
borrowers, as described above. Classes
that have a later sequential designation
or a lower payment priority are more
likely to be exposed to this
concentration risk than are classes with
an earlier sequential designation or
higher priority. This is so because
principal on the Offered Certificates is
generally payable in sequential order,
and no class entitled to distribution of
principal generally receives principal
until the principal amount of the
preceding class or classes entitled to
receive principal have been reduced to
zero.
<PAGE>
SUBORDINATION OF SUBORDINATE As described in this prospectus
OFFERED CERTIFICATES supplement, unless your certificates are
Class A-1, Class A-2 or Class X
Certificates, your rights to receive
distributions of amounts collected or
advanced on or in respect of the
mortgage loans will be subordinated to
those of the holders of the offered
certificates with an earlier
alphabetical designation. See
"Description of the
Certificates--Distributions"
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and "--Subordination; Allocation of
Losses and Certain Expenses" in this
prospectus supplement and "Risk
Factors--Subordination of the
Subordinate Certificates; Effect of
Losses on the Assets" in the prospectus.
TAX CONSIDERATIONS RELATING If the trust acquires a mortgaged
TO FORECLOSURE property pursuant to a foreclosure or
deed in lieu of foreclosure, the Special
Servicer will generally retain an
independent contractor to operate the
property. Any net income from such
operation (other than qualifying "rents
from real property"), or any rental
income based on the net profits of a
tenant or sub-tenant or allocable to a
non-customary service, will subject the
Lower-Tier REMIC to federal tax on such
income at the highest marginal corporate
tax rate (currently 35%) and possibly
state or local tax. In such event, the
net proceeds available for distribution
to certificateholders will be reduced.
The Special Servicer may permit the
Lower-Tier REMIC to earn "net income
from foreclosure property" that is
subject to tax if it determines that the
net after-tax benefit to
certificateholders is greater than under
another method of operating or leasing
the mortgaged property.
RISKS RELATING TO All of the mortgages permit the lender
ENFORCEABILITY to accelerate the debt upon default by
the borrower. The courts of all states
will enforce acceleration clauses in the
event of a material payment default.
State equity courts, however, may refuse
to permit foreclosure or acceleration if
a default is deemed immaterial or the
exercise of those remedies would be
unjust or unconscionable.
If a mortgaged property has tenants, the
borrower typically assigns its income as
landlord to the lender as further
security, while retaining a license to
collect rents as long as there is no
default. If the borrower defaults, the
license terminates and the lender is
entitled to collect rents. In certain
jurisdictions, such assignments may not
be perfected as security interests until
the lender takes actual possession of
the property's cash flow. In some
jurisdictions, the lender may not be
entitled to collect rents until the
lender takes possession of the property
and secures the appointment of a
receiver. In addition, as previously
discussed, if bankruptcy or similar
proceedings are commenced by or for the
borrower, the lender's ability to
collect the rents may be adversely
affected.
<PAGE>
STATE LAW LIMITATIONS ENTAIL Some states (including California) have
CERTAIN RISKS laws prohibiting more than one "judicial
action" to enforce a mortgage
obligation. Some courts have construed
the term "judicial action" broadly. In
the case of a pool loan secured by
mortgaged properties located in multiple
states, the Master Servicer or Special
Servicer may be required to foreclose
first on mortgaged properties located in
states where such "one action" rules
apply (and where non-judicial
foreclosure is permitted) before
foreclosing on properties located in
states where judicial foreclosure is the
only permitted method of foreclosure. As
a result, the ability to realize upon
the mortgage loans may be limited by the
application of state laws. Foreclosure
actions may also, in certain
circumstances, subject the trust to
liability as a "lender-in-possession" or
result in the equitable subordination of
the claims of the trustee to the claims
of other creditors of the borrower. The
Master Servicer or the Special Servicer
may take these state laws into
consideration in deciding which remedy
to choose following a default by a
borrower.
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<PAGE>
LEASEHOLD INTERESTS ENTAIL Two (2) of the mortgage loans
CERTAIN RISKS (representing 0.8% of the initial
outstanding pool balance) are secured
solely by mortgages on borrowers'
leasehold interests under ground leases.
In addition, one mortgage loan
(representing 0.2% of the initial
outstanding pool balance), is secured by
a mortgage on both the borrower's
leasehold interest in a portion of the
related mortgaged property and the
borrower's fee simple interest in the
remainder of the related mortgaged
property. See "Description of the
Mortgage Pool--Certain Terms and
Characteristics of the Mortgage
Loans--Ground Leases".
Leasehold mortgage loans are subject to
certain risks not associated with
mortgage loans secured by a lien on the
fee estate of the borrower. The most
significant of these risks is that if
the borrower's leasehold were to be
terminated upon a lease default, the
leasehold mortgagee would lose its
security. Generally, the related ground
lease requires the lessor to give the
leasehold mortgagee notice of lessee
defaults and an opportunity to cure
them, permits the leasehold estate to be
assigned to the leasehold mortgagee or
the purchaser at a foreclosure sale, and
contains certain other protective
provisions typically included in a
"mortgageable" ground lease.
Upon the bankruptcy of a lessor or a
lessee under a ground lease, the debtor
entity has the right to assume or reject
the lease. If a debtor lessor rejects
the lease, the lessee has the right to
remain in possession of its leased
premises under the rent under the lease
for the term of the lease (including
renewals). If a debtor lessee/borrower
rejects any or all of its leases, the
leasehold lender could succeed to the
lessee/borrower's position under the
lease only if the lessor specifically
grants the lender such right. If both
the lessor and the lessee/borrowers are
involved in bankruptcy proceedings, the
trustee may be unable to enforce the
bankrupt lessee/borrower's obligation to
refuse to treat a ground lease rejected
by a bankrupt lessor as terminated. In
such circumstances, a lease could be
terminated notwithstanding lender
protection provisions contained therein
or in the mortgage.
Most of the ground leases securing the
mortgaged properties provide that the
ground rent payable thereunder increases
during the term of the lease. These
increases may adversely affect the cash
flow and net income of the borrower from
the mortgaged property.
<PAGE>
RISKS RELATING TO Cross-collateralization arrangements
ENFORCEABILITY OF involving more than one borrower could
CROSS-COLLATERALIZATION be challenged as fraudulent conveyances
by creditors of the related borrower in
an action brought outside a bankruptcy
case or, if such borrower were to become
a debtor in a bankruptcy case, by the
borrower's representative. A lien
granted by a borrower entity could be
avoided if a court were to determine
that: (i) such borrower was insolvent
when it granted the lien, was rendered
insolvent by the granting of the lien or
was left with inadequate capital, or was
not able to pay its debts as they
matured; and (ii) such borrower did not
receive fair consideration or reasonably
equivalent value when it allowed its
mortgaged property or properties to be
encumbered by a lien securing the entire
indebtedness. Among other things, a
legal challenge to the granting of the
liens may focus on the benefits realized
by such borrower from the respective
mortgage loan proceeds, as well as the
overall cross-collateralization. If a
court were to conclude that the granting
of the liens was an avoidable fraudulent
conveyance, that court could subordinate
all or part of the pertinent mortgage
loan to existing or future indebtedness
of
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<PAGE>
that borrower. The court also could
recover payments made under that
mortgage loan or take other actions
detrimental to the holders of the
certificates, including, under certain
circumstances, invalidating the loan or
the mortgages securing such
cross-collateralization.
POTENTIAL ABSENCE OF In some jurisdictions, if tenant leases
ATTORNMENT PROVISIONS are subordinate to the liens created by
ENTAILS RISKS the mortgage and do not contain
attornment provisions (i.e. provisions
requiring the tenant to recognize a
successor owner following foreclosure as
landlord under the lease), the leases
may terminate upon the transfer of the
property to a foreclosing lender or
purchaser at foreclosure. Not all leases
were reviewed to ascertain the existence
of attornment or subordination
provisions. Accordingly, if a mortgaged
property is located in such a
jurisdiction and is leased to one or
more desirable tenants under leases that
are subordinate to the mortgage and do
not contain attornment provisions, such
mortgaged property could experience a
further decline in value if such
tenants' leases were terminated. This is
particularly likely if such tenants were
paying above-market rents or could not
be replaced.
If a lease is not subordinate to a
mortgage, the trust will not possess the
right to dispossess the tenant upon
foreclosure of the mortgaged property
(unless it has otherwise agreed with the
tenant). If the lease contains
provisions inconsistent with the
mortgage (e.g. provisions relating to
application of insurance proceeds or
condemnation awards) or which could
affect the enforcement of the lender's
rights (e.g. a right of first refusal to
purchase the property), the provisions
of the lease will take precedence over
the provisions of the mortgage. Certain
of the non-anchor leases at the retail
properties included in the trust may not
be subordinate to the related Mortgage.
RISKS RELATING TO LITIGATION There may be pending or threatened legal
proceedings against the borrowers and
managers of the mortgaged properties and
their respective affiliates arising out
of the ordinary business of the
borrowers, managers and affiliates. We
cannot assure you that any such
litigation would not have a material
adverse effect on distributions to your
investment.
RISKS RELATING TO COMPLIANCE Under the Americans with Disabilities
WITH AMERICANS WITH Act of 1990 ("ADA"), all public
DISABILITIES ACT accommodations are required to meet
certain federal requirements related to
access and use by disabled persons.
Borrowers may incur costs complying with
the ADA. In addition, noncompliance
could result in the imposition of fines
by the federal government or an award of
damages to private litigants.
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<PAGE>
RISKS RELATING TO CONFLICTS Conflicts Between Various Classes of
OF INTEREST Certificateholders. The Special Servicer
is given considerable latitude in
determining whether and in what manner
to liquidate or modify defaulted
mortgage loans. The Operating Adviser
will be empowered to replace the Special
Servicer. At any given time, the
Operating Adviser will be controlled
generally by the holders of the most
subordinated (or, under certain
circumstances, the next most
subordinated) class of certificates
(that is, the Controlling Class)
outstanding from time to time, and such
holders may have interests in conflict
with those of the holders of the other
certificates. For instance, the holders
of certificates of the Controlling Class
might desire to mitigate the potential
for loss to that Class from a troubled
mortgage loan by deferring enforcement
in the hope of maximizing future
proceeds. However, the interests of the
trust may be better served by prompt
action, since delay followed by a market
downturn could result in less proceeds
to the trust than would have been
realized if earlier action had been
taken.
The Special Servicer or an affiliate may
acquire certain of the most subordinated
certificates (including those of the
initial Controlling Class). Under such
circumstances, the Special Servicer
itself may have interests that conflict
with the interests of the other holders
of the certificates.
Conflicts Between Trustee and Affiliates
of each of Heller Financial Capital
Funding, Inc. and Morgan Stanley
Mortgage Capital Inc. Conflicts of
interest may arise between the trust and
affiliates of each of Heller Financial
Capital Funding, Inc. and Morgan Stanley
Mortgage Capital Inc. that engage in the
acquisition, development, operation,
financing and disposition of real
estate.
Those conflicts may arise because
affiliates of each of Heller Financial
Capital Funding, Inc. and Morgan Stanley
Mortgage Capital Inc. intend to continue
to actively acquire, develop, operate,
finance and dispose of real estate-
related assets in the ordinary course of
their business. During the course of
their business activities, those
affiliates may acquire or sell
properties, or finance mortgage loans
secured by properties which may include
the mortgaged properties or properties
which are in the same markets as the
mortgaged properties. In such case, the
interests of those affiliates may differ
from, and compete with, the interests of
the trust, and decisions made with
respect to those assets may adversely
affect the amount and timing of
distributions with respect to the
certificates.
Conflicts Between Managers and the
Mortgage Loan Borrowers. Substantially
all of the property managers for the
mortgaged properties (or their
affiliates) manage additional
properties, including properties that
may compete with the mortgaged
properties. Affiliates of the managers,
and certain of the managers themselves,
also may own other properties, including
competing properties. The managers of
the mortgaged properties may accordingly
experience conflicts of interest in the
management of such mortgaged properties.
<PAGE>
Conflicts Between Sellers of Mortgage
Loans and Classes of Certificateholders.
Affiliates of Heller Financial Capital
Funding, Inc. and Morgan Stanley
Mortgage Capital Inc. may acquire
certain of the Offered Certificates.
Under such circumstances, they may
become the holder of the Controlling
Class, and as such have interests that
may conflict with their
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<PAGE>
interests as Sellers of the Mortgage
Loans. In addition, an affiliate of
Heller Financial Capital Funding, Inc.
has a contractual right to a percentage
of cashflow and appreciation from the
mortgaged property securing one of the
mortgage loans, which represents 1.6% of
the initial outstanding pool balance.
RISKS RELATING TO The yield to maturity on your
PREPAYMENTS AND REPURCHASES certificates will depend, in significant
part, upon the rate and timing of
principal payments on the mortgage
loans. For this purpose, principal
payments include both voluntary
prepayments, if permitted, and
involuntary prepayments, such as
prepayments resulting from casualty or
condemnation of mortgaged properties,
defaults and liquidations by borrowers,
or repurchases upon a Seller's breaches
of representations and warranties.
Because the Notional Amount of the Class
X Certificates is based upon the
Principal Amounts of the certificates
with principal amounts, the yield to
maturity on the Class X Certificates
will be extremely sensitive to the rate
and timing of prepayments of principal.
The investment performance of your
certificates may vary materially and
adversely from your expectations if the
actual rate of prepayment is higher or
lower than you anticipate.
Voluntary prepayments under certain of
the mortgage loans require payment of a
yield maintenance premium unless the
loan is within a specified number of
days of the effective maturity date or
stated maturity date, as the case may
be. See "Description of the Mortgage
Pool--Certain Terms and Characteristics
of the Mortgage Loans--Prepayment
Restrictions." Nevertheless, we cannot
assure you that the related borrowers
will refrain from prepaying their
mortgage loans due to the existence of a
prepayment premium. We also cannot
assure you that involuntary prepayments
will not occur. The rate at which
voluntary prepayments occur on the
mortgage loans will be affected by a
variety of factors, including:
o the terms of the mortgage loans;
o the length of any prepayment lockout
period;
o the level of prevailing interest
rates;
o the availability of mortgage credit;
o the applicable yield maintenance
charges or prepayment premiums;
o the Master Servicer's or Special
Servicer's ability to enforce those
charges or premiums;
o the occurrence of casualties or
natural disasters; and
o economic, demographic, tax, legal or
other factors.
Generally, no yield maintenance charge
or prepayment premium will be required
for prepayments in connection with a
casualty or condemnation unless, in the
case of most of the mortgage loans, an
event of default has occurred and is
continuing. In addition, if a Seller
repurchases any mortgage from the trust
due to breaches of representations or
warranties, the repurchase price paid
will be passed through to the holders of
the certificates with the
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same effect as if the mortgage loan had
been prepaid in part or in full, except
that no prepayment premium or yield
maintenance charge would be payable.
Such a repurchase may therefore
adversely affect the yield to maturity
on your certificates.
RISKS RELATING TO Provisions requiring yield
ENFORCEABILITY OF PREPAYMENT maintenance charges, prepayment premiums
PREMIUMS and lock-out periods may not be
enforceable in some states and under
federal bankruptcy law. Those provisions
for charges and premiums also may
constitute interest for usury purposes.
Accordingly, we cannot assure you that
the obligation to pay a yield maintenance
charge or prepayment premium or to
prohibit prepayments will be
enforceable. We also cannot assure you
that the foreclosure proceeds will be
sufficient to pay an enforceable yield
maintenance charge or prepayment
premium. Additionally, although the
collateral substitution provisions
related to defeasance do not have the
same effect on the certificateholders as
prepayment, we cannot assure you that a
court would not interpret those
provisions as requiring a yield
maintenance charge or prepayment
premium. In certain jurisdictions those
collateral substitution provisions might
therefore be deemed unenforceable under
applicable law, or usurious.
YIELD CONSIDERATIONS The yield on any certificate will depend
on (i) the price at which such
certificate is purchased by an investor
and (ii) the rate, timing and amount of
distributions on such certificate. The
rate, timing and amount of distributions
on any certificate will, in turn, depend
on, among other things:
o the interest rate for such
certificate;
o the rate and timing of principal
payments (including principal
prepayments) and other principal
collections on or in respect of the
mortgage loans and the extent to
which such amounts are to be applied
or otherwise result in a reduction
of the balance or Notional Amount of
such certificate;
o the rate, timing and severity of
losses on or in respect of the
mortgage loans or unanticipated
expenses of the trust;
o the timing and severity of any
interest shortfalls resulting from
prepayments;
o the timing and severity of any
Appraisal Reductions; and
o the extent to which prepayment
premiums are collected and, in turn,
distributed on such certificate.
RISKS RELATING TO BORROWER The rate and timing of delinquencies or
DEFAULT defaults on the mortgage loans will
affect:
o the aggregate amount of
distributions on the Offered
Certificates;
o their yield to maturity;
o the rate of principal payments; and
o their weighted average life.
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The rights of holders of each class of
subordinate certificates to receive
certain payments of principal and
interest otherwise payable on their
certificates will be subordinated to
such rights of the holders of the more
senior certificates having an earlier
alphabetical class designation. See
"Description of the Certificates--
Distributions" in this prospectus
supplement. Losses on the mortgage loans
will be allocated to the Class N, Class
M, Class L, Class K, Class J, Class H,
Class G, Class F, Class E, Class D,
Class C and Class B Certificates, in
that order, reducing amounts otherwise
payable to each class. Any remaining
losses would then be allocated to the
Class A Certificates.
If losses on the mortgage loans exceed
the aggregate principal amount of the
classes of certificates subordinated to
a particular class, such class will
suffer a loss equal to the full amount
of such excess (up to the outstanding
principal amount of such class).
If you calculate your anticipated yield
based on assumed rates of default and
losses that are lower than the default
rate and losses actually experienced and
such losses are allocable to your
certificates, your actual yield to
maturity will be lower than the assumed
yield. Under certain extreme scenarios,
such yield could be negative. In
general, the earlier a loss borne by
your certificates occurs, the greater
the effect on your yield to maturity.
Even if losses on the mortgage loans are
not borne by your certificates, those
losses may affect the weighted average
life and yield to maturity of your
certificates. This may be so because
those losses cause your certificates to
have a higher percentage ownership
interest in the trust (and therefore
related distributions of principal
payments on the mortgage loans) than
would otherwise have been the case. The
effect on the weighted average life and
yield to maturity of your certificates
will depend upon the characteristics of
the remaining mortgage loans.
Additionally, delinquencies and defaults
on the mortgage loans may significantly
delay the receipt of distributions by
you on your certificates, unless P&I
Advances are made to cover delinquent
payments or the subordination of another
class of certificates fully offsets the
effects of any such delinquency or
default.
Also, if the related borrower does not
repay a mortgage loan with a
hyper-amortization feature by its
anticipated repayment date, the effect
will be to increase the weighted average
life of your certificates and may reduce
your yield to maturity.
RISKS RELATING TO CERTAIN To the extent described in this
PAYMENTS prospectus supplement, the Master
Servicer, the Special Servicer, the
Trustee or the Fiscal Agent, as
applicable, will be entitled to receive
interest on unreimbursed Advances. This
interest will generally accrue from the
date on which the related Advance is
made or the related expense is incurred
through the date of reimbursement. In
addition, under certain circumstances,
including delinquencies in the payment
of principal and interest, a mortgage
loan will be specially serviced, and the
Special Servicer is entitled to
compensation for special servicing
activities. The right to receive
interest on Advances or special
servicing compensation is senior to the
rights of certificateholders to receive
distributions.
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<PAGE>
RISKS OF LIMITED LIQUIDITY Your certificates will not be listed on
AND MARKET VALUE any securities exchange, and there is
currently no secondary market for the
Offered Certificates. While Morgan
Stanley & Co. Incorporated, Bear,
Stearns & Co. Inc. and Prudential
Securities Incorporated, each currently
intends to make a secondary market in
the Offered Certificates, it is not
obligated to do so. Accordingly, you may
not have an active or liquid secondary
market for your certificates. Lack of
liquidity could result in a substantial
decrease in the market value of your
certificates. The market value of your
certificates also may be affected by
many other factors, including the
then-prevailing interest rates.
Furthermore, you should be aware that
the market for securities of the same
type as the certificates has recently
been volatile and offered very limited
liquidity. Finally, affiliates of Heller
Financial Capital Funding, Inc. and
Morgan Stanley Mortgage Capital Inc. may
acquire certain classes of Offered
Certificates in which case the market
for those classes of Offered
Certificates may not be as liquid as if
third parties had acquired such
certificates.
RISK OF PASS-THROUGH RATE The interest rate of the Class X
VARIABILITY CONSIDERATIONS Certificates is based on the WAC Rate of
the mortgage loans. In general, mortgage
loans with relatively high mortgage
interest rates are more likely to prepay
than mortgage loans with relatively low
mortgage interest rates. Varying rates
of principal payments on mortgage loans
having mortgage interest rates above the
weighted average of such rates of the
mortgage loans will have the effect of
reducing the interest rate of such
certificates.
RISK OF LIMITED ASSETS The Offered Certificates will represent
interests solely in the assets of the
trust and will not represent an interest
in or an obligation of or any other
entity or person. Distributions on any
of the certificates will depend solely
on the amount and timing of payments on
the mortgage loans.
RISKS ASSOCIATED WITH YEAR We are aware of the issues associated
2000 COMPLIANCE with the programming code in existing
computer systems as the millennium (year
2000) approaches. The "year 2000
problem" is pervasive and complex;
virtually every computer operation will
be affected in some way by the rollover
of the two digit year value to 00. The
issue is whether computer systems will
properly recognize date-sensitive
information when the year changes to
2000. Systems that do not properly
recognize such information could
generate erroneous data or otherwise
fail.
We have been advised by each of the
Master Servicer, the Special Servicer
and the Trustee that they are committed
either to (i) implement modifications to
their respective existing systems to the
extent required to cause them to be year
2000 compliant or (ii) acquire computer
systems that are year 2000 compliant in
each case prior to January 1, 2000.
However, we have not made any
independent investigation of the
computer systems of the Master Servicer,
the Special Servicer or the Trustee. In
the event that computer problems arise
out of a failure of such efforts to be
completed on time, or in the event that
the computer systems of the Master
Servicer, the Special Servicer or the
Trustee are not fully year 2000
compliant, the resulting disruptions in
the collection or distribution of
receipts on the mortgage loans could
materially adversely affect your
investment.
<PAGE>
OTHER RISKS See "Risk Factors" in the prospectus for
a description of certain other risks and
special considerations that may be
applicable to your certificates.
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<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 1998-HF2 Commercial Mortgage Pass-Through Certificates (the
"Certificates") will be issued on or about November 12, 1998 (the "Closing
Date") pursuant to a Pooling and Servicing Agreement to be dated as of the
Cut-off Date (the "Pooling and Servicing Agreement"), among the Depositor, the
Master Servicer, the Special Servicer, the Trustee and the Fiscal Agent.
Registered holders of the Certificates are herein referred to as
"Certificateholders". The Certificates will represent in the aggregate the
entire beneficial ownership interest in a trust fund (the "Trust Fund")
consisting primarily of: (i) the Mortgage Loans and all payments under and
proceeds of the Mortgage Loans received after the Cut-off Date (exclusive of
principal prepayments received prior to the Cut-off Date and scheduled payments
of principal and interest due on or before the Cut-off Date); (ii) any
Mortgaged Property acquired on behalf of the Certificateholders in respect of a
defaulted Mortgage Loan through foreclosure, deed in lieu of foreclosure or
otherwise (any such Mortgaged Property, upon acquisition, an "REO Property";
and (iii) certain rights of the Depositor under, or assigned to the Depositor
pursuant to, each of the Mortgage Loan Purchase Agreements relating to Mortgage
Loan document delivery requirements and the representations and warranties of
the related Seller regarding its Mortgage Loans.
The Certificates will consist of 18 classes (each, a "Class") thereof,
to be designated as: (i) the Class A-1 Certificates and the Class A-2
Certificates (collectively, the "Class A Certificates"); (ii) the Class X
Certificates (the "Interest Only Certificates" or the "Class X Certificates"
and, collectively with the Class A Certificates, the "Senior Certificates");
(iii) the Class B Certificates, the Class C Certificates, the Class D
Certificates, the Class E Certificates, the Class F Certificates, the Class G
Certificates, the Class H Certificates, the Class J Certificates, the Class K
Certificates, the Class L Certificates, the Class M Certificates and the Class
N Certificates (collectively, the "Subordinate Certificates" and, collectively
with the Senior Certificates, the "REMIC Regular Certificates"); and (iv) the
Class R-I Certificates, the Class R-II Certificates and the Class R-III
Certificates (collectively, the "REMIC Residual Certificates").
Only the Class A, Class B, Class C, Class D and Class E Certificates
(the "Offered Certificates") are offered hereby. The Class X, Class F, Class G,
Class H, Class J, Class K, Class L, Class M and Class N Certificates and the
REMIC Residual Certificates (collectively, the "Private Certificates") have not
been registered under the Securities Act of 1933, as amended, and are not
offered hereby. The Private Certificates other than the Class X Certificates
are referred to collectively as the "Subordinate Private Certificates."
REGISTRATION; DENOMINATIONS
The Offered Certificates will initially be issued in book-entry format
(the "Book-Entry Certificates"). The Class A-1 and Class A-2 Certificates will
be offered in minimum denominations of $25,000. The Class B Certificates will
be offered in minimum denominations of $50,000. The remaining Certificates will
be issued in denominations of $100,000 and in any whole dollar denomination in
excess thereof.
BOOK-ENTRY REGISTRATION
Each Class of Offered Certificates will initially be represented by
one or more global Certificates registered in the name of the nominee of The
Depository Trust Company ("DTC"). The Depositor has been informed by DTC that
DTC's nominee initially will be Cede & Co. No person acquiring an interest in
such an Offered Certificate (any such person, a "Certificate Owner") will be
entitled to receive a fully registered physical certificate (a "Definitive
Certificate") representing such interest, except as set forth in the Prospectus
under "Description of the Certificates--Book-Entry Registration and Definitive
Certificates". Unless and until Definitive Certificates are issued in respect
of any Class of Offered Certificates, all references to actions by holders of
such Offered Certificates will refer to actions taken by DTC upon instructions
received from the related Certificate Owners through DTC's participating
organizations ("Participants"), and all references herein to payments, notices,
reports and statements to holders of such Offered Certificates will refer to
payments, notices, reports and statements to DTC
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or Cede & Co., as the registered holder of the Offered Certificates, for
distribution to the related Certificate Owners through DTC's Participants in
accordance with DTC procedures.
Until Definitive Certificates are issued in respect of any Class of
Offered Certificates, interests in such Certificates will be transferred on the
book-entry records of DTC (and its Participants). See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates" in the
Prospectus.
Certificateholders must elect to hold their Offered Certificates
through any of DTC (in the United States) or Cedel Bank, societe anonyme
("CEDEL") or The Euroclear System ("Euroclear") (in Europe). Transfers within
DTC, CEDEL or Euroclear, as the case may be, will be in accordance with the
usual rules and operating procedures of the relevant system. Crossmarket
transfers between persons holding directly or indirectly through DTC, on the
one hand, and counterparties holding directly or indirectly through CEDEL or
Euroclear, on the other, will be effected in DTC through Citibank, N.A.
("Citibank") or The Chase Manhattan Bank, ("Chase"), the relevant depositories
of CEDEL and Euroclear, respectively.
Because of time-zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a DTC participant will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL participant on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL participant
or a Euroclear participant to a DTC participant will be received with value on
the DTC settlement date but will be available in the relevant CEDEL or
Euroclear cash account only as of the business day following settlement in DTC.
CERTIFICATE BALANCES AND NOTIONAL AMOUNTS
Upon initial issuance, the Class A-1, Class A-2, Class B, Class C,
Class D, Class E, Class F, Class G, Class H, Class J, Class K, Class L, Class M
and Class N Certificates (collectively, the "Principal Balance Certificates")
will have the following aggregate Certificate Balances (in each case, subject
to a variance of plus or minus 5%):
APPROXIMATE APPROXIMATE
INITIAL AGGREGATE PERCENT OF INITIAL PERCENT OF
CLASS CERTIFICATE BALANCE POOL BALANCE CREDIT SUPPORT
- -------------------------------------------------------------------------------
Class A-1 $203,500,000 19.23% 29.00%
Class A-2 $547,759,000 51.77% 29.00%
Class B $52,906,000 5.00% 24.00%
Class C $52,905,000 5.00% 19.00%
Class D $58,196,000 5.50% 13.50%
Class E $21,163,000 2.00% 11.50%
Class F $23,807,000 2.25% 9.25%
Class G $18,517,000 1.75% 7.50%
Class H $10,581,000 1.00% 6.50%
Class J $21,162,000 2.00% 4.50%
Class K $10,582,000 1.00% 3.50%
Class L $15,871,000 1.50% 2.00%
Class M $10,581,000 1.00% 1.00%
Class N $10,581,956 1.00% 0.00%
The "Certificate Balance" of any Principal Balance Certificate
outstanding at any time will equal the then-maximum amount that the holder
thereof will be entitled to receive in respect of principal out of future cash
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flow on the Mortgage Loans and other assets included in the Trust Fund. The
initial Certificate Balance of any Principal Balance Certificate will be set
forth on the face thereof. On each Distribution Date, the Certificate Balance
of each Principal Balance Certificate will be reduced by any distributions of
principal actually made on such Certificate on such Distribution Date, and will
be further reduced by any Realized Losses and Expense Losses allocated to such
Certificate on such Distribution Date. See "--Distributions" and
"--Subordination; Allocation of Losses and Certain Expenses" below.
The Interest Only Certificates will not have Certificate Balances.
Each such Certificate will represent the right to receive distributions of
interest accrued as described herein on a notional principal amount (a
"Notional Amount"). The aggregate Notional Amount of the Interest Only
Certificates will equal 100% of the aggregate Stated Principal Balance of the
REMIC II Regular Interests, which will be the same as the aggregate Stated
Principal Balance of the Mortgage Loans. The Interest Only Certificates will
have an initial aggregate Notional Amount of $1,058,111,956 (subject to a
variance of plus or minus 5%).
The REMIC Residual Certificates will not have Certificate Balances.
The "Stated Principal Balance" of each Mortgage Loan will generally
equal the unpaid principal balance thereof as of the Cut-off Date (or, in the
case of a Qualifying Substitute Mortgage Loan (as defined herein), as of the
date of substitution), after application of all payments due on or before such
date (whether or not received), reduced (to not less than zero) on each
subsequent Distribution Date by (i) any payments or other collections (or
advances in lieu thereof) of principal of such Mortgage Loan that have been or,
if they had not been applied to cover Additional Trust Fund Expenses, would
have been distributed on the Certificates on such date, and (ii) the principal
portion of any Realized Loss incurred in respect of or allocable to such
Mortgage Loan during the related Collection Period. Notwithstanding the
foregoing, but subject to the discussion under "--Distribution--Treatment of
REO Properties" below, if any Mortgage Loan is paid in full, liquidated or
otherwise removed from the Trust Fund, then, commencing as of the first
Distribution Date following the Collection Period during which such event
occurred, the Stated Principal Balance of such Mortgage Loan will be zero.
PASS-THROUGH RATES
The rate per annum at which any Class of Certificates accrues interest
from time to time is herein referred to as its "Pass-Through Rate."
The Pass-Through Rates applicable to the Class A-1, Class A-2, Class
F, Class G, Class H, Class J, Class K, Class L, Class M and Class N
Certificates will, at all times, be equal to 6.01%, 6.48%, 6.01%, 6.01%, 6.01%,
6.01%, 6.01%, 6.01%, 6.01% and 6.01% per annum, respectively; provided,
however, that each such Pass-Through Rate will not exceed the WAC Rate for such
Distribution Date.
The Pass-Through Rates applicable to the Class B, Class C, Class D and
Class E Certificates will, at all times, be equal to the WAC Rate minus 0.46% ,
0.06%, 0.02% and 0.02%, respectively.
The Pass-Through Rate applicable to the Interest Only Certificates for
the initial Distribution Date will equal approximately 0.75% per annum. The
Pass-Through Rate applicable to the Interest Only Certificates for each
subsequent Distribution Date will, in general, equal the excess, if any, of (i)
the WAC Rate, over (ii) the weighted average of the Pass-Though Rates
applicable to the respective Classes of Principal Balance Certificates for such
Distribution Date, the relevant weighting to be on the basis of the respective
aggregate Certificate Balances of such Classes of Certificates immediately
prior to such Distribution Date.
The "WAC Rate" for any Distribution Date is the weighted average of
the Net Mortgage Rates in effect for the Mortgage Loans as of their Due Dates
in the month preceding the month in which such Distribution Date occurs
weighted on the basis of their respective Stated Principal Balances on such Due
Date.
The "Net Mortgage Rate" with respect to any Mortgage Loan will, in
general, be a per annum rate equal to the related Mortgage Rate in effect from
time to time, minus the applicable Administrative Cost Rate. However, for
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purposes of calculating the Class X Pass-Through Rates, the Net Mortgage Rate
for any Mortgage Loan will be determined without regard to any post-Closing
Date modification, waiver or amendment of the terms of such Mortgage Loan. In
addition, because the Certificates accrue interest on the basis of a 360-day
year consisting of twelve 30-day months, when calculating the Pass-Through Rate
for each Class of Certificates for each Distribution Date, the Net Mortgage
Rate of the Mortgage Loan that accrues interest other than on the basis of a
360-day year consisting of twelve 30-day months (a "Non-30/360 Loan") will be
appropriately adjusted to reflect such difference. See "SERVICING OF THE
MORTGAGE LOANS--Servicing and Other Compensation and Payment of Expenses"
herein.
The "Collection Period" related to each Distribution Date will begin
on the day after the Determination Date in the month preceding the month of
such Distribution Date (or, in the case of the first Distribution Date, the day
after the Cut-off Date) and will end on the Determination Date in the month in
which the Distribution Date occurs.
The "Determination Date" related to each Distribution Date is the
fifth day of the month in which such Distribution Date occurs (or if such date
is not a Business Day, then the next preceding Business Day).
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 December, 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 will be made from the Available Distribution
Amount for such Distribution Date. The "Available Distribution Amount" for any
Distribution Date will, in general, equal (a) all amounts on deposit in the
Certificate Account (as described in the Prospectus) as of the close of
business on the related Determination Date, exclusive of any portion thereof
that represents one or more of the following:
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(i) Monthly Payments collected but due on a Due Date subsequent
to the related Collection Period;
(ii) Prepayment Premiums (which are separately distributable on
the Certificates as hereinafter described);
(iii) amounts that are payable or reimbursable to any person
other than the Certificateholders (including amounts payable to the
Master Servicer, the Special Servicer or the Trustee as compensation
or in reimbursement of outstanding Advances and amounts payable in
respect of Additional Trust Fund Expenses); and
(iv) amounts deposited in the Certificate Account in error;
plus (b) to the extent not already included in clause (a), any P&I
Advances and Compensating Interest Payments made with respect to such
Distribution Date.
As used herein, "Certificate Account" includes, on a collective basis,
each collection account established and maintained by the Master Servicer for
the retention of payments and other collections of principal and interest in
respect of the Mortgage Loans (other than Excess Interest in respect of
Hyper-Amortization Loans, which will be deposited to the Excess Interest
Distribution Account and paid to the Class N Certificates) and each
distribution account established and maintained by the Trustee for the
retention of funds pending distribution on the Certificates. See "Description
of the Agreements--Certificate Account and Other Collection Accounts" in the
Prospectus.
Application of the Available Distribution Amount.
On each Distribution Date, the Trustee will apply the Available
Distribution Amount for such date for the following purposes and in the
following order of priority:
(1) to pay interest to the holders of the respective Classes of
Senior Certificates, up to an amount equal to, and pro rata as among
such Classes in accordance with, all Distributable Certificate
Interest in respect of each such Class of Certificates for such
Distribution Date;
(2) to pay principal: from the Principal Distribution Amount for
such Distribution Date, first to the holders of the Class A-1
Certificates and second to the holders of the Class A-2 Certificates,
in each case, up to an amount equal to the lesser of (i) the
then-outstanding aggregate Certificate Balance of such Class of
Certificates and (ii) the remaining portion of such Principal
Distribution Amount;
(3) to reimburse the holders of the respective Classes of Class A
Certificates, up to an amount equal to, and pro rata as among such
Classes in accordance with, (a) the respective amounts of Realized
Losses and Expense Losses, if any, previously allocated to such
Classes of Certificates and for which no reimbursement has previously
been paid, plus (b) all unpaid interest on such amounts (compounded
monthly) at the respective Pass-Through Rates of such Classes; and
(4) to make payments on the Subordinate Certificates and the
REMIC Residual Certificates as contemplated below;
provided that, on each Distribution Date after the aggregate Certificate
Balance of the Subordinate Certificates has been reduced to zero, and in any
event on the final Distribution Date in connection with a termination of the
Trust Fund (see "--Optional Termination" below), the payments of principal to
be made as contemplated by clause (2) above with respect to the Class A
Certificates, will be so made to the holders of the respective Classes of such
Certificates, up to an amount equal to, and pro rata as among such Classes in
accordance with the respective then-outstanding aggregate Certificate Balances
of such Classes of Certificates.
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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 "--Distribution--Application of the
Available Distribution Amount" section) on the Senior Certificates and each
other Class of Subordinate Certificates, if any, with an earlier alphabetical
Class designation: first, to distributions of interest, up to an amount equal
to all Distributable Certificate Interest in respect of such Class of
Certificates for such Distribution Date; second, if the aggregate Certificate
Balance of the Class A Certificates and each other Class of Subordinate
Certificates, if any, with an earlier alphabetical Class designation has been
reduced to zero, to distributions of principal, up to an amount equal to the
lesser of (a) the then-outstanding aggregate Certificate Balance of such Class
of Certificates and (b) the aggregate of the remaining Principal Distribution
Amounts for 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, following the above-described distributions on
the REMIC Regular Certificates, the Trustee will pay the remaining portion, if
any, of the Available Distribution Amounts for such date to the holders of the
Class R-I Certificates, and shall pay any amount of Excess Interest on deposit
in the Excess Interest Distribution Account for the related Collection Period
to the holders of the Class N Certificates.
The "Excess Interest" in respect of each Hyper-Amortization Loan that
does not repay on its Hyper-Amortization Date is the excess, if any, of
interest accrued at the rate of interest applicable to such loan after the
Hyper-Amortization Date ("the "Revised Rate") over interest accrued at the rate
of interest applicable to such loan before the Hyper-Amortization Date,
together with interest thereon at the Revised Rate from the date accrued to the
date such interest is payable (generally, after payment in full of the
outstanding principal balance of such loan).
Distributable Certificate Interest.
The "Distributable Certificate Interest" in respect of each Class of
REMIC Regular Certificates for each Distribution Date will be equal to the
Accrued Certificate Interest in respect of such Class of Certificates for such
Distribution Date, reduced (to not less than zero) by such Class of
Certificates' allocable share (calculated as described below) of any Net
Aggregate Prepayment Interest Shortfall for such Distribution Date, and
increased by any Class Interest Shortfall in respect of such Class of
Certificates for such Distribution Date. See "--Prepayment Interest Shortfalls"
below.
The "Accrued Certificate Interest" in respect of each Class of REMIC
Regular Certificates for each Distribution Date will equal the amount of
interest for the applicable Interest Accrual Period accrued at the applicable
Pass-Through Rate on the aggregate Certificate Balance or Notional Amount, as
the case may be, of such Class of Certificates outstanding immediately prior to
such Distribution Date. Accrued Certificate Interest will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.
The "Class Interest Shortfall" with respect to any Class of REMIC
Regular Certificates for any Distribution Date, will equal: (a) in the case of
the initial Distribution Date, zero; and (b) in the case of any subsequent
Distribution Date, the sum of (i) the excess, if any, of (A) all Distributable
Certificate Interest in respect of such Class of Certificates for the
immediately preceding Distribution Date, over (B) all distributions of interest
made with respect to such Class of Certificates on the immediately preceding
Distribution Date, plus (ii) to the extent permitted by applicable law, other
than in the case of the Interest Only Certificates, one month's interest on any
such excess at the Pass-Through Rate applicable to such Class of Certificates.
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The "Interest Accrual Period" for each Class of REMIC Regular
Certificates and each Distribution Date will be the calendar month immediately
preceding the month in which such Distribution Date occurs.
Principal Distribution Amount.
The "Principal Distribution Amount" for any Distribution Date will, in
general, equal the aggregate of the following:
(a) the principal portions of all Monthly Payments (other than
Balloon Payments) and any Assumed Monthly Payments due or deemed due,
as the case may be, in respect of the Mortgage Loans for their
respective Due Dates occurring during the related Collection Period;
and
(b) all payments (including voluntary principal prepayments and
Balloon Payments) and other collections received on the Mortgage Loans
during the related Collection Period that were identified and applied
by the Master Servicer as recoveries of principal thereof, in each
case net of any portion of such amounts that represents a payment or
other recovery of the principal portion of any Monthly Payment (other
than a Balloon Payment) due, or the principal portion of any Assumed
Monthly Payment deemed due, in respect of the related Mortgage Loan on
a Due Date during or prior to the related Collection Period and not
previously paid or recovered.
If on any Distribution Date the aggregate amount of distributions of
principal made on the Principal Balance Certificates is less than such
Principal Distribution Amount, then the amount of such shortfall will be
included in the Principal Distribution Amount (if available) for the next
succeeding Distribution Date.
The "Monthly Payment" for any Mortgage Loan will, in general, be the
scheduled payment of principal and/or interest due thereon from time to time
(taking into account any waiver, modification or amendment of the terms of such
Mortgage Loan, whether agreed to by the Master Servicer or Special Servicer or
in connection with a bankruptcy or similar proceeding involving the related
borrower).
An "Assumed Monthly Payment" is an amount deemed due in respect of:
(i) any Balloon Loan that is delinquent in respect of its Balloon Payment
beyond the end of the Collection Period in which its stated maturity date
occurs; or (ii) any Mortgage Loan as to which the related Mortgaged Property
has become an REO Property. The Assumed Monthly Payment for any such Balloon
Loan deemed due on its stated maturity date and on each successive Due Date
that it remains or is deemed to remain outstanding shall equal the Monthly
Payment that would have been due thereon on such date if the related Balloon
Payment had not come due, but rather such Mortgage Loan had continued to
amortize in accordance with such loan's amortization schedule, if any, in
effect immediately prior to maturity and had continued to accrue interest in
accordance with its terms in effect immediately prior to maturity. The Assumed
Monthly Payment for any such Mortgage Loan as to which the related Mortgaged
Property has become an REO Property, deemed due on each Due Date for so long as
such REO Property remains part of the Trust Fund, will equal the Monthly
Payment (or, in the case of a Balloon Loan described in the prior sentence, the
Assumed Monthly Payment) due on the last Due Date prior to the acquisition of
such REO Property.
Distributions of Prepayment Premiums.
Any Prepayment Premium collected with respect to a Mortgage Loan
during any particular Collection Period will be distributed on the following
Distribution Date as follows: The holders of the respective Classes of
Principal Balance Certificates (other than the Class F, Class G, Class H, Class
J, Class K, Class L, Class M and Class N Certificates) then entitled to
distributions of principal from the Principal Distribution Amount for such
Distribution Date, will be entitled to an aggregate amount (allocable among
such Classes, if more than one, as described below) equal to the lesser of (a)
such Prepayment Premium, and (b) such Prepayment Premium multiplied by a
fraction, the numerator of which is equal to the excess, if any, of the
Pass-Through Rate applicable to the most senior of such Classes of Certificates
then outstanding (or, in the case of two Classes of Class A Certificates, the
one with the earlier payment priority), over the relevant Discount Rate (as
defined herein), and the denominator of which is equal to the excess, if any,
of the Mortgage Rate for the prepaid Mortgage Loan, over the relevant Discount
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Rate. If there is more than one Class of Principal Balance Certificates
entitled to distributions of principal from the Principal Distribution Amount
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 amounts 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
Interest Only 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 (or Hyper-Amortization Date, if applicable) of the Mortgage Loan
prepaid. If Release H.15 is no longer published, the Trustee will select a
comparable publication to determine the Treasury Rate.
Any Prepayment Premiums distributed to the holders of a Class of
Certificates may not be sufficient to fully compensate such Certificateholders
for any loss in yield attributable to the related Principal Prepayments.
Treatment of REO Properties.
Notwithstanding that any Mortgaged Property may be acquired as part of
the Trust Fund through foreclosure, deed in lieu of foreclosure or otherwise,
the related Mortgage Loan will be treated, for purposes of, among other things,
determining distributions on the Certificates, allocations of Realized Losses
and Expense Losses to the Certificates, and the amount of Master Servicing
Fees, Special Servicing Fees and Trustee Fees payable under the Pooling and
Servicing Agreement, as having remained outstanding until such REO Property is
liquidated. Among other things, such Mortgage Loan will be taken into account
when determining Pass-Through Rates and the Principal Distribution Amount. In
connection therewith, operating revenues and other proceeds derived from such
REO Property (after application thereof to pay certain costs and taxes,
including certain reimbursements payable to the Master Servicer, the Special
Servicer and/or the Trustee, incurred in connection with the operation and
disposition of such REO Property) will be "applied" by the Master Servicer as
principal, interest and other amounts "due" on such Mortgage Loan, and, subject
to the applicable limitations described under "--Advances" below, the Master
Servicer, the Trustee and the Fiscal Agent will each be required, to the extent
such proceeds are less than the monthly payments due under such Mortgage Loan,
to make P&I Advances in respect of such Mortgage Loan, in all cases as if such
Mortgage Loan had remained outstanding.
APPRAISAL REDUCTIONS
Not later than the earliest of (i) the date 120 days after the
occurrence of any delinquency in payment with respect to a Mortgage Loan if
such delinquency remains uncured, (ii) the date 60 days after receipt of notice
that the related borrower has filed 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 from the initial maturity date, and (iv) the date 30 days following
the date a Mortgaged Property becomes an REO Property (each of (i), (ii), (iii)
and (iv), an "Appraisal Event" and the affected Mortgage Loan, a "Required
Appraisal Loan"), or such longer period as the Special Servicer is diligently
and in good faith proceeding to obtain an appraisal, the Special Servicer is
required to have obtained an MAI appraisal of the related Mortgaged Property or
REO Property, as the case may be (or, at its discretion, if the Stated
Principal Balance of the particular Required Appraisal Loan is less than or
equal to $1,000,000, to perform an internal valuation of such property) unless
such an appraisal or valuation had been obtained within the prior twelve
months. As a result of such appraisal or internal valuation, an "Appraisal
Reduction" may be created.
The Appraisal Reduction for any Required Appraisal Loan will be an
amount, calculated as of the first Determination Date that is at least fifteen
days after the date on which an appraisal report or internal valuation is
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performed, equal to the excess, if any, of (a) the sum of (i) the Stated
Principal Balance of such Required Appraisal Loan, (ii) to the extent not
previously advanced by the Master Servicer, the Trustee or the Fiscal Agent,
all unpaid interest on the Required Appraisal Loan, (iii) all related
unreimbursed Advances and interest on such Advances at the Advance Rate (as
defined herein) and (iv) to the extent not previously advanced by the Master
Servicer, the Trustee or the Fiscal Agent, all currently due and unpaid real
estate taxes and assessments, insurance premiums and, if applicable, ground
rents in respect of the related Mortgaged Property or REO Property, as the case
may be (in each case, net of any amounts escrowed for such item), over (b) 90%
of the value (net of any prior mortgage liens) of the related Mortgaged
Property or REO Property as determined by such appraisal or internal valuation.
Notwithstanding the foregoing, if an interval valuation of the Mortgaged
Property is performed, the Appraisal Reduction will equal the greater of (A)
the amount calculated above and (B) 25% of the Stated Principal Balance of the
Mortgage Loan. Furthermore, if an appraisal is not obtained from an MAI
appraiser following the earliest of the dates described in clauses (i)-(iv) in
the preceding paragraph, then until such an appraisal is obtained the Appraisal
Reduction will equal 25% of the Stated Principal Balance of the Mortgage Loan.
An Appraisal Reduction will be reduced to zero as of the date the related
Mortgage Loan is brought current under the then-current terms of the Mortgage
Loan for at least three consecutive months or is paid in full, liquidated,
repurchased, replaced or otherwise disposed of. An appraisal for any Required
Appraisal Loan that has not been brought current for at least three consecutive
months (or paid in full, liquidated, repurchased or otherwise disposed of) will
be updated annually, with corresponding adjustments to the amount of the
related Appraisal Reduction.
The existence of an Appraisal Reduction proportionately reduces the
Master Servicer's, the Trustee's or the Fiscal Agent's, as the case may be,
advancing obligation in respect of delinquent principal and interest on the
related Mortgage Loan, which may result in a reduction in distributions in
respect of the then-most subordinate Class of Certificates. See
"--Advances--P&I Advances" below.
SUBORDINATION; ALLOCATION OF LOSSES AND CERTAIN EXPENSES
As and to the extent described herein, the rights of holders of
Subordinate Certificates to receive distributions of amounts collected or
advanced on the Mortgage Loans will, in the case of each Class thereof, be
subordinated to the rights of holders of the Senior Certificates and, further,
to the rights of holders of each other Class of Subordinate Certificates, if
any, with an earlier alphabetical Class designation. This subordination is
intended to enhance the likelihood of timely receipt by holders of the
respective Classes of Senior Certificates of the full amount of Distributable
Certificate Interest payable in respect of their Certificates on each
Distribution Date, and the ultimate receipt by holders of the respective
Classes of Class A Certificates of principal equal to, in each such case, the
entire aggregate Certificate Balance of such Class of Certificates. Similarly,
but to decreasing degrees, this subordination is also intended to enhance the
likelihood of timely receipt by holders of the other Classes of Offered
Certificates of the full amount of Distributable Certificate Interest payable
in respect of their Certificates on each Distribution Date, and the ultimate
receipt by holders of such other Classes of Offered Certificates of principal
equal to, in each such case, the entire aggregate Certificate Balance of such
Class of Certificates. The subordination of each Class of Subordinate
Certificates will be accomplished by, among other things, the application of
the Available Distribution Amount on each Distribution Date in the order of
priority described under "--Distributions--Application of the Available
Distribution Amount" above. No other form of credit support will be available
for the benefit of holders of Certificates.
If, following the distributions to be made in respect of the
Certificates on any Distribution Date, the aggregate Stated Principal Balance
of the Mortgage Pool that will be outstanding immediately following such
Distribution Date is less than the then-aggregate Certificate Balance of the
Principal Balance Certificates, the respective aggregate Certificate Balances
of the Class N, Class M, Class L, Class K, Class J, Class H, Class G, Class F,
Class E, Class D, Class C and Class B Certificates will be reduced,
sequentially in that order, in the case of each such Class until such deficit
(or the related aggregate Certificate Balance) is reduced to zero (whichever
occurs first). If any portion of such deficit remains at such time as the
aggregate Certificate Balance of all such Classes of Certificates is reduced to
zero, then the respective aggregate Certificate Balances of the Class A-1 and
Class A-2 Certificates will be reduced, pro rata in accordance with the
relative sizes of the remaining aggregate Certificate Balances of such Classes
of Certificates, until such deficit (or the aggregate Certificate Balance of
each such Class of Certificates) is reduced to zero. In general, any such
deficit will be the result of Realized Losses incurred in
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respect of the Mortgage Loans and/or Expense Losses. Accordingly, the foregoing
reductions in the aggregate Certificate Balances of the respective Classes of
Principal Balance Certificates will constitute an allocation of any such
Realized Losses and Expense Losses. Any such allocation of Realized Losses
and/or Expense Losses to a particular Class of Principal Balance Certificates
will be allocated among the Certificates of such Class in proportion to their
respective Percentage Interests in such Class.
"Realized Losses" are losses on or in respect of the Mortgage Loans
arising from the inability of the Master Servicer or Special Servicer, as
applicable, to collect all amounts due and owing under any such Mortgage Loan,
including by reason of the fraud or bankruptcy of a borrower or a casualty of
any nature at a Mortgaged Property, to the extent not covered by insurance. The
Realized Loss in respect of a liquidated Mortgage Loan (or related REO
Property) is an amount generally equal to the excess, if any, of (a) the
outstanding principal balance of such Mortgage Loan as of the date of
liquidation, together with (i) all accrued and unpaid interest thereon at the
related Mortgage Rate to but not including the Due Date in the Collection
Period in which the liquidation occurred and (ii) all related unreimbursed
Servicing Advances (including interest on any outstanding Advances at the
Advance Rate) and outstanding liquidation expenses, over (b) the aggregate
amount of Liquidation Proceeds (as defined in the Prospectus), if any,
recovered in connection with such liquidation. If any portion of the debt due
under a Mortgage Loan is forgiven, whether in connection with a modification,
waiver or amendment granted or agreed to by the Special Servicer or in
connection with the bankruptcy or similar proceeding involving the related
borrower, the amount so forgiven also will be treated as a Realized Loss.
"Expense Losses" are losses incurred by the Trust Fund by reason of
Additional Trust Fund Expenses being paid out of the Trust Fund that were not
of the type typically subject to a Servicing Advance or were of such type but
were the subject of a determination that such Servicing Advance, if made, would
be nonrecoverable. "Additional Trust Fund Expenses" include, among other
things, (i) Special Servicing Fees, Workout Fees and Liquidation Fees, (ii)
interest in respect of Advances not paid out of default interest and late
payment charges, (iii) the cost of various opinions of counsel required or
permitted to be obtained in connection with the servicing of the Mortgage Loans
and the administration of the Trust Fund, (iv) certain unanticipated,
non-Mortgage Loan specific expenses of the Trust Fund, including certain
indemnities and reimbursements to the Trustee (and certain indemnities and
reimbursements to the Fiscal Agent comparable to those for the Trustee) as
described under "Description of the Agreements--The Trustee" in the Prospectus,
certain indemnities and reimbursements to the Master Servicer and the Depositor
(and certain indemnities and reimbursements to the Special Servicer comparable
to those for the Master Servicer) as described under "Description of the
Agreements--Certain Matters Regarding a Master Servicer and the Depositor" in
the Prospectus and certain federal, state and local taxes, and certain
tax-related expenses, payable out of the Trust Fund as described under
"Servicing of the Mortgage Loans--REO Properties" herein and "Certain Federal
Income Tax Consequences--Prohibited Transactions and Other Taxes" in the
Prospectus, (v) any amounts expended on behalf of the Trust Fund to remediate
an adverse environmental condition at any Mortgaged Property securing a
defaulted Mortgage Loan (see "Description of the Agreements--Realization Upon
Defaulted Whole Loans" in the Prospectus), and (vi) any other expense of the
Trust Fund not specifically included in the calculation of Realized Loss for
which there is no corresponding collection from a borrower.
PREPAYMENT INTEREST SHORTFALLS
If a borrower prepays a Mortgage Loan, in whole or in part, prior to
the Determination Date in any calendar month, the amount of interest (net of
related Master Servicing Fees and Trustee Fees) accrued on such prepayment, in
general, from the beginning of such calendar month to, but not including, the
date of prepayment (or any later date through which interest accrues) will, to
the extent actually collected, constitute a "Prepayment Interest Excess".
Conversely, if a borrower prepays a Mortgage Loan, in whole or in part, after
the Determination Date in any calendar month and does not pay interest on such
prepayment through, in general, the end of such calendar month, then the
shortfall in a full month's interest (net of related Master Servicing Fees and
Trustee Fees) on such prepayment will constitute a "Prepayment Interest
Shortfall". Prepayment Interest Excesses collected on the Mortgage Loans 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
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cover, out of its own funds, without right of reimbursement, to the extent of
that portion of its Master Servicing Fees for the related Collection Period
calculated in respect of all the Mortgage Loans at a rate of 0.02% per annum,
any Prepayment Interest Shortfalls in respect of the Mortgage Loans that are
not so offset by Prepayment Interest Excesses. Any payment so made by the
Master Servicer to cover such shortfalls will constitute a "Compensating
Interest Payment". The aggregate of all Prepayment Interest Shortfalls incurred
in respect of the Mortgage Loans during any Collection Period that are neither
offset by Prepayment Interest Excesses collected on the Mortgage Loans during
such Collection Period nor covered by a Compensating Interest Payment made by
the Master Servicer, shall constitute the "Net Aggregate Prepayment Interest
Shortfall" for the related Distribution Date.
Any Net Aggregate Prepayment Interest Shortfall for a Distribution
Date will be allocated among the respective Classes of REMIC Regular
Certificates, on a pro rata basis, in the ratio that the Accrued Certificate
Interest with respect to any such Class of Certificates for such Distribution
Date, bears to the total of the Accrued Certificate Interest with respect to
all Classes of REMIC Regular Certificates for such Distribution Date. The
Distributable Certificate Interest in respect of any Class of REMIC Regular
Certificates will be reduced to the extent any Net Aggregate Prepayment
Interest Shortfalls are allocated to such Class of Certificates. See "Servicing
of the Mortgage Loans--Servicing and Other Compensation and Payment of Expense"
herein.
OPTIONAL TERMINATION
The Depositor, the Master Servicer, the Special Servicer, majority
holders of the Controlling Class and any holder of a majority interest in the
Class R-I Certificate, will each have the option to purchase, in whole but not
in part, the Mortgage Loans and any other property remaining in the Trust Fund
on any Distribution Date as of which the aggregate Certificate Balance of all
Classes of Principal Balance Certificates then outstanding is less than or
equal to 1% of the Initial Pool Balance. Such purchase will be at a price (the
"Termination Price") generally equal to 100% of the aggregate unpaid principal
balance of the Mortgage Loans (other than any Mortgage Loans as to which the
Special Servicer has determined that all payments or recoveries with respect
thereto have been made and other than any Mortgage Loans as to which the
related Mortgaged Property has become an REO Property), plus accrued and unpaid
interest on each such Mortgage Loan at the related Mortgage Rate to the Due
Date for such Mortgage Loan in the Collection Period with respect to which such
purchase occurs, plus related unreimbursed Servicing Advances, plus interest on
any related Advances at the Advance Rate, plus the fair market value of any
other property (including REO Property) remaining in the Trust Fund. The
Termination Price, net of any portion thereof payable to persons other than the
Certificateholders, will constitute part of the Available Distribution Amount
for the final Distribution Date.
ADVANCES
P&I Advances.
With respect to each Distribution Date, the Master Servicer will be
obligated to make advances (each, a "P&I Advance") out of its own funds or,
subject to the replacement thereof as provided in the Pooling and Servicing
Agreement, funds held in the Certificate Account that are not required to be
part of the Available Distribution Amount for such Distribution Date, in an
amount generally equal to the aggregate of all Monthly Payments (other than
Balloon Payments) and any Assumed Monthly Payments, in each case net of any
related Master Servicing Fee and Workout Fee, that were due or deemed due, as
the case may be, in respect of the Mortgage Loans during the related Collection
Period and that were not paid by or on behalf of the related borrowers or
otherwise collected as of the close of business on the last day of the related
Collection Period or other specified date prior to such Distribution Date. The
Master Servicer will not be required to make a P&I Advance if it, in its
reasonable discretion, determines that the funds therefor plus interest thereon
at the Advance Rate would not be recoverable from subsequent payments or other
collections (including Insurance Proceeds (as defined in the Prospectus),
condemnation proceeds and Liquidation Proceeds) in respect of the related
Mortgage Loan (such payments and other collections, "Related Proceeds") as
described in the Prospectus. The Master Servicer's obligations to make P&I
Advances (unless the Master Servicer shall determine that any such Advance
would be nonrecoverable) in respect of any Mortgage Loan will continue through
liquidation of such Mortgage Loan or disposition of any REO Property acquired
in respect thereof. Notwithstanding the foregoing, if an Appraisal Reduction
exists with respect to any Mortgage Loan, then,
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with respect to the Distribution Date immediately following the date of such
determination and with respect to each subsequent Distribution Date for so long
as such Appraisal Reduction exists, in the event of subsequent delinquencies on
such Mortgage Loan, the amount of the P&I Advance in respect of such Mortgage
Loan will be reduced to equal to the product of (i) the amount of such P&I
Advance that would otherwise be required to be made for such Distribution Date
without regard to this sentence, multiplied by (ii) a fraction (expressed as a
percentage), the numerator of which is equal to the Stated Principal Balance of
such Mortgage Loan, net of the amount of such Appraisal Reduction, and the
denominator of which is equal to the Stated Principal Balance of such Mortgage
Loan. See "Appraisal Reductions" above. The amount to be advanced by the Master
Servicer, Trustee or Fiscal Agent in respect of any Mortgage Loan on any
Distribution Date will be reduced by the greater of the reduction in respect of
any Appraisal Reduction and the reduction described in the preceding sentence.
If the Master Servicer fails to make a required P&I Advance, the Trustee will
be obligated to make such P&I Advance; and, if the Trustee fails to make a
required P&I Advance, the Fiscal Agent will be obligated to make such P&I
Advance. See "--The Trustee and the Fiscal Agent" below.
The Master Servicer, the Trustee and the Fiscal Agent will each be
entitled to recover any P&I Advance made by it from Related Proceeds collected
in respect of the Mortgage Loan as to which such P&I Advance was made.
Notwithstanding the foregoing, none of the Master Servicer, the Trustee or the
Fiscal Agent will be obligated to make a P&I Advance that would, if made,
constitute a Nonrecoverable Advance (as defined below). The Master Servicer,
the Trustee and the Fiscal Agent will each be entitled to recover any P&I
Advance previously made by it that is, at any time, determined to be a
Nonrecoverable Advance, out of general funds on deposit in the Certificate
Account. See "Description of the Certificates--Advances in Respect of
Delinquencies" and "Description of the Agreements--Certificate Account and
Other Collection Accounts" in the Prospectus.
Servicing Advances.
In general, customary, reasonable and necessary "out-of-pocket" costs
and expenses required to be incurred by the Master Servicer or the Special
Servicer, as applicable, in connection with the servicing of a Mortgage Loan
after a default, delinquency or other unanticipated event, or in connection
with the administration of any REO Property, will constitute "Servicing
Advances" (Servicing Advances and P&I Advances, collectively, "Advances") and,
in all cases will be reimbursable, as and to the extent described in the
Pooling and Servicing Agreement. Notwithstanding the foregoing, the Master
Servicer and the Special Servicer will each be permitted to pay, or to direct
the payment of, certain servicing expenses directly out of the Certificate
Account and at times without regard to the relationship between the expense and
the funds from which it is being paid. Furthermore, if the Special Servicer is
required under the Pooling and Servicing Agreement to make any Servicing
Advance but does not desire to do so, and if the Special Servicer and the
Master Servicer are not the same person, then the Special Servicer may, in its
sole discretion, with limited exception, request that the Master Servicer make
such Advance, such request to be made in writing and in a timely manner that
does not adversely affect the interests of any Certificateholder. The Master
Servicer will be obligated to make any such Servicing Advance that it is
requested by the Special Servicer to so make (unless the Master Servicer shall
determine that any such Advance would be nonrecoverable) within ten (10) days
of the Master Servicer's receipt of such request.
If the Master Servicer or the Special Servicer is required under the
Pooling and Servicing Agreement to make a Servicing Advance, but does not do so
within 15 days after such Servicing Advance is required to be made, then the
Trustee will, if it has actual knowledge of such failure, be required to give
the defaulting party notice of such failure and, if such failure continues for
three more Business Days, the Trustee will be obligated to make such Servicing
Advance (and, if the Trustee fails to make any Servicing Advance required under
the Pooling and Servicing Agreement, the Fiscal Agent will be obligated to make
such Servicing Advance on behalf of the Trustee).
The Master Servicer, the Special Servicer, the Trustee and the Fiscal
Agent will each be obligated to make Servicing Advances 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, the Special Servicer (or, if
applicable, the Trustee or Fiscal Agent) that any P&I Advance or Servicing
Advance previously made or proposed to be made would not be recoverable from
Related Proceeds, is to be made in the reasonable and good faith discretion of
such party and is to be accompanied by an officer's certificate delivered to
the Trustee and setting forth the reasons for such determination, together with
copies of appraisals, if any, or other information relevant thereto which
supports such determination. The Master Servicer's or Special Servicer's
determination of nonrecoverability will be conclusive and binding upon the
Certificateholders, the Trustee and the Fiscal Agent with respect to the
obligation of the Trustee or the Fiscal Agent to make any Advance. The Trustee
and the Fiscal Agent shall be entitled to rely conclusively on any
determination by the Master Servicer or Special Servicer of nonrecoverability
with respect to such Advance and shall have no obligation to make a separate
determination of recoverability. The Master Servicer shall be entitled to rely
conclusively on any determination by the Special Servicer of non-recoverability
with respect to such Advance, and shall have no obligation to make a separate
determination of recoverability.
Interest on Advances.
The Master Servicer, the Special Servicer, the Trustee and the Fiscal
Agent will each be entitled, with respect to any Advance made thereby, to
receive interest accrued on the amount of such Advance for so long as it is
outstanding at a rate per annum (the "Advance Rate") equal to the "prime rate"
as published in the "Money Rates" section of The Wall Street Journal, as such
"prime rate" may change from time to time. Such interest on any Advance will be
payable to the Master Servicer, the Special Servicer, the Trustee or the Fiscal
Agent, as the case may be, first out of default interest and late payment
charges actually collected by the Master Servicer or the Special Servicer (and
not retainable by any Sub-Servicer) in respect of the related Mortgage Loan or,
if such amounts are insufficient, out of any amounts then on deposit in the
Certificate Account. To the extent not offset by default interest and late
payment charges actually collected in respect of any defaulted Mortgage Loan,
interest accrued on outstanding Advances made in respect thereof will result in
a reduction in amounts payable on the Certificates.
REPORTS TO CERTIFICATEHOLDERS; AVAILABLE INFORMATION
Trustee Reports.
1. Based on information provided in monthly reports prepared by the
Master Servicer and the Special Servicer and delivered by the Master Servicer
to the Trustee, the Trustee will prepare and 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;
(iv) the number and aggregate Stated Principal Balance of
Mortgage Loans in the Mortgage Pool (A) delinquent one month, (B)
delinquent two months, (C) delinquent three or more months or (D)
as to which foreclosure proceedings have been commenced;
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(v) with respect to any REO Property acquired during the
related Collection Period, the Stated Principal Balance of the
related Mortgage Loan as of the date of acquisition of the REO
Property;
(vi) (A) the most recent appraised value of any REO Property
as of the related Determination Date, (B) as to any REO Property
sold during the related Collection Period, the date of the
related determination by the Special Servicer that it has
recovered all Related Proceeds that it expects to be finally
recoverable and the amount of the proceeds of such sale deposited
into the Certificate Account, and (C) the aggregate amount of
other revenues collected by the Special Servicer with respect to
each REO Property during the related Collection Period and
credited to the Certificate Account, in each case identifying
such REO Property by the loan number of the related Mortgage
Loan;
(vii) the aggregate Certificate Balance or Notional Amount
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 the Interest Only
Certificates for such Distribution Date;
(x) the aggregate amount of servicing fees retained by or
paid to the Master Servicer and the Special Servicer;
(xi) the amount of Realized Losses or Expense Losses, if
any, incurred with respect to the Mortgage Loans during the
related Collection Period;
(xii) the aggregate amount of Servicing Advances and P&I
Advances outstanding as of the end of the prior calendar month
that have been made by the Master Servicer, the Special Servicer,
the Trustee and the Fiscal Agent, separately stated;
(xiii) the amount of any Appraisal Reductions effected
during the related Collection Period on a loan-by-loan basis and
the total Appraisal Reductions as of such Distribution Date; and
(xiv) such other information and in such form as shall be
specified in the Pooling and Servicing Agreement.
In the case of information furnished pursuant to subclauses
(i) 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 IV and will be presented in a
tabular format substantially similar to the respective format utilized
in Appendix IV, which shall be in standard CSSA format.
2. For those who have obtained an account number on the Trustee's ASAP
(Automatic Statements Accessed by Phone) System, the foregoing report or a
summary report of bond factors may be obtained from the Trustee via automated
facsimile by placing a telephone call to (312) 904-2200 and following the voice
prompts to request "Statement Number 365." Account numbers on the Trustee's
ASAP System may be obtained by calling the same telephone number and following
the voice prompts for obtaining account numbers. Separately, bond factor
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information may be obtained from the Trustee by calling (800) 246-5761. In
addition, if the Depositor so directs the Trustee and on terms acceptable to
the Trustee, the Trustee will make available through its electronic bulletin
board system certain information related to the Mortgage Loans (as presented in
the standard CSSA format) as provided for in the Pooling and Servicing
Agreement. The bulletin board is located at (714) 282-3990. A directory has
been set up on the bulletin board in which an electronic file is stored
containing monthly servicer data. All files are password protected. Passwords
to each file will be released by the Trustee in accordance with the terms of
the Pooling and Servicing Agreement. Those who have an account on the bulletin
board may retrieve the loan level data file for each transaction in the
directory. An account number may be obtained by typing "NEW" upon logging into
the bulletin board. The Trustee also intends to make certain information
relating to the Certificates and the Mortgage Loans available on the Internet
at www.lnbabs.com. Such Internet access may require the use of a password which
can be obtained from the Trustee. The Master Servicer may also make certain
information available on the internet.
3. Unless otherwise reported pursuant to 1(b) above, on an annual
basis, the Master Servicer is required to deliver to the Trustee, who will
deliver such report to the Underwriters, the Certificateholders, the Depositor
and anyone else the Depositor or the Underwriters reasonably designate, a
report setting forth the debt service coverage ratio (and the calculation
thereof) with respect to each Mortgage Loan for which the Master Servicer
obtains operating statements, and such other information, including occupancy,
to the extent available, and substantially in the form set forth in the Pooling
and Servicing Agreement. In addition, upon request from the Underwriters, the
Certificateholders or the Depositor, the Master Servicer will make available,
in accordance with the terms of the Pooling and Servicing Agreement, the most
recent annual operating statements and rent rolls for each Mortgaged Property
(to the extent available to the Master Servicer).
Special Servicer Reports.
No later than one business day following each Determination Date, the
Special Servicer will prepare and provide the Master Servicer with 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, among other things, 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 Distribution Date, to the
Underwriters, 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,
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(vi) any and all modifications, waivers and amendments of the
terms of a Mortgage Loan entered into by the Master Servicer and/or
the Special Servicer and delivered to the Trustee, and
(vii) any and all officers' certificates and other evidence
delivered to the Trustee to support the Master Servicer's
determination that any Advance was or, if made, would not be,
recoverable from Related Proceeds.
Copies of any and all of the foregoing items and any Special
Servicer Reports delivered to the Trustee will be available from the
Trustee upon request; provided that the Trustee will be permitted to
require payment of a sum sufficient to cover the reasonable costs and
expenses of providing such copies; and provided further that certain
limitations will be imposed on the recipients with respect to the use
and further dissemination of the information to the extent described
in the Pooling and Servicing Agreement.
BOOK-ENTRY CERTIFICATES
Until such time, if any, as Definitive Certificates are issued in
respect of the Offered Certificates, the foregoing information and access will
be available to the related Certificate Owners only to the extent it is
forwarded by, or otherwise available through, DTC and its Participants. The
manner in which notices and other communications are conveyed by DTC to its
Participants, and by such Participants to the Certificate Owners, will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. The Master Servicer, the
Special Servicer, the Trustee and the Depositor are required to recognize as
Certificateholders only those persons in whose names the Certificates are
registered on the books and records of the Trustee; however, any Certificate
Owner that has delivered to the Trustee a written certification, in form and
substance satisfactory to the Trustee, regarding such Certificate Owner's
beneficial ownership of Offered Certificates will be recognized as a
Certificateholder for purposes of obtaining the foregoing information and
access.
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of distributions on the
Certificates for the first month of the Trust Fund's existence, assuming the
Certificates are issued during November 1998:
The close of business on
November 1................. (A) Cut-off Date.
November 30................ (B) Record Date for all Classes of
Certificates.
November 2-December 4...... (C) The Collection Period. The
Master Servicer receives
Monthly Payments due after the
Cut-off Date and on or prior to
December 4, the last day of the
Collection Period for scheduled
payments due and received, and
any principal prepayments made,
after the Cut-off Date and on
or prior to December 4, the
last day of the Collection
Period for unscheduled
payments.
December 4................. (D) Determination Date.
December 14................ (E) Master Servicer Remittance Date.
December 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 November 1, 1998 (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.
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(B) Distributions on the next Distribution Date will be made to those
persons that are Certificateholders of record on this date. Each subsequent
Record Date will be the last business day of the month preceding the related
Distribution Date.
(C) Any Monthly Payments due and collected and Principal Prepayments
collected, after the Cut-off Date and on or prior to the dates set forth above
will be deposited in the Certificate Account. Each subsequent Collection Period
will begin on the day after the Determination Date in the month preceding the
month of the related Distribution Date and will end on the Determination Date
in the month in which the related Distribution Date occurs.
(D) As of the close of business on the Determination Date, the Master
Servicer will have determined the amounts of principal and interest due and
payable on the Mortgage Loans with respect to the related Collection Period.
The Determination Date related to each Distribution Date is the fifth day of
the month in which such Distribution Date occurs (or if such date is not a
Business Day, then the next preceding Business Day).
(E) The Master Servicer will remit to the Trustee on the business day
preceding the related Distribution Date all amounts held by the Master Servicer
that are payable to Certificateholders on such Distribution Date.
(F) The Trustee will make distributions to Certificateholders on the
15th day of each month or, if any such 15th day is not a business day, the next
succeeding business day.
VOTING RIGHTS
At all times during the term of the Pooling and Servicing Agreement,
97% of the voting rights for the Certificates (the "Voting Rights") are to be
allocated among the holders of the respective Classes of Principal Balance
Certificates in proportion to the aggregate Certificate Balances of such
Classes, 2% of the Voting Rights are to be allocated among the holders of the
Class of Interest Only Certificates, and the remaining Voting Rights are to be
allocated equally among the holders of the respective Classes of REMIC Residual
Certificates. Voting Rights allocated to a Class of Certificateholders will be
allocated among such Certificateholders in proportion to the Percentage
Interests in such Class evidenced by their respective Certificates.
THE TRUSTEE AND THE FISCAL AGENT
The Trustee
LaSalle National Bank ("LaSalle") will act as Trustee (the "Trustee").
LaSalle is a subsidiary of LaSalle National Corporation which is a subsidiary
of the Fiscal Agent. The Trustee is at all times required to be, and will be
required to resign if it fails to be, (i) an institution insured by the FDIC,
(ii) a corporation, national bank or national banking association, organized
and doing business under the laws of the United States of America or any state
thereof, authorized under such laws to exercise corporate trust powers, having
a combined capital and surplus of not less than $50,000,000 and subject to
supervision or examination by federal or state authority and (iii) an
institution whose long-term senior unsecured debt (or that of its fiscal agent,
if applicable) is rated not less than "AA" by DCR 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 135 South LaSalle Street, Suite 1625,
Chicago, Illinois 60674-4107, Attention: Asset-Backed Securities Trust Services
Group - Morgan Stanley Capital I Inc., Commercial Mortgage Pass-Through
Certificates, Series 1998-HF2. As of December 31, 1997, the Trustee had assets
of approximately $19 billion. See "Servicing of the Mortgage Loans--Duties of
the Trustee", "Servicing of the Mortgage Loans--Certain Matters Regarding the
Trustee" and "Servicing of the Mortgage Loans--Resignation and Removal of the
Trustee" in the Prospectus.
The principal compensation to be paid to the Trustee in respect of its
activities as the trustee under the Pooling and Servicing Agreement will be the
Trustee Fee. The "Trustee Fee" will be payable monthly on a loan-by-
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loan basis from amounts received in respect of interest on each Mortgage Loan
(including Specially Serviced Mortgage Loans and Mortgage Loans as to which the
related Mortgaged Property has become an REO Property) and will be computed on
the basis of the same principal amount and for the same period respecting which
any related interest payment on the related Mortgage Loan is computed.
The Fiscal Agent
ABN AMRO Bank N.V., a Netherlands banking corporation and the indirect
corporate parent of the Trustee, will act as Fiscal Agent (the "Fiscal Agent")
for the Trust Fund and will be obligated to make any Advance required to be
made, and not made, by the Master Servicer and the Trustee under the Pooling
and Servicing Agreement, provided that the Fiscal Agent will not be obligated
to make any Advance that it deems to be a Nonrecoverable Advance. The Fiscal
Agent will be entitled (but not obligated) to rely conclusively on any
determination by the Master Servicer, the Special Servicer (solely in the case
of Servicing Advances) or the Trustee that an Advance, if made, would be a
Nonrecoverable Advance. The Fiscal Agent will be entitled to reimbursement for
each Advance made by it in the same manner and to the same extent as, but prior
to, the Master Servicer and the Trustee. See "--Advances" above. The Fiscal
Agent will be entitled to various rights, protections and indemnities similar
to those afforded the Trustee. The Trustee will be responsible for payment of
the compensation of the Fiscal Agent. As of December 31, 1997, the Fiscal Agent
had consolidated assets of approximately $414 billion. In the event that
LaSalle shall, for any reason, cease to act as Trustee under the Pooling and
Servicing Agreement, ABN AMRO Bank N.V. likewise shall no longer serve in the
capacity of Fiscal Agent thereunder.
MATURITY CONSIDERATIONS
The weighted average life of a Principal Balance Certificate refers to
the average amount of time that will elapse from the date of its issuance until
each dollar allocable to principal of such Certificate is distributed to the
investor. For purposes of this Prospectus Supplement, the weighted average life
of a Principal Balance Certificate is determined by (i) multiplying the amount
of each principal distribution thereon by the number of years from the Closing
Date to the related Distribution Date, (ii) summing the results and (iii)
dividing the sum by the aggregate amount of the reductions in the Certificate
Balance of such Certificate. Accordingly, the weighted average life of any such
Certificate will be influenced by, among other things, the rate at which
principal of the Mortgage Loans is paid or otherwise collected or advanced and
the extent to which such payments, collections and/or advances of principal are
in turn applied in reduction of the Certificate Balance of such Certificate.
Prepayments on mortgage loans may be measured by a prepayment standard
or model ("Prepayment Assumptions"). The model used in this Prospectus
Supplement is the CPR prepayment model (as described under "Yield
Considerations--Prepayments--Maturity and Weighted Average Life" in the
Prospectus).
As used in each of the following tables, the column headed "0%"
assumes that none of the Mortgage Loans is prepaid before maturity. 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 (unless the prepayment
penalty for such Mortgage Loan is calculated as the lesser of yield maintenance
or a fixed percentage), if any, and are otherwise made on each of the Mortgage
Loans at the indicated CPRs. Such tables and assumptions are intended to
illustrate the sensitivity of weighted average life of the Certificates to
various prepayment rates and are not intended to predict or to provide
information that will enable investors to predict the actual weighted average
life of the Certificates. There is no assurance, however, that prepayments of
the Mortgage Loans (whether or not in a Lock-out Period or a yield maintenance
period) will conform to any particular CPR, and no representation is made that
the Mortgage Loans will prepay in accordance with the assumptions at any of the
CPRs shown or at any other particular prepayment rate, that all the Mortgage
Loans will prepay in accordance with the assumptions at the same rate or that
Mortgage Loans that are in a Lock-out Period or a yield maintenance period will
not prepay as a result of involuntary liquidations upon default or otherwise. A
"yield maintenance period" is any period during which a Mortgage Loan provides
that voluntary prepayments be accompanied by a Yield Maintenance Premium.
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The following tables indicate the percentage of the initial aggregate
Certificate Balance of each Class of Offered Certificates that would be
outstanding after each of the dates shown at various CPRs and the corresponding
weighted average life of each such Class of Certificates. The tables have been
prepared on the basis of the following assumptions (collectively, the "Maturity
Assumptions"):
(i) the Initial Pool Balance is approximately $1,058,111,956,
(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
as set forth in Appendix II,
(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,
unless the prepayment penalty for such Mortgage Loan is calculated as
the lesser of yield maintenance or a fixed percentage) and (B)
Mortgage Loans that provide for an increase in the respective Mortgage
Rate and/or principal amortization on a specified date prior to stated
maturity are prepaid in full on their respective Hyper-Amortization
Dates,
(vii) Mortgage Loans with holdback provisions are assumed to meet
their Release Conditions and the Escrowed Holdback Amounts are assumed
released to the respective borrowers,
(viii) (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 an
actual/360 basis,
(ix) no party entitled thereto exercises its right of optional
termination described herein under "Description of the
Certificates--Optional Termination",
(x) no Mortgage Loan is required to be repurchased or replaced by
a Seller or other party,
(xi) no Prepayment Interest Shortfalls are incurred,
(xii) there are no Additional Trust Fund Expenses,
(xiii) distributions on the Certificates are made on the 15th day
of each month, commencing in December 1998,
(xiv) the Certificates are issued on the Closing Date,
(xv) the prepayment provisions for each Mortgage Loan are assumed
to begin on the first payment date of such Mortgage Loan and any
resulting Prepayment Premiums are allocated as described under
"Description of the Certificates--Distributions--Distributions of
Prepayment Premiums", and
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<PAGE>
(xvi) the open prepayment period, if any, is assumed to begin on
the first day of the respective month prior to the maturity date.
To the extent that the Mortgage Loans have characteristics that differ
from those assumed in preparing the tables set forth below, the Offered
Certificates may mature earlier or later than indicated by the tables. The
"Final Scheduled Distribution Date" for each Class of Offered Certificates is
the Distribution Date on which the related aggregate Certificate Balance or
Notional Amount, as the case may be, would be reduced to zero based upon the
Maturity Assumptions and a 0% CPR. It is highly unlikely that the Mortgage
Loans will prepay in accordance with the Maturity Assumptions at any constant
rate until maturity or that all the Mortgage Loans will prepay in accordance
with the Maturity Assumptions at the same rate. In addition, variations in the
actual prepayment experience and the balance of the Mortgage Loans that prepay
may increase or decrease the percentages of initial aggregate Certificate
Balances (and weighted average lives) shown in the following tables. Such
variations may occur even if the average prepayment experience of the Mortgage
Loans were to reflect the Maturity Assumptions and any of the specified CPR
percentages.
Investors are urged to conduct their own analyses of the rates at
which the Mortgage Loans may be expected to prepay.
Based on the Maturity Assumptions, the following tables indicate the
resulting weighted average lives of the Offered Certificates and set forth the
percentage of the initial Certificate Balance of each Class of such
Certificates that would be outstanding after each of the dates shown under the
applicable assumptions at the indicated CPRs.
