<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration No. 33-98604
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. OFFERS +
+ TO BUY THESE SECURITIES MAY NOT BE ACCEPTED WITHOUT THE DELIVERY OF A FINAL +
+ PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS PROSPECTUS SUPPLEMENT AND THE +
+ ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE +
+ SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE +
+ SECURITIES, IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+ UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 7, 1995
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED DECEMBER 7, 1995)
$207,274,000 (Approximate)
CS First Boston Mortgage Securities Corp.
Depositor
Wells Fargo Bank, National Association
Seller, Master Servicer and
Initial Special Servicer
Commercial Mortgage Pass-Through Certificates, Series 1995-WF1
-------
$81,561,000 (Approximate) Senior Class A-1 Certificates
$14,631,000 (Approximate) Subordinated Class B Certificates
$76,943,000 (Approximate) Senior Class A-2 Certificates
$19,508,000 (Approximate) Subordinated Class C Certificates
$14,631,000 (Approximate) Subordinated Class D Certificates
The Commercial Mortgage Pass-Through Certificates, Series 1995-WF1 (the
"Certificates") will be comprised of the Class A-1 Certificates, Class A-2
Certificates, Class A-X Certificates, Class B Certificates, Class C
Certificates, Class D Certificates, Class E Certificates, Class F Certificates,
Class G Certificates and the Class R-I and the Class R-II Certificates (the
Class R-I and R-II Certificates, together, the "Residual Certificates"). Only
the Class A-1, Class A-2, Class B, Class C and Class D Certificates
(collectively, the "Offered Certificates") are offered hereby. It is a condition
of the issuance of the Offered Certificates that the Class A-1 Certificates and
the Class A-2 Certificates each be rated "AAA" by Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. ("S&P") and Duff &
Phelps Credit Rating Co. ("D&P"), that the Class B Certificates be rated not
lower than "AA" by S&P and "AA+" by D&P, that the Class C Certificates be rated
not lower than "A-" by S&P and "A" by D&P and that the Class D Certificates be
rated not lower than "BBB-" by S&P and "BBB" by D&P. See "Ratings" herein.
The Certificates (other than the Class R-I Certificates) will evidence
beneficial ownership interests in a trust fund, the assets of which, together
with the Class R-I Certificates, will constitute all of the beneficial interest
in another trust fund (the "Trust Fund") to be created by CS First Boston
Mortgage Securities Corp. (the "Depositor") pursuant to a Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") dated as of December 1, 1995
among the Depositor, Wells Fargo Bank, National Association, as Master Servicer
(in its capacity as Master Servicer, the "Master Servicer") and as initial
Special Servicer (in its capacity as initial Special Servicer, the "Special
Servicer"), LaSalle National Bank, a nationally chartered bank, as Trustee (the
"Trustee") and ABN AMRO Bank N.V., a Netherlands banking corporation, as Fiscal
Agent (the "Fiscal Agent"). The assets of the Trust Fund will consist primarily
of a pool (the "Mortgage Pool") of fixed-rate mortgage loans secured by
mortgages on commercial and multifamily properties (the "Mortgage Loans"). Wells
Fargo Bank, National Association (in its capacity as seller of the Mortgage
Loans, the "Seller") will sell the Mortgage Loans to the Depositor on the date
of delivery of the Certificates. The Mortgage Loans were originated by the
Seller as described herein. The Mortgage Loans are more fully described in this
Prospectus Supplement.
The Offered Certificates are being offered by CS First Boston Corporation and
Morgan Stanley & Co. Incorporated (together, the "Underwriters") from time to
time in negotiated transactions or otherwise at prices to be determined at the
time of sale. Proceeds to the Depositor from the sale of the Offered
Certificates will be approximately $ plus accrued interest thereon from
December 1, 1995, before deducting issuance expenses payable by the Depositor,
estimated to be approximately $ . For further information with respect
to the plan of distribution and any discounts, commissions and profits on resale
that may be deemed underwriting discounts or commissions, see "PLAN OF
DISTRIBUTION" herein.
-------
SEE "RISK FACTORS" IMMEDIATELY FOLLOWING "SUMMARY OF TERMS" HEREIN FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BEFORE PURCHASING
ANY OF THE OFFERED CERTIFICATES.
-------
THE CERTIFICATES REPRESENT AN INTEREST IN THE TRUST FUND ONLY AND DO NOT REPRE-
SENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, THE UNDERWRITERS, THE SELL-
ER, THE MASTER SERVICER, THE SPECIAL SERVICER, THE TRUSTEE, THE FISCAL AGENT OR
ANY OF THEIR AFFILIATES. A CERTIFICATE IS NOT A DEPOSIT AND NEITHER THE CERTIF-
ICATES NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY THE FED-
ERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRU-
MENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------
The Offered Certificates are offered by the Underwriters when, as and if
issued by the Depositor, delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected
that delivery of the Offered Certificates in book-entry form will be made
through the facilities of DTC on or about December , 1995.
CS First Boston Morgan Stanley & Co.
Incorporated
The date of this Prospectus Supplement is December , 1995.
<PAGE>
The initial Certificate Principal Balance of each Class of Offered
Certificates is set forth on the cover page and is subject to a permitted
variance of plus or minus 5%. Interest and principal, if any, in the amounts
and priority set forth herein, will be distributed to the holders of
Certificates entitled thereto on the twenty-first day of each month (or, if
such day is not a business day, on the following business day), commencing
January 22, 1996 (each, a "Distribution Date"). The Class B, Class C, Class D,
Class E, Class F, Class G and Residual Certificates (the "Subordinate
Certificates") are subordinated to the Class A-1, Class A-2 and Class A-X
Certificates to the extent described herein. The Class C, Class D, Class E,
Class F, Class G and Residual Certificates are also subordinated to the Class
B Certificates, the Class D, Class E, Class F, Class G and Residual
Certificates are also subordinated to the Class C Certificates and the Class
E, Class F, Class G and Residual Certificates are also subordinated to the
Class D Certificates, in each case to the extent described herein. The Final
Rated Distribution Date (defined herein) for the Offered Certificates is
December 21, 2027.
During each Interest Accrual Period (defined herein), the Class A-1, Class
A-2, Class B, Class C and Class D Certificates will bear interest at a rate
per annum (the "Class A-1 Certificate Rate," the "Class A-2 Certificate Rate,"
the "Class B Certificate Rate," the "Class C Certificate Rate" and the "Class
D Certificate Rate," respectively) equal to %, %, %, % and %,
respectively.
Any Prepayment Premiums (defined herein) actually collected on the Mortgage
Loans will be distributed to the holders of the Class A-X Certificates
separately from the Available Distribution Amount. See "DESCRIPTION OF THE
CERTIFICATES--Principal and Interest Distributions--Distributions of
Prepayment Premiums" herein.
As described herein, the rights of the holders of Offered Certificates to
receive payments of principal and interest will be subordinated to the rights
of the holders of any Offered Certificates senior thereto. In addition, as
described herein, the principal portions of Realized Losses and the Appraisal
Reduction Capitalization Amounts (as defined herein), if any, will be
allocated sequentially to the Class G, Class F, Class E, Class D, Class C,
Class B and finally to the Class A-1 and Class A-2 Certificates pro rata,
until the Certificate Principal Balances thereof have been reduced to zero,
and the interest portions of Realized Losses (defined herein) will be
allocated sequentially to the Class G, Class F, Class E, Class D, Class C,
Class B and finally to the Class A-1, Class A-2 and Class A-X Certificates,
pro rata, in proportion to the respective amounts of interest accrued thereon.
Any Realized Loss allocated as described above to a Class of Certificates will
be allocated among the respective Certificates of such Class, pro rata, based
on their respective Percentage Interest. Investors in the Class B, Class C and
Class D Certificates should fully consider the risk that, to the extent losses
are actually realized by the Trust Fund on delinquent or defaulted Mortgage
Loans, after the Certificate Principal Balances of the Class E, Class F and
Class G Certificates have been reduced to zero, and, in the case of the Class
B Certificates, after the Certificate Principal Balances of the Class C and
Class D Certificates have been reduced to zero, and, in the case of the Class
C Certificates, after the Certificate Principal Balance of the Class D
Certificates has been reduced to zero, the amount of such losses will be
applied to reduce the Certificate Principal Balances of the Class B, Class C
and Class D Certificates. See "DESCRIPTION OF THE CERTIFICATES--Subordination"
and
"--Allocation of Realized Losses and Certain Expenses" herein.
The yield to investors in the Offered Certificates will depend on, among
other things, the rate and timing of principal payments (including prepayments
and default and liquidation proceeds) on the Mortgage Loans. Approximately
96.29% (by principal balance as of the Cut-off Date) of the Mortgage Loans
provide for payments of principal and interest based on amortization schedules
that extend beyond the maturity date of the related Mortgage Loan, with all
unpaid principal and interest due at maturity ("Balloon Loans"). In addition,
the yield on the Certificates may be affected by the allocation of Additional
Trust Fund Expenses and Appraisal Reductions, as described herein. See
"DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING MORTGAGED PROPERTIES" and
"YIELD CONSIDERATIONS" herein. The yield on the Certificates may also be
affected by the allocation of Deferred Interest as described under
"DESCRIPTION OF THE CERTIFICATES--Principal and Interest Distributions--
Deferred Interest" herein.
There is currently no secondary market for the Offered Certificates. The
Underwriters expect to make a secondary market in the Offered Certificates but
have no obligation to do so. There can be no assurance that a
S-2
<PAGE>
secondary market for the Offered Certificates will develop, or if it does
develop, that it will continue. The Underwriters may sell the Offered
Certificates to affiliates of the Underwriters or entities over which
affiliates of the Underwriters have discretionary authority in accordance with
applicable law.
As described herein, two separate "real estate mortgage investment conduit"
("REMIC") elections will be made with respect to the Trust Fund for federal
income tax purposes. The Offered Certificates will be treated as REMIC
"regular interests." See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" herein and
in the Prospectus.
The Offered Certificates will be available to investors only in book-entry
form through the facilities of The Depository Trust Company ("DTC").
Beneficial interests in the Offered Certificates will be shown on, and
transfers thereof will be effected only through, records maintained by DTC and
its participants. Physical certificates for the Offered Certificates will be
available only under certain limited circumstances as described herein. See
"DESCRIPTION OF THE CERTIFICATES--Book-Entry Registration" and "--Definitive
Certificates" herein.
For a discussion of certain significant matters affecting investments in the
Offered Certificates, see "RISK FACTORS" herein and "CERTAIN LEGAL ASPECTS OF
THE MORTGAGE LOANS" herein and in the Prospectus.
THE OFFERED CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE
PART OF A SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE DEPOSITOR FROM
TIME TO TIME PURSUANT TO ITS PROSPECTUS DATED DECEMBER 7, 1995, WHICH
ACCOMPANIES THIS PROSPECTUS SUPPLEMENT AND OF WHICH THIS PROSPECTUS SUPPLEMENT
FORMS A PART. THE PROSPECTUS CONTAINS IMPORTANT INFORMATION REGARDING THIS
OFFERING WHICH IS NOT CONTAINED HEREIN, AND PROSPECTIVE INVESTORS ARE URGED TO
READ THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL. SALES OF THE
OFFERED CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED
BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL MARCH , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE OFFERED
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Offered Certificates. This Prospectus Supplement
and the related Prospectus, which form a part of the Registration Statement,
omit certain information contained in such Registration Statement pursuant to
the Rules and Regulations of the Commission. The Registration Statement can be
inspected and copied at the Public Reference Room of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and the Commission's regional
offices at Seven World Trade Center, 13th Floor, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
S-3
<PAGE>
REPORTS TO CERTIFICATEHOLDERS
The Trustee will mail monthly reports concerning the Certificates to all
Certificateholders of record. In addition, any beneficial owner of a
Certificate will be entitled to receive copies of such reports upon
presentation of evidence of ownership of Certificates to the Trustee in the
manner prescribed in the Pooling and Servicing Agreement. Until such time as
Definitive Certificates (defined herein) are issued in respect of the Book-
Entry Certificates (defined herein), the foregoing information and access will
be available to the related Certificate Owners (defined herein) only to the
extent it is forwarded by or otherwise available through DTC and its
participants. Any Certificate Owner who does not receive information through
DTC or its participants may request that the Trustee reports be mailed
directly to it by written request to the Trustee (accompanied by verification
of such Certificate Owner's ownership interest) at the Trustee's corporate
trust office. Certain information set forth in such Trustee reports is to be
available via facsimile transmission through LaSalle National Bank's ASAP
(Automated Statements by Phone) System by calling (312) 904-2200 and
requesting statement number 164. The manner in which notices and other
communications are conveyed by DTC to participants, and by participants to the
Certificate Owners, will be governed by arrangements among them, subject to
any statutory or regulatory requirements as may be in effect from time to
time. The Master Servicer, the Special Servicer, the Trustee and the Depositor
are required to recognize as Certificateholders only those persons in whose
names the Certificates are registered on the books and records of the
Certificate Registrar.
S-4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY OF TERMS........................................................... S-7
RISK FACTORS............................................................... S-25
Commercial and Multifamily Lending Generally............................. S-25
Nonrecourse Mortgage Loans............................................... S-25
Geographic Concentration................................................. S-26
Other Concentration Issues............................................... S-26
Balloon Payments and Extension of Maturity............................... S-26
Early Repayment of Mortgage Loans........................................ S-27
Certain Environmental Matters............................................ S-27
Zoning Compliance; Inspections........................................... S-28
Costs of Compliance with Americans with Disabilities Act................. S-28
Special Servicer Actions................................................. S-28
Variability of Average Life.............................................. S-29
Subordination of the Class B, Class C and Class D Certificates........... S-29
Limited Obligations...................................................... S-30
Limited Liquidity........................................................ S-30
Conflicts of Interest.................................................... S-30
DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING MORTGAGED PROPERTIES... S-32
General.................................................................. S-32
Description of the Mortgage Loans........................................ S-32
Certain Characteristics of the Mortgage Loans............................ S-34
Prepayments.............................................................. S-37
Acceleration of Mortgage Loans........................................... S-39
Late Charges............................................................. S-39
Due-on-Sale Clauses...................................................... S-39
Insurance................................................................ S-40
Escrow Payments.......................................................... S-40
Certain Legal Aspects of the Mortgage Loans.............................. S-41
Types of Mortgaged Property.............................................. S-41
Loan Underwriting........................................................ S-41
Representations and Warranties........................................... S-43
DESCRIPTION OF THE CERTIFICATES............................................ S-45
General.................................................................. S-45
Book-Entry Registration.................................................. S-46
Definitive Certificates.................................................. S-47
Principal and Interest Distributions..................................... S-48
Reports to Certificateholders............................................ S-51
Example of Distributions................................................. S-53
Treatment of REO Properties.............................................. S-54
Collection and Distribution Account...................................... S-54
Modified Lock-Box Accounts............................................... S-54
Subordination; Allocation of Realized Losses and Certain Expenses........ S-54
Appraisal Reductions..................................................... S-55
Repurchase or Substitution of Mortgage Loans............................. S-57
MATURITY CONSIDERATIONS.................................................... S-58
Weighted Average Life.................................................... S-58
Final Rated Distribution Date............................................ S-61
YIELD CONSIDERATIONS....................................................... S-61
General.................................................................. S-61
SERVICING.................................................................. S-62
General.................................................................. S-62
The Master Servicer...................................................... S-63
The Special Servicer..................................................... S-64
Wells Fargo Bank......................................................... S-64
Specially Serviced Mortgage Loans........................................ S-65
The Operating Advisor.................................................... S-65
Mortgage Loan Modifications.............................................. S-66
Advances................................................................. S-67
Monthly Advances......................................................... S-67
Property Protection Advances............................................. S-67
Nonrecoverable Advances.................................................. S-68
Amendment................................................................ S-68
Voting Rights............................................................ S-69
The Trustee and the Fiscal Agent......................................... S-69
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... S-69
ERISA CONSIDERATIONS....................................................... S-70
USE OF PROCEEDS............................................................ S-72
PLAN OF DISTRIBUTION....................................................... S-72
LEGAL MATTERS.............................................................. S-73
RATINGS.................................................................... S-73
INDEX OF TERMS............................................................. S-74
</TABLE>
S-5
<PAGE>
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT..................................................... 2
ADDITIONAL INFORMATION.................................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................... 2
THE DEPOSITOR............................................................. 3
USE OF PROCEEDS........................................................... 3
DESCRIPTION OF THE CERTIFICATES........................................... 3
General................................................................. 4
Distributions on Certificates........................................... 4
Accounts................................................................ 5
Amendment............................................................... 7
Termination; Repurchase of Mortgage Loans............................... 8
Reports to Certificateholders........................................... 8
The Trustee............................................................. 8
THE MORTGAGE POOLS........................................................ 9
General................................................................. 9
Assignment of Mortgage Loans............................................ 10
Mortgage Underwriting Standards and Procedures.......................... 11
Representations and Warranties.......................................... 12
SERVICING OF THE MORTGAGE LOANS........................................... 14
General................................................................. 14
Collections and Other Servicing Procedures.............................. 14
Insurance............................................................... 14
Fidelity Bonds and Errors and Omissions Insurance....................... 16
Servicing Compensation and Payment of Expenses.......................... 16
Advances................................................................ 16
Modifications, Waivers and Amendments................................... 17
Evidence of Compliance.................................................. 17
Certain Matters With Respect to the Master Servicer, the Special
Servicer and the Trustee............................................... 17
Events of Default....................................................... 18
ENHANCEMENT............................................................... 19
General................................................................. 19
Subordinate Certificates................................................ 19
Cross-Support Features.................................................. 20
Letter of Credit........................................................ 20
Certificate Guarantee Insurance......................................... 20
Reserve Funds........................................................... 20
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS............................... 21
Mortgages and Deeds of Trust Generally.................................. 21
Installment Contracts................................................... 22
Junior Mortgages; Rights of Senior Mortgagees or Beneficiaries.......... 22
Foreclosure............................................................. 24
Environmental Risks..................................................... 26
Statutory Rights of Redemption.......................................... 27
Anti-Deficiency Legislation............................................. 28
Bankruptcy Laws......................................................... 28
Enforceability of Certain Provisions.................................... 30
Prepayment Provisions................................................... 30
Due-on-Sale Provisions.................................................. 30
Acceleration on Default................................................. 31
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Soldiers' and Sailors' Relief Act........................................ 31
Applicability of Usury Laws.............................................. 31
Alternative Mortgage Instruments......................................... 32
Leases and Rents......................................................... 32
Secondary Financing; Due-on-Encumbrance Provisions....................... 33
Certain Laws and Regulations............................................. 33
Type of Mortgaged Property............................................... 33
Americans With Disabilities Act.......................................... 34
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 35
General.................................................................. 35
Taxation of the REMIC and its Holders.................................... 35
Taxation of Regular Interests............................................ 35
Interest and Acquisition Discount........................................ 35
Interest Weighted Certificates........................................... 38
Variable Rate Regular Interests.......................................... 38
Market Discount and Premium.............................................. 39
Interest Election........................................................ 39
Treatment of Subordinate Certificates.................................... 40
REMIC Expenses........................................................... 40
Sale or Exchange of REMIC Regular Interest Certificates.................. 40
Taxation of the REMIC.................................................... 41
General.................................................................. 41
Calculation of REMIC Income.............................................. 41
Taxation of Holders of Residual Interest
Certificates............................................................ 42
Prohibited Transactions and Contributions Tax............................ 42
Limitation on Losses..................................................... 42
Distributions............................................................ 43
Sale or Exchange......................................................... 43
Excess Inclusions........................................................ 43
Restrictions on Ownership and Transfer of
Residual Interest Certificates.......................................... 44
Administrative Matters................................................... 44
Tax Status as a Grantor Trust............................................ 45
General.................................................................. 45
Discount or Premium on Pass-Through Certificates......................... 45
Discount or Premium on Stripped Certificates............................. 46
Possible Alternative Characterizations................................... 48
Character as Qualifying Mortgage Loans................................... 48
Sale of Certificates..................................................... 48
Miscellaneous Tax Aspects................................................ 48
Backup Withholding....................................................... 48
Tax Treatment of Foreign Investors....................................... 49
STATE TAX CONSIDERATIONS................................................... 50
ERISA CONSIDERATIONS....................................................... 50
Prohibited Transactions.................................................. 50
Unrelated Business Taxable Income--Residual Interests.................... 51
LEGAL INVESTMENT........................................................... 52
PLAN OF DISTRIBUTION....................................................... 53
LEGAL MATTERS.............................................................. 54
GLOSSARY................................................................... 55
</TABLE>
S-6
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. An "Index of Terms" is included at the end of this
Prospectus Supplement. Capitalized terms used in this Prospectus Supplement and
not defined herein have the meanings ascribed to them in the Prospectus.
References to percentages of the Mortgage Loans or to the principal balance of
the Mortgage Loans in this Prospectus Supplement are to percentages (except as
otherwise indicated) by aggregate principal balance as of the Cut-off Date.
Securities Offered............ $207,274,000 (approximate) initial Certificate
Principal Balance (subject to an upward or
downward variance of up to 5%) of Commercial
Mortgage Pass-Through Certificates, Series
1995-WF1 (the "Certificates"), consisting of
the following classes of Certificates offered
hereby (the "Offered Certificates"):
$81,561,000 (Approximate) Senior Class A-1 Cer-
tificates
$76,943,000 (Approximate) Senior Class A-2 Cer-
tificates
$14,631,000 (Approximate) Subordinated Class B
Certificates
$19,508,000 (Approximate) Subordinated Class C
Certificates
$14,631,000 (Approximate) Subordinated Class D
Certificates
The Certificates will also include $0 Class A-X
Certificates, $19,508,000 (Approximate) Class E
Certificates, $9,754,000 (Approximate) Class F
Certificates, $7,315,771 (Approximate) Class G
Certificates and the Class R-I and Class R-II
Certificates (the Class R-I and R-II Certifi-
cates, together, the "Residual Certificates").
The Class A-X Certificates will be entitled to
distributions of interest and will not have a
principal balance.
Description of the
Certificates.................. The Certificates (other than the Class R-I Cer-
tificates) will evidence interests in a trust
fund, the assets of which, together with the
Class R-I Certificates, will constitute all of
the beneficial interest in another trust fund
(the "Trust Fund") to be formed pursuant to a
Pooling and Servicing Agreement (the "Pooling
and Servicing Agreement") dated as of December
1, 1995 among CS First Boston Mortgage Securi-
ties Corp. (the "Depositor"), Wells Fargo Bank,
National Association, as Master Servicer (in
its capacity as Master Servicer, the "Master
Servicer") and as Special Servicer (in its ca-
pacity as initial Special Servicer, the "Spe-
cial Servicer"), LaSalle National Bank, a na-
tionally chartered bank , as Trustee (the
"Trustee") and ABN AMRO Bank N.V., a Nether-
lands banking corporation, as Fiscal Agent (the
"Fiscal Agent"). The assets of the Trust Fund
will consist primarily of a pool (the "Mortgage
Pool") of 64 fixed-rate mortgage loans secured
by mortgages on commercial and multifamily
properties (the "Mortgage Loans") with an ag-
gregate outstanding principal balance as of De-
cember 1, 1995 (the "Cut-off Date") of approxi-
mately $243,851,771. Wells Fargo Bank, National
Association (in its capacity as seller of the
Mortgage Loans, the "Seller") will sell the
Mortgage Loans to the Depositor on the Delivery
Date (defined herein). The Certificates collec-
tively represent the entire interest in the
Trust Fund. The Trust Fund will also contain
any
S-7
<PAGE>
property which secured a Mortgage Loan and is
acquired by foreclosure or deed in lieu of
foreclosure, and certain other related proper-
ty, as more fully described herein and in the
Prospectus. See "DESCRIPTION OF THE CERTIFI-
CATES" herein.
Depositor..................... CS First Boston Mortgage Securities Corp., a
Delaware corporation. See "THE DEPOSITOR" in
the Prospectus.
Seller........................ Wells Fargo Bank, National Association, a na-
tional banking association.
Master Servicer............... Wells Fargo Bank, National Association, a na-
tional banking association. See "SERVICING--The
Master Servicer" herein.
Special Servicer.............. Wells Fargo Bank, National Association, a na-
tional banking association, initially will be
responsible for making certain decisions and
taking certain actions with respect to Spe-
cially Serviced Mortgage Loans (defined here-
in). See "SERVICING--The Special Servicer"
herein. Certain actions of the Special Servicer
require approval of the Operating Advisor (de-
fined herein), if any. See "SERVICING--The Op-
erating Advisor" herein.
Trustee....................... LaSalle National Bank, a nationally chartered
bank.
Fiscal Agent.................. ABN AMRO Bank N.V., a Netherlands banking cor-
poration, and the indirect corporate parent of
the Trustee.
Operating Advisor............. The holder (or holders) of the majority of the
most subordinate Class of Certificates (by Cer-
tificate Principal Balance of such Class) that
has a Certificate Principal Balance exceeding
25% of its initial Certificate Principal Bal-
ance will have the right to appoint a desig-
nated person (an "Operating Advisor") who will
have the right to review and approve certain
material actions proposed by the Special
Servicer under the various circumstances de-
scribed herein. See "SERVICING--The Operating
Advisor" herein.
Cut-off Date.................. December 1, 1995 or, with respect to one Mort-
gage Loan,December 6, 1995.
Delivery Date................. On or about December 21, 1995.
Book-Entry Certificates;
Denominations................ Except in certain limited circumstances as de-
scribed herein, the Offered Certificates will
be available only in book-entry form in minimum
denominations of $100,000 and integral multi-
ples of $1,000 in excess thereof. See "DESCRIP-
TION OF THE CERTIFICATES--Book-Entry Registra-
tion" and "--Definitive Certificates" herein.
Record Date................... The record date (the "Record Date") for each
distribution on the Offered Certificates will
be the last day of the month preceding the
month in which the related Distribution Date
occurs.
Distribution Date............. The 21st day of each month (unless such day is
not a business day, in which case, distribu-
tions will be made on the next suc-
S-8
<PAGE>
ceeding business day) (each, a "Distribution
Date"), commencing January 22, 1996.
Principal and Interest
Distributions
A. General.................... On each Distribution Date, scheduled principal
and interest payments (less the Servicing Fee
and Additional Trust Fund Expenses (each as de-
fined herein)), including Balloon Payments (de-
fined herein) ("Scheduled Payments"), due on
the Mortgage Loans during the related Due Pe-
riod (defined below) and collected on or prior
to the related Determination Date (defined be-
low) or advanced with respect to such Distribu-
tion Date, and Principal Prepayments (defined
below) collected during the related Prepayment
Period (defined below), will be distributed to
Certificateholders of record as of the related
Record Date. Interest will accrue on the Cer-
tificates with respect to each related Distri-
bution Date from the first day of the month
preceding the month in which such Distribution
Date occurs through the last day of the month
preceding the month in which such Distribution
Date occurs (each, an "Interest Accrual Peri-
od").
The "Due Period" with respect to any Distribu-
tion Date commences on the second day of the
month preceding the month in which such Distri-
bution Date occurs and ends on the first day of
the month in which such Distribution Date oc-
curs. A "Principal Prepayment" is any payment
or other recovery of principal on a Mortgage
Loan, including Liquidation Proceeds, Repur-
chase Proceeds and Insurance Proceeds (each as
defined in the Prospectus), received in advance
of their Due Date and not accompanied by an
amount of interest representing scheduled in-
terest due on any date or dates in any month or
months subsequent to the month of payment. The
"Prepayment Period" with respect to any Distri-
bution Date commences on the day after the De-
termination Date in the month preceding the
month in which such Distribution Date occurs
and ends on the Determination Date in the month
in which such Distribution Date occurs. The
"Determination Date" with respect to any Dis-
tribution Date is the 11th day of the month in
which such Distribution Date occurs (or, if
such day is not a business day, the next suc-
ceeding business day).
Any Prepayment Premiums actually collected on
the Mortgage Loans will be distributed to the
holders of the Class A-X Certificates sepa-
rately from the Available Distribution Amount.
See "DESCRIPTION OF THE CERTIFICATES--Principal
and Interest Distributions--Distribution of
Prepayment Premiums" herein.
B. Interest................... On each Distribution Date, holders of each
Class of Offered Certificates will be entitled
to receive, from the Available Distribution
Amount (defined herein), interest accrued dur-
ing the related Interest Accrual Period on the
outstanding Certificate Principal Balance (de-
fined below) of such Certificates immediately
preceding such Distribution Date at the per an-
num rates set forth below,
S-9
<PAGE>
reduced (to not less than zero) by such Class's
allocable share of any Net Aggregate Prepayment
Interest Shortfall (defined herein) for such
Distribution Date (such amounts payable to
holders of the Certificates of any Class, the
"Interest Distribution Amount" for such Class).
The Net Aggregate Prepayment Interest Shortfall
for any Distribution Date will be allocated
among the respective Classes of Certificates,
pro rata, in accordance with the respective
amounts of interest accrued for such Classes
for such Distribution Date. For so long as a
more senior Class of Certificates is outstand-
ing, the amount of interest otherwise distrib-
utable on such Distribution Date to each Class
of Certificates to which an Appraisal Reduction
is allocated on such Distribution Date will be
reduced by the amount of interest accrued at
the applicable Certificate Rate on the portion
of the Certificate Principal Balance of such
Class equal to the Appraisal Reduction Capital-
ization Amount (defined herein) allocated to
such Class for such Distribution Date. See "DE-
SCRIPTION OF THE CERTIFICATES--Principal and
Interest Distributions--Distributions of Inter-
est," "--Prepayment Interest Shortfalls and Ex-
cess Prepayment Interest" and "--Appraisal Re-
ductions" herein.
"Certificate Principal Balance" means, with re-
spect to any Certificate or Class of Certifi-
cates (other than the Class A-X Certificates),
as of any Distribution Date, an amount equal to
the initial principal amount set forth on the
face of such Certificate (or, in the case of a
Class of Certificates, the aggregate of such
amounts for the Certificates of such Class), as
increased by any Deferred Interest (defined be-
low) and any Appraisal Reduction Capitalization
Amount added to such principal amount, as de-
scribed herein, less (i) the amount of all
principal distributions previously made with
respect to such Certificate or Class, (ii) all
Realized Losses (defined below) allocated to
such Certificate or Class and (iii) for the
purpose of determining distributions of inter-
est on such Distribution Date and Voting
Rights, as described herein, all Appraisal Re-
ductions, allocated to such Certificate or
Class pursuant to the Pooling and Servicing
Agreement.
The interest rates for the Offered Certifi-
cates (each, a "Certificate Rate," which
term has the same meaning as the term
"Pass-Through Rate" in the Prospectus) are
set forth below:
On each Distribution Date the holders of
the Class A-1 Certificates will be entitled
to receive, out of the Available Distribu-
tion Amount, interest for the related In-
terest Accrual Period on the Certificate
Principal Balance thereof at the rate (the
"Class A-1 Certificate Rate") of % per
annum.
On each Distribution Date the holders of
the Class A-2 Certificates will be entitled
to receive, out of the Available Distribu-
tion Amount, interest for the related In-
terest Accrual Period on the Certificate
Principal Balance thereof at a rate (the
"Class A-2 Certificate Rate") of % per
annum.
S-10
<PAGE>
On each Distribution Date the holders of
the Class B Certificates will be entitled
to receive, out of the Available Distribu-
tion Amount, interest for the related In-
terest Accrual Period on the Certificate
Principal Balance thereof at a rate (the
"Class B Certificate Rate") of % per an-
num.
On each Distribution Date the holders of
the Class C Certificates will be entitled
to receive, out of the Available Distribu-
tion Amount, interest for the related In-
terest Accrual Period on the Certificate
Principal Balance thereof at a rate (the
"Class C Certificate Rate") of % per
annum.
On each Distribution Date the holders of
the Class D Certificates will be entitled
to receive, out of the Available Distribu-
tion Amount, interest for the related In-
terest Accrual Period on the Certificate
Principal Balance thereof at a rate (the
"Class D Certificate Rate") of % per
annum.
See "YIELD CONSIDERATIONS" and "DESCRIPTION
OF THE MORTGAGE POOL AND THE UNDERLYING
MORTGAGED PROPERTIES" herein.
C. Deferred Interest.......... As of the Cut-off Date, no Mortgage Loan
provides for Deferred Interest (defined be-
low). However, if a modification to any
Mortgage Loan causes any portion of the in-
terest accrued on such Mortgage Loan in any
month to be deferred (such amount, "De-
ferred Interest"), such portion will be
added to the principal balance of such
Mortgage Loan. On each Distribution Date on
which the portion of the Available Distri-
bution Amount (defined herein) allocable to
interest on the Mortgage Loans is insuffi-
cient to pay interest accrued on the Cer-
tificates as a result of Deferred Interest
on the Mortgage Loans, such Deferred Inter-
est will (i) reduce the Interest Distribu-
tion Amount payable to the holders of the
Class G, Class F, Class E, Class D, Class C
and Class B Certificates, in that order,
and finally, the Class A-1 and Class A-2
Certificates, pro rata, in proportion to
the respective amounts of interest accrued
thereon, and (ii) will be added to the Cer-
tificate Principal Balances of the Class G,
Class F, Class E, Class D, Class C,
Class B, Class A-1 and Class A-2 Certifi-
cates, to the extent of the reduction in
the Interest Distribution Amount payable to
the holders of such Classes. See "DESCRIP-
TION OF THE CERTIFICATES--Principal and In-
terest Distributions--Deferred Interest"
herein.
D. Principal.................. On each Distribution Date, to the extent
the Available Distribution Amount on such
Distribution Date is sufficient therefor,
distributions in respect of principal will
be made on the Certificates in an aggregate
amount equal to the related Principal Dis-
tribution Amount (defined below) for such
Distribution Date. Such distributions in
respect of principal will be made on each
Distribution Date in the order of priority
described under "Priority of Distributions"
below, and, to the extent made in respect
of any Class,
S-11
<PAGE>
will reduce the aggregate Certificate Prin-
cipal Balance of such Class.
"Principal Distribution Amount" means, with
respect to the Classes of Certificates then
entitled to payments of principal, on any
Distribution Date, the sum of (i) the prin-
cipal portion of Scheduled Payments due on
the related Due Date on each Mortgage Loan,
to the extent received or advanced prior to
the related Determination Date, (ii) for
each Mortgage Loan which was repurchased
during the related Prepayment Period pursu-
ant to the Pooling and Servicing Agreement,
the principal amount of the Purchase Price
(net of amounts with respect to which a
distribution of principal has already been
made) (as defined below), (iii) any other
Principal Prepayments and other unscheduled
collections of principal received with re-
spect to Mortgage Loans during the related
Prepayment Period and (iv) to the extent
received from the related Borrower, the re-
lated Appraisal Reduction Capitalization
Amounts for such Distribution Date.
E. Available Distribution
Amount........................ The "Available Distribution Amount" for any
Distribution Date generally equals the ag-
gregate of (i) Monthly Payments on the
Mortgage Loans due during the related Due
Period and received on or prior to the re-
lated Determination Date, (ii) Principal
Prepayments and other unscheduled collec-
tions of principal received during the re-
lated Prepayment Period, (iii) Advances
(defined herein) with respect to the Mort-
gage Loans made by the Master Servicer, the
Trustee or the Fiscal Agent with respect to
such Distribution Date and (iv) amounts re-
lating to REO Properties required to be de-
posited from time to time in the Collection
Account pursuant to the Pooling and Servic-
ing Agreement, less the sum of:
(a) all Monthly Payments collected but
due on a date subsequent to the related
Due Date;
(b) all other collections allocable to
principal (or applied as recoveries of
principal) received after the related De-
termination Date (together with any in-
terest with respect thereto for periods
after the related Prepayment Period); and
(c) all amounts that are currently due or
reimbursable to the Master Servicer, the
Special Servicer, the Trustee or the Fis-
cal Agent (including the Servicing Fee,
any Special Servicing Fee, Extension Fee
and Workout Fee, any indemnification pay-
ments, and reimbursement of Advances and
Property Protection Advances (defined
herein)) or other Additional Trust Fund
Expenses (as defined below), in each case
plus interest thereon from the date paid
at the Prime Rate (defined herein). Any
prepayment premiums received with respect
to the Mortgage Loans will be paid to the
Class A-X Certificates.
F. Priority of Distributions.. On each Distribution Date, the Available
Distribution Amount will be paid in the
following order of priority:
S-12
<PAGE>
(i) to the Class A-1, Class A-2 and Class
A-X Certificates, pro rata, in respect of
interest, in an amount equal to the In-
terest Distribution Amount in respect of
each such class of Certificates for such
Distribution Date and, to the extent not
previously paid, for all prior Distribu-
tion Dates;
(ii) to the Class A-1 Certificates in re-
duction of their Certificate Principal
Balance, the Principal Distribution
Amount until the Certificate Principal
Balance thereof has been reduced to zero;
(iii) to the Class A-2 Certificates in
reduction of their Certificate Principal
Balance, the Principal Distribution
Amount until the Certificate Principal
Balance thereof has been reduced to zero;
(iv) to the Class B Certificates in re-
spect of interest, in an amount equal to
the Interest Distribution Amount in re-
spect of such class of Certificates for
such Distribution Date and, to the extent
not previously paid, for all prior Dis-
tribution Dates;
(v) to the Class B Certificates in reduc-
tion of their Certificate Principal Bal-
ance, the Principal Distribution Amount
until the Certificate Principal Balance
thereof has been reduced to zero;
(vi) to the Class C Certificates in re-
spect of interest, in an amount equal to
the Interest Distribution Amount in re-
spect of such class of Certificates for
such Distribution Date and, to the extent
not previously paid, for all prior Dis-
tribution Dates;
(vii) to the Class C Certificates in re-
duction of their Certificate Principal
Balance, the Principal Distribution
Amount until the Certificate Principal
Balance thereof has been reduced to zero;
(viii) to the Class D Certificates in re-
spect of interest, in an amount equal to
the Interest Distribution Amount in re-
spect of such class of Certificates for
such Distribution Date and, to the extent
not previously paid, for all prior Dis-
tribution Dates;
(ix) to the Class D Certificates in re-
duction of their Certificate Principal
Balance, the Principal Distribution
Amount until the Certificate Principal
Balance thereof has been reduced to zero;
and
(x) to the Class E, Class F and Class G
Certificates in payment of interest and
principal thereof in accordance with the
priorities set forth in the Pooling and
Servicing Agreement.
After the Class A-1, Class A-2, Class A-X,
Class B, Class C, Class D, Class E, Class F
and Class G Certificates receive all pay-
ments due to them, all remaining amounts
received on the Mortgage Loans will be paid
to the holders of the Residual Certificates
as provided in the Pooling and Servicing
Agreement.
In addition to the payment of interest de-
scribed in (i) above, the Class A-X Certif-
icates will be paid any prepayment premiums
collected on the Mortgage Loans.
S-13
<PAGE>
Prepayment Interest
Shortfalls and Excess
Prepayment Interest........... When a voluntary Principal Prepayment is
made between Due Dates or certain involun-
tary prepayments are received, a full
month's interest may not be received. The
amount of any such interest shortfall (a
"Prepayment Interest Shortfall") will first
be offset by any Excess Prepayment Interest
(defined below) and the Servicing Fee to
the extent described herein and any remain-
ing interest shortfall (each, a "Net Aggre-
gate Prepayment Interest Shortfall") will
be allocated pro rata in accordance with
the respective amounts of interest accrued
on each Class of Certificates for such Dis-
tribution Date, in each case in reduction
of the Interest Distribution Amounts for
such Classes of Certificates. To the extent
that the aggregate of all Prepayment Inter-
est Shortfalls for all Mortgage Loans for
any Distribution Date exceeds the aggregate
of all Excess Prepayment Interest for all
Mortgage Loans for such Distribution Date,
the Servicing Fee for the corresponding pe-
riod will be reduced in an amount necessary
(up to one-twelfth of the difference be-
tween (i) the Servicing Fee Rate and (ii)
the per annum rate at which the Trustee's
fees accrue, on the Scheduled Principal
Balance of each Mortgage Loan) to offset
such additional remaining Prepayment Inter-
est Shortfalls. None of the Master
Servicer, the Special Servicer, the Trustee
or the Fiscal Agent shall have the obliga-
tion to make any Advance to cover such Net
Aggregate Prepayment Interest Shortfalls.
See "DESCRIPTION OF THE CERTIFICATES--Prin-
cipal and Interest Distributions--Prepay-
ment Interest Shortfalls and Excess Prepay-
ment Interest" and "Principal and Interest
Distributions--Distributions of Interest"
herein.
If a Principal Prepayment is made during a
Prepayment Period but after the Due Date
for such Mortgage Loan, "Excess Prepayment
Interest" will arise. The amount of such
Excess Prepayment Interest will equal the
interest which accrues on the Mortgage Loan
from the last Due Date for such Mortgage
Loan to the date such Principal Prepayment
is made (net of the Servicing Fee). To the
extent that Excess Prepayment Interest for
all Mortgage Loans as of any Distribution
Date exceeds the Prepayment Interest
Shortfall for all of the Mortgage Loans as
of such Distribution Date, such excess will
be payable to the Master Servicer as addi-
tional servicing compensation.
Allocation of Realized Losses
and Additional Trust Fund
Expenses...................... Realized Losses of principal with respect to
the Mortgage Loans will be allocated to the
Class G, Class F, Class E, Class D, Class C and
Class B Certificates, in that order, and then
to the Class A-1 and Class A-2 Certificates,
pro rata, until the Certificate Principal Bal-
ance of each such Class has been reduced to ze-
ro. Realized Losses of interest with respect to
the Mortgage Loans and Additional Trust Fund
Expenses will be allocated to (and will reduce
the interest payable on) the Class G, Class F,
Class E, Class D, Class C and Class B Certifi-
cates, in that order, and then to the
S-14
<PAGE>
Class A-1, Class A-2 and Class A-X Certifi-
cates, pro rata, based on the interest other-
wise payable on each Class of Certificates as
described herein. Any Additional Trust Fund Ex-
penses with respect to any Distribution Date
will reduce the Available Distribution Amount
for such Distribution Date. See "DESCRIPTION OF
THE CERTIFICATES--Subordination; Allocation of
Realized Losses and Certain Expenses," "--Prin-
cipal and Interest Distributions--Available
Distribution Amount" and "--Priority of Distri-
butions" herein.
"Additional Trust Fund Expenses" include (i)
any Special Servicer Compensation paid to the
Special Servicer, (ii) any interest paid to the
Master Servicer, the Trustee or the Fiscal
Agent in respect of unreimbursed Advances, and
(iii) all other expenses of the Trust Fund per-
mitted to be reimbursed out of the Collection
Account, including, without limitation, Mort-
gage Loan and non-Mortgage Loan specific ex-
penses, reimbursements permitted under the
Pooling and Servicing Agreement to the Trustee,
the Master Servicer or the Special Servicer for
expenses incurred, and federal, state and local
taxes and tax related expenses (net of recov-
eries received in any such month). Additional
Trust Fund Expenses will reduce amounts payable
to Certificateholders and, subject to the pri-
ority of distributions described herein, may
result in a loss on one or more Classes of Of-
fered Certificates.
Treatment of REO Properties... Notwithstanding that a Mortgaged Property may
be acquired on behalf of the Certificateholders
through foreclosure, deed in lieu of foreclo-
sure or otherwise (upon acquisition, an "REO
Property"), the related Mortgage Loan will be
treated, for purposes of determining distribu-
tions on the Certificates, allocations of Real-
ized Losses to the Certificates and the amount
of fees payable to the Master Servicer and the
Special Servicer, as having remained outstand-
ing until such REO Property is liquidated. In
connection therewith, operating revenues and
other proceeds derived from such REO Property
(exclusive of related operating costs, includ-
ing certain reimbursements payable to the Mas-
ter Servicer and the Special Servicer in con-
nection with the operation and disposition of
such REO Property) will be "applied" by the
Master Servicer as interest, principal and
other amounts "due" on such Mortgage Loan, in
that order, and the Master Servicer will be ob-
ligated to make Advances in respect of such
Mortgage Loan, in all cases as if such Mortgage
Loan had remained outstanding, except to the
extent the Master Servicer's obligations to
make Advances is reduced by the creation of an
Appraisal Reduction. See "SERVICING--Advances"
and "DESCRIPTION OF THE CERTIFICATES--Appraisal
Reductions" herein.
Appraisal Reductions.......... Within 45 days after the earliest to occur of
(i) the date on which a change in the Mortgage
Interest Rate, principal balance, payment rate
or amortization terms (each, a "Money Term") or
in the stated maturity of any Specially Serv-
iced Mortgage Loan be-
S-15
<PAGE>
comes effective as a result of a modification
of such Mortgage Loan by the Special Servicer,
(ii) 90 days after the date on which an uncured
delinquency occurs in respect of a Mortgage
Loan, (iii) 60 days after the date on which a
receiver is appointed (if such appointment re-
mains in effect during such 60-day period) in
respect of a Mortgaged Property or (iv) as soon
as reasonably practical after the date on which
a Mortgaged Property becomes an REO Property
(defined below), an MAI appraisal will be ob-
tained by the Special Servicer at the expense
of the Trust Fund (except if an appraisal has
been conducted within the 12-month period pre-
ceding such event). As a result of such ap-
praisal, an Appraisal Reduction may be created,
which Appraisal Reduction will be allocated,
for purposes of determining distributions of
interest, to the Certificates in the manner and
priority described below.
The "Appraisal Reduction" for any Distribution
Date with respect to any such Mortgage Loan
will be an amount equal to the excess of (a)
the principal balance of such Mortgage Loan
over (b) the excess, if any, of (i) 90% of the
appraised value of such Mortgaged Property as
determined by such independent appraisal of the
Mortgaged Property securing such Mortgage Loan
over (ii) the sum of (A) to the extent not pre-
viously advanced by the Master Servicer, all
then outstanding unpaid accrued interest on
such Mortgage Loan at a per annum rate equal to
the Mortgage Interest Rate, (B) all
unreimbursed Advances and Property Protection
Advances, Servicing Fees and Special Servicing
Fees and interest accrued thereon at the Prime
Rate (as defined herein) in respect of such
Mortgage Loan, and (C) to the extent funds on
deposit in the related escrow account are not
sufficient therefor, all currently due and de-
linquent real estate taxes and assessments and
insurance premiums in respect of the related
Mortgaged Property. An Appraisal Reduction re-
lated to a Mortgage Loan will be reduced to
zero as of the date such Mortgage Loan is paid
in full, liquidated, repurchased or otherwise
disposed of. Notwithstanding the foregoing, an
Appraisal Reduction will be an amount equal to
zero with respect to such Mortgage Loan if (i)
the event giving rise to such Appraisal Reduc-
tion is the extension of the maturity of such
Mortgage Loan, (ii) the payments (other than
any Balloon Payment) on such Mortgage Loan were
not delinquent during the twelve-month period
immediately preceding such extension, and (iii)
the payments on such Mortgage Loan are then
current; provided, that if at any later date
there occurs a delinquency in payment with re-
spect to such Mortgage Loan, the Appraisal Re-
duction will be recalculated and applied to the
same extent as it would have been previously
applied. In addition, in any case, upon the oc-
currence of any event giving rise to a subse-
quent Appraisal Reduction (including the delin-
quency referred to in the immediately preceding
sentence) more than twelve months after an ap-
praisal was obtained with respect to an Ap-
praisal Reduction,
S-16
<PAGE>
the Special Servicer will obtain a new ap-
praisal as described above, within 45 days of
the occurrence of any such event giving rise to
a subsequent Appraisal Reduction and will ad-
just the amount of the Appraisal Reduction in
accordance therewith.
The aggregate of all current Appraisal Reduc-
tions will be allocated on each Distribution
Date, for purposes of determining distributions
in respect of interest on such Distribution
Date, to the Certificate Principal Balance of
the most subordinated Class of Certificates
that would otherwise receive distributions of
interest, after allocation of Realized Losses
and Additional Trust Fund Expenses. For so long
as any more senior Class of Certificates is
outstanding, the amount of interest otherwise
distributable on such Distribution Date to each
Class of Certificates to which Appraisal Reduc-
tions are allocated on such Distribution Date
will be reduced by the amount of interest ac-
crued at the applicable Certificate Rate on the
portion of the Certificate Principal Balance of
such Class equal to the amount of Appraisal Re-
ductions allocated to such Class or Classes for
such Distribution Date, and the amount of such
interest reduction (the "Appraisal Reduction
Capitalization Amount") will be added to the
Certificate Principal Balance of such Class of
Certificates and an equal amount will be in-
cluded in the Principal Distribution Amount for
such Distribution Date to the extent actually
paid by the related Borrower. Appraisal Reduc-
tions will be treated as Realized Losses for
purposes of determining the Voting Rights of
each Class; provided, that to the extent the
amount of principal recovered after the date of
an Appraisal Reduction on a Mortgage Loan with
respect to which an Appraisal Reduction oc-
curred exceeds the principal balance of such
Mortgage Loan on the date of such Appraisal Re-
duction, net of the amount of the Appraisal Re-
duction, the amount treated as a Realized Loss
shall be reduced.
The creation of an Appraisal Reduction in re-
spect of a Mortgage Loan will proportionately
reduce the Master Servicer's obligation to make
advances with respect to Scheduled Payments due
on such Mortgage Loan, which may adversely af-
fect payments to the most subordinated Class of
Certificates then outstanding and the Class A-X
Certificates. The addition of an amount equal
to the Appraisal Reduction Capitalization
Amounts to amounts distributed to any Class of
Certificates will have the effect of accelerat-
ing the distribution of principal to that Class
of Certificates and increasing the Certificate
Principal Balance of the Classes of Certifi-
cates to which the Appraisal Reduction Capital-
ization Amount is allocated.
Optional Termination.......... On any Distribution Date on or after the date
on which the aggregate principal balance of the
Mortgage Loans has been reduced below 5% of the
aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, the Master
Servicer will have the right to purchase, in
whole, but not in part, all of the Mortgage
S-17
<PAGE>
Loans, and any property acquired in respect of
the Mortgage Loans. The proceeds of any such
purchase will be treated as a payment of prin-
cipal and interest on the Mortgage Loans for
purposes of distributions to
Certificateholders. See "DESCRIPTION OF THE
CERTIFICATES--Optional Termination" herein.
The Mortgage Loans............ The Mortgage Pool will consist of 64 Mortgage
Loans with an aggregate principal balance as of
the Cut-off Date of approximately $243,851,771
evidenced by promissory notes secured by first
mortgages or deeds of trust. Each Mortgage Loan
was originated by the Seller as described under
"DESCRIPTION OF THE MORTGAGE POOL AND THE UN-
DERLYING MORTGAGED PROPERTIES."
None of the Mortgage Loans will be guaranteed
by any governmental agency or instrumentality,
the Depositor, the Seller, the Master Servicer,
the Special Servicer, their respective affili-
ates or any other entity.
Set forth below is certain information regard-
ing the Mortgage Loans and the related Mort-
gaged Properties as of the Cut-off Date (all
weighted averages set forth below are based on
the Cut-off Date principal balances of the re-
spective Mortgage Loans). Such information is
more fully described, and additional informa-
tion regarding the Mortgage Loans and the Mort-
gaged Properties is set forth, under "DESCRIP-
TION OF THE MORTGAGE POOL AND THE UNDERLYING
MORTGAGED PROPERTIES" herein.
S-18
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
CUT-OFF DATE PRINCIPAL
AGGREGATE NUMBER BALANCE OF
PRINCIPAL OF MORTGAGE
BALANCE LOANS LOANS
------------ ------ ----------
<S> <C> <C> <C>
Aggregate Principal
Balance................... $243,851,771 64 100.00%
Balloon Mortgage Loans..... $234,802,377 58 96.29%
Fully Amortizing Mortgage
Loans..................... $ 9,049,393 6 3.71%
PROPERTY TYPE
Retail................... $153,882,463 33 63.10%
Industrial............... $ 40,173,306 17 16.47%
Office................... $ 25,229,940 7 10.35%
Multi-family............. $ 24,566,062 7 10.07%
GEOGRAPHIC LOCATION
California............... $184,641,763 44 75.72%
Texas.................... $ 26,623,218 9 10.92%
Other.................... $ 32,586,790 11 13.36%
Average Cut-off Date
Principal Balance......... $ 3,810,184
Maximum Cut-off Date
Principal Balance......... $ 23,084,586
Minimum Cut-off Date
Principal Balance......... $ 781,097
Weighted Average Mortgage
Interest Rate............. 8.55%
Weighted Average Property
Age (years)(1)............ 8
Weighted Average Number of
Months Until Prepayment
Premium is Reduced to 1%
of Outstanding Principal
Balance................... 85
Weighted Average of the
Occupancy Percentages..... 97%
Weighted Average Remaining
Term to Stated Maturity
(years)................... 8.33
Weighted Average Cut-off
Date Loan to Value
Ratio(2).................. 67.21%
Weighted Average Debt
Service Coverage Ratio(3). 1.47x
</TABLE>
--------
(1) The weighted average age of the Mortgaged
Properties based on the later of the date
of construction or the date of most recent
major rehabilitation.
(2) Based on the appraisals made in connection
with the origination of the subject
Mortgage Loans. See "RISK FACTORS--
Commercial and Multifamily Lending
Generally" herein for certain information
with respect to the dates and availability
of such appraisals.
(3) Represents the ratio of the net operating
income available for debt service on the
Mortgaged Property, annualized and
normalized in certain cases (as described
herein), to debt service. See "Description
of the Mortgage Pool and the Underlying
Mortgaged Properties--Certain
Characteristics of the Mortgage Loans" for
a description of the calculation of Debt
Service Coverage Ratios.
Yield Considerations.......... The yield to maturity on each Class of Offered
Certificates will be sensitive to the rate and
timing of principal payments (including prepay-
ments and default and liquidation proceeds) on
the Mortgage Loans, and may fluctuate signifi-
cantly from time to time. Approximately 96.29%
of the Mortgage Loans (based on the Cut-off
Date principal balances of the Mortgage Loans)
are Balloon Loans. The rate and timing of Bal-
loon Payments on Balloon Loans will affect the
yield to maturity of the Offered
S-19
<PAGE>
Certificates. The yield to maturity on each Of-
fered Certificate may also be affected by Pre-
payment Interest Shortfalls and Deferred Inter-
est as described herein. See "DESCRIPTION OF
THE CERTIFICATES--Principal and Interest Dis-
tributions--Priority of Distributions," "--De-
ferred Interest" and "--Prepayment Interest
Shortfalls and Excess Prepayment Interest"
herein. In addition, the allocation of Realized
Losses, Additional Trust Fund Expenses, De-
ferred Interest, Prepayment Interest Shortfalls
and Appraisal Reductions on the Mortgage Loans
will have the effect of reducing the effective
yield on the Classes of Certificates to which
such Realized Losses, Additional Trust Fund Ex-
penses, Deferred Interest, Prepayment Interest
Shortfalls and Appraisal Reductions are allo-
cated. See "DESCRIPTION OF THE CERTIFICATES--
Subordination; Allocation of Realized Losses
and Certain Expenses," "--Principal and Inter-
est Distributions--Deferred Interest" and "--
Appraisal Reductions" herein for a description
of the allocation of Realized Losses, Addi-
tional Trust Fund Expenses, Deferred Interest
and Appraisal Reductions on the Mortgage Loans.
