AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON __________ __, 199_
REGISTRATION STATEMENT NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
MORGAN STANLEY CAPITAL I INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3291626
(State of incorporation) (I.R.S. Employer
Identification No.)
1585 Broadway
New York, New York 10036
(212) 296-7000
(Address, including zip code, and telephone
number, including area code, of principal executive offices)
--------------------
DAVID R. WARREN
President
1585 Broadway
New York, New York 10036
(212) 296-7000
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
--------------------
Copies to:
- --------------------------------------------------------------------------------
CARLOS RODRIGUEZ, ESQ. MICHAEL S. GAMBRO, ESQ. KEVIN C. BLAUCH, ESQ.
Brown & Wood LLP ANNA H. GLICK, ESQ. Latham & Watkins
One World Trade Center Cadwalader, Wickersham & Taft 885 Third Avenue
New York, New York 10048 100 Maiden Lane New York, New York 10022
(212) 839-5300 New York, New York 10038 (212) 906-1241
(212) 504-6000
- --------------------------------------------------------------------------------
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. [X]
--------------------
CALCULATION OF REGISTRATION FEE*
<TABLE>
<CAPTION>
=================================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Securities Amount Offering Price Aggregate Registration
being Registered being Registered Per Unit Offering Price Fee
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates.......... $1,000,000 100% (1) $1,000,000 $278.00
=================================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
* To the extent that any series of Certificates offered pursuant to this
Registration Statement evidences a beneficial ownership interest in a Trust
Fund containing MBS that have been previously issued by the Registrant,
this Registration Statement is deemed to register such underlying MBS.
--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
PURSUANT TO RULE 429 OF THE SECURITIES AND EXCHANGE COMMISSION'S RULES AND
REGULATIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE PROSPECTUS AND
PROSPECTUS SUPPLEMENT CONTAINED IN THIS REGISTRATION STATEMENT ALSO RELATE TO
THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-3 (REGISTRATION NO.
333-62911).
================================================================================
<PAGE>
This Registration Statement contains: (1) a base prospectus and form of
prospectus supplement to be used in connection with the offering of certificates
that will represent beneficial ownership interests in trust funds consisting of
one or more segregated pools of various types of single family residential
mortgage loans, securities collateralized by such loans, and/or government
securities (the Version 1 Prospectus); and (2) a base prospectus and form of
prospectus supplement to be used in connection with the offering of certificates
that will represent beneficial ownership interests in trust funds consisting of
one or more segregated pools of various types of multifamily or commercial
mortgage loans, securities collateralized by such loans, and/or government
securities (the Version 2 Prospectus).
<PAGE>
[VERSION 1]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. 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 __________, 199__
MORGAN STANLEY CAPITAL I INC.
PROSPECTUS
Depositor
MORTGAGE PASS-THROUGH CERTIFICATES
(Issuable in Series by separate Trusts)
--------------------
Morgan Stanley Capital I Inc. will offer one or more series of Mortgage
Pass-Through Certificates, which represent beneficial ownership interests in the
related trust. The assets of each trust will primarily be (i) conventional,
fixed or adjustable interest rate mortgage loans secured by first and/or junior
lienson one- to four-family residential properties, (ii) mortgage
participations, mortgage pass-through certificates, mortgage-backed securities
evidencing interests therein or secured thereby and/or (iii) certain direct
obligations of the United States, agencies thereof or agencies created thereby.
The certificates of any series will not be obligations of Morgan Stanley Capital
I Inc. or any of its affiliates, and neither the certificates of any series nor
the underlying mortgage loans are insured or guaranteed by any governmental
agency.
---------
Morgan Stanley Capital I Inc. will not list any series of certificates on any
national securities exchange or on any automated quotation system of any
registered securities association such as NASDAQ.
---------
INVESTING IN ANY SERIES OF CERTIFICATES INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE __ OF THIS PROSPECTUS.
---------
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved the certificates or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
This prospectus may be used to offer and sell any series of certificates
only if accompanied by the prospectus supplement for that series. The
information in this prospectus is not complete and may be changed. This
prospectus is not an offer to sell these securities in any state where the offer
or sale is not permitted.
--------------------
The date of this prospectus is __________, ____.
MORGAN STANLEY DEAN WITTER
<PAGE>
IMPORTANT NOTICE about INFORMATION PRESENTED in this
PROSPECTUS and the ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about the offered certificates is contained in two separate
documents that progressively provide more detail: (a) this prospectus, which
provides general information, some of which may not apply to a particular series
of certificates; and (b) the accompanying prospectus supplement, which describes
the specific terms of your series of certificates. If the terms of a particular
series of certificates vary between this prospectus and the accompanying
prospectus supplement, you should rely on the information in the prospectus
supplement.
You should rely only on the information contained in this prospectus and
the accompanying prospectus supplement. We have not authorized anyone to provide
you with information that is different from that contained in this prospectus
and the prospectus supplement. The information in this prospectus is accurate
only as of the date of this prospectus. This prospectus and the accompanying
prospectus supplement include cross references to sections in these materials
where you can find further related discussions. The Tables of Contents in this
prospectus and the prospectus supplement identify the pages where these sections
are located.
Certain capitalized terms are defined and used in this prospectus and the
prospectus supplement to assist you in understanding the terms of a particular
series of certificates. The capitalized terms used in this prospectus are
defined on the pages indicated under the caption "Index of Principal
Definitions" beginning on page _____ in this prospectus.
In this prospectus, the terms "Depositor," "we," "us" and "our" refer to
Morgan Stanley Capital I Inc.
The Depositor's principal executive office is located at 1585 Broadway,
37th Floor, New York, New York 10036, and the Depositor's telephone number is
(212) 761-4700.
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY OF PROSPECTUS
RISK FACTORS
DESCRIPTION OF THE TRUST FUNDS
USE OF PROCEEDS
YIELD CONSIDERATIONS
THE DEPOSITOR
DESCRIPTION OF THE CERTIFICATES
DESCRIPTION OF THE AGREEMENTS
DESCRIPTION OF CREDIT SUPPORT
CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
STATE TAX CONSIDERATIONS
CERTAIN ERISA CONSIDERATIONS
LEGAL INVESTMENT
PLAN OF DISTRIBUTION
LEGAL MATTERS
FINANCIAL INFORMATION
RATING
WHERE YOU CAN FIND MORE INFORMATION
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
INDEX OF PRINCIPAL DEFINITIONS
<PAGE>
SUMMARY OF PROSPECTUS
This summary highlights selected information from this prospectus. It does
not contain all of the information you need to consider in making your
investment decision. To understand all of the terms of a series of certificates,
read this entire document and the accompanying prospectus supplement carefully.
RELEVANT PARTIES FOR EACH SERIES OF CERTIFICATES
TITLE OF CERTIFICATES........ Mortgage Pass-Through Certificates (the
"CERTIFICATES"), issuable in series (each, a
"SERIES").
ISSUER....................... Each Series of Certificates will be issued by a
separate trust (a "TRUST" or, together with all
assets owned by such Trust, a "TRUST FUND"). Each
Trust Fund will be formed pursuant to a pooling
and servicing agreement (each, a "POOLING AND
SERVICING AGREEMENT") among the Depositor, the
Master Servicer and the Trustee specified in the
applicable prospectus supplement.
DEPOSITOR.................... Morgan Stanley Capital I Inc. (the "DEPOSITOR"), a
wholly-owned subsidiary of Morgan Stanley Group
Inc. See "The Depositor."
MASTER SERVICER............. The master servicer or master servicers (each, a
"MASTER SERVICER"), if any, or a servicer for
substantially all the Mortgage Loans for each
series of Certificates, which servicer or master
servicer(s) may be affiliates of the Depositor,
will be named in the related Prospectus
Supplement. See "Description of the
Agreements--General" and "--Collection and Other
Servicing Procedures."
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 MORTGAGE ASSETS
GENERAL...................... Each Trust will own the related mortgage loan
and/or mortgage-backed securities or, if specified
in the applicable Prospectus Supplement, direct
obligations of the United States or agencies
thereof or created thereby, each as specified in
the applicable prospectus supplement (the
"MORTGAGE ASSETS"). You should refer to the
applicable Prospectus Supplement for the precise
characteristics or expected characteristics of the
Mortgage Assets included in each Trust Fund.
MORTGAGE LOANS............... The mortgage loans in each trust will be
conventional, fixed or adjustable interest rate
mortgage loans secured by first and/or junior
liens on one- to four-family residential
properties or shares issued by cooperative housing
corporations (collectively, the "MORTGAGE LOANS").
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 acquired by the Depositor
directly or indirectly from affiliates or other
mortgage loan originators.
MORTGAGE-BACKED SECURITIES... The mortgage-backed securities in each trust will
be mortgage participations, mortgage pass-through
certificates or other mortgage-backed securities
evidencing interests in or secured by
conventional, fixed or adjustable rate mortgage
loans secured by first and/or junior liens on one-
to four-family residential properties or shares
issued by cooperative housing corporations
(collectively, the "MBS")
GOVERNMENT SECURITIES........ Each trust may own, in addition to the mortgage
loans and mortgage-backed SECURITIES securities,
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").
CREDIT ENHANCEMENT
SUBORDINATION................ A Series of Certificates may include one or more
Classes of senior certificates (the "SENIOR
CERTIFICATES") and one or more Classes of
subordinated certificates (the "SUBORDINATE
CERTIFICATES"). The rights of the holders of
Subordinate Certificates of a Series to receive
distributions will be subordinated to such rights
of the holders of the Senior Certificates of the
same Series to the extent and in the manner
specified in the applicable Prospectus Supplement.
Subordination is intended to enhance the
likelihood of the timely receipt by the Senior
Certificateholders of their proportionate shares
of scheduled monthly principal and interest
payments on the related Mortgage Loans and to
protect them from losses. This protection will be
effected by:
o the preferential right of the Senior
Certificateholders to receive, prior to any
distribution being made in respect of the
related Subordinate Certificates on each
Distribution Date, current distributions on
the related Mortgage Assets of principal and
interest due them on each Distribution Date
out of the funds available for distributions
on such date;
o the right of such holders to receive future
distributions on the Mortgage Assets that
would otherwise have been payable to the
holders of Subordinate Certificates; and/or
o the prior allocation to the Subordinate
Certificates of all or a portion of losses
realized on the underlying Mortgage Assets.
OTHER TYPES OF CREDIT
ENHANCEMENT.................. If so specified in the applicable Prospectus
Supplement, the Certificates of any Series, or any
one or more Classes of a Series may be entitled to
the benefits of other types of credit enhancement,
including but not limited to:
o limited guarantee
o financial guaranty insurance policy
o surety bond
o letter of credit
o mortgage pool insurance policy
o reserve fund
o cross-support
Any credit support will be described in the
applicable Prospectus Supplement.
See "Risk Factors--Credit Enhancement is Limited
in Amount and Coverage" and "Description of Credit
Support."
DISTRIBUTIONS ON CERTIFICATES
GENERAL...................... Each Series of Certificates will consist of one or
more Classes of Certificates that will be
entitled, to the extent of funds available, to one
of the following:
o principal and interest payments in respect of
the related Mortgage Assets;
o principal distributions, with no interest
distribution;
o interest distributions, with no principal
distributions; or
o such other distributions as are described in
the applicable Prospectus Supplement.
INTEREST DISTRIBUTIONS....... With respect to each Series of Certificates (other
than certain Classes of Certificates which may be
entitled to disproportionately low, nominal or no
interest distributions), interest on the related
Mortgage Assets at the weighted average of their
Mortgage Rates (net of servicing fees and certain
other amounts as described in this Prospectus or
in the applicable Prospectus Supplement), will be
passed through to holders of the related Classes
of Certificates in accordance with the particular
terms of each such Class of Certificates. The
terms of each Class of Certificates will be
described in the related Prospectus Supplement.
See "Description of the Certificates--
Distributions of Interest on the Certificates."
Except as otherwise specified in the applicable
Prospectus Supplement, interest on each Class of
Certificates of each Series will accrue at the
pass-through rate for each Class indicated in the
applicable Prospectus Supplement (each, a
"PASS-THROUGH RATE") on their outstanding
principal balance or notional amount.
PRINCIPAL.................... With respect to a Series of Certificates,
principal payments (including prepayments) on the
related Mortgage Assets will be passed through to
holders of the related Certificates or otherwise
applied in accordance with the related Pooling and
Servicing Agreement on each Distribution Date.
Distributions in reduction of certificate balance
will be allocated among the Classes of
Certificates of a Series in the manner specified
in the applicable Prospectus Supplement. See
"Description of the Certificates--Distributions of
Principal on the Certificates."
DISTRIBUTION DATES........... The dates upon which distributions on each Series
of Certificates will be made (each, a
"DISTRIBUTION DATE") will be specified in the
related Prospectus Supplement.
ADVANCES..................... Unless otherwise provided in the related
Prospectus Supplement, in the event that a payment
on a Mortgage Loan is delinquent, the Master
Servicer will be obligated to make certain
advances ("ADVANCES") that the Master Servicer
determines are recoverable. The Master Servicer
will be reimbursed for Advances as described in
this Prospectus and in the related Prospectus
Supplement. The Prospectus Supplement for any
Series of Certificates relating to a trust that
includes mortgage-backed securities will describe
any corresponding advancing obligation of any
person in connection with such MBS. See
"Description of the Certificates--Advances in
Respect of Delinquencies."
ADDITIONAL ASPECTS OF EACH SERIES OF CERTIFICATES
TERMINATION.................. If so specified in the Prospectus Supplement with
respect to a Series of Certificates, all, but not
less than all, of the Mortgage Assets in the
related Trust Fund and any property acquired with
respect to such Mortgage Loans may be purchased by
the party as is specified in the applicable
Prospectus Supplement. Any such purchase must be
made in the manner and at the price specified in
such Prospectus Supplement. If so provided in the
related Prospectus Supplement with respect to a
Series, 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 therein, the
party specified therein will solicit bids for the
purchase of all of the trust's assets, or of a
sufficient portion of such assets to retire such
class or classes, or purchase such assets at a
price set forth in the related Prospectus
Supplement. In addition, if so provided in the
related Prospectus Supplement, certain Classes of
Certificates may be purchased subject to similar
conditions. See "Description of the
Certificates--Termination."
FORMS OF CERTIFICATES........ The Certificates will be issued either:
o in book-entry form ("BOOK-ENTRY
CERTIFICATES") through the facilities of The
Depository Trust Company ("DTC"); or
o in fully registered, certificates form
("DEFINITIVE CERTIFICATES").
If you own Book-Entry Certificates, you will not
receive a physical certificates representing your
ownership interest in such Book-Entry
Certificates, except under extraordinary
circumstances which are discussed in "Description
of the Certificates--Book-Entry Certificates May
Experience Decreased Liquidity and Payment Delay
and Definitive Certificates" in this Prospectus.
Instead, DTC will effect payments and transfers by
means of its electronic recordkeeping services,
acting through certain participating
organizations. This may result in certain delays
in your receipt of distributions and may restrict
your ability to pledge your securities. Your
rights with respect to Book-Entry Certificates may
generally only be exercised through DTC and its
participating organizations.
See "Risk Factors--Book-Entry Certificates May
Experience Decreased Liquidity and Payment Delay"
and "Description of the Certificates--Book-Entry
Registration and Definitive Certificates."
TAX STATUS OF CERTIFICATES... The treatment of the Certificates for federal
income tax purposes will depend on:
o whether a REMIC election is made with respect
to a Series of Certificates; and
o if a REMIC election is made, whether the
Certificates are Regular Interests or
Residual Interests.
See "Certain Federal Income Tax Consequences."
ERISA CONSIDERATIONS......... If you are a fiduciary of any employee benefit
plan subject to the fiduciary responsibility
provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), you
should carefully review with your own legal
advisors whether the purchase or holding of
Certificates could give rise to a transaction
prohibited or otherwise impermissible under ERISA
or the Code. See "Description of the
Certificates--General" and "Certain ERISA
Considerations".
LEGAL INVESTMENT............. The applicable Prospectus Supplement will specify
whether the Class or Classes of Certificates
offered will constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984, as amended. If
your investment authority is subject to legal
restrictions, you should consult your own legal
advisors to determine whether and to what extent
such Certificates constitute legal investments for
you.
RATING....................... Certificates of any Series will not be offered
pursuant to this Prospectus and a Prospectus
Supplement unless each Offered Class of
Certificates offered is rated in one of the four
highest rating categories by at least one
nationally recognized statistical rating
organization (a "RATING AGENCY").
o A security rating is not a recommendation to
buy, sell or hold the Certificates of any
Series and is subject to revision or
withdrawal at any time by the assigning
rating agency.
o Ratings do not address the effect of
prepayments on the yield you may anticipate
when you purchase your Certificates.
<PAGE>
RISK FACTORS
You should consider, among other things, the following factors in
connection with the purchase of Certificates.
LIMITED LIQUIDITY FOR CERTIFICATES
The liquidity of your Certificates may be limited. You should consider
that:
o a secondary market for the Certificates of any Series may not develop,
or if it does, it may not provide you with liquidity of investment, or
it may not continue for the life of the Certificates of any Series;
o the Prospectus Supplement for any Series of Certificates may indicate
that an underwriter intends to establish a secondary market in such
Certificates, but no underwriter will be obligated to do so; and
o unless specified in the applicable Prospectus Supplement, the
Certificates will not be listed on any securities exchange.
LIMITED ASSETS FOR PAYMENT OF CERTIFICATES
Except for any related insurance policies and any reserve fund or credit
enhancement described in the applicable Prospectus Supplement;
o Mortgage Assets included in the related Trust Fund will be the sole
source of payments on the Certificates of a Series;
o the Certificates of any Series will not represent an interest in or
obligation of the Depositor, the Master Servicer, the Trustee or any
of their affiliates, except for the Depositor's limited obligations
with respect to certain breaches of its representations and
warranties;
o neither the Certificates of any Series nor the related Mortgage Assets
will be guaranteed or insured by any governmental agency or
instrumentality, the Depositor, the Master Servicer, the Trustee, any
of their affiliates or any other person.
Consequently, in the event that payments on the Mortgage Assets underlying
your Series of Certificates are insufficient or otherwise unavailable to make
all payments required on your Certificates, there will be no recourse to the
Depositor, the Master Servicer, the Trustee or, except as specified in the
applicable Prospectus Supplement, any other entity.
CREDIT ENHANCEMENT IS LIMITED IN AMOUNT AND COVERAGE
With respect to each Series of Certificates, credit enhancement may be
provided in limited amounts to cover certain types of losses on the underlying
Mortgage Assets. Credit enhancement will be provided in one or more of the forms
referred to in this Prospectus, including, but not limited to: subordination of
other Classes of Certificates of the same Series; a limited guarantee; a
financial guaranty insurance policy; a surety bond; a letter of credit; a pool
insurance policy; a special hazard insurance policy; a mortgagor bankruptcy
bond; a reserve fund; cross-support; and any combination of the preceding types
of credit enhancement. See "Description of Credit Support."
Regardless of the form of credit enhancement provided:
o the amount of coverage will be limited in amount and in most cases
will be subject to period reduction in accordance with a schedule or
formula;
o may provide only very limited coverage as to certain types of losses,
and may provide no coverage as to certain other types of losses; and
o all or a portion of the credit enhancement for any Series of
Certificates will generally be permitted to be reduced, terminated or
substituted for, if each applicable Rating Agency indicates that the
then-current ratings will not be adversely affected.
In the event losses exceed the amount of coverage provided by any credit
enhancement or losses of a type not covered by any credit enhancement occur,
such losses will be borne by the holders of the related Certificates (or certain
Classes).
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 Loans in excess of the levels
contemplated by such Rating Agency at the time of its initial rating analysis.
Neither the Depositor or the Master Servicer, nor 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 Class of Certificates.
See "Description of Credit Support."
REAL ESTATE MARKET CONDITIONS AFFECT MORTGAGE LOAN PERFORMANCE
An investment in securities such as the Certificates, which generally
represent interests in pools of residential mortgage loans, may be affected by a
decline in real estate values and changes in the mortgagor's financial
condition. There is no assurance that the values of the Mortgaged Properties
securing the Mortgage Loans underlying any Series of Certificates have remained
or will remain at their levels on the dates of origination of the related
Mortgage Loans.
If the residential real estate market should experience an overall decline
in property values such that the outstanding balances of the Mortgage Loans
contained in a particular Trust Fund and any secondary financing on the Mortgage
Properties, become equal to or greater than the value of the Mortgaged
Properties, delinquencies, foreclosures and losses could be higher than those
now generally experienced in the mortgage lending industry and those experienced
in the Master Servicer's or other servicers' servicing portfolios.
To the extent that losses on Mortgage Loans underlying a Series are not
covered by credit enhancement, holders of Certificates of the Series will bear
all risk of loss resulting from default by mortgagors and will have to look
primarily to the value of the Mortgaged Properties for recovery of the
outstanding principal and unpaid interest on the defaulted Mortgage Loans. See
"Description of the Trust Funds--Mortgage Loans."
GEOGRAPHIC CONCENTRATION MAY INCREASE RATES OF LOSS AND DELINQUENCY
In addition to risk factors related to the residential real estate market
generally, certain geographic regions of the United States from time to time
will experience weaker regional economic conditions and housing markets or be
directly or indirectly affected by natural disasters or civil disturbances such
as earthquakes, hurricanes, floods, eruptions or riots. Mortgage Assets in such
areas will experience higher rates of loss and delinquency than on mortgage
loans generally. Although Mortgaged Properties located in certain identified
flood zones will be required to be covered, to the maximum extent available, by
flood insurance, no Mortgaged Properties will otherwise be required to be
insured against earthquake damage or any other loss not covered by standard
hazard insurance policies.
The ability of mortgagors to make payments on the Mortgage Assets may also
be affected by factors which do not necessarily affect property values, such as
adverse economic conditions generally, in particular geographic areas or
industries, or affecting particular segments of the borrowing community (such as
mortgagors relying on commission income and self-employed mortgagors). Such
occurrences may accordingly affect the actual rates of delinquencies,
foreclosure and losses with respect to any Trust Fund.
The Mortgage Assets underlying certain Series of Certificates may be
concentrated in certain regions. Such concentration may present risk
considerations in addition to those generally present for similar
mortgage-backed securities without such concentration. See "Yield
Considerations--Prepayments--Maturity and Weighted Average Life."
RATE OF PREPAYMENT ON MORTGAGE ASSETS MAY ADVERSELY AFFECT AVERAGE LIVES AND
YIELDS ON CERTIFICATES
The yield of the Certificates of each Series will depend in part on the
rate of principal payment on the Mortgage Assets (including prepayments,
liquidations due to defaults and mortgage loan repurchases). Such yield may be
adversely affected, depending upon whether a particular Certificate is purchased
at a premium or a discount, by a higher or lower than anticipated rate of
prepayments on the related Mortgage Assets, in particular:
o the yield on Classes of Certificates entitling their holders primarily
or exclusively to payments of interest or primarily or exclusively to
payments of principal will be extremely sensitive to the rate of
prepayments on the related Mortgage Assets; and
o the yield on certain Classes of Certificates may be relatively more
sensitive to the rate of prepayment of specified Mortgage Assets than
other Classes of Certificates.
The rate of prepayments on mortgage loans is influenced by a number of
factors, including:
o prevailing mortgage market interest rates;
o local and national economic conditions;
o homeowner mobility; and
o the ability of the borrower to obtain refinancing.
In addition, your yield may be adversely affected by interest shortfalls
which may result from the timing of the receipt of prepayments or liquidations
to the extent that such interest shortfalls are not covered by aggregate fees
payable to the Master Servicer or other mechanisms specified in the applicable
Prospectus Supplement. Your yield will be also adversely affected to the extent
that losses on the Mortgage Assets in the related Trust Fund are allocated to
your Certificates and may be adversely affected to the extent of unadvanced
delinquencies on the Mortgage Assets in the related Trust Fund. Classes of
Certificates identified in the applicable Prospectus Supplement as Subordinate
Certificates are more likely to be affected by delinquencies and losses than
other Classes of Certificates.
See "Yield Considerations."
BOOK-ENTRY CERTIFICATES MAY EXPERIENCE DECREASED LIQUIDITY AND PAYMENT DELAY
Since transactions in the Classes of Book-Entry Certificates of any Series
generally can be effected only through DTC, DTC Participants and Indirect DTC
Participants:
o your ability to pledge Book-Entry Certificates to someone who does not
participate in the DTC system, or to otherwise act with respect to
such Book-Entry Certificates, may be limited due to the lack of a
physical certificate;
o you may experience delays in your receipt of payments on Book-Entry
Certificates because distributions will be made by the Master
Servicer, to Cede, as nominee for DTC; and
o the liquidity of Book-Entry Certificates in any secondary trading
market that may develop may be limited because investors may be
unwilling to purchase securities for which they cannot obtain delivery
of physical certificates.
See "Description of the Certificates--Book-Entry Registration and
Definitive Certificates."
RATINGS ON CERTIFICATES REFLECT LIMITED ASSESSMENTS
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 they are entitled
under the related Pooling and Servicing Agreement. A 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. A
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 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. These criteria are sometimes based upon an
actuarial analysis of the behavior of mortgage loans in a larger group. The
historical data supporting any such actuarial analysis may not accurately
reflect future experience or accurately predict the actual delinquency,
foreclosure or loss experience of the Mortgage Assets included in any Trust
Fund.
BALLOON LOANS HAVE SPECIFIC RISKS
Certain of the Mortgage Loans 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 of the mortgagor, tax laws, prevailing general
economic conditions and the availability of credit for single family real
properties generally.
MORTGAGE LOANS SECURED BY JUNIOR LIENS HAVE SPECIFIC RISKS
Certain of the Mortgage Loans may be secured by junior liens and the
related first liens may not be included in the Trust Fund. The primary risk to
holders of Mortgage Loans secured by junior liens is the possibility that
adequate funds will not be received in connection with a foreclosure of the
related first lien to satisfy fully both the first lien and the Mortgage Loan.
In the event that a holder of the first lien forecloses on a Mortgaged Property,
the proceeds of the foreclosure or similar sale will be applied first to the
payment of court costs and fees in connection with the foreclosure, second to
real estate taxes, third in satisfaction of all principal, interest, prepayment
or acceleration penalties, if any, and any other sums due and owing to the
holder of the first lien. The claims of the holder of the first lien will be
satisfied in full out of proceeds of the liquidation of the Mortgage Loan, if
such proceeds are sufficient, before the Trust Fund as holder of the junior lien
receives any payments in respect of the Mortgage Loan. In the event that such
proceeds from a foreclosure or similar sale of the related Mortgaged Property
were insufficient to satisfy both loans in the aggregate, the Trust Fund, as the
holder of the junior lien, and, accordingly, holders of the Certificates, would
bear the risk of delay in distributions while a deficiency judgment against the
borrower was being obtained and the risk of loss if the deficiency judgment were
not realized upon.
OBLIGORS MAY DEFAULT IN PAYMENT OF MORTGAGE LOANS
If so specified in the related Prospectus Supplement, in order to maximize
recoveries on defaulted Mortgage Loans, a Master Servicer or a Sub-Servicer will
be permitted (within prescribed parameters) to extend and modify Mortgage Loans
that are in default or as to which a payment default is imminent, including in
particular with respect to balloon payments. 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, such extensions or modifications may not increase the present value
of receipts from or proceeds of Mortgage Loans.
SUBORDINATION OF THE SUBORDINATE CERTIFICATES; EFFECT OF LOSSES ON THE ASSETS
The rights of holders of Subordinate Certificates to receive distributions
to which they would otherwise be entitled with respect to the Mortgage Assets
will be subordinate to the rights of the Master Servicer to receive its fee and
reimbursement for Advances and the holders of Senior Certificates 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 Mortgage Assets and the timing of any such losses. If
the actual rate and amount of losses experienced by the Mortgage 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.
MORTGAGE LOAN ACCELERATION CLAUSES MAY NOT BE ENFORCEABLE
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.
CERTAIN 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 Certificates of any series. In
particular, investors that are insurance companies should consult with their
counsel with respect to the United States Supreme Court case, John Hancock
Mutual Life Insurance Co. v. Harris Trust & Savings Bank. See "Certain ERISA
Considerations."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS REGARDING REMIC RESIDUAL CERTIFICATES
Except as provided in the Prospectus Supplement, Certificates evidencing
Residual Interests in a REMIC (each, a "REMIC RESIDUAL CERTIFICATE"), 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 final Treasury regulations provide restrictions
on the ability to mark-to-market certain "negative value" REMIC residual
interests. See "Certain Federal Income Tax Consequences--REMICs."
CONTROL BY CERTAIN HOLDERS OF CERTIFICATES
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 Pooling and Servicing Agreement ("VOTING RIGHTS") will be required
to direct, and will be sufficient to bind all holders of Certificates of such
Series to, certain actions, including directing the Master Servicer with respect
to actions to be taken with respect to certain Mortgage Loans and properties
acquired upon foreclosure of Mortgage Loans and amending the related Pooling and
Servicing Agreement in certain circumstances. See "Description of the
Agreements--Events of Default," "--Rights Upon Event of Default," "--Amendment"
and "--List of Certificateholders."
DESCRIPTION OF THE TRUST FUNDS
ASSETS
The primary assets of each Trust Fund (the "ASSETS") will include (i)
single family 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.
The Certificates will be entitled to payment from the assets of the related
Trust Fund. If so specified in the related Prospectus Supplement, the
Certificates will also be entitled to payments in respect of the assets of
another trust fund or trust funds 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
To the extent specified in the related Prospectus Supplement, the Mortgage
Loans will be secured by (i) liens on Mortgaged Properties consisting of one- to
four-family residential properties or (ii) security interests in shares issued
by private cooperative housing corporations ("COOPERATIVES") or (iii) on
Mortgaged Properties located in any one of the fifty states, the District of
Columbia or the Commonwealth of Puerto Rico, although if so specified in the
related Prospectus Supplement, Mortgaged Properties may be located elsewhere. To
the extent specified in the related Prospectus Supplement, the Mortgage Loans
will be secured by first and/or junior mortgages or deeds of trust or other
similar security instruments creating a first or junior lien on Mortgaged
Property. The Mortgaged Properties may include apartments owned by Cooperatives.
The Mortgaged Properties may include leasehold interests in properties, the
title to which is held by third party lessors. To the extent specified in the
related Prospectus Supplement, the term of any such leasehold shall 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.
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, (iii) the weighted
average (by principal balance) of the original and remaining terms to maturity
of the Mortgage Loans, (iv) the earliest and latest origination date and
maturity date of the Mortgage Loans, (v) the weighted average (by principal
balance) of the Loan-to-Value Ratios at origination of the Mortgage Loans, (vi)
the Mortgage Rates or range of Mortgage Rates and the weighted average Mortgage
Rate borne by the Mortgage Loans, (vii) the state or states in which most of the
Mortgaged Properties are located, (viii) information with respect to the
prepayment provisions, if any, of the Mortgage Loans, (ix) the weighted average
Retained Interest, if any, (x) with respect to Mortgage Loans with adjustable
Mortgage Rates ("ARM LOANS"), the index, the frequency of the adjustment dates,
the highest, lowest and weighted average note margin and pass-through margin,
and the maximum Mortgage Rate or monthly payment variation at the time of any
adjustment thereof and over the life of the ARM Loan and the frequency of such
monthly payment adjustments, and (xi) information regarding the payment
characteristics of the Mortgage Loans, including without limitation balloon
payment and other amortization provisions. 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
To the extent 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.
MBS
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, a trust agreement, an indenture or
similar agreement (an "MBS AGREEMENT"). A seller (the "MBS ISSUER") and/or
servicer (the "MBS SERVICER") of the underlying Mortgage Loans (or Underlying
MBS) will have entered into the MBS Agreement with a trustee or a custodian
under the MBS Agreement (the "MBS TRUSTEE"), if any, or with the original
purchaser of the interest in the underlying Mortgage Loans or MBS evidenced by
the MBS.
Distributions of any principal or interest, as applicable, will be made on
MBS on the dates specified in the related Prospectus Supplement. The MBS may be
issued in one or more classes with characteristics similar to the classes of
Certificates described in this Prospectus. Any principal or interest
distributions will be made on the MBS by the MBS Trustee or the MBS Servicer.
The MBS Issuer or the MBS Servicer or another person specified in the related
Prospectus Supplement may have the right or obligation to repurchase or
substitute assets underlying the MBS after a certain date or under other
circumstances specified in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination or other forms of
credit support similar to that described for the Certificates under "Description
of Credit Support" may be provided with respect to the MBS. The type,
characteristics and amount of such credit support, if any, will be a function of
certain characteristics of the Mortgage Loans or Underlying MBS evidenced by or
securing such MBS and other factors and generally will have been established for
the MBS on the basis of requirements of either any Rating Agency that may have
assigned a rating to the MBS or the initial purchasers of the MBS.
The Prospectus Supplement for a series of Certificates evidencing interests
in Mortgage Assets that include MBS will specify, to the extent available, (i)
the aggregate approximate initial and outstanding principal amount or notional
amount, as applicable, and type of the MBS to be included in the Trust Fund,
(ii) the original and remaining term to stated maturity of the MBS, if
applicable, (iii) whether such MBS is entitled only to interest payments, only
to principal payments or to both, (iv) the pass-through or bond rate of the MBS
or formula for determining such rates, if any, (v) the applicable payment
provisions for the MBS, including, but not limited to, any priorities, payment
schedules and subordination features, (vi) the MBS Issuer, MBS Servicer and MBS
Trustee, as applicable, (vii) certain characteristics of the credit support, if
any, such as subordination, reserve funds, insurance policies, letters of credit
or guarantees relating to the related Underlying Mortgage Loans, the Underlying
MBS or directly to such MBS, (viii) the terms on which the related Underlying
Mortgage Loans or Underlying MBS for such MBS or the MBS may, or are required
to, be purchased prior to their maturity, (ix) the terms on which Mortgage Loans
or Underlying MBS may be substituted for those originally underlying the MBS,
(x) the servicing fees payable under the MBS Agreement, (xi) the type of
information in respect of the Underlying Mortgage Loans described under
"--Mortgage Loans--Mortgage Loan Information in Prospectus Supplements" above,
and the type of information in respect of the Underlying MBS described in this
paragraph, (xii) the characteristics of any cash flow agreements that are
included as part of the trust fund evidenced or secured by the MBS and (xiii)
whether the MBS is in certificated form, book-entry form or held through a
depository such as The Depository Trust Company or the Participants Trust
Company.
GOVERNMENT SECURITIES
The Prospectus Supplement for a series of Certificates evidencing interests
in Assets of a Trust Fund that include Government Securities will specify, to
the extent available, (i) the aggregate approximate initial and outstanding
principal amounts or notional amounts, as applicable, and types of the
Government Securities to be included in the Trust Fund, (ii) the original and
remaining terms to stated maturity of the Government Securities, (iii) whether
such Government Securities are entitled only to interest payments, only to
principal payments or to both, (iv) the interest rates of the Government
Securities or the formula to determine such rates, if any, (v) the applicable
payment provisions for the Government Securities and (vi) to what extent, if
any, the obligation evidenced thereby is backed by the full faith and credit of
the United States.
ACCOUNTS
Each Trust Fund will include one or more accounts established and
maintained on behalf of the Certificateholders into which the person or persons
designated in the related Prospectus Supplement will, to the extent described
herein and in such Prospectus Supplement deposit all payments and collections
received or advanced with respect to the Assets and other assets in the Trust
Fund. Such an account may be maintained as an interest bearing or a non-interest
bearing account, and funds held therein may be held as cash or invested in
certain short-term, investment grade obligations, in each case as described in
the related Prospectus Supplement. See "Description of the
Agreement--Certificate Account and Other Collection Accounts."
CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Assets in the related
Trust Fund may be provided to one or more classes of Certificates in the related
series in the form of subordination of one or more other classes of Certificates
in such series or by one or more other types of credit support, such as a letter
of credit, insurance policy, guarantee, reserve fund or another type of credit
support, or a combination thereof (any such coverage with respect to the
Certificates of any series, "CREDIT SUPPORT"). The amount and types of coverage,
the identification of the entity providing the coverage (if applicable) and
related information with respect to each type of Credit Support, if any, will be
described in the Prospectus Supplement for a series of Certificates. See "Risk
Factors--Credit Enhancement is Limited in Amount and Coverage" 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 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 "--The 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). The rate at which principal prepayments occur on the
Mortgage Loans will be affected by a variety of factors, including, without
limitation, the terms of the Mortgage Loans, the level of prevailing interest
rates, the availability of mortgage credit and economic, demographic,
geographic, tax, legal and other factors. In general, however, if prevailing
interest rates fall significantly below the Mortgage Rates on the Mortgage Loans
comprising or underlying the Assets in a particular Trust Fund, such Mortgage
Loans are likely to be the subject of higher principal prepayments than if
prevailing rates remain at or above the rates borne by such Mortgage Loans. In
this regard, it should be noted that certain Assets may consist of Mortgage
Loans with different Mortgage Rates and the stated pass-through or pay-through
interest rate of certain MBS may be a number of percentage points higher or
lower than certain of the underlying Mortgage Loans. The rate of principal
payments on some or all of the classes of Certificates of a series will
correspond to the rate of principal payments on the Assets in the related Trust
Fund and is likely to be affected by the existence of Lock-out Periods and
Prepayment Premium provisions of the Mortgage Loans underlying or comprising
such Assets, and by the extent to which the servicer of any such Mortgage Loan
is able to enforce such provisions. Mortgage Loans with a Lock-out Period or a
Prepayment Premium provision, to the extent enforceable, generally would be
expected to experience a lower rate of principal prepayments than otherwise
identical Mortgage Loans without such provisions, with shorter Lock-out Periods
or with lower Prepayment Premiums.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Assets, the
actual yield to maturity will be lower than that so calculated. Conversely, if
the purchaser of a Certificate offered at a premium calculates its anticipated
yield to maturity based on an assumed rate of distributions of principal that is
slower than that actually experienced on the Assets, the actual yield to
maturity will be lower than that so calculated. In either case, if so provided
in the Prospectus Supplement for a series of Certificates, the effect on yield
on one or more classes of the Certificates of such series of prepayments of the
Assets in the related Trust Fund may be mitigated or exacerbated by any
provisions for sequential or selective distribution of principal to such
classes.
When a full prepayment is made on a Mortgage Loan, the mortgagor is charged
interest on the principal amount of the Mortgage Loan so prepaid for the number
of days in the month actually elapsed up to the date of the prepayment. To the
extent 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. To the extent 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, to the extent 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
or the Standard Prepayment Assumption ("SPA") prepayment model, each as
described below. 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. SPA represents an assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of loans. A
prepayment assumption of 100% of SPA assumes prepayment rates of 0.2% per annum
of the then outstanding principal balance of such loans in the first month of
the life of the loans and an additional 0.2% per annum in each month thereafter
until the thirtieth month. Beginning in the thirtieth month and in each month
thereafter during the life of the loans, 100% of SPA assumes a constant
prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the Mortgage
Loans underlying or comprising the Mortgage Assets.
In general, if interest rates fall below the Mortgage Rates on fixed-rate
Mortgage Loans, the rate of prepayment would be expected to increase.
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, SPA 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, SPA or any other rate specified in the related Prospectus
Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Mortgage Asset
If so specified in the related Prospectus Supplement, 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. 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.
With respect to certain Mortgage Loans, including ARM Loans, the Mortgage
Rate at origination may be below the rate that would result if the index and
margin relating thereto were applied at origination. Under the applicable
underwriting standards, the mortgagor under each Mortgage Loan generally will be
qualified on the basis of the Mortgage Rate in effect at origination. The
repayment of any such Mortgage Loan may thus be dependent on the ability of the
mortgagor to make larger level monthly payments following the adjustment of the
Mortgage Rate. In addition, certain Mortgage Loans may be subject to temporary
buydown plans ("BUYDOWN MORTGAGE LOANS") pursuant to which the monthly payments
made by the mortgagor during the early years of the Mortgage Loan will be less
than the scheduled monthly payments thereon (the "BUYDOWN PERIOD"). The periodic
increase in the amount paid by the mortgagor of a Buydown Mortgage Loan during
or at the end of the applicable Buydown Period may create a greater financial
burden for the mortgagor, who might not have otherwise qualified for a mortgage,
and may accordingly increase the risk of default with respect to the related
Mortgage Loan.
The Mortgage Rates on certain ARM Loans subject to negative amortization
generally adjust monthly and their amortization schedules adjust less
frequently. During a period of rising interest rates as well as immediately
after origination (initial Mortgage Rates are generally lower than the sum of
the applicable index at origination and the related margin over such index at
which interest accrues), the amount of interest accruing on the principal
balance of such Mortgage Loans may exceed the amount of the minimum scheduled
monthly payment thereon. As a result, a portion of the accrued interest on
negatively amortizing Mortgage Loans may be added to the principal balance
thereof and will bear interest at the applicable Mortgage Rate. The addition of
any such deferred interest to the principal balance of any related class or
classes of Certificates will lengthen the weighted average life thereof and may
adversely affect yield to holders thereof, depending upon the price at which
such Certificates were purchased. In addition, with respect to certain ARM Loans
subject to negative amortization, during a period of declining interest rates,
it might be expected that each minimum scheduled monthly payment on such a
Mortgage Loan would exceed the amount of scheduled principal and accrued
interest on the principal balance thereof, and since such excess will be applied
to reduce the principal balance of the related class or classes of Certificates,
the weighted average life of such Certificates will be reduced and may adversely
affect yield to holders thereof, depending upon the price at which such
Certificates were purchased.
Defaults
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Assets and thus the yield on the
Certificates. In general, defaults on mortgage loans are expected to occur with
greater frequency in their early years. The rate of default on Mortgage Loans
which are refinance or limited documentation mortgage loans, and on Mortgage
Loans with high Loan-to-Value Ratios, may be higher than for other types of
Mortgage Loans. Furthermore, the rate and timing of prepayments, defaults and
liquidations on the Mortgage Loans will be affected by the general economic
condition of the region of the country in which the related Mortgage Properties
are located. The risk of delinquencies and loss is greater and prepayments are
less likely in regions where a weak or deteriorating economy exists, as may be
evidenced by, among other factors, increasing unemployment or falling property
values.
Foreclosures
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.
Refinancing
At the request of a mortgagor, the Master Servicer or a Sub-Servicer may
allow the refinancing of a Mortgage Loan in any Trust Fund by accepting
prepayments thereon and permitting a new loan secured by a mortgage on the same
property. In the event of such a refinancing, the new loan would not be included
in the related Trust Fund and, therefore, such refinancing would have the same
effect as a prepayment in full of the related Mortgage Loan. A Sub-Servicer or
the Master Servicer may, from time to time, implement programs designed to
encourage refinancing. Such programs may include, without limitation,
modifications of existing loans, general or targeted solicitations, the offering
of pre-approved applications, reduced origination fees or closing costs, or
other financial incentives. In addition, Sub-Servicers may encourage the
refinancing of Mortgage Loans, including defaulted Mortgage Loans, that would
permit creditworthy borrowers to assume the outstanding indebtedness of such
Mortgage Loans.
Due-on-Sale Clauses
Acceleration of mortgage payments as a result of certain transfers of
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 that allow the holder of the
Mortgage Loans to demand payment in full of the remaining principal balance of
the Mortgage Loans upon sale, transfer or conveyance of the related Mortgaged
Property. With respect to any Whole Loans, unless otherwise provided in the
related Prospectus Supplement, the Master Servicer will generally enforce any
due-on-sale clause to the extent it has knowledge of the conveyance or proposed
conveyance of the underlying Mortgaged Property and it is entitled to do so
under applicable law; provided, however, that the Master Servicer will not take
any action in relation to the enforcement of any due-on-sale provision which
would adversely affect or jeopardize coverage under any applicable insurance
policy. See "Certain Legal Aspects of Mortgage Loans--Due-on-Sale Clauses" and
"Description of the Agreements--Due-on-Sale 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. If so
specified in the related Prospectus Supplement, distributions on one or more
classes of a series of Certificates may be limited to collections from a
designated portion of the Whole Loans in the related Mortgage Pool (each such
portion of Whole Loans, a "MORTGAGE LOAN GROUP"). 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
Certificates May Experience Decreased Liquidity and Payment Delay" 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 for Certificates" and
"Limited Assets for Payment of Certificates."
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, the Master Servicer or any other entity as specified in
the related Prospectus Supplement or that are payable in respect of
certain expenses of the related Trust Fund;
(ii) if the related Prospectus Supplement so provides, interest or
investment income on amounts on deposit in the Certificate Account,
including any net amounts paid under any Cash Flow Agreements;
(iii) all advances made by a Master Servicer or any other entity as
specified in the related Prospectus Supplement with respect to such
Distribution Date;
(iv) if and to the extent the related Prospectus Supplement so provides,
amounts paid by a Master Servicer or any other entity as specified in the
related Prospectus Supplement with respect to interest shortfalls resulting
from prepayments during the related Prepayment Period; and
(v) unless the related Prospectus Supplement provides otherwise, to the
extent not on deposit in the related Certificate Account as of the
corresponding Determination Date, any amounts collected under, from or in
respect of any Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Certificates (including any Certificates not
offered hereby) on each Distribution Date, and accordingly will be released from
the Trust Fund and will not be available for any future distributions.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates (other than classes of Stripped Principal
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which will be a fixed, variable or adjustable rate at which interest will
accrue on such class or a component thereof (the "PASS-THROUGH RATE"). The
related Prospectus Supplement will specify the Pass-Through Rate for each class
or component or, in the case of a variable or adjustable Pass-Through Rate, the
method for determining the Pass-Through Rate. If so 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. To the extent specified 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. To the extent specified 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--Rate of Prepayment on Mortgage Assets May Adversely Affect
Average Lives and Yields on Certificates" and "Yield Considerations."
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The Certificates of each series, other than certain classes of Stripped
Interest Certificates, will have a "CERTIFICATE BALANCE" which, at any time,
will equal the then maximum amount that the holder will be entitled to receive
in respect of principal out of the future cash flow on the Assets and other
assets included in the related Trust Fund. The outstanding Certificate Balance
of a Certificate will be reduced to the extent of distributions of principal
thereon from time to time and, if and to the extent so provided in the related
Prospectus Supplement, by the amount of losses incurred in respect of the
related Assets, may be increased in respect of deferred interest on the related
Mortgage Loans to the extent provided in the related Prospectus Supplement and,
in the case of Accrual Certificates prior to the Distribution Date on which
distributions of interest are required to commence, will be increased by any
related Accrued Certificate Interest. Unless otherwise provided in the related
Prospectus Supplement, the initial aggregate Certificate Balance of all classes
of Certificates of a series will not be greater than the outstanding aggregate
principal balance of the related Assets as of the applicable Cut-off Date. The
initial aggregate Certificate Balance of a series and each class thereof will be
specified in the related Prospectus Supplement. Unless otherwise provided in the
related Prospectus Supplement, distributions of principal will be made on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement until the
Certificate Balance of such class has been reduced to zero. Stripped Interest
Certificates with no Certificate Balance are not entitled to any distributions
of principal.
COMPONENTS
To the extent specified in the related Prospectus Supplement, distribution
on a class of Certificates may be based on a combination of two or more
different components as described under "--General" above. To such extent, the
descriptions set forth under "--Distributions of Interests on the Certificates"
and "--Distributions of Principal of the Certificates" above also relate to
components of such a class of Certificates. In such case, reference in such
sections to Certificate Balance and Pass-Through Rate refer to the principal
balance, if any, of any such component and the Pass-Through Rate, if any, on any
such component, respectively.
DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUMS
If so provided in the related Prospectus Supplement, Prepayment Premiums
that are collected on the Mortgage Assets in the related Trust Fund will be
distributed on each Distribution Date to the class or classes of Certificates
entitled thereto in accordance with the provisions described in such Prospectus
Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the Prospectus Supplement for a series of Certificates
consisting of one or more classes of Subordinate Certificates, on any
Distribution Date in respect of which losses or shortfalls in collections on the
Mortgage Assets have been incurred, the amount of such losses or shortfalls will
be borne first by a class of Subordinate Certificates in the priority and manner
and subject to the limitations specified in such Prospectus Supplement. See
"Description of Credit Support" for a description of the types of protection
that may be included in a Trust Fund against losses and shortfalls on Mortgage
Assets comprising such Trust Fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any series of Certificates evidencing an interest in a
Trust Fund, unless otherwise provided in the related Prospectus Supplement, the
Master Servicer or another entity described therein will be required as part of
its servicing responsibilities to advance on or before each Distribution Date
its own funds or funds held in the Certificate Account that are not included in
the Available Distribution Amount for such Distribution Date, in an amount equal
to the aggregate of payments of principal (other than any balloon payments) and
interest (net of related servicing fees and Retained Interest) that were due on
the Whole Loans in such Trust Fund during the related Due Period and were
delinquent on the related Determination Date, subject to the Master Servicer's
(or another entity's) good faith determination that such advances will be
reimbursable from Related Proceeds (as defined below). In the case of a series
of Certificates that includes one or more classes of Subordinate Certificates
and if so provided in the related Prospectus Supplement, the Master Servicer's
(or another entity's) advance obligation may be limited only to the portion of
such delinquencies necessary to make the required distributions on one or more
classes of Senior Certificates and/or may be subject to the Master Servicer's
(or another entity's) good faith determination that such advances will be
reimbursable not only from Related Proceeds but also from collections on other
Assets otherwise distributable on one or more classes of such Subordinate
Certificates. See "Description of Credit Support."
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of the class or classes of Certificates entitled
thereto, rather than to guarantee or insure against losses. Unless otherwise
provided in the related Prospectus Supplement, advances of the Master Servicer's
(or another entity's) funds will be reimbursable only out of related recoveries
on the Mortgage Loans (including amounts received under any form of Credit
Support) respecting which such advances were made (as to any Mortgage Loan,
"RELATED Proceeds") and, if so provided in the Prospectus Supplement, out of any
amounts otherwise distributable on one or more classes of Subordinate
Certificates of such series; provided, however, that any such advance will be
reimbursable from any amounts in the Certificate Account prior to any
distributions being made on the Certificates to the extent that the Master
Servicer (or such other entity) shall determine in good faith that such advance
(a "NONRECOVERABLE ADVANCE") is not ultimately recoverable from Related Proceeds
or, if applicable, from collections on other Assets otherwise distributable on
such Subordinate Certificates. If advances have been made by the Master 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 Prepayment Premiums;
(iv) the amount of related servicing compensation received by a Master
Servicer (and, if payable directly out of the related Trust Fund, by any
Sub-Servicer) and such other customary information as any such Master Servicer
or the Trustee deems necessary or desirable, or that a Certificateholder
reasonably requests, to enable Certificateholders to prepare their tax returns;
(v) the aggregate amount of advances included in such distribution, and the
aggregate amount of unreimbursed advances at the close of business on such
Distribution Date;
(vi) the aggregate principal balance of the Assets at the close of business
on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans in respect
of which (a) one scheduled payment is delinquent, (b) two scheduled payments are
delinquent, (c) three or more scheduled payments are delinquent and (d)
foreclosure proceedings have been commenced;
(viii) with respect to 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;
(ix) 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;
(x) 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;
(xi) with respect to any such REO Property sold during the related Due
Period (a) the aggregate amount of sale proceeds, (b) the portion of such sales
proceeds payable or reimbursable to the Master Servicer in respect of such REO
Property or the related Mortgage Loan and (c) the amount of any loss to
Certificateholders in respect of the related Mortgage Loan;
(xii) 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;
(xiii) the aggregate amount of principal prepayments made during the
related Due Period;
(xiv) the amount deposited in the reserve fund, if any, on such
Distribution Date;
(xv) the amount remaining in the reserve fund, if any, as of the close of
business on such Distribution Date;
(xvi) the aggregate unpaid Accrued Certificate Interest, if any, on each
class of Certificates at the close of business on such Distribution Date;
(xvii) 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;
(xviii) 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;
(xix) 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
(xx) 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), (xii), (xvi) and
(xvii) 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 related Agreement for each series of
Certificates will terminate upon the payment to Certificateholders of that
series of all amounts held in the Certificate Account or by the Master Servicer,
if any, or the Trustee and required to be paid to them pursuant to such
Agreement following the earlier of (i) the final payment or other liquidation of
the last Asset subject thereto or the disposition of all property acquired upon
foreclosure of any Whole Loan subject thereto and (ii) the purchase of all of
the assets of the Trust Fund by the party entitled to effect such termination,
under the circumstances and in the manner set forth in the related Prospectus
Supplement. In no event, however, will the trust created by the Agreement
continue beyond the date specified in the related Prospectus Supplement. Written
notice of termination of the Agreement will be given to each Certificateholder,
and the final distribution will be made only upon presentation and surrender of
the Certificates at the location to be specified in the notice of termination.
If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the repurchase
of the assets in the related Trust Fund by the party specified therein, under
the circumstances and in the manner set forth therein. If so provided in the
related Prospectus Supplement, upon the reduction of the Certificate Balance of
a specified class or classes of Certificates by a specified percentage or
amount, the party specified therein will solicit bids for the purchase of all
assets of the Trust Fund, or of a sufficient portion of such assets to retire
such class or classes or purchase such class or classes at a price set forth in
the related Prospectus Supplement, in each case, under the circumstances and in
the manner set forth therein.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the related Prospectus Supplement, one or more classes of
the Offered Certificates of any series will be issued as Book-Entry
Certificates, and each such class will be represented by one or more single
Certificates registered in the name of a nominee for the depository, The
Depository Trust Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("PARTICIPANTS") and facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes in their accounts, thereby eliminating the need
for physical movement of certificates. Participants include Morgan Stanley & Co.
Incorporated, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to 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").
If so provided in the related Prospectus Supplement, investors that are not
Participants or Indirect Participants but desire to purchase, sell or otherwise
transfer ownership of, or other interests in, Book-Entry Certificates may do so
only through Participants and Indirect Participants. In addition, such investors
("CERTIFICATE OWNERS") will receive all distributions on the Book-Entry
Certificates through DTC and its Participants. Under a book-entry format,
Certificate Owners will receive payments after the related Distribution Date
because, while payments are required to be forwarded to Cede & Co., as nominee
for DTC ("CEDE"), on each such date, DTC will forward such payments to its
Participants which thereafter will be required to forward them to Indirect
Participants or Certificate Owners. Unless otherwise provided in the related
Prospectus Supplement, the only "Certificateholder" (as such term is used in the
Agreement) will be Cede, as nominee of DTC, and the Certificate Owners will not
be recognized by the Trustee as Certificateholders under the Agreement.
Certificate Owners will be permitted to exercise the rights of
Certificateholders under the related Agreement only indirectly through the
Participants who in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Book-Entry Certificates and is
required to receive and transmit distributions of principal of and interest on
the Book-Entry Certificates. Participants and Indirect Participants with which
Certificate Owners have accounts with respect to the Book-Entry Certificates
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Certificate Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge its interest in the Book-Entry Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of its interest in the Book-Entry Certificates, may be limited due to
the lack of a physical certificate evidencing such interest.
DTC has advised the Depositor that it will take any action permitted to be
taken by a Certificateholder under an Agreement only at the direction of one or
more Participants to whose account with DTC interests in the Book-Entry
Certificates are credited.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Certificate Owners or their nominees
("DEFINITIVE CERTIFICATES"), rather than to DTC or its nominee only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to properly discharge its responsibilities as depository with respect to the
Certificates and the Depositor is unable to locate a qualified successor or (ii)
the Depositor, at its option, elects to terminate the book-entry system through
DTC.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Certificate Owners.
Upon surrender by DTC of the certificate or certificates representing the
Book-Entry Certificates, together with instructions for reregistration, the
Trustee will issue (or cause to be issued) to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
DESCRIPTION OF THE AGREEMENTS
The Certificates of each series evidencing interests in a Trust Fund
including Whole Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer (or Master Servicers) 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 and the Trustee with respect to
any series of Certificates will be named in the related Prospectus Supplement.
In any series of Certificates for which there are multiple Master Servicers,
there will also be multiple Mortgage Loan Groups, each corresponding to a
particular Master Servicer; and, if the related Prospectus Supplement so
specifies, the servicing obligations of each such Master Servicer will be
limited to the Whole Loans in such corresponding Mortgage Loan Group. 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. To
the extent 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 described 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, New York,
New York 10036. [ATTENTION: DAVID R. WARREN.]
ASSIGNMENT OF ASSETS; REPURCHASES
At the time of issuance of any series of Certificates, the Depositor will
assign (or cause to be assigned) to the designated Trustee the Assets to be
included in the related Trust Fund, together with all principal and interest to
be received on or with respect to such Assets after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date and other than any
Retained Interest. The Trustee will, concurrently with such assignment, deliver
the Certificates to the Depositor in exchange for the Assets and the other
assets comprising the Trust Fund for such series. Each Mortgage Asset will be
identified in a schedule appearing as an exhibit to the related Agreement.
Unless otherwise provided in the related Prospectus Supplement, such schedule
will include detailed information (i) in respect of each Whole Loan included in
the related Trust Fund, including without limitation, the address of the related
Mortgaged Property and type of such property, the Mortgage Rate and, if
applicable, the applicable index, margin, adjustment date and any rate cap
information, the original and remaining term to maturity, the original and
outstanding principal balance and balloon payment, if any, the Value and
Loan-to-Value 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 to the extent 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. To the extent 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. To the
extent 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.
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 provided in the related Prospectus
Supplement, the "PURCHASE PRICE" is equal to the sum of the unpaid principal
balance thereof, plus unpaid accrued interest thereon at the Mortgage Rate from
the date as to which interest was last paid to the due date in the Due Period in
which the relevant purchase is to occur, plus certain servicing expenses that
are reimbursable to the Master Servicer. If so provided in the Prospectus
Supplement for a series, a Warrantying Party, rather than repurchase a Whole
Loan as to which a breach has occurred, will have the option, within a specified
period after initial issuance of such series of Certificates, to cause the
removal of such Whole Loan from the Trust Fund and substitute in its place one
or more other Whole Loans, in accordance with the standards described in the
related Prospectus Supplement. If so provided in the Prospectus Supplement for a
series, a Warrantying Party, rather than repurchase or substitute a Whole Loan
as to which a breach has occurred, will have the option to reimburse the Trust
Fund or the Certificateholders for any losses caused by such breach. Unless
otherwise provided 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 provided 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 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 or a Sub-Servicer as its servicing compensation and net of any
Retained Interest;
(iii) all proceeds of the hazard 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) (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 paid under any Cash Flow Agreement, as described under
"Description of the Trust Funds--Cash Flow Agreements";
(vii) 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");
(viii) 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";
(ix) 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 or Prepayment Premiums on
the Mortgage Assets;
(x) 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 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";
(vii) 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;
(viii) 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";
(ix) 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;
(x) 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;
(xi) to pay for costs reasonably incurred in connection with the proper
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;
(xii) 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";
(xiii) 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;
(xiv) to pay for the cost of various opinions of counsel obtained pursuant
to the related Agreement for the benefit of Certificateholders;
(xv) 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;
(xvi) 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;
(xvii) to make any other withdrawals permitted by the related Agreement and
described in the related Prospectus Supplement; and
(xviii) to clear and terminate the Certificate Account at the termination
of the Trust Fund.
Other Collection Accounts
Notwithstanding the foregoing, if so specified in the related Prospectus
Supplement, the Agreement for any series of Certificates may provide for the
establishment and maintenance of a separate collection account into which the
Master Servicer or any related Sub-Servicer 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 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 hazard
insurance 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. To the extent specified in the related Prospectus Supplement, the Master
Servicer will be responsible for filing and settling claims in respect of
particular Whole Loans under any applicable instrument of Credit Support. See
"Description of Credit Support."
The Master Servicer may agree to modify, waive or amend any term of any
Whole Loan in a manner consistent with the Servicing Standard so long as the
modification, waiver or amendment will not (i) affect the amount or timing of
any scheduled payments of principal or interest on the Whole Loan or (ii) in its
judgment, materially impair the security for the Whole Loan or reduce the
likelihood of timely payment of amounts due thereon. The Master Servicer also
may agree to any modification, waiver or amendment that would so affect or
impair the payments on, or the security for, a Whole Loan if, unless otherwise
provided in the related Prospectus Supplement, (i) in its judgment, a material
default on the Whole Loan has occurred or a payment default is imminent and (ii)
in its judgment, such modification, waiver or amendment is reasonably likely to
produce a greater recovery with respect to the Whole Loan on a present value
basis than would liquidation. The Master Servicer is required to notify the
Trustee in the event of any modification, waiver or amendment of any Whole Loan.
SUB-SERVICERS
A Master Servicer may delegate its servicing obligations in respect of the
Whole Loans to third-party servicers (each, a "SUB-SERVICER"), but such Master
Servicer will remain obligated under the related Agreement. Each sub-servicing
agreement between a Master Servicer and a Sub-Servicer (a "SUB-SERVICING
AGREEMENT") must be consistent with the terms of the related Agreement and must
provide that, if for any reason the Master Servicer for the related series of
Certificates is no longer acting in such capacity, the Trustee or any successor
Master Servicer may assume the Master Servicer's rights and obligations under
such Sub-Servicing Agreement.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will be solely liable for all fees owed by it to any Sub-Servicer,
irrespective of whether the Master Servicer's compensation pursuant to the
related Agreement is sufficient to pay such fees. However, a Sub- Servicer may
be entitled to a Retained Interest in certain Whole Loans. Each Sub-Servicer
will be reimbursed by the Master Servicer for certain expenditures which it
makes, generally to the same extent the Master Servicer would be reimbursed
under an Agreement. See "Retained Interest, Servicing Compensation and Payment
of Expenses."
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 Mortgage Loans."
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."
If so specified in the related Prospectus Supplement, the Master Servicer
may offer to sell any defaulted Whole Loan described in the preceding paragraph
and not otherwise purchased by any person having a right of first refusal with
respect thereto, if and when the Master Servicer determines, consistent with the
Servicing Standard, that such a sale would produce a greater recovery on a
present value basis than would liquidation through foreclosure or similar
proceeding. The related Agreement will provide that any such offering be made in
a commercially reasonable manner for a specified period and that the Master
Servicer accept the highest cash bid received from any person (including itself,
an affiliate of the Master Servicer or any Certificateholder) that constitutes a
fair price for such defaulted Whole Loan. In the absence of any bid determined
in accordance with the related Agreement to be fair, the Master Servicer shall
proceed with respect to such defaulted Mortgage Loan as described below. Any bid
in an amount at least equal to the Purchase Price described under
"Representations and Warranties; Repurchases" will in all cases be deemed fair.
The Master Servicer, on behalf of the Trustee, may at any time institute
foreclosure proceedings, exercise any power of sale contained in any mortgage,
obtain a deed in lieu of foreclosure, or otherwise acquire title to a Mortgaged
Property securing a Whole Loan by operation of law or otherwise, if such action
is consistent with the Servicing Standard and a default on such Whole Loan has
occurred or, in the Master Servicer's judgment, is imminent.
Unless otherwise 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 by the close of the third calendar year
following the year of acquisition, unless (i) the Internal Revenue Service
grants an extension of time to sell such property or (ii) the Trustee receives
an opinion of independent counsel to the effect that the holding of the property
by the Trust Fund beyond the close of the third calendar year following the year
after its acquisition will not result in the imposition of a tax on the Trust
Fund or cause the Trust Fund to fail to qualify as a REMIC under the Code at any
time that any Certificate is outstanding. Subject to the foregoing, the Master
Servicer will be required to (i) solicit bids for any Mortgaged Property so
acquired in such a manner as will be reasonably likely to realize a fair price
for such property and (ii) accept the first (and, if multiple bids are
contemporaneously received, the highest) cash bid received from any person that
constitutes a fair price.
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 ownership and management 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 Mortgage
Loans--Foreclosure."
If recovery on a defaulted Whole Loan under any related instrument of
Credit Support is not available, the Master Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and procedures
as it deems necessary or advisable to realize upon the defaulted Whole Loan. If
the proceeds of any liquidation of the property securing the defaulted Whole
Loan are less than the outstanding principal balance of the defaulted Whole Loan
plus interest accrued thereon at the Mortgage Rate plus the aggregate amount of
expenses incurred by the Master Servicer in connection with such proceedings and
which are reimbursable under the Agreement, the Trust Fund will realize a loss
in the amount of such difference. The Master Servicer will be entitled to
withdraw or cause to be withdrawn from the Certificate Account out of the
Liquidation Proceeds recovered on any defaulted Whole Loan, prior to the
distribution of such Liquidation Proceeds to Certificateholders, amounts
representing its normal servicing compensation on the Whole Loan, unreimbursed
servicing expenses incurred with respect to the Whole Loan and any unreimbursed
advances of delinquent payments made with respect to the Whole Loan.
If any property securing a defaulted Whole Loan is damaged and proceeds, if
any, from the related hazard insurance policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under the related
instrument of Credit Support, if any, the Master Servicer is not required to
expend its own funds to restore the damaged property unless it determines (i)
that such restoration will increase the proceeds to Certificateholders on
liquidation of the Whole Loan after reimbursement of the Master Servicer for its
expenses and (ii) that such expenses will be recoverable by it from related
Insurance Proceeds or Liquidation Proceeds.
As servicer of the Whole Loans, a Master Servicer, on behalf of itself, the
Trustee and the Certificateholders, will present claims to the obligor under
each instrument of Credit Support, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
defaulted Whole Loans.
If a Master Servicer or its designee recovers payments under any instrument
of Credit Support with respect to any defaulted Whole Loan, the Master Servicer
will be entitled to withdraw or cause to be withdrawn from the Certificate
Account out of such proceeds, prior to distribution thereof to
Certificateholders, amounts representing its normal servicing compensation on
such Whole Loan, unreimbursed servicing expenses incurred with respect to the
Whole Loan and any unreimbursed advances of delinquent payments made with
respect to the Whole Loan. See "Hazard Insurance Policies" and "Description of
Credit Support."
HAZARD INSURANCE POLICIES
To the extent 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. To
the extent specified in the related Prospectus Supplement, such coverage will be
in general in an amount equal to the lesser of the principal balance owing on
such Whole Loan and the amount necessary to fully compensate for any damage or
loss to the improvements on the Mortgaged Property on a replacement cost basis,
but in either case not less than the amount necessary to avoid the application
of any co-insurance clause contained in the hazard insurance policy. The ability
of the Master Servicer to assure that hazard insurance proceeds are
appropriately applied may be dependent upon its being named as an additional
insured under any hazard insurance policy and under any other insurance policy
referred to below, or upon the extent to which information in this regard is
furnished by mortgagors. All amounts collected by the Master Servicer under any
such policy (except for amounts to be applied to the restoration or repair of
the Mortgaged Property or released to the mortgagor in accordance with the
Master Servicer's normal servicing procedures, subject to the terms and
conditions of the related Mortgage and Mortgage Note) will be deposited in the
Certificate Account. The Agreement will provide that the Master Servicer may
satisfy its obligation to cause each mortgagor to maintain such a hazard
insurance policy by the Master Servicer's maintaining a blanket policy insuring
against hazard losses on the Whole Loans. If such blanket policy contains a
deductible clause, the Master Servicer will be required to deposit in the
Certificate Account all sums that would have been deposited therein but for such
clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Whole Loans will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do not cover any physical damage resulting from
war, revolution, governmental actions, floods and other water-related causes,
earth movement (including earthquakes, landslides and mudflows), wet or dry rot,
vermin, domestic animals and certain other kinds of uninsured risks.
The hazard insurance policies covering the Mortgaged Properties securing
the Whole Loans will typically contain a co-insurance clause that in effect
requires the insured at all times to carry insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the improvements on the
property in order to recover the full amount of any partial loss. If the
insured's coverage falls below this specified percentage, such clause generally
provides that the insurer's liability in the event of partial loss does not
exceed the lesser of (i) the replacement cost of the improvements less physical
depreciation and (ii) such proportion of the loss as the amount of insurance
carried bears to the specified percentage of the full replacement cost of such
improvements.
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 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).
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 or Sub-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.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
To the extent specified in the related Prospectus Supplement, each
Agreement will require that the Master 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. The related Agreement will allow the Master Servicer to
self-insure against loss occasioned by the errors and omissions of the officers,
employees and agents of the Master Servicer so long as certain criteria set
forth in the Agreement are met.
DUE-ON-SALE 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, transfer or conveyance of the related Mortgaged Property.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will generally enforce any due-on-sale clause to the extent it has
knowledge of the conveyance or proposed conveyance of the underlying Mortgaged
Property and it is entitled to do so under applicable law; provided, however,
that the Master Servicer will not take any action in relation to the enforcement
of any due-on-sale provision which would adversely affect or jeopardize coverage
under any applicable insurance policy. To the extent 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 Mortgage Loans 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.
To the extent specified in the related Prospectus Supplement, the Master
Servicer's and a Sub-Servicer's primary servicing compensation with respect to a
series of Certificates will come from the periodic payment to it of a portion of
the interest payment on each Asset. Since any Retained Interest and a Master
Servicer's primary compensation are percentages of the principal balance of each
Asset, such amounts will decrease in accordance with the amortization of the
Assets. The Prospectus Supplement with respect to a series of Certificates
evidencing interests in a Trust Fund that includes Whole Loans may provide that,
as additional compensation, the Master Servicer or the Sub-Servicers may retain
all or a portion of assumption fees, modification fees, late payment charges or
Prepayment Premiums collected from mortgagors and any interest or other income
which may be earned on funds held in the Certificate Account or any account
established by a Sub-Servicer pursuant to the Agreement.
The Master Servicer may, to the extent provided in the related Prospectus
Supplement, pay from its servicing compensation certain expenses incurred in
connection with its servicing and managing of the Assets, including, without
limitation, payment of the fees and disbursements of the Trustee and independent
accountants, payment of expenses incurred in connection with distributions and
reports to Certificateholders, and payment of any other expenses described in
the related Prospectus Supplement. Certain other expenses, including certain
expenses relating to defaults and liquidations on the Whole Loans and, to the
extent so provided in the related Prospectus Supplement, interest thereon at the
rate specified therein may be borne by the Trust Fund.
If and to the extent provided in the related Prospectus Supplement, the
Master Servicer may be required to apply a portion of the servicing compensation
otherwise payable to it in respect of any Due Period to certain interest
shortfalls resulting from the voluntary prepayment of any Whole Loans in the
related Trust Fund during such period prior to their respective due dates
therein.
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.
To the extent 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.
To the extent 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 described 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 described in the related Prospectus
Supplement, the Trustee shall, not later than the later of 60 days after the
occurrence of any event which constitutes or, with notice or lapse of time or
both, would constitute an Event of Default and five days after certain officers
of the Trustee become aware of the occurrence of such an event, transmit by mail
to the Depositor and all Certificateholders of the applicable series notice of
such occurrence, unless such default shall have been cured or waived.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under an Agreement remains unremedied, the
Depositor or the Trustee may, and at the direction of holders of Certificates
evidencing not less than 51% of the Voting Rights, the Trustee shall, terminate
all of the rights and obligations of the Master Servicer under the Agreement and
in and to the Mortgage Loans (other than as a Certificateholder or as the owner
of any Retained Interest), whereupon the Trustee will succeed to all of the
responsibilities, duties and liabilities of the Master Servicer under the
Agreement (except that if the Trustee is prohibited by law from obligating
itself to make advances regarding delinquent mortgage loans, or if the related
Prospectus Supplement so specifies, then the Trustee will not be obligated to
make such advances) and will be entitled to similar compensation arrangements.
Unless otherwise described 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. To the extent 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 to the extent specified in the related Prospectus Supplement, no
such amendment may (i) reduce in any manner the amount of or delay the timing
of, payments received or advanced on Mortgage Loans which are required to be
distributed on any Certificate without the consent of the holder of such
Certificate, (ii) adversely affect in any material respect the interests of the
holders of any class of Certificates in a manner other than as described in (i),
without the consent of the holders of all Certificates of such class or (iii)
modify the provisions of such Agreement described in this paragraph without the
consent of the holders of all Certificates covered by such Agreement then
outstanding. However, with respect to any series of Certificates as to which a
REMIC election is to be made, the Trustee will not consent to any amendment of
the Agreement unless it shall first have received an opinion of counsel to the
effect that such amendment will not result in the imposition of a tax on the
related Trust Fund or cause the related Trust Fund to fail to qualify as a REMIC
at any time that the related Certificates are outstanding.
THE TRUSTEE
The Trustee under each Agreement will be named in the related Prospectus
Supplement. The commercial bank, national banking association, banking
corporation or trust company serving as Trustee may have a banking relationship
with the Depositor and its affiliates and with any Master Servicer and its
affiliates.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency
of any Agreement, the Certificates or any Asset or related document and is not
accountable for the use or application by or on behalf of any Master Servicer of
any funds paid to the Master Servicer or its designee 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. 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 described in the related Prospectus Supplement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
entitled to indemnification out of the Certificate Account for any loss,
liability or expense (including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in settlement)
incurred in connection with the Trustee's (i) enforcing its rights and remedies
and protecting the interests, and enforcing the rights and remedies, of the
Certificateholders during the continuance of an Event of Default, (ii) defending
or prosecuting any legal action in respect of the related Agreement or series of
Certificates, (iii) being the mortgagee of record with respect to the Mortgage
Loans in a Trust Fund and the owner of record with respect to any Mortgaged
Property acquired in respect thereof for the benefit of Certificateholders, or
(iv) acting or refraining from acting in good faith at the direction of the
holders of the related series of Certificates entitled to not less than 25% (or
such higher percentage as is specified in the related Agreement with respect to
any particular matter) of the Voting Rights for such series; provided, however,
that such indemnification will not extend to any loss, liability or expense that
constitutes a specific liability of the Trustee pursuant to the related
Agreement, or to any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence on the part of the Trustee in the
performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties, or as may arise from a breach
of any representation, warranty or covenant of the Trustee made therein.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may at any time resign from its obligations and duties under an
Agreement by giving written notice thereof to the Depositor, the Master
Servicer, if any, and all Certificateholders. Upon receiving such notice of
resignation, the Depositor is required promptly to appoint a successor trustee
acceptable to the Master Servicer, if any. If no successor trustee shall have
been so appointed and have accepted appointment within 30 days after the giving
of such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible to continue as such
under the related Agreement, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Depositor
may remove the Trustee and appoint a successor trustee acceptable to the Master
Servicer, if any. Holders of the Certificates of any series entitled to at least
51% of the Voting Rights for such series may at any time remove the Trustee
without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall not become effective until acceptance of appointment by the
successor trustee.
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 Enhancement is Limited
in Amount and Coverage."
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more classes
of Certificates of a series may be Subordinate Certificates. To the extent
specified in the related Prospectus Supplement, the rights of the holders of
Subordinate Certificates to receive distributions of principal and interest from
the Certificate Account on any Distribution Date will be subordinated to such
rights of the holders of Senior Certificates. If so provided in the related
Prospectus Supplement, the subordination of a class may apply only in the event
of (or may be limited to) certain types of losses or shortfalls. The related
Prospectus Supplement will set forth information concerning the amount of
subordination of a class or classes of Subordinate Certificates in a series, the
circumstances in which such subordination will be applicable and the manner, if
any, in which the amount of subordination will be effected.
CROSS-SUPPORT PROVISIONS
If the Assets for a series are divided into separate groups, each
supporting a separate class or classes of Certificates of a series, credit
support may be provided by cross-support provisions requiring that distributions
be made on Senior Certificates evidencing interests in one group of Mortgage
Assets prior to distributions on Subordinate Certificates evidencing interests
in a different group of Mortgage Assets within the Trust Fund. The Prospectus
Supplement for a series that includes a cross-support provision will describe
the manner and conditions for applying such provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO THE WHOLE LOANS
If so provided in the Prospectus Supplement for a series of Certificates,
the Whole Loans in the related Trust Fund will be covered for various default
risks by insurance policies or guarantees. A copy of any such material
instrument for a series will be filed with the Commission as an exhibit to a
Current Report on Form 8-K to be filed within 15 days of issuance of the
Certificates of the related series.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by one or more letters of credit, issued by a
bank or financial institution specified in such Prospectus Supplement (the "L/C
BANK"). Under a letter of credit, the L/C Bank will be obligated to honor draws
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, generally equal to a percentage specified in the related Prospectus
Supplement of the aggregate principal balance of the Mortgage Assets on the
related Cut-off Date or of the initial aggregate Certificate Balance of one or
more classes of Certificates. If so specified in the related Prospectus
Supplement, the letter of credit may permit draws in the event of only certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments
thereunder and may otherwise be reduced as described in the related Prospectus
Supplement. The obligations of the L/C Bank under the letter of credit for each
series of Certificates will expire at the earlier of the date specified in the
related Prospectus Supplement or the termination of the Trust Fund. A copy of
any such letter of credit for a series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of issuance
of the Certificates of the related series.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a series of Certificates,
deficiencies in amounts otherwise payable on such Certificates or certain
classes thereof will be covered by insurance policies and/or surety bonds
provided by one or more insurance companies or sureties. Such instruments may
cover, with respect to one or more classes of Certificates of the related
series, timely distributions of interest and/or full distributions of principal
on the basis of a schedule of principal distributions set forth in or determined
in the manner specified in the related Prospectus Supplement. A copy of any such
instrument for a series will be filed with the Commission as an exhibit to a
Current Report on Form 8-K to be filed with the Commission within 15 days of
issuance of the Certificates of the related series.
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 described 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 described 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 described 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 MORTGAGE LOANS
The following discussion contains summaries, which are general in nature,
of certain legal aspects of loans secured by single-family residential
properties. Because such legal aspects are governed primarily by applicable
state law (which laws may differ substantially), the summaries do not purport to
be complete nor to reflect the laws of any particular state, nor to encompass
the laws of all states in which the security for the Mortgage Loans is situated.
The summaries are qualified in their entirety by reference to the applicable
federal and state laws governing the Mortgage Loans. See "Description of the
Trust Funds--Assets."
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond and secured
by instruments granting a security interest in real property which may be
mortgages, deeds of trust, security deeds or deeds to secure debt, depending
upon the prevailing practice and law in the state in which the Mortgaged
Property is located. Mortgages, deeds of trust and deeds to secure debt are
herein collectively referred to as "MORTGAGES." Any of the foregoing types of
mortgages will create a lien upon, or grant a title interest in, the subject
property, the priority of which will depend on the terms of the particular
security instrument, as well as separate, recorded, contractual arrangements
with others holding interests in the mortgaged property, the knowledge of the
parties to such instrument as well as the order of recordation of the instrument
in the appropriate public recording office. However, recording does not
generally establish priority over governmental claims for real estate taxes and
assessments and other charges imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties-a mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). In contrast, a deed
of trust is a three-party instrument, among a trustor (the equivalent of a
mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "MORTGAGOR" includes the
trustor under a deed of trust and a grantor under a security deed or a deed to
secure debt. Under a deed of trust, the mortgagor grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale as
security for the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties. By executing a deed to secure debt, the grantor
conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid,
generally with a power of sale as security for the indebtedness evidenced by the
related mortgage note. In case the mortgagor under a mortgage is a land trust,
there would be an additional party because legal title to the property is held
by a land trustee under a land trust agreement for the benefit of the mortgagor.
At origination of a mortgage loan involving a land trust, the mortgagor executes
a separate undertaking to make payments on the mortgage note. The mortgagee's
authority under a mortgage, the trustee's authority under a deed of trust and
the grantee's authority under a deed 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. To the extent specified in the Prospectus Supplement, the
Depositor or the Asset Seller will make certain representations and warranties
in the Agreement with respect to any Mortgage Loans that are secured by an
interest in a leasehold estate. Such representation and warranties, if
applicable, will be set forth in the Prospectus Supplement.
COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a series of Offered
Certificate, the Mortgage Loans may also consist of cooperative apartment loans
("COOPERATIVE LOANS") secured by security interests in shares issued by a
cooperative housing corporation (a "COOPERATIVE") and in the related proprietary
leases or occupancy agreements granting exclusive rights to occupy specific
dwelling units in the cooperatives' buildings. The security agreement will
create a lien upon, or grant a title interest in, the property which it covers,
the priority of which will depend on the terms of the particular security
agreement as well as the order of recordation of the agreement in the
appropriate recording office. Such a lien or title interest is not prior to the
lien for real estate taxes and assessments and other charges imposed under
governmental police powers.
Each cooperative owns in fee or has a leasehold interest in all the real
property and owns in fee or leases the building and all separate dwelling units
therein. The cooperative is directly responsible for property management and, in
most cases, payment of real estate taxes, other governmental impositions and
hazard and liability insurance. If there is a blanket mortgage or mortgages on
the cooperative apartment building or underlying land, as is generally the case,
or an underlying lease of the land, as is the case in some instances, the
cooperative, as property mortgagor, or lessee, as the case may be, is also
responsible for meeting these mortgage or rental obligations. A blanket mortgage
is ordinarily incurred by the cooperative in connection with either the
construction or purchase of the cooperative's apartment building or obtaining of
capital by the cooperative. The interest of the occupant under proprietary
leases or occupancy agreements as to which that cooperative is the landlord are
generally subordinate to the interest of the holder of a blanket mortgage and to
the interest of the holder of a land lease. If the cooperative is unable to meet
the payment obligations (i) arising under a blanket mortgage, the mortgagee
holding a blanket mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements or (ii) arising under
its land lease, the holder of the landlord's interest under the land lease could
terminate it and all subordinate proprietary leases and occupancy agreements.
Also, a blanket mortgage on a cooperative may provide financing in the form of a
mortgage that does not fully amortize, with a significant portion of principal
being due in one final payment at maturity. The inability of the cooperative to
refinance a mortgage and its consequent inability to make such final payment
could lead to foreclosure by the mortgagee. Similarly, a land lease has an
expiration date and the inability of the cooperative to extend its term or, in
the alternative, to purchase the land could lead to termination of the
cooperatives' interest in the property and termination of all proprietary leases
and occupancy agreement. In either event, a foreclosure by the holder of a
blanket mortgage or the termination of the underlying lease could eliminate or
significantly diminish the value of any collateral held by the lender that
financed the purchase by an individual tenant stockholder of cooperative shares
or, in the case of the Mortgage Loans, the collateral securing the Cooperative
Loans.
The cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary lease or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed through
a cooperative share loan evidenced by a promissory note and secured by an
assignment of and a security interest in the occupancy agreement or proprietary
lease and a security interest in the related cooperative shares. The lender
generally takes possession of the share certificate and a counterpart of the
proprietary lease or occupancy agreement and a financing statement covering the
proprietary lease or occupancy agreement and the cooperative shares is filed in
the appropriate state and local offices to perfect the lender's interest in its
collateral. Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the promissory note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant-stockholder as an individual as provided in the
security agreement covering the assignment of the proprietary lease or occupancy
agreement and the pledge of cooperative shares. See "Foreclosure--Cooperatives"
below.
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 an interest of record in
the real property. Delays in completion of the foreclosure may occasionally
result from difficulties in locating defendants. When the lender's right to
foreclose is contested, the legal proceedings can be time-consuming. Upon
successful completion of a judicial foreclosure proceeding, the court generally
issues a judgment of foreclosure and appoints a referee or other officer to
conduct a public sale of the mortgaged property, the proceeds of which are used
to satisfy the judgment. Such sales are made in accordance with procedures that
vary from state to state.
Equitable Limitations on Enforceability of Certain Provisions
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may require
the lender to undertake affirmative and expensive actions to determine the cause
of the mortgagor's default and the likelihood that the mortgagor will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's and have required that lenders reinstate loans or recast payment
schedules in order to accommodate mortgagors who are suffering from a temporary
financial disability. In other cases, courts have limited the right of the
lender to foreclose if the default under the mortgage is not monetary, e.g., the
mortgagor failed to maintain the mortgaged property adequately or the mortgagor
executed a junior mortgage on the mortgaged property. The exercise by the court
of its equity powers will depend on the individual circumstances of each case
presented to it. Finally, some courts have been faced with the issue of whether
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that a mortgagor receive notice in addition to
statutorily-prescribed minimum notice. For the most part, these cases have
upheld the reasonableness of the notice provisions or have found that a public
sale under a mortgage providing for a power of sale does not involve sufficient
state action to afford constitutional protections to the mortgagor.
Non-Judicial Foreclosure/Power of Sale
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale pursuant to the power of sale granted in the deed of trust. A
power of sale is typically granted in a deed of trust. It may also be contained
in any other type of mortgage instrument. A power of sale allows a non-judicial
public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such sale,
the trustee under a deed of trust must record a notice of default and notice of
sale and send a copy to the mortgagor and to any other party who has recorded a
request for a copy of a notice of default and notice of sale. In addition, in
some states the trustee must provide notice to any other party having an
interest of record in the real property, including junior lienholders. A notice
of sale must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. The mortgagor or junior
lienholder may then have the right, during a reinstatement period required in
some states, to cure the default by paying the entire actual amount in arrears
(without acceleration) plus the expenses incurred in enforcing the obligation.
In other states, the mortgagor or the junior lienholder is not provided a period
to reinstate the loan, but has only the right to pay off the entire debt to
prevent the foreclosure sale. Generally, the procedure for public sale, the
parties entitled to notice, the method of giving notice and the applicable time
periods are governed by state law and vary among the states. Foreclosure of a
deed to secure debt is also generally accomplished by a non-judicial sale
similar to that required by a deed of trust, except that the lender or its
agent, rather than a trustee, is typically empowered to perform the sale in
accordance with the terms of the deed to secure debt and applicable law.
Public Sale
A third party may be unwilling to purchase a mortgaged property at a public
sale because of the difficulty in determining the value of such property at the
time of sale, due to, among other things, redemption rights which may exist and
the possibility of physical deterioration of the property during the foreclosure
proceedings. For these reasons, it is common for the lender to purchase the
mortgaged property for an amount equal to or less than the underlying debt and
accrued and unpaid interest plus the expenses of foreclosure. Generally, state
law controls the amount of foreclosure costs and expenses which may be recovered
by a lender. Thereafter, subject to the mortgagor's right in some states to
remain in possession during a redemption period, if applicable, the lender will
become the owner of the property and have both the benefits and burdens of
ownership of the mortgaged property. For example, the lender will become
obligated 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. 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. 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 by the close of the third calendar year following the year of
acquisition, unless (i) the Internal Revenue Service grants an extension of time
to sell such property (an "REO EXTENSION") or (ii) it obtains an opinion of
counsel generally to the effect that the holding of the property beyond the
close of the third calendar year after its acquisition will not result in the
imposition of a tax on the Trust Fund or cause any REMIC created pursuant to the
Pooling and Servicing Agreement to fail to qualify as a REMIC under the Code.
Subject to the foregoing, the Master Servicer or any related Sub-servicer or the
Special Servicer will generally be required to solicit bids for any Mortgaged
Property so acquired in such a manner as will be reasonably likely to realize a
fair price for such property. The Master Servicer or any related Sub-servicer or
the Special Servicer may retain an independent contractor to operate and manage
any REO Property; however, the 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 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 income tax at the highest marginal corporate tax rate (currently 35%)
or (ii) "prohibited transactions," such income would be subject to federal
income 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 Master
Servicer or any related Sub-servicer or 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 income 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 income 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 tax advisors regarding the possible imposition of REO
Taxes in connection with the operation of commercial REO Properties by REMICs.
See "Certain Federal Income Tax Consequences" herein and "Certain Federal Income
Tax Consequences--REMICs" in the Prospectus.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an interest
in the property which is subordinate to the mortgage being foreclosed, from
exercise of their "equity of redemption." The doctrine of equity of redemption
provides that, until the property covered by a mortgage has been sold in
accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing mortgagee
have an equity of redemption and may redeem the property by paying the entire
debt with interest. In addition, in some states, when a foreclosure action has
been commenced, the redeeming party must pay certain costs of such action. Those
having an equity of redemption must generally be made parties and joined in the
foreclosure proceeding in order for their equity of redemption to be cut off and
terminated.