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS A-1 CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
------------------------------------------------------
Date 0% 3% 5% 7% 10% 15%
-- -- -- -- --- ---
<S> <C> <C> <C> <C> <C> <C>
Closing Date..................... 100% 100% 100% 100% 100% 100%
November 1999.................... 93 93 93 93 93 93
November 2000.................... 86 86 86 86 85 85
November 2001.................... 79 78 78 78 77 77
November 2002.................... 70 70 69 69 69 68
November 2003.................... 60 60 59 59 59 58
November 2004.................... 49 48 48 47 47 46
November 2005.................... 34 33 33 32 32 31
November 2006.................... 19 18 17 17 16 15
November 2007.................... 0 0 0 0 0 0
Weighted Average
Life (years)..................... 5.4 5.4 5.4 5.3 5.3 5.3
</TABLE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE
OF THE CLASS A-2 CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
------------------------------------------------------
Date 0% 3% 5% 7% 10% 15%
-- -- -- -- --- ---
<S> <C> <C> <C> <C> <C> <C>
Closing Date..................... 100% 100% 100% 100% 100% 100%
November 1999.................... 100 100 100 100 100 100
November 2000.................... 100 100 100 100 100 100
November 2001.................... 100 100 100 100 100 100
November 2002.................... 100 100 100 100 100 100
November 2003.................... 100 100 100 100 100 100
November 2004.................... 100 100 100 100 100 100
November 2005.................... 100 100 100 100 100 100
November 2006.................... 100 100 100 100 100 100
November 2007.................... 97 97 97 97 96 96
November 2008.................... 0 0 0 0 0 0
Weighted Average
Life (years)..................... 9.4 9.4 9.4 9.4 9.4 9.4
</TABLE>
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<PAGE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS B CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
------------------------------------------------------
Date 0% 3% 5% 7% 10% 15%
-- -- -- -- --- ---
<S> <C> <C> <C> <C> <C> <C>
Closing Date..................... 100% 100% 100% 100% 100% 100%
November 1999.................... 100 100 100 100 100 100
November 2000.................... 100 100 100 100 100 100
November 2001.................... 100 100 100 100 100 100
November 2002.................... 100 100 100 100 100 100
November 2003.................... 100 100 100 100 100 100
November 2004.................... 100 100 100 100 100 100
November 2005.................... 100 100 100 100 100 100
November 2006.................... 100 100 100 100 100 100
November 2007.................... 100 100 100 100 100 100
November 2008.................... 0 0 0 0 0 0
Weighted Average
Life (years)..................... 9.7 9.7 9.7 9.7 9.7 9.7
</TABLE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS C CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
------------------------------------------------------
Date 0% 3% 5% 7% 10% 15%
-- -- -- -- --- ---
<S> <C> <C> <C> <C> <C> <C>
Closing Date..................... 100% 100% 100% 100% 100% 100%
November 1999.................... 100 100 100 100 100 100
November 2000.................... 100 100 100 100 100 100
November 2001.................... 100 100 100 100 100 100
November 2002.................... 100 100 100 100 100 100
November 2003.................... 100 100 100 100 100 100
November 2004.................... 100 100 100 100 100 100
November 2005.................... 100 100 100 100 100 100
November 2006.................... 100 100 100 100 100 100
November 2007.................... 100 100 100 100 100 100
November 2008.................... 0 0 0 0 0 0
Weighted Average
Life (years)..................... 9.8 9.8 9.8 9.8 9.8 9.8
</TABLE>
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<PAGE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS D CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
------------------------------------------------------
Date 0% 3% 5% 7% 10% 15%
-- -- -- -- --- ---
<S> <C> <C> <C> <C> <C> <C>
Closing Date..................... 100% 100% 100% 100% 100% 100%
November 1999.................... 100 100 100 100 100 100
November 2000.................... 100 100 100 100 100 100
November 2001.................... 100 100 100 100 100 100
November 2002.................... 100 100 100 100 100 100
November 2003.................... 100 100 100 100 100 100
November 2004.................... 100 100 100 100 100 100
November 2005.................... 100 100 100 100 100 100
November 2006.................... 100 100 100 100 100 100
November 2007.................... 100 100 100 100 100 100
November 2008.................... 0 0 0 0 0 0
Weighted Average
Life (years)..................... 9.8 9.8 9.8 9.8 9.8 9.8
</TABLE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS E CERTIFICATES AT THE SPECIFIED CPRS
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION (CPR)
------------------------------------------------------
Date 0% 3% 5% 7% 10% 15%
-- -- -- -- --- ---
<S> <C> <C> <C> <C> <C> <C>
Closing Date..................... 100% 100% 100% 100% 100% 100%
November 1999.................... 100 100 100 100 100 100
November 2000.................... 100 100 100 100 100 100
November 2001.................... 100 100 100 100 100 100
November 2002.................... 100 100 100 100 100 100
November 2003.................... 100 100 100 100 100 100
November 2004.................... 100 100 100 100 100 100
November 2005.................... 100 100 100 100 100 100
November 2006.................... 100 100 100 100 100 100
November 2007.................... 100 100 100 100 100 100
November 2008.................... 0 0 0 0 0 0
Weighted Average
Life (years)..................... 9.9 9.9 9.9 9.9 9.9 9.9
</TABLE>
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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 dates on which Balloon Payments are
due and the rate and timing of principal prepayments and other unscheduled
collections thereon (including for this purpose, collections made in connection
with liquidations of Mortgage Loans due to defaults, casualties or
condemnations affecting the Mortgaged Properties, or repurchases of Mortgage
Loans out of the Trust Fund). Prepayments and, assuming the respective stated
maturity dates therefor have not occurred, liquidations and repurchases of the
Mortgage Loans, will result in distributions on the Principal Balance
Certificates of amounts that otherwise would have been distributed (and
reductions in the Notional Amounts of the Interest Only Certificates that would
otherwise have occurred) over the remaining terms of the Mortgage Loans.
Defaults on the Mortgage Loans, particularly at or near their stated maturity
dates, may result in significant delays in payments of principal on the
Mortgage Loans (and, accordingly, on the Principal Balance Certificates) while
work-outs are negotiated or foreclosures are completed. See "Servicing of the
Mortgage Loans--Modifications, Waivers, Amendments and Consents" and "Servicing
of the Mortgage Loans--Sale of Defaulted Mortgage Loans" herein and
"Description Of The Agreements--Realization Upon Defaulted Whole Loans" and
"Certain Legal Aspects Of The Mortgage Loans And Leases--Foreclosure" in the
Prospectus. Because the rate of principal payments on the Mortgage Loans will
depend on future events and a variety of factors (as described below), no
assurance can be given as to such rate or the rate of principal prepayments in
particular. The Depositor is not aware of any relevant publicly available or
authoritative statistics with respect to the historical prepayment experience
of a large group of mortgage loans comparable to the Mortgage Loans.
The extent to which the yield to maturity of an Offered Certificate
may vary from the anticipated yield will depend upon the degree to which such
Certificate is purchased at a discount or premium and when, and to what degree,
payments of principal on the Mortgage Loans are in turn distributed on or
otherwise result in the reduction of the Certificate Balance or Notional
Amount, as the case may be, of such Certificate. An investor should consider,
in the case of any Principal Balance Certificate purchased at a discount, the
risk that a slower than anticipated rate of principal payments on such
Certificate could result in an actual yield to such investor that is lower than
the anticipated yield and, in the case of any Principal Balance Certificate
purchased at a premium, the risk that a faster than anticipated rate of
principal payments on such Certificate could result in an actual yield to such
investor that is lower than the anticipated yield. In general, the earlier a
payment of principal is made on a Principal Balance Certificate purchased at a
discount or premium, the greater will be the effect on an investor's yield to
maturity. As a result, the effect on an investor's yield of principal payments
on such investor's Principal Balance Certificates occurring at a rate higher
(or lower) than the rate anticipated by the investor during any particular
period would not be fully offset by a subsequent like reduction (or increase)
in the rate of principal payments. The yield to maturity of each Class of
Interest Only Certificates will be highly sensitive to the rate and timing of
principal payments (including by reason of prepayments, repurchases,
extensions, defaults and liquidations) on or in respect of the Mortgage Loans.
Investors in the Interest Only Certificates should fully consider the
associated risks, including the risk that an extremely rapid rate of
amortization and prepayment of the Notional Amounts of their Certificates could
result in the failure of such investors to recoup their initial investments.
An investor should consider the risk that rapid rates of prepayments
on the Mortgage Loans, and therefore of amounts distributable in reduction of
the principal balance of the Offered Certificates entitled to distributions of
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<PAGE>
principal may coincide with periods of low prevailing interest rates. During
such periods, the effective interest rates on securities in which an investor
may choose to reinvest amounts distributed in reduction of the principal
balance of such investor's Offered Certificate may be lower than the
Pass-Through Rate applicable thereto. Conversely, slower rates of prepayments
on the Mortgage Loans, and therefore of amounts distributable in reduction of
principal balance of the Offered Certificates entitled to distributions of
principal, may coincide with periods of high prevailing interest rates. During
such periods, the amount of principal distributions resulting from prepayments
available to an investor in such Certificates for reinvestment at such high
prevailing interest rates may be relatively small.
LOSSES AND SHORTFALLS
The yield to holders of the Offered Certificates will also depend on
the extent to which such holders are required to bear the effects of any losses
or shortfalls on the Mortgage Loans. Losses and other shortfalls on the
Mortgage Loans (other than Net Aggregate Prepayment Interest Shortfalls) will
generally be borne: first, by the holders of the respective Classes of
Subordinate Certificates, in reverse alphabetical order of Class designation,
to the extent of amounts otherwise distributable in respect of their
Certificates; and then, by the holders of the Senior Certificates. Net
Aggregate Prepayment Interest Shortfalls will be borne by the holders of the
respective Classes of REMIC Regular Certificates on a pro rata basis as
described herein.
CERTAIN RELEVANT FACTORS
The rate and timing of principal payments and defaults and the
severity of losses on the Mortgage Loans may be affected by a number of
factors, including, without limitation, prevailing interest rates, the terms of
the Mortgage Loans (for example, Prepayment Premiums, Lock-out 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.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The mortgage pool (the "Mortgage Pool") will consist of 262 mortgage
loans (each, a "Mortgage Loan") with an Initial Pool Balance of $1,058,111,956
equal to the aggregate Cut-off Date Balance (the "Initial Pool Balance") of the
Mortgage Loans, subject to a permitted variance of plus or minus 5%. The
"Cut-off Date Balance" with respect to any Mortgage Loan is the unpaid
principal balance thereof as of the Cut-off Date.
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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.
A brief summary of the material terms of the six largest Mortgage
Loans in the Mortgage Pool is set forth on Appendix III attached hereto.
Principal Balances
The Mortgage Loans have an Initial Pool Balance of $1,058,111,956
(subject to variance of plus or minus 5%). The Cut-off Date Balances of the
Mortgage Loans range from $528,151 to $23,949,234, and the Mortgage Loans have
an average Cut-off Date Balance of $4,038,595.
Balloon Loans
Two hundred forty-six (246) of the Mortgage Loans, representing 93.9%
of the Initial Pool Balance, are Balloon Loans or provide for increases in the
mortgage rate and/or principal amortization at a date prior to the stated
maturity date.
Fee/Leasehold
Each Mortgage Loan is evidenced by a promissory note (a "Mortgage
Note") and secured by a mortgage, deed of trust or other similar security
instrument (a "Mortgage") that creates a first mortgage lien on a fee (or, in
two cases, or 0.8% of the Initial Pool Balance, a leasehold estate and in one
case, or 0.2% of the Initial Pool Balance, a leasehold interest in a portion of
the property and a fee interest in the remainder of the property) in
income-producing real property (a "Mortgaged Property").
Property Type
As to property types:
o seventy-five (75) of the Mortgaged Properties, which represent
security for 32.8% of the Initial Pool Balance, are multifamily apartment
properties;
o sixty-four (64) of the Mortgaged Properties, which represent
security for 22.9% of the Initial Pool Balance, are retail properties;
o twenty-four (24) of the Mortgaged Properties, which represent
security for 8.7% of the Initial Pool Balance, are industrial/warehouse
properties, including multi-tenant industrial properties;
o twenty (20) of the Mortgaged Properties, which represent security
for 7.8% of the Initial Pool Balance, are office properties;
o Sixteen (16) of the Mortgaged Properties, which represent security
for 7.6% of the Initial Pool Balance, are senior housing properties;
o thirty-three (33) of the Mortgaged Properties, which represent
security for 7.3% of the Initial Pool Balance, are self-storage facilities;
o nine (9) of the Mortgaged Properties, which represent security for
6.2% of the Initial Pool Balance, are hospitality properties;
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o seventeen (17) of the Mortgaged Properties, which represent security
for 4.9% of the Initial Pool Balance, are manufactured housing communities; and
o four (4) of the Mortgaged Properties, which represent security for
1.7% of the Initial Pool Balance, are mixed use properties.
Geographic Location
The Mortgaged Properties are located throughout 39 states, with the
largest concentration in the State of California (52 Mortgaged Properties,
which represent security for 20.2% of the Initial Pool Balance). No other state
has a concentration of Mortgaged Properties that represents security for more
than 8.5% of the Initial Pool Balance. See Appendix II for a more detailed
description of the Mortgage Loans and additional information with respect to
those Mortgage Loans secured by Mortgages on multifamily apartment properties
and senior housing.
Delinquency
As of the Cut-off Date, none of the Mortgage Loans was 30 days or more
delinquent, or had been 30 days or more delinquent during the 12 calendar
months preceding the Cut-off Date.
Sellers
Two hundred and thirty-two (232) of the Mortgage Loans (the "Heller
Loans"), which represent 85.6% of the Initial Pool Balance will, immediately
prior to the issuance of the Certificates, be held by Heller. The Heller Loans
were all originated by Heller Financial, Inc. or an affiliate. Thirty (30) of
the Mortgage Loans (the "Morgan Stanley Loans"), which represent 14.4% of the
Initial Pool Balance, are currently held by MSMC. Heller and MSMC will each be
referred to herein as a "Seller" and will collectively be referred to herein as
the "Sellers."
On or prior to the Closing Date, the Depositor will acquire the
Mortgage Loans from the Sellers, in each case pursuant to a mortgage loan
purchase agreement to be entered into between the Depositor and the particular
Seller (each, a "Mortgage Loan Purchase Agreement"). The Depositor will
thereupon assign its interests in the Mortgage Loans, without recourse, to the
Trustee for the benefit of the Certificateholders. See "--The Sellers" and
"--Assignment of Mortgage Loans; Repurchases" below.
Origination Dates
Mortgage Loans were originated between October 23, 1995 and August 21,
1998.
CERTAIN TERMS AND CHARACTERISTICS OF THE MORTGAGE LOANS
Mortgage Rates; Calculations of Interest
All of the Mortgage Loans bear interest at annualized rates ("Mortgage
Rates") that will remain fixed for the remaining terms of the Mortgage Loans.
No Mortgage Loan permits negative amortization or the deferral of accrued
interest.
Thirty-one (31) of the Mortgage Loans accrue interest on the basis of
a 360-day year consisting of twelve 30-day months, and 231 Mortgage Loans are
Actual/360 Mortgage Loans (the "Interest Accrual Method").
As of the Cut-off Date, the Mortgage Rates of the Mortgage Loans range
from 6.510% to 9.570% per annum, and the weighted average Mortgage Rate of the
Mortgage Loans is 7.233% per annum.
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Due Dates
All of the Mortgage Loans have "Due Dates" (that is, the dates upon
which the related Monthly Payments are due) that occur on the first day of each
month.
Amortization
Two hundred nine (209) of the Mortgage Loans, representing 80.2% the
Initial Pool Balance, provide for Monthly Payments of principal and interest
based on amortization schedules significantly longer than their terms to
maturity. In addition, four Mortgage Loans, representing 3.4% of the Initial
Pool Balance as of the Cut-off Date, provide for monthly payments of interest
only for a certain period after the Cut-off Date and then payments of interest
and principal based on amortization schedules significantly longer than their
terms to maturity. Thirty-three (33) additional Mortgage Loans, representing
10.2% of the Initial Pool Balance are fully amortizing but each provides for,
among other things, significant increases in the Mortgage Rate and/or principal
amortization of the respective Mortgage Loan at a date (the "Hyper-Amortization
Date") prior to stated maturity, thereby providing an increased incentive to
prepay the Mortgage Loan (the "Hyper-Amortization Loans"). As a result, such
Mortgage Loans (the "Balloon Loans") will have substantial payments (each such
payment, a "Balloon Payment") payable on their respective maturity dates and
anticipated to be paid on their Hyper-Amortization Dates, as the case may be,
unless prepaid prior thereto. See "Risk Factors and Other Special
Considerations--The Mortgage Loans--Balloon Payments" herein. The remaining 16
Mortgage Loans, representing 6.1% of the Initial Pool Balance have an expected
balloon balance equal to less than 10% of the original principal balance of
each loan.
Defeasance
One hundred sixty (160) of the Mortgage Loans (the "Defeasance
Loans"), representing 58.2% of the Initial Pool Balance prohibit voluntary
prepayment from the origination of the Mortgage Loan until a date that is
generally up to three to six months prior to its scheduled maturity date or
Hyper-Amortization Date, as applicable, but, in lieu of prepayment, the
borrower may, after a period of no fewer than two years from the Closing Date,
obtain a release of the related Mortgaged Property from the lien of such
Mortgage Loan by pledging "Defeasance Collateral" to the holder of the Mortgage
Note. In general, "Defeasance Collateral" is required to consist of direct,
non-callable United States Treasury obligations that provide for payments
prior, but as close as possible, to all successive dates on which a Monthly
Payment is due (including the scheduled maturity date), with each such payment
being equal to or greater than (with any excess to be returned to the borrower)
the Monthly Payment (including, in the case of the scheduled maturity date, any
Balloon Payment), due on such date. A borrower's ability to defease is in each
case subject to certain conditions, including reasonable assurance that
acceptance of a pledge of the Defeasance Collateral in lieu of a full
prepayment will not result in a qualification, downgrade or withdrawal of the
rating then assigned by each Rating Agency to any Class of Certificates.
Prepayment Restrictions
As of the Cut-off Date, the Mortgage Loans that are not Defeasance
Loans restrict voluntary principal prepayments as follows: (i) 77 Mortgage
Loans, representing 32.7% of the Initial Pool Balance, prohibit voluntary
prepayments for a period (a "Lock-out Period") ending on a date (ranging from
14 to 138 months from the Cut-off Date) specified in the related Mortgage Note
and, in most such cases, thereafter impose "Prepayment Premiums" until a
specified date (generally three to six months) prior to maturity, and (ii) 25
Mortgage Loans, representing 9.2% 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 (generally zero
to three months, but in two such cases, representing 0.3% of the initial
outstanding pool, 37 to 48 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 19
Mortgage Loans, or 8.0% of the Initial Pool Balance; (ii) a percentage of the
amount prepaid ("Percentage Premium"), payable in the case of four Mortgage
Loans, representing 0.8% of the Initial Pool Balance; or (iii) a yield
maintenance formula
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followed by a percentage of the amount prepaid, payable in the case of two
Mortgage Loans, representing 0.3% of the Initial Pool Balance. Certain of the
Mortgage Loans providing for a Yield Maintenance Premium contain a minimum
Yield Maintenance Premium of 1% of the amount prepaid. In the case of the
Mortgage Loans that are subject to a Percentage Premium, such Percentage
Premium generally declines over time (in some cases to zero) until, in general,
a specified date.
Notwithstanding the foregoing, two Mortgage Loans, representing 0.6%
of the Initial Pool Balance, permit, in each such case, voluntary principal
prepayments of up to 10% of the original principal balance of the Mortgage Loan
in any calendar year without the imposition of a Prepayment Premium (the "10%
Free Prepayment Loans").
Yield Maintenance Premiums and Percentage Premiums, if and to the
extent collected, will be distributed to the holders of the Certificates as
described herein under "Description of the Certificates--Distributions--
Distributions of Prepayment Premiums" herein. The Master Servicer may not waive
the imposition of a Prepayment Premium or reduce the amount thereof. The
Special Servicer may waive the imposition of a Prepayment Premium, or reduce
the amount thereof, with respect to a Specially Serviced Mortgage Loan if such
waiver or reduction is consistent with the Servicing Standard. Neither the
Depositor nor any Seller can provide any assurance as to the enforceability of
any Mortgage Loan provisions barring prepayment or requiring the payment of a
Prepayment Premium or of the collectibility of any Prepayment Premium.
Non-recourse Obligations
Substantially all of the Mortgage Loans are non-recourse obligations
of the related borrowers and, upon any such borrower's default in the payment
of any amount due under the related Mortgage Loan, the holder thereof may look
only to the related Mortgaged Property for satisfaction of the borrower's
obligations. In those cases where the loan documents permit recourse to the
borrower or a guarantor, the Depositor has not evaluated the financial
condition of any such person, and prospective investors should thus consider
all of the Mortgage Loans to be non-recourse. None of the Mortgage Loans is
insured or guaranteed by the United States, any government entity or
instrumentality or any other person.
"Due-on-Sale" and "Due-on-Encumbrance" Provisions
The Mortgages contain "Due-on-sale" and "Due-on-encumbrance" clauses
that, in general, permit the holder of the Mortgage to accelerate the maturity
of the related Mortgage Loan if the borrower sells or otherwise transfers or
encumbers the related Mortgaged Property or that prohibit the borrower from
doing so without the consent of the holder of the Mortgage. Generally, the
Mortgage Loans permit a transfer of the related Mortgaged Property, subject to
the satisfaction of certain conditions, including, in some cases, approval of
the proposed transferee by the Special Servicer. In addition, certain Mortgage
Loans permit the borrower to transfer the related Mortgaged Property to an
affiliate or subsidiary of the borrower, or an entity of which the borrower is
the controlling beneficial owner, upon the satisfaction of certain limited
conditions as determined by the Master Servicer or Special Servicer, as
applicable.
Borrower Concentrations
Several groups of Mortgage Loans are made to the same borrower or have
related borrowers ("Related Borrower Loan Groups") that are affiliated with one
another through partial or complete direct or indirect common ownership. The
three largest of these groups represent 2.8%, 2.3%, and 2.0% respectively, of
the Initial Pool Balance.
Cross-Collateralized Mortgage Loans
The Mortgage Pool includes four separate sets of Cross-Collateralized
Mortgage Loans, each representing no more than 1.3% of the Initial Pool
Balance. See Appendix II hereto.
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Multiple Mortgaged Properties
In five cases, or 3.4% of the Initial Pool Balance (not including the
four cross-collateralized and cross-defaulted Mortgage Loan groups referred to
above in "--Cross-Collateralized Mortgage Loans"), a single Mortgage Note is
secured by a Mortgage or Mortgages on two or more Mortgaged Properties.
Accordingly, the total number of such Mortgage Loans is five and the total
number of Mortgaged Properties related thereto is 20. In Appendix II the
Mortgaged Properties are collectively considered to constitute one Mortgaged
Property for purposes of presenting numerical information herein. In all cases
the Debt Service Coverage Ratios were determined on the basis of the aggregate
Underwritable Cash Flow of all the related Mortgaged Properties, the Cut-off
Date Balance per unit or square foot were determined based on the aggregate
number of square feet or units, and the Cut-off Date LTVs and the Balloon LTVs
were determined on the basis of the aggregate of the appraised values of the
related Mortgaged Properties.
Single-Tenant Mortgage Loans
In the case of 33 Mortgage Loans, representing 6.0% of the Initial
Pool Balance, the related Mortgaged Property is 100% leased to a single tenant
(each such Mortgage Loan, a "Single-Tenant Mortgage Loan"). The Mortgaged
Property securing each such Mortgage Loan is generally subject to a single
space lease, which generally have a primary lease term that expires on or after
the scheduled maturity date or Hyper-Amortization Date of the related Mortgage
Loan and the remainder of which have shorter primary lease terms. The amount of
the monthly rental payments payable by the tenant under the lease is equal to
or greater than the scheduled payment of all principal, interest and other
amounts (other than any Balloon Payment) due each month on the related Mortgage
Loan.
The underwriting of the Single-Tenant Mortgage Loans is based
primarily upon the monthly rental payments due from the tenant under the lease
of the related Mortgaged Property, and where the primary lease term expires
before the scheduled maturity date (or Hyper-Amortization Date, where
applicable) of the related Mortgage Loan, the underwriting considered the
incentives for the primary tenant to re-lease the premises and the anticipated
rental value of the premises at the end of the primary lease term. In addition,
the loan underwriting for certain of the Single-Tenant Mortgage Loans takes
into account the creditworthiness of the tenants under the applicable leases.
Accordingly, such Single-Tenant Mortgage Loans may have higher loan-to-value
ratios and lower debt-service-coverage ratios than other types of Mortgage
Loans.
Each lease generally provides that the related tenant must pay all
real property taxes and assessments levied or assessed against the related
Mortgaged Property and all charges for utility services, insurance and other
operating expenses incurred in connection with the operation of the related
Mortgaged Property. Generally, the tenants under such leases are required, at
their expense, to maintain the related Mortgaged Properties in good order and
repair.
Release Provisions
Several of the groups of Cross-Collateralized Mortgage Loans and
individual Mortgage Loans secured by multiple properties described under
"--Borrower Concentrations" and "--Multiple Mortgaged Properties",
respectively, above, permit the release of individual real properties from the
lien of the related Mortgage(s), subject to the satisfaction of certain
specified conditions, provided that two Mortgage Loans, representing 1.3% of
the Initial Pool Balance) allows such releases without the satisfaction of any
conditions.
Twenty (20) of the Mortgage Loans, representing 2.3% of the Initial
Pool Balance, were made to affiliated Borrowers having Pier 1 Imports (U.S.),
Inc. as their tenant. The Mortgage Loans have a stated maturity date of June 1,
2028, a thirty-year amortization schedule and a Hyper-Amortization Date of June
1, 2008. The tenant may, pursuant to the terms of its lease with each Borrower,
and subject to certain conditions set forth in the Mortgage, substitute another
property for the related Mortgaged Property at any time prior to the expiration
of the 10th year of the lease (June 9, 2008), if the tenant, in its reasonable
business discretion, determines that the Mortgaged Property is inadequate or
unprofitable for the use permitted under the lease. Such substitution requires
the approval of both the Borrower and Mortgagee. If a satisfactory substitute
property is located and conveyed to the Borrower, such
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property is to be leased to the tenant pursuant to the same terms and
conditions contained in the existing lease for the remainder of the term of the
existing lease. If the value of the substitute property materially exceeds, or
is less than, the value of the existing property, adjustments are to be made to
the rent or other aspects of the new lease to ensure that the economic benefits
of the new lease are substantially similar to the existing lease. If, prior to
the expiration of the 10th year of the lease, the tenant's request to replace a
Mortgaged Property is rejected, the tenant may either continue to lease the
Mortgaged Property, or terminate the lease and, if the lease rate is determined
to be in excess of the market rental rate for properties comparable to the
Mortgaged Property, pay a termination fee which must be applied toward tenant
improvements and other re-leasing costs at the Mortgaged Property. Upon and
after the expiration of the 10th year of the lease, if the tenant determines
that the Mortgaged Property is inadequate or unprofitable for the use permitted
under the lease, it may offer to purchase the property (but may not request to
substitute another property) for an amount that would pay a substantial portion
of the outstanding principal balance of the related Mortgage Loan on the
Hyper-Amortization Date. If such offer is rejected, the tenant may either
continue the lease, or terminate the lease without the payment of any
termination fee.
Each of the 20 Pier 1 Mortgages contains terms and conditions
pertaining to when the holders of the Mortgage Loans will agree to consent to
the substitution of property and which, to a large extent, mirror the
conditions for the substitution of property that are contained in the leases.
Each such Mortgage provides that:
1. the substitute property must be free and clear of all liens and
encumbrances, other than permitted exceptions;
2. the Borrower must own the substitute property in fee simple, and
must provide the Mortgage holder with a Phase I environmental report,
appraisal, structural and engineering report, a subordination, attornment and
non-disturbance agreement and mortgage on the substitute property prior to
substitution all in form and content that must be reasonably acceptable to
institutional lenders;
3. the substitute property must generate rental income equal to or
greater than the existing property; and
4. the Borrower must provide assurances to the holder of the Mortgage
that the tax status of the securities of a real estate mortgage investment
conduit which holds the Promissory Note secured by the Mortgage will not be
adversely impacted as a result of the property substitution.
Ground Leases
Two of the Mortgage Loans, representing 0.8% of the Initial Pool
Balance, are secured solely by a Mortgage on the borrower's leasehold interest
in the related Mortgaged Property. One of the Mortgage Loans, representing 0.2%
of the Initial Pool Balance, is secured by a leasehold interest in a portion of
the Mortgaged Property and a fee interest in the remainder of the related
Mortgaged Property. Two of the ground leases expire at least ten years after
the stated maturity of the related Mortgage Loan. One ground lease, as to which
the related Mortgage Loan represents 0.2% of the Initial Pool Balance, expires
at least ten years after its Hyper-Amortization Date. In each such case, the
related ground lessor has agreed to give the holder of the Mortgage Loan notice
of, and has granted such holder the right to cure, any default by the
borrower/lessee. See "Risk Factors and Other Special Considerations--The
Mortgage Loans--Leasehold Considerations" herein.
Subordinate Financing
None of the Mortgaged Properties are known to be encumbered by secured
subordinated debt. One Mortgaged Property, representing 0.9% of the Initial
Pool Balance, is encumbered by a subordinate mortgage under which no amounts
are currently outstanding, but which entitles the holder thereof to a share of
the equity distributed by the Borrower from the related Mortgaged Property. The
Sellers and Depositor have not determined whether any other secured subordinate
financing currently encumbers any Mortgaged Property or whether a third party
holds debt (the "Mezzanine Debt") secured by a pledge of equity interests in
the related borrower. However, with respect to four Mortgage Loans,
representing approximately 1.9% of the Initial Pool Balance, the related
Mortgage Loan
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documents allow the borrower, under certain specified circumstances, to either
maintain an existing subordinate mortgage encumbering the related Mortgaged
Properties, or to grant such a subordinate mortgage in the future. Generally,
prior to any such subordinate mortgage being allowed, certain conditions
specified in the related Mortgage Loan documents must be satisfied. 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. See "Risk Factors and Other
Special Considerations--The Mortgage Loans--Risks of Subordinate Financing"
herein and "Certain Legal Aspects of Mortgage Loans and The Leases--Subordinate
Financing" in the Prospectus.
Performance Holdbacks
Four of the Mortgage Loans, representing 2.2% of the Initial Pool
Balance, provide for performance holdbacks under which monies disbursed by the
originating lender are escrowed for certain specified periods, and released
only upon the satisfaction of certain conditions by the borrower. If the
borrowers do not satisfy conditions for release of the monies by the outside
funding date, such monies shall be applied to partially repay the related
Mortgage Loan. A summary of those Mortgage Loans and conditions for release of
performance holdbacks are set forth below:
<TABLE>
<CAPTION>
LOANS CONTAINING PERFORMANCE HOLDBACK PROVISIONS
AMOUNT OUTSIDE
APPENDIX II OF DATE
MORTGAGE LOAN PROPERTY CUT-OFF DATE ESCROWED OUTSIDE RELEASE PREPAYMENT
NUMBER NAME BALANCE HOLDBACK DATE CONDITIONS PROVISION
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
41 Royal Palm $9,100,000 $500,000 4/16/1999 1.25x DSCR based on the Yield maintenance
MHC lesser of a three month
look back period or an
assumed 95% occupancy
rate; a loan constant no
less than that used at
initial funding; and a
maximum LTV of 78%.
79 Whispering $5,500,000 $200,000 3/30/1999 1.35x DSCR based on a three Yield maintenance
Pines month look back period; a
loan constant no less than
that used at initial funding;
and a maximum LTV of 80%.
107 Whispering $4,200,000 $175,000 11/12/1998 1.35x DSCR based on the Yield maintenance
Pines lesser of a three month
Community look back period or an
assumed 95% occupancy
rate; a loan constant
of no less than that used
at initial funding; and a
maximum LTV of 80%.
114 Raycom $3,961,348 $75,000 1/31/1999 1.25x DSCR based on Yield maintenance
Underwritable Cash
Flow not less than
$405,412; and a
maximum LTV of 80%.
</TABLE>
If the performance holdback with respect to the Whispering Pines
Community Mortgage Loan is distributed on or about the Closing Date to the
mortgagee, then it will thereafter be distributed to Certificateholders as part
of the Principal Distribution Amount for the first Distribution Date.
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ASSESSMENTS OF PROPERTY VALUE AND CONDITION
Appraisals
In connection with the origination or acquisition of most of the
Mortgage Loans, the related Mortgaged Property was appraised by an independent
appraiser who belonged to the Appraisal Institute. In certain cases, however,
the values of the related Mortgaged Properties were estimated internally on the
basis of an analysis of net operating income generated by the applicable
property as well as on the basis of sales and rental information with respect
to comparable properties. The purpose of each appraisal or other estimate of
value was to provide an opinion as to the fair market value of the related
Mortgaged Property as of the date thereof. There can be no assurance that such
opinion represents a reasonable approximation of the amount that could actually
be realized from a sale of the Mortgaged Property. None of the Depositor, any
Seller, the Underwriters, the Trustee, the Master Servicer or the Special
Servicer or any of their respective affiliates has prepared or conducted its
own separate appraisal or reappraisal of any Mortgaged Property. See "Risk
Factors and Other Special Considerations--The Mortgage Loans--Limitations of
Appraisal" herein. Not all of the above-described appraisals, and none of the
market value estimates, conformed to the appraisal guidelines set forth in
Title XI of the Federal Financial Institutions Reform, Recovery and Enforcement
Act of 1989.
Environmental Assessments
An environmental site assessment (or an update to a previously
performed environmental site assessment) was performed with respect to
Mortgaged Properties securing 230 Mortgage Loans, representing 88.2% of the
Initial Pool Balance, within one-year of the Cut-off Date in connection with
the origination of the related Mortgage Loan. With respect to Mortgaged
Properties securing 260 Mortgage Loans, representing 99.6% of the Initial Pool
Balance, such assessments were prepared within two years of the Cut-off Date,
and all of the Mortgaged Properties were assessed within 33 months of the
Cut-off Date. In all cases, the environmental site assessment was a "Phase I"
environmental assessment. In certain cases, the assessment disclosed the
existence of or potential for adverse environmental conditions, such as the
existence of, among other things, asbestos-containing materials, underground
storage tanks and soil contamination. In certain cases, the related borrowers
were required to establish operations and maintenance plans, monitor the
Mortgaged Property or nearby properties, abate or remediate the condition
and/or provide additional security. See "Risk Factors and Other Special
Considerations--The Mortgage Loans--Environmental Considerations" herein.
Property Condition Assessments
Most of the Mortgaged Properties were inspected, in connection with
the origination or acquisition of the related Mortgage Loan, by an employee of
the related Seller or by a third party professional engaged by the Seller.
Furthermore, in each case, a licensed engineer or consultant inspected the
related Mortgaged Property, in connection with the origination or acquisition
of the related Mortgage Loan, to assess the structure, exterior walls, roofing,
interior structure and mechanical and electrical systems. In general, where
material deficiencies were observed, the related borrower was required to
establish reserves for replacement or repair or remediate the deficiency.
Seismic Review Process
In general, the underwriting guidelines applicable to the origination
of the Mortgage Loans required that prospective borrowers seeking loans secured
by properties located in California obtain a seismic engineering report of the
building and, based thereon and on certain statistical information, an estimate
of probable maximum loss ("PML"), that is, an estimate of the loss that the
property would sustain in a "worst case" earthquake scenario. Generally, any
proposed loan as to which the property was estimated to have a PML in excess of
20% of the estimated replacement cost of the improvements would either be
subject to a lower loan-to-value limit at origination, be conditioned on
seismic upgrading of the Mortgaged Property, be conditioned on receipt of
satisfactory earthquake insurance or be declined.
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Zoning and Building Code Compliance.
Each Seller took steps to establish that the use and operation of the
Mortgaged Properties that represent security for its Mortgage Loans were, at
their respective dates of origination, in compliance in all material respects
with applicable zoning, land-use and similar laws and ordinances, but no
assurance can be made that such steps revealed all possible violations.
Evidence of such compliance may have been in the form of legal opinions,
certifications from government officials and/or representations by the related
borrower contained in the related Mortgage Loan documents. Certain violations
may exist at any particular Mortgaged Property, but the related Seller does not
consider any such violations known to it to be material.
ADDITIONAL MORTGAGE LOAN INFORMATION
Each of the tables set forth in Appendix I sets forth certain
characteristics of the Mortgage Pool presented, where applicable, as of the
Cut-off Date. For a detailed presentation of certain of the characteristics of
the Mortgage Loans and the Mortgaged Properties, on an individual basis, see
Appendix II hereto. Certain additional information regarding the Mortgage Loans
is contained herein under "Risk Factors and Other Special Considerations--The
Mortgage Loans", elsewhere in this "Description of Mortgage Pool" section and
under "Certain Legal Aspects Of Mortgage Loans And The Leases" in the
Prospectus.
For purposes of this Prospectus Supplement, including for the tables
in Appendix I and the information set forth in Appendix II:
(1) The "Debt Service Coverage Ratio" or "DSCR" for any Mortgage
Loan (or group of Cross-Collateralized Mortgage Loans) is the
ratio of "Underwritable Cash Flow" estimated to be produced by
the related Mortgaged Property or Properties to the annualized
amount of debt service payable under that Mortgage Loan (or
those Mortgage Loans). "Underwritable Cash Flow" in each case is
an estimate of annual cash flow available for debt service based
generally on the most recently available property statements. In
general, it is the estimated revenue derived from the use and
operation of a Mortgaged Property (consisting primarily of
rental income) less the sum of (a) estimated operating expenses
(such as utilities, administrative expenses, repairs and
maintenance, management and franchise fees and advertising), (b)
fixed expenses (such as insurance, real estate taxes and, if
applicable, ground lease payments) and (c) reserves for capital
expenditures, including tenant improvement costs and leasing
commissions, where appropriate. Underwritable Cash Flow
generally does not reflect interest expenses and non-cash items
such as depreciation and amortization. In general, debt service
coverage ratios are used by income property lenders to measure
the ratio of (a) cash currently generated by a property that is
available for debt service to (b) required debt service
payments. However, debt service coverage ratios only measure the
current, or recent, ability of a property to service mortgage
debt. If a property does not possess a stable operating
expectancy (for instance, if it is subject to material leases
that are scheduled to expire during the loan term and that
provide for above-market rents and/or that may be difficult to
replace), a debt service coverage ratio may not be a reliable
indicator of a property's ability to service the mortgage debt
over the entire remaining loan term.
In determining Underwritable Cash Flow for a Mortgaged Property,
the Sellers generally relied on rent rolls and other generally
unaudited financial information provided by the respective
borrowers. From that information, the Sellers generally
calculated stabilized estimates of cash flow that took into
consideration historical financial statements, material changes
in the operating position of a Mortgaged Property of which the
applicable Seller was aware (e.g., newly signed leases,
expirations of "free rent" periods and market rent and market
vacancy data), and estimated capital expenditures, including
leasing commission and tenant improvement reserves, where
appropriate. In certain cases, the applicable Seller's estimate
of Underwritable Cash Flows reflected differences from the
information contained in the operating statements obtained from
the respective borrowers (resulting in either an increase or
decrease in the estimate of Underwritable Cash Flow derived
therefrom) based upon the Seller's own analysis of such
operating statements
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and the assumptions applied by the respective borrowers in
preparing such statements and information. In certain instances,
for example, property management fees and other expenses may
have been included in the calculation of Underwritable Cash Flow
even though such expense may not have been reflected in actual
historic operating statements. In certain cases, only partial
year operating income information was available. In most of
those cases, the information was annualized, with certain
adjustments for items deemed not appropriate to be annualized,
before using it as a basis for the determination of
Underwritable Cash Flow. No assurance can be given with respect
to the accuracy of the information provided by any borrowers, or
the adequacy of the procedures used by the Sellers in
determining the presented operating information.
The Debt Service Coverage Ratios are presented herein for
illustrative purposes only and, as discussed above, are limited
in their usefulness in assessing the current, or predicting the
future, ability of a Mortgaged Property to generate sufficient
cash flow to repay the related Mortgage Loan. Accordingly, no
assurance can be given, and no representation is made, that the
Debt Service Coverage Ratios accurately reflect that ability.
(2) References to "Loan-to-Value Ratio" or "Cut-off Date LTV" or
"Cut-off Date LTV Ratio" are references to the ratio, expressed
as a percentage, of the Cut-off Date Balance of a Mortgage Loan
(or the aggregate Cut-off Date Balance of a group of
Cross-Collateralized Mortgage Loans) to the value of the related
Mortgaged Property or Properties as determined by the appraisal
or market valuation of such Mortgaged Property or Properties
conducted in connection with the origination of the Mortgage
Loan. References to "Balloon LTV" or "Balloon LTV Ratio" are
references to the ratio, expressed as a percentage of the
principal balance of a Balloon Loan (or the aggregate principal
balance of a group of cross-collateralized Balloon Loans)
anticipated to be outstanding at the date on which the related
Balloon Payment(s) are scheduled to be due (the "Scheduled
Balloon Balance") (calculated based on the Maturity Assumptions
and a 0% CPR) to the value of the related Mortgaged Property or
Properties as determined by the most recent appraisal or market
valuation of such Mortgaged Property or Properties available to
the Depositor. No representation is made that any such value
would approximate either the value that would be determined in a
current appraisal of the related Mortgaged Property or the
amount that would be realized upon a sale.
(3) References to "Year Built" and "Year Renovated" are references
to the year or years in which a Mortgaged Property was
constructed and the year or years in which such Mortgaged
Property was substantially renovated, respectively.
(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
The Pooling and Servicing Agreement will provide that the Master
Servicer or the Special Servicer, as applicable, shall use reasonable efforts
to cause each mortgagor to maintain in respect of the related Mortgaged
Property all insurance coverage (other than earthquake insurance) as is
required under the related Mortgage; provided that if any Mortgage permits the
holder thereof to dictate to the mortgagor the insurance coverage to be
maintained on such Mortgaged Property, the Master Servicer or the Special
Servicer, as applicable, shall impose such insurance requirements as are
consistent with the Servicing Standard. If at any time a Mortgaged Property is
located in an area identified in the Federal Register by the Federal Emergency
Management Agency as having special flood hazards or it becomes located in such
area by virtue of remapping conducted by such agency (and flood insurance has
been made available), then upon the Master Servicer or the Special Servicer
becoming aware of such fact (using efforts in accordance with the Servicing
Standard), the Master Servicer or the Special Servicer, as
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applicable, shall if and to the extent that the Mortgage Loan requires the
related mortgagor or permits the related mortgagee to require such mortgagor to
do so, use efforts consistent with the Servicing Standard to cause such
mortgagor to maintain a flood insurance policy meeting the requirements of the
current guidelines of the Federal Insurance Administration in an amount
representing coverage of not less than the least of (i) the unpaid principal
balance of the related Mortgage Loan, (ii) the full insurable value of such
Mortgaged Property, (iii) the maximum amount of insurance coverage available
under the National Flood Insurance Act of 1968, the Flood Disaster Protection
Act of 1973 or the National Flood Insurance Reform Act of 1994, as amended, and
(iv) 100% of the replacement cost of the improvements on such Mortgaged
Property. Any losses incurred with respect to Mortgage Loans due to uninsured
risks (including earthquakes, mudflows and floods) or insufficient hazard
insurance proceeds may adversely affect payments to Certificateholders. If a
borrower fails to maintain the foregoing insurance, the Master Servicer (or,
with respect to REO Properties, the Special Servicer) will be required to
obtain such insurance (to the extent available at commercially reasonable
rates) and the cost thereof will be a Servicing Advance.
If the Master Servicer or the Special Servicer, as applicable, causes
any Mortgaged Property or REO Property to be covered by a master force placed
insurance policy, which provides protection equivalent to the individual
policies otherwise required, the Master Servicer or Special Servicer will
conclusively be deemed to have satisfied its respective obligations to cause
hazard insurance to be maintained on such Mortgaged Properties or REO
Properties. Such policy may contain a deductible clause, in which case the
Master Servicer or the Special Servicer, as applicable, will in the event that
(i) there shall not have been maintained on the related Mortgaged Property or
REO Property a policy otherwise complying with the provisions set forth above,
and (ii) a loss occurs that would have been covered by such a policy had it
been maintained, be required to pay the amount not otherwise payable under such
policy because of such deductible.
Each Mortgage generally also requires the related borrower to maintain
comprehensive general liability insurance against claims for personal and
bodily injury, death or property damage occurring on, in or about the related
Mortgaged Property in an amount customarily required by commercial mortgage
lenders.
Each Mortgage other than those relating to Manufactured Housing
Communities generally further requires the related borrower to maintain
business interruption or rent loss insurance in an amount not less than 100% of
the projected rental income from the related Mortgaged Property for not less
than six months.
In general, the Mortgaged Properties are not insured for earthquake
risk.
THE SELLERS
Heller Financial Capital Funding, Inc.
Heller Financial Capital Funding, Inc. ("Heller") is a wholly-owned
subsidiary of Heller Financial, Inc. ("Heller Financial") organized in June
1997 to acquire and sell loans secured by mortgages on commercial and
multifamily real estate. Heller may also acquire other assets, such as
equipment loans. As of the Closing Date, Heller will have a net worth of
approximately $10 million. Its principal office is located at 500 West Monroe,
Chicago, Illinois 60661, telephone number (312) 441-6700. Each of Heller's
Mortgage Loans was originated and underwritten by Heller Financial or one of
its affiliates through its Heller Express Program. Heller Financial has been a
commercial real estate portfolio lender since 1980. Since 1993, over $2.1
billion of the commercial mortgage loans that Heller Financial has originated
have been securitized.
Morgan Stanley Mortgage Capital Inc.
Morgan Stanley Mortgage Capital Inc. ("MSMC") is a subsidiary of
Morgan Stanley & Co. Incorporated formed as a New York corporation to originate
and acquire loans secured by mortgages on commercial and multifamily real
estate. Each of MSMC's Mortgage Loans was originated by one of the participants
in MSMC's commercial and multifamily mortgage loan conduit program, was
originated directly by MSMC or was purchased in
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the secondary market. All loans were underwritten by MSMC underwriters. The
principal offices of MSMC are located at 1585 Broadway, New York, New York
10036. Its telephone number is (212) 761-4700.
Acquisition of Certificates
Affiliates of Heller and MSMC may acquire a significant portion of
certain Classes of the Certificates.
ASSIGNMENT OF THE MORTGAGE LOANS
On or prior to the Closing Date, each Seller will assign its Mortgage
Loans, without recourse, to the Depositor, and the Depositor will assign all
the Mortgage Loans, without recourse, to the Trustee for the benefit of the
Certificateholders. In connection with the foregoing, each Seller is required
in accordance with the related Mortgage Loan Purchase Agreement to deliver the
following documents, among others, with respect to each Mortgage Loan so
assigned by it (such documents, collectively as to any Mortgage Loan, a
"Mortgage File") to the Trustee:
(a) the original Mortgage Note, endorsed (without recourse) to
the order of Trustee;
(b) the original or a certified copy of the related recorded
Mortgage(s), together with originals or certified copies of
intervening assignments of such document(s) conveying the Mortgage to
the last assignee of record prior to the Trustee, in each case with
evidence of recording thereon (unless such document(s) have not been
returned by the applicable recorder's office);
(c) the original or a copy of any related recorded assignment(s)
of rents and leases (if any such item is a document separate from the
Mortgage), together with originals or copies of intervening
assignments of such document(s) conveying the assignment(s) of rents
and leases to the last assignee of record prior to the Trustee, in
each case with evidence of recording thereon (unless such document(s)
have not been returned by the applicable recorder's office);
(d) an assignment of each related Mortgage in favor of the
Trustee, in recordable form;
(e) an assignment of any related assignment(s) of rents and
leases (if any such item is a document separate from the Mortgage) in
favor of the Trustee, in recordable form;
(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);
(g) when applicable, the related ground lease or a certified copy
thereof; and
(h) when relevant, the loan agreement and the lockbox agreement.
The Trustee will be required to review the documents delivered by
each Seller with respect to its Mortgage Loans within 90 days following the
Closing Date, and the Trustee will hold the related documents in trust.
Within 45 days following the Closing Date, pursuant to the Pooling and
Servicing Agreement, the assignments with respect to each Mortgage Loan
described in clauses (d) and (e) of the preceding paragraph are to be submitted
for recording in the real property records of the appropriate jurisdictions.
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REPRESENTATIONS AND WARRANTIES
In each Mortgage Loan Purchase Agreement, the related Seller has
represented and warranted with respect to each of its Mortgage Loans, as of the
Closing Date, or as of such other date specifically provided in the
representation and warranty, among other things, generally (subject to certain
exceptions) to the effect that:
(1) the information set forth in the schedule of the mortgage
loans attached to the related Mortgage Loan Purchase Agreement (which
contains certain of the information set forth in Appendix II) is true
and correct in all material respects;
(2) such Seller owns the Mortgage Loan free and clear of any and
all pledges, liens and/or other encumbrances;
(3) no scheduled payment of principal and interest under the
Mortgage Loan was 30 days or more past due as of the Cut-off Date, and
the Mortgage Loan has not been 30 days or more delinquent in the
twelve-month period immediately preceding the Cut-off Date;
(4) the related Mortgage constitutes a valid and, subject to
certain creditors' rights exceptions, enforceable first priority
mortgage lien (subject to certain permitted encumbrances) upon the
related Mortgaged Property;
(5) the assignment of the related Mortgage in favor of the
Trustee constitutes a legal, valid and binding assignment;
(6) the related assignment of leases establishes and creates a
valid and, subject to certain creditors' rights exceptions,
enforceable first priority lien (subject to certain permitted
encumbrances) in the related borrower's interest in all leases of the
Mortgaged Property;
(7) the Mortgage has not been satisfied, canceled, rescinded or
subordinated in whole or in material part, and the related Mortgaged
Property has not been released from the lien of such Mortgage, in
whole or in material part;
(8) except as set forth in a property inspection report prepared
in connection with the origination of the Mortgage Loan, the related
Mortgaged Property is, to the Seller's knowledge, free and clear of
any damage that would materially and adversely affect its value as
security for the Mortgage Loan (normal wear and tear excepted);
(9) to the Seller's knowledge, there is no proceeding pending for
the condemnation of all or any material portion of any Mortgaged
Property;
(10) the related Mortgaged Property is covered by an American
Land Title Association (or an equivalent form of) lender's title
insurance policy that insures that the related Mortgage is a valid,
first priority lien on such Mortgaged Property, subject only to the
exceptions stated therein;
(11) the proceeds of the Mortgage Loan have been fully disbursed
and there is no obligation for future advances with respect thereto;
(12) an environmental site assessment was performed with respect
to the Mortgaged Property in connection with the origination of the
related Mortgage Loan, a report of each such assessment has been
delivered to the Depositor, and such Seller has no knowledge of any
material and adverse environmental condition or circumstance affecting
such Mortgaged Property that was not disclosed in such report;
(13) each Mortgage Note, Mortgage and other agreement that
evidences or secures the Mortgage Loan is, subject to certain
creditors' rights exceptions and other exceptions of general
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application, the legal, valid and binding obligation of the maker
thereof, enforceable in accordance with its terms, and there is no
valid defense, counterclaim or right of offset or rescission available
to the related borrower with respect to such Mortgage Note, Mortgage
or other agreement;
(14) the related Mortgaged Property is, and is required pursuant
to the related Mortgage to be, insured by casualty and liability
insurance policies of a type specified in the related Mortgage Loan
Purchase Agreement;
(15) there are no delinquent or unpaid taxes, assessments or
other outstanding charges affecting the related Mortgaged Property
that are or may become a lien of priority equal to or higher than the
lien of the related Mortgage;
(16) the related borrower is not, to the Seller's knowledge, a
debtor in any state or federal bankruptcy or insolvency proceeding;
(17) the related Mortgaged Property consists of the related
borrower's fee simple estate in real estate or, if the related
Mortgage encumbers the interest of a borrower as a lessee under a
ground lease of the Mortgaged Property (a) such ground lease or a
memorandum thereof has been or will be duly recorded and permits the
interest of the lessee thereunder to be encumbered by the related
Mortgage; (b) the borrower's interest in such ground lease is
assignable to the Depositor and its successors and assigns upon notice
to, but without the consent of, the lessor thereunder (except in the
case of two leases where the landlord's consent is required to
transfer but the landlord is required to consent to certain qualified
transferees); (c) such ground lease is in full force and effect and,
to the knowledge of the Seller, no material default has occurred
thereunder; (d) such ground lease, or an estoppel letter related
thereto, requires the lessor under such ground lease to give notice of
any default by the lessee to the holder of the Mortgage (provided any
required notice of the lien is given to lessor), and further provides
(except for one ground lease) that no notice of termination given
under such ground lease is effective against such holder unless a copy
has been delivered to such holder; (e) the holder of the Mortgage is
permitted a reasonable opportunity (including, where necessary,
sufficient time to gain possession of the interest of the lessee under
such ground lease) to cure any default under such ground lease, which
is curable after the receipt of notice of any such default, before the
lessor thereunder may terminate such ground lease; and (f) such ground
lease has an original term (including any extension options set forth
therein) which extends not less than ten years beyond the scheduled
maturity date of the Mortgage Loan;
(18) the Mortgage Loan is not cross-collateralized or
cross-defaulted with any loan other than one or more other Mortgage
Loans;
(19) no Mortgage requires the holder thereof to release all or
any material portion of the related Mortgaged Property from the lien
thereof except upon payment in full of the Mortgage Loan or
defeasement (in the case of the Defeasance Loans), or in certain
cases, upon (a) the satisfaction of certain legal and underwriting
requirements and (b) except where the portion of the Mortgaged
Property permitted to be released was not considered by the Seller in
underwriting the Mortgage Loan, the payment of a release price and
prepayment consideration in connection therewith; and
(20) to such Seller's knowledge, there exists no material
default, breach, violation or event of acceleration (and no event
which, with the passage of time or the giving of notice, or both,
would constitute any of the foregoing) under the related Mortgage Note
or Mortgage in any such case to the extent the same materially and
adversely affects the value of the Mortgage Loan and the related
Mortgaged Property.
Notwithstanding the foregoing, in lieu of making certain of the
foregoing representations and warranties with respect to four of the Mortgage
Loans (representing 1.4% of the Initial Pool Balance) sold by it to the
Depositor, MSMC assigned to the Trustee, for the benefit of the
Certificateholders, its right to require General American Life Insurance
Company ("GAL") to (i) either cure a material breach of the representations and
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warranties made to MSMC in connection with MSMC's acquisition of such Mortgage
Loans, which representations and warranties are substantially similar to those
listed above, or (ii) repurchase the Mortgage Loans affected by any such
breach.
In addition, in lieu of making certain of the foregoing
representations and warranties with respect to eight of the Mortgage Loans
(representing 3.9% of the Initial Pool Balance) sold by it to the Depositor,
MSMC assigned to the Trustee, for the benefit of the Certificateholders, its
right to require Union Bank of California ("UBOC") to (i) either cure a
material breach of the representations and warranties made to MSMC in
connection with MSMC's acquisition of such Mortgage Loans, which
representations and warranties are substantially similar to those listed above,
or (ii) repurchase the Mortgage Loans affected by any such breach.
REPURCHASES AND OTHER REMEDIES
If any Mortgage Loan document required to be delivered to the Trustee
by a Seller as described under "--Assignment of the Mortgage Loans" above is
not delivered as and when required, contains information that does not conform
to the corresponding information in the Mortgage Loan Schedule attached to the
related Mortgage Loan Purchase Agreement, is not properly executed or is
defective on its face (any such omission, nonconformity or other defect, a
"Document Defect"), or if there is a breach of any of the representations and
warranties required to be made by a Seller (which term, for purposes of this
and the following two paragraphs, includes GAL or UBOC, as applicable)
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 within
the applicable Permitted Cure Period. If any such Material Document Defect or
Material Breach cannot be corrected or cured within the applicable Permitted
Cure Period, the 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, any related unreimbursed Servicing Advances and
generally, all expenses reasonably incurred in respect of the Material Document
Defect or the Material Breach giving rise to such repurchase, or (ii) if within
the three-month period commencing on the Closing Date (or within the two-year
period commencing on the Closing Date if the related Mortgage Loan is a
"defective obligation" within the meaning of Section 860G(a)(4)(B)(ii) of the
Code and Treasury Regulation Section 1.860G-2(f)), at its option, (A) replace
such Mortgage Loan with a mortgage loan having certain payment terms comparable
to the Mortgage Loan to be replaced and that is acceptable to each Rating
Agency (a "Qualifying Substitute Mortgage Loan") (and in the case of a
"defective obligation", satisfying the requirements of a "qualified replacement
mortgage" within the meaning of Section 860G(a)(4)(B) of the Code) and (B) pay
an amount (a "Substitution Shortfall Amount") generally equal to the excess of
the applicable Purchase Price for the Mortgage Loan to be replaced (calculated
as if it were to be repurchased instead of replaced), over the unpaid principal
balance of the applicable Qualifying Substitute Mortgage Loan as of the date of
substitution, after application of all payments due on or before such date,
whether or not received.
For purposes of the foregoing, the "Permitted Cure Period" applicable
to any Material Document Defect or Material Breach in respect of any Mortgage
Loan will generally be the 90-day period immediately following the earlier of
the discovery by the related Seller or receipt by the related Seller of notice
of such Material Document Defect or Material Breach, as the case may be.
However, if such Material Document Defect or Material Breach, as the case may
be, cannot be corrected or cured within such 90-day period, but it is
susceptible of cure within 180 days of the earlier of discovery by the related
Seller and receipt by the related Seller of notice of such Material Document
Defect or Material Breach, as the case may be, and the related Seller is
diligently attempting to effect such correction or cure, then the applicable
Permitted Cure Period will, with the consent of the Trustee (which consent may
not be unreasonably withheld), be extended for an additional 90 days.
The foregoing obligations of each Seller to cure a Material Document
Defect or a Material Breach in respect of any of its Mortgage Loans or
repurchase or replace the defective Mortgage Loan, will constitute the sole
remedies of the Trustee and the Certificateholders with respect to such
Material Document Defect or Material
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Breach; and none of the Depositor, either of the other Sellers or any other
person or entity will be obligated to repurchase or replace the affected
Mortgage Loan if the related Seller defaults on its obligation to do so.
CHANGES IN MORTGAGE POOL CHARACTERISTICS
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as expected to be
constituted at the time the Offered Certificates are issued, as adjusted for
the scheduled principal payments due on or before the Cut-off Date. Prior to
the issuance of the Offered Certificates, a Mortgage Loan may be removed from
the Mortgage Pool if the Depositor deems such removal necessary or appropriate
or if it is prepaid. A limited number of other mortgage loans may be included
in the Mortgage Pool prior to the issuance of the Offered Certificates, unless
including such Mortgage Loans would materially alter the characteristics of the
Mortgage Pool as described herein. The information set forth herein is
representative of the characteristics of the Mortgage Pool as it will be
constituted at the time the Offered Certificates are issued, although the range
of Mortgage Rates and maturities and certain other characteristics of the
Mortgage Loans in the Mortgage Pool may vary.
SERVICING OF THE MORTGAGE LOANS
GENERAL
The Master Servicer and the Special Servicer, either directly or
through sub-servicers, will each be required to service and administer the
Mortgage Loans on behalf of the Trustee and in the best interests of and for
the benefit of the Certificateholders (as determined by the Master Servicer or
Special Servicer, as applicable, in its good faith and reasonable judgment), in
accordance with applicable law, the terms of the Pooling and Servicing
Agreement and the terms of the respective Mortgage Loans and, to the extent
consistent with the foregoing, as follows: (i) with the same skill, care and
diligence as is normal and usual in its general mortgage servicing and REO
property management activities on behalf of third parties or on behalf of
itself, whichever is higher, with respect to mortgage loans that are comparable
to the Mortgage Loans; (ii) with a view to the timely collection of all
scheduled payments of principal and interest under the Mortgage Loans or, if a
Mortgage Loan comes into and continues in default and if, in the good faith and
reasonable judgment of the Special Servicer, no satisfactory arrangements can
be made for the collection of the delinquent payments, the maximization of the
recovery on such Mortgage Loan to the Certificateholders (as a collective
whole) on a 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; (D) the Special Servicer's obligation to make (or to direct
the Master Servicer to make) Servicing Advances; and (E) the right of the
Master Servicer or the Special Servicer, as the case may be, to receive
reimbursement of costs, or the sufficiency of any compensation payable to it
under the Pooling and Servicing Agreement or with respect to any particular
transaction.
In general, the Master Servicer will be responsible for the servicing
and administration of all the Mortgage Loans as to which no Servicing Transfer
Event has occurred and all Corrected Mortgage Loans, and the Special Servicer
will be obligated to service and administer each Mortgage Loan (other than a
Corrected Mortgage Loan) as to which a Servicing Transfer Event has occurred
(each, a "Specially Serviced Mortgage Loan") and each Mortgaged Property
acquired in respect of a defaulted Mortgage Loan on behalf of the
Certificateholders through foreclosure, deed-in-lieu of foreclosure or
otherwise. A "Servicing Transfer Event" with respect to any Mortgage Loan
consists of any of the following events:
(i) the related borrower has failed to make when due a Balloon
Payment, which failure has continued unremedied for 30 days;
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(ii) the related borrower has failed to make when due any Monthly
Payment (other than a Balloon Payment) or any other payment required
under the related Mortgage Note or the related Mortgage(s), which
failure has continued unremedied for 60 days;
(iii) the Master Servicer has determined, in its good faith and
reasonable judgment, that a default in the making of a Monthly Payment
or any other payment required under the related Mortgage Note or the
related Mortgage(s) is likely to occur within 30 days and is likely to
remain unremedied for at least 60 days or, in the case of a Balloon
Payment, for at least 30 days;
(iv) there shall have occurred a default under the related loan
documents, other than as described in clause (i) or (ii) above, that
(in the Master Servicer's good faith and reasonable judgment)
materially impairs the value of the related Mortgaged Property as
security for the Mortgage Loan or otherwise materially and adversely
affects the interests of Certificateholders, which default has
continued unremedied for the applicable grace period under the terms
of the Mortgage Loan (or, if no grace period is specified, 60 days);
(v) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises in an involuntary case
under any present or future federal or state bankruptcy, insolvency or
similar law or the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings, or for the winding-up
or liquidation of its affairs, shall have been entered against the
related borrower and such decree or order shall have remained in force
undischarged or unstayed for a period of 60 days;
(vi) the related borrower shall have consented to the appointment
of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings of or relating to such borrower or of or relating to all
or substantially all of its property;
(vii) the related borrower shall have admitted in writing its
inability to pay its debts generally as they become due, filed a
petition to take advantage of any applicable insolvency or
reorganization statute, made an assignment for the benefit of its
creditors, or voluntarily suspended payment of its obligations; and
(viii) the Master Servicer shall have received notice of the
commencement of foreclosure or similar proceedings with respect to the
related Mortgaged Property.
The Master Servicer will continue to collect certain information
and prepare and remit all reports to the Trustee as provided in the Pooling and
Servicing Agreement with respect to any Specially Serviced Mortgage Loans and
REO Properties, and to render incidental services with respect to any Specially
Serviced Mortgage Loans and REO Properties as are specifically provided for in
the Pooling and Servicing Agreement. Neither the Master Servicer nor the
Special Servicer shall have any responsibility for the performance by the other
of its duties under the Pooling and Servicing Agreement.
A Mortgage Loan will cease to be a Specially Serviced Mortgage Loan
(and will become a "Corrected Mortgage Loan" as to which the Master Servicer
will re-assume servicing responsibilities) at such time as such of the
following as are applicable occur with respect to the circumstances identified
above that caused the Mortgage Loan to be characterized as a Specially Serviced
Mortgage Loan (and provided that no other Servicing Transfer Event then
exists):
(w) with respect to the circumstances described in clauses (i)
and (ii) of the preceding paragraph, the related borrower
has made three consecutive full and timely Monthly Payments
under the terms of such Mortgage Loan (as such terms may be
changed or modified in connection with a bankruptcy or
similar proceeding involving the related borrower or by
reason of a modification, waiver or amendment granted or
agreed to by the Special Servicer);
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(x) with respect to the circumstances described in clauses
(iii), (v), (vi) and (vii) of the preceding paragraph, such
circumstances cease to exist in the good faith and
reasonable judgment of the Special Servicer;
(y) with respect to the circumstances described in clause (iv)
of the preceding paragraph, such default is cured; and
(z) with respect to the circumstances described in clause (viii)
of the preceding paragraph, such proceedings are terminated.
The Special Servicer will prepare a report (an "Asset Status Report")
for each Mortgage Loan which becomes a Specially Serviced Mortgage Loan not
later than 30 days after the Servicing Transfer Event for such Mortgage Loan.
Each Asset Status Report will be delivered in accordance with the Pooling and
Servicing Agreement.
The Master Servicer and Special Servicer will each be required to
service and administer the respective groups of Cross-Collateralized Mortgage
Loans as a single Mortgage Loan as and when it deems necessary and appropriate,
consistent with the Servicing Standard. If any Cross-Collateralized Mortgage
Loan becomes a Specially Serviced Mortgage Loan, then each other Mortgage Loan
with which it is cross-collateralized shall also become a Specially Serviced
Mortgage Loan. Similarly, no Cross-Collateralized Mortgage Loan may
subsequently become a Corrected Mortgage Loan, unless and until all Servicing
Transfer Events in respect of each other Mortgage Loan in the group are
remediated or otherwise addressed as contemplated above.
THE MASTER SERVICER AND THE SPECIAL SERVICER
GMAC Commercial Mortgage Corporation will be the Master Servicer (in
such capacity, the "Master Servicer") and the Special Servicer (in such
capacity, the "Special Servicer") with respect to the Mortgage Pool. As of June
30, 1998, GMAC Commercial Mortgage Corporation had a total commercial and
multifamily mortgage loan servicing portfolio of approximately $46 billion.
The information set forth herein concerning the Master Servicer and
the Special Servicer has been provided by it, and neither the Depositor nor the
Underwriters make any representation or warranty as to the accuracy or
completeness of such information.
SUB-SERVICERS
The Master Servicer and Special Servicer may each delegate its
servicing obligations in respect of the Mortgage Loans serviced thereby to one
or more third-party servicers (each, a "Sub-Servicer"); 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. Eleven
(11) Mortgage Loans, representing 5.5% of the Initial Pool Balance, are
currently directly serviced by third-party servicers that are entitled to and
will become Sub-Servicers of such loans on behalf of the Master Servicer. Each
sub-servicing agreement between the Master Servicer or Special Servicer, as the
case may be, and a Sub-Servicer (each, a "Sub-Servicing Agreement") must
provide that, if for any reason the Master Servicer or Special Servicer, as the
case may be, is no longer acting in such capacity, the Trustee or any successor
to such Master Servicer or Special Servicer may assume such party's rights and
obligations under such Sub-Servicing Agreement or, in some circumstances, may
terminate such Sub-Servicer. The Master Servicer and Special Servicer will each
be required to monitor the performance of Sub-Servicers retained by it.
The Master Servicer and Special Servicer will each be solely liable
for all fees owed by it to any Sub-Servicer retained thereby, irrespective of
whether its compensation pursuant to the Pooling and Servicing Agreement is
sufficient to pay such fees. Each Sub-Servicer retained thereby will be
reimbursed by the Master Servicer or Special Servicer, as the case may be, for
certain expenditures which it makes, only to the extent the Master Servicer or
Special Servicer would be reimbursed under the Pooling and Servicing Agreement.
See "--Servicing and Other Compensation and Payment of Expenses" herein.
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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) 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
administrative costs on each Mortgage Loan will equal the sum of the related
Master Servicing Fee and the Trustee Fee (collectively, expressed as a per
annum rate, the "Administrative Cost Rate"). With respect to 247 Mortgage
Loans, representing 93.1% of the Initial Pool Balance, the Administrative Cost
Rate for each Mortgage Loan will equal 0.0531% per annum and, with respect to
the remainder of the Mortgage Loans, the Administrative Cost Rate for each
Mortgage Loan will range from 0.1250% to 0.1431% per annum, as set forth in
Appendix II. As of the Cut-off Date, the weighted average Administrative Cost
Rate for the Mortgage Loans was 0.0584% per annum. As additional servicing
compensation, the Master Servicer will be entitled to retain 50% of all
assumption fees and modification fees and 100% of any available similar or
ancillary fees, in each case to the extent actually paid by a borrower with
respect to a Mortgage Loan that is not a Specially Serviced Mortgage Loan. The
Master Servicer will also be entitled to: (a) Prepayment Interest Excesses
collected on the Mortgage Loans and not otherwise applied to cover Prepayment
Interest Shortfalls; and (b) any default interest and late payment charges
actually collected on the Mortgage Loans (other than Specially Serviced
Mortgage Loans and certain sub-serviced Mortgage Loans), but only to the extent
that such default interest and late payment charges are not allocable to cover
interest payable to the Master Servicer, the Special Servicer, the Trustee or
the Fiscal Agent with respect to any Advances made in respect of the related
Mortgage Loan. In addition, the Master Servicer will be authorized to invest or
direct the investment of funds held in any and all accounts maintained by it or
the Trustee that constitute part of the Certificate Account, in certain
government securities and other investment grade obligations specified in the
Pooling and Servicing Agreement ("Permitted Investments"), and the Master
Servicer will be entitled to retain any interest or other income earned on such
funds, but will be required to cover any investment losses on such funds from
its own funds without any right to reimbursement. Furthermore, the Master
Servicer will also be entitled to any interest earned on escrow accounts and
reserve accounts maintained in respect of the Mortgage Loans (to the extent not
otherwise payable to the borrowers).
The principal compensation to be paid to the Special Servicer in
respect of its special servicing activities will be the Special Servicing Fee,
the Workout Fee and the Liquidation Fee. The "Special Servicing Fee" will
accrue with respect to each Specially Serviced Mortgage Loan and each Mortgage
Loan as to which the related Mortgaged Property has become an REO Property, at
a rate equal to 0.25% per annum (the "Special Servicing Fee Rate"), on the
basis of the same principal amount and for the same period respecting which any
related interest payment due or deemed due on such Mortgage Loan is computed,
and will be payable monthly from general collections on the Mortgage Loans and
any REO Properties held by the Master Servicer from time to time. A "Workout
Fee" will in general be payable with respect to each Corrected Mortgage Loan.
As to each Corrected Mortgage Loan, the Workout Fee will be payable out of, and
will be calculated by application of a "Workout Fee Rate" of 1.0% to, each
collection of interest and principal (including scheduled payments,
prepayments, Balloon Payments and payments at maturity) received on such
Mortgage Loan for so long as it remains a Corrected Mortgage Loan. The Workout
Fee with respect to any Corrected Mortgage Loan will cease to be payable if
such loan again becomes a Specially Serviced Mortgage Loan or if the related
Mortgaged Property becomes an REO Property; provided that a new Workout Fee
will become payable if and when such Mortgage Loan again becomes a Corrected
Mortgage Loan. If the Special Servicer is terminated (other than for cause) or
resigns with respect to any or all of its servicing duties, it shall retain the
right to receive any and all Workout Fees payable with respect to Mortgage
Loans that became Corrected Mortgage Loans during the period that it had
responsibility for servicing Specially Serviced Mortgage Loans and that were
still Corrected Mortgage Loans at the time of such termination or resignation
(and the successor Special Servicer shall not be entitled to any portion of
such Workout Fees), in each case until the Workout Fee for any such loan ceases
to be payable in accordance with the preceding sentence. A "Liquidation Fee"
will be payable in an amount equal to the product of (x) 1.0%, and (y) the
related Liquidation Proceeds. Notwithstanding anything to the contrary
described above, no Liquidation Fee will be payable based on, or out of,
Liquidation Proceeds received in connection with the repurchase or replacement
of any Mortgage Loan by
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a Seller for a breach of representation or warranty or for defective or
deficient Mortgage Loan documentation or in connection with the purchase of all
of the Mortgage Loans and REO Properties by any person entitled to effect an
optional termination of the Trust Fund. If, however, Liquidation Proceeds are
received with respect to any Corrected Mortgage Loan and the Special Servicer
is properly entitled to a Workout Fee, such Workout Fee will be payable based
on and out of the portion of such Liquidation Proceeds that constitute
principal and/or interest. The Special Servicer will be entitled to additional
servicing compensation in the form of 100% of all assumption fees and
modification fees received on or with respect to Specially Serviced Mortgage
Loans and 50% of all assumption fees and modification fees received on or with
respect to Mortgage Loans that are not Specially Serviced Mortgage Loans. The
Special Servicer will also be entitled to any default interest and late payment
charges actually collected on the Specially Serviced Mortgage Loans.
The Master Servicer and the Special Servicer will, in general, each be
required to pay all ordinary expenses incurred by it in connection with its
servicing activities under the Pooling and Servicing Agreement and will not be
entitled to reimbursement therefor except as expressly provided in the Pooling
and Servicing Agreement.
THE OPERATING ADVISER
The Pooling and Servicing Agreement will permit the holder (or
holders) of Certificates representing more than 50% of the aggregate
Certificate Balance of the most subordinate Class of Principal Balance
Certificates at any time of determination (or, if the aggregate Certificate
Balance of such Class of Certificates is less than 25% of the original
aggregate Certificate Balance thereof, of the next most subordinate Class of
Principal Balance Certificates) (in any event, the "Controlling Class") to
appoint any person or entity to act as the representative of the Controlling
Class to the extent described below (such person or entity, in such capacity,
the "Operating Adviser").
If the Special Servicer is not the Operating Adviser, the Special
Servicer will notify the Operating Adviser prior to the Special Servicer's
taking any of the following actions: (i) any foreclosure or comparable
conversion (which may include acquisition of an REO Property) of any Mortgaged
Property; (ii) any modification of a Money Term of a Mortgage Loan other than a
modification consisting of the extension of the original maturity of the
Mortgage Loan for two years or less; (iii) any proposed sale of a Defaulted
Mortgage Loan or REO Property (other than upon termination of the Trust Fund
pursuant to the Pooling and Servicing Agreement); (iv) any determination to
bring an REO Property into compliance with applicable environmental laws; and
(v) any acceptance of substitute or additional collateral for a Mortgage Loan.
See "Servicing of the Mortgage Loans-- General" herein.
The Operating Adviser may replace the Special Servicer, provided that
such replacement will be subject to, among other things, receipt from the
Rating Agencies of written confirmation that such replacement will not result
in a qualification, downgrade or withdrawal of any of the then-current ratings
assigned to any Class of Certificates.
MORTGAGE LOAN MODIFICATIONS
Subject to any restrictions applicable to REMICs, and to certain
limitations imposed by the Pooling and Servicing Agreement, the Special
Servicer may amend any term, other than a Money Term, of a Mortgage Loan that
is not a Specially Serviced Mortgage Loan. Subject to any restrictions
applicable to REMICs, the Special Servicer will be permitted to enter into a
modification, waiver or amendment of the terms of any Specially Serviced
Mortgage Loan, including any modification, waiver or amendment to:
(i) reduce the amounts owing under any Specially Serviced
Mortgage Loan by forgiving principal, accrued interest and/or any
Prepayment Premium,
(ii) reduce the amount of the Monthly Payment on any Specially
Serviced Mortgage Loan, including by way of a reduction in the related
Mortgage Rate,
(iii) forebear in the enforcement of any right granted under any
Mortgage Note or Mortgage relating to a Specially Serviced Mortgage
Loan,
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(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 (x) the related borrower is in default
with respect to the Specially Serviced Mortgage Loan or, in the reasonable
judgment of the Special Servicer, such default is reasonably foreseeable and
(y) in the reasonable judgment of the Special Servicer, such modification,
waiver or amendment would increase the recovery to Certificateholders on a net
present value basis documented to the Trustee.
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 Rated Final
Distribution Date,
(ii) extend the maturity date of a Specially Serviced Mortgage
Loan at an interest rate 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 at or 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 Specially Serviced
Mortgage Loan beyond a date that is ten (10) years prior to the
expiration of the term of such ground lease,
(iv) reduce the Mortgage Rate 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 10% of the Stated Principal Balance of such Specially
Serviced Mortgage Loan or defer the collection of interest on any
Specially Serviced Mortgage Loan without accruing interest on such
deferred interest at a rate at least equal to the Mortgage Rate of
such Specially Serviced Mortgage Loan.
Notwithstanding the foregoing, if a Mortgage Loan is a Balloon
Loan that has failed to make the Balloon Payment at its scheduled maturity, and
such Balloon Loan is not a Specially Serviced Mortgage Loan (other than by
reason of failure to make the Balloon Payment) and has not been delinquent in
the preceding 12 months (other than with respect to the Balloon Payment), then
in addition to the other alternatives specified above, the Special Servicer may
make up to three one-year extensions at the existing Mortgage Rate for such
Mortgage Loan; provided that in no event shall any such extension extend beyond
the date that is two years prior to the Rated Final Distribution Date.
Modifications of a Mortgage Loan that forgive principal or interest
will result in Realized Losses on such Mortgage Loan and such realized losses
will be allocated among the various Classes of Certificates in the manner
described under "Description of the Certificates--Distributions--Subordination;
Allocation of Losses and Certain Expenses."
The modification of a Mortgage Loan may tend to reduce prepayments by
avoiding liquidations and therefore may extend the weighted average life of the
Certificates beyond that which might otherwise be the case. See "Yield
Considerations" and "Maturity Considerations."
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SALE OF DEFAULTED MORTGAGE LOANS AND REO PROPERTIES
The Special Servicer may offer to sell for cash to any person, for an
amount equal to the Purchase Price, any REO Property or any Mortgage Loan that
is in Default or as to which the Special Servicer has made a determination that
Default is imminent (any such Mortgage Loan, a "Defaulted Mortgage Loan"). For
this purpose, "Default" means a default in payment that continues for at least
60 days. The Special Servicer is required (i) to give the Operating Adviser and
the Trustee not less than five days' prior written notice of its intention to
sell any such Defaulted Mortgage Loan or REO Property, (ii) to offer such
Defaulted Mortgage Loan or REO Property for sale in a fair auction or other
manner as is consistent with the Servicing Standard, and (iii) to accept the
highest cash bid received in such auction or other procedures from any person
other than an interested person (as described in the Pooling and Servicing
Agreement) for any Defaulted Mortgage Loan or REO Property in an amount, except
as otherwise provided in the Pooling and Servicing Agreement in the case of REO
Property, at least equal to the Purchase Price.
In the absence of any bid in the amount of the Purchase Price, the
Special Servicer may accept the highest cash bid, if the Special Servicer
determines, consistent with the Servicing Standard, that such sale at such
price is in the best interest of Certificateholders; provided that the Special
Servicer's ability to accept such bid made by certain interested persons is
limited, as described in the Pooling and Servicing Agreement.
REO PROPERTIES
If title to any Mortgaged Property is acquired by the Special Servicer
on behalf of the Certificateholders, the Special Servicer, on behalf of such
holders, will be required to attempt to sell the Mortgaged Property for cash by
the close of the third taxable year of the REMIC following the taxable year in
which the Mortgaged Property was acquired (such date, the "REO Sale Deadline"),
unless (i) the Internal Revenue Service grants an extension of time to sell
such property (an "REO Extension") or (ii) the Special Servicer obtains an
opinion of independent counsel generally to the effect that the holding of the
property beyond the REO Sale Deadline will not result in the imposition of a
tax on the Trust Fund, or cause any of REMIC I, REMIC II or REMIC III to fail
to qualify as a REMIC under the Code. Subject to the foregoing, the Special
Servicer will generally be required to attempt to sell any Mortgaged Property
so acquired in such a manner as will be reasonably likely to realize a fair
price for such property. The Special Servicer may retain an independent
contractor to operate and manage any REO Property; however, the retention of an
independent contractor will not relieve the Special Servicer of its obligations
with respect to such REO Property.
In general, the Special Servicer will be obligated to, or may contract
with a third party to, operate and manage any Mortgaged Property acquired as
REO Property in a manner that would, to the extent commercially feasible,
maximize the Trust Fund's net after-tax proceeds from such property. After the
Special Servicer reviews the operation of such property and consults with the
Trustee to determine the Trust Fund's federal income tax reporting position
with respect to income it is anticipated that the Trust Fund would derive from
such property, the Special Servicer could determine that it would not be
commercially feasible to manage and operate such property in a manner that
would avoid the imposition of a tax on "net income from foreclosure property"
within the meaning of the REMIC Provisions or a tax on "prohibited
transactions" under Section 860F of the Code (either such tax referred to
herein as an "REO Tax"). To the extent that income the Trust Fund receives from
an REO Property is subject to a tax on (i) "net income from foreclosure
property", such income would be subject to federal tax at the highest marginal
corporate tax rate (currently 35%) and (ii) "prohibited transactions", such
income would be subject to federal tax at a 100% rate. The determination as to
whether income from an REO Property would be subject to an REO Tax will depend
on the specific facts and circumstances relating to the management and
operation of each REO Property. Generally, income from an REO Property that is
directly operated by the Special Servicer would be apportioned and classified
as "service" or "non-service" income. The "service" portion of such income
could be subject to federal tax either at the highest marginal corporate tax
rate or at the 100% rate on "prohibited transactions," and the "non-service"
portion of such income could be subject to federal tax at the highest marginal
corporate tax rate or, although it appears unlikely, at the 100% rate
applicable to "prohibited transactions". Any REO Tax imposed on the Trust
Fund's income from an REO Property would reduce the amount available for
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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 (other than
Mortgaged Properties securing Credit Lease Loans) 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 and if the related Mortgage Loan is a
Credit Lease Loan, at least once every three years), provided that the Master
Servicer will have no obligation to inspect a Mortgaged Property inspected by
the Special Servicer during such period. In addition, the Special Servicer,
subject to limitations set forth in the related loan documents and the Pooling
and Servicing Agreement, is required to perform a physical inspection of each
Mortgaged Property as soon as practicable after servicing of the related
Mortgage Loan is transferred thereto, and annually thereafter for so long as it
remains a Specially Serviced Mortgage Loan or if such Mortgaged Property
becomes REO Property, the cost of which will be a Servicing Advance. The
Special Servicer and the Master Servicer will each be required to prepare or to
contract with a third party to prepare a written report of each such inspection
performed thereby describing the condition of the Mortgaged Property.
With respect to each Mortgage Loan that requires the borrower to
deliver annual operating statements with respect to the related Mortgaged
Property (other than Credit Lease Loans), the Master Servicer or the Special
Servicer, depending on which is obligated to service such Mortgage Loan, is
also required to make reasonable efforts to collect and review such statements.
However, there can be no assurance that any operating statements required to be
delivered will in fact be delivered, nor is the Master Servicer or the Special
Servicer likely to have any practical means of compelling such delivery in the
case of an otherwise performing Mortgage Loan.
MAINTENANCE OF MASTER SERVICER/SPECIAL SERVICER ACCEPTABILITY
It will be an event of default in respect of the Master Servicer or
the Special Servicer, as applicable, if the Trustee receives written notice
from either Rating Agency 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 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 "real estate mortgage investment conduit" ("REMIC") elections
will be made with respect to the Trust Fund, other than that portion of the
Trust Fund consisting of the rights to Excess Interest and the Excess Interest
Distribution Account. The assets of "REMIC I" or the "Lower-Tier REMIC" will
consist of the mortgage loans and any properties acquired on behalf of the
Certificateholders. The assets of "REMIC II" or the "Middle-Tier REMIC" will
consist of the separate uncertificated REMIC I regular interests, and the
assets of "REMIC III" or the "Upper-Tier REMIC" will consist of the separate
uncertificated REMIC II regular interests. Upon the issuance of the Offered
Certificates, Latham & Watkins, counsel to the Depositor, will deliver its
opinion generally to the effect that, assuming (i) the making of proper
elections, (ii) ongoing compliance with all
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provisions of the Pooling and Servicing Agreement and (iii) continuing
compliance with applicable provisions of the Code, as it may be amended from
time to time, and applicable Treasury Regulations adopted thereunder, for
federal income tax purposes, each of REMIC I, REMIC II and REMIC III will
qualify as a REMIC under the Internal Revenue Code of 1986, as amended (the
"Code"). For federal income tax purposes, the Class R-I, R-II and R-III
Certificates will represent three separate classes of REMIC residual interests
evidencing the sole class of "residual interests" in each of REMIC I, REMIC II
and REMIC III, respectively; and the REMIC Regular Certificates will evidence
the "regular interests" in, and will be treated as debt instruments of, REMIC
III. See "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 of
the Offered Certificates. The portion of the Trust Fund consisting of the right
to Excess Interest and the Excess Interest Distribution Account will be treated
as a grantor trust for federal income tax purposes, and the Class N
Certificates will represent both a REMIC regular interest and beneficial
ownership of the assets of the grantor trust. References in the Prospectus to
the Master REMIC should be read as references to REMIC III. Each of REMIC I and
REMIC II will be a Subsidiary REMIC as such term is used in the Prospectus.