In general, if an Offered Certificate is pur-
chased at a premium and principal distributions
thereon occur at a rate faster than anticipated
at the time of purchase, the investor's actual
yield to maturity will be lower than that as-
sumed at the time of purchase. Conversely, if
an Offered Certificate is purchased at a dis-
count and principal distributions thereon occur
at a rate slower than that assumed at the time
of purchase, the investor's actual yield to ma-
turity will be lower than that assumed at the
time of purchase. See "YIELD CONSIDERATIONS"
herein.
The yield on the Offered Certificates will be
less than the yield that would otherwise be
produced by the applicable Certificate Rate and
the applicable purchase price because interest
accrued on such Classes of Certificates through
the last day of a month will not be distributed
until the twenty-first day of the following
month, or, if such day is not a business day,
then on the next succeeding business day. See
"YIELD CONSIDERATIONS" herein.
Servicing Fee................. The Master Servicer will be entitled to receive
each month, out of payments received on the
Mortgage Loans in such month, a servicing fee
(the "Servicing Fee") equal to one-twelfth of
0.15% per annum of the Scheduled Principal Bal-
ance (defined herein) of each Mortgage Loan as
compensation for servicing the Mortgage Loans,
subject to reduction as described herein under
"DESCRIPTION OF THE CERTIFICATES--Principal and
Interest Distributions--Prepayment Interest
Shortfalls and Excess Prepayment Interest." See
"SERVICING--The Master Servicer" herein.
Special Servicing
Compensation.................. The Special Servicer will be entitled to re-
ceive, with respect to any Due Period, a fee
(the "Extension Fee") equal to $ with
respect to any Mortgage Loan whose maturity
date has been
S-20
<PAGE>
extended with no change of a Money Term (as de-
fined herein) by the Special Servicer during
such Due Period, a special servicing fee the
("Special Servicing Fee") equal to one-twelfth
of % per annum of the outstanding Scheduled
Principal Balance of each Specially Serviced
Mortgage Loan as of the first day of such Due
Period and a fee (the "Workout Fee") equal to
% of (i) the modified principal balance of
Mortgage Loans as to which a Money Term has
been modified by the Special Servicer (exclud-
ing extension of the maturity dates of the
Mortgage Loans with no other change in a Money
Term) during such Due Period and (ii) the net
proceeds received in connection with a Spe-
cially Serviced Mortgage Loan or an REO Prop-
erty during such Due Period (collectively, the
"Special Servicer Compensation"). The Special
Servicer is also permitted to retain certain
mortgagor-paid fees and charges specified in
the Pooling and Servicing Agreement.
Trustee and Fiscal Agent
Fees.......................... The Master Servicer is responsible for the pay-
ment of all fees of the Trustee. The Trustee is
responsible for the payment of all fees of the
Fiscal Agent.
Advances...................... The Master Servicer will be obligated to ad-
vance delinquent installments of principal
(other than any Balloon Payment payable at ma-
turity) and interest on the Mortgage Loans (net
of the related Servicing Fee and Special Ser-
vicing Fees) ("Advances"), but only if the Mas-
ter Servicer believes that the amount advanced,
plus interest that will accrue thereon, will be
recoverable from subsequent payments or collec-
tions (including insurance proceeds and liqui-
dation proceeds net of liquidation expenses) in
respect of the related Mortgage Loan, and only
until the Mortgage Loan becomes a Liquidated
Loan (defined herein); provided, however, that
the amount of any Advance required to be made
by the Master Servicer with respect to any
Mortgage Loan as to which there has been an Ap-
praisal Reduction will be an amount equal to
the product of (i) the amount required to be
advanced by the Master Servicer without giving
effect to this proviso and (ii) a fraction, the
numerator of which is the outstanding principal
balance of such Mortgage Loan as of the immedi-
ately preceding Determination Date less any Ap-
praisal Reduction thereon and the denominator
of which is the outstanding principal balance
of the Mortgage Loan as of such Determination
Date.
The Master Servicer or the Special Servicer, as
the case may be, will be required to advance
funds, to the extent amounts otherwise avail-
able are not sufficient therefor and to the ex-
tent the Master Servicer or the Special
Servicer deems such amounts to be recoverable
from subsequent payments or collections in re-
spect of the related Mortgage Loan, necessary
for the proper operation, management and main-
tenance of any REO Property, including amounts
necessary with respect to insurance premiums,
real estate taxes and assessments and costs and
expenses of certain improvements (together,
"Property Protection Advances").
S-21
<PAGE>
With respect to any Balloon Loan for which the
related Balloon Payment payable at maturity is
delinquent, the Master Servicer will only be
required to make Advances in the amount of the
scheduled payment of principal and interest
(net of the related Servicing Fee and Special
Servicing Fees) due on the Due Date immediately
prior to the Due Date for such Balloon Payment.
The determination by the Master Servicer that
any Advance or Property Protection Advance
would be nonrecoverable shall be at the sole
discretion of the Master Servicer or Special
Servicer, as the case may be, and be conclusive
and binding upon the Certificateholders, the
Trustee and the Depositor. Interest on any Ad-
vances and Property Protection Advances will
accrue at the Prime Rate (defined herein) and
will be reimbursed as described herein. See
"SERVICING--Advances" herein.
Representations and
Warranties.................... The Seller will make certain limited represen-
tations and warranties as to the status of the
mortgages securing the Mortgage Loans, the pay-
ment status of the Mortgage Loans and certain
other information described herein. The Deposi-
tor will assign to the Trustee the benefits of
such representations and warranties. If any
such representation or warranty is breached in
respect of any Mortgage Loan in a manner that
materially and adversely affects the interests
of Certificateholders and is not thereafter
cured, the Seller will be required to purchase
such Mortgage Loan from the Trust Fund, or,
during certain specified periods after the date
of issuance of the Certificates, at its option
and subject to certain conditions, to substi-
tute a qualifying mortgage loan or loans in
place of the affected Mortgage Loan. See "DE-
SCRIPTION OF THE MORTGAGE POOL AND THE UNDER-
LYING MORTGAGED PROPERTIES--Representations and
Warranties" herein.
Final Rated Distribution
Date.......................... The Final Rated Distribution Date for the Of-
fered Certificates is December 21, 2027, which
is the Distribution Date occurring in the month
following the month that is two years after the
maturity date of the Mortgage Loan with the
latest stated maturity date, without taking
into account any scheduled Balloon Payment (ex-
cept in instances where Scheduled Payments pro-
vide for interest only), but instead assuming
the full amortization of such Mortgage Loan in
accordance with its current remaining amortiza-
tion schedule.
Certain Federal Income Tax
Consequences................. For federal income tax purposes, two separate
"real estate mortgage investment conduit"
("REMIC") elections will be made with respect
to each trust fund. For federal income tax pur-
poses, the Offered Certificates will be REMIC
"regular interests." As REMIC regular inter-
ests, the Offered Certificates will generally
be treated as debt for federal income tax pur-
poses.
The Class Certificates are not expected to
be treated for federal income tax reporting
purposes as having been issued with
S-22
<PAGE>
original issue discount. The Class , Class
, Class and Class Certificates are
expected to be treated for federal income tax
reporting purposes as having been issued with
original issue discount. Certain Classes of the
Offered Certificates may be treated for federal
income tax purposes as having been issued at a
premium. For the purpose of determining the
rate of accrual of market discount, original
issue discount and premium for federal income
tax purposes, it is assumed that prepayments
are made on any of the Mortgage Loans at the
rate of % CPR. No representation is made as to
whether the Mortgage Loans will prepay.
See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES"
herein and in the Prospectus.
Legal Investment.............. The Offered Certificates will not constitute
"mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act
of 1984. The appropriate characterization of a
Class of Offered Certificates under various le-
gal investment restrictions, and thus the abil-
ity of investors subject to these restrictions
to purchase Offered Certificates, may be sub-
ject to significant interpretive uncertainties.
All investors whose investment authority is
subject to legal restrictions should consult
their own legal advisors to determine whether,
and to what extent, the Offered Certificates
will constitute legal investments for them.
The Depositor makes no representations as to
the proper characterization of the Offered Cer-
tificates for legal investment or financial in-
stitution regulatory purposes, or as to the
ability of particular investors to purchase the
Offered Certificates under applicable legal in-
vestment restrictions. The uncertainties de-
scribed above (and any unfavorable future de-
terminations concerning legal investment or fi-
nancial institution regulatory characteristics
of the Offered Certificates) may adversely af-
fect the liquidity of the Offered Certificates.
See "LEGAL INVESTMENT" in the Prospectus.
ERISA Considerations.......... The United States Department of Labor has is-
sued an exemption to CS First Boston Corpora-
tion which generally exempts from the applica-
tion of certain of the prohibited transaction
provisions of Section 406 of the Employee Re-
tirement Income Security Act of 1974, as
amended ("ERISA"), and the excise taxes and
civil penalties imposed on such prohibited
transactions by Section 4975(a) and (b) of the
Code and Section 502(i) of ERISA, transactions
relating to the purchase, sale and holding of
certificates underwritten by the Underwriters
such as the Class A-1 and Class A-2 Certifi-
cates and the servicing and operation of asset
pools such as the Mortgage Pool, provided that
certain conditions are satisfied. Transactions
relating to the purchase, sale and holding, of
the Class A-1 and Class A-2 Certificates may
meet the requirements of such exemptions, as
described herein. The Class B, Class C and
Class D Certificates will not meet the require-
ments of such exemptions. See "ERISA CONSIDERA-
TIONS" herein and in the Prospectus.
S-23
<PAGE>
Ratings....................... It is a condition of the issuance of the Of-
fered Certificates that the Class A-1 Certifi-
cates and the Class A-2 Certificates each be
rated "AAA" by Standard & Poor's Ratings Serv-
ices, a division of The McGraw-Hill Companies,
Inc. ("S&P") and Duff & Phelps Credit Rating
Co. ("D&P"), that the Class B Certificates be
rated not lower than "AA" by S&P and "AA+" by
D&P, that the Class C Certificates be rated not
lower than "A-" by S&P and "A" by D&P and that
the Class D Certificates be rated not lower
than "BBB-" by S&P and "BBB" by D&P.
The ratings on mortgage pass-through certifi-
cates address the likelihood of the receipt by
certificateholders of all distributions on the
underlying mortgage loans to which they are en-
titled including the receipt of all principal
payments by the Final Rated Distribution Date.
Such ratings address the structural and legal
aspects associated with the certificates, in-
cluding the nature of the underlying mortgage
loans.
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 organizations. Each security
rating should be evaluated independently of any
other security rating. In addition, a security
rating does not address the likelihood or fre-
quency of prepayments of Mortgage Loans or the
corresponding effect on yield to investors. See
"YIELD CONSIDERATIONS" and "RATINGS" herein.
S-24
<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Offered Certificates:
COMMERCIAL AND MULTIFAMILY LENDING GENERALLY
Commercial and multifamily lending is generally viewed as exposing the
lender to a greater risk of loss than one- to four-family residential lending.
Commercial and multifamily lending typically involves larger loans to single
borrowers or groups of related borrowers than residential one- to four-family
mortgage loans. Further, the repayment of loans secured by income producing
properties is typically dependent upon the successful operation of the related
real estate project. If the cash flow from the project is reduced (for
example, if leases are not obtained or renewed), the borrower's ability to
repay the loan may be impaired. Commercial and multifamily real estate can be
affected significantly by the supply and demand in the market for the type of
property securing the loan and, therefore, may be subject to adverse economic
conditions. Market values may vary as a result of economic events or
governmental regulations outside the control of the borrower or lender, such
as rent control laws in the case of multifamily mortgage loans, which impact
the future cash flow of the property.
The available appraisals of the Mortgaged Properties were made at varying
times in connection with the origination of the subject Mortgage Loans. No
additional appraisals of the Mortgaged Properties for any Mortgage Loan have
been or will be obtained and no new valuations have been assigned to the
Mortgage Loans by the Depositor in connection with the offering of the Offered
Certificates.
The weighted average age of the Mortgaged Properties based on the later of
the date of construction or the date of most recent major rehabilitation is
approximately 8 years. The age, construction quality and design of a
particular property may affect the occupancy level as well as the rents that
may be charged for individual leases. The effects of poor construction quality
will increase over time in the form of increased cash flow required from the
property for maintenance and capital improvements. Even good construction will
deteriorate over time if the property managers do not schedule and perform
adequate maintenance in a timely fashion. If, during the terms of the Mortgage
Loans, properties of a similar type are built in the areas where the Mortgaged
Properties of such type are located or other similar properties in such areas
are substantially updated and refurbished during that time, the value and net
operating income of such Mortgaged Properties could be reduced. There is no
assurance that the value of any Mortgaged Property during the term of the
related Mortgage will equal or exceed its appraised value at the date of
origination of such Mortgage Loan.
Income from and the market value of the Mortgaged Properties would be
adversely affected if space in the Mortgaged Properties could not be leased,
if tenants were unable to meet their lease obligations, if a significant
tenant were to become a debtor in a bankruptcy case under the United States
Bankruptcy Code, or if for any other reason rental payments could not be
collected. If the tenant sales in the Mortgaged Properties that contain retail
space were to decline, percentage rents may decline and tenants may be unable
to pay their rent or other occupancy costs. Upon the occurrence of an event of
default by a tenant, delays and costs in enforcing the lessor's rights could
be experienced. Repayment of the Mortgage Loans will be affected by the
expiration of space leases and the ability of the respective borrowers to
renew the leases or relet the space on comparable terms.
Other multifamily residences, office buildings, retail centers and
industrial properties located in the areas of the Mortgaged Properties compete
with the Mortgaged Properties of such types to attract residents, retailers,
customers and tenants. In addition, retailers at the Mortgaged Properties that
have retail space face competition from discount shopping centers and clubs,
factory outlet centers, direct mail and telemarketing. Increased competition
could adversely affect income from and market value of the Mortgaged
Properties.
S-25
<PAGE>
NONRECOURSE MORTGAGE LOANS
Each Mortgage Loan is a nonrecourse loan as to which, in the event of a
default under such Mortgage Loan, recourse generally may be had only against
the specific property and other assets that have been pledged to secure the
Mortgage Loan. Consequently, payment on each Mortgage Loan prior to maturity
is dependent primarily on the sufficiency of the net operating income of the
related Mortgaged Property, and at maturity (whether at scheduled maturity or,
in the event of a default under the related Mortgage Loan, upon the
acceleration of such maturity) upon the then market value of the related
Mortgaged Property or the ability of the related borrower to refinance the
Mortgaged Property.
GEOGRAPHIC CONCENTRATION
Forty-four of the Mortgaged Properties, representing approximately 75.72% of
the aggregate principal balance of the Mortgage Loans as of the Cut-off Date,
and 9 of the Mortgaged Properties, representing approximately 10.92% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date, are
located in the States of California and Texas, respectively. No more than 5%
of the Mortgage Loans (by aggregate principal balance as of the Cut-off Date)
are secured by Mortgaged Properties located in any other single state. See
"DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING MORTGAGED PROPERTIES--
Certain Characteristics of the Mortgage Loans" for a description of the
location of the Mortgaged Properties located in California by county.
Repayments by borrowers and the market value of the Mortgaged Properties could
be affected by economic conditions generally or in regions where the borrowers
and the Mortgaged Properties are located, conditions in the real estate market
where the Mortgaged Properties are located, changes in governmental rules and
fiscal policies, acts of nature, including earthquakes (which may result in
uninsured losses), and other factors which are beyond the control of the
borrowers. Improvements on Mortgaged Properties located in California may be
more susceptible to earthquakes than properties located in other parts of the
country. The Mortgage Loans generally do not require the Borrowers to maintain
earthquake insurance. In addition, the economies of certain States may be
adversely affected to a greater degree than that of other areas of the country
by developments affecting industries concentrated in such states. Moreover, in
recent periods, several regions of the United States in which one or more of
the Mortgaged Properties are located, including California, have experienced
significant downturns in the market value of real estate. Because of the
relative lack of geographic diversity in the Mortgaged Properties, losses on
the Mortgage Loans may be higher than would be the case if the location of the
Mortgaged Properties were more diverse. See "DESCRIPTION OF THE MORTGAGE POOL
AND THE UNDERLYING MORTGAGED PROPERTIES--Loan Underwriting" herein.
OTHER CONCENTRATION ISSUES
Three of the Mortgage Loans, representing approximately 18.37% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date, each
have a principal balance as of the Cut-off Date greater than $10,000,000.
Defaults with respect to such Mortgage Loans or adverse events with respect to
the related Mortgaged Properties may have a disproportionately greater impact
on payments or losses on the Certificates than would be the case if the
aggregate principal balance of the Mortgaged Properties in the Mortgage Pool
was distributed among Mortgage Loans each with a smaller principal balance.
BALLOON PAYMENTS AND EXTENSION OF MATURITY
As of the Cut-off Date, 58 Mortgage Loans, with an aggregate principal
balance of approximately $234,802,377, are balloon payment mortgage loans
("Balloon Loans"), which will have a balloon payment (each, a "Balloon
Payment") due for each such Mortgage Loan at its respective maturity date.
Mortgage Loans with Balloon Payments involve a greater risk to a lender than
self-amortizing loans, because the ability of a borrower to pay such amount
will normally depend on its ability to obtain refinancing of the related
Mortgage Loan or to sell the related Mortgaged Property at a price sufficient
to permit the mortgagor to make the Balloon Payments, which will depend on a
number of factors prevailing at the time such refinancing or sale is required,
S-26
<PAGE>
including, without limitation, the strength of the commercial and multifamily
real estate markets, tax laws, the financial situation and operating history
of the underlying property, interest rates and general economic conditions.
None of the Seller, the Depositor, the Master Servicer, the Special Servicer
or their affiliates is under any obligation to refinance any Mortgage Loan.
The Pooling and Servicing Agreement permits the Special Servicer to waive,
modify and amend certain terms of a Specially Serviced Mortgage Loan under
certain circumstances. There can be no assurance, however, that any such
waiver, modification or amendment will increase the present value of a
Specially Serviced Mortgage Loan. Furthermore, such actions may result in an
Appraisal Reduction or in Deferred Interest. Such a waiver, modification or
amendment may cause the weighted average life of the Certificates to be longer
than if the Mortgage Loan had been paid pursuant to its original terms. In
addition, as described under "DESCRIPTION OF THE MORTGAGE POOL AND THE
UNDERLYING MORTGAGED PROPERTIES--Description of the Mortgage Loans" herein,
certain of the Mortgage Loans are assumable under certain circumstances. This
characteristic may cause the weighted average life of the Certificates to be
longer than otherwise expected. See "SERVICING--The Operating Advisor" and "--
Mortgage Loan Modifications" herein.
EARLY REPAYMENT OF MORTGAGE LOANS
Voluntary principal prepayments of the Mortgage Loans and the condemnation
of, or the occurrence of a casualty loss on, the Mortgaged Property securing
any Mortgage Loan or the acceleration of payments due under a Mortgage Loan by
reason of default may result in an unscheduled principal prepayment at any
time. See "DESCRIPTION OF THE MORTGAGE POOL AND THE UNDERLYING MORTGAGED
PROPERTIES--Prepayments" herein.
All of the Mortgage Loans contain due-on-sale clauses, which permit 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 without the lender's prior consent. Such due-on-sale
clauses are generally enforceable subject to certain exceptions.
Notwithstanding the foregoing, the Mortgage Loans generally permit the
Borrower to make a one time assignment of the Mortgage Loan in connection with
a sale of the related Mortgaged Property, subject to approval of the proposed
purchaser by the lender, payment of an assumption fee equal to one percent
(1%) of the then outstanding principal balance of the Mortgage Loan, and
certain other conditions. See "DESCRIPTION OF THE MORTGAGE POOL AND THE
UNDERLYING MORTGAGED PROPERTIES--Due-on-Sale Clauses" herein.
All of the Mortgage Loans include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary default of the Borrower.
Courts will generally enforce clauses providing for acceleration in the event
of a material payment default after the giving of appropriate notices. Courts,
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. See "DESCRIPTION
OF THE MORTGAGE POOL AND UNDERLYING MORTGAGED PROPERTIES--Certain Legal
Aspects of the Mortgage Loans" herein and "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS" in the Prospectus.
CERTAIN ENVIRONMENTAL MATTERS
The Mortgaged Properties consist of commercial and multifamily properties
and, as such, are subject to federal, state and local laws and regulations
relating to environmental protection. Such laws may include laws regulating
emissions of air pollutants, discharges of waste water or storm water, the
generation, transport, storage or disposal of hazardous waste, underground
storage tanks, the removal and disposal of asbestos-containing materials and
the management of electrical equipment containing polychlorinated biphenyls.
The failure to comply with such laws and regulations may result in significant
penalties, including civil and criminal fines.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), a lender may be liable, as an
"owner" or "operator," for clean-up costs on a
S-27
<PAGE>
mortgaged property on which there has been a release or threatened release of
hazardous substances if agents or employees of the lender have become involved
in the operations of the borrower, regardless of whether a previous owner
caused the environmental damage. If the lender actually takes possession of
the property, or control of its operations, or a receiver is appointed, it may
be liable for clean-up costs pursuant to CERCLA.
A "Phase I" environmental site assessment was performed on each Mortgaged
Property as a condition to the origination of the related Mortgage Loan. Based
on the Seller's review of such assessments, the Seller has concluded that such
assessments do not indicate the existence of an environmental condition on any
Mortgaged Property which could have a material adverse effect on the value of
such Mortgaged Property. Such assessment, however, may not in all cases reveal
the existence of a materially adverse environmental condition and neither
Seller, the Depositor, the Master Servicer or the Special Servicer will make
any representation or warranty with respect to the compliance of any Mortgaged
Property with applicable environmental laws or the effect thereof on the value
of such Mortgaged Property, the collectability of the related Mortgage Loan or
the condition (financial or otherwise) of the related Borrower.
The Pooling and Servicing Agreement provides that, prior to causing the
Trustee to acquire possession of or title to any Mortgaged Property on behalf
of the Trust Fund, the Special Servicer will obtain a Phase I environmental
assessment. If the Phase I environmental assessment or other information
indicates the presence of any hazardous substances and the Special Servicer
determines that acquiring title to or possession of the Mortgaged Property
would likely subject the Master Servicer, the Special Servicer, the Trustee or
the Trust Fund to substantial liability, the Special Servicer will, in its
reasonable judgment in accordance with the Servicing Standard, elect not to
cause the Trust Fund to acquire possession of or title to the Mortgaged
Property, and the obligation of the Master Servicer and the Special Servicer,
as the case may be, to make Advances and Property Protection Advances with
respect to the related Mortgage Loan will cease.
ZONING COMPLIANCE; INSPECTIONS
Due to changes in applicable building and zoning ordinances and codes
("Zoning Laws") affecting certain of the Mortgaged Properties which have come
into effect after the construction of improvements on such Mortgaged
Properties and for other reasons, certain improvements may not comply fully
with current Zoning Laws, including density, use, parking and set back
requirements, but qualify as permitted non-conforming uses. Such changes may
limit the ability of the borrower to rebuild the premises "as is" in the event
of a substantial casualty with respect thereto.
COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. To the extent the Mortgaged Properties do
not comply with the ADA, the borrowers may incur costs of complying with the
ADA. In addition, non-compliance could result in the imposition of fines by
the federal government or an award of damages to private litigants.
SPECIAL SERVICER ACTIONS
In connection with the servicing of the Specially Serviced Mortgaged Loans,
the Special Servicer may take actions with respect to such Mortgage Loans that
could adversely affect the holders of some or all of the Classes of Offered
Certificates. As described herein under "SERVICING--The Special Servicer" and
"--The Operating Advisor," certain actions of the Special Servicer will be
subject to approval during certain periods by a designated person (who may be
a Certificateholder) selected by the holders of the Class of Certificates
described herein, which may have interests in conflict with those of the
holders of the other Classes of Certificates. Although the Special Servicer
will at all times be required to act consistently with the Servicing Standard
(as defined herein), there may be times when a conflict occurs with respect to
the interests of certain Classes of Certificates. As a result, it is possible
that the Special Servicer may take actions which conflict with
S-28
<PAGE>
the interests of certain Classes of the Offered Certificates. See "SERVICING--
General" and "--The Operating Advisor" herein.
VARIABILITY OF AVERAGE LIFE
The payment experience on the Mortgage Loans will affect the actual payment
experience on and the weighted average lives of the Offered Certificates.
Prepayments on the Mortgage Loans (including prepayments resulting from
repurchases, defaults and liquidations) will tend to shorten the weighted
average lives of the Offered Certificates. Since all principal payments on the
Mortgage Loans are initially directed to reduce the Certificate Principal
Balances of the Class A-1 Certificates and then the Class A-2 Certificates,
prepayments on the Mortgage Loans will have a disproportionately greater
effect on the Class A-1 and Class A-2 Certificates relative to the Class B,
Class C and Class D Certificates. Prepayments on the Mortgage Loans will be
influenced by the prepayment provisions of the Mortgage Loans and may also be
affected by a variety of economic, geographic and other factors, including the
difference between the interest rates on the Mortgage Loans (giving
consideration to the cost of refinancing) and prevailing mortgage rates and
the availability of refinancing. In general, if prevailing interest rates fall
significantly below the Mortgage Interest Rates on the Mortgage Loans, the
rate of prepayment on the Mortgage Loans would be expected to increase.
Conversely, if prevailing interest rates rise significantly above the Mortgage
Interest Rates on the Mortgage Loans, the rate of prepayment would be expected
to decrease. All of the Mortgage Loans provide for a prepayment penalty or
charge in connection with the prepayment thereof. However, the Balloon Loans
generally permit the Borrower to prepay the outstanding principal balance
thereof at any time during the last six months of the scheduled life of such
loans without any prepayment penalty or charge. See "DESCRIPTION OF THE
MORTGAGE POOL AND THE UNDERLYING MORTGAGED PROPERTIES-- Prepayments" for a
summary of the prepayment penalties applicable to the remaining Mortgage
Loans.
Delays in liquidations of defaulted Mortgage Loans and modifications
extending the maturity of Mortgage Loans will tend to lengthen the weighted
average lives of the Offered Certificates. Because a significant number of
Mortgage Loans have Balloon Payments due at maturity and because the ability
of the Borrower 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 Special Servicer may extend the
maturity of a number of such Mortgage Loans in connection with workouts. In
the case of defaults, recovery of proceeds may be delayed by, among other
things, bankruptcy of the Borrower or adverse conditions in the market where
the property is located. In order to minimize losses on defaulted Mortgage
Loans, the Special Servicer is given considerable flexibility under the
Pooling and Servicing Agreement to modify Mortgage Loans that are in default
or as to which a payment default is reasonably foreseeable or has occurred.
Certificateholders are not entitled to receive distributions of Balloon
Payments when due except to the extent they are actually received. As a
result, any defaulted Balloon Payment or any modification which extends the
maturity of a Mortgage Loan will tend to extend the weighted average life of
the Offered Certificates.
Any changes in weighted average life may adversely affect the yield to
Certificateholders. Prepayments resulting in a shortening of such weighted
average lives may be made at a time of low interest rates when a holder may be
unable to reinvest the resulting payments of principal on its Offered
Certificates at a rate comparable to the Certificate Rate payable on such
Offered Certificates, while delays and extensions resulting in a lengthening
of such weighted average lives may occur at a time of high interest rates when
a holder may have been able to reinvest principal payments that would
otherwise have been received by it at higher rates.
SUBORDINATION OF THE CLASS B, CLASS C AND CLASS D CERTIFICATES
The rights of the Class B, Class C and Class D Certificateholders to receive
payments of principal and interest will be subordinated to the rights of the
holders of the Class A-1, Class A-2 and Class A-X Certificates, to the extent
described herein. In addition, the rights of the Class D Certificateholders to
receive payments of principal and interest will be subordinated to the rights
of the holders of the Class B and Class C Certificates and
S-29
<PAGE>
the rights of the Class C Certificateholders to receive payments of principal
and interest will be subordinated to the rights of the holders of the Class B
Certificates. See "DESCRIPTION OF THE CERTIFICATES--Principal and Interest
Distributions--Priority of Distributions" and "--Subordination; Allocation of
Realized Losses and Certain Expenses" herein.
Realized Losses of principal with respect to the Mortgage Loans will be
allocated to the Class G, Class F, Class E, Class D, Class C and Class B
Certificates, in that order, and then to the Class A-1 and Class A-2
Certificates, pro rata, until the Certificate Principal Balance of each such
Class has been reduced to zero. Realized Losses of interest with respect to
the Mortgage Loans will be allocated to (and will reduce the interest payable
on) the Class G, Class F, Class E, Class D, Class C and Class B Certificates,
in that order, and then to the Class A-1, Class A-2 and Class A-X
Certificates, pro rata, based on the interest otherwise payable on each Class
of Certificates as described herein. Any Additional Trust Fund Expenses with
respect to any Distribution Date will reduce the Available Distribution Amount
for such Distribution Date. See "DESCRIPTION OF THE CERTIFICATES--
Subordination; Allocation of Realized Losses and Certain Expenses," "--
Principal and Interest Distributions--Available Distribution Amount" and "--
Priority of Distributions" herein.
Deferred Interest on the Mortgage Loans, and Appraisal Reduction
Capitalization Amounts, if any, may be applied to reduce current interest
distributable on the Class G, Class F, Class E, Class D, Class C and Class B
Certificates, in that order, prior to being applied to reduce current interest
on the Class A-1, Class A-2 and Class A-X Certificates, as described herein
under "DESCRIPTION OF THE CERTIFICATES--Principal and Interest Distributions--
Deferred Interest."
In addition, the creation of an Appraisal Reduction in respect of a Mortgage
Loan may result in the reduction of interest payments to one or more Classes
of Certificates in reverse order of priority.
LIMITED OBLIGATIONS
The Certificates do not represent an interest in or obligation of the
Depositor, the Underwriters, the Seller, the Master Servicer, the Special
Servicer, the Trustee, the Fiscal Agent or any of their affiliates. A
Certificate is not a deposit and neither the Certificates nor the underlying
mortgage loans are insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency or instrumentality. The Seller's
obligation to repurchase or substitute for a Mortgage Loan will arise only
under limited circumstances as described herein under "DESCRIPTION OF THE
CERTIFICATES--Repurchase or Substitution of Mortgage Loans."
LIMITED LIQUIDITY
There is currently no secondary market for the Offered Certificates. The
Underwriters expect to make a secondary market in the Offered Certificates but
have no obligation to do so. There can be no assurance that a secondary market
for the Offered Certificates will develop, or if it does develop, that it will
continue. In addition, issuance of Certificates in book-entry form may reduce
the liquidity thereof in any secondary trading market that may develop
therefor because investors may be unwilling to purchase Certificates for which
they cannot obtain delivery of physical certificates. See "DESCRIPTION OF THE
CERTIFICATES--Book-Entry Registration" herein.
CONFLICTS OF INTEREST
Because cash flows from the Mortgage Loans will be applied to payments of
the Certificates of each Class in accordance with the priorities described
herein under "DESCRIPTION OF THE CERTIFICATES--Principal and Interest
Distributions--Priority of Distributions," decisions as to when and how to
realize upon a particular Mortgage Loan may affect the amount and timing of
the realization of proceeds thereon to the disadvantage of the holders of the
Certificates of one Class as against the others.
S-30
<PAGE>
In most instances, the Operating Advisor (defined herein) will be entitled
to approve certain actions of the Special Servicer with respect to Specially
Serviced Mortgage Loans (for example, whether to pursue foreclosure on a
defaulted Mortgage Loan or a loan modification and extension). The Operating
Advisor may have interests in conflict with those of the holders of certain
other Classes of Certificates. As a result, it is possible that the Operating
Advisor may approve certain actions proposed by the Special Servicer with
respect to Specially Serviced Mortgage Loans that conflict with the interests
of the holders of certain other Classes of Certificates. In addition, since
there is no restriction on a Special Servicer's ability to hold a Class of
Certificates, it is possible that the Special Servicer may hold a Class of
Certificates which would make it the Operating Advisor. See "SERVICING--The
Operating Advisor."
The Trustee's decisions with respect to the exercise of remedies may
disadvantage the holders of the Certificates of one Class as against the
others. Also, any decision whether to declare an Event of Default under the
Pooling and Servicing Agreement, and thereby replace the Master Servicer or
the Special Servicer for cause, may be more advantageous to one Class of
Certificates than the others.
S-31
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
AND THE UNDERLYING MORTGAGED PROPERTIES
GENERAL
The following description summarizes certain characteristics of the Mortgage
Loans as of the Cut-off Date. See the information under "--Certain
Characteristics of the Mortgage Loans" herein and Appendix A hereto for a more
detailed description of certain characteristics of the Mortgage Loans.
The description of the Mortgage Loans set forth in this Prospectus
Supplement is based on the characteristics of the Mortgage Loans expected to
be included in the Mortgage Pool as of the date of this Prospectus Supplement.
Mortgage Loans may be removed from the Mortgage Pool prior to the date of
issuance of the Certificates as a result of prepayments or delinquencies or
for other reasons, and additional Mortgage Loans may be added to the Mortgage
Pool. If any of the characteristics of the Mortgage Loans actually included in
the Trust Fund varies in a material respect from those set forth in the
Prospectus Supplement, information as to such characteristics will be included
in a Current Report on Form 8-K filed by the Depositor with the Securities and
Exchange Commission within fifteen days of the issuance of the Certificates.
The Depositor will acquire the Mortgage Loans from the Seller. The Depositor
will assign the Mortgage Loans to LaSalle National Bank, a national banking
association, as Trustee (the "Trustee"). See "THE MORTGAGE POOLS--Assignment
of Mortgage Loans" in the Prospectus. Wells Fargo Bank, National Association,
as Master Servicer (in its capacity as master servicer, the "Master
Servicer"), will service the Mortgage Loans and as Special Servicer (in its
capacity as Special Servicer, the "Special Servicer") will oversee the
resolution of Mortgage Loans which are Specially Serviced Mortgage Loans,
pursuant to a Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement"), dated as of December 1, 1995 among the Depositor, the Master
Servicer, the Special Servicer, the Trustee and the Fiscal Agent. The Master
Servicer intends to retain Wells Fargo Realty Finance Corporation, its wholly
owned subsidiary, to service all of the Mortgage Loans, except Specially
Serviced Mortgage Loans.
DESCRIPTION OF THE MORTGAGE LOANS
The Mortgage Pool will consist of 64 fixed-rate Mortgage Loans with an
aggregate principal balance of approximately $243,851,771 evidenced by
promissory notes secured by first mortgages and deeds of trust on commercial
and multifamily mortgaged properties, including a fee simple interest in the
land and all buildings and improvements thereon (the "Mortgaged Properties").
The Mortgage Loans individually have a maximum principal balance of
$23,084,586, a minimum principal balance of $781,097 and an average principal
balance of $3,810,184, all as of the Cut-off Date. The Mortgage Loans are not
insured or guaranteed by the United States, any governmental agency or any
private mortgage insurer.
All of the Mortgage Loans have Due Dates (that is, the dates upon which the
related Monthly Payments first become due) that occur on the first day of such
month. All of the Mortgage Loans accrue interest on the basis of a 360-day
year consisting of twelve 30-day months.
All of the Mortgage Loans are also secured by an assignment of leases and
rents relating to the Mortgaged Property. Pursuant to an assignment of leases
and rents, the Borrower assigns its right, title and interest as landlord
under each lease and the income derived therefrom to the lender, while
retaining a right to collect the rents for so long as there is no default. If
the Borrower defaults, the Trustee, as assignee of the Seller, is entitled to
initiate action to collect the rents from tenants to be applied to the
monetary obligations of the Borrower. State law may limit or restrict the
enforcement of the assignment of leases and rents by a lender until the lender
takes possession of the related Mortgaged Property or a receiver is appointed.
All of the Mortgage Loans are "nonrecourse" loans or loans for which
recourse may be restricted or unenforceable, as to which, in the event of
default by the obligor (the "Borrower") on the related Note, the Trust Fund
may look only to the related Mortgaged Properties (including any assignments
of leases of the
S-32
<PAGE>
Mortgaged Properties) and any other collateral security (and not to the
Borrower's other assets) for satisfaction of the amounts due on the affected
Mortgage Loans. Notwithstanding the foregoing, the Borrower will be personally
liable for any loss or damage suffered by the lender resulting from any of the
following: (a) fraud or willful misrepresentation; (b) waste; (c) failure to
pay property or other taxes, assessments or other charges which may create
liens senior to the lien of the Mortgage on any portion of the Mortgaged
Property; (d) failure to deliver any Insurance Proceeds or condemnation
proceeds or any security deposits received by the Borrower to the lender or to
apply such sums as required under the terms of the related loan documents; (e)
failure to apply rents from the Mortgaged Property received by the Borrower
after the occurrence of an event of default to the payment of the Mortgage
Loan or the normal operation of the Mortgaged Property; and (f) breach by the
Borrower of any representation, warranty or covenant regarding the presence or
use of hazardous materials on the Mortgaged Property. See "CERTAIN LEGAL
ASPECTS OF THE MORTGAGE LOANS--Anti-Deficiency Legislation" in the Prospectus.
The Mortgage Loan documents allow the lender to require the Borrower to
furnish quarterly rent rolls and annual operating statements.
Fifty-eight of the Mortgage Loans are mortgage loans ("Balloon Loans") which
provide for scheduled monthly payments of principal and interest (the "Monthly
Payments") that would fully amortize such Mortgage Loan over an original term
ranging from 168 to 360 months (which is longer than the terms of such
Mortgage Loans), with a Balloon Payment due at maturity. The remaining
Mortgage Loans in the Mortgage Pool are loans that are fully amortizing over
their stated terms to maturity.
As of the Cut-off Date, all payments are current under the Mortgage Loans.
Since their respective dates of origination, none of the Mortgage Loans have
been delinquent more than 30 days.
The Mortgage Loans were originated by the Seller between February 17, 1994
and November 3, 1995. 7.58% and 92.42% of the Mortgage Loans (by principal
balance as of the Cut-off Date) were originated in 1994 and 1995,
respectively.
The Mortgage Loans have Debt Service Coverage Ratios (defined herein)
ranging from 1.15x to 2.36x and a weighted average Debt Service Coverage Ratio
of 1.47x and Loan-to-Value Ratios ranging from 27.70% to 77.12% and a weighted
average Loan-to-Value Ratio of 67.21%. With respect to any Mortgage Loan,
"Loan-to-Value Ratio" means the ratio (expressed as a percentage) of the Cut-
off Date principal balance over the value of the related Mortgaged Property as
determined by the appraisal obtained in connection with the origination of the
Mortgage Loan. The Mortgage Loans have Mortgage Interest Rates as of the Cut-
off Date ranging from 7.55% to 10.33% per annum and a weighted average
Mortgage Interest Rate as of the Cut-off Date of 8.55% per annum.
Approximately 10.07% of the Mortgage Loans are secured by multifamily
properties, approximately 10.35% are secured by office properties,
approximately 16.47% are secured by industrial properties and approximately
63.10% are secured by retail properties. Approximately 75.72% and 10.92% of
the Mortgage Loans (by principal balance as of the Cut-off Date) are secured
by Mortgaged Properties located in the States of California and Texas,
respectively. No more than 3.81% (by principal balance as of the Cut-off-Date)
of the Mortgage Loans are secured by Mortgaged Properties in any other single
state. 17.95% of the Mortgage Loans (by principal balance as of the Cut-off
Date) have been converted to fixed-rate loans bearing interest at the then
current market rate of interest since their respective dates of origination.
Two Mortgage Loans representing 5.64% of the Mortgage Loans (by principal
balance as of the Cut-off Date) are to two related parties, both single-
purpose entities. In this instance, one individual owns a 56% interest in a
general partnership that is the borrower on one Mortgage Loan with a principal
balance of $3,479,594 and owns a 100% interest in a general partnership that
is the borrower on another Mortgage Loan with a principal balance of
$10,279,538. There are no other related borrowers having aggregate loans in
excess of 5% of the aggregate principal balance of the Mortgage Loans as of
the Cut-off Date.
S-33
<PAGE>
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
The tables on the following pages set forth certain characteristics of the
Mortgage Loans. Percentages of the Mortgage Loans are approximate percentages
(except as otherwise indicated) by aggregate principal balance as of the Cut-
off Date. The information expressed as a percentage of the aggregate principal
balance of the Mortgage Loans, as of the Cut-off Date, may not total 100.00%
due to rounding, and the sum of the amounts listed as the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date may not total the
indicated amount due to rounding.
DISTRIBUTION OF ORIGINAL PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE
RANGE OF ORIGINAL PRINCIPAL NUMBER OF AGGREGATE AGGREGATE
BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
$ 600,001 to $ 800,000.... 1 $ 781,097 0.32%
800,001 to 1,000,000.... 6 5,784,417 2.37
1,000,001 to 2,000,000.... 16 24,374,223 10.00
2,000,001 to 3,000,000.... 11 27,281,504 11.19
3,000,001 to 4,000,000.... 10 33,664,176 13.81
4,000,001 to 5,000,000.... 2 8,606,707 3.53
5,000,001 to 10,000,000.... 15 98,552,757 40.42
10,000,001 to 20,000,000.... 2 21,722,303 8.91
20,000,001 +................. 1 23,084,586 9.47
--- ------------ ------
Total..................... 64 $243,851,771 100.00%
=== ============ ======
</TABLE>
The average principal balance at origination was approximately $3,827,376.
DISTRIBUTION OF CUT-OFF DATE PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE
RANGE OF CUT-OFF DATE NUMBER OF AGGREGATE AGGREGATE
PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
$ 600,001 to $ 800,000. 1 $ 781,097 0.32%
800,001 to 1,000,000. 6 5,784,417 2.37
1,000,001 to 2,000,000. 17 26,371,909 10.81
2,000,001 to 3,000,000. 10 25,283,819 10.37
3,000,001 to 4,000,000. 10 33,664,176 13.81
4,000,001 to 5,000,000. 2 8,606,707 3.53
5,000,001 to 10,000,000. 15 98,552,757 40.42
10,000,001 to 20,000,000. 2 21,722,303 8.91
20,000,001 +.............. 1 23,084,586 9.47
--- ------------ ------
Total.................. 64 $243,851,771 100.00%
=== ============ ======
</TABLE>
The average principal balance as of the Cut-off Date was approximately
$3,810,184.
S-34
<PAGE>
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
CUT-OFF DATE PERCENTAGE OF WEIGHTED
NUMBER OF AGGREGATE CUT-OFF DATE AVERAGE DEBT
MORTGAGE PRINCIPAL AGGREGATE SERVICE COVERAGE
PROPERTY TYPE LOANS BALANCE PRINCIPAL BALANCE RATIOS
- ------------- --------- ------------ ----------------- ----------------
<S> <C> <C> <C> <C>
Industrial.............. 17 $ 40,173,306 16.47% 1.41x
Multifamily............. 7 24,566,062 10.07 1.43
Office.................. 7 25,229,940 10.35 1.57
Retail.................. 33 153,882,463 63.10 1.48
--- ------------ ------ ----
Total/Weighted
Average............ 64 $243,851,771 100.00% 1.47x
=== ============ ====== ====
</TABLE>
GEOGRAPHIC LOCATION
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE
NUMBER OF AGGREGATE AGGREGATE
STATE AND COUNTY LOCATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------- -------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
California.............. Alameda 5 $ 19,346,631 7.93%
Los Angeles 7 49,764,557 20.41
Orange 5 17,227,020 7.06
Sacramento 5 19,667,879 8.07
San Bernadino 5 21,273,095 8.72
San Diego 5 22,765,751 9.34
Other 12 34,596,830 14.19
--- ------------ ------
Total California........ 44 $184,641,763 75.72%
--- ------------ ------
Arizona................. 2 8,065,781 3.31
Colorado................ 1 1,420,794 0.58
Georgia................. 1 915,009 0.38
Maryland................ 2 9,271,305 3.80
Nevada.................. 4 8,435,716 3.46
Texas................... 9 26,623,218 10.92
Utah.................... 1 4,478,186 1.84
--- ------------ ------
Total............... 64 $243,851,771 100.00%
=== ============ ======
</TABLE>
DISTRIBUTION OF MORTGAGE INTEREST RATES
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE
NUMBER OF AGGREGATE AGGREGATE
MORTGAGE INTEREST RATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
7.500% to 7.999%........... 4 $ 39,704,677 16.28%
8.000 to 8.499............ 18 91,048,001 37.34
8.500 to 8.999............ 27 66,573,186 27.30
9.000 to 9.499............ 10 31,597,505 12.96
9.500 to 9.999............ 3 5,073,098 2.08
10.000 to 10.499............ 2 9,855,304 4.04
--- ------------ ------
Total.................... 64 $243,851,771 100.00%
=== ============ ======
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Interest Rate was
approximately 8.548% per annum.
S-35
<PAGE>
AMORTIZATION TYPE
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE
NUMBER OF AGGREGATE AGGREGATE
AMORTIZATION TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Balloon...................... 58 $234,802,377 96.29%
Fully-Amortizing............. 6 9,049,393 3.71
--- ------------ ------
Total.................... 64 $243,851,771 100.00%
=== ============ ======
</TABLE>
DISTRIBUTION OF ORIGINAL TERMS TO STATED MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE
ORIGINAL TERM TO STATED NUMBER OF AGGREGATE AGGREGATE
MATURITY (YEARS) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
5 yrs or less.............. 1 $ 23,084,586 9.47%
5+ to 7 years.............. 22 82,942,407 34.01
7+ to 10 years............. 31 111,594,202 45.76
10+ to 15 years............ 10 26,230,575 10.76
--- ------------ ------
Total.................. 64 $243,851,771 100.00%
=== ============ ======
</TABLE>
As of the Cut-off Date, the weighted average original term to stated
maturity at origination was approximately 8.73 years.
DISTRIBUTION OF REMAINING TERM TO STATED MATURITY
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE WEIGHTED AVERAGE
NUMBER OF AGGREGATE AGGREGATE DEBT SERVICE
REMAINING TERM TO STATED MATURITY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE COVERAGE RATIOS
- --------------------------------- -------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
4+ to 5 years............... 1 $ 23,084,586 9.47% 1.55x
5+ to 7 years............... 25 90,541,826 37.13 1.42
7+ to 10 years.............. 31 115,237,427 47.26 1.50
10+ to 15 years............. 7 14,987,931 6.15 1.41
--- ------------ ------ ----
Total/Weighted Average.. 64 $243,851,771 100.00% 1.47x
=== ============ ====== ====
</TABLE>
As of the Cut-off Date, the weighted average remaining term to stated
maturity was approximately 8.33 years.
CUT-OFF DATE LOAN-TO-VALUE RATIO
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE
RANGE OF NUMBER OF AGGREGATE AGGREGATE
LOAN-TO-VALUE RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
60.00% or less............... 13 $ 32,227,847 13.22%
60.01 to 65.00............... 9 43,608,746 17.88
65.01 to 70.00............... 19 78,953,557 32.38
70.01 to 75.00............... 19 71,099,474 29.16
75.01 to 80.00............... 4 17,962,146 7.37
--- ------------ ------
Total.................... 64 $243,851,771 100.00%
=== ============ ======
</TABLE>
The weighted average Cut-off Date Loan-to-Value Ratio was approximately
67.21%. The Cut-off Date Loan-to-Value Ratio of each Mortgage Loan was
computed by dividing the outstanding principal balance of such Mortgage Loan
as of the Cut-off Date by the appraised value as set forth in the appraisal of
the related Mortgaged Property made in connection with the origination of such
Mortgage Loan. See "RISK FACTORS--Commercial and Multifamily Lending
Generally."
S-36
<PAGE>
DEBT SERVICE COVERAGE RATIOS
AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE CUT-OFF DATE
RANGE OF NUMBER OF AGGREGATE AGGREGATE
DEBT SERVICE COVERAGE RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
1.10x to 1.19x.............. 4 $ 9,725,862 3.99%
1.20 to 1.29................ 7 12,962,068 5.32
1.30 to 1.39................ 15 70,882,832 29.07
1.40 to 1.49................ 16 56,496,889 23.17
1.50 to 1.99................ 20 91,963,914 37.71
2.00 to 2.99................ 2 1,820,205 0.75
--- ------------ ------
Total................... 64 $243,851,771 100.00%
=== ============ ======
</TABLE>
The weighted average Debt Service Coverage Ratio (calculated as described
below) was approximately 1.47x.
As of the Cut-off Date, the weighted average Debt Service Coverage Ratio
(calculated as described below) for the Mortgaged Properties securing all of
the Mortgage Loans in the Mortgage Pool was approximately 1.47x. The "Debt
Service Coverage Ratio" on each Mortgage Loan was determined by the Seller by
dividing the net operating income (before debt service on such Mortgage Loan)
provided by the Borrower for full year 1994 or partial year 1995, adjusted as
described below, by annualized debt service based on monthly payments in
effect between November 2 and December 1, 1995. The net operating income for a
Mortgaged Property is established by information provided by the borrowers,
except that in certain cases such net operating income has been adjusted by
removing certain non-recurring expenses and revenue or by certain other
normalizations. Net operating income does not necessarily reflect accrual of
certain costs such as income taxes and capital expenditures and does not
reflect non-cash items such as depreciation or amortization. In some cases,
capital expenditures may have been treated by a borrower as an expense. If an
operating statement provided by a Borrower was available covering at least six
months of 1995, then an annualized figure based on such period was used. If no
such statement was available, the full operating income for 1994 was used. If
deemed appropriate by the Seller, adjustments were made to annual net
operating income to normalize real estate taxes and insurance, by replacing
these expenses as reported in the operating statements provided by the
Borrower with real estate tax and insurance expenses obtained from one or more
of the following sources: the Seller's on-line tax services, copies of tax
bills and insurance binders or policies, MAI appraisals conducted in 1995,
prior year's expenses, or local market averages as reported in real estate
industry publications. Partial year operating statements were annualized by
removing real estate tax and insurance expenses as reported in those operating
statements, annualizing the resulting figures and substituting an annual
figure for real estate tax and insurance expenses obtained from one or more of
the sources listed above. In addition, if deemed appropriate by the Seller,
adjustments were made to normalize the property management fee to 3% to 5% of
gross income (with certain customary adjustments) and to take into account
certain extraordinary or non-recurring expenses and non-cash profit and loss
items. Adjustment for Replacement Reserves was made to reflect long-term
capital needs of each property. In no event, however, has the Seller or the
Depositor made any attempt to verify the accuracy of any operating statements
or other information provided by the Borrowers or to reflect changes in net
operating income that may have occurred since the date as of which such
information was given.
No assurance can be given with respect to the accuracy of the information
provided by any Borrower or the results of any adjustments thereto by or on
behalf of the Seller concerning the operating income derived from any
Mortgaged Property.
PREPAYMENTS
None of the Mortgage Loans permit voluntary principal prepayments without
payment of a premium. However, the Balloon Loans generally permit the Borrower
to prepay the outstanding principal balance thereof at any time during the
last six months of the scheduled life of such loans without any prepayment
premium or
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charge. Any prepayment premiums will be paid to the holders of the Class A-X
Certificates separately from the Available Distribution Amount. However, the
condemnation of, or the occurrence of a casualty loss on, the Mortgaged
Property securing any Mortgage Loan or the acceleration of payments due under
a Mortgage Loan by reason of default may result in an unscheduled principal
prepayment at any time.
A "lock-out period" is a period during the term of a Mortgage Loan during
which the Borrower is prohibited from prepaying amounts of principal prior to
their due date. A prepayment provision which provides for "prepayment premium"
is one that requires a payment to the lender under the mortgage loan of an
amount in addition to the amount of principal being prepaid, designed to
compensate the lender, in part, for the amount that such lender would have
otherwise earned had the mortgage loan not been so prepaid. With respect to
each Mortgage Loan providing for a prepayment premium, such provision is in
the form of a fixed, but declining, percentage of the amount prepaid on the
mortgage loan.
The following table sets forth an analysis of the percentage of the
declining balance of the Mortgage Pool that, immediately following December 1
of each of the years indicated, will be (i) within a lock-out period and (ii)
within a period in which Principal Prepayments must be accompanied by the
indicated prepayment premium. The table was prepared on the assumption that
the Mortgage Loans will amortize according to their respective amortization
schedules, if any; that Balloon Payments will be made when due; that no
Mortgage Loan will be prepaid, voluntarily or involuntarily; and, based on the
Modeling Assumptions (excluding assumptions (i) and (v)), as described under
"MATURITY CONSIDERATIONS--Weighted Average Life." There can be no assurance
that the Mortgage Loans will not be prepaid and, in fact, it is unlikely that
there will be no such prepayments. The sum in any column of the following
tables may not equal the indicated total due to rounding.
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PREPAYMENT LOCKOUT/PREMIUM ANALYSIS
PERCENTAGE OF MORTGAGE POOL BY PREPAYMENT RESTRICTION ASSUMING NO PREPAYMENTS
<TABLE>
<CAPTION>
108 120
PREPAYMENT PREMIUM CURRENT 12 (MO.) 24 (MO.) 36 (MO.) 48 (MO.) 60 (MO.) 72 (MO.) 84 (MO.) 96 (MO.) (MO.) (MO.)
OR RESTRICTION 12/95 12/96 12/97 12/98 12/99 12/00 12/01 12/02 12/03 12/04 12/05
------------------ -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lockout............. 24.37% 24.39% 13.96% 1.45% 0.37% 0.39% 0.38% 0.60% 0.00% 0.00% 0.00%
5.00%............... 74.83% 74.80% 72.04% 53.96% 54.93% 55.57% 0.00% 0.00% 0.57% 0.54% 5.73%
4.00%............... 0.80% 0.81% 4.54% 31.40% 0.00% 2.42% 56.38% 0.00% 0.00% 0.00% 0.00%
3.00%............... 0.00% 0.00% 0.00% 3.73% 31.48% 0.00% 2.48% 95.14% 0.00% 0.00% 0.00%
2.00%............... 0.00% 0.00% 9.47% 9.47% 3.75% 37.47% 0.00% 4.25% 95.11% 0.00% 0.00%
1.00%............... 0.00% 0.00% 0.00% 0.00% 9.47% 1.97% 35.21% 0.00% 0.00% 91.17% 0.00%
0.00%............... 0.00% 0.00% 0.00% 0.00% 0.00% 2.19% 5.55% 0.00% 4.33% 8.28% 94.27%
Total............ 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ------
Mortgage Pool
Balance (000s)..... $243,852 $240,566 $236,990 $233,098 $228,864 $203,004 $194,971 $112,245 $108,695 $100,210 $8,218
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ------
% of Cut-off Date
Balance*........... 100.00% 98.65% 97.19% 95.59% 93.85% 83.25% 79.95% 46.03% 44.57% 41.09% 3.37%
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- ------
</TABLE>
- -------
* Represents the percentage of the Cut-off Date Mortgage Pool Balance that
will remain outstanding at the indicated date based upon the assumptions
used in the preparation of the table.
