<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration File No.: 333-62911
Information contained herein is subject to completion. These securities may not
be sold nor may offers to buy be accepted prior to the time a final prospectus
is delivered. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MARCH 26, 1999
PROSPECTUS SUPPLEMENT
(To Prospectus dated October 9, 1998)
$513,576,000 (Approximate)
Morgan Stanley Capital I Inc.
as Depositor
FINOVA Realty Capital Inc.
as Mortgage Loan Originator
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1999-FNV1
---------------------
Morgan Stanley Capital I Inc. is offering certain classes of its Series
1999-FNV1 Commercial Mortgage Pass-Through Certificates, which represent
beneficial ownership interests in a trust. The trust's assets will primarily be
194 mortgage loans secured by first liens on commercial and multifamily
properties. The Series 1999-FNV1 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-25 of this prospectus supplement and page 15 of the
prospectus.
---------------------
Certain characteristics of the offered certificates include:
<TABLE>
<CAPTION>
Approximate Initial Initial Rate Expected Ratings Rated Final
Certificate Pass-Through Description (Fitch/S&P) Distribution Date
Class Principal (1) Rate (2) (3) (4) (4)
----- ------------ ------------ ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Class A-1..... $101,000,000 6.14% Fixed AAA/AAA March 2032
Class A-2..... $339,885,000 6.54% Fixed AAA/AAA March 2032
Class B....... $33,185,000 6.66% Fixed AA/AA March 2032
Class C....... $26,864,000 6.81% Fixed A/A March 2032
Class D....... $12,642,000 7.06% Fixed A-/A- March 2032
</TABLE>
(Footnotes to table 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 and Deutsche Bank Securities Inc. will
purchase the offered certificates from Morgan Stanley Capital I Inc. and will
offer them to the public at negotiated prices determined at the time of sale.
Morgan Stanley & Co. Incorporated and Deutsche Bank Securities Inc. expect to
deliver the offered certificates to purchasers on or about April __, 1999.
Morgan Stanley Capital I Inc. expects to receive from this offering
approximately ___% of the initial principal amount of the offered certificates,
plus accrued interest from April 1, 1999, before deducting expenses payable by
Morgan Stanley Capital I Inc.
---------------------
MORGAN STANLEY DEAN WITTER
Deutsche Bank Securities
The date of this Prospectus Supplement is April __, 1999
<PAGE>
MORGAN STANLEY CAPITAL I INC.
Commercial Mortgage Pass-Through Certificates, Series 1999-FNV1
Geographic Overview of Mortgage Pool
MASSACHUSETTS GEORGIA HAWAII MISSOURI
$35,432,902 $32,025,038 $7,424,384 $4,177,616
5.6% of total 5.1% of total 1.2% of total 0.7% of total
CONNECTICUT FLORIDA ARIZONA MINNESOTA
$2,146,065 $33,494,423 $22,489,672 $5,083,815
0.3% of total 5.3% of total 3.6% of total 0.8% of total
NEW JERSEY ALABAMA UTAH ILLINOIS
$12,498,683 $9,236,634 $2,427,054 $1,408,141
2.0% of total 1.5% of total 0.4% of total 0.2% of total
MARYLAND TENNESSEE SOUTHERN CALIFORNIA INDIANA
$14,447,656 $9,680,343 $149,006,981 $2,576,956
2.3% of total 1.5% of total 23.6% of total 0.4% of total
DISTRICT OF COLUMBIA LOUISIANA NORTHERN CALIFORNIA MICHIGAN
$32,657,038 $3,311,752 $59,313,931 $2,936,954
5.2% of total 0.5% of total 9.4% of total 0.5% of total
VIRGINIA OKLAHOMA NEVADA OHIO
$7,626,304 $7,545,149 $7,588,185 $5,026,389
1.2% of total 1.2% of total 1.2% of total 0.8% of total
NORTH CAROLINA TEXAS OREGON PENNSYLVANIA
$10,435,436 $49,916,610 $5,209,366 $37,489,691
1.7% of total 7.9% of total 0.8% of total 5.9% of total
SOUTH CAROLINA COLORADO WASHINGTON NEW YORK
$9,358,380 $12,706,598 $11,947,613 $5,330,118
1.5% of total 2.0% of total 1.9% of total 0.8% of total
KENTUCKY NEW MEXICO WYOMING NEW HAMPSHIRE
$2,891,156 $3,777,589 $4,030,909 $9,438,944
0.5% of total 0.5% of total 0.6% of total 1.5% of total
[ ] is more than or equal to 10.05% of Cut-Off Date Balance
[ ] 5.0%-10.0% of Cut-Off Date Balance
[ ] 1.0%-5.0% of Cut-Off Date Balance
[ ] is less than or equal to 1.0% of Cut-Off Date Balance
<PAGE>
- ------------------
(1) Approximate; subject to a variance of plus or minus 5%.
(2) The pass-through rates for the Class A-1, Class A-2, Class B, Class C, and
Class D Certificates for each distribution date will be equal to the fixed
rates per annum set forth in the table; provided, in each case, that such
pass-through rate will not exceed the NWAC Rate (as defined herein) for such
distribution date.
(3) "Fixed" is a description of the type 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 the distribution date in March 2032.
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" 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............................................................S-8
RISK FACTORS...............................................................S-25
DESCRIPTION OF THE CERTIFICATES............................................S-51
General..................................................................S-51
Registration; Denominations..............................................S-51
Book-Entry Registration..................................................S-51
Certificate Balances and Notional Amounts................................S-52
Pass-Through Rates.......................................................S-53
Distributions............................................................S-54
Appraisal Reductions.....................................................S-59
Subordination; Allocation of Losses and Certain Expenses.................S-60
Prepayment Interest Shortfalls...........................................S-61
Optional Termination.....................................................S-61
Advances.................................................................S-62
Reports to Certificateholders; Available Information.....................S-64
Book-Entry Certificates..................................................S-67
Example of Distributions.................................................S-68
Voting Rights............................................................S-68
The Trustee..............................................................S-69
MATURITY CONSIDERATIONS....................................................S-69
YIELD CONSIDERATIONS.......................................................S-75
General..................................................................S-75
Rate and Timing of Principal Payments....................................S-75
Losses and Shortfalls....................................................S-76
Certain Relevant Factors.................................................S-76
Delay in Payment of Distributions........................................S-76
DESCRIPTION OF THE MORTGAGE POOL...........................................S-76
General..................................................................S-76
Certain Terms and Characteristics of the Mortgage Loans..................S-79
Assessments of Property Value and Condition..............................S-83
Additional Mortgage Loan Information.....................................S-84
Standard Hazard Insurance................................................S-85
The Seller...............................................................S-86
Assignment of the Mortgage Loans.........................................S-87
Representations and Warranties...........................................S-88
Repurchases and Other Remedies...........................................S-90
Changes in Mortgage Pool Characteristics.................................S-91
SERVICING OF THE MORTGAGE LOANS............................................S-91
General..................................................................S-91
The Master Servicer......................................................S-93
The Special Servicer.....................................................S-93
Sub-Servicers............................................................S-94
Servicing and Other Compensation and Payment of Expenses.................S-94
The Operating Adviser....................................................S-95
Mortgage Loan Modifications..............................................S-96
Sale of Defaulted Mortgage Loans and REO Properties......................S-97
S-4
<PAGE>
REO Properties............................................................S-97
Inspections; Collection of Operating Information..........................S-98
Rights Upon Event of Default.............................................S-100
CERTAIN FEDERAL INCOME TAX CONSEQUENCES....................................S-100
General..................................................................S-100
Original Issue Discount and Premium......................................S-101
Additional Considerations................................................S-103
ERISA CONSIDERATIONS.......................................................S-104
Plan Asset Regulation....................................................S-104
Individual Exemption.....................................................S-104
Other Exemptions.........................................................S-106
Insurance Company Purchasers.............................................S-106
LEGAL INVESTMENT...........................................................S-107
USE OF PROCEEDS............................................................S-107
PLAN OF DISTRIBUTION.......................................................S-107
LEGAL MATTERS..............................................................S-108
RATINGS....................................................................S-109
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT...................................S-110
APPENDIX I - MORTGAGE POOL
INFORMATION..............................................................I-1
APPENDIX II - CERTAIN CHARACTERISTICS OF THE MORTGAGE
LOANS...................................................................II-1
APPENDIX III - LARGEST LOAN
SUMMARIES..............................................................III-1
APPENDIX IV - FORM OF TRUSTEE
REPORTS.................................................................IV-1
TERM SHEET...................................................................T-1
S-5
<PAGE>
EXECUTIVE SUMMARY
This Executive Summary highlights selected information regarding the offered
certificates. It does not contain all of the information you need to consider
in making your investment decision. To understand all of the terms of the
offering of the offered certificates and the underlying mortgage loans, read
this entire prospectus supplement and the accompanying prospectus carefully.
CERTIFICATE STRUCTURE
<TABLE>
<CAPTION>
APPROXIMATE
PERCENT OF
APPROXIMATE TOTAL
CREDIT SUPPORT CERTIFICATES
----------------------------------------------
| INITIAL |
| CERTIFICATE EXPECTED |
| PRINCIPAL RATINGS |
| CLASS AMOUNT (FITCH/S&P) |
----------------------------------------------
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS X(2) CLASS A-1 $101,000,000 AAA/AAA 15.98%
$632,094,383
(APPROXIMATE
NOTIONAL AMOUNT)
----------------------------------------------
30.25%(1) AAA/AAAR CLASS A-2 $339,885,000 AAA/AAA 53.77%
----------------------------------------------
25.00% CLASS B $33,185,000 AA/AA 5.25%
----------------------------------------------
20.75% CLASS C $26,864,000 A/A 4.25%
----------------------------------------------
18.75% CLASS D $12,642,000 A-/A- 2.00%
----------------------------------------------
14.00% CLASS E(2) $30,025,000 BBB/BBB 4.75%
----------------------------------------------
11.75% CLASS F(2) $14,222,000 BBB-/NR 2.25%
----------------------------------------------
8.50% CLASS G(2) $20,543,000 BB+/BB+ 3.25%
----------------------------------------------
7.25% CLASS H(2) $7,901,000 BB/BB 1.25%
----------------------------------------------
5.75% CLASS J(2) $9,481,000 BB-/NR 1.50%
----------------------------------------------
4.50% CLASS K(2) $7,902,000 B+/B+ 1.25%
----------------------------------------------
3.50% CLASS L(2) $6,321,000 B/B 1.00%
----------------------------------------------
2.50% CLASS M(2) $6,321,000 B-/NR 1.00%
----------------------------------------------
1.00% CLASS N(2) $9,481,000 CCC/NR 1.50%
----------------------------------------------
0.00% CLASS O(2) $6,321,383 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 and are not offered hereby.
S-6
<PAGE>
<TABLE>
<CAPTION>
CERTIFICATE SUMMARY
- -------------------------------------------------------------------------------------------------
Approximate
Initial Initial
Certificate Approxi- Pass-Through Weighted
Approximate Principal or mate Rate and Rate Expected Average
Credit Notional % of Description Ratings Life Principal
Support Class Amount(1) Total (2) (3) Fitch/S&P (4) (Yrs.)(5) Window (5)
- -------------------------------------------------------------------------------------------------
Offered Certificates
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 $101,000,000 15.98% 6.14% (Fixed) AAA/AAA 5.51 1-109
------------------------------------------------------------------------------------
30.25%(6) A-2 $339,885,000 53.77% 6.54% (Fixed) AAA/AAA 9.47 109-117
- -------------------------------------------------------------------------------------------------
25.00% B $33,185,000 5.25% 6.66% (Fixed) AA/AA 9.75 117-117
- -------------------------------------------------------------------------------------------------
20.75% C $26,864,000 4.25% 6.81% (Fixed) A/A 9.75 117-117
- -------------------------------------------------------------------------------------------------
18.75% D $12,642,000 2.00% 7.06% (Fixed) A-/A- 9.75 117-117
- -------------------------------------------------------------------------------------------------
Non-Offered Certificates
- -------------------------------------------------------------------------------------------------
N/A X(7) N/A 0.97% AAA/AAAr 9.16 N/A
$632,094,383 (Variable
(Notional) Rate IO)
- -------------------------------------------------------------------------------------------------
14.00% E $30,025,000 4.75% 7.46% (NWAC) BBB/BBB 9.75 117-117
- -------------------------------------------------------------------------------------------------
11.75% F $14,222,000 2.25% 7.46% (NWAC) BBB-/NR 9.75 117-117
- -------------------------------------------------------------------------------------------------
8.50% G $20,543,000 3.25% 6.14% (Fixed) BB+/BB+ 9.80 117-118
- -------------------------------------------------------------------------------------------------
7.25% H $7,901,000 1.25% 6.14% (Fixed) BB/BB 9.84 118-119
- -------------------------------------------------------------------------------------------------
5.75% J $9,481,000 1.50% 6.14% (Fixed) BB-/NR 9.94 119-120
- -------------------------------------------------------------------------------------------------
4.50% K $7,902,000 1.25% 6.14% (Fixed) B+/B+ 10.87 120-133
- -------------------------------------------------------------------------------------------------
3.50% L $6,321,000 1.00% 6.14% (Fixed) B/B 12.93 133-168
- -------------------------------------------------------------------------------------------------
2.50% M $6,321,000 1.00% 6.14% (Fixed) B-/NR 14.00 168-168
- -------------------------------------------------------------------------------------------------
1.00% N $9,481,000 1.50% 6.14% (Fixed) CCC/NR 14.04 168-173
- -------------------------------------------------------------------------------------------------
0.00 O(8) $6,321,383 1.00% 6.14% (Fixed) NR/NR 17.60 173-231
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Approximate; subject to a variance of plus or minus 5%.
(2) "Fixed" and "NWAC" 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 B, Class C, Class
D, Class G, Class H, Class J, Class K, Class L, Class M, Class N and Class O
Certificates for each distribution date will be equal to the fixed rates per
annum set forth in the table; provided, in each case, that such pass-through
rate will not exceed the NWAC Rate (as defined herein) for such distribution
date. The initial pass-through rates for the Class E and the Class F
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 E and Class F 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 anticipated repayment dates; and (iii)
prepayment in full on the "anticipated repayment 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 NWAC Rate
minus the weighted average of the Pass-Through Rates of the classes of
certificates that have Principal Amounts.
(8) The Class O 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-I, R-II and R-III Certificates are not represented in this table
and are not offered hereby.
S-7
<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............... AMRESCO Services, L.P. See "Servicing of the
Mortgage Loans" and "Description of the
Certificates--Advances" in this prospectus
supplement.
SPECIAL SERVICER.............. Banc One Mortgage Capital Markets, LLC. See
"Servicing of the Mortgage Loans--The
Operating Adviser" and "--General" in this
prospectus supplement.
TRUSTEE....................... Norwest Bank Minnesota, National
Association. See "Description of the
Certificates--The Trustee" 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 Seller.......... 146 of the mortgage loans, which represent
80.2% of the initial outstanding pool
balance (the "Owner Trust Loans"), were
originated by FINOVA and sold to FINOVA
Commercial Mortgage Loan Owner Trust 1998-1,
a business trust organized under the laws of
the State of Delaware (the "Owner Trust").
The Owner Trust intends to sell the Owner
Trust Loans to the Depositor on the Closing
Date pursuant to a mortgage loan purchase
agreement between the Owner Trust and the
Depositor.
48 of the mortgage loans, which represent
19.8% of the initial outstanding pool
balance, were originated by FINOVA (with the
exception of 5 of the mortgage loans, which
represent 5.8% of the initial outstanding
pool balance, which were underwritten by
FINOVA and purchased from a financial
institution prior to the date hereof). These
mortgage loans are currently owned by
FINOVA, and FINOVA intends to sell them to
the Depositor on the Closing Date pursuant
to a mortgage loan purchase agreement
between FINOVA and the Depositor.
The representations and warranties to be
provided by the Owner Trust to the Depositor
in respect of the Owner Trust Loans will be
identical to the representations and
warranties to be provided by FINOVA to the
Depositor in respect of the remaining
mortgage loans in its respective mortgage
loan purchase agreement. Furthermore, FINOVA
will guarantee the Owner's
S-8
<PAGE>
Trust's obligations in respect of a breach
thereof. Therefore, even though the
Depositor is acquiring the Owner Trust Loans
directly from the Owner Trust, FINOVA will
be referred to as the Seller of all of the
mortgage loans solely for purposes of this
Prospectus Supplement. See "Description of
the Mortgage Pool--The Seller" in this
prospectus supplement.
UNDERWRITERS.................. Morgan Stanley & Co. Incorporated and
Deutsche Bank Securities Inc. See "Plan of
Distribution" in this prospectus supplement.
CUT-OFF DATE.................. April 1, 1999.
CLOSING DATE.................. On or about April , 1999.
DISTRIBUTION DATE............. The 15th day of each month, or, if such 15th
day is not a business day, the business day
immediately following such 15th day,
commencing in May 1999; provided that the
Distribution Date will be no earlier than
the fourth business day following the 11th
day of such month.
RECORD DATE................... With respect to each distribution date, the
close of business on the last business day
of the preceding month.
OFFERED SECURITIES
GENERAL....................... The following five classes of Commercial
Mortgage Pass-Through Certificates are being
offered by this prospectus supplement
(collectively, the "Offered Certificates")
as part of Series 1999-FNV1:
o Class A-1
o Class A-2
o Class B
o Class C
o Class D
Series 1999-FNV1 will consist of a total of
19 classes, the following fourteen of which
are not being offered through this
prospectus supplement and the accompanying
prospectus: Class X, Class E, Class F, Class
G, Class H, Class J, Class K, Class L, Class
M, Class N, Class O and 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 194 mortgage loans
secured by first liens on commercial and
multifamily properties.
S-9
<PAGE>
CERTIFICATE PRINCIPAL AMOUNT.. Your certificates will have the approximate
aggregate initial principal amount set forth
below, subject to a variance of plus or
minus 5%:
--------------------------------------------
Class A-1 $101,000,000 Principal Amount
--------------------------------------------
Class A-2 $339,885,000 Principal Amount
--------------------------------------------
Class B $33,185,000 Principal Amount
--------------------------------------------
Class C $26,864,000 Principal Amount
--------------------------------------------
Class D $12,642,000 Principal Amount
--------------------------------------------
PASS-THROUGH RATES
A. OFFERED CERTIFICATES... Your certificates will accrue interest at an
annual rate called a "Pass-Through Rate"
which is set forth below:
--------------------------------------
Class A-1 6.14%, but not
in excess of
NWAC Rate
--------------------------------------
Class A-2 6.54%, but not
in excess of
NWAC Rate
--------------------------------------
Class B 6.66%, but not
in excess of
NWAC Rate
--------------------------------------
Class C 6.81%, but not
in excess of
NWAC Rate
--------------------------------------
Class D 7.06%, but not
in excess of
NWAC Rate
--------------------------------------
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.
S-10
<PAGE>
The "NWAC 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 0.12875% (which
includes the servicing fee rate 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.
B. CLASS X CERTIFICATES... The Pass-Through Rate on the Class X
Certificates will be equal to the NWAC 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 anticipated repayment 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
A. AMOUNT AND ORDER
OF DISTRIBUTIONS...... On each distribution date, funds available
for distribution from the mortgage loans,
net of specified trust expenses, will be
distributed in the following amounts and
order of priority:
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.
S-11
<PAGE>
Step 4/Class B: To Class B in this order:
(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.
Step 6/Class D: To Class D in a manner
analogous to the Class B allocations of
Step 4.
Step 7/Subordinate Private Certificates: In
a manner analogous to the Class B
allocations of Step 4 and 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. PREPAYMENT
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.
S-12
<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 O
-------------------------
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-13
<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 or the
Trustee (to the extent not covered by
default interest 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
o Appendix III (descriptions
of the ten largest mortgage
loans, or groups of 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 the unpaid
principal balance of the
mortgage loans as of the Cut-off
Date. Information on each of the
multiple mortgaged properties
securing a single mortgage loan
is presented separately based
upon an allocated loan amount,
and each are treated as a
mortgage loan for the
presentation of mortgage pool
information in this prospectus
supplement
S-14
<PAGE>
B. PRINCIPAL BALANCES................. The trust's primary assets will
be 194 mortgage loans with an
initial principal balance of
$632,094,383, subject to a
permitted variance of plus or
minus 5%. As of April 1, 1999,
the outstanding principal
balances of the mortgage loans
in the mortgage pool ranged from
$178,572 to $21,808,261 and the
mortgage loans had an average
balance of $3,258,218. 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 a fee
simple estate in an
income-producing property (or,
in 5 cases, which represent 5.2%
of the initial outstanding pool
balance, secured by a mortgage
lien on a leasehold estate, or
in 4 cases, which represent 4.5%
of the initial outstanding pool
balance, secured by a mortgage
lien on both a leasehold
interest in a portion of the
related mortgaged property and a
fee simple interest in the
remainder of the related
mortgaged 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:
S-15
<PAGE>
------------------------------------------------
Percentage
of Number of
Initial Pool Mortgage
Property Type Balance Loans
------------------------------------------------
Retail 19.5% 33
------------------------------------------------
Office 17.8% 20
------------------------------------------------
Multifamily 15.3% 23
------------------------------------------------
Manufactured Housing 15.0% 49
------------------------------------------------
Hospitality 13.3% 25
------------------------------------------------
Mixed Use 7.6% 14
------------------------------------------------
Self-Storage 5.2% 15
------------------------------------------------
Industrial 4.2% 6
------------------------------------------------
Senior Housing 2.1% 9
------------------------------------------------
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:
------------------------------------------------
Percentage of Number of
Initial Pool Mortgage
State Balance Loans
------------------------------------------------
California 33.0% 49
------------------------------------------------
Southern 23.6% 31
California
------------------------------------------------
Northern 9.4% 18
California
------------------------------------------------
Texas 7.9% 14
------------------------------------------------
Pennsylvania 5.9% 23
------------------------------------------------
Massachusetts 5.6% 6
------------------------------------------------
Florida 5.3% 5
------------------------------------------------
S-16
<PAGE>
The remaining mortgaged
properties are located
throughout 29 other states and
the District of Columbia. No
other state or district has a
concentration of mortgaged
properties that represents
security for more than 5.2% of
the initial outstanding pool
balance. See Appendix I hereto.
G. OTHER MORTGAGE LOAN FEATURES........ As of April 1, 1999, the
mortgage loans had the following
approximate characteristics:
o No scheduled payment of
principal and interest on any
mortgage loan was thirty days
or more past due, and no
mortgage loan has 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 4.8% of
the initial outstanding pool
balance. See Appendix II for
further information with
respect to such groups.
Included within this group
are two groups of single
obligation, multiproperty
loans, such as is described
below.
o Nine (9) additional groups of
mortgage loans are, in each
case, evidenced by a single
obligation of a particular
borrower or co-borrower group
secured by one or more
mortgages encumbering
multiple real properties, the
largest group of which
represents 4.7% of the
initial outstanding pool
balance. For purposes of the
presentation of mortgage pool
information herein, an
aggregate amount of
indebtedness that is
evidenced by a single
obligation for a particular
borrower or co-borrower group
and secured by multiple
mortgaged properties has been
treated as multiple
cross-collateralized and
cross-defaulted mortgage
loans, each secured by one of
the related mortgaged
properties and each having a
principal balance in an
amount equal to an allocated
portion of the aggregate
indebtedness evidenced by
such obligation. Two of such
groups are included within
one of the
cross-collateralized groups
described above.
o Nineteen (19) groups of
mortgage loans including
those cross-collateralized or
single obligation
multi-property mortgage loan
groups described above, were
made to the same borrower or
to borrowers that are
affiliated with one another
through partial or complete
direct or indirect common
ownership, the three largest
of
S-17
<PAGE>
these groups representing
6.7%, 4.9% and 4.8%,
respectively, of the initial
outstanding pool balance.
o Eight (8) mortgage loans,
representing 4.5% of the
initial outstanding pool
balance, are secured by a
mortgaged property that is
100% leased to a single
tenant.
o All mortgage loans bear
interest at fixed rates,
although thirty-one (31) of
the mortgage loans include
hyper-amortization provisions
as described in this
prospectus supplement.
o No mortgage loan permits
negative amortization or the
deferral of accrued interest,
with the exception of certain
mortgage loans with
hyper-amortization
provisions, as described in
this prospectus supplement.
H. BALLOON LOANS....................... One hundred ninety one (191) of
the mortgage loans, representing
98.6% 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 (160 of such
mortgage loans, representing
89.4% 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 (31 of such mortgage
loans, representing 9.2% of
the initial outstanding pool
balance) (the "Anticipated
Repayment Date Loans");
substantial principal
payments on such mortgage
loans are anticipated to be
made on the date (which is
prior to stated maturity)
upon which these increases
occur (the "Anticipated
Repayment Date" or "ARD")
unless such loans are prepaid
at an earlier date.
The remaining 3 mortgage loans,
representing 1.4% of the initial
outstanding pool balance, have
an expected balloon balance
equal to less than 10% of the
original principal balance of
each loan.
I. PREPAYMENT PROVISIONS; DEFEASANCE
LOANS............................. As of April 1, 1999, all of the
mortgage loans restricted
voluntary principal prepayments
as follows:
S-18
<PAGE>
o One hundred eighty one (181)
mortgage loans, representing
92.5% of the initial
outstanding pool balance,
prohibit voluntary principal
prepayments for a period
ending on a date determined
by the related mortgage note
(the "Lock-out Period") but
permit the related borrower
(after an initial period of
at least two years following
the date of issuance of the
Certificates) to defease the
loan by pledging direct,
non-callable United States
Treasury obligations and
obtaining the release of the
mortgaged property from the
lien of the mortgage.
o Nine (9) mortgage loans,
representing 3.3% of the
initial outstanding pool
balance, prohibit voluntary
principal prepayments during
a Lock-out Period and
thereafter provide for
prepayment premiums
calculated on the basis of
the greater of a yield
maintenance formula and 1% of
the amount prepaid.
o Three (3) mortgage loans,
representing 0.8% of the
initial outstanding pool
balance, prohibit voluntary
principal prepayments during
a Lock-out Period and
thereafter provide for
percentage prepayment
premiums until a specified
date prior to maturity.
o One mortgage loan,
representing 3.5% of the
initial outstanding pool
balance, prohibits voluntary
principal prepayments during
a Lock-out Period but permits
the related borrower to
either (i) defease the loan
(after an initial period of
at least two years following
the date of issuance of the
Certificates) by pledging
direct, non-callable United
States Treasury obligations
and obtaining the release of
the mortgaged property from
the lien of the mortgage or
(ii) following such Lock-out
Period, pay a prepayment
premium equal to the greater
of a yield maintenance
formula and 1% of the amount
prepaid.
Notwithstanding the foregoing,
the mortgage loans generally
provide for a period of 3 to 9
months prior to maturity or the
anticipated repayment date
during which the related
borrower may prepay the mortgage
loan without premium or
defeasance requirements.
S-19
<PAGE>
J. MORTGAGE LOAN RANGES AND
WEIGHTED AVERAGES................. As of April 1, 1999, the
mortgage loans will have the
following additional
characteristics:
i. MORTGAGE RATES Mortgage rates ranging from
6.610% per annum to 9.000% per
annum, and a weighted average
mortgage rate of 7.622% per
annum;
ii. REMAINING TERMS Remaining terms to scheduled
maturity ranging from 75 months
to 231 months, and a weighted
average remaining term to
scheduled maturity of 119
months;
iii. REMAINING Remaining amortization terms
AMORTIZATION TERMS ranging from 170 months to 359
months, and a weighted average
remaining amortization term of
327 months;
iv. LOAN-TO-VALUE RATIOS Loan-to-value ratios ranging
from 37.6% to 85.1% 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
70.8%; and
v. DEBT SERVICE Debt service coverage ratios
COVERAGE RATIOS ranging from 1.11x to 2.52x 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
1.40x.
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, a brief summary of the
material terms of the ten
largest mortgage loans,
including groups of
cross-collateralized and
cross-defaulted 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. P&I Advances
will generally equal the
delinquent portion of the
monthly mortgage loan payment.
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 anticipated
repayment
S-20
<PAGE>
date). The Master Servicer also
is not required to advance
prepayment or yield maintenance
premiums, excess interest,
default interest or balloon
payments.
If a borrower fails to pay
amounts due on the maturity date
of the related mortgage loan,
the Servicer will be required on
and after such date and until
final liquidation thereof, to
advance only an amount equal to
the interest and principal
portion of the constant mortgage
loan payment due immediately
prior to the maturity date or
anticipated repayment date to
the extent not received.
If the Master Servicer fails to
make a required P&I Advance, the
Trustee will be required to make
the P&I Advance. Such obligation
to make an Advance will also be
subject to a determination of
recoverability.
P&I Advances are intended to
maintain a regular flow of
scheduled interest and principal
payments to the
certificateholders and are not
intended to guarantee or insure
against losses. Advances which
cannot be reimbursed out of
collections on, or in respect
of, the related mortgage loans
will be reimbursed directly from
any other collections on the
mortgage loans as provided in
this prospectus supplement and
this will cause losses to be
borne by certificateholders in
the priority specified in this
prospectus supplement. The
Servicer and the Trustee, as the
case may be, will be entitled to
interest on any advances made,
such interest accruing at the
rate and payable under the
circumstances described herein.
Interest accrued on outstanding
advances may result in
reductions in amounts otherwise
payable on the certificates.
See "Description of the
Certificates -- Advances" in
this prospectus supplement.
B. APPRAISAL REDUCTION
EVENT ADVANCES.................... Certain adverse events affecting
a mortgage loan 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 the amount of an
"Appraisal Reduction." The
amount required to be advanced
in respect of a mortgage loan
that has been subject to an
Appraisal Reduction will be
reduced so that the Master
Servicer will not be required to
advance principal and interest
in respect of the Appraisal
Reduction (as described in this
prospectus supplement). 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.
S-21
<PAGE>
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 Fitch
IBCA, Inc. and Standard & Poor's
Ratings Services:
--------------------------------
Ratings
Class (Fitch/S&P)
--------------------------------
Class A-1 and A-2 AAA/AAA
--------------------------------
Class B AA/AA
--------------------------------
Class C A/A
--------------------------------
Class D A-/A-
--------------------------------
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.
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, the 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
S-22
<PAGE>
offered in minimum denominations
of $100,000. Investments in
excess of the minimum
denominations may be made in
multiples of $1.
REGISTRATION, CLEARANCE AND SETTLEMENT...... Your certificates will be
registered in the name of Cede &
Co., as nominee of The
Depository Trust Company
("DTC"), and will not be
registered in your name. You
will not receive a definitive
certificate representing your
interest, except in very limited
circumstances described in this
prospectus supplement. As a
result, you will not be a
certificateholder of record, and
you will receive distributions
on your certificates and reports
relating to distributions only
through DTC, Cedelbank ("Cedel")
or The Euroclear System
("Euroclear") or through
participants in DTC, Cedel or
Euroclear.
You may hold your Offered
Certificates through: (i) DTC in
the United States; or (ii) Cedel
or Euroclear in Europe.
Transfers within DTC, Cedel or
Euroclear will be made in
accordance with the usual rules
and operating procedures of
those systems. Cross-market
transfers between persons
holding directly through DTC,
Cedel or Euroclear will be
effected in DTC through the
relevant depositories of Cedel
or Euroclear.
The Depositor may elect to
terminate the book-entry system
through DTC with respect to all
or any portion of any class of
the Offered Certificates.
See "Description of the
Certificates--Book-Entry
Registration" and "--Definitive
Certificates" in this 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 April ,
1999.
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.
S-23
<PAGE>
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 and Class D
Certificates may not be
purchased by, or transferred to,
an employee benefit plan or
individual retirement account or
any person investing the assets
of an employee benefit plan or
individual retirement account,
unless such transaction is
covered by a Prohibited
Transaction Class Exemption
issued by the U.S. Department of
Labor.
LEGAL INVESTMENTS........................... The Offered Certificates will
not constitute "mortgage related
securities" for purposes of the
Secondary Mortgage Market
Enhancement Act of 1984, as
amended ("SMMEA").
No representation is made
regarding the proper
characterization of the Offered
Certificates for purposes of any
applicable legal investment
restrictions, regulatory capital
requirements or other similar
purposes. Regulated entities
should consult with their own
advisors regarding these
matters.
See "Legal Investment" in this
prospectus supplement and in the
accompanying prospectus.
S-24
<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 or unlikely to occur 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 not
NONRECOURSE AND ARE NOT insured or guaranteed by any person or entity.
INSURED OR GUARANTEED
Substantially all of the mortgage loans are
nonrecourse loans. Although there are certain
exceptions to the non-recourse provisions, 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 mortgage loans, were originated
within 13 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 various
DEPENDENT UPON NET types of income-producing commercial
OPERATING INCOME 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-25
<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-26
<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 Some of the mortgaged properties may not be
PROPERTIES MAY NOT BE readily convertible to alternative uses if
READILY CONVERTIBLE TO those properties were to become unprofitable
ALTERNATIVE USES 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 value
ADVERSELY AFFECTED EVEN of the mortgaged properties without affecting
WHEN CURRENT OPERATING the properties' current net operating income.
INCOME IS NOT 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 A deterioration in the financial condition of
ENTAILS RISK 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.
Eight (8) mortgage loans (representing 4.5% of
the initial outstanding pool balance) are
secured by mortgaged properties leased to
single tenants, some of which are borrower
related.
Retail, office and industrial 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.
MORTGAGED PROPERTIES If a mortgaged property has multiple tenants,
LEASED TO MULTIPLE re-leasing expenditures may be more frequent
TENANTS ALSO HAVE RISKS 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.
S-27
<PAGE>
RISKS RELATING TO LOAN The effect of mortgage pool loan losses will
CONCENTRATION 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 10
largest loans, including groups of
cross-collateralized and cross-defaulted
loans, equal 28.5% 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 1.5% 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. The following property types represent
the indicated percentage of the aggregate
principal balance of the mortgage pool as of
the Cut-off Date:
o retail properties represent 19.5%;
o office properties represent 17.8%;
o multifamily properties represent 15.3%;
o manufactured housing properties represent
15.0%;
o hospitality properties represent 13.3%
(including extended stay properties which
represent 7.2%);
o mixed use properties represent 7.6%;
o self storage properties represent 5.2%;
o industrial properties represent 4.2%; and
o senior housing properties represent 2.1%.
With respect to concentration of borrowers,
nineteen groups of mortgage loans (including
cross-collateralized or single note multiple
property 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 6.7%, 4.9%,
and 4.8% respectively of the mortgage pool.
S-28
<PAGE>
GEOGRAPHIC CONCENTRATION Concentrations of mortgaged properties in
ENTAILS RISKS 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 34
states and the District of Columbia.
Approximately 9.4% of the mortgaged properties
(based on the initial outstanding pool
balance) are located in Northern California,
and approximately 23.6% of the mortgaged
properties (based on the initial outstanding
pool balance) are located in Southern
California. There are five other states and
the District of Columbia in which 5% or more
of the mortgaged properties (based on the
initial outstanding pool balance) are located.
See "Description of the Mortgage Pool" in this
prospectus supplement.
RETAIL PROPERTIES HAVE Retail properties secure 33 of the underlying
SPECIAL RISKS mortgage loans (representing 19.5% 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 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 may
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
S-29
<PAGE>
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.
OFFICE PROPERTIES HAVE Office properties secure 20 of the underlying
SPECIAL RISKS mortgage loans (representing 17.8% 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.
MULTIFAMILY PROPERTIES Multifamily properties secure 23 of the
HAVE SPECIAL RISKS underlying mortgage loans (representing 15.3%
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;
S-30
<PAGE>
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 reductions in government assistance/rent
subsidy programs.
MANUFACTURED HOUSING Manufactured Housing Communities secure 49 of
COMMUNITIES HAVE SPECIAL the underlying mortgage loans (representing
RISKS 15.0% 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.
HOSPITALITY PROPERTIES Hospitality properties secure 25 of the
HAVE SPECIAL RISKS underlying mortgage loans (representing 13.3%
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;
S-31
<PAGE>
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 hospitality property's revenues,
occupancy levels, room rates and operating
expenses.
RISKS RELATING TO Certain of the hospitality properties are
AFFILIATION WITH A franchises of national hotel chains or managed
FRANCHISE OR HOTEL by a hotel management company. The performance
MANAGEMENT COMPANY of a hotel property affiliated with a
franchise or hotel management company depends
in part on:
o the continued existence and financial
strength of the franchisor or hotel
management company;
o the public perception of the franchise or
hotel chain service mark; and
o the duration and terms 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 franchisor'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 and may be
liable for outstanding sums owing to such
franchisor or management company.
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.
The largest concentration of hospitality
properties which are managed by the same hotel
management company or affiliated companies
consists of two mortgage loans (representing
4.9% of the initial outstanding pool balance)
secured by twelve mortgaged properties which
are managed by Suburban Lodges, Inc., a
publicly traded company, or affiliates
thereof.
S-32
<PAGE>
HOTEL AFFILIATION The economic decline of a particular hotel
CONCENTRATION ENTAILS chain generally may have an adverse effect on
RISKS all hotels operated by that chain. In this
regard, the largest concentration of any hotel
chain in the mortgage loan pool consists of
twelve mortgage loans (representing 4.9% of
the initial outstanding pool balance) secured
by mortgaged properties that are operated as a
Suburban Lodge hotel.
EXTENDED STAY PROPERTIES Some of the hospitality properties are
HAVE SPECIAL RISKS extended stay properties. Such extended stay
properties secure 15 of the underlying
mortgage loans (representing 7.2% of the
initial outstanding pool balance). Extended
stay facilities generally rent rooms for
significant periods of time at lower rates
than those charged to overnight and short-term
guests, and the client base for such
facilities may be more limited than for
hospitality properties which rent rooms for
short periods of time. In addition, the
financial performance of such facilities tends
to be affected by adverse economic conditions
and other factors which adversely affect the
economic performance of hotels generally.
SELF-STORAGE FACILITIES Self-storage facilities secure 15 of the
HAVE SPECIAL RISKS underlying mortgage loans (representing 5.2%
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.
INDUSTRIAL PROPERTIES Industrial properties secure 6 of the
HAVE SPECIAL RISKS underlying mortgage loans (representing 4.2%
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;
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;
S-33
<PAGE>
o a change in the proximity of supply
sources; and
o environmental hazards.
SENIOR HOUSING Congregate care, senior care and assisted
PROPERTIES HAVE SPECIAL living facilities secure 9 of the underlying
mortgage loans (representing 2.1% RISKS of the
initial outstanding pool balance).
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.
CERTAIN ADDITIONAL RISKS The income from, and market value of, the
RELATING TO TENANTS 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-34
<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 The bankruptcy or insolvency of a major
ENTAILS RISKS tenant, or a number of smaller tenants, in
retail, industrial 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 Five (5) of the mortgage loans (representing
GOVERNMENT ASSISTED 2.9% of the initial outstanding pool balance)
PROPERTIES are known 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 ("Section 8") or are secured by
multifamily properties subject to rental
restrictions. Under the Section 8 program, 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.
One (1) of the mortgage loans (representing
0.5% of the initial outstanding pool balance)
is secured by a property known to be subject
to the rent limitations of Section 42 of the
Internal Revenue Code of 1986, as amended. The
rent limitations imposed on mortgaged
properties subject to Section 42 may adversely
affect the ability of the applicable borrowers
to increase rents to maintain such properties
in proper condition during periods of rapid
inflation or declining market value of such
properties. In addition, the income
restrictions on tenants imposed by Section 42
may reduce the number of eligible tenants in
such properties and result in a reduction in
occupancy rates applicable thereto.
S-35
<PAGE>
ENVIRONMENTAL LAWS Various environmental laws may make a current
ENTAIL RISKS 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.
The owner's liability for any required
remediation generally is not limited by law
and could accordingly exceed the value of the
property and/or the aggregate assets of the
owner. The presence of hazardous or toxic
substances also may adversely affect the
owner's ability to refinance the property or
to sell the property to a third party. The
presence of, or strong potential for
contamination by, hazardous substances
consequently can have a materially adverse
effect on the value of the property and a
borrower's ability to repay its mortgage loan.
In addition, under certain circumstances, a
lender (such as the trust) could be liable for
the costs of responding to an environmental
hazard. See "Legal Matters" in the prospectus.
ENVIRONMENTAL RISKS All of the mortgaged properties securing the
RELATING TO SPECIFIC mortgage loans have been subject to
MORTGAGED 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 55 of the mortgage loans
(representing 22.8% of the initial outstanding
pool balance) are, as of the Cut-off Date,
more than a year old, but in no event more
than 18 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, we cannot
assure you that: (i) future laws,
S-36
<PAGE>
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 borrowers, 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, we
cannot assure you that this requirement will
effectively insulate the trust from potential
liability under environmental laws.
BORROWER MAY BE UNABLE One hundred ninety one (191) of the mortgage
TO REPAY REMAINING loans, representing 98.6% of the initial
PRINCIPAL BALANCE ON outstanding pool balance, are expected to have
MATURITY DATE substantial remaining principal balances
(equal to greater than 10% of the original
principal balance of each respective mortgage
loan) as of their respective anticipated
repayment 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 maturity (i.e., "balloon
loans") involve greater risk than fully
amortizing loans.
A borrower's ability to repay a loan on its
anticipated repayment 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
and rents 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.
S-37
<PAGE>
See "Mortgage Pool Characteristics--Certain
Characteristics of the Mortgage Loans" in this
prospectus supplement.
AUTHORITY TO EFFECT Eight (8) of the mortgage loans (representing
OTHER BORROWINGS ENTAILS 9.9% of the initial outstanding pool balance)
RISKS permit the borrower 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 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 indebtedness beyond
the mortgage loan in the ordinary course of
business, subject to certain conditions.
When a mortgage loan borrower (or its
constituent members) also has one or more
other outstanding loans (even if subordinated
or mezzanine loans that are not secured by a
lien on the mortgaged property), 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. See
"Description of the Mortgage Pool--Certain
Terms and Characteristics to the Mortgage
Loans--Subordinate Financing" in this
prospectus supplement.
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 bankruptcy or
foreclosure proceedings or related litigation.
BANKRUPTCY PROCEEDINGS Under the Bankruptcy Code, the filing of a
ENTAILS CERTAIN RISKS 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
borrower a reasonable
S-38
<PAGE>
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.
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 mortgaged
property and extinguish 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.
BORROWERS THAT ARE NOT The mortgage loan documents typically contain
SPECIAL-PURPOSE ENTITIES borrower covenants that for so long as the
MAY BE MORE LIKELY TO related mortgage loan is outstanding, the
FILE BANKRUPTCY borrower will, among other things, generally
(i) not own any material asset other than the
real property and incidental personal property
covered by the mortgage, (ii) not incur any
indebtedness other than the mortgage loan and
trade payables related to the operation of the
mortgaged property and (iii) distinguish its
business activities from those of its
affiliates.
Generally 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.
LACK OF SKILLFUL The successful operation of a real estate
PROPERTY MANAGEMENT project depends upon the property manager's
ENTAILS RISKS 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
S-39
<PAGE>
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, in some cases, 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 inspected
RELATING TO PROPERTY the mortgaged properties in connection with
the origination of the mortgage loans to
assess items such as structure, exterior
walls, roofing, interior construction,
mechanical and electrical systems and general
condition of the site, buildings and other
improvements. However, we can not assure you
that all conditions requiring repair or
replacement were identified.
ABSENCE OR INADEQUACY OF The mortgaged properties may suffer casualty
INSURANCE COVERAGE losses due to risks which were not covered by
ENTAILS RISKS 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. We can not assure you that borrowers
will be able to maintain adequate insurance.
Moreover, if reconstruction or any major
repairs are required, changes in laws may
materially affect the borrower's ability to
effect 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 was
STUDIES HAVE CERTAIN conducted in respect of the mortgaged
LIMITATIONS properties in connection with the origination
or acquisition of the related mortgage loan.
The resulting estimates of value are the basis
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
S-40
<PAGE>
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 As principal payments or prepayments are made
MORTGAGE LOAN on a mortgage loan that is part of a pool of
AMORTIZATION POSES loans, the pool may be subject to more risk
CERTAIN RISKS with respect to the decreased diversity of
mortgaged properties, types of mortgaged
properties, geographic location and number of
borrowers and affiliated borrowers. 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.
SUBORDINATION OF As described in this prospectus supplement,
SUBORDINATE OFFERED unless your certificates are Class A-1, Class
CERTIFICATES 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" 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 If the trust acquires a mortgaged property
RELATING TO FORECLOSURE pursuant to a foreclosure or deed in lieu of
foreclosure, the Special Servicer will
generally retain an independent contractor to
operate the property. In general, any net
income from such operation (other than
qualifying "rents from real property" as
defined in Section 856(d) of the Code) 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 to
ENFORCEABILITY 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.
S-41
<PAGE>
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.
STATE LAW LIMITATIONS The ability to realize upon the mortgage loans
ENTAIL CERTAIN RISKS may be limited by the application of state
laws. Some states (including California) have
laws prohibiting more than one "judicial
action" to enforce a mortgage obligation. Some
courts have construed the term "judicial
action" broadly. In the case of a pool loan or
cross-collateralized loans secured by
mortgaged properties located in multiple
states, the 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. 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. Most of the
mortgage loans in the D.A.M. mobile home park
portfolio, which is described in Appendix III,
are secured by properties located in
Pennsylvania and all of such loans are
cross-collateralized. The Pennsylvania
Deficiency Judgment Act restricts the ability
of a lender to obtain a deficiency judgment
against a borrower and, as a result, may
impair a lender's ability to realize the
benefits of cross-collateralization. The
Special Servicer may take these state laws
into consideration in deciding which remedy to
choose following a default by a borrower.
LEASEHOLD INTERESTS Five (5) of the mortgage loans (representing
ENTAIL CERTAIN RISKS 5.2% of the initial outstanding pool balance)
are secured solely by mortgages on borrowers'
leasehold interests under ground leases. In
addition, 4 mortgage loans (representing 4.5%
of the initial outstanding pool balance), are
secured by a mortgage on both the borrower's
leasehold interest in a portion of the related
mortgaged property and a 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
lender would lose its security. Generally,
each related ground lease requires the lessor
to give the lender notice of borrower defaults
under the ground lease and an opportunity to
cure them, permits the leasehold estate to be
assigned to the lender or the purchaser at a
foreclosure sale, in some cases only upon the
consent of the lessor, and contains certain
other protective provisions typically included
in a "mortgageable" ground lease.
S-42
<PAGE>
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 for the rent otherwise payable
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 right
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.
The ground lease relating to the AFCO Hanger
One Air Cargo Complex Loan does not contain
provisions prohibiting the ground lessor and
tenant from amending, modifying or accepting a
voluntary termination or surrender of the
ground lease, without the lender's consent,
and the ground lessor, which is a municipal
authority related to the City of Los Angeles,
has not provided that comfort in an estoppel
letter or similar document. The loan documents
prohibit the borrower from amending,
modifying, terminating or surrendering the
ground lease without the lender's consent, and
an affiliate of the Borrower has guaranteed
the full loan amount in the event that the
borrower and the ground lessor surrender,
cancel, modify or amend the lease without the
prior written consent of the lender.
The parking structures which serve the
mortgaged property securing The Lakes Mortgage
Loan are ground leased to the Borrower. The
rents due under that ground lease are equal to
the debt service payments due on certain
floating rate tax exempt bonds floated by the
City of West Covina Redevelopment Agency to
finance construction of the parking
structures.
RISKS RELATING TO The Mortgage Pool includes four groups of
ENFORCEABILITY OF cross-collateralized mortgage loans,
CROSS-COLLATERALIZATION representing 7.0% of the initial outstanding
pool balance. See Appendix II hereto.
Cross-collateralization arrangements involving
more than one borrower could be challenged as
fraudulent conveyances by creditors of the
related borrower in an action brought outside
a bankruptcy case or, in addition, 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
S-43
<PAGE>
conveyance, that court could subordinate all
or part of the pertinent mortgage loan to
existing or future indebtedness of that
borrower. The court also could recover
payments made under that mortgage loan or take
other actions detrimental to the holders of
the certificates, including, under certain
circumstances, invalidating the loan or the
mortgages securing such
cross-collateralization.
POTENTIAL ABSENCE OF In some jurisdictions, if tenant leases are
LEASE SUBORDINATION AND subordinate to the liens created by the
ATTORNMENT PROVISIONS mortgage and do not contain attornment
ENTAILS RISKS 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. Moreover, the
absence of subordination may subject the
foreclosing lender or purchaser at foreclosure
to claims or offset rights that the tenants
might have had against the borrower. Certain
of the leases at the mortgaged properties
included in the trust may not be subordinate
to the related Mortgage.
RISKS RELATING TO There may be pending or threatened legal
LITIGATION 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 on the Offered
Certificates.
RISKS RELATING TO Under the Americans with Disabilities Act of
COMPLIANCE WITH 1990 ("ADA"), all public accommodations are
AMERICANS WITH required to meet certain federal requirements
DISABILITIES ACT 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.
S-44
<PAGE>
RISKS RELATING TO Conflicts Between Various Classes of
CONFLICTS 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 a majority of 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 Trust or Trustee and FINOVA
Realty Capital Inc. Conflicts of interest may
arise between the trust and FINOVA Realty
Capital Inc. or its affiliates that engage in
the acquisition, development, operation,
financing and disposition of real estate.
Those conflicts may arise because FINOVA
Realty Capital Inc. and its affiliates intend
to continue to actively acquire, develop,
operate, finance and dispose of real
estate-related assets in the ordinary course
of their business. During the course of their
business activities, FINOVA Realty Capital
Inc. or such affiliates may acquire or sell
properties, or finance mortgage loans secured
by properties, which may include the mortgaged
properties or properties which are in the same
markets as the mortgaged properties. In such
case, the interests of FINOVA Realty Capital
Inc. or such 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. In addition, FINOVA Realty
Capital Inc. and its affiliates may, in the
ordinary course of business, engage in a
banking relationship with the Trustee and its
affiliates.
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.
S-45
<PAGE>
Conflicts Between FINOVA Realty Capital Inc.
and Classes of Certificateholders. FINOVA
Realty Capital Inc. or its affiliates may
acquire certain of the Offered Certificates.
Under such circumstances, they may become the
Controlling Class, and as such have interests
that may conflict with their interests as a
Seller of the Mortgage Loans.
RISKS RELATING TO The yield to maturity on your certificates
PREPAYMENTS AND will depend, in significant part, upon the
REPURCHASES 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 anticipated
repayment 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, or, in some cases, as a result
of the application of cash collateral retained
by the Lender, or, with respect to many
mortgage loans, as a result of changes in tax
S-46
<PAGE>
or debt credit laws, 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 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 maintenance
ENFORCEABILITY OF charges, prepayment premiums and lockout
PREPAYMENT PREMIUMS 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 extent to which the rights to receive
distributions on such certificates are
subordinated to the rights of holders of
more senior certificates;
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 certificates.
S-47
<PAGE>
RISKS RELATING TO The rate and timing of delinquencies or
BORROWER DEFAULT defaults on the mortgage loans will affect:
o the aggregate amount of distributions on
the Offered Certificates;
o the yield to maturity of the Offered
Certificates;
o the rate of principal payments; and
o the weighted average life of the Offered
Certificates.
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 O, Class N, Class M, Class L,
Class K, Class J, Class H, Class G, Class F,
Class E, Class D, Class C and Class B
Certificates, in that order, reducing amounts
otherwise payable to each class. Any remaining
losses would then be allocated to the Class A
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.
S-48
<PAGE>
RISKS RELATING TO To the extent described in this prospectus
CERTAIN PAYMENTS supplement, the Master Servicer, the Special
Servicer or the Trustee, 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.
RISKS OF LIMITED Your certificates will not be listed on any
LIQUIDITY AND MARKET securities exchange, and there is currently no
VALUE secondary market for the Offered Certificates.
While Morgan Stanley & Co. Incorporated and
Deutsche Bank Securities Inc. 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, FINOVA Realty Capital Inc.
or its affiliates 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 The interest rate of the Class X Certificates
RATE VARIABILITY is based on the NWAC Rate of the mortgage
CONSIDERATIONS 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 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 We are aware of the issues associated with the
YEAR 2000 COMPLIANCE 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 and the Special Servicer that they
are committed either to (i) implement
modifications to their respective existing
material 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 August 31,
1999. Furthermore, we have been advised by the
Trustee that it is currently modifying its
computer systems and
S-49
<PAGE>
applications and expects that it will be year
2000 capable prior to December 31. 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.
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.
S-50
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Series 1999-FNV1 Commercial Mortgage Pass-Through Certificates (the
"Certificates") will be issued on or about April __, 1999 (the "Closing Date")
pursuant to a Pooling and Servicing Agreement to be dated as of the Cut-off Date
(the "Pooling and Servicing Agreement"), among the Depositor, the Master
Servicer, the Special Servicer and the Trustee. Registered holders of the
Certificates are herein referred to as "Certificateholders". The Certificates
will represent in the aggregate the entire beneficial ownership interest in a
trust fund (the "Trust Fund") consisting primarily of: (i) the Mortgage Loans
and all payments under and proceeds of the Mortgage Loans received after the
Cut-off Date (exclusive of principal prepayments received prior to the Cut-off
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, the Mortgage Loan Purchase
Agreement relating to Mortgage Loan document delivery requirements and the
representations and warranties of the Seller regarding its Mortgage Loans.
The Certificates will consist of 19 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, the Class N
Certificates and the Class O 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 and Class D Certificates (the
"Offered Certificates") are offered hereby. The Class X, Class E, Class F, Class
G, Class H, Class J, Class K, Class L, Class M, Class N and Class O 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
S-51
<PAGE>
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 or Euroclear (in Europe). Transfers
within DTC, Cedel or Euroclear, as the case may be, will be in accordance with
the usual rules and operating procedures of the relevant system. Crossmarket
transfers between persons holding directly or indirectly through DTC, on the one
hand, and counterparties holding directly or indirectly through Cedel or
Euroclear, on the other, will be effected in DTC through Citibank, N.A.
("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, Class
N and Class O Certificates (collectively, the "Principal Balance Certificates")
will have the following aggregate Certificate Balances (in each case, subject to
a variance of plus or minus 5%):
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
INITIAL AGGREGATE PERCENT OF INITIAL PERCENT OF
CLASS CERTIFICATE BALANCE POOL BALANCE CREDIT SUPPORT
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A-1 $101,000,000 15.98% 30.25%
Class A-2 $339,885,000 53.77% 30.25%
Class B $33,185,000 5.25% 25.00%
Class C $26,864,000 4.25% 20.75%
Class D $12,642,000 2.00% 18.75%
Class E $30,025,000 4.75% 14.00%
Class F $14,222,000 2.25% 11.75%
Class G $20,543,000 3.25% 8.50%
Class H $7,901,000 1.25% 7.25%
Class J $9,481,000 1.50% 5.75%
Class K $7,902,000 1.25% 4.50%
Class L $6,321,000 1.00% 3.50%
Class M $6,321,000 1.00% 2.50%
Class N $9,481,000 1.50% 1.00%
Class O $6,321,383 1.00% 0.00%
</TABLE>
S-52
<PAGE>
The "Certificate Balance" of any Principal Balance Certificate
outstanding at any time will equal the then-maximum amount that the holder
thereof will be entitled to receive in respect of principal out of future cash
flow on the Mortgage Loans and other assets included in the Trust Fund. The
initial Certificate Balance of any Principal Balance Certificate will be set
forth on the face thereof. On each Distribution Date, the Certificate Balance of
each Principal Balance Certificate will be reduced by any distributions of
principal actually made on such Certificate on such Distribution Date, and will
be further reduced by any Realized Losses and Expense Losses allocated to such
Certificate on such Distribution Date. See "--Distributions" and
"--Subordination; Allocation of Losses and Certain Expenses" below.
The Interest Only Certificates will not have Certificate Balances. Each
such Certificate will represent the right to receive distributions of interest
accrued as described herein on a notional principal amount (a "Notional
Amount"). The aggregate Notional Amount of the 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 $632,094,383 (subject to a variance of plus or
minus 5%).
The REMIC Residual Certificates will not have Certificate Balances or
Notional Amounts.
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 B,
Class C, Class D, Class G, Class H, Class J, Class K, Class L, Class M, Class N
and Class O Certificates will, at all times, be equal to 6.14%, 6.54%, 6.66%,
6.81%, 7.06%, 6.14%, 6.14%, 6.14%, 6.14%, 6.14%, 6.14%, 6.14% and 6.14% per
annum, respectively; provided, however, that each such Pass-Through Rate will
not exceed the NWAC Rate for such Distribution Date.
The Pass-Through Rates applicable to Class E and Class F Certificates
will, at all times, be equal to the NWAC Rate minus 0.03% and 0.03%,
respectively.
The Pass-Through Rate applicable to the Interest Only Certificates for
the initial Distribution Date will equal approximately 0.97% 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 NWAC 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 "NWAC 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.
S-53
<PAGE>
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
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 any 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. In addition, with respect to
each Interest Reserve Loan (as defined herein), (i) the Mortgage Rate in effect
during (a) December of each year that does not immediately precede a leap year
and (b) January of each year, will be determined net of the applicable Withheld
Amounts and (ii) the Mortgage Rate in effect during February of each year will
be determined after taking into account the addition of the applicable Withheld
Amounts.
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
eleventh 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 May, 1999, provided that the Distribution
Date will be no earlier than the fourth Business Day following the 11th day of
such month. 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.
S-54
<PAGE>
The Available Distribution Amount.
With respect to any Distribution Date, distributions of interest on and
principal of the Certificates will be made from the Available Distribution
Amount for such Distribution Date. The "Available Distribution Amount" for any
Distribution Date will, in general, equal (a) all amounts on deposit in the
Certificate Account (as described in the Prospectus) as of the close of business
on the related Determination Date, exclusive of any portion thereof that
represents one or more of the following:
(i) Monthly Payments collected but due on a Due Date
subsequent to the related Collection Period;
(ii) Prepayment Premiums (which are separately distributable on
the Certificates as hereinafter described);
(iii) amounts that are payable or reimbursable to any person
other than the Certificateholders (including amounts payable to the
Master Servicer, the Special Servicer or the Trustee as compensation or
in reimbursement of outstanding Advances and amounts payable in respect
of Additional Trust Fund Expenses);
(iv) with respect to any Distribution Date occurring in each
February, and in any January occurring in a year that is not a leap
year, the Withheld Amounts to be deposited in the Interest Reserve
Account and held for future distribution; and
(v) amounts deposited in the Certificate Account in error;
plus (b) to the extent not already included in clause (a), any P&I
Advances and Compensating Interest Payments made with respect to such
Distribution Date.
As used herein, "Certificate Account" includes, on a collective basis,
each collection account established and maintained by the Master Servicer for
the retention of payments and other collections of principal and interest in
respect of the Mortgage Loans (other than Excess Interest in respect of
Anticipated Repayment Date Loans, which will be deposited to the Excess Interest
Distribution Account and paid to the Class O 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
S-55
<PAGE>
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.
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 on the
Senior Certificates (as described under this "--Distribution--Application of the
Available Distribution Amount" section) 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 Date, 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 O Certificates.
The "Excess Interest" in respect of each Anticipated Repayment Date Loan
that does not repay on its Anticipated Repayment Date is the excess, if any, of
interest accrued at the rate of interest applicable to such loan after the
Anticipated Repayment Date (the "Revised Rate") over interest accrued at the
rate of interest applicable to such loan before the Anticipated Repayment 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.
S-56
<PAGE>
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.
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
S-57
<PAGE>
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 G, Class H, Class J, Class K, Class
L, Class M, Class N and Class O 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 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 Anticipated Repayment 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.
Interest Reserve Account.
The Trustee will establish and maintain an "Interest Reserve Account" in
the name of the Trustee for the benefit of the holders of the Certificates. With
respect to each Distribution Date occurring in February and each Distribution
Date occurring in any January which occurs in a year that is not a leap year,
there shall be deposited, in respect of each Mortgage Loan that accrues interest
on the basis of a 360-day year and the actual number of days at a rate less than
__% (an "Interest Reserve Loan"), an amount equal to one day's interest at the
related Mortgage Rate (net of any servicing fee payable therefrom) on the
respective Stated Principal Balance as of the immediately preceding Due Date, to
the extent a Monthly Payment or P&I Advance is made in respect thereof (all
amounts so deposited in any consecutive January (if applicable) and February,
"Withheld Amounts"). With respect to each Distribution Date occurring in March,
an amount is required to be withdrawn from the Interest Reserve Account in
respect of each Interest Reserve Loan equal to the related Withheld Amounts from
the preceding January (if applicable) and February, if any, and deposited into
the Certificate Account.
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
S-58
<PAGE>
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 and the Trustee 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
a bankruptcy petition has been filed in respect of the borrower 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"), 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
completed, 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 or the Trustee, 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 or the Trustee, 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 internal 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 by 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 reduces the Master Servicer's or
the Trustee's, as the case may be, advancing obligation in respect of delinquent
principal and interest on the related Mortgage Loan, which may result in a
reduction in distributions in respect of the then-most subordinate Class of
Certificates. See "--Advances--P&I Advances" below.
S-59
<PAGE>
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 O, Class N, Class M, Class L, Class K, Class J, Class H, Class G,
Class F, Class E, Class D, Class C and Class B Certificates 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 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
S-60
<PAGE>
Liquidation Fees, (ii) interest in respect of Advances not paid out of default
interest, (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 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 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
S-61
<PAGE>
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 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 accordance with the Pooling and
Servicing Agreement, 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 will also not be required to
advance prepayment or yield maintenance premiums, Excess Interest or Default
Interest. 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, 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
Master Servicer will make only one P&I Advance in respect of each Mortgage Loan
for the benefit of the most subordinate Class of Certificates then outstanding
unless the related defaulted Monthly Payment is cured prior to the following Due
Date on any Mortgage Loan. The amount to be advanced by the Master Servicer or
Trustee 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. See "--The Trustee" below.
The Master Servicer and the Trustee will each be entitled to recover any
P&I Advance made by it from Related Proceeds collected in respect of the
Mortgage Loan as to which such P&I Advance was made. Notwithstanding the
foregoing, none of the Master Servicer or the Trustee will be obligated to make
a P&I Advance that would, if made, constitute a Nonrecoverable Advance (as
defined below). The Master Servicer and the Trustee will each be entitled to
recover any P&I Advance 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.
S-62
<PAGE>
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, 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.
The Master Servicer, the Special Servicer and the Trustee will each be
obligated to make Servicing Advances only to the extent that such Servicing
Advances are, in the reasonable and good faith judgment of such party,
ultimately recoverable from Related Proceeds.
Nonrecoverable Advances.
The determination by the Master Servicer, the Special Servicer (or, if
applicable, the Trustee) 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 the
Depositor 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 and the Trustee with respect to the obligation of the Trustee
to make any Advance. The Trustee shall be entitled to rely conclusively on any
determination by the Master Servicer 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 and the Trustee will each be
entitled, with respect to any Advance made thereby, to receive interest accrued
on the amount of such Advance for so long as it is outstanding at a rate per
annum (the "Advance Rate") equal to the "prime rate" as published in the "Money
Rates" section of The Wall Street Journal, as such "prime rate" may change from
time to time. Such interest on any Advance will be payable to the Master
Servicer, the Special Servicer or the Trustee, as the case may be, first out of
default interest 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
actually collected in respect of any defaulted
S-63
<PAGE>
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 provide or make available on each
Distribution Date to each Certificateholder a statement generally setting forth,
to the extent applicable:
(a) the following information:
(i) the amount, if any, of the distributions to the
holders of each Class of Principal Balance Certificates on such
Distribution Date applied to (A) reduce the aggregate Certificate
Balance thereof and (B) reimburse previously allocated Realized
Losses and Expense Losses (with interest);
(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 30-59 days,
(B) delinquent 60-89 days, (C) delinquent 90 or more days or (D)
as to which foreclosure proceedings have been commenced;
(v) with respect to any REO Property acquired during the
related Collection Period, the Stated Principal Balance of the
related Mortgage Loan as of the date of acquisition of the REO
Property;
(vi) (A) the most recent appraised value of any REO
Property as of the related Determination Date, (B) as to any REO
Property sold during the related Collection Period, the date of
the related determination by the Special Servicer that it has
recovered all Related Proceeds 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
and Certificate Factor of each Class of REMIC Regular
Certificates before and after giving effect to the distributions,
and any allocations of Realized Losses and Expense Losses, made
on such Distribution Date;
(viii) the aggregate amount of principal prepayments made
during the related Collection Period;
(ix) the Pass-Through Rate applicable to each Class of
Certificates for such Distribution Date;
(x) the aggregate amount of servicing fees retained by or
paid to the Master Servicer and the Special Servicer;
S-64
<PAGE>
(xi) the Net Aggregate Prepayment Interest Shortfall
Amount, if any, for such Distribution Date and 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, stated separately, outstanding as of the end of the
prior calendar month that have been made by the Master Servicer,
the Special Servicer and the Trustee;
(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 to the extent the categories of
information are contained within the standard CSSA data file layout, and
will be presented in a tabular format substantially similar to the
respective format utilized in Appendix IV.
2. The Trustee will make available each month, to any interested party,
the foregoing report via its website, initially located at
"www.ctslink.com/cmbs" (the "Trustee's Website"), electronic bulletin board and
its fax-on-demand service. The Trustee's electronic bulletin board may be
accessed by calling (301) 815-6620, and its fax-on-demand service may be
accessed by calling (301) 815-6610. For assistance with the above-mentioned
services, Certificateholders may call (301) 815-6600. In addition, the Trustee
will also make Mortgage Loan information as presented in the CSSA loan setup
file format, the CSSA loan periodic update file format and the Special Servicer
Reports (as defined herein) available each month to any Certificateholder, any
Certificate Owner, the Rating Agencies or any other interest party via the
Trustee's Website. In addition, pursuant to the Pooling and Servicing Agreement,
the Trustee will make available as a convenience for interested parties (and not
in furtherance of the distribution of the Prospectus or the Prospectus
Supplement under the securities laws), the Pooling and Servicing Agreement, the
Prospectus and the Prospectus Supplement via the Trustee's Website. The Trustee
will make no representations or warranties as to the accuracy or completeness of
such documents and will assume no responsibility therefor. In addition, the
Trustee may disclaim responsibility for any information of which it is not the
original source.
In connection with providing access to the Trustee's Website or
electronic bulletin board, the Trustee may require registration and the
acceptance of a disclaimer. The Trustee shall not be liable for the
dissemination of information in accordance with the Pooling and Servicing
Agreement. The Master Servicer will also make certain information relating to
the Mortgage Loans available on its website at WWW.AMRESCO.COM.
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,
upon written request (which may be in the form of a standing request), 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 written 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
S-65
<PAGE>
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 or
data files containing information required by the Master Servicer to prepare the
following reports with respect to Specially Serviced Mortgage Loans
substantially in the form set forth in the Pooling and Servicing Agreement. Such
reports will be delivered by the Trustee, no later than the Distribution Date,
to the Certificateholders, each prospective purchaser of a Certificate (upon
request), each Certificate Owner (if known), the Underwriters, the Rating
Agencies and the Depositor; provided however that such information may be
provided as part of another CSSA report in lieu of these separate reports.
These reports include:
(a) A "Comparative Financial Status Report" setting forth, to the
extent such information is provided by the related borrowers, among
other things, the occupancy, revenue, net operating income or net cash
flow and DSCR for the Mortgage Loans as of the date of the latest
financial information available immediately preceding the preparation of
such report for each of the following three periods; (i) the most
current available year-to-date or the most recent twelve months; (ii)
the previous two full fiscal years; and (iii) the "base year"
(representing the original underwriting information used as of the
Cut-off Date).
(b) A "Delinquent Loan Status Report" setting forth, among other
things, those Mortgage Loans which, as of the close of business on the
Determination Date immediately preceding the preparation of such report,
were delinquent 30-59 days, delinquent 60-89 days, delinquent 90 days or
more, current but not specially serviced, or in foreclosure but not REO
Property.
(c) An "Historical Loan Modification Report" setting forth, among
other things, those Mortgage Loans which, as of the close of business on
the Determination Date immediately preceding the preparation of such
report, have been modified pursuant to the Pooling and Servicing
Agreement (i) during the related Collection Period and (ii) since the
Cut-off Date, showing the original and the revised terms thereof.
(d) An "Historical Loss Estimate Report" setting forth, among
other things, as of the close of business on the Determination Date
immediately preceding the preparation of such report, (i) the aggregate
amount of liquidation proceeds and liquidation expenses, both for the
current period and historically, and (ii) the amount of Realized Losses
occurring during the related Collection Period and historically, set
forth on a Mortgage Loan-by-Mortgage Loan basis.
(e) An "REO Status Report" setting forth, among other things,
with respect to each REO Property that was included in the Trust Fund as
of the close of business on the Determination Date immediately preceding
the preparation of such report, (i) the acquisition date of such REO
Property, (ii) the amount of income collected with respect to any REO
Property net of related expenses and other amounts, if any, received on
such REO Property during the related Collection Period and (iii) the
value of the REO Property based on the most recent appraisal or other
valuation thereof available to the Special Servicer as of such date of
determination (including any prepared internally by the Special
Servicer).
(f) A "Watch List" as of the close of business on the Due Date
immediately preceding the preparation of such report setting forth,
among other things, any Mortgage Loan that is in jeopardy of becoming a
Specially Serviced Mortgage Loan.
S-66
<PAGE>
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 Certificateholder or
prospective purchaser of a Certificate, originals or copies of, among other
things, the following items (except to the extent not permitted by applicable
law or under any of the Mortgage Loan documents):
(i) the Pooling and Servicing Agreement and any amendments
thereto,
(ii) all reports or statements delivered by the Trustee to
holders of the relevant Class of Certificates since the Closing Date,
(iii) all accountants' reports delivered to the Trustee since the
Closing Date,
(iv) the most recent property inspection report prepared by or on
behalf of the Master Servicer or the Special Servicer in respect of each
Mortgaged Property and delivered to the Trustee,
(v) the most recent Mortgaged Property annual operating
statements and rent rolls, if any, collected by or on behalf of the
Master Servicer or the Special Servicer and delivered to the Trustee,
(vi) any and all modifications, waivers and amendments of the
terms of a Mortgage Loan entered into by the Master Servicer and/or the
Special Servicer and delivered to the Trustee, and
(vii) any and all officers' certificates and other evidence
delivered to the Trustee to support the Master Servicer's determination
that any Advance was not 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 written 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.
S-67
<PAGE>
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 April 1999:
The close of business on
April 1................ (A) Cut-off Date.
April 30............... (B) Record Date for all Classes of
Certificates.
April 2 - May 11....... (C) The Collection Period. The Master
Servicer receives Monthly
Payments due after the Cut-off
Date and on or prior to May 11,
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
May 11, the last day of the
Collection Period for unscheduled
payments.
May 11................. (D) Determination Date.
May 14................. (E) Master Servicer Remittance Date.
May 17................. (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
April 1, 1999 (after deducting principal payments due on or before such date).
Those principal payments due on or before such date, and the accompanying
interest payments, are not part of the Trust Fund.
(B) Distributions on the next Distribution Date will be made to those
persons that are Certificateholders of record on this date. Each subsequent
Record Date will be the last business day of the month preceding the related
Distribution Date.
(C) Any Monthly Payments due and collected and Principal Prepayments
collected, after the Cut-off Date and on or prior to 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 eleventh 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, provided that the Distribution Date will be no earlier
than the fourth Business Day following the eleventh day of such month.
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
S-68
<PAGE>
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 among the holders of the respective Classes of REMIC Residual
Certificates in three equal shares. Voting Rights allocated to a Class of
Certificateholders will be allocated among Certificateholders of such Class in
proportion to the Percentage Interests in such Class evidenced by their
respective Certificates.
THE TRUSTEE
Norwest Bank Minnesota, National Association ("Norwest Bank") will act
as trustee (the "Trustee"). Norwest Bank, a direct, wholly-owned subsidiary of
Wells Fargo & Company, is a national banking association originally chartered in
1872 and is engaged in a wide range of activities typical of a national bank.
Norwest Bank's principal office is located at Norwest Center, Sixth and
Marquette, Minneapolis, Minnesota 55479-0113. Certificate transfer services are
conducted at Norwest Bank's offices in Minneapolis. Norwest Bank otherwise
conducts its trustee and securities administration services, including
administration of the Trust, at its offices in Columbia, Maryland. Such office
is located at 11000 Broken Land Parkway, Columbia, Maryland 21044-3562. In
addition, Norwest Bank maintains a trust office in New York City located at 3
New York Plaza, New York, New York 10004. Certificateholders and other interest
parties should direct inquiries to Norwest Bank's New York City office. The
telephone number is (212) 515-5240. The Trustee is at all times required to be,
and will be required to resign if it fails to be, (i) an institution insured by
the FDIC, (ii) a corporation, national bank or national banking association,
organized and doing business under the laws of the United States of America or
any state thereof, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by federal or state authority and (iii) an
institution whose long-term senior unsecured debt is rated not less than "AA" by
Fitch and "AA" by S&P (or such lower ratings as the Rating Agencies would permit
without an adverse effect on any of the then-current ratings of the
Certificates). 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-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.
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, or in the case of an
Anticipated Repayment Date Loan, the Anticipated Repayment Date. The columns
headed "3%", "5%", "7%", "10%" and "15%" assume that no prepayments are made on
any Mortgage Loan during such Mortgage Loan's Lockout Period, if any, or during
such Mortgage Loan's yield maintenance
S-69
<PAGE>
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 Lockout
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 Lockout Period or a yield
maintenance period will not prepay as a result of involuntary liquidations upon
default or otherwise. A "yield maintenance period" is any period during which a
Mortgage Loan provides that voluntary prepayments be accompanied by a Yield
Maintenance Premium.
The following tables indicate the percentage of the initial aggregate
Certificate Balance of each Class of Offered Certificates 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 $632,094,383,
(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 Payment for each Mortgage Loan is 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 Lockout
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 Anticipated Repayment
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,
S-70
<PAGE>
(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 May 1999,
(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
(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.
S-71
<PAGE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS A-1 CERTIFICATES AT THE SPECIFIED CPRS
PREPAYMENT ASSUMPTION (CPR)
-----------------------------------------
Date 0% 3% 5% 7% 10% 15%
-- -- -- -- --- ---
Closing Date............... 100% 100% 100% 100% 100% 100%
April 2000................. 93 93 93 93 93 93
April 2001................. 86 86 86 86 86 86
April 2002................. 78 78 78 78 78 77
April 2003................. 69 69 69 69 69 68
April 2004................. 60 60 60 60 59 59
April 2005................. 50 50 50 49 49 48
April 2006................. 33 33 33 33 32 32
April 2007................. 22 21 21 21 21 20
April 2008................. 1 0 0 0 0 0
April 2009................. 0 0 0 0 0 0
Weighted Average
Life (years)............... 5.51 5.48 5.47 5.46 5.44 5.41
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE
OF THE CLASS A-2 CERTIFICATES AT THE SPECIFIED CPRS
PREPAYMENT ASSUMPTION (CPR)
-----------------------------------------
Date 0% 3% 5% 7% 10% 15%
-- -- -- -- --- ---
Closing Date............... 100% 100% 100% 100% 100% 100%
April 2000................. 100 100 100 100 100 100
April 2001................. 100 100 100 100 100 100
April 2002................. 100 100 100 100 100 100
April 2003................. 100 100 100 100 100 100
April 2004................. 100 100 100 100 100 100
April 2005................. 100 100 100 100 100 100
April 2006................. 100 100 100 100 100 100
April 2007................. 100 100 100 100 100 100
April 2008................. 100 100 100 100 100 99
April 2009................. 0 0 0 0 0 0
Weighted Average
Life (years)............... 9.47 9.47 9.47 9.47 9.47 9.47
S-72
<PAGE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS B CERTIFICATES AT THE SPECIFIED CPRS
PREPAYMENT ASSUMPTION (CPR)
-----------------------------------------
Date 0% 3% 5% 7% 10% 15%
-- -- -- -- --- ---
Closing Date............... 100% 100% 100% 100% 100% 100%
April 2000................. 100 100 100 100 100 100
April 2001................. 100 100 100 100 100 100
April 2002................. 100 100 100 100 100 100
April 2003................. 100 100 100 100 100 100
April 2004................. 100 100 100 100 100 100
April 2005................. 100 100 100 100 100 100
April 2006................. 100 100 100 100 100 100
April 2007................. 100 100 100 100 100 100
April 2008................. 100 100 100 100 100 100
April 2009................. 0 0 0 0 0 0
Weighted Average
Life (years)............... 9.75 9.75 9.75 9.75 9.75 9.75
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS C CERTIFICATES AT THE SPECIFIED CPRS
PREPAYMENT ASSUMPTION (CPR)
-----------------------------------------
Date 0% 3% 5% 7% 10% 15%
-- -- -- -- --- ---
Closing Date............... 100% 100% 100% 100% 100% 100%
April 2000................. 100 100 100 100 100 100
April 2001................. 100 100 100 100 100 100
April 2002................. 100 100 100 100 100 100
April 2003................. 100 100 100 100 100 100
April 2004................. 100 100 100 100 100 100
April 2005................. 100 100 100 100 100 100
April 2006................. 100 100 100 100 100 100
April 2007................. 100 100 100 100 100 100
April 2008................. 100 100 100 100 100 100
April 2009................. 0 0 0 0 0 0
Weighted Average
Life (years)............... 9.75 9.75 9.75 9.75 9.75 9.75
S-73
<PAGE>
PERCENTAGES OF THE INITIAL AGGREGATE CERTIFICATE BALANCE OF
THE CLASS D CERTIFICATES AT THE SPECIFIED CPRS
PREPAYMENT ASSUMPTION (CPR)
------------------------------------------
Date 0% 3% 5% 7% 10% 15%
-- -- -- -- --- ---
Closing Date............... 100% 100% 100% 100% 100% 100%
April 2000................. 100 100 100 100 100 100
April 2001................. 100 100 100 100 100 100
April 2002................. 100 100 100 100 100 100
April 2003................. 100 100 100 100 100 100
April 2004................. 100 100 100 100 100 100
April 2005................. 100 100 100 100 100 100
April 2006................. 100 100 100 100 100 100
April 2007................. 100 100 100 100 100 100
April 2008................. 100 100 100 100 100 100
April 2009................. 0 0 0 0 0 0
Weighted Average
Life (years)............... 9.75 9.75 9.75 9.75 9.75 9.75
S-74
<PAGE>
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on: (i) the
Pass-Through Rate in effect from time to time for such Certificate; (ii) the
price paid for such Certificate and, if the price was other than par, the rate
and timing of payments of principal on such Certificate; and (iii) the aggregate
amount of distributions on such Certificate.
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
S-75
<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, Lockout 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 Lockout 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 194 mortgage
loans (each, a "Mortgage Loan") with an Initial Pool Balance of $632,094,383
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.
S-76
<PAGE>
All numerical information provided herein with respect to the Mortgage
Loans is provided on an approximate basis.
A brief summary of the material terms of the ten 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 $632,094,383 (subject
to a variance of plus or minus 5%). The Cut-off Date Balances of the Mortgage
Loans range from $178,572 to $21,808,261, and the Mortgage Loans have an average
Cut-off Date Balance of $3,258,218.
Balloon Loans
One hundred ninety one (191) of the Mortgage Loans, representing 98.6%
of the Initial Pool Balance, are Balloon Loans or are Anticipated Repayment Date
Loans that 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 5 cases, or 5.2%
of the Initial Pool Balance, a leasehold estate and in 4 cases, or 4.5% 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
o Thirty three (33) of the Mortgaged Properties, which represent
security for 19.5% of the Initial Pool Balance, are retail properties;
o Twenty (20) of the Mortgaged Properties, which represent security for
17.8% of the Initial Pool Balance, are office properties;
o Twenty three (23) of the Mortgaged Properties, which represent
security for 15.3% of the Initial Pool Balance, are multifamily apartment
properties;
o Forty nine (49) of the Mortgaged Properties, which represent security
for 15.0% of the Initial Pool Balance, are manufactured housing communities;
o Twenty five (25) of the Mortgaged Properties, which represent security
for 13.3% of the Initial Pool Balance, are hospitality properties (which
includes 15 extended stay properties, which represent security for 7.2% of the
Initial Pool Balance);
o Fourteen (14) of the Mortgaged Properties, which represent security
for 7.6% of the Initial Pool Balance, are mixed use properties;
o Fifteen (15) of the Mortgaged Properties, which represent security for
5.2% of the Initial Pool Balance, are self-storage facilities;
o Six (6) of the Mortgaged Properties, which represent security for 4.2%
of the Initial Pool Balance, are industrial/warehouse properties, including
multi-tenant industrial properties; and
S-77
<PAGE>
o Nine (9) of the Mortgaged Properties, which represent security for
2.1% of the Initial Pool Balance, are senior housing properties.
Geographic Location
The Mortgaged Properties are located throughout 34 states and the
District of Columbia with the largest concentration in the State of California
49 Mortgaged Properties, which represent security for 33.0% of the Initial Pool
Balance). Of the Mortgaged Properties located in the State of California, 18
Mortgaged Properties, which represent 9.4% of the Initial Pool Balance, are
located in Northern California, and 31 Mortgaged Properties, representing 23.6%
of the Initial Pool Balance, are located in Southern California. No other state
has a concentration of Mortgaged Properties that represents security for more
than 7.9% of the Initial Pool Balance. See Appendix II for a more detailed
description of the Mortgage Loans.
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.
Seller
One hundred forty-six (146) of the Mortgage Loans, which represent 80.2%
of the Initial Pool Balance (the "Owner Trust Loans"), were originated by FINOVA
Realty Capital Inc. ("FINOVA"), and sold to FINOVA Commercial Mortgage Loan
Owner Trust 1998-1, a business trust organized under the laws of the State of
Delaware (the "Owner Trust"). The Owner Trust intends to sell the Owner Trust
Loans to the Depositor on the Closing Date pursuant to a mortgage loan purchase
agreement between the Owner Trust and the Depositor.
Forty-eight (48) of the Mortgage Loans, which represent 19.8% of the
Initial Pool Balance, were originated by FINOVA (with the exception of 5 of the
Mortgage Loans, which represent 5.8% of the Initial Pool Balance, which were
underwritten by FINOVA and purchased from a financial institution prior to the
date hereof). These Mortgage Loans are currently owned by FINOVA and FINOVA
intends to sell them to the Depositor on the Closing Date pursuant to a mortgage
loan purchase agreement between FINOVA and the Depositor.
The representations and warranties to be provided by the Owner Trust to
the Depositor in respect of the Owner Trust Loans will be identical to the
representations and warranties to be provided by FINOVA to the Depositor in
respect of the remaining Mortgage Loans in its respective mortgage loan purchase
agreement. Furthermore, FINOVA will guarantee the Owner's Trust's obligations in
respect of a breach thereof. Therefore, even though the Depositor is acquiring
the Owner Trust Loans directly from the Owner Trust, FINOVA will be referred to
as the Seller of all of the mortgage loans solely for purposes of this
Prospectus Supplement.
On or prior to the Closing Date, the Depositor will acquire the Mortgage
Loans pursuant to a mortgage loan purchase agreement (the "Mortgage Loan
Purchase Agreement") from each of the Owner Trust and FINOVA. The Depositor will
thereupon assign its interests in the Mortgage Loans, without recourse, to the
Trustee for the benefit of the Certificateholders. See "--The Seller" and
"--Assignment of Mortgage Loans; Repurchases" below.
Origination Dates
The Mortgage Loans were originated between March 1, 1998 and
February 28, 1999.
S-78
<PAGE>
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.
Other than the Anticipated Repayment Date Loans, no Mortgage Loan permits
negative amortization or the deferral of accrued interest.
All Mortgage Loans are Non-30/360 Loans (the "Interest Accrual Method").