The Offered Certificates will be "real estate assets" within the
meaning of Section 856(c)(4)(A) (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 40.4%. 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 Classes of Offered Certificates may be treated for Federal income
tax reporting purposes as having been issued with "original issue discount"
("OID"). Certain Classes of Offered Certificates may be treated as issued with
OID not exceeding a de minimis amount, and certain other Classes of Offered
Certificates are expected to be issued with premium, depending on the price at
which such Classes of Certificates are sold. Whether the Offered Certificates
are treated as issued with OID depends, in part, on whether the Offered
Certificates are considered to bear interest at a single fixed rate, an
objective rate or a qualified floating rate. Moreover, Classes of Offered
Certificates other than the Senior Certificates may be treated as issued with
OID due to the possibility that defaults or delinquencies on the Mortgage Loans
may result in reduced distributions on such Certificate, in order to effect
their subordination to the Senior Certificates. Although unclear under present
law, the Depositor intends to treat interest on the Offered Certificates that
bear interest based on a weighted average of net interest rates on qualified
mortgages as qualified stated interest. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular
Certificates--Variable Rate REMIC Regular Certificates" in the Prospectus. The
weighted average rate used to compute the initial pass-through rate will be
deemed to be the index in effect through the life of the REMIC Regular
Certificates. It is possible, however, that the IRS may treat some or all of
the interest
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on such Certificates under the rules relating to obligations that
provide for contingent payments. These rules, by their terms, do not apply to
debt instruments, such as the Offered Certificates, which are subject to
prepayment based on prepayments on underlying mortgages. Application of these
rules to the Offered Certificates may affect the timing of income accruals on
REMIC Regular Certificates . The prepayment assumption that will be used in
determining the rate of accrual of original issue discount and amortizable
premium, if any, for federal income tax purposes will be a 0% CPR (as described
in the Prospectus) applied to each Mortgage Loan during any period that
voluntary principal prepayments may be made thereon without a Yield Maintenance
Premium being required. In addition, for purposes of calculating OID, the
Hyper-Amortization Loans are assumed to prepay in full on the Hyper-Amortization
Date. For a description of CPR, see "Yield Considerations" and "Maturity
Considerations" in this Prospectus Supplement. However, the Depositor makes no
representation that the Mortgage Loans or any Class of Certificates will only
prepay during any such period or that they will prepay at any particular rate
before or during any such period.
The IRS has issued OID Regulations under Sections 1271 to 1275 of the
Code generally addressing the treatment of debt instruments issued with
original issue discount. See "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 anti-abuse rule
allowing the Internal Revenue Service to apply or depart from the OID
Regulations where necessary or appropriate to ensure a reasonable tax result in
light of applicable statutory provisions. No assurance can be given that the
Internal Revenue Service will not take a different position as to matters
respecting accrual of original issue discount in respect of Offered
Certificates. See "Certain Federal Income Tax Consequences--REMICs--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount and Premium" in
the Prospectus. Prospective purchasers of the Offered Certificates are advised
to consult their tax advisors concerning the tax treatment of such
Certificates, and the appropriate method of reporting interest and original
issue discount with respect to Offered Certificates.
If the method for computing OID 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 may be treated for Federal
income tax purposes as having been issued at a premium. Whether any holder of
any such Class of Certificates will be treated as holding a Certificate with
amortizable bond premium will depend on such Certificateholder's purchase price
and the distributions remaining to be made on such Certificate at the time of
its acquisition by such Certificateholder. On December 31, 1997, the IRS
published in the Federal Register final regulations on the amortization of bond
premium. Those regulations (a) do not apply to regular interests in a REMIC
(such as the Offered Certificates), and (b) state that they are intended to
create no inference concerning the amortization of premium on such interests.
Holders of each such Class of Certificates should consult their tax advisors
regarding the possibility of making an election to amortize such premium. See
"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--
S-95
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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 OID under a method that differs from that of the
issuer. Accordingly, it is possible that holders of Offered Certificates issued
with OID may be able to select a method for recognizing original issue discount
that differs from that used by the Trustee in preparing reports to
Certificateholders and the IRS. Prospective purchasers of Offered Certificates
issued with OID are advised to consult their tax advisors concerning the
treatment of such Certificates.
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.
ADDITIONAL CONSIDERATIONS
Gain or loss on the sale, exchange, redemption or retirement of an
Offered Certificate may be a capital gain or loss, subject to certain
restrictions and provided the Offered Certificate is held as a capital asset.
See "Certain Federal Income Tax Consequences ---REMICs---Sale, Exchange or
Redemption" in the Prospectus. Any such capital gain or loss will be a
long-term capital gain or loss if the Offered Certificate was held for more
than one year. Long-term capital gains of individuals are subject to reduced
maximum tax rates, while capital gains recognized by individuals on capital
assets held for twelve months or less are generally taxed at ordinary income
rates. The use of capital losses is limited.
The 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.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts, annuities, Keogh plans,
and collective investment funds, separate accounts and general accounts in
which such plans, accounts or arrangements are invested, that is subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Code (each, a "Plan") and any entity whose assets include
assets of such a Plan should carefully review with its legal advisors whether
the purchase or holding of Offered Certificates could give rise to a
transaction that is prohibited or is not otherwise permitted either under ERISA
or Section 4975 of the Code or whether there exists any statutory or
administrative exemption applicable thereto.
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Certain employee benefit plans, such as governmental plans and church
plans (if no election has been made under Section 410(d) of the Code), are not
subject to the restrictions of ERISA, and assets of such plans may be invested
in the Offered Certificates without regard to the ERISA considerations
described below, subject to other applicable federal and state law. However,
any such governmental or church plan which is qualified under section 401(a) of
the Code and exempt from taxation under Section 501(a) of the Code is subject
to the prohibited transaction rules set forth in Section 503 of the Code.
PLAN ASSET REGULATION
The United States Department of Labor (the "DOL") has issued a final
regulation (the "Final Regulation") determining when assets of an entity in
which a Plan makes an equity investment will be treated as assets of the
investing Plan. If the Certificates are treated as debt with no substantial
equity features under applicable local law, the assets of the Trust Fund would
not be treated as assets of the Plans that become Certificateholders. In the
absence of treatment of the Certificates as debt, and unless the Final
Regulation provides an exemption from this "plan asset" treatment, an undivided
portion of the assets of the Trust Fund will be treated, for purposes of
applying the fiduciary standards and prohibited transactions rules of ERISA and
Section 4975 of the Code, as an asset of each Plan that acquires and holds the
Offered Certificates.
The Final Regulation provides an exemption from "plan asset" treatment
for securities issued by an entity if, immediately after the most recent
acquisition of any equity interest in the entity, less than 25% of the value of
each Class of equity interests in the entity, excluding interests held by any
person who has discretionary authority or control with respect to the assets of
the entity (or any affiliate of such a person), are held by "benefit plan
investors" (e.g., Plans, governmental, foreign and other plans not subject to
ERISA and entities holding assets deemed to be "plan assets"). Because the
availability of this exemption to the Trust Fund depends upon the identity of
the holders of the Offered Certificates at any time, there can be no assurance
that any Class of the Offered Certificates will qualify for this exemption.
INDIVIDUAL EXEMPTION
The U.S. Department of Labor has issued to Morgan Stanley an
individual prohibited transaction exemption, Prohibited Transaction Exemption
No. 90-24 (the "Exemption"), which generally exempts from the application of
the prohibited transaction provisions of Section 406 of ERISA, and the excise
taxes imposed on such prohibited transactions pursuant to Sections 4975(a) and
(b) of the Code and Section 502(i) of ERISA, certain transactions, among
others, relating to the servicing and operation of mortgage loans, such as the
Mortgage Loans, and the purchase, sale and holding of mortgage pass-through
certificates, such as the Senior Certificates, underwritten by an
"underwriter," provided that certain conditions set forth in the Exemption are
satisfied. For purposes of this discussion, the term "underwriter" shall
include (a) Morgan Stanley & Co. Incorporated, (b) any person directly or
indirectly, through one or more intermediaries, controlling, controlled by or
under common control with Morgan Stanley & Co. Incorporated, and (c) any member
of the underwriting syndicate or selling group of which a person described in
(a) or (b) is a manager or co-manager with respect to the Senior Certificates,
including Bear, Stearns & Co. Inc. and Prudential Securities Incorporated.
The Exemption sets forth six general conditions that must be satisfied
for a transaction involving the purchase, sale and holding of Senior
Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of such Certificates by a Plan must be on terms that are at least
as favorable to the Plan as they would be in an arm's-length transaction with
an unrelated party. Second, the rights and interests evidenced by the Senior
Certificates must not be subordinated to the rights and interests evidenced by
the other certificates of the same trust. Third, the Senior Certificates at the
time of acquisition by the Plan must be rated in one of the three highest
generic rating categories by Standard & Poor's Ratings Group, DCR, Moody's
Investors Service Inc. ("Moody's) or Fitch. Fourth, the Trustee cannot be an
affiliate of any other member of the "Restricted Group", which consists of the
Underwriters, the Depositor, the Master Servicer, the Special Servicer, the
Trustee, any sub-servicer, and any mortgagor with respect to a Mortgage Loan
constituting more than 5% of the aggregate unamortized principal balance of the
Mortgage Loans as of the date of initial issuance of the Senior Certificates.
Fifth, the sum of all payments made to and retained by the Underwriters must
represent not more than reasonable compensation for
S-97
<PAGE>
underwriting the Senior Certificates; the sum of all payments made to and
retained by the Depositor pursuant to the assignment of the Mortgage Loans to
the Trust Fund must represent not more than the fair market value of such
obligations; and the sum of all payments made to and retained by the Master
Servicer, the Special Servicer or any sub-servicer must represent not more than
reasonable compensation for such person's services under the Pooling and
Servicing Agreement and reimbursement of such person's reasonable expenses in
connection therewith. Sixth, the investing Plan must be an accredited investor
as defined in Rule 501(a)(1) of Regulation D under the Securities Act.
Because the Senior Certificates are not subordinate to any other Class
of Certificates, the second general condition set forth above is satisfied with
respect to such Certificates. It is a condition of the issuance of the Senior
Certificates that they be rated not lower than "AAA" and "AAA" by each of DCR
and Fitch; thus, the third general condition set forth above is satisfied with
respect to the Senior Certificates as of the Closing Date. In addition, the
fourth general condition set forth above is also satisfied as of the Closing
Date. A fiduciary of a Plan contemplating purchasing a Senior Certificate in
the secondary market also must make its own determination that, at the time of
such purchase, the Senior Certificates continue to satisfy the third and fourth
general conditions set forth above. A fiduciary of a Plan contemplating the
purchase of a Senior Certificate also must make its own determination that the
first, fifth and sixth general conditions set forth above will be satisfied
with respect to such Senior Certificate as of the date of such purchase.
The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) certificates in such other
investment pools must have been rated in one of the three highest categories of
Fitch, DCR, Moody's or Fitch for at least one year prior to the Plan's
acquisition of Senior Certificates; and (iii) certificates in such other
investment pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of Senior Certificates.
Moreover, the Exemption provides relief from certain self-dealing/
conflict of interest prohibited transactions that may occur when any person who
has discretionary authority or renders investment advice with respect to the
investment of plan assets causes a Plan to acquire Senior Certificates,
provided that, among other requirements: (i) such person (or its affiliate) is
an obligor with respect to five percent or less of the fair market value of the
obligations or receivables contained in the trust; (ii) the Plan is not a plan
with respect to which any member of the Restricted Group is the "plan sponsor"
(as defined in Section 3(16)(B) of ERISA); (iii) in the case of an acquisition
in connection with the initial issuance of Senior Certificates, at least fifty
percent of such class is acquired by persons independent of the Restricted
Group and at least fifty percent of the aggregate interest in the trust fund is
acquired by persons independent of the Restricted Group; (iv) the Plan's
investment in Senior Certificates does not exceed twenty-five percent of all of
the certificates of that class outstanding at the time of the acquisition; and
(v) immediately after the acquisition, no more than twenty-five percent of the
assets of the Plan with respect to which such person has discretionary
authority or renders investment advice are invested in certificates
representing an interest in one or more trusts containing assets sold or
serviced by the same entity.
Finally, if certain specific conditions of the Exemption are
satisfied, the Exemption may provide an exemption from the restrictions imposed
by Sections 406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code
for transactions in connection with the servicing, management and operation of
the Mortgage Loan. The Depositor expects that the specific conditions of the
Exemption required for this purpose will be satisfied with respect to the
Senior Certificates.
A purchaser of a Senior Certificate should be aware, however, that
even if the conditions specified in one or more parts of the Exemption is
satisfied, the scope of relief provided by the Exemption may not cover all acts
that may be considered prohibited transactions.
Before purchasing a Senior Certificate, a fiduciary of a Plan should
itself confirm that the specific and general conditions of the Exemption and
the other requirements set forth in the Exemption would be satisfied. In
addition to making its own determination as to the availability of the
exemptive relief provided in the Exemption, the Plan fiduciary should consider
the availability of any other prohibited transaction exemptions.
S-98
<PAGE>
OTHER EXEMPTIONS
The characteristics of each Class of the Subordinate Certificates do
not meet the requirements of the Exemption. Accordingly, Certificates of those
Classes may not be acquired by, on behalf of or with assets of a Plan, unless
such transaction is covered by a Prohibited Transaction Class Exemption
("PTCE") issued by the U.S. Department of Labor, such as: PTCE 95-60, regarding
investments by insurance company general accounts; PTCE 90-1, regarding
investments by insurance company pooled separate accounts; PTCE 91-38,
regarding investments by bank collective investment funds; PTCE 84-14,
regarding transactions effected by "qualified professional asset managers;" and
PTCE 96-23, regarding transactions effected by "in-house asset managers." There
can be no assurance that any of these exemptions will apply with respect to any
particular Plan's investment in Offered Certificates or, even if an exemption
were deemed to apply, that any exemption would apply to all prohibited
transactions that may occur in connection with such investment. Before
purchasing Subordinate Certificates based on the availability of any such
exemption, a Plan fiduciary should itself confirm that all applicable
conditions and other requirements set forth in such exemption have been
satisfied. Any such Plan or person to whom a transfer of any such Certificate
or interest therein is made shall be deemed to have represented to the
Depositor, the Master Servicer, the Special Servicer, the Trustee and any
sub-servicer that the purchase and holding of such Certificate is so exempt on
the basis of the availability of a PTCE.
INSURANCE COMPANY PURCHASERS
Purchasers that are insurance companies should consult their legal
advisors with respect to the applicability of PTCE 95-60, regarding
transactions by insurance company general accounts. In addition to any
exemption that may be available under PTCE 95-60 for the purchase and holding
of Certificates by an insurance company general account, the Small Business Job
Protection Act of 1996 added a new Section 401(c) to ERISA, which provides
certain exemptive relief from the provisions of Part 4 of Title I of ERISA and
Section 4975 of the Code, including the prohibited transaction restrictions
imposed by ERISA and the related excise taxes imposed by the Code, for
transactions involving an insurance company general account. The DOL issued
proposed regulations under Section 401(c) on December 22, 1997, but the
required final regulations have not been issued as of the date hereof. Section
401(c) of ERISA required the DOL to issue final regulations ("401(c)
Regulations") no later than December 31, 1997 to provide guidance for the
purpose of determining, in cases where insurance policies or annuity contracts
supported by an insurer's general account are issued to or for the benefit of a
Plan on or before December 31, 1998, which general account assets constitute
plan assets. Section 401(c) of ERISA generally provides that, until the date
that is 18 months after the 401(c) Regulations become final, no person shall be
subject to liability under Part 4 of Title I of ERISA and Section 4975 of the
Code on the basis of a claim that the assets of an insurance company general
account constitute plan assets of any plan, unless (i) as otherwise provided by
the Secretary of Labor in the 401(c) Regulations to prevent avoidance of the
regulations or (ii) an action is brought by the Secretary of Labor for certain
breaches of fiduciary duty which would also constitute a violation of federal
or state criminal law. Any assets of an insurance company general account that
support insurance policies or annuity contracts issued to a Plan after December
31, 1998 or issued to Plans on or before December 31, 1998 for which the
insurance company does not comply with the 401(c) Regulations may be treated as
plan assets. In addition, because Section 401(c) does not relate to insurance
company separate accounts, separate account assets are still treated as plan
assets of any Plan invested in such separate account. Insurance companies
contemplating the investment of general account assets in the Certificates
should consult their legal counsel with respect to the applicability of Section
401(c) of ERISA, including the general account's ability to continue to hold
the Certificates after the date which is 18 months after the date the 401(c)
Regulations become final.
LEGAL INVESTMENT
The Offered Certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA"). The appropriate characterization of a Class of Offered
Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase Offered Certificates,
may be subject to significant interpretive uncertainties. All investors whose
investment authority is subject to legal restrictions should consult their own
legal advisors to determine whether, and to what extent, the Offered
Certificates will constitute legal investments for them.
S-99
<PAGE>
The Depositor makes no representations as to the proper
characterization of the Offered Certificates for legal investment or financial
institution regulatory purposes, or as to the ability of particular investors
to purchase the Offered Certificates under applicable legal investment
restrictions. The uncertainties referred to above (and any unfavorable future
determinations concerning legal investment or financial institution regulatory
characteristics of the Offered Certificates) may adversely affect the liquidity
of the Offered Certificates. See "Legal Investment" in the Prospectus.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans.
PLAN OF DISTRIBUTION
The Depositor has entered into an underwriting agreement (the
"Underwriting Agreement") with Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), an affiliate of the Depositor, Bear, Stearns & Co. Inc. ("Bear
Stearns") and Prudential Securities Incorporated ("Prudential", and together
with Morgan Stanley and Bear Stearns, the "Underwriters"). The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent, and that the Underwriters will be obligated to
purchase all of the Offered Certificates if any are purchased.
The Underwriters have advised the Depositor that they propose to offer
the Offered Certificates from time to time for sale in one or more negotiated
transactions or otherwise at prices to be determined at the time of sale. The
Underwriters may effect such transactions by selling such Classes of Offered
Certificates to or through dealers and such dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Underwriters and any purchasers of such Classes of Offered Certificates for
whom it may act as agent.
The Offered Certificates are offered by the Underwriters when, as and
if issued by the Depositor, delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected
that delivery of the Offered Certificates will be made in book-entry form
through the facilities of DTC against payment therefor on or about November 12,
1998, which is the fifth business day following the date of pricing of the
Certificates. Under Rule 15c6-1 recently adopted by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, trades in the
secondary market generally are required to settle in three business days,
unless the parties to any trade expressly agree otherwise. Accordingly,
purchasers who wish to trade Offered Certificates in the secondary market prior
to such delivery should specify a longer settlement cycle, or should refrain
from specifying a shorter settlement cycle, to the extent that failing to do so
would result in a settlement date that is earlier than the date of delivery of
such Offered Certificates.
The Underwriters and any dealers that participate with the
Underwriters in the distribution of the Offered Certificates may be deemed to
be underwriters, and any discounts or commissions received by them and any
profit on the resale of such Classes of Offered Certificates by them may be
deemed to be underwriting discounts or commissions, under the Securities Act of
1933, as amended.
Affiliates of Heller Financial Capital Funding, Inc. and Morgan
Stanley Mortgage Capital Inc. may acquire certain of the Offered Certificates.
In addition, Morgan Stanley intends to acquire a portion of the Class A-1
Certificates not to exceed 2.5% of the Initial Certificate Principal Amount.
Each of such parties may reoffer and sell such Offered Certificates and have
advised the Depositor that such reoffers and sales may be made from time to
time in negotiated transactions or otherwise at varying prices determined at
the time of sale, and shall be made solely through Morgan Stanley & Co.
Incorporated (unless otherwise consented to by Morgan Stanley & Co.
Incorporated).
The Depositor has agreed to indemnify the Underwriters against civil
liabilities, including liabilities under the Securities Act of 1933, as amended
or contribute to payments the Underwriters may be required to make in respect
thereof.
S-100
<PAGE>
The Underwriters intend to make a secondary market in the Offered
Certificates, but they are not obligated to do so.
LEGAL MATTERS
The legality of the Offered Certificates and the material federal
income tax consequences of investing in the Offered Certificates will be passed
upon for the Depositor by Latham & Watkins, New York, New York. Certain legal
matters with respect to the Offered Certificates will be passed upon for the
Underwriters by Latham & Watkins, New York, New York. Certain legal matters
with respect to the sale of the Mortgage Loans by Heller will be passed upon
Katten Muchin & Zavis, Chicago, Illinois.
RATINGS
It is a condition of the issuance of the Offered Certificates that
they receive the following credit ratings from Duff & Phelps Credit Rating Co.
("DCR") and Fitch IBCA, Inc. ("Fitch", and together with DCR, the "Rating
Agencies"):
CLASS DCR FITCH
----- --- -----
Class A-1............................... AAA AAA
Class A-2............................... AAA AAA
Class B................................. AA AA
Class C................................. A A
Class D................................. BBB BBB
Class E................................. BBB- BBB-
The ratings of the Offered Certificates address the likelihood of the
timely receipt by holders thereof of all payments of interest to which they are
entitled and the ultimate receipt by holders thereof of all payments of
principal to which they are entitled, if any, by the Distribution Date in
November 2030 (the "Rated Final Distribution Date"). The ratings on the Offered
Certificates should be evaluated independently from similar ratings on other
types of securities. A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time by the
assigning rating agency.
The ratings of the Certificates do not represent any assessment of (i)
the likelihood or frequency of principal prepayments, voluntary or involuntary,
on the Mortgage Loans, (ii) the degree to which such prepayments might differ
from those originally anticipated or (iii) whether and to what extent
Prepayment Premiums or default interest will be received. A security rating
does not represent any assessment of the yield to maturity that investors may
experience or the possibility that the holders of the Interest Only
Certificates might not fully recover their investment in the event of rapid
prepayments of the Mortgage Loans (including both voluntary and involuntary
prepayments). In general, the ratings thus address credit risk and not
prepayment risk. As described herein, the amounts payable with respect to the
Interest Only Certificates consist only of interest. If all of the Mortgage
Loans were to prepay in the initial month, with the result that the
Certificateholders receive only a single month's interest and thus suffer a
nearly complete loss of their investment, all amounts "due" to such
Certificateholders would nevertheless have been paid, and such result will be
consistent with the "AAA/AAA" ratings received on the Interest Only
Certificates. The respective aggregate Notional Amounts upon which interest in
respect of the Interest Only Certificates are calculated is reduced by the
allocation of Realized Losses, Expense Losses and prepayments of principal,
whether voluntary or involuntary. The ratings do not address the timing or
magnitude of reductions of such aggregate Notional Amounts, but only the
obligation to pay interest timely on such aggregate Notional Amounts as so
reduced from time to time. Accordingly, the rating of the Interest Only
Certificates should be evaluated independently from similar ratings on other
types of securities.
There can be no assurance as to whether any rating agency not
requested to rate the Offered Certificates will nonetheless issue a rating to
any Class thereof and, if so, what such rating would be. A rating assigned to
any Class of Offered Certificates by a rating agency that has not been
requested by the Depositor to do so may be lower than the ratings assigned
thereto at the request of the Depositor.
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<PAGE>
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT
10% Free Prepayment Loans...................................................S-74
30/360 basis................................................................S-65
Accrued Certificate Interest................................................S-52
Additional Trust Fund Expenses..............................................S-56
Administrative Cost Rate....................................................S-89
Advance Rate................................................................S-59
Advances....................................................................S-58
Appraisal Event.............................................................S-54
Appraisal Reduction.........................................................S-54
Asset Status Report.........................................................S-88
Assumed Monthly Payment.....................................................S-53
Available Distribution Amount...............................................S-50
Balloon Loans...............................................................S-73
Balloon LTV.................................................................S-80
Balloon LTV Ratio...........................................................S-80
Balloon Payment.............................................................S-73
Bear Stearns...............................................................S-100
Book-Entry Certificates.....................................................S-47
CEDEL.......................................................................S-48
Certificate Account.........................................................S-51
Certificate Balance.........................................................S-48
Certificate Owner...........................................................S-47
Certificateholders..........................................................S-47
Certificates................................................................S-47
Chase.......................................................................S-48
Citibank....................................................................S-48
Class.......................................................................S-47
Class A Certificates........................................................S-47
Class Interest Shortfall....................................................S-52
Class X Certificates........................................................S-47
Closing Date................................................................S-47
Collection Period...........................................................S-50
Compensating Interest Payment...............................................S-57
Controlling Class...........................................................S-90
Corporate Trust Office......................................................S-63
Corrected Mortgage Loan.....................................................S-87
Cut-off Date.................................................................S-7
Cut-off Date Balance........................................................S-70
Cut-off Date LTV............................................................S-80
Cut-off Date LTV Ratio......................................................S-80
DCR........................................................................S-101
Debt Service Coverage Ratio.................................................S-79
Default.....................................................................S-92
Defaulted Mortgage Loan.....................................................S-92
Defeasance Collateral.......................................................S-73
Defeasance Loans............................................................S-73
Definitive Certificate......................................................S-47
Depositor....................................................................S-3
Determination Date..........................................................S-50
Discount Rate...............................................................S-54
Distributable Certificate Interest..........................................S-52
Distribution Date...........................................................S-50
Document Defect.............................................................S-85
DOL.........................................................................S-97
S-102
<PAGE>
DSCR........................................................................S-79
DTC.........................................................................S-47
ERISA.......................................................................S-96
Euroclear...................................................................S-48
Exemption...................................................................S-97
Expense Losses..............................................................S-56
FASIT.......................................................................S-94
Final Regulation............................................................S-97
Final Scheduled Distribution Date...........................................S-66
Fiscal Agent................................................................S-64
Fitch......................................................................S-101
Heller......................................................................S-81
Heller Financial............................................................S-81
Heller Loans................................................................S-72
Hyper-Amortization Date.....................................................S-73
Initial Pool Balance........................................................S-70
Interest Accrual Method.....................................................S-72
Interest Accrual Period.....................................................S-53
Interest Only Certificates..................................................S-47
LaSalle.....................................................................S-63
Liquidation Fee.............................................................S-89
Loan-to-Value Ratio.........................................................S-80
Lock-out Period.............................................................S-73
LOP.........................................................................S-65
Lower-Tier REMIC............................................................S-93
Master Servicer.............................................................S-88
Master Servicing Fee........................................................S-89
Material Breach.............................................................S-85
Material Document Defect....................................................S-85
Maturity Assumptions........................................................S-65
Mezzanine Debt..............................................................S-76
Middle-Tier REMIC...........................................................S-93
Money Term..................................................................S-54
Monthly Payment.............................................................S-53
Moody's.....................................................................S-97
Morgan Stanley.............................................................S-100
Morgan Stanley Loans........................................................S-72
Mortgage....................................................................S-71
Mortgage File...............................................................S-82
Mortgage Loan...............................................................S-70
Mortgage Loan Purchase Agreement............................................S-72
Mortgage Note...............................................................S-71
Mortgage Pool...............................................................S-70
Mortgaged Property..........................................................S-71
MSMC........................................................................S-81
Net Aggregate Prepayment Interest Shortfall.................................S-57
Net income from foreclosure property........................................S-92
Net Mortgage Rate...........................................................S-49
Non-30/360 Loan.............................................................S-50
Notional Amount.............................................................S-49
Offered Certificates........................................................S-47
OID.........................................................................S-94
Operating Adviser...........................................................S-90
P&I Advance.................................................................S-57
Participants................................................................S-47
Pass-Through Rate...........................................................S-49
Percentage Interest.........................................................S-50
Percentage Premium..........................................................S-73
Permitted Cure Period.......................................................S-85
Permitted Investments.......................................................S-89
S-103
<PAGE>
Phase I.....................................................................S-78
Plan........................................................................S-96
Pooling and Servicing Agreement.............................................S-47
Prepayment Assumptions......................................................S-64
Prepayment Interest Excess..................................................S-56
Prepayment Interest Shortfall...............................................S-56
Prepayment Premium..........................................................S-73
Principal Balance Certificates..............................................S-48
Principal Distribution Amount...............................................S-53
Private Certificates........................................................S-47
Prudential.................................................................S-100
PTCE........................................................................S-99
Purchase Price..............................................................S-85
Qualifying Substitute Mortgage Loan.........................................S-85
Rated Final Distribution Date..............................................S-101
Rating Agencies............................................................S-101
Realized Losses.............................................................S-56
Record Date.................................................................S-50
Related Borrower Loan Groups................................................S-74
Related Proceeds............................................................S-57
Remaining Amortization Terms................................................S-18
REMIC.......................................................................S-93
REMIC I.....................................................................S-93
REMIC II....................................................................S-93
REMIC III...................................................................S-93
REMIC Regular Certificates..................................................S-47
REMIC Residual Certificates.................................................S-47
REO Extension...............................................................S-92
REO Property................................................................S-47
REO Sale Deadline...........................................................S-92
REO Tax.....................................................................S-92
Required Appraisal Loan.....................................................S-54
Restricted Group............................................................S-97
Scheduled Balloon Balance...................................................S-80
Seller......................................................................S-72
Sellers.....................................................................S-72
Senior Certificates.........................................................S-47
Servicing Advance...........................................................S-58
Servicing Transfer Event....................................................S-86
Single-Tenant Mortgage Loan.................................................S-75
SMMEA.................................................................S-22, S-99
Special Servicer............................................................S-88
Special Servicing Fee.......................................................S-89
Special Servicing Fee Rate..................................................S-89
Specially Serviced Mortgage Loan............................................S-86
Stated Principal Balance....................................................S-49
Subordinate Certificates....................................................S-47
Subordinate Private Certificates............................................S-47
Sub-Servicer................................................................S-88
Sub-Servicing Agreement.....................................................S-88
Substitution Shortfall Amount...............................................S-85
Termination Price...........................................................S-57
Trust Fund..................................................................S-47
Trustee.....................................................................S-63
Trustee Fee.................................................................S-63
UBOC........................................................................S-85
Underwritable Cash Flow.....................................................S-79
Underwriters...............................................................S-100
Underwriting Agreement.....................................................S-100
Upper-Tier REMIC............................................................S-93
S-104
<PAGE>
Voting Rights...............................................................S-63
WAC Rate....................................................................S-49
Workout Fee.................................................................S-89
Workout Fee Rate............................................................S-89
Year Built..................................................................S-80
Year Renovated..............................................................S-80
Yield Maintenance Premium...................................................S-73
YMP.........................................................................S-65
S-105
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
CUT-OFF DATE BALANCES
<TABLE>
<CAPTION>
- ------------------------------ --------- --------------- ------------ --------- --------------- --------- ---------- --------------
WEIGHTED WEIGHTED
PERCENT BY WEIGHTED AVERAGE AVERAGE WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING WEIGHTED CUT-OFF AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TERM TO AVERAGE DATE BALLOON
CUT-OFF DATE BALANCES ($) LOANS BALANCE ($) BALANCE (%) RATE (%) MATURITY (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------ --------- --------------- ------------ ---------- -------------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.01 - 1,000,000.00 9 $7,779,271 0.74% 7.338% 120 1.47x 69.7% 57.9%
1,000,000.01 - 2,000,000.00 73 105,437,875 9.96 7.331 118 1.39 71.7 60.1
2,000,000.01 - 3,000,000.00 59 145,860,156 13.78 7.319 130 1.40 71.2 51.9
3,000,000.01 - 4,000,000.00 32 112,217,956 10.61 7.295 126 1.38 69.4 54.5
4,000,000.01 - 5,000,000.00 25 113,574,886 10.73 7.214 115 1.37 72.9 62.3
5,000,000.01 - 6,000,000.00 15 84,060,858 7.94 7.358 136 1.38 71.6 54.4
6,000,000.01 - 7,000,000.00 16 103,856,823 9.82 7.366 131 1.34 76.5 56.0
7,000,000.01 - 8,000,000.00 4 29,486,458 2.79 7.191 108 1.51 66.5 53.7
8,000,000.01 - 9,000,000.00 8 68,409,587 6.47 7.318 124 1.42 68.7 49.5
9,000,000.01 - 10,000,000.00 6 57,227,591 5.41 6.964 109 1.29 76.4 67.7
10,000,000.01 - 15,000,000.00 9 108,026,045 10.21 7.046 141 1.34 72.4 55.5
15,000,000.01 - 20,000,000.00 3 52,486,032 4.96 6.941 113 1.31 73.3 63.1
20,000,000.01 - 25,000,000.00 3 69,688,418 6.59 7.147 117 1.29 76.9 67.5
============================== ========= =============== ============ ========= =============== ========= ========== ==============
TOTAL: 262 $1,058,111,956 100.00% 7.233% 125 1.37X 72.4% 57.5%
============================== ========= =============== ============ ========= =============== ========= ========== ==============
</TABLE>
Minimum: $528,151
Maximum: $23,949,234
Average: $4,038.595
I-1
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
STATES
<TABLE>
<CAPTION>
- ---------------- ---------- --------------- ------------- -------------- ------------------ ------------- ------------- ------------
PERCENT BY WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE REMAINING TERM AVERAGE CUT-OFF BALLOON
STATE LOANS BALANCE ($) BALANCE (%) RATE (%) TO MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- ---------------- ---------- --------------- ------------- -------------- ------------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California 52 $213,433,858 20.17% 7.406% 131 1.40x 67.1% 51.0%
Georgia 10 88,948,276 8.41 7.024 138 1.33 74.8 57.6
Texas 24 82,969,532 7.84 7.227 110 1.31 75.8 65.7
Florida 26 74,972,984 7.09 7.115 128 1.38 74.5 56.3
Colorado 13 62,092,212 5.87 7.272 113 1.36 69.7 58.3
Arizona 12 51,360,664 4.85 7.335 111 1.33 71.4 61.3
Washington 11 51,268,563 4.85 7.116 134 1.33 71.9 54.6
New York 13 51,110,534 4.83 7.611 113 1.48 70.5 60.1
Michigan 9 49,701,641 4.70 7.052 115 1.44 74.5 64.3
Wisconsin 9 37,867,852 3.58 7.060 113 1.33 78.6 68.5
North Carolina 9 34,284,672 3.24 6.975 151 1.29 77.5 53.0
Massachusetts 4 23,044,820 2.18 7.501 114 1.31 71.2 58.7
Pennsylvania 7 19,763,295 1.87 7.280 114 1.43 77.4 63.8
Oklahoma 2 19,203,369 1.81 6.859 116 1.31 77.4 67.0
Minnesota 5 19,111,396 1.81 7.185 135 1.36 77.2 56.7
Illinois 4 18,953,665 1.79 7.033 144 1.35 72.3 54.4
Indiana 4 16,206,829 1.53 7.064 129 1.28 80.1 59.6
Virginia 6 14,795,044 1.40 7.039 116 1.51 70.2 58.9
Nevada 2 14,605,331 1.38 7.687 136 1.29 65.9 24.3
Ohio 6 14,290,027 1.35 7.413 125 1.35 74.4 58.4
New Hampshire 1 9,973,175 0.94 7.050 115 1.27 79.8 70.1
Idaho 2 9,459,629 0.89 6.963 116 1.48 76.3 62.6
New Jersey 4 9,427,914 0.89 7.731 111 1.40 72.0 60.6
Oregon 2 9,123,136 0.86 6.959 116 1.56 62.7 52.5
Tennessee 3 9,120,468 0.86 7.102 129 1.42 66.4 51.0
Louisiana 4 7,948,555 0.75 7.027 131 1.27 74.7 48.1
Missouri 3 7,518,269 0.71 7.365 164 1.39 77.7 54.0
</TABLE>
I-2
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
STATES
(CONTINUED)
<TABLE>
<CAPTION>
- ---------------- ---------- --------------- ------------- -------------- ------------------ ------------- ------------- ------------
PERCENT BY WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE REMAINING TERM AVERAGE CUT-OFF BALLOON
STATE LOANS BALANCE ($) BALANCE (%) RATE (%) TO MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- ---------------- ---------- --------------- ------------- -------------- ------------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kentucky 2 6,310,939 0.60 7.569 114 1.46 72.6 59.4
Mississippi 1 6,174,088 0.58 7.250 116 1.45 69.4 56.2
Rhode Island 1 5,430,752 0.51 7.030 174 1.28 78.7 60.9
Maryland 1 4,889,284 0.46 7.230 117 1.36 66.1 53.6
South Carolina 1 2,781,161 0.26 7.300 111 1.31 65.4 57.2
Alabama 2 2,700,530 0.26 6.898 114 1.35 79.1 68.8
North Dakota 2 2,129,022 0.20 7.000 115 1.26 79.0 69.3
Utah 1 1,790,436 0.17 7.330 114 1.30 54.3 44.3
Kansas 1 1,696,632 0.16 7.190 116 1.32 62.8 55.4
Delaware 1 1,599,817 0.15 7.560 120 1.24 74.4 58.4
West Virginia 1 1,106,421 0.10 7.000 115 1.26 79.0 69.3
Arkansas 1 947,164 0.09 7.000 115 1.26 78.8 69.1
================ ========== =============== ============= ============== ================== ============= ============= ==========
TOTAL: 262 $1,058,111,956 100.00% 7.233% 125 1.37X 72.4% 57.5%
================ ========== =============== ============= ============== ================== ============= ============= ============
</TABLE>
I-3
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
PROPERTY TYPES
<TABLE>
<CAPTION>
- ----------------------------- --------- -------------- ------------ --------- --------------- ----------- ------------- ------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TERM TO AVERAGE CUT-OFF BALLOON
PROPERTY TYPE LOANS BALANCE ($) BALANCE (%) RATE (%) MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- ----------------------------- --------- -------------- ------------ --------- --------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Multifamily
Low-Rise 59 $272,517,196 25.76% 7.086% 126 1.31x 75.7% 61.8%
Garden 13 61,000,248 5.77 7.125 127 1.37 70.8 51.5
Mid-Rise 2 6,763,998 0.64 7.366 107 1.44 75.2 66.0
High Rise 1 6,451,509 0.61 8.690 102 1.30 78.7 70.8
- ----------------------------- --------- -------------- ------------ --------- --------------- ----------- ------------- ------------
SUBTOTAL: 75 $346,732,950 32.77% 7.128% 125 1.32X 74.9% 60.3%
Retail:
Anchored Retail 21 $109,458,854 10.34% 7.220% 131 1.32x 72.7% 59.0%
Power Center 2 41,323,078 3.91 6.902 116 1.34 78.9 69.0
Single Tenant 24 33,250,503 3.14 7.003 128 1.26 76.4 58.1
Credit Tenant Lease 6 21,572,119 2.04 6.738 221 1.21 78.7 12.4
Unanchored Retail 6 15,236,331 1.44 7.671 138 1.40 72.6 54.5
Shadow Anchor 4 13,293,140 1.26 7.678 130 1.33 61.2 32.1
Regional Mall 1 8,290,329 0.78 8.460 154 2.26 26.3 0.0
- ----------------------------- --------- -------------- ------------ --------- --------------- ----------- ------------- ------------
SUBTOTAL: 64 $242,424,354 22.91% 7.189% 138 1.34X 72.6% 52.7%
Industrial:
Multi Tenant Industrial 14 $42,450,129 4.01% 7.255% 144 1.30x 71.0% 50.7%
Warehouse 2 22,748,166 2.15 7.131 117 1.28 78.2 68.5
Flex 5 16,159,431 1.53 7.385 113 1.33 69.7 58.6
Light Industrial 3 10,724,108 1.01% 7.732 106 1.24 70.3 55.1
- ----------------------------- --------- -------------- ------------ --------- --------------- ----------- ------------- ------------
SUBTOTAL: 24 $92,081,834 8.70% 7.303% 127 1.30X 72.4% 57.0%
Office:
Suburban 15 $47,193,203 4.46% 7.344% 119 1.33x 69.9% 60.3%
Urban 5 35,182,306 3.33 7.184 112 1.37 70.1 59.0
- ----------------------------- --------- -------------- ------------ --------- --------------- ----------- ------------- ------------
SUBTOTAL: 20 $82,375,509 7.79% 7.276% 116 1.35X 70.0% 59.7%
</TABLE>
I-4
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
PROPERTY TYPES
(CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------- --------- -------------- ------------ --------- --------------- ----------- ------------- ------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TERM TO AVERAGE CUT-OFF BALLOON
PROPERTY TYPE LOANS BALANCE ($) BALANCE (%) RATE (%) MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- ----------------------------- --------- -------------- ------------ --------- --------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Senior Housing:
Congregate Seniors Housing 11 $58,228,525 5.50% 6.920% 114 1.55x 70.3% 57.3%
Assisted Living Facilities 5 22,352,336 2.11 7.145 115 1.51 78.2 64.8
- ----------------------------- --------- -------------- ------------ --------- --------------- ----------- ------------- ------------
SUBTOTAL: 16 $80,580,861 7.62% 6.983% 115 1.54X 72.5% 59.3%
Self-Storage:
Self-Storage 33 $77,708,422 7.34% 7.716% 113 1.47x 70.0% 57.3%
- ----------------------------- --------- -------------- ------------ --------- --------------- ----------- ------------- ------------
SUBTOTAL: 33 $77,708,422 7.34% 7.716% 113 1.47X 70.0% 57.3%
Hospitality:
Full Service 8 $60,118,608 5.68% 7.340% 116 1.46x 67.4% 54.9%
Limited Service 1 5,863,001 0.55 7.790 115 1.51 69.8 62.3
- ----------------------------- --------- -------------- ------------ --------- --------------- ----------- ------------- ------------
SUBTOTAL: 9 $65,981,609 6.24% 7.380% 116 1.47X 67.6% 55.6%
Manufactured Housing:
Manufactured Housing 17 $51,955,131 4.91% 7.265% 113 1.43x 70.4% 60.8%
- ----------------------------- --------- -------------- ------------ --------- --------------- ----------- ------------- ------------
SUBTOTAL: 17 $51,955,131 4.91% 7.265% 113 1.43X 70.4% 60.8%
Mixed Use:
Office/Retail 2 $7,408,281 0.70% 8.014% 135 1.30x 60.2% 36.6%
Retail/Multifamily 1 6,166,003 0.58 7.030 113 1.23 79.1 68.6
Multifamily/Retail/Office 1 4,697,003 0.44 8.135 108 1.35 53.4 44.1
- ----------------------------- --------- -------------- ------------ --------- --------------- ----------- ------------- ------------
SUBTOTAL: 4 $18,271,286 1.73% 7.713% 120 1.29X 64.8% 49.3%
- ----------------------------- --------- -------------- ------------ --------- --------------- ----------- ------------- ------------
TOTAL: 262 $1,508,111,956 100.00% 7.233% 125 1.37X 72.4% 57.5%
============================= ========= ============== ============ ========= =============== =========== ============= ============
</TABLE>
I-5
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
MORTGAGE RATES
<TABLE>
<CAPTION>
- ---------------- ---------- --------------- ------------- -------------- ------------------ ------------- ------------- ------------
PERCENT BY WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE REMAINING TERM AVERAGE CUT-OFF BALLOON
LOANS BALANCE ($) BALANCE (%) RATE (%) TO MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- ---------------- ---------- --------------- ------------- -------------- ------------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6.501 - 7.000 85 $364,989,445 34.49% 6.869% 128 1.39x 74.8% 58.7%
7.001 - 7.500 125 511,395,568 48.33 7.181 125 1.35 72.8 59.5
7.501 - 8.000 26 85,412,661 8.07 7.687 115 1.37 73.5 61.2
8.001 - 8.500 15 61,364,538 5.80 8.302 131 1.47 54.0 25.7
8.501 - 9.000 7 27,433,109 2.59 8.669 105 1.29 72.8 62.0
9.001 - 9.500 3 5,178,743 0.49 9.287 84 1.28 66.1 61.6
9.501 - 10.000 1 2,337,891 0.22 9.570 102 1.45 51.1 43.6
================= ========== =============== ============= =========== ================== ============= ============= =============
TOTAL: 262 $1,058,111,956 100.00% 7.233% 125 1.37X 72.4% 57.5%
================= ========== =============== ============= =========== ================== ============= ============= =============
</TABLE>
Minimum: 6.510%
Maximum: 9.570%
Weighted Average Coupon: 7.233%
I-6
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
ORIGINAL TERMS TO STATED MATURITY
<TABLE>
<CAPTION>
- ---------------- ---------- --------------- ------------- ----------- ------------------ ------------- ------------- ------------
PERCENT BY WEIGHTED WEIGHTED WEIGHTED
ORIGINAL TERM NUMBER OF AGGREGATE AGGREGATE AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE AVERAGE
TO STATED MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE REMAINING TERM AVERAGE CUT-OFF BALLOON
MATURITY (MOS) LOANS BALANCE ($) BALANCE (%) RATE (%) TO MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- ---------------- ---------- --------------- ------------- ----------- ------------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
61 - 120 214 $828,522,999 78.30% 7.186% 113 1.38x 72.7% 62.1%
121 - 180 32 160,045,228 15.13 7.586 136 1.31 69.5 50.3
181 - 240 13 55,124,726 5.21 6.946 227 1.32 75.7 22.3
241 - 300 3 14,419,003 1.36 7.123 283 1.41 71.6 4.5
================ ========== =============== ============= =========== ================== ============= ============= =============
TOTAL: 262 $1,058,111,956 100.00% 7.233% 125 1.37X 72.4% 57.5%
================ ========== =============== ============= =========== ================== ============= ============= =============
</TABLE>
Minimum: 83 months
Maximum: 299 months
Weighted Average: 132 months
I-7
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
REMAINING TERMS TO STATED MATURITY
<TABLE>
<CAPTION>
- ----------------- --------- ------------------ -------------- ---------- ----------------- ------------- ------------- -------------
PERCENT BY WEIGHTED WEIGHTED WEIGHTED
REMAINING TERMS NUMBER OF AGGREGATE AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE AVERAGE
TO STATED MORTGAGE AGGREGATE CUT-OFF CUT-OFF DATE MORTGAGE REMAINING TERM AVERAGE CUT-OFF BALLOON
MATURITY (MOS) LOANS DATE BALANCE ($) BALANCE (%) RATE (%) TO MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- ----------------- --------- ------------------ -------------- ---------- ----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 - 60 1 $1,607,762 0.15% 9.325% 53 1.47x 47.3% 43.9%
61 - 120 226 908,022,390 85.82 7.221 113 1.37 72.9 62.3
121 - 180 19 78,938,075 7.46 7.558 158 1.37 64.0 35.8
181 - 240 13 55,124,726 5.21 6.946 227 1.32 75.7 22.3
241 - 300 3 14,419,003 1.36 7.123 283 1.41 71.6 4.5
================= ========= ================== ============== ========== ================= ============= ============= =============
TOTAL: 262 $1,058,111,956 100.00% 7.233% 125 1.37X 72.4% 57.5%
================= ========= ================== ============== ========== ================= ============= ============= =============
</TABLE>
Minimum: 53 months
Maximum: 296 months
Weighted Average: 125 months
I-8
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
ORIGINAL AMORTIZATION TERMS
<TABLE>
<CAPTION>
- ---------------------- --------- -------------- ------------- ----------- ------------------ ------------- ------------- -----------
PERCENT BY WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE AVERAGE
ORIGINAL AMORTIZATION MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE REMAINING TERM AVERAGE CUT-OFF BALLOON
TERM (MOS) LOANS BALANCE ($) BALANCE (%) RATE (%) TO MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- ---------------------- --------- -------------- ------------- ----------- ------------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALLOON LOANS
240 7 $21,498,000 2.03% 8.005% 112 1.41x 58.4% 39.0%
241-299 13 50,485,925 4.77 7.865 133 1.35 69.2 48.1
300 76 277,486,290 26.22 7.285 117 1.46 69.1 55.4
301-359 6 23,318,999 2.20 7.455 116 1.24 77.2 66.0
360 144 620,288,403 58.62 7.091 119 1.33 75.4 65.3
- ---------------------- --------- -------------- ------------- ----------- ------------------ ------------- ------------- ----------
SUBTOTAL: 246 $993,077,617 93.85% 7.213% 119 1.36X 73.0% 61.1%
FULLY-AMORTIZING LOANS
180 5 $28,620,127 2.70% 8.216% 155 1.53x 46.9% 0.1%
181-239 5 10,846,563 1.03 6.963 231 1.09 85.8 1.1
240 3 11,148,646 1.05 6.961 235 1.46 70.6 2.5
241-299 1 6,847,654 0.65 7.410 270 1.27 73.6 4.4
300 2 7,571,349 0.72 6.863 296 1.54 69.8 4.5
- ---------------------- --------- -------------- ------------- ----------- ------------------ ------------- ------------- ----------
SUBTOTAL: 16 $65,034,339 6.15% 7.549% 210 1.42X 62.9% 1.6%
====================== ========= ============== ============= =========== ================== ============= ============= ==========
TOTAL: 262 $1,058,111,956 100.00% 7.233% 125 1.37X 72.4% 57.5%
====================== ========= ============== ============= =========== ================== ============= ============= ==========
</TABLE>
Minimum: 180 months
Maximum: 360 months
Weighted Average: 329 months
I-9
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
DEBT SERVICE COVERAGE RATIOS
<TABLE>
<CAPTION>
- ---------------------- --------- -------------- ------------- ----------- ------------------ ------------- ------------- -----------
PERCENT BY WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE AVERAGE
DEBT SERVICE MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE REMAINING TERM AVERAGE CUT-OFF BALLOON
COVERAGE RATIO (X) LOANS BALANCE ($) BALANCE (%) RATE (%) TO MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- ---------------------- --------- -------------- ------------- ----------- ------------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.01 - 1.00 1 $2,381,283 0.23% 7.139% 232 0.97x 89.9% 1.4%
1.01 - 1.15 5 16,603,972 1.57 7.485 162 1.11 79.6 42.1
1.16 - 1.25 42 192,838,106 18.22 7.404 120 1.22 74.7 58.5
1.26 - 1.35 101 416,128,390 39.33 7.160 127 1.29 74.5 60.0
1.36 - 1.50 65 267,860,885 25.31 7.196 125 1.42 72.4 58.7
1.51 - 1.75 40 134,626,380 12.72 7.230 117 1.59 66.8 54.2
1.76 - 2.00 3 12,040,328 1.14 6.873 114 1.84 60.9 51.5
2.01 >= 5 15,632,611 1.48 7.773 144 2.31 33.3 13.6
================ =========== =============== ============= ============ ================== ============= ============= ===========
TOTAL: 262 $1,058,111,956 100.00% 7.233% 125 1.37X 72.4% 57.5%
================ =========== =============== ============= ============ ================== ============= ============= ===========
</TABLE>
Minimum: 0.97x
Maximum: 2.81x
Weighted Average: 1.37x
I-10
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
CUT-OFF DATE LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
- ---------------------- --------- -------------- ------------- ----------- ------------------ ------------- ------------- -----------
PERCENT BY WEIGHTED WEIGHTED WEIGHTED
CUT-OFF DATE NUMBER OF AGGREGATE AGGREGATE AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE AVERAGE
LOAN-TO-VALUE MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE REMAINING TERM AVERAGE CUT-OFF BALLOON
RATIO (%) LOANS BALANCE ($) BALANCE (%) RATE (%) TO MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- ---------------------- --------- -------------- ------------- ----------- ------------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
20.1 - 30.0 2 $9,483,534 0.90% 8.234% 164 2.33x 26.7% 0.2%
30.1 - 40.0 2 6,372,077 0.60 8.415 125 1.51 35.0 13.3
40.1 - 50.0 7 19,717,354 1.86 7.661 104 1.79 46.6 34.9
50.1 - 60.0 15 46,113,403 4.36 7.558 117 1.48 55.9 41.2
60.1 - 70.0 57 218,112,441 20.61 7.305 120 1.43 66.0 50.9
70.1 - 80.0 169 721,427,783 68.18 7.144 126 1.32 76.4 62.3
80.1 - 90.0 9 34,861,261 3.29 7.495 130 1.21 82.5 60.4
90.1 - 100.0 1 2,024,104 0.19 6.990 235 1.01 96.4 1.5
====================== ========= ============== ============= =========== ================== ============= ============= ===========
TOTAL: 262 $1,058,111,956 100.00% 7.233% 125 1.37X 72.4% 57.5%
====================== ========= ============== ============= =========== ================== ============= ============= ===========
</TABLE>
Minimum: 26.3%
Maximum: 96.4%
Weighted Average: 72.4%
I-11
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
BALLOON LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
- ---------------------- --------- -------------- ------------- ----------- ------------------ ------------- ------------- -----------
PERCENT BY WEIGHTED WEIGHTED WEIGHTED
BALLON NUMBER OF AGGREGATE AGGREGATE AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE AVERAGE
LOAN-TO-VALUE MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE REMAINING TERM AVERAGE CUT-OFF BALLOON
RATIO (%) LOANS BALANCE ($) BALANCE (%) RATE (%) TO MATURITY (MOS) DSCR (X) DATE LTV (%) LTV (%)
- ---------------------- --------- -------------- ------------- ----------- ------------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0 4 $26,202,466 2.48% 8.333% 154 1.55x 45.2% 0.0%
0.1 - 10.0 12 38,831,874 3.67 7.021 248 1.32 74.9 2.7
10.1 - 20.0 1 1,981,826 0.19 7.030 174 1.54 41.9 18.0
20.1 - 30.0 3 14,826,518 1.40 6.955 179 1.46 61.7 24.9
30.1 - 40.0 7 23,325,687 2.20 7.523 134 1.63 57.5 35.8
40.1 - 50.0 23 78,982,901 7.46 7.515 142 1.39 62.8 46.4
50.1 - 60.0 62 231,848,805 21.91 7.281 118 1.45 67.7 55.8
60.1 - 70.0 137 580,281,119 54.84 7.127 115 1.32 76.8 66.3
70.1 - 80.0 12 59,877,391 5.66 7.261 108 1.28 79.5 70.6
80.1 - 90.0 1 1,953,370 0.18 9.080 98 1.18 82.8 81.4
====================== ========= ============== ============= ============== =============== ============= ============= ===========
TOTAL: 262 $1,058,111,956 100.00% 7.233% 125 1.37X 72.4% 57.5%
====================== ========= ============== ============= ============== =============== ============= ============= ===========
</TABLE>
Minimum: 0.0%
Maximum: 81.4%
Weighted Average: 57.5%
I-12
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
PREPAYMENT RESTRICTION ANALYSIS
PERCENTAGE OF MORTGAGE POOL BY PREPAYMENT RESTRICTION
<TABLE>
<CAPTION>
- ------------------------ ------------ ----------- ----------- ----------- ----------- ------------
PREPAYMENT RESTRICTION NOV-1998 NOV-1999 NOV-2000 NOV-2001 NOV-2002 NOV-2003
- ------------------------ ------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Locked Out/Defeasance 90.82% 90.92% 88.96% 88.25% 83.07% 61.08%
Yield Maintenance 8.18 8.08 10.05 10.77 15.81 37.71
Penalty Points
5.00% and greater 0.89 0.55 0.54 0.53 0.15 0.00
4.00% to 4.99% 0.11 0.34 0.00 0.00 0.00 0.15
3.00% to 3.99% 0.00 0.11 0.34 0.19 0.52 0.52
2.00% to 2.99% 0.00 0.00 0.11 0.15 0.19 0.19
1.00% to 1.99% 0.00 0.00 0.00 0.11 0.26 0.36
Open 0.00 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------
TOTALS 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Pool Balance Outstanding $1,058.11 $1,044.71 $1,030.26 $1,014.47 $997.47 $977.69
(in millions)
% Initial Pool Balance 100.00% 98.73% 97.37% 95.88% 94.27% 92.40%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------ ----------- ----------- ----------- ----------- -------------
PREPAYMENT RESTRICTION NOV-2004 NOV-2005 NOV-2006 NOV-2007 NOV-2008
- ------------------------ ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Locked Out/Defeasance 61.46% 61.25% 60.67% 60.68% 67.55%
Yield Maintenance 37.33 36.72 37.76 25.76 29.45
Penalty Points
5.00% and greater 0.00 0.00 0.00 0.00 0.00
4.00% to 4.99% 0.00 0.00 0.00 0.00 0.00
3.00% to 3.99% 0.66 0.72 0.49 0.00 1.28
2.00% to 2.99% 0.00 0.15 0.23 0.00 0.00
1.00% to 1.99% 0.44 0.25 0.25 0.50 0.00
Open 0.11 0.90 0.60 13.06 1.72
- -------------------------------------------------------------------------------------------
TOTALS 100.00% 100.00% 100.00% 100.00% 100.00%
Pool Balance Outstanding $954.03 $924.38 $892.56 $838.33 $103.71
(in millions)
% Initial Pool Balance 90.16% 87.36% 84.35% 79.23% 9.80%
</TABLE>
Note: Two of the Mortgage Loans (0.55% of the Initial Pool Balance) allow 10%
annual partial voluntary principal prepayment without restrictions.
I-13
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
LOAN INFORMATION - I
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Original Cut-Off
Loan Principal Cut-Off Date Bal./ Note
No. Seller (1) Property Name (2) Balance Date Balance Unit or SF (3) Date
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 HF Augusta Exchange $24,000,000 $23,949,234 $88 7/3/98
2 HF Magnolia Vinings Apartments (6) $23,837,210 $23,783,581 $59,459 10/3/97
3 MS The Regal Business Center (7) $22,000,000 $21,955,602 $19 7/30/98
4 HF 490 Post Street $17,800,000 $17,612,188 $149 1/26/98
5 MS Ventana Apartments (8) $17,500,000 $17,500,000 $50,000 1/6/98
6 HF Parkway Plaza-Norman, OK $17,400,000 $17,373,844 $83 7/17/98
7 HF Garden Court Hotel $14,750,000 $14,656,905 $236,402 4/9/98
8 HF The Courtyard Shopping Center $13,800,000 $13,702,133 $160 2/6/98
9 HF Roosevelt Glen Corporate Center (2A) $12,411,950 $12,384,293 $58 5/28/98
10 HF Roosevelt Glen Release Parcel (2A) $1,025,000 $1,021,453 $58 5/28/98
11 HF Pier 1 - York (2B) $1,538,084 $1,533,902 $130 6/4/98
12 HF Pier 1 - Harrisburg (2B) $1,386,797 $1,383,026 $130 6/4/98
13 HF Pier 1 - Slidell (2B) $1,361,583 $1,357,881 $130 6/9/98
14 HF Pier 1 - East Maple Shade (2B) $1,311,154 $1,307,589 $130 6/4/98
15 HF Pier 1 - Chesapeake (2B) $1,302,749 $1,299,207 $130 6/9/98
16 HF Pier 1 - Barboursville (2B) $1,109,438 $1,106,421 $130 6/9/98
17 HF Pier 1 - Sandusky (2B) $1,101,033 $1,098,039 $130 6/9/98
18 HF Pier 1 - Fargo (2B) $1,092,628 $1,089,657 $130 6/9/98
19 HF Pier 1 - Grand Forks (2B) $1,042,199 $1,039,365 $130 6/9/98
20 HF Pier 1 - Cherry Hill (2B) $1,008,580 $1,005,838 $130 6/4/98
21 HF York Creek Apartments $12,250,000 $12,185,486 $39,056 3/3/98
22 HF Pier 1 - Franklin (2C) $1,311,154 $1,307,589 $129 6/5/98
23 HF Pier 1 - Birmingham (2C) $1,252,320 $1,248,915 $129 6/9/98
24 HF Pier 1 - Cary (2C) $1,227,106 $1,223,769 $129 6/9/98
25 HF Pier 1 - Sunset Valley (2C) $1,217,354 $1,214,044 $129 6/9/98
26 HF Pier 1 - Corpus Christi (2C) $1,185,081 $1,181,859 $129 6/9/98
27 HF Pier 1 - West Melbourne (2C) $1,176,677 $1,173,478 $129 6/9/98
28 HF Pier 1 - Fayetteville (2C) $1,155,665 $1,152,523 $129 6/9/98
29 HF Pier 1 - Kennewick (2C) $1,136,000 $1,132,911 $129 6/9/98
30 HF Pier 1 - High Point (2C) $1,134,652 $1,131,567 $129 6/9/98
31 HF Pier 1 - Little Rock (2C) $949,746 $947,164 $129 6/4/98
32 HF Best Western Landmark Hotel $11,750,000 $11,699,997 $41,786 6/29/98
33 HF La Jolla Village Apartments $11,550,000 $11,524,351 $62,632 7/29/98
34 HF Country Hills Apartments $11,000,000 $10,946,739 $34,642 3/2/98
35 HF Wal-Mart- Augusta $10,780,000 $10,725,556 $56 7/31/98
36 HF Village on the Green $10,250,000 $10,200,584 $26,155 4/30/98
37 HF Shaws Grocery Center $10,000,000 $9,973,175 $110 5/29/98
38 HF Summerwood Apts $10,000,000 $9,958,300 $52,412 3/27/98
39 HF Bay Pointe Apartments $9,840,000 $9,825,031 $23,561 7/30/98
40 HF Central Park Apartments $9,310,000 $9,296,502 $21,926 7/31/98
41 HF Royal Palm MHC (8) (9) $9,100,000 $9,100,000 $20,313 4/16/98
42 HF Alafaya Square $9,100,000 $9,074,584 $64 6/17/98
43 MS Villa Monterey Apartments (10) $9,800,000 $8,943,107 $27,947 6/20/96
44 HF Brookhaven Manor $8,800,000 $8,781,289 $62,724 7/28/98
45 MS Village at University Place $8,650,000 $8,606,408 $82 3/17/98
46 HF Crossroads Shopping Center $8,600,000 $8,577,366 $38 6/16/98
47 HF Piccadilly Apartments $8,600,000 $8,543,811 $33,904 3/19/98
48 HF Empire Industrial Park $8,500,000 $8,445,587 $33 3/9/98
49 MS Sherwood Mall $9,000,000 $8,290,329 $34 8/7/96
50 HF Stanley Village $8,250,000 $8,221,690 $64 7/24/98
51 MS Plaza North Shopping $8,000,000 $7,492,647 $40 10/23/95
52 HF American House Parkway $7,500,000 $7,473,571 $59,789 7/20/98
53 HF Lincoln Court $7,500,000 $7,466,818 $56,141 6/22/98
54 HF The Fields $7,100,000 $7,053,422 $65,309 3/9/98
55 HF Cobb Marketfair $7,000,000 $6,957,258 $59 3/12/98
56 HF Barrows Place $6,937,194 $6,886,653 $72,491 8/15/97
57 HF Orcas Industrial Park $6,900,000 $6,847,654 $49 4/30/98
58 HF Village View Apartments $6,810,000 $6,771,378 $49,790 3/23/98
59 HF The Landings Apartments $6,735,000 $6,697,952 $41,345 7/9/98
60 HF Holiday Inn - Amherst $6,700,000 $6,686,203 $33,599 8/3/98
61 HF Space Saver Self Storage $6,671,194 $6,599,981 $51 12/23/97
62 HF Mountain View $6,550,000 $6,514,457 $68,573 5/1/98
63 HF Barrington Terrace $6,500,000 $6,472,061 $99,570 5/28/98
64 HF 230-38 East 44th Street $6,460,280 $6,451,509 $39,338 4/30/97
65 HF Woodfield East Apartments $6,250,000 $6,225,207 $37,055 4/15/98
66 HF NEC - Permanent $6,236,000 $6,180,378 $50 3/2/98
67 MS Royal Gulf Apartments (11) $6,200,000 $6,174,088 $42,876 6/19/98
68 HF Muses Block $6,200,000 $6,166,003 $94,862 3/20/98
69 HF Standiford Place $6,225,000 $6,140,182 $52,035 1/14/98
70 HF Winslow Court $6,150,000 $6,085,859 $47,177 2/5/98
71 HF Holiday Inn - Airport $6,000,000 $5,987,645 $28,926 7/31/98
72 HF Charles Daniels Apartments $6,000,000 $5,983,553 $57,534 6/16/98
73 MS Comfort Inn - Old Town $5,880,000 $5,863,001 $47,667 5/28/98
74 HF Clarion Hotel $5,850,000 $5,831,053 $28,444 7/28/98
75 HF Clay Creek Apartments $5,759,756 $5,746,571 $24,350 10/8/97
76 MS Rancho Bernardo Town Center $6,200,000 $5,704,932 $87 8/8/96
77 HF The Trees $5,750,000 $5,730,823 $51,629 5/11/98
78 HF Terra Cotta Villa $5,700,000 $5,662,224 $41,634 1/31/98
79 HF Whispering Pines (7) (8) (9) $5,500,000 $5,500,000 $14,825 3/30/98
80 MS Kingstowne I Apartments $5,500,000 $5,484,883 $20,776 6/4/98
81 HF Chelmsford Best Western $5,500,000 $5,477,611 $46,030 6/8/98
82 HF Brightondale $5,440,000 $5,432,017 $72,427 8/17/98
83 HF Stoney Brook Apartments $5,450,000 $5,430,752 $30,171 4/29/98
84 HF Orchard Shopping Center $5,200,000 $5,143,528 $30 6/16/97
85 HF Towne Club $5,100,000 $5,082,264 $49,826 7/2/98
86 HF 380 N. Woodward $5,000,000 $4,981,171 $125 5/30/98
87 HF 72 Madison Avenue $5,000,000 $4,965,423 $83 2/6/98
88 HF Access Self Storage $4,944,870 $4,923,284 $51 11/27/96
89 HF Stanley Apartments $4,930,000 $4,909,120 $61,364 4/30/98
90 HF Holiday Inn - Ithaca $4,900,000 $4,889,910 $27,471 7/31/98
91 HF Best Western - Rockville $4,900,000 $4,889,284 $29,813 7/31/98
92 HF Merrillville Corporate Center $4,900,000 $4,886,713 $104 6/25/98
93 HF Oak Hills Shopping Center $4,800,000 $4,789,127 $37 7/24/98
94 HF Hill House $4,800,000 $4,774,201 $62,818 5/1/98
95 HF Park Chateau $4,750,000 $4,717,485 $43,280 4/14/98
96 HF 131 Tremont Apartments $4,717,157 $4,697,003 $167,750 10/22/97
97 HF New Market Plaza $4,641,000 $4,628,072 $39 6/26/98
98 HF The Aspens on Country Club $4,464,178 $4,451,833 $29,482 10/17/97
99 HF Westwood Glen $4,450,000 $4,436,659 $17,890 6/16/98
100 HF South Broadway Car Care Center $4,345,399 $4,336,396 $87 7/7/98
101 HF Mountain View Mobile Estates $4,350,000 $4,334,009 $27,782 5/4/98
102 HF Bridgecreek Apartments $4,345,000 $4,325,681 $92,036 4/21/98
103 HF Le Cercle Apartments $4,325,000 $4,292,015 $47,165 1/16/98
104 HF Geneva Meadows $4,300,000 $4,284,544 $39,672 5/23/98
105 HF Northern Trust $4,250,000 $4,235,141 $57 5/4/98
106 MS Pleasant Run Apartments $4,237,500 $4,230,899 $39,175 8/12/98
107 HF Whispering Pines Community (8) (9) $4,200,000 $4,200,000 $25,301 5/12/98
108 HF Bankside Apartments $4,182,029 $4,160,942 $14,651 10/8/97
109 MS San Angelo Square $4,160,000 $4,144,183 $40 6/16/98
110 HF Lake Corporate Center $4,100,000 $4,091,791 $58 7/6/98
111 HF Mission Bay Condominiums $4,000,000 $3,988,858 $76,709 6/25/98
112 MS Preston Highway Shopping Center $4,000,000 $3,984,695 $28 6/30/98
113 HF Mr. D's Self Storage $4,000,000 $3,961,609 $28 3/3/98
114 HF Raycom (9) $3,975,000 $3,961,348 $77 5/13/98
115 HF Camelot $3,975,000 $3,940,791 $28,976 3/24/98
116 HF County Seat Self Storage $3,950,000 $3,936,931 $85 7/2/98
117 HF Vegas Food Center $3,940,000 $3,931,859 $73 7/16/98
118 HF A-American SSF Portfolio - Irving (7) $3,930,000 $3,890,555 $24 2/3/98
119 HF Regents Park Office I & II $3,900,000 $3,874,475 $48 1/22/98
120 HF Bittersweet Plaza $3,750,000 $3,737,132 $28 7/24/98
121 HF Springs of Escondido $3,750,000 $3,717,993 $36,097 3/24/98
122 HF Alamitos Business Center $3,600,000 $3,575,052 $50 2/20/98
123 HF Oakton Beach & Tennis Club $3,568,000 $3,542,802 $53,679 1/29/98
124 MS West Thomas Road (12) $3,600,000 $3,503,088 $22 6/16/97
125 HF Old Wilkes Centre $3,500,000 $3,494,650 $76 7/23/98
126 HF Meridian Busn. Campus $3,500,000 $3,474,014 $47 1/22/98
127 HF Beach Distribution Center $3,450,000 $3,438,182 $26 3/24/98
128 HF Coltsgate $3,400,000 $3,388,383 $110 5/28/98
129 HF Chateau DeVille $3,400,000 $3,375,481 $33,755 2/9/98
130 HF Edgewood Sunrise North $3,368,000 $3,345,292 $29,604 1/30/98
131 HF Atlantic Self Storage $3,350,000 $3,320,572 $47 3/2/98
132 HF Wyndemere Apartments $3,300,000 $3,290,610 $33,238 6/8/98
133 MS 1111 Prospect Street (13) $3,500,000 $3,264,098 $106 12/11/96
134 HF Cedar Village MHC $3,300,000 $3,279,213 $13,721 4/13/98
135 HF York Manor Apartments $3,300,000 $3,257,490 $17,145 3/25/98
136 HF 850 Warwick Avenue $3,200,000 $3,189,454 $63,789 5/4/98
137 HF Axon Instruments $3,150,000 $3,145,683 $99 7/31/98
138 MS Highpark Corp. Center $3,250,000 $3,107,979 $47 4/18/96
139 HF Campbell Industrial (7) $3,119,000 $3,103,734 $34 5/8/98
140 HF Valley View Place $3,100,000 $3,089,921 $38,147 7/7/98
141 HF Oak Glen Apartments $3,100,000 $3,066,526 $12,777 2/17/98
142 HF U Save Park Self Storage $3,049,852 $3,039,487 $37 12/5/97
143 MS Gladstone Village Center $3,000,000 $2,989,436 $72 6/30/98
144 HF Rainbow Forest Apartments $3,000,000 $2,988,834 $19,159 5/15/98
145 HF Babies R Us $3,000,000 $2,983,725 $75 7/3/98
146 MS Gallery Center $3,000,000 $2,974,681 $45 2/6/98
147 HF Nova Plaza $3,000,000 $2,968,083 $110 2/18/98
148 HF A-American SSF-Irwindale $2,950,000 $2,934,084 $39 5/20/98
149 MS Northwood Apartments $2,950,000 $2,934,002 $27,167 3/11/98
150 HF Guard Well SSF $2,916,997 $2,906,160 $61 2/4/98
151 HF Eckerd - Hyde Park $2,900,000 $2,876,624 $264 6/26/98
152 HF Village Square Apartments $2,900,000 $2,878,824 $13,266 2/2/98
153 HF Fairway Lanai (2D) $1,360,000 $1,358,033 $34,177 7/31/98
154 HF Park Place (2D) $1,515,000 $1,512,809 $34,177 7/31/98
155 HF 7410 Northside Drive Building $2,800,000 $2,781,161 $47 2/10/98
156 MS College Station Apartments $2,786,000 $2,776,529 $46,275 5/22/98
157 HF Canterbury Crossings $2,750,000 $2,738,503 $85,578 4/2/98
158 HF Arborwood Apartments $2,720,000 $2,710,394 $22,587 5/6/98
159 MS South Shore Apartments $2,700,000 $2,688,647 $23,178 6/2/98
160 HF Chula Vista MHP $2,700,000 $2,688,045 $11,586 6/3/98
161 MS Moorpark Terrace Apartments $2,700,000 $2,689,089 $74,697 4/6/98
162 HF S.S. Mini Storage - Opa Locka $2,675,000 $2,652,645 $45 2/26/98
163 HF Montebello Plaza $2,600,000 $2,594,725 $52 7/13/98
164 HF Cloverleaf Estates MHC $2,600,000 $2,591,162 $11,073 5/4/98
165 HF Centerville Storage Inns of America $2,620,000 $2,583,070 $32 8/11/97
166 HF Barclay Place Shopping Center $2,600,000 $2,573,414 $31 6/24/97
167 HF Tarzana Place $2,550,000 $2,541,741 $28,242 7/7/98
168 MS Morrison Apartments $2,500,000 $2,498,297 $31,624 8/21/98
169 HF Commack Colonial $2,500,000 $2,493,510 $82 6/18/98
170 HF Cedar Ridge $2,500,000 $2,489,085 $31,911 6/9/98
171 HF Capri MHC $2,500,000 $2,486,042 $8,911 5/1/98
172 HF 231 - 237 Second Avenue $2,478,430 $2,471,983 $70,628 3/19/97
173 MS Rancho del Oro Business Park $2,500,000 $2,466,490 $31 9/15/97
174 HF Walgreen - Covington $2,472,500 $2,417,661 $174 3/24/98
175 HF Miramar Apartments $2,400,000 $2,395,054 $35,747 6/29/98
176 HF Boulder Business Commons $2,400,000 $2,389,992 $51 4/6/98
177 HF Eckerd - Lynn Haven $2,400,000 $2,381,283 $218 6/8/98
178 HF American Classic Virginia Beach SSF $2,390,000 $2,382,123 $32 7/22/98
179 HF Laguna Ridge Business Center $2,362,000 $2,345,631 $55 2/20/98
180 HF American Classic-Hampton - SSF $2,350,000 $2,342,255 $37 7/22/98
181 MS Hayden Industrial Park (12) $2,400,000 $2,335,392 $23 6/18/97
182 HF Silver Spur Ranch $2,375,000 $2,337,891 $9,621 11/1/97
183 HF Thornapple Lake MHP $2,350,000 $2,337,412 $12,302 3/27/98
184 MS Kimberly Square Shopping Center $2,350,000 $2,326,244 $38 1/22/98
185 HF Brookshire Village $2,300,000 $2,295,072 $11,362 6/23/98
186 HF Calusa Shopping Center $2,300,000 $2,293,880 $61 6/10/98
187 HF Storage Inn SSF $2,264,169 $1,953,370 $21 12/13/96
188 HF Franklin Village MHP $2,248,434 $2,242,590 $10,993 10/31/97
189 HF Lincoln Tower $2,260,000 $2,237,990 $20,345 2/27/98
190 HF Timber Ridge $2,240,000 $2,233,760 $21,478 6/14/98
191 HF Walgreens - Tallahassee $2,250,000 $2,217,742 $143 2/6/98
192 MS Jasin Industrial Park (14) $2,320,000 $2,208,338 $31 6/12/96
193 MS Southland Apartments $2,208,000 $2,201,059 $44,021 5/4/98
194 HF Village Green Shopping Center $2,220,000 $2,197,493 $68 1/29/98
195 HF 322 Route 46 West $2,200,000 $2,191,203 $48 4/17/98
196 HF Edwards Apartments $2,125,000 $2,115,572 $40,684 6/9/98
197 HF Deerbrook Plaza $2,100,000 $2,097,029 $29 7/31/98
198 HF Shallowford Apartments $2,093,536 $2,082,356 $31,080 11/20/97
199 HF Walgreens - Belvidere $2,100,000 $2,073,904 $149 5/1/98
200 HF A-1 Self Storage Facility -
El Cajon, CA $2,075,000 $2,066,553 $33 5/28/98
201 HF McGee's Closet $2,070,000 $2,056,807 $89 4/8/98
202 HF American Classic-Portsmouth SSF $2,050,000 $2,043,243 $30 7/22/98
203 HF Hide-Away RV Resort $2,050,000 $2,041,536 $7,618 6/3/98
204 HF CVS - Lafayette, IN $2,036,000 $2,024,104 $200 7/8/98
205 HF A-American Downtown Los Angeles $2,000,000 $1,993,395 $23 6/18/98
206 HF Alderbury Cove $2,000,000 $1,992,811 $35,586 5/27/98
207 HF Brookridge Apartments $2,000,000 $1,986,906 $19,290 3/4/98
208 HF Pheasant Run Apartments $2,000,000 $1,981,826 $11,797 4/29/98
209 HF Waverly Self Storage $1,991,268 $1,974,701 $40 3/12/97
210 HF Park Ridge Building $1,950,000 $1,944,854 $48 6/17/98
211 HF Lock-Ur-Own SSF $1,950,000 $1,944,024 $29 7/8/98
212 HF Statewide Mini Storage $1,925,000 $1,919,850 $31 6/17/98
213 HF S.S. Mini Storage - Inglewood $1,865,000 $1,849,414 $44 2/26/98
214 HF Parkwood Apartments $1,850,000 $1,829,525 $15,772 2/17/98
215 HF Teeca Plaza $1,800,000 $1,796,621 $80 7/15/98
216 MS Sepulveda Retail Center $1,800,000 $1,794,952 $167 5/22/98
217 HF Gaddis Building $1,800,000 $1,790,436 $183 4/24/98
218 HF Copans - Levy Portfolio $1,750,000 $1,745,164 $23 5/28/98
219 HF Holly Apartments $1,725,000 $1,712,560 $42,814 1/26/98
220 HF Hutchinson Retail $1,700,000 $1,696,632 $20 6/30/98
221 HF Neptune Mobile Village $1,700,000 $1,692,473 $10,644 6/3/98
222 HF A-American Self Storage - Canoga Park $1,700,000 $1,682,621 $51 2/1/98
223 HF El Dorado West $1,660,000 $1,653,861 $19,231 3/31/98
224 HF Belmar Medical Center $1,650,000 $1,617,612 $55 12/27/96
225 HF Central Self Storage $1,628,409 $1,607,762 $26 3/29/96
226 HF Donovan-Smith MHP $1,607,358 $1,599,817 $12,597 10/31/97
227 HF Smithtown Professional $1,600,000 $1,595,789 $58 6/18/98
228 HF Casa Grande Apartments $1,600,000 $1,593,449 $28,454 4/14/98
229 HF Freeway Self Storage $1,600,000 $1,585,828 $37 3/2/98
230 HF Summit Mobile Home Park (7) $1,600,000 $1,576,009 $8,707 8/12/97
231 HF 333 Glen Head Road $1,500,000 $1,495,322 $82 5/11/98
232 HF CVS Cleveland $1,500,000 $1,490,647 $139 7/15/98
233 HF Bradley Self Storage Facility $1,500,000 $1,491,066 $29 2/23/98
234 HF Hillside West Apartments $1,460,000 $1,451,615 $19,616 3/27/98
235 HF Sierra Vista Plaza $1,450,000 $1,447,359 $73 6/8/98
236 HF Sentry Self Storage $1,400,000 $1,394,336 $37 6/29/98
237 HF Sunnyslope $1,350,000 $1,341,454 $31,939 2/26/98
238 HF Georgetown Station Apartments $1,325,000 $1,322,072 $13,491 6/30/98
239 HF Orange Park Shopping Center $1,300,000 $1,295,073 $60 4/17/98
240 HF Appalachian Self Storage $1,300,000 $1,293,053 $24 5/11/98
241 HF LaVerne Business Park $1,300,000 $1,285,939 $27 1/27/98
242 HF Villa Esperanza $1,275,000 $1,268,222 $16,910 5/29/98
243 HF Landmark Mini-Storage $1,250,000 $1,243,333 $54 5/26/98
244 HF Stirling Design Center $1,200,000 $1,196,850 $58 6/12/98
245 HF Westland I $1,200,000 $1,194,486 $13,574 6/26/98
246 HF Tatum Ranch Storage Solutions $1,200,000 $1,193,205 $23 5/28/98
247 HF Ocala Springs Shopping Center $1,173,000 $1,168,192 $71 6/12/98
248 HF Pine Oak Plaza $1,160,000 $1,156,354 $68 5/1/98
249 HF Sandia North Apartments $1,160,000 $1,153,345 $28,834 3/11/98
250 HF SecurCare - Colorado Springs $1,156,477 $1,152,591 $23 5/22/97
251 HF Whitnall Glen $1,150,000 $1,141,878 $47,578 1/29/98
252 HF 4227 Enterprise Avenue $1,136,000 $1,130,927 $30 4/23/98
253 HF Mark IV $1,100,000 $1,090,590 $41 2/24/98
254 HF Outrigger Apartments $1,050,000 $1,047,830 $21,384 7/9/98
255 MS Lindys Landing Apts $1,000,000 $997,296 $19,179 6/18/98
256 HF North 10th Street SSF $1,000,000 $992,983 $11 6/18/98
257 HF Leawood Plaza Apartments $1,000,000 $992,863 $12,411 2/6/98
258 HF American Village Apartments $925,000 $919,491 $10,569 2/25/98
259 HF Greddy Industrial Building $815,000 $811,229 $58 3/11/98
260 HF Personal Storage 2 $800,000 $797,532 $20 4/30/98
261 HF 107th St. Warehouse $795,000 $792,563 $21 7/9/98
262 HF 17222 Armstrong Avenue $532,000 $528,151 $46 3/30/98
Total/Weighted Average $1,066,321,146 $1,058,111,956
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Maturity Date Original Term
or to Original Rem. Term Remaining
Effective EMD Loan Maturity Amort. to Maturity Amort.