ACCELERATION OF MORTGAGE LOANS
All of the Mortgage Loans include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or nonmonetary default of
the Borrower. Courts will generally enforce clauses providing for acceleration
in the event of a material payment default after the giving of appropriate
notices. Courts 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.
The Master Servicer or the Special Servicer may accelerate the maturity of
any Mortgage Loan upon the occurrence of certain events, which generally
include the following: (i) if any installment of principal and/or interest is
not paid when due, (ii) upon the occurrence of certain events relating to the
insolvency of the Borrower (subject to applicable restrictions imposed by
insolvency laws), (iii) in certain other limited circumstances, upon the
breach of any covenant by the Borrower and (iv) if the Mortgaged Property or
certain interests in the Borrower is sold or otherwise conveyed, in each case
subject to any applicable notice or grace period contained in the related
Mortgage Loan.
LATE CHARGES
The Mortgage Loans generally provide that any payment which is delinquent
for more than ten days is subject to a late charge. In addition, the Mortgage
Loans generally provide that following a default, the Mortgage Loan will bear
interest at a default rate equal to the sum of the Mortgage Interest Rate plus
a default interest margin. Any late charges and default interest margin paid
by a Borrower will be paid to the Master Servicer, or, in the case of
Specially Serviced Mortgage Loans, to the Special Servicer, as additional
servicing compensation, and will not be passed through to Certificateholders.
DUE-ON-SALE CLAUSES
All of the Mortgage Loans contain due-on-sale clauses which permit 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 or certain interests in the Borrower. Notwithstanding the
foregoing, the Mortgage Loans generally permit the Borrower to make a one time
assignment of the Mortgage Loan in connection with a sale of the related
Mortgaged Property, subject to approval of the proposed purchaser by the
lender, payment of an assumption fee equal to one percent (1%) of the then
outstanding principal balance of the Mortgage Loan, and certain other
conditions. In addition, the Special Servicer may in its sole discretion
either enforce due-on-sale clauses to the extent permitted by law and to the
extent that such enforcement
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will not adversely affect coverage under any policy of insurance on the
Mortgaged Property or take or enter into an assumption or modification
agreement from or with the person to whom such property is about to be
conveyed, pursuant to which such person becomes liable under the Mortgage
Note.
INSURANCE
Each Mortgage Loan requires the Borrower to maintain insurance against
certain hazards, casualties, liabilities and contingencies, including losses
by fire, personal liability and property damage. Each Borrower is required to
maintain hazard insurance in an amount not less than the lesser of the
principal balance of the Mortgage Loan or the replacement cost of the
improvements securing such Mortgage Loan. The Master Servicer shall use
reasonable efforts in accordance with the Servicing Standard to maintain in
all material respects insurance coverage required under the related Mortgage
Loans. The Master Servicer may satisfy its obligation to cause hazard
insurance to be maintained on the related Mortgage Properties by obtaining and
maintaining a blanket policy insurance against hazard losses on all of the
Mortgage Loans that it is required to service. The hazard insurance policies
relating to the Mortgage Loans will be underwritten by different insurers. All
property and liability insurers must be admitted to do business in the state
where the Mortgage Property is located, and must carry a minimum rating of "A"
from a Rating Agency, and a policyholder surplus of $25 million or more.
The Master Servicer will require the maximum amount of flood insurance
available from the national Flood Insurance Program on each Mortgaged Property
that is located in a federally designated special flood hazard area.
The policies do not necessarily contain identical terms and conditions and
insurance coverage will be subject to the specific conditions and exclusions
in each policy. At a minimum, however, appropriate evidence of insurance is
required. Insurance must be provided in an amount sufficient to prevent the
Borrower from becoming a co-insurer. The Master Servicer must be named as the
loss payee. A maximum deductible of $10,000 per occurrence is allowed.
Business income coverage for all risk of physical loss is required based upon
an annual amount sufficient to avoid any co-insurance and for the actual
losses sustained during the term of restoration and releasing, if applicable.
Certain other risks, including but not limited to damage resulting from war,
revolution, governmental actions, flood (other than that described above) and
other water-related causes, earth movement, nuclear reactions, rot, vermin,
domestic animals, theft and vandalism typically will not be covered by the
insurance policies on the Mortgaged Properties. Under certain circumstances,
hazard insurance proceeds may not be sufficient to restore the damaged
property in the event of a partial loss.
Certain of the Mortgage Loans require the Borrower to obtain rental
interruption insurance for the benefit of the Lender. The Borrower is not
required to obtain earthquake insurance, nor will the Master Servicer or the
Special Servicer be required to obtain such insurance. All insurance policies
required to be maintained by the Borrower described herein contain a
requirement that notice be provided to the lender 30 days prior to their
termination.
ESCROW PAYMENTS
Certain of the Mortgage Loans provide that upon the occurrence of any of
several conditions specified in the Mortgage Loan documents, including a
failure of the Borrower to pay all required insurance premiums for, and all
real estate taxes or assessments levied against, the Mortgaged Property, the
holder of the Mortgage Loan may require the Borrower to make monthly escrow
payments to such holder in amounts sufficient to pay all required insurance
premiums for, and all real estate taxes or assessments levied against, the
Mortgaged Property. With respect to the remaining Mortgage Loans, the Borrower
will be obligated to make such escrow payments during the entire term of the
mortgage. In addition, certain of the Mortgage Loans provide that the holder
of the Mortgage Loan may require the Borrower to make monthly escrow payments
to such holder in amounts estimated to be sufficient to pay for anticipated
capital improvements to the Mortgaged Property and to pay for anticipated
lease commissions and tenant improvements.
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CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
Approximately 75.72% by aggregate Cut-off Date principal balance of the
Mortgage Loans are secured by Mortgaged Properties located in California.
Mortgage loans in California are generally secured by a deed of trust on the
related real property which provides for foreclosure by the trustee by power
of sale. Lenders generally are not permitted to obtain a deficiency judgment
against a borrower following foreclosure under such power of sale. The
appointment of a receiver to manage real property prior to the completion of
foreclosure is not permitted without notice to the borrower. See "CERTAIN
LEGAL ASPECTS OF THE MORTGAGE LOANS" in the Prospectus for a general
discussion of certain other legal aspects of the Mortgage Loans, including a
general discussion of foreclosure by judicial action.
TYPES OF MORTGAGED PROPERTY
The lender may be subject to additional risk depending upon the type and use
of the related Mortgaged Property. In addition to risk of loss of rental
income during periods of vacancy, certain types of Mortgaged Properties
present other risks. See "--Loan Underwriting" below for a discussion of
certain such risks.
LOAN UNDERWRITING
The Mortgage Loans were subject to an underwriting process that assessed the
Borrower's ability to repay the debt and the adequacy of the Mortgaged
Properties as collateral for the respective Mortgage Loans. Each of the
Mortgage Loans was underwritten in accordance with Wells Fargo Bank's criteria
for commercial and multifamily mortgages.
When making a decision to extend credit, Wells Fargo Bank ("Wells Fargo")
evaluates two major criteria: the quality of the real estate collateral and
the experience, integrity and overall financial condition of the applicant.
Markets and Economic Considerations
Wells Fargo prefers to lend in broad established markets to ensure adequate
breadth of the market for replacement tenants. Properties should represent a
conforming or typical use for its market area.
Property Characteristics
Wells Fargo lends on properties that are of generally high quality
construction and design, are well-located, and present a well-maintained and
attractive appearance. Some of the characteristics Wells Fargo uses in
choosing which commercial properties upon which to make a Mortgage Loan are a
high current and projected tenancy rates, architecturally attractive
appearance that conforms to the general appearance of the trade area, a local
economy that is stable or trending upwards and low probability of similar
competition entering the market, the diversity of the local economy, and
significant employment and/or population trends. For apartment buildings, the
neighborhood in which the property is located should be suitable for
multifamily use; the project should have a close proximity to retail and other
services; and it should have good access to transportation systems.
A minimum economic occupancy of 90 percent is required. Properties in
leaseup stages will be considered on an exception basis. A minimum of two to
three years of operating history is required for analysis.
Structural Reports
Engineering reviews are required for all properties with the exception of
properties that have been recently constructed within a twelve-month period
from the date of application. In the case of newly constructed properties, a
certificate of completion and certificate of occupancy is required. In the
case of properties identified to be in a high-risk seismic area, the necessity
for seismic reinforcement is considered. See "--Appraisal Process" herein.
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Leases
All leases pertaining to the property, except for multifamily properties,
are obtained and reviewed for options to purchase or right of first refusal;
early termination provisions; assignment or subletting provisions; operating
covenants and management recapture provisions (retail centers); and other
unusual or problematic provisions. For all tenants which occupy 20 percent or
more of the total renewable area, subordination agreements with non-
disturbance or attornment or long-form estoppel certificates are obtained.
Careful consideration is given to lease rollover. Analyses are performed of
the amount of space and income that will renew in each loan year to determine
the potential effect on property cash flow and refinancing possibilities at
the balloon date. Depending on the level of improvement of the space and
associated retenanting costs, impounded reserves may be required at funding
and/or from ongoing property cash flow.
Tenant Concentrations
Significant and single tenant concentrations require a tenant credit
analysis and how the property will be affected by rollover risk and the
ability to obtain refinancing funds at maturity. Reserves and/or a more rapid
amortization may be required to mitigate rollover risk.
Appraisal Process
All appraisals prepared as a condition to origination are ordered on behalf
of the borrower by Wells Fargo and are prepared by MAI fee appraisers who have
been qualified by the Real Estate Technical Services Department ("RETECHS") of
Wells Fargo. RETECHS is an in-house staff of experienced specialists in the
areas of appraisal, environmental and engineering/structural. The appraisal
protocol has been developed by RETECHS and conforms in all respects to the
requirements of FIRREA.
All appraisals must contain, at a minimum, a full narrative containing all
research analyses and conclusions of the appraiser; demographic indicators;
zoning requirements; current and projected vacancy, construction and
absorption rates; current and projected lease terms, rental rates including
concessions and recent sales prices of comparable properties; current and
projected operating expenses; seismic indicators; economic indicators,
including trends and diversification of the area; and valuation trends,
including discount and direct capitalization rates.
Upon completion, all appraisals are reviewed by RETECHS for completeness and
accuracy and changes are so noted and included in the property valuation
process.
Seismic Review Process
As part of the Wells Fargo appraisal protocol for properties located in
California, the appraiser is required to determine if the property falls
within an Alquist-Priolo Special Studies Zone area required by law to be
listed by the State of California Department of Conservation, Division of
Mines and Geology. The Alquist-Priolo Special Studies Zone Act was signed into
law on December 22, 1972, and went into effect on March 7, 1973. The purpose
of this act is to prohibit the location of most structures of human occupancy
across the traces of active faults and to mitigate thereby the hazards of
fault rupture by regulating the development near active earthquake faults.
Cities and counties affected by the identified zones must limit certain
development projects within the zones unless geologic investigation
demonstrates that the sites are not threatened by surface displacement from
future faulting.
If the property is located in an Alquist-Priolo zone, Wells Fargo places
contingencies on closing the transaction during the appraisal review process.
The contingencies include obtaining a seismic engineering report and an
estimate of Probable Maximum Loss ("PML"). The seismic engineering report
reviews the construction and age of the building in relation to current
building codes. Generally, any transaction resulting in a PML in excess of 20
percent, except in the case of extremely low-leveraged transactions, would
most likely be declined.
Certain types of buildings, regardless of location, create elevated levels
of seismic risk and loans secured by these properties are generally granted on
an exception basis. Buildings that are constructed of unreinforced
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masonry, for example, may be acceptable as collateral if seismic engineering
and PML evaluations indicate less than 20 percent PML. In addition, for
properties located in certain ZIP codes in the Northridge area of Southern
California as identified by Los Angeles County regulations, the appraiser is
responsible for identification of structural steel buildings. Structural steel
buildings in this area are subject to special inspection requirements to
identify any excessive damages from previous earthquakes, and are accepted as
collateral only after any required remediation is identified and accomplished.
Economic Underwriting Analysis
Net operating income and cash flow from the property that is available for
debt service is projected by the underwriter and analyzed and compared with
operating statement and appraisal cash flows. The credit analysis focuses on
the Borrower's overall financial condition and ability to make payments on the
related Mortgage Loan, taking into account the possibility that high vacancy
rates or other circumstances might cause the Borrower to incur additional
costs exceeding its original projected operating expenses. A comparative
analysis is performed to derive the final cash flow available for debt
service. Such analysis includes a review of historical operating statements;
rent rolls; rental rates, including the impact of concessions; economic
vacancy; management fees; operating expenses, including repair and replacement
reserves; and reserves for future tenant improvements and lease commission
costs.
Borrower Underwriting
Wells Fargo conducts a credit investigation on all applicants. If the
sources reveal unsatisfactory or derogatory credit history, additional
investigations may be conducted before Wells Fargo approves the application.
Each applicant must provide the following information in order for the loan
to be originated: annual and year-to-date financial statements; standard form
real estate schedule containing complete financial and operating information
on other projects owned by the borrower; last three-years tax returns on the
applicants or key principals; and current mortgage and deposit account
statements.
Environmental Inspections
RETECHS orders a Phase I environmental report and, if applicable, Phase II
reports from a RETECHS-approved, qualified consultant. RETECHS has established
a standard "scope of work" covering the investigation of potential liabilities
associated with Wells Fargo real estate transactions. The primary goals of the
environmental investigations are to identify environmental risk associated
with properties and/or operations considered for collateral or foreclosure-
related activities and to minimize the effect of environmental risk such as
collateral devaluation or credit deterioration resulting from environmental
liabilities.
When received, the Phase I report (and/or Phase II, if applicable) is
reviewed by the loan underwriter and RETECHS is consulted if any exception or
recommendation is noted and any such exception or recommendation will be acted
upon in conjunction with RETECHS.
Credit Approval
Loans are underwritten by a staff of 15 located in various areas of the
country and are designated specifically to support this program. When
completed, the credit justifications are submitted to either a senior
underwriter with an approval limit of $5 million, a credit manager with an
approval limit of $10 million, and/or to a senior credit officer with an
approval limit of $25 million. Credit personnel with approval authority
reflect a minimum of 8 years of real estate lending experience to senior
management with over 20 years experience in the real estate industry.
REPRESENTATIONS AND WARRANTIES
The Seller will make certain limited representations and warranties as to
the status of the mortgages securing the Mortgage Loans, the payment status of
the Mortgage Loans and certain other information. The Depositor
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will assign to the Trustee the benefits of such representations and warranties
to the Trustee for the benefit of the Certificateholders. Such representations
and warranties will generally include, among other things: (i) that the
information set forth with respect to each Mortgage Loan in the Mortgage Loan
Purchase Agreement pursuant to which the Mortgage Loans were sold by the
Seller is complete, true and correct in all material respects as of the date
or dates respecting which such information is furnished, except that with
respect to calculations set forth in the schedule of Mortgage Loans based upon
information provided to the Seller from the related Borrowers, the Seller
makes no representation as to the accuracy of the information so provided;
(ii) that each Mortgage Loan was current as to all payments due prior to the
Cut-off Date; (iii) that each Mortgage constitutes a valid, subsisting and
enforceable first lien upon the related Mortgaged Property, subject to certain
exceptions, such as liens for current real estate taxes and assessments not
yet due and payable and other liens none of which materially interferes with
the security intended to be provided by such Mortgage and other customary
exceptions; (iv) that none of the terms of any Mortgage Note or Mortgage which
is currently in effect have been impaired, waived, altered or modified in any
material respect, except by written instruments, all of which are included in
the related Mortgage File; (v) no valid right of rescission, offset, defense
or counterclaim exists as to any Mortgage Loan (including the defense of
usury); (vi) that the Seller has not satisfied, cancelled, released or
subordinated the Mortgage in whole or in material part, or released the
Mortgaged Property in whole or in material part from the lien of the Mortgage,
except any assumption agreement which has been delivered to the Trustee; (vii)
that there is no proceeding pending, or to the best of the Seller's knowledge,
threatened for the total or partial condemnation of any Mortgaged Property;
(viii) that the lien of each Mortgage is insured by an ALTA lender's title
insurance policy (or a binding commitment therefor) or an equivalent lender's
title policy (or binding commitment therefor) insuring the Seller as to the
first priority lien of the Mortgage in the original principal amount of the
Mortgage Loan; (ix) that the proceeds of each Mortgage Loan have been fully
disbursed and there is no requirement for future advances thereunder; (x) that
to the Seller's knowledge there is no default, breach, violation or event of
acceleration under any Mortgage Loan which would impair the value of such
Mortgage Loan in any material respect; (xi) that each Mortgaged Property and
all improvements, thereon are insured against loss by fire and other hazards;
(xii) that the Mortgage Note and documents relating to the Mortgage Loan are
genuine and each is the legal, valid and binding obligation of the maker
thereof, subject to certain customary exceptions; (xiii) that as of the date
of origination of any Mortgage Loan and to Seller's knowledge, as of the
Closing Date, all taxes, governmental assessments, insurance premiums, water
sewer and municipal charges affecting any Mortgage Property which previously
became due and owing have been paid; (xiv) that there are no mechanics' or
similar liens or claims filed for work, labor or material, affecting the
related Mortgaged Property and which are or may be a lien prior to, or equal
or coordinate with, the lien of the related Mortgage; (xv) that the Mortgaged
Property consists of a fee simple or leasehold estate in real property
improved by a multifamily, office, retail, industrial or other commercial
building; (xvi) that no Mortgage Loan has a shared appreciation feature or
other contingent interest feature; (xvii) that each Mortgage Loan has a due on
sale provision providing for the acceleration of the payment of the unpaid
principal balance of the Mortgage Loan if, without the prior written consent
of the mortgagee, the property subject to the Mortgage, or any interest
therein, is directly or indirectly transferred or sold, except to the extent
permitted under the terms of the Mortgage; (xviii) that the Seller has not
advanced funds for the payment of principal and interest, taxes, insurance
premiums or any other material amount required by the Mortgage, except for
interest accruing from the date of the Mortgage Note or date of disbursement
of the Mortgage proceeds, whichever is greater, to the day which precedes by
one month the due date of the first installment of principal and interest;
(xix) that a third party unaffiliated with the Seller has conducted a "Phase
I" environmental assessment on the Mortgaged Property, and based on Seller's
review of such assessment, either Seller or such third party has concluded
that no environmental condition exists on the Mortgaged Property which could
have a material adverse effect on the value of the Mortgaged Property; (xx)
that each Mortgage Loan is principally secured by an interest in real property
within the meaning of Treasury Regulation Section 1.860G-2(a)(1); (xxi) each
Mortgage file for any Mortgage Loan contains a security agreement and an
assignment of rents which creates a valid, subsisting and enforceable lien in
all of the Borrower's leases, subleases, licenses and other agreements
relating to the related Mortgaged Property and other customary exceptions;
(xxii) as of the date of origination of any Mortgaged Property and, to the
Seller's knowledge, as of the Closing Date, no improvement located on or which
is a part of the related Mortgaged Property is in violation of any applicable
zoning law or regulation (subject to violations which the related
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Borrower is obligated to cure); (xxiii) to the Seller's knowledge, all
inspections, licenses and certificates, including certificates of occupancy,
to be made or issued with respect to the Mortgaged Properties have been made
or obtained; (xxiv) all improvements which were considered in determining the
appraised value of each Mortgaged Property lie within the boundaries and
building restriction lines of such Mortgaged Property, except as described in
the related title policy; (xxv) the Mortgage Loans were originated by the
Seller and are being transferred to the Depositor by the Seller free and clear
of any liens, pledges or security interests; (xxvi) each Mortgage Note is not
and has not been secured by any collateral except the lien of the
corresponding Mortgage and, if applicable, Security Agreement; (xxvii) in
connection with the origination of each Mortgage Loan, each related Mortgaged
Property was appraised by a qualified appraiser; (xxviii) each Mortgage Loan
is a non-recourse loan to the related Borrower, except for fraud and certain
environmental indemnities and other customary recourse provisions; and (xxix)
to the Seller's knowledge, no Borrower is a debtor in any federal or state
bankruptcy or insolvency proceeding.
For a discussion of the consequences of a breach of any representation or
warranty made by the Seller, see "THE MORTGAGE POOLS--Representations and
Warranties" in the Prospectus.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Commercial Mortgage Pass-Through Certificates, Series 1995-WF1 (the
"Certificates") will be comprised of the Class A-1 Certificates, Class A-2
Certificates, Class A-X Certificates, Class B Certificates, Class C
Certificates, Class D Certificates, Class E Certificates, Class F
Certificates, Class G Certificates and the Class R-I and Class R-II
Certificates (together, the "Residual Certificates"). Only the Class A-1,
Class A-2, Class B, Class C and Class D Certificates (collectively, the
"Offered Certificates") are offered hereby.
The Certificates (other than the Class R-I Certificates) will evidence
beneficial ownership interests in a trust fund, the assets of which, together
with the Class R-I Certificates, will constitute all of the beneficial
interest in another trust fund (the "Trust Fund") to be created by CS First
Boston Mortgage Securities Corp. (the "Depositor"), which will hold interests
in a pool (the "Mortgage Pool") of fixed-rate mortgage loans (the "Mortgage
Loans") secured by mortgages on commercial and multifamily properties held in
trust for the benefit of the holders of the Certificates (the
"Certificateholders"). Wells Fargo Bank, National Association (in its capacity
as seller of the Mortgage Loans, the "Seller") will sell the Mortgage Loans to
the Depositor on the Delivery Date.
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement. Reference is made to the accompanying Prospectus for important
additional information regarding the terms and conditions of the Pooling and
Servicing Agreement and the Certificates, provided that the information
contained herein supersedes any contrary information set forth in the
Prospectus. An "Index of Terms" is included at the end of this Prospectus
Supplement. The following summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, the
provisions of the Pooling and Servicing Agreement. When particular provisions
or terms used in the Pooling and Servicing Agreement are referred to, the
actual provisions (including definitions of terms) are incorporated by
reference.
As described in the Prospectus under "ENHANCEMENT--Subordinate
Certificates," the Class B, Class C, Class D, Class E, Class F, Class G and
Residual Certificates are "Subordinate Certificates" relative to the Class A-
1, Class A-2 and Class A-X Certificates, the Class C, Class D, Class E, Class
F, Class G and Residual Certificates are "Subordinate Certificates" relative
to the Class B Certificates, the Class D, Class E, Class F, Class G and
Residual Certificates are "Subordinate Certificates" relative to the Class C
Certificates and the Class E, Class F, Class G and Residual Certificates are
"Subordinate Certificates" relative to the Class D Certificates. See "--
Subordination; Allocation of Realized Losses and Certain Expenses" herein.
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The Offered Certificates will be available to investors only in book-entry
form (the "Book-Entry Certificates") through the facilities of The Depository
Trust Company ("DTC"). Beneficial interests in the Book-Entry Certificates
will be shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants. Physical certificates will be
available only under certain limited circumstances as described herein.
Distribution of principal and interest in respect of the Book-Entry
Certificates will be made as set forth in "--Book-Entry Registration" below.
The Offered Certificates will be issued in denominations of $100,000 and
integral multiples of $1,000 in excess thereof; provided, however, that one
Certificate of each Class may be issued in an amount representing the
remainder of such Class, which remainder Certificate with respect to any Class
will not be a Book-Entry Certificate.
BOOK-ENTRY REGISTRATION
The Book-Entry Certificates will initially be represented by one Certificate
registered in the name of the nominee of DTC. DTC has advised the Depositor
that DTC's nominee will be Cede & Co. ("Cede"). Accordingly, Cede is expected
to be the holder of record of the Book-Entry Certificates. No holder of a
Book-Entry Certificate will be entitled to receive a certificate representing
such person's interest in its Certificate. Unless and until Definitive
Certificates (defined below) are issued under the limited circumstances
described herein, all references herein to actions by holders of Book-Entry
Certificates shall refer to actions taken by DTC upon instructions from DTC
Participants (defined below), and all references herein to distributions,
notices, reports, and statements to holders of Book-Entry Certificates shall
refer to distributions, notices, reports and statements to Cede, as the
registered holder of the Book-Entry Certificates, for distribution to holders
of Book-Entry Certificates in accordance with DTC procedures. See "--
Definitive Certificates" herein.
Certificateholders may hold their Book-Entry Certificates through DTC if
they are DTC Participants, or indirectly through organizations which are DTC
Participants. Transfers between DTC Participants will occur in accordance with
DTC rules.
DTC has advised the Depositor that it 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, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code (the "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 ("DTC
Participants") and facilitate the clearance and settlement of securities
transactions between DTC Participants through electronic computerized book-
entry changes in accounts of DTC Participants, thereby eliminating the need
for physical movement of certificates. DTC Participants include CS First
Boston Corporation, Morgan Stanley & Co. Incorporated, other 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 other entities, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly ("Indirect DTC Participants"). The
rules applicable to DTC, DTC Participants and Indirect DTC Participants are on
file with the Securities and Exchange Commission.
Certificateholders that are not DTC Participants but desire to purchase,
sell or otherwise transfer ownership of or other interests in Book-Entry
Certificates may do so only through DTC Participants. In addition, unless
Definitive Certificates are issued, holders of Offered Certificates will
receive all distributions of principal of and interest on such Certificates
through DTC Participants. Under a book-entry format, holders of Book-Entry
Certificates will receive payments after the related Distribution Date
because, while payments are required to be forwarded to Cede, as nominee for
DTC, on each such date, DTC will forward such payments to DTC Participants
which thereafter will be required to forward them to Indirect DTC Participants
or holders of Book-Entry Certificates. Unless Definitive Certificates are
issued as described below, the sole holder of Book-Entry Certificates will be
Cede, as nominee of DTC, and Certificateholders will not be recognized by the
Trustee as
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holders of Book-Entry Certificates under the Pooling and Servicing Agreement.
Holders of Book-Entry Certificates will be permitted to exercise the rights of
Certificateholders under the Pooling and Servicing Agreement only indirectly
through DTC Participants, who in turn will exercise their rights through DTC.
Under the rules, regulations, and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers
among DTC Participants on whose behalf it acts with respect to the Book-Entry
Certificates and is required to receive and transmit through DTC payments of
principal of and interest, if any, on such Book-Entry Certificates. DTC
Participants and Indirect DTC Participants with which holders of Book-Entry
Certificates have accounts similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective holders
of Book-Entry Certificates. Accordingly, although owners of Book-Entry
Certificates will not possess Definitive Certificates, the Rules provide a
mechanism by which owners of the Book-Entry Certificates through their DTC
Participants will receive payments and will be able to transfer their
interest.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and certain banks, the ability of a
Certificateholder to pledge Book-Entry Certificates to persons or entities
that do not participate in the DTC system, or otherwise take actions in
respect of 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 Book-Entry Certificates under the Pooling and Servicing
Agreement only at the direction of one or more DTC Participants to whose
account with DTC the Book-Entry Certificates are credited. Additionally, DTC
has advised the Depositor that it will take such actions with respect to a
Book-Entry Certificate only at the direction of and on behalf of the DTC
Participant whose holdings include that Certificate. DTC may take conflicting
actions with respect to other Book-Entry Certificates to the extent that such
actions are taken on behalf of DTC Participants whose holdings include such
Certificates.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of Book-Entry Certificates among DTC Participants, it is under no
obligation to perform or continue to perform such procedures and such
procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
The Offered Certificates will be in fully registered, certificated form
("Definitive Certificates") issued to Certificateholders or their nominees,
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 discharge properly
its responsibilities as depository with respect to the Book-Entry Certificates
and the Trustee and the Depositor are unable to locate a qualified successor,
(ii) the Depositor, at its option, elects to terminate the book-entry system
through DTC or (iii) after the occurrence of an event of default under the
Pooling and Servicing Agreement, holders of Book-Entry Certificates evidencing
not less than 66% of the aggregate outstanding Certificate Principal Balance
advise the Trustee and 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 interests of the holders of such Certificates.
Upon notice of the occurrence of any of the events described in the
preceding paragraph, DTC is required to notify all DTC Participants of the
availability of Definitive Certificates. Upon surrender by DTC of the global
Certificate of the Book-Entry Certificates and receipt from DTC of
instructions for re-registration, the Trustee will issue such Certificates in
the form of Definitive Certificates, and thereafter the Trustee will recognize
the holders of such Definitive Certificates as Certificateholders under the
Pooling and Servicing Agreement.
Distributions of principal and interest on the Definitive Certificates will
be made by the Trustee (or its duly appointed paying agent, if any) directly
to holders of Definitive Certificates in accordance with the procedures set
forth in the Pooling and Servicing Agreement and summarized herein. Interest
and principal payments will be made on the twenty-first day of each month (or,
if such day is not a business day, on the following business
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day), commencing January 22, 1996 (each a "Distribution Date"). Such payments
will be made to holders in whose names the Definitive Certificates were
registered at the close of business on the last day of the month preceding the
month in which such related Distribution Date occurs (the "Record Date").
Distributions will be made by wire transfer in immediately available funds for
the account of each holder whose initial Certificate Principal Balance is not
less than $5,000,000 (or, in the case of any Class of Certificates, for the
account of each holder whose initial percentage interest of such Class is
100%) and who has provided appropriate wire instructions to the Trustee, and
to every other holder, by check mailed to the address of such holder as it
appears on the certificate register. The final payment on any Certificate
(whether a Definitive Certificate or a global Certificate registered in the
name of Cede) will be made only upon presentation and surrender of such
Certificate at the offices of the Trustee or its agent or such office or
agency as is specified in the notice of final distribution to holders of
Certificates being retired.
Definitive Certificates will be transferable and exchangeable at the offices
of the Trustee or its agent. Definitive Certificates surrendered to the
Trustee for registration of transfer or exchange must be accompanied by a
written instrument of transfer in form satisfactory to the Trustee. No service
charge will be made for any registration of transfer or exchange of
Certificates, but payment of a sum sufficient to cover any tax or other
governmental charge may be required.
PRINCIPAL AND INTEREST DISTRIBUTIONS
On each Distribution Date, scheduled principal and interest payments (less
the Servicing Fee and Additional Trust Fund Expenses (each as defined herein),
including Balloon Payments (collectively, "Scheduled Payments") due on the
Mortgage Loans during the related Due Period (defined below) and collected on
or prior to the related Determination Date (defined below) or advanced with
respect to such Distribution Date, and Principal Prepayments (defined below)
collected during the related Prepayment Period (defined below), will be
distributed to Certificateholders of record as of the related Record Date.
Interest will accrue on the Certificates with respect to each related
Distribution Date from the first day of the month preceding the month in which
such Distribution Date occurs through the last day of the month preceding the
month in which such Distribution Date occurs (each, an "Interest Accrual
Period").
The "Due Period" with respect to any Distribution Date commences on the
second day of the month preceding the month in which such Distribution Date
occurs and ends on the first day of the month in which such Distribution Date
occurs. A "Principal Prepayment" is any payment or other recovery of principal
on a Mortgage Loan, including Liquidation Proceeds, Repurchase Proceeds and
Insurance Proceeds (each as defined in the Prospectus), received in advance of
their Due Date and not accompanied by an amount as to interest representing
scheduled interest due on any date or dates in any month or months subsequent
to the month of payment. The "Prepayment Period" with respect to any
Distribution Date is the period beginning on the day after the Determination
Date of the month preceding the month in which such Distribution Date occurs
and ends on the Determination Date in the month in which such Distribution
Date occurs. The "Determination Date" with respect to any Distribution Date is
the 11th day of the month in which such Distribution Date occurs (or, if such
day is not a business day, the next succeeding business day).
Distributions of Interest
On each Distribution Date, holders of each Class of Offered Certificates
will be entitled to receive, from the Available Distribution Amount (defined
herein), interest accrued during the related Interest Accrual Period on the
outstanding Certificate Principal Balance (defined below) of such Certificates
immediately preceding such Distribution Date at the per annum rates set forth
below, reduced (to not less than zero) by such Class's allocable share of any
Net Aggregate Prepayment Interest Shortfall (defined herein) for such
Distribution Date (such amounts payable to holders of the Certificates of any
Class, the "Interest Distribution Amount" for such Class). The Net Aggregate
Prepayment Interest Shortfall for any Distribution Date will be allocated
among the respective Classes of Certificates, pro rata, in accordance with the
respective amounts of interest accrued for such Classes for such Distribution
Date. For so long as a more senior Class of Certificates is outstanding, the
amount of interest otherwise distributable on such Distribution Date to each
Class of Certificates to which an
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Appraisal Reduction is allocated on such Distribution Date will be reduced by
the amount of interest accrued at the applicable Certificate Rate on the
portion of the Certificate Principal Balance of such Class equal to the
Appraisal Reduction Capitalization Amount (defined herein) allocated to such
Class for such Distribution Date. See "--Prepayment Interest Shortfalls and
Excess Prepayment Interest" and "--Appraisal Reductions" herein.
"Certificate Principal Balance" means, with respect to any Certificate or
Class of Certificates (other than the Class A-X Certificates), as of any
Distribution Date, the initial principal amount set forth on the face of such
Certificate (or, in the case of a Class of Certificates, the aggregate of such
amounts for the Certificates of such Class), as increased by any Deferred
Interest (defined below) and any Appraisal Reduction Capitalization Amount
added to such principal amount, as described herein, less (i) the amount of
all principal distributions previously made with respect to such Certificate
or Class, (ii) all Realized Losses (defined below) allocated to such
Certificate or Class and (iii) for the purpose of determining distributions of
interest on such Distribution Date and Voting Rights, all Appraisal Reductions
allocated to such Certificate or Class pursuant to the Pooling and Servicing
Agreement.
The interest rates for the Offered Certificates (each, a "Certificate Rate,"
which term has the same meaning as the term "Pass-Through Rate" in the
Prospectus) are set forth below: During each Interest Accrual Period, the
Class A-1, Class A-2, Class B, Class C and Class D Certificates will bear
interest at a rate per annum (the "Class A-1 Certificate Rate," the "Class A-2
Certificate Rate," the "Class B Certificate Rate," the "Class C Certificate
Rate" and the "Class D Certificate Rate," respectively) equal to %, %, %,
% and %, respectively.
See "YIELD CONSIDERATIONS" and "DESCRIPTION OF THE MORTGAGE POOL AND THE
UNDERLYING MORTGAGED PROPERTIES" herein.
Deferred Interest
As of the Cut-off Date, no Mortgage Loan provides for Deferred Interest
(defined below). However, if a modification to any Mortgage Loan causes any
portion of the interest accrued on such Mortgage Loan in any month to be
deferred (such amount, "Deferred Interest"), such portion will be added to the
principal balance of such Mortgage Loan. On each Distribution Date on which
the portion of the Available Distribution Amount (defined herein) allocable to
interest on the Mortgage Loans is insufficient to pay interest accrued on the
Certificates as a result of Deferred Interest on the Mortgage Loans, such
Deferred Interest will (i) reduce the Interest Distribution Amount payable to
the holders of the Class G, Class F, Class E, Class D, Class C and Class B
Certificates, in that order, and finally, the Class A-1 and Class A-2
Certificates, pro rata, in proportion to the respective amounts of interest
accrued thereon, and (ii) will be added to the Certificate Principal Balances
of the Class G, Class F, Class E, Class D, Class C, Class B, Class A-1 and
Class A-2 Certificates, to the extent of the reduction in the Interest
Distribution Amount payable to the holders of such Classes.
Distributions of Principal
On each Distribution Date, to the extent the Available Distribution Amount
on such Distribution Date is sufficient therefor, distributions in respect of
principal will be made on the Certificates in an aggregate amount equal to the
related Principal Distribution Amount (defined below) for such Distribution
Date. Such distributions in respect of principal will be made on each
Distribution Date in the order of priority described under "--Priority of
Distributions" below, and, to the extent made in respect of any Class, will
reduce the aggregate Certificate Principal Balance of such Class.
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"Principal Distribution Amount" means with respect to the Classes of
Certificates then entitled to payments of principal, on any Distribution Date,
the sum of (i) the principal portion of Scheduled Payments due on the related
Due Date on each Mortgage Loan, to the extent received or advanced prior to
the related Determination Date, (ii) for each Mortgage Loan which was
repurchased during the related Prepayment Period pursuant to the Pooling and
Servicing Agreement, the principal amount of the Purchase Price (net of
amounts with respect to which a distribution of principal has already been
made) (as defined below), (iii) any other Principal Prepayments and other
unscheduled collections of principal received with respect to Mortgage Loans
during the related Prepayment Period and (iv) to the extent actually paid by
the related Borrower, the related Appraisal Reduction Capitalization Amounts
(as defined herein) for such Distribution Date.
Available Distribution Amount
The "Available Distribution Amount" for any Distribution Date generally
equals the aggregate of (i) Monthly Payments on the Mortgage Loans due during
the related Due Period and received on or prior to the related Determination
Date, (ii) Principal Prepayments and other unscheduled collections of
principal received during the related Prepayment Period, (iii) Advances
(defined herein) with respect to the Mortgage Loans made by the Master
Servicer, the Trustee or the Fiscal Agent with respect to such Distribution
Date and (iv) amounts relating to REO Properties required to be deposited from
time to time in the Collection Account pursuant to the Pooling and Servicing
Agreement, less the sum of:
(a) all Monthly Payments collected but due on a date subsequent to the
related Due Date;
(b) all other collections allocable to principal (or applied as
recoveries of principal) received after the related Prepayment Period
(together with any interest with respect thereto for periods after the
related Determination Date); and
(c) all amounts that are currently due or reimbursable to the Master
Servicer, the Special Servicer, the Trustee or the Fiscal Agent (including
the Servicing Fee, any Special Servicing Fee, Extension Fee and Workout
Fee, any indemnification payments, and reimbursement of Advances and
Property Protection Advances (defined herein)) or other Additional Trust
Fund Expenses, in each case plus interest from the date paid at the Prime
Rate (defined herein).
Priority of Distributions
On each Distribution Date, the Available Distribution Amount will be paid in
the following order of priority:
(i) to the Class A-1, Class A-2 and Class A-X Certificates, pro rata, in
respect of interest, in an amount equal to the Interest Distribution Amount
in respect of each such class of Certificates for such Distribution Date
and, to the extent not previously paid, for all prior Distribution Dates;
(ii) to the Class A-1 Certificates in reduction of their Certificate
Principal Balance, the Principal Distribution Amount until the Certificate
Principal Balance thereof has been reduced to zero;
(iii) to the Class A-2 Certificates in reduction of their Certificate
Principal Balance, the Principal Distribution Amount until the Certificate
Principal Balance thereof has been reduced to zero;
(iv) to the Class B Certificates in respect of interest, in an amount
equal to the Interest Distribution Amount in respect of such class of
Certificates for such Distribution Date and, to the extent not previously
paid, for all prior Distribution Dates;
(v) to the Class B Certificates in reduction of their Certificate
Principal Balance, the Principal Distribution Amount until the Certificate
Principal Balance thereof has been reduced to zero;
(vi) to the Class C Certificates in respect of interest, in an amount
equal to the Interest Distribution Amount in respect of such class of
Certificates for such Distribution Date and, to the extent not previously
paid, for all prior Distribution Dates;
(vii) to the Class C Certificates in reduction of their Certificate
Principal Balance, the Principal Distribution Amount until the Certificate
Principal Balance thereof has been reduced to zero;
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(viii) to the Class D Certificates in respect of interest, in an amount
equal to the Interest Distribution Amount in respect of such class of
Certificates for such Distribution Date and, to the extent not previously
paid, for all prior Distribution Dates;
(ix) to the Class D Certificates in reduction of their Certificate
Principal Balance, the Principal Distribution Amount until the Certificate
Principal Balance thereof has been reduced to zero; and
(x) to the Class E, Class F and Class G Certificates in payment of
interest and principal thereof in accordance with the priorities set forth
in the Pooling and Servicing Agreement.
After the Class A-1, Class A-2, Class A-X, Class B, Class C, Class D, Class
E, Class F and Class G Certificates receive all payments due to them, all
remaining amounts received on the Mortgage Loans will be paid to the holders
of the Residual Certificates.
Distributions of Prepayment Premiums
Any Prepayment Premiums actually collected on the Mortgage Loans will be
distributed to the holders of the Class A-X Certificates separately from the
Available Distribution Amount. The Depositor makes no representation as to the
enforceability of the provision of any Mortgage Note requiring the payment of
a Prepayment Premium, or of the collectability of any Prepayment Premium.
Prepayment Interest Shortfalls and Excess Prepayment Interest
When a voluntary Principal Prepayment is made between Due Dates or certain
involuntary prepayments are received, a full month's interest is generally not
received. The amount of any such interest shortfalls (a "Prepayment Interest
Shortfall") will first be offset by any Excess Prepayment Interest (defined
below) and the Servicing Fee to the extent described herein and any remaining
interest shortfall (each, a "Net Aggregate Prepayment Interest Shortfall")
will be allocated pro rata in accordance with the respective amounts of
interest accrued for each Class of Certificates for such Distribution Date, in
each case in reduction of the Interest Distribution Amounts for such Classes
of Certificates. To the extent that the aggregate of all Prepayment Interest
Shortfalls for all Mortgage Loans for any Distribution Date exceeds the
aggregate of all Excess Prepayment Interest for all Mortgage Loans for such
Distribution Date, the Servicing Fee for the corresponding period will be
reduced in an amount necessary (up to one-twelfth of the difference between
(i) the Servicing Fee Rate and (ii) the per annum rate at which the Trustee's
fees accrue on the Scheduled Principal Balance of each Mortgage Loan) to
offset such additional remaining Prepayment Interest Shortfalls. None of the
Master Servicer, the Special Servicer, the Trustee or the Fiscal Agent shall
have the obligation to make any Advance to cover such Net Aggregate Prepayment
Interest Shortfalls.
If a Principal Prepayment is made during a Prepayment Period but after the
Due Date for such Mortgage Loan, "Excess Prepayment Interest" will arise. The
amount of such Excess Prepayment Interest will equal the interest which
accrues on the Mortgage Loan from the last Due Date for such Mortgage Loan to
the date such Principal Prepayment is made (net of the Servicing Fee). To the
extent that Excess Prepayment Interest for all Mortgage Loans as of any
Distribution Date exceeds the Prepayment Interest Shortfall for all of the
Mortgage Loans as of such Distribution Date, such excess will be payable to
the Master Servicer as additional servicing compensation.
Residual Certificates
The Residual Certificates, representing residual interests in the REMICS,
will not have Certificate Principal Amounts or Certificate Rates assigned
thereto and will be entitled to receive any Available Distribution Amount
remaining on any Distribution Date after the Certificate Principal Balances of
each other Class of Certificates receive all payments due to them and also
will be entitled to receive the proceeds of the remaining assets of the Trust
Fund, if any, after the Certificate Principal Amounts of all of the
Certificates have been reduced to zero.
REPORTS TO CERTIFICATEHOLDERS
The Trustee will provide Certificateholders with periodic statements setting
forth certain information with respect to the Mortgage Loans and distributions
on the Certificates, which shall also include a description
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prepared by the Special Servicer of any material modifications, waivers,
amendments or consents with respect to the Mortgage Loans. The Trustee will
also provide Certificateholders with Specially Serviced Asset Reports (as
defined in the Pooling and Servicing Agreement) prepared by the Special
Servicer from time to time providing information as to the status of each
Specially Serviced Mortgage Loan.
On or about the business day preceding the related Distribution Date of each
month (the "Report Date"), commencing no later than January 1996, the Master
Servicer will prepare and deliver to the Trustee, who shall in turn deliver
the same to the Special Servicer, the Underwriters, the Depositor, anyone the
Depositor or the Underwriters reasonably designate and each Rating Agency, the
Monthly Reports. On or about the Report Date in May of each year, beginning in
May 1996, the Master Servicer will prepare an Annual Report (as defined in the
Pooling and Servicing Agreement) on each Mortgage Loan and deliver such Annual
Report to the Trustee, who shall in turn deliver the same to the Special
Servicer, the Underwriters, the Depositor, anyone the Depositor or the
Underwriters reasonably designate and each Rating Agency. The Trustee will
also forward such Annual Report to Certificateholders and any Beneficial
Holder of Certificates upon presentation of evidence satisfactory to the
Trustee of such beneficial ownership upon written request. The Monthly
Reports, Annual Reports and other reports will be prepared in part based on
information provided to the Master Servicer each month by the Special Servicer
with respect to Specially Serviced Mortgage Loans and by the Borrowers as
required under the terms of the Mortgage Loans. The Monthly Reports will set
forth information with respect to the status of the Mortgage Loans, including,
among other things, the following: (i) stratification of the Mortgage Loan
Principal Balance by state, property type, maturity date and other strata
deemed relevant in the opinion of the Master Servicer, (ii) listing of the
Mortgage Loans and their related Principal Balances, property locations,
current monthly payments and interest rates, most recent debt service
coverage, net operating income and occupancy percentage; (iii) listing of the
aggregate Principal Balances of delinquent Mortgage Loans for the current and
prior months; (iv) listing of each delinquent and Specially Serviced Mortgage
Loan, including information as to its status and its related Principal
Balance, property location, current monthly payment and interest rate, most
recent Debt Service Coverage and Net Operating Income; (v) listing of each REO
Property and its related balance; (vi) listing of each Mortgage Loan on which
a Realized Loss has been incurred, including its balance, and (vii) other
similar information deemed relevant by the Master Servicer.
Until such time as Definitive Certificates are issued in respect of the
Book-Entry Certificates, the foregoing information and access will be
available to the related Certificate Owners only to the extent it is forwarded
by or otherwise available through DTC and its Participants. Any Certificate
Owner who does not receive information through DTC or its Participant may
request that the Trustee reports be mailed directly to it by written request
to the Trustee (accompanied by verification of such Certificate Owner's
ownership interest) at the Trustee's corporate trust office. Certain
information set forth in such Trustee reports is to be available via facsimile
transmission through LaSalle National Bank's ASAP (Automated Statements by
Phone) System by calling (312) 904-2200 and requesting statement number 164.
The manner in which notices and other communications are conveyed by DTC to
Participants, and by Participants to the Certificate Owners, will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time. The Master Servicer, the
Special Servicer, the Trustee and the Depositor are required to recognize as
Certificateholders only those persons in whose names the Certificates are
registered on the books and records of the Certificate Registrar.
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EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of distributions on the
Certificates for the first month of the Trust Fund's existence, assuming the
Certificates are issued in December, 1995:
<TABLE>
<C> <C> <S>
December 1 (A) Cut-off Date.
December 2-January 11 (B) The Master Servicer receives Mortgage Loan
payments due after the Cut-off Date and on or
prior to January 1, the last day of the Due
Period.
December 2-January 1 (C) The Due Period. Mortgage Loan payments due during
this period will be distributed on January 22.
December 2-January 11 (D) The Master Servicer receives any Principal
Prepayments made after the Cut-off Date and on or
prior to January 11.
December 31 (E) Record Date.
January 11 (F) Determination Date.
January 19 (G) Servicer Remittance Date.
January 22 (H) Distribution Date.
Succeeding monthly periods follow the pattern of (B) through (G) (except as
described below).
</TABLE>
- --------
(A) The outstanding principal balance of the Mortgage Loans will be the
aggregate scheduled principal balance of the Mortgage Loans at the close
of business on December 1, 1995 (after deducting principal payments due on
or before such date). Principal payments due on or before such date, and
the accompanying interest payments, are not part of the Trust Fund.
(B) Mortgage Loan payments due after the Cut-off Date and on or prior to
January 1, to the extent collected prior to January 11, the Determination
Date, will be deposited in the Collection Account as described in "--
Collection and Distribution Account" herein. Each subsequent Due Period
will begin on the second day of the month preceding the month in which the
related Distribution Date occurs and end on the first day of the month in
which such Distribution Date occurs. Payments received by the Special
Servicer, if any, will be deposited in the Collection Account.
(C) The Due Period extends from the second day of the month preceding the
month in which the Distribution Date occurs and ending on the first day of
the month in which such Distribution Date occurs.
(D) Any Principal Prepayments received after the Cut-off Date and on or prior
to January 11, 1996 will be deposited in the Collection Account as
described in "--Collection and Distribution Account" herein. Each
subsequent Prepayment Period will begin on the day after the Determination
Date of the month preceding the month in which the related Distribution
Date occurs and ends on the Determination Date of the month in which the
related Distribution Date occurs. Neither the Seller, the Master Servicer
nor the Special Servicer will be obligated to compensate a full month's
payment of interest with respect to Principal Prepayments. The amount of
any Prepayment Interest Shortfalls will be allocated as described
under""--Principal and Interest Distributions--Prepayment Interest
Shortfalls and Excess Prepayment Interest" herein.
(E) Distributions on the next Distribution Date will be made to those persons
that are Certificateholders of record.
(F) As of the close of business on the Determination Date, the Master Servicer
will have determined the amounts of principal and interest that will be
remitted to the Distribution Account. Payments will be remitted from the
Distribution Account to the Certificateholders.
(G) On or before 1:00 p.m., New York City time, on the business day prior to
the Initial Distribution Date (any such business day prior to a
Distribution Date, a "Servicer Remittance Date"), the Master Servicer will
remit to the Trustee for deposit into the Distribution Account the
Available Distribution Amount for such Distribution Date, including any
Advances it has determined it must make pursuant to the terms of the
Pooling and Servicing Agreement. To the extent the Master Servicer fails
to make an Advance, the Trustee will make such Advance, and to the extent
the Trustee fails to make an Advance, the Fiscal Agent will make such
Advance, in each case to the extent it has determined such Advance must be
made pursuant to the terms of the Pooling and Servicing Agreement.
(H) The Trustee will make distributions to Certificateholders on the 21st day
of each month or, if such day is not a business day, the next succeeding
business day.
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TREATMENT OF REO PROPERTIES
Notwithstanding that any Mortgaged Property may be acquired on behalf of the
Trust through foreclosure, deed in lieu of foreclosure or otherwise, the
related Mortgage Loan will be treated, for purposes of determining
distributions on the Certificates, allocations of Realized Losses to the
Certificates, and the amount of fees payable to the Master Servicer and the
Special Servicer, as having remained outstanding until such REO Property is
liquidated. In connection therewith, operating revenues and other proceeds
derived from such REO Property (exclusive of related operating costs,
including certain reimbursements payable to the Master Servicer or the Special
Servicer in connection with the operation or disposition of such REO Property)
will be "applied" by the Servicer as interest, principal and other amounts
"due" on such Mortgage Loan, in that order, and the Master Servicer will be
obligated to make Monthly Advances in respect of such Mortgage Loan, in all
cases as if such Mortgage Loan had remained outstanding except to the extent
the Master Servicer's obligation to make Advances is reduced by the creation
of an Appraisal Reduction. See "SERVICING--Advances" and "DESCRIPTION OF THE
CERTIFICATES--Appraisal Reductions" herein.
COLLECTION AND DISTRIBUTION ACCOUNT
Except as described below, all payments and collections in respect of the
Mortgage Loans will be deposited within one business day after receipt in an
account (the "Collection Account") which is an "eligible account" as provided
for in the Pooling and Servicing Agreement and which is established and
maintained by the Master Servicer in the name of the Trustee with a depository
institution and in a manner acceptable to the rating agencies then rating the
Certificates (the "Rating Agencies"). No later than the business day prior to
each Distribution Date, the Master Servicer will remit to an account (the
"Distribution Account" which is also required to be an "eligible account"), to
be maintained by the Trustee, the portion of the Available Distribution Amount
for the related Distribution Date then on deposit in the Collection Account,
(including any Advances to the extent not otherwise included in the Available
Distribution Amount made by the Master Servicer, that are available to be
distributed to the Certificateholders on such Distribution Date) and any
amounts to be deposited therein by the Master Servicer in connection with any
losses realized on investments with respect to funds held in the Collection
Account and in the Distribution Account as required under the Pooling and
Servicing Agreement. Such funds will be available to make distributions of
interest on, and in reduction of the Certificate Principal Balance of, the
Certificates on each Distribution Date. See "DESCRIPTION OF THE CERTIFICATES--
Accounts" in the Prospectus.
MODIFIED LOCK-BOX ACCOUNTS
From time to time, with respect to any Mortgage Loan or Specially Serviced
Mortgage Loan, if required by the terms of the related Mortgage (or if
applicable, any Cash Management Agreement), the Master Servicer or the Special
Servicer, as the case may be, shall require the Borrower to establish and
maintain one or more accounts with Wells Fargo Bank (a "Modified Lock-Box
Account"). Such accounts will not be part of the Trust Fund. The property
manager with respect to the related Mortgaged Property is required to deposit
all collections from such Mortgaged Property in the Modified Lock-Box Account
until the monthly payment amount has been deposited therein, or in the event
of default by the related Mortgagor all such collections. At the end of each
month, Wells Fargo collects all funds on deposit in the Modified Lock-Box
Account and applies such collections toward the Monthly Payment on the
Mortgage Loan.
SUBORDINATION; ALLOCATION OF REALIZED LOSSES AND CERTAIN EXPENSES
If a Realized Loss (defined below) of principal with respect to the Mortgage
Loans is incurred during a Due Period, such Realized Loss will be allocated to
the Class G, Class F, Class E, Class D, Class C and Class B Certificates, in
that order, and then to the Class A-1 and Class A-2 Certificates, pro rata,
until the Certificate Principal Balance of each such Class has been reduced to
zero. Realized Losses of principal with respect to the Mortgage Loans will be
allocated among the Certificates of any Class in proportion to their
outstanding Certificate Principal Balances. Any such allocation of Realized
Losses on a Distribution Date will be made by reducing the Certificate
Principal Balance thereof by the amount so allocated, which allocation shall
be deemed
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to have occurred on such Distribution Date. Realized Losses of interest with
respect to the Mortgage Loans will be allocated to (and will reduce the
interest payable on) the Class G, Class F, Class E, Class D, Class C and Class
B Certificates, in that order, and then to the Class A-1, Class A-2 and Class
A-X Certificates, pro rata, based on the interest otherwise payable to each
Class of Certificates on such Distribution Date. Any Additional Trust Fund
Expenses with respect to any Distribution Date will reduce the Available
Distribution Amount for such Distribution Date. See "DESCRIPTION OF THE
CERTIFICATES--Principal and Interest Distributions--Available Distribution
Amount" and "--Priority of Distributions" herein.