As of the Cut-off Date, the Mortgage Rates of the Mortgage Loans range
from 6.610% to 9.000% per annum, and the weighted average Mortgage Rate of the
Mortgage Loans is 7.622% per annum.
Due Dates
One hundred forty-six (146) of the Mortgage Loans (representing 82.3% of
the Initial Pool Balance) have "Due Dates" (that is, the dates upon which the
related Monthly Payments are due) that occur on the first day of each month.
Forty-eight (48) of the Mortgage Loans (representing 17.7% of the Initial Pool
Balance) have Due Dates that occur on the eleventh day of each month.
Amortization
One hundred sixty (160) of the Mortgage Loans, representing 89.4% the
Initial Pool Balance, provide for Monthly Payments of principal and interest
based on amortization schedules significantly longer than their terms to
maturity. Thirty-one (31) additional Mortgage Loans, representing 9.2% of the
Initial Pool Balance, are Anticipated Repayment Date 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 or
anticipated to be paid on their Anticipated Repayment 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
three Mortgage Loans, representing 1.4% of the Initial Pool Balance, have an
expected balloon balance equal to less than 10% of the original principal
balance of each loan.
Defeasance; Prepayment Restrictions
One hundred-eighty one (181) Mortgage Loans, representing 92.5% of the
Initial Pool Balance, prohibit voluntary principal prepayments during a period
ending on a date determined by the related Mortgage Note (the "Lock-out Period")
but permit the related Borrower (after an initial period of at least two years
following the date of issuance of the Certificates) to defease the loan by
pledging direct, non-callable United States Treasury obligations and obtaining
the release of the Mortgaged Property from the lien of the Mortgage.
Nine (9) Mortgage Loans, representing 3.3% of the Initial Pool Balance,
prohibit voluntary principal prepayments during a Lock-out Period and thereafter
provide for prepayment premiums calculated on the basis of the greater of a
yield maintenance formula and 1% of the amount prepaid.
One (1) Mortgage Loan, representing 3.5% of the Initial Pool Balance,
prohibits voluntary principal prepayments during a Lock-out Period but permits
the related Borrower to either (i) defease the loan (after an initial period of
at least two years following the date of issuance of the Certificates) by
pledging direct, non-callable United States Treasury obligations and obtaining
the release of the mortgaged property from the lien of the mortgage or (ii)
following such Lock-out Period, pay a prepayment premium equal to the greater of
a yield maintenance formula and 1% of the amount prepaid.
Three (3) Mortgage Loans, representing 0.8% of the Initial Pool Balance,
prohibit voluntary principal prepayments during a Lock-out Period and thereafter
provide for percentage prepayment premiums until a cited date prior to maturity.
S-79
<PAGE>
Notwithstanding the foregoing, the Mortgage Loans generally provide for
a period of 3 to 9 months prior to maturity or Anticipated Repayment Date in
which the related Borrower may prepay the Mortgage Loan without premium or
defeasance requirements.
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 lender. 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
Nineteen groups of Mortgage Loans (including cross-collateralized or
single note, multiple mortgage property 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 6.7%, 4.9%, and 4.8%, respectively, of
the Initial Pool Balance.
Cross-Collateralized Mortgage Loans
The Mortgage Pool includes four groups of Cross-Collateralized Mortgage
Loans, representing 7.0% of the Initial Pool Balance. See Appendix II hereto. 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 was determined based on the
aggregate number of square feet or units, and the Cut-off Date LTVs and the
Balloon LTVs was determined on the basis of the aggregate of the appraised
values of the related Mortgaged Properties.
S-80
<PAGE>
Multiple Mortgaged Properties
In nine cases, representing 14.1% of the Initial Pool Balance (not
including the 4 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 Mortgaged Properties secured by such
multi-property loans is 37. 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
was determined based on the aggregate number of square feet or units, and the
Cut-off Date LTV's and the Balloon LTV's was determined on the basis of the
aggregate of the appraised values of the related Mortgaged Properties.
Single-Tenant Mortgage Loans
In the case of eight (8) Mortgage Loans, representing 4.5% 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 has a primary lease term that expires on or after the
scheduled maturity date or Anticipated Repayment Date of the related Mortgage
Loan but may have a shorter primary lease term. 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 Anticipated Repayment Date, if 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 Mortgage Loans secured by multiple properties described under
"--Borrower Concentrations," "--Cross-Collateralized Mortgage Loans" and
"--Multiple Mortgaged Properties", respectively, above, permit the release of
individual real properties from the lien of the related Mortgage(s), subject to
the satisfaction of certain specified conditions.
Ground Leases
Five (5) of the Mortgage Loans, representing 5.2% of the Initial Pool
Balance, are secured solely by a Mortgage on the borrower's leasehold interest
in the related Mortgaged Property. Four (4) of the Mortgage Loans, representing
4.5% of the Initial Pool Balance, are secured by a leasehold interest in a
portion of the Mortgaged Property and a fee interest in the remainder of the
related Mortgaged Property. Each of the ground leases (including renewed
options) expires at least ten years after the stated maturity of the related
Mortgage Loan. In each such case, the related ground lessor has agreed to give
the holder of the Mortgage Loan notice of, and has granted such holder the right
to cure, any default by the borrower/lessee. See "Risk Factors and Other Special
Considerations--The Mortgage Loans--Leasehold Considerations" herein.
S-81
<PAGE>
Subordinate Financing
With respect to 4 Mortgage Loans, representing approximately 5.3% of the
Initial Pool Balance, in general, the related Mortgage Loan documents allow the
borrower to grant a subordinate mortgage in the future, subject in each case to
certain loan to value and debt service coverage ratios. 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.
There is secured subordinate financing currently existing with respect
to 4 of the Mortgaged Properties. The related Mortgage Loans represent
approximately 4.6% of the Initial Pool Balance. See Appendix II hereto.
Performance Holdbacks
Four of the Mortgage Loans, representing 3.6% of the Initial Pool
Balance, provide for material 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 (in some cases, without the payment of any prepayment premium). A
summary of those Mortgage Loans and conditions for release of performance
holdbacks are set forth below:
LOANS CONTAINING PERFORMANCE HOLDBACK PROVISIONS
<TABLE>
<CAPTION>
AMOUNT OUTSIDE
APPENDIX II CUT-OFF OF DATE
MORTGAGE PROPERTY DATE ESCROWED OUTSIDE PREPAYMENT
LOAN NUMBER NAME BALANCE HOLDBACK DATE RELEASE CONDITIONS PROVISION
- ----------- ---- ------- -------- ---- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C>
27 Jemal- $3,841,795 $750,000 6/1/2000 1) Borrower submits Yield
Laurel documentation for Maintenance
Lakes expenses incurred
Corp. for tenant
improvements for new
tenants; under
approved leases; and
2) the DSCR equals or
exceeds 1.30x.
60 Waikiki $5,189,725 $800,000 6/30/1999 1) the DSCR equals or No
Market exceeds 1.25x, and Prepayment
Place Penalty
2) new tenants have
signed leases for
and occupied Unit
102 and either
Unit 103 or Unit
104.
61 Goldcoast $2,234,659 $250,000 6/30/1999 The DSCR equals or Yield
Business exceeds 1.25.x. Maintenance
Center
</TABLE>
Additional holdbacks scheduled to be released once tenants in place
provide the lender with estoppels confirming occupancy and payment obligations
are as follows: Mortgage Loan No. 26, Jemal-801 North Capitol, has a cash
holdback of $596,640, until the City of Washington, D.C. provides a required
estoppel. Mortgage Loan No. 27, Jemal-Laurel Lakes Corp. Center, has an
additional cash holdback of $93,600, until D.P.C. Technology provides a required
estoppel.
S-82
<PAGE>
In addition, certain of the Mortgage Loans provide for minor holdbacks
for items such as deferred maintenance, minor environmental items and capital
improvements. See Appendix II for additional information.
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 139 Mortgage Loans, representing 77.2% of the Initial Pool
Balance, within one-year of the Cut-off Date in connection with the origination
of the related Mortgage Loan, and all of the Mortgaged Properties were assessed
within 18 months of the Cut-off Date. In all cases, the initial 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 and in certain of
such cases, a "Phase II" assessment was performed. 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
FINOVA or by a third party professional engaged by FINOVA. Furthermore, with the
exception of one Mortgage Loan, representing 0.5% of the Initial Pool Balance, 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 to 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
S-83
<PAGE>
origination, be conditioned on seismic upgrading of the Mortgaged Property, be
conditioned on receipt of satisfactory earthquake insurance or be declined.
Zoning and Building Code Compliance.
FINOVA 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, title insurance endorsements and/or representations
by the related borrower contained in the related Mortgage Loan documents.
Certain violations may exist at any particular Mortgaged Property, but FINOVA
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,
FINOVA generally relied on rent rolls and other generally
unaudited financial information provided by the respective
borrowers. From that information, FINOVA 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 FINOVA 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,
FINOVA's estimate of Underwritable Cash Flows reflected
differences from the
S-84
<PAGE>
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 FINOVA's own analysis of such operating
statements and the assumptions applied by the respective
borrowers in preparing such statements and information. In
certain instances, for example, property management fees and
other expenses may have been included in the calculation of
Underwritable Cash Flow even though such expense may not have
been reflected in actual historic operating statements. In
certain cases, only partial year operating income information was
available. In most of those cases, the information was
annualized, with certain adjustments for items deemed not
appropriate to be annualized, before using it as a basis for the
determination of Underwritable Cash Flow. No assurance can be
given with respect to the accuracy of the information provided by
any borrowers, or the adequacy of the procedures used by FINOVA
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
S-85
<PAGE>
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 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 such deductible exceeds the deductible of an individual policy
otherwise complying with the provisions set forth above.
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 SELLER
FINOVA Realty Capital Inc.
FINOVA Group Inc. (NYSE: FNV) is a diversified financial services
holding company. Through its principal subsidiary, FINOVA Capital Corporation,
FINOVA Group Inc. operates in 19 specific industry or market niches to provide a
broad range of financing and capital market products to midsize businesses.
FINOVA Capital Corporation has been in operation for over 45 years. As of
December 31, 1998, FINOVA Group Inc. reported an asset base of approximately $11
billion.
FINOVA Realty Capital Inc. ("FINOVA") is a wholly-owned subsidiary of
FINOVA Capital Corporation and is the entity through which FINOVA Group Inc.
conducts substantially all of its commercial real estate finance activities.
FINOVA was formerly operated as Belgravia Capital Corporation prior to its
acquisition by FINOVA Group Inc. in October 1997. FINOVA is headquartered in
Irvine, CA with a staff in excess of 90 employees, where it maintains its
centralized underwriting, loan processing, credit and capital markets
operations. FINOVA maintains
S-86
<PAGE>
an additional 29 offices nationwide which are staffed with approximately 80
employees that are dedicated solely to sourcing commercial real estate loans.
In 1998, FINOVA originated a total of $3.1 billion of commercial
mortgage loans. These loans were either funded on balance sheet, funded by
securitization partners or brokered to third party institutions. Since 1994,
FINOVA's originations have included approximately $2.5 billion of commercial
mortgage loans that have been securitized by its partners in more than 20
different offerings of commercial mortgage-backed securities.
Certain of the Mortgage Loans (the "Owner Trust Loans"), were originated
by FINOVA and sold to FINOVA Commercial Mortgage Loan Owner Trust 1998-1, a
business trust organized under the laws of the State of Delaware (the "Owner
Trust"), and will be owned by the Owner Trust immediately prior to the issuance
of the Certificates. Even though the Depositor acquired the Owner Trust Loans
directly from the Owner Trust, FINOVA will be referred to as the Seller of all
of the Mortgage Loans solely for the purposes of this Prospectus Supplement. See
"Description of the Mortgage Pool--General--Sellers."
Acquisition of Certificates
FINOVA or its affiliates may acquire a significant portion of certain
Classes of the Certificates.
ASSIGNMENT OF THE MORTGAGE LOANS
On or prior to the Closing Date, the Seller will assign its Mortgage
Loans, without recourse, to the Depositor, and the Depositor will assign all the
Mortgage Loans, without recourse, to the Trustee for the benefit of the
Certificateholders. In connection with the foregoing, the Seller is required in
accordance with the Mortgage Loan Purchase Agreement to deliver the following
documents, among others, with respect to each Mortgage Loan so assigned by it
(such documents, collectively as to any 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, which may be combined with the
assignment of the related Mortgage;
(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 or pro forma policy);
(g) when applicable, the related ground lease or a certified copy
thereof; and
(h) when relevant, the loan agreement and the lockbox agreement.
S-87
<PAGE>
The Trustee will be required to review certain documents delivered by
the Seller with respect to its Mortgage Loans within 90 days following the
Closing Date, and the Trustee will hold the related documents in trust.
Within 45 days following the Closing Date, pursuant to the Pooling and
Servicing Agreement, the assignments with respect to each Mortgage Loan
described in clauses (d) and (e) of the preceding paragraph are to be submitted
for recording in the real property records of the appropriate jurisdictions.
REPRESENTATIONS AND WARRANTIES
In the Mortgage Loan Purchase Agreement, the Seller has represented and
warranted with respect to each of the Mortgage Loans, as of the Closing Date, or
as of such other date specifically provided in the representation and warranty,
among other things, generally (subject to certain exceptions) to the effect
that:
(1) the information set forth in the schedule of the mortgage
loans attached to the Mortgage Loan Purchase Agreement (which contains
certain of the information set forth in Appendix II) is true and correct
in all material respects;
(2) the 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, except for any partial reconveyance of portions of
the real property that do not materially adversely affect the value of
the property;
(8) none of the terms of any Mortgage Note, Mortgage or
Assignment of Leases has been impaired, waived, altered or modified in
any respect, except by written instruments, all of which are included in
the related Mortgage File;
(9) 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;
(10) the Seller has received no notice of the commencement of any
proceeding for the condemnation of all or any material portion of any
Mortgaged Property;
(11) the related Mortgaged Property is covered by an American
Land Title Association (or an equivalent form of) lender's title
insurance policy or a marked-up title insurance commitment (on which
S-88
<PAGE>
the required premium has been paid) in the original principal amount of
the related Mortgage Loan after all advances of principal; the policy
insures that the related Mortgage is a valid, first priority lien on
such Mortgaged Property, subject only to certain permitted encumbrances;
(12) the proceeds of the Mortgage Loan have been fully disbursed
and there is no obligation for future advances with respect thereto;
(13) 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;
(14) each Mortgage Note, Mortgage and other agreement that
evidences or secures the Mortgage Loan and that was executed by or on
behalf of the related borrower is, subject to certain creditors' rights
exceptions and other exceptions of general application, the legal, valid
and binding obligation of the maker thereof, enforceable in accordance
with its terms, and there is no valid defense, counterclaim or right of
offset or rescission available to the related borrower with respect to
such Mortgage Note, Mortgage or other agreement;
(15) 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;
(16) 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; for purposes of this representation and warranty,
real property taxes and assessments shall not be considered unpaid until
the date on which interest and/or penalties would be first payable
thereon;
(17) the related borrower is not, to the Seller's knowledge, a
debtor in any state or federal bankruptcy or insolvency proceeding;
(18) the related Mortgaged Property consists of a 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 (or the related estoppel letter or lender protection
agreement between the Seller and related lessor) permits the interest of
the lessee thereunder to be encumbered by the related Mortgage; (b) the
lessee's interest in such ground lease is not subject to any liens or
encumbrances superior to, or of equal priority with, the related
Mortgage, other than certain permitted encumbrances (c) 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 (or if it is required it will have been obtained prior
to the Closing Date); (d) such ground lease is in full force and effect
and the Seller has received no notice that an event of default has
occurred thereunder; (e) 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 and
further provides that no notice of termination given under such ground
lease is effective against such holder unless a copy has been delivered
to such holder and the lessor has offered to enter into a new lease with
such holder on the terms that do not materially vary from the economic
terms of the ground lease; (f) 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 (g) 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
related Mortgage Loan;
S-89
<PAGE>
(19) each Mortgage Loan complied with all applicable usury laws
in effect at its date of origination;
(20) the Mortgage Loan is not cross-collateralized or
cross-defaulted with any loan other than one or more other Mortgage
Loans;
(21) 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 defeasance
(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 to be material in underwriting
the Mortgage Loan, the payment of a release price and prepayment
consideration in connection therewith; and
(22) to the Seller's knowledge, there exists no material default,
breach, violation or event of acceleration (and no event which, with the
passage of time or the giving of notice, or both, would constitute any
of the foregoing) under the related Mortgage Note or Mortgage in any
such case to the extent the same materially and adversely affects the
value of the Mortgage Loan and the related Mortgaged Property (other
than any default, breach, violation or event of acceleration that
specifically pertains to any matter otherwise covered by any other
representation and warranty made by the Seller).
REPURCHASES AND OTHER REMEDIES
If any Mortgage Loan document required to be delivered to the Trustee by
the Seller as described under "--Assignment of the Mortgage Loans" above is not
delivered as and when required, contains information that does not conform to
the corresponding information in the Mortgage Loan Schedule attached to the
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 the Seller regarding the characteristics of
its Mortgage Loans and/or the related Mortgaged Properties as described under
"--Representations and Warranties" above, and in either case such Document
Defect or breach materially and adversely affects the interests of the holders
of the Certificates (a "Material Document Defect" and a "Material Breach",
respectively), then the Seller will be obligated to cure such Material Document
Defect or Material Breach 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 Trust Fund 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, together with interest on all related 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 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
S-90
<PAGE>
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 Seller
and receipt by the Seller of notice of such Material Document Defect or Material
Breach, as the case may be, and the Seller is diligently attempting to effect
such correction or cure, then the applicable Permitted Cure Period will, with
the consent of the Trustee (which consent may not be unreasonably withheld), be
extended for an additional 90 days.
The foregoing obligations of the Seller to cure a Material Document
Defect or a Material Breach in respect of any of its Mortgage Loans or
repurchase or replace the defective Mortgage Loan, will constitute the sole
remedies of the Trustee and the Certificateholders with respect to such Material
Document Defect or Material Breach; and none of the Depositor, or any other
person or entity will be obligated to repurchase or replace the affected
Mortgage Loan if the 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 Trust 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 (giving due consideration to
customary industry standards) 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 net 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; (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, or (F) the ownership, management or
servicing of any other mortgage loans.
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
S-91
<PAGE>
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;
(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 accordance with the
Servicing Standard, 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 judgment in accordance with the Servicing
Standard) 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
S-92
<PAGE>
Loan to be characterized as a Specially Serviced Mortgage Loan (and provided
that no other Servicing Transfer Event then exists):
(w) with respect to the circumstances described in clauses (i)
and (ii) of the preceding paragraph, the related borrower
has made three consecutive full and timely Monthly
Payments under the terms of such Mortgage Loan (as such
terms may be changed or modified in connection with a
bankruptcy or similar proceeding involving the related
borrower or by reason of a modification, waiver or
amendment granted or agreed to by the Special Servicer);
(x) with respect to the circumstances described in clauses
(iii), (v), (vi) and (vii) of the preceding paragraph,
such circumstances cease to exist in the good faith and
reasonable judgment of the Special Servicer;
(y) with respect to the circumstances described in clause (iv)
of the preceding paragraph, such default is cured; and
(z) with respect to the circumstances described in clause
(viii) of the preceding paragraph, such proceedings are
terminated.
The 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
AMRESCO Services, L.P., a Delaware limited partnership, will serve as
master servicer (the "Master Servicer") and in such capacity will be responsible
for servicing the Mortgage Loans (other than Specially Serviced Mortgage Loans
and REO Properties). The Master Servicer is a wholly-owned subsidiary of
AMRESCO, INC. ("AMRESCO"), a diversified financial services company which is
publicly traded on NASDAQ. The Master Servicer's principal offices are located
at 235 Peachtree Street, NE, Suite 900, Atlanta, Georgia 30303.
As of December 31, 1998, AMRESCO serviced approximately 18,830
commercial and multifamily loans, totaling approximately $41.8 billion in
aggregate outstanding principal amount. Within this servicing portfolio are
loans that have been securitized in a total of 88 transactions with an aggregate
principal balance of approximately $34.2 billion. The portfolio is significantly
diversified both geographically and by product type.
The information set forth herein concerning the Master 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.
THE SPECIAL SERVICER
Banc One Mortgage Capital Markets, LLC ("Banc One"), a Delaware limited
liability company, will be the Special Servicer (the "Special Servicer") and in
such capacity will be responsible for servicing any Specially
S-93
<PAGE>
Serviced Mortgage Loans and REO Properties. The Special Servicer's offices are
located at 1717 Main Street, Dallas, Texas 75201.
As of December 31, 1998, Banc One and its affiliates were responsible
for servicing approximately 7,058 commercial and multifamily loans with an
aggregate principal balance of approximately $22,287,101,048, the collateral for
which is located in 49 states, Mexico, Puerto Rico, Virgin Islands and the
District of Columbia. With respect to such loans, approximately 6,180 loans with
an aggregate principal balance of approximately $17,946,030,189 pertain to
commercial and multifamily mortgage-backed securities.
The information set forth herein concerning 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"), subject to certain terms set
forth in the Pooling and Servicing Agreement; provided that the Master Servicer
or Special Servicer, as the case may be, will remain obligated under the Pooling
and Servicing Agreement for such delegated duties. Each sub-servicing agreement
between the Master Servicer or Special Servicer, as the case may be, and a
Sub-Servicer (each, a "Sub-Servicing Agreement") must provide that, if for any
reason the Master Servicer or Special Servicer, as the case may be, is no longer
acting in such capacity, the Trustee or any successor to such Master Servicer or
Special Servicer may, and in certain circumstances will be required to, 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.
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 based on the Stated
Principal Balance as of the preceding Due Date of the related Mortgage Loan. 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"). The Administrative Cost Rate for each
Mortgage Loan will be equal to 0.12875% 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 is not allocable to cover interest payable to the Master
Servicer, the Special Servicer or the Trustee with respect to any Advances made
in respect of the related Mortgage Loan. 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 or Interest Reserve Account, in certain government securities and other
investment grade obligations specified in the Pooling and Servicing Agreement
("Permitted Investments"), and the Master
S-94
<PAGE>
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"), based on the Stated
Principal Balance as of the preceding Due Date of the related Mortgage Loan, 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% 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) 1.00%, 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 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, but only to the extent that such default
interest is not allocable to cover interest payable to the Master Servicer, the
Special Servicer or the Trustee with respect to any Advances made in respect of
the related Mortgage Loan.
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").
S-95
<PAGE>
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 Master Servicer
and 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,
(iv) extend the maturity date of any Specially Serviced Mortgage
Loan, and/or
(v) accept a principal prepayment during any Lockout 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,
S-96
<PAGE>
(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 or ten
years prior to the expiration of the related ground lease.
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."
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
S-97
<PAGE>
any Mortgaged Property so acquired in such a manner as will be reasonably likely
to realize a fair price for such property. The Special Servicer may retain an
independent contractor to operate and manage any REO Property; however, the
retention of an independent contractor will not relieve the Special Servicer of
its obligations with respect to such REO Property.
In general, the Special Servicer will be obligated to, or may contract
with a third party to, operate and manage any Mortgaged Property acquired as REO
Property in a manner that would, to the extent commercially feasible, maximize
the Trust Fund's net after-tax proceeds from such property. After the Special
Servicer reviews the operation of such property and consults with the Trustee to
determine the Trust Fund's federal income tax reporting position with respect to
income it is anticipated that the Trust Fund would derive from such property,
the Special Servicer could determine that it would not be commercially feasible
to manage and operate such property in a manner that would avoid the imposition
of a tax on "net income from foreclosure property" within the meaning of the
REMIC Provisions or a tax on "prohibited transactions" under Section 860F of the
Code (either such tax referred to herein as an "REO Tax"). To the extent that
income the Trust Fund receives from an REO Property is subject to a tax on (i)
"net income from foreclosure property", such income would be subject to federal
tax at the highest marginal corporate tax rate (currently 35%) and (ii)
"prohibited transactions", such income would be subject to federal tax at a 100%
rate. The determination as to whether income from an REO Property would be
subject to an REO Tax will depend on the specific facts and circumstances
relating to the management and operation of each REO Property. Generally, income
from an REO Property that is directly operated by the Special Servicer would be
apportioned and classified as "service" or "non-service" income. The "service"
portion of such income could be subject to federal tax either at the highest
marginal corporate tax rate or at the 100% rate on "prohibited transactions,"
and the "non-service" portion of such income could be subject to federal tax at
the highest marginal corporate tax rate or, although it appears unlikely, at the
100% rate applicable to "prohibited transactions". Any REO Tax imposed on the
Trust Fund's income from an REO Property would reduce the amount available for
distribution to Certificateholders. Certificateholders are advised to consult
their own tax advisors regarding the possible imposition of REO Taxes in
connection with the operation of commercial REO Properties by REMICs.
INSPECTIONS; COLLECTION OF OPERATING INFORMATION
The Master Servicer is required to, or may contract with a third party
to, perform physical inspections of each Mortgaged Property 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), 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, 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.
EVENTS OF DEFAULT
Events of default of the Master Servicer and Special Servicer (each, an
"Event of Default") under the Pooling and Servicing Agreement consist, among
other things, of:
S-98
<PAGE>
(i) any failure by the Master Servicer to make a required deposit
to the Collection Account which continues unremedied for one Business
Day following the date on which such deposit was first required to be
made, or any failure by the Master Servicer to deposit into, or to remit
to the Trustee for deposit into, the Distribution Account any amount
required to be so deposited or remitted, which failure is not remedied
by the specified time on the relevant Master Servicer Remittance Date;
or
(ii) any failure by the Special Servicer to deposit into, or to
remit to the Master Servicer for deposit into, the Collection Account or
REO Account any amount required to be so deposited or remitted which
failure continues unremedied for one Business Day following the date on
which such deposit or remittance was first required to be made; or
(iii) any failure by the Master Servicer or the Special Servicer
to timely make any Servicing Advance required to be made by it which
continues unremedied for a period ending on the earlier of (A) 15 days
following the date such Servicing Advance was first required to be made,
and (B) either, if applicable, (1) in the case of a Servicing Advance
relating to the payment of insurance premiums, the day on which such
insurance coverage terminates if such premiums are not paid or (2) in
the case of a Servicing Advance relating to the payment of real estate
taxes, the date of the commencement of a foreclosure action with respect
to the failure to make such payment; or
(iv) any failure on the part of the Master Servicer or the
Special Servicer duly to observe or perform in any material respect any
other of the covenants or agreements on the part of the Master Servicer
or the Special Servicer contained in the Pooling and Servicing Agreement
which continues unremedied for a period of 30 days after the date on
which written notice of such failure, requiring the same to be remedied,
shall have been given to the Master Servicer or the Special Servicer, as
the case may be, by the Trustee or the Depositor, or to the Master
Servicer or the Special Servicer, as the case may be, the Depositor and
the Trustee by the Holders of Certificates entitled to not less than 25%
of the Voting Rights; or
(v) any breach on the part of the Master Servicer or the Special
Servicer of any representation or warranty contained in this Agreement
which materially and adversely affects the interests of any Class of
Certificateholders and which continues unremedied for a period of 30
days after the date on which notice of such breach, requiring the same
to be remedied, shall have been given to the Master Servicer or the
Special Servicer, as the case may be, by the Trustee or the Depositor,
or to the Master Servicer or the Special Servicer, as the case may be,
the Depositor and the Trustee by the Holders of Certificates entitled to
not less than 25% of the Voting Rights; or
(vi) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises in an involuntary case
under any present or future federal or state bankruptcy, insolvency or
similar law for the appointment of a conservator, receiver, liquidator,
trustee or similar official in any bankruptcy, insolvency, readjustment
of debt, marshaling of assets and liabilities or similar proceedings, or
for the winding-up or liquidation of its affairs, shall have been
entered against the Master Servicer or the Special Servicer and such
decree or order shall have remained in force undischarged or unstayed
for a period of 60 days; or
(vii) the Master Servicer or the Special Servicer shall consent
to the appointment of a conservator, receiver, liquidator, trustee or
similar official in any bankruptcy, insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings of or
relating to it or of or relating to all or substantially all of its
property; or
(viii) the Master Servicer or the Special Servicer shall admit in
writing its inability to pay its debts generally as they become due,
file a petition to take advantage of any applicable bankruptcy,
insolvency or reorganization statute, make an assignment for the benefit
of its creditors, voluntarily suspend payment of its obligations, or
take any corporate action in furtherance of the foregoing; or
S-99
<PAGE>
(ix) the Trustee shall have received written notice from Fitch
that the continuation of the Master Servicer or the Special Servicer in
such capacity would result in the downgrade, qualification (which shall
not include a "negative" credit watch) or withdrawal of any rating then
assigned by such Rating Agency to any Class of Certificates.
RIGHTS UPON EVENT OF DEFAULT
If any Event of Default with respect to the Master Servicer or the
Special Servicer (in either case, the "Defaulting Party") occurs, then the
Depositor or the Trustee may terminate, and at the written direction of the
Holders of Certificates entitled to at least 25% of the Voting Rights, the
Trustee shall terminate, by notice in writing to the Defaulting Party, all of
the rights and obligations of the Defaulting Party under the Pooling and
Servicing Agreement and in and to the Trust Fund. Notwithstanding the foregoing,
upon any termination of the Master Servicer under the Pooling and Servicing
Agreement the Servicer will continue to be entitled to receive all accrued and
unpaid servicing compensation through the date of termination plus all Advances
and interest thereon as provided in the Pooling and Servicing Agreement.
On and after the time the Master Servicer or the Special Servicer
receives a notice of termination, the Trustee shall be the successor in all
respects to the Master Servicer or the Special Servicer, as the case may be, in
such capacity under the Pooling and Servicing Agreement and shall be entitled to
the compensation arrangements to which the Defaulting Party would have been
entitled. If the Trustee is unwilling or unable to so act or if the Holders of
Certificates entitled to at least 51% of the Voting Rights so request in writing
to the Trustee or if it is not appropriately rated as an approved master
servicer or special servicer, as the case may be, by each Rating Agency, the
Trustee must promptly appoint, or petition a court of competent jurisdiction for
the appointment of, a mortgage loan servicing institution that has a net worth
of not less than $15,000,000 and is otherwise acceptable to each Rating Agency
(as evidenced by Rating Agency Confirmation), as the successor to the Master
Servicer or the Special Servicer, as the case may be, hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Master Servicer or the Special Servicer. Pending appointment of a successor
to the Master Servicer or the Special Servicer hereunder, the Trustee shall act
in such capacity as hereinabove provided and shall be entitled to such
compensation as would otherwise have been payable to the Master Servicer or the
Special Servicer, as the case may be.
In addition, the Master Servicer or the Special Servicer, as the case
may be, shall be required to immediately resign if the Master Servicer or the
Special Servicer, as the case may be, is no longer "approved" by S&P to act in
such capacity, and the Master Servicer or Special Servicer, as applicable, shall
not have again become "approved" within ninety (90) days thereafter. If the
Master Servicer or the Special Servicer, as applicable, fails to resign, then
the Trustee shall terminate such party hereunder in the manner and with the
effect as if an uncured Event of Default then existed with respect to such
party.
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
S-100
<PAGE>
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 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 principal federal income tax consequences of
the purchase, ownership and disposition of the Offered Certificates. The Class X
Certificates will be an investment unit comprised of 15 separate "regular
interests" issued by REMIC III, each of which represents a right to receive a
"specified portion" of interest payable on the uncertificated REMIC II regular
interests. 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 O 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) and 856(c)(5)(B) of the Code in the same proportion that
the assets of the Trust Fund underlying such Certificates would be so treated.
However, if 95% or more of the REMICs' assets (treating REMIC I, REMIC II and
REMIC III as if they were a single REMIC) are real estate assets during a
calendar quarter, then the Offered Certificates will be considered "real estate
assets" in their entirety for that quarter. 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) of the Code generally only to the extent that the Mortgage Loans
secured by mortgages on multifamily properties and senior housing 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 17.4%. 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
S-101
<PAGE>
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 stated interest on the Offered Certificates,
including stated interest on 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 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 Anticipated Repayment Date Loans are assumed to prepay in full on the
Anticipated Repayment 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 than that
taken by the Depositor. 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
S-102
<PAGE>
such premium. See "Certain Federal Income Tax Consequences--REMICs--Taxation of
Owners of REMIC Regular Certificates--Premium" in the Prospectus.
To the extent that any Offered Certificate is purchased in this offering
or in the secondary market at not more than a de minimis discount, as defined in
the Prospectus, a holder who receives a payment that is included in the stated
redemption price at maturity (generally, the principal amount) of such
Certificate will recognize gain equal to the excess, if any, of the amount of
the payment over an allocable portion of the holder's adjusted basis in the
Offered Certificate. Such allocable portion of the holder's adjusted basis will
be based upon the proportion that such payment of stated redemption price bears
to the total remaining stated redemption price at maturity, immediately before
such payment is made, of such Certificate. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount and Premium" and "--Sale, Exchange or Redemption" in the
Prospectus.
The current administration's budget proposal for the fiscal year 2000,
released February 1, 1999, proposes legislation that would amend the market
discount provisions of the Code described in the Prospectus (see "Certain
Federal Income Tax Consequences--REMICs--Taxation of Owners of Regular
Certificates--Market Discount" in the Prospectus) to require holders of debt
instruments, such as REMIC Regular Certificates, that use an accrual method of
accounting to include market discount in income as it accrues. For purposes of
determining and accruing market discount, the proposed legislation would provide
that a Certificateholder's yield can not exceed 5 percentage points over the
greater of (1) the original yield-to-maturity of the Certificate, or (2) the
applicable Federal rate in effect at the time the Certificateholder acquired the
Certificate. It is unclear how this proposal would apply to instruments, such as
the REMIC Regular Certificates, which have uncertain yields to maturity
attributable to possible prepayments on an underlying pool of prepayable
securities. This proposal is intended to be effective for debt instruments
acquired on or after the date the proposed legislation is enacted.
The OID Regulations in some circumstances permit the holder of a debt
instrument to recognize 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
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.
S-103
<PAGE>
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.
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
S-104
<PAGE>
group of which a person described in (a) or (b) is a manager or co-manager with
respect to the Senior Certificates, including Deutsche Bank Securities Inc.
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 S&P, Duff & Phelps Credit Rating Co. ("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 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 "AA" by each of Fitch
and S&P, respectively; 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 S&P 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.
S-105
<PAGE>
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 are 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.
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
S-106
<PAGE>
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.
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, and Deutsche Bank Securities Inc.
("Deutsche Bank", and together with Morgan Stanley the "Underwriters").
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Underwriters have severally agreed to purchase the respective
aggregate principal or notional amount of each Class of the Offered
Certificates, in each case as set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER CLASS A-1 CLASS A-2 CLASS B
<S> <C> <C> <C>
Morgan Stanley & Co.
Incorporated $ $ $
Deutsche Bank Securities $
------- ------- -------
Inc.
Total $ $ $
======= ======= =======
<CAPTION>
UNDERWRITER CLASS C CLASS D
<S> <C> <C>
Morgan Stanley & Co.
Incorporated $ $
Deutsche Bank Securities $ $
------- -------
Inc.
Total $ $
======= =======
</TABLE>
S-107
<PAGE>
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 April __, 1999, which is
the ______ 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.
FINOVA and its affiliates may acquire certain of the Offered
Certificates.
The Depositor has agreed to indemnify the Underwriters against civil
liabilities, including liabilities under the Securities Act of 1933, as amended
or contribute to payments the Underwriters may be required to make in respect
thereof.
The Underwriters 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.
S-108
<PAGE>
RATINGS
It is a condition of the issuance of the Offered Certificates that they
receive the following credit ratings from Fitch IBCA, Inc. ("Fitch") and
Standard & Poor's Ratings Services ("S&P", and together with Fitch, the "Rating
Agencies"):
CLASS FITCH S&P
----- ----- ---
Class A-1.................................. AAA AAA
Class A-2.................................. AAA AAA
Class B.................................... AA AA
Class C.................................... A A
Class D.................................... A- A-
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 March
2032 (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, Excess Interest 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/AAAr" 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.
S-109
<PAGE>
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT
30/360 basis................................................................S-70
Accrued Certificate Interest................................................S-57
ACMs........................................................................S-36
Additional Trust Fund Expenses..............................................S-60
Administrative Cost Rate....................................................S-94
Advance Rate................................................................S-63
Advances....................................................................S-63
Anticipated Repayment Date Loans............................................S-18
Appraisal Event.............................................................S-59
Appraisal Reduction.........................................................S-59
Asset Status Report.........................................................S-93
Assumed Monthly Payment.....................................................S-57
Available Distribution Amount...............................................S-55
Balloon Loans...............................................................S-79
Balloon LTV.................................................................S-85
Balloon LTV Ratio...........................................................S-85
Balloon Payment.............................................................S-79
Book-Entry Certificates.....................................................S-51
Cedel.......................................................................S-23
Certificate Account.........................................................S-55
Certificate Balance.........................................................S-53
Certificate Owner...........................................................S-51
Certificateholders..........................................................S-51
Certificates................................................................S-51
Chase.......................................................................S-52
Citibank....................................................................S-52
Class.......................................................................S-51
Class A Certificates........................................................S-51
Class Interest Shortfall....................................................S-57
Class X Certificates........................................................S-51
Closing Date................................................................S-51
Collection Period...........................................................S-54
Compensating Interest Payment...............................................S-61
Controlling Class...........................................................S-95
Corrected Mortgage Loan.....................................................S-92
Cut-off Date Balance........................................................S-76
Cut-off Date LTV............................................................S-85
Cut-off Date LTV Ratio......................................................S-85
Debt Service Coverage Ratio.................................................S-84
Default.....................................................................S-97
Defaulted Mortgage Loan.....................................................S-97
Definitive Certificate......................................................S-51
Depositor....................................................................S-3
Determination Date..........................................................S-54
Discount Rate...............................................................S-58
Distributable Certificate Interest..........................................S-56
Distribution Date...........................................................S-54
Document Defect.............................................................S-90
DOL........................................................................S-104
DSCR........................................................................S-84
DTC...................................................................S-23, S-51
Due Dates...................................................................S-79
ERISA......................................................................S-104
Euroclear...................................................................S-23
Excess Interest.............................................................S-56
Exemption..................................................................S-104
Expense Losses..............................................................S-60
FASIT......................................................................S-101
S-110
<PAGE>
Final Regulation...........................................................S-104
Final Scheduled Distribution Date...........................................S-71
FINOVA......................................................................S-78
Fitch......................................................................S-108
Initial Pool Balance........................................................S-76
Interest Accrual Method.....................................................S-79
Interest Accrual Period.....................................................S-57
Interest Only Certificates..................................................S-51
Interest Reserve Account....................................................S-58
Interest Reserve Loan.......................................................S-58
Liquidation Fee.............................................................S-95
Loan-to-Value Ratio.........................................................S-85
Lock-out Period.............................................................S-19
LOP.........................................................................S-70
Lower-Tier REMIC...........................................................S-101
Master Servicing Fee........................................................S-94
Material Breach.............................................................S-90
Material Document Defect....................................................S-90
Maturity Assumptions........................................................S-70
Middle-Tier REMIC..........................................................S-101
Money Term..................................................................S-59
Monthly Payment.............................................................S-57
Morgan Stanley.............................................................S-107
Mortgage....................................................................S-77
Mortgage File...............................................................S-87
Mortgage Loan...............................................................S-76
Mortgage Loan Purchase Agreement............................................S-78
Mortgage Note...............................................................S-77
Mortgage Pool...............................................................S-76
Mortgaged Property..........................................................S-77
Net Aggregate Prepayment Interest Shortfall.................................S-61
Net income from foreclosure property........................................S-98
Net Mortgage Rate...........................................................S-54
Non-30/360 Loan.............................................................S-54
Notional Amount.............................................................S-53
NWAC Rate.............................................................S-11, S-53
Offered Certificates........................................................S-51
OID........................................................................S-101
Operating Adviser...........................................................S-95
P&I Advance.................................................................S-62
Participants................................................................S-51
Pass-Through Rate...........................................................S-53
Percentage Interest.........................................................S-54
Permitted Cure Period.......................................................S-90
Permitted Investments.......................................................S-94
Phase I.....................................................................S-83
Plan.......................................................................S-104
Pooling and Servicing Agreement.............................................S-51
Prepayment Assumptions......................................................S-69
Prepayment Interest Excess..................................................S-61
Prepayment Interest Shortfall...............................................S-61
Principal Balance Certificates..............................................S-52
Principal Distribution Amount...............................................S-57
Private Certificates........................................................S-51
PTCE.......................................................................S-106
Purchase Price..............................................................S-90
Qualifying Substitute Mortgage Loan.........................................S-90
Rated Final Distribution Date..............................................S-109
Rating Agencies............................................................S-108
Realized Losses.............................................................S-60
Record Date.................................................................S-54
S-111
<PAGE>
Related Borrower Loan Groups................................................S-80
Related Proceeds............................................................S-62
Remaining Amortization Terms................................................S-20
REMIC......................................................................S-100
REMIC I....................................................................S-101
REMIC II...................................................................S-101
REMIC III..................................................................S-101
REMIC Regular Certificates..................................................S-51
REMIC Residual Certificates.................................................S-51
REO Extension...............................................................S-97
REO Property................................................................S-51
REO Sale Deadline...........................................................S-97
REO Tax.....................................................................S-98
Required Appraisal Loan.....................................................S-59
Restricted Group...........................................................S-105
Revised Rate................................................................S-56
S&P........................................................................S-108
Scheduled Balloon Balance...................................................S-85
Section 8...................................................................S-35
Senior Certificates.........................................................S-51
Servicing Advance...........................................................S-63
Servicing Standard..........................................................S-92
Servicing Transfer Event....................................................S-92
Single-Tenant Mortgage Loan.................................................S-81
SMMEA................................................................S-24, S-107
Special Servicing Fee.......................................................S-95
Special Servicing Fee Rate..................................................S-95
Specially Serviced Mortgage Loan............................................S-92
Stated Principal Balance....................................................S-53
Subordinate Certificates....................................................S-51
Subordinate Private Certificates............................................S-51
Sub-Servicer................................................................S-94
Sub-Servicing Agreement.....................................................S-94
Substitution Shortfall Amount...............................................S-90
Termination Price...........................................................S-61
Treasury Rate...............................................................S-58
Trust Fund..................................................................S-51
Trustee's Website...........................................................S-65
Trustee Fee.................................................................S-69
Underwritable Cash Flow.....................................................S-84
Underwriters...............................................................S-107
Underwriting Agreement.....................................................S-107
Upper-Tier REMIC...........................................................S-101
Voting Rights...............................................................S-68
Withheld Amounts............................................................S-58
Workout Fee.................................................................S-95
Workout Fee Rate............................................................S-95
Year Built..................................................................S-85
Year Renovated..............................................................S-85
YMP.........................................................................S-70
S-112
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
CUT-OFF DATE BALANCES
- -----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
CUT-OFF DATE BALANCE ($) LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 to 1,000,000 26 $ 18,281,125 2.89% 7.661% 115 1.49x 70.4% 60.8%
1,000,001 to 2,000,000 45 69,230,683 10.95 7.552 115 1.52 68.5 57.5
2,000,001 to 3,000,000 53 131,825,576 20.86 7.636 116 1.43 67.7 56.9
3,000,001 to 4,000,000 26 90,705,819 14.35 7.479 118 1.50 69.2 58.6
4,000,001 to 5,000,000 13 56,462,549 8.93 7.578 125 1.42 68.1 53.3
5,000,001 to 6,000,000 7 37,744,980 5.97 7.818 109 1.29 72.4 64.8
6,000,001 to 7,000,000 10 65,122,951 10.30 7.690 116 1.35 74.1 64.1
7,000,001 to 8,000,000 3 22,309,329 3.53 6.980 122 1.25 74.8 65.0
8,000,001 to 9,000,000 1 8,366,193 1.32 7.530 111 1.36 72.1 51.5
9,000,001 to 10,000,000 3 28,119,603 4.45 7.807 115 1.30 68.9 60.7
10,000,001 to 15,000,000 5 63,257,596 10.01 7.981 117 1.29 76.3 67.8
15,000,001 to 20,000,000 1 18,859,720 2.98 7.750 117 1.22 75.4 67.7
20,000,001 to 25,000,000 1 21,808,261 3.45 7.210 168 1.30 76.5 60.2
===================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
===================================================================================================================================
</TABLE>
Min: $178,572
Max: $21,808,261
Average: $3,258,218
I-1
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
STATES
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
STATE LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California 49 $208,320,912 32.96% 7.567% 117 1.35x 72.0% 61.2%
Texas 14 49,916,610 7.90 7.567 124 1.42 71.5 58.0
Pennsylvania 23 37,489,691 5.93 7.183 111 1.60 72.1 62.4
Massachusetts 6 35,432,902 5.61 7.516 115 1.35 72.2 63.8
Florida 5 33,494,423 5.30 7.174 148 1.39 72.2 58.2
District of Columbia 4 32,657,038 5.17 7.746 117 1.29 80.0 71.6
Georgia 12 32,025,038 5.07 8.287 116 1.48 63.2 53.6
Arizona 9 22,489,672 3.56 7.431 115 1.36 69.0 58.8
Maryland 5 14,447,565 2.29 7.808 117 1.39 69.9 61.7
Colorado 4 12,706,598 2.01 7.252 115 1.54 69.8 58.6
New Jersey 3 12,498,683 1.98 7.531 111 1.33 72.8 64.7
Washington 6 11,947,613 1.89 7.518 114 1.48 67.4 59.8
North Carolina 3 10,435,436 1.65 8.120 116 1.55 59.2 49.6
Tennessee 1 9,680,343 1.53 8.000 117 1.30 69.1 62.5
New Hampshire 4 9,438,944 1.49 7.330 113 1.36 66.6 53.8
South Carolina 7 9,358,380 1.48 8.063 116 1.30 72.0 60.3
Alabama 8 9,236,634 1.46 8.500 115 1.41 67.4 57.2
Virginia 3 7,626,304 1.21 8.156 117 1.46 60.4 50.6
Nevada 3 7,588,185 1.20 7.759 170 1.38 70.5 46.3
Oklahoma 3 7,545,149 1.19 7.950 115 1.39 74.9 62.8
Hawaii 2 7,424,384 1.17 8.163 117 1.25 67.5 55.1
</TABLE>
I-2
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
STATES
(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
STATE LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New York 4 $ 5,330,118 0.84% 7.750% 111 1.68x 72.7% 64.0%
Oregon 2 5,209,366 0.82 6.984 112 1.21 62.2 51.4
Minnesota 1 5,083,815 0.80 8.000 115 1.19 79.4 71.8
Ohio 2 5,026,389 0.80 8.241 117 1.37 64.8 54.4
Missouri 1 4,177,616 0.66 7.500 120 1.53 65.3 53.0
Wyoming 1 4,030,909 0.64 7.530 111 1.77 67.2 55.7
New Mexico 1 3,777,589 0.60 7.150 115 2.41 58.1 47.4
Louisiana 1 3,311,752 0.52 8.000 116 1.28 77.0 69.6
Michigan 1 2,936,954 0.46 8.665 111 1.11 85.1 78.4
Kentucky 1 2,891,156 0.46 8.250 117 1.48 57.6 48.4
Indiana 2 2,576,956 0.41 6.680 113 1.54 61.8 49.8
Utah 1 2,427,054 0.38 7.100 113 1.29 69.3 61.5
Connecticut 1 2,146,065 0.34 8.500 117 1.28 70.4 64.3
Illinois 1 1,408,141 0.22 7.020 110 1.79 56.3 46.0
====================================================================================================================================
TOTAL OR WEIGHTED
AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
I-3
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
PROPERTY TYPES
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
PROPERTY TYPE LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail
Unanchored 20 $53,069,865 8.40% 7.555% 114 1.44x 70.8% 62.2%
Anchored 8 44,782,029 7.08 7.476 115 1.33 74.7 65.1
Outlet Center 1 9,680,343 1.53 8.000 117 1.30 69.1 62.5
Shadow Anchored 2 8,496,795 1.34 7.478 116 1.30 74.5 66.5
Single Tenant 1 4,945,753 0.78 7.830 231 1.30 64.7 3.3
Single Tenant-Anchored 1 2,385,409 0.38 7.010 112 1.40 74.5 65.9
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 33 $123,360,194 19.52% 7.557% 119 1.37x 72.2% 61.3%
Office
Suburban 16 $91,640,230 14.50% 7.668% 116 1.33x 73.0% 65.2%
Urban 2 15,099,759 2.39 7.572 116 1.34 76.4 67.1
Garden 2 5,738,806 0.91 7.619 115 1.28 73.7 66.2
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 20 $112,478,796 17.79% 7.653% 116 1.33x 73.5% 65.5%
Multifamily
Garden 19 $81,904,699 12.96% 7.229% 129 1.31x 74.9% 63.3%
High-Rise 1 7,637,757 1.21 7.100 133 1.19 70.9 60.3
Low-Rise 2 4,305,437 0.68 7.120 112 1.32 68.9 57.9
Senior Housing 1 2,936,954 0.46 8.665 111 1.11 85.1 78.4
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 23 $96,784,847 15.31% 7.257% 128 1.30x 74.7% 63.2%
Manufactured Housing Comm. 49 $94,853,371 15.01% 7.339% 112 1.48x 71.3% 60.6%
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 49 $94,853,371 15.01% 7.339% 112 1.48x 71.3% 60.6%
</TABLE>
I-4
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
PROPERTY TYPES
(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
PROPERTY TYPE LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hospitality
Extended Stay 15 $45,393,051 7.18% 8.339% 117 1.51x 59.6% 50.2%
Full Service 3 23,717,389 3.75 8.140 126 1.40 67.0 51.7
Limited Service 7 14,767,428 2.34 8.075 115 1.51 70.0 58.4
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 25 $83,877,868 13.27% 8.236% 119 1.48x 63.5% 52.1%
Mixed Use
Office/Retail 3 $14,009,849 2.22% 7.806% 100 1.35x 71.9% 66.0%
Multifamily/Retail 3 9,258,639 1.46 7.192 110 1.58 69.0 58.2
Office/Warehouse/Retail 2 7,168,095 1.13 7.709 118 1.42 69.3 59.1
Retail/Office/Time Share 1 5,189,725 0.82 8.125 117 1.25 67.5 55.1
Office/Warehouse 1 3,841,795 0.61 7.750 117 1.27 79.9 71.5
Industrial/Office 1 3,588,053 0.57 7.800 115 1.25 73.2 65.9
Office/Industrial/Retail 1 2,234,659 0.35 8.250 117 1.25 67.5 55.1
Manufactured Housing 1 1,619,304 0.26 7.820 229 1.40 67.5 3.5
Community/Retail
Manufactured Housing 1 1,394,370 0.22 8.000 116 1.67 69.0 57.7
Community/Multifamily
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 14 $48,304,489 7.64% 7.730% 114 1.39x 70.8% 59.9%
Self Storage 15 $32,722,333 5.18% 7.512% 128 1.58x 63.5% 50.2%
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 15 $32,722,333 5.18% 7.512% 128 1.58x 63.5% 50.2%
</TABLE>
I-5
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
PROPERTY TYPES
(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
PROPERTY TYPE LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial
Light Industrial 2 $11,286,594 1.79% 8.073% 117 1.28x 73.7% 66.7%
Bulk Warehouse 2 10,512,257 1.66 7.728 112 1.34 71.8 54.1
Warehouse 2 4,646,092 0.74 7.605 115 1.37 63.8 51.1
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 6 $26,444,943 4.18% 7.854% 115 1.32x 71.2% 58.9%
Senior Housing
Assisted Living 8 $9,236,634 1.46% 8.500% 115 1.41x 67.4% 57.2%
Independent & 1 4,030,909 0.64 7.530 111 1.77 67.2 55.7
Assisted Living
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 9 $13,267,543 2.10% 8.205% 114 1.52x 67.3% 56.7%
====================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
I-6
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
MORTGAGE RATES
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
MORTGAGE RATE (%) LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6.501 to 7.000 22 $61,796,551 9.78% 6.856% 113 1.48x 70.4% 59.7%
7.001 to 7.500 78 233,499,811 36.94 7.246 118 1.44 70.5 60.4
7.501 to 8.000 55 228,139,400 36.09 7.838 121 1.32 73.3 61.9
8.001 to 8.500 33 78,614,797 12.44 8.298 120 1.39 65.0 54.7
8.501 to 9.000 6 30,043,824 4.75 8.723 116 1.47 70.2 60.0
====================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
Min: 6.610%
Max: 9.000%
Weighted Average: 7.622%
I-7
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
ORIGINAL TERMS TO STATED MATURITY
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
ORIGINAL TERM TO STATED MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
MATURITY (MOS) LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
61 to 120 182 $571,037,096 90.34% 7.651% 114 1.40x 70.8% 61.3%
121 to 180 8 48,472,528 7.67 7.222 144 1.33 72.4 59.3
181 to 240 4 12,584,760 1.99 7.882 230 1.45 65.9 11.4
====================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
Min: 84
Max: 240
Weighted Average: 125
I-8
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
REMAINING TERMS TO STATED MATURITY
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
REMAINING TERM TO STATED MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
MATURITY (MOS) LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
61 to 120 187 $589,068,429 93.19% 7.639% 114 1.40x 70.7% 61.2%
121 to 180 3 30,441,194 4.82 7.193 159 1.27 75.1 60.2
181 to 240 4 12,584,760 1.99 7.882 230 1.45 65.9 11.4
====================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
Min: 75
Max: 231
Weighted Average: 119
I-9
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
ORIGINAL AMORTIZATION TERMS
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
ORIGINAL AMORTIZATION MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
TERM (MOS) LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALLOON LOAN 191 $623,170,002 98.59% 7.617% 117 1.40x 70.9% 61.0%
180 1 2,518,583 0.40 7.100 109 1.43 42.0 20.9
204 1 2,234,659 0.35 8.250 117 1.25 67.5 55.1
240 5 20,423,836 3.23 7.564 113 1.39 69.1 49.2
264 1 2,371,283 0.38 9.000 117 1.47 69.7 55.6
298 1 6,069,363 0.96 8.580 115 1.75 64.6 54.8
300 80 207,493,474 32.83 7.729 116 1.50 66.1 54.4
360 102 382,058,805 60.44 7.535 118 1.33 73.9 65.6
FULLY-AMORTIZING LOAN 3 $8,924,382 1.41% 8.005% 230 1.40x 63.5% 3.4%
240 3 8,924,382 1.41 8.005 230 1.40 63.5 3.4
====================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
Min: 180
Max: 360
Weighted Average: 333
I-10
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
REMAINING AMORTIZATION TERMS
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
NUMBER OF PERCENT BY AVERAGE WEIGHTED WEIGHTED
MORTGAGE AGGREGATE AGGREGATE WEIGHTED REMAINING TERM WEIGHTED AVERAGE AVERAGE
REMAINING AMORTIZATION LOANS CUT-OFF DATE CUT-OFF DATE AVERAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
TERMS (MOS) BALANCE ($) BALANCE (%) RATE (%) MORTGAGE (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
121 to 180 1 $ 2,518,583 0.40% 7.100% 109 1.43x 42.0% 20.9%
181 to 240 9 31,582,876 5.00 7.737 146 1.38 67.4 36.7
241 to 300 82 215,934,119 34.16 7.767 116 1.51 66.1 54.4
301 to 360 102 382,058,805 60.44 7.535 118 1.33 73.9 65.6
====================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
Min: 170
Max: 359
Weighted Average: 327
I-11
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
DEBT SERVICE COVERAGE RATIOS
- -----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
DEBT SERVICE COVERAGE MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
RATIO (X) LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1.01 to 1.15 6 $ 8,558,132 1.35% 8.228% 114 1.12x 81.0% 70.2%
1.16 to 1.25 24 114,613,313 18.13 7.604 118 1.22 74.0 64.4
1.26 to 1.35 51 225,928,677 35.74 7.593 122 1.29 73.3 63.0
1.36 to 1.50 51 148,999,948 23.57 7.908 116 1.42 68.0 56.9
1.51 to 1.75 52 112,878,404 17.86 7.332 119 1.64 68.1 56.1
1.76 to 2.00 4 8,266,946 1.31 7.336 112 1.84 67.6 55.7
2.01 and above 6 12,848,965 2.03 7.325 114 2.28 49.3 39.7
===================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
===================================================================================================================================
</TABLE>
Min: 1.11x
Max: 2.52x
Weighted Average: 1.40x
I-12
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
CUT-OFF DATE LOAN-TO-VALUE RATIOS
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
CUT-OFF DATE LOAN-TO-VALUE MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
(%) RATIO LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30.1 to 40.0 1 $ 1,237,136 0.20% 7.150% 111 2.52x 37.6% 30.8%
40.1 to 50.0 5 10,352,823 1.64 7.354 113 2.00 45.7 33.4
50.1 to 60.0 21 54,671,808 8.65 7.868 120 1.58 57.7 46.2
60.1 to 70.0 58 171,203,388 27.09 7.761 118 1.42 66.4 54.9
70.1 to 80.0 107 384,853,506 60.89 7.525 119 1.34 75.1 64.9
80.1 to 90.0 2 9,775,723 1.55 8.011 116 1.30 81.9 74.1
====================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
Min: 37.6%
Max: 85.1%
Weighted Average: 70.8%
I-13
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
BALLOON LOAN-TO-VALUE RATIOS
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED
PERCENT BY WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER OF AGGREGATE AGGREGATE AVERAGE REMAINING TERM WEIGHTED AVERAGE AVERAGE
BALLOON LOAN-TO-VALUE MORTGAGE CUT-OFF DATE CUT-OFF DATE MORTGAGE TO MATURITY AVERAGE CUT-OFF DATE BALLOON
RATIO (%) LOANS BALANCE ($) BALANCE (%) RATE (%) (MOS) DSCR (X) LTV (%) LTV (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.1 to 10.0 3 $ 8,924,382 1.41% 8.005% 230 1.40x 63.5% 3.4%
20.1 to 30.0 1 2,518,583 0.40 7.100 109 1.43 42.0 20.9
30.1 to 40.0 6 12,731,754 2.01 7.450 147 2.03 53.2 34.9
40.1 to 50.0 23 54,936,203 8.69 7.793 115 1.56 58.2 48.0
50.1 to 60.0 54 150,058,376 23.74 7.668 114 1.45 67.2 55.2
60.1 to 70.0 97 334,905,666 52.98 7.537 118 1.35 73.7 64.7
70.1 to 80.0 10 68,019,421 10.76 7.808 116 1.26 80.1 72.0
====================================================================================================================================
TOTAL OR WEIGHTED AVERAGE: 194 $632,094,383 100.00% 7.622% 119 1.40x 70.8% 60.1%
====================================================================================================================================
</TABLE>
Min: 3.3%
Max: 78.4%
Weighted Average: 60.1%
I-14
<PAGE>
APPENDIX I
MORTGAGE POOL INFORMATION
<TABLE>
<CAPTION>
PREPAYMENT PROTECTION ANALYSIS
PERCENTAGE OF COLLATERAL BY PREPAYMENT RESTRICTION
- -----------------------------------------------------------------------------------------------------------------------------------
PREPAYMENT RESTRICTIONS APR 99 APR 00 APR 01 APR 02 APR 03 APR 04 APR 05 APR 06 APR 07 APR 08 APR 09
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Locked Out/Defeasance 100.00% 96.54% 96.29% 95.55% 95.54% 92.92% 91.86% 92.88% 92.87% 79.15% 43.50%
Yield Maintenance 0.00% 3.46% 3.46% 3.86% 3.87% 6.27% 6.47% 6.54% 6.55% 4.04% 56.50%
Penalty Points:
5.00% and greater 0.00% 0.00% 0.25% 0.34% 0.34% 0.23% 0.00% 0.00% 0.00% 0.00% 0.00%
4.00% to 4.99% 0.00% 0.00% 0.00% 0.25% 0.00% 0.34% 0.57% 0.00% 0.00% 0.00% 0.00%
3.00% to 3.99% 0.00% 0.00% 0.00% 0.00% 0.25% 0.00% 0.00% 0.57% 0.00% 0.00% 0.00%
2.00% to 2.99% 0.00% 0.00% 0.00% 0.00% 0.00% 0.25% 0.00% 0.00% 0.57% 0.00% 0.00%
1.00% to 1.99% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.24% 0.00%
Open 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 1.11% 0.00% 0.00% 16.56% 0.00%
===================================================================================================================================
TOTALS 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
===================================================================================================================================
Pool Balance Outstanding (in
millions) $632.09 $625.35 $617.93 $609.91 $601.26 $592.05 $581.97 $564.75 $553.11 $532.40 $35.38
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
% Initial Pool Balance 100.00% 98.93% 97.76% 96.49% 95.12% 93.66% 92.07% 89.35% 87.50% 84.23% 5.60%
</TABLE>
I-15
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
LOAN INFORMATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CUT-OFF
LOAN CUT-OFF DATE BAL./ MORTGAGE NOTE MATURITY DATE
NO. PROPERTY NAME (1) DATE BALANCE UNIT OR SF (2) RATE DATE OR ARD(3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 D.A.M. Maple Manor Mobile Home Park (A) (6) $3,794,663 $11,971 7.180% 4/29/98 5/11/08
2 D.A.M. Valley View - Danboro (A) (6) $3,199,422 $13,850 7.180% 4/29/98 5/11/08
3 D.A.M. Brookside Village MHP (A) (6) (I) $1,785,724 $10,443 7.180% 4/29/98 5/11/08
4 D.A.M. Pleasant View MHP (A) (6) (I) $1,041,672 $9,645 7.180% 4/29/98 5/11/08
5 D.A.M. Huguenot Estate East MHP (A) (6) $2,003,979 $12,072 7.180% 4/29/98 5/11/08
6 D.A.M. Valley View- Honey Brook (A) (6) (II) $1,488,103 $12,401 7.180% 4/29/98 5/11/08
7 D.A.M. Green Acres-Honey Brook (A) (6) (II) $431,550 $17,981 7.180% 4/29/98 5/11/08
8 D.A.M. Moosic Heights MHP (A) (6) $1,909,732 $12,482 7.180% 4/29/98 5/11/08
9 D.A.M. Frieden Manor Mobile Home Park (A) (6) $1,860,129 $9,688 7.180% 4/29/98 5/11/08
10 D.A.M. Suburban Estates MHP (A) (6) $1,711,318 $8,430 7.180% 4/29/98 5/11/08
11 D.A.M. Sunny Acres MHP (A) (6) $1,562,508 $8,492 7.180% 4/29/98 5/11/08
12 D.A.M. Sunneyside MHP (A) (6) $1,488,103 $20,110 7.180% 4/29/98 5/11/08
13 D.A.M. Valley View - Ephrata (A) (6) $1,066,474 $9,967 7.180% 4/29/98 5/11/08
14 D.A.M. Carsons Mobile Home Park (A) (6) $967,267 $7,328 7.180% 4/29/98 5/11/08
15 D.A.M. Pine Haven Mobile Home Park (A) (6) $967,267 $7,273 7.180% 4/29/98 5/11/08
16 D.A.M. Crestview Mobile Home Park (A) (6) $793,655 $8,017 7.180% 4/29/98 5/11/08
17 D.A.M. Collingwood MHP (A) (6) $689,488 $6,760 7.180% 4/29/98 5/11/08
18 D.A.M. Beaver Run Mobile Home Park (A) (6) $629,964 $6,300 7.180% 4/29/98 5/11/08
19 D.A.M. Chelsea MHP (A) (6) $625,003 $7,267 7.180% 4/29/98 5/11/08
20 D.A.M. Oakwood Lakes MHP (A) (6) $620,043 $7,849 7.180% 4/29/98 5/11/08
21 D.A.M. Gregory Courts MHP (A) (6) $570,439 $15,012 7.180% 4/29/98 5/11/08
22 D.A.M. Mountaintop Mobile Home Park (A) (6) $396,827 $10,175 7.180% 4/29/98 5/11/08
23 D.A.M. Monroe Valley MHP (A) (6) $277,779 $6,313 7.180% 4/29/98 5/11/08
24 D.A.M. Green Acres - Chambersburg (A) (6) $178,572 $7,441 7.180% 4/29/98 5/11/08
25 Jemal-The Car Barn (III) (6) $12,947,348 $151 7.750% 12/17/98 1/1/09
26 Jemal-801 North Capitol (III) (7) (6) $11,525,385 $140 7.750% 12/17/98 1/1/09
27 Jemal-Laurel Lakes Corp. Center (III) (7) (6) $3,841,795 $55 7.750% 12/17/98 1/1/09
28 Jemal-Kalorama GuestHouse (III) (6) $1,345,537 $28,032 7.750% 12/17/98 1/1/09
29 Quail Oaks Apartments (5) (8) $21,808,261 $53,981 7.210% 3/27/98 4/1/13
30 Crown Colony Office $18,859,720 $151 7.750% 12/28/98 1/1/09
31 Suburban-3-Pressley (IV) (6) $3,364,708 $25,490 8.250% 12/29/98 1/1/09
32 Suburban-3-Virginia Beach (IV) (6) $3,289,937 $23,840 8.250% 12/29/98 1/1/09
33 Suburban-3-Fairfield (IV) (6) $2,791,461 $21,309 8.250% 12/29/98 1/1/09
34 Suburban-3-Jonesboro (IV) (6) $2,666,843 $19,325 8.250% 12/29/98 1/1/09
35 Suburban-3-Norcross (IV) (6) $2,193,291 $17,135 8.250% 12/29/98 1/1/09
36 Suburban-3-Fulton Industrial (IV) (6) $1,226,249 $11,354 8.250% 12/29/98 1/1/09
37 Suburban-2-UNC Charlotte (V) (6) $3,589,022 $26,007 8.250% 12/29/98 1/1/09
38 Suburban-2-Lilburn (V) (6) $3,090,547 $23,413 8.250% 12/29/98 1/1/09
39 Suburban-2-Preston Hwy. (V) (6) $2,891,156 $19,274 8.250% 12/29/98 1/1/09
40 Suburban-2-Chesapeake (V) (6) $2,542,224 $19,259 8.250% 12/29/98 1/1/09
41 Suburban-2-Taylors (V) (6) $2,342,834 $18,594 8.250% 12/29/98 1/1/09
42 Suburban-2-Mableton (V) (6) $996,950 $12,620 8.250% 12/29/98 1/1/09
43 Midtown Shopping Center $13,970,521 $87 7.810% 12/29/98 12/1/08
44 The Lakes (8) $12,674,263 $74 8.000% 12/23/98 1/1/09
45 Ramada Plaza Hotel $12,140,079 $66,704 8.625% 12/10/98 1/1/09
46 Governors Crossing Outlet Ctr. $9,680,343 $72 8.000% 12/24/98 1/1/09
47 Magnolia Manors 2-Andalusia (VI) $1,842,350 $57,573 8.500% 10/30/98 11/1/08
48 Magnolia Manors 4-Jasper (VI) $1,769,940 $55,311 8.500% 10/30/98 11/1/08
49 Magnolia Manors 7-Valley (VI) $1,691,061 $52,846 8.500% 10/30/98 11/1/08
50 Magnolia Manors 5-Smiths (VI) $862,451 $53,903 8.500% 10/30/98 11/1/08
51 Magnolia Manors 1-Jackson (VI) $796,759 $49,797 8.500% 10/30/98 11/1/08
52 Magnolia Manors 8-Brewton (VI) $780,834 $48,802 8.500% 10/30/98 11/1/08
53 Magnolia Manors 3-Monroeville (VI) $762,918 $47,682 8.500% 10/30/98 11/1/08
54 Magnolia Manors 6-Alexander City (VI) $730,321 $45,645 8.500% 10/30/98 11/1/08
55 Televideo $9,221,275 $132 8.000% 12/21/98 1/1/09
56 Radisson Woodlands Plaza Hotel $9,217,985 $50,372 7.410% 7/24/98 8/1/08
57 AFCO Hanger One Air Cargo Complex $8,366,193 $32 7.530% 6/30/98 7/11/08
58 Marina View Towers $7,637,757 $90,926 7.100% 5/5/98 5/11/10
59 Village Park Apartments (8) $7,463,741 $17,856 6.770% 9/23/98 10/1/08
60 Waikiki MarketPlace (B) (7) $5,189,725 $163 8.125% 12/28/98 1/1/09
61 Goldcoast Business Center (B) (7) $2,234,659 $21 8.250% 12/28/98 1/1/09
62 Summer Creek Apartments (5) $7,207,831 $46,204 7.070% 7/30/98 2/11/09
63 Food 4 Less & Arco AM/PM Stores $6,972,650 $122 7.050% 10/20/98 11/1/08
64 Pathmark (Glenolden) $6,959,880 $66 7.320% 10/2/98 11/1/08
65 1630 Connecticut Avenue $6,838,769 $177 7.730% 1/13/99 2/1/09
66 Santa Paula West (8) (9) $6,834,499 $35,049 7.450% 12/23/98 1/1/09
67 Del Prado Mobile Home Park $6,643,878 $39,313 8.000% 10/27/98 11/1/08
68 Piano Craft Guild Apartments $6,395,222 $36,754 7.320% 3/26/98 4/1/08
69 Canyon Terrace Apts. $6,186,109 $47,585 7.500% 12/26/98 1/1/09
70 Woodhill Square $6,175,336 $53 8.150% 12/9/98 1/1/09
71 Guest House Inn (5) $6,069,363 $21,990 8.580% 12/29/98 11/11/08
72 7979 Old Georgetown Road $6,047,245 $116 7.960% 2/25/99 3/1/09
73 Cherry Hill Plaza $5,682,562 $48 7.460% 4/8/98 5/1/08
74 Heritage-Rolling Meadows (VII) $2,308,165 $7,932 8.000% 10/28/98 11/1/08
75 Heritage-Windsor City (VII) $1,711,225 $6,314 8.000% 10/28/98 11/1/08
76 Heritage-Victorian Lakes (VII) $925,255 $6,128 8.000% 10/28/98 11/1/08
77 Heritage-Hermitage Farms (VII) $437,755 $4,378 8.000% 10/28/98 11/1/08
78 Heritage-Ramblewood (VII) $238,777 $2,809 8.000% 10/28/98 11/1/08
79 Maywood Village Square $5,586,970 $116 8.280% 11/19/98 12/1/08
80 Upland Country Village $5,563,587 $117 7.950% 12/23/98 1/1/09
81 El Paseo Collection (8) $5,367,277 $193 7.450% 6/30/98 7/1/05
82 Harding Woods MHP $5,271,044 $16,524 7.470% 6/29/98 8/11/08
83 Highland Crossing $5,083,815 $115 8.000% 10/12/98 11/1/08
84 Best Buy $4,945,753 $103 7.830% 6/29/98 7/11/18
85 Carriage Trade Center (VIII) (6) $3,353,233 $47 6.610% 10/5/98 11/1/08
86 Washington Square (VIII) (6) $1,564,842 $59 6.610% 10/5/98 11/1/08
87 Efficiency II- Lorene Lodge $4,856,760 $17,470 8.950% 12/22/98 1/1/09
88 Spring Creek Mobile Home Park $4,684,709 $12,168 7.850% 12/18/98 1/1/09
89 The Meadows Apts. $4,564,750 $43,892 7.500% 12/26/98 1/1/09
90 Northpointe Village Center (C) (6) $3,022,835 $69 7.330% 7/24/98 8/1/08
91 Grant Road Shops (C) (6) $1,472,277 $123 7.190% 8/13/98 9/1/08
92 El Paseo Power Center $4,391,083 $68 8.000% 12/21/98 1/1/09
93 Parkwood Apartments $4,372,994 $15,618 7.750% 12/29/98 1/1/09
94 Heritage Village Apts. (8) $4,215,227 $23,950 6.940% 7/22/98 8/11/08
95 P.M. Place Stores (5) $4,177,616 $17 7.500% 9/24/98 4/1/09
96 JP Plaza $4,105,712 $95 6.920% 9/24/98 10/1/08
97 Bellam Self Storage $4,081,338 $97 7.040% 9/16/98 10/1/08
98 Sugarland Ridge $4,030,909 $60,163 7.530% 6/29/98 7/1/08
99 North College Mobile Plaza $4,021,172 $12,566 7.000% 9/4/98 10/1/08
100 Storage Express $4,014,526 $64 7.330% 6/2/98 6/11/08
101 Victory Plaza $3,981,711 $96 7.020% 9/1/98 10/1/08
102 Greenhaven Executive Park $3,977,750 $75 6.900% 8/28/98 9/1/08
103 Shoneys Inn - Lake Park (IX) $2,038,517 $16,988 8.000% 10/9/98 11/1/08
104 Shoneys Inn - Valdosta (IX) $1,904,265 $19,836 8.000% 10/9/98 11/1/08
105 Colorado Springs Corporate Centre $3,868,412 $85 7.500% 1/21/99 2/1/09
106 Bechtel Nevada Corporation $3,777,589 $76 7.150% 10/9/98 11/1/08
107 Country Squire MHP $3,683,943 $21,051 7.250% 9/18/98 10/1/08
108 Northwest Mini Storage $3,660,378 $27 7.580% 6/1/98 5/11/18
109 Fairmont Apartments $3,643,140 $13,296 7.300% 6/12/98 7/1/08
110 Springwood Business Center $3,588,053 $47 7.800% 10/12/98 11/1/08
111 1420 Walnut Street $3,574,375 $29 7.000% 9/30/98 10/1/08
112 610-620 Santa Cruz Ave. $3,521,341 $182 7.230% 8/18/98 9/1/08
113 Suburban Lodge of Pineville $3,481,706 $25,414 7.860% 10/30/98 11/1/08
114 Redwood Marketplace $3,469,652 $56 6.800% 4/23/98 5/1/08
115 Elmwood Office Park $3,311,752 $46 8.000% 11/18/98 12/1/08
116 Orchard Center $3,282,561 $91 7.610% 7/20/98 8/11/08
117 Mission MHP $3,159,719 $11,048 7.170% 4/27/98 4/1/08
118 Zonolite Road Properties $3,141,081 $54 8.500% 10/29/98 11/1/08
119 Braley Bldg. $3,036,495 $67 7.030% 8/19/98 9/1/08
120 Lynnwood East Business Park $2,990,479 $51 8.000% 10/28/98 11/1/08
121 Woodmeadow Apts. $2,981,300 $13,802 6.900% 7/28/98 8/11/08
122 Wellington Woods Senior Apts. $2,936,954 $32,633 8.665% 6/11/98 7/1/08
123 Pecan Park $2,892,456 $13,973 7.800% 11/19/98 12/1/08
124 East West Shopping Center $2,890,790 $102 8.000% 12/1/98 1/1/09
125 Roble Terrace Apartments $2,872,554 $45,596 7.010% 7/31/98 8/1/08
126 Super 8 Motel/Alpenglo Inn and Conference Center $2,831,251 $47,188 7.450% 9/15/98 10/1/08
127 Safe Storage $2,810,030 $52 7.050% 9/24/98 10/1/08
128 Steeple Chase Apartments $2,788,457 $12,448 7.860% 12/25/98 12/1/08
129 Edgemar $2,714,800 $83 7.250% 10/1/98 11/1/08
130 Londonderry Commons $2,694,799 $53 8.250% 12/22/98 1/1/09
131 Mini Warehouse Company $2,691,426 $17 8.000% 12/22/98 1/1/09
132 Walbrook Junction Shopping $2,691,426 $57 8.000% 12/30/98 1/1/09
133 Sandstone Office Building $2,689,630 $182 7.130% 10/5/98 11/1/08
134 Rose Bay Travel Park $2,673,054 $7,572 7.320% 6/26/98 7/11/08
135 Riverview Mobile Villa $2,659,694 $12,371 6.770% 8/21/98 9/1/08
136 Plaza de Las Brisas $2,633,467 $76 7.330% 6/24/98 7/1/08
137 Sierra Suites $2,607,192 $26,072 7.600% 9/10/98 10/1/08
138 901 Tower $2,589,733 $101 7.000% 10/15/98 11/1/08
139 The Cones Apartments $2,585,251 $26,380 7.310% 7/13/98 8/1/08
140 Royal Oaks (D) $1,784,047 $7,108 6.680% 8/19/98 9/1/08
141 Country Acres (D) $792,910 $8,174 6.680% 8/19/98 9/1/08
142 4890 Alameda Street (10) $2,550,348 $21 7.280% 8/20/98 9/1/08
143 Sherwood Forest Mobile Home $2,518,583 $9,916 7.100% 5/21/98 5/11/08
144 Red Rock Self Storage $2,482,052 $33 7.590% 4/29/98 11/1/08
145 Wilshire Borgata $2,467,236 $252 7.720% 7/30/98 8/11/08
146 American Heritage Office $2,427,054 $83 7.100% 8/31/98 9/1/08
147 California Federal Building $2,390,653 $101 7.065% 10/7/98 11/1/08
148 Simi Valley Regional Center $2,387,139 $59 7.070% 8/28/98 9/11/08
149 Buy for Less Grocery Store $2,385,409 $42 7.010% 8/3/98 8/11/08
150 Holiday Inn Durant $2,371,283 $28,918 9.000% 12/30/98 1/1/09
151 Best Western Matagorda $2,359,325 $19,661 8.500% 4/28/98 5/1/18
152 Kings Inn Apartments $2,338,888 $25,988 6.870% 9/10/98 10/1/08
153 The Giroux Building $2,329,964 $140 6.910% 8/31/98 9/1/08
154 Nursery Shopping Center $2,280,853 $61 7.730% 7/31/98 8/1/08
155 Fairborn Apartments $2,234,927 $12,627 8.230% 12/28/98 2/1/09
156 Sunwood Village Apartments (8) $2,189,364 $18,554 6.770% 9/23/98 10/1/08
157 Kingstowne Mobile Home Park $2,181,558 $16,280 7.010% 8/14/98 9/1/08
158 Central Self Storage $2,178,105 $27 7.980% 5/8/98 6/1/08
159 75 Old Broadway $2,146,065 $22 8.500% 12/2/98 1/1/09
160 Plantation Acres (5) $2,108,479 $10,542 7.070% 8/7/98 3/1/09
161 Interpoint Business Park $2,095,744 $24 8.000% 12/1/98 1/1/09
162 Mohawk Drive Corporation $2,065,319 $19 8.400% 11/2/98 12/1/08
163 205 Commerce Center $2,055,356 $55 7.340% 6/29/98 8/11/08
164 Canterbury Commons Apartments (8) $2,044,004 $26,205 6.740% 9/16/98 10/1/08
165 Valley Village Mobile Home Park $1,985,764 $12,979 7.000% 9/4/98 10/1/08
166 All American - Palmdale $1,865,541 $28 7.510% 8/12/98 9/1/08
167 Dumfries Self Storage $1,794,144 $37 7.850% 12/1/98 1/1/09
168 Hyundai Plaza $1,745,652 $73 8.000% 11/30/98 12/1/08
169 Tregoney East Apartments $1,732,693 $16,193 7.370% 6/30/98 7/11/08
170 157 Pleasant Street $1,676,965 $36,456 6.840% 8/31/98 9/11/08
171 Days Inn NY $1,669,384 $24,550 9.000% 11/19/98 12/1/08
172 Westfield MHP $1,619,304 $6,503 7.820% 4/13/98 5/1/18
173 14150 Vine $1,611,889 $67 8.250% 12/4/98 1/1/09
174 Donner Creek MHP $1,586,837 $16,704 7.120% 8/28/98 9/1/05
175 Sawmill Village Shopping $1,545,078 $74 8.000% 12/29/98 1/1/09
176 T & T Plaza $1,539,522 $96 7.500% 10/16/98 11/1/08
177 1004 Taft $1,507,091 $69 8.250% 12/4/98 1/1/09
178 Bensen Estates $1,491,765 $35,518 6.960% 8/10/98 9/1/08
179 Rancho Mini Storage $1,445,755 $41 8.500% 12/7/98 1/1/09
180 Metro Square $1,443,693 $52 7.240% 9/16/98 10/1/08
181 Machado Towers $1,432,883 $37,707 7.340% 7/28/98 8/11/08
182 Berkeley Self Storage, LTD. $1,410,493 $39 7.210% 6/15/98 7/1/08
183 Jasper Mobile Home Park $1,408,141 $5,314 7.020% 6/11/98 6/11/08
184 Spring Valley MHP & Apts. $1,394,370 $7,497 8.000% 11/4/98 12/1/08
185 Ponderosa MHP $1,287,888 $21,465 7.740% 1/8/99 2/1/09
186 Chesapeake Self Storage $1,237,136 $19 7.150% 6/15/98 7/1/08
187 Thornydale Self Storage $1,214,100 $24 7.360% 7/2/98 8/11/08
188 St. Charles Court $1,186,452 $33,899 7.000% 9/30/98 10/1/08
189 Tollhouse Crossings $1,093,480 $91 7.540% 6/16/98 7/1/08
190 Blue Topaz Apartments $1,079,109 $44,963 7.010% 8/19/98 9/11/08
191 Southend Self Storage $995,177 $14 7.540% 8/19/98 9/1/13
192 Creekside Mobile Home Park $994,140 $33,138 7.170% 7/6/98 8/11/08
193 Casa Monte Vista Apartments $976,890 $21,709 8.000% 10/26/98 11/1/08
194 Moreno Valley Mini Self Storage $842,133 $20 7.730% 6/15/98 7/1/08
TOTAL/WEIGHTED AVERAGE $632,094,383 7.622%
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
LOAN INFORMATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
TERM TO REM. TERM ORIGINAL REMAINING
MATURITY TO MATURITY AMORT. AMORT.