Maturity Maturity or EMD Term or EMD Term Security
Date (EMD)(4) Date (mos) (mos)(5) (mos) (mos) Type
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
7/1/08 119 360 116 357 Fee
10/1/08 132 360 119 357 Fee
8/1/08 120 360 117 357 Fee
2/1/08 120 300 111 291 Fee
2/1/08 121 360 111 360 Fee
8/1/08 119 360 117 358 Fee
4/1/08 4/1/23 119 300 113 294 Fee
2/1/18 240 360 231 351 Fee
6/1/10 144 360 139 355 Fee
6/1/10 144 360 139 355 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
4/1/08 120 360 113 353 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
6/1/08 6/1/28 119 360 115 356 Fee
7/1/08 7/1/23 120 300 116 296 Fee
8/1/08 120 360 117 357 Fee
3/1/08 119 360 112 353 Fee
6/1/16 214 267 211 264 Fee
5/1/08 120 360 114 354 Fee
6/1/08 119 360 115 356 Fee
5/1/08 120 360 114 354 Fee
8/1/08 119 360 117 358 Fee
8/1/05 83 360 81 358 Fee
4/1/08 120 360 113 360 Fee
7/1/08 7/1/28 120 360 116 356 Fee
7/1/11 180 180 152 152 Fee
8/1/08 120 360 117 357 Fee
4/1/08 120 360 113 353 Fee
7/1/08 120 360 116 356 Fee
3/1/08 120 360 112 352 Fee
3/1/08 120 360 112 352 Fee
9/1/11 180 180 154 154 Fee
8/1/08 8/1/23 120 300 117 297 Fee
1/1/06 120 240 86 206 Fee
8/1/08 120 300 117 297 Fee
7/1/08 120 300 116 296 Fee
3/1/08 120 360 112 352 Fee
3/1/08 3/1/28 120 360 112 352 Fee
8/1/08 132 291 117 276 Fee
5/1/21 276 276 270 270 Fee
4/1/08 120 360 113 353 Fee
7/1/18 239 240 236 237 Fee
8/1/08 8/1/23 119 300 117 298 Fee
12/31/07 133 287 110 264 Fee
5/1/08 119 300 114 295 Fee
6/1/08 119 300 115 296 Fee
5/1/07 120 360 102 342 Leasehold
4/1/08 119 360 113 354 Fee
3/1/08 120 312 112 304 Fee
7/1/08 120 300 116 296 Fee
4/1/08 120 360 113 353 Fee
1/1/08 120 300 110 290 Fee
2/1/08 120 300 111 291 Fee
8/1/08 8/1/23 119 300 117 298 Fee
6/1/08 119 360 115 356 Fee
6/1/08 120 360 115 355 Fee
8/1/08 8/1/23 120 300 117 297 Fee
10/1/08 132 350 119 337 Fee
9/1/11 180 180 154 154 Fee
5/1/13 179 360 174 355 Fee
3/1/08 120 360 112 352 Fee
4/1/08 120 360 113 360 Fee
7/1/08 120 360 116 356 Fee
6/1/08 119 300 115 296 Fee
8/1/08 119 360 117 358 Fee
5/1/13 179 360 174 355 Fee
6/1/07 120 360 103 343 Fee
7/1/23 299 300 296 297 Fee
6/1/08 120 360 115 355 Fee
2/1/08 120 360 111 351 Fee
11/30/07 132 280 109 257 Fee
5/1/08 120 360 114 354 Fee
8/1/08 8/1/23 119 300 117 298 Fee
8/1/08 119 300 117 298 Fee
7/1/08 120 360 116 356 Fee
8/1/08 119 300 117 298 Fee
5/1/08 119 300 114 295 Fee
5/1/08 120 300 114 294 Fee
11/1/07 120 292 108 280 Fee
7/1/08 120 360 116 356 Fee
11/1/04 84 360 72 348 Fee
6/1/08 119 360 115 356 Fee
7/1/08 119 360 116 357 Fee
5/1/08 119 360 114 355 Fee
5/1/13 180 360 174 354 Fee
2/1/08 120 360 111 351 Fee
6/1/08 120 360 115 355 Fee
5/1/08 119 360 114 355 Fee
9/1/08 120 360 118 358 Fee
5/1/08 120 360 114 360 Fee
10/1/08 132 354 119 341 Fee
7/1/08 120 300 116 296 Fee
7/1/08 119 360 116 357 Fee
7/1/13 180 360 176 356 Fee
7/1/08 120 300 116 296 Fee
3/1/08 120 300 112 292 Fee
5/1/08 119 360 114 355 Fee
4/1/08 120 300 113 293 Fee
7/1/08 119 300 116 297 Fee
8/1/08 120 360 117 357 Fee
2/1/08 120 300 111 291 Fee
2/1/08 120 360 111 351 Fee
8/1/08 8/1/23 120 300 117 297 Fee
4/1/08 120 300 113 293 Fee
2/1/08 120 360 111 351 Fee
2/1/08 120 360 111 351 Fee
7/1/07 120 240 104 224 Fee
8/1/18 239 360 237 358 Fee
2/1/08 120 360 111 351 Fee
5/1/08 119 360 114 355 Fee
6/1/08 120 360 115 355 Fee
2/1/08 120 360 111 351 Fee
2/1/08 120 360 111 351 Fee
3/1/08 120 300 112 292 Fee
6/1/08 119 360 115 356 Fee
1/1/12 180 180 158 158 Fee
4/1/08 119 300 113 294 Fee
4/1/18 240 240 233 233 Fee
5/1/10 143 360 138 355 Fee
8/1/08 119 360 117 358 Fee
5/1/06 120 264 90 234 Fee
5/1/13 179 300 174 295 Fee
7/1/08 119 300 116 297 Fee
2/1/08 120 300 111 291 Fee
12/1/07 120 292 109 281 Fee
7/1/18 240 300 236 296 Fee
5/1/08 119 360 114 355 Fee
5/1/12 165 240 162 237 Fee
3/1/08 120 300 112 292 Fee
2/1/08 120 300 111 291 Fee
6/1/08 120 300 115 295 Fee
4/1/08 120 360 113 353 Fee
2/1/08 120 356 111 347 Fee
4/1/18 237 237 233 233 Fee
2/1/08 120 360 111 351 Fee
8/1/08 119 360 117 358 Fee
8/1/08 119 360 117 358 Fee
2/1/08 120 360 111 351 Fee
6/1/08 120 360 115 355 Fee
4/1/08 119 360 113 354 Fee
6/1/08 120 360 115 355 Fee
7/1/08 120 300 116 296 Fee
6/1/08 119 300 115 296 Fee
5/1/08 120 360 114 354 Fee
3/1/08 120 300 112 292 Fee
7/1/08 119 360 116 357 Fee
5/1/08 119 360 114 355 Fee
9/1/08 132 300 118 286 Fee
7/1/07 7/1/17 120 360 104 344 Fee
7/1/08 119 300 116 297 Fee
10/1/08 120 360 119 359 Fee
6/1/08 119 360 115 356 Fee
6/1/23 299 300 295 296 Fee
5/1/08 119 300 114 295 Fee
3/1/07 120 360 100 340 Fee
11/1/07 120 300 108 288 Fee
4/1/13 180 180 173 173 Fee
7/1/08 119 360 116 357 Fee
4/1/08 119 360 113 354 Fee
3/1/18 236 237 232 233 Fee
8/1/08 120 300 117 297 Fee
2/1/08 120 360 111 351 Fee
8/1/08 120 300 117 297 Fee
7/1/07 120 240 104 224 Fee
5/1/07 120 300 102 282 Fee
4/1/08 120 360 113 353 Fee
2/1/08 120 300 111 291 Fee
7/1/08 119 360 116 357 Fee
6/1/08 119 360 115 356 Fee
12/31/06 121 281 98 258 Fee
7/1/08 128 352 116 348 Fee
3/1/08 120 300 112 292 Fee
7/1/08 120 360 116 356 Fee
8/1/14 198 264 189 255 Fee
7/1/06 120 240 92 212 Fee
6/1/08 120 360 115 355 Fee
2/1/08 120 300 111 291 Fee
4/1/08 119 360 113 354 Fee
7/1/13 180 300 176 296 Fee
8/1/08 119 360 117 358 Fee
12/1/08 132 356 121 345 Fee
11/1/17 234 234 228 228 Fee
6/1/08 6/1/18 119 300 115 296 Leasehold
4/1/08 119 300 113 294 Fee
8/1/08 120 300 117 297 Fee
6/1/08 119 300 115 296 Fee
6/1/18 238 239 235 236 Fee
8/1/08 120 300 117 297 Fee
6/1/08 120 360 115 355 Fee
3/1/08 120 360 112 352 Fee
5/1/13 179 240 174 235 Fee
4/1/08 133 288 113 268 Fee
7/1/08 120 360 116 356 Fee
7/1/08 119 300 116 297 Fee
7/1/08 120 360 116 356 Fee
3/1/08 120 300 112 292 Fee
2/1/08 120 300 111 291 Fee
7/1/08 119 360 116 357 Fee
6/1/08 120 360 115 355 Fee/Leasehold
5/1/08 5/1/28 119 300 114 295 Fee
6/1/08 119 360 115 356 Fee
2/1/08 120 360 111 351 Fee
7/1/08 119 360 116 357 Fee
6/1/08 119 300 115 296 Fee
2/1/08 120 300 111 291 Fee
4/1/08 119 360 113 354 Fee
1/1/07 120 300 98 278 Fee
4/1/03 84 281 53 250 Fee
11/1/08 132 292 120 280 Fee
6/1/08 119 360 115 356 Fee
4/1/08 119 360 113 354 Fee
3/1/08 120 300 112 292 Fee
9/1/07 120 300 106 286 Fee
5/1/08 119 360 114 355 Fee
10/1/17 230 231 227 228 Fee
3/1/08 120 360 112 352 Fee
4/1/08 120 360 113 353 Fee
7/1/08 119 360 116 357 Fee
7/1/08 120 300 116 296 Fee
3/1/08 120 360 112 352 Fee
7/1/08 119 360 116 357 Fee
4/1/08 119 360 113 354 Fee
5/1/08 119 300 114 295 Fee
2/1/08 120 300 111 291 Fee
6/1/08 120 300 115 295 Fee
6/1/08 120 300 115 295 Fee
6/1/08 119 360 115 356 Fee
7/1/08 120 300 116 296 Fee
7/1/18 239 240 236 237 Fee
7/1/13 180 300 176 296 Fee
5/1/08 119 360 114 355 Fee
3/1/08 120 360 112 352 Fee
6/1/08 132 286 115 269 Fee
2/1/08 120 360 111 351 Fee
5/1/08 120 360 114 354 Fee
3/1/08 120 300 112 292 Fee
7/1/08 119 360 116 357 Fee
7/1/08 120 360 116 356 Fee
6/1/08 119 240 115 236 Fee
2/1/08 120 360 111 351 Fee
3/1/08 120 360 112 352 Fee
5/1/13 179 300 174 295 Fee
5/1/08 119 360 114 355 Fee
7/1/08 119 300 116 297 Fee
4/1/08 120 300 113 293 Fee
132 329 125 323
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
LOAN INFORMATION - II
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Related Borrower
Loan Loan Groups
No. Seller(1) Property Name (2) (by Loan No.)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 HF Augusta Exchange
2 HF Magnolia Vinings Apartments (6) 75
3 MS The Regal Business Center (7)
4 HF 490 Post Street
5 MS Ventana Apartments (8)
6 HF Parkway Plaza-Norman, OK
7 HF Garden Court Hotel
8 HF The Courtyard Shopping Center
9 HF Roosevelt Glen Corporate Center (2A) 10
10 HF Roosevelt Glen Release Parcel (2A) 9
11 HF Pier 1 - York (2B) 12, 13, 14, 15, 16, 17, 18, 19, 20, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31
12 HF Pier 1 - Harrisburg (2B) 11, 13, 14, 15, 16, 17, 18, 19, 20, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31
13 HF Pier 1 - Slidell (2B) 11, 12, 14, 15, 16, 17, 18, 19, 20, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31
14 HF Pier 1 - East Maple Shade (2B) 11, 12, 13, 15, 16, 17, 18, 19, 20, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31
15 HF Pier 1 - Chesapeake (2B) 11, 12, 13, 14, 16, 17, 18, 19, 20, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31
16 HF Pier 1 - Barboursville (2B) 11, 12, 13, 14, 15, 17, 18, 19, 20, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31
17 HF Pier 1 - Sandusky (2B) 11, 12, 13, 14, 15, 16, 18, 19, 20, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31
18 HF Pier 1 - Fargo (2B) 11, 12, 13, 14, 15, 16, 17, 19, 20, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31
19 HF Pier 1 - Grand Forks (2B) 11, 12, 13, 14, 15, 16, 17, 18, 20, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31
20 HF Pier 1 - Cherry Hill (2B) 11, 12, 13, 14, 15, 16, 17, 18, 19, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31
21 HF York Creek Apartments 65
22 HF Pier 1 - Franklin (2C) 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 23, 24, 25, 26, 27, 28, 29, 30, 31
23 HF Pier 1 - Birmingham (2C) 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 22, 24, 25, 26, 27, 28, 29, 30, 31
24 HF Pier 1 - Cary (2C) 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 22, 23, 25, 26, 27, 28, 29, 30, 31
25 HF Pier 1 - Sunset Valley (2C) 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 22, 23, 24, 26, 27, 28, 29, 30, 31
26 HF Pier 1 - Corpus Christi (2C) 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 22, 23, 24, 25, 27, 28, 29, 30, 31
27 HF Pier 1 - West Melbourne (2C) 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 22, 23, 24, 25, 26, 28, 29, 30, 31
28 HF Pier 1 - Fayetteville (2C) 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 22, 23, 24, 25, 26, 27, 29, 30, 31
29 HF Pier 1 - Kennewick (2C) 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 22, 23, 24, 25, 26, 27, 28, 30, 31
30 HF Pier 1 - High Point (2C) 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 22, 23, 24, 25, 26, 27, 28, 29, 31
31 HF Pier 1 - Little Rock (2C) 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 22, 23, 24, 25, 26, 27, 28, 29, 30
32 HF Best Western Landmark Hotel
33 HF La Jolla Village Apartments
34 HF Country Hills Apartments
35 HF Wal-Mart- Augusta
36 HF Village on the Green
37 HF Shaws Grocery Center
38 HF Summerwood Apts 167
39 HF Bay Pointe Apartments
40 HF Central Park Apartments 197
41 HF Royal Palm MHC (8) (9) 79, 107, 188
42 HF Alafaya Square
43 MS Villa Monterey Apartments (10)
44 HF Brookhaven Manor
45 MS Village at University Place
46 HF Crossroads Shopping Center
47 HF Piccadilly Apartments
48 HF Empire Industrial Park
49 MS Sherwood Mall
50 HF Stanley Village 261
51 MS Plaza North Shopping
52 HF American House Parkway
53 HF Lincoln Court 70
54 HF The Fields
55 HF Cobb Marketfair
56 HF Barrows Place
57 HF Orcas Industrial Park
58 HF Village View Apartments
59 HF The Landings Apartments
60 HF Holiday Inn - Amherst 71, 90, 120
61 HF Space Saver Self Storage 162, 213, 260
62 HF Mountain View 94
63 HF Barrington Terrace
64 HF 230-38 East 44th Street
65 HF Woodfield East Apartments 21
66 HF NEC - Permanent
67 MS Royal Gulf Apartments (11)
68 HF Muses Block
69 HF Standiford Place 95, 115, 121, 189
70 HF Winslow Court 53
71 HF Holiday Inn - Airport 60, 90, 120
72 HF Charles Daniels Apartments
73 MS Comfort Inn - Old Town
74 HF Clarion Hotel
75 HF Clay Creek Apartments 2
76 MS Rancho Bernardo Town Center
77 HF The Trees 111
78 HF Terra Cotta Villa
79 HF Whispering Pines (7) (8) (9) 41, 107, 188
80 MS Kingstowne I Apartments
81 HF Chelmsford Best Western
82 HF Brightondale
83 HF Stoney Brook Apartments 208
84 HF Orchard Shopping Center
85 HF Towne Club
86 HF 380 N. Woodward
87 HF 72 Madison Avenue
88 HF Access Self Storage
89 HF Stanley Apartments
90 HF Holiday Inn - Ithaca 60, 71, 120
91 HF Best Western - Rockville
92 HF Merrillville Corporate Center
93 HF Oak Hills Shopping Center
94 HF Hill House 62
95 HF Park Chateau 69, 115, 121, 189
96 HF 131 Tremont Apartments
97 HF New Market Plaza 114
98 HF The Aspens on Country Club
99 HF Westwood Glen 144
100 HF South Broadway Car Care Center 175
101 HF Mountain View Mobile Estates
102 HF Bridgecreek Apartments
103 HF Le Cercle Apartments
104 HF Geneva Meadows
105 HF Northern Trust
106 MS Pleasant Run Apartments
107 HF Whispering Pines Community (8) (9) 41, 79, 188
108 HF Bankside Apartments
109 MS San Angelo Square
110 HF Lake Corporate Center
111 HF Mission Bay Condominiums 77
112 MS Preston Highway Shopping Center
113 HF Mr. D's Self Storage
114 HF Raycom (9) 97
115 HF Camelot 69, 95, 121, 189
116 HF County Seat Self Storage
117 HF Vegas Food Center
118 HF A-American SSF Portfolio - Irving (7)
119 HF Regents Park Office I & II
120 HF Bittersweet Plaza 60, 71, 90
121 HF Springs of Escondido 69, 95, 115, 189
122 HF Alamitos Business Center 179
123 HF Oakton Beach & Tennis Club
124 MS West Thomas Road (12) 181
125 HF Old Wilkes Centre 231
126 HF Meridian Busn. Campus
127 HF Beach Distribution Center
128 HF Coltsgate
129 HF Chateau DeVille
130 HF Edgewood Sunrise North
131 HF Atlantic Self Storage 229
132 HF Wyndemere Apartments
133 MS 1111 Prospect Street (13)
134 HF Cedar Village MHC
135 HF York Manor Apartments
136 HF 850 Warwick Avenue
137 HF Axon Instruments
138 MS Highpark Corp. Center
139 HF Campbell Industrial (7)
140 HF Valley View Place
141 HF Oak Glen Apartments 257
142 HF U Save Park Self Storage
143 MS Gladstone Village Center
144 HF Rainbow Forest Apartments 99
145 HF Babies R Us 212
146 MS Gallery Center
147 HF Nova Plaza
148 HF A-American SSF-Irwindale 222
149 MS Northwood Apartments
150 HF Guard Well SSF
151 HF Eckerd - Hyde Park
152 HF Village Square Apartments
153 HF Fairway Lanai (2D) 154
154 HF Park Place (2D) 153
155 HF 7410 Northside Drive Building
156 MS College Station Apartments
157 HF Canterbury Crossings
158 HF Arborwood Apartments
159 MS South Shore Apartments
160 HF Chula Vista MHP 203, 221
161 MS Moorpark Terrace Apartments
162 HF S.S. Mini Storage - Opa Locka 61, 213, 260
163 HF Montebello Plaza
164 HF Cloverleaf Estates MHC
165 HF Centerville Storage Inns of America 187
166 HF Barclay Place Shopping Center
167 HF Tarzana Place 38
168 MS Morrison Apartments
169 HF Commack Colonial 227
170 HF Cedar Ridge
171 HF Capri MHC
172 HF 231 - 237 Second Avenue
173 MS Rancho del Oro Business Park
174 HF Walgreen - Covington
175 HF Miramar Apartments 100
176 HF Boulder Business Commons
177 HF Eckerd - Lynn Haven
178 HF American Classic Virginia Beach SSF
179 HF Laguna Ridge Business Center 122
180 HF American Classic-Hampton - SSF
181 MS Hayden Industrial Park (12) 124
182 HF Silver Spur Ranch
183 HF Thornapple Lake MHP
184 MS Kimberly Square Shopping Center
185 HF Brookshire Village
186 HF Calusa Shopping Center
187 HF Storage Inn SSF 165
188 HF Franklin Village MHP 41, 79, 107
189 HF Lincoln Tower 69, 95, 115, 121
190 HF Timber Ridge
191 HF Walgreens - Tallahassee
192 MS Jasin Industrial Park (14)
193 MS Southland Apartments
194 HF Village Green Shopping Center 237
195 HF 322 Route 46 West
196 HF Edwards Apartments
197 HF Deerbrook Plaza 40
198 HF Shallowford Apartments
199 HF Walgreens - Belvidere
200 HF A-1 Self Storage Facility - El Cajon, CA
201 HF McGee's Closet
202 HF American Classic-Portsmouth SSF
203 HF Hide-Away RV Resort 160, 221
204 HF CVS - Lafayette, IN
205 HF A-American Downtown Los Angeles
206 HF Alderbury Cove
207 HF Brookridge Apartments
208 HF Pheasant Run Apartments 83
209 HF Waverly Self Storage
210 HF Park Ridge Building
211 HF Lock-Ur-Own SSF
212 HF Statewide Mini Storage 145
213 HF S.S. Mini Storage - Inglewood 61, 162, 260
214 HF Parkwood Apartments
215 HF Teeca Plaza
216 MS Sepulveda Retail Center
217 HF Gaddis Building
218 HF Copans - Levy Portfolio
219 HF Holly Apartments
220 HF Hutchinson Retail
221 HF Neptune Mobile Village 160, 203
222 HF A-American Self Storage - Canoga Park 148
223 HF El Dorado West
224 HF Belmar Medical Center
225 HF Central Self Storage
226 HF Donovan-Smith MHP
227 HF Smithtown Professional 169
228 HF Casa Grande Apartments
229 HF Freeway Self Storage 131
230 HF Summit Mobile Home Park (7)
231 HF 333 Glen Head Road 125
232 HF CVS Cleveland
233 HF Bradley Self Storage Facility
234 HF Hillside West Apartments 258
235 HF Sierra Vista Plaza
236 HF Sentry Self Storage
237 HF Sunnyslope 194
238 HF Georgetown Station Apartments
239 HF Orange Park Shopping Center 248
240 HF Appalachian Self Storage 256
241 HF LaVerne Business Park
242 HF Villa Esperanza
243 HF Landmark Mini-Storage
244 HF Stirling Design Center
245 HF Westland I
246 HF Tatum Ranch Storage Solutions
247 HF Ocala Springs Shopping Center
248 HF Pine Oak Plaza 239
249 HF Sandia North Apartments
250 HF SecurCare - Colorado Springs
251 HF Whitnall Glen
252 HF 4227 Enterprise Avenue
253 HF Mark IV
254 HF Outrigger Apartments
255 MS Lindys Landing Apts
256 HF North 10th Street SSF 240
257 HF Leawood Plaza Apartments 141
258 HF American Village Apartments 234
259 HF Greddy Industrial Building
260 HF Personal Storage 2 61, 162, 213
261 HF 107th St. Warehouse 50
262 HF 17222 Armstrong Avenue
Total/Weighted Average
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------
Interest Scheduled
Mortgage Accrual Balloon Balloon
Rate Method Balance LTV (3)
- -------------------------------------------------------
<S> <C> <C> <C>
6.940% Actual/360 $20,971,912 69.9%
7.380% Actual/360 $20,949,314 64.0%
7.120% Actual/360 $19,250,593 68.8%
7.230% Actual/360 $14,185,139 54.6%
6.740% Actual/360 $15,758,106 67.1%
6.850% Actual/360 $15,163,793 67.8%
7.330% Actual/360 $11,990,133 50.0%
7.050% Actual/360 $8,052,799 43.1%
7.110% Actual/360 $10,443,057 62.4%
7.110% Actual/360 $859,518 62.4%
7.000% Actual/360 $1,346,315 69.3%
7.000% Actual/360 $1,213,889 69.3%
7.000% Actual/360 $1,191,819 69.3%
7.000% Actual/360 $1,147,679 69.3%
7.000% Actual/360 $1,140,322 69.3%
7.000% Actual/360 $971,112 69.3%
7.000% Actual/360 $963,756 69.3%
7.000% Actual/360 $956,399 69.3%
7.000% Actual/360 $912,256 69.3%
7.000% Actual/360 $882,829 69.3%
7.220% Actual/360 $10,618,906 66.4%
7.000% Actual/360 $1,147,679 69.1%
7.000% Actual/360 $1,096,179 69.1%
7.000% Actual/360 $1,074,109 69.1%
7.000% Actual/360 $1,065,573 69.1%
7.000% Actual/360 $1,037,325 69.1%
7.000% Actual/360 $1,029,968 69.1%
7.000% Actual/360 $1,011,576 69.1%
7.000% Actual/360 $994,362 69.1%
7.000% Actual/360 $993,183 69.1%
7.000% Actual/360 $831,332 69.1%
7.160% Actual/360 $9,476,853 56.1%
6.750% Actual/360 $10,023,785 68.2%
7.170% Actual/360 $9,671,888 68.4%
6.510% 30/360 $3,574,047 23.8%
6.980% Actual/360 $8,834,652 63.1%
7.050% Actual/360 $8,764,557 70.1%
7.030% Actual/360 $8,746,569 57.7%
6.800% Actual/360 $8,564,073 69.6%
7.000% Actual/360 $8,588,922 71.0%
7.000% Actual/360 $8,107,249 69.2%
6.900% Actual/360 $7,931,872 68.9%
8.211% 30/360 $0 0.0%
6.920% Actual/360 $7,671,923 68.5%
7.010% Actual/360 $7,547,511 70.9%
7.120% Actual/360 $7,539,522 70.1%
6.930% Actual/360 $7,405,380 68.6%
7.030% Actual/360 $7,336,525 62.7%
8.460% 30/360 $0 0.0%
6.850% Actual/360 $6,588,180 55.8%
8.160% 30/360 $5,542,393 36.9%
6.710% Actual/360 $5,962,972 51.9%
6.964% Actual/360 $6,012,663 60.7%
6.910% Actual/360 $6,110,843 66.1%
7.260% Actual/360 $6,073,948 64.6%
7.625% 30/360 $5,416,190 61.5%
7.410% Actual/360 $404,592 4.4%
6.870% Actual/360 $5,855,195 69.0%
6.870% Actual/360 $310,828 3.6%
7.550% Actual/360 $5,478,501 56.2%
8.763% 30/360 $5,388,159 67.8%
7.220% Actual/360 $5,306,015 64.7%
7.110% Actual/360 $5,248,759 64.0%
8.690% 30/360 $5,809,152 70.8%
7.220% Actual/360 $5,501,950 66.3%
7.050% Actual/360 $5,049,856 62.2%
7.250% Actual/360 $4,999,752 56.2%
7.030% Actual/360 $5,350,924 68.6%
6.550% Actual/360 $4,860,070 61.5%
7.300% Actual/360 $4,910,454 59.0%
7.550% Actual/360 $4,906,121 57.5%
6.970% Actual/360 $5,247,812 69.6%
7.790% Actual/360 $5,233,294 62.3%
7.150% Actual/360 $4,715,085 58.2%
7.770% Actual/360 $4,979,722 68.7%
8.300% 30/360 $0 0.0%
7.254% Actual/360 $4,474,543 57.4%
6.860% Actual/360 $4,900,044 62.8%
7.090% Actual/360 $4,855,471 68.2%
6.960% Actual/360 $4,793,024 58.5%
7.380% Actual/360 $4,477,391 56.0%
6.950% Actual/360 $4,753,297 69.9%
7.030% Actual/360 $4,199,126 60.9%
8.520% 30/360 $4,616,384 56.3%
6.780% Actual/360 $322,225 4.4%
7.150% Actual/360 $4,327,166 69.0%
7.170% Actual/360 $4,330,270 64.6%
8.316% 30/360 $3,978,204 59.5%
6.970% Actual/360 $4,305,256 68.3%
7.550% Actual/360 $4,006,666 58.1%
7.230% Actual/360 $3,968,956 53.6%
7.010% Actual/360 $4,283,444 69.1%
7.040% Actual/360 $3,865,739 53.7%
7.270% Actual/360 $3,894,211 63.8%
6.910% Actual/360 $3,801,754 52.1%
8.135% Actual/360 $3,878,964 44.1%
6.910% Actual/360 $4,046,330 65.5%
7.670% Actual/360 $4,164,612 69.4%
6.630% Actual/360 $3,857,117 67.7%
7.020% Actual/360 $3,805,055 65.3%
6.870% Actual/360 $3,794,288 51.1%
7.360% Actual/360 $3,389,621 57.5%
6.700% Actual/360 $3,704,148 63.9%
6.960% Actual/360 $3,752,849 69.5%
7.070% Actual/360 $3,726,442 59.3%
6.700% Actual/360 $3,665,952 63.2%
7.090% Actual/360 $3,750,643 71.6%
7.630% Actual/360 $3,596,075 65.4%
7.710% Actual/360 $3,401,437 65.4%
7.150% Actual/360 $3,602,207 69.9%
6.910% Actual/360 $3,057,902 58.2%
7.680% Actual/360 $3,267,710 60.5%
7.130% Actual/360 $3,178,339 35.3%
7.140% Actual/360 $3,491,594 68.2%
6.890% Actual/360 $3,137,087 43.0%
7.040% Actual/360 $3,182,327 61.2%
7.030% Actual/360 $3,444,885 69.9%
7.530% Actual/360 $3,157,446 60.3%
7.430% Actual/360 $3,397,529 68.0%
6.850% Actual/360 $2,994,627 52.5%
6.940% Actual/360 $2,963,709 47.8%
7.160% Actual/360 $3,117,077 64.3%
7.070% Actual/360 $3,082,934 69.1%
8.500% 30/360 $2,519,777 51.8%
6.780% Actual/360 $2,130,205 48.7%
6.830% Actual/360 $3,007,042 55.7%
7.150% Actual/360 $3,031,217 60.6%
7.160% Actual/360 $2,982,890 58.5%
6.970% Actual/360 $2,930,889 69.0%
7.290% Actual/360 $2,924,870 69.0%
7.670% Actual/360 $2,700,946 61.8%
6.830% Actual/360 $2,875,691 70.1%
8.400% 30/360 $0 0.0%
7.340% Actual/360 $2,683,337 51.3%
7.259% Actual/360 $32,950 0.7%
7.300% Actual/360 $2,705,518 67.6%
7.230% Actual/360 $2,772,219 48.6%
8.430% 30/360 $2,449,942 27.2%
7.750% Actual/360 $2,072,562 47.8%
7.130% Actual/360 $2,504,354 64.6%
7.090% Actual/360 $2,460,889 62.1%
7.960% Actual/360 $2,497,018 60.9%
8.070% Actual/360 $1,299,404 34.7%
6.820% Actual/360 $2,613,296 51.2%
6.970% Actual/360 $1,480,179 36.5%
7.390% Actual/360 $2,429,757 48.6%
7.180% Actual/360 $2,387,461 54.3%
7.250% Actual/360 $2,385,013 60.5%
6.710% Actual/360 $2,553,282 60.8%
7.347% Actual/360 $2,543,766 65.2%
6.860% 30/360 $22,246 0.7%
6.910% Actual/360 $2,496,322 67.5%
7.010% Actual/360 $1,190,177 60.3%
7.010% Actual/360 $1,325,822 60.3%
7.300% Actual/360 $2,432,152 57.2%
7.180% Actual/360 $2,441,723 65.7%
7.020% Actual/360 $2,408,449 69.4%
7.030% Actual/360 $2,378,265 71.0%
7.220% Actual/360 $2,175,309 64.0%
6.960% Actual/360 $2,170,296 50.8%
7.150% Actual/360 $2,364,844 67.6%
7.970% Actual/360 $2,173,537 60.4%
7.100% Actual/360 $2,281,401 55.6%
7.180% Actual/360 $2,286,145 63.5%
8.550% 30/360 $2,077,683 59.0%
8.500% 30/360 $2,307,314 54.3%
7.150% Actual/360 $2,061,279 56.1%
6.710% Actual/360 $2,163,395 54.2%
7.170% Actual/360 $2,197,912 68.7%
7.031% Actual/360 $171,476 4.8%
7.070% Actual/360 $2,016,039 38.0%
8.523% 30/360 $2,228,401 69.6%
7.850% 30/360 $2,011,340 46.8%
6.950% Actual/360 $24,901 0.7%
7.040% Actual/360 $2,102,652 67.8%
7.030% Actual/360 $2,102,465 65.7%
7.139% 30/360 $37,498 1.4%
7.060% Actual/360 $1,921,034 64.0%
7.160% Actual/360 $2,045,149 62.9%
7.060% Actual/360 $1,888,882 53.1%
8.500% 30/360 $1,679,852 45.6%
9.570% 30/360 $1,995,124 43.6%
7.140% Actual/360 $2,033,361 68.7%
7.380% Actual/360 $1,900,821 57.6%
6.890% Actual/360 $2,007,176 63.7%
7.080% Actual/360 $2,017,411 57.6%
9.080% 30/360 $1,920,929 81.4%
7.730% Actual/360 $1,983,819 70.9%
7.040% Actual/360 $1,791,267 47.1%
6.910% Actual/360 $1,952,979 69.7%
6.990% Actual/360 $933,415 31.4%
8.830% 30/360 $1,638,418 45.5%
7.480% Actual/360 $1,950,090 70.7%
7.470% Actual/360 $1,780,733 60.2%
7.190% Actual/360 $1,935,208 53.8%
6.950% Actual/360 $1,348,253 45.9%
7.100% Actual/360 $1,842,040 62.4%
7.290% Actual/360 $1,782,885 67.3%
6.873% 30/360 $16,223 0.6%
7.380% Actual/360 $1,689,198 54.5%
7.280% Actual/360 $1,680,172 47.3%
7.060% Actual/360 $1,647,749 57.8%
7.310% Actual/360 $1,665,371 56.8%
6.990% 30/360 $31,953 1.5%
7.050% Actual/360 $1,607,066 57.4%
6.960% Actual/360 $1,745,511 69.8%
6.920% Actual/360 $1,721,773 68.9%
7.030% Actual/360 $849,634 18.0%
8.830% 30/360 $1,604,449 42.0%
7.110% Actual/360 $1,709,099 68.4%
7.430% Actual/360 $1,589,507 63.6%
7.060% Actual/360 $1,684,988 57.3%
7.970% Actual/360 $1,515,382 60.6%
6.940% Actual/360 $1,462,422 59.9%
7.390% Actual/360 $1,591,067 69.2%
7.900% Actual/360 $1,606,314 67.6%
7.330% Actual/360 $1,462,947 44.3%
6.940% Actual/360 $1,529,412 51.2%
6.970% Actual/360 $1,486,995 69.2%
7.190% Actual/360 $1,495,124 55.4%
6.960% Actual/360 $1,366,483 52.0%
7.420% Actual/360 $1,361,790 58.2%
7.480% Actual/360 $1,470,877 68.4%
9.500% 30/360 $1,380,545 55.2%
9.325% 30/360 $1,494,112 43.9%
7.560% Actual/360 $1,255,994 58.4%
7.120% Actual/360 $1,404,862 61.1%
7.100% Actual/360 $1,404,182 64.1%
7.620% Actual/360 $1,288,306 63.5%
8.160% 30/360 $1,301,109 56.6%
7.510% Actual/360 $1,329,879 56.6%
6.970% 30/360 $23,422 1.2%
7.380% Actual/360 $1,305,081 57.4%
6.810% Actual/360 $1,253,494 68.5%
7.500% Actual/360 $1,285,191 69.1%
7.410% Actual/360 $1,137,728 64.3%
7.080% Actual/360 $1,166,572 69.0%
6.770% Actual/360 $1,152,642 64.8%
7.390% Actual/360 $1,149,319 67.6%
7.300% Actual/360 $1,055,627 55.6%
7.080% Actual/360 $1,031,698 49.1%
7.327% Actual/360 $1,033,209 61.3%
7.310% Actual/360 $1,012,432 52.2%
7.130% Actual/360 $1,053,918 70.3%
6.770% Actual/360 $956,208 35.4%
6.660% Actual/360 $52,765 1.3%
7.346% Actual/360 $759,994 49.7%
7.480% Actual/360 $1,027,679 65.0%
7.560% Actual/360 $1,013,280 69.9%
8.340% 30/360 $925,381 48.7%
7.070% Actual/360 $993,659 65.4%
7.340% Actual/360 $1,001,654 70.3%
7.830% Actual/360 $890,584 54.3%
7.030% Actual/360 $919,673 64.3%
7.020% Actual/360 $872,851 58.2%
7.140% Actual/360 $691,745 29.1%
7.020% Actual/360 $863,041 64.9%
7.380% Actual/360 $804,800 69.4%
8.030% Actual/360 $549,261 49.5%
7.550% Actual/360 $709,966 67.6%
7.430% Actual/360 $648,030 58.9%
7.920% Actual/360 $431,695 54.6%
7.233% $831,257,223 57.5%
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PROPERTY INFORMATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Loan
No. Property Name (2) Address City State
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Augusta Exchange SEQ of I-20 & I-520 Augusta GA
2 Magnolia Vinings Apartments (6) 2151 Cumberland Parkway Atlanta GA
3 The Regal Business Center (7) 3021-3101 Pinewood St. Arlington TX
4 490 Post Street 490 Post St. San Francisco CA
5 Ventana Apartments (8) 14015 North 94th St. Scottsdale AZ
6 Parkway Plaza-Norman, OK 500-700 Ed Noble Parkway Norman OK
7 Garden Court Hotel 520 Cowper St. Palo Alto CA
8 The Courtyard Shopping Center 2200 Contra Costa Blvd. Pleasant Hill CA
9 Roosevelt Glen Corporate Center (2A) 739 - 799 Roosevelt Rd. Glen Ellyn IL
10 Roosevelt Glen Release Parcel (2A) 799 Roosevelt Rd. Glen Ellyn IL
11 Pier 1 - York (2B) 1550 Rodney Rd. York PA
12 Pier 1 - Harrisburg (2B) 5104 Jonestown Rd. Harrisburg PA
13 Pier 1 - Slidell (2B) 170 North Shore Blvd. Slidell LA
14 Pier 1 - East Maple Shade (2B) 598 Route 38 East Maple Shade NJ
15 Pier 1 - Chesapeake (2B) 4140 Portsmouth Blvd. Chesapeake VA
16 Pier 1 - Barboursville (2B) 150 Mall Rd. Barboursville WV
17 Pier 1 - Sandusky (2B) 5020 Milan Rd. Sandusky OH
18 Pier 1 - Fargo (2B) 4330 13th Ave. Fargo ND
19 Pier 1 - Grand Forks (2B) 2830 South Columbia Rd. Grand Forks ND
20 Pier 1 - Cherry Hill (2B) 606 Haddonfield Rd. Cherry Hill NJ
21 York Creek Apartments 650 York Creek Drive Comstock Park MI
22 Pier 1 - Franklin (2C) 1761 Galleria Blvd. Franklin TN
23 Pier 1 - Birmingham (2C) 105 Inverness Corners Birmingham AL
24 Pier 1 - Cary (2C) 1819 Walnut St. Cary NC
25 Pier 1 - Sunset Valley (2C) 4965 West Highway 290 Sunset Valley TX
26 Pier 1 - Corpus Christi (2C) 5317 South Padre Island Drive Corpus Christi TX
27 Pier 1 - West Melbourne (2C) 2045 West New Haven Ave. West Melbourne FL
28 Pier 1 - Fayetteville (2C) 575 Cross Creek Mall Fayetteville NC
29 Pier 1 - Kennewick (2C) 1232 North Columbia Center Blvd. Kennewick WA
30 Pier 1 - High Point (2C) 1070 Mall Loop Rd. High Point NC
31 Pier 1 - Little Rock (2C) 724 South Bowman Rd. Little Rock AR
32 Best Western Landmark Hotel 455 South Colorado Blvd. Denver CO
33 La Jolla Village Apartments 8460 Via Mallorca La Jolla CA
34 Country Hills Apartments 1300 Eagle Ridge Drive S. Renton WA
35 Wal-Mart- Augusta 3209 Deans Bridge Rd. Augusta GA
36 Village on the Green 1769 Coronado Parkway Thorton CO
37 Shaws Grocery Center 75 Laconia Tilton NH
38 Summerwood Apts 9805 Avondale Rd. N.E. Redmond WA
39 Bay Pointe Apartments 2770 Roosevelt Blvd. Clearwater FL
40 Central Park Apartments 3230 S. Gessner Rd. Houston TX
41 Royal Palm MHC (8) (9) 2050 West Dunlap Ave. Phoenix AZ
42 Alafaya Square State Rd. 434 & Alafaya Woods Blvd. Oviedo FL
43 Villa Monterey Apartments (10) 1270 South Burnham Ave. Las Vegas NV
44 Brookhaven Manor 401 Oakbrook Ann Arbor MI
45 Village at University Place 8701 J.W. Clay Blvd. Charlotte NC
46 Crossroads Shopping Center N95 W18273 County Line Rd. Menomonee Falls WI
47 Piccadilly Apartments 10137 W. Coldspring Rd. Greenfield WI
48 Empire Industrial Park 12414 Highway 99 South Everett WA
49 Sherwood Mall 5308 Pacific Ave. Stockton CA
50 Stanley Village 501-543 Big Thompson Ave. Estes Park CO
51 Plaza North Shopping 203-311 N. McDowell Blvd. Petaluma CA
52 American House Parkway 36725 Utica Rd. Clinton Township MI
53 Lincoln Court 850 Lincoln Drive Idaho Falls ID
54 The Fields 1333 Fenbrook Lane Bloomington IN
55 Cobb Marketfair 3541-3565 Austell Rd. Marietta GA
56 Barrows Place 506-524 Cambridge St. Allston MA
57 Orcas Industrial Park 620-670 S. Orcas St. & 5602-5700 6th Ave. Seattle WA
58 Village View Apartments 2851 Redwood Parkway Vallejo CA
59 The Landings Apartments 3105 Patrick Henry Drive Concord NC
60 Holiday Inn - Amherst 1881 Niagara Falls Blvd. Amherst NY
61 Space Saver Self Storage 1251 West Pacific Coast Highway Wilmington CA
62 Mountain View 2232 29th St. SW Allentown PA
63 Barrington Terrace 333 16th Ave. SE Largo FL
64 230-38 East 44th Street 230-38 East 44th St. New York NY
65 Woodfield East Apartments 6286 Eastern Ave. SW Grand Rapids MI
66 NEC - Permanent 13100 N. Promenade Blvd. Stafford TX
67 Royal Gulf Apartments (11) 190 Gateway Drive Biloxi MS
68 Muses Block 50 Peachtree St. Atlanta GA
69 Standiford Place 3420 Shawnee Drive Modesto CA
70 Winslow Court 3920 San Miguel Colorado Springs CO
71 Holiday Inn - Airport 4600 Genesee St. Cheektowaga NY
72 Charles Daniels Apartments 20 Daniels St. Malden MA
73 Comfort Inn - Old Town 1955 San Diego Ave. San Diego CA
74 Clarion Hotel 407 Chestnut St. Chattanooga TN
75 Clay Creek Apartments 16222 Clay Rd. Houston TX
76 Rancho Bernardo Town Center 11922 Bernardo Plaza Drive San Diego CA
77 The Trees 510 Lake Blvd. Davis CA
78 Terra Cotta Villa 4080 West Twain Ave. Las Vegas NV
79 Whispering Pines (7) (8) (9) 26 East Main St. Merrill WI
80 Kingstowne I Apartments 201 Kingstowne Rd. Newport News VA
81 Chelmsford Best Western 185/187/189 Chelmsford St. Chelmsford MA
82 Brightondale 2700 Rice Creek Rd. New Brighton MN
83 Stoney Brook Apartments 1776 Bicentennial Way North Providence RI
84 Orchard Shopping Center US 287 & 29th St. Loveland CO
85 Towne Club 1818 Chandler Rd. Statesboro GA
86 380 N. Woodward 380 N. Old Woodward Rd. Birmingham MI
87 72 Madison Avenue 72 Madison Ave. New York NY
88 Access Self Storage 135 Amboy Ave. (Hwy No. 35) Woodbridge NJ
89 Stanley Apartments 1435 Stanley Ave. Glendale CA
90 Holiday Inn - Ithaca 222 South Cayuga St. Ithaca NY
91 Best Western - Rockville 1251 West Montgomery Ave. Rockville MD
92 Merrillville Corporate Center 8001 Broadway Merrillville IN
93 Oak Hills Shopping Center 1495 Edgewater St. Salem OR
94 Hill House 6400 Hulmeville Rd. Bensalem PA
95 Park Chateau 2818 Old Fairhaven Parkway Bellingham WA
96 131 Tremont Apartments 131-134 Tremont Ave. Boston MA
97 New Market Plaza 930 South Main St. Kernersville NC
98 The Aspens on Country Club 650 S. Country Club Mesa AZ
99 Westwood Glen 1255 Fairburn Rd. Atlanta GA
100 South Broadway Car Care Center 8053-8081 S. Broadway Littleton CO
101 Mountain View Mobile Estates 13620 SW Beef Bend Rd. Tigard OR
102 Bridgecreek Apartments 1599 South Novato Blvd. Novato CA
103 Le Cercle Apartments 3250 Northeast 28th St. Ft. Lauderdale FL
104 Geneva Meadows 1151-1167 Wells St. Lake Geneva WI
105 Northern Trust 2601 & 2611 E. Oakland Pk. Blvd. Fort Lauderdale FL
106 Pleasant Run Apartments 26 Hamilton Ave. & North Side Kemper Rd. Cincinnati OH
107 Whispering Pines Community (8) (9) 902 Whispering Pine Community Bloomingburg NY
108 Bankside Apartments 6245 Bankside Houston TX
109 San Angelo Square 3601-3719 East Indian School Rd. Phoenix AZ
110 Lake Corporate Center 8091 Wallace Rd. Eden Prairie MN
111 Mission Bay Condominiums 28955 Mission Blvd. Hayward CA
112 Preston Highway Shopping Center 6201 Preston Highway Louisville KY
113 Mr. D's Self Storage 868 & 911 Lincoln Ave. Bohemia & Holbrook NY
114 Raycom (9) 412 East Blvd. Charlotte NC
115 Camelot 800 West Oakland Hemet CA
116 County Seat Self Storage 99 East Second St. Mineola NY
117 Vegas Food Center SEC of 13 Mile Rd. & Hoover Rd. Warren MI
118 A-American SSF Portfolio - Irving (7) 725 Metker St. Irving TX
119 Regents Park Office I & II 85 & 87 Interstate Highway 10 North Beaumont TX
120 Bittersweet Plaza 3502-3632 West 10th St. Greeley CO
121 Springs of Escondido 1261 East Washington Escondido CA
122 Alamitos Business Center 3838-3982 Cerritos Ave. Los Alamitos CA
123 Oakton Beach & Tennis Club W288 N2190 Oakton Manor Dr. Delafield WI
124 West Thomas Road (12) 3532-3616 W. Thomas Rd. & 2910-2928 N. 35th Ave. Phoenix AZ
125 Old Wilkes Centre 1737-C Wilkesboro Highway Statesville NC
126 Meridian Busn. Campus 550 North Commons Drive Aurora IL
127 Beach Distribution Center 1520-1608 Beach St. Montebello CA
128 Coltsgate 2901& 2915 Coltsgate Rd. Charlotte NC
129 Chateau DeVille 250 Brownswitch Rd. Slidell LA
130 Edgewood Sunrise North 7951 Kingswood Dr. Citrus Heights CA
131 Atlantic Self Storage 6655 Atlantic Ave. Long Beach CA
132 Wyndemere Apartments 3420-3550 West St. Germain Saint Cloud MN
133 1111 Prospect Street (13) 1111 Prospect St. La Jolla CA
134 Cedar Village MHC 10701 Cedar Ave. Bloomington CA
135 York Manor Apartments 1430 & 1470 York Ave. & 1485 East Seventh St. Saint Paul MN
136 850 Warwick Avenue 850 Warwick Ave. Thousand Oaks CA
137 Axon Instruments 1101 Chess Dr. Foster City CA
138 Highpark Corp. Center 23436-23456 Madero Mission Viejo CA
139 Campbell Industrial (7) 740 W. 190th St. Gardena CA
140 Valley View Place 5900 Chapman Garden Grove CA
141 Oak Glen Apartments 5500 Antoine Drive Houston TX
142 U Save Park Self Storage 3800 Louisiana Ave. Saint Louis Park MN
143 Gladstone Village Center 7215 North Oak Traffic Way Gladstone MO
144 Rainbow Forest Apartments 3100 Rainbow Forest Circle Decatur GA
145 Babies R Us 708 W. State Rd. 436 Altamonte Springs FL
146 Gallery Center 604-608 Banyan Trail Boca Raton FL
147 Nova Plaza 980 & 1020 Ken Pratt Longmont CO
148 A-American SSF-Irwindale 15534 Arrow Highway Irwindale CA
149 Northwood Apartments 8565 Daly Rd. Cincinnati OH
150 Guard Well SSF 23316 NE Redmond - Fall City Rd. Redmond WA
151 Eckerd - Hyde Park NWC Swann & Howard Tampa FL
152 Village Square Apartments 3500 Meyers Lane Lacy-Lakeview TX
153 Fairway Lanai (2D) 1807 S 118th St. Seattle WA
154 Park Place (2D) 745 2nd NW Issaquah WA
155 7410 Northside Drive Building 7410 Northside Drive North Charleston SC
156 College Station Apartments 501 North Wilkinson St. Milledgeville GA
157 Canterbury Crossings River Park Court at Highway J Pewaukee WI
158 Arborwood Apartments 200 Muller Garden Drive Tyler TX
159 South Shore Apartments 4550-4590 East Lake Rd. Harborcreek Township PA
160 Chula Vista MHP 1701 Gulf City Rd. Ruskin FL
161 Moorpark Terrace Apartments 12840 Moorpark St. Los Angeles CA
162 S.S. Mini Storage - Opa Locka 1875 N.W. 167th St. Opa Locka FL
163 Montebello Plaza 5426-5446-5526 N. Academy Blvd. Colorado Springs CO
164 Cloverleaf Estates MHC 3239 Clover Parkway Muskegon MI
165 Centerville Storage Inns of America 6400 Bigger Rd. Centerville OH
166 Barclay Place Shopping Center 4825-4997 U.S. Highway 98 Lakeland FL
167 Tarzana Place 5711 Reseda Blvd. Tarzana CA
168 Morrison Apartments 11225 Morrison St. North Hollywood CA
169 Commack Colonial 283 Commack Rd. Huntington NY
170 Cedar Ridge 1931 Cedar Ridge Drive Stockton CA
171 Capri MHC 4211 West Roosevelt Phoenix AZ
172 231 - 237 Second Avenue 231 - 237 Second Ave. New York NY
173 Rancho del Oro Business Park 4079-4095 Oceanside Blvd. Oceanside CA
174 Walgreen - Covington 1203 US Highway 190 Covington LA
175 Miramar Apartments 7320 6th Ave. Tacoma WA
176 Boulder Business Commons 4850 - 4894 Sterling Drive Boulder CO
177 Eckerd - Lynn Haven 1317 Ohio Ave. Lynn Haven FL
178 American Classic Virginia Beach SSF 909 Newtown Rd. Virginia Beach VA
179 Laguna Ridge Business Center 23322-23362 Peralta Drive Laguna Hills CA
180 American Classic-Hampton - SSF 906 Big Bethel Rd. Hampton VA
181 Hayden Industrial Park (12) 415-425 S. McClintock Dr. & 402-420 S.
Perry Lane Tempe AZ
182 Silver Spur Ranch 9310 East Apache Trail Mesa AZ
183 Thornapple Lake MHP 6335 Thornapple Lake Rd. Nashville MI
184 Kimberly Square Shopping Center 981 S. Main St. Nicholasville KY
185 Brookshire Village 4839 Brooks Drive House Springs MO
186 Calusa Shopping Center 11230 - 11290 137th Ave. Miami FL
187 Storage Inn SSF 6304 Brandt Pike Rd. Huber Heights OH
188 Franklin Village MHP 1102 South Franklin Rd. Indianapolis IN
189 Lincoln Tower 311 West 4th St. Odessa TX
190 Timber Ridge 101 Timber Ridge Drive Hillsboro MO
191 Walgreens - Tallahassee 100 East Magnolia Drive Tallahassee FL
192 Jasin Industrial Park (14) 7741-7755 Alabama Ave. Canoga Park CA
193 Southland Apartments 4920 W. 1st St. Santa Ana CA
194 Village Green Shopping Center 5300 S 108th St Hales Corners WI
195 322 Route 46 West 322 Route 46 West Parsippany NJ
196 Edwards Apartments 2500 Edwards Ave. South El Monte CA
197 Deerbrook Plaza 9802 - 9810 FM 1960 Bypass Humble TX
198 Shallowford Apartments 2730 Shallowford Rd. Atlanta GA
199 Walgreens - Belvidere 230 Chrysler Drive (SEC of Pearl & U.S. 20) Belvidere IL
200 A-1 Self Storage Facility - El Cajon, CA 556 Main St. El Cajon CA
201 McGee's Closet 15111 Ventura Blvd. Sherman Oaks CA
202 American Classic-Portsmouth SSF 3709 Gateway Drive Portsmouth VA
203 Hide-Away RV Resort 2206 Chaney Drive Ruskin FL
204 CVS - Lafayette, IN State Rte 26 & Shenandoah Drive Lafayette IN
205 A-American Downtown Los Angeles 300 Avery St. Los Angeles CA
206 Alderbury Cove 182 Allumbaugh St. Boise ID
207 Brookridge Apartments 3638 Waverly Drive Arlington TX
208 Pheasant Run Apartments 231 New Shackle Island Rd. Hendersonville TN
209 Waverly Self Storage 970 Waverly Ave. Holtsville NY
210 Park Ridge Building 3650 Coral Ridge Drive Coral Springs FL
211 Lock-Ur-Own SSF 9591 East 22nd Ave. Aurora CO
212 Statewide Mini Storage 720 North Shore, P.O. Box 2877 Big Bear City CA
213 S.S. Mini Storage - Inglewood 820 Industrial Drive Inglewood CA
214 Parkwood Apartments 101 East Mason Broken Arrow OK
215 Teeca Plaza 4802-5152 NW 2nd Ave. & 162-174 Yamato Rd. Boca Raton FL
216 Sepulveda Retail Center 11058-11090 Santa Monica Blvd. Los Angeles CA
217 Gaddis Building 577 Main St. Park City UT
218 Copans - Levy Portfolio 1901-1945 W. Copans Rd. Pompano Beach FL
219 Holly Apartments 1945 Loop 431 Eagle Pass TX
220 Hutchinson Retail 1500 E. 11th St. Hutchinson KS
221 Neptune Mobile Village 2525 Gulf City Rd. Ruskin FL
222 A-American Self Storage - Canoga Park 8050 Deering Ave. Canoga Park CA
223 El Dorado West 6301 Orange Ave. Sacramento CA
224 Belmar Medical Center 8015 W Alameda Ave Lakewood CO
225 Central Self Storage 2233 Franklin Drive Mesquite TX
226 Donovan-Smith MHP 1032 Donovan-Smith Rd Lewes DE
227 Smithtown Professional 111 Nesconset -Port Jefferson Highway Smithtown NY
228 Casa Grande Apartments 1855 E. Don Carlos Ave. Tempe AZ
229 Freeway Self Storage 620 West 184th St. Gardena CA
230 Summit Mobile Home Park (7) 8461 Perry Highway Millcreek Township PA
231 333 Glen Head Road 333 Glen Head Rd. Old Brookville NY
232 CVS Cleveland 4305 Monticello Blvd. South Euclid OH
233 Bradley Self Storage Facility 1771 Graves Ave. El Cajon CA
234 Hillside West Apartments 5817-5827 Monte Sano Rd. Birmingham AL
235 Sierra Vista Plaza 2190 E. Fry Blvd. Sierra Vista AZ
236 Sentry Self Storage 1746 Laguna Lane Vista CA
237 Sunnyslope 1495-1501 Sunny Slope Rd. New Berlin WI
238 Georgetown Station Apartments 710 West 13th St. Georgetown TX
239 Orange Park Shopping Center 1871 Wells Rd. Orange Park FL
240 Appalachian Self Storage 3 Heinz Drive Wilkes Barre PA
241 LaVerne Business Park 2061, 2079 & 2125 Wright Ave. LaVerne CA
242 Villa Esperanza 4141 East 29th St. Tucson AZ
243 Landmark Mini-Storage 500 South Pickett St. Alexandria VA
244 Stirling Design Center 1249 & 1245 Stirling Rd. Dania FL
245 Westland I 1660 Venoy Rd. Westland MI
246 Tatum Ranch Storage Solutions 29201 North Cave Creek Rd. Phoenix AZ
247 Ocala Springs Shopping Center 7115 - 39 N. Highway 441 Ocala FL
248 Pine Oak Plaza 8901- 8933 W Oakland Park Blvd. Sunrise FL
249 Sandia North Apartments 1301 State Highway 121 Bonham TX
250 SecurCare - Colorado Springs 4729 Astrozon Blvd. Colorado Springs CO
251 Whitnall Glen 10127 W Forest Home Ave. Hales Corners WI
252 4227 Enterprise Avenue 4227 Enterprise Ave. Naples FL
253 Mark IV 7421-7497 Northwest 4th St. Fort Lauderdale FL
254 Outrigger Apartments 6102 6th Ave. Tacoma WA
255 Lindys Landing Apts 121 Woodward St. Austin TX
256 North 10th Street SSF 5901 North 10th St. McAllen TX
257 Leawood Plaza Apartments 11402 Beechnut St. Houston TX
258 American Village Apartments 3711 Dilido St. Dallas TX
259 Greddy Industrial Building 9 Vanderbilt Irvine CA
260 Personal Storage 2 1702 Benton Rd. Bossier City LA
261 107th St. Warehouse 1128 - 1148 107th St. Arlington TX
262 17222 Armstrong Avenue 17222 Armstrong Ave. Irvine CA
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Zip Sub-Property Units Year Year
Code Property Type Type or NSF Built Renovated
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
30909 Retail Power Center 270,886 1998
30339 Multifamily Low-Rise 400 1996
76010 Industrial Warehouse 1,133,761 1982
94102 Office Urban 117,960 1925
85260 Multifamily Garden 350 1992 1995
73072 Retail Power Center 208,553 1997
94301 Hospitality Full Service 62 1986
94523 Retail Anchored Retail 85,643 1996
60137 Office Suburban 208,869 1965-74
60137 Office Suburban 22,740 1959/63
17404 Retail Single Tenant 9,974 1992
17112 Retail Single Tenant 9,000 1992
70458 Retail Single Tenant 10,000 1990
08052 Retail Single Tenant 10,000 1991
23321 Retail Single Tenant 9,576 1992
25504 Retail Single Tenant 9,013 1992
44870 Retail Single Tenant 9,000 1992
58103 Retail Single Tenant 9,632 1992
58201 Retail Single Tenant 9,013 1992
08034 Retail Single Tenant 8,512 1972
49321 Multifamily Low-Rise 312 1997
37064 Retail Single Tenant 9,283 1992
35242 Retail Single Tenant 8,991 1996
27511 Retail Single Tenant 9,013 1993
78735 Retail Single Tenant 9,070 1996
78411 Retail Single Tenant 10,000 1990
32904 Retail Single Tenant 10,326 1990
28303 Retail Single Tenant 9,013 1995
99336 Retail Single Tenant 8,988 1995
27262 Retail Single Tenant 8,397 1996
72211 Retail Single Tenant 7,856 1995
80246 Hospitality Full Service 280 1969 1997
92037 Multifamily Low-Rise 184 1974 1993
98055 Multifamily Low-Rise 316 1980
30906 Retail Credit Tenant Lease 192,394 1996
80229 Multifamily Low-Rise 390 1973 1993
03276 Retail Anchored Retail 90,695 1998
98052 Multifamily Low-Rise 190 1986
33760 Multifamily Low-Rise 417 1974
77063 Multifamily Low-Rise 424 1978 1997
85021 Manufactured Housing Manufactured Housing 448 1968
32765 Retail Anchored Retail 140,843 1988
89104 Multifamily Garden 320 1993
48103 Senior Housing Congregate Seniors Housing 140 1988
28217 Retail Anchored Retail 104,561 1996
53051 Retail Anchored Retail 222,889 1987 1990
53228 Multifamily Low-Rise 252 1969
98204 Industrial Multi Tenant Industrial 258,478 1970/77/80/86/90
95207 Retail Regional Mall 242,863 1979 1989
80517 Retail Anchored Retail 128,334 1985 1998
94952 Retail Anchored Retail 185,333 1980
48035 Senior Housing Congregate Seniors Housing 125 1997
83401 Senior Housing Congregate Seniors Housing 133 1979 1990
47401 Multifamily Low-Rise 108 1997
30060 Retail Anchored Retail 117,122 1986
02134 Multifamily Low-Rise 95 1900 1996
98108 Industrial Multi Tenant Industrial 140,928 1969
94591 Multifamily Low-Rise 136 1988
28027 Multifamily Low-Rise 162 1998
14228 Hospitality Full Service 199 1968 1997
90744 Self-Storage Self-Storage 128,413 1981
18103 Senior Housing Assisted Living Facilities 95 1986 1989
33771 Senior Housing Congregate Seniors Housing 65 1992
10017 Multifamily High Rise 164 1963
49548 Multifamily Low-Rise 168 1997
77477 Industrial Light Industrial 124,702 1998
39531 Multifamily Garden 144 1996
30303 Mixed Use Retail/Multifamily 65 1921 1996
95350 Senior Housing Congregate Seniors Housing 118 1987
80909 Senior Housing Congregate Seniors Housing 129 1963 1977
14225 Hospitality Full Service 207 1968 1979
02148 Multifamily Low-Rise 104 1906 1986
92110 Hospitality Limited Service 123 1989 1997
37402 Hospitality Full Service 205 1978 1997
77084 Multifamily Low-Rise 236 1985
92126 Retail Shadow Anchor 65,409 1973 1995
95616 Multifamily Low-Rise 111 1980
89103 Multifamily Low-Rise 136 1988
54452 Manufactured Housing Manufactured Housing 371 1970
23606 Multifamily Garden 264 1974 1988
01824 Hospitality Full Service 119 1962 1995
55112 Senior Housing Assisted Living Facilities 75 1988 1994
02911 Multifamily Low-Rise 180 1980
80538 Retail Anchored Retail 172,729 1976
30458 Multifamily Low-Rise 102 1990
48009 Office Urban 39,813 1984 1989
10016 Office Urban 59,500 1911 1994
07095 Self-Storage Self-Storage 97,076 1982
91206 Multifamily Low-Rise 80 1985
14850 Hospitality Full Service 178 1972 1997
20850 Hospitality Full Service 164 1970 1995
46410 Office Suburban 47,153 1992
97304 Retail Anchored Retail 130,977 1961 1978
19020 Senior Housing Assisted Living Facilities 76 1978 1990
98225 Senior Housing Congregate Seniors Housing 109 1985
02116 Mixed Use Multifamily/Retail/Office 28 1924 1996
27284 Retail Anchored Retail 119,006 1987
85210 Multifamily Low-Rise 151 1974 1984
30331 Multifamily Low-Rise 248 1969
80120 Industrial Multi Tenant Industrial 49,795 1988
97224 Manufactured Housing Manufactured Housing 156 1989
94947 Multifamily Low-Rise 47 1992
33308 Multifamily Mid-Rise 91 1966
53147 Multifamily Low-Rise 108 1990 1995
33306 Office Urban 74,399 1966 1989
45231 Multifamily Garden 108 1971 1998
12721 Manufactured Housing Manufactured Housing 166 1970 1995
77096 Multifamily Low-Rise 284 1977 1995
85018 Mixed Use Office/Retail 102,968 1954 1981
55344 Industrial Flex 70,641 1998
94555 Multifamily Low-Rise 52 1988
40219 Retail Unanchored Retail 143,240 1967 1996
11716 & 11741 Self-Storage Self-Storage 143,681 1990/95 1997
28203 Office Suburban 51,467 1968
92543 Senior Housing Congregate Seniors Housing 136 1988
11501 Self-Storage Self-Storage 46,541 1952 1989
48152 Retail Anchored Retail 54,142 1975
75062 Self-Storage Self-Storage 161,875 1976 1987
77707 Office Suburban 80,615 1978 1994
80631 Retail Anchored Retail 132,787 1980
92027 Senior Housing Congregate Seniors Housing 103 1986
90720 Industrial Multi Tenant Industrial 72,066 1979
53072 Multifamily Low-Rise 66 1966-90
85017 Industrial Flex 161,439 1984 1994
28625 Retail Anchored Retail 45,860 1998
60504 Industrial Flex 73,963 1986
90640 Industrial Multi Tenant Industrial 133,921 1987
28211 Office Urban 30,914 1993
70458 Multifamily Low-Rise 100 1975 1997
95610 Multifamily Low-Rise 113 1980
90805 Self-Storage Self-Storage 71,346 1980
56301 Multifamily Low-Rise 99 1990 1995
92037 Mixed Use Office/Retail 30,783 1978 1995
92316 Manufactured Housing Manufactured Housing 239 1973
55106 Multifamily Low-Rise 190 1972
91360 Multifamily Low-Rise 50 1973
94404 Industrial Flex 31,620 1974 1989
92691 Office Suburban 66,556 1987
90248 Industrial Multi Tenant Industrial 92,630 1967
92645 Senior Housing Assisted Living Facilities 81 1974
77091 Multifamily Low-Rise 240 1973 1997
55426 Self-Storage Self-Storage 83,250 1987
64118 Retail Unanchored Retail 41,320 1987 1993
30034 Multifamily Low-Rise 156 1970
32714 Retail Single Tenant 40,000 1997
33434 Retail Unanchored Retail 65,828 1984
80501 Retail Shadow Anchor 27,107 1995
91706 Self-Storage Self-Storage 74,789 1973-80
45231 Multifamily Garden 108 1995 1997
98053 Self-Storage Self-Storage 47,700 1997
33606 Retail Credit Tenant Lease 10,908 1998
76705 Multifamily Low-Rise 217 1983
98168 Multifamily Low-Rise 43 1968
98027 Multifamily Low-Rise 41 1985
29420 Office Suburban 59,532 1983
31061 Multifamily Garden 60 1989 1997
53072 Multifamily Low-Rise 32 1997
75703 Multifamily Low-Rise 120 1981
16511 Multifamily Garden 116 1973
33570 Manufactured Housing Manufactured Housing 232 1965
91604 Multifamily Low-Rise 36 1987 1996
33056 Self-Storage Self-Storage 58,694 1988
80918 Office Suburban 50,163 1985
49417 Manufactured Housing Manufactured Housing 234 1975
45459 Self-Storage Self-Storage 79,915 1987-96
33809 Retail Anchored Retail 82,659 1989
91356 Senior Housing Assisted Living Facilities 90 1974 1990
91601 Multifamily Garden 79 1988
11725 Office Suburban 30,362 1982
95207 Multifamily Garden 78 1979
85009 Manufactured Housing Manufactured Housing 279 1965
10003 Multifamily Mid-Rise 35 1910
92056 Industrial Multi Tenant Industrial 79,710 1987
70433 Retail Single Tenant 13,905 1998
98406 Multifamily Low-Rise 67 1963 1996
80302 Industrial Multi Tenant Industrial 46,576 1980
32444 Retail Credit Tenant Lease 10,908 1998
23462 Self-Storage Self-Storage 74,375 1987
92653 Industrial Multi Tenant Industrial 42,770 1978
23666 Self-Storage Self-Storage 64,125 1987
85281 Industrial Light Industrial 100,017 1981 1995
85207 Manufactured Housing Manufactured Housing 243 1957/68
49073 Manufactured Housing Manufactured Housing 190 1963-90
40356 Retail Shadow Anchor 60,560 1979 1997
63051 Manufactured Housing Manufactured Housing 202 1986 1997
33186 Retail Shadow Anchor 37,664 1986
45424 Self-Storage Self-Storage 94,915 1988 1996
46239 Manufactured Housing Manufactured Housing 204 1955
79761 Senior Housing Congregate Seniors Housing 110 1950 1992
63050 Multifamily Low-Rise 104 1986
32301 Retail Single Tenant 15,525 1995
91304 Industrial Light Industrial 72,000 1978
92703 Multifamily Garden 50 1987
53151 Retail Unanchored Retail 32,365 1985
07054 Office Suburban 45,241 1984
91733 Multifamily Low-Rise 52 1983
77338 Office Suburban 71,696 1983
30341 Multifamily Garden 67 1960
61008 Retail Credit Tenant Lease 13,905 1997
92020 Self-Storage Self-Storage 62,951 1990
91403 Self-Storage Self-Storage 23,093 1946
23703 Self-Storage Self-Storage 68,350 1991
33570 Manufactured Housing Manufactured Housing 268 1973
47905 Retail Credit Tenant Lease 10,125 1998
90013 Self-Storage Self-Storage 88,116 1911 1993
83704 Multifamily Low-Rise 56 1989
76015 Multifamily Low-Rise 103 1983
37075 Multifamily Low-Rise 168 1974 1997
11742 Self-Storage Self-Storage 48,950 1996
33067 Industrial Flex 40,695 1987
80010 Self-Storage Self-Storage 67,382 1972
92314 Self-Storage Self-Storage 60,960 1990
90302 Self-Storage Self-Storage 41,670 1989
74012 Multifamily Low-Rise 116 1972
33431 Retail Anchored Retail 22,589 1976
90025 Retail Unanchored Retail 10,743 1982
84060 Retail Anchored Retail 9,799 1997
33060 Industrial Multi Tenant Industrial 75,923 1984 1994
78853 Multifamily Low-Rise 40 1997
67501 Retail Single Tenant 83,491 1985
33570 Manufactured Housing Manufactured Housing 159 1978
91304 Self-Storage Self-Storage 33,264 1974
95823 Manufactured Housing Manufactured Housing 86 1967
80226 Office Suburban 29,480 1985
75150 Self-Storage Self-Storage 61,450 1984
19958 Manufactured Housing Manufactured Housing 127 1940
11788 Office Suburban 27,731 1963
85281 Multifamily Low-Rise 56 1987
90248 Self-Storage Self-Storage 43,150 1973
16509 Manufactured Housing Manufactured Housing 181 1960
11545 Office Suburban 18,248 1984
44121 Retail Credit Tenant Lease 10,722 1997
92021 Self-Storage Self-Storage 51,613 1981
35228 Multifamily Low-Rise 74 1987
85635 Retail Anchored Retail 19,777 1985
92084 Self-Storage Self-Storage 37,840 1975
53151 Multifamily Low-Rise 42 1910/67
78626 Multifamily Low-Rise 98 1985 1993
32073 Retail Unanchored Retail 21,509 1987
18702 Self-Storage Self-Storage 52,800 1989
91750 Industrial Multi Tenant Industrial 47,593 1990
85711 Multifamily Low-Rise 75 1965
22304 Self-Storage Self-Storage 22,901 1977
33004 Retail Anchored Retail 20,575 1988
48186 Senior Housing Congregate Seniors Housing 88 1971 1983
85020 Self-Storage Self-Storage 51,350 1995
34475 Retail Anchored Retail 16,464 1993
33351 Retail Anchored Retail 16,994 1986
75418 Multifamily Low-Rise 40 1995
80916 Self-Storage Self-Storage 50,265 1986 1995
53130 Multifamily Low-Rise 24 1994
34104 Industrial Multi Tenant Industrial 37,375 1974
33317 Office Suburban 26,377 1974
98406 Multifamily Low-Rise 49 1968
78704 Multifamily Garden 52 1985 1993
78504 Self-Storage Self-Storage 89,670 1983
77072 Multifamily Low-Rise 80 1974 1997
75228 Multifamily Low-Rise 87 1972 1995
92618 Industrial Multi Tenant Industrial 14,075 1983
71111 Self-Storage Self-Storage 40,140 1982
76011 Industrial Warehouse 37,008 1966
92614 Industrial Multi Tenant Industrial 11,520 1973
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PROPERTY OPERATING INFORMATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Loan Underwritable Monthly
No. Property Name (2) Cash Flow Payment DSCR(3)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Augusta Exchange $2,585,739 $158,707 1.36
2 Magnolia Vinings Apartments (6) $2,416,968 $164,719 1.22
3 The Regal Business Center (7) $2,279,072 $148,144 1.28
4 490 Post Street $2,132,726 $129,583 1.37
5 Ventana Apartments (8) $1,712,497 $113,389 1.26
6 Parkway Plaza-Norman, OK $1,796,318 $114,015 1.31
7 Garden Court Hotel $1,781,492 $107,375 1.38
8 The Courtyard Shopping Center $1,534,179 $93,187 1.37
9 Roosevelt Glen Corporate Center (2A) $1,350,804 $83,496 1.30
10 Roosevelt Glen Release Parcel (2A) $59,265 $6,895 1.30
11 Pier 1 - York (2B) $156,249 $10,233 1.26
12 Pier 1 - Harrisburg (2B) $140,876 $9,226 1.26
13 Pier 1 - Slidell (2B) $137,558 $9,059 1.26
14 Pier 1 - East Maple Shade (2B) $132,223 $8,723 1.26
15 Pier 1 - Chesapeake (2B) $131,609 $8,667 1.26
16 Pier 1 - Barboursville (2B) $111,522 $7,381 1.26
17 Pier 1 - Sandusky (2B) $110,641 $7,325 1.26
18 Pier 1 - Fargo (2B) $109,341 $7,269 1.26
19 Pier 1 - Grand Forks (2B) $104,408 $6,934 1.26
20 Pier 1 - Cherry Hill (2B) $101,177 $6,710 1.26
21 York Creek Apartments $1,335,367 $84,151 1.32
22 Pier 1 - Franklin (2C) $132,689 $8,723 1.26
23 Pier 1 - Birmingham (2C) $126,653 $8,332 1.26
24 Pier 1 - Cary (2C) $123,971 $8,164 1.26
25 Pier 1 - Sunset Valley (2C) $118,599 $8,099 1.26
26 Pier 1 - Corpus Christi (2C) $118,884 $7,884 1.26
27 Pier 1 - West Melbourne (2C) $117,783 $7,828 1.26
28 Pier 1 - Fayetteville (2C) $116,413 $7,689 1.26
29 Pier 1 - Kennewick (2C) $118,653 $7,558 1.26
30 Pier 1 - High Point (2C) $114,589 $7,549 1.26
31 Pier 1 - Little Rock (2C) $95,379 $6,319 1.26
32 Best Western Landmark Hotel $1,559,047 $84,250 1.54
33 La Jolla Village Apartments $1,139,305 $74,913 1.27
34 Country Hills Apartments $1,120,846 $74,443 1.25
35 Wal-Mart- Augusta $1,221,702 $76,531 1.33
36 Village on the Green $1,065,981 $68,724 1.29
37 Shaws Grocery Center $1,022,053 $66,866 1.27
38 Summerwood Apts $1,058,024 $66,732 1.32
39 Bay Pointe Apartments $990,732 $64,149 1.29
40 Central Park Apartments $928,869 $61,940 1.25
41 Royal Palm MHC (8) (9) $947,264 $60,543 1.30
42 Alafaya Square $946,843 $59,933 1.32
43 Villa Monterey Apartments (10) $1,373,239 $94,831 1.21
44 Brookhaven Manor $1,030,649 $58,075 1.48
45 Village at University Place $844,443 $57,607 1.22
46 Crossroads Shopping Center $904,452 $57,911 1.30
47 Piccadilly Apartments $940,289 $57,368 1.37
48 Empire Industrial Park $879,152 $57,281 1.28
49 Sherwood Mall $2,398,981 $88,416 2.26
50 Stanley Village $874,818 $57,522 1.27
51 Plaza North Shopping $1,268,161 $67,714 1.56
52 American House Parkway $1,043,372 $51,629 1.68
53 Lincoln Court $951,152 $52,836 1.50
54 The Fields $735,411 $47,265 1.30
55 Cobb Marketfair $724,796 $48,280 1.25
56 Barrows Place $771,738 $52,371 1.23
57 Orcas Industrial Park $796,207 $52,142 1.27
58 Village View Apartments $678,979 $45,149 1.25
59 The Landings Apartments $791,295 $51,692 1.28
60 Holiday Inn - Amherst $883,987 $49,731 1.48
61 Space Saver Self Storage $816,117 $55,605 1.22
62 Mountain View $869,227 $47,217 1.53
63 Barrington Terrace $793,639 $46,398 1.43
64 230-38 East 44th Street $799,254 $51,057 1.30
65 Woodfield East Apartments $712,957 $42,509 1.40
66 NEC - Permanent $640,707 $44,051 1.21
67 Royal Gulf Apartments (11) $781,808 $44,814 1.45
68 Muses Block $617,334 $41,782 1.23
69 Standiford Place $807,567 $42,582 1.58
70 Winslow Court $724,218 $45,054 1.34
71 Holiday Inn - Airport $856,489 $44,535 1.60
72 Charles Daniels Apartments $594,819 $39,797 1.25
73 Comfort Inn - Old Town $765,921 $42,288 1.51
74 Clarion Hotel $707,631 $41,908 1.41
75 Clay Creek Apartments $643,106 $42,072 1.27
76 Rancho Bernardo Town Center $868,371 $60,329 1.20
77 The Trees $600,201 $39,241 1.27
78 Terra Cotta Villa $644,512 $37,751 1.42
79 Whispering Pines (7) (8) (9) $579,770 $37,290 1.30
80 Kingstowne I Apartments $686,390 $36,444 1.57
81 Chelmsford Best Western $694,520 $40,216 1.44
82 Brightondale $633,012 $36,010 1.46
83 Stoney Brook Apartments $560,208 $36,369 1.28
84 Orchard Shopping Center $616,483 $40,057 1.28
85 Towne Club $633,506 $35,333 1.49
86 380 N. Woodward $522,768 $34,106 1.28
87 72 Madison Avenue $493,826 $34,175 1.20
88 Access Self Storage $727,498 $40,028 1.51
89 Stanley Apartments $475,251 $32,700 1.21
90 Holiday Inn - Ithaca $656,679 $36,370 1.50
91 Best Western - Rockville $575,539 $35,354 1.36
92 Merrillville Corporate Center $521,685 $32,633 1.33
93 Oak Hills Shopping Center $548,356 $34,048 1.34
94 Hill House $601,662 $34,757 1.44
95 Park Chateau $737,662 $33,300 1.85
96 131 Tremont Apartments $606,752 $37,495 1.35
97 New Market Plaza $440,215 $30,597 1.20
98 The Aspens on Country Club $470,764 $32,064 1.22
99 Westwood Glen $506,312 $28,509 1.48
100 South Broadway Car Care Center $424,175 $28,968 1.22
101 Mountain View Mobile Estates $615,276 $28,562 1.80
102 Bridgecreek Apartments $409,632 $29,965 1.14
103 Le Cercle Apartments $486,512 $28,176 1.44
104 Geneva Meadows $496,448 $28,493 1.45
105 Northern Trust $522,424 $28,475 1.53
106 Pleasant Run Apartments $433,039 $27,344 1.32
107 Whispering Pines Community (8) (9) $423,071 $28,197 1.25
108 Bankside Apartments $436,299 $30,050 1.21
109 San Angelo Square $489,218 $31,313 1.30
110 Lake Corporate Center $426,147 $27,692 1.28
111 Mission Bay Condominiums $405,987 $26,371 1.28
112 Preston Highway Shopping Center $512,196 $30,030 1.42
113 Mr. D's Self Storage $793,884 $28,858 2.29
114 Raycom (9) $408,573 $26,821 1.27
115 Camelot $499,405 $28,058 1.48
116 County Seat Self Storage $506,141 $28,019 1.51
117 Vegas Food Center $409,989 $26,292 1.30
118 A-American SSF Portfolio - Irving (7) $461,774 $29,387 1.31
119 Regents Park Office I & II $376,636 $27,358 1.15
120 Bittersweet Plaza $428,078 $26,146 1.36
121 Springs of Escondido $492,239 $26,591 1.54
122 Alamitos Business Center $388,847 $24,581 1.32
123 Oakton Beach & Tennis Club $362,913 $24,142 1.25
124 West Thomas Road (12) $429,582 $31,242 1.15
125 Old Wilkes Centre $381,305 $22,771 1.40
126 Meridian Busn. Campus $457,790 $23,109 1.65
127 Beach Distribution Center $362,257 $23,302 1.30
128 Coltsgate $420,560 $22,987 1.52
129 Chateau DeVille $345,703 $22,773 1.27
130 Edgewood Sunrise North $328,382 $23,299 1.17
131 Atlantic Self Storage $391,891 $25,362 1.29
132 Wyndemere Apartments $354,156 $21,580 1.37
133 1111 Prospect Street (13) $536,992 $34,213 1.31
134 Cedar Village MHC $359,620 $24,044 1.25
135 York Manor Apartments $416,140 $26,302 1.32
136 850 Warwick Avenue $333,028 $21,938 1.27
137 Axon Instruments $336,572 $21,446 1.31
138 Highpark Corp. Center $562,499 $27,100 1.73
139 Campbell Industrial (7) $358,675 $23,559 1.27
140 Valley View Place $398,712 $22,168 1.50
141 Oak Glen Apartments $316,405 $22,284 1.18
142 U Save Park Self Storage $382,301 $23,885 1.33
143 Gladstone Village Center $339,441 $23,294 1.21
144 Rainbow Forest Apartments $438,717 $19,598 1.87
145 Babies R Us $339,478 $23,205 1.22
146 Gallery Center $407,164 $21,956 1.55
147 Nova Plaza $345,157 $21,742 1.32
148 A-American SSF-Irwindale $378,053 $21,323 1.48
149 Northwood Apartments $393,369 $19,055 1.72
150 Guard Well SSF $302,580 $20,356 1.24
151 Eckerd - Hyde Park $272,735 $22,372 1.02
152 Village Square Apartments $366,527 $19,305 1.58
153 Fairway Lanai (2D) $135,684 $9,057 1.27
154 Park Place (2D) $155,445 $10,090 1.27
155 7410 Northside Drive Building $304,548 $19,389 1.31
156 College Station Apartments $285,738 $18,873 1.26
157 Canterbury Crossings $286,011 $18,333 1.30
158 Arborwood Apartments $280,535 $18,151 1.29
159 South Shore Apartments $326,455 $19,464 1.40
160 Chula Vista MHP $391,710 $19,014 1.72
161 Moorpark Terrace Apartments $263,873 $18,236 1.21
162 S.S. Mini Storage - Opa Locka $342,555 $20,789 1.37
163 Montebello Plaza $296,849 $17,473 1.42
164 Cloverleaf Estates MHC $296,369 $17,613 1.40
165 Centerville Storage Inns of America $294,289 $21,185 1.16
166 Barclay Place Shopping Center $358,352 $19,992 1.49
167 Tarzana Place $380,700 $18,268 1.74
168 Morrison Apartments $320,237 $16,149 1.65
169 Commack Colonial $262,278 $16,919 1.29
170 Cedar Ridge $350,863 $17,719 1.65
171 Capri MHC $364,298 $17,781 1.71
172 231 - 237 Second Avenue $331,369 $19,302 1.43
173 Rancho del Oro Business Park $321,458 $19,048 1.41
174 Walgreen - Covington $330,424 $22,288 1.24
175 Miramar Apartments $256,029 $16,032 1.33
176 Boulder Business Commons $277,607 $16,016 1.44
177 Eckerd - Lynn Haven $220,984 $18,916 0.97
178 American Classic Virginia Beach SSF $285,724 $16,984 1.40
179 Laguna Ridge Business Center $253,774 $16,128 1.31
180 American Classic-Hampton - SSF $334,035 $16,699 1.67
181 Hayden Industrial Park (12) $321,407 $20,828 1.29
182 Silver Spur Ranch $364,071 $20,866 1.45
183 Thornapple Lake MHP $272,510 $16,014 1.42
184 Kimberly Square Shopping Center $316,336 $17,183 1.53
185 Brookshire Village $288,744 $15,132 1.59
186 Calusa Shopping Center $270,615 $15,426 1.46
187 Storage Inn SSF $275,697 $19,474 1.18
188 Franklin Village MHP $258,670 $16,171 1.33
189 Lincoln Tower $284,186 $16,172 1.46
190 Timber Ridge $254,899 $14,768 1.44
191 Walgreens - Tallahassee $267,671 $16,848 1.32
192 Jasin Industrial Park (14) $316,949 $20,604 1.28
193 Southland Apartments $241,748 $15,408 1.31
194 Village Green Shopping Center $254,514 $16,512 1.28
195 322 Route 46 West $232,183 $14,918 1.30
196 Edwards Apartments $264,697 $14,951 1.48
197 Deerbrook Plaza $211,115 $14,113 1.25
198 Shallowford Apartments $212,218 $14,527 1.22
199 Walgreens - Belvidere $236,119 $16,315 1.21
200 A-1 Self Storage Facility - El Cajon, CA $235,805 $15,172 1.30
201 McGee's Closet $270,452 $15,002 1.50
202 American Classic-Portsmouth SSF $262,869 $14,568 1.50
203 Hide-Away RV Resort $293,709 $14,897 1.64
204 CVS - Lafayette, IN $191,227 $15,802 1.01
205 A-American Downtown Los Angeles $260,327 $14,199 1.53
206 Alderbury Cove $221,159 $13,252 1.39
207 Brookridge Apartments $240,372 $13,328 1.50
208 Pheasant Run Apartments $286,554 $15,542 1.54
209 Waverly Self Storage $292,794 $16,671 1.46
210 Park Ridge Building $198,329 $13,118 1.26
211 Lock-Ur-Own SSF $266,569 $14,322 1.55
212 Statewide Mini Storage $240,873 $12,885 1.56
213 S.S. Mini Storage - Inglewood $237,971 $14,494 1.37
214 Parkwood Apartments $209,834 $13,118 1.33
215 Teeca Plaza $200,150 $12,451 1.34
216 Sepulveda Retail Center $243,002 $13,083 1.55
217 Gaddis Building $204,345 $13,103 1.30
218 Copans - Levy Portfolio $216,123 $11,572 1.56
219 Holly Apartments $200,215 $11,554 1.44
220 Hutchinson Retail $181,963 $11,528 1.32
221 Neptune Mobile Village $244,996 $11,972 1.71
222 A-American Self Storage - Canoga Park $217,983 $12,588 1.44
223 El Dorado West $172,720 $11,584 1.24
224 Belmar Medical Center $210,955 $14,416 1.22
225 Central Self Storage $252,433 $14,276 1.47
226 Donovan-Smith MHP $180,490 $12,162 1.24
227 Smithtown Professional $200,691 $10,774 1.55
228 Casa Grande Apartments $181,490 $10,753 1.41
229 Freeway Self Storage $206,521 $12,060 1.43
230 Summit Mobile Home Park (7) $186,883 $12,519 1.24
231 333 Glen Head Road $167,330 $10,498 1.33
232 CVS Cleveland $189,389 $11,812 1.34
233 Bradley Self Storage Facility $192,192 $10,470 1.53
234 Hillside West Apartments $163,423 $9,620 1.42
235 Sierra Vista Plaza $157,015 $10,139 1.29
236 Sentry Self Storage $163,385 $10,264 1.33
237 Sunnyslope $154,260 $9,144 1.41
238 Georgetown Station Apartments $166,110 $8,612 1.61
239 Orange Park Shopping Center $151,529 $8,992 1.40
240 Appalachian Self Storage $178,855 $9,438 1.58
241 LaVerne Business Park $145,877 $9,337 1.30
242 Villa Esperanza $141,152 $9,279 1.27
243 Landmark Mini-Storage $154,855 $9,083 1.42
244 Stirling Design Center $133,910 $8,089 1.38
245 Westland I $245,661 $8,306 2.46
246 Tatum Ranch Storage Solutions $305,984 $9,060 2.81
247 Ocala Springs Shopping Center $126,029 $8,551 1.23
248 Pine Oak Plaza $145,730 $8,095 1.50
249 Sandia North Apartments $131,165 $8,242 1.33
250 SecurCare - Colorado Springs $150,027 $9,324 1.34
251 Whitnall Glen $120,615 $7,781 1.29
252 4227 Enterprise Avenue $113,122 $7,819 1.21
253 Mark IV $140,042 $8,445 1.38
254 Outrigger Apartments $119,982 $7,007 1.43
255 Lindys Landing Apts $131,951 $6,666 1.65
256 North 10th Street SSF $189,602 $7,837 2.02
257 Leawood Plaza Apartments $117,743 $6,732 1.46
258 American Village Apartments $119,288 $6,457 1.54
259 Greddy Industrial Building $91,392 $6,307 1.21
260 Personal Storage 2 $93,704 $5,621 1.39
261 107th St. Warehouse $85,986 $5,839 1.23
262 17222 Armstrong Avenue $62,466 $4,117 1.26
Total/Weighted Average $124,304,977 $7,554,366 1.37
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Percent Tenant Information (16)
Property Valuation Cut-Off Leased (15) ----------------------------------------------
Valuation Date Date LTV (3)Leased As of Date Largest Tenant % NSF
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$30,000,000 06/19/98 79.8% 98.5% 06/22/98 Sports Authority 16.3%
$32,750,000 07/10/98 72.6% 93.0% 07/31/98
$28,000,000 01/30/98 78.4% 89.1% 07/01/98 Bob Powell Display Art 16.6%
$26,000,000 12/11/97 67.7% 98.3% 06/30/98
$23,500,000 12/17/97 74.5% 86.5% 05/23/98
$22,350,000 06/01/98 77.7% 93.4% 04/20/98 Toys R Us 16.0%
$24,000,000 03/17/98 61.1% 88.7% 01/01/98
$18,700,000 01/09/98 73.3% 98.0% 01/08/98 Staples Office Supply 29.1%
$16,735,000 05/18/98 74.1% 87.0% 02/01/98
$1,365,000 05/18/98 74.1% 82.0% 04/01/98 Conversions Inc. 17.8%
$1,940,000 04/23/98 79.0% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,750,000 05/30/98 79.0% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,720,000 04/24/98 79.0% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,660,000 04/28/98 79.0% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,650,000 05/04/98 79.0% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,400,000 04/13/98 79.0% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,390,000 04/24/98 79.0% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,380,000 04/22/98 79.0% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,310,000 04/23/98 79.0% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,270,000 04/28/98 79.0% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$16,000,000 03/04/98 76.2% 95.0% 02/01/98
$1,660,000 04/27/98 78.8% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,580,000 04/23/98 78.8% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,550,000 04/30/98 78.8% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,530,000 04/17/98 78.8% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,540,000 04/20/98 78.8% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,500,000 05/06/98 78.8% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,460,000 04/30/98 78.8% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,420,000 05/04/97 78.8% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,430,000 05/01/98 78.8% 100.0% 05/07/98 Pier 1 Imports (U.S.), Inc. 100.0%
$1,200,000 04/26/98 78.8% 100.0% 04/22/98 Pier 1 Imports (U.S.), Inc. 100.0%
$16,900,000 05/11/98 69.2% 68.4% 06/10/98
$14,700,000 06/29/98 78.4% 99.5% 04/27/97
$14,150,000 01/26/98 77.4% 97.5% 12/31/97
$15,000,000 07/01/98 71.5% 100.0% 06/01/98 Wal-Mart Stores, Inc. 100.0%
$14,000,000 01/09/98 72.9% 92.0% 12/31/97
$12,500,000 04/24/98 79.8% 95.0% 06/01/98 Shaws Supermarket 61.6%
$15,160,000 01/06/98 65.7% 92.0% 01/31/98
$12,300,000 06/04/98 79.9% 94.0% 03/31/98
$12,100,000 06/15/98 76.8% 91.8% 03/31/98
$11,720,000 04/02/98 77.6% 97.0% 12/31/97
$11,515,000 04/29/98 78.8% 89.5% 03/19/98 Publix 39.8%
$14,500,000 05/19/98 61.7% 97.2% 04/20/98
$11,200,000 06/15/98 78.4% 96.5% 05/01/98
$10,650,000 12/16/97 80.8% 100.0% 01/31/98 Hannaford's (Boney Wilson & Sons) 44.5%
$10,750,000 04/01/98 79.8% 100.0% 03/01/98 Wal-Mart 49.6%
$10,800,000 02/13/98 79.1% 92.1% 12/21/97
$11,700,000 02/03/98 72.2% 94.8% 12/30/97 Royal Dental Mnfg 12.3%
$31,500,000 05/01/98 26.3% 96.3% 04/08/98 Gottschalks 37.4%
$11,800,000 06/15/98 69.7% 99.8% 06/01/98 Safeway 32.7%
$15,000,000 05/05/98 50.0% 95.6% 06/24/98 Kmart 48.6%
$11,500,000 06/15/98 65.0% 98.4% 06/01/98
$9,900,000 06/01/98 75.4% 97.0% 04/30/98
$9,250,000 07/16/98 76.3% 95.4% 01/28/98
$9,400,000 03/04/98 74.0% 92.4% 11/30/97 Uptons 46.7%
$8,800,000 04/13/98 78.3% 96.8% 02/04/98
$9,300,000 04/06/98 73.6% 98.2% 03/01/98 Florida Tile 14.5%
$8,490,000 03/13/98 79.8% 94.0% 11/30/97
$8,525,000 08/01/98 78.6% 85.8% 05/25/98
$9,750,000 06/12/98 68.6% 64.4% 03/31/98
$7,950,000 11/24/97 83.0% 91.2% 10/31/97
$8,200,000 04/01/98 79.4% 85.8% 03/01/98
$8,200,000 05/07/98 78.9% 93.8% 04/01/98
$8,200,000 07/14/98 78.7% 100.0% 11/30/97
$8,300,000 03/04/98 75.0% 95.0% 03/20/98
$8,120,000 02/12/98 76.1% 97.0% 02/28/98 NEC 100.0%
$8,890,000 04/02/98 69.4% 92.4% 05/14/98
$7,800,000 10/22/97 79.1% 98.3% 12/31/97
$7,900,000 01/06/98 77.7% 97.5% 11/30/97
$8,325,000 07/17/98 73.1% 92.0% 12/01/97
$8,535,000 06/12/98 70.2% 68.1% 03/31/98
$7,540,000 05/19/98 79.4% 95.0% 03/31/98
$8,400,000 03/04/98 69.8% 83.0% 04/30/98
$8,100,000 02/20/98 72.0% 63.0% 12/17/97
$7,250,000 07/10/98 79.3% 93.2% 08/28/97
$10,875,000 05/01/98 52.5% 87.3% 03/05/98 Women's Fitness World 16.4%
$7,800,000 03/11/98 73.5% 98.2% 12/25/97
$7,800,000 01/07/98 72.6% 92.0% 01/01/98
$7,115,000 03/16/98 77.3% 95.0% 02/01/98
$8,200,000 03/09/98 66.9% 96.6% 03/31/98
$8,000,000 03/20/98 68.5% 76.7% 05/01/98
$6,800,000 07/01/98 79.9% 96.0% 06/30/98
$6,900,000 03/09/98 78.7% 93.3% 03/02/98
$8,200,000 05/01/97 62.7% 75.0% 01/01/98 King Soopers 31.6%
$7,250,000 05/14/98 70.1% 100.0% 05/01/98
$6,275,000 05/01/98 79.4% 100.0% 04/26/98 WWRP 23.2%
$6,700,000 01/01/98 74.1% 91.6% 12/15/97 Grass Entertainment Group 16.8%
$6,690,000 07/17/98 73.6% 94.7% 11/30/97
$6,300,000 02/26/98 77.9% 97.5% 04/15/98
$6,900,000 06/12/98 70.9% 62.7% 03/31/98
$7,400,000 06/03/98 66.1% 61.0% 03/30/98
$6,200,000 05/04/98 78.8% 100.0% 03/01/98 Crowe Chizek (300) 26.2%
$7,200,000 02/23/98 66.5% 99.1% 01/01/98 Safeway 34.3%
$6,100,000 04/24/98 78.3% 96.3% 03/01/98
$7,300,000 03/01/98 64.6% 95.0% 01/28/98
$8,800,000 06/01/98 53.4% 71.4% 05/31/98
$6,175,000 06/04/98 74.9% 96.3% 06/01/98 Food Lion 45.4%
$6,000,000 06/17/98 74.2% 95.0% 12/25/97
$5,700,000 11/14/97 77.8% 94.0% 01/21/98
$5,827,000 04/10/98 74.4% 100.0% 05/01/98
$7,420,000 04/06/98 58.4% 100.0% 01/01/98
$5,900,000 02/19/98 73.3% 100.0% 03/31/98
$5,800,000 12/18/97 74.0% 97.8% 11/04/97
$5,400,000 04/28/98 79.3% 95.0% 03/31/98
$6,280,000 04/10/98 67.4% 95.2% 03/01/98 Merrill Lynch 24.2%
$5,800,000 03/30/98 72.9% 91.7% 04/01/98
$5,240,000 03/17/98 80.2% 93.3% 03/01/98
$5,500,000 08/26/97 75.7% 96.0% 08/29/97
$5,200,000 02/23/98 79.7% 98.7% 05/21/98 Antique Gatherings, Inc. 17.3%
$5,150,000 07/01/98 79.5% 100.0% 07/01/98 The Hartfiel Company 49.2%
$5,250,000 03/04/98 76.0% 98.1% 03/09/98
$5,400,000 12/10/97 73.8% 100.0% 03/26/98 Benjamin's (Main) 26.4%
$9,000,000 12/08/97 44.0% 90.8% 12/17/97
$5,121,000 05/12/98 77.4% 100.0% 05/01/98 Raycom 52.9%
$7,300,000 03/20/98 54.0% 99.3% 01/16/98
$5,200,000 04/01/98 75.7% 97.0% 05/01/98
$4,930,000 06/17/98 79.8% 100.0% 06/16/98 Vegas Food Center 43.4%
$5,240,000 10/28/97 74.2% 94.5% 08/31/97
$5,000,000 01/13/98 77.5% 93.0% 01/01/98 J.S. Edwards 11.9%
$5,700,000 06/01/98 65.6% 100.0% 06/26/98 Safeway 39.5%
$6,200,000 03/01/98 60.0% 99.0% 01/16/98
$4,850,000 01/15/98 73.7% 93.7% 01/05/98
$4,460,000 01/14/98 79.4% 100.0% 12/22/97
$4,860,000 04/18/97 72.1% 100.0% 07/01/98
$4,375,000 06/18/98 79.9% 97.4% 06/01/98 Food Lion 63.2%
$5,400,000 01/12/98 64.3% 93.0% 01/01/98 Luther and Peterson, Inc. 20.5%
$5,000,000 12/23/97 68.8% 100.0% 03/01/98 Bexco Company 38.6%
$5,100,000 04/16/98 66.4% 100.0% 05/04/98 Children's World 41.5%
$4,250,000 12/24/97 79.4% 91.0% 12/30/97
$4,240,000 02/03/98 78.9% 98.2% 11/24/97
$4,370,000 01/20/98 76.0% 93.3% 01/10/98
$4,100,000 05/10/98 80.3% 99.0% 04/07/98
$9,200,000 05/05/98 35.5% 100.0% 01/31/98 Express 22.7%
$5,230,000 02/05/98 62.7% 78.0% 01/31/98
$4,700,000 03/04/98 69.3% 93.7% 01/01/98
$4,000,000 04/14/98 79.7% 100.0% 02/28/98
$5,700,000 03/19/98 55.2% 100.0% 05/31/98 Axon Instruments 100.0%
$9,000,000 05/05/98 34.5% 100.0% 03/31/98 Saddleback Valley Church 22.1%
$4,340,000 01/31/98 71.5% 100.0% 02/19/98 Ace Storage 48.6%
$3,875,000 06/03/98 79.7% 87.2% 05/01/98
$3,960,000 12/24/97 77.4% 97.5% 01/23/98
$4,100,000 07/28/98 74.1% 89.7% 05/01/98
$3,750,000 03/27/98 79.7% 100.0% 02/25/98 Carpet Corner 15.5%
$5,100,000 11/14/97 58.6% 99.4% 01/21/98
$4,050,000 06/29/98 73.7% 100.0% 06/01/98 Babies R Us 100.0%
$5,000,000 12/17/97 59.5% 100.0% 06/01/98 Carole Korn Interiors 41.8%
$4,400,000 02/04/98 67.5% 100.0% 02/16/98 Liquor Land 32.6%
$3,940,000 04/16/98 74.5% 96.7% 03/01/98
$4,200,000 12/15/97 69.9% 97.2% 01/09/98
$3,900,000 11/05/97 74.5% 95.3% 03/31/98
$3,225,000 02/28/98 89.2% 100.0% 01/15/98 Eckerd Corp. 100.0%
$3,700,000 01/12/98 77.8% 97.7% 11/30/97
$1,750,000 08/01/98 68.8% 97.7% 05/31/98
$2,425,000 07/08/98 68.8% 87.8% 05/31/98
$4,250,000 02/04/98 65.4% 92.3% 01/08/98 Marketing Analysts, Inc 14.6%
$3,715,000 02/12/98 74.7% 100.0% 05/15/98
$3,470,000 02/17/98 78.9% 96.9% 01/31/98
$3,350,000 04/23/98 80.9% 98.3% 02/12/98
$3,400,000 03/31/98 79.1% 93.1% 04/30/98
$4,270,000 01/29/98 63.0% 100.0% 12/31/97
$3,500,000 12/22/97 76.8% 100.0% 04/01/98
$3,600,000 11/17/97 73.7% 98.7% 01/31/98
$4,100,000 06/02/98 63.3% 96.0% 06/19/98 Lan Design Inc. 10.0%
$3,600,000 03/03/98 72.0% 87.6% 01/31/98
$3,520,000 07/31/97 73.4% 97.2% 05/31/97
$4,250,000 05/23/97 60.6% 87.2% 03/31/98 Food Lion 35.1%
$3,675,000 06/03/98 69.2% 85.6% 03/26/98
$3,990,000 04/27/98 62.6% 98.7% 06/25/98
$3,200,000 04/01/98 77.9% 98.1% 04/01/98 Kalb, Rosenfeld 14.8%
$3,600,000 01/08/98 69.1% 97.4% 02/28/98
$5,300,000 04/23/98 46.9% 95.0% 03/31/98
$3,200,000 07/14/98 77.2% 100.0% 08/17/98
$4,300,000 05/11/98 57.4% 97.9% 03/01/98 Calvery Chapel 19.6%
$3,695,000 02/06/98 65.4% 100.0% 01/20/98 Walgreens 100.0%
$3,100,000 02/20/98 77.3% 94.2% 03/06/98
$3,200,000 03/06/98 74.7% 97.2% 01/01/98 Early Man Images 31.8%
$2,650,000 06/09/98 89.9% 100.0% 06/05/98 Eckerd Corporation 100.0%
$3,000,000 06/08/98 79.4% 90.3% 04/30/98
$3,250,000 01/15/98 72.2% 98.0% 01/05/98
$3,560,000 06/09/98 65.8% 98.6% 04/30/98
$3,685,000 04/18/97 63.4% 93.6% 03/03/98 Biomedic Clinical Care 18.3%
$4,575,000 05/10/96 51.1% 95.8% 03/01/98
$2,960,000 01/29/98 79.0% 98.4% 02/27/98
$3,300,000 07/14/97 70.5% 100.0% 07/01/98 Goody's Family Clothing 29.7%
$3,150,000 01/20/98 72.9% 93.1% 03/01/98
$3,500,000 05/12/98 65.5% 94.0% 04/01/98 Discount Auto Parts 15.8%
$2,360,000 10/31/96 82.8% 69.0% 12/31/97
$2,800,000 07/09/98 80.1% 95.0% 07/15/98
$3,800,000 02/01/98 58.9% 77.3% 01/16/98
$2,800,000 01/15/98 79.8% 94.2% 12/22/97
$2,970,000 01/15/98 74.7% 100.0% 01/23/98 Walgreens 100.0%
$3,600,000 05/11/98 61.3% 98.6% 05/04/98
$2,760,000 12/08/97 79.7% 96.0% 05/01/98
$2,960,000 01/13/98 74.2% 92.6% 01/08/98 Wauwatosa RE 13.6%
$3,600,000 02/12/98 60.9% 93.0% 02/01/98 CGS Coverages 42.4%
$2,940,000 02/23/98 72.0% 94.2% 03/31/98
$2,950,000 06/25/98 71.1% 84.8% 06/10/98 1, 200-Waste Control 18.6%
$2,650,000 10/27/97 78.6% 95.0% 09/30/97
$2,800,000 04/14/98 74.1% 100.0% 04/13/98 Walgreens 100.0%
$3,100,000 04/20/98 66.7% 92.0% 04/20/98
$3,550,000 01/05/98 57.9% 97.7% 01/31/98
$2,850,000 06/10/98 71.7% 88.2% 04/30/98
$2,930,000 01/27/98 69.7% 84.8% 12/31/97
$2,100,000 06/04/98 96.4% 100.0% 05/28/98 CVS 100.0%
$2,800,000 06/01/98 71.2% 83.8% 05/18/98
$2,500,000 04/25/98 79.7% 98.2% 03/31/98
$2,500,000 01/27/98 79.5% 93.0% 02/05/98
$4,730,000 03/04/98 41.9% 93.0% 01/31/98
$3,820,000 01/15/97 51.7% 86.0% 02/13/98
$2,500,000 05/29/98 77.8% 88.0% 04/01/98 Tech Comm Inc 18.9%
$2,500,000 04/24/98 77.8% 89.8% 12/31/97
$2,940,000 04/13/98 65.3% 97.5% 03/31/98
$2,500,000 11/17/97 74.0% 78.0% 01/12/98
$2,440,000 01/15/98 75.0% 98.3% 01/06/98
$2,300,000 05/29/98 78.1% 97.0% 05/15/98 Man's Best Friend 19.3%
$2,375,000 12/10/97 75.6% 100.0% 05/01/98 Koo Koo Roo 24.9%
$3,300,000 03/13/98 54.3% 48.0% 03/31/98 The Canyons Store 13.2%
$2,990,000 04/21/98 58.4% 93.0% 03/31/98 Nite Lite Productions, Inc. 11.9%
$2,150,000 12/29/97 79.7% 100.0% 12/31/97
$2,700,000 03/25/98 62.8% 100.0% 06/01/98 Hobby Lobby 54.2%
$2,630,000 01/29/98 64.4% 98.7% 12/01/97
$2,340,000 11/12/97 71.9% 98.0% 12/16/97
$2,150,000 01/28/98 76.9% 96.5% 11/15/97
$2,500,000 01/01/97 64.7% 90.0% 07/13/98 Health First Physicians 18.7%
$3,400,000 08/01/98 47.3% 82.0% 01/01/98
$2,150,000 06/18/98 74.4% 96.5% 09/12/97
$2,300,000 04/01/98 69.4% 96.5% 04/01/98
$2,190,000 04/03/98 72.8% 100.0% 03/31/97
$2,030,000 01/01/98 78.1% 85.0% 09/30/97
$2,300,000 07/23/98 68.5% 86.5% 05/19/98
$2,350,000 12/11/97 63.6% 96.2% 12/17/97 Old Brookville Physical Therapy 18.8%
$2,000,000 05/26/98 74.5% 100.0% 06/01/98 CVS Corporation 100.0%
$2,275,000 11/06/97 65.5% 90.0% 09/30/97
$1,830,000 03/24/98 79.3% 96.0% 02/10/98
$1,860,000 08/24/98 77.8% 100.0% 02/28/98 Bob's Hallmark 17.8%
$1,770,000 05/06/98 78.8% 96.1% 03/01/98
$1,690,000 01/13/98 79.4% 95.2% 12/22/97
$1,780,000 04/24/98 74.3% 98.0% 02/01/98
$1,700,000 02/20/98 76.2% 100.0% 12/01/97 Tuesday Morning 25.6%
$1,900,000 03/27/98 68.1% 84.1% 02/28/98
$2,100,000 01/14/98 61.2% 91.3% 11/01/97
$1,685,000 12/19/97 75.3% 94.7% 04/07/98
$1,940,000 05/19/98 64.1% 99.7% 03/31/98
$1,500,000 05/18/98 79.8% 100.0% 07/01/98 Decorator Fabrics 47.1%
$2,700,000 06/15/98 44.2% 98.9% 04/01/98
$4,100,000 04/03/98 29.1% 90.0% 02/01/98
$1,530,000 04/06/98 76.4% 84.3% 01/01/98 Eckerd Drugs 57.7%
$1,580,000 03/27/98 73.2% 93.5% 04/01/98 Buzz's Lounge 21.9%
$1,450,000 12/19/97 79.5% 100.0% 01/31/98
$1,900,000 08/24/98 60.7% 72.0% 06/18/98
$1,520,000 01/12/98 75.1% 95.8% 12/22/97
$1,425,000 03/27/98 79.4% 100.0% 03/10/98 Dave's Prof Serv 20.1%
$1,640,000 01/20/98 66.5% 89.0% 03/01/98
$1,430,000 02/13/98 73.3% 98.0% 04/22/98
$1,500,000 01/28/98 66.5% 98.0% 03/01/98
$2,381,000 05/07/98 41.7% 98.0% 03/31/98
$1,330,000 11/25/97 74.7% 97.5% 12/24/97
$1,160,000 02/16/98 79.3% 90.8% 01/01/98
$1,110,000 01/23/98 73.1% 95.0% 01/01/98 Greddy Performance Products, Inc. 100.0%
$1,050,000 01/26/98 76.0% 90.6% 11/30/97
$1,100,000 06/01/98 72.1% 93.0% 06/01/98 Q-Systems International, Inc. 33.3%
$790,000 12/23/97 66.9% 100.0% 01/30/98 Mini-Mailers 100.0%
$1,499,944,000 72.4% 93.5%
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PREPAYMENT AND SERVICING INFORMATION
<TABLE>
<CAPTION>
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Prepayment Code (18) Admin.