"Realized Loss" means (i) with respect to any Liquidated Loan (defined
below), the excess, if any, of the principal balance of each Liquidated Loan
immediately prior to liquidation or sale, together with accrued and unpaid
interest thereon reduced by any unreimbursed Advances, Property Protection
Advances, Servicing Fees, Special Servicing Fees and Workout Fees made with
respect thereto, including (without duplication) interest thereon at the Prime
Rate (defined herein) and attorney's fees and other costs and expenses
incurred in connection with a foreclosure, over the liquidation or sale
proceeds, if any, received in connection with such Liquidated Loan, after
application of all withdrawals permitted to be made by the Master Servicer
pursuant to the Pooling and Servicing Agreement, (ii) with respect to any
Mortgage Loan that has become subject to a valuation by a final order
confirming a Chapter 11 plan of reorganization by a court of competent
jurisdiction of the Mortgaged Property in an amount less than the then
outstanding indebtedness under the Mortgage Loan, which valuation (a
"Deficient Valuation") results from a confirmed plan of reorganization in a
Chapter 11 proceeding (a "Bankruptcy Proceeding") under the United States
Bankruptcy Code, as amended from time to time (11 U.S.C.), the excess of the
outstanding principal balance of such Mortgage Loan over the principal amount
as reduced in the Deficient Valuation, or (iii) with respect to any Mortgage
Loan as to which the amount of the Monthly Payment has been reduced in a
Bankruptcy Proceeding by a final order confirming a Chapter 11 plan of
reorganization (a "Debt Service Reduction"), the present value of all monthly
Debt Service Reductions on such Mortgage Loan, assuming that the Borrower pays
each Scheduled Payment on the applicable Due Date and that no principal
prepayments are received with respect to such Mortgage Loan, discounted
monthly at the applicable Mortgage Interest Rate. If any portion of the debt
due under a Mortgage Loan is forgiven, whether in connection with a
modification, waiver or amendment granted or agreed to by the Special
Servicer, the amount so forgiven will also be treated as a Realized Loss. The
effect of the accrual of interest on Advances or Property Protection Advances
made by the Master Servicer will be to increase the amount of the Realized
Loss on the related Mortgage Loan.
"Liquidated Loan" means a Mortgage Loan that has been liquidated or sold to
any third party through deed in lieu of foreclosure, sale in foreclosure,
trustee's sale or other realization or sale, or with respect to which payment
under related hazard insurance and/or from any public governmental authority
on account of a taking or condemnation of any such property has been received
and as to which, in the best judgment of the Special Servicer, no further
proceeds will be received and any Mortgage Loan as to which, in the best
judgment of the Special Servicer, no further proceeds will be received.
"Additional Trust Fund Expenses" include (i) any Special Servicer
compensation paid to the Special Servicer, (ii) any interest paid to the
Master Servicer, the Trustee or the Fiscal Agent in respect of unreimbursed
Advances, and (iii) all other expenses of the Trust Fund permitted to be
reimbursed out of the Collection Account, including, without limitation,
Mortgage Loan and non-Mortgage Loan specific expenses, reimbursements
permitted under the Pooling and Servicing Agreement to the Trustee, the Master
Servicer or the Special Servicer for expenses incurred, and federal, state and
local taxes and tax related expenses (net of recoveries received in any such
month). Additional Trust Fund Expenses will reduce amounts payable to
Certificateholders and, subject to the priority of distributions described
herein, may result in a loss on one or more Classes of Offered Certificates.
APPRAISAL REDUCTIONS
Within 45 days after the earliest to occur of (i) the date on which a change
in the payment rate, principal balance or amortization terms (each, a "Money
Term") or in the stated maturity of any Specially Serviced
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Mortgage Loan becomes effective as a result of a modification of such Mortgage
Loan by the Special Servicer, (ii) 90 days after the date on which an uncured
delinquency occurs in respect of a Mortgage Loan, (iii) 60 days after the date
on which a receiver is appointed (if such appointment remains in effect during
such 60-day period) in respect of a Mortgaged Property or (iv) as soon as
reasonably practical after the date on which a Mortgaged Property becomes an
REO Property (defined below), an MAI appraisal will be obtained by the Special
Servicer at the expense of the Trust Fund (except if an appraisal has been
conducted within the 12-month period preceding such event). As a result of
such appraisal, an Appraisal Reduction may be created, which Appraisal
Reduction will be allocated, for purposes of determining distributions of
interest, to the Certificates in the manner and priority described below.
The "Appraisal Reduction" for any Distribution Date with respect to any
Mortgage Loan will be an amount equal to the excess of (a) the principal
balance of such Mortgage Loan over (b) the excess, if any, of (i) 90% of the
appraised value of such Mortgaged Property as determined by such independent
appraisal of the Mortgaged Property (and other additional collateral) securing
such Mortgage Loan over (ii) the sum of (A) to the extent not previously
advanced by the Master Servicer, all unpaid accrued interest on such Mortgage
Loan at a per annum rate equal to the Mortgage Interest Rate, (B) all
unreimbursed Advances and Property Protection Advances, Servicing Fees and
Special Servicing Fees and interest thereon at the Prime Rate (as defined
herein) in respect of such Mortgage Loan, and (C) to the extent funds on
deposit in the related escrow account are not sufficient therefor, all
currently due and delinquent real estate taxes and assessments and insurance
premiums in respect of the related Mortgaged Property.
An Appraisal Reduction related to a Mortgage Loan will be reduced to zero as
of the date such Mortgage Loan is paid in full, liquidated, repurchased or
otherwise disposed of. Notwithstanding the foregoing, an Appraisal Reduction
will be an amount equal to zero with respect to such a Mortgage Loan if (i)
the event giving rise to such Appraisal Reduction is the extension of the
maturity of such Mortgage Loan, (ii) the payments on such Mortgage Loan (other
than Balloon Payments) were not delinquent during the twelve-month period
immediately preceding such extension and (iii) the payments on such Mortgage
Loan are then current; provided, that if at any later date there occurs a
delinquency in payment with respect to such Mortgage Loan, the Appraisal
Reduction will be recalculated and applied to the same extent as it would have
been previously applied. In addition, in any case, upon the occurrence of any
event giving rise to a subsequent Appraisal Reduction (including the
delinquency referred to in the immediately preceding sentence) more than
twelve months after an appraisal was obtained with respect to an Appraisal
Reduction, the Special Servicer will obtain a new appraisal as described
above, within 45 days of the occurrence of any such event giving rise to a
subsequent Appraisal Reduction and will adjust the amount of the Appraisal
Reduction in accordance therewith.
The aggregate of all current Appraisal Reductions will be allocated on each
Distribution Date, for purposes of determining distributions in respect of
interest on such Distribution Date, to the Certificate Principal Balance of
the most subordinated Class of Certificates that would otherwise receive
distributions of interest, after allocation of Realized Losses and Additional
Trust Fund Expenses. For so long as any more senior Class of Certificates is
outstanding, the amount of interest otherwise distributable on such
Distribution Date to each Class of Certificates to which Appraisal Reductions
are allocated on such Distribution Date will be reduced by the amount of
interest accrued at the applicable Certificate Rate on the portion of the
Certificate Principal Balance of such Class equal to the amount of Appraisal
Reductions allocated to such Class or Classes for such Distribution Dates and
the amount of such interest reduction (the "Appraisal Reduction Capitalization
Amount") will be added to the Certificate Principal Balance of such Class of
Certificates and an equal amount will be included in the Principal
Distribution Amount for such Distribution Date to the extent received from the
related Borrower. Appraisal Reductions will be treated as Realized Losses for
purposes of determining the Voting Rights of each Class; provided, that to the
extent the amount of principal recovered after the date of an Appraisal
Reduction on a Mortgage Loan with respect to which an Appraisal Reduction
occurred exceeds the principal balance of such Mortgage Loan on the date of
such Appraisal Reduction, net of the amount of the Appraisal Reduction, the
amount treated as a Realized Loss shall be reduced.
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The creation of an Appraisal Reduction in respect of a Mortgage Loan will
proportionately reduce the Master Servicer's obligation to make advances with
respect to Scheduled Payments due on such Mortgaged Loan, which may adversely
affect payments to the most subordinated Class of Certificates then
outstanding and the Class A-X Certificates.
The addition of an amount equal to the Appraisal Reduction Capitalization
Amounts to amounts distributed to any Class of Certificates will have the
effect of accelerating the distribution of principal to that Class of
Certificates and increasing the Certificate Principal Balance of the Classes
of Certificates to which the Appraisal Reduction Capitalization Amount is
allocated.
In connection with any Mortgage Loan as to which an Appraisal Reduction has
occurred, the Trustee or the Special Servicer may, to the extent permitted
under the REMIC Regulations, liquidate such Mortgage Loan in the manner and in
accordance with the terms set forth in the Pooling and Servicing Agreement
and, subject to the Pooling and Servicing Agreement, any Certificateholder may
bid for any such Mortgage Loans.
REPURCHASE OR SUBSTITUTION OF MORTGAGE LOANS
Under certain circumstances, the Seller may be required to repurchase or
substitute one or more Mortgage Loans sold by it from the Trust Fund.
Generally, the repurchase or substitution obligation arises when the
documentation with respect to a Mortgage Loan is discovered to be defective or
when a breach of representation or warranty is discovered, which defect or
breach materially and adversely affects the interests of Certificateholders.
See "THE MORTGAGE POOLS--Representations and Warranties" in the Prospectus and
"DESCRIPTION OF THE MORTGAGE POOL AND UNDERLYING MORTGAGED PROPERTIES--
Representations and Warranties" herein.
In the event of a repurchase of a Mortgage Loan, the repurchase price will
generally be equal to the sum of the principal balance of such Mortgage Loan
on the date of repurchase plus interest accrued thereon at the applicable Net
Mortgage Interest Rate to the following Due Date.
Within two years from the date of the delivery of the Certificates, the
Seller may, instead of repurchasing a Mortgage Loan required to be
repurchased, deliver one or more mortgage loans (each, a "Substitute Mortgage
Loan") in substitution for any Mortgage Loan that would otherwise have been
repurchased (each, a "Deleted Mortgage Loan"). See "THE MORTGAGE POOLS--
Representations and Warranties" in the Prospectus.
To the extent that the Seller elects to deliver one or more Substitute
Mortgage Loans for a Deleted Mortgage Loan, such Substitute Mortgage Loan or
Loans must, collectively, on the date of substitution: (a) have an outstanding
principal balance, after deduction of payments due in the month of
substitution, not in excess of the principal balance of the Deleted Mortgage
Loan; (b) have a Net Mortgage Interest Rate at the time of substitution not
lower than the Net Mortgage Interest Rate on the Deleted Mortgage Loan; (c)
have a loan-to-value ratio calculated as of the date of substitution no higher
than (i) the lower of the loan-to-value ratio for the Deleted Mortgage Loan as
of the Cut-off Date and (ii) the most recent loan-to-value ratio of the
Deleted Mortgage Loan; (d) have a remaining term to maturity no greater than
(and not more than one year less than) that of the Deleted Mortgage Loan; (e)
have the earliest date on which a prepayment may be made no earlier than the
earliest date on which the Deleted Mortgage Loan may have been prepaid; (f)
comply with each representation and warranty with respect to the Mortgage
Loans; (g) not result in a qualification to, withdrawal or downgrading of, the
then-current ratings of the Certificates as evidenced in writing by the
applicable Rating Agency; (h) have a Debt Service Coverage Ratio equal to or
greater than the higher of the original or most recently available Debt
Service Coverage Ratio for the Deleted Mortgage Loan; (i) be of the same
property type as the Deleted Mortgage Loan; and (j) be secured by a Mortgage
Property located in a state as to which the aggregate outstanding principal
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balance of all Mortgage Loans secured by Mortgaged Properties located in such
state (including such Substitute Mortgage Loan) does not exceed 10% of the
total outstanding principal balance of all Mortgage Loans. The Seller will be
permitted to deliver a Substitute Mortgage Loan only to the extent that the
principal balance of such Substitute Mortgage Loan, together with the aggregate
outstanding principal balance of all Substitute Mortgage Loans previously
substituted, does not exceed 25% of the aggregate outstanding principal balance
of all Mortgage Loans. Upon any such substitution, the Master Servicer will
deliver the Mortgage File relating to the Substitute Mortgage Loan to the
Trustee and the Trustee will release the Deleted Mortgage Loan (or any property
acquired in respect thereof) from the Trust Fund.
For any month in which one or more Substitute Mortgage Loans are substituted
for any Deleted Mortgage Loan, the Master Servicer will determine the amount,
if any, by which the aggregate principal balance of all such Substitute
Mortgage Loans as of the date of substitution is less than the aggregate
principal balance of such Deleted Mortgage Loan (after application of the
scheduled principal portion of the Monthly Payments due in such month). The
amount of any such shortage will be deposited by the Seller from its own funds
into the Collection Account in the month of substitution, without any
reimbursement therefor, and will be distributed to the Certificateholders on
the Distribution Date in the month following such substitution. See
"DESCRIPTION OF THE CERTIFICATES--Distributions on Certificates" in the
Prospectus.
OPTIONAL TERMINATION
On any Distribution Date on or after the date on which the aggregate
principal balance of the Mortgage Loans has been reduced below 5% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date, the
Master Servicer will have the right to purchase, in whole, but not in part, all
of the Mortgage Loans and any property acquired in respect of the Mortgage
Loans at a purchase price equal to the greater of (a) the sum of (i) the
aggregate principal amount of each Mortgage Loan (other than Liquidated Loans)
plus interest accrued thereon at the sum of the applicable Mortgage Interest
Rate (or the Mortgage Interest Rate less the Servicing Fee Rate, in the case of
a purchase by the Master Servicer) to the last day of the month of purchase,
plus any unreimbursed Advances and Property Protection Advances made with
respect to such Mortgage Loans together with interest thereon at the Prime
Rate, and (ii) the fair market value of any other property acquired in respect
of the Mortgage Loans and (b) the fair market value of the Mortgage Loans and
any property remaining in the Trust Fund. The proceeds of any such purchase
will be treated as a payment of principal and interest on the Mortgage Loans
for purposes of distributions to Certificateholders.
MATURITY CONSIDERATIONS
WEIGHTED AVERAGE LIFE
Weighted average life refers to the average amount of time that will elapse
from the date of delivery of a Certificate until each dollar of principal of
such Certificate will be repaid to the investor. The weighted average life of
the Certificates will be influenced by, among other things, the rate at which
principal of the Mortgage Loans is paid, which may be in the form of scheduled
amortization, prepayments or liquidation proceeds, as described herein.
Prepayments on mortgage loans are commonly measured by a prepayment standard
or model. The model used in this Prospectus Supplement in the tables below (the
"CPR") represents an assumed constant rate of prepayments each month expressed
as an annual rate, relative to the then outstanding principal balance of a pool
of mortgage loans for the life of such mortgage loans. CPR does not purport to
be either an historical description of the prepayment experience of any pool of
mortgage loans or a prediction of the anticipated rate of prepayment of any
mortgage loans, including the Mortgage Loans.
The tables set forth below have been prepared on the basis of the
characteristics of the Mortgage Loans that are expected to be included in the
Mortgage Pool, as described above under "DESCRIPTION OF THE MORTGAGE POOL AND
THE UNDERLYING MORTGAGED PROPERTIES" and Annex A.
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For purposes of the tables it was assumed that, among other things, (i) the
Mortgage Loans prepay at the percentages of CPR indicated beginning on the
last day of the month preceding the month of the first Distribution Date on
which such Mortgage Loans may be prepaid with a premium of % or less of the
amount prepaid; (ii) distributions on the Offered Certificates are received,
in cash, on the 21st day of each month, commencing in January 1996; (iii) the
Servicing Fee is payable with respect to all Mortgage Loans at the rate of
0.15% per annum; (iv) no defaults or delinquencies in, or modifications,
waivers or amendments respecting, the payment by the Borrowers of principal
and interest on the Mortgage Loans occur; (v) prepayments representing
payments in full of individual Mortgage Loans are received on the last day of
each month, and include 30 days of interest thereon; (vi) if the Mortgage Loan
is a Balloon Loan, the last payment made on such Mortgage Loan is made on the
first day of the month on which it is scheduled or to which it has been
extended together with 30 days interest thereon and, therefore, no Prepayment
Interest Shortfall results from such final payment; (vii) there are no
repurchases or substitutions of Mortgage Loans; (viii) the Offered
Certificates are purchased on December, 1995; (ix) no right of optional
termination is exercised; (x) no Special Servicer Fee, Workout Fee or
Extension Fee is payable to the Special Servicer; (xi) Scheduled Payments are
received on the first day of the month in which they are due commencing in
January 1996; (xii) there are no Additional Trust Fund Expenses; and (xiii)
there are no Appraisal Reductions.
The assumptions described in the preceding paragraph (collectively, the
"Modeling Assumptions") are assumptions only, and the actual performance of
the subject matter of the assumptions will vary from the Modeling Assumptions.
In particular, actual prepayments are not likely to occur at constant rates or
at the assumed rates, and variations in prepayment speeds, even if averaging
to the same constant prepayment rate over time, may have different effects on
the payment rates of the Offered Certificates. Furthermore, prepayments and
certain final payments on Balloon Loans at maturity may result in Prepayment
Interest Shortfalls. Any extension of the term of a Balloon Loan will result
in the payment of Special Servicer Fees and may result in Workout Fees or
Extension Fees. There can be no assurance as to the actual rates of prepayment
of the Mortgage Loans.
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PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCE OF CLASSES
OUTSTANDING AT VARIOUS PERCENTAGES OF THE CONSTANT PREPAYMENT RATE
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS B CLASS C CLASS D
--------------- --------------- --------------- --------------- ---------------
CPR CPR CPR CPR CPR CPR CPR CPR CPR CPR CPR CPR CPR CPR CPR CPR CPR CPR CPR CPR
% % % % % % % % % % % % % % % % % % % %
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Date:
Initial Percentage...... 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
Weighted Average Life
(Years)(1)..............
</TABLE>
- ----
(1) The weighted average life of each Class of Offered Certificates is
determined by (i) multiplying the amount of each assumed principal
distribution on such Class by the number of years from the date of
issuance of the Certificates to the related Distribution Date, (ii)
summing the results and (iii) dividing the sum by the total amount of
principal distributed on such Class of Certificates.
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FINAL RATED DISTRIBUTION DATE
The Final Rated Distribution Date for the Offered Certificates is December
21, 2027, which is the Distribution Date occurring in the month following the
month that is two years after the maturity date of the Mortgage Loan with the
latest stated maturity date, without taking into account any scheduled Balloon
Payment (except in instances where Scheduled Payments provide for interest
only), but instead assuming the full amortization of such Mortgage Loan in
accordance with its amortization schedule. Because the rate of distributions
in reduction of the Certificate Principal Balance of each applicable Class of
Certificates will depend on the rate of payment (including prepayments) of the
principal of the Mortgage Loans, the actual final distribution on any Class of
Certificates could occur significantly earlier than its Final Rated
Distribution Date. The rate of payments depend on their particular
characteristics, as well as on prevailing interest rates from time to time and
other economic factors. By contrast, the final distribution on the Offered
Certificates may be later than the Final Rated Distribution Date in the event
of delinquencies and losses on the Mortgage Loans or in the event that any
Borrower is unable to pay any Balloon Payment when due. See "DESCRIPTION OF
THE MORTGAGE POOL AND THE UNDERLYING MORTGAGED PROPERTIES--Description of the
Mortgage Loans" herein. No assurance can be given as to the actual rate of
payment of the Mortgage Loans.
YIELD CONSIDERATIONS
GENERAL
The yield on the Offered Certificates will be less than the yield that would
otherwise be produced by the applicable Certificate Rate and the applicable
purchase price because, while accrued monthly interest on a Mortgage Loan is
payable on the first day of each month, distributions of interest on the
Certificates will be made on the twenty-first day of such month or, if such
day is not a business day, on the business day immediately following such day.
The yield on the Offered Certificates may also be affected by the
prepayment, in whole or in part, of a Mortgage Loan and by certain final
payments on Balloon Loans at maturity because the Borrower will be required to
pay interest on the amount prepaid only to the date of prepayment, or date of
final payment with respect to Balloon Loans, and not thereafter. The Master
Servicer will not be obligated to pass through a full month's payment of
interest to compensate Certificateholders for such Prepayment Interest
Shortfalls. Any Prepayment Interest Shortfalls will be allocated to each Class
of the related Certificates, in proportion to the amount of interest each such
Class was entitled to receive in respect of the related Mortgage Loan.
The effective yield to holders of Offered Certificates will depend upon,
among other factors, the price at which their Certificates are purchased and
the amount and rate at which distributions of interest and principal, if
applicable, are made. The rate of distributions in respect of the Certificate
Principal Balance of the applicable Offered Certificates will be related to
the rate of payments and prepayments of principal and to the rate of
delinquencies and defaults on the Mortgage Loans. For this purpose, the term
"prepayment" includes prepayments and liquidations due to defaults or other
dispositions of the Mortgage Loans or the Mortgaged Properties, including
application of insurance proceeds or condemnation awards, or the purchase of
the Mortgage Loans by the Seller under the circumstances described under
"DESCRIPTION OF THE CERTIFICATES--Optional Termination" herein.
The rate of principal prepayments on 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 mortgagors default on their
mortgages. In general, if prevailing interest rates fall significantly below
the Mortgage Interest Rates on the Mortgage Loans, the Mortgage Loans (and the
Offered Certificates) are likely to be subject to a higher incidence of
prepayment than if prevailing rates remain at or above the Mortgage Interest
Rates on the Mortgage Loans. The Depositor makes no representation as to the
expected rate of prepayments on the Mortgage Loans. See "DESCRIPTION OF THE
MORTGAGE POOL AND THE UNDERLYING MORTGAGED PROPERTIES
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- --Description of the Mortgage Loans" and "MATURITY CONSIDERATIONS" herein for
additional information about the effect of the rate of prepayments on the
yields on and maturity of the Offered Certificates.
Generally, a higher than expected rate of prepayments of the related
Mortgage Loans will decrease the yield on those Classes of Certificates that
are purchased at a premium. Conversely, a slower than expected rate of
prepayments of the related Mortgage Loans will decrease the yield on those
Classes of Certificates that are purchased at a discount. The effect on an
investor's yield of principal prepayments of the Mortgage Loans occurring at a
rate that is faster (or slower) than the rate anticipated by the investor in
the period immediately following the issuance of the Certificates will not be
entirely offset by a subsequent like reduction (or increase) in the rate of
principal payments.
SERVICING
GENERAL
Under the Pooling and Servicing Agreement, the Master Servicer and the
Special Servicer are required to service and administer the Mortgage Loans
with the higher of the following standards of care (the "Servicing Standard"):
(i) the same manner in which and with the same care, skill, prudence and
diligence with which the Master Servicer or the Special Servicer, as the
case may be, services and administers similar mortgage loans for other
third-party portfolios, giving due consideration to customary and usual
standards of practice of prudent institutional commercial mortgage lenders
servicing their own loans and to the maximization of the net present value
of the mortgage loans; and
(ii) the care, skill, prudence and diligence the Master Servicer or the
Special Servicer, as the case may be, uses for loans which it owns and
which are substantially the same as the Mortgage Loans.
The Master Servicer and the Special Servicer are required to adhere to the
Servicing Standard without regard to any conflict of interest involving it and
any different payment priorities among the Classes of Certificates. The Master
Servicer and Special Servicer in their individual or any other capacities may
become the owner or pledgee of Certificates with the same rights as each would
have if it were not the Master Servicer or a Special Servicer, as the case may
be. Any such interest of the Master Servicer or the Special Servicer in the
Certificates shall not be taken into account when evaluating whether actions
of the Master Servicer or the Special Servicer are consistent with their
respective obligations in accordance with such Servicing Standard, regardless
of whether such actions may have the effect of benefitting the Class or
Classes of Certificates owned by the Master Servicer or the Special Servicer.
In addition, the Master Servicer or the Special Servicer may, under certain
limited circumstances, lend money on an unsecured basis, accept deposits from,
and otherwise generally engage in any kind of business or dealings with, any
Borrower as though the Master Servicer or the Special Servicer were not a
party to the transactions contemplated hereby.
The Master Servicer or the Special Servicer is permitted to enter into a
servicing agreement with a servicer under certain circumstances (the
"Servicer"), and such Servicer will receive a fee for such services specified
in such servicing agreement; provided, however, that the Master Servicer or
the Special Servicer, as the case may be, will remain liable for its servicing
obligations under the Pooling and Servicing Agreement as if the Master
Servicer or the Special Servicer, as the case may be, alone were servicing
such Mortgage Loan. On the Closing Date, the Master Servicer is expected to
enter into such an arrangement with its subsidiary, Wells Fargo Realty Finance
Corporation, to service all of the Mortgage Loans. The Master Servicer or the
Special Servicer, as the case may be, will pay any servicing compensation due
to any Servicer out of its own funds or out of the Servicing Fee. If the
Master Servicer shall cease to serve as such and shall not have been replaced
by a qualified successor, the Trustee will assume the Master Servicer's duties
and obligations under the Pooling and Servicing Agreement as Master Servicer.
If the Special Servicer shall cease to serve as such and a qualified successor
shall not have been engaged, the Master Servicer will assume the Special
Servicer's duties and obligations, and, in the absence of the Master Servicer
to so assume such duties and responsibilities, the Trustee shall assume the
duties and obligations of the Special Servicer. The relationship of each of
the Master Servicer and the Special Servicer to the Trustee is intended to be
that of an independent contractor and not that of a joint venturer, partner or
agent.
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The Servicing Fee relating to each Mortgage Loan will be retained by the
Master Servicer and the Special Servicer Fee, Workout Fee and Extension Fee
will be retained by the Special Servicer from payments and collections
(including insurance proceeds and liquidation proceeds) in respect of such
Mortgage Loan. The Master Servicer will be entitled to retain as additional
servicing compensation all investment income earned on amounts on deposit in
the Collection Account and the Distribution Account, and the Master Servicer
and, in the case of Specially Serviced Mortgage Loans, the Special Servicer,
will also be entitled to retain, any amounts collected by the Master Servicer
or the Special Servicer, as the case may be, other than principal or interest
on the Mortgage Loans, including late payment charges, assumption fees,
extension fees, modification fees, forbearance fees, default interest payable
at a rate above the Mortgage Interest Rate, Prepayment Interest Excesses (to
the extent available after allocation thereof in reduction of Prepayment
Interest Shortfalls passed through to the Certificateholders) and other usual
and customary fees collected from the Borrower. The Master Servicer will be
required to promptly remit to the Trustee, out of the Master Servicer's own
funds, for deposit in the Collection Account the amount of any investment
losses incurred on amount deposited in the Collection Account and the
Distribution Account.
The Master Servicer will have no responsibility for the performance by the
Special Servicer of its duties under the Pooling and Servicing Agreement, and
the Special Servicer shall have no responsibility for the performance by the
Master Servicer of its duties under the Pooling and Servicing Agreement.
The Master Servicer will pay all of its own expenses incurred in connection
with its responsibilities under the Pooling and Servicing Agreement (subject
to reimbursement as described herein, in the Prospectus and the Pooling and
Servicing Agreement), including the various expenses discussed in the
Prospectus. The Master Servicer shall not be obligated to pay any expenses of
the Trustee or the Fiscal Agent, other than the Trustee Fee. See "SERVICING OF
THE MORTGAGE LOANS--Servicing Compensation and Payment of Expenses" in the
Prospectus.
THE MASTER SERVICER
Wells Fargo Bank (the "Master Servicer") will be responsible for servicing
the Mortgage Loans, except to the extent they become Specially Serviced
Mortgage Loans, in which event the Special Servicer will be responsible for
servicing such Mortgage Loans so long as they remain Specially Serviced
Mortgage Loans. Subject to certain limitations, the Master Servicer generally
will be obligated to make Advances and Property Protection Advances with
respect to Mortgage Loans, including Specially Serviced Mortgage Loans. See
"--Advances" herein. The Master Servicer will be responsible for and will
oversee the servicing of all of the Mortgage Loans (other than Specially
Serviced Mortgage Loans), will generally receive collections with respect to
all of the Mortgage Loans (including Specially Serviced Mortgage Loans) and
will be responsible for maintaining insurance with respect to all Mortgage
Loans (including Specially Serviced Mortgage Loans, but not REO Property) in
accordance with the Servicing Standard. The Master Servicer will be entitled
to receive each month a servicing fee (the "Servicing Fee") equal to one-
twelfth of 0.15% per annum (the "Servicing Fee Rate") of the Scheduled
Principal Balance of each Mortgage Loan (including REO Loans) as compensation
for servicing the Mortgage Loans. As described under "DESCRIPTION OF THE
CERTIFICATES--Principal and Interest Distributions--Prepayment Interest
Shortfalls and Prepayment Interest, to the extent that the aggregate of all
Prepayment Interest Shortfalls for all Mortgage Loans for any Distribution
Date exceeds the aggregate of all Excess Prepayment Interest for all Mortgage
Loans for such Distribution Date, the Servicing Fee for the corresponding
period will be reduced in an amount necessary (up to one-twelfth of the
difference between (i) the Servicing Fee Rate and (ii) the per annum rate at
which the Trustee's fees accrue, on the Scheduled Principal Balance of each
Mortgage Loan) to offset such additional remaining Prepayment Interest
Shortfalls. The Master Servicer will be responsible for paying the Trustee Fee
from the Servicing Fee it receives. Wells Fargo Bank has been approved as a
servicer by all nationally recognized statistical rating organizations.
The "Scheduled Principal Balance" with respect to any Mortgage Loan, as of
any Determination Date, is the scheduled principal balance of such Mortgage
Loan as of the Cut-off Date plus the amount of Deferred Interest, if any,
added to the principal balance of such Mortgage Loan on or before the Due Date
in the Due
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Period that ends in the month in which such Determination Date occurs, reduced
by (a) any Principal Prepayments and Balloon Payments received on or prior to
such Determination Date, (b) any payment in respect of principal, if any, due
on or before such Due Date (other than a Balloon Payment) whether or not paid
by a Mortgagor, and (c) any adjustment thereto in the amount of a Deficient
Valuation resulting from any bankruptcy or similar proceeding.
THE SPECIAL SERVICER
Wells Fargo Bank initially will be responsible for servicing the Mortgage
Loans which become Specially Serviced Mortgage Loans. The management of
Specially Serviced Mortgage Loans will be handled by and will draw upon the
workout and REO experience of Wells Fargo Bank, whose managed assets at
September 30, 1995 included non-accrual commercial real estate loans and
foreclosed assets for Wells Fargo Bank's own portfolio of approximately $578
million. The Special Servicer will oversee the resolution of the applicable
Specially Serviced Mortgage Loans, act as disposition manager of the
applicable REO Properties acquired on behalf of the Trust through foreclosure
or deed in lieu of foreclosure, maintain insurance with respect to the
applicable REO Properties and provide monthly reports to the Master Servicer
and the Trustee. The Special Servicer will be entitled to receive, with
respect to any Due Period, a fee (the "Extension Fee") equal to $ with
respect to any Mortgage Loan whose maturity date has been extended with no
change of a Money Term by the Special Servicer during such Due Period, a
special servicing fee (the "Special Servicing Fee") equal to one-twelfth of
% per annum of the outstanding Scheduled Principal Balance of each
Specially Serviced Mortgage Loan. The Special Servicer will also be entitled
to a fee (the "Workout Fee") equal to % of (i) the modified principal
balance of Mortgage Loans as to which a Money Term has been modified by the
Special Servicer (excluding extensions of the maturity dates of the Mortgage
Loans with no other change in a Money Term) during such Due Period and (ii)
the net proceeds received in connection with a Specially Serviced Mortgage
Loan or an REO Property during such Due Period (collectively, the "Special
Servicer Compensation"). The Special Servicer is also permitted to retain
certain mortgagor-paid fees and charges specified in the Pooling and Servicing
Agreement. The Special Servicing Fee, Workout Fee and Extension Fee will be
obligations of the Trust Fund and will be an Additional Trust Fund Expense.
Such special servicing compensation will be payable in addition to the
Servicing Fee payable to the Master Servicer.
As described herein under "--The Operating Advisor," the Operating Advisor
will have the right to approve certain actions of the Special Servicer. The
Special Servicer may resign or be removed and replaced at any time without
cause by the written vote of the Holders of more than 50% of the Certificate
Principal Balance of the most subordinate Class of Certificates (other than
the Residual Certificates) for which greater than 25% of the initial
Certificate Principal Balance is outstanding; provided, that no such
resignation or removal will be effective until a qualified successor Special
Servicer has been appointed and accepted such appointment and such appointment
of a replacement shall not adversely affect the rating on any Class of
Certificates. Prior to the appointment of any successor Special Servicer, the
Trustee must have received confirmation from each Rating Agency to the effect
that the appointment of such successor Special Servicer would not, in and of
itself, result in the reduction of the ratings at the time assigned to any
Class of Certificates.
The Pooling and Servicing Agreement provides that each Special Servicer will
carry out its special servicing functions in accordance with the Servicing
Standard and will comply with the REMIC Provisions.
WELLS FARGO BANK
Founded in 1852, Wells Fargo & Company is the holding company for Wells
Fargo Bank. Wells Fargo Bank provides a full range of banking services to
individual, agri-business, real estate, commercial and small business
customers.
As of September 30, 1995, December 31, 1994 and 1993, Wells Fargo & Company
reported on a consolidated basis, total assets of $49.9 billion, $53.4 billion
and $52.5 billion, respectively, and total capital (Tier 1 and 2) of $4.9
billion, $5.2 billion and $5.5 billion, respectively. For the quarter ended
September 30,
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1995 and the years ended December 31, 1994 and 1993, respectively, Wells Fargo
& Company reported, on a consolidated basis, net income of $261 million, $841
million and $612 million, respectively. Wells Fargo & Company files annual and
quarterly reports with the Securities and Exchange Commission.
As of September 30, 1995, Wells Fargo Bank and its subsidiaries serviced a
portfolio of multifamily mortgage loans and commercial mortgage loans totaling
approximately $7.2 billion in aggregate outstanding principal amount, of which
approximately $2.8 billion is serviced for others.
Loan Servicing
Commercial and multifamily mortgage loans originated for securitization by
Wells Fargo Bank and its subsidiaries are generally serviced by Wells Fargo
Bank's wholly-owned subsidiary, Wells Fargo Realty Finance Corporation
("WFRFC"). It is anticipated that all of the Mortgage Loans will be serviced
for Wells Fargo Bank by WFRFC.
The information set forth herein concerning Wells Fargo Bank has been
provided by such party. Accordingly, the Depositor makes no representation or
warranty as to the accuracy or completeness of such information.
SPECIALLY SERVICED MORTGAGE LOANS
The Master Servicer will transfer servicing responsibility to the Special
Servicer upon the occurrence of a Servicing Transfer Event (as defined in the
Pooling and Servicing Agreement) which generally include (i) any Mortgage Loan
as to which a Balloon Payment is past due or any other payment, including any
Monthly Payment, is more than 60 days past due; (ii) any Mortgage Loan as to
which the Borrower has entered into or consented to bankruptcy, appointment of
a receiver or conservator or a similar insolvency or similar proceeding, or
the Borrower has become the subject of a decree or order for such a
proceeding; (iii) any Mortgage Loan as to which the Master Servicer shall have
received notice of the foreclosure or proposed foreclosure of any other lien
on the Mortgaged Property; (iv) any Mortgage Loan as to which the Master
Servicer has notice of a default (other than a failure by the related
Mortgagor to pay principal or interest) which in the judgement of the Master
Servicer materially and adversely affects the interests of the
Certificateholders and which has occurred and remains unremedied for the
applicable grace period specified in such Mortgage Loan (or, if no grace
period is specified, 60 days); (v) any Mortgage Loan as to which the Borrower
makes a request to amend or renegotiate the terms of the existing Mortgage,
Mortgage Note or related documents and admits in writing its inability to pay
its debts generally as they become due, files a petition to take advantage of
any applicable insolvency or reorganization statute, makes an assignment for
the benefit of its creditors or voluntarily suspends payment of its
obligations; (vi) any Mortgage Loan as to which, in the judgment of the Master
Servicer, a default has occurred or in the judgment of the Master Servicer is
imminent or is likely to occur within 60 days, and is not likely to be cured
by the Borrower within 60 days; and (vii) any Mortgage Loan as to which the
related Mortgage Property becomes REO Property upon foreclosure in accordance
with the Pooling and Servicing Agreement (a "Specially Serviced Mortgage
Loan"). The Master Servicer will collect and receive payments on Specially
Serviced Mortgage Loans and make remittances and prepare certain reports to
the Trustee with respect to Specially Serviced Mortgage Loans. The Master
Servicer shall have no responsibility for the performance by the Special
Servicer of its duties under the Pooling and Servicing Agreement. The Master
Servicer shall be required to continue to perform certain servicing functions
on the Specially Serviced Mortgage Loans, including collecting and receiving
payments on such Mortgage Loans and depositing amounts collected on such
Mortgage Loans in the Collection Account and, based on the information
provided to it by the Special Servicer, preparing certain reports to the
Trustee with respect to Specially Serviced Mortgage Loans. The servicing of
any Specially Serviced Mortgage Loan which becomes a performing Mortgage Loan
for a period of at least two consecutive Monthly Payments in accordance with
its original terms or as modified in accordance with the Pooling and Servicing
Agreement, will be returned to the Master Servicer.
THE OPERATING ADVISOR
At any time the Certificate Principal Balance of the most subordinate Class
of Certificates (other than the Residual Certificates) is greater than 25% of
the initial Certificate Principal Balance of such Class, the Holders of
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a majority of the Certificates of such Class by Certificate Principal Balance
will have the right to appoint a designated person (an "Operating Advisor"),
which may be a Certificateholder, that will have the right to approve certain
actions of the Special Servicer with respect to the Specially Serviced
Mortgage Loans. Initially, the requisite Certificateholders of Class G
Certificates shall have the right to appoint an Operating Advisor. If a
Trigger Event has occurred, a majority of the Holders of the next most
subordinate Class of Certificates will have the right to appoint an Operating
Advisor. A "Trigger Event" occurs with respect to a Class of Certificates when
the Certificate Principal Balance of such Class is reduced to 25% or less of
its initial Certificate Principal Balance.
An Operating Advisor may be removed at any time by the written vote of not
less than a majority of the Class of Certificates having the right to appoint
such Operating Advisor with respect to such Class. An Operating Advisor may
resign upon thirty days' prior written notice to the Holders of the Class of
Certificates then entitled to appoint such Operating Advisor. A successor
Operating Advisor does not have to be named for the resignation of an
Operating Advisor to take effect.
The Special Servicer is required to advise the Operating Advisor, if any, in
writing of certain material actions the Special Servicer proposes to take with
respect to a Specially Serviced Mortgage Loan, and the Special Servicer shall
not take any such action which the Operating Advisor directs in writing shall
not be taken; provided that no such direction shall require or cause the
Special Servicer to violate any provision of the Pooling and Servicing
Agreement or the Mortgage Loans, including, without limitation, the Servicing
Standard. If the Operating Advisor has not approved or rejected a proposed
action of the Special Servicer within five business days of the date that the
Operating Advisor received notice of such proposed action, the Special
Servicer may take such actions. The Special Servicer is required to advise the
Operating Advisor prior to taking any of the following actions: (i) any
foreclosure or comparable conversion (which may include acquisition of an REO
Property) of the Mortgaged Property securing such of the Specially Serviced
Mortgage Loans as are and continue in default, (ii) any modification of a
Money Term of a Specially Serviced Mortgage Loan, (iii) any proposed sale of a
Specially Serviced Mortgage Loan or REO Property (other than upon termination
of the Trust Fund pursuant to the Pooling and Servicing Agreement), (iv) any
determination to bring an REO Property into compliance with applicable
environmental laws; and (v) any release of collateral or acceptance of
substitute or additional collateral for a Mortgage Loan.
The Operating Advisor in its good faith business judgment may reject the
recommendations of the Special Servicer based upon (1) the present value
analysis used in the recommendation of the Special Servicer and (2) the
Operating Advisor's assessment of the likelihood of success of the Special
Servicer's proposed course of action. If the Special Servicer's recommendation
is rejected by the Operating Advisor, an independent third party arbitrator
selected by the Trustee (subject to written confirmation that such appointment
would not result in a downgrading or withdrawal of the then-current rating of
the Certificates) will determine whether the proposed action of the Special
Servicer is in the best economic interests of the Trust Fund based on
maximization of the net present value. The independent arbitrator will (i)
select a course of action based solely on the recommendations provided by the
Operating Advisor and the Special Servicer (rather than on an alternative
recommendation provided by itself), and (ii) provide a prompt decision upon
receipt of the analyses. Pending a decision of the independent arbitrator, the
Special Servicer may not take the action in question.
MORTGAGE LOAN MODIFICATION
The Special Servicer may, subject to the limitations set forth under "--
Operating Advisor," modify, waive or amend the terms of any Mortgage Loan with
respect to which a material default has occurred (or one on which default is
reasonably foreseeable) or a payment default has occurred or in certain other
limited circumstances described in the Pooling and Servicing Agreement if it
determines in its sole judgment that such modification, waiver or amendment of
the terms of a Mortgage Loan is likely to produce a greater recovery on a net
present value basis than the liquidation of such Mortgage Loan; provided that
the Special Servicer may not agree to any modification, waiver or amendment
that: (i) extends the maturity date of such Mortgage Loan later than two years
prior to the Final Rated Distribution Date; (ii) permits deferral of interest
without accrual of interest at the Mortgage Interest Rate thereon; (iii)
results in the amount of negative amortization added to the principal balance
of such Mortgage Loan resulting from such modification exceeding 10% of the
principal balance of such
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Mortgage Loan (less any negative amortization added to the principal balance
of such Mortgage Loan prior to such modification); or (iv) reduces the
Mortgage Interest Rate of any Mortgage Loan. The Special Servicer may forgive
principal on, satisfy at a discount, or modify a Money Term of any Specially
Serviced Mortgage Loan only with the approval of the Operating Advisor and
subject to the limits on the Operating Advisor as described in "--Operating
Advisor" below.
In addition, the Master Servicer and the Special Servicer must in certain
cases receive certain opinions of counsel as to certain REMIC matters prior to
any modification, waiver or amendment of any Mortgage Loan.
The modification of a Mortgage Loan may tend to reduce prepayments by
avoiding liquidations and therefore may extend the weighted average life of
the Certificates beyond that which might otherwise be the case. See "YIELD
CONSIDERATIONS" herein.
ADVANCES
MONTHLY ADVANCES
On each Servicer Remittance Date, the Master Servicer will be obligated to
advance any scheduled payments of principal, other than any Balloon Payment
and scheduled interest (net of the related Servicing Fee and Special Servicing
Fees) ("Advances") that are delinquent as of the close of business on the
preceding Determination Date, but only if the Master Servicer determines that
the amount so advanced, plus interest that will accrue thereon, will be
recoverable from subsequent payments or collections (including insurance
proceeds and liquidation proceeds net of liquidation expenses) in respect of
the related Mortgage Loan, and only until the Mortgage Loan becomes a
Liquidated Loan; provided, however, that the amount of any Advance required to
be made by the Master Servicer with respect to a Mortgage Loan as to which
there has been an Appraisal Reduction will be an amount equal to the product
of (i) the amount required to be advanced by the Master Servicer without
giving effect to this proviso and (ii) a fraction, the numerator of which is
the outstanding principal balance of such Mortgage Loan as of the immediately
preceding Determination Date less any Appraisal Reduction thereon and the
denominator of which is the outstanding principal balance of the Mortgage Loan
as of such Determination Date; and provided, further, that with respect to
scheduled principal and interest on any Mortgage Loan that has been modified
for which the Master Servicer is obligated to make an Advance, the amount of
any such Advance shall be adjusted in conformity with the modification. With
respect to any Balloon Loan that is delinquent in respect of its Balloon
payment (including any REO Property with respect to a Mortgage Loan for which
the related Mortgage Note provided for a Balloon Payment), advances will
include amounts equal to the Monthly Payment that would otherwise have been
due thereon on the related Due Date if such Mortgage Loan did not have a
Balloon Payment in accordance with the interest rate provisions and the
amortization schedule in effect prior to the date such Balloon Payment was
due. Advances (including interest accrued thereon at the Prime Rate) will be
reimbursable from recoveries on the affected Mortgage Loan and, to the extent
the Master Servicer determines that the Advance will not be ultimately
recoverable from related recoveries, from any funds on deposit in the
Collection Account and Distribution Account. In no event will the Master
Servicer be required to make aggregate Advances (including interest accrued
thereon at the Prime Rate) with respect to any Mortgage Loan in an amount
greater than the principal balance (plus all overdue amounts) thereof, less
any Appraisal Reductions with respect thereto. In addition, interest on
Advances made by the Master Servicer will accrue at a rate equal to the sum of
the Prime Rate as reported in The Wall Street Journal from time to time (the
"Prime Rate"). The Master Servicer's right of reimbursement out of recoveries
will be prior to the right of the Certificateholders to receive any amounts
recovered with respect to such Mortgage Loan. To the extent that the Master
Servicer fails to make an Advance required to be made, the Trustee is required
to terminate the Master Servicer and assume its responsibilities, including
the responsibility to make such required Advance pursuant to the Pooling and
Servicing Agreement. All references herein to the Master Servicer regarding
Advances or recoveries related thereto refer to the Trustee or the Fiscal
Agent when it is acting in such capacity.
PROPERTY PROTECTION ADVANCES
The Master Servicer with respect to any Mortgage Property (other than REO
Property) and the Special Servicer with respect to REO Property will be
required to make an advance (a "Property Protection Advance")
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of funds necessary to protect and preserve the security for each Mortgage
Loan. The Master Servicer or the Special Servicer, as the case may be, will be
obligated to make a Property Protection Advance for certain real estate taxes
and insurance premiums not paid by the related Mortgagor on a timely basis
with respect to any Mortgage Loan and for collection or foreclosure costs
(including reasonable attorneys fees), but only to the extent deemed
recoverable from the related Mortgage Loan. The Special Servicer is obligated
to make a Property Protection Advance only if the funds on deposit in the REO
Account are insufficient to pay amounts due and payable with respect to (i)
insurance premiums in respect of an REO Property specially serviced by it,
(ii) real estate taxes and assessments in respect of such REO Property that
may result in the imposition of a lien, (iii) costs and expenses necessary to
maintain, manage or operate such REO Property and (iv) costs and expenses of
capital improvements and tenant improvements; provided that the Special
Servicer shall be obligated to make such Property Protection Advances only if
the Special Servicer determines that the amount so advanced will be
recoverable from subsequent payments or collections (including insurance
proceeds and liquidation proceeds net of liquidation expenses) in respect of
such Mortgage Loan. In addition, interest on Property Protection Advances made
by the Master Servicer or the Special Servicer will accrue at the Prime Rate,
and will be reimbursable from recoveries or collections on the related
Mortgage Loan. The Master Servicer's and the Special Servicer's rights of
reimbursement out of such recoveries will be prior to the rights of the
Certificateholders to receive any amounts recovered with respect to such
Mortgage Loans and will be an Additional Trust Fund Expense. To the extent
that the Master Servicer determines that any Property Protection Advance (and
accrued interest thereon) will not be ultimately recoverable from related
recoveries, such advances will be reimbursable from funds on deposit in the
Collection or Distribution Account and shall be deemed to be Additional Trust
Fund Expenses to the extent the amount of such advances which are not
recoverable from collections on the Mortgage Loan exceeds the Principal
Balance of such Mortgage Loan.
NONRECOVERABLE ADVANCES
The determination by the Master Servicer or the Special Servicer that any
Advance or Property Protection Advance, previously made or proposed to be
made, would not be recoverable shall be made in good faith and shall be
evidenced by an officer's certificate delivered to the Trustee and detailing
the reasons for such determination, with copies of appraisals, if any,
performed of the Mortgaged Property prepared within the last 12 months by an
independent MAI appraiser and, if such reports are to be used by the Master
Servicer to determine that any Advance or Property Protection Advance, as
applicable, would be nonrecoverable, any engineers' reports, environmental
surveys or other information relevant thereto which support such
determination. The Master Servicer's or the Special Servicer's determination
of nonrecoverability shall be in its sole discretion and be conclusive and
binding upon the Certificateholders, the Trustee and the Depositor.
AMENDMENT
The Pooling and Servicing Agreement provides that it may be amended by the
parties thereto without the consent of any of the Certificateholders either
(a) to cure any ambiguity, to correct or supplement any provision therein that
may be inconsistent with any other provision therein, to maintain the rating
or ratings assigned to the Certificates by either Rating Agency or to make
other provisions with respect to matters or questions arising under the
Pooling and Servicing Agreement which are not inconsistent with the provisions
of the Pooling and Servicing Agreement, or (b) with the written confirmation
of each Rating Agency that the ratings then assigned to the Certificates will
not be downgraded, qualified or withdrawn, if such amendment does not affect
items (i) through (iii) below.
The Pooling and Servicing Agreement also provides that it may be amended by
the parties thereto with the consent of the Holders of Certificates
representing not less than 51% of the aggregate Voting Rights of the
Certificates of any Class affected by the proposed amendment for the purpose
of adding any provisions to or changing in any manner or eliminating any of
the provisions of the Pooling and Servicing Agreement or modifying in any
manner the rights of Certificateholders; provided, however, that no such
amendment may (i) reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Loans which are
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required to be distributed on any Certificate without the consent of Holders
of Certificates evidencing net less than 100% of the aggregate Certificate
Principal Balance of such Class, (ii) reduce the aforesaid percentages of
Certificates, the Holders of which are required to consent to any such
amendment without the consent of 100% of the Holders of Certificates of the
Class affected thereby, (iii) change the percentage of the Mortgage Loans
required for the exercise of the optional termination of the Trust Fund by the
Master Servicer or (iv) amend the provisions of the Pooling and Servicing
Agreement relating to its amendment.
The Pooling and Servicing Agreement provides that no amendment will be made
unless there has been delivered an opinion of counsel to the effect that such
amendment will not adversely affect the status of either REMIC or cause any
unidentified tax to be imposed on either REMIC.
VOTING RIGHTS
At all times during the term of the Pooling and Servicing Agreement, 98% of
the voting rights for the series offered hereby (the "Voting Rights") will be
allocated among the Holders of the Class G, Class F, Class E and the Offered
Certificates, in proportion to the outstanding Certificate Principal Balances
of their respective certificates. The Holders of the Class A-X, Class R-I and
Class R-II Certificates shall be entitled to 1%, 0.5% and 0.5%, respectively,
of all of the Voting Rights, allocated among the related Certificateholders in
proportion to the Percentage Interests in such Class evidenced by their
respective Certificates.
THE TRUSTEE AND THE FISCAL AGENT
LaSalle National Bank will act as Trustee under the Pooling and Servicing
Agreement. The office from which LaSalle National Bank will perform its duties
as Trustee under the Pooling and Servicing Agreement is located at 135 South
LaSalle Street, Suite 200, Chicago, Illinois 60603, Attention: Asset-Backed
Securities Trust Services. LaSalle National Bank is a nationally chartered
bank. LaSalle National Bank is a wholly-owned subsidiary of ABN AMRO North
America, Inc. ABN AMRO North America, Inc. is in turn wholly-owned by ABN AMRO
Bank N.V.
ABN AMRO Bank N.V. will act as Fiscal Agent under the Pooling and Servicing
Agreement. ABN AMRO Bank N.V. was formed on September 22, 1991, as a result of
a merger between two of the Netherlands' largest banks, ABN Bank and
Amsterdam-Rotterdam Bank ("AMRO"). Today ABN AMRO Bank N.V. is among the top
20 banks in the world.
The information concerning the Trustee and the Fiscal Agent set forth herein
has been provided by the Trustee and none of the Seller, the Depositor, the
Underwriters or their affiliates makes any representation or warranty as to
the accuracy thereof.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, separate "real estate mortgage investment
conduit" ("REMIC") elections will be made with respect to each trust fund,
creating two REMICS. Upon the issuance of the Offered Certificates, Orrick,
Herrington & Sutcliffe will deliver its opinion, generally to the effect that,
assuming compliance with all provisions of the Pooling and Servicing
Agreement, (i) each pool of assets with respect to which a REMIC election is
made will qualify as a REMIC under the Internal Revenue Code of 1986 (the
"Code") and (ii) (a) the Class A-1, Class A-2, Class A-X, Class B, Class C,
Class D, Class E, Class F and Class G Certificates will be REMIC "regular
interests" and (b) each residual interest will be the sole "residual interest"
in the related REMIC. Holders of the Offered Certificates will be required to
include in income all interest on such Certificates in accordance with the
accrual method of accounting regardless of such Certificateholders' usual
methods of accounting.
Except as discussed below, the Class Certificates are expected not to be
treated for federal income tax reporting purposes as having been issued with
original issue discount. The Class , Class , Class and Class
Certificates
S-69
<PAGE>
will be treated for federal income tax reporting purposes as having been
issued with original issue discount. For the purposes of determining the rate
of accrual of market discount, original issue discount and premium for federal
income tax purposes, the Mortgage Loans will be assumed to prepay at the rate
of % CPR. No representation is made as to whether the Mortgage Loans will
prepay. The Treasury Regulations addressing instruments with original issue
discount do not directly discuss instruments such as the Class A-1, Class A-2,
Class B, Class C or Class D Certificates. It is possible that such
Certificates would be treated as having original issue discount because some
or all of the stated interest on such Certificates would be treated as not
"qualified stated interest" within the meaning of those regulations. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES--Taxation of Regular Interests--
Interest and Acquisition Discount" in the Prospectus.
Certain Classes of the Offered 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. Holders of such Classes of Certificates should consult their own tax
advisors regarding the possibility of making an election to amortize any such
premium. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--Taxation of Regular
Interests" in the Prospectus.
Offered Certificates held by a mutual savings bank or domestic building and
loan association will represent interests in "qualifying real property loans"
within the meaning of Section 593(d) of the Code. Offered Certificates held by
a real estate investment trust will constitute "real estate assets" within the
meaning of Section 856(c)(6)(B) of the Code, and income with respect to
Offered Certificates will be considered "interest on obligations secured by
mortgages on real property or on interests in property" within the meaning of
Section 856(c)(3)(B) of the Code. Offered Certificates held by a domestic
building and loan association will generally constitute "a regular or a
residual interest in a REMIC" with the meaning of Section 7701(a)(19)(C)(xi)
of the Code only in the proportion that the Mortgage Loans are secured by
multifamily apartment buildings. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--Taxation of the REMIC and its Holders" in the Prospectus.