LOAN ARD LOAN OR ARD OR ARD TERM TERM
NO. PROPERTY NAME (1) MATURITY DATE (MOS) (MOS) (MOS)(4) (5) (MOS)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 D.A.M. Maple Manor Mobile Home Park (A) (6) 5/11/28 120 109 360 349
2 D.A.M. Valley View - Danboro (A) (6) 5/11/28 120 109 360 349
3 D.A.M. Brookside Village MHP (A) (6) (I) 5/11/28 120 109 360 349
4 D.A.M. Pleasant View MHP (A) (6) (I) 5/11/28 120 109 360 349
5 D.A.M. Huguenot Estate East MHP (A) (6) 5/11/28 120 109 360 349
6 D.A.M. Valley View- Honey Brook (A) (6) (II) 5/11/28 120 109 360 349
7 D.A.M. Green Acres-Honey Brook (A) (6) (II) 5/11/28 120 109 360 349
8 D.A.M. Moosic Heights MHP (A) (6) 5/11/28 120 109 360 349
9 D.A.M. Frieden Manor Mobile Home Park (A) (6) 5/11/28 120 109 360 349
10 D.A.M. Suburban Estates MHP (A) (6) 5/11/28 120 109 360 349
11 D.A.M. Sunny Acres MHP (A) (6) 5/11/28 120 109 360 349
12 D.A.M. Sunneyside MHP (A) (6) 5/11/28 120 109 360 349
13 D.A.M. Valley View - Ephrata (A) (6) 5/11/28 120 109 360 349
14 D.A.M. Carsons Mobile Home Park (A) (6) 5/11/28 120 109 360 349
15 D.A.M. Pine Haven Mobile Home Park (A) (6) 5/11/28 120 109 360 349
16 D.A.M. Crestview Mobile Home Park (A) (6) 5/11/28 120 109 360 349
17 D.A.M. Collingwood MHP (A) (6) 5/11/28 120 109 360 349
18 D.A.M. Beaver Run Mobile Home Park (A) (6) 5/11/28 120 109 360 349
19 D.A.M. Chelsea MHP (A) (6) 5/11/28 120 109 360 349
20 D.A.M. Oakwood Lakes MHP (A) (6) 5/11/28 120 109 360 349
21 D.A.M. Gregory Courts MHP (A) (6) 5/11/28 120 109 360 349
22 D.A.M. Mountaintop Mobile Home Park (A) (6) 5/11/28 120 109 360 349
23 D.A.M. Monroe Valley MHP (A) (6) 5/11/28 120 109 360 349
24 D.A.M. Green Acres - Chambersburg (A) (6) 5/11/28 120 109 360 349
25 Jemal-The Car Barn (III) (6) 120 117 360 357
26 Jemal-801 North Capitol (III) (7) (6) 120 117 360 357
27 Jemal-Laurel Lakes Corp. Center (III) (7) (6) 120 117 360 357
28 Jemal-Kalorama GuestHouse (III) (6) 120 117 300 297
29 Quail Oaks Apartments (5) (8) 180 168 360 348
30 Crown Colony Office 120 117 360 357
31 Suburban-3-Pressley (IV) (6) 120 117 300 297
32 Suburban-3-Virginia Beach (IV) (6) 120 117 300 297
33 Suburban-3-Fairfield (IV) (6) 120 117 300 297
34 Suburban-3-Jonesboro (IV) (6) 120 117 300 297
35 Suburban-3-Norcross (IV) (6) 120 117 300 297
36 Suburban-3-Fulton Industrial (IV) (6) 120 117 300 297
37 Suburban-2-UNC Charlotte (V) (6) 120 117 300 297
38 Suburban-2-Lilburn (V) (6) 120 117 300 297
39 Suburban-2-Preston Hwy. (V) (6) 120 117 300 297
40 Suburban-2-Chesapeake (V) (6) 120 117 300 297
41 Suburban-2-Taylors (V) (6) 120 117 300 297
42 Suburban-2-Mableton (V) (6) 120 117 300 297
43 Midtown Shopping Center 119 116 360 357
44 The Lakes (8) 120 117 360 357
45 Ramada Plaza Hotel 120 117 300 297
46 Governors Crossing Outlet Ctr. 120 117 360 357
47 Magnolia Manors 2-Andalusia (VI) 120 115 300 295
48 Magnolia Manors 4-Jasper (VI) 120 115 300 295
49 Magnolia Manors 7-Valley (VI) 120 115 300 295
50 Magnolia Manors 5-Smiths (VI) 120 115 300 295
51 Magnolia Manors 1-Jackson (VI) 120 115 300 295
52 Magnolia Manors 8-Brewton (VI) 120 115 300 295
53 Magnolia Manors 3-Monroeville (VI) 120 115 300 295
54 Magnolia Manors 6-Alexander City (VI) 120 115 300 295
55 Televideo 120 117 360 357
56 Radisson Woodlands Plaza Hotel 120 112 300 292
57 AFCO Hanger One Air Cargo Complex 120 111 240 231
58 Marina View Towers 144 133 360 349
59 Village Park Apartments (8) 120 114 360 354
60 Waikiki MarketPlace (B) (7) 120 117 360 357
61 Goldcoast Business Center (B) (7) 120 117 204 201
62 Summer Creek Apartments (5) 126 118 360 352
63 Food 4 Less & Arco AM/PM Stores 120 115 360 355
64 Pathmark (Glenolden) 120 115 300 295
65 1630 Connecticut Avenue 120 118 360 358
66 Santa Paula West (8) (9) 120 117 360 357
67 Del Prado Mobile Home Park 120 115 240 235
68 Piano Craft Guild Apartments 120 108 360 348
69 Canyon Terrace Apts. 120 117 360 357
70 Woodhill Square 120 117 360 357
71 Guest House Inn (5) 11/11/23 118 115 298 295
72 7979 Old Georgetown Road 120 119 360 359
73 Cherry Hill Plaza 120 109 360 349
74 Heritage-Rolling Meadows (VII) 120 115 300 295
75 Heritage-Windsor City (VII) 120 115 300 295
76 Heritage-Victorian Lakes (VII) 120 115 300 295
77 Heritage-Hermitage Farms (VII) 120 115 300 295
78 Heritage-Ramblewood (VII) 120 115 300 295
79 Maywood Village Square 120 116 360 356
80 Upland Country Village 120 117 360 357
81 El Paseo Collection (8) 7/1/28 84 75 360 351
82 Harding Woods MHP 120 112 360 352
83 Highland Crossing 120 115 360 355
84 Best Buy 240 231 240 231
85 Carriage Trade Center (VIII) (6) 120 115 300 295
86 Washington Square (VIII) (6) 120 115 300 295
87 Efficiency II- Lorene Lodge 120 117 300 297
88 Spring Creek Mobile Home Park 120 117 300 297
89 The Meadows Apts. 120 117 360 357
90 Northpointe Village Center (C) (6) 120 112 360 352
91 Grant Road Shops (C) (6) 120 113 360 353
92 El Paseo Power Center 120 117 360 357
93 Parkwood Apartments 120 117 300 297
94 Heritage Village Apts. (8) 8/11/23 120 112 300 292
95 P.M. Place Stores (5) 126 120 300 294
96 JP Plaza 120 114 360 354
97 Bellam Self Storage 120 114 360 354
98 Sugarland Ridge 7/1/23 120 111 300 291
99 North College Mobile Plaza 120 114 300 294
100 Storage Express 120 110 300 290
101 Victory Plaza 120 114 360 354
102 Greenhaven Executive Park 120 113 360 353
103 Shoneys Inn - Lake Park (IX) 120 115 300 295
104 Shoneys Inn - Valdosta (IX) 120 115 300 295
105 Colorado Springs Corporate Centre 120 118 360 358
106 Bechtel Nevada Corporation 120 115 300 295
107 Country Squire MHP 120 114 360 354
108 Northwest Mini Storage 5/11/23 239 229 300 290
109 Fairmont Apartments 120 111 300 291
110 Springwood Business Center 120 115 360 355
111 1420 Walnut Street 120 114 300 294
112 610-620 Santa Cruz Ave. 120 113 300 293
113 Suburban Lodge of Pineville 120 115 300 295
114 Redwood Marketplace 120 109 360 349
115 Elmwood Office Park 120 116 360 356
116 Orchard Center 120 112 360 352
117 Mission MHP 119 108 300 289
118 Zonolite Road Properties 120 115 360 355
119 Braley Bldg. 120 113 360 353
120 Lynnwood East Business Park 120 115 360 355
121 Woodmeadow Apts. 120 112 360 352
122 Wellington Woods Senior Apts. 120 111 360 351
123 Pecan Park 120 116 360 356
124 East West Shopping Center 120 117 300 297
125 Roble Terrace Apartments 120 112 300 292
126 Super 8 Motel/Alpenglo Inn and Conference Center 120 114 300 294
127 Safe Storage 120 114 300 294
128 Steeple Chase Apartments 120 116 300 296
129 Edgemar 120 115 360 355
130 Londonderry Commons 120 117 360 357
131 Mini Warehouse Company 120 117 300 297
132 Walbrook Junction Shopping 120 117 300 297
133 Sandstone Office Building 120 115 360 355
134 Rose Bay Travel Park 120 111 300 291
135 Riverview Mobile Villa 120 113 360 353
136 Plaza de Las Brisas 120 111 360 351
137 Sierra Suites 120 114 300 294
138 901 Tower 120 115 360 355
139 The Cones Apartments 120 112 360 352
140 Royal Oaks (D) 120 113 300 293
141 Country Acres (D) 120 113 300 293
142 4890 Alameda Street (10) 120 113 240 233
143 Sherwood Forest Mobile Home 5/11/13 119 109 180 170
144 Red Rock Self Storage 126 115 360 349
145 Wilshire Borgata 120 112 360 352
146 American Heritage Office 120 113 360 353
147 California Federal Building 120 115 360 355
148 Simi Valley Regional Center 120 113 360 353
149 Buy for Less Grocery Store 120 112 360 352
150 Holiday Inn Durant 120 117 264 261
151 Best Western Matagorda 240 229 240 229
152 Kings Inn Apartments 120 114 360 354
153 The Giroux Building 120 113 300 293
154 Nursery Shopping Center 120 112 300 292
155 Fairborn Apartments 120 118 300 298
156 Sunwood Village Apartments (8) 120 114 360 354
157 Kingstowne Mobile Home Park 120 113 300 293
158 Central Self Storage 120 110 300 290
159 75 Old Broadway 120 117 360 357
160 Plantation Acres (5) 126 119 300 293
161 Interpoint Business Park 120 117 360 357
162 Mohawk Drive Corporation 120 116 360 356
163 205 Commerce Center 7/11/23 121 112 300 291
164 Canterbury Commons Apartments (8) 120 114 360 354
165 Valley Village Mobile Home Park 120 114 300 294
166 All American - Palmdale 120 113 300 293
167 Dumfries Self Storage 120 117 300 297
168 Hyundai Plaza 120 116 360 356
169 Tregoney East Apartments 120 111 300 291
170 157 Pleasant Street 120 113 240 233
171 Days Inn NY 120 116 300 296
172 Westfield MHP 240 229 240 229
173 14150 Vine 120 117 360 357
174 Donner Creek MHP 84 77 300 293
175 Sawmill Village Shopping 120 117 300 297
176 T & T Plaza 120 115 360 355
177 1004 Taft 120 117 360 357
178 Bensen Estates 120 113 360 353
179 Rancho Mini Storage 120 117 300 297
180 Metro Square 120 114 360 354
181 Machado Towers 120 112 360 352
182 Berkeley Self Storage, LTD. 120 111 300 291
183 Jasper Mobile Home Park 120 110 300 290
184 Spring Valley MHP & Apts. 120 116 300 296
185 Ponderosa MHP 120 118 360 358
186 Chesapeake Self Storage 120 111 300 291
187 Thornydale Self Storage 120 112 300 292
188 St. Charles Court 120 114 240 234
189 Tollhouse Crossings 120 111 360 351
190 Blue Topaz Apartments 120 113 360 353
191 Southend Self Storage 180 173 360 353
192 Creekside Mobile Home Park 120 112 360 352
193 Casa Monte Vista Apartments 120 115 360 355
194 Moreno Valley Mini Self Storage 120 111 300 291
TOTAL/WEIGHTED AVERAGE 125 119 333 327
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
LOAN INFORMATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SCHEDULED
RELATED BORROWER BALANCE AT
LOAN SECURITY LOAN GROUPS MATURITY BALLOON
NO. PROPERTY NAME (1) TYPE (BY LOAN NO.) OR ARD LTV (2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 D.A.M. Maple Manor Mobile Home Park (A) (6) Fee 2-24 $3,378,746 64.8%
2 D.A.M. Valley View - Danboro (A) (6) Fee 1, 3-24 $2,848,747 64.8%
3 D.A.M. Brookside Village MHP (A) (6) (I) Fee 1-5, 7-24 $1,589,997 64.8%
4 D.A.M. Pleasant View MHP (A) (6) (I) Fee 1-11, 13-24 $927,498 64.8%
5 D.A.M. Huguenot Estate East MHP (A) (6) Fee 1, 2, 4-24 $1,784,332 64.8%
6 D.A.M. Valley View- Honey Brook (A) (6) (II) Fee 1-9, 11-24 $1,324,999 64.8%
7 D.A.M. Green Acres-Honey Brook (A) (6) (II) Fee 1-20, 22-24 $384,250 64.8%
8 D.A.M. Moosic Heights MHP (A) (6) Fee 1-3, 5-24 $1,700,414 64.8%
9 D.A.M. Frieden Manor Mobile Home Park (A) (6) Fee 1-4, 6-24 $1,656,248 64.8%
10 D.A.M. Suburban Estates MHP (A) (6) Fee 1-6, 8-24 $1,523,748 64.8%
11 D.A.M. Sunny Acres MHP (A) (6) Fee 1-7, 9-24 $1,391,248 64.8%
12 D.A.M. Sunneyside MHP (A) (6) Fee 1-8, 10-24 $1,324,999 64.8%
13 D.A.M. Valley View - Ephrata (A) (6) Fee 1-10, 12-24 $949,583 64.8%
14 D.A.M. Carsons Mobile Home Park (A) (6) Fee 1-12, 14-24 $861,249 64.8%
15 D.A.M. Pine Haven Mobile Home Park (A) (6) Fee 1-13, 15-24 $861,249 64.8%
16 D.A.M. Crestview Mobile Home Park (A) (6) Fee 1-14, 16-24 $706,665 64.8%
17 D.A.M. Collingwood MHP (A) (6) Fee 1-15, 17-24 $613,916 64.8%
18 D.A.M. Beaver Run Mobile Home Park (A) (6) Fee 1-16, 18-24 $560,916 64.8%
19 D.A.M. Chelsea MHP (A) (6) Fee 1-17, 19-24 $556,499 64.8%
20 D.A.M. Oakwood Lakes MHP (A) (6) Fee 1-18, 20-24 $552,082 64.8%
21 D.A.M. Gregory Courts MHP (A) (6) Fee 1-19, 21-24 $507,916 64.8%
22 D.A.M. Mountaintop Mobile Home Park (A) (6) Fee 1-21, 23, 24 $353,333 64.8%
23 D.A.M. Monroe Valley MHP (A) (6) Fee 1-22, 24 $247,333 64.8%
24 D.A.M. Green Acres - Chambersburg (A) (6) Fee 1-23 $159,000 64.8%
25 Jemal-The Car Barn (III) (6) Fee 26-28, 65, 72 $11,626,290 71.5%
26 Jemal-801 North Capitol (III) (7) (6) Fee 25, 27, 28, 65, 72 $10,349,415 71.5%
27 Jemal-Laurel Lakes Corp. Center (III) (7) (6) Fee 25, 26, 28, 65, 72 $3,449,805 71.5%
28 Jemal-Kalorama GuestHouse (III) (6) Fee 25-27, 65, 72 $1,114,791 71.5%
29 Quail Oaks Apartments (5) (8) Fee $17,146,916 60.2%
30 Crown Colony Office Fee $16,935,407 67.7%
31 Suburban-3-Pressley (IV) (6) Fee 32-42 $2,828,105 49.5%
32 Suburban-3-Virginia Beach (IV) (6) Fee 31, 33-42 $2,765,259 49.5%
33 Suburban-3-Fairfield (IV) (6) Fee 31, 32, 34-42 $2,346,281 49.5%
34 Suburban-3-Jonesboro (IV) (6) Fee 31-33, 35-42 $2,241,539 49.5%
35 Suburban-3-Norcross (IV) (6) Fee 31-34, 36-42 $1,843,500 49.5%
36 Suburban-3-Fulton Industrial (IV) (6) Fee 31-35, .37-42 $1,030,692 49.5%
37 Suburban-2-UNC Charlotte (V) (6) Fee 31-36, 38-42 $3,016,647 48.4%
38 Suburban-2-Lilburn (V) (6) Fee 31-37, 39-42 $2,597,669 48.4%
39 Suburban-2-Preston Hwy. (V) (6) Fee 31-38, 40-42 $2,430,067 48.4%
40 Suburban-2-Chesapeake (V) (6) Fee 31-39, 41, 42 $2,136,783 48.4%
41 Suburban-2-Taylors (V) (6) Fee 31-40, 42 $1,969,196 48.4%
42 Suburban-2-Mableton (V) (6) Fee 31-41 $837,956 48.4%
43 Midtown Shopping Center Leasehold $12,580,490 71.9%
44 The Lakes (8) Fee/Leasehold $11,450,391 61.9%
45 Ramada Plaza Hotel Fee $10,311,024 61.9%
46 Governors Crossing Outlet Ctr. Fee $8,745,574 62.5%
47 Magnolia Manors 2-Andalusia (VI) Fee 48-54 $1,562,212 57.2%
48 Magnolia Manors 4-Jasper (VI) Fee 47, 49-54 $1,500,811 57.2%
49 Magnolia Manors 7-Valley (VI) Fee 47, 48, 50-54 $1,433,925 57.2%
50 Magnolia Manors 5-Smiths (VI) Fee 47-49, 51-54 $731,311 57.2%
51 Magnolia Manors 1-Jackson (VI) Fee 47-50, 52-54 $675,608 57.2%
52 Magnolia Manors 8-Brewton (VI) Fee 47-51, 53, 54 $662,103 57.2%
53 Magnolia Manors 3-Monroeville (VI) Fee 47-52, 54 $646,912 57.2%
54 Magnolia Manors 6-Alexander City (VI) Fee 47-53 $619,273 57.2%
55 Televideo Fee $8,330,835 68.8%
56 Radisson Woodlands Plaza Hotel Fee 137 $7,603,053 50.7%
57 AFCO Hanger One Air Cargo Complex Leasehold $5,968,255 51.5%
58 Marina View Towers Fee $6,495,498 60.3%
59 Village Park Apartments (8) Fee 156, 164 $6,550,234 69.9%
60 Waikiki MarketPlace (B) (7) Leasehold 61 $4,702,575 55.1%
61 Goldcoast Business Center (B) (7) Leasehold 60 $1,363,767 55.1%
62 Summer Creek Apartments (5) Fee $6,316,837 64.8%
63 Food 4 Less & Arco AM/PM Stores Fee $6,159,643 63.8%
64 Pathmark (Glenolden) Fee $5,705,618 60.7%
65 1630 Connecticut Avenue Fee 25-28, 72 $6,133,815 72.2%
66 Santa Paula West (8) (9) Fee $6,091,335 71.2%
67 Del Prado Mobile Home Park Fee/Leasehold $4,780,859 53.4%
68 Piano Craft Guild Apartments Fee $5,717,930 66.5%
69 Canyon Terrace Apts. Fee 89 $5,520,429 67.3%
70 Woodhill Square Fee $5,598,978 67.9%
71 Guest House Inn (5) Fee $5,155,579 54.8%
72 7979 Old Georgetown Road Fee 25-28, 65 $5,452,643 62.7%
73 Cherry Hill Plaza Fee $5,094,416 64.7%
74 Heritage-Rolling Meadows (VII) Fee 75-78 $1,930,124 65.9%
75 Heritage-Windsor City (VII) Fee 74, 76-78 $1,430,934 65.9%
76 Heritage-Victorian Lakes (VII) Fee 74, 75, 77, 78 $773,684 65.9%
77 Heritage-Hermitage Farms (VII) Fee 74, 75, 76, 78 $366,052 65.9%
78 Heritage-Ramblewood (VII) Fee 74-77 $199,731 65.9%
79 Maywood Village Square Fee $5,084,119 66.0%
80 Upland Country Village Fee $5,020,308 66.5%
81 El Paseo Collection (8) Fee/Leasehold $5,046,040 63.1%
82 Harding Woods MHP Fee $4,716,536 66.4%
83 Highland Crossing Fee $4,598,377 71.8%
84 Best Buy Fee $253,555 3.3%
85 Carriage Trade Center (VIII) (6) Fee 86 $2,689,576 59.8%
86 Washington Square (VIII) (6) Fee 85 $1,255,136 59.8%
87 Efficiency II- Lorene Lodge Fee $4,161,519 52.0%
88 Spring Creek Mobile Home Park Fee $3,892,689 55.6%
89 The Meadows Apts. Fee 69 $4,073,543 69.0%
90 Northpointe Village Center (C) (6) Fee 91 $2,695,501 69.0%
91 Grant Road Shops (C) (6) Fee 90 $1,307,247 69.0%
92 El Paseo Power Center Fee $3,967,065 67.2%
93 Parkwood Apartments Fee 121 $3,623,071 61.9%
94 Heritage Village Apts. (8) Fee 163 $3,428,605 50.4%
95 P.M. Place Stores (5) Fee $3,392,289 53.0%
96 JP Plaza Fee $3,617,534 65.8%
97 Bellam Self Storage Fee $3,607,342 66.8%
98 Sugarland Ridge Fee $3,340,222 55.7%
99 North College Mobile Plaza Fee 140, 141, 172 $3,268,767 56.4%
100 Storage Express Fee $3,311,126 43.2%
101 Victory Plaza Fee $3,517,457 65.1%
102 Greenhaven Executive Park Fee $3,505,610 66.1%
103 Shoneys Inn - Lake Park (IX) Fee 104 $1,704,619 56.6%
104 Shoneys Inn - Valdosta (IX) Fee 103 $1,592,356 56.6%
105 Colorado Springs Corporate Centre Fee $3,449,699 62.7%
106 Bechtel Nevada Corporation Fee $3,081,002 47.4%
107 Country Squire MHP Fee $3,273,704 65.2%
108 Northwest Mini Storage Fee $1,578,918 31.0%
109 Fairmont Apartments Fee $2,998,855 65.2%
110 Springwood Business Center Fee $3,229,946 65.9%
111 1420 Walnut Street Fee 188 $2,905,572 52.8%
112 610-620 Santa Cruz Ave. Fee $2,885,610 57.7%
113 Suburban Lodge of Pineville Fee $2,899,802 50.9%
114 Redwood Marketplace Fee/Leasehold $3,059,901 52.5%
115 Elmwood Office Park Fee $2,993,889 69.6%
116 Orchard Center Leasehold $2,947,271 64.8%
117 Mission MHP Fee $2,604,773 56.9%
118 Zonolite Road Properties Fee $2,874,162 61.9%
119 Braley Bldg. Fee $2,685,122 61.7%
120 Lynnwood East Business Park Fee $2,704,927 67.6%
121 Woodmeadow Apts. Fee 93 $2,629,575 65.7%
122 Wellington Woods Senior Apts. Fee $2,703,217 78.4%
123 Pecan Park Fee $2,602,262 62.0%
124 East West Shopping Center Fee $2,412,511 55.5%
125 Roble Terrace Apartments Fee $2,341,425 57.1%
126 Super 8 Motel/Alpenglo Inn and Conference Center Fee $2,332,736 53.6%
127 Safe Storage Fee $2,287,720 55.5%
128 Steeple Chase Apartments Fee $2,320,213 66.3%
129 Edgemar Fee $2,410,670 49.2%
130 Londonderry Commons Fee $2,449,036 72.0%
131 Mini Warehouse Company Fee $2,246,131 39.7%
132 Walbrook Junction Shopping Fee $2,246,131 59.1%
133 Sandstone Office Building Fee $2,380,962 66.1%
134 Rose Bay Travel Park Fee $2,201,611 56.3%
135 Riverview Mobile Villa Fee $2,336,003 56.2%
136 Plaza de Las Brisas Fee $2,350,061 66.2%
137 Sierra Suites Fee 56 $2,157,588 59.9%
138 901 Tower Fee $2,284,784 65.3%
139 The Cones Apartments Fee $2,304,153 62.3%
140 Royal Oaks (D) Fee 99, 141, 172 $1,437,761 49.8%
141 Country Acres (D) Fee 99, 140, 172 $639,005 49.8%
142 4890 Alameda Street (10) Fee $1,796,074 41.8%
143 Sherwood Forest Mobile Home Fee $1,255,779 20.9%
144 Red Rock Self Storage Fee $2,211,862 58.2%
145 Wilshire Borgata Fee $2,221,094 67.3%
146 American Heritage Office Fee $2,151,072 61.5%
147 California Federal Building Fee $2,112,729 66.0%
148 Simi Valley Regional Center Fee $2,113,080 62.6%
149 Buy for Less Grocery Store Fee $2,109,969 65.9%
150 Holiday Inn Durant Fee $1,888,870 55.6%
151 Best Western Matagorda Fee $143,806 3.6%
152 Kings Inn Apartments Fee $2,058,078 70.0%
153 The Giroux Building Fee $1,891,028 49.8%
154 Nursery Shopping Center Fee $1,898,681 59.3%
155 Fairborn Apartments Fee $1,875,517 60.5%
156 Sunwood Village Apartments (8) Fee 59, 164 $1,921,402 64.0%
157 Kingstowne Mobile Home Park Fee 184 $1,775,959 59.6%
158 Central Self Storage Fee $1,829,740 48.5%
159 75 Old Broadway Fee $1,961,638 64.3%
160 Plantation Acres (5) Fee $1,687,942 59.2%
161 Interpoint Business Park Fee $1,893,371 62.5%
162 Mohawk Drive Corporation Fee $1,884,640 57.1%
163 205 Commerce Center Fee 94 $1,689,329 39.3%
164 Canterbury Commons Apartments (8) Fee 59, 156 $1,792,397 64.0%
165 Valley Village Mobile Home Park Fee $1,614,207 62.1%
166 All American - Palmdale Fee $1,541,383 65.6%
167 Dumfries Self Storage Fee $1,490,817 55.8%
168 Hyundai Plaza Fee $1,578,104 61.9%
169 Tregoney East Apartments Fee $1,429,179 51.0%
170 157 Pleasant Street Fee $1,163,355 33.2%
171 Days Inn NY Fee $1,433,653 62.3%
172 Westfield MHP Fee 99, 140, 141 $83,300 3.5%
173 14150 Vine Fee 177 $1,464,886 57.7%
174 Donner Creek MHP Fee $1,415,451 58.2%
175 Sawmill Village Shopping Fee $1,289,446 58.6%
176 T & T Plaza Fee $1,375,705 68.8%
177 1004 Taft Fee 173 $1,369,645 57.1%
178 Bensen Estates Fee $1,316,757 65.5%
179 Rancho Mini Storage Fee $1,223,710 64.4%
180 Metro Square Fee $1,282,600 67.5%
181 Machado Towers Fee $1,278,037 59.4%
182 Berkeley Self Storage, LTD. Fee $1,157,991 35.4%
183 Jasper Mobile Home Park Fee $1,150,931 46.0%
184 Spring Valley MHP & Apts. Fee 157 $1,164,908 57.7%
185 Ponderosa MHP Fee $1,155,415 64.2%
186 Chesapeake Self Storage Fee $1,013,873 30.8%
187 Thornydale Self Storage Fee $999,937 47.6%
188 St. Charles Court Fee 111 $826,216 48.6%
189 Tollhouse Crossings Fee $980,829 64.3%
190 Blue Topaz Apartments Fee $953,745 59.6%
191 Southend Self Storage Fee $790,631 60.8%
192 Creekside Mobile Home Park Fee $882,938 55.9%
193 Casa Monte Vista Apartments Fee $883,610 67.5%
194 Moreno Valley Mini Self Storage Fee $701,824 56.6%
TOTAL/WEIGHTED AVERAGE $534,887,792 60.1%
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PROPERTY INFORMATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN ZIP
NO. PROPERTY NAME (1) ADDRESS (11) CITY STATE CODE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 D.A.M. Maple Manor Mobile Home Park (A) (6) Oak Street Taylor PA 18517
2 D.A.M. Valley View - Danboro (A) (6) Route 611 Danboro PA 18916
3 D.A.M. Brookside Village MHP (A) (6) (I) Road #2 Berwick PA 18603
4 D.A.M. Pleasant View MHP (A) (6) (I) 6020 Fort Jenkins Park Bloomsburg PA 17812
5 D.A.M. Huguenot Estate East MHP (A) (6) Taylor Rd. Port Jervis NY 12771
6 D.A.M. Valley View- Honey Brook (A) (6) (II) Route 322 Honey Brook PA 19344
7 D.A.M. Green Acres-Honey Brook (A) (6) (II) Erica Circle Honey Brook PA 19344
8 D.A.M. Moosic Heights MHP (A) (6) 1st Street Avoca PA 18641
9 D.A.M. Frieden Manor Mobile Home Park (A) (6) Route 443 Schuykill Haven PA 17972
10 D.A.M. Suburban Estates MHP (A) (6) SR 3099 Greensburg PA 19310
11 D.A.M. Sunny Acres MHP (A) (6) Road #2 Somerset PA 15501
12 D.A.M. Sunneyside MHP (A) (6) 2901 Ridge Park Road Norristown PA 19403
13 D.A.M. Valley View - Ephrata (A) (6) 75 Snyders Lane Ephrata PA 17522
14 D.A.M. Carsons Mobile Home Park (A) (6) 649 North Franklin Street Chambersburg PA 17201
15 D.A.M. Pine Haven Mobile Home Park (A) (6) Oswego Road Blossvale NY 13308
16 D.A.M. Crestview Mobile Home Park (A) (6) 100 Wolcott Hollow Road Athens PA 18840
17 D.A.M. Collingwood MHP (A) (6) 358 Chambers Road Catlin NY 14845
18 D.A.M. Beaver Run Mobile Home Park (A) (6) Beaver Neck Village Road Linkwood MD 21835
19 D.A.M. Chelsea MHP (A) (6) 924 North Elmira Street Sayre PA 18840
20 D.A.M. Oakwood Lakes MHP (A) (6) Mile Road Tunkhannock PA 18657
21 D.A.M. Gregory Courts MHP (A) (6) Road #3 Honey Brook PA 19344
22 D.A.M. Mountaintop Mobile Home Park (A) (6) 2018 Division Highway Narvon PA 17555
23 D.A.M. Monroe Valley MHP (A) (6) Road #1 Jonestown PA 17038
24 D.A.M. Green Acres - Chambersburg (A) (6) Route 528 Chambersburg PA 17201
25 Jemal-The Car Barn (III) (6) 3600 M Street Washington DC 20007
26 Jemal-801 North Capitol (III) (7) (6) 801 North Capitol Street, NE Washington DC 20002
27 Jemal-Laurel Lakes Corp. Center (III) (7) (6) 8003-8043 Laurel Lakes Court Laurel MD 20707
28 Jemal-Kalorama GuestHouse (III) (6) 1852, 1854, 1859, 1831
Mintwood Place Washington DC 20008/20009
29 Quail Oaks Apartments (5) (8) 4747 West Waters Avenue Tampa FL 33614
30 Crown Colony Office 400 Crown Colony Drive Quincy MA 02169
31 Suburban-3-Pressley (IV) (6) 540 Pressley Road Charlotte NC 28217
32 Suburban-3-Virginia Beach (IV) (6) 416 Independence Blvd. Virginia Beach VA 23452
33 Suburban-3-Fairfield (IV) (6) 6785 Fairfield Business Drive Cincinnati OH 45014
34 Suburban-3-Jonesboro (IV) (6) 7021 Tara Boulevard Jonesboro GA 30236
35 Suburban-3-Norcross (IV) (6) 6067 Buford Highway Norcross GA 30071
36 Suburban-3-Fulton Industrial (IV) (6) 660 Interchange Drive, SW Atlanta GA 30336
37 Suburban-2-UNC Charlotte (V) (6) 110 Rocky River Road Charlotte NC 28213
38 Suburban-2-Lilburn (V) (6) 4142 Stone Mountain Highway Lilburn GA 30047
39 Suburban-2-Preston Hwy. (V) (6) 7121 Preston Highway Louisville KY 40219
40 Suburban-2-Chesapeake (V) (6) 2150 Old Greenbrier Road Chesapeake VA 23320
41 Suburban-2-Taylors (V) (6) 2504 Wade Hampton Blvd. Greenville SC 29615
42 Suburban-2-Mableton (V) (6) 600 Lions Club Drive Mableton GA 30126
43 Midtown Shopping Center 4725 West Venice Blvd. Los Angeles CA 90019
44 The Lakes (8) 1000/1050 Lakes Drive West Covina CA 91790
45 Ramada Plaza Hotel 2151 Hospitality Circle South San Diego CA 92108
46 Governors Crossing Outlet Ctr. 206 Collier Drive Sevierville TN 37862
47 Magnolia Manors 2-Andalusia (VI) 660 Moore Road Andalusia AL 36420
48 Magnolia Manors 4-Jasper (VI) 811 20th Ave. East & 2004
Viking Drive Jasper AL 35501
49 Magnolia Manors 7-Valley (VI) 7200 Fairfax Bypass Valley AL 36854
50 Magnolia Manors 5-Smiths (VI) 3020 Lee Road, #430 Smiths AL 36877
51 Magnolia Manors 1-Jackson (VI) 517 Commerce St. Jackson AL 36545
52 Magnolia Manors 8-Brewton (VI) 205 Pineview Street Brewton AL 36426
53 Magnolia Manors 3-Monroeville (VI) 600 Highway 21 Bypass Monroeville AL 36460
54 Magnolia Manors 6-Alexander City (VI) 2712 Washington Street Alexander City AL 35010
55 Televideo 2345 Harris Way San Jose CA 95131
56 Radisson Woodlands Plaza Hotel 1175 Route 66 Flagstaff AZ 86001
57 AFCO Hanger One Air Cargo Complex 5701,5791,5793-5795 West
Imperial Highway Los Angeles CA 90045
58 Marina View Towers 1100 Pacific Marina Alameda CA 94501
59 Village Park Apartments (8) 8701 Hammerly Boulevard Houston TX 77080
60 Waikiki MarketPlace (B) (7) 2310 Kuhio Ave. Honolulu HI 96815
61 Goldcoast Business Center (B) (7) 74-5484, 74-5543, 74-5483 Kaiwi
St., 74-5583 Pawai St. Kailua-Kona HI 96740
62 Summer Creek Apartments (5) 640 W. Lincoln Avenue Escondido CA 92026
63 Food 4 Less & Arco AM/PM Stores 1001 & 1299 Artesia Blvd. Gardena CA 90248
64 Pathmark (Glenolden) 140 N. MacDade Blvd. Glenolden PA 19036
65 1630 Connecticut Avenue 1630 Connecticut Avenue NW Washington DC 20009
66 Santa Paula West (8) (9) 15433 Telegraph Road Santa Paula CA 93060
67 Del Prado Mobile Home Park 12861 West Street Garden Grove CA 92640
68 Piano Craft Guild Apartments 791 Tremont Street Boston MA 02118
69 Canyon Terrace Apts. 26880 N. Seco Rd Saugus CA 91350
70 Woodhill Square 1100 Dallas Dr. Denton TX 76206
71 Guest House Inn (5) 2250 Pelican Drive Norcross GA 30071
72 7979 Old Georgetown Road 7979 Old Georgetown Bethesda MD 20814
73 Cherry Hill Plaza 1415 Route 70 East Cherry Hill NJ 08034
74 Heritage-Rolling Meadows (VII) 3941 Charleston Hwy#169 West Columbia SC 29172
75 Heritage-Windsor City (VII) 211-A Sussex Drive Sumter SC 29150
76 Heritage-Victorian Lakes (VII) 4801 Sunset Blvd. Lexington SC 29072
77 Heritage-Hermitage Farms (VII) 175 Precipice Road Camden SC 29020
78 Heritage-Ramblewood (VII) 12002 Highway 64 West Barnwell SC 29812
79 Maywood Village Square 4401,4457 & 4487 Slauson Avenue Maywood CA 90270
80 Upland Country Village 710-870 E. Foothill Blvd. Upland CA 91786
81 El Paseo Collection (8) 73-061 to 73-081 El Paseo Drive Palm Desert CA 92260
82 Harding Woods MHP 187 Harding Highway Pittsgrove NJ 08318
83 Highland Crossing 2078-2082 & 2110-2120 Ford Pkwy St. Paul MN 55116
84 Best Buy 2300 N. Rose Ave. Oxnard CA 93030
85 Carriage Trade Center (VIII) (6) 1426-1496 Broadway Center Placerville CA 95667
86 Washington Square (VIII) (6) 699 Washington Boulevard Roseville CA 95678
87 Efficiency II- Lorene Lodge 500 Lorene Drive Marietta GA 30060
88 Spring Creek Mobile Home Park 23 Holly Lane Plano TX 75074
89 The Meadows Apts. 3839 Amanda St West Covina CA 91792
90 Northpointe Village Center (C) (6) 6741-6781 N. Thornydale Road Marana AZ 85741
91 Grant Road Shops (C) (6) 4861 East Grant Road Tucson AZ 85712
92 El Paseo Power Center 2451 Rockwood Avenue Calexico CA 92231
93 Parkwood Apartments 400 N. Irby Lane Irving TX 75061
94 Heritage Village Apts. (8) 2555 Willakenzie Road Eugene OR 97401
95 P.M. Place Stores (5) 802 North 41st Street Bethany MO 64424
96 JP Plaza 315 Centre Street Jamaica Plain MA 02130
97 Bellam Self Storage 24 Bellam Blvd. San Rafael CA 94901
98 Sugarland Ridge 1551 Sugarland Dr. Sheridan WY 82801
99 North College Mobile Plaza 1601 North College Avenue Fort Collins CO 80524
100 Storage Express 7400 West Oakland Park Blvd. Lauderhill FL 33319
101 Victory Plaza 1555-85 Sepulveda Boulevard Los Angeles CA 90049
102 Greenhaven Executive Park 7311 Greenhaven Drive Sacramento CA 95831
103 Shoneys Inn - Lake Park (IX) 1075 Lakes Blvd. Lake Park GA 31636
104 Shoneys Inn - Valdosta (IX) 1828 W. Hill Ave. Valdosta GA 31601
105 Colorado Springs Corporate Centre 6760 Corporate Drive Colorado Springs CO 80919
106 Bechtel Nevada Corporation 182 East Gate Road Los Alamos NM 87544
107 Country Squire MHP 5720 Oak Hill Drive Sacramento CA 95841
108 Northwest Mini Storage 5275 W. 4th Street Reno NV 89523
109 Fairmont Apartments 2601 Nonesuch Road Abilene TX 79606
110 Springwood Business Center 13581 Pond Springs Road Austin TX 78729
111 1420 Walnut Street 1420-24 Walnut Street Philadelphia PA 19103
112 610-620 Santa Cruz Ave. 610-620 Santa Cruz Avenue Menlo Park CA 94025
113 Suburban Lodge of Pineville Feldfarm Lane Pineville NC 28134
114 Redwood Marketplace 700 - 800 Gravenstein Hwy Sebastopol, CA 95472
115 Elmwood Office Park 201 Evans Road Harahan LA 70123
116 Orchard Center 333-363 East Tenth Street Gilroy CA 95020
117 Mission MHP 12400 Rojas El Paso TX 79927
118 Zonolite Road Properties 1123 Zonolite Road Atlanta GA 30306
119 Braley Bldg. 35 S. Raymond Avenue Pasadena CA 91105
120 Lynnwood East Business Park 2027 196th Street S.W. Lynnwood WA 98038
121 Woodmeadow Apts. 11321 Woodmeadow Drive Dallas TX 75228
122 Wellington Woods Senior Apts. 4550 Breton Ct. Kentwood MI 49508
123 Pecan Park 5701 Johnny Morris Road Austin TX 78724
124 East West Shopping Center 3300-3332 W. 8th St., 800-830
S. Irolo St., 817 S. Normandie Los Angeles CA 90005
125 Roble Terrace Apartments 66 Fairmont Ave. Oakland CA 94610
126 Super 8 Motel/Alpenglo Inn and Conference Center 78655 US Hwy 40 Winter Park CO 80482
127 Safe Storage 2615 E. 12th Oakland CA 94601
128 Steeple Chase Apartments 125 S.W. 74th Street Oklahoma City OK 73139
129 Edgemar 2415-2449 Main Street Santa Monica CA 90405
130 Londonderry Commons 44 Nashua Road Londonderry NH 03058
131 Mini Warehouse Company 2229 W. Divison Street Arlington TX 76012
132 Walbrook Junction Shopping 3411-45 Clifton Avenue Baltimore MD 21216
133 Sandstone Office Building 1543 7th Street Santa Monica CA 90401
134 Rose Bay Travel Park 5200 South Nova Road Port Orange FL 32127
135 Riverview Mobile Villa 8600 US Hwy 1 Micco FL 32976
136 Plaza de Las Brisas 9819-9889 Foothill Blvd. Rancho Cucamonga CA 91730
137 Sierra Suites 391 E Fry Blvd. Sierra Vista AZ 85635
138 901 Tower 901 Tower Way Bakersfield CA 92201
139 The Cones Apartments 135 SW 116th St., 11623, 11603,
11635 1st Ave. S. Seattle WA 98146
140 Royal Oaks (D) 48015 Country Road 67 Chesterfield IN 46017
141 Country Acres (D) 9500 N. Wheeling Ave Muncie IN 47304
142 4890 Alameda Street (10) 4890 Alameda Street Vernon CA 90058
143 Sherwood Forest Mobile Home Linden Street Exeter NH 03833
144 Red Rock Self Storage 3250 North Buffalo Las Vegas NV 89129
145 Wilshire Borgata 12222 Wilshire Blvd. Los Angeles CA 90025
146 American Heritage Office 523 W. Heritage Dr., 1513 N.
Hillfield Rd. Layton UT 84041
147 California Federal Building 10680 West Pico Boulevard Los Angeles CA 90064
148 Simi Valley Regional Center 2955-2975 Cochran Street Simi Valley CA 93065
149 Buy for Less Grocery Store 3701 N. MacArthur Blvd. Warr Acres OK 73122
150 Holiday Inn Durant 2121 West Main Durant OK 74701
151 Best Western Matagorda 407 7th Street Bay City TX 77404
152 Kings Inn Apartments 4201 49th Street North St. Petersburg FL 33709
153 The Giroux Building 1833 Massachusetts Avenue Lexington MA 02173
154 Nursery Shopping Center 4041 B. Blackstone Avenue Fresno CA 93704
155 Fairborn Apartments 300 June Drive Fairborn OH 45324
156 Sunwood Village Apartments (8) 11715 South Glen Drive Houston TX 77099
157 Kingstowne Mobile Home Park South Route 28 Epsom NH 03234
158 Central Self Storage 6100 State Farm Drive Rohnert Park CA 94928
159 75 Old Broadway 75 Old Broadway East North Haven CT 06473
160 Plantation Acres (5) 3962 Deans Bridge Road Augusta GA 30815
161 Interpoint Business Park 11220 Rojas Dr. El Paso TX 79935
162 Mohawk Drive Corporation 25 Mohawk Drive Leominster MA 01453
163 205 Commerce Center 11052 - 11600 SE Mill Plain
Boulevard Vancouver WA 98684
164 Canterbury Commons Apartments (8) 166 State Road 27 Raymond NH 03077
165 Valley Village Mobile Home Park 731 Grand Avenue Platteville CO 80651
166 All American - Palmdale 38910 30th Street East Palmdale CA 93550
167 Dumfries Self Storage 113 Possum Point Road Dumfries VA 22026
168 Hyundai Plaza 1727-1805 South 316th Street Federal Way WA 98003
169 Tregoney East Apartments 2566 Whitesmill Road Decatur GA 30034
170 157 Pleasant Street 157 Pleasant Street Malden MA 02148
171 Days Inn NY 167 Nott Terrace Schenectady NY 12308
172 Westfield MHP 520 Gulf Bank Road Houston TX 77037
173 14150 Vine 14150 Vine Place Cerritos CA 90703
174 Donner Creek MHP 19020/19050 West River Street Truckee CA 96160
175 Sawmill Village Shopping 404 and 406 Route 70 East Cherry Hill NJ 08034
176 T & T Plaza NW Corner of Tatum Blvd &
Thunderbird Rd Phoenix AZ 85032
177 1004 Taft 1004 Taft Ave. Orange CA 92665
178 Bensen Estates 16818 108th Ave. SE Renton WA 98055
179 Rancho Mini Storage 1661 N. Rancho Drive Las Vegas NV 89106
180 Metro Square 2855 West Cactus Road Phoenix AZ 85029
181 Machado Towers 11730 Washington Blvd Culver City CA 90230
182 Berkeley Self Storage, LTD. 2235 San Pablo Avenue Berkeley CA 94702
183 Jasper Mobile Home Park 2397 North Illinois Street Decatur IL 62526
184 Spring Valley MHP & Apts. 1001 Spring Valley Drive Hanahan SC 29406
185 Ponderosa MHP 21850 Belleview Sonora CA 95370
186 Chesapeake Self Storage 3000 Eastern Blvd. Baltimore MD 21220
187 Thornydale Self Storage 6955 North Thornydale Street Marana AZ 85741
188 St. Charles Court 300 Arch Street Philadelphia PA 19106
189 Tollhouse Crossings SWC Herndon Ave. & Tollhouse
Road Clovis CA 93611
190 Blue Topaz Apartments 14355 32nd Avenue NE Seattle WA 98125
191 Southend Self Storage 3500 Sweetwater Avenue Lake Havasu City AZ 86406
192 Creekside Mobile Home Park 2519 NE 205th Avenue Fairview OR 97024
193 Casa Monte Vista Apartments 120 West Dobbins Road Phoenix AZ 85041
194 Moreno Valley Mini Self Storage 12411 Strip Drive Moreno Valley CA 92553
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PROPERTY INFORMATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
LOAN SUB-PROPERTY UNITS YEAR YEAR
NO. PROPERTY TYPE TYPE OR NOF BUILT RENOVATED
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Manufactured Housing Community Manufactured Housing Community 317 1970 NAP
2 Manufactured Housing Community Manufactured Housing Community 231 1956 NAP
3 Manufactured Housing Community Manufactured Housing Community 171 1980 NAP
4 Manufactured Housing Community Manufactured Housing Community 108 1968 NAP
5 Manufactured Housing Community Manufactured Housing Community 166 1978 NAP
6 Manufactured Housing Community Manufactured Housing Community 120 1966 NAP
7 Manufactured Housing Community Manufactured Housing Community 24 1985 NAP
8 Manufactured Housing Community Manufactured Housing Community 153 1971 NAP
9 Manufactured Housing Community Manufactured Housing Community 192 1960 NAP
10 Manufactured Housing Community Manufactured Housing Community 203 1973 NAP
11 Manufactured Housing Community Manufactured Housing Community 184 1965 NAP
12 Manufactured Housing Community Manufactured Housing Community 74 1967 NAP
13 Manufactured Housing Community Manufactured Housing Community 107 1968 NAP
14 Manufactured Housing Community Manufactured Housing Community 132 1962 NAP
15 Manufactured Housing Community Manufactured Housing Community 133 1959 NAP
16 Manufactured Housing Community Manufactured Housing Community 99 1964 NAP
17 Manufactured Housing Community Manufactured Housing Community 102 1970 NAP
18 Manufactured Housing Community Manufactured Housing Community 100 1973 1997
19 Manufactured Housing Community Manufactured Housing Community 86 1968 NAP
20 Manufactured Housing Community Manufactured Housing Community 79 1972 NAP
21 Manufactured Housing Community Manufactured Housing Community 38 1966 NAP
22 Manufactured Housing Community Manufactured Housing Community 39 1973 NAP
23 Manufactured Housing Community Manufactured Housing Community 44 1970 NAP
24 Manufactured Housing Community Manufactured Housing Community 24 1978 NAP
25 Office Suburban 85,838 1895 1998
26 Office Urban 82,334 1968 1997/98
27 Mixed Use Office/Warehouse 70,162 1987 NAP
28 Hospitality Limited Service 48 1895 NAP
29 Multifamily Garden 404 1985 NAP
30 Office Suburban 125,000 1988 NAP
31 Hospitality Extended Stay 132 1997 NAP
32 Hospitality Extended Stay 138 1997 NAP
33 Hospitality Extended Stay 131 1997 NAP
34 Hospitality Extended Stay 138 1996 NAP
35 Hospitality Extended Stay 128 1989 NAP
36 Hospitality Extended Stay 108 1988 NAP
37 Hospitality Extended Stay 138 1997 NAP
38 Hospitality Extended Stay 132 1995 NAP
39 Hospitality Extended Stay 150 1996 NAP
40 Hospitality Extended Stay 132 1997 NAP
41 Hospitality Extended Stay 126 1996 NAP
42 Hospitality Extended Stay 79 1987 1994
43 Retail Anchored 159,933 1965 1995
44 Office Suburban 170,574 1989/90 NAP
45 Hospitality Full Service 182 1969 1997
46 Retail Outlet Center 135,033 1998 NAP
47 Senior Housing Assisted Living 32 1996 NAP
48 Senior Housing Assisted Living 32 1998 NAP
49 Senior Housing Assisted Living 32 1996 NAP
50 Senior Housing Assisted Living 16 1996 NAP
51 Senior Housing Assisted Living 16 1997 NAP
52 Senior Housing Assisted Living 16 1996 NAP
53 Senior Housing Assisted Living 16 1996 NAP
54 Senior Housing Assisted Living 16 1996 NAP
55 Industrial Light Industrial 69,630 1982 1994
56 Hospitality Full Service 183 1990/93 NAP
57 Industrial Bulk Warehouse 264,420 1929/90 1991
58 Multifamily High-Rise 84 1965 NAP
59 Multifamily Garden 418 1976 1995
60 Mixed Use Retail/ Office/ Time Share 31,810 1959 NAP
61 Mixed Use Office/Industrial/Retail 105,198 1974/75/77 NAP
62 Multifamily Garden 156 1986 NAP
63 Retail Anchored 57,200 1996/97 NAP
64 Retail Anchored 105,000 1983 NAP
65 Office Suburban 38,595 1980 NAP
66 Manufactured Housing Community Manufactured Housing Community 195 1969 NAP
67 Manufactured Housing Community Manufactured Housing Community 169 1969 NAP
68 Mixed Use Multifamily/Retail 174 1853 1972-74
69 Multifamily Garden 130 1984 NAP
70 Mixed Use Office/Retail 117,200 1985 NAP
71 Hospitality Extended Stay 276 1995 NAP
72 Office Suburban 52,063 1966 1995-99
73 Office Suburban 117,179 1970 NAP
74 Manufactured Housing Community Manufactured Housing Community 291 1971 NAP
75 Manufactured Housing Community Manufactured Housing Community 271 1971 NAP
76 Manufactured Housing Community Manufactured Housing Community 151 1970 NAP
77 Manufactured Housing Community Manufactured Housing Community 100 1971 NAP
78 Manufactured Housing Community Manufactured Housing Community 85 1973/87 NAP
79 Retail Unanchored 48,324 1992 NAP
80 Retail Unanchored 47,479 1983 NAP
81 Mixed Use Office/Retail 27,877 1973 1994
82 Manufactured Housing Community Manufactured Housing Community 319 1975 1989
83 Retail Anchored 44,115 1994 NAP
84 Retail Single Tenant 48,168 1995 NAP
85 Retail Anchored 70,886 1968-73 NAP
86 Retail Unanchored 26,684 1988 NAP
87 Hospitality Extended Stay 278 1982 1989
88 Manufactured Housing Community Manufactured Housing Community 385 1965-71 NAP
89 Multifamily Garden 104 1984 NAP
90 Retail Unanchored 43,770 1984/1985 NAP
91 Retail Unanchored 12,018 1995 NAP
92 Retail Shadow Anchored 64,300 1994 NAP
93 Multifamily Garden 280 1972 NAP
94 Multifamily Garden 176 1971 1997/98
95 Mixed Use Office/Warehouse/Retail 251,329 1971/74 1977/98
96 Retail Shadow Anchored 43,087 1952/91 NAP
97 Self Storage Self Storage 41,875 1963 1982
98 Senior Housing Independent & Assisted Living 67 1994 1997
99 Manufactured Housing Community Manufactured Housing Community 320 1962/71/80 NAP
100 Self Storage Self Storage 62,714 1996/97/98 NAP
101 Retail Unanchored 41,596 1988 NAP
102 Office Suburban 52,985 1983 NAP
103 Hospitality Limited Service 120 1985 NAP
104 Hospitality Limited Service 96 1986 NAP
105 Office Suburban 45,278 1984 NAP
106 Office Suburban 50,000 1987 NAP
107 Manufactured Housing Community Manufactured Housing Community 175 1964 NAP
108 Self Storage Self Storage 137,686 1985 1988/92
109 Multifamily Garden 274 1978 NAP
110 Mixed Use Industrial/Office 76,000 1985 NAP
111 Office Urban 122,933 1927 1996
112 Retail Unanchored 19,309 1965 1991
113 Hospitality Extended Stay 137 1997 NAP
114 Retail Anchored 62,122 1985 NAP
115 Office Garden 71,746 1981 1993
116 Retail Unanchored 36,044 1985 NAP
117 Manufactured Housing Community Manufactured Housing Community 286 1987 NAP
118 Office Suburban 58,243 1953 1996-98
119 Office Suburban 45,451 1906 1994
120 Mixed Use Office/Warehouse/Retail 59,145 1986 NAP
121 Multifamily Garden 216 1971 1996
122 Multifamily Senior Housing 90 1994 NAP
123 Manufactured Housing Community Manufactured Housing Community 207 1987 NAP
124 Retail Unanchored 28,205 1941/68 NAP
125 Multifamily Low-Rise 63 1968 NAP
126 Hospitality Limited Service 60 1995 NAP
127 Self Storage Self Storage 54,245 1974 NAP
128 Multifamily Garden 224 1970 1994/95
129 Retail Unanchored 32,635 1908/28/87 1987
130 Retail Unanchored 51,212 1985 NAP
131 Self Storage Self Storage 162,049 1960 NAP
132 Retail Anchored 47,033 1974 NAP
133 Office Suburban 14,750 1988 NAP
134 Manufactured Housing Community Manufactured Housing Community 353 1973 NAP
135 Manufactured Housing Community Manufactured Housing Community 215 1965 N/A
136 Retail Unanchored 34,697 1990 NAP
137 Hospitality Limited Service 100 1985 NAP
138 Office Suburban 25,567 1983 NAP
139 Multifamily Garden 98 1964/84 NAP
140 Manufactured Housing Community Manufactured Housing Community 251 1955/85/95 NAP
141 Manufactured Housing Community Manufactured Housing Community 97 1970 NAP
142 Industrial Warehouse 119,052 1941 NAP
143 Manufactured Housing Community Manufactured Housing Community 254 1972 1994
144 Self Storage Self Storage 74,445 1996 NAP
145 Mixed Use Office/Retail 9,786 1997 NAP
146 Office Garden 29,207 1987/95 1995
147 Office Suburban 23,665 1964 NAP
148 Retail Unanchored 40,548 1989 NAP
149 Retail Single Tenant-Anchored 57,000 1987 NAP
150 Hospitality Limited Service 82 1968 NAP
151 Hospitality Full Service 120 1981 1992-96
152 Multifamily Garden 90 1983 NAP
153 Retail Unanchored 16,620 1972 NAP
154 Retail Anchored 37,440 1979 NAP
155 Multifamily Garden 177 1944 NAP
156 Multifamily Garden 118 1982 NAP
157 Manufactured Housing Community Manufactured Housing Community 134 1968/69 NAP
158 Self Storage Self Storage 80,421 1997 NAP
159 Industrial Bulk Warehouse 98,482 1960 1998
160 Manufactured Housing Community Manufactured Housing Community 200 1973 1996
161 Industrial Warehouse 86,400 1981 NAP
162 Industrial Light Industrial 107,811 1967/68 NAP
163 Retail Unanchored 37,214 1988 NAP
164 Multifamily Garden 78 1975/85 1995
165 Manufactured Housing Community Manufactured Housing Community 153 1966 NAP
166 Self Storage Self Storage 66,615 1985 NAP
167 Self Storage Self Storage 47,950 1989/90 NAP
168 Retail Unanchored 23,869 1994 NAP
169 Multifamily Garden 107 1971 NAP
170 Mixed Use Multifamily/Retail 46/9,100 1910 1981
171 Hospitality Limited Service 68 1973 1996/98
172 Mixed Use Manufactured Housing Community/Retail 249/9,100 1982 NAP
173 Office Suburban 24,188 1983 NAP
174 Manufactured Housing Community Manufactured Housing Community 95 1965 NAP
175 Retail Unanchored 20,964 1968 NAP
176 Retail Unanchored 16,015 1983 NAP
177 Office Suburban 21,696 1986/87 NAP
178 Multifamily Garden 42 1988 NAP
179 Self Storage Self Storage 35,022 1988 NAP
180 Retail Unanchored 27,556 1979 1990
181 Multifamily Low-Rise 38 1964 NAP
182 Self Storage Self Storage 36,196 1986 NAP
183 Manufactured Housing Community Manufactured Housing Community 265 1961 1964
184 Mixed Use Manufactured Housing Community/Multifamily 186 1972 NAP
185 Manufactured Housing Community Manufactured Housing Community 60 1974 NAP
186 Self Storage Self Storage 64,925 1990 NAP
187 Self Storage Self Storage 49,885 1996 NAP
188 Mixed Use Multifamily/Retail 35/4,600 1898 1996
189 Retail Unanchored 12,020 1996 NAP
190 Multifamily Garden 24 1968 NAP
191 Self Storage Self Storage 68,786 1995 1997
192 Manufactured Housing Community Manufactured Housing Community 30 1997 NAP
193 Multifamily Garden 45 1985 NAP
194 Self Storage Self Storage 41,475 1984 NAP
</TABLE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PROPERTY OPERATING INFORMATION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
LOAN UNDERWRITABLE MONTHLY APPRAISED
NO. PROPERTY NAME (1) CASH FLOW (12) PAYMENT DSCR(2) VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 D.A.M. Maple Manor Mobile Home Park (A) (6) $502,755 $25,912 1.67 $5,100,000
2 D.A.M. Valley View - Danboro (A) (6) $466,641 $21,847 1.67 $4,300,000
3 D.A.M. Brookside Village MHP (A) (6) (I) $219,367 $12,194 1.67 $2,400,000
4 D.A.M. Pleasant View MHP (A) (6) (I) $149,568 $7,113 1.67 $1,400,000
5 D.A.M. Huguenot Estate East MHP (A) (6) $289,086 $13,684 1.67 $2,900,000
6 D.A.M. Valley View- Honey Brook (A) (6) (II) $258,053 $10,162 1.67 $2,000,000
7 D.A.M. Green Acres-Honey Brook (A) (6) (II) $0 $2,947 1.67 $580,000
8 D.A.M. Moosic Heights MHP (A) (6) $243,760 $13,041 1.67 $2,700,000
9 D.A.M. Frieden Manor Mobile Home Park (A) (6) $264,841 $12,702 1.67 $2,500,000
10 D.A.M. Suburban Estates MHP (A) (6) $256,302 $11,686 1.67 $2,300,000
11 D.A.M. Sunny Acres MHP (A) (6) $214,428 $10,670 1.67 $2,100,000
12 D.A.M. Sunneyside MHP (A) (6) $212,723 $10,162 1.67 $2,000,000
13 D.A.M. Valley View - Ephrata (A) (6) $154,629 $7,282 1.67 $1,600,000
14 D.A.M. Carsons Mobile Home Park (A) (6) $147,052 $6,605 1.67 $1,300,000
15 D.A.M. Pine Haven Mobile Home Park (A) (6) $109,393 $6,605 1.67 $1,300,000
16 D.A.M. Crestview Mobile Home Park (A) (6) $107,249 $5,419 1.67 $1,200,000
17 D.A.M. Collingwood MHP (A) (6) $97,739 $4,708 1.67 $1,000,000
18 D.A.M. Beaver Run Mobile Home Park (A) (6) $92,081 $4,302 1.67 $850,000
19 D.A.M. Chelsea MHP (A) (6) $66,629 $4,268 1.67 $900,000
20 D.A.M. Oakwood Lakes MHP (A) (6) $90,342 $4,234 1.67 $835,000
21 D.A.M. Gregory Courts MHP (A) (6) $72,882 $3,895 1.67 $770,000
22 D.A.M. Mountaintop Mobile Home Park (A) (6) $62,319 $2,710 1.67 $600,000
23 D.A.M. Monroe Valley MHP (A) (6) $18,815 $1,897 1.67 $460,000
24 D.A.M. Green Acres - Chambersburg (A) (6) $20,021 $1,219 1.67 $240,000
25 Jemal-The Car Barn (III) (6) $1,428,164 $92,954 1.27 $17,300,000
26 Jemal-801 North Capitol (III) (7) (6) $1,268,485 $82,746 1.27 $13,600,000
27 Jemal-Laurel Lakes Corp. Center (III) (7) (6) $350,592 $27,582 1.27 $4,400,000
28 Jemal-Kalorama GuestHouse (III) (6) $122,944 $10,197 1.27 $1,800,000
29 Quail Oaks Apartments (5) (8) $2,340,120 $149,482 1.30 $28,500,000
30 Crown Colony Office $1,985,422 $135,402 1.22 $25,000,000
31 Suburban-3-Pressley (IV) (6) $472,520 $26,610 1.43 $4,900,000
32 Suburban-3-Virginia Beach (IV) (6) $416,373 $26,019 1.43 $4,825,000
33 Suburban-3-Fairfield (IV) (6) $368,285 $22,077 1.43 $5,375,000
34 Suburban-3-Jonesboro (IV) (6) $368,338 $21,091 1.43 $4,600,000
35 Suburban-3-Norcross (IV) (6) $318,976 $17,346 1.43 $3,700,000
36 Suburban-3-Fulton Industrial (IV) (6) $165,031 $9,698 1.43 $2,975,000
37 Suburban-2-UNC Charlotte (V) (6) $501,355 $28,384 1.48 $5,500,000
38 Suburban-2-Lilburn (V) (6) $426,130 $24,442 1.48 $4,825,000
39 Suburban-2-Preston Hwy. (V) (6) $411,713 $22,865 1.48 $5,400,000
40 Suburban-2-Chesapeake (V) (6) $358,124 $20,106 1.48 $5,200,000
41 Suburban-2-Taylors (V) (6) $333,028 $18,529 1.48 $3,750,000
42 Suburban-2-Mableton (V) (6) $138,754 $7,885 1.48 $2,150,000
43 Midtown Shopping Center $1,498,157 $100,879 1.24 $17,500,000
44 The Lakes (8) $1,434,213 $93,188 1.28 $18,500,000
45 Ramada Plaza Hotel $1,679,842 $99,064 1.41 $16,650,000
46 Governors Crossing Outlet Ctr. $1,107,082 $71,175 1.30 $14,000,000
47 Magnolia Manors 2-Andalusia (VI) $259,601 $14,905 1.41 $2,650,000
48 Magnolia Manors 4-Jasper (VI) $254,535 $14,319 1.41 $2,600,000
49 Magnolia Manors 7-Valley (VI) $227,570 $13,681 1.41 $2,500,000
50 Magnolia Manors 5-Smiths (VI) $115,712 $6,977 1.41 $1,200,000
51 Magnolia Manors 1-Jackson (VI) $101,491 $6,446 1.41 $1,250,000
52 Magnolia Manors 8-Brewton (VI) $100,338 $6,317 1.41 $1,100,000
53 Magnolia Manors 3-Monroeville (VI) $99,094 $6,172 1.41 $1,200,000
54 Magnolia Manors 6-Alexander City (VI) $102,340 $5,908 1.41 $1,200,000
55 Televideo $1,034,208 $67,800 1.27 $12,100,000
56 Radisson Woodlands Plaza Hotel $1,093,356 $68,183 1.34 $15,000,000
57 AFCO Hanger One Air Cargo Complex $1,118,058 $68,631 1.36 $11,600,000
58 Marina View Towers $738,174 $51,746 1.19 $10,770,000
59 Village Park Apartments (8) $778,420 $48,745 1.33 $9,370,000
60 Waikiki MarketPlace (B) (7) $490,171 $38,610 1.25 $8,000,000
61 Goldcoast Business Center (B) (7) $306,901 $20,547 1.25 $3,000,000
62 Summer Creek Apartments (5) $719,182 $48,614 1.23 $9,750,000
63 Food 4 Less & Arco AM/PM Stores $718,322 $46,806 1.28 $9,650,000
64 Pathmark (Glenolden) $838,007 $50,913 1.37 $9,400,000
65 1630 Connecticut Avenue $811,150 $48,980 1.38 $8,500,000
66 Santa Paula West (8) (9) $690,294 $47,662 1.21 $8,550,000
67 Del Prado Mobile Home Park $823,159 $56,041 1.22 $8,950,000
68 Piano Craft Guild Apartments $787,518 $44,307 1.48 $8,600,000
69 Canyon Terrace Apts. $629,846 $43,351 1.21 $8,200,000
70 Woodhill Square $770,093 $46,050 1.39 $8,250,000
71 Guest House Inn (5) $1,038,888 $49,440 1.75 $9,400,000
72 7979 Old Georgetown Road $666,894 $44,225 1.26 $8,700,000
73 Cherry Hill Plaza $608,887 $39,873 1.27 $7,875,000
74 Heritage-Rolling Meadows (VII) $247,911 $17,906 1.13 $2,900,000
75 Heritage-Windsor City (VII) $212,348 $13,275 1.13 $2,150,000
76 Heritage-Victorian Lakes (VII) $66,942 $7,178 1.13 $1,170,000
77 Heritage-Hermitage Farms (VII) $46,139 $3,396 1.13 $550,000
78 Heritage-Ramblewood (VII) $16,011 $1,852 1.13 $360,000
79 Maywood Village Square $688,369 $42,189 1.36 $7,700,000
80 Upland Country Village $605,975 $40,713 1.24 $7,550,000
81 El Paseo Collection (8) $596,602 $37,573 1.32 $8,000,000
82 Harding Woods MHP $622,783 $36,950 1.40 $7,100,000
83 Highland Crossing $535,675 $37,422 1.19 $6,400,000
84 Best Buy $648,496 $41,474 1.30 $7,650,000
85 Carriage Trade Center (VIII) (6) $441,986 $23,021 1.59 $4,500,000
86 Washington Square (VIII) (6) $202,990 $10,743 1.59 $2,100,000
87 Efficiency II- Lorene Lodge $681,717 $40,702 1.40 $8,000,000
88 Spring Creek Mobile Home Park $559,429 $35,810 1.30 $7,000,000
89 The Meadows Apts. $517,620 $31,989 1.35 $5,900,000
90 Northpointe Village Center (C) (6) $355,285 $20,903 1.36 $3,950,000
91 Grant Road Shops (C) (6) $149,600 $10,036 1.36 $1,850,000
92 El Paseo Power Center $494,308 $32,286 1.28 $5,900,000
93 Parkwood Apartments $615,980 $33,140 1.55 $5,850,000
94 Heritage Village Apts. (8) $428,069 $29,918 1.19 $6,800,000
95 P.M. Place Stores (5) $571,302 $31,058 1.53 $6,400,000
96 JP Plaza $433,195 $27,222 1.33 $5,500,000
97 Bellam Self Storage $438,815 $27,388 1.34 $5,400,000
98 Sugarland Ridge $639,733 $30,156 1.77 $6,000,000
99 North College Mobile Plaza $568,901 $28,625 1.66 $5,800,000
100 Storage Express $543,360 $29,556 1.53 $7,660,000
101 Victory Plaza $459,403 $26,666 1.44 $5,400,000
102 Greenhaven Executive Park $411,392 $26,344 1.30 $5,300,000
103 Shoneys Inn - Lake Park (IX) $308,569 $15,814 1.50 $2,730,000
104 Shoneys Inn - Valdosta (IX) $240,934 $14,773 1.50 $3,100,000
105 Colorado Springs Corporate Centre $411,851 $27,095 1.27 $5,500,000
106 Bechtel Nevada Corporation $786,193 $27,222 2.41 $6,500,000
107 Country Squire MHP $384,202 $25,241 1.27 $5,020,000
108 Northwest Mini Storage $516,274 $27,536 1.56 $5,100,000
109 Fairmont Apartments $403,107 $26,718 1.26 $4,600,000
110 Springwood Business Center $390,242 $25,915 1.25 $4,900,000
111 1420 Walnut Street $476,352 $25,444 1.56 $5,500,000
112 610-620 Santa Cruz Ave. $499,132 $25,614 1.62 $5,000,000
113 Suburban Lodge of Pineville $558,223 $26,690 1.74 $5,700,000
114 Redwood Marketplace $477,193 $22,817 1.74 $5,830,000
115 Elmwood Office Park $373,803 $24,361 1.28 $4,300,000
116 Orchard Center $357,094 $23,323 1.28 $4,550,000
117 Mission MHP $463,757 $22,965 1.68 $4,580,000
118 Zonolite Road Properties $379,222 $24,221 1.30 $4,640,000
119 Braley Bldg. $399,163 $20,373 1.63 $4,350,000
120 Lynnwood East Business Park $333,144 $22,013 1.26 $4,000,000
121 Woodmeadow Apts. $383,973 $19,758 1.62 $4,000,000
122 Wellington Woods Senior Apts. $307,850 $23,029 1.11 $3,450,000
123 Pecan Park $301,250 $20,876 1.20 $4,200,000
124 East West Shopping Center $384,540 $22,383 1.43 $4,350,000
125 Roble Terrace Apartments $305,922 $20,515 1.24 $4,100,000
126 Super 8 Motel/Alpenglo Inn and Conference Center $360,083 $20,969 1.43 $4,350,000
127 Safe Storage $391,177 $20,092 1.62 $4,120,000
128 Steeple Chase Apartments $337,096 $21,352 1.32 $3,500,000
129 Edgemar $386,296 $18,589 1.73 $4,900,000
130 Londonderry Commons $318,201 $20,284 1.31 $3,400,000
131 Mini Warehouse Company $518,898 $20,839 2.08 $5,660,000
132 Walbrook Junction Shopping $317,495 $20,839 1.27 $3,800,000
133 Sandstone Office Building $283,077 $18,200 1.30 $3,600,000
134 Rose Bay Travel Park $392,973 $19,638 1.67 $3,910,000
135 Riverview Mobile Villa $360,328 $17,386 1.73 $4,155,000
136 Plaza de Las Brisas $324,277 $18,222 1.48 $3,550,000
137 Sierra Suites $392,037 $19,562 1.67 $3,600,000
138 901 Tower $272,845 $17,298 1.31 $3,500,000
139 The Cones Apartments $279,454 $17,843 1.31 $3,700,000
140 Royal Oaks (D) $242,716 $12,357 1.54 $2,900,000
141 Country Acres (D) $87,456 $5,492 1.54 $1,270,000
142 4890 Alameda Street (10) $358,845 $20,470 1.46 $4,300,000
143 Sherwood Forest Mobile Home $403,995 $23,515 1.43 $6,000,000
144 Red Rock Self Storage $249,624 $17,635 1.18 $3,800,000
145 Wilshire Borgata $281,294 $17,716 1.32 $3,300,000
146 American Heritage Office $253,202 $16,392 1.29 $3,500,000
147 California Federal Building $234,911 $16,072 1.22 $3,200,000
148 Simi Valley Regional Center $290,424 $16,080 1.51 $3,375,000
149 Buy for Less Grocery Store $269,422 $15,983 1.40 $3,200,000
150 Holiday Inn Durant $365,354 $20,734 1.47 $3,400,000
151 Best Western Matagorda $403,627 $20,828 1.61 $4,050,000
152 Kings Inn Apartments $241,427 $15,430 1.30 $2,940,000
153 The Giroux Building $306,693 $16,475 1.55 $3,800,000
154 Nursery Shopping Center $274,648 $17,342 1.32 $3,200,000
155 Fairborn Apartments $273,109 $17,631 1.29 $3,100,000
156 Sunwood Village Apartments (8) $213,609 $14,298 1.24 $3,000,000
157 Kingstowne Mobile Home Park $265,203 $15,563 1.42 $2,980,000
158 Central Self Storage $320,867 $16,951 1.58 $3,770,000
159 75 Old Broadway $253,948 $16,532 1.28 $3,050,000
160 Plantation Acres (5) $225,582 $15,128 1.24 $2,850,000
161 Interpoint Business Park $233,389 $15,409 1.26 $3,030,000
162 Mohawk Drive Corporation $245,102 $15,770 1.30 $3,300,000
163 205 Commerce Center $421,483 $15,126 2.32 $4,300,000
164 Canterbury Commons Apartments (8) $204,876 $13,309 1.28 $2,800,000
165 Valley Village Mobile Home Park $339,830 $14,136 2.00 $2,600,000
166 All American - Palmdale $224,973 $13,905 1.35 $2,350,000
167 Dumfries Self Storage $242,171 $13,714 1.47 $2,670,000
168 Hyundai Plaza $208,938 $12,841 1.36 $2,550,000
169 Tregoney East Apartments $220,136 $12,785 1.43 $2,800,000
170 157 Pleasant Street $326,270 $13,017 2.09 $3,500,000
171 Days Inn NY $285,453 $14,057 1.69 $2,300,000
172 Westfield MHP $228,785 $13,617 1.40 $2,400,000
173 14150 Vine $186,234 $12,133 1.28 $2,540,000
174 Donner Creek MHP $186,500 $11,431 1.36 $2,430,000
175 Sawmill Village Shopping $185,580 $11,963 1.29 $2,200,000
176 T & T Plaza $161,270 $10,803 1.24 $2,000,000
177 1004 Taft $169,086 $11,344 1.24 $2,400,000
178 Bensen Estates $159,980 $9,939 1.34 $2,010,000
179 Rancho Mini Storage $176,113 $11,676 1.26 $1,900,000
180 Metro Square $143,195 $9,882 1.21 $1,900,000
181 Machado Towers $174,709 $9,918 1.47 $2,150,000
182 Berkeley Self Storage, LTD. $278,611 $10,263 2.26 $3,270,000
183 Jasper Mobile Home Park $217,309 $10,090 1.79 $2,500,000
184 Spring Valley MHP & Apts. $216,435 $10,805 1.67 $2,020,000
185 Ponderosa MHP $140,688 $9,233 1.27 $1,800,000
186 Chesapeake Self Storage $270,655 $8,955 2.52 $3,290,000
187 Thornydale Self Storage $149,297 $8,941 1.39 $2,100,000
188 St. Charles Court $156,913 $9,304 1.41 $1,700,000
189 Tollhouse Crossings $126,993 $7,722 1.37 $1,525,000
190 Blue Topaz Apartments $116,364 $7,226 1.34 $1,600,000
191 Southend Self Storage $105,685 $7,020 1.25 $1,300,000
192 Creekside Mobile Home Park $104,814 $6,768 1.29 $1,580,000
193 Casa Monte Vista Apartments $105,872 $7,191 1.23 $1,310,000
194 Moreno Valley Mini Self Storage $142,547 $6,409 1.85 $1,240,000
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PROPERTY OPERATING INFORMATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TENANT INFORMATION (14)
LOAN VALUE AS CUT-OFF PERCENT PERCENT LEASED ----------------------------------------------------------------
NO. OF DATE DATE LTV (2) LEASED (13) AS OF DATE (13) LARGEST TENANT % NSF
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 2/10/98 72.7% 92.4% 12/11/98
2 1/22/98 72.7% 98.3% 12/11/98
3 2/11/98 72.7% 89.0% 1/20/99
4 2/11/98 72.7% 92.0% 12/11/98
5 2/13/98 72.7% 97.0% 12/11/98
6 1/22/98 72.7% 92.5% 12/11/98
7 1/22/98 72.7% 100.0% 12/11/98
8 2/10/98 72.7% 89.0% 12/11/98
9 2/11/98 72.7% 93.8% 12/11/98
10 1/20/98 72.7% 99.0% 12/11/98
11 1/20/98 72.7% 96.2% 12/11/98
12 1/22/98 72.7% 97.4% 12/11/98
13 1/21/98 72.7% 98.1% 12/11/98
14 1/21/98 72.7% 94.7% 12/11/98
15 1/7/98 72.7% 79.0% 12/11/98
16 2/10/98 72.7% 81.0% 12/11/98
17 2/10/98 72.7% 99.0% 12/11/98
18 1/28/98 72.7% 97.0% 12/11/98
19 2/10/98 72.7% 91.9% 12/11/98
20 2/10/98 72.7% 98.7% 12/11/98
21 1/22/98 72.7% 92.0% 12/11/98
22 1/21/98 72.7% 97.4% 12/11/98
23 2/11/98 72.7% 100.0% 12/11/98
24 1/22/98 72.7% 95.8% 12/11/98
25 10/12/98 79.9% 86.6% 10/1/98 Georgetown University 76.0%
26 10/12/98 79.9% 100.0% 10/1/98 DC Government 88.7%
27 10/14/98 79.9% 74.9% 11/30/98 DPC 37.1%
28 10/16/98 79.9% 68.3% 10/31/98
29 7/17/98 76.5% 92.0% 2/1/99
30 10/8/98 75.4% 85.5% 10/31/98 Prescott Publishing 71.4%
31 10/23/98 58.9% 92.6% 11/30/98
32 11/19/98 58.9% 78.4% 11/30/98
33 11/6/98 58.9% 89.6% 11/30/98
34 11/27/98 58.9% 91.4% 11/30/98
35 11/24/98 58.9% 88.1% 11/30/98
36 10/22/98 58.9% 89.9% 11/30/98
37 10/23/98 57.6% 90.2% 11/30/98
38 10/22/98 57.6% 89.6% 11/30/98
39 11/2/98 57.6% 90.4% 11/30/98
40 11/19/98 57.6% 87.3% 11/30/98
41 11/11/98 57.6% 86.5% 11/30/98
42 10/22/98 57.6% 98.5% 11/30/98
43 10/23/98 79.8% 97.6% 10/1/98 Orchard Supply 37.6%
44 10/5/98 68.5% 91.9% 12/15/98 Wells Fargo Bank 15.6%
45 9/24/98 72.9% 81.3% 10/31/98
46 11/15/98 69.1% 78.7% 12/31/98 Vanity Fair Outlet 19.1%
47 10/22/98 67.4% 90.6% 10/23/98
48 10/20/98 67.4% 96.9% 10/23/98
49 10/21/98 67.4% 100.0% 10/23/98
50 10/21/98 67.4% 100.0% 10/23/98
51 10/22/98 67.4% 100.0% 10/23/98
52 10/22/98 67.4% 100.0% 10/23/98
53 10/22/98 67.4% 100.0% 10/23/98
54 10/20/98 67.4% 100.0% 10/23/98
55 9/30/98 76.2% 100.0% 12/23/98 Televideo Inc. 100.0%
56 5/24/98 61.5% 58.2% 10/31/98
57 6/11/98 72.1% 100.0% 5/31/98 DHL Airways, Inc. 39.4%
58 2/23/98 70.9% 96.4% 9/30/98
59 9/9/98 79.7% 98.0% 9/1/98
60 12/4/98 67.5% 95.1% 10/31/98 Kuhio Banyan Hospitality 55.4%
61 12/5/98 67.5% 80.9% 12/22/98
62 12/17/98 73.9% 100.0% 12/1/98
63 7/13/98 72.3% 100.0% 2/1/99 Food 4 Less 94.4%
64 6/1/98 74.0% 100.0% 10/1/98 Pathmark 57.1%
65 12/7/98 80.5% 100.0% 1/11/99 Human Rights Watch 30.2%
66 9/16/98 79.9% 98.5% 11/21/98
67 8/26/98 74.2% 100.0% 11/1/98
68 2/20/98 74.4% 97.7% 12/1/98 Bridge Fund, Inc. 27.3%
69 12/15/98 75.4% 98.3% 11/25/98
70 11/1/98 74.9% 100.0% 12/15/98 General Services Administration 35.3%
71 11/20/98 64.6% 94.9% 11/12/98
72 1/26/99 69.5% 100.0% 2/9/99 AON Consulting 17.5%
73 10/30/97 72.2% 97.4% 11/17/98
74 7/31/98 78.8% 82.5% 7/27/98
75 7/31/98 78.8% 90.4% 7/27/98
76 7/31/98 78.8% 88.1% 7/27/98
77 7/31/98 78.8% 87.0% 8/26/98
78 7/31/98 78.8% 97.7% 7/27/98
79 8/28/98 72.6% 97.4% 11/16/98 Kragen Auto Parts 18.9%
80 10/10/98 73.7% 100.0% 2/1/99 LA Fitness 26.6%
81 1/29/98 67.1% 89.5% 11/30/98 Daily Grill 18.4%
82 3/20/98 74.2% 96.2% 1/1/99
83 8/18/98 79.4% 88.2% 11/30/98 Barnes & Noble 36.3%
84 6/1/98 64.7% 100.0% 5/22/96 Best Buy 100.0%
85 7/15/98 74.5% 94.6% 9/24/98 Grocery Outlet 28.2%
86 7/15/98 74.5% 96.6% 9/30/98 Holland Pro Fitness for Ladies 28.1%
87 10/9/98 60.7% 89.4% 10/31/98
88 9/28/98 66.9% 98.7% 10/1/98
89 12/15/98 77.4% 97.1% 11/25/98
90 6/12/98 77.5% 93.8% 2/2/99 Silverado Steak 15.4%
91 6/12/98 77.5% 100.0% 1/3/99 Paper Warehouse 74.5%
92 11/23/98 74.4% 87.6% 12/16/98 Peter Piper Pizza 12.4%
93 8/12/98 74.8% 96.8% 11/30/98
94 5/29/98 62.0% 95.0% 9/23/98
95 1/8/99 65.3% 100.0% 1/25/99 PM Place Stores 34.2%
96 8/1/98 74.6% 100.0% 11/30/98 ABCD - Head Start 29.0%
97 8/20/98 75.6% 99.8% 8/31/98
98 5/19/98 67.2% 95.5% 10/31/98
99 7/1/98 69.3% 97.2% 7/31/98
100 2/2/98 52.4% 88.4% 12/31/98
101 7/9/98 73.7% 77.3% 12/1/98 LA County Library 10.3%
102 7/24/98 75.1% 94.8% 1/13/99 Search Group 15.5%
103 6/2/98 67.6% 81.0% 6/30/98
104 6/2/98 67.6% 79.0% 6/30/98
105 1/7/99 70.3% 100.0% 12/1/98 TriWest 16.2%
106 8/31/98 58.1% 100.0% 9/1/98 Bechtel 100.0%
107 5/29/98 73.4% 100.0% 12/15/98
108 2/26/98 71.8% 96.7% 11/29/98
109 3/23/98 79.2% 94.2% 11/30/98
110 9/10/98 73.2% 98.0% 9/30/98 Matrix 17.8%
111 5/5/98 65.0% 93.3% 7/8/98
112 5/7/98 70.4% 100.0% 11/30/98 Alain Pinel 29.4%
113 8/11/98 61.1% 93.8% 9/30/98
114 3/6/98 59.5% 100.0% 1/5/99 Lucky Stores 53.7%
115 10/1/98 77.0% 99.0% 10/31/98 General Electric 19.5%
116 6/10/98 72.1% 91.7% 11/1/98 McWhorter's 27.7%
117 1/22/98 69.0% 99.0% 10/31/98
118 10/1/98 67.7% 99.8% 9/30/98 ISPP 10.5%
119 7/16/98 69.8% 100.0% 1/14/99 Baumgarter/Martinez Antiques 27.3%
120 10/1/98 74.8% 100.0% 11/30/98 B.F. Goodrich 33.7%
121 6/20/98 74.5% 94.0% 11/30/98
122 4/8/98 85.1% 89.0% 12/1/98
123 10/12/98 68.9% 100.0% 10/31/98
124 4/27/98 66.5% 100.0% 10/31/98 Normandie Amusement 35.5%
125 6/2/98 70.1% 100.0% 12/1/98
126 9/2/98 65.1% 58.7% 9/30/98
127 6/23/98 68.2% 96.3% 12/8/98
128 10/28/98 79.7% 96.4% 10/31/98
129 6/1/98 55.4% 100.0% 12/9/98 Mad River 23.9%
130 9/10/98 79.3% 93.4% 12/1/98 World's Gym 27.5%
131 7/21/98 47.6% 91.0% 11/30/98
132 4/6/98 70.8% 89.8% 12/28/98 Stop-Shop and Save 37.8%
133 9/4/98 74.7% 100.0% 2/1/99 Avenue Edit 66.5%
134 5/13/98 68.4% 66.0% 9/30/98
135 5/6/98 64.0% 94.4% 7/31/98
136 3/27/98 74.2% 100.0% 1/31/99 Roger Dunn Golf Shop 17.4%
137 8/12/98 72.4% 68.0% 9/30/98
138 3/23/98 74.0% 95.9% 12/31/98 Union Bank 30.5%
139 5/10/98 69.9% 94.6% 11/24/98
140 6/17/98 61.8% 84.9% 10/31/98
141 6/17/98 61.8% 99.0% 10/31/98
142 7/10/98 59.3% 100.0% 8/20/98 Harkham Industries 100.0%
143 2/26/98 42.0% 97.8% 9/30/98
144 1/19/98 65.3% 87.4% 11/30/98
145 5/15/98 74.8% 100.0% 11/30/98 American Vacations 23.0%
146 2/3/98 69.3% 100.0% 12/31/98 Department of Recovery Services 32.0%
147 6/4/98 74.7% 100.0% 12/31/98 California Federal Bank 41.3%
148 1/23/98 70.7% 100.0% 1/14/99 Golds Gym 29.6%
149 6/9/98 74.5% 100.0% 12/14/98 Buy for Less 100.0%
150 12/15/98 69.7% 56.6% 11/30/98
151 1/27/98 58.3% 46.7% 12/31/98
152 6/29/98 79.6% 98.9% 12/31/98
153 7/29/98 61.3% 100.0% 12/31/98 Yangtze Restaurant 24.3%
154 1/16/98 71.3% 96.8% 9/30/98 Gold's Gym 48.1%
155 11/12/98 72.1% 95.5% 12/23/98
156 9/9/98 73.0% 94.9% 9/2/98
157 6/14/98 73.2% 99.3% 11/23/98
158 2/23/98 57.8% 83.7% 11/30/98
159 9/29/98 70.4% 100.0% 8/31/98 Marc Glassman, Inc. 100.0%
160 12/15/98 74.0% 95.0% 12/16/98
161 5/7/98 69.2% 100.0% 10/31/98 General Parts, Inc. 10.4%
162 7/13/98 62.6% 94.6% 11/30/98 Quebecor Printing 39.1%
163 5/15/98 47.8% 100.0% 9/8/98 Mongolian Grill BBQ 14.3%
164 8/20/98 73.0% 92.0% 9/2/98
165 7/1/98 76.4% 100.0% 7/31/98
166 6/25/98 79.4% 95.9% 9/30/98
167 7/28/98 67.2% 81.7% 9/30/98
168 9/4/98 68.5% 100.0% 11/30/98 Pal-Do World 38.7%
169 4/15/98 61.9% 77.6% 10/31/98
170 6/5/98 47.9% 91.3% 11/30/98 H&R Block Tax Services 35.2%
171 10/7/98 72.6% 56.7% 12/31/98
172 2/10/98 67.5% 95.2% 12/8/98 Gulf Bank Grocery 23.2%
173 9/22/98 63.5% 100.0% 8/5/98 WGI Solutions 100.0%
174 1/31/98 65.3% 97.9% 12/31/98
175 8/4/98 70.2% 100.0% 10/31/98 Denny's 22.4%
176 6/26/98 77.0% 100.0% 10/16/98 Peter Piper Pizza 67.3%
177 9/22/98 62.8% 100.0% 9/22/98 Settlement Services (SMS) 100.0%
178 6/9/98 74.2% 100.0% 11/30/98
179 8/18/98 76.1% 82.0% 12/30/98
180 4/16/98 76.0% 93.5% 9/14/98 Shangra-La Restaurant 11.8%
181 5/19/98 66.6% 97.4% 11/30/98
182 11/24/97 43.1% 93.0% 11/20/98
183 4/13/98 56.3% 97.4% 11/19/98
184 5/15/98 69.0% 89.8% 9/25/98
185 12/23/98 71.5% 98.3% 12/1/98
186 2/24/98 37.6% 85.8% 10/31/98
187 2/2/98 57.8% 97.0% 12/1/98
188 5/5/98 69.8% 88.6% 8/31/98 Urban Partners 21.7%
189 1/5/98 71.7% 100.0% 5/20/98 Country Home Video 22.9%
190 6/4/98 67.4% 100.0% 11/30/98
191 4/14/98 76.6% 93.0% 11/30/98
192 3/18/98 62.9% 93.3% 12/31/98
193 6/18/98 74.6% 95.6% 12/10/98
194 2/12/98 67.9% 96.9% 12/4/98
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PREPAYMENT AND SERVICING INFORMATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
LOAN INTEREST ACCRUAL LOCKOUT
NO. PROPERTY NAME (1) METHOD SEASONING (15) PERIOD
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 D.A.M. Maple Manor Mobile Home Park (A) (6) Actual/360 11 35
2 D.A.M. Valley View - Danboro (A) (6) Actual/360 11 35
3 D.A.M. Brookside Village MHP (A) (6) (I) Actual/360 11 35
4 D.A.M. Pleasant View MHP (A) (6) (I) Actual/360 11 35
5 D.A.M. Huguenot Estate East MHP (A) (6) Actual/360 11 35
6 D.A.M. Valley View- Honey Brook (A) (6) (II) Actual/360 11 35
7 D.A.M. Green Acres-Honey Brook (A) (6) (II) Actual/360 11 35
8 D.A.M. Moosic Heights MHP (A) (6) Actual/360 11 35
9 D.A.M. Frieden Manor Mobile Home Park (A) (6) Actual/360 11 35
10 D.A.M. Suburban Estates MHP (A) (6) Actual/360 11 35
11 D.A.M. Sunny Acres MHP (A) (6) Actual/360 11 35
12 D.A.M. Sunneyside MHP (A) (6) Actual/360 11 35
13 D.A.M. Valley View - Ephrata (A) (6) Actual/360 11 35
14 D.A.M. Carsons Mobile Home Park (A) (6) Actual/360 11 35
15 D.A.M. Pine Haven Mobile Home Park (A) (6) Actual/360 11 35
16 D.A.M. Crestview Mobile Home Park (A) (6) Actual/360 11 35
17 D.A.M. Collingwood MHP (A) (6) Actual/360 11 35
18 D.A.M. Beaver Run Mobile Home Park (A) (6) Actual/360 11 35
19 D.A.M. Chelsea MHP (A) (6) Actual/360 11 35
20 D.A.M. Oakwood Lakes MHP (A) (6) Actual/360 11 35
21 D.A.M. Gregory Courts MHP (A) (6) Actual/360 11 35
22 D.A.M. Mountaintop Mobile Home Park (A) (6) Actual/360 11 35
23 D.A.M. Monroe Valley MHP (A) (6) Actual/360 11 35
24 D.A.M. Green Acres - Chambersburg (A) (6) Actual/360 11 35
25 Jemal-The Car Barn (III) (6) Actual/360 3 27
26 Jemal-801 North Capitol (III) (7) (6) Actual/360 3 27
27 Jemal-Laurel Lakes Corp. Center (III) (7) (6) Actual/360 3 27
28 Jemal-Kalorama GuestHouse (III) (6) Actual/360 3 27
29 Quail Oaks Apartments (5) (8) Actual/360 12 24
30 Crown Colony Office Actual/360 3 27
31 Suburban-3-Pressley (IV) (6) Actual/360 3 27
32 Suburban-3-Virginia Beach (IV) (6) Actual/360 3 27
33 Suburban-3-Fairfield (IV) (6) Actual/360 3 27
34 Suburban-3-Jonesboro (IV) (6) Actual/360 3 27
35 Suburban-3-Norcross (IV) (6) Actual/360 3 27
36 Suburban-3-Fulton Industrial (IV) (6) Actual/360 3 27
37 Suburban-2-UNC Charlotte (V) (6) Actual/360 3 27
38 Suburban-2-Lilburn (V) (6) Actual/360 3 27
39 Suburban-2-Preston Hwy. (V) (6) Actual/360 3 27
40 Suburban-2-Chesapeake (V) (6) Actual/360 3 27
41 Suburban-2-Taylors (V) (6) Actual/360 3 27
42 Suburban-2-Mableton (V) (6) Actual/360 3 27
43 Midtown Shopping Center Actual/360 3 27
44 The Lakes (8) Actual/360 3 27
45 Ramada Plaza Hotel Actual/360 3 27
46 Governors Crossing Outlet Ctr. Actual/360 3 27
47 Magnolia Manors 2-Andalusia (VI) Actual/360 5 29
48 Magnolia Manors 4-Jasper (VI) Actual/360 5 29
49 Magnolia Manors 7-Valley (VI) Actual/360 5 29
50 Magnolia Manors 5-Smiths (VI) Actual/360 5 29
51 Magnolia Manors 1-Jackson (VI) Actual/360 5 29
52 Magnolia Manors 8-Brewton (VI) Actual/360 5 29
53 Magnolia Manors 3-Monroeville (VI) Actual/360 5 29
54 Magnolia Manors 6-Alexander City (VI) Actual/360 5 29
55 Televideo Actual/360 3 27
56 Radisson Woodlands Plaza Hotel Actual/360 8 32
57 AFCO Hanger One Air Cargo Complex Actual/360 9 33
58 Marina View Towers Actual/360 11 35
59 Village Park Apartments (8) Actual/360 6 30
60 Waikiki MarketPlace (B) (7) Actual/360 3 27
61 Goldcoast Business Center (B) (7) Actual/360 3 27
62 Summer Creek Apartments (5) Actual/360 8 32
63 Food 4 Less & Arco AM/PM Stores Actual/360 5 29
64 Pathmark (Glenolden) Actual/360 5 29
65 1630 Connecticut Avenue Actual/360 2 26
66 Santa Paula West (8) (9) Actual/360 3 27
67 Del Prado Mobile Home Park Actual/360 5 29
68 Piano Craft Guild Apartments Actual/360 12 36
69 Canyon Terrace Apts. Actual/360 3 27
70 Woodhill Square Actual/360 3 27
71 Guest House Inn (5) Actual/360 3 27
72 7979 Old Georgetown Road Actual/360 1 25
73 Cherry Hill Plaza Actual/360 11 35
74 Heritage-Rolling Meadows (VII) Actual/360 5 29
75 Heritage-Windsor City (VII) Actual/360 5 29
76 Heritage-Victorian Lakes (VII) Actual/360 5 29
77 Heritage-Hermitage Farms (VII) Actual/360 5 29
78 Heritage-Ramblewood (VII) Actual/360 5 29
79 Maywood Village Square Actual/360 4 28
80 Upland Country Village Actual/360 3 27
81 El Paseo Collection (8) Actual/360 9 33
82 Harding Woods MHP Actual/360 8 32
83 Highland Crossing Actual/360 5 29
84 Best Buy Actual/360 9 33
85 Carriage Trade Center (VIII) (6) Actual/360 5 29
86 Washington Square (VIII) (6) Actual/360 5 29
87 Efficiency II- Lorene Lodge Actual/360 3 27
88 Spring Creek Mobile Home Park Actual/360 3 27
89 The Meadows Apts. Actual/360 3 27
90 Northpointe Village Center (C) (6) Actual/360 8 32
91 Grant Road Shops (C) (6) Actual/360 7 31
92 El Paseo Power Center Actual/360 3 27
93 Parkwood Apartments Actual/360 3 27
94 Heritage Village Apts. (8) Actual/360 8 32
95 P.M. Place Stores (5) Actual/360 6 30
96 JP Plaza Actual/360 6 30
97 Bellam Self Storage Actual/360 6 30
98 Sugarland Ridge Actual/360 9 33
99 North College Mobile Plaza Actual/360 6 30
100 Storage Express Actual/360 10 60
101 Victory Plaza Actual/360 6 30
102 Greenhaven Executive Park Actual/360 7 31
103 Shoneys Inn - Lake Park (IX) Actual/360 5 29
104 Shoneys Inn - Valdosta (IX) Actual/360 5 29
105 Colorado Springs Corporate Centre Actual/360 2 26
106 Bechtel Nevada Corporation Actual/360 5 29
107 Country Squire MHP Actual/360 6 30
108 Northwest Mini Storage Actual/360 10 120
109 Fairmont Apartments Actual/360 9 33
110 Springwood Business Center Actual/360 5 29
111 1420 Walnut Street Actual/360 6 30
112 610-620 Santa Cruz Ave. Actual/360 7 31
113 Suburban Lodge of Pineville Actual/360 5 29
114 Redwood Marketplace Actual/360 11 60
115 Elmwood Office Park Actual/360 4 28
116 Orchard Center Actual/360 8 32
117 Mission MHP Actual/360 11 60
118 Zonolite Road Properties Actual/360 5 29
119 Braley Bldg. Actual/360 7 31
120 Lynnwood East Business Park Actual/360 5 29
121 Woodmeadow Apts. Actual/360 8 32
122 Wellington Woods Senior Apts. Actual/360 9 36
123 Pecan Park Actual/360 4 28
124 East West Shopping Center Actual/360 3 27
125 Roble Terrace Apartments Actual/360 8 32
126 Super 8 Motel/Alpenglo Inn and Conference Center Actual/360 6 30
127 Safe Storage Actual/360 6 30
128 Steeple Chase Apartments Actual/360 4 28
129 Edgemar Actual/360 5 29
130 Londonderry Commons Actual/360 3 27
131 Mini Warehouse Company Actual/360 3 48
132 Walbrook Junction Shopping Actual/360 3 60
133 Sandstone Office Building Actual/360 5 29
134 Rose Bay Travel Park Actual/360 9 33
135 Riverview Mobile Villa Actual/360 7 31
136 Plaza de Las Brisas Actual/360 9 60
137 Sierra Suites Actual/360 6 30
138 901 Tower Actual/360 5 29
139 The Cones Apartments Actual/360 8 32
140 Royal Oaks (D) Actual/360 7 31
141 Country Acres (D) Actual/360 7 31
142 4890 Alameda Street (10) Actual/360 7 31
143 Sherwood Forest Mobile Home Actual/360 10 34
144 Red Rock Self Storage Actual/360 11 42
145 Wilshire Borgata Actual/360 8 32
146 American Heritage Office Actual/360 7 31
147 California Federal Building Actual/360 5 29
148 Simi Valley Regional Center Actual/360 7 31
149 Buy for Less Grocery Store Actual/360 8 32
150 Holiday Inn Durant Actual/360 3 27
151 Best Western Matagorda Actual/360 11 60
152 Kings Inn Apartments Actual/360 6 30
153 The Giroux Building Actual/360 7 31
154 Nursery Shopping Center Actual/360 8 32
155 Fairborn Apartments Actual/360 2 26
156 Sunwood Village Apartments (8) Actual/360 6 30
157 Kingstowne Mobile Home Park Actual/360 7 31
158 Central Self Storage Actual/360 10 36
159 75 Old Broadway Actual/360 3 27
160 Plantation Acres (5) Actual/360 7 31
161 Interpoint Business Park Actual/360 3 27
162 Mohawk Drive Corporation Actual/360 4 28
163 205 Commerce Center Actual/360 9 33
164 Canterbury Commons Apartments (8) Actual/360 6 30
165 Valley Village Mobile Home Park Actual/360 6 30
166 All American - Palmdale Actual/360 7 31
167 Dumfries Self Storage Actual/360 3 27
168 Hyundai Plaza Actual/360 4 28
169 Tregoney East Apartments Actual/360 9 33
170 157 Pleasant Street Actual/360 7 31
171 Days Inn NY Actual/360 4 28
172 Westfield MHP Actual/360 11 120
173 14150 Vine Actual/360 3 27
174 Donner Creek MHP Actual/360 7 24
175 Sawmill Village Shopping Actual/360 3 48
176 T & T Plaza Actual/360 5 29
177 1004 Taft Actual/360 3 27
178 Bensen Estates Actual/360 7 31
179 Rancho Mini Storage Actual/360 3 27
180 Metro Square Actual/360 6 30
181 Machado Towers Actual/360 8 60
182 Berkeley Self Storage, LTD. Actual/360 9 33
183 Jasper Mobile Home Park Actual/360 10 34
184 Spring Valley MHP & Apts. Actual/360 4 28
185 Ponderosa MHP Actual/360 2 48
186 Chesapeake Self Storage Actual/360 9 72
187 Thornydale Self Storage Actual/360 8 32
188 St. Charles Court Actual/360 6 30
189 Tollhouse Crossings Actual/360 9 60
190 Blue Topaz Apartments Actual/360 7 31
191 Southend Self Storage Actual/360 7 31
192 Creekside Mobile Home Park Actual/360 8 32
193 Casa Monte Vista Apartments Actual/360 5 29
194 Moreno Valley Mini Self Storage Actual/360 9 60
WEIGHTED AVERAGE 6
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
PREPAYMENT AND SERVICING INFORMATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PREPAYMENT CODE (16) ADMIN.