The equity of redemption is a common-law (non-statutory) right which exists
prior to completion of the foreclosure, is not waivable by the mortgagor, must
be exercised prior to foreclosure sale and should be distinguished from the
post-sale statutory rights of redemption. In some states, after sale pursuant to
a deed of trust or foreclosure of a mortgage, the mortgagor and foreclosed
junior lienors are given a statutory period in which to redeem the property from
the foreclosure sale. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
authorized if the former mortgagor pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser from a foreclosure sale or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has expired. In some states, a post-sale statutory
right of redemption may exist following a judicial foreclosure, but not
following a trustee's sale under a deed of trust.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held beyond the close of the third calendar
year following the year of acquisition. Unless otherwise provided in the related
Prospectus Supplement, with respect to a series of Certificates for which an
election is made to qualify the Trust Fund or a part thereof as a REMIC, the
Agreement will permit foreclosed property to be held beyond the close of the
third calendar year following the year of acquisition if the Internal Revenue
Service grants an extension of time within which to sell such property or
independent counsel renders an opinion to the effect that holding such property
for such additional period is permissible under the REMIC Provisions.
Cooperative Loans
The cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer as set
forth in the Cooperative's Certificate of Incorporation and By-laws, as well as
the proprietary lease or occupancy agreement, and may be cancelled by the
cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permit the Cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder under the
proprietary lease or occupancy agreement will usually constitute a default under
the security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the Cooperative will recognize the
lender's lien against proceeds from the sale of the Cooperative apartment,
subject, however, to the Cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the Cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the Cooperative Loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure on a
Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by a
sale in accordance with the provisions of Article 9 of the UCC and the security
agreement relating to those shares. Article 9 of the UCC requires that a sale be
conducted in a "commercially reasonable" manner. Whether a foreclosure sale has
been conducted in a "commercially reasonable" manner will depend on the facts in
each case. In determining commercial reasonableness, a court will look to the
notice given the debtor and the method, manner, time, place and terms of the
foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperatives to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency.
In the case of foreclosure on a building which was converted from a rental
building to a building owned by a Cooperative under a non-eviction plan, some
states require that a purchaser at a foreclosure sale take the property subject
to rent control and rent stabilization laws which apply to certain tenants who
elected to remain in the building was so converted.
JUNIOR MORTGAGES
Some of the Mortgage Loans may be secured by junior mortgages or deeds of
trust, which are subordinate to first mortgages or deeds of trust held by other
lenders. The rights of the Trust Fund as the holder of a junior deed of trust or
a junior mortgage are subordinate in lien and in payment to those of the holder
of the senior mortgage or deed of trust, including the prior rights of the
senior mortgagee or beneficiary to receive and apply hazard insurance and
condemnation proceeds and, upon default of the mortgagor, to cause a foreclosure
on the property. Upon completion of the foreclosure proceedings by the holder of
the senior mortgage or the sale pursuant to the deed of trust, the junior
mortgagee's or junior beneficiary's lien will be extinguished unless the junior
lienholder satisfies the defaulted senior loan or asserts its subordinate
interest in a property in foreclosure proceedings. See "--Foreclosure" herein.
Furthermore, because the terms of the junior mortgage or deed of trust are
subordinate to the terms of the first mortgage or deed of trust, in the event of
a conflict between the terms of the first mortgage or deed of trust and the
junior mortgage or deed of trust, the terms of the first mortgage or deed of
trust will generally govern. Upon a failure of the mortgagor or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject to
the terms of the senior mortgage or deed of trust, may have the right to perform
the obligation itself. Generally, all sums so expended by the mortgagee or
beneficiary become part of the indebtedness secured by the mortgage or deed of
trust. To the extent a first mortgagee expends such sums, such sums will
generally have priority over all sums due under the junior mortgage.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Statutes in some states limit the right of a beneficiary under a deed of
trust or a mortgagee under a mortgage 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.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other federal and state statutory provisions, including the federal bankruptcy
laws and state laws affording relief to debtors, may interfere with or affect
the ability of the secured mortgage lender to realize upon collateral or enforce
a deficiency judgment. For example, with respect to federal bankruptcy law, a
court with federal bankruptcy jurisdiction may permit a debtor through his or
her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary default in
respect of a mortgage loan on a debtor's residence by paying arrearages within a
reasonable time period and reinstating the original mortgage loan payment
schedule even though the lender accelerated the mortgage loan and final judgment
of foreclosure had been entered in state court (provided no sale of the
residence had yet occurred) prior to the filing of the debtor's petition. 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.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be modified.
These courts have allowed modifications that include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule,
forgiving all or a portion of the debt and reducing the lender's security
interest to the value of the residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the residence and the
outstanding balance of the loan. Generally, however, the terms of a mortgage
loan secured only by a mortgage on real property that is the debtor's principal
residence may not be modified pursuant to a plan confirmed pursuant to Chapter
11 or Chapter 13 except with respect to mortgage payment arrearages, which may
be cured within a reasonable time period.
Certain tax liens arising under the Internal Revenue Code of 1986, as
amended, may in certain circumstances provide priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing of
mortgage loans by numerous federal and some state consumer protection laws.
These laws include the federal Truth-in-Lending Act, Real Estate Settlement
Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair
Credit Reporting Act and related statutes. These federal laws impose specific
statutory liabilities upon lenders who originate mortgage loans and who fail to
comply with the provisions of the law. In some cases this liability may affect
assignees of the mortgage loans.
Generally, Article 9 of the UCC governs foreclosure on Cooperative shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
ENVIRONMENTAL LEGISLATION
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such a
lien will generally have priority over all subsequent liens on the property and,
in certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In addition, under federal environmental
legislation and under state law in a number of states, a secured party that
takes a deed in lieu of foreclosure or acquires a mortgaged property at a
foreclosure sale or becomes involved in the operation or management of a
property so as to be deemed an "owner" or "operator" of the property may be
liable for the costs of cleaning up a contaminated site. Although such costs
could be substantial, it is unclear whether they would be imposed on a lender
(such as a Trust Fund) secured by residential real property. In the event that
title to a Mortgaged Property securing a Mortgage Loan in a Trust Fund was
acquired by the Trust Fund and cleanup costs were incurred in respect of the
Mortgaged Property, the holders of the related series of Certificates might
realize a loss if such costs were required to be paid by the Trust Fund.
DUE-ON-SALE CLAUSES
Unless the related Prospectus Supplement indicates otherwise, the Mortgage
Loans will contain due-on-sale clauses. These clauses generally provide that the
lender may accelerate the maturity of the loan if the mortgagor sells, transfers
or conveys the related Mortgaged Property. 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.
Due-on-sale clauses contained in mortgage loans originated by federal savings
and loan associations of federal savings banks are fully enforceable pursuant to
regulations of the United States Federal Home Loan Bank Board, as succeeded by
the Office of Thrift Supervision, which preempt state law restrictions on the
enforcement of such clauses. Similarly, "due-on-sale" clauses in mortgage loans
made by national banks and federal credit unions are now fully enforceable
pursuant to preemptive regulations of the Comptroller of the Currency and the
National Credit Union Administration, respectively.
The Garn-St. Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the act (including federal savings and loan
associations and federal savings banks) may not exercise a "due-on-sale" clause,
notwithstanding the fact that a transfer of the property may have occurred.
These include intra-family transfers, certain transfers by operation of law,
leases of fewer than three years and the creation of a junior encumbrance.
Regulations promulgated under the Garn-St Germain Act also prohibit the
imposition of a prepayment penalty upon the acceleration of a loan pursuant to a
due-on-sale clause. The inability to enforce a "due-on-sale" clause may result
in a mortgage that bears an interest rate below the current market rate being
assumed by a new home buyer rather than being paid off, which may affect the
average life of the Mortgage Loans and the number of Mortgage Loans which may
extend to maturity.
PREPAYMENT CHARGES
Under certain state laws, prepayment charges may not be imposed after a
certain period of time following the origination of mortgage loans secured by
liens encumbering owner-occupied residential properties, if such loans are paid
prior to maturity. Since many of the Mortgaged Properties will be
owner-occupied, it is anticipated that prepayment charges may not be imposed
with respect to many of the Mortgage Loans. The absence of such a restraint on
prepayment, particularly with respect to fixed rate Mortgage Loans having higher
Mortgage Rates, may increase the likelihood of refinancing or other early
retirement of such loans.
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.
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 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 Office of Thrift Supervision is authorized to issue rules and
regulations and to publish interpretations governing implementation of Title V.
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.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage loans
and early ownership mortgage loans, originated by non-federally chartered
lenders have historically been subject to a variety of restrictions. Such
restrictions differed from state to state, resulting in difficulties in
determining whether a particular alternative mortgage instrument originated by a
state-chartered lender was in compliance with applicable law. These difficulties
were alleviated substantially as a result of the enactment of Title VIII of the
Garn-St Germain Act ("TITLE VIII"). Title VIII provides that, notwithstanding
any state law to the contrary, state-chartered banks may originate alternative
mortgage instruments in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of alternative mortgage
instruments by national banks; state-chartered credit unions may originate
alternative mortgage instruments in accordance with regulations promulgated by
the National Credit Union Administration with respect to origination of
alternative mortgage instruments by federal credit unions; and all other
non-federally chartered housing creditors, including state-chartered savings and
loan associations, state-chartered savings banks and mutual savings banks and
mortgage banking companies, may originate alternative mortgage instruments in
accordance with the regulations promulgated by the Federal Home Loan Bank Board,
predecessor to the Office of Thrift Supervision, with respect to origination of
alternative mortgage instruments by federal savings and loan associations. Title
VIII provides that any state may reject applicability of the provisions of Title
VIII by adopting, prior to October 15, 1985, a law or constitutional provision
expressly rejecting the applicability of such provisions. Certain states have
taken such action.
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, to the extent specified in the related Prospectus
Supplement, any form of Credit Support provided in connection with such
Certificates. In addition, the Relief Act imposes limitations that would impair
the ability of the servicer to foreclose on an affected Mortgage Loan during the
mortgagor's period of active duty status, and, under certain circumstances,
during an additional three month period thereafter. Thus, in the event that such
a Mortgage Loan goes into default, there may be delays and losses occasioned
thereby.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the "CRIME
CONTROL ACT"), the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may give notice
to all parties "known to have an alleged interest in the property," including
the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
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 Latham & Watkins or Cadwalader,
Wickersham & Taft, 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 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 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 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 paid 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 described 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; and
(iii) a Grantor Trust Certificate owned by a REMIC will represent
"obligation[s] ... which [are] principally secured by an interest in
real property" within the meaning of Code Section 860G(a)(3).
The Small Business Job Protection Act of 1996, as part of the repeal of the
bad debt reserve method for thrift institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
Stripped Bonds and Coupons. Certain Trust Funds may consist of Government
Securities that constitute "stripped bonds" or "stripped coupons" as those terms
are defined in section 1286 of the Code, and, as a result, such assets would be
subject to the stripped bond provisions of the Code. Under these rules, such
Government Securities are treated as having original issue discount based on the
purchase price and the stated redemption price at maturity of each Security. As
such, Grantor Trust Certificateholders would be required to include in income
their pro rata share of the original issue discount on each Government Security
recognized in any given year on an economic accrual basis even if the Grantor
Trust Certificateholder is a cash method taxpayer. Accordingly, the sum of the
income includible to the Grantor Trust Certificateholder in any taxable year may
exceed amounts actually received during such year.
Buydown Loans. The assets constituting certain Trust Funds may include
Buydown Loans. The characterization of any investment in Buydown Loans will
depend upon the precise terms of the related buydown agreement, but to the
extent that such Buydown Loans are secured in part by a bank account or other
personal property, they may not be treated in their entirety as assets described
in the foregoing sections of the Code. There are no directly applicable
precedents with respect to the federal income tax treatment or the
characterization of investments in Buydown Loans. Accordingly, Grantor Trust
Certificateholders should consult their own tax advisors with respect to the
characterization of investments in Grantor Trust Certificates representing an
interest in a Trust Fund that includes Buydown Loans.
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 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.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Grantor Trust Certificate 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.
The Internal Revenue Service (the "IRS") has issued final regulations (the
"AMORTIZABLE BOND PREMIUM REGULATIONS") dealing with amortizable bond premium.
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 described 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
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 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.
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 the effect of 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 described in
the related Prospectus Supplement, all payments from a Mortgage Asset underlying
a Stripped Coupon Certificate will be treated as a single installment obligation
subject to the OID rules of the Code, in which 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 faster than the assumed prepayment rate. 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 described 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).
2. Grantor Trust Certificates Representing Interests in Loans Other Than
ARM Loans
The original issue discount rules of Code Sections 1271 through 1275 will
be applicable to a Certificateholder's interest in those Mortgage Assets as to
which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount in income are applicable
to mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate mortgagors (other than individuals) originated after July 1, 1982,
and mortgages of individuals originated after March 2, 1984. Under the OID
Regulations, such original issue discount could arise by the charging of points
by the originator of the mortgage in an amount greater than the statutory de
minimis exception, including a payment of points that is currently deductible by
the borrower under applicable Code provisions, or under certain circumstances,
by the presence of "teaser" rates on the Mortgage Assets. OID on each Grantor
Trust Certificate must be included in the owner's ordinary income for federal
income tax purposes as it accrues, in accordance with a constant interest method
that takes into account the compounding of interest, in advance of receipt of
the cash attributable to such income. The amount of OID required to be included
in an owner's income in any taxable year with respect to a Grantor Trust
Certificate representing an interest in Mortgage Assets other than Mortgage
Assets with interest rates that adjust periodically ("ARM LOANS") likely will be
computed as described below under "--Accrual of Original Issue Discount." The
following discussion is based in part on the OID Regulations and in part on the
provisions of the Tax Reform Act of 1986 (the "1986 ACT"). The OID Regulations
generally are effective for debt instruments issued on or after April 4, 1994,
but may be relied upon as authority with respect to debt instruments, such as
the Grantor Trust Certificates, issued after December 21, 1992. Alternatively,
proposed Treasury regulations issued December 21, 1992 may be treated as
authority for debt instruments issued after December 21, 1992 and prior to April
4, 1994, and proposed Treasury regulations issued in 1986 and 1991 may be
treated as authority for instruments issued before December 21, 1992. In
applying these dates, the issue date of the Mortgage Assets should be used, or,
in the case of Stripped Bond Certificates or Stripped Coupon Certificates, the
date such Certificates are acquired. The holder of a Certificate should be
aware, however, that neither the proposed OID Regulations nor the OID
Regulations adequately address certain issues relevant to prepayable securities.
Under the Code, the Mortgage Assets underlying the Grantor Trust
Certificate will be treated as having been issued on the date they were
originated with an amount of OID equal to the excess of such Mortgage Asset's
stated redemption price at maturity over its issue price. The issue price of a
Mortgage Asset is generally the amount lent to the mortgagee, which may be
adjusted to take into account certain loan origination fees. The stated
redemption price at maturity of a Mortgage Asset is the sum of all payments to
be made on such Mortgage Asset other than payments that are treated as qualified
stated interest payments. The accrual of this OID, as described below under
"--Accrual of Original Issue Discount," will, unless otherwise described 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.
Accrual of Original Issue Discount. Generally, the owner of a Grantor Trust
Certificate must include in gross income the sum of the "daily portions," as
defined below, of the OID on such Grantor Trust Certificate for each day on
which it owns such Certificate, including the date of purchase but excluding the
date of disposition. In the case of an original owner, the daily portions of OID
with respect to each component generally will be determined as set forth under
the OID Regulations. A calculation will be made by the Master Servicer or such
other entity specified in the related Prospectus Supplement of the portion of
OID that accrues during each successive monthly accrual period (or shorter
period from the date of original issue) that ends on the day in the calendar
year corresponding to each of the Distribution Dates on the Grantor Trust
Certificates (or the day prior to each such date). This will be done, in the
case of each full month accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the respective component under the Prepayment
Assumption) of all remaining payments to be received under the Prepayment
Assumption on the respective component and (b) any payments included in the
stated redemption price at maturity received during such accrual period, and
(ii) subtracting from that total the "adjusted issue price" of the respective
component at the beginning of such accrual period. The adjusted issue price of a
Grantor Trust Certificate at the beginning of the first accrual period is its
issue price; the adjusted issue price of a Grantor Trust Certificate at the
beginning of a subsequent accrual period is the adjusted issue price at the
beginning of the immediately preceding accrual period plus the amount of OID
allocable to that accrual period reduced by the amount of any payment other than
a payment of qualified stated interest made at the end of or during that accrual
period. The OID accruing during such accrual period will then be divided by the
number of days in the period to determine the daily portion of OID for each day
in the period. With respect to an initial accrual period shorter than a full
monthly accrual period, the daily portions of OID must be determined according
to an appropriate allocation under any reasonable method.
Original issue discount generally must be reported as ordinary gross income
as it accrues under a constant interest method that takes into account the
compounding of interest as it accrues rather than when received. However, the
amount of original issue discount includible in the income of a holder of an
obligation is reduced when the obligation is acquired after its initial issuance
at a price greater than the sum of the original issue price and the previously
accrued original issue discount, less prior payments of principal. Accordingly,
if such Mortgage Assets acquired by a Certificateholder are purchased at a price
equal to the then unpaid principal amount of such Mortgage Asset, no original
issue discount attributable to the difference between the issue price and the
original principal amount of such Mortgage Asset (i.e. points) will be
includible by such holder. Other original issue discount on the Mortgage Assets
(e.g., that arising from a "teaser" rate) would still need to be accrued.
3. Grantor Trust Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such as
the Grantor Trust Certificates, which represent interests in ARM Loans.
Additionally, the IRS has not issued guidance under the Code's coupon stripping
rules with respect to such instruments. In the absence of any authority, the
Master Servicer will report OID on Grantor Trust Certificates attributable to
ARM Loans ("STRIPPED ARM OBLIGATIONS") to holders in a manner it believes is
consistent with the rules described above under the heading "--Grantor Trust
Certificates Representing Interests in Loans Other Than ARM Loans" and with the
OID Regulations. In general, application of these rules may require inclusion of
income on a Stripped ARM Obligation in advance of the receipt of cash
attributable to such income. Further, the addition of interest deferred by
reason of negative amortization ("DEFERRED INTEREST") to the principal balance
of an ARM Loan may require the inclusion of such amount in the income of the
Grantor Trust 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 (except
to the extent described above with respect to market discount), and will
generally be long-term capital gain if the Grantor Trust Certificate has been
owned for more than one year.
Long-term capital gains of individuals are subject to reduced maximum tax
rates while capital gains recognized by individuals on capital assets held less
than twelve months are generally subject to ordinary income tax rates. The use
of capital losses is limited.
It is possible that capital gain realized by holders of one or more classes
of Grantor Trust Certificates could be considered gain realized upon the
disposition of property that was part of a "conversion transaction." A sale of a
Grantor Trust Certificate will be part of a conversion transaction if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and (i) the holder entered the contract to
sell the Grantor Trust Certificate substantially contemporaneously with
acquiring the Grantor Trust Certificate, (ii) the Grantor Trust Certificate is
part of a straddle, (iii) the Grantor Trust Certificate is marketed or sold as
producing capital gain, or (iv) other transactions to be specified in Treasury
regulations that have not yet been issued. If the sale or other disposition of a
Grantor Trust Certificate is part of a conversion transaction, all or any
portion of the gain realized upon the sale or other disposition would be treated
as ordinary income instead of capital gain.
Grantor Trust Certificates will be "evidences of indebtedness" within the
meaning of Code Section 582(c)(1), so that gain or loss recognized from the sale
of a Grantor Trust Certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
D. NON-U.S. PERSONS
Generally, to the extent that a Grantor Trust Certificate evidences
ownership in underlying Mortgage Assets that were issued on or before July 18,
1984, interest or OID paid by the person required to withhold tax 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 of where the
mortgagor is not a natural person in order to qualify for the exemption from
withholding. If capital gain derived from the sale, retirement or other
disposition of a Grantor Trust Certificate is effectively connected with a U.S.
trade or business of a Grantor Trust Certificateholder that is not a U.S.
Person, such Certificateholder will be taxed on the net gain under the graduated
U.S. federal income tax rates applicable to U.S. Persons (and, with respect to
Grantor Trust Certificates held by or on behalf of corporations, also may be
subject to branch profits tax). In addition, if the Trust Fund acquires a United
States real property interest through foreclosure, deed in lieu of foreclosure
or otherwise on a Mortgage Asset secured by such an interest (which for this
purpose includes real property located in the United States and the Virgin
Islands), a Grantor Trust Certificateholder that is not a U.S. Person will
potentially be subject to federal income tax on any gain attributable to such
real property interest that is allocable to such holder. Non-U.S. Persons should
consult their tax advisors regarding the application to them of the foregoing
rules.
As used herein, a "U.S. PERSON" means a citizen or resident of the United
States, a corporation or a partnership organized in or under the laws of the
United States or any political subdivision thereof (other than a partnership
that is not treated as a U.S. Person under any applicable Treasury regulations),
an estate the income of which from sources outside the United States is
includible in gross income for federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United States or a
trust if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more U.S. Persons have
the authority to control all substantial decisions of the trust. In addition,
certain trusts treated as U.S. Persons before August 20, 1996 may elect to
continue to be so treated to the extent provided in regulations.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The Master Servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each person who was a
Certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
Certificates as nominees on behalf of beneficial owners. If a holder, beneficial
owner, financial intermediary or other recipient of a payment on behalf of a
beneficial owner fails to supply a certified taxpayer identification number or
if the Secretary of the Treasury determines that such person has not reported
all interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments to
registered owners who are not "exempt recipients." In addition, upon the sale of
a Grantor Trust Certificate to (or through) a broker, the broker must withhold
31% of the entire purchase price, unless either (i) the broker determines that
the seller is a corporation or other exempt recipient, or (ii) the seller
provides, in the required manner, certain identifying information and, in the
case of a non-U.S. Person, certifies that such seller is a Non-U.S. Person, and
certain other conditions are met. Such as sale must also be reported by the
broker to the IRS, unless either (a) the broker determines that the seller is an
exempt recipient or (b) the seller certifies its non-U.S. Person status (and
certain other conditions are met). Certification of the registered owner's
non-U.S. Person status normally would be made on IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
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 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.
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.
In some instances the Mortgage Assets may not be treated entirely as assets
described in the foregoing sections. See, in this regard, the discussion of
Buydown Loans contained in "--Non-REMIC Certificates--Single Class of Grantor
Trust Certificates" above. REMIC Certificates held by a real estate investment
trust will not constitute "Government Securities" within the meaning of Code
Section 856(c)(4)(A), and REMIC Certificates held by a regulated investment
company will not constitute "Government Securities" within the meaning of Code
Section 851(b)(4)(A)(ii). REMIC Certificates held by certain financial
institutions will constitute "evidences of indebtedness" within the meaning of
Code Section 582(c)(1).
A "QUALIFIED MORTGAGE" for REMIC purposes includes any obligation
(including certificates of participation in such an obligation) 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. The REMIC Regulations provide that manufactured housing
or mobile homes (not including recreational vehicles, campers or similar
vehicles) that are "single family residences" under Code Section 25(e)(10) will
qualify as real property without regard to state law classifications. Under Code
Section 25(e)(10), a single family residence includes any manufactured home that
has a minimum of 400 square feet of living space and a minimum width in excess
of 102 inches and that is of a kind customarily used at a fixed location.
Tiered REMIC Structures. For certain Series of Certificates, two or more
separate elections may be made to treat designated portions of the related Trust
Fund as REMICs (respectively, the "SUBSIDIARY REMIC" and the "MASTER REMIC") for
federal income tax purposes. Upon the issuance of any such Series of
Certificates, Brown & Wood LLP or Cadwalader, Wickersham & Taft or Latham &
Watkins, 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 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 Certificate's 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. In the
alternative, the IRS could assert that the stated redemption price at maturity
of such REMIC Regular Certificates should be limited to their principal amount
(subject to the discussion below under "--Accrued Interest Certificates"), so
that such REMIC Regular Certificates would be considered for federal income tax
purposes to be issued at a premium. If such a position were to prevail, the
rules described below under "--Taxation of Owners of REMIC Regular
Certificates--Premium" would apply. It is unclear when a loss may be claimed for
any unrecovered basis for a Super-Premium Certificate. It is possible that a
holder of a Super-Premium Certificate may only claim a loss when its remaining
basis exceeds the maximum amount of future payments, assuming no further
prepayments or when the final payment is received with respect to such
Super-Premium Certificate.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than REMIC Regular Certificate based on a notional amount)
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular Certificate
generally should not be treated as a Super-Premium Certificate and the rules
described below under "--REMIC Regular Certificates--Premium" should apply.
However, it is possible that holders of REMIC Regular Certificates issued at a
premium, even if the premium is less than 25% of such Certificate's actual
principal balance, will be required to amortize the premium under an original
issue discount method or contingent interest method even though no election
under Code Section 171 is made to amortize such premium.
Generally, a REMIC Regular Certificateholder must include in gross income
the "daily portions," as determined below, of the OID that accrues on a REMIC
Regular Certificate for each day a Certificateholder holds the REMIC Regular
Certificate, including the purchase date but excluding the disposition date. In
the case of an original holder of a REMIC Regular Certificate, a calculation
will be made of the portion of the OID that accrues during each successive
period (an "ACCRUAL PERIOD") that ends on the day in the calendar year
corresponding to a Distribution Date (or if Distribution Dates are on the first
day or first business day of the immediately preceding month, interest may be
treated as payable on the last day of the immediately preceding month) and
begins on the day after the end of the immediately preceding accrual period (or
on the issue date in the case of the first accrual period). This will be done,
in the case of each full accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the REMIC Regular Certificates as calculated under
the Prepayment Assumption) of all remaining payments to be received on the REMIC
Regular Certificates under the Prepayment Assumption and (b) any payments
included in the stated redemption price at maturity received during such accrual
period, and (ii) subtracting from that total the adjusted issue price of the
REMIC Regular Certificates at the beginning of such accrual period. The adjusted
issue price of a REMIC Regular Certificate at the beginning of the first accrual
period is its issue price; the adjusted issue price of a REMIC Regular
Certificate at the beginning of a subsequent accrual period is the adjusted
issue price at the beginning of the immediately preceding accrual period plus
the amount of OID allocable to that accrual period and reduced by the amount of
any payment other than a payment of qualified stated interest made at the end of
or during that accrual period. The OID accrued during an accrual period will
then be divided by the number of days in the period to determine the daily
portion of OID for each day in the accrual period. The calculation of OID under
the method described above will cause the accrual of OID to either increase or
decrease (but never below zero) in a given accrual period to reflect the fact
that prepayments are occurring faster or slower than under the Prepayment
Assumption. With respect to an initial accrual period shorter than a full
accrual period, the daily portions of OID may be determined according to an
appropriate allocation under any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate issued with OID who
purchases the REMIC Regular Certificate at a cost less than the remaining stated
redemption price at maturity will also be required to include in gross income
the sum of the daily portions of OID on that REMIC Regular Certificate. In
computing the daily portions of OID for such a purchaser (as well as an initial
purchaser that purchases at a price higher than the adjusted issue price but
less than the stated redemption price at maturity), however, the daily portion
is reduced by the amount that would be the daily portion for such day (computed
in accordance with the rules set forth above) multiplied by a fraction, the
numerator of which is the amount, if any, by which the price paid by such holder
for that REMIC Regular Certificate exceeds the following amount: (a) the sum of
the issue price plus the aggregate amount of OID that would have been includible
in the gross income of an original REMIC Regular Certificateholder (who
purchased the REMIC Regular Certificate at its issue price), less (b) any prior
payments included in the stated redemption price at maturity, and the
denominator of which is the sum of the daily portions for that REMIC Regular
Certificate for all days beginning on the date after the purchase date and
ending on the maturity date computed under the Prepayment Assumption. A holder
who pays an acquisition premium instead may elect to accrue OID by treating the
purchase as a purchase at original issue.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates may
provide for interest based on a variable rate. Interest based on a variable rate
will constitute qualified stated interest and not contingent interest if,
generally, (i) such interest is unconditionally payable at least annually, (ii)
the issue price of the debt instrument does not exceed the total noncontingent
principal payments and (iii) interest is based on a "qualified floating rate,"
an "objective rate," a combination of a single fixed rate and one or more
"qualified floating rates," one "qualified inverse floating rate," or a
combination of "qualified floating rates" that do not operate in a manner that
significantly accelerates or defers interest payments on such REMIC Regular
Certificate.
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 at the rate applicable on the date they are issued. 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. No guidance is currently available as to how OID would be determined
for debt instruments subject to Code Section 1272(a)(6) that provide for
contingent interest. Such treatment of REMIC Regular Certificates as contingent
payments debt instruments may affect 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.
Market Discount. A purchaser of a REMIC Regular Certificate may also be
subject to the market discount provisions of Code Sections 1276 through 1278.
Under these provisions and the OID Regulations, "market discount" equals the
excess, if any, of (i) the REMIC Regular Certificate's stated principal amount
or, in the case of a REMIC Regular Certificate with OID, the adjusted issue
price (determined for this purpose as if the purchaser had purchased such REMIC
Regular Certificate from an original holder) over (ii) the price for such REMIC
Regular Certificate paid by the purchaser. A Certificateholder that purchases a
REMIC Regular Certificate at a market discount will recognize income upon
receipt of each distribution representing amounts included in such certificate's
stated redemption price at maturity. In particular, under Section 1276 of the
Code such a holder generally will be required to allocate each such distribution
first to accrued market discount not previously included in income, and to
recognize ordinary income to that extent. A Certificateholder may elect to
include market discount in income currently as it accrues rather than including
it on a deferred basis in accordance with the foregoing. If made, such election
will apply to all market discount bonds acquired by such Certificateholder on or
after the first day of the first taxable year to which such election applies.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular Certificate
is less than 0.25% of such REMIC Regular Certificate's stated redemption price
at maturity multiplied by such REMIC Regular Certificate's weighted average
maturity remaining after the date of purchase. If market discount on a REMIC
Regular Certificate is considered to be zero under this rule, the actual amount
of market discount must be allocated to the remaining principal payments on the
REMIC Regular Certificate, and gain equal to such allocated amount will be
recognized when the corresponding principal payment is made. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under Code Sections 1276 through 1278.
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. The IRS has issued
final regulations dealing with the amortizable bond premium (the "Amortizable
Bond Premium Regulations"). The Amortizable Bond Premium Regulations do not
apply to prepayable securities described in Section 1272(a)(6) of the Code, such
as the REMIC Regular Certificates. Certificateholders should consult their tax
advisors regarding the possibility of making an election to amortize any such
bond premium.
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.
Effects of Defaults and Delinquencies. Certain Series of Certificates may
contain one or more classes of Subordinate Certificates, and in the event there
are defaults or delinquencies on the Mortgage Assets, amounts that would
otherwise be distributed on the Subordinate Certificates may instead be
distributed on the Senior Certificates. Subordinate 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 Subordinate Certificates attributable to defaults and
delinquencies on the Mortgage Assets, except to the extent that it can be
established that such amounts are uncollectible. As a result, the amount of
income reported by a Subordinate 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 Subordinate Certificate is reduced as a result of defaults
and delinquencies on the Mortgage Assets. Timing and characterization of such
losses is discussed in "--REMIC Regular Certificates--Treatment of Realized
Losses" below.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption, or
retirement and the seller's adjusted basis in the REMIC Regular Certificate.
Such adjusted basis generally will equal the cost of the REMIC Regular
Certificate to the seller, increased by any OID and market discount included in
the seller's gross income with respect to the REMIC Regular Certificate, and
reduced (but not below zero) by payments included in the stated redemption price
at maturity previously received by the seller and by any amortized premium.
Similarly, a holder who receives a payment that is part of the stated redemption
price at maturity of a REMIC Regular Certificate will recognize gain equal to
the excess, if any, of the amount of the payment over 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 individuals 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 capital 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.
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 require 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 Certificates' issue
price may be computed by subtracting from the issue price the amount of
pre-issuance accrued interest, rather than as an amount payable on the REMIC
Regular Certificate. However, it is unclear under this method how the OID
Regulations treat interest on Payment Lag Certificates. Therefore, in the case
of a Payment Lag Certificate, the Trust Fund intends to include accrued interest
in the issue price and report interest payments made on the first Distribution
Date as interest to the extent such payments represent interest for the number
of days that the Certificateholder has held such Payment Lag Certificate during
the first accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury regulations,
if the REMIC is considered to be a "single-class REMIC," a portion of the
REMIC's servicing, administrative and other non-interest expenses will be
allocated as a separate item to those REMIC Regular Certificateholders that are
"pass-through interest holders." Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of these
rules on an investment in the REMIC Regular Certificates. See "Pass-Through of
Non-Interest Expenses of the REMIC" under "Taxation of Owners of REMIC Residual
Certificates" below.
Treatment of Realized Losses. Although not entirely clear, it appears that
holders of REMIC Regular Certificates that are corporations should in general be
allowed to deduct as an ordinary loss any loss sustained during the taxable year
on account of any such Certificates becoming wholly or partially worthless, and
that, in general, holders of Certificates that are not corporations should be
allowed to deduct as a short-term capital loss any loss sustained during the
taxable year on account of any such Certificates becoming wholly worthless.
Although the matter is not entirely clear, non-corporate holders of Certificates
may be allowed a bad debt deduction at such time that the principal balance of
any such Certificate is reduced to reflect realized losses resulting from any
liquidated Mortgage Assets. The Internal Revenue Service, however, could take
the position that non-corporate holders will be allowed a bad debt deduction to
reflect realized losses only after all Mortgage Assets remaining in the related
Trust Fund have been liquidated or the Certificates of the related Series have
been otherwise retired. 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 a holder that is a non-U.S. Person of a trade or
business in the United States, then such holder will not be subject to the 30%
withholding tax on gross income therefrom but will be subject to U.S. income tax
at regular graduated rates on its net income and, if such holder is a
corporation, may be subject to U.S. branch profits tax as well.
Further, a REMIC Regular Certificate will not be included in the estate of
a non-resident alien individual 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.
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 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 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 finalized regulations (the
"MARK-TO-MARKET REGULATIONS") which provide that a REMIC Residual Certificate
acquired after January 3, 1995 cannot be marked to market. The Mark-to-Market
Regulations replaced the temporary regulations which allowed a Residual
Certificate to be marked to market provided that it was not a "negative value"
residual interest and did not have the same economic effect as a "negative
value" residual interest.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule, all
of the fees and expenses of a REMIC will be taken into account by holders of the
REMIC Residual Certificates. In the case of a single class REMIC, however, the
expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the REMIC Regular Certificateholders and
the REMIC Residual Certificateholders on a daily basis in proportion to the
relative amounts of income accruing to each Certificateholder on that day. In
general terms, a single class REMIC is one that either (i) would qualify, under
existing Treasury regulations, as a grantor trust if it were not a REMIC
(treating all interests as ownership interests, even if they would be classified
as debt for federal income tax purposes) or (ii) is similar to such a trust and
is structured with the principal purpose of avoiding the single class REMIC
rules. Unless otherwise stated in the applicable Prospectus Supplement, the
expenses of the REMIC will be allocated to holders of the related REMIC Residual
Certificates in their entirety and not to holders of the related REMIC Regular
Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest in a
REMIC Regular Certificate or a REMIC Residual Certificate directly or through a
pass-through interest holder that is required to pass miscellaneous itemized
deductions through to its owners or beneficiaries (e.g., a partnership, an S
corporation or a grantor trust), such expenses will be deductible under Code
Section 67 only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such individual's adjusted
gross income. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a certain amount (the "APPLICABLE AMOUNT") will be reduced by the lesser
of (i) 3% of the excess of the individual's adjusted gross income over the
Applicable Amount or (ii) 80% of the amount of itemized deductions otherwise
allowable for the taxable year. The amount of additional taxable income
recognized by REMIC Residual Certificateholders who are subject to the
limitations of either Code Section 67 or Code Section 68 may be substantial.
Further, holders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holders' alternative minimum taxable income. The REMIC is required to report to
each pass-through interest holder and to the IRS such holder's allocable share,
if any, of the REMIC's non-interest expenses. The term "PASS-THROUGH INTEREST
HOLDER" generally refers to individuals, entities taxed as individuals and
certain pass-through entities, but does not include real estate investment
trusts. REMIC Residual Certificateholders that are pass-through interest holders
should consult their own tax advisors about the impact of these rules on an
investment in the REMIC Residual Certificates.
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 eliminated the special rule
permitting Section 593 institutions ("THRIFT INSTITUTIONS") to use net operating
losses and other allowable deductions to offset their excess inclusion income
from REMIC residual certificates that have "significant value" within the
meaning of the REMIC Regulations, effective for taxable years beginning after
December 31, 1995, except with respect to residual certificates continuously
held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect on excess inclusions on the alternative minimum
taxable income of a residual holder. First, alternative minimum taxable income
for such residual holder is determined without regard to the special rule that
taxable income cannot be less than excess inclusions. Second, the amount of any
alternative minimum tax net operating loss deductions must be computed without
regard to any excess inclusions. Third, a residual holder's alternative minimum
taxable income for a tax year cannot be less than excess inclusions for the
year. The effect of this last statutory amendment is to prevent the use of
nonrefundable tax credits to reduce a taxpayer's income tax below its tentative
minimum tax computed only on excess inclusions. These rules are effective for
tax years beginning after December 31, 1986, unless a residual holder elects to
have such rules apply only to tax years beginning after August 20, 1996.
Payments. Any distribution made on a REMIC Residual Certificate to a REMIC
Residual Certificateholder will be treated as a non-taxable return of capital to
the extent it does not exceed the REMIC Residual Certificateholder's adjusted
basis in such REMIC Residual Certificate. To the extent a distribution exceeds
such adjusted basis, it will be treated as gain from the sale of the REMIC
Residual Certificate.
Sale or Exchange of REMIC Residual Certificates. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or exchange
and its adjusted basis in the REMIC Residual Certificate (except that the
recognition of loss may be limited under the "wash sale" rules described below).
A holder's adjusted basis in a REMIC Residual Certificate generally equals the
cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder, increased by the taxable income of the REMIC that was
included in the income of such REMIC Residual Certificateholder with respect to
such REMIC Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to such REMIC Residual
Certificateholder with respect to such REMIC Residual Certificate and by the
distributions received thereon by such REMIC Residual Certificateholder. In
general, any such gain or loss will be capital gain or loss provided the REMIC
Residual Certificate is held as a capital asset. However, REMIC Residual
Certificates will be "evidences of indebtedness" within the meaning of Code
Section 582(c)(1), so that gain or loss recognized from sale of a REMIC Residual
Certificate by a bank or thrift institution to which such section applies would
be ordinary income or loss.
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.
Except as provided in Treasury regulations yet to be issued, if the seller
of a REMIC Residual Certificate reacquires such REMIC Residual Certificate, or
acquires any other REMIC Residual Certificate, any residual interest in another
REMIC or similar interest in a "taxable mortgage pool" (as defined in Code
Section 7701(i)) during the period beginning six months before, and ending six
months after, the date of such sale, such sale will be subject to the "wash
sale" rules of Code Section 1091. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but, instead,
will increase such REMIC Residual Certificateholder's adjusted basis in the
newly acquired asset.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (the "PROHIBITED TRANSACTIONS TAX"). In general,
subject to certain specified exceptions, a prohibited transaction means the
disposition of a Mortgage Asset, the receipt of income from a source other than
a Mortgage Asset or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Assets for temporary investment pending
distribution on the Certificates. It is not anticipated that the Trust Fund for
any Series of Certificates will engage in any prohibited transactions in which
it would recognize a material amount of net income.
In addition, certain contributions to a Trust Fund as to which an election
has been made to treat such Trust Fund as a REMIC made after the day on which
such Trust Fund issues all of its interests could result in the imposition of a
tax on the Trust Fund equal to 100% of the value of the contributed property
(the "CONTRIBUTIONS TAX"). No Trust Fund for any Series of Certificates will
accept contributions that would subject it to such tax.
In addition, a Trust Fund as to which an election has been made to treat
such Trust Fund as a REMIC may also be subject to federal income tax at the
highest corporate rate on "net income from foreclosure property," determined by
reference to the rules applicable to real estate investment trusts. "Net income
from foreclosure property" generally means income from foreclosure property
other than qualifying income for a real estate investment trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net income
from foreclosure property or state or local income or franchise tax that may be
imposed on a REMIC relating to any Series of Certificates arises out of or
results from (i) a breach of the related Servicer's, Trustee's or Depositor's
obligations, as the case may be, under the related Agreement for such Series,
such tax will be borne by such Servicer, Trustee or Depositor, as the case may
be, out of its own funds or (ii) the Depositor's obligation to repurchase a
Mortgage Loan, such tax will be borne by the Depositor. In the event that such
Servicer, Trustee or Depositor, as the case may be, fails to pay or is not
required to pay any such tax as provided above, such tax will be payable out of
the Trust Fund for such Series and will result in a reduction in amounts
available to be distributed to the Certificateholders of such Series.
LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC's final tax return a date on which such adoption is deemed to occur, and
sells all of its assets (other than cash) within a 90-day period beginning on
such date, the REMIC will not be subject to any Prohibited Transaction Tax,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash (other than the amounts retained to meet claims) to
holders of Regular and REMIC Residual Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis in
the REMIC Residual Certificate exceeds the amount of cash distributed to such
REMIC Residual Certificateholder in final liquidation of its interest, then it
would appear that the REMIC Residual Certificateholder would be entitled to a
loss equal to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code, the
REMIC generally will be treated as a partnership and the REMIC Residual
Certificateholders will be treated as the partners. Certain information will be
furnished quarterly to each REMIC Residual Certificateholder who held a REMIC
Residual Certificate on any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the REMIC
Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting an
administrative proceeding at the REMIC level. The REMIC does not intend to
register as a tax shelter pursuant to Code Section 6111 because it is not
anticipated that the REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
TAX-EXEMPT INVESTORS
Any REMIC Residual Certificateholder that is a pension fund or other entity
that is subject to federal income taxation only on its "unrelated business
taxable income" within the meaning of Code Section 512 will be subject to such
tax on that portion of the distributions received on a REMIC Residual
Certificate that is considered an excess inclusion. See "--Taxation of Owners of
REMIC Residual Certificates--Excess Inclusions" above.
RESIDUAL CERTIFICATE PAYMENTS-NON-U.S. PERSONS
Amounts paid to REMIC Residual Certificateholders who are not U.S. Persons
(see "--Taxation of Owners of REMIC Regular Certificates--Non-U.S. Persons"
above) are treated as interest for purposes of the 30% (or lower treaty rate)
United States withholding tax. Amounts distributed to holders of REMIC Residual
Certificates should qualify as "portfolio interest," subject to the conditions
described in "--Taxation of Owners of REMIC Regular Certificates" above, but
only to the extent that the underlying mortgage loans were originated after July
18, 1984. Furthermore, the rate of withholding on any income on a REMIC Residual
Certificate that is excess inclusion income will not be subject to reduction
under any applicable tax treaties. See "--Taxation of Owners of REMIC Residual
Certificates--Excess Inclusions" above. If the portfolio interest exemption is
unavailable, such amount will be subject to United States withholding tax when
paid or otherwise distributed (or when the REMIC Residual Certificate is
disposed of) under rules similar to those for withholding upon disposition of
debt instruments that have OID. The Code, however, grants the Treasury
Department authority to issue regulations requiring that those amounts be taken
into account earlier than otherwise provided where necessary to prevent
avoidance of tax (for example, where the REMIC Residual Certificates do not have
significant value). See "--Taxation of Owners of REMIC Residual
Certificates--Excess Inclusions" above. If the amounts paid to REMIC Residual
Certificateholders that are not U.S. Persons are effectively connected with
their conduct of a trade or business within the United States, the 30% (or lower
treaty rate) withholding will not apply. Instead, the amounts paid to such
non-U.S. Person will be subject to U.S. federal income taxation at regular
graduated rates. For special restrictions on the transfer of REMIC Residual
Certificates, see "--Tax-Related Restrictions on Transfers of REMIC Residual
Certificates" below.
REMIC Regular Certificateholders and persons related to such holders should
not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their tax
advisors as to the possible adverse tax consequences of such acquisition.
TAX-RELATED RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by "disqualified organizations" (as defined below).
Further, a tax is imposed on the transfer of a residual interest in a REMIC to a
"disqualified organization." The amount of the tax equals the product of (A) an
amount (as determined under the REMIC Regulations) equal to the present value of
the total anticipated "excess inclusions" with respect to such interest for
periods after the transfer and (ii) the highest marginal federal income tax rate
applicable to corporations. The tax is imposed on the transferor unless the
transfer is through an agent (including a broker or other middleman) for a
disqualified organization, in which event the tax is imposed on the agent. The
person otherwise liable for the tax shall be relieved of liability for the tax
if the transferee furnished to such person an affidavit that the transferee is
not a disqualified organization and, at the time of the transfer, such person
does not have actual knowledge that the affidavit is false. A "DISQUALIFIED
ORGANIZATION" means (A) the United States, any State, possession or political
subdivision thereof, any foreign government, any international organization or
any agency or instrumentality of any of the foregoing (provided that such term
does not include an instrumentality if all its activities are subject to tax
and, except for FHLMC, a majority of its board of directors is not selected by
any such governmental agency), (B) any organization (other than certain farmers'
cooperatives) generally exempt from federal income taxes unless such
organization is subject to the tax on "unrelated business taxable income" and
(C) a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding a
residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity. The amount of the tax is equal to the product of (A)
the amount of excess inclusions for the taxable year allocable to the interest
held by the disqualified organization and (B) the highest marginal federal
income tax rate applicable to corporations. The pass-through entity otherwise
liable for the tax, for any period during which the disqualified organization is
the record holder of an interest in such entity, will be relieved of liability
for the tax if such record holder furnishes to such entity an affidavit that
such record holder is not a disqualified organization and, for such period, the
pass-through entity does not have actual knowledge that the affidavit is false.
For this purpose, a "PASS-THROUGH ENTITY" means (i) a regulated investment
company, real estate investment trust or common trust fund, (ii) a partnership,
trust or estate and (iii) certain cooperatives. Except as may be provided in
Treasury regulations not yet issued, any person holding an interest in a
pass-through entity as a nominee for another will, with respect to such
interest, be treated as a pass-through entity. 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 expects 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 (or
applicable successor form adopted by the IRS for such purposes) and the Trustee
consents to such transfer in writing.
Any attempted transfer or pledge in violation of the transfer restrictions
shall be absolutely null and void and shall vest no rights in any purported
transferee. Investors in REMIC Residual Certificates are advised to consult
their own tax advisors with respect to transfers of the REMIC Residual
Certificates and, in addition, pass-through entities are advised to consult
their own tax advisors with respect to any tax which may be imposed on a
pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences," potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Offered Certificates.
CERTAIN ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and Section 4975 of the Code, impose certain restrictions on employee benefit
plans subject to ERISA and certain other relevant plans and arrangements
(including, but not limited to, individual retirement accounts and annuities)
("PLANS") and on persons who are parties in interest or disqualified persons
("PARTIES IN INTEREST") with respect to such Plans. Certain employee benefit
plans, such as governmental plans and church plans (if no election has been made
under Section 410(d) of the Code), are not subject to the restrictions of ERISA,
and assets of such plans may be invested in the Certificates without regard to
the ERISA considerations described below, subject to other applicable federal
and state law. However, any such governmental or church plan which is qualified
under Section 401(a) of the Code and exempt from taxation under Section 501(a)
of the Code is subject to the prohibited transaction rules set forth in Section
503 of the Code.
Investments by Plans are subject to ERISA's general fiduciary requirements,
including the requirement of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan.
PROHIBITED TRANSACTIONS
General
Section 406 of ERISA prohibits parties in interest with respect to a Plan
from engaging in certain transactions involving a Plan and its assets unless a
statutory, regulatory or administrative exemption applies to the transaction.
Section 4975 of the Code imposes certain excise taxes (or, in some cases, a
civil penalty may be assessed pursuant to Section 502(i) of ERISA) on parties in
interest which engage in non-exempt prohibited transactions.
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 to be assets of the Plan unless certain exceptions
apply.
Under the terms of the regulation, the Trust may be deemed to hold plan
assets by reason of a Plan's investment in a Certificate; such plan assets would
include an undivided interest in the Mortgage Loans and any other assets held by
the Trust. In such an event, the Asset Seller, the Master Servicer, the Trustee,
any insurer of the Mortgage Assets and other persons, in providing services with
respect to the assets of the Trust, may be parties in interest, subject to the
fiduciary responsibility provisions of Title I of ERISA, including the
prohibited transaction provisions of Section 406 of ERISA (and of Section 4975
of the Code), with respect to transactions involving such assets unless such
transactions are subject to a statutory, regulatory or administrative exemption.
The regulations contain a de minimis safe-harbor rule that exempts the
assets of any entity from plan assets status as long as the aggregate equity
investment in such entity by plans is not significant. For this purpose, equity
participation in the entity will be significant if immediately after any
acquisition of any equity interest in the entity, "benefit plan investors" in
the aggregate, own 25% or more of the value of any class of equity interest
(excluding from the calculation, the value of equity interest held by persons
who have discretionary authority or control with access 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 ERISA (e.g.,
governmental plans). To fit within the safeharbor benefit plan investors must
_____________over less than The 25% limitation must be met with respect to each
class of certificates, regardless of the portion of total equity value
represented by such class, on an ongoing basis.
Availability of Underwriter's Exemption for Certificates
Labor has granted to Morgan Stanley & Co. Incorporated Prohibited
Transaction Exemption 90-24, Exemption Application No. D-8019, 55 Fed. Reg.
20548 (1990) (the "EXEMPTION") which exempts from the application of the
prohibited transaction rules transactions relating to: (1) the acquisition, sale
and holding by Plans of certain certificates representing an undivided interest
in certain asset-backed pass-through trusts, with respect to which Morgan
Stanley & Co. Incorporated or any of its affiliates is the sole underwriter or
the manager or co-manager of the underwriting syndicate; and (2) the servicing,
operation and management of such asset-backed pass-through trusts, provided that
the general conditions and certain other conditions set forth in the Exemption
are satisfied.
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;
(3) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest
generic rating categories from any of Duff & Phelps Inc., Fitch IBCA,
Inc., Moody's Investors Service, Inc. and Standard & Poor's Ratings
Group (each, a "Rating Agency").
(4) The Trustee is not an affiliate of the Underwriter, the Asset
Seller, 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 each Servicer represents not more
than reasonable compensation for such Servicer's services under the
Pooling Agreement and reimbursement of such 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.
The Trust Fund must also meet the following requirements:
(i) the corpus of the Trust Fund must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates evidencing interests in such other investment pools
must have been rated in one of the three highest rating categories of a
Rating Agency for at least one year prior to the Plan's acquisition of the
Securities; and
(iii) certificates evidencing interests 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 the Securities.
On July 21, 1997, Labor published in the Federal Register an amendment to
the Exemption, which extends exemptive relief to certain mortgage-backed and
asset-backed securities transactions using pre-funding accounts for trusts
issuing pass-through certificates. The amendment generally allows mortgage loans
or other secured receivables (the "OBLIGATIONS") supporting payments to
certificateholders, and having a value equal to no more than twenty-five percent
(25%) of the total principal amount of the certificates being offered by the
trust, to be transferred to the trust within a 90-day or three-month period
following the closing date (the "PRE-FUNDING PERIOD"), instead of requiring that
all such Obligations be either identified or transferred on or before the
Closing Date. The relief is available when the following conditions are met:
(1) The ratio of the amount allocated to the pre-funding account to
the total principal amount of the certificates being offered (the
"PRE-FUNDING LIMIT") must not exceed twenty-five percent (25%).
(2) All Obligations transferred after the Closing Date (the
"ADDITIONAL OBLIGATIONS") must meet the same terms and conditions for
eligibility as the original Obligations used to create the trust, which
terms and conditions have been approved by a Rating Agency.
(3) The transfer of such Additional Obligations to the trust during
the Pre-Funding Period must not result in the certificates to be covered by
the Exemption receiving a lower credit rating from a Rating Agency upon
termination of the Pre-Funding Period than the rating that was obtained at
the time of the initial issuance of the certificates by the trust.
(4) Solely as a result of the use of pre-funding, the weighted average
annual percentage interest rate for all of the Obligations in the trust at
the end of the Pre-Funding Period must not be more than 100 basis points
lower than the average interest rate for the Obligations transferred to the
trust on the Closing Date.
(5) In order to insure that the characteristics of the Additional
Obligations are substantially similar to the original Obligations which
were transferred to the Trust Fund:
(i) the characteristics of the Additional Obligations must be
monitored by an insurer or other credit support provider that is
independent of the depositor; or
(ii) an independent accountant retained by the depositor must
provide the depositor with a letter (with copies provided to each
Rating Agency rating the certificates, the related underwriter and the
related trustee) stating whether or not the characteristics of the
Additional Obligations conform to the characteristics described in the
related prospectus or prospectus supplement and/or pooling and
servicing agreement. In preparing such letter, the independent
accountant must use the same type of procedures as were applicable to
the Obligations transferred to the trust as of the Closing Date.
(6) The Pre-Funding Period must end no later than three months or 90
days after the Closing Date or earlier in certain circumstances if the
pre-funding account falls below the minimum level specified in the pooling
and servicing agreement or an Event of Default occurs.
(7) Amounts transferred to any pre-funding account and/or capitalized
interest account used in connection with the pre-funding may be invested
only in certain permitted investments ("PERMITTED INVESTMENTS").
(8) The related prospectus or prospectus supplement must describe:
(i) any pre-funding account and/or capitalized interest account
used in connection with a pre-funding account;
(ii) the duration of the Pre-Funding Period;
(iii) the percentage and/or dollar amount of the Pre-Funding
Limit for the trust; and
(iv) that the amounts remaining in the pre-funding account at the
end of the Pre-Funding Period will be remitted to certificateholders
as repayments of principal.
(9) The related pooling and servicing agreement must describe the
Permitted Investments for the pre-funding account and/or capitalized
interest account and, if not disclosed in the related prospectus or
prospectus supplement, the terms and conditions for eligibility of
Additional Obligations.
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 certificates in a trust,
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 (as defined below) 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 certificates, at
least fifty percent of each class of certificates in which Plans have invested
is acquired by persons independent of the Restricted Group (as defined below)
and at least fifty percent of the aggregate interest in the trust fund is
acquired by persons independent of the Restricted Group; (iv) a Plan's
investment in certificates of any class 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 any 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. The Exemption does not apply to Plans
sponsored by the Seller, the Depositor, Morgan Stanley and the other
underwriters set forth in the related Prospectus Supplement, the Trustee, the
Master Servicer, the Pool Insurer, any obligor with respect to the Trust Fund
Asset included in the Trust Fund constituting more than five percent of the
aggregate unamortized principal balance of the assets in the Trust Fund, or any
affiliate of any of such parties (the "Restricted Group").
Before purchasing a Certificate, a fiduciary of a Plan should itself
confirm (a) that the Certificates constitute "certificates" for purposes of the
Exemption and (b) that the specific and general conditions set forth in the
Exemption and the other requirements set forth in the Exemption would be
satisfied. The Prospectus Supplement for each Series of Certificates will
specify whether there is a "pre-funding period" and whether such additional
conditions will be satisfied.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any Certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Among other things, before purchasing any
Certificates, a fiduciary of a Plan subject to the fiduciary responsibility
provisions of ERISA or an employee benefit plan subject to the prohibited
transaction provisions of the Code should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions. In
particular, in connection with a contemplated purchase of Certificates
representing a beneficial ownership interest in a pool of single family
residential first mortgage loans, such Plan fiduciary should consider the
availability of the Exemption or Prohibited Transaction Class Exemption 83-1
("PTCE 83-1") for certain transactions involving mortgage pool investment
trusts. The Prospectus Supplement with respect to a series of Certificates may
contain additional information regarding the application of the Exemption, PTCE
83-1, or any other exemption, with respect to the Certificates offered thereby.
LEGAL INVESTMENT
Each class of Offered Certificates will be rated at the date of issuance in
one of the four highest rating categories by at least one Rating Agency. Unless
otherwise described in the related Prospectus Supplement, each such class that
is rated in one of the two highest rating categories by at least one Rating
Agency will constitute "mortgage related securities" ("SMMEA CERTIFICATES") for
purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended
("SMMEA") and, as such, will constitute legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including, but not limited to, depository institutions, insurance companies,
trustees and pension funds) created pursuant to or existing under the laws of
the United States or of any state (including the District of Columbia and Puerto
Rico) whose authorized investments are subject to state regulation to the same
extent that, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any 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
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. Accordingly, investors affected by such legislation
will be authorized to invest in SMMEA Certificates only to the extent provided
in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage related
securities" without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
ss. 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") amended 12 C.F.R. Part I to
authorize national banks to purchase and sell for their own account, without
limitation as to a percentage of the bank's capital and surplus (but subject to
compliance with certain general standards in 12 C.F.R. ss. 1.5 concerning
"safety and soundness" and retention of credit information), certain "Type IV
securities," defined in 12 C.F.R. ss. 1.2(1) to include certain "residential
mortgage-related securities." As so defined, "residential mortgage-related
security" means, in relevant part, "mortgage related security" within the
meaning of SMMEA. The National Credit Union Administration ("NCUA") has adopted
rules, codified at 12 C.F.R. Part 703, which permit federal credit unions to
invest in "mortgage related securities" under certain limited circumstances,
other than stripped mortgage related securities, residual interests in mortgage
related securities, and commercial mortgage related securities, unless the
credit union has obtained written approval from the NCUA to participate in the
"investment pilot program" described in 12 C.F.R. ss. 703.140. The Office of
Thrift Supervisions (the "OTS") has issued Thrift Bulletin 13a (December 1,
1998), "Management of Interest Rate Risk, Investment Securities and Derivative
Activities," which thrift institutions subject to the jurisdiction of the OTS
should consider before investing in any of the Offered Certificates.
All depository institutions considering an investment in the Offered
Certificates shall review the "Supervisory Policy Statement on Investment
Securities and End-User Derivatives Activities" (the "1998 POLICY STATEMENT") of
the Federal Financial Institutions Examination Council, which has been adopted
by the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the OCC and the OTS effective May 26, 1998, and by the
NCUA, effective October 1, 1998. The 1998 Policy Statement sets forth general
guidelines which depository institutions must follow in managing risks
(including market, credit, liquidity, operational (transaction), and legal
risks) applicable to all securities (including mortgage pass-through securities
and mortgage-derivative products) used for investment purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by 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).
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 those
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.
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.
Except as to the status of SMMEA Certificates identified in the Prospectus
Supplement for a series as "mortgage related securities" under SMMEA, no
representations are made as to the proper characterization of the Offered
Certificates for legal investment 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.
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.
If specified in the Prospectus Supplement relating to Certificates of a
particular series offered hereby, the Depositor, any affiliate thereof or any
other person or persons specified therein may purchase some or all of the
Certificates of any series from Morgan Stanley and any other underwriters
thereof. Such purchaser may thereafter from time to time offer and sell,
pursuant to this Prospectus and the related Prospectus Supplement, some or all
of such Certificates so purchased, directly, through one or more underwriters to
be designated at the time of the offering of such Certificates, through dealers
acting as agent and/or principal or in such other manner as may be specified in
the related Prospectus Supplement. Such offering may be restricted in the manner
specified in such Prospectus Supplement. Such transactions may be effected at
market prices prevailing at the time of sale, at negotiated prices or at fixed
prices. Any underwriters and dealers participating in such purchaser's offering
of such Certificates may receive compensation in the form of underwriting
discounts or commissions from such purchaser and such dealers may receive
commissions from the investors purchasing such Certificates for whom they may
act as agent (which discounts or commissions will not exceed those customary in
those types of transactions involved). Any dealer that participates in the
distribution of such Certificates may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any commissions and discounts received by
such dealer and any profit on the resale or such Certificates by such dealer
might be deemed to be underwriting discounts and commissions under the
Securities Act.
All or part of any Class of Certificates may be reacquired by the Depositor
or acquired by an affiliate of the Depositor in a secondary market transaction
or from an affiliate (including Morgan Stanley). Such Certificates may then be
included in a Trust Fund, the beneficial ownership of which will be evidenced by
one or more classes of mortgage-backed certificates, including subsequent series
of Certificates offered pursuant to this Prospectus and a Prospectus Supplement.
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 Brown & Wood LLP or Latham & Watkins.
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.
WHERE YOU CAN FIND MORE INFORMATION
The Depositor filed a registration statement relating to the Certificates
with the Securities and Exchange Commission ("SEC" or the "COMMISSION"). This
Prospectus is part of the registration statement, but the Registration Statement
includes additional information.
Copies of the Registration Statement may be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 upon payment of the
prescribed charges, or may be examined free of charge at the Commission's
offices, 450 Fifth Street N.W., Washington, D.C. 20549 or at the regional
offices of the Commission located at Suite 1300, 7 World Trade Center, New York,
New York 10048 and Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661-2511. The Commission also maintains a site on the World
Wide Web at "http://www.sec.gov" at which you can view and download copies of
reports, proxy and information statements and other information filed
electronically through the Electronic Data Gathering Analysis and Retrieval
("EDGAR") system. The Depositor has filed the Registration Statement, including
all exhibits, through the EDGAR system and therefore such materials should be
available by logging onto the Commission's Web site. The Commission maintains
computer terminals providing access to the EDGAR system at each of the offices
referred to above. Copies of any documents incorporated to this Prospectus by
reference will be provided to each person to whom a Prospectus is delivered upon
written or oral request directed to Morgan Stanley & Co. Incorporated, 1585
Broadway, 37th Floor, New York, New York 10036, Attention: David R. Warren,
telephone number (212) 761-4700.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows the Depositor to "incorporate by reference" information it
files with the SEC, which means that the Depositor can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this Prospectus.
Information that the Depositor files later with the SEC will automatically
update the information in this Prospectus. In all cases, you should rely on the
later information rather than on any different information included in this
Prospectus or the accompanying Prospectus Supplement. The Depositor incorporates
by reference any future annual, monthly and special SEC reports filed by or on
behalf of the Trust until the termination of the offering of the Certificates.
As a recipient of this Prospectus, you may request a copy of any document
the Depositor incorporates by reference, except exhibits to the documents
(unless the exhibits are specifically incorporated by reference), at no cost, by
writing or calling the Depositor at Morgan Stanley & Co. Incorporated, 1585
Broadway, 37th Floor, New York, New York 10036, Attention: David R. Warren,
telephone number (212) 761-4700.
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
PAGE(S) ON WHICH
TERM IS DEFINED
TERMS IN THE PROSPECTUS
1986 Act
Policy Statement
Accrual Certificates
accrual period
Accrued Certificate Interest
Additional Obligations
Advances
Amortizable Bond Premium Regulations
Applicable Amount
ARM Loans
Asset Seller
Assets
Available Distribution Amount
benefit plan investors
Book-Entry Certificates
Buydown Mortgage Loans
Buydown Period
Cash Flow Agreement
Cede
Certificate
Certificate Account
Certificate Balance
Certificate Owners
Certificates
Closing Date
Commission
Contributions Tax
Cooperative
Cooperative Loans
Cooperatives
Covered Trust
CPR
Credit Support
Crime Control Act
Deferred Interest
Definitive Certificates
Depositor
Determination Date
disqualified organization
Distribution Date
DTC
Due Period
ERISA
excess servicing
Exemption
FDIC
federal long-term rate
FHLMC
Government Securities
Indirect Participants
Insurance Proceeds
IRS
L/C Bank
Labor
Legislative History
Liquidation Proceeds
Loan-to-Value Ratio
Lock-out Date
Lock-out Period
Mark-to-Market Regulations
Master REMIC
Master Servicer
MBS
MBS Agreement
MBS Issuer
MBS Servicer
MBS Trustee
Morgan Stanley
Mortgage Assets
Mortgage Loan Group
Mortgage Loans
Mortgage Notes
Mortgage Rate
mortgages
Mortgages
mortgagor
NCUA
New Regulations
Nonrecoverable Advance
Obligations
OCC
OID
OID Regulations
Originator
OTS
Participants
parties in interest
pass-through entity
pass-through interest holder
Pass-Through Rate
Payment Lag Certificates
Permitted Investments
Plans
Pooling and Servicing Agreement
Pre-Funding Limit
Pre-Funding Period
pre-issuance accrued interest
prepayment
Prepayment Assumption
Prepayment Premium
Prohibited Transactions Tax
PTCE 83-1
Purchase Price
qualified mortgage
Rating Agency
Record Date
Refinance Loans
Related Proceeds
Relief Act
REMIC Certificates
REMIC Regular Certificateholders
REMIC Regular Certificates
REMIC Regulations
REMIC Residual Certificate
REMIC Residual Certificateholder
REMIC Residual Certificates
REO Extension
REO Tax
Restricted Group
Retained Interest
RICO
SEC
Senior Certificates
Series
Servicing Standard
SMMEA
SMMEA Certificates
SPA
Stripped ARM Obligations
Stripped Bond Certificates
Stripped Coupon Certificates
Stripped Interest Certificates
Stripped Principal Certificates
Subordinate Certificates
Sub-Servicer
Sub-Servicing Agreement
Subsidiary REMIC
Super-Premium Certificates
thrift institutions
Title V
Title VIII
Trust
Trust Fund
Trustee
U.S. Person
UCC
Underlying MBS
Value
Voting Rights
Warrantying Party
Whole Loans
<PAGE>
[VERSION 1]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the prospectus to which it relates
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 _________________, 199__
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ____, 199_)
[$ ]
(APPROXIMATE)
MORGAN STANLEY CAPITAL I 199_-_ TRUST,
ISSUER
MORGAN STANLEY CAPITAL I INC.,
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199_-___
---------------------------------------------
Morgan Stanley Capital I Inc. is offering certain classes of the Series 199_-__
Mortgage Pass-Through Certificates issued by the trust. The certificates which
represent beneficial ownership interests in a trust. The trust's assets will
primarily be ___ [[conventional],[fixed][and][adjustable] interest rate mortgage
loans, with terms to maturity of not more than ___ years, secured by first
[and/or junior] liens on one-to four-family residential properties,][mortgage
participations, mortgage pass-through certificates, mortgage-backed securities
evidencing interests therein or secured thereby,] [and] [certain direct
obligations of the United States, agencies thereof or agencies created thereby].
The Series 199_-___ Mortgage Pass-Through 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-__ IN THIS PROSPECTUS SUPPLEMENT AND PAGE __ OF THE
PROSPECTUS.
--------------------------------------
Certain characteristics of the offered certificates include:
<TABLE>
<CAPTION>
APPROXIMATE
INITIAL CERTIFICATE INITIAL RATED FINAL
PRINCIPAL OR PASS-THROUGH RATE EXPECTED DISTRIBUTION
CLASS NOTIONAL AMOUNT(1) RATE DESCRIPTION RATINGS DATE
----- ------------------- ------------ ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Class [___]................ $ %
- -------------------
<FN>
(1) Approximate, subject to adjustment as described herein.
</FN>
</TABLE>
--------------------------------------
The Securities and Exchange Commission and state securities regulators
have not approved or disapproved the offered certificates or determined if this
prospectus supplement or the accompanying prospectus are truthful or complete.
Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated will purchase the offered
certificates from Morgan Stanley Capital I Inc. and will offer them to the
public at negotiated prices determined at the time of sale. Morgan Stanley & Co.
Incorporated expects to deliver the offered certificates to purchasers on
__________ __, ____. 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 __________ __, ____, before deducting
expenses payable by Morgan Stanley Capital I Inc.
--------------------------------------
MORGAN STANLEY & CO. INCORPORATED
_____________________, 199__
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the offered certificates is contained in two separate
documents that progressively provide more detail: (a) the accompanying
prospectus, which provides general information, some of which may not apply to
the offered certificates; and (b) this prospectus supplement, which describes
the specific terms of the offered certificates. If the terms of the offered
certificates vary between this prospectus supplement and the accompanying
prospectus, you should rely on the information in this prospectus supplement.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone to
provide you with information that is different from that contained in this
prospectus supplement and the prospectus. The information in this prospectus
supplement is accurate only as of the date of this prospectus supplement.
This prospectus supplement 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 Significant Definitions" beginning on page _____ in this prospectus
supplement. The capitalized terms used in the prospectus are defined on the
pages indicated under the caption "Index of Significant Definitions" beginning
on page _____ 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 after the date of this prospectus
supplement, all dealers that buy, sell or trade the offered certificates,
whether or not participating in this offering, may be required to deliver a
prospectus supplement and the accompanying prospectus. This is in addition to
the dealers' obligation to deliver a prospectus supplement and the accompanying
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
-----------------------
This prospectus supplement and the accompanying prospectus contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended. Specifically, forward-looking statements, together with
related qualifying language and assumptions, are found in the material
(including tables) under the headings "Risk Factors" and "Certain Yield,
Prepayment and Maturity Considerations." Forward-looking statements are also
found in other places throughout this prospectus supplement and the prospectus,
and may be identified by, among other things, accompanying language such as
"expects," "intends," "anticipates," "estimates" or analogous expressions, or by
qualifying language or assumptions. These statements involve known and unknown
risks, uncertainties and other important factors that could cause the actual
results or performance to differ materially from the forward-looking statements.
These risks, uncertainties and other factors include, among others, general
economic and business conditions, competition, changes in political, social and
economic conditions, regulatory initiatives and compliance with governmental
regulations, customer preference and various other matters, many of which are
beyond the Depositor's control. These forward-looking statements speak only as
of the date of this prospectus supplement. The Depositor expressly disclaims any
obligation or undertaking to disseminate any updates or revisions to any
forward-looking statements to reflect changes in the Depositor's expectations
with regard to those statements or any change in events, conditions or
circumstances on which any forward-looking statement is based.
<PAGE>
EXECUTIVE SUMMARY
This Executive Summary highlights selected information regarding the
offered certificates and underlying mortgage loans. 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.
<TABLE>
<CAPTION>
CERTIFICATE SUMMARY
APPROXIMATE
APPROXIMATE PERCENT OF
CREDIT SUPPORT TOTAL
CERTIFICATES
---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
RATINGS
INITIAL ([LIST RATING
CLASS CERTIFICATE AGENCIES])
BALANCE
------------------------------ ---------------- ----------------- -----------------
[CLASS [___] CLASS[___] $ %
$
(Approximate Notional
Amount)]
---------------- ----------------- -----------------
---------------- ----------------- -----------------
[(1)]% [CLASS [___]] $ %
---------------- ----------------- -----------------
---------------- ----------------- -----------------
% [CLASS [___]] $ %
------------------------------ ---------------- ----------------- -----------------
---------------- ----------------- -----------------
% [CLASS [___]] $ %
---------------- ----------------- -----------------
% [CLASS $ %
[___]](2)
---------------- ----------------- -----------------
<FN>
[(1) Represents the approximate credit support for the Class [___] and Class [___] Certificates in the aggregate.]
[(2) Not offered hereby.]
</FN>
</TABLE>
[The Class [___] Certificates are not represented in this table.]
<PAGE>
<TABLE>
<CAPTION>
CERTIFICATE SUMMARY
- --------------------------------------------------------------------------------------------------------------------
INITIAL
RATINGS(1) CERTIFICATE INITIAL
([LIST RATING BALANCE [OR PASS-THROUGH WTD. AVG. PRINCIPAL
CLASS AGENCIES]) NOTIONAL % OF DESCRIPTION(3) RATE LIFE(4)(YRS.) WINDOW(4)
AMOUNT](2)(5) TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Offered Certificates
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
[---] $ % %
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
[Non-Offered Certificates]
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
[---] $ % %
- --------------------------------------------------------------------------------------------------------------------
[The Class [___] Certificates are not represented in this table.]
<FN>
(1) The Rated Final Distribution Date for each Class of rated Certificates is
the Distribution Date in ____________.
(2) Approximate, subject to adjustment as described herein.
(3) "Weighted Average Coupon" and "Fixed Rate" are descriptions of the type of
Pass-Through Rates borne by the related Classes [and "Interest Only"
designates that the related Class is entitled only to distributions of
interest].
(4) The weighted average life ("Weighted Average Life") and period during which
distributions of principal would be received (the "Principal Window") are
based on the assumptions that the Mortgage Loans suffer no losses and that
they are fully paid on their respective Effective Maturity Dates and
otherwise on the basis of the assumptions set forth under "Certain Yield,
Prepayment and Maturity Considerations--Weighted Average Life of the Class
[ ] Certificates." The Principal Window is expressed in months following
the Closing Date, commencing with the first Distribution Date.
(5) [The Class [___] Certificates will not have a Certificate Balance and will
not be entitled to receive distributions of principal. Interest will accrue
on the Class [___] Certificates at its Pass-Through Rate and on its
Notional Amount. The Notional Amount of the Class [___] Certificates is
initially $[ ], which is equal to the aggregate initial Certificate
Principal Amount of the Class [___], Class [___], Class [___], Class [___]
and Class [___] Certificates. See "Description of the Offered
Certificates--General" herein.]
</FN>
</TABLE>
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Supplement
Executive Summary...............................................................
Summary of Terms................................................................
Risk Factors....................................................................
Description of the [Mortgage Pool] [MBS]........................................
Description of the Certificates.................................................
Certain Yield, Prepayment and Maturity Considerations...........................
Pooling and Servicing Agreement.................................................
Use of Proceeds.................................................................
Certain Federal Income Tax Consequences.........................................
ERISA Considerations............................................................
Legal Investment................................................................
Plan of Distribution............................................................
Legal Matters...................................................................
Rating..........................................................................
Prospectus
Prospectus Supplement...........................................................
Available Information...........................................................
Incorporation of Certain Information by Reference...............................
Summary of Prospectus...........................................................
Risk Factors....................................................................
Description of the Trust Funds..................................................
Use of Proceeds.................................................................
Yield Considerations............................................................
The Depositor...................................................................
Description of the Certificates.................................................
Description of the Agreements...................................................
Description of Credit Support...................................................
Certain Legal Aspects of Mortgage Loans.........................................
Certain Federal Income Tax Consequences.........................................
State Tax Considerations........................................................
ERISA Considerations............................................................
Legal Investment................................................................
Plan of Distribution............................................................
Legal Matters...................................................................
Financial Information...........................................................
Rating..........................................................................
Index of Principal Definitions..................................................
<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 certificates, read this entire document and the accompanying prospectus
carefully.
RELEVANT PARTIES AND DATES
ISSUER.....................Morgan Stanley Capital I 199_-_ Trust (the "Trust").
DEPOSITOR..................Morgan Stanley Capital I Inc., a Delaware
corporation and a wholly-owned limited purpose
finance subsidiary of Morgan Stanley Group Inc. See
"The Depositor" in the prospectus.
MASTER SERVICER............_______________, a ________________. See "Pooling
and Servicing Agreement--The Master Servicer" in this
prospectus supplement.
[SPECIAL SERVICER..........___________________, a __________________].
[SUB-SERVICERS.............___________________, a __________________].
TRUSTEE....................___________________, a ___________________.
CUT-OFF DATE...............____________ 1, 199_.
CLOSING DATE...............______________ 1, 199_.
DISTRIBUTION DATE..........The __ day of each [month] [ ] or, if any such __ day
is not a business day, then the next succeeding
business day, beginning in ________ 19__ (each, a
"Distribution Date").
RECORD DATE................With respect to each Distribution Date, the [last
business day of the month preceding such Distribution
Date] (each, a "Record Date").
CERTIFICATES
GENERAL....................Morgan Stanley Capital I Inc. is offering the
following __ classes of Mortgage Pass-Through
Certificates (collectively, the "Certificates") as
part of Series 199_-_:
o Class [ ]
o Class [ ]
Series 199_-_ will consist of a total of __
classes[, the following __ of which are not being
offered through this prospectus supplement and the
accompanying prospectus: Class [ ], Class [ ], Class
[ ], Class [ ] and Class [ ]].
Your certificates will represent beneficial ownership
interests in the trust. The trust's assets will
primarily be [[conventional], [fixed] [and]
[adjustable] interest rate mortgage loans, with terms
to maturity of not more than ___ years, secured by
first [and/or junior] liens on one- to four-family
residential properties,] [mortgage participations,
mortgage pass-through certificates, mortgage-backed
securities evidencing interests therein or secured
thereby,] [and] [certain direct obligations of the
United States, agencies thereof or agencies created
thereby].
CERTIFICATE BALANCES.......Your Certificates will have the approximate aggregate
certificate balance set forth on the cover, subject
to a variance of plus or minus 5% (the "Certificate
Balance").
[The Class [ ] Certificates will not have a
certificate balance.] [The Class [ ] Certificates
will receive interest only; they will not be entitled
to distributions of principal.] [The Class [ ]
Certificates will receive principal only; they will
not be entitled to distributions of interest.] [The
certificate balance of the Class [ ] Certificates
will be adjusted from time to time on each
distribution date to reflect any increase resulting
from negative amortization of mortgage loans included
in the trust and any decrease resulting from
distributions of principal of the Class [ ]
Certificates.] See "Description of the
Certificates--General" in this prospectus supplement.
PASS-THROUGH RATE ON THE
CLASS [ ] CERTIFICATES..Your certificates will accrue interest at an annual
rate called a "Pass-Through Rate" which is set forth
on the cover.
[Interest on the certificates will be calculated
based on a 360-day year consisting of twelve 30-day
months (also referred to herein as a 30/360 basis).]
[The Pass-Through Rate on the Class [ ] Certificates
will be equal to the weighted average of the
remittance rates in effect from time to time on the
trust's assets.] [The Class [ ] Certificates [or a
component thereof] will not be entitled to
distributions of interest and will not have a
Pass-Through Rate.] [Describe any other method used
to calculate the Pass-Through Rate.]
DISTRIBUTIONS
A. AMOUNT AND ORDER
OF DISTRIBUTIONS.........On each distribution date, funds available for
distribution from the trust's assets, net of
specified trust expenses, will be distributed in the
following amounts and order of priority:
Step 1/Class [ ]: To interest on Class [ ] based on
its interest entitlement.
Step 2/Class [ ]: To the extent of funds available
for principal, to principal on Class [ ] until
reduced to zero.
Step 3/Class [ ]: To interest on Class [ ] based on
its interest entitlement.
Step 4/Class [ ]: To the extent of funds available
for principal, to principal on Class [ ] until
reduced to zero.
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 a class' interest entitlement for a
distribution date could be less than one full month's
interest at the Pass-Through Rate on the certificate
balance.
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.
ADVANCES OF PRINCIPAL
AND INTEREST............ The Master Servicer is required to advance (each, an
"Advance") delinquent monthly mortgage loan payments,
if it determines that the Advance will be
recoverable. If the Master Servicer fails to make a
required Advance, the trustee will generally be
required to make the Advance, as described under the
heading "Description of the Certificates--Advances"
in this prospectus supplement.
[SUBORDINATION............ 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 (top to bottom). The
manner in which losses on the trust's assets are
allocated is depicted in ascending order (bottom to
top).
:---------------------------------------------------:
: Class [ ] :
:---------------------------------------------------:
:
:
:-----------------------:
: Class [ ] :
:-----------------------:
NO OTHER FORM OF CREDIT ENHANCEMENT WILL BE AVAILABLE
FOR THE BENEFIT OF THE HOLDERS OF THE CERTIFICATES.
See "Description of the Certificates" in this
prospectus supplement.]
THE MORTGAGE ASSETS
GENERAL................... The trust's assets (the "Trust Fund"), which are the
primary source of ----------- distributions to
holders of the Certificates, will primarily be [__
[conventional], [fixed] [and] [adjustable] interest
rate mortgage loans (the "Mortgage Loans"), each
evidenced by one or more promissory notes secured by
---------------- first [and/or junior] mortgages,
deeds of trust or similar security instruments on one
or more one- to four-family residential properties
located in __ differed states,] [mortgage
participations, mortgage pass-through certificates,
mortgage-backed securities evidencing interests
therein or secured thereby,] [and] [certain direct
obligations of the United States, agencies thereof or
agencies created thereby].
[MORTGAGE-LOANS........... As of the Cut-off Date, the mortgage loans will have
the approximate characteristics set forth in the
table below and under the heading "Description of the
[Mortgage Pool] [MBS]" in this prospectus supplement.
-----------------------------------------------------
Aggregate Principal Balance $_________
-----------------------------------------------------
Lowest Mortgage Loan Principal Balance $_________
-----------------------------------------------------
Highest Mortgage Loan Principal Balance $_________
-----------------------------------------------------
Average Mortgage Loan Principal Balance $_________
-----------------------------------------------------
Range of Remaining Terms to Maturity __ to __ months
-----------------------------------------------------
Weighted Average Remaining Term to Maturity __ months
-----------------------------------------------------
Range of Mortgage Rates ___% to ___%
-----------------------------------------------------
Weighted Average Mortgage Rate ___%
-----------------------------------------------------
Range of Loan to Value Ratios ___% to ___%
-----------------------------------------------------
Weighted Average Loan to Value Ratio ___%
-----------------------------------------------------
Geographic Concentration of Mortgaged Properties
Securing Mortgage Loans in Excess of 5% of the
Aggregate Principal Balance __________ ___%
-----------------------------------------------------
Maximum Five-Digit Zip Code Concentration ___%
-----------------------------------------------------
[MORTGAGE-BACKED
SECURITIES............. [Title and issuer of underlying securities, amount
deposited or pledged, amount originally issued,
maturity date, interest rate, [redemption
provisions], description of other material terms.]
[CHANGES TO MORTGAGE LOANS The Depositor may remove mortgage loans from the
pool, or may make substitutions for certain mortgage
loans, in advance of the Closing Date. After the
issuance of the Certificates, the Depositor may
remove certain mortgage loans from the trust through
repurchase or, under certain circumstances, may make
substitutions for certain mortgage loans.
See "Description of the [Mortgage Loans][MBS]" in
this prospectus supplement.]
OPTIONAL TERMINATION
OF THE TRUST.......... The Master Servicer may, subject to certain
conditions including the then-remaining size of the
trust's assets, purchase all outstanding [Mortgage
Loans][MBS] and thereby effect early retirement of
the Certificates. [At its option, the Master Servicer
may also, subject to certain conditions including the
then-remaining size of the trust's assets, purchase
any Class [ ] Certificates.] See "Pooling and
Servicing Agreement--Termination" in this prospectus
supplement.
EFFECT OF PREPAYMENTS ON
YOUR INVESTMENT EXPECTATIONS
[GENERALLY.................The Certificates were structured assuming, among
other things, that prepayments on the Mortgage Loans
occur at a constant rate of ___% [SPA] [CPR].
However, no one can predict the actual rate of
prepayment of principal on the Mortgage Loans.
IN DECIDING WHETHER TO PURCHASE ANY CERTIFICATES, YOU
SHOULD MAKE AN INDEPENDENT DECISION AS TO THE
APPROPRIATE PREPAYMENT ASSUMPTIONS TO USE. If
prepayments on the Mortgage Loans are higher or lower
than you anticipate, the investment performance of
the Certificates may vary materially and adversely
from your investment expectations.
[In addition, if you are purchasing Class [___]
Certificates you should consider that the Class [___]
Certificates in the aggregate will be more sensitive
to prepayments on the Mortgage Loans than the Class
[___] Certificates because such prepayments will be
disproportionately allocated to the Class [___]
Certificates then entitled to principal distributions
during the [___] years beginning on the first
Distribution Date. See "Description of the
Certificates--Distributions" and "Certain Yield,
Prepayment and Maturity Considerations" in this
prospectus supplement.]
The actual yield on your Certificates may not be
equal to the yield you anticipated at the time of
purchase or, notwithstanding that the actual yield is
equal to the yield you anticipated at that time, the
total return on investment you expected or the
expected weighted average life of your Certificates
may not be realized. These effects are summarized
below.]
[YIELD.................... The actual yield on your Certificates in relation to
the related Pass-Through Rate will vary depending
upon the price you paid for your Certificates.
o If you purchase a Certificate [(other than a Class
[___] Certificate)] at an amount equal to its
unpaid certificate balance (that is, at "par"),
your effective yield (assuming that there are no
interest shortfalls and assuming the full return
of your invested principal) will approximate the
Pass-Through Rate on that Certificate.
o If you pay less or more than the unpaid
certificate balance of a Certificate (that is, buy
the Certificate at a "discount" or "premium,"
respectively), then, your effective yield
(assuming that there are no interest shortfalls
and assuming the full return of your invested
principal) will be higher or lower, respectively,
than the Pass-Through Rate on the Certificate,
because such discount or premium will be amortized
over the life of the Certificate.
The yield on your Certificates will also be affected
by the rate and timing of prepayments on the Mortgage
Loans. Any deviation in the actual rate of
prepayments on the Mortgage Loans from the rate you
assumed will affect the period of time over which, or
the rate at which, the discount or premium will be
amortized and, consequently, will cause your actual
yield to differ from that which you anticipated.
[If you purchase Class [___] Certificates, which have
no certificate balance, your yield will be sensitive
to both the timing of receipt of prepayments and the
overall rate of prepayment on the Mortgage Loans.]
IF YOU ARE PURCHASING CERTIFICATES AT A DISCOUNT, YOU
SHOULD CONSIDER THE RISK THAT A SLOWER THAN
ANTICIPATED RATE OF PRINCIPAL PAYMENTS ON THE
MORTGAGE LOANS WILL RESULT IN AN ACTUAL YIELD THAT IS
LOWER THAN YOUR EXPECTED YIELD.
IF YOU ARE PURCHASING CERTIFICATES AT A PREMIUM, [OR
IF YOU ARE PURCHASING CLASS [___] CERTIFICATES, WHICH
HAVE NO CERTIFICATE BALANCE,] YOU SHOULD CONSIDER THE
RISK THAT A FASTER THAN ANTICIPATED RATE OF PRINCIPAL
PAYMENTS ON THE MORTGAGE LOANS WILL RESULT IN AN
ACTUAL YIELD THAT IS LOWER THAN YOUR EXPECTED YIELD
AND THAT A RAPID RATE OF PRINCIPAL PAYMENTS ON THE
MORTGAGE LOANS COULD RESULT IN THE LOSS OF ALL OR
PART OF YOUR INITIAL INVESTMENT.]
REINVESTMENT RISK......... As stated above, if you purchase a Certificate
[(other than a Class [___] Certificate)] at par,
fluctuations in the rate of distributions of
principal will generally not affect your yield to
maturity. However, the total return on your
investment, even if you purchase your Certificates at
par, will be reduced if principal distributions
received on your Certificates cannot be reinvested at
a rate as high as the stated Pass-Through Rate.
You should consider the risk that rapid rates of
prepayments on the Mortgage Loans may coincide with
periods of low prevailing market interest rates.
During periods of low prevailing market interest
rates, mortgagors may be expected to prepay or
refinance Mortgage Loans that carry interest rates
significantly higher than then-current interest rates
for mortgage loans. Consequently, the amount of
principal distributions available to you for
reinvestment at such low prevailing interest rates
may be relatively large.
Conversely, slow rates of prepayments on the Mortgage
Loans may coincide with periods of high prevailing
market interest rates. During such periods, it is
less likely that mortgagors will elect to prepay or
refinance Mortgage Loans and, therefore, the amount
of principal distributions available to you for
reinvestment at such high prevailing interest rates
may be relatively small.
WEIGHTED AVERAGE LIFE
VOLATILITY.............. One indication of the impact of varying prepayment
speeds on a security is the change in its weighted
average life.
o The "weighted average life" of a Certificate
[(other than a Class [___] Certificate)] is the
average amount of ---------------------- time that
will elapse between the date of issuance of the
Certificate and the date on which each dollar in
reduction of the principal balance of the
Certificate is distributed to the investor.
o [The weighted average life of a Class [___]
Certificate is related to the average amount of
time that will elapse between the date of issuance
of the Certificates and the date on which each
dollar in reduction of the certificate balances of
the Class [___], Class [___], Class [___] and
Class [___] Certificates [(a portion of the
certificate balance of each such Class of which
corresponds to the notional amount of the Class
[___] Certificates)] is distributed to the
investors in the Class [___], Class [___], Class
[___] and Class [___] Certificates.]