Loan Seasoning Cost Rate
No. Property Name (2) (17) LO DEF YM YM1 5.0% 4.0% 3.0% 2.5% 2.0% 1.5% 1.0% Open (bps)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Augusta Exchange 3 36 80 3 5.31
2 Magnolia Vinings Apartments (6) 13 60 69 3 5.31
3 The Regal Business Center (7) 3 27 90 3 12.50
4 490 Post Street 9 60 57 3 5.31
5 Ventana Apartments (8) 10 24 94 3 5.31
6 Parkway Plaza-Norman, OK 2 36 80 3 5.31
7 Garden Court Hotel 6 59 57 3 5.31
8 The Courtyard Shopping Center 9 96 141 3 5.31
9 Roosevelt Glen Corporate Center (2A) 5 36 102 6 5.31
10 Roosevelt Glen Release Parcel (2A) 5 36 105 3 5.31
11 Pier 1 - York (2B) 4 36 80 3 5.31
12 Pier 1 - Harrisburg (2B) 4 36 80 3 5.31
13 Pier 1 - Slidell (2B) 4 36 80 3 5.31
14 Pier 1 - East Maple Shade (2B) 4 36 80 3 5.31
15 Pier 1 - Chesapeake (2B) 4 36 80 3 5.31
16 Pier 1 - Barboursville (2B) 4 36 80 3 5.31
17 Pier 1 - Sandusky (2B) 4 36 80 3 5.31
18 Pier 1 - Fargo (2B) 4 36 80 3 5.31
19 Pier 1 - Grand Forks (2B) 4 36 80 3 5.31
20 Pier 1 - Cherry Hill (2B) 4 36 80 3 5.31
21 York Creek Apartments 7 31 86 3 5.31
22 Pier 1 - Franklin (2C) 4 36 80 3 5.31
23 Pier 1 - Birmingham (2C) 4 36 80 3 5.31
24 Pier 1 - Cary (2C) 4 36 80 3 5.31
25 Pier 1 - Sunset Valley (2C) 4 36 80 3 5.31
26 Pier 1 - Corpus Christi (2C) 4 36 80 3 5.31
27 Pier 1 - West Melbourne (2C) 4 36 80 3 5.31
28 Pier 1 - Fayetteville (2C) 4 36 80 3 5.31
29 Pier 1 - Kennewick (2C) 4 36 80 3 5.31
30 Pier 1 - High Point (2C) 4 36 80 3 5.31
31 Pier 1 - Little Rock (2C) 4 36 80 3 5.31
32 Best Western Landmark Hotel 4 36 81 3 5.31
33 La Jolla Village Apartments 3 36 81 3 5.31
34 Country Hills Apartments 7 59 57 3 5.31
35 Wal-Mart- Augusta 3 36 175 3 5.31
36 Village on the Green 6 36 81 3 5.31
37 Shaws Grocery Center 4 36 80 3 5.31
38 Summerwood Apts 6 60 57 3 5.31
39 Bay Pointe Apartments 2 36 80 3 5.31
40 Central Park Apartments 2 36 44 3 5.31
41 Royal Palm MHC (8) (9) 7 36 81 3 5.31
42 Alafaya Square 4 36 81 3 5.31
43 Villa Monterey Apartments (10) 28 177 3 5.31
44 Brookhaven Manor 3 36 81 3 5.31
45 Village at University Place 7 60 57 3 5.31
46 Crossroads Shopping Center 4 36 81 3 5.31
47 Piccadilly Apartments 8 60 57 3 5.31
48 Empire Industrial Park 8 60 57 3 5.31
49 Sherwood Mall 26 177 3 5.31
50 Stanley Village 3 36 81 3 5.31
51 Plaza North Shopping 34 117 3 5.31
52 American House Parkway 3 36 81 3 5.31
53 Lincoln Court 4 36 81 3 5.31
54 The Fields 8 60 57 3 5.31
55 Cobb Marketfair 8 60 57 3 5.31
56 Barrows Place 15 129 3 5.31
57 Orcas Industrial Park 6 36 237 3 5.31
58 Village View Apartments 7 60 57 3 5.31
59 The Landings Apartments 3 36 200 3 5.31
60 Holiday Inn - Amherst 2 36 80 3 5.31
61 Space Saver Self Storage 23 130 3 5.31
62 Mountain View 5 36 80 3 5.31
63 Barrington Terrace 4 36 80 3 5.31
64 230-38 East 44th Street 18 117 3 5.31
65 Woodfield East Apartments 6 36 80 3 5.31
66 NEC - Permanent 8 60 57 3 5.31
67 Royal Gulf Apartments (11) 4 60 60 0 13.31
68 Muses Block 7 31 86 3 5.31
69 Standiford Place 10 60 57 3 5.31
70 Winslow Court 9 60 54 6 5.31
71 Holiday Inn - Airport 2 36 80 3 5.31
72 Charles Daniels Apartments 4 36 80 3 5.31
73 Comfort Inn - Old Town 5 60 57 3 12.50
74 Clarion Hotel 3 36 81 3 5.31
75 Clay Creek Apartments 13 60 69 3 5.31
76 Rancho Bernardo Town Center 26 177 3 5.31
77 The Trees 5 36 140 3 5.31
78 Terra Cotta Villa 8 60 57 3 5.31
79 Whispering Pines (7) (8) (9) 7 36 81 3 5.31
80 Kingstowne I Apartments 4 60 57 3 14.31
81 Chelmsford Best Western 4 36 80 3 5.31
82 Brightondale 2 36 80 3 5.31
83 Stoney Brook Apartments 5 143 12 12 6 6 5.31
84 Orchard Shopping Center 17 117 3 5.31
85 Towne Club 3 36 260 3 5.31
86 380 N. Woodward 5 36 81 3 5.31
87 72 Madison Avenue 9 60 57 3 5.31
88 Access Self Storage 23 129 3 5.31
89 Stanley Apartments 6 36 81 3 5.31
90 Holiday Inn - Ithaca 2 36 80 3 5.31
91 Best Western - Rockville 2 36 80 3 5.31
92 Merrillville Corporate Center 4 36 81 3 5.31
93 Oak Hills Shopping Center 2 36 80 3 5.31
94 Hill House 5 36 80 3 5.31
95 Park Chateau 6 36 81 3 5.31
96 131 Tremont Apartments 12 60 57 3 5.31
97 New Market Plaza 4 36 81 3 5.31
98 The Aspens on Country Club 12 60 18 6 5.31
99 Westwood Glen 4 36 80 3 5.31
100 South Broadway Car Care Center 3 36 80 3 5.31
101 Mountain View Mobile Estates 5 36 80 3 5.31
102 Bridgecreek Apartments 6 60 117 3 5.31
103 Le Cercle Apartments 9 60 54 6 5.31
104 Geneva Meadows 5 36 81 3 5.31
105 Northern Trust 5 36 80 3 5.31
106 Pleasant Run Apartments 2 26 91 3 14.31
107 Whispering Pines Community (8) (9) 6 36 81 3 5.31
108 Bankside Apartments 13 60 69 3 5.31
109 San Angelo Square 4 24 93 3 5.31
110 Lake Corporate Center 3 36 80 3 5.31
111 Mission Bay Condominiums 4 36 141 3 5.31
112 Preston Highway Shopping Center 4 27 90 3 12.50
113 Mr. D's Self Storage 8 60 57 3 5.31
114 Raycom (9) 5 36 80 3 5.31
115 Camelot 7 36 81 3 5.31
116 County Seat Self Storage 3 27 89 3 5.31
117 Vegas Food Center 3 36 81 3 5.31
118 A-American SSF Portfolio - Irving (7) 9 60 57 3 5.31
119 Regents Park Office I & II 9 33 84 3 5.31
120 Bittersweet Plaza 3 36 81 3 5.31
121 Springs of Escondido 7 36 81 3 5.31
122 Alamitos Business Center 9 33 84 3 5.31
123 Oakton Beach & Tennis Club 9 33 84 3 5.31
124 West Thomas Road (12) 16 60 60 0 13.31
125 Old Wilkes Centre 2 36 200 3 5.31
126 Meridian Busn. Campus 9 60 57 3 5.31
127 Beach Distribution Center 5 59 57 3 5.31
128 Coltsgate 5 36 81 3 5.31
129 Chateau DeVille 9 60 57 3 5.31
130 Edgewood Sunrise North 9 33 84 3 5.31
131 Atlantic Self Storage 8 60 57 3 5.31
132 Wyndemere Apartments 4 36 80 3 5.31
133 1111 Prospect Street (13) 22 177 3 5.31
134 Cedar Village MHC 6 59 57 3 5.31
135 York Manor Apartments 7 31 206 3 5.31
136 850 Warwick Avenue 5 36 104 3 5.31
137 Axon Instruments 2 36 80 3 5.31
138 Highpark Corp. Center 30 117 3 5.31
139 Campbell Industrial (7) 5 59 117 3 5.31
140 Valley View Place 3 36 80 3 5.31
141 Oak Glen Apartments 9 60 57 3 5.31
142 U Save Park Self Storage 11 36 81 3 5.31
143 Gladstone Village Center 4 28 209 3 12.50
144 Rainbow Forest Apartments 5 36 80 3 5.31
145 Babies R Us 3 36 126 3 5.31
146 Gallery Center 8 36 81 3 12.50
147 Nova Plaza 9 33 81 6 5.31
148 A-American SSF-Irwindale 5 36 81 3 5.31
149 Northwood Apartments 7 60 57 3 12.50
150 Guard Well SSF 9 48 69 3 5.31
151 Eckerd - Hyde Park 4 36 198 3 5.31
152 Village Square Apartments 9 36 81 3 5.31
153 Fairway Lanai (2D) 2 36 80 3 5.31
154 Park Place (2D) 2 36 80 3 5.31
155 7410 Northside Drive Building 9 60 57 3 5.31
156 College Station Apartments 5 29 88 3 14.31
157 Canterbury Crossings 6 30 86 3 5.31
158 Arborwood Apartments 5 36 81 3 5.31
159 South Shore Apartments 4 60 57 3 12.50
160 Chula Vista MHP 4 28 88 3 5.31
161 Moorpark Terrace Apartments 6 48 69 3 5.31
162 S.S. Mini Storage - Opa Locka 8 60 57 3 5.31
163 Montebello Plaza 3 36 80 3 5.31
164 Cloverleaf Estates MHC 5 29 87 3 5.31
165 Centerville Storage Inns of America 14 129 3 5.31
166 Barclay Place Shopping Center 16 117 3 5.31
167 Tarzana Place 3 36 80 3 5.31
168 Morrison Apartments 1 25 92 3 13.31
169 Commack Colonial 4 28 88 3 5.31
170 Cedar Ridge 4 119 177 3 5.31
171 Capri MHC 5 36 80 3 5.31
172 231 - 237 Second Avenue 20 117 3 5.31
173 Rancho del Oro Business Park 12 117 3 5.31
174 Walgreen - Covington 7 31 146 3 5.31
175 Miramar Apartments 3 36 80 3 5.31
176 Boulder Business Commons 6 36 80 3 5.31
177 Eckerd - Lynn Haven 4 36 197 3 5.31
178 American Classic Virginia Beach SSF 3 36 81 3 5.31
179 Laguna Ridge Business Center 9 33 84 3 5.31
180 American Classic-Hampton - SSF 3 36 81 3 5.31
181 Hayden Industrial Park (12) 16 60 60 0 13.31
182 Silver Spur Ranch 18 117 3 5.31
183 Thornapple Lake MHP 7 31 86 3 5.31
184 Kimberly Square Shopping Center 9 60 57 3 12.50
185 Brookshire Village 3 36 80 3 5.31
186 Calusa Shopping Center 4 36 80 3 5.31
187 Storage Inn SSF 23 118 3 5.31
188 Franklin Village MHP 12 60 32 12 12 9 3 5.31
189 Lincoln Tower 8 60 57 3 5.31
190 Timber Ridge 4 36 81 3 5.31
191 Walgreens - Tallahassee 9 120 75 3 5.31
192 Jasin Industrial Park (14) 28 117 3 5.31
193 Southland Apartments 5 48 69 3 5.31
194 Village Green Shopping Center 9 33 84 3 5.31
195 322 Route 46 West 6 59 57 3 5.31
196 Edwards Apartments 4 36 141 3 5.31
197 Deerbrook Plaza 2 36 80 3 5.31
198 Shallowford Apartments 11 60 69 3 5.31
199 Walgreens - Belvidere 6 36 195 3 5.31
200 A-1 Self Storage Facility -
El Cajon, CA 4 36 80 3 5.31
201 McGee's Closet 6 59 57 3 5.31
202 American Classic-Portsmouth SSF 3 36 81 3 5.31
203 Hide-Away RV Resort 4 28 88 3 5.31
204 CVS - Lafayette, IN 3 36 199 3 5.31
205 A-American Downtown Los Angeles 3 36 81 3 5.31
206 Alderbury Cove 5 36 81 3 5.31
207 Brookridge Apartments 8 60 57 3 5.31
208 Pheasant Run Apartments 5 119 12 12 12 12 6 6 5.31
209 Waverly Self Storage 20 24 12 24 24 12 37 5.31
210 Park Ridge Building 4 36 81 3 5.31
211 Lock-Ur-Own SSF 3 59 57 3 5.31
212 Statewide Mini Storage 4 36 81 3 5.31
213 S.S. Mini Storage - Inglewood 8 60 57 3 5.31
214 Parkwood Apartments 9 60 57 3 5.31
215 Teeca Plaza 3 36 80 3 5.31
216 Sepulveda Retail Center 5 60 57 3 5.31
217 Gaddis Building 5 36 80 3 5.31
218 Copans - Levy Portfolio 4 36 80 3 5.31
219 Holly Apartments 9 60 57 3 5.31
220 Hutchinson Retail 3 36 80 3 5.31
221 Neptune Mobile Village 4 28 88 3 5.31
222 A-American Self Storage - Canoga Park 9 60 54 6 5.31
223 El Dorado West 6 59 57 3 5.31
224 Belmar Medical Center 22 60 12 12 12 12 9 3 5.31
225 Central Self Storage 31 24 12 12 12 12 9 3 5.31
226 Donovan-Smith MHP 12 60 69 3 5.31
227 Smithtown Professional 4 28 88 3 5.31
228 Casa Grande Apartments 6 36 80 3 5.31
229 Freeway Self Storage 8 60 57 3 5.31
230 Summit Mobile Home Park (7) 14 117 3 5.31
231 333 Glen Head Road 5 59 57 3 5.31
232 CVS Cleveland 3 36 191 3 5.31
233 Bradley Self Storage Facility 8 60 57 3 5.31
234 Hillside West Apartments 7 36 81 3 5.31
235 Sierra Vista Plaza 3 36 80 3 5.31
236 Sentry Self Storage 4 36 81 3 5.31
237 Sunnyslope 8 60 57 3 5.31
238 Georgetown Station Apartments 3 36 80 3 5.31
239 Orange Park Shopping Center 6 59 57 3 5.31
240 Appalachian Self Storage 5 36 80 3 5.31
241 LaVerne Business Park 9 60 57 3 5.31
242 Villa Esperanza 5 36 81 3 5.31
243 Landmark Mini-Storage 5 36 81 3 5.31
244 Stirling Design Center 4 36 80 3 5.31
245 Westland I 4 36 81 3 5.31
246 Tatum Ranch Storage Solutions 3 36 200 3 5.31
247 Ocala Springs Shopping Center 4 36 141 3 5.31
248 Pine Oak Plaza 5 36 80 3 5.31
249 Sandia North Apartments 8 32 85 3 5.31
250 SecurCare - Colorado Springs 17 12 12 12 12 36 48 5.31
251 Whitnall Glen 9 33 84 3 5.31
252 4227 Enterprise Avenue 6 60 57 3 5.31
253 Mark IV 8 32 85 3 5.31
254 Outrigger Apartments 3 36 80 3 5.31
255 Lindys Landing Apts 4 28 89 3 5.31
256 North 10th Street SSF 4 36 80 3 5.31
257 Leawood Plaza Apartments 9 48 69 3 5.31
258 American Village Apartments 8 32 85 3 5.31
259 Greddy Industrial Building 5 59 117 3 5.31
260 Personal Storage 2 5 59 57 3 5.31
261 107th St. Warehouse 3 36 80 3 5.31
262 17222 Armstrong Avenue 7 60 57 3 5.31
Total/Weighted Average 7 5.84
</TABLE>
<PAGE>
APPENDIX II
ADDITIONAL INFORMATION REGARDING MULTIFAMILY PROPERTIES - I
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Studios 1 Bedrooms 2 Bedrooms
- ------------------------------------------------------------------------------------------------------------------------------------
Avg. Monthly Avg. Monthly Avg. Monthly
Loan Rent/ Rent Rent/ Rent Rent/ Rent
No. Property Name Units Month Range Units Month Range Units Month Range
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2 Magnolia Vinings Apartments 40 $650 $605-$660 136 $728 $650-$750 160 $975 $790-$1,015
5 Ventana Apartments 0 $0 144 $666 $595-$725 206 $812 $730-$975
21 York Creek Apartments 0 $0 72 $561 $449-$649 240 $627 $469-$719
33 La Jolla Village Apartments 0 $0 104 $693 $665-$775 80 $1,036 $940-$1,135
34 Country Hills Apartments 0 $0 174 $526 $455-$610 142 $626 $540-$705
36 Village on the Green 0 $0 188 $475 $410-$530 202 $555 $470-$630
38 Summerwood Apts 0 $0 49 $666 $625-$700 141 $775 $725-$900
39 Bay Pointe Apartments 0 $0 240 $415 $390-$445 176 $525 $470-$555
40 Central Park Apartments 0 $0 344 $457 $365-$535 80 $585 $475-$645
43 Villa Monterey Apartments 0 $0 248 $543 $500-$585 72 $640 $630-$675
47 Piccadilly Apartments 0 $0 104 $563 $550-$593 148 $658 $608-$683
54 The Fields 0 $0 24 $674 $650-$690 70 $900 $825-$975
56 Barrows Place 3 $706 $650-$800 46 $902 $751-$1,000 32 $1,184 $1,000-$1,300
58 Village View Apartments 0 $0 46 $646 $578-$713 90 $763 $698-$848
59 The Landings Apartments 18 $517 $500-$520 21 $508 $500-$600 99 $608 $590-$670
64 230-38 East 44th Street 132 $884 $609-$1,375 20 $1,196 $843-$1,899 12 $1,224 $834-$2,449
65 Woodfield East Apartments 0 $0 36 $536 $489-$609 132 $594 $510-$689
67 Royal Gulf Apartments 0 $0 36 $552 $525-$600 97 $863 $575-$1,800
68 Muses Block 13 $568 $535-$600 34 $879 $680-$2,273 18 $1,203 $890-$2,273
72 Charles Daniels Apartments 0 $0 30 $908 $830-$1,000 74 $1,122 $935-$1,380
75 Clay Creek Apartments 0 $0 168 $432 $360-$510 68 $576 $460-$685
77 The Trees 5 $512 $500-$515 32 $632 $590-$720 61 $784 $725-$955
78 Terra Cotta Villa 0 $0 56 $605 $560-$615 48 $705 $675-$725
80 Kingstowne 1 Apartments 0 $0 40 $382 $255-$405 194 $472 $415-$545
83 Stoney Brook Apartments 0 $0 46 $565 $550-$575 134 $700 $605-$750
85 Towne Club 0 $0 0 $0 0 $0
89 Stanley Apartments 0 $0 44 $730 $710-$775 32 $880 $800-$950
96 131 Tremont Apartments 4 $1,600 $1,600 16 $1,700 $1,300-$2,100 8 $2,450 $2,100-$2,800
98 The Aspens on Country Club 0 $0 32 $495 $480-$525 119 $555 $525-$575
99 Westwood Glen 0 $0 0 $0 248 $450 $396-$475
102 Bridgecreek Apartments 0 $0 0 $0 47 $1,131 $1,050-$1,255
103 Le Cercle Apartments 0 $0 77 $680 $550-$800 14 $715 $635-$780
104 Geneva Meadows 0 $0 0 $0 108 $590 $575-$620
106 Pleasant Run Apartments 0 $0 0 $0 108 $543 $420-$670
108 Bankside Apartments 0 $0 188 $345 $310-$415 80 $452 $425-$490
111 Mission Bay Condominiums 0 $0 18 $917 $820-$1,000 34 $1,143 $1,020-$1,395
123 Oakton Beach & Tennis Club 0 $0 0 $0 66 $791 $635-$850
129 Chateau DeVille 0 $0 16 $429 $325-$450 68 $518 $450-$630
130 Edgewood Sunrise North 37 $395 $375-$410 38 $445 $430-$570 38 $540 $525-$565
132 Wyndemere Apartments 0 $0 31 $450 $410-$475 54 $537 $485-$570
135 York Manor Apartments 19 $360 $330-$365 121 $416 $370-$445 48 $521 $425-$585
136 850 Warwick Avenue 0 $0 0 $0 50 $937 $865-$960
141 Oak Glen Apartments 24 $298 $295-$300 96 $338 $325-$360 96 $441 $395-$465
144 Rainbow Forest Apartments 0 $0 0 $0 100 $550 $550
149 Northwood Apartments 0 $0 18 $435 $410-$455 90 $510 $480-$615
152 Village Square Apartments 0 $0 214 $323 $290-$430 3 $460 $450-$465
153 Fairway Lanai 0 $0 34 $470 $425-$525 8 $594 $575-$600
154 Park Place 0 $0 41 $606 $575-$625 0 $0
156 College Station Apartments 0 $0 0 $0 12 $501 $410-$510
157 Canterbury Crossings 0 $0 0 $0 32 $1,137 $940-$1,645
158 Arborwood Apartments 0 $0 64 $380 $370-$390 56 $465 $450-$480
159 South Shore Apartments 0 $0 35 $388 $375-$395 81 $444 $434-$540
161 Moorpark Terrace Apartments 0 $0 6 $781 $750-$800 30 $1,154 $950-$1,300
168 Morrison Apartments 0 $0 79 $598 $450-$700 0 $0
170 Cedar Ridge 0 $0 0 $0 78 $660 $580-$740
172 231 - 237 Second Avenue 3 $598 $458-$705 0 $0 10 $1,240 $274-$1,607
175 Miramar Apartments 5 $391 $355-$475 37 $451 $430-$595 20 $750 $495-$875
190 Timber Ridge 0 $0 28 $350 $280-$380 76 $425 $390-$485
193 Southland Apartments 0 $0 10 $639 $625-$645 40 $768 $730-$795
196 Edwards Apartments 0 $0 0 $0 52 $675 $675
198 Shallowford Apartments 0 $0 14 $425 $400-$435 53 $543 $450-$575
206 Alderbury Cove 0 $0 16 $522 $495-$525 40 $590 $535-$608
207 Brookridge Apartments 0 $0 71 $390 $350-$415 32 $515 $458-$550
208 Pheasant Run Apartments 0 $0 84 $456 $451-$500 72 $571 $550-$621
214 Parkwood Apartments 0 $0 60 $328 $285-$345 40 $405 $380-$410
219 Holly Apartments 0 $0 20 $591 $500-$625 20 $770 $700-$800
228 Casa Grande Apartments 0 $0 0 $0 53 $540 $503-$550
234 Hillside West Apartments 0 $0 0 $0 74 $395 $295-$420
237 Sunnyslope 0 $0 16 $554 $545-$555 26 $634 $600-$650
238 Georgetown Station Apartments 0 $0 98 $379 $315-$395 0 $0
242 Villa Esperanza 0 $0 12 $365 $345-$433 60 $435 $365-$475
249 Sandia North Apartments 0 $0 16 $385 $365-$390 20 $487 $420-$525
251 Whitnall Glen Apartments 0 $0 12 $673 $650-$695 12 $760 $725-$795
254 Outrigger Apartments 0 $0 25 $400 $379-$430 24 $509 $485-$585
255 Lindy's Landing Apts. 0 $0 20 $405 $375-$425 32 $496 $399-$530
257 Leawood Plaza Apartments 0 $0 44 $335 $285-$355 36 $455 $415-$465
258 American Village Apartments 7 $330 $330 43 $395 $395 31 $495 $495
Total/Weighted Average 310 $662 4,232 $509 5,307 $650
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
3 Bedrooms 4 Bedrooms Other (19)
- ------------------------------------------------------------------------------------
Avg. Monthly Avg. Monthly Avg. Monthly
Rent/ Rent Rent/ Rent Rent/ Rent
Units Month Range UnitsMonth Range Units Month Range
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
64 $1,150 $1,025-$1,275 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
1 $600 $600 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
14 $1,014 $1,000-$1,200 0 $0 0 $0
10 $1,591 $1,010-$1,800 4 $1,575 $1,300-$1,750 0 $0
0 $0 0 $0 0 $0
24 $711 $700-$750 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 11 $1,638 $1,600-$1,800
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
5 $976 $970-$980 4 $1,216 $1,210-$1,250 4 $1,650 $1,650
32 $810 $745-$840 0 $0 0 $0
30 $582 $555-$605 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 102 $920 $920 0 $0
4 $1,038 $975-$1,100 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
16 $605 $575-$639 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
16 $600 $550-$650 0 $0 0 $0
0 $0 0 $0 0 $0
14 $639 $575-$645 0 $0 0 $0
2 $620 $565-$675 0 $0 0 $0
0 $0 0 $0 0 $0
24 $555 $550-$575 0 $0 0 $0
56 $650 $650 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
1 $700 $700 0 $0 0 $0
0 $0 0 $0 0 $0
13 $678 $615-$690 35 $751 $740-$760 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
22 $1,045 $287-$2,200 0 $0 0 $0
5 $728 $625-$810 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
12 $703 $690-$713 0 $0 0 $0
16 $448 $440-$455 0 $0 0 $0
0 $0 0 $0 0 $0
3 $657 $655-$661 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
3 $609 $535-$645 0 $0 0 $0
4 $608 $595-$615 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
0 $0 0 $0 0 $0
6 $535 $535 0 $0 0 $0
397 $791 145 $905 15 $1,641
</TABLE>
<PAGE>
APPENDIX II
ADDITIONAL INFORMATION REGARDING MULTIFAMILY PROPERTIES - II
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Cut-Off No. Utilities
Loan Date of Total Paid By
No. Property Name Balance Property Type Sub-Property Type Elevators Floors Units Tenant
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2 Magnolia Vinings Apartments $23,783,581 Multifamily Low-Rise N 3&4 400 Electric/HVAC
5 Ventana Apartments $17,500,000 Multifamily Garden N 2&3 350 Electric/Gas
21 York Creek Apartments $12,185,486 Multifamily Low-Rise N 3 312 Electric/AC
33 La Jolla Village Apartments $11,524,351 Multifamily Low-Rise N 2 184 Electric/Heat
34 Country Hills Apartments $10,946,739 Multifamily Low-Rise N 2 316 Electric/Heat
36 Village on the Green $10,200,584 Multifamily Low-Rise N 3 390 Electric/AC
38 Summerwood Apts $9,958,300 Multifamily Low-Rise N 2&3 190 Electric/Heat
39 Bay Pointe Apartments $9,825,031 Multifamily Low-Rise N 2 417 Electric/HVAC
40 Central Park Apartments $9,296,502 Multifamily Low-Rise N 2 424 Electric
43 Villa Monterey Apartments $8,943,107 Multifamily Garden N 2 320 Electric/HVAC
47 Piccadilly Apartments $8,543,811 Multifamily Low-Rise N 2&3 252 Electric/HVAC
54 The Fields $7,053,422 Multifamily Low-Rise N 3 108 Electric/HVAC
56 Barrows Place $6,886,653 Multifamily Low-Rise N 4 95 Electric
58 Village View Apartments $6,771,378 Multifamily Low-Rise N 2 136 Electric/HVAC
59 The Landings Apartments $6,697,952 Multifamily Low-Rise N 3 162 Electric/HVAC
64 230-38 East 44th Street $6,451,509 Multifamily High Rise Y 14 164 Electric/AC
65 Woodfield East Apartments $6,225,207 Multifamily Low-Rise N 3 168 Electric/AC
67 Royal Gulf Apartments $6,174,088 Multifamily Garden N 3 144 Electric/Gas
68 Muses Block $6,166,003 Mixed Use Retail/Multifamily Y 2,3&8 65 Electric
72 Charles Daniels Apartments $5,983,553 Multifamily Low-Rise Y 4 104 Electric
75 Clay Creek Apartments $5,746,571 Multifamily Low-Rise N 2 236 Electric/HVAC
77 The Trees $5,730,823 Multifamily Low-Rise N 2 111 Electric/HVAC
78 Terra Cotta Villa $5,662,224 Multifamily Low-Rise N 2 136 Electric/HVAC
80 Kingstowne 1 Apartments $5,484,883 Multifamily Garden N 2 264 Electric/Gas
83 Stoney Brook Apartments $5,430,752 Multifamily Low-Rise N 2 180 Electric/AC
85 Towne Club $5,082,264 Multifamily Low-Rise N 3 102 Electric/HVAC
89 Stanley Apartments $4,909,120 Multifamily Low-Rise N 2 80 Electric/HVAC
96 131 Tremont Apartments $4,697,003 Mixed Use Multifamily/Retail/Office Y 4 28 None
98 The Aspens on Country Club $4,451,833 Multifamily Low-Rise N 2&3 151 Electric/HVAC
99 Westwood Glen $4,436,659 Multifamily Low-Rise N 2 248 Electric/HVAC
102 Bridgecreek Apartments $4,325,681 Multifamily Low-Rise Y 3 47 Electric/HVAC
103 Le Cercle Apartments $4,292,015 Multifamily Mid-Rise Y 8 91 Electric/HVAC
104 Geneva Meadows $4,284,544 Multifamily Low-Rise N 2 108 Electric/HVAC
106 Pleasant Run Apartments $4,230,899 Multifamily Garden N 3 108 Electric
108 Bankside Apartments $4,160,942 Multifamily Low-Rise N 2 284 Electric/HVAC
111 Mission Bay Condominiums $3,988,858 Multifamily Low-Rise N 2 52 Electric/HVAC
123 Oakton Beach & Tennis Club $3,542,802 Multifamily Low-Rise N 2&3 66 Electric/HVAC
129 Chateau DeVille $3,375,481 Multifamily Low-Rise N 2 100 Electric/HVAC
130 Edgewood Sunrise North $3,345,292 Multifamily Low-Rise N 2 113 Electric/HVAC
132 Wyndemere Apartments $3,290,610 Multifamily Low-Rise N 3 99 Electric/AC
135 York Manor Apartments $3,257,490 Multifamily Low-Rise N 3 190 Electric/AC
136 850 Warwick Avenue $3,189,454 Multifamily Low-Rise N 2 50 Electric/HVAC
141 Oak Glen Apartments $3,066,526 Multifamily Low-Rise N 2 240 Electric/HVAC
144 Rainbow Forest Apartments $2,988,834 Multifamily Low-Rise N 2&3 156 Electric/HVAC
149 Northwood Apartments $2,934,002 Multifamily Garden N 2.5 108 Electric/Gas
152 Village Square Apartments $2,878,824 Multifamily Low-Rise N 2 217 Electric/HVAC
153 Fairway Lanai $1,358,033 Multifamily Low-Rise Y 4 43 Electric/Heat
154 Park Place $1,512,809 Multifamily Low-Rise Y 3 41 Electric/Heat
156 College Station Apartments $2,776,529 Multifamily Garden N 3 60 Electric/Gas
157 Canterbury Crossings $2,738,503 Multifamily Low-Rise N 2 32 Electric/HVAC
158 Arborwood Apartments $2,710,394 Multifamily Low-Rise N 2 120 Electric/HVAC
159 South Shore Apartments $2,688,647 Multifamily Garden N 2&3 116 Electric
161 Moorpark Terrace Apartments $2,689,089 Multifamily Low-Rise Y 3 36 Electric/Gas
168 Morrison Apartments $2,498,297 Multifamily Garden Y 3 79 Electric/Gas
170 Cedar Ridge $2,489,085 Multifamily Garden N 1 78 Electric/AC
172 231 - 237 Second Avenue $2,471,983 Multifamily Mid-Rise N 6 35 Electric/HVAC
175 Miramar Apartments $2,395,054 Multifamily Low-Rise Y 4 67 Electric/Heat
190 Timber Ridge $2,233,760 Multifamily Low-Rise N 2 104 Electric/HVAC
193 Southland Apartments $2,201,059 Multifamily Garden N 2 50 Electric/Gas
196 Edwards Apartments $2,115,572 Multifamily Low-Rise N 2 52 Electric/HVAC
198 Shallowford Apartments $2,082,356 Multifamily Garden N 1 67 Electric/HVAC
206 Alderbury Cove $1,992,811 Multifamily Low-Rise N 2 56 Electric/HVAC
207 Brookridge Apartments $1,986,906 Multifamily Low-Rise N 1&2 103 Electric/HVAC
208 Pheasant Run Apartments $1,981,826 Multifamily Low-Rise N 2 168 Electric/HVAC
214 Parkwood Apartments $1,829,525 Multifamily Low-Rise N 2 116 Electric/HVAC
219 Holly Apartments $1,712,560 Multifamily Low-Rise N 2 40 Electric/HVAC
228 Casa Grande Apartments $1,593,449 Multifamily Low-Rise N 2&3 56 Electric/HVAC
234 Hillside West Apartments $1,451,615 Multifamily Low-Rise N 2 74 Electric/HVAC
237 Sunnyslope $1,341,454 Multifamily Low-Rise N 2 42 Electric/AC
238 Georgetown Station Apartments $1,322,072 Multifamily Low-Rise N 2 98 Electric/HVAC
242 Villa Esperanza $1,268,222 Multifamily Low-Rise N 2 75 Electric/HVAC
249 Sandia North Apartments $1,153,345 Multifamily Low-Rise N 2 40 Electric/HVAC
251 Whitnall Glen Apartments $1,141,878 Multifamily Low-Rise N 2 24 Electric/HVAC
254 Outrigger Apartments $1,047,830 Multifamily Low-Rise N 1&2 49 Electric/Heat
255 Lindy's Landing Apts. $997,296 Multifamily Garden N 2 52 Electric/Gas
257 Leawood Plaza Apartments $992,863 Multifamily Low-Rise N 2 80 Electric
258 American Village Apartments $919,491 Multifamily Low-Rise N 2 87 Electric
Total/Weighted Average $357,595,955 10,406
</TABLE>
<PAGE>
APPENDIX II
ADDITIONAL INFORMATION REGARDING SENIOR HOUSING PROPERTIES - I
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Studios 1 Bedrooms 2 Bedrooms Private Semi-Private Triple/Quad
- ----------------------------------------------------------------------------------------------------------------------------------
Avg. Avg. Avg. Avg. Avg. Avg.
Loan Rent/ Rent/ Rent/ Rent/ Rent/ Rent/
No. Property Name Units Month Units Month Units Month Units Month Units Month Units Month
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
44 Brookhaven Manor 0 $0 104 $1,636 36 $1,968 0 $0 0 $0 0 $0
52 American House Parkway 24 $1,725 93 $1,875 8 $2,225 0 $0 0 $0 0 $0
53 Lincoln Court 66 $1,415 56 $1,660 11 $2,046 0 $0 0 $0 0 $0
62 Mountain View 0 $0 0 $0 0 $0 63 $2,200 32 $3,802 0 $0
63 Barrington Terrace 24 $3,243 38 $3,688 0 $0 0 $0 0 $0 3 $7,279
69 Standiford Place 46 $1,140 52 $1,549 20 $1,939 0 $0 0 $0 0 $0
70 Winslow Court 9 $860 82 $1,106 38 $1,531 0 $0 0 $0 0 $0
82 Brightondale 2 $1,458 62 $1,787 11 $2,204 0 $0 0 $0 0 $0
94 Hill House 0 $0 0 $0 0 $0 22 $1,626 42 $2,751 12 $3,593
95 Park Chateau 44 $1,134 57 $1,435 8 $2,015 0 $0 0 $0 0 $0
115 Camelot 30 $1,143 84 $1,103 22 $1,560 0 $0 0 $0 0 $0
121 Springs of Escondido 0 $0 95 $1,316 8 $1,858 0 $0 0 $0 0 $0
140 Valley View Place 0 $0 0 $0 0 $0 53 $1,600 28 $875 0 $0
167 Tarzana Place 0 $0 0 $0 0 $0 60 $1,600 30 $900 0 $0
189 Lincoln Tower 38 $943 60 $1,289 12 $1,736 0 $0 0 $0 0 $0
245 Westland I 88 $1,215 0 $0 0 $0 0 $0 0 $0 0 $0
Total/Weighted Average 371 $1,355 783 $1,579 174 $1,830 198 $1,794 132 $2,187 15 $4,330
</TABLE>
<PAGE>
APPENDIX II
ADDITIONAL INFORMATION REGARDING SENIOR HOUSING PROPERTIES - II
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Utilities
Loan Cut-Off Date No. of Total Paid By
No. Property Name Balance Property Type Sub-Property Type Elevators Floors Units Tenant
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
44 Brookhaven Manor $8,787,003 Senior Housing Congregate Seniors Housing Y 3 140 None
52 American House Parkway $7,481,968 Senior Housing Congregate Seniors Housing Y 3 125 None
53 Lincoln Court $7,474,829 Senior Housing Congregate Seniors Housing Y 2 133 None
62 Mountain View $6,521,131 Senior Housing Assisted Living Facilities Y 2 95 None
63 Barrington Terrace $6,478,793 Senior Housing Congregate Seniors Housing Y 3 65 None
69 Standiford Place $6,148,087 Senior Housing Congregate Seniors Housing Y 1&3 118 None
70 Winslow Court $6,092,614 Senior Housing Congregate Seniors Housing Y 3 129 None
82 Brightondale $5,435,497 Senior Housing Assisted Living Facilities Y 3 75 None
94 Hill House $4,779,039 Senior Housing Assisted Living Facilities Y 1-3 76 None
95 Park Chateau $4,722,684 Senior Housing Congregate Seniors Housing Y 3 109 None
115 Camelot $3,945,441 Senior Housing Congregate Seniors Housing Y 3 136 None
121 Springs of Escondido $3,722,339 Senior Housing Congregate Seniors Housing Y 3 103 None
140 Valley View Place $3,093,098 Senior Housing Assisted Living Facilities Y 2 81 None
167 Tarzana Place $2,544,343 Senior Housing Assisted Living Facilities Y 2&3 90 None
189 Lincoln Tower $2,240,579 Senior Housing Congregate Seniors Housing Y 8 110 None
245 Westland I $1,195,821 Senior Housing Congregate Seniors Housing N 1&2 88 None
Total/Weighted Average $80,663,267 1,673
</TABLE>
<PAGE>
FOOTNOTES TO APPENDIX II
1. "HF" and "MS" denote Heller Financial Capital Funding, Inc., and Morgan
Stanley Mortgage Capital Inc., respectively, as Sellers.
2. Sets of Mortgage Loans that have identical alphabetical coding designate
multiple loans that are cross-collateralized and cross-defaulted.
3. Certain values including Units or SF, Cut-Off Date Balance/Unit or SF,
DSCR, Cut-Off Date LTV and Balloon LTV are calculated on a combined basis
for Mortgage Loans that are secured by multiple properties. Certain values
including Cut-Off Date Balance/Unit or SF, DSCR, Cut-Off Date LTV and
Balloon LTV are calculated on a combined basis for Mortgage Loans that are
cross-collateralized and cross-defaulted.
4. The Effective Maturity Date identifies the Hyper-Amortization Date of the
Mortgage Loans as defined in the Prospectus Supplement. See "Description of
the Mortgage Pool". The following chart identifies the interest rate or
required increase in interest rate after the Hyper-Amortization Date of the
Mortgage Loans.
<TABLE>
<CAPTION>
Hyper-Am. Date Interest
Loan No. Property Name Rate or Interest Rate Step-Up
-------- ------------- -----------------------------
<S> <C> <C>
7 Garden Court Hotel 10.330%
11 Pier 1 - York 7.000%
12 Pier 1 - Harrisburg 7.000%
13 Pier 1 - Slidell 7.000%
14 Pier 1 - East Maple Shade 7.000%
15 Pier 1 - Chesapeake 7.000%
16 Pier 1 - Barboursville 7.000%
17 Pier 1 - Sandusky 7.000%
18 Pier 1 - Fargo 7.000%
19 Pier 1 - Grand Forks 7.000%
20 Pier 1 - Cherry Hill 7.000%
22 Pier 1 - Franklin 7.000%
23 Pier 1 - Birmingham 7.000%
24 Pier 1 - Cary 7.000%
25 Pier 1 - Sunset Valley 7.000%
26 Pier 1 - Corpus Christi 7.000%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Hyper-Am. Date Interest
Loan No. Property Name Rate or Interest Rate Step-Up
-------- ------------- -----------------------------
<S> <C> <C>
27 Pier 1 - West Melbourne 7.000%
28 Pier 1 - Fayetteville 7.000%
29 Pier 1 - Kennewick 7.000%
30 Pier 1 - High Point 7.000%
31 Pier 1 - Little Rock 7.000%
32 Best Western Landmark Hotel Greater of (a) 10.160% and (b) USTY + 470 basis points
42 Alafaya Square Greater of (a) 8.900% and (b) USTY + 500 basis points
50 Stanley Village Greater of (a) 8.850% and (b) USTY + 500 basis points
55 Cobb Marketfair 10.260%
60 Holiday Inn - Amherst Greater of (a) 9.550% and (b) USTY + 500 basis points
71 Holiday Inn - Airport Greater of (a) 9.550% and (b) USTY + 500 basis points
74 Clarion Hotel Greater of (a) 9.150% and (b) USTY + 500 basis points
90 Holiday Inn - Ithaca Greater of (a) 9.550% and (b) USTY + 500 basis points
120 Bittersweet Plaza Greater of (a) 8.850% and (b) USTY + 500 basis points
166 Barclay Place Shopping Center Greater of (a) 10.500% and (b) USTY + 500 basis points
200 A-1 Self Storage Facility - El Cajon, CA Greater of (a) 9.380% and (b) USTY + 500 basis points
217 Gaddis Building 10.330%
</TABLE>
The term "USTY" is defined as the yield on a U.S. Government security having
a term equal to the period commencing on the identified Mortgage Loan's
Hyper-Amortization Date and ending on its Maturity Date.
5. The Original Amortization Term shown is the basis for determining the fixed
monthly principal and interest payment as set forth in the related note.
Due to the actual/360 accrual feature of certain Mortgage Loans, the actual
amortization to a zero balance on these Mortgage Loans will be longer.
6. The Loan No. 2 Monthly Payment is based on a 360 month amortization term as
of an 8/14/1998 earnout date. The Original Term to Maturity reflects the
term to maturity from the Note Date, and the Original Amortization Term
reflects the amortization term as of the earnout date.
<PAGE>
7. Several Mortgage Loans are secured by liens on multiple properties.
Property name, address, city, state, property type, sub-property type and
years built and renovated indicated are for the largest of such properties.
All other property information is aggregated for the multiple properties.
Detail on the individual properties of the multiple property loans is as
follows:
<TABLE>
<CAPTION>
Loan No. 3:
Property Name Address City
- ------------- ------- ----
<S> <C> <C>
The Regal Business Center 4557-4747 Irving Blvd.
& 4650-4656 Leston Ave. Dallas
Tarrant Industrial Properties 1 301-399 N. Beach St. Fort Worth
Tarrant Industrial Properties 2 1200-1240 Loop Highway Grapevine
Tarrant Industrial Properties 3 3021-3101 Pinewood Arlington
Tarrant Industrial Properties 4 702-732 Avenue R Grand Prairie
Tarrant Industrial Properties 5 2501-2509 Dalworth Grand Prairie
Tarrant Industrial Properties 6 3426-3442 Dalworth Arlington
Tarrant Industrial Properties 7 3405-3451 Dalworth Arlington
Loan No. 79:
Property Name Address City
- ------------- ------- ----
Whispering Pines 26 East Main St. Merrill
Village Terrace 212 Mary St. Johnson Creek
Hickory Lane 1515 Vandenbroek Rd. Little Chute
Loan No. 118:
Property Name Address City
- ------------- ------- ----
A-American SSF Portfolio - Irving 725 Metker St. Irving
A-American SSF Portfolio - Houston 1620 Almeda Genoa Rd. Houston
A-American SSF Portfolio - Webster 525 East NASA Rd. Webster
A-American SSF Portfolio - Dallas 9951 Royal Lane Dallas
Loan No. 139:
Property Name Address City
- ------------- ------- ----
Campbell Industrial 740 W. 190th St. Gardena
690 W. 190th Street 690 W. 190th St. Gardena
Hermanas 2934 Las Hermanas Rancho Dominguez
Loan No. 230:
Property Name Address City
- ------------- ------- ----
Summit Mobile Home Park 8461 Perry Highway Millcreek Township
Blue Coral Mobile Home Village 3104 West Lake Rd. Erie County
</TABLE>
<TABLE>
<CAPTION>
State Property Type Units or SF Year Built Year Renovated
----- ------------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
TX Industrial 530,650 1974 N/A
TX Industrial 140,425 1978 N/A
TX Industrial 113,665 1983 N/A
TX Industrial 99,938 1982 N/A
TX Industrial 84,430 1981 N/A
TX Industrial 64,485 1966 N/A
TX Industrial 50,088 1968 N/A
TX Industrial 50,080 1968 N/A
State Property Type Units or SF Year Built Year Renovated
----- ------------- ----------- ---------- --------------
WI Manufactured Housing 148 1970 N/A
WI Manufactured Housing 119 1970 N/A
WI Manufactured Housing 104 1970 N/A
State Property Type Units or SF Year Built Year Renovated
----- ------------- ----------- ---------- --------------
TX Self Storage 47,525 1976 1987
TX Self Storage 40,265 1984 N/A
TX Self Storage 39,765 1984 N/A
TX Self Storage 34,320 1978 N/A
State Property Type Units or SF Year Built Year Renovated
----- ------------- ----------- ---------- --------------
CA Industrial 45,000 1967 N/A
CA Industrial 23,952 1978 N/A
CA Industrial 23,678 1969 N/A
State Property Type Units or SF Year Built Year Renovated
----- ------------- ----------- ---------- --------------
PA Manufactured Housing 126 1960 N/A
PA Manufactured Housing 55 1970 N/A
</TABLE>
<PAGE>
8. The monthly payments for the following Mortgage Loans presently consist of
payments of interest only on the Cut-Off Date Balance. The identified
Monthly Payment and DSCR for each of these Mortgage Loans are based on the
monthly debt service payments payable upon commencement of the scheduled
initial principal and interest payment date as identified below.
<TABLE>
<CAPTION>
Initial Principal and
Loan No. Property Name Interest Payment Date
-------- ------------- ---------------------
<S> <C> <C>
5 Ventana Apartments 3/1/00
41 Royal Palm MHC 5/1/99
79 Whispering Pines 5/1/99
107 Whispering Pines Community 6/1/99
</TABLE>
<PAGE>
9. Each of the following Mortgage Loans is structured with a performance
holdback subject to achievement of certain release conditions. The amount
of the holdback was escrowed for each loan at closing. Details on each
holdback are provided below. For further details regarding these holdback
provisions, see "Description of the Mortgage Pool - Performance Holdbacks"
in the Prospectus Supplement.
<TABLE>
<CAPTION>
Escrowed Outside Date DSCR on Outside Date
Loan No. Property Name Release Conditions Holdback Amount for Release Net Exposure Prepayment Provisions
- -------- ------------- ------------------ --------------- ----------- ------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
41 Royal Palm MHC (a) 1.25x DSCR, (b) 78% LTV, and (c) $500,000 4/16/99 1.38x Yield maintenance
loan constant (equal to or greater
than) loan constant at funding.
79 Whispering Pines (a) 1.35x DSCR, (b) 80% LTV, and (c) $200,000 3/30/99 1.36x Yield maintenance
loan constant (equal to or greater
than) loan constant at funding.
107 Whispering Pines
Community (a) 1.35x DSCR, (b) 80% LTV, and (c) $175,000 11/12/98 1.30x Yield maintenance
loan constant (equal to or greater
than) loan constant at funding.
114 Raycom (a) 1.25x DSCR, and (b) 80% LTV. $75,000 1/31/99 1.29x Yield maintenance
</TABLE>
10. Loan No. 43 consists of two notes originally made on 6/20/1996, a $5.8
million note at a fixed 8.690% interest rate and a floating rate $4 million
note. On 12/1/1997, the floating rate note converted to a 7.500% fixed rate
note. The Mortgage Rate for Loan No. 43 is based on the weighted average of
the two identified note interest rates based on the Cut-Off Date balances
of the respective notes.
11. Following a 60 month Lockout Period, Loan No. 67 allows for partial
prepayments subject to payment of a prepayment premium equal to the greater
of (a) yield maintenance and (b) 1% of the prepaid amount.
12. Loan Nos. 124 and 181 each permit voluntary principal prepayments of up to
10% of the original principal balance in any calendar year without the
imposition of a prepayment premium.
13. Loan No. 133 converted from floating to fixed rate on 7/1/1997. The
Original Term to Maturity reflects the term to maturity from the Note Date,
and the Original Amortization Date reflects the amortization term as of the
Note Date.
14. Loan No. 192 converted from floating to fixed rate on 11/1/1996. The
Original Term to Maturity reflects the term to maturity from the Note Date,
and the Original Amortization Term reflects the amortization term as of the
Note Date.
<PAGE>
15. In general, "Percent Leased" was determined based on a borrower-provided
rent roll. In certain cases, "Percent Leased" was determined based on an
appraisal, financial statement or occupancy report. "Percent Leased as of
Date" indicates the stated date of such information. For hospitality
properties, the data shown is the average daily occupancy rate, generally
for the preceding twelve month period.
16. "Largest Tenant" refers to the tenant that represents the greatest
percentage, equal to or in excess of 10%, of the total square footage at
the subject property.
17. "Seasoning" represents the approximate number of months elapsed from the
Note Date of the Mortgage Loan to the Cut-Off Date.
18. Indicates prepayment provisions from the first Due Date (after the initial
partial month interest only payment date, if any) as stated in the Mortgage
Loan. "YM" represents yield maintenance. "YM1" represents the greater of
yield maintenance and 1%. "DEF" represents defeasance. The stated
percentages (5.0%, 4.0%, 3.0%, 2.5%, 2.0%, 1.5%, 1.0%) represent percentage
prepayment premiums. "Open" represents a period during which principal
prepayments are permitted without payment of a prepayment premium. For each
Mortgage Loan, the number set forth under a category of prepayment
provisions represents the number of months in the Original Term to maturity
or EMD for which such provision applies.
19. The "Other" unit types referred to above are as follows:
<TABLE>
<CAPTION>
Loan No. Property Name Other
-------- ------------- -----
<S> <C> <C>
67 Royal Gulf Apartments Corporate 2BDR
77 The Trees 6 BDR
</TABLE>
<PAGE>
APPENDIX III
LARGEST LOAN SUMMARIES
LOAN NO. 1 - AUGUSTA EXCHANGE LOAN AND PROPERTY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $23,949,234 Property Type: Retail
Loan Type: Principal and Interest; Balloon Location: Augusta, GA
Origination Date: 7/3/1998 Year Built / Renovated: 1998/NA
Maturity Date: 7/1/2008 Square Footage: 270,886
Mortgage Rate: 6.940% Cut-off Date Balance/SF $88
Annual Debt Service: $1,904,480 Appraised Value: $30,000,000
DSCR: 1.36x Current LTV: 79.8%
Underwritable Cash Flow: $2,585,739 Balance at Maturity LTV: 69.9%
Balance at Maturity: $20,971,912 Percent Leased: 98.5%
Percent Leased as of Date: 6/22/1998
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Augusta Exchange Loan (the "Augusta Exchange Loan") is secured by
a first mortgage on a 270,886 square foot shopping center located in Augusta,
Georgia (the "Augusta Exchange Property"). The Augusta Exchange Loan was
originated by Heller Financial, Inc. on July 3, 1998 and subsequently acquired
by Heller Financial Capital Funding, Inc.
THE BORROWER. The borrower is Augusta Exchange, L.L.C., a Georgia
limited liability company (the "Augusta Exchange Borrower"). The loan documents
limit the Augusta Exchange Borrower to the acquisition, operation and
disposition of the Augusta Exchange Property.
SECURITY. The Augusta Exchange Loan is secured by a Deed to Secure
Debt, Assignment of Rents and Security Agreement and Fixture Filing (the "Deed
to Secure Debt"), UCC Financing Statements and certain additional security
documents. The Deed to Secure Debt is a first lien on a fee interest in the
Augusta Exchange Property. The Augusta Exchange Loan is non-recourse, subject
to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 6.940%. The Augusta
Exchange Loan requires monthly payments of principal and interest of
$158,706.67 until its maturity on July 1, 2008, at which time all unpaid
principal and accrued but unpaid interest is due. The Augusta Exchange Loan
accrues interest computed on the basis of the actual number of days elapsed
each month in a 360-day year.
PREPAYMENT. By its terms, the Augusta Exchange Loan may not be prepaid
in whole or in part during the loan term, except that it may be paid without a
prepayment fee or premium during the last 90 days of the loan term. The Augusta
Exchange Loan may be defeased on or after August 1, 2001.
If there is an event of default and the lender accelerates the Augusta
Exchange Loan, the Note requires the Augusta Exchange Borrower to pay a Yield
Maintenance Premium calculated by reference to U.S. Treasury obligations. There
is a 5% late fee on overdue installments, and the Augusta Exchange Loan accrues
interest at the Mortgage Rate plus 5% per annum while the Augusta Exchange Loan
is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Augusta Exchange
Loan becomes immediately due and payable upon the transfer of the Augusta
Exchange Property or any ownership interest in the Augusta Exchange Borrower,
except in connection with the rights of transfer described below. The Augusta
Exchange Borrower has the right to one transfer of the Augusta Exchange
Property subject to the related mortgage upon the approval the
III-1
<PAGE>
lender. The Augusta Exchange Borrower also has the right to two additional
transfers of the Augusta Exchange Property subsequent to the first 18 months of
the loan term with the payment of a 1% assumption fee upon approval of the
lender. Transfers of ownership interest in the Augusta Exchange Borrower are
permitted, provided that the two current LLC members must own directly or
indirectly at least 20% of the interests in the Augusta Exchange Borrower.
ESCROWS/RESERVES. There is a tax escrow which requires monthly
deposits in an amount sufficient to pay estimated taxes when due. There is also
an escrow required for capital expenditures which is required to be funded
monthly in the amount of $3,341 and an escrow required for tenant improvements
and leasing costs which is required to be funded monthly in the amount of
$4,167 until such times and to the extent that this escrow account equals
$250,000. Such amounts will be disbursed to pay such costs and provide
additional security for the Augusta Exchange Loan. There is no insurance
escrow.
SUBORDINATE/OTHER DEBT. The loan documents prohibit the Augusta
Exchange Borrower from incurring any subordinate indebtedness or encumbrances.
THE PROPERTY
The Augusta Exchange Property is a 270,886 square foot shopping center
located in Augusta, Georgia. The Augusta Exchange Property was 98.5% leased as
of June 22, 1998 to 18 tenants based on a rent roll provided by the Augusta
Exchange Borrower. The Augusta Exchange Property was completed in 1998 and is a
single story concrete and steel building.
Approximately 81.5% of the space is rented by national and regional
tenants including Sports Authority, Winn Dixie, Bed, Bath & Beyond, Circuit
City, Petsmart, Michaels and Old Navy. All contractual lease expirations occur
after the Maturity Date. Per the June 22, 1998 rent roll provided by the
Augusta Exchange Borrower, average base rental was $10.72 per square foot.
MANAGEMENT
The Augusta Exchange Borrower is the property manager.
III-2
<PAGE>
LOAN NO. 2 - MAGNOLIA VININGS APARTMENTS LOAN AND PROPERTY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $23,783,581 Property Type: Multifamily
Loan Type: Principal and Interest; Balloon Location: Atlanta, GA
Origination Date: 10/3/1997 Year Built / Renovated: 1996/NA
Maturity Date: 10/1/2008 No. of Units: 400
Mortgage Rate: 7.380% Cut-off Date Balance/Unit: $59,459
Annual Debt Service: $1,976,627 Appraised Value: $32,750,000
DSCR: 1.22x Current LTV: 72.6%
Underwritable Cash Flow: $2,416,968 Balance at Maturity LTV: 64.0%
Balance at Maturity: $20,949,314 Percent Leased: 93.0%
Percent Leased as of Date: 7/31/1998
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Magnolia Vinings Apartments Loan (the "Magnolia Vinings Loan") is
secured by a first mortgage on a 400 unit multifamily housing facility located
in Atlanta, Georgia (the "Magnolia Vinings Property"). The Magnolia Vinings
Loan was originated by Heller Financial, Inc. on October 3, 1997 and
subsequently acquired by Heller Financial Capital Funding, Inc.
THE BORROWER. The borrower is Magnolia Vinings L.P., a Delaware
limited partnership (the "Magnolia Vinings Borrower"). The loan documents limit
the Magnolia Vinings Borrower to the acquisition, operation and disposition of
the Magnolia Vinings Property.
SECURITY. The Magnolia Vinings Loan is secured by a Deed to Secure
Debt, Assignment of Rents and Security Agreement and Fixture Filing (the "Deed
to Secure Debt"), UCC Financing Statements and certain additional security
documents. The Deed to Secure Debt is a first lien on a fee interest in the
Magnolia Vinings Property. The Magnolia Vinings Loan is non-recourse, subject
to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.380%. The Magnolia
Vinings Loan requires monthly payments of principal and interest of $164,718.92
until its maturity on October 1, 2008, at which time all unpaid principal and
accrued but unpaid interest is due. The Magnolia Vinings Loan accrues interest
computed on the basis of the actual number of days elapsed each month in a
360-day year.
PREPAYMENT. By its terms, the Magnolia Vinings Loan may not be prepaid
prior to November 1, 2002. On and after that date, the Magnolia Vinings Loan
may be prepaid with a Yield Maintenance Premium calculated by reference to U.S.
Treasury obligations. The Magnolia Vinings Loan may be prepaid without any
penalties 90 days prior to maturity. There is a 5% late fee on overdue
installments, and the Magnolia Vinings Loan accrues interest at the Mortgage
Rate plus 5% per annum while the Magnolia Vinings Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Magnolia Vinings
Loan becomes immediately due and payable upon the transfer of the Magnolia
Vinings Property or any ownership interest in the Magnolia Vinings Borrower,
except in connection with the rights of transfer described below. The Magnolia
Vinings Borrower has the right to transfer the Magnolia Vinings Property
subject to the related mortgage with the payment of a 1% assumption fee upon
approval of the lender. Transfers of limited partnership interests in the
Magnolia Vinings Borrower are permitted; however, the general partnership
interest in the Magnolia Vinings Borrower may not be transferred.
ESCROWS/RESERVES. There is a tax escrow which requires deposits in an
amount sufficient to pay taxes when due. There is also an escrow for capital
expenditures which is funded monthly in the amount of $8,333. Such amounts will
be disbursed to pay such costs and provide additional security for the Magnolia
Vinings Loan. There is no insurance escrow.
III-3
<PAGE>
SUBORDINATE/OTHER DEBT. Subordinate indebtedness and encumbrances are
prohibited.
THE PROPERTY
The Magnolia Vinings Property consists of 15 three and four-story
buildings plus an office/clubhouse. The Magnolia Vinings Property is located in
Atlanta, Georgia and was 93.0% occupied as of July 31, 1998 based on a rent
roll provided by the Magnolia Vinings Borrower.
The Magnolia Vinings Property was built in 1996. The 400 units
comprising the Magnolia Vinings Property average 967 square feet and consist of
the following unit mix: 40 studio units, 136 one bedroom units, 160 two bedroom
units and 64 three bedroom units. The buildings are typically of wood frame
construction with brick and wood siding. Facilities include a pool, laundry
rooms, health club, clubhouse and tennis courts. As of July 10, 1998, the
average rent per month was $660 for studio units, $738 for 1-bedroom units,
$975 for 2-bedroom units and $1,150 for 3-bedroom units.
MANAGEMENT
The Magnolia Vinings Property is managed by the Shelter Group.