LOAN -------------------------------------------------------------------------------- COST RATE
NO. DEF YM1 5.0% 4.0% 3.0% 2.0% 1.0% OPEN (BPS) (17)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 82 3 12.875
2 82 3 12.875
3 82 3 12.875
4 82 3 12.875
5 82 3 12.875
6 82 3 12.875
7 82 3 12.875
8 82 3 12.875
9 82 3 12.875
10 82 3 12.875
11 82 3 12.875
12 82 3 12.875
13 82 3 12.875
14 82 3 12.875
15 82 3 12.875
16 82 3 12.875
17 82 3 12.875
18 82 3 12.875
19 82 3 12.875
20 82 3 12.875
21 82 3 12.875
22 82 3 12.875
23 82 3 12.875
24 82 3 12.875
25 90 3 12.875
26 90 3 12.875
27 90 3 12.875
28 90 3 12.875
29 153 3 12.875
30 90 3 12.875
31 90 3 12.875
32 90 3 12.875
33 90 3 12.875
34 90 3 12.875
35 90 3 12.875
36 90 3 12.875
37 90 3 12.875
38 90 3 12.875
39 90 3 12.875
40 90 3 12.875
41 90 3 12.875
42 90 3 12.875
43 89 3 12.875
44 90 3 12.875
45 90 3 12.875
46 90 3 12.875
47 88 3 12.875
48 88 3 12.875
49 88 3 12.875
50 88 3 12.875
51 88 3 12.875
52 88 3 12.875
53 88 3 12.875
54 88 3 12.875
55 90 3 12.875
56 85 3 12.875
57 84 3 12.875
58 103 6 12.875
59 81 9 12.875
60 90 3 12.875
61 90 3 12.875
62 91 3 12.875
63 88 3 12.875
64 88 3 12.875
65 91 3 12.875
66 90 3 12.875
67 85 6 12.875
68 78 6 12.875
69 90 3 12.875
70 90 3 12.875
71 85 6 12.875
72 92 3 12.875
73 82 3 12.875
74 88 3 12.875
75 88 3 12.875
76 88 3 12.875
77 88 3 12.875
78 88 3 12.875
79 89 3 12.875
80 90 3 12.875
81 48 3 12.875
82 85 3 12.875
83 87 4 12.875
84 204 3 12.875
85 88 3 12.875
86 88 3 12.875
87 90 3 12.875
88 87 6 12.875
89 90 3 12.875
90 85 3 12.875
91 86 3 12.875
92 90 3 12.875
93 90 3 12.875
94 85 3 12.875
95 93 3 12.875
96 87 3 12.875
97 87 3 12.875
98 84 3 12.875
99 87 3 12.875
100 57 3 12.875
101 84 6 12.875
102 86 3 12.875
103 88 3 12.875
104 88 3 12.875
105 91 3 12.875
106 88 3 12.875
107 87 3 12.875
108 116 3 12.875
109 84 3 12.875
110 88 3 12.875
111 87 3 12.875
112 86 3 12.875
113 88 3 12.875
114 57 3 12.875
115 89 3 12.875
116 85 3 12.875
117 56 3 12.875
118 88 3 12.875
119 86 3 12.875
120 88 3 12.875
121 85 3 12.875
122 81 3 12.875
123 86 6 12.875
124 90 3 12.875
125 85 3 12.875
126 87 3 12.875
127 87 3 12.875
128 89 3 12.875
129 88 3 12.875
130 90 3 12.875
131 69 3 12.875
132 57 3 12.875
133 88 3 12.875
134 84 3 12.875
135 86 3 12.875
136 57 3 12.875
137 87 3 12.875
138 88 3 12.875
139 82 6 12.875
140 86 3 12.875
141 86 3 12.875
142 86 3 12.875
143 82 3 12.875
144 81 3 12.875
145 85 3 12.875
146 86 3 12.875
147 88 3 12.875
148 86 3 12.875
149 85 3 12.875
150 90 3 12.875
151 177 3 12.875
152 87 3 12.875
153 83 6 12.875
154 85 3 12.875
155 88 6 12.875
156 81 9 12.875
157 83 6 12.875
158 24 24 12 12 9 3 12.875
159 90 3 12.875
160 92 3 12.875
161 90 3 12.875
162 89 3 12.875
163 85 3 12.875
164 81 9 12.875
165 87 3 12.875
166 86 3 12.875
167 90 3 12.875
168 89 3 12.875
169 84 3 12.875
170 86 3 12.875
171 89 3 12.875
172 117 3 12.875
173 90 3 12.875
174 12 12 12 12 6 6 12.875
175 69 3 12.875
176 88 3 12.875
177 90 3 12.875
178 83 6 12.875
179 90 3 12.875
180 87 3 12.875
181 12 12 12 12 9 3 12.875
182 84 3 12.875
183 80 6 12.875
184 86 6 12.875
185 69 3 12.875
186 45 3 12.875
187 85 3 12.875
188 87 3 12.875
189 57 3 12.875
190 86 3 12.875
191 146 3 12.875
192 85 3 12.875
193 88 3 12.875
194 57 3 12.875
12.875
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
ESCROW INFORMATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
INITIAL
CAPITAL
CAPITAL EXPENDITURE
INSURANCE EXPENDITURE ESCROW
LOAN ESCROW TAX ESCROW ESCROW REQUIREMENT
NO. PROPERTY NAME REQUIRED REQUIRED REQUIRED (18) (19)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 D.A.M. Maple Manor Mobile Home Park (A) (6) No Yes Yes $25,313
2 D.A.M. Valley View - Danboro (A) (6) No Yes Yes $0
3 D.A.M. Brookside Village MHP (A) (6) (I) No Yes Yes $11,000
4 D.A.M. Pleasant View MHP (A) (6) (I) No Yes Yes $3,750
5 D.A.M. Huguenot Estate East MHP (A) (6) No Yes Yes $1,250
6 D.A.M. Valley View- Honey Brook (A) (6) (II) No Yes Yes $2,250
7 D.A.M. Green Acres-Honey Brook (A) (6) (II) No Yes Yes $0
8 D.A.M. Moosic Heights MHP (A) (6) No Yes Yes $625
9 D.A.M. Frieden Manor Mobile Home Park (A) (6) No Yes Yes $0
10 D.A.M. Suburban Estates MHP (A) (6) No Yes Yes $0
11 D.A.M. Sunny Acres MHP (A) (6) No Yes Yes $0
12 D.A.M. Sunneyside MHP (A) (6) No Yes Yes $1,250
13 D.A.M. Valley View - Ephrata (A) (6) No Yes Yes $0
14 D.A.M. Carsons Mobile Home Park (A) (6) No Yes Yes $0
15 D.A.M. Pine Haven Mobile Home Park (A) (6) No Yes Yes $10,000
16 D.A.M. Crestview Mobile Home Park (A) (6) No Yes Yes $0
17 D.A.M. Collingwood MHP (A) (6) No Yes Yes $3,375
18 D.A.M. Beaver Run Mobile Home Park (A) (6) No Yes Yes $0
19 D.A.M. Chelsea MHP (A) (6) No Yes Yes $0
20 D.A.M. Oakwood Lakes MHP (A) (6) No Yes Yes $1,875
21 D.A.M. Gregory Courts MHP (A) (6) No Yes Yes $5,000
22 D.A.M. Mountaintop Mobile Home Park (A) (6) No Yes Yes $0
23 D.A.M. Monroe Valley MHP (A) (6) No Yes Yes $0
24 D.A.M. Green Acres - Chambersburg (A) (6) No Yes Yes $0
25 Jemal-The Car Barn (III) (6) Yes Yes Yes $0
26 Jemal-801 North Capitol (III) (7) (6) Yes Yes Yes $0
27 Jemal-Laurel Lakes Corp. Center (III) (7) (6) Yes Yes Yes $0
28 Jemal-Kalorama GuestHouse (III) (6) Yes Yes Yes $0
29 Quail Oaks Apartments (5) (8) Yes Yes Yes $0
30 Crown Colony Office Yes Yes Yes $0
31 Suburban-3-Pressley (IV) (6) Yes Yes Yes $0
32 Suburban-3-Virginia Beach (IV) (6) Yes Yes Yes $0
33 Suburban-3-Fairfield (IV) (6) Yes Yes Yes $0
34 Suburban-3-Jonesboro (IV) (6) Yes Yes Yes $0
35 Suburban-3-Norcross (IV) (6) Yes Yes Yes $0
36 Suburban-3-Fulton Industrial (IV) (6) Yes Yes Yes $0
37 Suburban-2-UNC Charlotte (V) (6) Yes Yes Yes $0
38 Suburban-2-Lilburn (V) (6) Yes Yes Yes $0
39 Suburban-2-Preston Hwy. (V) (6) Yes Yes Yes $0
40 Suburban-2-Chesapeake (V) (6) Yes Yes Yes $0
41 Suburban-2-Taylors (V) (6) Yes Yes Yes $0
42 Suburban-2-Mableton (V) (6) Yes Yes Yes $0
43 Midtown Shopping Center Yes Yes Yes $0
44 The Lakes (8) Yes Yes Yes $2,688
45 Ramada Plaza Hotel No Yes Yes $204,108
46 Governors Crossing Outlet Ctr. Yes Yes Yes $0
47 Magnolia Manors 2-Andalusia (VI) Yes Yes Yes $0
48 Magnolia Manors 4-Jasper (VI) Yes Yes Yes $0
49 Magnolia Manors 7-Valley (VI) Yes Yes Yes $0
50 Magnolia Manors 5-Smiths (VI) Yes Yes Yes $0
51 Magnolia Manors 1-Jackson (VI) Yes Yes Yes $0
52 Magnolia Manors 8-Brewton (VI) Yes Yes Yes $0
53 Magnolia Manors 3-Monroeville (VI) Yes Yes Yes $0
54 Magnolia Manors 6-Alexander City (VI) Yes Yes Yes $0
55 Televideo No No Yes $0
56 Radisson Woodlands Plaza Hotel Yes Yes Yes $0
57 AFCO Hanger One Air Cargo Complex Yes Yes Yes $62,750
58 Marina View Towers Yes Yes Yes $15,063
59 Village Park Apartments (8) Yes Yes Yes $98,750
60 Waikiki MarketPlace (B) (7) Yes Yes Yes $68,750
61 Goldcoast Business Center (B) (7) Yes Yes Yes $1,313
62 Summer Creek Apartments (5) Yes Yes Yes $30,500
63 Food 4 Less & Arco AM/PM Stores Yes Yes Yes $0
64 Pathmark (Glenolden) No No Yes $0
65 1630 Connecticut Avenue Yes Yes Yes $574,031
66 Santa Paula West (8) (9) No Yes Yes $43,750
67 Del Prado Mobile Home Park No Yes No $0
68 Piano Craft Guild Apartments Yes Yes Yes $12,125
69 Canyon Terrace Apts. Yes Yes Yes $71,450
70 Woodhill Square Yes Yes Yes $8,681
71 Guest House Inn (5) Yes Yes No $84,000
72 7979 Old Georgetown Road Yes Yes Yes $102,500
73 Cherry Hill Plaza Yes Yes Yes $202,131
74 Heritage-Rolling Meadows (VII) Yes Yes Yes $3,500
75 Heritage-Windsor City (VII) Yes Yes Yes $12,500
76 Heritage-Victorian Lakes (VII) Yes Yes Yes $49,875
77 Heritage-Hermitage Farms (VII) Yes Yes Yes $46,250
78 Heritage-Ramblewood (VII) Yes Yes Yes $0
79 Maywood Village Square Yes Yes Yes $3,500
80 Upland Country Village Yes Yes Yes $3,250
81 El Paseo Collection (8) Yes Yes Yes $0
82 Harding Woods MHP Yes Yes Yes $1,329
83 Highland Crossing Yes Yes Yes $0
84 Best Buy No No No $21,675
85 Carriage Trade Center (VIII) (6) Yes Yes Yes $0
86 Washington Square (VIII) (6) Yes Yes Yes $0
87 Efficiency II- Lorene Lodge Yes Yes Yes $6,047
88 Spring Creek Mobile Home Park Yes Yes Yes $0
89 The Meadows Apts. Yes Yes Yes $111,304
90 Northpointe Village Center (C) (6) Yes Yes Yes $0
91 Grant Road Shops (C) (6) Yes Yes Yes $0
92 El Paseo Power Center Yes Yes Yes $31,250
93 Parkwood Apartments Yes Yes Yes $14,038
94 Heritage Village Apts. (8) Yes Yes Yes $47,604
95 P.M. Place Stores (5) Yes Yes Yes $40,500
96 JP Plaza Yes Yes Yes $1,250
97 Bellam Self Storage Yes Yes No $0
98 Sugarland Ridge Yes Yes Yes $3,750
99 North College Mobile Plaza Yes Yes No $0
100 Storage Express Yes Yes Yes $0
101 Victory Plaza Yes Yes Yes $250
102 Greenhaven Executive Park No Yes Yes $0
103 Shoneys Inn - Lake Park (IX) Yes Yes Yes $500
104 Shoneys Inn - Valdosta (IX) Yes Yes Yes $0
105 Colorado Springs Corporate Centre Yes Yes Yes $14,069
106 Bechtel Nevada Corporation Yes Yes Yes $833
107 Country Squire MHP Yes Yes Yes $0
108 Northwest Mini Storage Yes Yes Yes $1,721
109 Fairmont Apartments Yes Yes Yes $217,318
110 Springwood Business Center Yes Yes Yes $14,563
111 1420 Walnut Street Yes Yes Yes $19,375
112 610-620 Santa Cruz Ave. Yes Yes Yes $322
113 Suburban Lodge of Pineville Yes Yes Yes $0
114 Redwood Marketplace Yes Yes Yes $32,800
115 Elmwood Office Park Yes Yes Yes $18,125
116 Orchard Center Yes Yes Yes $14,250
117 Mission MHP Yes Yes No $0
118 Zonolite Road Properties Yes Yes Yes $1,719
119 Braley Bldg. Yes Yes Yes $0
120 Lynnwood East Business Park Yes Yes Yes $1,063
121 Woodmeadow Apts. Yes Yes Yes $6,250
122 Wellington Woods Senior Apts. Yes Yes Yes $0
123 Pecan Park Yes Yes Yes $0
124 East West Shopping Center Yes Yes Yes $0
125 Roble Terrace Apartments Yes Yes Yes $0
126 Super 8 Motel/Alpenglo Inn and Conference Center Yes Yes Yes $0
127 Safe Storage Yes Yes Yes $0
128 Steeple Chase Apartments Yes Yes Yes $170,250
129 Edgemar Yes Yes Yes $0
130 Londonderry Commons Yes Yes Yes $1,781
131 Mini Warehouse Company Yes Yes No $5,000
132 Walbrook Junction Shopping Yes Yes Yes $21,875
133 Sandstone Office Building Yes Yes Yes $0
134 Rose Bay Travel Park Yes Yes Yes $2,500
135 Riverview Mobile Villa Yes Yes No $1,250
136 Plaza de Las Brisas Yes Yes Yes $0
137 Sierra Suites Yes Yes Yes $164,000
138 901 Tower Yes Yes Yes $1,500
139 The Cones Apartments Yes Yes Yes $160,000
140 Royal Oaks (D) Yes Yes No $0
141 Country Acres (D) Yes Yes Yes $3,750
142 4890 Alameda Street (10) Yes Yes Yes $16,250
143 Sherwood Forest Mobile Home Yes Yes No $938
144 Red Rock Self Storage Yes Yes No $0
145 Wilshire Borgata No No Yes $122
146 American Heritage Office Yes Yes Yes $1,250
147 California Federal Building Yes Yes Yes $45,625
148 Simi Valley Regional Center Yes Yes Yes $5,094
149 Buy for Less Grocery Store No No Yes $3,750
150 Holiday Inn Durant Yes Yes Yes $15,688
151 Best Western Matagorda Yes Yes Yes $33,204
152 Kings Inn Apartments Yes Yes Yes $46,875
153 The Giroux Building Yes Yes Yes $0
154 Nursery Shopping Center Yes Yes Yes $20,405
155 Fairborn Apartments Yes Yes Yes $39,250
156 Sunwood Village Apartments (8) Yes Yes Yes $0
157 Kingstowne Mobile Home Park Yes Yes Yes $6,071
158 Central Self Storage Yes Yes No $0
159 75 Old Broadway No Yes Yes $0
160 Plantation Acres (5) Yes Yes No $0
161 Interpoint Business Park Yes Yes Yes $3,844
162 Mohawk Drive Corporation Yes Yes Yes $31,250
163 205 Commerce Center Yes Yes Yes $52,504
164 Canterbury Commons Apartments (8) Yes Yes No $0
165 Valley Village Mobile Home Park Yes Yes No $1,875
166 All American - Palmdale Yes Yes Yes $6,000
167 Dumfries Self Storage Yes Yes No $40,906
168 Hyundai Plaza Yes Yes Yes $298
169 Tregoney East Apartments Yes Yes Yes $129,240
170 157 Pleasant Street Yes Yes Yes $2,813
171 Days Inn NY Yes Yes Yes $26,063
172 Westfield MHP Yes Yes No $0
173 14150 Vine Yes Yes Yes $1,063
174 Donner Creek MHP Yes Yes Yes $59,500
175 Sawmill Village Shopping Yes Yes Yes $0
176 T & T Plaza Yes Yes Yes $0
177 1004 Taft Yes Yes Yes $34,219
178 Bensen Estates Yes Yes Yes $0
179 Rancho Mini Storage Yes Yes Yes $0
180 Metro Square Yes Yes Yes $5,594
181 Machado Towers Yes Yes Yes $0
182 Berkeley Self Storage, LTD. Yes Yes Yes $0
183 Jasper Mobile Home Park Yes Yes No $0
184 Spring Valley MHP & Apts. Yes Yes Yes $0
185 Ponderosa MHP Yes Yes No $30,063
186 Chesapeake Self Storage Yes Yes No $0
187 Thornydale Self Storage Yes Yes Yes $40,000
188 St. Charles Court Yes Yes Yes $2,500
189 Tollhouse Crossings Yes Yes Yes $0
190 Blue Topaz Apartments Yes Yes Yes $57,400
191 Southend Self Storage Yes Yes Yes $0
192 Creekside Mobile Home Park Yes Yes Yes $0
193 Casa Monte Vista Apartments Yes Yes Yes $9,563
194 Moreno Valley Mini Self Storage No Yes No $0
TOTAL/WEIGHTED AVERAGE 86.0% 95.9% 90.9% $3,690,182
</TABLE>
<PAGE>
APPENDIX II
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
ESCROW INFORMATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
CURRENT CAPITAL MONTHLY CAPITAL
EXPENDITURE EXPENDITURE
LOAN ESCROW ESCROW INITIAL TI/LC CURRENT TI/LC
NO. BALANCE(20) REQUIREMENT(21) REQUIREMENT(22) BALANCE(23)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 $39,306 $1,321 $0 $0
2 $7,173 $967 $0 $0
3 $26,688 $713 $0 $0
4 $0 $458 $0 $0
5 $7,696 $763 $0 $0
6 $6,845 $600 $0 $0
7 $0 $0 $0 $0
8 $4,690 $933 $0 $0
9 $8,000 $800 $0 $0
10 $8,557 $846 $0 $0
11 $25,321 $742 $0 $0
12 $4,410 $308 $0 $0
13 $4,511 $446 $0 $0
14 $6,063 $599 $0 $0
15 $15,934 $554 $0 $0
16 $4,173 $412 $0 $0
17 $4,486 $443 $0 $0
18 $4,215 $417 $0 $0
19 $3,625 $358 $0 $0
20 $1,680 $340 $0 $0
21 $6,766 $158 $0 $0
22 $1,644 $162 $0 $0
23 $1,855 $183 $0 $0
24 $1,321 $131 $0 $0
25 $0 $1,431 $0 $0
26 $15,339 $1,361 $596,640 $713,622
27 $0 $1,200 $160,510 $0
28 $0 $3,678 $0 $0
29 $0 $5,050 $0 $0
30 $0 $2,083 $0 $0
31 $0 $3,431 $0 $0
32 $0 $3,418 $0 $0
33 $36,880 $3,108 $0 $0
34 $0 $3,180 $0 $0
35 $0 $2,950 $0 $0
36 $0 $2,353 $0 $0
37 $0 $3,680 $0 $0
38 $0 $3,214 $0 $0
39 $0 $3,316 $0 $0
40 $36,305 $3,078 $0 $0
41 $0 $3,006 $0 $0
42 $0 $1,858 $0 $0
43 $4,000 $2,000 $0 $3,062
44 $8,374 $2,862 $150,000 $192,739
45 $205,035 $17,009 $0 $0
46 $3,376 $1,688 $0 $12,077
47 $0 $800 $0 $0
48 $0 $800 $0 $0
49 $0 $800 $0 $0
50 $0 $400 $0 $0
51 $17,600 $400 $0 $0
52 $0 $400 $0 $0
53 $0 $400 $0 $0
54 $0 $400 $0 $0
55 $2,611 $870 $300,000 $309,413
56 $60,833 $18,837 $0 $0
57 $77,096 $1,580 $0 $14,919
58 $32,385 $1,750 $0 $0
59 $7,838 $0 $0
60 $69,549 $400 $0 $5,325
61 $3,067 $877 $55,000 $63,135
62 $54,035 $3,250 $0 $0
63 $2,860 $715 $0 $0
64 $6,020 $1,505 $0 $11,983
65 $575,123 $1,092 $0 $5,638
66 $45,375 $812 $0 $0
67 $0 $0 $0 $0
68 $29,888 $3,941 $0 $0
69 $76,867 $2,708 $0 $0
70 $13,877 $2,598 $290,264 $304,905
71 $86,765 $0 $0 $0
72 $0 $2,044 $50,000 $50,000
73 $59,840 $1,796 $300,000 $17,966
74 $0 $1,213 $0 $0
75 $129,803 $1,379 $0 $0
76 $0 $791 $0 $0
77 $0 $418 $0 $0
78 $0 $354 $0 $0
79 $5,312 $604 $100,000 $106,243
80 $4,436 $593 $20,000 $24,748
81 $3,982 $498 $0 $16,000
82 $10,633 $1,329 $0 $0
83 $2,206 $551 $0 $107,645
84 $22,202 $0 $0 $0
85 $6,060 $1,181 $0 $22,762
86 $0 $334 $3,544 $0
87 $24,392 $6,047 $0 $0
88 $3,208 $1,604 $0 $0
89 $115,637 $2,167 $0 $0
90 $3,830 $547 $0 $2,407
91 $901 $150 $0 $4,327
92 $33,022 $886 $0 $5,707
93 $25,704 $5,833 $0 $0
94 $57,877 $3,667 $0 $0
95 $65,283 $2,494 $0 $21,706
96 $4,482 $539 $100,000 $100,000
97 $0 $0 $0 $0
98 $18,825 $1,675 $0 $0
99 $0 $0 $0 $0
100 $3,528 $392 $0 $0
101 $7,695 $1,242 $2,256 $13,529
102 $16,742 $1,395 $83,258 $112,774
103 $16,722 $3,643 $0 $0
104 $0 $3,238 $0 $0
105 $0 $754 $0 $0
106 $18,333 $833 $8,333 $18,333
107 $5,689 $763 $0 $0
108 $17,211 $1,721 $0 $0
109 $151,655 $5,708 $0 $0
110 $18,363 $950 $180,000 $201,798
111 $21,377 $2,049 $13,801 $141,270
112 $2,253 $322 $965 $6,805
113 $23,183 $4,637 $0 $0
114 $33,912 $1,368 $0 $0
115 $3,600 $1,200 $130,000 $78,603
116 $18,784 $498 $0 $16,024
117 $0 $0 $0 $0
118 $5,915 $1,049 $0 $22,294
119 $6,187 $1,031 $0 $22,229
120 $2,956 $739 $30,000 $40,371
121 $37,750 $4,500 $0 $0
122 $0 $1,875 $0 $0
123 $2,588 $862 $0 $0
124 $705 $353 $0 $3,996
125 $9,184 $1,312 $0 $0
126 $16,100 $3,220 $0 $0
127 $4,069 $678 $0 $0
128 $139,719 $4,667 $0 $0
129 $2,048 $408 $0 $0
130 $2,058 $1,029 $125,000 $125,000
131 $5,000 $0 $0 $0
132 $23,051 $588 $49,000 $53,217
133 $1,183 $296 $25,000 $0
134 $14,267 $1,471 $0 $0
135 $1,250 $0 $0 $0
136 $3,472 $434 $750 $6,750
137 $74,421 $5,477 $0 $0
138 $3,670 $434 $2,153 $10,831
139 $149,891 $2,205 $0 $0
140 $0 $0 $0 $0
141 $14,474 $1,778 $0 $0
142 $23,194 $992 $3,472 $24,306
143 $0 $0 $0 $0
144 $0 $0 $0 $0
145 $979 $122 $25,000 $31,565
146 $2,000 $333 $15,000 $36,120
147 $47,922 $574 $0 $7,869
148 $8,135 $507 $0 $12,165
149 $4,988 $712 $0 $8,370
150 $22,852 $3,582 $0 $0
151 $37,374 $6,954 $0 $0
152 $46,875 $1,875 $0 $0
153 $1,911 $319 $0 $5,568
154 $26,739 $905 $1,552 $1,552
155 $0 $4,967 $0 $0
156 $0 $2,213 $0 $0
157 $3,817 $636 $0 $0
158 $0 $0 $0 $0
159 $1,970 $985 $30,000 $35,072
160 $0 $0 $0 $0
161 $5,284 $720 $65,000 $68,600
162 $12,029 $1,939 $30,000 $19,464
163 $57,528 $558 $0 $0
164 $0 $0 $0 $0
165 $0 $0 $0 $0
166 $9,500 $500 $0 $0
167 $40,906 $0 $0 $0
168 $1,193 $298 $31,691 $36,763
169 $85,629 $2,229 $0 $0
170 $9,690 $1,146 $0 $0
171 $27,168 $3,046 $0 $0
172 $0 $0 $0 $0
173 $2,133 $535 $50,000 $54,280
174 $61,875 $396 $0 $0
175 $542 $271 $0 $2,044
176 $1,636 $327 $20,000 $23,220
177 $35,059 $420 $50,000 $53,864
178 $5,277 $875 $0 $0
179 $1,313 $438 $0 $0
180 $10,417 $804 $345 $2,067
181 $1,982 $792 $0 $0
182 $4,072 $452 $0 $0
183 $0 $0 $0 $0
184 $3,825 $1,275 $0 $0
185 $0 $0 $0 $0
186 $0 $0 $0 $0
187 $45,013 $627 $0 $0
188 $7,235 $789 $0 $0
189 $1,697 $210 $4,000 $3,031
190 $58,363 $500 $0 $0
191 $6,019 $860 $0 $0
192 $875 $125 $0 $0
193 $13,313 $938 $0 $0
194 $0 $0 $0 $0
$3,873,185 $291,341 $3,102,534 $3,416,070/81.2%
</TABLE>
<PAGE>
FOOTNOTES TO APPENDIX II
1. Sets of Property Names with identical alphabetical coding identify the
loans that are cross-collateralized and cross-defaulted, while Property
Names with identical Roman Numeral coding are the multiple properties of a
single Mortgage Loan. Mortgage Loans 1-24 comprise a set of
crossed-collateralized and cross-defaulted loans which contains two
Mortgage Loans (represented by Loan Nos. 3&4 and 6&7), each of which are
secured by two properties.
2. Certain ratios including Cut-Off Date Balance/Unit or SF, DSCR, LTV and
Balloon LTV are calculated on a combined basis for Mortgage Loans that are
secured by multiple properties or are cross-collateralized and
cross-defaulted. The indicated Cut-Off Date Balance/Unit or SF for mixed
use properties is based on the predominant property usage. For the purposes
of the statistical information set forth in this Prospectus Supplement, as
to such multiple property loans, a portion of the aggregate Cut-Off Date
Balance has been allocated to each property, generally, based on relative
appraised value or Underwritable Cash Flow. For purposes of information
contained within the Prospectus Supplement, Balloon Loans are defined as
having a balance at maturity equal to at least 10% of the original
principal balance of the related Mortgage Loan.
With respect to Mortgage Loan No. 122, Wellington Woods Senior Apts.,
disclosed LTV (85.1%) and DSCR (1.11x) do not consider an in-place $200,000
letter of credit, which may be released when a DSCR of at least 1.20x, or a
LTV of 80%, or lower, is achieved.
3. "ARD" indicates the Anticipated Repayment Date of the Anticipated Repayment
Date Loans, as defined in the Prospectus Supplement. See "Description of
the Mortgage Pool".
4. 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 Non-30/360 interest accrual method of all Mortgage Loans, the
actual amortization to a zero balance on the Mortgage Loans will be longer.
5. Mortgage Loan Nos. 29, 62, 71, 95, and 160 were restated to account for
earnouts provided to the borrower which resulted in the following:
The Monthly Payment for Loan No. 29, Quail Oaks Apartments, is based on a
360 month amortization term beginning on May 1, 1998. The Effective
Maturity Date reflects the corresponding date in the restated mortgage
note. As such, the Original Term to Maturity and Original Amortization Term
are presented as of the first regularly scheduled debt service payment date
of the restated mortgage note, May 1, 1998.
The Monthly Payment for Mortgage Loan No. 62, Summer Creek Apartments, is
based on a 355 month amortization term beginning on February 11, 1999. The
Original Term to Maturity and the Original Amortization Term are presented
as of the date of the first regularly scheduled debt service payment on
September 11, 1998.
II-30
<PAGE>
FOOTNOTES TO APPENDIX II
The Monthly Payment for Mortgage Loan No. 71, Guest House Inn, is based on
a 298 month amortization term beginning on February 11, 1999. The First
Payment Date and the Anticipated Repayment Date reflects the corresponding
dates in the restated mortgage note. As such, the Original Term to Maturity
and the Original Amortization Term are presented as of the first regularly
scheduled debt service payment date of the restated mortgage note,
February 11, 1999.
The Monthly Payment for Mortgage Loan No. 95, P.M. Place Stores, is based
on a 297 month amortization term beginning on March 1, 1999. The Original
Term to Maturity and the Original Amortization Term are presented as of the
date of the first regularly scheduled debt service payment on November 1,
1998.
The Monthly Payment for Mortgage Loan No. 160, Plantation Acres, is based
on a 296 month amortization term beginning on February 1, 1999. The
Original Term to Maturity and the Original Amortization Term are presented
as of the date of the first regularly scheduled debt service payment on
October 1, 1998.
6. With respect to Mortgage Loan Nos. 1 - 24, the D.A.M. loans, the loan
documents permit defeasance of one or more of the cross-collateralized
loans and thereby cause the release of the related mortgaged property or
properties (in the case of multiple property loans) subject to the
following conditions: (1) the expiration of the applicable Mortgage Loan's
Lockout Period, (2) the maintenance of a combined DSCR for the remaining
loans in the cross-collateralized pool of at least 1.50x, and (3) the
maintenance of a combined LTV for the remaining loans in the
cross-collateralized pool of no greater than 75%.
With respect to Mortgage Loan Nos. 25-28, the Jemal loans, the loan
documents permit partial loan defeasance and thereby cause the release of a
related mortgaged property subject to the following conditions: (1) the
expiration of the applicable Mortgage Loan's Lockout Period, (2) the
maintenance of a combined DSCR for the remaining loans of at least 1.30x,
(3) the maintenance of a combined LTV for the remaining loans of no greater
than 75%, and (4) defeasance of an amount equal to 120% of the loan amount
allocated to the released property.
With respect to Mortgage Loan Nos. 31-36, the Suburban-3 Loans, and
Mortgage Loan Nos. 37-42, the Suburban-2 Loans, the loan documents permit
partial defeasance of individual properties subject to the following
conditions: (1) the expiration of the applicable Mortgage Loan's Lockout
Period, (2) the maintenance of a combined DSCR for the remaining loans of
1.40x, and (3) the maintenance of a combined LTV for the remaining loans of
no greater 75%. (4) defeasance of an amount equal to 125% of the loan
amount allocated to the released property.
With respect to Mortgage Loan No. 85 Carriage Trade Center and Mortgage
Loan No. 86 Washington Square, the loan documents permit partial defeasance
of the Mortgaged Properties subject to the following conditions:
(1) the expiration of the applicable Mortgage Loan's Lockout Period, (2)
the maintenance of a minimum DSCR of 1.30x, (3) the maintenance of a LTV of
no greater than 75%, and (4) defeasance of an amount equal to 120% of the
loan amount allocated to the released property.
II-31
<PAGE>
FOOTNOTES TO APPENDIX II
With respect of Mortgage Loan Nos. 90 and 91, Northpointe Village Center
and Grant Road Shops, the loan documents permit defeasance of one of the
cross-collateralized loans subject to the following conditions: (1) the
expiration of the applicable Mortgage Loan's Lockout Period (2) the
maintenance of a minimum 1.30x DSCR by the remaining loan (3) the
maintenance of a LTV of no greater than 80%, and (4) defeasance of an
amount equal to 125% of the outstanding indebtedness under the applicable
Mortgage Loan (such excess will be applied to the outstanding balance under
the remaining Mortgage Loan).
7. 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 Mortgage Loan at closing. Details on
each holdback are provided below. For further information, see "Description
of the Mortgage Pool - Performance Holdbacks" in the Prospectus Supplement.
<TABLE>
<CAPTION>
Outside Date
Escrowed Outside Prepayment
Holdback Date for Penalty
Loan No. Property Name Release Conditions Amount Release Provisions
-------- ------------- ------------------ ------ ------- ----------
<S> <C> <C> <C> <C> <C>
27 Jemal-Laurel Lakes Corp. 1) Borrower submits documentation $750,000 6/1/2000 Yield
for expenses incurred for maintenance
tenant improvements for new
tenants; under approved leases; and
2) the DSCR equals or exceeds 1.30x.
60 Waikiki Market Place 1) the DSCR equals or exceeds 1.25x, $800,000 6/30/99 No prepayment
and 2) current tenant of unit 104 penalty
renews its lease, or new tenants
have signed leases for and occupied
Unit 102 and either Unit 103 or
Unit 104.
61 Goldcoast Business Center The DSCR equals or exceeds 1.25x. $250,000 6/30/1999 Yield
</TABLE>
Disclosed DSCRs relating to the above loans are based on assumed loan
amounts and related principal and interest payments, net of the cash
holdback as described above. In the cases of Mortgage Loans 60 and 61,
Waikiki Market Place and Goldcoast Business Center, the implied DSCR on a
combined basis, net of the holdback amounts, is constrained to 1.25x, the
threshold DSCR required for release of the related holdbacks. The Goldcoast
borrower has requested release of the related holdback.
II-32
<PAGE>
FOOTNOTES TO APPENDIX II
Additional holdbacks scheduled to be released once tenants in place provide
the lender with estoppels confirming occupancy and payment obligations are
as follows:
Mortgage Loan No. 26, Jemal-801 North Capitol, has a cash holdback of
$596,640, until the City of Washington D.C. provides a required estoppel.
Mortgage Loan No. 27, Jemal-Laurel Lakes Corp. Center, has a cash holdback
of $93,600, until D.P.C. Technology provides a required estoppel.
8. The properties securing the following Mortgage Loans are known to currently
secure additional subordinate financing, or the Mortgage Loan permits
additional, secured subordinate financing in the future:
Mortgage Loan No. 29, Quail Oaks Apartments, permits subordinate debt up to
$2,000,000 to be secured by the property, provided the aggregate LTV of the
Mortgage Loan and the subordinate debt does not exceed 85% and the combined
DSCR is at least 1.15x.
The property securing Mortgage Loan No. 44, The Lakes, is known to also
secure existing subordinate debt in the amount of $5,393,759 (as of
December 31, 1998). See Appendix III "Largest Loan Summaries".
Mortgage Loan No. 59, Village Park Apartments, permits subordinate debt to
be secured by the related property no earlier than two years after the Note
Date, provided the aggregate LTV of the Mortgage Loan and the subordinate
debt does not exceed 80% and the combined DSCR is at least 1.15x.
The property securing Mortgage Loan No. 66, Santa Paula West, is known to
secure additional subordinate debt in the amount of $350,000.
The property securing Mortgage Loan No. 81, El Paseo Collection, is known
to secure two additional deeds of trust, each of which is subordinate to
the subject deed of trust. The subordinate deeds of trust are in place to
secure performance under a co-tenancy agreement between two mortgagors as
tenants in common. Upon any default under the co-tenancy agreement, the
non-defaulting mortgagor may foreclose on the defaulting mortgagor's
interest in the subject property.
The property securing Mortgage Loan No. 94, Heritage Village Apartments, is
known to also secure existing subordinate debt in the amount of $2,555,039.
Mortgage Loan No. 156, Sunwood Village Apartments, permits subordinate debt
to be secured by the related property no earlier than two years after the
Note Date, provided the aggregate LTV of the Mortgage Loan and subordinate
debt does not exceed 80% and the combined DSCR is at least 1.15x.
II-33
<PAGE>
FOOTNOTES TO APPENDIX II
Mortgage Loan No. 164, Canterbury Commons Apartments, permits subordinate
debt to be secured by the related property no earlier than two years after
the Note Date, provided the aggregate LTV of the Mortgage Loan and the
subordinate debt does not exceed 80% and the combined DSCR is at least
1.15x.
9. With respect to Loan No. 66, Santa Paula West, a fee of $68,500 must be
paid by the borrower by a certain date, or there will be an interest rate
step-up. The borrower is also required to provide single purpose entity
covenants to the lender by a certain date, or there will be an additional
interest rate step-up. Any such fee and/or increase in scheduled monthly
payments due to the above mentioned interest rate step(s), will not be part
of the trust. The disclosed monthly payment and resulting DSCR of 1.21x is
based on the current 7.450% interest rate. Should the interest rate
increase to the maximum of 7.900% (assuming both interest rate steps
described above), the current Underwritable Cash Flow would provide a DSCR
of approximately 1.16x.
10. On 3/9/99, the Interest Rate on Mortgage Loan No. 142, 4890 Alameda Street,
was set at 7.280%. The loan's Monthly Payment is based on a 234 month
amortization term beginning on April 1, 1999. The Original Term to Maturity
and the Original Amortization Term are presented as of the date of first
regularly scheduled debt service payment on October 1, 1998.
11. The complete address for Loan No. 28 Jemal-Kalorama Guesthouse is 1852,
1854, 1859, 1831 Mintwood Place, N.W. 2612 Cathedral Ave., N.W. and 2850
27th. St., N.W.
12. The "Underwritable Cash Flow" for Loan No. 7 D.A.M. Green Acres - Honey
Brook and Loan No. 6 D.A.M. Valley View-Honey Brook have been combined and
are indicated in the "Underwritable Cash Flow" line item for Loan No. 6.
13. In general, "Percent Leased" was determined based on a borrower-provided
rent roll. In certain cases, "Percent Leased" was determined based on
executed leases, financial statement or occupancy report. "Percent Leased
as of Date" indicates the stated date or determination date of such
information. For hospitality properties, the data shown represents the
average daily occupancy rate, generally for the preceding twelve month
period.
14. 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.
15. Seasoning represents the approximate number of months elapsed from the date
of the first regularly scheduled debt service payment date of the Mortgage
Loan to the Cut-Off Date.
II-34
<PAGE>
FOOTNOTES TO APPENDIX II
16. The prepayment term includes the number of loan payments from the first Due
Date (after the initial partial month interest only payment date, if any)
to the stated maturity or ARD. DEF represents defeasance. "YM1" represents
the greater of yield maintenance and 1%. The stated percentages (5.0%,
4.0%, 3.0%, 2.0%, 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 ARD for which such provision
applies.
17. The "Administrative Cost Rate" indicated for each Mortgage Loan will be
calculated based on the same interest accrual method applicable to each
Mortgage Loan.
18. For "Capital Expenditure Escrow Required" identified as "Yes," collections
may occur at one-time or are ongoing. In certain instances, the amount of
the escrow may be capped or collected only for certain periods of such
Mortgage Loan or may not be replenished after a release of funds.
19. Indicates the amount or, in certain cases, a letter of credit amount,
deposited at loan closing.
20. Indicates the balance or, in certain cases, a letter of credit balance, as
of March 10, 1999. For disclosure purposes, certain single note, multiple
property loans aggregate Current Capital Expenditure Escrow Balances for
all properties to one property within the multiple property group.
21. Indicates the monthly amount designated for Capital Expenditure Escrows in
the loan documents for such Mortgage Loan (SEE footnote 18 above). In
certain cases, the related deposits will end upon certain events, or upon
certain dates or are capped at certain amounts.
22. Indicates the amount or, in certain cases, a letter of credit amount,
deposited at loan closing.
23. Indicates the balance of or, in certain cases, a letter of credit balance,
as of March 10, 1999. The weighted-average percentage of Mortgaged Loans
disclosed as having a TI/LC cash or letter of credit balances in place
considers only Mortgage Loans on commercial type properties, excluding
multifamily, hospitality, senior housing, self storage, and manufactured
housing community property-related Mortgage Loans. Also excluded from the
calculation is one mixed use property-related Mortgage Loan that includes
only multifamily and manufactured housing community. For disclosure
purposes, certain single note, multiple property loans aggregate Current
TI/LC Balances for all properties to one property within the multiple
property group. All of the Mortgage Loans within such groups are deemed to
have TI/LC balances when calculating the percentage of commercial loans
with TI/LC balances, as of March 10, 1999.
II-35
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
APPENDIX III
LARGEST LOAN SUMMARIES
LOAN NOS. 1- 24 - D.A.M MOBILE HOME PARK PORTFOLIO LOANS AND PROPERTIES
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property Type (each): Manufactured Housing Mortgage Rate 7.180%
Community (each Mortgage Loan):
Loan Type (each): Principal and DSCR at Cash Flow 1.67x
Interest; Fixed; (in aggregate):
Hyperamortizing;
Defeasance; Balloon
Origination Date Cut-off Date LTV
(each Mortgage Loan): 4/29/1998 (in aggregate): 72.7%
Anticipated Repayment Date Balance at ARD LTV
(ARD) (each Mortgage Loan): 05/11/2008 (in aggregate): 64.8%
Maturity Date Percent Leased as of Date
(each Mortgage Loan): 05/11/2028 (each Mortgage Loan): 12/11/1998
- --------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------
CUT-OFF DATE CUT-OFF DATE YEAR BUILT/
PROPERTY NAME: BALANCE: BALANCE/PAD: LOCATION: RENOVATED:
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beaver Run $629,964 $6,300 Linkwood, MD 1973/1997
Brookside $1,785,724 $10,443 Berwick, PA 1980/NAP
Carsons $967,267 $7,328 Chambersburg, PA 1962/NAP
Chelsea $625,003 $7,267 Sayre, PA 1968/NAP
Collingwood $689,488 $6,760 Catlin, NY 1970/NAP
Crestview $793,655 $8,017 Athens, PA 1964/NAP
Frieden Manor $1,860,129 $9,688 Schuykill Haven, PA 1960/NAP
Green Acres - $178,572 $7,441 Chambersburg, PA 1978/NAP
Chambersburg
Gregory Courts $570,439 $15,012 Honey Brook, PA 1966/NAP
Huguenot East $2,003,479 $12,072 Port Jervis, NY 1978/NAP
Maple Manor $3,794,663 $11,971 Taylor, PA 1970/NAP
Monroe Valley $277,779 $6,313 Jonestown, PA 1970/NAP
Moosic Heights $1,909,732 $12,482 Avoca, PA 1971/NAP
Mountaintop $396,827 $10,175 Narvon, PA 1973/NAP
Oakwood Lakes $620,043 $7,849 Tunkhannock, PA 1972/NAP
Pine Haven $967,267 $7,273 Blossvale, NY 1959/NAP
Pleasant View $1,041,642 $9,645 Bloomsburg, PA 1968/NAP
Suburban Estates $1,711,318 $8,430 Greensburg, PA 1973/NAP
Sunneyside $1,488,103 $20,110 Norristown, PA 1967/NAP
Sunny Acres $1,562,508 $8,492 Somerset, PA 1965/NAP
Valley View - Danboro $3,199,422 $13,850 Danboro, PA 1956/NAP
Valley View - Ephrata $1,066,474 $9,967 Ephrata, PA 1968/NAP
Valley View- Honey Brook $1,488,103 $12,401 Honey Brook, PA 1966/NAP
Green Acres-Honey Brook $431,550 $17,981 Honey Brook, PA 1985/NAP
- --------------------------------------------------------------------------------------------------
</TABLE>
III-1
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
APPRAISED
PROPERTY NAME: ANNUAL DEBT SERVICE: PADS: BALANCE AT ARD: VALUE:
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beaver Run $51,621 100 $560,916 $850,000
Brookside $146,326 171 $1,589,997 $2,400,000
Carsons $79,260 132 $861,249 $1,300,000
Chelsea $51,214 86 $556,499 $900,000
Collingwood $56,498 102 $613,916 $1,000,000
Crestview $65,034 99 $706,665 $1,200,000
Frieden Manor $152,423 192 $1,656,248 $2,500,000
Green Acres - Chambersburg $14,633 24 $159,000 $240,000
Gregory Courts $46,743 38 $507,916 $770,000
Huguenot East $164,210 166 $1,784,332 $2,900,000
Maple Manor $310,943 317 $3,378,746 $5,100,000
Monroe Valley $22,762 44 $247,333 $460,000
Moosic Heights $156,487 153 $1,700,414 $2,700,000
Mountaintop $32,517 39 $353,333 $600,000
Oakwood Lakes $50,808 79 $552,082 $835,000
Pine Haven $79,260 133 $861,249 $1,300,000
Pleasant View $85,357 108 $927,498 $1,400,000
Suburban Estates $140,229 203 $1,523,748 $2,300,000
Sunneyside $121,938 74 $1,324,999 $2,000,000
Sunny Acres $128,035 184 $1,391,248 $2,100,000
Valley View - Danboro $262,167 231 $2,848,747 $4,300,000
Valley View - Ephrata $87,389 107 $949,583 $1,600,000
Valley View- Honey Brook $121,938 120 $1,324,999 $2,000,000
Green Acres-Honey Brook $35,362 24 $384,250 $580,000
- --------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------
PROPERTY NAME: UNDERWRITABLE CASH FLOW: PERCENT LEASED:
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Beaver Run $92,081 97.00%
Brookside $219,367 89.00%
Carsons $147,052 94.70%
Chelsea $66,629 91.90%
Collingwood $97,739 99.00%
Crestview $107,249 81.00%
Frieden Manor $264,841 93.80%
Green Acres - Chambersburg $20,021 95.83%
Gregory Courts $72,882 92.00%
Huguenot East $289,086 96.99%
Maple Manor $502,755 92.43%
Monroe Valley $18,815 100.00%
Moosic Heights $243,760 88.96%
Mountaintop 62,319 97.44%
Oakwood Lakes $90,342 98.73%
Pine Haven $109,393 78.95%
Pleasant View $149,568 92.00%
Suburban Estates $256,302 99.01%
Sunneyside $212,723 97.37%
Sunny Acres $214,428 96.20%
Valley View - Danboro $466,641 98.28%
Valley View - Ephrata $154,629 98.13%
Valley View- Honey Brook $258,053 92.50%
Green Acres-Honey Brook $0.00 100.00%
- --------------------------------------------------------------------------------------------------
</TABLE>
Certain information for the above cross-collateralized loans, such as DSCR,
Cut-off Date Balance/Pad, Cut-off Date LTV, and Balance at ARD LTV is presented
on an aggregate-portfolio basis.
III-2
<PAGE>
THE LOANS
The D.A.M Portfolio Loans are comprised of twenty two individual loans
all cross-collateralized with each other and more particularly described under
the heading "The Properties." All of the D.A.M Portfolio Loans were originated
by FINOVA on April 29, 1998.
The D.A.M Beaver Run Loan ("Beaver Run Loan") is secured by a first
mortgage on a 100 pad mobile home park situated on 79.36 acres of land located
in Linkwood, Maryland (the "Beaver Run Property").
The D.A.M Brookside Loan ("Brookside Loan") and the D.A.M Pleasant View
Loan ("Pleasant View Loan") are secured by a first mortgage on a 171 pad mobile
home park situated on 38.59 acres of land located in Berwick, Pennsylvania (the
"Brookside Property") and a 108 pad mobile home park situated on 27.30 acres of
land located in Bloomsburg, Pennsylvania (the "Pleasant View Property").
The D.A.M Carsons Loan ("Carsons Loan") is secured by a first mortgage
on a 132 pad mobile home park situated on 17.34 acres of land located in
Chambersburg, Pennsylvania (the "Carsons Property").
The D.A.M Chelsea Loan ("Chelsea Loan") is secured by a first mortgage
on a 86 pad mobile home park situated on 12.41 acres of land located in Sayre,
Pennsylvania (the "Chelsea Property").
The D.A.M Collingwood Loan ("Collingwood Loan") is secured by a first
mortgage on a 102 pad mobile home park situated on 19.70 acres of land located
in Catlin, New York (the "Collingwood Property").
The D.A.M Crestview Loan ("Crestview Loan") is secured by a first
mortgage on a 99 pad mobile home park situated on 17.77 acres of land located in
Athens, Pennsylvania (the "Crestview Property").
The D.A.M Frieden Manor Loan ("Frieden Manor Loan") is secured by a
first mortgage on a 192 pad mobile home park situated on 64.60 acres of land
located in Schuykill Haven, Pennsylvania (the "Frieden Manor Property").
The D.A.M Green Acres - Chambersburg Loan ("Green Acres - Chambersburg
Loan") is secured by a first mortgage on a 24 pad mobile home park situated on
6.33 acres of land located in Chambersburg, Pennsylvania (the "Green Acres -
Chambersburg Property").
The D.A.M Gregory Courts Loan ("Gregory Courts Loan") is secured by a
first mortgage on a 38 pad mobile home park situated on 8.5 acres of land
located in Honeybrook, Pennsylvania (the "Gregory Courts Property").
The D.A.M Huguenot East Loan ("Huguenot East Loan") is secured by a
first mortgage on a 166 pad mobile home park situated on 74.90 acres of land
located in Port Jervis, New York (the "Huguenot East Property").
The D.A.M Maple Manor Loan ("Maple Manor Loan") is secured by a first
mortgage on a 317 pad mobile home park situated on 68.72 acres of land located
in Taylor, Pennsylvania (the "Maple Manor Property").
The D.A.M Monroe Valley Loan ("Monroe Valley Loan") is secured by a
first mortgage on a 44 pad mobile home park situated on 11.36 acres of land
located in Jonestown, Pennsylvania (the "Monroe Valley Property").
The D.A.M Moosic Heights Loan ("Moosic Heights Loan") is secured by a
first mortgage on a 153 pad mobile home park situated on 34.3 acres of land
located in Avoca, Pennsylvania (the "Moosic Heights Property").
The D.A.M Mountaintop Loan ("Mountaintop Loan") is secured by a first
mortgage on a 39 pad mobile home park situated on 13.19 acres of land located in
Narvon, Pennsylvania (the "Mountaintop Property").
III-3
<PAGE>
The D.A.M Oakwood Lakes Loan ("Oakwood Lakes Loan") is secured by a
first mortgage on a 79 pad mobile home park situated on 39.93 acres of land
located in Tunkhannock, Pennsylvania (the "Oakwood Lakes Property").
The D.A.M Pine Haven Loan ("Pine Haven Loan") is secured by a first
mortgage on a 133 pad mobile home park situated on 56.82 acres of land located
in Blossvale, New York (the "Pine Haven Property").
The D.A.M Suburban Estates Loan (" Suburban Estates Loan") is secured by
a first mortgage on a 203 pad mobile home park situated on 35.32 acres of land
located in Greensburg, Pennsylvania (the "Suburban Estates Property").
The D.A.M Sunneyside Loan ("Sunneyside Loan") is secured by a first
mortgage on a 74 pad mobile home park situated on 8.70 acres of land located in
Norristown, Pennsylvania (the "Sunneyside Property").
The D.A.M Sunny Acres Loan ("Sunny Acres Loan") is secured by a first
mortgage on a 184 pad mobile home park situated on 57.39 acres of land located
in Somerset, Pennsylvania (the "Sunny Acres Property").
The D.A.M Valley View - Danboro Loan ("Valley View - Danboro Loan") is
secured by a first mortgage on a 231 pad mobile home park situated on 30.14
acres of land located in Danboro, Pennsylvania (the "Valley View - Danboro
Property").
The D.A.M Valley View - Ephrata Loan ("Valley View - Ephrata Loan") is
secured by a first mortgage on a 107 pad mobile home park situated on 26.30
acres of land located in Ephrata, Pennsylvania (the "Valley View - Ephrata
Property").
The D.A.M Valley View - Honey Brook Loan ("Valley View - Honey Brook
Loan") and the D.A.M Valley View - Green Acres Loan ("Valley View - Green Acres
Loan") are secured by a first mortgage on a 120 pad mobile home park situated on
15.40 acres of land located in Honey Brook, Pennsylvania (the "Valley View -
Honey Brook Property") and a 24 pad mobile home park situated on 9.70 acres of
land located in Honey Brook, Pennsylvania (the "Valley View - Green Acres
Property").
THE BORROWERS
The borrower for the Beaver Run Loan is Beaver Run Associates, a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Brookside Loan and the Pleasant View Loan is
Brookside Manor Associates, a Pennsylvania limited partnership and special
purpose entity.
The borrower for the Carsons Loan is Carson MHP Associates, a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Chelsea Loan is Chelsea Associates, a Pennsylvania
limited partnership and special purpose entity.
The borrower for the Collingwood Loan is Collingwood Associates, L.P., a
New York limited partnership and special purpose entity.
The borrower for the Crestview Loan is Lockhaven Associates, a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Frieden Manor Loan is Frieden Associates, a
Pennsylvania limited partnership and special purpose entity.
III-4
<PAGE>
The borrower for the Green Acres - Chambersburg Loan is Green Acres,
L.P., a Pennsylvania limited partnership and special purpose entity.
The borrower for the Gregory Courts Loan is Gregory Courts, L.P., a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Huguenot East Loan is Huguenot East Associates,
L.P., a New York limited partnership and special purpose entity.
The borrower for the Maple Manor Loan is Maple Manor Associates, a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Monroe Valley Loan is Monroe Valley Ltd., a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Moosic Heights Loan is Moosic Associates, L.P., a
Delaware limited partnership and special purpose entity.
The borrower for the Mountaintop Loan is Mountaintop Limited
Partnership, a Pennsylvania limited partnership and special purpose entity.
The borrower for the Oakwood Lakes Loan is Oakwood Lake Associates, a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Pine Haven Loan is Pine Haven Associates, L.P., a
New York limited partnership and special purpose entity.
The borrower for the Suburban Estates Loan is Suburban Estates
Associates, L.P., a Pennsylvania limited partnership and special purpose entity.
The borrower for the Sunneyside Loan is Sunneyside Trailer Park, L.P., a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Loan is Sunny Acres Associates, L.P., a
Pennsylvania limited partnership and special purpose entity.
The borrower for the Valley View - Danboro Loan is Valley View MHP -
Danboro, L.P., a Pennsylvania limited partnership and special purpose entity.
The borrower for the Valley View - Ephrata Loan is Valley View MHP -
Ephrata, L.P., a Pennsylvania limited partnership and special purpose entity.
The borrower for the Valley View - Honey Brook Loan and the Green Acres
- - Honey Brook Loan is Valley View MHP - Honey Brook, L.P., a Pennsylvania
limited partnership and special purpose entity.
SECURITY. All of the D.A.M Portfolio Loans are cross-collateralized and
cross-defaulted with each other and are secured by Mortgages, Deeds of Trust,
Assignments of Rents and Leases, UCC Financing Statements and certain additional
security documents. The Beaver Run Loan is also secured by a Supplementary Deed
of Trust and Security Agreement. The mortgages are first liens on the fee
interest in the respective properties. All of the D.A.M Portfolio Loans are
non-recourse, subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rates are fixed at 7.180%. The aggregate
monthly principal and interests payments made under the D.A.M Portfolio Loans is
$205,262.74, allocated per loan as follows:
III-5
<PAGE>
The Beaver Run Loan requires monthly payments of principal and interest
of $4,301.71 until its ARD on May 11, 2008.
The Brookside and Pleasant View Loan requires monthly payments of
principal and interest of $19,306.83 until its ARD on May 11, 2008.
The Carsons Loan requires monthly payments of principal and interest of
$6,604.99 until its ARD on May 11, 2008.
The Chelsea Loan requires monthly payments of principal and interest of
$4,267.84 until its ARD on May 11, 2008.
The Collingwood Loan requires monthly payments of principal and interest
of $4,708.17 until its ARD on May 11, 2008.
The Crestview Loan requires monthly payments of principal and interest
of $5,419.48 until its ARD on May 11, 2008.
The Frieden Manor Loan requires monthly payments of principal and
interest of $12,701.90 until its ARD on May 11, 2008.
The Green Acres - Chambersburg Loan requires monthly payments of
principal and interest of $1,219.38 until its ARD on May 11, 2008.
The Gregory Courts Loan requires monthly payments of principal and
interest of $3,895.25 until its ARD on May 11, 2008.
The Huguenot East Loan requires monthly payments of principal and
interest of $13,684.18 until its ARD on May 11, 2008.
The Maple Manor Loan requires monthly payments of principal and interest
of $25,911.88 until its ARD on May 11, 2008.
The Monroe Valley Loan requires monthly payments of principal and
interest of $1,896.82 until its ARD on May 11, 2008.
The Moosic Heights Loan requires monthly payments of principal and
interest of $13,040.62 until its ARD on May 11, 2008.
The Mountaintop Loan requires monthly payments of principal and interest
of $2,709.74 until its ARD on May 11, 2008.
The Oakwood Lakes Loan requires monthly payments of principal and
interest of $4,233.97 until its ARD on May 11, 2008.
The Pine Haven Loan requires monthly payments of principal and interest
of $6,604.99 until its ARD on May 11, 2008.
The Suburban Estates Loan requires monthly payments of principal and
interest of $11,685.75 until its ARD on May 11, 2008.
The Sunneyside Loan requires monthly payments of principal and interest
of $10,161.52 until its ARD on May 11, 2008.
III-6
<PAGE>
The Sunny Acres Loan requires monthly payments of principal and interest
of $10,669.60 until its ARD on May 11, 2008.
The Valley View - Danboro Loan requires monthly payments of principal
and interest of $21,847.27 until its ARD on May 11, 2008.
The Valley View - Ephrata Loan requires monthly payments of principal
and interest of $7,282.42 until its ARD on May 11, 2008.
The Valley View - Honey Brook and Green Acres - Honey Brook Loan
requires monthly payments of principal and interest of $13,108.36 until its ARD
on May 11, 2008.
PREPAYMENT. The D.A.M Portfolio Loans may not be prepaid by the
borrowers in whole or in part prior to the date which is the earlier to the
occur of (i) the second anniversary of the startup day of the REMIC holding the
D.A.M Portfolio Loans and (ii) May 11, 2002 (the "D.A.M Portfolio Lock-out
Period"). Upon the expiration of the D.A.M Portfolio Lock-out Period, individual
D.A.M Portfolio Loans may be defeased and released from the cross collateral
arrangement so long as the debt service coverage ratio and the loan to value
percentage of the remaining properties are at least 1.50:1.00 and seventy-five
percent (75.0%), respectively. The borrowers may prepay the D.A.M Portfolio
Loans during the three (3) months prior to May 11, 2008 and thereafter following
the Anticipated Repayment Date until the maturity date without payment of any
prepayment premium.
If there is an event of default and the lender accelerates the D.A.M
Portfolio Loans, the note for each loan requires the borrower therein 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 the Defeasance
Collateral sufficient to pay the respective D.A.M Portfolio Loan and (ii) 1% of
the prepaid principal amount. There is a 5% late fee on overdue installments,
and each D.A.M Portfolio Loans accrues interest at the mortgage rate plus 5% per
annum while such D.A.M Portfolio Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The D.A.M Portfolio Loans
become immediately due and payable upon the transfer of the properties or any
ownership interest in the borrowers. After April 29, 1998, borrowers have a one
time right of assumption subject to (a) the reasonable consent of the holder of
the mortgage is granted, (b) payment of an assumption fee of one percent (1%),
(c) approval by a rating agency of the proposed transferee and (d) the
transferee observes the special purpose entity requirements.
ESCROW/RESERVES. The D.A.M Portfolio Loans each have a tax escrow which
requires deposits in amounts sufficient to pay taxes when due. Although
permitted to be collected under the mortgages, an insurance escrow is not
currently being collected. The aggregate monthly escrow payment for capital
expenditures made under the D.A.M Portfolio Loans is $12,654, allocated per loan
as follows:
The Beaver Run Loan has a capital expenditure reserve for the payment of
certain capital expenditures which is funded monthly in the amount of $416.67.
The Brookside Loan and the Pleasant View Loan have an aggregate capital
expenditure reserve for the payment of certain capital expenditures which is
funded monthly in the amount of $1,170.83.
The Carsons Loan has a capital expenditure reserve for the payment of
certain capital expenditures which is funded monthly in the amount of $599.31.
The Chelsea Loan has a capital expenditure reserve for the payment of
certain capital expenditures which is funded monthly in the amount of $358.33.
The Collingwood Loan has a capital expenditure reserve for the payment
of certain capital expenditures which is funded monthly in the amount of
$442.75.
III-7
<PAGE>
The Crestview Loan has a capital expenditure reserve for the payment of
certain capital expenditures which is funded monthly in the amount of $412.50.
The Frieden Manor Loan has a capital expenditure reserve for the payment
of certain capital expenditures which is funded monthly in the amount of
$800.00.
The Green Acres - Chambersburg Loan has a capital expenditure reserve
for the payment of certain capital expenditures which is funded monthly in the
amount of $130.72.
The Gregory Courts Loan has a capital expenditure reserve for the
payment of certain capital expenditures which is funded monthly in the amount of
$158.33.
The Huguenot East Loan has a capital expenditure reserve for the payment
of certain capital expenditures which is funded monthly in the amount of
$763.19.
The Maple Manor Loan has a capital expenditure reserve for the payment
of certain capital expenditures which is funded monthly in the amount of
$1,320.83.
The Monroe Valley Loan has a capital expenditure reserve for the payment
of certain capital expenditures which is funded monthly in the amount of
$183.33.
The Moosic Heights Loan has a capital expenditure reserve for the
payment of certain capital expenditures which is funded monthly in the amount of
$933.00.
The Mountaintop Loan has a capital expenditure reserve for the payment
of certain capital expenditures which is funded monthly in the amount of
$162.50.
The Oakwood Lakes Loan has a capital expenditure reserve for the payment
of certain capital expenditures which is funded monthly in the amount of
$339.58.
The Pine Haven Loan has a capital expenditure reserve for the payment of
certain capital expenditures which is funded monthly in the amount of $554.17.
The Suburban Estates Loan has a capital expenditure reserve for the
payment of certain capital expenditures which is funded monthly in the amount of
$845.83.
The Sunneyside Loan has a capital expenditure reserve for the payment of
certain capital expenditures which is funded monthly in the amount of $308.33.
The Sunny Acres Loan has a capital expenditure reserve for the payment
of certain capital expenditures which is funded monthly in the amount of
$742.00.
The Valley View - Danboro Loan has a capital expenditure reserve for the
payment of certain capital expenditures which is funded monthly in the amount of
$966.70.
The Valley View - Ephrata has Loan a capital expenditure reserve for the
payment of certain capital expenditures which is funded monthly in the amount of
$445.83.
The Valley View - Honey Brook Loan and the Valley View - Green Acres
Loan have an aggregate capital expenditure reserve for the payment of certain
capital expenditures which is funded monthly in the amount of $600.00.
SUBORDINATE/OTHER DEBT. The loan documents prohibit the borrowers from
incurring any subordinate indebtedness or encumbrances.
III-8
<PAGE>
THE PROPERTIES
The Beaver Run Property is a 100 pad mobile home park situated on 79.36
acres of land located in Linkwood, Maryland.
The Brookside Property is a 171 pad mobile home park situated on 38.59
acres of land located in Berwick, Pennsylvania.
The Carsons Property is a 132 pad mobile home park situated on 17.34
acres of land located in Chambersburg, Pennsylvania.
The Chelsea Property is a 86 pad mobile home park situated on 12.41
acres of land located in Sayre, Pennsylvania.
The Collingwood Property is a 102 pad mobile home park situated on 19.70
acres of land located in Catlin, New York.
The Crestview Property is a 99 pad mobile home park situated on 17.77
acres of land located in Athens, Pennsylvania.
The Frieden Manor Property is a 192 pad mobile home park situated on
64.60 acres of land located in Schuykill Haven, Pennsylvania.
The Green Acres - Chambersburg Property is a 24 pad mobile home park
situated on 6.33 acres of land located in Chambersburg, Pennsylvania.
The Gregory Courts Property is a 38 pad mobile home park situated on 8.5
acres of land located in Honeybrook, Pennsylvania.
The Huguenot East Property is a 166 pad mobile home park situated on
74.90 acres of land located in Port Jervis, New York.
The Maple Manor Property" is a 317 pad mobile home park situated on
68.72 acres of land located in Taylor, Pennsylvania (the ").
The Monroe Valley Property is a 44 pad mobile home park situated on
11.36 acres of land located in Jonestown, Pennsylvania.
The Moosic Heights Property is a 153 pad mobile home park situated on
34.3 acres of land located in Avoca, Pennsylvania.
The Mountaintop Property is a 39 pad mobile home park situated on 13.19
acres of land located in Narvon, Pennsylvania.
The Oakwood Lakes Property is a 79 pad mobile home park situated on
39.93 acres of land located in Tunkhannock, Pennsylvania.
The Pine Haven Property a 133 pad mobile home park situated on 56.82
acres of land located in Blossvale, New York.
The Pleasant View Property is a 108 pad mobile home park situated on
27.30 acres of land located in Bloomsburg, Pennsylvania.
III-9
<PAGE>
The Suburban Estates Property is a 203 pad mobile home park situated on
35.32 acres of land located in Greensburg, Pennsylvania.
The Sunneyside Property is a 74 pad mobile home park situated on 8.70
acres of land located in Norristown, Pennsylvania.
The Sunny Acres Property is a 184 pad mobile home park situated on 57.39
acres of land located in Somerset, Pennsylvania.
The Valley View - Danboro Property is a 231 pad mobile home park
situated on 30.14 acres of land located in Danboro, Pennsylvania.
The Valley View - Ephrata Property is a 107 pad mobile home park
situated on 26.30 acres of land located in Ephrata, Pennsylvania.
The Valley View - Honey Brook Property is a 120 pad mobile home park
situated on 15.40 acres of land located in Honey Brook, Pennsylvania.
The Valley View - Green Acres Property is a 24 pad mobile home park
situated on 9.70 acres of land located in Honey Brook, Pennsylvania.
MANAGEMENT
The D.A.M Properties are managed by D.A.M Management Corp. D.A.M
Management Corp. and its affiliates own and manage thirty-eight (38) mobile home
parks throughout Pennsylvania, New York and Maryland. The company was founded by
David W. Wachs and Arthur Sidewater who purchased their first mobile home park
in 1969. The key principals at D.A.M Management Corp. are Rachel A. Wachs, David
and Judith Wachs and Stephen and June Wolfson who own collectively ninety-five
(95%) of the borrowers.