Low rates of prepayment may result in the extension
of the weighted average life of a Certificate. High
rates of prepayment may result in the shortening of
the weighted average life of a Certificate.
In general, if you purchase your Certificates at par
and the weighted average life of your Certificates is
extended beyond your anticipated time period, the
market value of your Certificates may be adversely
affected even though the yield to maturity on your
Certificates is unaffected.
[IF YOU ARE PURCHASING __________________
CERTIFICATES, YOU SHOULD CONSIDER THAT THEIR WEIGHTED
AVERAGE LIVES WILL BE EXTREMELY SENSITIVE TO THE RATE
OF PREPAYMENTS ON THE MORTGAGE LOANS. IF YOU ARE
PURCHASING ________________ CERTIFICATES, YOU SHOULD
CONSIDER THAT THEIR WEIGHTED AVERAGE LIFE WILL BE
HIGHLY SENSITIVE TO THE RATE OF PREPAYMENTS ON THE
MORTGAGE LOANS.]
The sensitivity of the weighted average lives of the
Certificates to prepayments is illustrated in the
tables appearing under the heading "Certain Yield,
Prepayment and Maturity Considerations" in this
prospectus supplement. THESE ILLUSTRATIONS ARE BASED
ON PREPAYMENT AND OTHER ASSUMPTIONS WHICH ARE
UNLIKELY TO MATCH THE ACTUAL EXPERIENCE ON THE
MORTGAGE LOANS. THEREFORE, YOUR RESULTS WILL VARY.
See "Risk Factors--Prepayments May Adversely Affect
Yield," "Certain Yield, Prepayment and Maturity
Considerations" and "Description of the
Certificates--Distributions" in this prospectus
supplement.
ADDITIONAL ASPECTS OF CERTIFICATES
RATINGS....................The Class [___] Certificates will not be issued
unless they be rated [not lower than] the following
ratings by __________:
:------------------------------------:--------------:
: Class [___] : :
:------------------------------------:--------------:
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 exclusions
from the ratings and the conclusions that may not be
drawn from a rating.
FORM OF CERTIFICATES;
DENOMINATIONS........... Your Certificates will be issued [either] in
[book-entry form] [or] [fully registered,
certificated form]. The Class [___] Certificates will
be offered in minimum denominations of $_____ initial
certificate balance. Investments in excess of the
minimum denominations may be made in multiples of
$__.
[REGISTRATION, CLEARANCE
AND SETTLEMENT OF THE
CLASS [__] CERTIFICATES..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, Cedel
Bank, S.A. ("CEDEL") or The Euroclear System
("Euroclear") or through participants in DTC, CEDEL
or Euroclear.
You may hold your 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 Certificates.
See "Description of the Certificates--Book-Entry
Registration and Definitive Certificates" in the
prospectus.
We expect that the Class [___] Certificates will be
delivered in book-entry form through the facilities
of DTC, CEDEL or Euroclear on or about ----------.]
TAX STATUS................ [An election will be made to treat the Trust as a
real estate mortgage investment conduit ("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 Class [___] Certificates include:
o The Class [___] Certificates will constitute
"regular interests" in the REMIC [and the Class
[___] Certificates will constitute "residual
interests" in the REMIC.]
o The regular interests will be treated as newly
originated debt instruments for federal income tax
purposes.
o Beneficial owners will be required to report
income on the Class [___] Certificates in
accordance with the accrual method of accounting.
o The Class [ ] Certificates [may[will]][will not]
be treated as having been issued with original
issue discount for federal income tax purposes.
The prepayment assumption that will be used for
purposes of computing the accrual of original
issue discount, market discount and premium, if
any, for federal income tax purposes will be equal
to a [constant prepayment rate ("CPR")] [standard
prepayment assumption --- ("SPA")] of ____%.
However, no representation is made that the
Mortgage Loans will prepay at that rate or at any
other rate.]
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 [___] Certificates may be
purchased by persons investing assets of employee
benefit plans or individual retirement accounts.]
[THE CLASS [___] CERTIFICATES MAY NOT BE PURCHASED
BY, OR TRANSFERRED TO, A PLAN OR ANY PERSON INVESTING
THE ASSETS OF A PLAN. (THIS PROHIBITION DOES NOT
APPLY TO AN INSURANCE COMPANY INVESTING ASSETS OF ITS
GENERAL ACCOUNT UNDER CIRCUMSTANCES WHICH WOULD
QUALIFY FOR AN EXEMPTION UNDER PROHIBITED TRANSACTION
CLASS EXEMPTION 95-60.)]
LEGAL INVESTMENTS..........[The Class [___] Certificates will [not] constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984, as
amended ("SMMEA")[, so long as: (i) those
certificates are rated in one of the two highest
rating categories by one or more rating agencies; and
(ii) the underlying mortgage loans are secured by
real estate].
Except as to SMMEA status, no representation is made
regarding the proper characterization of the
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.
<PAGE>
RISK FACTORS
[Description will depend on the particulars of the Mortgage Assets]
PREPAYMENTS MAY ADVERSELY AFFECT YIELD
The rate of distributions of principal and the yield to maturity on
your Certificates will be directly related to the rate of payments of principal
on the Mortgage Loans and the amount and timing of mortgagor defaults resulting
in Realized Losses. Mortgagors are permitted to prepay the Mortgage Loans, in
whole or in part, at any time without penalty. The rate of principal payments on
the Mortgage Loans will be affected by, among other things:
o the amortization schedules of the Mortgage Loans;
o the rate of principal prepayments (including partial prepayments and
those resulting from refinancing) thereon by mortgagors;
o liquidations of defaulted Mortgage Loans;
o repurchases of Mortgage Loans by the Depositor as a result of
defective documentation or breaches of representations and
warranties, optional purchase by the Depositor of defaulted Mortgage
Loans; and
o the optional purchase by the Master Servicer or the Trustee of all
of the Mortgage Loans in connection with the termination of the
Trust.
See "Certain Yield, Prepayment and Maturity Considerations" and
"Pooling and Servicing Agreement--Termination" in this prospectus supplement and
"Description of the Agreements--Assignment of Assets; Repurchases" and
"--Representations and Warranties; Repurchases" in the prospectus.
The rate of payments (including prepayments) on pools of mortgage loans
is influenced by a variety of economic, geographic, social and other factors.
o If prevailing rates for similar mortgage loans fall below the
Mortgage Rates on the Mortgage Loans, the rate of prepayment would
generally be expected to increase.
o Conversely, if interest rates on similar mortgage loans rise above
the Mortgage Rates on the Mortgage Loans, the rate of prepayment
would generally be expected to decrease.
The rate of prepayment on the Mortgage Loans may also be influenced by
programs offered by mortgage originators, on a general or targeted basis, to
encourage refinancing. See "Yield Considerations--Other Factors Affecting
Weighted Average Life--Refinancings" in the prospectus.
If you are purchasing Certificates at a discount, you should consider
the risk that if principal payments on the Mortgage Loans occur at a rate slower
than you expected, your yield may be lower than you expected.
If you are purchasing Certificates at a premium[, or are purchasing the
[_____] Certificates, which have no certificate balance], you should consider
the risk that if principal payments on the Mortgage Loans occur at a rate faster
than you expected, your yield may be lower than you expected. [IF YOU ARE
PURCHASING CLASS [___] CERTIFICATES, YOU SHOULD CONSIDER THE RISK THAT A RAPID
RATE OF PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS COULD RESULT IN YOUR FAILURE TO
RECOVER YOUR INITIAL INVESTMENT.]
See "Summary of Terms--Effects of Prepayments on Your Investment
Expectations" and "Certain Yield, Prepayment and Maturity Considerations"
herein.
GEOGRAPHIC CONCENTRATION MAY INCREASE RISK OF LOSS BECAUSE OF ADVERSE ECONOMIC
CONDITIONS OR NATURAL DISASTERS
The yield to maturity on your Certificates may be affected by the
geographic concentration of the Mortgaged Properties securing the Mortgage
Loans. Certain geographic regions of the United States from time to time will
experience weaker regional economic conditions and housing markets and,
consequently, will experience higher rates of loss and delinquency on mortgage
loans generally. Any concentration of the Mortgage Loans in such a region may
present risk considerations in addition to those generally present for similar
mortgage-backed securities without such concentration. In addition, California,
Florida, Texas and several other regions have experienced natural disasters,
including earthquakes, fires, floods and hurricanes, which may adversely affect
property values. Any deterioration in housing prices in the states in which
there is a significant concentration of Mortgaged Properties, as well as the
other states in which the Mortgaged Properties are located, and any
deterioration of economic conditions in such states which adversely affects the
ability of borrowers to make payments on the Mortgage Loans may increase the
likelihood of losses on the Mortgage Loans. Such losses, if they occur, may have
an adverse effect on the yield to maturity of your Certificates[, especially if
they are subordinated and particularly if they are Class [___] Certificates].
The states and geographic areas where there are large concentrations of
Mortgaged Properties are identified under "Description of the [Mortgage Pool]
[MBS]" in this prospectus supplement.
[SUBORDINATION OF CLASS [___] CERTIFICATES INCREASES RISK OF LOSS
The rights of the holders of each Class of Class [___] Certificates to
receive distributions will be subordinated to such rights of the holders of the
Class [___] Certificates and the lower-numbered Classes of Class [___]
Certificates, if any. In addition, Realized Losses will be allocated to the
Class [___] Certificates in the reverse order in which they are entitled to
distributions of principal before being allocated to the Class A Certificates.
Accordingly, if you are purchasing Class [___] Certificates, you will be more
likely to experience losses as a result of the occurrence of losses or interest
shortfalls on the Mortgage Loans. See "Description of the
Certificates--Subordination" in this prospectus supplement.]
[RIGHTS OF BENEFICIAL OWNERS MAY BE LIMITED BY BOOK-ENTRY SYSTEM FOR CERTAIN
CLASSES OF CLASS [___] CERTIFICATES
Transactions in the Book-Entry Certificates generally can only be
carried out through DTC, DTC Participants and Indirect DTC Participants. If you
are a Beneficial Owner of Book-Entry Certificates, your ability to pledge your
Certificates, and the liquidity of your Certificates in general, may be limited
due to the fact that you will not have a physical certificate. In addition, you
may experience delays in receiving payments on your Certificates. See "Risk
Factors--Book-Entry Certificates May Experience Decreased Liquidity and Payment
Delay" and "Description of the Certificates--Book-Entry Registration and
Definitive Certificates" in the prospectus.]
CERTIFICATES MAY NOT BE APPROPRIATE FOR INDIVIDUAL INVESTORS
If you are an individual investor who does not have sufficient
resources or expertise to evaluate the particular characteristics of the
applicable Class of Certificates, the Certificates may not be an appropriate
investment for you. This may be the case because, among other things:
o if you purchase your Certificates at a price other than par, your
yield to maturity will be sensitive to the uncertain rate and timing
of principal prepayments on the Mortgage Loans;
o the rate of principal distributions on, and the weighted average
life of, the Certificates will be sensitive to the uncertain rate
and timing of principal prepayments on the Mortgage Loans and the
priority of principal distributions among the Classes of
Certificates, and as such the Certificates may be inappropriate
investments for you if you require a distribution of a particular
amount of principal on a specific date or an otherwise predictable
stream of distributions;
o there can be no assurance that you will be able to reinvest amounts
distributed in respect of principal on your Certificates (which, in
general, are expected to be greater during periods of relatively low
interest rates) at a rate at least as high as the applicable
Pass-Through Rate or expected yield;
o there can be no assurance that a secondary market for the
Certificates will develop or provide you with liquidity of
investment; and
o you must report interest as well as original issue discount, if any,
on the accrual method of accounting, even if you are otherwise using
the cash method of accounting.
If you are an individual investor considering the purchase of a
Certificate, you should also carefully consider the further risks and other
special considerations discussed above and under the headings "Summary of
Terms--Effects of Prepayments on Your Investment Expectations" and "Certain
Yield, Prepayment and Maturity Considerations" in this prospectus supplement and
"Risk Factors--Rate of Prepayment on Mortgage Loans May Adversely Affect Average
Lives and Yields on Certificates" in the prospectus.
YEAR 2000 READINESS DISCLOSURE
The Depositor is aware of the issues associated with the programming
code in existing computer systems as the millennium (year 2000) approaches. The
"year 2000 problem" is pervasive and complex: virtually every computer operation
will be affected in some way by the rollover of the two-digit year value to 00.
The issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data, fail or cause another
system to fail. "Systems" include all hardware, networks, system and application
software, commercial "off-the-shelf" software, data and voice communication
devices, and embedded technology such as data-impacted processors in automated
systems such as elevators, telephone systems, security systems, vault systems,
heating and cooling systems and others.
The Depositor has been advised by each of the Master Servicer, [the
Special Servicer,] [the Sub-Servicer] and the Trustee that they will use
commercially reasonable efforts to either (i) implement modifications to their
respective existing systems to the extent required to cause them to be year 2000
compliant or (ii) acquire computer systems that are year 2000 compliant, in each
case prior to January 1, 2000. However, neither the Depositor nor any affiliate
of the Depositor has made any independent investigation of the computer systems
of the Master Servicer, [the Special Servicer,] [the Sub-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,] [the Sub-Servicer] or the Trustee
are not fully year 2000 compliant, the resulting disruptions in the collection
or distribution of sums collected or required to be advanced on the Mortgage
Loans could materially and adversely affect the holders of the Certificates.
DTC has informed its DTC Participants and other members of the
financial community (the "Industry") that it has developed and is implementing a
program so that its Systems, as the same relate to the timely payment of
distributions (including principal and income payments) to securityholders,
book-entry deliveries, and settlement of trades within DTC, continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as third party vendors from whom DTC licenses software and
hardware, and third party vendors on whom DTC relies for information or the
provision of services, including telecommunication and electrical utility
service providers, among others. DTC has informed the Industry that it is
contacting (and will continue to contact) third party vendors from whom DTC
acquires services to: (i) impress upon them the importance of such services
being year 2000 compliant; and (ii) determine the extent of their efforts for
year 2000 remediation (and, as appropriate, testing) of their services. In
addition, DTC is in the process of developing such contingency plans as it deems
appropriate.
According to DTC, the foregoing information with respect to DTC has
been provided to the Industry for informational purposes only and is not
intended to serve as a representation, warranty or contract modification of any
kind.
In the event that computer problems arise out of a failure of the
efforts described above to be completed on time, or in the event that the
Systems of the Trustee, the Master Servicer, [the Special Servicer,] [the
Sub-Servicer] or DTC are not fully year 2000 compliant, any resulting
disruptions in the collection and distribution of receipts on or in respect of
the Mortgage Loans could materially adversely affect your Certificates.
See "Risk Factors" in the prospectus for a description of certain other
risks and special considerations applicable to the Certificates.
[CERTAIN MORTGAGE LOANS WERE ACQUIRED FROM TROUBLED ORIGINATORS
Certain of the Mortgage Loans were acquired by the Depositor from
[Originating Institutions], each of which is subject to receivership. The
financial difficulties experienced by the [Originating Institutions] may have
adversely affected the standards and procedures pursuant to which the Mortgage
Loans were originated or purchased by the [Originating Institutions] and/or the
manner in which such Mortgage Loans have been serviced prior to assumption of
servicing responsibilities by the Master Servicer, which could materially
adversely affect your Certificates.
LIMITED INFORMATION IS AVAILABLE WITH RESPECT TO CERTAIN ORIGINATORS
The information set forth in this Prospectus Supplement with respect to
the Mortgage Loans is based upon the books and records of the [Originating
Institutions], as well as a limited review of the credit and legal files
relating to the Mortgage Loans. Because of the limited nature of available
information, the Depositor will not be able to determine fully the origination,
credit appraisal and underwriting practices of the originators of the Mortgage
Loans, and therefore this Prospectus Supplement may not contain material
information regarding the Mortgage Loans that would have been disclosed if the
structure and personnel of the [Originating Institutions] had not been affected
by such institutions having been placed in receivership. While the Depositor has
undertaken a limited review of the records and files related to the Mortgage
Loans, the Mortgage Loans have not been "re-underwritten" or subjected to the
type of review that would typically be made in respect of a newly originated
mortgage loan.]]
DESCRIPTION OF THE [MORTGAGE POOL] [MBS]
GENERAL
The Trust Fund will consist primarily of [___ [conventional], [fixed
interest] [adjustable interest] rate Mortgage Loans with an aggregate principal
balance as of the Cut-off Date, after deducting payments of principal due on
such date, of $____________,] [mortgage participations, mortgage pass-through
certificates, mortgage-backed securities evidencing interests therein or secured
thereby (the "MBS"),] [and] [certain direct obligations of the United States,
agencies thereof or agencies created thereby (the "Government Securities")].
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" creating a first [and/or junior] fee lien on a one- to four- family
residential property (a "Mortgaged Property"). The Mortgaged Properties consist
of [description of one- to four-family residential properties]. [Because no
evaluation of any mortgagor's financial condition has been conducted, investors
should consider all of the Mortgage Loans to be non-recourse loans so that, in
the event of mortgagor default, recourse may be had only against the specific
property and such limited other assets as have been pledged to secure a Mortgage
Loan, and not against the mortgagor's other assets.] All percentages of the
Mortgage Loans described herein are approximate percentages (except as otherwise
indicated) by aggregate principal balance as of the Cut-off Date.]
[The Mortgage Loans to be included in the Trust Fund will have been
originated or acquired by ________________ (the "Mortgage Asset Seller") and
will comply with the underwriting criteria described herein. The Depositor will
purchase the Mortgage Loans to be included in the Mortgage Pool on or before the
Closing Date from the Mortgage Asset Seller pursuant to a seller's agreement
(the "Seller's Agreement"), to be dated as of ____________, 199_ between the
Mortgage Asset Seller and the Depositor. The Depositor will cause the Mortgage
Loans in the Mortgage Pool to be assigned to _______________, as Trustee,
pursuant to a Pooling and Servicing Agreement, to be dated as of the Cut-off
Date, among the Depositor, the Master Servicer[, the Special Servicer] and the
Trustee (the "Pooling and Servicing Agreement"). _____________, in its capacity
as Master Servicer, will service the Mortgage Loans pursuant to the Pooling and
Servicing Agreement.
Under the Seller's Agreement, _______________, as seller of the
Mortgage Loans to the Depositor, will make certain representations, warranties
and covenants to the Depositor relating to, among other things, the due
execution and enforceability of the Seller's Agreement and certain
characteristics of the Mortgage Loans, and will be obligated to repurchase or
substitute for any Mortgage Loans as to which there exists deficient
documentation or an uncured material breach of any such representation, warranty
or covenant. Under the Pooling and Servicing Agreement the Depositor will assign
all its right, title and interest in such representations, warranties and
covenants (including ____________________'s repurchase or substitution
obligation) to the Trustee for the Trust Fund. The Depositor will make [no]
representations or warranties with respect to the Mortgage Loans and will have
no obligation to repurchase or substitute for Mortgage Loans with deficient
documentation [or which are otherwise defective]. _____________, as seller of
the Mortgage Loans to the Depositor, is selling such Mortgage Loans without
recourse and, accordingly, in such capacity, will have no obligations with
respect to the certificates other than pursuant to such representations,
warranties, covenants and repurchase obligations. See "Description of the
Agreements--Representations and Warranties; Repurchases" in the Prospectus.]
[THE MBS
[Title and issuer of underlying securities, amount deposited or
pledged, amount originally issued, maturity date, interest rate, [redemption
provisions], together with description of other material terms.]
[Description of principal and interest distributions on the MBS.]
[Description of advances by the servicer of the mortgage loans
underlying the MBS.]
[Description of effect on the MBS of allocation of losses on the
underlying mortgage loans.]
As to each series of MBS included in the Trust Fund, the various
classes of certificates from such series [(including classes not in the Trust
Fund but from the same series as classes that are in the Trust Fund] are listed,
together with the related pass-through rates and certain other information
applicable thereto, in Annex B hereto.]
[CONVERTIBLE MORTGAGE LOANS
____% of the Mortgage Loans ("Convertible Mortgage Loans") provide
that, at the option of the related Mortgagors, the adjustable interest rate on
such Mortgage Loans may be converted to a fixed interest rate. The first month
in which any of the Mortgage Loans may convert is ____________, and the last
month in which any of the Mortgage Loans may convert is _____________. Upon
conversion, the Mortgage Rate will be converted to a fixed interest rate
determined in accordance with the formula set forth in the related Mortgage Note
which formula is intended to result in a Mortgage Rate which is not less than
the then current market interest rate (subject to applicable usury laws). After
such conversion, the monthly payments of principal and interest will be adjusted
to provide for full amortization over the remaining term to scheduled maturity.
Upon notification from a Mortgagor of such Mortgagor's intent to convert from an
adjustable interest rate to a fixed interest rate and prior to the conversion of
any such Mortgage Loan (a "Converting Mortgage Loan"), the related Warrantying
Party will be obligated to purchase the Converting Mortgage Loan at a price
equal to the outstanding principal balance thereof plus accrued interest thereon
net of any subservicing fees (the "Conversion Price"). In the event of a failure
by a Warrantying Party to purchase a converting Mortgage Loan, the Master
Servicer is required to use its best efforts to purchase such Mortgage Loan
following its conversion (a "Converted Mortgage Loan") during the one-month
period following the date of conversion at the Conversion Price.
In the event that the related Warrantying Party fails to purchase a
Converting Mortgage Loan and the Master Servicer does not purchase a Converted
Mortgage Loan, neither the Depositor nor any of its affiliates nor any other
entity is obligated to purchase or arrange for the purchase of any Converted
Mortgage Loan. Any such Converted Mortgage Loan will remain in the Mortgage Pool
as a fixed-rate Mortgage Loan and will result in the Mortgage Pool's having both
fixed rate and adjustable rate Mortgage Loans. See "Certain Yield and Prepayment
Considerations" herein.
Following the purchase of any Converted Mortgage Loan as described
above, the purchaser will be entitled to receive an assignment from the Trustee
of such Mortgage Loan and the purchaser will thereafter own such Mortgage Loan
free of any further obligation to the Trustee or the Certificateholders with
respect thereto.]
[THE INDEX
The amount of Monthly Payment on certain Mortgage Loan is subject to
adjustment on specified Due Dates (each such date, a "Payment Adjustment Date").
As of any Payment Adjustment Date, the index applicable to the determination of
the related Mortgage Rate will be a per annum rate equal to ______________, as
most recently available as of the date ___ days prior to the Payment Adjustment
Date (the "Index"). Such average yields reflect the yields for the week prior to
that week in which the information is reported. In the event that the Index is
no longer available, an index reasonably acceptable to the Trustee that is based
on comparable information will be selected by the Master Servicer.
The Index is currently calculated based on information reported in
___________. Listed below are the weekly average yields on actively traded
______________ as reported in ____________ on the date that would have been
applicable to mortgage loans having the following adjustment dates for the
indicated years. Such average yields may fluctuate significantly from week to
week as well as over longer periods and may not increase or decrease in a
constant pattern from period to period. The following does not purport to be
representative of future average yields. No assurance can be given as to the
average yields on such _______________ on any Payment Adjustment Date or during
the life of any Mortgage Loan.]
[NAME OF INDEX]
Adjustment Date 1990 1991 1992 1993 1994 1995
- --------------- ---- ---- ---- ---- ---- ----
January [ ] ................
February [ ] ...............
March [ ] ..................
April [ ] ..................
May [ ].....................
June [ ]....................
July [ ]....................
August [ ]..................
September [ ]...............
October [ ].................
November [ ]................
December [ ]................
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
With regard to each Mortgage Loan, the date upon which scheduled
payments of principal and/or interest ("Monthly Payments") are due is herein
referred to as the "Due Date." [Approximately ___% of the Mortgage Loans have
Due Dates that occur on the ___ day of each month; approximately ___% of the
Mortgage Loans have Due Dates that occur on the ___ day of each month;
approximately _____% of the Mortgage Loans have Due Dates that occur on the ___
day of each month; and the remainder of the Mortgage Loans have Due Dates that
occur on the fifteenth day of each month.]
[As of the Cut-off Date, the Mortgage Loans had the following
characteristics: (i) Mortgage Rates ranging from _____% per annum to _______%
per annum; (ii) a weighted average Mortgage Rate of ______% per annum; (iii)
Gross Margins ranging from ____ basis points to ______ basis points; (iv) a
weighted average Gross Margin of ____ basis points; (v) principal balances
ranging from $_______ to $______; (vi) an average principal balance of
$_________; (vii) original terms to scheduled maturity ranging from _____ months
to _________ months; (viii) a weighted average original term to scheduled
maturity of _____ months; (ix) remaining terms to scheduled maturity ranging
from ____ months to _____ months; (x) a weighted average remaining term to
scheduled maturity of ________ months; (xi) Cut-off Date Loan-to-Value ("LTV")
Ratios ranging from ______% to ________%; (xii) a weighted average Cut-off Date
LTV Ratio of _____%; (xiii) as to the _______% of the Mortgage Loans to which
such characteristic applies, (A) minimum lifetime Mortgage Rates ranging from
____% per annum to ______ % per annum and (B) a weighted average minimum
lifetime Mortgage Rate of _______% per annum; and (xiv) as to the __________% of
Mortgage Loans to which such characteristic applies and for which it may be
currently calculated, (A) maximum lifetime Mortgage Rate ranging from _______%
per annum to ________% per annum and (B) a weighted average maximum lifetime
Mortgage Rate of _________% per annum.]
[___ Mortgage Loans, representing __% of the Mortgage Loans by
aggregate principal balance as of the Cut-off Date, provide for monthly payments
of principal based on amortization schedules significantly longer than the
remaining term of the Mortgage Loans, thereby leaving substantial outstanding
principal amounts due and payable (each such payment, a "Balloon Payment").
Loans providing for Balloon Payments involve a greater degree of risk than
self-amortizing loans. See "Risk Factors--Balloon Loans Have Specific Risks" in
the Prospectus.]
[The Mortgage Rate on each Mortgage Loan is subject to adjustment on
specified Due Dates (each such date, an "Interest Rate Adjustment Date") by
adding a fixed percentage amount (the "Gross Margin") to the value of the Index
(described below) as most recently announced a specified number of days prior to
such Interest Rate Adjustment Date, subject, in the case of substantially all of
the Mortgage Loans, to minimum and maximum lifetime Mortgage Rates, with ranges
specified below. The Mortgage Rates on the Mortgage Loans generally are adjusted
monthly; however, certain of the Mortgage Loans provide for Interest Rate
Adjustment Dates to occur quarterly (___% of the Mortgage Loans), semi-annually
( % of the Mortgage Loans) or annually (____% of the Mortgage Loans). Each of
the Mortgage Loans provided for an initial fixed interest rate period; Mortgage
Loans, representing ___% of the Mortgage Loans, have not experienced their first
Interest Rate Adjustment Dates. The latest initial Interest Rate Adjustment Date
for any Mortgage Loan is to occur in __________________.]
[Subject to the Payment Caps described below, the amount of the Monthly
Payment on each Mortgage Loan adjusts periodically on each Payment Adjustment
Date to an amount that would fully amortize the principal balance of the
Mortgage Loan over its then remaining amortization schedule and pay interest at
the Mortgage Rate in effect during the one month period preceding such Payment
Adjustment Date. Approximately __% of the Mortgage Loans provide that an
adjustment of the amount of the Monthly Payment on a Payment Adjustment Date may
not result in a Monthly Payment that increases by more than ___% (nor, in some
cases, decreases by more than ____%) of the amount of the Monthly Payment in
effect immediately prior to such Payment Adjustment Date (each such provision, a
"Payment Cap"); however, certain of those Mortgage Loans also provide that the
Payment Cap will not apply on certain Payment Adjustment Dates or if the
application thereof would result in the principal balance of the Mortgage Loan
exceeding (through negative amortization) by a specified percentage the original
principal balance thereof. Generally, the related Mortgage Note provides that
if, as a result of negative amortization, the respective principal balance of
the Mortgage Loan reaches an amount specified therein (which as to most Mortgage
Loans is not greater than _% of the Mortgage Loan principal balance as of the
origination date thereof), the amount of the Monthly Payments due thereunder
will be increased as necessary to prevent further negative amortization.]
[Only in the case of _____% of the Mortgage Loans does a Payment
Adjustment Date immediately follow each Interest Rate Adjustment Date. As a
result, and because application of Payment Caps may limit the amount by which
the Monthly Payments due on certain of the Mortgage Loans may adjust, the amount
of a Monthly Payment may be more or less than the amount necessary to amortize
the Mortgage Loan principal balance over the then remaining amortization
schedule at the applicable Mortgage Rate. Accordingly, Mortgage Loans may be
subject to slower amortization (if the Monthly Payment due on a Due Date is
sufficient to pay interest accrued to such Due Date at the applicable Mortgage
Rate but is not sufficient to reduce principal in accordance with the applicable
amortization schedule), to negative amortization (if interest accrued to a Due
Date at the applicable Mortgage Rate is greater than the entire Monthly Payment
due on such Due Date) or to accelerated amortization (if the Monthly Payment due
on a Due Date is greater than the amount necessary to pay interest accrued to
such Due Date at the applicable Mortgage Rate and to reduce principal in
accordance with the applicable amortization schedule).]
[No Mortgage Loan currently prohibits principal prepayments; however,
certain of the Mortgage Loans impose fees or penalties ("Prepayment Premiums")
in connection with full or partial prepayments. Although Prepayment Premiums are
payable to the Master Servicer as additional servicing compensation, the Master
Servicer may waive the payment of any Prepayment Premium only in connection with
a principal prepayment that is proposed to be made during the three month period
prior to the scheduled maturity of the related Mortgage Loan, or under certain
other limited circumstances.]
The following table sets forth the range of Mortgage Rates on the
Mortgage Loans as of the Cut-off Date:
MORTGAGE RATES AS OF THE CUT-OFF DATE
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
- ------------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Weighted Average
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
The following table sets forth the types of Mortgaged Properties
securing the Mortgage Loans:
PROPERTY TYPE
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Type Loans Number the Cut-off Date the Cut-off Date
- ------------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Note: Percentage totals may not add due to rounding.
[The following table sets forth the range of Gross Margins for the
Mortgage Loans:]
[GROSS MARGINS]
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
- ------------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Weighted Average
Gross Margin:
Note: Percentage totals may not add due to rounding.
[The following table sets forth the frequency of adjustments to the
Mortgage Rates on the Mortgage Loans as of the Cut-off Date:]
[FREQUENCY OF ADJUSTMENTS TO MORTGAGE RATES]
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Frequency (A) Loans Number the Cut-off Date the Cut-off Date
- ------------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Weighted Average
Frequency of
Adjustments to
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) _______ or ___% of Mortgage Loans have not experienced their first
Interest Rate Adjustment Date.
[The following table sets forth the frequency of adjustments to the
Monthly Payments on the Mortgage Loans as of the Cut-off Date:]
[FREQUENCY OF ADJUSTMENTS TO MONTHLY PAYMENTS]
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Frequency (A) Loans Number the Cut-off Date the Cut-off Date
- ------------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Weighted Average
Frequency of
Adjustments to
Monthly Payments:
Note: Percentage totals may not add due to rounding.
[The following table sets forth the range of maximum lifetime Mortgage
Rates for the Mortgage Loans:]
[MAXIMUM LIFETIME MORTGAGE RATES]
Percent by
Aggregate Aggregate
Maximum Number of Percent Principal Principal
Lifetime Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
- ------------- --------- ------- ---------------- -----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Weighted Average
Maximum Lifetime
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) Represents Mortgage Loans without a lifetime rate cap.
(B) The lifetime rate caps for these Mortgage Loans are based upon the Index as
determined at a future point in time plus a fixed percentage. Therefore, the
rate is not determinable as of the Cut-off Date.
(C) This calculation does not include the ____ Mortgage Loans without a lifetime
rate cap or the Mortgage Loans with lifetime rate caps which are currently
not determinable.
[The following table sets forth the range of minimum lifetime Mortgage
Rates on the Mortgage Loans:]
[MINIMUM LIFETIME MORTGAGE RATES]
Percent by
Aggregate Aggregate
Minimum Number of Percent Principal Principal
Lifetime Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-off Date the Cut-off Date
- ------------- --------- ------- ---------------- -----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Weighted Average
Minimum Lifetime
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) Represents Mortgage Loans without interest rate floors.
(B) This calculation does not include the Mortgage Loans without interest rate
floors.
The following table sets forth the range of principal balances of the Mortgage
Loans as of the Cut-off Date:
PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
Percent by
Principal Aggregate Aggregate
Balance Number of Percent Principal Principal
as of the Mortgage by Balance as of Balance as of
Cut-off Date Loans Number the Cut-off Date the Cut-off Date
- ------------- --------- ------- ---------------- -----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Average Principal Balance
as of the
Cut-off Date:
Note: Percentage totals may not add due to rounding.
The following tables set forth the original and remaining terms to
maturity (in months) of the Mortgage Loans:
ORIGINAL TERM TO MATURITY IN MONTHS
Percent by
Aggregate Aggregate
Original Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-off Date the Cut-off Date
-------- --------- ------- ---------------- -----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Weighted Average
Original Term to Maturity:
Note: Percentage totals may not add due to rounding.
The following tables set forth the purpose for which the Mortgage Loan
was originated, [the type of program under which it was originated and the
occupancy type].
MORTGAGE LOAN PURPOSE
Percent by
Aggregate Aggregate
Remaining Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-off Date the Cut-off Date
- ------------- --------- ------- ---------------- -----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Weighted Average
Original Term to Maturity:
Note: Percentage totals may not add due to rounding.
[MORTGAGE LOAN DOCUMENTATION PROGRAM]
Percent by
Aggregate Aggregate
Remaining Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-off Date the Cut-off Date
- ------------- --------- ------- ---------------- -----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Weighted Average
Original Term to Maturity:
Note: Percentage totals may not add due to rounding.
MORTGAGE LOAN OCCUPANCY TYPE
Percent by
Aggregate Aggregate
Remaining Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-off Date the Cut-off Date
- ------------- --------- ------- ---------------- -----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Weighted Average
Original Term to Maturity:
Note: Percentage totals may not add due to rounding.
REMAINING TERM TO MATURITY IN MONTHS
Percent by
Aggregate Aggregate
Remaining Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-off Date the Cut-off Date
- ------------- --------- ------- ---------------- -----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Weighted Average Remaining
Term to Maturity:
Note: Percentage totals may not add due to rounding.
The following tables set forth the respective years in which the
Mortgage Loans were originated and are scheduled to mature:
MORTGAGE LOAN YEAR OF ORIGINATION
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Year Loans Number the Cut-off Date the Cut-off Date
---- --------- ------- ---------------- -----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Note: Percentage totals may not add due to rounding.
MORTGAGE LOAN YEAR OF SCHEDULED MATURITY
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Year Loans Number the Cut-off Date the Cut-off Date
---- --------- ------- ---------------- -----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Note: Percentage totals may not add due to rounding.
The following table sets forth the range of Original LTV Ratios of the
Mortgage Loans. An "Original LTV Ratio" is a fraction, expressed as a
percentage, the numerator of which is the principal balance of a Mortgage Loan
on the date of its origination, and the denominator of which is [in general] the
lesser of (i) the appraised value of the related Mortgaged Property as
determined by an appraisal thereof obtained in connection with the origination
of such Mortgage Loan and (ii) the sale price of such Mortgaged Property at the
time of such origination. There can be no assurance that the value (determined
through an appraisal or otherwise) of a Mortgaged Property determined after
origination of the related Mortgage Loan will be equal to or greater than the
value thereof (determined through an appraisal or otherwise) obtained in
connection with the origination. As a result, there can be no assurance that the
loan-to-value ratio for any Mortgage Loan determined at any time following
origination thereof will be lower than the Original LTV Ratio, notwithstanding
any positive amortization of such Mortgage Loan.
ORIGINAL LTV RATIOS
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Original Mortgage by Balance as of Balance as of
LTV Ratio Loans Number the Cut-off Date the Cut-off Date
--------- --------- ------- ---------------- -----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Weighted Average Original
LTV Ratio:
Note: Percentage totals may not add due to rounding.
The Mortgage Loans are secured by Mortgaged Properties in different
states. The table below sets forth the states in which the Mortgaged Properties
are located:
GEOGRAPHIC DISTRIBUTION
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
State Loans Number the Cut-off Date the Cut-off Date
----- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Note: Percentage totals may not add due to rounding.
[regional breakdown to be provided as appropriate]
No more than ___% of the Mortgage Loans will be secured by Mortgaged
Properties located in any one zip code.
[___% of the Mortgage Loans provide that upon any principal prepayment
of a Mortgage Loan, whether made voluntarily or involuntarily, the related
Mortgagor will be required to pay a prepayment premium or yield maintenance
Penalty (a "Prepayment Premium") in the amount set forth in the following
table.]
[MORTGAGE LOAN PREPAYMENT PREMIUMS]
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Prepayment Mortgage by Balance as of Balance as of
Premium Loans Number the Cut-off Date the Cut-off Date
---------- --------- ------- ---------------- -----------------
Total 100.00% $ 100.00%
========= ======= ========== =======
Note: Percentage totals may not add due to rounding.
Set forth in Annex A to this Prospectus Supplement are certain
individual characteristics of the Mortgage Loans.
UNDERWRITING STANDARDS
All of the Mortgage Loans were originated or acquired by _______,
generally in accordance with the underwriting criteria described herein.
[Description of underwriting standards.]
ADDITIONAL INFORMATION
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 close of business on the Cut-off Date, as adjusted for the
scheduled principal payments due on or before such date. Prior to the issuance
of the Class [ ] Certificates, a Mortgage Loan may be removed from the Mortgage
Pool as a result of incomplete documentation or otherwise, if the Depositor
deems such removal necessary or appropriate and may be prepaid at any time. A
limited number of other mortgage loans may be included in the Mortgage Pool
prior to the issuance of the Class [ ] Certificates unless including such
mortgage loans would materially alter the characteristics of the Mortgage Pool
as described herein. The Depositor believes that the information set forth
herein will be representative of the characteristics of the Mortgage Pool as it
will be constituted at the time the Class [ ] 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.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Class [ ] Certificates and will be filed, together with the
Pooling and Servicing Agreement, with the Securities and Exchange Commission
within fifteen days after the initial issuance of the Class [ ] Certificates. In
the event Mortgage Loans are removed from or added to the Mortgage Pool as set
forth in the preceding paragraph, such removal or addition will be noted in the
Form 8-K.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will consist of ____ classes to be designated as the Class [ ]
Certificates, the Class [ ] Certificates, the Class [ ] Certificates and the
Class [ ] Certificates. The Class [ ], Class [ ] and Class [ ] Certificates (the
"Subordinate Certificates") will be subordinate to the Class [ ] Certificates,
as described herein. The Certificates represent in the aggregate the entire
beneficial ownership interest in a Trust Fund consisting of: (i) the Mortgage
Loans and all payments under and proceeds of the Mortgage Loans received after
the Cut-off Date (exclusive of payments of principal and interest due on or
before the Cut-off Date); (ii) any Mortgaged Property acquired on behalf of the
Trust Fund through foreclosure or deed in lieu of foreclosure (upon acquisition,
an "REO Property"); (iii) such funds or assets as from time to time are
deposited in the Certificate Account and any account established in connection
with REO Properties (the "REO Account"); and (iv) the rights of the mortgagee
under all insurance policies with respect to the Mortgage Loans. Only the Class
[ ] Certificates are offered hereby.
The Class [ ] Certificates will have an initial [Certificate Balance]
[Notional Balance] of $__________. The Class [ ] Certificates represent ___% of
the aggregate principal balance of the Mortgage Loans as of the Cut-off Date.
The Class [ ] Certificates will have an initial Certificate Balance of
$__________, representing ___% of the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date. The Class [ ] Certificates will have an
initial Certificate Balance of $__________, representing ___% of the aggregate
principal balance of the Mortgage Loans as of the Cut-off Date. The initial
Certificate Balance of the Class [ ] Certificates will be [zero]. The
Certificate Balance of any class of Certificates outstanding at any time
represents the maximum amount which the holders thereof are entitled to receive
as distributions allocable to principal from the cash flow on the Mortgage Loans
and the other assets in the Trust Fund. The respective Certificate Balances of
the Class [ ], Class [ ] and Class [ ] Certificates (respectively, the "Class [
] Balance", "Class [ ] Balance" and "Class [ ] Balance") will in each case be
(i) reduced by amounts actually distributed on such class of Certificates that
are allocable to principal and [(ii) increased by amounts allocated to such
class of Certificates in respect of negative amortization on the Mortgage Loans
[Describe Notional Balance.]] [The Certificate Balance of the Class [ ]
Certificates (the "Class [ ] Balance") will at any time equal the aggregate
Stated Principal Balance of the Mortgage Loans minus the sum of the Class [ ]
Balance, Class [ ] Balance and Class [ ] Balance.] The Stated Principal Balance
of any Mortgage Loan at any date of determination will equal (a) the Cut-off
Date Balance of such Mortgage Loan, plus [(b) any negative amortization added to
the principal balance of such Mortgage Loan on any Due Date after the Cut-off
Date to and including the Due Date in the Due Period for the most recently
preceding Distribution Date], minus (c) the sum of (i) the principal portion of
each Monthly Payment due on such Mortgage Loan after the Cut-off Date, to the
extent received from the mortgagor or advanced by the Master Servicer and
distributed to holders of the Certificates before such date of determination,
(ii) all principal prepayments and other unscheduled collections of principal
received with respect to such Mortgage Loan, to the extent distributed to
holders of the Certificates before such date of determination, and (iii) any
reduction in the outstanding principal balance of such Mortgage Loan resulting
out of a bankruptcy proceeding for the related mortgagor.
[None of the Class [ ] Certificates are offered hereby.]
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be
made on the ____ day of each month or, if such ____ day is not a business day,
then on the next succeeding business day, commencing in ____________________
199_ (each, a "Distribution Date" ) . All distributions (other than the final
distribution on any Certificate) will be made by the Master Servicer to the
persons in whose names the Certificates are registered at the close of business
on each Record Date, which will be the [last business day of the month]
preceding the month in which the related Distribution Date occurs. Such
distributions 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 Master Servicer with wiring instructions no less than five business days
prior to the related Record Date and is the registered owner of Certificates the
aggregate initial principal amount of which is at least $ , or otherwise by
check mailed to such Certificateholder. The final distribution on any
Certificate will be made in like manner, but only upon presentment or surrender
of such Certificate at the location specified in the notice to the holder
thereof of such final distribution. All distributions made with respect to a
class of Certificates on each Distribution Date will be allocated pro rata among
the outstanding Certificates of such class based on their respective Percentage
Interests. The Percentage Interest evidenced by any Class [ ] Certificate is
equal to the initial denomination thereof as of the Closing Date, divided by the
initial Certificate Balance for such class. The aggregate distribution to be
made on the Certificates on any Distribution Date shall equal the Available
Distribution Amount.
The "Available Distribution Amount" for any Distribution Date is an
amount equal to (a) the sum of (i) the amount on deposit in the Certificate
Account as of the close of business on the related Determination Date, (ii) the
aggregate amount of any Advances made by the Master Servicer in respect of such
Distribution Date and (iii) the aggregate amount deposited by the Master
Servicer in the Certificate Account in respect of such Distribution Date in
connection with Prepayment Interest Shortfalls incurred during the related Due
Period, net of (b) the portion of the amount described in clause (a)(i) hereof
that represents (i) Monthly Payments due on a Due Date subsequent to the end of
the related Due Period, (ii) any voluntary principal prepayments and other
unscheduled recoveries on the Mortgage Loans received after the end of the
related Due Period or (iii) any amounts payable or reimbursable therefrom to any
person.
Priority. On each Distribution Date, the Master Servicer shall apply
amounts on deposit in the Certificate Account, to the extent of the Available
Distribution Amount, first, to distributions of interest to holders of the Class
[ ] Certificates, in the amount equal to the Interest Distribution Amount in
respect of the Class [ ] Certificates for such Distribution Date and, to the
extent not previously distributed, for all preceding Distribution Dates and
second, to distributions of principal to holders of the Class [ ] Certificates,
in an amount, not to exceed the sum of the Class [ ] Balance outstanding
immediately prior to such Distribution Date [and any Class Negative Amortization
in respect of the Class [ ] Certificates for such Distribution Date], equal to
the sum of (A) the then Class [ ] Scheduled Principal Distribution Percentage of
the Scheduled Principal Distribution Amount for such Distribution Date and (B)
the Unscheduled Principal Distribution Amount for such Distribution Date.
On or after the reduction of the Class [ ] Balance to zero, the
Available Distribution Amount will be paid solely to the holders of the
Subordinate Certificates.
Calculations of Interest. The "Interest Distribution Amount" in respect
of the Class [ ] Certificates for any Distribution Date represents that portion
of the Accrued Certificate Interest in respect of such class of Certificates for
such Distribution Date that is net of such class's allocable share of (i) the
aggregate portion of any Prepayment Interest Shortfalls resulting from voluntary
principal prepayments on the Mortgage Loans during the related Due Period [that
are not covered by the application of servicing compensation of the Master
Servicer for the related Due Period (such uncovered aggregate portion, as to
such Distribution Date,] the "Net Aggregate Prepayment Interest Shortfall")[;
and (ii) the aggregate of any negative amortization in respect of the Mortgage
Loans for their respective Due Dates during the related Due Period (the
aggregate of such negative amortization, as to such Distribution Date, the
"Aggregate Mortgage Loan Negative Amortization").]
The "Accrued Certificate Interest" in respect of the Class [ ]
Certificates for any Distribution Date is equal to thirty days' interest accrued
during the related Interest Accrual Period at the Pass-Through Rate applicable
to such class of Certificates for such Distribution Date accrued on the related
[Certificate Balance] [Classes [ ] Notional Amount] outstanding immediately
prior to such Distribution Date. The Pass-Through Rate applicable to the Class [
] Certificates for any Distribution Date [is fixed and is set forth on the cover
hereof] [will equal the weighted average of the Class [ ] Remittance Rates in
effect for the Mortgage Assets as of the commencement of the related Due Period
(as to such Distribution Date, the "Weighted Average Class [ ] Remittance
Rate"). The "Class [ ] Remittance Rate" in effect for any Mortgage Loan as of
any date of determination (a) prior to its first Interest Rate Adjustment Date,
is equal to the related Mortgage Rate then in effect minus basis points and (b)
from and after its first Interest Rate Adjustment Date, is equal to the related
Mortgage Rate then in effect minus the excess of the related Gross Margin over
____ basis points. The "Interest Accrual Period" for the Certificates is the
calendar month preceding the month in which the Distribution Date occurs.] [is
equal to the excess of the Mortgage Rate thereon over ____% per annum.] [The
Class [ ] Notional Amount will equal the [sum of the Class [ ] Balance. The
Class [ ] Notional Amount does not entitle the Class [ ] Certificate [or a
component thereof] to any distribution of principal.]
The portion of Net Aggregate Prepayment Interest Shortfall [and the
Aggregate Mortgage Loan Negative Amortization] for any Distribution Date that
will be allocated to the Class [ ] Certificates on such Distribution Date will
be equal to the then applicable Class [ ] Interest Allocation Percentage. The
"Class [ ] Interest Allocation Percentage" for any Distribution Date will equal
a fraction, expressed as a percentage, the numerator of which is equal to the
product of (a) the Class [ ] Balance [(net of any Uncovered Portion thereof)]
outstanding immediately prior to such Distribution Date, multiplied by (b) the
Pass-Through Rate for the Class [ ] Certificates for such Distribution Date, and
the denominator of which is the product of (x) the aggregate Stated Principal
Balance of the Mortgage Loans outstanding immediately prior to such Distribution
Date, multiplied by (y) the Weighted Average Net Mortgage Rate for such
Distribution Date. The "Net Mortgage Rate" in effect for any Mortgage Loan as of
any date of determination is equal to the related Mortgage Rate then in effect
minus basis points. [The "Uncovered Portion" of the Class [ ] Balance, as of any
date of determination, is the portion thereof representing the excess, if any,
of (a) the Class [ ] Balance then outstanding, over (b) the aggregate Stated
Principal Balance of the Mortgage Loans then outstanding.]
[The Class [ ] Certificates [or a component thereof] will not be
entitled to distributions of interest and will not have a Pass-Through Rate.]
Calculations of Principal. Holders of the Class [ ] Certificates will
be entitled to receive on each Distribution Date, to the extent of the balance
of the Available Distribution Amount remaining after the payment of the Class [
] Interest Distribution Amount for such Distribution Date an amount equal to the
Class [ ] Principal Distribution Amount. The "Class [ ] Principal Distribution
Amount" for any Distribution Date will equal the sum of (i) the product of the
Scheduled Principal Distribution Amount and the Class [ ] Scheduled Principal
Distribution Percentage, (ii) the product of the Senior Accelerated Percentage
and all principal prepayments received during the related Due Period and, (iii)
to the extent not previously advanced, [the lesser of the Class [ ] Scheduled
Principal Distribution Percentage of the Stated Principal Balance of the
Mortgage Loans and the Senior Accelerated Percentage of the Unscheduled
Principal Distribution Amount net of any prepayment amounts described in clause
(ii) above. The "Scheduled Principal Distribution Amount" for any Distribution
Date is equal to the aggregate of the principal portions of all Monthly
Payments, including Balloon Payments, due during or, if and to the extent not
previously received or advanced and distributed to Certificateholders on a
preceding Distribution Date, prior to the related Due Period, in each case to
the extent paid by the related mortgagor or advanced by the Master Servicer and
included in the Available Distribution Amount for such Distribution Date. The
principal portion of any Advances in respect of a Mortgage Loan delinquent as to
its Balloon Payment will constitute advances in respect of the principal portion
of such Balloon Payment.
[Initially, the "Senior Accelerated Percentage" will equal 100%.
Thereafter, the Senior Accelerated Percentage
may be reduced under certain circumstances. [Describe circumstances]]
[The portion of the Class [ ] Principal Distribution Amount payable on
any Distribution Date shall be allocated to the Class [ ] Certificates as
follows: [Describe distributions which may be concurrent or sequential and among
different classes and may be based on a schedule of payments sometimes referred
to as a Schedule of PAC, TAC or Scheduled Balances for some and not other
classes.]]
[The Class [ ] Scheduled Principal Distribution Percentage for any
Distribution Date represents the portion of the Scheduled Principal Distribution
Amount for such Distribution Date payable (subject to the payment priorities
described herein) on the Class [ ] Certificates. The "Class [ ] Scheduled
Principal Distribution Percentage" for any Distribution Date will equal the
lesser of (a) 100% and (b) a fraction, expressed as a percentage, the numerator
of which is the Class [ ] Balance outstanding immediately prior to such
Distribution Date, and the denominator of which is the lesser of (i) the sum of
the Class [ ] Balance, the Class [ ] Balance and the Class [ ] Balance and (ii)
the aggregate Stated Principal Balance of the Mortgage Loans, in either case
outstanding immediately prior to such Distribution Date.]
The "Unscheduled Principal Distribution Amount" for any Distribution
Date is equal to the sum of: (a) all voluntary principal prepayments received on
the Mortgage Loans during the related Due Period; and (b) the excess, if any, of
(i) all unscheduled recoveries received on the Mortgage Loans during the related
Due Period, whether in the form of liquidation proceeds, condemnation proceeds,
insurance proceeds or amounts paid in connection with the purchase of a Mortgage
Loan out of the Trust Fund, exclusive in each case of any portion thereof
payable or reimbursable to the Master Servicer in connection with the related
Mortgage Loan, over (ii) the respective portions of the net amounts described in
the immediately preceding clause (i) needed to cover interest (at the applicable
Net Mortgage Rate in effect from time to time) on the related Mortgage Loan from
the date to which interest was previously paid or advanced through the Due Date
for such Mortgage Loan in the related Due Period [(exclusive of any portion of
such interest added to the principal balance of such Mortgage Loan as negative
amortization).]
[The "Class Negative Amortization" in respect of any class of
Certificates for any Distribution Date is equal to such class' allocable share
of the Aggregate Mortgage Loan Negative Amortization for such Distribution
Date.]
SUBORDINATION
In order to maximize the likelihood of distribution in full of the
Class [ ] Interest Distribution Amount and the Class [ ] Scheduled Principal
Distribution Amount, on each Distribution Date, holders of the Class [ ]
Certificates have a right to distributions of the Available Distribution Amount
that is prior to the rights of the holders of the Subordinate Certificates, to
the extent necessary to satisfy the Class Interest Distribution Amount and the
Class [ ] Scheduled Principal Distribution Amount.
[The entitlement to the Class [ ] Certificates of the [entire] [a
larger percentage under certain circumstances of] Unscheduled Principal
Distribution Amount will accelerate the amortization of the Class [ ]
Certificates relative to the actual amortization of the Mortgage Loans.]
[To the extent that the Class [ ] Certificates are amortized faster
than the Mortgage Loans, without taking into account losses on the Mortgage
Loans, the percentage interest evidenced by the Class [ ] Certificates in the
Trust Fund will be decreased (with a corresponding increase in the interest in
the Trust Fund evidenced by the Subordinate Certificates), thereby increasing,
relative to their respective Certificate Balances, the Subordinate afforded the
Class [ ] Certificates by the Subordinate Certificates.]
[The principal portion of any Realized Losses will be allocated first
in reduction of the Subordinate Certificates [in the order specified here] and
then to the Class [ ] Certificates [in the order specified here]. Any losses
realized on a Mortgage Loan that is finally liquidated equal to the excess of
the Stated Principal Balance of such Mortgage Loan remaining, if any, plus
interest thereon through the last day of the month in which such Mortgage Loan
was finally liquidated, after application of all amounts received (net of
amounts reimbursable to the Master Servicer or any Sub-Servicer for Advances and
expenses, including attorneys' fees) towards interest and principal owing on the
Mortgage Loan, is referred to herein as a "Realized Loss."]
ADVANCES
On the business day immediately preceding each Distribution Date, the
Master Servicer will be obligated to make advances (each, an "Advance") out of
its own funds, or 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 equal to the aggregate of [(i)] all Monthly Payments (net of the
Servicing Fee), [other than Balloon Payments,] which were due on the Mortgage
Loans during the related Due Period and delinquent as of the related
Determination Date [and (ii) in the case of each Mortgage Loan delinquent in
respect of its Balloon Payment as of the related Determination Date, an amount
sufficient to amortize fully the principal portion of such Balloon Payment over
the remaining amortization term of such Mortgage Loan and to pay interest at the
Net Mortgage Rate in effect for such Mortgage Loan for the one month period
preceding its Due Date in the related Due Period (but only to the extent that
the related mortgagor has not made a payment sufficient to cover such amount
under any forbearance arrangement that has been included in the Available
Distribution Amount for such Distribution Date)]. The Master Servicer's
obligations to make Advances in respect of any Mortgage Loan will continue
through liquidation of such Mortgage Loan and out of its own funds from any
amounts collected in respect of the Mortgage Loan as to which such Advance was
made, whether in the form of late payments, insurance proceeds, liquidation
proceeds, condemnation proceeds or amounts paid in connection with the purchase
of such Mortgage Loan. Notwithstanding the foregoing, the Master Servicer will
be obligated to make any Advance only to the extent that it determines in its
reasonable good faith judgment that, if made, would be recoverable out of
general funds on deposit in the Certificate Account. Any failure by the Master
Servicer to make an Advance as required under the Pooling and Servicing
Agreement will constitute an event of default thereunder, in which case the
trustee will be obligated to make any such Advance, in accordance with the terms
of the Pooling and Servicing Agreement.
CERTAIN YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
The yield to maturity on the Class [ ] Certificates will be affected by
the rate of principal payments on the Mortgage Loans including, for this
purpose, prepayments, which may include amounts received by virtue of
repurchase, condemnation, insurance or foreclosure. The yield to maturity on the
Class [ ] Certificates will also be affected by the level of the Index. The rate
of principal payments on the Class [ ] Certificates will correspond to the rate
of principal payments (including prepayments) on the related Mortgage Loans.
[Description of factors affecting yield, prepayment and maturity of the
Mortgage Loans and Class [ ] Certificates depending upon characteristics of the
Mortgage Loans.]
WEIGHTED AVERAGE LIFE OF THE CLASS [ ] CERTIFICATES
Weighted average life refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average life of the Class [ ]
Certificates will be influenced by the rate at which principal payments
(including scheduled payments, principal prepayments and payments made pursuant
to any applicable policies of insurance) on the Mortgage Loans are made.
Principal payments on the Mortgage Loans may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
prepayments and liquidations due to a default or other dispositions of the
Mortgage Loans).
The table of Percent of Initial Certificate Balance Outstanding for the
Class [ ] Certificates at the respective percentages of [CPR] [SPA] set forth
below indicates the weighted average life of such Certificates and sets forth
the percentage of the initial principal amount of such Certificates that would
be outstanding after each of the dates shown at the indicated percentages of
[CPR][SPA]. The table has been prepared on the basis of the following
assumptions regarding the characteristics of the Mortgage Loans: (i) an
outstanding principal balance of $_________, a remaining amortization term of
___ months and a term to balloon of ___ months: (ii) an interest rate equal to
____% per annum until the Due Date and thereafter an interest rate equal to %
per annum (at an assumed Index of ____%) and Monthly Payments that would fully
amortize the remaining balance of the Mortgage Loan over its remaining
amortization term; (iii) the Mortgage Loans prepay at the indicated percentage
of [CPR][SPA]; (iv) the maturity date of each of the Balloon Mortgage Loans is
not extended; (v) distributions on the Class [ ] Certificates are received in
cash, on the 25th day of each month, commencing in _____________; (vi) no
defaults or delinquencies in, or modifications, waivers or amendments
respecting, the payment by the mortgagors of principal and interest on the
Mortgage Loans occur; (vii) the initial Certificate Balance of the Class [ ]
Certificates is $________; (viii) prepayments represent payment in full of
individual Mortgage Loans and are received on the respective Due Dates and
include 30 days' interest thereon; (ix) there are no repurchases of Mortgage
Loans due to breaches of any representation and warranty or otherwise; (x) the
Class [ ] Certificates are purchased on ________; (xi) the Servicing Fee is
____% per annum; and (xii) the Index on each Interest Rate Adjustment Date is
________% per annum.
Based on the foregoing assumptions, the table indicates the weighted
average life of the Class [ ] Certificates and sets forth the percentages of the
initial Certificate Balance of the Class [ ] Certificates that would be
outstanding after the Distribution Date in ___________ of each of the years
indicated, at various percentages of [CPR][SPA]. Neither [CPR][SPA] nor any
other prepayment model or assumption purports to be a historical description of
prepayment experience or a prediction of the anticipated rate of prepayment of
any pool of mortgage loans, including the Mortgage Loans included in the
Mortgage Pool. Variations in the actual prepayment experience and the balance of
the Mortgage Loans that prepay may increase or decrease the percentage of
initial Certificate Balance (and weighted average life) shown in the following
table. Such variations may occur even if the average prepayment experience of
all such Mortgage Loans is the same as any of the specified assumptions.
PERCENT OF INITIAL CLASS [ ] CERTIFICATE BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF [CPR][SPA]
Distribution Date
Initial Percent.............. ___% __% __% __% __% __%
____________ 25, 199__.......
____________ 25, 199__.......
____________ 25, 199__.......
____________ 25, 199__.......
____________ 25, 199__.......
____________ 25, 199__.......
____________ 25, 199__.......
____________ 25, 200__.......
____________ 25, 200__.......
____________ 25, 200__.......
____________ 25, 200__.......
Weighted Average Life
(Years) (+) . . . . . . . . . . . .
+ The weighted average life of the Class [ ] Certificates is determined by
(i) multiplying the amount of each distribution of principal by the
number of years from the date of issuance to the related Distribution
Date, (ii) adding the results and (iii) dividing the sum by the total
principal distributions on such class of Certificates.
[Class [ ] Yield Consideration]
[Will describe assumption for various scenarios showing sensitivity of
certain classes to prepayment and default risks and set forth resulting yield.]
<PAGE>
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of ____________ 1, 199_ (the "Pooling and Servicing
Agreement"), by and among the Depositor, the Master Servicer and the Trustee.
Reference is made to the Prospectus for important information in
addition to that set forth herein regarding the terms and conditions of the
Pooling and Servicing Agreement and the Class [ ] Certificates. The Depositor
will provide to a prospective or actual Class [ ] Certificateholder without
charge, upon written request, a copy (without exhibits) of the Pooling and
Servicing Agreement. Requests should be addressed to Morgan Stanley & Co.
Incorporated, ____________________________ New York, New York _____.
ASSIGNMENT OF THE MORTGAGE LOANS
On or prior to the Closing Date, the Depositor will assign or cause to
be assigned the Mortgage Loans, without recourse, to the Trustee for the benefit
of the Certificateholders. Prior to the Closing Date, the Depositor will, as to
each Mortgage Loan, deliver to the Trustee (or the custodian hereinafter
referred to), among other things, the following documents (collectively, as to
such Mortgage Loan, the "Mortgage File"): (i) the original or, if accompanied by
a "lost note" affidavit, a copy of the Mortgage Note, endorsed by
____________________ which transferred such Mortgage Loan, without recourse, in
blank or to the order of Trustee; (ii) the original Mortgage or a certified copy
thereof, and any intervening assignments thereof, or certified copies of such
intervening assignments, in each case with evidence of recording thereon; (iii)
an assignment of the Mortgage, executed by the ____________________ which
transferred such Mortgage Loan, in blank or to the order of the Trustee, in
recordable form; (iv) assignments of any related assignment of leases, rents and
profits and any related security agreement (if, in either case, such item is a
document separate from the Mortgage), executed by ____________________ which
transferred such Mortgage Loan, in blank or to the order of the Trustee; (v)
originals or certified copies of all assumption, modification and substitution
agreements in those instances where the terms or provisions of the Mortgage or
Mortgage Note have been modified or the Mortgage or Mortgage Note has been
assumed; and (vi) the originals or certificates of a lender's title insurance
policy issued on the date of the origination of such Mortgage Loan or, with
respect to each Mortgage Loan not covered by a lender's title insurance policy,
an attorney's opinion of title given by an attorney licensed to practice law in
the jurisdiction where the Mortgaged Property is located. The Pooling and
Servicing Agreement will require the Depositor promptly (and in any event within
_____ days of the Closing Date) to cause each assignment of the Mortgage
described in clause (iii) above to be submitted for recording in the real
property records of the jurisdiction in which the related Mortgaged Property is
located. Any such assignment delivered in blank will be completed to the order
of the Trustee prior to recording. The Pooling and Servicing Agreement will also
require the Depositor to cause the endorsements on the Mortgage Notes delivered
in blank to be completed to the order of the Trustee.
THE MASTER SERVICER
General. ____________________, a __________________ corporation, will
act as Master Servicer (in such capacity, the "Master Servicer") for the
Certificates pursuant to the Pooling and Servicing Agreement. The Master
Servicer[, a wholly-owned subsidiary of __________,] [is engaged in the mortgage
banking business and, as such, originates, purchases, sells and services
mortgage loans. _________________ primarily originates mortgage loans through a
branch system consisting of _______________________ offices in __________
states, and through mortgage loan brokers.]
The executive offices of the Master Servicer are located at
_______________, telephone number (__)__________.
Delinquency and Foreclosure Experience. The following tables set forth
certain information concerning the delinquency experience (including pending
foreclosures) on one- to four- family residential mortgage loans included in the
Master Servicer's servicing portfolio (which includes mortgage loans that are
subserviced by others). The indicated periods of delinquency are based on the
number of days past due on a contractual basis. No mortgage loan is considered
delinquent for these purposes until 31 days past due on a contractual basis.
<TABLE>
As of December 31, 19 As of December 31, 19 As of , 19
------------------------- ------------------------ ------------------------
By No. of By Dollar By No. of By Dollar By No. of By Dollar
Loans Amount of Loans Amount of Loans Amount of
----- Loans ----- Loans ----- Loans
----- ----- -----
(Dollar Amount in Thousands)
Total Portfolio ________ $______ ________ $______ ________ $_______
<S> <C> <C> <C> <C> <C> <C>
Period of Delinquency
31 to 59 days
60 to 89 days
90 days or more ________ ______ ________ ______ ________ _______
Total Delinquent Loans $ $ $
________ ______ ________ ______ ________ _______
%
Percent of Portfolio % % % % %
Foreclosures
pending (1)
Percent of Portfolio % % % % % %
Foreclosures
%
Percent of Portfolio % % % % %
- --------------------
(1) Includes bankruptcies which preclude foreclosure.
</TABLE>
There can be no assurance that the delinquency and foreclosure
experience of the Mortgage Loans comprising the Mortgage Pool will correspond to
the delinquency and foreclosure experience of the Master Servicer's mortgage
portfolio set forth in the foregoing tables. The aggregate delinquency and
foreclosure experience on the Mortgage Loans comprising the Mortgage Pool will
depend on the results obtained over the life of the Mortgage Pool.
CERTIFICATE ACCOUNT
The Master Servicer is required to deposit on a daily basis all amounts
received with respect to the Mortgage Loans of the Mortgage Pool, net of its
servicing compensation, into a separate Certificate Account maintained with
____________. Interest or other income earned on funds in the Certificate
Account will be paid to the Master Servicer as additional servicing
compensation. See "Description of the Trust Funds--Mortgage Assets" and
"Description of the Agreements--Certificate Account and Other Collection
Accounts" in the Prospectus.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
[Include description of Servicing Standard]
The principal compensation to be paid to the Master Servicer in respect
of its master servicing activities will be the Servicing Fee. The Servicing Fee
will be payable monthly only from amounts received in respect of interest on
each Mortgage Loan, will accrue at the Servicing Fee Rate and will be computed
on the basis of the same principal amount and for the same period respecting
which any related interest payment on such Mortgage Loan is computed. The
Servicing Fee Rate [with respect to each Mortgage Loan equals % per annum]
[equals the weighted average of the excesses of the Mortgage Rates over the
respective Net Mortgage Rates].
As additional servicing compensation, the Master Servicer is entitled
to retain all assumption fees, prepayment penalties and late payment charges, to
the extent collected from mortgagors, together with any interest or other income
earned on funds held in the Certificate Account and any escrow accounts. The
Servicing Standard requires the Master Servicer to, among other things,
diligently service and administer the Mortgage Loans on behalf of the Trustee
and in the best interests of the Certificateholders, but without regard to the
Master Servicer's right to receive such additional servicing compensation. The
Master Servicer is obligated to pay certain ongoing expenses associated with the
Mortgage Pool and incurred by the Master Servicer in connection with its
responsibilities under the Agreement. See "Description of the
Agreements--Retained Interest; Servicing Compensation and Payment of Expenses"
in the Prospectus for information regarding other possible compensation payable
to the Master Servicer and for information regarding expenses payable by the
Master Servicer [and "Certain Federal Income Tax Consequences" herein regarding
certain taxes payable by the Master Servicer].
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date the Master Servicer shall furnish to each
Certificateholder, to the Depositor, to the Trustee and to the Rating Agency a
statement setting forth certain information with respect to the Mortgage Loans
and the Certificates required pursuant to the Pooling and Servicing Agreement.
In addition, within a reasonable period of time after each calendar year, the
Master Servicer shall furnish to each person who at any time during such
calendar year was the holder of a Certificate a statement containing certain
information with respect to the Certificates required pursuant to the Pooling
and Servicing Agreement, aggregated for such calendar year or portion thereof
during which such person was a Certificateholder. See "Description of the
Certificates--Reports to Certificateholders" in the Prospectus.
VOTING RIGHTS
At all times during the term of this Agreement, the Voting Rights shall
be allocated among the Classes of Certificateholders in proportion to the
respective Certificate Balances of their Certificates [(net, in the case of the
Class [ ], Class [ ] and Class [ ] Certificates, of any Uncovered Portion of the
related Certificate Balance)]. Voting Rights allocated to a class of
Certificateholders shall be allocated among such Certificateholders in
proportion to the Percentage Interests evidenced by their respective
Certificates.
TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate following the earliest of (i) the final payment or other liquidation
of the last Mortgage Loan or REO Property subject thereto, and (ii) the purchase
of all of the assets of the Trust Fund by the Master Servicer. Written notice of
termination of the Pooling and Servicing Agreement will be given to each
Certificateholder, and the final distribution will be made only upon surrender
and cancellation of the Certificates at the office of the Certificate Registrar
specified in such notice of termination. In no event, however, will the trust
created by the Pooling and Servicing Agreement continue beyond the expiration of
21 years from the death of the survivor of certain persons named in such Pooling
and Servicing Agreement.
Any such purchase by the Master Servicer of all the Mortgage Loans and
other assets in the Trust Fund is required to be made at a price equal to the
greater of (1) the aggregate fair market value of all the Mortgage Loans and REO
Properties then included in the Trust Fund, as mutually determined by the Master
Servicer and the Trustee, and (2) the excess of (a) the sum of (i) the aggregate
Purchase Price of all the Mortgage Loans then included in the Trust Fund and
(ii) the fair market value of all REO Properties then included in the Trust
Fund, as determined by an appraiser mutually agreed upon by the Master Servicer
and the Trustee, over (b) the aggregate of amounts payable or reimbursable to
the Master Servicer under the Pooling and Servicing Agreement. Such purchase
will effect early retirement of the then outstanding Class [ ] Certificates, but
the right of the Master Servicer to effect such termination is subject to the
requirement that the aggregate Stated Principal Balance of the Mortgage Loans
then in the Trust Fund is less than __% of the aggregate principal balance of
the Mortgage Loans as of the Cut-off Date. [In addition, the Master Servicer may
at its option purchase any class or classes of Class [ ] Certificates with a
Certificate Balance less than __% of the original balance thereof at a price
equal to such Certificate Balance plus accrued interest through _________.]
USE OF PROCEEDS
The net proceeds from the sale of Class [ ] Certificates will be used
by the Depositor to pay the purchase price of the Mortgage Loans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Class [ ] Certificates,
_______________________________, counsel to the Depositor, will deliver its
opinion generally to the effect that, assuming compliance with all provisions of
the Pooling and Servicing Agreement, for federal income tax purposes, the Trust
Fund will qualify as a REMIC under the Internal Revenue Code of 1986, as amended
(the "Code").
For federal income tax purposes, the Class [ ] Certificates will be the
sole class of "residual interests" in the REMIC and the Class [ ], Class [ ] and
Class [ ] Certificates will be the "regular interests" in the REMIC and will be
treated as debt instruments of the REMIC.
See "Certain Federal Income Tax Consequences--REMICS" in the
Prospectus.
[The Class [ ] Certificates [may][will not] be treated as having been
issued with original issue discount for federal income tax reporting purposes.
The prepayment assumption that will be used in determining the rate of accrual
of original issue discount, market discount and premium, if any, for federal
income tax purposes will be based on the assumption that subsequent to the date
of any determination the Mortgage Loans will prepay at a rate equal to ___%
[CPR][SPA]. No representation is made that the Mortgage Loans will prepay at
that rate or at any other rate. See "Certain Federal Income Tax
Consequences--REMICS--Taxation of Owners of REMIC Regular Certificates" and
"--Original Issue Discount" in the Prospectus.]
The Class [ ] Certificates may be treated for federal income tax
purposes as having been issued at a premium. Whether any holder of such a 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. Holders of such class of Certificates
should consult their own tax advisors regarding the possibility of making an
election to amortize such premium. See "Certain Federal Income Tax
Consequences--REMICS--Taxation of Owners of REMIC Regular Certificates" and
"--Premium" in the Prospectus.
[The Class [ ] Certificates will be treated as assets described in
Section 7701(a)(19)(C) of the Code] and "real estate assets" within the meaning
of Section 856(c)(4)(A) of the Code generally in the same proportion that the
assets of the REMIC underlying such Certificates would be so treated.] [In
addition, interest (including original issue discount) on the Class [ ]
Certificates will be interests described in Section 856(c)(3)(B) of the Code to
the extent that such Class [ ] Certificates are treated as "real estate assets"
under Section 856(c)(4)(A) of the Code.] [Moreover, the Class [ ] Certificates
will be "obligation[s] . . . which . . .[are] principally secured by an interest
in real property" within the meaning of Section 860G(a)(3)(C) of the Code.] [The
Class [ ] Certificates will not be considered to represent an interest in "loans
. . . secured by an interest in real property" within the meaning of Section
7701 (a)(19)(C)(v) of the Code.] See "Certain Federal Income Tax
Consequences--REMICS--Characterization of Investments in REMIC Certificates" in
the Prospectus.
For further information regarding the federal income tax consequences
of investing in the Class [ ] Certificates, see "Certain Federal Income Tax
Consequences--REMICS" in the Prospectus.
ERISA CONSIDERATIONS
[A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds and separate accounts and certain insurance
company 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 ("Plans") should
carefully review with its legal advisors whether the purchase or holding of
Class [ ] Certificates could give rise to a transaction that is prohibited or is
not otherwise permitted either under ERISA or Section 4975 of the Code.
[The U.S. Department of Labor issued an exemption, Prohibited
Transaction Exemption 90-24, as amended (the "Exemption"), to Morgan Stanley &
Co. Incorporated, 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, relating to the servicing and
operation of mortgage pools and the purchase, sale and holding of mortgage
pass-through certificates underwritten by an Underwriter (as hereinafter
defined), provided that certain conditions set forth in the Exemption are
satisfied. For purposes of this Section "ERISA Considerations," the term
"Underwriter" shall include (a) Morgan Stanley & Co. Incorporated, (b) any
person directly or indirectly, through one or more intermediaries, controlling,
controlled by or under common control with Morgan Stanley & Co. Incorporated and
(c) any member of the underwriting syndicate or selling group of which a person
described in (a) or (b) is a manager or co-manager with respect to the Class [ ]
Certificates.
The Exemption sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of the Class [ ]
Certificates or a transaction in connection with the servicing, operation and
management of the Trust Fund to be eligible for exemptive relief thereunder.
First, the acquisition of the Class [ ] 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 Class [ ] Certificates must not be subordinate to the rights and
interests evidenced by the other certificates of the Trust with respect to the
right to receive payment in the event of default or delinquencies in underlying
assets of the Trust. Third, the Class [ ] Certificates at the time of
acquisition by the Plan must be rated in one of the three highest generic rating
categories by Standard & Poor's Corporation, Moody's Investors Service, Inc.,
Duff & Phelps Credit Rating Co. or Fitch IBCA Investors Service, Inc. Fourth,
the Trustee cannot be an affiliate of any member of the "Restricted Group",
which consists of any Underwriter, the Depositor, the Master Servicer, each
sub-servicer, any insurer and any mortgagor with respect to Mortgage Loans
constituting more than 5% of the aggregate unamortized principal balance of the
Mortgage Loans as of the date of initial issuance of the Class [ ] Certificates.
Fifth, the sum of all payments made to and retained by the Underwriter must
represent not more than reasonable compensation for underwriting the Class [ ]
Certificates; the sum of all payments made to and retained by the Underwriter
must represent not more than reasonable compensation for underwriting the Class
[ ] 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 and any sub-servicer
must represent not more than reasonable compensation for such person's services
under the 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 of the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
Because the Class [ ] Certificates are not subordinate to any other
class of Certificates with respect to the right to receive payment in the event
of default or delinquencies on the underlying assets of the Trust, the second
general condition set forth above is satisfied with respect to such
Certificates. It is a condition of the issuance of the Class [ ] Certificates
that they be rated [not lower than] "____" by ___________________. A fiduciary
of a Plan contemplating purchasing a Class [ ] Certificate in the secondary
market must make its own determination that at the time of such acquisition, the
Class [ ] Certificates continue to satisfy the third general condition set forth
above. The Depositor expects that the fourth general condition set forth above
will be satisfied with respect to the Class [ ] Certificates. A fiduciary of a
Plan contemplating purchasing a Class [ ] Certificate must make its own
determination that the first, third, fifth and sixth general conditions set
forth above will be satisfied with respect to such Class [ ] Certificate.
Before purchasing a Class [ ] Certificate, a fiduciary of a Plan should
itself confirm (a) that such Certificates constitute "certificates" for purposes
of the Exemption and (b) 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, in
particular, Prohibited Transaction Class Exemption 83-1. See "ERISA
Considerations" in the Prospectus.
Any Plan fiduciary considering whether to purchase a Class [ ]
Certificate on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment. Prospective purchasers that
are insurance companies should consult with their counsel regarding whether the
United States Supreme Court's decision in the case of John Hancock v. Harris
Trust Savings Bank, 510 U.S. 86 (1993) affects their ability to make purchases
of Class [] Certificates and the extent to which Prohibited Transaction Class
Exemption ("PTCE 95-60") may be available. Any purchaser of a [class]
Certificate will be [required/deemed to] represent that either (a) it is not a
Plan, and is not purchasing such Certificate on behalf of or with assets of the
Plan, or (b) it is an insurance company which is puchasing the Certificates with
funds contained in an insurance company general account (as defined in PTCE
95-60), and the purchase and holPreding of the Certificate is covered under
Section I and III of PTCE 95-60. See "ERISA Considerations" in the Prospectus.
LEGAL INVESTMENT
The Class [ ] Certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended ("SMMEA"), so long as they are rated in at least the second
highest rating category by the Rating Agency, and, as such, will be legal
investments for certain entities to the extent provided in SMMEA. However,
institutions subject to the jurisdiction of the Office of the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Office of Thrift Supervision, the National
Credit Union Administration or federal or state banking, insurance or other
regulatory authorities should review applicable rules, supervisory policies and
guidelines, since certain restrictions may apply to investments in such
Certificates. It should also be noted that certain states have enacted
legislation limiting to varying extents the ability of certain entities (in
particular insurance companies) to invest in mortgage related securities.
Investors should consult with their own legal advisors in determining whether,
and to what extent, the Class [___] Certificates constitute legal investments
for such investors.
The Class [___] Certificates will not constitute "mortgage related
securities" under SMMEA. The appropriate characterization of the Class [___]
Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase Class [___] 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 Class [___]
Certificates will constitute legal investments for them.
[Except as to the status of the Class [___] Certificates as "mortgage
related securities," no] [No] representations as to the proper characterization
of the Certificates for legal investment, financial regulatory or other
purposes, or as to the ability of particular investors to purchase the
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
Certificates) may adversely affect the liquidity of the Certificates.
See "Legal Investment" in the Prospectus.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement between the Depositor and the Underwriter, the Class [ ] Certificates
will be purchased from the Depositor by the Underwriter, an affiliate of the
Depositor, upon issuance. Distribution of the Class [ ] Certificates will be
made by the Underwriter from time to time in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. Proceeds to
the Depositor from the Certificates will be __% of the initial aggregate
principal balance thereof as of the Cut-off Date, plus accrued interest from the
Cut-off Date at a rate of __% per annum, before deducting expenses payable by
the Depositor. In connection with the purchase and sale of the Class [ ]
Certificates, the Underwriter may be deemed to have received compensation from
the Depositor in the form of underwriting discounts.
The Depositor also has been advised by the Underwriter that it, through
one or more of its affiliates currently expects to make a market in the Class [
] Certificates offered hereby; however, it has no obligation to do so, any
market making may be discontinued at any time, and there can be no assurance
that an active public market for the Class [ ] Certificates will develop.
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities, including
liabilities under the Securities Act of 1933.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by
_____________________________ and for the Underwriter by ____________________.
RATING
It is a condition to issuance that the Class [ ] Certificates be rated
[not lower than] "______" by ________________. However, no person is obligated
to maintain the rating on the Class [ ] Certificates, and _______________ is not
obligated to monitor its rating following the Closing Date.
________________'s ratings on mortgage pass-through certificates
address the likelihood of the receipt by holders thereof of payments to which
they are entitled. _____________'s ratings take into consideration the credit
quality of the mortgage pool, structural and legal aspects associated with the
certificates, and the extent to which the payment stream in the mortgage pool is
adequate to make payments required under the certificates. _________________'s
rating on the Class [ ] Certificates does not, however, constitute a statement
regarding frequency of prepayments on the Mortgage Loans. [The rating of the
Class [ ] Certificates does not address the possibility that the holders of such
Certificates may fail to fully recover their initial investments.] See "Risk
Factors" herein.
There can be no assurance as to whether any rating agency not requested
to rate the Class [ ] Certificates will nonetheless issue a rating and, if so,
what such rating would be. A rating assigned to the Class [ ] Certificates by a
rating agency that has not been requested by the Depositor to do so may be lower
than the rating assigned by ________________'s pursuant to the Depositor's
request.
The rating of the Class [ ] 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.
<PAGE>
ANNEX A
[CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS]
[Attach Mortgage Loan Schedule that details relevant and available
information regarding the Mortgage Loans, such as the information included under
the following headings:
1. Loan ID number 19. Next rate change
2. Original balance 20. First payment change
3. Current balance 21. Next payment change
4. Current rate 22. Rate adjustment frequency
5. Current payment 23. Payment adjustment frequency
6. Note date 24. Period payment cap
7. Original term 25. Life rate cap
8. Remaining term 26. Life rate floor
9. Maturity date 27. Negative amortization cap
percent
10. Amortization 28. Negative amortization cap
amount
11. Origination appraisal
29. LTV and current balances based
upon the Appraised Value]
12. Name of borrower
13. Street
14. City
15. State
16. Zip code
17. Rate index
18. First rate change
<PAGE>
ANNEX B
[TITLE, SERIES OF MBS]
TERM SHEET
<TABLE>
<S> <C> <C> <C>
CUT-OFF DATE: [ ] MORTGAGE POOL CUT-OFF DATE BALANCE: $[ ]
DATE OF INITIAL ISSUANCE: [ ] REFERENCE DATE BALANCE: $[ ]
RELATED TRUSTEE: [ ] PERCENT OF ORIGINAL MORTGAGE POOL REMAINING [ ]%
AS OF REFERENCE DATE:
MATURITY DATE: [ ]
</TABLE>
<TABLE>
CLASS PASS-THROUGH INITIAL FEATURES
OF RATE CERTIFICATE
CERTIFICATES PRINCIPAL
BALANCE
<S> <C> <C> <C> <C>
[ ] [ ]% $[ ] [ ]
</TABLE>
<TABLE>
[First MBS Distribution Date on which the MBS may receive a portion of prepayments: [date]]
<S> <C> <C> <C>
MINIMUM SERVICING FEE RATE:* [ ]% per annum AS OF DATE OF
MAXIMUM SERVICING FEE RATE:* [ ]% per annum INITIAL ISSUANCE
SPECIAL HAZARD AMOUNT: $[ ]
BANKRUPTCY AMOUNT: $[ ]
FRAUD LOSS AMOUNT: $[ ]
- ---------------
*Combined Related Master Servicing and Subservicing Fee Rate.
</TABLE>
<PAGE>
<TABLE>
AS OF AS OF DATE OF
DELIVERY DATE INITIAL ISSUANCE
SENIOR PERCENTAGE [ ]% [ ]%
SUBORDINATE PERCENTAGE [ ]% [ ]%
<S> <C> <C> <C> <C>
RATINGS: RATING AGENCY CLASS VOTING RIGHTS:
[ ] [ ]
[ ]
[ ]
[ ]
</TABLE>
<PAGE>
[VERSION 2]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the prospectus to which it relates
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 ____, 199__
PROSPECTUS
MORGAN STANLEY CAPITAL I INC.,
DEPOSITOR
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE SERIES BY SEPARATE TRUSTS)
-------------------------------------------------------
Morgan Stanley Capital I Inc. will periodically offer certificates in one or
more series. Each series of certificates will represent the beneficial ownership
interest in a trust consisting of one or more segregated pools of: (i)
multifamily or commercial mortgage loans; (ii) mortgage participations, mortgage
pass-through certificates and/or mortgage-backed securities; (iii) certain
direct obligations of the United States, agencies thereof or agencies created
thereby; or (iv) a combination of any of the foregoing. Someor all of the
mortgage loans may include assignments of the leases of the related mortgaged
properties and/or assignments of the rental payments due under those leases. The
trust for a series of certificates may include letters of credit, insurance
policies, guarantees, reserve funds or other types of credit support. A trust
also may include currency or interest rate exchange agreements and other
financial assets.
-------------------------------------------------------
INVESTING IN THE OFFERED CERTIFICATES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE ___ IN THIS PROSPECTUS AND ON PAGE ___ OF THE RELATED
PROSPECTUS SUPPLEMENT.
-------------------------------------------------------
The certificates of any series may consist of one or more classes. A
given class may: (i) provide for the accrual of interest based on fixed,
variable or adjustable rates; (ii) be senior or subordinate to one or more other
classes in respect of certain distributions; (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 commencing only following the occurrence of
certain events, such as the retirement of one or more other classes; (vi)
provide for sequential distributions of principal; and/or (vii) provide for
distributions based on a combination of any of the foregoing characteristics.
-------------------------------------------------------
Distributions on the certificates will be made only from the assets of
the related trust. The certificates of each series will not be an obligation of
Morgan Stanley Capital I Inc. or any of its affiliates. Neither the certificates
nor any assets in the related trust will be insured or guaranteed by any
governmental agency or instrumentality or any other person unless the related
prospectus supplement so provides.
-------------------------------------------------------
This prospectus may be used to offer and sell any series of certificates
only if accompanied by the prospectus supplement for that series. The
information in this prospectus is not complete and may be changed. This
prospectus is not an offer to sell these securities in any state where the offer
or sale is not permitted.
-------------------------------------------------------
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of the offered certificates or determined if this
prospectus or the accompanying prospectus supplement are truthful or complete.
Any representation to the contrary is a criminal offense.
-------------------------------------------------------
MORGAN STANLEY DEAN WITTER
<PAGE>
IMPORTANT NOTICE about INFORMATION PRESENTED in this
PROSPECTUS and the ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about the offered certificates is contained in two separate
documents that progressively provide more detail: (a) this prospectus, which
provides general information, some of which may not apply to a particular series
of certificates; and (b) the accompanying prospectus supplement, which describes
the specific terms of your series of certificates, including:
o the timing of interest and principal payments;
o applicable interest rates;
o information about the trust's assets;
o information about any credit support or cash flow agreement;
o the rating for each class of certificates;
o information regarding the nature of any subordination;
o any circumstance in which the trust may be subject to early
termination;
o whether any elections will be made to treat the trust or a designated
portion thereof as a "real estate mortgage investment conduit" for
federal income tax purposes;
o the aggregate principal amount of each class of certificates;
o information regarding any master servicer, sub-servicer or special
servicer;
o whether the certificates will be initially issued in definitive or
book entry form;
IF THE TERMS OF THE OFFERED CERTIFICATES VARY BETWEEN THIS PROSPECTUS AND
THE ACCOMPANYING PROSPECTUS SUPPLEMENT, you should rely on the information in
the prospectus supplement. Further, you should rely only on the information
contained in this prospectus and the accompanying prospectus supplement. The
Depositor has not authorized anyone to provide you with information that is
different.
This prospectus and the accompanying prospectus supplement include cross
references to sections in these materials where you can find further related
discussions. The Tables of Contents in this prospectus and the prospectus
supplement identify the pages where these sections are located.
Capitalized terms in this prospectus are defined under the caption "Index
of Terms for Prospectus" beginning on page ___ in this prospectus. Capitalized
terms used in the prospectus supplement are defined under the caption "Index of
Terms for Prospectus Supplement" beginning on page S- ___ in the prospectus
supplement.
The Depositor's principal executive office is located at 1585 Broadway,
37TH Floor, New York, New York 10036, and the Depositor's telephone number is
(212) 761-4700.
---------------------------------------------
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 accompanying prospectus supplement do not
contain all of the information set forth in the registration statement. For
further information regarding the documents referred to in this prospectus and
the accompanying prospectus supplement, you should refer to the registration
statement and the exhibits thereto. The 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.