ERISA CONSIDERATIONS
Fiduciaries of employee benefit plans and certain other plans and
arrangements, including individual retirement accounts and annuities, Keogh
plans, and certain collective investment funds, insurance company separate and
general accounts in which such plans, arrangements, accounts or annuities are
invested, that are subject to ERISA or Section 4975 of the Code (collectively,
"Plans") should review carefully the discussion under "ERISA CONSIDERATIONS"
in the Prospectus and should consult with their legal advisers as to whether
the purchase or holding of Offered Certificates could give rise to a
transaction that is prohibited or not otherwise permissible under either ERISA
or Section 4975 of the Code.
The CS First Boston Corporation is the recipient of final prohibited
transaction exemption, PTE 89-90, 54 Fed. Reg. 42597 (Oct. 17, 1989) (the
"Underwriter's Exemption"), which may afford protection from violations under
Sections 406 and 407 of ERISA and Section 4975 of the Code for Plans that
acquire the Class A-1 or Class A-2 Certificates. The Underwriter's Exemption
applies to certificates (a) which represent (1) a beneficial ownership
interest in the assets of a trust and entitle the holder to pass-through
payments of principal, interest and/or other payments made with respect to the
assets of the trust, or (2) an interest in a REMIC if the certificates are
denominated as debt instruments and are issued by and are obligations of the
trust; and (b) with respect to which CS First Boston Corporation or any of its
affiliates is either the sole underwriter, the manager or co-manager of the
underwriting syndicate or a selling or placement agent. The corpus of a trust
to which the Underwriter's Exemption applies may consist of (i) obligations
which bear interest or are purchased at a discount and which are secured by
(A) single-family residential, multifamily residential or commercial real
property (including obligations secured by leasehold interests on commercial
real property) or (B) shares issued by a cooperative housing association; (ii)
"guaranteed governmental mortgage pool certificates" (as defined in the
Regulations); and (iii) fractional undivided interests in such obligations or
certificates.
S-70
<PAGE>
Plans acquiring Certificates may be eligible for protection under the
Underwriter's Exemptions if:
(a) assets of the type included in the Trust Fund have been included in
other investment pools ("Other Pools");
(b) certificates evidencing interests in Other Pools have been both (1)
rated in one of the three highest generic rating categories by S&P, Moody's
Investors Service, Inc., Fitch Investors Service, L.P. or D&P and (2)
purchased by investors other than Plans, for at least one year prior to a
Plan's acquisition of Certificates in reliance upon the Underwriter's
Exemption;
(c) at the time of such acquisition, the Class of Certificates acquired
by the Plan has received a rating in one of the rating categories referred
to in condition (b) above;
(d) the Trustee is not an affiliate of any member of the Restricted Group
(as defined below);
(e) the applicable Series of Certificates evidences ownership in Trust
Assets which do not include subordinate certificates backed by mortgages or
mortgage participations (unless interest and principal payable with respect
to such mortgage certificates are guaranteed by the GNMA, FHLMC or FNMA);
(f) the Class of Certificates acquired by the Plan are not subordinated
to other Classes of Certificates of that Series with respect to the right
to receive payment in the event of defaults or delinquencies on the
underlying Trust Assets;
(g) the Plan is an "accredited investor" (as defined in Rule 501(a)(1) of
Regulation D under the Act);
(h) the acquisition of the Certificates by a Plan is on terms (including
the price for the Certificates) that are at least as favorable to the Plan
as they would be in an arm's length transaction with an unrelated party;
and
(i) the sum of all payments made to and retained by the Underwriters or
members of the underwriting syndicate in connection with the distribution
of the Certificates represents not more than reasonable compensation for
underwriting the Certificates; the sum of all payments made to and related
by the Seller and the Depositor pursuant to the sales of the Trust Assets
to the Depositor and the Trust Fund, respectively, represents not more than
the fair market value of such Trust Assets; and the sum of all payments
made to and retained by the Master Servicer and all Servicers represents
not more than reasonable compensation for such Servicers' services under
the Pooling and Servicing Agreement and reimbursement of such Servicers'
reasonable expenses in connection therewith.
In addition, the Underwriter's Exemption will not provide exemptive relief
for certain transactions prohibited by Section 406(b) of ERISA or Section
4975(c)(1)(E) or (F) of the Code which may result from apply to a Plan's
investment in Certificates if:
(1) the Plan's investment in any Class of Certificates exceeds 25% of the
outstanding Certificates of that Class at the time of acquisition;
(2) immediately after such acquisition, 25% or more of the Plan assets
with respect to which the investing fiduciary has discretionary authority
or renders investment advice are invested in certificates evidencing
interest in trusts sponsored or containing assets sold or serviced by the
same entity;
(3) the Plan is sponsored by the Seller, the Depositor, either
Underwriter, the Trustee, the Master Servicer, any Servicer, any Pool,
Special Hazard or Primary Mortgage Insurer or the obligor under any other
credit support mechanism, a Borrower with respect to obligations
constituting more than 5% of the aggregate unamortized principal balance of
the Trust Fund on the date of the initial issuance of Certificates (a
"Major Obligor"), or any of their affiliates (together, the "Restricted
Group");
(4) the fiduciary responsible for the decision to invest any Plan assets
(or any of its affiliates) in the Certificates is a Major Obligor; or
(5) in the case of an acquisition in connection with the initial issuance
of Certificates, at least 50% of each Class of Certificates in which Plans
have invested is acquired by persons independent of the members of the
Restricted Group and at least 50% of the aggregate interest in the Trust
Fund is acquired by persons independent of the Restricted Group.
S-71
<PAGE>
Plans acquiring Class A-1 or Class A-2 Certificates may be eligible for
protection under the Underwriter's Exemption. The Underwriter believes that
conditions (a) through (f) to the availability of the Underwriter's Exemption
as described above will be satisfied with respect to the Class A-1 and Class
A-2 Certificates and that condition (h) as described above is likely to be
satisfied. Whether the other requirements of the Underwriter's Exemption are
met will depend upon the particular circumstances at the time a Plan acquires
the Certificates.
The Class B, Class C and Class D Certificates will not satisfy the
requirements of the Underwriter's Exemption; therefore, the purchase or
holding of such Classes of Certificates by a Plan could result in prohibited
transactions and the imposition of excise taxes or civil penalties. The Class
B, Class C and Class D Certificates may not be acquired on behalf of, or with
the assets of, any Plan. The foregoing prohibition does not apply to the
acquisition and holding of Class B, Class C and Class D by an insurance
company investing general account assets, provided that the requirements of
Section III of the Prohibited Transaction Class Exemption 95-60, 60 Fed. Reg.
35925 (July 12, 1995) ("PTCE 95-60") are satisfied with respect to such
acquisition and holding. Each purchaser of a Class B, Class C or Class D
Certificates will be deemed to represent, warrant and covenant that either (i)
it is not acquiring such Certificate with the assets of any Plan or (ii) it is
an insurance company and PTCE 95-60 applies to its acquisition and holding of
such Certificate. In addition, in no event will a Class B, Class C or Class D
Certificate, or any interest therein, be transferred unless the prospective
transferee has provided to the Certificate Registrar and the Depositor, a
certificate, in form satisfactory to the Certificate Registrar and the
Depositor, that either (i) it is not acquiring such Certificate with the
assets of any Plan or (ii) it is an insurance company and PTCE 95-60 applies
to its acquisition and holding of such Certificate.
BEFORE PURCHASING ANY OF THE OFFERED CERTIFICATES, A FIDUCIARY OF A PLAN
SHOULD ITSELF CONFIRM THAT THE CONDITIONS OF THE UNDERWRITER'S EXEMPTION AND
THE OTHER REQUIREMENTS DISCUSSED ABOVE AND IN THE PROSPECTUS (SEE "ERISA
CONSIDERATIONS" THEREIN) WOULD BE SATISFIED. DUE TO THE COMPLEXITY OF THE
APPLICABLE PROVISIONS OF ERISA AND THE CODE, IT IS PARTICULARLY IMPORTANT THAT
PERSONS RESPONSIBLE FOR INVESTMENT DECISIONS WITH RESPECT TO PLANS AND, IN
VIEW OF THE DECISION IN JOHN HANCOCK, INVESTMENT DECISIONS WITH RESPECT TO
INSURANCE COMPANY GENERAL ACCOUNTS, REVIEW CAREFULLY THE DISCUSSION ABOVE AND
IN THE PROSPECTUS, AND CONSULT THEIR COUNSEL REGARDING THE CONSEQUENCES UNDER
ERISA AND THE CODE OF ACQUIRING AND HOLDING THE OFFERED CERTIFICATES.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans.
PLAN OF DISTRIBUTION
The Depositor has entered into an underwriting agreement (the "Underwriting
Agreement") with CS First Boston Corporation, an affiliate of the Depositor,
and Morgan, Stanley & Co. as underwriters (together, the "Underwriters"). The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent, and that the Underwriters will be
obligated to purchase all of the Offered Certificates if any are purchased.
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Underwriters have agreed to purchase all of the Offered Certificates.
The Underwriters have advised the Depositor that the Underwriters propose to
offer the Offered Certificates from time to time for sale in one or more
negotiated transactions or otherwise at prices to be determined at the time of
sale. The Underwriters may effect such transactions by selling the Offered
Certificates to or through dealers and such dealers may receive compensation
in the form of underwriting discounts, concessions or commissions from the
Underwriters and any purchasers of the Offered Certificates for whom they may
act as agent.
S-72
<PAGE>
The Underwriters and any dealers that participate with the Underwriters in
the distribution of the Offered Certificates may be deemed to be underwriters,
and any discounts or commissions received by them and any profit on the resale
of Offered Certificates by them may be deemed to be underwriting discounts or
commissions, under the Securities Act of 1933, as amended.
The Depositor has agreed to indemnify the Underwriters against civil
liabilities, including liabilities under the Securities Act of 1933, as
amended, or contribute to payments the Underwriters may be required to make in
respect thereof.
LEGAL MATTERS
The legality of the Offered Certificates and the material federal income tax
consequences of the Offered Certificates will be passed upon for the Depositor
by Orrick, Herrington & Sutcliffe, San Francisco, California. The legality of
the Offered Certificates will be passed upon for the Underwriters by
Cadwalader, Wickersham & Taft, New York, New York.
RATINGS
It is a condition of the issuance of the Offered Certificates that the Class
A-1 Certificates and the Class A-2 Certificates each be rated "AAA" by
Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. ("S&P") and Duff & Phelps Credit Rating Co. ("D&P") that the Class B
Certificates be rated not lower than "AA" by S&P and "AA+" by D&P, that the
Class C Certificates be rated not lower than "A-" by S&P and "A" by D&P and
that the Class D Certificates be rated not lower than "BBB-" by S&P and "BBB"
by D&P.
The ratings on mortgage pass-through certificates address the likelihood of
the receipt by certificateholders of all distributions on the underlying
mortgage loans to which they are entitled, including the receipt of all
principal payments by the Final Rated Distribution Date. Such ratings address
the structural and legal aspects associated with the certificates, including
the nature of the underlying mortgage loans. Ratings on mortgage pass-through
certificates do not represent an assessment of (i) the likelihood or frequency
of principal prepayments made by mortgagors, (ii) the degree to which such
prepayments might differ from those originally anticipated, (iii) whether and
to what extent prepayment premiums will be received, or (iv) the possibility
that certificateholders might suffer a lower than anticipated yield. In
addition, the ratings do not represent any assessment of the yield to maturity
that investors may experience. In general, the ratings thus address credit
risk and not prepayment risk.
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 organizations. Each security rating should be evaluated independently
of any other security rating. In addition, a security rating does not address
the likelihood or frequency of prepayments of Mortgage Loans or the
corresponding effect on yield to investors. See "YIELD CONSIDERATIONS" herein.
S-73
<PAGE>
INDEX OF TERMS
<TABLE>
<S> <C>
ADA ........................................................... S-28
Additional Trust Fund Expenses ................................ S-15, S-55
Advances .......................... ........................... S-21, S-67
Appraisal Reduction ........................................... S-16, S-56
Appraisal Reduction Capitalization Amount ..................... S-17, S-56
Available Distribution Amount ................................. S-12, S-50
Balloon Loans ................................................. S-2, S-26
Balloon Payment ............................................... S-26
Bankruptcy Proceeding ......................................... S-55
Book-Entry Certificates ....................................... S-46
Borrower ...................................................... S-32
Cede .......................................................... S-46
CERCLA ........................................................ S-27
Certificate Principal Balance ................................. S-10, S-50
Certificate Rate .............................................. S-10, S-49
Certificateholders ............................................ S-45
Certificates .................................................. S-1, S-7, S-45
Class A-1 Certificate Rate .................................... S-2, S-10, S-49
Class A-2 Certificate Rate .................................... S-2, S-10, S-49
Class B Certificate Rate ...................................... S-2, S-11, S-49
Class C Certificate Rate ...................................... S-2, S-11, S-49
Class D Certificate Rate ...................................... S-2, S-11, S-49
Code .......................................................... S-69
Collection Account ............................................ S-54
Commission .................................................... S-3
CPR ........................................................... S-58
Cut-off Date................................................... S-8
D&P............................................................ S-1, S-24, S-73
Debt Service Coverage Ratio.................................... S-37
Debt Service Reduction......................................... S-55
Deferred Interest.............................................. S-11, S-49
Deficient Valuation............................................ S-55
Definitive Certificates........................................ S-49
Deleted Mortgage Loan.......................................... S-59
Delivery Date.................................................. S-8
Depositor...................................................... S-1, S-45
Determination Date............................................. S-9, S-48
Distribution Account........................................... S-54
Distribution Date.............................................. S-8, S-48
DTC............................................................ S-3, S-46
DTC Participants............................................... S-46
Due Period..................................................... S-9, S-48
ERISA.......................................................... S-23
Excess Prepayment Interest..................................... S-14, S-51
Extension Fee.................................................. S-20
Final Rated Distribution Date.................................. S-22
Fiscal Agent................................................... S-1, S-7
Indirect DTC Participants...................................... S-46
</TABLE>
S-74
<PAGE>
<TABLE>
<S> <C>
Interest Accrual Period..................................... S-9, S-49
Interest Distribution Amount................................ S-10, S-48
Liquidated Loan............................................. S-55
Loan-to-Value Ratio......................................... S-33
Major Obligor............................................... S-71
S-1, S-7, S-32, S-
Master Servicer............................................. 63
Modeling Assumptions........................................ S-59
Modified Lock-Box Account................................... S-54
Money Term.................................................. S-15, S-55
Monthly Payments............................................ S-33
Mortgage Loans.............................................. S-1, S-7, S-45
Mortgage Pool............................................... S-1, S-7, S-45
Mortgaged Properties........................................ S-32
Net Aggregate Prepayment Interest Shortfall................. S-14, S-51
Offered Certificates........................................ S-1, S-7, S-45
Operating Advisor........................................... S-8, S-66
Other Pools................................................. S-71
Pass-Through Rate........................................... S-10
Plans....................................................... S-70
PML......................................................... S-42
Pooling and Servicing Agreement............................. S-1, S-7, S-32
Prepayment Interest Shortfall............................... S-14, S-51
Prepayment Period........................................... S-9, S-44
Prime Rate.................................................. S-67
Principal Distribution Amount............................... S-12, S-50
Principal Prepayment........................................ S-9, S-48
Property Protection Advances................................ S-22, S-67
Rating Agencies............................................. S-51
Realized Loss............................................... S-58
Record Date................................................. S-9, S-48
REMIC....................................................... S-3, S-22, S-69
REO Property................................................ S-15
Report Date................................................. S-52
Residual Certificates....................................... S-1, S-7, S-45
Restricted Group............................................ S-71
RETECHS..................................................... S-42
Rules....................................................... S-47
Scheduled Payments.......................................... S-9, S-48
Scheduled Principal Balance................................. S-63
Seller...................................................... S-1, S-7, S-45
Servicer.................................................... S-62
Servicer Remittance Date.................................... S-53
Servicing Fee............................................... S-63
Servicing Fee Rate.......................................... S-20, S-63
S&P......................................................... S-1, S-24, S-73
Servicing Standard.......................................... S-62
Special Servicer............................................ S-8
Special Servicer Compensation............................... S-21, S-64
Special Servicing Fee....................................... S-21, S-73
Specially Serviced Mortgage Loan............................ S-65
Subordinate Certificates.................................... S-2, S-45
Substitute Mortgage Loan.................................... S-57
</TABLE>
S-75
<PAGE>
<TABLE>
<S> <C>
Trigger Event................................................... S-66
Trust Fund...................................................... S-1, S-7, S-45
Trustee......................................................... S-1, S-7, S-32
UCC............................................................. S-46
Underwriter's Exemption......................................... S-70
Underwriters.................................................... S-1, S-72
Underwriting Agreement.......................................... S-72
Wells Fargo..................................................... S-41
WFRFC........................................................... S-65
Workout Fee..................................................... S-21, S-64
Zoning Laws..................................................... S-28
</TABLE>
S-76
<PAGE>
ANNEX A
CHARACTERISTICS OF MORTGAGE LOANS
<TABLE>
<CAPTION>
UNITS/ YEAR BUILT
NET SQUARE OCCUPANCY OR LAST
PROPERTY NAME CITY STATE PROPERTY TYPE FEET PERCENTAGE RENOVATED
- ------------- ---- ----- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gateway Plaza........... Woodland Hills CA Retail 116,960 99% 1994
Laurel Promenade........ Studio City CA Retail 53,176 100 1993
Best Plaza.............. Pleasanton CA Retail 163,467 95 1995
Sunrise Village SC...... Citrus Heights CA Retail 125,232 94 1974
Upland SC............... Upland CA Retail 101,084 94 1995
Carwood Center.......... Lakewood CA Retail 110,282 95 1990
Campus
Office/Industrial...... Carlsbad CA Industrial 156,436 100 1987
Village Shopping Center. Tulare CA Retail 162,089 91 1972
Mountain Green SC....... Upland CA Retail 92,966 90 1978
Savannah Ridge.......... Austin TX Multifamily 290 93 1995
Palomar Commerce Center. Chula Vista CA Industrial 118,960 93 1986
13430 N. Black Canyon... Phoenix AZ Office 137,058 100 1994
Central Valley Plaza.... Modesto CA Retail 103,909 100 1989
Yorba Linda Pines....... Yorba Linda CA Multifamily 120 100 1995
LaPlata SC.............. LaPlata MD Retail 69,729 100 1971
Opus I & II............. Carlsbad CA Office 87,264 88 1989
Pinewood................ Sacramento CA Multifamily 249 88 1973
1237 N. Tustin Ave...... Orange CA Retail 47,552 100 1986
Towers at South Towne... South Jordan UT Office 68,185 95 1992
Wimbledon SC............ Arlington TX Retail 44,387 100 1988
College Park Plaza SC... Frederick MD Retail 41,878 94 1987
Hoover Marketplace SC... Fresno CA Retail 38,079 97 1992
Enea Plaza II........... Dublin CA Retail 31,822 100 1992
Conejo Valley Plaza..... Thousand Oaks CA Retail 37,692 100 1972
State of California..... Sacramento CA Office 61,207 100 1974
Selma Plaza............. Selma CA Retail 41,965 100 1987
Pueblo at Sumerlin...... Las Vegas NV Retail 30,425 100 1994
Plaza Freeway........... Big Bear Lake CA Retail 90,284 100 1974
Arlon Inc............... Santa Ana CA Industrial 124,478 100 1977
Village Park SC......... Colleyville TX Retail 45,153 100 1989
Westridge Tech Center... Irving TX Industrial 90,755 100 1986
Otis Spunkmeyer......... San Leandro CA Industrial 90,725 100 1980
Plantation West......... Hurst TX Multifamily 132 95 1985
State of California..... Chula Vista CA Office 22,865 100 1995
LaVerne Plaza........... La Verne CA Retail 39,618 100 1979
Southlake Marketplace... Southlake TX Retail 23,176 100 1994
Sunset Place............ Las Vegas NV Retail 25,600 100 1988
1015 Lawson............. Industry CA Industrial 108,000 93 1980
Rheem Valley SC......... Moraga CA Retail 36,847 96 1984
Discovery Plaza......... Placerville CA Retail 27,730 100 1985
County of San Bernadino. Ontario CA Office 33,000 100 1992
Scottsdale Springs...... Scottsdale AZ Multifamily 69 100 1987
Westwood Villa.......... El Centro CA Multifamily 72 97 1991
Interpark............... Houston TX Industrial 62,300 100 1994
Sycamore Plaza.......... San Juan Capistrano CA Industrial 37,847 100 1977
Old Town Mall Annex..... Reno NV Retail 23,967 100 1987
Walnut Center........... Dallas TX Industrial 72,114 96 1978
5800 College Ave........ Oakland CA Retail 12,668 100 1990
Eibach Springs.......... Irvine CA Industrial 50,230 100 1986
Airbourne Express....... Redwood City CA Industrial 43,250 100 1994
San Jacinto Plaza....... Denton TX Retail 38,160 90 1985
Center Tech Plaza....... Aurora CO Retail 45,770 94 1986
1050-1070 East
Dominguez.............. Carson CA Industrial 53,590 100 1977
3330 Geary Street....... San Francisco CA Office 20,675 100 1992
345 Coney Island Drive.. Sparks NV Industrial 76,247 100 1976
Sacramento Theatrical
Light.................. Sacramento CA Industrial 59,280 100 1989
Endar Corp.............. Temecula CA Industrial 76,886 100 1986
2200-2236 South Vineyard
Ave. .................. Ontario CA Industrial 78,848 100 1977
Parisian Bread.......... San Diego CA Industrial 28,148 100 1972
MMM Carpets............. San Leandro CA Retail 28,000 100 1973
Blockbuster/Radio Shack. Sherman Oaks CA Retail 9,287 100 1991
Ridge Point............. Macon GA Multifamily 40 98 1987
Auburn Plaza............ Sacramento CA Retail 20,110 100 1980
OfficeMax............... Roseville CA Retail 23,640 100 1994
</TABLE>
A-1
<PAGE>
ANNEX A
<TABLE>
<CAPTION>
ORIGINAL
TERM TO
ORIGINAL CUT-OFF DATE SCHEDULED STATED
PRINCIPAL PRINCIPAL MORTGAGE MONTHLY MATURITY MATURITY
PROPERTY NAME BALANCE BALANCE RATE PAYMENT (MONTHS) DATE
- ------------- --------- ------------ -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Gateway Plaza........... $ 23,084,586 $ 23,084,586 7.800% $175,122.99 60 12/01/00
Laurel Promenade........ 11,500,000 11,442,765 9.270 96,840.21 84 05/01/02
Best Plaza.............. 10,300,000 10,279,538 8.370 82,038.00 84 10/01/02
Sunrise Village SC...... 9,300,000 9,264,742 8.380 70,719.54 120 06/01/05
Upland SC............... 8,450,000 8,432,514 8.120 65,891.62 84 11/01/02
Carwood Center.......... 8,000,000 7,971,469 8.480 65,981.64 120 09/01/05
Campus
Office/Industrial...... 7,500,000 7,467,859 10.330 67,654.04 83 01/01/02
Village Shopping Center. 7,200,000 7,170,048 8.130 56,192.24 120 08/01/05
Mountain Green SC....... 6,675,000 6,661,366 8.200 52,406.21 120 10/01/05
Savannah Ridge.......... 6,500,000 6,477,887 8.910 51,880.10 119 05/01/05
Palomar Commerce Center. 6,290,000 6,269,484 8.350 53,990.40 120 10/01/05
13430 N. Black Canyon... 6,135,000 6,114,408 8.120 51,774.72 120 10/01/05
Central Valley Plaza.... 5,960,000 5,938,538 7.550 48,195.74 179 10/01/10
Yorba Linda Pines....... 5,600,000 5,592,383 7.950 40,895.79 120 11/01/05
LaPlata SC.............. 5,500,000 5,482,790 8.410 41,939.93 120 07/01/05
Opus I & II............. 5,500,000 5,475,578 9.050 44,452.26 84 04/01/02
Pinewood................ 5,220,000 5,144,521 8.557 39,910.88 121 04/01/04
1237 N. Tustin Ave...... 5,100,000 5,089,169 7.960 39,227.58 119 10/01/05
Towers at South Towne... 4,500,000 4,478,186 8.550 35,634.00 121 07/01/05
Wimbledon SC............ 4,150,000 4,128,521 8.180 32,526.79 83 06/01/02
College Park Plaza SC... 3,800,000 3,788,515 8.580 29,434.43 120 07/01/05
Hoover Marketplace SC... 3,645,000 3,633,618 8.420 27,820.50 84 07/01/02
Enea Plaza II........... 3,550,000 3,526,189 8.380 29,487.06 84 07/01/02
Conejo Valley Plaza..... 3,550,000 3,479,594 8.510 28,208.74 96 04/01/02
State of California..... 3,300,000 3,273,118 8.780 33,040.30 180 09/01/10
Selma Plaza............. 3,300,000 3,271,723 8.800 27,162.56 84 01/01/02
Pueblo at Sumerlin...... 3,250,000 3,244,064 8.510 25,012.72 120 09/01/05
Plaza Freeway........... 3,200,000 3,184,301 8.510 25,788.83 120 07/01/05
Arlon Inc............... 3,200,000 3,172,041 9.400 29,619.54 120 06/01/05
Village Park SC......... 3,100,000 3,091,014 8.560 25,087.51 83 08/01/02
Westridge Tech Center... 3,000,000 2,991,417 8.640 24,440.50 84 09/01/02
Otis Spunkmeyer......... 2,940,000 2,926,407 8.830 26,131.36 83 08/01/02
Plantation West......... 2,600,000 2,594,835 8.370 20,708.62 120 10/01/05
State of California..... 2,590,000 2,556,572 8.200 25,970.13 120 08/01/05
LaVerne Plaza........... 2,560,000 2,544,821 9.450 22,277.72 120 05/01/05
Southlake Marketplace... 2,400,000 2,391,666 8.810 18,983.75 120 06/01/05
Sunset Place............ 2,400,000 2,387,445 10.290 21,577.83 84 12/01/01
1015 Lawson............. 2,340,000 2,316,666 8.250 18,379.00 84 02/01/02
Rheem Valley SC......... 2,300,000 2,291,511 9.280 18,971.56 85 06/01/02
Discovery Plaza......... 2,300,000 2,282,479 8.500 18,469.90 120 02/01/05
County of San Bernadino. 2,020,000 1,997,686 8.630 20,045.97 180 08/01/10
Scottsdale Springs...... 1,960,000 1,951,373 9.680 16,738.76 84 03/01/02
Westwood Villa.......... 1,900,000 1,890,054 8.110 14,803.23 120 07/01/05
Interpark............... 1,870,000 1,863,308 9.050 15,757.05 84 08/01/02
Sycamore Plaza.......... 1,850,000 1,828,315 8.630 14,954.55 95 06/15/02
Old Town Mall Annex..... 1,700,000 1,681,301 9.890 16,281.66 120 04/01/05
Walnut Center........... 1,650,000 1,644,144 9.100 13,959.90 83 07/01/02
5800 College Ave........ 1,627,500 1,619,937 8.790 14,423.96 121 10/01/05
Eibach Springs.......... 1,550,000 1,545,112 8.620 13,569.21 120 10/01/05
Airbourne Express....... 1,500,000 1,484,667 9.380 13,864.64 120 05/01/05
San Jacinto Plaza....... 1,450,000 1,440,425 9.630 12,799.88 120 04/01/05
Center Tech Plaza....... 1,425,000 1,420,794 8.450 11,426.51 84 09/01/02
1050-1070 East
Dominguez.............. 1,425,000 1,420,461 8.540 12,402.58 84 10/01/02
3330 Geary Street....... 1,350,000 1,334,392 8.000 10,354.22 84 08/02/01
345 Coney Island Drive.. 1,125,000 1,122,907 8.770 9,264.41 120 10/01/05
Sacramento Theatrical
Light.................. 1,100,000 1,087,924 8.700 10,961.48 179 07/01/10
Endar Corp.............. 1,050,000 1,039,108 8.820 8,632.68 84 01/01/02
2200-2236 South Vineyard
Ave. .................. 1,000,000 997,227 8.830 8,275.86 120 09/01/05
Parisian Bread.......... 1,000,000 996,258 8.780 8,241.83 120 08/01/05
MMM Carpets............. 1,000,000 994,560 8.720 9,976.78 180 10/01/10
Blockbuster/Radio Shack. 990,000 983,790 8.720 8,729.79 120 08/01/05
Ridge Point............. 920,000 915,009 8.750 9,194.93 179 09/01/10
Auburn Plaza............ 900,000 897,574 9.000 7,552.77 83 08/01/02
OfficeMax............... 800,000 781,097 9.420 8,315.22 180 03/01/10
------------ ------------
TOTAL.................. $244,952,086 $243,851,771
============ ============
</TABLE>
A-2
<PAGE>
ANNEX A
<TABLE>
<CAPTION>
DEBT
SERVICE
UNDERWRITTEN COVERAGE PREPAYMENT
LTV NOI(/1/) RATIO PROVISION(/2/)
--- ------------ -------- --------------
<C> <C> <C> <S>
66.34% $3,258,837 1.55x LO, LO, 2%, 2%, 1%, 0% last 4 mos.
68.11 1,570,163 1.35 LO, LO, LO, 4%, 3%, 2%, 1%, 0% last 4 mos.
73.16 1,341,471 1.36 LO, LO, LO, 4%, 3%, 2%, 1%, 0% last 6 mos.
61.76 1,432,664 1.69 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
76.66 1,075,878 1.36 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
66.43 1,159,354 1.46 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
72.29 1,087,634 1.34 5%, 5%, 5%, 4%, 3%, 2%, 1%
59.01 1,257,269 1.86 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 3 mos.
70.87 952,670 1.51 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
63.98 907,114 1.46 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
64.63 982,836 1.52 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
62.71 880,361 1.42 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
77.12 736,671 1.27 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
69.90 775,931 1.58 LO, LO, LO, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
73.10 702,632 1.40 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
63.30 908,876 1.70 5%, 5%, 5%, 5%, 5%, 2%, 1%
70.47 640,578 1.34 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
72.19 682,810 1.45 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 9 mos.
53.95 771,201 1.80 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 3 mos.
69.97 588,347 1.51 5%, 5%, 5%, 4%, 3%, 2%, 1%
71.48 485,127 1.37 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
74.77 479,249 1.44 5%, 5%, 5%, 4%, 3%, 2%, 1%
74.24 461,396 1.30 5%, 5%, 5%, 4%, 3%, 2%, 1%
63.27 504,946 1.49 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
56.43 538,673 1.36 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
71.12 468,662 1.44 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
58.56 563,552 1.88 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
66.34 418,996 1.35 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
53.76 463,096 1.30 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
63.08 490,171 1.63 5%, 5%, 5%, 4%, 3%, 2%, 1%
66.48 400,412 1.37 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
69.68 362,125 1.15 5%, 5%, 5%, 4%, 3%, 2%, 1%
75.21 334,239 1.35 LO, LO, LO, LO, 5%, 5%, 4%, 3%, 2%, 1%
68.54 362,777 1.16 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
70.69 358,374 1.34 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
74.74 335,215 1.47 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
70.22 373,038 1.44 LO, LO, LO, 4%, 3%, 2%, 1%
56.50 343,860 1.56 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
72.52 271,852 1.19 5%, 5%, 5%, 4%, 3%, 2%, 1%
68.54 321,961 1.45 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
57.90 423,398 1.76 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
63.98 239,300 1.19 4%, 4%, 4%, 4%, 3%, 2%, 1%
65.17 268,218 1.51 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
70.05 274,339 1.45 5%, 5%, 5%, 4%, 3%, 2%, 1%
68.99 267,250 1.49 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
67.93 273,722 1.40 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
74.73 237,605 1.42 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
67.36 232,844 1.35 LO, LO, LO, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
68.98 203,640 1.25 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
63.94 207,943 1.25 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
57.62 255,018 1.66 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
67.66 218,955 1.60 5%, 5%, 5%, 4%, 3%, 2%, 1%
74.76 202,324 1.36 LO, LO, LO, 4%, 3%, 2%, 1%, 0% last 6 mos.
47.91 238,633 1.92 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
74.86 168,088 1.51 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
73.76 158,059 1.20 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
49.72 242,889 2.34 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
57.81 165,354 1.67 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
75.47 127,856 1.29 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
66.30 154,774 1.29 LO, LO, LO, LO, LO, LO, LO, LO, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
47.76 166,647 1.59 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
65.36 137,487 1.25 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
69.04 127,152 1.40 5%, 5%, 5%, 4%, 3%, 2%, 1%, 0% last 6 mos.
27.70 235,308 2.36 5%, 5%, 5%, 5%, 5%, 5%, 4%, 3%, 2%, 1%
</TABLE>
Footnotes on Following Page
A-3
<PAGE>
(1) Underwritten NOI as calculated by the Seller and based upon methodology
and assumptions as described in "DESCRIPTION OF THE MORTGAGE POOL AND THE
UNDERLYING MORTGAGE PROPERTIES--Certain Characteristics of the Mortgage
Loans.
(2) Prepayment provisions as of the first Scheduled Payment, excluding any
interest-only period. "LO" denotes "Lock-out". Each column represents a
twelve-month period from the first principal and interest payment.
A-4
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ 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 DECEMBER 7, 1995
CS First Boston Mortgage Securities Corp.
Depositor
Commercial/Multifamily Mortgage Pass-Through Certificates
(Issuable in Series)
----------
CS First Boston Mortgage Securities Corp. (the "Depositor") from time to time
will offer Commercial/Multifamily Mortgage Pass-Through Certificates (the
"Certificates") in "Series" by means of this Prospectus and a separate
Prospectus Supplement for each Series. The Certificates of each Series will
evidence beneficial ownership interests in a trust fund (the "Trust Fund") to be
established by the Depositor. The Certificates of a Series may be divided into
two or more "Classes" which may have different interest rates and which may
receive principal payments in differing proportions and at different times. In
addition, rights of the holders of certain Classes to receive principal and
interest may be subordinated to those of other Classes.
Each Trust Fund will consist of a pool (the "Mortgage Pool") of one or more
mortgage loans secured by first or junior liens on commercial real estate
properties, multifamily residential properties, cooperatively owned multifamily
properties and/or mixed residential/commercial properties, and related property
and interests, conveyed to such Trust Fund by the Depositor, and other assets,
including any reserve funds established with respect to a Series, insurance
policies on the Mortgage Loans, letters of credit, certificate guarantee
insurance policies or other enhancement described in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, the Mortgage
Pool may also include participation interests in such types of mortgage loans,
installment contracts for the sale of such types of properties and/or mortgage
pass-through certificates. Such mortgage loans, participation interests,
mortgage pass-through certificates and installment contracts are hereinafter
referred to as the "Mortgage Loans." The Mortgage Loans will have fixed or
adjustable interest rates. Some Mortgage Loans will fully amortize over their
remaining terms to maturity and others will provide for balloon payments at
maturity. The Mortgage Loans will provide for recourse against only the
Mortgaged Properties or provide for recourse against the other assets of the
obligors thereunder. The Mortgage Loans will be newly originated or seasoned,
and will be acquired by the Depositor either directly or through one or more
affiliates. Information regarding each Series of Certificates, including
interest and principal payment provisions for each Class, as well as information
regarding the size, composition and other characteristics of the Mortgage Pool
relating to such Series, will be furnished in the related Prospectus Supplement.
The Mortgage Loans will be serviced by a Master Servicer identified in the
related Prospectus Supplement.
The Certificates do not represent an obligation of or an interest in the
Depositor or any affiliate thereof. Unless so specified in the related
Prospectus Supplement, neither the Certificates nor the Mortgage Loans are
insured or guaranteed by any governmental agency or instrumentality or
by any other person or entity.
The Depositor, as specified in the related Prospectus Supplement, may elect to
treat all or a specified portion of the collateral securing any Series of
Certificates as a "real estate mortgage investment conduit" (a "REMIC"), or an
election may be made to treat the arrangement by which a Series of Certificates
is issued as a REMIC. If such election is made, each Class of Certificates of a
Series will be either Regular Interest Certificates or Residual Interest
Certificates, as specified in the related Prospectus Supplement. If no such
election is made, the Trust Fund, as specified in the related Prospectus
Supplement, will be classified as a grantor trust for federal income tax
purposes. See "Certain Federal Income Tax Consequences."
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------
Offers of the Certificates may be made through one or more different methods,
including offerings through underwriters, which may include CS First Boston
Corporation, an affiliate of the Depositor, as more fully described under "Plan
of Distribution" herein and in the related Prospectus Supplement. Certain of-
ferings of the Certificates, as specified in the related Prospectus Supplement,
may be made in one or more transactions exempt from the registration require-
ments of the Securities Act of 1933, as amended. Such offerings are not being
made pursuant to the Registration Statement of which this Prospectus forms a
part.
There will have been no public market for the Certificates of any Series
prior to the offering thereof. No assurance can be given that such a market
will develop as a result of such offering or, if it does develop, that it will
continue.
This Prospectus may not be used to consummate sales of the Certificates of-
fered hereby unless accompanied by a Prospectus Supplement.
CS First Boston
The date of this Prospectus is December 7, 1995.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to each Series of Certificates will,
among other things, set forth with respect to such Series of Certificates: (i)
the identity of each Class within such Series; (ii) the initial aggregate
principal amount, the interest rate (the "Pass-Through Rate") (or the method
for determining it) and the authorized denominations of each Class of
Certificates of such Series; (iii) certain information concerning the Mortgage
Loans relating to such Series, including the principal amount, type and
characteristics of such Mortgage Loans on the date of issue of such Series of
Certificates, and, if applicable, the amount of any Reserve Fund for such
Series; (iv) the circumstances, if any, under which the Certificates of such
Series are subject to redemption prior to maturity; (v) the final scheduled
distribution date of each Class of Certificates of such Series; (vi) the
method used to calculate the aggregate amount of principal available and
required to be applied to the Certificates of such Series on each Distribution
Date; (vii) the order of the application of principal and interest payments to
each Class of Certificates of such Series and the allocation of principal to
be so applied; (viii) the extent of subordination of any Subordinate
Certificates; (ix) the principal amount of each Class of Certificates of such
Series that would be outstanding on specified Distribution Dates, if the
Mortgage Loans relating to such Series were prepaid at various assumed rates;
(x) the Distribution Dates for each Class of Certificates of such Series; (xi)
relevant financial information with respect to the Borrower(s) and the
Mortgaged Properties underlying the Mortgage Loans relating to such Series, if
applicable; (xii) information with respect to the terms of the Subordinate
Certificates or Residual Interest Certificates, if any, of such Series; (xiii)
additional information with respect to the Enhancement relating to such
Series; (xiv) additional information with respect to the plan of distribution
of such Series; and (xv) whether the Certificates of such Series will be
registered in the name of the nominee of The Depository Trust Company or
another depository.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series of
Certificates will contain, a summary of the material terms of the documents
referred to herein and therein, but neither contains nor will contain all of
the information set forth in the Registration Statement (the "Registration
Statement") of which this Prospectus and the related Prospectus Supplement is
a part. For further information, reference is made to such Registration
Statement and the exhibits thereto which the Depositor has filed with the
Securities and Exchange Commission (the "Commission"), under the Securities
Act of 1933, as amended (the "Act"). Statements contained in this Prospectus
and any Prospectus Supplement as to the contents of any contract or other
document referred to are summaries and in each instance reference is made to
the copy of the contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Copies of the Registration Statement may be obtained from the
Commission, upon payment of the prescribed charges, or may be examined free of
charge at the Commission's offices. Reports and other information filed with
the Commission can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Regional Offices of the Commission at Seven World Trade
Center, 13th Floor, New York, New York 10048; and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Copies
of the Agreement pursuant to which a Series of Certificates is issued will be
provided to each person to whom a Prospectus and the related Prospectus
Supplement are delivered, upon written or oral request directed to: Treasurer,
CS First Boston Mortgage Securities Corp., Park Avenue Plaza, 55 East 52nd
Street, New York, New York 10055, telephone number (212) 909-2000.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
prior to the termination of the offering of Certificates offered hereby. The
Depositor will provide or
2
<PAGE>
cause to be provided without charge to each person to whom this Prospectus is
delivered in connection with the offering of one or more Classes of
Certificates, upon request, a copy of any or all such documents or reports
incorporated herein by reference, in each case to the extent such documents or
reports relate to one or more of such Classes of such Certificates, other than
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests to the Depositor should
be directed to: CS First Boston Mortgage Securities Corp., Park Avenue Plaza,
55 East 52nd Street, New York, New York 10055, telephone number (212) 909-
2000.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on December 31,
1985, as a wholly-owned subsidiary of CS First Boston Securities Corporation
("CSFBSC"). CSFBSC is a wholly-owned subsidiary of CS First Boston, Inc. CS
First Boston Corporation, which may act as an underwriter in offerings made
hereby, as described in "PLAN OF DISTRIBUTION" below, is also a wholly-owned
subsidiary of CS First Boston, Inc. The principal executive offices of the
Depositor are located at 55 East 52nd Street, New York, N.Y. 10055. Its
telephone number is (212) 909-2000.
The Depositor was organized, among other things, for the purposes of
establishing trusts, selling beneficial interests therein and acquiring and
selling mortgage assets to such trusts. Neither the Depositor, its parent nor
any of the Depositor's affiliates will insure or guarantee distributions on
the Certificates of any Series.
The assets of the Trust Funds will be acquired by the Depositor directly or
through one or more affiliates.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from
the sale of each Series offered hereby and by the related Prospectus
Supplement to purchase the Mortgage Loans relating to such Series, to repay
indebtedness which has been incurred to obtain funds to acquire Mortgage
Loans, to establish the Reserve Funds, if any, for the Series, to obtain other
Enhancement, if any, for the Series and to pay costs of structuring and
issuing the Certificates. If so specified in the related Prospectus
Supplement, Certificates may be exchanged by the Depositor for Mortgage Loans.
DESCRIPTION OF THE CERTIFICATES*
The Certificates of each Series will be issued pursuant to a separate
Pooling and Servicing Agreement (the "Agreement") to be entered into among the
Depositor, the Master Servicer and the Trustee for that Series and any other
parties described in the applicable Prospectus Supplement, substantially in
the form filed as an exhibit to the Registration Statement of which this
Prospectus is a part or in such other form as may be described in the
applicable Prospectus Supplement. The following summaries describe certain
provisions expected to be common to each Series and the Agreement with respect
to the underlying Trust Fund. However, the Prospectus Supplement for each
Series will describe more fully the Certificates and the provisions of the
related Agreement, which may be different from the summaries set forth below.
At the time of issuance, the Certificates of each Series will be rated
"investment grade," typically one of the four highest generic rating
categories, by at least one nationally recognized statistical rating
organization. Each of such rating organizations specified in the applicable
Prospectus Supplement as rating the Certificates of the related Series is
hereinafter referred to as a "Rating Agency." 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.
- --------
* Whenever in this Prospectus the terms "Certificates," "Trust Fund" and
"Mortgage Pool" are used, such terms will be deemed to apply, unless the
context indicates otherwise, for a specific Series of Certificates, the
Trust Fund underlying the related Series and the related Mortgage Pool.
3
<PAGE>
GENERAL
The Certificates of each Series will be issued in registered or book-entry
form and will represent beneficial ownership interests in the trust fund (the
"Trust Fund") created pursuant to the Agreement for such Series. The Trust
Fund for each Series will comprise, to the extent provided in the Agreement:
(i) the Mortgage Pool, consisting primarily of the Mortgage Loans conveyed to
the Trustee pursuant to the Agreement; (ii) all payments on or collections in
respect of the Mortgage Loans; (iii) all property acquired by foreclosure or
deed in lieu of foreclosure with respect to the Mortgage Loans; and (iv) such
other assets or rights as are described in the related Prospectus Supplement.
In addition, the Trust Fund for a Series may include private mortgage pass-
through certificates, certificates issued or guaranteed by the Federal Home
Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association
("FNMA") or the Governmental National Mortgage Association ("GNMA") or
mortgage pass-through certificates previously created by the Depositor, as
well as various forms of credit enhancement, such as, but not limited to,
insurance policies on the Mortgage Loans, letters of credit, certificate
guarantee insurance policies, the right to make draws upon one or more Reserve
Funds or other arrangements acceptable to each Rating Agency rating the
Certificates. See "ENHANCEMENT." Such other assets will be described more
fully in the related Prospectus Supplement.
If so specified in the applicable Prospectus Supplement, Certificates of a
given Series may be issued in several Classes which may pay interest at
different rates, may represent different allocations of the right to receive
principal and interest payments, and certain of which may be subordinated to
other Classes in the event of shortfalls in available cash flow from the
underlying Mortgage Loans. Alternatively, or in addition, Classes may be
"time-tranched" and, therefore, structured to receive principal payments in
sequence. Each Class in a group of "time-tranched" Classes would be entitled
to be paid in full before the next Class in the group is entitled to receive
any principal payments. A Class of Certificates may also provide for payments
of principal only or interest only or for disproportionate payments of
principal and interest. Subordinate Certificates of a given Series of
Certificates may be offered in the same Prospectus Supplement as the Senior
Certificates of such Series or may be offered in a separate Prospectus
Supplement. Each Class of Certificates of a Series will be issued in the
minimum denominations specified in the related Prospectus Supplement.
The Prospectus Supplement for any Series including Classes similar to any of
those described above will contain a complete description of their
characteristics and risk factors, including, as applicable, (i) mortgage
principal prepayment effects on the weighted average lives of Classes, (ii)
the risk that interest only, or disproportionately interest weighted, Classes
purchased at a premium may not return their purchase prices under rapid
prepayment scenarios and (iii) the degree to which an investor's yield is
sensitive to principal prepayments.
The Certificates of each Series will be freely transferable and exchangeable
at the office specified in the related Agreement and Prospectus Supplement,
provided, however, that certain Classes of Certificates may be subject to
transfer restrictions described in the related Prospectus Supplement. If
specified in the related Prospectus Supplement, the Certificates may be
transferable only on the books of The Depository Trust Company or another
depository identified in such Prospectus Supplement.
DISTRIBUTIONS ON CERTIFICATES
Distributions of principal and interest on the Certificates of each Series
will be made to the registered holders thereof ("Certificateholders" or
"Holders") by the Trustee (or such other paying agent as may be identified in
the related Prospectus Supplement) on the day (the "Distribution Date")
specified in the related Prospectus Supplement, beginning in the period
specified in the related Prospectus Supplement following the establishment of
the related Trust Fund. Distributions for each Series will be made by check
mailed to the address of the person entitled thereto as it appears on the
certificate register for such Series maintained by the Trustee, by wire
transfer or by such other method as is specified in the related Prospectus
Supplement. Unless otherwise specified in the applicable Prospectus
Supplement, the final distribution in retirement of the Certificates of each
Series will be made only upon presentation and surrender of the Certificates
at the office or agency specified in the notice to the Certificateholders of
such final distribution. In addition, the Prospectus Supplement relating to
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each Series will set forth the applicable due period, prepayment period,
record date, Cut-Off Date and determination date in respect of each Series of
Certificates.
With respect to each Series of Certificates on each Distribution Date, the
Trustee (or such other paying agent as may be identified in the applicable
Prospectus Supplement) will distribute to the Certificateholders the amounts
described in the related Prospectus Supplement that are due to be paid on such
Distribution Date. In general, such amounts will include previously
undistributed payments of principal (including principal prepayments, if any)
and interest on the Mortgage Loans received by the Trustee after a date
specified in the related Prospectus Supplement (the "Cut-Off Date") and prior
to the day preceding each Distribution Date specified in the related
Prospectus Supplement.
ACCOUNTS
It is expected that the Agreement for each Series of Certificates will
provide that the Trustee establish an account (the "Distribution Account")
into which the Master Servicer will deposit amounts held in the Collection
Account from which account distributions will be made with respect to a given
Distribution Date. On each Distribution Date, the Trustee will apply amounts
on deposit in the Distribution Account generally to make distributions of
interest and principal to the Certificateholders in the manner described in
the related Prospectus Supplement.
It is also expected that the Agreement for each Series of Certificates will
provide that the Master Servicer establish and maintain a special trust
account (the "Collection Account") in the name of the Trustee for the benefit
of Certificateholders. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer will deposit into the Collection Account, as
more fully described in the related Prospectus Supplement: (1) all payments on
account of principal, including principal prepayments, on the Mortgage Loans;
(2) all payments on account of interest on the Mortgage Loans and all
Prepayment Premiums; (3) all proceeds from any insurance policy relating to a
Mortgage Loan ("Insurance Proceeds") other than proceeds applied to
restoration of the related Mortgaged Property; (4) all proceeds from the
liquidation of a Mortgage Loan ("Liquidation Proceeds"), including the sale of
any Mortgaged Property acquired on behalf of the Trust Fund through
foreclosure or deed in lieu of foreclosure ("REO Property"); (5) all proceeds
received in connection with the taking of a Mortgaged Property by eminent
domain; (6) any amounts required to be deposited by the Master Servicer to
cover net losses on Permitted Investments made with funds held in the
Collection Account; (7) any amounts required to be deposited in connection
with the application of co-insurance clauses, flood damage to REO Properties
and blanket policy deductibles; (8) any amounts required to be deposited from
income with respect to any REO Property; and (9) any amounts received from
Borrowers which represent recoveries of Property Protection Expenses.
"Prepayment Premium" means any premium paid or payable by the related Borrower
in connection with any principal prepayment on any Mortgage Loan. "Property
Protection Expenses" comprise certain costs and expenses incurred in
connection with defaulted Mortgage Loans, acquiring title or management of REO
Property or the sale of defaulted Mortgage Loans or REO Properties, as more
fully described in the related Agreement. As set forth in the Agreement for
each Series, the Master Servicer will be entitled to make certain withdrawals
from the Collection Account to, among other things: (i) remit certain amounts
for the related Distribution Date into the Distribution Account; (ii)
reimburse Property Protection Expenses and pay taxes, assessments and
insurance premiums and certain third-party expenses in accordance with the
Agreement; (iii) pay accrued and unpaid servicing fees to the Master Servicer
out of all Mortgage Loan collections; and (iv) reimburse the Master Servicer,
the Trustee and the Depositor for certain expenses and provide indemnification
to the Depositor and the Master Servicer as described in the Agreement.
The amount at any time credited to the Collection Account may be invested in
Permitted Investments that are payable on demand or in general mature or are
subject to withdrawal or redemption on or before the business day preceding
the next succeeding Master Servicer Remittance Date. The Master Servicer will
be required to remit amounts required for distribution to Certificateholders
to the Distribution Account on the business day preceding the related
Distribution Date (the "Master Servicer Remittance Date"). The income from the
investment of funds in the Collection Account in Permitted Investments will
constitute additional servicing
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compensation for the Master Servicer, and the risk of loss of funds in the
Collection Account resulting from such investments will be borne by the Master
Servicer. The amount of each such loss will be required to be deposited by the
Master Servicer in the Collection Account immediately as realized.
It is expected that the Agreement for each Series of Certificates will
provide that a special trust account (the "REO Account") will be established
and maintained in order to be used in connection with REO Properties and, if
specified in the related Prospectus Supplement, certain other Mortgaged
Properties. To the extent set forth in the Agreement, certain withdrawals from
the REO Account will be made to, among other things, (i) make remittances to
the Collection Account as required by the Agreement, (ii) pay taxes,
assessments, insurance premiums, other amounts necessary for the proper
operation, management and maintenance of the REO Properties and such Mortgaged
Properties and certain third-party expenses in accordance with the Agreement
and (iii) provide for the reimbursement of certain expenses in respect of the
REO Properties and such Mortgaged Properties.
The amount at any time credited to the REO Account will be fully insured to
the maximum coverage possible or will be invested in Permitted Investments
that mature, or are subject to withdrawal or redemption, on or before the
business day on which such amounts are required to be remitted to the Master
Servicer for deposit in the Collection Account. The income from the investment
of funds in the REO Account in Permitted Investments shall be deposited in the
REO Account for remittance to the Collection Account, and the risk of loss of
funds in the REO Account resulting from such investments will be borne by the
Trust Fund.
Unless otherwise specified in the applicable Prospectus Supplement,
"Permitted Investments" will consist of one or more of the following:
(i) direct obligations of, or guarantees as to timely payment of
principal and interest by, the United States or any agency or
instrumentality thereof provided that such obligations are backed by the
full faith and credit of the United States of America;
(ii) direct obligations of, or guarantees as to timely payment of
principal and interest by, the FHLMC, FNMA or the Federal Farm Credit
System, provided that any such obligation, at the time of purchase of such
obligation or contractual commitment providing for the purchase thereof, is
qualified by each Rating Agency as an investment of funds backing
securities having ratings equivalent to each Rating Agency's highest
initial rating of the Certificates;
(iii) demand and time deposits in or certificates of deposit of, or
bankers' acceptances issued by, any bank or trust company, savings and loan
association or savings bank, provided that, in the case of obligations that
are not fully FDIC-insured deposits, the commercial paper and/or long-term
unsecured debt obligations of such depository institution or trust company
(or in the case of the principal depository institution in a holding
company system, the commercial paper or long-term unsecured debt
obligations of such holding company) have the highest rating available for
such securities by each Rating Agency (in the case of commercial paper) or
have received one of the two highest ratings available for such securities
by each Rating Agency (in the case of long-term unsecured debt
obligations), or such lower rating as will not result in the downgrade or
withdrawal of the rating or ratings then assigned to the Certificates by
any Rating Agency;
(iv) general obligations of or obligations guaranteed by any state of the
United States or the District of Columbia receiving one of the two highest
long-term debt ratings available for such securities by each Rating Agency,
or such lower rating as will not result in the downgrading or withdrawal of
the rating or ratings then assigned to the Certificates by any such Rating
Agency;
(v) commercial or finance company paper (including both non-interest-
bearing discount obligations and interest-bearing obligations payable on
demand or on a specified date not more than one year after the date of
issuance thereof) that is rated by each Rating Agency in its highest short-
term unsecured rating category at the time of such investment or
contractual commitment providing for such investment, and is issued by a
corporation the outstanding senior long-term debt obligations of which are
then rated by each Rating Agency in one of its two highest long-term
unsecured rating categories, or such lower rating as will
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not result in the downgrading or withdrawal of the rating or ratings then
assigned to the Certificates by any Rating Agency;
(vi) guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation rated in one of the two highest ratings
available to such issuers by each Rating Agency at the time of such
investment provided that any such agreement must by its terms provide that
it is terminable by the purchaser without penalty in the event any such
rating is at any time lower than such level;
(vii) repurchase obligations with respect to any security described in
clause (i) or (ii) above entered into with a depository institution or
trust company (acting as principal) meeting the ratings standard described
in (iii) above;
(viii) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States or any state
thereof and rated by each Rating Agency in one of its two highest long-term
unsecured rating categories at the time of such investment or contractual
commitment providing therefor; provided, however, that securities issued by
any such corporation will not be Permitted Investments to the extent that
investment therein would cause the then outstanding principal amount of
securities issued by such corporation and held as part of the Collection
Account or the Distribution Account to exceed 20% of the aggregate
principal amount of all Permitted Investments held in the Collection
Account and the Distribution Account;
(ix) units of taxable money market funds which funds are regulated
investment companies, seek to maintain a constant net asset value per share
and invest solely in obligations backed by the full faith and credit of the
United States, and have been designated in writing by each Rating Agency as
Permitted Investments with respect to this definition;
(x) if previously confirmed in writing to the Trustee, any other demand,
money market or time deposit, or any other obligation, security or
investment, as may be acceptable to each Rating Agency as an investment of
funds backing securities having ratings equivalent to each Rating Agency's
highest initial rating of the Certificates; and
(xi) such other obligations as are acceptable as Permitted Investments to
each Rating Agency;
provided, however, that (a) such instrument or security shall qualify as a
"cash flow investment" pursuant to the Internal Revenue Code of 1986, as
amended (the "Code") and (b) no instrument or security shall be a Permitted
Investment if (i) such instrument or security evidences a right to receive
only interest payments or (ii) the stated interest rate on such investment is
in excess of 120% of the yield to maturity produced by the price at which such
investment was purchased.