III-4
<PAGE>
LOAN NO. 3 - THE REGAL BUSINESS CENTER LOAN AND PROPERTIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $21,955,602 Property Type: Industrial/Warehouse
Loan Type: Principal and Interest; Balloon Locations: See below
Origination Date: 7/30/1998 Years Built/Renovated: See below
Maturity Date: 8/1/2008 Square Footage: 1,133,761
Mortgage Rate: 7.120% Cut-off Date Balance/SF: $19
Annual Debt Service: $1,777,726 Appraised Value: $28,000,000
DSCR: 1.28x Current LTV: 78.4%
Underwritable Cash Flow: $2,279,072 Balance at Maturity LTV: 68.8%
Balance at Maturity: $19,250,593 Percent Leased: 89.1%
Percent Leased as of Date: 7/1/1998
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Regal Business Center Loan (the "Regal Loan") is secured by a
first mortgage on the eight warehouse facilities located in Fort Worth,
Grapevine, Arlington, Grand Praire and Dallas, Texas (collectively, the
"Mortgaged Properties"). The Regal Loan was originated on behalf of Morgan
Stanley Mortgage Capital, Inc. by Secore Financial Corporation, a Pennsylvania
corporation, on July 30, 1998.
THE BORROWER. The co-borrowers are Regal Business Center, Inc., a
Texas corporation, and Tarrant County Limited Partnership, a Texas limited
partnership (together, the "Regal Borrower"). The Regal Borrower is a special
purpose entity.
SECURITY. The Regal Loan is secured by a Deed of Trust and Security
Agreement and certain additional security documents. The mortgage is a first
lien on fee interests in the Mortgaged Properties. The Regal Loan is
non-recourse, subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.120%. The Regal Loan
requires monthly payments of principal and interest of $148,143.84 until its
maturity on August 1, 2008, at which time all unpaid principal and accrued but
unpaid interest is due. The Regal Loan accrues interest computed on the basis
of the actual number of days elapsed each month in a 360-day year.
PREPAYMENT. By its terms, prior to the date that is 90 days prior to
maturity and on or after the date that is two years from the closing of the
offering, the Regal Borrower may defease the Regal Loan. No Prepayment Premium
is due if the Regal Loan is prepaid within 90 days prior to maturity.
If there is an event of default and the lender accelerates the Regal
Loan, the security documents require the Regal Borrower to pay a prepayment
premium equal to the greater of (i) the amount which when added to the
principal amount of the Note would be sufficient to purchase Defeasance
Collateral sufficient to pay the Regal Loan (if defeasance is permitted) and
(ii) 1% of the prepaid principal amount. There is a 5% late fee on overdue
installments, and the Loan accrues interest at the mortgage rate plus 5% per
annum while the Regal Loan is in default.
TRANSFER OF PROPERTIES OR INTEREST IN BORROWER. The Regal Loan becomes
immediately due and payable upon the transfer of the Mortgaged Properties or
any ownership interest in the Regal Borrower, except for (a) a one-time right
to sell the Mortgaged Properties after August 1, 1999 upon the satisfaction of
certain conditions, and (b) certain transfers upon operation of law and
transfers of minority ownership interests not resulting in a change in voting
control.
III-5
<PAGE>
ESCROWS/RESERVES. There is a tax escrow which require deposits in
amounts sufficient to pay taxes when due, and a capital expenditure reserve for
the payment of certain capital expenditures which is funded monthly in the
amount of $14,172. There is no insurance escrow.
SUBORDINATE/OTHER DEBT. Subordinate indebtedness and encumbrances are
prohibited.
THE PROPERTIES
The Mortgaged Properties are comprised of the Tarrant Industrial
Properties and the Regal Business Center. In the aggregate, the Mortgaged
Properties consist of eight (8) industrial warehouse facilities (18 total
buildings).
THE TARRANT INDUSTRIAL PROPERTIES CONSIST OF THE FOLLOWING SEVEN COMPLEXES
CONSISTING OF ELEVEN BUILDINGS:
PROPERTY 1: 301-399 NORTH BEACH STREET
- --------------------------------------------------------------------------------
Location: Fort Worth, TX Square Footage: 140,425
Construction: Concrete Percent Leased: 89.1%*
Year Built/Renovated: 1978 Percent Leased as of date: 7/1/1998
- --------------------------------------------------------------------------------
PROPERTY 2: 1200-1240 LOOP HIGHWAY 382
- --------------------------------------------------------------------------------
Location: Grapevine, TX Square Footage: 113,665
Construction: Concrete Percent Leased: 89.1%*
Year Built/Renovated: 1983 Percent Leased as of date: 7/1/1998
- --------------------------------------------------------------------------------
PROPERTY 3: 3021-3101 PINEWOOD STREET
- --------------------------------------------------------------------------------
Location: Arlington, TX Square Footage: 99,938
Construction: Concrete Percent Leased: 89.1%*
Year Built/Renovated: 1982 Percent Leased as of date: 7/1/998
- --------------------------------------------------------------------------------
PROPERTY 4: 702-732 AVENUE R
- --------------------------------------------------------------------------------
Location: Grand Prairie, TX Square Footage: 84,430
Construction: Concrete Percent Leased: 89.1%*
Year Built/Renovated: 1981 Percent Leased as of date: 7/1/1998
- --------------------------------------------------------------------------------
PROPERTY 5: 2501-2509 DALWORTH STREET
- --------------------------------------------------------------------------------
Location: Grand Prairie, TX Square Footage: 64,485
Construction: Concrete Percent Leased: 89.1%*
Year Built/Renovated: 1966 Percent Leased as of date: 7/1/1998
- --------------------------------------------------------------------------------
PROPERTY 6: 3426-3442 DALWORTH STREET
- --------------------------------------------------------------------------------
Location: Arlington, TX Square Footage: 50,088
Construction: Concrete Percent Leased: 89.1%*
Year Built/Renovated: 1968 Percent Leased as of date: 7/1/1998
- --------------------------------------------------------------------------------
III-6
<PAGE>
PROPERTY 7: 3405-3451 DALWORTH STREET
- --------------------------------------------------------------------------------
Location: Arlington, TX Square Footage: 50,080
Construction: Concrete Percent Leased: 89.1%*
Year Built/Renovated: 1968 Percent Leased as of date: 7/1/1998
- --------------------------------------------------------------------------------
THE REGAL BUSINESS CENTER CONSISTS OF TWO TRACTS CONSISTING
OF SEVEN BUILDINGS.
PROPERTY 8: THE REGAL BUSINESS CENTER
4557-4747 IRVING BLVD. & 4650-4656 LESTON AVENUE
- --------------------------------------------------------------------------------
Location: Dallas, TX Square Footage: 530,650
Construction: Concrete Percent Leased: 89.1%*
Year Built/Renovated: 1974 Percent Leased as of date: 7/1/1998
- --------------------------------------------------------------------------------
* 89.1% occupancy as of 7/1/1998 is an aggregate based upon all of the Tarrant
Industrial and the Regal Business Center Properties.
MANAGEMENT
CB Commercial Real Estate Group is the property manager.
III-7
<PAGE>
LOAN NO. 4 - 490 POST STREET LOAN AND PROPERTY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $17,612,188 Property Type: Office
Loan Type: Principal and Interest; Balloon Location: San Francisco, CA
Origination Date: 1/26/1998 Year Built / Renovated: 1925 / NA
Maturity Date: 2/1/2008 Square Footage: 117,960
Mortgage Rate: 7.230% Cut-off Date Balance / SF: $149
Annual Debt Service: $1,554,999 Appraised Value: $26,000,000
DSCR: 1.37x Current LTV: 67.7%
Underwritable Cash Flow: $2,132,726 Balance at Maturity LTV: 54.6%
Balance at Maturity: $14,185,139 Percent Leased: 98.3%
Percent Leased as of Date: 6/30/1998
- -------------------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The 490 Post Street Loan (the "490 Post Street Loan") is secured by a
first mortgage on a 116,976 square foot office building located in San
Francisco, California (the "490 Post Street Property"). The 490 Post Street
Loan was originated by Heller Financial, Inc. on January 26, 1998 and
subsequently acquired by Heller Capital Funding, Inc.
THE BORROWER. The borrower is Brugnara Properties III, a California
Corporation (the "490 Post Street Borrower"). The loan documents limit the 490
Post Street Borrower to the acquisition, operation and disposition of the 490
Post Street Property.
SECURITY. The 490 Post Street Loan is secured by a Deed of Trust,
Assignment of Rents and Security Agreement and Fixture Filing, UCC Financing
Statements and certain additional security documents. The Deed of Trust is a
first lien on a fee interest in the 490 Post Street Property. The 490 Post
Street Loan is non-recourse, subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.230%. The 490 Post
Street Loan requires monthly payments of principal and interest of $129,583.27
until its maturity on February 1, 2008, at which time all unpaid principal and
accrued but unpaid interest is due. The 490 Post Street Loan accrues interest
computed on the basis of the actual number of days elapsed each month in a
360-day year.
PREPAYMENT. By its terms, the 490 Post Street Loan may not be prepaid
prior to February 1, 2003. On and after that date, the 490 Post Street Loan may
be prepaid with a Yield Maintenance Premium calculated by reference to U.S.
Treasury obligations. The 490 Post Street Loan may be prepaid without any
penalties 90 days prior to maturity. There is a 5% late fee on overdue
installments, and the 490 Post Street Loan accrues interest at the Mortgage
Rate plus 5% per annum while the 490 Post Street Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The 490 Post Street Loan
becomes immediately due and payable upon the transfer of the 490 Post Street
Property or any ownership interest in the 490 Post Street Borrower, except in
connection with the rights of transfer described below. The 490 Post Street
Borrower has the right to transfer the 490 Post Street Property subject to the
related mortgage with the payment of a 1% assumption fee upon approval of the
lender. Transfers of ownership interest in the 490 Post Street Borrower are
permitted, provided that the Principal must own directly or indirectly at least
51% of the interests in the 490 Post Street Borrower.
ESCROWS/RESERVES. There is a tax escrow which requires monthly
deposits in an amount sufficient to pay estimated taxes when due. There is also
an escrow required for capital expenditures which is required to be funded
monthly in the amount of $15,000 until such times and to the extent that this
escrow account equals $400,000. Such amounts will be disbursed to pay for such
costs and provide additional security for the 490 Post Street Loan. There is no
insurance escrow.
III-8
<PAGE>
SUBORDINATE/OTHER DEBT. The loan documents prohibit the 490 Post
Street Borrower from incurring any subordinate indebtedness or encumbrances.
THE PROPERTY
The 490 Post Street Property is a sixteen story, 117,960 square foot
office building, with an adjacent four-level parking structure, located in San
Francisco, California. The 490 Post Street Property was 98.3% leased as of June
30, 1998 based on a rent roll provided by the 490 Post Street Borrower.
The 490 Post Street Property was built in 1925. Tenants range in size
from 110 square feet to 3,942 square feet, with the largest tenant comprising
less than 3.0% of total rental income. Contractual lease expirations during the
loan term for all tenants are as follows: 53,204 square feet (45.1%) on month
to month leases, 6,185 square feet (5.24%) in 1998, 8,225 square feet (6.97%)
in 1999, 8,341 square feet (7.07%) in 2000, 3,324 square feet (2.82%) in 2001,
14,932 square feet (12.66%) in 2002, 10,024 square feet (8.50%) in 2003, 3,340
square feet (2.83%) in 2004, 4,283 square feet (3.63%) in 2005 and 4,126
(3.50%) in 2007 and beyond. As of June 30, 1998, average base rental was $26.87
per square foot.
MANAGEMENT
The 490 Post Street Property is managed by Brugnara Corporation, an
affiliate of the 490 Post Street Borrower.
III-9
<PAGE>
LOAN NO. 5 -VENTANA APARTMENTS LOAN AND PROPERTY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $17,500,000 Property Type: Multifamily
Loan Type: Principal and Interest; Balloon Location: Scottsdale, AZ
Origination Date: 1/6/1998 Years Built/Renovated: 1992/1995
Final Maturity Date: 2/1/2008 Units: 350
Mortgage Rate: 6.740% Cut-off Date Balance/Unit: $50,000
Annual Debt Service: $1,360,664 Appraised Value: $23,500,000
DSCR: 1.26x Current LTV: 74.5%
Underwritable Cash Flow: $1,712,497 Balance at Maturity LTV: 67.1%
Balance at Maturity: $15,758,106 Percent Leased: 86.5%
Percent Leased as of Date: 5/23/1998
- ------------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Ventana Apartments Loan (the "Ventana Loan") is secured by a first
mortgage on a 350 unit multifamily housing facility located in Scottsdale,
Arizona (the "Ventana Property"). The Ventana Loan was originated on behalf of
Morgan Stanley Mortgage Capital Inc. by Secore Financial Corporation, a
Pennsylvania corporation, on January 6, 1998.
THE BORROWER. The borrower is G&I Ventana, LLC, a Delaware limited
liability company (the "Ventana Borrower"). The Ventana Borrower is a special
purpose entity comprised of DRA Growth & Income Fund, LLC and CP IV Ventana
LLC, with each owning a 50% interest. The loan documents limit the Ventana
Borrower to the acquisition, operation and disposition of the Ventana Property.
SECURITY. The Ventana Loan is secured by a Deed of Trust, Assignment
of Leases and Rents Security Agreement and Fixture Filing and certain
additional security documents. The mortgage is a first lien on fee interests in
the Ventana Property. The Ventana Loan is a non-recourse, subject to certain
limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 6.740%. The Ventana Loan
requires monthly payments of interest only from February 1, 1998 up to and
including February 1, 2000. From March 1, 2000 until January 1, 2008, the
Ventana Loan requires monthly payments of $113,388.66, each of the payments to
be applied first to the payment of interest computed at the applicable interest
rate, and the balance toward the reduction of the principal sum. The balance of
the principal sum and all interest thereon is due February 1, 2008. The Ventana
Loan accrues interest computed on the basis of the actual number of days
elapsed each month in a 360-day year.
PREPAYMENT. By its terms, the Ventana Loan may not be prepaid prior to
February 1, 2000. On or after February 1, 2000, the Ventana Borrower may prepay
the Ventana Loan in whole, but not in part, upon 30 days written notice. No
Prepayment Premium is due if the Ventana Loan is prepaid within three months
prior to maturity. If there is a prepayment of the Ventana Loan during the
permitted prepayment period or if there is an event of default during the
permitted prepayment period, and the lender accelerates the Ventana Loan the
security documents require the Ventana Borrower to pay a prepayment premium
equal to the greater of (i) 1% of the principal amount of the Loan being
prepaid and (ii) the product of (A) the ratio of the amount of the Ventana Loan
being prepaid over the outstanding balance of the Ventana Loan on the date of
prepayment (after subtracting the scheduled principal payment on such
prepayment date) multiplied by (B) the present value of the remaining scheduled
payments of principal and interest from the prepayment date through the
maturity date (including any balloon payment) determined by discounting such
payments based on the applicable Treasury Rate less the amount of the
outstanding principal on the date of prepayment. If the default prepayment
occurs prior to the time when prepayment of the principal balance of the
Ventana Loan is permitted, an amount is required to be paid by the Ventana
Borrower equal to the sum of (A) the present value of the interest payments
which would have accrued on the principal balance of the Ventana Loan
(outstanding as of the date of such default prepayment) at the Applicable
Interest Rate from the date of such default prepayment to the first date
prepayment is permitted pursuant to the Ventana Loan discounted at a rate equal
to the Treasury Rate except that such Treasury Rate shall be based on the U.S.
Treasury constant maturity most nearly approximating the date upon which
prepayment is first permitted
III-10
<PAGE>
pursuant to the Ventana Loan, and (B) the prepayment consideration calculated
as of the first date prepayment is permitted pursuant to the Ventana Loan.
ESCROWS/RESERVES. There is a capital expenditure escrow which is
funded monthly in the amount of $6,125. There is no insurance or tax escrow.
THE PROPERTY.
The Ventana Property consists of 16 two and three story garden style
buildings plus an office/clubhouse. The Ventana Property is located in
Scottsdale, Arizona and was 86.5% leased as of May 23, 1998 based on a rent
roll provided by The Ventana Borrower.
The Ventana Property was built in two phases, phase I in 1992 and
phase II in 1995. The Ventana Property is comprised of 350 units including 144
one bedrooms units and 206 two bedroom units. The buildings are of wood frame
construction with stucco exterior. Facilities include two swimming pools, a
heated spa, a business center, club house with a kitchen, covered parking, and
a fitness center. As of December 17, 1997, the average rent per month was $666
for 1-bedroom units and $812 for 2-bedroom units.
MANAGEMENT
The Ventana Property is managed by Chason Management, LLC, an
affiliate of the Ventana Apartments Borrower.
III-11
<PAGE>
LOAN NO. 6 - PARKWAY PLAZA LOAN AND PROPERTY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $17,373,844 Property Type: Retail
Loan Type: Principal and Interest; Balloon Location: Norman, OK
Origination Date: 7/17/1998 Year Built / Renovated: 1997/NA
Maturity Date: 8/1/2008 Square Footage: 208,553
Mortgage Rate: 6.850% Cut-off Date Balance per SF: $83
Annual Debt Service: $1,368,181 Appraised Value: $22,350,000
DSCR: 1.31x Current LTV: 77.7%
Underwritable Cash Flow: $1,796,318 Balance at Maturity LTV: 67.8%
Balance at Maturity: $15,163,793 Percent Leased: 93.4%
Percent Leased as of Date: 4/20/1998
- ---------------------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Parkway Plaza Loan (the "Parkway Plaza Loan") is secured by a
first mortgage on a 191,705 square foot shopping center located in Norman,
Oklahoma (the "Parkway Plaza Property"). The Parkway Plaza Loan was originated
by Heller Financial, Inc. on July 17, 1998 and subsequently acquired by Heller
Financial Capital Funding, Inc.
THE BORROWER. The borrower is Parkway Plaza Limited Partnership, a
Texas limited partnership (the "Parkway Plaza Borrower"). The loan documents
limit the Parkway Plaza Borrower to the acquisition, operation and disposition
of the Parkway Plaza Property. An affiliate of Heller Financial Capital
Funding, Inc. has a contractual right to a percentage of cashflow and
appreciation from the mortgaged property.
SECURITY. The Parkway Plaza Loan is secured by a Mortgage, Assignment
of Rents and Security Agreement and Fixture Filing (the "Mortgage"), UCC
Financing Statements and certain additional security documents. The Mortgage is
a first lien on a fee interest in the Parkway Plaza Property. The Parkway Plaza
Loan is non-recourse, subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 6.850%. The Parkway Plaza
Loan requires monthly payments of principal and interest of $114,015.10 until
its maturity on August 1, 2008, at which time all unpaid principal and accrued
but unpaid interest is due. The Parkway Plaza Loan accrues interest computed on
the basis of the actual number of days elapsed each month in a 360-day year.
PREPAYMENT. By its terms, the Parkway Plaza Loan may not be prepaid in
whole or in part during the loan term, except it may be paid without a
prepayment fee or premium during the last 90 days of the loan term. The Parkway
Plaza Loan may be defeased on or after September 1, 2001.
If there is an event of default and the lender accelerates the Parkway
Plaza Loan, the Note requires the Parkway Plaza Borrower to pay a Yield
Maintenance Premium calculated by reference to U.S. Treasury obligations. There
is a 5% late fee on overdue installments, and the Parkway Plaza Loan accrues
interest at the Mortgage Rate plus 5% per annum while the Parkway Plaza Loan is
in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Parkway Plaza Loan
becomes immediately due and payable upon the transfer of the Parkway Plaza
Property or any ownership interest in the Parkway Plaza Borrower, except in
connection with the rights of transfer described below. The Parkway Plaza
Borrower has the right for one transfer of the Parkway Plaza Property subject
to the related mortgage and the payment of a 1% assumption fee upon approval of
the lender. Transfers of ownership interest in the Parkway Plaza Borrower are
permitted, provided that two Principals must own directly or indirectly at
least 20% of the interests in the Parkway Plaza Borrower.
III-12
<PAGE>
ESCROWS/RESERVES. There is a tax escrow which requires monthly
deposits in an amount sufficient to pay estimated taxes when due. There is also
an escrow required for capital expenditures which is required to be funded
monthly in the amount of $2,607 and an escrow required for tenant improvements
and leasing costs which is required to be funded monthly in the amount of
$6,250. Such amounts will be disbursed to pay such costs and provide additional
security for the Parkway Plaza Loan. There is no insurance escrow.
SUBORDINATE/OTHER DEBT. The loan documents prohibit the Parkway Plaza
Borrower from incurring any subordinate indebtedness or encumbrances.
THE PROPERTY
The Parkway Plaza Property is a 5 building, 208,553 square foot
shopping center located in Norman, Oklahoma. The Parkway Plaza Property was
93.4% leased as of June 30, 1998 with 21 tenants based on a rent roll provided
by the Parkway Plaza Borrower. The Parkway Plaza Property was completed in 1997
and is constructed with steel, masonry and glass.
Approximately 75% of the space is rented by national and regional
tenants including Toys R Us, Ross, Barnes & Noble, Office Max, Petsmart, Just
for Feet and Old Navy. Contractual lease expirations during the loan term for
all tenants are as follows: 2,188 square feet (1.05%) in 2000, 6,744 square
feet (3.23%) in 2001, 15,057 square feet (7.22%) in 2002, 4,088 square feet
(1.96%) in 2003 and 167,826 (80.47%) in 2007 and beyond. Per the June 30, 1998
rent roll provided by the Parkway Plaza Borrower, average base rental was
$10.57 per square foot.
MANAGEMENT
The Parkway Plaza Property is managed by Sapphire Properties, an
affiliate of the Parkway Plaza Borrower.
III-13
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO MORGAN STANLEY CAPITAL I INC., AS DEPOSITOR Statement Date:
LaSalle National Bank GMAC COMMERCIAL MORTGAGE CORP., AS MASTER SERVICER AND SPECIAL SERVICER Payment Date:
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment:
Administrator: SERIES 1998-HF2 Record Date:
Robert Castle (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9 WAC:
Chicago, IL 60603 WAMM:
====================================================================================================================================
<S> <C>
Number Of Pages
---------------
Table Of Contents
TOTAL PAGES INCLUDED IN THIS PACKAGE
Specially Serviced Loan Detail Appendix A
Modified Loan Detail Appendix B
Realized Loss Detail Appendix C
------------------------------------------------------------------------
INFORMATION IS AVAILABLE FOR THIS ISSUE FROM THE FOLLOWING SOURCES
------------------------------------------------------------------------
LaSalle Web Site www.lnbabs.com
LaSalle Bulletin Board (714) 282-3990
LaSalle ASAP Fax System (312) 904-2200
Bloomberg User Terminal
ASAP #: 365
Monthly Data File Name: 0365MMYY.EXE
========================================================================
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO MORGAN STANLEY CAPITAL I INC., AS DEPOSITOR Statement Date:
LaSalle National Bank GMAC COMMERCIAL MORTGAGE CORP., AS MASTER SERVICER AND SPECIAL SERVICER Payment Date:
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment:
Administrator: SERIES 1998-HF2 Record Date:
Robert Castle (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9 WAC:
Chicago, IL 60603 WAMM:
===================================================================================================================================
ORIGINAL OPENING PRINCIPAL PRINCIPAL NEGATIVE CLOSING INTEREST INTEREST PASS-THROUGH
CLASS FACE VALUE (1) BALANCE PAYMENT ADJ. OR LOSS AMORTIZATION BALANCE PAYMENT ADJUSTMENT RATE (2)
CUSIP PER $1,000 PER $1,000 PER $1,000 PER $1,000 PER $1,000 PER $1,000 PER $1,000 PER $1,000 NEXT RATE (3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
===================================================================================================================================
===========================
Total P&I Payment 0.00
===========================
Notes: (1) N denotes notional balance not included in total
(2) Interest Paid minus Interest Adjustment minus Deferred Interest equals Accrual
(3) Estimated
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO MORGAN STANLEY CAPITAL I INC., AS DEPOSITOR Statement Date:
LaSalle National Bank GMAC COMMERCIAL MORTGAGE CORP., AS MASTER SERVICER AND SPECIAL SERVICER Payment Date:
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment:
Administrator: SERIES 1998-HF2 Record Date:
Robert Castle (800) 246-5761
135 S. LaSalle Street Suite 1625 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60674-4107 OTHER RELATED INFORMATION
====================================================================================================================================
---------------------------------------------------------------------------------------------------------------------
SERVICER / POOL INFORMATION
Beginning Scheduled Unscheduled Realized Ending Scheduled Prepayment Interest
Balance Principal Principal Losses Balance Interest Shortfall Excess
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------
Beginning Ending Gross W/Avg Months Prepayment Disposition
Loan Count Loan Count Servicing Fees to Maturity Penalties Fees
----------------------------------------------------------------------------------------------------
------------------------------------------------------------------
Current Cumulative
Unpaid Unpaid
Class Interest Interest
------------------------------------------------------------------
------------------------------------------------------------------
Total
------------------------------------------------------------------
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO MORGAN STANLEY CAPITAL I INC., AS DEPOSITOR Statement Date:
LaSalle National Bank GMAC COMMERCIAL MORTGAGE CORP., AS MASTER SERVICER AND SPECIAL SERVICER Payment Date:
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment:
Administrator: SERIES 1998-HF2 Record Date:
Robert Castle (800) 246-5761
135 S. LaSalle Street Suite 1625 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60674-4107 OTHER RELATED INFORMATION
====================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
P&I ADVANCES MADE BY: Beginning Current Ending
Unreimbursed Period Reimbursed Unreimbursed
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Servicer
Trustee
Fiscal Agent
- -----------------------------------------------------------------------------------------------------------------------------------
Total P&I Advances
- -----------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF EXPENSES:
Current Period Servicing Fees
Current Period Trustee Fees
Current Period Special Servicing Fees
Principal Recovery Fees
Other Servicing Compensation - Interest on Advances
Total
Net Aggregate PPIS Allocable to the Bonds
Trust Fund Expenses
Current Realized Losses on Mortgage Loans
Cumulative Realized Losses on Mortgage Loans
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO MORGAN STANLEY CAPITAL I INC., AS DEPOSITOR Statement Date:
LaSalle National Bank GMAC COMMERCIAL MORTGAGE CORP., AS MASTER SERVICER AND SPECIAL SERVICER Payment Date:
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment:
Administrator: SERIES 1998-HF2 Record Date:
Robert Castle (800) 246-5761
135 S. LaSalle Street Suite 1625 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60674-4107 OTHER RELATED INFORMATION
====================================================================================================================================
----------------------------------------------------------------------------------------------------------------------------------
REO PROPERTY SOLD OF DISPOSED OF DURING THE RELATED COLLECTION PERIOD
Portion Final
Realized Included in Recovery
Loan Loss Sale Other Available Determination
Number Attributable Proceeds Proceeds Funds Date
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1
2
3
==================================================================================================================================
Totals
==================================================================================================================================
----------------------------------------------------------------------------------------------------------------------------------
REO PROPERTY INCLUDED IN THE TRUST
Most Aggregate Aggregate Portion
Recent Amount Amount Included in
Loan Appraisal of Net of Other Available
Number Valuation Income Revenues Funds
----------------------------------------------------------------------------------------------------------------------------------
1
2
3
==================================================================================================================================
Totals
==================================================================================================================================
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO MORGAN STANLEY CAPITAL I INC., AS DEPOSITOR Statement Date:
LaSalle National Bank GMAC COMMERCIAL MORTGAGE CORP., AS MASTER SERVICER AND SPECIAL SERVICER Payment Date:
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment:
Administrator: SERIES 1998-HF2 Record Date:
Robert Castle (800) 246-5761
135 S. LaSalle Street Suite 1625 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60674-4107 OTHER RELATED INFORMATION
====================================================================================================================================
------------------------------------------------------------------------------------------------------------------------------
MORTGAGED PROPERTIES THAT BECAME REO DURING THE PRECEDING CALENDAR MONTH
Unpaid
Debt Principal
Service Stated Balance
Loan Property Coverage Principal as of REO
Number City State Type Ratio Balance Date
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
==============================================================================================================================
Totals
==============================================================================================================================
-------------------------------------------------------------------------------------------------------------
APPRAISAL REDUCTION AMOUNTS
Loan Current Total
Number Period Reduction
-------------------------------------------------------------------------------------------------------------
1
2
3
=============================================================================================================
Totals 0.00
=============================================================================================================
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO MORGAN STANLEY CAPITAL I INC., AS DEPOSITOR Statement Date:
LaSalle National Bank GMAC COMMERCIAL MORTGAGE CORP., AS MASTER SERVICER AND SPECIAL SERVICER Payment Date:
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment:
Administrator: SERIES 1998-HF2 Record Date:
Robert Castle (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603
====================================================================================================================================
Curr
Delinq Delinq Delinq Foreclosure/ Weighted
Distribution 1 Month 2 Months 3+ Months Bankruptcy REO Modifications Prepayments Avg.
=======================================================================================================================
Date # Balance # Balance # Balance # Balance # Balance # Balance # Balance Coupon Remit
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/15/98 0 0 0 0 0 0 0 0 0 0 0 0 0 0
0.00% 0.000% 0.00% 0.000% 0.00% 0.000% 0.00% 0.000% 0.00% 0.000% 0.00% 0.000% 0.00% 0.000%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Note: Foreclosure and REO Totals are Included in the Appropriate Delinquency Aging Category
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO MORGAN STANLEY CAPITAL I INC., AS DEPOSITOR Statement Date:
LaSalle National Bank GMAC COMMERCIAL MORTGAGE CORP., AS MASTER SERVICER AND SPECIAL SERVICER Payment Date:
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment:
Administrator: SERIES 1998-HF2 Record Date:
Robert Castle (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603 DELINQUENT LOAN DETAIL
====================================================================================================================================
Paid Outstanding Out. Property Special
Disclosure Doc Thru Current P&I P&I Protection Advance Servicer Foreclosure Bankruptcy REO
Control # Date Advance Advances** Advances Description (1) Transfer Date Date Date Date
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
====================================================================================================================================
A. P&I Advance - Loan in Grace Period 1. P&I Advance - Loan delinquent 1 month
B. P&I Advance - Late Payment but < one month delinq 2. P&I Advance - Loan delinquent 2 months
3. P&I Advance - Loan delinquent 3 months or More
4. Matured Balloon/Assumed Scheduled Payment
====================================================================================================================================
** Outstanding P&I Advances include the current period P&I Advance
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO MORGAN STANLEY CAPITAL I INC., AS DEPOSITOR Statement Date:
LaSalle National Bank GMAC COMMERCIAL MORTGAGE CORP., AS MASTER SERVICER AND SPECIAL SERVICER Payment Date:
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment:
Administrator: SERIES 1998-HF2 Record Date:
Robert Castle (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603 POOL TOTAL
DISTRIBUTION OF PRINCIPAL BALANCES
-----------------------------------------------------------
(2) Current Scheduled Number (2) Scheduled Based on
Balances of Loans Balance Balance
===========================================================
<S> <C> <C> <C>
$0 to $500,000
$500,000 to $1,000,000
$1,000,000 to $1,500,000
$1,500,000 to $2,000,000
$2,000,000 to $2,500,000
$2,500,000 to $3,000,000
$3,000,000 to $3,500,000
$3,500,000 to $4,000,000
$4,000,000 to $5,000,000
$5,000,000 to $6,000,000
$6,000,000 to $7,000,000
$7,000,000 to $8,000,000
$8,000,000 to $9,000,000
$9,000,000 to $10,000,000
$10,000,000 to $11,000,000
$11,000,000 to $12,000,000
$12,000,000 to $13,000,000
$13,000,000 to $14,000,000
$14,000,000 to $15,000,000
$15,000,000 & Above
===========================================================
Total 0 0 0.00%
-----------------------------------------------------------
Average Scheduled Balance is 0
Maximum Scheduled Balance is 0
Minimum Scheduled Balance is 0
DISTRIBUTION OF PROPERTY TYPES
-----------------------------------------------------
Number (2) Scheduled Based on
Property Types of Loans Balance Balance
=====================================================
=====================================================
Total 0 0 0.00%
-----------------------------------------------------
DISTRIBUTION OF MORTGAGE INTEREST RATES
-----------------------------------------------------
Current Mortgage Number (2) Scheduled Based on
Interest Rate of Loans Balance Balance
=====================================================
7.000% or less
7.000% to 7.125%
7.125% to 7.375%
7.375% to 7.625%
7.625% to 7.875%
7.875% to 8.125%
8.125% to 8.375%
8.375% to 8.625%
8.625% to 8.875%
8.875% to 9.125%
9.125% to 9.375%
9.375% to 9.625%
9.625% to 9.875%
9.875% to 10.125%
10.125% & Above
=====================================================
Total 0 0 0.00%
-----------------------------------------------------
W/Avg Mortgage Interest Rate is 0.0000%
Minimum Mortgage Interest Rate is 0.0000%
Maximum Mortgage Interest Rate is 0.0000%
GEOGRAPHIC DISTRIBUTION
----------------------------------------------
Geographic Number (2) Scheduled Based on
Location of Loans Balance Balance
==============================================
==============================================
Total 0 0 0.00%
----------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO MORGAN STANLEY CAPITAL I INC., AS DEPOSITOR Statement Date:
LaSalle National Bank GMAC COMMERCIAL MORTGAGE CORP., AS MASTER SERVICER AND SPECIAL SERVICER Payment Date:
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment:
Administrator: SERIES 1998-HF2 Record Date:
Robert Castle (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603 POOL TOTAL
LOAN SEASONING
-------------------------------------------------------------------------------------
Number (2) Scheduled Based on
Number of Years of Loans Balance Balance
=====================================================================================
<S> <C> <C> <C>
=====================================================================================
-------------------------------------------------------------------------------------
Weighted Average Seasoning is 0.0
DISTRIBUTION OF AMORTIZATION TYPE
-------------------------------------------------------------------------------------
Number (2) Scheduled Based on
Amortization Type of Loans Balance Balance
=====================================================================================
-------------------------------------------------------------------------------------
Total 0 0 0.00%
-------------------------------------------------------------------------------------
DISTRIBUTION OF REMAINING TERM
FULLY AMORTIZING
--------------------------------------------------------------------
Fully Amortizing Number (2) Scheduled Based on
Mortgage Loans of Loans Balance Balance
====================================================================
60 months or less
61 to 120 months
121 to 180 months
181 to 240 months
241 to 360 months
====================================================================
Total 0 0 0.00%
--------------------------------------------------------------------
Weighted Average Months to Maturity is 0
DISTRIBUTION OF REMAINING TERM
BALLOON LOANS
--------------------------------------------------------------------
Balloon Number (2) Scheduled Based on
Mortgage Loans of Loans Balance Balance
====================================================================
12 months or less
13 to 24 months
25 to 36 months
37 to 48 months
49 to 60 months
61 to 120 months
121 to 180 months
181 to 240 months
====================================================================
Total 0 0 0.00%
--------------------------------------------------------------------
Weighted Average Months to Maturity is 0
DISTRIBUTION OF DSCR
------------------------------------------------------------------------
Debt Service Number (2) Scheduled Based on
Coverage Ratio (1) of Loans Balance Balance
========================================================================
0.500 or less
0.500 to 0.625
0.625 to 0.750
0.750 to 0.875
0.875 to 1.000
1.000 to 1.125
1.125 to 1.250
1.250 to 1.375
1.375 to 1.500
1.500 to 1.625
1.625 to 1.750
1.750 to 1.875
1.875 to 2.000
2.000 to 2.125
2.125 & above
Unknown
========================================================================
Total 0 0 0.00%
------------------------------------------------------------------------
Weighted Average Debt Service Coverage Ratio is 0.000
NOI AGING
------------------------------------------------------------------------
Number (2) Scheduled Based on
NOI Date of Loans Balance Balance
========================================================================
1 year or less
1 to 2 years
2 Years or More
Unknown
========================================================================
Total 0 0 0.00%
------------------------------------------------------------------------
(1) Debt Service Coverage Ratios are calculated as described in the
prospectus, values are updated periodically as new NOI figures
became available from borrowers on an asset level. Neither the
Trustee, Servicer, Special Servicer or Underwriter makes any
representation as to the accuracy of the data provided by the
borrower for this calculation.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO MORGAN STANLEY CAPITAL I INC., AS DEPOSITOR Statement Date:
LaSalle National Bank GMAC COMMERCIAL MORTGAGE CORP., AS MASTER SERVICER AND SPECIAL SERVICER Payment Date:
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment:
Administrator: SERIES 1998-HF2 Record Date:
Robert Castle (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603
LOAN LEVEL DETAIL
============================================================================================================================
Appraisal Property Operating Ending Loan
Disclosure Reduction Type Maturity Statement Principal Note Scheduled Prepayment Status
Control # Amounts Code Date DSCR NOI Date Balance Rate P&I Prepayment Date Code (1)
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
============================================================================================================================
* NOI and DSCR, if available and reportable under the terms of the trust agreement, are based on information obtained
from the related borrower, and no other party to the agreement shall be held liable for the accuracy or methodology
used to determine such figures.
----------------------------------------------------------------------------------------------------------------------------
(1) Legend: A. P&I Adv - in Grace Period 1. P&I Adv - delinquent 1 month
B. P&I Adv - < one month delinq 2. P&I Adv - delinquent 2 months
3. P&I Adv - delinquent 3+ months
4. Mat Balloon/Assumed P&I
5. Prepaid in Full
6. Specially Serviced
7. Foreclosure
8. Bankruptcy
9. REO
10. DPO
11. Modification
============================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO MORGAN STANLEY CAPITAL I INC., AS DEPOSITOR Statement Date:
LaSalle National Bank GMAC COMMERCIAL MORTGAGE CORP., AS MASTER SERVICER AND SPECIAL SERVICER Payment Date:
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment:
Administrator: SERIES 1998-HF2 Record Date:
Robert Castle (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603
SPECIALLY SERVICED LOAN DETAIL
====================================================================================================================================
Beginning Specially
Disclosure Scheduled Interest Maturity Property Serviced
Control # Balance Rate Date Type Status Code (1) Comments
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
====================================================================================================================================
(1) Legend :
1) Request for waiver of Prepayment Penalty 4) Loan with Borrower Bankruptcy 7) Loans Paid Off
2) Payment default 5) Loan in Process of Foreclosure 8) Loans Returned to Master Servicer
3) Request for Loan Modification or Workout 6) Loan now REO Property
====================================================================================================================================
APPENDIX A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO MORGAN STANLEY CAPITAL I INC., AS DEPOSITOR Statement Date:
LaSalle National Bank GMAC COMMERCIAL MORTGAGE CORP., AS MASTER SERVICER AND SPECIAL SERVICER Payment Date:
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment:
Administrator: SERIES 1998-HF2 Record Date:
Robert Castle (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603
MODIFIED LOAN DETAIL
====================================================================================================================================
Disclosure Modification Modification
Control # Date Description
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
====================================================================================================================================
APPENDIX B
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ABN AMRO MORGAN STANLEY CAPITAL I INC., AS DEPOSITOR Statement Date:
LaSalle National Bank GMAC COMMERCIAL MORTGAGE CORP., AS MASTER SERVICER AND SPECIAL SERVICER Payment Date:
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES Prior Payment:
Administrator: SERIES 1998-HF2 Record Date:
Robert Castle (800) 246-5761
135 S. LaSalle Street Suite 1740 ABN AMRO ACCT: 99-9999-99-9
Chicago, IL 60603
REALIZED LOSS DETAIL
====================================================================================================================================
Beginning Gross Proceeds Aggregate Net Net Proceeds
Dist. Disclosure Appraisal Appraisal Scheduled Gross as a % of Liquidation Liquidation as a % of Realized
Date Control # Date Value Balance Proceeds Sched Principal Expenses * Proceeds Sched. Balance Loss
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT TOTAL 0.00 0.00 0.00 0.00 0.00
CUMULATIVE 0.00 0.00 0.00 0.00 0.00
====================================================================================================================================
APPENDIX C
* Aggregate liquidation expenses also include outstanding P&I advances and
unpaid servicing fees, unpaid trustee fees, etc..
</TABLE>
<PAGE>
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<PAGE>
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<PAGE>
- ------------------------------------ ---------------------- -----------------
MORGAN STANLEY MORGAN STANLEY November 5, 1998
Real Estate Debt Capital Markets DEAN WITTER
Mortgage Capital Markets LOGO
- ------------------------------------ ---------------------- -----------------
CMBS NEW ISSUE
TERM SHEET
-----------------------------------------
PRICING DATE: NOVEMBER 5, 1998
-----------------------------------------
$936,429,000
(APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
AS DEPOSITOR
HELLER FINANCIAL CAPITAL FUNDING, INC.
AND
MORGAN STANLEY MORTGAGE CAPITAL INC.
AS MORTGAGE LOAN SELLERS
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-HF2
-----------------------------------------
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
PRUDENTIAL SECURITIES INCORPORATED
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>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
MORGAN STANLEY CAPITAL I INC. $936,429,000 (APPROXIMATE)
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-HF2
<TABLE>
<CAPTION>
- --------- -------------------- ---------------- -------------- ------------ --------------- ------------------ -------------------
INITIAL AGGREGATE
CERTIFICATE EXPECTED FINAL
BALANCE OR SUBORDINATION RATING AVERAGE PRINCIPAL DISTRIBUTION PASS-THROUGH
CLASS NOTIONAL AMOUNT (1) LEVEL (DCR/FITCH) LIFE(2) WINDOW(2)(3) DATE(2) RATE(4)
- --------- -------------------- ---------------- -------------- ------------ --------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 $203,500,000 29.00%(5) AAA/AAA 5.45 1-104 07/15/07 6.01%
- --------- -------------------- ---------------- -------------- ------------ --------------- ------------------ -------------------
A-2 $547,759,000 29.00%(5) AAA/AAA 9.44 104-116 07/15/08 6.48%
- --------- -------------------- ---------------- -------------- ------------ --------------- ------------------ -------------------
X(6) $1,058,111,956(7) -- AAA/AAA 9.27 -- 07/15/23 Variable Rate(8)
- --------- -------------------- ---------------- -------------- ------------ --------------- ------------------ -------------------
B $52,906,000 24.00% AA/AA 9.71 116-117 08/15/08 Variable Rate(9)
- --------- -------------------- ---------------- -------------- ------------ --------------- ------------------ -------------------
C $52,905,000 19.00% A/A 9.76 117-117 08/15/08 Variable Rate(9)
- --------- -------------------- ---------------- -------------- ------------ --------------- ------------------ -------------------
D $58,196,000 13.50% BBB/BBB 9.76 117-118 09/15/08 Variable Rate(9)
- --------- -------------------- ---------------- -------------- ------------ --------------- ------------------ -------------------
E $21,163,000 11.50% BBB-/BBB- 9.90 118-119 10/15/08 Variable Rate(9)
- --------- -------------------- ---------------- -------------- ------------ --------------- ------------------ -------------------
F(6) $23,807,000 9.25% BB+/BB+ 10.02 119-128 07/15/09 6.01%
- --------- -------------------- ---------------- -------------- ------------ --------------- ------------------ -------------------
G(6) $18,517,000 7.50% BB/BB 11.42 128-139 06/15/10 6.01%
- --------- -------------------- ---------------- -------------- ------------ --------------- ------------------ -------------------
H(6) $10,581,000 6.50% BB-/BB- 12.11 139-154 09/15/11 6.01%
- --------- -------------------- ---------------- -------------- ------------ --------------- ------------------ -------------------
J(6) $21,162,000 4.50% NR/B+ 14.14 154-174 05/15/13 6.01%
- --------- -------------------- ---------------- -------------- ------------ --------------- ------------------ -------------------
K(6) $10,582,000 3.50% NR/B 14.66 174-182 01/15/14 6.01%
- --------- -------------------- ---------------- -------------- ------------ --------------- ------------------ -------------------
L(6) $15,871,000 2.00% NR/B- 16.86 182-219 02/15/17 6.01%
- --------- -------------------- ---------------- -------------- ------------ --------------- ------------------ -------------------
M(6) $10,581,000 1.00% NR/CCC 19.10 219-231 02/15/18 6.01%
- --------- -------------------- ---------------- -------------- ------------ --------------- ------------------ -------------------
N(6) $10,581,956 0.00% NR/NR 20.80 231-296 07/15/23 6.01%
- --------- -------------------- ---------------- -------------- ------------ --------------- ------------------ -------------------
</TABLE>
Notes: (1) In the case of each such Class, subject to a permitted variance of
plus or minus 5%.
(2) Based on Maturity Assumptions described in the Prospectus
Supplement.
(3) Principal Window is the period (expressed in terms of months and
commencing with the month of the first Distribution Date) during
which distributions of principal are expected to be made to the
holders of each designated Class in accordance with the Maturity
Assumptions.
(4) Other than the Class X Certificates and the Class B, C, D and E
Certificates, each Class of Certificates will accrue interest
generally at a fixed rate of interest as described in the Prospectus
Supplement provided that the Pass-Through Rate, in each case, will
not exceed the WAC Rate for each distribution date. The Class X, B,
C, D and E Certificates will accrue interest at a variable rate as
described below.
(5) Represents the approximate credit support for the Class A-1 and
Class A-2 Certificates in the aggregate.
(6) To be offered privately.
(7) Class X Notional Amount is equal to the sum of all Principal Balance
Certificates outstanding from time to time.
(8) The Pass-Through Rate on the Class X Certificates on each
Distribution Date will equal, in general, the WAC Rate minus the
weighted average of the Pass-Through Rates of the classes of
certificates that have principal amounts.
(9) The Pass-Through Rate on the Class B Certificates on each
Distribution Date will equal the WAC Rate minus 0.46%. The
Pass-Through Rate on the Class C Certificates will equal the WAC
Rate minus 0.06%. The Pass-Through Rate on the Class D and E
Certificates on each Distribution Date will equal the WAC Rate minus
0.02%.
T-1
<PAGE>
MORGAN STANLEY CAPITAL I INC. $936,429,000 (APPROXIMATE)
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-HF2
I. ISSUE CHARACTERISTICS
---------------------
Issue Type: The Class A-1, A-2, B, C, D and E
Certificates are offered pursuant to the
Prospectus Supplement dated November 5, 1998
and accompanying Prospectus dated October 9,
1998, and the Class F, G, H, J, K, L, M, N
and X Certificates will be offered privately
(pursuant to Rule 144A under the Securities
Act of 1933, as amended) pursuant to a
Private Placement Memorandum, dated
November 5, 1998.
Securities Offered: Six classes of monthly pay, multi-class
sequential pay commercial mortgage REMIC
Pass-Through Certificates, including two
fixed-rate principal and interest Classes
(Classes A-1 and A-2) and four weighted
average coupon principal and interest classes
(Class B, C, D and E).
Collateral: The collateral consists of a $1,058,111,956
pool of 262 fixed-rate commercial and
multifamily Mortgage Loans.
Sellers: Heller Financial Capital Funding, Inc. and
Morgan Stanley Mortgage Capital Inc.
Lead Manager: Morgan Stanley & Co. Incorporated
Co-Managers: Bear, Stearns & Co. Inc. and Prudential
Securities Incorporated
Master Servicer: GMAC Commercial Mortgage Corporation
Special Servicer: GMAC Commercial Mortgage Corporation
Trustee/Fiscal Agent: LaSalle National Bank/ABN AMRO Bank N.V.
Pricing Date: November 5, 1998
Closing Date: On or about November 12, 1998
Distribution Dates: The 15th of each month, commencing December
1998
Minimum Denominations: $25,000 for the Class A Certificates, $50,000
for the Class B Certificates and $100,000 for
each of the remaining Class of Certificates
(other than the Class R Certificates)
Settlement Terms: DTC, Euroclear and Cedel, same day funds,
with accrued interest
Legal/Regulatory Status: Class A and Class X Certificates are expected
to be eligible for exemptive relief under
ERISA. No Class of Certificates is SMMEA
eligible.
Risk Factors: THE CERTIFICATES INVOLVE A DEGREE OF RISK AND
MAY NOT BE SUITABLE FOR ALL INVESTORS. SEE
THE "RISK FACTORS AND OTHER SPECIAL
CONSIDERATIONS" SECTION OF THE PROSPECTUS
SUPPLEMENT AND THE "RISK FACTORS" SECTION OF
THE PROSPECTUS.
T-2
<PAGE>
MORGAN STANLEY CAPITAL I INC. $936,429,000 (APPROXIMATE)
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-HF2
II. STRUCTURE CHARACTERISTICS
-------------------------
The Certificates (other than the Class X, B, C, D, E and Class R Certificates)
are fixed-rate, monthly pay, multi-class, sequential pay REMIC Pass-Through
Certificates. The Class B, C, D and E Certificates are weighted average coupon
REMIC Pass-Through Certificates. The Class X Certificates are variable rate,
interest only, REMIC Pass-Through Certificates.
<TABLE>
<CAPTION>
Class X(1)(2)
-------------
<S> <C> <C> <C>
Class A-1 AAA/AAA $203.5MM
6.01%
Class A-2 AAA/AAA $547.8MM
6.48%
Class B AA/AA $52.9MM
WAC-0.46%
Class C A/A(3) $52.9MM
WAC-0.06%
Class D BBB/BBB $58.2MM
WAC-0.02%
Class E BBB-/BBB- $21.2MM
WAC-0.02%
Class F(2) BB+/BB+ $23.8MM
6.01%
Class G(2) BB/BB $18.5MM
6.01%
Class H(2) BB-/BB- $10.6MM
6.01%
Class J(2) NR/B+ $21.2MM
6.01%
Class K(2) NR/B $10.6MM
6.01%
Class L(2) NR/B- $15.9MM
6.01%
Class M(2) NR/CCC $10.6MM
6.01%
Class N(2) NR/NR $10.6MM
6.01%
</TABLE>
NR = Not Rated
Notes: (1) See Notes (7) and (8) on Page T-1.
(2) See Note (6) on Page T-1.
(3) See Note (9) on Page T-1.
T-3
<PAGE>
MORGAN STANLEY CAPITAL I INC. $936,429,000 (APPROXIMATE)
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-HF2
II. STRUCTURE CHARACTERISTICS (CONTINUED)
-------------------------------------
All Classes of Certificates derive their cash flows from the entire pool of
Mortgage Loans.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
[GRAPHIC OMITTED]
Notes: (1) The Class A-1, A-2 and X Certificates will be paid interest on a
pro rata basis.
(2) The above analysis is based on the Maturity Assumptions
described in the Prospectus Supplement.
T-4
<PAGE>
MORGAN STANLEY CAPITAL I INC. $936,429,000 (APPROXIMATE)
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-HF2
Interest Distributions: Each Distribution Date to interest accrued at
its Pass-Through Rate on the outstanding
Certificate Balance or Notional Amount of such
Class, as applicable.
Pass-Through Rates(1): Class A-1: 6.01%
Class A-2: 6.48%
Class B: WAC Rate minus 0.46% See Note (9)
on Page T-1.
Class C: WAC Rate minus 0.06% See Note (9)
on Page T-1.
Class D: WAC Rate minus 0.02% See Note (9)
on Page T-1.
Class E: WAC Rate minus 0.02% See Note (9)
on Page T-1.
Class F: 6.01%
Class G: 6.01%
Class H: 6.01%
Class J: 6.01%
Class K: 6.01%
Class L: 6.01%
Class M: 6.01%
Class N: 6.01%
Class X: See Note (8) on page T-1.
Note: (1) See Note (4) on Page T-1.
Principal Distributions: Principal will be distributed on each
Distribution Date to the most senior Class
(i.e., the Class with the earliest
alphabetical/numerical Class designation) of the
Principal Balance Certificates outstanding,
until its Certificate Balance is reduced to zero
(sequential order). If, due to losses, the
Certificate Balances of the Class B through
Class N Certificates are reduced to zero or
Appraisal Reductions exceed the aggregate
Certificate Balance of the Subordinate
Certificates, payments of principal to the Class
A-1 and A-2 Certificates will be made on a pro
rata basis.
Prepayment Premium Prepayment Premiums (to the extent received)
Allocation: will be allocated among the Class X Certificates
and the Principal Balance Certificates (other
than Classes F, G, H, J, K, L, M and N) entitled
to distributions in respect of principal on any
Distribution Date, as described in the
Prospectus Supplement under "DESCRIPTION OF THE
CERTIFICATES - Distributions - Distributions of
Prepayment Premiums."
Credit Enhancement: Each Class of Certificates (other than Classes
A-1, A-2 and X) will be subordinate to all other
Classes with an earlier alphabetical Class
designation.
Advancing: The Master Servicer, the Trustee, and the Fiscal
Agent (in that order) will each be obligated to
make P&I Advances and Servicing Advances,
including delinquent property taxes and
insurance, but only to the extent that such
Advances are deemed recoverable.
Realized Losses and Realized Losses and Expense Losses, if any, will
Expense Losses: be allocated to the Class N, Class M, Class L,
Class K, Class J, Class H, Class G, Class F,
Class E, Class D, Class C and Class B
Certificates, in that order, and then to Classes
A-1 and A-2 and, with respect to losses
allocated to interest, Class X Certificates, pro
rata, in each case reducing amounts payable
thereto. Any interest shortfall of any Class of
Certificates will result in unpaid interest for
such Class which, together with interest thereon
compounded monthly at one-twelfth the applicable
Pass-Through Rate for such Class, will be
payable in subsequent periods, subject to
available funds.
PrepaymentInterest For any Distribution Date, any Net Aggregate
Shortfalls: Prepayment Interest Shortfall for such
Distribution Date will generally be allocated
pro rata to each Class of Certificates in
proportion to its entitlement to interest.
T-5
<PAGE>
MORGAN STANLEY CAPITAL I INC. $936,429,000 (APPROXIMATE)
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-HF2
Appraisal Reductions: Any appraisal reduction generally will be
created in the amount, if any, by which the
Principal Balance of a Specially Serviced
Mortgage Loan (plus other amounts overdue in
connection with such loan) exceeds 90% of the
appraised value of the related Mortgaged
Property. The Appraisal Reduction Amount will
reduce proportionately the amount of P&I
Advances for such loan, which reduction will
result, in general, in 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, or otherwise disposed of.
Operating Adviser: The Operating Adviser, which may be appointed by
the Controlling Class, will have the right to
receive notification concerning certain actions
of the Special Servicer with respect to
Specially Serviced Mortgaged Loans and replace
the Special Servicer subject to, among other
things, Rating Agency approval of the
replacement Special Servicer.
Controlling Class: The Controlling Class will generally be the most
subordinate Class of Certificates outstanding at
any time, or if the Certificate Balance of such
Class is less than 25% of the initial
Certificate Balance of such Class, the next most
subordinate Class of Principal Balance
Certificates.
Special Servicer: In general, the Special Servicer has the right
to modify the terms of a Specially Serviced
Mortgage Loan if it determines that such
modification would increase the net present
value of the proceeds to the Trust, provided
that the Special Servicer generally may not
extend the maturity date of a Mortgage Loan
beyond two years prior to the Rated Final
Distribution Date, extend the maturity date of a
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 10% of the
Stated Principal Balance of such Mortgage Loan.
Optional Termination: The Depositor, then the Master Servicer, then
the Special Servicer, the Controlling Class and
then the holder of a majority of the R-I
Certificates 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 Balance of
all Classes of Certificates then outstanding is
less than or equal to 1% of the Initial Pool
Balance. Such purchase price will generally be
at a price equal to the unpaid aggregate
Scheduled Principal Balance of the Mortgage
Loans, plus accrued and unpaid interest and
unreimbursed Advances.
Reports to The Trustee will prepare and deliver monthly
Certificateholders: Certificateholder Reports. The Special Servicer
will prepare and deliver to the Trustee a
monthly Special Servicer Report summarizing the
status of each Specially Serviced Mortgage Loan.
The Master Servicer and the Special Servicer
will prepare and deliver to the Trustee an
annual report setting forth, among other things,
the debt service coverage ratios for each
Mortgage Loan, as available. Each of the reports
will be available to the Certificateholders. A
report containing information regarding the
Mortgage Loans will be available electronically.
T-6
<PAGE>
MORGAN STANLEY CAPITAL I INC. $936,429,000 (APPROXIMATE)
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-HF2
III. SELLERS Heller Financial Capital Funding, Inc.
------- --------------------------------------
The Mortgage Pool includes 232 Mortgage Loans,
representing approximately 85.6% of the Initial Pool
Balance to be sold by Heller Financial Capital Funding,
Inc. ("Heller") to the Depositor. Heller is a wholly
owned subsidiary of Heller Financial, Inc. that was
organized to acquire and sell loans secured by mortgages
on commercial and multi-family real estate. All of the
Mortgage Loans to be sold by Heller to the Depositor for
the Mortgage Pool were originated by Heller Financial,
Inc. or an affiliate thereof. Heller Financial has been a
commercial real estate portfolio lender since 1980. Since
1993, Heller Financial has securitized over $2.1 billion
of the commercial mortgage loans which it has originated.
Morgan Stanley Mortgage Capital Inc.
------------------------------------
The Mortgage Pool includes 30 Mortgage Loans,
representing approximately 14.4% of the Initial Pool
Balance, either acquired or originated by or on behalf of
Morgan Stanley Mortgage Capital Inc. ("MSMC"). MSMC is a
subsidiary of Morgan Stanley & Co. Incorporated that was
formed to originate and purchase mortgage loans secured
by commercial and multi-family real estate.
T-7
<PAGE>
MORGAN STANLEY CAPITAL I INC. $936,429,000 (APPROXIMATE)
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1998-HF2
IV. COLLATERAL DESCRIPTION
----------------------
Summary: The Mortgage Pool consists of a $1,058,111,956 pool of
262 fixed-rate, first lien, mortgage loans secured by
liens on commercial and multi-family properties located
throughout 39 states. As of the Cut-Off Date, the
Mortgage Loans have a weighted average Mortgage Rate of
7.233% and a weighted average remaining term to maturity
of 125 months. See the Appendices to the Prospectus
Supplement for more detailed collateral information.
PROPERTY SUMMARY
----------------
<TABLE>
<CAPTION>
- ---------------------------- ---------- ---------------- ------------------- ------------ --------------- ------------ ---------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
WEIGHTED REMAINING DEBT WEIGHTED
AGGREGATE INITIAL POOL AVERAGE TERM TO SERVICE AVERAGE
NUMBER BALANCE AS OF BALANCE AS OF MORTGAGE STATED COVERAGE LOAN TO
PROPERTY TYPE OF LOANS CUT-OFF DATE CUT-OFF DATE (%) RATE (%) MATURITY (MOS) RATIO VALUE (%)
- ---------------------------- ---------- ---------------- ------------------- ------------ --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Multifamily 75 $346,732,950 32.8 % 7.128% 125 mos 1.32x 74.9%
- ---------------------------- ---------- ---------------- ------------------- ------------ --------------- ------------ ----------
Retail 64 242,424,354 22.9 7.189 138 1.34 72.6
- ---------------------------- ---------- ---------------- ------------------- ------------ --------------- ------------ ----------
Industrial 24 92,081,834 8.7 7.303 127 1.30 72.4
- ---------------------------- ---------- ---------------- ------------------- ------------ --------------- ------------ ----------
Office 20 82,375,509 7.8 7.276 116 1.35 70.0
- ---------------------------- ---------- ---------------- ------------------- ------------ --------------- ------------ ----------
Senior Housing 16 80,580,861 7.6 6.983 115 1.54 72.5
- ---------------------------- ---------- ---------------- ------------------- ------------ --------------- ------------ ----------
Self-Storage 33 77,708,422 7.3 7.716 113 1.47 70.0
- ---------------------------- ---------- ---------------- ------------------- ------------ --------------- ------------ ----------
Hospitality 9 65,981,609 6.2 7.380 116 1.47 67.6
- ---------------------------- ---------- ---------------- ------------------- ------------ --------------- ------------ ----------
Manufactured Housing 17 51,955,131 4.9 7.265 113 1.43 70.4
- ---------------------------- ---------- ---------------- ------------------- ------------ --------------- ------------ ----------
Mixed Use 4 18,271,286 1.7 7.713 120 1.29 64.8
- ---------------------------- ---------- ---------------- ------------------- ------------ --------------- ------------ ----------
TOTAL OR WEIGHTED AVERAGE 262 $1,058,111,956 100.0% 7.233% 125 MOS 1.37X 72.4%
- ---------------------------- ---------- ---------------- ------------------- ------------ --------------- ------------ ----------
</TABLE>
GEOGRAPHIC DISTRIBUTION
-----------------------
WA 4.8% VA 1.4%
ND 0.2% KY 0.6%
MN 1.8% NC 3.2%
WI 3.6% TN 0.9%
MI 4.7% NV 1.4%
NY 4.8% UT 0.2%
NH 0.9% CO 5.9%
MA 2.2% KS 0.2%
RI 0.5% MO 0.7%
PA 1.9% SC 0.3%
NJ 0.9% OK 1.8%
DE 0.2% AR 0.1%
MD 0.5% MS 0.6%
FL 7.1% AL 0.3%
OR 0.9% GA 8.4%
ID 0.9% CA 20.2%
IL 1.8% AZ 4.9%
IN 1.5% TX 7.8%
OH 1.4% LA 0.8%
WV 0.1%
T-8
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<PAGE>
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<PAGE>
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<PAGE>
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
MORGAN STANLEY CAPITAL I INC.
DEPOSITOR
The Certificates offered hereby and by Supplements to this Prospectus
(the "Offered Certificates") will be offered from time to time in one or more
series. Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any series, the
"Trust Fund") consisting of one or more segregated pools of various types of
multifamily or commercial mortgage loans (the "Mortgage Loans"), mortgage
participations, mortgage pass-through certificates, mortgage-backed securities
evidencing interests therein or secured thereby (the "MBS"), certain direct
obligations of the United States, agencies thereof or agencies created thereby
(the "Government Securities") or a combination of Mortgage Loans, MBS and/or
Government Securities (with respect to any series, collectively, "Assets"). If
so specified in the related Prospectus Supplement, some or all of the Mortgage
Loans will include assignments of the leases of the related Mortgaged
Properties (as defined herein) and/or assignments of the rental payments due
from the lessees under such leases (each type of assignment, a "Lease
Assignment"). A significant or the sole source of payments on certain
Commercial Loans (as defined herein) and, therefore, of distributions on
certain series of Certificates, will be such rent payments. The Mortgage Loans
and MBS are collectively referred to herein as the "Mortgage Assets." If so
specified in the related Prospectus Supplement, the Trust Fund for a series of
Certificates may include letters of credit, insurance policies, guarantees,
reserve funds or other types of credit support, or any combination thereof
(with respect to any series, collectively, "Credit Support"), and currency or
interest rate exchange agreements and other financial assets, or any
combination thereof (with respect to any series, collectively, "Cash Flow
Agreements"). See "Description of the Trust Funds," "Description of the
Certificates" and "Description of Credit Support."
Each series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon based on
fixed, variable or adjustable rates; (ii) be senior or subordinate to one or
more other classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iv) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (v) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; (vi)
provide for distributions of principal sequentially, based on specified payment
schedules or other methodologies; and/or (vii) provide for distributions based
on a combination of two or more components thereof with one or more of the
characteristics described in this paragraph, to the extent of available funds,
in each case as described in the related Prospectus Supplement. Any such
classes may include classes of Offered Certificates. See "Description of the
Certificates."
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters, as more fully
described under "Plan of Distribution" herein and in the related Prospectus
Supplement.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT.ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, CERTAIN RISKS SET FORTH
UNDER THE CAPTION "RISK FACTORS" HEREIN AND IN THE RELATED PROSPECTUS
SUPPLEMENT.
Prior to issuance there will have been no market for the Certificates
of any series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will
continue. This Prospectus may not be used to consummate sales of the Offered
Certificates of any series unless accompanied by the Prospectus Supplement for
such series.
---------------------------------
MORGAN STANLEY & CO.
INCORPORATED
October 9, 1998
<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.
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
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<PAGE>
incorporated by reference in such documents). Requests to the Depositor should
be directed in writing to Morgan Stanley Capital I Inc., c/o Morgan Stanley &
Co. Incorporated, 1585 Broadway, 37th Floor, New York, New York 10036,
Attention: John E. Westerfield, or by telephone at (212) 761-4700. The
Depositor has determined that its financial statements are not material to the
offering of any Offered Certificates.
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TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT.......................................................2
AVAILABLE INFORMATION.......................................................3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...........................3
SUMMARY OF PROSPECTUS.......................................................6
RISK FACTORS...............................................................14
DESCRIPTION OF THE TRUST FUNDS.............................................21
USE OF PROCEEDS............................................................27
YIELD CONSIDERATIONS.......................................................27
THE DEPOSITOR..............................................................30
DESCRIPTION OF THE CERTIFICATES............................................31
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....................................73
STATE TAX CONSIDERATIONS...................................................98
CERTAIN ERISA CONSIDERATIONS...............................................99
LEGAL INVESTMENT..........................................................101
PLAN OF DISTRIBUTION......................................................103
LEGAL MATTERS.............................................................103
FINANCIAL INFORMATION.....................................................104
RATING....................................................................104
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SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in
its entirety by reference to the more detailed information appearing elsewhere
in this Prospectus and by reference to the information with respect to each
series of Certificates contained in the Prospectus Supplement to be prepared
and delivered in connection with the offering of such series. An Index of
Principal Definitions is included at the end of this Prospectus.
TITLE OF CERTIFICATES.............Mortgage Pass-Through Certificates, issuable
in series (the "Certificates").
DEPOSITOR.........................Morgan Stanley Capital I Inc., a wholly-owned
subsidiary of Morgan Stanley Group Inc. See
"The Depositor."
MASTER SERVICER...................The master servicer (the "Master Servicer"),
if any, for each series of Certificates,
which may be an affiliate of the Depositor,
will be named in the related Prospectus
Supplement. See "Description of the
Agreements--Collection and Other Servicing
Procedures."
SPECIAL SERVICER..................The special servicer (the "Special
Servicer"), if any, for each series of
Certificates, which may be an affiliate of
the Depositor, will be named, or the
circumstances in accordance with which a
Special Servicer will be appointed will be
described, in the related Prospectus
Supplement. See "Description of the
Agreements--Special Servicers."
TRUSTEE...........................The trustee (the "Trustee") for each series
of Certificates will be named in the related
Prospectus Supplement. See "Description of
the Agreements--The Trustee."
THE TRUST ASSETS .................Each series of Certificates will represent in
the aggregate the entire beneficial ownership
interest in a Trust Fund consisting primarily
of:
(A) MORTGAGE ASSETS ..............The Mortgage Assets with respect to each
series of Certificates will consist of a pool
of multifamily and/or commercial mortgage
loans (collectively, the "Mortgage Loans")
and mortgage participations, mortgage
pass-through certificates or other
mortgage-backed securities evidencing
interests in or secured by Mortgage Loans
(collectively, the "MBS") or a combination of
Mortgage Loans and MBS. The Mortgage Loans
will not be guaranteed or insured by the
Depositor or any of its affiliates or, unless
otherwise provided in the Prospectus
Supplement, by any governmental agency or
instrumentality or other person. As more
specifically described herein, the Mortgage
Loans will be secured by first or junior
liens on, or security interests in,
properties consisting of (i) residential
properties consisting of five or more rental
or cooperatively-owned dwelling units (the
"Multifamily Properties") or (ii) office
buildings, shopping centers, retail stores,
hotels or motels, nursing homes, hospitals or
other health-care related facilities, mobile
home parks, warehouse
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<PAGE>
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
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<PAGE>
prohibitions on prepayment or require payment
of a premium or a yield maintenance penalty
in connection with a prepayment, in each case
as described in the related Prospectus
Supplement. The Mortgage Loans may provide
for payments of principal, interest or both,
on due dates that occur monthly, quarterly,
semi-annually or at such other interval as is
specified in the related Prospectus
Supplement. See "Description of the Trust
Funds--Assets."
(B) GOVERNMENT SECURITIES ........If so provided in the related Prospectus
Supplement, the Trust Fund may include, in
addition to Mortgage Assets, certain direct
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."
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<PAGE>
(E) CASH FLOW AGREEMENTS ........ If so provided in the related Prospectus
Supplement, the Trust Fund may include
guaranteed investment contracts pursuant to
which moneys held in the funds and accounts
established for the related series will be
invested at a specified rate. The Trust Fund
may also include certain other agreements,
such as interest rate exchange agreements,
interest rate cap or floor agreements,
currency exchange agreements or similar
agreements provided to reduce the effects of
interest rate or currency exchange rate
fluctuations on the Assets or on one or more
classes of Certificates. (Currency exchange
agreements might be included in the Trust
Fund if some or all of the Mortgage Assets
(such as Mortgage Loans secured by Mortgaged
Properties located outside the United States)
were denominated in a non-United States
currency.) The principal terms of any such
guaranteed investment contract or other
agreement (any such agreement, a "Cash Flow
Agreement"), including, without limitation,
provisions relating to the timing, manner and
amount of 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
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<PAGE>
thereon based on fixed, variable or
adjustable rates; (ii) be senior
(collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate
Certificates") to one or more other classes
of Certificates in respect of certain
distributions on the Certificates; (iii) be
entitled to principal distributions, with
disproportionately low, nominal or no
interest distributions (collectively,
"Stripped Principal Certificates"); (iv) be
entitled to interest distributions, with
disproportionately low, nominal or no
principal distributions (collectively,
"Stripped Interest Certificates"); (v)
provide for distributions of accrued interest
thereon commencing only following the
occurrence of certain events, such as the
retirement of one or more other classes of
Certificates of such series (collectively,
"Accrual Certificates"); (vi) provide for
distributions of principal sequentially,
based on specified payment schedules or other
methodologies; and/or (vii) provide for
distributions based on a combination of two
or more components thereof with one or more
of the characteristics described in this
paragraph, including a Stripped Principal
Certificate component and a Stripped Interest
Certificate component, to the extent of
available funds, in each case as described in
the related Prospectus Supplement. Any such
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."
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<PAGE>
(B) PRINCIPAL ....................The Certificates of each series initially
will have an aggregate Certificate Balance no
greater than the outstanding principal
balance of the Assets as of, unless the
related Prospectus Supplement provides
otherwise, the close of business on the first
day of the month of formation of the related
Trust Fund (the "Cut-off Date"), after
application of scheduled payments due on or
before such date, whether or not received.
The Certificate Balance of a Certificate
outstanding from time to time represents the
maximum amount that the holder thereof is
then entitled to receive in respect of
principal from future cash flow on the assets
in the related Trust Fund. Unless otherwise
provided in the related Prospectus
Supplement, distributions of principal will
be made on each Distribution Date to the
class or classes of Certificates entitled
thereto until the Certificate Balances of
such Certificates have been reduced to zero.
Unless otherwise specified in the related
Prospectus Supplement, distributions of
principal of any class of Certificates will
be made on a pro rata basis among all of the
Certificates of such class or by random
selection, as described in the related
Prospectus Supplement or otherwise
established by the related Trustee. Stripped
Interest Certificates with no Certificate
Balance will not receive distributions in
respect of principal. See "Description of the
Certificates--Distributions of Principal of
the Certificates."
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
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<PAGE>
will solicit bids for the purchase of all of
the Assets of the Trust Fund, or of a
sufficient portion of such Assets to retire
such class or classes, or purchase such
Assets at a price set forth in the related
Prospectus Supplement. In addition, if so
provided in the related Prospectus
Supplement, certain classes of Certificates
may be purchased subject to similar
conditions. See "Description of the
Certificates--Termination."
REGISTRATION OF CERTIFICATES .....If so provided in the related Prospectus
Supplement, one or more classes of the
Offered Certificates will initially be
represented by one or more Certificates
registered in the name of Cede & Co., as the
nominee of DTC. No person acquiring an
interest in Offered Certificates so
registered will be entitled to receive a
definitive certificate representing such
person's interest except in the event that
definitive certificates are issued under the
limited circumstances described herein. See
"Risk Factors--Book-Entry Registration" and
"Description of the Certificates--Book-Entry
Registration and Definitive Certificates."
TAX STATUS OF THE CERTIFICATES ...The Certificates of each series will
constitute either (i) "regular interests"
("REMIC Regular Certificates") and "residual
interests" ("REMIC Residual Certificates") in
a Trust Fund treated as a REMIC under
Sections 860A through 860G of the Code, or
(ii) interests ("Grantor Trust Certificates")
in a Trust Fund treated as a grantor trust
under applicable provisions of the Code.
(A) REMIC ........................REMIC Regular Certificates generally will be
treated as debt obligations of the applicable
REMIC for federal income tax purposes.
Certain REMIC Regular Certificates may be
issued with original issue discount for
federal income tax purposes. See "Certain
Federal Income Tax Consequences" in the
Prospectus Supplement.
A portion (or, in certain cases, all) of the
income from REMIC Residual Certificates (i)
may not be offset by any losses from other
activities of the holder of such REMIC
Residual Certificates, (ii) may be treated as
unrelated business taxable income for holders
of REMIC Residual Certificates that are
subject to tax on unrelated business taxable
income (as defined in Section 511 of the
Code), and (iii) may be subject to foreign
withholding rules. See "Certain Federal
Income Tax Consequences--REMICs--Taxation of
Owners of REMIC Residual Certificates".
The Offered Certificates will be treated as
(i) assets described in section
7701(a)(19)(C) of the Internal Revenue Code
of 1986, as amended (the "Code") and (ii)
"real estate assets" within the meaning of
section 856(c)(4)(A) of the Code, in each
case to the extent described herein and in
the Prospectus. See "Certain Federal Income
Tax Consequences" herein and in the
Prospectus.
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<PAGE>
(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
"Certain ERISA Considerations" herein and in
the related Prospectus Supplement. To the
extent specified in the related Prospectus
Supplement, certain classes of Certificates
may not be transferred unless the Trustee and
the Depositor are furnished with a letter of
representations or an opinion of counsel to
the effect that such transfer will not result
in a violation of the prohibited transaction
provisions of ERISA and the Code, will not
cause the assets of the Trust to be deemed
"plan assets" for purposes of ERISA and the
Code and will not subject the Trustee, the
Depositor or the Master Servicer to
additional obligations. See "Certain ERISA
Considerations" herein and in the related
Prospectus Supplement.
LEGAL INVESTMENT .................The related Prospectus Supplement will
specify whether any class or classes of the
Offered Certificates will constitute
"mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act
of 1984, as amended. Investors whose
investment authority is subject to legal
restrictions should consult their own legal
advisors to determine whether and to what
extent the Offered Certificates constitute
legal investments for them. See "Legal
Investment" herein and in the related
Prospectus Supplement.
RATING ...........................At the date of issuance, as to each series,
each class of Offered Certificates will be
rated not lower than investment grade by one
or more nationally recognized statistical
rating agencies (each, a "Rating Agency").
See "Rating" herein and in the related
Prospectus Supplement.
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RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "Risk Factors" in the related Prospectus
Supplement.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates
of any series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such series
remain outstanding. Any such secondary market may provide less liquidity to
investors than any comparable market for securities evidencing interests in
single family mortgage loans. The market value of Certificates will fluctuate
with changes in prevailing rates of interest. Consequently, sale of
Certificates by a holder in any secondary market that may develop may be at a
discount from 100% of their original principal balance or from their purchase
price. Furthermore, secondary market purchasers may look only hereto, to the
related Prospectus Supplement and to the reports to Certificateholders
delivered pursuant to the related Agreement as described herein under the
heading "Description of the Certificates--Reports to Certificateholders",
"--Book-Entry Registration and Definitive Certificates" and "Description of the
Agreements--Evidence as to Compliance" for information concerning the
Certificates. Except to the extent described herein and in the related
Prospectus Supplement, Certificateholders will have no redemption rights and
the Certificates are subject to early retirement only under certain specified
circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination". Morgan Stanley & Co.
Incorporated currently expects to make a secondary market in the Offered
Certificates, but has no obligation to do so.
LIMITED ASSETS
The Certificates will not represent an interest in or obligation of
the Depositor, the Master Servicer, or any of their affiliates. The only
obligations with respect to the Certificates or the Assets will be the
obligations (if any) of the Warrantying Party (as defined herein) pursuant to
certain limited representations and warranties made with respect to the
Mortgage Loans, the Master Servicer's, any Special Servicer's and any
Sub-Servicer's servicing obligations under the related Pooling and Servicing
Agreement (including the limited obligation to make certain advances in the
event of delinquencies on the Mortgage Loans, but only to the extent deemed
recoverable). Since certain representations and warranties with respect to the
Mortgage Assets may have been made and/or assigned in connection with transfers
of such Mortgage Assets prior to the Closing Date, the rights of the Trustee
and the Certificateholders with respect to such representations or warranties
will be limited to their rights as an assignee thereof. Unless otherwise
specified in the related Prospectus Supplement, none of the Depositor, the
Master Servicer or any affiliate thereof will have any obligation with respect
to representations or warranties made by any other entity. Unless otherwise
specified in the related Prospectus Supplement, neither the Certificates nor
the underlying Mortgage Assets will be guaranteed or insured by any
governmental agency or instrumentality, or by the Depositor, the Master
Servicer, any Special Servicer, any Sub-Servicer or any of their affiliates.
Proceeds of the assets included in the related Trust Fund for each series of
Certificates (including the Assets and any form of credit enhancement) will be
the sole source of payments on the Certificates, and there will be no recourse
to the Depositor or any other entity in the event that such proceeds are
insufficient or otherwise unavailable to make all payments provided for under
the Certificates.
Unless otherwise specified in the related Prospectus Supplement, a
series of Certificates will not have any claim against or security interest in
the Trust Funds for any other series. If the related Trust Fund is insufficient
to make payments on such Certificates, no other assets will be available for
payment of the deficiency. Additionally, certain amounts remaining in certain
funds or accounts, including the Certificate Account and any accounts
maintained as Credit Support, may be withdrawn under certain conditions, as
described in the related Prospectus Supplement. In the event of such
withdrawal, such amounts will not be available for future payment of principal
of or interest on the Certificates. If so provided in the Prospectus Supplement
for a series of Certificates consisting of one or more classes of Subordinate
Certificates, on any Distribution Date in respect of which losses or shortfalls
in
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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, 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
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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 theextent that such losses are not covered by the Credit Support, if any,
described in the related Prospectus Supplement, such losses will be borne, at
least in part, by the holders of one or more classes of the Certificates of the
related series. See "Description of Credit Support" and "Rating."
RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGED PROPERTIES
Mortgage loans made with respect to multifamily or commercial property
may entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single family
property. See "Description of the Trust Funds--Assets." The ability of a
mortgagor to repay a loan secured by an income-producing property typically is
dependent primarily upon the successful operation of such property rather than
any independent income or assets of the mortgagor; thus, the value of an
income-producing property is directly related to the net operating income
derived from such property. In contrast, the ability of a mortgagor to repay a
single family loan typically is dependent primarily upon the mortgagor's
household income, rather than the capacity of the property to produce income;
thus, other than in geographical areas where employment is dependent upon a
particular employer or an industry, the mortgagor's income tends not to reflect
directly the value of such property. A decline in the net operating income of
an income-producing property will likely affect both the performance of the
related loan as well as the liquidation value of such property, whereas a
decline in the income of a mortgagor on a single family property will likely
affect the performance of the related loan but may not affect the liquidation
value of such property. Moreover, a decline in the value of a Mortgaged
Property will increase the risk of loss particularly with respect to any
related junior Mortgage Loan. See "--Junior Mortgage Loans."
The performance of a mortgage loan secured by an income-producing
property leased by the mortgagor to tenants as well as the liquidation value of
such property may be dependent upon the business operated by such tenants in
connection with such property, the creditworthiness of such tenants or both;
the risks associated with such loans may be offset by the number of tenants or,
if applicable, a diversity of types of business operated by such tenants.
It is anticipated that a substantial portion of the Mortgage Loans
included in any Trust Fund will be nonrecourse loans or loans for which
recourse may be restricted or unenforceable, as to which, in the event of
mortgagor default, recourse may be had only against the specific property and
such other assets, if any, as have been pledged to secure the related Mortgage
Loan. With respect to those Mortgage Loans that provide for recourse against
the mortgagor and its assets generally, there can be no assurance that such
recourse will ensure a recovery in respect of a defaulted Mortgage Loan greater
than the liquidation value of the related Mortgaged Property.
Further, the concentration of default, foreclosure and loss risks in
individual mortgagors or Mortgage Loans in a particular Trust Fund or the
related Mortgaged Properties will generally be greater than for pools of single
family loans both because the Mortgage Assets in a Trust Fund will generally
consist of a smaller number of loans than would a single family pool of
comparable aggregate unpaid principal balance and because of the higher
principal balance of individual Mortgage Loans. Mortgage Assets in a Trust Fund
may consist of only a limited number of Mortgage Loans and/or relate to Leases
to only a single Lessee or a limited number of Lessees.
If applicable, certain legal aspects of the Mortgage Loans for a
series of Certificates may be described in the related Prospectus Supplement.
See also "Certain Legal Aspects of the Mortgage Loans and the Leases" herein.
RISKS ASSOCIATED WITH COMMERCIAL LOANS AND LEASES
If so described in the related Prospectus Supplement, each mortgagor
under a Commercial Loan may be an entity created by the owner or purchaser of
the related Commercial Property solely to own or purchase such
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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."
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
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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 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
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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. Moreoever, the presence of hazardous
or toxic substances, or the failure to remediate such property, may adversely
affect the owner or operator's ability to borrow using such property as
collateral. In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA") and other federal law, a lender may be liable, as an "owner" or
"operator," for costs of addressing releases or threatened releases of
hazardous substances that require remedy at a property, if agents or employees
of the lender have become sufficiently involved in the operations of the
mortgagor, regardless of whether or not the environmental damage or threat was
caused by a prior owner. A lender also risks such liability on foreclosure of
the mortgage under certain circumstances. Unless otherwise specified in the
related Prospectus Supplement, each Pooling and Servicing Agreement will
provide that none of the Master Servicer, the Sub-Servicer or the Special
Servicer, acting on behalf of the Trust Fund, may acquire title to a Mortgaged
Property securing a Mortgage Loan or take over its operation unless the Master
Servicer has previously determined, based upon a report prepared by a person
who regularly conducts environmental audits, that: (i) the Mortgaged Property
is in compliance with applicable environmental laws, and there are no
circumstances present at the Mortgaged Property relating to the use, management
or disposal of any hazardous substances, hazardous materials, wastes, or
petroleum based materials for which investigation, testing, monitoring,
containment, clean-up or remediation could be required under any federal, state
or local law or regulation; or (ii) if the Mortgaged Property is not so in
compliance or such
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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 final regulations provide restrictions on the ability to
mark-to-market certain "negative value" REMIC residual interests. See "Certain
Federal Income Tax Consequences--REMICs."
CONTROL
Under certain circumstances, the consent or approval of the holders of
a specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of a series or a similar means of allocating decision-making under
the related Agreement ("Voting Rights") will be required to direct, and will be
sufficient to bind all Certificateholders of such series to, certain actions,
including directing the Special Servicer or the Master Servicer with respect to
actions to be taken with respect to certain Mortgage Loans and REO Properties
and amending the related Agreement in certain circumstances. See "Description
of the Agreements--Events of Default," "--Rights Upon Event of Default,"
"--Amendment" and "--List of Certificateholders."
BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of
the Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be registered
in the names of the Certificateholders or their nominees. Because of this,
unless and until Definitive Certificates are issued, Certificateholders will
not be recognized by the Trustee as "Certificateholders" (as that term is to be
used in the related Agreement). Hence, until such time, Certificateholders will
be able to exercise the rights of Certificateholders only indirectly through
DTC and its participating organizations. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates."
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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 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
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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.
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
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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 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
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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 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
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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.
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.
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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."
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."