If some or all of the mortgage loans owned by a trust are secured by an
assignment of lessors' rights in one or more leases, rental payments due from
the lessees may be a significant source (or even the sole source) of
distributions on the certificates. In such circumstances, reference should be
made to the related prospectus supplement for information concerning the lessees
and whether any of those lessees are subject to the periodic reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
INCORPORATION of CERTAIN INFORMATION by REFERENCE
The Depositor will file, or cause to be filed, with the Commission the
periodic reports with respect to each trust required under the Exchange Act and
the rules and regulations of the Commission.
All documents and reports filed, or caused to be filed, by the Depositor
with respect to a trust pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act prior to the termination of an offering of certificates are
incorporated in this prospectus by reference. Each person to whom this
prospectus is delivered may obtain, without charge, from the Depositor a copy of
any such documents or reports relating to the certificates being offered.
(Exhibits to those documents may only be obtained if they are specifically
incorporated by reference in those documents.) Requests for this information
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 certificates.
-------------------------------------------
Until 90 days after the date of each prospectus supplement, all dealers
that buy, sell or trade the certificates offered by such prospectus supplement,
whether or not participating in the offering, may be required to deliver a
prospectus supplement and this prospectus. This is in addition to the dealers'
obligation to deliver a prospectus supplement and the accompanying prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
TABLE of CONTENTS
PAGE
AVAILABLE INFORMATION
INCORPORATION of CERTAIN INFORMATION by REFERENCE
SUMMARY of PROSPECTUS
RISK FACTORS
DESCRIPTION of the TRUST FUNDS
YIELD CONSIDERATIONS
THE DEPOSITOR
DESCRIPTION of the CERTIFICATES
DESCRIPTION of the AGREEMENTS
DESCRIPTION of CREDIT SUPPORT
CERTAIN LEGAL ASPECTS of the MORTGAGE LOANS and the LEASES
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
STATE TAX CONSIDERATIONS
CERTAIN ERISA CONSIDERATIONS
LEGAL INVESTMENT
PLAN of DISTRIBUTION
LEGAL MATTERS
FINANCIAL INFORMATION
RATING
INDEX of PRINCIPAL DEFINITIONS
<PAGE>
SUMMARY of PROSPECTUS
This summary highlights certain selected certain information from this
prospectus. It does not contain all of the information you need to consider in
making your investment decision. TO UNDERSTAND ALL OF THE TERMS OF AN OFFERING
OF CERTIFICATES, READ THIS ENTIRE DOCUMENT AND THE ACCOMPANYING PROSPECTUS
CAREFULLY.
Issuer........................Morgan Stanley Capital I 199__-__ Trust.
Title of Certificates.........Mortgage Pass-Through Certificates, issuable in
series.
Depositor.....................Morgan Stanley Capital I Inc., a wholly-owned
subsidiary of Morgan Stanley Group Inc. See "The
Depositor."
Master Servicer...............The Master Servicer, if any, for each series of
certificates will be named in the related
prospectus supplement. The Master Servicer may be
an affiliate of the Depositor. See "Description of
the Agreements--Collection and Other Servicing
Procedures."
Special Servicer..............The Special Servicer, if any, for each series of
certificates will be named, or the circumstances
in accordance with which a Special Servicer will
be appointed will be described, in the related
prospectus supplement. The Special Servicer may be
an affiliate of the Depositor. See "Description of
the Agreements--Special Servicers."
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
beneficial ownership in a trust consisting
primarily of:
(a) Mortgage Assets.........The mortgage assets comprising a particular trust
will consist of a pool of: (i) multifamily and/or
commercial mortgage loans; (ii) mortgage
participations, mortgage pass-through certificates
or other mortgage-backed securities evidencing
interests in or secured by mortgage loans
(collectively, the "MBS"); or (iii) a combination
of mortgage loans and MBS. The mortgage loans will
not be guaranteed or insured by the Depositor or
any of its affiliates. Unless the prospectus
supplement so provides, the mortgage loans also
will not be guaranteed or insured by any
governmental agency or instrumentality or other
person. The mortgage loans will be secured by
first liens or junior liens on, or security
interests in: (i) residential properties
consisting of five or more rental or
cooperatively-owned dwelling units; 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 commercial
properties or other types of commercial
properties.
The above-described multifamily and commercial
properties may be located in any of the fifty
states, the District of Columbia or the
Commonwealth of Puerto Rico. The prospectus
supplement will indicate any additional
jurisdictions in which those properties may be
located. Unless otherwise provided in the related
prospectus supplement, all mortgage loans will
have individual principal balances at origination
of at least $25,000 and original terms to maturity
of not more than 40 years. Persons other than the
Depositor will originate all the mortgage loans.
The related prospectus supplement will indicate if
any of those persons are affiliates of the
Depositor. The Depositor will purchase all
mortgage assets on or before the initial issuance
of the related series of certificates.
Each mortgage loan may provide for no accrual of
interest or for accrual of interest at a fixed or
adjustable rate or at a rate that may be converted
from adjustable to fixed, or vice versa, from time
to time at the mortgagor's election. Adjustable
mortgage rates may be based on one or more
indices. Each mortgage loan may provide for
scheduled payments to maturity or payments that
adjust from time to time to accommodate changes in
the interest rate or to reflect the occurrence of
certain events. Each mortgage loan also may
provide for negative amortization or accelerated
amortization. Each mortgage loan may be fully
amortizing or require a balloon payment due on the
loan's stated maturity date. Each mortgage loan
may contain prohibitions on prepayment or require
payment of a premium or a yield maintenance
penalty in connection with a prepayment. 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 specified in the related
prospectus supplement. See "Description of the
Trust Funds--Assets."
(b) Government Securities...If the related prospectus supplement so specifies,
the trust may include certain direct obligations
of the United States, agencies thereof or agencies
created thereby which provide for payment of
interest and/or principal.
(c) Collection Accounts.....Each trust will include one or more accounts
established and maintained on behalf of the
certificateholders. The person(s) designated in
the related prospectus supplement will, to the
extent described in this prospectus and the
prospectus supplement, deposit into this account
all payments and collections received or advanced
with respect to the trust's assets. Such an
account may be either interest bearing or
non-interest bearing, and funds may be held
therein as cash or invested in certain short-term,
investment grade obligations. See "Description of
the Agreements--Certificate Account and Other
Collection Accounts."
(d) Credit Support..........If the related prospectus supplement so specifies,
one or more classes of certificates may be
provided with partial or full protection against
certain defaults and losses on a trust's mortgage
assets. This protection may be provided by
subordination of one or more other classes 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. The related prospectus
supplement will describe the amount and types of
credit support, the entity providing the credit
support (if applicable) and related information.
If a particular trust includes MBS, the related
prospectus supplement will describe any similar
forms of credit support applicable to those MBS.
See "Risk Factors--Credit Support Limitations" and
"Description of Credit Support."
(e) Cash Flow
Agreements..............If the related prospectus supplement so provides,
the trust may include guaranteed investment
contracts pursuant to which moneys held in the
collection accounts will be invested at a
specified rate. The trust also may include certain
agreements designed to reduce the effects of
interest rate or currency exchange rate
fluctuations on the trust's assets or on one or
more classes of certificates. Agreements of this
sort may include interest rate exchange
agreements, interest rate cap or floor agreements,
currency exchange agreements or similar
agreements. (Currency exchange agreements might be
included in a trust if some or all of the mortgage
assets (such as mortgage loans secured by
mortgaged properties located outside the United
States) are denominated in a non-United States
currency.) The related prospectus supplement will
describe the principal terms of any such
guaranteed investment contract or other agreement
and provide information with respect to the
obligor. If a particular trust includes MBS, the
related prospectus supplement will describe any
guaranteed investment contract or other agreements
applicable to those MBS. See "Description of the
Trust Funds--Cash Flow Agreements" and
"Description of Certificates."
Distributions
on Certificates...............Each series of certificates evidencing an interest
in a trust that includes mortgage loans will be
issued pursuant to a pooling and servicing
agreement. Each series of certificates evidencing
an interest in a trust that does not include
mortgage loans will be issued pursuant to a trust
agreement. Each series of certificates will
include one or more classes. Each series of
certificates (including any class or classes not
offered by this prospectus) will represent, in the
aggregate, the entire beneficial ownership
interest in the related trust. Each class of
certificates (other than certain stripped interest
certificates) will have a stated principal amount.
Each class of certificates (other than certain
stripped principal certificates) also will accrue
interest based on a fixed, variable or adjustable
interest rate. The related prospectus supplement
will specify the principal amount, if any, and the
interest rate, if any, for each class of
certificates. In the case of a variable or
adjustable interest rate, the related prospectus
supplement will specify the method for determining
the rate.
The certificates will not be guaranteed or insured
by the Depositor or any of its affiliates. The
certificates also will not be guaranteed or
insured by any governmental agency or
instrumentality or by any other person, unless the
related prospectus supplement so provides. See
"Risk Factors--Limited Assets" and "Description of
the Certificates."
(a) Interest................Each class of offered certificates (other than
stripped principal certificates and certain
classes of stripped interest certificates) will
accrue interest at the applicable rate. Interest
will be distributed to certificateholders as
provided in the related prospectus supplement.
Distributions with respect to interest on stripped
interest certificates may be made 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 in
this prospectus and 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 principal balance no greater
than the outstanding principal balance of the
trust's assets as of the close of business on the
first day of the month during which the trust is
formed, after application of scheduled payments
due on or before that date, whether or not
received. (The related prospectus supplement may
provide that the principal balance of the trust's
assets will be determined as of a different date.)
The principal balance of a certificate at a given
time represents the maximum amount that the holder
is then entitled to receive in respect of
principal from future cash flow on the assets in
the related trust. Unless the prospectus
supplement provides otherwise, distributions of
principal will be made on each distribution date
to the class or classes of certificates entitled
thereto, until the principal balances of those
certificates have been reduced to zero. Unless the
prospectus supplement specifies otherwise,
distributions of principal will be made on a pro
rata basis among all of the certificates of a
given class or by random selection, as described
in the prospectus supplement or otherwise
established by the Trustee. Stripped interest
certificates with no principal balance will not
receive distributions in respect of principal. See
"Description of the Certificates--Distributions of
Principal of the Certificates."
Advances....................Unless the related prospectus supplement otherwise
provides, the Master Servicer will be obligated to
make certain advances with respect to delinquent
scheduled payments on the whole loans in the trust
if it determines that those advances are
recoverable. Neither the Depositor nor any of its
affiliates will have any responsibility to make
those advances. Advances made by a Master Servicer
are reimbursable generally from subsequent
recoveries in respect of those whole loans and
otherwise to the extent described in this
prospectus and the related prospectus supplement.
If the prospectus supplement so provides, the
Master Servicer will be entitled to receive
interest on its outstanding advances, payable from
amounts in the related trust. If a particular
trust includes MBS, the prospectus supplement will
describe any advance obligations applicable to
those MBS. See "Description of the
Certificates--Advances in Respect of
Delinquencies."
Termination.................If the related prospectus supplement so specifies,
a series of certificates may be subject to
optional early termination through repurchase of
the trust's assets by a specified party, under
certain specified circumstances. If the principal
amount of a specified class or classes of
certificates declines by a specified percentage
amount on or after a specified date, the
prospectus supplement also may provide that a
specified party will:
o solicit bids to purchase all of the
trust's assets;
o solicit bids to purchase a sufficient
portion of the trust's assets to retire
such class or classes; or
o purchase the trust's assets at a
specified price.
In addition, if the related prospectus supplement
so provides, certain other classes of certificates
may be purchased subject to similar conditions.
See "Description of the Certificates
--Termination."
Registration of
Certificates..................If the related prospectus supplement so provides,
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. If offered certificates are
registered in the name of Cede & Co., no person
acquiring an interest in those certificates will
be entitled to receive a definitive certificate
representing such person's interest (unless
definitive certificates are issued under the
limited circumstances described this prospectus).
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 treated as a
real estate mortgage investment conduit ("REMIC")
under Sections 860A through 860G of the Internal
Revenue Code; or (ii) interests ("Grantor Trust --
Certificates") in a trust treated as a grantor
trust under applicable provisions of the Internal
Revenue 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 those 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 Internal
Revenue Code); and (iii) may be subject to foreign
withholding rules. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC
Residual Certificates."
To the extent described in this prospectus and the
related prospectus supplement, the offered
certificates will be treated as: (i) assets
described in section 7701(a)(19)(C) of the
Internal Revenue Code; and (ii) "real estate
assets" within the meaning of section 856(c)(4)(A)
of the Internal Revenue Code. See "Certain Federal
Income Tax Consequences" in this prospectus and
the prospectus supplement.
(b) Grantor Trust...........If no election is made to treat the trust relating
to a series of certificates as a REMIC, the trust
will be classified as a grantor trust and not as
an association taxable as a corporation for
federal income tax purposes. Holders of
certificates therefore 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.
Investors are advised to consult their tax
advisors and to review "Certain Federal Income Tax
Consequences" in this prospectus and the related
prospectus supplement.
ERISA Considerations..........An investor that is subject to Title I of the
Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or Section 4975 of the
Internal Revenue 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.
See "Certain ERISA Considerations" in this
prospectus and the related prospectus supplement.
If the related prospectus supplement so specifies,
certain classes of certificates may not be
transferred unless the Trustee and the Depositor
receive a letter of representations or an opinion
of counsel to the effect that the transfer will
not result in a violation of the prohibited
transaction provisions of ERISA or the Internal
Revenue Code, will not cause the assets of the
trust to be deemed "plan assets" for purposes of
ERISA or the Internal Revenue Code and will not
subject the Trustee, the Depositor or any Servicer
to additional obligations. See "Certain ERISA
Considerations" in this prospectus and the related
prospectus supplement.
Legal Investment..............The related prospectus supplement will specify
whether any classes of the offered certificates
will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended. Investors
whose investment authority is subject to legal
restrictions should consult their own legal
advisors to determine whether any restrictions
apply to an investment in the offered
certificates. See "Legal Investment" in this
prospectus and the related prospectus supplement.
Rating........................At the date of issuance, each class of offered
certificates of each series will be rated not
lower than investment grade by one or more
nationally recognized statistical rating agencies.
See "Rating" in this prospectus and the related
prospectus supplement.
<PAGE>
RISK FACTORS
Investors should consider the following factors in deciding whether to
purchase the offered certificates, as well as certain other factors set forth in
"Risk Factors" in the related prospectus supplement.
Risk of Limited Liquidity and Market Valuation Fluctuations
There is no assurance that a secondary market will develop for the
certificates of any series. If a secondary market does develop, there is no
assurance it will continue or will provide holders with liquidity of investment.
Any such secondary market may provide less liquidity to investors than any
comparable market for securities evidencing interests in single family mortgage
loans. Lack of liquidity could result in a substantial decrease in the market
value of certificates. The market value of certificates also will fluctuate with
changes in prevailing rates of interest and other factors. Consequently, sale of
certificates in any secondary market that may develop may be at a discount from
100% of their original principal balance or from their purchase price. Morgan
Stanley & Co. Incorporated currently expects to make a secondary market in the
offered certificates, but has no obligation to do so.
Except to the extent described in this prospectus and the related
prospectus supplement, certificateholders will have no redemption rights. The
certificates will be subject to early retirement only under certain specified
circumstances described in this prospectus and the related prospectus
supplement. See "Description of the Certificates--Termination." Furthermore,
secondary market purchasers may look only to this prospectus, the related
prospectus supplement and to the reports delivered to certificateholders for
information concerning the certificates. See "Description of the
Certificates--Reports to Certificateholders," "--Book-Entry Registration and
Definitive Certificates" and "Description of the Agreements--Evidence as to
Compliance."
Risk Relating to Dependence Upon Trust's Assets for Repayment
The certificates will not represent an interest in, or be an obligation
of, the Depositor, the Master Servicer, or any of their affiliates. The only
obligations with respect to the certificates or a trust's assets will be:
o the obligations (if any) of the Warranting Party (as defined in
this prospectus) pursuant to certain limited representations and
warranties made with respect to the mortgage loans;
o the Master Servicer's, any Special Servicer's and any
Sub-Servicer's servicing obligations (including the limited
obligation to make certain advances in the event of delinquencies
on the mortgage loans, to the extent deemed recoverable).
Because certain representations and warranties with respect to the
mortgage assets may have been made and/or assigned in connection with transfers
of the mortgage assets prior to the closing date, the rights of the Trustee and
the certificateholders with respect to those representations or warranties will
be limited to their rights as assignees. Unless the related prospectus
supplement so specifies, neither the Depositor, the Master Servicer nor any
affiliate thereof will have any obligation with respect to representations or
warranties made by any other entity.
Unless the related prospectus supplement so specifies, 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 trust for each series of certificates
(including the mortgage assets and any form of credit enhancement) will be the
sole source of payments on the certificates. There will be no recourse to the
Depositor or any other entity if those proceeds are insufficient or otherwise
unavailable to make all payments provided for under the certificates.
Unless the related prospectus supplement so specifies, a series of
certificates will not have any claim against, or security interest in, the trust
for any other series. If the related trust is insufficient to make payments on
those 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 (as defined in this prospectus) and
any accounts maintained as credit support, may be withdrawn under certain
conditions described in the related prospectus supplement. Any withdrawn amounts
will not be available for future payment of principal of or interest on the
certificates. If a series of certificates consists of one or more classes of
subordinate certificates, the amount of any losses or shortfalls in collections
of assets on any distribution date will be borne first by one or more classes of
the subordinate certificates, as described in the related prospectus supplement.
Thereafter, those losses or shortfalls will be borne by the remaining classes of
certificates, in the priority and manner and subject to the limitations
specified in the related prospectus supplement.
Risks Relating to Prepayments
Prepayments (including those caused by defaults) on the mortgage assets
in any trust generally will result in a faster rate of principal payments on one
or more classes of certificates than if payments on those 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 and is influenced by a variety of economic, demographic, geographic,
social, tax, legal and other factors. The rate of prepayment on the mortgage
assets in any trust is unpredictable. There is no assurance that the rate of
payments will conform to any model described in this prospectus or 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 comprising any trust. 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, 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 those classes of certificates will be sensitive--in some cases extremely
sensitive--to prepayments on mortgage assets. Where the amount of interest
payable with respect to a class is disproportionately high, as compared to the
amount of principal, (e.g., as in the case of 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 that provide for distribution of principal from amounts
attributable to interest accrued but not currently distributable on one or more
classes of Accrual Certificates (as defined in this prospectus). As a result,
yields on those certificates will be sensitive to (a) the Accrual Certificate
provisions relating to the timing of interest distributions, and (b) if those
Accrual Certificates accrue interest at a variable or adjustable interest rate,
changes in that rate. See "Yield Considerations" in this prospectus and, if
applicable, the related prospectus supplement.
Limited Nature of Ratings
Any rating assigned by a rating agency to a class of certificates will
reflect the rating agency's assessment solely of the likelihood that holders of
that class will receive payments to which they are entitled. A rating will not
assess: (i) the likelihood that principal prepayments (including those caused by
defaults) on the related mortgage assets will be made; (ii) whether the rate of
prepayments might differ from that originally anticipated; or (iii) the
likelihood of early optional termination. A rating also will not address the
possibility that prepayment at higher or lower rates than anticipated by an
investor may cause the investor to experience a lower than anticipated yield.
Additionally, a rating will not address the possibility 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 certificateholders are entitled
that is not covered by the applicable rating.
Each rating agency rating classes of a particular series will determine
the required amount, type and nature of credit support, if any, on the basis of
its own criteria. Those criteria are sometimes based upon an actuarial analysis
of the behavior of mortgage loans in a larger group. There is no assurance that
the historical data supporting any such actuarial analysis will accurately
reflect future experience. Nor is there any assurance that the data derived from
a large pool of mortgage loans will accurately predict the delinquency,
foreclosure or loss experience of any particular pool of mortgage assets. There
also is no assurance that the [appraised] value of any mortgaged property has
remained or will remain [at its appraisal level] on the date the related
mortgage loan is originated. Moreover, there is no assurance that general
appreciation of real estate values, if any, will limit loss experiences on the
specific mortgaged properties.
If the commercial or multifamily residential real estate markets
experience an overall decline in property values, the outstanding principal
balances of the mortgage loans comprising the mortgage assets in a particular
trust (and any secondary financing on the related mortgaged properties) may
equal or exceed the value of the mortgaged properties. In that event, 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 increase the rates of delinquencies, foreclosures and
losses with respect to any trust. To the extent those losses are not covered by
the credit support, if any, described in the related prospectus supplement,
those losses will be borne, at least in part, by the holders of one or more
classes of certificates. 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 greater delinquency and foreclosure risks than those associated with
single family property and, accordingly, greater risk of loss. See "Description
of the Trust Funds--Assets." The mortgagor's ability to repay a loan secured by
an income-producing property typically is dependent primarily upon the
successful operation of that 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 the 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 industry, the
mortgagor's income tends not to reflect directly the value of the property. A
decline in the net operating income of an income-producing property will likely
affect both the performance of the related loan and the liquidation value of the
property. In contrast, 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 the property. 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 to tenants may be dependent upon the businesses operated by the
tenants, the creditworthiness of the tenants or both. The liquidation value of
the property also will be affected by those factors. The risks associated with
those loans may be offset by the number of tenants or, if applicable, a
diversity of types of tenant-operated business.
It is anticipated that a substantial portion of the mortgage loans
included in any trust will be nonrecourse loans or loans for which recourse may
be restricted or unenforceable. In the event of mortgagor default, recourse may
be had only against the specific property and any other assets that have been
pledged to secure the related mortgage loan. Even if a mortgage loan provides
for recourse against the mortgagor and its assets generally, there is no
assurance that recourse will provide a recovery greater than the liquidation
value of the related mortgaged property.
Further, the concentration of default, foreclosure and loss risks in a
trust comprised of mortgage loans made with respect to commercial or multifamily
properties will generally be greater than that experienced with respect to a
pool of single family loans. This is so both because the mortgage assets in a
trust 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 in the trust. Mortgage
assets in a trust 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.
Additional Risks Associated with Commercial Loans and Leases
Each mortgagor under a commercial loan may be an entity created solely
to own or purchase the related commercial property. This entity may be created,
in significant part, to isolate the property from the debts and liabilities of
the person creating this entity. 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 those loans are recourse or nonrecourse obligations, the
mortgagors are not expected to have any significant assets other than the
commercial properties and the related leases, which will be pledged to the
Trustee. Therefore, payments on any of those commercial loans and, in turn,
payments of principal of and interest on the related certificates, will depend
primarily (or solely) on rental payments by the lessees. Those rental payments
will, in turn, depend on continued occupancy by, and/or the creditworthiness of,
those lessees. Both continued occupancy and creditworthiness may be adversely
affected by a general economic downturn or an adverse change in the lessees'
financial conditions.
Moreover, if a commercial property was designed for the needs of a
specific type of tenant (e.g., a nursing home, hospital, hotel or motel), it may
be difficult to promptly re-lease the property to a suitable substitute tenant
in the event the lessee defaults or the lease terminates early. If re-leasing to
such a substitute is not possible, the value of the property may be adversely
affected. The value of the property also may be adversely affected by the cost
of altering it 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, the net proceeds derived from
liquidating the property following foreclosure might be insufficient to cover
the outstanding principal and interest owing on the loan.
Risks Relating to Balloon Payments
Certain of the mortgage loans may not be fully amortizing over their
terms to maturity when they are acquired by a trust 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 a mortgagor's ability to make a balloon payment typically will depend
upon its ability either to timely refinance the loan or to timely sell the
mortgaged property. The mortgagor's ability to accomplish either of these goals
will be affected by a number of factors, including mortgage interest rates at
the time of sale or refinancing, the mortgagor's equity in the mortgaged
property, the financial condition and operating history of the mortgagor and the
related mortgaged property, tax laws, renewability of operating licenses,
prevailing general economic conditions and the availability of credit for
commercial or multifamily real properties. In the case of certain multifamily
properties and mobile home parks, rent control laws also are relevant to a
mortgagor's ability to sell or refinance, and reimbursement rates are relevant
in the case of certain hospitals, nursing homes and convalescent homes.
Risks Relating to Junior Mortgage Loans
If the prospectus supplement so specifies, certain of the mortgage
loans may be secured primarily by junior mortgages. In the event of liquidation,
satisfaction of mortgage loans secured by junior mortgages is subordinate to
satisfaction of the senior mortgage loans. If there are insufficient funds to
satisfy the junior and senior mortgage loans, the mortgage loan would suffer a
loss and one or more classes of certificates would bear that loss. Therefore,
any risks of deficiencies associated with first mortgage loans will be even
greater in the case of junior mortgage loans. See "--Risks Associated with
Mortgage Loans and Mortgaged Properties."
Risks Relating to Obligor Default
If the related prospectus supplement so specifies, a Master Servicer, a
Sub-Servicer or a Special Servicer will be permitted (within prescribed
parameters) to extend and modify whole loans that are in default or as to which
a payment default is imminent. Any such ability to extend or modify may apply,
in particular, to whole loans with 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, those whole loans. While any entity granting
such an extension or modification generally will be required to determine that
the extension or modification is reasonably likely to produce a greater recovery
on a present value basis than liquidation, there is no assurance this will be
the case. Additionally, if the related prospectus supplement so specifies,
certain of the mortgage loans included in the mortgage pool may have been
subject to workouts or similar arrangements following prior periods of
delinquency and default.
Risks Relating to Mortgagor Type
Mortgage loans made to partnerships, corporations or other entities may
entail greater risks of loss from delinquency and foreclosure than do single
family mortgage loans. The mortgagor's sophistication and form of organization
also may increase the likelihood of protracted litigation or bankruptcy in
default situations.
Risks Relating to Credit Support Limitations
The prospectus supplement for a series of certificates will describe
any credit support in the related trust. Forms of credit support may include
letters of credit, insurance policies, guarantees, reserve funds or combinations
thereof. Use of credit support will be subject to the conditions and limitations
described in the prospectus and in the related prospectus supplement. Moreover,
any applicable credit support may not cover all potential losses or risks. For
example, credit support 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). Although subordination is
intended to reduce the senior certificateholders' risk of delinquent
distributions or ultimate losses, the amount of subordination will be limited
and may decline under certain circumstances. In addition, if principal payments
are made in a specified order of priority, and limits exist with respect to the
aggregate amount of claims under any related credit support, the credit support
may be exhausted before the principal of the certificate classes with lower
priority has been repaid. Significant losses and shortfalls on the assets
consequently may fall primarily upon classes of certificates having a lower
payment priority. Moreover, if a form of credit support covers more than one
series of certificates, holders of certificates evidencing an interest in a
covered series will be subject to the risk that the credit support will be
exhausted by the claims of other covered series.
The amount of any credit support supporting one or more classes of
offered certificates, including the subordination of one or more classes will be
determined on the basis of criteria established by each pertinent rating agency.
Those criteria will be based on an assumed level of defaults, delinquencies,
other losses or other factors. However, the loss experience on the related
mortgage assets may exceed the assumed levels. See "--Limited Nature of
Ratings," "Description of the Certificates" and "Description of Credit Support."
Regardless of the form of any credit enhancement, 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 generally will 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 ratings will not be
adversely affected. A rating agency may lower the ratings of any series of
certificates if the obligations of any credit support provider are downgraded.
The ratings also may be lowered if losses on the related mortgage assets
substantially exceed the level contemplated by the rating agency at the time of
its initial rating analysis. Neither the Depositor, the Master Servicer nor any
of their affiliates will have any obligation to replace or supplement any credit
enhancement, or to take any other action to maintain any ratings of any series
of certificates.
Risks Relating to Subordination of the Subordinate Certificates; Effect of
Losses on the Assets
To the extent described in this prospectus, the subordinate
certificateholders' rights to receive distributions with respect to the assets
to which they would otherwise be entitled will be subordinate to the rights of
the senior certificateholders and of the Master Servicer (if the Master Servicer
is paid its servicing fee, including any unpaid servicing fees with respect to
one or more prior periods, and is reimbursed for certain unreimbursed advances
and unreimbursed liquidation expenses). As a result, investors in subordinate
certificates must be prepared to bear the risk that they may be subject to
delays in payment and may not recover their initial investments. 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 assumed by an investor, the yields to maturity on the subordinate
certificates may be lower than anticipated.
Risks Relating to Enforceability
Mortgages may contain a due-on-sale clause, which permits a 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 also may include a debt-acceleration clause, which permits a
lender to accelerate the debt upon a monetary or non-monetary default of the
mortgagor. Those 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 if
acceleration of the indebtedness would be inequitable, unjust or unconscionable.
If the related prospectus supplement so specifies, the mortgage loans
will be secured by an assignment of leases and rents. Pursuant to those
assignments, 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 as long as there is no default.
If the mortgagor defaults, the license terminates and the lender is entitled to
collect rents. These 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
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 the property. Moreover, the presence of hazardous or
toxic substances, or the failure to remediate the property, may adversely affect
the owner or operator's ability to borrow using the 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. Liability may be
imposed even if the environmental damage or threat was caused by a prior owner.
Under certain circumstances, a lender also risks such liability on foreclosure
of the mortgage. Unless the related prospectus supplement specifies otherwise,
neither the Master Servicer, the Sub-Servicer nor the Special Servicer may
acquire title to a mortgaged property 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 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 in compliance with applicable environmental laws or
circumstances requiring any of the foregoing actions are present, that it would
be in the best economic interest of the trust to acquire title to the mortgaged
property and take such actions as would be necessary and appropriate to effect
compliance and/or respond to those 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 those plans. Due to the complexity of
regulations governing those 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 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
those expenses will be deductible only as itemized deductions (and will be
subject to all the limitations applicable to itemized deductions) by holders of
REMIC Residual Certificates that are individuals. Accordingly, investment in the
REMIC Residual Certificates generally will 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
final Treasury Department regulations restrict 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 principal balance of all outstanding
certificates of a series (or a similar means of allocating decision-making) will
be required to direct certain actions. The actions in question may include
directing the Special Servicer or the Master Servicer regarding measures to be
taken with respect to certain mortgage loans and real estate owned ("REO")
properties and amending the relevant pooling and servicing agreement or trust
agreement. The consent or approval of the holders of the specified percentage of
the aggregate principal balance (or similar means of allocating decision-making)
will be sufficient to bind all certificateholders of the relevant series. See
"Description of the Agreements--Events of Default," "--Rights Upon Event of
Default," "--Amendment" and "--List of Certificateholders."
Book-Entry Registration
If the prospectus supplement so provides, one or more classes of the
certificates will be initially represented by one or more certificates
registered in the name of Cede & Co., the nominee for DTC, and will not be
registered in the names of the certificateholders or their nominees. Because of
this, certificateholders will not be recognized by the Trustee as
"Certificateholders" unless and until definitive certificates are issued. 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
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") and 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, (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 of any series (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, to the extent set forth in the
related Prospectus Supplement, in any one of the fifty states, the District of
Columbia or the Commonwealth of Puerto Rico. To the extent specified in the
related Prospectus Supplement, the Mortgage Loans will be secured by first or
junior mortgages or deeds of trust or other similar security instruments
creating a first or junior lien on Mortgaged Property. Multifamily Property may
include mixed commercial and residential structures and may include apartment
buildings owned by private cooperative housing corporations ("Cooperatives").
The Mortgaged Properties may include leasehold interests in properties, the
title to which is held by third party lessors. Unless otherwise specified in the
Prospectus Supplement, the term of any such leasehold will exceed the term of
the related mortgage note by at least five years. Each Mortgage Loan will have
been originated by a person (the "Originator") other than the Depositor. The
related Prospectus Supplement will indicate if any Originator is an affiliate of
the Depositor. The Mortgage Loans will be evidenced by promissory notes (the
"Mortgage Notes") secured by mortgages or deeds of trust (the "Mortgages")
creating a lien on the Mortgaged Properties. Mortgage Loans will generally also
be secured by an assignment of leases and rents and/or operating or other cash
flow guarantees relating to the Mortgage Loan.
Leases
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 lessee to lessor under such leases (each type of assignment, a
"Lease Assignment"). 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 (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. The term Mortgaged Properties shall refer to Multifamily Properties
or Commercial Properties, or both. Certain of the Leases may require the
mortgagor to bear costs associated with structural repairs and/or the
maintenance of the exterior or other portions of the Mortgaged Property or
provide for certain limits on the aggregate amount of operating expenses,
insurance premiums, taxes and other expenses that the Lessees are required to
pay. If so specified in the related Prospectus Supplement, under certain
circumstances the Lessees may be permitted to set off their rental obligations
against the obligations of the mortgagors under the Leases. In those cases where
payments under the Leases (net of any operating expenses payable by the
mortgagors) are insufficient to pay all of the scheduled principal and interest
on the related Mortgage Loans, the mortgagors must rely on other income or
sources (including security deposits) generated by the related Mortgaged
Property to make payments on the related Mortgage Loan. To the extent specified
in the related Prospectus Supplement, some Commercial Properties may be leased
entirely to one Lessee. In such cases, absent the availability of other funds,
the mortgagor must rely entirely on rent paid by such Lessee in order for the
mortgagor to pay all of the scheduled principal and interest on the related
Commercial Loan. To the extent specified in the related Prospectus Supplement,
certain of the Leases may expire prior to the stated maturity of the related
Mortgage Loan. In such cases, upon expiration of the Leases the mortgagors will
have to look to alternative sources of income, including rent payment by any new
Lessees or proceeds from the sale or refinancing of the Mortgaged Property, to
cover the payments of principal and interest due on such Mortgage Loans unless
the Lease is renewed. As specified in the related Prospectus Supplement, certain
of the Leases may provide that upon the occurrence of a casualty affecting a
Mortgaged Property, the Lessee will have the right to terminate its Lease,
unless the mortgagor, as lessor, is able to cause the Mortgaged Property to be
restored within a specified period of time. Certain Leases may provide that it
is the lessor's responsibility, while other Leases provide that it is the
Lessee's responsibility, to restore the Mortgaged Property after a casualty to
its original condition. Certain Leases may provide a right of termination to the
related Lessee if a taking of a material or specified percentage of the leased
space in the Mortgaged Property occurs, or if the ingress or egress to the
leased space has been materially impaired.
Default and Loss Considerations with Respect to the Mortgage Loans
Mortgage loans secured by commercial and multifamily properties are
markedly different from owner-occupied single family mortgage loans. The
repayment of loans secured by commercial or multifamily properties is typically
dependent upon the successful operation of such property rather than upon the
liquidation value of the real estate. Unless otherwise specified in the
Prospectus Supplement, the Mortgage Loans will be non-recourse loans, which
means that, absent special facts, the mortgagee may look only to the Net
Operating Income from the property for repayment of the mortgage debt, and not
to any other of the mortgagor's assets, in the event of the mortgagor's default.
Lenders typically look to the Debt Service Coverage Ratio of a loan secured by
income-producing property as an important measure of the risk of default on such
a loan. The "Debt Service Coverage Ratio" of a Mortgage Loan at any given time
is the ratio of the Net Operating Income for a twelve-month period to the
annualized scheduled payments on the Mortgage Loan. "Net Operating Income"
means, for any given period, to the extent set forth 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 Mortgage Loan
that may not be fully amortizing over the term to maturity and, thus, will
require substantial principal payments at the stated maturity (a "Balloon
Mortgage Loan"), for example, the risk of default as a result of the
unavailability of a source of funds to finance the related balloon payment at
maturity on terms comparable to or better than those of such Balloon Mortgage
Loans could be significant even though the related Debt Service Coverage Ratio
is high.
The liquidation value of any Mortgaged Property may be adversely
affected by risks generally incident to interests in real property, including
declines in rental or occupancy rates. Lenders generally use the Loan-to-Value
Ratio of a mortgage loan as a measure of risk of loss if a property must be
liquidated upon a default by the mortgagor.
Appraised values of income-producing properties may be based on the
market comparison method (recent resale value of comparable properties at the
date of the appraisal), the cost replacement method (the cost of replacing the
property at such date), the income capitalization method (a projection of value
based upon the property's projected net cash flow), or upon a selection from or
interpolation of the values derived from such methods. Each of these appraisal
methods presents analytical challenges. It is often difficult to find truly
comparable properties that have recently been sold; the replacement cost of a
property may have little to do with its current market value; and income
capitalization is inherently based on inexact projections of income and expense
and the selection of an appropriate capitalization rate. Where more than one of
these appraisal methods are used and create significantly different results, or
where a high Loan-to-Value Ratio accompanies a high Debt Service Coverage Ratio
(or vice versa), the analysis of default and loss risks is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish the Multifamily and Commercial
Loans from single family mortgage loans and provide insight to the risks
associated with income-producing real estate, there is no assurance that such
factors will in fact have been considered by the Originators of the Multifamily
and Commercial Loans, or that, for any of such Mortgage Loans, they are complete
or relevant. See "Risk Factors--Risks Associated with Mortgage Loans and
Mortgaged Properties," "--Balloon Payments," "--Junior Mortgage Loans,"
"--Obligor Default" and "--Mortgagor Type."
Loan-to-Value Ratio
The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is the
ratio (expressed as a percentage) of the then outstanding principal balance of
the Mortgage Loan to the Value of the related Mortgaged Property. The "Value" of
a Mortgaged Property, other than with respect to Refinance Loans, is generally
the lesser of (a) the appraised value determined in an appraisal obtained by the
originator at origination of such loan and (b) the sales price for such
property. "Refinance Loans" are loans made to refinance existing loans. Unless
otherwise set forth in the related Prospectus Supplement, the Value of the
Mortgaged Property securing a Refinance Loan is the appraised value thereof
determined in an appraisal obtained at the time of origination of the Refinance
Loan. The Value of a Mortgaged Property as of the date of initial issuance of
the related series of Certificates may be less than the value at origination and
will fluctuate from time to time based upon changes in economic conditions and
the real estate market.
Mortgage Loan Information in Prospectus Supplements
Each Prospectus Supplement will contain information, as of the date of
such Prospectus Supplement and to the extent then applicable and specifically
known to the Depositor, with respect to the Mortgage Loans, including (i) the
aggregate outstanding principal balance and the largest, smallest and average
outstanding principal balance of the Mortgage Loans, 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"), (ii)
the type of property securing the Mortgage Loans (e.g., Multifamily Property or
Commercial Property and the type of property in each such category), (iii) the
weighted average (by principal balance) of the original and remaining terms to
maturity of the Mortgage Loans, (iv) the earliest and latest origination date
and maturity date of the Mortgage Loans, (v) the weighted average (by principal
balance) of the Loan-to-Value Ratios at origination of the Mortgage Loans, (vi)
the Mortgage Rates or range of Mortgage Rates and the weighted average Mortgage
Rate borne by the Mortgage Loans, (vii) the state or states in which most of the
Mortgaged Properties are located, (viii) information with respect to the
prepayment provisions, if any, of the Mortgage Loans, (ix) the weighted average
Retained Interest, if any, (x) with respect to Mortgage Loans with adjustable
Mortgage Rates ("ARM Loans"), the index, the frequency of the adjustment dates,
the highest, lowest and weighted average note margin and pass-through margin,
and the maximum Mortgage Rate or monthly payment variation at the time of any
adjustment thereof and over the life of the ARM Loan and the frequency of such
monthly payment adjustments, (xi) the Debt Service Coverage Ratio either at
origination or as of a more recent date (or both) and (xii) information
regarding the payment characteristics of the Mortgage Loans, including without
limitation balloon payment and other amortization provisions. The related
Prospectus Supplement will also contain certain information available to the
Depositor with respect to the provisions of leases and the nature of tenants of
the Mortgaged Properties and other information referred to in a general manner
under "--Mortgage Loans--Default and Loss Considerations with Respect to the
Mortgage Loans" above. If specific information respecting the Mortgage Loans is
not known to the Depositor at the time Certificates are initially offered, more
general information of the nature described above will be provided in the
Prospectus Supplement, and specific information will be set forth in a report
which will be available to purchasers of the related Certificates at or before
the initial issuance thereof and will be filed as part of a Current Report on
Form 8-K with the Securities and Exchange Commission within fifteen days after
such initial issuance.
Payment Provisions of the Mortgage Loans
Unless otherwise specified in the related Prospectus Supplement, all of
the Mortgage Loans will (i) have individual principal balances at origination of
not less than $25,000, (ii) have original terms to maturity of not more than 40
years and (iii) provide for payments of principal, interest or both, on due
dates that occur monthly, quarterly or semi-annually or at such other interval
as is specified in the related Prospectus Supplement. Each Mortgage Loan may
provide for no accrual of interest or for accrual of interest thereon at an
interest rate (a "Mortgage Rate") that is fixed over its term or that adjusts
from time to time, or that may be converted from an adjustable to a fixed
Mortgage Rate, or from a fixed to an adjustable Mortgage Rate, from time to time
pursuant to an election or as otherwise specified on the related Mortgage Note,
in each case as described in the related Prospectus Supplement. Each Mortgage
Loan may provide for scheduled payments to maturity or payments that adjust from
time to time to accommodate changes in the Mortgage Rate or to reflect the
occurrence of certain events, and may provide for negative amortization or
accelerated amortization, in each case as described in the related Prospectus
Supplement. Each Mortgage Loan may be fully amortizing or require a balloon
payment due on its stated maturity date, in each case as described in the
related Prospectus Supplement. Each Mortgage Loan may contain prohibitions on
prepayment (a "Lock-out Period" and the date of expiration thereof, a "Lock-out
Date") or require payment of a premium or a yield maintenance penalty (a
"Prepayment Premium") in connection with a prepayment, in each case as described
in the related Prospectus Supplement. In the event that holders of any class or
classes of the offered certificates in this Prospectus Supplement (the "Offered
Certificates") will be entitled to all or a portion of any Prepayment Premiums
collected in respect of Mortgage Loans, the related Prospectus Supplement will
specify the method or methods by which any such amounts will be allocated. A
Mortgage Loan may also contain provisions entitling the mortgagee to a share of
profits realized from the operation or disposition of the Mortgaged Property
("Equity Participations"), as described in the related Prospectus Supplement. In
the event that holders of any class or classes of Offered Certificates will be
entitled to all or a portion of an Equity Participation, the related Prospectus
Supplement will specify the terms and provisions of the Equity Participation and
the method or methods by which distributions in respect thereof will be
allocated among such Certificates.
MBS
Any MBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, a trust agreement, an indenture or
similar agreement (an "MBS Agreement"). A seller (the "MBS Issuer") and/or
servicer (the "MBS Servicer") of the underlying Mortgage Loans (or Underlying
MBS) will have entered into the MBS Agreement with a trustee or a custodian
under the MBS Agreement (the "MBS Trustee"), if any, or with the original
purchaser of the interest in the underlying Mortgage Loans or MBS evidenced by
the MBS.
Distributions of any principal or interest, as applicable, will be made
on MBS on the dates specified in the related Prospectus Supplement. The MBS may
be issued in one or more classes with characteristics similar to the classes of
Certificates described in this Prospectus. Any principal or interest
distributions will be made on the MBS by the MBS Trustee or the MBS Servicer.
The MBS Issuer or the MBS Servicer or another person specified in the related
Prospectus Supplement may have the right or obligation to repurchase or
substitute assets underlying the MBS after a certain date or under other
circumstances specified in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination or other forms
of credit support similar to that described for the Certificates under
"Description of Credit Support" may be provided with respect to the MBS. The
type, characteristics and amount of such credit support, if any, will be a
function of certain characteristics of the Mortgage Loans or Underlying MBS
evidenced by or securing such MBS and other factors and generally will have been
established for the MBS on the basis of requirements of either any national
statistical rating agency (the "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 MBS or the related Underlying Mortgage Loans or Underlying 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.
If specified in the Prospectus Supplement for a series of Certificates,
a Trust Fund may contain one or more MBS issued by the Depositor that each
represent an interest in one or more Underlying Mortgage Loans. The Prospectus
Supplement for such a series will contain the disclosure concerning such MBS
described in the preceding paragraph and, in particular, will disclose such
Underlying Mortgage Loans appropriately in light of the percentage of the
aggregate principal balance of all Assets represented by the principal balance
of such MBS.
Government Securities
The Prospectus Supplement for a series of Certificates evidencing
interests in Assets of a Trust Fund that include Government Securities will
specify, to the extent available, (i) the aggregate approximate initial and
outstanding principal amounts or notional amounts, as applicable, and types of
the Government Securities to be included in the Trust Fund, (ii) the original
and remaining terms to stated maturity of the Government Securities, (iii)
whether such Government Securities are entitled only to interest payments, only
to principal payments or to both, (iv) the interest rates of the Government
Securities or the formula to determine such rates, if any, (v) the applicable
payment provisions for the Government Securities and (vi) to what extent, if
any, the obligation evidenced thereby is backed by the full faith and credit of
the United States.
Accounts
Each Trust Fund will include one or more accounts established and
maintained on behalf of the Certificateholders into which the person or persons
designated in the related Prospectus Supplement will, to the extent described
herein and in such Prospectus Supplement deposit all payments and collections
received or advanced with respect to the Assets and other assets in the Trust
Fund. Such an account may be maintained as an interest bearing or a non-interest
bearing account, and funds held therein may be held as cash or invested in
certain short-term, investment grade obligations, in each case as described in
the related Prospectus Supplement. See "Description of the
Agreement--Certificate Account and Other Collection Accounts."
Credit Support
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Assets in the related
Trust Fund may be provided to one or more classes of Certificates in the related
series in the form of subordination of one or more other classes of Certificates
in such series or by one or more other types of credit support, such as a letter
of credit, insurance policy, guarantee, reserve fund or another type of credit
support, or a combination thereof (any such coverage with respect to the
Certificates of any series, "Credit Support"). The amount and types of coverage,
the identification of the entity providing the coverage (if applicable) and
related information with respect to each type of Credit Support, if any, will be
described in the Prospectus Supplement for a series of Certificates. See "Risk
Factors--Credit Support Limitations" and "Description of Credit Support."
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 will accrue interest thereon based on a fixed, variable or
adjustable rate (a "Pass-Through Rate") of the Certificate, the receipt and
timing of receipt of distributions on the Certificate and the weighted average
life of the Assets in the related Trust Fund (which may be affected by
prepayments, defaults, liquidations or repurchases). See "Risk Factors."
Pass-Through Rate
Certificates of any class within a series may have fixed, variable or
adjustable Pass-Through Rates, which may or may not be based upon the interest
rates borne by the Assets in the related Trust Fund. The Prospectus Supplement
with respect to any series of Certificates will specify the Pass-Through Rate
for each class of such Certificates or, in the case of a variable or adjustable
Pass-Through Rate, the method of determining the Pass-Through Rate; the effect,
if any, of the prepayment of any Mortgage Asset on the Pass-Through Rate of one
or more classes of Certificates; and whether the distributions of interest on
the Certificates of any class will be dependent, in whole or in part, on the
performance of any obligor under a Cash Flow Agreement.
The effective yield to maturity to each holder of Certificates entitled
to payments of interest will be below that otherwise produced by the applicable
Pass-Through Rate and purchase price of such Certificate because, while interest
may accrue on each Asset during a certain period, the distribution of such
interest will be made on a day which may be several days, weeks or months
following the period of accrual.
Timing of Payment of Interest
Each payment of interest on the Certificates will have a stated
principal amount (the "Certificate Balance") (or in addition to the Certificate
Balance of a class of Accrual Certificates) and will be distributed to
Certificateholders as provided n the related Prospectus supplement (each of the
specified dates on which distributions are to be made, 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 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, to the extent set forth 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.
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 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."
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 (as
defined herein), a Special Servicer, the Master Servicer or any other entity as
specified in the related Prospectus Supplement or that are payable in respect of
certain expenses of the related Trust Fund;
(ii) if the related Prospectus Supplement so provides, interest or
investment income on amounts on deposit in the Certificate Account, including
any net amounts paid under any Cash Flow Agreements;
(iii) all advances made by a Master Servicer or any other entity as
specified in the related Prospectus Supplement with respect to such Distribution
Date;
(iv) if and to the extent the related Prospectus Supplement so
provides, amounts paid by a Master Servicer or any other entity as specified in
the related Prospectus Supplement with respect to interest shortfalls resulting
from prepayments during the related Prepayment Period; and
(v) unless the related Prospectus Supplement provides otherwise, to
the extent not on deposit in the related Certificate Account as of the
corresponding Determination Date, any amounts collected under, from or in
respect of any Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Certificates (including any Certificates not
offered hereby) on each Distribution Date, and accordingly will be released from
the Trust Fund and will not be available for any future distributions.
Distributions of Interest on the Certificates
Each class of Certificates (other than classes of Stripped Principal
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which will be a fixed, variable or adjustable rate at which interest will
accrue on such class or a component thereof (the "Pass-Through Rate"). The
related Prospectus Supplement will specify the Pass-Through Rate for each class
or component or, in the case of a variable or adjustable Pass-Through Rate, the
method for determining the Pass-Through Rate. Unless otherwise specified in the
related Prospectus Supplement, interest on the Certificates will be calculated
on the basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of the Certificates of any class
will be made on each Distribution Date (other than any class of Accrual
Certificates, which will be entitled to distributions of accrued interest
commencing only on the Distribution Date, or under the circumstances, specified
in the related Prospectus Supplement, and any class of Stripped Principal
Certificates that are not entitled to any distributions of interest) based on
the Accrued Certificate Interest for such class and such Distribution Date,
subject to the sufficiency of the portion of the Available Distribution Amount
allocable to such class on such Distribution Date. Prior to the time interest is
distributable on any class of Accrual Certificates, the amount of Accrued
Certificate Interest otherwise distributable on such class will be added to the
Certificate Balance thereof on each Distribution Date. With respect to each
class of Certificates and each Distribution Date (other than certain classes of
Stripped Interest Certificates), "Accrued Certificate Interest" will be equal to
interest accrued for a specified period on the outstanding Certificate Balance
thereof immediately prior to the Distribution Date, at the applicable
Pass-Through Rate, reduced as described below. Unless otherwise provided in the
Prospectus Supplement, Accrued Certificate Interest on Stripped Interest
Certificates will be equal to interest accrued for a specified period on the
outstanding notional amount thereof immediately prior to each Distribution Date,
at the applicable Pass-Through Rate, reduced as described below. The method of
determining the notional amount for any class of Stripped Interest Certificates
will be described in the related Prospectus Supplement. Reference to notional
amount is solely for convenience in certain calculations and does not represent
the right to receive any distributions of principal. Unless otherwise provided
in the related Prospectus Supplement, the Accrued Certificate Interest on a
series of Certificates will be reduced in the event of prepayment interest
shortfalls, which are shortfalls in collections of interest for a full accrual
period resulting from prepayments prior to the due date in such accrual period
on the Mortgage Loans comprising or underlying the Mortgage Assets in the Trust
Fund for such series. The particular manner in which such shortfalls are to be
allocated among some or all of the classes of Certificates of that series will
be specified in the related Prospectus Supplement. The related Prospectus
Supplement will also describe the extent to which the amount of Accrued
Certificate Interest that is otherwise distributable on (or, in the case of
Accrual Certificates, that may otherwise be added to the Certificate Balance of)
a class of Offered Certificates may be reduced as a result of any other
contingencies, including delinquencies, losses and deferred interest on or in
respect of the Mortgage Loans comprising or underlying the Mortgage Assets in
the related Trust Fund. Unless otherwise provided in the related Prospectus
Supplement, any reduction in the amount of Accrued Certificate Interest
otherwise distributable on a class of Certificates by reason of the allocation
to such class of a portion of any deferred interest on the Mortgage Loans
comprising or underlying the Mortgage Assets in the related Trust Fund will
result in a corresponding increase in the Certificate Balance of such class. See
"Risk Factors--Average Life of Certificates; Prepayments; Yields" and "Yield
Considerations."
Distributions of Principal of the Certificates
The Certificates of each series, other than certain classes of Stripped
Interest Certificates, will have a "Certificate Balance" which, at any time,
will equal the then maximum amount that the holder will be entitled to receive
in respect of principal out of the future cash flow on the Assets and other
assets included in the related Trust Fund. The outstanding Certificate Balance
of a Certificate will be reduced to the extent of distributions of principal
thereon from time to time and, if and to the extent so provided in the related
Prospectus Supplement, by the amount of losses incurred in respect of the
related Assets, may be increased in respect of deferred interest on the related
Mortgage Loans to the extent provided in the related Prospectus Supplement and,
in the case of Accrual Certificates prior to the Distribution Date on which
distributions of interest are required to commence, will be increased by any
related Accrued Certificate Interest. Unless otherwise provided in the related
Prospectus Supplement, the initial aggregate Certificate Balance of all classes
of Certificates of a series will not be greater than the outstanding aggregate
principal balance of the related Assets as of the applicable Cut-off Date. The
initial aggregate Certificate Balance of a series and each class thereof will be
specified in the related Prospectus Supplement. Unless otherwise provided in the
related Prospectus Supplement, distributions of principal will be made on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement until the
Certificate Balance of such class has been reduced to zero. Stripped Interest
Certificates with no Certificate Balance are not entitled to any distributions
of principal.
Components
To the extent specified in the related Prospectus Supplement,
distribution on a class of Certificates may be based on a combination of two or
more different components as described under "--General" above. To such extent,
the descriptions set forth under "--Distributions of Interests on the
Certificates" and "--Distributions of Principal of the Certificates" above also
relate to components of such a class of Certificates. In such case, reference in
such sections to Certificate Balance and Pass-Through Rate refer to the
principal balance, if any, of any such component and the Pass-Through Rate, if
any, on any such component, respectively.
Distributions on the Certificates of Prepayment Premiums or in Respect of Equity
Participations
If so provided in the related Prospectus Supplement, Prepayment
Premiums or payments in respect of Equity Participations that are collected on
the Mortgage Assets in the related Trust Fund will be distributed on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement.
Allocation of Losses and Shortfalls
If so provided in the Prospectus Supplement for a series of
Certificates consisting of one or more classes of Subordinate Certificates, on
any Distribution Date in respect of which losses or shortfalls in collections on
the Mortgage Assets have been incurred, the amount of such losses or shortfalls
will be borne first by a class of Subordinate Certificates in the priority and
manner and subject to the limitations specified in such Prospectus Supplement.
See "Description of Credit Support" for a description of the types of protection
that may be included in a Trust Fund against losses and shortfalls on Mortgage
Assets comprising such Trust Fund.
Advances in Respect of Delinquencies
With respect to any series of Certificates evidencing an interest in a
Trust Fund, unless otherwise provided in the related Prospectus Supplement, the
Master Servicer or another entity described therein will be required as part of
its servicing responsibilities to advance on or before each Distribution Date
its own funds or funds held in the Certificate Account that are not included in
the Available Distribution Amount for such Distribution Date, in an amount equal
to the aggregate of payments of principal (other than any balloon payments) and
interest (net of related servicing fees and Retained Interest) that were due on
the Whole Loans in such Trust Fund during the related Due Period and were
delinquent on the related Determination Date, subject to the Master Servicer's
(or another entity's) good faith determination that such advances will be
reimbursable from Related Proceeds (as defined below). In the case of a series
of Certificates that includes one or more classes of Subordinate Certificates
and if so provided in the related Prospectus Supplement, the Master Servicer's
(or another entity's) advance obligation may be limited only to the portion of
such delinquencies necessary to make the required distributions on one or more
classes of Senior Certificates and/or may be subject to the Master Servicer's
(or another entity's) good faith determination that such advances will be
reimbursable not only from Related Proceeds but also from collections on other
Assets otherwise distributable on one or more classes of such Subordinate
Certificates. See "Description of Credit Support."
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Certificates
entitled thereto, rather than to guarantee or insure against losses. Unless
otherwise provided in the related Prospectus Supplement, advances of the Master
Servicer's (or another entity's) funds will be reimbursable only out of related
recoveries on the Mortgage Loans (including amounts received under any form of
Credit Support) respecting which such advances were made (as to any Mortgage
Loan, "Related Proceeds") and, if so provided in the Prospectus Supplement, out
of any amounts otherwise distributable on one or more classes of Subordinate
Certificates of such series; provided, however, that any such advance will be
reimbursable from any amounts in the Certificate Account prior to any
distributions being made on the Certificates to the extent that the Master
Servicer (or such other entity) shall determine in good faith that such advance
(a "Nonrecoverable Advance") is not ultimately recoverable from Related Proceeds
or, if applicable, from collections on other Assets otherwise distributable on
such Subordinate Certificates. If advances have been made by the Master Servicer
from excess funds in the Certificate Account, the Master Servicer is required to
replace such funds in the Certificate Account on any future Distribution Date to
the extent that funds in the Certificate Account on such Distribution Date are
less than payments required to be made to Certificateholders on such date. If so
specified in the related Prospectus Supplement, the obligations of the Master
Servicer (or another entity) to make advances may be secured by a cash advance
reserve fund, a surety bond, a letter of credit or another form of limited
guaranty. If applicable, information regarding the characteristics of, and the
identity of any obligor on, any such surety bond, will be set forth in the
related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement,
the Master Servicer (or another entity) will be entitled to receive interest at
the rate specified therein on its outstanding advances and will be entitled to
pay itself such interest periodically from general collections on the Assets
prior to any payment to Certificateholders or as otherwise provided in the
related Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any series of Certificates evidencing an
interest in a Trust Fund that includes MBS will describe any corresponding
advancing obligation of any person in connection with such MBS.
Reports to Certificateholders
Unless otherwise provided in the Prospectus Supplement, with each
distribution to holders of any class of Certificates of a series, the Master
Servicer or the Trustee, as provided in the related Prospectus Supplement, will
forward or cause to be forwarded to each such holder, to the Depositor and to
such other parties as may be specified in the related Agreement, a statement
setting forth, in each case to the extent applicable and available:
(i) the amount of such distribution to holders of Certificates of such
class applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of Certificates of such
class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to (a) Prepayment Premiums
and (b) payments on account of Equity Participations;
(iv) the amount of related servicing compensation received by a Master
Servicer (and, if payable directly out of the related Trust Fund, by
any Special Servicer and any Sub-Servicer) and such other customary
information as any such Master Servicer or the Trustee deems necessary
or desirable, or that a Certificateholder reasonably requests, to
enable Certificateholders to prepare their tax returns;
(v) the aggregate amount of advances included in such distribution, and
the aggregate amount of unreimbursed advances at the close of business
on such Distribution Date;
(vi) the aggregate principal balance of the Assets at the close of business
on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans in respect
of which (a) one scheduled payment is delinquent, (b) two scheduled
payments are delinquent, (c) three or more scheduled payments are
delinquent and (d) foreclosure proceedings have been commenced;
(viii) with respect to each Whole Loan that is delinquent two or more months,
(a) the loan number thereof, (b) the unpaid balance thereof, (c)
whether the delinquency is in respect of any balloon payment, (d) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof, (e) if applicable, the aggregate amount
of any interest accrued and payable on related servicing expenses and
related advances assuming such Mortgage Loan is subsequently
liquidated through foreclosure, (f) whether a notice of acceleration
has been sent to the mortgagor and, if so, the date of such notice,
(g) whether foreclosure proceedings have been commenced and, if so,
the date so commenced and (h) if such Mortgage Loan is more than three
months delinquent and foreclosure has not been commenced, the reason
therefor;
(ix) with respect to any Whole Loan liquidated during the related Due
Period (other than by payment in full), (a) the loan number thereof,
(b) the manner in which it was liquidated and (c) the aggregate amount
of liquidation proceeds received;
(x) with respect to any Whole Loan liquidated during the related Due
Period, (a) the portion of such liquidation proceeds payable or
reimbursable to the Master Servicer (or any other entity) in respect
of such Mortgage Loan and (b) the amount of any loss to
Certificateholders;
(xi) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period,
(a) the loan number of the related Mortgage Loan and (b) the date of
acquisition;
(xii) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period,
(a) the book value, (b) the principal balance of the related Mortgage
Loan immediately following such Distribution Date (calculated as if
such Mortgage Loan were still outstanding taking into account certain
limited modifications to the terms thereof specified in the
Agreement), (c) the aggregate amount of unreimbursed servicing
expenses and unreimbursed advances in respect thereof and (d) if
applicable, the aggregate amount of interest accrued and payable on
related servicing expenses and related advances;
(xiii) with respect to any such REO Property sold during the related Due
Period (a) the loan number of the related Mortgage Loan, (b) the
aggregate amount of sale proceeds, (c) the portion of such sales
proceeds payable or reimbursable to the Master Servicer or a Special
Servicer in respect of such REO Property or the related Mortgage Loan
and (d) the amount of any loss to Certificateholders in respect of the
related Mortgage Loan;
(xiv) the aggregate Certificate Balance or notional amount, as the case may
be, of each class of Certificates (including any class of Certificates
not offered hereby) at the close of business on such Distribution
Date, separately identifying any reduction in such Certificate Balance
due to the allocation of any loss and increase in the Certificate
Balance of a class of Accrual Certificates in the event that Accrued
Certificate Interest has been added to such balance;
(xv) the aggregate amount of principal prepayments made during the related
Due Period;
(xvi) the amount deposited in the reserve fund, if any, on such Distribution
Date;
(xvii) the amount remaining in the reserve fund, if any, as of the close of
business on such Distribution Date;
(xviii) the aggregate unpaid Accrued Certificate Interest, if any, on each
class of Certificates at the close of business on such Distribution
Date;
(xix) in the case of Certificates with a variable Pass-Through Rate, the
Pass-Through Rate applicable to such Distribution Date, and, if
available, the immediately succeeding Distribution Date, as calculated
in accordance with the method specified in the related Prospectus
Supplement;
(xx) in the case of Certificates with an adjustable Pass-Through Rate, for
statements to be distributed in any month in which an adjustment date
occurs, the adjustable Pass-Through Rate applicable to such
Distribution Date and the immediately succeeding Distribution Date as
calculated in accordance with the method specified in the related
Prospectus Supplement;
(xxi) as to any series which includes Credit Support, the amount of coverage
of each instrument of Credit Support included therein as of the close
of business on such Distribution Date; and
(xxii) the aggregate amount of payments by the mortgagors of (a) default
interest, (b) late charges and (c) assumption and modification fees
collected during the related Due Period.
In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of Certificates or for such other specified portion thereof. In
addition, in the case of information furnished pursuant to subclauses (i), (ii),
(xiv), (xviii) and (xix) above, such amounts shall also be provided with respect
to each component, if any, of a class of Certificates. The Master Servicer or
the Trustee, as specified in the related Prospectus Supplement, will forward or
cause to be forwarded to each holder, to the Depositor and to such other parties
as may be specified in the Agreement, a copy of any statements or reports
received by the Master Servicer or the Trustee, as applicable, with respect to
any MBS. The Prospectus Supplement for each series of Offered Certificates will
describe any additional information to be included in reports to the holders of
such Certificates.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the calendar
year was a holder of a Certificate a statement containing the information set
forth in subclauses (i)-(iv) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a Certificateholder.
Such obligation of the Master Servicer or the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information shall be
provided by the Master Servicer or the Trustee pursuant to any requirements of
the Code as are from time to time in force. See "Description of the
Certificates--Book-Entry Registration and Definitive Certificates."
Termination
The obligations created by the Agreement for each series of
Certificates will terminate upon the payment to Certificateholders of that
series of all amounts held in the Certificate Account or by the Master Servicer,
if any, or the Trustee and required to be paid to them pursuant to such
Agreement following the earlier of (i) the final payment or other liquidation of
the last Asset subject thereto or the disposition of all property acquired upon
foreclosure of any Whole Loan subject thereto and (ii) the purchase of all of
the assets of the Trust Fund by the party entitled to effect such termination,
under the circumstances and in the manner set forth in the related Prospectus
Supplement. In no event, however, will the trust created by the Agreement
continue beyond the date specified in the related Prospectus Supplement. Written
notice of termination of the Agreement will be given to each Certificateholder,
and the final distribution will be made only upon presentation and surrender of
the Certificates at the location to be specified in the notice of termination.
If so specified in the related Prospectus Supplement, a series of
Certificates may be subject to optional early termination through the repurchase
of the assets in the related Trust Fund by the party specified therein, under
the circumstances and in the manner set forth therein. If so provided in the
related Prospectus Supplement, upon the reduction of the Certificate Balance of
a specified class or classes of Certificates by a specified percentage or
amount, the party specified therein will solicit bids for the purchase of all
assets of the Trust Fund, or of a sufficient portion of such assets to retire
such class or classes or purchase such class or classes at a price set forth in
the related Prospectus Supplement, in each case, under the circumstances and in
the manner set forth therein.
Book-Entry Registration and Definitive Certificates
If so provided in the related Prospectus Supplement, one or more
classes of the Offered Certificates of any series will be issued as Book-Entry
Certificates, and each such class will be represented by one or more single
Certificates registered in the name of a nominee for the depository, The
Depository Trust Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold securities
for its participating organizations ("Participants") and facilitate the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes in their accounts, thereby eliminating the need
for physical movement of certificates. Participants include Morgan Stanley & Co.
Incorporated, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants"). Unless otherwise provided in the related Prospectus Supplement,
investors that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in,
Book-Entry Certificates may do so only through Participants and Indirect
Participants. In addition, such investors ("Certificate Owners") will receive
all distributions on the Book-Entry Certificates through DTC and its
Participants. Under a book-entry format, Certificate Owners will receive
payments after the related Distribution Date because, while payments are
required to be forwarded to Cede & Co., as nominee for DTC ("Cede"), on each
such date, DTC will forward such payments to its Participants which thereafter
will be required to forward them to Indirect Participants or Certificate Owners.
Unless otherwise provided in the related Prospectus Supplement, the only
"Certificateholder" (as such term is used in the Agreement) will be Cede, as
nominee of DTC, and the Certificate Owners will not be recognized by the Trustee
as Certificateholders under the Agreement. Certificate Owners will be permitted
to exercise the rights of Certificateholders under the related Agreement only
indirectly through the Participants who in turn will exercise their rights
through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Book-Entry Certificates
and is required to receive and transmit distributions of principal of and
interest on the Book-Entry Certificates. Participants and Indirect Participants
with which Certificate Owners have accounts with respect to the Book-Entry
Certificates similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of their respective Certificate Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Certificate
Owner to pledge its interest in the Book-Entry Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of its interest in the Book-Entry Certificates, may be limited due to
the lack of a physical certificate evidencing such interest.
DTC has advised the Depositor that it will take any action permitted to
be taken by a Certificateholder under an Agreement only at the direction of one
or more Participants to whose account with DTC interests in the Book-Entry
Certificates are credited.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Certificate Owners or their nominees
("Definitive Certificates"), rather than to DTC or its nominee only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to properly discharge its responsibilities as depository with respect to the
Certificates and the Depositor is unable to locate a qualified successor or (ii)
the Depositor, at its option, elects to terminate the book-entry system through
DTC.
Upon the occurrence of either of the events described in the
immediately preceding paragraph, DTC is required to notify all Participants of
the availability through DTC of Definitive Certificates for the Certificate
Owners. Upon surrender by DTC of the certificate or certificates representing
the Book-Entry Certificates, together with instructions for reregistration, the
Trustee will issue (or cause to be issued) to the Certificate Owners identified
in such instructions the Definitive Certificates to which they are entitled, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
DESCRIPTION of the AGREEMENTS
The Certificates of each series evidencing interests in a Trust Fund
including Whole Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer, any Special Servicer appointed
as of the date of the Pooling and Servicing Agreement and the Trustee. The
Certificates of each series evidencing interests in a Trust Fund not including
Whole Loans will be issued pursuant to a Trust Agreement between the Depositor
and a Trustee. Any Master Servicer, any such Special Servicer and the Trustee
with respect to any series of Certificates will be named in the related
Prospectus Supplement. In lieu of appointing a Master Servicer, a servicer may
be appointed pursuant to the Pooling and Servicing Agreement for any Trust Fund.
Such servicer will service all or a significant number of Whole Loans directly
without a Sub-Servicer. Unless otherwise specified in the related Prospectus
Supplement, the obligations of any such servicer shall be commensurate with
those of the Master Servicer described herein. References in this prospectus to
Master Servicer and its rights and obligations, to the extent set forth in the
related Prospectus Supplement, shall be deemed to also be references to any
servicer servicing Whole Loans directly. A manager or administrator may be
appointed pursuant to the Trust Agreement for any Trust Fund to administer such
Trust Fund. The provisions of each Agreement will vary depending upon the nature
of the Certificates to be issued thereunder and the nature of the related Trust
Fund. A form of a Pooling and Servicing Agreement has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. Any Trust
Agreement will generally conform to the form of Pooling and Servicing Agreement
filed herewith, but will not contain provisions with respect to the servicing
and maintenance of Whole Loans. The following summaries describe certain
provisions that may appear in each Agreement. The Prospectus Supplement for a
series of Certificates will describe any provision of the Agreement relating to
such series that materially differs from the description thereof contained in
this Prospectus. The summaries do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all of the provisions of
the Agreement for each Trust Fund and the description of such provisions in the
related Prospectus Supplement. As used herein with respect to any series, the
term "Certificate" refers to all of the Certificates of that series, whether or
not offered hereby and by the related Prospectus Supplement, unless the context
otherwise requires. The Depositor will provide a copy of the Agreement (without
exhibits) relating to any series of Certificates without charge upon written
request of a holder of a Certificate of such series addressed to Morgan Stanley
Capital I Inc., c/o Morgan Stanley & Co. Incorporated, 1585 Broadway, 37th
Floor, New York, New York 10036, [Attention: John E. Westerfield.]
Assignment of Assets; Repurchases
At the time of issuance of any series of Certificates, the Depositor
will assign (or cause to be assigned) to the designated Trustee the Assets to be
included in the related Trust Fund, together with all principal and interest to
be received on or with respect to such Assets after the Cut-off Date, other than
principal and interest due on or before the Cut-off Date and other than any
Retained Interest. The Trustee will, concurrently with such assignment, deliver
the Certificates to the Depositor in exchange for the Assets and the other
assets comprising the Trust Fund for such series. Each Mortgage Asset will be
identified in a schedule appearing as an exhibit to the related Agreement.
Unless otherwise provided in the related Prospectus Supplement, such schedule
will include detailed information (i) in respect of each Whole Loan included in
the related Trust Fund, including without limitation, the address of the related
Mortgaged Property and type of such property, the Mortgage Rate and, if
applicable, the applicable index, margin, adjustment date and any rate cap
information, the original and remaining term to maturity, the original and
outstanding principal balance and balloon payment, if any, the Value,
Loan-to-Value Ratio and the Debt Service Coverage Ratio as of the date indicated
and payment and prepayment provisions, if applicable, and (ii) in respect of
each MBS included in the related Trust Fund, including without limitation, the
MBS Issuer, MBS Servicer and MBS Trustee, the pass-through or bond rate or
formula for determining such rate, the issue date and original and remaining
term to maturity, if applicable, the original and outstanding principal amount
and payment provisions, if applicable.
With respect to each Whole Loan, the Depositor will deliver or cause to
be delivered to the Trustee (or to the custodian hereinafter referred to)
certain loan documents, which to the extent set forth 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
to the extent set forth in the related Prospectus Supplement, the Asset Seller
will be obligated, within a specified number of days of receipt of such notice,
to repurchase the related Whole Loan from the Trustee at the Purchase Price or
substitute for such Mortgage Loan. There can be no assurance that an Asset
Seller will fulfill this repurchase or substitution obligation, and neither the
Master Servicer nor the Depositor will be obligated to repurchase or substitute
for such Mortgage Loan if the Asset Seller defaults on its obligation. Unless
otherwise specified in the related Prospectus Supplement, this repurchase or
substitution obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for omission of, or a material defect in, a
constituent document. To the extent specified in the related Prospectus
Supplement, in lieu of curing any omission or defect in the Asset or
repurchasing or substituting for such Asset, the Asset Seller may agree to cover
any losses suffered by the Trust Fund as a result of such breach or defect.
If so provided in the related Prospectus Supplement, the Depositor
will, as to some or all of the Mortgage Loans, assign or cause to be assigned to
the Trustee the related Lease Assignments. In certain cases, the Trustee, or
Master Servicer, as applicable, may collect all moneys under the related Leases
and distribute amounts, if any, required under the Lease for the payment of
maintenance, insurance and taxes, to the extent specified in the related Lease
agreement. The Trustee, or if so specified in the Prospectus Supplement, the
Master Servicer, as agent for the Trustee, may hold the Lease in trust for the
benefit of the Certificateholders.
With respect to each Government Security or MBS in certificated form,
the Depositor will deliver or cause to be delivered to the Trustee (or the
custodian) the original certificate or other definitive evidence of such
Government Security or MBS, as applicable, together with bond power or other
instruments, certifications or documents required to transfer fully such
Government Security or MBS, as applicable, to the Trustee for the benefit of the
Certificateholders. With respect to each Government Security or MBS in
uncertificated or book-entry form or held through a "clearing corporation"
within the meaning of the UCC, the Depositor and the Trustee will cause such
Government Security or MBS to be registered directly or on the books of such
clearing corporation or of a financial intermediary in the name of the Trustee
for the benefit of the Certificateholders. Unless otherwise provided in the
related Prospectus Supplement, the related Agreement will require that either
the Depositor or the Trustee promptly cause any MBS and Government Securities in
certificated form not registered in the name of the Trustee to be re-registered,
with the applicable persons, in the name of the Trustee.
Representations and Warranties; Repurchases
Unless otherwise provided in the related Prospectus Supplement the
Depositor will, with respect to each Whole Loan, make or assign certain
representations and warranties, as of a specified date (the person making such
representations and warranties, the "Warrantying Party") covering, by way of
example, the following types of matters: (i) the accuracy of the information set
forth for such Whole Loan on the schedule of Assets appearing as an exhibit to
the related Agreement; (ii) the existence of title insurance insuring the lien
priority of the Whole Loan; (iii) the authority of the Warrantying Party to sell
the Whole Loan; (iv) the payment status of the Whole Loan and the status of
payments of taxes, assessments and other charges affecting the related Mortgaged
Property; (v) the existence of customary provisions in the related Mortgage Note
and Mortgage to permit realization against the Mortgaged Property of the benefit
of the security of the Mortgage; and (vi) the existence of hazard and extended
perils insurance coverage on the Mortgaged Property.
Any Warrantying Party, if other than the Depositor, shall be an Asset
Seller or an affiliate thereof or such other person acceptable to the Depositor
and shall be identified in the related Prospectus Supplement.
Representations and warranties made in respect of a Whole Loan may have
been made as of a date prior to the applicable Cut-off Date. A substantial
period of time may have elapsed between such date and the date of initial
issuance of the related series of Certificates evidencing an interest in such
Whole Loan. Unless otherwise specified in the related Prospectus Supplement, in
the event of a breach of any such representation or warranty, the Warrantying
Party will be 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, to the extent set forth in the related Prospectus
Supplement, the "Purchase Price" is equal to the sum of the unpaid principal
balance thereof, plus unpaid accrued interest thereon at the Mortgage Rate from
the date as to which interest was last paid to the due date in the Due Period in
which the relevant purchase is to occur, plus certain servicing expenses that
are reimbursable to the Master Servicer. If so provided in the Prospectus
Supplement for a series, a Warrantying Party, rather than repurchase a Whole
Loan as to which a breach has occurred, will have the option, within a specified
period after initial issuance of such series of Certificates, to cause the
removal of such Whole Loan from the Trust Fund and substitute in its place one
or more other Whole Loans, in accordance with the standards described in the
related Prospectus Supplement. If so provided in the Prospectus Supplement for a
series, a Warrantying Party, rather than repurchase or substitute a Whole Loan
as to which a breach has occurred, will have the option to reimburse the Trust
Fund or the Certificateholders for any losses caused by such breach. Unless
otherwise specified in the related Prospectus Supplement, this reimbursement,
repurchase or substitution obligation will constitute the sole remedy available
to holders of Certificates or the Trustee for a breach of representation by a
Warrantying Party.
Neither the Depositor (except to the extent that it is the Warrantying
Party) nor the Master Servicer will be obligated to purchase or substitute for a
Whole Loan if a Warrantying Party defaults on its obligation to do so, and no
assurance can be given that Warrantying Parties will carry out such obligations
with respect to Whole Loans.
Unless otherwise provided in the related Prospectus Supplement the
Warrantying Party will, with respect to a Trust Fund that includes Government
Securities or MBS, make or assign certain representations or warranties, as of a
specified date, with respect to such Government Securities or MBS, covering (i)
the accuracy of the information set forth therefor on the schedule of Assets
appearing as an exhibit to the related Agreement and (ii) the authority of the
Warrantying Party to sell such Assets. The related Prospectus Supplement will
describe the remedies for a breach thereof.
A Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the related Agreement. A breach of any such representation of
the Master Servicer which materially and adversely affects the interests of the
Certificateholders and which continues unremedied for thirty days after the
giving of written notice of such breach to the Master Servicer by the Trustee or
the Depositor, or to the Master Servicer, the Depositor and the Trustee by the
holders of Certificates evidencing not less than 25% of the Voting Rights (to
the extent set forth 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 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):all payments on account of principal, including principal prepayments,
on the Assets;
(i) 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;
(ii) 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;
(iii) 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";
(iv) any advances made as described under "Description of the
Certificates--Advances in Respect of Delinquencies";
(v) any amounts representing Prepayment Premiums;
(vi) any amounts paid under any Cash Flow Agreement, as described
under "Description of the Trust Funds--Cash Flow Agreements";
(vii) 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");
(viii) 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";
(ix) 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";
(x) 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
(xi) any other amounts required to be deposited in the Certificate
Account as provided in the related Agreement and described in
the related Prospectus Supplement.
Withdrawals
A Master Servicer or the Trustee may, from time to time, unless
otherwise provided in the related Agreement and described in the related
Prospectus Supplement, make withdrawals from the Certificate Account for each
Trust Fund for any of the following purposes:
(i) to make distributions to the Certificateholders on each
Distribution Date;
(ii) to reimburse a Master Servicer for unreimbursed amounts
advanced as described under "Description of the Certificates
Advances in Respect of Delinquencies," such reimbursement to
be made out of amounts received which were identified and
applied by the Master Servicer as late collections of
interest (net of related servicing fees and Retained
Interest) on and principal of the particular Whole Loans with
respect to which the advances were made or out of amounts
drawn under any form of Credit Support with respect to such
Whole Loans;
(iii) to reimburse a Master Servicer for unpaid servicing fees
earned and certain unreimbursed servicing expenses incurred
with respect to Whole Loans and properties acquired in
respect thereof, such reimbursement to be made out of amounts
that represent Liquidation Proceeds and Insurance Proceeds
collected on the particular Whole Loans and properties, and
net income collected on the particular properties, with
respect to which such fees were earned or such expenses were
incurred or out of amounts drawn under any form of Credit
Support with respect to such Whole Loans and properties;
(iv) to reimburse a Master Servicer for any advances described in
clause (ii) above and any servicing expenses described in
clause (iii) above which, in the Master Servicer's good faith
judgment, will not be recoverable from the amounts described
in clauses (ii) and (iii), respectively, such reimbursement
to be made from amounts collected on other Assets or, if and
to the extent so provided by the related Agreement and
described in the related Prospectus Supplement, just from
that portion of amounts collected on other Assets that is
otherwise distributable on one or more classes of Subordinate
Certificates, if any, remain outstanding, and otherwise any
outstanding class of Certificates, of the related series;
(v) if and to the extent described in the related Prospectus
Supplement, to pay a Master Servicer interest accrued on the
advances described in clause (ii) above and the servicing
expenses described in clause (iii) above while such remain
outstanding and unreimbursed;
(vi) to pay for costs and expenses incurred by the Trust Fund for
environmental site assessments with respect to, and for
containment, clean-up or remediation of hazardous wastes,
substances and materials on, Mortgaged Properties securing
defaulted Whole Loans as described under "Realization Upon
Defaulted Whole Loans";
(vii) to reimburse a Master Servicer, the Depositor, or any of
their respective directors, officers, employees and agents,
as the case may be, for certain expenses, costs and
liabilities incurred thereby, as and to the extent described
under "Certain Matters Regarding a Master Servicer and the
Depositor";
(viii) if and to the extent described in the related Prospectus
Supplement, to pay (or to transfer to a separate account for
purposes of escrowing for the payment of) the Trustee's fees;
(ix) to reimburse the Trustee or any of its directors, officers,
employees and agents, as the case may be, for certain
expenses, costs and liabilities incurred thereby, as and to
the extent described under "Certain Matters Regarding the
Trustee";
(x) unless otherwise provided in the related Prospectus
Supplement, to pay a Master Servicer, as additional servicing
compensation, interest and investment income earned in
respect of amounts held in the Certificate Account;
(xi) to pay the person entitled thereto any amounts deposited in
the Certificate Account that were identified and applied by
the Master Servicer as recoveries of Retained Interest;
(xii) to pay for costs reasonably incurred in connection with the
proper operation, management and maintenance of any Mortgaged
Property acquired for the benefit of Certificateholders by
foreclosure or by deed in lieu of foreclosure or otherwise,
such payments to be made out of income received on such
property;
(xiii) if one or more elections have been made to treat the Trust
Fund or designated portions thereof as a REMIC, to pay any
federal, state or local taxes imposed on the Trust Fund or
its assets or transactions, as and to the extent described
under "Certain Federal Income Tax
Consequences--REMICS--Prohibited Transactions Tax and Other
Taxes";
(xiv) to pay for the cost of an independent appraiser or other
expert in real estate matters retained to determine a fair
sale price for a defaulted Whole Loan or a property acquired
in respect thereof in connection with the liquidation of such
Whole Loan or property;
(xv) to pay for the cost of various opinions of counsel obtained
pursuant to the related Agreement for the benefit of
Certificateholders;
(xvi) to pay for the costs of recording the related Agreement if
such recordation materially and beneficially affects the
interests of Certificateholders, provided that such payment
shall not constitute a waiver with respect to the obligation
of the Warrantying Party to remedy any breach of
representation or warranty under the Agreement;
(xvii) to pay the person entitled thereto any amounts deposited in
the Certificate Account in error, including amounts received
on any Asset after its removal from the Trust Fund whether by
reason of purchase or substitution as contemplated by
"Assignment of Assets; Repurchase" and "Representations and
Warranties; Repurchases" or otherwise;
(xviii) to make any other withdrawals permitted by the related
Agreement and described in the related Prospectus Supplement;
and
(xix) to clear and terminate the Certificate Account at the
termination of the Trust Fund.
Other Collection Accounts
Notwithstanding the foregoing, if so specified in the related
Prospectus Supplement, the Agreement for any series of Certificates may provide
for the establishment and maintenance of a separate collection account into
which the Master Servicer or any related Sub-Servicer or Special Servicer will
deposit on a daily basis the amounts described under "--Deposits" above for one
or more series of Certificates. Any amounts on deposit in any such collection
account will be withdrawn therefrom and deposited into the appropriate
Certificate Account by a time specified in the related Prospectus Supplement. To
the extent specified in the related Prospectus Supplement, any amounts which
could be withdrawn from the Certificate Account as described under
"--Withdrawals" above, may also be withdrawn from any such collection account.
The Prospectus Supplement will set forth any restrictions with respect to any
such collection account, including investment restrictions and any restrictions
with respect to financial institutions with which any such collection account
may be maintained.
Collection and Other Servicing Procedures
The Master Servicer, directly or through Sub-Servicers, is required to
make reasonable efforts to collect all scheduled payments under the Whole Loans
and will follow or cause to be followed such collection procedures as it would
follow with respect to mortgage loans that are comparable to the Whole Loans and
held for its own account, provided such procedures are consistent with (i) the
terms of the related Agreement and any related hazard, business interruption,
rental interruption or general liability insurance policy or instrument of
Credit Support included in the related Trust Fund described herein or under
"Description of Credit Support," (ii) applicable law and (iii) the general
servicing standard specified in the related Prospectus Supplement or, if no such
standard is so specified, its normal servicing practices (in either case, the
"Servicing Standard"). In connection therewith, the Master Servicer will be
permitted in its discretion to waive any late payment charge or penalty interest
in respect of a late Whole Loan payment.
Each Master Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining (or causing
the mortgagor or Lessee on each Mortgage or Lease to maintain) hazard, business
interruption and general liability insurance policies (and, if applicable,
rental interruption policies) as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder; maintaining escrow or
impoundment accounts of mortgagors for payment of taxes, insurance and other
items required to be paid by any mortgagor pursuant to the Whole Loan;
processing assumptions or substitutions in those cases where the Master Servicer
has determined not to enforce any applicable due-on-sale clause; attempting to
cure delinquencies; supervising foreclosures; inspecting and managing Mortgaged
Properties under certain circumstances; and maintaining accounting records
relating to the Whole Loans. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer will be responsible for filing and
settling claims in respect of particular Whole Loans under any applicable
instrument of Credit Support. See "Description of Credit Support."
The Master Servicer may agree to modify, waive or amend any term of any
Whole Loan in a manner consistent with the Servicing Standard so long as the
modification, waiver or amendment will not (i) affect the amount or timing of
any scheduled payments of principal or interest on the Whole Loan or (ii) in its
judgment, materially impair the security for the Whole Loan or reduce the
likelihood of timely payment of amounts due thereon. The Master Servicer also
may agree to any modification, waiver or amendment that would so affect or
impair the payments on, or the security for, a Whole Loan if, unless otherwise
provided in the related Prospectus Supplement, (i) in its judgment, a material
default on the Whole Loan has occurred or a payment default is imminent and (ii)
in its judgment, such modification, waiver or amendment is reasonably likely to
produce a greater recovery with respect to the Whole Loan on a present value
basis than would liquidation. The Master Servicer is required to notify the
Trustee in the event of any modification, waiver or amendment of any Whole Loan.
Sub-Servicers
A Master Servicer may delegate its servicing obligations in respect of
the Whole Loans to third-party servicers (each, a "Sub-Servicer"), but such
Master Servicer will remain obligated under the related Agreement. Each
sub-servicing agreement between a Master Servicer and a Sub-Servicer (a
"Sub-Servicing Agreement") must be consistent with the terms of the related
Agreement and must provide that, if for any reason the Master Servicer for the
related series of Certificates is no longer acting in such capacity, the Trustee
or any successor Master Servicer may assume the Master Servicer's rights and
obligations under such Sub-Servicing Agreement.
Unless otherwise provided in the related Prospectus Supplement, the
Master Servicer will be solely liable for all fees owed by it to any
Sub-Servicer, irrespective of whether the Master Servicer's compensation
pursuant to the related Agreement is sufficient to pay such fees. However, a
Sub-Servicer may be entitled to a Retained Interest in certain Whole Loans. Each
Sub-Servicer will be reimbursed by the Master Servicer for certain expenditures
which it makes, generally to the same extent the Master Servicer would be
reimbursed under an Agreement. See "Retained Interest, Servicing Compensation
and Payment of Expenses."
Special Servicers
To the extent so specified in the related Prospectus Supplement, a
special servicer (the "Special Servicer") may be appointed. The related
Prospectus Supplement will describe the rights, obligations and compensation of
a Special Servicer. The Master Servicer will only be responsible for the duties
and obligations of a Special Servicer to the extent set forth in the Prospectus
Supplement.
Realization Upon Defaulted Whole Loans
A mortgagor's failure to make required payments may reflect inadequate
income or the diversion of that income from the service of payments due under
the Mortgage Loan, and may call into question such mortgagor's ability to make
timely payment of taxes and to pay for necessary maintenance of the related
Mortgaged Property. Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer is required to monitor any Whole Loan which is
in default, contact the mortgagor concerning the default, evaluate whether the
causes of the default can be cured over a reasonable period without significant
impairment of the value of the Mortgaged Property, initiate corrective action in
cooperation with the mortgagor if cure is likely, inspect the Mortgaged Property
and take such other actions as are consistent with the Servicing Standard. A
significant period of time may elapse before the Master Servicer is able to
assess the success of such corrective action or the need for additional
initiatives.
The time within which the Master Servicer makes the initial
determination of appropriate action, evaluates the success of corrective action,
develops additional initiatives, institutes foreclosure proceedings and actually
forecloses (or takes a deed to a Mortgaged Property in lieu of foreclosure) on
behalf of the Certificateholders, may vary considerably depending on the
particular Whole Loan, the Mortgaged Property, the mortgagor, the presence of an
acceptable party to assume the Whole Loan and the laws of the jurisdiction in
which the Mortgaged Property is located. Under federal bankruptcy law, the
Master Servicer in certain cases may not be permitted to accelerate a Whole Loan
or to foreclose on a Mortgaged Property for a considerable period of time.