AMENDMENT
The Agreement for each Series will provide that it may be amended by the
parties thereto without the consent of any of the Certificateholders to cure
any ambiguity, to correct or supplement any provision therein that may be
inconsistent with any other provision therein, to maintain the rating or
ratings assigned to the Certificates by a Rating Agency or to make other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions of the Agreement, provided that
such action will not, as evidenced by an opinion of counsel acceptable to the
Depositor and the Trustee, adversely affect in any material respect the
interests of any Certificateholder.
Each Agreement will also provide that it may be amended by the parties
thereto with the consent of the Holders of Certificates representing an
aggregate outstanding principal amount of not less than a percentage specified
in the related Agreement of each Class of Certificates affected by the
proposed amendment for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Agreement or modifying
in any manner the rights of Certificateholders; provided, however, that no
such amendment may (i) reduce in any manner the amount of, or delay the timing
of, payments received on Mortgage Loans which are required to be distributed
on any Certificate without the consent of each affected Certificateholder,
(ii) reduce the aforesaid percentage of Certificates the Holders of which are
required to consent
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to any such amendment, without the consent of the Holders of all Certificates
then outstanding, or (iii) alter the servicing standard set forth in the
Agreement. Further, the Agreement for each Series may provide that the parties
thereto, at any time and from time to time, without the consent of the
Certificateholders, may amend the Agreement to modify, eliminate or add to any
of its provisions to such extent as shall be necessary to maintain the
qualification of the REMIC Pool as a REMIC at all times that any of the
Certificates are outstanding; provided, however, that such action, as
evidenced by an opinion of counsel acceptable to the Trustee, is necessary or
helpful to maintain such qualification, and would not adversely affect in any
material respect the interest of any Certificateholder.
The Agreement relating to each Series may provide that no amendment to such
Agreement will be made unless there has been delivered in accordance with such
Agreement an opinion of counsel to the effect that such amendment will not
cause such Series to fail to qualify as a REMIC at any time that any of the
Certificates are outstanding.
The Prospectus Supplement for a Series may describe other or different
provisions concerning the amendment of the related Agreement.
TERMINATION; REPURCHASE OF MORTGAGE LOANS
The obligations of the parties to the Agreement for each Series will
terminate upon: (i) the purchase of all of the assets of the related Trust
Fund, as described in the related Prospectus Supplement; (ii) the later of (a)
the distribution to Certificateholders of that Series of final payment with
respect to the last outstanding Mortgage Loan or (b) the disposition of all
property acquired upon foreclosure or deed in lieu of foreclosure with respect
to the last outstanding Mortgage Loan and the remittance to the
Certificateholders of all funds due under the Agreement; (iii) the sale of the
assets of the related Trust Fund after the principal amounts of all
Certificates have been reduced to zero under circumstances set forth in the
Agreement; or (iv) mutual consent of the parties and all Certificateholders.
With respect to each Series, the Trustee will give or cause to be given
written notice of termination of the Agreement to each Certificateholder and,
unless otherwise specified in the applicable Prospectus Supplement, the final
distribution under the Agreement will be made only upon surrender and
cancellation of the related Certificates at an office or agency specified in
the notice of termination.
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution for each Series, the Trustee (or such
other paying agent as may be identified in the applicable Prospectus
Supplement) will forward to each Certificateholder a statement setting forth
such information relating to such distribution as is specified in the
Agreement and described in the applicable Prospectus Supplement.
THE TRUSTEE
The Depositor will select a bank or trust company to act as trustee (the
"Trustee") under the Agreement for each Series and the Trustee will be
identified, and its obligations under that Agreement will be described, in the
applicable Prospectus Supplement.
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THE MORTGAGE POOLS
GENERAL
Each Mortgage Pool will consist of mortgage loans secured by first or junior
mortgages, deeds of trust or similar security instruments ("Mortgages") on, or
installment contracts ("Installment Contracts") for the sale of, fee simple or
leasehold interests in commercial real estate property, multifamily
residential property, cooperatively owned multifamily properties and/or mixed
residential/commercial property, and related property and interests (each such
interest or property, as the case may be, a "Mortgaged Property"). A Mortgaged
Pool may also include any or all of the participation interests in such types
of mortgage loans, private mortgage pass-through certificates, certificates
issued or guaranteed by FHLMC, FNMA or GNMA and mortgage pass-through
certificates previously created by the Depositor. Each such mortgage loan,
Installment Contract, participation interest or certificate is herein referred
to as a "Mortgage Loan."
All Mortgage Loans will be of one or more of the following types:
1. mortgage loans with fixed interest rates;
2. mortgage loans with adjustable interest rates;
3. mortgage loans whose principal balances fully amortize over their
remaining terms to maturity;
4. mortgage loans whose principal balances do not fully amortize but
instead provide for a substantial principal payment at the stated maturity
of the loan;
5. mortgage loans that provide for recourse against only the Mortgaged
Properties;
6. mortgage loans that provide for recourse against the other assets of
the related Borrowers (as defined below); and
7. any other types of mortgage loans described in the applicable
Prospectus Supplement.
Certain Mortgage Loans ("Simple Interest Loans") may provide that scheduled
interest and principal payments thereon are applied first to interest accrued
from the last date to which interest has been paid to the date such payment is
received and the balance thereof is applied to principal, and other Mortgage
Loans may provide for payment of interest in advance rather than in arrears.
Mortgage Loans may also be secured by one or more assignments of leases and
rents, management agreements or operating agreements relating to the Mortgaged
Property and in some cases by certain letters of credit, personal guarantees
or both. Pursuant to an assignment of leases and rents, the obligor (the
"Borrower") on the related promissory note (the "Note") assigns its right,
title and interest as landlord under each lease and the income derived
therefrom to the related lender, while retaining a license to collect the
rents for so long as there is no default. If the Borrower defaults, the
license terminates and the related lender is entitled to collect the rents
from tenants to be applied to the monetary obligations of the Borrower. State
law may limit or restrict the enforcement of the assignment of leases and
rents by a lender until the lender takes possession of the related Mortgaged
Property and a receiver is appointed. See "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS--Leases and Rents."
A Trust Fund may consist of a single Mortgage Loan or a number of Mortgage
Loans with a single obligor or related obligors thereunder, or multiple
Mortgage Loans with multiple unrelated obligors thereunder, as specified in
the related Prospectus Supplement. The Mortgage Loans will be newly originated
or seasoned, and will be acquired by the Depositor either directly or through
one or more affiliates.
Unless otherwise specified in the Prospectus Supplement for a Series, the
Mortgage Loans will not be insured or guaranteed by the United States, any
governmental agency, any private mortgage insurer or any other person or
entity.
The Prospectus Supplement relating to each Series will specify the
originator or originators relating to the Mortgage Loans, which may include,
among others, commercial banks, savings and loan associations, other
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financial institutions, insurance companies or real estate developers, and the
underwriting criteria to the extent available in connection with originating
the Mortgage Loans. The criteria applied by the Depositor in selecting the
Mortgage Loans to be included in a Mortgage Pool will vary from Series to
Series. The Prospectus Supplement relating to each Series also will provide
specific information regarding the characteristics of the Mortgage Loans, as
of the Cut-Off Date, including, among other things: (i) the aggregate
principal balance of the Mortgage Loans; (ii) the types of properties securing
the Mortgage Loans and the aggregate principal balance of the Mortgage Loans
secured by each type of property; (iii) the interest rate or range of interest
rates of the Mortgage Loans; (iv) the origination dates and the original and,
with respect to seasoned Mortgage Loans, remaining terms to stated maturity of
the Mortgage Loans; (v) the loan-to-value ratios at origination and, with
respect to seasoned Mortgage Loans, current loan balance-to-original value
ratios of the Mortgage Loans; (vi) the geographic distribution of the
Mortgaged Properties underlying the Mortgage Loans; (vii) the minimum interest
rates, margins, adjustment caps, adjustment frequencies, indices and other
similar information applicable to adjustable rate Mortgage Loans; (viii) the
debt service coverage ratios relating to the Mortgage Loans; and (ix) payment
delinquencies, if any, relating to the Mortgage Loans. The applicable
Prospectus Supplement will also specify any inadequate, incomplete or obsolete
documentation relating to the Mortgage Loans and other characteristics of the
Mortgage Loans relating to each Series. If specified in the applicable
Prospectus Supplement, the Depositor may segregate the Mortgage Loans in a
Mortgage Pool into separate "Mortgage Loan Groups" (as described in the
related Prospectus Supplement) as part of the structure of the payments of
principal and interest on the Certificates of a Series. In such case, the
Depositor will disclose the above-specified information by Mortgage Loan
Group.
The Depositor will file a current report on Form 8-K (the "Form 8-K") with
the Securities and Exchange Commission within 15 days after the initial
issuance of each Series of Certificates (each, a "Closing Date"), as specified
in the related Prospectus Supplement, which will set forth information with
respect to the Mortgage Loans included in the Trust Fund for a Series as of
the related Closing Date. The Form 8-K will be available to the
Certificateholders of the related Series promptly after its filing.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Certificates of each Series, the Depositor
will cause the Mortgage Loans to be assigned to the Trustee, together with, as
more fully specified in the related Prospectus Supplement, all principal and
interest due on or with respect to such Mortgage Loans, other than principal
and interest due on or before the Cut-Off Date and principal prepayments
received on or before the Cut-Off Date. The Trustee, concurrently with such
assignment, will execute and deliver Certificates evidencing the beneficial
ownership interests in the related Trust Fund to the Depositor in exchange for
the Mortgage Loans. Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the Agreement for the related Series (the "Mortgage
Loan Schedule"). The Mortgage Loan Schedule will include, among other things,
as to each Mortgage Loan, information as to its outstanding principal balance
as of the close of business on the Cut-Off Date, as well as information
respecting the interest rate, the scheduled monthly (or other periodic)
payment of principal and interest as of the Cut-Off Date and the maturity date
of each Note.
In addition, except to the extent otherwise specified in the applicable
Prospectus Supplement, the Depositor will, as to each Mortgage Loan, deliver
to the Trustee: (i) the Note, endorsed to the order of the Trustee without
recourse; (ii) the Mortgage and an executed assignment thereof in favor of the
Trustee or otherwise as required by the Agreement; (iii) any assumption,
modification or substitution agreements relating to the Mortgage Loan; (iv) a
lender's title insurance policy (or owner's policy in the case of an
Installment Contract), together with its endorsements, or an attorney's
opinion of title issued as of the date of origination of the Mortgage Loan;
(v) if the assignment of leases, rents and profits is separate from the
Mortgage, an executed re-assignment of assignment of leases, rents and profits
to the Trustee; and (vi) such other documents as may be described in the
Agreement (such documents collectively, the "Mortgage Loan File"). Unless
otherwise expressly permitted by the Agreement, all documents included in the
Mortgage Loan File are to be original executed documents, provided, however,
that in instances where the original recorded Mortgage, Mortgage assignment or
any document necessary to assign the Depositor's interest in Installment
Contracts to the Trustee, as described in the
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Agreement, has been retained by the applicable jurisdiction or has not yet
been returned from recordation, the Depositor may deliver a photocopy thereof
certified to be the true and complete copy of the original thereof submitted
for recording.
The Trustee will hold the Mortgage Loan File for each Mortgage Loan in trust
for the benefit of all Certificateholders. Pursuant to the Agreement, the
Trustee is obligated to review the Mortgage Loan File for each Mortgage Loan
within a specified number of days after the execution and delivery of the
Agreement. Unless otherwise specified in the related Prospectus Supplement, if
any document in the Mortgage Loan File is found to be defective in any
material respect, the Trustee will promptly notify the Depositor and the
Master Servicer. Unless otherwise specified in the related Prospectus
Supplement, if the Master Servicer or other entity cannot cure such defect
within the time period specified in such Prospectus Supplement, the Master
Servicer or such other entity will be obligated to either substitute the
affected Mortgage Loan for a Substitute Mortgage Loan or Loans, or to
repurchase the related Mortgage Loan from the Trustee within the time period
specified in such Prospectus Supplement at a price equal to the principal
balance thereof as of the date of purchase or, in the case of a Series as to
which an election has been made to treat the related Trust Fund as a REMIC, at
such other price as may be necessary to avoid a tax on a prohibited
transaction, as described in Section 860F(a) of the Code, in each case
together with accrued interest at the applicable Pass-Through Rate to the
first day of the month following such repurchase, plus the amount of any
unreimbursed advances made by the Master Servicer in respect of such Mortgage
Loan. Unless otherwise specified in the applicable Prospectus Supplement, this
purchase obligation constitutes the sole remedy available to the Holders of
Certificates or the Trustee for a material defect in a constituent document.
MORTGAGE UNDERWRITING STANDARDS AND PROCEDURES
The underwriting procedures and standards for Mortgage Loans included in a
Mortgage Pool will be specified in the related Prospectus Supplement to the
extent such procedures and standards are known or available. Such Mortgage
Loans may be originated in contemplation of the transactions contemplated by
this Prospectus and the related Prospectus Supplement or may have been
originated by third-parties and acquired by the Depositor directly or through
its affiliates in negotiated transactions.
Except as otherwise set forth in the related Prospectus Supplement for a
Series, the originator of a Mortgage Loan will have applied underwriting
procedures intended to evaluate, among other things, the income derived from
the Mortgaged Property, the capabilities of the management of the project,
including a review of management's past performance record, its management
reporting and control procedures (to determine its ability to recognize and
respond to problems) and its accounting procedures to determine cash
management ability, the obligor's credit standing and repayment ability and
the value and adequacy of the Mortgaged Property as collateral. Mortgage Loans
insured by the Federal Housing Administration ("FHA"), a division of the
United States Department of Housing and Urban Development ("HUD"), will have
been originated by mortgage lenders which are approved by HUD as an FHA
mortgagee in the ordinary course of their real estate lending activities and
will comply with the underwriting policies of FHA.
If so specified in the related Prospectus Supplement, the adequacy of a
Mortgaged Property as security for repayment will generally have been
determined by appraisal by appraisers selected in accordance with pre-
established guidelines established by or acceptable to the loan originator for
appraisers. If so specified in the related Prospectus Supplement, the
appraiser must have personally inspected the property and verified that it was
in good condition and that construction, if new, has been completed. Unless
otherwise stated in the applicable Prospectus Supplement, the appraisal will
have been based upon a cash flow analysis and/or a market data analysis of
recent sales of comparable properties and, when deemed applicable, a
replacement cost analysis based on the current cost of constructing or
purchasing a similar property.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. Further, there is no assurance that appreciation of
real estate values generally will limit loss experiences on commercial
properties or multifamily residential
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properties. If the commercial real estate market should experience an overall
decline in property values such that the outstanding balances of the Mortgage
Loans and any additional financing on the Mortgaged Properties in a particular
Mortgage Pool become equal to or greater than the value of the Mortgaged
Properties, the actual rates of delinquencies, foreclosures and losses could
be higher than those now generally experienced in the mortgage lending
industry. To the extent that such losses are not covered by the methods of
Enhancement or the insurance policies described herein, the ability of the
Depositor to pay principal of and interest on the Certificates may be
adversely affected. Even where credit support covers all losses resulting from
defaults and foreclosure, the effect of defaults and foreclosures may be to
increase prepayment experience on the Mortgage Loans, thus shortening weighted
average life and affecting yield to maturity.
REPRESENTATIONS AND WARRANTIES
Unless otherwise specified in the related Prospectus Supplement, the seller
(the "Unaffiliated Seller") of a Mortgage Loan to the Depositor or any of its
affiliates (or the Master Servicer, if the Unaffiliated Seller is also the
Master Servicer under the Agreement) will have made representations and
warranties in respect of the Mortgage Loans sold by such Unaffiliated Seller
(or the Master Servicer) to the Depositor or its affiliates. Such
representations and warranties will generally include, among other things: (i)
with respect to each Mortgaged Property, that title insurance (or in the case
of Mortgaged Properties located in areas where such policies are generally not
available, an attorney's opinion of title) and any required hazard insurance
was effective at the origination of each Mortgage Loan, and that each policy
(or opinion of title) remained in effect on the date of purchase of the
Mortgage Loan from the Unaffiliated Seller; (ii) that the Unaffiliated Seller
had good and marketable title to each such Mortgage Loan; (iii) with respect
to each Mortgaged Property, that each mortgage constituted a valid first lien
on the Mortgaged Property (subject only to permissible title insurance
exceptions), unless otherwise specified in the related Prospectus Supplement;
(iv) that there were no delinquent tax or assessment liens against the
Mortgaged Property; and (v) that each Mortgage Loan was current as to all
required payments (unless otherwise specified in the related Prospectus
Supplement).
All of the representations and warranties of an Unaffiliated Seller in
respect of a Mortgage Loan will have been made as of the date on which such
Unaffiliated Seller sold the Mortgage Loan to the Depositor or its affiliate.
A substantial period of time may have elapsed between such date and the date
of the initial issuance of the Series of Certificates evidencing an interest
in such Mortgage Loan. Since the representations and warranties of an
Unaffiliated Seller do not address events that may occur following the sale of
a Mortgage Loan by an Unaffiliated Seller, the repurchase obligation of the
Unaffiliated Seller described below will not arise if, on or after the date of
the sale of a Mortgage Loan by the Unaffiliated Seller to the Depositor or its
affiliates, the relevant event occurs that would have given rise to such an
obligation. However, the Depositor will not include any Mortgage Loan in the
Trust Fund for any Series of Certificates if anything has come to the
Depositor's attention that would cause it to believe that the representations
and warranties of an Unaffiliated Seller will not be accurate and complete in
all material respects in respect of such Mortgage Loan as of the related Cut-
Off Date. If so specified in the related Prospectus Supplement, the Depositor
will make certain representations and warranties for the benefit of Holders of
Certificates of a Series in respect of a Mortgage Loan that relate to the
period commencing on the date of sale of such Mortgage Loan to the Depositor
or its affiliates.
Unless otherwise set forth or specified in the related Prospectus
Supplement, upon the discovery of the breach of any representation or warranty
made by an Unaffiliated Seller in respect of a Mortgage Loan that materially
and adversely affects the interests of the Certificateholders of the related
Series, such Unaffiliated Seller or, if so specified in the related Prospectus
Supplement, the Master Servicer will be obligated to repurchase such Mortgage
Loan at a purchase price equal to 100% of the unpaid principal balance thereof
at the date of repurchase or, in the case of a Series of Certificates as to
which the Depositor has elected to treat the related Trust Fund as a REMIC, as
defined in the Code, at such other price as may be necessary to avoid a tax on
a prohibited transaction, as described in Section 860F(a) of the Code, in each
case together with accrued interest at the Pass-Through Rate for the related
Mortgage Pool, to the first day of the month following such repurchase and the
amount of any unreimbursed advances made by the Master Servicer in respect of
such Mortgage Loan. The Master Servicer will be required to enforce such
obligation of the Unaffiliated Seller for the benefit of the
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Trustee and the Certificateholders, following the practices it would employ in
its good faith business judgment were it the owner of such Mortgage Loan.
Unless otherwise specified in the applicable Prospectus Supplement and subject
to the ability of the Unaffiliated Seller or the Master Servicer to deliver
Substitute Mortgage Loans for certain Mortgage Loans as described below, this
repurchase obligation constitutes the sole remedy available to the
Certificateholders of such Series for a breach of a representation or warranty
by an Unaffiliated Seller.
Any obligation of the Master Servicer to purchase a Mortgage Loan if an
Unaffiliated Seller defaults on its obligation to do so is subject to
limitations, and no assurance can be given that an Unaffiliated Seller will
carry out its repurchase obligation with respect to the Mortgage Loans.
The Depositor will make representations and warranties with respect to the
Mortgage Loans in a Mortgage Pool, as specified in the related Prospectus
Supplement. Upon a breach of any representation or warranty by the Depositor
that materially and adversely affects the interests of the Certificateholders,
the Depositor will be obligated either to cure the breach in all material
respects or to purchase the Mortgage Loan at the purchase price set forth
above. Unless otherwise specified in the applicable Prospectus Supplement and
subject to the ability of the Depositor to deliver Substitute Mortgage Loans
for certain Mortgage Loans as described below, this repurchase obligation
constitutes the sole remedy available to the Certificateholders or the Trustee
for a breach of representation or warranty by the Depositor.
The proceeds of any repurchase of a Mortgage Loan will be deposited, subject
to certain limitations set forth in the related Agreement, into the Collection
Account.
Within the period of time specified in the related Prospectus Supplement,
following the date of issuance of a Series of Certificates, the Depositor, the
Master Servicer or the Unaffiliated Seller, as the case may be, may deliver to
the Trustee Mortgage Loans ("Substitute Mortgage Loans") in substitution for
any one or more of the Mortgage Loans ("Deleted Mortgage Loans") initially
included in the Trust Fund but which do not conform in one or more respects to
the description thereof contained in the related Prospectus Supplement, as to
which a breach of a representation or warranty is discovered, which breach
materially and adversely affects the interests of the Certificateholders, or
as to which a document in the related Mortgage Loan File is defective in any
material respect. Unless otherwise specified in the related Prospectus
Supplement, the required characteristics of any Substitute Mortgage Loan will
generally include, among other things, that such Substitute Mortgage Loan on
the date of substitution, will (i) have an outstanding principal balance,
after deduction of all scheduled payments due in the month of substitution,
not in excess of the outstanding principal balance of the Deleted Mortgage
Loan (the amount of any shortfall to be distributed to Certificateholders in
the month of substitution), (ii) have a per annum interest rate (the "Mortgage
Interest Rate") not less than (and not more than 1% greater than) the Mortgage
Interest Rate of the Deleted Mortgage Loan, (iii) have a remaining term to
maturity not greater than (and not more than one year less than) that of the
Deleted Mortgage Loan and (iv) comply with all the representations and
warranties set forth in the Agreement as of the date of substitution.
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SERVICING OF THE MORTGAGE LOANS
GENERAL
The Prospectus Supplement related to a Series will identify the master
servicer, or if there is only one servicer of the Mortgage Loans, the servicer
thereof (as applicable, the "Master Servicer") and will set forth certain
information concerning the Master Servicer. The Master Servicer may be an
affiliate of the Depositor and may have other business relationships with the
Depositor and its affiliates.
The Master Servicer will be responsible for servicing the Mortgage Loans
pursuant to the Agreement for the related Series. If so specified in the
related Prospectus Supplement, the Master Servicer may subcontract the
servicing of all or a portion of the Mortgage Loans to one or more sub-
servicers and may subcontract the servicing of certain Mortgage Loans that are
in default or otherwise require special servicing (the "Specially Serviced
Mortgage Loans") to a special servicer (the "Special Servicer"), and certain
information with respect to the Special Servicer will be set forth in such
Prospectus Supplement. Such sub-servicers and the Special Servicer may be an
affiliate of the Depositor and may have other business relationships with
Depositor and its affiliates.
COLLECTIONS AND OTHER SERVICING PROCEDURES
The Master Servicer will make reasonable efforts to collect all payments
called for under the Mortgage Loans and will, consistent with the related
Agreement, following such collection procedures as it deems necessary or
desirable. Consistent with the above, the Master Servicer may, in its
discretion, waive any late payment or assumption charge or penalty interests
in connection with late payment or assumption of a Mortgage Loan and, if so
specified in the related Prospectus Supplement, may extend the due dates for
payments due on a Note.
It is expected that the Agreement for each Series will provide that the
Master Servicer establish and maintain an escrow account (the "Escrow
Account") in which the Master Servicer will be required to deposit amounts
received from each Borrower, if required by the terms of the related Note, for
the payment of taxes, assessments, certain mortgage and hazard insurance
premiums and other comparable items. The Special Servicer, if any, will be
required to remit amounts received for such purposes on Mortgage Loans
serviced by it for deposit in the Escrow Account, and will be entitled to
direct the Master Servicer to make withdrawals from the Escrow Account as may
be required for servicing of such Mortgage Loans. Withdrawals from the Escrow
Account may be made to effect timely payment of taxes, assessments, mortgage
and hazard insurance premiums, to refund to Borrowers amounts determined to be
overages, to remove amounts deposited therein in error, to pay interest to
Borrowers on balances in the Escrow Account, if required, to repair or
otherwise protect the Mortgaged Properties and to clear and terminate such
account. The Master Servicer will be entitled to all income on the funds in
the Escrow Account invested in Permitted Investments not required to be paid
to Borrowers under applicable law. The Master Servicer will be responsible for
the administration of the Escrow Account. If amounts on deposit in the Escrow
Account are insufficient to pay any tax, insurance premium or other similar
item when due, such item will be payable from amounts on deposit in the
Collection Account or, to the extent such amounts are insufficient, in the
manner set forth in the Prospectus Supplement and Agreement for the related
Series.
INSURANCE
Unless otherwise specified in the applicable Prospectus Supplement, the
Agreement for each Series will require that the Master Servicer maintain or
require each Borrower to maintain insurance in accordance with the related
Mortgage, which generally will include a standard fire and hazard insurance
policy with extended coverage. To the extent required by the related Mortgage,
the coverage of each such standard hazard insurance policy will be in an
amount that is not less than the lesser of the full replacement cost of the
improvements securing such Mortgage Loan or the outstanding principal balance
owing on such Mortgage Loan. If a Mortgaged Property was located at the time
of origination of the related Mortgage Loan in a federally designated special
flood hazard area, the Master Servicer will also maintain or require the
related Borrower to maintain flood insurance in an amount equal to the lesser
of the unpaid principal balance of the related Mortgage Loan and the maximum
amount obtainable with respect to the Mortgage Loan. To the extent set forth
in the related Prospectus
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Supplement, the cost of any such insurance maintained by the Master Servicer
will be an expense of the Trust Fund payable out of the Collection Account.
The Master Servicer will cause to be maintained fire and hazard insurance with
extended coverage on each REO Property in an amount which is at least equal to
the greater of (i) an amount not less than the amount necessary to avoid the
application of any coinsurance clause contained in the related insurance
policy and (ii) the replacement cost of the improvements which are a part of
such property. The cost of any such insurance with respect to an REO Property
will be an expense of the Trust Fund payable out of amounts on deposit in the
related REO Account or, if such amounts are insufficient, from the Collection
Account. The Master Servicer will maintain flood insurance providing
substantially the same coverage as described above on any REO Property which
was located in a federally designated special flood hazard area at the time
the related Mortgage Loan was originated. The related Agreement will provide
that the Master Servicer may satisfy its obligation to cause hazard policies
to be maintained by maintaining a master, or single interest blanket,
insurance policy insuring against losses on the Mortgage Loans or REO
Properties, as the case may be. The incremental cost of such insurance
allocable to any particular Mortgage Loan, if not borne by the related
Borrower, will be an expense of the Trust Fund. Alternatively, the Master
Servicer may satisfy its obligation by maintaining, at its expense, a blanket
policy (i.e., not a single interest or master policy) insuring against losses
on the Mortgage Loans or REO Properties, as the case may be. If such a blanket
policy contains a deductible clause, the Master Servicer will be obligated to
deposit in the Collection Account all sums which would have been deposited
therein but for such clause.
In general, the standard form of fire and hazard extended coverage policy
will cover physical damage to, or destruction of, the improvements on the
Mortgaged Property caused by fire, lightning, explosion, smoke, windstorm,
hail, riot, strike and civil commotion, subject to the conditions and
exclusions particularized in each policy. Since the standard hazard insurance
policies relating to the Mortgage Loans will be underwritten by different
insurers and will cover Mortgaged Properties located in various states, such
policies will not contain identical terms and conditions. The most significant
terms thereof, however, generally will be determined by state law and
conditions. Most such policies typically will not cover any physical damage
resulting from war, revolution, governmental actions, floods and other water-
related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list
is merely indicative of certain kinds of uninsured risks and is not intended
to be all-inclusive. Any losses incurred with respect to Mortgage Loans due to
uninsured risks (including earthquakes, mudflows and floods) or insufficient
hazard insurance proceeds could affect distributions to the
Certificateholders.
The standard hazard insurance policies covering Mortgaged Properties
securing Mortgage Loans typically will contain a "coinsurance" clause which,
in effect, will require the insured at all times to carry insurance of a
specified percentage (generally 80% to 90%) of the full replacement value of
the dwellings, structures and other improvements on the Mortgaged Property in
order to recover the full amount of any partial loss. If the insured's
coverage falls below this specified percentage, such clause will provide that
the insurer's liability in the event of partial loss will not exceed the
greater of (i) the actual cash value (the replacement cost less physical
depreciation) of the structures and other improvements damaged or destroyed
and (ii) such proportion of the loss, without deduction for depreciation, as
the amount of insurance carried bears to the specified percentage of the full
replacement cost of such dwellings, structures and other improvements.
In addition, to the extent required by the related Mortgage, the Master
Servicer may require the Borrower 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 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 from
the Collection Account, with interest thereon, as provided by the Agreement.
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Unless otherwise specified in the applicable Prospectus Supplement, no pool
insurance policy, special hazard insurance policy, bankruptcy bond, repurchase
bond or guarantee insurance will be maintained with respect to the Mortgage
Loans, nor will any Mortgage Loan be subject to FHA insurance.
The FHA is responsible for administering various federal programs, including
mortgage insurance, authorized under the National Housing Act of 1934, as
amended, and the United States Housing Act of 1937, as amended. To the extent
specified in the related Prospectus Supplement, all or a portion of the
Mortgage Loans may be insured by the FHA. The Master Servicer will be required
to take such steps as are reasonably necessary to keep such insurance in full
force and effect.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
Unless otherwise specified in the applicable Prospectus Supplement, the
Agreement for each Series 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.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Master Servicer's principal compensation for its activities under the
Agreement for each Series will come from the payment to it or retention by it,
with respect to each Mortgage Loan, of a "Servicing Fee" (as defined in the
related Prospectus Supplement). The exact amount and calculation of such
Servicing Fee will be established in the Prospectus Supplement and Agreement
for the related Series. Since the aggregate unpaid principal balance of the
Mortgage Loans will generally decline over time, the Master Servicer's
servicing compensation will ordinarily decrease as the Mortgage Loans
amortize.
In addition, the Agreement for a Series may provide that the Master Servicer
be entitled to receive, as additional compensation, (i) Prepayment Premiums,
late fees and certain other fees collected from Borrowers and (ii) any
interest or other income earned on funds deposited in the Collection Account
(as described under "DESCRIPTION OF THE CERTIFICATES--Accounts") and, except
to the extent such income is required to be paid to the related Borrowers, the
Escrow Account.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will pay the fees and expenses of the Trustee.
If the Master Servicer subcontracts the servicing of Specially Serviced
Mortgage Loans to a Special Servicer, the exact amount and calculation of the
Special Servicer Fee will be established in the Prospectus Supplement and
Agreement for the related Series.
In addition to the compensation described above, the Master Servicer (or any
other party specified in the applicable Prospectus Supplement) may retain, or
be entitled to the reimbursement of, such other amounts and expenses as are
described in the applicable Prospectus Supplement.
ADVANCES
The applicable Prospectus Supplement will set forth the obligations, if any,
of the Master Servicer to make any advances with respect to delinquent
payments on Mortgage Loans, payments of taxes, insurance and Property
Protection Expenses or otherwise. Any such advances will be made in the form
and manner described in the Prospectus Supplement and Agreement for the
related Series.
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MODIFICATIONS, WAIVERS AND AMENDMENTS
If so specified in the related Prospectus Supplement, the Agreement for each
Series will provide that the Master Servicer or the Special Servicer, if any,
may have the discretion, subject to certain conditions set forth herein, to
modify, waive or amend certain of the terms of any Mortgage Loan without the
consent of the Trustee or any Certificateholder. The extent to which the
Master Servicer or the Special Servicer, if any, may modify, waive or amend
any terms of the Mortgage Loans without such consent will be specified in the
related Prospectus Supplement.
The Special Servicer, if any, may, with respect to any Specially Serviced
Mortgage Loan, subject to the terms and conditions set forth in the Agreement,
modify, waive or amend the terms of such Mortgage Loan if the Special Servicer
determines that a material default has occurred or a payment default has
occurred or is reasonably foreseeable. The Special Servicer, if any, may
extend the maturity date of such Mortgage Loan to a date not later than the
date described in the related Prospectus Supplement.
Unless otherwise provided in the applicable Prospectus Supplement, the
Special Servicer, if any, will not agree to any modification, waiver or
amendment of the payment terms of a Mortgage Loan unless the Special Servicer
has determined that such modification, waiver or amendment is reasonably
likely to produce a greater recovery on a present value basis than liquidation
of the Mortgage Loan. Prior to agreeing to any such modification, waiver or
amendment of the payment terms of a Mortgage Loan, the Special Servicer, if
any, will give notice thereof in the manner set forth in the Prospectus
Supplement and Agreement for the related Series.
The Prospectus Supplement for a Series may describe other or different
provisions concerning the modification, waiver or amendment of the terms of
the related Mortgage Loans.
EVIDENCE OF COMPLIANCE
The Agreement for each Series will provide that the Master Servicer, at its
expense, will cause a firm of independent public accountants to furnish to the
Trustee, annually on or before a date specified in the Agreement, a statement
as to compliance by the Master Servicer with the Agreement.
In addition, the Agreement will provide that the Master Servicer will
deliver to the Trustee, annually on or before a date specified in the
Agreement, a statement signed by an officer to the effect that, based on are
view of its activities during the preceding calendar year, to the best of such
officer's knowledge, the Master Servicer has fulfilled its obligations under
the Agreement throughout such year or, if there has been a default in the
fulfillment of any such obligation, specifying each such default and the
nature and status thereof.
CERTAIN MATTERS WITH RESPECT TO THE MASTER SERVICER, THE SPECIAL SERVICER AND
THE TRUSTEE
The Agreement for each Series will also provide that neither the Master
Servicer nor any of its directors, officers, employees or agents will be under
any liability to the Trust Fund or the Certificateholders for any action
taken, or for refraining from the taking of any action, in good faith pursuant
to the Agreement, or for errors in judgment; provided, however, that neither
the Master Servicer nor any such person will be protected against any breach
of representations or warranties made by the Master Servicer in the Agreement,
or any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith, or negligence in the performance of its duties or by
reason of reckless disregard of its obligations and duties thereunder. The
Agreement will further provide that the Master Servicer and any of its
directors, officers, employees or agents will be entitled to indemnification
by the 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, other than any loss, liability or expense incurred (i) by
reason of willful misfeasance, bad faith or negligence in the performance of
its duties or by reason of reckless disregard of its obligations and duties
thereunder or (ii) in certain other circumstances specified in the Agreement.
Any loss resulting from such indemnification will reduce amounts distributable
to Certificateholders and will be borne pro rata by all Certificateholders
without regard to subordination, if any, of one Class to another.
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Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer may not resign from its obligations and duties under the Agreement
except upon a determination that its duties thereunder are no longer
permissible under applicable law. No such resignation will become effective
until the Trustee or a successor Master Servicer has assumed the Master
Servicer's obligations and duties under the Agreement.
If the Master Servicer subcontracts the servicing of Specially Serviced
Mortgage Loans to a Special Servicer, the standard of care for, and any
indemnification to be provided to, the Special Servicer will be set forth in
the related Agreement.
The Trustee under each Agreement will be named in the applicable Prospectus
Supplement. The commercial bank or trust company serving as Trustee may have
normal banking relationships with the Depositor and/or its affiliates and with
the Master Servicer and/or its affiliates.
The Trustee may resign from its obligations under the Agreement at any time,
in which event a successor Trustee will be appointed. In addition, the
Depositor may remove the Trustee if the Trustee ceases to be eligible to act
as Trustee under the Agreement or if the Trustee becomes insolvent, at which
time the Depositor will become obligated to appoint a successor Trustee. The
Trustee may also be removed at any time by the Holders of Certificates
evidencing the Voting Rights specified in the applicable Prospectus
Supplement. Any resignation and removal of the Trustee, and the appointment of
a successor Trustee, will not become effective until acceptance of such
appointment by the successor Trustee.
EVENTS OF DEFAULT
Events of default (each, an "Event of Default") with respect to the Master
Servicer under the Agreement for each Series will, unless otherwise provided
in the applicable Prospectus Supplement, include: (i) any failure by the
Master Servicer to remit to the Trustee for deposit in the Distribution
Account for distribution to Certificateholders any payment required to be made
by the Master Servicer under the terms of the Agreement at least one business
day prior to the related Distribution Date; (ii) any failure on the part of
the Master Servicer duly to observe or perform in any material respect any
other of the covenants or agreements on the part of the Master Servicer, which
failure continues unremedied for a period of 90 days after written notice of
such failure has been given to the Master Servicer; (iii) the entering against
the Master Servicer of a decree or order of a court, agency or supervisory
authority for the appointment of a conservator or receiver or liquidator in
any insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of its affairs,
provided that any such decree or order shall have remained in force
undischarged or unstayed for a period of 60 days; (iv) the consent by the
Master Servicer to the appointment of a conservator or receiver or liquidator
or liquidating committee in any insolvency, readjustment of debt, marshalling
of assets and liabilities, voluntary liquidation or similar proceedings of or
relating to the Master Servicer or of or relating to all or substantially all
of its property; and (v) the admission by the Master Servicer in writing of
its inability to pay its debts generally as they become due, the filing by the
Master Servicer of a petition to take advantage of any applicable insolvency
or reorganization statute or the making of an assignment for the benefit of
its creditors or the voluntary suspension of the payment of its obligations.
As long as an Event of Default remains unremedied, the Trustee may, and (a)
at the written direction of the Holders of Certificates (other than Class R
Certificates) entitled to at least 25% of the aggregate Voting Rights of the
Certificates of any Class in the case of an Event of Default described in
clause (i) above, (b) at the written direction of Holders of Certificates
holding at least 25% of all of the Voting Rights, or (c) in all cases of an
Event of Default described in clauses (ii) through (v) above, shall terminate
all of the rights and obligations of the Master Servicer whereupon the Trustee
or another successor Master Servicer appointed by the Trustee will succeed to
all authority and power of the Master Servicer under the Agreement and will be
entitled to similar compensation arrangements. "Voting Rights" means the
portion of the voting rights of all Certificates that is allocated to any
Certificate in accordance with the terms of the Agreement.
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ENHANCEMENT
GENERAL
If specified in the related Prospectus Supplement for any Series, credit
enhancement may be provided with respect to one or more Classes thereof or the
related Mortgage Loans (the "Enhancement"). Enhancement may be in the form of
a letter of credit, the subordination of one or more Classes of the
Certificates of such Series, the establishment of one or more reserve funds,
overcollateralization, cross collateralization provisions in the Mortgage
Loans, certificate guarantee insurance, the use of cross-support features or
another method of Enhancement described in the related Prospectus Supplement,
or any combination of the foregoing.
Unless otherwise specified in the related Prospectus Supplement for a
Series, the Enhancement will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance of the
Certificates and interest thereon. If losses occur which exceed the amount
covered by Enhancement or which are not covered by the Enhancement,
Certificateholders will bear their allocable share of deficiencies.
If Enhancement is provided with respect to a Series, or the related Mortgage
Loans, the applicable Prospectus Supplement will include a description of (a)
the amount payable under such Enhancement, (b) any conditions to payment
thereunder not otherwise described herein, (c) the conditions (if any) under
which the amount payable under such Enhancement may be reduced and under which
such Enhancement may be terminated or replaced and (d) the material provisions
of any agreement relating to such Enhancement. Additionally, the applicable
Prospectus Supplement will set forth certain information with respect to the
issuer of any third-party Enhancement, 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 which
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 such Prospectus Supplement.
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more Classes of
a Series may be Subordinate Certificates. If so specified in the related
Prospectus Supplement, the rights of the Holders of subordinate Certificates
(the "Subordinate Certificates") to receive distributions of principal and
interest from the Collection Account on any Distribution Date will be
subordinated to such rights of the Holders of senior Certificates (the "Senior
Certificates") to the extent specified in the related Prospectus Supplement.
The Agreement may require a trustee that is not the Trustee to be appointed to
act on behalf of Holders of Subordinate Certificates.
A Series may include one or more Classes of Subordinate Certificates
entitled to receive cash flows remaining after distributions are made to all
other Senior Certificates of such Series. Such right to receive payments will
effectively be subordinate to the rights of other Holders of Senior
Certificates. A Series may also include one or more Classes of Subordinate
Certificates entitled to receive cash flows remaining after distributions are
made to other Subordinate Certificates of such Series. If so specified 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 not covered by
insurance policies or other credit support, such as losses arising from damage
to property securing a Mortgage Loan not covered by standard hazard insurance
policies.
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, the
manner, if any, in which the amount of subordination will decrease over time,
the manner of funding any related Reserve Fund and the conditions under which
amounts in any applicable Reserve Fund will be used to make distributions to
Holders of Senior Certificates and/or to Holders of Subordinate Certificates
or be released from the applicable Trust Fund. If cash flows otherwise
distributable to Holders of Subordinate Certificates secured by a Mortgage
Loan Group will be used as credit support for Holders of Senior Certificates
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secured by another Mortgage Loan Group within the Trust Fund, the applicable
Prospectus Supplement will specify the manner and conditions for applying such
a cross-support feature.
CROSS-SUPPORT FEATURES
If the Mortgage Pool for a Series is divided into separate Mortgage Loan
Groups, each securing a separate Class or Classes of a Series, credit support
may be provided by a cross-support feature which requires that distributions
be made on Senior Certificates secured by one Mortgage Loan Group prior to
distributions on Subordinate Certificates secured by another Mortgage Loan
Group within the Trust Fund. The related Prospectus Supplement for a Series
which includes a cross-support feature will describe the manner and conditions
for applying such cross-support feature.
LETTER OF CREDIT
If specified in the related Prospectus Supplement, a letter of credit with
respect to a Series of Certificates will be issued by the bank or financial
institution specified in such Prospectus Supplement (the "L/C Bank"). Under
the letter of credit, the L/C Bank will be obligated to honor drawings
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, equal to the percentage specified in the related Prospectus
Supplement of the aggregate principal balance of the Mortgage Loans on the
applicable Cut-Off Date or of one or more Classes of Certificates (the "L/C
Percentage"). If so specified in the related Prospectus Supplement, the letter
of credit may permit drawings in the event of losses not covered by insurance
policies or other credit support, such as losses arising from damage not
covered by standard hazard insurance policies. The amount available under the
letter of credit will, in all cases, be reduced to the extent of the
unreimbursed payments thereunder. 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 the letter of credit for a Series, if any, 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 applicable Series.
CERTIFICATE GUARANTEE INSURANCE
If so specified in the related Prospectus Supplement, certificate guarantee
insurance, if any, with respect to a Series of Certificates will be provided
by one or more insurance companies. Such certificate guarantee insurance will
guarantee, with respect to one or more Classes of Certificates of the
applicable Series, timely distributions of interest and 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. If
so specified in the related Prospectus Supplement, the certificate guarantee
insurance will also guarantee against any payment made to a Certificateholder
which is subsequently covered as a "voidable preference" payment under the
Bankruptcy Code. A copy of the certificate guarantee insurance for a Series,
if any, 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 applicable Series.
RESERVE FUNDS
If specified in the related Prospectus Supplement, one or more reserve funds
(each, a "Reserve Fund") may be established with respect to a Series, in which
cash, a letter of credit, Permitted Investments or a combination thereof, in
the amounts, if any, so specified in the related Prospectus Supplement will be
deposited. The Reserve Funds for a Series may also be funded over time by
depositing therein a specified amount of the distributions received on the
applicable Mortgage Loans if specified in the related Prospectus Supplement.
The Depositor may pledge the Reserve Funds to a separate collateral agent
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 by the Trustee 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 payments of
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principal of and interest on the Certificates, if required as a condition to
the rating of such Series by each Rating Agency. If so specified in the
related Prospectus Supplement, Reserve Funds may be established to provide
limited protection, in an amount satisfactory to each Rating Agency, against
certain types of losses not covered by insurance policies or other credit
support, such as losses arising from damage not covered by standard hazard
insurance policies. Reserve Funds may also be established for other purposes
and in such amounts as will be specified in the related Prospectus Supplement.
Following each Distribution Date amounts in any 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 by the Trustee.
Moneys deposited in any Reserve Fund will be invested in Permitted
Investments at the direction of the Depositor, 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.
If specified in the related Prospectus Supplement, such income or other gain
may be payable to the Master Servicer as additional servicing compensation,
and any loss resulting from such investment will be borne by the Master
Servicer. The Reserve Fund, if any, for a Series will not be a part of the
Trust Fund unless otherwise specified in the related Prospectus Supplement,
but the right of the Trustee to make draws on the Reserve Fund will be an
asset of the Trust Fund.
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 purpose 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.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of certain legal aspects of
mortgage loans which are general in nature. Because many of the legal aspects
of mortgage loans are governed by applicable state laws (which may vary
substantially), the following summaries do not purport to be complete, to
reflect the laws of any particular state, to reflect all the laws applicable
to any particular Mortgage Loan or to encompass the laws of all states in
which the properties securing the Mortgage Loans are situated. The summaries
are qualified in their entirety by reference to the applicable federal and
state laws governing the Mortgage Loans. In the event that the Trust Fund for
a given Series includes Mortgage Loans having characteristics other than as
described below, the applicable Prospectus Supplement will set forth
additional legal aspects relating thereto.
MORTGAGES AND DEEDS OF TRUST GENERALLY
The Mortgage Loans (other than Installment Contracts) included in the
Mortgage Pool for a Series will consist of (or, in the case of mortgage pass-
through certificates, be supported by) loans secured by either mortgages or
deeds of trust or other similar security instruments. There are two parties to
a mortgage, the mortgagor, who is the borrower and owner of the mortgaged
property, and the mortgagee, who is the lender. In a mortgage transaction, the
mortgagor delivers to the mortgagee a note, bond or other written evidence of
indebtedness and a mortgage. A mortgage creates a lien upon the real property
encumbered by the mortgage as security for the obligation evidenced by the
note, bond or other evidence of indebtedness. Although a deed of trust is
similar to a mortgage, a deed of trust has three parties, the borrower-
property owner called the trustor (similar to a mortgagor), a lender called
the beneficiary (similar to a mortgagee), and a third-party grantee called the
trustee. Under a deed of trust, the borrower irrevocably grants the property
to the trustee, until the debt is paid, in trust for the benefit of the
beneficiary to secure payment of the obligation generally with a power of
sale. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by applicable law, the express
provisions of the deed of trust or mortgage, and, in some cases, the
directions of the beneficiary.
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The real property covered by a mortgage is most often the fee estate in land
and improvements. However, a mortgage 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. A mortgage covering an
interest in real property other than the fee estate requires special
provisions in the instrument creating such interest or in the mortgage to
protect the mortgagee against termination of such interest before the mortgage
is paid. Certain representations and warranties in the related Agreement will
be made with respect to the Mortgage Loans which are secured by an interest in
a leasehold estate.
Priority of the lien on mortgaged property created by mortgages and deeds of
trust depends on their terms and, generally, on the order of filing with a
state, county or municipal office, although such priority may in some states
be altered by the mortgagee's or beneficiary's knowledge of unrecorded liens,
leases or encumbrances against the mortgaged property. However, filing or
recording does not establish priority over governmental claims for real estate
taxes and assessments or, in some states, for reimbursement of remediation
costs of certain environmental conditions. See "--Environmental Risks." In
addition, the Code provides priority to certain tax liens over the lien of the
mortgage.
INSTALLMENT CONTRACTS
The Mortgage Loans included in the Mortgage Pool for a Series may also
consist of Installment Contracts. Under an Installment Contract the seller
(hereinafter referred to in this Section as the "lender") retains legal title
to the property and enters into an agreement with the purchaser (hereinafter
referred to in this Section as the "borrower") for the payment of the purchase
price, plus interest, over the term of such contract. Only after full
performance by the borrower of the contract is the lender obligated to convey
title to the real estate to the purchaser. As with mortgage or deed of trust
financing, during the effective period of the Installment Contract, the
borrower is generally responsible for maintaining the property in good
condition and for paying real estate taxes, assessments and hazard insurance
premiums associated with the property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to its terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his
or her right to occupy the property, the entire indebtedness is accelerated,
and the buyer's equitable interest in the property is forfeited. The lender in
such a situation does not have to foreclose in order to obtain title to the
property, although in some cases a quiet title action is in order if the
borrower has filed the Installment Contract in local land records and an
ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of an
Installment Contract, the courts will permit ejectment of the buyer and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
borrowers under Installment Contracts from the harsh consequences of
forfeiture. Under such statutes, a judicial or nonjudicial foreclosure may be
required, the lender may be required to give notice of default and the
borrower may be granted some grace period during which the contract may be
reinstated upon full payment of the default amount and the borrower may have a
post-foreclosure statutory redemption right. In other states, courts in equity
may permit a borrower with significant investment in the property under an
Installment Contract for the sale of real estate to share in the proceeds of
sale of the property after the indebtedness is repaid or may otherwise refuse
to enforce the forfeiture clause. Nevertheless, generally speaking, the
lender's procedures for obtaining possession and clear title under an
Installment Contract for the sale of real estate in a given state are simpler
and less time-consuming and costly than are the procedures for foreclosing and
obtaining clear title to a mortgaged property.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES OR BENEFICIARIES
Some of the Mortgage Loans included in the Mortgage Pool for a Series will
be secured by junior mortgages or deeds of trust which are subordinate to
senior mortgages or deeds of trust held by other lenders or institutional
investors. The rights of the Trust Fund (and therefore the
Certificateholders), as beneficiary under a junior deed
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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 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 asserts its subordinate interest in a 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.
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 a 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
subordinate 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 for any sums expended by the mortgagee or beneficiary
on
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behalf of the 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 a lease or to refuse to grant to a tenant a non-
disturbance agreement. If, as a result, the lease is not executed, the value
of the mortgaged property may be diminished.
FORECLOSURE
Foreclosure of a mortgage is generally accomplished by judicial action
initiated by the service of legal pleadings upon all necessary parties having
an interest in the real property. Delays in completion of foreclosure may
occasionally result from difficulties in locating necessary parties defendant.
When the mortgagee's right to foreclose is contested, the legal proceedings
necessary to resolve the issue can be time-consuming. A judicial foreclosure
may be subject to most of the delays and expenses of other litigation,
sometimes requiring up to several years to complete. At the completion of the
judicial foreclosure proceedings, if the mortgagee prevails, the court
ordinarily issues a judgment of foreclosure and appoints a referee or other
designated official to conduct the sale of the property. Such sales are made
in accordance with procedures which vary from state to state. The purchaser at
such sale acquires the estate or interest in real property covered by the
mortgage. If the mortgage covered the tenant's interest in a lease and
leasehold estate, the purchaser will acquire such tenant's interest subject to
the tenant's obligations under the lease to pay rent and perform other
covenants contained therein.
In a majority of cases, foreclosure of a deed of trust is accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust
and/or applicable statutory requirements which authorizes the trustee,
generally following a request from the beneficiary/lender, to sell the
property at public sale upon any default by the borrower under the terms of
the note or deed of trust. A number of states may also require that a lender
provide notice of acceleration of a note to the borrower. Notice requirements
under a trustee's sale vary from state to state. In some states, prior to the
trustee's sale the trustee must record a notice of default and send a copy to
the borrower-trustor, to any person who has recorded a request for a copy of a
notice of default and notice of sale and to any successor in interest to the
trustor. In addition, the trustee must provide notice in some states to any
other person having an interest in the real property, including any junior
lienholders, and to certain other persons connected with the deed of trust. In
some states, the borrower, or any other person having a junior encumbrance on
the real estate, may, during a reinstatement period, cure the default by
paying the entire amount in arrears plus the costs and expenses (in some
states, limited to reasonable costs and expenses) incurred in enforcing the
obligation. Generally, state law controls the amount of foreclosure expenses
and costs, including attorneys' fees, which may be recovered by a lender. If
the deed of trust is not reinstated, a notice of sale must be posted in a
public place and, in most states, published for a specific period of time in
one or more newspapers. In addition, some state laws require that a copy of
the notice of sale be posted on the property and sent to all parties having an
interest in the real property.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the referee or other designated official or by the trustee is often a
public sale. However, because of the difficulty a potential buyer at the sale
might have in determining the exact status of title to the property subject to
the lien of the mortgage or deed of trust and the redemption rights that may
exist (see "--Statutory Rights of Redemption" below), and because the physical
condition and financial performance of the property may have deteriorated
during the foreclosure proceedings and/or for a variety of other reasons, a
third party may be unwilling to purchase the property at the
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foreclosure sale. Some states require that the lender disclose to potential
bidders at a trustee's sale all known facts materially affecting the value of
the property. Such disclosure may have an adverse effect on the trustee's
ability to sell the property or the sale price thereof. Potential buyers may
further question the prudence of purchasing property at a foreclosure sale as
a result of the 1980 decision of the United States Court of Appeals for the
Fifth Circuit in Durrett v. Washington National Insurance Company, other
decisions that have followed the reasoning of Durrett and the codification of
the Durrett reasoning in the federal bankruptcy code, as amended from time to
time (11 U.S.C.) (the "Bankruptcy Code"). Under the reasoning of Durrett, even
a non-collusive, regularly conducted foreclosure sale may be a fraudulent
transfer, regardless of the parties' intent, and, therefore, may be rescinded
in favor of the bankrupt's estate, if (i) the foreclosure sale is held while
the debtor is insolvent and not more than one year prior to the filing of the
bankruptcy petition (or if applicable state fraudulent conveyance law also
allows the avoidance of such a foreclosure sale, the applicable state statute
of limitations if the bankruptcy trustee elects to proceed under state
fraudulent conveyance law), and (ii) the price paid for the foreclosed
property does not represent "fair consideration". In May 1994 the Supreme
Court held in BFP v. RTC that in the absence of actual intent to defraud a
non-collusive, regularly conducted foreclosure sale cannot be rescinded as a
fraudulent transfer under federal bankruptcy law. However, BFP does not
address state law, and the impact of BFP on potential buyers' willingness to
purchase property at a foreclosure sale can not yet be assessed. Prior to BFP,
a common practice was for the lender to purchase the property from the
trustee, referee or other designated official for an amount equal to the
outstanding principal amount of the indebtedness secured by the mortgage or
deed of trust, together with accrued and unpaid interest and the expenses of
foreclosure, in which event, if the amount bid by the lender equals the full
amount of such debt, interest and expenses, the mortgagee's debt will be
extinguished. Thereafter, the lender will assume the burdens of ownership,
including paying operating expenses and real estate taxes and making repairs.