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CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust Fund
may include guaranteed investment contracts pursuant to which moneys held in
the funds and accounts established for the related series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to reduce the
effects of interest rate or currency exchange rate fluctuations on the Assets
or on one or more classes of Certificates. (Currency exchange agreements might
be included in the Trust Fund if some or all of the Mortgage Assets (such as
Mortgage Loans secured by Mortgaged Properties located outside the United
States) were denominated in a non-United States currency.) The principal terms
of any such guaranteed investment contract or other agreement (any such
agreement, a "Cash Flow Agreement"), including, without limitation, provisions
relating to the timing, manner and amount of payments thereunder and provisions
relating to the termination thereof, will be described in the Prospectus
Supplement for the related series. In addition, the related Prospectus
Supplement will provide certain information with respect to the obligor under
any such Cash Flow Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will
be applied by the Depositor to the purchase of Assets and to pay for certain
expenses incurred in connection with such purchase of Assets and sale of
Certificates. The Depositor expects to sell the Certificates from time to time,
but the timing and amount of offerings of Certificates will depend on a number
of factors, including the volume of Assets acquired by the Depositor,
prevailing interest rates, availability of funds and general market conditions.
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by
the Certificateholder, the Pass-Through Rate of the Certificate, the receipt
and timing of receipt of distributions on the Certificate and the weighted
average life of the Assets in the related Trust Fund (which may be affected by
prepayments, defaults, liquidations or repurchases). See "Risk Factors."
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
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other than a Distribution Date for the related series, the yield realized by
the holders of such Certificates may be lower than the yield that would result
if the Interest Accrual Period ended on such Distribution Date. In addition, if
so specified in the related Prospectus Supplement, interest accrued for an
Interest Accrual Period for one or more classes of Certificates may be
calculated on the assumption that distributions of principal (and additions to
the Certificate Balance of Accrual Certificates) and allocations of losses on
the Assets may be made on the first day of the Interest Accrual Period for a
Distribution Date and not on such Distribution Date. Such method would produce
a lower effective yield than if interest were calculated on the basis of the
actual principal amount outstanding during an Interest Accrual Period. The
Interest Accrual Period for any class of Offered Certificates will be described
in the related Prospectus Supplement.
PAYMENTS OF PRINCIPAL; PREPAYMENTS
The yield to maturity on the Certificates will be affected by the rate
of principal payments on the Assets (including principal prepayments on
Mortgage Loans resulting from both voluntary prepayments by the mortgagors and
involuntary liquidations). Such payments may be directly dependent upon the
payments on Leases underlying such Mortgage Loans. The rate at which principal
prepayments occur on the Mortgage Loans will be affected by a variety of
factors, including, without limitation, the terms of the Mortgage Loans, the
level of prevailing interest rates, the availability of mortgage credit and
economic, demographic, geographic, tax, legal and other factors. In general,
however, if prevailing interest rates fall significantly below the Mortgage
Rates on the Mortgage Loans comprising or underlying the Assets in a particular
Trust Fund, such Mortgage Loans are likely to be the subject of higher
principal prepayments than if prevailing rates remain at or above the rates
borne by such Mortgage Loans. In this regard, it should be noted that certain
Assets may consist of Mortgage Loans with different Mortgage Rates and the
stated pass-through or pay-through interest rate of certain MBS may be a number
of percentage points higher or lower than certain of the underlying Mortgage
Loans. The rate of principal payments on some or all of the classes of
Certificates of a series will correspond to the rate of principal payments on
the Assets in the related Trust Fund and is likely to be affected by the
existence of Lock-out Periods and Prepayment Premium provisions of the Mortgage
Loans underlying or comprising such Assets, and by the extent to which the
servicer of any such Mortgage Loan is able to enforce such provisions. Mortgage
Loans with a Lock-out Period or a Prepayment Premium provision, to the extent
enforceable, generally would be expected to experience a lower rate of
principal prepayments than otherwise identical Mortgage Loans without such
provisions, with shorter Lock-out Periods or with lower Prepayment Premiums.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Assets, the
actual yield to maturity will be lower than that so calculated. Conversely, if
the purchaser of a Certificate offered at a premium calculates its anticipated
yield to maturity based on an assumed rate of distributions of principal that
is slower than 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.
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The timing of changes in the rate of principal payments on the
Mortgage Assets may significantly affect an investor's actual yield to
maturity, even if the average rate of distributions of principal is consistent
with an investor's expectation. In general, the earlier a principal payment is
received on the Mortgage Assets and distributed on a Certificate, the greater
the effect on such investor's yield to maturity. The effect on an investor's
yield of principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during a given period may not be offset by a
subsequent like decrease (or increase) in the rate of principal payments.
PREPAYMENTS--MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Assets
included in or comprising a Trust Fund and the rate at which payments are made
from any Credit Support or Cash Flow Agreement for the related series of
Certificates may affect the ultimate maturity and the weighted average life of
each class of such series. Prepayments on the Mortgage Loans comprising or
underlying the Mortgage Assets in a particular Trust Fund will generally
accelerate the rate at which principal is paid on some or all of the classes of
the Certificates of the related series.
If so provided in the Prospectus Supplement for a series of
Certificates, one or more classes of Certificates may have a final scheduled
Distribution Date, which is the date on or prior to which the Certificate
Balance thereof is scheduled to be reduced to zero, calculated on the basis of
the assumptions applicable to such series set forth therein.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of a
class of Certificates of a series will be influenced by the rate at which
principal on the Mortgage Loans comprising or underlying the Mortgage Assets is
paid to such class, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes prepayments, in
whole or in part, and liquidations due to default).
In addition, the weighted average life of the Certificates may be
affected by the varying maturities of the Mortgage Loans comprising or
underlying the MBS. If any Mortgage Loans comprising or underlying the Assets
in a particular Trust Fund have actual terms to maturity of less than those
assumed in calculating final scheduled Distribution Dates for the classes of
Certificates of the related series, one or more classes of such Certificates
may be fully paid prior to their respective final scheduled Distribution Dates,
even in the absence of prepayments. Accordingly, the prepayment experience of
the Assets will, to some extent, be a function of the mix of Mortgage Rates and
maturities of the Mortgage Loans comprising or underlying such Assets. See
"Description of the Trust Funds."
Prepayments on loans are also commonly measured relative to a
prepayment standard or model, such as the Constant Prepayment Rate ("CPR")
prepayment model. CPR represents a constant assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of loans for
the life of such loans.
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
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percentages of CPR or at such other rates specified in such Prospectus
Supplement. Such tables and assumptions are intended to illustrate the
sensitivity of weighted average life of the Certificates to various prepayment
rates and will not be intended to predict or to provide information that will
enable investors to predict the actual weighted average life of the
Certificates. It is unlikely that prepayment of any Mortgage Loans comprising
or underlying the Mortgage Assets for any series will conform to any particular
level of CPR or any other rate specified in the related Prospectus Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
TYPE OF MORTGAGE ASSET
A number of Mortgage Loans may have balloon payments due at maturity,
and because the ability of a mortgagor to make a balloon payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a number of Mortgage Loans having
balloon payments may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the mortgagor or adverse conditions in the market where the
property is located. In order to minimize losses on defaulted Mortgage Loans,
the servicer may, to the extent and under the circumstances set forth in the
related Prospectus Supplement, be permitted to modify Mortgage Loans that are
in default or as to which a payment default is imminent. Any defaulted balloon
payment or modification that extends the maturity of a Mortgage Loan will tend
to extend the weighted average life of the Certificates, thereby lengthening
the period of time elapsed from the date of issuance of a Certificate until it
is retired.
FORECLOSURES AND PAYMENT PLANS
The number of foreclosures and the principal amount of the Mortgage
Loans comprising or underlying the Mortgage Assets that are foreclosed in
relation to the number and principal amount of Mortgage Loans that are repaid
in accordance with their terms will affect the weighted average life of the
Mortgage Loans comprising or underlying the Mortgage Assets and that of the
related series of Certificates. Servicing decisions made with respect to the
Mortgage Loans, including the use of payment plans prior to a demand for
acceleration and the restructuring of Mortgage Loans in bankruptcy proceedings,
may also have an effect upon the payment patterns of particular Mortgage Loans
and thus the weighted average life of the Certificates.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE CLAUSES
Acceleration of mortgage payments as a result of certain transfers of
or the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of the
Mortgage Loans comprising or underlying the Assets may include "due-on-sale"
clauses or "due-on-encumbrance" clauses that allow the holder of the Mortgage
Loans to demand payment in full of the remaining principal balance of the
Mortgage Loans upon sale or certain other transfers of or the creation of
encumbrances upon the related Mortgaged Property. With respect to any Whole
Loans, unless otherwise provided in the related Prospectus Supplement, the
Master 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.
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The Depositor does not have, nor is it expected in the future to have,
any significant assets.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of each series (including any class of Certificates
not offered hereby) will represent the entire beneficial ownership interest in
the Trust Fund created pursuant to the related Agreement. Each series of
Certificates will consist of one or more classes of Certificates that may (i)
provide for the accrual of interest thereon based on fixed, variable or
adjustable rates; (ii) be senior (collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate Certificates") to one or more other
classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions (collectively,
"Stripped Principal Certificates"); (iv) be entitled to interest distributions,
with disproportionately low, nominal or no principal distributions
(collectively, "Stripped Interest Certificates"); (v) provide for distributions
of accrued interest thereon commencing only following the occurrence of certain
events, such as the retirement of one or more other classes of Certificates of
such series (collectively, "Accrual Certificates"); (vi) provide for payments
of principal sequentially, based on specified payment schedules, from only a
portion of the Assets in such Trust Fund or based on specified calculations, to
the extent of available funds, in each case as described in the related
Prospectus Supplement; and/or (vii) provide for distributions based on a
combination of two or more components thereof with one or more of the
characteristics described in this paragraph including a Stripped Principal
Certificate component and a Stripped Interest Certificate component. Any such
classes may include classes of Offered Certificates.
Each class of Offered Certificates of a series will be issued in
minimum denominations corresponding to the Certificate Balances or, in case of
Stripped Interest Certificates, notional amounts or percentage interests
specified in the related Prospectus Supplement. The transfer of any Offered
Certificates may be registered and such Certificates may be exchanged without
the payment of any service charge payable in connection with such registration
of transfer or exchange, but the Depositor or the Trustee or any agent thereof
may require payment of a sum sufficient to cover any tax or other governmental
charge. One or more classes of Certificates of a series may be issued in
definitive form ("Definitive Certificates") or in book-entry form ("Book-Entry
Certificates"), as provided in the related Prospectus Supplement. See "Risk
Factors--Book-Entry Registration" and "Description of the Certificates--
Book-Entry Registration and Definitive Certificates." Definitive
Certificates will be exchangeable for other Certificates of the same class and
series of a like aggregate Certificate Balance, notional amount or percentage
interest but of different authorized denominations. See "Risk Factors--Limited
Liquidity" and "Limited Assets."
DISTRIBUTIONS
Distributions on the Certificates of each series will be made by or on
behalf of the Trustee on each Distribution Date as specified in the related
Prospectus Supplement from the Available Distribution Amount for such series
and such Distribution Date. Except as otherwise specified in the related
Prospectus Supplement, distributions (other than the final distribution) will
be made to the persons in whose names the Certificates are registered at the
close of business on the last business day of the month preceding the month in
which the Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close 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
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Certificates (whether Definitive Certificates or Book-Entry Certificates) will
be made only upon presentation and surrender of the Certificates at the
location specified in the notice to Certificateholders of such final
distribution.
AVAILABLE DISTRIBUTION AMOUNT
All distributions on the Certificates of each series on each
Distribution Date will be made from the Available Distribution Amount described
below, in accordance with the terms described in the related Prospectus
Supplement. Unless provided otherwise in the related Prospectus Supplement, the
"Available Distribution Amount" for each Distribution Date equals the sum of
the following amounts:
(i) the total amount of all cash on deposit in the related
Certificate Account as of the corresponding Determination Date, exclusive of:
(a) all scheduled payments of principal and interest collected but
due on a date subsequent to the related Due Period (unless the related
Prospectus Supplement provides otherwise, a "Due Period" with respect to any
Distribution Date will commence on the second day of the month in which the
immediately preceding Distribution Date occurs, or the day after the Cut-off
Date in the case of the first Due Period, and will end on the first day of the
month of the related Distribution Date),
(b) unless the related Prospectus Supplement provides otherwise,
all prepayments, together with related payments of the interest thereon and
related Prepayment Premiums, Liquidation Proceeds, Insurance Proceeds and other
unscheduled recoveries received subsequent to the related Due Period, and
(c) all amounts in the Certificate Account that are due or
reimbursable to the Depositor, the Trustee, an Asset Seller, a Sub-Servicer, a
Special Servicer, the Master Servicer or any other entity as specified in the
related Prospectus Supplement or that are payable in respect of certain
expenses of the related Trust Fund;
(ii) if the related Prospectus Supplement so provides, interest or
investment income on amounts on deposit in the Certificate Account, including
any net amounts paid under any Cash Flow Agreements;
(iii) all advances made by a Master Servicer or any other entity as
specified in the related Prospectus Supplement with respect to such
Distribution Date;
(iv) if and to the extent the related Prospectus Supplement so
provides, amounts paid by a Master Servicer or any other entity as specified in
the related Prospectus Supplement with respect to interest shortfalls resulting
from prepayments during the related Prepayment Period; and
(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.
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Distributions of interest in respect of the Certificates of any class
will be made on each Distribution Date (other than any class of Accrual
Certificates, which will be entitled to distributions of accrued interest
commencing only on the Distribution Date, or under the circumstances, specified
in the related Prospectus Supplement, and any class of Stripped Principal
Certificates that are not entitled to any distributions of interest) based on
the Accrued Certificate Interest for such class and such Distribution Date,
subject to the sufficiency of the portion of the Available Distribution Amount
allocable to such class on such Distribution Date. Prior to the time interest
is distributable on any class of Accrual Certificates, the amount of Accrued
Certificate Interest otherwise distributable on such class will be added to the
Certificate Balance thereof on each Distribution Date. With respect to each
class of Certificates and each Distribution Date (other than certain classes of
Stripped Interest Certificates), "Accrued Certificate Interest" will be equal
to interest accrued for a specified period on the outstanding Certificate
Balance thereof immediately prior to the Distribution Date, at the applicable
Pass-Through Rate, reduced as described below. Unless otherwise provided in the
Prospectus Supplement, Accrued Certificate Interest on Stripped Interest
Certificates will be equal to interest accrued for a specified period on the
outstanding notional amount thereof immediately prior to each Distribution
Date, at the applicable Pass-Through Rate, reduced as described below. The
method of determining the notional amount for any class of Stripped Interest
Certificates will be described in the related Prospectus Supplement. Reference
to notional amount is solely for convenience in certain calculations and does
not represent the right to receive any distributions of principal. Unless
otherwise provided in the related Prospectus Supplement, the Accrued
Certificate Interest on a series of Certificates will be reduced in the event
of prepayment interest shortfalls, which are shortfalls in collections of
interest for a full accrual period resulting from prepayments prior to the due
date in such accrual period on the Mortgage Loans comprising or underlying the
Mortgage Assets in the Trust Fund for such series. The particular manner in
which such shortfalls are to be allocated among some or all of the classes of
Certificates of that series will be specified in the related Prospectus
Supplement. The related Prospectus Supplement will also describe the extent to
which the amount of Accrued Certificate Interest that is otherwise
distributable on (or, in the case of Accrual Certificates, that may otherwise
be added to the Certificate Balance of) a class of Offered Certificates may be
reduced as a result of any other contingencies, including delinquencies, losses
and deferred interest on or in respect of the Mortgage Loans comprising or
underlying the Mortgage Assets in the related Trust Fund. Unless otherwise
provided in the related Prospectus Supplement, any reduction in the amount of
Accrued Certificate Interest otherwise distributable on a class of Certificates
by reason of the allocation to such class of a portion of any deferred interest
on the Mortgage Loans comprising or underlying the Mortgage Assets in the
related Trust Fund will result in a corresponding increase in the Certificate
Balance of such class. See "Risk Factors--Average Life of Certificates;
Prepayments; Yields" and "Yield Considerations."
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The Certificates of each series, other than certain classes of
Stripped Interest Certificates, will have a "Certificate Balance" which, at any
time, will equal the then maximum amount that the holder will be entitled to
receive in respect of principal out of the future cash flow on the Assets and
other assets included in the related Trust Fund. The outstanding Certificate
Balance of a Certificate will be reduced to the extent of distributions of
principal thereon from time to time and, if and to the extent so provided in
the related Prospectus Supplement, by the amount of losses incurred in respect
of the related Assets, may be increased in respect of deferred interest on the
related Mortgage Loans to the extent provided in the related Prospectus
Supplement and, in the case of Accrual Certificates prior to the Distribution
Date on which distributions of interest are required to commence, will be
increased by any related Accrued Certificate Interest. Unless otherwise
provided in the related Prospectus Supplement, the initial aggregate
Certificate Balance of all classes of Certificates of a series will not be
greater than the outstanding aggregate principal balance of the related Assets
as of the applicable Cut-off Date. The initial aggregate Certificate 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.
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COMPONENTS
To the extent specified in the related Prospectus Supplement,
distribution on a class of Certificates may be based on a combination of two or
more different components as described under "--General" above. To such extent,
the descriptions set forth under "--Distributions of Interests on the
Certificates" and "--Distributions of Principal of the Certificates" above also
relate to components of such a class of Certificates. In such case, reference
in such sections to Certificate Balance and Pass-Through Rate refer to the
principal balance, if any, of any such component and the Pass-Through Rate, if
any, on any such component, respectively.
DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUMS OR IN RESPECT OF
EQUITY PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment
Premiums or payments in respect of Equity Participations that are collected on
the Mortgage Assets in the related Trust Fund will be distributed on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the Prospectus Supplement for a series of
Certificates consisting of one or more classes of Subordinate Certificates, on
any Distribution Date in respect of which losses or shortfalls in collections
on the Mortgage Assets have been incurred, the amount of such losses or
shortfalls will be borne first by a class of Subordinate Certificates in the
priority and manner and subject to the limitations specified in such Prospectus
Supplement. See "Description of Credit Support" for a description of the types
of protection that may be included in a Trust Fund against losses and
shortfalls on Mortgage Assets comprising such Trust Fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any series of Certificates evidencing an interest in a
Trust Fund, unless otherwise provided in the related Prospectus Supplement, the
Master Servicer or another entity described therein will be required as part of
its servicing responsibilities to advance on or before each Distribution Date
its own funds or funds held in the Certificate Account that are not included in
the Available Distribution Amount for such Distribution Date, in an amount
equal to the aggregate of payments of principal (other than any balloon
payments) and interest (net of related servicing fees and Retained Interest)
that were due on the Whole Loans in such Trust Fund during the related Due
Period and were delinquent on the related Determination Date, subject to the
Master Servicer's (or another entity's) good faith determination that such
advances will be reimbursable from Related Proceeds (as defined below). In the
case of a series of Certificates that includes one or more classes of
Subordinate Certificates and if so provided in the related Prospectus
Supplement, the Master Servicer's (or another entity's) advance obligation may
be limited only to the portion of such delinquencies necessary to make the
required distributions on one or more classes of Senior Certificates and/or may
be subject to the Master Servicer's (or another entity's) good faith
determination that such advances will be reimbursable not only from Related
Proceeds but also from collections on other Assets otherwise distributable on
one or more classes of such Subordinate Certificates. See "Description of
Credit Support."
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Certificates
entitled thereto, rather than to guarantee or insure against losses. Unless
otherwise provided in the related Prospectus Supplement, advances of the Master
Servicer's (or another entity's) funds will be reimbursable only out of related
recoveries on the Mortgage Loans (including amounts received under any form of
Credit Support) respecting which such advances were made (as to any Mortgage
Loan, "Related Proceeds") and, if so provided in the Prospectus Supplement, out
of any amounts otherwise distributable on one or more classes of Subordinate
Certificates of such series; provided, however, that any such advance will be
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
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Servicer from excess funds in the Certificate Account, the Master Servicer is
required to replace such funds in the Certificate Account on any future
Distribution Date to the extent that funds in the Certificate Account on such
Distribution Date are less than payments required to be made to
Certificateholders on such date. If so specified in the related Prospectus
Supplement, the obligations of the Master Servicer (or another entity) to make
advances may be secured by a cash advance reserve fund, a surety bond, a letter
of credit or another form of limited guaranty. If applicable, information
regarding the characteristics of, and the identity of any obligor on, any such
surety bond, will be set forth in the related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement,
the Master Servicer (or another entity) will be entitled to receive interest at
the rate specified therein on its outstanding advances and will be entitled to
pay itself such interest periodically from general collections on the Assets
prior to any payment to Certificateholders or as otherwise provided in the
related Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any corresponding
advancing obligation of any person in connection with such MBS.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise provided in the Prospectus Supplement, with each
distribution to holders of any class of Certificates of a series, the Master
Servicer or the Trustee, as provided in the related Prospectus Supplement, will
forward or cause to be forwarded to each such holder, to the Depositor and to
such other parties as may be specified in the related Agreement, a statement
setting forth, in each case to the extent applicable and available:
(i) the amount of such distribution to holders of Certificates of such
class applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of Certificates of such
class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to (a) Prepayment Premiums
and (b) payments on account of Equity Participations;
(iv) the amount of related servicing compensation received by a Master
Servicer (and, if payable directly out of the related Trust Fund, by
any Special Servicer and any Sub-Servicer) and such other customary
information as any such Master Servicer or the Trustee deems necessary
or desirable, or that a Certificateholder reasonably requests, to
enable Certificateholders to prepare their tax returns;
(v) the aggregate amount of advances included in such distribution, and
the aggregate amount of unreimbursed advances at the close of business
on such Distribution Date;
(vi) the aggregate principal balance of the Assets at the close of business
on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans in respect
of which (a) one scheduled payment is delinquent, (b) two scheduled
payments are delinquent, (c) three or more scheduled payments are
delinquent and (d) foreclosure proceedings have been commenced;
(viii) with respect to each Whole Loan that is delinquent two or more months,
(a) the loan number thereof, (b) the unpaid balance thereof, (c)
whether the delinquency is in respect of any balloon payment, (d) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof, (e) if applicable, the aggregate amount
of any interest accrued and payable on related servicing expenses and
related advances assuming such Mortgage Loan is subsequently
liquidated through foreclosure, (f) whether a notice of acceleration
has been sent to the mortgagor and, if so, the date of such notice,
(g) whether foreclosure 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;
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(ix) with respect to any Whole Loan liquidated during the related Due
Period (other than by payment in full), (a) the loan number thereof,
(b) the manner in which it was liquidated and (c) the aggregate amount
of liquidation proceeds received;
(x) with respect to any Whole Loan liquidated during the related Due
Period, (a) the portion of such liquidation proceeds payable or
reimbursable to the Master Servicer (or any other entity) in respect
of such Mortgage Loan and (b) the amount of any loss to
Certificateholders;
(xi) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period,
(a) the loan number of the related Mortgage Loan and (b) the date of
acquisition;
(xii) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period,
(a) the book value, (b) the principal balance of the related Mortgage
Loan immediately following such Distribution Date (calculated as if
such Mortgage Loan were still outstanding taking into account certain
limited modifications to the terms thereof specified in the
Agreement), (c) the aggregate amount of unreimbursed servicing
expenses and unreimbursed advances in respect thereof and (d) if
applicable, the aggregate amount of interest accrued and payable on
related servicing expenses and related advances;
(xiii) with respect to any such REO Property sold during the related Due
Period (a) the loan number of the related Mortgage Loan, (b) the
aggregate amount of sale proceeds, (c) the portion of such sales
proceeds payable or reimbursable to the Master Servicer or a Special
Servicer in respect of such REO Property or the related Mortgage Loan
and (d) the amount of any loss to Certificateholders in respect of the
related Mortgage Loan;
(xiv) the aggregate Certificate Balance or notional amount, as the case may
be, of each class of Certificates (including any class of Certificates
not offered hereby) at the close of business on such Distribution
Date, separately identifying any reduction in such Certificate Balance
due to the allocation of any loss and increase in the Certificate
Balance of a class of Accrual Certificates in the event that Accrued
Certificate Interest has been added to such balance;
(xv) the aggregate amount of principal prepayments made during the related
Due Period;
(xvi) the amount deposited in the reserve fund, if any, on such Distribution
Date;
(xvii) the amount remaining in the reserve fund, if any, as of the close of
business on such Distribution Date;
(xviii) the aggregate unpaid Accrued Certificate Interest, if any, on each
class of Certificates at the close of business on such Distribution
Date;
(xix) in the case of Certificates with a variable Pass-Through Rate, the
Pass-Through Rate applicable to such Distribution Date, and, if
available, the immediately succeeding Distribution Date, as calculated
in accordance with the method specified in the related Prospectus
Supplement;
(xx) in the case of Certificates with an adjustable Pass-Through Rate, for
statements to be distributed in any month in which an adjustment date
occurs, the adjustable Pass-Through Rate applicable to such
Distribution Date and the immediately succeeding Distribution Date as
calculated in accordance with the method specified in the related
Prospectus Supplement;
(xxi) as to any series which includes Credit Support, the amount of coverage
of each instrument of Credit Support included therein as of the close
of business on such Distribution Date; and
(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.
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In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of Certificates or for such other specified portion thereof. In
addition, in the case of information furnished pursuant to subclauses (i),
(ii), (xiv), (xviii) and (xix) above, such amounts shall also be provided with
respect to each component, if any, of a class of Certificates. The Master
Servicer or the Trustee, as specified in the related Prospectus Supplement,
will forward or cause to be forwarded to each holder, to the Depositor and to
such other parties as may be specified in the Agreement, a copy of any
statements or reports received by the Master Servicer or the Trustee, as
applicable, with respect to any MBS. The Prospectus Supplement for each series
of Offered Certificates will describe any additional information to be included
in reports to the holders of such Certificates.
Within a reasonable period of time after the end of each calendar
year, the Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the calendar
year was a holder of a Certificate a statement containing the information set
forth in subclauses (i)-(iv) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a Certificateholder.
Such obligation of the Master Servicer or the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information shall be
provided by the Master Servicer or the Trustee pursuant to any requirements of
the Code as are from time to time in force. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates."
TERMINATION
The obligations created by the Agreement for each series of
Certificates will terminate upon the payment to Certificateholders of that
series of all amounts held in the Certificate Account or by the Master
Servicer, if any, or the Trustee and required to be paid to them pursuant to
such Agreement following the earlier of (i) the final payment or other
liquidation of the last Asset subject thereto or the disposition of all
property acquired upon foreclosure of any Whole Loan subject thereto and (ii)
the purchase of all of the assets of the Trust Fund by the party entitled to
effect such termination, under the circumstances and in the manner set forth in
the related Prospectus Supplement. In no event, however, will the trust created
by the Agreement continue beyond the date specified in the related Prospectus
Supplement. Written notice of termination of the Agreement will be given to
each Certificateholder, and the final distribution will be made only upon
presentation and surrender of the Certificates at the location to be specified
in the notice of termination.
If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the
repurchase of the assets in the related Trust Fund by the party specified
therein, under the circumstances and in the manner set forth therein. If so
provided in the related Prospectus Supplement, upon the reduction of the
Certificate Balance of a specified class or classes of Certificates by a
specified percentage or amount, the party specified therein will solicit bids
for the purchase of all assets of the Trust Fund, or of a sufficient portion of
such assets to retire such class or classes or purchase such class or classes
at a price set forth in the related Prospectus Supplement, in each case, under
the circumstances and in the manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the related Prospectus Supplement, one or more
classes of the Offered Certificates of any series will be issued as Book-Entry
Certificates, and each such class will be represented by one or more single
Certificates registered in the name of a nominee for the depository, The
Depository Trust Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and facilitate the
clearance and settlement of securities transactions between Participants
through electronic book-entry changes in their accounts, thereby eliminating
the need for physical movement of certificates. Participants include Morgan
Stanley & Co. Incorporated, securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system also is available to
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others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). Unless otherwise provided in the related
Prospectus Supplement, investors that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of,
or other interests in, Book-Entry Certificates may do so only through
Participants and Indirect Participants. In addition, such investors
("Certificate Owners") will receive all distributions on the Book-Entry
Certificates through DTC and its Participants. Under a book-entry format,
Certificate Owners will receive payments after the related Distribution Date
because, while payments are required to be forwarded to Cede & Co., as nominee
for DTC ("Cede"), on each such date, DTC will forward such payments to its
Participants which thereafter will be required to forward them to Indirect
Participants or Certificate Owners. Unless otherwise provided in the related
Prospectus Supplement, the only "Certificateholder" (as such term is used in
the Agreement) will be Cede, as nominee of DTC, and the Certificate Owners will
not be recognized by the Trustee as Certificateholders under the Agreement.
Certificate Owners will be permitted to exercise the rights of
Certificateholders under the related Agreement only indirectly through the
Participants who in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Book-Entry
Certificates and is required to receive and transmit distributions of principal
of and interest on the Book-Entry Certificates. Participants and Indirect
Participants with which Certificate Owners have accounts with respect to the
Book-Entry Certificates similarly are required to make book-entry transfers and
receive and transmit such payments on behalf of their respective Certificate
Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge its interest in the Book-Entry Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions
in respect of its interest in the Book-Entry Certificates, may be limited due
to the lack of a physical certificate evidencing such interest.
DTC has advised the Depositor that it will take any action permitted
to be taken by a Certificateholder under an Agreement only at the direction of
one or more Participants to whose account with DTC interests in the Book-Entry
Certificates are credited.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Certificate Owners or their nominees
("Definitive Certificates"), rather than to DTC or its nominee only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to properly discharge its responsibilities as depository with respect to the
Certificates and the Depositor is unable to locate a qualified successor or
(ii) the Depositor, at its option, elects to terminate the book-entry system
through DTC.
Upon the occurrence of either of the events described in the
immediately preceding paragraph, DTC is required to notify all Participants of
the availability through DTC of Definitive Certificates for the Certificate
Owners. Upon surrender by DTC of the certificate or certificates representing
the Book-Entry Certificates, together with instructions for reregistration, the
Trustee will issue (or cause to be issued) to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled,
and thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
DESCRIPTION OF THE AGREEMENTS
The Certificates of each series evidencing interests in a Trust Fund
including Whole Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer, any Special Servicer
appointed as of the date of the Pooling and Servicing Agreement and the
Trustee. The Certificates of each series evidencing interests in a Trust Fund
not including Whole Loans will be issued pursuant to a Trust Agreement between
the Depositor and a Trustee. Any Master Servicer, any such Special Servicer and
the Trustee with respect to any series of Certificates will be named in the
related Prospectus Supplement. In lieu of appointing a Master Servicer, a
servicer may be appointed pursuant to the Pooling and Servicing Agreement for
any Trust Fund. Such
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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 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
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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.
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.
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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 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."
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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 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;
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(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, Prepayment Premiums or Equity
Participations on the Mortgage Assets; (xi) all payments
required to be deposited in the Certificate Account with
respect to any deductible clause in any blanket insurance
policy described under "Hazard Insurance Policies";
(xi) any amount required to be deposited by a Master Servicer or
the Trustee in connection with losses realized on
investments for the benefit of the Master Servicer or the
Trustee, as the case may be, of funds held in the
Certificate Account; and
(xii) any other amounts required to be deposited in the
Certificate Account as provided in the related Agreement and
described in the related Prospectus Supplement.
WITHDRAWALS
A Master Servicer or the Trustee may, from time to time, unless
otherwise provided in the related Agreement and described in the related
Prospectus Supplement, make withdrawals from the Certificate Account for each
Trust Fund for any of the following purposes:
(i) to make distributions to the Certificateholders on each
Distribution Date;
(ii) to reimburse a Master Servicer for unreimbursed amounts advanced
as described under "Description of the Certificates Advances in Respect of
Delinquencies," such reimbursement to be made out of amounts received which
were identified and applied by the Master Servicer as late collections of
interest (net of related servicing fees and Retained Interest) on and principal
of the particular Whole Loans with respect to which the advances were made or
out of amounts drawn under any form of Credit Support with respect to such
Whole Loans;
(iii) to reimburse a Master Servicer for unpaid servicing fees earned
and certain unreimbursed servicing expenses incurred with respect to Whole
Loans and properties acquired in respect thereof, such reimbursement to be made
out of amounts that represent Liquidation Proceeds and Insurance Proceeds
collected on the particular Whole Loans and properties, and net income
collected on the particular properties, with respect to
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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";
(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;
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(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 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."
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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.
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
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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:
(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
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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.
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
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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.
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
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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.
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.
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Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer's and a Sub-Servicer's primary servicing compensation with
respect to a series of Certificates will come from the periodic payment to it
of a portion of the interest payment on each Asset. Since any Retained Interest
and a Master Servicer's primary compensation are percentages of the principal
balance of each Asset, such amounts will decrease in accordance with the
amortization of the Assets. The Prospectus Supplement with respect to a series
of Certificates evidencing interests in a Trust Fund that includes Whole Loans
may provide that, as additional compensation, the Master Servicer or the
Sub-Servicers may retain all or a portion of assumption fees, modification
fees, late payment charges or Prepayment Premiums collected from mortgagors and
any interest or other income which may be earned on funds held in the
Certificate Account or any account established by a Sub-Servicer pursuant to
the Agreement.
The Master Servicer may, to the extent provided in the related
Prospectus Supplement, pay from its servicing compensation certain expenses
incurred in connection with its servicing and managing of the Assets,
including, without limitation, payment of the fees and disbursements of the
Trustee and independent accountants, payment of expenses incurred in connection
with distributions and reports to Certificateholders, and payment of any other
expenses described in the related Prospectus Supplement. Certain other
expenses, including certain expenses relating to defaults and liquidations on
the Whole Loans and, to the extent so provided in the related Prospectus
Supplement, interest thereon at the rate specified therein, and the fees of any
Special Servicer, may be borne by the Trust Fund.
EVIDENCE AS TO COMPLIANCE
Each Agreement relating to Assets which include Whole Loans will
provide that on or before a specified date in each year, beginning with the
first such date at least six months after the related Cut-off Date, a firm of
independent public accountants will furnish a statement to the Trustee to the
effect that, on the basis of the examination by such firm conducted
substantially in compliance with either the Uniform Single Attestation Program
for Mortgage Bankers or the Audit Program for Mortgages serviced for the
Federal Home Loan Mortgage Corporation ("FHLMC"), the servicing by or on behalf
of the Master Servicer of mortgage loans under pooling and servicing agreements
substantially similar to each other (including the related Agreement) was
conducted in compliance with the terms of such agreements except for any
significant exceptions or errors in records that, in the opinion of the firm,
either the Audit Program for Mortgages serviced for FHLMC, or paragraph 4 of
the Uniform Single Attestation Program for Mortgage Bankers, requires it to
report. In rendering its statement such firm may rely, as to matters relating
to the direct servicing of mortgage loans by Sub-Servicers, upon comparable
statements 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.
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Unless otherwise specified in the related Prospectus Supplement, the
related Agreement will provide that the Master Servicer may resign from its
obligations and duties thereunder only upon a determination that its duties
under the Agreement are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it, the other activities of the Master Servicer so causing such a
conflict being of a type and nature carried on by the Master Servicer at the
date of the Agreement. No such resignation will become effective until the
Trustee or a successor servicer has assumed the Master Servicer's obligations
and duties under the Agreement.
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will further provide that neither any Master Servicer, the Depositor
nor any director, officer, employee, or agent of a Master Servicer or the
Depositor will be under any liability to the related Trust Fund or
Certificateholders for any action taken, or for refraining from the taking of
any action, in good faith pursuant to the Agreement; provided, however, that
neither a Master Servicer, the Depositor nor any such person will be protected
against any breach of a representation, warranty or covenant made in such
Agreement, or against any liability specifically imposed thereby, or against
any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of obligations or
duties thereunder or by reason of reckless disregard of obligations and duties
thereunder. Unless otherwise specified in the related Prospectus Supplement,
each Agreement will further provide that any Master Servicer, the Depositor and
any director, officer, employee or agent of a Master Servicer or the Depositor
will be entitled to indemnification by the related Trust Fund and will be held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to the Agreement or the Certificates; provided, however,
that such indemnification will not extend to any loss, liability or expense (i)
specifically imposed by such Agreement or otherwise incidental to the
performance of obligations and duties thereunder, including, in the case of a
Master Servicer, the prosecution of an enforcement action in respect of any
specific Whole Loan or Whole Loans (except as any such loss, liability or
expense shall be otherwise reimbursable pursuant to such Agreement); (ii)
incurred in connection with any breach of a representation, warranty or
covenant made in such Agreement; (iii) incurred by reason of misfeasance, bad
faith or gross negligence in the performance of obligations or duties
thereunder, or by reason of reckless disregard of such obligations or duties;
(iv) incurred in connection with any violation of any state or federal
securities law; or (v) imposed by any taxing authority if such loss, liability
or expense is not specifically reimbursable pursuant to the terms of the
related Agreement. In addition, each Agreement will provide that neither any
Master Servicer nor the Depositor will be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its respective
responsibilities under the Agreement and which in its opinion may involve it in
any expense or liability. Any such Master Servicer or the Depositor may,
however, in its discretion undertake any such action which it may deem
necessary or desirable with respect to the Agreement and the rights and duties
of the parties thereto and the interests of the Certificateholders thereunder.
In such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the
Certificateholders, and the Master 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
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unremedied for thirty days after written notice of such breach has been given
to the Master Servicer by the Trustee or the Depositor, or to the Master
Servicer, the Depositor and the Trustee by the holders of Certificates
evidencing not less than 25% of the Voting Rights; and (iv) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings and certain actions by or on behalf of the Master Servicer
indicating its insolvency or inability to pay its obligations. Material
variations to the foregoing Events of Default (other than to shorten cure
periods or eliminate notice requirements) will be specified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the Trustee shall, not later than the later of 60 days after the
occurrence of any event which constitutes or, with notice or lapse of time or
both, would constitute an Event of Default and five days after certain officers
of the Trustee become aware of the occurrence of such an event, transmit by
mail to the Depositor and all Certificateholders of the applicable series
notice of such occurrence, unless such default shall have been cured or waived.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under an Agreement remains unremedied,
the Depositor or the Trustee may, and at the direction of holders of
Certificates evidencing not less than 51% of the Voting Rights, the Trustee
shall, terminate all of the rights and obligations of the Master Servicer under
the Agreement and in and to the Mortgage Loans (other than as a
Certificateholder or as the owner of any Retained Interest), whereupon the
Trustee will succeed to all of the responsibilities, duties and liabilities of
the Master Servicer under the Agreement (except that if the Trustee is
prohibited by law from obligating itself to make advances regarding delinquent
mortgage loans, or if the related Prospectus Supplement so specifies, then the
Trustee will not be obligated to make such advances) and will be entitled to
similar compensation arrangements. Unless otherwise specified in the related
Prospectus Supplement, in the event that the Trustee is unwilling or unable so
to act, it may or, at the written request of the holders of Certificates
entitled to at least 51% of the Voting Rights, it shall appoint, or petition a
court of competent jurisdiction for the appointment of, a loan servicing
institution acceptable to the Rating Agency with a net worth at the time of
such appointment of at least $15,000,000 to act as successor to the Master
Servicer under the Agreement. Pending such appointment, the Trustee is
obligated to act in such capacity. The Trustee and any such successor may agree
upon the servicing compensation to be paid, which in no event may be greater
than the compensation payable to the Master Servicer under the Agreement.
Unless otherwise described in the related Prospectus Supplement, the
holders of Certificates representing at least 66 2/3% of the Voting Rights
allocated to the respective classes of Certificates affected by any Event of
Default will be entitled to waive such Event of Default; provided, however,
that an Event of Default involving a failure to distribute a required payment
to Certificateholders described in clause (i) under "Events of Default" may be
waived only by all of the Certificateholders. Upon any such waiver of an Event
of Default, such Event of Default shall cease to exist and shall be deemed to
have been remedied for every purpose under the Agreement.
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,
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or (iv) to comply with any requirements imposed by the Code; provided that such
amendment (other than an amendment for the purpose specified in clause (iv)
above) will not (as evidenced by an opinion of counsel to such effect)
adversely affect in any material respect the interests of any holder of
Certificates covered by the Agreement. Unless otherwise specified in the
related Prospectus Supplement, each Agreement may also be amended by the
Depositor, the Master Servicer, if any, and the Trustee, with the consent of
the holders of Certificates affected thereby evidencing not less than 51% of
the Voting Rights, for any purpose; provided, however, that unless otherwise
specified in the related Prospectus Supplement, no such amendment may (i)
reduce in any manner the amount of or delay the timing of, payments received or
advanced on Mortgage Loans which are required to be distributed on any
Certificate without the consent of the holder of such Certificate, (ii)
adversely affect in any material respect the interests of the holders of any
class of Certificates in a manner other than as described in (i), without the
consent of the holders of all Certificates of such class or (iii) modify the
provisions of such Agreement described in this paragraph without the consent of
the holders of all Certificates covered by such Agreement then outstanding.
However, with respect to any series of Certificates as to which a REMIC
election is to be made, the Trustee will not consent to any amendment of the
Agreement unless it shall first have received an opinion of counsel to the
effect that such amendment will not result in the imposition of a tax on the
related Trust Fund or cause the related Trust Fund to fail to qualify as a
REMIC at any time that the related Certificates are outstanding.
THE TRUSTEE
The Trustee under each Agreement will be named in the related
Prospectus Supplement. The commercial bank, national banking association,
banking corporation or trust company serving as Trustee may have a banking
relationship with the Depositor and its affiliates and with any Master Servicer
and its affiliates.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or
sufficiency of any Agreement, the Certificates or any Asset or related document
and is not accountable for the use or application by or on behalf of any Master
Servicer of any funds paid to the Master Servicer or its designee or any
Special Servicer in respect of the Certificates or the Assets, or deposited
into or withdrawn from the Certificate Account or any other account by or on
behalf of the Master Servicer or any Special Servicer. If no Event of Default
has occurred and is continuing, the Trustee is required to perform only those
duties specifically required under the related Agreement. However, upon receipt
of the various certificates, reports or other instruments required to be
furnished to it, the Trustee is required to examine such documents and to
determine whether they conform to the requirements of the Agreement.
CERTAIN MATTERS REGARDING THE TRUSTEE
Unless otherwise specified in the related Prospectus Supplement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
entitled to indemnification out of the Certificate Account for any loss,
liability or expense (including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in settlement)
incurred in connection with the Trustee's (i) enforcing its rights and remedies
and protecting the interests, and 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.
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RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may at any time resign from its obligations and duties
under an Agreement by giving written notice thereof to the Depositor, the
Master Servicer, if any, and all Certificateholders. Upon receiving such notice
of resignation, the Depositor is required promptly to appoint a successor
trustee acceptable to the Master Servicer, if any. If no successor trustee
shall have been so appointed and have accepted appointment within 30 days after
the giving of such notice of resignation, the resigning Trustee may petition
any court of competent jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible to continue as
such under the related Agreement, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Depositor
may remove the Trustee and appoint a successor trustee acceptable to the Master
Servicer, if any. Holders of the Certificates of any series entitled to at
least 51% of the Voting Rights for such series may at any time remove the
Trustee without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a
successor trustee shall not become effective until acceptance of appointment by
the successor trustee.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any series of Certificates, Credit Support may be provided with
respect to one or more classes thereof or the related Assets. Credit Support
may be in the form of the subordination of one or more classes of Certificates,
letters of credit, insurance policies, guarantees, the establishment of one or
more reserve funds or another method of Credit Support described in the related
Prospectus Supplement, or any combination of the foregoing. If so provided in
the related Prospectus Supplement, any form of Credit Support may be structured
so as to be drawn upon by more than one series to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a
series of Certificates, the Credit Support will not provide protection against
all risks of loss and will not guarantee repayment of the entire Certificate
Balance of the Certificates and interest thereon. If losses or shortfalls occur
that exceed the amount covered by Credit Support or that are not covered by
Credit Support, Certificateholders will bear their allocable share of
deficiencies. Moreover, if a form of Credit Support covers more than one series
of Certificates (each, a "Covered Trust"), holders of Certificates evidencing
interests in any of such Covered Trusts will be subject to the risk that such
Credit Support will be exhausted by the claims of other Covered Trusts prior to
such Covered Trust receiving any of its intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or the related Assets, the related Prospectus
Supplement will include a description of (a) the nature and amount of coverage
under such Credit Support, (b) any conditions to payment thereunder not
otherwise described herein, (c) the conditions (if any) under which the amount
of coverage under such Credit Support may be reduced and under which such
Credit Support may be 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."
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SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more
classes of Certificates of a series may be Subordinate Certificates. To the
extent specified in the related Prospectus Supplement, the rights of the
holders of Subordinate Certificates to receive distributions of principal and
interest from the Certificate Account on any Distribution Date will be
subordinated to such rights of the holders of Senior Certificates. If so
provided in the related Prospectus Supplement, the subordination of a class may
apply only in the event of (or may be limited to) certain types of losses or
shortfalls. The related Prospectus Supplement will set forth information
concerning the amount of subordination of a class or classes of Subordinate
Certificates in a series, the circumstances in which such subordination will be
applicable and the manner, if any, in which the amount of subordination will be
effected.
CROSS-SUPPORT PROVISIONS
If the Assets for a series are divided into separate groups, each
supporting a separate class or classes of Certificates of a series, credit
support may be provided by cross-support provisions requiring that
distributions be made on Senior Certificates evidencing interests in one group
of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO THE WHOLE LOANS
If so provided in the Prospectus Supplement for a series of
Certificates, the Whole Loans in the related Trust Fund will be covered for
various default risks by insurance policies or guarantees. A copy of any such
material instrument for a series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of issuance
of the Certificates of the related series.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by one or more letters of credit,
issued by a bank or financial institution specified in such Prospectus
Supplement (the "L/C Bank"). Under a letter of credit, the L/C Bank will be
obligated to honor draws thereunder in an aggregate fixed dollar amount, net of
unreimbursed payments thereunder, generally equal to a percentage specified in
the related Prospectus Supplement of the aggregate principal balance of the
Mortgage Assets on the related Cut-off Date or of the initial aggregate
Certificate Balance of one or more classes of Certificates. If so specified in
the related Prospectus Supplement, the letter of credit may permit draws in the
event of only certain types of losses and shortfalls. The amount available
under the letter of credit will, in all cases, be reduced to the extent of the
unreimbursed payments thereunder and may otherwise be reduced as described in
the related Prospectus Supplement. The obligations of the L/C Bank under the
letter of credit for each series of Certificates will expire at the earlier of
the date specified in the related Prospectus Supplement or the termination of
the Trust Fund. A copy of any such letter of credit for a series will be filed
with the Commission as an exhibit to a Current Report on Form 8-K to be filed
within 15 days of issuance of the Certificates of the related series.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by insurance policies and/or surety
bonds provided 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.
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RESERVE FUNDS
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by one or more reserve funds in which
cash, a letter of credit, Permitted Investments, a demand note or a combination
thereof will be deposited, in the amounts so specified in such Prospectus
Supplement. The reserve funds for a series may also be funded over time by
depositing therein a specified amount of the distributions received on the
related Assets as specified in the related Prospectus Supplement.
Amounts on deposit in any reserve fund for a series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. A
reserve fund may be provided to increase the likelihood of timely distributions
of principal of and interest on the Certificates. If so specified in the
related Prospectus Supplement, reserve funds may be established to provide
limited protection against only certain types of losses and shortfalls.
Following each Distribution Date amounts in a reserve fund in excess of any
amount required to be maintained therein may be released from the reserve fund
under the conditions and to the extent specified in the related Prospectus
Supplement and will not be available for further application to the
Certificates.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investments, except as otherwise specified in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
any reinvestment income or other gain from such investments will be credited to
the related Reserve Fund for such series, and any loss resulting from such
investments will be charged to such Reserve Fund. However, such income may be
payable to any related Master Servicer or another service provider as
additional compensation. The Reserve Fund, if any, for a series will not be a
part of the Trust Fund unless otherwise specified in the related Prospectus
Supplement.
Additional information concerning any Reserve Fund will be set forth
in the related Prospectus Supplement, including the initial balance of such
Reserve Fund, the balance required to be maintained in the Reserve Fund, the
manner in which such required balance will decrease over time, the manner of
funding such Reserve Fund, the purposes for which funds in the Reserve Fund may
be applied to make distributions to Certificateholders and use of investment
earnings from the Reserve Fund, if any.
CREDIT SUPPORT WITH RESPECT TO MBS
If so provided in the Prospectus Supplement for a series of
Certificates, the MBS in the related Trust Fund and/or the Mortgage Loans
underlying such MBS may be covered by one or more of the types of Credit
Support described herein. The related Prospectus Supplement will specify as to
each such form of Credit Support the information indicated above with respect
thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties
that are general in nature. Because such legal aspects are governed by
applicable state law (which laws may differ substantially), the summaries do
not purport to be complete nor to reflect the laws of any particular state, nor
to encompass the laws of all states in which the security for the Mortgage
Loans is situated. The summaries are qualified in their entirety by reference
to the applicable federal and state laws governing the Mortgage Loans. See
"Description of the Trust Funds--Assets."
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond and
secured by instruments granting a security interest in real property which may
be mortgages, deeds of trust, security deeds or deeds to secure debt, depending
upon the prevailing practice and law in the state in which the Mortgaged
Property is located. Mortgages,
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deeds of trust and deeds to secure debt are herein collectively referred to as
"mortgages." Any of the foregoing types of mortgages will create a lien upon,
or grant a title interest in, the subject property, the priority of which will
depend on the terms of the particular security instrument, as well as separate,
recorded, contractual arrangements with others holding interests in the
mortgaged property, the knowledge of the parties to such instrument as well as
the order of recordation of the instrument in the appropriate public recording
office. However, recording does not generally establish priority over
governmental claims for real estate taxes and assessments and other charges
imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance
of real property between two parties--a mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of a
mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "mortgagor" includes
the trustor under a deed of trust and a grantor under a security deed or a deed
to secure debt. Under a deed of trust, the mortgagor grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale as
security for the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties. By executing a deed to secure debt, the grantor
conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid,
generally with a power of sale as security for the indebtedness evidenced by
the related mortgage note. In case the mortgagor under a mortgage is a land
trust, there would be an additional party because legal title to the property
is held by a land trustee under a land trust agreement for the benefit of the
mortgagor. At origination of a mortgage loan involving a land trust, the
mortgagor executes a separate undertaking to make payments on the mortgage
note. The mortgagee's authority under a mortgage, the trustee's authority under
a deed of trust and the grantee's authority under a deed to secure debt are
governed by the express provisions of the mortgage, the law of the state in
which the real property is located, certain federal laws (including, without
limitation, the Soldiers' and Sailors' Civil Relief Act of 1940) and, in some
cases, in deed of trust transactions, the directions of the beneficiary.
INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed
or deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property such
as a tenant's interest in a lease of land or improvements, or both, and the
leasehold estate created by such lease. An instrument covering an interest in
real property other than the fee estate requires special provisions in the
instrument creating such interest or in the mortgage, deed of trust, security
deed or deed to secure debt, to protect the mortgagee against termination of
such interest before the mortgage, deed of trust, security deed or deed to
secure debt is paid. Unless otherwise specified in the Prospectus Supplement,
the Depositor or the Asset Seller will make certain representations and
warranties in the Agreement with respect to the Mortgage Loans which are
secured by an interest in a leasehold estate. Such representation and
warranties will be set forth in the Prospectus Supplement if applicable.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the mortgagor assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while the mortgagor retains a revocable license to
collect the rents for so long as there is no default. Under such assignments,
the mortgagor typically assigns its right, title and interest as lessor under
each lease and the income derived therefrom to the mortgagee, while retaining a
license to collect the rents for so long as there is no default under the
mortgage loan documentation. The manner of perfecting the mortgagee's interest
in rents may depend on whether the mortgagor's assignment was absolute or one
granted as security for the loan. Failure to properly perfect the mortgagee's
interest in rents may result in the loss of substantial pool of funds, which
could otherwise serve as a source of repayment for such loan. If the mortgagor
defaults, the license terminates and the lender is entitled to collect the
rents. Local law may require that the lender take possession of the
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property and/or obtain a court-appointed receiver before becoming entitled to
collect the rents. In most states, hotel and motel room revenues are considered
accounts receivable under the UCC; generally these revenues are either assigned
by the mortgagor, which remains entitled to collect such revenues absent a
default, or pledged by the mortgagor, as security for the loan. In general, the
lender must file financing statements in order to perfect its security interest
in the revenues and must file continuation statements, generally every five
years, to maintain perfection of such security interest. Even if the lender's
security interest in room revenues is perfected under the UCC, the lender will
generally be required to commence a foreclosure or otherwise take possession of
the property in order to collect the room revenues after a default.
Even after a foreclosure, the potential rent payments from the
property may be less than the periodic payments that had been due under the
mortgage. For instance, the net income that would otherwise be generated from
the property may be less than the amount that would have been needed to service
the mortgage debt if the leases on the property are at below-market rents, or
as the result of excessive maintenance, repair or other obligations which a
lender succeeds to as landlord.
Lenders that actually take possession of the property, however, may
incur potentially substantial risks attendant to being a mortgagee in
possession. Such risks include liability for environmental clean-up costs and
other risks inherent in property ownership. See "Environmental Legislation"
below.
PERSONALTY
Certain types of Mortgaged Properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value from
personal property which does not constitute "fixtures" under applicable state
real property law and, hence, would not be subject to the lien of a mortgage.
Such property is generally pledged or assigned as security to the lender under
the UCC. In order to perfect its security interest therein, the lender
generally must file UCC financing statements and, to maintain perfection of
such security interest, file continuation statements generally every five
years.
FORECLOSURE
GENERAL
Foreclosure is a legal procedure that allows the mortgagee to recover
its mortgage debt by enforcing its rights and available legal remedies under
the mortgage. If the mortgagor defaults in payment or performance of its
obligations under the note or mortgage, the mortgagee has the right to
institute foreclosure proceedings to sell the mortgaged property at public
auction to satisfy the indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage
vary from state to state. Two primary methods of foreclosing a mortgage are
judicial foreclosure and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage instrument. There are several other foreclosure
procedures available in some states that are either infrequently used or
available only in certain limited circumstances, such as strict foreclosure.
JUDICIAL FORECLOSURE
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having a subordinate interest
of record in the real property and all parties in possession of the property,
under leases or otherwise, whose interests are subordinate to the mortgage.
Delays in completion of the foreclosure may occasionally result from
difficulties in locating defendants. When the lender's right to foreclose is
contested, the legal proceedings can be time-consuming. Upon successful
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of 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.
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EQUITABLE LIMITATIONS ON ENFORCEABILITY OF CERTAIN PROVISIONS
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may
require the lender to undertake affirmative and expensive actions to determine
the cause of the mortgagor's default and the likelihood that the mortgagor will
be able to reinstate the loan. In some cases, courts have substituted their
judgment for the lender's and have required that lenders reinstate loans or
recast payment schedules in order to accommodate mortgagors who are suffering
from a temporary financial disability. In other cases, courts have limited the
right of the lender to foreclose if the default under the mortgage is not
monetary, e.g., the mortgagor failed to maintain the mortgaged property
adequately or the mortgagor executed a junior mortgage on the mortgaged
property. The exercise by the court of its equity powers will depend on the
individual circumstances of each case presented to it. Finally, some courts
have been faced with the issue of whether federal or state constitutional
provisions reflecting due process concerns for adequate notice require that a
mortgagor receive notice in addition to statutorily-prescribed minimum notice.
For the most part, these cases have upheld the reasonableness of the notice
provisions or have found that a public sale under a mortgage providing for a
power of sale does not involve sufficient state action to afford constitutional
protections to the mortgagor.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes require several years to complete. Moreover, as discussed below, a
non-collusive, regularly conducted foreclosure sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court determines
that the sale was for less than fair consideration and such sale occurred while
the mortgagor was insolvent (or the mortgagor was rendered insolvent as a
result of such sale) and within one year (or within the state statute of
limitations if the trustee in bankruptcy elects to proceed under state
fraudulent conveyance law) of the filing of bankruptcy.
NON-JUDICIAL FORECLOSURE/POWER OF SALE
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale pursuant to the power of sale granted in the deed
of trust. A power of sale is typically granted in a deed of trust. It may also
be contained in any other type of mortgage instrument. A power of sale allows a
non-judicial public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such
sale, the trustee under a deed of trust must record a notice of default and
notice of sale and send a copy to the mortgagor and to any other party who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, in some states the trustee must provide notice to any other party
having an interest of record in the real property, including junior
lienholders. A notice of sale must be posted in a public place and, in most
states, published for a specified period of time in one or more newspapers. The
mortgagor or junior lienholder may then have the right, during a reinstatement
period required in some states, to cure the default by paying the entire actual
amount in arrears (without acceleration) plus the expenses incurred in
enforcing the obligation. In other states, the mortgagor or the junior
lienholder is not provided a period to reinstate the loan, but has only the
right to pay off the entire debt to prevent the foreclosure sale. Generally,
the procedure for public sale, the parties entitled to notice, the method of
giving notice and the applicable time periods are governed by state law and
vary among the states. Foreclosure of a deed to secure debt is also generally
accomplished by a non-judicial sale similar to that required by a deed of
trust, except that the lender or its agent, rather than a trustee, is typically
empowered to perform the sale in accordance with the terms of the deed to
secure debt and applicable law.
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
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may exist and the possibility of physical deterioration of the property during
the foreclosure proceedings. For these reasons, it is common for the lender to
purchase the mortgaged property for an amount equal to or less than the
underlying debt and accrued and unpaid interest plus the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs and
expenses which may be recovered by a lender. Thereafter, subject to the
mortgagor's right in some states to remain in possession during a redemption
period, if applicable, the lender will become the owner of the property and
have both the benefits and burdens of ownership of the mortgaged property. For
example, the lender will have the obligation to pay debt service on any senior
mortgages, to pay taxes, obtain casualty insurance and to make such repairs at
its own expense as are necessary to render the property suitable for sale.
Frequently, the lender employs a third party management company to manage and
operate the property. The costs of operating and maintaining a commercial or
multifamily residential property may be significant and may be greater than the
income derived from that property. The costs of management and operation of
those mortgaged properties which are hotels, motels, restaurants, nursing or
convalescent homes or hospitals may be particularly significant because of the
expertise, knowledge and, with respect to nursing or convalescent homes or
hospitals, regulatory compliance, required to run such operations and the
effect which foreclosure and a change in ownership may have on the public's and
the industry's (including franchisors') perception of the quality of such
operations. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale
of the property may not equal the lender's investment in the property.
Moreover, a lender commonly incurs substantial legal fees and court costs in
acquiring a mortgaged property through contested foreclosure and/or bankruptcy
proceedings. Furthermore, a few states require that any environmental
contamination at certain types of properties be cleaned up before a property
may be resold. In addition, a lender may be responsible under federal or state
law for the cost of cleaning up a mortgaged property that is environmentally
contaminated. See "Environmental Legislation." Generally state law controls the
amount of foreclosure expenses and costs, including attorneys' fees, that may
be recovered by a lender.
A junior mortgagee may not foreclose on the property securing the
junior mortgage unless it forecloses subject to senior mortgages and any other
prior liens, in which case it may be obliged to make payments on the senior
mortgages to avoid their foreclosure. In addition, in the event that the
foreclosure of a junior mortgage triggers the enforcement of a "due-on-sale"
clause contained in a senior mortgage, the junior mortgagee may be required to
pay the full amount of the senior mortgage to avoid its foreclosure.
Accordingly, with respect to those Mortgage Loans, if any, that are junior
mortgage loans, if the lender purchases the property the lender's title will be
subject to all senior mortgages, prior liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are
applied first to the costs, fees and expenses of sale and then in satisfaction
of the indebtedness secured by the mortgage under which the sale was conducted.
Any proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in order
of their priority, whether or not the mortgagor is in default. Any additional
proceeds are generally payable to the mortgagor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgage or a subsequent ancillary proceeding or may require the
institution of separate legal proceedings by such holders.
REO PROPERTIES
If title to any Mortgaged Property is acquired by the Trustee on
behalf of the Certificateholders, the Master Servicer or any related
Sub-servicer or the Special Servicer, on behalf of such holders, will be
required to sell the Mortgaged Property prior to the close of the third
calendar year following the year of acquisition of such Mortgaged Property by
the Trust Fund, unless (i) the Internal Revenue Service grants an extension of
time to sell such property (an "REO Extension") or (ii) it obtains an opinion
of counsel generally to the effect that the holding of the property beyond the
close of the third calendar year after its acquisition will not result in the
imposition of a tax on the Trust Fund or cause any REMIC created pursuant to
the Pooling and Servicing Agreement to fail to qualify as a REMIC under the
Code. Subject to the foregoing, the Master Servicer or any related Sub-servicer
or the Special Servicer will generally be required to solicit bids for any
Mortgaged Property so acquired in such a manner as will be 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
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retention of an independent contractor will not relieve the Master Servicer or
any related Sub-servicer or the Special Servicer of its obligations with
respect to such REO Property.
In general, the Master Servicer or any related Sub-servicer or the
Special Servicer or an independent contractor employed by the Master Servicer
or any related Sub-servicer or the Special Servicer at the expense of the Trust
Fund will be obligated to operate and manage any Mortgaged Property acquired as
REO Property in a manner that would, to the extent commercially feasible,
maximize the Trust Fund's net after-tax proceeds from such property. After the
Master Servicer or any related Sub-servicer or the Special Servicer reviews the
operation of such property and consults with the Trustee to determine the Trust
Fund's federal income tax reporting position with respect to the income it is
anticipated that the Trust Fund would derive from such property, the Master
Servicer or any related Sub-servicer or the Special Servicer could determine
(particularly in the case of an REO Property that is a hospitality or
residential health care facility) that it would not be commercially feasible to
manage and operate such property in a manner that would avoid the imposition of
a tax on "net income from foreclosure property," within the meaning of Section
857(b)(4)(B) of the Code (an "REO Tax") at the highest marginal corporate tax
rate (currently 35%). The determination as to whether income from an REO
Property would be subject to an REO Tax will depend on the specific facts and
circumstances relating to the management and operation of each REO Property.
Any REO Tax imposed on the Trust Fund's income from an REO Property would
reduce the amount available for distribution to Certificateholders.
Certificateholders are advised to consult their tax advisors regarding the
possible imposition of REO Taxes in connection with the operation of commercial
REO Properties by REMICs. See "Certain Federal Income Tax Consequences" herein
and "Certain Federal Income Tax Consequences-REMICs" in the Prospectus.
RIGHTS OF REDEMPTION
The purposes of a foreclosure action are to enable the mortgagee to
realize upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the mortgage being foreclosed,
from exercise of their "equity of redemption." The doctrine of equity of
redemption provides that, until the property covered by a mortgage has been
sold in accordance with a properly conducted foreclosure and foreclosure sale,
those having an interest which is subordinate to that of the foreclosing
mortgagee have an equity of redemption and may redeem the property by paying
the entire debt with interest. In addition, in some states, when a foreclosure
action has been commenced, the redeeming party must pay certain costs of such
action. Those having an equity of redemption must generally be made parties and
joined in the foreclosure proceeding in order for their equity of redemption to
be cut off and terminated.
The equity of redemption is a common-law (non-statutory) right which
exists prior to completion of the foreclosure, is not waivable by the
mortgagor, must be exercised prior to foreclosure sale and should be
distinguished from the post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage,
the mortgagor and foreclosed junior lienors are given a statutory period in
which to redeem the property from the foreclosure sale. In some states,
statutory redemption may occur only upon payment of the foreclosure sale price.
In other states, redemption may be authorized if the former mortgagor pays only
a portion of the sums due. The effect of a statutory right of redemption is to
diminish the ability of the lender to sell the foreclosed property. The
exercise of a right of redemption would defeat the title of any purchaser from
a foreclosure sale or sale under a deed of trust. Consequently, the practical
effect of the redemption right is to force the lender to maintain the property
and pay the expenses of ownership until the redemption period has expired. In
some states, a post-sale statutory right of redemption may exist following a
judicial foreclosure, but not following a trustee's sale under a deed of trust.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held beyond the close of the third calendar
year following the year of acquisition. Unless otherwise provided in the
related Prospectus Supplement, with respect to a series of Certificates for
which an election is made to qualify the Trust Fund or a part thereof as a
REMIC, the Agreement will permit foreclosed property to be held beyond the
close of the third calendar year following the year of acquisition if the
Internal Revenue Service grants an extension of time within which to sell such
property or independent counsel renders an opinion to the effect that holding
such property for such additional period is permissible under the REMIC
Provisions.
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ANTI-DEFICIENCY LEGISLATION
Some or all of the Mortgage Loans may be nonrecourse loans, as to
which recourse may be had only against the specific property securing the
related Mortgage Loan and a personal money judgment may not be obtained against
the mortgagor. Even if a mortgage loan by its terms provides for recourse to
the mortgagor, some states impose prohibitions or limitations on such recourse.
For example, statutes in some states limit the right of the lender to obtain a
deficiency judgment against the mortgagor following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former mortgagor equal to the difference between the net amount realized upon
the public sale of the real property and the amount due to the lender. Some
states require the lender to exhaust the security afforded under a mortgage by
foreclosure in an attempt to satisfy the full debt before bringing a personal
action against the mortgagor. In certain other states, the lender has the
option of bringing a personal action against the mortgagor on the debt without
first exhausting such security; however, in some of these states, the lender,
following judgment on such personal action, may be deemed to have elected a
remedy and may be precluded from exercising remedies with respect to the
security. In some cases, a lender will be precluded from exercising any
additional rights under the note or mortgage if it has taken any prior
enforcement action. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the mortgagor. Finally, other statutory provisions limit any
deficiency judgment against the former mortgagor following a judicial sale to
the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally to
prevent a lender from obtaining a large deficiency judgment against the former
mortgagor as a result of low or no bids at the judicial sale.
LEASEHOLD RISKS
Mortgage Loans may be secured by a mortgage on a ground lease.
Leasehold mortgages are subject to certain risks not associated with mortgage
loans secured by the fee estate of the mortgagor. The most significant of these
risks is that the ground lease creating the leasehold estate could terminate,
leaving the leasehold mortgagee without its security. The ground lease may
terminate if, among other reasons, the ground lessee breaches or defaults in
its obligations under the ground lease or there is a bankruptcy of the ground
lessee or the ground lessor. This risk may be minimized if the ground lease
contains certain provisions protective of the mortgagee, but the ground leases
that secure Mortgage Loans may not contain some of these protective provisions,
and mortgages may not contain the other protections discussed in the next
paragraph. Protective ground lease provisions include the right of the
leasehold mortgagee to receive notices from the ground lessor of any defaults
by the mortgagor; the right to cure such defaults, with adequate cure periods;
if a default is not susceptible of cure by the leasehold mortgagee, the right
to acquire the leasehold estate through foreclosure or otherwise; the ability
of the ground lease to be assigned to and by the leasehold mortgagee or
purchaser at a foreclosure sale and for the concomitant release of the ground
lessee's liabilities thereunder; and the right of the leasehold mortgagee to
enter into a new ground lease with the ground lessor on the same terms and
conditions as the old ground lease in the event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may
require that the ground lease or leasehold mortgage prohibit the ground lessee
from treating the ground lease as terminated in the event of the ground
lessor's bankruptcy and rejection of the ground lease by the trustee for the
debtor-ground lessor. As further protection, a leasehold mortgage may provide
for the assignment of the debtor-ground lessee's right to reject a lease
pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as amended (Title
11 of the United States Code) (the "Bankruptcy Code"), although the
enforceability of such clause has not been established. Without the protections
described above, a leasehold mortgagee may lose the collateral securing its
leasehold mortgage. In addition, terms and conditions of a leasehold mortgage
are subject to the terms and conditions of the ground lease. Although certain
rights given to a ground lessee can be limited by the terms of a leasehold
mortgage, the rights of a ground lessee or a leasehold mortgagee with respect
to, among other things, insurance, casualty and condemnation will be governed
by the provisions of the ground lease.
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BANKRUPTCY LAWS
The Bankruptcy Code and related state laws may interfere with or
affect the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) are
automatically stayed upon the filing of the bankruptcy petition, and, usually,
no interest or principal payments are made during the course of the bankruptcy
case. The delay and the consequences thereof caused by such automatic stay can
be significant. Also, under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a junior lienor may stay the senior lender from
taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage secured
by property of the debtor may be modified under certain circumstances. In many
jurisdictions, the outstanding amount of the loan secured by the real property
may be reduced to the then-current value of the property (with a corresponding
partial reduction of the amount of lender's security interest) pursuant to a
confirmed plan or lien avoidance proceeding, thus leaving the lender a general
unsecured creditor for the difference between such value and the outstanding
balance of the loan. Other modifications may include the reduction in the
amount of each scheduled payment, which reduction may result from a reduction
in the rate of interest and/or the alteration of the repayment schedule (with
or without affecting the unpaid principal balance of the loan), and/or an
extension (or reduction) of the final maturity date. Some courts with federal
bankruptcy jurisdiction have approved plans, based on the particular facts of
the reorganization case, that effected the curing of a mortgage loan default by
paying arrearages over a number of years. Also, under federal bankruptcy law, a
bankruptcy court may permit a debtor through its rehabilitative plan to
de-accelerate a secured loan and to reinstate the loan even though the lender
accelerated the mortgage loan and final judgment of foreclosure had been
entered in state court (provided no sale of the property had yet occurred)
prior to the filing of the debtor's petition. This may be done even if the full
amount due under the original loan is never repaid.
Federal bankruptcy law provides generally that rights and obligation
under an unexpired lease of the debtor/lessee may not be terminated or modified
at any time after the commencement of a case under the Bankruptcy Code solely
on the basis of a provision in the lease to such effect or because of certain
other similar events. This prohibition on so-called "ipso facto clauses" could
limit the ability of the Trustee for a series of Certificates to exercise
certain contractual remedies with respect to the Leases. In addition, Section
362 of the Bankruptcy Code operates as an automatic stay of, among other
things, any act to obtain possession of property from a debtor's estate, which
may delay a Trustee's exercise of such remedies for a related series of
Certificates in the event that a related Lessee or a related mortgagor becomes
the subject of a proceeding under the Bankruptcy Code. For example, a mortgagee
would be stayed from enforcing a Lease Assignment by a mortgagor related to a
Mortgaged Property if the related mortgagor was in a bankruptcy proceeding. The
legal proceedings necessary to resolve the issues could be time-consuming and
might result in significant delays in the receipt of the assigned rents.
Similarly, the filing of a petition in bankruptcy by or on behalf of a Lessee
of a Mortgaged Property would result in a stay against the commencement or
continuation of any state court proceeding for past due rent, for accelerated
rent, for damages or for a summary eviction order with respect to a default
under the Lease that occurred prior to the filing of the Lessee's petition.
Rents and other proceeds of a Mortgage Loan may also escape an assignment
thereof if the assignment is not fully perfected under state law prior to
commencement of the bankruptcy proceeding. See "--Leases and Rents" above.
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court, (a) assume the
lease and retain it or assign it to a third party or (b) reject the lease. If
the lease is assumed, the trustee in bankruptcy on behalf of the lessee, or the
lessee as debtor-in-possession, or the assignee, if applicable, must cure any
defaults under the lease, compensate the lessor for its losses and provide the
lessor with "adequate assurance" of future performance. Such remedies may be
insufficient, however, as the lessor may be forced to continue under the lease
with a lessee that is a poor credit risk or an unfamiliar tenant if the lease
was assigned, and any assurances provided to the lessor may, in fact, be
inadequate. If the lease is rejected, such rejection generally constitutes a
breach of the executory contract or unexpired lease immediately before the date
of filing the petition. As a consequence, the other party or parties to such
lease, such as the mortgagor, as lessor under a Lease, would have only an
unsecured claim against the debtor for damages resulting from such breach,
which
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could adversely affect the security for the related Mortgage Loan. In
addition, pursuant to Section 502(b)(6) of the Bankruptcy Code, a lessor's
damages for lease rejection in respect of future rent installments are limited
to the rent reserved by the lease, without acceleration, for the greater of one
year or 15%, not to exceed three years, of the remaining term of the lease.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as
debtor-in-possession, rejects an unexpired lease of real property, the lessee
may treat such lease as terminated by such rejection or, in the alternative,
the lessee may remain in possession of the leasehold for the balance of such
term and for any renewal or extension of such term that is enforceable by the
lessee under applicable nonbankruptcy law. The Bankruptcy Code provides that if
a lessee elects to remain in possession after such a rejection of a lease, the
lessee may offset against rents reserved under the lease for the balance of the
term after the date of rejection of the lease, and any such renewal or
extension thereof, any damages occurring after such date caused by the
nonperformance of any obligation of the lessor under the lease after such date.
To the extent provided in the related Prospectus Supplement, the Lessee will
agree under certain Leases to pay all amounts owing thereunder to the Master
Servicer without offset. To the extent that such a contractual obligation
remains enforceable against the Lessee, the Lessee would not be able to avail
itself of the rights of offset generally afforded to lessees of real property
under the Bankruptcy Code.
In a bankruptcy or similar proceeding of a mortgagor, action may be
taken seeking the recovery, as a preferential transfer or on other grounds, of
any payments made by the mortgagor, or made directly by the related Lessee,
under the related Mortgage Loan to the Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may
have the power to grant liens senior to the lien of a mortgage, and analogous
state statutes and general principles of equity may also provide a mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise accept.
Moreover, the laws of certain states also give priority to certain tax liens
over the lien of a mortgage or deed of trust. Under the Bankruptcy Code, if the
court finds that actions of the mortgagee have been unreasonable, the lien of
the related mortgage may be subordinated to the claims of unsecured creditors.
To the extent described in the related Prospectus Supplement, certain
of the Mortgagors may be partnerships. The laws governing limited partnerships
in certain states provide that the commencement of a case under the Bankruptcy
Code with respect to a general partner will cause a person to cease to be a
general partner of the limited partnership, unless otherwise provided in
writing in the limited partnership agreement. This provision may be construed
as an "ipso facto" clause and, in the event of the general partner's
bankruptcy, may not be enforceable. To the extent described in the related
Prospectus Supplement, certain limited partnership agreements of the Mortgagors
may provide that the commencement of a case under the Bankruptcy Code with
respect to the related general partner constitutes an event of withdrawal
(assuming the enforceability of the clause is not challenged in bankruptcy
proceedings or, if challenged, is upheld) that might trigger the dissolution of
the limited partnership, the winding up of its affairs and the distribution of
its assets, unless (i) at the time there was at least one other general partner
and the written provisions of the limited partnership permit the business of
the limited partnership to be carried on by the remaining general partner and
that general partner does so or (ii) the written provisions of the limited
partnership agreement permit the limited partner to agree within a specified
time frame (often 60 days) after such withdrawal to continue the business of
the limited partnership and to the appointment of one or more general partners
and the limited partners do so. In addition, the laws governing general
partnerships in certain states provide that the commencement of a case under
the Bankruptcy Code or state bankruptcy laws with respect to a general partner
of such partnerships triggers the dissolution of such partnership, the winding
up of its affairs and the distribution of its assets. Such state laws, however,
may not be enforceable or effective in a bankruptcy case. The dissolution of a
Mortgagor, the winding up of its affairs and the distribution of its assets
could result in an acceleration of its payment obligation under a related
Mortgage Loan, which may reduce the yield on the related series of Certificates
in the same manner as a principal prepayment.
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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.
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
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other liens, the advance may be subordinated to such intervening junior
mortgages or deeds of trust and other liens. Priority of advances under a
"future advance" clause rests, in many other states, on state law giving
priority to all advances made under the loan agreement up to a "credit limit"
amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed
of trust used by many institutional lenders obligates the mortgagor or trustor
to pay before delinquency all taxes and assessments on the property and, when
due, all encumbrances, charges and liens on the property which appear prior to
the mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to
perform any of these obligations, the mortgagee or beneficiary is given the
right under the mortgage or deed of trust to perform the obligation itself, at
its election, with the mortgagor or trustor agreeing to reimburse the mortgagee
or beneficiary on behalf of the mortgagor or trustor. All sums so expended by
the mortgagee or beneficiary become part of the indebtedness secured by the
mortgage or deed of trust.
The form of mortgage or deed of trust used by many institutional
lenders typically requires the mortgagor or trustor to obtain the consent of
the mortgagee or beneficiary in respect of actions affecting the mortgaged
property, including, without limitation, leasing activities (including new
leases and termination or modification of existing leases), alterations and
improvements to buildings forming a part of the mortgaged property and
management and leasing agreements for the mortgaged property. Tenants will
often refuse to execute a lease unless the mortgagee or beneficiary executes a
written agreement with the tenant not to disturb the tenant's possession of its
premises in the event of a foreclosure. A senior mortgagee or beneficiary may
refuse to consent to matters approved by a junior mortgagee or beneficiary with
the result that the value of the security for the junior mortgage or deed of
trust is diminished. For example, a senior mortgagee or beneficiary may decide
not to approve the lease or to refuse to grant a tenant a non-disturbance
agreement. If, as a result, the lease is not executed, the value of the
mortgaged property may be diminished.
ENVIRONMENTAL LEGISLATION
Real property pledged as security to a lender may be subject to
unforeseen environmental liabilities. Of particular concern may be those
Mortgaged Properties which are, or have been, the site of manufacturing,
industrial or disposal activity. Such environmental liabilities may give rise
to (i) a diminution in value of property securing any Mortgage Loan, (ii)
limitation on the ability to foreclose against such property or (iii) in
certain circumstances, as more fully described below, liability for clean-up
costs or other remedial actions, which liability could exceed the value of the
principal balance of the related Mortgage Loan or of such Mortgaged Property.
Under the laws of many states, contamination on a property may give
rise to a lien on the property for cleanup costs. In several states, such a
lien has priority over all existing liens (a "superlien") including those of
existing mortgages; in these states, the lien of a mortgage contemplated by
this transaction may lose its priority to such a superlien.
The presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the market value of the
property, as well as the owner's ability to sell or use the real estate or to
borrow using the real estate as collateral. In addition, certain environmental
laws and common law principles govern the responsibility for the removal,
encapsulation or disturbance of asbestos containing materials ("ACMs") when
these ACMs are in poor condition or when a property with ACMs is undergoing
repair, renovation or demolition. Such laws could also be used to impose
liability upon owners and operators of real properties for release of ACMs into
the air that cause personal injury or other damage. In addition to cleanup and
natural resource damages actions brought by federal, state, and local agencies
and private parties, the presence of hazardous substances on a property may
lead to claims of personal injury, property damage, or other claims by private
plaintiffs.
Under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), and under other federal law
and the law of certain states, a secured party which takes a deed-in-lieu of
foreclosure, purchases a mortgaged property at a foreclosure sale, or operates
a Mortgaged Property
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may become liable in some circumstances either to the government or to private
parties for cleanup costs, even if the lender does not cause or contribute to
the contamination. Liability under some federal or state statutes may not be
limited to the original or unamortized principal balance of a loan or to the
value of the property securing a loan. CERCLA imposes strict, as well as joint
and several, liability on several classes of potentially responsible parties,
including current owners and operators of the property, regardless of whether
they caused or contributed to the contamination. Many states have laws similar
to CERCLA.
Lenders may be held liable under CERCLA as owners or operators.
Excluded from CERCLA's definition of "owner or operator," however, is a person
"who without participating in the management of the facility, holds indicia of
ownership primarily to protect his security interest." This exemption for
holders of a security interest such as a secured lender applies only in
circumstances where the lender acts to protect its security interest in the
contaminated facility or property. Thus, if a lender's activities encroach on
the actual management of such facility or property, the lender faces potential
liability as an "owner or operator" under CERCLA. Similarly, when a lender
forecloses and takes title to a contaminated facility or property (whether it
holds the facility or property as an investment or leases it to a third party),
the lender may incur potential CERCLA liability.
Whether actions taken by a lender would constitute such an
encroachment on the actual management of a facility or property, so as to
render the secured creditor exemption unavailable to the lender has been a
matter of judicial interpretation of the statutory language, and court
decisions have historically been inconsistent.
This scope of the secured creditor exemption has been clarified by the
enactment of the Asset Conservation, Lender Liability and Deposit Insurance
Protection Act of 1996 (the "Asset Conservation Act"), which was signed into
law by President Clinton on September 30, 1996, and which lists permissible
actions that may be undertaken by a lender holding security in a contaminated
facility without exceeding the bounds of the secured creditor exemption,
subject to certain conditions and limitations. The Asset Conservation Act
provides that in order to be deemed to have participated in the management of a
secured property, a lender must actually participate in the operational affairs
of the property or the borrower. The Asset Conservation Act also provides that
a lender will continue to have the benefit of the secured creditor exemption
even if it forecloses on a mortgaged property, purchases it at a foreclosure
sale or accepts a deed-in-lieu of foreclosure provided that the lender seeks to
sell the mortgaged property at the earliest practicable commercially reasonable
time on commercially reasonable terms. The protections afforded lenders under
the Asset Conversion Act are subject to terms and conditions that have not been
clarified by the courts.
The secured creditor exemption does not protect a lender from
liability under CERCLA in cases where the lender arranges for disposal of
hazardous substances or for transportation of hazardous substances. In
addition, the secured creditor exemption does not govern liability for cleanup
costs under federal laws other than CERCLA or under state law. CERCLA's
jurisdiction extends to the investigation and remediation of releases of
"hazardous substances." The definition of "hazardous substances" under CERCLA
specifically excludes petroleum products. Therefore, a federal statute of
particular significance is Subtitle I of the Resource Conservation and Recovery
Act ("RCRA"), which governs the operation and management of underground
petroleum storage tanks. Under the Asset Conservation Act, the holders of
security interests in underground storage tanks or properties containing such
tanks are accorded protections similar to the protections accorded to lenders
under CERCLA. It should be noted, however, that liability for cleanup of
petroleum contamination may be governed by state law, which may not provide for
any specific protection for secured creditors.
In a few states, transfer of some types of properties is conditioned
upon clean up of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed-in-lieu of
foreclosure or otherwise, may be required to cleanup the contamination before
selling or otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law
causes of action (for example, actions based on nuisance or on toxic tort
resulting in death, personal injury or damage to property) related to hazardous
environmental conditions on a property. While it may be more difficult to hold
a lender liable in such
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cases, unanticipated or uninsurable liabilities of the borrower may jeopardize
the borrower's ability to meet its loan obligations.
If a lender is or becomes liable, it may bring an action for
contribution against the owner or operator who created the environmental
hazard, but that person or entity may be bankrupt or otherwise judgment proof.
It is possible that cleanup costs could become a liability of the Trust Fund
and occasion a loss to Certificateholders in certain circumstances described
above if such remedial costs were incurred.
Unless otherwise provided in the related Prospectus Supplement, the
Warrantying Party with respect to any Whole Loan included in a Trust Fund for a
particular series of Certificates will represent that a "Phase I Assessment" as
described in and meeting the requirements of the then current version of
Chapter 5 of the Federal National Mortgage Association ("FNMA") Multifamily
Guide has been received and reviewed. In addition, unless otherwise provided in
the related Prospectus Supplement, the related Agreement will provide that the
Master Servicer, acting on behalf of the Trustee, may not acquire title to a
Mortgaged Property or take over its operation unless the Master Servicer has
previously determined, based on a report prepared by a person who regularly
conducts environmental audits, that: (i) such Mortgaged Property is in
compliance with applicable environmental laws, and there are no circumstances
present at the Mortgaged Property relating to the use, management or disposal
of any hazardous substances, hazardous materials, wastes, or petroleum based
materials for which investigation, testing, monitoring, containment, clean-up
or remediation could be required under any federal, state or local law or
regulation; or (ii) if such Mortgaged Property is not so in compliance or such
circumstances are so present, then it would be in the best economic interest of
the Trust Fund to acquire title to the Mortgaged Property and further to take
such actions as would be necessary and appropriate to effect such compliance
and/or respond to such circumstances. This requirement effectively precludes
enforcement of the 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.
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A "Disqualifying Condition" is defined generally as a condition,
existing as a result of, or arising from, the presence of Hazardous Materials
(as defined below) on a Mortgaged Property, such that the Mortgage Loan secured
by the affected Mortgaged Property would be ineligible, solely by reason of
such condition, for purchase by FNMA under the relevant provisions of FNMA's
Multifamily Seller/Servicer Guide in effect as of the date of initial issuance
of the Certificates of such series, including a condition that would constitute
a material violation of applicable federal state or local law in effect as of
their date of initial issuance of the Certificates of such series.