See "Certain Legal Aspects of the Mortgage--Loans and the Leases."
Any Agreement relating to a Trust Fund that includes Whole Loans may
grant to the Master Servicer and/or the holder or holders of certain classes of
Certificates a right of first refusal to purchase from the Trust Fund at a
predetermined purchase price any such Whole Loan as to which a specified number
of scheduled payments thereunder are delinquent. Any such right granted to the
holder of an Offered Certificate will be described in the related Prospectus
Supplement. The related Prospectus Supplement will also describe any such right
granted to any person if the predetermined purchase price is less than the
Purchase Price described under "Representations and Warranties; Repurchases."
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer may offer to sell any defaulted Whole Loan described in the
preceding paragraph and not otherwise purchased by any person having a right of
first refusal with respect thereto, if and when the Master Servicer determines,
consistent with the Servicing Standard, that such a sale would produce a greater
recovery on a present value basis than would liquidation through foreclosure or
similar proceeding. The related Agreement will provide that any such offering be
made in a commercially reasonable manner for a specified period and that the
Master Servicer accept the highest cash bid received from any person (including
itself, an affiliate of the Master Servicer or any Certificateholder) that
constitutes a fair price for such defaulted Whole Loan. In the absence of any
bid determined in accordance with the related Agreement to be fair, the Master
Servicer shall proceed with respect to such defaulted Mortgage Loan as described
below. Any bid in an amount at least equal to the Purchase Price described under
"Representations and Warranties; Repurchases" will in all cases be deemed fair.
The Master Servicer, on behalf of the Trustee, may at any time
institute foreclosure proceedings, exercise any power of sale contained in any
mortgage, obtain a deed in lieu of foreclosure, or otherwise acquire title to a
Mortgaged Property securing a Whole Loan by operation of law or otherwise, if
such action is consistent with the Servicing Standard and a default on such
Whole Loan has occurred or, in the Master Servicer's judgment, is imminent.
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer may not acquire title to any related Mortgaged Property or take any
other action that would cause the Trustee, for the benefit of
Certificateholders, or any other specified person to be considered to hold title
to, to be a "mortgagee-in-possession" of, or to be an "owner" or an "operator"
of such Mortgaged Property within the meaning of certain federal environmental
laws, unless the Master Servicer has previously determined, based on a report
prepared by a person who regularly conducts environmental audits (which report
will be an expense of the Trust Fund), that either:
(i) the Mortgaged Property is in compliance with applicable environmental
laws, and there are no circumstances present at the Mortgaged Property relating
to the use, management or disposal of any hazardous substances, hazardous
materials, wastes, or petroleum-based materials for which investigation,
testing, monitoring, containment, clean-up or remediation could be required
under any federal, state or local law or regulation; or
(ii) if the Mortgaged Property is not so in compliance or such
circumstances are so present, then it would be in the best economic interest of
the Trust Fund to acquire title to the Mortgaged Property and further to take
such actions as would be necessary and appropriate to effect such compliance
and/or respond to such circumstances (the cost of which actions will be an
expense of the Trust Fund).
Unless otherwise provided in the related Prospectus Supplement, if
title to any Mortgaged Property is acquired by a Trust Fund as to which a REMIC
election has been made, the Master Servicer, on behalf of the Trust Fund, will
be required to sell the Mortgaged Property prior to the close of the third
calendar year following the year of acquisition of such Mortgaged Property by
the Trust Fund, unless (i) the Internal Revenue Service grants an extension of
time to sell such property or (ii) the Trustee receives an opinion of
independent counsel to the effect that the holding of the property by the Trust
Fund subsequent to such period will not result in the imposition of a tax on the
Trust Fund or cause the Trust Fund to fail to qualify as a REMIC under the Code
at any time that any Certificate is outstanding. Subject to the foregoing, the
Master Servicer will be required to (i) solicit bids for any Mortgaged Property
so acquired in such a manner as will be reasonably likely to realize a fair
price for such property and (ii) accept the first (and, if multiple bids are
contemporaneously received, the highest) cash bid received from any person that
constitutes a fair price.
If the Trust Fund acquires title to any Mortgaged Property, the Master
Servicer, on behalf of the Trust Fund, may retain an independent contractor to
manage and operate such property. The retention of an independent contractor,
however, will not relieve the Master Servicer of any of its obligations with
respect to the management and operation of such Mortgaged Property. Unless
otherwise specified in the related Prospectus Supplement, any such property
acquired by the Trust Fund will be managed in a manner consistent with the
management and operation of similar property by a prudent lending institution.
The limitations imposed by the related Agreement and the REMIC
provisions of the Code (if a REMIC election has been made with respect to the
related Trust Fund) on the operations and ownership of any Mortgaged Property
acquired on behalf of the Trust Fund may result in the recovery of an amount
less than the amount that would otherwise be recovered. See "Certain Legal
Aspects of the Mortgage Loans and the Leases--Foreclosure."
If recovery on a defaulted Whole Loan under any related instrument of
Credit Support is not available, the Master Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and procedures
as it deems necessary or advisable to realize upon the defaulted Whole Loan. If
the proceeds of any liquidation of the property securing the defaulted Whole
Loan are less than the outstanding principal balance of the defaulted Whole Loan
plus interest accrued thereon at the Mortgage Rate plus the aggregate amount of
expenses incurred by the Master Servicer in connection with such proceedings and
which are reimbursable under the Agreement, the Trust Fund will realize a loss
in the amount of such difference. The Master Servicer will be entitled to
withdraw or cause to be withdrawn from the Certificate Account out of the
Liquidation Proceeds recovered on any defaulted Whole Loan, prior to the
distribution of such Liquidation Proceeds to Certificateholders, amounts
representing its normal servicing compensation on the Whole Loan, unreimbursed
servicing expenses incurred with respect to the Whole Loan and any unreimbursed
advances of delinquent payments made with respect to the Whole Loan.
If any property securing a defaulted Whole Loan is damaged and
proceeds, if any, from the related hazard insurance policy are insufficient to
restore the damaged property to a condition sufficient to permit recovery under
the related instrument of Credit Support, if any, the Master Servicer is not
required to expend its own funds to restore the damaged property unless it
determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Whole Loan after reimbursement of the
Master Servicer for its expenses and (ii) that such expenses will be recoverable
by it from related Insurance Proceeds or Liquidation Proceeds.
As servicer of the Whole Loans, a Master Servicer, on behalf of itself,
the Trustee and the Certificateholders, will present claims to the obligor under
each instrument of Credit Support, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
defaulted Whole Loans.
If a Master Servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted Whole Loan, the
Master Servicer will be entitled to withdraw or cause to be withdrawn from the
Certificate Account out of such proceeds, prior to distribution thereof to
Certificateholders, amounts representing its normal servicing compensation on
such Whole Loan, unreimbursed servicing expenses incurred with respect to the
Whole Loan and any unreimbursed advances of delinquent payments made with
respect to the Whole Loan. See "Hazard Insurance Policies" and "Description of
Credit Support."
Hazard Insurance Policies
Unless otherwise specified in the related Prospectus Supplement, each
Agreement for a Trust Fund that includes Whole Loans will require the Master
Servicer to cause the mortgagor on each Whole Loan to maintain a hazard
insurance policy providing for such coverage as is required under the related
Mortgage or, if any Mortgage permits the holder thereof to dictate to the
mortgagor the insurance coverage to be maintained on the related Mortgaged
Property, then such coverage as is consistent with the Servicing Standard.
Unless otherwise specified in the related Prospectus Supplement, such coverage
will be in general in an amount equal to the lesser of the principal balance
owing on such Whole Loan and the amount necessary to fully compensate for any
damage or loss to the improvements on the Mortgaged Property on a replacement
cost basis, but in either case not less than the amount necessary to avoid the
application of any co-insurance clause contained in the hazard insurance policy.
The ability of the Master Servicer to assure that hazard insurance proceeds are
appropriately applied may be dependent upon its being named as an additional
insured under any hazard insurance policy and under any other insurance policy
referred to below, or upon the extent to which information in this regard is
furnished by mortgagors. All amounts collected by the Master Servicer under any
such policy (except for amounts to be applied to the restoration or repair of
the Mortgaged Property or released to the mortgagor in accordance with the
Master Servicer's normal servicing procedures, subject to the terms and
conditions of the related Mortgage and Mortgage Note) will be deposited in the
Certificate Account. The Agreement will provide that the Master Servicer may
satisfy its obligation to cause each mortgagor to maintain such a hazard
insurance policy by the Master Servicer's maintaining a blanket policy insuring
against hazard losses on the Whole Loans. If such blanket policy contains a
deductible clause, the Master Servicer will be required to deposit in the
Certificate Account all sums that would have been deposited therein but for such
clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements of the property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies relating to the Whole Loans will be underwritten
by different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do not cover any physical damage resulting from
war, revolution, governmental actions, floods and other water-related causes,
earth movement (including earthquakes, landslides and mudflows), wet or dry rot,
vermin, domestic animals and certain other kinds of uninsured risks.
The hazard insurance policies covering the Mortgaged Properties
securing the Whole Loans will typically contain a co-insurance clause that in
effect requires the insured at all times to carry insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of the
improvements on the property in order to recover the full amount of any partial
loss. If the insured's coverage falls below this specified percentage, such
clause generally provides that the insurer's liability in the event of partial
loss does not exceed the lesser of (i) the replacement cost of the improvements
less physical depreciation and (ii) such proportion of the loss as the amount of
insurance carried bears to the specified percentage of the full replacement cost
of such improvements.
Each Agreement for a Trust Fund that includes Whole Loans will require
the Master Servicer to cause the mortgagor on each Whole Loan, or, in certain
cases, the related Lessee, to maintain all such other insurance coverage with
respect to the related Mortgaged Property as is consistent with the terms of the
related Mortgage and the Servicing Standard, which insurance may typically
include flood insurance (if the related Mortgaged Property was located at the
time of origination in a federally designated flood area).
In addition, to the extent required by the related Mortgage, the Master
Servicer may require the mortgagor or related Lessee to maintain other forms of
insurance including, but not limited to, loss of rent endorsements, business
interruption insurance and comprehensive public liability insurance, and the
related Agreement may require the Master Servicer, Sub-Servicer or Special
Servicer to maintain public liability insurance with respect to any REO
Properties. Any cost incurred by the Master Servicer in maintaining any such
insurance policy will be added to the amount owing under the Mortgage Loan where
the terms of the Mortgage Loan so permit; provided, however, that the addition
of such cost will not be taken into account for purposes of calculating the
distribution to be made to Certificateholders. Such costs may be recovered by
the Master Servicer, Sub-Servicer or Special Servicer, as the case may be, from
the Collection Account, with interest thereon, as provided by the Agreement.
Under the terms of the Whole Loans, mortgagors will generally be
required to present claims to insurers under hazard insurance policies
maintained on the related Mortgaged Properties. The Master Servicer, on behalf
of the Trustee and Certificateholders, is obligated to present or cause to be
presented claims under any blanket insurance policy insuring against hazard
losses on Mortgaged Properties securing the Whole Loans. However, the ability of
the Master Servicer to present or cause to be presented such claims is dependent
upon the extent to which information in this regard is furnished to the Master
Servicer by mortgagors.
Rental Interruption Insurance Policy
If so specified in the related Prospectus Supplement, the Master
Servicer or the mortgagors will maintain rental interruption insurance policies
in full force and effect with respect to some or all of the Leases. Although the
terms of such policies vary to some degree, a rental interruption insurance
policy typically provides that, to the extent that a Lessee fails to make timely
rental payments under the related Lease due to a casualty event, such losses
will be reimbursed to the insured. If so specified in the related Prospectus
Supplement, the Master Servicer will be required to pay from its servicing
compensation the premiums on the rental interruption policy on a timely basis.
If so specified in the Prospectus Supplement, if such rental interruption policy
is canceled or terminated for any reason (other than the exhaustion of total
policy coverage), the Master Servicer will exercise its best reasonable efforts
to obtain from another insurer a replacement policy comparable to the rental
interruption policy with a total coverage that is equal to the then existing
coverage of the terminated rental interruption policy; provided that if the cost
of any such replacement policy is greater than the cost of the terminated rental
interruption policy, the amount of coverage under the replacement policy will,
to the extent set forth 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.
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.
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 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 to the extent set forth in the related Prospectus Supplement, no
such amendment may (i) reduce in any manner the amount of or delay the timing
of, payments received or advanced on Mortgage Loans which are required to be
distributed on any Certificate without the consent of the holder of such
Certificate, (ii) adversely affect in any material respect the interests of the
holders of any class of Certificates in a manner other than as described in (i),
without the consent of the holders of all Certificates of such class or (iii)
modify the provisions of such Agreement described in this paragraph without the
consent of the holders of all Certificates covered by such Agreement then
outstanding. However, with respect to any series of Certificates as to which a
REMIC election is to be made, the Trustee will not consent to any amendment of
the Agreement unless it shall first have received an opinion of counsel to the
effect that such amendment will not result in the imposition of a tax on the
related Trust Fund or cause the related Trust Fund to fail to qualify as a REMIC
at any time that the related Certificates are outstanding.
The Trustee
The Trustee under each Agreement will be named in the related
Prospectus Supplement. The commercial bank, national banking association,
banking corporation or trust company serving as Trustee may have a banking
relationship with the Depositor and its affiliates and with any Master Servicer
and its affiliates.
Duties of the Trustee
The Trustee will make no representations as to the validity or
sufficiency of any Agreement, the Certificates or any Asset or related document
and is not accountable for the use or application by or on behalf of any Master
Servicer of any funds paid to the Master Servicer or its designee or any Special
Servicer in respect of the Certificates or the Assets, or deposited into or
withdrawn from the Certificate Account or any other account by or on behalf of
the Master Servicer or any Special Servicer. If no Event of Default has occurred
and is continuing, the Trustee is required to perform only those duties
specifically required under the related Agreement. However, upon receipt of the
various certificates, reports or other instruments required to be furnished to
it, the Trustee is required to examine such documents and to determine whether
they conform to the requirements of the Agreement.
Certain Matters Regarding the Trustee
Unless otherwise specified in the related Prospectus Supplement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
entitled to indemnification out of the Certificate Account for any loss,
liability or expense (including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in settlement)
incurred in connection with the Trustee's (i) enforcing its rights and remedies
and protecting the interests, and enforcing the rights and remedies, of the
Certificateholders during the continuance of an Event of Default, (ii) defending
or prosecuting any legal action in respect of the related Agreement or series of
Certificates, (iii) being the mortgagee of record with respect to the Mortgage
Loans in a Trust Fund and the owner of record with respect to any Mortgaged
Property acquired in respect thereof for the benefit of Certificateholders, or
(iv) acting or refraining from acting in good faith at the direction of the
holders of the related series of Certificates entitled to not less than 25% (or
such higher percentage as is specified in the related Agreement with respect to
any particular matter) of the Voting Rights for such series; provided, however,
that such indemnification will not extend to any loss, liability or expense that
constitutes a specific liability of the Trustee pursuant to the related
Agreement, or to any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence on the part of the Trustee in the
performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties, or as may arise from a breach
of any representation, warranty or covenant of the Trustee made therein.
Resignation and Removal of the Trustee
The Trustee may at any time resign from its obligations and duties
under an Agreement by giving written notice thereof to the Depositor, the Master
Servicer, if any, and all Certificateholders. Upon receiving such notice of
resignation, the Depositor is required promptly to appoint a successor trustee
acceptable to the Master Servicer, if any. If no successor trustee shall have
been so appointed and have accepted appointment within 30 days after the giving
of such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible to continue as
such under the related Agreement, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Depositor
may remove the Trustee and appoint a successor trustee acceptable to the Master
Servicer, if any. Holders of the Certificates of any series entitled to at least
51% of the Voting Rights for such series may at any time remove the Trustee
without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a
successor trustee shall not become effective until acceptance of appointment by
the successor trustee.
DESCRIPTION of CREDIT SUPPORT
General
For any series of Certificates, Credit Support may be provided with
respect to one or more classes thereof or the related Assets. Credit Support may
be in the form of the subordination of one or more classes of Certificates,
letters of credit, insurance policies, guarantees, the establishment of one or
more reserve funds or another method of Credit Support described in the related
Prospectus Supplement, or any combination of the foregoing. If so provided in
the related Prospectus Supplement, any form of Credit Support may be structured
so as to be drawn upon by more than one series to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a
series of Certificates, the Credit Support will not provide protection against
all risks of loss and will not guarantee repayment of the entire Certificate
Balance of the Certificates and interest thereon. If losses or shortfalls occur
that exceed the amount covered by Credit Support or that are not covered by
Credit Support, Certificateholders will bear their allocable share of
deficiencies. Moreover, if a form of Credit Support covers more than one series
of Certificates (each, a "Covered Trust"), holders of Certificates evidencing
interests in any of such Covered Trusts will be subject to the risk that such
Credit Support will be exhausted by the claims of other Covered Trusts prior to
such Covered Trust receiving any of its intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a series, or the related Assets, the related Prospectus
Supplement will include a description of (a) the nature and amount of coverage
under such Credit Support, (b) any conditions to payment thereunder not
otherwise described herein, (c) the conditions (if any) under which the amount
of coverage under such Credit Support may be reduced and under which such Credit
Support may be terminated or replaced and (d) the material provisions relating
to such Credit Support. Additionally, the related Prospectus Supplement will set
forth certain information with respect to the obligor under any instrument of
Credit Support, including (i) a brief description of its principal business
activities, (ii) its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business, (iii) if
applicable, the identity of regulatory agencies that exercise primary
jurisdiction over the conduct of its business and (iv) its total assets, and its
stockholders' or policyholders' surplus, if applicable, as of the date specified
in the Prospectus Supplement. See "Risk Factors--Credit Support Limitations."
Subordinate Certificates
If so specified in the related Prospectus Supplement, one or more
classes of Certificates of a series may be Subordinate Certificates. To the
extent specified in the related Prospectus Supplement, the rights of the holders
of Subordinate Certificates to receive distributions of principal and interest
from the Certificate Account on any Distribution Date will be subordinated to
such rights of the holders of Senior Certificates. If so provided in the related
Prospectus Supplement, the subordination of a class may apply only in the event
of (or may be limited to) certain types of losses or shortfalls. The related
Prospectus Supplement will set forth information concerning the amount of
subordination of a class or classes of Subordinate Certificates in a series, the
circumstances in which such subordination will be applicable and the manner, if
any, in which the amount of subordination will be effected.
Cross-Support Provisions
If the Assets for a series are divided into separate groups, each
supporting a separate class or classes of Certificates of a series, credit
support may be provided by cross-support provisions requiring that distributions
be made on Senior Certificates evidencing interests in one group of Mortgage
Assets prior to distributions on Subordinate Certificates evidencing interests
in a different group of Mortgage Assets within the Trust Fund. The Prospectus
Supplement for a series that includes a cross-support provision will describe
the manner and conditions for applying such provisions.
Insurance or Guarantees with Respect to the Whole Loans
If so provided in the Prospectus Supplement for a series of
Certificates, the Whole Loans in the related Trust Fund will be covered for
various default risks by insurance policies or guarantees. A copy of any such
material instrument for a series will be filed with the Commission as an exhibit
to a Current Report on Form 8-K to be filed within 15 days of issuance of the
Certificates of the related series.
Letter of Credit
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by one or more letters of credit, issued
by a bank or financial institution specified in such Prospectus Supplement (the
"L/C Bank"). Under a letter of credit, the L/C Bank will be obligated to honor
draws thereunder in an aggregate fixed dollar amount, net of unreimbursed
payments thereunder, generally equal to a percentage specified in the related
Prospectus Supplement of the aggregate principal balance of the Mortgage Assets
on the related Cut-off Date or of the initial aggregate Certificate Balance of
one or more classes of Certificates. If so specified in the related Prospectus
Supplement, the letter of credit may permit draws in the event of only certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments
thereunder and may otherwise be reduced as described in the related Prospectus
Supplement. The obligations of the L/C Bank under the letter of credit for each
series of Certificates will expire at the earlier of the date specified in the
related Prospectus Supplement or the termination of the Trust Fund. A copy of
any such letter of credit for a series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of issuance
of the Certificates of the related series.
Insurance Policies and Surety Bonds
If so provided in the Prospectus Supplement for a series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by insurance policies and/or surety
bonds provided by one or more insurance companies or sureties. Such instruments
may cover, with respect to one or more classes of Certificates of the related
series, timely distributions of interest and/or full distributions of principal
on the basis of a schedule of principal distributions set forth in or determined
in the manner specified in the related Prospectus Supplement. A copy of any such
instrument for a series will be filed with the Commission as an exhibit to a
Current Report on Form 8-K to be filed with the Commission within 15 days of
issuance of the Certificates of the related series.
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 to the extent set forth 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, deeds of trust and deeds to secure debt are
herein collectively referred to as "mortgages." Any of the foregoing types of
mortgages will create a lien upon, or grant a title interest in, the subject
property, the priority of which will depend on the terms of the particular
security instrument, as well as separate, recorded, contractual arrangements
with others holding interests in the mortgaged property, the knowledge of the
parties to such instrument as well as the order of recordation of the instrument
in the appropriate public recording office. However, recording does not
generally establish priority over governmental claims for real estate taxes and
assessments and other charges imposed under governmental police powers.
Types of Mortgage Instruments
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties--a mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). In contrast, a deed
of trust is a three-party instrument, among a trustor (the equivalent of a
mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "mortgagor" includes the
trustor under a deed of trust and a grantor under a security deed or a deed to
secure debt. Under a deed of trust, the mortgagor grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale as
security for the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties. By executing a deed to secure debt, the grantor
conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid,
generally with a power of sale as security for the indebtedness evidenced by the
related mortgage note. In case the mortgagor under a mortgage is a land trust,
there would be an additional party because legal title to the property is held
by a land trustee under a land trust agreement for the benefit of the mortgagor.
At origination of a mortgage loan involving a land trust, the mortgagor executes
a separate undertaking to make payments on the mortgage note. The mortgagee's
authority under a mortgage, the trustee's authority under a deed of trust and
the grantee's authority under a deed to secure debt are governed by the express
provisions of the mortgage, the law of the state in which the real property is
located, certain federal laws (including, without limitation, the Soldiers' and
Sailors' Civil Relief Act of 1940) and, in some cases, in deed of trust
transactions, the directions of the beneficiary.
Interest in Real Property
The real property covered by a mortgage, deed of trust, security deed
or deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property such
as a tenant's interest in a lease of land or improvements, or both, and the
leasehold estate created by such lease. An instrument covering an interest in
real property other than the fee estate requires special provisions in the
instrument creating such interest or in the mortgage, deed of trust, security
deed or deed to secure debt, to protect the mortgagee against termination of
such interest before the mortgage, deed of trust, security deed or deed to
secure debt is paid. Unless otherwise specified in the Prospectus Supplement,
the Depositor or the Asset Seller will make certain representations and
warranties in the Agreement with respect to the Mortgage Loans which are secured
by an interest in a leasehold estate. Such representation and warranties will be
set forth in the Prospectus Supplement if applicable.
Leases and Rents
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the mortgagor assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while the mortgagor retains a revocable license to
collect the rents for so long as there is no default. Under such assignments,
the mortgagor typically assigns its right, title and interest as lessor under
each lease and the income derived therefrom to the mortgagee, while retaining a
license to collect the rents for so long as there is no default under the
mortgage loan documentation. The manner of perfecting the mortgagee's interest
in rents may depend on whether the mortgagor's assignment was absolute or one
granted as security for the loan. Failure to properly perfect the mortgagee's
interest in rents may result in the loss of substantial pool of funds, which
could otherwise serve as a source of repayment for such loan. If the mortgagor
defaults, the license terminates and the lender is entitled to collect the
rents. Local law may require that the lender take possession of the property
and/or obtain a court-appointed receiver before becoming entitled to collect the
rents. In most states, hotel and motel room 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.
Personality
Certain types of Mortgaged Properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value from
personal property which does not constitute "fixtures" under applicable state
real property law and, hence, would not be subject to the lien of a mortgage.
Such property is generally pledged or assigned as security to the lender under
the UCC. In order to perfect its security interest therein, the lender generally
must file UCC financing statements and, to maintain perfection of such security
interest, file continuation statements generally every five years.
Foreclosure
General
Foreclosure is a legal procedure that allows the mortgagee to recover
its mortgage debt by enforcing its rights and available legal remedies under the
mortgage. If the mortgagor defaults in payment or performance of its obligations
under the note or mortgage, the mortgagee has the right to institute foreclosure
proceedings to sell the mortgaged property at public auction to satisfy the
indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage
vary from state to state. Two primary methods of foreclosing a mortgage are
judicial foreclosure and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage instrument. There are several other foreclosure
procedures available in some states that are either infrequently used or
available only in certain limited circumstances, such as strict foreclosure.
Judicial Foreclosure
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having a subordinate interest of
record in the real property and all parties in possession of the property, under
leases or otherwise, whose interests are subordinate to the mortgage. Delays in
completion of the foreclosure may occasionally result from difficulties in
locating defendants. When the lender's right to foreclose is contested, the
legal proceedings can be time-consuming. Upon successful completion of a
judicial foreclosure proceeding, the court generally issues a judgment of
foreclosure and appoints a referee or other officer to conduct a public sale of
the mortgaged property, the proceeds of which are used to satisfy the judgment.
Such sales are made in accordance with procedures that vary from state to state.
Equitable Limitations on Enforceability of Certain Provisions
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may require
the lender to undertake affirmative and expensive actions to determine the cause
of the mortgagor's default and the likelihood that the mortgagor will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's and have required that lenders reinstate loans or recast payment
schedules in order to accommodate mortgagors who are suffering from a temporary
financial disability. In other cases, courts have limited the right of the
lender to foreclose if the default under the mortgage is not monetary, e.g., the
mortgagor failed to maintain the mortgaged property adequately or the mortgagor
executed a junior mortgage on the mortgaged property. The exercise by the court
of its equity powers will depend on the individual circumstances of each case
presented to it. Finally, some courts have been faced with the issue of whether
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that a mortgagor receive notice in addition to
statutorily-prescribed minimum notice. For the most part, these cases have
upheld the reasonableness of the notice provisions or have found that a public
sale under a mortgage providing for a power of sale does not involve sufficient
state action to afford constitutional protections to the mortgagor.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes require several years to complete. Moreover, as discussed below, a
non-collusive, regularly conducted foreclosure sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court determines
that the sale was for less than fair consideration and such sale occurred while
the mortgagor was insolvent (or the mortgagor was rendered insolvent as a result
of such sale) and within one year (or within the state statute of limitations if
the trustee in bankruptcy elects to proceed under state fraudulent conveyance
law) of the filing of bankruptcy.
Non-Judicial Foreclosure/Power of Sale
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale pursuant to the power of sale granted in the deed of
trust. A power of sale is typically granted in a deed of trust. It may also be
contained in any other type of mortgage instrument. A power of sale allows a
non-judicial public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such sale,
the trustee under a deed of trust must record a notice of default and notice of
sale and send a copy to the mortgagor and to any other party who has recorded a
request for a copy of a notice of default and notice of sale. In addition, in
some states the trustee must provide notice to any other party having an
interest of record in the real property, including junior lienholders. A notice
of sale must be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers. The mortgagor or junior
lienholder may then have the right, during a reinstatement period required in
some states, to cure the default by paying the entire actual amount in arrears
(without acceleration) plus the expenses incurred in enforcing the obligation.
In other states, the mortgagor or the junior lienholder is not provided a period
to reinstate the loan, but has only the right to pay off the entire debt to
prevent the foreclosure sale. Generally, the procedure for public sale, the
parties entitled to notice, the method of giving notice and the applicable time
periods are governed by state law and vary among the states. Foreclosure of a
deed to secure debt is also generally accomplished by a non-judicial sale
similar to that required by a deed of trust, except that the lender or its
agent, rather than a trustee, is typically empowered to perform the sale in
accordance with the terms of the deed to secure debt and applicable law.
Public Sale
A third party may be unwilling to purchase a mortgaged property at a
public sale because of the difficulty in determining the value of such property
at the time of sale, due to, among other things, redemption rights which may
exist and the possibility of physical deterioration of the property during the
foreclosure proceedings. For these reasons, it is common for the lender to
purchase the mortgaged property for an amount equal to or less than the
underlying debt and accrued and unpaid interest plus the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs and
expenses which may be recovered by a lender. Thereafter, subject to the
mortgagor's right in some states to remain in possession during a redemption
period, if applicable, the lender will become the owner of the property and have
both the benefits and burdens of ownership of the mortgaged property. For
example, the lender will have the obligation to pay debt service on any senior
mortgages, to pay taxes, obtain casualty insurance and to make such repairs at
its own expense as are necessary to render the property suitable for sale.
Frequently, the lender employs a third party management company to manage and
operate the property. The costs of operating and maintaining a commercial or
multifamily residential property may be significant and may be greater than the
income derived from that property. The costs of management and operation of
those mortgaged properties which are hotels, motels, restaurants, nursing or
convalescent homes or hospitals may be particularly significant because of the
expertise, knowledge and, with respect to nursing or convalescent homes or
hospitals, regulatory compliance, required to run such operations and the effect
which foreclosure and a change in ownership may have on the public's and the
industry's (including franchisors') perception of the quality of such
operations. The lender will commonly obtain the services of a real estate broker
and pay the broker's commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property. Moreover, a
lender commonly incurs substantial legal fees and court costs in acquiring a
mortgaged property through contested foreclosure and/or bankruptcy proceedings.
Furthermore, a few states require that any environmental contamination at
certain types of properties be cleaned up before a property may be resold. In
addition, a lender may be responsible under federal or state law for the cost of
cleaning up a mortgaged property that is environmentally contaminated. See
"Environmental Legislation." Generally state law controls the amount of
foreclosure expenses and costs, including attorneys' fees, that may be recovered
by a lender.
A junior mortgagee may not foreclose on the property securing the
junior mortgage unless it forecloses subject to senior mortgages and any other
prior liens, in which case it may be obliged to make payments on the senior
mortgages to avoid their foreclosure. In addition, in the event that the
foreclosure of a junior mortgage triggers the enforcement of a "due-on-sale"
clause contained in a senior mortgage, the junior mortgagee may be required to
pay the full amount of the senior mortgage to avoid its foreclosure.
Accordingly, with respect to those Mortgage Loans, if any, that are junior
mortgage loans, if the lender purchases the property the lender's title will be
subject to all senior mortgages, prior liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are
applied first to the costs, fees and expenses of sale and then in satisfaction
of the indebtedness secured by the mortgage under which the sale was conducted.
Any proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in order
of their priority, whether or not the mortgagor is in default. Any additional
proceeds are generally payable to the mortgagor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgage or a subsequent ancillary proceeding or may require the
institution of separate legal proceedings by such holders.
REO Properties
If title to any Mortgaged Property is acquired by the Trustee on behalf
of the Certificateholders, the Master Servicer or any related Sub-servicer or
the Special Servicer, on behalf of such holders, will be required to sell the
Mortgaged Property prior to the close of the third calendar year following the
year of acquisition of such Mortgaged Property by the Trust Fund, unless (i) the
Internal Revenue Service grants an extension of time to sell such property (an
"REO Extension") or (ii) it obtains an opinion of counsel generally to the
effect that the holding of the property beyond the close of the third calendar
year after its acquisition will not result in the imposition of a tax on the
Trust Fund or cause any REMIC created pursuant to the Pooling and Servicing
Agreement to fail to qualify as a REMIC under the Code. Subject to the
foregoing, the Master Servicer or any related Sub-servicer or the Special
Servicer will generally be required to solicit bids for any Mortgaged Property
so acquired in such a manner as will be reasonably likely to realize a fair
price for such property. The Master Servicer or any related Sub-servicer or the
Special Servicer may retain an independent contractor to operate and manage any
REO Property; however, the retention of an independent contractor will not
relieve the Master Servicer or any related Sub-servicer or the Special Servicer
of its obligations with respect to such REO Property.
In general, the Master Servicer or any related Sub-servicer or the
Special Servicer or an independent contractor employed by the Master Servicer or
any related Sub-servicer or the Special Servicer at the expense of the Trust
Fund will be obligated to operate and manage any Mortgaged Property acquired as
REO Property in a manner that would, to the extent commercially feasible,
maximize the Trust Fund's net after-tax proceeds from such property. After the
Master Servicer or any related Sub-servicer or the Special Servicer reviews the
operation of such property and consults with the Trustee to determine the Trust
Fund's federal income tax reporting position with respect to the income it is
anticipated that the Trust Fund would derive from such property, the Master
Servicer or any related Sub-servicer or the Special Servicer could determine
(particularly in the case of an REO Property that is a hospitality or
residential health care facility) that it would not be commercially feasible to
manage and operate such property in a manner that would avoid the imposition of
a tax on "net income from foreclosure property," within the meaning of Section
857(b)(4)(B) of the Code (an "REO Tax") at the highest marginal corporate tax
rate (currently 35%). The determination as to whether income from an REO
Property would be subject to an REO Tax will depend on the specific facts and
circumstances relating to the management and operation of each REO Property. Any
REO Tax imposed on the Trust Fund's income from an REO Property would reduce the
amount available for distribution to Certificateholders. Certificateholders are
advised to consult their tax advisors regarding the possible imposition of REO
Taxes in connection with the operation of commercial REO Properties by REMICs.
See "Certain Federal Income Tax Consequences" herein and "Certain Federal Income
Tax Consequences-REMICs" in the Prospectus.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to
realize upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the mortgage being foreclosed,
from exercise of their "equity of redemption." The doctrine of equity of
redemption provides that, until the property covered by a mortgage has been sold
in accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing mortgagee
have an equity of redemption and may redeem the property by paying the entire
debt with interest. In addition, in some states, when a foreclosure action has
been commenced, the redeeming party must pay certain costs of such action. Those
having an equity of redemption must generally be made parties and joined in the
foreclosure proceeding in order for their equity of redemption to be cut off and
terminated.
The equity of redemption is a common-law (non-statutory) right which
exists prior to completion of the foreclosure, is not waivable by the mortgagor,
must be exercised prior to foreclosure sale and should be distinguished from the
post-sale statutory rights of redemption. In some states, after sale pursuant to
a deed of trust or foreclosure of a mortgage, the mortgagor and foreclosed
junior lienors are given a statutory period in which to redeem the property from
the foreclosure sale. In some states, statutory redemption may occur only upon
payment of the foreclosure sale price. In other states, redemption may be
authorized if the former mortgagor pays only a portion of the sums due. The
effect of a statutory right of redemption is to diminish the ability of the
lender to sell the foreclosed property. The exercise of a right of redemption
would defeat the title of any purchaser from a foreclosure sale or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to maintain the property and pay the expenses of ownership
until the redemption period has expired. In some states, a post-sale statutory
right of redemption may exist following a judicial foreclosure, but not
following a trustee's sale under a deed of trust.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held beyond the close of the third calendar
year following the year of acquisition. Unless otherwise provided in the related
Prospectus Supplement, with respect to a series of Certificates for which an
election is made to qualify the Trust Fund or a part thereof as a REMIC, the
Agreement will permit foreclosed property to be held beyond the close of the
third calendar year following the year of acquisition if the Internal Revenue
Service grants an extension of time within which to sell such property or
independent counsel renders an opinion to the effect that holding such property
for such additional period is permissible under the REMIC Provisions.
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.
Bankruptcy Laws
The Bankruptcy Code and related state laws may interfere with or affect
the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) are
automatically stayed upon the filing of the bankruptcy petition, and, usually,
no interest or principal payments are made during the course of the bankruptcy
case. The delay and the consequences thereof caused by such automatic stay can
be significant. Also, under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a junior lienor may stay the senior lender from
taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage secured by
property of the debtor may be modified under certain circumstances. In many
jurisdictions, the outstanding amount of the loan secured by the real property
may be reduced to the then-current value of the property (with a corresponding
partial reduction of the amount of lender's security interest) pursuant to a
confirmed plan or lien avoidance proceeding, thus leaving the lender a general
unsecured creditor for the difference between such value and the outstanding
balance of the loan. Other modifications may include the reduction in the amount
of each scheduled payment, which reduction may result from a reduction in the
rate of interest and/or the alteration of the repayment schedule (with or
without affecting the unpaid principal balance of the loan), and/or an extension
(or reduction) of the final maturity date. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a mortgage loan default by
paying arrearages over a number of years. Also, under federal bankruptcy law, a
bankruptcy court may permit a debtor through its rehabilitative plan to
de-accelerate a secured loan and to reinstate the loan even though the lender
accelerated the mortgage loan and final judgment of foreclosure had been entered
in state court (provided no sale of the property had yet occurred) prior to the
filing of the debtor's petition. This may be done even if the full amount due
under the original loan is never repaid.
Federal bankruptcy law provides generally that rights and obligation
under an unexpired lease of the debtor/lessee may not be terminated or modified
at any time after the commencement of a case under the Bankruptcy Code solely on
the basis of a provision in the lease to such effect or because of certain other
similar events. This prohibition on so-called "ipso facto clauses" could limit
the ability of the Trustee for a series of Certificates to exercise certain
contractual remedies with respect to the Leases. In addition, Section 362 of the
Bankruptcy Code operates as an automatic stay of, among other things, any act to
obtain possession of property from a debtor's estate, which may delay a
Trustee's exercise of such remedies for a related series of Certificates in the
event that a related Lessee or a related mortgagor becomes the subject of a
proceeding under the Bankruptcy Code. For example, a mortgagee would be stayed
from enforcing a Lease Assignment by a mortgagor related to a Mortgaged Property
if the related mortgagor was in a bankruptcy proceeding. The legal proceedings
necessary to resolve the issues could be time-consuming and might result in
significant delays in the receipt of the assigned rents. Similarly, the filing
of a petition in bankruptcy by or on behalf of a Lessee of a Mortgaged Property
would result in a stay against the commencement or continuation of any state
court proceeding for past due rent, for accelerated rent, for damages or for a
summary eviction order with respect to a default under the Lease that occurred
prior to the filing of the Lessee's petition. Rents and other proceeds of a
Mortgage Loan may also escape an assignment thereof if the assignment is not
fully perfected under state law prior to commencement of the bankruptcy
proceeding. See "--Leases and Rents" above.
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court, (a) assume the lease
and retain it or assign it to a third party or (b) reject the lease. If the
lease is assumed, the trustee in bankruptcy on behalf of the lessee, or the
lessee as debtor-in-possession, or the assignee, if applicable, must cure any
defaults under the lease, compensate the lessor for its losses and provide the
lessor with "adequate assurance" of future performance. Such remedies may be
insufficient, however, as the lessor may be forced to continue under the lease
with a lessee that is a poor credit risk or an unfamiliar tenant if the lease
was assigned, and any assurances provided to the lessor may, in fact, be
inadequate. If the lease is rejected, such rejection generally constitutes a
breach of the executory contract or unexpired lease immediately before the date
of filing the petition. As a consequence, the other party or parties to such
lease, such as the mortgagor, as lessor under a Lease, would have only an
unsecured claim against the debtor for damages resulting from such breach, which
could adversely affect the security for the related Mortgage Loan. In addition,
pursuant to Section 502(b)(6) of the Bankruptcy Code, a lessor's damages for
lease rejection in respect of future rent installments are limited to the rent
reserved by the lease, without acceleration, for the greater of one year or 15%,
not to exceed three years, of the remaining term of the lease.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as
debtor-in-possession, rejects an unexpired lease of real property, the lessee
may treat such lease as terminated by such rejection or, in the alternative, the
lessee may remain in possession of the leasehold for the balance of such term
and for any renewal or extension of such term that is enforceable by the lessee
under applicable nonbankruptcy law. The Bankruptcy Code provides that if a
lessee elects to remain in possession after such a rejection of a lease, the
lessee may offset against rents reserved under the lease for the balance of the
term after the date of rejection of the lease, and any such renewal or extension
thereof, any damages occurring after such date caused by the nonperformance of
any obligation of the lessor under the lease after such date. To the extent
provided in the related Prospectus Supplement, the Lessee will agree under
certain Leases to pay all amounts owing thereunder to the Master Servicer
without offset. To the extent that such a contractual obligation remains
enforceable against the Lessee, the Lessee would not be able to avail itself of
the rights of offset generally afforded to lessees of real property under the
Bankruptcy Code.
In a bankruptcy or similar proceeding of a mortgagor, action may be
taken seeking the recovery, as a preferential transfer or on other grounds, of
any payments made by the mortgagor, or made directly by the related Lessee,
under the related Mortgage Loan to the Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may have
the power to grant liens senior to the lien of a mortgage, and analogous state
statutes and general principles of equity may also provide a mortgagor with
means to halt a foreclosure proceeding or sale and to force a restructuring of a
mortgage loan on terms a lender would not otherwise accept. Moreover, the laws
of certain states also give priority to certain tax liens over the lien of a
mortgage or deed of trust. Under the Bankruptcy Code, if the court finds that
actions of the mortgagee have been unreasonable, the lien of the related
mortgage may be subordinated to the claims of unsecured creditors.
To the extent described in the related Prospectus Supplement, certain
of the Mortgagors may be partnerships. The laws governing limited partnerships
in certain states provide that the commencement of a case under the Bankruptcy
Code with respect to a general partner will cause a person to cease to be a
general partner of the limited partnership, unless otherwise provided in writing
in the limited partnership agreement. This provision may be construed as an
"ipso facto" clause and, in the event of the general partner's bankruptcy, may
not be enforceable. To the extent described in the related Prospectus
Supplement, certain limited partnership agreements of the Mortgagors may provide
that the commencement of a case under the Bankruptcy Code with respect to the
related general partner constitutes an event of withdrawal (assuming the
enforceability of the clause is not challenged in bankruptcy proceedings or, if
challenged, is upheld) that might trigger the dissolution of the limited
partnership, the winding up of its affairs and the distribution of its assets,
unless (i) at the time there was at least one other general partner and the
written provisions of the limited partnership permit the business of the limited
partnership to be carried on by the remaining general partner and that general
partner does so or (ii) the written provisions of the limited partnership
agreement permit the limited partner to agree within a specified time frame
(often 60 days) after such withdrawal to continue the business of the limited
partnership and to the appointment of one or more general partners and the
limited partners do so. In addition, the laws governing general partnerships in
certain states provide that the commencement of a case under the Bankruptcy Code
or state bankruptcy laws with respect to a general partner of such partnerships
triggers the dissolution of such partnership, the winding up of its affairs and
the distribution of its assets. Such state laws, however, may not be enforceable
or effective in a bankruptcy case. The dissolution of a Mortgagor, the winding
up of its affairs and the distribution of its assets could result in an
acceleration of its payment obligation under a related Mortgage Loan, which may
reduce the yield on the related series of Certificates in the same manner as a
principal prepayment.
In addition, the bankruptcy of the general partner of a Mortgagor that
is a partnership may provide the opportunity for a trustee in bankruptcy for
such general partner, such general partner as a debtor-in-possession, or a
creditor of such general partner to obtain an order from a court consolidating
the assets and liabilities of the general partner with those of the Mortgagor
pursuant to the doctrines of substantive consolidation or piercing the corporate
veil. In such a case, the respective Mortgaged Property, for example, would
become property of the estate of such bankrupt general partner. Not only would
the Mortgaged Property be available to satisfy the claims of creditors of such
general partner, but an automatic stay would apply to any attempt by the Trustee
to exercise remedies with respect to such Mortgaged Property. However, such an
occurrence should not affect the Trustee's status as a secured creditor with
respect to the Mortgagor or its security interest in the Mortgaged Property.
Junior Mortgages; Rights of Senior Mortgagees or Beneficiaries
To the extent specified in the related Prospectus Supplement, some of
the Mortgage Loans for a series will be secured by junior mortgages or deeds of
trust which are subordinated to senior mortgages or deeds of trust held by other
lenders or institutional investors. The rights of the Trust Fund (and therefore
the related Certificateholders), as beneficiary under a junior deed of trust or
as mortgagee under a junior mortgage, are subordinate to those of the mortgagee
or beneficiary under the senior mortgage or deed of trust, including the prior
rights of the senior mortgagee or beneficiary to receive rents, hazard insurance
and condemnation proceeds and to cause the Mortgaged Property securing the
Mortgage Loan to be sold upon default of the Mortgagor or trustor, thereby
extinguishing the junior mortgagee's or junior beneficiary's lien unless the
Master Servicer or Special Servicer, as applicable, asserts its subordinate
interest in a Mortgaged Property in foreclosure litigation or satisfies the
defaulted senior loan. As discussed more fully below, in many states a junior
mortgagee or beneficiary may satisfy a defaulted senior loan in full, or may
cure such default and bring the senior loan current, in either event adding the
amounts expended to the balance due on the junior loan. Absent a provision in
the senior mortgage, no notice of default is required to be given to the junior
mortgagee unless otherwise required by law.
The form of the mortgage or deed of trust used by many institutional
lenders confers on the mortgagee or beneficiary the right both to receive all
proceeds collected under any hazard insurance policy and all awards made in
connection with any condemnation proceedings, and to apply such proceeds and
awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgagee or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the mortgagee or
beneficiary under the senior mortgage or deed of trust will have the prior right
to collect any insurance proceeds payable under the hazard insurance policy and
any award of damages in connection with the condemnation and to apply the same
to the indebtedness secured by the senior mortgage or deed of trust. Proceeds in
excess of the amount of senior mortgage indebtedness will, in most cases, be
applied to the indebtedness of a junior mortgage or trust deed. The laws of
certain states may limit the ability of mortgagees or beneficiaries to apply the
proceeds of hazard insurance and partial condemnation awards to the secured
indebtedness. In such states, the mortgagor or trustor must be allowed to use
the proceeds of hazard insurance to repair the damage unless the security of the
mortgagee or beneficiary has been impaired. Similarly, in certain states, the
mortgagee or beneficiary is entitled to the award for a partial condemnation of
the real property security only to the extent that its security is impaired.
The form of mortgage or deed of trust used by many institutional
lenders typically contains a "future advance" clause, which provides in essence,
that additional amounts advanced to or on behalf of the mortgagor or trustor by
the mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While such a clause is valid under the laws of most states, the priority of any
advance made under the clause depends, in some states, on whether the advance
was an "obligatory" or "optional" advance. If the mortgagee or beneficiary is
obligated to advance the additional amounts, the advance may be entitled to
receive the same priority as amounts initially made under the mortgage or deed
of trust, notwithstanding that there may be intervening junior mortgages or
deeds of trust and other liens between the date of recording of the mortgage or
deed of trust and the date of the future advance, and notwithstanding that the
mortgagee or beneficiary had actual knowledge of such intervening junior
mortgages or deeds of trust and other liens at the time of the advance. Where
the mortgagee or beneficiary is not obligated to advance the additional amounts
and has actual knowledge of the intervening junior mortgages or deeds of trust
and other liens, the advance may be subordinated to such intervening junior
mortgages or deeds of trust and other liens. Priority of advances under a
"future advance" clause rests, in many other states, on state law giving
priority to all advances made under the loan agreement up to a "credit limit"
amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed
of trust used by many institutional lenders obligates the mortgagor or trustor
to pay before delinquency all taxes and assessments on the property and, when
due, all encumbrances, charges and liens on the property which appear prior to
the mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to perform
any of these obligations, the mortgagee or beneficiary is given the right under
the mortgage or deed of trust to perform the obligation itself, at its election,
with the mortgagor or trustor agreeing to reimburse the mortgagee or beneficiary
on behalf of the mortgagor or trustor. All sums so expended by the mortgagee or
beneficiary become part of the indebtedness secured by the mortgage or deed of
trust.
The form of mortgage or deed of trust used by many institutional
lenders typically requires the mortgagor or trustor to obtain the consent of the
mortgagee or beneficiary in respect of actions affecting the mortgaged property,
including, without limitation, leasing activities (including new leases and
termination or modification of existing leases), alterations and improvements to
buildings forming a part of the mortgaged property and management and leasing
agreements for the mortgaged property. Tenants will often refuse to execute a
lease unless the mortgagee or beneficiary executes a written agreement with the
tenant not to disturb the tenant's possession of its premises in the event of a
foreclosure. A senior mortgagee or beneficiary may refuse to consent to matters
approved by a junior mortgagee or beneficiary with the result that the value of
the security for the junior mortgage or deed of trust is diminished. For
example, a senior mortgagee or beneficiary may decide not to approve the lease
or to refuse to grant a tenant a non-disturbance agreement. If, as a result, the
lease is not executed, the value of the mortgaged property may be diminished.
Environmental Legislation
Real property pledged as security to a lender may be subject to
unforeseen environmental liabilities. Of particular concern may be those
Mortgaged Properties which are, or have been, the site of manufacturing,
industrial or disposal activity. Such environmental liabilities may give rise to
(i) a diminution in value of property securing any Mortgage Loan, (ii)
limitation on the ability to foreclose against such property or (iii) in certain
circumstances, as more fully described below, liability for clean-up costs or
other remedial actions, which liability could exceed the value of the principal
balance of the related Mortgage Loan or of such Mortgaged Property.
Under the laws of many states, contamination on a property may give
rise to a lien on the property for cleanup costs. In several states, such a lien
has priority over all existing liens (a "superlien") including those of existing
mortgages; in these states, the lien of a mortgage contemplated by this
transaction may lose its priority to such a superlien.
The presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the market value of the
property, as well as the owner's ability to sell or use the real estate or to
borrow using the real estate as collateral. In addition, certain environmental
laws and common law principles govern the responsibility for the removal,
encapsulation or disturbance of asbestos containing materials ("ACMs") when
these ACMs are in poor condition or when a property with ACMs is undergoing
repair, renovation or demolition. Such laws could also be used to impose
liability upon owners and operators of real properties for release of ACMs into
the air that cause personal injury or other damage. In addition to cleanup and
natural resource damages actions brought by federal, state, and local agencies
and private parties, the presence of hazardous substances on a property may lead
to claims of personal injury, property damage, or other claims by private
plaintiffs.
Under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), and under other federal law
and the law of certain states, a secured party which takes a deed-in-lieu of
foreclosure, purchases a mortgaged property at a foreclosure sale, or operates a
Mortgaged Property 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, 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
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 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 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, to the extent set forth in the related Prospectus
Supplement, any form of Credit Support provided in connection with such
Certificates. In addition, the Relief Act imposes limitations that would impair
the ability of the servicer to foreclose on an affected Mortgage Loan during the
mortgagor's period of active duty status, and, under certain circumstances,
during an additional three month period thereafter. Thus, in the event that such
a Mortgage Loan goes into default, there may be delays and losses occasioned
thereby.
Forfeitures in Drug and RICO Proceedings
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the "Crime
Control Act"), the government may seize the property even before conviction. The
government must publish notice of the forfeiture proceeding and may give notice
to all parties "known to have an alleged interest in the property," including
the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
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 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; and
(iii) a Grantor Trust Certificate owned by a REMIC will represent
"obligation[s] . . . which [are] principally secured by an interest in real
property" within the meaning of Code Section 860G(a)(3).
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application of
Code Section 593(d) to any taxable year beginning after December 31, 1995.
Stripped Bonds and Coupons. Certain Trust Funds may consist of
Government Securities that constitute "stripped bonds" or "stripped coupons" as
those terms are defined in section 1286 of the Code, and, as a result, such
assets would be subject to the stripped bond provisions of the Code. Under these
rules, such Government Securities are treated as having original issue discount
based on the purchase price and the stated redemption price at maturity of each
Security. As such, Grantor Trust Certificateholders would be required to include
in income their pro rata share of the original issue discount on each Government
Security recognized in any given year on an economic accrual basis even if the
Grantor Trust Certificateholder is a cash method taxpayer. Accordingly, the sum
of the income includible to the Grantor Trust Certificateholder in any taxable
year may exceed amounts actually received during such year.
Premium. The price paid for a Grantor Trust Certificate by a holder
will be allocated to such holder's undivided interest in each Mortgage Asset
based on each Mortgage Asset's relative fair market value, so that such holder's
undivided interest in each Mortgage Asset will have its own tax basis. A Grantor
Trust Certificateholder that acquires an interest in Mortgage Assets at a
premium may elect to amortize such premium under a constant interest method,
provided that the underlying mortgage loans with respect to such Mortgage Assets
were originated after September 27, 1985. Premium allocable to mortgage loans
originated on or before September 27, 1985 should be allocated among the
principal payments on such mortgage loans and allowed as an ordinary deduction
as principal payments are made. Amortizable bond premium will be treated as an
offset to interest income on such Grantor Trust Certificate. The basis for such
Grantor Trust Certificate will be reduced to the extent that amortizable premium
is applied to offset interest payments. It is not clear whether a reasonable
prepayment assumption should be used in computing amortization of premium
allowable under Code Section 171. A Certificateholder that makes this election
for a Mortgage Asset or any other debt instrument that is acquired at a premium
will be deemed to have made an election to amortize bond premium with respect to
all debt instruments having amortizable bond premium that such Certificateholder
acquires during the year of the election or thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Grantor Trust Certificate representing an
interest in a Mortgage Asset or Mortgage Loan acquired at a premium should
recognize a loss if a Mortgage Loan (or an underlying mortgage loan with respect
to a Mortgage Asset) prepays in full, equal to the difference between the
portion of the prepaid principal amount of such Mortgage Loan (or underlying
mortgage loan) that is allocable to the Certificate and the portion of the
adjusted basis of the Certificate that is allocable to such Mortgage Loan (or
underlying mortgage loan). If a reasonable prepayment assumption is used to
amortize such premium, it appears that such a loss would be available, if at
all, only if prepayments have occurred at a rate faster than the reasonable
assumed prepayment rate. It is not clear whether any other adjustments would be
required to reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
The Internal Revenue Service (the "IRS") has issued final regulations
(the "Amortizable Bond Premium Regulations") dealing with amortizable bond
premium. 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 to the
extent set forth 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
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 made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. See "--Premium" herein. The election to
accrue interest, discount and premium on a constant yield method with respect to
a Certificate is irrevocable without consent of the IRS.
Anti-Abuse Rule. The IRS can apply or depart from the rules contained
in the OID Regulations as necessary or appropriate to achieve a reasonable
result where a principal purpose in structuring a Mortgage Asset, Mortgage Loan
or Grantor Trust Certificate or applying the otherwise applicable rules is to
achieve a result that is unreasonable in light of the purposes of the applicable
statutes (which generally are intended to achieve the clear reflection of income
for both issuers and holders of debt instruments).
b. Multiple Classes of Grantor Trust Certificates
1. Stripped Bonds and Stripped Coupons
Pursuant to Code Section 1286, the separation of ownership of the right
to receive some or all of the interest payments on an obligation from ownership
of the right to receive some or all of the principal payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of Code Sections 1271
through 1288, Code Section 1286 treats a stripped bond or a stripped coupon as
an obligation issued on the date that such stripped interest is created. If a
Trust Fund is created with two classes of Grantor Trust Certificates, one class
of Grantor Trust Certificates may represent the right to principal and interest,
or principal only, on all or a portion of the Mortgage Assets (the "Stripped
Bond Certificates"), while the second class of Grantor Trust Certificates may
represent the right to some or all of the interest on such portion (the
"Stripped Coupon Certificates").
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points (i.e., 1% interest on the Mortgage
Asset principal balance) or the Certificates are initially sold with a de
minimis discount (assuming no prepayment assumption is required), any non-de
minimis discount arising from a subsequent transfer of the Certificates should
be treated as market discount. The IRS appears to require that reasonable
servicing fees be calculated on a Mortgage Asset by Mortgage Asset basis, which
could result in some Mortgage Assets being treated as having more than 100 basis
points of interest stripped off. See "--Non-REMIC Certificates" and "Multiple
Classes of Grantor Trust Certificates--Stripped Bonds and Stripped Coupons"
herein.
Although not entirely clear, a Stripped Bond Certificate generally
should be treated as an interest in Mortgage Assets issued on the day such
Certificate is purchased for purposes of calculating any OID. Generally, if the
discount on a Mortgage Asset is larger than a de minimis amount (as calculated
for purposes of the OID rules) a purchaser of such a Certificate will be
required to accrue the discount under the OID rules of the Code. See
"--Non-REMIC Certificates" and "--Single Class of Grantor Trust
Certificates--Original Issue Discount" herein. However, a purchaser of a
Stripped Bond Certificate will be required to account for any discount on the
Mortgage Assets as market discount rather than OID if either (i) the amount of
OID with respect to the Mortgage Assets is treated as zero under the OID de
minimis rule when the Certificate was stripped or (ii) no more than 100 basis
points (including any amount of servicing fees in excess of reasonable servicing
fees) is stripped off of the Trust Fund's Mortgage Assets. Pursuant to Revenue
Procedure 91-49, issued on August 8, 1991, purchasers of Stripped Bond
Certificates using an inconsistent method of accounting must change their method
of accounting and request the consent of the IRS to the change in their
accounting method on a statement attached to their first timely tax return filed
after August 8, 1991.
The precise tax treatment of Stripped Coupon Certificates is
substantially uncertain. The Code could be read literally to require that OID
computations be made for each payment from each Mortgage Asset. Unless otherwise
specified in the related prospectus supplement, all payments from a Mortgage
Asset underlying a Stripped Coupon Certificate will be treated as a single
installment obligation subject to the OID rules of the Code, in which 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, to the extent set forth 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 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, to the extent set forth 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.
Accrual of Original Issue Discount. Generally, the owner of a Grantor
Trust Certificate must include in gross income the sum of the "daily portions,"
as defined below, of the OID on such Grantor Trust Certificate for each day on
which it owns such Certificate, including the date of purchase but excluding the
date of disposition. In the case of an original owner, the daily portions of OID
with respect to each component generally will be determined as set forth under
the OID Regulations. A calculation will be made by the Master Servicer or such
other entity specified in the related Prospectus Supplement of the portion of
OID that accrues during each successive monthly accrual period (or shorter
period from the date of original issue) that ends on the day in the calendar
year corresponding to each of the Distribution Dates on the Grantor Trust
Certificates (or the day prior to each such date). This will be done, in the
case of each full month accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the respective component under the Prepayment
Assumption) of all remaining payments to be received under the Prepayment
Assumption on the respective component and (b) any payments included in the
stated redemption price at maturity received during such accrual period, and
(ii) subtracting from that total the "adjusted issue price" of the respective
component at the beginning of such accrual period. The adjusted issue price of a
Grantor Trust Certificate at the beginning of the first accrual period is its
issue price; the adjusted issue price of a Grantor Trust Certificate at the
beginning of a subsequent accrual period is the adjusted issue price at the
beginning of the immediately preceding accrual period plus the amount of OID
allocable to that accrual period reduced by the amount of any payment other than
a payment of qualified stated interest made at the end of or during that accrual
period. The OID accruing during such accrual period will then be divided by the
number of days in the period to determine the daily portion of OID for each day
in the period. With respect to an initial accrual period shorter than a full
monthly accrual period, the daily portions of OID must be determined according
to an appropriate allocation under any reasonable method.
Original issue discount generally must be reported as ordinary gross
income as it accrues under a constant interest method that takes into account
the compounding of interest as it accrues rather than when received. However,
the amount of original issue discount includible in the income of a holder of an
obligation is reduced when the obligation is acquired after its initial issuance
at a price greater than the sum of the original issue price and the previously
accrued original issue discount, less prior payments of principal. Accordingly,
if such Mortgage Assets acquired by a Certificateholder are purchased at a price
equal to the then unpaid principal amount of such Mortgage Asset, no original
issue discount attributable to the difference between the issue price and the
original principal amount of such Mortgage Asset (i.e. points) will be
includible by such holder. Other original issue discount on the Mortgage Assets
(e.g., that arising from a "teaser" rate) would still need to be accrued.
3. Grantor Trust Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such
as the Grantor Trust Certificates, which represent interests in ARM Loans.
Additionally, the IRS has not issued guidance under the Code's coupon stripping
rules with respect to such instruments. In the absence of any authority, the
Master Servicer will report OID on Grantor Trust Certificates attributable to
ARM Loans ("Stripped ARM Obligations") to holders in a manner it believes is
consistent with the rules described above under the heading "--Grantor Trust
Certificates Representing Interests in Loans Other Than ARM Loans" and with the
OID Regulations. In general, application of these rules may require inclusion of
income on a Stripped ARM Obligation in advance of the receipt of cash
attributable to such income. Further, the addition of interest deferred by
reason of negative amortization ("Deferred Interest") to the principal balance
of an ARM Loan may require the inclusion of such amount in the income of the
Grantor Trust Certificateholder when such amount accrues. Furthermore, the
addition of Deferred Interest to the Grantor Trust Certificate's principal
balance will result in additional income (including possibly OID income) to the
Grantor Trust Certificateholder over the remaining life of such Grantor Trust
Certificates.
Because the treatment of Stripped ARM Obligations is uncertain,
investors are urged to consult their tax advisors regarding how income will be
includible with respect to such Certificates.
c. Sale or Exchange of a Grantor Trust Certificate
Sale or exchange of a Grantor Trust Certificate prior to its maturity
will result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the Grantor Trust Certificate. Such
adjusted basis generally will equal the seller's purchase price for the Grantor
Trust Certificate, increased by the OID included in the seller's gross income
with respect to the Grantor Trust Certificate, and reduced by principal payments
on the Grantor Trust Certificate previously received by the seller. Such gain or
loss will be capital gain or loss to an owner for which a Grantor Trust
Certificate is a "capital asset" within the meaning of Code Section 1221, and
will generally be long-term capital gain if the Grantor Trust Certificate has
been owned for more than one year. Long-term capital gains of individuals are
subject to reduced maximum tax rates while capital gains recognized by
individuals on capital assets held less than twelve months are generally subject
to ordinary income tax rates. The use of capital losses is limited.
It is possible that capital gain realized by holders of one or more
classes of Grantor Trust Certificates could be considered gain realized upon the
disposition of property that was part of a "conversion transaction." A sale of a
Grantor Trust Certificate will be part of a conversion transaction if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and (i) the holder entered the contract to
sell the Grantor Trust Certificate substantially contemporaneously with
acquiring the Grantor Trust Certificate, (ii) the Grantor Trust Certificate is
part of a straddle, (iii) the Grantor Trust Certificate is marketed or sold as
producing capital gain, or (iv) other transactions to be specified in Treasury
regulations that have not yet been issued. If the sale or other disposition of a
Grantor Trust Certificate is part of a conversion transaction, all or any
portion of the gain realized upon the sale or other disposition would be treated
as ordinary income instead of capital gain.
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Code Section 582(c)(1), so that gain or loss recognized from the
sale of a Grantor Trust Certificate by a bank or a thrift institution to which
such section applies will be treated as ordinary income or loss.
d. Non-U.S. Persons
Generally, to the extent that a Grantor Trust Certificate evidences
ownership in underlying Mortgage Assets that were issued on or before July 18,
1984, interest or OID paid by the person required to withhold tax under Code
Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as defined
below) or (ii) a Grantor Trust Certificateholder holding on behalf of an owner
that is not a U.S. Person will be subject to federal income tax, collected by
withholding, at a rate of 30% or such lower rate as may be provided for interest
by an applicable tax treaty, unless such income is effectively connected with a
U.S. trade or business of such owner or beneficial owner. Accrued OID recognized
by the owner on the sale or exchange of such a Grantor Trust Certificate also
will be subject to federal income tax at the same rate. Generally, such payments
would not be subject to withholding to the extent that a Grantor Trust
Certificate evidences ownership in Mortgage Assets issued after July 18, 1984,
by natural persons if such Grantor Trust Certificateholder complies with certain
identification requirements (including delivery of a statement, signed by the
Grantor Trust Certificateholder under penalties of perjury, certifying that such
Grantor Trust Certificateholder is not a U.S. Person and providing the name and
address of such Grantor Trust Certificateholder). To the extent payments to
Grantor Trust Certificateholders that are not U.S. Persons are payments of
"contingent interest" on the underlying Mortgage Assets, or such Grantor Trust
Certificateholder is ineligible for the exemption described in the preceding
sentence, the 30% withholding tax will apply unless such withholding taxes are
reduced or eliminated by an applicable tax treaty and such holder meets the
eligibility and certification requirements necessary to obtain the benefits of
such treaty. Additional restrictions apply to Mortgage Assets where the
mortgagor is not a natural person in order to qualify for the exemption from
withholding. If capital gain derived from the sale, retirement or other
disposition of a Grantor Trust Certificate is effectively connected with a U.S.
trade or business of a Grantor Trust Certificateholder that is not a U.S.
Person, such Certificateholder will be taxed on the net gain under the graduated
U.S. federal income tax rates applicable to U.S. Persons (and, with respect to
Grantor Trust Certificates held by or on behalf of corporations, also may be
subject to branch profits tax). In addition, if the Trust Fund acquires a United
States real property interest through foreclosure, deed in lieu of foreclosure
or otherwise on a Mortgage Asset secured by such an interest (which for this
purpose includes real property located in the United States and the Virgin
Islands), a Grantor Trust Certificateholder that is not a U.S. Person will
potentially be subject to federal income tax on any gain attributable to such
real property interest that is allocable to such holder. Non-U.S. Persons should
consult their tax advisors regarding the application to them of the foregoing
rules.
As used herein, a "U.S. Person" means a citizen or resident of the
United States, a corporation or a partnership organized in or under the laws of
the United States or any political subdivision thereof (other than a partnership
that is not treated as a U.S. Person under any applicable Treasury regulations),
an estate the income of which from sources outside the United States is
includible in gross income for federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United States or a
trust if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more U.S. Persons have
the authority to control all substantial decisions of the trust. In addition,
certain trusts treated as U.S. Persons before August 20, 1996 may elect to
continue to be so treated to the extent provided in regulations.
e. Information Reporting and Backup Withholding
The Master Servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each person who was a
Certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
Certificates as nominees on behalf of beneficial owners. If a holder, beneficial
owner, financial intermediary or other recipient of a payment on behalf of a
beneficial owner fails to supply a certified taxpayer identification number or
if the Secretary of the Treasury determines that such person has not reported
all interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments to
registered owners who are not "exempt recipients." In addition, upon the sale of
a Grantor Trust Certificate to (or through) a broker, the broker must withhold
31% of the entire purchase price, unless either (i) the broker determines that
the seller is a corporation or other exempt recipient, or (ii) the seller
provides, in the required manner, certain identifying information and, in the
case of a non-U.S. Person, certifies that such seller is a Non-U.S. Person, and
certain other conditions are met. Such as sale must also be reported by the
broker to the IRS, unless either (a) the broker determines that the seller is an
exempt recipient or (b) the seller certifies its non-U.S. Person status (and
certain other conditions are met). Certification of the registered owner's
non-U.S. Person status normally would be made on IRS Form W-8 under penalties of
perjury, although in certain cases it may be possible to submit other
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 includes any obligation
(including certificates of participation in such an obligation and any "regular
interest" in another REMIC) that is principally secured by an interest in real
property and that is transferred to the REMIC within a prescribed time period in
exchange for regular or residual interests in the REMIC.
In general, with respect to each Series of Certificates for which a
REMIC election is made, (i) Certificates held by a thrift institution taxed as a
"domestic building and loan association" will constitute assets described in
Code Section 7701(a)(19)(C); (ii) Certificates held by a real estate investment
trust will constitute "real estate assets" within the meaning of Code Section
856(c)(4)(A); and (iii) interest on Certificates held by a real estate
investment trust will be considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section 856(c)(3)(B). If
less than 95% of the REMIC's assets are assets qualifying under any of the
foregoing Code sections, the Certificates will be qualifying assets only to the
extent that the REMIC's assets are qualifying assets.
Tiered REMIC Structures. For certain Series of Certificates, two or more
separate elections may be made to treat designated portions of the related Trust
Fund as REMICs (respectively, the "Subsidiary REMIC" and the "Master REMIC") for
federal income tax purposes. Upon the issuance of any such Series of
Certificates, Brown & Wood LLP or Cadwalader, Wickersham & Taft or Latham &
Watkins or such other counsel as may be specified in the related Prospectus
Supplement, counsel to the Depositor, will deliver its opinion generally to the
effect that, assuming compliance with all provisions of the related Agreement,
the Master REMIC as well as any Subsidiary REMIC will each qualify as a REMIC,
and the REMIC Certificates issued by the Master REMIC and the Subsidiary REMIC
or REMICs, respectively, will be considered to evidence ownership of regular
interests ("REMIC Regular Certificates") or residual interests ("REMIC Residual
Certificates") in the related REMIC within the meaning of the REMIC provisions.
Other than the residual interest in a Subsidiary REMIC, only REMIC
Certificates issued by the Master REMIC will be offered hereunder. The
Subsidiary REMIC or REMICs and the Master REMIC will be treated as one REMIC
solely for purposes of determining whether the REMIC Certificates will be (i)
"real estate assets" within the meaning of Section 856(c)(4)(A) of the Code;
(ii) "loans secured by an interest in real property" under Section
7701(a)(19)(C) of the Code; and (iii) whether the income on such Certificates is
interest described in Section 856(c)(3)(B) of the Code.
a. Taxation of Owners of REMIC Regular Certificates
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
Original Issue Discount and Premium. The REMIC Regular Certificates may
be issued with OID. Generally, such OID, if any, will equal the difference
between the "stated redemption price at maturity" of a REMIC Regular Certificate
and its "issue price." Holders of any class of Certificates issued with OID will
be required to include such OID in gross income for federal income tax purposes
as it accrues, in accordance with a constant interest method based on the
compounding of interest as it accrues rather than in accordance with receipt of
the interest payments. The following discussion is based in part on the OID
Regulations and in part on the provisions of the Tax Reform Act of 1986 (the
"1986 Act"). Holders of REMIC Regular Certificates (the "REMIC Regular
Certificateholders") should be aware, however, that the OID Regulations do not
adequately address certain issues relevant to prepayable securities, such as the
REMIC Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273
and 1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated reinvestment
rate, if any, relating to the REMIC Regular Certificates and prescribe a method
for adjusting the amount and rate of accrual of such discount where the actual
prepayment rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The legislative history
of the 1986 Act (the "Legislative History") provides, however, that Congress
intended the regulations to require that the Prepayment Assumption be the
prepayment assumption that is used in determining the initial offering price of
such REMIC Regular Certificates. The Prospectus Supplement for each Series of
REMIC Regular Certificates will specify the Prepayment Assumption to be used for
the purpose of determining the amount and rate of accrual of OID. No
representation is made that the REMIC Regular Certificates will prepay at the
Prepayment Assumption or at any other rate.
In general, each REMIC Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
"stated redemption price at maturity" over its "issue price." The issue price of
a REMIC Regular Certificate is the first price at which a substantial amount of
REMIC Regular Certificates of that class are first sold to the public (excluding
bond houses, brokers, underwriters or wholesalers). If less than a substantial
amount of a particular class of REMIC Regular Certificates is sold for cash on
or prior to the date of their initial issuance (the "Closing Date"), the issue
price for such class will be treated as the fair market value of such class on
the Closing Date. The issue price of a REMIC Regular Certificate also includes
the amount paid by an initial Certificateholder for accrued interest that
relates to a period prior to the issue date of the REMIC Regular Certificate.
The stated redemption price at maturity of a REMIC Regular Certificate includes
the original principal amount of the REMIC Regular Certificate, but generally
will not include distributions of interest if such distributions constitute
"qualified stated interest." Qualified stated interest generally means interest
payable at a single fixed rate or qualified variable rate (as described below)
provided that such interest payments are unconditionally payable at intervals of
one year or less during the entire term of the REMIC Regular Certificate.
Interest is payable at a single fixed rate only if the rate appropriately takes
into account the length of the interval 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 Certificate's, stated
redemption price at maturity. REMIC Regular Certificateholders should consult
their own tax advisors to determine the issue price and stated redemption price
at maturity of a REMIC Regular Certificate.
Under the de minimis rule, OID on a REMIC Regular Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average maturity of the REMIC Regular Certificate. For this purpose, the
weighted average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial years) from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included in
the stated redemption price at maturity of the REMIC Regular Certificate and the
denominator of which is the stated redemption price at maturity of the REMIC
Regular Certificate. Although currently unclear, it appears that the schedule of
such distributions should be determined in accordance with the Prepayment
Assumption. The Prepayment Assumption with respect to a Series of REMIC Regular
Certificates will be set forth in the related Prospectus Supplement. Holders
generally must report de minimis OID pro rata as principal payments are
received, and such income will be capital gain if the REMIC Regular Certificate
is held as a capital asset. However, accrual method holders may elect to accrue
all de minimis OID as well as market discount under a constant interest method.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain REMIC Regular Certificates to be issued at prices significantly
exceeding their principal amounts or based on notional principal balances (the
"Super-Premium Certificates"). The income tax treatment of such REMIC Regular
Certificates is not entirely certain. For information reporting purposes, the
Trust Fund intends to take the position that the stated redemption price at
maturity of such REMIC Regular Certificates is the sum of all payments to be
made on such REMIC Regular Certificates determined under the Prepayment
Assumption, with the result that such REMIC Regular Certificates would be issued
with OID. The calculation of income in this manner could result in negative
original issue discount (which delays future accruals of OID rather than being
immediately deductible) when prepayments on the Mortgage Assets exceed those
estimated under the Prepayment Assumption. The IRS might contend, however, that
certain contingent payment rules contained in final regulations issued on June
11, 1996, with respect to original issue discount, should apply to such
Certificates. Although such rules are not applicable to instruments governed by
Code Section 1272(a)(6), they represent the only guidance regarding the current
views of the IRS with respect to contingent payment instruments. These proposed
regulations, if applicable, generally would require holders of Regular Interest
Certificates to take the payments considered contingent interest payments into
income on a yield to maturity basis in accordance with a schedule of projected
payments provided by the Depositor and to make annual adjustments to income to
account for the difference between actual payments received and projected
payment amounts accrued. In the alternative, the IRS could assert that the
stated redemption price at maturity of such REMIC Regular Certificates should be
limited to their principal amount (subject to the discussion below under
"--Accrued Interest Certificates"), so that such REMIC Regular Certificates
would be considered for federal income tax purposes to be issued at a premium.
If such a position were to prevail, the rules described below under "--Taxation
of Owners of REMIC Regular Certificates--Premium" would apply. It is unclear
when a loss may be claimed for any unrecovered basis for a Super-Premium
Certificate. It is possible that a holder of a Super-Premium Certificate may
only claim a loss when its remaining basis exceeds the maximum amount of future
payments, assuming no further prepayments or when the final payment is received
with respect to such Super-Premium Certificate.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than REMIC Regular Certificate based on a notional amount)
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular Certificate
generally should not be treated as a Super-Premium Certificate and the rules
described below under "--REMIC Regular Certificates--Premium" should apply.
However, it is possible that holders of REMIC Regular Certificates issued at a
premium, even if the premium is less than 25% of such Certificate's actual
principal balance, will be required to amortize the premium under an original
issue discount method or contingent interest method even though no election
under Code Section 171 is made to amortize such premium.
Generally, a REMIC Regular Certificateholder must include in gross
income the "daily portions," as determined below, of the OID that accrues on a
REMIC Regular Certificate for each day a Certificateholder holds the REMIC
Regular Certificate, including the purchase date but excluding the disposition
date. In the case of an original holder of a REMIC Regular Certificate, a
calculation will be made of the portion of the OID that accrues during each
successive period ("an accrual period") that ends on the day in the calendar
year corresponding to a Distribution Date (or if Distribution Dates are on the
first day or first business day of the immediately preceding month, interest may
be treated as payable on the last day of the immediately preceding month) and
begins on the day after the end of the immediately preceding accrual period (or
on the issue date in the case of the first accrual period). This will be done,
in the case of each full accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the REMIC Regular Certificates as calculated under
the Prepayment Assumption) of all remaining payments to be received on the REMIC
Regular Certificates under the Prepayment Assumption and (b) any payments
included in the stated redemption price at maturity received during such accrual
period, and (ii) subtracting from that total the adjusted issue price of the
REMIC Regular Certificates at the beginning of such accrual period. The adjusted
issue price of a REMIC Regular Certificate at the beginning of the first accrual
period is its issue price; the adjusted issue price of a REMIC Regular
Certificate at the beginning of a subsequent accrual period is the adjusted
issue price at the beginning of the immediately preceding accrual period plus
the amount of OID allocable to that accrual period and reduced by the amount of
any payment other than a payment of qualified stated interest made at the end of
or during that accrual period. The OID accrued during an accrual period will
then be divided by the number of days in the period to determine the daily
portion of OID for each day in the accrual period. The calculation of OID under
the method described above will cause the accrual of OID to either increase or
decrease (but never below zero) in a given accrual period to reflect the fact
that prepayments are occurring faster or slower than under the Prepayment
Assumption. With respect to an initial accrual period shorter than a full
accrual period, the daily portions of OID may be determined according to an
appropriate allocation under any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate issued with OID
who purchases the REMIC Regular Certificate at a cost less than the remaining
stated redemption price at maturity will also be required to include in gross
income the sum of the daily portions of OID on that REMIC Regular Certificate.
In computing the daily portions of OID for such a purchaser (as well as an
initial purchaser that purchases at a price higher than the adjusted issue price
but less than the stated redemption price at maturity), however, the daily
portion is reduced by the amount that would be the daily portion for such day
(computed in accordance with the rules set forth above) multiplied by a
fraction, the numerator of which is the amount, if any, by which the price paid
by such holder for that REMIC Regular Certificate exceeds the following amount:
(a) the sum of the issue price plus the aggregate amount of OID that would have
been includible in the gross income of an original REMIC Regular
Certificateholder (who purchased the REMIC Regular Certificate at its issue
price), less (b) any prior payments included in the stated redemption price at
maturity, and the denominator of which is the sum of the daily portions for that
REMIC Regular Certificate for all days beginning on the date after the purchase
date and ending on the maturity date computed under the Prepayment Assumption. A
holder who pays an acquisition premium instead may elect to accrue OID by
treating the purchase as a purchase at original issue.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates
may provide for interest based on a variable rate. Interest based on a variable
rate will constitute qualified stated interest and not contingent interest if,
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 at the rate applicable on the date they are issued. 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. No guidance is currently available as to how OID would be determined
for debt instruments subject to Code Section 1272(a)(6) that provide for
contingent interest. Such treatment of REMIC Regular Certificates as contingent
payment debt instruments may affect the timing of income accruals on such REMIC
Regular Certificates.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market discount or original issue discount) and premium in income as
interest, based on a constant yield method. If such an election were to be made
with respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Certificateholder acquires during the year of the
election or thereafter. Similarly, a Certificateholder that makes this election
for a Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. See
"--REMIC Regular Certificates--Premium" herein. The election to accrue interest,
discount and premium on a constant yield method with respect to a Certificate is
irrevocable without the consent of the IRS.
Market Discount. A purchaser of a REMIC Regular Certificate may also be
subject to the market discount provisions of Code Sections 1276 through 1278.
Under these provisions and the OID Regulations, "market discount" equals the
excess, if any, of (i) the REMIC Regular Certificate's stated principal amount
or, in the case of a REMIC Regular Certificate with OID, the adjusted issue
price (determined for this purpose as if the purchaser had purchased such REMIC
Regular Certificate from an original holder) over (ii) the price for such REMIC
Regular Certificate paid by the purchaser. A Certificateholder that purchases a
REMIC Regular Certificate at a market discount will recognize income upon
receipt of each distribution representing amounts included in such certificate's
stated redemption price at maturity. In particular, under Section 1276 of the
Code such a holder generally will be required to allocate each such distribution
first to accrued market discount not previously included in income, and to
recognize ordinary income to that extent. A Certificateholder may elect to
include market discount in income currently as it accrues rather than including
it on a deferred basis in accordance with the foregoing. If made, such election
will apply to all market discount bonds acquired by such Certificateholder on or
after the first day of the first taxable year to which such election applies.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular Certificate
is less than 0.25% of such REMIC Regular Certificate's stated redemption price
at maturity multiplied by such REMIC Regular Certificate's weighted average
maturity remaining after the date of purchase. If market discount on a REMIC
Regular Certificate is considered to be zero under this rule, the actual amount
of market discount must be allocated to the remaining principal payments on the
REMIC Regular Certificate, and gain equal to such allocated amount will be
recognized when the corresponding principal payment is made. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under Code Sections 1276 through 1278.
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. The IRS has issued
regulations dealing with the amortizable bond premium (the "Amortizable Bond
Premium Regulations"). The Amortizable Bond Premium Regulations by their express
terms do not apply to prepayable securities described in Section 1272(a)(6) of
the Code, such as the REMIC Regular Certificates. Certificateholders should
consult their tax advisors regarding the possibility of making an election to
amortize any such bond premium.
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 capital gain will be treated as ordinary
income if the REMIC Regular Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the REMIC Regular Certificateholder's net investment
in the conversion transaction at 120% of the appropriate applicable federal rate
under Code Section 1274(d) in effect at the time the taxpayer entered into the
transaction minus any amount previously treated as ordinary income with respect
to any prior disposition of property that was held as part of such transaction,
or if the REMIC Regular Certificate is held as part of a straddle. Potential
investors should consult their tax advisors with respect to tax consequences of
ownership and disposition of an investment in REMIC Regular Certificates in
their particular circumstances.
It is possible that capital gain realized by holders of one or more
classes of REMIC Regular Certificates could be considered gain realized upon the
disposition of property that was part of a "conversion transaction." A sale of a
REMIC Regular Certificate will be part of a "conversion transaction" if
substantially all of the holder's expected return is attributable to the time
value of the holder's net investment, and (i) the holder entered the contract to
sell the REMIC Regular Certificate substantially contemporaneously with
acquiring the REMIC Regular Certificate, (ii) the REMIC Regular Certificate is
part of a straddle, (iii) the REMIC Regular Certificate is marketed or sold as
producing capital gains, or (iv) other transactions to be specified in Treasury
regulations that have not yet been issued. If the sale or other disposition of a
REMIC Regular Certificate is part of a conversion transaction, all or a portion
of the gain realized upon the sale or other disposition of the REMIC Regular
Certificate would be treated as ordinary income instead of capital gain.
The Certificates will be "evidences of indebtedness" within the meaning
of Code Section 582(c)(1), so that gain or loss recognized from the sale of a
REMIC Regular Certificate by a bank or a thrift institution to which such
section applies will be ordinary income or loss.
The REMIC Regular Certificate information reports will include a
statement of the adjusted issue price of the REMIC Regular Certificate at the
beginning of each accrual period. In addition, the reports will include
information necessary to compute the accrual of any market discount that may
arise upon secondary trading of REMIC Regular Certificates. Because exact
computation of the accrual of market discount on a constant yield method would
require information relating to the holder's purchase price which the REMIC may
not have, it appears that the information reports will only provide information
pertaining to the appropriate proportionate method of accruing market discount.
Accrued Interest Certificates. Certain of the REMIC Regular
Certificates ("Payment Lag Certificates") may provide for payments of interest
based on a period that corresponds to the interval between Distribution Dates
but that ends prior to each such Distribution Date. The period between the
Closing Date for Payment Lag Certificates and their first Distribution Date may
or may not exceed such interval. Purchasers of Payment Lag Certificates for
which the period between the Closing Date and the first Distribution Date does
not exceed such interval could pay upon purchase of the REMIC Regular
Certificates accrued interest in excess of the accrued interest that would be
paid if the interest paid on the Distribution Date were interest accrued from
Distribution Date to Distribution Date. If a portion of the initial purchase
price of a REMIC Regular Certificate is allocable to interest that has accrued
prior to the issue date ("pre-issuance accrued interest") and the REMIC Regular
Certificate provides for a payment of stated interest on the first payment date
(and the first payment date is within one year of the issue date) that equals or
exceeds the amount of the pre-issuance accrued interest, then the REMIC Regular
Certificate's issue price may be computed by subtracting from the issue price
the amount of pre-issuance accrued interest, rather than as an amount payable on
the REMIC Regular Certificate. However, it is unclear under this method how the
OID Regulations treat interest on Payment Lag Certificates. Therefore, in the
case of a Payment Lag Certificate, the Trust Fund intends to include accrued
interest in the issue price and report interest payments made on the first
Distribution Date as interest to the extent such payments represent interest for
the number of days that the Certificateholder has held such Payment Lag
Certificate during the first accrual period.
Investors should consult their own tax advisors concerning the
treatment for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury
regulations, if the REMIC is considered to be a "single-class REMIC," a portion
of the REMIC's servicing, administrative and other non-interest expenses will be
allocated as a separate item to those REMIC Regular Certificateholders that are
"pass-through interest holders." Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of these
rules on an investment in the REMIC Regular Certificates. See "Pass-Through of
Non-Interest Expenses of the REMIC" under "Taxation of Owners of REMIC Residual
Certificates" below.
Effects of Defaults, Delinquencies and Losses. Certain Series of
Certificates may contain one or more classes of Subordinated Certificates, and
in the event there are defaults or delinquencies on the Mortgage Assets, amounts
that would otherwise be distributed on the Subordinated Certificates may instead
be distributed on the Senior Certificates. Subordinated Certificateholders
nevertheless will be required to report income with respect to such Certificates
under an accrual method without giving effect to delays and reductions in
distributions on such Subordinated Certificates attributable to defaults and
delinquencies on the Mortgage Assets, except to the extent that it can be
established that such amounts are uncollectible. As a result, the amount of
income reported by a Subordinated Certificateholder in any period could
significantly exceed the amount of cash distributed to such holder in that
period. The holder will eventually be allowed a loss (or will be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Subordinated Certificate is reduced as a result of defaults
and delinquencies on the Mortgage Assets.
Although not entirely clear, it appears that holders of REMIC Regular
Certificates that are corporations should in general be allowed to deduct as an
ordinary loss any loss sustained during the taxable year on account of any such
Certificates becoming wholly or partially worthless, and that, in general,
holders of Certificates that are not corporations should be allowed to deduct as
a short-term capital loss any loss sustained during the taxable year on account
of any such Certificates becoming wholly worthless. Potential investors and
holders of the Certificates are urged to consult their own tax advisors
regarding the appropriate timing, amount and character of any loss sustained
with respect to such Certificates, including any loss resulting from the failure
to recover previously accrued interest or discount income. Special loss rules
are applicable to banks and thrift institutions, including rules regarding
reserves for bad debts. Such taxpayers are advised to consult their tax advisors
regarding the treatment of losses on Certificates.
Non-U.S. Persons. Generally, payments of interest (including any
payment with respect to accrued OID) on the REMIC Regular Certificates to a
REMIC Regular Certificateholder who is not a U.S. Person and is not engaged in a
trade or business within the United States will not be subject to federal
withholding tax if (i) such REMIC Regular Certificateholder does not actually or
constructively own 10 percent or more of the combined voting power of all
classes of equity in the issuer; (ii) such REMIC Regular Certificateholder is
not a controlled foreign corporation (within the meaning of Code Section 957)
related to the issuer; and (iii) such REMIC Regular Certificateholder complies
with certain identification requirements (including delivery of a statement,
signed by the REMIC Regular Certificateholder under penalties of perjury,
certifying that such REMIC Regular Certificateholder is a foreign person and
providing the name and address of such REMIC Regular Certificateholder). If a
REMIC Regular Certificateholder is not exempt from withholding, distributions of
interest to such holder, including distributions in respect of accrued OID, may
be subject to a 30% withholding tax, subject to reduction under any applicable
tax treaty. If the interest on a REMIC Regular Certificate is effectively
connected with the conduct by the Non-U.S. REMIC Regular Certificateholder of a
trade or business within the United States, then the Non-U.S. REMIC Regular
Certificateholder will be subject to U.S. income tax at regular graduated rates.
Such a Non-U.S. REMIC Regular Certificateholder also may be subject to the
branch profits tax.
Further, a REMIC Regular Certificate will not be included in the estate
of a non-resident alien individual that does not actually or constructively own
10% or more of the combined voting power of all classes of equity in the Issuer
and will not be subject to United States estate taxes. However,
Certificateholders who are non-resident alien individuals should consult their
tax advisors concerning this question.