III-10
<PAGE>
LOAN NOS. 25-28 - JEMAL PORTFOLIO LOANS AND PROPERTIES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CUT-OFF DATE BALANCE: PROPERTY TYPE:
The Car Barn $12,947,348 The Car Barn Office
801 North Capitol $11,525,385 801 North Capitol Office
Laurel Lakes Corp. $3,841,795 Laurel Lakes Corp. Mixed Use
Center Center
Kalorama GuestHouse $1,345,537 Kalorama Guest House Hospitality
LOAN TYPE Principal and LOCATION:
(EACH MORTGAGE LOAN): Interest; Fixed; The Car Barn Washington, DC
Defeasance; 801 North Capitol Washington, DC
Balloon
Laurel Lakes Corp. Laurel, MD
Center
ORIGINATION DATE Kalorama Guest House Washington, DC
(EACH MORTGAGE LOAN): 12/17/1998
YEAR BUILT/RENOVATED:
MATURITY DATE The Car Barn 1895/1998
(EACH MORTGAGE LOAN): 1/1/2009 801 North Capitol 1968/97/98
Laurel Lakes Corp. 1987/NAP
Center
MORTGAGE RATE Kalorama Guest House 1895/NAP
(EACH MORTGAGE LOAN): 7.750%
CUT-OFF DATE BALANCE/
ANNUAL DEBT SERVICE SF OR UNIT:
The Car Barn $1,115,454 The Car Barn $151
801 North Capitol $992,947 801 North Capitol $140
Laurel Lakes Corp. $330,982 Laurel Lakes Corp. $55
Center Center
Kalorama Guest House $122,363 Kalorama Guest House $28,032
DSCR (COMBINED): 1.27x APPRAISED VALUE:
The Car Barn $17,300,000
UNDERWRITTEN CASH FLOW: 801 North Capitol $13,600,000
The Car Barn $1,428,164 Laurel Lakes Corp. $4,400,000
Center
801 North Capitol $1,268,485 Kalorama Guest House $1,800,000
Laurel Lakes Corp. $350,592
Center
Kalorama Guest House $122,944 CUT-OFF DATE LTV:
The Car Barn 79.9%
BALLOON AMOUNT: 801 North Capitol 79.9%
The Car Barn $11,626,290 Laurel Lakes Corp. 79.9%
Center
801 North Capitol $10,349,415 Kalorama Guest House 79.9%
Laurel Lakes Corp. $3,449,805
Center
Kalorama Guest House $1,114,791 PERCENT LEASED:
The Car Barn 86.6%
PERCENT LEASED AS OF DATE: 801 North Capitol 100.0%
The Car Barn 10/1/1998 Laurel Lakes Corp. 74.9%
Center
801 North Capitol 10/1/1998 Kalorama Guest House 68.3%
Laurel Lakes Corp. 11/30/1998
Center
Kalorama Guest House 10/31/1998
- ----------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Jemal Portfolio Loan (the "Jemal Portfolio Loan") represents one
promissory note with an original principal balance of $29,725,000 secured by two
deeds of trust on two office properties, one mixed-use property
(office/warehouse) and one hotel property located in Washington, D.C. and
Maryland (individually, a "Jemal Property", and collectively, the "Jemal
Properties"), and more particularly described below under the heading "The
Properties." The Jemal Portfolio Loan was originated by FINOVA Realty Capital
Inc. on December 17, 1998.
III-11
<PAGE>
THE BORROWER. The borrowers are Jemal's/Cayre Car Barn, L.L.C., a
District of Columbia limited liability company, Jemal's/Cayre North Capitol
L.L.C., a District of Columbia limited liability company, Jemal's/Cayre Kalorama
L.L.C., a District of Columbia limited liability company and Jemal's/Cayre
Laurel Lakes L.L.C., a Maryland limited liability company (collectively, the
"Jemal Borrower"). The Jemal Borrower is controlled by two principals, Douglas
Jemal and Joseph Cayre, and each executed the Non-Recourse Guaranty in
connection with the Jemal Portfolio Loan. Each Jemal Borrower is a special
purpose entity, and the loan documents and the organizational documents limit
the Jemal Borrower to the acquisition, operation and disposition of the Jemal
Properties.
SECURITY. The Jemal Portfolio Loan is secured by two Deeds of Trust, two
Assignments of Rents and Leases, four UCC Financing Statements and certain
additional security documents. The mortgages which secure the Jemal Portfolio
Loan are first liens on the fee interests in each of the Jemal Properties. The
Jemal Portfolio Loan is non-recourse, subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.750%. The Jemal Portfolio
Loan requires monthly payments of principal and interest of $213,478.91 with its
Maturity Date on January 1, 2009, at which time all unpaid principal and accrued
interest is due. The Jemal Portfolio Loan accrues interest computed on the basis
of the actual days elapsed per month in a 360-day year.
PREPAYMENT. By the terms, the Jemal Portfolio Loan may not be prepaid in
whole or in part during the loan term, except the Jemal Portfolio Loan may be
defeased on or after the earlier of (a) January 1, 2003, or (b) the second
anniversary of the start-up date of the REMIC holding the Jemal Portfolio Loan
("Defeasance Date"). In addition, the Jemal Borrower may partially defease any
one or more of the Jemal Properties on or after the Defeasance Date, but only
upon payment/defeasance of an amount equal to 120% of the loan amount allocated
to the applicable Jemal Property and provided further that the remaining Jemal
Properties maintain on an aggregate basis a 1.30x DSCR and at least a 75% LTV.
The Jemal Portfolio Loan may be paid without a prepayment fee or premium during
the last 3 months of the loan term.
If there is an event of default and the lender accelerates the Jemal
Portfolio Loan, the Note requires the Jemal Portfolio 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 the Defeasance
Collateral sufficient to pay the Jemal Portfolio Loan and (ii) 1% of the prepaid
principal amount. There is a 5% late fee on overdue installments, and the Jemal
Portfolio Loan accrues interest at the Mortgage Rate plus 5% per annum while the
Jemal Portfolio Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Jemal Portfolio Loan
becomes immediately due and payable upon any transfer of the Jemal Properties
ownership interest in the Jemal Portfolio Borrower, except in connection with
the rights of transfer described below. After January 1, 2000, the Jemal
Portfolio Borrower has the right to one transfer of the Jemal Properties subject
to the related mortgage, provided that (a) consent of the holder of the Jemal
Portfolio Loan is obtained, (b) such holder receives payment of a 1.0%
assumption fee, (c) the proposed transferee is approved by the applicable rating
agency, and (d) the proposed transferee assumes the Jemal Portfolio Loan and
observes the single purpose entity requirements. Transfers by operation of law
and transfers of minority ownership interests not resulting in a change in
voting control are permitted.
ESCROW/RESERVES. There is a tax and property insurance escrow which
requires monthly deposits in the amount sufficient to pay estimated taxes and
property insurance when due. There is also an escrow required for capital
expenditures which is required to be funded monthly in the total amount of
$7,669.71 and an escrow required for tenant improvements and leasing costs which
is required to be funded monthly in the total amount of $25,035.75. Such amounts
will be disbursed to pay such costs and provide additional security for the
Jemal Portfolio Loan. Lender holds $750,000 in escrow pursuant to the Cash
Collateral and Security Agreement (Jemal Loan A--$750,000 Laurel Lakes Reserve)
as additional collateral for the Jemal Portfolio Loan which is available for
release in payment of tenant improvements and leasing commissions for the Laurel
Lakes Property, subject to customary disbursement conditions, or for release to
the Jemal Borrower, subject to customary disbursement conditions, including the
Laurel Lakes Property's achievement of a 1.30 DSCR. Lender holds $596,640 in
escrow
III-12
<PAGE>
pursuant to a Cash Collateral and Security Agreement (Jemal Loan A--$1,190,240
Total Deposit) as additional collateral for the Jemal Portfolio Loan which is
available for release to the Jemal Borrower when the City of Washington, D.C. is
in occupancy and paying rent at its premises on the second and third floors of
the 801 North Capitol Property. The City of Washington, D.C. is in occupancy and
paying rent currently, but Lender is awaiting receipt of an estoppel from the
City of Washington, D.C. confirming its occupancy and commencement of its
payment obligations. Lender holds $93,600 in escrow pursuant to the Cash
Collateral and Security Agreement (Jemal/Cayre Loan A--$1,190,240 Total Deposit)
as additional collateral for the Jemal Portfolio Loan which is available for
release to the Jemal Borrower when a tenant (D.P.C. Technology) is in occupancy
and paying rent in its premises at the Laurel Lakes Property. D.P.C. Technology
is currently in occupancy and paying rent, but Lender is awaiting receipt of an
estoppel certificate from this tenant confirming its occupancy and commencement
of its payment obligations, which is expected to arrive shortly.
SUBORDINATE/OTHER DEBT. The loan documents prohibit the Jemal Portfolio
Borrower from incurring any subordinate indebtedness or encumbrances.
THE PROPERTIES
THE CAR BARN PROPERTY
- --------------------------------------------------------------------------------
Location: Washington, D.C. Square Footage: 85,838
Property Type: Office Percent Leased: 86.6%
Year Built: 1895 Percent Leased as of Date: 10/1/98
Year Renovated: 1998
- --------------------------------------------------------------------------------
The Car Barn Property consists of a rectangular four story brick office
building. The Car Barn Property was 86.6% leased as of October 1, 1998. It is
76.0% leased to Georgetown University for 10 years.
The Car Barn Property was constructed in 1895.
801 NORTH CAPITOL PROPERTY
- --------------------------------------------------------------------------------
Location: Washington, DC Square Footage: 82,334
Property Type: Office Percent Leased: 100.0%
Year Built: 1968 Percent Leased as of Date: 10/1/98
Year Renovated: 1997/1998
- --------------------------------------------------------------------------------
The 801 North Capitol Property consists of a nine-story office building
containing 82,334 square feet of leasable area. The building is 100.0% leased to
two tenants.
The building was original constructed in 1968 and 1997.
LAUREL LAKES CORP. CENTER PROPERTY
- --------------------------------------------------------------------------------
Location: Laurel, MD Square Footage: 70,162
Property Type: Mixed Use Percent Leased: 74.9%
Year Built: 1987 Percent Leased as of Date: 11/30/98
- --------------------------------------------------------------------------------
The Laurel Lakes Property consists of one steel frame, two story office
building, located in Laurel, Maryland. As of November 30, 1998, the Laurel Lakes
Property was 74.9% leased.
The Laurel Lakes Property was constructed in 1987. The building is of
steel frame construction with brick over concrete block exterior.
III-13
<PAGE>
KALORAMA GUESTHOUSE PROPERTY
- ----------------------------
- ------------------------------------------------------------------------------
Location: Washington, DC Size: 48 Rooms
Property Type: Limited Service Hotel Percent Leased: 68.3% (12 Month
Trailing Basis)
Year Built: 1895 Percent Occupied
as of Date: 10/31/98
Year Renovated: NAP
- ------------------------------------------------------------------------------
The Kalorama GuestHouse Property consists of a 48 room bed and
breakfast. The Kalorama GuestHouse Property contains six buildings located
within a two mile radius of each other. The structure is wood frame and the
property was developed between 1895 and 1912.
MANAGEMENT
The Kalorama GuestHouse Property is managed by Chester Management. The
Car Barn Property, 801 North Capitol Property and Laurel Lakes Corp. Center
Property are all self-managed.
III-14
<PAGE>
LOAN NO. 29 - QUAIL OAKS APARTMENTS LOAN AND PROPERTY
- -----------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $21,808,261.00 Property Type: Multifamily
Loan Type: Principal and Location: Tampa, FL
Interest; Fixed; Year Built/Renovated: 1985/NAP
YM/Defeasance; Units: 404
Balloon
Origination Date: 12/24/1997 Cut-off Date Balance per $53,981
unit:
Maturity Date: 4/1/2013 Appraised Value: $28,500,000
Mortgage Rate: 7.210% Current LTV: 76.5%
Annual Debt Service: $1,793,788 Balance Maturity LTV: 60.2%
DSCR: 1.30x Percent Leased: 92.0%
Underwritable Cash Flow: $2,340,120 Percent Leased as of Date: 2/1/1999
Balance at Maturity: $17,146,916
- ---------------------------------------------------------------------------------------------
</TABLE>
THE LOAN. The Quail Oaks Apartments Loan (the "Quail Oaks Loan") is
secured by a first mortgage on a 404 unit multifamily property located in Tampa,
Florida (the "Quail Oaks Property"). The Quail Oaks Loan was originated by
another financial institution on December 24, 1997 and subsequently acquired by
FINOVA Realty Capital Inc. The Quail Oaks Loan was structured with an earnout
provision which was funded on March 27, 1998.
THE BORROWER. The borrower is Roller Hockey of Southeast Florida, Ltd.,
EPNG Building II, Ltd., EPNG Land II, Ltd., Nort LP II, Ltd., as tenants in
common, each a Florida limited partnership (the "Quail Oaks Borrower"). The loan
documents and its organizational documents limit the Quail Oaks Borrower to the
acquisition, operation and disposition of the Quail Property.
SECURITY. The Quail Oaks Loan is secured by a Mortgage and Security
Agreement (the "Mortgage") and certain additional security documents. The
Mortgage is a first lien on a fee interest in the Quail Oaks Property. The Quail
Oaks Loan is non-recourse, subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.210%. The Quail Oaks Loan
requires monthly payments of principal and interest of $149,482.37 until its
maturity on April 1, 2013, at which time all unpaid principal and accrued but
unpaid interest is due. The Quail Oaks 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 Quail Oaks Loan may not be prepaid in
whole or in part during the loan term, except the Quail Oaks Loan may at the
Quail Oaks Borrower's option be (a) defeased on or after the earlier of (i) June
1, 2001 or (ii) the second anniversary of the start-up date of the REMIC holding
the Quail Oaks Loan, or (b) prepaid anytime after May 1, 2000 with a payment
equal to the greater of 1% of the outstanding balance of the Quail Oaks Loan and
a Yield Maintenance Premium calculated by reference to U.S. Treasury
obligations. The Quail Oaks Loan may be paid without a prepayment fee or premium
during the last 3 months of the loan term.
If there is an event of default and the lender accelerates the Quail
Oaks Loan, the Note requires the Quail Oaks Borrower to pay a prepayment fee
equal to three percent (3%) of the principal balance of the Note plus the
greater of (i) one percent (1%) of the principal amount being prepaid and (ii)
the positive excess of (a) the present value of all future installments of
principal and interest due under the Note including the principal due at
maturity, discounted at an interest rate per annum equal to the Treasury
Constant Maturity Yield Index (the average yield for "This Week" as reported by
the Federal Reserve Board in Federal Reserve Statistical Release H.15(519)
published during the second full week preceding the date on which such premium
is payable for instruments having a maturity coterminous with the remaining term
of the Note) over (b) the outstanding principal balance of the Note immediately
before such prepayment. There is a 5% late fee on overdue installments, and the
Quail Oaks Loan accrues interest at the Mortgage Rate plus 4% per annum while
the Quail Oaks Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Quail Oaks Loan
becomes immediately due and payable upon the transfer of the Quail Oaks Property
or any ownership interest in the Quail Oaks Borrower, except
III-15
<PAGE>
in connection with the rights of transfer described below. The Quail Borrower
has the right, at any time, to an unlimited number of transfers of the Quail
Oaks Property subject to a 0.5% assumption fee on the first transfer and a 1%
assumption fee on transfers made thereafter. The lender retains the right to
approve or disapprove the proposed buyer, considering various factors such as
the buyer's financial strength, business standing and track record. Approval is
given or withheld, however, based on what lender determines to be commercially
reasonable in lender's sole discretion. Transfers by operation of law and
transfers of minority ownership interests not resulting in a change in voting
control are permitted.
ESCROW/RESERVES. There is a tax and property insurance escrow which
requires monthly deposits in the amount sufficient to pay estimated taxes and
property insurance when due. There is also an annual escrow required for capital
expenditures which is required to be funded monthly in the amount of $5,050.
SUBORDINATE/OTHER DEBT. The loan documents provide that the lender may
consent to a purchase money financing by the Quail Borrower in an amount not to
exceed $2,000,000 secured by a pledge of up to 99% of ownership interests of the
buyer or by a mortgage. The loan must be subordinate to the Mortgage and not
exceed an 85% loan to value ratio and a debt service coverage ratio of 1:15:1.
THE PROPERTY. The Quail Oaks Property consists of 46 2-story buildings
located in Tampa, FL. The Quail Oaks Property was 92% occupied as of February 1,
1999 with 370 tenants based on a rent roll provided by the Quail Oaks Borrower.
The Quail Oaks Property was completed in 1985 and is constructed with
wood frame and vinyl siding with brick accents.
The 404 units comprising the Quail Oaks Property average 700 square feet
for one bedroom units, 950 square feet for two bedroom, one bath units, 1000
square feet for two bedroom, two bath units, 1,300 square feet for three
bedroom, two bath with loft units and 1,500 square feet for three bedroom, three
bath units and consist of the following unit mix: sixty one bedroom units, one
hundred eighty two bedroom units and one hundred sixty-four three bedroom units.
Facilities include two swimming pools, one heated spa, two tennis courts, two
racquetball courts, one laundry room, one exercise room and two clubhouses.
MANAGEMENT. The Quail Oaks Property is managed by HWW Management, an
affiliate of the Quail Oaks Borrower.
III-16
<PAGE>
LOAN NO. 30 - CROWN COLONY OFFICE LOAN AND PROPERTY
- ---------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $18,859,720 Property Type: Office
Loan Type: Principal and Location: Quincy, MA
Interest; Fixed;
Balloon
Origination Date: 12/28/1998 Year Built/Renovated: 1988/NAP
Maturity Date: 1/1/2009 Square Footage: 125,000
Mortgage Rate: 7.750% Cut-off Date Balance/SF: $151
Annual Debt Service: $1,624,823 Appraised Value: $25,000,000
DSCR: 1.22x Current LTV: 75.4%
Underwritable Cash Flow: $1,985,422 Balance Maturity LTV: 67.7%
Balance at Maturity: $16,935,407 Percent Leased: 85.5%
Percent Leased as of 10/31/1998
Date:
- --------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Crown Colony Office Loan (the "Crown Colony Office Loan") is secured
by a first mortgage on a six story 125,000 square foot office building located
in Quincy, Massachusetts (the "Crown Colony Office Property"). The Crown Colony
Office Loan was originated by FINOVA Realty Capital Inc. on December 28, 1998.
THE BORROWER. The borrower is Colony South Associates Limited
Partnership, a Massachusetts limited partnership (the "Crown Colony Office
Borrower"). The loan documents and their organizational documents limit the
Crown Colony Office Borrower and its general partner to the acquisition,
operation and disposition of the Crown Colony Office Property.
SECURITY. The Crown Colony Office Loan is secured by a Mortgage and
Security Agreement (the "Mortgage") and certain additional security documents.
The Mortgage is a first lien on a fee interest in the Crown Colony Office
Property. The Crown Colony Office Loan is non-recourse, subject to certain
limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.750%. The Crown Colony
Office Loan requires monthly payments of principal and interest of $135,401.91
until its maturity on January 1, 2009, at which time all unpaid principal and
accrued but unpaid interest is due. The Crown Colony Office 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 Crown Colony Office Loan may not be
prepaid in whole or in part during the loan term, except the Crown Colony Office
Loan may be defeased on or after the earlier of (a) January 1, 2002 or (b) the
second anniversary of the start-up date of the REMIC holding the Crown Colony
Office Loan. The Crown Colony Office Loan may be paid without a prepayment fee
or premium during the last 3 months of the loan term.
If there is an event of default and the lender accelerates the Crown
Colony Office Loan, the Note requires the Crown Colony Office 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 the Defeasance
Collateral sufficient to pay the Crown Colony Office Loan (if defeasance is
permitted) and (ii) 1% of the prepaid principal amount. There is a 5% late fee
on overdue installments, and the Crown Colony Office Loan accrues interest at
the Mortgage Rate plus 5% per annum while the Crown Colony Office Loan is in
default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Crown Colony Office
Loan becomes immediately due and payable upon the transfer of the Crown Colony
Office Property or any ownership interest in the Crown Colony Office Borrower,
except in connection with the rights of transfer described below. After January
1, 2000, the Crown Colony Office Borrower has the right to two transfers of the
Crown Colony Office Property subject to the related mortgage, provided that (a)
consent of the holder of the Crown Colony Office Loan is obtained, (b) such
holder receives payment of a 1% assumption fee, (c) the proposed transferee is
approved by the applicable rating agency, and (d) the proposed transferee
assumes the Crown Colony Office Loan and observes the single purpose
III-17
<PAGE>
entity requirements. Transfers by operation of law and transfers of minority
ownership interests not resulting in a change in voting control are permitted.
ESCROW/RESERVES. There is a tax and insurance escrow which requires
monthly deposits in the amount sufficient to pay estimated taxes and insurance
when due. There is also an escrow required for capital expenditures which is
required to the funded monthly in the amount of $2,083 and an escrow required
for tenant improvements and leasing costs which is required to be funded monthly
in the amount of $13,271 plus an additional $20,000 per month until the initial
TI & LC Cap of $2,000,000 is reached. Such amounts will be disbursed to pay such
costs and provide additional security for the Crown Colony Office Loan, except
no disbursements will be made for the initial leasing of the 18,178 square feet
of vacant space at the Crown Colony Office Property.
SUBORDINATE/OTHER DEBT. The loan documents prohibit the Crown Colony
Office Borrower from incurring any subordinate indebtedness or encumbrances.
THE PROPERTY
The Crown Colony Office Property is a six story 125,000 square foot
office building located in Quincy, Massachusetts, approximately seven miles from
Boston. The Crown Colony Office Property was completed in 1988 and is
constructed with steel, aggregate panels, granite and glass.
The Crown Colony Office Property was 85.50% leased as of October 31,
1998 with three tenants based on a rent roll provided by the Crown Colony Office
Borrower. The Crown Colony Office Property was 100% occupied in 1995, 1996 and
1997. Approximately 89.6% of the leased space is rented by national and regional
tenants including The George W. Prescott Publishing Company and General Mills.
Contractual lease expirations during the loan term for all tenants are as
follows: 17,614 square feet (14.1%) in 2002 and 89,208 square feet (71.4%) in
2003. The average in-place rent for the Crown Colony Office Property is $30.17
per square foot.
MANAGEMENT
The Crown Colony Office Property is managed by Vazza Associates, an
affiliate of the Crown Colony Office Borrower. Vazza Associates has developed
approximately 3,300,000 square feet of first class office and mixed-use
developments, suburban office parks and shopping centers.
III-18
<PAGE>
LOAN NOS. 31-36 - SUBURBAN LODGE PORTFOLIO III LOAN AND PROPERTIES
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $15,532,489 Property Type: Hospitality
Loan Type: Principal and Property Sub-Type Extended Stay
Interest; Fixed; Location: See Below
Defeasance; Balloon
Origination Date: 12/29/1998 Year Built/Renovated: See Below
Maturity Date: 01/01/2009 Units: 775 Total in Six
Hotels;
See Below for
Individual Properties
Mortgage Rate: 8.250% Square Footage: See Below
Annual Debt Service: $1,474,084 Cut-off Date Balance per $20,042
room:
DSCR: 1.43x Appraised Value: $26,375,000.00
Underwritable Cash Flow: $2,109,523 Current LTV: 58.9%
Balance at Maturity: $13,055,376 Balance Maturity LTV: 49.5%
Percent Occupied: 88.33% (12 Month
Trailing Basis)
Percent Occupied as of 11/30/1998
Date:
- --------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Suburban Lodge Portfolio III Loan (the "Suburban III Loan")
represents one promissory note for $15,580,000 secured by a first mortgage on
six extended stay hotels located in the city of Cincinnati, state of Ohio, city
of Atlanta, state of Georgia, city of Norcross, state of Georgia, city of
Charlotte, state of North Carolina, city of Jonesboro, state of Georgia, and
city of Virginia Beach, state of Virginia (individually a "Suburban III
Property", and collectively the "Suburban III Properties"). The Suburban III
Loan was originated by FINOVA Realty Capital Inc. on December 29, 1998.
THE BORROWER. The borrower is SLAM Properties III, L.L.C., a Georgia
limited liability company (the "Suburban III Borrower"). The loan documents and
its organizational documents limit the Suburban III Borrower to the acquisition,
operation and disposition of the Suburban III Properties.
SECURITY. The Suburban III Loan is secured by six mortgages, deeds of
trust and/or deeds to secure debt and security agreements (the "Deeds of Trust")
and certain additional security documents. Each of the six Deeds of Trust is a
first lien on a fee interest in one of the six Suburban III Properties. The
Suburban III Loan is non-recourse, subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 8.250%. The Suburban III
Loan requires monthly payments of principal and interest of $122,840.40 until
its maturity on January 1, 2009, at which time all unpaid principal and accrued
but unpaid interest is due. The Suburban III 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 Suburban III Loan may not be prepaid in
whole or in part during the loan term, except the Suburban III Loan may be
defeased on or after the earlier of (a) February 1, 2003, or (b) the second
anniversary of the start-up date of the REMIC holding the Suburban III Loan
("Defeasance Date"). In addition, the Suburban III Borrower may partially
defease any one or more of the Suburban III Properties on or after the
Defeasance Date, but only upon payment/defeasance of an amount equal to 125% of
the loan amount allocated to the applicable Suburban III Property and provided
further that the remaining Suburban III Properties maintain on an aggregate
basis at least a 1.40x DSCR and not more than a 75% LTV. The Suburban III Loan
may be paid without a prepayment fee or premium during the last 3 months of the
loan term.
If there is an event of default and the lender accelerates the Suburban
III Loan, the Note requires the Suburban III 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 the Defeasance Collateral
sufficient to fully defease the Suburban III Loan (if defeasance is permitted)
and (ii) 1% of the prepaid principal amount. There is a 4% late
III-19
<PAGE>
fee on overdue installments, and the Suburban III Loan accrues interest at the
Mortgage Rate plus 5% per annum while the Suburban III Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Suburban III Loan
becomes immediately due and payable upon the transfer of the Suburban III
Properties or any ownership interest in the Suburban III Borrower, except in
connection with the rights of transfer described below. After January 1, 2000 or
sixty days after securitization, the Suburban III Borrower has the right to two
(2) transfers of the Suburban III Properties subject to the related mortgage,
provided that (a) consent of the holder of the Suburban III Loan is obtained,
(b) such holder receives payment of a 0.50% assumption fee, (c) the proposed
transferee is approved by the applicable rating agency, and (d) the proposed
transferee assumes the Suburban III Loan and observes the single purpose entity
requirements. Transfers by operation of law and transfers of minority ownership
interests not resulting in a change in voting control are permitted. In
addition, there is a right to transfer all of the ownership interests in the
Suburban III Borrower to a real estate investment trust which is wholly owned by
Suburban Holdings, L.P., and enter into operating leases for the Suburban III
Properties, provided that (i) the operating leases are subject to and
subordinate to the lien of the Deeds of Trust, (ii) the Suburban III Borrower
provides opinions of counsel and any other documentation required by a rating
agency in connection with such transfer, and (iii) under no circumstances will
the transfer of the ownership interests in the Suburban III Borrower to a real
estate investment trust result in a negative change in the loan to value ratio
or debt service coverage ratio of the Suburban III Loan, each as determined by
the lender, or result in a downgrading of the securities by a rating agency.
ESCROW/RESERVES. There is a tax and property insurance escrow which
requires monthly deposits in the amount sufficient to pay estimated taxes and
property insurance when due. There is also a reserve for capital expenditures
and FF&E ("Replacement Reserve"). The deposits to the Replacement Reserve are
initially set and are adjusted annually such that the monthly deposit to the
Replacement Reserve is equal to the Gross Revenue derived from the Suburban III
Properties for the preceding twelve (12) months (as reflected in the Suburban
III Borrower's annual operating statements as approved and accepted by Lender)
multiplied by four percent (4%) and divided by twelve (12). The adjustment to
the monthly deposits to the Replacement Reserve are effective for the payment
due January 1 of each year, provided, however, that in no event will such
adjustment result in a decrease or increase from the amount of the monthly
deposit made into the Replacement Reserve for the preceding twelve (12) months
unless Lender deems it necessary in its reasonable discretion. Notwithstanding
the above, the Suburban III Borrower is not required to make a monthly deposit
into the Replacement Reserve in any month in which the balance in the
Replacement Reserve exceeds the Gross Revenue derived from the Suburban III
Properties for the preceding thirty-six (36) months (as reflected in the
Suburban III Borrower's annual operating statements as approved and accepted by
Lender) multiplied by four percent (4%). For the first loan year, the monthly
deposit into the Replacement Reserve is $18,441.42. Such amounts are disbursed
to pay Capital and FF&E costs and provide additional security for the Suburban
III Loan.
SUBORDINATE/OTHER DEBT. The loan documents prohibit the Suburban III
Borrower from incurring any subordinate indebtedness or encumbrances.
THE PROPERTIES
The Suburban III Properties consist of six (6) extended stay hotels
located in the city of Cincinnati, state of Ohio, city of Atlanta, state of
Georgia, city of Norcross, state of Georgia, city of Charlotte, state of North
Carolina, city of Jonesboro, state of Georgia, and city of Virginia Beach, state
of Virginia. The combined average daily occupancy of the Suburban III Properties
as of November 30, 1998 on a 12 month trailing basis was 88.33%.
III-20
<PAGE>
The Suburban III Properties are more fully described as follows:
6785 FAIRFIELD BUSINESS DRIVE, CINCINNATI, OHIO 45014
- -----------------------------------------------------
- --------------------------------------------------------------------------------
Location: Cincinnati, Ohio
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1997/NAP
Square Footage: 131 Rooms / 261 SF Average Room
Percent Occupied: 89.6% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- --------------------------------------------------------------------------------
660 INTERCHANGE DRIVE SW, ATLANTA, GEORGIA 30336
- ------------------------------------------------
- --------------------------------------------------------------------------------
Location: Atlanta, Georgia
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1988/NAP
Square Footage: 108 rooms / 205 SF All Rooms
Percent Occupied: 89.9% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- --------------------------------------------------------------------------------
6067 BUFORD HIGHWAY, NORCROSS, GEORGIA 30071
- --------------------------------------------
- --------------------------------------------------------------------------------
Location: Norcross, Georgia
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1989/NAP
Square Footage: 128 Rooms / 230 SF Average Room
Percent Occupied: 88.1% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- --------------------------------------------------------------------------------
540 PRESSLEY ROAD, CHARLOTTE, NORTH CAROLINA 28217
- --------------------------------------------------
- --------------------------------------------------------------------------------
Location: Charlotte, North Carolina
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1997/NAP
Square Footage: 132 Rooms / 239 SF Average Room
Percent Occupied: 92.6% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- --------------------------------------------------------------------------------
7021 TARA BOULEVARD, JONESBORO, GEORGIA 30236
- ---------------------------------------------
- --------------------------------------------------------------------------------
Location: Jonesboro, Georgia
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1996/NAP
Square Footage: 138 Rooms / 246 SF Average Room
Percent Occupied: 91.4% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- --------------------------------------------------------------------------------
III-21
<PAGE>
416 INDEPENDENCE BLVD., VIRGINIA BEACH, VIRGINIA 23452
- ------------------------------------------------------
- --------------------------------------------------------------------------------
Location: Virginia Beach, Virginia
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1997/NAP
Square Footage: 138 Rooms / 255 SF Average Room
Percent Occupied: 78.4% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- --------------------------------------------------------------------------------
MANAGEMENT
The Suburban III Properties are managed by Suburban Management, Inc., a
publicly traded company, and an affiliate of the Suburban III Borrower.
III-22
<PAGE>
LOAN NOS. 37-42 - SUBURBAN LODGE PORTFOLIO II LOAN AND PROPERTIES
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $15,452,733 Property Type: Hospitality
Loan Type: Principal and Property Sub-Type: Extended Stay
Interest; Fixed; Location: See Below
Defeasance; Balloon
Origination Date: 12/29/1998 Year Built/Renovated: See Below
Maturity Date: 01/01/2009 Units: 757 Total in Six
Hotels; See Below
for Individual
Properties
Mortgage Rate: 8.250% Square Footage: See Below
Annual Debt Service: $1,466,517 Cut-off Date Balance per $20,413
room:
DSCR: 1.48x Appraised Value: $26,825,000.00
Underwritable Cash Flow: $2,169,104 Current LTV: 57.6%
Balance at Maturity: $12,988,319 Balance Maturity LTV: 48.4%
Percent Occupancy 90.42% (12 Month
Trailing Basis)
Percent Occupancy as of 11/30/1998
Date:
- ----------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Suburban Lodge Portfolio II Loan (the "Suburban II Loan") represents
one promissory note with an original principal balance of $15,500,000 secured by
a first mortgage on six extended stay hotels located in the city of Chesapeake,
state of Virginia, city of Lilburn, state of Georgia, city of Mableton, state of
Georgia, city of Louisville, state of Kentucky, city of Greenville, state of
South Carolina and city of Charlotte, state of North Carolina (individually a
"Suburban II Property", and collectively the "Suburban II Properties"). The
Suburban III Loan was originated by FINOVA Realty Capital Inc. on December 29,
1998.
THE BORROWER. The borrower is SLAM Properties II, L.L.C., a Georgia
limited liability company (the "Suburban II Borrower"). The loan documents and
its organizational documents limit the Suburban II Borrower to the acquisition,
operation and disposition of the Suburban II Properties.
SECURITY. The Suburban II Loan is secured by six mortgages, deeds of
trust and/or deeds to secure debt and security agreements (the "Deeds of Trust")
and certain additional security documents. Each of the six Deeds of Trust is a
first lien on a fee interest in one of the six Suburban II Properties. The
Suburban II Loan is non-recourse, subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 8.250%. The Suburban II
Loan requires monthly payments of principal and interest of $122,209.75 until
its maturity on January 1, 2009, at which time all unpaid principal and accrued
but unpaid interest is due. The Suburban II 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 Suburban II Loan may not be prepaid in
whole or in part during the loan term, except the Suburban II Loan may be
defeased on or after the earlier of (a) February 1, 2003, or (b) the second
anniversary of the start-up date of the REMIC holding the Suburban II Loan
("Defeasance Date"). In addition, the Suburban II Borrower may partially defease
any one or more of the Suburban II Properties on or after the Defeasance Date,
but only upon payment/defeasance of an amount equal to 125% of the loan amount
allocated to the applicable Suburban II Property and provided further that the
remaining Suburban II Properties maintain on an aggregate basis at least a 1.40x
DSCR and not more than a 75% LTV. The Suburban II Loan may be paid without a
prepayment fee or premium during the last 3 months of the loan term.
If there is an event of default and the lender accelerates the Suburban
II Loan, the Note requires the Suburban II 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 the Defeasance Collateral sufficient
to fully defease the Suburban II Loan (if defeasance is permitted) and (ii) 1%
of the prepaid principal amount. There is a 4% late
III-23
<PAGE>
fee on overdue installments, and the Suburban II Loan accrues interest at the
Mortgage Rate plus 5% per annum while the Suburban II Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Suburban II Loan
becomes immediately due and payable upon the transfer of the Suburban II
Properties or any ownership interest in the Suburban II Borrower, except in
connection with the rights of transfer described below. After January 1, 2000 or
sixty days after securitization, the Suburban II Borrower has the right to two
(2) transfers of the Suburban II Properties subject to the related mortgage,
provided that (a) consent of the holder of the Suburban II Loan is obtained, (b)
such holder receives payment of a 0.50% assumption fee, (c) the proposed
transferee is approved by the applicable rating agency, and (d) the proposed
transferee assumes the Suburban II Loan and observes the single purpose entity
requirements. Transfers by operation of law and transfers of minority ownership
interests not resulting in a change in voting control are permitted. In
addition, there is a right to transfer all of the ownership interests in the
Suburban II Borrower to a real estate investment trust which is wholly owned by
Suburban Holdings, L.P., and enter into operating leases for the Suburban II
Properties, provided that (i) the operating leases are subject to and
subordinate to the lien of the Deeds of Trust, (ii) the Suburban II Borrower
provides opinions of counsel and any other documentation required by a rating
agency in connection with such transfer, and (iii) under no circumstances will
the transfer of the ownership interests in the Suburban II Borrower to a real
estate investment trust result in a negative change in the loan to value ratio
or debt service coverage ratio of the Suburban II Loan, each as determined by
the lender, or result in a downgrading of the securities by a rating agency.
ESCROW/RESERVES. There is a tax and property insurance escrow which
requires monthly deposits in the amount sufficient to pay estimated taxes and
property insurance when due. There is also a reserve for capital expenditures
and FF&E ("Replacement Reserve"). The deposits to the Replacement Reserve are
initially set and are adjusted annually such that the monthly deposit to the
Replacement Reserve is equal to the Gross Revenue derived from the Suburban II
Properties for the preceding twelve (12) months (as reflected in the Suburban II
Borrower's annual operating statements as approved and accepted by Lender)
multiplied by four percent (4%) and divided by twelve (12). The adjustment to
the monthly deposits to the Replacement Reserve are effective for the payment
due January 1 of each year, provided, however, that in no event will such
adjustment result in a decrease or increase from the amount of the monthly
deposit made into the Replacement Reserve for the preceding twelve (12) months
unless Lender deems it necessary in its reasonable discretion. Notwithstanding
the above, the Suburban II Borrower is not required to make a monthly deposit
into the Replacement Reserve in any month in which the balance in the
Replacement Reserve exceeds the Gross Revenue derived from the Suburban II
Properties for the preceding thirty-six (36) months (as reflected in the
Suburban II Borrower's annual operating statements as approved and accepted by
Lender) multiplied by four percent (4%). For the first loan year, the monthly
deposit into the Replacement Reserve is $18,152.84. Such amounts are be
disbursed to pay Capital and FF&E costs and provide additional security for the
Suburban II Loan.
SUBORDINATE/OTHER DEBT. The loan documents prohibit the Suburban II
Borrower from incurring any subordinate indebtedness or encumbrances.
THE PROPERTIES
The Suburban II Properties consist of six (6) extended stay hotels
located in the city of Chesapeake, state of Virginia, city of Lilburn, state of
Georgia, city of Mableton, state of Georgia, city of Louisville, state of
Kentucky, city of Greenville, state of South Carolina and city of Charlotte,
state of North Carolina. The combined average daily occupancy of the Suburban II
Properties as of November 30, 1998 on a 12 month trailing basis was 90.42%.
III-24
<PAGE>
The Suburban II Properties are more fully described as follows:
2150 OLD GREENBRIER ROAD, CHESAPEAKE, VIRGINIA 23320
- ----------------------------------------------------
- --------------------------------------------------------------------------------
Location: Chesapeake, Virginia
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1997/NAP
Square Footage: 132 Rooms / 249 SF Average Room
Percent Occupied: 87.3% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- --------------------------------------------------------------------------------
4142 STONE MOUNTAIN HIGHWAY, LILBURN, GEORGIA 30047
- ---------------------------------------------------
- --------------------------------------------------------------------------------
Location: Lilburn, Georgia
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1995/NAP
Square Footage: 132 rooms / 248 SF Average Room
Percent Occupied: 89.6% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- --------------------------------------------------------------------------------
600 LIONS CLUB DRIVE, MABLETON, GEORGIA 30126
- ---------------------------------------------
- --------------------------------------------------------------------------------
Location: Mableton, Georgia
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1987/1994
Square Footage: 79 Rooms / 350 SF Average Room
Percent Occupied: 98.5% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- --------------------------------------------------------------------------------
7121 PRESTON HIGHWAY, LOUISVILLE, KENTUCKY 40219
- ------------------------------------------------
- --------------------------------------------------------------------------------
Location: Louisville, Kentucky
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1996/NAP
Square Footage: 150 Rooms/242 SF Average Room
Percent Occupied: 90.4% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- --------------------------------------------------------------------------------
2504 WADE HAMPTON BLVD., GREENVILLE, SOUTH CAROLINA 29615
- ---------------------------------------------------------
- --------------------------------------------------------------------------------
Location: Greenville, South Carolina
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1996/NAP
Square Footage: 126 Rooms / 246 SF Average Room
Percent Occupied: 86.5% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- --------------------------------------------------------------------------------
III-25
<PAGE>
110 ROCKY RIVER ROAD WEST, CHARLOTTE, NORTH CAROLINA 28213
- ----------------------------------------------------------
- --------------------------------------------------------------------------------
Location: Charlotte, North Carolina
Construction: Concrete; Steel and Wood Frame
Year Built/Renovated: 1997/NAP
Square Footage: 138 Rooms / 252 SF Average Room
Percent Occupied: 90.2% (12 Month Trailing Basis)
Percent Occupied as of date: November 30, 1998
- --------------------------------------------------------------------------------
MANAGEMENT
The Suburban II Properties are managed by Suburban Management, Inc., a
publicly traded company and an affiliate of the Suburban II Borrower.
III-26
<PAGE>
LOAN NO. 43 - MIDTOWN SHOPPING CENTER LOAN AND PROPERTY
- -------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $13,970,521 Property Type: Retail
Sub-Property Type Anchored
Loan Type: Principal and Interest; Location: Los Angeles,
Fixed; Defeasance; CA
Balloon
Origination Date: 12/29/1998 Year Built/Renovated: 1965/1995
Maturity Date: 12/01/08 Square Footage: 159,933 SF
Mortgage Rate: 7.810% Cut-off Date Balance/SF: $87
Annual Debt Service: $1,210,546 Appraised Value: $17,500,000
DSCR at Cash Flow: 1.24x Cut-off Date LTV: 79.8%
Underwritten Cash Flow: $1,498,157 Balance at Maturity LTV: 71.9%
Balloon Amount: $12,580,491 Percent Leased: 97.6%
Percent Leased as of 10/1/98
Date:
- --------------------------------------------------------------------------------------------
</TABLE>
THE LOAN. The Midtown Shopping Center Loan (the "Midtown Loan") is
secured by a first mortgage on borrower's interest as lessee under a ground
lease for a 159,933 square foot shopping center situated on 10.92 acres located
in Los Angeles, California (the "Midtown Property"). The Midtown Loan was
originated by FINOVA Realty Capital Inc. on December 29, 1998.
THE BORROWER. The Borrower is Midtown Shopping Center Associates, LLC, a
California limited liability company and special purpose entity.
SECURITY. The Midtown Loan is secured by a Leasehold Deed of Trust,
Assignment of Rents and Leases, UCC Financing Statements and certain additional
security documents. The mortgage is a first lien on borrower's leasehold
interest in the Midtown Property. The Midtown Loan is non-recourse, subject to
certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 7.810%. The Midtown Loan
requires monthly payments of principal and interest in the amount of $100,878.80
until its maturity on December 1, 2008. The Midtown Loan accrues interest
computed on the basis of the actual number of days elapsed each month in a 360
day year.
PREPAYMENT. The Midtown Loan may not be prepaid by the borrower prior to
the date which is the earlier to the occur of (i) the second anniversary of the
startup day of the REMIC holding the Midtown Loan and (ii) January 1, 2003 (the
"Midtown Loan Lock-out Period"). Upon the expiration of the Midtown Loan
Lock-out Period, the Midtown Loan may be defeased. The borrower may prepay the
Midtown Loan during the three (3) months prior to the maturity date without
payment of any prepayment premium.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Midtown Loan becomes
immediately due and payable upon the transfer of the Midtown Property or any
ownership interest in the borrower. After December 29, 1999, the borrower has a
one time right of assumption subject to (a) the reasonable consent of the holder
of the mortgage is granted, (b) payment of an assumption fee of one percent
(1%), (c) approval by a rating agency of the proposed transferee and (d) the
transferee observing the special purpose entity covenants.
ESCROW/RESERVES. The Midtown Loan has a tax and insurance escrow which
requires deposits in amounts sufficient to pay taxes and insurance when due.
There is also a capital expenditure reserve for the payment of certain capital
expenditures which is funded monthly in the amount of $1,999.91. There is also a
tenant improvement and leasing reserve for the payment of certain releasing
costs which is funded monthly in the amount of $1,533.00
THE PROPERTY
The Midtown Property is a 159,933 square foot shopping center situated
on 10.92 acres and is comprised of seven one story and two story buildings
located in Los Angeles, California. The Borrower holds a ground lease
III-27
<PAGE>
interest in the Midtown Property. The ground lease and ground lessor consents
and estoppels executed in connection with the Midtown Loan contains customary
mortgagee ground lease protections with the following exceptions: (1) The
Midtown ground lease may be transferred to the mortgagee (whether by foreclosure
or assignment in lieu of foreclosure) without the ground lessor's consent, but
the consent of the ground lessor, which is not to be unreasonably withheld, is
required for all subsequent assignments of the ground lease, including the
assignment made by the lender post foreclosure; (2) the Midtown ground lease
does not require the mortgagee's consent for every amendment thereto, although
the mortgagee's consent is required for modifications to many material
provisions, including provisions relating to the amount of rent, the term of the
ground lease, the permitted uses of the demised premises and the disposition of
insurance proceeds and condemnation awards; and (3) although the Midtown ground
lease gives the lender the right to a new ground lease if the ground lease is
rejected in the borrower's bankruptcy and the right to receive notices of
defaults under the ground lease and a reasonable opportunity to cure the same,
it does not require that the lender receive a notice of any termination of the
ground lease and be given an opportunity to enter into a new lease with the
ground lessor.
Anchor tenants include Ralph's (52,967 SF), Sav-On Drugstore (17,000 SF)
and Orchard Supply Hardware (60,200 SF). One 10,051 square foot free standing
building is divided into seven suites which are fully occupied by shop space
users. One 8,888 square foot building is being marketed as a "food court" and
has four of its seven suites occupied. Two parcels within the Midtown Property
are subject to long term ground leases that are improved with branch bank
buildings occupied by Bank of America and Broadway Federal Savings and Loan.
These buildings are 6,050 square feet and 4,782 square feet, respectively.
The Midtown Property was built in 1965 and renovated in 1995.
MANAGEMENT. J.R. Young Company manages the Midtown Property. J.R. Young
Company is an affiliate of borrower.
III-28
<PAGE>
LOAN NO. 44 - THE LAKES LOAN AND PROPERTY
- -----------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $12,674,263 Property Type: Office
Loan Type: Principal and Location: West Covina, CA
Interest;
Defeasance; Balloon
Origination Date: 12/23/1998 Year Built/Renovated: 1989-90/NA
Maturity Date: 1/1/2009 Square Footage: 170,574
Mortgage Rate: 8.000% Cut-off Date Balance $74
per SF:
Annual Debt Service: $1,118,257 Appraised Value: $18,500,000
DSCR: 1.28x Current LTV: 68.5%
Underwritable Cash Flow: $1,434,213 Balance Maturity LTV: 62.0%
Balance at Maturity: $11,450,391 Percent Leased: 91.88%
Percent Leased as of 12/15/1998
Date:
- -----------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Lakes Loan ("The Lakes Loan") is secured by a first mortgage on two
four story office buildings totaling 170,574 square feet located in West Covina,
California ("The Lakes Property"). The Lakes Loan was originated by FINOVA
Realty Capital Inc. on December 23, 1998.
THE BORROWER. The borrower is West Covina Lakes Associates LLC, a
California limited liability company ("The Lakes Borrower"). The loan documents
and their organizational documents limit The Lakes Borrower and its managing
member to the acquisition, operation and disposition of The Lakes Property. The
Lakes Borrower has an independent member.
SECURITY. The Lakes Loan is secured by a Fee and Leasehold Deed of
Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing
(the "Deed of Trust") and certain additional security documents. The Deed of
Trust is a first lien on a fee and leasehold interest in The Lakes Property. The
Lakes Borrower has a fee ownership interest in the two office buildings at The
Lakes Property and a sub-leasehold interest, easement interest and option to
purchase the two parking structures that serve The Lakes Property. The Lakes
Loan is non-recourse, subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 8.00%. The Lakes Loan
requires monthly payments of principal and interest of $93,188.10 until its
maturity on January 1, 2009, at which time all unpaid principal and accrued but
unpaid interest is due. The Lakes 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 Lakes Loan may not be prepaid in whole or
in part during the loan term, except The Lakes Loan may be defeased on or after
the earlier of (a) January 1, 2003 or (b) the second anniversary of the start-up
date of the REMIC holding the Lakes Loan. The Lakes Loan may be paid without a
prepayment fee or premium during the last 3 months of the loan term.
If there is an event of default and the lender accelerates The Lakes
Loan, the Note requires The Lakes 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 the Defeasance Collateral sufficient to
defease The Lakes Loan (if defeasance is permitted) and (ii) 1% of the prepaid
principal amount. There is a 5% late fee on overdue installments, and The Lakes
Loan accrues interest at the Mortgage Rate plus 5% per annum while The Lakes
Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Lakes Loan becomes
immediately due and payable upon the transfer of The Lakes Property or any
ownership interest in The Lakes Borrower, except in connection with the rights
of transfer described below. After January 1, 2000, The Lakes Borrower has the
right to one transfer of The Lakes Property subject to the related mortgage,
provided that (a) consent of the holder of The Lakes Loan is obtained, (b) such
holder receives payment of a 1% assumption fee, (c) the proposed transferee is
approved by the
III-29
<PAGE>
applicable rating agency, and (d) the proposed transferee assumes The Lakes Loan
and observes the single purpose entity requirements. Transfers by operation of
law and transfers of minority ownership interests not resulting in a change in
voting control are permitted.
ESCROW/RESERVES. There is a tax and insurance escrow which requires
monthly deposits in the amount sufficient to pay estimated taxes and insurance
when due. There is also an escrow required for capital expenditures which is
required to the funded monthly in the amount of $2,862.33 and an escrow required
for tenant improvements and leasing costs which is required to be funded monthly
in the amount of $21,369.50 until such times and to the extent that this escrow
account equals $769,302. Such amounts will be disbursed to pay tenant
improvement and leasing commission costs and provide additional security for The
Lakes Loan.
THE PROPERTY
The Lakes Property consists of two four story office buildings totaling
170,574 square feet and two multi-level parking structures located in West
Covina, California, which is east of downtown Los Angeles. The Lakes Property
was completed by The Lakes Borrower in 1989 and 1990 and is constructed of steel
and concrete with pre-cast concrete panels and glass. According to the
appraiser, The Lakes Property is considered to be the highest quality office
project in the East San Gabriel Valley area.
The Lakes Property was developed with the assistance of the
Redevelopment Agency of the City of West Covina ("Agency"). The Agency ground
leased the parking structures to the City of West Covina ("City"), and the City
sub-ground leased 25% of its interest in the parking structures to The Lakes
Borrower ("Parking Ground Lease"). The Parking Ground Lease grants to The Lakes
Borrower the right to exclusive use of 25% of the parking structures. The
Parking Ground Lease contains standard mortgagee protections, and ground lease
estoppel certificates were obtained from the Agency and the City. Payments under
the Parking Ground Lease are equal to the payments due under the Bonds (defined
below) floated by the Agency to finance construction of the parking structures.
The Lakes Borrower has deposited $150,000 with the City as additional security
for the sublease payments under the Parking Ground Lease.
The parking structures are also subject to a reciprocal easement
agreement and a related implementation agreement ("REA"). The REA grants The
Lakes Borrower an easement right to use the 75% of the parking structures it
does not lease under the Parking Ground Lease. Lender's title insurance policy
insures the Lender's lien on The Lakes Borrower's easement interests. Estoppels
certificates were obtained from the City and the Agency with respect to the REA.
The City and The Lakes Borrower entered into an Operating Agreement
pursuant to which The Lakes Borrower operates the 75% of the parking structures
not subject to the Parking Ground Lease. The Operating Agreement has extensive
mortgagee protections. Lender has a lien on The Lakes Borrower's interest in the
Operating Agreement. An estoppel certificate was obtained from the City in
connection with the Operating Agreement.
The Lakes Borrower has an option to purchase the parking structures. The
option is exercisable after the Bonds have been fully discharged (August 1,
2018) for a price approximately equal to 75% of the then fair market value of
the parking structures. The Lakes Borrower has pledged the purchase option in
the Deed of Trust, and the Lender has obtained title insurance with respect to
its first lien on the purchase option.
The Lakes Property was 91.88% leased with average rents of $20.55 per
square foot as of December 15, 1998, with 39 tenants based on a rent roll
provided by The Lakes Borrower. The largest tenant of The Lakes Property is
Wells Fargo Bank, which occupies 26,692 square feet. Contractual lease
expirations during the loan term for all tenants are as follows: 3,585 square
feet (2.10%) in 1999, 25,098 square feet (14.71%) in 2000, 65,826 square feet
(39.59%) in 2001, 44,205 square feet (25.92%) in 2002, 3,918 square feet (2.30%)
in 2003, 10,778 square feet (6.32%) in 2004, 964 square feet (0.57%) in 2005 and
2,342 square feet (1.37%) in 2006.
III-30
<PAGE>
SUBORDINATE/OTHER DEBT/OTHER RELATED MATTERS. The loan documents
prohibit The Lakes Borrower from incurring any subordinate indebtedness or
encumbrances, except for the following subordinate indebtedness and obligations:
1. Bonds. The Agency financed its acquisition of the parking
structures by issuing tax-exempt bonds in the original amount of
$7,750,000 ("Bonds"). The Bonds mature on August 1, 2018, and have
a principal balance of $7,125,000 as of December 23, 1998. An
estoppel certificate was obtained from the bond trustee in
connection with the status of the Bonds. The Agency's bond payment
obligations are credit enhanced by a letter of credit in favor of
the bond trustee, which letter of credit is maintained by The Lakes
Borrower. The City, in turn, entered into a reimbursement agreement
with the credit enhancer/letter of credit issuer. The Lakes
Borrower and W&B Builders, Inc., respectively, have indemnified and
guaranteed the City with respect to its obligations under the
reimbursement agreement. The Lakes Borrower has not granted to the
City any security interest in its fee or leasehold interests in The
Lakes Property to secure its obligations under such indemnification
agreement. With respect to such indemnification agreement, Lender
obtained a standard conduit lender's subordination and standstill
agreement from the City. An estoppel certificate was obtained from
the City in connection with the guarantee and indemnification
agreements.
2. Disposition and Development Agreement. The Lakes Borrower acquired
The Lakes Property from the Agency and developed it in accordance
with a Disposition and Development Agreement ("DDA") and four
implementation agreements. The Agency has issued a Certificate of
Completion which terminated many of The Lake Borrower's obligations
under the DDA. In addition, the payment of certain property tax
assistance by the Agency to The Lakes Borrower under the DDA ended
in 1997. An estoppel was obtained from the Agency with respect to
the DDA.
3. Deferred Purchase Price. The Agency deferred $1,155,000 of the
purchase price paid by The Lakes Borrower for The Lakes Property
("Deferred Purchase Price"). The obligation to pay the Deferred
Purchase Price is evidenced by a promissory note and secured by a
deed of trust on The Lakes Property. The promissory note accrues
interest at 9%. There is no current payment obligation under the
note. The Deferred Purchase Price is paid out of the net sale or
refinancing proceeds The Lakes Property. No payments were due to
the Agency upon Lender's $12,700,000 to The Lakes Borrower. Lender
obtained a standard conduit lender's subordination and standstill
agreement with respect to the Deferred Purchase Price. In limited
circumstances Lender must get the Agency's consent to modifications
of the senior loan documents. Under the loan documents, The Lakes
Borrower's transfers and assumptions are subject to consent of the
Agency, and the Agency's standstill agreement is subject to
obtaining such consent. An estoppel certificate was obtained in
connection with the Deferred Purchase Price.
4. Agency Equity Interest Lien. The has the right to a return of 10%
on the annual net operating income from The Lakes Property after
payment of (a) The Lakes Borrower's debt service on the financing
for The Lakes Property, and (b) The Lakes Borrower's preferred
return ("Equity Interest Lien"). The obligation to pay this return
is secured by a lien on The Lakes Property. The Equity Interest
Lien terminates after repayment of the Deferred Purchase Price. The
Agency subordinated the Equity Interest Lien to the Deed of Trust,
but did not provide a standstill agreement. Payments under the
Equity Interest Lien are made quarterly. No payments have been made
under the Equity Interest Lien to date. An escrow will be
established by Lender if there is a current payment requirement on
the Equity Interest lien. An estoppel certificate was obtained from
the Agency with respect to the Equity Interest Lien.
5. Agency Assistance Lien. The Agency has provided assistance to The
Lakes Borrower on an annual basis in the form of a reimbursement of
lease payments under the Parking Sublease (i.e., ultimate payment
on the Bonds), up to $240,000 for seven years ("Agency Assistance
Lien").
III-31
<PAGE>
The Agency Assistance Lien is secured by a lien on The Lakes
Property. The balance of the Agency Assistance Lien is $1,427,539
as of December 23, 1998. The Agency Assistance Lien is repaid out
of net proceeds (in excess of The Lakes Borrower's development
costs) of a sale or refinancing, and only after the Deferred
Purchase Price has been in full. Lender obtained a standard conduit
lender's subornation and standstill agreement from the Agency with
respect to the Agency Assistance Lien. Under the loan documents,
The Lakes Borrower's transfers and assumptions are subject to
consent of the Agency, and the Agency's standstill agreement is
subject to obtaining such consent. An estoppel was obtained from
the Agency in connection with the Agency Assistance Lien.
6. Right of First Refusal. The Agency has a right of first refusal
with respect to any sale of The Lakes Property. The right of first
refusal terminates when the Agency's three liens have been paid.
The Agency subordinated this right to Lender's lien and waived its
right of first refusal in connection with any foreclosure by or
transfer to Lender.
7. Partner Loans. The Lakes Borrower has received unsecured "partner"
loans in the total original principal amount of $2,982,016 from
Ocean Industries, Inc. and Watt Land, Inc. These loans had an
outstanding balance of $1,790,659 as of December 23, 1998 and have
no stated maturity date. Payment obligations under these loans
arise only if The Lakes Property generates cash flow in excess of
debt service, expenses and reserves. Lender has obtained a standard
conduit lender's subordination and standstill agreement and an
estoppel with respect to these partner loans.
MANAGEMENT
The Lakes Property is managed by Watt Family Properties, Inc. dba Watt
Management Company, an affiliate of The Lakes Borrower. Watt Management Company
has more than 30 years experience managing office, industrial and retail
properties. The Watt companies have been involved in the development of over
$6,000,000,000 in real estate and have a Southern California portfolio of in
excess of 5,800,000 square feet.
III-32
<PAGE>
LOAN NO. 45 - RAMADA PLAZA HOTEL LOAN AND PROPERTY
- --------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $12,140,079 Property Type: Hotel
Loan Type: Principal and Location: San Diego, CA
Interest; Fixed;
Defeasance; Balloon
Origination Date: 12/10/1998 Year Built/Renovated: 1969/1997
Maturity Date: 1/1/2009 Rooms: 182
Mortgage Rate: 8.625% Cut-off Date Balance per $66,704
room:
Annual Debt Service: $1,188,769 Appraised Value: $16,650,000
DSCR: 1.41x Current LTV: 72.9%
Underwritable Cash Flow: $1,679,842 Balance Maturity LTV: 61.9%
Balance at Maturity: $10,311,024 Percent Occupancy: 81.31%
Percent Occupancy as of 10/31/1998
Date:
- ---------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Ramada Plaza Hotel Loan (the "Ramada Plaza Hotel Loan") is secured
by a first mortgage on a 182 room full service hotel located in San Diego,
California (the "Ramada Plaza Hotel Property"). The Ramada Plaza Hotel Loan was
originated by FINOVA Realty Capital Inc. on December 10, 1998.
THE BORROWER. The borrower is HIHC, LLC, a California limited liability
company (the "Ramada Plaza Hotel Borrower"). The loan documents and its
organizational documents limit the Ramada Plaza Hotel Borrower to the
acquisition, operation and disposition of the Ramada Plaza Hotel Property.
SECURITY. The Ramada Plaza Hotel Loan is secured by a Deed of Trust,
Assignment of Leases and Rents, Security Agreement and Fixture Filing (the "Deed
of Trust") and certain additional security documents. The Deed of Trust is a
first lien on a fee interest in the Ramada Plaza Hotel Property. The Ramada
Plaza Hotel Loan is non-recourse, subject to certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 8.625%. The Ramada Plaza
Hotel Loan requires monthly payments of principal and interest of $99,064.09
until its maturity on January 1, 2009, at which time all unpaid principal and
accrued but unpaid interest is due. The Ramada Plaza Hotel 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 Ramada Plaza Hotel Loan may not be prepaid
in whole or in part during the loan term, except the Ramada Plaza Hotel Loan may
be defeased on or after the earlier of (a) December 10, 2002 or (b) the second
anniversary of the start-up date of the REMIC. The Ramada Plaza Hotel Loan may
be paid without a prepayment fee or premium during the last 3 months of the loan
term.
If there is an event of default and the lender accelerates the Ramada
Plaza Hotel Loan, the Note requires the Ramada Plaza Hotel 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 the Defeasance
Collateral sufficient to pay the Ramada Plaza Hotel Loan (if defeasance is
permitted) and (ii) 1% of the prepaid principal amount. There is a 5% late fee
on overdue installments, and the Ramada Plaza Hotel Loan accrues interest at the
Mortgage Rate plus 5% per annum while the Ramada Plaza Hotel Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Ramada Plaza Hotel
Loan becomes immediately due and payable upon the transfer of the Ramada Plaza
Hotel Property or any ownership interest in the Ramada Plaza Hotel Borrower,
except in connection with the rights of transfer described below. After the
earlier of December 10, 1999 or two months after securitization, the Ramada
Plaza Hotel Borrower has the right to two transfers of the Ramada Plaza Hotel
Property subject to the related mortgage, provided that (a) consent of the
holder of the Ramada Plaza Hotel Loan is obtained, (b) such holder receives
payment of a 1% assumption fee (except in connection with a transfer to a Patel
Family Member), (c) the proposed transferee is approved by the applicable rating
agency, and
III-33
<PAGE>
(d) the proposed transferee assumes the Ramada Plaza Hotel Loan and observes the
single purpose entity requirements. Transfers by operation of law and transfers
of minority ownership interests not resulting in a change in voting control are
permitted.
ESCROW/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, including fixtures, furnishings and
equipment, which had an initial deposit of $204,108 and which is required to the
funded monthly in the amount of $17,009 until such time and to the extent that
this escrow account equals $204,108. Such amounts will be disbursed to pay such
costs and provide additional security for the Ramada Plaza Hotel Loan. There is
no insurance escrow as long as the Ramada Plaza Hotel Property is covered under
a blanket insurance policy.
SUBORDINATE/OTHER DEBT. The loan documents prohibit the Ramada Plaza
Hotel Borrower from incurring any subordinate indebtedness or encumbrances.
THE PROPERTY
The Ramada Plaza Hotel Property is a 182 room full service hotel located
in San Diego, California. The Ramada Plaza Hotel Property is located near all of
San Diego's major attractions, including Sea World, San Diego Zoo, Balboa Park,
Historic Old Town, Qualcomm Stadium and the beaches.
The Ramada Plaza Hotel Property achieved occupancy rates for the
calendar years 1996 and 1997 and the first ten months of 1998 of approximately
79.54%, 82.17% and 81.31%, respectively and average daily rates for the same
periods of approximately $57.30, $66.23 and $79.80, respectively.
The Ramada Plaza Hotel Property consists of three four-story buildings.
The Ramada Plaza Hotel Property was originally constructed in 1969 and renovated
in 1997 and is constructed with wood frame with stucco and/or plaster finish.
The Ramada Plaza Hotel Property facilities include mini refrigerators,
coffeemakers, hair dryers, irons/ironing boards, voice mail, data port
telephones, televisions, in-room movies, weekday newspapers, electronic security
systems, room service, fax/copier/business service, valet service, guest
laundry, car rental, concierge service, fitness center, outdoor heated pool and
spa, and video game room. The Ramada Plaza Hotel Property also includes the
Tickled Trout Restaurant and Lounge and 2,311 square feet of meeting space.
The Ramada Plaza Hotel Property has won several awards over the past
several years for profitability and customer satisfaction.
MANAGEMENT
The Ramada Plaza Hotel Property is managed by Tarsadia Hotels, an
affiliate of the Ramada Plaza Hotel Borrower. Tarsadia Hotels was established in
1976 and now owns a portfolio of more than 3,000 hotel rooms with over 1,200 new
rooms in the planning process, and have franchise relationships with Cendant,
Hilton, Hyatt, Marriott, Promus, Radisson and Sheraton. The general manager of
the Ramada Plaza Hotel Property is Mark Efron, who has over 18 years of
corporate and hospitality management experience, including as general manager of
the Beverly Plaza Hotel, and is a recipient of "The Wall Street Journal Award",
as well as other various awards for hotels he has managed.
III-34
<PAGE>
LOAN NO. 46 - GOVERNOR'S CROSSING OUTLET CENTER LOAN AND PROPERTY
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cut-off Date Balance: $9,680,343 Property Type: Retail
Loan Type: Principal and Sub-Property Type: Outlet Center
Interest; Location: Sevierville, TN
Defeasance; Fixed;
Balloon
Origination Date: 12/24/1998 Year Built/Renovated: 1998/NA
Maturity Date: 1/1/2009 Square Footage: 135,033
Mortgage Rate: 8.000% Cut-off Date Balance per $72
SF:
Annual Debt Service: $854,102 Appraised Value: $14,000,000
DSCR: 1.30x Current LTV: 69.2%
Underwritable Cash Flow: $1,107,082 Balance Maturity LTV: 62.5%
Balance at Maturity: $8,745,574 Percent Leased: 78.73%
Percent Leased as of 12/31/1998
Date:
- ----------------------------------------------------------------------------------------------
</TABLE>
THE LOAN
The Governor's Crossing Outlet Center Loan (the "Governor's Crossing
Loan") is secured by a first mortgage on a 135,033 square foot retail outlet
center located in Sevierville, Tennessee (the "Governor's Crossing Property").
The Governor's Crossing Loan was originated by FINOVA Realty Capital Inc. on
December 24, 1998.
THE BORROWER. The borrower is Governor's Crossing Outlet Mall, L.L.C., a
Tennessee limited liability company (the "Governor's Crossing Borrower"). The
loan documents and its organizational documents limit the Governor's Crossing
Borrower to the acquisition, operation and disposition of the Governor's
Crossing Property.
SECURITY. The Governor's Crossing Loan is secured by a Deed of Trust and
Security Agreement (the "Deed of Trust") and certain additional security
documents. The Deed of Trust is a first lien on a fee interest in the Governor's
Crossing Property. The Governor's Crossing Loan is non-recourse, subject to
certain limited exceptions.
PAYMENT TERMS. The Mortgage Rate is fixed at 8.000%. The Governor's
Crossing Loan requires monthly payments of principal and interest of $71,175.16
until its maturity on January 1, 2009, at which time all unpaid principal and
accrued but unpaid interest is due. The Governor's Crossing 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 Governor's Crossing Loan may not be
prepaid in whole or in part during the loan term, except the Governor's Crossing
Loan may be defeased on or after the earlier of January 1, 2003 or two years
after securitization. The Governor's Crossing Loan may be paid without a
prepayment fee or premium during the last 3 months of the loan term.
If there is an event of default and the lender accelerates the
Governor's Crossing Loan, the Note requires the Governor's Crossing 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 the
Defeasance Collateral sufficient to pay the Governor's Crossing Loan (if
defeasance were permitted) and (ii) 1% of the prepaid principal amount. There is
a 5% late fee on overdue installments, and the Governor's Crossing Loan accrues
interest at the Mortgage Rate plus 5% per annum while the Governor's Crossing
Loan is in default.
TRANSFER OF PROPERTY OR INTEREST IN BORROWER. The Governor's Crossing
Loan becomes immediately due and payable upon the transfer of the Governor's
Crossing Property or any ownership interest in the Governor's Crossing Borrower,
except in connection with the rights of transfer described below. After December
24, 1999, the Governor's Crossing Borrower has the right to one transfer of the
Governor's Crossing Property subject to the related mortgage and the payment of
a 1% assumption fee upon approval of the lender. Transfers by operation of law
and transfers of minority ownership interests not resulting in a change in
voting control are permitted.
III-35
<PAGE>
ESCROW/RESERVES. There is a tax and property insurance escrow which
requires monthly deposits in the amount sufficient to pay estimated taxes and
property insurance when due. There is also an escrow required for capital
expenditures which is required to the funded monthly in the amount of $1,687.92
and an escrow required for tenant improvements and leasing costs which is
required to be funded monthly in the amount of $6,038.67 until such time and to
the extent that this escrow account equals $500,000. Such amounts will be
disbursed to pay such costs and provide additional security for the Governor's
Crossing Loan.
SUBORDINATE/OTHER DEBT. The loan documents prohibit the Governor's
Crossing Borrower from incurring any subordinate indebtedness or encumbrances.
THE PROPERTY
The Governor's Crossing Property consists of 135,033 rentable square
feet situated on an approximate 18.781 acre site located in Sevierville,
Tennessee. The Governor's Crossing Property was 78.73% leased as of 12/31/1998
with 22 tenants based on a rent roll provided by the Governor's Crossing
Borrower.
The Governor's Crossing Property was completed in 1998 and is
constructed with concrete block and steel post columns.
Approximately 78.7% of the space has been leased and includes the
following tenants: Vanity Fair Outlet (25,764 sq. ft.), Books A Million (17,523
sq. ft.), Golf Depot (12,083 sq. ft.) and Shoe Carnival (7,562 sq. ft.).
Contractual Lease expirations for all tenants are as follows: 59.0% of net
rentable square feet in 2003, 1.1% of net rentable square feet in 2004 and 18.6%
of net rentable square feet in 2008. Per the 12/31/98 rent roll provided by the
Governor's Crossing Borrower, the average annual base rent of tenants at the
Governor's Crossing Property is $12.92 per square foot.
MANAGEMENT
The Governor's Crossing Property is managed by Insignia Commercial
Group.
III-36
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
DISTRIBUTION DATE STATEMENT
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
STATEMENT SECTIONS PAGE(S)
- ------------------ -------
Certificate Distribution Detail 2
Certificate Factor Detail 3
Reconciliation Detail 4
Other Required Information 5
Ratings Detail 6
Current Mortgage Loan and Property Stratification Tables 7 - 9
Mortgage Loan Detail 10
Principal Prepayment Detail 11
Historical Detail 12
Delinquency Loan Detail 13
Specially Serviced Loan Detail 14 - 15
Modified Loan Detail 16
Liquidated Loan Detail 17
- -------------------------------------------------------------------------------
UNDERWRITER
- ------------------------------------------
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Contact: General Information Number
Phone Number: (212) 761-4700
- ------------------------------------------
MASTER SERVICER
- ------------------------------------------
AMRESCO Services, L.P.
235 Peachtree Street, N.E.
Suite 900
Atlanta, Georgia 30303
Contact: Charlotte Kollin
Phone Number: (404) 654-2434
- ------------------------------------------
SPECIAL SERVICER
- ------------------------------------------
Banc One Mortgage Capital Markets, LLC
1717 Main Street, 14th Floor
Dallas, TX 75201
Contact: Paul G. Smyth
Phone Number: (214) 290-2505
- ------------------------------------------
This report has been compiled from information provided to Norwest by various
third parties, which may include the Servicer, Master Servicer, Special Servicer
and others. Norwest has not independently confirmed the accuracy of information
received from these third parties and assumes no duty to do so. Norwest
expressly disclaims any responsibility for the accuracy or completeness of
information furnished by third parties.
Copyright 1997, Norwest Bank Minnesota, N.A.
IV-1
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
CERTIFICATE DISTRIBUTION DETAIL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Pass-Through Original Beginning Principal Interest Prepayment
Class CUSIP Rate Balance Balance Distribution Distribution Penalties
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 0.000000% 0.00 0.00 0.00 0.00 0.00
A-2 0.000000% 0.00 0.00 0.00 0.00 0.00
B 0.000000% 0.00 0.00 0.00 0.00 0.00
C 0.000000% 0.00 0.00 0.00 0.00 0.00
D 0.000000% 0.00 0.00 0.00 0.00 0.00
E 0.000000% 0.00 0.00 0.00 0.00 0.00
F 0.000000% 0.00 0.00 0.00 0.00 0.00
G 0.000000% 0.00 0.00 0.00 0.00 0.00
H 0.000000% 0.00 0.00 0.00 0.00 0.00
J 0.000000% 0.00 0.00 0.00 0.00 0.00
K 0.000000% 0.00 0.00 0.00 0.00 0.00
L 0.000000% 0.00 0.00 0.00 0.00 0.00
M 0.000000% 0.00 0.00 0.00 0.00 0.00
N 0.000000% 0.00 0.00 0.00 0.00 0.00
O 0.000000% 0.00 0.00 0.00 0.00 0.00
R-I 0.000000% 0.00 0.00 0.00 0.00 0.00
R-II 0.000000% 0.00 0.00 0.00 0.00 0.00
R-III 0.000000% 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------
Totals 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------
Realized Loss/ Current
Additional Trust Total Ending Subordination
Class Fund Expenses Distribution Balance Level (1)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A-1 0.00 0.00 0.00 0.00%
A-2 0.00 0.00 0.00 0.00%
B 0.00 0.00 0.00 0.00%
C 0.00 0.00 0.00 0.00%
D 0.00 0.00 0.00 0.00%
E 0.00 0.00 0.00 0.00%
F 0.00 0.00 0.00 0.00%
G 0.00 0.00 0.00 0.00%
H 0.00 0.00 0.00 0.00%
J 0.00 0.00 0.00 0.00%
K 0.00 0.00 0.00 0.00%
L 0.00 0.00 0.00 0.00%
M 0.00 0.00 0.00 0.00%
N 0.00 0.00 0.00 0.00%
O 0.00 0.00 0.00 0.00%
R-I 0.00 0.00 0.00 0.00%
R-II 0.00 0.00 0.00 0.00%
R-III 0.00 0.00 0.00 0.00%
- -----------------------------------------------------------------------------------
Totals 0.00 0.00 0.00
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Original Beginning Ending
Pass-Through Notional Notional Interest Prepayment Total Notional
Class CUSIP Rate Amount Amount Distribution Penalties Distribution Amount
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
X 0.000000% 0.00 0.00 0.00 0.00 0.00 0.00
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated by taking (A) the sum of the ending certificate balance of all
classes less (B) the sum of (i) the ending certificate balance of the designated
class and (ii) the ending certificate balance of all classes which are not
subordinate to the designated class and dividing the result by (A).
IV-2
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
CERTIFICATE FACTOR DETAIL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Realized Loss/
Beginning Principal Interest Prepayment Additional Trust Ending
Class CUSIP Balance Distribution Distribution Penalties Fund Expenses Balance
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
A-2 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
B 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
C 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
D 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
E 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
F 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
G 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
H 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
J 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
K 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
L 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
M 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
N 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
O 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
R-I 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
R-II 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
R-III 0.00000000 0.0000000 0.0000000 0.0000000 0.0000000 0.0000000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Beginning Ending
Notional Interest Prepayment Notional
Class CUSIP Amount Distribution Penalties Amount
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
X 0.00000000 0.00000000 0.00000000 0.00000000
- ------------------------------------------------------------------------------------------
</TABLE>
IV-3
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
RECONCILIATION DETAIL
ADVANCE SUMMARY
P & I Advances Outstanding 0.00
Servicing Advances Outstanding 0.00
Reimbursement for Interest on Advances 0.00
paid from general collections
SERVICING FEE BREAKDOWNS
Current Period Accrued Servicing Fees 0.00
Less Delinquent Servicing Fees 0.00
Less Reductions to Servicing Fees 0.00
Plus Servicing Fees for Delinquent Payments Received 0.00
Plus Adjustments for Prior Servicing Calculation 0.00
Total Servicing Fees Collected 0.00
CERTIFICATE INTEREST RECONCILIATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Accrued Net Aggregate Realized Previously Unpaid Distributable Distributable Remaining
Certificate Prepayment Losses/ Interest (including) Certificate Certif. Interest Interest Unpaid
Class Interest Interest Shortfall Expense Losses interest thereon) Interest Adjustment Distribution Interest
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A-1 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
A-2 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
X 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
B 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
C 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
D 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
E 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
F 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
G 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
H 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
J 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
K 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
L 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
M 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
N 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
O 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Totals 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
IV-4
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
OTHER REQUIRED INFORMATION
- -------------------------------------------------------------------------------
Available Distribution Amount 0.00
Principal Distribution Amount 0.00
(a) Principal portion of Scheduled Payments 0.00
and any Assumed Scheduled Payments
(b) Principal Prepayments 0.00
(c) Principal Portion of Balloon Payments 0.00
(d) Liquidation, Condemnation, Purchase, 0.00
and Insurance Proceeds and REO Income
Received on a Mortgage Loan
Aggregate Number of Outstanding Mortgage Loans 0
Aggregate Unpaid Principal Balance of the Mortgage Loans 0.00
Aggregate Scheduled Principal Balance of the Mortgage Loans 0.00
Total Servicing and Special Servicing Fee paid 0.00
Servicing Fee Paid 0.00
Special Servicing Fee Paid 0.00
Trustee Fee Paid 0.00
Expense Losses (Additional Trust Fund Expenses) 0.00
(i) Special Servicing and Liquidation Fees 0.00
(ii) Advance Interest 0.00
(iii) Indemnification Expenses 0.00
(iv) Taxes Imposed on the Trust 0.00
(v) Amount of any Advance not Recovered 0.00
upon a Final Recovery Determination
Appraisal Reduction Amount
- ------------------------------------------------------
Appraisal Date Appraisal
Loan Reduction Reduction
Number Amount Effected
- ------------------------------------------------------
- ------------------------------------------------------
Total
- ------------------------------------------------------
IV-5
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
RATINGS DETAIL
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Original Ratings Current Ratings (1)
----------------------------------- -----------------------------------
Class CUSIP DCR Fitch Moody's S&P DCR Fitch Moody's S&P
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A-1
A-2
X
B
C
D
E
F
G
H
J
K
L
M
N
O
- -----------------------------------------------------------------------------------------------------
</TABLE>
NR - Designates that the class was not rated by the above agency at the time
of original issuance.
X - Designates that the above rating agency did not rate any classes in this
transaction at the time of original issuance.
N/A - Data not available this period.
1) For any class not rated at the time of original issuance by any particular
rating agency, no request has been made subsequent to issuance to obtain rating
information, if any, from such rating agency. The current ratings were obtained
directly from the applicable rating agency within 30 days of the payment date
listed above. The ratings may have changed since they were obtained. Because the
ratings may have changed, you may want to obtain current ratings directly from
the rating agencies.
Duff & Phelps Credit Rating Co.
55 East Monroe Street
Chicago, Illinois 60603
(312) 368-3100
Fitch IBCA, Inc.
One State Street Plaza
New York, New York 10004
(212) 908-0500
Moody's Investors Service
99 Church Street
New York, New York 10007
(212) 553-0300
Standard & Poor's Rating Services
26 Broadway
New York, New York 10004
(212) 208-8000
IV-6
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
SCHEDULED BALANCE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
% of
Scheduled # of Scheduled Agg. Weighted
Balance Loans Balance Bal. WAM (2) WAC Avg DSCR (1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
Totals
- ------------------------------------------------------------------------------------
STATE (3)
- -------------------------------------------------------------------------------------
% of
# of Scheduled Agg. Weighted
State Props. Balance Bal. WAM (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Totals
- -----------------------------------------------------------------------------
</TABLE>
See footnotes on last page of this section.
IV-7
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
DEBT SERVICE COVERAGE RATIO
- -------------------------------------------------------------------------------
% of
Debt Service # of Scheduled Agg. WAM Weighted
Coverage Ratio Loans Balance Bal. (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------
NOTE RATE
- -------------------------------------------------------------------------------
% of
Note # of Scheduled Agg. WAM Weighted
Rate Loans Balance Bal. (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------
PROPERTY TYPE (3)
- -------------------------------------------------------------------------------
% of
Property # of Scheduled Agg. WAM Weighted
Type Props. Balance Bal. (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------
SEASONING
- -------------------------------------------------------------------------------
% of
# of Scheduled Agg. WAM Weighted
Seasoning Loans Balance Bal. (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------
See footnotes on last page of this section
IV-8
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
CURRENT MORTGAGE LOAN AND PROPERTY STRATIFICATION TABLES
ANTICIPATED REMAINING TERM (ARD AND BALLOON LOANS)
- -------------------------------------------------------------------------------
% of
Anticipated Remaining # of Scheduled Agg. WAM Weighted
Term (2) Loans Balance Bal. (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------
REMAINING AMORTIZATION TERM (ARD AND BALLOON LOANS)
- -------------------------------------------------------------------------------
% of
Remaining Amortization # of Scheduled Agg. WAM Weighted
Term Loans Balance Bal. (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------
REMAINING STATED TERM (FULLY AMORTIZING LOANS)
- -------------------------------------------------------------------------------
% of
Remaining Stated # of Scheduled Agg. WAM Weighted
Term Loans Balance Bal. (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------
AGE OF MOST RECENT NOI
- -------------------------------------------------------------------------------
% of
Age of Most # of Scheduled Agg. WAM Weighted
Recent NOI Loans Balance Bal. (2) WAC Avg DSCR (1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------
(1) Debt Service Coverage Ratios are updated periodically as new NOI figures
become available from borrowers on an asset level. In all cases the most current
DSCR provided by the Servicer is used. To the extent that no DSCR is provided by
the Servicer, information from the offering document is used. The Trustee makes
no representations as to the accuracy of the data provided by the borrower for
this calculation.
(2) Anticipated Remaining Term and WAM are each calculated based upon the term
from the current month to the earlier of the Anticipated Repayment Date, if
applicable, and the maturity date.
(3) Data in this table was calculated by allocating pro-rata the current loan
information to the properties based upon the Cut-off Date Balance of the related
mortgage loan as disclosed in the offering document.
Note: (i) "Scheduled Balance" has the meaning assigned thereto in the CSSA
Standard Information Package.
(ii) An ARD Loan constitutes a "Hyper-Amortization Loan" as defined in the
offering document.
IV-9
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
MORTGAGE LOAN DETAIL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Anticipated Neg.
Loan Property Interest Principal Gross Repayment Maturity Amort
Number ODCR Type (1) City State Payment Payment Coupon Date Date (Y/N)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
TOTALS
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------
Beginning Ending Paid Appraisal Appraisal Res. Mod.
Loan Scheduled Scheduled Thru Reduction Reduction Strat. Code
Number Balance Balance Date Date Amount (2) (3)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
TOTALS
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Property Type Code
MF - Multi-Family OF - Office
RT - Retail MU - Mixed Use
HC - Health Care LO - Lodging
IN - Industrial SS - Self Storage
WH - Warehouse OT - Other
MH - Mobile Home Park
(2) Resolution Strategy Code
1 - Modification 7 - REO
2 - Foreclosure 8 - Resolved
3 - Bankruptcy 9 - Pending Return
4 - Extension To Master Servicer
5 - Note Sale 10 - Deed In Lieu of
6 - DPO Foreclosure
(3) Modification Code
1 - Maturity Date Extension
2 - Amortization Change
3 - Principal Write-Off
4 - Combination
IV-10
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
PRINCIPAL PREPAYMENT DETAIL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Principal Prepayment Amount Prepayment Penalties
Offering Document ---------------------------------- ----------------------------------------------
Loan Number Cross-Reference Payoff Amount Curtailment Amount Prepayment Premium Yield Maintenance Premium
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Totals
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
IV-11
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
HISTORICAL DETAIL
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Delinquencies
- ---------------------------------------------------------------------------------------------------------------------------
Distribution 30-59 Days 60-89 Days 90 Days or More Foreclosure REO Modifications
Date # Balance # Balance # Balance # Balance # Balance # Balance
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------
Prepayments Rates and Maturities
- ---------------------------------- -----------------------------------
Curtailments Payoff Next Weighted Avg.