The lender is then obligated as an owner until it can arrange a sale of the
property to a third party. Frequently, the lender employs a third-party
management company to manage and operate the property. The costs of operating
and maintaining commercial 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 or 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, some states require that any environmental hazards
be eliminated 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 Risks"
below. As a result, a lender could realize an overall loss on a mortgage loan
even if the related mortgaged property is sold at foreclosure or resold after
it is acquired through foreclosure for an amount equal to the full outstanding
principal amount of the mortgage loan, plus accrued interest.
In foreclosure proceedings, some courts have applied general equitable
principles. These equitable principles are generally designed to relieve the
borrower from the legal effect of his defaults under the loan documents.
Examples of judicial remedies that have been fashioned include judicial
requirements that the lender undertake affirmative and expensive actions to
determine the causes of the borrower's default and the likelihood that the
borrower will be able to reinstate the loan. In some cases, courts have
substituted their judgment for the lender's judgment and have required that
lenders reinstate loans or recast payment schedules in order to accommodate
borrowers who are suffering from temporary financial disability. In other
cases, courts have limited the right of the lender to foreclose if the default
under the mortgage instrument is not monetary, such as the borrower's failing
to maintain adequately the property or the borrower's executing a second
mortgage or deed of trust affecting the property. Finally, some courts have
been faced with the issue of whether or not federal or state constitutional
provisions reflecting due process concerns for adequate notice require that
borrowers under deeds of trust or mortgages receive notices in addition to the
statutorily prescribed minimum. For the most part, these
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cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust, or under a mortgage having a
power of sale, does not involve sufficient state action to afford
constitutional protections to the borrower.
Under the REMIC provision of the Code and the related Agreement, the Master
Servicer or Special Servicer, if any, may be permitted to hire an independent
contractor to operate any REO Property. The costs of such operation may be
significantly greater than the costs of direct operation by the Master
Servicer or Special Servicer, if any. See "SERVICING OF THE MORTGAGE LOANS--
Collections and Other Servicing Procedures."
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to potential
environmental risks. Of particular concern may be those mortgaged properties
which are, or have been, the site of manufacturing, industrial or disposal
activity. Such environmental risks may give rise to a diminution in value of
property securing any Mortgage Loan or, as more fully described below,
liability for cleanup costs or other remedial actions, which liability could
exceed the value of such property or the principal balance of the related
Mortgage Loan. In certain circumstances, a lender may choose not to foreclose
on contaminated property rather than risk incurring liability for remedial
actions.
Under the laws of certain states where the Mortgaged Properties are located,
the owner's failure to perform remedial actions required under environmental
laws may in certain circumstances give rise to a lien on the Mortgaged
Property to ensure the reimbursement of remedial costs incurred by the state.
In several states such lien has priority over the lien of an existing mortgage
against such property. Because the costs of remedial action could be
substantial, the value of a Mortgaged Property as collateral for a Mortgage
Loan could be adversely affected by the existence of an environmental
condition giving rise to a lien.
The state of the law is currently unclear as to whether and under what
circumstances cleanup costs, or the obligation to take remedial actions, can
be imposed on a secured lender such as the Trust Fund with respect to each
Series. Under the laws of some states and under the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), current ownership or operation of a property provides a sufficient
basis for imposing liability for the costs of addressing prior or current
releases or threatened releases of hazardous substances on that property.
Under such laws, a secured lender who holds indicia of ownership primarily to
protect its interest in a property may, by virtue of holding such indicia,
fall within the literal terms of the definition of "owner or operator";
consequently, such laws often specifically exclude such a secured lender from
the definitions of "owner" or "operator", provided that the lender does not
participate in the management of the facility.
Court interpretations as to what constitutes participation in management of
a facility historically have been inconsistent. A decision in May 1990 of the
United States Court of Appeals for the Eleventh Circuit in United States v.
Fleet Factors Corp. very narrowly construed CERCLA's secured creditor
exemption, suggesting that the secured creditor exemption could be lost if the
creditor merely possessed the capacity to influence the management of the
facility. The court's interpretation of the secured creditor exemption left
open the question of the level of participation in management that would void
the exemption, and generated considerable apprehension among secured lenders.
In addition, a number of other decisions had raised questions as to the effect
of foreclosure on the exemption. On April 29, 1992, the United States
Environmental Protection Agency (the "EPA") issued a final rule interpreting
and delineating CERCLA's secured creditor exemption. This rule defined and
specified the range of permissible actions that may be undertaken by a lender
who holds a contaminated facility as collateral without exceeding the bounds
of the secured creditor exemption. Issuance of this rule by the EPA under
CERCLA also did not necessarily affect the potential for liability under state
law. However, the EPA final rule was recently vacated in the decision of
Kelley v. EPA, 15 F.3d 1100 (D.C. Cir. 1994), reh'g denied, 1994 U.S. App.
LEXIS 14470 (June 14, 1994). Pending legislation may reinstate the EPA final
rule, but whether and when such legislation would be passed by Congress is
uncertain.
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Except as otherwise specified in the applicable Prospectus Supplement, at
the time the Mortgage Loans were originated, it is possible that no
environmental assessment or a very limited environmental assessment of the
Mortgaged Properties was conducted.
The related Agreement will provide that the Master Servicer, acting on
behalf of the Trust Fund, may not acquire title to, or possession of, a
Mortgaged Party underlying a Mortgage Loan, take over its operation or take
any other action that might subject a given Trust Fund to liability under
CERCLA or comparable laws unless the Master Servicer has previously
determined, based upon a phase I or other specified environmental assessment
prepared by a person who regularly conducts such environmental assessments,
that the Mortgaged Property is in compliance with applicable environmental
laws and that there are no circumstances relating to use, management or
disposal of any Hazardous Materials for which investigation, monitoring,
containment, clean-up or remediation could be required under applicable
environmental laws, or that it would be in the best economic interest of a
given Trust Fund to take such actions as are necessary to bring the Mortgaged
Property into compliance therewith or as may be required under such laws. This
requirement effectively precludes enforcement of the security for the related
Note until a satisfactory environmental assessment is obtained or any required
remedial action is taken, reducing the likelihood that a given Trust Fund will
become liable for any environmental conditions 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 will detect all possible environmental conditions or
that the other requirements of the Agreement, even if fully observed by the
Master Servicer will in fact insulate a given Trust Fund from liability for
environmental conditions.
"Hazardous Materials" are generally defined as any dangerous, toxic or
hazardous pollutants, chemicals, wastes or substances, including, without
limitation, those so identified pursuant to CERCLA or any other environmental
laws now existing, and specifically including, without limitation, 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.
If a lender is or becomes liable for clean-up costs, it may bring an action
for contribution against the current owners or operators, the owners or
operators at the time of on-site disposal activity or any other party who
contributed to the environmental hazard, but such persons or entities may be
bankrupt or otherwise judgment proof. Furthermore, such action against the
Borrower may be adversely affected by the limitations on recourse in the loan
documents. Similarly, in some states anti-deficiency legislation and other
statutes requiring the lender to exhaust its security before bringing a
personal action against the borrower-trustor (see "--Anti-Deficiency
Legislation" below) may curtail the lender's ability to recover from its
borrower the environmental clean-up and other related costs and liabilities
incurred by the lender. Shortfalls occurring as the result of imposition of
any clean-up costs will be addressed in the Prospectus Supplement and
Agreement for the related Series.
STATUTORY RIGHTS OF REDEMPTION
In some states, after foreclosure sale pursuant to a deed of trust or a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
some states, redemption may occur only upon payment of the entire principal
balance of the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former borrower 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 right
of redemption may defeat the title of any purchaser at a foreclosure sale or
any purchaser from the lender subsequent to a foreclosure sale. Certain states
permit a lender to avoid a post-sale redemption by waiving its right to a
deficiency judgment. Consequently, the practical effect of the redemption
right is often to force the lender to retain the property and pay the expenses
of ownership until the redemption period has run. In some states, there is no
right to redeem property after a trustee's sale under a deed of trust.
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Borrowers under Installment Contracts generally do not have the benefits of
redemption periods such as exist in the same jurisdiction for mortgage loans.
Where redemption statutes do exist under state laws for Installment Contracts,
the redemption period is usually far shorter than for mortgages.
ANTI-DEFICIENCY LEGISLATION
Some of the Mortgage Loans included in the Mortgage Pool for a Series will
be 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
related Mortgage Loan and not against the Borrower's other assets. Even if
recourse is available pursuant to the terms of the Mortgage Loan against the
Borrower's assets in addition to the Mortgaged Property, certain states have
imposed statutory prohibitions which impose prohibitions against or
limitations on such recourse. For example, some state statutes limit the right
of the beneficiary or mortgagee to obtain a deficiency judgment against the
borrower following foreclosure or sale under a deed of trust. A deficiency
judgment is a personal judgment against the former borrower equal in most
cases to the difference between the net amount realized upon the public sale
of the real property and the amount due to the lender. Other statutes require
the beneficiary or mortgagee to exhaust the security afforded under a deed of
trust or mortgage by foreclosure in an attempt to satisfy the full debt before
bringing a personal action against the borrower. In certain states, the lender
has the option of bringing a personal action against the borrower 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. Consequently, the practical effect of the election requirement,
when applicable, is that lenders will usually proceed first against the
security rather than bringing personal action against the borrower. Other
statutory provisions limit any deficiency judgment against the former borrower
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 beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low bids or the absence of bids at the judicial sale.
BANKRUPTCY LAWS
Numerous statutory provisions, including the Bankruptcy Code and state laws
affording relief to debtors, may interfere with and delay the ability of the
secured mortgage lender to obtain payment of the loan, 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, often, no interest or principal payments are
made during the course of the bankruptcy proceeding. The delay and
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, including, without limitation, any junior mortgagee
or beneficiary, may stay the senior lender from taking action to foreclose out
such junior lien. Certain of the Mortgaged Properties may have a junior
"wraparound" mortgage or deed of trust encumbering such Mortgaged Property. In
general terms, a "wraparound" mortgage is a junior mortgage where the full
amount of the mortgage is increased by an amount equal to the principal
balance of the senior mortgage and where the junior lender agrees to pay the
senior mortgage out of the payments received from the mortgagor under the
"wraparound" mortgage. As with other junior mortgages, the filing of a
petition under the Bankruptcy Code by or on behalf of such a "wrap" mortgagee
may stay the senior lender from taking action to foreclose upon such junior
"wrap" mortgage.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage or deed
of trust secured by property of the debtor may be modified under certain
circumstances. 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 the lender's security interest), 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 monthly 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
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reduction) of the final maturity date. Some bankruptcy courts 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 the Bankruptcy Code, a bankruptcy court may permit a debtor
through its 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.
Other types of significant modifications to the terms of the mortgage may be
acceptable to the bankruptcy court, often depending on the particular facts
and circumstances of the specific case.
A "deficient valuation" with respect to any mortgage loan is the excess of
(a)(i) the then outstanding principal balance of the mortgage loan, plus (ii)
accrued and unpaid interest and expenses reimbursable under the terms of the
related note to the date of the bankruptcy petition (collectively, the
"Outstanding Balance"), over (b) a valuation by a court of competent
jurisdiction of the mortgaged property which reduces the principal balance
receivable on such mortgage loan to an amount less than the Outstanding
Balance of the mortgage loan, which valuation results from a proceeding
initiated under the Bankruptcy Code. As used herein, "Deficient Valuation"
means, with respect to any Mortgage Loan, the deficient valuation described in
the preceding sentence, without giving effect to clause (a)(ii) thereof. If
the terms of a court order in respect of any retroactive Deficient Valuation
provide for a reduction in the indebtedness of a Mortgage Loan and the earlier
maturity thereof, the term Deficient Valuation includes an additional amount
equal to the excess, if any, of (a) the amount of principal that would have
been due on such Mortgage Loan for each month retroactively affected (i.e.
each month occurring after the effective date of such Deficient Valuation but
before the distribution of amounts in respect of such Deficient Valuation to
Certificateholders pursuant to the related Agreement), based on the original
payment terms and amortization schedule of such Mortgage Loan over (b) the
amount of principal due on such Mortgage Loan for each such retroactive month
(assuming the effect of such retroactive application according to such
Mortgage Loan's revised amortization schedule). A "Debt Service Reduction,"
with respect to any Mortgage Loan, is a reduction in the scheduled monthly
payment, as described in the Agreement, for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such
a reduction resulting from a Deficient Valuation.
Federal bankruptcy law may also interfere with or affect the ability of the
secured mortgage lender to enforce an assignment by a mortgagor of rents and
leases related to the mortgaged property if the related mortgagor is in a
bankruptcy proceeding. Under Section 362 of the Bankruptcy Code, the mortgagee
will be stayed from enforcing the assignment, and the legal proceedings
necessary to resolve the issue can be time-consuming and may result in
significant delays in the receipt of the rents. Rents may also escape an
assignment thereof (i) if the assignment is not fully perfected under state
law prior to commencement of the bankruptcy proceeding, (ii) to the extent
such rents are used by the borrower to maintain the mortgaged property, or for
other court authorized expenses, or (iii) to the extent other collateral may
be substituted for the rents.
To the extent a mortgagor's ability to make payment on a mortgage loan is
dependent on payments under a lease of the related property, such ability may
be impaired by the commencement of a bankruptcy proceeding relating to a
lessee under such lease. Under the Bankruptcy Code, the filing of a petition
in bankruptcy by or on behalf of a lessee results in a stay in bankruptcy
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.
In addition, federal bankruptcy law generally provides that a trustee or
debtor in possession in a bankruptcy or reorganization case under the
Bankruptcy Code 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 or debtor in possession (or 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. Furthermore, there is likely to be a
period of time between the date upon which a lessee files a bankruptcy
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petition and the date upon which the lease is assumed or rejected. Although
the lessee is obligated to make all lease payments currently with respect to
the post-petition period, there is a risk that such payments will not be made
due to the lessee's poor financial condition. If the lease is rejected, the
lessor will be treated as an unsecured creditor with respect to its claim for
damages for termination of the lease and the mortgagor must relet the
mortgaged property before the flow of lease payments will recommence. In
addition, pursuant to Section 502(b)(6) of the Bankruptcy Code, a lessor's
damages for lease rejection are limited.
In a bankruptcy or similar proceeding action may be taken seeking the
recovery as a preferential transfer of any payments made by the mortgagor
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.
ENFORCEABILITY OF CERTAIN PROVISIONS
Prepayment Provisions
Courts generally enforce claims requiring prepayment fees unless enforcement
would be unconscionable. However, the laws of certain states may render
prepayment fees unenforceable after a mortgage loan has been outstanding for a
certain number of years, or may limit the amount of any prepayment fee to a
specified percentage of the original principal amount of the mortgage loan, to
a specified percentage of the outstanding principal balance of a mortgage
loan, or to a fixed number of months' interest on the prepaid amount. In
certain states, prepayment fees payable on default or other involuntary
acceleration of a mortgage loan may not be enforceable against the mortgagor.
Some state statutory provisions may also treat certain prepayment fees as
usurious if in excess of statutory limits. See "--Applicability of Usury
Laws." Some of the Mortgage Loans included in the Mortgage Pool for a Series
may not require the payment of specified fees as a condition to prepayment or
such requirements have expired, and to the extent some Mortgage Loans do
require such fees, such fees generally may not deter Borrowers from prepaying
their Mortgage Loans.
Due-on-Sale Provisions
The enforceability of due-on-sale clauses has been the subject of
legislation or litigation in many states, and in some cases, typically
involving single family residential mortgage transactions, their
enforceability has been limited or denied. In any event, the Garn-St Germain
Depository Institutions Act of 1982 (the "Garn-St Germain Act") 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 exceptions. As a result, due-on-sale
clauses have become generally enforceable except in those states whose
legislatures exercised their authority to regulate the enforceability of such
clauses with respect to mortgage loans that were (i) originated or assumed
during the "window period" under the Garn-St Germain Act, which ended in all
cases not later than October 15, 1982, and (ii) originated by lenders other
than national banks, federal savings institutions and federal credit unions.
FHLMC has taken the position in its published mortgage servicing standards
that, out of a total of eleven "window period states," five states (Arizona,
Michigan, Minnesota, New Mexico and Utah) have enacted statutes extending, on
various terms and for varying periods, the prohibition on enforcement of due-
on-sale clauses with respect to certain categories of window period loans.
Also, the Garn-St Germain Act does "encourage" lenders to permit assumption of
loans at the original rate of interest or at some other rate less than the
average of the original rate and the market rates.
The Agreement for each Series will provide that if any Mortgage Loan
contains a provision in the nature of a "due-on-sale" clause, which by its
terms provides that: (i) such Mortgage Loan shall (or may at the mortgagee's
option) become due and payable upon the sale or other transfer of an interest
in the related Mortgaged Property; or (ii) such Mortgage Loan may not be
assumed without the consent of the related mortgagee in connection with any
such sale or other transfer, then, for so long as such Mortgage Loan is
included in the Trust Fund, the Master Servicer, on behalf of the Trustee,
shall take such actions as it deems to be in the
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best interest of the Certificateholders in accordance with the servicing
standard set forth in the Agreement, and may waive or enforce any due-on-sale
clause contained in the related Note or Mortgage.
In addition, under federal bankruptcy law, 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.
Acceleration on Default
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 Borrower. 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 any 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 Borrower 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.
State courts also are known to apply various legal and equitable principles
to avoid enforcement of the forfeiture provisions of Installment Contracts.
For example, a lender's practice of accepting late payments from the borrower
may be deemed a waiver of the forfeiture clause. State courts also may impose
equitable grace periods for payment of arrearages or otherwise permit
reinstatement of the contract following a default. Not infrequently, if a
borrower under an Installment Contract has significant equity in the property,
equitable principles will be applied to reform or reinstate the contract or to
permit the borrower to share the proceeds upon a foreclosure sale of the
property if the sale price exceeds the debt.
Soldiers' and Sailors' Relief Act
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a Borrower who enters military service after the
origination of such Borrower's Mortgage Loan (including a Borrower who is a
member of the National Guard or is in reserve status at the time of the
origination of the Mortgage Loan and is later called to active duty) may not
be charged interest (including fees and charges) above an annual rate of 6%
during the period of such Borrower's active duty status, unless a court orders
otherwise upon application of the lender. Any shortfall in interest
collections resulting from the application of the Relief Act, to the extent
not covered by any applicable credit enhancements, could result in losses to
the Holders of the Certificates. 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 later called to active duty) after
origination of the related Mortgage Loan, no information can be provided as to
the number of Mortgage Loans that may be affected by the Relief Act. Some of
the Mortgaged Properties relating to Mortgage Loans included in the Mortgage
Pool for a Series may be owned by Borrowers who are individuals. In addition,
the Relief Act imposes limitations which would impair the ability of the
Master Servicer to foreclose on an affected Mortgage Loan during the
Borrower's period of active duty status and, under certain circumstances,
during an additional three months thereafter. Thus, in the event that such a
Mortgage Loan goes into default, there may be delays and losses occasioned by
the inability to realize upon the Mortgage Property in a timely fashion.
APPLICABILITY OF USURY LAWS
State and federal usury laws limit the interest that lenders are entitled to
receive on a mortgage loan. In determining whether a given transaction is
usurious, courts may include charges in the form of "points" and "fees" as
"interest," but may exclude payments in the form of "reimbursement of
foreclosure expenses" or other charges found to be distinct from "interest."
If, however, the amount charged for the use of the money
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loaned is found to exceed a statutorily established maximum rate, the form
employed and the degree of overcharge are both immaterial. Statutes differ in
their provision as to the consequences of a usurious loan. One group of
statutes requires the lender to forfeit the interest above the applicable
limit or imposes a specified penalty. Under this statutory scheme, the
borrower may have the recorded mortgage or deed of trust cancelled upon paying
its debt with lawful interest, or 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 borrower to have the recorded mortgage or
deed of trust cancelled without any payment and prohibiting the lender from
foreclosing.
Under the Agreement, a representation and warranty will be made to the
effect that the Mortgage Loans included in a given Trust Fund complied at
origination with applicable laws, including usury laws. If this representation
and warranty is breached with respect to any Mortgage Loan in a manner that
materially and adversely affects the interests of Certificateholders, a
Substitute Mortgage Loan will be substituted for such Mortgage Loan or such
Mortgage Loan will be repurchased in accordance with the applicable Agreement.
See "THE MORTGAGE POOLS--Representations and Warranties."
The Agreement for each Series will provide that the Master Servicer not
charge interest in excess of that permitted under any applicable state and
federal usury laws, notwithstanding that the applicable Note may provide for a
higher rate.
ALTERNATIVE MORTGAGE INSTRUMENTS
Alternative mortgage instruments, including adjustable rate mortgage loans,
originated by non-federally chartered lenders have historically been subjected
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 (the "NCUA") 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 mortgage banking companies,
may originate alternative mortgage instruments in accordance with the
regulations promulgated by the Federal Home Loan Bank Board (now 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 provision 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.
LEASES AND RENTS
Some of the Mortgage Loans included in the Mortgage Pool for a Series may be
secured by an assignment of leases and rents, either through a separate
document of assignment or as incorporated in the mortgage. Under such
assignments, the borrower under the mortgage loan typically assigns its right,
title and interest as landlord under each lease and the income derived
therefrom to the lender, 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 lender's interest in rents may depend on whether the
borrower's assignment was absolute or one granted as security for the loan.
Failure to properly perfect the lender's interest in rents may result in the
loss of a substantial pool of funds which could otherwise serve as a source of
repayment for the loan. In the event the Borrower defaults, the license
terminates and the lender may be entitled to collect rents. Some state laws
may require that to perfect its interest in rents, the lender must take
possession of the property and/or obtain judicial appointment of a receiver
before becoming entitled to collect the rents. Lenders that actually take
possession of the property, however, may
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incur potentially substantial risks attendant to being a mortgagee in
possession. Such risks include liability for environmental clean-up costs and
other risks inherent to property ownership. In addition, if bankruptcy or
similar proceedings are commenced by or in respect of the borrower, the
lender's ability to collect the rents may be adversely affected. In the event
of borrower default, the amount of rent the lender is able to collect from the
tenants can significantly affect the value of the lender's security interest.
SECONDARY FINANCING; DUE-ON-ENCUMBRANCE PROVISIONS
Some of the Mortgage Loans included in the Mortgage Pool for a Series may
not restrict secondary financing, thereby permitting the Borrower to use the
Mortgaged Property as security for one or more additional loans. Some of the
Mortgage Loans may preclude secondary financing (often by permitting the first
lender to accelerate the maturity of its loan if the Borrower further
encumbers the Mortgaged Property) or may require the consent of the senior
lender to any junior or substitute financing; however, such provisions may be
unenforceable in certain jurisdictions under certain circumstances. The
Agreement for each Series will provide that if any Mortgage Loan contains a
provision in the nature of a "due-on-encumbrance" clause, which by its terms:
(i) provides that such Mortgage Loan shall (or may at the mortgagee's option)
become due and payable upon the creation of any lien or other encumbrance on
the related Mortgaged Property; or (ii) requires the consent of the related
mortgagee to the creation of any such lien or other encumbrance on the related
Mortgaged Property, then for so long as such Mortgage Loan is included in a
given Trust Fund, the Master Servicer or, if such Mortgage Loan is a Specially
Serviced Mortgage Loan, the Special Servicer, if any, on behalf of such Trust
Fund, shall exercise (or decline to exercise) any right it may have as the
mortgagee of record with respect to such Mortgage Loan (x) to accelerate the
payments thereon, or (y) to withhold its consent to the creation of any such
lien or other encumbrance, in a manner consistent with the servicing standard
set forth in the Agreement.
Where the Borrower encumbers the Mortgaged Property with one or more junior
liens, the senior lender is subjected to additional risk. First, the Borrower
may have difficulty servicing and repaying multiple loans. Second, acts of the
senior lender which 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 Borrower 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 an existing junior lender is
prejudiced or the Borrower is additionally burdened. Third, if the Borrower
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, delay and in certain
circumstances even prevent the taking of action by the senior lender. Fourth,
the bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
CERTAIN LAWS AND REGULATIONS
The Mortgage 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 Mortgaged Property which could, together with the possibility
of limited alternative uses for a particular Mortgaged Property (i.e., a
nursing or convalescent home or hospital), result in a failure to realize the
full principal amount of the related Mortgage Loan.
TYPE OF MORTGAGED PROPERTY
The lender may be subject to additional risk depending upon the type and use
of the Mortgaged Property in question. For instance, Mortgaged Properties
which are hospitals, nursing homes or convalescent homes may present special
risks to lenders in large part due to significant governmental regulation of
the operation, maintenance, control and financing of health care institutions.
Mortgages on Mortgaged Properties which are owned by the Borrower 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 to the
lender in that: (i) hotels and motels are typically operated pursuant to
franchise, management and operating agreements which may be terminable by the
operator; and (ii) the transferability of
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the hotel's operating, liquor and other licenses to the entity acquiring the
hotel either through purchase or foreclosure is subject to the vagaries of
local law requirements. In addition, Mortgaged Properties which are
multifamily residential properties or cooperatively owned multifamily
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 borrower 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 Borrower as owner or 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 Borrower of complying with the requirements
of the ADA may be subject to more stringent requirements than those to which
the Borrower is subject.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of certain anticipated federal income tax
consequences of the purchase, ownership, and disposition of the Certificates.
The summary is based upon the provisions of the Code, the regulations
promulgated thereunder, including, where applicable, proposed regulations, and
the judicial and administrative rulings and decisions now in effect, all of
which are subject to change or possible differing interpretations. The
statutory provisions, regulations, and interpretations on which this summary
is based are subject to change, and such change could apply retroactively.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain types of investors subject to special
treatment under the federal income tax laws. This summary focuses primarily
upon investors who will hold Certificates as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Code,
but much of the discussion is applicable to other investors as well. Potential
purchasers of Certificates are advised to consult their own tax advisers
concerning the federal, state or local tax consequences to them of the
purchase, holding and disposition of Certificates.
TAXATION OF THE REMIC AND ITS HOLDERS
General. In the opinion of Milbank, Tweed, Hadley & McCloy or Orrick,
Herrington and Sutcliffe, as specified in the applicable Prospectus
Supplement, special counsel to the Depositor, if a REMIC election is made with
respect to a Series of Certificates, then the arrangement by which the
Certificates of that Series are issued will be treated as one or more REMICs
as long as all of the provisions of the applicable Agreement are complied with
and the statutory and regulatory requirements are satisfied. Certificates will
be designated as "Regular Interests" or "Residual Interests" in the REMICs, as
specified in the related Prospectus Supplement. The opinion of special counsel
may in certain cases be based on representations of the Depositor or other
persons.
If a REMIC election is made with respect to a Series of Certificates, (i)
Certificates held by a mutual savings bank or domestic building and loan
association will represent interests in "qualifying real property loans"
within the meaning of Code Section 593(d) (assuming that at least 95% of the
REMIC's assets are "qualifying real property loans"); (ii) Certificates held
by a domestic building and loan association will constitute "a regular or a
residual interest in a REMIC" within the meaning of Code Section
7701(a)(19)(C)(xi) (assuming that at least 95% of the REMIC's assets consist
of cash, government securities, "loans secured by an interest in real
property," and other types of assets described in Code Section 7701(a)(19)(C)
(except that if the underlying Mortgage Loans are not residential Mortgage
Loans, the Certificates will not so qualify)); and (iii) Certificates held by
a real estate investment trust will constitute "real estate assets" within the
meaning of Code Section 856(c)(5)(A), and income with respect to the
Certificates will be considered "interest on obligations secured by mortgages
on real property or on interests in real property" within the meaning of Code
Section 856(c)(3)(B) (assuming, for both purposes, that at least 95% of the
REMIC's assets are qualifying assets). If less than 95% of the REMIC's assets
consist of assets described in (i), (ii) or (iii) above, then a Certificate
will qualify for the tax treatment described in (i), (ii) or (iii) in the
proportion that such REMIC assets are qualifying assets.
It is possible that various reserves or funds will reduce the proportion of
REMIC assets which qualify under the standards described above.
TAXATION OF REGULAR INTERESTS
Interest and Acquisition Discount. Certificates representing Regular
Interests in a REMIC ("Regular Interest Certificates") are generally taxable
to Holders in the same manner as evidences of indebtedness issued by the
REMIC. Stated interest on the Regular Interest Certificates will be taxable as
ordinary income and taken into account using the accrual method of accounting,
regardless of the Certificateholder's normal accounting method. Reports will
be made annually to the Internal Revenue Service (the "IRS") and to Holders of
Regular
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Interest Certificates that are not excepted from the reporting requirements
regarding amounts treated as interest (including accrual of original issue
discount) on Regular Interest Certificates.
Certificates on which interest is not paid currently ("Compound Interest
Certificates") will, and certain of the other Certificates constituting
Regular Interests may, be issued with original issue discount ("OID") within
the meaning of Code Section 1273. Rules governing OID are set forth in
Sections 1271-1275 of the Code and certain final regulations of the U.S.
Department of the Treasury issued in 1994 (the "Final Regulations") and
certain proposed regulations of the U.S. Department of the Treasury issued in
1986, and modified in 1991 and 1994 (the "Proposed Regulations"). The
discussion herein is based in part on the Proposed Regulations, which are
subject to change before being adopted as final regulations and which will not
be effective for obligations issued before such final regulations are adopted.
Moreover, although the Code contains specific provisions governing the
calculation of OID on securities, such as the Certificates, on which principal
is required to be prepaid based on prepayments of the underlying assets,
regulations interpreting those provisions have not yet been issued.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Regular Interest Certificate and its issue
price. A Holder of a Regular Interest Certificate must include such OID in
gross income as ordinary income as it accrues under a method taking into
account an economic accrual of the discount. In general, OID must be included
in income in advance of the receipt of the cash representing that income. The
amount of OID on a Regular Interest Certificate will be considered to be zero
if it is less than a de minimis amount determined under the Code.
The issue price of a Regular Interest Certificate of a Class will generally
be the initial offering price at which a substantial amount of the
Certificates in the Class is sold to the public, and will be treated by the
Depositor as including, in addition, the amount paid by the Certificateholder
for accrued interest that relates to a period prior to the issue date of such
Regular Interest Certificate. Under the Final Regulations, the stated
redemption price at maturity is the sum of all payments on the Certificate
other than any "qualified stated interest" payments. Qualified stated interest
is interest that is unconditionally payable at least annually during the
entire term of the Certificate at either (a) a single fixed rate that
appropriately takes into account the length of the interval between payments
or (b) the current values of (i) a single "qualified floating rate" or (ii) a
single "objective rate" (each a "Single Variable Rate"). A "current value" is
the value of a variable rate on any day that is no earlier than three months
prior to the first day on which that value is in effect and no later than one
year following that day. A qualified floating rate is a rate the variations in
which reasonably can be expected to measure contemporaneous variations in the
cost of newly borrowed funds in the currency in which the Regular Interest
Certificate is denominated (e.g., LIBOR). Such a rate remains qualified even
though it is multiplied by a fixed, positive multiple not exceeding 1.35,
increased or decreased by a fixed rate, or both. Certain combinations of rates
constitute a single qualified floating rate, including (a) interest stated at
a fixed rate for an initial period of less than one year followed by a
qualified floating rate, if the value of the qualified floating rate on the
issue date is intended to approximate the fixed rate, and (b) two or more
qualified floating rates that can reasonably be expected to have approximately
the same values throughout the term of the Regular Interest Certificate. A
combination of such rates is conclusively presumed to be a single qualified
floating rate if the values of all rates on the issue date are within .25
percentage points of each other. A variable rate that is subject to an
interest rate cap, floor, "governor" or similar restriction on rate adjustment
may be a qualified floating rate only if such restriction is fixed throughout
the term of the instrument, or is not reasonably expected as of the issue date
to cause the yield on the debt instrument to differ significantly from the
expected yield absent the restriction. An objective rate is a rate, other than
a qualified floating rate, determined by a single formula that is fixed
throughout the term of the Regular Interest Certificate and is based on (i)
one or more qualified floating rates (including a multiple or inverse of a
qualified floating rate), (ii) one or more rates each of which would be a
qualified floating rate for a debt instrument denominated in a foreign
currency, (iii) the yield or the changes in the price of one or more items of
"actively traded" personal property, (iv) a combination of rates described in
(i), (ii) or (iii), or (v) other rates designated by the IRS. Each rate
described in (i) through (iv) above will not be considered an
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objective rate, however, if it is reasonably expected that the average value
of the rate during the first half of the Regular Interest Certificate's term
will differ significantly from the average value of the rate during the final
half of its term. A combination of interest stated at a fixed rate for an
initial period of less than one year followed by an objective rate is treated
as a single objective rate if the value of the objective rate on the issue
date is intended to approximate the fixed rate; such a combination of rates is
conclusively presumed to be a single objective rate if the value of the
objective rate on the issue date does not differ from the value of the fixed
rate by more than .25 percentage points. The rules for determining the
qualified stated interest payable with respect to certain variable rate
Regular Interest Certificates not bearing interest at a Single Variable Rate
are discussed below under "--Variable Rate Regular Interests." In the case of
the Compound Interest Certificates, Interest Weighted Certificates, and
certain of the other Regular Interest Certificates, none of the payments under
the instrument will be considered qualified stated interest, and thus the
aggregate amount of all payments will be included in the stated redemption
price at maturity. Because Certificateholders are entitled to receive interest
only to the extent that payments are made on the Mortgage Loans, interest
might not be considered to be "unconditionally payable."
The Holder of a Regular Interest Certificate issued with OID must include in
gross income, for all days during its taxable year on which it holds such
Regular Interest Certificate, the sum of the "daily portions" of such OID.
Under Code Section 1272(a)(6), the amount of OID to be included in income by a
Holder of a debt instrument, such as a Regular Interest Certificate, that is
subject to acceleration due to prepayments on other debt obligations securing
such instruments, is computed by taking into account the anticipated rate of
prepayments assumed in pricing the debt instrument (the "Prepayment
Assumption"). The amount of OID includible in income by a Holder will be
computed by allocating to each day during a taxable year a pro-rata portion of
the OID that accrued during the relevant accrual period. The amount of OID
that will accrue during an accrual period (generally the period between
interest payments or compounding dates) is the excess (if any) of the sum of
(a) the present value of all payments remaining to be made on the Regular
Interest Certificate as of the close of the accrual period and (b) the
payments during the accrual period of amounts included in the stated
redemption price of the Regular Interest Certificate, over the "adjusted issue
price" of the Regular Interest Certificate at the beginning of the accrual
period. The adjusted issue price of a Regular Interest Certificate is the sum
of its issue price plus prior accruals of OID, reduced by the total payments
made with respect to such Regular Interest Certificate in all prior periods,
other than qualified stated interest payments. Code Section 1272(a)(6)
requires the present value of the remaining payments to be determined on the
basis of three factors: (i) the original yield to maturity of the Regular
Interest Certificate (determined on the basis of compounding at the end of
each accrual period and properly adjusted for the length of the accrual
period), (ii) events which have occurred before the end of the accrual period
and (iii) the assumption that the remaining payments will be made in
accordance with the original Prepayment Assumption. The effect of this method
would be to increase the portions of OID required to be included in income by
a Certificateholder taking into account prepayments with respect to the
Mortgage Loans at a rate that exceeds the Prepayment Assumption, and to
decrease (but not below zero for any period) the portions of OID required to
be included in income by a Certificateholder taking into account prepayments
with respect to the Mortgage Loans at a rate that is slower than the
Prepayment Assumption. Although OID will be reported to Certificateholders
based on the Prepayment Assumption, no representation is made to
Certificateholders that Mortgage Loans will be prepaid at that rate or at any
other rate.
Certain classes of Certificates may represent more than one class of REMIC
Regular Interests. Unless the applicable Prospectus Supplement specifies
otherwise, the Trustee intends, based on the Final Regulations, to calculate
OID on such Certificates as if, solely for the purposes of computing OID, the
separate Regular Interests were a single debt instrument.
A subsequent Holder of a Regular Interest Certificate will also be required
to include OID in gross income, but such a Holder who purchases such Regular
Interest Certificate for an amount that exceeds its adjusted issue price will
be entitled (as will an initial Holder who pays more than a Regular Interest
Certificate's issue price) to offset such OID by comparable economic accruals
of portions of such excess.
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Interest Weighted Certificates. It is not clear how income should be accrued
with respect to Regular Interest Certificates the payments on which consist
solely or primarily of a specified portion of the interest payments on
qualified mortgages held by the REMIC ("Interest Weighted Certificate"). The
Depositor intends to take the position that all of the income derived from an
Interest Weighted Certificate should be treated as OID and that the amount and
rate of accrual of such OID should be calculated by treating the Interest
Weighted Certificate as a Compound Interest Certificate. However, the IRS
could assert that income derived from an Interest Weighted Certificate should
be calculated as if the Interest Weighted Certificate were a Certificate
purchased at a premium equal to the excess of the price paid by such Holder
for the Interest Weighted Certificate over its stated principal amount, if
any. Under this approach, a Holder would be entitled to amortize such premium
only if it has in effect an election under Section 171 of the Code with
respect to all taxable debt instruments held by such holder, as described
below. Alternatively, the IRS could assert that the Interest Weighted
Certificate should be taxable under certain proposed rules governing bonds
issued with contingent principal payments, in which case a Holder might
recognize income at a slower rate than if the Interest Weighted Certificate
were treated as a Compound Interest Certificate.
Variable Rate Regular Interests. Regular Interest Certificates bearing
interest at one or more variable rates are subject to certain special rules.
The qualified stated interest payable with respect to certain variable rate
debt instruments not bearing interest at a Single Variable Rate generally is
determined under the Final Regulations by converting such instruments into
fixed rate debt instruments. Instruments qualifying for such treatment
generally include those providing for stated interest at (i) more than one
qualified floating rates, or at (ii) a single fixed rate and (a) one or more
qualified floating rates or (b) a single "qualified inverse floating rate"
(each, a "Multiple Variable Rate"). A qualified inverse floating rate is an
objective rate equal to a fixed rate reduced by a qualified floating rate, the
variations in which can reasonably be expected to inversely reflect
contemporaneous variations in the cost of newly borrowed funds (disregarding
permissible rate caps, floors, governors, and similar restrictions such as are
described above).
Purchasers of Regular Interest Certificates bearing a variable rate of
interest should be aware that there is uncertainty concerning the application
of Code Section 1272(a)(6), the Final Regulations, and the Proposed
Regulations to such Certificates. In the absence of other authority, the
Depositor intends to be guided by the provisions of the Final Regulations
governing variable rate debt instruments in adapting the provisions of Code
Section 1272(a)(6) to such Certificates for the purpose of preparing reports
furnished to the IRS and Certificateholders. In that regard, in determining
OID with respect to Regular Interest Certificates bearing interest at a Single
Variable Rate, (a) all stated interest with respect to a Regular Interest
Certificate is treated as qualified stated interest and (b) the amount and
accrual of OID, if any, is determined under the OID rules applicable to fixed
rate debt instruments discussed above by assuming that the Single Variable
Rate is a fixed rate equal to (i) in the case of a qualified floating rate or
qualified inverse floating rate, the issue date value of the rate, or (ii) in
the case of any other objective rate, a fixed rate that reflects the yield
that is reasonably expected for the Regular Interest Certificate. Interest and
OID attributable to Regular Interest Certificates bearing interest at a
Multiple Variable Rate similarly will be taken into account under a
methodology that converts the Certificate into an equivalent fixed rate debt
instrument. However, in determining the amount and accrual of OID, the assumed
fixed rates are (a) for each qualified floating rate, the value of each such
rate as of the issue date (with appropriate adjustment for any differences in
intervals between interest adjustment dates), (b) for a qualified inverse
floating rate, the value of the rate as of the issue date, and (c) for any
other objective rate, the fixed rate that reflects the yield that is
reasonably expected for the Certificate. In the case of a Certificate that
provides for stated interest at a fixed rate in one or more accrual periods
and either one or more qualified floating rates or a qualified inverse
floating rate in other accrual periods, the fixed rate is initially converted
into a qualified floating rate (or a qualified inverse floating rate, if the
Certificate provides for a qualified inverse floating rate). The qualified
floating rate or qualified inverse floating rate that replaces the fixed rate
must be such that the fair market value of the Regular Interest Certificate as
of its issue date is approximately the same as the fair market value of an
otherwise identical debt instrument that provides for either the qualified
floating rate or the qualified inverse floating rate. Subsequent to converting
the fixed rate into either a qualified floating rate or a qualified inverse
floating rate, the Regular Interest Certificate is then converted into an
equivalent fixed rate debt
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instrument in the manner described above. If the interest paid or accrued with
respect to a Single Variable Rate or Multiple Variable Rate Certificate during
an accrual period differs from the assumed fixed interest rate, such
difference will be an adjustment (to interest or OID, as applicable) to the
Certificateholder's taxable income for the taxable period or periods to which
such difference relates.
Purchasers of Certificates bearing a variable rate of interest should be
aware that the provisions of the Final Regulations governing variable rate
debt instruments are limited in scope and may not apply to some Regular
Interest Certificates having variable rates. If such a Certificate is not
subject to the provisions of the Final Regulations governing variable rate
debt instruments, it may be subject to the provisions of the Proposed
Regulations applicable to debt instruments having contingent payments. The
application of those provisions to instruments such as variable rate Regular
Interest Certificates is subject to differing interpretations. Prospective
purchasers of variable rate Regular Interest Certificates should consult their
tax advisers concerning the appropriate tax treatment of such Certificates.
Market Discount and Premium. A purchaser of a Regular Interest Certificate
may also be subject to the market discount rules of the Code. Such purchaser
generally will be required to recognize accrued market discount as ordinary
income as payments of principal are received on such Regular Interest
Certificate, or upon sale or exchange of the Regular Interest Certificate. In
general terms, until regulations are promulgated, market discount may be
treated as accruing, at the election of the Holder, either (i) under a
constant yield method, taking into account the Prepayment Assumption, or (ii)
in proportion to accruals of OID (or, if there is no OID, in proportion to
accruals of stated interest). A Holder of a Regular Interest Certificate
having market discount may also be required to defer a portion of the interest
deductions attributable to any indebtedness incurred or continued to purchase
or carry the Regular Interest Certificate. As an alternative to the inclusion
of market discount in income on the foregoing basis, the Holder may elect to
include such market discount in income currently as it accrues on all market
discount instruments acquired by such Holder in that taxable year or
thereafter, in which case the interest deferral rule will not apply.
A Holder who purchases a Regular Interest Certificate (other than an
Interest Weighted Certificate, to the extent described above) at a cost
greater than its stated redemption price at maturity, generally will be
considered to have purchased the Certificate at a premium, which it may elect
to amortize as an offset to interest income on such Certificate (and not as a
separate deduction item) on a constant yield method. Although no regulations
addressing the computation of premium accrual on collateralized mortgage
obligations or REMIC Regular Interests have been issued, the legislative
history of the Tax Reform Act of 1986 (the "1986 Act") indicates that premium
is to be accrued in the same manner as market discount. Accordingly, it
appears that the accrual of premium on a Regular Interest Certificate will be
calculated using the prepayment assumption used in pricing such Regular
Interest Certificate. If a Holder makes an election to amortize premium on a
Certificate, such election will apply to all taxable debt instruments
(including all REMIC Regular Interests) held by the Holder at the beginning of
the taxable year in which the election is made, and to all taxable debt
instruments acquired thereafter by such Holder, and will be irrevocable
without the consent of the IRS. Purchasers who pay a premium for Regular
Interest Certificates should consult their tax advisers regarding the election
to amortize premium and the method to be employed.
Interest Election. Under the Final Regulations, holders of Regular Interest
Certificates generally may elect to include all accrued interest on a Regular
Interest Certificate in gross income using the constant yield to maturity
method. For purposes of this election, interest includes stated interest,
original issue discount, de minimis original issue discount, market discount,
de minimis market discount and unstated interest, as adjusted by any premium.
If a holder of a Regular Interest Certificate makes such an election and (i)
the Regular Interest Certificate has amortizable bond premium, the holder is
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, or (ii) the Regular Interest Certificate has market
discount, the holder is deemed to have made an election to include market
discount in income currently for all debt instruments having market discount
acquired during the year of the election or thereafter. See "--Market Discount
and Premium" above. A holder of a Regular Interest Certificate should consult
its tax adviser before making this election.
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Treatment of Subordinate Certificates. As described above under
"ENHANCEMENT--Subordinate Certificates," certain Series of Certificates may
contain one or more Classes of Subordinate Certificates. Holders of
Subordinate Certificates will be required to report income with respect to
such Certificates on the accrual method without giving effect to delays and
reductions in distributions attributable to defaults or delinquencies on any
Mortgage Loans, except possibly to the extent that it can be established that
such amounts are uncollectible. As a result, the amount of income reported by
a Holder of a Subordinate Certificate in any period could significantly exceed
the amount of cash distributed to such Holder in that period.
Although not entirely clear, it appears that a corporate Holder generally
should be allowed to deduct as an ordinary loss any loss sustained on account
of partial or complete worthlessness of a Subordinate Certificate. Although
similarly unclear, a noncorporate Holder generally should be allowed to deduct
as a short-term capital loss any loss sustained on account of complete
worthlessness of a Subordinate Certificate. A noncorporate Holder
alternatively may be allowed such a loss deduction as the principal balance of
a Subordinate Certificate is reduced by reason of realized losses resulting
from liquidated Mortgage Loans; however, the IRS could contend that a
noncorporate Holder should be allowed such losses only after all Mortgage
Loans in the Trust Fund have been liquidated or the Subordinate Certificates
otherwise have been retired. Special rules are applicable to banks and thrift
institutions, including rules regarding reserves for bad debts. Holders of
Subordinate Certificates should consult their own tax advisers regarding the
appropriate timing, character and amount of any loss sustained with respect to
Subordinate Certificates.
REMIC EXPENSES
As a general rule, all of the expenses of a REMIC will be taken into account
by Holders of the Residual Interest Certificates. In the case of a "single-
class REMIC," however, the expenses will be allocated, under temporary
Treasury regulations, among the Holders of the Regular Interest Certificates
and the Holders of the Residual Interest Certificates on a daily basis in
proportion to the relative amounts of income accruing to each
Certificateholder on that day. In the case of a Regular Interest
Certificateholder who is an individual or a "pass-through interest holder"
(including certain pass-through entities but not including real estate
investment trusts), such expenses will be deductible only to the extent that
such expenses, plus other "miscellaneous itemized deductions" of the
Certificateholder, exceed 2% of such Certificateholder's adjusted gross
income. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount (for 1995, $114,700, or
$57,350, in the case of a separate return of a married individual within the
meaning of Code Section 7703, which amounts will be adjusted annually for
inflation) will be reduced by the lesser of (i) 3% of the excess of adjusted
gross income over the applicable amount, or (ii) 80% of the amount of itemized
deductions otherwise allowable for such taxable year. The disallowance of this
deduction may have a significant impact on the yield of the Regular Interest
Certificate to such a Holder. 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.
SALE OR EXCHANGE OF REMIC REGULAR INTEREST CERTIFICATES
A Regular Interest Certificateholder's tax basis in its Regular Interest
Certificate is the price such Holder pays for a Certificate, plus amounts of
OID or market discount included in income and reduced by any payments received
(other than qualified stated interest payments) and any amortized premium.
Gain or loss recognized on a sale, exchange, or redemption of a Regular
Interest Certificate, measured by the difference between the amount realized
and the Regular Interest Certificate's basis as so adjusted, will generally be
capital gain or loss, assuming that the Regular Interest Certificate is held
as a capital asset. If, however, a Certificateholder is a bank, thrift, or
similar institution described in Section 582 of the Code, gain or loss
realized on the sale or exchange of a Certificate will be taxable as ordinary
income or loss. In addition, gain from the disposition of a Regular Interest
Certificate that might otherwise be capital gain will be treated as ordinary
income to the extent of the excess, if any, of (i) the amount that would have
been includible in the Holder's income if the yield on such Regular
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Interest Certificate had equaled 110% of the applicable federal rate as of the
beginning of such Holder's holding period, over (ii) the amount of ordinary
income actually recognized by the Holder with respect to such Regular Interest
Certificate. For taxable years beginning after December 31, 1993, the maximum
tax rate on ordinary income for individual taxpayers is 39.6% and the maximum
tax rate on long-term capital gains reported after December 31, 1993 for such
taxpayers is 28%. The maximum tax rate on both ordinary income and long-term
capital gains of corporate taxpayers is 35%.
In addition, all or a portion of any gain from the sale of a Certificate
that might otherwise be capital gain may be treated as ordinary income (i) if
such 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 Holder'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 reduced by any amount
treated as ordinary income with respect to any prior disposition of property
that was held as part of such transaction, or (ii) in the case of a
noncorporate taxpayer that has made an election under Code Section 163(d)(4)
to have net capital gains taxed as investment income at ordinary income rates.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level taxation. Rather,
except in the case of a "single-class REMIC," the taxable income or net loss
of a REMIC is taken into account by the Holders of Residual Interests. The
Regular Interests are generally taxable as debt of the REMIC.
Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss will be the difference between (i) the gross income
produced by the REMIC's assets, including stated interest and any OID or
market discount on loans and other assets, and (ii) deductions, including
stated interest and OID accrued on Regular Interest Certificates, amortization
of any premium with respect to loans, and servicing fees and other expenses of
the REMIC. A Holder of a Residual Interest Certificate that is an individual
or a "pass-through interest holder" (including certain pass-through entities,
but not including real estate investment trusts) will be unable to deduct
servicing fees payable on the loans or other administrative expenses of the
REMIC for a given taxable year to the extent that such expenses, when
aggregated with the Residual Interest Certificateholder's other miscellaneous
itemized deductions for that year, do not exceed two percent of such Holder's
adjusted gross income. In addition, Code Section 68 provides that the amount
of itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds the applicable amount (for
1995, $114,700, or $57,350 in the case of a separate return of a married
individual within the meaning of Code Section 7703, which amounts will be
adjusted annually for inflation) will be reduced by the lesser of (i) 3% of
the excess of adjusted gross income over the applicable amount, or (ii) 80% of
the amount of itemized deductions otherwise allowable for such taxable year.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the Regular Interests and the Residual Interests on the
Startup Day (generally, the day that the interests are issued). That aggregate
basis will be allocated among the assets of the REMIC in proportion to their
respective fair market values.
The OID provisions of the Code apply to loans of individuals originated on
or after March 2, 1984, and the market discount provisions apply to all loans.
Subject to possible application of the de minimis rules, the method of accrual
by the REMIC of OID or market discount income on such loans will be equivalent
to the method under which Holders of Regular Interest Certificates accrue OID
(i.e., under the constant yield method taking into account the Prepayment
Assumption). The REMIC will deduct OID on the Regular Interest Certificates in
the same manner that the Holders of the Certificates include such discount in
income, but without regard to the de minimis rules. See "--Taxation of Regular
Interests" above. However, a REMIC that acquires loans at a market discount
must include such market discount in income currently, as it accrues, on a
constant interest basis.
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To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (taking into account the Prepayment Assumption) on a constant
yield method. Although the law is somewhat unclear regarding recovery of
premium attributable to loans originated on or before such date, it is
possible that such premium may be recovered in proportion to payments of loan
principal.
TAXATION OF HOLDERS OF RESIDUAL INTEREST CERTIFICATES
The Holder of a Certificate representing a residual interest (a "Residual
Interest Certificate") will take into account the "daily portion" of the
taxable income or net loss of the REMIC for each day during the taxable year
on which such Holder held the Residual Interest Certificate. The daily portion
is determined by allocating to each day in any calendar quarter its ratable
portion of the taxable income or net loss of the REMIC for such quarter, and
by allocating that amount among the Holders (on such day) of the Residual
Interest Certificates in proportion to their respective holdings on such day.
Prohibited Transactions and Contributions Tax. The REMIC will be subject to
a 100% tax on any net income derived from a "prohibited transaction." For this
purpose, net income will be calculated without taking into account any losses
from prohibited transactions or any deductions attributable to any prohibited
transaction that resulted in a loss. In general, prohibited transactions
include (i) subject to limited exceptions, the sale or other disposition of
any qualified mortgage transferred to the REMIC; (ii) subject to a limited
exception, the sale or other disposition of a cash flow investment; (iii) the
receipt of any income from assets not permitted to be held by the REMIC
pursuant to the Code; or (iv) the receipt of any fees or other compensation
for services rendered by the REMIC. It is anticipated that a REMIC will not
engage in any prohibited transactions in which it would recognize a material
amount of net income. In addition, subject to a number of exceptions, a tax is
imposed at the rate of 100% on amounts contributed to a REMIC after the close
of the three-month period beginning on the Startup Day. The Holders of
Residual Interest Certificates will generally be responsible for the payment
of any such taxes imposed on the REMIC. To the extent not paid by such Holders
or otherwise, however, such taxes will be paid out of the Trust Fund and will
be allocated pro-rata to all outstanding Classes of Certificates of such
REMIC.
The Holder of a Residual Interest Certificate must report its proportionate
share of the taxable income of the REMIC whether or not it receives cash
distributions from the REMIC attributable to such income or loss. The
reporting of taxable income without corresponding distributions could occur,
for example, in certain REMICs in which the loans held by the REMIC were
issued or acquired at a discount, since mortgage prepayments cause recognition
of discount income, while the corresponding portion of the prepayment could be
used in whole or in part to make principal payments on REMIC Regular Interests
issued without any discount or at an insubstantial discount. (If this occurs,
it is likely that cash distributions will exceed taxable income in later
years.) Taxable income may also be greater in the earlier years of certain
REMICs as a result of the fact that interest expense deductions, as a
percentage of outstanding principal of REMIC Regular Interest Certificates,
will typically increase over time as lower yielding Certificates are paid,
whereas interest income with respect to loans will generally remain constant
over time as a percentage of loan principal.