REMIC Regular Certificateholders who are not U.S. Persons and persons
related to such holders should not acquire any REMIC Residual Certificates, and
holders of REMIC Residual Certificates (the "REMIC Residual Certificateholder")
and persons related to REMIC Residual Certificateholders should not acquire any
REMIC Regular Certificates without consulting their tax advisors as to the
possible adverse tax consequences of doing so. In addition, the IRS may assert
that non-U.S Persons that own directly or indirectly, a greater than 10%
interest in any Mortgagor, and foreign corporations that are "controlled foreign
corporations" as to the United States of which such a Mortgagor is a "United
States shareholder" within the meaning of Section 951(b) of the Code, are
subject to United States withholding tax on interest distributed to them to the
extent of interest concurrently paid by the related Mortgagor.
For these purposes, a "U.S. Person" means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in, or under the laws of, the United States or any political subdivision
thereof, an estate the income of which from sources without the United States is
includible in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business or a trust
as to which (i) a court in the United States is able to exercise primary
supervision over its administration and (ii) one or more U.S. Persons have the
right to control all substantial decisions of the trust.
Information Reporting and Backup Withholding. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a REMIC Regular Certificateholder at any
time during such year, such information as may be deemed necessary or desirable
to assist REMIC Regular Certificateholders in preparing their federal income tax
returns, or to enable holders to make such information available to beneficial
owners or financial intermediaries that hold such REMIC Regular Certificates on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments with respect to
any payments to registered owners who are not "exempt recipients." In addition,
upon the sale of a REMIC Regular Certificate to (or through) a broker, the
broker must withhold 31% of the entire purchase price, unless either (i) the
broker determines that the seller is a corporation or other exempt recipient, or
(ii) the seller provides, in the required manner, certain identifying
information and, in the case of a non-U.S. Person, certifies that such seller is
a Non-U.S. Person, and certain other conditions are met. Such as sale must also
be reported by the broker to the IRS, unless either (a) the broker determines
that the seller is an exempt recipient or (b) the seller certifies its non-U.S.
Person status (and certain other conditions are met). Certification of the
registered owner's non-U.S. Person status normally would be made on IRS Form W-8
under penalties of perjury, although in certain cases it may be possible to
submit other documentary evidence. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
On October 6, 1997, the Treasury Department issued the New Regulations,
which make certain modifications to the withholding, backup withholding and
information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1999, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
b. Taxation of Owners of REMIC Residual Certificates
Allocation of the Income of the REMIC to the REMIC Residual
Certificates. The REMIC will not be subject to federal income tax except with
respect to income from prohibited transactions and certain other transactions.
See "--Prohibited Transactions and Other Taxes" below. Instead, each original
holder of a REMIC Residual Certificate will report on its federal income tax
return, as ordinary income, its share of the taxable income of the REMIC for
each day during the taxable year on which such holder owns any REMIC Residual
Certificates. The taxable income of the REMIC for each day will be determined by
allocating the taxable income of the REMIC for each calendar quarter ratably to
each day in the quarter. Such a holder's share of the taxable income of the
REMIC for each day will be based on the portion of the outstanding REMIC
Residual Certificates that such holder owns on that day. The taxable income of
the REMIC will be determined under an accrual method and will be taxable to the
holders of REMIC Residual Certificates without regard to the timing or amounts
of cash distributions by the REMIC. Ordinary income derived from REMIC Residual
Certificates will be "portfolio income" for purposes of the taxation of
taxpayers subject to the limitations on the deductibility of "passive losses."
As residual interests, the REMIC Residual Certificates will be subject to tax
rules, described below, that differ from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the Certificates or as debt instruments issued by the
REMIC.
A REMIC Residual Certificateholder may be required to include taxable
income from the REMIC Residual Certificate in excess of the cash distributed.
For example, a structure where principal distributions are made serially on
regular interests (that is, a fast-pay, slow-pay structure) may generate such a
mismatching of income and cash distributions (that is, "phantom income"). This
mismatching may be caused by the use of certain required tax accounting methods
by the REMIC, variations in the prepayment rate of the underlying Mortgage
Assets and certain other factors. Depending upon the structure of a particular
transaction, the aforementioned factors may significantly reduce the after-tax
yield of a REMIC Residual Certificate to a REMIC Residual Certificateholder or
cause the REMIC Residual Certificate to have negative "value." Investors should
consult their own tax advisors concerning the federal income tax treatment of a
REMIC Residual Certificate and the impact of such tax treatment on the after-tax
yield of a REMIC Residual Certificate.
A subsequent REMIC Residual Certificateholder also will report on its
federal income tax return amounts representing a daily share of the taxable
income of the REMIC for each day that such REMIC Residual Certificateholder owns
such REMIC Residual Certificate. Those daily amounts generally would equal the
amounts that would have been reported for the same days by an original REMIC
Residual Certificateholder, as described above. The Legislative History
indicates that certain adjustments may be appropriate to reduce (or increase)
the income of a subsequent holder of a REMIC Residual Certificate that purchased
such REMIC Residual Certificate at a price greater than (or less than) the
adjusted basis such REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder. See "--Sale or Exchange of REMIC
Residual Certificates" below. It is not clear, however, whether such adjustments
will in fact be permitted or required and, if so, how they would be made. The
REMIC Regulations do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of (i) the income from the
Mortgage Assets and the REMIC's other assets and (ii) the deductions allowed to
the REMIC for interest and OID on the REMIC Regular Certificates and, except as
described above under "--Taxation of Owners of REMIC Regular
Certificates--Non-Interest Expenses of the REMIC," other expenses. REMIC taxable
income is generally determined in the same manner as the taxable income of an
individual using the accrual method of accounting, except that (i) the
limitations on deductibility of investment interest expense and expenses for the
production of income do not apply, (ii) all bad loans will be deductible as
business bad debts, and (iii) the limitation on the deductibility of interest
and expenses related to tax-exempt income will apply. The REMIC's gross income
includes interest, original issue discount income, and market discount income,
if any, on the Mortgage Loans, reduced by amortization of any premium on the
Mortgage Loans, plus income on reinvestment of cash flows and reserve assets,
plus any cancellation of indebtedness income upon allocation of realized losses
to the REMIC Regular Certificates. Note that the timing of cancellation of
indebtedness income recognized by REMIC Residual Certificateholders resulting
from defaults and delinquencies on Mortgage Assets may differ from the time of
the actual loss on the Mortgage Asset. The REMIC's deductions include interest
and original issue discount expense on the REMIC Regular Certificates, servicing
fees on the Mortgage Loans, other administrative expenses of the REMIC and
realized losses on the Mortgage Loans. The requirement that REMIC Residual
Certificateholders report their pro rata share of taxable income or net loss of
the REMIC will continue until there are no Certificates of any class of the
related Series outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the REMIC Regular Certificates and the REMIC Residual Certificates (or, if a
class of Certificates is not sold initially, its fair market value). Such
aggregate basis will be allocated among the Mortgage Assets and other assets of
the REMIC in proportion to their respective fair market value. A Mortgage Asset
will be deemed to have been acquired with discount or premium to the extent that
the REMIC's basis therein is less than or greater than its principal balance,
respectively. Any such discount (whether market discount or OID) will be
includible in the income of the REMIC as it accrues, in advance of receipt of
the cash attributable to such income, under a method similar to the method
described above for accruing OID on the REMIC Regular Certificates. The REMIC
may elect under Code Section 171 to amortize any premium on the Mortgage Assets.
Premium on any Mortgage Asset to which such election applies would be amortized
under a constant yield method. It is not clear whether the yield of a Mortgage
Asset would be calculated for this purpose based on scheduled payments or taking
account of the Prepayment Assumption. Additionally, such an election would not
apply to the yield with respect to any underlying mortgage loan originated on or
before September 27, 1985. Instead, premium with respect to such a mortgage loan
would be allocated among the principal payments thereon and would be deductible
by the REMIC as those payments become due.
The REMIC will be allowed a deduction for interest and OID on the REMIC
Regular Certificates. The amount and method of accrual of OID will be calculated
for this purpose in the same manner as described above with respect to REMIC
Regular Certificates except that the 0.25% per annum de minimis rule and
adjustments for subsequent holders described therein will not apply.
A REMIC Residual Certificateholder will not be permitted to amortize
the cost of the REMIC Residual Certificate as an offset to its share of the
REMIC's taxable income. However, REMIC taxable income will not include cash
received by the REMIC that represents a recovery of the REMIC's basis in its
assets, and, as described above, the issue price of the REMIC Residual
Certificates will be added to the issue price of the REMIC Regular Certificates
in determining the REMIC's initial basis in its assets. See "--Sale or Exchange
of REMIC Residual Certificates" below. For a discussion of possible adjustments
to income of a subsequent holder of a REMIC Residual Certificate to reflect any
difference between the actual cost of such REMIC Residual Certificate to such
holder and the adjusted basis such REMIC Residual Certificate would have in the
hands of an original REMIC Residual Certificateholder, see "--Allocation of the
Income of the REMIC to the REMIC Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any
calendar quarter in which its deductions exceed its gross income. Such net loss
would be allocated among the REMIC Residual Certificateholders in the same
manner as the REMIC's taxable income. The net loss allocable to any REMIC
Residual Certificate will not be deductible by the holder to the extent that
such net loss exceeds such holder's adjusted basis in such REMIC Residual
Certificate. Any net loss that is not currently deductible by reason of this
limitation may only be used by such REMIC Residual Certificateholder to offset
its share of the REMIC's taxable income in future periods (but not otherwise).
The ability of REMIC Residual Certificateholders that are individuals or closely
held corporations to deduct net losses may be subject to additional limitations
under the Code.
Mark-to-Market Rules. Prospective purchasers of a REMIC Residual
Certificate should be aware that the IRS has finalized regulations (the
"Mark-to-Market Regulations") which provide that a REMIC Residual Certificate
acquired after January 3, 1995 cannot be marked to market. The Mark-to-Market
Regulations replaced the temporary regulations which allowed a Residual
Certificate to be marked to market provided that it was not a "negative value"
residual interest and did not have the same economic effect as a "negative
value" residual interest.
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule,
all of the fees and expenses of a REMIC will be taken into account by holders of
the REMIC Residual Certificates. In the case of a single class REMIC, however,
the expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the REMIC Regular Certificateholders and
the REMIC Residual Certificateholders on a daily basis in proportion to the
relative amounts of income accruing to each Certificateholder on that day. In
general terms, a single class REMIC is one that either (i) would qualify, under
existing Treasury regulations, as a grantor trust if it were not a REMIC
(treating all interests as ownership interests, even if they would be classified
as debt for federal income tax purposes) or (ii) is similar to such a trust and
is structured with the principal purpose of avoiding the single class REMIC
rules. Unless otherwise stated in the applicable Prospectus Supplement, the
expenses of the REMIC will be allocated to holders of the related REMIC Residual
Certificates in their entirety and not to holders of the related REMIC Regular
Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest in a
REMIC Regular Certificate or a REMIC Residual Certificate directly or through a
pass-through interest holder that is required to pass miscellaneous itemized
deductions through to its owners or beneficiaries (e.g. a partnership, an S
corporation or a grantor trust), such expenses will be deductible under Code
Section 67 only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such individual's adjusted
gross income. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a certain amount (the "Applicable Amount") will be reduced by the lesser
of (i) 3% of the excess of the individual's adjusted gross income over the
Applicable Amount or (ii) 80% of the amount of itemized deductions otherwise
allowable for the taxable year. The amount of additional taxable income
recognized by REMIC Residual Certificateholders who are subject to the
limitations of either Code Section 67 or Code Section 68 may be substantial.
Further, holders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holders' alternative minimum taxable income. The REMIC is required to report to
each pass-through interest holder and to the IRS such holder's allocable share,
if any, of the REMIC's non-interest expenses. The term "pass-through interest
holder" generally refers to individuals, entities taxed as individuals and
certain pass-through entities, but does not include real estate investment
trusts. Accordingly, investment in REMIC Residual Certificates will in general
not be suitable for individuals or for certain pass-through entities, such as
partnerships and S corporations, that have individuals as partners or
shareholders.
Excess Inclusions. A portion of the income on a REMIC Residual
Certificate (referred to in the Code as an "excess inclusion") for any calendar
quarter will be subject to federal income tax in all events. Thus, for example,
an excess inclusion (i) may not, except as described below, be offset by any
unrelated losses, deductions or loss carryovers of a REMIC Residual
Certificateholder; (ii) will be treated as "unrelated business taxable income"
within the meaning of Code Section 512 if the REMIC Residual Certificateholder
is a pension fund or any other organization that is subject to tax only on its
unrelated business taxable income (see "--Tax-Exempt Investors" below); and
(iii) is not eligible for any reduction in the rate of withholding tax in the
case of a REMIC Residual Certificateholder that is a foreign investor. See
"--Non-U.S. Persons" below.
Except as discussed in the following paragraph, with respect to any
REMIC Residual Certificateholder, the excess inclusions for any calendar quarter
is the excess, if any, of (i) the income of such REMIC Residual
Certificateholder for that calendar quarter from its REMIC Residual Certificate
over (ii) the sum of the "daily accruals" (as defined below) for all days during
the calendar quarter on which the REMIC Residual Certificateholder holds such
REMIC Residual Certificate. For this purpose, the daily accruals with respect to
a REMIC Residual Certificate are determined by allocating to each day in the
calendar quarter its ratable portion of the product of the "adjusted issue
price" (as defined below) of the REMIC Residual Certificate at the beginning of
the calendar quarter and 120 percent of the "Federal long-term rate" in effect
at the time the REMIC Residual Certificate is issued. For this purpose, the
"adjusted issue price" of a REMIC Residual Certificate at the beginning of any
calendar quarter equals the issue price of the REMIC Residual Certificate,
increased by the amount of daily accruals for all prior quarters, and decreased
(but not below zero) by the aggregate amount of payments made on the REMIC
Residual Certificate before the beginning of such quarter. The "federal
long-term rate" is an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published monthly by the
IRS.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Regulated investment companies, common trust funds and certain
cooperatives are subject to similar rules.
The Small Business Job Protection Act of 1996 has eliminated the
special rule permitting Section 593 institutions ("thrift institutions") to use
net operating losses and other allowable deductions to offset their excess
inclusion income from REMIC residual certificates that have "significant value"
within the meaning of the REMIC Regulations, effective for taxable years
beginning after December 31, 1995, except with respect to residual certificates
continuously held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum taxable
income for such residual holder is determined without regard to the special rule
that taxable income cannot be less than excess inclusions. Second, the amount of
any alternative minimum tax net operating loss deductions must be computed
without regard to any excess inclusions. Third, a residual holder's alternative
minimum taxable income for a tax year cannot be less than excess inclusions for
the year. The effect of this last statutory amendment is to prevent the use of
nonrefundable tax credits to reduce a taxpayer's income tax below its tentative
minimum tax computed only on excess inclusions. These rules are effective for
tax years beginning after December 31, 1986, unless a residual holder elects to
have such rules apply only to tax years beginning after August 20, 1996.
Payments. Any distribution made on a REMIC Residual Certificate to a
REMIC Residual Certificateholder will be treated as a non-taxable return of
capital to the extent it does not exceed the REMIC Residual Certificateholder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
exceeds such adjusted basis, it will be treated as gain from the sale of the
REMIC Residual Certificate.
Sale or Exchange of REMIC Residual Certificates. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or exchange
and its adjusted basis in the REMIC Residual Certificate (except that the
recognition of loss may be limited under the "wash sale" rules described below).
A holder's adjusted basis in a REMIC Residual Certificate generally equals the
cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder, increased by the taxable income of the REMIC that was
included in the income of such REMIC Residual Certificateholder with respect to
such REMIC Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to such REMIC Residual
Certificateholder with respect to such REMIC Residual Certificate and by the
distributions received thereon by such REMIC Residual Certificateholder. In
general, any such gain or loss will be capital gain or loss provided the REMIC
Residual Certificate is held as a capital asset. Such capital gain or loss will
generally be long-term capital gain or loss if the REMIC Regular Certificate was
held for more than one year. Long-term capital gains of individuals are subject
to reduced maximum tax rates while capital gains recognized by individuals on
capital assets held less than twelve months are generally subject to ordinary
income tax rates. The use of capital losses is limited. However, REMIC Residual
Certificates will be "evidences of indebtedness" within the meaning of Code
Section 582(c)(1), so that gain or loss recognized from sale of a REMIC Residual
Certificate by a bank or thrift institution to which such section applies would
be ordinary income or loss. In addition, a transfer of a REMIC Residual
Certificate that is a "noneconomic residual interest" may be subject to
different rules. See "--Tax Related Restrictions on Transfers of REMIC Residual
Certificates--Noneconomic REMIC Residual Certificates" below.
Except as provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other REMIC Residual Certificate, any residual
interest in another REMIC or similar interest in a "taxable mortgage pool" (as
defined in Code Section 7701(i)) during the period beginning six months before,
and ending six months after, the date of such sale, such sale will be subject to
the "wash sale" rules of Code Section 1091. In that event, any loss realized by
the REMIC Residual Certificateholder on the sale will not be deductible, but,
instead, will increase such REMIC Residual Certificateholder's adjusted basis in
the newly acquired asset.
Prohibited Transactions and Other Taxes
The Code imposes a tax on REMICs equal to 100% of the net income
derived from "prohibited transactions" (the "Prohibited Transactions Tax"). In
general, subject to certain specified exceptions, a prohibited transaction means
the disposition of a Mortgage Asset, the receipt of income from a source other
than a Mortgage Asset or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Assets for temporary investment pending
distribution on the Certificates. It is not anticipated that the Trust Fund for
any Series of Certificates will engage in any prohibited transactions in which
it would recognize a material amount of net income.
In addition, certain contributions to a Trust Fund as to which an
election has been made to treat such Trust Fund as a REMIC made after the day on
which such Trust Fund issues all of its interests could result in the imposition
of a tax on the Trust Fund equal to 100% of the value of the contributed
property (the "Contributions Tax"). No Trust Fund for any Series of Certificates
will accept contributions that would subject it to such tax.
In addition, a Trust Fund as to which an election has been made to
treat such Trust Fund as a REMIC may also be subject to federal income tax at
the highest corporate rate on "net income from foreclosure property," determined
by reference to the rules applicable to real estate investment trusts. "Net
income from foreclosure property" generally means income from foreclosure
property other than qualifying income for a real estate investment trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net
income from foreclosure property or state or local income or franchise tax that
may be imposed on a REMIC relating to any Series of Certificates arises out of
or results from (i) a breach of the related Servicer's, Trustee's or Depositor's
obligations, as the case may be, under the related Agreement for such Series,
such tax will be borne by such Servicer, Trustee or Depositor, as the case may
be, out of its own funds or (ii) the Depositor's obligation to repurchase a
Mortgage Loan, such tax will be borne by the Depositor. In the event that such
Servicer, Trustee or Depositor, as the case may be, fails to pay or is not
required to pay any such tax as provided above, such tax will be payable out of
the Trust Fund for such Series and will result in a reduction in amounts
available to be distributed to the Certificateholders of such Series.
Liquidation and Termination
If the REMIC adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC's final tax return a date on which such adoption is deemed to occur,
and sells all of its assets (other than cash) within a 90-day period beginning
on such date, the REMIC will not be subject to any Prohibited Transaction Tax,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash (other than the amounts retained to meet claims) to
holders of Regular and REMIC Residual Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis in
the REMIC Residual Certificate exceeds the amount of cash distributed to such
REMIC Residual Certificateholder in final liquidation of its interest, then it
would appear that the REMIC Residual Certificateholder would be entitled to a
loss equal to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
Administrative Matters
Solely for the purpose of the administrative provisions of the Code,
the REMIC generally will be treated as a partnership and the REMIC Residual
Certificateholders will be treated as the partners. Certain information will be
furnished quarterly to each REMIC Residual Certificateholder who held a REMIC
Residual Certificate on any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the REMIC
Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting an
administrative proceeding at the REMIC level. The REMIC does not intend to
register as a tax shelter pursuant to Code Section 6111 because it is not
anticipated that the REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
Tax-Exempt Investors
Any REMIC Residual Certificateholder that is a pension fund or other
entity that is subject to federal income taxation only on its "unrelated
business taxable income" within the meaning of Code Section 512 will be subject
to such tax on that portion of the distributions received on a REMIC Residual
Certificate that is considered an excess inclusion. See "--Taxation of Owners of
REMIC Residual Certificates--Excess Inclusions" above.
Residual Certificate Payments--Non-U.S. Persons
Amounts paid to REMIC Residual Certificateholders who are not U.S.
Persons (see "--Taxation of Owners of REMIC Regular Certificates--Non-U.S.
Persons" above) are treated as interest for purposes of the 30% (or lower treaty
rate) United States withholding tax. Amounts distributed to holders of REMIC
Residual Certificates should qualify as "portfolio interest," subject to the
conditions described in "--Taxation of Owners of REMIC Regular Certificates"
above, but only to the extent that the underlying mortgage loans were originated
after July 18, 1984. Furthermore, the rate of withholding on any income on a
REMIC Residual Certificate that is excess inclusion income will not be subject
to reduction under any applicable tax treaties. See "--Taxation of Owners of
REMIC Residual Certificates--Excess Inclusions" above. If the portfolio interest
exemption is unavailable, such amount will be subject to United States
withholding tax when paid or otherwise distributed (or when the REMIC Residual
Certificate is disposed of) under rules similar to those for withholding upon
disposition of debt instruments that have OID. The Code, however, grants the
Treasury Department authority to issue regulations requiring that those amounts
be taken into account earlier than otherwise provided where necessary to prevent
avoidance of tax (for example, where the REMIC Residual Certificates do not have
significant value). See "--Taxation of Owners of REMIC Residual
Certificates--Excess Inclusions" above. If the amounts paid to REMIC Residual
Certificateholders that are not U.S. Persons are effectively connected with
their conduct of a trade or business within the United States, the 30% (or lower
treaty rate) withholding will not apply. Instead, the amounts paid to such
non-U.S. Person will be subject to U.S. federal income taxation at regular
graduated rates. For special restrictions on the transfer of REMIC Residual
Certificates, see "--Tax-Related Restrictions on Transfers of REMIC Residual
Certificates" below.
REMIC Regular Certificateholders and persons related to such holders
should not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their tax
advisors as to the possible adverse tax consequences of such acquisition.
Tax-Related Restrictions on Transfers of REMIC Residual Certificates
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by "disqualified organizations" (as defined below).
Further, a tax is imposed on the transfer of a residual interest in a REMIC to a
"disqualified organization." The amount of the tax equals the product of (A) an
amount (as determined under the REMIC Regulations) equal to the present value of
the total anticipated "excess inclusions" with respect to such interest for
periods after the transfer and (ii) the highest marginal federal income tax rate
applicable to corporations. The tax is imposed on the transferor unless the
transfer is through an agent (including a broker or other middleman) for a
disqualified organization, in which event the tax is imposed on the agent. The
person otherwise liable for the tax shall be relieved of liability for the tax
if the transferee furnished to such person an affidavit that the transferee is
not a disqualified organization and, at the time of the transfer, such person
does not have actual knowledge that the affidavit is false. A "disqualified
organization" means (A) the United States, any State, possession or political
subdivision thereof, any foreign government, any international organization or
any agency or instrumentality of any of the foregoing (provided that such term
does not include an instrumentality if all its activities are subject to tax
and, except for FHLMC, a majority of its board of directors is not selected by
any such governmental agency), (B) any organization (other than certain farmers'
cooperatives) generally exempt from federal income taxes unless such
organization is subject to the tax on "unrelated business taxable income" and
(C) a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding
a residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity, provided that all partners of an "electing large
partnership" as defined in Section 775 of the Code, are deemed to be
disqualified organizations. The amount of the tax is equal to the product of (A)
the amount of excess inclusions for the taxable year allocable to the interest
held by the disqualified organization and (B) the highest marginal federal
income tax rate applicable to corporations. The pass-through entity otherwise
liable for the tax, for any period during which the disqualified organization is
the record holder of an interest in such entity, will be relieved of liability
for the tax if such record holder furnishes to such entity an affidavit that
such record holder is not a disqualified organization and, for such period, the
pass-through entity does not have actual knowledge that the affidavit is false.
For this purpose, a "pass-through entity" means (i) a regulated investment
company, real estate investment trust or common trust fund, (ii) a partnership,
trust or estate and (iii) certain cooperatives. Except as may be provided in
Treasury regulations not yet issued, any person holding an interest in a
pass-through entity as a nominee for another will, with respect to such
interest, be treated as a pass-through entity. Electing large partnerships
(generally, non-service partnerships with 100 or more members electing to be
subject to simplified IRS reporting provisions under Code sections 771 through
777) will be taxable on excess inclusion income as if all partners were
disqualified organizations.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a REMIC Residual Certificate may be
purchased, transferred or sold, directly or indirectly, without the express
written consent of the Master Servicer. The Master Servicer will grant such
consent to a proposed transfer only if it receives the following: (i) an
affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the REMIC Residual Certificate as
a nominee or agent for a disqualified 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 expects 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 (or
applicable successor form adopted by the IRS for such purpose) and the Trustee
consents to such transfer in writing.
Any attempted transfer or pledge in violation of the transfer
restrictions shall be absolutely null and void and shall vest no rights in any
purported transferee. Investors in REMIC Residual Certificates are advised to
consult their own tax advisors with respect to transfers of the REMIC Residual
Certificates and, in addition, pass-through entities are advised to consult
their own tax advisors with respect to any tax which may be imposed on a
pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Certain Federal Income Tax Consequences," potential investors should consider
the state income tax consequences of the acquisition, ownership, and disposition
of the Offered Certificates. State income tax law may differ substantially from
the corresponding federal law, and this discussion does not purport to describe
any aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Offered Certificates.
CERTAIN ERISA CONSIDERATIONS
General
Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code impose certain restrictions on
employee benefit plans subject thereto ("ERISA Plans") and certain other
relevant plans and consequences (including but not limited to individual
retirement accounts and annuities) (together with "ERISA Plans", "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, regulatory 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 Plans, subject
thereto and disqualified persons with respect to such.
The United States Department of Labor ("Labor") has issued a final
regulation (29 C.F.R. Section 2510.3-101) containing rules for determining what
constitutes the assets of a Plan. This regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships, trusts
and certain other entities in which a Plan makes an "equity investment" will be
deemed for purposes of ERISA and Section 4975 of the Code to be assets of the
Plan unless certain exceptions apply.
Under the terms of the regulation, the Trust may be deemed to hold plan
assets by reason of a Plan's investment in a Certificate; such plan assets would
include an undivided interest in the Mortgage Loans and any other assets held by
the Trust. In such an event, the Depositor, the Master Servicer, any
Sub-Servicer, the Trustee, any insurer of the Mortgage Assets and other persons,
in providing services with respect to the assets of the Trust, may become
fiduciaries subject to the fiduciary responsibility provisions of Title I of
ERISA, or may otherwise become parties in interest or disqualified persons, with
respect to such Plan. In addition, transactions involving such assets could
constitute or result in prohibited transactions under Section 406 of ERISA or
Section 4975 of the Code unless such transactions are subject to a statutory,
regulatory 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 25% or more of the value of any class of equity interest
(excluding from the calculation, the value of 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. To fit
within the safe harbor benefit plan, investors must own less than 25% of 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.
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 IBCA, Inc.,
Moody's Investors Service, Inc. and Standard & Poor's Ratings Services (each, a
"Rating Agency") ;
(4) The Trustee is not an affiliate of the Depositor, any Underwriter,
the any 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 any
Servicer represent not more than reasonable compensation for such Servicer's
services under the Pooling Agreement and reimbursement of such 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.
The Trust Fund must also meet the following requirements:
(i) the corpus of the Trust Fund must consist solely of assets
of the type that have been included in other investment pools;
(ii) certificates evidencing interests in such other
investment pools must have been rated in one of the three highest
rating categories of a Rating Agency for at least one year prior to the
Plan's acquisition of the Securities; and
(iii) certificates evidencing interests 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 the
Securities.
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 certificates
in a trust, 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 (as defined
below) 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
certificates, at least fifty percent of each class of certificates in which
Plans have invested is acquired by persons independent of the Restricted Group
(as defined below) and at least fifty percent of the aggregate interest in the
trust fund is acquired by persons independent of the Restricted Group; (iv) a
Plan's investment in certificates of any class 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 any 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. The Exemption does not apply to Plans
sponsored by the Seller, the Depositor, Morgan Stanley and the other
underwriters set forth in the related Prospectus Supplement, the Trustee, the
Master Servicer, the Pool Insurer, any obligor with respect to the Trust Fund
Asset included in the Trust Fund constituting more than five percent of the
aggregate unamortized principal balance of the assets in the Trust Fund, or any
affiliate of any of such parties (the "Restricted Group").
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 institutions,
insurance companies, trustees and pension funds) created pursuant to or existing
under the laws of the United States or of any state (including the District of
Columbia and Puerto Rico) whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any 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 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" 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. Section 347 also provides that the enactment by a state of
any such legislative restrictions shall not affect the validity of any
contractual commitment to purchase, hold or invest in securities qualifying as
"mortgage related securities" solely by reason of Section 347 that was made, and
shall not acquire the sale or disposition of any securities acquired prior to
the enactment of such state legislation. Accordingly, investors affected by such
legislation, when and if enacted, will be authorized to invest in SMMEA
Certificates only to the extent provided in such legislation.
SMMEA also amended the legal investment authority of
federally-chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal in
"mortgage related securities" without limitation as to the percentage of their
assets represented thereby, federal credit unions may invest in such securities,
and national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. ss. 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 in 12 C.F.R. ss. 1.5
concerning "safety and soundness" and retention of credit information, certain
"Type IV securities," defined in 12 C.F.R. ss. 1.2(1) to include certain
"commercial mortgage-related securities" and "residential mortgage-related
securities." As so defined, "commercial mortgage-related security" and
"residential mortgage-related security" mean, in relevant part,
"mortgage-related security" within the meaning of SMMEA, provided that, in the
case of a "commercial mortgage-related security," it "represents ownership of a
promissory note or certificate of interest or participation that is directly
secured by a first lien on one or more parcels of real estate upon which one or
more commercial structures are located and that is fully secured by interests in
a pool of loans to numerous obligors." In the absence of any rule or
administrative interpretation by the OCC defining the term "numerous obligors,"
no representation is made as to whether any class of Offered Certificates will
qualify as "commercial mortgage-related securities," and thus as "Type IV
securities," for investment by national banks. The National Credit Union
Administration (the "NCUA") has adopted rules, codified at 12 C.F.R. Part 703,
which permit federal credit unions to invest in "mortgage related securities"
under certain limited circumstances, other than stripped mortgage related
securities, residual interests in mortgage related securities, and commercial
mortgage related securities, unless the credit union has obtained written
approval from the NCUA to participate in the "investment pilot program"
described in 12 C.F.R. ss. 703.140. The Office of Thrift Supervision (the "OTS")
has issued Thrift Bulletin 13a (December 1, 1998), "Management of Interest Rate
Risk, Investment Securities and Derivative Activities," which thrift
institutions subject to the jurisdiction of the OTS should consider before
investing in any of the Offered Certificates.
All depository institutions considering an investment in the Offered
Certificates should review the "Supervisory Policy Statement on Investment
Securities and End-User Derivatives Activities" (the "1998 Policy Statement") of
the Federal Financial Institutions Examination Council, which has been adopted
by the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the OCC and the OTS effective May 26, 1998, and by the
NCUA, effective October 1, 1998. The 1998 Policy Statement sets forth general
guidelines which depository institutions must follow in managing risks
(including market, credit, liquidity, operational (transaction), and legal
risks) applicable to all securities (including mortgage pass-through securities
and mortgage-derivative products) used for investment purposes.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any Offered
Certificates, as certain series or classes may be deemed to be unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," and, with regard to any Offered Certificates issued
in book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
If specified in the related Prospectus Supplement, other classes of
Offered Certificates offered pursuant to this Prospectus will not constitute
"mortgage related securities" under SMMEA. The appropriate characterization of
such Offered Certificates under various legal investment restrictions, and thus
the ability of investors subject to these restrictions to purchase such Offered
Certificates, may be subject to significant interpretive uncertainties.
Except as to the status of certain classes of Offered Certificates
identified in the Prospectus Supplement for a series as "mortgage related
securities" under SMMEA, no representations are made as to the proper
characterization of the Offered Certificates for legal investment purposes,
financial institution regulatory purposes, or other purposes, or as to the
ability of particular investors to purchase any Offered Certificates under
applicable legal investment restrictions. The uncertainties described above (and
any unfavorable future determinations concerning legal investment or financial
institution regulatory characteristics of the Offered Certificates) may
adversely affect the liquidity of the Offered Certificates. Accordingly, all
investors whose investment activities are subject to legal investment laws and
regulations, regulatory capital requirements or review by regulatory authorities
should consult with their own legal advisors in determining whether and to what
extent the Offered Certificates of any class constitute legal investments or are
subject to investment, capital or other restrictions, and, if applicable,
whether SMMEA has been overridden in any jurisdiction relevant to such investor.
PLAN of DISTRIBUTION
The Offered Certificates offered hereby and by the Supplements to this
Prospectus will be offered in series. The distribution of the Certificates may
be effected from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If so
specified in the related Prospectus Supplement, the Offered Certificates will be
distributed in a firm commitment underwriting, subject to the terms and
conditions of the underwriting agreement, by Morgan Stanley & Co. Incorporated
("Morgan Stanley") acting as underwriter with other underwriters, if any, named
therein. In such event, the Prospectus Supplement may also specify that the
underwriters will not be obligated to pay for any Offered Certificates agreed to
be purchased by purchasers pursuant to purchase agreements acceptable to the
Depositor. In connection with the sale of Offered Certificates, underwriters may
receive compensation from the Depositor or from purchasers of Offered
Certificates in the form of discounts, concessions or commissions. The
Prospectus Supplement will describe any such compensation paid by the Depositor.
Alternatively, the Prospectus Supplement may specify that Offered
Certificates will be distributed by Morgan Stanley acting as agent or in some
cases as principal with respect to Offered Certificates that it has previously
purchased or agreed to purchase. If Morgan Stanley acts as agent in the sale of
Offered Certificates, Morgan Stanley will receive a selling commission with
respect to such Offered Certificates, depending on market conditions, expressed
as a percentage of the aggregate Certificate Balance or notional amount of such
Offered Certificates as of the Cut-off Date. The exact percentage for each
series of Certificates will be disclosed in the related Prospectus Supplement.
To the extent that Morgan Stanley elects to purchase Offered Certificates as
principal, Morgan Stanley may realize losses or profits based upon the
difference between its purchase price and the sales price. The Prospectus
Supplement with respect to any series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the Depositor and purchasers of Offered
Certificates of such series.
The Depositor will indemnify Morgan Stanley and any underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933, or will contribute to payments Morgan Stanley and any underwriters
may be required to make in respect thereof.
In the ordinary course of business, Morgan Stanley and the Depositor
may engage in various securities and financing transactions, including
repurchase agreements to provide interim financing of the Depositor's mortgage
loans pending the sale of such mortgage loans or interests therein, including
the Certificates.
Offered Certificates will be sold primarily to institutional investors.
Purchasers of Offered Certificates, including dealers, may, depending on the
facts and circumstances of such purchases, be deemed to be "underwriters" within
the meaning of the Securities Act of 1933 in connection with reoffers and sales
by them of Offered Certificates. Certificateholders should consult with their
legal advisors in this regard prior to any such reoffer or sale.
If specified in the Prospectus Supplement relating to Certificates of a
particular series offered hereby, the Depositor, any affiliate thereof or any
other person or persons specified therein may purchase some or all of the
Certificates of any series from Morgan Stanley and any other underwriters
thereof. Such purchaser may thereafter from time to time offer and sell,
pursuant to this Prospectus and the related Prospectus Supplement, some or all
of such Certificates so purchased, directly, through one or more underwriters to
be designated at the time of the offering of such Certificates, through dealers
acting as agent and/or principal or in such other manner as may be specified in
the related Prospectus Supplement. Such offering may be restricted in the manner
specified in such Prospectus Supplement. Such transactions may be effected at
market prices prevailing at the time of sale, at negotiated prices or at fixed
prices. Any underwriters and dealers participating in such purchaser's offering
of such Certificates may receive compensation in the form of underwriting
discounts or commissions from such purchaser and such dealers may receive
commissions from the investors purchasing such Certificates for whom they may
act as agent (which discounts or commissions will not exceed those customary in
those types of transactions involved). Any dealer that participates in the
distribution of such Certificates may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any commissions and discounts received by
such dealer and any profit on the resale or such Certificates by such dealer
might be deemed to be underwriting discounts and commissions under the
Securities Act.
All or part of any Class of Certificates may be reacquired by the
Depositor or acquired by an affiliate of the Depositor in a secondary market
transaction or from an affiliate (including Morgan Stanley). Such Certificates
may then be included in a Trust Fund, the beneficial ownership of which will be
evidenced by one or more classes of mortgage-backed certificates, including
subsequent series of Certificates offered pursuant to this Prospectus and a
Prospectus Supplement.
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, or Brown & Wood LLP 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.
<PAGE>
INDEX of PRINCIPAL DEFINITIONS
Term Page(s) on which
term is defined
in the Prospectus
ADA
Applicable Amount
ARM Loans
Asset Conservation Act
Asset Seller
Balloon Mortgage Loan
Bankruptcy Code
Book-Entry Certificates
Cede
CERCLA
Certificate Account
Certificate Balance
Certificate Owners
Certificates
Closing Date
Commercial Loans
Commission
Contributions Tax
Cooperatives
Covered Trust
CPR
Credit Support
Crime Control Act
Cut-off Date
Deferred Interest
Definitive Certificates
Depositor
Determination Date
Distribution Date
DTC
Due Period
Environmental Hazard Condition
Equity Participations
ERISA
Exchange Act
Exemption
FDIC
FHLMC
FNMA
Government Securities
Indirect Participants
Insurance Proceeds
IRS
L/C Bank
Labor
Lease
Legislative History
Liquidation Proceeds
Lock-out Date
Lock-out Period
Mark-to-Market Regulations
Master REMIC
Master Servicer
MBS
MBS Agreement
MBS Issuer
MBS Servicer
MBS Trustee
Morgan Stanley
Mortgage Loans
Mortgage Notes
Mortgage Rate
Mortgages
Multifamily Loans
Multifamily Properties
NCUA
Nonrecoverable Advance
Offered Certificates
OID
OID Regulations
Originator
Participants
Pass-Through Rate
Payment Lag Certificates
Permitted Investments
Plans
Prepayment Assumption
Prepayment Premium
Prohibited Transactions Tax
Prospectus Supplement
Rating Agency
RCRA
Record Date
Related Proceeds
Relief Act
REMIC Certificates
REMIC Regular Certificateholders
REMIC Regular Certificates
REMIC Regulations
REMIC Residual Certificateholder
REMIC Residual Certificates
REO Extension
REO Tax
Restricted Group
RICO
Senior Certificates
Servicing Standard
SMMEA
SMMEA Certificates
Special Servicer
Stripped ARM Obligations
Stripped Bond Certificates
Stripped Coupon Certificates
Stripped Interest Certificates
Stripped Principal Certificates
Subordinate Certificates
Sub-Servicer
Sub-Servicing Agreement
Subsidiary REMIC
Super-Premium Certificates
Title V
Trust Fund
UCC
Warrantying Party
<PAGE>
[VERSION 2]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the prospectus to which it relates
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 _______________, 199_
PROSPECTUS SUPPLEMENT
(To Prospectus dated ____, 199_)
[$____________]
(APPROXIMATE)
MORGAN STANLEY CAPITAL I TRUST 199__-__,
ISSUER
MORGAN STANLEY CAPITAL I INC.,
DEPOSITOR
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES __________
----------------
Morgan Stanley Capital I Inc. is offering certain classes of the Series 199_-___
Commercial Mortgage Pass-Through Certificates issued by the trust. The
certificates represent beneficial ownership interests in a trust. The trust's
assets will primarily be ___ of [fixed rate] [adjustable rate] mortgage loans
secured by [first and/or junior] liens on ___ [multifamily][commercial]
properties, [mortgage participations, mortgage pass-through certificates,
mortgaged-backed securities [and] [certain direct obligations of the United
States or other governmental agencies].
The Series 199_-___ 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- IN THIS PROSPECTUS SUPPLEMENT AND PAGE OF THE PROSPECTUS.
----------------
Certain characteristics of the offered certificates include:
<TABLE>
<CAPTION>
APPROXIMATE
INITIAL
CERTIFICATE
PRINCIPAL OR INITIAL EXPECTED RATED FINAL
NOTIONAL PASS-THROUGH RATE RATINGS DISTRIBUTION
CLASS AMOUNT(1) RATE DESCRIPTION(2) ([ ]/[ ]) DATE
<S> <C> <C> <C> <C> <C>
Class [ ]...........$ % Fixed
Class [ ]...........$ % Fixed
Class [ ](3)........$ % [WAC/IO(3)]
Class [ ]...........$ % [WAC]
</TABLE>
(Footnotes on page S- )
----------------
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved the offered certificates or determined if this
prospectus supplement or the accompanying prospectus are truthful or complete.
Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated will purchase the offered certificates
from Morgan Stanley Capital I Inc. and will offer them to the public at
negotiated prices determined at the time of sale. Morgan Stanley & Co.
Incorporated expects to deliver the offered certificates to purchasers on
_____________ __, 199_. 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 ___________ __, 199_, before
deducting expenses payable by Morgan Stanley Capital I Inc.
----------------
MORGAN STANLEY DEAN WITTER
__________________ __, 199_
<PAGE>
(1) Approximate, subject to adjustment as described herein.
(2) ["WAC" means the weighted average coupon as described herein and "Fixed"
means fixed rate coupon. "WAC" and "Fixed" are descriptions of the type of
Pass-Through Rates borne by the related Classes and "IO" designates that
the related Class is entitled only to distributions of interest.]
(3) The Class [ ] Certificates will not have a Certificate Principal Amount and
will not be entitled to receive distributions of principal. Interest will
accrue on the Class [ ] Certificates at their Pass-Through Rate on their
Notional Amount. The Notional Amount of the Class [ ] Certificates is
initially $[ ], which is equal to the aggregate initial Certificate
Principal Amount of the Class [ ], Class [ ], Class [ ] and Class [ ]
Certificates. See "Description of the Offered Certificates--General"
herein.
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 Significant Definitions" beginning on page S-[ ] in this prospectus
supplement. The capitalized terms used in the prospectus are defined on the
pages indicated under the caption "Index of Significant Definitions" beginning
on page [ ] 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 after the date of this prospectus
supplement, all dealers that buy, sell or trade the offered certificates,
whether or not participating in this offering, may be required to deliver a
prospectus supplement and the accompanying prospectus. This is in addition to
the dealers' obligation to deliver a prospectus supplement and the accompanying
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
----------------
This prospectus supplement and the accompanying prospectus contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended. Specifically, forward-looking statements, together with
related qualifying language and assumptions, are found in the material
(including tables) under the headings "Risk Factors" and "Certain Yield,
Prepayment and Maturity Considerations." Forward-looking statements are also
found in other places throughout this prospectus supplement and the prospectus,
and may be identified by, among other things, accompanying language such as
"expects," "intends," "anticipates," "estimates" or analogous expressions, or by
qualifying language or assumptions. These statements involve known and unknown
risks, uncertainties and other important factors that could cause the actual
results or performance to differ materially from the forward-looking statements.
These risks, uncertainties and other factors include, among others, general
economic and business conditions, competition, changes in political, social and
economic conditions, regulatory initiatives and compliance with governmental
regulations, customer preference and various other matters, many of which are
beyond the Depositor's control. These forward-looking statements speak only as
of the date of this prospectus supplement. The Depositor expressly disclaims any
obligation or undertaking to disseminate any updates or revisions to any
forward-looking statements to reflect changes in the Depositor's expectations
with regard to those statements or any change in events, conditions or
circumstances on which any forward-looking statement is based.
<PAGE>
TABLE OF CONTENTS
PAGE
EXECUTIVE SUMMARY
SUMMARY OF TERMS
RISK FACTORS
Mortgage Loans Are Nonrecourse and Are Not Insured or Guaranteed
[Commercial Lending Is Dependent Upon Net Operating Income]
Some Mortgaged Properties May Not Be Readily Convertible to
Alternative Uses
Property Value May Be Adversely Affected Even When Current
Operating Income Is Not
Tenant Concentration Entails Risk
[Credit Tenant Loans Have Special Risks]
[Mortgaged Properties Leased to Multiple Tenants Also Have Risks]
Risks Relating to Loan Concentration
Geographic Concentration Entails Risks
[Multifamily Properties Have Special Risks]
[Retail Properties Have Special Risks]
[Industrial Properties Have Special Risks]
[Office Properties Have Special Risks]
[Senior Housing Properties Have Special Risks
[Self-Storage Facilities Have Special Risks]
[Hospitality Properties Have Special Risks]
[Risks Relating to Affiliation with a Franchise or Hotel Management
Company]
[Hotel Affiliation Concentration Entails Risks]
[Manufactured Housing Communities Have Special Risks]
Certain Additional Risks Relating to Tenants
[Tenant Bankruptcy Entails Risks]
[Risks Relating to Government Assisted Properties]
[Environmental Laws Entail Risks]
Environmental Risks Relating to the Mortgaged Properties
Borrower May Be Unable to Repay Remaining Principal Balance on
Maturity Date
[Risks Relating to Borrowers That Are Not Special-Purpose Entities
[Authority to Effect Other Borrowings Entails Risks
Bankruptcy Proceedings Entail Certain Risks
[Absence of Lockboxes Entails Risks
[Lack of Skillful Property Management Entail Risks
Risks of Inspections Relating to Property
[Engineering Risks Relating to Specific Properties]
Reserves to Fund Capital Expenditures May Be Insufficient
[Risks of Inadequacy of Title Insurance]
[Absence or Inadequacy of Insurance Coverage Entails Risks]
[Blanket Insurance Policies Entail Risks]
[Appraisals and Market Studies Have Certain Limitations]
[Different Timing of Mortgage Loan Amortization Poses Certain Risks]
[Subordination of Subordinate Offered Certificates]
[Tax Considerations Relating to Foreclosure]
[Risks Relating to Enforceability]
[State Law Limitations Entail Certain Risks]
[Leasehold Interests Entail Certain Risks]
[Risks Relating to Enforceability of Cross-Collateralization]
[Potential Absence of Attornment Provisions Entails Risks]
[Risks Relating to Litigation]
[Risks Relating to Compliance with Americans with Disabilities Act]
Risks Relating to Conflicts of Interest
[Risks Relating to Prepayments and Repurchases]
[Risks Relating to Enforceability of Prepayment Premiums]
[Yield Considerations]
[Risks Relating to Borrower Default]
[Risks Relating to Certain Payments]
[Risks of Limited Liquidity and Market Value]
[Related Parties May Purchase Certificates]
[Interest Rates Based on WAC Rate Entail Certain Risks]
[Risk of Pass-Through Rate Variability Considerations]
[Risks of Limited Assets]
[Risks Associated with Year 2000 Compliance]
Other Risks
MORTGAGE POOL CHARACTERISTICS
General
[The Mortgage Backed Securities (MBS)]
[The Index]
Certain Characteristics of the Mortgage Loans
Underwriting Standards
Additional Information
DESCRIPTION OF THE OFFERED CERTIFICATES
General
Distributions
Subordination
[Appraisal Reductions]
[Delivery, Form and Denomination]
[Book-Entry Registration]
[Definitive Certificates]
[Transfer Restrictions]
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
Yield
[Yield on the Offered Certificates]
[Rated Final Distribution Date]
Weighted Average Life of Offered Certificates
THE POOLING AGREEMENT
General
Assignment of the Mortgage Loans
The Master Servicer
[Special Servicers]
[Certificate Account]
Servicing and Other Compensation and Payment of Expenses
Reports to Certificateholders
[Voting Rights]
Optional Termination
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
USE OF PROCEEDS
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
CERTAIN ERISA CONSIDERATIONS
LEGAL INVESTMENT
PLAN OF DISTRIBUTION
VALIDITY OF OFFERED CERTIFICATES
RATINGS
INDEX OF SIGNIFICANT DEFINITIONS
Appendix I
Appendix II
Appendix III
<PAGE>
EXECUTIVE SUMMARY
This Executive Summary highlights selected information regarding the
offered certificates and underlying mortgage loans. 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.
<TABLE>
CERTIFICATE STRUCTURE
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENT OF TOTAL
CREDIT SUPPORT CERTIFICATES
----------------------------------------------------
INITIAL CERTIFICATE RATINGS
CLASS PRINCIPAL AMOUNT ([ ]/[ ])
------------------------------------ ------------------- ---------------
<S> <C> <C> <C> <C>
CLASS [ ] CLASS [ ] $ %
$
(Approximate Notional
Amount) ------------ ------------------- ---------------
(1)% CLASS [ ] $ %
------------ ------------------- ---------------
% CLASS [ ] $ %
------------------------------------ ------------------- ---------------
% CLASS [ ](2) $ %
------------ ------------------- ---------------
% CLASS [ ](2) $ %
------------ ------------------- ---------------
% CLASS [ ](2) $ %
------------ ------------------- ---------------
<FN>
(1) Represents the approximate credit support for the Class [ ] and Class [ ]
Certificates in the aggregate.
(2) Not offered hereby.
</FN>
</TABLE>
The Class [ ], Class [ ] and Class [ ] Certificates are not represented in
this table.
<PAGE>
CERTIFICATE SUMMARY
<TABLE>
<CAPTION>
INITIAL
CERTIFICATE
PRINCIPAL OR INITIAL
RATINGS(1) NOTIONAL % OF PASS-THROUGH WTD. AVG. PRINCIPAL
CLASS [ ]/[ ] AMOUNT(2) TOTAL DESCRIPTION(3) RATE LIFE(4)(YRS.) WINDOW(4)
----- ------------- ------------ ----- -------------- ------------ ------------- ---------
Offered Certificates
<S> <C> <C> <C> <C> <C> <C> <C>
[ ] $ % Fixed Rate %
[ ] $ % Fixed Rate %
[ ](5) $ N/A [Interest Only: % N/A N/A
Weighted Average Coupon]
[ ] $ % [Weighted Average Coupon] %
Non-Offered Certificates
[ ] $ % [Weighted Average Coupon] %
[ ] $ % [Weighted Average Coupon] %
[ ] $ % [Weighted Average Coupon] %
The Class [ ], Class [ ] and Class [ ] Certificates are not represented in
this table.
<FN>
(1) The Rated Final Distribution Date for each Class of rated Certificates is
the Distribution Date in ___________.
(2) Approximate, subject to adjustment as described herein.
(3) "Weighted Average Coupon" and "Fixed Rate" are descriptions of the type of
Pass-Through Rates borne by the related Classes and "Interest Only"
designates that the related Class is entitled only to distributions of
interest.
(4) The weighted average life ("Weighted Average Life") and period during which
distributions of principal would be received (the "Principal Window") are
based on the assumptions that the Mortgage Loans suffer no losses and that
they are fully paid on their respective Effective Maturity Dates and
otherwise on the basis of the assumptions for Scenario 1 set forth under
"Yield, Prepayment and Maturity Considerations--Weighted Average Life of
the [ ] Certificates". The Principal Window is expressed in months
following the Closing Date, commencing with the first Distribution Date.
(5) The Class [ ] Certificates will not have a Certificate Principal Amount and
will not be entitled to receive distributions of principal. Interest will
accrue on the Class [ ] Certificates at its Pass-Through Rate and on its
Notional Amount. The Notional Amount of the Class [ ] Certificates is
initially $[ ], which is equal to the aggregate initial Certificate
Principal Amount of the Class [ ], Class [ ], Class [ ] and Class [ ]
Certificates.
See "Description of the Offered Certificates--General" herein.
</FN>
</TABLE>
<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
ISSUER....................... Morgan Stanley Capital I 199__-__ Trust.
TITLE OF CERTIFICATES........ Mortgage Pass-Through Certificates, Series 199_-__
DEPOSITOR.................... Morgan Stanley Capital I Inc., a Delaware
corporation. See "The Depositor" in the
Prospectus.
MASTER SERVICER.............. _____________________, a _____________________.
See "The Pooling Agreement--the Master Servicer"
in this prospectus supplement
[SUB-SERVICERS............... _____________________, a _____________________.]
[SPECIAL SERVICER............ _____________________, a _____________________.]
TRUSTEE...................... _____________________, a _____________________.
CUT-OFF DATE................. ___________ __, 199_.
CLOSING DATE................. ___________ __, 199_.
DISTRIBUTION DATE............ The ____ business day of each month, commencing in
__________, 199_.
RECORD DATE.................. With respect to each distribution date, the close
of business on the last business day of the
preceding month.
OFFERED SECURITIES
GENERAL...................... Morgan Stanley Capital I Inc. is offering the
following [ ] classes of Commercial Mortgage
Pass-Through Certificates (collectively, the
"Offered Certificates") as part of Series 199_ -
___:
o Class [ ]
o Class [ ]
o Class [ ]
o Class [ ]
Series 199_-___ will consist of a total of [ ]
classes, the following [ ] of which are not being
offered through this prospectus supplement and the
accompanying prospectus: Class [ ], Class [ ],
Class [ ] and Class [ ] (collectively, the
"Private Certificates").
The Offered Certificates and the Private
Certificates will represent beneficial ownership
interests in the trust. The trust's assets will
primarily be [fixed rate] [adjustable rate]
mortgage loans secured by [first and/or junior]
liens on ___ [multifamily][commercial] properties,
[mortgage participations, mortgage pass-through
certificates, mortgaged-backed securities [and]
[certain direct obligations of the United States
or other governmental agencies].
PRINCIPAL AND
NOTIONAL AMOUNTS............. Your certificates will have the approximate
aggregate initial principal amount or notional
amount set forth below, subject to a variance of
plus or minus 5%:
Class [ ] $ Principal Amount
Class [ ] $ Principal Amount
Class [ ] $ Principal Amount
Class [ ] $ Principal Amount
[The notional amount of the Class [ ] Certificates will generally be equal
to: (i) the sum of the Principal Amounts of the Class [ ], Class [ ], Class [ ]
and Class [ ] Certificates, plus (ii) the amount of any unpaid interest on the
classes referred to in clause (i). The Class [ ] Certificates will receive
interest only; they will not be entitled to distributions of principal.]
PASS-THROUGH RATES
A. OFFERED CERTIFICATES
(OTHER THAN CLASS [ ]).. Your certificates will accrue interest at an
annual rate called a "Pass-Through Rate" which is
set forth below (other than for the Class [ ]
Certificates).
Class [ ] [ ]%
Class [ ] [ ]%
Class [ ] [WAC Rate minus [ %]]
Class [ ] [WAC Rate]
[Interest on the Offered Certificates (including
the Class [ ] Certificates) will be calculated
based on a 360-day year consisting of twelve
30-day months (also referred to herein as a 30/360
basis).]
[The "WAC Rate" for a particular distribution date
is a weighted average of the mortgage loan
interest rates in effect as of the first day of
the preceding month, minus the annual servicing
fee rate of [ ]% (which includes the Trustee fee
rate). The weighting of this average is based upon
the respective principal balances of the mortgage
loans.]
[Describe any other method used to calculate the
Pass-Through Rate.]
B. CLASS [ ]
CERTIFICATES............ [The Pass-Through Rate for the Class [ ]
Certificates will be equal to the weighted average
of specified rates on certain classes of
certificates that have principal amounts. The
weighting will be based upon the respective
principal amounts of the classes.]
[The notional amount of the Class [ ] Certificates
will generally be equal to 100% of the aggregate
principal balance of the mortgage loans
outstanding from time to time. The Class [ ]
Certificates will receive interest only; they will
not be entitled to distributions of principal.]
[For purposes of calculating the Class [ ]
Pass-Through Rate, the mortgage loan interest
rates will not reflect any default interest rate
or any rate increase occurring after an Effective
Maturity Date. The mortgage loan interest rates
will also be determined without regard to any loan
term modifications agreed to by the Special
Servicer or resulting from the borrower's
bankruptcy or insolvency. In addition, if a
mortgage loan does not accrue interest on a 30/360
basis, its interest rate for any month that is not
a 30-day month will be recalculated so that the
amount of interest that would accrue at that rate
in such month, calculated on a 30/360 basis, will
equal the amount of interest that actually accrues
on that loan in that month.]
[Describe any other method used to calculate the
Pass-Through Rate.]
The components used to determine the Class [ ]
Mortgage Pass-Through Rate and the specified rates
on those components are as follows:
Class [ ] Component [ ]% [WAC Rate minus
Pass-Through Rate on
Class [ ] Certificates]
Class [ ] Component [ ]% [WAC Rate minus
Pass-Through Rate on
Class [ ] Certificates]
Class [ ] Component [ ]%
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 [ ] and Class [ ]: [To interest on
Class [ ] and Class [ ], pro rata, based on their
interest entitlements.]
Step 2/Class [ ]: [To the extent of funds
available for principal, to principal on Classes [
] and [ ], in that order, until reduced to zero.
If each class of certificates other than Class [ ]
has been reduced to zero, funds available for
principal will be distributed to Classes [ ] and [
], pro rata, rather than sequentially.]
Step 3/ Class [ ]: [After each class of
certificates other than Class [ ] has been reduced
to zero, to reimburse Classes [ ] and [ ], pro
rata, for any previously unreimbursed losses on
the mortgage loans allocable to principal that
were previously borne by those classes, together
with interest.]
Step 4/Class [ ]: [To Class [ ] as follows: (a) to
interest on Class [ ] in the amount of its
interest entitlement; (b) to the extent of funds
available for principal, to principal on Class [ ]
until reduced to zero; and (c) to reimburse Class
[ ] 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 [ ]: [To Class [ ] in a manner
analogous to the Class [ ] allocations of Step 4.]
Step 6/Private Certificates: [In the amounts and
order of priority described in "Description of the
Offered Certificates--Distributions--Priorities"
in this prospectus supplement.]
B. INTEREST AND PRINCIPAL
ENTITLEMENTS............ A description of each class' interest entitlement
can be found in "Description of the Offered
Certificates--Distributions" in this prospectus
supplement. [As described in such section, there
are circumstances relating to the timing of
prepayments in which a class' interest entitlement
for a distribution date could be less than one
full month's interest at the Pass-Through Rate on
the 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 Offered 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 [ ] Certificates, on the one hand, and
the classes of certificates entitled to principal,
on the other hand, is described in "Description of
Offered Certificates--Distributions" in this
prospectus supplement.
[D. DEFERRED INTEREST....... As further described below, the mortgage loans
provide that after a specified date, the mortgage
loan will bear interest at an increased interest
rate and will require certain excess cash flow
from the related mortgaged property or properties
to be used to repay principal on the mortgage
loan. The interest that accrues at the increased
rate that is in excess of the interest that would
have accrued at the initial rate will not be paid
until the principal balance of the mortgage loan
has been reduced to zero, but that unpaid amount
of interest will accrue interest at the increased
interest rate (such amount is referred to as
"Deferred Interest).]"
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 [(other than Deferred
Interest)] on any distribution date is depicted in
descending order (top to bottom). The manner in
which mortgage loan losses are allocated is
depicted in ascending order (bottom to top).
However, no principal payments or loan losses will
be allocated to the Class [ ] Certificates.
--------------------------------------------------
Class [ ], Class [ ], Class [ ]
--------------------------------------------------
|
|
-----------------------
Class [ ]
-----------------------
|
|
-----------------------
Class [ ]
-----------------------
|
|
-----------------------
Class [ ]
-----------------------
|
|
-----------------------
Class [ ]
-----------------------
[NO OTHER FORM OF CREDIT ENHANCEMENT WILL BE
AVAILABLE FOR THE BENEFIT OF THE HOLDERS OF THE
OFFERED CERTIFICATES.]
See "Description of the Offered
Certificates--Subordination" in this prospectus
supplement.
B. SHORTFALLS IN
AVAILABLE FUNDS......... [The following types of shortfalls in available
funds will be allocated in the same manner as
mortgage loan losses: [(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 P&I Advances
made by the Master Servicer and the Trustee (to
the extent not covered by default interest paid by
the borrower);] [(iii) shortfalls resulting from
extraordinary expenses of the trust;] [(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;] and [(v)
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).]]
See "Description of the Offered
Certificates-Distributions--Priorities" in this
prospectus supplement.
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 the
[multi-family], [commercial][fixed rate]
[adjustable rate] mortgage loan on a
property-by-property basis and certain
information regarding [mortgage
participations, mortgage pass-through
certificates, mortgaged backed securities and
[certain direct obligations of the United
States, agencies thereof or agencies created
thereby]; and
o [Appendix III (descriptions of the largest
mortgage loans.]
All numerical information provided in this
prospectus supplement with respect to the mortgage
loans is approximate. All weighted average
information regarding the mortgage loans reflects
weighting of the mortgage loans by the Cut-Off
Date Balance.
B. PRINCIPAL BALANCES...... The trust's primary assets will be ___ of [fixed
rate] [adjustable rate] mortgage loans secured by
[first and/or junior] liens on ___ [multifamily]
[commercial] properties, [__ mortgage
participations, mortgage pass-through
certificates, mortgaged-backed securities [and]
[__ certain direct obligations of the United
States or other governmental agencies], each
evidenced by one or more promissory notes secured
by [first mortgages, deeds of trust or similar
security instruments on one or more commercial
properties.]
As of _________ __, 199_ (the "Cut-Off Date"), the
outstanding principal balances of the mortgage
loans in the mortgage pool ranged from $[ ] to
$[ ] and the mortgage loans had an average
balance of $[ ]. See "Description of the
Mortgage Pool--Certain Characteristics of the
Mortgage Loans" in this prospectus supplement.
C. NON-RECOURSE............ Substantially all of the mortgage loans are
[recourse] [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 and/or
junior] mortgage lien on the borrower's [fee
simple or leasehold estate in an income-producing
real property.]
E. [PROPERTY PURPOSE....... Set forth below are the number of mortgage loans,
and the approximate percentage of the initial pool
balance represented by such mortgage loans, that
are secured by mortgaged properties operated for
each indicated purpose:]
Percentage
of Initial Number of
Property Type Pool Balance Mortgage Loans
------------- ------------ --------------
Multifamily ___%
Retail ___%
Industrial ___%
Office ___%
Senior Housing ___%
Self-Storage ___%
Hospitality ___%
Manufactured Housing ___%
Mixed Use ___%
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 [___] states
with the highest concentrations of mortgaged
properties are:]
Percentage
of Initial Number of
State Pool Balance Mortgage Loans
----- ------------ --------------
___%
___%
___%
The remaining mortgaged properties are located
throughout [___] other states. No other state has
a concentration of mortgaged properties that
represents security for more than [___] of the
initial outstanding pool balance.
G. [OTHER MORTGAGE LOAN
FEATURES................ As of __________ __, 199__, the mortgage loans had
the following approximate characteristics:
o [No scheduled payment of principal and
interest on the mortgage loan was thirty days
or more past due, and the mortgage loan has
not been thirty days or more delinquent in
the past year.]
o [[___ (___)] separate groups of mortgage
loans are, within such group,
cross-collateralized with each other, the
largest group of which represents [___]% of
the initial outstanding pool balance of
mortgage loans.]
o [Several groups of mortgage loans are made to
the same borrower or have related borrowers
that are affiliated with one another through
partial or complete direct or indirect common
ownership, the three largest of these groups
representing [___]%, [___]% and [___]%,
respectively, of the initial outstanding pool
balance of mortgage loans.]
o [[___ (___)] additional mortgage loans are,
in each case, secured by one or more
mortgages encumbering multiple real
properties, with each such mortgage loan
representing between [___]% and [___]% of the
initial outstanding pool balance of mortgage
loans, and all such mortgage loans
collectively representing [___]% of the
initial outstanding pool balance of mortgage
loans.]
o [[___ (___)] mortgage loans, representing
[___]% of the initial outstanding pool
balance of mortgage loans, are secured by a
mortgaged property which is [___]% leased to
a single tenant, and [___] of such mortgage
loans, representing [___]% of the initial
outstanding pool balance of mortgage loans,
are credit tenant lease mortgage loans.]
o [All mortgage loans bear interest at fixed
rates.]
o [No mortgage loan permits negative
amortization or the deferral or accrued
interest.]]
[H. BALLOON LOANS........... [___ (___)] of the mortgage loans, representing
[___]% 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 ([___] of such
mortgage loan, representing [___]% of the
initial outstanding pool balance); or]
o [Monthly payments that provide for payment of
interest only for a certain period after the
Cut-Off Date and then payments of interest
and principal based on amortization schedules
significantly longer than their respective
terms to maturity ([___] of such mortgage
loans, representing [___]% 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
([___] of such mortgage loans, representing
[___]% of the initial outstanding pool
balance); such mortgage loans will have
substantial payments payable on their
respective maturity dates, but balloon
payments on such mortgage loans are
anticipated to be made on the date prior to
stated maturity that these increases occur
unless such loans are prepaid.]
[The remaining [___] mortgage loans, representing
[___]% of the initial outstanding pool balance,
have an expected balloon balance equal to less
than [___]% of the original principal balance of
each loan.]]
[I. PREPAYMENT PROVISIONS;
DEFEASANCE LOANS........ As of __________ __, 199__, all of the mortgage
loans restricted voluntary principal prepayments
as follows:
o [___ (___)] mortgage loans, representing
[___]% of the initial outstanding pool
balance, contain a defeasance provision,
whereby the related borrower is permitted
(after an initial period during which
voluntary prepayments are prohibited and
until generally 90 days prior to maturity) to
substitute direct, non-callable United Stated
Treasury obligations for the mortgaged
property securing the mortgage loan, thereby
releasing the mortgage from its property
without prepaying the mortgage loan.]
o [[___ (___)] mortgage loans, representing
[___]% of the initial outstanding pool
balance, prohibit voluntary prepayments for a
period ending on a date specified in the
related mortgage note and, in most such
cases, thereafter impose prepayment premiums
until a specified date prior to maturity;]
o [[___ (___) mortgage loans, representing
[___]% of the initial outstanding pool
balance, do not provide for lock-out periods
but impose prepayment premiums in connection
with voluntary principal prepayments made
prior to a specified date (generally zero to
three months, but in [___] such cases,
representing [___]% of the initial
outstanding pool balance, [ ] to [ ] months
prior to maturity).]
o [Notwithstanding the foregoing, [___]
mortgage loans, representing [___]% of the
initial outstanding pool balance, permit
voluntary principal prepayments of up to
[___]% of the original principal balance of
the mortgage loan in any calendar year
without the imposition of a prepayment
premium.
J. MORTGAGE LOAN RANGES
AND WEIGHTED AVERAGES... As of __________ __, 199__, the mortgage loans
will have the following additional
characteristics:
i. MORTGAGE RATES Mortgage rates ranging from [___]% per annum
to [___]% per annum, and a weighted average
mortgage rate of [___]% per annum;
ii. REMAINING TERMS Remaining terms to scheduled maturity ranging
from [___] months to [___] months, and a
weighted average remaining term to scheduled
maturity of [___] months;
iii. REMAINING
AMORTIZATION TERMS Remaining amortization terms ranging from
[___] months to [___] months, and a weighted
average remaining amortization term of [___]
months (for the amortizing loans);
iv. [LOAN-TO-VALUE
RATIOS Loan-to-value ratios ranging from [___]% to
[___]% and a weighted average loan-to-value
ratio (calculated as described in this
prospectus supplement under "Description of
the Mortgage Pool--Certain Characteristics of
the Mortgage Loans") of [___]%;] and
v. DEBT SERVICE
COVERAGE RATIOS Debt service coverage ratios ranging from
[___]x to [___]x and a weighted average debt
service coverage ratio (calculated as
described in this prospectus supplement under
"Description of the Mortgage Pool-- Certain
Characteristics of the Mortgage Loans") of
[___]x.
See "Description of the Mortgage Pool" and
"__________" in this prospectus supplement.
The mortgage loans are more particularly described
herein under "Description of the Mortgage Pool,"
in the tables in [Appendix I and in "Certain
Characteristics of the Mortgage Loans" in Appendix
II.] [In addition, certain information with
respect to the mortgage loans secured by mortgages
on [multifamily and senior housing properties] is
also set forth in Appendix II and a brief summary
of the material terms of the largest mortgage
loans in the mortgage pool is set forth in
Appendix III.]
ADVANCES OF PRINCIPAL AND INTEREST
A. GENERAL................. [The Master Servicer is required to advance (each,
a "P&I Advance") delinquent monthly mortgage loan
payments, if it determines that the advance will
be recoverable. The [Master Servicer] will not be
required to advance interest in excess of a loan's
regular interest rate (without considering any
default rate or any rate increase after an
Effective Maturity Date). [The Master Servicer]
also is not required to advance prepayment or
yield maintenance premiums, or balloon payments.
If an advance is made, the Master Servicer will
not advance its servicing fee, but will advance
the Trustee's fee.
If the Master Servicer fails to make a required
P&I Advance, the Trustee will be required to make
the P&I Advance. The Trustee will be obligated to
make a P&I Advance only if it determines that the
Advance will be recoverable.
See "Description of the Offered
Certificates--Advances" in this prospectus
supplement and "Description of the Offered
Certificates--Advances" in this prospectus
supplement.
B. APPRAISAL REDUCTION
EVENT ADVANCES.......... Certain adverse events affecting a mortgage loan,
called "Appraisal Reduction Events," will require
the [Special Servicer to obtain a new appraisal on
the related mortgaged property. Based on the
appraised value in such appraisal, it may be
necessary to calculate an "Appraisal Reduction
Amount." The amount required to be advanced in
respect of a mortgage loan that has been subject
to an Appraisal Reduction Event will be reduced so
that the Master Servicer will not be required to
advance interest on the Appraisal Reduction Amount
(as described below). Due to the payment
priorities described above, this will reduce the
funds available to pay interest on the most
subordinate class or classes then-outstanding.
See "Description of the Offered Certificates" 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 one or more of _______________ and
_________________:
Class [ ] and [ ] __________________
Class [ ] __________________
Class [ ] __________________
Class [ ] __________________
Class [ ] __________________
Class [ ] __________________
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
exclusions from the ratings and the conclusions
that may 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 [ ]% of the aggregate
unpaid balance of the mortgage loans as of the
Cut-Off Date, the Depositor, the Master Servicer,
the Sub-Servicer, the Special Servicer, the
majority holders of the Controlling Class and any
holder of majority interest in the Class [ ] 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 "The Pooling Agreement--Optional Termination"
in this prospectus supplement.
DENOMINATIONS................ The Offered Certificates [(other than the Class
[ ] Certificates)] will be offered in minimum
denominations of $10,000 initial principal amount.
[The Class [ ] Certificates will be offered in
minimum denominations of $100,000 initial notional
amount.] Investments in excess of the minimum
denominations may be made in multiples of $1.
REGISTRATION, CLEARANCE
AND SETTLEMENT............ Your certificates will be registered in the name
of CEDE & Co., as nominee of the Depository Trust
Company, and will not be registered in your name.
You will not receive a definitive certificate
representing your interest, except in very limited
circumstances described in this prospectus
supplement. As a result, you will not be a
certificateholder of record, and you will receive
distributions on your certificates and reports
relating to distributions only through DTC, CEDEL
or Euroclear or through participants in DTC, CEDEL
or Euroclear.
You may hold your Offered Certificates through:
(i) The Depository Trust Company ("DTC") in the
United States; or (ii) Cedel Bank, S.A. ("CEDEL")
or The Euroclear System ("Euroclear") in Europe.
Transfers within DTC, CEDEL or Euroclear will be
made in accordance with the usual rules and
operating procedures of those systems. Cross-
market transfers between persons holding directly
through DTC, CEDEL or Euroclear will be effected
in DTC through the relevant depositories of CEDEL
or Euroclear.
The Depositor may elect to terminate the book-
entry system through DTC with respect to all or
any portion of any class of the Offered
Certificates.
See "Description of the Offered 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
__________ __, 199_.
TAX STATUS................... [An election will be made to treat a portion of
the Trust as [two] [three] separate [REMICs--a
Subsidiary REMIC, a Middle-Tier REMIC and an
Master REMIC (as applicable)--for federal income
tax purposes.] In the opinion of counsel, each
such portion of 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 (along
with the Class [ ] and Class [ ]
Certificates) will constitute "regular
interests" in the Master REMIC.]
o [The regular interests will be treated as
newly originated debt instruments for federal
income tax purposes.]
o [Beneficial owners will be required to report
income on the Offered Certificates in
accordance with the accrual method of
accounting.]
o [The Class [ ], Class [ ], Class [ ] and
Class [ ] Certificates (along with the Class
[ ] and Class [ ] Certificates) will
represent undivided beneficial interests in
portions of the Deferred Interest.] [That
portion of the Trust will be treated as part
of a grantor trust for federal income tax
purposes. Deferred Interest will be
reportable as income as it accrues,
commencing after the Effective Maturity Date
of the related Mortgage Loan.]
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 [ ] and Class
[ ] Certificates may be purchased by persons
investing assets of employee benefit plans or
individual retirement accounts.
[THE CLASS [ ], CLASS [ ], CLASS [ ] AND CLASS [ ]
CERTIFICATES MAY NOT BE PURCHASED BY, OR
TRANSFERRED TO, A PLAN OR ANY PERSON INVESTING THE
ASSETS OF A PLAN, UNLESS SUCH TRANSACTION IS
COVERED BY A PROHIBITED TRANSACTION CLASS
EXEMPTION ISSUED BY THE U.S. DEPARTMENT OF LABOR.]
See "Certain EIRSA Considerations" in this
Prospectus Supplement and in the accompanying
Prospectus.
LEGAL INVESTMENT............. The Class [ ], Class [ ], Class [ ] and Class [ ]
Certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984, as amended
("SMMEA"), [so long as: (i) those certificates are
rated in one of the two highest rating categories
by one or more rating agencies; and (ii) are legal
investments for certain entities to the extent
provided in SMMEA]. [The other classes of Offered
Certificates will not constitute "mortgage related
securities" within the meaning of SMMEA.]
[Except as to SMMEA status, 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.
RISK FACTORS
You should carefully consider the risks before making an investment
decision. In particular, distributions on your certificates will depend on
payments received on and other recoveries with respect to the mortgage loans.
Therefore, you should carefully consider the risk factors relating to the
mortgage loans and the mortgaged properties.
The risks and uncertainties described below are not the only ones relating
to your certificates. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also impair your investment.
If any of the following risks actually occur, your investment could be
materially and adversely affected.
This prospectus supplement also contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including the risks described below and elsewhere in this prospectus
supplement.
MORTGAGE LOANS ARE NONRECOURSE AND ARE NOT INSURED OR GUARANTEED
[Payments under the mortgage loans are generally not insured or guaranteed
by any person or entity.]
Substantially all of the mortgage loans are nonrecourse loans. If a default
occurs, recourse generally may be had only against the specific properties and
other assets that have been pledged to secure the loan. Payment 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 properties. Payment
of the mortgage loan at maturity is dependent primarily upon the market value of
the mortgaged properties or the borrower's ability to refinance the mortgaged
properties.
[All of the mortgage loans were originated within [__] months prior to the
Cut-Off Date. Consequently, the mortgage loans do not have a long standing
payment history.]
[COMMERCIAL LENDING IS DEPENDENT UPON NET OPERATING INCOME]
[The mortgage loans are secured by various income-producing commercial
properties. Commercial lending is generally thought to expose a lender to
greater risk than residential one-to-four family lending because it typically
involves larger loans to a single borrower.
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 capitalization of
the property's cash flow. However, net operating income can be volatile and may
be insufficient to cover debt service on the loan at any given time.
The net operating income 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;
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;
o an increase in the capital expenditures needed to maintain the
property or make improvements;
o a decline in the financial condition of a major tenant;
o an increase in vacancy rates; and
o a decline in rental rates as leases are renewed or entered into
with new tenants.
Other factors are more general in nature, such as:
o national, regional or local economic conditions (including plant
closings, industry slowdowns and unemployment rates);
o local real estate conditions (such as an oversupply of retail
space or office space);
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;
o and the property's "operating leverage" (i.e., the percentage of
total property expenses in relation to revenue, the ratio of
fixed operating expenses to those that vary with revenue, and the
level of capital expenditures required to maintain the property
and 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.]
SOME MORTGAGED PROPERTIES MAY NOT BE READILY CONVERTIBLE TO ALTERNATIVE USES
Some of the mortgaged properties may not be readily convertible to
alternative uses if those properties were to become unprofitable for any reason.
Converting commercial properties to alternate uses generally requires
substantial capital expenditures. The liquidation value of any such mortgaged
property consequently may be substantially less than would be the case if the
property were readily adaptable to other uses. Zoning or other restrictions also
may prevent alternative use.
PROPERTY VALUE MAY BE ADVERSELY AFFECTED EVEN WHEN CURRENT OPERATING INCOME IS
NOT
[Various factors may adversely affect the value of the mortgaged properties
without affecting the properties' current net operating income. These factors
include among others:
o changes in governmental regulations, fiscal policy, zoning or tax
laws;
o potential environmental legislation or liabilities or other legal
liabilities;
o the availability of refinancing; and
o changes in interest rate levels or yields required by investors
in income producing commercial properties.]
TENANT CONCENTRATION ENTAILS RISK
A deterioration in the financial condition of a tenant can be particularly
significant if a mortgaged property is leased to a single tenant, or a small
number of tenants. Mortgaged properties leased to a single tenant, or a small
number of tenants, also are more susceptible to interruptions of cash flow if a
tenant fails to renew its lease. This is so because: (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.
[CREDIT TENANT LOANS HAVE SPECIAL RISKS]
[[________________] mortgage loans (representing [ ]% of the initial
outstanding pool balance) are secured by mortgaged properties leased to single
tenants.]
[Retail and office properties] also may be adversely affected if there is a
concentration of particular tenants among the mortgaged properties or of tenants
in a [particular business or industry.]
[______________] mortgage loans (representing [ ]% of the initial
outstanding pool balance) are credit tenant loans. Credit tenant loans are
secured by net lease obligations of a rated tenant or guarantor. In reliance on
the ratings, the credit tenant loans were generally underwritten to lower debt
service coverage ratios and/or higher loan-to-value ratios than would have been
acceptable had the related mortgage properties been leased to less creditworthy
tenants. In the event that a tenant defaults in its obligations under a credit
lease the mortgaged property may not be relet for sufficiently high rent to
support debt service on the related credit lease loan or funds received in
liquidation of such mortgaged property may not be sufficient to satisfy the
borrower's obligations under the credit lease loan.
Any rating assigned to a credit tenant or guarantor by a rating agency will
reflect only such rating agency's assessment of the long-term unsecured debt
obligations of such entity. Such rating is not an assessment of the likelihood
that the credit leases will not be terminated (pursuant to their terms or
otherwise), that the credit lease loans will not be prepaid, that principal
prepayments on the credit lease loans will be made by the related borrowers, or
that any prepayment premium will be paid or, if paid, will be sufficient to
provide the anticipated yield.]
[MORTGAGED PROPERTIES LEASED TO MULTIPLE TENANTS ALSO HAVE RISKS]
[If a mortgaged property has multiple tenants, re-leasing expenditures may
be more frequent than in the case of mortgaged properties with fewer tenants,
thereby reducing the cash flow available for debt service payments.
Multi-tenanted mortgaged properties also may experience higher continuing
vacancy rates and greater volatility in rental income and expenses.]
RISKS RELATING TO LOAN CONCENTRATION
The effect of mortgage pool loan losses will be more severe: (i) if the
pool is comprised of a small number of loans, each with a relatively large
principal amount; or (ii) if the losses relate to loans that account for a
disproportionately large percentage of the pool's aggregate principal balance.
[The five (5) largest loans equal [ ]% of the mortgage pool. Losses on any of
these loans may have a substantial adverse effect on the Offered Certificates.
Concentrations of mortgage loans with the same borrower or related
borrowers can also pose increased risks. For example, if a person that owns or
controls several mortgaged properties experiences financial difficulty at one
mortgaged property, it could defer maintenance at one mortgaged property in
order to satisfy current expenses with respect to the first mortgaged property,
or it could attempt to avert foreclosure by filing a bankruptcy petition that
might have the effect of interrupting monthly payments of debt service (subject
to the Master Servicer's obligation to make Advances) for an indefinite period
on all of the related mortgage loans. [As to property types:
o multifamily properties represent [___]% of the aggregate
principal balance of the mortgage pool as of the Cut-Off Date;
o retail properties represent [___]%;
o industrial properties represent [___]%;
o office properties represent [___]%;
o senior housing facilities represent [___]%;
o self storage properties represent [__]%;
o hospitality properties represent [__]%;
o manufactured housing properties represent [__]%; and
o mixed use properties represent [___]%.
With respect to concentration of borrowers, several groups of mortgage
loans are made to the same borrower or borrowers related through common
ownership and where, in general, the related mortgaged properties are commonly
managed. The three largest of these groups represent [ ]%, [ ]%, and [ ]%
respectively of the mortgage pool.]
GEOGRAPHIC CONCENTRATION ENTAILS RISKS
Concentrations of mortgaged properties in geographic areas may increase the
risk that adverse economic or other developments or a natural disaster affecting
a particular region of the country could increase the frequency and severity of
losses on mortgage loans secured by such mortgaged 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 [ ] states. Approximately [ ]% of
the mortgaged properties (based on the Cut-Off Date principal amount) are
located in [_______], and there are [ ] other states in which 5% or more of the
mortgaged properties (based on Cut-Off Date principal amount) are located. See
"Mortgage Pool Characteristics--Certain Characteristics of the Mortgage Loans"
in this prospectus supplement.]
[MULTIFAMILY PROPERTIES HAVE SPECIAL RISKS]
[Multifamily properties secure [ ] of the underlying mortgage loans
(representing [ ]% of the initial outstanding pool balance).
A large number of factors may adversely affect the value and successful
operation of a multifamily property, including:
o the physical attributes of the apartment building (e.g., its age,
appearance and construction quality);
o the location of the property (e.g., a change in the neighborhood
over time);
o the ability of management to provide adequate maintenance and
insurance;
o the types of services the property provides;
o the property's reputation;
o the level of mortgage interest rates (which may encourage tenants
to purchase rather than rent housing);
o the presence of competing properties;
o adverse local or national economic conditions;
o state and local regulations; and
o government assistance/rent subsidy programs.]
[RETAIL PROPERTIES HAVE SPECIAL RISKS]
[Retail properties secure [ ] of the underlying mortgage loans
(representing [ ]% 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 a
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; and
o the cessation of the business of a self-owned anchor or of an
anchor tenant (notwithstanding its continued payment of rent).
If anchor stores in a mortgaged property were to close, the related borrower may
be unable to replace those anchors without suffering adverse economic
consequences. [Furthermore, certain of the anchor stores at the retail
properties have co-tenancy clauses in their leases or operating agreements which
permit those anchors to cease operating if certain other stores are not operated
at those locations. The breach of various other covenants in anchor store leases
or operating agreements also may permit those stores to cease operating. Certain
non-anchor tenants at retail properties also may be permitted to terminate their
leases if certain other stores are not operated or if those tenants fail to meet
certain business objectives.]
Retail properties also face competition from sources outside a given real
estate market. For example, all of the following compete with more traditional
retail properties for consumer dollars: factory outlet centers; discount
shopping centers and clubs; catalogue retailers; home shopping networks;
internet web sites; and telemarketing. Continued growth of these alternative
retail outlets (which often have lower operating costs) could adversely affect
the rents collectible at the retail properties included in the mortgage pool, as
well as the market value of such properties.
Moreover, additional competing retail properties may be built in the areas
where the retail mortgaged properties are located.]
[INDUSTRIAL PROPERTIES HAVE SPECIAL RISKS]
[Industrial properties secure [ ] of the underlying mortgage loans
(representing [ ]% 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;
o a change in the proximity of supply sources; and
o environmental hazards.]
[OFFICE PROPERTIES HAVE SPECIAL RISKS]
[Office properties secure [ ] of the underlying mortgage loans
(representing [ ]% of the initial outstanding pool balance).
A large number of factors may adversely affect the value of office
properties, including:
o the quality of an office building's tenants;
o the diversity of an office building's tenants (or reliance on a
single or dominant tenant);
o the physical attributes of the building in relation to competing
buildings (e.g., age, condition, design, location, access to
transportation and ability to offer certain amenities, such as
sophisticated building systems);
o the desirability of the area as a business location; and
o the strength and nature of the local economy (including labor
costs and quality, tax environment and quality of life for
employees).
Moreover, the cost of refitting office space for a new tenant is often higher
than the cost of refitting other types of property.]
[SENIOR HOUSING PROPERTIES HAVE SPECIAL RISKS
Congregate care, senior care and assisted living facilities secure [ ] of
the underlying mortgage loans (representing [ ]% of the initial outstanding pool
balance). [__________] of the mortgage loans (representing [ ]% of the initial
outstanding pool balance) are secured by facilities that typically receive a
portion of their revenues from government reimbursement programs, primarily
Social Security, Medicaid and Medicare. Social Security, Medicaid and Medicare
are subject to various regulatory changes, rate adjustments, rulings, delays in
payment and government restrictions, all of which can adversely affect revenues
from operations of facilities. In addition, government payors have employed
measures that limit payments to health care providers.
Providers of long-term nursing care and other medical services are highly
regulated and are subject to licensing requirements, facility inspections, rate
setting and reimbursement policies. They are also subject to laws relating to
the adequacy of medical care, distribution of pharmaceuticals, equipment,
personnel operating policies and maintenance of and additions to facilities and
services. These factors can increase the cost of operations, limit growth and in
extreme cases, require or result in suspension or cessation of operations.
In the event that the trustee or another party forecloses on a senior care
facility, it would not generally be entitled to reimbursements by Social
Security, Medicare and Medicaid for services rendered prior to such foreclosure,
if any. In addition, such party may have to apply in its own right for its
necessary licenses and regulatory approvals. There can be no assurance that a
new license could be obtained or that new approvals would be granted. This
uncertainty may adversely affect the liquidation value of the facility.
Other factors that may adversely effect the value and successful operation
of a senior housing facility include:
o increasing governmental regulation and supervision (as to those
facilities not already subject to it);
o a decline in the financial health, skills or reputation of the
operator;
o increased operational expenses; and
o competing facilities owned by non-profit organizations or
government agencies supported by endowments, charitable
contributions, tax revenues and other sources.]
[SELF-STORAGE FACILITIES HAVE SPECIAL RISKS]
[Self-storage facilities secure [ ] of the underlying mortgage loans
(representing [ ]% 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.]
[HOSPITALITY PROPERTIES HAVE SPECIAL RISKS]
[Hospitality properties secure [ ] of the underlying mortgage loans
(representing [ ]% of the initial outstanding pool balance). Various factors may
adversely affect the economic performance of a hotel, including:
o adverse economic and social conditions, either local, regional or
national (which may limit the amount that can be charged for a
room and reduce occupancy levels);
o the construction of competing hotels or resorts;
o continuing expenditures for modernizing, refurbishing, and
maintaining existing facilities prior to the expiration of their
anticipated useful lives;
o a deterioration in the financial strength or managerial
capabilities of the owner and operator of a hotel; and
o changes in travel patterns caused by changes in access, energy
prices, strikes, relocation of highways, the construction of
additional highways or other factors.
Because hotel rooms generally are rented for short periods of time, the
financial performance of hotels tends to be affected by adverse economic
conditions and competition more quickly than other types of commercial
properties.
Moreover, the hotel and lodging industry is generally seasonal in nature.
This seasonality can be expected to cause periodic fluctuations in a hotel
property's revenues, occupancy levels, room rates and operating expenses.]