# Amount # Amount Coupon Remit WAM
- --------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------
</TABLE>
IV-12
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
DELINQUENCY LOAN DETAIL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Offering # of Current Outstanding Status of Resolution
Loan Document Months Paid Through P&I P&I Mortgage Strategy
Number Cross-Reference Delinq. Date Advances Advances** Loan (1) Code (2)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
TOTALS
- -------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------
Current Outstanding
Loan Servicing Foreclosure Servicing Servicing REO
Number Transfer Data Date Advances Advances Bankruptcy Date Date
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
TOTALS
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Status of Mortgage Loan
A - Payment Not Received 2 - Two Months Delinquent
But Still in Grace Period 3 - Three or More Months Delinquent
B - Late Payment But Less 4 - Assumed Scheduled Payment
Than 1 Month Delinquent (Performing Matured Balloon)
0 - Current 7 - Foreclosure
1 - One Month Delinquent 9 - REO
(2) Resolution Strategy Code
1 - Modification 7 - REO
2 - Foreclosure 8 - Resolved
3 - Bankruptcy 9 - Pending Return
4 - Extension to Master Servicer
5 - Note Sale 10 - Deed in Leiu of
6 - DPO Foreclosure
** Outstanding P & I Advances include the current period advance
IV-13
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
SPECIALLY SERVICED LOAN DETAIL - PART 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Offering Servicing Resolution
Distribution Loan Document Transfer Strategy Scheduled Property Interest Actual
Date Number Cross-Reference Date Code (1) Balance Type(2) State Rate Balance
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------
Net Remaining
Distribution Operating NOI Note Maturity Amortization
Date Income Date DSCR Date Date Term
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------
</TABLE>
(1) Resolution Strategy Code
1 - Modification 7 - REO
2 - Foreclosure 8 - Resolved
3 - Bankruptcy 9 - Pending Return
4 - Extension to Master Servicer
5 - Note Sale 10 - Deed In Lieu Of
6 - DPO Foreclosure
(2) Property Type Code
MF - Multi-Family OF - Office
RT - Retail MU - Mixed Use
HC - Health Care LO - Lodging
IN - Industrial SS - Self Storage
WH - Warehouse OT - Other
MH - Mobile Home Park
IV-14
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
SPECIALLY SERVICED LOAN DETAIL - PART 2
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Offering Resolution Site
Distribution Loan Document Strategy Inspection Phase 1 Date Appraisal Appraisal Other REO
Date Number Cross-Reference Code (1) Date Date Value Property Revenue Comment
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) Resolution Strategy Code
1 - Modification 7 - REO
2 - Foreclosure 8 - Resolved
3 - Bankruptcy 9 - Pending Return
4 - Extension to Master Servicer
5 - Note Sale 10 - Deed in Leiu of
6 - DPO Foreclosure
IV-15
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
MODIFIED LOAN DETAIL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Offering
Loan Document Pre-Modification
Number Cross-Reference Balance Modification Date Modification Description
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
IV-16
<PAGE>
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------------------
For Additional Information, please contact
[NORWEST BANKS LOGO] Leslie Gaskill
(212) 515-5254
NORWEST BANK MINNESOTA, N.A. Reports Available on the World Wide Web
CORPORATE TRUST SERVICES @www.ctslink.com/cmbs
3 NEW YORK PLAZA, 15TH FLOOR ------------------------------------------
NEW YORK, NY 10004 PAYMENT DATE: 05/17/1999
RECORD DATE: 04/30/1999
- -------------------------------------------------------------------------------
LIQUIDATED LOAN DETAIL
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Final Recovery Offering Gross Proceeds Aggregate
Loan Determination Document Appraisal Appraisal Actual Gross as a % of Liquidation
Number Date Cross-Reference Date Value Balance Proceeds Actual Balance Expenses*
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Current Total
- ---------------------------------------------------------------------------------------------------------------------
Cumulative Total
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------
Net Net Proceeds Repurchased
Loan Liquidation as a % of Realized by Seller
Number Proceeds Actual Balance Loss (Y/N)
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------
Current Total
- -------------------------------------------------------------------------
Cumulative Total
- -------------------------------------------------------------------------
</TABLE>
* Aggregate liquidation expenses also include outstanding P&I advances and
unpaid fees (servicing, trustee, etc.)
IV-17
<PAGE>
- --------------------------------------------------------------------------------
[MORGAN STANLEY DEAN WITTER LOGO]
MORGAN STANLEY , 1999
Real Estate Debt Capital Markets
Mortgage Capital Markets
- --------------------------------------------------------------------------------
CMBS NEW ISSUE
PRELIMINARY TERM SHEET
------------------------------
EXPECTED PRICING DATE: APRIL , 1999
------------------------------
$513,576,000
(APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
AS DEPOSITOR
FINOVA REALTY CAPITAL INC.
AS MORTGAGE LOAN ORIGINATOR
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
------------------------------
MORGAN STANLEY DEAN WITTER
DEUTSCHE BANK SECURITIES
- -------------------------------------------------------------------------------
This information is being delivered to a limited number of prospective
sophisticated investors in order to assist them in determining whether they
have an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with
respect to the terms of any future offer of securities conforming to the terms
hereof. Any such offer of securities would be made pursuant to a definitive
Prospectus or Private Placement Memorandum, as the case may be, prepared by the
issuer which would contain material information not contained herein and to
which prospective purchasers are referred. In the event of any such offering,
this information shall be deemed superseded, amended and supplemented in its
entirety by such Prospectus or Private Placement Memorandum. Such Prospectus or
Private Placement Memorandum will contain all material information in respect
of any securities offered thereby and any decision to invest in such securities
should be made solely in reliance upon such Prospectus or Private Placement
Memorandum. Certain assumptions may have been made in this analysis which have
resulted in any returns detailed herein. No representation is made that any
returns indicated will be achieved. Changes to the assumptions may have a
material impact on any returns detailed. Morgan Stanley & Co. Incorporated and
Deutsche Bank Securities Inc. (the "Underwriters") disclaim any and all
liability relating to this information, including without limitation any
express or implied representations or warranties for, statements contained in,
and omissions from, this information. Additional information is available upon
request. The Underwriters and others associated with them may have positions
in, and may effect transactions in, securities and instruments of issuers
mentioned herein and may also perform or seek to perform investment banking
services for the issuers of such securities and instruments. Past performance
is not necessarily indicative of future results. Price and availability are
subject to change without notice. To our readers worldwide: In addition, please
note that this publication has been issued by Morgan Stanley & Co.
Incorporated, approved by Morgan Stanley & Co. International Limited, a member
of The Securities and Futures Authority, and by Morgan Stanley Japan Ltd. We
recommend that such investors obtain the advice of their Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. International Limited or Morgan Stanley
Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K.
SECURITIES AND FUTURES AUTHORITY.
- --------------------------------------------------------------------------------
<PAGE>
$513,576,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
CERTAIN TRANSACTION FEATURES
- ----------------------------
>> FINOVA Realty Capital Inc. is a real estate-lending affiliate of the
publicly traded FINOVA Group Inc. (NYSE:FNV). Since 1994, FINOVA's
originations have included approximately $2.5 billion of commercial
mortgage loans that have been securitized by its partners in more than 20
different CMBS offerings. In 1998, FINOVA originated approximately $3.1
billion of commercial mortgage loans.
>> Origination Period: 76.8% of the initial pool balance was originated on or
after July 1, 1998.
>> Collateral: 194 Mortgage Loans with a Cut-Off Date Balance of $632,094,383
and an average loan balance of $3,258,218.
>> Property Type Distribution: Retail (19.5%), Office (17.8%), Multifamily
(15.3%), Manufactured Housing Community (15.0%), Hospitality (13.3%),
Mixed Use (7.6%), Self Storage (5.2%), Industrial (4.2%), Senior Housing
(2.1%).
>> Loan Size: The ten largest loans (including cross-collateralized loans)
represent 28.5% of the Mortgage Pool. The largest loan totals $30,059,681
or 4.8% of the Mortgage Pool and is secured by a cross-collateralized pool
of 24 manufactured housing communities. The average loan balance is
$3,258,218.
>> Call Protection: 100% of the Mortgage Loans provide for an initial lockout
period followed by either defeasance (92.5%), yield maintenance (3.3%), an
option allowing the borrower to choose either defeasance or yield
maintenance (3.5%) or percentage prepayment premiums (0.8%).
>> Reserves: 95.9% of the Mortgage Loans require reserves for taxes; 86.0%
require reserves for insurance and 90.9% for capital expenditures. In
addition, 81.2% of retail, office, industrial and mixed use commercial
loans in the mortgage pool have, as of March 10, 1999, a tenant
improvement and leasing commission reserve balance.
>> Available Information: Updated loan information is expected to be part of
the monthly remittance report in addition to detailed payment and
delinquency information. Updated property operating and occupancy
information, to the extent delivered by borrowers, will be available to
Certificateholders. Cash flows are expected to be modeled by TREPP and
will be available on BLOOMBERG.
- -------------------------------------------------------------------------------
This information is being delivered to a limited number of prospective
sophisticated investors in order to assist them in determining whether they
have an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with
respect to the terms of any future offer of securities conforming to the terms
hereof. Any such offer of securities would be made pursuant to a definitive
Prospectus or Private Placement Memorandum, as the case may be, prepared by the
issuer which would contain material information not contained herein and to
which prospective purchasers are referred. In the event of any such offering,
this information shall be deemed superseded, amended and supplemented in its
entirety by such Prospectus or Private Placement Memorandum. Such Prospectus or
Private Placement Memorandum will contain all material information in respect
of any securities offered thereby and any decision to invest in such securities
should be made solely in reliance upon such Prospectus or Private Placement
Memorandum. Certain assumptions may have been made in this analysis which have
resulted in any returns detailed herein. No representation is made that any
returns indicated will be achieved. Changes to the assumptions may have a
material impact on any returns detailed. Morgan Stanley & Co. Incorporated and
Deutsche Bank Securities Inc. (the "Underwriters") disclaim any and all
liability relating to this information, including without limitation any
express or implied representations or warranties for, statements contained in,
and omissions from, this information. Additional information is available upon
request. The Underwriters and others associated with them may have positions
in, and may effect transactions in, securities and instruments of issuers
mentioned herein and may also perform or seek to perform investment banking
services for the issuers of such securities and instruments. Past performance
is not necessarily indicative of future results. Price and availability are
subject to change without notice. To our readers worldwide: In addition, please
note that this publication has been issued by Morgan Stanley & Co.
Incorporated, approved by Morgan Stanley & Co. International Limited, a member
of The Securities and Futures Authority, and by Morgan Stanley Japan Ltd. We
recommend that such investors obtain the advice of their Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. International Limited or Morgan Stanley
Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K.
SECURITIES AND FUTURES AUTHORITY.
- --------------------------------------------------------------------------------
<PAGE>
$513,576,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
INITIAL AGGREGATE
CERTIFICATE EXPECTED FINAL
BALANCE OR SUBORDINATION RATING AVERAGE PRINCIPAL DISTRIBUTION PASS-THROUGH
CLASS NOTIONAL AMOUNT(1) LEVELS (FITCH/S&P) Life(2) WINDOW(2)(3) DATE(2) Rate(4)(5)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A-1 $101,000,000 30.25%(6) AAA/AAA 5.51 1-109 5/15/08 6.14%
- ------------------------------------------------------------------------------------------------------------------------------------
A-2 $339,885,000 30.25%(6) AAA/AAA 9.47 109-117 1/15/09 6.54%
- ------------------------------------------------------------------------------------------------------------------------------------
X(7) $632,094,383(8) - AAA/AAA 9.16 - 5/15/18 Variable Rate(9)
- ------------------------------------------------------------------------------------------------------------------------------------
B $33,185,000 25.00% AA/AA 9.75 117-117 1/15/09 6.66%
- ------------------------------------------------------------------------------------------------------------------------------------
C $26,864,000 20.75% A/A 9.75 117-117 1/15/09 6.81%
- ------------------------------------------------------------------------------------------------------------------------------------
D $12,642,000 18.75% A-/A- 9.75 117-117 1/15/09 7.06%
- ------------------------------------------------------------------------------------------------------------------------------------
E(7) $30,025,000 14.00% BBB/BBB 9.75 117-117 1/15/09 Variable Rate(10)
- ------------------------------------------------------------------------------------------------------------------------------------
F(7) $14,222,000 11.75% BBB-/NR 9.75 117-117 1/15/09 Variable Rate(10)
- ------------------------------------------------------------------------------------------------------------------------------------
G(7) $20,543,000 8.50% BB+/BB+ 9.80 117-118 2/15/09 6.14%
- ------------------------------------------------------------------------------------------------------------------------------------
H(7) $7,901,000 7.25% BB/BB 9.84 118-119 3/15/09 6.14%
- ------------------------------------------------------------------------------------------------------------------------------------
J(7) $9,481,000 5.75% BB-/NR 9.94 119-120 4/15/09 6.14%
- ------------------------------------------------------------------------------------------------------------------------------------
K(7) $7,902,000 4.50% B+/B+ 10.87 120-133 5/15/10 6.14%
- ------------------------------------------------------------------------------------------------------------------------------------
L(7) $6,321,000 3.50% B/B 12.93 133-168 4/15/13 6.14%
- ------------------------------------------------------------------------------------------------------------------------------------
M(7) $6,321,000 2.50% B-/NR 14.00 168-168 4/15/13 6.14%
- ------------------------------------------------------------------------------------------------------------------------------------
N(7) $9,481,000 1.00% CCC/NR 14.04 168-173 9/15/13 6.14%
- ------------------------------------------------------------------------------------------------------------------------------------
O(7) $6,321,383 0.00% NR/NR 17.60 173-231 7/15/18 6.14%
- ------------------------------------------------------------------------------------------------------------------------------------
</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 E and F
Certificates, each Class of Certificates will accrue interest
generally at a fixed rate of interest as described in the
Prospectus Supplement provided that the Pass-Through Rate, in each
case, will not exceed the NWAC Rate for each distribution date. The
Class X, E and F Certificates will accrue interest at a variable
rate as described below.
(5) The Pass-Through Rates are shown for indicative purposes. The final
Pass-Through Rates will be determined at pricing.
(6) Represents the approximate credit support for the Class A-1 and
Class A-2 Certificates in the aggregate.
(7) To be offered privately pursuant to Rule 144A.
(8) Class X Notional Amount is equal to the sum of all Principal
Balance Certificates outstanding from time to time.
(9) The Pass-Through Rate on the Class X Certificates on each
Distribution Date will equal, in general, the NWAC Rate minus the
weighted average of the Pass-Through Rates of the classes of
certificates that have principal amounts.
(10) The Pass-Through Rate on the Class E and F Certificates on each
Distribution Date will equal the NWAC Rate minus 0.03%.
T-1
- -------------------------------------------------------------------------------
This information is being delivered to a limited number of prospective
sophisticated investors in order to assist them in determining whether they
have an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with
respect to the terms of any future offer of securities conforming to the terms
hereof. Any such offer of securities would be made pursuant to a definitive
Prospectus or Private Placement Memorandum, as the case may be, prepared by the
issuer which would contain material information not contained herein and to
which prospective purchasers are referred. In the event of any such offering,
this information shall be deemed superseded, amended and supplemented in its
entirety by such Prospectus or Private Placement Memorandum. Such Prospectus or
Private Placement Memorandum will contain all material information in respect
of any securities offered thereby and any decision to invest in such securities
should be made solely in reliance upon such Prospectus or Private Placement
Memorandum. Certain assumptions may have been made in this analysis which have
resulted in any returns detailed herein. No representation is made that any
returns indicated will be achieved. Changes to the assumptions may have a
material impact on any returns detailed. Morgan Stanley & Co. Incorporated and
Deutsche Bank Securities Inc. (the "Underwriters") disclaim any and all
liability relating to this information, including without limitation any
express or implied representations or warranties for, statements contained in,
and omissions from, this information. Additional information is available upon
request. The Underwriters and others associated with them may have positions
in, and may effect transactions in, securities and instruments of issuers
mentioned herein and may also perform or seek to perform investment banking
services for the issuers of such securities and instruments. Past performance
is not necessarily indicative of future results. Price and availability are
subject to change without notice. To our readers worldwide: In addition, please
note that this publication has been issued by Morgan Stanley & Co.
Incorporated, approved by Morgan Stanley & Co. International Limited, a member
of The Securities and Futures Authority, and by Morgan Stanley Japan Ltd. We
recommend that such investors obtain the advice of their Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. International Limited or Morgan Stanley
Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K.
SECURITIES AND FUTURES AUTHORITY.
- --------------------------------------------------------------------------------
<PAGE>
$513,576,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
I. ISSUE CHARACTERISTICS
Issue Type: Public: Class A-1, A-2, B, C and D (the
"Offered Certificates")
Private (Rule 144A): Class E, F, G, H, J, K,
L, M, N, O and X
Securities Offered: $513,576,000 monthly pay, multi-class
sequential pay commercial mortgage REMIC
Pass-Through Certificates, including five
fixed-rate principal and interest classes
(A-1, A-2, B, C and D).
Collateral: The collateral consists of a $632,094,383 pool
of fixed-rate commercial and multifamily
Mortgage Loans
Mortgage Loan Originator: FINOVA Realty Capital, Inc.
Mortgage Loan Sellers: FINOVA Realty Capital, Inc. and FINOVA
Commercial Mortgage Loan Owner Trust 1998-1
Lead Manager: Morgan Stanley & Co. Incorporated
Co-Manager: Deutsche Bank Securities Inc.
Master Servicer: AMRESCO Services, L.P.
Special Servicer: Banc One Mortgage Capital Markets, LLC
Trustee: Norwest Bank Minnesota, National Association
Expected Pricing Date: On or about April 7, 1999
Expected Closing Date: On or about April 14, 1999
Distribution Dates: The 15th of each month but no earlier than the
fourth Business Day following the 11th of each
month, commencing May 1999
Determination Date: The 11th of each month, commencing May 1999
Cut-Off Date: April 1, 1999
Minimum Denominations: $25,000 for Class A-1 and A-2 Certificates;
$50,000 for Class B Certificates. $100,000 for
all other Certificates (other than the Class R
Certificates)
Settlement Terms: DTC, Euroclear and Cedel, same day funds, with
accrued interest
Legal/Regulatory Status: Class A-1 and A-2 Certificates are expected to
be eligible for exemptive relief under ERISA.
No Class of Certificates is SMMEA eligible.
Risk Factors: THE CERTIFICATES INVOLVE A DEGREE OF RISK AND
MAY NOT BE SUITABLE FOR ALL INVESTORS. SEE THE
"RISK FACTORS" SECTION OF THE PROSPECTUS
SUPPLEMENT AND THE "RISK FACTORS" SECTION OF
THE PROSPECTUS.
T-2
- -------------------------------------------------------------------------------
This information is being delivered to a limited number of prospective
sophisticated investors in order to assist them in determining whether they
have an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with
respect to the terms of any future offer of securities conforming to the terms
hereof. Any such offer of securities would be made pursuant to a definitive
Prospectus or Private Placement Memorandum, as the case may be, prepared by the
issuer which would contain material information not contained herein and to
which prospective purchasers are referred. In the event of any such offering,
this information shall be deemed superseded, amended and supplemented in its
entirety by such Prospectus or Private Placement Memorandum. Such Prospectus or
Private Placement Memorandum will contain all material information in respect
of any securities offered thereby and any decision to invest in such securities
should be made solely in reliance upon such Prospectus or Private Placement
Memorandum. Certain assumptions may have been made in this analysis which have
resulted in any returns detailed herein. No representation is made that any
returns indicated will be achieved. Changes to the assumptions may have a
material impact on any returns detailed. Morgan Stanley & Co. Incorporated and
Deutsche Bank Securities Inc. (the "Underwriters") disclaim any and all
liability relating to this information, including without limitation any
express or implied representations or warranties for, statements contained in,
and omissions from, this information. Additional information is available upon
request. The Underwriters and others associated with them may have positions
in, and may effect transactions in, securities and instruments of issuers
mentioned herein and may also perform or seek to perform investment banking
services for the issuers of such securities and instruments. Past performance
is not necessarily indicative of future results. Price and availability are
subject to change without notice. To our readers worldwide: In addition, please
note that this publication has been issued by Morgan Stanley & Co.
Incorporated, approved by Morgan Stanley & Co. International Limited, a member
of The Securities and Futures Authority, and by Morgan Stanley Japan Ltd. We
recommend that such investors obtain the advice of their Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. International Limited or Morgan Stanley
Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K.
SECURITIES AND FUTURES AUTHORITY.
- --------------------------------------------------------------------------------
<PAGE>
$513,576,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
II. STRUCTURE CHARACTERISTICS
The Offered Certificates are fixed-rate, monthly pay, multi-class, sequential
pay REMIC Pass-Through Certificates. The Class E and F Certificates are
weighted average coupon REMIC Pass-Through Certificates. The Class X
Certificates are variable rate interest only REMIC Pass-Through Certificates.
All Classes of Certificates derive their cash flows from the entire pool of
Mortgage Loans.
CLASS X(1)(2)
_____/\______
/ \
--------------------------------------- ---------------
CLASS A-1 | AAA/AAA | |///////////////| $101.0MM
| 6.14% | |///////////////|
--------------------------------------- ---------------
----------------------------------------- -------------
CLASS A-2 | AAA/AAA | |/////////////| $339.9MM
| 6.54% | |/////////////|
----------------------------------------- -------------
------------------------------------------- -----------
CLASS B | AA/AA | |///////////| $33.2MM
| 6.66% | |///////////|
------------------------------------------- -----------
--------------------------------------------- ---------
CLASS C | A/A | |/////////| $26.9MM
| 6.81% | |/////////|
--------------------------------------------- ---------
----------------------------------------------- -------
CLASS D | A-/A- | |///////| $12.6MM
| 7.06% | |///////|
----------------------------------------------- -------
------------------------------------------------- -----
CLASS E(2) | BBB/BBB(3) | |/////| $30.0MM
| NWAC -0.03% | |/////|
------------------------------------------------- -----
------------------------------------------------- -----
CLASS F(2) | BBB-/NR(3) | |/////| $14.2MM
| NWAC -0.03% | |/////|
------------------------------------------------- -----
--------------------------------------- ---------------
CLASS G(2) | BB+/BB+ | |///////////////| $20.5MM
| 6.14% | |///////////////|
--------------------------------------- ---------------
--------------------------------------- ---------------
CLASS H(2) | BB/BB | |///////////////| $7.9MM
| 6.14% | |///////////////|
--------------------------------------- ---------------
--------------------------------------- ---------------
CLASS J(2) | BB-/NR | |///////////////| $9.5MM
| 6.14% | |///////////////|
--------------------------------------- ---------------
--------------------------------------- ---------------
CLASS K(2) | B+/B+ | |///////////////| $7.9MM
| 6.14% | |///////////////|
--------------------------------------- ---------------
--------------------------------------- ---------------
CLASS L(2) | B/B | |///////////////| $6.3MM
| 6.14% | |///////////////|
--------------------------------------- ---------------
--------------------------------------- ---------------
CLASS M(2) | B-/NR | |///////////////| $6.3MM
| 6.14% | |///////////////|
--------------------------------------- ---------------
--------------------------------------- ---------------
CLASS N(2) | CCC/NR | |///////////////| $9.5MM
| 6.14% | |///////////////|
--------------------------------------- ---------------
--------------------------------------- ---------------
CLASS O(2) | NR/NR | |///////////////| $6.3MM
| 6.14% | |///////////////|
--------------------------------------- ---------------
NR = Not Rated
Notes: (1) See Notes (8) and (9) on Page T-1.
(2) See Note (7) on Page T-1.
(3) See Note (10) on Page T-1.
T-3
- -------------------------------------------------------------------------------
This information is being delivered to a limited number of prospective
sophisticated investors in order to assist them in determining whether they
have an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with
respect to the terms of any future offer of securities conforming to the terms
hereof. Any such offer of securities would be made pursuant to a definitive
Prospectus or Private Placement Memorandum, as the case may be, prepared by the
issuer which would contain material information not contained herein and to
which prospective purchasers are referred. In the event of any such offering,
this information shall be deemed superseded, amended and supplemented in its
entirety by such Prospectus or Private Placement Memorandum. Such Prospectus or
Private Placement Memorandum will contain all material information in respect
of any securities offered thereby and any decision to invest in such securities
should be made solely in reliance upon such Prospectus or Private Placement
Memorandum. Certain assumptions may have been made in this analysis which have
resulted in any returns detailed herein. No representation is made that any
returns indicated will be achieved. Changes to the assumptions may have a
material impact on any returns detailed. Morgan Stanley & Co. Incorporated and
Deutsche Bank Securities Inc. (the "Underwriters") disclaim any and all
liability relating to this information, including without limitation any
express or implied representations or warranties for, statements contained in,
and omissions from, this information. Additional information is available upon
request. The Underwriters and others associated with them may have positions
in, and may effect transactions in, securities and instruments of issuers
mentioned herein and may also perform or seek to perform investment banking
services for the issuers of such securities and instruments. Past performance
is not necessarily indicative of future results. Price and availability are
subject to change without notice. To our readers worldwide: In addition, please
note that this publication has been issued by Morgan Stanley & Co.
Incorporated, approved by Morgan Stanley & Co. International Limited, a member
of The Securities and Futures Authority, and by Morgan Stanley Japan Ltd. We
recommend that such investors obtain the advice of their Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. International Limited or Morgan Stanley
Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K.
SECURITIES AND FUTURES AUTHORITY.
- --------------------------------------------------------------------------------
<PAGE>
$513,576,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
-----------------------------------------------
///////////////// Class X ////////////////////
-----------------------------------------------
----------------------- ------------------
/////////////////// A-1 ------
----------------------- ////// Interest
----------------------- ------
A-1 ------
----------------------- Principal
--------------------------- ------
/////////////////////// A-2 ------------------
---------------------------
A-2
---------------------------
///////////////////////// B
---------------------------
B
---------------------------
/ \ --- ///////////////////////// C
/ \ | | ---------------------------
/ \ | | C
/ \ | | ---------------------------
/ \ | | ///////////////////////// D
--- --- | C | ---------------------------
| | | A | D
| | | S | ---------------------------
| | | H | ///////////////////////// E
| A | | | ---------------------------
| P | | F | E
| P | | L | ---------------------------
| L | | O | ///////////////////////// F
| I | | W | ---------------------------
| E | | | F
| D | | | ---------------------------
| | | | ///////////////////////// G
| L | | | ---------------------------
| O | --- --- G
| S | \ / ---------------------------
| S | \ / ///////////////////////// H
| E | \ / ---------------------------
| S | \ / H
| | \ / ---------------------------
--- ///////////////////////// J
---------------------------
J
--------------------------------
////////////////////////////// K
--------------------------------
K
-------------------------------------
/////////////////////////////////// L
-------------------------------------
L
-------------------------------------
/////////////////////////////////// M
-------------------------------------
M
---------------------------------------
///////////////////////////////////// N
---------------------------------------
N
----------------------------------------------
//////////////////////////////////////////// O
----------------------------------------------
O
| | | | | | | | | | |
----------------------------------------------
0 50 100 150 200 250
Notes: (1) The class A-1, A-2 and X certificates will be paid interest on a pro
rata basis.
(2) The above analysis is based on the Maturity Assumptions and a 0% CPR
as described in the Prospectus Supplement.
T-4
- -------------------------------------------------------------------------------
This information is being delivered to a limited number of prospective
sophisticated investors in order to assist them in determining whether they
have an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with
respect to the terms of any future offer of securities conforming to the terms
hereof. Any such offer of securities would be made pursuant to a definitive
Prospectus or Private Placement Memorandum, as the case may be, prepared by the
issuer which would contain material information not contained herein and to
which prospective purchasers are referred. In the event of any such offering,
this information shall be deemed superseded, amended and supplemented in its
entirety by such Prospectus or Private Placement Memorandum. Such Prospectus or
Private Placement Memorandum will contain all material information in respect
of any securities offered thereby and any decision to invest in such securities
should be made solely in reliance upon such Prospectus or Private Placement
Memorandum. Certain assumptions may have been made in this analysis which have
resulted in any returns detailed herein. No representation is made that any
returns indicated will be achieved. Changes to the assumptions may have a
material impact on any returns detailed. Morgan Stanley & Co. Incorporated and
Deutsche Bank Securities Inc. (the "Underwriters") disclaim any and all
liability relating to this information, including without limitation any
express or implied representations or warranties for, statements contained in,
and omissions from, this information. Additional information is available upon
request. The Underwriters and others associated with them may have positions
in, and may effect transactions in, securities and instruments of issuers
mentioned herein and may also perform or seek to perform investment banking
services for the issuers of such securities and instruments. Past performance
is not necessarily indicative of future results. Price and availability are
subject to change without notice. To our readers worldwide: In addition, please
note that this publication has been issued by Morgan Stanley & Co.
Incorporated, approved by Morgan Stanley & Co. International Limited, a member
of The Securities and Futures Authority, and by Morgan Stanley Japan Ltd. We
recommend that such investors obtain the advice of their Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. International Limited or Morgan Stanley
Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K.
SECURITIES AND FUTURES AUTHORITY.
- --------------------------------------------------------------------------------
<PAGE>
$513,576,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
Interest Distributions: Each Class of Certificates (other than the Class R
Certificates) will be entitled on each Distribution
Date to interest accrued at its Pass-Through Rate
on the outstanding Certificate Balance or Notional
Amount of such Class, as applicable.
Pass-Through Rates:(1) Class A-1: 6.14%
Class A-2: 6.54%
Class B: 6.66%
Class C: 6.81%
Class D: 7.06%
Class E: NWAC - 0.03%
Class F: NWAC - 0.03%
Class G: 6.14%
Class H: 6.14%
Class J: 6.14%
Class K: 6.14%
Class L: 6.14%
Class M: 6.14%
Class N: 6.14%
Class O: 6.14%
Class X: See Note (9) on page T-1
Note: (1) See Notes (4) and (5) on Page T-1.
The Pass-Through Rate for each class of Principal
Balance Certificates for any Distribution Date will
not exceed the Weighted Average Net Mortgage Rate
("NWAC") for such Distribution Date.
Principal Distributions: Principal will be distributed on each Distribution
Date to the most senior Class (i.e., the Class with
the earliest alphabetical/numerical Class
designation) of the Principal Balance Certificates
outstanding, until its Certificate Balance is
reduced to zero (sequential order). If, due to
losses, the Certificate Balances of the Class B
through Class O Certificates are reduced to zero or
Appraisal Reductions exceed the aggregate
Certificate Balance of the Subordinate
Certificates, payments of principal to the Class
A-1 and A-2 Certificates will be made on a pro rata
basis.
T-5
- -------------------------------------------------------------------------------
This information is being delivered to a limited number of prospective
sophisticated investors in order to assist them in determining whether they
have an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with
respect to the terms of any future offer of securities conforming to the terms
hereof. Any such offer of securities would be made pursuant to a definitive
Prospectus or Private Placement Memorandum, as the case may be, prepared by the
issuer which would contain material information not contained herein and to
which prospective purchasers are referred. In the event of any such offering,
this information shall be deemed superseded, amended and supplemented in its
entirety by such Prospectus or Private Placement Memorandum. Such Prospectus or
Private Placement Memorandum will contain all material information in respect
of any securities offered thereby and any decision to invest in such securities
should be made solely in reliance upon such Prospectus or Private Placement
Memorandum. Certain assumptions may have been made in this analysis which have
resulted in any returns detailed herein. No representation is made that any
returns indicated will be achieved. Changes to the assumptions may have a
material impact on any returns detailed. Morgan Stanley & Co. Incorporated and
Deutsche Bank Securities Inc. (the "Underwriters") disclaim any and all
liability relating to this information, including without limitation any
express or implied representations or warranties for, statements contained in,
and omissions from, this information. Additional information is available upon
request. The Underwriters and others associated with them may have positions
in, and may effect transactions in, securities and instruments of issuers
mentioned herein and may also perform or seek to perform investment banking
services for the issuers of such securities and instruments. Past performance
is not necessarily indicative of future results. Price and availability are
subject to change without notice. To our readers worldwide: In addition, please
note that this publication has been issued by Morgan Stanley & Co.
Incorporated, approved by Morgan Stanley & Co. International Limited, a member
of The Securities and Futures Authority, and by Morgan Stanley Japan Ltd. We
recommend that such investors obtain the advice of their Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. International Limited or Morgan Stanley
Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K.
SECURITIES AND FUTURES AUTHORITY.
- --------------------------------------------------------------------------------
<PAGE>
$513,576,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
Prepayment Premium The holders of each Class of Principal Certificates
Allocation: (other than an excluded class as defined below)
then entitled to distributions of principal on such
distribution date will be entitled to an aggregate
amount (allocable on a pro rata basis if there is
more than one Class of Principal Balance
Certificates entitled to a distribution of
principal) equal to the lesser of (a) such
Prepayment Premium and (b) such Prepayment Premium
multiplied by a fraction, the numerator of which is
equal to the excess, if any, of the Pass-Through
Rate applicable to the most senior of such Classes
of Principal Balance Certificates then outstanding
(or, in the case of two Classes of Class A
Certificates, the one with the earlier payment
priority), over the relevant Discount Rate (as
defined in the Prospectus Supplement), and the
denominator of which is equal to the excess, if
any, of the Mortgage Rate of the Mortgage Loan that
prepaid, over the relevant Discount Rate. The
portion, if any, of the Prepayment Premium
remaining after such payments to the holders of the
Principal Balance Certificates will be distributed
to the holders of the Class X Certificates. For the
purposes of the foregoing, the classes G, H, J, K,
L, M, N and O are the excluded classes.
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 and the Trustee (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 be
Expense Losses: allocated to the Class O, Class N, Class M, Class
L, Class K, Class J, Class H, Class G, Class F,
Class E, Class D, Class C and Class B Certificates,
in that order, and then to Classes A-1 and A-2 and,
with respect to losses allocated to interest, Class
X Certificates, pro rata, in each case reducing
amounts payable thereto. Any interest shortfall of
any Class of Certificates will result in unpaid
interest for such Class which, together with
interest thereon compounded monthly at one-twelfth
the applicable Pass-Through Rate for such Class,
will be payable in subsequent periods, subject to
available funds.
Prepayment Interest For any Distribution Date, any Net Aggregate
Shortfalls: Prepayment Interest Shortfall not offset by the
Servicing Fee (as set forth in the Prospectus
Supplement), will generally be allocated pro rata
to each Class of Certificates in proportion to its
entitlement to interest.
T-6
- -------------------------------------------------------------------------------
This information is being delivered to a limited number of prospective
sophisticated investors in order to assist them in determining whether they
have an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with
respect to the terms of any future offer of securities conforming to the terms
hereof. Any such offer of securities would be made pursuant to a definitive
Prospectus or Private Placement Memorandum, as the case may be, prepared by the
issuer which would contain material information not contained herein and to
which prospective purchasers are referred. In the event of any such offering,
this information shall be deemed superseded, amended and supplemented in its
entirety by such Prospectus or Private Placement Memorandum. Such Prospectus or
Private Placement Memorandum will contain all material information in respect
of any securities offered thereby and any decision to invest in such securities
should be made solely in reliance upon such Prospectus or Private Placement
Memorandum. Certain assumptions may have been made in this analysis which have
resulted in any returns detailed herein. No representation is made that any
returns indicated will be achieved. Changes to the assumptions may have a
material impact on any returns detailed. Morgan Stanley & Co. Incorporated and
Deutsche Bank Securities Inc. (the "Underwriters") disclaim any and all
liability relating to this information, including without limitation any
express or implied representations or warranties for, statements contained in,
and omissions from, this information. Additional information is available upon
request. The Underwriters and others associated with them may have positions
in, and may effect transactions in, securities and instruments of issuers
mentioned herein and may also perform or seek to perform investment banking
services for the issuers of such securities and instruments. Past performance
is not necessarily indicative of future results. Price and availability are
subject to change without notice. To our readers worldwide: In addition, please
note that this publication has been issued by Morgan Stanley & Co.
Incorporated, approved by Morgan Stanley & Co. International Limited, a member
of The Securities and Futures Authority, and by Morgan Stanley Japan Ltd. We
recommend that such investors obtain the advice of their Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. International Limited or Morgan Stanley
Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K.
SECURITIES AND FUTURES AUTHORITY.
- --------------------------------------------------------------------------------
<PAGE>
$513,576,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
Appraisal Reductions: An appraisal reduction generally will be created in
the amount, if any, by which the Principal Balance
of a Specially Serviced Mortgage Loan (plus other
amounts overdue in connection with such loan)
exceeds 90% of the appraised value of the related
Mortgaged Property. The Appraisal Reduction Amount
will reduce proportionately the amount of P&I
Advances for such loan, which reduction will
result, in general, in a reduction of amounts
distributable to the most subordinate Class of
Principal Balance Certificate outstanding.
An Appraisal Reduction will be reduced to zero as
of the date the related Mortgage Loan has been
brought current for at least three consecutive
months, paid in full, liquidated, repurchased or
otherwise disposed of.
Operating Adviser: The Operating Adviser, which may be appointed by
the Controlling Class, will have the right to
advise the Special Servicer with respect to certain
actions regarding Specially Serviced Mortgage
Loans. Examples include the right to make certain
modifications, foreclose, sell, bring an REO
Property into environmental compliance or accept
substitute or additional collateral.
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, grant more than three
one-year extensions of the maturity date of a
Mortgage Loan which has a below market rate, reduce
the Mortgage Rate to a rate below the market rate
or defer interest due in excess of 10% of the
Scheduled Principal Balance of such Mortgage Loan.
Optional Termination: The Depositor, then the Master Servicer, then the
Special Servicer, then the majority holders of 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.
T-7
- -------------------------------------------------------------------------------
This information is being delivered to a limited number of prospective
sophisticated investors in order to assist them in determining whether they
have an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with
respect to the terms of any future offer of securities conforming to the terms
hereof. Any such offer of securities would be made pursuant to a definitive
Prospectus or Private Placement Memorandum, as the case may be, prepared by the
issuer which would contain material information not contained herein and to
which prospective purchasers are referred. In the event of any such offering,
this information shall be deemed superseded, amended and supplemented in its
entirety by such Prospectus or Private Placement Memorandum. Such Prospectus or
Private Placement Memorandum will contain all material information in respect
of any securities offered thereby and any decision to invest in such securities
should be made solely in reliance upon such Prospectus or Private Placement
Memorandum. Certain assumptions may have been made in this analysis which have
resulted in any returns detailed herein. No representation is made that any
returns indicated will be achieved. Changes to the assumptions may have a
material impact on any returns detailed. Morgan Stanley & Co. Incorporated and
Deutsche Bank Securities Inc. (the "Underwriters") disclaim any and all
liability relating to this information, including without limitation any
express or implied representations or warranties for, statements contained in,
and omissions from, this information. Additional information is available upon
request. The Underwriters and others associated with them may have positions
in, and may effect transactions in, securities and instruments of issuers
mentioned herein and may also perform or seek to perform investment banking
services for the issuers of such securities and instruments. Past performance
is not necessarily indicative of future results. Price and availability are
subject to change without notice. To our readers worldwide: In addition, please
note that this publication has been issued by Morgan Stanley & Co.
Incorporated, approved by Morgan Stanley & Co. International Limited, a member
of The Securities and Futures Authority, and by Morgan Stanley Japan Ltd. We
recommend that such investors obtain the advice of their Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. International Limited or Morgan Stanley
Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K.
SECURITIES AND FUTURES AUTHORITY.
- --------------------------------------------------------------------------------
<PAGE>
$513,576,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
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.
The foregoing terms and structural characteristics of the Certificates are in
all respects subject to the more detailed description thereof in the Pooling and
Servicing Agreement.
T-8
- -------------------------------------------------------------------------------
This information is being delivered to a limited number of prospective
sophisticated investors in order to assist them in determining whether they
have an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with
respect to the terms of any future offer of securities conforming to the terms
hereof. Any such offer of securities would be made pursuant to a definitive
Prospectus or Private Placement Memorandum, as the case may be, prepared by the
issuer which would contain material information not contained herein and to
which prospective purchasers are referred. In the event of any such offering,
this information shall be deemed superseded, amended and supplemented in its
entirety by such Prospectus or Private Placement Memorandum. Such Prospectus or
Private Placement Memorandum will contain all material information in respect
of any securities offered thereby and any decision to invest in such securities
should be made solely in reliance upon such Prospectus or Private Placement
Memorandum. Certain assumptions may have been made in this analysis which have
resulted in any returns detailed herein. No representation is made that any
returns indicated will be achieved. Changes to the assumptions may have a
material impact on any returns detailed. Morgan Stanley & Co. Incorporated and
Deutsche Bank Securities Inc. (the "Underwriters") disclaim any and all
liability relating to this information, including without limitation any
express or implied representations or warranties for, statements contained in,
and omissions from, this information. Additional information is available upon
request. The Underwriters and others associated with them may have positions
in, and may effect transactions in, securities and instruments of issuers
mentioned herein and may also perform or seek to perform investment banking
services for the issuers of such securities and instruments. Past performance
is not necessarily indicative of future results. Price and availability are
subject to change without notice. To our readers worldwide: In addition, please
note that this publication has been issued by Morgan Stanley & Co.
Incorporated, approved by Morgan Stanley & Co. International Limited, a member
of The Securities and Futures Authority, and by Morgan Stanley Japan Ltd. We
recommend that such investors obtain the advice of their Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. International Limited or Morgan Stanley
Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K.
SECURITIES AND FUTURES AUTHORITY.
- --------------------------------------------------------------------------------
<PAGE>
$513,576,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
III. MORTGAGE LOAN FINOVA Realty Capital Inc.
ORIGINATOR
FINOVA Group Inc. (the "Company") (NYSE:FNV) is a
diversified financial services holding company.
Through its principal subsidiary, FINOVA Capital
Corporation, the Company operates in 19 specific
industry or market niches to provide a broad range
of financing and capital market products to midsize
businesses. The Company has been in operation for
over 45 years. As of December 31, 1998, FINOVA
Group Inc. reported an asset base of approximately
$11 billion.
FINOVA Realty Capital Inc. ("FINOVA") is a
wholly-owned subsidiary of FINOVA Capital
Corporation and is the entity through which the
Company conducts substantially all of its
commercial real estate finance activities. FINOVA
was formerly operated as Belgravia Capital
Corporation, prior to its acquisition by the
Company in October 1997. FINOVA is headquartered in
Irvine, CA with a staff in excess of 90 employees,
where it maintains its centralized underwriting,
loan processing, credit and capital markets
operations. FINOVA maintains an additional 29
offices nationwide which are staffed with
approximately 80 employees that are dedicated
solely to sourcing commercial real estate loans.
Since 1994, FINOVA's originations have included
approximately $2.5 billion of commercial mortgage
loans that have been securitized by its partners in
more than 20 different CMBS offerings. In 1998,
FINOVA originated approximately $3.1 billion of
commercial mortgage loans.
T-9
- -------------------------------------------------------------------------------
This information is being delivered to a limited number of prospective
sophisticated investors in order to assist them in determining whether they
have an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with
respect to the terms of any future offer of securities conforming to the terms
hereof. Any such offer of securities would be made pursuant to a definitive
Prospectus or Private Placement Memorandum, as the case may be, prepared by the
issuer which would contain material information not contained herein and to
which prospective purchasers are referred. In the event of any such offering,
this information shall be deemed superseded, amended and supplemented in its
entirety by such Prospectus or Private Placement Memorandum. Such Prospectus or
Private Placement Memorandum will contain all material information in respect
of any securities offered thereby and any decision to invest in such securities
should be made solely in reliance upon such Prospectus or Private Placement
Memorandum. Certain assumptions may have been made in this analysis which have
resulted in any returns detailed herein. No representation is made that any
returns indicated will be achieved. Changes to the assumptions may have a
material impact on any returns detailed. Morgan Stanley & Co. Incorporated and
Deutsche Bank Securities Inc. (the "Underwriters") disclaim any and all
liability relating to this information, including without limitation any
express or implied representations or warranties for, statements contained in,
and omissions from, this information. Additional information is available upon
request. The Underwriters and others associated with them may have positions
in, and may effect transactions in, securities and instruments of issuers
mentioned herein and may also perform or seek to perform investment banking
services for the issuers of such securities and instruments. Past performance
is not necessarily indicative of future results. Price and availability are
subject to change without notice. To our readers worldwide: In addition, please
note that this publication has been issued by Morgan Stanley & Co.
Incorporated, approved by Morgan Stanley & Co. International Limited, a member
of The Securities and Futures Authority, and by Morgan Stanley Japan Ltd. We
recommend that such investors obtain the advice of their Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. International Limited or Morgan Stanley
Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K.
SECURITIES AND FUTURES AUTHORITY.
- --------------------------------------------------------------------------------
<PAGE>
$513,576,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
IV. COLLATERAL DESCRIPTION
Summary: The Mortgage Pool consists of a $632,094,383 pool of 194
fixed-rate, first lien mortgage loans secured by first liens on
commercial and multifamily properties located throughout 34 states
and the District of Columbia. As of the Cut-Off Date, the Mortgage
Loans have a weighted average mortgage rate of 7.622% and a
weighted average remaining term to maturity of 119 months. See the
Appendices to the Prospectus Supplement for more detailed
collateral information.
GEOGRAPHIC DISTRIBUTION
WA MO AL HI
1.9% 0.7% 1.5% 1.2%
OR OK GA CT
0.8% 1.2% 5.1% 0.3%
CA TX NY NJ
33.0% 7.9% 0.8% 2.0%
NV LA PA MD
1.2% 0.5% 5.9% 2.3%
UT IL VA District of
0.4% 0.2% 1.2% Columbia
5.2%
AZ MI NC
3.6% 0.5% 1.7%
WY IN SC
0.6% 0.4% 1.5%
CO OH FL
2.0% 0.8% 5.3%
NM KY NH
0.6% 0.5% 1.5%
MN TN MA
0.8% 1.5% 5.6%
T-10
- -------------------------------------------------------------------------------
This information is being delivered to a limited number of prospective
sophisticated investors in order to assist them in determining whether they
have an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with
respect to the terms of any future offer of securities conforming to the terms
hereof. Any such offer of securities would be made pursuant to a definitive
Prospectus or Private Placement Memorandum, as the case may be, prepared by the
issuer which would contain material information not contained herein and to
which prospective purchasers are referred. In the event of any such offering,
this information shall be deemed superseded, amended and supplemented in its
entirety by such Prospectus or Private Placement Memorandum. Such Prospectus or
Private Placement Memorandum will contain all material information in respect
of any securities offered thereby and any decision to invest in such securities
should be made solely in reliance upon such Prospectus or Private Placement
Memorandum. Certain assumptions may have been made in this analysis which have
resulted in any returns detailed herein. No representation is made that any
returns indicated will be achieved. Changes to the assumptions may have a
material impact on any returns detailed. Morgan Stanley & Co. Incorporated and
Deutsche Bank Securities Inc. (the "Underwriters") disclaim any and all
liability relating to this information, including without limitation any
express or implied representations or warranties for, statements contained in,
and omissions from, this information. Additional information is available upon
request. The Underwriters and others associated with them may have positions
in, and may effect transactions in, securities and instruments of issuers
mentioned herein and may also perform or seek to perform investment banking
services for the issuers of such securities and instruments. Past performance
is not necessarily indicative of future results. Price and availability are
subject to change without notice. To our readers worldwide: In addition, please
note that this publication has been issued by Morgan Stanley & Co.
Incorporated, approved by Morgan Stanley & Co. International Limited, a member
of The Securities and Futures Authority, and by Morgan Stanley Japan Ltd. We
recommend that such investors obtain the advice of their Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. International Limited or Morgan Stanley
Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K.
SECURITIES AND FUTURES AUTHORITY.
- --------------------------------------------------------------------------------
<PAGE>
$513,576,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
<TABLE>
<CAPTION>
CUT-OFF DATE BALANCES ($) MORTGAGE RATES (%) DEBT SERVICE COVERAGE RATIOS (x)
- ------------------------------------------- ----------------------------------------- ---------------------------------------
NO. CUT-OFF DATE % NO. CUT-OFF DATE % NO. CUT-OFF DATE %
OF PRINCIPAL OF OF PRINCIPAL OF OF PRINCIPAL OF
LOANS BALANCE POOL LOANS BALANCE POOL LOANS BALANCE POOL
- ------------------------------------------- ----------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(less than) = 1MM 26 18,281,125 2.89 6.501 - 7.000 22 61,796,551 9.78 1.01 - 1.15 6 8,558,132 1.35
1MM - 2MM 45 69,230,683 10.95 7.001 - 7.500 78 233,499,811 36.94 1.16 - 1.25 24 114,613,313 18.13
2MM - 3MM 53 131,825,576 20.86 7.501 - 8.000 55 228,139,400 36.09 1.26 - 1.35 51 225,928,677 35.74
3MM - 4MM 26 90,705,819 14.35 8.001 - 8.500 33 78,614,797 12.44 1.36 - 1.50 51 148,999,948 23.57
4MM - 5MM 13 56,462,549 8.93 8.501 - 9.000 6 30,043,824 4.75 1.51 - 1.75 52 112,878,404 17.86
5MM - 6MM 7 37,744,980 5.97 ----------------------------------------- 1.76 - 2.00 4 8,266,946 1.31
6MM - 7MM 10 65,122,951 10.30 TOTAL: 194 632,094,383 100.00 2.00 >= 6 12,848,965 2.03
7MM - 8MM 3 22,309,329 3.53 ----------------------------------------- ---------------------------------------
8MM - 9MM 1 8,366,193 1.32 Min: 6.610 TOTAL: 194 632,094,383 100.00
9MM - 10MM 3 28,119,603 4.45 Max: 9.000 ---------------------------------------
10MM - 15MM 5 63,257,596 10.01 WAC: 7.622 Min: 1.11
15MM - 20MM 1 18,859,720 2.98 ----------------------------------------- Max: 2.52
20MM - 25MM 1 21,808,261 3.45 Wtd Avg: 1.40
- ------------------------------------------- ---------------------------------------
TOTAL: 194 632,094,383 100.00 ORIGINAL TERMS TO STATED MATURITY (MOS)
- ------------------------------------------- ----------------------------------------- CUT-OFF DATE LOAN-TO-VALUE RATIOS (%)
Min: 178,572 NO. CUT-OFF DATE % ---------------------------------------
Max: 21,808,261 OF PRINCIPAL OF NO. CUT-OFF DATE %
Average: 3,258,218 LOANS BALANCE POOL OF PRINCIPAL OF
- ------------------------------------------- ----------------------------------------- LOANS BALANCE POOL
61 - 120 182 571,037,096 90.34 ---------------------------------------
STATES 121 - 180 8 48,472,528 7.67 30.1 - 40.0 1 1,237,136 0.20
- ------------------------------------------- 181 - 240 4 12,584,760 1.99 40.1 - 50.0 5 10,352,823 1.64
NO. CUT-OFF DATE % ----------------------------------------- 50.1 - 60.0 21 54,671,808 8.65
OF PRINCIPAL OF TOTAL: 194 632,094,383 100.00 60.1 - 70.0 58 171,203,388 27.09
LOANS BALANCE POOL ----------------------------------------- 70.1 - 80.0 107 384,853,506 60.89
- ------------------------------------------- Min: 84 80.1 - 90.0 2 9,775,723 1.55
California 49 208,320,912 32.96 Max: 240 ---------------------------------------
Texas 14 49,916,610 7.90 Wtd Avg: 125 TOTAL: 194 632,094,383 100.00
Pennsylvania 23 37,489,691 5.93 ----------------------------------------- ---------------------------------------
Massachusetts 6 35,432,902 5.61 Min 37.6
Florida 5 33,494,423 5.30 REMAINING TERMS TO STATED MATURITY (MOS) Max: 85.1
District of 4 32,657,038 5.17 ----------------------------------------- Wtd Avg: 70.8
Columbia NO. CUT-OFF DATE % ---------------------------------------
Georgia 12 32,025,038 5.07 OF PRINCIPAL OF
Arizona 9 22,489,672 3.56 LOANS BALANCE POOL BALLOON LOAN-TO-VALUE RATIOS (%)
Maryland 5 14,447,565 2.29 ----------------------------------------- ---------------------------------------
Colorado 4 12,706,598 2.01 61 - 120 187 589,068,429 93.19 NO. CUT-OFF DATE %
Other 63 153,113,935 24.2 121 - 180 3 30,441,194 4.82 OF PRINCIPAL OF
- ------------------------------------------- 181 - 240 4 12,584,760 1.99 LOANS BALANCE POOL
TOTAL: 194 632,094,383 100.00 ----------------------------------------- ---------------------------------------
- ------------------------------------------- TOTAL: 194 632,094,383 100.00 0.1 - 10.0 3 8,924,382 1.41
----------------------------------------- 20.1 - 30.0 1 2,518,583 0.40
PROPERTY TYPE Min: 75 30.1 - 40.0 6 12,731,754 2.01
- ------------------------------------------- Max: 231 40.1 - 50.0 23 54,936,203 8.69
NO. CUT-OFF DATE % Wtd Avg: 119 50.1 - 60.0 54 150,058,376 23.74
OF PRINCIPAL OF ----------------------------------------- 60.1 - 70.0 97 334,905,666 52.98
LOANS BALANCE POOL 70.1 - 80.0 10 68,019,421 10.76
- ------------------------------------------- BALLOON LOANS
Retail 33 123,360,194 19.52 ----------------------------------------- ---------------------------------------
Office 20 112,478,796 17.79 NO. CUT-OFF DATE % TOTAL: 194 632,094,383 100.0
Multifamily 23 96,784,847 15.31 OF PRINCIPAL OF ---------------------------------------
Manufactured LOANS BALANCE POOL Min: 3.3
Housing ----------------------------------------- Max: 78.4
Community 49 94,853,371 15.01 Yes 191 623,170,002 98.59 Wtd Avg: 60.1
Hospitality 25 83,877,868 13.27 No 3 8,924,382 1.41 ---------------------------------------
Mixed Use 14 48,304,489 7.64 -----------------------------------------
Self Storage 15 32,722,333 5.18 TOTAL: 194 632,094,383 100.00
Industrial 6 26,444,943 4.18 -----------------------------------------
Senior Housing 9 13,267,543 2.10
- -------------------------------------------
TOTAL: 194 632,094,383 100.00
- -------------------------------------------
</TABLE>
T-11
- -------------------------------------------------------------------------------
This information is being delivered to a limited number of prospective
sophisticated investors in order to assist them in determining whether they
have an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with
respect to the terms of any future offer of securities conforming to the terms
hereof. Any such offer of securities would be made pursuant to a definitive
Prospectus or Private Placement Memorandum, as the case may be, prepared by the
issuer which would contain material information not contained herein and to
which prospective purchasers are referred. In the event of any such offering,
this information shall be deemed superseded, amended and supplemented in its
entirety by such Prospectus or Private Placement Memorandum. Such Prospectus or
Private Placement Memorandum will contain all material information in respect
of any securities offered thereby and any decision to invest in such securities
should be made solely in reliance upon such Prospectus or Private Placement
Memorandum. Certain assumptions may have been made in this analysis which have
resulted in any returns detailed herein. No representation is made that any
<PAGE>
returns indicated will be achieved. Changes to the assumptions may have a
material impact on any returns detailed. Morgan Stanley & Co. Incorporated and
Deutsche Bank Securities Inc. (the "Underwriters") disclaim any and all
liability relating to this information, including without limitation any
express or implied representations or warranties for, statements contained in,
and omissions from, this information. Additional information is available upon
request. The Underwriters and others associated with them may have positions
in, and may effect transactions in, securities and instruments of issuers
mentioned herein and may also perform or seek to perform investment banking
services for the issuers of such securities and instruments. Past performance
is not necessarily indicative of future results. Price and availability are
subject to change without notice. To our readers worldwide: In addition, please
note that this publication has been issued by Morgan Stanley & Co.
Incorporated, approved by Morgan Stanley & Co. International Limited, a member
of The Securities and Futures Authority, and by Morgan Stanley Japan Ltd. We
recommend that such investors obtain the advice of their Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. International Limited or Morgan Stanley
Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K.
SECURITIES AND FUTURES AUTHORITY.
- --------------------------------------------------------------------------------
<PAGE>
$513,576,000 (APPROXIMATE)
MORGAN STANLEY CAPITAL I INC.
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1999-FNV1
PERCENTAGE OF MORTGAGE POOL BALANCE BY PREPAYMENT RESTRICTION (%)(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
PREPAYMENT RESTRICTIONS APRIL 1999 APRIL 2000 APRIL 2001 APRIL 2002 APRIL 2003
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Locked Out/Defeasance 100.00% 96.54% 96.29% 95.55% 95.54%
Yield Maintenance Total 0.00 3.46 3.46 3.86 3.87
Penalty Points:
5.00% and greater 0.00 0.00 0.25 0.34 0.34
4.00% to 4.99% 0.00 0.00 0.00 0.25 0.00
3.00% to 3.99% 0.00 0.00 0.00 0.00 0.25
2.00% to 2.99% 0.00 0.00 0.00 0.00 0.00
1.00% to 1.99% 0.00 0.00 0.00 0.00 0.00
Open 0.00 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00%
- --------------------------------------------------------------------------------------------------------------------------------
Pool Balance Outstanding
(in millions) $632.09 $625.35 $617.93 $609.91 $601.26
% of Initial Pool Balance 100.00% 98.93% 97.76% 96.49% 95.12%
- --------------------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF MORTGAGE POOL BALANCE BY PREPAYMENT RESTRICTION (%) - CONTINUED (1)
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
PREPAYMENT RESTRICTIONS APRIL 2004 APRIL 2005 APRIL 2006 APRIL 2007 APRIL 2008 APRIL 2009
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Locked Out/Defeasance 92.92% 91.86% 92.88% 92.87% 79.15% 43.50%
Yield Maintenance Total 6.27 6.47 6.54 6.55 4.04 56.50
Penalty Points:
5.00% and greater 0.23 0.00 0.00 0.00 0.00 0.00
4.00% to 4.99% 0.34 0.57 0.00 0.00 0.00 0.00
3.00% to 3.99% 0.00 0.00 0.57 0.00 0.00 0.00
2.00% to 2.99% 0.25 0.00 0.00 0.57 0.00 0.00
1.00% to 1.99% 0.00 0.00 0.00 0.00 0.24 0.00
Open 0.00 1.11 0.00 0.00 16.56 0.00
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
- --------------------------------------------------------------------------------------------------------------------------------
Pool Balance Outstanding
(in millions) $592.05 $581.97 $564.75 $553.11 $532.40 $35.38
% of Initial Pool Balance 93.66% 92.07% 89.35% 87.50% 84.23% 5.60%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: (1) The above analysis is based on Maturity Assumptions and a 0% CPR as
discussed in the Prospectus Supplement.
T-12
- -------------------------------------------------------------------------------
This information is being delivered to a limited number of prospective
sophisticated investors in order to assist them in determining whether they
have an interest in the type of security described herein. It has been prepared
solely for information purposes and is not an offer to buy or sell or a
solicitation of an offer to buy or sell any security or instrument or to
participate in any trading strategy. No representation or warranty can be given
with respect to the accuracy or completeness of the information, or with
respect to the terms of any future offer of securities conforming to the terms
hereof. Any such offer of securities would be made pursuant to a definitive
Prospectus or Private Placement Memorandum, as the case may be, prepared by the
issuer which would contain material information not contained herein and to
which prospective purchasers are referred. In the event of any such offering,
this information shall be deemed superseded, amended and supplemented in its
entirety by such Prospectus or Private Placement Memorandum. Such Prospectus or
Private Placement Memorandum will contain all material information in respect
of any securities offered thereby and any decision to invest in such securities
should be made solely in reliance upon such Prospectus or Private Placement
Memorandum. Certain assumptions may have been made in this analysis which have
resulted in any returns detailed herein. No representation is made that any
returns indicated will be achieved. Changes to the assumptions may have a
material impact on any returns detailed. Morgan Stanley & Co. Incorporated and
Deutsche Bank Securities Inc. (the "Underwriters") disclaim any and all
liability relating to this information, including without limitation any
express or implied representations or warranties for, statements contained in,
and omissions from, this information. Additional information is available upon
request. The Underwriters and others associated with them may have positions
in, and may effect transactions in, securities and instruments of issuers
mentioned herein and may also perform or seek to perform investment banking
services for the issuers of such securities and instruments. Past performance
is not necessarily indicative of future results. Price and availability are
subject to change without notice. To our readers worldwide: In addition, please
note that this publication has been issued by Morgan Stanley & Co.
Incorporated, approved by Morgan Stanley & Co. International Limited, a member
of The Securities and Futures Authority, and by Morgan Stanley Japan Ltd. We
recommend that such investors obtain the advice of their Morgan Stanley & Co.
Incorporated, Morgan Stanley & Co. International Limited or Morgan Stanley
Japan Ltd. representative about the investments concerned.
NOT FOR DISTRIBUTION TO PRIVATE CUSTOMERS AS DEFINED BY THE U.K.
SECURITIES AND FUTURES AUTHORITY.
- --------------------------------------------------------------------------------
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
PROSPECTUS
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
MORGAN STANLEY CAPITAL I INC.
DEPOSITOR
The Certificates offered hereby and by Supplements to this Prospectus
(the "Offered Certificates") will be offered from time to time in one or more
series. Each series of Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (with respect to any series, the
"Trust Fund") consisting of one or more segregated pools of various types of
multifamily or commercial mortgage loans (the "Mortgage Loans"), mortgage
participations, mortgage pass-through certificates, mortgage-backed securities
evidencing interests therein or secured thereby (the "MBS"), certain direct
obligations of the United States, agencies thereof or agencies created thereby
(the "Government Securities") or a combination of Mortgage Loans, MBS and/or
Government Securities (with respect to any series, collectively, "Assets"). If
so specified in the related Prospectus Supplement, some or all of the Mortgage
Loans will include assignments of the leases of the related Mortgaged Properties
(as defined herein) and/or assignments of the rental payments due from the
lessees under such leases (each type of assignment, a "Lease Assignment"). A
significant or the sole source of payments on certain Commercial Loans (as
defined herein) and, therefore, of distributions on certain series of
Certificates, will be such rent payments. The Mortgage Loans and MBS are
collectively referred to herein as the "Mortgage Assets." If so specified in the
related Prospectus Supplement, the Trust Fund for a series of Certificates may
include letters of credit, insurance policies, guarantees, reserve funds or
other types of credit support, or any combination thereof (with respect to any
series, collectively, "Credit Support"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any series, collectively, "Cash Flow Agreements"). See "Description of the
Trust Funds," "Description of the Certificates" and "Description of Credit
Support."
Each series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon based on
fixed, variable or adjustable rates; (ii) be senior or subordinate to one or
more other classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iv) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (v) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such series; (vi)
provide for distributions of principal sequentially, based on specified payment
schedules or other methodologies; and/or (vii) provide for distributions based
on a combination of two or more components thereof with one or more of the
characteristics described in this paragraph, to the extent of available funds,
in each case as described in the related Prospectus Supplement. Any such classes
may include classes of Offered Certificates. See "Description of the
Certificates."
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters, as more fully
described under "Plan of Distribution" herein and in the related Prospectus
Supplement.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT.ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, CERTAIN RISKS SET FORTH
UNDER THE CAPTION "RISK FACTORS" HEREIN AND IN THE RELATED PROSPECTUS
SUPPLEMENT.
Prior to issuance there will have been no market for the Certificates of
any series and there can be no assurance that a secondary market for any Offered
Certificates will develop or that, if it does develop, it will continue. This
Prospectus may not be used to consummate sales of the Offered Certificates of
any series unless accompanied by the Prospectus Supplement for such series.
---------------------------------
MORGAN STANLEY & CO.
INCORPORATED
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.
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
2
<PAGE>
information set forth in the Registration Statement pursuant to the rules and
regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at its Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its Regional
Offices located as follows: Chicago Regional Office, Citicorp Center, 500 West
Madison Street, Chicago, Illinois 60661; and New York Regional Office, Seven
World Trade Center, New York, New York 10048.
To the extent described in the related Prospectus Supplement, some or
all of the Mortgage Loans may be secured by an assignment of the lessors' (i.e.,
the related mortgagors') rights in one or more leases (each, a "Lease") of the
related Mortgaged Property. Unless otherwise specified in the related Prospectus
Supplement, no series of Certificates will represent interests in or obligations
of any lessee (each, a "Lessee") under a Lease. If indicated, however, in the
Prospectus Supplement for a given series, a significant or the sole source of
payments on the Mortgage Loans in such series, and, therefore, of distributions
on such Certificates, will be rental payments due from the Lessees under the
Leases. Under such circumstances, prospective investors in the related series of
Certificates may wish to consider publicly available information, if any,
concerning the Lessees. Reference should be made to the related Prospectus
Supplement for information concerning the Lessees and whether any such Lessees
are subject to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Offered
Certificates or an offer of the Offered Certificates to any person in any state
or other jurisdiction in which such offer would be unlawful. The delivery of
this Prospectus at any time does not imply that information herein is correct as
of any time subsequent to its date; however, if any material change occurs while
this Prospectus is required by law to be delivered, this Prospectus will be
amended or supplemented accordingly.
A Master Servicer or the Trustee will be required to mail to holders of
Offered Certificates of each series periodic unaudited reports concerning the
related Trust Fund. Unless and until definitive Certificates are issued, or
unless otherwise provided in the related Prospectus Supplement, such reports
will be sent on behalf of the related Trust Fund to Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC") and registered holder of the
Offered Certificates, pursuant to the applicable Agreement. Such reports may be
available to holders of interests in the Certificates (the "Certificateholders")
upon request to their respective DTC participants. See "Description of the
Certificates--Reports to Certificateholders" and "Description of the
Agreements--Evidence as to Compliance." The Depositor will file or cause to be
filed with the Commission such periodic reports with respect to each Trust Fund
as are required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports
filed or caused to be filed by the Depositor with respect to a Trust Fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of an offering of Offered Certificates evidencing interests therein.
The Depositor will provide or cause to be provided without charge to each person
to whom this Prospectus is delivered in connection with the offering of one or
more classes of Offered Certificates, a copy of any or all documents or reports
incorporated herein by reference, in each case to the extent such documents or
reports relate to one or more of such classes of such Offered Certificates,
other than the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests to the Depositor should
be directed in writing to Morgan Stanley Capital I Inc., c/o Morgan Stanley &
Co. Incorporated, 1585 Broadway, 37th Floor, New York, New York 10036,
Attention: John E. Westerfield, or by telephone at (212) 761-4700. The Depositor
has determined that its financial statements are not material to the offering of
any Offered Certificates.
3
<PAGE>
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT.........................................................2
AVAILABLE INFORMATION.........................................................3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.............................3
SUMMARY OF PROSPECTUS.........................................................5
RISK FACTORS.................................................................15
DESCRIPTION OF THE TRUST FUNDS...............................................22
USE OF PROCEEDS..............................................................28
YIELD CONSIDERATIONS.........................................................28
THE DEPOSITOR................................................................31
DESCRIPTION OF THE CERTIFICATES..............................................32
DESCRIPTION OF THE AGREEMENTS................................................39
DESCRIPTION OF CREDIT SUPPORT................................................56
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES...................58
CERTAIN FEDERAL INCOME TAX CONSEQUENCES......................................73
STATE TAX CONSIDERATIONS.....................................................99
CERTAIN ERISA CONSIDERATIONS.................................................99
LEGAL INVESTMENT............................................................101
PLAN OF DISTRIBUTION........................................................103
LEGAL MATTERS...............................................................104
FINANCIAL INFORMATION.......................................................104
RATING .....................................................................104
INDEX OF PRINCIPAL DEFINITIONS..............................................105
4
<PAGE>
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in
its entirety by reference to the more detailed information appearing elsewhere
in this Prospectus and by reference to the information with respect to each
series of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of such series. An Index of Principal
Definitions is included at the end of this Prospectus.
TITLE OF CERTIFICATES................ Mortgage Pass-Through Certificates,
issuable in series (the "Certificates").
DEPOSITOR............................ Morgan Stanley Capital I Inc., a
wholly-owned subsidiary of Morgan Stanley
Group Inc. See "The Depositor."
MASTER SERVICER...................... The master servicer (the "Master
Servicer"), if any, for each series of
Certificates, which may be an affiliate
of the Depositor, will be named in the
related Prospectus Supplement. See
"Description of the
Agreements--Collection and Other
Servicing Procedures."
SPECIAL SERVICER..................... The special servicer (the "Special
Servicer"), if any, for each series of
Certificates, which may be an affiliate
of the Depositor, will be named, or the
circumstances in accordance with which a
Special Servicer will be appointed will
be described, in the related Prospectus
Supplement. See "Description of the
Agreements--Special Servicers."
TRUSTEE.............................. The trustee (the "Trustee") for each
series of Certificates will be named in
the related Prospectus Supplement. See
"Description of the Agreements--The
Trustee."
THE TRUST ASSETS..................... Each series of Certificates will
represent in the aggregate the entire
beneficial ownership interest in a Trust
Fund consisting primarily of:
(A) MORTGAGE ASSETS.................. The Mortgage Assets with respect to each
series of Certificates will consist of a
pool of multifamily and/or commercial
mortgage loans (collectively, the
"Mortgage Loans") and mortgage
participations, mortgage pass-through
certificates or other mortgage-backed
securities evidencing interests in or
secured by Mortgage Loans (collectively,
the "MBS") or a combination of Mortgage
Loans and MBS. The Mortgage Loans will
not be guaranteed or insured by the
Depositor or any of its affiliates or,
unless otherwise provided in the
5
<PAGE>
Prospectus Supplement, by any
governmental agency or instrumentality or
other person. As more specifically
described herein, the Mortgage Loans will
be secured by first or junior liens on,
or security interests in, properties
consisting of (i) residential properties
consisting of five or more rental or
cooperatively-owned dwelling units (the
"Multifamily Properties") or (ii) office
buildings, shopping centers, retail
stores, hotels or motels, nursing homes,
hospitals or other health-care related
facilities, mobile home parks, warehouse
facilities, mini-warehouse facilities or
self-storage facilities, industrial
plants, congregate care facilities, mixed
use or other types of commercial
properties (the "Commercial Properties").
The term "Mortgaged Properties" shall
refer to Multifamily Properties or
Commercial Properties, or both.
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
6
<PAGE>
Rate") that is fixed over its term or
that adjusts from time to time, or that
may be converted from an adjustable to a
fixed
Mortgage Rate, or from a fixed to an
adjustable Mortgage Rate, from time to
time at the mortgagor's election, in each
case as described in the related
Prospectus Supplement. Adjustable
Mortgage Rates on the Mortgage Loans in a
Trust Fund may be based on one or more
indices. Each Mortgage Loan may provide
for scheduled payments to maturity,
payments that adjust from time to time to
accommodate changes in the Mortgage Rate
or to reflect the occurrence of certain
events, and may provide for negative
amortization or accelerated amortization,
in each case as described in the related
Prospectus Supplement. Each Mortgage Loan
may be fully amortizing or require a
balloon payment due on its stated
maturity date, in each case as described
in the related Prospectus Supplement.
Each Mortgage Loan may contain
prohibitions on prepayment or require
payment of a premium or a yield
maintenance penalty in connection with a
prepayment, in each case as described in
the related Prospectus Supplement. The
Mortgage Loans may provide for payments
of principal, interest or both, on due
dates that occur monthly, quarterly,
semi-annually or at such other interval
as is specified in the related Prospectus
Supplement. See "Description of the Trust
Funds--Assets."
(B) GOVERNMENT SECURITIES............ If so provided in the related Prospectus
Supplement, the Trust Fund may include,
in addition to Mortgage Assets, certain
direct 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."
7
<PAGE>
(D) CREDIT SUPPORT................... If so provided in the related Prospectus
Supplement, partial or full protection
against certain defaults and losses on
the Mortgage Assets in the related Trust
Fund may be provided to one or more
classes of Certificates of the related
series in the form of subordination of
one or more other classes of Certificates
of such series, which other classes may
include one or more classes of Offered
Certificates, or by one or more other
types of credit support, such as a letter
of credit, insurance policy, guarantee,
reserve fund or another type of credit
support, or a combination thereof (any
such coverage with respect to the
Certificates of any series, "Credit
Support"). The amount and types of
coverage, the identification of the
entity providing the coverage (if
applicable) and related information with
respect to each type of Credit Support,
if any, will be described in the
Prospectus Supplement for a series of
Certificates. The Prospectus Supplement
for any series of Certificates evidencing
an interest in a Trust Fund that includes
MBS will describe any similar forms of
credit support that are provided by or
with respect to, or are included as part
of the trust fund evidenced by or
providing security for, such MBS. See
"Risk Factors--Credit Support
Limitations" and "Description of Credit
Support."
(E) CASH FLOW AGREEMENTS............. If so provided in the related Prospectus
Supplement, the Trust Fund may include
guaranteed investment contracts pursuant
to which moneys held in the funds and
accounts established for the related
series will be invested at a specified
rate. The Trust Fund may also include
certain other agreements, such as
interest rate exchange agreements,
interest rate cap or floor agreements,
currency exchange agreements or similar
agreements provided to reduce the effects
of interest rate or currency exchange
rate fluctuations on the Assets or on one
or more classes of Certificates.
(Currency exchange agreements might be
included in the Trust Fund if some or all
of the Mortgage Assets (such as Mortgage
Loans secured by Mortgaged Properties
located outside the United States) were
denominated in a non-United States
currency.) The principal terms of any
such guaranteed investment contract or
other agreement (any such agreement, a
"Cash Flow Agreement"), including,
without limitation, provisions relating
to the timing, manner and amount of
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
8
<PAGE>
Certificates evidencing an interest in a
Trust Fund that includes MBS will
describe any cash flow agreements that
are included as part of the trust fund
evidenced by or providing security for
such MBS. See "Description of the Trust
Funds--Cash Flow Agreements." Description
of Certificates.
DISTRIBUTIONS ON CERTIFICATES........ Each series of Certificates evidencing an
interest in a Trust Fund that includes
Mortgage Loans as part of its assets will
be issued pursuant to a pooling and
servicing agreement, and each series of
Certificates evidencing an interest in a
Trust Fund that does not include Mortgage
Loans will be issued pursuant to a trust
agreement. Pooling and servicing
agreements and trust agreements are
referred to herein as the "Agreements."
Each series of Certificates will include
one or more classes. Each series of
Certificates (including any class or
classes of Certificates of such series
not offered hereby) will represent in the
aggregate the entire beneficial ownership
interest in the Trust Fund. Each class of
Certificates (other than certain Stripped
Interest Certificates, as defined below)
will have a stated principal amount (a
"Certificate Balance") and (other than
certain Stripped Principal Certificates,
as defined below), will accrue interest
thereon based on a fixed, variable or
adjustable interest rate (a "Pass-Through
Rate"). The related Prospectus Supplement
will specify the Certificate Balance, if
any, and the Pass-Through Rate for each
class of Certificates or, in the case of
a variable or adjustable Pass-Through
Rate, the method for determining the
Pass-Through Rate.
Each series of Certificates will consist
of one or more classes of Certificates
that may (i) provide for the accrual of
interest thereon based on fixed, variable
or adjustable rates; (ii) be senior
(collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate
Certificates") to one or more other
classes of Certificates in respect of
certain distributions on the
Certificates; (iii) be entitled to
principal distributions, with
disproportionately low, nominal or no
interest distributions (collectively,
"Stripped Principal Certificates"); (iv)
be entitled to interest distributions,
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
9
<PAGE>
methodologies; and/or (vii) provide for
distributions based on a combination of
two or more components thereof with one
or more of the characteristics described
in this paragraph, including a Stripped
Principal Certificate component and a
Stripped Interest Certificate component,
to the extent of available funds, in each
case as described in the related
Prospectus Supplement. Any such classes
may include classes of Offered
Certificates. With respect to
Certificates with two or more components,
references herein to Certificate Balance,
notional amount and Pass-Through Rate
refer to the principal balance, if any,
notional amount, if any, and the
Pass-Through Rate, if any, for any such
component.
The Certificates will not be guaranteed
or insured by the Depositor or any of its
affiliates, by any governmental agency or
instrumentality or by any other person,
unless otherwise provided in the related
Prospectus Supplement. See "Risk
Factors--Limited Assets" and "Description
of the Certificates."
(A) INTEREST......................... Interest on each class of Offered
Certificates (other than Stripped
Principal Certificates and certain
classes of Stripped Interest
Certificates) of each series will accrue
at the applicable Pass-Through Rate on
the outstanding Certificate Balance
thereof and will be distributed to
Certificateholders as provided in the
related Prospectus Supplement (each of
the specified dates on which
distributions are to be made, a
"Distribution Date"). Distributions with
respect to interest on Stripped Interest
Certificates may be made on each
Distribution Date on the basis of a
notional amount as described in the
related Prospectus Supplement.
Distributions of interest with respect to
one or more classes of Certificates may
be reduced to the extent of certain
delinquencies, losses, prepayment
interest shortfalls, and other
contingencies described herein and in the
related Prospectus Supplement. See "Risk
Factors--Average Life of Certificates;
Prepayments; Yields," "Yield
Considerations" and "Description of the
Certificates--Distributions of Interest
on the Certificates."
(B) PRINCIPAL........................ The Certificates of each series initially
will have an aggregate Certificate
Balance no greater than the outstanding
principal balance of the Assets as of,
unless the related Prospectus Supplement
provides otherwise, the close of business
on the first day of the month of
formation of the related Trust Fund (the
"Cut-off Date"), after application of
scheduled payments due on or before such
date, whether or not received. The
Certificate Balance of a Certificate
outstanding from time to time represents
the maximum amount that the holder
thereof is
10
<PAGE>
then entitled to receive in respect of
principal from future cash flow on the
assets in the related Trust Fund. Unless
otherwise provided in the related
Prospectus Supplement, distributions of
principal will be made on each
Distribution Date to the class or classes
of Certificates entitled thereto until
the Certificate Balances of such
Certificates have been reduced to zero.
Unless otherwise specified in the related
Prospectus Supplement, distributions of
principal of any class of Certificates
will be made on a pro rata basis among
all of the Certificates of such class or
by random selection, as described in the
related Prospectus Supplement or
otherwise established by the related
Trustee. Stripped Interest Certificates
with no Certificate Balance will not
receive distributions in respect of
principal. See "Description of the
Certificates--Distributions of Principal
of the Certificates."
ADVANCES............................. Unless otherwise provided in the related
Prospectus Supplement, the Master
Servicer will be obligated as part of its
servicing responsibilities to make
certain advances that in its good faith
judgment it deems recoverable with
respect to delinquent scheduled payments
on the Whole Loans in such Trust Fund.
Neither the Depositor nor any of its
affiliates will have any responsibility
to make such advances. Advances made by a
Master Servicer are reimbursable
generally from subsequent recoveries in
respect of such Whole Loans and otherwise
to the extent described herein and in the
related Prospectus Supplement. If and to
the extent provided in the Prospectus
Supplement for any series, the Master
Servicer will be entitled to receive
interest on its outstanding advances,
payable from amounts in the related Trust
Fund. The Prospectus Supplement for any
series of Certificates evidencing an
interest in a Trust Fund that includes
MBS will describe any corresponding
advancing obligation of any person in
connection with such MBS. See
"Description of the
Certificates--Advances in Respect of
Delinquencies."
TERMINATION.......................... If so specified in the related Prospectus
Supplement, a series of Certificates may
be subject to optional early termination
through the repurchase of the Assets in
the related Trust Fund by the party
specified therein, under the
circumstances and in the manner set forth
therein. If so provided in the related
Prospectus Supplement, upon the reduction
of the Certificate Balance of a specified
class or classes of Certificates by a
specified percentage or amount or on and
after a date specified in such Prospectus
Supplement, the party specified therein
will solicit bids for the purchase of all
of the Assets of the Trust Fund, or of a
sufficient portion of such Assets to
retire such
11
<PAGE>
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"
12
<PAGE>
within the meaning of section
856(c)(4)(A) of the Code, in each case to
the extent described herein and in the
Prospectus. See "Certain Federal Income
Tax Consequences" herein and in the
Prospectus.
(B) GRANTOR TRUST.................... If no election is made to treat the Trust
Fund relating to a Series of Certificates
as a real estate mortgage investment
conduit ("REMIC"), the Trust Fund will be
classified as a grantor trust and not as
an association taxable as a corporation
for federal income tax purposes, and
therefore holders of Certificates will be
treated as the owners of undivided pro
rata interests in the Mortgage Pool or
pool of securities and any other assets
held by the Trust Fund.
Investors are advised to consult their
tax advisors and to review "Certain
Federal Income Tax Consequences" herein
and in the related Prospectus Supplement.
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
13
<PAGE>
"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.
14
<PAGE>
RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "Risk Factors" in the related Prospectus
Supplement.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates
of any series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such series
remain outstanding. Any such secondary market may provide less liquidity to
investors than any comparable market for securities evidencing interests in
single family mortgage loans. The market value of Certificates will fluctuate
with changes in prevailing rates of interest. Consequently, sale of Certificates
by a holder in any secondary market that may develop may be at a discount from
100% of their original principal balance or from their purchase price.
Furthermore, secondary market purchasers may look only hereto, to the related
Prospectus Supplement and to the reports to Certificateholders delivered
pursuant to the related Agreement as described herein under the heading
"Description of the Certificates--Reports to Certificateholders", "--Book-Entry
Registration and Definitive Certificates" and "Description of the
Agreements--Evidence as to Compliance" for information concerning the
Certificates. Except to the extent described herein and in the related
Prospectus Supplement, Certificateholders will have no redemption rights and the
Certificates are subject to early retirement only under certain specified
circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates--Termination". Morgan Stanley & Co.
Incorporated currently expects to make a secondary market in the Offered
Certificates, but has no obligation to do so.
LIMITED ASSETS
The Certificates will not represent an interest in or obligation of the
Depositor, the Master Servicer, or any of their affiliates. The only obligations
with respect to the Certificates or the Assets will be the obligations (if any)
of the Warrantying Party (as defined herein) pursuant to certain limited
representations and warranties made with respect to the Mortgage Loans, the
Master Servicer's, any Special Servicer's and any Sub-Servicer's servicing
obligations under the related Pooling and Servicing Agreement (including the
limited obligation to make certain advances in the event of delinquencies on the
Mortgage Loans, but only to the extent deemed recoverable). Since certain
representations and warranties with respect to the Mortgage Assets may have been
made and/or assigned in connection with transfers of such Mortgage Assets prior
to the Closing Date, the rights of the Trustee and the Certificateholders with
respect to such representations or warranties will be limited to their rights as
an assignee thereof. Unless otherwise specified in the related Prospectus
Supplement, none of the Depositor, the Master Servicer or any affiliate thereof
will have any obligation with respect to representations or warranties made by
any other entity. Unless otherwise specified in the related Prospectus
Supplement, neither the Certificates nor the underlying Mortgage Assets will be
guaranteed or insured by any governmental agency or instrumentality, or by the
Depositor, the Master Servicer, any Special Servicer, any Sub-Servicer or any of
their affiliates. Proceeds of the assets included in the related Trust Fund for
each series of Certificates (including the Assets and any form of credit
enhancement) will be the sole source of payments on the Certificates, and there
will be no recourse to the Depositor or any other entity in the event that such
proceeds are insufficient or otherwise unavailable to make all payments provided
for under the Certificates.
Unless otherwise specified in the related Prospectus Supplement, a
series of Certificates will not have any claim against or security interest in
the Trust Funds for any other series. If the related Trust Fund is insufficient
to make payments on such Certificates, no other assets will be available for
payment of the deficiency. Additionally, certain amounts remaining in certain
funds or accounts, including the Certificate Account and any accounts maintained
as Credit Support, may be withdrawn under certain conditions, as described in
the related Prospectus Supplement. In the event of such withdrawal, such amounts
will not be available for future payment of principal of or interest on the
Certificates. If so provided in the Prospectus Supplement for a series of
Certificates consisting of one
15
<PAGE>
or more classes of Subordinate Certificates, on any Distribution Date in respect
of which losses or shortfalls in collections on the Assets have been incurred,
the amount of such losses or shortfalls will be borne first by one or more
classes of the Subordinate Certificates, and, thereafter, by the remaining
classes of Certificates in the priority and manner and subject to the
limitations specified in such Prospectus Supplement.
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
16
<PAGE>
real estate values generally will limit loss experiences on the Mortgaged
Properties. If the commercial or multifamily residential real estate markets
should experience an overall decline in property values such that the
outstanding principal balances of the Mortgage Loans underlying or comprising
the Mortgage Assets in a particular Trust Fund and any secondary financing on
the related Mortgaged Properties become equal to or greater than the value of
the Mortgaged Properties, the rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced by institutional lenders.
In addition, adverse economic conditions (which may or may not affect real
property values) may affect the timely payment by mortgagors of scheduled
payments of principal and interest on the Mortgage Loans and, accordingly, the
rates of delinquencies, foreclosures and losses with respect to any Trust Fund.