"Hazardous Materials" are generally defined under several federal and
state statutes, and include dangerous toxic or hazardous pollutants, chemicals,
wastes or substances, including, without limitation, those so identified
pursuant to CERCLA and RCRA, and specifically including, asbestos and asbestos
containing materials, polychlorinated biphenyls, radon gas, petroleum and
petroleum products, urea formaldehyde and any substances classified as being
"in inventory," "usable work in process" or similar classification which would,
if classified as unusable, be included in the foregoing definition.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the Mortgage Loans may contain due-on-sale and
due-on-encumbrance clauses. These clauses generally provide that the lender may
accelerate the maturity of the loan if the mortgagor sells or otherwise
transfers or encumbers the related Mortgaged Property. Certain of these clauses
may provide that, upon an attempted breach 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
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which a lender may collect from a mortgagor for delinquent payments. Certain
states also limit the amounts that a lender may collect from a mortgagor as an
additional charge if the loan is prepaid. The enforceability, under the laws of
a number of states of provisions providing for prepayment fees or penalties
upon, or prohibition of, an involuntary prepayment is unclear, and no assurance
can be given that, at the time a Prepayment Premium is required to be made on a
Mortgage Loan in connection with an involuntary prepayment, the obligation to
make such payment, or the provisions of any such prohibition, will be
enforceable under applicable state law. The absence of a restraint on
prepayment, particularly with respect to Mortgage Loans having higher Mortgage
Rates, may increase the likelihood of refinancing or other early retirements of
the Mortgage Loans.
ACCELERATION ON DEFAULT
Unless otherwise specified in the related prospectus Supplement, some
of the Mortgage Loans included in the Mortgage Pool for a Series will include a
"debt-acceleration" clause, which permits the lender to accelerate the full
debt upon a monetary or nonmonetary default of the Mortgagor. The courts of all
states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
equity courts of the state, however, may refuse to foreclose a mortgage or deed
of trust when an acceleration of the indebtedness would be inequitable or
unjust or the circumstances would render the acceleration unconscionable.
Furthermore, in some states, the mortgagor may avoid foreclosure and reinstate
an accelerated loan by paying only the defaulted amounts and the costs and
attorneys' fees incurred by the lender in collecting such defaulted payments.
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.
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CERTAIN LAWS AND REGULATIONS; TYPES OF MORTGAGED PROPERTIES
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgage Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(e.g., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan. Mortgages on
Mortgaged Properties which are owned by the Mortgagor under a condominium form
of ownership are subject to the declaration, by-laws and other rules and
regulations of the condominium association. Mortgaged Properties which are
hotels or motels may present additional risk in that hotels and motels are
typically operated pursuant to franchise, management and operating agreements
which may be terminable by the operator, and the transferability of the hotel's
operating, liquor and other licenses to the entity acquiring the hotel either
through purchases or foreclosure is subject to the vagaries of local law
requirements. In addition, Mortgaged Properties which are multifamily
residential properties may be subject to rent control laws, which could impact
the future cash flows of such properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and
rules promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other 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.
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FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property even before conviction.
The government must publish notice of the forfeiture proceeding and may give
notice to all parties "known to have an alleged interest in the property,"
including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered Certificates
is based on the advice of Brown & Wood LLP or Cadwalader, Wickersham & Taft or
Latham & Watkins or such other counsel as may be specified in the related
Prospectus Supplement, counsel to the Depositor. This summary is based on laws,
regulations, including the REMIC regulations promulgated by the Treasury
Department (the "REMIC Regulations"), rulings and decisions now in effect or
(with respect to regulations) proposed, all of which are subject to change
either prospectively or retroactively. This summary does not address the
federal income tax consequences of an investment in Certificates applicable to
all categories of investors, some of which (for example, banks and insurance
companies) may be subject to special rules. Prospective investors should
consult their tax advisors regarding the federal, state, local and any other
tax consequences to them of the purchase, ownership and disposition of
Certificates.
GENERAL
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund relating to a
particular Series of Certificates as a REMIC under the Code. The Prospectus
Supplement for each Series of Certificates will specify whether a REMIC
election will be made.
GRANTOR TRUST FUNDS
If a REMIC election is not made, Brown & Wood LLP or Cadwalader,
Wickersham & Taft or Latham & Watkins or such other counsel as may be specified
in the related Prospectus Supplement will deliver its opinion that the Trust
Fund will not be classified as an association taxable as a corporation and that
each such Trust Fund will be classified as a grantor trust under subpart E,
Part I of subchapter J of Chapter 1 of Subtitle A of the Code. In this case,
owners of Certificates will be treated for federal income tax purposes as
owners of a portion of the Trust Fund's assets as described below.
A. SINGLE CLASS OF GRANTOR TRUST CERTIFICATES
Characterization. The Trust Fund may be created with one class of
Grantor Trust Certificates. In this case, each Grantor Trust Certificateholder
will be treated as the owner of a pro rata undivided interest in the interest
and principal portions of the Trust Fund represented by the Grantor Trust
Certificates and will be considered the equitable owner of a pro rata undivided
interest in each of the Mortgage Assets in the Pool. Any amounts received by a
Grantor Trust Certificateholder in lieu of amounts due with respect to any
Mortgage Asset because of a default or delinquency in payment will be treated
for federal income tax purposes as having the same character as the payments
they replace.
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Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire
income from the Mortgage Loans in the Trust Fund represented by Grantor Trust
Certificates, including interest, original issue discount ("OID"), if any,
prepayment fees, assumption fees, any gain recognized upon an assumption and
late payment charges received by the Master Servicer. Under Code Sections 162
or 212 each Grantor Trust Certificateholder will be entitled to deduct its pro
rata share of servicing fees, prepayment fees, assumption fees, any loss
recognized upon an assumption and late payment charges retained by the Master
Servicer, provided that such amounts are reasonable compensation for services
rendered to the Trust Fund. Grantor Trust Certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses as itemized deductions only to the extent such expenses plus all other
Code Section 212 expenses exceed two percent of its adjusted gross income. In
addition, the amount of itemized deductions otherwise allowable for the taxable
year for an individual whose adjusted gross income exceeds the applicable
amount under Code Section 68(b) (which amount will be adjusted for inflation)
will be reduced by the lesser of (i) 3% of the excess of adjusted gross income
over the applicable amount and (ii) 80% of the amount of itemized deductions
otherwise allowable for such taxable year. In general, a Grantor Trust
Certificateholder using the cash method of accounting must take into account
its pro rata share of income as and deductions as and when collected by or paid
to the Master Servicer or, with respect to original issue discount or certain
other income items for which the Certificateholder has made an election, as
such amounts are accrued by the Trust Fund on a constant interest basis, and
will be entitled to claim its pro rata share of deductions (subject to the
foregoing limitations) when such amounts are paid or such Certificateholder
would otherwise be entitled to claim such deductions had it held the Mortgage
Assets directly. A Grantor Trust Certificateholder using an accrual method of
accounting must take into account its pro rata share of income as payment
becomes due or is made to the Master Servicer, whichever is earlier and may
deduct its pro rata share of expense items (subject to the foregoing
limitations) when such amounts are paid or such Certificateholder otherwise
would be entitled to claim such deductions had it held the Mortgage Assets
directly. If the servicing fees paid to the Master Servicer are deemed to
exceed reasonable servicing compensation, the amount of such excess could be
considered as an ownership interest retained by the Master Servicer (or any
person to whom the Master Servicer assigned for value all or a portion of the
servicing fees) in a portion of the interest payments on the Mortgage Assets.
The Mortgage Assets would then be subject to the "coupon stripping" rules of
the Code discussed below.
Unless otherwise specified in the related Prospectus Supplement or
otherwise provided below, as to each Series of Certificates, counsel to the
Depositor will have advised the Depositor that:
(i) a Grantor Trust Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) representing
principal and interest payments on Mortgage Assets will be considered to
represent "loans . . . secured by an interest in real property which is . . .
residential property" within the meaning of Code Section 7701(a)(19)(C)(v), to
the extent that the Mortgage Assets represented by that Grantor Trust
Certificate are of a type described in such Code section;
(ii) a Grantor Trust Certificate owned by a real estate investment
trust representing an interest in Mortgage Assets will be considered to
represent "real estate assets" within the meaning of Code Section 856(c)(4)(A),
and interest income on the Mortgage Assets will be considered "interest on
obligations secured by mortgages on real property" within the meaning of Code
Section 856(c)(3)(B), to the extent that the Mortgage Assets represented by
that Grantor Trust Certificate are of a type described in such Code section;
(iii) a Grantor Trust Certificate owned by a REMIC will represent
"obligation[s] . . . which [are] principally secured by an interest in real
property" within the meaning of Code Section 860G(a)(3); and
(iv) a Grantor Trust Certificate owned by a financial asset
securitization investment trust will represent "permitted assets" with the
meaning of Code Section 860L(c).
The Small Business Job Protection Act of 1996, as part of the repeal
of the bad debt reserve method for thrift institutions, repealed the
application of Code Section 593(d) to any taxable year beginning after December
31, 1995.
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Stripped Bonds and Coupons. Certain Trust Funds may consist of
Government Securities that constitute "stripped bonds" or "stripped coupons" as
those terms are defined in section 1286 of the Code, and, as a result, such
assets would be subject to the stripped bond provisions of the Code. Under
these rules, such Government Securities are treated as having original issue
discount based on the purchase price and the stated redemption price at
maturity of each Security. As such, Grantor Trust Certificateholders would be
required to include in income their pro rata share of the original issue
discount on each Government Security recognized in any given year on an
economic accrual basis even if the Grantor Trust Certificateholder is a cash
method taxpayer. Accordingly, the sum of the income includible to the Grantor
Trust Certificateholder in any taxable year may exceed amounts actually
received during such year.
Premium. The price paid for a Grantor Trust Certificate by a holder
will be allocated to such holder's undivided interest in each Mortgage Asset
based on each Mortgage Asset's relative fair market value, so that such
holder's undivided interest in each Mortgage Asset will have its own tax basis.
A Grantor Trust Certificateholder that acquires an interest in Mortgage Assets
at a premium may elect to amortize such premium under a constant interest
method, provided that the underlying mortgage loans with respect to such
Mortgage Assets were originated after September 27, 1985. Premium allocable to
mortgage loans originated on or before September 27, 1985 should be allocated
among the principal payments on such mortgage loans and allowed as an ordinary
deduction as principal payments are made. Amortizable bond premium will be
treated as an offset to interest income on such Grantor Trust Certificate. The
basis for such Grantor Trust Certificate will be reduced to the extent that
amortizable premium is applied to offset interest payments. It is not clear
whether a reasonable prepayment assumption should be used in computing
amortization of premium allowable under Code Section 171. A Certificateholder
that makes this election for a Mortgage Asset or any other debt instrument that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Certificateholder acquires during the year of the election or
thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Grantor Trust Certificate representing
an interest in a Mortgage Asset or Mortgage Loan acquired at a premium should
recognize a loss if a Mortgage Loan (or an underlying mortgage loan with
respect to a Mortgage Asset) prepays in full, equal to the difference between
the portion of the prepaid principal amount of such Mortgage Loan (or
underlying mortgage loan) that is allocable to the Certificate and the portion
of the adjusted basis of the Certificate that is allocable to such Mortgage
Loan (or underlying mortgage loan). If a reasonable prepayment assumption is
used to amortize such premium, it appears that such a loss would be available,
if at all, only if prepayments have occurred at a rate faster than the
reasonable assumed prepayment rate. It is not clear whether any other
adjustments would be required to reflect differences between an assumed
prepayment rate and the actual rate of prepayments.
On December 30, 1997, the Internal Revenue Service (the "IRS") issued
final regulations (the "Amortizable Bond Premium Regulations") dealing with
amortizable bond premium. These regulations, which generally are effective for
bonds issued or acquired on or after March 2, 1998 (or, for holders making an
election for the taxable year that includes March 2, 1998 or any subsequent
taxable year, shall apply to bonds held on or after the first day of the
taxable year of the election). The Amortizable Bond Premium Regulations
specifically do not apply to prepayable debt instruments or any pool of debt
instruments the yield on which may be affected by prepayments, such as the
Trust Fund, which are subject to Section 1272(a)(6) of the Code. Absent further
guidance from the IRS and unless otherwise specified in the related Prospectus
Supplement, the Trustee will account for amortizable bond premium in the manner
described above. Prospective purchasers should consult their tax advisors
regarding amortizable bond premium and the Amortizable Bond Premium
Regulations.
Original Issue Discount. The IRS has stated in published rulings that,
in circumstances similar to those described herein, the special rules of the
Code relating to original issue discount ("OID") (currently Code Sections 1271
through 1273 and 1275) and Treasury regulations issued on January 27, 1994,
under such Sections (the "OID Regulations"), will be applicable to a Grantor
Trust Certificateholder's interest in those Mortgage Assets meeting the
conditions necessary for these sections to apply. Rules regarding periodic
inclusion of OID income are applicable to mortgages of corporations originated
after May 27, 1969, mortgages of noncorporate mortgagors (other than
individuals) originated after July 1, 1982, and mortgages of individuals
originated after March 2, 1984.
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Such OID could arise by the financing of points or other charges by the
originator of the mortgages in an amount greater than a statutory de minimis
exception to the extent that the points are not currently deductible under
applicable Code provisions or are not for services provided by the lender. OID
generally must be reported as ordinary gross income as it accrues under a
constant interest method. See "--Multiple Classes of Grantor Trust
Certificates--Accrual of Original Issue Discount" below.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Mortgage Assets may be subject to the market discount
rules of Code Sections 1276 through 1278 to the extent an undivided interest in
a Mortgage Asset is considered to have been purchased at a "market discount."
Generally, the amount of market discount is equal to the excess of the portion
of the principal amount of such Mortgage Asset allocable to such holder's
undivided interest over such holder's tax basis in such interest. Market
discount with respect to a Grantor Trust Certificate will be considered to be
zero if the amount allocable to the Grantor Trust Certificate is less than
0.25% of the Grantor Trust Certificate's stated redemption price at maturity
multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986 shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described
in the relevant legislative history will apply. Under those rules, the holder
of a market discount bond may elect to accrue market discount either on the
basis of a constant interest rate or according to one of the following methods.
If a Grantor Trust Certificate is issued with OID, the amount of market
discount that accrues during any accrual period would be equal to the product
of (i) the total remaining market discount and (ii) a fraction, the numerator
of which is the OID accruing during the period and the denominator of which is
the total remaining OID at the beginning of the accrual period. For Grantor
Trust Certificates issued without OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the amount of
stated interest paid during the accrual period and the denominator of which is
the total amount of stated interest remaining to be paid at the beginning of
the accrual period. For purposes of calculating market discount under any of
the above methods in the case of instruments (such as the Grantor Trust
Certificates) that provide for payments that may be accelerated by reason of
prepayments of other obligations securing such instruments, the same prepayment
assumption applicable to calculating the accrual of OID will apply. Because the
regulations described above have not been issued, it is impossible to predict
what effect those regulations might have on the tax treatment of a Grantor
Trust Certificate purchased at a discount or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry such Grantor Trust Certificate purchased with market discount. For
these purposes, the de minimis rule referred 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
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made an election to include in income currently market discount with respect to
all other debt instruments having market discount that such Certificateholder
acquires during the year of the election or thereafter. Similarly, a
Certificateholder that makes this election for a Certificate that is acquired
at a premium will be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. See "--Premium" herein. The election to
accrue interest, discount and premium on a constant yield method with respect
to a Certificate is irrevocable without consent of the IRS.
Anti-Abuse Rule. The IRS can apply or depart from the rules contained
in the OID Regulations as necessary or appropriate to achieve a reasonable
result where a principal purpose in structuring a Mortgage Asset, Mortgage
Loan or Grantor Trust Certificate or applying the otherwise applicable
rules is to achieve a result that is unreasonable in light of the purposes
of the applicable statutes (which generally are intended to achieve the clear
reflection of income for both issuers and holders of debt instruments).
B. MULTIPLE CLASSES OF GRANTOR TRUST CERTIFICATES
1. Stripped Bonds and Stripped Coupons
Pursuant to Code Section 1286, the separation of ownership of the
right to receive some or all of the interest payments on an obligation from
ownership of the right to receive some or all of the principal payments results
in the creation of "stripped bonds" with respect to principal payments and
"stripped coupons" with respect to interest payments. For purposes of Code
Sections 1271 through 1288, Code Section 1286 treats a stripped bond or a
stripped coupon as an obligation issued on the date that such stripped interest
is created. If a Trust Fund is created with two classes of Grantor Trust
Certificates, one class of Grantor Trust Certificates may represent the right
to principal and interest, or principal only, on all or a portion of the
Mortgage Assets (the "Stripped Bond Certificates"), while the second class of
Grantor Trust Certificates may represent the right to some or all of the
interest on such portion (the "Stripped Coupon Certificates").
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points (i.e., 1% interest on the Mortgage
Asset principal balance) or the Certificates are initially sold with a de
minimis discount (assuming no prepayment assumption is required), any non-de
minimis discount arising from a subsequent transfer of the Certificates should
be treated as market discount. The IRS appears to require that reasonable
servicing fees be calculated on a Mortgage Asset by Mortgage Asset basis, which
could result in some Mortgage Assets being treated as having more than 100
basis points of interest stripped off. See "--Non-REMIC Certificates" and
"Multiple Classes of Grantor Trust Certificates--Stripped Bonds and Stripped
Coupons" herein.
Although not entirely clear, a Stripped Bond Certificate generally
should be treated as an interest in Mortgage Assets issued on the day such
Certificate is purchased for purposes of calculating any OID. Generally, if the
discount on a Mortgage Asset is larger than a de minimis amount (as calculated
for purposes of the OID rules) a purchaser of such a Certificate will be
required to accrue the discount under the OID rules of the Code. See
"--Non-REMIC Certificates" and "--Single Class of Grantor Trust
Certificates--Original Issue Discount" herein. However, a purchaser of a
Stripped Bond Certificate will be required to account for any discount on the
Mortgage Assets as market discount rather than OID if either (i) the amount of
OID with respect to the Mortgage Assets is treated as zero under the OID de
minimis rule when the Certificate was stripped or (ii) no more than 100 basis
points (including any amount of servicing fees in excess of reasonable
servicing fees) is stripped off of the Trust Fund's Mortgage Assets. Pursuant
to Revenue Procedure 91-49, issued on August 8, 1991, purchasers of Stripped
Bond Certificates using an inconsistent method of accounting must change their
method of accounting and request the consent of the IRS to the change in their
accounting method on a statement attached to their first timely tax return
filed after August 8, 1991.
The precise tax treatment of Stripped Coupon Certificates is
substantially uncertain. The Code could be read literally to require that OID
computations be made for each payment from each Mortgage Asset. Unless
otherwise specified in the related prospectus supplement, all payments from a
Mortgage Asset underlying a Stripped Coupon Certificate will be treated as a
single installment obligation subject to the OID rules of the Code, in which
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case, all payments from such Mortgage Asset would be included in the Mortgage
Asset's stated redemption price at maturity for purposes of calculating income
on such Certificate under the OID rules of the Code.
It is unclear under what circumstances, if any, the prepayment of
Mortgage Assets will give rise to a loss to the holder of a Stripped Bond
Certificate purchased at a premium or a Stripped Coupon Certificate. If such
Certificate is treated as a single instrument (rather than an interest in
discrete mortgage loans) and the effect of prepayments is taken into account in
computing yield with respect to such Grantor Trust Certificate, it appears that
no loss will be available as a result of any particular prepayment unless
prepayments occur at a rate sufficiently faster than the assumed prepayment
rate so that the Certificateholder will not recover its investment. However, if
such Certificate is treated as an interest in discrete Mortgage Assets, or if
no prepayment assumption is used, then when a Mortgage Asset is prepaid, the
holder of such Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of such Certificate that is allocable to
such Mortgage Asset.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates
are urged to consult with their own tax advisors regarding the proper treatment
of these Certificates for federal income tax purposes.
Treatment of Certain Owners. Several Code sections provide beneficial
treatment to certain taxpayers that invest in Mortgage Assets of the type that
make up the Trust Fund. With respect to these Code sections, no specific legal
authority exists regarding whether the character of the Grantor Trust
Certificates, for federal income tax purposes, will be the same as that of the
underlying Mortgage Assets. While Code Section 1286 treats a stripped
obligation as a separate obligation for purposes of the Code provisions
addressing OID, it is not clear whether such characterization would apply with
regard to these other Code sections. Although the issue is not free from doubt,
each class of Grantor Trust Certificates, unless otherwise specified in the
related Prospectus Supplement, should be considered to represent "real estate
assets" within the meaning of Code Section 856(c)(4)(A) and "loans . . .
secured by, an interest in real property which is . . . residential real
property" within the meaning of Code Section 7701(a)(19)(C)(v), and interest
income attributable to Grantor Trust Certificates should be considered to
represent "interest on obligations secured by mortgages on real property"
within the meaning of Code Section 856(c)(3)(B), provided that in each case the
underlying Mortgage Assets and interest on such Mortgage Assets qualify for
such treatment. Prospective purchasers to which such characterization of an
investment in Certificates is material should consult their own tax advisors
regarding the characterization of the Grantor Trust Certificates and the income
therefrom. Grantor Trust Certificates will be "obligation[s] . . . which [are]
principally secured by an interest in real property" within the meaning of Code
Section 860G(a)(3)(A) and "permitted assets" within the meaning of Code Section
860L(c).
2. Grantor Trust Certificates Representing Interests in Loans Other
Than ARM Loans
The original issue discount rules of Code Sections 1271 through 1275
will be applicable to a Certificateholder's interest in those Mortgage Assets
as to which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount in income are
applicable to mortgages of corporations originated after May 27, 1969,
mortgages of noncorporate mortgagors (other than individuals) originated after
July 1, 1982, and mortgages of individuals originated after March 2, 1984.
Under the OID Regulations, such original issue discount could arise by the
charging of points by the originator of the mortgage in an amount greater than
the statutory de minimis exception, including a payment of points that is
currently deductible by the borrower under applicable Code provisions, or under
certain circumstances, by the presence of "teaser" rates 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
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authority with respect to debt instruments, such as the Grantor Trust
Certificates, issued after December 21, 1992. Alternatively, proposed Treasury
regulations issued December 21, 1992 may be treated as authority for debt
instruments issued after December 21, 1992 and prior to April 4, 1994, and
proposed Treasury regulations issued in 1986 and 1991 may be treated as
authority for instruments issued before December 21, 1992. In applying these
dates, the issue date of the Mortgage Assets should be used, or, in the case of
Stripped Bond Certificates or Stripped Coupon Certificates, the date such
Certificates are acquired. The holder of a Certificate should be aware,
however, that neither the proposed OID Regulations nor the OID Regulations
adequately address certain issues relevant to prepayable securities.
Under the Code, the Mortgage Assets underlying the Grantor Trust
Certificate will be treated as having been issued on the date they were
originated with an amount of OID equal to the excess of such Mortgage Asset's
stated redemption price at maturity over its issue price. The issue price of a
Mortgage Asset is generally the amount lent to the mortgagee, which may be
adjusted to take into account certain loan origination fees. The stated
redemption price at maturity of a Mortgage Asset is the sum of all payments to
be made on such Mortgage Asset other than payments that are treated as
qualified stated interest payments. The accrual of this OID, as described below
under "--Accrual of Original Issue Discount," will, unless otherwise specified
in the related Prospectus Supplement, utilize the original yield to maturity of
the Grantor Trust Certificate calculated based on a reasonable assumed
prepayment rate for the mortgage loans underlying the Grantor Trust
Certificates (the "Prepayment Assumption") on the issue date of such Grantor
Trust Certificate, and will take into account events that occur during the
calculation period. The Prepayment Assumption will be determined in the manner
prescribed by regulations that have not yet been issued. In the absence of such
regulations, the Prepayment Assumption used will be the prepayment assumption
that is used in determining the offering price of such Certificate. No
representation is made that any Certificate will prepay at the Prepayment
Assumption or at any other rate. The prepayment assumption contained in the
Code literally only applies to debt instruments collateralized by other debt
instruments that are subject to prepayment rather than direct ownership
interests in such debt instruments, such as the Certificates represent.
However, no other legal authority provides guidance with regard to the proper
method for accruing OID on obligations that are subject to prepayment, and,
until further guidance is issued, the Master Servicer intends to calculate and
report OID under the method described below.
Accrual of Original Issue Discount. Generally, the owner of a Grantor
Trust Certificate must include in gross income the sum of the "daily portions,"
as defined below, of the OID on such Grantor Trust Certificate for each day on
which it owns such Certificate, including the date of purchase but excluding
the date of disposition. In the case of an original owner, the daily portions
of OID with respect to each component generally will be determined as set forth
under the OID Regulations. A calculation will be made by the Master Servicer or
such other entity specified in the related Prospectus Supplement of the portion
of OID that accrues during each successive monthly accrual period (or shorter
period from the date of original issue) that ends on the day in the calendar
year corresponding to each of the Distribution Dates on the Grantor Trust
Certificates (or the day prior to each such date). This will be done, in the
case of each full month accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the respective component under the Prepayment
Assumption) of all remaining payments to be received under the Prepayment
Assumption on the respective component and (b) any payments included in the
stated redemption price at maturity received during such accrual period, and
(ii) subtracting from that total the "adjusted issue price" of the respective
component at the beginning of such accrual period. The adjusted issue price of
a Grantor Trust Certificate at the beginning of the first accrual period is its
issue price; the adjusted issue price of a Grantor Trust Certificate at the
beginning of a subsequent accrual period is the adjusted issue price at the
beginning of the immediately preceding accrual period plus the amount of OID
allocable to that accrual period reduced by the amount of any payment other
than a payment of qualified stated interest made at the end of or during that
accrual period. The OID accruing during such accrual period will then be
divided by the number of days in the period to determine the daily portion of
OID for each day in 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
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Assets acquired by a Certificateholder are purchased at a price equal to the
then unpaid principal amount of such Mortgage Asset, no original issue discount
attributable to the difference between the issue price and the original
principal amount of such Mortgage Asset (i.e. points) will be includible by
such holder. Other original issue discount on the Mortgage Assets (e.g., that
arising from a "teaser" rate) would still need to be accrued.
3. Grantor Trust Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such
as the Grantor Trust Certificates, which represent interests in ARM Loans.
Additionally, the IRS has not issued guidance under the Code's coupon stripping
rules with respect to such instruments. In the absence of any authority, the
Master Servicer will report OID on Grantor Trust Certificates attributable to
ARM Loans ("Stripped ARM Obligations") to holders in a manner it believes is
consistent with the rules described above under the heading "--Grantor Trust
Certificates Representing Interests in Loans Other Than ARM Loans" and with the
OID Regulations. In general, application of these rules may require inclusion
of income on a Stripped ARM Obligation in advance of the receipt of cash
attributable to such income. Further, the addition of interest deferred by
reason of negative amortization ("Deferred Interest") to the principal balance
of an ARM Loan may require the inclusion of such amount in the income of the
Grantor Trust Certificateholder when such amount accrues. Furthermore, the
addition of Deferred Interest to the Grantor Trust Certificate's principal
balance will result in additional income (including possibly OID income) to the
Grantor Trust Certificateholder over the remaining life of such Grantor Trust
Certificates.
Because the treatment of Stripped ARM Obligations is uncertain,
investors are urged to consult their tax advisors regarding how income will be
includible with respect to such Certificates.
C. SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE
Sale or exchange of a Grantor Trust Certificate prior to its maturity
will result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the Grantor Trust Certificate. Such
adjusted basis generally will equal the seller's purchase price for the Grantor
Trust Certificate, increased by the OID included in the seller's gross income
with respect to the Grantor Trust Certificate, and reduced by principal
payments on the Grantor Trust Certificate previously received by the seller.
Such gain or loss will be capital gain or loss to an owner for which a Grantor
Trust Certificate is a "capital asset" within the meaning of Code Section 1221,
and will generally be long-term capital gain if the Grantor Trust Certificate
has been owned for more than one year. Long-term capital gains of individuals
are subject to reduced maximum tax rates while capital gains recognized by
individuals on capital assets held less than twelve months are generally
subject to ordinary income tax rates. The use of capital losses is limited.
It is possible that capital gain realized by holders of one or more
classes of Grantor Trust Certificates could be considered gain realized upon
the disposition of property that was part of a "conversion transaction." A sale
of a Grantor Trust Certificate will be part of a conversion transaction if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and (i) the holder entered the contract
to sell the Grantor Trust Certificate substantially contemporaneously with
acquiring the Grantor Trust Certificate, (ii) the Grantor Trust Certificate is
part of a straddle, (iii) the Grantor Trust Certificate is marketed or sold as
producing capital gain, or (iv) other transactions to be specified in Treasury
regulations that have not yet been issued. If the sale or other disposition of
a Grantor Trust Certificate is part of a conversion transaction, all or any
portion of the gain realized upon the sale or other disposition would be
treated as ordinary income instead of capital gain.
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Code Section 582(c)(1), so that gain or loss recognized from the
sale of a Grantor Trust Certificate by a bank or a thrift institution to which
such section applies will be treated as ordinary income or loss.
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
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under Code Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as
defined below) or (ii) a Grantor Trust Certificateholder holding on behalf of
an owner that is not a U.S. Person will be subject to federal income tax,
collected by withholding, at a rate of 30% or such lower rate as may be
provided for interest by an applicable tax treaty, unless such income is
effectively connected with a U.S. trade or business of such owner or beneficial
owner. Accrued OID recognized by the owner on the sale or exchange of such a
Grantor Trust Certificate also will be subject to federal income tax at the
same rate. Generally, such payments would not be subject to withholding to the
extent that a Grantor Trust Certificate evidences ownership in Mortgage Assets
issued after July 18, 1984, by natural persons if such Grantor Trust
Certificateholder complies with certain identification requirements (including
delivery of a statement, signed by the Grantor Trust Certificateholder under
penalties of perjury, certifying that such Grantor Trust Certificateholder is
not a U.S. Person and providing the name and address of such Grantor Trust
Certificateholder). To the extent payments to Grantor Trust Certificateholders
that are not U.S. Persons are payments of "contingent interest" on the
underlying Mortgage Assets, or such Grantor Trust Certificateholder is
ineligible for the exemption described in the preceding sentence, the 30%
withholding tax will apply unless such withholding taxes are reduced or
eliminated by an applicable tax treaty and such holder meets the eligibility
and certification requirements necessary to obtain the benefits of such treaty.
Additional restrictions apply to Mortgage Assets where the mortgagor is not a
natural person in order to qualify for the exemption from withholding. If
capital gain derived from the sale, retirement or other disposition of a
Grantor Trust Certificate is effectively connected with a U.S. trade or
business of a Grantor Trust Certificateholder that is not a U.S. Person, such
Certificateholder will be taxed on the net gain under the graduated U.S.
federal income tax rates applicable to U.S. Persons (and, with respect to
Grantor Trust Certificates held by or on behalf of corporations, also may be
subject to branch profits tax). In addition, if the Trust Fund acquires a
United States real property interest through foreclosure, deed in lieu of
foreclosure or otherwise on a Mortgage Asset secured by such an interest (which
for this purpose includes real property located in the United States and the
Virgin Islands), a Grantor Trust Certificateholder that is not a U.S. Person
will potentially be subject to federal income tax on any gain attributable to
such real property interest that is allocable to such holder. Non-U.S. Persons
should consult their tax advisors regarding the application to them of the
foregoing rules.
As used herein, a "U.S. Person" means a citizen or resident of the
United States, a corporation or a partnership organized in or under the laws of
the United States or any political subdivision thereof (other than a
partnership that is not treated as a U.S. Person under any applicable Treasury
regulations), an estate the income of which from sources outside the United
States is includible in gross income for federal income tax purposes regardless
of its connection with the conduct of a trade or business within the United
States or a trust if a court within the United States is able to exercise
primary supervision of the administration of the trust and one or more U.S.
Persons have the authority to control all substantial decisions of the trust.
In addition, certain trusts treated as U.S. Persons before August 20, 1996 may
elect to continue to be so treated to the extent provided in regulations.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The Master Servicer will furnish or make available, within a
reasonable time after the end of each calendar year, to each person who was a
Certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
Certificates as nominees on behalf of beneficial owners. If a holder,
beneficial owner, financial intermediary or other recipient of a payment on
behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines that such
person has not reported all interest and dividend income required to be shown
on its federal income tax return, 31% backup withholding may be required with
respect to any payments to registered owners who are not "exempt recipients."
In addition, upon the sale of a Grantor Trust Certificate to (or through) a
broker, the broker must withhold 31% of the entire purchase price, unless
either (i) the broker determines that the seller is a corporation or other
exempt recipient, or (ii) the seller provides, in the required manner, certain
identifying information and, in the case of a non-U.S. Person, certifies that
such seller is a Non-U.S. Person, and certain other conditions are met. Such as
sale must also be reported by the broker to the IRS, unless either (a) the
broker determines that the seller is an exempt recipient or (b) the seller
certifies its non-U.S. Person status (and certain other conditions are met).
Certification of the registered owner's non-U.S. Person status normally would
be made on IRS Form W-8 under penalties of perjury, although in certain cases
it may be possible to submit other
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documentary evidence. Any amounts deducted and withheld from a distribution to
a recipient would be allowed as a credit against such recipient's federal
income tax liability.
On October 6, 1997, the Treasury Department issued new regulations
(the "New Regulations") which make certain modifications to the withholding,
backup withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1999, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
REMICS
The Trust Fund relating to a Series of Certificates may elect to be
treated as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Although a REMIC is not generally subject to federal income
tax (see, however "--Taxation of Owners of REMIC Residual Certificates" and
"--Prohibited Transactions" below), if a Trust Fund with respect to which a
REMIC election is made fails to comply with one or more of the ongoing
requirements of the Code for REMIC status during any taxable year, including
the implementation of restrictions on the purchase and transfer of the residual
interests in a REMIC as described below under "Taxation of Owners of REMIC
Residual Certificates," the Code provides that a Trust Fund will not be treated
as a REMIC for such year and thereafter. In that event, such entity may be
taxable as a separate corporation, and the related Certificates (the "REMIC
Certificates") may not be accorded the status or given the tax treatment
described below. While the Code authorizes the Treasury Department to issue
regulations providing relief in the event of an inadvertent termination of the
status of a trust fund as a REMIC, no such regulations have been issued. Any
such relief, moreover, may be accompanied by sanctions, such as the imposition
of a corporate tax on all or a portion of the REMIC's income for the period in
which the requirements for such status are not satisfied. With respect to each
Trust Fund that elects REMIC status, Brown & Wood LLP or Cadwalader, Wickersham
& Taft or Latham & Watkins or such other counsel as may be specified in the
related Prospectus Supplement will deliver its opinion generally to the effect
that, under then existing law and assuming compliance with all provisions of
the related Pooling and Servicing Agreement, such Trust Fund will qualify as a
REMIC, and the related Certificates will be considered to be regular interests
("REMIC Regular Certificates") or a sole class of residual interests ("REMIC
Residual Certificates") in the REMIC. The related Prospectus Supplement for
each Series of Certificates will indicate whether the Trust Fund will make a
REMIC election and whether a class of Certificates will be treated as a regular
or residual interest in the REMIC.
A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in such an obligation and any "regular interest"
in another REMIC) that is principally secured by an interest in real property
and that is transferred to the REMIC within a prescribed time period in
exchange for regular or residual interests in the REMIC.
In general, with respect to each Series of Certificates for which a
REMIC election is made, (i) Certificates held by a thrift institution taxed as
a "domestic building and loan association" will constitute assets described in
Code Section 7701(a)(19)(C); (ii) Certificates held by a real estate investment
trust will constitute "real estate assets" within the meaning of Code Section
856(c)(4)(A); and (iii) interest on Certificates held by a real estate
investment trust will be considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section 856(c)(3)(B). If
less than 95% of the REMIC's assets are assets qualifying under any of the
foregoing Code sections, the Certificates will be qualifying assets only to the
extent that the REMIC's assets are qualifying assets.
Tiered REMIC Structures. For certain Series of Certificates, two or
more separate elections may be made to treat designated portions of the related
Trust Fund as REMICs (respectively, the "Subsidiary REMIC" and the "Master
REMIC") for federal income tax purposes. Upon the issuance of any such Series
of Certificates, Brown & Wood LLP or Cadwalader, Wickersham & Taft or Latham &
Watkins or such other counsel as may be specified in the related Prospectus
Supplement, counsel to the Depositor, will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related Agreement,
the Master REMIC as well as any Subsidiary REMIC will each qualify as a REMIC,
and the REMIC Certificates issued by the Master REMIC and the Subsidiary
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REMIC or REMICs, respectively, will be considered to evidence ownership of
regular interests ("REMIC Regular Certificates") or residual interests ("REMIC
Residual Certificates") in the related REMIC within the meaning of the REMIC
provisions.
Other than the residual interest in a Subsidiary REMIC, only REMIC
Certificates issued by the Master REMIC will be offered hereunder. The
Subsidiary REMIC or REMICs and the Master REMIC will be treated as one REMIC
solely for purposes of determining whether the REMIC Certificates will be (i)
"real estate assets" within the meaning of Section 856(c)(4)(A) of the Code;
(ii) "loans secured by an interest in real property" under Section
7701(a)(19)(C) of the Code; and (iii) whether the income on such Certificates
is interest described in Section 856(c)(3)(B) of the Code.
A. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt
instruments issued by the REMIC and not as ownership interests in the REMIC or
its assets. Moreover, holders of REMIC Regular Certificates that otherwise
report income under a cash method of accounting will be required to report
income with respect to REMIC Regular Certificates under an accrual method.
Original Issue Discount and Premium. The REMIC Regular Certificates
may be issued with OID. Generally, such OID, if any, will equal the difference
between the "stated redemption price at maturity" of a REMIC Regular
Certificate and its "issue price." Holders of any class of Certificates issued
with OID will be required to include such OID in gross income for federal
income tax purposes as it accrues, in accordance with a constant interest
method based on the compounding of interest as it accrues rather than in
accordance with receipt of the interest payments. The following discussion is
based in part on the OID Regulations and in part on the provisions of the Tax
Reform Act of 1986 (the "1986 Act"). Holders of REMIC Regular Certificates (the
"REMIC Regular Certificateholders") should be aware, however, that the OID
Regulations do not adequately address certain issues relevant to prepayable
securities, such as the REMIC Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273
and 1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated reinvestment
rate, if any, relating to the REMIC Regular Certificates and prescribe a method
for adjusting the amount and rate of accrual of such discount where the actual
prepayment rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The legislative
history of the 1986 Act (the "Legislative History") provides, however, that
Congress intended the regulations to require that the Prepayment Assumption be
the prepayment assumption that is used in determining the initial offering
price of such REMIC Regular Certificates. The Prospectus Supplement for each
Series of REMIC Regular Certificates will specify the Prepayment Assumption to
be used for the purpose of determining the amount and rate of accrual of OID.
No representation is made that the REMIC Regular Certificates will prepay at
the Prepayment Assumption or at any other rate.
In general, each REMIC Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
"stated redemption price at maturity" over its "issue price." The issue price
of a REMIC Regular Certificate is the first price at which a substantial amount
of REMIC Regular Certificates of that class are first sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of REMIC Regular Certificates is sold
for cash on or prior to the date of their initial issuance (the "Closing
Date"), the issue price for such class will be treated as the fair market value
of such class on the Closing Date. The issue price of a REMIC Regular
Certificate also includes the amount paid by an initial Certificateholder for
accrued interest that relates to a period prior to the issue date of the REMIC
Regular Certificate. The stated redemption price at maturity of a REMIC Regular
Certificate includes the original principal amount of the REMIC Regular
Certificate, but generally will not include distributions of interest if such
distributions constitute "qualified stated interest." Qualified stated interest
generally means interest payable at a single fixed rate or qualified variable
rate (as described below) provided that such interest payments are
unconditionally payable at intervals of one year or less during the entire term
of the REMIC Regular Certificate. Interest is payable at a single fixed rate
only if the rate appropriately takes into account the length of the interval
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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 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
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payments, assuming no further prepayments or when the final payment is received
with respect to such Super-Premium Certificate.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than REMIC Regular Certificate based on a notional amount)
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular Certificate
generally should not be treated as a Super-Premium Certificate and the rules
described below under "--REMIC Regular Certificates--Premium" should apply.
However, it is possible that holders of REMIC Regular Certificates issued at a
premium, even if the premium is less than 25% of such Certificate's actual
principal balance, will be required to amortize the premium under an original
issue discount method or contingent interest method even though no election
under Code Section 171 is made to amortize such premium.
Generally, a REMIC Regular Certificateholder must include in gross
income the "daily portions," as determined below, of the OID that accrues on a
REMIC Regular Certificate for each day a Certificateholder holds the REMIC
Regular Certificate, including the purchase date but excluding the disposition
date. In the case of an original holder of a REMIC Regular Certificate, a
calculation will be made of the portion of the OID that accrues during each
successive period ("an accrual period") that ends on the day in the calendar
year corresponding to a Distribution Date (or if Distribution Dates are on the
first day or first business day of the immediately preceding month, interest
may be treated as payable on the last day of the immediately preceding month)
and begins on the day after the end of the immediately preceding accrual period
(or on the issue date in the case of the first accrual period). This will be
done, in the case of each full accrual period, by (i) adding (a) the present
value at the end of the accrual period (determined by using as a discount
factor the original yield to maturity of the REMIC Regular Certificates as
calculated under the Prepayment Assumption) of all remaining payments to be
received on the REMIC Regular Certificates under the Prepayment Assumption and
(b) any payments included in the stated redemption price at maturity received
during such accrual period, and (ii) subtracting from that total the adjusted
issue price of the REMIC Regular Certificates at the beginning of such accrual
period. The adjusted issue price of a REMIC Regular Certificate at the
beginning of the first accrual period is its issue price; the adjusted issue
price of a REMIC Regular Certificate at the beginning of a subsequent accrual
period is the adjusted issue price at the beginning of the immediately
preceding accrual period plus the amount of OID allocable to that accrual
period and reduced by the amount of any payment other than a payment of
qualified stated interest made at the end of or during that accrual period. The
OID accrued during an accrual period will then be divided by the number of days
in the period to determine the daily portion of OID for each day in the accrual
period. The calculation of OID under the method described above will cause the
accrual of OID to either increase or decrease (but never below zero) in a given
accrual period to reflect the fact that prepayments are occurring faster or
slower than under the Prepayment Assumption. With respect to an initial accrual
period shorter than a full accrual period, the daily portions of OID may be
determined according to an appropriate allocation under any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate issued with OID
who purchases the REMIC Regular Certificate at a cost less than the remaining
stated redemption price at maturity will also be required to include in gross
income the sum of the daily portions of OID on that REMIC Regular Certificate.
In computing the daily portions of OID for such a purchaser (as well as an
initial purchaser that purchases at a price higher than the adjusted issue
price but less than the stated redemption price at maturity), however, the
daily portion is reduced by the amount that would be the daily portion for such
day (computed in accordance with the rules set forth above) multiplied by a
fraction, the numerator of which is the amount, if any, by which the price paid
by such holder for that REMIC Regular Certificate exceeds the following amount:
(a) the sum of the issue price plus the aggregate amount of OID that would have
been includible in the gross income of an original REMIC Regular
Certificateholder (who purchased the REMIC Regular Certificate at its issue
price), less (b) any prior payments included in the stated redemption price at
maturity, and the denominator of which is the sum of the daily portions for
that REMIC Regular Certificate for all days beginning on the date after the
purchase date 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,
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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 discount or original issue discount) and premium in income as
interest, based on a constant yield method. If such an election were to be made
with respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Certificateholder acquires during the year of the
election or thereafter. Similarly, a Certificateholder that makes this election
for a Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. See
"--REMIC Regular Certificates--Premium" herein. The election to accrue
interest, discount and premium on a constant yield method with respect to a
Certificate is irrevocable without the consent of the IRS.
Market Discount. A purchaser of a REMIC Regular Certificate may also
be subject to the market discount provisions of Code Sections 1276 through
1278. Under these provisions and the OID Regulations, "market discount" equals
the excess, if any, of (i) the REMIC Regular Certificate's stated principal
amount or, in the case of a REMIC Regular Certificate with OID, the adjusted
issue price (determined for this purpose as if the purchaser had purchased such
REMIC Regular Certificate from an original holder) over (ii) the price for such
REMIC Regular Certificate paid by the purchaser. A Certificateholder that
purchases a REMIC Regular Certificate at a market discount will recognize
income upon receipt of each distribution representing amounts included in such
certificate's stated redemption price at maturity. In particular, under Section
1276 of the Code such a holder generally will be required to allocate each such
distribution first to accrued market discount not previously included in
income, and to recognize ordinary income to that extent. A Certificateholder
may elect to include market discount in income currently as it accrues rather
than including it on a deferred basis in accordance with the foregoing. If
made, such election will apply to all market discount bonds acquired by such
Certificateholder on or after the first day of the first taxable year to which
such election applies.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular Certificate
is less than 0.25% of such REMIC Regular Certificate's stated redemption price
at maturity multiplied by such REMIC Regular Certificate's weighted average
maturity remaining after the date of purchase. If market discount on a REMIC
Regular Certificate is considered to be zero under this rule, the actual amount
of market discount must be allocated to the remaining principal payments on the
REMIC Regular Certificate, and gain equal to such allocated amount will be
recognized when the corresponding principal payment is made. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under Code Sections 1276 through 1278.
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The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986, shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, rules described in
the Legislative History will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest method rate or according to one of the following methods. For
REMIC Regular Certificates issued with OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the OID accruing
during the period and the denominator of which is the total remaining OID at
the beginning of the period. For REMIC Regular Certificates issued without OID,
the amount of market discount that accrues during a period is equal to the
product of (a) the total remaining market discount and (b) a fraction, the
numerator of which is the amount of stated interest paid during the accrual
period and the denominator of which is the total amount of stated interest
remaining to be paid at the beginning of the period. For purposes of
calculating market discount under any of the above methods in the case of
instruments (such as the REMIC Regular Certificates) that provide for payments
that may be accelerated by reason of prepayments of other obligations securing
such instruments, the same Prepayment Assumption applicable to calculating the
accrual of OID will apply.
A holder who acquired a REMIC Regular Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry such Certificate purchased with market discount. For these purposes,
the de minimis rule referred to above applies. Any such deferred interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later than the year in
which such market discount is includible in income. If such holder elects to
include market discount in income currently as it accrues on all market
discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Premium. A purchaser of a REMIC Regular Certificate that purchases the
REMIC Regular Certificate at a cost (not including accrued qualified stated
interest) greater than its remaining stated redemption price at maturity will
be considered to have purchased the REMIC Regular Certificate at a premium and
may elect to amortize such premium under a constant yield method. A
Certificateholder that makes this election for a Certificate that is acquired
at a premium will be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium that such
Certificateholder acquires during the year of the election or thereafter. It is
not clear whether the Prepayment Assumption would be taken into account in
determining the life of the REMIC Regular Certificate for this purpose.
However, the Legislative History states that the same rules that apply to
accrual of market discount (which rules require use of a Prepayment Assumption
in accruing market discount with respect to REMIC Regular Certificates without
regard to whether such Certificates have OID) will also apply in amortizing
bond premium under Code Section 171. The Code provides that amortizable bond
premium will be allocated among the interest payments on such REMIC Regular
Certificates and will be applied as an offset against such interest payment. 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. On December 30, 1997, the IRS issued the
Amortizable Bond Premium Regulations, which generally are effective for bonds
acquired on or after March 2, 1998 or, for holders making an election to
amortize bond premium as described above for the taxable year that includes
March 2, 1998 or any subsequent taxable year, will apply to bonds held on or
after the first day of the taxable year in which the election is made. Neither
the proposed regulations nor the final regulations, by their express terms,
apply to prepayable securities described in Section 1272(a)(6) of the Code,
such as the REMIC Regular Certificates. Certificateholders should consult their
tax advisors regarding the possibility of making an election to amortize any
such bond premium.
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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.
Such capital gain or loss will generally be long-term capital gain or
loss if the REMIC Regular Certificate was held for more than one year.
Long-term capital gains of individuals are subject to reduced maximum tax rates
while capital gains recognized by individual on capital assets held less than
twelve months are generally subject to ordinary income tax rates. The use of
capital losses is limited.
Gain from the sale or other disposition of a REMIC Regular Certificate
that might otherwise be capital gain will be treated as ordinary income to the
extent that such gain does not exceed the excess, if any, of (i) the amount
that would have been includible in such holder's income with respect to the
REMIC Regular Certificate had income accrued thereon at a rate equal to 110% of
the AFR as defined in Code Section 1274(d) determined as of the date of
purchase of such REMIC Regular Certificate, over (ii) the amount actually
includible in such holder's income. Gain from the sale or other disposition of
a REMIC Regular Certificate that might otherwise be capita gain will be treated
as ordinary income if the REMIC Regular Certificate is held as part of a
"conversion transaction" as defined in Code section 1258(c), up to the amount
of interest that would have accrued on the REMIC Regular Certificateholder's
net investment in the conversion transaction at 120% of the appropriate
applicable federal rate under Code section 1274(d) in effect at the time the
taxpayer entered into the transaction minus any amount previously treated as
ordinary income with respect to any prior disposition of property that was held
as part of such transaction, or if the REMIC Regular Certificate is held as
part of a straddle. Potential investors should consult their tax advisors with
respect to tax consequences of ownership and disposition of an investment in
REMIC Regular Certificates in their particular circumstances.
It is possible that capital gain realized by holders of one or more
classes of REMIC Regular Certificates could be considered gain realized upon
the disposition of property that was part of a "conversion transaction." A sale
of a REMIC Regular Certificate will be part of a "conversion transaction" if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and (i) the holder entered the contract
to sell the REMIC Regular Certificate substantially contemporaneously with
acquiring the REMIC Regular Certificate, (ii) the REMIC Regular Certificate is
part of a straddle, (iii) the REMIC Regular Certificate is marketed or sold as
producing capital gains, or (iv) other transactions to be specified in Treasury
regulations that have not yet been issued. If the sale or other disposition of
a REMIC Regular Certificate is part of a conversion transaction, all or
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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 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.
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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.
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
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behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments with respect to
any payments to registered owners who are not "exempt recipients." In addition,
upon the sale of a REMIC Regular Certificate to (or through) a broker, the
broker must withhold 31% of the entire purchase price, unless either (i) the
broker determines that the seller is a corporation or other exempt recipient,
or (ii) the seller provides, in the required manner, certain identifying
information and, in the case of a non-U.S. Person, certifies that such seller
is a Non-U.S. Person, and certain other conditions are met. Such as sale must
also be reported by the broker to the IRS, unless either (a) the broker
determines that the seller is an exempt recipient or (b) the seller certifies
its non-U.S. Person status (and certain other conditions are met).
Certification of the registered owner's non-U.S. Person status normally would
be made on IRS Form W-8 under penalties of perjury, although in certain cases
it may be possible to submit other documentary evidence. Any amounts deducted
and withheld from a distribution to a recipient would be allowed as a credit
against such recipient's federal income tax liability.
On October 6, 1997, the Treasury Department issued the New
Regulations, which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1999, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
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
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above. The Legislative History indicates that certain adjustments may be
appropriate to reduce (or increase) the income of a subsequent holder of a
REMIC Residual Certificate that purchased such REMIC Residual Certificate at a
price greater than (or less than) the adjusted basis such REMIC Residual
Certificate would have in the hands of an original REMIC Residual
Certificateholder. See "--Sale or Exchange of REMIC Residual Certificates"
below. It is not clear, however, whether such adjustments will in fact be
permitted or required and, if so, how they would be made. The REMIC Regulations
do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of (i) the income from the
Mortgage Assets and the REMIC's other assets and (ii) the deductions allowed to
the REMIC for interest and OID on the REMIC Regular Certificates and, except as
described above under "--Taxation of Owners of REMIC Regular
Certificates--Non-Interest Expenses of the REMIC," other expenses. REMIC
taxable income is generally determined in the same manner as the taxable income
of an individual using the accrual method of accounting, except that (i) the
limitations on deductibility of investment interest expense and expenses for
the production of income do not apply, (ii) all bad loans will be deductible as
business bad debts, and (iii) the limitation on the deductibility of interest
and expenses related to tax-exempt income will apply. The REMIC's gross income
includes interest, original issue discount income, and market discount income,
if any, on the Mortgage Loans, reduced by amortization of any premium on the
Mortgage Loans, plus income on reinvestment of cash flows and reserve assets,
plus any cancellation of indebtedness income upon allocation of realized losses
to the REMIC Regular Certificates. Note that the timing of cancellation of
indebtedness income recognized by REMIC Residual Certificateholders resulting
from defaults and delinquencies on Mortgage Assets may differ from the time of
the actual loss on the Mortgage Asset. The REMIC's deductions include interest
and original issue discount expense on the REMIC Regular Certificates,
servicing fees on the Mortgage Loans, other administrative expenses of the
REMIC and realized losses on the Mortgage Loans. The requirement that REMIC
Residual Certificateholders report their pro rata share of taxable income or
net loss of the REMIC will continue until there are no Certificates of any
class of the related Series outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the REMIC Regular Certificates and the REMIC Residual Certificates (or, if a
class of Certificates is not sold initially, its fair market value). Such
aggregate basis will be allocated among the Mortgage Assets and other assets of
the REMIC in proportion to their respective fair market value. A Mortgage Asset
will be deemed to have been acquired with discount or premium to the extent
that the REMIC's basis therein is less than or greater than its principal
balance, respectively. Any such discount (whether market discount or OID) will
be includible in the income of the REMIC as it accrues, in advance of receipt
of the cash attributable to such income, under a method similar to the method
described above for accruing OID on the REMIC Regular Certificates. The REMIC
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
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holder and the adjusted basis such REMIC Residual Certificate would have in the
hands of an original REMIC Residual Certificateholder, see "--Allocation of the
Income of the REMIC to the REMIC Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any
calendar quarter in which its deductions exceed its gross income. Such net loss
would be allocated among the REMIC Residual Certificateholders in the same
manner as the REMIC's taxable income. The net loss allocable to any REMIC
Residual Certificate will not be deductible by the holder to the extent that
such net loss exceeds such holder's adjusted basis in such REMIC Residual
Certificate. Any net loss that is not currently deductible by reason of this
limitation may only be used by such REMIC Residual Certificateholder to offset
its share of the REMIC's taxable income in future periods (but not otherwise).
The ability of REMIC Residual Certificateholders that are individuals or
closely held corporations to deduct net losses may be subject to additional
limitations under the Code.
Mark to Market Rules. Prospective purchasers of a REMIC Residual
Certificate should be aware that the IRS has finalized regulations (the
"Mark-to-Market Regulations") which provide that a REMIC Residual Certificate
acquired after January 3, 1995 cannot be marked to market. The Mark-to-Market
Regulations replaced the temporary regulations which allowed a Residual
Certificate to be marked to market provided that it was not a "negative value"
residual interest and did not have the same economic effect as a "negative
value" residual interest.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule,
all of the fees and expenses of a REMIC will be taken into account by holders
of the REMIC Residual Certificates. In the case of a single class REMIC,
however, the expenses and a matching amount of additional income will be
allocated, under temporary Treasury regulations, among the REMIC Regular
Certificateholders and the REMIC Residual Certificateholders on a daily basis
in proportion to the relative amounts of income accruing to each
Certificateholder on that day. In general terms, a single class REMIC is one
that either (i) would qualify, under existing Treasury regulations, as a
grantor trust if it were not a REMIC (treating all interests as ownership
interests, even if they would be classified as 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
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the meaning of Code Section 512 if the REMIC Residual Certificateholder is a
pension fund or any other organization that is subject to tax only on its
unrelated business taxable income (see "--Tax-Exempt Investors" below); and
(iii) is not eligible for any reduction in the rate of withholding tax in the
case of a REMIC Residual Certificateholder that is a foreign investor. See
"--Non-U.S. Persons" below.
Except as discussed in the following paragraph, with respect to any
REMIC Residual Certificateholder, the excess inclusions for any calendar
quarter is the excess, if any, of (i) the income of such REMIC Residual
Certificateholder for that calendar quarter from its REMIC Residual Certificate
over (ii) the sum of the "daily accruals" (as defined below) for all days
during the calendar quarter on which the REMIC Residual Certificateholder holds
such REMIC Residual Certificate. For this purpose, the daily accruals with
respect to a REMIC Residual Certificate are determined by allocating to each
day in the calendar quarter its ratable portion of the product of the "adjusted
issue price" (as defined below) of the REMIC Residual Certificate at the
beginning of the calendar quarter and 120 percent of the "Federal long-term
rate" in effect at the time the REMIC Residual Certificate is issued. For this
purpose, the "adjusted issue price" of a REMIC Residual Certificate at the
beginning of any calendar quarter equals the issue price of the REMIC Residual
Certificate, increased by the amount of daily accruals for all prior quarters,
and decreased (but not below zero) by the aggregate amount of payments made on
the REMIC Residual Certificate before the beginning of such quarter. The
"federal long-term rate" is an average of current yields on Treasury securities
with a remaining term of greater than nine years, computed and published
monthly by the IRS.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Regulated investment companies, common trust funds and certain
cooperatives are subject to similar rules.
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
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by the taxable income of the REMIC that was included in the income of such
REMIC Residual Certificateholder with respect to such REMIC Residual
Certificate, and decreased (but not below zero) by the net losses that have
been allowed as deductions to such REMIC Residual Certificateholder with
respect to such REMIC Residual Certificate and by the distributions received
thereon by such REMIC Residual Certificateholder. In general, any such gain or
loss will be capital gain or loss provided the REMIC Residual Certificate is
held as a capital asset. Such capital gain or loss will generally be long-term
capital gain or loss if the REMIC Regular Certificate was held for more than
one year. Long-term capital gains of individuals are subject to reduced maximum
tax rates while capital gains recognized by individuals on capital assets held
less than twelve months are generally subject to ordinary income tax rates. The
use of capital losses is limited. However, REMIC Residual Certificates will be
"evidences of indebtedness" within the meaning of Code Section 582(c)(1), so
that gain or loss recognized from sale of a REMIC Residual Certificate by a
bank or thrift institution to which such section applies would be ordinary
income or loss. In addition, a transfer of a REMIC Residual Certificate that is
a "noneconomic residual interest" may be subject to different rules. See "--Tax
Related Restrictions on Transfers of REMIC Residual Certificates--Noneconomic
REMIC Residual Certificates" below.
Except as provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other REMIC Residual Certificate, any residual
interest in another REMIC or similar interest in a "taxable mortgage pool" (as
defined in Code Section 7701(i)) during the period beginning six months before,
and ending six months after, the date of such sale, such sale will be subject
to the "wash sale" rules of Code Section 1091. In that event, any loss realized
by the REMIC Residual Certificateholder on the sale will not be deductible,
but, instead, will increase such REMIC Residual Certificateholder's adjusted
basis in the newly acquired asset.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income
derived from "prohibited transactions" (the "Prohibited Transactions Tax"). In
general, subject to certain specified exceptions, a prohibited transaction
means the disposition of a Mortgage Asset, the receipt of income from a source
other than a Mortgage Asset or certain other permitted investments, the receipt
of compensation for services, or gain from the disposition of an asset
purchased with the payments on the Mortgage Assets for temporary investment
pending distribution on the Certificates. It is not anticipated that the Trust
Fund for any Series of Certificates will engage in any prohibited transactions
in which it would recognize a material amount of net income.
In addition, certain contributions to a Trust Fund as to which an
election has been made to treat such Trust Fund as a REMIC made after the day
on which such Trust Fund issues all of its interests could result in the
imposition of a tax on the Trust Fund equal to 100% of the value of the
contributed property (the "Contributions Tax"). No Trust Fund for any Series of
Certificates will accept contributions that would subject it to such tax.
In addition, a Trust Fund as to which an election has been made to
treat such Trust Fund as a REMIC may also be subject to federal income tax at
the highest corporate rate on "net income from foreclosure property,"
determined by reference to the rules applicable to real estate investment
trusts. "Net income from foreclosure property" generally means income from
foreclosure property other than qualifying income for a real estate investment
trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net
income from foreclosure property or state or local income or franchise tax that
may be imposed on a REMIC relating to any Series of Certificates arises out of
or results from (i) a breach of the related Servicer's, Trustee's or
Depositor's obligations, as the case may be, under the related Agreement for
such Series, such tax will be borne by such Servicer, Trustee or Depositor, as
the case may be, out of its own funds or (ii) the Depositor's obligation to
repurchase a Mortgage Loan, such tax will be borne by the Depositor. In the
event that such Servicer, Trustee or Depositor, as the case may be, fails to
pay or is not required to pay any such tax as provided above, such tax will be
payable out of the Trust Fund for such Series and will result in a reduction in
amounts available to be distributed to the Certificateholders of such Series.
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LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC's final tax return a date on which such adoption is deemed to occur,
and sells all of its assets (other than cash) within a 90-day period beginning
on such date, the REMIC will not be subject to any Prohibited Transaction Tax,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash (other than the amounts retained to meet claims) to
holders of Regular and REMIC Residual Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis in
the REMIC Residual Certificate exceeds the amount of cash distributed to such
REMIC Residual Certificateholder in final liquidation of its interest, then it
would appear that the REMIC Residual Certificateholder would be entitled to a
loss equal to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code,
the REMIC generally will be treated as a partnership and the REMIC Residual
Certificateholders will be treated as the partners. Certain information will be
furnished quarterly to each REMIC Residual Certificateholder who held a REMIC
Residual Certificate on any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items on
its return consistently with their treatment on the REMIC's return, unless the
REMIC Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting
an administrative proceeding at the REMIC level. The REMIC does not intend to
register as a tax shelter pursuant to Code Section 6111 because it is not
anticipated that the REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
TAX-EXEMPT INVESTORS
Any REMIC Residual Certificateholder that is a pension fund or other
entity that is subject to federal income taxation only on its "unrelated
business taxable income" within the meaning of Code Section 512 will be subject
to such tax on that portion of the distributions received on a REMIC Residual
Certificate that is considered an excess inclusion. See "--Taxation of Owners
of REMIC Residual Certificates--Excess Inclusions" above.
RESIDUAL CERTIFICATE PAYMENTS--NON-U.S. PERSONS
Amounts paid to REMIC Residual Certificateholders who are not U.S.
Persons (see "--Taxation of Owners of REMIC Regular Certificates--Non-U.S.
Persons" above) are treated as interest for purposes of the 30% (or lower
treaty rate) United States withholding tax. Amounts distributed to holders of
REMIC Residual Certificates should qualify as "portfolio interest," subject to
the conditions described in "--Taxation of Owners of REMIC Regular
Certificates" above, but only to the extent that the underlying mortgage loans
were originated after July 18, 1984. Furthermore, the rate of withholding on
any income on a REMIC Residual Certificate that is excess inclusion income will
not be subject to reduction under any applicable tax treaties. See "--Taxation
of Owners of REMIC Residual Certificates--Excess Inclusions" above. If the
portfolio interest exemption is unavailable, such amount will be subject to
United States withholding tax when paid or otherwise distributed (or when the
REMIC Residual Certificate is disposed of) under rules similar to those for
withholding upon disposition of debt instruments that have OID. The Code,
however, grants the Treasury Department authority to issue regulations
requiring that those amounts be taken into account earlier than 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
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REMIC Residual Certificates--Excess Inclusions" above. If the amounts
paid to REMIC Residual Certificateholders that are not U.S. Persons are
effectively connected with their conduct of a trade or business within the
United States, the 30% (or lower treaty rate) withholding will not apply.
Instead, the amounts paid to such non-U.S. Person will be subject to U.S.
federal income taxation at regular graduated rates. For special restrictions on
the transfer of REMIC Residual Certificates, see "--Tax-Related Restrictions on
Transfers of REMIC Residual Certificates" below.
REMIC Regular Certificateholders and persons related to such holders
should not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their tax
advisors as to the possible adverse tax consequences of such acquisition.
TAX-RELATED RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC
unless there are reasonable arrangements designed to ensure that residual
interests in such entity are not held by "disqualified organizations" (as
defined below). Further, a tax is imposed on the transfer of a residual
interest in a REMIC to a "disqualified organization." The amount of the tax
equals the product of (A) an amount (as determined under the REMIC Regulations)
equal to the present value of the total anticipated "excess inclusions" with
respect to such interest for periods after the transfer and (ii) the highest
marginal federal income tax rate applicable to corporations. The tax is imposed
on the transferor unless the transfer is through an agent (including a broker
or other middleman) for a disqualified organization, in which event the tax is
imposed on the agent. The person otherwise liable for the tax shall be relieved
of liability for the tax if the transferee furnished to such person an
affidavit that the transferee is not a disqualified organization and, at the
time of the transfer, such person does not have actual knowledge that the
affidavit is false. A "disqualified organization" means (A) the United States,
any State, possession or political subdivision thereof, any foreign government,
any international organization or any agency or instrumentality of any of the
foregoing (provided that such term does not include an instrumentality if all
its activities are subject to tax and, except for FHLMC, a majority of its
board of directors is not selected by any such governmental agency), (B) any
organization (other than certain farmers' cooperatives) generally exempt from
federal income taxes unless such organization is subject to the tax on
"unrelated business taxable income" and (C) a rural electric or telephone
cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding
a residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity, provided that all partners of an "electing large
partnership" as defined in Section 775 of the Code, are deemed to be
disqualified organizations. The amount of the tax is equal to the product of
(A) the amount of excess inclusions for the taxable year allocable to the
interest held by the disqualified organization and (B) the highest marginal
federal income tax rate applicable to corporations. The pass-through entity
otherwise liable for the tax, for any period during which the disqualified
organization is the record holder of an interest in such entity, will be
relieved of liability for the tax if such record holder furnishes to such
entity an affidavit that such record holder is not a disqualified organization
and, for such period, the pass-through entity does not have actual knowledge
that the affidavit is false. For this purpose, a "pass-through entity" means
(i) a regulated investment company, real estate investment trust or common
trust fund, (ii) a partnership, trust or estate and (iii) certain cooperatives.
Except as may be provided in Treasury regulations not yet issued, any person
holding an interest in a pass-through entity as a nominee for another will,
with respect to such interest, be treated as a pass-through entity. Electing
large partnerships (generally, non-service partnerships with 100 or more
members electing to be subject to simplified IRS reporting provisions under
Code sections 771 through 777) will be taxable on excess inclusion income as if
all partners were disqualified organizations.
In order to comply with these rules, the Agreement will provide that
no record or beneficial ownership interest in a REMIC Residual Certificate may
be purchased, transferred or sold, directly or indirectly, without the express
written consent of the Master Servicer. The Master Servicer will grant such
consent to a proposed transfer only if it receives the following: (i) an
affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the REMIC Residual Certificate
as a nominee or agent for a disqualified
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organization and (ii) a covenant by the proposed transferee to the effect that
the proposed transferee agrees to be bound by and to abide by the transfer
restrictions applicable to the REMIC Residual Certificate.
Noneconomic REMIC Residual Certificates. The REMIC Regulations
disregard, for federal income tax purposes, any transfer of a Noneconomic REMIC
Residual Certificate to a "U.S. Person," as defined above, unless no
significant purpose of the transfer is to enable the transferor to impede the
assessment or collection of tax. A Noneconomic REMIC Residual Certificate is
any REMIC Residual Certificate (including a REMIC Residual Certificate with a
positive value at issuance) unless, at the time of transfer, taking into
account the Prepayment Assumption and any required or permitted clean up calls
or required liquidation provided for in the REMIC's organizational documents,
(i) the present value of the expected future distributions on the REMIC
Residual Certificate at least equals the product of the present value of the
anticipated excess inclusions and the highest corporate income tax rate in
effect for the year in which the transfer occurs and (ii) the transferor
reasonably expects that the transferee will receive distributions from the
REMIC at or after the time at which taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. A significant
purpose to impede the assessment or collection of tax exists if the transferor,
at the time of the transfer, either knew or should have known that the
transferee would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. A transferor is presumed not to have such
knowledge if (i) the transferor conducted a reasonable investigation of the
transferee and (ii) the transferee acknowledges to the transferor that the
residual interest may generate tax liabilities in excess of the cash flow and
the transferee represents that it intends to pay such taxes associated with the
residual interest as they become due. If a transfer of a Noneconomic REMIC
Residual Certificate is disregarded, the transferor would continue to be
treated as the owner of the REMIC Residual Certificate and would continue to be
subject to tax on its allocable portion of the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of
a REMIC Residual Certificate that has a "tax avoidance potential" to a "foreign
person" will be disregarded for federal income tax purposes. This rule appears
to apply to a transferee who is not a U.S. Person unless such transferee's
income in respect of the REMIC Residual Certificate is effectively connected
with the conduct of a United Sates trade or business. A REMIC Residual
Certificate is deemed to have a tax avoidance potential unless, at the time of
transfer, the transferor reasonably expect that the REMIC will distribute to
the transferee amounts that will equal at least 30 percent of each excess
inclusion, and that such amounts will be distributed at or after the time the
excess inclusion accrues and not later than the end of the calendar year
following the year of accrual. If the non-U.S. Person transfers the REMIC
Residual Certificate to a U.S. Person, the transfer will be disregarded, and
the foreign transferor will continue to be treated as the owner, if the
transfer has the effect of allowing the transferor to avoid tax on accrued
excess inclusions. The provisions in the REMIC Regulations regarding transfers
of REMIC Residual Certificates that have tax avoidance potential to foreign
persons are effective for all transfers after June 30, 1992. The Pooling and
Servicing Agreement will provide that no record or beneficial ownership
interest in a REMIC Residual Certificate may be transferred, directly or
indirectly, to a non-U.S. Person unless such person provides the Trustee with a
duly 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 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.
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CERTAIN ERISA CONSIDERATIONS
GENERAL
Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), imposes certain restrictions on employee benefit plans
subject thereto ("ERISA Plans") and on persons who are parties in interest or
disqualified persons ("parties in interest") with respect to such ERISA Plans.
Certain employee benefit plans, such as governmental plans and church plans (if
no election has been made under Section 410(d) of the Code), are not subject to
the restrictions of ERISA, and assets of such plans may be invested in the
Certificates without regard to the ERISA considerations described below,
subject to other applicable federal, state or local law. However, any such
governmental or church plan which is qualified under Section 401(a) of the Code
and exempt from taxation under Section 501(a) of the Code is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that an ERISA Plan's investments be made in
accordance with the documents governing the ERISA Plan.
PROHIBITED TRANSACTIONS
GENERAL
Section 406 of ERISA prohibits parties in interest with respect to an
ERISA Plan from engaging in certain transactions involving such Plan and its
assets unless a statutory or administrative exemption applies to the
transaction. In some cases, a civil penalty may be assessed on non-exempt
prohibited transactions pursuant to Section 502(i) of ERISA. Section 4975 of
the Code imposes certain excise taxes on similar transactions between employee
benefit plans and certain other retirement plans and arrangements, subject
thereto including individual retirement accounts or annuities and Keogh plans,
subject thereto and disqualified persons with respect to such plans and
arrangements (together with ERISA Plans, "Plans").
The United States Department of Labor ("Labor") has issued a final
regulation (29 C.F.R. Section 2510.3-101) containing rules for determining what
constitutes the assets of a Plan. This regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships,
trusts and certain other entities in which a Plan makes an "equity investment"
will be deemed for purposes of ERISA and Section 4975 of the Code to be assets
of the Plan unless certain exceptions apply.
Under the terms of the regulation, the Trust may be deemed to hold
plan assets by reason of a Plan's investment in a Certificate; such plan assets
would include an undivided interest in the Mortgage Loans and any other assets
held by the Trust. In such an event, the Depositor, the Master Servicer, any
Sub-Servicer, the Trustee, any insurer of the Mortgage Assets and other
persons, in providing services with respect to the assets of the Trust, may
become fiduciaries subject to the fiduciary responsibility provisions of Title
I of ERISA, or may otherwise become parties in interest or disqualified
persons, with respect to such Plan. In addition, transactions involving such
assets could constitute or result in prohibited transactions under Section 406
of ERISA or Section 4975 of the Code unless such transactions are subject to a
statutory or administrative exemption.
The regulations contain a de minimis safe-harbor rule that exempts the
assets of an entity from plan assets status as long as the aggregate equity
investment in such entity by plans is not significant. For this purpose, equity
participation in the entity will be significant if immediately after any
acquisition of any equity interest in the entity, "benefit plan investors" in
the aggregate, own at least 25% of the value of any class of equity interest
(excluding equity interests held by persons who have discretionary authority or
control with respect to the assets of the entity (or held by affiliates of such
persons)). "Benefit plan investors" are defined as Plans as well as employee
benefit plans not subject to Title I of ERISA (e.g., governmental plans and
foreign plans) and entities whose underlying assets include plan assets by
reason of plan investment in such entities. The 25% limitation must be met with
respect to each class of equity interests, regardless of the portion of total
equity value represented by such class, on an ongoing basis.
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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, any insurer of the Mortgage Assets, any borrower whose
obligations under one or more Mortgage Loans constitute more than 5% of the
aggregate unamortized principal balance of the assets in the Trust, or any of
their respective affiliates (the "Restricted Group");
(5) The sum of all payments made to and retained by the Underwriter in
connection with the distribution of the Certificates represents not more than
reasonable compensation for underwriting such Certificates; the sum of all
payments made to and retained by the Asset Seller pursuant to the sale of the
Mortgage Loans to the Trust represents not more than the fair market value of
such Mortgage Loans; the sum of all payments made to and retained by the Master
Servicer represent not more than reasonable compensation for the Master
Servicer's services 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
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also consider the availability of any other prohibited transaction exemptions.
In this regard, purchasers that are insurance companies should determine the
extent to which Prohibited Transaction Class Exemption 95-60 (for certain
transactions involving insurance company general accounts) may be available.
The Prospectus Supplement with respect to a series of Certificates may contain
additional information regarding the application of the Exemption, Prohibited
Transaction Class Exemption 83-1 (for certain transactions involving mortgage
pool investment trusts), or any other exemption, with respect to the
Certificates offered thereby.
LEGAL INVESTMENT
The Prospectus Supplement for each series of Offered Certificates will
identify those classes of Offered Certificates, if any, which constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA"). Generally, only those classes of
Offered Certificates that (i) are rated in one of the two highest rating
categories by one or more Rating Agencies and (ii) are part of a series
representing interests in a Trust Fund consisting of Mortgage Loans or MBS,
provided that such Mortgage Loans (or the Mortgage Loans underlying the MBS)
are secured by first liens on Mortgaged Property and were originated by certain
types of originators as specified in SMMEA, will be "mortgage related
securities" for purposes of SMMEA (the "SMMEA Certificates"). As "mortgage
related securities," the SMMEA Certificates will constitute legal investments
for persons, trusts, corporations, partnerships, associations, business trusts
and business entities (including, but not limited to, depository insitutions,
insurance companies, trustees and pension funds) created pursuant to or
existing under the laws of the United States or of any state (including the
District of Columbia and Puerto Rico) whose authorized investments are subject
to state regulation to the same extent that, under applicable law, obligations
issued by or guaranteed as to principal and interest by the United States or
any agency or instrumentality thereof constitute legal investments for such
entities. Pursuant to SMMEA, a number of states enacted legislation, on or
before the October 3, 1991 cutoff established by SMMEA for such enactments,
limiting to varying extents the ability of certain entities (in particular,
insurance companies) to invest in mortgage related securities, in most cases by
requiring the affected investors to rely solely upon existing state law, and
not SMMEA. Pursuant to Section 347 of the Riegle Community Development and
Regulatory Improvement Act of 1994, which amended the definition of "mortgage
related security" (effective December 31, 1996) to include, in relevant part,
Offered Certificates satisfying the rating, first lien and qualified originator
requirements for "mortgage related securities," but representing interests in a
Trust Fund consisting, in whole or in part, of first liens on one or more
parcels of real estate upon which are located one or more commercial
structures, states were authorized to enact legislation, on or before September
23, 2001, specifically referring to Section 347 and prohibiting or restricting
the purchase, holding or investment by state-regulated entities in such types
of Offered Certificates. Accordingly, investors affected by such legislation,
when and if enacted, will be authorized to invest in SMMEA Certificates only to
the extent provided in such legislation.
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 defining
the term "numerous obligors," no
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representation is made as to whether any class of Offered Certificates will
qualify as "commercial mortgage-related securities," and thus as "Type IV
securities," for investment by national banks. The National Credit Union
Administration ("NCUA") has adopted rules, codified at 12 C.F.R. Section 703,
which permit federal credit unions to invest in "mortgage related securities"
under certain limited circumstances, other than stripped mortgage related
securities, residual interests in mortgage related securities, and commercial
mortgage related securities, unless the credit union has obtained written
approval from the NCUA to participate in the "investment pilot program"
described in 12 C.F.R. Section 703.140.
All depository institutions considering an investment in the Offered
Certificates should review the "Supervisory Policy Statement on Investment
Securities and End-User Derivatives Activities" (the "1998 Policy Statement")
of the Federal Financial Institutions Examination Council (the "FFIEC"), 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 effective May 26, 1998, and by the NCUA, effective October 1, 1998.
The 1998 Policy Statement sets forth general guidelines which depository
institutions must follow in managing risks (including market, credit,
liquidity, operational (transaction), and legal risks) applicable to all
securities (including mortgage pass-through securities and mortgage-derivative
products) used for investment purposes. Until October 1, 1998, federal credit
unions will still be subject to the FFIEC's now-superseded "Supervisory Policy
Statement on Securities Activities" dated January 28, 1992, as adopted by the
NCUA with certain modifications, which prohibited depository institutions from
investing in certain "high-risk mortgage securities," 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 to be unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," and, with regard to any Offered Certificates
issued in book-entry form, provisions which may restrict or prohibit
investments in securities which are issued in book-entry form.
If specified in the related Prospectus Supplement, other classes of
Offered Certificates offered pursuant to this Prospectus will not constitute
"mortgage related securities" under SMMEA. The appropriate characterization of
such Offered Certificates under various legal investment restrictions, and thus
the ability of investors subject to these restrictions to purchase such Offered
Certificates, may be subject to significant interpretive uncertainties.
Except as to the status of certain classes of Offered Certificates
identified in the Prospectus Supplement for a series as "mortgage related
securities" under SMMEA, no representations are made as to the proper
characterization of the Offered Certificates for legal investment purposes,
financial institution regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase any Offered Certificates under
applicable legal investment restrictions. The uncertainties described above
(and any unfavorable future determinations concerning legal investment or
financial institution regulatory characteristics of the Offered Certificates)
may adversely affect the liquidity of the Offered Certificates.
Accordingly, all investors whose investment activities are subject to
legal investment laws and regulations, regulatory capital requirements or
review by regulatory authorities should consult with their own legal advisors
in determining whether and to what extent the Offered Certificates of any class
constitute legal investments or are subject to investment, capital or other
restrictions, and, if applicable, whether SMMEA has been overridden in any
jurisdiction relevant to such investor.
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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 Cadwalader, Wickersham & Taft 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.
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FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each series of
Certificates and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in
one of the four highest rating categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood
of receipt by certificateholders of all distributions on the underlying
mortgage loans. These ratings address the structural, legal and issuer-related
aspects associated with such certificates, the nature of the underlying
mortgage loans and the credit quality of the guarantor, if any. Ratings on
mortgage pass-through certificates do not represent any assessment of the
likelihood of principal prepayments by mortgagors or of the degree by which
such prepayments might differ from those originally anticipated. As a result,
certificateholders might suffer a lower than anticipated yield, and, in
addition, holders of stripped interest certificates in extreme cases might fail
to recoup their initial investments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
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INDEX OF PRINCIPAL DEFINITIONS
Page(s) on which
term is defined
Term in the Prospectus
- ---- -----------------
Accrual Certificates.........................................................10
ADA..........................................................................72
Applicable Amount............................................................93
ARM Loans................................................................24, 78
Asset Conservation Act.......................................................68
Asset Seller.................................................................21
Assets........................................................................1
Balloon Mortgage Loans.......................................................17
Bankruptcy Code..............................................................63
Book-Entry Certificates......................................................31
Cash Flow Agreement...........................................................9
Cash Flow Agreements..........................................................1
Cede......................................................................3, 38
CERCLA...................................................................19, 67
Certificate Account..........................................................42
Certificate Balance...........................................................9
Certificate Owners...........................................................38
Certificateholders............................................................3
Closing Date.................................................................83
Commercial Loans.............................................................21
Commercial Properties.........................................................7
Commission....................................................................3
Contributions Tax............................................................95
Cooperatives.................................................................21
Covered Trust................................................................55
CPR..........................................................................29
Credit Support.........................................................1, 8, 26
Crime Control Act............................................................73
Deferred Interest............................................................80
Definitive Certificates..................................................31, 38
Depositor....................................................................21
Determination Date...........................................................31
DTC.......................................................................3, 37
Due Period...................................................................32
Environmental Hazard Condition...............................................69
Equity Participations........................................................25
ERISA........................................................................99
Exchange Act..................................................................3
Exemption...................................................................100
FDIC.........................................................................42
FHLMC........................................................................51
FNMA.........................................................................69
Government Securities..................................................1, 8, 21
Indirect Participants........................................................38
Insurance Proceeds...........................................................42
IRS..........................................................................75
L/C Bank.....................................................................56
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Page(s) on which
term is defined
Term in the Prospectus
- ---- -----------------
Labor........................................................................99
Lease.........................................................................3
Lease Assignment..............................................................1
Legislative History..........................................................83
Lessee........................................................................3
Liquidation Proceeds.........................................................42
Lock-out Date................................................................25
Lock-out Period..............................................................25
Mark-to-Market Regulations...................................................93
Master REMIC.................................................................82
MBS....................................................................1, 6, 21
MBS Agreement................................................................25
MBS Issuer...................................................................25
MBS Servicer.................................................................25
MBS Trustee..................................................................25
Morgan Stanley..............................................................103
Mortgage Loans.........................................................1, 6, 21
Mortgage Notes...............................................................21
Mortgage Rate.............................................................7, 25
Mortgages....................................................................21
Multifamily Loans............................................................21
Multifamily Properties....................................................6, 21
NCUA........................................................................102
Nonrecoverable Advance.......................................................34
OID......................................................................74, 75
OID Regulations..............................................................75
Originator...................................................................21
Participants.................................................................37
Pass-Through Rate.........................................................9, 32
Payment Lag Certificates.....................................................89
Permitted Investments........................................................42
Plans........................................................................99
Prepayment Assumption........................................................79
Prepayment Premium...........................................................25
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...............................................12, 82
REMIC Regulations............................................................73
REMIC Residual Certificateholder.............................................90
REMIC Residual Certificates..............................................82, 92
REO Extension................................................................61
REO Tax......................................................................62
Restricted Group............................................................100
RICO.........................................................................73
Senior Certificates......................................................10, 31
Servicing Standard...........................................................45
SMMEA.......................................................................101
SMMEA Certificates..........................................................101
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Page(s) on which
term is defined
Term in the Prospectus
- ---- -----------------
Special Servicer..........................................................6, 46
Stripped ARM Obligations.....................................................80
Stripped Bond Certificates...................................................77
Stripped Coupon Certificates.................................................77
Stripped Interest Certificates...........................................10, 31
Stripped Principal Certificates..........................................10, 31
Subordinate Certificates.................................................10, 31
Sub-Servicer.................................................................46
Sub-Servicing Agreement......................................................46
Subsidiary REMIC.............................................................82
Super-Premium Certificates...................................................84
Title V......................................................................71
Trust Assets..................................................................2
Trust Fund....................................................................1
UCC..........................................................................37
Voting Rights................................................................20
Warrantying Party............................................................40
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