[RISKS RELATING TO AFFILIATION WITH A FRANCHISE OR HOTEL MANAGEMENT COMPANY]
[Certain of the hospitality properties are franchises of national hotel
chains or managed by a hotel management company. The performance of a hotel
property affiliated with a franchise or hotel management company depends in part
on:
(i) the continued existence and financial strength of the franchiser or
hotel management company;
(ii) the public perception of the franchise or hotel chain service mark;
and
(iii) the duration of the franchise licensing or agreements.
Any provision in a franchise agreement or management agreement providing
for termination because of a bankruptcy of a franchisor or manager generally
will not be enforceable.
The transferability of franchise license agreements may be restricted. In
the event of a foreclosure, the lender or its agent may not have the right to
use the franchise license without the franchiser's consent. Conversely, in the
case of certain mortgage loans, the lender may be unable to remove a franchiser
or a hotel management company that it desires to replace following a
foreclosure.
Further, in the event of a foreclosure, the Trustee or a purchaser of such
mortgaged property probably would not be entitled to the rights under any liquor
license for the mortgaged property. Such party would be required to apply in its
own right for such a license, and we cannot assure you that a new license could
be obtained.]
[HOTEL AFFILIATION CONCENTRATION ENTAILS RISKS]
[The adverse effect of an economic decline in a particular hotel chain will
be more significant if there is a concentration of hotels operated by that chain
among the properties securing a mortgage loan. In this regard, the largest
concentration in the mortgage loan pool consists of [ ] mortgage loans
(representing [ ]% of the initial pool balance) secured by mortgaged properties
that are operated as hotels under management by a single management company.]
[MANUFACTURED HOUSING COMMUNITIES HAVE SPECIAL RISKS]
[Manufactured Housing Communities secure [ ] of the underlying mortgage
loans (representing [ ]% of the initial outstanding pool balance). Loans secured
by liens on properties of these types pose risks not associated with loans
secured by liens on other types of income-producing real estate, including:
o the number of competing manufactured housing communities and
other residential developments (such as apartment buildings and
single family homes) in the local market;
o the age, appearance and reputation of the community;
o the ability of management to provide adequate maintenance and
insurance; and
o the types of services and amenities it provides.
The Manufactured Housing Communities are "special purpose" properties that
could not be readily converted to general residential, retail or office use.
Some properties within the Manufactured Housing Communities may lease sites
to non-permanent recreational vehicles, which occupancy is often very seasonal
in nature.]
CERTAIN ADDITIONAL RISKS RELATING TO TENANTS
The income from, and market value of, the mortgaged properties leased to
various tenants would be adversely affected if:
o space in the mortgaged properties could not be leased or
re-leased;
o tenants were unable to meet their lease obligations;
o a significant tenant were to become a debtor in a bankruptcy
case; or
o rental payments could not be collected for any other reason.
Repayment of the mortgage loans secured by retail and office properties
will be affected by the expiration of leases and the ability of the respective
borrowers to renew the leases or relet the space on comparable terms.
Even if vacated space is successfully relet, the costs associated with
reletting, including tenant improvements and leasing commissions, could be
substantial and could reduce cash flow from the mortgaged properties. Moreover,
if a tenant defaults in its obligations to a borrower, the borrower may incur
substantial costs and experience significant delays associated with enforcing
its rights and protecting its investment, including costs incurred in renovating
and reletting the property.
[TENANT BANKRUPTCY ENTAILS RISKS]
[The bankruptcy or insolvency of a major tenant, or a number of smaller
tenants, in retail and office properties may adversely affect the income
produced by a mortgaged property. Under the Bankruptcy Code, a tenant has the
option of assuming or rejecting any unexpired lease. If the tenant rejects the
lease, the landlord's claim for breach of the lease would be a general unsecured
claim against the tenant (absent collateral securing the claim). The claim would
be limited to the unpaid rent reserved under the lease for the periods prior to
the bankruptcy petition (or earlier surrender of the leased premises) which are
unrelated to the rejection, plus the greater of one year's rent or [ ]% of the
remaining rent reserved under the lease (but not more than three years' rent).
There is no assurance that tenants in the mortgaged properties will
continue making timely payments under their leases or that other tenants will
not file for bankruptcy protection in the future.]
[RISKS RELATING TO GOVERNMENT ASSISTED PROPERTIES]
[[ ] of the mortgage loans (representing [ ]% of the initial outstanding
pool balance) are believed to have tenants eligible for rental subsidy payments
under certain federal housing assistance payment programs, including Section 8
of United States Housing Act of 1937, as amended. Under that program,
administered by the Department of Housing and Urban Development, a mortgaged
property must satisfy certain requirements to qualify for inclusion in the
program. These requirements relate to, among other things, income limitations on
tenants in the mortgaged property. The borrower under these mortgage loans may
be adversely affected if it or the mortgaged property fails to qualify for
inclusion in the program, if subsidies thereunder are reduced, or if the
programs are otherwise terminated.]
[ENVIRONMENTAL LAWS ENTAIL RISKS]
[Various environmental laws may make a current or previous owner or
operator of real property liable for the costs of removal or remediation of
hazardous or toxic substances on, under, adjacent to, or in such property. Those
laws often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of the hazardous or toxic substances. For example,
certain laws impose liability for release of asbestos-containing materials
("ACMs") into the air or require the removal or containment of ACMs. In some
states, contamination of a property may give rise to a lien on the property to
assure the costs of cleanup. In some states, this lien has priority over the
lien of an 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.
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 using the property as
collateral or to sell the property to a third party. The presence of, or strong
potential for contamination by, hazardous substances consequently can have a
material 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 RELATING TO THE MORTGAGED PROPERTIES
[All] [Some] of the mortgaged properties have been subject to recent
environmental site assessments, including Phase I site assessments or updates of
previously performed Phase I site assessments. In several cases, Phase II site
assessments also have been performed. These assessments were intended to
evaluate the environmental condition of the mortgaged properties and generally
included a site visit, a review of certain records and public information
concerning the mortgaged properties, and the preparation of a written report.
Some of the assessments included sampling or analysis of soil, groundwater or
other environmental media or subsurface investigations. [Furthermore,
environmental assessments on properties securing [ ] of the underlying mortgage
loans (representing [ ]% of the initial pool balance) are more than a [ ] old
but in no event more than [ ] months old.] There can be no assurance, however,
that all environmental conditions and risks have been identified in these
environmental assessments.
[Certain of the environmental assessments identified environmental
conditions which have impacted, or may impact, some of the mortgaged properties.
Those conditions include the presence of ACMs, leaks from chemical storage tanks
and on-site spills. Certain mortgaged properties presently have or formerly had
landfills, waste disposal areas, historic industrial use, oil wells, gasoline
stations and/or dry cleaning businesses located on or near the premises.
[Corrective action,] as required by the regulatory agencies, has been undertaken
and, in some cases, the related borrowers have made deposits into environmental
reserve accounts or have assigned rights to existing reserve accounts. However,
we cannot assure you that the reserve amounts will be sufficient to remediate
such environmental conditions or that all such environmental conditions have
been identified.]
[[Certain of the mortgaged properties are in the vicinity of sites
containing ["leaking underground storage tanks"] or other potential sources of
groundwater contamination.] Although the owners of those mortgaged properties
and the trust may not have legal liability for contamination from such off-site
sources, the enforcement of rights against third parties may result in
additional transaction costs.]
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. [For
several mortgaged properties, the site assessments recommend limited further
investigations or minor repairs; however, based on the information currently
available to the Depositor and reviews performed by the Depositor's
environmental consultants, the Depositor does not believe any of these other
issues would have a material adverse effect on the related mortgaged
properties.] Nevertheless, there may be material environmental liabilities of
which the Depositor is unaware. [Moreover, there is no assurance that: (i)
future laws, ordinances or regulations will not impose any material
environmental liability; or (ii) the current environmental condition of the
mortgaged properties will not be adversely affected by tenants or other third
parties, or by the condition of land or operations in the vicinity of the
mortgaged properties (such as underground storage tanks).]
[Before the Special Servicer acquires title to a property on behalf of the
trust or assumes operation of the property, it must obtain an environmental
assessment of the property. This requirement will decrease the likelihood that
the trust will become liable under any environmental law. However, this
requirement may effectively preclude foreclosure until a satisfactory
environmental assessment is obtained (or until any required remedial action is
thereafter taken). There is accordingly some risk that the mortgaged property
will decline in value while this assessment is being obtained. Moreover, there
is no assurance this requirement will effectively insulate the trust from
potential liability under environmental laws.]
BORROWER MAY BE UNABLE TO REPAY REMAINING PRINCIPAL BALANCE ON MATURITY DATE
[[_________________________] of the mortgage loans, representing [ ]% of
the initial pool balance, are expected to have substantial remaining principal
balances (equal to or greater than [ ]% of the original principal balance of
each respective mortgage loan) as of their respective effective maturity dates
or stated maturity dates. We cannot assure you that each borrower will have the
ability to repay the remaining principal balances on the pertinent date.
Mortgage loans with substantial remaining principal balances at their stated
maturity (i.e., "balloon loans" ) involve greater risk than fully amortizing
loans.] In addition, a borrower's ability to repay a loan on its Effective
Maturity Date typically will depend upon its ability either to refinance the
loan or to sell the mortgaged property at a price sufficient to permit
repayment. A borrower's ability to achieve either of these goals will be
affected by a number of factors, including:
o the availability of, and competition for, credit for commercial
real estate projects;
o the prevailing interest rates;
o the fair market value of the related properties;
o the borrower's equity in the related properties;
o the borrower's financial condition;
o the operating history and occupancy level of the property; and
o the tax laws; and prevailing general and regional economic
conditions.
o The availability of funds in the credit markets fluctuates over
time.
We cannot assure you that each borrower will have the ability to repay the
remaining principal balances on the Effective Maturity Date. See "Mortgage Pool
Characteristics--Certain Characteristics of the Mortgage Loans" in this
prospectus supplement.]
[RISKS RELATING TO BORROWERS THAT ARE NOT SPECIAL-PURPOSE ENTITIES
[The business activities of most of the borrowers are not limited to owning
their respective properties by their organizational documents. However, most of
the loan documents of those borrowers do contain the covenants customarily
employed to ensure that a borrower is a special-purpose, single asset entity
(such as limitations on indebtedness and affiliate transactions and restrictions
on the borrower's ability to dissolve, liquidate, consolidate, merge, sell all
of its assets or amend its organizational documents).]
[Most of the borrowers (and any special-purpose entity having an interest
in any such borrowers) do not have an independent director whose consent would
be required to file a voluntary bankruptcy petition on behalf of such borrower.
One of the purposes of an independent director (or of a special-purpose entity
having an interest in the borrower) is to avoid a bankruptcy petition filing
which is intended solely to benefit an affiliate and is not justified by the
borrower's own economic circumstances.]]
[AUTHORITY TO EFFECT OTHER BORROWINGS ENTAILS RISKS
[_______________] of the mortgage loans (representing [ ]% of the initial
outstanding pool balance) permit the borrower to incur additional indebtedness
other than in the ordinary course of business or to utilize the mortgaged
property as collateral for subordinated loans. See "Description of the Mortgage
Pool--Certain Terms and Characteristics of the Mortgage Loans--Subordinate
Financing" in this prospectus supplement. Generally, prior to any subordinate
loan being allowed, certain conditions must be satisfied. [Substantially all of
the mortgage loans also permit the related borrower to incur limited
indebtedness in the ordinary course of business.]
When a mortgage loan borrower (or its constituent members) also has one or
more other outstanding loans (even if subordinated or mezzanine loans), the
trust is subjected to additional risk. The borrower may have difficulty
servicing and repaying multiple loans. The existence of another loan generally
also will make it more difficult for the borrower to obtain refinancing of the
mortgage loan and may thereby jeopardize repayment of the mortgage loan.
Moreover, the need to service additional debt may reduce the cash flow available
to the borrower to operate and maintain the mortgaged property.
Additionally, if the borrower (or its constituent members) defaults on the
mortgage loan 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 would be automatically stayed, and principal and interest payments
might not be made during the course of the bankruptcy case. The bankruptcy of
another lender also may operate to stay foreclosure by the trust.
Further, if another loan secured by the mortgaged property is in default,
the other lender may foreclose on the mortgaged property, absent an agreement to
the contrary, thereby causing a delay in payments and/or an involuntary
repayment of the mortgage loan prior to maturity. The trust may also be subject
to the costs and administrative burdens of involvement in foreclosure
proceedings or related litigation.]
BANKRUPTCY PROCEEDINGS ENTAIL CERTAIN RISKS
Under the Bankruptcy Code, the filing of a petition in bankruptcy by or
against a borrower will stay the sale of the real property owned by that
borrower, as well as the commencement or continuation of a foreclosure action.
In addition, if a court determines that the value of the mortgaged property is
less than the principal balance of the mortgage loan it secures, the court may
prevent a lender from foreclosing on the mortgaged property (subject to certain
protections available to the lender). As part of a restructuring plan, a court
also may reduce the amount of secured indebtedness to the then-value of the
mortgaged property. Such an action would make the lender a general unsecured
creditor for the difference between the then-value and the amount of its
outstanding mortgage indebtedness. A bankruptcy court also may: (i) grant a
debtor a reasonable time to cure a payment default on a mortgage loan; (ii)
reduce monthly payments due under a mortgage loan; (iii) change the rate of
interest due on a mortgage loan; or (iv) otherwise alter the mortgage loan's
repayment schedule.
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 in a manner that would substantially diminish the
position of 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 lender's ability to enforce lockbox requirements. The legal
proceedings necessary to resolve these issues can be time consuming and may
significantly delay the receipt of rents. Rents also may escape an assignment to
the extent they are used by the borrower to maintain the mortgaged property or
for other court authorized expenses.
As a result of the foregoing, the lender'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.
[ABSENCE OF LOCKBOXES ENTAILS RISKS
[In [ ] of the mortgage loans (representing [ ]% of the initial pool
balance), the borrowers have access to a lockbox account and may withdraw funds
in the account until: (i) there is a default under the [________________] loan,
(ii) [ ] days prior to the Effective Maturity Date or (iii) the "debt service
coverage ratio" is less than [___]x. [However, in the case of clause (iii), the
borrower is permitted to regain access to the lockbox account if the "debt
service coverage ratio" is corrected to higher than [____] for a period of at
least six months or if the borrower deposits additional collateral that
effectively reduces debt service so that the "debt service coverage ratio" is
[___]x or higher.]
Under [______________] loans, the borrower collects rents prior to
depositing them into the lockbox account until: (i) there is a default under the
[_____________] loan, (ii) [ ] days prior to the effective maturity date or
(iii) the "debt service coverage ratio" is less than [ ]. After the occurrence
of either event, the tenants of the borrower will be instructed to deposit rents
directly into the lockbox account.
If rental payments are not required to be made directly into a lockbox
account, there is a risk that the borrower will divert those funds.]
[LACK OF SKILLFUL PROPERTY MANAGEMENT ENTAIL RISKS
The successful operation of a real estate project depends upon the property
manager's performance and viability. The property manager is responsible for:
o responding to changes in the local market;
o planning and implementing the rental structure;
o operating the property and providing building services;
o managing operating expenses; and
o assuring that maintenance and capital improvements are carried
out in a timely fashion.
Properties deriving revenues primarily from short-term sources are generally
more management intensive than properties leased to creditworthy tenants under
long-term leases.
A good property manager, by controlling costs, providing appropriate
service to tenants and seeing to the maintenance of improvements, can improve
cash flow, reduce vacancy, leasing and repair costs and preserve building value.
On the other hand, management errors can, in some cases, impair short-term cash
flow and the long term viability of an income producing property.
We make no representation or warranty as to the skills of any present or
future managers. Additionally, we cannot assure you that the property managers
will be in a financial condition to fulfill their management responsibilities
throughout the terms of their respective management agreements.]
RISKS OF INSPECTIONS RELATING TO PROPERTY
Licensed engineers inspected the mortgaged properties to assess the
structure, exterior walls, roofing, interior construction, mechanical and
electrical systems and general condition of the site, buildings and other
improvements. However, there is no assurance that all conditions requiring
repair or replacement were identified.
[ENGINEERING RISKS RELATING TO SPECIFIC PROPERTIES]
[Describe any related engineering risks relating to specific properties.]
RESERVES TO FUND CAPITAL EXPENDITURES MAY BE INSUFFICIENT
The Mortgage Loans require that certain reserves be funded: [Add particular
mortgage loans.]
We cannot assure you that the reserve amounts will be great enough to cover
the actual costs of the items for which the reserves were established. We also
cannot assure you that cash flow from the properties will be great enough to
fully fund the ongoing monthly reserve requirements.
[RISKS OF INADEQUACY OF TITLE INSURANCE]
[Title insurance for a mortgaged property generally insures a mortgagee
against risks relating to a borrower not having good title to a mortgaged
property, and in certain cases can insure a mortgagee against certain other
risks. The protection afforded by title insurance depends on the ability of the
title insurer to pay claims made upon it. There can be no assurance that a title
insurer will have the ability to pay title insurance claims made upon it, and
there can be no assurance that the title insurer will maintain its present
financial strength. Further, there can be no assurance that a title insurer will
not contest claims made upon it.]
[ABSENCE OR INADEQUACY OF INSURANCE COVERAGE ENTAILS RISKS]
[The mortgaged properties may suffer casualty losses due to risks which
were not covered by insurance or for which insurance coverage is inadequate. In
addition, certain of the mortgaged properties are located in California and
Texas, states that have historically been at greater risk regarding acts of
nature (such as hurricanes, floods and earthquakes) than other states. There is
no assurance borrowers will be able to maintain adequate insurance. Moreover, if
reconstruction or any major repairs are required, changes in laws may materially
affect the borrower's ability to effect such reconstruction or major repairs or
may materially increase the cost thereof.
As a result of any of these factors, the amount available to make
distributions on the Offered Certificates could be reduced.]
[BLANKET INSURANCE POLICIES ENTAIL RISKS]
[Certain of the mortgaged properties are covered by blanket insurance
policies which also cover other properties of the related borrower or its
affiliates. If those policies are drawn on to cover losses on those other
properties, the amount of available insurance coverage would be reduced and
could be insufficient to cover each mortgaged property's insurable risks.]
[APPRAISALS AND MARKET STUDIES HAVE CERTAIN LIMITATIONS]
[An appraisal or other market analysis was conducted in respect of the
mortgaged properties in connection with the origination or acquisition of the
related mortgage loan. The resulting estimates of value are the bases of the
Cut-Off Date LTV Ratios referred to herein. Those estimates represent the
analysis and opinion of the person performing the appraisal or market analysis
and are not guarantees of present or future values. Moreover, the values of the
mortgaged properties may have fluctuated significantly since the appraisal or
market study was performed. In addition, appraisals seek to establish the amount
a typically motivated buyer would pay a typically motivated seller. Such amount
could be significantly higher than the amount obtained from the sale of a
mortgaged property under a distress or liquidation sale. Information regarding
the values of mortgaged properties available to the Depositor as of the Cut-Off
Date is presented in Appendix I and Appendix II hereto for illustrative purposes
only. See "Description of the Mortgage Pool--[__________]" in this prospectus
supplement.] The values for the properties for which market studies were
obtained, for purposes of loan-to-value calculations contained in this
prospectus supplement, are the purchase prices of such properties.]
[DIFFERENT TIMING OF MORTGAGE LOAN AMORTIZATION POSES CERTAIN RISKS]
[As principal payments or prepayments are made on a mortgage loan that is
part of a pool of loans, the pool will be subject to more concentrated risks
with respect to the diversity of mortgaged properties, types of mortgaged
properties and number of borrowers, as described above. Classes that have a
later sequential designation or a lower payment priority are more likely to be
exposed to this concentration risk than are classes with an earlier sequential
designation or higher priority. This is so because principal on the Offered
Certificates is payable in sequential order, and no class entitled to
distribution of principal receives principal until the principal amount of the
preceding class or classes entitled to receive principal have been reduced to
zero.]]
[SUBORDINATION OF SUBORDINATE OFFERED CERTIFICATES]
[As described in this prospectus supplement, unless your certificates are
Class [ ], Class [ ] or Class [ ] 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 Offered
Certificates--Distributions--Payment Priorities" and "--Subordination" in this
prospectus supplement and "Risk Factors--Subordination of the Subordinate
Certificates; Effect of Losses on the Assets" in the prospectus.]
[TAX CONSIDERATIONS RELATING TO FORECLOSURE]
[If the trust acquires a mortgaged property pursuant to a foreclosure or
deed in lieu of foreclosure, the Special Servicer must retain an independent
contractor to operate the property. Any net income from such operation (other
than qualifying "rents from real property"), or any rental income based on the
net profits of a tenant or sub-tenant or allocable to a non-customary service,
will subject the Subsidiary REMIC to federal tax (and possibly state or local
tax) on such income at the highest marginal corporate tax rate (currently 35%).
In such event, the net proceeds available for distribution to certificateholders
will be reduced. The Special Servicer may permit the Subsidiary REMIC to earn
"net income from foreclosure property" that is subject to tax if it determines
that the net after-tax benefit to certificateholders is greater than under
another method of operating or net leasing the mortgaged property.]]
[RISKS RELATING TO ENFORCEABILITY
[[All] [Most] of the mortgage loans contain due-on-sale clauses, each of
which permits the lender to accelerate the maturity of the mortgage loan if the
borrower sells, transfers or conveys the related mortgaged property or its
interest in the mortgaged property. [All] [Most] of the Mortgage Loans also
include debt-acceleration clauses, each of which permits the lender to
accelerate the debt upon specified monetary or non-monetary defaults by the
borrower. The courts of all states will enforce acceleration clauses 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 or permit the
acceleration of the indebtedness as a result of a default deemed to be
immaterial or if the exercise of such remedies would be inequitable or unjust or
the circumstances would render the acceleration unconscionable.]
[Each of the mortgage loans is secured by an assignment of leases and rents
under which the related borrower assigned its right, title and interest as
landlord under the leases on the related mortgaged property and the income
derived from the property to the lender as further security for the related
mortgage loan, while keeping a license to collect rents for so long as there is
no default. In the event the borrower defaults, the license terminates and the
lender is entitled to collect rents. In some cases, such assignments may not be
perfected as security interests prior to actual possession of the cash flow. In
some cases, state law 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 Mortgage Loans--Leases and Rents" in the Prospectus.]]
[STATE LAW LIMITATIONS ENTAIL CERTAIN RISKS]
[Some states (including [__________]) 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 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 mortgaged properties located in states where judicial
foreclosure is the only permitted method of foreclosure. As a result, the
ability to realize upon the mortgage loans, may be limited by the application of
state laws. Foreclosure actions may also, in certain circumstances, subject the
trust to liability as a "lender-in-possession" or result in the equitable
subordination of the claims of the Trustee to the claims of other creditors of
the borrower. [The Special Servicer] may take these state laws into
consideration in deciding which remedy to choose following a default by a
borrower.]
[LEASEHOLD INTERESTS ENTAIL CERTAIN RISKS]
[[______________] of the mortgage loans (representing [ ]% of the initial
outstanding pool balance) are secured solely by mortgages on borrowers'
leaseshold interests under ground leases. In addition, [ ] mortgage loan
(representing [ ]% of the initial outstanding pool balance), is secured by a
mortgage on both the borrower's leasehold interest in a portion of the related
mortgaged property and the borrower's fee simple interest in the remainder of
the related mortgaged property. See "Description of the Mortgage Pool--Certain
Terms and Characteristics of the Mortgage Loans--Ground Leases".]
[Leasehold mortgage loans are subject to certain risks not associated with
mortgage loans secured by a lien on the fee estate of the borrower. The most
significant of these risks is that if the borrower's leasehold were to be
terminated upon a lease default, the leasehold mortgagee would lose its
security. Generally, the related ground lease requires the lessor to give the
leasehold mortgagee notice of lessee defaults and an opportunity to cure them,
permits the leasehold estate to be assigned to the leasehold mortgagee or the
purchaser at a foreclosure sale, and contains certain other protective
provisions typically included in a "mortgageable" ground lease.]
[Upon the bankruptcy of a lessor or a lessee under a ground lease, the
debtor entity has the right to assume or reject the lease. If a debtor lessor
rejects the lease, the lessee has the right to remain in possession of its
leased premises under the rent under the lease for the term of the lease
(including renewals). If a debtor lessee/borrower rejects any or all of its
leases, the leasehold lender could succeed to the lessee/borrower's position
under the lease only if the lessor specifically grants the lender such right. If
both the lessor and the lessee/borrowers are involved in bankruptcy proceedings,
the trustee may be unable to enforce the bankrupt lessee/borrower's obligation
to refuse to treat a ground lease rejected by a bankrupt lessor as terminated.
In such circumstances, a lease could be terminated notwithstanding lender
protection provisions contained therein or in the mortgage.]
[Most of the ground leases securing the mortgaged properties provide that
the ground rent payable thereunder increases during the term of the lease. These
increases may adversely affect the cash flow and net income of the borrower from
the mortgaged property.]]
[RISKS RELATING TO ENFORCEABILITY OF CROSS-COLLATERALIZATION]
[Cross-collateralization arrangements involving more than one borrower
could be challenged as fraudulent conveyances by creditors of the related
borrower in an action brought outside a bankruptcy case or, if such borrower
were to become a debtor in a bankruptcy case, by the borrower's representative.
A lien granted by a borrower entity could be avoided if a court were to
determine that: (i) such borrower was insolvent when it granted the lien, was
rendered insolvent by the granting of the lien or was left with inadequate
capital, or was not able to pay its debts as they matured; and (ii) such
borrower did not receive fair consideration or reasonably equivalent value when
it allowed its mortgaged property or properties to be encumbered by a lien
securing the entire indebtedness. Among other things, a legal challenge to the
granting of the liens may focus on the benefits realized by such borrower from
the respective mortgage loan proceeds, as well as the overall
cross-collateralization. If a court were to conclude that the granting of the
liens was an avoidable fraudulent conveyance, that court could subordinate all
or part of the pertinent mortgage loan to existing or future indebtedness of
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 ATTORNMENT PROVISIONS ENTAILS RISKS]
[In some jurisdictions, if tenant leases are subordinate to liens created
by the mortgage and do not contain attornment provisions (i.e. provisions
requiring the tenant to recognize a successor owner following foreclosure as
landlord under the lease), the leases may terminate upon the transfer of the
property to a foreclosing lender or purchaser at foreclosure. Not all leases
were reviewed to ascertain the existence of attornment or subordination
provisions. Accordingly, if a mortgaged property is located in such a
jurisdiction and is leased to one or more desirable tenants under leases that
are subordinate to the mortgage and do not contain attornment provisions, such
mortgaged property could experience a further decline in value if such tenants'
leases were terminated. This is particularly likely if such tenants were paying
above-market rents or could not be replaced.]
[If a lease is not subordinate to a mortgage, the trust will not possess
the right to dispossess the tenant upon foreclosure of the mortgaged property
(unless it has otherwise agreed with the tenant). If the lease contains
provisions inconsistent with the mortgage (e.g. provisions relating to
application of insurance proceeds or condemnation awards) or which could affect
the enforcement of the lender's rights (e.g. a right of first refusal to
purchase the property), the provisions of the lease will take precedence over
the provisions of the mortgage. Certain of the anchor leases and other leases at
the retail properties included in the trust are not subordinate to the related
Mortgage.]]
[RISKS RELATING TO LITIGATION]
[There may be pending or threatened legal proceedings against the borrowers
and managers of the mortgaged properties and their respective affiliates arising
out of the ordinary business of the borrowers, managers and affiliates.]]
[RISKS RELATING TO COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT]
[Under the Americans with Disabilities Act of 1990 ("ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. Borrowers may incur costs complying with the
ADA. In addition, noncompliance could result in the imposition of fines by the
federal government or an award of damages to private litigants.]
RISKS RELATING TO CONFLICTS OF INTEREST
Conflicts Between Various Classes of Certificateholders. [The Special
Servicer] is given considerable latitude in determining whether and in what
manner to liquidate or modify defaulted mortgage loans. [The Operating Adviser]
will be empowered to replace the Special Servicer. At any given time, the
[Operating Adviser] will be controlled generally by the holders of the most
subordinated (or, under certain circumstances, the next most subordinated) class
of certificates (that is, the Controlling Class) outstanding from time to time,
and such holders may have interests in conflict with those of the holders of the
other certificates. For instance, the holders of certificates of the Controlling
Class might desire to mitigate the potential for loss to that Class from a
troubled mortgage loan by deferring enforcement in the hope of maximizing future
proceeds. However, the interests of the trust may be better served by prompt
action, since delay followed by a market downturn could result in less proceeds
to the trust than would have been realized if earlier action had been taken.
The [Special Servicer] or an affiliate may acquire certain of the most
subordinated certificates (including those of the initial Controlling Class).
Under such circumstances, the [Special Servicer] itself may have interests that
conflict with the interests of the other holders of the certificates.
[Conflicts Between Trustee and Affiliates of [_______________]. Conflicts
of interest may arise between the trust and affiliates of [__________________]
that engage in the acquisition, development, operation, financing and
disposition of real estate.
Those conflicts may arise because affiliates of [__________________] intend
to continue to actively acquire, develop, operate, finance and dispose of real
estate-related assets in the ordinary course of their business. During the
course of their business activities, those affiliates may acquire or sell
properties, or finance mortgage loans secured by properties, which are in the
same markets as the mortgaged properties. In such case, the interests of those
affiliates may differ from, and compete with, the interests of the trust, and
decisions made with respect to those assets may adversely affect the value of
the mortgaged properties and therefore the amount and timing of distributions
with respect to the certificates.]
[Conflicts Between Property 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.]
[Conflicts Between Sellers of Mortgage Loans and Classes of
Certificateholders. Affiliates of [_____________] and [__________________] may
acquire certain of the Offered Certificates. Under such circumstances, they may
become the holder of the Controlling Class, and as such have interests that may
conflict with their interests as Sellers of the Mortgage Loans. In addition, an
affiliate of [_________________] has a contractual right to a percentage of
cashflow and appreciation from the mortgaged property securing one of the
mortgage loans, which represents [ ]% of the initial outstanding pool balance.]
[RISKS RELATING TO PREPAYMENTS AND REPURCHASES]
[The yield to maturity on your certificates will depend, in significant
part, upon the rate and timing of principal payments on the mortgage loans. For
this purpose, principal payments include both voluntary prepayments, if
permitted, and involuntary prepayments, such as prepayments resulting from
casualty or condemnation, defaults and liquidations or repurchases upon breaches
of representations and warranties. Because the Notional Amount of the Class [ ]
Certificates is based upon the Principal Amounts of the certificates with
principal amounts, the yield to maturity on the Class [ ] Certificates will be
extremely sensitive to the rate and timing of prepayments of principal.]
[The investment performance of your certificates may vary materially and
adversely from your expectations if the actual rate of prepayment is higher or
lower than you anticipate.]
[Voluntary prepayments under certain of the mortgage loans require payment
of a yield maintenance premium unless the loan is within a specified number of
days of the effective maturity date or stated maturity date, as the case may be.
See "Description of the Mortgage Pool--Certain Terms and Characteristics of the
Mortgage Loans--Prepayment Restrictions." Nevertheless, we cannot assure you
that the related borrowers will refrain from prepaying their mortgage loans due
to the existence of a prepayment premium. We also cannot assure you that
involuntary prepayments will not occur. The rate at which voluntary prepayments
occur on the mortgage loans will be affected by a variety of factors, including:
o the terms of the mortgage loans;
o the length of any prepayment lockout period;
o the level of prevailing interest rates;
o the availability of mortgage credit;
o the applicable yield maintenance charges or prepayment premiums;
o the [Master Servicer's or Special Servicer's] ability to enforce
those charges or premiums;
o the occurrence of casualties or natural disasters; and
o economic, demographic, tax, legal or other factors.]
[Generally, no yield maintenance charge or prepayment premium will be
required for prepayments in connection with a casualty or condemnation unless,
in the case of most of the mortgage loans, an event of default has occurred and
is continuing. In addition, if Morgan Stanley Mortgage Capital Inc. repurchases
any mortgage loan 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 ENFORCEABILITY OF PREPAYMENT PREMIUMS]
[Provisions requiring yield maintenance charges or prepayment premiums may
not be enforceable in some states and under federal bankruptcy law. Those
provisions also may constitute interest for usury purposes. Accordingly, we
cannot assure you that the obligation to pay a yield maintenance charge or
prepayment premium will be enforceable. Also, we cannot assure you that
foreclosure proceeds will be sufficient to pay an enforceable yield maintenance
charge or prepayment premium. Additionally, although the collateral substitution
provisions related to defeasance do not have the same effect on the
certificateholders as prepayment, we cannot assure you that a court would not
interpret those provisions as requiring a yield maintenance charge or prepayment
premium. In certain jurisdictions those collateral substitution provisions might
therefore be deemed unenforceable under applicable law, or usurious.]
[YIELD CONSIDERATIONS]
[The yield on any certificate will depend on (i) the price at which such
certificate is purchased by an investor and (ii) the rate, timing and amount of
distributions on such certificate. The rate, timing and amount of distributions
on any certificate will, in turn, depend on, among other things:
o the interest rate for such certificate;
o the rate and timing of principal payments (including principal
prepayments) and other principal collections on or in respect of
the mortgage loans and the extent to which such amounts are to be
applied or otherwise result in a reduction of the balance or
Notional Amount of such certificate;
o the rate, timing and severity of losses on or in respect of the
mortgage loans or unanticipated expenses of the trust;
o the timing and severity of any interest shortfalls resulting from
prepayments;
o the timing and severity of any Appraisal Reductions; and
o the extent to which prepayment premiums are collected and, in
turn, distributed on such certificate.]]
[RISKS RELATING TO BORROWER DEFAULT]
[The rate and timing of delinquencies or defaults on the mortgage loans
will affect:
o the aggregate amount of distributions on the offered
certificates;
o their yield to maturity;
o the rate of principal payments; and
o their weighted average life.
[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 [ ], Class [ ],
Class [ ], Class [ ], Class [ ], Class [ ], Class [ ], Class [ ], Class [ ],
Class [ ], Class [ ] and Class [ ] Certificates, in that order, reducing amounts
otherwise payable to each class. Any remaining losses would then be allocated to
the Class [ ] 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 you on
your certificates occurs, the greater the effect on your yield to maturity.]
[Even if losses on the mortgage loans are not borne by your certificates,
those losses may affect the weighted average life and yield to maturity of your
certificates. This may be so because those losses lead to your certificates
having a higher percentage ownership interest in the trust and related
distributions of principal payments on the mortgage loans than would otherwise
have been the case. The effect on the weighted average life and yield to
maturity of your certificates will depend upon the characteristics of the
remaining mortgage loans.]
[Additionally, delinquencies and defaults on the mortgage loans may
significantly delay the receipt of distributions by you on your certificates,
unless 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.]]
[RISKS RELATING TO CERTAIN PAYMENTS]
[To the extent described in this prospectus 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 on the
offered certificates.]]
[RISKS OF LIMITED LIQUIDITY AND MARKET VALUE]
[Your Certificates will not be listed on any securities exchange or traded
on the NASDAQ Stock Market, and there is currently no secondary market for your
certificates. [While [_____________] currently intends to make a secondary
market in the Offered Certificates, it is not obligated to do so. Accordingly,
you may not have an active or liquid secondary market for your certificates.
Lack of liquidity could result in a substantial decrease in the market value of
your certificates. The market value of your certificates also may be affected by
many other factors, including the then-prevailing interest rates. [Furthermore,
you should be aware that the market for securities of the same type as the
certificates has recently been volatile and offered very limited liquidity.]
Finally, affiliates of [__________] 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.] See
"Risk Factors--Limited Liquidity" in the prospectus.]
[RELATED PARTIES MAY PURCHASE CERTIFICATES]
[Related parties, including the [Master Servicer,] [the Special Servicer]
or affiliates of the borrowers may purchase all or part of one or more classes
of certificates. A purchase by the [Master Servicer] or [Special Servicer,] as
the case may be, could cause a conflict between such entity's duties pursuant to
the Pooling Agreement and its interest as a holder of a certificate, especially
to the extent that certain actions or events have a disproportionate effect on
one or more classes of certificates. The Pooling Agreement provides that the
mortgage loans shall be administered in accordance with the Servicing Standard
without regard to ownership of any certificate by the [Master Servicer,] [the
Special Servicer] or any affiliate thereof.]]
[INTEREST RATES BASED ON WAC RATE ENTAIL CERTAIN RISKS]
[The interest rates on the Class [ ], Class [ ], Class [ ] and Class [ ]
Certificates are based on a weighted average of the mortgage loan interest
rates, which is calculated based upon the respective principal balances of those
mortgage loans. This "weighted average" rate is further described in this
prospectus supplement under the definition of WAC Rate. All of those classes of
certificates which are either fully or partially based upon such "weighted
average" rate will be affected by disproportionate principal payments,
prepayments, defaults and other unscheduled payments on the mortgage loans.
Because certain mortgage loans will amortize their principal more quickly than
others, such rate will fluctuate over the life of such classes of certificates.
See "Yield, Prepayment and Maturity Considerations--Yield" herein.]]
[RISK OF PASS-THROUGH RATE VARIABILITY CONSIDERATIONS]
[The interest rate of the Class [ ] Certificates is based on the WAC Rate
of the mortgage loans. In general, mortgage loans with relatively high mortgage
interest rates are more likely to prepay than mortgage loans with relatively low
mortgage interest rates. Varying rates of principal payments on mortgage loans
having mortgage interest rates above the weighted average of such rates of the
mortgage loans will have the effect of reducing the interest rate of such
certificates.]
[RISKS OF LIMITED ASSETS]
[The Offered Certificates will represent interests solely in the assets of
the trust and will not represent an interest in or an obligation of or any other
entity or person. Distributions on any of the certificates will depend solely on
the amount and timing of payments on the mortgage loans.]
[RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE]
The Depositor is aware of the issues associated with the programming code
in existing computer systems as the millennium (year 2000) approaches. The "year
2000 problem" is pervasive and complex: virtually every computer operation will
be affected in some way by the rollover of the two-digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data, fail or cause another
system to fail. "Systems" include all hardware, networks, system and application
software, commercial "off-the-shelf" software, data and voice communication
devices, and embedded technology such as data-impacted processors in automated
systems such as elevators, telephone systems, security systems, vault systems,
heating and cooling systems and others.
The Depositor has been advised by each of the Master Servicer, [the Special
Servicer,] [the Sub-Servicer] and the Trustee that they will use commercially
reasonable efforts to either (i) implement modifications to their respective
existing systems to the extent required to cause them to be year 2000 compliant
or (ii) acquire computer systems that are year 2000 compliant, in each case
prior to January 1, 2000. However, neither the Depositor nor any affiliate of
the Depositor has made any independent investigation of the computer systems of
the Master Servicer, [the Special Servicer,] [the Sub-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,] [the Sub-Servicer] or the Trustee are not
fully year 2000 compliant, the resulting disruptions in the collection or
distribution of sums collected or required to be advanced on the Mortgage Loans
could materially and adversely affect the holders of the Certificates.
DTC has informed its DTC Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and income payments) to securityholders, book-entry
deliveries, and settlement of trades within DTC, continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to: (i)
impress upon them the importance of such services being year 2000 compliant; and
(ii) determine the extent of their efforts for year 2000 remediation (and, as
appropriate, testing) of their services. In addition, DTC is in the process of
developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty or contract modification of any kind.
In the event that computer problems arise out of a failure of the efforts
described above to be completed on time, or in the event that the Systems of the
Trustee, the Master Servicer, [the Special Servicer,] [the Sub-Servicer] or DTC
are not fully year 2000 compliant, any resulting disruptions in the collection
and distribution of receipts on or in respect of the Mortgage Loans could
materially adversely affect your Certificates.
See "Risk Factors" in the prospectus for a description of certain other
risks and special considerations applicable to the Certificates.
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.
MORTGAGE POOL CHARACTERISTICS
GENERAL
The Trust Fund will consist primarily of [ ] [fixed interest] [adjustable
interest] rate Mortgage Loans with an aggregate principal balance as of the
Cut-Off Date, after deducting payments of principal due on such date, of
$____________,] [mortgage participations, mortgage pass-through certificates,
mortgaged-backed securities evidencing interests therein or secured thereby (the
"MBS"),] [and] [certain direct obligations of the United States, agencies
thereof or agencies created thereby (the "Government Securities")]. [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"
creating a [first][junior] [fee][leasehold] lien on a [multifamily][commercial]
property (a "Mortgaged Property"). The Mortgaged Properties consist of
[description of commercial or multifamily residential properties]. [Because no
evaluation of any mortgagor's financial condition has been conducted, investors
should consider all of the Mortgage Loans to be non-recourse loans so that, in
the event of mortgagor default, recourse may be had only against the specific
property and such limited other assets as have been pledged to secure a Mortgage
Loan, and not against the mortgagor's other assets.] All percentages of the
Mortgage Loans described herein are approximate percentages (except as otherwise
indicated) by aggregate principal balance as of the Cut-Off Date.]
[The Mortgage Loans to be included in the Trust Fund will have been
originated or acquired by ________________ (the "Mortgage Asset Seller") and
will comply with the underwriting criteria described herein. The Depositor will
purchase the Mortgage Loans to be included in the Mortgage Pool on or before the
Closing Date from the Mortgage Asset Seller pursuant to a seller's agreement
(the "Seller's Agreement"), to be dated as of ____________, 199_ between the
Mortgage Asset Seller and the Depositor. The Depositor will cause the Mortgage
Loans in the Mortgage Pool to be assigned to _______________, as Trustee,
pursuant to the Pooling Agreement. _____________, in its capacity as Master
Servicer, will service the Mortgage Loans pursuant to the Pooling Agreement.
Under the Seller's Agreement, _______________, as seller of the Mortgage
Loans to the Depositor, will make certain representations, warranties and
covenants to the Depositor relating to, among other things, the due execution
and enforceability of the Seller's Agreement and certain characteristics of the
Mortgage Loans, and will be obligated to repurchase or substitute for any
Mortgage Loans as to which there exists deficient documentation or an uncured
material breach of any such representation, warranty or covenant. Under the
Pooling Agreement the Depositor will assign all its right, title and interest in
such representations, warranties and covenants (including ____________________'s
repurchase or substitution obligation) to the Trustee for the Trust Fund. The
Depositor will make [no] representations or warranties with respect to the
Mortgage Loans and will have no obligation to repurchase or substitute for
Mortgage Loans with deficient documentation [or which are otherwise defective].
_____________, as seller of the Mortgage Loans to the Depositor, is selling such
Mortgage Loans without recourse and, accordingly, in such capacity, will have no
obligations with respect to the certificates other than pursuant to such
representations, warranties, covenants and repurchase obligations. See
"Description of the Agreements--Representations and Warranties; Repurchases" in
the Prospectus.]
[THE MORTGAGE BACKED SECURITIES (MBS)]
[Title and issuer of underlying securities, amount deposited or pledged,
amount originally issued, maturity date, interest rate, [redemption provisions],
together with description of other material terms.]
[Description of principal and interest distributions on the MBS.]
[Description of advances by the servicer of the mortgage loans underlying
the MBS.]
[Description of effect on the MBS of allocation of losses on the underlying
mortgage loans.]
As to each series of Mortgage Backed Securities included in the Trust Fund,
the various classes of certificates from such series [(including classes not in
the Trust Fund but from the same series as classes that are in the Trust Fund]
are listed, together with the related pass-through rates and certain other
information applicable thereto, in [Appendix II hereto.]
[THE INDEX]
[As of any Payment Adjustment Date, the Index applicable to the
determination of the related Mortgage Rate will be a per annum rate equal to
______________, as most recently available as of the date days prior to the
Payment Adjustment Date (the "Index"). Such average yields reflect the yields
for the week prior to that week in which the information is reported. In the
event that the Index is no longer available, an index reasonably acceptable to
the Trustee that is based on comparable information will be selected by the
Master Servicer.
The Index is currently calculated based on information reported in
___________. Listed below are the weekly average yields on actively traded
______________ as reported in ____________ on the date that would have been
applicable to mortgage loans having the following adjustment dates for the
indicated years. Such average yields may fluctuate significantly from week to
week as well as over longer periods and may not increase or decrease in a
constant pattern from period to period. The following does not purport to be
representative of future average yields. No assurance can be given as to the
average yields on such _______________ on any Payment Adjustment Date or during
the life of any Mortgage Loan.]
[NAME OF INDEX]
Adjustment Date 1990 1991 1992 1993 1994 1995
- --------------- ---- ---- ---- ---- ---- ----
January [ ]........
February [ ] ......
March [ ]..........
April [ ]..........
May [ ]............
June [ ]...........
July [ ]...........
August [ ].........
September [ ]......
October [ ]........
November [ ].......
December [ ].......
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
[Approximately ___% of the Mortgage Loans have Due Dates that occur on the
___ day of each month; approximately ___% of the Mortgage Loans have Due Dates
that occur on the ___ day of each month; approximately _____% of the Mortgage
Loans have Due Dates that occur on the ___ day of each month; and the remainder
of the Mortgage Loans have Due Dates that occur on the fifteenth day of each
month.]
[As of the Cut-Off Date, the Mortgage Loans had the following
characteristics: (i) Mortgage Rates ranging from _____% per annum to _______%
per annum; (ii) a weighted average Mortgage Rate of ______% per annum; (iii)
Gross Margins ranging from ____ basis points to ______ basis points; (iv) a
weighted average Gross Margin of ____ basis points; (v) principal balances
ranging from $_______ to $______; (vi) an average principal balance of
$_________; (vii) original terms to scheduled maturity ranging from _____ months
to _________ months; (viii) a weighted average original term to scheduled
maturity of _____ months; (ix) remaining terms to scheduled maturity ranging
from ____ months to _____ months; (x) a weighted average remaining term to
scheduled maturity of ________ months; (xi) Cut-Off Date Loan-to-Value ("LTV")
Ratios ranging from ______% to ________%; (xii) a weighted average Cut-Off Date
LTV Ratio of _____%; (xiii) as to the _______% of the Mortgage Loans to which
such characteristic applies, (A) minimum lifetime Mortgage Rates ranging from
____% per annum to ______ % per annum and (B) a weighted average minimum
lifetime Mortgage Rate of _______% per annum; (xiv) as to the __________% of
Mortgage Loans to which such characteristic applies and for which it may be
currently calculated, (A) maximum lifetime Mortgage Rate ranging from _______%
per annum to ________% per annum and (B) a weighted average maximum lifetime
Mortgage Rate of _________% per annum; (xv) Cut-Off Date Debt Service Coverage
Ratios ranging from ______% to _____% and (xvi) a weighted average Cut-Off Date
Debt Service Coverage Ratio of _________%.]
[___% of the Mortgage Loans provide for Balloon Payments on their
respective maturity dates. Loans providing for Balloon Payments involve a
greater degree of risk than self-amortizing loans. See "Risk Factors--Balloon
Payments" in the Prospectus.]
[The Mortgage Rate on each Mortgage Loan is subject to adjustment on each
Interest Rate Adjustment Date by adding the related Gross Margin to the value of
the Index (described below) as most recently announced a specified number of
days prior to such Interest Rate Adjustment Date, subject, in the case of
substantially all of the Mortgage Loans, to minimum and maximum lifetime
Mortgage Rates, with ranges specified below. The Mortgage Rates on the Mortgage
Loans generally are adjusted monthly; however, certain of the Mortgage Loans
provide for Interest Rate Adjustment Dates to occur quarterly (___% of the
Mortgage Loans), semi-annually ( % of the Mortgage Loans) or annually (____% of
the Mortgage Loans). Each of the Mortgage Loans provided for an initial fixed
interest rate period; Mortgage Loans, representing ___% of the Mortgage Loans,
have not experienced their first Interest Rate Adjustment Dates. The latest
initial Interest Rate Adjustment Date for any Mortgage Loan is to occur in
_________________________.]
[Subject to the Payment Caps described below, the amount of the Monthly
Payment on each Mortgage Loan adjusts periodically on each Payment Adjustment
Date to an amount that would fully amortize the principal balance of the
Mortgage Loan over its then remaining amortization schedule and pay interest at
the Mortgage Rate in effect during the one month period preceding such Payment
Adjustment Date. Approximately __% of the Mortgage Loans provide that an
adjustment of the amount of the Monthly Payment on a Payment Adjustment Date may
not result in a Monthly Payment that increases by more than ___% (nor, in some
cases, decreases by more than ____%) of the amount of the Monthly Payment in
effect immediately prior to such Payment Adjustment Date (each such provision, a
"Payment Cap"); however, certain of those Mortgage Loans also provide that the
Payment Cap will not apply on certain Payment Adjustment Dates or if the
application thereof would result in the principal balance of the Mortgage Loan
exceeding (through negative amortization) by a specified percentage the original
principal balance thereof. Generally, the related Mortgage Note provides that
if, as a result of negative amortization, the respective principal balance of
the Mortgage Loan reaches an amount specified therein (which as to most Mortgage
Loans is not greater than _% of the Mortgage Loan principal balance as of the
origination date thereof), the amount of the Monthly Payments due thereunder
will be increased as necessary to prevent further negative amortization.]
[Only in the case of _____% of the Mortgage Loans does a Payment Adjustment
Date immediately follow each Interest Rate Adjustment Date. As a result, and
because application of Payment Caps may limit the amount by which the Monthly
Payments due on certain of the Mortgage Loans may adjust, the amount of a
Monthly Payment may be more or less than the amount necessary to amortize the
Mortgage Loan principal balance over the then remaining amortization schedule at
the applicable Mortgage Rate. Accordingly, Mortgage Loans may be subject to
slower amortization (if the Monthly Payment due on a Due Date is sufficient to
pay interest accrued to such Due Date at the applicable Mortgage Rate but is not
sufficient to reduce principal in accordance with the applicable amortization
schedule), to negative amortization (if interest accrued to a Due Date at the
applicable Mortgage Rate is greater than the entire Monthly Payment due on such
Due Date) or to accelerated amortization (if the Monthly Payment due on a Due
Date is greater than the amount necessary to pay interest accrued to such Due
Date at the applicable Mortgage Rate and to reduce principal in accordance with
the applicable amortization schedule).]
[No Mortgage Loan currently prohibits principal prepayments; however,
certain of the Mortgage Loans impose fees or penalties ("Prepayment Premiums")
in connection with full or partial prepayments. Although Prepayment Premiums are
payable to the Master Servicer as additional servicing compensation, the Master
Servicer may waive the payment of any Prepayment Premium only in connection with
a principal prepayment that is proposed to be made during the three month period
prior to the scheduled maturity of the related Mortgage Loan, or under certain
other limited circumstances.]
The following table sets forth the range of Mortgage Rates on the Mortgage
Loans as of the Cut-Off Date:
MORTGAGE RATES AS OF THE CUT-OFF DATE
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-Off Date the Cut-Off Date
- ------------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ================ =======
Weighted Average
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
The following table sets forth the types of Mortgaged Properties securing
the Mortgage Loans:
PROPERTY TYPE
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Type Loans Number the Cut-Off Date the Cut-Off Date
---- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ================ =======
Note: Percentage totals may not add due to rounding.
[The following table sets forth the range of Gross Margins for the Mortgage
Loans:]
[GROSS MARGINS]
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-Off Date the Cut-Off Date
- ------------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ================ =======
Weighted Average
Gross Margin:
Note: Percentage totals may not add due to rounding.
[The following table sets forth the frequency of adjustments to the
Mortgage Rates on the Mortgage Loans as of the Cut-Off Date:]
[FREQUENCY OF ADJUSTMENTS TO MORTGAGE RATES]
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Frequency(A) Loans Number the Cut-Off Date the Cut-Off Date
- ------------ --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ================ =======
Weighted Average
Frequency of
Adjustments to
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) _______ or ___% of Mortgage Loans have not experienced their first Interest
Rate Adjustment Date.
[The following table sets forth the frequency of adjustments to the Monthly
Payments on the Mortgage Loans as of the Cut-Off Date:]
[FREQUENCY OF ADJUSTMENTS TO MONTHLY PAYMENTS]
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Frequency(A) Loans Number the Cut-Off Date the Cut-Off Date
- ------------ --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ================ =======
Weighted Average
Frequency of
Adjustments to
Monthly Payments:
Note: Percentage totals may not add due to rounding.
[The following table sets forth the range of maximum lifetime Mortgage
Rates for the Mortgage Loans:]
[MAXIMUM LIFETIME MORTGAGE RATES]
Percent by
Aggregate Aggregate
Maximum Number of Percent Principal Principal
Lifetime Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-Off Date the Cut-Off Date
- ------------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ================ =======
Weighted Average
Maximum Lifetime
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) Represents Mortgage Loans without a lifetime rate cap.
(B) The lifetime rate caps for these Mortgage Loans are based upon the Index as
determined at a future point in time plus a fixed percentage. Therefore,
the rate is not determinable as of the Cut-Off Date.
(C) This calculation does not include the ____ Mortgage Loans without a
lifetime rate cap or the Mortgage Loans with lifetime rate caps which are
currently not determinable.
[The following table sets forth the range of minimum lifetime Mortgage
Rates on the Mortgage Loans:]
[MINIMUM LIFETIME MORTGAGE RATES]
Percent by
Aggregate Aggregate
Minimum Number of Percent Principal Principal
Lifetime Mortgage by Balance as of Balance as of
Mortgage Rate Loans Number the Cut-Off Date the Cut-Off Date
- ------------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ================ =======
Weighted Average
Minimum Lifetime
Mortgage Rate:
Note: Percentage totals may not add due to rounding.
(A) Represents Mortgage Loans without interest rate floors.
(B) This calculation does not include the _____ Mortgage Loans without interest
rate floors.
The following table sets forth the range of principal balances of the
Mortgage Loans as of the Cut-Off Date:
PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
Percent by
Principal Aggregate Aggregate
Balance Number of Percent Principal Principal
as of the Mortgage by Balance as of Balance as of
Cut-Off Date Loans Number the Cut-Off Date the Cut-Off Date
- ------------ --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ================ =======
Average Principal Balance
as of the
Cut-Off Date:
Note: Percentage totals may not add due to rounding.
The following tables set forth the original and remaining terms to maturity
(in months) of the Mortgage Loans:
ORIGINAL TERM TO MATURITY IN MONTHS
Percent by
Aggregate Aggregate
Original Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-Off Date the Cut-Off Date
-------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ================ =======
Weighted Average
Original Term to Maturity:
Note: Percentage totals may not add due to rounding.
REMAINING TERM TO MATURITY IN MONTHS
Percent by
Aggregate Aggregate
Remaining Number of Percent Principal Principal
Term in Mortgage by Balance as of Balance as of
Months Loans Number the Cut-Off Date the Cut-Off Date
--------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ================ =======
Weighted Average Remaining
Term to Maturity:
Note: Percentage totals may not add due to rounding.
The following tables set forth the respective years in which the Mortgage
Loans were originated and are scheduled to mature:
MORTGAGE LOAN YEAR OF ORIGINATION
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Year Loans Number the Cut-Off Date the Cut-Off Date
---- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ================ =======
Note: Percentage totals may not add due to rounding.
MORTGAGE LOAN YEAR OF SCHEDULED MATURITY
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
Year Loans Number the Cut-Off Date the Cut-Off Date
---- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ================ =======
Note: Percentage totals may not add due to rounding.
The following table sets forth the range of Original LTV Ratios of the
Mortgage Loans. An "Original LTV Ratio" is a fraction, expressed as a
percentage, the numerator of which is the principal balance of a Mortgage Loan
on the date of its origination, and the denominator of which is [in general] the
lesser of (i) the appraised value of the related Mortgaged Property as
determined by an appraisal thereof obtained in connection with the origination
of such Mortgage Loan and (ii) the sale price of such Mortgaged Property at the
time of such origination. There can be no assurance that the value (determined
through an appraisal or otherwise) of a Mortgaged Property determined after
origination of the related Mortgage Loan will be equal to or greater than the
value thereof (determined through an appraisal or otherwise) obtained in
connection with the origination. As a result, there can be no assurance that the
loan-to-value ratio for any Mortgage Loan determined at any time following
origination thereof will be lower than the Original LTV Ratio, notwithstanding
any positive amortization of such Mortgage Loan.
ORIGINAL LTV RATIOS
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Original Mortgage by Balance as of Balance as of
LTV Ratio Loans Number the Cut-Off Date the Cut-Off Date
--------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ================ =======
Weighted Average Original
LTV Ratio:
Note: Percentage totals may not add due to rounding.
The following table sets forth the range of Debt Service Coverage Ratios
for the Mortgage Loans. The "Debt Service Coverage Ratio" for any Mortgage Loan
is the ratio of Net Operating Income produced by the related Mortgaged Property
for the period covered by the annual operating statement to the amounts of
principal, interest and other sums due under such Mortgage Loan for the same
period. "Net Operating Income" is the rent from all leases under which the
tenants have taken occupancy at the time of calculation (including only rents
prior to expiration for those leases whose terms expire within one year of the
calculation and pass-through for utilities and excluding all free rent) less
operating expenses (such as utilities, administrative expenses, repairs and
maintenance) and less fixed expenses (such as insurance, real estate and other
taxes to be paid by mortgagor). The annual operating statements for the
Mortgaged Properties used in preparing the following table were obtained from
the respective mortgagors. The information contained therein was unaudited, and
the Depositor has made no attempt to verify its accuracy. The last day of the
twelve-month period covered by each such operating statement is set forth in
Appendix II with respect to the related Mortgage Loan. [Certain of the Mortgaged
Properties have relatively short operating histories, and such performance may
be less indicative of future performance than in the case of a property with a
stable operating history over an extended period of time. However, even with
respect to Mortgaged Properties with longer operating histories, operating
income produced by Mortgaged Properties in the past should not be construed as
indicative of the future performance of any Mortgaged Property. [Annual
operating statements for any year following 19__ could not be obtained with
respect to _______ of the Mortgaged Properties and, consequently, the Debt
Service Coverage Ratios for the related Mortgage Loans were not calculated. As a
result, no conclusions should be drawn as to those Mortgage Loans on the basis
of the information set forth below.]
DEBT SERVICE COVERAGE RATIOS AS OF THE CUT-OFF DATE
Percent by
Aggregate Aggregate
Debt Service Number of Percent Principal Principal
Coverage Mortgage by Balance as of Balance as of
Ratio Loans Number the Cut-Off Date the Cut-Off Date
- ------------ --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ================ =======
Weighted Average
Debt Service Coverage
Ratio:
Note: Percentage totals may not add due to rounding.
(A) The debt service coverage ratios for these loans were not calculated due to
a lack of operating statements with respect to years after 19__.
(B) This calculation does not include the ____ Mortgage Loans where debt
service coverage ratios were not calculated.
The Mortgage Loans are secured by Mortgaged Properties in _____ different
states. The table below sets forth the states in which the Mortgaged Properties
are located:
GEOGRAPHIC DISTRIBUTION
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Mortgage by Balance as of Balance as of
State Loans Number the Cut-Off Date the Cut-Off Date
----- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ================ =======
Note: Percentage totals may not add due to rounding.
[regional breakdown to be provided as appropriate]
[___% of the Mortgage Loans provide that upon any principal prepayment of a
Mortgage Loan, whether made voluntarily or involuntarily, the related Mortgagor
will be required to pay a prepayment premium or yield maintenance Penalty (a
"Prepayment Premium") in the amount set forth in the following table.]
[MORTGAGE LOAN PREPAYMENT PREMIUMS]
Percent by
Aggregate Aggregate
Number of Percent Principal Principal
Prepayment Mortgage by Balance as of Balance as of
Premium Loans Number the Cut-Off Date the Cut-Off Date
---------- --------- ------- ---------------- ----------------
Total 100.00% $ 100.00%
========= ======= ================ =======
Note: Percentage totals may not add due to rounding.
[Set forth in Appendix II to this Prospectus Supplement are certain
individual characteristics of the Mortgage Loans.]
UNDERWRITING STANDARDS
All of the Mortgage Loans were originated or acquired by _______, generally
in accordance with the underwriting criteria described herein.
[Description of underwriting standards.]
ADDITIONAL INFORMATION
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 close of business on the Cut-Off Date, as adjusted for the
scheduled principal payments due on or before such date. Prior to the issuance
of the Class [ ] Certificates, a Mortgage Loan may be removed from the Mortgage
Pool as a result of incomplete documentation or otherwise, if the Depositor
deems such removal necessary or appropriate and may be prepaid at any time. A
limited number of other mortgage loans may be included in the Mortgage Pool
prior to the issuance of the Class [ ] Certificates unless including such
mortgage loans would materially alter the characteristics of the Mortgage Pool
as described herein. The Depositor believes that the information set forth
herein will be representative of the characteristics of the Mortgage Pool as it
will be constituted at the time the Class [ ] 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.
A Current Report on Form 8-K (the "Form 8-K") will be available to
purchasers of the Class [ ] Certificates and will be filed, together with the
Pooling Agreement, with the Securities and Exchange Commission within fifteen
days after the initial issuance of the Class [ ] Certificates. In the event
Mortgage Loans are removed from or added to the Mortgage Pool as set forth in
the preceding paragraph, such removal or addition will be noted in the Form 8-K.
DESCRIPTION OF THE OFFERED CERTIFICATES
GENERAL
[The Certificates will be issued pursuant to the Pooling Agreement and will
consist of [___] classes (each, a "Class") to be designated as the Class [ ]
Certificates and the Class [ ] Certificates (collectively, the "Class [ ]
Certificates"), the Class [ ] Certificates, the Class [ ] Certificates, the
Class [ ] Certificates, the Class [ ] Certificates, the Class [ ] Certificates,
the Class [ ] Certificates, the Class [ ] Certificates, the Class [ ]
Certificates, the Class [ ] Certificates and the Class [ ] Certificates. The
Class [ ], Class [ ], Class [ ], Class [ ] and Class [ ] Certificates
(collectively, the "Private Certificates") are not offered hereby.]
The Certificates represent in the aggregate the entire beneficial ownership
interest in a Trust Fund consisting of: (i) the Mortgage Loans and all payments
under and proceeds of the Mortgage Loans due after the Cut-Off Date; (ii) any
Mortgaged Property acquired on behalf of the Trust Fund through foreclosure or
deed in lieu of foreclosure (upon acquisition, an "REO Property"); (iii) such
funds or assets as from time to time are deposited in the [Collection Account,]
[the Subsidiary Distribution Account,] [the Master Distribution Account,] [the
Deferred Interest Distribution Account,] [the Class [ ] Distribution Account]
and any account established in connection with REO Properties (an "REO
Account"); (iv) the rights of the mortgagee under all insurance policies with
respect to the Mortgage Loans; (v) certain rights and remedies under the
[Seller's **Agreement]; and (vi) all of the mortgagee's right, title and
interest in the [Reserve Accounts and the Lockbox Accounts]. The Certificates do
not represent an interest in or obligation of the [Depositor, [_____], [the
Master Servicer,] [the Special Servicer,] [the Trustee,] [the Underwriter,] the
borrowers or any of their respective affiliates.
[Upon initial issuance, the Class [ ], Class [ ], Class [ ], Class [ ],
Class [ ], Class [ ], Class [ ] and Class [ ] Certificates (collectively, the
"Principal Balance Certificates") and the Class [ ] Certificates will have the
following Certificate Principal Amount or Notional Amount (in each case, subject
to a variance of plus or minus 5%):]
INITIAL CERTIFICATE PRINCIPAL
CLASS AMOUNT OR NOTIONAL AMOUNT
----- -----------------------------
Class [ ]..................... $
Class [ ].....................
Class [ ].....................
Class [ ].....................
Class [ ].....................
Class [ ].....................
[The Certificate Principal Amount of any Class of Principal Balance
Certificates outstanding at any time represents the maximum amount which the
holders thereof are entitled to receive as distributions allocable to principal
from the cash flow on the Mortgage Loans and the other assets in the Trust Fund;
provided, however, that in the event that Realized Losses previously allocated
to a Class of Certificates in reduction of their Certificate Principal Amounts
are recovered subsequent to the reduction of the Certificate Principal Amount of
such Class to zero, such Class may receive distributions in respect of such
recoveries in accordance with the priorities set forth under
"--Distributions--Payment Priorities" herein. The respective Certificate
Principal Amount of each Class of Certificates entitled to distributions of
principal will in each case be reduced by amounts actually distributed thereon
that are allocable to principal and by any Realized Losses allocated to such
Class of Certificates.]
[The Class [ ] will not have a Certificate Principal Amount. Such Class
will represent the right to receive distributions of interest accrued as
described herein on a notional principal amount (a "Notional Amount"). [Describe
Notional Amount.] The Notional Amount of the Class [ ] Certificates will
generally equal the aggregate Certificate Principal Amounts of the Class [ ],
Class [ ], Class [ ] and Class [ ] Certificates outstanding from time to time,
plus the amount of any unpaid Interest Shortfall on such Classes. For
convenience in describing interest distributions, the Class [ ] Certificates
will be deemed to consist of [___] components, the "Class [ ] Component", the
"Class [ ] Component" and the "Class [ ] Component", each of which will have a
notional amount (each, a "Component Notional Amount") equal to the Certificate
Principal Amount of the related Class of Certificates and will be reduced by
distributions allocable to principal and by any Realized Losses allocated to
such Class of Certificates. The Notional Amount of the Class [ ] Certificates
will be reduced to the extent of all reductions in the aggregate of the
Certificate Principal Amounts of the Class [ ], Class [ ], Class [ ], Class [ ]
and Class [ ] Certificates.]
[None of the Class [ ] Certificates are offered hereby.]
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be made
on the [_____] Business Day of each month, commencing in __________, 199__
(each, a "Distribution Date"). All distributions (other than the final
distribution on any Certificate) will be made by the [Master Servicer] [Trustee]
to the persons in whose names the Certificates are registered at the close of
business on [the last day of the month] immediately preceding the month in which
the related Distribution Date occurs, or if such day is not a Business Day, the
immediately preceding Business Day. Such distributions will be made (a) 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 provides the Trustee with wiring
instructions no less than [five Business Days] prior to the related Record Date,
or otherwise (b) by check mailed to such Certificateholder. [The final
distribution on any Offered Certificates will be made in like manner, but only
upon presentment or surrender (for notation that the Certificate Principal
Amount or the Notional Amount, as the case may be, thereof has been reduced to
zero) of such Certificate at the location specified in the notice to the
Certificateholder thereof of such final distribution.] [All distributions made
with respect to a Class of Certificates on each Distribution Date will be
allocated [pro rata] among the outstanding Certificates of such Class based on
their respective Percentage Interests.] [The "Percentage Interest" evidenced by
any Offered Certificate is equal to the initial denomination thereof as of the
Closing Date divided by the initial Certificate Principal Amount of the related
Class.]
[The aggregate distribution to be made on the Certificates on any
Distribution Date will equal the Available Funds. [The "Available Funds"] for a
Distribution Date will be the sum of (i) [all Monthly Payments or other receipts
on account of principal and interest on or in respect of the Mortgage Loans
(including Unscheduled Payments and Net REO Proceeds, if any) received by the
Master Servicer in the related Collection Period,] (ii) [all other amounts
required to be deposited in the Collection Account by the Master Servicer
pursuant to the Pooling Agreement in respect of such Distribution Date that are
allocable to the Mortgage Loans, including all P&I Advances made by the Master
Servicer or the Trustee, as applicable, in respect of such Distribution Date,
and any interest or other income earned on funds in the Interest Reserve
Account,] and (iii) [any late payments of the items set forth in clause (i)
above received after the end of the Collection Period relating to such
Distribution Date but prior to the related Master Servicer Remittance Date,] but
excluding the following:]
[(a) amounts permitted to be used to reimburse the Master Servicer,
the Special Servicer or the Trustee, as applicable, for previously
unreimbursed Advances and interest thereon as described herein under "The
Pooling Agreement--Advances";]
[(b) the aggregate amount of the Servicing Fee (which includes the
fees for both the Trustee and the Master Servicer) payable to the Master
Servicer and the amounts payable to the Special Servicer described herein
under "The Pooling Agreement--Special Servicer" in each case in respect of
such Distribution Date, and all amounts in the nature of late fees, loan
modification fees, extension fees, loan service transaction fees, demand
fees, beneficiary statement charges, assumption fees, modification fees and
similar fees, and reinvestment earnings on payments received with respect
to the Mortgage Loans which the Master Servicer or Special Servicer is
entitled to receive as additional servicing compensation pursuant to the
terms of the Pooling Agreement (together with the Servicing Fee, "Servicing
Compensation");]
(c) [all amounts representing scheduled Monthly Payments due after the
related Due Date;]
(d) [to the extent permitted by the Pooling Agreement, that portion of
liquidation proceeds, insurance proceeds, condemnation proceeds or the
Repurchase Price received with respect to a Mortgage Loan which represents
any unpaid Servicing Compensation as described herein, to which the Master
Servicer, the Special Servicer or the Trustee is entitled;]
(e) [all amounts representing certain unanticipated or default related
expenses reimbursable or payable to the Master Servicer, the Special
Servicer or the Trustee and other amounts permitted to be retained by the
Master Servicer or withdrawn pursuant to the Pooling Agreement in respect
of various items, including indemnities;]
(f) [Prepayment Premiums;]
(g) [Default Interest;]
(h) [Deferred Interest;]
(i) [all amounts received with respect to each Mortgage Loan
previously purchased or repurchased pursuant to the Pooling Agreement
during the related Collection Period and subsequent to the date as of which
the amount required to effect such purchase or repurchase was determined;]
and
(j) [the amount reasonably determined by the Trustee to be necessary
to pay any applicable federal, state or local taxes imposed on the [Master
REMIC or the Subsidiary REMIC] under the circumstances and to the extent
described in the Pooling Agreement.]
Payment Priorities. As used below in describing the priorities of
distribution of Available Funds for each Distribution Date, the terms set forth
below will have the following meanings.
[The "Interest Accrual Amount", with respect to any Distribution Date and
any Class of Principal Balance Certificates, is equal to interest for the
related Interest Accrual Period at the Pass-Through Rate for such Class on the
related Certificate Principal Amount (provided, that for interest accrual
purposes any distributions in reduction of Certificate Principal Amount or
reductions in Certificate Principal Amount as a result of allocations of
Realized Losses on the Distribution Date occurring in an Interest Accrual Period
will be deemed to have been made on the first day of such Interest Accrual
Period); and "Interest Accrual Amount" with respect to any Distribution Date and
the Class [ ] Certificates is equal to interest for the related Interest Accrual
Period at the Pass-Through Rate for such Class for such [Interest Accrual Period
on the Notional Amount] (provided, that for interest accrual purposes any
distributions in reduction of Notional Amount or reductions in [Notional Amount]
as a result of allocations of [Realized Losses on the Distribution Date]
occurring in an Interest Accrual Period shall be deemed to have been made on the
[first day] of such Interest Accrual Period) of such Class. Calculations of
interest on the Certificates, will be made on the basis of a [360-day year]
consisting of [twelve 30-day] months].
[The "Interest Distribution Amount" with respect to any Distribution Date
and each Class of Regular Certificates will equal [(A) the sum of (i) the
Interest Accrual Amount for such Distribution Date and (ii) the Interest
Shortfall, if any, for such Distribution Date,] less (B) [any Excess Prepayment
Interest Shortfall allocated to such Class on such Distribution Date.]]
[The "Interest Accrual Period" with respect to any Distribution Date and
with respect to any Class of Certificates is the calendar month preceding the
month in which such Distribution Date occurs.]
[Each Interest Accrual Period with respect to each Class of Certificates is
assumed to consist of [[ ] days].]
[An "Interest Shortfall" with respect to any Distribution Date for any
Class of Regular Certificates is the sum of (a) the excess, if any, of (i) the
Interest Distribution Amount for such Class for the immediately preceding
Distribution Date, over (ii) all distributions of interest (other than Deferred
Interest) made with respect to such Class of Certificates on the immediately
preceding Distribution Date, and (b) to the extent permitted by applicable law,
(i) other than in the case of the Class [ ] Certificates, one month's interest
on any such excess at the Pass-Through Rate applicable to such Class of
Certificates for the current Distribution Date and (ii) in the case of the Class
[ ] Certificates, one month's interest on any such excess at the WAC Rate for
such Distribution Date.]
[The "Pass-Through Rate" for any Class of Regular Certificates for any
Interest Accrual Period is the per annum rate at which interest accrues on the
Certificates of such Class during such Interest Accrual Period, as follows:
The Pass-Through Rate on the Class [ ] Certificates will be equal to [ ]%.
The Pass-Through Rate on the Class [ ] Certificates will be equal to [ ]%.
The Pass-Through Rate on the Class [ ] Certificates is equal to the WAC
Rate minus [ ]%.]
[The Pass-Through Rate on the Class [ ] Certificates is a per annum rate
equal to the weighted average of the Pass-Through Rates on the Class [ ]
Component, the Class [ ] Component, the Class [ ] Component, the Class [ ]
Component and the Class [ ] Component, weighted on the basis of their respective
Component Notional Amounts. The Pass-Through Rate on the Class [ ] Component is
a per annum rate equal to the WAC Rate minus the Pass-Through Rate on the Class
[ ] Certificates. The Pass-Through Rate on the Class [ ] Component is a per
annum rate equal to the WAC Rate minus the Pass-Through Rate on the Class [ ]
Certificates. The Pass-Through Rate on the Class [ ] Component is a per annum
rate equal to [ ]%. The Pass-Through Rate on the Class [ ] Component is a per
annum rate equal to [ ]%. The Pass-Through Rate on the Class [ ] Component is a
per annum rate equal to [ ]%.]
[The "WAC Rate" for any Distribution Date is the weighted average of the
Net Mortgage Rates in effect for the Mortgage Loans as of their Due Date in the
[month preceding the month] in which such Distribution Date occurs weighted on
the basis of their respective Stated Principal Balances on such Due Date.]
[The "Regular Certificates" are the Class [ ], Class [ ], Class [ ] and
Class [ ] Certificates.]
[The "Net Mortgage Rate" with respect to any Mortgage Loan is a per annum
rate equal to the related Mortgage Rate in effect from time to time [minus] the
[Servicing Fee Rate]. However, for purposes of calculating Pass-Through Rates,
the Net Mortgage Rate of such Mortgage Loan shall be determined without regard
to any modification, waiver or amendment of the terms, whether agreed to by the
[Special Servicer] or resulting from a bankruptcy, insolvency or similar
proceeding involving the related borrower.]
[The "Mortgage Rate" with respect to any Mortgage Loan is the per annum
rate at which interest accrues on such Mortgage Loan as stated in the related
Note in each case without giving effect to the Excess Rate or the Default Rate.
Notwithstanding the foregoing, if any Mortgage Loan does not accrue interest on
the basis of a [360-day year consisting of twelve 30-day months,] then, for
purposes of calculating Pass-Through Rates, the Mortgage Rate of such Mortgage
Loan for any one-month period preceding a related Due Date will be the
annualized rate at which interest would have to accrue in respect of such
Mortgage Loan on the basis of a 360-day year consisting of twelve 30-day months
in order to produce the aggregate amount of interest actually accrued in respect
of such Mortgage Loan during such one-month period at the related Mortgage
Rate.]
[The "Stated Principal Balance" of any Mortgage Loan at any date of
determination will equal (a) the principal balance as of the Cut-Off Date of
such Mortgage Loan, minus (b) the sum of (i) the principal portion of each
Monthly Payment or, if applicable, Extended Monthly Payment due on such Mortgage
Loan after the Cut-Off Date and prior to such date of determination, if received
from the borrower or advanced by the Master Servicer or Trustee, (ii) all
voluntary and involuntary principal prepayments and other unscheduled
collections of principal received with respect to such Mortgage Loan, to the
extent distributed to holders of the Certificates or applied to other payments
required under the Pooling Agreement before such date of determination and (iii)
any adjustment thereto as a result of a reduction of principal by a bankruptcy
court or as a result of a modification reducing the principal amount due on such
Mortgage Loan. The Stated Principal Balance of a Mortgage Loan with respect to
which title to the related Mortgaged Property has been acquired by the Trust
Fund is equal to the principal balance thereof outstanding on the date on which
such title is acquired less any Net REO Proceeds allocated to principal on such
Mortgage Loan. The Stated Principal Balance of a defaulted Mortgage Loan with
respect to which the Master Servicer or the Special Servicer has determined that
it has received all payments and recoveries which it expects to be finally
recoverable on such Mortgage Loan is zero.]
[The "Principal Distribution Amount" for any Distribution Date will be
equal to the sum, without duplication, of:
(i) [the principal component of all scheduled Monthly Payments due on
the Due Date immediately preceding such Distribution Date (if received, or
advanced by the Master Servicer or Trustee, in respect of such Distribution
Date) with respect to the Mortgage Loans;]
(ii) [the principal component of all Extended Monthly Payments due on
the related Due Date (if received, or advanced by the Master Servicer or
Trustee, in respect of such Distribution Date) with respect to the Mortgage
Loans;]
(iii) [the principal component of any payment on any Mortgage Loan
received on or after the maturity date thereof in the related Collection
Period; and]
(iv) [the portion of Unscheduled Payments allocable to principal of
any Mortgage Loan received or applied during the related Collection Period,
net of the principal portion of any unreimbursed P&I Advances related to
such Mortgage Loan.]]
An "REO Mortgage Loan" is any Mortgage Loan as to which the related
Mortgaged Property has become an REO Property.
On each Distribution Date prior to the Cross-over Date, the Available Funds
for such Distribution Date will be distributed in the following amounts and
order of priority:
[First, pro rata, in respect of interest, to the Class [ ] and Class [ ]
Certificates, up to an amount equal to, and pro rata as among such Classes in
accordance with, the Interest Distribution Amounts of such Classes;
Second, to the Class [ ] Certificates, in reduction of their respective
Certificate Principal Amounts in the following order: first, to the Class [ ]
Certificates and, second, to the Class [ ] Certificates, in each case up to an
amount equal to the lesser of (i) the Certificate Principal Amount thereof and
(ii) the Principal Distribution Amount for such Distribution Date;
Third, to the Class [ ] Certificates, in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount of such Class;
Fourth, to the Class [ ] Certificates, in reduction of the Certificate
Principal Amount thereof, up to an amount equal to the Principal Distribution
Amount less the portion of the Principal Distribution Amount distributed
pursuant to all prior clauses, until the Certificate Principal Amount thereof is
reduced to zero;
Fifth, to the Class [ ] Certificates, an amount equal to the aggregate of
unreimbursed Realized Losses previously allocated to such Class, plus interest
thereon at the Pass-Through Rate for such Class compounded monthly from the date
the related Realized Loss was allocated to such Class;
Sixth, to the Class [ ] Certificates, in respect of interest, up to an
amount equal to the aggregate Interest Distribution Amount of such Class;
Seventh, to the Class [ ] Certificates in reduction of the Certificate
Principal Amount thereof, up to an amount equal to the Principal Distribution
Amount less the portion of the Principal Distribution Amount distributed
pursuant to all prior clauses, until the Certificate Principal Amount thereof is
reduced to zero;
Eighth, to the Class [ ] Certificates, an amount equal to the aggregate of
unreimbursed Realized Losses previously allocated to such Class, plus interest
thereon at the Pass-Through Rate for such Class compounded monthly from the date
the related Realized Loss was allocated to such Class; and
Ninth, to the Class [ ] Certificates, any amounts remaining in the Master
Distribution Account, and to the Class [ ] Certificates, any amounts remaining
in the Subsidiary Distribution Account.]
[On each Distribution Date occurring on and after the Cross-over Date,
regardless of the allocation of principal payments described in priority Second
above, an amount equal to the aggregate of the Principal Distribution Amounts
will be distributed, first, to the Class [ ] and Class [ ] Certificates, pro
rata, based on their respective Certificate Principal Amounts, in reduction of
their respective Certificate Principal Amounts, until the Certificate Principal
Amount of each such Class is reduced to zero, and, second, to the Class [ ] and
Class [ ] Certificates for unreimbursed amounts of Realized Losses previously
allocated to such Classes, pro rata in accordance with the amount of such
unreimbursed Realized Losses so allocated, plus interest thereon at the
Pass-Through Rates for such Classes compounded monthly from the date the related
Realized Losses were allocated for such Classes. The "Cross-over Date" is the
Distribution Date on which the Certificate Principal Amount of each Class of
Certificates entitled to distributions of principal (other than the Class [ ]
and Class [ ] Certificates) has been reduced to zero.]
[All references to "pro rata" in the preceding clauses, to the extent set
forth, mean pro rata based upon the amount distributable pursuant to such
clause.]
Prepayment Charges. [On any Distribution Date, Prepayment Charges collected
during the related Collection Period will be distributed to the holders of the
Certificates as described below.]
[If any Class [ ] Certificate remains outstanding on such Distribution
Date, holders of the Classes of Principal Balance Certificates entitled to
distributions of principal on such Distribution Date will be entitled to
distributions with respect to the applicable Prepayment Charge in an aggregate
amount (allocable among such Classes if more than one such Class remains
outstanding, as described below) equal to the product of (a) the amount of such
Prepayment Charge, multiplied by (b) a fraction, expressed as a percentage, the
numerator of which is equal to the excess, if any, of the then current
Pass-Through Rate applicable to the most senior of such Classes of Principal
Balance Certificates (or, in the case of both classes of Class [ ] Certificates
remaining outstanding, the one with the earliest payment priority), over the
relevant Discount Rate, 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 on such Distribution Date,
the aggregate amount described in the preceding sentence will 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 Charge that is
not so distributed to the holders of such Principal Balance Certificates will be
distributed to the Class [ ] Certificates.]
If no Class [ ] Certificate remains outstanding on such Distribution Date,
holders of the Class [ ] Certificates will be entitled to a distribution with
respect to the applicable Prepayment Charge equal to the product of such
Prepayment Charge, multiplied by a fraction, the numerator of which is equal to
the sum of the Servicing Fee Rate and the Component Pass-Through Rate related to
the Class of Certificates with the earliest Class designation which has a Class
Prepayment Percentage greater than zero, and the denominator of which is the
greater of (x) the excess, if any, of the Mortgage Rate of the Mortgage Loan
that prepaid over the Discount Rate, and (y) the sum of such Component
Pass-Through Rate and the Servicing Fee Rate. Any portion of such Prepayment
Charge that is not so distributed to the holders of the Class [ ] Certificates
will be distributed to the holders of one or more of the Class [ ], Class [ ],
Class [ ] and Class [ ] Certificates in an amount equal to the product of (a)
the related Class Prepayment Percentage for such Distribution Date and (b) such
remaining portion of the Prepayment Charge.
[With respect to any Class of Certificates (other than the Class [ ], Class
[ ] and Residual Certificates) and any Distribution Date, the "Class Prepayment
Percentage" will be equal to a fraction, expressed as a percentage, the
numerator of which is the portion of the Principal Distribution Amount to be
distributed to the holders of such Class of Certificates on such Distribution
Date, and the denominator of which is the total Principal Distribution Amount
for such Distribution Date.]
[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 ("Release H.15") 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 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.]
[See "Certain Legal Aspects of the Mortgage Loans and the Leases--Default
Interest, Prepayment Charges and Prepayments" in the Prospectus regarding the
enforceability of Prepayment Charges.]
[Deferred Interest. On each Distribution Date, the Trustee shall distribute
any Deferred Interest received with respect to any Mortgage Loan during the
related Collection Period to holders of the following Classes of Certificates in
the following percentages: [ ] to the Class [ ] Certificates, [ ] to the Class [
] Certificates, [ ] to the Class [ ] Certificates and [ ] to the Class [ ]
Certificates.]
Class [ ] Distributions. On each Distribution Date, [Net Default Interest]
received in the related Collection Period with respect to a default on a
Mortgage Loan will be distributed [solely] to the [Class [ ] Certificates], to
the extent set forth in the Pooling Agreement. The Class [ ] Certificates are
not entitled to any other distributions.]
[Realized Losses. The Certificate Principal Amount of each Class of
Certificates entitled to distributions of principal will be reduced without
distribution on any Distribution Date as a write-off to the extent of any
Realized Loss allocated to such Class on such Distribution Date. As referred to
herein, the "Realized Loss" with respect to any Distribution Date shall mean the
amount, if any, by which the aggregate Certificate Principal Amount of all such
Classes of Certificates after giving effect to distributions made on such
Distribution Date exceeds the aggregate Stated Principal Balance of the Mortgage
Loans after giving effect to any payments of principal received or advanced with
respect to the Due Date occurring immediately prior to such Distribution Date.
Any such write-offs will be applied to such Classes of Certificates in the
following order, until each is reduced to zero: first, to the Class [ ]
Certificates; second, to the Class [ ] Certificates; third, to the Class [ ]
Certificates; fourth, and, finally, pro rata, to the Class [ ] and Class [ ]
Certificates, based on their respective Certificate Principal Amounts.]
[Shortfalls in Available Funds resulting from additional servicing
compensation other than the Servicing Fee, interest on Advances to the extent
not covered by Default Interest, extraordinary expenses of the Trust Fund, a
reduction of the interest rate of a Mortgage Loan by a bankruptcy court pursuant
to a plan of reorganization or pursuant to any of its equitable powers or other
unanticipated or default-related expenses will be allocated to each Class of
Certificates in the same manner as Realized Losses. The Notional Amount of the
Class [ ] Certificates will be reduced to reflect reductions in the Certificate
Principal Amount of the Class [ ], Class [ ], Class [ ], Class [ ] and Class [ ]
Certificates resulting from allocations of Realized Losses. Excess Prepayment
Interest Shortfalls will be allocated to reduce the interest entitlement of the
Classes of Certificates in the following order of priority: first, to the Class
[ ] Certificates; second, to the Class [ ] Certificates; third, to the Class [ ]
Certificates; fourth, and finally to the Class [ ], Class [ ] and Class [ ]
Certificates, pro rata.]
[The "Prepayment Interest Shortfall", with respect to any Distribution Date
and any Mortgage Loan, is equal to the amount of any shortfall in collections of
interest, adjusted to the applicable Net Mortgage Rate, resulting from a
Principal Prepayment on such Mortgage Loan during the related Collection Period
and prior to the Due Date in such Collection Period. Such shortfall may result
because interest on a Principal Prepayment in full is paid by the related
borrower only to the date of prepayment.]
[The "Excess Prepayment Interest Shortfall", with respect to any
Distribution Date, is the aggregate amount by which the Prepayment Interest
Shortfall with respect to all Principal Prepayments received during the related
Collection Period exceeds the aggregate Servicing Fee (minus the Trustee Fee)
available to be paid to the Master Servicer for such Distribution Date.]
[Appraisal Reduction Amounts. In the event that an Appraisal Reduction
Event occurs with respect to a Mortgage Loan, (i) the amount advanced by the
[Master Servicer] with respect to delinquent payments of interest with respect
to the related Mortgage Loan will be reduced as described under "The Pooling
Agreement--Advances" below, and (ii) the Voting Rights of certain Classes will
be reduced as described under "The Pooling Agreement--Amendment" herein. The
reduction of interest advanced by the [Master Servicer] will have the effect of
reducing the amount available to be distributed as interest on the then most
subordinate Class or Classes of Certificates.]
[The Certificate Principal Amount of each of the Class [ ], Class [ ] and
Class [ ] Certificates will be notionally reduced (solely for purposes of
determining the Voting Rights of the related Classes) on any Distribution Date
to the extent of any Appraisal Reduction Amounts allocated to such Class on such
Distribution Date. To the extent that the aggregate of the Appraisal Reduction
Amounts for any Distribution Date exceed such Certificate Principal Amount, such
excess will be applied, subject to any reversal described below, to notionally
reduce the Certificate Principal Amount of the next most subordinate Class of
Certificates on the next Distribution Date. Any such reductions will be applied
in the following order of priority: first, to the Class [ ] Certificates;
second, to the Class [ ] Certificates; third, to the Class [ ] Certificates; and
finally, to the Class [ ] Certificates (provided in each case that no
Certificate Principal Amount in respect of any such Class may be notionally
reduced below zero). See "--Payment Priorities" above and "--Appraisal
Reductions" below.]