To the extent that such losses are not covered by the Credit Support, if any,
described in the related Prospectus Supplement, such losses will be borne, at
least in part, by the holders of one or more classes of the Certificates of the
related series. See "Description of Credit Support" and "Rating."
RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGED PROPERTIES
Mortgage loans made with respect to multifamily or commercial property
may entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single family
property. See "Description of the Trust Funds--Assets." The ability of a
mortgagor to repay a loan secured by an income-producing property typically is
dependent primarily upon the successful operation of such property rather than
any independent income or assets of the mortgagor; thus, the value of an
income-producing property is directly related to the net operating income
derived from such property. In contrast, the ability of a mortgagor to repay a
single family loan typically is dependent primarily upon the mortgagor's
household income, rather than the capacity of the property to produce income;
thus, other than in geographical areas where employment is dependent upon a
particular employer or an industry, the mortgagor's income tends not to reflect
directly the value of such property. A decline in the net operating income of an
income-producing property will likely affect both the performance of the related
loan as well as the liquidation value of such property, whereas a decline in the
income of a mortgagor on a single family property will likely affect the
performance of the related loan but may not affect the liquidation value of such
property. Moreover, a decline in the value of a Mortgaged Property will increase
the risk of loss particularly with respect to any related junior Mortgage Loan.
See "--Junior Mortgage Loans."
The performance of a mortgage loan secured by an income-producing
property leased by the mortgagor to tenants as well as the liquidation value of
such property may be dependent upon the business operated by such tenants in
connection with such property, the creditworthiness of such tenants or both; the
risks associated with such loans may be offset by the number of tenants or, if
applicable, a diversity of types of business operated by such tenants.
It is anticipated that a substantial portion of the Mortgage Loans
included in any Trust Fund will be nonrecourse loans or loans for which recourse
may be restricted or unenforceable, as to which, in the event of mortgagor
default, recourse may be had only against the specific property and such other
assets, if any, as have been pledged to secure the related Mortgage Loan. With
respect to those Mortgage Loans that provide for recourse against the mortgagor
and its assets generally, there can be no assurance that such recourse will
ensure a recovery in respect of a defaulted Mortgage Loan greater than the
liquidation value of the related Mortgaged Property.
Further, the concentration of default, foreclosure and loss risks in
individual mortgagors or Mortgage Loans in a particular Trust Fund or the
related Mortgaged Properties will generally be greater than for pools of single
family loans both because the Mortgage Assets in a Trust Fund will generally
consist of a smaller number of loans than would a single family pool of
comparable aggregate unpaid principal balance and because of the higher
principal balance of individual Mortgage Loans. Mortgage Assets in a Trust Fund
may consist of only a limited number of Mortgage Loans and/or relate to Leases
to only a single Lessee or a limited number of Lessees.
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.
17
<PAGE>
RISKS ASSOCIATED WITH COMMERCIAL LOANS AND LEASES
If so described in the related Prospectus Supplement, each mortgagor
under a Commercial Loan may be an entity created by the owner or purchaser of
the related Commercial Property solely to own or purchase such property, in part
to isolate the property from the debts and liabilities of such owner or
purchaser. Unless otherwise
specified, each such Commercial Loan will represent a nonrecourse obligation of
the related mortgagor secured by the lien of the related Mortgage and the
related Lease Assignments. Whether or not such loans are recourse or nonrecourse
obligations, it is not expected that the mortgagors will have any significant
assets other than the Commercial Properties and the related Leases, which will
be pledged to the Trustee under the related Agreement. Therefore, the payment of
amounts due on any such Commercial Loans, and, consequently, the payment of
principal of and interest on the related Certificates, will depend primarily or
solely on rental payments by the Lessees. Such rental payments will, in turn,
depend on continued occupancy by, and/or the creditworthiness of, such Lessees,
which in either case may be adversely affected by a general economic downturn or
an adverse change in their financial condition. Moreover, to the extent a
Commercial Property was designed for the needs of a specific type of tenant
(e.g., a nursing home, hospital, hotel or motel), the value of such property in
the event of a default by the Lessee or the early termination of such Lease may
be adversely affected because of difficulty in re-leasing the property to a
suitable substitute lessee or, if re-leasing to such a substitute is not
possible, because of the cost of altering the property for another more
marketable use. As a result, without the benefit of the Lessee's continued
support of the Commercial Property, and absent significant amortization of the
Commercial Loan, if such loan is foreclosed on and the Commercial Property
liquidated following a lease default, the net proceeds might be insufficient to
cover the outstanding principal and interest owing on such loan, thereby
increasing the risk that holders of the Certificates will suffer some loss.
BALLOON PAYMENTS
Certain of the Mortgage Loans (the "Balloon Mortgage Loans") as of the
Cut-off Date may not be fully amortizing over their terms to maturity and, thus,
will require substantial principal payments (i.e., balloon payments) at their
stated maturity. Mortgage Loans with balloon payments involve a greater degree
of risk because the ability of a mortgagor to make a balloon payment typically
will depend upon its ability either to timely refinance the loan or to timely
sell the related Mortgaged Property. The ability of a mortgagor to accomplish
either of these goals will be affected by a number of factors, including the
level of available mortgage interest rates at the time of sale or refinancing,
the mortgagor's equity in the related Mortgaged Property, the financial
condition and operating history of the mortgagor and the related Mortgaged
Property, tax laws, rent control laws (with respect to certain Multifamily
Properties and mobile home parks), reimbursement rates (with respect to certain
hospitals, nursing homes and convalescent homes), renewability of operating
licenses, prevailing general economic conditions and the availability of credit
for commercial or multifamily real properties, as the case may be, generally.
JUNIOR MORTGAGE LOANS
To the extent specified in the related Prospectus Supplement, certain of
the Mortgage Loans may be secured primarily by junior mortgages. In the case of
liquidation, Mortgage Loans secured by junior mortgages are entitled to
satisfaction from proceeds that remain from the sale of the related Mortgaged
Property after the mortgage loans senior to such Mortgage Loans have been
satisfied. If there are not sufficient funds to satisfy such junior Mortgage
Loans and senior mortgage loans, such Mortgage Loan would suffer a loss and,
accordingly, one or more classes of Certificates would bear such loss.
Therefore, any risks of deficiencies associated with first Mortgage Loans will
be greater with respect to junior Mortgage Loans. See "--Risks Associated with
Mortgage Loans and Mortgaged Properties."
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
18
<PAGE>
extend and modify Whole Loans that are in default or as to which a payment
default is imminent, including in particular with respect to balloon payments.
In addition, a Master Servicer, a Sub-Servicer or a Special Servicer may receive
a workout fee based on receipts from or proceeds of such Whole Loans. While any
such entity generally will be required to determine that any such extension or
modification is reasonably likely to produce a greater recovery on a present
value basis than liquidation, there can be no assurance that such flexibility
with respect to extensions or modifications or payment of a workout fee will
increase the present value of receipts from or proceeds of Whole Loans that are
in default or as to which a payment default is imminent. Additionally, if so
specified in the related Prospectus Supplement, certain of the Mortgage Loans
included in the Mortgage Pool for a Series may have been subject to workouts or
similar arrangements following periods of delinquency and default.
MORTGAGOR TYPE
Mortgage Loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of single family mortgage loans. The mortgagor's sophistication and form
of organization may increase the likelihood of protracted litigation or
bankruptcy in default situations.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a series of Certificates will describe any
Credit Support in the related Trust Fund, which may include letters of credit,
insurance policies, guarantees, reserve funds or other types of credit support,
or combinations thereof. Use of Credit Support will be subject to the conditions
and limitations described herein and in the related Prospectus Supplement.
Moreover, such Credit Support may not cover all potential losses or risks; for
example, Credit Support may or may not cover fraud or negligence by a mortgage
loan originator or other parties.
A series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce the
risk to holders of Senior Certificates of delinquent distributions or ultimate
losses, the amount of subordination will be limited and may decline under
certain circumstances. In addition, if principal payments on one or more classes
of Certificates of a series are made in a specified order of priority, any
limits with respect to the aggregate amount of claims under any related Credit
Support may be exhausted before the principal of the lower priority classes of
Certificates of such series has been repaid. As a result, the impact of
significant losses and shortfalls on the Assets may fall primarily upon those
classes of Certificates having a lower priority of payment. Moreover, if a form
of Credit Support covers more than one series of Certificates (each, a "Covered
Trust"), holders of Certificates evidencing an interest in a Covered Trust will
be subject to the risk that such Credit Support will be exhausted by the claims
of other Covered Trusts.
The amount of any applicable Credit Support supporting one or more
classes of Offered Certificates, including the subordination of one or more
classes of Certificates, will be determined on the basis of criteria established
by each Rating Agency rating such classes of Certificates based on an assumed
level of defaults, delinquencies, other losses or other factors. There can,
however, be no assurance that the loss experience on the related Mortgage Assets
will not exceed such assumed levels. See "--Limited Nature of Ratings,"
"Description of the Certificates" and "Description of Credit Support."
Regardless of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will be subject to periodic
reduction in accordance with a schedule or formula. The Master Servicer will
generally be permitted to reduce, terminate or substitute all or a portion of
the credit enhancement for any series of Certificates, if the applicable Rating
Agency indicates that the then-current rating thereof will not be adversely
affected. The rating of any series of Certificates by any applicable Rating
Agency may be lowered following the initial issuance thereof as a result of the
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
19
<PAGE>
Servicer or any of their affiliates will have any obligation to replace or
supplement any credit enhancement, or to take any other action to maintain any
rating of any series of Certificates.
SUBORDINATION OF THE SUBORDINATE CERTIFICATES; EFFECT OF LOSSES ON THE ASSETS
The rights of Subordinate Certificateholders to receive distributions to
which they would otherwise be entitled with respect to the Assets will be
subordinate to the rights of the Master Servicer (to the extent that the Master
Servicer is paid its servicing fee, including any unpaid servicing fees with
respect to one or more prior Due
Periods, and is reimbursed for certain unreimbursed advances and unreimbursed
liquidation expenses) and the Senior Certificateholders to the extent described
herein. As a result of the foregoing, investors must be prepared to bear the
risk that they may be subject to delays in payment and may not recover their
initial investments in the Subordinate Certificates. See "Description of the
Certificates--General" and "--Allocation of Losses and Shortfalls."
The yields on the Subordinate Certificates may be extremely sensitive to
the loss experience of the Assets and the timing of any such losses. If the
actual rate and amount of losses experienced by the Assets exceed the rate and
amount of such losses assumed by an investor, the yields to maturity on the
Subordinate Certificates may be lower than anticipated.
ENFORCEABILITY
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the mortgagor sells, transfers
or conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages may also include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or non-monetary default of the
mortgagor. Such clauses are generally enforceable subject to certain exceptions.
The courts of all states will enforce clauses providing for acceleration in the
event of a material payment default. The equity courts of any state, however,
may refuse the foreclosure of a mortgage or deed of trust when an acceleration
of the indebtedness would be inequitable or unjust or the circumstances would
render the acceleration unconscionable.
If so specified in the related Prospectus Supplement, the Mortgage Loans
will be secured by an assignment of leases and rents pursuant to which the
mortgagor typically assigns its right, title and interest as landlord under the
leases on the related Mortgaged Property and the income derived therefrom to the
lender as further security for the related Mortgage Loan, while retaining a
license to collect rents for so long as there is no default. In the event the
mortgagor defaults, the license terminates and the lender is entitled to collect
rents. Such assignments are typically not perfected as security interests prior
to actual possession of the cash flows. Some state laws may require that the
lender take possession of the Mortgaged Property and obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. In
addition, if bankruptcy or similar proceedings are commenced by or in respect of
the mortgagor, the lender's ability to collect the rents may be adversely
affected. See "Certain Legal Aspects of the Mortgage Loans and the
Leases--Leases and Rents."
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination of
a property may give rise to a lien on the property to assure the costs of
cleanup. In several states, such a lien has priority over the lien of an
existing mortgage against such property. 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
20
<PAGE>
mortgage under certain circumstances. Unless otherwise specified in the related
Prospectus Supplement, each Pooling and Servicing Agreement will provide that
none of the Master Servicer, the Sub-Servicer or the Special Servicer, acting on
behalf of the Trust Fund, may acquire title to a Mortgaged Property securing a
Mortgage Loan or take over its operation unless the Master Servicer has
previously determined, based upon a report prepared by a person who regularly
conducts environmental audits, that: (i) the Mortgaged Property is in compliance
with applicable environmental laws, and there are no circumstances present at
the Mortgaged Property relating to the use, management or disposal of any
hazardous substances, hazardous materials, wastes, or petroleum based materials
for which investigation, testing, monitoring, containment, clean-up or
remediation could be required under any federal, state or local law or
regulation; or (ii) if the Mortgaged Property is not so in compliance or such
circumstances are so present, then it would be in the best economic interest of
the Trust Fund to acquire title to the Mortgaged Property
and further to take such actions as would be necessary and appropriate to effect
such compliance and/or respond to such circumstances. See "Certain Legal Aspects
of the Mortgage Loans and the Leases--Environmental Legislation."
ERISA CONSIDERATIONS
Generally, ERISA applies to investments made by employee benefit plans
and transactions involving the assets of such plans. Due to the complexity of
regulations which govern such plans, prospective investors that are subject to
ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the Offered Certificates of any
series.
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."
21
<PAGE>
BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be registered
in the names of the Certificateholders or their nominees. Because of this,
unless and until Definitive Certificates are issued, Certificateholders will not
be recognized by the Trustee as "Certificateholders" (as that term is to be used
in the related Agreement). Hence, until such time, Certificateholders will be
able to exercise the rights of Certificateholders only indirectly through DTC
and its participating organizations. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates."
DESCRIPTION OF THE TRUST FUNDS
ASSETS
The primary assets of each Trust Fund (the "Assets") will include (i)
multifamily and/or commercial mortgage loans (the "Mortgage Loans"), (ii)
mortgage participations, pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by one or more Mortgage Loans or
other similar participations, certificates or securities ("MBS"), (iii) direct
obligations of the United States, agencies thereof or agencies created thereby
which are not subject to redemption prior to maturity at the option of the
issuer and are (a) interest-bearing securities, (b) non-interest-bearing
securities, (c) originally interest-bearing securities from which coupons
representing the right to payment of interest have been removed, or (d)
interest-bearing securities from which the right to payment of principal has
been removed (the "Government Securities"), or (iv) a combination of Mortgage
Loans, MBS and Government Securities. As used herein, "Mortgage Loans" refers to
both whole Mortgage Loans and Mortgage Loans underlying MBS. Mortgage Loans that
secure, or interests in which are evidenced by, MBS are herein sometimes
referred to as Underlying Mortgage Loans. Mortgage Loans that are not Underlying
Mortgage Loans are sometimes referred to as "Whole Loans." Any mortgage
participations, pass-through certificates or other asset-backed certificates in
which an MBS evidences an interest or which secure an MBS are sometimes referred
to herein also as MBS or as "Underlying MBS." Mortgage Loans and MBS are
sometimes referred to herein as "Mortgage Assets." The Mortgage Assets will not
be guaranteed or insured by Morgan 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
22
<PAGE>
Supplement, in any one of the fifty states, the District of Columbia or the
Commonwealth of Puerto Rico. To the extent specified in the related Prospectus
Supplement, the Mortgage Loans will be secured by first or junior mortgages or
deeds of trust or other similar security instruments creating a first or junior
lien on Mortgaged Property. Multifamily Property may include mixed commercial
and residential structures and may include apartment buildings owned by private
cooperative housing corporations ("Cooperatives"). The Mortgaged Properties may
include leasehold interests in properties, the title to which is held by third
party lessors. Unless otherwise specified in the Prospectus Supplement, the term
of any such leasehold will exceed the term of the related mortgage note by at
least five years. Each Mortgage Loan will have been originated by a person (the
"Originator") other than the Depositor. The related Prospectus Supplement will
indicate if any Originator is an affiliate of the Depositor. The Mortgage Loans
will be evidenced by promissory notes (the "Mortgage Notes") secured by
mortgages or deeds of trust (the "Mortgages") creating a lien on the Mortgaged
Properties. Mortgage Loans will generally also be secured by an assignment of
leases and rents and/or operating or other cash flow guarantees relating to the
Mortgage Loan.
LEASES
To the extent specified in the related Prospectus Supplement, the
Commercial Properties may be leased to Lessees that respectively occupy all or a
portion of such properties. Pursuant to a Lease Assignment, the related
mortgagor may assign its rights, title and interest as lessor under each Lease
and the income derived therefrom to the related mortgagee, while retaining a
license to collect the rents for so long as there is no default. If the
mortgagor defaults, the license terminates and the mortgagee or its agent is
entitled to collect the rents from the related Lessee or Lessees for application
to the monetary obligations of the mortgagor. State law may limit or restrict
the enforcement of the Lease Assignments by a mortgagee until it takes
possession of the related Mortgaged Property and/or a receiver is appointed. See
"Certain Legal Aspects of the Mortgage Loans and the Leases--Leases and Rents."
Alternatively, to the extent specified in the related Prospectus Supplement, the
mortgagor and the mortgagee may agree that payments under Leases are to be made
directly to the Master Servicer.
To the extent described in the related Prospectus Supplement, the Leases
may require the Lessees to pay rent that is sufficient in the aggregate to cover
all scheduled payments of principal and interest on the related Mortgage Loans
and, in certain cases, their pro rata share of the operating expenses, insurance
premiums and real estate taxes associated with the Mortgaged Properties. Certain
of the Leases may require the mortgagor to bear costs associated with structural
repairs and/or the maintenance of the exterior or other portions of the
Mortgaged Property or provide for certain limits on the aggregate amount of
operating expenses, insurance premiums, taxes and other expenses that the
Lessees are required to pay. If so specified in the related Prospectus
Supplement, under certain circumstances the Lessees may be 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.
23
<PAGE>
DEFAULT AND LOSS CONSIDERATIONS WITH RESPECT TO THE MORTGAGE LOANS
Mortgage loans secured by commercial and multifamily properties are
markedly different from owner-occupied single family mortgage loans. The
repayment of loans secured by commercial or multifamily properties is typically
dependent upon the successful operation of such property rather than upon the
liquidation value of the real estate. Unless otherwise specified in the
Prospectus Supplement, the Mortgage Loans will be non-recourse loans, which
means that, absent special facts, the mortgagee may look only to the Net
Operating Income from the property for repayment of the mortgage debt, and not
to any other of the mortgagor's assets, in the event of the mortgagor's default.
Lenders typically look to the Debt Service Coverage Ratio of a loan secured by
income-producing property as an important measure of the risk of default on such
a loan. The "Debt Service Coverage Ratio" of a Mortgage Loan at any given time
is the ratio of the Net Operating Income for a twelve-month period to the
annualized scheduled payments on the Mortgage Loan. "Net Operating Income"
means, for any given period, unless otherwise specified in the related
Prospectus Supplement, the total operating revenues derived from a Mortgaged
Property during such period, minus the total operating expenses incurred in
respect of such Mortgaged Property during such period other than (i) non-cash
items such as depreciation and amortization, (ii) capital expenditures and (iii)
debt service on loans secured by the Mortgaged Property. The Net Operating
Income of a Mortgaged Property will fluctuate over time and may be sufficient or
insufficient to cover debt service on the related Mortgage Loan at any given
time.
As the primary component of Net Operating Income, rental income (as well
as maintenance payments from tenant-stockholders of a Cooperative) is subject to
the vagaries of the applicable real estate market and/or business climate.
Properties typically leased, occupied or used on a short-term basis, such as
health care-related facilities, hotels and motels, and mini-warehouse and
self-storage facilities, tend to be affected more rapidly by changes in market
or business conditions than do properties leased, occupied or used for longer
periods, such as (typically) warehouses, retail stores, office buildings and
industrial plants. Commercial Loans may be secured by owner-occupied Mortgaged
Properties or Mortgaged Properties leased to a single tenant. Accordingly, a
decline in the financial condition of the mortgagor or single tenant, as
applicable, may have a disproportionately greater effect on the Net Operating
Income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants.
Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal property
tax rates and other operating expenses, including energy costs; changes in
governmental rules, regulations and fiscal policies, including environmental
legislation; and acts of God may also affect the risk of default on the related
Mortgage Loan. As may be further described in the related Prospectus Supplement,
in some cases leases of Mortgaged Properties may provide that the Lessee, rather
than the mortgagor, is responsible for payment of some or all of these expenses;
however, because leases are subject to default risks as well when a tenant's
income is insufficient to cover its rent and operating expenses, the existence
of such "net of expense" provisions will only temper, not eliminate, the impact
of expense increases on the performance of the related Mortgage Loan. See
"--Leases" above.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
such risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the latter
include mortgage loans secured by health care-related facilities and hospitals,
the income from which and the operating expenses of which are subject to state
and/or federal regulations, such as Medicare and Medicaid, and multifamily
properties and mobile home parks, which may be subject to state or local rent
control regulation and, in certain cases, restrictions on changes in use of the
property. Low-and moderate-income housing in particular may be subject to legal
limitations and regulations but, because of such regulations, may also be less
sensitive to fluctuations in market rents generally.
The Debt Service Coverage Ratio should not be relied upon as the sole
measure of the risk of default of any loan, however, since other factors may
outweigh a high Debt Service Coverage Ratio. With respect to a Balloon
24
<PAGE>
Mortgage Loan, for example, the risk of default as a result of the
unavailability of a source of funds to finance the related balloon payment at
maturity on terms comparable to or better than those of such Balloon Mortgage
Loans could be significant even though the related Debt Service Coverage Ratio
is high.
The liquidation value of any Mortgaged Property may be adversely
affected by risks generally incident to interests in real property, including
declines in rental or occupancy rates. Lenders generally use the Loan-to-Value
Ratio of a mortgage loan as a measure of risk of loss if a property must be
liquidated upon a default by the mortgagor.
Appraised values of income-producing properties may be based on the
market comparison method (recent resale value of comparable properties at the
date of the appraisal), the cost replacement method (the cost of replacing the
property at such date), the income capitalization method (a projection of value
based upon the property's projected net cash flow), or upon a selection from or
interpolation of the values derived from such methods. Each of these appraisal
methods presents analytical challenges. It is often difficult to find truly
comparable properties that have recently been sold; the replacement cost of a
property may have little to do with its current market value; and income
capitalization is inherently based on inexact projections of income and expense
and the selection of an appropriate capitalization rate. Where more than one of
these appraisal methods are used and create significantly different results, or
where a high Loan-to-Value Ratio accompanies a high Debt Service Coverage Ratio
(or vice versa), the analysis of default and loss risks is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish the Multifamily and Commercial
Loans from single family mortgage loans and provide insight to the risks
associated with income-producing real estate, there is no assurance that such
factors will in fact have been considered by the Originators of the Multifamily
and Commercial Loans, or that, for any of such Mortgage Loans, they are complete
or relevant. See "Risk Factors--Risks Associated with Mortgage Loans and
Mortgaged Properties," "--Balloon Payments," "--Junior Mortgage Loans,"
"--Obligor Default" and "--Mortgagor Type."
LOAN-TO-VALUE RATIO
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the
ratio (expressed as a percentage) of the then outstanding principal balance of
the Mortgage Loan to the Value of the related Mortgaged Property. The "Value" of
a Mortgaged Property, other than with respect to Refinance Loans, is generally
the lesser of (a) the appraised value determined in an appraisal obtained by the
originator at origination of such loan and (b) the sales price for such
property. "Refinance Loans" are loans made to refinance existing loans. Unless
otherwise set forth in the related Prospectus Supplement, the Value of the
Mortgaged Property securing a Refinance Loan is the appraised value thereof
determined in an appraisal obtained at the time of origination of the Refinance
Loan. The Value of a Mortgaged Property as of the date of initial issuance of
the related series of Certificates may be less than the value at origination and
will fluctuate from time to time based upon changes in economic conditions and
the real estate market.
MORTGAGE LOAN INFORMATION IN PROSPECTUS SUPPLEMENTS
Each Prospectus Supplement will contain information, as of the date of
such Prospectus Supplement and to the extent then applicable and specifically
known to the Depositor, with respect to the Mortgage Loans, including (i) the
aggregate outstanding principal balance and the largest, smallest and average
outstanding principal balance of the Mortgage Loans as of the applicable Cut-off
Date, (ii) the type of property securing the Mortgage Loans (e.g., Multifamily
Property or Commercial Property and the type of property in each such category),
(iii) the weighted average (by principal balance) of the original and remaining
terms to maturity of the Mortgage Loans, (iv) the earliest and latest
origination date and maturity date of the Mortgage Loans, (v) the weighted
average (by principal balance) of the Loan-to-Value Ratios at origination of the
Mortgage Loans, (vi) the Mortgage Rates or range of Mortgage Rates and the
weighted average Mortgage Rate borne by the Mortgage Loans, (vii) the state or
states in which most of the Mortgaged Properties are located, (viii) information
with respect to the prepayment provisions, if
25
<PAGE>
any, of the Mortgage Loans, (ix) the weighted average Retained Interest, if any,
(x) with respect to Mortgage Loans with adjustable Mortgage Rates ("ARM Loans"),
the index, the frequency of the adjustment dates, the highest, lowest and
weighted average note margin and pass-through margin, and the maximum Mortgage
Rate or monthly payment variation at the time of any adjustment thereof and over
the life of the ARM Loan and the frequency of such monthly payment adjustments,
(xi) the Debt Service Coverage Ratio either at origination or as of a more
recent date (or both) and (xii) information regarding the payment
characteristics of the Mortgage Loans, including without limitation balloon
payment and other amortization provisions. The related Prospectus Supplement
will also contain certain information available to the Depositor with respect to
the provisions of leases and the nature of tenants of the Mortgaged Properties
and other information referred to in a general manner under "--Mortgage
Loans--Default and Loss Considerations with Respect to the Mortgage Loans"
above. If specific information respecting the Mortgage Loans is not known to the
Depositor at the time Certificates are initially offered, more general
information of the nature described above will be provided in the Prospectus
Supplement, and specific information will be set forth in a report which will be
available to purchasers of the related Certificates at or before the initial
issuance thereof and will be filed as part of a Current Report on Form 8-K with
the Securities and Exchange Commission within fifteen days after such initial
issuance.
PAYMENT PROVISIONS OF THE MORTGAGE LOANS
Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans will (i) have individual principal balances at origination of
not less than $25,000, (ii) have original terms to maturity of not more than 40
years and (iii) provide for payments of principal, interest or both, on due
dates that occur monthly, quarterly or semi-annually or at such other interval
as is specified in the related Prospectus Supplement. Each Mortgage Loan may
provide for no accrual of interest or for accrual of interest thereon at an
interest rate (a "Mortgage Rate") that is fixed over its term or that adjusts
from time to time, or that may be converted from an adjustable to a fixed
Mortgage Rate, or from a fixed to an adjustable Mortgage Rate, from time to time
pursuant to an election or as otherwise specified on the related Mortgage Note,
in each case as described in the related Prospectus Supplement. Each Mortgage
Loan may provide for scheduled payments to maturity or payments that adjust from
time to time to accommodate changes in the Mortgage Rate or to reflect the
occurrence of certain events, and may provide for negative amortization or
accelerated amortization, in each case as described in the related Prospectus
Supplement. Each Mortgage Loan may be fully amortizing or require a balloon
payment due on its stated maturity date, in each case as described in the
related Prospectus Supplement. Each Mortgage Loan may contain prohibitions on
prepayment (a "Lock-out Period" and the date of expiration thereof, a "Lock-out
Date") or require payment of a premium or a yield maintenance penalty (a
"Prepayment Premium") in connection with a prepayment, in each case as described
in the related Prospectus Supplement. In the event that holders of any class or
classes of Offered Certificates will be entitled to all or a portion of any
Prepayment Premiums collected in respect of Mortgage Loans, the related
Prospectus Supplement will specify the method or methods by which any such
amounts will be allocated. A Mortgage Loan may also contain provisions entitling
the mortgagee to a share of profits realized from the operation or disposition
of the Mortgaged Property ("Equity Participations"), as described in the related
Prospectus Supplement. In the event that holders of any class or classes of
Offered Certificates will be entitled to all or a portion of an Equity
Participation, the related Prospectus Supplement will specify the terms and
provisions of the Equity Participation and the method or methods by which
distributions in respect thereof will be allocated among such Certificates.
MBS
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, a trust agreement, an indenture or
similar agreement (an "MBS Agreement"). A seller (the "MBS Issuer") and/or
servicer (the "MBS Servicer") of the underlying Mortgage Loans (or Underlying
MBS) will have entered into the MBS Agreement with a trustee or a custodian
under the MBS Agreement (the "MBS Trustee"), if any, or with the original
purchaser of the interest in the underlying Mortgage Loans or MBS evidenced by
the MBS.
26
<PAGE>
Distributions of any principal or interest, as applicable, will be made
on MBS on the dates specified in the related Prospectus Supplement. The MBS may
be issued in one or more classes with characteristics similar to the classes of
Certificates described in this Prospectus. Any principal or interest
distributions will be made on the MBS by the MBS Trustee or the MBS Servicer.
The MBS Issuer or the MBS Servicer or another person specified in the related
Prospectus Supplement may have the right or obligation to repurchase or
substitute assets underlying the MBS after a certain date or under other
circumstances specified in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination or other forms
of credit support similar to that described for the Certificates under
"Description of Credit Support" may be provided with respect to the MBS. The
type, characteristics and amount of such credit support, if any, will be a
function of certain characteristics of the Mortgage Loans or Underlying MBS
evidenced by or securing such MBS and other factors and generally will have been
established for the MBS on the basis of requirements of either any Rating Agency
that may have assigned a rating to the MBS or the initial purchasers of the MBS.
The Prospectus Supplement for a series of Certificates evidencing
interests in Mortgage Assets that include MBS will specify, to the extent
available, (i) the aggregate approximate initial and outstanding principal
amount or notional amount, as applicable, and type of the MBS to be included in
the Trust Fund, (ii) the original and remaining term to stated maturity of the
MBS, if applicable, (iii) whether such MBS is entitled only to interest
payments, only to principal payments or to both, (iv) the pass-through or bond
rate of the MBS or formula for determining such rates, if any, (v) the
applicable payment provisions for the MBS, including, but not limited to, any
priorities, payment schedules and subordination features, (vi) the MBS Issuer,
MBS Servicer and MBS Trustee, as applicable, (vii) certain characteristics of
the credit support, if any, such as subordination, reserve funds, insurance
policies, letters of credit or guarantees relating to the related Underlying
Mortgage Loans, the Underlying MBS or directly to such MBS, (viii) the terms on
which the related Underlying Mortgage Loans or Underlying MBS for such MBS or
the MBS may, or are required to, be purchased prior to their maturity, (ix) the
terms on which Mortgage Loans or Underlying MBS may be substituted for those
originally underlying the MBS, (x) the servicing fees payable under the MBS
Agreement, (xi) the type of information in respect of the Underlying Mortgage
Loans described under "--Mortgage Loans--Mortgage Loan Information in Prospectus
Supplements" above, and the type of information in respect of the Underlying MBS
described in this paragraph, (xii) the characteristics of any cash flow
agreements that are included as part of the trust fund evidenced or secured by
the MBS and (xiii) whether the MBS is in certificated form, book-entry form or
held through a depository such as The Depository Trust Company or the
Participants Trust Company.
GOVERNMENT SECURITIES
The Prospectus Supplement for a series of Certificates evidencing
interests in Assets of a Trust Fund that include Government Securities will
specify, to the extent available, (i) the aggregate approximate initial and
outstanding principal amounts or notional amounts, as applicable, and types of
the Government Securities to be included in the Trust Fund, (ii) the original
and remaining terms to stated maturity of the Government Securities, (iii)
whether such Government Securities are entitled only to interest payments, only
to principal payments or to both, (iv) the interest rates of the Government
Securities or the formula to determine such rates, if any, (v) the applicable
payment provisions for the Government Securities and (vi) to what extent, if
any, the obligation evidenced thereby is backed by the full faith and credit of
the United States.
ACCOUNTS
Each Trust Fund will include one or more accounts established and
maintained on behalf of the Certificateholders into which the person or persons
designated in the related Prospectus Supplement will, to the extent described
herein and in such Prospectus Supplement deposit all payments and collections
received or advanced with respect to the Assets and other assets in the Trust
Fund. Such an account may be maintained as an interest bearing or a non-interest
bearing account, and funds held therein may be held as cash or invested in
certain short-term, investment grade obligations, in each case as described in
the related Prospectus Supplement. See "Description of the
Agreement--Certificate Account and Other Collection Accounts."
27
<PAGE>
CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Assets in the related
Trust Fund may be provided to one or more classes of Certificates in the related
series in the form of subordination of one or more other classes of Certificates
in such series or by one or more other types of credit support, such as a letter
of credit, insurance policy, guarantee, reserve fund or another type of credit
support, or a combination thereof (any such coverage with respect to the
Certificates of any series, "Credit Support"). The amount and types of coverage,
the identification of the entity providing the coverage (if applicable) and
related information with respect to each type of Credit Support, if any, will be
described in the Prospectus Supplement for a series of Certificates. See "Risk
Factors--Credit Support Limitations" and "Description of Credit Support."
CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to reduce the
effects of interest rate or currency exchange rate fluctuations on the Assets or
on one or more classes of
Certificates. (Currency exchange agreements might be included in the Trust Fund
if some or all of the Mortgage Assets (such as Mortgage Loans secured by
Mortgaged Properties located outside the United States) were denominated in a
non-United States currency.) The principal terms of any such guaranteed
investment contract or other agreement (any such agreement, a "Cash Flow
Agreement"), including, without limitation, provisions relating to the timing,
manner and amount of payments thereunder and provisions relating to the
termination thereof, will be described in the Prospectus Supplement for the
related series. In addition, the related Prospectus Supplement will provide
certain information with respect to the obligor under any such Cash Flow
Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will
be applied by the Depositor to the purchase of Assets and to pay for certain
expenses incurred in connection with such purchase of Assets and sale of
Certificates. The Depositor expects to sell the Certificates from time to time,
but the timing and amount of offerings of Certificates will depend on a number
of factors, including the volume of Assets acquired by the Depositor, prevailing
interest rates, availability of funds and general market conditions.
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by
the Certificateholder, the Pass-Through Rate of the Certificate, the receipt and
timing of receipt of distributions on the Certificate and the weighted average
life of the Assets in the related Trust Fund (which may be affected by
prepayments, defaults, liquidations or repurchases). See "Risk Factors."
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
28
<PAGE>
Pass-Through Rate; the effect, if any, of the prepayment of any Mortgage Asset
on the Pass-Through Rate of one or more classes of Certificates; and whether the
distributions of interest on the Certificates of any class will be dependent, in
whole or in part, on the performance of any obligor under a Cash Flow Agreement.
The effective yield to maturity to each holder of Certificates entitled
to payments of interest will be below that otherwise produced by the applicable
Pass-Through Rate and purchase price of such Certificate because, while interest
may accrue on each Asset during a certain period, the distribution of such
interest will be made on a day which may be several days, weeks or months
following the period of accrual.
TIMING OF PAYMENT OF INTEREST
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a class of Accrual Certificates) on a Distribution Date
will include interest accrued during the Interest Accrual Period for such
Distribution Date. As indicated above under "--Pass-Through Rate," if the
Interest Accrual Period ends on a date other than a Distribution Date for the
related series, the yield realized by the holders of such Certificates may be
lower than the yield that would result if the Interest Accrual Period ended on
such Distribution Date. In addition, if so specified in the related Prospectus
Supplement, interest accrued for an Interest Accrual Period for one or more
classes of Certificates may be calculated on the assumption that distributions
of principal (and additions to the Certificate Balance of Accrual Certificates)
and allocations of losses on the Assets may be made on the first day of the
Interest Accrual Period for a Distribution Date and not on such Distribution
Date. Such method would produce a lower effective yield than if interest were
calculated on the basis of the actual principal amount outstanding during an
Interest Accrual Period. The Interest Accrual Period for any class of Offered
Certificates will be described in the related Prospectus Supplement.
PAYMENTS OF PRINCIPAL; PREPAYMENTS
The yield to maturity on the Certificates will be affected by the rate
of principal payments on the Assets (including principal prepayments on Mortgage
Loans resulting from both voluntary prepayments by the mortgagors and
involuntary liquidations). Such payments may be directly dependent upon the
payments on Leases underlying such Mortgage Loans. The rate at which principal
prepayments occur on the Mortgage Loans will be affected by a variety of
factors, including, without limitation, the terms of the Mortgage Loans, the
level of prevailing interest rates, the availability of mortgage credit and
economic, demographic, geographic, tax, legal and other factors. In general,
however, if prevailing interest rates fall significantly below the Mortgage
Rates on the Mortgage Loans comprising or underlying the Assets in a particular
Trust Fund, such Mortgage Loans are likely to be the subject of higher principal
prepayments than if prevailing rates remain at or above the rates borne by such
Mortgage Loans. In this regard, it should be noted that certain Assets may
consist of Mortgage Loans with different Mortgage Rates and the stated
pass-through or pay-through interest rate of certain MBS may be a number of
percentage points higher or lower than certain of the underlying Mortgage Loans.
The rate of principal payments on some or all of the classes of Certificates of
a series will correspond to the rate of principal payments on the Assets in the
related Trust Fund and is likely to be affected by the existence of Lock-out
Periods and Prepayment Premium provisions of the Mortgage Loans underlying or
comprising such Assets, and by the extent to which the servicer of any such
Mortgage Loan is able to enforce such provisions. Mortgage Loans with a Lock-out
Period or a Prepayment Premium provision, to the extent enforceable, generally
would be expected to experience a lower rate of principal prepayments than
otherwise identical Mortgage Loans without such provisions, with shorter
Lock-out Periods or with lower Prepayment Premiums.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Assets, the
actual yield to maturity will be lower than that so calculated. Conversely, if
the purchaser of a Certificate offered at a premium calculates its anticipated
yield to maturity based on an assumed rate of distributions of principal that is
slower than 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
29
<PAGE>
classes of the Certificates of such series of prepayments of the Assets in the
related Trust Fund may be mitigated or exacerbated by any provisions for
sequential or selective distribution of principal to such classes.
When a full prepayment is made on a Mortgage Loan, the mortgagor is
charged interest on the principal amount of the Mortgage Loan so prepaid for the
number of days in the month actually elapsed up to the date of the prepayment.
Unless otherwise specified in the related Prospectus Supplement, the effect of
prepayments in full will be to reduce the amount of interest paid in the
following month to holders of Certificates entitled to payments of interest
because interest on the principal amount of any Mortgage Loan so prepaid will be
paid only to the date of prepayment rather than for a full month. Unless
otherwise specified in the related Prospectus Supplement, a partial prepayment
of principal is applied so as to reduce the outstanding principal balance of the
related Mortgage Loan as of the Due Date in the month in which such partial
prepayment is received. As a result, unless otherwise specified in the related
Prospectus Supplement, the effect of a partial prepayment on a Mortgage Loan
will be to reduce the amount of interest passed through to holders of
Certificates in the month following the receipt of such partial prepayment by an
amount equal to one month's interest at the applicable Pass-Through Rate on the
prepaid amount.
The timing of changes in the rate of principal payments on the Mortgage
Assets may significantly affect an investor's actual yield to maturity, even if
the average rate of distributions of principal is consistent with an investor's
expectation. In general, the earlier a principal payment is received on the
Mortgage Assets and distributed on a Certificate, the greater the effect on such
investor's yield to maturity. The effect on an investor's yield of principal
payments occurring at a rate higher (or lower) than the rate anticipated by the
investor during a given period may not be offset by a subsequent like decrease
(or increase) in the rate of principal payments.
PREPAYMENTS--MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Assets
included in or comprising a Trust Fund and the rate at which payments are made
from any Credit Support or Cash Flow Agreement for the related series of
Certificates may affect the ultimate maturity and the weighted average life of
each class of such series. Prepayments on the Mortgage Loans comprising or
underlying the Mortgage Assets in a particular Trust Fund will generally
accelerate the rate at which principal is paid on some or all of the classes of
the Certificates of the related series.
If so provided in the Prospectus Supplement for a series of
Certificates, one or more classes of Certificates may have a final scheduled
Distribution Date, which is the date on or prior to which the Certificate
Balance thereof is scheduled to be reduced to zero, calculated on the basis of
the assumptions applicable to such series set forth therein.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of a
class of Certificates of a series will be influenced by the rate at which
principal on the Mortgage Loans comprising or underlying the Mortgage Assets is
paid to such class, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes prepayments, in
whole or in part, and liquidations due to default).
In addition, the weighted average life of the Certificates may be
affected by the varying maturities of the Mortgage Loans comprising or
underlying the MBS. If any Mortgage Loans comprising or underlying the Assets in
a particular Trust Fund have actual terms to maturity of less than those assumed
in calculating final scheduled Distribution Dates for the classes of
Certificates of the related series, one or more classes of such Certificates may
be fully paid prior to their respective final scheduled Distribution Dates, even
in the absence of prepayments. Accordingly, the prepayment experience of the
Assets will, to some extent, be a function of the mix of Mortgage Rates and
maturities of the Mortgage Loans comprising or underlying such Assets. See
"Description of the Trust Funds."
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment
model. CPR represents a constant assumed rate of prepayment each month relative
to the then outstanding principal balance of a pool of loans for the life of
such loans.
30
<PAGE>
Neither CPR nor any other prepayment model or assumption purports to be
a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the Mortgage
Loans underlying or comprising the Mortgage Assets. Moreover, CPR was developed
based upon historical prepayment experience for single family loans. Thus, it is
likely that prepayment of any Mortgage Loans comprising or underlying the
Mortgage Assets for any series will not conform to any particular level of CPR.
The Depositor is not aware of any meaningful publicly available
prepayment statistics for multifamily or commercial mortgage loans.
The Prospectus Supplement with respect to each series of Certificates
will contain tables, if applicable, setting forth the projected weighted average
life of each class of Offered Certificates of such series and the percentage of
the initial Certificate Balance of each such class that would be outstanding on
specified Distribution Dates based on the assumptions stated in such Prospectus
Supplement, including assumptions that prepayments on the Mortgage Loans
comprising or underlying the related Assets are made at rates corresponding to
various percentages of CPR or at such other rates specified in such Prospectus
Supplement. Such tables and assumptions are intended to illustrate the
sensitivity of weighted average life of the Certificates to various prepayment
rates and will not be intended to predict or to provide information that will
enable investors to predict the actual weighted average life of the
Certificates. It is unlikely that prepayment of any Mortgage Loans comprising or
underlying the Mortgage Assets for any series will conform to any particular
level of CPR or any other rate specified in the related Prospectus Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
TYPE OF MORTGAGE ASSET
A number of Mortgage Loans may have balloon payments due at maturity,
and because the ability of a mortgagor to make a balloon payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a number of Mortgage Loans having
balloon payments may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things, bankruptcy
of the mortgagor or adverse conditions in the market where the property is
located. In order to minimize losses on defaulted Mortgage Loans, the servicer
may, to the extent and under the circumstances set forth in the related
Prospectus Supplement, be permitted to modify Mortgage Loans that are in default
or as to which a payment default is imminent. Any defaulted balloon payment or
modification that extends the maturity of a Mortgage Loan will tend to extend
the weighted average life of the Certificates, thereby lengthening the period of
time elapsed from the date of issuance of a Certificate until it is retired.
FORECLOSURES AND PAYMENT PLANS
The number of foreclosures and the principal amount of the Mortgage
Loans comprising or underlying the Mortgage Assets that are foreclosed in
relation to the number and principal amount of Mortgage Loans that are repaid in
accordance with their terms will affect the weighted average life of the
Mortgage Loans comprising or underlying the Mortgage Assets and that of the
related series of Certificates. Servicing decisions made with respect to the
Mortgage Loans, including the use of payment plans prior to a demand for
acceleration and the restructuring of Mortgage Loans in bankruptcy proceedings,
may also have an effect upon the payment patterns of particular Mortgage Loans
and thus the weighted average life of the Certificates.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE CLAUSES
Acceleration of mortgage payments as a result of certain transfers of or
the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of the
Mortgage Loans comprising or underlying the Assets may include "due-on-sale"
clauses or "due-on-encumbrance" clauses that allow
31
<PAGE>
the holder of the Mortgage Loans to demand payment in full of the remaining
principal balance of the Mortgage Loans upon sale or certain other transfers of
or the creation of encumbrances upon the related Mortgaged Property. With
respect to any Whole Loans, unless otherwise provided in the related Prospectus
Supplement, the Master Servicer, on behalf of the Trust Fund, will be required
to exercise (or waive its right to exercise) any such right that the Trustee may
have as mortgagee to accelerate payment of the Whole Loan in a manner consistent
with the Servicing Standard. See "Certain Legal Aspects of the Mortgage Loans
and the Leases--Due-on-Sale and Due-on-Encumbrance" and "Description of the
Agreements--Due-on-Sale and Due-on-Encumbrance Provisions."
THE DEPOSITOR
Morgan Stanley Capital I Inc., the Depositor, is a direct wholly-owned
subsidiary of Morgan Stanley Group Inc. and was incorporated in the State of
Delaware on January 28, 1985. The principal executive offices of the Depositor
are located at 1585 Broadway, 37th Floor, New York, New York 10036. Its
telephone number is (212) 761-4700.
The Depositor does not have, nor is it expected in the future to have,
any significant assets.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of each series (including any class of Certificates not
offered hereby) will represent the entire beneficial ownership interest in the
Trust Fund created pursuant to the related Agreement. Each series of
Certificates will consist of one or more classes of Certificates that may (i)
provide for the accrual of interest thereon based on fixed, variable or
adjustable rates; (ii) be senior (collectively, "Senior Certificates") or
subordinate (collectively, "Subordinate Certificates") to one or more other
classes of Certificates in respect of certain distributions on the Certificates;
(iii) be entitled to principal distributions, with disproportionately low,
nominal or no interest distributions (collectively, "Stripped Principal
Certificates"); (iv) be entitled to interest distributions, with
disproportionately low, nominal or no principal distributions (collectively,
"Stripped Interest Certificates"); (v) provide for distributions of accrued
interest thereon commencing only following the occurrence of certain events,
such as the retirement of one or more other classes of Certificates of such
series (collectively, "Accrual Certificates"); (vi) provide for payments of
principal sequentially, based on specified payment schedules, from only a
portion of the Assets in such Trust Fund or based on specified calculations, to
the extent of available funds, in each case as described in the related
Prospectus Supplement; and/or (vii) provide for distributions based on a
combination of two or more components thereof with one or more of the
characteristics described in this paragraph including a Stripped Principal
Certificate component and a Stripped Interest Certificate component. Any such
classes may include classes of Offered Certificates.
Each class of Offered Certificates of a series will be issued in minimum
denominations corresponding to the Certificate Balances or, in case of Stripped
Interest Certificates, notional amounts or percentage interests specified in the
related Prospectus Supplement. The transfer of any Offered Certificates may be
registered and such Certificates may be exchanged without the payment of any
service charge payable in connection with such registration of transfer or
exchange, but the Depositor or the Trustee or any agent thereof may require
payment of a sum sufficient to cover any tax or other governmental charge. One
or more classes of Certificates of a series may be issued in definitive form
("Definitive Certificates") or in book-entry form ("Book-Entry Certificates"),
as provided in the related Prospectus Supplement. See "Risk Factors--Book-Entry
Registration" and "Description of the Certificates--Book-Entry Registration and
Definitive Certificates." Definitive Certificates will be exchangeable for other
Certificates of the same class and series of a like aggregate Certificate
Balance, notional amount or percentage interest but of different authorized
denominations. See "Risk Factors--Limited Liquidity" and "Limited Assets."
32
<PAGE>
DISTRIBUTIONS
Distributions on the Certificates of each series will be made by or on
behalf of the Trustee on each Distribution Date as specified in the related
Prospectus Supplement from the Available Distribution Amount for such series and
such Distribution Date. Except as otherwise specified in the related Prospectus
Supplement, distributions (other than the final distribution) will be made to
the persons in whose names the Certificates are registered at the close of
business on the last business day of the month preceding the month in which the
Distribution Date occurs (the "Record Date"), and the amount of each
distribution will be determined as of the close of business on the date
specified in the related Prospectus Supplement (the "Determination Date"). All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such class
or by random selection, as described in the related Prospectus Supplement or
otherwise established by the related Trustee. Payments will be made either by
wire transfer in immediately available funds to the account of a
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has so notified the Trustee or other person
required to make such payments no later than the date specified in the related
Prospectus Supplement (and, if so provided in the related Prospectus Supplement,
holds Certificates in the requisite amount specified therein), or by check
mailed to the address of the person entitled thereto as it appears on the
Certificate Register; provided, however, that the final distribution in
retirement of the Certificates (whether Definitive Certificates or Book-Entry
Certificates) will be made only upon presentation and surrender of the
Certificates at the location specified in the notice to Certificateholders of
such final distribution.
AVAILABLE DISTRIBUTION AMOUNT
All distributions on the Certificates of each series on each
Distribution Date will be made from the Available Distribution Amount described
below, in accordance with the terms described in the related Prospectus
Supplement. Unless provided otherwise in the related Prospectus Supplement, the
"Available Distribution Amount" for each Distribution Date equals the sum of the
following amounts:
(i) the total amount of all cash on deposit in the related Certificate
Account as of the corresponding Determination Date, exclusive of:
(a) all scheduled payments of principal and interest collected but due
on a date subsequent to the related Due Period (unless the related Prospectus
Supplement provides otherwise, a "Due Period" with respect to any Distribution
Date will commence on the second day of the month in which the immediately
preceding Distribution Date occurs, or the day after the Cut-off Date in the
case of the first Due Period, and will end on the first day of the month of the
related Distribution Date),
(b) unless the related Prospectus Supplement provides otherwise, all
prepayments, together with related payments of the interest thereon and related
Prepayment Premiums, Liquidation Proceeds, Insurance Proceeds and other
unscheduled recoveries received subsequent to the related Due Period, and
(c) all amounts in the Certificate Account that are due or reimbursable
to the Depositor, the Trustee, an Asset Seller, a Sub-Servicer, a Special
Servicer, the Master Servicer or any other entity as specified in the related
Prospectus Supplement or that are payable in respect of certain expenses of the
related Trust Fund;
(ii) if the related Prospectus Supplement so provides, interest or
investment income on amounts on deposit in the Certificate Account, including
any net amounts paid under any Cash Flow Agreements;
(iii) all advances made by a Master Servicer or any other entity as
specified in the related Prospectus Supplement with respect to such Distribution
Date;
(iv) if and to the extent the related Prospectus Supplement so provides,
amounts paid by a Master Servicer or any other entity as specified in the
related Prospectus Supplement with respect to interest shortfalls resulting from
prepayments during the related Prepayment Period; and
33
<PAGE>
(v) unless the related Prospectus Supplement provides otherwise, to the
extent not on deposit in the related Certificate Account as of the corresponding
Determination Date, any amounts collected under, from or in respect of any
Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Certificates (including any Certificates not
offered hereby) on each Distribution Date, and accordingly will be released from
the Trust Fund and will not be available for any future distributions.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates (other than classes of Stripped Principal
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which will be a fixed, variable or adjustable rate at which interest will
accrue on such class or a component thereof (the "Pass-Through Rate"). The
related Prospectus Supplement will specify the Pass-Through Rate for each class
or component or, in the case of a variable or adjustable Pass-Through Rate, the
method for determining the Pass-Through Rate. Unless otherwise specified in the
related Prospectus Supplement, interest on the Certificates will be calculated
on the basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of the Certificates of any class
will be made on each Distribution Date (other than any class of Accrual
Certificates, which will be entitled to distributions of accrued interest
commencing only on the Distribution Date, or under the circumstances, specified
in the related Prospectus Supplement, and any class of Stripped Principal
Certificates that are not entitled to any distributions of interest) based on
the Accrued Certificate Interest for such class and such Distribution Date,
subject to the sufficiency of the portion of the Available Distribution Amount
allocable to such class on such Distribution Date. Prior to the time interest is
distributable on any class of Accrual Certificates, the amount of Accrued
Certificate Interest otherwise distributable on such class will be added to the
Certificate Balance thereof on each Distribution Date. With respect to each
class of Certificates and each Distribution Date (other than certain classes of
Stripped Interest Certificates), "Accrued Certificate Interest" will be equal to
interest accrued for a specified period on the outstanding Certificate Balance
thereof immediately prior to the Distribution Date, at the applicable
Pass-Through Rate, reduced as described below. Unless otherwise provided in the
Prospectus Supplement, Accrued Certificate Interest on Stripped Interest
Certificates will be equal to interest accrued for a specified period on the
outstanding notional amount thereof immediately prior to each Distribution Date,
at the applicable Pass-Through Rate, reduced as described below. The method of
determining the notional amount for any class of Stripped Interest Certificates
will be described in the related Prospectus Supplement. Reference to notional
amount is solely for convenience in certain calculations and does not represent
the right to receive any distributions of principal. Unless otherwise provided
in the related Prospectus Supplement, the Accrued Certificate Interest on a
series of Certificates will be reduced in the event of prepayment interest
shortfalls, which are shortfalls in collections of interest for a full accrual
period resulting from prepayments prior to the due date in such accrual period
on the Mortgage Loans comprising or underlying the Mortgage Assets in the Trust
Fund for such series. The particular manner in which such shortfalls are to be
allocated among some or all of the classes of Certificates of that series will
be specified in the related Prospectus Supplement. The related Prospectus
Supplement will also describe the extent to which the amount of Accrued
Certificate Interest that is otherwise distributable on (or, in the case of
Accrual Certificates, that may otherwise be added to the Certificate Balance of)
a class of Offered Certificates may be reduced as a result of any other
contingencies, including delinquencies, losses and deferred interest on or in
respect of the Mortgage Loans comprising or underlying the Mortgage Assets in
the related Trust Fund. Unless otherwise provided in the related Prospectus
Supplement, any reduction in the amount of Accrued Certificate Interest
otherwise distributable on a class of Certificates by reason of the allocation
to such class of a portion of any deferred interest on the Mortgage Loans
comprising or underlying the Mortgage Assets in the related Trust Fund will
result in a corresponding increase in the Certificate Balance of such class. See
"Risk Factors--Average Life of Certificates; Prepayments; Yields" and "Yield
Considerations."
34
<PAGE>
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The Certificates of each series, other than certain classes of Stripped
Interest Certificates, will have a "Certificate Balance" which, at any time,
will equal the then maximum amount that the holder will be entitled to receive
in respect of principal out of the future cash flow on the Assets and other
assets included in the related Trust Fund. The outstanding Certificate Balance
of a Certificate will be reduced to the extent of distributions of principal
thereon from time to time and, if and to the extent so provided in the related
Prospectus Supplement, by the amount of losses incurred in respect of the
related Assets, may be increased in respect of deferred interest on the related
Mortgage Loans to the extent provided in the related Prospectus Supplement and,
in the case of Accrual Certificates prior to the Distribution Date on which
distributions of interest are required to commence, will be increased by any
related Accrued Certificate Interest. Unless otherwise provided in the related
Prospectus Supplement, the initial aggregate Certificate Balance of all classes
of Certificates of a series will not be greater than the outstanding aggregate
principal balance of the related Assets as of the applicable Cut-off Date. The
initial aggregate Certificate Balance of a series and each class thereof will be
specified in the related Prospectus Supplement. Unless otherwise provided in the
related Prospectus Supplement, distributions of principal will be made on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement until the
Certificate Balance of such class has been reduced to zero. Stripped Interest
Certificates with no Certificate Balance are not entitled to any distributions
of principal.
COMPONENTS
To the extent specified in the related Prospectus Supplement,
distribution on a class of Certificates may be based on a combination of two or
more different components as described under "--General" above. To such extent,
the descriptions set forth under "--Distributions of Interests on the
Certificates" and "--Distributions of Principal of the Certificates" above also
relate to components of such a class of Certificates. In such case, reference in
such sections to Certificate Balance and Pass-Through Rate refer to the
principal balance, if any, of any such component and the Pass-Through Rate, if
any, on any such component, respectively.
DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUMS OR IN RESPECT OF EQUITY
PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment Premiums
or payments in respect of Equity Participations that are collected on the
Mortgage Assets in the related Trust Fund will be distributed on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the Prospectus Supplement for a series of Certificates
consisting of one or more classes of Subordinate Certificates, on any
Distribution Date in respect of which losses or shortfalls in collections on the
Mortgage Assets have been incurred, the amount of such losses or shortfalls will
be borne first by a class of Subordinate Certificates in the priority and manner
and subject to the limitations specified in such Prospectus Supplement. See
"Description of Credit Support" for a description of the types of protection
that may be included in a Trust Fund against losses and shortfalls on Mortgage
Assets comprising such Trust Fund.
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)
35
<PAGE>
good faith determination that such advances will be reimbursable from Related
Proceeds (as defined below). In the case of a series of Certificates that
includes one or more classes of Subordinate Certificates and if so provided in
the related Prospectus Supplement, the Master Servicer's (or another entity's)
advance obligation may be limited only to the portion of such delinquencies
necessary to make the required distributions on one or more classes of Senior
Certificates and/or may be subject to the Master Servicer's (or another
entity's) good faith determination that such advances will be reimbursable not
only from Related Proceeds but also from collections on other Assets otherwise
distributable on one or more classes of such Subordinate Certificates. See
"Description of Credit Support."
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Certificates
entitled thereto, rather than to guarantee or insure against losses. Unless
otherwise provided in the related Prospectus Supplement, advances of the Master
Servicer's (or another entity's) funds will be reimbursable only out of related
recoveries on the Mortgage Loans (including amounts received under any form of
Credit Support) respecting which such advances were made (as to any Mortgage
Loan, "Related Proceeds") and, if so provided in the Prospectus Supplement, out
of any amounts otherwise distributable on one or more classes of Subordinate
Certificates of such series; provided, however, that any such advance will be
reimbursable from any amounts in the Certificate Account prior to any
distributions being made on the Certificates to the extent that the Master
Servicer (or such other entity) shall determine in good faith that such advance
(a "Nonrecoverable Advance") is not ultimately recoverable from Related Proceeds
or, if applicable, from collections on other Assets otherwise distributable on
such Subordinate Certificates. If advances have been made by the Master Servicer
from excess funds in the Certificate Account, the Master Servicer is required to
replace such funds in the Certificate Account on any future Distribution Date to
the extent that funds in the Certificate Account on such Distribution Date are
less than payments required to be made to Certificateholders on such date. If so
specified in the related Prospectus Supplement, the obligations of the Master
Servicer (or another entity) to make advances may be secured by a cash advance
reserve fund, a surety bond, a letter of credit or another form of limited
guaranty. If applicable, information regarding the characteristics of, and the
identity of any obligor on, any such surety bond, will be set forth in the
related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement,
the Master Servicer (or another entity) will be entitled to receive interest at
the rate specified therein on its outstanding advances and will be entitled to
pay itself such interest periodically from general collections on the Assets
prior to any payment to Certificateholders or as otherwise provided in the
related Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any corresponding
advancing obligation of any person in connection with such MBS.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise provided in the Prospectus Supplement, with each
distribution to holders of any class of Certificates of a series, the Master
Servicer or the Trustee, as provided in the related Prospectus Supplement, will
forward or cause to be forwarded to each such holder, to the Depositor and to
such other parties as may be specified in the related Agreement, a statement
setting forth, in each case to the extent applicable and available:
(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
36
<PAGE>
information as any such Master Servicer or the Trustee deems necessary
or desirable, or that a Certificateholder reasonably requests, to enable
Certificateholders to prepare their tax returns;
(v) the aggregate amount of advances included in such distribution, and the
aggregate amount of unreimbursed advances at the close of business on
such Distribution Date;
(vi) the aggregate principal balance of the Assets at the close of business
on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans in respect of
which (a) one scheduled payment is delinquent, (b) two scheduled
payments are delinquent, (c) three or more scheduled payments are
delinquent and (d) foreclosure proceedings have been commenced;
(viii) with respect to each Whole Loan that is delinquent two or more months,
(a) the loan number thereof, (b) the unpaid balance thereof, (c) whether
the delinquency is in respect of any balloon payment, (d) the aggregate
amount of unreimbursed servicing expenses and unreimbursed advances in
respect thereof, (e) if applicable, the aggregate amount of any interest
accrued and payable on related servicing expenses and related advances
assuming such Mortgage Loan is subsequently liquidated through
foreclosure, (f) whether a notice of acceleration has been sent to the
mortgagor and, if so, the date of such notice, (g) whether foreclosure
proceedings have been commenced and, if so, the date so commenced and
(h) if such Mortgage Loan is more than three months delinquent and
foreclosure has not been commenced, the reason therefor;
(ix) with respect to any Whole Loan liquidated during the related Due Period
(other than by payment in full), (a) the loan number thereof, (b) the
manner in which it was liquidated and (c) the aggregate amount of
liquidation proceeds received;
(x) with respect to any Whole Loan liquidated during the related Due Period,
(a) the portion of such liquidation proceeds payable or reimbursable to
the Master Servicer (or any other entity) in respect of such Mortgage
Loan and (b) the amount of any loss to Certificateholders;
(xi) with respect to each REO Property relating to a Whole Loan and included
in the Trust Fund as of the end of the related Due Period, (a) the loan
number of the related Mortgage Loan and (b) the date of acquisition;
(xii) with respect to each REO Property relating to a Whole Loan and included
in the Trust Fund as of the end of the related Due Period, (a) the book
value, (b) the principal balance of the related Mortgage Loan
immediately following such Distribution Date (calculated as if such
Mortgage Loan were still outstanding taking into account certain limited
modifications to the terms thereof specified in the Agreement), (c) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof and (d) if applicable, the aggregate amount
of interest accrued and payable on related servicing expenses and
related advances;
(xiii) with respect to any such REO Property sold during the related Due Period
(a) the loan number of the related Mortgage Loan, (b) the aggregate
amount of sale proceeds, (c) the portion of such sales proceeds payable
or reimbursable to the Master Servicer or a Special Servicer in respect
of such REO Property or the related Mortgage Loan and (d) the amount of
any loss to Certificateholders in respect of the related Mortgage Loan;
(xiv) the aggregate Certificate Balance or notional amount, as the case may
be, of each class of Certificates (including any class of Certificates
not offered hereby) at the close of business on such 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;
37
<PAGE>
(xvi) the amount deposited in the reserve fund, if any, on such Distribution
Date;
(xvii) the amount remaining in the reserve fund, if any, as of the close of
business on such Distribution Date;
(xviii) the aggregate unpaid Accrued Certificate Interest, if any, on each class
of Certificates at the close of business on such Distribution Date;
(xix) in the case of Certificates with a variable Pass-Through Rate, the
Pass-Through Rate applicable to such Distribution Date, and, if
available, the immediately succeeding Distribution Date, as calculated
in accordance with the method specified in the related Prospectus
Supplement;
(xx) in the case of Certificates with an adjustable Pass-Through Rate, for
statements to be distributed in any month in which an adjustment date
occurs, the adjustable Pass-Through Rate applicable to such Distribution
Date and the immediately succeeding Distribution Date as calculated in
accordance with the method specified in the related Prospectus
Supplement;
(xxi) as to any series which includes Credit Support, the amount of coverage
of each instrument of Credit Support included therein as of the close of
business on such Distribution Date; and
(xxii) the aggregate amount of payments by the mortgagors of (a) default
interest, (b) late charges and (c) assumption and modification fees
collected during the related Due Period.
In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of Certificates or for such other specified portion thereof. In
addition, in the case of information furnished pursuant to subclauses (i), (ii),
(xiv), (xviii) and (xix) above, such amounts shall also be provided with respect
to each component, if any, of a class of Certificates. The Master Servicer or
the Trustee, as specified in the related Prospectus Supplement, will forward or
cause to be forwarded to each holder, to the Depositor and to such other parties
as may be specified in the Agreement, a copy of any statements or reports
received by the Master Servicer or the Trustee, as applicable, with respect to
any MBS. The Prospectus Supplement for each series of Offered Certificates will
describe any additional information to be included in reports to the holders of
such Certificates.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the calendar
year was a holder of a Certificate a statement containing the information set
forth in subclauses (i)-(iv) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a Certificateholder.
Such obligation of the Master Servicer or the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information shall be
provided by the Master Servicer or the Trustee pursuant to any requirements of
the Code as are from time to time in force. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates."
TERMINATION
The obligations created by the Agreement for each series of Certificates
will terminate upon the payment to Certificateholders of that series of all
amounts held in the Certificate Account or by the Master Servicer, if any, or
the Trustee and required to be paid to them pursuant to such Agreement following
the earlier of (i) the final payment or other liquidation of the last Asset
subject thereto or the disposition of all property acquired upon foreclosure of
any Whole Loan subject thereto and (ii) the purchase of all of the assets of the
Trust Fund by the party entitled to effect such termination, under the
circumstances and in the manner set forth in the related Prospectus Supplement.
In no event, however, 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.
38
<PAGE>
If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the repurchase
of the assets in the related Trust Fund by the party specified therein, under
the circumstances and in the manner set forth therein. If so provided in the
related Prospectus Supplement, upon the reduction of the Certificate Balance of
a specified class or classes of Certificates by a specified percentage or
amount, the party specified therein will solicit bids for the purchase of all
assets of the Trust Fund, or of a sufficient portion of such assets to retire
such class or classes or purchase such class or classes at a price set forth in
the related Prospectus Supplement, in each case, under the circumstances and in
the manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the related Prospectus Supplement, one or more classes
of the Offered Certificates of any series will be issued as Book-Entry
Certificates, and each such class will be represented by one or more single
Certificates registered in the name of a nominee for the depository, The
Depository Trust Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes in their accounts, thereby eliminating the need
for physical movement of certificates. Participants include Morgan Stanley & Co.
Incorporated, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants"). Unless otherwise provided in the related Prospectus Supplement,
investors that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in,
Book-Entry Certificates may do so only through Participants and Indirect
Participants. In addition, such investors ("Certificate Owners") will receive
all distributions on the Book-Entry Certificates through DTC and its
Participants. Under a book-entry format, Certificate Owners will receive
payments after the related Distribution Date because, while payments are
required to be forwarded to Cede & Co., as nominee for DTC ("Cede"), on each
such date, DTC will forward such payments to its Participants which thereafter
will be required to forward them to Indirect Participants or Certificate Owners.
Unless otherwise provided in the related Prospectus Supplement, the only
"Certificateholder" (as such term is used in the Agreement) will be Cede, as
nominee of DTC, and the Certificate Owners will not be recognized by the Trustee
as Certificateholders under the Agreement. Certificate Owners will be permitted
to exercise the rights of Certificateholders under the related Agreement only
indirectly through the Participants who in turn will exercise their rights
through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Book-Entry Certificates
and is required to receive and transmit distributions of principal of and
interest on the Book-Entry Certificates. Participants and Indirect Participants
with which Certificate Owners have accounts with respect to the Book-Entry
Certificates similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of their respective Certificate Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge its interest in the Book-Entry Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of its interest in the Book-Entry Certificates, may be limited due to
the lack of a physical certificate evidencing such interest.
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.
39
<PAGE>
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Certificate Owners or their nominees
("Definitive Certificates"), rather than to DTC or its nominee only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to properly discharge its responsibilities as depository with respect to the
Certificates and the Depositor is unable to locate a qualified successor or (ii)
the Depositor, at its option, elects to terminate the book-entry system through
DTC.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Certificate Owners.
Upon surrender by DTC of the certificate or certificates representing the
Book-Entry Certificates, together with instructions for reregistration, the
Trustee will issue (or cause to be issued) to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
DESCRIPTION OF THE AGREEMENTS
The Certificates of each series evidencing interests in a Trust Fund
including Whole Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer, any Special Servicer appointed
as of the date of the Pooling and Servicing Agreement and the Trustee. The
Certificates of each series evidencing interests in a Trust Fund not including
Whole Loans will be issued pursuant to a Trust Agreement between the Depositor
and a Trustee. Any Master Servicer, any such Special Servicer and the Trustee
with respect to any series of Certificates will be named in the related
Prospectus Supplement. In lieu of appointing a Master Servicer, a servicer may
be appointed pursuant to the Pooling and Servicing Agreement for any Trust Fund.
Such servicer will service all or a significant number of Whole Loans directly
without a Sub-Servicer. Unless otherwise specified in the related Prospectus
Supplement, the obligations of any such servicer shall be commensurate with
those of the Master Servicer described herein. References in this prospectus to
Master Servicer and its rights and obligations, unless otherwise specified in
the related Prospectus Supplement, shall be deemed to also be references to any
servicer servicing Whole Loans directly. A manager or administrator may be
appointed pursuant to the Trust Agreement for any Trust Fund to administer such
Trust Fund. The provisions of each Agreement will vary depending upon the nature
of the Certificates to be issued thereunder and the nature of the related Trust
Fund. A form of a Pooling and Servicing Agreement has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. Any Trust
Agreement will generally conform to the form of Pooling and Servicing Agreement
filed herewith, but will not contain provisions with respect to the servicing
and maintenance of Whole Loans. The following summaries describe certain
provisions that may appear in each Agreement. The Prospectus Supplement for a
series of Certificates will describe any provision of the Agreement relating to
such series that materially differs from the description thereof contained in
this Prospectus. The summaries do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all of the provisions of
the Agreement for each Trust Fund and the description of such provisions in the
related Prospectus Supplement. As used herein with respect to any series, the
term "Certificate" refers to all of the Certificates of that series, whether or
not offered hereby and by the related Prospectus Supplement, unless the context
otherwise requires. The Depositor will provide a copy of the Agreement (without
exhibits) relating to any series of Certificates without charge upon written
request of a holder of a Certificate of such series addressed to Morgan Stanley
Capital I Inc., c/o Morgan Stanley & Co. Incorporated, 1585 Broadway, 37th
Floor, New York, New York 10036, Attention: John E. Westerfield.
ASSIGNMENT OF ASSETS; REPURCHASES
At the time of issuance of any series of Certificates, the Depositor
will assign (or cause to be assigned) to the designated Trustee the Assets to be
included in the related Trust Fund, together with all principal 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
40
<PAGE>
series. Each Mortgage Asset will be identified in a schedule appearing as an
exhibit to the related Agreement. Unless otherwise provided in the related
Prospectus Supplement, such schedule will include detailed information (i) in
respect of each Whole Loan included in the related Trust Fund, including without
limitation, the address of the related Mortgaged Property and type of such
property, the Mortgage Rate and, if applicable, the applicable index, margin,
adjustment date and any rate cap information, the original and remaining term to
maturity, the original and outstanding principal balance and balloon payment, if
any, the Value, Loan-to-Value Ratio and the Debt Service Coverage Ratio as of
the date indicated and payment and prepayment provisions, if applicable, and
(ii) in respect of each MBS included in the related Trust Fund, including
without limitation, the MBS Issuer, MBS Servicer and MBS Trustee, the
pass-through or bond rate or formula for determining such rate, the issue date
and original and remaining term to maturity, if applicable, the original and
outstanding principal amount and payment provisions, if applicable.
With respect to each Whole Loan, the Depositor will deliver or cause to
be delivered to the Trustee (or to the custodian hereinafter referred to)
certain loan documents, which unless otherwise specified in the related
Prospectus Supplement will include the original Mortgage Note endorsed, without
recourse, in blank or to the order of the Trustee, the original Mortgage (or a
certified copy thereof) with evidence of recording indicated thereon and an
assignment of the Mortgage to the Trustee in recordable form. Notwithstanding
the foregoing, a Trust Fund may include Mortgage Loans where the original
Mortgage Note is not delivered to the Trustee if the Depositor delivers to the
Trustee or the custodian a copy or a duplicate original of the Mortgage Note,
together with an affidavit certifying that the original thereof has been lost or
destroyed. With respect to such Mortgage Loans, the Trustee (or its nominee) may
not be able to enforce the Mortgage Note against the related borrower. Unless
otherwise specified in the related Prospectus Supplement, the Asset Seller will
be required to agree to repurchase, or substitute for, each such Mortgage Loan
that is subsequently in default if the enforcement thereof or of the related
Mortgage is materially adversely affected by the absence of the original
Mortgage Note. Unless otherwise provided in the related Prospectus Supplement,
the related Agreement will require the Depositor or another party specified
therein to promptly cause each such assignment of Mortgage to be recorded in the
appropriate public office for real property records, except in the State of
California or in other states where, in the opinion of counsel acceptable to the
Trustee, such recording is not required to protect the Trustee's interest in the
related Whole Loan against the claim of any subsequent transferee or any
successor to or creditor of the Depositor, the Master Servicer, the relevant
Asset Seller or any other prior holder of the Whole Loan.
The Trustee (or a custodian) will review such Whole Loan documents
within a specified period of days after receipt thereof, and the Trustee (or a
custodian) will hold such documents in trust for the benefit of the
Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, if any such document is found to be missing or defective in any
material respect, the Trustee (or such custodian) shall immediately notify the
Master Servicer and the Depositor, and the Master Servicer shall immediately
notify the relevant Asset Seller. If the Asset Seller cannot cure the omission
or defect within a specified number of days after receipt of such notice, then
unless otherwise specified in the related Prospectus Supplement, the Asset
Seller will be obligated, within a specified number of days of receipt of such
notice, to repurchase the related Whole Loan from the Trustee at the Purchase
Price or substitute for such Mortgage Loan. There can be no assurance that an
Asset Seller will fulfill this repurchase or substitution obligation, and
neither the Master Servicer nor the Depositor will be obligated to repurchase or
substitute for such Mortgage Loan if the Asset Seller defaults on its
obligation. Unless otherwise specified in the related Prospectus Supplement,
this repurchase or substitution obligation constitutes the sole remedy available
to the Certificateholders or the Trustee for omission of, or a material defect
in, a constituent document. To the extent specified in the related Prospectus
Supplement, in lieu of curing any omission or defect in the Asset or
repurchasing or substituting for such Asset, the Asset Seller may agree to cover
any losses suffered by the Trust Fund as a result of such breach or defect.
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.
41
<PAGE>
With respect to each Government Security or MBS in certificated form,
the Depositor will deliver or cause to be delivered to the Trustee (or the
custodian) the original certificate or other definitive evidence of such
Government Security or MBS, as applicable, together with bond power or other
instruments, certifications or documents required to transfer fully such
Government Security or MBS, as applicable, to the Trustee for the benefit of the
Certificateholders. With respect to each Government Security or MBS in
uncertificated or book-entry form or held through a "clearing corporation"
within the meaning of the UCC, the Depositor and the Trustee will cause such
Government Security or MBS to be registered directly or on the books of such
clearing corporation or of a financial intermediary in the name of the Trustee
for the benefit of the Certificateholders. Unless otherwise provided in the
related Prospectus Supplement, the related Agreement will require that either
the Depositor or the Trustee promptly cause any MBS and Government Securities in
certificated form not registered in the name of the Trustee to be re-registered,
with the applicable persons, in the name of the Trustee.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
Unless otherwise provided in the related Prospectus Supplement the
Depositor will, with respect to each Whole Loan, make or assign certain
representations and warranties, as of a specified date (the person making such
representations and warranties, the "Warrantying Party") covering, by way of
example, the following types of matters: (i) the accuracy of the information set
forth for such Whole Loan on the schedule of Assets appearing as an exhibit to
the related Agreement; (ii) the existence of title insurance insuring the lien
priority of the Whole Loan; (iii) the authority of the Warrantying Party to sell
the Whole Loan; (iv) the payment status of the Whole Loan and the status of
payments of taxes, assessments and other charges affecting the related Mortgaged
Property; (v) the existence of customary provisions in the related Mortgage Note
and Mortgage to permit realization against the Mortgaged Property of the benefit
of the security of the Mortgage; and (vi) the existence of hazard and extended
perils insurance coverage on the Mortgaged Property.
Any Warrantying Party, if other than the Depositor, shall be an Asset
Seller or an affiliate thereof or such other person acceptable to the Depositor
and shall be identified in the related Prospectus Supplement.
Representations and warranties made in respect of a Whole Loan may have
been made as of a date prior to the applicable Cut-off Date. A substantial
period of time may have elapsed between such date and the date of initial
issuance of the related series of Certificates evidencing an interest in such
Whole Loan. Unless otherwise specified in the related Prospectus Supplement, in
the event of a breach of any such representation or warranty, the Warrantying
Party will be obligated to reimburse the Trust Fund for losses caused by any
such breach or either cure such breach or repurchase or replace the affected
Whole Loan as described below. Since the representations and warranties may not
address events that may occur following the date as of which they were made, the
Warrantying Party will have a reimbursement, cure, repurchase or substitution
obligation in connection with a breach of such a representation and warranty
only if the relevant event that causes such breach occurs prior to such date.
Such party would have no such obligations if the relevant event that causes such
breach occurs after such date.
Unless otherwise provided in the related Prospectus Supplement, each
Agreement will provide that the Master Servicer and/or Trustee will be required
to notify promptly the relevant Warrantying Party of any breach of any
representation or warranty made by it in respect of a Whole Loan that materially
and adversely affects the value of such Whole Loan or the interests therein of
the Certificateholders. If such Warrantying Party cannot cure such breach within
a specified period following the date on which such party was notified of such
breach, then such Warrantying Party will be obligated to repurchase such Whole
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
42
<PAGE>
Whole Loan from the Trust Fund and substitute in its place one or more other
Whole Loans, in accordance with the standards described in the related
Prospectus Supplement. If so provided in the Prospectus Supplement for a series,
a Warrantying Party, rather than repurchase or substitute a Whole Loan as to
which a breach has occurred, will have the option to reimburse the Trust Fund or
the Certificateholders for any losses caused by such breach. Unless otherwise
specified in the related Prospectus Supplement, this reimbursement, repurchase
or substitution obligation will constitute the sole remedy available to holders
of Certificates or the Trustee for a breach of representation by a Warrantying
Party.
Neither the Depositor (except to the extent that it is the Warrantying
Party) nor the Master Servicer will be obligated to purchase or substitute for a
Whole Loan if a Warrantying Party defaults on its obligation to do so, and no
assurance can be given that Warrantying Parties will carry out such obligations
with respect to Whole Loans.
Unless otherwise provided in the related Prospectus Supplement the
Warrantying Party will, with respect to a Trust Fund that includes Government
Securities or MBS, make or assign certain representations or warranties, as of a
specified date, with respect to such Government Securities or MBS, covering (i)
the accuracy of the information set forth therefor on the schedule of Assets
appearing as an exhibit to the related Agreement and (ii) the authority of the
Warrantying Party to sell such Assets. The related Prospectus Supplement will
describe the remedies for a breach thereof.
A Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the related Agreement. A breach of any such representation of
the Master Servicer which materially and adversely affects the interests of the
Certificateholders and which continues unremedied for thirty days after the
giving of written notice of such breach to the Master Servicer by the Trustee or
the Depositor, or to the Master Servicer, the Depositor and the Trustee by the
holders of Certificates evidencing not less than 25% of the Voting Rights
(unless otherwise specified in the related Prospectus Supplement), will
constitute an Event of Default under such Pooling and Servicing Agreement. See
"Events of Default" and "Rights Upon Event of Default."
CERTIFICATE ACCOUNT AND OTHER COLLECTION ACCOUNTS
GENERAL
The Master Servicer and/or the Trustee will, as to each Trust Fund,
establish and maintain or cause to be established and maintained one or more
separate accounts for the collection of payments on the related Assets
(collectively, the "Certificate Account"), which must be either (i) an account
or accounts the deposits in which are insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the Federal Deposit Insurance Corporation
("FDIC") (to the limits established by the FDIC) and the uninsured deposits in
which are otherwise secured such that the Certificateholders have a claim with
respect to the funds in the Certificate Account or a perfected first priority
security interest against any collateral securing such funds that is superior to
the claims of any other depositors or general creditors of the institution with
which the Certificate Account is maintained or (ii) otherwise maintained with a
bank or trust company, and in a manner, satisfactory to the Rating Agency or
Agencies rating any class of Certificates of such series. The collateral
eligible to secure amounts in the Certificate Account is limited to United
States government securities and other investment grade obligations specified in
the Agreement ("Permitted Investments"). A Certificate Account may be maintained
as an interest bearing or a non-interest bearing account and the funds held
therein may be invested pending each succeeding 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
43
<PAGE>
other funds respecting payments on mortgage loans belonging to the Master
Servicer or serviced or master serviced by it on behalf of others.
DEPOSITS
A Master Servicer or the Trustee will deposit or cause to be deposited
in the Certificate Account for one or more Trust Funds on a daily basis, unless
otherwise provided in the related Agreement, the following payments and
collections received, or advances made, by the Master Servicer or the Trustee or
on its behalf subsequent to the Cut-off Date (other than payments due on or
before the Cut-off Date, and exclusive of any amounts representing a Retained
Interest):
(i) all payments on account of principal, including principal
prepayments, on the Assets;
(ii) all payments on account of interest on the Assets,
including any default interest collected, in each case net of
any portion thereof retained by a Master Servicer, a
Sub-Servicer or a Special Servicer as its servicing
compensation and net of any Retained Interest;
(iii) all proceeds of the hazard, business interruption and
general liability insurance policies to be maintained in
respect of each Mortgaged Property securing a Whole Loan in the
Trust Fund (to the extent such proceeds are not applied to the
restoration of the property or released to the mortgagor in
accordance with the normal servicing procedures of a Master
Servicer or the related Sub-Servicer, subject to the terms and
conditions of the related Mortgage and Mortgage Note) and all
proceeds of rental interruption policies, if any, insuring
against losses arising from the failure of Lessees under a
Lease to make timely rental payments because of certain
casualty events (collectively, "Insurance Proceeds") and all
other amounts received and retained in connection with the
liquidation of defaulted Mortgage Loans in the Trust Fund, by
foreclosure or otherwise ("Liquidation Proceeds"), together
with the net proceeds on a monthly basis with respect to any
Mortgaged Properties acquired for the benefit of
Certificateholders by foreclosure or by deed in lieu of
foreclosure or otherwise;
(iv) any amounts paid under any instrument or drawn from any
fund that constitutes Credit Support for the related series of
Certificates as described under "Description of Credit
Support";
(v) any advances made as described under "Description of the
Certificates--Advances in Respect of Delinquencies";
(vi) any amounts representing Prepayment Premiums;
(vii) any amounts paid under any Cash Flow Agreement, as
described under "Description of the Trust Funds--Cash Flow
Agreements";
(viii) all proceeds of any Asset or, with respect to a Whole
Loan, property acquired in respect thereof purchased by the
Depositor, any Asset Seller or any other specified person as
described under "Assignment of Assets; Repurchases" and
"Representations and Warranties; Repurchases," all proceeds of
any defaulted Mortgage Loan purchased as described under
"Realization Upon Defaulted Whole Loans," and all proceeds of
any Asset purchased as described under "Description of the
Certificates Termination" (also, "Liquidation Proceeds");
(ix) any amounts paid by a Master Servicer to cover certain
interest shortfalls arising out of the prepayment of Whole
Loans in the Trust Fund as described under "Description of the
Agreements Retained Interest; Servicing Compensation and
Payment of Expenses";
44
<PAGE>
(x) to the extent that any such item does not constitute
additional servicing compensation to a Master Servicer, any
payments on account of modification or assumption fees, late
payment charges, Prepayment Premiums or Equity Participations
on the Mortgage Assets; (xi) all payments required to be
deposited in the Certificate Account with respect to any
deductible clause in any blanket insurance policy described
under "Hazard Insurance Policies";
(xi) any amount required to be deposited by a Master Servicer
or the Trustee in connection with losses realized on
investments for the benefit of the Master Servicer or the
Trustee, as the case may be, of funds held in the Certificate
Account; and
(xii) any other amounts required to be deposited in the
Certificate Account as provided in the related Agreement and
described in the related Prospectus Supplement.