In any event, because the Holder of a Residual Interest is taxed on the net
income of the REMIC, the taxable income derived from a Residual Interest
Certificate in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pre-tax yield. Therefore, the after-tax
yield on the Residual Interest Certificate may be less than that of such a
bond or instrument.
Limitation on Losses. The amount of the REMIC's net loss that a Holder may
take into account currently is limited to the Holder's adjusted basis at the
end of the calendar quarter in which such loss arises. A Holder's basis in a
Residual Interest Certificate will initially equal such Holder's purchase
price, and will subsequently be increased by the amount of the REMIC's taxable
income allocated to the Holder, and decreased (but not below zero) by the
amount of distributions made and the amount of the REMIC's net loss allocated
to the Holder. Any
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disallowed loss may be carried forward indefinitely, but may be used only to
offset income of the REMIC generated by the same REMIC. The ability of
Residual Interest Certificateholders to deduct net losses may be subject to
additional limitations under the Code, as to which such Holders should consult
their tax advisers.
Distributions. Distributions on a Residual Interest Certificate (whether at
their scheduled times or as a result of prepayments) will generally not result
in any additional taxable income or loss to a Holder of a Residual Interest
Certificate. If the amount of such payment exceeds a Holder's adjusted basis
in the Residual Interest Certificate, however, the Holder will recognize gain
(treated as gain from the sale of the Residual Interest Certificate) to the
extent of such excess.
Sale or Exchange. A Holder of a Residual Interest Certificate will recognize
gain or loss on the sale or exchange of a Residual Interest Certificate equal
to the difference, if any, between the amount realized and such
Certificateholder's adjusted basis in the Residual Interest Certificate at the
time of such sale or exchange. Any such loss may be a capital loss subject to
limitation; gain which might otherwise be capital may be treated as ordinary
income under certain circumstances. See "--Sale or Exchange of REMIC Regular
Interest Certificates" above. Except to the extent provided in regulations,
which have not yet been issued, any loss upon disposition or a Residual
Interest Certificate will be disallowed if the selling Certificateholder
acquires any residual interest in a REMIC or similar mortgage pool within six
months before or after such disposition.
EXCESS INCLUSIONS
The portion of a Residual Interest Certificateholder's REMIC taxable income
consisting of "excess inclusion" income may not be offset by other deductions
or losses, including net operating losses, on such Certificateholder's federal
income tax return. An exception applies to organizations to which Code Section
593 applies (generally, certain thrift institutions); however, such exception
will not apply if the aggregate value of the Residual Interest Certificates is
not considered to be "significant," as described below. Further, if the Holder
of a Residual Interest Certificate is an organization subject to the tax on
unrelated business income imposed by Code Section 511, such Residual Interest
Certificateholder's excess inclusion income will be treated as unrelated
business taxable income of such Certificateholder. In addition, under Treasury
regulations yet to be issued, if a real estate investment trust, a regulated
investment company, a common trust fund, or certain cooperatives were to own a
Residual Interest Certificate, a portion of dividends (or other distributions)
paid by the real estate investment trust (or other entity) would be treated as
excess inclusion income. If a Residual Certificate is owned by a foreign
person, excess inclusion income is subject to tax at a rate of 30%, which rate
may not be reduced by treaty and is not eligible for treatment as "portfolio
interest." Treasury regulations under the REMIC provisions of the Code (the
"REMIC Regulations") provide that a Residual Interest Certificate has
significant value only if (i) the aggregate issue price of the Residual
Interest Certificates is at least 2% of the aggregate of the issue prices of
all Regular Interest Certificates and Residual Interest Certificates in the
REMIC and (ii) the anticipated weighted average life (determined as specified
in the REMIC Regulations) of the Residual Interest Certificates is at least
20% of the anticipated weighted average life of the REMIC.
The excess inclusion portion of a REMIC's income is generally equal to the
excess, if any, of REMIC taxable income for the quarterly period allocable to
a Residual Interest Certificate, over the daily accruals for such quarterly
period of (i) 120% of the long term applicable federal rate on the Startup Day
multiplied by (ii) the adjusted issue price of such Residual Interest
Certificate at the beginning of such quarterly period. The adjusted issue
price of a Residual Interest at the beginning of each calendar quarter will
equal its issue price (calculated in a manner analogous to the determination
of the issue price of a Regular Interest), increased by the aggregate of the
daily accruals for prior calendar quarters, and decreased (but not below zero)
by the amount of loss allocated to a Holder and the amount of distributions
made on the Residual Interest Certificate before the beginning of the quarter.
The long-term federal rate, which is announced monthly by the Treasury
Department, is an interest rate that is based on the average market yield of
outstanding marketable obligations of the United States government having
remaining maturities in excess of nine years.
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Under the REMIC Regulations, in certain circumstances, transfers of Residual
Certificates may be disregarded. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--Restrictions on Ownership and Transfer of Residual Interest
Certificates" and "--Tax Treatment of Foreign Investors."
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF RESIDUAL INTEREST CERTIFICATES
As a condition to qualification as a REMIC, reasonable arrangements must be
made to prevent the ownership of a REMIC Residual Interest by any
"Disqualified Organization." Disqualified Organizations include the United
States, any State or political subdivision thereof, any foreign government,
any international organization, or any agency or instrumentality of any of the
foregoing, a rural electric or telephone cooperative described in Section
1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
Sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income. Accordingly, the applicable Agreement will prohibit
Disqualified Organizations from owning a Residual Interest Certificate. In
addition, no transfer of a Residual Interest Certificate will be permitted
unless the proposed transferee shall have furnished to the Trustee an
affidavit representing and warranting that it is neither a Disqualified
Organization nor an agent or nominee acting on behalf of a Disqualified
Organization.
If a Residual Interest Certificate is transferred to a Disqualified
Organization (in violation of the restrictions set forth above), a substantial
tax will be imposed on the transferor of such Residual Interest Certificate at
the time of the transfer. In addition, if a Disqualified Organization holds an
interest in a pass-through entity (including, among others, a partnership,
trust, real estate investment trust, regulated investment company, or any
person holding as nominee) that owns a Residual Interest Certificate, the
pass-through entity will be required to pay an annual tax on its allocable
share of the excess inclusion income of the REMIC. Legislation presently
pending before the United States Congress, The Tax Simplification and
Technical Corrections Act of 1993 (the "Simplification Act"), would apply this
tax on an annual basis to "large partnerships." Generally, the Simplification
Act would treat partnerships that have, or have had, 250 or more partners as a
large partnership for this purpose. The Simplification Act would not limit
application of tax to excess inclusions allocable to Disqualified
Organizations, and in fact would apply the tax to large partnerships having no
Disqualified Organizations as partners. If enacted in its present form, the
Simplification Act would apply to partnership taxable years ending on or after
December 31, 1994.
Under the REMIC Regulations, if a Residual Interest Certificate is a
"noneconomic residual interest," as described below, a transfer of a Residual
Interest Certificate to a United States person will be disregarded for all
Federal tax purposes unless no significant purpose of the transfer was to
impede the assessment or collection of tax. A Residual Interest Certificate is
a "noneconomic residual interest" unless, at the time of the transfer (i) the
present value of the expected future distributions on the Residual Interest
Certificate at least equals the product of the present value of the
anticipated excess inclusions and the highest rate of tax 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 the taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. The present value is calculated based
on the Prepayment Assumption, using a discount rate equal to the "applicable
federal rate" at the time of transfer. If a transfer of a Residual Interest is
disregarded, the transferor would be liable for any Federal income tax imposed
upon the taxable income derived by the transferee from the REMIC. A
significant purpose to impede the assessment or collection of tax exists if
the transferor, at the time of transfer, knew or should have known that the
transferee would be unwilling or unable to pay taxes on its share of the
taxable income of the REMIC. A similar type of limitation exists with respect
to certain transfers of residual interests by foreign persons to United States
persons. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--Tax Treatment of
Foreign Investors."
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the REMIC
must file an annual federal income tax return. The REMIC will also be subject
to the procedural and administrative rules of the Code
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applicable to partnerships, including the determination of any adjustments to,
among other things, items of REMIC income, gain, loss, deduction, or credit,
by the IRS in a unified administrative proceeding.
TAX STATUS AS A GRANTOR TRUST
General. In the opinion of Milbank, Tweed, Hadley & McCloy or Orrick,
Herrington and Sutcliffe, as specified in the applicable Prospectus
Supplement, special counsel to the Depositor, if a REMIC election is not made
with respect to a Series of Certificates, the Trust Fund will be classified
for federal income tax purposes as a grantor trust under Subpart E, Part 1 of
Subchapter J of the Code and not as an association taxable as a corporation.
In some Series ("Pass-Through Certificates"), there will be no separation of
the principal and interest payments on the Mortgage Loans. In such
circumstances, a Certificateholder will be considered to have purchased an
undivided interest in each of the Mortgage Loans. In other cases ("Stripped
Certificates"), sale of the Certificates will produce a separation in the
ownership of the principal payments and interest payments on the Mortgage
Loans.
Each Certificateholder must report on its federal income tax return its pro
rata share of the gross income derived from the Mortgage Loans (not reduced by
the amount payable as fees to the Trustee and the Master Servicer and similar
fees (collectively, the "Trustee/Master Servicer Fee")), at the same time and
in the same manner as such items would have been reported under the
Certificateholder's tax accounting method had it held its interest in the
Mortgage Loans directly, received directly its share of the amounts received
with respect to the Mortgage Loans, and paid directly its share of the
Trustee/Master Servicer Fees. In the case of Pass-Through Certificates, such
gross income will consist of a pro rata share of all of the income derived
from all of the Mortgage Loans and, in the case of Stripped Certificates, such
income will consist of a pro rata share of the income derived from each
stripped bond or stripped coupon in which the Certificateholder owns an
interest. The Holder of a Certificate will generally be entitled to deduct
such Trustee/Master Servicer Fees under Section 162 or Section 212 of the Code
to the extent that such Trustee/Master Servicer Fees represent "reasonable"
compensation for the services rendered by the Trustee and the Master Servicer
(and Servicer, if other than the Master Servicer). In the case of a
noncorporate holder, however, Trustee/Master Servicer Fees (to the extent not
otherwise disallowed, e.g., because they exceed reasonable compensation) will
be deductible in computing such Holder's regular tax liability only to the
extent that such fees, when added to other miscellaneous itemized deductions,
exceed 2% of adjusted gross income and may not be deductible to any extent in
computing such Holder's alternative minimum tax liability. In addition, Code
Section 68 provides that the amount of itemized deductions otherwise allowable
for the taxable year for an individual whose adjusted gross income exceeds the
applicable amount (for 1994, $111,800, or $55,900 in the case of a separate
return of a married individual within the meaning of Code Section 7703, which
amount will be adjusted annually for inflation) will be reduced by the lesser
of (i) 3% of the excess of adjusted gross income over the applicable amount,
or (ii) 80% of the amount of itemized deductions otherwise allowable for such
taxable year.
Discount or Premium on Pass-Through Certificates. The Holder's purchase
price of a Pass-Through Certificate is to be allocated among the Mortgage
Loans in proportion to their fair market values, determined as of the time of
purchase of the Certificates. In the typical case, the Trustee believes it is
reasonable for this purpose to treat each Mortgage Loan as having a fair
market value proportional to the share of the aggregate principal balances of
all of the Mortgage Loans that it represents, since the Mortgage Loans, unless
otherwise specified in the applicable Prospectus Supplement, will have a
relatively uniform interest rate and other common characteristics. To the
extent that the portion of the purchase price of a Certificate allocated to a
Mortgage Loan (other than to a right to receive any accrued interest thereon
and any undistributed principal payments) is less than or greater than the
portion of the principal balance of the Mortgage Loan allocable to the
Certificate, the interest in the Mortgage Loan allocable to the Certificate
will be deemed to have been acquired at a discount or premium, respectively.
The treatment of any discount will depend on whether the discount represents
OID or market discount. In the case of a Mortgage Loan with OID in excess of a
prescribed de minimis amount, a Holder of a Certificate will be required to
report as interest income in each taxable year its share of the amount of OID
that accrues
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during that year, determined under a constant yield method by reference to the
initial yield to maturity of the Mortgage Loan, in advance of receipt of the
cash attributable to such income and regardless of the method of federal
income tax accounting employed by that Holder. OID with respect to a Mortgage
Loan could arise, for example, by virtue of the financing of points by the
originator of the Mortgage Loan, or by virtue of the charging of points by the
originator of the Mortgage Loan in an amount greater than a statutory de
minimis exception, in circumstances under which the points are not currently
deductible pursuant to applicable Code provisions. However, the Code provides
for a reduction in the amount of OID includible in the income of a Holder who
acquires an obligation after its initial issuance at a price greater than the
sum of the original issue price of the Mortgage Loan and the previously
accrued OID, less prior payments of principal. Accordingly, if the Mortgage
Loans acquired by a Certificateholder are purchased at a price equal to the
then unpaid principal amount of such Mortgage Loans, any OID should be reduced
or eliminated.
Certificateholders also may be subject to the market discount rules of
Sections 1276-1278 of the Code. A Certificateholder that acquires an interest
in Mortgage Loans with more than a prescribed de minimis amount of "market
discount" (generally, the excess of the principal amount of the Mortgage Loans
over the purchaser's purchase price) will be required under Section 1276 of
the Code to include accrued market discount in income as ordinary income in
each month, but limited to an amount not exceeding the principal payments on
the Mortgage Loans received in that month and, if the Certificates are sold,
the gain realized. Such market discount would accrue in a manner to be
provided in Treasury regulations. The legislative history of the 1986 Act
indicates that, until such regulations are issued, such market discount would
in general accrue either (i) on the basis of a constant interest rate or (ii)
in the ratio of (a) in the case of Mortgage Loans not originally issued with
OID, stated interest payable in the relevant period to total stated interest
remaining to be paid at the beginning of the period, or (b) in the case of
Mortgage Loans originally issued at a discount, OID in the relevant period to
total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination date,
the excess of interest paid or accrued to purchase or carry a loan with market
discount over interest received on such loan is allowed as a current deduction
only to the extent such excess is greater than the market discount that
accrued during the taxable year in which such interest expense was incurred.
In general, the deferred portion of any interest expense will be deductible
when such market discount is included in income, including upon the sale,
disposition, or repayment of the loan. A Holder may elect to include market
discount in income currently as it accrues, on all market discount obligations
acquired by such Holder during the taxable year such election is made and
thereafter, in which case the interest deferral rule discussed above will not
apply.
A Certificateholder who purchases a Certificate at a premium generally will
be deemed to have purchased its interest in the underlying Mortgage Loans at a
premium. A Certificateholder who holds a Certificate as a capital asset may
generally elect under Section 171 of the Code to amortize such premium as an
offset to interest income on the Mortgage Loans (and not as a separate
deduction item) on a constant yield method. The legislative history of the
1986 Act suggests that the same rules that will apply to the accrual of market
discount (described above) will generally also apply in amortizing premium
with respect to Mortgage Loans originated after September 27, 1985. If a
Holder makes an election to amortize premium, such election will apply to all
taxable debt instruments held by such Holder at the beginning of the taxable
year in which the election is made, and to all taxable debt instruments
acquired thereafter by such Holder, and will be irrevocable without the
consent of the IRS. Purchasers who pay a premium for the Certificates should
consult their tax advisers regarding the election to amortize premium and the
method to be employed. Although the law is somewhat unclear regarding recovery
of premium allocable to Mortgage Loans originated before September 28, 1985,
it is possible that such premium may be recovered in proportion to payments of
Mortgage Loan principal.
Discount or Premium on Stripped Certificates. A Stripped Certificate may
represent a right to receive only a portion of the interest payments on the
Mortgage Loans, a right to receive only principal payments on the Mortgage
Loans, or a right to receive certain payments of both interest and principal.
Certain Stripped Certificates ("Ratio Strip Certificates") may represent a
right to receive differing percentages of both the interest
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and principal on each Mortgage Loan. Pursuant to Section 1286 of the Code, 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. Section 1286 of the Code applies the OID rules to stripped bonds and
stripped coupons. For purposes of computing OID, a stripped bond or a stripped
coupon is treated as a debt instrument issued on the date that such stripped
interest is purchased with an issue price equal to its purchase price or, if
more than one stripped interest is purchased, the ratable share of the
purchase price allocable to such stripped interest. The Code, Final
Regulations, Proposed Regulations, and judicial decisions provide little
direct guidance as to how the OID rules are to apply to Stripped Certificates,
although regulations indicate that in determining whether the portion of the
interest on a Mortgage Loan payable to a particular Class of Certificates is
"qualified stated interest," all principal and interest payments payable to
that Class from that Mortgage Loan are taken into account. Under the method
described above for REMIC Regular Interest Certificates (the "Cash Flow Bond
Method"), a prepayment assumption is used and periodic recalculations are made
which take into account with respect to each accrual period the effect of
prepayments during such period. The Code prescribes the same method for debt
instruments "secured by" other debt instruments, the maturity of which may be
affected by prepayments on the underlying debt instruments. However, the Code
does not, absent Treasury regulations, appear specifically to cover
instruments such as the Stripped Certificates which technically represent
ownership interests in the underlying Mortgage Loans, rather than being debt
instruments "secured by" those loans. Nevertheless, it is believed that the
Cash Flow Bond Method is a reasonable method of reporting income for such
Certificates, and it is expected that OID will be reported on that basis
unless otherwise specified in the related Prospectus Supplement. In applying
the calculation to Stripped Certificates, the Trustee will treat all payments
to be received with respect to a Class of Certificates as payments on a single
installment obligation. The IRS could, however, assert that OID must be
calculated separately for each Mortgage Loan underlying a Class of
Certificates.
Under certain circumstances, if the Mortgage Loans prepay at a rate faster
than the Prepayment Assumption, the use of the Cash Flow Bond Method may
accelerate a Certificateholder's recognition of income. If, however, the
Mortgage Loans prepay at a rate slower that the prepayment assumption, in some
circumstances the use of this method may decelerate a Certificateholder's
recognition of income.
In the case of a Stripped Certificate the payments on which consist solely
or primarily of a specified portion of the interest payments on the Mortgage
Loans ("Interest Weighted Stripped Certificate"), additional uncertainty
exists because of the enhanced potential for applicability of the contingent
principal provisions of the Proposed Regulations.
Under the contingent principal provisions, "contingent principal" represents
the portion of the purchase price in excess of the amount of principal
payments. Under this method, the Certificateholder is in effect put on the
cash method with respect to interest income at the applicable federal rate.
First, each payment denominated "interest" is treated as interest to the
extent of accrued and unpaid interest on the debt instrument at the time that
the payment is received. Second, the portion of a payment denominated as
interest that is not treated as interest, as described in the preceding
sentence, is treated as a repayment of contingent principal. The interest for
any accrual period is the product of the applicable federal rate (published
monthly by the Treasury Department and adjusted for the length of the accrual
period) at the time of the debt instrument's issuance and the adjusted issue
price at the beginning of the accrual period (the sum of the purchase price of
the instrument plus the accrued interest for all prior accrual periods,
reduced by the total of payments received in all prior periods). The total of
the payments denominated as interest with respect to the Interest Weighted
Stripped Certificate that may be treated as principal may not exceed the
amount of contingent principal. If the contingent principal has been
completely recovered, all subsequent payments will be treated as interest.
The Proposed Regulations provide that if all contingent principal is not
recovered as of the final payment, then the final payment will be treated as
principal to the extent of such unrecovered principal and interest to the
extent of the remainder, if any. To the extent the final payment is not
sufficient to cover the principal amount, the Certificateholders will
recognize a loss. Any such loss may be an ordinary loss since loss recognized
on
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retirement of a debt instrument issued by a natural person (e.g., a mortgage
loan) is not a loss from a sale or exchange. However, the IRS might contend
that such loss should be a capital loss if the Certificateholder held its
Certificate as a capital asset within the meaning of Section 1221 of the Code.
Possible Alternative Characterizations. The characterizations of the
Stripped Certificates described above are not the only possible
interpretations of the applicable Code provisions. Among other possibilities,
the IRS could contend that (i) in certain Series, each Stripped Certificate
other than an Interest Weighted Stripped Certificate is composed of an
unstripped, undivided ownership interest in Mortgage Loans and an installment
obligation consisting of stripped principal payments; (ii) the Stripped
Certificates other than the Interest Weighted Stripped Certificates are
subject to the contingent payment provisions of the Proposed Regulations; or
(iii) each Interest Weighted Stripped Certificate is composed of an unstripped
undivided ownership interest in Mortgage Loans and an installment obligation
consisting of stripped interest payments.
Given the variety of alternatives for treatment of the Certificates and the
different federal income tax consequences that result from each alternative,
potential purchasers are urged to consult their own tax advisers regarding the
proper treatment of the Certificates for federal income tax purposes.
Character as Qualifying Mortgage Loans. In the case of Stripped Certificates
there is no specific legal authority existing regarding whether the character
of the Certificates, for federal income tax purposes, will be the same as the
Mortgage Loans. The IRS could take the position that the Mortgage Loans'
character is not carried over to the Certificates in such circumstances. Pass-
Through Certificates will be, and, although the matter is not free from doubt,
Stripped Certificates should be considered to represent "qualifying real
property loans" within the meaning of Section 593(d) of the Code, "real estate
assets" within the meaning of Section 856(c)(5)(A) of the Code, and "loans
secured by an interest in real property" within the meaning of Section
7701(a)(19)(C)(v) of the Code (except that if the underlying Mortgage Loans
are not residential Mortgage Loans, the Certificates will not so qualify):
interest income attributable to the Certificates should be considered to
represent "interest on obligations secured by mortgages on real property or on
interests in real property" within the meaning of Section 856(c)(3)(B) of the
Code. Reserves or funds underlying the Certificates may cause a proportionate
reduction in the above-described qualification of Certificates.
Sale of Certificates. As a general rule, if a Certificate is sold, gain or
loss will be recognized by the Holder thereof in an amount equal to the
difference between the amount realized on the sale and the Certificateholder's
adjusted tax basis in the Certificate. Such gain or loss will generally be
capital gain or loss if the Certificate is held as a capital asset. In the
case of Pass-Through Certificates, such tax basis will generally equal the
Holder's cost of the Certificate increased by any discount income with respect
to the loans represented by such Certificate previously included in income,
and decreased by the amount of any distributions of principal previously
received with respect to the Certificate. Such gain, to the extent not
otherwise treated as ordinary income, will be treated as ordinary income to
the extent of any accrued market discount not previously reported as income.
Gain attributable to a Certificate held as part of a conversion transaction or
subject to an election under Code Section 163(d)(4) may also be treated in
whole or part as ordinary income. See "--Sale or Exchange of REMIC Regular
Interest Certificates" above. In the case of Stripped Certificates, the tax
basis will generally equal the Certificateholder's cost for the Certificate,
increased by any discount income with respect to the Certificate previously
included in income, and decreased by the amount of all payments previously
received with respect to such Certificate.
MISCELLANEOUS TAX ASPECTS
Backup Withholding. A Certificateholder, other than a REMIC Residual
Certificateholder, may, under certain circumstances, be subject to "backup
withholding" at the rate of 31% with respect to distributions or the proceeds
of a sale of certificates to or through brokers that represent interest or
original issue discount on the Certificates. This withholding generally
applies if the Holder of a Certificate (i) fails to furnish the Trustee with
its taxpayer identification number ("TIN"); (ii) furnishes the Trustee an
incorrect TIN; (iii) fails to report properly interest, dividends or other
"reportable payments" as defined in the Code; or (iv) under certain
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circumstances, fails to provide the Trustee or such Holder's securities broker
with a certified statement, signed under penalty of perjury, that the TIN
provided is its correct TIN and that the Holder is not subject to backup
withholding. Backup withholding will not apply, however, with respect to
certain payments made to Certificateholders, including payments to certain
exempt recipients (such as exempt organizations) and to certain Nonresidents
(as defined below). Holders of the Certificates should consult their tax
advisers as to their qualification for exemption from backup withholding and
the procedure for obtaining the exemption.
The Trustee will report to the Certificateholders and to the Master Servicer
for each calendar year the amount of any "reportable payments" during such
year and the amount of tax withheld, if any, with respect to payments on the
Certificates.
TAX TREATMENT OF FOREIGN INVESTORS
Under the Code, unless interest (including OID) paid on a Certificate (other
than a Residual Interest Certificate) is considered to be "effectively
connected" with a trade or business conducted in the United States by a
nonresident alien individual, foreign partnership or foreign corporation
("Nonresidents"), such interest will normally qualify as portfolio interest
(except where (i) the recipient is a holder, directly or by attribution, of
10% or more of the capital or profits interest in the issuer or (ii) the
recipient is a controlled foreign corporation as to which the issuer is a
related person) and will be exempt from Federal income tax. Upon receipt of
appropriate ownership statements, the issuer normally will be relieved of
obligations to withhold tax from such interest payments. These provisions
supersede the generally applicable provisions of United States law that would
otherwise require the issuer to withhold at a 30% rate (unless reduced or
eliminated by an applicable tax treaty) on, among other things, interest and
other fixed or determinable, annual or periodical income paid to Nonresidents.
Holders of Pass-Through Certificates and Stripped Certificates, including
Ratio Certificates, however, may be subject to withholding to the extent that
the Mortgage Loans were originated on or before July 18, 1984.
Interest and OID of Certificateholders who are foreign persons are not
subject to withholding if they are effectively connected with a United States
business conducted by the Certificateholder. They will, however, generally be
subject to the regular United States income tax.
Payments to Holders of Residual Interest Certificates who are foreign
persons will generally be treated as interest for purposes of the 30% (or
lower treaty rate) United States withholding tax. Holders should assume that
such income does not qualify for exemption from United States withholding tax
as "portfolio interest." It is clear that, to the extent that a payment
represents a portion of REMIC taxable income that constitutes excess inclusion
income, a Holder of a Residual Interest Certificate will not be entitled to an
exemption from or reduction of the 30% (or lower treaty rate) withholding tax.
If the payments are subject to United States withholding tax, they generally
will be taken into account for withholding tax purposes only when paid or
distributed (or when the Residual Interest Certificate is disposed of). The
Treasury has statutory authority, however, to promulgate regulations which
would require such amounts to be taken into account at an earlier time in
order to prevent the avoidance of tax. Such regulations could, for example,
require withholding prior to the distribution of cash in the case of Residual
Interest Certificates that do not have significant value. Under the Proposed
Regulations, if a Residual Interest Certificate has tax avoidance potential, a
transfer of a Residual Interest Certificate to a Nonresident will be
disregarded for all Federal tax purposes. A Residual Interest Certificate has
tax avoidance potential unless, at the time of the transfer, the transferor
reasonably expects that the REMIC will distribute to the transferee Residual
Interest holder amounts that will equal at least 30% of each excess inclusion,
and that such amounts will be distributed at or after the time at which the
excess inclusion accrues and not later than the close of the calendar year
following the calendar year of accrual. If a Nonresident transfers a Residual
Interest Certificate to a United States person, and if the transfer has the
effect of allowing the transferor to avoid tax on accrued excess inclusions,
then the transfer is disregarded and the transferor continues to be treated as
the owner of the Residual Interest Certificate for purposes of the withholding
tax provisions of the Code. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--
Excess Inclusions."
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STATE TAX CONSIDERATIONS
In addition to the Federal income tax consequences described in "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES," potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition
of the 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 advisers with respect to the various state tax
consequences of an investment in the Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on employee benefit plans subject to ERISA
("ERISA Plans") and prohibits certain transactions between ERISA Plans and
persons who are parties in interest (as defined under ERISA) ("parties in
interest") with respect to assets of such Plans. Section 4975 of the Code
prohibits a similar set of transactions between certain plans ("Code Plans,"
and together with ERISA Plans, "Plans") and persons who are disqualified
persons (as defined in the Code) with respect to Code 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
requirements of ERISA or Section 4975 of the Code, and assets of such plans
may be invested in Certificates, subject to the provisions of other applicable
federal and state law. Any such plan which is qualified under Section 401(a)
of the Code and exempt from taxation under Section 501(a) of the Code is,
however, 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 investments be made in accordance
with the documents governing the ERISA Plan. Before investing in a
Certificate, an ERISA Plan fiduciary should consider, among other factors,
whether to do so is appropriate in view of the overall investment policy and
liquidity needs of the ERISA Plan. Such fiduciary should especially consider
the sensitivity of the investments to the rate of principal payments
(including prepayments) on the Mortgage Loans, as discussed in the Prospectus
Supplement related to a Series.
PROHIBITED TRANSACTIONS
Section 406 of ERISA and Section 4975 of the Code prohibit parties in
interest and disqualified persons with respect to ERISA Plans and Code Plans
from engaging in certain transactions involving such Plans or "plan assets" of
such Plans unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code and Sections 502(i) and 502(l) of ERISA
provide for the imposition of certain excise taxes and civil penalties on
certain persons that engage or participate in such prohibited transactions.
The Depositor, the Master Servicer, any Special Servicer or the Trustee or
certain affiliates thereof may be considered or may become parties in interest
or disqualified persons with respect to an investing Plan. If so, the
acquisition or holding of Certificates by, on behalf of or with "plan assets"
of such Plan may be considered to give rise to a "prohibited transaction"
within the meaning of ERISA and/or the Section 4975 of Code unless an
administrative exemption described below or some other exemption is available.
Special caution should be exercised before "plan assets" of a Plan are used
to purchase a Certificate if, with respect to such assets, the Depositor, the
Master Servicer, any Special Servicer or the Trustee or an affiliate thereof
either (a) has investment discretion with respect to the investment of such
assets, or (b) has authority or responsibility to give, or regularly gives
investment advice with respect to such assets for a fee and pursuant to an
agreement or understanding that such advice will serve as a primary basis for
investment decisions with respect to such assets and that such advice will be
based on the particular investment needs of the Plan.
Further, if the assets included in a Trust Fund were deemed to constitute
"plan assets," a Plan's investment in the Certificates may be deemed to
constitute a delegation, under ERISA, of the duty to manage plan assets by
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the fiduciary deciding to invest in the Certificates, and certain transactions
involved in the operation of the Trust Fund may be deemed to constitute
prohibited transactions under ERISA and/or the Code. Neither ERISA nor Section
4975 of the Code defines the term "plan assets."
The U.S. Department of Labor (the "Department") has issued regulations (the
"Regulations") concerning whether or not a Plan's assets would be deemed to
include an interest in the underlying assets of an entity (such as the Trust
Fund), for purposes of the reporting and disclosure and general fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions
of ERISA and Section 4975 of the Code, if the Plan acquires an "equity
interest" (such as a Certificate) in such an entity.
Certain exceptions are provided in the Regulations whereby an investing
Plan's assets would be deemed merely to include its interest in the
Certificates instead of being deemed to include an interest in the assets of
the Trust Fund. However, it cannot be predicted in advance, nor can there be a
continuing assurance whether such exceptions may be met, because of the
factual nature of certain of the rules set forth in the Regulations. For
example, one of the exceptions in the Regulations states that the underlying
assets of an entity will not be considered "plan assets" if less than 25% of
the value of each class of equity interests is held by "benefit plan
investors," which are defined as ERISA Plans, Code Plans, and employee benefit
plans not subject to ERISA (for example, governmental plans), but this
exemption is tested immediately after each acquisition of an equity interest
in the entity whether upon initial issuance or in the secondary market.
Pursuant to the Regulations, if the assets of the Trust Fund were deemed to
be "plan assets" by reason of the investment of assets of a Plan in any
Certificates, the "plan assets" of such Plan would include an undivided
interest in the Mortgage Loans, the mortgages underlying the Mortgage Loans
and any other assets held in the Trust Fund. Therefore, because the Mortgage
Loans and other assets held in the Trust Fund may be deemed to be "plan
assets" of each Plan that purchases Certificates, in the absence of an
exemption, the purchase, sale or holding of Certificates of any Series or
Class by or with "plan assets" of a Plan may result in a prohibited
transaction and the imposition of civil penalties or excise taxes. Depending
on the relevant facts and circumstances, certain prohibited transaction
exemptions may apply to the purchase, sale or holding of Certificates of any
Series or Class by a Plan, for example, Prohibited Transaction Class Exemption
("PTCE") 91-38 (formerly PTCE 80-51), which exempts certain transactions
between bank collective investment funds and parties in interest; PTCE 90-1
(formerly PTCE 78-19), which exempts certain transactions between insurance
company pooled separate accounts and parties in interest; or PTCE 84-14, which
exempts certain transactions effected on behalf of a plan by a "qualified
professional asset manager." Also, the Department has issued administrative
exemptions from application of certain prohibited transaction restrictions of
ERISA and the Code to most underwriters of mortgage-backed securities (each,
an "Underwriter's Exemption"). Such an Underwriter's Exemption can only apply
to mortgage-backed securities which, among other conditions, are sold in an
offering with respect to which such underwriter serves as the sole or a
managing underwriter, or as a selling or placement agent. If such an
Underwriter's Exemption might be applicable to a Series of Certificates, the
related Prospectus Supplement will refer to such possibility.
ANY FIDUCIARY OR OTHER PLAN INVESTOR WHO PROPOSES TO INVEST "PLAN ASSETS" OF
A PLAN IN CERTIFICATES OF ANY SERIES OR CLASS SHOULD CONSULT WITH ITS COUNSEL
WITH RESPECT TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND SECTION 4975 OF THE
CODE OF ANY SUCH ACQUISITION AND OWNERSHIP OF SUCH CERTIFICATES.
UNRELATED BUSINESS TAXABLE INCOME--RESIDUAL INTERESTS
The purchase of a Certificate evidencing an interest in the Residual
Interest in a Series that is treated as a REMIC by any employee benefit or
other plan that is exempt from taxation under Code Section 501(a), including
most varieties of Plans, may give rise to "unrelated business taxable income"
as described in Code Sections 511-515 and 860E. Further, prior to the purchase
of an interest in a Residual Interest, a prospective transferee may be
required to provide an affidavit to a transferor that it is not, nor is it
purchasing an interest in a Residual Interest on behalf of, a "Disqualified
Organization," which term as defined above includes certain tax-exempt
entities not subject to Code Section 511, such as certain governmental plans,
as discussed above under
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"CERTAIN FEDERAL INCOME TAX CONSEQUENCES--Taxation of Holders of Residual
Interest Certificates" and "--Restrictions on Ownership and Transfer of
Residual Interest Certificates."
Due to the complexity of these rules and the penalties imposed upon Persons
involved in prohibited transactions, it is particularly important that
individuals responsible for investment decisions with respect to ERISA Plans
and Code Plans consult with their counsel regarding the consequences under
ERISA and/or the Code of their acquisitions and ownership of Certificates.
The sale of Certificates to a Plan is in no respect a representation by the
Depositor or the applicable 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 Prospectus Supplement for each Series will identify those Classes of
Certificates, if any, which constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 (the
"Enhancement Act").
Such Classes will constitute "mortgage related securities" for so long as
they are rated in one of the two highest rating categories by at least one
nationally recognized statistical rating organization (the "SMMEA
Certificates"). As "mortgage related securities," the SMMEA Certificates will
constitute legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including, but not
limited to, state-chartered savings banks, commercial banks, savings and loan
associations and insurance companies, as well as trustees and state government
employee retirement systems) created pursuant to or existing under the laws of
the United States or of any state (including the District of Columbia and
Puerto Rico) whose authorized investments are subject to state regulation to
the same extent that, under applicable law, obligations issued by or
guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities.
Pursuant to the Enhancement Act, 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 the
Enhancement Act. Accordingly, the investors affected by such legislation will
be authorized to invest in SMMEA Certificates only to the extent provided in
such legislation.
The Enhancement Act also amended the legal investment authority of federally
chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal
with, mortgage related securities without limitation as to the percentage of
their assets represented thereby, federal credit unions may invest in mortgage
related securities, and national banks may purchase mortgage related
securities for their own account without regard to the limitations generally
applicable to investment securities set forth in 12 U.S.C. 24 (Seventh),
subject in each case to such regulations as the applicable federal regulatory
authority may prescribe. In this connection, federal credit unions should
review the NCUA Letter to Credit Unions No. 96, as modified by Letter No. 108,
which includes guidelines to assist federal credit unions in making investment
decisions for mortgage related securities. The NCUA has adopted rules which
prohibit federal credit unions from investing in certain mortgage related
securities, except under limited circumstances.
All depository institutions considering an investment in the Certificates
should review the Supervisory Policy Statement on Securities Activities dated
January 28, 1992 (the "Policy Statement") of the Federal Financial
Institutions Examination Council. The Policy Statement, which has been adopted
by the Board of Governors of the Federal Reserve System, the FDIC, the
Comptroller of the Currency and the Office of Thrift Supervision and by the
NCUA (with certain modifications) prohibits depository institutions from
investing in
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certain "high-risk" mortgage securities, except under limited circumstances,
and sets forth certain investment practices deemed to be unsuitable for
regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any SMMEA
Certificates, as SMMEA Certificates may be deemed unsuitable investments, or
may otherwise be restricted, under such rules, policies or guidelines (in
certain instances irrespective of the Enhancement Act).
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 provisions which may restrict
or prohibit investments in securities which are issued in book-entry form.
Investors should consult with their own legal advisers in determining
whether, and to what extent, SMMEA Certificates constitute legal investments
for such investors.
Other Classes of Certificates will not constitute "mortgage related
securities" under the Enhancement Act (the "Non-SMMEA Certificates"). The
appropriate characterization of the Non-SMMEA Certificates under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase Non-SMMEA Certificates, may be subject to significant
interpretive uncertainties. All investors whose investment authority is
subject to legal restrictions should consult their own legal advisers to
determine whether, and to what extent, the Non-SMMEA Certificates will
constitute legal investments for them.
Except as to the status of SMMEA Certificates identified in the Prospectus
Supplement for a Series as "mortgage related securities" under the Enhancement
Act, the Depositor will make no representation as to the proper
characterization of the Certificates for legal investment or financial
institution regulatory purposes, or as to the ability of particular investors
to purchase 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.
PLAN OF DISTRIBUTION
Each Series of Certificates offered hereby and by means of the related
Prospectus Supplements may be sold directly by the Depositor or may be offered
through CS First Boston Corporation, an affiliate of the Depositor, or
underwriting syndicates represented by CS First Boston Corporation (the
"Underwriters"). The Prospectus Supplement with respect to each such Series of
Certificates will set forth the terms of the offering of such Series of
Certificates, including the name or names of the Underwriters, the proceeds to
the Depositor, and either the initial public offering price, the discounts and
commissions to the Underwriters and any discounts or concessions allowed or
reallowed to certain dealers, or the method by which the price at which the
Underwriters will sell such Certificates will be determined.
Unless otherwise specified in the related Prospectus Supplement, the
Underwriters will be obligated to purchase all of the Certificates of a Series
described in the related Prospectus Supplement with respect to such Series if
any such Certificates are purchased. The Certificates may be acquired by the
Underwriters for their own account and may be resold from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale.
If specified in the applicable Prospectus Supplement, the Depositor will
authorize Underwriters or other persons acting as the Depositor's agents to
solicit offers by certain institutions to purchase the Certificates from the
Depositor pursuant to contracts providing for payment and delivery on a future
date. Institutions with which
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such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must be approved
by the Depositor. The obligation of any purchaser under any such contract will
be subject to the condition that the purchase of the offered Certificates
shall not at the time of delivery be prohibited under the laws of the
jurisdiction to which such purchaser is subject. The Underwriters and such
other agents will not have any responsibility in respect of the validity or
performance of such contracts.
The Depositor may also sell the Certificates offered hereby by means of the
related Prospectus Supplements from time to time in negotiated transactions or
otherwise, at prices determined at the time of sale. The Depositor may effect
such transactions by selling Certificates to or through dealers, and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Depositor and any purchasers of
Certificates for whom they may act as agents.
The place and time of delivery for each Series of Certificates offered
hereby and by means of the related Prospectus Supplement will be set forth in
the Prospectus Supplement with respect to such Series.
LEGAL MATTERS
Certain legal matters relating to the Certificates offered hereby will be
passed upon for the Depositor and for the Underwriters by Milbank, Tweed,
Hadley & McCloy, 1 Chase Manhattan Plaza, New York, New York 10005-1413, or,
as specified in the related Prospectus Supplement, by Orrick, Herrington &
Sutcliffe, 666 Fifth Avenue, New York, New York 10103.
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GLOSSARY
Act............................ the Securities Act of 1933, as amended, p. 2.
ADA............................ the Americans with Disabilities Act of 1990
and the rules promulgated thereunder, p. 34.
Agreement...................... the Pooling and Servicing Agreement dated as
of the Cut-Off Date among the Depositor, the
Master Servicer, the Trustee and any other
party specified in the Prospectus Supplement
for the related Series relating to the Cer-
tificates of such Series, p. 3.
Bankruptcy Code................ the Federal Bankruptcy Code, as amended from
time to time (11 U.S.C.), p. 25.
Borrower....................... the obligor on a Note, p. 9.
Cash Flow Bond Method.......... as defined on p. 47.
CERCLA......................... the federal Comprehensive Environmental Re-
sponse, Compensation and Liability Act of
1980, as amended, p. 26.
Certificateholders............. the registered holders of Certificates, p. 4.
Certificates................... the Commercial/Multifamily Mortgage Pass-
Through Certificates evidencing a beneficial
ownership interest in a given Trust Fund, p. 1.
Classes........................ the Certificates of a Series may be divided
into one or more classes of Certificates and
will be described in the applicable Prospec-
tus Supplement, p. 1.
Closing Date................... the date of the initial issuance of a Series
of Certificates, as specified in the related
Prospectus Supplement, p. 10.
Code........................... the Internal Revenue Code of 1986, as amend-
ed, p. 7.
Code Plans..................... as defined on p. 50.
Collection Account............. the special trust account established and
maintained by the Master Servicer pursuant to
the Agreement for each Series, p. 5.
Commission..................... the United States Securities and Exchange
Commission, p. 2.
Compound Interest
Certificates.................. as defined on p. 36.
CSFBSC......................... CS First Boston Securities Corporation, p. 3.
Cut-Off Date................... as defined on p. 5.
Debt Service Reduction......... with respect to any Mortgage Loan, a reduc-
tion in the scheduled monthly payment, as de-
scribed in the Agreement, for such Mortgage
Loan by a court of competent jurisdiction in
a proceeding under the Bankruptcy Code, ex-
cept such a reduction resulting from a Defi-
cient Valuation, p. 29.
Deficient Valuation............ as defined on p. 29.
Deleted Mortgage Loans......... Mortgage Loans that are deleted from a Trust
Fund and replaced by Substitute Mortgage
Loans, p. 13.
Department..................... U.S. Department of Labor, p. 50.
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Depositor...................... CS First Boston Mortgage Securities Corp., a
Delaware corporation, p. 1.
Disqualified Organization...... as defined on p. 44.
Distribution Account........... the account established by the Trustee into
which the Master Servicer will deposit
amounts from which distributions will be made
to Certificateholders on each Distribution
Date, p. 5.
Distribution Date.............. the date in each time period on which distri-
butions of principal and interest are made to
Certificateholders, as specified in the ap-
plicable Prospectus Supplement, p. 4.
Enhancement.................... the credit enhancement for a Series, if any,
specified in the related Prospectus Supple-
ment, p. 19.
Enhancement Act................ the Secondary Mortgage Market Enhancement Act
of 1984, p. 52.
EPA............................ the United States Environmental Protection
Agency, p. 26.
ERISA.......................... the Employee Retirement Income Security Act
of 1974, as amended, p. 50.
ERISA Plans.................... employee benefit plans subject to ERISA, p.
50.
Escrow Account................. an account provided for in the Agreement for
each Series in which the Master Servicer is
required to deposit amounts received from
each Borrower, if required by the terms of
the related Note, for the payment of taxes,
assessments, certain mortgage and hazard in-
surance premiums and other comparable items,
p. 14.
Event of Default............... any of the items listed under the heading
"SERVICING OF THE MORTGAGE LOANS--Events of
Default," p. 18.
FHA............................ The Federal Housing Administration, a divi-
sion of HUD, p. 11.
FHLMC.......................... the Federal Home Loan Mortgage Corporation,
p. 4.
Final Regulations.............. as defined on p. 36.
FNMA........................... the Federal National Mortgage Association, p.
4.
Form 8-K....................... as defined on p. 10.
Garn-St Germain Act............ the Garn-St Germain Depository Institutions
Act of 1982, p. 30.
GNMA........................... the Government National Mortgage Association,
p. 4.
Holders........................ the registered holders of Certificates, p. 4.
HUD............................ The United States Department of Housing and
Urban Development, p. 11.
Installment Contracts.......... installment contracts for the sale of real
estate pursuant to which the seller retains
legal title to the property and the purchaser
covenants to pay the purchase price, plus in-
terest, over the term of such contracts, p.
9. See also "CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS--Installment Contracts".
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Insurance Proceeds............. the proceeds from any insurance policy relat-
ing to a Mortgage Loan other than proceeds
applied to restoration of the related Mort-
gaged Property, p. 5.
Interest Weighted Certificate.. a Class of Certificates the payments on which
consist solely or primarily of a specified
portion of the interest payments on the Mort-
gage Loans held by a REMIC, p. 37.
Interest Weighted Stripped
Certificate................... as defined on p. 47.
IRS............................ the Internal Revenue Service, p. 35.
L/C Bank....................... the bank or financial institution issuing a
letter of credit with respect to a Series, as
specified in the related Prospectus Supple-
ment, p. 20.
L/C Percentage................. as defined on p. 20.
Liquidation Proceeds........... the proceeds from the liquidation of a Mort-
gage Loan, p. 5.
Master Servicer................ the master servicer or servicer selected by
the Depositor to be the master servicer or
servicer under the Agreement for a Series, as
described in the related Prospectus Supple-
ment, p. 14.
Master Servicer Remittance
Date.......................... with respect to any Distribution Date, the
business day preceding such date, p. 5.
Mortgage Interest Rate......... the per annum rate of interest charged on the
principal balance of a Mortgage Loan, p. 13.
Mortgage Loan File............. as defined on p. 10.
Mortgage Loan Groups........... Mortgage Loans in a Mortgage Pool that have
been segregated into a separate mortgage loan
groups, p. 10.
Mortgage Loan Schedule......... the list of Mortgage Loans attached as an ex-
hibit to the Agreement for each Series, p. 10.
Mortgage Loans................. the adjustable and fixed rate, amortizing and
balloon payment, commercial, multifamily res-
idential, cooperatively owned residential and
mixed residential/commercial mortgage loans,
participation interests in such mortgage
loans, mortgage pass-through certificates and
Installments Contracts included in the Mort-
gage Pool and which constitute the Trust
Fund, p. 9.
Mortgage Pool.................. a pool of one or more Mortgage Loans which
will be the primary assets of a Trust Fund,
p. 1.
Mortgaged Property............. fee simple or leasehold interests in commer-
cial real estate, multifamily residential
property, cooperatively owned multifamily
property and/or mixed residential/commercial
property securing a Mortgage Loan and such
other property, as the context requires, p. 9.
Mortgages...................... mortgages, deeds of trust or similar security
instruments creating a first or junior lien
on Mortgaged Properties, p. 9.
Multiple Variable Rate......... as defined on p. 38
NCUA........................... the National Credit Union Administration, p.
32.
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Non-SMMEA Certificates......... Certificates which do not constitute "mort-
gage related securities" for purposes of the
Enhancement Act, p. 53.
Nonresidents................... a nonresident alien individual, foreign part-
nership or foreign corporation, p. 49.
Note........................... a promissory note and/or agreement evidencing
an obligation under a Mortgage Loan, p. 9.
1986 Act....................... the Tax Reform Act of 1986, p. 39.
OID............................ original issue discount within the meaning of
Section 1273 of the Code, p. 36.
Outstanding Balance............ as defined on p. 29.
Pass-Through Certificates...... as defined on p. 45.
Pass-Through Rate.............. the interest rate for each Class of Certifi-
cates of a Series, as described in the appli-
cable Prospectus Supplement, p. 2.
Permitted Investments.......... as defined on p. 6.
Plans.......................... ERISA Plans together with Code Plans, p. 50.
Policy Statement............... the Supervisory Policy Statement on Securi-
ties Activities dated January 28, 1992, p. 52.
Prepayment Assumption.......... the anticipated rate of prepayment on the
Mortgage Loans used for calculations with re-
spect to amortization of original issue
discount, p. 37.
Prepayment Premium............. any premium paid or payable by the related
Borrower in connection with any principal
prepayment on any Mortgage Loan, p. 5.
Property Protection Expenses... any costs and expenses incurred in connection
with defaulted Mortgage Loans, acquiring ti-
tle or management of REO Properties or the
sale of defaulted Mortgage Loans or REO Prop-
erties, as more fully described in the Agree-
ment for each Series, p. 5.
Proposed Regulations........... proposed Treasury regulations issued under
Sections 1271-1275 of the Code, p. 36.
PTCE........................... as defined on p. 51.
Rating Agency.................. a nationally recognized statistical rating
organization that is providing a rating for
the Certificates, p. 3.
Ratio Strip Certificates....... as defined on p. 46.
Registration Statement......... Registration Statement 33-82354 filed with
the Commission relating to the Certificates,
p. 2.
Regular Interests.............. regular interests in a REMIC, p. 35.
Regular Interest Certificates.. as defined on p. 35.
Regulations.................... regulations issued by the Department with re-
spect to Plans, p. 50.
Relief Act..................... the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended, p. 31.
REMIC.......................... a "real estate mortgage investment conduit,"
p. 1.
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REMIC Regulations.............. as defined on p. 43.
REO Account.................... the special trust account established and
maintained in order to be used in connection
with REO Properties and other Mortgaged Prop-
erties, p. 6.
REO Property................... any Mortgaged Property which has been ac-
quired on behalf of the Trust Fund for each
Series through foreclosure or deed in lieu of
foreclosure, p. 5.
Reserve Fund................... as defined on p. 20.
Residual Interests............. residual interests in a REMIC, p. 35.
Residual Interest Certificate.. as defined on p. 42.
Senior Certificates............ a Class of Certificates which are senior in
right and priority to the extent described in
the applicable Prospectus Supplement to pay-
ment of principal and interest to all Subor-
dinate Certificates of such Series, p. 19.
Series......................... the Certificates may be offered from time to
time in a series and each series will be
identified in a separate Prospectus Supple-
ment, p. 1.
Servicing Fee.................. the fee paid to the Master Servicer with re-
spect to each Mortgage Loan, as described in
the applicable Prospectus Supplement, p. 16.
Simple Interest Loans.......... Mortgage Loans as to which the monthly pay-
ments thereon are applied first to interest
accrued from the last date to which interest
has been paid to the date such monthly pay-
ment is received and the balance thereof is
applied to principal, p. 9.
Simplification Act............. as defined on p. 44.
Single Variable Rate........... as defined on p. 36.
SMMEA Certificates............. Certificates which constitute "mortgage re-
lated securities" for purposes of the En-
hancement Act so long as they are rated in
one of the two highest rating categories by
at least one Rating Agency, p. 52.
Special Servicer............... the entity selected by the Depositor to be
the special servicer under the Agreement for
a Series, as described in the related Pro-
spectus Supplement, p. 14.
Specially Serviced Mortgage
Loans......................... the Mortgage Loans for which certain servic-
ing obligations have been transferred from
the Master Servicer to the Special Servicer
together with the REO Properties, p. 14.
Stripped Certificates.......... as defined on p. 45.
Subordinate Certificates....... a Class of Certificates which are subordinate
in right and priority to the extent described
in the applicable Prospectus Supplement to
payment of principal and interest to all Se-
nior Certificates of such Series, p. 19.
Substitute Mortgage Loans...... Mortgage Loans that are substituted for De-
leted Mortgage Loans, p. 13.
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TIN............................ as defined on p. 48.
Title VIII..................... Title VIII of the Garn-St Germain Act, p. 32.
Trust Fund..................... the trust fund created by the Agreement for
each Series and whose principal assets are
the Mortgage Loans, p. 1.
Trustee........................ the bank or trust company selected by the De-
positor to act as Trustee under the Agreement
for each Series, p. 8.
Trustee/Master Servicer Fee.... as defined on p. 45.
Unaffiliated Seller............ the seller of a Mortgage Loan to the Deposi-
tor or any of its affiliates, p. 12.
Underwriter's Exemption........ as defined on p. 51.
Underwriters................... as defined on p. 53.
Voting Rights.................. the portion of the voting rights of all of
the Certificates that is allocated to any
Certificate, p. 18.
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLE-
MENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTA-
TION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE DEPOSITOR OR THE
UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE DEPOSITOR SINCE SUCH DATE.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information...................................................... S-3
Summary of Terms........................................................... S-7
Risk Factors............................................................... S-25
Description of the Mortgage Pool and the Underlying Mortgaged Properties... S-32
Description of the Certificates............................................ S-45
Maturity Considerations.................................................... S-58
Yield Considerations....................................................... S-61
Servicing.................................................................. S-62
Certain Federal Income Tax Consequences.................................... S-69
ERISA Considerations....................................................... S-70
Use of Proceeds............................................................ S-72
Plan of Distribution....................................................... S-72
Legal Matters.............................................................. S-73
Ratings.................................................................... S-73
Index of Terms............................................................. S-74
PROSPECTUS
Prospectus Supplement...................................................... 2
Additional Information..................................................... 2
Incorporation of Certain Information by Reference.......................... 2
The Depositor.............................................................. 3
Use of Proceeds............................................................ 3
Description of the Certificates............................................ 3
The Mortgage Pools......................................................... 9
Servicing of the Mortgage Loans............................................ 14
Enhancement................................................................ 19
Certain Legal Aspects of the Mortgage Loans................................ 21
Certain Federal Income Tax Consequences.................................... 35
State Tax Considerations................................................... 50
ERISA Considerations....................................................... 50
Legal Investment........................................................... 52
Plan of Distribution....................................................... 53
Legal Matters.............................................................. 54
Glossary................................................................... 55
</TABLE>
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CS First Boston
Mortgage Securities Corp.
Depositor
Wells Fargo Bank,
National Association
Seller, Master Servicer, and
Initial Special Servicer
[LOGO OF WELLS FARGO APPEARS HERE]
$207,274,000
(Approximate)
Commercial Mortgage
Pass-Through Certificates
Series 1995-WF1
$81,561,000 (approximate) Senior Class A-1 Certificates
$76,943,000 (approximate) Senior Class A-2 Certificates
$14,361,000 (approximate) Subordinated Class B Certificates
$19,508,000 (approximate) Subordinated Class C Certificates
$14,631,000 (approximate) Subordinated Class D Certificates
PROSPECTUS SUPPLEMENT
CS First Boston
Morgan Stanley & Co.
Incorporated
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