SUBORDINATION
[As a means of providing a certain amount of protection to the holders of
the Class [ ], Class [ ] and Class [ ] Certificates against losses associated
with delinquent and defaulted Mortgage Loans, the rights of the holders of the
Class [ ], Class [ ] and Class [ ] Certificates to receive distributions of
interest (other than Deferred Interest) and principal, as applicable, will be
subordinated to such rights of the holders of the Class [ ], Class [ ] and Class
[ ] Certificates. This subordination will be effected in two ways: (i) by the
preferential right of the holders of a Class of Certificates to receive on any
Distribution Date the amounts of interest and principal distributable in respect
of such Certificates on such date prior to any distribution being made on such
Distribution Date in respect of any Classes of Certificates subordinate thereto
and (ii) by the allocation of Realized Losses first, to the Class [ ]
Certificates; second, to the Class [ ] Certificates; third, to the Class [ ]
Certificates; fourth to the Class [ ] Certificates; fifth, to the Class [ ]
Certificates; and, finally, to the Class [ ] and Class [ ] Certificates, pro
rata, based on their respective Certificate Principal Amounts. No other form of
credit enhancement will be available for the benefit of the holders of the
Offered Certificates.]
[APPRAISAL REDUCTIONS]
[With respect to the first Distribution Date following the earliest of (i)
the third anniversary of the date on which an extension of the maturity date of
a Mortgage Loan becomes effective as a result of a modification of such Mortgage
Loan by the [Special Servicer], which extension does not change the amount of
Monthly Payments on the Mortgage Loan, (ii) [___] days after an uncured
delinquency occurs in respect of a Mortgage Loan, (iii) [___] days after the
date on which a reduction in the amount of Monthly Payments on a Mortgage Loan,
or a change in any other material economic term of the Mortgage Loan, becomes
effective as a result of a modification of such Mortgage Loan by the [Special
Servicer], (iv) [___] days after a receiver has been appointed or after the
commencement of an involuntary bankruptcy proceeding, (v) immediately after a
borrower declares bankruptcy, and (vi) immediately after a Mortgage Loan becomes
an REO Mortgage Loan (each, an "Appraisal Reduction Event"), an Appraisal
Reduction Amount will be calculated. [The "Appraisal Reduction Amount" for any
Distribution Date and for any Mortgage Loan as to which any Appraisal Reduction
Event has occurred will be an amount equal to the excess of (a) the outstanding
Stated Principal Balance of such Mortgage Loan as of the last day of the related
Collection Period over (b) the excess of (i) [___]% of the sum of the appraised
values of the related Mortgaged Properties as determined by independent MAI
appraisals (the costs of which shall be paid by the Master Servicer as an
Advance) over (ii) the sum of (A) to the extent not previously advanced by the
Master Servicer] or the [Trustee], all unpaid interest on such Mortgage Loan at
a per annum rate equal to the Mortgage Rate, (B) all unreimbursed Advances and
interest thereon at the Advance Rate in respect of such Mortgage Loan and (C)
all currently due and unpaid real estate taxes and assessments and insurance
premiums and all other amounts, including, if applicable, ground rents, due and
unpaid under the Mortgage Loan (which taxes, premiums and other amounts have not
been the subject of an Advance).] If [no] independent MAI appraisal has been
obtained [within twelve months prior to the first Distribution Date] on or after
an Appraisal Reduction Event has occurred, the [Special Servicer] will be
required to estimate the value of the related Mortgaged Properties [(the
"Special Servicer's Appraisal Reduction Estimate")] and such estimate will be
used for purposes of determining the Appraisal Reduction Amount. [Within [___]
days after the [Special Servicer] receives notice or is otherwise aware of an
Appraisal Reduction Event, the [Special Servicer] will be required to obtain an
independent MAI appraisal, the cost of which will be paid by the [Master
Servicer] as a Property Advance.] [On the first Distribution Date occurring on
or after the delivery of such independent MAI appraisal, the Special Servicer
will be required to adjust the Appraisal Reduction Amount to take into account
such appraisal (regardless of whether the independent MAI appraisal is higher or
lower than the [Special Servicer's Appraisal Reduction Estimate]).] Annual
updates of such independent MAI appraisal will be obtained during the
continuance of an Appraisal Reduction Event and the Appraisal Reduction Amount
will be adjusted accordingly.]
Upon payment in full or liquidation of any Mortgage Loan for which an
Appraisal Reduction Amount has been determined, such Appraisal Reduction Amount
will be eliminated.]
[DELIVERY, FORM AND DENOMINATION]
[The Offered Certificates (other than the Class [ ] Certificates) will be
issued, maintained and transferred in the book-entry form only in denominations
of $[_____] initial Certificate Principal Amount, and in multiples of $1 in
excess thereof, and the Class [ ] Certificates will be issued, maintained and
transferred in the book-entry form only in denominations of $[_____] initial
Notional Amount, and in multiples of $1 in excess thereof.]
[The Offered Certificates will initially be represented by one or more
global Certificates for each such Class registered in the name of the nominee of
DTC. The Depositor has been informed by DTC that DTC's nominee will be Cede &
Co. No holder of an Offered Certificate will be entitled to receive a
certificate issued in fully registered, certificated form (each, a "Definitive
Certificate") representing its interest in such Class, except under the limited
circumstances described below under "--Definitive Certificates." Unless and
until Definitive Certificates are issued, all references to actions by holders
of the Offered Certificates will refer to actions taken by DTC upon instructions
received from holders of Offered Certificates through its participating
organizations (together with CEDEL and Euroclear participating organizations,
the "Participants"), and all references herein to payments, notices, reports,
statements and other information to holders of Offered Certificates will refer
to payments, notices, reports and statements to DTC or Cede & Co., as the
registered holder of the Offered Certificates, for distribution to holders of
Offered Certificates through its Participants in accordance with DTC procedures;
provided, however, that to the extent that the party to the Pooling Agreement
responsible for distributing any report, statement or other information has been
provided with the name of the beneficial owner of a Certificate (or the
prospective transferee of such beneficial owner), such report, statement or
other information will be provided to such beneficial owner (or prospective
transferee).]
[Until Definitive Certificates are issued in respect of the Offered
Certificates, interests in the Offered Certificates will be transferred on the
book-entry records of DTC and its Participants. The Trustee will initially serve
as certificate registrar (in such capacity, the "Certificate Registrar") for
purposes of recording and otherwise providing for the registration of the
Offered Certificates.]
[A "Certificateholder" or "holder" under the Pooling Agreement will be the
person in whose name a Certificate is registered in the certificate register
maintained pursuant to the Pooling Agreement, except that solely for the purpose
of giving any consent or taking any action pursuant to the Pooling Agreement,
any Certificate registered in the name of the Depositor, the Trustee, the Master
Servicer, the Special Servicer, a manager of a Mortgaged Property, a mortgagor
or any person affiliated with the Depositor, the Trustee, the Master Servicer,
or the Special Servicer, such Certificate will be deemed not to be outstanding
and the Voting Rights to which it is entitled will not be taken into account in
determining whether the requisite percentage of Voting Rights necessary to
effect any such consent or take any such action has been obtained; provided,
however, that for purposes of obtaining the consent of Certificateholders to an
amendment to the Pooling Agreement, any Certificates beneficially owned by the
Master Servicer, the Special Servicer or an affiliate of the Master Servicer or
the Special Servicer will be deemed to be outstanding, provided that such
amendment does not relate to compensation of the Master Servicer or the Special
Servicer, or otherwise benefit the Master Servicer or the Special Servicer in
any material respect; and, provided, further, that for purposes of obtaining the
consent of Certificateholders to any action proposed to be taken by the Special
Servicer with respect to a Specially Serviced Mortgage Loan, any Certificates
beneficially owned by the Master Servicer or an affiliate thereof will be deemed
to be outstanding, provided that the Special Servicer is not the Master
Servicer. The Percentage Interest of any Offered Certificate of any Class will
be equal to the percentage obtained by dividing the denomination of such
Certificate by the aggregate initial Certificate Principal Amount of such Class
of Certificates. See "Description of the Certificates--General" in the
Prospectus.]]
[BOOK-ENTRY REGISTRATION]
[Holders of Offered Certificates may hold their Certificates through DTC
(in the United States) or CEDEL or Euroclear (in Europe) if they are
Participants of such system, or indirectly through organizations that are
participants in such systems. CEDEL and Euroclear will hold omnibus positions on
behalf of the CEDEL Participants and the Euroclear Participants, respectively,
through customers' securities accounts in CEDEL's and Euroclear's names on the
books of their respective depositories (collectively, the "Depositories") which
in turn will hold such positions in customers' securities accounts in the
Depositories' names on the books of DTC.] [DTC is a limited purpose trust
company organized under the [New York Banking Law], a "banking organization"
within the meaning of the [New York Banking Law], member of the Federal Reserve
System, a "clearing corporation" within the meaning of the [New York Uniform
Commercial Code] and a "clearing agency" registered pursuant to Section 17A of
the Securities Exchange Act of 1934, as amended.] DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic computerized
book-entries, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations. Indirect access to the DTC system also is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants").]
[Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in accordance with their applicable rules and operating procedures.]
[Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly through CEDEL Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance with
DTC rules on behalf of the relevant European international clearing system by
its Depository; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures. If the
transaction complies with all relevant requirements, Euroclear or CEDEL, as the
case may be, will then deliver instructions to the Depository to take action to
effect final settlement on its behalf.]
[Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear 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.]
[The holders of Offered Certificates that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Offered Certificates may do so only through Participants and
Indirect Participants. In addition, holders of Offered Certificates will receive
all distributions of principal and interest from the Trustee through the
Participants who in turn will receive them from DTC. Under a book-entry format,
holders of Offered Certificates may experience some delay in their receipt of
payments, since such payments will be forwarded by the Trustee to Cede & Co., as
nominee for DTC. DTC will forward such payments to its Participants, which
thereafter will forward them to Indirect Participants or beneficial owners of
Offered Certificates.]
[Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Offered Certificates among Participants on whose behalf it acts with respect to
the Offered Certificates and to receive and transmit distributions of principal
of, and interest on, the Offered Certificates. Participants and Indirect
Participants with which the holders of Offered Certificates have accounts with
respect to the Offered Certificates similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
holders of Offered Certificates. Accordingly, although the holders of Offered
Certificates will not possess the Offered Certificates, the Rules provide a
mechanism by which Participants will receive payments on Offered Certificates
and will be able to transfer their interest.]
[Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a holder of
Offered Certificates to pledge such Certificates to persons or entities that do
not participate in the DTC system, or to otherwise act with respect to such
Certificates, may be limited due to the lack of a physical certificate for such
Certificates.]
[DTC has advised the Depositor that it will take any action permitted to be
taken by a holder of an Offered Certificate under the Pooling Agreement only at
the direction of one or more Participants to whose accounts with DTC the Offered
Certificates are credited. DTC may take conflicting actions with respect to
other undivided interests to the extent that such actions are taken on behalf of
Participants whose holdings include such undivided interests.]
[CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates.]
[Euroclear was created in 1968 to hold securities for participants of the
Euroclear system ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment.]
[Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear system, withdrawal of
securities and cash from the Euroclear system, and receipts of payments with
respect to securities in the Euroclear system.]
[Although DTC, Euroclear and CEDEL have implemented the foregoing
procedures in order to facilitate transfers of interests in Global Certificates
among Participants of DTC, Euroclear and CEDEL, they are under no obligation to
perform or to continue to comply with such procedures, and such procedures may
be discontinued at any time. None of the Depositor, the Trustee, the Master
Servicer, the Special Servicer or the Underwriter will have any responsibility
for the performance by DTC, Euroclear or CEDEL or their respective direct or
indirect Participants of their respective obligations under the rules and
procedures governing their operations. The information herein concerning DTC,
CEDEL and Euroclear and their book-entry systems has been obtained from sources
believed to be reliable, but the Depositor takes no responsibility for the
accuracy or completeness thereof.]]
[DEFINITIVE CERTIFICATES]
[Definitive Certificates will be delivered to beneficial owners of Offered
Certificates ("Certificate Owners") (or their nominees) only if (i) DTC is no
longer willing or able properly to discharge its responsibilities as depository
with respect to the Offered Certificates, and the Depositor is unable to locate
a qualified successor, (ii) the Depositor or the Trustee, at its sole option,
elects to terminate the book-entry system through DTC, or (iii) after the
occurrence of an Event of Default under the Pooling Agreement, Certificate
Owners representing a majority in principal amount of the Offered Certificates
of any Class then outstanding advise DTC through DTC Participants in writing
that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the best interest of such Certificate Owners.]
[Upon the occurrence of any of the events described in clauses (i) through
(iii) in the immediately preceding paragraph, DTC is required to notify all
affected DTC Participants of the availability through DTC of Definitive
Certificates. Upon delivery of Definitive Certificates, the Trustee, Certificate
Registrar and Master Servicer will recognize the holders of such Definitive
Certificates as holders under the Pooling Agreement ("Holders"). Distributions
of principal of and interest on the Definitive Certificates will be made by the
Trustee directly to Holders of Definitive Certificates in accordance with the
procedures set forth in the Pooling Agreement.]
[Upon the occurrence of any of the events described in clauses (i) through
(iii) of the second preceding paragraph, requests for transfer of Definitive
Certificates will be required to be submitted directly to the Certificate
Registrar in a form acceptable to the Certificate Registrar (such as the forms
which will appear on the back of the certificate representing a Definitive
Certificate), signed by the Holder or such Holder's legal representative and
accompanied by the Definitive Certificate or Certificates for which transfer is
being requested.]]
[TRANSFER RESTRICTIONS]
[Each Class [ ], Class [ ], Class [ ] and Class [ ] Certificate (each, a
"Subordinated Offered Certificate" and, collectively, the "Subordinated Offered
Certificates") will bear a legend substantially to the effect that such
Certificate may not be purchased by a transferee that is (A) an employee benefit
plan or other retirement arrangement, including an individual retirement account
or a Keogh plan, which is subject to Title I of ERISA, or Section 4975 of the
Code, or a "governmental plan" (as defined in Section 3(32) of ERISA) that is
subject to any federal, state or local law ("Similar Law") which is, to a
material extent, similar to the fiduciary responsibility ro prhibited
transaction provisions of ERISA or the Code (each, a "Plan"), or (B) a
collective investment fund in which Plans are invested, an insurance company
using assets of separate accounts or general accounts which include assets of
Plans (or which are deemed pursuant to ERISA or any Similar Law to include
assets of Plans) or other person acting on behalf of any such Plan or using the
assets of any such Plan, other than an insurance company using the assets of its
general account under circumstances whereby such purchase and the subsequent
holding of such Certificate by such insurance company would be exempt from the
prohibited transaction provisions of ERISA and the Code under Section I and III
of Prohibited Transaction Class Exemption 95-60.]
[Holders of Subordinated Offered Certificates that are in book-entry form
will be deemed to have represented that they are not persons or entities
referred to in clause (A) or (B) of the legend described in the preceding
paragraph. In the event that holders of the Subordinated Offered Certificates
become entitled to receive Definitive Certificates under the circumstances
described under "--Definitive Certificates", each prospective transferee of a
Subordinated Offered Certificate that is a Definitive Certificate will be
required to either deliver to the Seller, the Certificate Registrar and the
Trustee a representation letter substantially in the form set forth as an
exhibit to the Pooling Agreement stating that such transferee is not a person or
entity referred to in clause (A) or (B) of the legend or provide an opinion to
the Seller, the Certificate Registrar and the Trustee as described in the
Pooling Agreement. Any transfer of a Subordinated Offered Certificate that would
result in a prohibited transaction under ERISA or Section 4975 of the Code, or a
materially similar characterization under any Similar Law will be deemed
absolutely null and void ab initio.]
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
YIELD
[The yield to maturity on the Offered Certificates will depend upon the
price paid by the Certificateholders, the rate and timing of the distributions
in reduction of Certificate Principal Amounts or Notional Amounts, as
applicable, of the related Classes of Certificates and the rate, timing and
severity of losses on the Mortgage Loans and the extent to which such losses are
allocable in reduction of the Certificate Principal Amounts or Notional Amounts,
as applicable, of such Classes of Certificates, as well as prevailing interest
rates at the time of payment or loss realization.]
The rate of distributions in reduction of the Certificate Principal Amount
or Notional Amount, as applicable, of any Class of Offered Certificates, the
aggregate amount of distributions on any Class of Offered Certificates and the
yield to maturity of any Class of Offered Certificates will be directly related
to the rate of payments of principal (both scheduled and unscheduled) on the
Mortgage Loans and the amount and timing of borrower defaults. In addition, such
distributions in reduction of Certificate Principal Amount or Notional Amount,
as applicable, may result from repurchases of Mortgage Loans made by MSMC due to
missing or defective documentation or breaches of representations and warranties
with respect to the Mortgage Loans as described herein under "The Pooling
Agreement--Representations and Warranties; Repurchase" or purchases of the
Mortgage Loans in the manner described under "The Pooling Agreement--Optional
Termination."
[Disproportionate principal payments (whether resulting from differences in
amortization terms, prepayments following expirations of the respective
Prepayment Lockout Periods or otherwise) on the Mortgage Loans affect the
Pass-Through Rates of the Class [ ], Class [ ] and Class [ ] Certificates for
one or more future periods and therefore the yield on such Classes.]
[The Certificate Principal Amount of any Class of Offered Certificates may
be reduced without distributions thereon as a result of the occurrence and
allocation of Realized Losses, reducing the maximum amount distributable in
respect of Certificate Principal Amount, if applicable, as well as the amount of
interest that would have accrued on such Certificates in the absence of such
reduction. In general, a Realized Loss occurs when the aggregate principal
balance of a Mortgage Loan is reduced without an equal distribution to
applicable Certificateholders in reduction of the Certificate Principal Amounts
of the Certificates. Realized Losses are likely to occur only in connection with
a default on a Mortgage Loan and the liquidation of the related Mortgaged
Properties or a reduction in the principal balance of a Mortgage Loan by a
bankruptcy court.]
[Because the Notional Amount of the Class [ ] Certificates is based upon
the Certificate Principal Amounts of the Class [ ], Class [ ], Class [ ], Class
[ ] and Class [ ] Certificates, the yield to maturity on the Class [ ]
Certificates will be extremely sensitive to the rate and timing of prepayments
of principal (including both voluntary and involuntary prepayments,
delinquencies, defaults and liquidations) on the Mortgage Loans and any
repurchase with respect to breaches of representations and warranties with
respect to the Mortgage Loans to the extent such payments of principal are
allocated to each such Class in reduction of the Certificate Principal Amount
thereof. The rate at which voluntary prepayments occur on the Mortgage Loans
will be affected by a variety of factors, including, without limitation, the
terms of the Mortgage Loans, the length of any Prepayment Lockout Period, the
level of prevailing interest rates, the availability of mortgage credit, the
occurrence of casualties or natural disasters and economic, demographic, tax,
legal and other factors, and no representation is made as to the anticipated
rate of prepayments on the Mortgage Loans.]
[Although the payment of a Prepayment Charge is required in connection with
a voluntary prepayment of certain of the Mortgage Loans during certain periods
of time, there can be no assurance that the related borrowers would refrain from
prepaying such Mortgage Loans due to the existence of such Prepayment Charges,
or that such Prepayment Charges would be held to be enforceable if challenged.]
[Certificateholders are not entitled to receive distributions of Monthly
Payments when due except to the extent they are either covered by an Advance or
actually received. Consequently, any defaulted Monthly Payment for which no such
Advance is made will tend to extend the weighted average lives of the
Certificates, whether or not a permitted extension of the maturity date of the
related Mortgage Loan has been effected.]
[The rate of payments (including voluntary and involuntary prepayments) on
pools of mortgage loans is influenced by a variety of economic, geographic,
social and other factors, including the level of mortgage interest rates and the
rate at which borrowers default on their mortgage loans. The terms of the
Mortgage Loans (in particular, the term of any Prepayment Lockout Period, the
extent to which Prepayment Charges are due with respect to any principal
prepayments, the right of the mortgagee to apply condemnation and casualty
proceeds to prepay the Mortgage Loan, the availability of certain rights to
defease all or a portion of the Mortgage Loan, and any increase in the interest
rate and the application of Excess Cash Flow, if applicable, to prepay the
related Mortgage Loan) may affect the rate of principal payments on Mortgage
Loans, and consequently, the yield to maturity of the Classes of Offered
Certificates. See "Mortgage Pool Characteristics" and "Description of the
Mortgaged Properties and the Mortgage Loans" herein.]
[The timing of changes in the rate of prepayment on the Mortgage Loans may
significantly affect the actual yield to maturity experienced by an investor
even if the average rate of principal payments experienced over time is
consistent with such investor's expectation. In general, the earlier a
prepayment of principal on the Mortgage Loans, the greater the effect on such
investor's yield to maturity. As a result, the effect on such investor's yield
of principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the Offered Certificates would not be fully offset by a subsequent like
reduction (or increase) in the rate of principal payments.]
[No representation is made as to the rate of principal payments on the
Mortgage Loans or as to the yield to maturity of any Class of Offered
Certificates. In addition, although Excess Cash Flow is applied to reduce
principal of the respective Mortgage Loans after their respective Effective
Maturity Dates, there can be no assurance that any of such Mortgage Loans will
be prepaid on that date or any date prior to maturity. An investor is urged to
make an investment decision with respect to any Class of Offered Certificates
based on the anticipated yield to maturity of such Class of Offered Certificates
resulting from its purchase price and such investor's own determination as to
anticipated Mortgage Loan prepayment rates under a variety of scenarios. The
extent to which any Class of Offered Certificates is purchased at a discount or
a premium and the degree to which the timing of payments on such Class of
Offered Certificates is sensitive to prepayments will determine the extent to
which the yield to maturity of such Class of Offered Certificates may vary from
the anticipated yield. An investor should carefully consider the associated
risks, including, in the case of any Offered Certificates purchased at a
discount, the risk that a slower than anticipated rate of principal payments on
the Mortgage Loans could result in an actual yield to such investor that is
lower than the anticipated yield and, in the case of any Offered Certificates
purchased at a premium, the risk that a faster than anticipated rate of
principal payments could result in an actual yield to such investor that is
lower than the anticipated yield.]
[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 Offered Certificates entitled to distributions of
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 such amounts distributed to it may be lower than the
applicable Pass-Through Rate. 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.]
[The effective yield to holders of Offered Certificates will be lower than
the yield otherwise produced by the applicable Pass-Through Rate and applicable
purchase prices because while interest will accrue during each Interest Accrual
Period, the distribution of such interest will not be made until the
Distribution Date immediately following such Interest Accrual Period, and
principal paid on any Distribution Date will not bear interest during the period
from the end of such Interest Accrual Period to the Distribution Date that
follows.]]
[YIELD ON THE OFFERED CERTIFICATES]
[The yield to maturity of Offered Certificates will be sensitive to the
rate and timing of principal payments (including voluntary and involuntary
prepayments and repurchases), delinquencies and liquidations on the Mortgage
Loans.
[The following tables indicate the assumed purchase price (before adding
accrued interest, if any), expressed as a percentage of the applicable
[Certificate Principal Amount, and the hypothetical pre-tax yield to maturity on
the Offered Certificates, stated on a corporate bond equivalent basis, based on
certain hypothetical scenarios]. The pre-tax yields to maturity set forth in the
tables below were calculated by determining the monthly discount rate that, when
applied to the assumed stream of cash flows to be paid on the Offered
Certificates, would cause the discounted present value of such assumed cash
flows to equal the assumed purchase price thereof, plus accrued interest, if
any, as basis points and by converting such monthly rates to corporate bond
equivalent rates. Such calculations of yield do not take into account variations
that may occur in the interest rates at which investors may be able to reinvest
funds received by them as distributions on the [Offered Certificates] and
consequently, do not purport to reflect the return on any investment in the
Offered Certificates when such reinvestment rates are considered.]
[In the case of Scenario 1 below, it is assumed that all of the Mortgage
Loans are prepaid in full ("Scenario 1") on their respective Effective Maturity
Dates. In the case of Scenario 2, it is assumed that the Mortgage Loans are
prepaid in full on the first Due Dates on which prepayments in full can be made
without payment of any Prepayment Charge and without defeasance. Scenarios 1 and
2 are collectively referred to herein as the "Scenarios".]
CLASS [ ]
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE(%) 1 2
----------------- -------- --------
% %
CLASS [ ]
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE(%) 1 2
----------------- -------- --------
% %
CLASS [ ]
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE(%) 1 2
----------------- -------- --------
% %
CLASS [ ]
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE(%) 1 2
----------------- -------- --------
% %
CLASS [ ]
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE(%) 1 2
----------------- -------- --------
% %
CLASS [ ]
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE(%) 1 2
----------------- -------- --------
% %
CLASS [ ]
ASSUMED SCENARIO SCENARIO
PURCHASE PRICE(%) 1 2
----------------- -------- --------
% %
[It is highly unlikely that principal of the Mortgage Loans will be repaid
consistent with the assumptions underlying any one of the Scenarios. The
Mortgage Loans will not have all of the characteristics assumed for purposes of
the Scenarios. Yield will be affected by prepayment rates and may differ
significantly from the Mortgage Loan Assumptions. There can be no assurance that
the pre-tax yields, on the Offered Certificates will correspond to any of the
pre-tax yields or discounted margins, as applicable, shown herein or that the
aggregate purchase prices of the Offered Certificates will be as assumed.
Investors must make their own decisions as to the appropriate prepayment
assumptions to be used in deciding whether to purchase the Offered
Certificates.]
[RATED FINAL DISTRIBUTION DATE]
[The "Rated Final Distribution Date" is the Distribution Date occurring [3
years] after the latest maturity date of any Mortgage Loan. Because certain of
the Mortgage Loans have maturity dates that occur earlier than the latest
maturity date, and because certain of the Mortgage Loans may be prepaid prior to
maturity, it is possible that the Certificate Principal Amount of each Class of
Offered Certificates will be reduced to zero significantly earlier than the
Rated Final Distribution Date. However, delinquencies on Mortgage Loans could
result in final distributions in reduction of the Certificate Principal Amount
of one or more Classes after the Rated Final Distribution Date of such Class or
Classes.]
WEIGHTED AVERAGE LIFE OF OFFERED CERTIFICATES
[Weighted average life refers to the average amount of time that will
elapse from the date of determination to the date of distribution or allocation
to the investor of each dollar in reduction of Certificate Principal Amount. The
weighted average lives of the Offered Certificates will be influenced by, among
other things, the rate at which principal of the Mortgage Loans is paid, which
may occur as a result of scheduled amortization, voluntary or involuntary
prepayments or liquidations.]
[The weighted average lives of the Offered Certificates may also be
affected to the extent that additional distributions in reduction of the
Certificate Principal Amount of such Certificates occur as a result of the
repurchase or purchase of Mortgage Loans from the Trust Fund as described under
"The Pooling Agreement--Representations and Warranties; Repurchase" or
"--Optional Termination; Optional Mortgage Loan Purchase" herein. Such a
repurchase or purchase from the Trust Fund will have the same effect on
distributions to the holders of Certificates as if the related Mortgage Loans
had prepaid in full, except that no Prepayment Charges are made in respect
thereof. The tables of "Percentage of Initial Certificate Principal Amount
Outstanding For Each Designated Scenario" set forth below indicate the weighted
average life of each Class of Offered Certificates (other than the Class [ ]
Certificates) and set forth the percentage of the initial Certificate Principal
Amount of such Offered Certificates that would be outstanding after each of the
dates shown based on the assumptions for each of the designated Scenarios
described above under "--Yield on the Offered Certificates." The tables have
also been prepared on the basis of the Mortgage Loan Assumptions described under
"--Yield on the Offered Certificates." The Mortgage Loan Assumptions made in
preparing the previous and following tables are expected to vary, and may vary
significantly, from the actual performance of the Mortgage Loans. It is highly
unlikely that principal of the Mortgage Loans will be repaid consistent with the
assumptions underlying any one of the Scenarios. Investors are urged to conduct
their own analysis concerning the likelihood that the Mortgage Loans may pay or
prepay on any particular date.]
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS [ ]
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
----------------- -------- --------
Initial Percent
Weighted Average Life
(in years)
- -----------------------
(1) Assuming that the [___] day of each of the months indicated is the
Distribution Date occurring in such month.
(2) [The weighted average life of the Class [ ] Certificates is determined by
(i) multiplying the amount of each distribution or allocation in reduction
of Certificate Principal Amount of such Class by the number of years from
the date of determination to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the aggregate distributions or
allocations in reduction of Certificate Principal Amount referred to in
clause (i).]
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS [ ]
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
----------------- -------- --------
Initial Percent
Weighted Average Life
(in years)
- -----------------------
(1) Assuming that the [_____] day of each of the months indicated is the
Distribution Date occurring in such month.
(2) [The weighted average life of the Class [ ] Certificates is determined by
(i) multiplying the amount of each distribution or allocation in reduction
of Certificate Principal Amount of such Class by the number of years from
the date of determination to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the aggregate distributions or
allocations in reduction of Certificate Principal Amount referred to in
clause (i).]
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS [ ]
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
----------------- -------- --------
Initial Percent
Weighted Average Life
(in years)
- -----------------------
(1) Assuming that the [_____] day of each of the months indicated is the
Distribution Date occurring in such month.
(2) [The weighted average life of the Class [ ] Certificates is determined by
(i) multiplying the amount of each distribution or allocation in reduction
of Certificate Principal Amount of such Class by the number of years from
the date of determination to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the aggregate distributions or
allocations in reduction of Certificate Principal Amount referred to in
clause (i).]
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS [ ]
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
----------------- -------- --------
Initial Percent
Weighted Average Life
(in years)
- -----------------------
(1) Assuming that the [_____] day of each of the months indicated is the
Distribution Date occurring in such month.
(2) [The weighted average life of the Class [ ] Certificates is determined by
(i) multiplying the amount of each distribution or allocation in reduction
of Certificate Principal Amount of such Class by the number of years from
the date of determination to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the aggregate distributions or
allocations in reduction of Certificate Principal Amount referred to in
clause (i).]
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS [ ]
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
----------------- -------- --------
Initial Percent
Weighted Average Life
(in years)
- -----------------------
(1) Assuming that the [_____] day of each of the months indicated is the
Distribution Date occurring in such month.
(2) [The weighted average life of the Class [ ] Certificates is determined by
(i) multiplying the amount of each distribution or allocation in reduction
of Certificate Principal Amount of such Class by the number of years from
the date of determination to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the aggregate distributions or
allocations in reduction of Certificate Principal Amount referred to in
clause (i).]
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL AMOUNT
OUTSTANDING FOR EACH DESIGNATED SCENARIO
CLASS [ ]
SCENARIO SCENARIO
DISTRIBUTION DATE 1 2
----------------- -------- --------
Initial Percent
Weighted Average Life
(in years)
- -----------------------
(1) Assuming that the [_____] day of each of the months indicated is the
Distribution Date occurring in such month.
(2) [The weighted average life of the Class [ ] Certificates is determined by
(i) multiplying the amount of each distribution or allocation in reduction
of Certificate Principal Amount of such Class by the number of years from
the date of determination to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the aggregate distributions or
allocations in reduction of Certificate Principal Amount referred to in
clause (i).]
<PAGE>
THE POOLING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling Agreement to be dated
as of __________ __, 199__ (the "Pooling Agreement"), by and among the
[Depositor, the Master Servicer, the Special Servicer and the Trustee].
The Depositor will provide to a prospective or actual holder of an Offered
Certificate without charge, upon written request, a copy (without exhibits) of
the Pooling Agreement. Requests should be addressed to Morgan Stanley Capital I
Inc., ______________________________; Attention: _______________________, (___)
___-____.
ASSIGNMENT OF THE MORTGAGE LOANS
On or prior to the Closing Date, the Depositor will assign or cause to be
assigned the Mortgage Loans, without recourse, to the Trustee for the benefit of
the Certificateholders. Prior to the Closing Date, the Depositor will, as to
each Mortgage Loan, deliver to the Trustee (or the custodian hereinafter
referred to), among other things, the following documents (collectively, as to
such Mortgage Loan, the "Mortgage File"): (i) the original or, if accompanied by
a "lost note" affidavit, a copy of the Mortgage Note, endorsed by
____________________ which transferred such Mortgage Loan, without recourse, in
blank or to the order of Trustee; (ii) the original Mortgage or a certified copy
thereof, and any intervening assignments thereof, or certified copies of such
intervening assignments, in each case with evidence of recording thereon; (iii)
originals or certified copies of any related assignment of leases, rents and
profits and any related security agreement (if, in either case, such item is a
document separate from the Mortgage) and any intervening assignments of each
such document or instrument; (iv) an assignment of the Mortgage, executed by the
____________________ which transferred such Mortgage Loan, in blank or to the
order of the Trustee, in recordable form; (v) assignments of any related
assignment of leases, rents and profits and any related security agreement (if,
in either case, such item is a document separate from the Mortgage), executed by
____________________ which transferred such Mortgage Loan, in blank or to the
order of the Trustee; (vi) originals or certified copies of all assumption,
modification and substitution agreements in those instances where the terms or
provisions of the Mortgage or Mortgage Note have been modified or the Mortgage
or Mortgage Note has been assumed; and (vii) the originals or certificates of a
lender's title insurance policy issued on the date of the origination of such
Mortgage Loan or, with respect to each Mortgage Loan not covered by a lender's
title insurance policy, an attorney's opinion of title given by an attorney
licensed to practice law in the jurisdiction where the Mortgaged Property is
located. The Pooling Agreement will require the Depositor promptly (and in any
event within _____ days of the Closing Date) to cause each assignment of the
Mortgage described in clause (iv) above to be submitted for recording in the
real property records of the jurisdiction in which the related Mortgaged
Property is located. Any such assignment delivered in blank will be completed to
the order of the Trustee prior to recording. The Pooling Agreement will also
require the Depositor to cause the endorsements on the Mortgage Notes delivered
in blank to be completed to the order of the Trustee.
THE MASTER SERVICER
General. ____________________, a __________________ corporation, will act
as Master Servicer (in such capacity, the "Master Servicer") for the
Certificates pursuant to the Pooling Agreement. The Master Servicer[, a
wholly-owned subsidiary of __________,] [is engaged in the mortgage banking
business and, as such, originates, purchases, sells and services mortgage loans.
_________________ primarily originates mortgage loans through a branch system
consisting of _______________________ offices in __________ states, and through
mortgage loan brokers.]
The executive offices of the Master Servicer are located at
_______________, telephone number (__)__________.
Delinquency and Foreclosure Experience. The following tables set forth
certain information concerning the delinquency experience (including pending
foreclosures) on [multifamily][commercial] mortgage loans included in the Master
Servicer's servicing portfolio (which includes mortgage loans that are
subserviced by others). The indicated periods of delinquency are based on the
number of days past due on a contractual basis. No mortgage loan is considered
delinquent for these purposes until 31 days past due on a contractual basis.
<TABLE>
<CAPTION>
As of December 31, 19 As of December 31, 19 As of , 19
----------------------- ----------------------- -----------------------
By Dollar By Dollar By Dollar
By No. of Amount of By No. of Amount of By No. of Amount of
Loans Loans Loans Loans Loans Loans
--------- --------- --------- --------- --------- ---------
(Dollar Amount in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio _________ $________ _________ $________ _________ $________
Period of Delinquency
31 to 59 days
60 to 89 days
90 days or more _________ _________ _________ _________ _________ _________
Total Delinquent Loans _________ $________ _________ $________ _________ $________
Percent of Portfolio % % % % % %
Foreclosures pending (1)
Percent of Portfolio % % % % % %
Foreclosures
Percent of Portfolio % % % % % %
- -----------------------
<FN>
(1) Includes bankruptcies which preclude foreclosure.
</FN>
</TABLE>
There can be no assurance that the delinquency and foreclosure experience
of the Mortgage Loans comprising the Mortgage Pool will correspond to the
delinquency and foreclosure experience of the Master Servicer's mortgage
portfolio set forth in the foregoing tables. The aggregate delinquency and
foreclosure experience on the Mortgage Loans comprising the Mortgage Pool will
depend on the results obtained over the life of the Mortgage Pool.
[SPECIAL SERVICERS]
[The [Master Servicer] is permitted, at its own expense, to utilize agents
or attorneys in performing any of its obligations under the Pooling Agreement,
but will not thereby be relieved of any such obligation, and will be responsible
for the acts and omissions of any such agents or attorneys.
The [Master Servicer currently] intends to engage [_____________]
("__________"), a _____________ corporation, as its agent to perform certain
servicing functions primarily related to property inspections, foreclosure and
the operation and sale of REO Property. See "Description of the
Agreements--Realization Upon Defaulted Whole Loans" in the Prospectus.
____________________________ is [describe organization] of
[multifamily][commercial] properties and has extensive experience in the
[describe relevant experience] of [multifamily] [commercial] properties.]
[CERTIFICATE ACCOUNT]
[The Master Servicer is required to deposit on a daily basis all amounts
received with respect to the Mortgage Loans of the Mortgage Pool, net of its
servicing compensation, into a separate Certificate Account maintained with
____________. Interest or other income earned on funds in the Certificate
Account will be paid to the Master Servicer as additional servicing
compensation. See "Description of the Trust Funds--Mortgage Assets" and
"Description of the Agreements--Certificate Account and Other Collection
Accounts" in the Prospectus.]
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
[Include description of Servicing Standard]
The principal compensation to be paid to the Master Servicer in respect of
its master servicing activities will be the Servicing Fee. The Servicing Fee
will be payable monthly only from amounts received in respect of interest on
each Mortgage Loan, will accrue at the Servicing Fee Rate and will be computed
on the basis of the same principal amount and for the same period respecting
which any related interest payment on such Mortgage Loan is computed. The
[weighted average] Servicing Fee Rate [with respect to each Mortgage Loan]
equals % per annum. [The principal compensation to be paid to the Special
Servicer in respect of its special servicing activities will be the Special
Servicing Fee. The Special Servicing Fee will be payable monthly only from
amounts received in respect of interest on each Specially Serviced Mortgage
Loan, will accrue at the Special Servicing Fee Rate and will be computed on the
basis of the same principal amount for the same period respecting which any
related interest payment on such Mortgage Loan is computed. The Special
Servicing Fee Rate with respect to each Specially Serviced Mortgage Loan equals
___% per annum.] [As further compensation for its servicing activities, the
Special Servicer shall also be entitled to receive (i) the Liquidation Fee for
the procurement (directly or through an agent thereof) of a purchaser in
connection with the liquidation of a Mortgaged Property securing any defaulted
Mortgage Loan, out of related liquidation proceeds, provided that the payment of
such Liquidation Fee would not be a violation of, and would not subject the
Trustee or the Trust Fund to liability under, any state or local statute,
regulation or other requirement (including without limitation, those governing
the licensing of real estate brokers or salesmen), and (ii) the Management Fee
in connection with the operation and management of any REO Property, out of
related revenues. Any "Liquidation Fee" payable to the Special Servicer will be
equal to __% (if the relevant sale occurs at a foreclosure sale, trustee's sale
or other similar proceeding) or __% (if the relevant sale occurs subsequent to
such Mortgaged Property's having become an REO Property), as applicable, of the
gross liquidation proceeds. The "Management Fee" in respect of any REO Property
is payable to the Special Servicer monthly and is equal to __% of the gross
revenues derived from such REO Property.]
As additional servicing compensation, the Master Servicer is entitled to
retain all assumption fees, prepayment penalties and late payment charges, to
the extent collected from mortgagors, together with any interest or other income
earned on funds held in the Certificate Account and any escrow accounts. The
Servicing Standard requires the Master Servicer to, among other things,
diligently service and administer the Mortgage Loans on behalf of the Trustee
and in the best interests of the Certificateholders, but without regard to the
Master Servicer's right to receive such additional servicing compensation. The
Master Servicer is obligated to pay certain ongoing expenses associated with the
Mortgage Pool and incurred by the Master Servicer in connection with its
responsibilities under the Agreement. See "Description of the
Agreements--Retained Interest; Servicing Compensation and Payment of Expenses"
in the Prospectus for information regarding other possible compensation payable
to the Master Servicer and for information regarding expenses payable by the
Master Servicer [and "Certain Federal Income Tax Consequences" herein regarding
certain taxes payable by the Master Servicer].
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date the Master Servicer shall furnish to each
Certificateholder, to the Depositor, to the Trustee and to the Rating Agency a
statement setting forth certain information with respect to the Mortgage Loans
and the Certificates required pursuant to the Pooling Agreement. In addition,
within a reasonable period of time after each calendar year, the Master Servicer
shall furnish to each person who at any time during such calendar year was the
holder of a Certificate a statement containing certain information with respect
to the Certificates required pursuant to the Pooling Agreement, aggregated for
such calendar year or portion thereof during which such person was a
Certificateholder. See "Description of the Certificates--Reports to
Certificateholders" in the Prospectus.
[VOTING RIGHTS
At all times during the term of this Agreement, the Voting Rights shall be
allocated among the Classes of Certificateholders in proportion to the
respective Certificate Balances of their Certificates [(net, in the case of the
Class [ ], Class [ ] and Class [ ] Certificates, of any uncovered portion of the
related Certificate Balance)]. Voting Rights allocated to a class of
Certificateholders shall be allocated among such Certificateholders in
proportion to the Percentage Interests evidenced by their respective
Certificates.]
OPTIONAL TERMINATION
[The obligations created by the Pooling Agreement will terminate following
the earliest of (i) the final payment or other liquidation of the last Mortgage
Loan or REO Property subject thereto, and (ii) the purchase of all of the assets
of the Trust Fund by the Master Servicer. Written notice of termination of the
Pooling Agreement will be given to each Certificateholder, and the final
distribution will be made only upon surrender and cancellation of the
Certificates at the office of the Certificate Registrar specified in such notice
of termination. In no event, however, will the trust created by the Pooling
Agreement continue beyond the expiration of [21 years] from the death of the
survivor of certain persons named in such Pooling Agreement.]
[Any such purchase by the Master Servicer of all the Mortgage Loans and
other assets in the Trust Fund is required to be made at a price equal to the
greater of (1) the aggregate fair market value of all the Mortgage Loans and REO
Properties then included in the Trust Fund, as mutually determined by the Master
Servicer and the Trustee, and (2) the excess of (a) the sum of (i) the aggregate
Purchase Price of all the Mortgage Loans then included in the Trust Fund and
(ii) the fair market value of all REO Properties then included in the Trust
Fund, as determined by an appraiser mutually agreed upon by the Master Servicer
and the Trustee, over (b) the aggregate of amounts payable or reimbursable to
the Master Servicer under the Pooling Agreement. Such purchase will effect early
retirement of the then outstanding Class [ ] Certificates, but the right of the
Master Servicer to effect such termination is subject to the requirement that
the aggregate Stated Principal Balance of the Mortgage Loans then in the Trust
Fund is less than __% of the aggregate principal balance of the Mortgage Loans
as of the Cut-Off Date. [In addition, the Master Servicer may at its option
purchase any class or classes of Class [ ] Certificates with a Certificate
Balance less than __% of the original balance thereof at a price equal to such
Certificate Balance plus accrued interest through _________.]]
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans in [__________] (approximately [____]% of the Mortgage Loans by
Cut-Off Date Allocated Loan Amount), [__________] (approximately [____]% of the
Mortgage Loans by Cut-Off Date Allocated Loan Amount), [__________]
(approximately [____]% of the Mortgage Loans by Cut-Off Date Allocated Loan
Amount), [__________] (approximately [____]% of the Mortgage Loans by Cut-Off
Date Allocated Loan Amount), and [__________] (approximately [____]% of the
Mortgage Loans by Cut-Off Date Allocated Loan Amount) which are general in
nature. The summaries do not purport to be complete and are qualified in their
entirety by reference to the applicable federal and state laws governing the
Mortgage Loans.
[__________, __________, __________, __________, __________ and __________
and various other states have imposed statutory prohibitions or limitations that
limit the remedies of a mortgagee under a mortgage or a beneficiary under a deed
of trust. All of the Mortgage Loans are nonrecourse loans as to which, in the
event of default by a borrower, recourse may be had only against the specific
property pledged to secure the Mortgage Loan and not against the borrower's
other assets. Even if recourse is available pursuant to the terms of the
Mortgage Loan, certain states have adopted statutes which impose prohibitions
against or limitations on such recourse. The limitations described below and
similar or other restrictions in other jurisdictions where Mortgaged Properties
are located may restrict the ability of the Master Servicer or the Special
Servicer, as applicable, to realize on the Mortgage Loans and may adversely
affect the amount and timing of receipts on the Mortgage Loans.]
[Describe specific state laws]
USE OF PROCEEDS
The net proceeds from the sale of Offered Certificates will be used by the
Depositor to pay the purchase price of the Mortgage Loans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
[Elections will be made to treat the portion of the Trust Fund exclusive of
the [Deferred Interest, the Deferred Interest Distribution Account, the Default
Interest, and the Class [ ] Distribution Account,] and, in the opinion of
__________________________, special tax counsel to the Depositor, such portion
of the Trust Fund will qualify, [as two separate REMICs (the "Master REMIC" and
the "Subsidiary REMIC", respectively)] within the meaning of Code Section 860D.
The [Subsidiary REMIC] will hold the Mortgage Loans (exclusive of the Deferred
Interest and the Default Interest), proceeds therefrom, the Collection Account,
the Subsidiary Distribution Account and any REO Property, and will issue (i)
certain uncertificated classes of regular interests (the "Subsidiary Regular
Interests") to the [Master REMIC] and (ii) the Class [ ] Certificates, which
will represent the sole class of residual interests in the [Subsidiary REMIC].
The [Master REMIC] will hold the [Subsidiary Regular Interests, and the Master
Distribution Account] in which distributions thereon will be deposited and will
issue (i) classes of regular interests represented by the Regular Certificates
and (ii) the Class [ ] Certificates, which will represent the sole class of
residual interests in the [Master REMIC]. In addition, the Class [ ], Class [ ]
and Class [ ] Certificates will represent pro rata undivided beneficial
interests in designated portions of the Deferred Interest and the related
portions of the Deferred Interest Distribution Account, which portion of the
Trust Fund will be treated as part of a grantor trust for federal income tax
purposes. Although holders of these Classes of Certificates will be required to
allocate their purchase price between their interests in the regular interests
in the [Master REMIC] and their beneficial interests in Deferred Interest based
on the relative fair market values of each, it is anticipated that the rights to
Deferred Interest will have negligible value as of the Closing Date. The Class [
] Certificates will represent pro rata undivided beneficial interests in the
portion of the Trust Fund consisting of Default Interest (subject to an
obligation to pay interest on Advances to the [Master Servicer, Special Servicer
or Trustee], as the case may be) in respect of the Mortgage Loans and the Class
[ ] Distribution Account, and such portion will be treated as part of the
grantor trust for federal income tax purposes.
[The Offered Certificates will be treated as "real estate assets" under
Code Section 856(c)(4)(A), to the extent that the assets of the REMICs are so
treated. The interest on the Offered Certificates will be "interest on
obligations secured by mortgages on real property" described in Code Section
856(c)(3)(B) for a real estate investment trust, in the same proportion that the
income of the REMICs is so treated.]
[A beneficial owner's interest in an Offered Certificate will qualify for
the foregoing treatments under Sections 856(c)(4)(A) and 856(c)(3)(B) in their
entirety if at least 95% of the REMICs' assets qualify for such treatment, and
otherwise will qualify to the extent of the REMICs' percentage of such assets.
The preceding three sentences do not apply to a beneficial owner's interest in
the Offered Certificates (other than the Class [ ], Class [ ] and Class [ ]
Certificates) to the extent allocable to the right to receive Deferred Interest.
However, a beneficial owner's interest in Deferred Interest will separately
qualify under such sections. A Mortgage Loan that has been defeased with U.S.
Treasury securities will not qualify for the foregoing treatments. [The
Subsidiary REMIC and the Master REMIC will be treated as one REMIC solely for
the purpose of making the foregoing determinations.]
[The regular interests represented by the Offered Certificates generally
will be treated as newly originated debt instruments for federal income tax
purposes. Beneficial owners of the Offered Certificates will be required to
report income on the regular interests represented by the Offered Certificates
in accordance with the accrual method of accounting. Deferred Interest will be
required to be reported as income by the beneficial owners thereof (to the
extent such amounts do not represent a recovery of a portion of the owner's
adjusted basis therein, if any) as such amounts are accrued by the Trust Fund,
commencing after the Effective Maturity Dates on the related Mortgage Loans.]
It is anticipated that the regular interests represented by the Class [ ]
Certificates will be issued at a premium for federal income tax purposes. See
"Certain Federal Income Tax Consequences--REMICs--Taxation of Owners of REMIC
Regular Certificates--General" in the Prospectus.
[Although unclear for federal income tax purposes, it is anticipated that
the Class [ ] Certificates will be treated as issued with original issue
discount in an amount equal to the excess of all distributions of interest
expected to be received thereon over their respective issue prices (including
accrued interest). Any "negative" amounts of original issue discount on the
Class [ ] Certificates attributable to rapid prepayment with respect to the
Mortgage Loans will not be deductible currently, but may be offset against
future positive accruals of original issue discount, if any. Finally, a holder
of a Class [ ] Certificate may be entitled to a loss deduction to the extent it
becomes certain that such holder will not recover a portion of its basis in such
Certificate, assuming no further prepayments. In the alternative, it is possible
that rules similar to the "noncontingent bond method" of the contingent interest
rules in the OID Regulations, as amended on June 12, 1996, may be promulgated
with respect to the Class [ ] Certificates. Under the noncontingent bond method,
if the interest payable for any period is greater or less than the amount
projected, the amount of income included for that period would be either
increased or decreased accordingly. Any net reduction in the income accrual for
the taxable year below zero (a "Negative Adjustment") would be treated by a
Certificateholder as ordinary loss to the extent of prior income accruals and
would be carried forward to offset future interest accruals. At maturity, any
remaining Negative Adjustment would be treated as a loss on retirement of the
Certificate. The legislative history of relevant Code provisions indicates,
however, that negative amounts of original issue discount on an instrument such
as a REMIC regular interest may not give rise to taxable losses in any accrual
period prior to the instrument's disposition or retirement. Thus, it is not
clear whether any losses resulting from a Negative Adjustment would be
recognized currently or be carried forward until disposition or retirement of
the debt obligation. However, unless and until otherwise required under
applicable regulations, the Depositor does not intend to treat the payments of
interest on the Class [ ] Certificates as contingent interest.]
The prepayment assumption that will be used to accrue original issue
discount or to amortize premium of an initial owner will be Scenario 1 as
described under "Yield, Prepayment and Maturity Considerations--Yield on the
Offered Certificates" above.
[Although not free from doubt, it is anticipated that any prepayment
premiums will be treated as ordinary income to the extent allocable to
beneficial owners of the Offered Certificates as such amounts become due to such
beneficial owners.]
CERTAIN ERISA CONSIDERATIONS
[The purchase by or transfer to an employee benefit plan or other
retirement arrangement, including an individual retirement account or a Keogh
plan, which is subject to Title I of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or Section 4975 of the Code, or a "governmental
plan" (as defined in Section 3(32) of ERISA) that is subject to any federal,
state or local law ("Similar Law") which is, to a material extent, similar to
the foregoing provisions of ERISA or the Code (each, a "Plan"), or a collective
investment fund in which such Plans are invested, an insurance company using the
assets of separate accounts or general accounts which include assets of Plans
(or which are deemed pursuant to ERISA or Similar Law to include assets of
Plans) or other persons acting on behalf of any such Plan or using the assets of
any such Plan of the Class [ ], Class [ ] and Class [ ] Certificates (the
"Subordinated Offered Certificates") is restricted. See "Description of the
Offered Certificates--Transfer Restrictions" herein. Accordingly, except as
specifically referenced herein, the following discussion does not purport to
discuss the considerations under ERISA or Section 4975 of the Code with respect
to the purchase, holding or disposition of the Subordinated Offered
Certificates. For purposes of the following discussion all references to the
Offered Certificates, unless otherwise indicated, shall be deemed to exclude the
Subordinated Offered Certificates.]
As described in the Prospectus under "Certain ERISA Considerations", Title
I of ERISA and Section 4975 of the Code impose certain duties and restrictions
on Plans and certain persons who perform services for Plans. For example, unless
exempted, investment by a Plan in the Offered Certificates may constitute or
give rise to a prohibited transaction under ERISA or the Code. There are certain
exemptions issued by the United States Department of Labor (the "Department")
that may be applicable to an investment by a Plan in the Offered Certificates.
The Department has granted to the Underwriter an administrative exemption
(Prohibited Transaction Exemption 90-24, 55 Fed. Reg. 20548 (May 17, 1990)),
referred to herein as the "Exemption", for certain mortgage-backed and
asset-backed certificates underwritten in whole or in part by the Underwriter.
The Exemption might be applicable to the initial purchase, the holding, and the
subsequent resale by a Plan of certain certificates, such as the Offered
Certificates, underwritten by the Underwriter, representing interests in
pass-through trusts that consist of certain receivables, loans and other
obligations, provided that the conditions and requirements of the Exemption are
satisfied. The loans described in the Exemption include mortgage loans such as
the Mortgage Loans. However, it should be noted that in issuing the Exemption,
the Department may not have considered interests in pools of the exact nature as
some of the Offered Certificates.
[Among the conditions that must be satisfied for the Exemption to apply are
the following:
(1) [The acquisition of Offered Certificates by a Plan is on terms
(including the price for the Offered Certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction with
an unrelated party;]
(2) [The rights and interests evidenced by Offered Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other Certificates of the Trust Fund;]
(3) [The Offered 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 Standard & Poor's Structured Rating
Groups, Moody's Investor Services Inc.,Duff & Phelps Credit Rating Co. ro
Fitch IBCA, Inc. (each a "Rating Agency");]
(4) [The Trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);]
(5) [The sum of all payments made to and retained by the Underwriter
in connection with the distribution of Offered Certificates represents not
more than reasonable compensation for underwriting the Offered
Certificates. The sum of all payments made to and retained by the Depositor
pursuant to the assignment of the Mortgage Loans to the Trust Fund
represents not more than the fair market value of such Mortgage Loans. The
sum of all payments made to and retained by the Master Servicer and any
other servicer represents not more than reasonable compensation for such
person's services under the Pooling Agreement and reimbursement of such
person's reasonable expenses in connection therewith;] and
(6) [The Plan investing in the Offered 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.]]
[The Trust Fund must also meet the following requirements:
(a) the corpus of the Trust Fund must consist solely of assets of the
type that have been included in other investment pools;
(b) certificates evidencing interests in such other investment pools
must have been rated in one of the three highest rating categories of a
Rating Agency for at least one year prior to the Plan's acquisition of the
Offered Certificates pursuant to the Exemption; and
(c) certificates evidencing interests 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 the Offered Certificates pursuant
to the Exemption.]
[If all of the conditions of the Exemption are met, whether or not a Plan's
assets would be deemed to include an ownership interest in the Mortgage Loans in
the Mortgage Pool, the acquisition, holding and resale of the Offered
Certificates by Plans would be exempt from certain of the prohibited transaction
provisions of ERISA and the Code.]
[Moreover, the Exemption can provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur if a
Plan fiduciary causes a Plan to acquire certificates in a trust holding
receivables, loans or obligations on which the fiduciary (or its affiliate) is
an obligor provided that, among other requirements, (a) in the case of an
acquisition in connection with the initial issuance of certificates, at least
fifty percent of each class of certificates in which Plans have invested is
acquired by persons independent of the Restricted Group and at least fifty
percent of the aggregate interest in the trust is acquired by persons
independent of the Restricted Group; (b) such fiduciary (or its affiliate) is an
obligor with respect to five percent or less of the fair market value of the
obligations contained in the trust; (c) a Plan's investment in certificates of
any class does not exceed [twenty-five percent] of all of the certificates of
that class outstanding at the time of the acquisition; and (d) immediately after
the acquisition no more than twenty-five percent of the assets of any Plan with
respect to which such person is a fiduciary are invested in certificates
representing an interest in one or more trusts containing assets sold or
serviced by the same entity. Borrowers who are acting on behalf of Plans or who
are investing assets of Plans, and any affiliates of any such borrowers, should
not purchase any of the Offered Certificates, unless the conditions described in
this paragraph are met.]
[The Exemption does not apply to the purchasing or holding of Offered
Certificates by Plans sponsored by the Depositor, the Underwriter, the Trustee,
any Servicer, any obligor with respect to Mortgage Loans included in the Trust
Fund constituting more than five percent of the aggregate unamortized principal
balance of the assets in the Trust Fund, or any affiliate of such parties (the
"Restricted Group").]
[The Underwriter believes that the conditions to the applicability of the
Exemption will generally be met with respect to the Offered Certificates, other
than those conditions which are dependent on facts unknown to the Underwriter or
which it cannot control, such as those relating to the circumstances of the Plan
purchaser or the Plan fiduciary making the decision to purchase any such Class
of Offered Certificates. However, before purchasing an Offered Certificate, a
fiduciary of a Plan should make its own determination as to the availability of
the exemptive relief provided by the Exemption or the availability of any other
prohibited transaction exemptions, and whether the conditions of any such
exemption will be applicable to the Offered Certificates. THE CLASS [ ], CLASS [
] AND CLASS [ ] CERTIFICATES ARE SUBORDINATE TO ONE OR MORE OTHER CLASSES OF
CERTIFICATES AND, ACCORDINGLY, SUCH CERTIFICATES MAY NOT BE PURCHASED BY OR
TRANSFERRED TO A PLAN OR ANY PERSON ACTING ON BEHALF OF OR INVESTING THE ASSETS
OF A PLAN, UNLESS SUCH PERSON IS AN INSURANCE COMPANY INVESTING THE ASSETS OF
ITS GENERAL ACCOUNT UNDER CIRCUMSTANCES WHEREBY THE PURCHASE AND HOLDING OF ANY
SUCH CERTIFICATE WOULD BE EXEMPT FROM THE PROHIBITED TRANSACTION PROVISIONS OF
ERISA AND THE CODE UNDER SECTION I and III OF PROHIBITED TRANSACTION CLASS
EXEMPTION 95-60.]
[Any fiduciary of a Plan considering whether to purchase an Offered
Certificate should also carefully review with its own legal advisors the
applicability of the fiduciary duty and prohibited transaction provisions of
ERISA and the Code to such investment. See "Certain ERISA Considerations" in the
Prospectus. A fiduciary of a governmental plan should make its own determination
as to the need for and the availability of any exemptive relief under Similar
Law.]
[The sale of Offered Certificates to a Plan is in no respect a
representation by the Depositor or the Underwriter that this investment meets
all relevant legal requirements with respect to investments by Plans generally
or any particular Plan, or that this investment is appropriate for Plans
generally or any particular Plan.]
LEGAL INVESTMENT
The Class [ ] Certificates will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984, as
amended ("SMMEA"), so long as they are rated in at least the second highest
rating category by the Rating Agency, and, as such, will be legal investments
for certain entities to the extent provided in SMMEA. However, institutions
subject to the jurisdiction of the Office of the Comptroller of the Currency,
the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, the National Credit
Union Administration or federal or state banking, insurance or other regulatory
authorities should review applicable rules, supervisory policies and guidelines,
since certain restrictions may apply to investments in such Certificates. It
should also be noted that certain states have enacted legislation limiting to
varying extents the ability of certain entities (in particular insurance
companies) to invest in mortgage related securities. Investors should consult
with their own legal advisors in determining whether, and to what extent, the
Class [___] Certificates constitute legal investments for such investors.
The Class [___] Certificates will not constitute "mortgage related
securities" under SMMEA. The appropriate characterization of the Class [___]
Certificates under various legal investment restrictions, and thus the ability
of investors subject to these restrictions to purchase Class [___] 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 Class [___]
Certificates will constitute legal investments for them.
[Except as to the status of the Class [___] Certificates as "mortgage
related securities," no] [No] representations as to the proper characterization
of the Certificates for legal investment, financial regulatory or other
purposes, or as to the ability of particular investors to purchase the
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
Certificates) may adversely affect the liquidity of the Certificates.
See "Legal Investment" in the Prospectus.
PLAN OF DISTRIBUTION
[Subject to the terms and conditions of the Underwriting Agreement between
the Depositor and the Underwriter, the Offered Certificates will be purchased
from the Depositor by the Underwriter, an affiliate of the Depositor and
[_____], upon issuance. Distribution of the Offered Certificates will be made by
the Underwriter from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. Proceeds to the Depositor
from the sale of the Offered Certificates will be approximately [ ]% of the
initial aggregate Certificate Principal Amount of the Offered Certificates, plus
accrued interest, if any, from __________, 199__, before deducting expenses
payable by the Depositor.]
[In connection with the purchase and sale of the Offered Certificates, the
Underwriter may be deemed to have received compensation from the Depositor in
the form of underwriting discounts. One or more affiliates of the Underwriter
have entered into and may, in the future, enter into other financing
arrangements with affiliates of some or all of the borrowers.]
[Certain affiliates of the Underwriter, including [_____], engage in, and
intend to continue to engage in, the acquisition, development, operation,
financing and disposition of real estate-related assets in the ordinary course
of their business, and are not prohibited in any way from engaging in business
activities similar to or competitive with those of the borrowers. See "Risk
Factors--Risks Relating to Conflicts of Interest" herein.]
[The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities, including
liabilities under the Securities Act of 1933.]
[In connection with the offering, the Underwriter may purchase and sell the
Offered Certificates in the open market. These transactions may include
purchases to cover short positions created by the Underwriter in connection with
the offering. Short positions created by the Underwriter involve the sale by the
Underwriter of a greater number of Certificates than they are required to
purchase from the Depositor in the offering. The Underwriter also may impose a
penalty bid, whereby selling concessions allowed to broker-dealers in respect of
the securities sold in the offering may be reclaimed by the Underwriter if such
Certificates are repurchased by the Underwriter in covering transactions. These
activities may maintain or otherwise affect the market price of the
Certificates, which may be higher than the price that might otherwise prevail in
the open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected in the over-the-counter market or
otherwise.]
[This Prospectus Supplement and the Prospectus may only be issued or passed
on in the United Kingdom to a person who is of a kind described in Article 11(3)
of the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996 or is a person to whom this Prospectus Supplement and the Prospectus
may otherwise lawfully be issued or passed on.]
[The Trust Fund described in this Prospectus Supplement may only be
promoted (whether by the issuing or passing on of documents as referred to in
the foregoing restriction or otherwise) by an authorized person under Chapter
III of the Financial Services Act of 1986 of the United Kingdom ("FSA") to a
person in the United Kingdom if that person is of a kind described in section
76(2) of the FSA or as permitted by the Financial Services (Promotion of
Unregulated Schemes) Regulation 1991 (as amended).]
VALIDITY OF OFFERED CERTIFICATES
The validity of the Offered Certificates will be passed upon for the
Depositor and for the Underwriter by __________________________, ______________.
The material federal income tax consequences of the Offered Certificates will be
passed upon for the Depositor _____________________________.
RATINGS
It is a condition to issuance that the Class [ ] Certificates be rated [not
lower than] "______" by ________________. However, no person is obligated to
maintain the rating on the Class [ ] Certificates, and _______________ is not
obligated to monitor its rating following the Closing Date.
________________'s ratings on mortgage pass-through certificates address
the likelihood of the receipt by holders thereof of payments to which they are
entitled. _____________'s ratings take into consideration the credit quality of
the mortgage pool, structural and legal aspects associated with the
certificates, and the extent to which the payment stream in the mortgage pool is
adequate to make payments required under the certificates. _________________'s
rating on the Class [ ] Certificates does not, however, constitute a statement
regarding frequency of prepayments on the Mortgage Loans. [The rating of the
Class [ ] Certificates does not address the possibility that the holders of such
Certificates may fail to fully recover their initial investments.] See "Risk
Factors" herein.
There can be no assurance as to whether any rating agency not requested to
rate the Class [ ] Certificates will nonetheless issue a rating and, if so, what
such rating would be. A rating assigned to the Class [ ] Certificates by a
rating agency that has not been requested by the Depositor to do so may be lower
than the rating assigned by ________________'s pursuant to the Depositor's
request.
The rating of the Class [ ] 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.
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
A
ACMs
ADA
anchor tenant
Appraisal Reduction Amount
Appraisal Reduction Event
Appraisal Reduction Events
Available Funds
B
balloon loans
banking organization
C
CEDEL
CEDEL Participants
Certificate Owners
Certificate Registrar
Certificateholder
Class
Class [ ] Certificates
Class [ ] Component
Class Prepayment Percentage
clearing agency
clearing corporation
Component Notional Amount
Cross-over Date
Cut-Off Date
D
Debt Service Coverage Ratio
Deferred Interest
Definitive Certificate
Department
Depositories
Discount Rate
Distribution Date
DTC
E
ERISA
Euroclear
Euroclear Participants
Excess Prepayment Interest Shortfall
Exemption
F
Form 8-K
FSA
G
Government Securities
H
holder
Holders
I
Index
Indirect Participants
Interest Accrual Amount
Interest Accrual Period
Interest Distribution Amount
Interest Shortfall
L
Liquidation Fee
LTV
M
Master REMIC
Master Servicer
MBS
Mortgage
Mortgage Asset Seller
Mortgage File
Mortgage Note
Mortgage Rate
mortgage related securities
Mortgaged Property
N
Negative Adjustment
net income from foreclosure property
Net Mortgage Rate
Net Operating Income
Notional Amount
O
Offered Certificates
operating leverage
Original LTV Ratio
P
P&I Advance
Participants
Pass-Through Rate
Payment Cap
Percentage Interest
Plan
Pooling Agreement
Prepayment Interest Shortfall
Prepayment Premium
Prepayment Premiums
Principal Balance Certificates
Principal Distribution Amount
Private Certificates
R
Rated Final Distribution Date
Realized Loss
Regular Certificates
regular interests
Release H.15
rents from real property
REO Account
REO Mortgage Loan
REO Property
Restricted Group
Rules
S
Scenario 1
Scenarios
Seller's Agreement
Servicing Compensation
Similar Law
SMMEA
Special Servicer's Appraisal Reduction Estimate
Stated Principal Balance
Subordinated Offered Certificate
Subordinated Offered Certificates
T
Terms and Conditions
Treasury Rate
U
Master REMIC
W
WAC Rate
<PAGE>
APPENDIX I
[CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS]
[Attach Mortgage Loan Schedule that details relevant and available information
regarding the Mortgage Loans, such as the information included under the
following headings:
1. Loan ID number
2. Original balance
3. Current balance
4. Current rate
5. Current payment
6. Note date
7. Original term
8. Remaining term
9. Maturity date
10. Amortization
11. Origination appraisal
12. Borrowing entity
13. Property name
14. Street
15. City
16. State
17. Zip code
18. Rate index
19. First rate change
20. Next rate change
21. First payment change
22. Next payment change
23. Rate adjustment frequency
24. Payment adjustment frequency
25. Period payment cap
26. Life rate cap
27. Life rate floor
28. Negative amortization cap amount
29. annualized recent net operating cost
30. Annualized recent net operating income
31. Most recent net operating income year
32. Most recent debt service coverage ratio
33. LTV and current balance based upon the Appraised Value
<PAGE>
APPENDIX II
[CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS AND MBS]
CUT-OFF DATE: [ ]
DATE OF INITIAL ISSUANCE: [ ]
RELATED TRUSTEE: [ ]
MATURITY DATE: [ ]
MORTGAGE POOL CUT-OFF DATE BALANCE: $[ ]
REFERENCE DATE BALANCE: $[ ]
PERCENT OF ORIGINAL MORTGAGE POOL REMAINING AS OF REFERENCE DATE: [ ]%
INITIAL CERTIFICATE
CLASS PASS-THROUGH PRINCIPAL
OF CERTIFICATES RATE BALANCE FEATURES
[ ] [ ]% $[ ] [ ]
[First MBS Distribution Date on which the MBS may receive a portion of
prepayments: [date]
MINIMUM SERVICING FEE RATE:* [ ]% per annum
MAXIMUM SERVICING FEE RATE:* [ ]% per annum
AS OF DATE OF
INITIAL ISSUANCE
----------------
*Combined Related Master Servicing SPECIAL HAZARD AMOUNT: $[ ]
and Subservicing Fee Rate FRAUD LOSS AMOUNT: $[ ]
BANKRUPTCY AMOUNT: $[ ]
AS OF DATE OF AS OF
INITIAL ISSUANCE DELIVERY DATE
---------------- -------------
SENIOR PERCENTAGE: [ ]% [ ]%
SUBORDINATE PERCENTAGE: [ ]% [ ]%
CLASS RATING AGENCY VOTING RIGHTS:
----- ------------- -------------
RATINGS: [ ] [ ] [ ]
[ ] [ ]
[ ] [ ]
<PAGE>
APPENDIX III
[LARGE LOAN SUMMARY]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the Certificates, other than underwriting
discounts and commissions:
SEC Registration Fee......................................$278.00
Blue Sky Fees................................................*
NASD Fees....................................................*
Printing and Engraving Fees..................................*
Legal Fees and Expenses......................................*
Accounting Fees and Expenses.................................*
Trustee Fees and Expenses....................................*
Rating Agency Fees...........................................*
Miscellaneous................................................*
Total.....................................................$278.00
----------
* To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section VII of the proposed form of Underwriting Agreement, the
Underwriter is obligated under certain circumstances to indemnify officers and
directors of Morgan Stanley Capital I Inc. (the "Company") who sign the
Registration Statement, and certain controlling persons of the Company, against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Act").
The Company's By-laws provide for indemnification of directors and
officers of the Company to the full extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they are or
were such directors, officers, employees or agents, against expenses incurred in
any such action, suit or proceeding.
The Pooling and Servicing Agreement will provide that no director,
officer, employee or agent of the Company will be liable to the Trust Fund or
the Certificateholders for any action taken or for refraining from the taking of
any action pursuant to the Pooling and Servicing Agreement, except for such
person's own misfeasance, bad faith or gross negligence in the performance of
duties. The Pooling and Servicing Agreements will provide further that, with the
exceptions stated above, any director, officer, employee or agent of the Company
will be indemnified and held harmless by the Trust Fund against any loss,
liability or expense incurred in connection with any legal action relating to
the Pooling and Servicing Agreement or the Certificates, other than any loss,
liability or expense (i) related to any specific Mortgage Loan or Mortgage Loans
(except as any such loss, liability or expense shall be otherwise reimbursable
pursuant to the Pooling and Servicing Agreement), (ii) incurred in connection
with any violation by him or her of any state or federal securities law or (iii)
imposed by any taxing authority if such loss, liability or expense is not
specifically reimbursable pursuant to the terms of the Pooling and Servicing
Agreement.
ITEM 16. EXHIBITS.
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company*
3.2 By-laws of the Company*
4.1 Form of Pooling and Servicing Agreement*
5.1 Opinion of Brown & Wood LLP as to legality of the Certificates
5.2 Opinion of Cadwalader, Wickersham & Taft as to legality of the
Certificates
5.3 Opinion of Latham & Watkins as to the legality of the
Certificates
8.1 Opinion of Brown & Wood LLP as to certain tax matters
(included in Exhibit 5.1)
8.2 Opinion of Cadwalader, Wickersham & Taft as to certain tax
matters (included in Exhibit 5.2 hereto)
8.3 Opinion of Latham & Watkins as to certain tax matters
23.1 Consent of Brown & Wood LLP (included in Exhibits 5.1 and 8.1 hereto)
23.2 Consent of Cadwalader, Wickersham & Taft (included in Exhibits 5.2
and 8.2 hereto)
23.3 Consent of Latham & Watkins (included in Exhibits 5.3 and 8.3 hereto)
25.1 Power of Attorney (contained in page II-6 of this Registration
Statement)
- - - - - - - - - - -
* Incorporated by reference to Registration Statement No. 333-45467 as
previously filed by Registrant on Form S-3, Registration No. 33-45042
as previously filed by the Registrant on Form S-11, Registration
Statement No. 33-46723 as previously filed by the Registrant on Form
S-3 to Form S-11 and Registration Statement No. 333-26667 as previously
filed by the Registrant on Form S-3 to Form S-11.
ITEM 17. UNDERTAKINGS.
A. Undertaking in respect of indemnification.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 15 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted against
the Registrant by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
B. Undertaking pursuant to Rule 415 Offering.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by
Section 10(a)(3) of the Act;
(ii) to reflect in the Prospectus any facts or
events arising after the effective date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
Registration Statement;
(iii) to include any material information with
respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change of such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under
the Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
C. Undertaking in respect of incorporation by reference.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Act, each filing of the Registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in this registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
D. Undertaking in respect of equity offerings of nonreporting Registrants.
The Registrant hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit delivery to each purchaser.
E. Undertaking pursuant to Rule 430A
The registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration statement
as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Form S-3
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on April 22, 1999
MORGAN STANLEY CAPITAL I INC.
By: /s/ David R. Warren
-----------------------------------
Name: David R. Warren
Title: President
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David R. Warren, and each of them, his
true and lawful attorneys-in fact and agents for him and in his name, place and
stead, in any and all capacities, to sign any and an all post-effective
amendments to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agents may lawfully do or cause to
be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ David R. Warren
________________________ President (Principal Executive April 22, 1999
David R. Warren Officer) and Director
/s/ Craig S. Phillips
________________________ Director April 22, 1999
Craig S. Phillips
/s/ John E. Westerfield
________________________ Director April 22, 1999
John E. Westerfield
/s/ Eileen K. Murray
________________________ Treasurer (Principal April 22, 1999
Eileen K. Murray Financial Officer) and
Controller
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company*
3.2 By-laws of the Company*
4.1 Form of Pooling and Servicing Agreement*
5.1 Opinion of Brown & Wood LLP as to legality of the Certificates
5.2 Opinion of Cadwalader, Wickersham & Taft as to legality of the
Certificates
5.3 Opinion of Latham & Watkins as to the legality of the Certificates
8.1 Opinion of Brown & Wood LLP as to certain tax matters (included in
Exhibit 5.1 hereto)
8.2 Opinion of Cadwalader, Wickersham & Taft as to certain tax matters
(included in Exhibit 5.2 hereto)
8.3 Opinion of Latham & Watkins as to certain tax matters
23.1 Consent of Brown & Wood LLP (included in Exhibit 5.1 hereto)
23.2 Consent of Cadwalader, Wickersham & Taft (included in Exhibits 5.2
and 8.2 hereto)
23.3 Consent of Latham & Watkins (included in Exhibits 5.3 hereto)
25.1 Power of Attorney (contained in page II-6 of this Registration
Statement)
- - - - - - - - - - - - -
* Incorporated by reference to Registration Statement No. 333-45467 as
previously filed by the Registrant on Form S-3, Registration Statement No.
33-45042 as previously filed by the Registrant on Form S-11, No. 33-46723 as
previously filed by the Registrant on Form S-3 to Form S-11 and No. 333-26667 as
previously filed by the Registrant on Form S-3 to Form S-11.
EXHIBIT 5.1
[BROWN & WOOD LETTERHEAD]
April 22, 1999
Morgan Stanley Capital I Inc.
1585 Broadway
New York, New York 10036
Re: Morgan Stanley Capital I Inc.
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for Morgan Stanley Capital I Inc., a Delaware
corporation (the "Company"), in connection with the preparation of a
registration statement on Form S-3 (the "Registration Statement") relating to
the Mortgage Pass-Through Certificates specified therein (the "Certificates"),
issuable in series (each, a "Series"). Pursuant to Rule 429 of the Securities
and Exchange Commission Rules and Regulations under the Securities Act of 1933,
as amended (the "1933 Act"), the Prospectuses and Prospectus Supplements
contained in the Registration Statement also relate to the Company's
registration statement No. 333-62911 as previously filed on Form S-3. The
Registration Statement is being filed with the Securities and Exchange
Commission under the 1933 Act. As set forth in the Registration Statement, each
Series of Certificates will be issued under and pursuant to the conditions of a
separate pooling and servicing agreement (each, a "Pooling and Servicing
Agreement") among the Company, a trustee and a master servicer to be identified
in the prospectus supplement for such Series of Certificates (the "Trustee" and
the "Master Servicer" for such Series, respectively).
We have examined copies of the Company's Certificate of Incorporation
and By-laws, a form of Pooling and Servicing Agreement, the forms of
Certificates included in the Pooling and Servicing Agreement, the forms of
prospectus supplements and prospectuses contained in the Registration Statement
(the "Prospectus Supplements" and "Base Prospectuses", respectively) and such
other records, documents and statutes as we have deemed necessary for purposes
of this opinion.
Based upon the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement for a Series of Certificates
has been duly and validly authorized by all necessary action on the part of the
Company and has been duly executed and delivered by the Company, the Master
Servicer, the Trustee and any other party thereto for such Series, such Pooling
and Servicing Agreement will constitute a valid and binding agreement of the
Company, enforceable in accordance with its terms, except as enforcement thereof
may be limited by bankruptcy, insolvency or other laws relating to or affecting
creditors' rights generally or by general equity principles.
2. When a Series of Certificates has been duly authorized by all
necessary action on the part of the Company (subject to the terms thereof
otherwise being in compliance with applicable law at such time), duly executed
and authenticated by the Trustee for such Series in accordance with the terms of
the related Pooling and Servicing Agreement, and issued and delivered against
payment therefor as contemplated in the Registration Statement, the Certificates
in such Series will be legally and validly issued, fully paid and nonassessable,
and the holders thereof will be entitled to the benefits of such Pooling and
Servicing Agreement.
3. The information set forth in the Prospectus Supplements and Base
Prospectuses under the caption "Certain Federal Income Tax Consequences," to the
extent that it constitutes matters of law or legal conclusions, is correct in
all material respects.
We hereby consent to the use of our name in the Base Prospectuses under
the caption "Certain Federal Income Tax Consequences" and in the Prospectus
Supplements and Base Prospectuses under the caption "Legal Matters" and to the
filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Brown & Wood LLP
Brown & Wood LLP
EXHIBIT 5.2
[CADWALADER, WICKERSHAM & TAFT LETTERHEAD]
April 22, 1999
Morgan Stanley Capital I Inc.
1585 Broadway
New York, New York 10036
Re: Mortgage Pass-Through Certificates
----------------------------------
Gentlemen:
We have acted as your special counsel in connection with the
Registration Statement on Form S-3 (the "Registration Statement"), which
Registration Statement is being filed with the Securities Exchange Commission
(the "Commission"), pursuant to the Securities Act of 1933, as amended (the
"Act"). The Prospectus identified in the Registration Statement as version 1
("Prospectus 1") describes Mortgage Pass-Through Certificates ("Residential
Certificates") and the Prospectus identified in the Registration Statement as
version 2 ("Prospectus 2") describes Commercial Mortgage Pass-Through
Certificates ("Commercial Certificates" collectively with the Residential
Certificates, the "Certificates") that are to be sold by Morgan Stanley Capital
I Inc. (the "Depositor") in one or more series (each, a "Series") of
Certificates. Each Series of Certificates will be issued under a separate
pooling and servicing agreement (each a "Pooling and Servicing Agreement") among
the Depositor, a master servicer (a "Servicer"), a trustee (a "Trustee") and
such other parties to be identified in the Prospectus Supplement identified in
the Registration Statement as version 1 or version 2 (each a "Prospectus
Supplement"). Capitalized terms used and not otherwise defined herein have the
respective meanings given to such terms in the Registration Statement.
In rendering the opinions set forth below, we have examined
and relied upon the following: (1) the Registration Statement, including the
Prospectus 1 and Prospectus 2 constituting a part thereof, each substantially in
the form filed with the Commission; and (2) such other documents, materials and
authorities as we have deemed necessary in order to enable us to render our
opinion set forth below. We express no opinion with respect to any Series of
Certificates for which we do not act as counsel to the Depositor.
Based on and subject to the foregoing, we are of the opinion
that:
1. When a Pooling and Servicing Agreement for a Series of
Certificates has been duly and validly authorized, executed and delivered by the
Depositor, a Servicer, a Trustee and any other party thereto, such Pooling and
Servicing Agreement will constitute a legal, valid and binding agreement of the
Depositor, enforceable against the Depositor in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, receivership or other laws relating to creditors'
rights generally, and to general principles of equity including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity), and except that the
enforcement of rights with respect to indemnification and contribution
obligations may be limited by applicable law.
2. When a Pooling and Servicing Agreement for a Series of
Certificates has been duly and validly authorized, executed and delivered by the
Depositor, a Servicer, a Trustee and any other party thereto, and the
Certificates of such Series have been duly executed, authenticated, delivered
and sold as contemplated in the Registration Statement, such Certificates will
be legally and validly issued, fully paid and nonassessable, and the holders of
such Certificates will be entitled to the benefits of such Pooling and Servicing
Agreement.
3. The description of federal income tax consequences
appearing under the heading "Certain Federal Income Tax Consequences" in the
Prospectus accurately describes the material federal income tax consequences to
holders of Offered Certificates, under existing law and subject to the
qualifications and assumptions stated therein.
We hereby consent to the filing of this letter as an exhibit
to the Registration Statement and to the reference to this firm under the
headings "Legal Matters" and "Certain Federal Income Tax Consequences" in the
Prospectus, which is a part of the Registration Statement. This consent is not
to be construed as an admission that we are a person whose consent is required
to be filed with the Registration Statement under the provisions of the Act.
Very truly yours,
/s/ Cadwalader, Wickersham & Taft
Cadwalader, Wickersham & Taft
EXHIBIT 5.3
[LATHAM & WATKINS LETTERHEAD]
April 22, 1999
Morgan Stanley Capital I Inc.
1585 Broadway
New York, New York 10036
Re: Morgan Stanley Capital I Inc.
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel for Morgan Stanley Capital I Inc., a Delaware
corporation (the "Company"), in connection with the preparation of a
registration statement on Form S-3 (the "Registration Statement") which has been
filed with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), for the registration under the
Act of Mortgage Pass-Through Certificates (the "Certificates"), issuable in
series (each, a "Series"). As set forth in the Registration Statement, each
Series will be issued under and pursuant to the conditions of a separate pooling
and servicing agreement (each, an "Agreement") among the Company, a trustee (the
"Trustee") and, where appropriate, a master servicer (the "Master Servicer") and
a special servicer (the "Special Servicer"), each to be identified (together
with any other relevant parties) in the prospectus supplement for such Series.
We are familiar with the proceedings taken and proposed to be taken by
the Company in connection with the authorization and issuance of the
Certificates, and for the purposes of this opinion, have assumed such
proceedings will be completed in the manner presently proposed by the
Registration Statement. In addition, we have made such legal and factual
examinations and inquiries, including an examination of originals or copies
certified or otherwise identified to our satisfaction of such documents,
corporate records and instruments, as we have deemed necessary or appropriate
for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.
We are opining only as to the effect of the Federal laws of the United
States, the internal laws of the State of New York and the General Corporation
Law of the State of Delaware, and we express no opinion with respect to the
applicability or the effect of the laws of any other jurisdiction or, in the
case of Delaware, any other laws, or as to any matters of municipal law or the
laws of any other local agencies within any state.
Subject to the foregoing and the other matters set forth herein, we are
of the opinion that:
1. When an Agreement relating to a Series has been duly and validly
authorized, executed and delivered by the Company, the Master Servicer and the
Special Servicer, if any, the Trustee and any other party thereto, such
Agreement will constitute a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.
2. When a Series has been duly authorized by all necessary action on
the part of the Company (subject to the terms thereof being otherwise in
compliance with applicable law at such time) and has been duly executed,
authenticated and delivered by the Trustee against payment in accordance with
the terms of the related underwriting agreement, such Series will be validly
issued, fully paid and nonassessable, and the holders thereof will be entitled
to the benefits of the related Agreement.
The opinions rendered above are subject to the following exceptions,
limitations and qualifications: (i) the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws relating
to or affecting the rights and remedies of creditors, (ii) the effect of general
principles of equity, whether enforcement is considered in a proceeding in
equity or law, and the discretion of the court before which any proceeding
therefor may be brought, (iii) the unenforceability under certain circumstances
under law or court decisions of provisions providing for the indemnification of
or contribution to a party with respect to a liability where such
indemnification or contribution is contrary to public policy, and (iv) possible
limitations arising from applicable laws other than those referred to in the
preceding clause (i) upon the remedial provisions contained in any Agreement,
but such limitations do not in our opinion of themselves make the remedies
afforded inadequate for the practical realization of the benefits purported to
be provided thereby.
We hereby consent to the filing of this letter as Exhibit 5-3 to the
Registration Statement and to the references to this firm under the caption
"Legal Matters" in the prospectus forming a part of the Registration Statement,
without admitting that we are "experts" within the meaning of the Act or the
Rules and Regulations of the Commission issued thereunder with respect to any
part of the Registration Statement, including this exhibit.
Very truly yours,
/s/ Latham & Watkins
LATHAM & WATKINS
EXHIBIT 8.3
[LATHAM & WATKINS LETTERHEAD]
April 22, 1999
Morgan Stanley Capital I Inc.
1585 Broadway
New York, New York 10036
Re: Morgan Stanley Capital I Inc.
Registration Statement on Form S-3
Registration No. 333- 62911
---------------------------
Ladies and Gentlemen:
We have acted as special counsel to Morgan Stanley Capital I Inc. (the
"Company") in connection with the preparation of a registration statement on
Form S-3 (Registration No. 333-62911 (the "Registration Statement")), which has
been filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "Act"), for the registration under the Act of Mortgage
Pass-Through Certificates (the "Certificates"), issuable in series (the
"Series"). As described in the Registration Statement, each Series of
Certificates will be issued under and pursuant to the terms and conditions of a
separate pooling and servicing agreement (each, an "Agreement") between the
Company, a trustee (the "Trustee"), a master servicer (the "Master Servicer")
and, where appropriate, a special servicer (the "Special Servicer"), each to be
identified (together with any other relevant parties) in the prospectus
supplement for such Series of Certificates.
In rendering our opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Registration Statement and the prospectuses (the "Prospectuses") and the
forms of prospectus supplements (the "Prospectus Supplements") included therein,
and such other documents as we have deemed necessary or appropriate as a basis
for the opinion set forth below.
In rendering our opinion, we have examined the Internal Revenue Code of
1986, as amended, as of the date hereof, the Treasury Regulations promulgated
thereunder, judicial decisions, legislative history and such other authorities
as we have deemed appropriate. The statutory provisions, regulations,
interpretations, and other authorities upon which our opinion is based are
subject to change, and such changes could apply retroactively.
We express no opinion as to any laws other than the federal laws of the
United States of America as of the date hereof.
Based upon and subject to the foregoing, it is our opinion that the
information in each Prospectus under the captions "Summary of Prospectus-Tax
Status of Certificates" and "Certain Federal Income Tax Consequences," to the
extent they constitute matters of law or legal conclusions, are correct in all
material respects, based on existing law and the assumptions stated therein.
The foregoing opinion and the discussion contained in each Prospectus
under the captions "Summary of Prospectus-Tax Status of the Certificates" and
"Certain Federal Income Tax Consequences" represent our conclusions as to the
application of existing law. No assurance can be given that the Internal Revenue
Service will not assert contrary positions or that the law (including the
interpretation thereof) will not change. We also note that the Prospectuses and
Prospectus Supplements filed with the Registration Statement do not relate to
any specific transaction. Accordingly, the above-referenced description of
federal income tax consequences may require modifications in the context of an
actual transaction. We express no opinion either as to any matter not
specifically covered by the foregoing opinion or as to the effect on the matters
covered by this opinion of the laws of any other jurisdiction.
Any change in applicable law, which may change at any time, or a change
in the facts or documents on which our opinion is based, or any inaccuracy in
the representations or warranties on which we have relied, may affect the
validity of the foregoing opinion. This firm undertakes no obligation to update
this opinion in the event that there is either a change in the legal
authorities, facts or documents on which this opinion is based, or an inaccuracy
in any of the representations or warranties upon which we have relied in
rendering this opinion.
We hereby consent to the filing of this opinion as Exhibit 8.3 to the
Registration Statement. We also consent to the references to Latham & Watkins
under the caption "Certain Federal Income Tax Consequences" in each Prospectus.
Very truly yours,
/s/ Latham & Watkins
Latham & Watkins