WITHDRAWALS
A Master Servicer or the Trustee may, from time to time, unless
otherwise provided in the related Agreement and described in the related
Prospectus Supplement, make withdrawals from the Certificate Account for each
Trust Fund for any of the following purposes:
(i) to make distributions to the Certificateholders on each Distribution
Date;
(ii) to reimburse a Master Servicer for unreimbursed amounts advanced as
described under "Description of the Certificates Advances in Respect of
Delinquencies," such reimbursement to be made out of amounts received which were
identified and applied by the Master Servicer as late collections of interest
(net of related servicing fees and Retained Interest) on and principal of the
particular Whole Loans with respect to which the advances were made or out of
amounts drawn under any form of Credit Support with respect to such Whole Loans;
(iii) to reimburse a Master Servicer for unpaid servicing fees earned
and certain unreimbursed servicing expenses incurred with respect to Whole Loans
and properties acquired in respect thereof, such reimbursement to be made out of
amounts that represent Liquidation Proceeds and Insurance Proceeds collected on
the particular Whole Loans and properties, and net income collected on the
particular properties, with respect to which such fees were earned or such
expenses were incurred or out of amounts drawn under any form of Credit Support
with respect to such Whole Loans and properties;
(iv) to reimburse a Master Servicer for any advances described in clause
(ii) above and any servicing expenses described in clause (iii) above which, in
the Master Servicer's good faith judgment, will not be recoverable from the
amounts described in clauses (ii) and (iii), respectively, such reimbursement to
be made from amounts collected on other Assets or, if and to the extent so
provided by the related Agreement and described in the related Prospectus
Supplement, just from that portion of amounts collected on other Assets that is
otherwise distributable on one or more classes of Subordinate Certificates, if
any, remain outstanding, and otherwise any outstanding class of Certificates, of
the related series;
(v) if and to the extent described in the related Prospectus Supplement,
to pay a Master Servicer interest accrued on the advances described in clause
(ii) above and the servicing expenses described in clause (iii) above while such
remain outstanding and unreimbursed;
(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";
45
<PAGE>
(vii) to reimburse a Master Servicer, the Depositor, or any of their
respective directors, officers, employees and agents, as the case may be, for
certain expenses, costs and liabilities incurred thereby, as and to the extent
described under "Certain Matters Regarding a Master Servicer and the Depositor";
(viii) if and to the extent described in the related Prospectus
Supplement, to pay (or to transfer to a separate account for purposes of
escrowing for the payment of) the Trustee's fees;
(ix) to reimburse the Trustee or any of its directors, officers,
employees and agents, as the case may be, for certain expenses, costs and
liabilities incurred thereby, as and to the extent described under "Certain
Matters Regarding the Trustee";
(x) unless otherwise provided in the related Prospectus Supplement, to
pay a Master Servicer, as additional servicing compensation, interest and
investment income earned in respect of amounts held in the Certificate Account;
(xi) to pay the person entitled thereto any amounts deposited in the
Certificate Account that were identified and applied by the Master Servicer as
recoveries of Retained Interest;
(xii) to pay for costs reasonably incurred in connection with the proper
operation, management and maintenance of any Mortgaged Property acquired for the
benefit of Certificateholders by foreclosure or by deed in lieu of foreclosure
or otherwise, such payments to be made out of income received on such property;
(xiii) if one or more elections have been made to treat the Trust Fund
or designated portions thereof as a REMIC, to pay any federal, state or local
taxes imposed on the Trust Fund or its assets or transactions, as and to the
extent described under "Certain Federal Income Tax
Consequences--REMICS--Prohibited Transactions Tax and Other Taxes";
(xiv) to pay for the cost of an independent appraiser or other expert in
real estate matters retained to determine a fair sale price for a defaulted
Whole Loan or a property acquired in respect thereof in connection with the
liquidation of such Whole Loan or property;
(xv) to pay for the cost of various opinions of counsel obtained
pursuant to the related Agreement for the benefit of Certificateholders;
(xvi) to pay for the costs of recording the related Agreement if such
recordation materially and beneficially affects the interests of
Certificateholders, provided that such payment shall not constitute a waiver
with respect to the obligation of the Warrantying Party to remedy any breach of
representation or warranty under the Agreement;
(xvii) to pay the person entitled thereto any amounts deposited in the
Certificate Account in error, including amounts received on any Asset after its
removal from the Trust Fund whether by reason of purchase or substitution as
contemplated by "Assignment of Assets; Repurchase" and "Representations and
Warranties; Repurchases" or otherwise;
(xviii) to make any other withdrawals permitted by the related Agreement
and described in the related Prospectus Supplement; and
(xix) to clear and terminate the Certificate Account at the termination
of the Trust Fund.
46
<PAGE>
OTHER COLLECTION ACCOUNTS
Notwithstanding the foregoing, if so specified in the related Prospectus
Supplement, the Agreement for any series of Certificates may provide for the
establishment and maintenance of a separate collection account into which the
Master Servicer or any related Sub-Servicer or Special Servicer will deposit on
a daily basis the amounts described under "--Deposits" above for one or more
series of Certificates. Any amounts on deposit in any such collection account
will be withdrawn therefrom and deposited into the appropriate Certificate
Account by a time specified in the related Prospectus Supplement. To the extent
specified in the related Prospectus Supplement, any amounts which could be
withdrawn from the Certificate Account as described under "--Withdrawals" above,
may also be withdrawn from any such collection account. The Prospectus
Supplement will set forth any restrictions with respect to any such collection
account, including investment restrictions and any restrictions with respect to
financial institutions with which any such collection account may be maintained.
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer, directly or through Sub-Servicers, is required to
make reasonable efforts to collect all scheduled payments under the Whole Loans
and will follow or cause to be followed such collection procedures as it would
follow with respect to mortgage loans that are comparable to the Whole Loans and
held for its own account, provided such procedures are consistent with (i) the
terms of the related Agreement and any related hazard, business interruption,
rental interruption or general liability insurance policy or instrument of
Credit Support included in the related Trust Fund described herein or under
"Description of Credit Support," (ii) applicable law and (iii) the general
servicing standard specified in the related Prospectus Supplement or, if no such
standard is so specified, its normal servicing practices (in either case, the
"Servicing Standard"). In connection therewith, the Master Servicer will be
permitted in its discretion to waive any late payment charge or penalty interest
in respect of a late Whole Loan payment.
Each Master Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining (or causing
the mortgagor or Lessee on each Mortgage or Lease to maintain) hazard, business
interruption and general liability insurance policies (and, if applicable,
rental interruption policies) as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder; maintaining escrow or
impoundment accounts of mortgagors for payment of taxes, insurance and other
items required to be paid by any mortgagor pursuant to the Whole Loan;
processing assumptions or substitutions in those cases where the Master Servicer
has determined not to enforce any applicable due-on-sale clause; attempting to
cure delinquencies; supervising foreclosures; inspecting and managing Mortgaged
Properties under certain circumstances; and maintaining accounting records
relating to the Whole Loans. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer will be responsible for filing and
settling claims in respect of particular Whole Loans under any applicable
instrument of Credit Support. See "Description of Credit Support."
The Master Servicer may agree to modify, waive or amend any term of any
Whole Loan in a manner consistent with the Servicing Standard so long as the
modification, waiver or amendment will not (i) affect the amount or timing of
any scheduled payments of principal or interest on the Whole Loan or (ii) in its
judgment, materially impair the security for the Whole Loan or reduce the
likelihood of timely payment of amounts due thereon. The Master Servicer also
may agree to any modification, waiver or amendment that would so affect or
impair the payments on, or the security for, a Whole Loan if, unless otherwise
provided in the related Prospectus Supplement, (i) in its judgment, a material
default on the Whole Loan has occurred or a payment default is imminent and (ii)
in its judgment, such modification, waiver or amendment is reasonably likely to
produce a greater recovery with respect to the Whole Loan on a present value
basis than would liquidation. The Master Servicer is required to notify the
Trustee in the event of any modification, waiver or amendment of any Whole Loan.
SUB-SERVICERS
A Master Servicer may delegate its servicing obligations in respect of
the Whole Loans to third-party servicers (each, a "Sub-Servicer"), but such
Master Servicer will remain obligated under the related Agreement.
47
<PAGE>
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 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
48
<PAGE>
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 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."
49
<PAGE>
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 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
50
<PAGE>
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 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
51
<PAGE>
(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.
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.
52
<PAGE>
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.
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.
53
<PAGE>
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 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
54
<PAGE>
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, 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
55
<PAGE>
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.
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
56
<PAGE>
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."
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
57
<PAGE>
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.
58
<PAGE>
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,
59
<PAGE>
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
60
<PAGE>
the lender is entitled to collect the rents. Local law may require that the
lender take possession of the property and/or obtain a court-appointed receiver
before becoming entitled to collect the rents. In most states, hotel and motel
room revenues are considered accounts receivable under the UCC; generally these
revenues are either assigned by the mortgagor, which remains entitled to collect
such revenues absent a default, or pledged by the mortgagor, as security for the
loan. In general, the lender must file financing statements in order to perfect
its security interest in the revenues and must file continuation statements,
generally every five years, to maintain perfection of such security interest.
Even if the lender's security interest in room revenues is perfected under the
UCC, the lender will generally be required to commence a foreclosure or
otherwise take possession of the property in order to collect the room revenues
after a default.
Even after a foreclosure, the potential rent payments from the property
may be less than the periodic payments that had been due under the mortgage. For
instance, the net income that would otherwise be generated from the property may
be less than the amount that would have been needed to service the mortgage debt
if the leases on the property are at below-market rents, or as the result of
excessive maintenance, repair or other obligations which a lender succeeds to as
landlord.
Lenders that actually take possession of the property, however, may
incur potentially substantial risks attendant to being a mortgagee in
possession. Such risks include liability for environmental clean-up costs and
other risks inherent in property ownership. See "Environmental Legislation"
below.
PERSONALTY
Certain types of Mortgaged Properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value from
personal property which does not constitute "fixtures" under applicable state
real property law and, hence, would not be subject to the lien of a mortgage.
Such property is generally pledged or assigned as security to the lender under
the UCC. In order to perfect its security interest therein, the lender generally
must file UCC financing statements and, to maintain perfection of such security
interest, file continuation statements generally every five years.
FORECLOSURE
GENERAL
Foreclosure is a legal procedure that allows the mortgagee to recover
its mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the mortgagor defaults in payment or performance of its obligations
under the note or mortgage, the mortgagee has the right to institute foreclosure
proceedings to sell the mortgaged property at public auction to satisfy the
indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage
vary from state to state. Two primary methods of foreclosing a mortgage are
judicial foreclosure and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage instrument. There are several other foreclosure
procedures available in some states that are either infrequently used or
available only in certain limited circumstances, such as strict foreclosure.
JUDICIAL FORECLOSURE
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having a subordinate interest of
record in the real property and all parties in possession of the property, under
leases or otherwise, whose interests are subordinate to the mortgage. Delays in
completion of the foreclosure may occasionally result from difficulties in
locating defendants. When the lender's right to foreclose is contested, the
legal proceedings can be time-consuming. Upon successful completion of a
judicial foreclosure proceeding, the court generally issues a judgment of
foreclosure and appoints a referee or other officer to conduct a public sale of
the mortgaged property, the proceeds
61
<PAGE>
of which are used to satisfy the judgment. Such sales are made in accordance
with procedures that vary from state to state.
EQUITABLE LIMITATIONS ON ENFORCEABILITY OF CERTAIN PROVISIONS
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may require
the lender to undertake affirmative and expensive actions to determine the cause
of the mortgagor's default and the likelihood that the mortgagor will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's and have required that lenders reinstate loans or recast payment
schedules in order to accommodate mortgagors who are suffering from a temporary
financial disability. In other cases, courts have limited the right of the
lender to foreclose if the default under the mortgage is not monetary, e.g., the
mortgagor failed to maintain the mortgaged property adequately or the mortgagor
executed a junior mortgage on the mortgaged property. The exercise by the court
of its equity powers will depend on the individual circumstances of each case
presented to it. Finally, some courts have been faced with the issue of whether
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that a mortgagor receive notice in addition to
statutorily-prescribed minimum notice. For the most part, these cases have
upheld the reasonableness of the notice provisions or have found that a public
sale under a mortgage providing for a power of sale does not involve sufficient
state action to afford constitutional protections to the mortgagor.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes require several years to complete. Moreover, as discussed below, a
non-collusive, regularly conducted foreclosure sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court determines
that the sale was for less than fair consideration and such sale occurred while
the mortgagor was insolvent (or the mortgagor was rendered insolvent as a result
of such sale) and within one year (or within the state statute of limitations if
the trustee in bankruptcy elects to proceed under state fraudulent conveyance
law) of the filing of bankruptcy.
NON-JUDICIAL FORECLOSURE/POWER OF SALE
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale pursuant to the power of sale granted in the deed of
trust. A power of sale is typically granted in a deed of trust. It may also be
contained in any other type of mortgage instrument. A power of sale allows a
non-judicial public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such sale,
the trustee under a deed of trust must record a notice of default and notice of
sale and send a copy to the mortgagor and to any other party who has recorded a
request for a copy of a notice of default and notice of sale. In addition, in
some states the trustee must provide notice to any other party having an
interest of record in the real property, including junior lienholders. A notice
of sale must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. The mortgagor or junior
lienholder may then have the right, during a reinstatement period required in
some states, to cure the default by paying the entire actual amount in arrears
(without acceleration) plus the expenses incurred in enforcing the obligation.
In other states, the mortgagor or the junior lienholder is not provided a period
to reinstate the loan, but has only the right to pay off the entire debt to
prevent the foreclosure sale. Generally, the procedure for public sale, the
parties entitled to notice, the method of giving notice and the applicable time
periods are governed by state law and vary among the states. Foreclosure of a
deed to secure debt is also generally accomplished by a non-judicial sale
similar to that required by a deed of trust, except that the lender or its
agent, rather than a trustee, is typically empowered to perform the sale in
accordance with the terms of the deed to secure debt and applicable law.
62
<PAGE>
PUBLIC SALE
A third party may be unwilling to purchase a mortgaged property at a
public sale because of the difficulty in determining the value of such property
at the time of sale, due to, among other things, redemption rights which may
exist and the possibility of physical deterioration of the property during the
foreclosure proceedings. For these reasons, it is common for the lender to
purchase the mortgaged property for an amount equal to or less than the
underlying debt and accrued and unpaid interest plus the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs and
expenses which may be recovered by a lender. Thereafter, subject to the
mortgagor's right in some states to remain in possession during a redemption
period, if applicable, the lender will become the owner of the property and have
both the benefits and burdens of ownership of the mortgaged property. For
example, the lender will have the obligation to pay debt service on any senior
mortgages, to pay taxes, obtain casualty insurance and to make such repairs at
its own expense as are necessary to render the property suitable for sale.
Frequently, the lender employs a third party management company to manage and
operate the property. The costs of operating and maintaining a commercial or
multifamily residential property may be significant and may be greater than the
income derived from that property. The costs of management and operation of
those mortgaged properties which are hotels, motels, restaurants, nursing or
convalescent homes or hospitals may be particularly significant because of the
expertise, knowledge and, with respect to nursing or convalescent homes or
hospitals, regulatory compliance, required to run such operations and the effect
which foreclosure and a change in ownership may have on the public's and the
industry's (including franchisors') perception of the quality of such
operations. The lender will commonly obtain the services of a real estate broker
and pay the broker's commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property. Moreover, a
lender commonly incurs substantial legal fees and court costs in acquiring a
mortgaged property through contested foreclosure and/or bankruptcy proceedings.
Furthermore, a few states require that any environmental contamination at
certain types of properties be cleaned up before a property may be resold. In
addition, a lender may be responsible under federal or state law for the cost of
cleaning up a mortgaged property that is environmentally contaminated. See
"Environmental Legislation." Generally state law controls the amount of
foreclosure expenses and costs, including attorneys' fees, that may be recovered
by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior mortgages
to avoid their foreclosure. In addition, in the event that the foreclosure of a
junior mortgage triggers the enforcement of a "due-on-sale" clause contained in
a senior mortgage, the junior mortgagee may be required to pay the full amount
of the senior mortgage to avoid its foreclosure. Accordingly, with respect to
those Mortgage Loans, if any, that are junior mortgage loans, if the lender
purchases the property the lender's title will be subject to all senior
mortgages, prior liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are
applied first to the costs, fees and expenses of sale and then in satisfaction
of the indebtedness secured by the mortgage under which the sale was conducted.
Any proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in order
of their priority, whether or not the mortgagor is in default. Any additional
proceeds are generally payable to the mortgagor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgage or a subsequent ancillary proceeding or may require the
institution of separate legal proceedings by such holders.
REO PROPERTIES
If title to any Mortgaged Property is acquired by the Trustee on behalf
of the Certificateholders, the Master Servicer or any related Sub-servicer or
the Special Servicer, on behalf of such holders, will be required to sell the
Mortgaged Property prior to the close of the third calendar year following the
year of acquisition of such Mortgaged Property by the Trust Fund, unless (i) the
Internal Revenue Service grants an extension of time to sell such property (an
"REO Extension") or (ii) it obtains an opinion of counsel generally to the
effect that the holding of the property beyond the close of the third calendar
year after its acquisition will not result in the imposition of a tax on the
Trust Fund or cause any REMIC created pursuant to the Pooling and Servicing
Agreement to fail to qualify as a REMIC under the Code. Subject to the
foregoing, the Master Servicer or any related Sub-servicer or the Special
Servicer will generally be required to solicit bids for any Mortgaged Property
so acquired in such a manner as will be reasonably likely to realize a fair
price for such property. The Master Servicer or any related Sub-servicer or the
Special
63
<PAGE>
Servicer may retain an independent contractor to operate and manage any
REO Property; however, the retention of an independent contractor will not
relieve the Master Servicer or any related Sub-servicer or the Special Servicer
of its obligations with respect to such REO Property.
In general, the Master Servicer or any related Sub-servicer or the
Special Servicer or an independent contractor employed by the Master Servicer or
any related Sub-servicer or the Special Servicer at the expense of the Trust
Fund will be obligated to operate and manage any Mortgaged Property acquired as
REO Property in a manner that would, to the extent commercially feasible,
maximize the Trust Fund's net after-tax proceeds from such property. After the
Master Servicer or any related Sub-servicer or the Special Servicer reviews the
operation of such property and consults with the Trustee to determine the Trust
Fund's federal income tax reporting position with respect to the income it is
anticipated that the Trust Fund would derive from such property, the Master
Servicer or any related Sub-servicer or the Special Servicer could determine
(particularly in the case of an REO Property that is a hospitality or
residential health care facility) that it would not be commercially feasible to
manage and operate such property in a manner that would avoid the imposition of
a tax on "net income from foreclosure property," within the meaning of Section
857(b)(4)(B) of the Code (an "REO Tax") at the highest marginal corporate tax
rate (currently 35%). The determination as to whether income from an REO
Property would be subject to an REO Tax will depend on the specific facts and
circumstances relating to the management and operation of each REO Property. Any
REO Tax imposed on the Trust Fund's income from an REO Property would reduce the
amount available for distribution to Certificateholders. Certificateholders are
advised to consult their tax advisors regarding the possible imposition of REO
Taxes in connection with the operation of commercial REO Properties by REMICs.
See "Certain Federal Income Tax Consequences" herein and "Certain Federal Income
Tax Consequences-REMICs" in the Prospectus.
RIGHTS OF REDEMPTION
The purposes of a foreclosure action are to enable the mortgagee to
realize upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the mortgage being foreclosed,
from exercise of their "equity of redemption." The doctrine of equity of
redemption provides that, until the property covered by a mortgage has been sold
in accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing mortgagee
have an equity of redemption and may redeem the property by paying the entire
debt with interest. In addition, in some states, when a foreclosure action has
been commenced, the redeeming party must pay certain costs of such action. Those
having an equity of redemption must generally be made parties and joined in the
foreclosure proceeding in order for their equity of redemption to be cut off and
terminated.
The equity of redemption is a common-law (non-statutory) right which
exists prior to completion of the foreclosure, is not waivable by the mortgagor,
must be exercised prior to foreclosure sale and should be distinguished from the
post-sale statutory rights of redemption. In some states, after sale pursuant to
a deed of trust or foreclosure of a mortgage, the mortgagor and foreclosed
junior lienors are given a statutory period in which to redeem the property from
the foreclosure sale. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
authorized if the former mortgagor pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser from a foreclosure sale or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has expired. In some states, a post-sale statutory
right of redemption may exist following a judicial foreclosure, but not
following a trustee's sale under a deed of trust.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held beyond the close of the third calendar
year following the year of acquisition. Unless otherwise provided in the related
Prospectus Supplement, with respect to a series of Certificates for which an
election is made to qualify the Trust Fund or a part thereof as a REMIC, the
Agreement will permit foreclosed property to be held beyond the close of the
third calendar year following the year of acquisition if the Internal Revenue
Service grants an extension of
64
<PAGE>
time within which to sell such property or independent counsel renders an
opinion to the effect that holding such property for such additional period is
permissible under the REMIC Provisions.
ANTI-DEFICIENCY LEGISLATION
Some or all of the Mortgage Loans may be nonrecourse loans, as to which
recourse may be had only against the specific property securing the related
Mortgage Loan and a personal money judgment may not be obtained against the
mortgagor. Even if a mortgage loan by its terms provides for recourse to the
mortgagor, some states impose prohibitions or limitations on such recourse. For
example, statutes in some states limit the right of the lender to obtain a
deficiency judgment against the mortgagor following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former mortgagor equal to the difference between the net amount realized upon
the public sale of the real property and the amount due to the lender. Some
states require the lender to exhaust the security afforded under a mortgage by
foreclosure in an attempt to satisfy the full debt before bringing a personal
action against the mortgagor. In certain other states, the lender has the option
of bringing a personal action against the mortgagor on the debt without first
exhausting such security; however, in some of these states, the lender,
following judgment on such personal action, may be deemed to have elected a
remedy and may be precluded from exercising remedies with respect to the
security. In some cases, a lender will be precluded from exercising any
additional rights under the note or mortgage if it has taken any prior
enforcement action. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the mortgagor. Finally, other statutory provisions limit any
deficiency judgment against the former mortgagor following a judicial sale to
the excess of the outstanding debt over the fair market value of the property at
the time of the public sale. The purpose of these statutes is generally to
prevent a lender from obtaining a large deficiency judgment against the former
mortgagor as a result of low or no bids at the judicial sale.
LEASEHOLD RISKS
Mortgage Loans may be secured by a mortgage on a ground lease. Leasehold
mortgages are subject to certain risks not associated with mortgage loans
secured by the fee estate of the mortgagor. The most significant of these risks
is that the ground lease creating the leasehold estate could terminate, leaving
the leasehold mortgagee without its security. The ground lease may terminate if,
among other reasons, the ground lessee breaches or defaults in its obligations
under the ground lease or there is a bankruptcy of the ground lessee or the
ground lessor. This risk may be minimized if the ground lease contains certain
provisions protective of the mortgagee, but the ground leases that secure
Mortgage Loans may not contain some of these protective provisions, and
mortgages may not contain the other protections discussed in the next paragraph.
Protective ground lease provisions include the right of the leasehold mortgagee
to receive notices from the ground lessor of any defaults by the mortgagor; the
right to cure such defaults, with adequate cure periods; if a default is not
susceptible of cure by the leasehold mortgagee, the right to acquire the
leasehold estate through foreclosure or otherwise; the ability of the ground
lease to be assigned to and by the leasehold mortgagee or purchaser at a
foreclosure sale and for the concomitant release of the ground lessee's
liabilities thereunder; and the right of the leasehold mortgagee to enter into a
new ground lease with the ground lessor on the same terms and conditions as the
old ground lease in the event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may
require that the ground lease or leasehold mortgage prohibit the ground lessee
from treating the ground lease as terminated in the event of the ground lessor's
bankruptcy and rejection of the ground lease by the trustee for the
debtor-ground lessor. As further protection, a leasehold mortgage may provide
for the assignment of the debtor-ground lessee's right to reject a lease
pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as amended (Title
11 of the United States Code) (the "Bankruptcy Code"), although the
enforceability of such clause has not been established. Without the protections
described above, a leasehold mortgagee may lose the collateral securing its
leasehold mortgage. In addition, terms and conditions of a leasehold mortgage
are 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.
65
<PAGE>
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,
66
<PAGE>
would have only an unsecured claim against the debtor for damages resulting from
such breach, which could adversely affect the security for the related Mortgage
Loan. In addition, pursuant to Section 502(b)(6) of the Bankruptcy Code, a
lessor's damages for lease rejection in respect of future rent installments are
limited to the rent reserved by the lease, without acceleration, for the greater
of one year or 15%, not to exceed three years, of the remaining term of the
lease.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as
debtor-in-possession, rejects an unexpired lease of real property, the lessee
may treat such lease as terminated by such rejection or, in the alternative, the
lessee may remain in possession of the leasehold for the balance of such term
and for any renewal or extension of such term that is enforceable by the lessee
under applicable nonbankruptcy law. The Bankruptcy Code provides that if a
lessee elects to remain in possession after such a rejection of a lease, the
lessee may offset against rents reserved under the lease for the balance of the
term after the date of rejection of the lease, and any such renewal or extension
thereof, any damages occurring after such date caused by the nonperformance of
any obligation of the lessor under the lease after such date. To the 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
67
<PAGE>
acceleration of its payment obligation under a related Mortgage Loan, which may
reduce the yield on the related series of Certificates in the same manner as a
principal prepayment.
In addition, the bankruptcy of the general partner of a Mortgagor that
is a partnership may provide the opportunity for a trustee in bankruptcy for
such general partner, such general partner as a debtor-in-possession, or a
creditor of such general partner to obtain an order from a court consolidating
the assets and liabilities of the general partner with those of the Mortgagor
pursuant to the doctrines of substantive consolidation or piercing the corporate
veil. In such a case, the respective Mortgaged Property, for example, would
become property of the estate of such bankrupt general partner. Not only would
the Mortgaged Property be available to satisfy the claims of creditors of such
general partner, but an automatic stay would apply to any attempt by the Trustee
to exercise remedies with respect to such Mortgaged Property. However, such an
occurrence should not affect the Trustee's status as a secured creditor with
respect to the Mortgagor or its security interest in the Mortgaged Property.
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
68
<PAGE>
or beneficiary is not obligated to advance the additional amounts and has actual
knowledge of the intervening junior mortgages or deeds of trust and other liens,
the advance may be subordinated to such intervening junior mortgages or deeds of
trust and other liens. Priority of advances under a "future advance" clause
rests, in many other states, on state law giving priority to all advances made
under the loan agreement up to a "credit limit" amount stated in the recorded
mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by many institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or 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.
69
<PAGE>
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), and under other federal law and
the law of certain states, a secured party which takes a deed-in-lieu of
foreclosure, purchases a mortgaged property at a foreclosure sale, or operates a
Mortgaged Property may become liable in some circumstances either to the
government or to private parties for cleanup costs, even if the lender does not
cause or contribute to the contamination. Liability under some federal or state
statutes may not be limited to the original or unamortized principal balance of
a loan or to the value of the property securing a loan. CERCLA imposes strict,
as well as joint and several, liability on several classes of potentially
responsible parties, including current owners and operators of the property,
regardless of whether they caused or contributed to the contamination. Many
states have laws similar to CERCLA.
Lenders may be held liable under CERCLA as owners or operators. Excluded
from CERCLA's definition of "owner or operator," however, is a person "who
without participating in the management of the facility, holds indicia of
ownership primarily to protect his security interest." This exemption for
holders of a security interest such as a secured lender applies only in
circumstances where the lender acts to protect its security interest in the
contaminated facility or property. Thus, if a lender's activities encroach on
the actual management of such facility or property, the lender faces potential
liability as an "owner or operator" under CERCLA. Similarly, when a lender
forecloses and takes title to a contaminated facility or property (whether it
holds the facility or property as an investment or leases it to a third party),
the lender may incur potential CERCLA liability.
Whether actions taken by a lender would constitute such an encroachment
on the actual management of a facility or property, so as to render the secured
creditor exemption unavailable to the lender has been a matter of judicial
interpretation of the statutory language, and court decisions have historically
been inconsistent.
This scope of the secured creditor exemption has been clarified by the
enactment of the Asset Conservation, Lender Liability and Deposit Insurance
Protection Act of 1996 (the "Asset Conservation Act"), which was signed into law
by President Clinton on September 30, 1996, and which lists permissible actions
that may be undertaken by a lender holding security in a contaminated facility
without exceeding the bounds of the secured creditor exemption, subject to
certain conditions and limitations. The Asset Conservation Act provides that in
order to be deemed to have participated in the management of a secured property,
a lender must actually participate in the operational affairs of the property or
the borrower. The Asset Conservation Act also provides that a lender will
continue to have the benefit of the secured creditor exemption even if it
forecloses on a mortgaged property, purchases it at a foreclosure sale or
accepts a deed-in-lieu of foreclosure provided that the lender seeks to sell the
mortgaged property at the earliest practicable commercially reasonable time on
commercially reasonable terms. The protections afforded lenders under the Asset
Conversion Act are subject to terms and conditions that have not been clarified
by the courts.
The secured creditor exemption does not protect a lender from liability
under CERCLA in cases where the lender arranges for disposal of hazardous
substances or for transportation of hazardous substances. In addition, the
secured creditor exemption does not govern liability for cleanup costs under
federal laws other than CERCLA or under state law. CERCLA's jurisdiction extends
to the investigation and remediation of releases of "hazardous substances." The
definition of "hazardous substances" under CERCLA specifically excludes
petroleum products. Therefore, a federal statute of particular significance is
Subtitle I of the Resource Conservation and Recovery Act ("RCRA"), which governs
the operation and management of underground petroleum storage tanks. Under the
Asset Conservation Act, the holders of security interests in underground storage
tanks or properties containing such tanks are accorded protections similar to
the protections accorded to lenders under CERCLA. It should be noted, however,
that liability for cleanup of petroleum contamination may be governed by state
law, which may not provide for any specific protection for secured creditors.
In a few states, transfer of some types of properties is conditioned
upon clean up of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed-in-lieu of foreclosure
or otherwise, may be required to cleanup the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law
causes of action (for example, actions based on nuisance or on toxic tort
resulting in death, personal injury or damage to property) related to hazardous
environmental conditions on a property. While it may be more difficult to hold a
lender liable in such cases,
70
<PAGE>
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.
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
71
<PAGE>
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 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
72
<PAGE>
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.
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
73
<PAGE>
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.
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
74
<PAGE>
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.
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
75
<PAGE>
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.
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
76
<PAGE>
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. Such OID could arise by the financing of points
or other charges by the originator of the mortgages in an amount greater than a
77
<PAGE>
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
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
78
<PAGE>
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
79
<PAGE>
Coupon Certificate will be treated as a single installment obligation subject to
the OID rules of the Code, in which case, all payments from such Mortgage Asset
would be included in the Mortgage Asset's stated redemption price at maturity
for purposes of calculating income on such Certificate under the OID rules of
the Code.
It is unclear under what circumstances, if any, the prepayment of
Mortgage Assets will give rise to a loss to the holder of a Stripped Bond
Certificate purchased at a premium or a Stripped Coupon Certificate. If such
Certificate is treated as a single instrument (rather than an interest in
discrete mortgage loans) and the effect of prepayments is taken into account in
computing yield with respect to such Grantor Trust Certificate, it appears that
no loss will be available as a result of any particular prepayment unless
prepayments occur at a rate sufficiently faster than the assumed prepayment rate
so that the Certificateholder will not recover its investment. However, if such
Certificate is treated as an interest in discrete Mortgage Assets, or if no
prepayment assumption is used, then when a Mortgage Asset is prepaid, the holder
of such Certificate should be able to recognize a loss equal to the portion of
the adjusted issue price of such Certificate that is allocable to such Mortgage
Asset.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates
are urged to consult with their own tax advisors regarding the proper treatment
of these Certificates for federal income tax purposes.
Treatment of Certain Owners. Several Code sections provide beneficial
treatment to certain taxpayers that invest in Mortgage Assets of the type that
make up the Trust Fund. With respect to these Code sections, no specific legal
authority exists regarding whether the character of the Grantor Trust
Certificates, for federal income tax purposes, will be the same as that of the
underlying Mortgage Assets. While Code Section 1286 treats a stripped obligation
as a separate obligation for purposes of the Code provisions addressing OID, it
is not clear whether such characterization would apply with regard to these
other Code sections. Although the issue is not free from doubt, each class of
Grantor Trust Certificates, unless otherwise specified in the related Prospectus
Supplement, should be considered to represent "real estate assets" within the
meaning of Code Section 856(c)(4)(A) and "loans . . . secured by, an interest in
real property which is . . . residential real property" within the meaning of
Code Section 7701(a)(19)(C)(v), and interest income attributable to Grantor
Trust Certificates should be considered to represent "interest on obligations
secured by mortgages on real property" within the meaning of Code Section
856(c)(3)(B), provided that in each case the underlying Mortgage Assets and
interest on such Mortgage Assets qualify for such treatment. Prospective
purchasers to which such characterization of an investment in Certificates is
material should consult their own tax advisors regarding the characterization of
the Grantor Trust Certificates and the income therefrom. Grantor Trust
Certificates will be "obligation[s] . . . which [are] principally secured by an
interest in real property" within the meaning of Code Section 860G(a)(3)(A) and
"permitted assets" within the meaning of Code Section 860L(c).
2. Grantor Trust Certificates Representing Interests in Loans Other Than
ARM Loans
The original issue discount rules of Code Sections 1271 through 1275
will be applicable to a Certificateholder's interest in those Mortgage Assets as
to which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount in income are applicable
to mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate mortgagors (other than individuals) originated after July 1, 1982,
and mortgages of individuals originated after March 2, 1984. Under the OID
Regulations, such original issue discount could arise by the charging of points
by the originator of the mortgage in an amount greater than the statutory de
minimis exception, including a payment of points that is currently deductible by
the borrower under applicable Code provisions, or under certain circumstances,
by the presence of "teaser" rates on the Mortgage Assets. OID on each Grantor
Trust Certificate must be included in the owner's ordinary income for federal
income tax purposes as it accrues, in accordance with a constant interest method
that takes into account the compounding of interest, in advance of receipt of
the cash attributable to such income. The amount of OID required to be included
in an owner's income in any taxable year with respect to a Grantor Trust
Certificate representing an interest in Mortgage Assets other than Mortgage
Assets with interest rates that adjust periodically ("ARM Loans") likely will be
computed as described below under "--Accrual of Original Issue Discount." The
following discussion is based in part on the OID Regulations and in part on the
provisions of the Tax Reform Act of 1986 (the "1986 Act"). The OID Regulations
generally are effective for debt instruments issued on or after April 4, 1994,
but may be relied upon as authority with respect to debt instruments, such as
the Grantor Trust Certificates, issued after December 21, 1992. Alternatively,
proposed Treasury regulations issued December 21, 1992 may be treated as
authority for debt instruments issued after December 21, 1992 and prior to April
4, 1994, and proposed Treasury regulations issued in 1986 and 1991 may be
treated as
80
<PAGE>
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
81
<PAGE>
previously accrued original issue discount, less prior payments of principal.
Accordingly, if such Mortgage Assets acquired by a Certificateholder are
purchased at a price equal to the then unpaid principal amount of such Mortgage
Asset, no original issue discount attributable to the difference between the
issue price and the original principal amount of such Mortgage Asset (i.e.
points) will be includible by such holder. Other original issue discount on the
Mortgage Assets (e.g., that arising from a "teaser" rate) would still need to be
accrued.
3. Grantor Trust Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such as
the Grantor Trust Certificates, which represent interests in ARM Loans.
Additionally, the IRS has not issued guidance under the Code's coupon stripping
rules with respect to such instruments. In the absence of any authority, the
Master Servicer will report OID on Grantor Trust Certificates attributable to
ARM Loans ("Stripped ARM Obligations") to holders in a manner it believes is
consistent with the rules described above under the heading "--Grantor Trust
Certificates Representing Interests in Loans Other Than ARM Loans" and with the
OID Regulations. In general, application of these rules may require inclusion of
income on a Stripped ARM Obligation in advance of the receipt of cash
attributable to such income. Further, the addition of interest deferred by
reason of negative amortization ("Deferred Interest") to the principal balance
of an ARM Loan may require the inclusion of such amount in the income of the
Grantor Trust Certificateholder when such amount accrues. Furthermore, the
addition of Deferred Interest to the Grantor Trust Certificate's principal
balance will result in additional income (including possibly OID income) to the
Grantor Trust Certificateholder over the remaining life of such Grantor Trust
Certificates.
Because the treatment of Stripped ARM Obligations is uncertain,
investors are urged to consult their tax advisors regarding how income will be
includible with respect to such Certificates.
C. SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE
Sale or exchange of a Grantor Trust Certificate prior to its maturity
will result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the Grantor Trust Certificate. Such
adjusted basis generally will equal the seller's purchase price for the Grantor
Trust Certificate, increased by the OID included in the seller's gross income
with respect to the Grantor Trust Certificate, and reduced by principal payments
on the Grantor Trust Certificate previously received by the seller. Such gain or
loss will be capital gain or loss to an owner for which a Grantor Trust
Certificate is a "capital asset" within the meaning of Code Section 1221, and
will generally be long-term capital gain if the Grantor Trust Certificate has
been owned for more than one year. Long-
term capital gains of individuals are subject to reduced maximum tax rates while
capital gains recognized by individuals on capital assets held less than twelve
months are generally subject to ordinary income tax rates. The use of capital
losses is limited.
It is possible that capital gain realized by holders of one or more
classes of Grantor Trust Certificates could be considered gain realized upon the
disposition of property that was part of a "conversion transaction." A sale of a
Grantor Trust Certificate will be part of a conversion transaction if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and (i) the holder entered the contract to
sell the Grantor Trust Certificate substantially contemporaneously with
acquiring the Grantor Trust Certificate, (ii) the Grantor Trust Certificate is
part of a straddle, (iii) the Grantor Trust Certificate is marketed or sold as
producing capital gain, or (iv) other transactions to be specified in Treasury
regulations that have not yet been issued. If the sale or other disposition of a
Grantor Trust Certificate is part of a conversion transaction, all or any
portion of the gain realized upon the sale or other disposition would be treated
as ordinary income instead of capital gain.
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Code Section 582(c)(1), so that gain or loss recognized from the
sale of a Grantor Trust Certificate by a bank or a thrift institution to which
such section applies will be treated as ordinary income or loss.
82
<PAGE>
D. NON-U.S. PERSONS
Generally, to the extent that a Grantor Trust Certificate evidences
ownership in underlying Mortgage Assets that were issued on or before July 18,
1984, interest or OID paid by the person required to withhold tax under Code
Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as defined
below) or (ii) a Grantor Trust Certificateholder holding on behalf of an owner
that is not a U.S. Person will be subject to federal income tax, collected by
withholding, at a rate of 30% or such lower rate as may be provided for interest
by an applicable tax treaty, unless such income is effectively connected with a
U.S. trade or business of such owner or beneficial owner. Accrued OID recognized
by the owner on the sale or exchange of such a Grantor Trust Certificate also
will be subject to federal income tax at the same rate. Generally, such payments
would not be subject to withholding to the extent that a Grantor Trust
Certificate evidences ownership in Mortgage Assets issued after July 18, 1984,
by natural persons if such Grantor Trust Certificateholder complies with certain
identification requirements (including delivery of a statement, signed by the
Grantor Trust Certificateholder under penalties of perjury, certifying that such
Grantor Trust Certificateholder is not a U.S. Person and providing the name and
address of such Grantor Trust Certificateholder). To the extent payments to
Grantor Trust Certificateholders that are not U.S. Persons are payments of
"contingent interest" on the underlying Mortgage Assets, or such Grantor Trust
Certificateholder is ineligible for the exemption described in the preceding
sentence, the 30% withholding tax will apply unless such withholding taxes are
reduced or eliminated by an applicable tax treaty and such holder meets the
eligibility and certification requirements necessary to obtain the benefits of
such treaty. Additional restrictions apply to Mortgage Assets where the
mortgagor is not a natural person in order to qualify for the exemption from
withholding. If capital gain derived from the sale, retirement or other
disposition of a Grantor Trust Certificate is effectively connected with a U.S.
trade or business of a Grantor Trust Certificateholder that is not a U.S.
Person, such Certificateholder will be taxed on the net gain under the graduated
U.S. federal income tax rates applicable to U.S. Persons (and, with respect to
Grantor Trust Certificates held by or on behalf of corporations, also may be
subject to branch profits tax). In addition, if the Trust Fund acquires a United
States real property interest through foreclosure, deed in lieu of foreclosure
or otherwise on a Mortgage Asset secured by such an interest (which for this
purpose includes real property located in the United States and the Virgin
Islands), a Grantor Trust Certificateholder that is not a U.S. Person will
potentially be subject to federal income tax on any gain attributable to such
real property interest that is allocable to such holder. Non-U.S. Persons should
consult their tax advisors regarding the application to them of the foregoing
rules.
As used herein, a "U.S. Person" means a citizen or resident of the
United States, a corporation or a partnership organized in or under the laws of
the United States or any political subdivision thereof (other than a partnership
that is not treated as a U.S. Person under any applicable Treasury regulations),
an estate the income of which from sources outside the United States is
includible in gross income for federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United States or a
trust if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more U.S. Persons have
the authority to control all substantial decisions of the trust. In addition,
certain trusts treated as U.S. Persons before August 20, 1996 may elect to
continue to be so treated to the extent provided in regulations.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The Master Servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each person who was a
Certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
Certificates as nominees on behalf of beneficial owners. If a holder, beneficial
owner, financial intermediary or other recipient of a payment on behalf of a
beneficial owner fails to supply a certified taxpayer identification number or
if the Secretary of the Treasury determines that such person has not reported
all interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments to
registered owners who are not "exempt recipients." In addition, upon the sale of
a Grantor Trust Certificate to (or through) a broker, the broker must withhold
31% of the entire purchase price, unless either (i) the broker determines that
the seller is a corporation or other exempt recipient, or (ii) the seller
provides, in the required manner, certain identifying information and, in the
case of a non-U.S. Person, certifies that such seller is a Non-U.S. Person, and
certain other
83
<PAGE>
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 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
84
<PAGE>
& 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 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
85
<PAGE>
variable rate (as described below) provided that such interest payments are
unconditionally payable at intervals of one year or less during the entire term
of the REMIC Regular Certificate. Interest is payable at a single fixed rate
only if the rate appropriately takes into account the length of the interval
between payments. Distributions of interest on REMIC Regular Certificates with
respect to which Deferred Interest will accrue will not constitute qualified
stated interest payments, and the stated redemption price at maturity of such
REMIC Regular Certificates includes all distributions of interest as well as
principal thereon.
Where the interval between the issue date and the first Distribution
Date on a REMIC Regular Certificate is longer than the interval between
subsequent Distribution Dates, the greater of any original issue discount
(disregarding the rate in the first period) and any interest foregone during the
first period is treated as the amount by which the stated redemption price at
maturity of the Certificate exceeds its issue price for purposes of the de
minimis rule described below. The OID Regulations suggest that all interest on a
long first period REMIC Regular Certificate that is issued with non-de minimis
OID, as determined under the foregoing rule, will be treated as OID. Where the
interval between the issue date and the first Distribution Date on a REMIC
Regular Certificate is shorter than the interval between subsequent Distribution
Dates, interest due on the first Distribution Date in excess of the amount that
accrued during the first period would be added to the Certificates, stated
redemption price at maturity. REMIC Regular Certificateholders should consult
their own tax advisors to determine the issue price and stated redemption price
at maturity of a REMIC Regular Certificate.
Under the de minimis rule, OID on a REMIC Regular Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average maturity of the REMIC Regular Certificate. For this purpose, the
weighted average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial years) from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included in
the stated redemption price at maturity of the REMIC Regular Certificate and the
denominator of which is the stated redemption price at maturity of the REMIC
Regular Certificate. Although currently unclear, it appears that the schedule of
such distributions should be determined in accordance with the Prepayment
Assumption. The Prepayment Assumption with respect to a Series of REMIC Regular
Certificates will be set forth in the related Prospectus Supplement. Holders
generally must report de minimis OID pro rata as principal payments are
received, and such income will be capital gain if the REMIC Regular Certificate
is held as a capital asset. However, accrual method holders may elect to accrue
all de minimis OID as well as market discount under a constant interest method.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain REMIC Regular Certificates to be issued at prices significantly
exceeding their principal amounts or based on notional principal balances (the
"Super-Premium Certificates"). The income tax treatment of such REMIC Regular
Certificates is not entirely certain. For information reporting purposes, the
Trust Fund intends to take the position that the stated redemption price at
maturity of such REMIC Regular Certificates is the sum of all payments to be
made on such REMIC Regular Certificates determined under the Prepayment
Assumption, with the result that such REMIC Regular Certificates would be issued
with OID. The calculation of income in this manner could result in negative
original issue discount (which delays future accruals of OID rather than being
immediately deductible) when prepayments on the Mortgage Assets exceed those
estimated under the Prepayment Assumption. The IRS might contend, however, that
certain contingent payment rules contained in final regulations issued on June
11, 1996, with respect to original issue discount, should apply to such
Certificates. Although such rules are not applicable to instruments governed by
Code Section 1272(a)(6), they represent the only guidance regarding the current
views of the 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
86
<PAGE>
be claimed for any unrecovered basis for a Super-Premium Certificate. It is
possible that a holder of a Super-Premium Certificate may only claim a loss when
its remaining basis exceeds the maximum amount of future payments, assuming no
further prepayments or when the final payment is received with respect to such
Super-Premium Certificate.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than REMIC Regular Certificate based on a notional amount)
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular Certificate
generally should not be treated as a Super-Premium Certificate and the rules
described below under "--REMIC Regular Certificates--Premium" should apply.
However, it is possible that holders of REMIC Regular Certificates issued at a
premium, even if the premium is less than 25% of such Certificate's actual
principal balance, will be required to amortize the premium under an original
issue discount method or contingent interest method even though no election
under Code Section 171 is made to amortize such premium.
Generally, a REMIC Regular Certificateholder must include in gross
income the "daily portions," as determined below, of the OID that accrues on a
REMIC Regular Certificate for each day a Certificateholder holds the REMIC
Regular Certificate, including the purchase date but excluding the disposition
date. In the case of an original holder of a REMIC Regular Certificate, a
calculation will be made of the portion of the OID that accrues during each
successive period ("an accrual period") that ends on the day in the calendar
year corresponding to a Distribution Date (or if Distribution Dates are on the
first day or first business day of the immediately preceding month, interest may
be treated as payable on the last day of the immediately preceding month) and
begins on the day after the end of the immediately preceding accrual period (or
on the issue date in the case of the first accrual period). This will be done,
in the case of each full accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the REMIC Regular Certificates as calculated under
the Prepayment Assumption) of all remaining payments to be received on the REMIC
Regular Certificates under the Prepayment Assumption and (b) any payments
included in the stated redemption price at maturity received during such accrual
period, and (ii) subtracting from that total the adjusted issue price of the
REMIC Regular Certificates at the beginning of such accrual period. The adjusted
issue price of a REMIC Regular Certificate at the beginning of the first accrual
period is its issue price; the adjusted issue price of a REMIC Regular
Certificate at the beginning of a subsequent accrual period is the adjusted
issue price at the beginning of the immediately preceding accrual period plus
the amount of OID allocable to that accrual period and reduced by the amount of
any payment other than a payment of qualified stated interest made at the end of
or during that accrual period. The OID accrued during an accrual period will
then be divided by the number of days in the period to determine the daily
portion of OID for each day in the accrual period. The calculation of OID under
the method described above will cause the accrual of OID to either increase or
decrease (but never below zero) in a given accrual period to reflect the fact
that prepayments are occurring faster or slower than under the Prepayment
Assumption. With respect to an initial accrual period shorter than a full
accrual period, the daily portions of OID may be determined according to an
appropriate allocation under any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate issued with OID
who purchases the REMIC Regular Certificate at a cost less than the remaining
stated redemption price at maturity will also be required to include in gross
income the sum of the daily portions of OID on that REMIC Regular Certificate.
In computing the daily portions of OID for such a purchaser (as well as an
initial purchaser that purchases at a price higher than the adjusted issue price
but less than the stated redemption price at maturity), however, the daily
portion is reduced by the amount that would be the daily portion for such day
(computed in accordance with the rules set forth above) multiplied by a
fraction, the numerator of which is the amount, if any, by which the price paid
by such holder for that REMIC Regular Certificate exceeds the following amount:
(a) the sum of the issue price plus the aggregate amount of OID that would have
been includible in the gross income of an original REMIC Regular
Certificateholder (who purchased the REMIC Regular Certificate at its issue
price), less (b) any prior payments included in the stated redemption price at
maturity, and the denominator of which is the sum of the daily portions for that
REMIC Regular Certificate for all days beginning on the date after the purchase
date 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.
87
<PAGE>
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates may
provide for interest based on a variable rate. Interest based on a variable rate
will constitute qualified stated interest and not contingent interest if,
generally, (i) such interest is unconditionally payable at least annually, (ii)
the issue price of the debt instrument does not exceed the total noncontingent
principal payments and (iii) interest is based on a "qualified floating rate,"
an "objective rate," a combination of a single fixed rate and one or more
"qualified floating rates," one "qualified inverse floating rate," or a
combination of "qualified floating rates "--that do not operate in a manner that
significantly accelerates or defers interest payments on such REMIC Regular
Certificates.
The amount of OID with respect to a REMIC Regular Certificate bearing a
variable rate of interest will accrue in the manner described above under
"--Original Issue Discount and Premium" by assuming generally that the index
used for the variable rate will remain fixed throughout the term of the
Certificate. Appropriate adjustments are made for the actual variable rate.
Although unclear at present, the Depositor intends to treat interest on
a REMIC Regular Certificate that is a weighted average of the net interest rates
on Mortgage Loans as qualified stated interest. In such case, the weighted
average rate used to compute the initial pass-through rate on the REMIC Regular
Certificates will be deemed to be the index in effect through the life of the
REMIC Regular Certificates. It is possible, however, that the IRS may treat some
or all of the interest on REMIC Regular Certificates with a weighted average
rate as taxable under the rules relating to obligations providing for contingent
payments. Such treatment may effect the timing of income accruals on such REMIC
Regular Certificates.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market 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,
88
<PAGE>
investors should consult their own tax advisors regarding the application of
these rules and the advisability of making any of the elections allowed under
Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986, shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, rules described in
the Legislative History will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest method rate or according to one of the following methods. For
REMIC Regular Certificates issued with OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the OID accruing
during the period and the denominator of which is the total remaining OID at the
beginning of the period. For REMIC Regular Certificates issued without OID, the
amount of market discount that accrues during a period is equal to the product
of (a) the total remaining market discount and (b) a fraction, the numerator of
which is the amount of stated interest paid during the accrual period and the
denominator of which is the total amount of stated interest remaining to be paid
at the beginning of the period. For purposes of calculating market discount
under any of the above methods in the case of instruments (such as the REMIC
Regular Certificates) that provide for payments that may be accelerated by
reason of prepayments of other obligations securing such instruments, the same
Prepayment Assumption applicable to calculating the accrual of OID will apply.
A holder who acquired a REMIC Regular Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry such Certificate purchased with market discount. For these purposes,
the de minimis rule referred to above applies. Any such deferred interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later than the year in which
such market discount is includible in income. If such holder elects to include
market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
Premium. A purchaser of a REMIC Regular Certificate that purchases the
REMIC Regular Certificate at a cost (not including accrued qualified stated
interest) greater than its remaining stated redemption price at maturity will be
considered to have purchased the REMIC Regular Certificate at a premium and may
elect to amortize such premium under a constant yield method. A
Certificateholder that makes this election for a Certificate that is acquired at
a premium will be deemed to have made an 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
89
<PAGE>
Regular Certificates. Certificateholders should consult their tax advisors
regarding the possibility of making an election to amortize any such bond
premium.
Deferred Interest. Certain classes of REMIC Regular Certificates may
provide for the accrual of Deferred Interest with respect to one or more ARM
Loans. Any Deferred Interest that accrues with respect to a class of REMIC
Regular Certificates will constitute income to the holders of such Certificates
prior to the time distributions of cash with respect to such Deferred Interest
are made. It is unclear, under the OID Regulations, whether any of the interest
on such Certificates will constitute qualified stated interest or whether all or
a portion of the interest payable on such Certificates must be included in the
stated redemption price at maturity of the Certificates and accounted for as OID
(which could accelerate such inclusion). Interest on REMIC Regular Certificates
must in any event be accounted for under an accrual method by the holders of
such Certificates and, therefore, applying the latter analysis may result only
in a slight difference in the timing of the inclusion in income of interest on
such REMIC Regular Certificates.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption, or
retirement and the seller's adjusted basis in the REMIC Regular Certificate.
Such adjusted basis 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
90
<PAGE>
REMIC Regular Certificate substantially contemporaneously with acquiring the
REMIC Regular Certificate, (ii) the REMIC Regular Certificate is part of a
straddle, (iii) the REMIC Regular Certificate is marketed or sold as producing
capital gains, or (iv) other transactions to be specified in Treasury
regulations that have not yet been issued. If the sale or other disposition of a
REMIC Regular Certificate is part of a conversion transaction, all or a portion
of the gain realized upon the sale or other disposition of the REMIC Regular
Certificate would be treated as ordinary income instead of capital gain.
The Certificates will be "evidences of indebtedness" within the meaning
of Code Section 582(c)(1), so that gain or loss recognized from the sale of a
REMIC Regular Certificate by a bank or a thrift institution to which such
section applies will be ordinary income or loss.
The REMIC Regular Certificate information reports will include a
statement of the adjusted issue price of the REMIC Regular Certificate at the
beginning of each accrual period. In addition, the reports will include
information necessary to compute the accrual of any market discount that may
arise upon secondary trading of REMIC Regular Certificates. Because exact
computation of the accrual of market discount on a constant yield method would
require information relating to the holder's purchase price which the REMIC may
not have, it appears that the information reports will only provide information
pertaining to the appropriate proportionate method of accruing market discount.
Accrued Interest Certificates. Certain of the REMIC Regular Certificates
("Payment Lag Certificates") may provide for payments of interest based on a
period that corresponds to the interval between Distribution Dates but 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
91
<PAGE>
it can be established that such amounts are uncollectible. As a result, the
amount of income reported by a Subordinated Certificateholder in any period
could significantly exceed the amount of cash distributed to such holder in that
period. The holder will eventually be allowed a loss (or will be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Subordinated Certificate is reduced as a result of defaults
and delinquencies on the Mortgage Assets.
Although not entirely clear, it appears that holders of REMIC Regular
Certificates that are corporations should in general be allowed to deduct as an
ordinary loss any loss sustained during the taxable year on account of any such
Certificates becoming wholly or partially worthless, and that, in general,
holders of Certificates that are not corporations should be allowed to deduct as
a short-term capital loss any loss sustained during the taxable year on account
of any such Certificates becoming wholly worthless. Potential investors and
holders of the Certificates are urged to consult their own tax advisors
regarding the appropriate timing, amount and character of any loss sustained
with respect to such Certificates, including any loss resulting from the failure
to recover previously accrued interest or discount income. Special loss rules
are applicable to banks and thrift institutions, including rules regarding
reserves for bad debts. Such taxpayers are advised to consult their tax advisors
regarding the treatment of losses on Certificates.
Non-U.S. Persons. Generally, payments of interest (including any payment
with respect to accrued OID) on the REMIC Regular Certificates to a REMIC
Regular Certificateholder who is not a U.S. Person and is not engaged in a trade
or business within the United States will not be subject to federal withholding
tax if (i) such REMIC Regular Certificateholder does not actually or
constructively own 10 percent or more of the combined voting power of all
classes of equity in the issuer; (ii) such REMIC Regular Certificateholder is
not a controlled foreign corporation (within the meaning of Code Section 957)
related to the issuer; and (iii) such REMIC Regular Certificateholder complies
with certain identification requirements (including delivery of a statement,
signed by the REMIC Regular Certificateholder under penalties of perjury,
certifying that such REMIC Regular Certificateholder 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
92
<PAGE>
trust as to which (i) a court in the United States is able to exercise primary
supervision over its administration and (ii) one or more U.S. Persons have the
right to control all substantial decisions of the trust.
Information Reporting and Backup Withholding. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a REMIC Regular Certificateholder at any
time during such year, such information as may be deemed necessary or desirable
to assist REMIC Regular Certificateholders in preparing their federal income tax
returns, or to enable holders to make such information available to beneficial
owners or financial intermediaries that hold such REMIC Regular Certificates on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments with respect to
any payments to registered owners who are not "exempt recipients." In addition,
upon the sale of a REMIC Regular Certificate to (or through) a broker, the
broker must withhold 31% of the entire purchase price, unless either (i) the
broker determines that the seller is a corporation or other exempt recipient, or
(ii) the seller provides, in the required manner, certain identifying
information and, in the case of a non-U.S. Person, certifies that such seller is
a Non-U.S. Person, and certain other conditions are met. Such as sale must also
be reported by the broker to the IRS, unless either (a) the broker determines
that the seller is an exempt recipient or (b) the seller certifies its non-U.S.
Person status (and certain other conditions are met). Certification of the
registered owner's non-U.S. Person status normally would be made on IRS Form W-8
under penalties of perjury, although in certain cases it may be possible to
submit other documentary evidence. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
On October 6, 1997, the Treasury Department issued the New Regulations,
which make certain modifications to the withholding, backup withholding and
information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
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
93
<PAGE>
reduce the after-tax yield of a REMIC Residual Certificate to a REMIC Residual
Certificateholder or cause the REMIC Residual Certificate to have negative
"value." Investors should consult their own tax advisors concerning the federal
income tax treatment of a REMIC Residual Certificate and the impact of such tax
treatment on the after-tax yield of a REMIC Residual Certificate.
A subsequent REMIC Residual Certificateholder also will report on its
federal income tax return amounts representing a daily share of the taxable
income of the REMIC for each day that such REMIC Residual Certificateholder owns
such REMIC Residual Certificate. Those daily amounts generally would equal the
amounts that would have been reported for the same days by an original REMIC
Residual Certificateholder, as described above. The Legislative History
indicates that certain adjustments may be appropriate to reduce (or increase)
the income of a subsequent holder of a REMIC Residual Certificate that purchased
such REMIC Residual Certificate at a price greater than (or less than) the
adjusted basis such REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder. See "--Sale or Exchange of REMIC
Residual Certificates" below. It is not clear, however, whether such adjustments
will in fact be permitted or required and, if so, how they would be made. The
REMIC Regulations do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of (i) the income from the
Mortgage Assets and the REMIC's other assets and (ii) the deductions allowed to
the REMIC for interest and OID on the REMIC Regular Certificates and, except as
described above under "--Taxation of Owners of REMIC Regular
Certificates--Non-Interest Expenses of the REMIC," other expenses. REMIC taxable
income is generally determined in the same manner as the taxable income of an
individual using the accrual method of accounting, except that (i) the
limitations on deductibility of investment interest expense and expenses for the
production of income do not apply, (ii) all bad loans will be deductible as
business bad debts, and (iii) the limitation on the deductibility of interest
and expenses related to tax-exempt income will apply. The REMIC's gross income
includes interest, original issue discount income, and market discount income,
if any, on the Mortgage Loans, reduced by amortization of any premium on the
Mortgage Loans, plus income on reinvestment of cash flows and reserve assets,
plus any cancellation of indebtedness income upon allocation of realized losses
to the REMIC Regular Certificates. Note that the timing of cancellation of
indebtedness income recognized by REMIC Residual Certificateholders resulting
from defaults and delinquencies on Mortgage Assets may differ from the time of
the actual loss on the Mortgage Asset. The REMIC's deductions include interest
and original issue discount expense on the REMIC Regular Certificates, servicing
fees on the Mortgage Loans, other administrative expenses of the REMIC and
realized losses on the Mortgage Loans. The requirement that REMIC 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
94
<PAGE>
respect to REMIC Regular Certificates except that the 0.25% per annum de minimis
rule and adjustments for subsequent holders described therein will not apply.
A REMIC Residual Certificateholder will not be permitted to amortize the
cost of the REMIC Residual Certificate as an offset to its share of the REMIC's
taxable income. However, REMIC taxable income will not include cash received by
the REMIC that represents a recovery of the REMIC's basis in its assets, and, as
described above, the issue price of the REMIC Residual Certificates will be
added to the issue price of the REMIC Regular Certificates in determining the
REMIC's initial basis in its assets. See "--Sale or Exchange of REMIC Residual
Certificates" below. For a discussion of possible adjustments to income of a
subsequent holder of a REMIC Residual Certificate to reflect any difference
between the actual cost of such REMIC Residual Certificate to such holder and
the adjusted basis such REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder, see "--Allocation of the Income of
the REMIC to the REMIC Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any calendar
quarter in which its deductions exceed its gross income. Such net loss would be
allocated among the REMIC Residual Certificateholders in the same manner as the
REMIC's taxable income. The net loss allocable to any REMIC Residual Certificate
will not be deductible by the holder to the extent that such net loss exceeds
such holder's adjusted basis in such REMIC Residual Certificate. Any net loss
that is not currently deductible by reason of this limitation may only be used
by such REMIC Residual Certificateholder to offset its share of the REMIC's
taxable income in future periods (but not otherwise). The ability of REMIC
Residual Certificateholders that are individuals or closely held corporations to
deduct net losses may be subject to additional limitations under the Code.
Mark to Market Rules. Prospective purchasers of a REMIC Residual
Certificate should be aware that the IRS has finalized regulations (the
"Mark-to-Market Regulations") which provide that a REMIC Residual Certificate
acquired after January 3, 1995 cannot be marked to market. The Mark-to-Market
Regulations replaced the temporary regulations which allowed a Residual
Certificate to be marked to market provided that it was not a "negative value"
residual interest and did not have the same economic effect as a "negative
value" residual interest.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule,
all of the fees and expenses of a REMIC will be taken into account by holders of
the REMIC Residual Certificates. In the case of a single class REMIC, however,
the expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the REMIC Regular Certificateholders and
the REMIC Residual Certificateholders on a daily basis in proportion to the
relative amounts of income accruing to each Certificateholder on that day. In
general terms, a single class REMIC is one that either (i) would qualify, under
existing Treasury regulations, as a grantor trust if it were not a REMIC
(treating all interests as ownership interests, even if they would be classified
as 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
95
<PAGE>
pass-through interest holder and to the IRS such holder's allocable share, if
any, of the REMIC's non-interest expenses. The term "pass-through interest
holder" generally refers to individuals, entities taxed as individuals and
certain pass-through entities, but does not include real estate investment
trusts. Accordingly, investment in REMIC Residual Certificates will in general
not be suitable for individuals or for certain pass-through entities, such as
partnerships and S corporations, that have individuals as partners or
shareholders.
Excess Inclusions. A portion of the income on a REMIC Residual
Certificate (referred to in the Code as an "excess inclusion") for any calendar
quarter will be subject to federal income tax in all events. Thus, for example,
an excess inclusion (i) may not, except as described below, be offset by any
unrelated losses, deductions or loss carryovers of a REMIC Residual
Certificateholder; (ii) will be treated as "unrelated business taxable income"
within the meaning of Code Section 512 if the REMIC Residual Certificateholder
is a pension fund or any other organization that is subject to tax only on its
unrelated business taxable income (see "--Tax-Exempt Investors" below); and
(iii) is not eligible for any reduction in the rate of withholding tax in the
case of a REMIC Residual Certificateholder that is a foreign investor. See
"--Non-U.S. Persons" below.
Except as discussed in the following paragraph, with respect to any
REMIC Residual Certificateholder, the excess inclusions for any calendar quarter
is the excess, if any, of (i) the income of such REMIC Residual
Certificateholder for that calendar quarter from its REMIC Residual Certificate
over (ii) the sum of the "daily accruals" (as defined below) for all days during
the calendar quarter on which the REMIC Residual Certificateholder holds such
REMIC Residual Certificate. For this purpose, the daily accruals with respect to
a REMIC Residual Certificate are determined by allocating to each day in the
calendar quarter its ratable portion of the product of the "adjusted issue
price" (as defined below) of the REMIC Residual Certificate at the beginning of
the calendar quarter and 120 percent of the "Federal long-term rate" in effect
at the time the REMIC Residual Certificate is issued. For this purpose, the
"adjusted issue price" of a REMIC Residual Certificate at the beginning of any
calendar quarter equals the issue price of the REMIC Residual Certificate,
increased by the amount of daily accruals for all prior quarters, and decreased
(but not below zero) by the aggregate amount of payments made on the REMIC
Residual Certificate before the beginning of such quarter. The "federal
long-term rate" is an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published monthly by the
IRS.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Regulated investment companies, common trust funds and certain
cooperatives are subject to similar rules.
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.
96
<PAGE>
Payments. Any distribution made on a REMIC Residual Certificate to a
REMIC Residual Certificateholder will be treated as a non-taxable return of
capital to the extent it does not exceed the REMIC Residual Certificateholder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
exceeds such adjusted basis, it will be treated as gain from the sale of the
REMIC Residual Certificate.
Sale or Exchange of REMIC Residual Certificates. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or exchange
and its adjusted basis in the REMIC Residual Certificate (except that the
recognition of loss may be limited under the "wash sale" rules described below).
A holder's adjusted basis in a REMIC Residual Certificate generally equals the
cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder, increased by the taxable income of the REMIC that was
included in the income of such REMIC Residual Certificateholder with respect to
such REMIC Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to such REMIC Residual
Certificateholder with respect to such REMIC Residual Certificate and by the
distributions received thereon by such REMIC Residual Certificateholder. In
general, any such gain or loss will be capital gain or loss provided the REMIC
Residual Certificate is held as a capital asset. Such capital gain or loss will
generally be long-term capital gain or loss if the REMIC 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.
97
<PAGE>
Where any Prohibited Transactions Tax, Contributions Tax, tax on net
income from foreclosure property or state or local income or franchise tax that
may be imposed on a REMIC relating to any Series of Certificates arises out of
or results from (i) a breach of the related Servicer's, Trustee's or Depositor's
obligations, as the case may be, under the related Agreement for such Series,
such tax will be borne by such Servicer, Trustee or Depositor, as the case may
be, out of its own funds or (ii) the Depositor's obligation to repurchase a
Mortgage Loan, such tax will be borne by the Depositor. In the event that such
Servicer, Trustee or Depositor, as the case may be, fails to pay or is not
required to pay any such tax as provided above, such tax will be payable out of
the Trust Fund for such Series and will result in a reduction in amounts
available to be distributed to the Certificateholders of such Series.
LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC's final tax return a date on which such adoption is deemed to occur,
and sells all of its assets (other than cash) within a 90-day period beginning
on such date, the REMIC will not be subject to any Prohibited Transaction Tax,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash (other than the amounts retained to meet claims) to
holders of Regular and REMIC Residual Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis in
the REMIC Residual Certificate exceeds the amount of cash distributed to such
REMIC Residual Certificateholder in final liquidation of its interest, then it
would appear that the REMIC Residual Certificateholder would be entitled to a
loss equal to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code, the
REMIC generally will be treated as a partnership and the REMIC Residual
Certificateholders will be treated as the partners. Certain information will be
furnished quarterly to each REMIC Residual Certificateholder who held a REMIC
Residual Certificate on any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the REMIC
Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting an
administrative proceeding at the REMIC level. The REMIC does not intend to
register as a tax shelter pursuant to Code Section 6111 because it is not
anticipated that the REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
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.
98
<PAGE>
RESIDUAL CERTIFICATE PAYMENTS--NON-U.S. PERSONS
Amounts paid to REMIC Residual Certificateholders who are not U.S.
Persons (see "--Taxation of Owners of REMIC Regular Certificates--Non-U.S.
Persons" above) are treated as interest for purposes of the 30% (or lower treaty
rate) United States withholding tax. Amounts distributed to holders of REMIC
Residual Certificates should qualify as "portfolio interest," subject to the
conditions described in "--Taxation of Owners of REMIC Regular Certificates"
above, but only to the extent that the underlying mortgage loans were originated
after July 18, 1984. Furthermore, the rate of withholding on any income on a
REMIC Residual Certificate that is excess inclusion income will not be subject
to reduction under any applicable tax treaties. See "--Taxation of Owners of
REMIC Residual Certificates--Excess Inclusions" above. If the portfolio interest
exemption is unavailable, such amount will be subject to United States
withholding tax when paid or otherwise distributed (or when the REMIC Residual
Certificate is disposed of) under rules similar to those for withholding upon
disposition of debt instruments that have OID. The Code, however, grants the
Treasury Department authority to issue regulations requiring that those amounts
be taken into account earlier than otherwise provided where necessary to prevent
avoidance of tax (for example, where the REMIC Residual Certificates do not have
significant value). See "--Taxation of Owners of REMIC Residual
Certificates--Excess Inclusions" above. If the amounts paid to REMIC Residual
Certificateholders that are not U.S. Persons are effectively connected with
their conduct of a trade or business within the United States, the 30% (or lower
treaty rate) withholding will not apply. Instead, the amounts paid to such
non-U.S. Person will be subject to U.S. federal income taxation at regular
graduated rates. For special restrictions on the transfer of REMIC Residual
Certificates, see "--Tax-Related Restrictions on Transfers of REMIC Residual
Certificates" below.
REMIC Regular Certificateholders and persons related to such holders
should not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their tax
advisors as to the possible adverse tax consequences of such acquisition.
TAX-RELATED RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by "disqualified organizations" (as defined below).
Further, a tax is imposed on the transfer of a residual interest in a REMIC to a
"disqualified organization." The amount of the tax equals the product of (A) an
amount (as determined under the REMIC Regulations) equal to the present value of
the total anticipated "excess inclusions" with respect to such interest for
periods after the transfer and (ii) the highest marginal federal income tax rate
applicable to corporations. The tax is imposed on the transferor unless the
transfer is through an agent (including a broker or other middleman) for a
disqualified organization, in which event the tax is imposed on the agent. The
person otherwise liable for the tax shall be relieved of liability for the tax
if the transferee furnished to such person an affidavit that the transferee is
not a disqualified organization and, at the time of the transfer, such person
does not have actual knowledge that the affidavit is false. A "disqualified
organization" means (A) the United States, any State, possession or political
subdivision thereof, any foreign government, any international organization or
any agency or instrumentality of any of the foregoing (provided that such term
does not include an instrumentality if all its activities are subject to tax
and, except for FHLMC, a majority of its board of directors is not selected by
any such governmental agency), (B) any organization (other than certain farmers'
cooperatives) generally exempt from federal income taxes unless such
organization is subject to the tax on "unrelated business taxable income" and
(C) a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding a
residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity, provided that all partners of an "electing large
partnership" as defined in Section 775 of the 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
99
<PAGE>
be provided in Treasury regulations not yet issued, any person holding an
interest in a pass-through entity as a nominee for another will, with respect to
such interest, be treated as a pass-through entity. Electing large partnerships
(generally, non-service partnerships with 100 or more members electing to be
subject to simplified IRS reporting provisions under Code sections 771 through
777) will be taxable on excess inclusion income as if all partners were
disqualified organizations.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a REMIC Residual Certificate may be
purchased, transferred or sold, directly or indirectly, without the express
written consent of the Master Servicer. The Master Servicer will grant such
consent to a proposed transfer only if it receives the following: (i) an
affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the REMIC Residual Certificate as
a nominee or agent for a disqualified organization and (ii) a covenant by the
proposed transferee to the effect that the proposed transferee agrees to be
bound by and to abide by the transfer restrictions applicable to the REMIC
Residual Certificate.
Noneconomic REMIC Residual Certificates. The REMIC Regulations
disregard, for federal income tax purposes, any transfer of a Noneconomic REMIC
Residual Certificate to a "U.S. Person," as defined above, unless no significant
purpose of the transfer is to enable the transferor to impede the assessment or
collection of tax. A Noneconomic REMIC Residual Certificate is any REMIC
Residual Certificate (including a REMIC Residual Certificate with a positive
value at issuance) unless, at the time of transfer, taking into account the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents, (i) the
present value of the expected future distributions on the REMIC Residual
Certificate at least equals the product of the present value of the anticipated
excess inclusions and the highest corporate income tax rate in effect for the
year in which the transfer occurs and (ii) the transferor reasonably expects
that the transferee will receive distributions from the REMIC at or after the
time at which taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. A significant purpose to impede the
assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known that the transferee would be
unwilling or unable to pay taxes due on its share of the taxable income of the
REMIC. A transferor is presumed not to have such knowledge if (i) the transferor
conducted a reasonable investigation of the transferee and (ii) the transferee
acknowledges to the transferor that the residual interest may generate tax
liabilities in excess of the cash flow and the transferee represents that it
intends to pay such taxes associated with the residual interest as they become
due. If a transfer of a Noneconomic REMIC Residual Certificate is disregarded,
the transferor would continue to be treated as the owner of the REMIC Residual
Certificate and would continue to be subject to tax on its allocable portion of
the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
REMIC Residual Certificate that has a "tax avoidance potential" to a "foreign
person" will be disregarded for federal income tax purposes. This rule appears
to apply to a transferee who is not a U.S. Person unless such transferee's
income in respect of the REMIC Residual Certificate is effectively connected
with the conduct of a United Sates trade or business. A REMIC Residual
Certificate is deemed to have a tax avoidance potential unless, at the time of
transfer, the transferor reasonably expect that the REMIC will distribute to the
transferee amounts that will equal at least 30 percent of each excess inclusion,
and that such amounts will be distributed at or after the time the excess
inclusion accrues and not later than the end of the calendar year following the
year of accrual. If the non-U.S. Person transfers the REMIC Residual Certificate
to a U.S. Person, the transfer will be disregarded, and the foreign transferor
will continue to be treated as the owner, if the transfer has the effect of
allowing the transferor to avoid tax on accrued excess inclusions. The
provisions in the REMIC Regulations regarding transfers of REMIC Residual
Certificates that have tax avoidance potential to foreign persons are effective
for all transfers after June 30, 1992. The Pooling and Servicing Agreement will
provide that no record or beneficial ownership interest in a REMIC Residual
Certificate may be transferred, directly or indirectly, to a non-U.S. Person
unless such person provides the Trustee with a duly 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
100
<PAGE>
entities are advised to consult their own tax advisors with respect to any tax
which may be imposed on a pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Offered Certificates.
CERTAIN ERISA CONSIDERATIONS
GENERAL
Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), imposes certain restrictions on employee benefit plans
subject thereto ("ERISA Plans") and on persons who are parties in interest or
disqualified persons ("parties in interest") with respect to such ERISA Plans.
Certain employee benefit plans, such as governmental plans and church plans (if
no election has been made under Section 410(d) of the Code), are not subject to
the restrictions of ERISA, and assets of such plans may be invested in the
Certificates without regard to the ERISA considerations described below, subject
to other applicable federal, state or local law. However, any such governmental
or church plan which is qualified under Section 401(a) of the Code and exempt
from taxation under Section 501(a) of the Code is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that an ERISA Plan's investments be made in
accordance with the documents governing the ERISA Plan.
PROHIBITED TRANSACTIONS
GENERAL
Section 406 of ERISA prohibits parties in interest with respect to an
ERISA Plan from engaging in certain transactions involving such Plan and its
assets unless a statutory or administrative exemption applies to the
transaction. In some cases, a civil penalty may be assessed on non-exempt
prohibited transactions pursuant to Section 502(i) of ERISA. Section 4975 of the
Code imposes certain excise taxes on similar transactions between 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,
101
<PAGE>
may become fiduciaries subject to the fiduciary responsibility provisions of
Title I of ERISA, or may otherwise become parties in interest or disqualified
persons, with respect to such Plan. In addition, transactions involving such
assets could constitute or result in prohibited transactions under Section 406
of ERISA or Section 4975 of the Code unless such transactions are subject to a
statutory or administrative exemption.
The regulations contain a de minimis safe-harbor rule that exempts the
assets of an entity from plan assets status as long as the aggregate equity
investment in such entity by plans is not significant. For this purpose, equity
participation in the entity will be significant if immediately after any
acquisition of any equity interest in the entity, "benefit plan investors" in
the aggregate, own at least 25% of the value of any class of equity interest
(excluding equity interests held by persons who have discretionary authority or
control with respect to the assets of the entity (or held by affiliates of such
persons)). "Benefit plan investors" are defined as Plans as well as employee
benefit plans not subject to Title I of ERISA (e.g., governmental plans and
foreign plans) and entities whose underlying assets include plan assets by
reason of plan investment in such entities. The 25% limitation must be met with
respect to each class of equity interests, regardless of the portion of total
equity value represented by such class, on an ongoing basis.
AVAILABILITY OF UNDERWRITER'S EXEMPTION FOR CERTIFICATES
Labor has granted to Morgan Stanley & Co. Incorporated Prohibited
Transaction Exemption 90-24, Exemption Application No. D-8019, 55 Fed. Reg.
20548 (1990) (the "Exemption") which exempts from the application of the
prohibited transaction rules transactions relating to: (1) the acquisition, sale
and holding by Plans of certain certificates representing an undivided interest
in certain asset-backed pass-through trusts, with respect to which Morgan
Stanley & Co. Incorporated or any of its affiliates is the sole underwriter or
the manager or co-manager of the underwriting syndicate; and (2) the servicing,
operation and management of such asset-backed pass-through trusts, provided that
the general conditions and certain other conditions set forth in the Exemption
are satisfied.
General Conditions of the Exemption. Section II of the Exemption sets
forth the following general conditions which must be satisfied before a
transaction involving the acquisition, sale and holding of the Certificates or a
transaction in connection with the servicing, operation and management of the
Trust may be eligible for exemptive relief thereunder:
(1) The acquisition of the Certificates by a Plan is on terms (including
the price for such Certificates) that are at least as favorable to the investing
Plan as they would be in an arm's-length transaction with an unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by other
certificates of the Trust with respect to the right to receive payment in the
event of default or delinquencies in the underlying assets of the Trust;
(3) The Certificates acquired by the Plan have received a rating at the
time of such acquisition that is in one of the three highest generic rating
categories from any of Duff & Phelps Credit Rating Co., Fitch Investors Service,
L.P., Moody's Investors Service, Inc. and Standard & Poor's Ratings Services;
(4) The Trustee is not an affiliate of the Depositor, any Underwriter,
the Master Servicer, any insurer of the Mortgage Assets, any borrower whose
obligations under one or more Mortgage Loans constitute more than 5% of the
aggregate unamortized principal balance of the assets in the Trust, or any of
their respective affiliates (the "Restricted Group");
(5) The sum of all payments made to and retained by the Underwriter in
connection with the distribution of the Certificates represents not more than
reasonable compensation for underwriting such Certificates; the sum of all
payments made to and retained by the Asset Seller pursuant to the sale of the
Mortgage Loans to the Trust represents not more than the fair market value of
such Mortgage Loans; the sum of all payments made to and retained by the
102
<PAGE>
Master Servicer represent not more than reasonable compensation for the Master
Servicer's services under the Pooling Agreement and reimbursement of the Master
Servicer's reasonable expenses in connection therewith; and
(6) The Plan investing in the Certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933 as amended.
Before purchasing a Certificate in reliance on the Exemption, a
fiduciary of a Plan should itself confirm (a) that the Certificates constitute
"certificates" for purposes of the Exemption and (b) that the general conditions
and other requirements set forth in the Exemption would be satisfied.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any Certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Among other things, before purchasing any
Certificates, a fiduciary of a Plan should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions. In
this regard, purchasers that are insurance companies should determine the extent
to which Prohibited Transaction Class Exemption 95-60 (for certain transactions
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.
103
<PAGE>
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
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
104
<PAGE>
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.
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.
105
<PAGE>
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.
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.
106
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
Page(s) on which
term is defined
Term in the Prospectus
- ---- -----------------
Accrual Certificates.........................................................10
ADA..........................................................................75
Applicable Amount............................................................96
ARM Loans................................................................27, 81
Asset Conservation Act.......................................................71
Asset Seller.................................................................23
Assets........................................................................1
Balloon Mortgage Loans.......................................................19
Bankruptcy Code..............................................................66
Book-Entry Certificates......................................................33
Cash Flow Agreement...........................................................9
Cash Flow Agreements..........................................................1
Cede......................................................................3, 40
CERCLA...................................................................21, 71
Certificate Account..........................................................44
Certificate Balance..........................................................10
Certificate Owners...........................................................40
Certificateholders............................................................3
Closing Date.................................................................86
Commercial Loans.............................................................23
Commercial Properties.........................................................7
Commission....................................................................2
Contributions Tax............................................................98
Cooperatives.................................................................24
Covered Trust................................................................58
CPR..........................................................................31
Credit Support.........................................................1, 9, 29
Crime Control Act............................................................76
Deferred Interest............................................................83
Definitive Certificates..................................................33, 41
Depositor....................................................................23
Determination Date...........................................................34
DTC.......................................................................3, 40
Due Period...................................................................34
Environmental Hazard Condition...............................................72
Equity Participations........................................................27
ERISA.......................................................................102
Exchange Act..................................................................3
Exemption...................................................................104
FDIC.........................................................................44
FHLMC........................................................................54
FNMA.........................................................................72
Government Securities..................................................1, 8, 23
Indirect Participants........................................................40
Insurance Proceeds...........................................................45
IRS..........................................................................78
L/C Bank.....................................................................59
107
<PAGE>
Page(s) on which
term is defined
Term in the Prospectus
- ---- -----------------
Labor.......................................................................102
Lease.........................................................................3
Lease Assignment..............................................................1
Legislative History..........................................................86
Lessee........................................................................3
Liquidation Proceeds.........................................................45
Lock-out Date................................................................27
Lock-out Period..............................................................27
Mark-to-Market Regulations...................................................96
Master REMIC.................................................................85
MBS....................................................................1, 6, 23
MBS Agreement................................................................27
MBS Issuer...................................................................27
MBS Servicer.................................................................27
MBS Trustee..................................................................27
Morgan Stanley..............................................................106
Mortgage Loans.........................................................1, 6, 23
Mortgage Notes...............................................................24
Mortgage Rate.............................................................8, 27
Mortgages....................................................................24
Multifamily Loans............................................................23
Multifamily Properties....................................................7, 23
NCUA........................................................................105
Nonrecoverable Advance.......................................................37
OID......................................................................76, 78
OID Regulations..............................................................78
Originator...................................................................24
Participants.................................................................40
Pass-Through Rate........................................................10, 35
Payment Lag Certificates.....................................................92
Permitted Investments........................................................44
Plans.......................................................................102
Prepayment Assumption........................................................82
Prepayment Premium...........................................................27
Prohibited Transactions Tax..................................................98
RCRA.........................................................................71
Record Date..................................................................34
Related Proceeds.............................................................37
Relief Act...................................................................75
REMIC Certificates...........................................................85
REMIC Regular Certificateholders.............................................86
REMIC Regular Certificates...............................................13, 85
REMIC Regulations............................................................76
REMIC Residual Certificateholder.............................................93
REMIC Residual Certificates..............................................85, 95
REO Extension................................................................64
REO Tax......................................................................65
Restricted Group............................................................103
RICO.........................................................................75
Senior Certificates......................................................10, 33
Servicing Standard...........................................................48
SMMEA.......................................................................104
SMMEA Certificates..........................................................104
Special Servicer..........................................................6, 49
108
<PAGE>
Page(s) on which
term is defined
Term in the Prospectus
- ---- -----------------
Stripped ARM Obligations.....................................................83
Stripped Bond Certificates...................................................80
Stripped Coupon Certificates.................................................80
Stripped Interest Certificates...........................................10, 33
Stripped Principal Certificates..........................................10, 33
Subordinate Certificates.................................................10, 33
Sub-Servicer.................................................................48
Sub-Servicing Agreement......................................................49
Subsidiary REMIC.............................................................85
Super-Premium Certificates...................................................87
Title V......................................................................74
Trust Assets..................................................................2
Trust Fund....................................................................1
UCC..........................................................................40
Voting Rights................................................................22
Warrantying Party............................................................43
109
